Energizer 2008 Annual Report Download - page 41

ENERGIZER HOLDINGS, INC. 2008 Annual Report 39
that 20% or more of the outstanding ENR stock is actually acquired
(other than in connection with a Permitted Offer), the exercise price of
each Right will be adjusted so that the holder (other than the person
or member of the group that made the acquisition) may then purchase
a share of ENR stock at one-third of its then-current market price. If
the Company merges with any other person or group after the Rights
become exercisable, a holder of a Right may purchase, at the exercise
price, common stock of the surviving entity having a value equal to
twice the exercise price. If the Company transfers 50% or more of its
assets or earnings power to any other person or group after the Rights
become exercisable, a holder of a Right may purchase, at the exercise
price, common stock of the acquiring entity having a value equal to
twice the exercise price.
The Company can redeem the Rights at a price of $0.01 per Right at
any time prior to the time a person or group actually acquires 20% or
more of the outstanding ENR stock (other than in connection with a
Permitted Offer). In addition, following the acquisition by a person or
group of at least 20%, but not more than 50% of the outstanding ENR
stock (other than in connection with a Permitted Offer), the Company
may exchange each Right for one share of ENR stock. The Company’s
Board of Directors may amend the terms of the Rights at any time prior
to the time a person or group acquires 20% or more of the outstanding
ENR stock (other than in connection with a Permitted Offer) and may
amend the terms to lower the threshold for exercise of the Rights. If the
threshold is reduced, it cannot be lowered to a percentage that is less
than 10% or, if any shareholder holds 10% or more of the outstanding
ENR stock at that time, the reduced threshold must be greater than
the percentage held by that shareholder. The Rights will expire on
April 1, 2010.
At September 30, 2008, there were 300 million shares of ENR stock
authorized, of which approximately 3.0 million shares were reserved for
issuance under the 2000 Incentive Stock Plan.
Beginning in September 2000, the Company’s Board of Directors has
approved a series of resolutions authorizing the repurchase of shares
of ENR common stock, with no commitments by the Company to
repurchase such shares. On July 24, 2006, the Board of Directors
approved the repurchase of up to an additional 10 million shares and
8 million shares remain under such authorization as of September 30,
2008. There were no shares repurchased during fiscal year 2008.
14. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Foreign Currency Contracts At times, the Company enters into
foreign exchange forward contracts and, to a lesser extent, purchases
options and enters into zero-cost option collars to mitigate potential
losses in earnings or cash flows on foreign currency transactions. The
Company has not designated these financial instruments as hedges
for accounting purposes for the year ended September 30, 2008. The
Company recorded a pre-tax loss of $1.3 associated with the foreign
currency contracts. Foreign currency exposures are primarily related
to anticipated intercompany purchase transactions and intercompany
borrowings. Other foreign currency transactions to which the Company
is exposed include external purchase transactions and intercompany
receivables, dividends and service fees.
The contractual amounts of the Company’s forward exchange con-
tracts were $71.1 and $67.1 in 2008 and 2007, respectively. These
contractual amounts represent transaction volume outstanding and do
not represent the amount of the Company’s exposure to credit or mar-
ket loss. Foreign currency contracts are generally for one year or less.
Derivative Securities The Company uses raw materials that are sub-
ject to price volatility. Hedging instruments are used by the Company
as it desires to reduce exposure to variability in cash flows associated
with future purchases of zinc or other commodities. These hedging
instruments are accounted for under SFAS No. 133 “Accounting for
Derivative Instruments and Hedging Activities,” as cash flow hedges.
To qualify for hedge accounting, the Company uses a regression model
to determine effectiveness and expects there to be a high correlation
between the hedging instruments and raw material purchases. At
September 30, 2008, the fair market value of the Company’s out-
standing hedging instruments was an unrealized pre-tax loss of $9.8.
Realized gains and losses are reflected as adjustments to the cost of
the raw materials. Over the next twelve months, approximately $9.2 of
the loss recognized in Accumulated Other Comprehensive Income will
be recognized in earnings. The impact of hedge ineffectiveness was
immaterial in 2008. Contract maturities for these hedges extend into
fiscal year 2010.
Share Options A portion of the Company’s deferred compensation
liabilities is based on Company stock price and is subject to market risk.
At September 30, 2007, the Company held a net-cash settled prepaid
share option with a major multinational financial institution to mitigate
the impact of changes in the Company’s deferred compensation
liabilities. In December 2007, the prepaid feature was removed from
the transaction and the Company received cash of $60.5, which was
used to repay existing debt. Of the $60.5 received, $46.0 was a return
of investment and was classified within investing activities on the State-
ment of Cash Flows. The remaining $14.5 was a return on investment
and was classified as a cash inflow from operating activities on the
Statement of Cash Flows. As a result of this change in the share
option, the Company will incur yearly fees at LIBOR plus 230 basis
points until the contract is settled. The fair market value of the share
option was $2.4, as included in other current liabilities, and $59.3, as
included in other current assets, at September 30, 2008 and 2007,
respectively, with approximately 0.5 million share options outstanding
at September 30, 2008 and 2007. The change in fair value of the total
share option for the twelve months ended September 30, 2008 and
2007 resulted in expense of $16.2 and income of $23.2, respectively,
and was recorded in SG&A.
Concentration of Credit Risk The counterparties to foreign currency
contracts consist of a number of major multinational and interna-
tional financial institutions and are generally institutions with which
the Company maintains lines of credit. The Company does not enter
into foreign exchange contracts through brokers nor does it trade
foreign exchange contracts on any other exchange or over-the-counter
markets. Risk of currency positions and mark-to-market valuation of
positions are strictly monitored at all times.