Energizer 2008 Annual Report Download - page 42

40 ENERGIZER HOLDINGS, INC. 2008 Annual Report
Notes to Consolidated Financial Statements
(Dollars in millions, except per share and percentage data)
The Company continually monitors positions with, and credit ratings
of, counterparties both internally and by using outside rating agencies.
The Company has implemented policies that limit the amount of agree-
ments it enters into with any one party. While nonperformance by these
counterparties exposes the Company to potential credit losses, such
losses are not anticipated although the current economic environment
makes such assessments more challenging.
The Company sells to a large number of customers primarily in the
retail trade, including those in mass merchandising, drugstore, super-
market and other channels of distribution throughout the world. The
Company performs ongoing evaluations of its customers’ financial
condition and creditworthiness, but does not generally require collat-
eral. The Company’s largest customer had obligations to the Company
with a carrying value of $122.3 at September 30, 2008. While the com-
petitiveness of the retail industry presents an inherent uncertainty, the
Company does not believe a significant risk of loss from a concentra-
tion of credit risk exists with respect to accounts receivable.
Financial Instruments The Company’s financial instruments include
cash and cash equivalents, short-term and long-term debt and foreign
currency contracts. Due to the nature of cash and cash equivalents
and short-term borrowings, including notes payable, carrying amounts
on the balance sheet approximate fair value.
At September 30, 2008 and 2007, the fair market value of fixed rate
long-term debt was $2,078.5 and $1,423.1, respectively, compared to
its carrying value of $2,230.0 and $1,475.0, respectively. The increase
in fixed rate debt at September 30, 2008 was due to borrowings to
complete the Playtex acquisition. The book value of the Company’s
variable rate debt approximates fair value. The fair value of the long-
term debt is estimated using yields obtained from independent pricing
sources for similar types of borrowing arrangements.
The fair value of foreign currency contracts is the amount that the
Company would receive or pay to terminate the contracts, consider-
ing first, quoted market prices of comparable agreements, or in the
absence of quoted market prices, such factors as interest rates,
currency exchange rates and remaining maturities. Based on these
considerations, the Company would make an insignificant payment for
outstanding foreign currency contracts at September 30, 2008 and
2007. However, these payments are unlikely due to the fact that the
Company enters into foreign currency contracts to hedge identifiable
foreign currency exposures, and as such would generally not terminate
such contracts.
15. ENVIRONMENTAL AND LEGAL MATTERS
Government Regulation and Environmental Matters The opera-
tions of the Company, like those of other companies engaged in the
Household Products and Personal Care businesses, are subject to
various federal, state, foreign and local laws and regulations intended
to protect the public health and the environment. These regulations
primarily relate to worker safety, air and water quality, underground fuel
storage tanks and waste handling and disposal. The Company has
received notices from the U.S. Environmental Protection Agency, state
agencies and/or private parties seeking contribution, that it has been
identified as a “potentially responsible party” (PRP) under the Compre-
hensive Environmental Response, Compensation and Liability Act, and
may be required to share in the cost of cleanup with respect to seven
federal “Superfund” sites. It may also be required to share in the cost
of cleanup with respect to two state-designated sites or other sites
outside of the U.S.
Accrued environmental costs at September 30, 2008 were $11.8, of
which $1.7 is expected to be spent in fiscal 2009. This accrual is not
measured on a discounted basis. It is difficult to quantify with certainty
the cost of environmental matters, particularly remediation and future
capital expenditures for environmental control equipment. Neverthe-
less, based on information currently available, the Company believes
the possibility of material environmental costs in excess of the accrued
amount is remote.
As a result of the Playtex acquisition certain of the Company’s products
are subject to regulation by the United States Food and Drug Adminis-
tration (FDA).
Legal Proceedings The Company and its subsidiaries are parties to
a number of legal proceedings in various jurisdictions arising out of the
operations of its businesses. Many of these legal matters are in pre-
liminary stages and involve complex issues of law and fact, and may
proceed for protracted periods of time. The amount of liability, if any,
from these proceedings cannot be determined with certainty. However,
based upon present information, the Company believes that its ulti-
mate liability, if any, arising from pending legal proceedings, asserted
legal claims and known potential legal claims which are likely to be
asserted, should not be material to the Company’s financial position,
taking into account established accruals for estimated liabilities.
16. OTHER COMMITMENTS AND CONTINGENCIES
An international affiliate of the Company has $7.9 of funds deposited
in a bank account that is acting as collateral for a bank loan. The
Company has reflected this bank deposit as restricted cash, which is
included in other current assets on the Consolidated Balance Sheets.
The loan was initiated in June 2004 for a three month period. At each
maturity, the Company renewed the agreement. As the loan amount
changes, the funds on deposit will be required to increase or decrease
with the loan amount. The impact of this transaction is reflected in the
investing section of the Consolidated Statements of Cash Flows.
Total rental expense for all operating leases was $28.9, $28.0 and
$27.1 in 2008, 2007 and 2006, respectively. Future minimum rental
commitments under noncancellable operating leases in effect as of
September 30, 2008, were $18.5 in 2009, $14.7 in 2010, $10.7 in
2011, $6.3 in 2012, $4.6 in 2013 and $7.2 thereafter. These leases
are primarily for office facilities.