Annual Report (10-k)

Date : 11/14/2017 @ 1:43PM
Source : Edgar (US Regulatory)
Stock : Energizer Holdings, Inc. (ENR)
Quote : 45.01  0.06 (0.13%) @ 4:01PM
Energizer share price Chart

Annual Report (10-k)



 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 10-K
_______________________________

 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended September 30, 2017
 
Commission File No. 001-36837

EHILOGO111115A03.JPG
                             
ENERGIZER HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Missouri
36-4802442
(State or other jurisdiction of
(I. R. S. Employer
incorporation or organization)
Identification No.)
 
533 Maryville University Drive
 
St. Louis, Missouri
63141
(Address of principal executive offices)
(Zip Code)
 
 
(314) 985-2000
(Registrant’s telephone number, including area code)

 
Title of each class
Name of each exchange on which registered
Common Stock, par value $.01 per share
New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes: ý       No: o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
 Yes: o      No: ý
 


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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: ý       No: o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 Yes: ý       No: o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
x
 
Accelerated filer
o
 
 
 
 
 
Non-accelerated filer
o
 
Smaller reporting company
o
 
 
 
 
 
(Do not check if smaller reporting company)   
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

The aggregate market value of the voting common equity held by nonaffiliates of the registrant as of the close of business on March 31, 2017, the last day of the registrant's most recently completed second quarter: $3,447,187,408.

(For purposes of this calculation only, without determining whether the following are affiliates of the registrant, the registrant has assumed that (i) its directors and executive officers are affiliates, and (ii) no party who has filed a Schedule 13D or 13G is an affiliate. Registrant does not have a class of non-voting equity securities.)
 
Number of shares of Energizer Holdings, Inc. Common Stock (“ENR Stock”), $.01 par value, outstanding as of close of business on November 10, 2017: 60,738,749 .
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of Energizer Holdings, Inc. Notice of Annual Meeting and Proxy Statement (“Proxy Statement”) for our Annual Meeting of Shareholders which will be held January 29, 2018. The Proxy Statement will be filed within 120 days of the end of the fiscal year ended September 30, 2017 . (Part III of Form 10-K).


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INDEX
 
 
 
PART I
 
 
 
Item
 
Page
1
1A
1B
2
3
4
4A
 
 
 
PART II
 
 
 
5
6
7
7A
8
9
9A
9B
 
 
 
PART III
 
 
 
10
11
12
13
14
 
 
 
PART IV
 
 
 
15
16


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Part I.
Item 1 . Business .
Our Company
Energizer Holdings, Inc. (Energizer), through its operating subsidiaries, is one of the world’s largest manufacturers, marketers and distributors of household batteries, specialty batteries and lighting products, and a leading designer and marketer of automotive fragrance and appearance products.

Energizer is the beneficiary of over 100 years of expertise in the battery and portable lighting products industries. Its brand names, Energizer® and Eveready®, have worldwide recognition for innovation, quality and dependability, and are marketed and sold around the world.

On July 1, 2015, Energizer completed its legal separation from our former parent company, Edgewell Personal Care Company (Edgewell), via a tax free spin-off (the Spin-off or Spin).

Energizer operates as an independent, publicly traded company on the New York Stock Exchange, trading under the symbol "ENR."

When we use the terms “Energizer,” the “Company,” “we,” “us” or “our” in this Annual Report on Form 10-K, we mean Energizer Holdings, Inc. and its subsidiaries on a consolidated basis, unless we state or the context implies otherwise.
We use the Energizer name and logo as our trademark as well as those of our subsidiaries. Product names appearing throughout are trademarks of Energizer. This section also may refer to brand names, trademarks, service marks and trade names of other companies and organizations, and these brand names, trademarks, service marks and trade names are the property of their respective owners.
Unless indicated otherwise, the information concerning our industry contained in this Annual Report is based on Energizer’s general knowledge of and expectations concerning the industry. Energizer’s market position, market share and industry market size are based on estimates using Energizer’s internal data and estimates, based on data from various industry analyses, its internal research and adjustments and assumptions that it believes to be reasonable. Energizer has not independently verified data from industry analyses and cannot guarantee their accuracy or completeness. In addition, Energizer believes that data regarding the industry, market size and its market position and market share within such industry provide general guidance but are inherently imprecise. Further, Energizer’s estimates and assumptions involve risks and uncertainties and are subject to change based on various factors, including those discussed in the “Risk Factors” section. These and other factors could cause results to differ materially from those expressed in the estimates and assumptions.
Our Reporting Segments
As of October 1, 2016, the Company changed its internal reporting structure and is managing operations via three major geographic reportable segments:
Americas, which is comprised of North and Latin America;
Europe, Middle East and Africa (EMEA); and
Asia Pacific, which is comprised of our markets in Asia, Australia and New Zealand.
    
Prior to this year, the Americas segment was reported as two separate geographic reportable segments. The Company changed its reporting structure to better reflect how the Company is managing the operations as well as what the chief operating decision maker is reviewing to make organizational decisions about resource allocation. The prior period segment information has been recast to reflect the current reportable segment structure of the Company. See Note 20, Segments, to our Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information regarding net sales by reportable segment.
Our Products
Today, Energizer offers batteries using many technologies including lithium, alkaline, carbon zinc, nickel metal hydride, zinc air, and silver oxide. These products are sold under the Energizer and Eveready brands in the performance, premium and price segments and include primary, rechargeable, specialty and hearing aid products. In addition, Energizer has an extensive line of lighting products designed to meet a variety of consumer needs. We manufacture,

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distribute, and market lighting products including headlights, lanterns, children’s lights and area lights. In addition to the Energizer and Eveready brands, we market our flashlights under the Hard Case®, Dolphin®, and WeatherReady® sub-brands. In addition to batteries and portable lights, Energizer licenses the Energizer and Eveready brands to companies developing consumer solutions in gaming, automotive batteries, portable power for critical devices (like smart phones), LED light bulbs and other lighting products.

Energizer has a long history of innovation within our categories. Since our commercialization of the first dry-cell battery in 1893 and the first flashlight in 1899, we have been committed to developing and marketing new products to meet evolving consumer needs and consistently advancing battery technology as the universe of devices powered by batteries has evolved. Over the past 100+ years we have developed or brought to market:

the first flashlight;
the first mercury-free alkaline battery;
the first mercury-free hearing aid battery; and
Energizer Ultimate Lithium®, the world’s longest-lasting AA and AAA battery for high-tech devices.

Our approach is grounded in meeting the needs of consumers. In household batteries, we offer a broad portfolio of batteries that deliver long-lasting performance, reliability and quality, which we believe provide consumers the best overall experience. In addition to primary battery technology we offer consumers primary rechargeable options, as well as hearing aid and specialty batteries. This broad portfolio allows us to penetrate a wide range of markets and consumer segments.

Our innovative line of portable lighting products is designed to meet a breadth of consumer needs, from outdoor activities to emergency situations. With our experience and insight, we are bringing lighting solutions to market that are designed to enhance the lives of consumers worldwide.

In addition, Energizer's portfolio of innovative products also includes automotive fragrance and appearance products marketed under the Refresh Your Car!®, California Scents®, Driven®, Bahama & Co.®, LEXOL®, and Eagle One® brands.

The table below sets forth our net sales by product class for the last three fiscal years:
 
For the Years Ended September 30,
(dollar amounts in millions)
2017
 
2016
 
2015
Net Sales
 
 
 
 
 
Batteries
$
1,548.2

 
$
1,498.0

 
$
1,516.7

Other
207.5

 
136.2

 
114.9

Total net sales
$
1,755.7

 
$
1,634.2

 
$
1,631.6


To ensure a full understanding, you should read the selected historical financial data presented below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and accompanying notes included elsewhere in this Annual Report.

Our Industry

               We are a branded manufacturing and distribution company that markets and sells in the battery, lights and auto care categories.  These categories are highly competitive, both in the U.S. and on a global basis. We invest in our brands and innovation to meet the needs of consumers, and with our large global footprint, we both manufacture and source our products. Competition within our categories is based upon brand perceptions, product performance, price, retail execution and customer service. Key drivers of the battery business are device technology, consumer demographics and disasters. Competition in this category remains aggressive in the U.S. and other markets and could continue to put additional pressure on our results going forward, particularly as consumers shift consumption between channels such as e-commerce and discounters.

In household batteries, Energizer offers batteries based on carbon zinc, alkaline, lithium, nickel metal hydride, zinc air, and silver oxide technologies. These products are sold under the Energizer and Eveready brands in the performance, premium and price segments and include primary, rechargeable, specialty and hearing aid products. In the higher-price premium and performance segments, characterized by the alkaline and lithium technologies, our primary competitor is Duracell International, Inc. (Duracell). Duracell, which primarily produces batteries using alkaline technology, is a significant global competitor. In the price-conscious market segment, characterized by price alkaline and carbon zinc technologies, we compete with a number

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of local country and regional manufacturers of private-label, or “non-branded,” batteries, as well as branded battery manufacturers such as Spectrum Brands, Inc. and Panasonic Corporation, primarily in Latin America, Asia and EMEA.  Alkaline and lithium batteries are generally both more technologically advanced and expensive, with a longer battery life, than carbon zinc batteries. Our sales in North America, Europe and more developed economies throughout the world are concentrated in alkaline batteries.  We believe that private-label, or “non-branded,” sales by large retailers also have an impact on the market in some parts of the world, particularly in certain European markets such as Germany and Spain.

The portable lights category volume is flat to slightly down due to LED technology.  Our competition is highly fragmented with diverse competitors by markets, including private-label.  Our portfolio includes portable lights under the Energizer and Eveready brands globally as well as the Dolphin brand in Australia and New Zealand.  Across all brands we have a portfolio that includes hand-held, hands-free and area lighting. 

Within the auto care category, Energizer has a broad portfolio of brands, including Refresh Your Car!, Driven, California Scents, and Bahama & Co. within the auto fragrance sub-category, and LEXOL and Eagle One within the auto appearance sub-category.

We sell to our customers, which include brick and mortar retailers as well as e-commerce retailers, through a combination of a direct sales force and exclusive and non-exclusive third party distributors and wholesalers, based on our international go-to-market strategy for a particular market.    

Sales and Distribution
We distribute our products to consumers through numerous retail locations worldwide, including mass merchandisers and warehouse clubs, food, drug and convenience stores, electronics specialty stores and department stores, hardware and automotive centers, military stores and e-commerce. Although a large percentage of our sales are attributable to a relatively small number of retail customers, in fiscal year 2017, only Wal-Mart Stores, Inc. accounted for ten percent or more ( 12.1% ) of the Company's annual sales.

Our products are marketed primarily through a direct sales force, but also through exclusive and non-exclusive distributors and wholesalers. Our products are sold through both “modern” and “traditional” trade. “Modern” trade, which is most prevalent in North America, Western Europe, and more developed economies throughout the world, generally refers to sales through large retailers with nationally or regionally recognized brands. “Traditional” trade, which is more common in developing markets in Latin America, Asia, the Middle East and Africa, generally refers to sales by wholesalers or small retailers who may not have a national or regional presence.

Because of the short period between order and shipment date (generally less than one month) for most of our orders, the dollar amount of current backlog is not material and is not considered to be a reliable indicator of future sales volume. Generally, sales to our top customers are made pursuant to purchase orders and we do not have guarantees of minimum purchases from them. As a result, these customers may cancel their purchase orders or reschedule or decrease their level of purchases from us at any time.

Sources and Availability of Raw Materials
The principal raw materials used by Energizer include electrolytic manganese dioxide, zinc, silver, nickel, lithium, graphite, steel, plastic, brass wire, and potassium hydroxide. The prices and availability of these raw materials have fluctuated over time. We believe that adequate supplies of the raw materials required for our operations are available at the present time, although we cannot predict the future availability or prices of such materials. These raw materials are generally available from a number of different sources, and the prices of those raw materials are susceptible to currency fluctuations and price fluctuations due to supply and demand, transportation, government regulations, price controls, economic climate, or other unforeseen circumstances. In the past, we have not experienced any significant interruption in availability of raw materials. We believe we have extensive experience in purchasing raw materials in the commodity markets. From time to time, our management has purchased materials or entered into forward commitments for various ingredients to assure supply and to protect margins on anticipated sales volume.

Our Trademarks, Patents and Technology

Our ability to compete effectively in the battery and portable lighting categories depends, in part, on our ability to protect our brands and maintain the proprietary nature of our technologies and manufacturing processes through a combination

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of trademark, patent and trade secret protection. We own thousands of Energizer and Eveready trademarks globally, which we consider to be of substantial importance and which are used individually or in conjunction with other sub-brand names. As of September 30, 2017, the Energizer trademark was registered in 169 countries, and the Eveready trademark was registered in 144 countries, including in each case, in the United States. Additionally, the Energizer Bunny design trademark was registered in 44 countries, including in the United States, and the Mr. Energizer design trademark was registered in 79 countries and the European Union. The number of Energizer, Eveready, Energizer bunny design, and Mr. Energizer design trademarks, including related designs, slogans and sub-brands, is currently over 2,700 worldwide. In our auto care business, as of September 30, 2017, we also have the Refresh Your Car! trademark registered in 23 countries, the California Scents trademark registered in 23 countries, the Driven trademark registered in 25 countries, the Bahama & Co. trademark registered in 23 countries, the LEXOL trademark registered in 9 countries, and the Eagle One trademark registered in 104 countries. Each of the referenced trademarks is registered in the United States. The number of trademarks for each of these brand’s portfolio globally, including related designs, slogans, and sub-brands, is currently over 360 worldwide.

We also own a number of patents, patent applications and other technology that relate primarily to battery, lighting and automotive fragrance and appearance products, which we believe are significant to our business. As of September 30, 2017, we owned approximately 576 United States utility and design patents, which have a range of expiration dates from November 2017 to July 2034, and approximately 45 United States pending patent applications. We expect to routinely prepare additional patent applications for filing in the United States and abroad. As of September 30, 2017, we owned (directly or beneficially) approximately 697 foreign patents and approximately 90 patent applications pending in foreign countries.

Seasonality
Sales and operating profit for our business tend to be seasonal, with increased purchases by consumers and increases in retailer inventories occurring for batteries during our fiscal first quarter and for automotive fragrance and appearance products during our fiscal second and third quarters. In addition, natural disasters such as hurricanes can create conditions that drive short-term increases in the need for portable power and lighting products and thereby increase our battery and flashlight sales. As a result of this seasonality, our inventory and working capital needs fluctuate throughout the year.

Employees
As of September 30, 2017, we have approximately 4,400 employees, including approximately 1,300 employees based in the U.S. Roughly 30 employees are unionized, primarily at our Marietta, Ohio facility. Overall, we consider our employee relations to be good.

Governmental Regulations and Environmental Matters
Our operations are subject to various federal, state, foreign and local laws and regulations intended to protect public health and the environment.

Contamination at current and former facilities as well as third-party waste disposal sites continues to be monitored.  In connection with some sites, we are in dialogue with federal or state agencies and/or private parties seeking contributions as a “potentially responsible party” under the Comprehensive Environmental Response, Compensation and Liability Act.  The amount of our ultimate liability in connection with such facilities and sites will depend on many factors, including the type and extent of contamination, whether remediation should occur, the remediation methods and technology to be used, the extent to which other parties may share liability and, in the case of waste disposal sites, the volume and toxicity of material at the site. In fiscal year 2017, we spent approximately $1 million on environmental monitoring/remedial matters. However, these costs can fluctuate from discovery of additional contamination or the imposition of further cleanup obligations.

Total environmental capital expenditures and operating expenses continue to increase, although due to optimization efforts, the expenditures are not expected to have a material effect on total capital and operating expenditures, consolidated earnings or competitive positioning at this time. Environmental spending estimates could be modified as a result of changes in legal requirements or the enforcement or interpretation of existing requirements. Any imposition of new or more stringent environmental requirements and increased enforcement may increase the risk and expense of doing business in such countries.




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Available Information
Energizer regularly files periodic reports with the SEC, including annual reports on Form 10-K and quarterly reports on Form 10-Q, as well as, from time to time, current reports on Form 8-K, and amendments to those reports. The SEC maintains an Internet site containing these reports, and proxy and information statements, at www.sec.gov. These filings are also available free of charge on Energizer's website, at www.energizerholdings.com, as soon as reasonably practicable after their electronic filing with the SEC. Information on Energizer's website does not constitute part of this Form 10-K.
Item 1A. Risk Factors .

You should carefully consider the following risks and other information in this filing in evaluating Energizer and Energizer common stock. Any of the following risks and uncertainties could materially adversely affect our business, financial condition or results of operations.

Risks Related to Our Business

We face risks associated with global economic conditions.

Unfavorable global economic conditions and uncertainty about future economic prospects could reduce consumer demand for our products. This could occur as a result of a reduction in discretionary spending or a shift of purchasing patterns to lower cost options such as private label brands sold by retail chains or price brands. This shift could drive the market towards lower margin products or force us to reduce prices for our products in order to compete. Similarly, our retailer customers could reduce their inventories, shift to different products or require us to lower our prices to retain the shelf placement of our products. Declining financial performance by certain of our retailer customers could impact their ability to pay us on a timely basis, or at all. Worsening economic conditions could harm our sales and profitability. Additionally, disruptions in financial markets could reduce our access to debt and equity capital markets, negatively affecting our ability to implement our business strategy.

Competition in our industries may hinder our ability to execute our business strategy, achieve profitability, or maintain relationships with existing customers.

The categories in which we operate are mature and highly competitive, both in the United States and globally, as a limited number of large manufacturers compete for consumer acceptance, limited retail shelf space and e-commerce opportunities. Because of the highly competitive environment in which we operate, as well as increasing retailer concentration, our retailer customers, including online retailers, frequently seek to obtain pricing concessions or better trade terms, resulting in either reduction of our margins or losses of distribution to lower-cost competitors.

Competition is based upon brand perceptions, innovation, product performance, customer service and price. Our ability to compete effectively may be affected by a number of factors, including:

our competitors may have substantially greater financial, marketing, research and development and other resources and greater market share in certain segments than we do, which could provide them with greater scale and negotiating leverage with retailers and suppliers;
our competitors may have lower production, sales and distribution costs, and higher profit margins, which may enable them to offer aggressive retail discounts and other promotional incentives;
our competitors have obtained, and may in the future be able to obtain, exclusivity or sole source at particular retailers or favorable in-store placement; and
we may lose market share to certain retailers, including club stores, grocery, dollar stores, mass merchandisers and internet-based retailers, which may offer “private label” brands that are typically sold at lower prices and compete with the Company’s products in certain categories.

The changing retail environment could affect our business, financial condition and results of operations.

Our sales are largely concentrated in the traditional retail grocery, mass retail outlet, warehouse club and dollar store channels. However, alternative retail channels, including hard discounters, e-commerce retailers and subscription services, have become more prevalent and consumer products are increasingly being sold through such alternative retail channels. Although we are engaged in e-commerce with respect to many of our products, if we are not successful in expanding sales in such alternative retail channels, our business, financial condition and results of operations may be negatively impacted. In addition,

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the growth of the alternative retail channels that are focused on limiting the number of items they sell and selling predominantly “private label” products may reduce our ability to market and sell our products through such retailers. The retail environment is changing with the growth of alternative retail channels and this could significantly change the way traditional retailers do business. If these alternative retail channels were to take significant market share away from traditional retailers and/or we are not successful in these alternative retail channels, our margins and results of operations may be negatively impacted.

Loss of reputation of our leading brands or failure of our marketing plans could have an adverse effect on our business.

We depend on the continuing reputation and success of our brands, particularly our Energizer and Eveready brands. Our operating results could be adversely affected if any of our leading brands suffers damage to its reputation due to real or perceived quality issues. Any damage to the Energizer and Eveready brands could impair our ability to charge premium prices for our products, resulting in the reduction of our margins or losses of distribution to lower price competitors.

The success of our brands can suffer if our marketing plans or new product offerings do not improve, or have a negative impact on, our brands’ image or ability to attract and retain consumers. Additionally, if claims made in our marketing campaigns become subject to litigation alleging false advertising, which is common in our industry, it could damage our brand, cause us to alter our marketing plans in ways that may materially and adversely affect sales, or result in the imposition of significant damages against us. Further, a boycott or other campaign critical of us, through social media or otherwise, could negatively impact our brands’ reputation and consequently our products’ sales.

Loss of any of our principal customers could significantly decrease our sales and profitability.

Generally, sales to our top customers are made pursuant to purchase orders and we do not have guarantees of minimum purchases from them. As a result, these customers may cancel their purchase orders or reschedule or decrease their level of purchases from us at any time. The loss or a substantial decrease in the volume of purchases by any of our top customers would harm our sales and profitability. Additionally, increasing retailer customer concentration could result in reduced sales outlets for our products, as well as greater negotiating pressures and pricing requirements on us.

Sales of our battery products may be impacted by further changes in technology and device trends, which could impair our operating results and growth prospects.

We believe an increasing number of devices are using built-in battery systems, particularly in developed markets, leading to a declining volume trend in the battery category, which we expect will continue. This has and will likely continue to have a negative impact on the demand for primary batteries. This trend has and will continue to put additional pressure on results going forward, both directly through reduced consumption and indirectly as manufacturers aggressively price and promote their products to seek to retain market share or gain battery shelf space. Development and commercialization of new battery or device technologies not available to us could also negatively impact our results and prospects.

We are subject to risks related to our international operations, including currency fluctuations, which could adversely affect our results of operations.

Our business is currently conducted on a worldwide basis, with approximately half of our sales in fiscal year 2017 arising from foreign countries, and a significant portion of our production capacity and cash located overseas. Consequently, we are subject to a number of risks associated with doing business in foreign countries, including:

the possibility of expropriation, confiscatory taxation or price controls;
the inability to repatriate foreign-based cash for strategic needs in the U.S., either at all or without incurring significant income tax and earnings consequences, as well as the heightened counterparty, internal control and country-specific risks associated with holding cash overseas;
the effect of foreign income taxes, value-added taxes and withholding taxes, including the inability to recover amounts owed to us by a government authority without extended proceedings or at all;
the effect of the U.S. tax treatment of foreign source income and losses, and other restrictions on the flow of capital between countries;
adverse changes in local investment, local employment, local training or exchange control regulations;
restrictions on and taxation of international imports and exports;
currency fluctuations, including the impact of hyper-inflationary conditions in certain economies, particularly where exchange controls limit or eliminate our ability to convert from local currency;
political or economic instability, government nationalization of business or industries, government corruption and civil unrest, including political or economic instability in the countries of the Eurozone, Egypt, Russia, the

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Middle East and certain markets in Latin America;
legal and regulatory constraints, including tariffs and other trade barriers;
difficulty in enforcing contractual and intellectual property rights; and
a significant portion of our sales are denominated in local currencies but reported in U.S. dollars, and a high percentage of product costs for such sales are denominated in U.S. dollars. Therefore, although we may hedge a portion of the exposure, the strengthening of the U.S. dollar relative to such currencies can negatively impact our reported sales and operating profits.

The U.S. dollar has strengthened significantly against most currencies, and our segment profit could be impacted by adverse currency movements.

Our business is subject to increasing regulation in the U.S. and abroad.

The manufacture, packaging, labeling, storage, distribution, advertising and sale of our products are subject to extensive regulation in the U.S., including by the Consumer Product Safety Commission, the Environmental Protection Agency, and by the Federal Trade Commission with respect to advertising. Similar regulations have been adopted by authorities in foreign countries where we sell our products, and by state and local authorities in the U.S. Legislation is continually being introduced in the United States and other countries, and new or more restrictive regulations or more restrictive interpretations of existing regulations, particularly in the battery industry, are likely and could have an adverse impact on our business. Legislative and regulatory changes by taxing authorities have an impact on our effective tax rate, and we may be subject to additional costs arising from new or changed regulations, including those relating to health care and energy. Additionally, recent reform proposals have introduced greater uncertainty with respect to tax and trade policies, tariffs and government regulations affecting trade between the U.S. and other countries. Major developments in tax policy or trade relations could have a material effect on our balance sheet and results of operations.

A finding that we are in violation of, or not in compliance with, applicable laws or regulations in the areas above, as well laws or regulations related to competition/antitrust, anti-corruption, trade compliance, data privacy and other areas, could subject us to material civil remedies, including fines, damages, injunctions, product recalls, or criminal sanctions. Even if a claim is unsuccessful, is not merited or is not fully pursued, the negative publicity surrounding such assertions could jeopardize our reputation and brand image and have a material adverse effect on our businesses, as well as require resources to rebuild our reputation.

A failure of a key information technology system could adversely impact our ability to conduct business.

We rely extensively on information technology systems, including some that are managed by third-party service providers, in order to conduct business. These systems include, but are not limited to, programs and processes relating to internal and external communications, ordering and managing materials from suppliers, converting materials to finished products, shipping products to customers, processing transactions, summarizing and reporting results of operations, and complying with regulatory, legal or tax requirements. These information technology systems could be damaged or cease to function properly due to the poor performance or failure of third party service providers, catastrophic events, power outages, security breaches, network outages, failed upgrades or other similar events. If our business continuity plans do not effectively resolve such issues on a timely basis, we may suffer interruptions in conducting our business, which may adversely impact our operating results. In addition, we continuously assess and implement upgrades to improve our information technology systems globally. As such, during these implementation periods, we face a heightened risk of system interruptions and deficiencies or failures in our internal controls involving our information systems and processes.

Our operations depend on the use of information technology systems that are subject to data privacy regulations and could be the target of cyberattack.

Our systems and networks, as well as those of our retailer customers, suppliers, service providers, and banks, have and may in the future become the target of cyberattacks or information security breaches, which in turn could result in the unauthorized release and misuse of confidential or proprietary information about our company, employees, customers or consumers, as well as disrupt our operations or damage our facilities or those of third parties. Additionally, our systems are subject to regulation to preserve the privacy of certain data held on those systems. As a result, a failure to comply with applicable regulations or an unauthorized breach or cyberattack could negatively impact our revenues and increase our operating and capital costs. It could also damage our reputation with retailer customers and consumers and diminish the strength and reputation of our brands, or require us to pay monetary penalties. We may also be required to incur additional costs to modify or enhance our systems or in order to try to prevent or remediate any such attacks.


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If we cannot continue to develop new products in a timely manner, market them at favorable margins, and maintain attractive performance standards in our existing products, we may not be able to compete effectively.

The battery, portable lighting, automotive fragrance and appearance products industries have been notable for developments in product life, product design and applied technology, and our success depends on future innovations by us. The successful development and introduction of new products requires retail and consumer acceptance and overcoming the reaction from competitors. New product introductions in categories where we have existing products will likely also reduce the sales of our existing products. Our investments in research and development may not result in successful products or innovation that will recover the costs of such investments. Our customers or end consumers may not purchase our new products once introduced. Additionally, new products could require regulatory approval which may not be available or may require modification to the product which could impact the production process. Our competitors may introduce new or enhanced products that outperform ours, or develop manufacturing technology that permits them to manufacture at a lower cost relative to ours and sell at a lower price. If we fail to develop and launch successful new products or fail to reduce our cost structure to a competitive level, we may be unable to grow our business and compete successfully.

Our business also depends on our ability to continue to manufacture our existing products to meet the applicable product performance claims we have made to our customers. Any decline in these standards could result in the loss of business and negatively impact our performance and financial results. Finally, our ability to maintain favorable margins on our products requires us to manage our manufacturing and other production costs relative to our prices. We may not be able to increase our prices in the event that our production costs increase, which would decrease our profit margins and negatively impact our business and financial results.

We are subject to environmental laws and regulations that may expose us to significant liabilities.

We must comply with various environmental laws and regulations in the jurisdictions in which we operate, including those relating to the handling and disposal of solid and hazardous wastes, recycling of batteries and the remediation of contamination associated with the use and disposal of hazardous substances. A release of such substances due to accident or an intentional act could result in substantial liability to governmental authorities or to third parties. Pursuant to certain environmental laws, we could be subject to joint and several strict liability for contamination relating to our or our predecessors’ current or former properties or any of their respective third-party waste disposal sites. In addition to potentially significant investigation and remediation costs, any such contamination can give rise to claims from governmental authorities or other third parties for natural resource damage, personal injury, property damage or other liabilities. Contamination has been identified at certain of our current and former facilities as well as third-party waste disposal sites, and we are conducting investigation and remediation activities in relation to such properties. The discovery of additional contamination or the imposition of further cleanup obligations at these or other properties could have a material adverse effect on our businesses, results of operations or financial condition. We have incurred, and will continue to incur, capital and operating expenses and other costs in complying with environmental laws and regulations. As new laws and regulations are introduced, we could become subject to additional environmental liabilities in the future that could cause a material adverse effect on our results of operations or financial condition.

The resolution of our tax contingencies may result in additional tax liabilities, which could adversely impact our cash flows and results of operations.

Significant estimation and judgment are required in determining our tax provisions for taxes in the U.S. and jurisdictions outside the U.S. In the ordinary course of our business, there are transactions and calculations in which the ultimate tax determination is uncertain. We are regularly audited by tax authorities and, although we believe our tax positions are defensible and our tax provision estimates are reasonable, the final outcome of tax audits and related litigation could be materially different than that reflected in our income tax provisions and accruals. The unfavorable resolution of any audits or litigation could have an adverse impact on future operating results and our financial condition.

Changes in production costs, including raw material prices, could erode our profit margins and negatively impact operating results.

Pricing and availability of raw materials, energy, shipping and other services needed for our business can be volatile due to general economic conditions, labor costs, production levels, import duties and tariffs and other factors beyond our control. There is no certainty that we will be able to offset future cost increases. This volatility can significantly affect our production cost and may, therefore, have a material adverse effect on our business, results of operations and financial condition.


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Our manufacturing facilities, supply channels or other business operations may be subject to disruption from events beyond our control.

Operations of our manufacturing and packaging facilities worldwide and of our corporate offices, and the methods we use to obtain supplies and to distribute our products, may be subject to disruption for a variety of reasons, including availability of raw materials, work stoppages, industrial accidents, disruptions in logistics, loss or impairment of key manufacturing sites, product quality or safety issues, licensing requirements and other regulatory issues, trade disputes between countries in which we have operations, such as the U.S. and China, and acts of war, terrorism, pandemics, fire, earthquake, flooding or other natural disasters. The supply of our raw materials may be similarly disrupted. There is also a possibility that third-party manufacturers, which produce a significant portion of certain of our products, could discontinue production with little or no advance notice, or experience financial problems or problems with product quality or timeliness of product delivery, resulting in manufacturing delays or disruptions, regulatory sanctions, product liability claims or consumer complaints. If a major disruption were to occur, it could result in delays in shipments of products to customers or suspension of operations. We maintain business interruption insurance to potentially mitigate the impact of business interruption, but such coverage may not be sufficient to offset the financial or reputational impact of an interruption.

In addition, sales of certain of our products tend to be seasonal. As a result of this seasonality, our inventory and working capital needs fluctuate significantly throughout the year. Orders from retailers are often made late in the period preceding the applicable peak season, making forecasting of production schedules and inventory purchases difficult. If we are unable to accurately forecast and prepare for customer orders or our working capital needs, or there is a general downturn in business or economic conditions during these periods, our business, financial condition and results of operations could be materially and adversely affected.

We have significant debt obligations that could adversely affect our business and our ability to meet our obligations.

As of September 30, 2017, our total aggregate outstanding indebtedness was approximately $ 1.1 billion, with $248.3 million of additional capacity available under a senior secured revolving credit facility, inclusive of issued and outstanding letters of credit totaling $6.7 million.

This significant amount of debt could have important consequences to us and our shareholders, including:

requiring a substantial portion of our cash flow from operations to make payments on this debt, thereby limiting the cash we have available to fund future growth opportunities, such as research and development, capital expenditures and acquisitions;
restrictive covenants in our debt arrangements which limit our operations and borrowing, and place restrictions on our ability to pay dividends or repurchase common stock;
the risk of a future credit ratings downgrade of our debt or rising interest rates on our variable rate debt increasing future debt costs and limiting the future availability of debt financing;
increasing our vulnerability to general adverse economic and industry conditions and limiting our flexibility in planning for, or reacting to, changes in our business and industry, due to the need to use our cash to service our outstanding debt;
placing us at a competitive disadvantage relative to our competitors that are not as highly leveraged with debt and that may therefore be able to invest more in their business or use their available cash to pursue other opportunities, including acquisitions; and
limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise.

In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to repay all of our outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance our debt.

We may need additional financing in the future, and such financing may not be available on favorable terms, or at all, and may be dilutive to existing shareholders.

In addition to any debt obligations we incurred in connection with the separation from our former parent, we may need to seek additional financing for our general corporate purposes. For example, we may need to increase our investment in research and development activities or require funding to make acquisitions. We may be unable to obtain desired additional financing on terms favorable to us, or at all. For example, during periods of volatile credit markets, there is a risk that lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their credit commitments and obligations, including, but not limited to, extending credit up to the maximum permitted by a credit

12



facility and otherwise accessing capital or honoring loan commitments. If our lenders are unable to fund borrowings under their loan commitments or we are unable to borrow, it could be difficult to replace such loan commitments on similar terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund growth opportunities, successfully develop or enhance products, or respond to competitive pressures, any of which could negatively affect our business. If we raise additional funds through the issuance of equity securities, our shareholders will experience dilution of their ownership interest. If we raise additional funds by issuing debt, we may be subject to limitations on our operations and ability to pay dividends due to restrictive covenants. Generally, to the extent that we incur additional indebtedness, all of the risks described above in connection with our debt obligations could increase.

We may not be able to achieve cost savings as a result of any current or future restructuring efforts.

To operate more efficiently and control costs, we have entered into, and may seek to enter into additional restructuring and cost reduction plans. We may be unable to identify cost savings opportunities to be achieved by such plans in the future. Our ability to achieve the anticipated cost savings and other benefits from these initiatives within the expected time frame is subject to many estimates and assumptions and other factors that we may not be able to control. We may also incur significant charges related to restructuring plans, which would reduce our profitability in the periods such charges are incurred.

Execution of any restructuring program also presents a number of significant risks, including:

actual or perceived disruption of service or reduction in service standards to customers;
the failure to preserve adequate internal controls as we restructure our general and administrative functions, including our information technology and financial reporting infrastructure;
the failure to preserve supplier relationships and distribution, sales and other important relationships and to resolve conflicts that may arise;
loss of sales as we reduce or eliminate staffing for non-core product lines;
diversion of management attention from ongoing business activities; and
failure to maintain employee morale and retain key employees while implementing benefit changes and reductions in the workforce.

We may not be able to effectively design restructuring programs in the future, and when implementing restructuring plans we may not be able to predict whether we will realize the purpose and anticipated benefits of these measures and, if we do not, our business and results of operations may be adversely affected.

If we fail to adequately protect our intellectual property rights, competitors may manufacture and market similar products, which could adversely affect our market share and results of operations.

The vast majority of our total revenues are from products bearing proprietary trademarks and brand names. In addition, we own or license from third parties a number of patents, patent applications and other technology. We rely on trademark, trade secret, patent and copyright laws to protect our intellectual property rights. There is a risk that we will not be able to obtain and perfect or maintain our own intellectual property rights or, where appropriate, license intellectual property rights necessary to support new product introductions. In addition, even if such rights are protected in the United States, the laws of some other countries in which our products are or may be sold do not protect intellectual property rights to the same extent as the laws of the United States. We cannot be certain that our intellectual property rights will not be invalidated, circumvented or challenged in the future, and we could incur significant costs in connection with legal actions relating to such rights. As patents expire, we could face increased competition, which could negatively impact our operating results. If other parties infringe on our intellectual property rights, they may dilute the value of our brands in the marketplace, which could diminish the value that consumers associate with our brands and harm our sales.

Our future financial performance and success are dependent on our ability to execute our business strategies successfully.

Our products are currently marketed and sold through a dedicated commercial organization and exclusive and non-exclusive third-party distributors and wholesalers. As part of the separation from our former parent, we increased our use of exclusive and non-exclusive third-party distributors and wholesalers. We also decreased or eliminated our business operations in certain countries with large numbers of local and regional low-cost competitors in order to increase our profitability. In addition, we shifted from a decentralized management structure to a model in which many functions are managed centrally. We expect that these changes in our business strategy will enable us to reach new retail customers and consumers, and focus our business operations on more profitable markets. However, the use of distributors in markets where we have historically maintained a direct presence could adversely impact the reputation of our brands and negatively

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impact our results of operations. Despite our efforts, we cannot guarantee that we will be able to efficiently implement our strategies in a timely manner to exploit potential market opportunities, achieve the goals of our long-term business strategies, or meet competitive challenges. If we are unable to execute our business strategies successfully, our revenues and marketability may be adversely affected.

If we pursue strategic acquisitions, divestitures or joint ventures, we may not be able to successfully consummate favorable transactions or successfully integrate acquired businesses.

From time to time, we may evaluate potential acquisitions, divestitures or joint ventures that would further our strategic objectives. With respect to acquisitions, we may not be able to identify suitable candidates, consummate a transaction on terms that are favorable to us, or achieve expected returns and other benefits as a result of integration challenges. With respect to proposed divestitures of assets or businesses, we may encounter difficulty in finding acquirers or alternative exit strategies on terms that are favorable to us, which could delay the accomplishment of our strategic objectives, or our divestiture activities may require us to recognize impairment charges. Companies or operations acquired or joint ventures created may not be profitable or may not achieve sales levels and profitability that justify the investments made. Our corporate development activities may present financial and operational risks, including diversion of management attention from existing core businesses, integrating or separating personnel and financial and other systems, and may have adverse effects on our existing business relationships with suppliers and customers. Future acquisitions could also result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities or amortization expenses related to certain intangible assets, and increased operating expenses, which could adversely affect our results of operations and financial condition.

Our business involves the potential for claims of product liability and other tort claims against us, which could affect our results of operations and financial condition and result in product recalls or withdrawals.

We face exposure to claims arising out of alleged defects in our products, including for property damage, bodily injury or other adverse effects. We maintain product liability insurance, but this insurance does not cover all types of claims, particularly claims that do not involve personal injury or property damage or claims that exceed the amount of insurance coverage. Further, we may not be able to maintain such insurance in sufficient amounts, on desirable terms, or at all, in the future. In addition to the risk of monetary judgments not covered by insurance, product liability claims could result in negative publicity that could harm our products’ reputation and in certain cases require a product recall. Product withdrawals or product liability claims, and any subsequent remedial actions, could have a material adverse effect on our business, reputation, brand value, results of operations and financial condition.

We may not be able to attract, retain and develop key personnel.

Our future performance depends in significant part upon the continued service of our executive officers and other key personnel. The loss of the services of one or more of our executive officers or other key employees could have a material adverse effect on our business, prospects, financial condition and results of operations. Our success also depends on our continuing ability to attract, retain and develop highly qualified personnel, including future members of our management team. Competition for such personnel is intense, and there can be no assurance that we can retain and motivate our key employees or attract and retain other highly qualified personnel in the future. Additionally, the escalating costs of offering and administering health care, retirement and other benefits for employees could result in reduced profitability.

The United Kingdom’s possible departure from the European Union could adversely affect us.

The June 23, 2016 referendum by United Kingdom voters to exit the European Union (“Brexit”) adversely impacted global markets, including currencies, and resulted in a decline in the value of the British pound and the euro, as compared to the US dollar and other currencies. Volatility in exchange rates could be expected to continue in the short term as the United Kingdom negotiates its exit from the European Union. A weaker British pound and euro compared to the US dollar during a reporting period would cause local currency results of our United Kingdom and other European operations to be translated into fewer U.S. dollars. In the longer term, any impact from Brexit on our United Kingdom and other European operations will depend, in part, on the outcome of tariff, trade, regulatory, and other negotiations. These changes may adversely affect our operations and financial results.

We may experience losses or be subject to increased funding and expenses related to our pension plans.

We assumed pension plan liabilities related to our current and former employees in connection with the separation. Effective January 1, 2014, the pension benefit earned to date by active participants under the legacy U.S. pension plan was

14



frozen and future retirement service benefits are no longer accrued under this retirement program; however, our pension plan obligations remain significant. If the investment of plan assets does not provide the expected long-term returns, if interest rates or other assumptions change, or if governmental regulations change the timing or amounts of required contributions to the plans, we could be required to make significant additional pension contributions, which may have an adverse impact on our liquidity, our ability to comply with debt covenants and may require recognition of increased expense within our financial statements.

Our credit ratings are important to our cost of capital.

We expect that the major credit rating agencies will continue to evaluate our creditworthiness and give us specified credit ratings. These ratings would be based on a number of factors, including our financial strength and financial policies as well as our strategies, operations and execution. These credit ratings are limited in scope, and do not address all material risks related to investment in Energizer, but rather reflect only the view of each rating agency at the time the rating is issued. Nonetheless, the credit ratings we receive will impact our borrowing costs as well as our access to sources of capital on terms that will be advantageous to our business. Failure to obtain sufficiently high credit ratings could adversely affect the interest rate in future financings, our liquidity or our competitive position and could also restrict our access to capital markets. There can be no assurance that any credit ratings we receive will remain in effect for any given period of time or that a rating will not be lowered, suspended or withdrawn entirely by the applicable rating agencies if, in such rating agency’s judgments, circumstances so warrant.

Risks Related to the Spin-off

We have limited recent history of operating as an independent company, and our historical financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.
The historical information about Energizer prior to our separation from our former parent refers to Energizer’s business as operated by and integrated with our former parent. Our historical financial information prior to our separation from our former parent is derived from the consolidated financial statements and accounting records of our former parent. Accordingly, the historical financial information prior to our separation from our former parent does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly traded company during the periods presented or those that we will achieve in the future primarily as a result of the factors described below:

Prior to the separation, our business was operated by our former parent as part of its broader corporate organization, rather than as an independent company. Our former parent or one of its affiliates performed various corporate functions for us, such as legal, treasury, accounting, auditing, human resources, investor relations, public affairs and finance. Our historical financial results reflect allocations of corporate expenses from our former parent for such functions, which are likely to be less than the expenses we would have incurred had we operated as a separate publicly traded company.
Historically, we have shared economies of scope and scale with our former parent in costs, employees, vendor relationships and customer relationships. The loss of the benefits that we have enjoyed as a result of being integrated with our former parent could have an adverse effect on our results of operations and financial conditions.
As a part of our former parent, we took advantage of our former parent's overall size and scope to procure more advantageous distribution arrangements, including shipping costs. As a standalone company, we may be unable to obtain similar arrangements to the same extent as our former parent did, or on terms as favorable as those our former parent obtained.
The cost of capital for our business may be higher than our former parent's cost of capital prior to the separation.
In connection with the separation, we shifted a portion of our business towards exclusive and non-exclusive third-party distribution arrangements rather than directly selling product to our retail customers. Retail customers who prefer to buy directly from us may reduce or terminate their purchases from us as a result of this new strategy. In addition, we cannot ensure that we will be able to negotiate the most advantageous distribution agreements, or that the third-party distributors will operate under the same standards as we would have or will not take actions that could damage our reputations or brands.

Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as a company separate from our former parent. For additional information about the past financial performance of our business and the basis of presentation of the historical consolidated financial statements see

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“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and accompanying notes included elsewhere in this Annual Report.

In connection with our separation from our former parent, our former parent agreed to indemnify us for certain liabilities and we agreed to indemnify our former parent for certain liabilities. If we are required to pay under these indemnities to our former parent, our financial results could be negatively impacted. The indemnity from our former parent may not be sufficient to hold us harmless from the full amount of liabilities for which our former parent was allocated responsibility, and our former parent may not be able to satisfy its indemnification obligations in the future.

Pursuant to the separation agreement and certain other agreements with our former parent, our former parent agreed to indemnify us for certain liabilities, and we agreed to indemnify our former parent for certain liabilities, in each case for uncapped amounts. Indemnity payments that we may be required to provide to our former parent are not subject to any cap, may be significant and could negatively impact our business. Third parties could also seek to hold us responsible for any of the liabilities that our former parent has agreed to retain. Any amounts we are required to pay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used in furtherance of our operating business. Further, the indemnity from our former parent may not be sufficient to protect us against the full amount of such liabilities, and our former parent may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from our former parent any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, financial condition and results of operations.

Risks Related to Our Common Stock

We cannot guarantee the timing, amount or payment of dividends or share repurchases on our common stock.

Although we expect to pay regular cash dividends and conduct periodic share repurchase programs, the timing, declaration, amount and payment of future dividends to shareholders or repurchases of the Company’s common stock will fall within the discretion of our Board of Directors.

The Board’s decisions regarding the payment of dividends or repurchase of shares will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, covenants associated with certain of our debt service obligations, industry practice, legal requirements, regulatory constraints and other factors that our Board of Directors deems relevant. Our ability to pay dividends and repurchase shares will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend or repurchase shares in the future or continue to pay any dividend or conduct share repurchase programs.

Your percentage of ownership in Energizer may be diluted in the future.

In the future, your percentage ownership in Energizer may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that we grant to our directors, officers and employees. From time to time, we will issue additional stock-based awards to our employees under our employee benefits plans.
Such awards will have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock.

In addition, our amended and restated articles of incorporation authorizes us to issue, without the approval of our shareholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our Board of Directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of our common stock.

Certain provisions in our amended and restated articles of incorporation and bylaws, and of Missouri law, may deter or delay an acquisition of Energizer.

Our amended and restated articles of incorporation and amended and restated bylaws contain, and the General and Business Corporation Law of Missouri, which we refer to as “Missouri law,” contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the

16



bidder and to encourage prospective acquirers to negotiate with our Board of Directors rather than to attempt a hostile takeover by making the replacement of incumbent directors more time-consuming and difficult. These provisions include, among others:

the inability of our shareholders to call a special meeting;
rules regarding how we may present proposals or nominate directors for election at shareholder meetings;
the right of our Board of Directors to issue preferred stock without shareholder approval;
a provision that our shareholders may only remove directors “for cause” and with the approval of the holders of two-thirds of our outstanding voting stock at a special meeting of shareholders called expressly for that purpose;
the ability of our directors, and not shareholders, to fill vacancies on our Board of Directors; and
the requirement that any amendment or repeal of specified provisions of our amended and restated articles of incorporation (including provisions relating to directors, calling special meetings, shareholder-initiated business and director nominations, action by written consent and amendment of our amended and restated bylaws) must be approved by the holders of at least two-thirds of the outstanding shares of our common stock and any other voting shares that may be outstanding, voting together as a single class.

In addition, because we have not chosen to opt out of coverage of Section 351.459 of Missouri law, which we refer to as the “business combination statute,” these provisions could also deter or delay a change of control. The business combination statute restricts certain business combination transactions between us and an “interested shareholder,” generally any person who, together with his or her affiliates and associates, owns or controls 20% or more of the outstanding shares of our voting stock, for a period of five years after the date of the transaction in which the person becomes an interested shareholder, unless either such transaction or the interested shareholder’s acquisition of stock is approved by our Board on or before the date the interested shareholder obtains such status. The business combination statute also provides that, after the expiration of such five-year period, business combinations are prohibited unless (i) the holders of a majority of the outstanding voting stock, other than the stock owned by the interested shareholder, or any affiliate or associate of such interested shareholder, approve the business combination or (ii) the business combination satisfies certain detailed fairness and procedural requirements.

We believe that these provisions will help to protect our shareholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some shareholders and could deter or delay an acquisition that our Board of Directors determines is not in our best interests or the best interests of our shareholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.
    
1B. Unresolved Staff Comments

None.

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Item 2. Properties
Our principal executive office is in St. Louis, Missouri. Below is a list of Energizer's principal plants and facilities as of the date of filing. Management believes that the Company's production facilities are adequate to support the business and the properties and equipment have been well maintained.

North America
Asheboro, NC (an owned manufacturing plant and an owned packaging facility)
Bennington, VT (an owned manufacturing plant)
Garrettsville, OH (an owned manufacturing plant)
Marietta, OH (an owned manufacturing plant)
Westlake, OH (an owned research facility)
Glenshaw, PA (a leased manufacturing facility)

Asia
Bogang, People’s Republic of China (a leased manufacturing facility)
Cimanggis, Indonesia (an owned manufacturing facility on leased land)
Jurong, Singapore (an owned manufacturing facility on leased land)
Shenzhen, People’s Republic of China (a leased manufacturing facility)

Europe, Middle East, and Africa
Alexandria, Egypt (an owned manufacturing facility)

In addition to the properties identified above, Energizer and its subsidiaries own or operate sales offices, regional offices, storage facilities, distribution centers and terminals and related properties.
    
Through our global supply chain and global manufacturing footprint, we strive to meet diverse consumer demands within each of the markets we serve. Our portfolio of household and specialty batteries, and portable lighting, automotive fragrance and appearance products is distributed through a global sales force and global distributor model.

Item 3. Legal Proceedings

We are parties to a number of legal proceedings in various jurisdictions arising out of our business operations. Many of these legal matters are in preliminary 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, we believe that our liability, if any, arising from such pending legal proceedings, asserted legal claims and known potential legal claims which are likely to be asserted, are not reasonably likely to be material to our financial position, results of operations, or cash flows, taking into account established accruals for estimated liabilities.
See also the discussion captioned “Governmental Regulation and Environmental Matters” under Item 1 above.

Item 4. Mine Safety Disclosure

None.

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Item 4A. Executive Officers Of The Registrant.
A list of the executive officers of Energizer and their business experience follows. Ages shown are as of September 30, 2017. Executive officers are appointed by, and hold office at the discretion of, our Board of Directors.
Alan R. Hoskins - President and Chief Executive Officer. Mr. Hoskins was President and Chief Executive Officer of Energizer Household Products, a position he held with our former parent company from April 2012 to June 2015. Prior to that position, Mr. Hoskins held several leadership positions at our former parent company, including Vice President, Asia-Pacific, Africa and Middle East from 2008 to 2011, Vice President, North America Household Products Division from 2005 to 2008, Vice President, Sales and Trade Marketing from 1999 to 2005, and Director, Brand Marketing from 1996 to 1999. He started his career at Union Carbide in 1983 following several years in the retailer, wholesaler and broker industry. Mr. Hoskins holds a B.S. in Business Administration from Western New England University and a Masters of Business Administration from Webster University. He also completed the Senior Executive Program at Columbia University. Age: 56.

Timothy W. Gorman - Executive Vice President, Chief Financial Officer and Chief Accounting Officer. Mr. Gorman joined the Company in September 2014, and has served as the Chief Financial Officer since June 8, 2017. Prior to that Mr. Gorman served in finance and accounting leadership roles for the Company, including as Vice President of Finance, Controller and Chief Accounting Officer from July 2015 until June 2017 and Vice President, Controller – Household Products of our former parent company from September 2014 to July 2015. Prior to joining the Company, Mr. Gorman worked as an independent financial consultant and in a variety of senior roles during a twenty-five year career at PepsiAmericas, Inc. (previously known as Whitman Corporation), most recently as Senior Vice President and Controller. Mr. Gorman holds a B.S. in Accounting from Indiana University. Age: 57.

Gregory T. Kinder - Executive Vice President and Chief Supply Chain Officer. Mr. Kinder has strong experience in maximizing efficiencies across end-to-end Supply Chain and the ability to leverage the scale of our company globally. He joined our former parent company in May 2013, bringing with him over 30 years of Procurement, Supply Chain, and Operations experience. He has previously worked with leading manufacturing companies and suppliers across diverse industries and geographies, including experience working and living abroad for five years in Europe and six years in Asia (Singapore and Shanghai, China). Prior to joining the Company, Mr. Kinder served as Vice President and Chief Procurement Officer at Doosan Infracore International, Inc. from 2009 to 2013. He has also served as Vice President, Global Sourcing for Modine Manufacturing Company. Mr. Kinder also held a variety of purchasing and supply chain/operations related positions over 21 years with Johnson Controls, Inc., including Vice President of Purchasing, APAC. Mr. Kinder holds a B.A. in Procurement and Materials Management and Production Operations from Bowling Green State University. Age: 56.

Mark S. LaVigne - Executive Vice President and Chief Operating Officer since 2015. Mr. LaVigne was with our former parent company since 2010. Mr. LaVigne led our Spin-off from our former parent company in 2015, in addition to serving as Vice President, General Counsel and Secretary. Prior to joining the Company, Mr. LaVigne was a partner at Bryan Cave LLP from 2007 to 2010, where he advised our former parent company on several strategic acquisitions. Mr. LaVigne holds a J.D. from St. Louis University School of Law and a B.A. from the University of Notre Dame. Age: 46.

Emily K. Boss - Vice President, General Counsel. Ms. Boss brings over 25 years of experience and expertise to her role as Vice President, General Counsel. She joined our former parent company in September 2013 as Vice President and Associate General Counsel, Commercial and IP. Prior to joining the Company, Ms. Boss spent 14 years at Georgia-Pacific where she was Assistant General Counsel - Consumer Products & Intellectual Property from 2007 to 2013. Before that, she spent nine years at Diageo PLC, a beverage segment consumer packaged goods company where she last served as Vice President and Assistant General Counsel. Ms. Boss holds a J.D. from George Mason University School of Law and a B.S. in Political Science from James Madison University. Age: 55.

Sue K. Drath - Chief Human Resource Officer. Ms. Drath was Vice President, Global Rewards of our former parent company. In this role, Sue was responsible for the design, development, and implementation of all corporate-driven compensation and benefits programs across Energizer’s businesses and areas. Ms. Drath was with our former parent company since 1992, previously serving as Vice President, Global Compensation and Benefits. Ms. Drath graduated from the University of North Dakota with a B.A. degree in Business Administration.  Age: 47.
 



19



Part II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Company's Common Stock is listed on the New York Stock Exchange (NYSE). As of September 30, 2017, there were approximately 8,613 shareholders of record of the Company's Common Stock.
The following table sets forth the range of market prices for the period from October 1, 2015 through September 30, 2017.
(Dollars Per Share)
FY 2017
 
FY 2016
 
Low Price
 
High Price
 
Low Price
 
High Price
First Quarter
$41.97
-
$50.13
 
$32.56
-
$44.52
Second Quarter
$45.94
-
$56.54
 
$28.85
-
$41.88
Third Quarter
$47.80
-
$60.07
 
$40.09
-
$51.63
Fourth Quarter
$40.98
-
$48.84
 
$44.58
-
$53.41

The Company issued a $0.275 per share dividend in each quarter of 2017 for a total dividend of $1.10 per share and a $0.25 dividend in each fiscal quarter of 2016 for a total dividend of $1.00. The Company expects to continue to pay regular quarterly dividends. Future dividends are dependent on future earnings, capital requirements and the Company's financial condition and are declared at the sole discretion of the Company's Board of Directors. See Item 1A - Risk Factors - Risks Related to Our Common Stock - We cannot guarantee the timing, amount or payment of dividends or share repurchases on our common stock.

Issuer Purchases of Equity Securities. The following table reports purchases of equity securities during the fourth quarter of fiscal 2017 by Energizer and any affiliated purchasers pursuant to SEC rules, including any treasury shares withheld to satisfy employee withholding obligations upon vesting of restricted stock and the execution of net exercises.
Issuer Purchases of Equity Securities
Period
Total Number of Shares Purchased (1)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum Number That May Yet Be Purchased Under the Plans or Programs
July 1, 2017 - July 31, 2017
40,102

$
46.42


6,475,000

August 1, 2017 - August 31, 2017
1,197,081

$
41.86

1,196,998

5,278,002

September 1, 2017 - September 30, 2017

$


5,278,002

Total
1,237,183

$
42.01

1,196,998

 
(1) 40,185 shares purchased during the quarter relate to the surrender to the Company of shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock or execution of net exercises. From October 1, 2017 through November 10, 2017, an additional 14,065 shares were surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of restricted stock.
(2) On July 1, 2015, the Board of Directors approved a new share repurchase authorization for the repurchase of up to 7.5 million shares. 1,196,998 shares were repurchased on the open market during the quarter under this share repurchase authorization. Subsequent to the end of fiscal 2017 and through the date of this report, the Company has repurchased 215,267 shares of its common stock at an average price of $43.93 per share.
The graph below matches Energizer's cumulative 27-Month total shareholder return on common stock with the cumulative total returns of the S&P Midcap 400 index and the S&P Household Products index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 6/12/2015 to 9/30/2017.
These indices are included only for comparative purposes as required by Securities and Exchange Commission rules and do not necessarily reflect management's opinion that such indices are an appropriate measure of the relative performance of the Common Stock. They are not intended to forecast possible future performance of the Common Stock.

20



ENR2017.JPG
 
 
6/12/15
 
9/30/15
 
9/30/16
9/30/17
Energizer Holdings, Inc.
 
100.0

 
111.3

 
147.2

138.8

S&P Midcap 400
 
100.0

 
90.3

 
104.1

122.4

S&P Household Products
 
100.0

 
94.9

 
118.7

122.1




21



Item 6. Selected Financial Data.
All amounts discussed are in millions of U.S. dollars, unless otherwise indicated.
We derived the selected statements of earnings data for the years ended September 30, 2017, 2016, 2015, 2014 and 2013 and selected balance sheet data as of September 30, 2017, 2016, 2015, 2014, and 2013 as set forth below, from our audited Consolidated Financial Statements. The historical results do not necessarily indicate the results expected for any future period. To ensure a full understanding, you should read the selected historical financial data presented below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and accompanying notes included elsewhere in this Annual Report.

 
For the Years Ended September 30,
 
2017
 
2016
 
2015
 
2014
 
2013
Statements of Earnings Data
 
 
 
 
 
 
 
 
 
Net sales
$
1,755.7

 
$
1,634.2

 
$
1,631.6

 
$
1,840.4

 
$
2,012.2

Depreciation and amortization
50.2

 
34.3

 
41.8

 
42.2

 
55.9

Earnings/(loss) before income taxes
273.3

 
165.7

 
(0.7
)
 
215.2

 
162.0

Income taxes
71.8

 
38.0

 
3.3

 
57.9

 
47.1

Net earnings/(loss)
$
201.5

 
$
127.7

 
$
(4.0
)
 
$
157.3

 
$
114.9

Earnings/(loss) per share: (a)
 
 
 
 
 
 
 
 
 
     Basic
$
3.27

 
$
2.06

 
$
(0.06
)
 
$
2.53

 
$
1.85

     Diluted
$
3.22

 
$
2.04

 
$
(0.06
)
 
$
2.53

 
$
1.85

Average shares outstanding: (a)
 
 
 
 
 
 
 
 
 
     Basic
61.7

 
61.9

 
62.2

 
62.2

 
62.2

     Diluted
62.6

 
62.5

 
62.2

 
62.2

 
62.2

Dividend per common share (b)
$
1.10

 
$
1.00

 
$
0.25

 
$

 
$

 
At September 30,
 
2017
 
2016
 
2015
 
2014
 
2013
Balance Sheet Data
 
 
 
 
 
 
 
 
 
Working capital (c)
$
438.2

 
$
356.4

 
$
610.5

 
$
323.5

 
$
310.0

Property, plant and equipment, net
176.5

 
201.7

 
205.6

 
212.5

 
240.6

Total assets
1,823.6

 
1,731.5

 
1,618.6

 
1,194.6

 
1,238.3

Long-term debt
978.5

 
981.7

 
984.3

 

 


(a)
On July 1, 2015, Edgewell distributed 62.2 million shares of Energizer common stock to Edgewell shareholders in connection with its Spin-off of Energizer. See Note 1, Description of Business and Basis of Presentation, to the Consolidated Financial Statements for more information. Basic and diluted earnings per common share, and the average number of common shares outstanding were retrospectively restated for the number of Energizer shares outstanding immediately following this transaction.
(b)
The Company issued a $0.275 per share dividend in each quarter of 2017 for a total dividend of $1.10 per share, a $0.25 per share dividend in each quarter of 2016 for a total dividend of $1.00 per share and a $0.25 dividend in the fourth fiscal quarter of 2015.
(c)
Working capital is current assets less current liabilities.



22



Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion is a summary of the key factors management considers necessary in reviewing the Company's results of operations, operating segment results, and liquidity and capital resources. Statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) that are not historical may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

You should read the following MD&A in conjunction with the audited Consolidated Financial Statements and corresponding notes included elsewhere in this Annual Report. This MD&A contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements. Please see above “Risk Factors” and “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

All amounts discussed are in millions of U.S. dollars, unless otherwise indicated.

Forward-Looking Statements

This document contains both historical and forward-looking statements. Forward-looking statements are not based
on historical facts but instead reflect our expectations, estimates or projections concerning future results or events,
including, without limitation, the future sales, gross margins, costs, earnings, cash flows, tax rates and performance
of Energizer. These statements generally can be identified by the use of forward-looking words or phrases such as
"believe," "expect," "expectation," "anticipate," "may," "could," "intend," "belief," "estimate," "plan," "target," "predict,"
"likely," "will," "should," "forecast," "outlook," or other similar words or phrases. These statements are not
guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions
that are difficult to predict and could cause our actual results to differ materially from those indicated by those
statements. We cannot assure that any of our expectations, estimates or projections will be achieved. The forward-looking
statements included in this document are only made as of the date of this document and we disclaim any
obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances.
Numerous factors could cause our actual results and events to differ materially from those expressed or implied by
forward-looking statements, including, without limitation:

market and economic conditions;
market trends in the categories in which we compete;
the success of new products and the ability to continually develop and market new products;
our ability to attract, retain and improve distribution with key customers;
our ability to continue planned advertising and other promotional spending;
our ability to timely execute strategic initiatives, including restructurings, and international go-to-market changes in a manner that will positively impact our financial condition and results of operations and does not disrupt our business operations;
the impact of strategic initiatives, including restructurings, on our relationships with employees, customers and vendors;
our ability to maintain and improve market share in the categories in which we operate despite heightened competitive pressure;
our ability to improve operations and realize cost savings;
the impact of foreign currency exchange rates and currency controls, as well as offsetting hedges, including the impact of the United Kingdom's referendum vote and announced intention to exit the European Union at some future date;
the impact of raw materials and other commodity costs;
the impact of legislative changes or regulatory determinations or changes by federal, state and local, and foreign authorities, as well as the impact of potential changes to tax laws, policies and regulations;
costs and reputational damage associated with cyber-attacks or information security breaches or other events;
our ability to acquire and integrate businesses, and to realize the projected results of acquisitions, including our ability to achieve the anticipated cost savings, synergies, and other anticipated benefits;
the impact of advertising and product liability claims and other litigation; and
compliance with debt covenants and maintenance of credit ratings as well as the impact of interest and principal repayment of our existing and any future debt.

23




In addition, other risks and uncertainties not presently known to us or that we consider immaterial could affect the
accuracy of any such forward-looking statements. The list of factors above is illustrative, but by no means
exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
Additional risks and uncertainties include those described in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Report, as updated from time to time in the Company’s public filings.
 
Non-GAAP Financial Measures

The Company reports its financial results in accordance with accounting principles generally accepted in the U.S.
("GAAP"). However, management believes that certain non-GAAP financial measures provide users with additional meaningful comparisons to the corresponding historical or future period. These non-GAAP financial measures exclude items that management believes are not reflective of the Company's on-going operating performance, such as acquisition and integration costs, acquisition inventory step up costs, gain on sale of real estate, restructuring activities, costs related to the spin, cost of early debt retirement, Venezuela deconsolidation charge and income tax adjustments. These measures help investors to see year over year comparability when excluding currency fluctuations, acquisition activity as well as other company initiatives that are not on-going. We believe these non-GAAP financial measures are an enhancement to assist investors in understanding our business and in performing analysis consistent with financial models developed by research analysts. Investors should consider non-GAAP measures in addition to, not as a substitute for, or superior to, the comparable GAAP measures. In addition, these non-GAAP measures may not be the same as similar measures used by other companies due to possible differences in method and in the items being adjusted.

We provide the following non-GAAP measures and calculations, as well as the corresponding reconciliation to the closest GAAP measure:

Segment Profit. This amount represents the operations of our three geographic segments including allocations for shared support functions. General corporate and other expenses, global marketing expenses, research and development (R&D) expenses, amortization of intangible assets, interest expense, acquisition and integration costs, gain on sale of real estate, restructuring activities, costs related to the spin, cost of early debt retirement, Venezuela deconsolidation charge and income tax adjustments have all been excluded from segment profit.

Adjusted Earnings Before Taxes, Adjusted Net Earnings and Adjusted Diluted EPS . These measures exclude the impact of the costs related to acquisition and integration costs, gain on sale of real estate, restructuring activities, costs related to the spin, cost of early debt retirement, Venezuela deconsolidation charge and income tax adjustments.

Organic. This is the non-GAAP financial measurement of the change in revenue, segment profit or other margins that excludes or otherwise adjusts for the impact of acquisitions, the impact of our go-to-market initiatives, the change in our Venezuela results from the deconsolidation of those operations and the impact of currency from the changes in foreign currency exchange rates as defined below:

Impact of acquisition. On July 1, 2016, Energizer completed its auto care acquisition. This includes the impact the auto care acquisition's on-going operations contributed to each respective income statement caption. This does not include the impact of acquisition and integration costs or the one time inventory fair value step up costs associated with the auto care acquisition.
International Go-to-market initiatives. To compete more effectively as an independent company, we increased our use of exclusive and non-exclusive third-party distributors and wholesalers, and decreased or eliminated our business operations in certain countries, consistent with our international go-to-market strategy. In order to capture the impact of these international go-to-market changes and exits, we have separately identified the impact of these changes, which represents the year over year change in those markets since the date of exit. The impact from these changes was fully realized during the third quarter 2016.

Change in Venezuela Results. As previously announced, we deconsolidated our Venezuelan subsidiaries on March 31, 2015 and began accounting for our investment in our Venezuelan operations using the cost method of accounting. Subsequent to March 31, 2015, our financial results do not include the operating results of our Venezuelan operations. As a result of the deconsolidation, we have taken the year over year change in Venezuela results and separately identified the impact in our change in sales and segment profit.

24




Impact of currency . The Company evaluates the operating performance of our Company on a currency neutral basis. The impact of currency is the difference between the value of current year foreign operations at the current period ending USD exchange rate, compared to the value of the current year foreign operations at the prior period ending USD exchange rate.
Adjusted Gross Margin and adjusted Selling, General & Administrative (SG&A) as a percent of sales. Details for adjusted gross margin and adjusted SG&A as a percent of sales are also supplemental non-GAAP measure disclosures. These measures exclude the impact of costs related to acquisition and integration, inventory step up, restructuring activities, and costs related to the spin.

Acquisition

On July 1, 2016, the Company completed an acquisition of a leading designer and marketer of automotive fragrance and appearance products (auto care acquisition). We have completed the integration of the auto care business. During the year ended September 30, 2017, the Company incurred $8.4 of acquisition and integration costs. Total acquisition and integration related costs associated with the auto care acquisition incurred to date were $27.7.

The Separation

On July 1, 2015, Energizer completed its legal separation from Edgewell via a tax free spin-off. Energizer's first three fiscal quarters of 2015 are based on carve out financial data. Net sales, Gross profit, Advertising & promotion (A&P) and R&D spending are directly attributable to our business. However, certain SG&A, Interest expense, including the cost of early debt retirement, and Spin-off and Restructuring related charges are allocated from Edgewell and not necessarily representative of Energizer's stand-alone results or expected future results of Energizer as an independent company.


25



Overview
General

Energizer, through its operating subsidiaries, is one of the world’s largest manufacturers, marketers and distributors of household batteries, specialty batteries and lighting products, and a leading designer and marketer of automotive fragrance and appearance products. Energizer manufactures, markets and/or licenses one of the most extensive product portfolios of household batteries, specialty batteries and portable lights. Energizer is the beneficiary of over 100 years of expertise in the battery and portable lighting products industries. Its brand names, Energizer and Eveready, have worldwide recognition for innovation, quality and dependability, and are marketed and sold around the world.

Energizer has a long history of innovation within our categories. Since our commercialization of the first dry-cell battery in 1893 and the first flashlight in 1899, we have been committed to developing and marketing new products to meet evolving consumer needs and consistently advancing battery technology as the universe of devices powered by batteries has evolved. Over the past 100+ years we have developed or brought to market:

the first flashlight;
the first mercury-free alkaline battery;
the first mercury-free hearing aid battery; and
Energizer Ultimate Lithium, the world’s longest-lasting AA and AAA battery for high-tech devices.

Today, Energizer offers batteries using many technologies including lithium, alkaline, carbon zinc, nickel metal hydride, zinc air, and silver oxide. These products are sold under the Energizer and Eveready brands in the performance, premium and price segments and include primary, rechargeable, specialty and hearing aid products. In addition, Energizer has an extensive line of lighting products designed to meet a breadth of consumer needs. We distribute, market, and/or license lighting products including headlights, lanterns, children’s lights and area lights. In addition to the Energizer and Eveready brands, we market our flashlights under the Hard Case, Dolphin, and WeatherReady sub-brands.

Through our global supply chain, global manufacturing footprint and seasoned commercial organization, we seek to meet diverse customer demands within each of the markets we serve. Energizer distributes its portfolio of batteries, lighting and auto care products through a global sales force and global distributor model. We sell our products in multiple retail and business-to-business channels, including: mass merchandisers, club, electronics, food, home improvement, dollar store, auto, drug, hardware, convenience, sporting goods, hobby/craft, e-commerce, office, industrial, medical and catalog.
    
In recent years, we have also focused on reducing our costs and improving our cash flow from operations. Our restructuring efforts and working capital initiative have resulted in substantial cost reductions and improved cash flows. These initiatives, coupled with our strong product margins over recent years, have significantly contributed to our results of operations and working capital position.

We use the Energizer name and logo as our trademark as well as those of our subsidiaries. Product names appearing throughout are trademarks of Energizer. This Management’s Discussion and Analysis of Financial Condition and Results of Operations also may refer to brand names, trademarks, service marks and trade names of other companies and organizations, and these brand names, trademarks, service marks and trade names are the property of their respective owners.

As of October 1, 2016, the Company changed its internal reporting structure and is managing operations via three major geographic reportable segments: Americas (North America and Latin America), Europe, Middle East and Africa (EMEA), and Asia Pacific. Prior to this year, the Americas segment was reported as two separate geographic reportable segments. The Company changed its internal reporting structure to combine these two geographic regions to better reflect how the Company is managing the operations. Our three geographic segments have distinct characteristics that help Energizer deliver its strategic objectives.

    
    
    



26



Financial Results

Net earnings for the fiscal year ended September 30, 2017 was $201.5 , or $3.22 per diluted share, compared to net earnings of $127.7 , or $2.04 per diluted share, and net loss of $4.0 , or $0.06 per diluted share, for the fiscal years ended September 30, 2016 and 2015 , respectively.

Earnings/(loss) before income taxes, net earnings/(loss) and diluted earnings/(loss) per share (EPS) for the time periods presented were impacted by certain items related to acquisition and integration costs, acquisition inventory step up costs, gain on sale of real estate, restructuring costs, the spin-off transaction, cost of early debt retirement, Venezuela deconsolidation and income tax adjustments as described in the tables below. The impact of these items on reported earnings/(loss) before income taxes, reported net earnings/(loss) and reported EPS are provided below as a reconciliation to arrive at respective non-GAAP measures. See disclosure under Non-GAAP Financial Measures above.
 
 
For The Years Ended September 30,
 
 
Earnings/(Loss) Before Income Taxes
 
Net Earnings/(Loss)
 
Diluted EPS
 
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Reported - GAAP
 
$
273.3

 
$
165.7

 
$
(0.7
)
 
$
201.5

 
$
127.7

 
$
(4.0
)
 
$
3.22

 
$
2.04

 
$
(0.06
)
Impacts: Expense (Income)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Acquisition and integration (1)
 
8.4

 
11.2

 
1.6

 
4.2

 
9.0

 
1.2

 
0.06

 
0.14

 
0.01

  Inventory step up (2)
 

 
8.1

 

 

 
5.0

 

 

 
0.08

 

  Gain on sale of real estate
 
(16.9
)
 

 

 
(16.5
)
 

 

 
(0.26
)
 

 

  Restructuring (3)
 

 
4.9

 
13.0

 

 
3.1

 
6.5

 

 
0.05

 
0.10

  Spin costs (4)
 

 
10.4

 
98.1

 

 
7.0

 
68.7

 

 
0.11

 
1.09

  Spin restructuring
 
(3.8
)
 
5.8

 
39.1

 
(2.4
)
 
4.2

 
27.0

 
(0.04
)
 
0.07

 
0.43

  Cost of early debt retirement (5)
 

 

 
26.7

 

 

 
16.7

 

 

 
0.27

  Venezuela deconsolidation charge
 


 

 
65.2

 

 

 
65.2

 

 

 
1.04

  Income tax adjustments
 

 

 

 

 
(11.4
)
 
(4.0
)
 

 
(0.18
)
 
(0.06
)
     Adjusted - Non-GAAP (6)
 
$
261.0


$
206.1


$
243.0

 
$
186.8

 
$
144.6

 
$
177.3

 
$
2.98

 
$
2.31

 
$
2.82

Weighted average shares - Diluted (7)
 
 
 
 
 
 
 
 
 
 
 
 
 
62.6

 
62.5

 
62.2


(1) Includes pre-tax costs of $1.1 recorded in Cost of products sold, $4.0 recorded in SG&A, and $3.3 in other items, net for the year ended September 30, 2017, pre-tax costs of $10.0 recorded in SG&A and $1.2 recorded interest expense for the year ended September 30, 2016 and $0.3 recorded in Cost of products sold and $1.3 recorded in SG&A for the year ended September 30, 2015.

(2) Included in Cost of products sold on the Consolidated Statements of Earnings and Comprehensive Income.

(3) Includes pre-tax costs of $2.4 and $3.1 for the years ended September 30, 2016 and 2015, respectively, recorded within Cost of products sold and $0.3 for the year ended September 30, 2015 recorded in SG&A on the Consolidated Statements of Earnings and Comprehensive Income.

(4) Includes pre-tax costs of $10.0 and $97.6 recorded in SG&A for the years ended September 30, 2016 and 2015, respectively, and $0.4 and $0.5 recorded in cost of products sold for the years ended September 30, 2016 and 2015 on the Consolidated Statements of Earnings and Comprehensive Income.

(5) Included in Interest expense on the Consolidated Statements of Earnings and Comprehensive Income.

(6) The effective tax rate for the Adjusted - Non-GAAP Net Earnings and Diluted EPS was 28.4% , 29.8% , and 27.0% for the years ended September 30, 2017, 2016, 2015, respectively, as calculated utilizing the statutory rate for where the costs were incurred. The net tax impact associated with the non-GAAP adjustments highlighted in the table was an expense of $2.4, $23.5 and $62.4, respectively, for the twelve months ended September 30, 2017, 2016 and 2015.

(7) For twelve months ended September 30, 2015, adjusted earnings per share is calculated utilizing the diluted weighted average shares as the Company has Adjusted - Non GAAP net earnings rather than a loss.

27



Operating Results
 
Net Sales
 
 
 For the Years Ended September 30,
 
 
2017
 
 % Chg
 
2016
 
 % Chg
 
2015
Net sales - prior year
 
$
1,634.2

 
 
 
$
1,631.6

 
 
 
$
1,840.4

Organic
 
59.7

 
3.7
 %
 
60.4

 
3.7
 %
 
(65.4
)
Impact of acquisition
 
83.1

 
5.1
 %
 
32.3

 
2.0
 %
 

International Go-to-Market
 

 
 %
 
(14.7
)
 
(0.9
)%
 
(16.4
)
Change in Venezuela results
 

 
 %
 
(8.5
)
 
(0.5
)%
 
(17.3
)
Impact of currency
 
(21.3
)
 
(1.4
)%
 
(66.9
)
 
(4.1
)%
 
(109.7
)
    Net sales - current year
 
$
1,755.7

 
7.4
 %
 
$
1,634.2

 
0.2
 %
 
$
1,631.6


Net sales for the year ended September 30, 2017 increased 7.4% . The increase was driven by the impact of the auto care acquisition on July 1, 2016 which added $83.1 , or 5.1% , as well as the increase in organic sales of $59.7 , or 3.7% . These increases were partially offset by the unfavorable impact of currency of $21.3 , or 1.4% . Organic net sales increased 3.7% primarily due to:

The carryover benefit of new distribution and shelf space gains of approximately 2%;

Improved pricing across several markets of approximately 2%;

The impact of U.S. hurricane volume of approximately 1%;

Partially offset by investments made related to our portfolio optimization of approximately 1%.

Net sales for the year ended September 30, 2016 increased 0.2% . This increase was driven by the impact of the auto care acquisition on July 1, 2016 which added $32.3 , or 2.0% , as well as the increase in organic sales of $60.4 , or 3.7% . These increases were partially offset by the unfavorable impact of currency of $66.9 , or 4.1% , $8.5 , or 0.5% , due to change in Venezuela results as a result of the deconsolidation and $14.7 , or 0.9% , related to the impacts of the international go-to-market changes (including exits and shift to distributors). Organic sales increased $60.4 , or 3.7% , primarily due to:

Net distribution and space gain which accounted for 2.3% of the total organic increase;

Pricing actions and the timing of holiday shipments;

Partially offset by heightened competitive activity in certain Asia developed markets.

For further discussion regarding net sales in each of our geographic segments, including a summary of reported versus organic changes, please see the section titled “Segment Results” provided below.

Gross Profit

Gross profit dollars were $811.3 in fiscal 2017 versus $ 712.4 in fiscal 2016. The increase in gross profit dollars was due primarily to the increase in net sales mentioned earlier and productivity initiatives implemented in the prior year.

Gross margin as a percent of net sales for fiscal 2017 was 46.2% compared to 43.6% in the prior year. Excluding the impact from the fiscal 2017 acquisition and integration costs of $1.1 and the one-time accounting adjustment of $8.1 related to the fair market value step up of the auto care acquisition inventory and spin and restructuring charges of $2.8 in fiscal 2016, gross margin percentage was 46.3% or 200 basis points above prior year. This increase was driven by cost reductions realized from continued productivity improvements, as well as the year over year benefit of lapping productivity investments recorded in the prior year, material and purchased product cost favorability, improved overhead absorption driven by the strong volume performance in the first part of the year and improved pricing. These items were partially offset by increased investments related to our portfolio optimization and the unfavorable impact of foreign currencies on our gross margin rate.


28



Gross profit dollars were $712.4 in fiscal 2016 versus $756.2 in fiscal 2015. The decrease in gross profit dollars was due primarily to unfavorable foreign currency movements of approximately $60.

Gross margin as a percent of net sales for fiscal 2016 was 43.6% compared to 46.3% in the prior year. Excluding the impact from the one-time accounting adjustment ($8.1) related to the fair market value step up of the auto care acquisition inventory and spin and integration charges ($2.8 in fiscal 2016 and $3.9 in fiscal 2015), gross margin percentage was 44.3% or 230 basis points below prior year. This change was driven by a 180 basis point impact due to an unfavorable movement in currencies, increased costs related to planned as well as accelerated discrete productivity initiatives and increased costs in support of product innovation.

Selling, General and Administrative

SG&A expenses were $349.6 in fiscal 2017, or 19.9% of net sales as compared to $352.6 , or 21.6% of net sales for fiscal 2016 and $426.3 , or 26.1% of net sales for fiscal 2015. Included in SG&A in fiscal 2017 were acquisition and integration costs of $4.0 related to the auto care acquisition. Included in SG&A in fiscal 2016 were separation charges of $10.0 related to the execution of the spin-off transaction as well as $10.0 of acquisition and integration costs related to the auto care acquisition. Similarly, included in SG&A in fiscal 2015 was approximately $107 of special charges. Separation charges of $97.6 were included in this amount and primarily related to the execution of the spin-off transaction. Also included were approximately $9 related to integration, restructuring initiatives and transitional expenses related to the separation. Excluding the impacts of these items, SG&A as a percent of net sales was 19.7% in fiscal 2017 as compared to 20.4% in fiscal 2016 and 20.0% in fiscal 2015. The improved percentage comparison versus the prior years reflects the improved top-line performance due to organic sales growth and incremental sales from the auto care acquisition, as well as a continuous focus on managing costs.

Advertising and Sales Promotion

A&P was $ 116.1 , up $13.7 as compared to fiscal 2016. A&P as a percent of net sales was 6.6% for fiscal 2017 and was 6.3% and 8.1% in fiscal years 2016 and 2015, respectively. The lower level of A&P spending as a percent of net sales in fiscal years 2017 and 2016 versus 2015 was due to higher spending related to a new product launch in fiscal 2015. A&P expense may vary from year to year due to new product launches, strategic brand support initiatives, the overall competitive environment, as well as the type of A&P spending.

Research and Development

R&D expense was $ 22.0 in fiscal 2017, $26.6 in fiscal 2016 and $24.9 in fiscal 2015. As a percent of net sales, R&D expense was consistent as a percentage of sales at 1.3% in fiscal 2017, 1.6% in fiscal 2016 and 1.5% in fiscal 2015.

Gain on Sale of Real Estate

Gain on sale of real estate was $16.9 in fiscal 2017 and included $15.2 related to the sale of office building space in Asia and $1.7 associated with the sale of land related to a market we exited as part of our international go-to-market changes initiated after the spin.

Interest expense

Interest expense for fiscal 2017 was $ 53.1 , a decrease of $1.2 as compared to fiscal 2016 expense of $54.3. The fiscal 2017 and 2016 expense is related to the outstanding senior notes, debt outstanding on the credit facility and the term loan inclusive of interest rate swap activity. Fiscal 2016 interest expense includes $1.2 of expense from the bridge loan associated with the auto care acquisition. Interest expense in fiscal 2015 was $51.2, exclusive of $26.7 in debt breakage fees. Interest expense for the first three quarters of fiscal 2015 was based on an allocation from Edgewell.

Other Items, Net

Other items, net was expense of $6.7 in fiscal 2017 and includes a loss of $3.3 from the sale of a non core promotional sales business acquired with the auto care acquisition. The remaining expense primarily reflects net revaluation losses on nonfunctional currency balance sheet exposures slightly offset by the net impact of interest income and hedging contract gains. Other items, net was income of $0.3 in fiscal 2016 reflecting the net impact of hedging contract gains and interest income which were almost fully offset by revaluation losses on nonfunctional currency balance sheet exposures and an impairment charge on an available for sale security of $2.0. In fiscal 2015, Other items, net was income of $18.4 reflecting the net impact of hedging contract gains, interest income and net revaluation gains on nonfunctional currency balance sheet exposures.

29



Income Taxes

For fiscal 2017, the effective tax rate was 26.3% . Impacting this rate was the favorable impacts of $1.3 of adjustments related to our prior year provision estimates, the benefit of the non-taxable gain on the sale of real estate in Asia during the second quarter, and the $1.6 tax benefit recognized in our income tax provision as a result of the new stock compensation guidance adopted in the first quarter. Excluding the impact of all of our non-GAAP adjustments, the effective tax rate for fiscal year 2017 was 28.4% .

For fiscal 2016, the effective tax rate was 22.9% . which was favorably impacted by certain return to provision adjustments related to prior year provision estimates and certain spin related adjustments of $11.4. In addition, the rate was favorably impacted by costs related to integration, separation and restructuring charges as a majority of these charges were primarily incurred in the U.S., which resulted in a higher tax benefit as compared to our overall global effective tax rate. Excluding the impact of all of our non-GAAP adjustments, the effective tax rate for fiscal year 2016 was 29.8% .

For fiscal 2015, the effective tax rate was 455.1% . This rate was largely impacted by the Venezuela deconsolidation charge of $65.2, which had no accompanying tax benefit. Partially offsetting this expense were pre-tax losses in high tax rate jurisdictions driven by spin costs of $137.2, interest payments as a result of the early debt retirement of $26.7 and restructuring charges of $13.0. Excluding the impact of all of our non-GAAP adjustments, the effective tax rate for fiscal year 2015 was 27.0% .
    
Energizer’s effective tax rate is highly sensitive to the mix of countries from which earnings or losses are derived. Declines in earnings in lower tax rate countries, earnings increases in higher tax rate countries, repatriation of foreign earnings or foreign operating losses in the future could increase future tax rates. In addition, the enactment of legislation implementing changes in the U.S. on the taxation of international business activities or the adoption of other U.S. tax reform could impact our effective tax rate in the future.

Spin Costs

The Company incurred costs associated with the evaluation, planning and execution of the spin transaction. During the twelve months ended September 30, 2017, the Company recorded income of $3.8 in spin restructuring which included income in the second quarter of $2.5 reflecting the true up of previously accrued exit lease costs related to the right-sizing of the corporate headquarters and the first quarter sale of a facility in North America that was previously closed as part of the spin for a gain of $1.3.

During the twelve months ended September 30, 2016, the Company incurred $16.2 in spin costs including $10.0 recorded in SG&A, $0.4 recorded in cost of products sold and $5.8 recorded in spin restructuring. Included in spin restructuring were contract termination costs related to the exit of a corporate office building as we right-sized our headquarters' footprint. The contract termination costs were $3.7 based on the estimated fair value of the future cash flows associated with this operating lease.

For the twelve months ended September 30, 2015, the Company recorded spin costs of $163.9 , of which $97.6 was recorded in SG&A, $0.5 was recorded in cost of products sold, $39.1 was recorded in spin restructuring and $26.7 of cost of early debt retirement was recorded in interest expense.

On a project to date basis, the total costs incurred and allocated to Energizer for the spin-off were $197.6 , inclusive of the costs of early debt retirement recorded in fiscal 2015. We do not expect any additional costs related to spin.

2013 Restructuring

In November 2012, Edgewell's Board of Directors authorized an enterprise-wide restructuring plan and delegated authority to Edgewell's management to determine the final actions with respect to this plan (2013 restructuring project). For the twelve months ended September 30, 2016, Energizer recorded $2.5 in pre-tax restructuring charges related to the 2013 restructuring project as compared to $9.6 in fiscal 2015. Restructuring charges were reflected on a separate line in the Consolidated Statements of Earnings and Comprehensive Income. In addition, pre-tax costs of $3.1 associated with certain inventory obsolescence charges were recorded within Cost of products sold and $0.3 associated with information technology enablement activities were recorded within SG&A on the Consolidated Statements of Earnings and Comprehensive Income for the twelve months ended September 30, 2015. These inventory obsolescence and information technology costs are considered part of the total project costs incurred for the 2013 restructuring project.

30




The 2013 restructuring project was completed in fiscal 2016 and the full amount of savings are now included within our run-rate cost structure. Energizer estimates that total project savings exceeded $218. The primary impacts of savings were reflected in improved gross margin and lower overhead expenses. Savings related to the 2013 restructuring project were fully realized as of June 30, 2015.

Venezuela Deconsolidation Charge

Venezuelan exchange control regulations have resulted in an other-than-temporary lack of exchangeability between the Venezuelan bolivar and U.S. dollar, and have restricted our Venezuelan operations’ ability to pay dividends and settle intercompany obligations. The severe currency controls imposed by the Venezuelan government have significantly limited Energizer’s ability to realize the benefits from earnings of Energizer’s Venezuelan operations and access the resulting liquidity provided by those earnings. Energizer expects that this condition will continue for the foreseeable future. This lack of exchangeability has resulted in a lack of control over our Venezuelan subsidiaries for accounting purposes. We deconsolidated our Venezuelan subsidiaries on March 31, 2015 and began accounting for our investment in our Venezuelan operations using the cost method of accounting. Subsequent to March 31, 2015, our financial results do not include the operating results of our Venezuelan operations. Instead, we record revenue for sales of inventory to our Venezuelan operations in our consolidated financial statements to the extent cash is received. Further, dividends from our Venezuelan subsidiaries are recorded as other income upon receipt of the cash. Included within the results for the twelve months ended September 30, 2015, for Venezuela are net sales of $8.5 and segment profit of $2.5. See further discussion in "Segment Results" below.

As a result of deconsolidating its Venezuelan subsidiaries at March 31, 2015, Edgewell recorded a one-time charge of $144.5 in the second quarter of 2015, of which $65.2 was allocated to Energizer based on the Venezuelan operations being distributed as part of Energizer. This charge included:

foreign currency translation losses previously recorded in accumulated other comprehensive income, of which $16.2 was allocated to Energizer
the write-off of Edgewell’s Venezuelan operations’ cash balance, of which $44.6 was allocated to Energizer, (at the 6.30 per U.S. dollar rate)
the write-off of Edgewell’s Venezuelan operations’ other net assets, of which $4.4 was allocated to Energizer

Segment Results
    
Operations for Energizer are managed via three geographic segments – Americas (North America and Latin America), Europe, Middle East and Africa (EMEA) and Asia Pacific. Prior to this year, the Americas segment was reported as two separate geographic reportable segments. The Company changed its internal reporting structure to combine these two
geographic regions to better reflect how the Company is managing the operations.

Segment performance is evaluated based on segment operating profit, exclusive of general corporate expenses,
share-based compensation costs, costs associated with restructuring initiatives, acquisition and integration
activities, amortization costs, business realignment activities, R & D costs, gains on sale of real
estate and other items determined to be corporate in nature. Financial items, such as interest income and expense,
are managed on a global basis at the corporate level. The exclusion of substantially all acquisition, integration,
restructuring and realignment costs from segment results reflects management’s view on how it evaluates segment
performance.

Energizer’s operating model includes a combination of standalone and shared business functions between the
geographic segments, varying by country and region of the world. Shared functions include, but are not limited to, IT, procurement and finance. Energizer applies a fully allocated cost basis, in which shared business functions are allocated between segments. Such allocations are estimates, and do not represent the costs of such services if performed on a standalone basis. This structure is the basis for Energizer’s reportable operating segment information, as included in the tables in Note 20, Segments, to the Consolidated Financial Statements for the year ended September 30, 2017.



31



Segment Net Sales
 
 For the Years Ended September 30,
 
 
2017
 
 % Chg
 
2016
 
 % Chg
 
2015
Americas
 
 
 
 
 
 
 
 
 
 
Net sales - prior year
 
$
1,002.0

 
 
 
$
956.4

 
 
 
$
1,071.3

Organic
 
$
43.9

 
4.4
 %
 
$
53.3

 
5.6
 %
 
$
(69.4
)
International Go-to-Market
 
$

 
 %
 
$
(8.5
)
 
(0.9
)%
 
$
(17.3
)
Change in Venezuela results
 
$

 
 %
 
$
(2.0
)
 
(0.2
)%
 
$
(4.3
)
Impact of acquisition
 
$
74.2

 
7.4
 %
 
$
29.3

 
3.1
 %
 
$

Impact of currency
 
$
(8.3
)
 
(0.8
)%
 
$
(26.5
)
 
(2.8
)%
 
$
(23.9
)
   Net sales - current year
 
$
1,111.8

 
11.0
 %
 
$
1,002.0

 
4.8
 %
 
$
956.4

EMEA
 
 
 
 
 
 
 
 
 
 
Net sales - prior year
 
$
353.8

 
 
 
$
370.4

 
 
 
$
419.1

Organic
 
11.8

 
3.3
 %
 
12.0

 
3.2
 %
 
9.7

International Go-to-Market
 

 
 %
 
(3.5
)
 
(0.9
)%
 
1.3

Impact of acquisition
 
5.8

 
1.6
 %
 
2.1

 
0.6
 %
 

Impact of currency
 
(13.6
)
 
(3.8
)%
 
(27.2
)
 
(7.4
)%
 
(59.7
)
   Net sales - current year
 
$
357.8

 
1.1
 %
 
$
353.8

 
(4.5
)%
 
$
370.4

Asia Pacific
 
 
 
 
 
 
 
 
 
 
Net sales - prior year
 
$
278.4

 
 
 
$
304.8

 
 
 
$
350.0

Organic
 
4.0

 
1.4
 %
 
(4.9
)
 
(1.6
)%
 
(5.7
)
International Go-to-Market
 

 
 %
 
(9.2
)
 
(3.0
)%
 
(13.4
)
Impact of acquisition
 
3.1

 
1.1
 %
 
0.9

 
0.3
 %
 

Impact of currency
 
0.6

 
0.3
 %
 
(13.2
)
 
(4.4
)%
 
(26.1
)
   Net sales - current year
 
$
286.1

 
2.8
 %
 
$
278.4

 
(8.7
)%
 
$
304.8

Total Net Sales
 
 
 
 
 
 
 
 
 
 
Net sales - prior year
 
$
1,634.2

 
 
 
$
1,631.6

 
 
 
$
1,840.4

Organic
 
59.7

 
3.7
 %
 
60.4

 
3.7
 %
 
(65.4
)
International Go-to-Market
 

 
 %
 
(14.7
)
 
(0.9
)%
 
(16.4
)
Change in Venezuela results
 

 
 %
 
(8.5
)
 
(0.5
)%
 
(17.3
)
Impact of acquisition
 
83.1

 
5.1
 %
 
32.3

 
2.0
 %
 

Impact of currency
 
(21.3
)
 
(1.4
)%
 
(66.9
)
 
(4.1
)%
 
(109.7
)
   Net sales - current year
 
$
1,755.7

 
7.4
 %
 
$
1,634.2

 
0.2
 %
 
$
1,631.6


Total net sales for the twelve months ended September 30, 2017 increased 7.4% , including organic sales increase of $59.7 , or 3.7% , and sales related to the auto care acquisition of $83.1 , or 5.1% . These increases were offset by a $21.3 decrease due to unfavorable movement in foreign currency rates. Segment sales results for the twelve months ended September 30, 2017 are as follows:

Americas net sales improved 11.0% versus the prior fiscal year, inclusive of a 0.8% decline due to unfavorable currency movements. The auto care acquisition improved net sales by 7.4% . Excluding the impact of currency movement and the acquisition, organic net sales increased 4.4% as a result of hurricane activity in the U.S. combined with the benefits of carryover distribution and shelf space gains and strong holiday activity. Partially offsetting these gains were investments made during the third and fourth quarter related to our portfolio optimization and the divestiture of the ad specialty business, which was acquired as part of the auto care acquisition, in May 2017.

EMEA net sales improved 1.1% versus the prior fiscal year, inclusive of a 3.8% decline due to unfavorable currency movements. The auto care acquisition improved net sales by 1.6% . Excluding the impacts of currency movements and the acquisition, organic net sales improved 3.3% driven primarily by improved pricing in certain markets as well as distribution gains and the timing of holiday activity.

32




Asia Pacific net sales improved 2.8% versus the prior fiscal year, inclusive of a 0.3% increase due to favorable currency movements and a 1.1% increase due to the auto care acquisition. Excluding the impacts of currency movements and the acquisition, organic net sales increased 1.4% driven by improved pricing, replenishment and phasing of holiday activity. Offsetting some of the increase was competitive conditions and unfavorable mix in several markets, most notably Australia, during the first three quarters of fiscal 2017.

Net sales for the twelve months ended September 30, 2016 increased 0.2% , including organic sales increase of $60.4, or 3.7% and sales related to the auto care acquisition of $32.3, or 2.0%. These increases were substantially offset by a $66.9 decrease due to unfavorable movement in foreign currency rates, a $8.5 change in Venezuela results (as a result of deconsolidation) and $14.7 related to the impacts of the international go-to-market changes (including exits and shift to distributors). Segment sales results for the twelve months ended September 30, 2016 are as follows:

Americas net sales increased 4.8% versus the prior fiscal year, inclusive of a 2.8% decline due to unfavorable
currency movements. The deconsolidation of Venezuela accounted for a 0.2% year-over-year decline while the go-to-market impacts had a negative impact of 0.9% . The auto care acquisition improved net sales by 3.1% . Excluding the impact of currency movements, Venezuela and the go-to-market changes, and auto care acquisition, organic net sales increased 5.6% . This increase was due to net distribution and space gains and the timing of holiday shipments as well as positive volume contributions, including the launch of a new product line and pricing actions in certain markets.

EMEA net sales declined 4.5% versus the prior fiscal year, inclusive of a 7.4% decrease due to unfavorable currency movements. The go-to-market impacts associated with market exits and distributors negatively impacted net sales by 0.9% . The auto care acquisition improved net sales by 0.6% . Excluding the impact of currency movements go-to-market changes, and the acquisition, organic net sales improved 3.2% driven by positive volume contribution from distribution gains in certain Western and Eastern European markets, pricing actions in certain markets and the continued launch of a new product line in additional markets.

Asia Pacific net sales declined 8.7% versus the prior fiscal year, inclusive of a 4.4% decline due to unfavorable currency movements a 3.0% decline associated with the go-to-market changes, and a 0.3% increase due to the auto care acquisition. Excluding the impacts of currency movements, go-to-market changes, and the acquisition, organic net sales decreased 1.6% driven by continued competitive pressures in certain Asia developed markets slightly offset by distribution gains and positive volume contributions in select markets.











33



Segment Profit
 
 For the Years Ended September 30,
 
 
2017
 
 % Chg
 
2016
 
 % Chg
 
2015
Americas
 
 
 
 
 
 
 
 
 
 
Segment Profit - prior year
 
$
266.5

 
 
 
$
255.3

 
 
 
$
290.3

Organic
 
28.8

 
10.8
 %
 
20.8

 
8.1
 %
 
(12.4
)
International Go-to-Market
 

 
 %
 
2.5

 
1.0
 %
 
2.0

Change in Venezuela results
 

 
 %
 
(2.5
)
 
(1.0
)%
 
(10.6
)
Impact of acquisition
 
20.4

 
7.7
 %
 
7.8

 
3.1
 %
 

Impact of currency
 
(5.7
)

(2.2
)%

(17.4
)

(6.8
)%

(14.0
)
   Segment Profit - current year
 
$
310.0


16.3
 %

$
266.5


4.4
 %

$
255.3

EMEA
 
 
 
 
 
 
 
 
 
 
Segment Profit - prior year
 
$
51.6

 
 
 
$
58.3

 
 
 
$
61.4

Organic
 
16.4

 
31.8
 %
 
12.4

 
21.3
 %
 
28.8

International Go-to-Market
 

 
 %
 
(1.0
)
 
(1.7
)%
 
1.8

Impact of acquisition
 
3.3

 
6.4
 %
 
1.2

 
2.1
 %
 

Impact of currency
 
(6.9
)
 
(13.4
)%
 
(19.3
)
 
(33.2
)%
 
(33.7
)
   Segment Profit - current year
 
$
64.4

 
24.8
 %
 
$
51.6

 
(11.5
)%
 
$
58.3

Asia Pacific
 
 
 
 
 
 
 
 
 
 
Segment Profit - prior year
 
$
70.1

 
 
 
$
77.9

 
 
 
$
97.1

Organic
 
6.2

 
8.8
 %
 
1.4

 
1.8
 %
 
0.9

International Go-to-Market
 

 
 %
 
0.2

 
0.3
 %
 
(0.9
)
Impact of acquisition
 
1.8

 
2.6
 %
 
0.5

 
0.6
 %
 

Impact of currency
 
0.5

 
0.7
 %
 
(9.9
)
 
(12.7
)%
 
(19.2
)
   Segment Profit - current year
 
$
78.6

 
12.1
 %
 
$
70.1

 
(10.0
)%
 
$
77.9

Total Segment Profit
 
 
 
 
 
 
 
 
 
 
Segment Profit - prior year
 
$
388.2

 
 
 
$
391.5

 
 
 
$
448.8

Organic
 
51.4

 
13.2
 %
 
34.6

 
8.8
 %
 
17.3

International Go-to-Market
 

 
 %
 
1.7

 
0.4
 %
 
2.9

Change in Venezuela results
 

 
 %
 
(2.5
)
 
(0.6
)%
 
(10.6
)
Impact of acquisition
 
25.5

 
6.6
 %
 
9.5

 
2.4
 %
 

Impact of currency
 
(12.1
)
 
(3.1
)%
 
(46.6
)
 
(11.8
)%
 
(66.9
)
   Segment Profit - current year
 
$
453.0

 
16.7
 %
 
$
388.2

 
(0.8
)%
 
$
391.5

Refer to Note 20, Segments, in the Consolidated Financial Statements for a reconciliation from segment profit to earnings before income taxes.

Total segment profit in fiscal 2017 was $453.0 , an increase of 16.7% versus the prior fiscal year, driven by an increase of $25.5 , or 6.6% , from the auto care acquisition and organic segment profit increase of 13.2% . These increases were partially offset by unfavorable movement in foreign currency of $12.1 , or 3.1% . Segment operating profit results for the twelve months ended September 30, 2017 are as follows:

Americas segment profit was $310.0 , an increase of $43.5 , or 16.3% , versus the prior fiscal year inclusive of the negative $5.7 impact of currency movements and $20.4 increase due to the auto care acquisition. Excluding the impact of currency movements and the acquisition, segment profit increased $28.8 , or 10.8% , driven by top-line growth noted above as well as favorable gross margin slightly offset by increased A&P spend and higher Marketing & Selling expense driven by higher net sales.

EMEA segment profit was $64.4 , an increase of $12.8 , or 24.8% , versus the prior fiscal year. Excluding $6.9 of unfavorable currency impacts and positive contribution from the auto care acquisition of $3.3 , organic segment profit increased $16.4 , or 31.8% , driven by top-line growth noted above, favorable gross margin and A&P, slightly offset by increased overhead spending.

34




Asia Pacific segment profit was $78.6 , an increase of $8.5 , or 12.1% , versus the prior fiscal year inclusive of the positive impact of currency movements of $0.5 and growth due to the auto care acquisition of $1.8 . Excluding the impact of these items, segment profit increased $6.2 , or 8.8% , due primarily to the net sales gains noted above and favorable gross margin, partially offset by increased overhead and A&P spending.

Total segment profit in fiscal 2016 was $388.2 , a decrease of 0.8% versus the prior fiscal year, including a decrease of $46.6 , or 11.8% , due to unfavorable movement in foreign currency rates and a $2.5 decrease due to the change in Venezuela results (due to the deconsolidation). These decreases were partially offset by an increase of $9.5 , or 2.4% , from the auto care acquisition impact, a $1.7 increase related to the impact of the international go-to-market changes (including exits and shift to distributors), and organic segment profit increase of 8.8% . Segment operating profit results for the twelve months ended September 30, 2016 are as follows:

The Americas segment profit was $266.5 , a increase of $11.2 , or 4.4% , versus the prior fiscal year inclusive of the negative $17.4 impact of currency movements. The auto care acquisition increased segment profit by $7.8 , or 3.1% . The change in Venezuela (as a result of the deconsolidation) accounted for $2.5 , or 1.0% , decrease in segment profit. The go-to-market changes positively contributed $2.5 , or 1.0% , to segment profit as the loss of sales was more than offset by the reduction in overhead costs. Excluding these items, segment profit increased $20.8 , or 8.1% , driven by strong top-line performance, favorable commodity costs, distribution gains and lower A&P spend due to the prior year launch of new products. These increases were partially offset by increased costs related to planned as well as accelerated discrete productivity initiatives and increased costs in support of product innovation.

EMEA segment profit was $51.6 , a decrease of $6.7 , or 11.5% , versus the prior fiscal year. Excluding $19.3 of unfavorable currency impacts, negative go-to-market changes of $1.0 , and positive contribution from the auto care acquisition of $1.2 , organic segment profit increased $12.4 , or 21.3% , due to positive volume contribution from distribution gains in certain Western and Eastern European markets, the continued launch of new products in additional markets and a reduction in A&P and overhead spending.

Asia Pacific segment profit was $70.1 , a decrease of $7.8 , or 10.0% , versus the prior fiscal year inclusive of the negative impact of currency movements of $9.9 and an increase from go-to-market changes of $0.2 and growth due to the auto care acquisition of $0.5 . Excluding the impact of these items, segment profit increased $1.4 , or 1.8% , driven by distribution gains and positive volume contributions in select markets as well as lower A&P and overhead spending.

GENERAL CORPORATE
 
For the Years Ended September 30,
 
 
2017
 
2016
 
2015
General corporate and other expenses
 
$
80.8

 
$
80.8

 
$
66.0

Global marketing expenses
 
21.5

 
19.1

 
24.8

     Total
 
$
102.3

 
$
99.9

 
$
90.8

   % of net sales
 
5.8
%
 
6.1
%
 
5.6
%

For fiscal 2017 , general corporate expenses were $80.8 , flat to fiscal 2016 and an increase of $14.8 as compared to fiscal 2015 . The expense in fiscal 2015 was lower based on the allocated costs from carve out methodology used in that year. For fiscal 2015 , general corporate expenses were $66.0 .

Global marketing expenses were $21.5 in fiscal 2017 , $19.1 in fiscal 2016 , and $24.8 in fiscal 2015 . The global marketing expense represents a center led approach to managing global marketing activities in support of our brands. The global marketing expense in the current year included incremental costs associated with the auto care acquisition. The expense in 2015 was based on an allocation from Edgewell using a carve-out methodology and was slightly higher due to increased support of the new product launch that year.

Liquidity and Capital Resources

Energizer’s primary future cash needs are centered on operating activities, working capital and strategic investments. We believe that our future cash from operations, together with our access to capital markets, will provide adequate resources to fund our operating and financing needs. Our access to, and the availability of, financing on

35



acceptable terms in the future will be affected by many factors, including, but not limited to: (i) our credit rating, (ii) the liquidity of the overall capital markets and (iii) the current state of the economy. There can be no assurances that we will continue to have access to capital markets on terms acceptable to us. See “Risk Factors” for a further discussion.

Cash is managed centrally with net earnings reinvested locally and working capital requirements met from existing liquid funds. At September 30, 2017 , Energizer had $378.0 of cash and cash equivalents, 98% of which was outside of the U.S. Given our extensive international operations, a significant portion of our cash is denominated in foreign currencies. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences or be subject to regulatory capital requirements; however, those balances are generally available without legal restrictions to fund ordinary business operations.

The Company has a $350.0 senior secured revolving credit facility (Revolving Facility) which matures in 2020. Borrowings under the Revolving Facility will bear interest at LIBOR plus the applicable margin based on total Company leverage. As of September 30, 2017 , the Company had $95.0 of outstanding borrowings under the Revolving Facility and had $6.7 of outstanding letters of credit. Taking into account outstanding letters of credit, $248.3 remains available as of September 30, 2017 .

Debt Covenants
        
The credit agreements governing the Company's debt agreements contain certain customary representations and warranties, affirmative, negative and financial covenants, and provisions relating to events of default. If the Company fails to comply with these covenants or with other requirements of these credit agreements, the lenders may have the right to accelerate the maturity of the debt. Acceleration under one of these facilities would trigger cross defaults to other borrowings. As of September 30, 2017 , the Company was, and expects to remain, in compliance with the provisions and covenants associated with its debt agreements.

Operating Activities

Cash flow from operating activities is the primary funding source for operating needs and capital investments. Cash flow from operating activities was $197.2 in fiscal 2017 , $193.9 in fiscal 2016 , and $161.8 in fiscal 2015 .

Cash flow from operating activities was $197.2 in fiscal 2017 as compared to $193.9 in the prior fiscal year. The increase in net earnings of $56.9 , excluding the gain on real estate of $16.9, positively contributed to operating cash flow in the twelve month period. Year over year increases in working capital of $43.8 offset the increased net earnings. Working capital changes year over year were driven by several factors: Accounts receivable increased approximately $40 as a result of strong fourth quarter sales due primarily to hurricane activity in the U.S., distribution gains in certain international markets and timing of holiday activity. Inventory also increased approximately $43 in support of our innovation, portfolio changes and changes to our manufacturing footprint being executed during the first half of fiscal year 2018. Inventory levels are expected to begin to normalize as we move through fiscal 2018. These increases were partially offset by a decrease in accruals, primarily related to fewer payments of spin related costs in fiscal 2017 and higher accrued A&P expenses at September 30, 2017 versus the prior year.

The increase in cash flow of $32.1 from operating activities in fiscal 2016 as compared to fiscal 2015 was the result of higher net earnings in fiscal 2016, higher accounts payable due to the timing of payments and the benefit of lower inventory levels driven by increased sales volume and the benefits of initiatives that reduced days in inventory. These increases were partially offset by a decrease in accruals, primarily related to the payment of spin related costs and accrued A&P expenses.

Investing Activities

Net cash from investing activities was $2.0 in fiscal 2017 and net cash used by investing activities was $371.2 and $38.8 in fiscal 2016 and 2015 , respectively, and consisted of the following:

Capital expenditures were $25.2 , $28.7 , and $40.4 in fiscal years 2017 , 2016 and 2015 , respectively. The decrease in capital expenditures in fiscal 2017 and 2016 compared to fiscal 2015 was primarily due to IT spending associated with the separation occurring in 2015.


36



Proceeds from asset sales were $27.2 , $1.5 and $13.7 in fiscal 2017, 2016 and 2015, respectively. The fiscal 2017 proceeds were related to the sales of a previously closed facility, office space and land.

Acquisitions, net of cash acquired, were $344.0 in fiscal 2016 for the purchase of the auto care business and $12.1 in fiscal 2015 for a battery manufacturing facility in China.

Investing cash outflows of approximately $30 to $35 are anticipated in fiscal 2018 for capital expenditures relating to maintenance, product development and cost reduction investments. Total capital expenditures are expected to be financed with funds generated from operations.

Financing Activities

Net cash used by financing activities was $106.9 and $45.4 in fiscal 2017 and 2016, respectively and net cash from financing activities was $309.2 in fiscal year 2015 . For fiscal 2017 , cash flow used by financing activities consists of the following:

Payments on debt with maturities greater than 90 days representing the quarterly principal payments on the seven-year $400.0 senior secured term loan B facility (Term Loan);

Increase on debt with maturities of 90 days or less of $ 36.5 representing the increase in notes payable and our Revolving Facility;

Dividends paid of $69.1 during fiscal 2017 (see below);

Purchase of treasury stock representing the cash paid for stock repurchases under the current authorization during the twelve months ended September 30, 2017 (see below);

Taxes paid for withheld share-based payments of $10.0; and

Debt issuance costs of $ 0.8 .

For fiscal 2016, cash flow used by financing activities consists of the following:

Payments on debt with maturities greater than 90 days representing the quarterly principal payments on the Term Loan;

Increase on debt with maturities of 90 days or less of $58.9 representing the increase in notes payable and our Revolving Facility;

Dividends paid of $62.7 during the fiscal 2016 (see below);

Debt issuance costs of $1.6 primarily representing the fees paid as part of the July 1, 2016 bridge loan associated with the auto care acquisition;

Purchase of treasury stock representing the cash paid for stock repurchases under the current authorization during the twelve months ended September 30, 2016 (see below); and

Net taxes paid of $5.2 representing the liquidation of restricted stock equivalent awards (RSEAs) upon vesting.

For fiscal 2015, cash flow from financing activities consists of the following:

Net cash proceeds of $999.0 resulted from the June 1, 2015 debt issuance consisting of a seven-year $400.0 senior secured term loan B facility and the June 30, 2015 issuance of $600.0 of 5.50% Senior Notes due 2025;

Debt issuance costs of $12.1 representing the fees paid and capitalized as part of the June 1, 2015 debt issuance;

Payments on debt with maturities greater than 90 days representing the first quarter principal payment on the Term Loan;

37




Payments on debt with maturities of 90 days or less representing the pay down of notes payable;

Dividends paid of $15.5 during fourth fiscal quarter of fiscal 2015 (see below); and

Net transfers to Parent and affiliates represents the cash flow impact of Energizer’s net dividend to Edgewell. The net transfers for fiscal 2015 was the result of the transfer of proceeds of the term loan and senior notes to Edgewell in connection with the contribution of certain assets including cash by Edgewell to Energizer in connection with the separation.

Dividends
Total dividends declared to shareholders were $69.3 of which $ 69.1 were paid. The unpaid dividends were associated with unvested restricted shares and were recorded in other liabilities.

Subsequent to the fiscal year end, on November 13, 2017, the Board of Directors declared a dividend for the first quarter of fiscal 2018 of $0.29 per share of common stock, payable on December 14, 2017, to all shareholders of record as of the close of business on November 30, 2017.

Share Repurchases
On July 1, 2015, the Company's Board of Directors approved an authorization for Energizer to acquire up to 7.5 million shares of its common stock. During the twelve months ended September 30, 2017, the Company repurchased 1,389,027 shares for $58.7 , at an average price of $ 42.23 per share, under this authorization. During the twelve months ended September 30, 2016, the Company repurchased 832,971 shares for $32.6, at an average price of $39.06 per share, under this authorization. At September 30, 2016, the Company had a current liability of $0.8 for a portion of these repurchases with the cash payment occurring in the first three days of fiscal 2017. No share repurchases were made during fiscal 2015. Future share repurchase, if any, would be made on the open market and the timing and the amount of any purchases will be determined by the Company based on its evaluation of the market conditions, capital allocation objectives, legal and regulatory requirements and other factors.
Subsequent to fiscal year end and through the date of this report, the Company repurchased 215,267 shares at an average price of $43.93 per share.
Contractual Obligations
A summary of Energizer’s contractual obligations at September 30, 2017 is shown below:
 
 
Total
 
Less than
1 year
 
1-3 years
 
3-5 years
 
More than
5 years
Long-term debt, including current maturities
 
$
992.0

 
$
4.0

 
$
8.0

 
$
380.0

 
$
600.0

Interest on long-term debt (1)
 
330.3

 
47.2

 
94.0

 
90.1

 
99.0

Notes payable
 
104.1

 
104.1

 

 

 

Operating leases
 
59.7

 
13.4

 
22.0

 
8.4

 
15.9

Pension plans (2)
 
8.9

 
8.9

 

 

 

Purchase obligations and other (3)
 
112.3

 
48.4

 
63.9

 

 

Total
 
$
1,607.3

 
$
226.0

 
$
187.9

 
$
478.5

 
$
714.9

(1)
The above table is based upon the debt balance and LIBOR rate as of September 30, 2017 . Energizer entered into an interest rate swap agreement with one major financial institution that fixed the variable benchmark component (LIBOR) on $200 of Energizer's variable rate debt through June 2022 at an interest rate of 2.03%.
(2)
Globally, total pension contributions for the Company in the next year are estimated to be $ 8.9 . The projected payments beyond fiscal year 2018 are not currently estimable.
(3)
Included in the table above are future purchase commitments for goods and services which are legally binding and that specify all significant terms including price and/or quantity.

Energizer is also party to various service and supply contracts that generally extend approximately one to three months. These arrangements are primarily individual, short-term purchase orders for routine goods and services at market prices, which are part of our normal operations and are reflected in historical operating cash flow trends. These contracts can generally be canceled at our option at any time. We do not believe such arrangements will adversely affect our liquidity position.

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Other Matters

Environmental Matters

The operations of Energizer are subject to various federal, state, foreign and local laws and regulations intended to protect the public health and the environment. These regulations relate primarily to worker safety, air and water quality, underground fuel storage tanks and waste handling and disposal. Under the Comprehensive Environmental Response, Compensation and Liability Act, Energizer has been identified as a “potentially responsible party” (PRP) and may be required to share in the cost of cleanup with respect to certain federal “Superfund” sites. It may also be required to share in the cost of cleanup with respect to state-designated sites or other sites outside of the U.S.

Accrued environmental costs at September 30, 2017 were $5.5 , of which approximately $2 is expected to be spent during fiscal 2018 . It is difficult to quantify with certainty the cost of environmental matters, particularly remediation and future capital expenditures for environmental control equipment. Current environmental spending estimates could be modified as a result of changes in our plans or our understanding of underlying facts, changes in legal requirements or the enforcement or interpretation of existing requirements.

Legal Proceedings
    
The Company and its affiliates are subject to a number of legal proceedings in various jurisdictions arising out of its operations. Many of these legal matters are in preliminary 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. We are a party to legal proceedings and claims that arise during the ordinary course of business. We review our legal proceedings and claims, regulatory reviews and inspections on an ongoing basis and follow appropriate accounting guidance when making accrual and disclosure decisions. We establish accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for our financial statements to not be misleading. We do not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated. Based upon present information, the Company believes that its liability, if any, arising from such pending legal proceedings, asserted legal claims and known potential legal claims which are likely to be asserted, is not reasonably likely to be material to the Company's financial position, results of operations, or cash flows, taking into account established accruals for estimated liabilities.

Critical Accounting Policies

The methods, estimates, and judgments Energizer uses in applying its most critical accounting policies have a significant impact on the results the Company reports in its Consolidated Financial Statements. Specific areas, among others, requiring the application of management’s estimates and judgment include assumptions pertaining to allocations from Edgewell for pre-spin periods, accruals for consumer and trade-promotion programs, pension benefit costs, acquisition, goodwill and intangible assets, uncertain tax positions, the reinvestment of undistributed foreign earnings and tax valuation allowances. On an ongoing basis, Energizer evaluates its estimates, but actual results could differ materially from those estimates.

The Company's critical accounting policies have been reviewed with the Audit Committee of the Board of Directors. A summary of Energizer’s significant accounting policies is contained in Note 2, Summary of Significant Accounting Policies, of the Notes to the Consolidated Financial Statements. This listing is not intended to be a comprehensive list of all of Energizer’s accounting policies.

Basis of Presentation - The consolidated financial statements include the accounts of Energizer and its subsidiaries. All significant intercompany transactions are eliminated. Energizer has no material equity method investments or variable interests.

Prior to the spin-off on July 1, 2015, our financial statements were prepared on a combined standalone basis derived from the financial statements and accounting records of Edgewell and reflect the historical results of operations, financial position and cash flows of Energizer in accordance with GAAP. Account allocations of shared functions to Energizer were based on the allocations to the Household Products segment within Edgewell's financial statements. Shared functions between Edgewell's Household Products and Personal Care segments and Edgewell itself include product warehousing and distribution, various transaction processing functions, and in some countries, a combined sales force and management. Edgewell has historically applied a fully allocated cost basis, in which shared business

39



functions are allocated between the segments. Such allocations by Edgewell are estimates, and do not fully represent the costs of such services if performed on a standalone basis.

The Financial Statements are presented as if Energizer had been carved out of Edgewell for all periods prior to the spin-off. All significant transactions within Energizer were eliminated. The assets and liabilities in the carve-out financial statements were reflected on a historical cost basis, as immediately prior to the distribution all of the assets and liabilities presented were wholly owned by Edgewell and were transferred to Energizer at carry-over basis.

Corporate Expense Allocations - These Consolidated Financial Statements include expense allocations for the periods prior to the spin-off including (1) certain product warehousing and distribution; (2) various transaction process functions; (3) a consolidated sales force and management for certain countries; (4) certain support functions that are provided on a centralized basis within Edgewell and not recorded at the business division level, including, but not limited to, finance, audit, legal, information technology, human resources, communications, facilities, and compliance; (5) employee benefits and compensation; (6) share-based compensation; (7) financing costs; (8) the effects of restructurings and the Venezuela deconsolidation; and (9) cost of early debt retirement. These expenses were allocated to Energizer on the basis of direct usage where identifiable, with the remainder allocated on a basis of global net sales, cost of sales, operating income, headcount or other measures of Energizer and Edgewell. Certain debt obligations of Edgewell have not been included in the Consolidated Financial Statements of Energizer prior to the spin-off, because Energizer was not a party to the obligation between Edgewell and the debt holders. Financing costs related to such debt obligations have been allocated to Energizer based on the extent to which Energizer participated in Edgewell's corporate financing activities.

Management believes the assumptions regarding allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by Energizer during the periods prior to the spin-off. Nevertheless, the allocations may not include all of the actual expenses that would have been incurred by Energizer and may not reflect our results of operations, financial position and cash flows had we been an independent standalone company. It is not practicable to estimate actual costs that would have been incurred had Energizer been a standalone company during the periods presented. Actual costs that would have been incurred if Energizer had been a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.

Revenue Recognition - Energizer’s revenue is from the sale of its products. Revenue is recognized when title, ownership and risk of loss pass to the customer. Discounts are offered to customers for early payment and an estimate of the discounts is recorded as a reduction of net sales in the same period as the sale. Our standard sales terms are final and returns or exchanges are not permitted unless a special exception is made. Reserves are established and recorded in cases where the right of return does exist for a particular sale.

Energizer offers a variety of programs, such as consumer coupons and similar consumer rebate programs, primarily to its retail customers, designed to promote sales of its products. Such programs require periodic payments and allowances based on estimated results of specific programs and are recorded as a reduction to net sales. Energizer accrues, at the time of sale, the estimated total payments and allowances associated with each transaction. Additionally, Energizer offers programs directly to consumers to promote the sale of its products. Promotions which reduce the ultimate consumer sale prices are recorded as a reduction of net sales at the time the promotional offer is made, generally using estimated redemption and participation levels. Revenue is recorded net of the taxes we collect on behalf of governmental authorities which are generally included in the price to the customer. Energizer continually assesses the adequacy of accruals for customer and consumer promotional program costs not yet paid. To the extent total program payments differ from estimates, adjustments may be necessary. Historically, these adjustments have not been material.

Pension Plans - The determination of the Company’s obligation and expense for pension benefits are dependent on certain assumptions developed by the Company and used by actuaries in calculating such amounts. Assumptions include, among others, the discount rate, future salary increases and the expected long-term rate of return on plan assets. Actual results that differ from assumptions made are recognized on the balance sheet and subsequently amortized to earnings over future periods. Significant differences in actual experience or significant changes in macroeconomic conditions resulting in changes to assumptions may materially affect pension obligations. In determining the discount rate, the Company uses the yield on high-quality bonds that coincide with the cash flows of its plans’ estimated payouts. For the U.S. plans, which were frozen January 1, 2014, and represent the Company’s most significant obligations, we consider the Mercer yield curve in determining the discount rates.


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Of the assumptions listed above, changes in the expected long-term rate of return on plan assets and changes in the discount rate used in developing plan obligations will likely have the most significant impact on the Company’s annual earnings, prospectively. Based on plan assets at September 30, 2017 , a 100 basis point decrease or increase in expected asset returns would increase or decrease the Company’s pre-tax pension expense by $4.6. In addition, poor asset performance may increase and accelerate the rate of required pension contributions in the future. Uncertainty related to economic markets and the availability of credit may produce changes in the yields on corporate bonds rated as high-quality. As a result, discount rates based on high-quality corporate bonds may increase or decrease leading to lower or higher, respectively, pension obligations. A 100 basis point decrease in the discount rate would increase pension obligations by $52.0 at September 30, 2017 .

As allowed under GAAP, the Company’s U.S. qualified pension plan uses Market Related Value, which recognizes market appreciation or depreciation in the portfolio over five years so it reduces the short-term impact of market fluctuations.

Acquisitions, Goodwill and Intangible Assets - The Company allocates the cost of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess value of the cost of an acquired business over the estimated fair value of the assets acquired and liabilities assumed is recognized as goodwill. The valuation of the acquired assets and liabilities will impact the determination of future operating results. The Company uses a variety of information sources to determine the value of acquired assets and liabilities including: third-party appraisers for the values and lives of property, identifiable intangibles and inventories; actuaries for defined benefit retirement plans; and legal counsel or other experts to assess the obligations associated with legal, environmental or other claims.

Significant judgment is required in estimating the fair value of intangible assets and in assigning their respective useful lives. The fair value estimates are based on historical information and on future expectations and assumptions deemed reasonable by management, but are inherently uncertain. Determining the useful life of an intangible asset also requires judgment. Certain brand intangibles are expected to have indefinite lives based on their history and our plans to continue to support and build the acquired brands. Other intangible assets are expected to have determinable useful lives. Our assessment of intangible assets that have an indefinite life and those that have a determinable life is based on a number of factors including the competitive environment, market share, brand history, underlying product life cycles, operating plans and the macroeconomic environment. Our estimates of the useful lives of determinable-lived intangible assets are primarily based on the same factors. The costs of determinable-lived intangible assets are amortized to expense over the estimated useful life. The value of indefinite-lived intangible assets and residual goodwill is not amortized, but is tested at least annually for impairment. See Note 7, Goodwill and intangible assets, of the Notes to Consolidated Financial Statements.

However, future changes in the judgments, assumptions and estimates that are used in our impairment testing including discount rates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the future. An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year.

The recorded value of goodwill and intangible assets from recently acquired businesses are derived from more recent business operating plans and macroeconomic environmental conditions and, therefore, are likely more susceptible to an adverse change that could require an impairment charge.

During fiscal 2017, we tested goodwill for impairment. There were no indications of impairment of goodwill noted during this testing. In addition, we completed impairment testing on indefinite-lived intangible assets other than goodwill, which are trademarks/brand names used in our various product categories. No impairment was indicated as a result of this testing.

Income Taxes - Our annual effective income tax rate is determined based on our income, statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Tax law requires certain items be included in the tax return at different times than the items are reflected in the financial statements. Some of these differences are permanent, such as expenses that are not deductible in our tax return, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities.


41



We regularly repatriate a portion of current year earnings from select non-U.S. subsidiaries. Generally, these non-U.S. subsidiaries are in tax jurisdictions with effective tax rates that do not result in materially higher U.S. tax provisions related to the repatriated earnings. No provision is made for additional taxes on undistributed earnings of foreign affiliates that are intended and planned to be indefinitely invested in foreign affiliates. We intend to reinvest these earnings indefinitely in our foreign subsidiaries to fund local operations, fund strategic growth objectives, and fund capital projects. See Note 8, Income Taxes, of the Notes to Consolidated Financial Statements for further discussion.

The Company estimates income taxes and the effective income tax rate in each jurisdiction that it operates. This involves estimating taxable earnings, specific taxable and deductible items, the likelihood of generating sufficient future taxable income to utilize deferred tax assets, the portion of the income of foreign subsidiaries that is expected to be remitted to the U.S. and be taxable and possible exposures related to future tax audits. Deferred tax assets are evaluated on a subsidiary by subsidiary basis to ensure that the asset will be realized. Valuation allowances are established when the realization is not deemed to be more likely than not. Future performance is monitored, and when objectively measurable operating trends change, adjustments are made to the valuation allowances accordingly. To the extent the estimates described above change, adjustments to income taxes are made in the period in which the estimate is changed.

The Company operates in multiple jurisdictions with complex tax and regulatory environments, which are subject to differing interpretations by the taxpayer and the taxing authorities. At times, we may take positions that management believes are supportable, but are potentially subject to successful challenges by the appropriate taxing authority. The Company evaluates its tax positions and establishes liabilities in accordance with guidance governing accounting for uncertainty in income taxes. The Company reviews these tax uncertainties in light of the changing facts and circumstances, such as the progress of tax audits, and adjusts them accordingly.

Recently Adopted Accounting Pronouncements

During the year ended September 30, 2017, the Company adopted ASU 2015-07, Fair Value Measurement (Topic 820). This ASU removes the requirement to categorize investments for which fair values are measured using the net asset value per share (NAV) in the fair value hierarchy. As a result of this ASU, Energizer's pension plan assets, as disclosed in Note 12, Pension Plans, of the Notes to Consolidated Financial Statements, that are valued using their NAV are no longer disclosed in the fair value hierarchy disclosures of ASC 820, Fair Value Measurements.

During the quarter ended December 31, 2016, the Company early adopted FASB ASU 2016-09, Compensation - Stock Compensation . ASU 2016-09 simplifies the accounting for share-based payment transactions, including the income tax consequences and classifications on the statement of cash flows. The provisions in ASU 2016-09 resulted in the following impacts upon adoption:

Excess tax benefits created upon the vesting of RSEAs are now recorded within the income tax provision. These amounts were previously recorded as an adjustment to Additional paid in capital. During the twelve months ended September 30, 2017, $1.6 was recorded as a benefit in our income tax provision. This ASU provision was applied on a modified retrospective basis; however no cumulative effect adjustment was necessary to retained earnings.

Excess tax benefits are now required to be classified with other income tax cash flows as a Cash Flow from
    Operating Activities. This was previously reported as a Cash Flow from Financing Activity. The $1.6 excess tax
benefit for the twelve months ended September 30, 2017 is reflected within the Changes in current assets and liabilities used in operations line. The Company has applied this provision prospectively and the comparable prior year amount of $1.0 is reflected in Cash Flow from Financing Activities.

Cash paid by an employer when directly withholding shares for tax withholding purposes are now required to be classified as a Cash Flow from Financing Activities. For the twelve months ended September 30, 2017 and September 30, 2016, the Company has reported $10.0 and $6.2 , respectively, for Taxes paid for withheld share payments as a Cash Flow used by Financing Activity. This presentation is consistent with prior year.
    
No other provisions of this guidance had an impact on the financial statements.

During the quarter ended December 31, 2016, the Company adopted ASU 2015-05, Intangibles Goodwill and other internal-use software (Subtopic 350-40), which provides criteria to review cloud computing arrangements to determine whether the arrangement contains a software license or is solely a service contract. If the arrangement is determined to be a software

42



license, fees paid to the vendor would be within the scope of internal-use software guidance. If not, the fees paid would be expensed as incurred. The Company's historical accounting for cloud computing arrangements was consistent with this guidance and no change in accounting was required.

During the quarter ended December 31, 2016, the Company adopted FASB ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern , which requires management to assess the Company's ability to continue as a going concern and to provide related disclosures in certain circumstances. Management's assessment discovered no uncertainties about the Company's ability to continue as a going concern.

Recently Issued Accounting Pronouncements

On May 28, 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries and across capital markets. On August 12, 2015, the FASB issued a one-year deferral of the effective date of the ASU. The update is effective for Energizer beginning October 1, 2018. The Company is currently assessing the new standard against its current accounting policies and procedures, through activities that include analysis of standard sales transactions and terms, coordination and discussion with our commercial teams and reviewing contracts with customers. The Company plans to adopt the new standard on a modified retrospective basis at the effective date. While the Company’s assessment is not yet complete, the new guidance is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows. The Company is still assessing the overall impact on the Company’s disclosures.

On July 22, 2015, the FASB issued ASU 2015-11, Inventory (Topic 330), which aligns the measurement of inventory under GAAP more closely with International Financial Reporting Standards. Under the new guidance, an entity that measures inventory using the first-in, first-out or average cost should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The update is effective for Energizer beginning October 1, 2017 and will not have a material impact.

On February 25, 2016, the FASB issued ASU 2016-02, Leases . This ASU aligns the measurement of leases under GAAP more closely with International Financial Reporting Standards by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this update will be effective for Energizer beginning October 1, 2019 with early adoption permitted. Energizer is in the process of evaluating the impact the revised guidance will have on its financial statements.
    
On August 26, 2016, the FASB issued ASU 2016-15, Statement of Cash Flows- Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice in how certain transactions are classified in the statements of cash flows. This update will be effective for Energizer beginning October 1, 2018. The Company is currently assessing the impact the revised guidance will have on our current classification on the Statement of Cash Flow.

On October 24, 2016, the FASB issued ASU 2016-16, Intra-entity Transfers of Assets Other Than Inventory . This ASU requires tax expense to be recognized from the sale of intra-entity assets, other than inventory, when the transfer occurs, even though the effects of the transaction are eliminated in consolidation. Under the current guidance, the tax effects of transfers would have been deferred until the transferred asset was sold or otherwise recovered through use. Upon adoption, any deferred charge previously established upon the intra-company transfer would be recorded as a cumulative effect adjustment to retained earnings. At September 30, 2016, the Company had a deferred charge of $51.2 included in Other assets. During the quarter ended December 31, 2016, new IRS regulations were passed that resulted in the recognition of an additional deferred charge. As of September 30, 2017, the total deferred charge is $59.2 . The update will be effective for Energizer beginning October 1, 2018 with early adoption permitted in the first interim period of a fiscal year. The Company expects to adopt the new guidance during the first quarter of fiscal 2018.
    
On January 5, 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business . This ASU creates a more practical definition and guidelines to determine whether a set of assets and activities is a business. This simplifies the decision making process of determining whether a purchase constitutes a business combination or an acquisition of assets. This ASU is effective for the Company for any new acquisitions starting October 1, 2018.
    
On January 26, 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment . This ASU
eliminates the need to assign the fair value of a reporting unit to each of its assets and liabilities when quantifying an impairment charge. The impairment charge would now be determined based on the comparison of the fair value of a reporting

43



unit to its carrying amount. The Company will adjust its goodwill testing procedures accordingly upon adoption. This ASU is effective for the Company starting with its annual goodwill impairment tests for fiscal year 2021.

On March 10, 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and
Net Periodic Postretirement Benefit Cost . This ASU requires the service component of the net periodic pension cost to be reported in the same income statement line item as similar compensation costs, while all other pension cost components should be reported separately from the service cost component on the income statement. The update will be effective for Energizer beginning October 1, 2018 with early adoption permitted in the first interim period of a fiscal year. The Company expects to adopt the new guidance during the first quarter of fiscal 2018. The adoption will result in the service component of net periodic pension costs being accounted for in Selling, general and administrative expenses and the other components of net periodic pension costs being accounted for in Other items, net and will be applied retrospectively.

On August 28, 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities. This ASU intends to simplify hedge accounting and decrease complexity for both the preparation and understanding of hedging disclosures in the financial statements. This ASU is effective for the Company beginning October 1, 2019. The Company is currently assessing the impact the revised guidance will have on its accounting practices and financial statements.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Market Risk Sensitive Instruments and Positions

The market risk inherent in the Company's financial instruments’ positions represents the potential loss arising from adverse changes in currency rates, commodity prices and interest rates. The following risk management discussion and the estimated amounts generated from the sensitivity analysis are forward-looking statements of market risk assuming certain adverse market conditions occur. The Company's derivatives are used only for identifiable exposures, and we have not entered into hedges for trading purposes where the sole objective is to generate profits.

Currency Exposure

Our business is conducted on a worldwide basis, with approximately half of our sales in fiscal year 2017 arising from foreign countries, and a significant portion of our production capacity and cash located overseas. Consequently, we are subject to currency risks associated with doing business in foreign countries. Currency risk is heightened in areas with political or economic instability such as the Eurozone, Egypt, Russia and the Middle East and certain markets in Latin America. A significant portion of our sales are denominated in local currencies but reported in U.S. dollars, and a high percentage of product costs for such sales are denominated in U.S. dollars. Therefore, although we may hedge a portion of the exposure, the strengthening of the U.S. dollar relative to such currencies can negatively impact our reported sales and operating profits. The following discussion describes programs in place to mitigate our foreign currency exposure:

Derivatives Designated as Cash Flow Hedging Relationships

A significant share of Energizer's product cost is more closely tied to the U.S. dollar than to the local currencies in which the product is sold. As such, a weakening of currencies relative to the U.S. dollar results in margin declines unless mitigated through pricing actions, which are not always available due to the economic or competitive environment. Conversely, strengthening of currencies relative to the U.S. dollar can improve margins. The primary currencies to which Energizer is exposed include the Euro, the British pound, the Canadian dollar and the Australian dollar. However, the Company also has significant exposures in many other currencies which, in the aggregate, may have a material impact on the Company's operations.

The Company has entered into a series of forward currency contracts to hedge the cash flow uncertainty of forecasted inventory purchases due to currency fluctuations. Energizer’s primary foreign affiliates, which are exposed to U.S. dollar purchases, have the Euro, the British pound, the Canadian dollar and the Australian dollar as their local currencies. These foreign currencies represent a significant portion of Energizer's foreign currency exposure. At September 30, 2017 and 2016 , Energizer had an unrealized pre-tax loss on these forward currency contracts accounted for as cash flow hedges of $5.8 and $1.1 , respectively, included in Accumulated other comprehensive loss on the Consolidated Balance Sheets. Assuming foreign exchange rates versus the U.S. dollar remain at September 30, 2017 levels, over the next twelve months, $5.7 of the pre-tax loss included in Accumulated other comprehensive loss is expected to be included in earnings. Contract maturities for these hedges extend into fiscal year 2019.


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Derivatives Not Designated as Cash Flow Hedging Relationships

Energizer's foreign subsidiaries enter into internal and external transactions that create nonfunctional currency balance sheet positions at the foreign subsidiary level. These exposures are generally the result of intercompany purchases, intercompany loans and to a lesser extent, external purchases, and are revalued in the foreign subsidiary’s local currency at the end of each period. Changes in the value of the non-functional currency balance sheet positions in relation to the foreign subsidiary’s local currency results in an exchange gain or loss recorded in Other items, net on the Consolidated Statements of Earnings and Comprehensive Income. The primary currency to which Energizer’s foreign subsidiaries are exposed is the U.S. dollar.

The Company enters into foreign currency derivative contracts which are not designated as cash flow hedges for accounting purposes to hedge balance sheet exposures. Any gains or losses on these contracts would be offset by corresponding exchange gains or losses on the underlying exposures; thus they are not subject to significant market risk. The change in estimated fair value of the foreign currency contracts for the twelve months ended September 30, 2017 resulted in expense of $1.4 and was recorded in Other items, net on the Consolidated Statements of Earnings and Comprehensive Income.

Commodity Price Exposure

The Company uses raw materials that are subject to price volatility. The Company has in the past and may in the future use hedging instruments to reduce exposure to variability in cash flows associated with future purchases of certain materials and commodities. At September 30, 2017 and 2016, there were no open derivative or hedging instruments for future purchases of raw materials or commodities.

Interest Rate Exposure

The Company has interest rate risk with respect to interest expense on variable rate debt. At September 30, 2017 , Energizer had variable rate debt outstanding with an original principal balance of $400.0 under the Term Loan and $95.0 of outstanding borrowings on the Revolving Facility. During fiscal year 2015, the Company entered into an interest rate swap agreement with one major financial institution that fixed the variable benchmark component ( LIBOR ) on $200.0 of the Company's variable rate debt through June of 2022 at an interest rate of 2.22% (2015 Swap). The 2015 Swap was terminated in March 2017, in conjunction with the Term Loan repricing, and was settled resulting in a $1.7 loss. In March 2017, the Company also entered into a new interest rate swap agreement with one major financial institution that continued to fix the variable benchmark component (LIBOR) on $200.0 of Energizer's variable rate debt through June 2022 at an interest rate of 2.03% (2017 Swap). For the year ended September 30, 2017, our weighted average interest rate on variable rate debt was 3.40% .

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Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
 
 
 
 
 
Audited Consolidated Financial Statements
Page
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Earnings and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity/(Deficit)
Notes to Consolidated Financial Statements



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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Energizer Holdings, Inc.:


In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings and comprehensive income, cash flows, and shareholders’ equity/(deficit) present fairly, in all material respects, the financial position of Energizer Holdings, Inc. and its subsidiaries as of September 30, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of finan