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:
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market and economic conditions;
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market trends in the categories in which we compete;
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the success of new products and the ability to continually develop and market new products;
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our ability to attract, retain and improve distribution with key customers;
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our ability to continue planned advertising and other promotional spending;
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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;
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the impact of strategic initiatives, including restructurings, on our relationships with employees, customers and vendors;
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our ability to maintain and improve market share in the categories in which we operate despite heightened competitive pressure;
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our ability to improve operations and realize cost savings;
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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;
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the impact of raw materials and other commodity costs;
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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;
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costs and reputational damage associated with cyber-attacks or information security breaches or other events;
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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;
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the impact of advertising and product liability claims and other litigation; and
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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.
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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.
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.
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:
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the first flashlight;
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the first mercury-free alkaline battery;
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the first mercury-free hearing aid battery; and
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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.
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
$0.06
per diluted share, for the fiscal years ended
September 30, 2016
and
2015
, respectively.
Earnings/(loss) before income taxes, net earnings/(loss) and diluted earnings/(loss) per share (EPS) for the time periods presented were impacted by certain items related to acquisition and integration costs, acquisition inventory step up costs, gain on sale of real estate, restructuring costs, the spin-off transaction, cost of early debt retirement, Venezuela deconsolidation and income tax adjustments as described in the tables below. The impact of these items on reported earnings/(loss) before income taxes, reported net earnings/(loss) and reported EPS are provided below as a reconciliation to arrive at respective non-GAAP measures. See disclosure under Non-GAAP Financial Measures above.
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For The Years Ended September 30,
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Earnings/(Loss) Before Income Taxes
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Net Earnings/(Loss)
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Diluted EPS
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2017
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2016
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2015
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2017
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2016
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2015
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2017
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2016
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2015
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Reported - GAAP
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$
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273.3
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$
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165.7
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$
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(0.7
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$
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201.5
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$
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127.7
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$
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(4.0
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$
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3.22
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$
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2.04
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$
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(0.06
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Impacts: Expense (Income)
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Acquisition and integration (1)
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8.4
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11.2
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1.6
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4.2
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9.0
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1.2
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0.06
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0.14
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0.01
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Inventory step up (2)
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—
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8.1
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—
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—
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5.0
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—
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—
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0.08
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—
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Gain on sale of real estate
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(16.9
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—
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—
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(16.5
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—
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(0.26
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—
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Restructuring (3)
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—
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4.9
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13.0
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—
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3.1
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6.5
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—
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0.05
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0.10
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Spin costs (4)
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—
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10.4
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98.1
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—
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7.0
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68.7
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—
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0.11
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1.09
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Spin restructuring
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(3.8
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5.8
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39.1
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(2.4
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4.2
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27.0
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(0.04
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0.07
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0.43
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Cost of early debt retirement (5)
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—
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—
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26.7
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—
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—
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16.7
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—
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—
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0.27
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Venezuela deconsolidation charge
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—
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65.2
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—
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—
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65.2
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—
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—
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1.04
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Income tax adjustments
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—
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—
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—
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—
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(11.4
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(4.0
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—
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(0.18
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(0.06
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Adjusted - Non-GAAP (6)
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$
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261.0
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$
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206.1
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$
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243.0
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$
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186.8
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$
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144.6
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$
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177.3
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$
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2.98
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$
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2.31
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$
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2.82
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Weighted average shares - Diluted (7)
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62.6
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62.5
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62.2
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(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 $62.4, respectively, for the twelve months ended September 30, 2017, 2016 and 2015.
(7) For twelve months ended September 30, 2015, adjusted earnings per share is calculated utilizing the diluted weighted average shares as the Company has Adjusted - Non GAAP net earnings rather than a loss.
Operating Results
Net Sales
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For the Years Ended September 30,
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2017
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% Chg
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2016
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% Chg
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2015
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Net sales - prior year
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$
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1,634.2
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$
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1,631.6
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$
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1,840.4
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Organic
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59.7
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3.7
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%
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60.4
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3.7
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%
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(65.4
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)
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Impact of acquisition
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83.1
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5.1
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%
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32.3
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2.0
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%
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—
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International Go-to-Market
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—
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—
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%
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(14.7
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(0.9
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)%
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(16.4
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Change in Venezuela results
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—
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—
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%
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(8.5
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)
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(0.5
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)%
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(17.3
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)
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Impact of currency
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(21.3
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)
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(1.4
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)%
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(66.9
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)
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(4.1
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)%
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(109.7
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)
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Net sales - current year
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$
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1,755.7
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7.4
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%
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$
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1,634.2
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0.2
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%
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$
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1,631.6
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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:
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•
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The carryover benefit of new distribution and shelf space gains of approximately 2%;
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•
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Improved pricing across several markets of approximately 2%;
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•
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The impact of U.S. hurricane volume of approximately 1%;
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•
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Partially offset by investments made related to our portfolio optimization of approximately 1%.
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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:
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•
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Net distribution and space gain which accounted for 2.3% of the total organic increase;
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•
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Pricing actions and the timing of holiday shipments;
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•
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Partially offset by heightened competitive activity in certain Asia developed markets.
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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.
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.
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.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
•
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
•
|
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
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.
|
|
|
|
|
•
|
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;
|
|
|
|
|
•
|
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.
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.
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•
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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.
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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
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.
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•
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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.
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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.
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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.
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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.
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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.
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•
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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.
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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.
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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.
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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
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
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 8.
Financial Statements and Supplementary Data.
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INDEX TO FINANCIAL STATEMENTS
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Audited Consolidated Financial Statements
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Page
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Report of Independent Registered Public Accounting Firm
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Consolidated Statements of Earnings and Comprehensive Income
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Consolidated Balance Sheets
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Consolidated Statements of Cash Flows
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Consolidated Statements of Shareholders' Equity/(Deficit)
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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 financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
St. Louis, Missouri
November 14, 2017
ENERGIZER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Dollars in millions, except per share data)
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FOR THE YEARS ENDED
SEPTEMBER 30,
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Statement of Earnings
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2017
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2016
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2015
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Net sales
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$
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1,755.7
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|
|
$
|
1,634.2
|
|
|
$
|
1,631.6
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Cost of products sold
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944.4
|
|
|
921.8
|
|
|
875.4
|
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Gross profit
|
|
811.3
|
|
|
712.4
|
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756.2
|
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Selling, general and administrative expense
|
|
349.6
|
|
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352.6
|
|
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426.3
|
|
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Advertising and sales promotion expense
|
|
116.1
|
|
|
102.4
|
|
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132.3
|
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|
Research and development expense
|
|
22.0
|
|
|
26.6
|
|
|
24.9
|
|
|
Amortization of intangible assets
|
|
11.2
|
|
|
2.8
|
|
|
—
|
|
|
Venezuela deconsolidation charge
|
|
—
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|
|
—
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65.2
|
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Spin restructuring
|
|
(3.8
|
)
|
|
5.8
|
|
|
39.1
|
|
|
Restructuring
|
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—
|
|
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2.5
|
|
|
9.6
|
|
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Gain on sale of real estate
|
|
(16.9
|
)
|
|
—
|
|
|
—
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|
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Interest expense
|
|
53.1
|
|
|
54.3
|
|
|
77.9
|
|
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Other items, net
|
|
6.7
|
|
|
(0.3
|
)
|
|
(18.4
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)
|
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Earnings/(loss) before income taxes
|
|
273.3
|
|
|
165.7
|
|
|
(0.7
|
)
|
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Income tax provision
|
|
71.8
|
|
|
38.0
|
|
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3.3
|
|
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Net earnings/(loss)
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$
|
201.5
|
|
|
$
|
127.7
|
|
|
$
|
(4.0
|
)
|
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Earnings Per Share
|
|
|
|
|
|
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Basic net earnings/(loss) per share
|
|
$
|
3.27
|
|
|
$
|
2.06
|
|
|
$
|
(0.06
|
)
|
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Diluted net earnings/(loss) per share
|
|
$
|
3.22
|
|
|
$
|
2.04
|
|
|
$
|
(0.06
|
)
|
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|
|
|
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Dividend Per Common Share
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$
|
1.10
|
|
|
$
|
1.00
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|
|
$
|
0.25
|
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|
|
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|
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|
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Statement of Comprehensive Income/(Loss)
|
|
|
|
|
|
|
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Net earnings/(loss)
|
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$
|
201.5
|
|
|
$
|
127.7
|
|
|
$
|
(4.0
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)
|
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Other comprehensive income/(loss), net of tax expense/(benefit)
|
|
|
|
|
|
|
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Foreign currency translation adjustments
|
|
6.3
|
|
|
10.2
|
|
|
(81.7
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)
|
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Pension activity, net of tax of $9.0 in 2017, ($6.2) in 2016 and
($19.7) in 2015
|
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20.5
|
|
|
(20.1
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)
|
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(37.2
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)
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Deferred gain/(loss) on hedging activity, net of tax of $1.7 in
2017, ($3.2) in 2016 and ($2.3) in 2015
|
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0.5
|
|
|
(6.9
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)
|
|
(4.8
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)
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Total comprehensive income/(loss)
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$
|
228.8
|
|
|
$
|
110.9
|
|
|
$
|
(127.7
|
)
|
The above financial statements should be read in conjunction with the Notes To Consolidated Financial Statements.
ENERGIZER HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share count and par values)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEPTEMBER 30,
|
|
|
|
2017
|
|
2016
|
|
Assets
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
378.0
|
|
|
$
|
287.3
|
|
|
Trade receivables, net
|
|
230.2
|
|
|
190.9
|
|
|
Inventories
|
|
317.1
|
|
|
289.2
|
|
|
Other current assets
|
|
94.9
|
|
|
122.1
|
|
|
Total current assets
|
|
1,020.2
|
|
|
889.5
|
|
|
Property, plant and equipment, net
|
|
176.5
|
|
|
201.7
|
|
|
Goodwill
|
|
230.0
|
|
|
229.7
|
|
|
Other intangible assets, net
|
|
223.8
|
|
|
234.7
|
|
|
Deferred tax asset
|
|
47.7
|
|
|
63.7
|
|
|
Other assets
|
|
125.4
|
|
|
112.2
|
|
|
Total assets
|
|
$
|
1,823.6
|
|
|
$
|
1,731.5
|
|
|
Liabilities and Shareholders' Equity/(Deficit)
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
4.0
|
|
|
$
|
4.0
|
|
|
Note payable
|
|
104.1
|
|
|
57.4
|
|
|
Accounts payable
|
|
219.3
|
|
|
217.0
|
|
|
Other current liabilities
|
|
254.6
|
|
|
254.7
|
|
|
Total current liabilities
|
|
582.0
|
|
|
533.1
|
|
|
Long-term debt
|
|
978.5
|
|
|
981.7
|
|
|
Other liabilities
|
|
178.0
|
|
|
246.7
|
|
|
Total liabilities
|
|
$
|
1,738.5
|
|
|
$
|
1,761.5
|
|
|
Shareholders' equity/(deficit)
|
|
|
|
|
|
Common stock, $0.01 par value, 62,420,421 and 62,420,421
|
|
|
|
|
|
shares issued at 2017 and 2016, respectively
|
|
0.6
|
|
|
0.6
|
|
|
Additional paid-in capital
|
|
196.7
|
|
|
194.6
|
|
|
Retained earnings
|
|
198.7
|
|
|
70.9
|
|
|
Common stock in treasury, at cost, 1,711,858 and 747,475 shares in 2017 and 2016, respectively
|
|
(72.1
|
)
|
|
(30.0
|
)
|
|
Accumulated other comprehensive loss
|
|
(238.8
|
)
|
|
(266.1
|
)
|
|
Total shareholders' equity/(deficit)
|
|
$
|
85.1
|
|
|
$
|
(30.0
|
)
|
|
Total liabilities and shareholders' equity/(deficit)
|
|
$
|
1,823.6
|
|
|
$
|
1,731.5
|
|
The above financial statements should be read in conjunction with the Notes To Consolidated Financial Statements.
ENERGIZER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR THE YEARS ENDED SEPTEMBER 30,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Cash Flow from Operating Activities
|
|
|
|
|
|
|
|
Net earnings/(loss)
|
|
$
|
201.5
|
|
|
$
|
127.7
|
|
|
$
|
(4.0
|
)
|
|
Adjustments to reconcile net earnings/(loss) to net cash flow from operations:
|
|
|
|
|
|
|
|
Non-cash restructuring (income)/costs
|
|
(2.5
|
)
|
|
4.9
|
|
|
13.1
|
|
|
Depreciation and amortization
|
|
50.2
|
|
|
34.3
|
|
|
41.8
|
|
|
Venezuela deconsolidation charge
|
|
—
|
|
|
—
|
|
|
65.2
|
|
|
Deferred income taxes
|
|
(4.4
|
)
|
|
4.2
|
|
|
(7.1
|
)
|
|
Share based compensation expense
|
|
24.3
|
|
|
20.4
|
|
|
13.5
|
|
|
Gain on sale of real estate
|
|
(16.9
|
)
|
|
—
|
|
|
—
|
|
|
Non-cash items included in income, net
|
|
6.2
|
|
|
13.1
|
|
|
(13.0
|
)
|
|
Other, net
|
|
(28.7
|
)
|
|
(22.0
|
)
|
|
(9.4
|
)
|
|
Changes in assets and liabilities used in operations, net of acquisitions
|
|
|
|
|
|
|
|
(Increase)/Decrease in trade receivables, net
|
|
(43.7
|
)
|
|
(4.1
|
)
|
|
9.7
|
|
|
(Increase)/Decrease in inventories
|
|
(30.7
|
)
|
|
11.9
|
|
|
(0.1
|
)
|
|
Decrease in other current assets
|
|
20.8
|
|
|
10.4
|
|
|
3.5
|
|
|
Increase/(Decrease) in accounts payable
|
|
13.4
|
|
|
43.7
|
|
|
(18.2
|
)
|
|
Increase/(Decrease) in other current liabilities
|
|
7.7
|
|
|
(50.6
|
)
|
|
66.8
|
|
|
Net cash flow from operating activities
|
|
197.2
|
|
|
193.9
|
|
|
161.8
|
|
|
Cash Flow from Investing Activities
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(25.2
|
)
|
|
(28.7
|
)
|
|
(40.4
|
)
|
|
Proceeds from sale of assets
|
|
27.2
|
|
|
1.5
|
|
|
13.7
|
|
|
Acquisitions, net of cash acquired
|
|
—
|
|
|
(344.0
|
)
|
|
(12.1
|
)
|
|
Net cash from/(used by) investing activities
|
|
2.0
|
|
|
(371.2
|
)
|
|
(38.8
|
)
|
|
Cash Flow from Financing Activities
|
|
|
|
|
|
|
|
Net transfers to Edgewell
|
|
—
|
|
|
—
|
|
|
(648.8
|
)
|
|
Cash Proceeds from issuance of debt with original maturities greater than 90 days
|
|
—
|
|
|
—
|
|
|
999.0
|
|
|
Payments on debt with maturities greater than 90 days
|
|
(4.0
|
)
|
|
(3.0
|
)
|
|
(1.0
|
)
|
|
Net increase/(decrease) in debt with maturities 90 days or less
|
|
36.5
|
|
|
58.9
|
|
|
(12.4
|
)
|
|
Dividends paid
|
|
(69.1
|
)
|
|
(62.7
|
)
|
|
(15.5
|
)
|
|
Debt issuance costs
|
|
(0.8
|
)
|
|
(1.6
|
)
|
|
(12.1
|
)
|
|
Common stock purchased
|
|
(59.5
|
)
|
|
(31.8
|
)
|
|
—
|
|
|
Excess tax benefits from share-based payments
|
|
—
|
|
|
1.0
|
|
|
—
|
|
|
Taxes paid for withheld share-based payments
|
|
(10.0
|
)
|
|
(6.2
|
)
|
|
—
|
|
|
Net cash (used by)/from financing activities
|
|
(106.9
|
)
|
|
(45.4
|
)
|
|
309.2
|
|
|
Effect of exchange rate changes on cash
|
|
(1.6
|
)
|
|
7.9
|
|
|
(19.7
|
)
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
90.7
|
|
|
(214.8
|
)
|
|
412.5
|
|
|
Cash and cash equivalents, beginning of period
|
|
287.3
|
|
|
502.1
|
|
|
89.6
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
378.0
|
|
|
$
|
287.3
|
|
|
$
|
502.1
|
|
The above financial statements should be read in conjunction with the Notes To Consolidated Financial Statements.
ENERGIZER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIT)
(Dollars in millions, shares in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares Outstanding
|
Common Stock
|
Additional Paid-in Capital
|
Retained Earnings
|
Net Investment of Edgewell
|
Accumulated Other Comprehensive (Loss)/Income
|
Treasury Stock
|
Total Shareholders' Equity/(Deficit)
|
|
Balance, September 30, 2014
|
—
|
|
—
|
|
—
|
|
—
|
|
756.2
|
|
(31.7
|
)
|
—
|
|
724.5
|
|
|
Net earnings/(loss)
|
—
|
|
—
|
|
—
|
|
23.1
|
|
(27.1
|
)
|
—
|
|
—
|
|
(4.0
|
)
|
|
Net decrease in Edgewell investment
|
—
|
|
—
|
|
—
|
|
—
|
|
(946.6
|
)
|
|
|
—
|
|
(946.6
|
)
|
|
Separation related adjustments
|
—
|
|
—
|
|
—
|
|
—
|
|
393.5
|
|
(93.9
|
)
|
—
|
|
299.6
|
|
|
Reclassification of net investment to additional paid-in capital
|
—
|
|
—
|
|
176.0
|
|
—
|
|
(176.0
|
)
|
—
|
|
—
|
|
—
|
|
|
Issuance of common stock at spin-off
|
62,193
|
|
0.6
|
|
(0.6
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Share based payments
|
—
|
|
—
|
|
6.3
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6.3
|
|
|
Activity under stock plans
|
2
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Dividends to shareholders
|
—
|
|
—
|
|
—
|
|
(16.2
|
)
|
—
|
|
—
|
|
—
|
|
(16.2
|
)
|
|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(123.7
|
)
|
—
|
|
(123.7
|
)
|
|
Balance, September 30, 2015
|
62,195
|
|
0.6
|
|
181.7
|
|
6.9
|
|
—
|
|
(249.3
|
)
|
—
|
|
(60.1
|
)
|
|
Net earnings
|
—
|
|
—
|
|
—
|
|
127.7
|
|
—
|
|
—
|
|
—
|
|
127.7
|
|
|
Share based payments
|
—
|
|
—
|
|
20.4
|
|
—
|
|
—
|
|
—
|
|
—
|
|
20.4
|
|
|
Common stock purchased
|
(833
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(32.6
|
)
|
(32.6
|
)
|
|
Activity under stock plans
|
311
|
|
—
|
|
(7.5
|
)
|
—
|
|
—
|
|
—
|
|
2.6
|
|
(4.9
|
)
|
|
Dividends to shareholders
|
—
|
|
—
|
|
—
|
|
(63.7
|
)
|
—
|
|
—
|
|
—
|
|
(63.7
|
)
|
|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(16.8
|
)
|
—
|
|
(16.8
|
)
|
|
Balance, September 30, 2016
|
61,673
|
|
$
|
0.6
|
|
$
|
194.6
|
|
$
|
70.9
|
|
$
|
—
|
|
$
|
(266.1
|
)
|
$
|
(30.0
|
)
|
$
|
(30.0
|
)
|
|
Net earnings
|
|
|
—
|
|
—
|
|
201.5
|
|
—
|
|
—
|
|
—
|
|
201.5
|
|
|
Share based payments
|
|
|
—
|
|
24.3
|
|
—
|
|
—
|
|
—
|
|
—
|
|
24.3
|
|
|
Common stock purchased
|
(1,389
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(58.7
|
)
|
(58.7
|
)
|
|
Activity under stock plans
|
425
|
|
—
|
|
(22.2
|
)
|
(4.4
|
)
|
—
|
|
—
|
|
16.6
|
|
(10.0
|
)
|
|
Dividends to shareholders
|
|
|
—
|
|
—
|
|
(69.3
|
)
|
—
|
|
—
|
|
—
|
|
(69.3
|
)
|
|
Other comprehensive income
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
27.3
|
|
—
|
|
27.3
|
|
|
Balance, September 30, 2017
|
60,709
|
|
$
|
0.6
|
|
$
|
196.7
|
|
$
|
198.7
|
|
$
|
—
|
|
$
|
(238.8
|
)
|
$
|
(72.1
|
)
|
$
|
85.1
|
|
The above financial statements should be read in conjunction with the Notes To Consolidated Financial Statements.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(1) Description of Business and Basis of Presentation
Description of Business
–
Energizer Holdings, Inc. and its subsidiaries (Energizer or the Company) is a global manufacturer, marketer and distributer of household batteries, specialty batteries and portable lights under the Energizer® and Eveready® brand names. Energizer offers batteries using lithium, alkaline, carbon zinc, nickel metal hydride, zinc air and silver oxide constructions. On July 1, 2016, Energizer expanded its portfolio of brands with an acquisition of a leading designer and marketer of automotive fragrance and appearance products (auto care acquisition). With the auto care acquisition, the Company's brands now include Refresh Your Car!®, California Scents®, Driven®, Bahama & Co.®, LEXOL® and Eagle One®.
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."
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 included expense allocations for: (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 were 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. 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 during the periods prior to July 1, 2015. It is not practicable to estimate actual costs that would have been incurred had Energizer been a standalone company during the periods prior to the Spin-off. 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.
(2) Summary of Significant Accounting Policies
Energizer’s significant accounting policies, which conform to GAAP and are applied on a consistent basis in all years presented, except as indicated, are described below.
Use of Estimates –
The preparation of the Company's Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. On an ongoing basis, Energizer evaluates its estimates, including those related to customer promotional programs and incentives, product returns, bad debts, the carrying value of inventories, intangible and other long-lived assets, income taxes, pensions and other postretirement benefits, share-based compensation, contingencies and acquisitions. Actual results could differ materially from those estimates. In regard to ongoing impairment testing of goodwill and indefinite lived intangible assets, significant deterioration in future cash flow projections, changes in discount rates used in discounted cash flow models or changes in other assumptions used in estimating fair values, versus those anticipated at the time of the initial acquisition, as well as subsequent estimated valuations, could result in impairment charges that may materially affect the financial statements in a given year.
Cash and Cash Equivalents –
Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less. At
September 30, 2017
and 2016, Energizer had
$378.0
and
$287.3
, respectively, in available cash,
98%
and
96%
of which was outside of the U.S., respectively. The Company has extensive operations, including a significant manufacturing footprint outside of the U.S. 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
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
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. U.S. income taxes have not been provided on a significant portion of undistributed earnings of international subsidiaries. Our intention is to reinvest these earnings indefinitely.
Foreign Currency Translation
– Financial statements of foreign operations where the local currency is the functional currency are translated using end-of-period exchange rates for assets and liabilities and average exchange rates during the period for results of operations. Related translation adjustments are reported as a component within accumulated other comprehensive income in the equity section of the Consolidated Balance Sheets, except as noted in Note 6, Venezuela.
Financial Instruments and Derivative Securities
– Energizer uses financial instruments, from time to time, in the management of foreign currency, interest rate risk and commodity price risks that are inherent to its business operations. Such instruments are not held or issued for trading purposes.
Every derivative instrument (including certain derivative instruments embedded in other contracts) is required to be recorded on the balance sheet at fair value as either an asset or liability. Changes in fair value of recorded derivatives are required to be recognized in earnings unless specific hedge accounting criteria are met.
Foreign exchange instruments, including currency forwards, are used primarily to reduce cash transaction exposures and to manage other translation exposures. Foreign exchange instruments used are selected based on their risk reduction attributes, costs and the related market conditions. The Company has designated certain foreign currency contracts as cash flow hedges for accounting purposes
as of September 30, 2017
and
2016
.
The Company has interest rate risk with respect to interest expense on variable rate debt. The Company is party to an interest rate swap agreement with one major financial institution that fixes the variable benchmark component (LIBOR) on
$200.0
of the Company's variable rate debt at
September 30, 2017
and 2016.
Energizer uses raw materials that are subject to price volatility. The Company may use hedging instruments to reduce exposure to variability in cash flows associated with future purchases of commodities. There were no outstanding derivative contracts for the future purchases of commodities
as of September 30, 2017
and 2016.
Cash Flow Presentation
– The Consolidated Statements of Cash Flows are prepared using the indirect method, which reconciles net earnings to cash flow from operating activities. The reconciliation adjustments include the removal of timing differences between the occurrence of operating receipts and payments and their recognition in net earnings. The adjustments also remove cash flows arising from investing and financing activities, which are presented separately from operating activities. Cash flows from foreign currency transactions and operations are translated at an average exchange rate for the period. Cash flows from hedging activities are included in the same category as the items being hedged, which is primarily operating activities. Cash payments related to income taxes are classified as operating activities.
Trade Receivables, net
– Trade receivables are stated at their net realizable value. The allowance for doubtful accounts reflects the Company's best estimate of probable losses inherent in the receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information. Bad debt expense is included in Selling, general and administrative expense (SG&A) in the Consolidated Statements of Earnings and Comprehensive Income.
Trade Receivables, net consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2017
|
|
2016
|
|
Trade Receivables
|
|
$
|
236.0
|
|
|
$
|
197.8
|
|
|
Allowance for returns and doubtful accounts
|
|
(5.8
|
)
|
|
(6.9
|
)
|
|
Trade Receivables, net
|
|
$
|
230.2
|
|
|
$
|
190.9
|
|
Inventories
– Inventories are valued at the lower of cost or market, with cost generally being determined using average cost or the first-in, first-out (FIFO) method. The Company records a reserve for excess and obsolete inventory based upon the historical usage rates, sales patterns of its products and specifically-identified obsolete inventory.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
Capitalized Software Costs
– Capitalized software costs are included in other assets. These costs are amortized using the straight-line method over periods of related benefit ranging from
three
to
seven
years. Expenditures related to capitalized software are included in the Capital expenditures caption in the Consolidated Statements of Cash Flows. For the
twelve months ended September 30, 2017
,
2016
and
2015
, amortization expense was
$5.3
,
$3.6
and
$4.7
, respectively.
Property, Plant and Equipment, net
– Property, plant and equipment, net is stated at historical costs. Expenditures for new facilities and expenditures that substantially increase the useful life of property, including interest during construction, are capitalized and reported in the Capital expenditures caption in the Consolidated Statements of Cash Flows. Maintenance, repairs and minor renewals are expensed as incurred. When property is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and gains or losses on the disposition are reflected in earnings. Depreciation is generally provided on the straight-line basis by charges to pre-tax earnings at rates based on estimated useful lives. Estimated useful lives range from
two
to
twenty-five
years for machinery and equipment and
three
to
thirty
years for buildings and building improvements. Depreciation expense in 2017, 2016, and 2015 was
$33.7
,
$27.9
, and
$37.1
, respectively, excluding accelerated depreciation charges of
$2.4
and
$9.1
, in 2016 and 2015, respectively, primarily related to certain manufacturing assets including properly, plant, and equipment located at the facilities that were closed or streamlined. See Note 4, Restructuring, of the Notes to the Consolidated Financial Statements.
Estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively. When certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts.
Impairment of Long-Lived Assets
– Energizer reviews long-lived assets, other than goodwill and other intangible assets for impairment, when events or changes in business circumstances indicate that the remaining useful life may warrant revision or that the carrying amount of the long-lived asset may not be fully recoverable. Energizer performs undiscounted cash flow analysis to determine if impairment exists. If impairment is determined to exist, any related impairment loss is calculated based on estimated fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less cost of disposal.
In November 2012, Edgewell’s Board of Directors authorized an enterprise-wide restructuring plan, which included the closure of certain facilities in fiscal 2013, 2014 and 2015. As a result of the Spin-off, Energizer was allocated and recorded a portion of these expenses including accelerated depreciation charges of
$9.1
for the twelve months ended September 30, 2015, related primarily to certain manufacturing assets including property, plant and equipment located at the facilities that were closed or streamlined. This restructuring plan has concluded.
Goodwill and Other Intangible Assets
– Goodwill and indefinite-lived intangibles are not amortized, but are evaluated annually for impairment as part of the Company's annual business planning cycle in the fourth fiscal quarter, or when indicators of a potential impairment are present. Intangible assets with finite lives are amortized on a straight-line basis over expected lives. Such intangibles are also evaluated for impairment including ongoing monitoring of potential impairment indicators.
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 discount 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.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
Advertising and Sales Promotion Costs
– The Company advertises and promotes its products through national and regional media and expenses such activities as incurred. Advertising costs were
$86.2
,
$65.0
, and
$87.5
for the fiscal years ended September 30,
2017
,
2016
,
2015
, respectively.
Research and Development Costs
- The Company expenses research and development costs as incurred.
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.
The Company has repatriated 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. The Company intends 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, 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, the Company 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.
Share-Based Payments
– The Company grants restricted stock equivalents, which generally vest over
two
to
four
years. Stock compensation expense is measured at the grant date based on the estimated fair value of the award and is recognized on a straight-line basis over the full restriction period of the award, with forfeitures recognized as they occur.
Estimated Fair Values of Financial Instruments
– Certain financial instruments are required to be recorded at the estimated fair value. Changes in assumptions or estimation methods could affect the fair value estimates; however, we do not believe any such changes would have a material impact on our financial condition, results of operations or cash flows. Other financial instruments including cash and cash equivalents and short-term borrowings, including notes payable, are recorded at cost, which approximates estimated fair value.
Reclassifications -
Certain reclassifications have been made to the prior year financial statements to conform to the current presentation.
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, 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
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
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 restricted stock equivalent awards (RSEA) 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 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.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
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 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.
(3) Spin Costs
The Company incurred costs associated with the evaluation, planning and execution of the Spin-off. During the twelve months ended September 30, 2017, the Company recorded income of
$3.8
in spin restructuring which included
$2.5
of income in the second quarter reflecting the true up of previously accrued contract termination costs related to the 2016 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.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
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.
Energizer does not include the spin restructuring costs in the results of its reportable segments. The estimated impact of allocating such charges to segment results would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended September 30, 2017
|
|
|
Americas
|
|
EMEA
|
|
Asia Pacific
|
|
Corporate
|
|
Total
|
|
Contract termination costs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2.5
|
)
|
|
$
|
(2.5
|
)
|
|
Net gain on asset sale
|
(1.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.3
|
)
|
|
Total
|
$
|
(1.3
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2.5
|
)
|
|
$
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended September 30, 2016
|
|
|
Americas
|
|
EMEA
|
|
Asia Pacific
|
|
Corporate
|
|
Total
|
|
Severance and termination related costs
|
$
|
(2.2
|
)
|
|
$
|
1.1
|
|
|
$
|
0.8
|
|
|
$
|
0.5
|
|
|
$
|
0.2
|
|
|
Non-cash asset write-down
|
—
|
|
|
0.5
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
Contract termination costs
|
3.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.7
|
|
|
Other exit costs
|
0.3
|
|
|
0.7
|
|
|
1.0
|
|
|
—
|
|
|
2.0
|
|
|
Net gain on asset sale
|
—
|
|
|
(0.6
|
)
|
|
—
|
|
|
—
|
|
|
(0.6
|
)
|
|
Total
|
$
|
1.8
|
|
|
$
|
1.7
|
|
|
$
|
1.8
|
|
|
$
|
0.5
|
|
|
$
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended September 30, 2015
|
|
|
Americas
|
|
EMEA
|
|
Asia Pacific
|
|
Corporate
|
|
Total
|
|
Severance and termination related costs
|
$
|
9.1
|
|
|
$
|
6.0
|
|
|
$
|
5.3
|
|
|
$
|
12.0
|
|
|
$
|
32.4
|
|
|
Non-cash asset write-down
|
3.2
|
|
|
0.2
|
|
|
0.6
|
|
|
—
|
|
|
4.0
|
|
|
Other exit costs
|
0.4
|
|
|
0.6
|
|
|
1.7
|
|
|
—
|
|
|
2.7
|
|
|
Total
|
$
|
12.7
|
|
|
$
|
6.8
|
|
|
$
|
7.6
|
|
|
$
|
12.0
|
|
|
$
|
39.1
|
|
The following tables represent the spin restructuring accrual activity and ending accrual balance at September 30, 2017 and September 30, 2016 on the Consolidated Balance Sheet. At September 30, 2016,
$4.0
of the liability was recorded in Other current liabilities and the remaining $
2.4
was recorded in Other liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilized
|
|
|
|
|
|
October 1, 2016
|
|
Charge to Income
|
|
Cash
|
|
Non-Cash
|
|
September 30, 2017
|
|
Severance and termination related costs
|
|
$
|
2.8
|
|
|
$
|
—
|
|
|
$
|
(2.8
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Contract termination costs
|
|
3.6
|
|
|
(2.5
|
)
|
|
(1.1
|
)
|
|
—
|
|
|
—
|
|
|
Net gain on asset sale
|
|
—
|
|
|
(1.3
|
)
|
|
1.3
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
6.4
|
|
|
$
|
(3.8
|
)
|
|
$
|
(2.6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilized
|
|
|
|
|
|
October 1, 2015
|
|
Charge to Income
|
|
Cash
|
|
Non-Cash
|
|
September 30, 2016
|
|
Severance and termination related costs
|
|
$
|
12.0
|
|
|
$
|
0.2
|
|
|
$
|
(9.4
|
)
|
|
$
|
—
|
|
|
$
|
2.8
|
|
|
Non-cash asset write down
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
|
Contract termination costs
|
|
—
|
|
|
3.7
|
|
|
(0.1
|
)
|
|
—
|
|
|
3.6
|
|
|
Other exit costs
|
|
0.3
|
|
|
2.0
|
|
|
(2.3
|
)
|
|
—
|
|
|
—
|
|
|
Net gain on asset sale
|
|
—
|
|
|
(0.6
|
)
|
|
0.6
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
12.3
|
|
|
$
|
5.8
|
|
|
$
|
(11.2
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
6.4
|
|
(4) Restructuring
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). This initiative impacted Edgewell’s Household Products and Personal Care businesses. In January 2014, Edgewell’s Board of Directors authorized an expansion of scope of the previously announced 2013 restructuring project.
No restructuring expense was incurred in the period ending September 30, 2017. The pre-tax expense for charges and credits related to the 2013 restructuring project for Energizer for the twelve months ended September 30, 2016 and 2015 are noted in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended September 30, 2016
|
|
|
Americas
|
|
EMEA
|
|
Asia Pacific
|
|
Corporate
|
|
Total
|
|
Severance and related benefit costs
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
Consulting, program management and other exit costs
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
Net loss on asset sale
|
2.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
|
Total
|
$
|
2.3
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended September 30, 2015
|
|
|
Americas
|
|
EMEA
|
|
Asia Pacific
|
|
Corporate
|
|
Total
|
|
Severance and related benefit costs
|
$
|
0.1
|
|
|
$
|
0.5
|
|
|
$
|
6.6
|
|
|
$
|
(0.2
|
)
|
|
$
|
7.0
|
|
|
Accelerated depreciation
|
—
|
|
|
—
|
|
|
9.1
|
|
|
—
|
|
|
9.1
|
|
|
Consulting, program management and other exit costs
|
2.3
|
|
|
0.3
|
|
|
1.9
|
|
|
—
|
|
|
4.5
|
|
|
Net gain on asset sale
|
—
|
|
|
—
|
|
|
(11.0
|
)
|
|
—
|
|
|
(11.0
|
)
|
|
Total
|
$
|
2.4
|
|
|
$
|
0.8
|
|
|
$
|
6.6
|
|
|
$
|
(0.2
|
)
|
|
$
|
9.6
|
|
Total pre-tax restructuring charges since the inception of the project and through
September 30, 2017
, have totaled approximately
$200
. The 2013 Restructuring project concluded as of September 30, 2016.
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.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
The following tables summarize the activity related to the 2013 restructuring project for the twelve months ended September 30, 2017 and 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilized
|
|
|
|
|
October 1, 2016
|
|
Charge to Income
|
|
Cash
|
|
Non-Cash
|
|
September 30, 2017
|
|
Severance and termination related costs
|
$
|
1.2
|
|
|
$
|
—
|
|
|
$
|
(1.2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other related costs
|
0.3
|
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
1.5
|
|
|
$
|
—
|
|
|
$
|
(1.5
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilized
|
|
|
|
|
October 1, 2015
|
|
Charge to Income
|
|
Cash
|
|
Non-Cash
|
|
September 30, 2016
|
|
Severance and termination related costs
|
$
|
4.0
|
|
|
$
|
0.2
|
|
|
$
|
(3.0
|
)
|
|
$
|
—
|
|
|
$
|
1.2
|
|
|
Other related costs
|
—
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
Net loss on asset sales
|
—
|
|
|
2.0
|
|
|
—
|
|
|
(2.0
|
)
|
|
—
|
|
|
Total
|
$
|
4.0
|
|
|
$
|
2.5
|
|
|
$
|
(3.0
|
)
|
|
$
|
(2.0
|
)
|
|
$
|
1.5
|
|
Other Activities
The Company is also streamlining certain manufacturing operations. During the twelve months ended September 30, 2016 and 2015, the Company recorded
$2.4
of accelerated depreciation and
$0.8
of severance, respectively, in Cost of products sold on the Consolidated Statements of Earnings and Comprehensive Income related to the streamlining of a plant in North America. The streamlining of this plant was completed in fiscal 2016.
(5) Acquisitions
On July 1, 2016, the Company acquired HandStands Holdings Corporation, a leading designer and marketer of automotive fragrance and appearance products, for a total purchase price of
$340.0
plus working capital adjustments of $
4.0
, net of acquired cash. The Company financed the acquisition with
$300.0
of cash on hand and
$44.0
of borrowings on our senior secured revolving credit facility (Revolving Facility). The Company initially utilized a
$200.0
bridge loan and
$144.0
of borrowings on our Revolving Facility to complete the transaction. In the month of July 2016, the bridge loan and $
100.0
of our Revolving Facility borrowings were paid down utilizing cash on hand. The Company incurred an additional
$1.2
of interest expense in July related to this outstanding bridge loan. The Company did not incur incremental U.S. taxes in the current year from utilizing foreign cash for this transaction.
With the auto care acquisition, Energizer's brands now include Refresh Your Car!®, California Scents®, Driven®, Bahama & Co.®, LEXOL® and Eagle One®. The acquisition will allow the Company to expand its portfolio, increase presence at existing customers, and utilize its scale and global supply chain to drive efficiencies. The Company incurred
$8.4
of acquisition and integration costs in the year ended September 30, 2017, of which
$1.1
were recorded on Cost of products sold,
$4.0
were recorded in SG&A, and
$3.3
were recorded in Other items, net on the Consolidated Condensed Statements of Earnings and Comprehensive Income. The Company incurred
$10.0
of acquisition and integration costs in the year ended September 30, 2016, which were recorded within SG&A on the Consolidated Condensed Statements of Earnings and Comprehensive Income.
We have calculated fair values of assets and liabilities acquired for the auto care acquisition based on our valuation analysis. For purposes of the allocation, the Company determined a fair value adjustment for inventory based on the estimated selling price of finished goods on hand at the closing date less the sum of (a) costs of disposal and (b) a reasonable profit allowance for the selling effort of the acquiring entity. The fair value adjustment for the inventory of
$8.1
was recorded as expense to Cost of products sold in the fourth quarter 2016 as that inventory was sold. The fair value adjustment for acquired property, plant and equipment was established using a cost approach. The fair values of the auto care acquisition's identifiable intangible assets were estimated using various valuation methods including discounted cash flows utilizing an income approach and relief from royalties. Deferred income tax impacts as a result of purchase accounting adjustments are reflected using the applicable statutory income tax rates.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
The purchase price allocation is as follows:
|
|
|
|
|
|
|
|
Accounts receivable
|
$
|
22.5
|
|
|
Inventory
|
30.9
|
|
|
Other current assets
|
6.5
|
|
|
Property, plant and equipment
|
4.7
|
|
|
Goodwill
|
193.1
|
|
|
Other identifiable intangible assets
|
159.5
|
|
|
Accounts payable
|
(6.2
|
)
|
|
Other liabilities
|
(6.4
|
)
|
|
Deferred income taxes
|
(60.6
|
)
|
|
Net assets acquired
|
$
|
344.0
|
|
The break out of purchased identifiable intangible assets of
$159.5
is included in the table below.
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Weighted Average Useful Lives
|
|
Trademarks
|
$
|
40.1
|
|
|
15.0 years
|
|
Customer Relationships
|
84.4
|
|
|
14.6 years
|
|
Patents
|
34.5
|
|
|
14.1 years
|
|
Non-Compete
|
0.5
|
|
|
5.0 years
|
|
Total Other Intangible Assets
|
$
|
159.5
|
|
|
14.6 years
|
The purchase price allocation was finalized in fiscal 2016. The goodwill acquired in this acquisition is attributable to the workforce of the acquired business and the synergies expected to arise with this transaction. The acquired goodwill has been allocated to the Americas' reportable segment. The goodwill is not deductible for tax purposes.
In the fourth quarter of 2016, Net sales and Loss before income taxes attributable to the auto care acquisition was
$32.3
and
$3.5
, respectively. Included in the Loss before income taxes was
$8.1
for the inventory fair value adjustment.
Pro forma Net sales, Net earnings/(loss) and Earnings/(loss) per diluted share results for fiscal years 2016 and 2015 are shown in the table below. The pro forma adjustments include interest and financing costs related to the acquisition and purchase accounting adjustments including the impact of the inventory step up charge as well as depreciation and amortization expense from the fair value of the intangible assets and property, plant and equipment. The impacts of any revenue or cost synergies that may result from combining Energizer and the auto care acquisition are not included in the pro forma table below. The pro forma results are as if the auto care acquisition had occurred on October 1, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Pro forma Net sales
|
$
|
1,719.6
|
|
|
$
|
1,759.9
|
|
|
Pro forma Net earnings/(loss) (a)
|
140.0
|
|
|
(8.2
|
)
|
|
Pro forma Earnings/(loss) per diluted share (a)
|
$
|
2.24
|
|
|
$
|
(0.13
|
)
|
(a) The fiscal year 2015 pro forma net loss and loss per diluted share includes the charges for the
$8.1
inventory fair value adjustment,
$10.0
of acquisition and integration costs, and
$1.2
of interest expense discussed above that were incurred in fiscal 2016. These charges were excluded from the fiscal year 2016 pro forma net earnings and earnings per diluted share.
On December 12, 2014, Edgewell, on behalf of Energizer, completed an acquisition of a battery manufacturing facility in China related to the Household Products business for $
12.1
, primarily related to the purchase of fixed assets. As of September 30, 2015, the purchase price allocation was complete. We have determined the fair values of assets acquired and liabilities assumed for purposes of allocating the purchase price in accordance with accounting guidance for business combinations. Based on the allocation of the purchase price, this transaction resulted in
$2.3
of goodwill.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(6) Venezuela
Effective January 1, 2010, the financial statements for our Venezuela subsidiary were consolidated under the rules governing the translation of financial information in a highly inflationary economy based on the use of the blended National Consumer Price Index in Venezuela. Under generally accepted accounting principles, an economy is considered highly inflationary if the cumulative inflation rate for a three-year period meets or exceeds
100%
. If a subsidiary is considered to be in a highly inflationary economy, the financial statements of the subsidiary must be remeasured into our reporting currency (U.S. dollar) and future exchange gains and losses from the re-measurement of monetary assets and liabilities are reflected in current earnings, rather than exclusively in the equity section of the balance sheet, until such times as the economy is no longer considered highly inflationary.
Prior to March 31, 2015, Edgewell included the results of its Venezuelan operations in its consolidated financial statements using the consolidation method of accounting. Edgewell’s Venezuelan earnings and cash flows were reflected in their consolidated financial statements at the official exchange rate of
6.30
bolivars per U.S. dollar for the sixth months ended March 31, 2015. At March 31, 2015, Edgewell had $
33.8
of USD intercompany receivables due from its Venezuela subsidiaries, for household and personal care products previously imported, the majority of which have been outstanding since Fiscal 2010. As of March 31, 2015, Edgewell’s Venezuela subsidiary held bolivar denominated cash deposits of $
93.8
(at the
6.30
per U.S. dollar rate).
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 Edgewell’s 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 Edgewell’s Venezuelan operations and access the resulting liquidity provided by those earnings. We expect that this condition will continue for the foreseeable future. This lack of exchangeability has resulted in a lack of control over Edgewell’s Venezuelan subsidiaries for accounting purposes. Edgewell deconsolidated its Venezuelan subsidiaries on March 31, 2015 and began accounting for its investment in its Venezuelan operations using the cost method of accounting. As a result of deconsolidating its Venezuelan subsidiaries, 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
|
Since the deconsolidation as of March 31, 2015, Energizer's financial results do not include the operating results of the Venezuelan operations. Instead, Energizer records revenue for sales of inventory to our Venezuelan operations in our consolidated financial statements to the extent cash is received. Further, dividends from Energizer’s 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
recorded in the first six months of the year. The Venezuela activity recorded since the deconsolidation has been immaterial. The Company has begun the process of liquidating the Venezuela operations and does not expect any material future costs associated with these operations.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(7) Goodwill and intangible assets
Goodwill and intangible assets deemed to have an indefinite life are not amortized, but are reviewed annually for impairment of value or when indicators of a potential impairment are present. As part of our business planning cycle, we performed our annual goodwill impairment testing for our North America, Latin America, EMEA and Asia Pacific reporting units in the fourth quarter of fiscal 2017. There were no indications of impairment of goodwill noted during this testing or throughout fiscal 2017.
The following table represents the change in the carrying amount of goodwill
at September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
EMEA
|
|
Asia Pacific
|
|
Total
|
|
Balance at October 1, 2016
|
|
$
|
213.7
|
|
|
$
|
5.3
|
|
|
$
|
10.7
|
|
|
$
|
229.7
|
|
|
Cumulative translation adjustment
|
|
0.1
|
|
|
0.2
|
|
|
—
|
|
|
0.3
|
|
|
Balance at September 30, 2017
|
|
$
|
213.8
|
|
|
$
|
5.5
|
|
|
$
|
10.7
|
|
|
$
|
230.0
|
|
The Company had indefinite-lived intangible assets of
$78.3
at September 30, 2017
and
$78.0
at September 30, 2016
. Changes in indefinite-lived intangible assets are due to changes in foreign currency translation. We completed impairment testing on indefinite-lived intangible assets other than goodwill, which are trademarks/brand names used in our various battery and lighting product categories. No impairment was indicated as a result of this testing.
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.
Total amortizable intangible assets at September 30, 2017 and 2016, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Trademarks
|
$
|
40.1
|
|
|
$
|
3.4
|
|
|
$
|
36.7
|
|
|
Customer Relationships
|
84.4
|
|
|
7.3
|
|
|
77.1
|
|
|
Patents
|
34.5
|
|
|
3.2
|
|
|
31.3
|
|
|
Non-Compete
|
0.5
|
|
|
0.1
|
|
|
0.4
|
|
|
Total Intangible Assets at September 30, 2017
|
$
|
159.5
|
|
|
$
|
14.0
|
|
|
$
|
145.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Trademarks
|
$
|
40.1
|
|
|
$
|
0.7
|
|
|
$
|
39.4
|
|
|
Customer Relationships
|
84.4
|
|
|
1.5
|
|
|
82.9
|
|
|
Patents
|
34.5
|
|
|
0.6
|
|
|
33.9
|
|
|
Non-Compete
|
0.5
|
|
|
—
|
|
|
0.5
|
|
|
Total Intangible Assets at September 30, 2016
|
$
|
159.5
|
|
|
$
|
2.8
|
|
|
$
|
156.7
|
|
Amortizable intangible assets, with a weighted average remaining life of
13.3
years, are amortized on a straight-line basis over expected lives of
5
to
17
years. Amortization expense for intangible assets totaled $
11.2
and
$2.8
for the twelve months ended September 30, 2017 and 2016, respectively. Estimated amortization expense for amortizable intangible assets at September 30, 2017 is:
$11.2
in 2018,
$11.2
in 2019,
$11.2
in 2020,
$11.1
in 2021, and
$11.1
in 2022, and
$89.7
thereafter.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(8) Income Taxes
The provisions for income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
|
2017
|
|
2016
|
|
2015
|
|
Currently payable:
|
|
|
|
|
|
|
United States - Federal
|
$
|
39.4
|
|
|
$
|
9.5
|
|
|
$
|
(20.6
|
)
|
|
State
|
4.2
|
|
|
3.0
|
|
|
(1.4
|
)
|
|
Foreign
|
32.6
|
|
|
21.3
|
|
|
32.4
|
|
|
Total current
|
76.2
|
|
|
33.8
|
|
|
10.4
|
|
|
Deferred:
|
|
|
|
|
|
|
United States - Federal
|
(7.4
|
)
|
|
5.5
|
|
|
(3.5
|
)
|
|
State
|
(0.2
|
)
|
|
(2.4
|
)
|
|
(0.2
|
)
|
|
Foreign
|
3.2
|
|
|
1.1
|
|
|
(3.4
|
)
|
|
Total deferred
|
(4.4
|
)
|
|
4.2
|
|
|
(7.1
|
)
|
|
Provision for income taxes
|
$
|
71.8
|
|
|
$
|
38.0
|
|
|
$
|
3.3
|
|
The source of pre-tax earnings/(loss) was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
|
2017
|
|
2016
|
|
2015
|
|
United States
|
$
|
96.4
|
|
|
$
|
40.2
|
|
|
$
|
(144.5
|
)
|
|
Foreign
|
176.9
|
|
|
125.5
|
|
|
143.8
|
|
|
Pre-tax earnings/(loss)
|
$
|
273.3
|
|
|
$
|
165.7
|
|
|
$
|
(0.7
|
)
|
A reconciliation of income taxes with the amounts computed at the statutory federal income tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
|
2017
|
|
2016
|
|
2015
|
|
Computed tax at federal statutory rate
|
$
|
95.7
|
|
|
35.0
|
%
|
|
$
|
58.0
|
|
|
35.0
|
%
|
|
$
|
(0.3
|
)
|
|
35.0
|
%
|
|
State income taxes, net of federal tax benefit
|
2.8
|
|
|
1.0
|
|
|
1.7
|
|
|
1.0
|
|
|
(1.6
|
)
|
|
N/M
|
|
|
Foreign tax less than the federal rate
|
(26.5
|
)
|
|
(9.7
|
)
|
|
(21.7
|
)
|
|
(13.1
|
)
|
|
(20.8
|
)
|
|
N/M
|
|
|
Other taxes including repatriation of foreign earnings
|
2.2
|
|
|
0.8
|
|
|
5.7
|
|
|
3.4
|
|
|
2.2
|
|
|
N/M
|
|
|
Nondeductible spin costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
|
N/M
|
|
|
Deconsolidation of Venezuela operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22.8
|
|
|
N/M
|
|
|
Other, net
|
(2.4
|
)
|
|
(0.8
|
)
|
|
(5.7
|
)
|
|
(3.4
|
)
|
|
(1.0
|
)
|
|
N/M
|
|
|
Total
|
$
|
71.8
|
|
|
26.3
|
%
|
|
$
|
38.0
|
|
|
22.9
|
%
|
|
$
|
3.3
|
|
|
455.1
|
%
|
N/M - The percentage rate reconciliation of income taxes is not meaningful.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
The deferred tax assets and deferred tax liabilities at the end of each year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2017
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
Accrued liabilities
|
$
|
57.3
|
|
|
$
|
45.6
|
|
|
Deferred and stock-related compensation
|
25.0
|
|
|
26.8
|
|
|
Tax loss carryforwards and tax credits
|
18.3
|
|
|
19.9
|
|
|
Intangible assets
|
0.8
|
|
|
1.6
|
|
|
Pension plans
|
24.3
|
|
|
41.9
|
|
|
Inventory differences and other tax assets
|
10.2
|
|
|
13.0
|
|
|
Gross deferred tax assets
|
135.9
|
|
|
148.8
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Depreciation and property differences
|
(16.2
|
)
|
|
(16.2
|
)
|
|
Intangible assets
|
(65.6
|
)
|
|
(62.3
|
)
|
|
Other tax liabilities
|
(3.6
|
)
|
|
(3.0
|
)
|
|
Gross deferred tax liabilities
|
(85.4
|
)
|
|
(81.5
|
)
|
|
Valuation allowance
|
(19.3
|
)
|
|
(19.7
|
)
|
|
Net deferred tax assets
|
$
|
31.2
|
|
|
$
|
47.6
|
|
There were
no
material tax loss carryforwards that expired in fiscal
2017
. Future expirations of tax loss carryforwards and tax credits, if not utilized, are
$11.1
between 2018 and 2021
at September 30, 2017
. In addition, there are
$4.6
of tax loss carryforwards and credits with no expiration
at September 30, 2017
. The valuation allowance is attributed to tax loss carryforwards and tax credits outside the U.S.
The Company has repatriated 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 has been made for additional taxes on undistributed earnings of foreign affiliates that the Company intended and planned to be indefinitely invested in the affiliate.
At September 30, 2017
, approximately
$800
of foreign subsidiary earnings related to Energizer was considered indefinitely invested in those businesses. We estimate that the U.S. federal income tax liability that could potentially arise if indefinitely invested earnings of foreign subsidiaries were repatriated in full to the U.S. would be significant. While it is not practicable to calculate a specific potential U.S. tax exposure due to changing statutory rates in foreign jurisdictions over time, as well as other factors, we estimate the range of potential U.S. tax may be in excess of
$110
, if all undistributed earnings were repatriated assuming foreign cash was available to do so. Applicable U.S. income and foreign withholding taxes would be provided on these earnings in the periods in which they are no longer considered indefinitely reinvested.
The unrecognized tax benefits activity is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
|
2017
|
|
2016
|
|
2015
|
|
Unrecognized tax benefits, beginning of year
|
$
|
9.4
|
|
|
$
|
8.5
|
|
|
$
|
12.7
|
|
|
Additions based on current year tax positions and acquisitions
|
1.3
|
|
|
0.9
|
|
|
6.1
|
|
|
Reductions for prior year tax positions
|
—
|
|
|
—
|
|
|
(10.3
|
)
|
|
Settlements with taxing authorities/statute expirations
|
(1.2
|
)
|
|
—
|
|
|
—
|
|
|
Unrecognized tax benefits, end of year
|
$
|
9.5
|
|
|
$
|
9.4
|
|
|
$
|
8.5
|
|
Included in the unrecognized tax benefits noted above are
$9.5
of uncertain tax positions that would affect Energizer’s effective tax rate, if recognized. Energizer does not expect any significant increases or decreases to their unrecognized tax benefits within twelve months of this reporting date. In the Consolidated Balance Sheets, unrecognized tax benefits are classified as Other
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
liabilities (non-current) to the extent that payments are not anticipated within one year. The fiscal 2015 reduction to prior year tax positions was related to transfers of the unrecognized tax benefits to Edgewell as of the date of the Spin-off.
Energizer classifies accrued interest and penalties related to unrecognized tax benefits in the income tax provision. The accrued interest and penalties are not included in the table above. Energizer has accrued
$1.8
of interest (net of the deferred tax asset of
$0.3
) and penalties of
$2.3
at September 30, 2017
,
$1.4
of interest (net of the deferred tax asset of
$0.3
) and penalties of
$1.5
at September 30, 2016
, and
$0.7
of interest (net of the deferred tax asset of
$0.2
) and penalties of
$1.3
at September 30, 2015. Interest was computed on the difference between the tax position recognized in accordance with GAAP and the amount expected to be taken in the Company's tax return.
The Company has a Tax Matters Agreement with Edgewell which provides that Edgewell shall be liable for and shall indemnify Energizer against all U.S. federal income taxes as well as various foreign legal entities, where Edgewell has retained the legal entity past separation, resulting from tax obligations arising from operations prior to July 1, 2015. In addition, Energizer is liable for and shall indemnify Edgewell against tax obligations arising from operations prior to July 1, 2015 for certain foreign legal entities where the Company has retained the legal entity past separation.
The Company files income tax returns in the U.S. federal jurisdiction, various cities and states, and more than
50
foreign jurisdictions where Energizer has operations. U.S. federal, state and local income tax returns for tax years ended September 30, 2015 and after remain subject to examination by the Internal Revenue Service. There are open examinations at some of the foreign entities and the status of international income tax examinations varies by jurisdiction. At this time, Energizer does not anticipate any material adjustments to its financial statements resulting from tax examinations currently in progress.
(9) Earnings per share
Basic earnings per share is based on the average number of common shares outstanding during the period. Diluted earnings per share is based on the average number of shares used for the basic earnings per share calculation, adjusted for the dilutive effect of restricted stock equivalents and performance shares.
The following table sets forth the computation of basic and diluted earnings/(loss) per share for the years ended September 30,
2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
(in millions, except per share data)
|
2017
|
|
2016
|
|
2015
|
|
Net earnings/(loss)
|
$
|
201.5
|
|
|
$
|
127.7
|
|
|
$
|
(4.0
|
)
|
|
Basic average shares outstanding
|
61.7
|
|
|
61.9
|
|
|
62.2
|
|
|
Effect of dilutive restricted stock equivalents
|
0.5
|
|
|
0.5
|
|
|
—
|
|
|
Effect of dilutive performance shares
|
0.4
|
|
|
0.1
|
|
|
—
|
|
|
Diluted average shares outstanding
|
62.6
|
|
|
62.5
|
|
|
62.2
|
|
|
Basic earnings/(loss) per common share
|
$
|
3.27
|
|
|
$
|
2.06
|
|
|
$
|
(0.06
|
)
|
|
Diluted earnings/(loss) per common share
|
$
|
3.22
|
|
|
$
|
2.04
|
|
|
$
|
(0.06
|
)
|
For the years ended September 30, 2017 and 2016, all restricted stock equivalents were dilutive and included in the diluted net earnings per share calculations. Performance based restricted stock equivalents of
0.5
and
0.5
were excluded for the years ended September 30, 2017 and 2016, respectively, as the performance targets for those shares had not been achieved as of the end of the current period.
Due to the loss incurred for the year ended September 30, 2015, all restricted shares outstanding were excluded from the earnings per share calculation as their inclusion would have been anti-dilutive.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(10) Shareholders' Equity
The Company's articles of incorporation authorized
300 million
shares of common stock and
10 million
shares of preferred stock, each with a par value of
$0.01
per share. On July 1, 2015, Edgewell distributed
62,193,281
shares of Energizer Holdings, Inc. common stock to its shareholders. Each Edgewell common stockholder of record as of the close of business on June 16, 2015, the record date for the distribution, received
one
share in Energizer for each share of Edgewell common stock they held.
As of
September 30, 2017
, approximately
1.8
million shares were reserved for issuance under the Equity Incentive Plan. There were
no
preferred stock issued or outstanding as of
September 30, 2017
.
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. Future share repurchases, 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.
For the twelve months ended September 30, 2017, total dividends declared to shareholders were
$69.3
, of which
$69.1
was paid. For the twelve months ended September 30, 2016, total dividends declared to shareholders were
$63.7
of which
$62.7
was paid. For the twelve months ended September 30, 2015, total dividends declared to shareholders were
$16.2
of which
$15.5
was 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.
(11) Share-Based Payments
The Board of Directors adopted the Energizer Holdings, Inc. Equity Incentive Plan (the Plan) on July 1, 2015, upon completion of the Spin-off. Under the terms of the Plan, stock options, restricted stock awards, restricted stock equivalents, stock appreciation rights and performance-based stock awards may be granted to directors, officers and employees of the Company. The Plan authorizes a maximum number of
10 million
common shares to be awarded, and will remain in effect until June 30, 2025. For purposes of determining the number of shares available for future issuance under the Plan, awards other than stock options and stock appreciation rights, will reduce the shares available for future issuance by
two
for every one share awarded. Stock options and stock appreciation rights reduce the shares available for future issuance on a
one
-for-one basis. The Plan also allowed for the conversion of Edgewell restricted stock equivalents held by Energizer employees and Board of Directors outstanding immediately prior to Spin-off, to be converted to Energizer restricted stock equivalents (RSE) upon completion of the Spin-Off. At
September 30, 2017
, there were
4.1 million
shares available for future awards under the Plan.
Total compensation cost charged against income for Energizer’s share-based compensation arrangements was
$24.3
,
$20.4
and
$13.5
for the years ended
September 30, 2017
,
2016
and
2015
, respectively, and was recorded in SG&A expense. The fiscal year 2015 expense included
$2.4
of additional expense recorded as a result of the modification of certain Edgewell RSE from performance based to time based awards upon consummation of the Spin-off. The expense prior to the Spin-off was based on an allocation from Edgewell which included
$7.2
allocated to Energizer in fiscal 2015 prior to the Spin-off. The total income tax benefit recognized in the Consolidated Statements of Earnings and Comprehensive Income for share-based compensation arrangements was
$10.2
,
$6.9
and
$5.0
for the years ended
September 30, 2017
,
2016
and
2015
, respectively.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
Restricted Stock Equivalents (RSE)
The remaining RSE converted in connection with the Spin-off are time based and vest ratably over
four
years from their initial date of grant. The fair value of the restricted stock at the date of grant is amortized to earnings over the remaining restriction period.
On July 8, 2015, the Company granted RSE awards to a group of key executives which included approximately
573,700
shares that vest ratably over
five
years as well as
50,300
shares to the Board of Directors that vest on the
three
year anniversary from date of grant. The closing stock price on the date of the grant used to determine the award fair value was
$34.92
.
In November 2015, the Company granted RSE awards to a group of key employees which included approximately
106,000
shares that vest ratably over
four
years and granted RSE awards to a group of key executives of approximately
87,000
shares that vest on the third anniversary of the date of the grant. In addition, the Company granted approximately
290,000
performance shares to a group of key employees and key exe
cutives that will vest subject to meeting target amounts for both cumulative adjusted earnings per share and cumulative free cash flow as a percentage of sales over the three year performance period.
These performance measures are equally weighted in determining the final share award with the maximum award payout of approximately
580,000
shares. The closing stock price on the date of the grant used to determine the award fair value wa
s
$37.34
.
In November 2016, the Company granted RSE awards to a group of key employees which included approximately
92,000
shares that vest ratably over
four
years and granted RSE awards to a group of key executives of approximately
73,000
shares that vest on the third anniversary of the date of the grant. In addition, the Company granted approximately
249,000
performance shares to a group of key employees and key executives that will vest subject to meeting target amounts for both cumulative adjusted earnings per share and cumulative free cash flow as a percentage of sales over the
three
year performance period. These performance measures are equally weighted in determining the final share award with the maximum award payout of approximately
498,000
shares. The closing stock price on the date of the grant used to determine the award fair value was
$43.84
.
The following table summarizes the Company's RSE activity during the current fiscal year (shares in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average
Grant Date Estimated Fair Value per Share
|
|
Nonvested RSE at October 1, 2016
|
|
1.9
|
|
|
$
|
35.39
|
|
|
Granted
|
|
0.7
|
|
|
$
|
43.93
|
|
|
Vested
|
|
(0.6
|
)
|
|
$
|
34.33
|
|
|
Canceled
|
|
(0.2
|
)
|
|
$
|
38.24
|
|
|
Nonvested RSE at September 30, 2017
|
|
1.8
|
|
|
$
|
38.72
|
|
As of September 30, 2017
, there was an estimated
$38.0
of total unrecognized compensation costs related to the outstanding RSE awards, which will be recognized over a weighted-average period of
1.5 years
. The weighted average estimated fair value for RSE awards granted in fiscal
2017
was
$30.5
. The estimated fair value of RSE awards that vested in fiscal
2017
was
$29.3
.
Subsequent to year-end, in November 2017, the Company granted RSE awards to a group of key employees of approximately
100,000
shares that vest ratably over
four
years and granted RSE awards to a group of key executives of approximately
68,000
shares that vest on the third anniversary of the date of grant. In addition, the Company granted approximately
238,000
performance shares to a group of key employees and key executives that will vest subject to meeting target amounts for both cumulative adjusted earnings per share and cumulative free cash flow as a percentage of sales over the
three
year performance period. These performance measures are equally weighted in determining the final share award with the maximum award payout of approximately
476,000
shares. The closing stock price on the date of the grant used to determine the award fair value was
$44.20
.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(12) Pension Plans
The Company has several defined benefit pension plans covering many of its employees in the U.S. and certain employees in other countries. The plans provide retirement benefits based on various factors including years of service and in certain circumstances, earnings. All plans are now frozen to new entrants and most of the plans are frozen for additional service.
During fiscal 2016, we completed the legal separation of a non-U.S. pension plan related to Energizer retirees in Germany that was previously included in the Edgewell pension plan. As a result of this legal separation, this
$11.6
obligation transferred from Edgewell in fiscal 2016.
The Company also sponsors or participates in a number of other non-U.S. pension arrangements, including various retirement and termination benefit plans, some of which are required by local law or coordinated with government-sponsored plans, which are not significant in the aggregate and, therefore, are not included in the information presented in the following tables.
The following tables present the benefit obligation, plan assets and funded status of the plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
U.S.
|
|
International
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Change in Projected Benefit Obligation
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
556.8
|
|
|
$
|
550.1
|
|
|
$
|
210.2
|
|
|
$
|
175.9
|
|
|
Service cost
|
|
—
|
|
|
—
|
|
|
1.4
|
|
|
1.2
|
|
|
Interest cost
|
|
18.3
|
|
|
22.1
|
|
|
3.4
|
|
|
4.6
|
|
|
Plan participants' contributions
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
Actuarial (gain)/loss
|
|
(7.8
|
)
|
|
26.1
|
|
|
(6.0
|
)
|
|
38.6
|
|
|
Benefits paid
|
|
(39.7
|
)
|
|
(39.5
|
)
|
|
(8.9
|
)
|
|
(7.0
|
)
|
|
Expenses paid
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
(0.5
|
)
|
|
Plan curtailments
|
|
—
|
|
|
—
|
|
|
(1.8
|
)
|
|
—
|
|
|
Plan settlements
|
|
(1.7
|
)
|
|
(2.0
|
)
|
|
(0.5
|
)
|
|
(2.1
|
)
|
|
Obligations transferred from Edgewell
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11.6
|
|
|
Foreign currency exchange rate changes
|
|
—
|
|
|
—
|
|
|
5.8
|
|
|
(12.2
|
)
|
|
Projected Benefit Obligation at end of year
|
|
$
|
525.9
|
|
|
$
|
556.8
|
|
|
$
|
203.5
|
|
|
$
|
210.2
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
Estimated fair value of plan assets at beginning of year
|
|
$
|
474.7
|
|
|
$
|
457.9
|
|
|
$
|
159.5
|
|
|
$
|
158.8
|
|
|
Actual return on plan assets
|
|
39.8
|
|
|
52.9
|
|
|
8.2
|
|
|
18.1
|
|
|
Company contributions
|
|
4.1
|
|
|
5.4
|
|
|
10.3
|
|
|
4.3
|
|
|
Plan participants' contributions
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
Plan settlements
|
|
(1.7
|
)
|
|
(2.0
|
)
|
|
(0.5
|
)
|
|
(2.1
|
)
|
|
Benefits paid
|
|
(39.7
|
)
|
|
(39.5
|
)
|
|
(8.9
|
)
|
|
(7.0
|
)
|
|
Expenses paid
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
(0.5
|
)
|
|
Foreign currency exchange rate changes
|
|
—
|
|
|
—
|
|
|
5.3
|
|
|
(12.2
|
)
|
|
Estimated fair value of plan assets at end of year
|
|
$
|
477.2
|
|
|
$
|
474.7
|
|
|
$
|
173.8
|
|
|
$
|
159.5
|
|
|
Funded status at end of year
|
|
$
|
(48.7
|
)
|
|
$
|
(82.1
|
)
|
|
$
|
(29.7
|
)
|
|
$
|
(50.7
|
)
|
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
The following table presents the amounts recognized in the Consolidated Balance Sheets and Consolidated Statements of Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
U.S.
|
|
International
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Amounts Recognized in the Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4.1
|
|
|
$
|
0.2
|
|
|
Current liabilities
|
|
(3.0
|
)
|
|
(2.7
|
)
|
|
(0.6
|
)
|
|
(0.6
|
)
|
|
Noncurrent liabilities
|
|
(45.7
|
)
|
|
(79.4
|
)
|
|
(33.2
|
)
|
|
(50.3
|
)
|
|
Net amount recognized
|
|
$
|
(48.7
|
)
|
|
$
|
(82.1
|
)
|
|
$
|
(29.7
|
)
|
|
$
|
(50.7
|
)
|
|
Amounts Recognized in Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
Net loss, pre tax
|
|
$
|
(149.7
|
)
|
|
$
|
(168.4
|
)
|
|
$
|
(57.1
|
)
|
|
$
|
(67.2
|
)
|
Pre-tax changes recognized in other comprehensive income for the year ended
September 30, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
Changes in plan assets and benefit obligations recognized in other comprehensive income/(loss)
|
|
|
|
|
|
|
Net gain arising during the year
|
|
$
|
13.4
|
|
|
$
|
7.9
|
|
|
Effect of exchange rates
|
|
—
|
|
|
(1.3
|
)
|
|
Amounts recognized as a component of net periodic benefit cost
|
|
|
|
|
|
Amortization or settlement recognition of net gain
|
|
5.3
|
|
|
3.5
|
|
|
Total income recognized in other comprehensive income/(loss)
|
|
$
|
18.7
|
|
|
$
|
10.1
|
|
Energizer expects to contribute
$3.0
to its U.S. plans and
$5.9
to its International plans in fiscal 2018.
Energizer’s expected future benefit payments for the plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years Ending September 30,
|
|
|
|
|
|
U.S.
|
|
International
|
|
2018
|
|
$
|
38.3
|
|
|
$
|
7.8
|
|
|
2019
|
|
37.7
|
|
|
7.8
|
|
|
2020
|
|
36.8
|
|
|
7.8
|
|
|
2021
|
|
36.3
|
|
|
8.2
|
|
|
2022
|
|
35.6
|
|
|
8.4
|
|
|
2023 to 2027
|
|
170.6
|
|
|
42.4
|
|
The accumulated benefit obligation for the US plans was
$525.9
and
$556.8
and for the foreign plans was
$202.0
and
$206.8
at September 30, 2017
and
2016
, respectively. The following table shows the plans with an accumulated benefit obligation in excess of plan assets at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
U.S.
|
|
International
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Projected benefit obligation
|
|
$
|
525.9
|
|
|
$
|
556.8
|
|
|
$
|
121.0
|
|
|
$
|
176.3
|
|
|
Accumulated benefit obligation
|
|
$
|
525.9
|
|
|
$
|
556.8
|
|
|
$
|
119.5
|
|
|
$
|
172.9
|
|
|
Estimated fair value of plan assets
|
|
$
|
477.2
|
|
|
$
|
474.7
|
|
|
$
|
87.3
|
|
|
$
|
125.4
|
|
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
Pension plan assets in the U.S. plan represent approximately
75%
of assets in all of the Company's defined benefit pension plans. Investment policy for the U.S. plan includes a mandate to diversify assets and invest in a variety of assets classes to achieve that goal. The U.S. plan's assets are currently invested in several funds representing most standard equity and debt security classes. The broad target allocations are approximately: (a) equities, including U.S. and foreign:
50%
, and (b) debt securities, including U.S. bonds:
50%
. Actual allocations
at September 30, 2017
approximated these targets. The U.S. plan held no shares of Company common stock at
September 30, 2017
. Investment objectives are similar for non-U.S. pension arrangements, subject to local requirements.
The following table presents plan pension expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
|
|
U.S.
|
|
International
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.4
|
|
|
$
|
1.2
|
|
|
$
|
0.8
|
|
|
Interest cost
|
|
18.3
|
|
|
22.1
|
|
|
5.7
|
|
|
3.4
|
|
|
4.6
|
|
|
1.9
|
|
|
Expected return on plan assets
|
|
(34.3
|
)
|
|
(34.6
|
)
|
|
(9.1
|
)
|
|
(8.0
|
)
|
|
(7.8
|
)
|
|
(3.1
|
)
|
|
Recognized net actuarial loss
|
|
4.8
|
|
|
4.3
|
|
|
0.9
|
|
|
3.4
|
|
|
2.1
|
|
|
0.5
|
|
|
Settlement loss recognized
|
|
0.5
|
|
|
0.5
|
|
|
—
|
|
|
0.2
|
|
|
0.8
|
|
|
0.1
|
|
|
Net periodic (benefit)/expense
|
|
$
|
(10.7
|
)
|
|
$
|
(7.7
|
)
|
|
$
|
(2.5
|
)
|
|
$
|
0.4
|
|
|
$
|
0.9
|
|
|
$
|
0.2
|
|
Total Edgewell benefit plan costs allocated to us prior to the Spin-off were
$5.9
in the first nine months of 2015 are not included in the table above. The expense allocations for these benefits were determined based on a review of personnel by business unit and based on allocations of corporate or other shared functional personnel. These allocated costs are reflected in our cost of products sold and SG&A expenses on the Consolidated Statements of Earnings and Comprehensive Income. These costs were funded through intercompany transactions with Edgewell and were reflected within the parent company investment equity balance.
Amounts expected to be amortized from accumulated other comprehensive loss into net period benefit cost during the year ending
September 30,
2018
are net actuarial losses of
$4.4
for the US Plan and
$2.2
for the foreign plans.
The following table presents assumptions, which reflect weighted averages for the component plans, used in determining the above information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
U.S.
|
|
International
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
|
Plan obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
3.7
|
%
|
|
3.4
|
%
|
|
4.2
|
%
|
|
2.1
|
%
|
|
1.7
|
%
|
|
2.8
|
%
|
|
Compensation increase rate
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
2.4
|
%
|
|
3.2
|
%
|
|
3.3
|
%
|
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
3.4
|
%
|
|
4.2
|
%
|
|
4.3
|
%
|
|
1.7
|
%
|
|
2.8
|
%
|
|
3.0
|
%
|
|
Expected long-term rate of return on plan assets
|
|
7.5
|
%
|
|
7.8
|
%
|
|
7.8
|
%
|
|
5.1
|
%
|
|
5.2
|
%
|
|
5.1
|
%
|
|
Compensation increase rate
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
3.2
|
%
|
|
3.3
|
%
|
|
3.3
|
%
|
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
The following tables set forth the estimated fair value of Energizer’s plan assets
as of September 30, 2017
and
2016
segregated by level within the estimated fair value hierarchy. Refer to Note 15, Financial Instruments and Risk Management, to the Consolidated Financial Statements for further discussion on the estimated fair value hierarchy and estimated fair value principles.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS AT ESTIMATED FAIR VALUE
|
|
At September 30, 2017
|
|
|
|
U.S. Pension
Plan Assets
|
|
International Pension
Plan Assets
|
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Equity
|
|
$
|
87.3
|
|
|
$
|
—
|
|
|
$
|
87.3
|
|
|
$
|
—
|
|
|
$
|
1.4
|
|
|
$
|
1.4
|
|
|
International Equity
|
|
3.7
|
|
|
—
|
|
|
3.7
|
|
|
—
|
|
|
5.7
|
|
|
$
|
5.7
|
|
|
DEBT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government
|
|
—
|
|
|
216.4
|
|
|
216.4
|
|
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
Other Government
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16.2
|
|
|
16.2
|
|
|
Corporate
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12.9
|
|
|
12.9
|
|
|
CASH & CASH EQUIVALENTS
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10.0
|
|
|
10.0
|
|
|
OTHER
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
41.0
|
|
|
41.0
|
|
|
Assets Measured at Net Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Equity
|
|
|
|
|
|
70.9
|
|
|
|
|
|
|
—
|
|
|
International Equity
|
|
|
|
|
|
98.9
|
|
|
|
|
|
|
45.0
|
|
|
Other Government
|
|
|
|
|
|
—
|
|
|
|
|
|
|
29.6
|
|
|
Corporate
|
|
|
|
|
|
—
|
|
|
|
|
|
|
12.0
|
|
|
TOTAL
|
|
$
|
91.0
|
|
|
$
|
216.4
|
|
|
$
|
477.2
|
|
|
$
|
—
|
|
|
$
|
87.2
|
|
|
$
|
173.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2016
|
|
|
|
U.S. Pension
Plan Assets
|
|
International Pension
Plan Assets
|
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Equity
|
|
$
|
147.9
|
|
|
$
|
—
|
|
|
$
|
147.9
|
|
|
$
|
—
|
|
|
$
|
1.6
|
|
|
$
|
1.6
|
|
|
International Equity
|
|
5.9
|
|
|
—
|
|
|
5.9
|
|
|
—
|
|
|
5.8
|
|
|
5.8
|
|
|
DEBT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government
|
|
—
|
|
|
164.0
|
|
|
164.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other Government
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13.3
|
|
|
13.3
|
|
|
Corporate
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13.5
|
|
|
13.5
|
|
|
CASH & CASH EQUIVALENTS
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.4
|
|
|
1.4
|
|
|
OTHER
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.2
|
|
|
6.2
|
|
|
Assets measured at Net Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Equity
|
|
|
|
|
|
50.3
|
|
|
|
|
|
|
2.7
|
|
|
International Equity
|
|
|
|
|
|
106.6
|
|
|
|
|
|
|
46.6
|
|
|
Other Government
|
|
|
|
|
|
—
|
|
|
|
|
|
|
33.1
|
|
|
Corporate
|
|
|
|
|
|
—
|
|
|
|
|
|
|
12.9
|
|
|
Other
|
|
|
|
|
|
—
|
|
|
|
|
|
|
22.4
|
|
|
TOTAL
|
|
$
|
153.8
|
|
|
$
|
164.0
|
|
|
$
|
474.7
|
|
|
$
|
—
|
|
|
$
|
41.8
|
|
|
$
|
159.5
|
|
There were no Level 3 pension assets
at September 30, 2017
and
2016
.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
The investment objective for plan assets is to satisfy the current and future pension benefit obligations. The investment philosophy is to achieve this objective through diversification of the retirement plan assets. The goal is to earn a suitable return with an appropriate level of risk while maintaining adequate liquidity to distribute benefit payments. The diversified asset allocation includes equity positions, as well as fixed income investments. The increased volatility associated with equities is offset with higher expected returns, while the long duration fixed income investments help dampen the volatility of the overall portfolio. Risk exposure is controlled by re-balancing the retirement plan assets back to target allocations, as needed. Investment firms managing retirement plan assets carry out investment policy within their stated guidelines. Investment performance is monitored against benchmark indices, which reflect the policy and target allocation of the retirement plan assets.
(13) Defined Contribution Plan
The Company sponsors a defined contribution plan, which extends participation eligibility to the vast majority of U.S. employees. As of January 1, 2014, the Company matches
100%
of participant’s before tax or Roth contributions up to
6%
of eligible compensation. Amounts charged to expense during fiscal
2017
,
2016
and
2015
were
$7.1
,
$9.1
, and
$7.7
, respectively, and are reflected in SG&A and Cost of products sold in the Consolidated Statements of Earnings and Comprehensive Income.
(14) Debt
The detail of long-term debt was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2017
|
|
2016
|
|
5.50% Senior Notes due 2025
|
600.0
|
|
|
600.0
|
|
|
Senior Secured Term Loan B Facility, net of discount, due 2022
|
$
|
392.0
|
|
|
$
|
396.0
|
|
|
Total long-term debt, including current maturities
|
992.0
|
|
|
996.0
|
|
|
Less current portion
|
(4.0
|
)
|
|
(4.0
|
)
|
|
Less unamortized debt discount and debt issuance fees
|
(9.5
|
)
|
|
(10.3
|
)
|
|
Total long-term debt
|
$
|
978.5
|
|
|
$
|
981.7
|
|
The Company's
$600.0
of
5.50%
Senior Notes due 2025 (Senior Notes) were sold to qualified institutional buyers and are not registered under the Securities Act or applicable state securities laws. Interest is payable semi-annually on the Senior Notes in December and June. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of Energizer's domestic restricted subsidiaries that is a borrower or guarantor under the Revolving Facility and Term Loan.
The Company has a credit agreement which provides for a
five
-year
$350.0
senior secured revolving credit facility (Revolving Facility) which matures in June of 2020 and a
seven
-year
$400.0
senior secured term loan B facility (Term Loan) which is due in June 2022. Borrowings under the Revolving Facility will bear interest at
LIBOR
or the Base Rate (as defined) 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
. As of September 30, 2017, our weighted average interest rate on short-term borrowings was
2.98%
.
The
$400.0
Term Loan was issued at a
$1.0
discount which is amortized with a corresponding charge to interest expense over the remaining life of the loan. The original interest rate was
LIBOR
subject to a
75
basis point floor, plus
250
basis points. On March 13, 2017, the Company completed the repricing of its Term Loan reducing the interest to LIBOR plus
200
basis points and eliminating the
75
basis point floor. The loans and commitments under the Term Loan require quarterly principal payments at a rate of
0.25%
, or
$1.0 million
, of the original principal balance.
Obligations under the Revolving Facility and Term Loan are jointly and severally guaranteed by certain of its existing and future direct and indirectly wholly-owned U.S. subsidiaries. There is a first priority perfected lien on substantially all of the assets and property of the Company and guarantors and proceeds therefrom excluding certain excluded assets. No other terms were changed as a result of the Term Loan repricing.
In August 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 Energizer's variable rate debt through June 2022 at an interest rate of
2.22%
. This swap agreement was terminated in March 2017, in conjunction with the Term Loan repricing, and the Company
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
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%
.
For the year ended September 30, 2017, our weighted average interest rate on variable rate debt, inclusive of the swap, was
3.40%
.
The notes payable balance was
$104.1
at September 30, 2017 and
$57.4
at September 30, 2016. The 2017 balance is comprised of
$95.0
outstanding borrowings on the Revolving Facility as well as
$9.1
of other borrowings, including those from foreign affiliates. The 2016 balance consists of
$52.5
outstanding borrowings on the Revolving Facility as well as
$4.9
of other borrowings, including those from foreign affiliates.
Debt Covenants
The credit agreements governing the Company's debt 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.
Aggregate maturities of long-term debt, including current maturities, at September 30, 2017 were as follows:
$4.0
in one year,
$4.0
in two years,
$4.0
in three years,
$4.0
in four years,
$376.0
in five years and
$600.0
thereafter.
The counterparties to long-term committed borrowings consist of a number of major financial institutions. The Company consistently monitors positions with, and credit ratings of, counterparties both internally and by using outside ratings agencies.
(15) Financial Instruments and Risk Management
The market risk inherent in the Company's operations creates potential earnings volatility arising from changes in currency rates, interest rates and commodity prices. The Company's policy allows derivatives to be used only for identifiable exposures and, therefore, the Company does not enter into hedges for trading or speculative purposes where the sole objective is to generate profits.
Concentration of Credit Risk
–
The counterparties to derivative contracts consist of a number of major financial institutions and are generally institutions with which the Company maintains lines of credit. The Company does not enter into derivative contracts through brokers nor does it trade derivative contracts on any other exchange or over-the-counter markets. Risk of currency positions and mark-to-market valuation of positions are strictly monitored at all times.
The Company continually monitors positions with, and credit ratings of, counterparties both internally and by using outside rating agencies. While nonperformance by these counterparties exposes Energizer to potential credit losses, such losses are not anticipated.
The Company sells to a large number of customers primarily in the retail trade, including those in mass merchandising, drugstore, supermarket and other channels of distribution throughout the world. Wal-Mart Stores, Inc. accounted for
12.1%
,
10.4%
, and
10.0%
of total net sales in fiscal
2017
,
2016
and
2015
, respectively, primarily in North America. The Company performs ongoing evaluations of its customers’ financial condition and creditworthiness, but does not generally require collateral. While the competitiveness of the retail industry presents an inherent uncertainty, the Company does not believe a significant risk of loss from a concentration of credit risk exists with respect to accounts receivable.
In the ordinary course of business, the Company enters into contractual arrangements (derivatives) to reduce its exposure to commodity price and foreign currency risks. The section below outlines the types of derivatives that existed
at September 30, 2017
and
2016
, as well as the Company's objectives and strategies for holding these derivative instruments.
Commodity Price Risk
– Energizer uses raw materials that are subject to price volatility. At times, the Company has used, 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.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
Foreign Currency Risk
–
A significant portion 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, a strengthening in 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.
Additionally, 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 a transaction 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.
Interest Rate Risk
– Energizer 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 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).
Both hedging instruments were considered a cash flow hedge for accounting purposes. At the time of the termination of the 2015 Swap, the
$1.7
loss was recorded in accumulated other comprehensive loss on the Consolidated Balance Sheet and will be amortized into interest expense over the remainder of the interest payments associated with the Term Loan through June 2022.
At September 30, 2017, the 2017 Swap had an unrecognized pre-tax loss of $
1.3
and at September 30, 2016, the 2015 Swap, which was terminated in March of 2017, had an unrecognized pre-tax loss of
$9.7
, both of which were included in Accumulated other comprehensive loss on the Consolidated Balance Sheets.
Cash Flow Hedges
– 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 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 recognized in earnings. Contract maturities for these hedges extend into fiscal year 2019. There were
64
open foreign currency contracts at
September 30, 2017
, with a total notional value of
$142
.
Derivatives not Designated in Hedging Relationships
In addition, Energizer enters into foreign currency derivative contracts which are not designated as cash flow hedges for accounting purposes to hedge existing balance sheet exposures. Any gains or losses on these contracts would be offset by corresponding exchange losses or gains on the underlying exposures; thus are not subject to significant market risk. There were
10
open foreign currency derivative contracts which are not designated as cash flow hedges at
September 30, 2017
, with a total notional value of approximately
$85
.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
The following table provides the Company's estimated fair values
as of September 30, 2017
and
2016
, and the amounts of gains and losses on derivative instruments classified as cash flow hedges as of and for the
twelve months ended September 30, 2017
and
2016
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
|
For the Year Ended September 30, 2017
|
|
Derivatives designated as Cash Flow Hedging Relationships
|
|
Estimated Fair Value Liability (1)
|
|
(Loss)/Gain Recognized in OCI(2)
|
|
Gain/(Loss)
Reclassified From OCI into Income (Effective Portion) (3) (4)
|
|
Foreign currency contracts
|
|
$
|
(5.8
|
)
|
|
$
|
(4.3
|
)
|
|
$
|
0.4
|
|
|
Interest rate contracts
|
|
(1.3
|
)
|
|
4.5
|
|
|
(2.4
|
)
|
|
Total
|
|
$
|
(7.1
|
)
|
|
$
|
0.2
|
|
|
$
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2016
|
|
For the Year Ended September 30, 2016
|
|
Derivatives designated as Cash Flow Hedging Relationships
|
|
Estimated Fair Value Liability (1)
|
|
Loss Recognized in OCI(2)
|
|
Gain/(Loss)
Reclassified From OCI into Income (Effective Portion) (3) (4)
|
|
Foreign currency contracts
|
|
$
|
(1.1
|
)
|
|
$
|
(1.5
|
)
|
|
$
|
4.1
|
|
|
Interest rate contracts
|
|
(9.7
|
)
|
|
(7.4
|
)
|
|
(2.9
|
)
|
|
Total
|
|
$
|
(10.8
|
)
|
|
$
|
(8.9
|
)
|
|
$
|
1.2
|
|
|
|
|
|
1.
|
All derivative liabilities are presented in Other current liabilities or Other liabilities.
|
|
|
|
|
2.
|
OCI is defined as other comprehensive income.
|
|
|
|
|
3.
|
Gain/(loss) reclassified to Income was recorded as follows: Foreign currency contracts in other items, net and interest rate contracts in interest expense.
|
|
|
|
|
4.
|
Each of these hedging relationships has derivative instruments with a high correlation to the underlying exposure being hedged and has been deemed highly effective in offsetting the underlying risk.
|
The following table provides estimated fair values
as of September 30, 2017
and
2016
, and the gains and losses on derivative instruments not classified as cash flow hedges as of and for the
twelve months ended September 30, 2017
and
2016
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
|
For the Year Ended September 30, 2017
|
|
Derivatives not designated as Cash Flow Hedging Relationships
|
|
Estimated Fair Value Asset (1)
|
|
Loss Recognized in Income (3)
|
|
Foreign currency contracts
|
|
0.9
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2016
|
|
For the Year Ended September 30, 2016
|
|
Derivatives not designated as Cash Flow Hedging Relationships
|
|
Estimated Fair Value Liability (2)
|
|
Loss Recognized in Income (3)
|
|
Foreign currency contracts
|
|
(1.0
|
)
|
|
(0.4
|
)
|
|
|
|
|
1.
|
All derivative assets are presented in Other current assets or Other assets.
|
|
|
|
|
2.
|
All derivative liabilities are presented in Other current liabilities or Other liabilities.
|
3. Loss recognized in Income was recorded in Other items, net.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
Energizer has the following recognized financial assets and financial liabilities resulting from those transactions that meet the scope of the disclosure requirements as necessitated by applicable accounting guidance for balance sheet offsetting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offsetting of derivative assets
|
|
|
|
|
|
At September 30, 2017
|
|
At September 30, 2016
|
|
Description
|
|
Balance Sheet location
|
|
Gross amounts of recognized assets
|
|
Gross amounts offset in the Balance Sheet
|
|
Net amounts of assets presented in the Balance Sheet
|
|
Gross amounts of recognized assets
|
|
Gross amounts offset in the Balance Sheet
|
|
Net amounts of assets presented in the Balance Sheet
|
|
Foreign Currency Contracts
|
|
Other Current Assets, Other Assets
|
|
$
|
1.1
|
|
|
$
|
—
|
|
|
$
|
1.1
|
|
|
$
|
0.8
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offsetting of derivative liabilities
|
|
|
|
|
|
At September 30, 2017
|
|
At September 30, 2016
|
|
Description
|
|
Balance Sheet location
|
|
Gross amounts of recognized liabilities
|
|
Gross amounts offset in the Balance Sheet
|
|
Net amounts of liabilities presented in the Balance Sheet
|
|
Gross amounts of recognized liabilities
|
|
Gross amounts offset in the Balance Sheet
|
|
Net amounts of liabilities presented in the Balance Sheet
|
|
Foreign Currency Contracts
|
|
Other Current Liabilities, Other Liabilities
|
|
$
|
(6.4
|
)
|
|
$
|
0.4
|
|
|
$
|
(6.0
|
)
|
|
$
|
(3.2
|
)
|
|
$
|
0.3
|
|
|
$
|
(2.9
|
)
|
Fair Value Hierarchy
–
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions or external inputs from inactive markets.
Under the fair value accounting guidance hierarchy, an entity is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The following table sets forth the Company's financial assets and liabilities, which are carried at fair value,
as of September 30, 2017
and
2016
that are measured on a recurring basis during the period, segregated by level within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
|
|
September 30,
|
|
|
|
2017
|
|
2016
|
|
Liabilities at estimated fair value:
|
|
|
|
|
|
Deferred Compensation
|
|
$
|
(41.0
|
)
|
|
$
|
(47.6
|
)
|
|
Exit lease liability
|
|
(0.3
|
)
|
|
(3.7
|
)
|
|
Derivatives - Foreign Currency contracts
|
|
(4.9
|
)
|
|
(2.1
|
)
|
|
Derivatives - Interest Rate Swap
|
|
(1.3
|
)
|
|
(9.7
|
)
|
|
Total Liabilities at estimated fair value
|
|
$
|
(47.5
|
)
|
|
$
|
(63.1
|
)
|
Energizer had no level 1 financial assets or liabilities, other than pension plan assets, and no level 3 financial assets or liabilities
at September 30, 2017
and
2016
.
Due to the nature of cash and cash equivalents, carrying amounts on the balance sheets approximate estimated fair value. The estimated fair value of cash and cash equivalents has been determined based on level 1 and level 2 inputs, respectively.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
At September 30, 2017
, the estimated fair value of the Company's unfunded deferred compensation liability is determined based upon the quoted market prices of the investment options that are offered under the plan. The estimated fair value of the exit lease liability is determined based on the discounted cash flows of the remaining lease rentals reduced by estimated sublease rentals that could be reasonably obtained for the property. The estimated fair value of foreign currency contracts and interest rate swap as described above is the amount that the Company would receive or pay to terminate the contracts, considering first, quoted market prices of comparable agreements, or in the absence of quoted market prices, such factors as interest rates, currency exchange rates and remaining maturities.
At
September 30, 2017
and 2016, the fair market value of fixed rate long-term debt was
$615.7
and
$600.1
, respectively, compared to its carrying value of
$600.0
. The estimated fair value of the long-term debt is estimated using yields obtained from independent pricing sources for similar types of borrowing arrangements. The estimated fair value of fixed rate long-term debt has been determined based on level 2 inputs.
(16) Environmental and Regulatory
Government Regulation and 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. In connection with some sites, Energizer has been identified as a “potentially responsible party” (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act and may be required to share in the cost of cleanup with respect to certain federal “Superfund” sites. Energizer 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
$1.9
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. Environmental spending estimates could be modified as a result of 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.
(17) Other Commitments and Contingencies
Total rental expense less sublease rental income for all operating leases was
$13.8
,
$13.0
and
$15.9
in fiscal
2017
,
2016
and
2015
, respectively. Future minimum rental commitments under non-cancellable operating leases directly held by Energizer and in effect
as of September 30, 2017
, were
$13.4
in fiscal 2018,
$11.8
in fiscal 2019,
$10.2
in fiscal 2020,
$6.2
in fiscal 2021,
$2.2
in fiscal 2022 and
$15.9
thereafter.
In the ordinary course of business, the Company also enters into supply and service contracts. These contracts can include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. At
September 30, 2017
, the Company had approximately
$112
of purchase obligations.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(18) Accumulated Other Comprehensive (Loss)/Income
The following table presents the changes in accumulated other comprehensive (loss)/income (AOCI), net of tax by component:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustments
|
Pension Activity
|
Hedging Activity
|
Interest Rate Swap
|
Total
|
|
Balance at September 30, 2014
|
$
|
(28.7
|
)
|
$
|
(7.3
|
)
|
$
|
4.3
|
|
$
|
—
|
|
$
|
(31.7
|
)
|
|
OCI before reclassifications
|
(97.9
|
)
|
(38.3
|
)
|
6.7
|
|
(3.3
|
)
|
(132.8
|
)
|
|
Separation related adjustments
|
0.8
|
|
(95.3
|
)
|
0.6
|
|
—
|
|
(93.9
|
)
|
|
Venezuela deconsolidation charge
|
16.2
|
|
—
|
|
—
|
|
—
|
|
16.2
|
|
|
Reclassifications to earnings
|
—
|
|
1.1
|
|
(8.2
|
)
|
—
|
|
(7.1
|
)
|
|
Balance at September 30, 2015
|
$
|
(109.6
|
)
|
$
|
(139.8
|
)
|
$
|
3.4
|
|
$
|
(3.3
|
)
|
$
|
(249.3
|
)
|
|
OCI before reclassifications
|
10.2
|
|
(25.3
|
)
|
(1.0
|
)
|
(4.6
|
)
|
(20.7
|
)
|
|
Reclassifications to earnings
|
—
|
|
5.2
|
|
(3.1
|
)
|
1.8
|
|
3.9
|
|
|
Balance at September 30, 2016
|
$
|
(99.4
|
)
|
$
|
(159.9
|
)
|
$
|
(0.7
|
)
|
$
|
(6.1
|
)
|
$
|
(266.1
|
)
|
|
OCI before reclassifications
|
6.3
|
|
14.3
|
|
(3.4
|
)
|
2.8
|
|
20.0
|
|
|
Reclassifications to earnings
|
—
|
|
6.2
|
|
(0.4
|
)
|
1.5
|
|
7.3
|
|
|
Balance at September 30, 2017
|
$
|
(93.1
|
)
|
$
|
(139.4
|
)
|
$
|
(4.5
|
)
|
$
|
(1.8
|
)
|
$
|
(238.8
|
)
|
The following table presents the reclassifications out of AOCI :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended
September 30,
|
|
|
|
Amount Reclassified from AOCI (1)
|
2017
|
|
2016
|
|
2015
|
|
Affected Line Item in the Consolidated Statements of Earnings
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
0.4
|
|
|
$
|
4.1
|
|
|
$
|
11.0
|
|
|
Other items, net
|
|
Interest rate swap
|
(2.4
|
)
|
|
(2.9
|
)
|
|
—
|
|
|
Interest expense
|
|
|
(2.0
|
)
|
|
1.2
|
|
|
11.0
|
|
|
Total before tax
|
|
|
0.9
|
|
|
0.1
|
|
|
(2.8
|
)
|
|
Tax benefit/(expense)
|
|
|
$
|
(1.1
|
)
|
|
$
|
1.3
|
|
|
$
|
8.2
|
|
|
Net of tax
|
|
Amortization of defined benefit pension items
|
|
|
|
|
|
|
|
Actuarial losses
|
$
|
(8.2
|
)
|
|
$
|
(6.4
|
)
|
|
$
|
(1.4
|
)
|
|
(2)
|
|
Settlement losses
|
(0.7
|
)
|
|
(1.3
|
)
|
|
(0.1
|
)
|
|
(2)
|
|
|
(8.9
|
)
|
|
(7.7
|
)
|
|
(1.5
|
)
|
|
Total before tax
|
|
|
2.7
|
|
|
2.5
|
|
|
0.4
|
|
|
Tax benefit
|
|
|
$
|
(6.2
|
)
|
|
$
|
(5.2
|
)
|
|
$
|
(1.1
|
)
|
|
Net of tax
|
|
Foreign Currency Translation Adjustments
|
|
|
|
|
|
|
|
Venezuela deconsolidation charge
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(16.2
|
)
|
|
Venezuela deconsolidation charge
|
|
Total reclassifications for the period
|
$
|
(7.3
|
)
|
|
$
|
(3.9
|
)
|
|
$
|
(9.1
|
)
|
|
Net of tax
|
|
|
|
|
1.
|
Amounts in parentheses indicate debits to Consolidated Statements of Earnings.
|
|
|
|
|
2.
|
These AOCI components are included in the computation of net periodic benefit cost (see Note 12, Pension Plans, for further details).
|
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(19) Supplemental Financial Statement Information
The components of certain balance sheet accounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2017
|
|
2016
|
|
Inventories
|
|
|
|
|
|
Raw materials and supplies
|
|
$
|
36.6
|
|
|
$
|
46.1
|
|
|
Work in process
|
|
84.8
|
|
|
72.0
|
|
|
Finished products
|
|
195.7
|
|
|
171.1
|
|
|
Total inventories
|
|
$
|
317.1
|
|
|
$
|
289.2
|
|
|
Other Current Assets
|
|
|
|
|
|
Miscellaneous receivables
|
|
$
|
13.7
|
|
|
$
|
27.7
|
|
|
Prepaid expenses
|
|
52.7
|
|
|
70.0
|
|
|
Value added tax collectible from customers
|
|
23.4
|
|
|
22.9
|
|
|
Other
|
|
5.1
|
|
|
1.5
|
|
|
Total other current assets
|
|
$
|
94.9
|
|
|
$
|
122.1
|
|
|
Property, plant and equipment
|
|
|
|
|
|
Land
|
|
$
|
4.6
|
|
|
$
|
9.8
|
|
|
Buildings
|
|
122.4
|
|
|
138.2
|
|
|
Machinery and equipment
|
|
697.9
|
|
|
771.9
|
|
|
Construction in progress
|
|
19.4
|
|
|
16.6
|
|
|
Total gross property
|
|
844.3
|
|
|
936.5
|
|
|
Accumulated depreciation
|
|
(667.8
|
)
|
|
(734.8
|
)
|
|
Total property, plant and equipment, net
|
|
$
|
176.5
|
|
|
$
|
201.7
|
|
|
Other Current Liabilities
|
|
|
|
|
|
Accrued advertising, sales promotion and allowances
|
|
$
|
21.8
|
|
|
$
|
16.9
|
|
|
Accrued trade allowances
|
|
51.1
|
|
|
54.0
|
|
|
Accrued salaries, vacations and incentive compensation
|
|
54.4
|
|
|
59.3
|
|
|
Spin restructuring reserve
|
|
—
|
|
|
4.0
|
|
|
Income taxes payable
|
|
21.6
|
|
|
15.0
|
|
|
Other
|
|
105.7
|
|
|
105.5
|
|
|
Total other current liabilities
|
|
$
|
254.6
|
|
|
$
|
254.7
|
|
|
Other Liabilities
|
|
|
|
|
|
Pensions and other retirement benefits
|
|
$
|
87.7
|
|
|
$
|
139.4
|
|
|
Deferred compensation
|
|
41.0
|
|
|
47.6
|
|
|
Other non-current liabilities
|
|
49.3
|
|
|
59.7
|
|
|
Total other liabilities
|
|
$
|
178.0
|
|
|
$
|
246.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
Allowance for Doubtful Accounts
|
|
2017
|
|
2016
|
|
2015
|
|
Balance at beginning of year
|
|
$
|
6.9
|
|
|
$
|
7.0
|
|
|
$
|
7.4
|
|
|
Provision charged to expense, net of reversals
|
|
(0.7
|
)
|
|
1.2
|
|
|
1.9
|
|
|
Write-offs, less recoveries, translation, other
|
|
(0.4
|
)
|
|
(1.3
|
)
|
|
(2.3
|
)
|
|
Balance at end of year
|
|
$
|
5.8
|
|
|
$
|
6.9
|
|
|
$
|
7.0
|
|
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
Income Tax Valuation Allowance
|
|
2017
|
|
2016
|
|
2015
|
|
Balance at beginning of year
|
|
$
|
19.7
|
|
|
$
|
13.6
|
|
|
$
|
14.5
|
|
|
Provision charged to expense
|
|
1.6
|
|
|
5.8
|
|
|
0.3
|
|
|
Reversal of provision charged to expense
|
|
(0.3
|
)
|
|
—
|
|
|
(0.8
|
)
|
|
Translation, other
|
|
(1.7
|
)
|
|
0.3
|
|
|
(0.4
|
)
|
|
Balance at end of year
|
|
$
|
19.3
|
|
|
$
|
19.7
|
|
|
$
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
Supplemental Disclosure of Cash Flow Information
|
|
2017
|
|
2016
|
|
2015
|
|
Interest paid
|
|
$
|
51.0
|
|
|
$
|
51.4
|
|
|
$
|
73.1
|
|
|
Income taxes paid, net
|
|
$
|
40.2
|
|
|
$
|
63.6
|
|
|
$
|
37.6
|
|
(20) Segments
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 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.
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, research & development 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 IT and finance shared service costs. 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.
For the year ended September 30, 2015, Edgewell recorded a one-time charge of
$144.5
as a result of deconsolidating its Venezuelan subsidiaries, which had no accompanying tax benefit. Energizer was allocated
$65.2
of this one-time charge. See Note 6, Venezuela, to the Consolidated Financial Statements.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
Corporate assets shown in the following table include all financial instruments, deferred tax assets and deferred charges that are managed outside of operating segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
Net Sales
|
|
2017
|
|
2016
|
|
2015
|
|
Americas
|
|
$
|
1,111.8
|
|
|
$
|
1,002.0
|
|
|
$
|
956.4
|
|
|
EMEA
|
|
357.8
|
|
|
353.8
|
|
|
370.4
|
|
|
Asia Pacific
|
|
286.1
|
|
|
278.4
|
|
|
304.8
|
|
|
Total net sales
|
|
$
|
1,755.7
|
|
|
$
|
1,634.2
|
|
|
$
|
1,631.6
|
|
|
Segment Profit
|
|
|
|
|
|
|
|
Americas
|
|
310.0
|
|
|
266.5
|
|
|
255.3
|
|
|
EMEA
|
|
64.4
|
|
|
51.6
|
|
|
58.3
|
|
|
Asia Pacific
|
|
78.6
|
|
|
70.1
|
|
|
77.9
|
|
|
Total segment profit
|
|
$
|
453.0
|
|
|
$
|
388.2
|
|
|
$
|
391.5
|
|
|
General corporate and other expenses
|
|
(80.8
|
)
|
|
(80.8
|
)
|
|
(66.0
|
)
|
|
Global marketing expenses
|
|
(21.5
|
)
|
|
(19.1
|
)
|
|
(24.8
|
)
|
|
Research and development expense
|
|
(22.0
|
)
|
|
(26.6
|
)
|
|
(24.9
|
)
|
|
Amortization of intangible assets
|
|
(11.2
|
)
|
|
(2.8
|
)
|
|
—
|
|
|
Venezuela deconsolidation charge
|
|
—
|
|
|
—
|
|
|
(65.2
|
)
|
|
Restructuring (1)
|
|
—
|
|
|
(4.9
|
)
|
|
(13.0
|
)
|
|
Acquisition and integration costs (2)
|
|
(8.4
|
)
|
|
(10.0
|
)
|
|
(1.6
|
)
|
|
Inventory step up (3)
|
|
—
|
|
|
(8.1
|
)
|
|
—
|
|
|
Spin costs (4)
|
|
—
|
|
|
(10.4
|
)
|
|
(98.1
|
)
|
|
Spin restructuring
|
|
3.8
|
|
|
(5.8
|
)
|
|
(39.1
|
)
|
|
Acquisition and bridge loan fees (5)
|
|
—
|
|
|
(1.2
|
)
|
|
—
|
|
|
Cost of early debt retirement (5)
|
|
—
|
|
|
—
|
|
|
(26.7
|
)
|
|
Gain on sale of real estate
|
|
16.9
|
|
|
—
|
|
|
—
|
|
|
Interest expense
|
|
(53.1
|
)
|
|
(53.1
|
)
|
|
(51.2
|
)
|
|
Other financing items, net (6)
|
|
(3.4
|
)
|
|
0.3
|
|
|
18.4
|
|
|
Total earnings/(loss) before income taxes
|
|
$
|
273.3
|
|
|
$
|
165.7
|
|
|
$
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
Americas
|
|
23.1
|
|
|
18.8
|
|
|
23.3
|
|
|
EMEA
|
|
1.4
|
|
|
1.2
|
|
|
1.1
|
|
|
Asia Pacific
|
|
14.5
|
|
|
11.5
|
|
|
12.8
|
|
|
Total segment depreciation and amortization
|
|
39.0
|
|
|
31.5
|
|
|
37.2
|
|
|
Corporate
|
|
11.2
|
|
|
2.8
|
|
|
4.6
|
|
|
Total depreciation and amortization
|
|
$
|
50.2
|
|
|
$
|
34.3
|
|
|
$
|
41.8
|
|
(1) Includes
$0.3
for the twelve months ended September 30, 2015 which is included in SG&A and
$2.4
and
$3.1
for the twelve months ended September 30, 2016 and 2015, respectively, which were included in Cost of products sold on the Consolidated Statements of Earnings and Comprehensive Income.
(2) Includes
$4.0
,
$10.0
and
$1.3
for the
twelve months ended September 30, 2017
, 2016 and 2015, respectively, recorded in SG&A,
$1.1
and
$0.3
for the twelve months ended September 30, 2017 and 2015, respectively, recorded in cost of products sold and
$3.3
recorded in Other items, net for the twelve months ended September 30, 2017 on the Consolidated Statement of Earnings and Comprehensive Income.
(3) Included in COGS in the Consolidated Statements of Earnings and Comprehensive Income.
(4) Includes
$10.0
and
$97.6
for the twelve months ended September 30, 2016 and 2015, respectively, which were included in SG&A and
$0.4
and
$0.5
for the twelve months ended September 30, 2016 and 2015, respectively, included in COGS in the Consolidated Statements of Earnings and Comprehensive Income.
(5) Included in Interest Expense in the Consolidated Statements of Earnings and Comprehensive Income.
(6) The amount for the twelve months ended September 30, 2017 on the Consolidated Statements of Earnings and Comprehensive Income included
$3.3
of expense which has been reclassified to Acquisition and integration costs from Other items, net for purposes of the reconciliation above.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
Total Assets
|
|
2017
|
|
2016
|
|
Americas
|
|
$
|
533.9
|
|
|
$
|
475.2
|
|
|
EMEA
|
|
240.3
|
|
|
242.0
|
|
|
Asia Pacific
|
|
457.9
|
|
|
390.8
|
|
|
Total segment assets
|
|
$
|
1,232.1
|
|
|
$
|
1,108.0
|
|
|
Corporate
|
|
137.7
|
|
|
159.1
|
|
|
Goodwill and other intangible assets, net
|
|
453.8
|
|
|
464.4
|
|
|
Total assets
|
|
$
|
1,823.6
|
|
|
$
|
1,731.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
Long-Lived Assets
|
|
2017
|
|
2016
|
|
United States
|
|
$
|
186.4
|
|
|
$
|
201.5
|
|
|
Singapore
|
|
64.9
|
|
|
67.0
|
|
|
Other International
|
|
98.3
|
|
|
109.1
|
|
|
Total long-lived assets excluding goodwill and intangibles
|
|
$
|
349.6
|
|
|
$
|
377.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
Capital Expenditures
|
|
2017
|
|
2016
|
|
2015
|
|
Americas
|
|
$
|
17.4
|
|
|
$
|
18.3
|
|
|
$
|
29.6
|
|
|
EMEA
|
|
1.5
|
|
|
5.7
|
|
|
2.3
|
|
|
Asia Pacific
|
|
6.3
|
|
|
4.7
|
|
|
8.5
|
|
|
Total segment capital expenditures
|
|
$
|
25.2
|
|
|
$
|
28.7
|
|
|
$
|
40.4
|
|
Geographic segment information for the years ended September 30 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Net Sales to Customers
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
923.0
|
|
|
$
|
824.1
|
|
|
$
|
767.6
|
|
|
International
|
|
832.7
|
|
|
810.1
|
|
|
864.0
|
|
|
Total net sales
|
|
$
|
1,755.7
|
|
|
$
|
1,634.2
|
|
|
$
|
1,631.6
|
|
Supplemental product information is presented below for net sales for the years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
|
|
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
|
|
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share)
(21) Quarterly Financial Information - (Unaudited)
The results of any single quarter are not necessarily indicative of the Company’s results for the full year. Net earnings of the Company are impacted in the first quarter by the additional battery product sales volume associated with the December holiday season. Per share data is computed independently for each of the periods presented. As a result, the sum of the amounts for the quarter may not equal the total for the year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017
|
First
|
Second
|
Third
|
Fourth
|
|
Net sales
|
$
|
559.6
|
|
$
|
359.0
|
|
$
|
372.0
|
|
$
|
465.1
|
|
|
Gross profit
|
271.6
|
|
167.9
|
|
158.0
|
|
213.8
|
|
|
Net earnings
|
95.6
|
|
46.9
|
|
24.9
|
|
34.1
|
|
|
Earnings per share:
|
|
|
|
|
|
Basic
|
$
|
1.55
|
|
$
|
0.76
|
|
$
|
0.40
|
|
$
|
0.56
|
|
|
Diluted
|
$
|
1.52
|
|
$
|
0.75
|
|
$
|
0.40
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
Items (increasing)/decreasing net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
Spin restructuring
|
(1.0
|
)
|
(1.4
|
)
|
—
|
|
—
|
|
|
Acquisition and integration costs
|
0.5
|
|
1.1
|
|
3.1
|
|
(0.5
|
)
|
|
Gain on sale of real estate
|
—
|
|
(15.2
|
)
|
(1.3
|
)
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
First
|
Second
|
Third
|
Fourth
|
|
Net sales
|
$
|
506.8
|
|
$
|
334.0
|
|
$
|
361.0
|
|
$
|
432.4
|
|
|
Gross profit
|
229.8
|
|
141.6
|
|
153.7
|
|
187.3
|
|
|
Net earnings
|
65.5
|
|
16.4
|
|
24.2
|
|
21.6
|
|
|
Earnings per share:
|
|
|
|
|
|
Basic
|
$
|
1.06
|
|
$
|
0.27
|
|
$
|
0.39
|
|
$
|
0.35
|
|
|
Diluted
|
$
|
1.05
|
|
$
|
0.26
|
|
$
|
0.39
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
Items decreasing/(increasing) net earnings:
|
|
|
|
|
|
Spin costs
|
3.9
|
|
1.8
|
|
1.3
|
|
—
|
|
|
Spin restructuring
|
0.8
|
|
(0.6
|
)
|
0.7
|
|
3.3
|
|
|
Restructuring
|
2.1
|
|
0.9
|
|
0.1
|
|
—
|
|
|
Acquisition and integration costs
|
—
|
|
—
|
|
2.6
|
|
6.4
|
|
|
Inventory step up
|
—
|
|
—
|
|
—
|
|
5.0
|
|
|
Adjustments to prior year tax accruals
|
—
|
|
—
|
|
(8.8
|
)
|
(2.6
|
)
|