Energizer (ENR) - 2020 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This section provides a comprehensive overview of the company's unaudited financial statements, including earnings, balance sheets, cash flows, and detailed notes on business operations, acquisitions, and accounting policies Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Energizer Holdings, Inc., including statements of earnings and comprehensive income, balance sheets, cash flows, and shareholders' equity, along with detailed notes explaining business operations, accounting policies, acquisitions, divestitures, and other financial details for the periods ended December 31, 2019, and September 30, 2019 Consolidated Statements of Earnings and Comprehensive Income (Condensed) This statement details the company's net sales, expenses, net earnings, and comprehensive income for the specified periods Consolidated Statements of Earnings and Comprehensive Income (Condensed) (In millions, except per share data - Unaudited) | Metric | Q4 2019 (Millions) | Q4 2018 (Millions) | | :------------------------------------------------------------------------------------------------- | :----------------- | :----------------- | | Net sales | $736.8 | $571.9 | | Cost of products sold | 435.5 | 296.4 | | Gross profit | 301.3 | 275.5 | | Selling, general and administrative expense | 122.1 | 104.6 | | Advertising and sales promotion expense | 46.8 | 40.9 | | Research and development expense | 8.9 | 5.5 | | Amortization of intangible assets | 13.8 | 3.2 | | Interest expense | 51.0 | 48.2 | | Other items, net | — | (16.9) | | Earnings before income taxes | 58.7 | 90.0 | | Income tax provision | 12.9 | 19.2 | | Net earnings from continuing operations | 45.8 | 70.8 | | Net earnings from discontinued operations, net of income tax expense of $7.5 for the quarter ended | 0.3 | — | | Net earnings | 46.1 | 70.8 | | Mandatory convertible preferred stock dividends | (4.0) | — | | Net earnings attributable to common shareholders | $42.1 | $70.8 | | Basic net earnings per common share - continuing operations | $0.60 | $1.19 | | Basic net earnings per common share - discontinued operations | 0.01 | — | | Basic net earnings per common share | $0.61 | $1.19 | | Diluted net earnings per common share - continuing operations | $0.60 | $1.16 | | Diluted net earnings per common share - discontinued operations | — | — | | Diluted net earnings per common share | $0.60 | $1.16 | | Weighted average shares of common stock - Basic | 69.1 | 59.7 | | Weighted average shares of common stock - Diluted | 70.2 | 61.0 | | Net earnings | $46.1 | $70.8 | | Foreign currency translation adjustments | 30.0 | (3.7) | | Pension activity, net of tax of $0.5 and $0.3, respectively. | (0.2) | 1.1 | | Deferred loss on hedging activity, net of tax of ($1.0) and ($1.0), respectively, | (4.6) | (3.3) | | Total comprehensive income | $71.3 | $64.9 | Consolidated Balance Sheets (Condensed) This statement provides a snapshot of the company's assets, liabilities, and shareholders' equity at specific points in time Consolidated Balance Sheets (Condensed) (In millions - Unaudited) | Assets | Dec 31, 2019 | Sep 30, 2019 | | :----------------------------------------------------------------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $293.5 | $258.5 | | Trade receivables, less allowance for doubtful accounts of $4.4 and $3.8, respectively | 369.9 | 340.2 | | Inventories | 435.8 | 469.3 | | Other current assets | 163.0 | 177.1 | | Assets held for sale | 805.5 | 791.7 | | Total current assets | 2,067.7 | 2,036.8 | | Property, plant and equipment, net | 357.7 | 362.0 | | Operating lease assets | 82.9 | — | | Goodwill | 1,022.5 | 1,004.8 | | Other intangible assets, net | 1,946.3 | 1,958.9 | | Deferred tax asset | 23.4 | 22.8 | | Other assets | 66.3 | 64.3 | | Total assets | $5,566.8 | $5,449.6 | | Liabilities and Shareholders' Equity | | | | Current maturities of long-term debt | $68.4 | $— | | Current portion of capital leases | 1.7 | 1.6 | | Notes payable | 28.1 | 31.9 | | Accounts payable | 288.9 | 299.0 | | Current operating lease liabilities | 15.6 | — | | Other current liabilities | 355.1 | 333.6 | | Liabilities held for sale | 387.1 | 402.9 | | Total current liabilities | 1,144.9 | 1,069.0 | | Long-term debt | 3,383.6 | 3,461.6 | | Operating lease liabilities | 68.4 | — | | Deferred tax liability | 176.2 | 170.6 | | Other liabilities | 206.2 | 204.6 | | Total liabilities | 4,979.3 | 4,905.8 | | Common stock | 0.7 | 0.7 | | Mandatory convertible preferred stock | — | — | | Additional paid-in capital | 852.6 | 870.3 | | Retained earnings | 149.1 | 129.5 | | Treasury stock | (141.8) | (158.4) | | Accumulated other comprehensive loss | (273.1) | (298.3) | | Total shareholders' equity | 587.5 | 543.8 | | Total liabilities and shareholders' equity | $5,566.8 | $5,449.6 | Consolidated Statements of Cash Flows (Condensed) This statement outlines the cash inflows and outflows from operating, investing, and financing activities for the specified periods Consolidated Statements of Cash Flows (Condensed) (In millions - Unaudited) | Cash Flow from Operating Activities | Q4 2019 (Millions) | Q4 2018 (Millions) | | :----------------------------------------------------------------------- | :----------------- | :----------------- | | Net earnings | $46.1 | $70.8 | | Net earnings from discontinued operations | 0.3 | — | | Net earnings from continuing operations | 45.8 | 70.8 | | Non-cash integration and restructuring charges | 4.4 | — | | Depreciation and amortization | 27.6 | 11.6 | | Deferred income taxes | 2.8 | 2.3 | | Share-based compensation expense | 7.2 | 6.5 | | Non-cash items included in income, net | 7.3 | (9.1) | | Other, net | 2.6 | (1.1) | | Changes in current assets and liabilities used in operations | 35.8 | 37.9 | | Net cash from operating activities from continuing operations | 133.5 | 118.9 | | Net cash used by operating activities from discontinued operations | (10.0) | — | | Net cash from operating activities | 123.5 | 118.9 | | Cash Flow from Investing Activities | | | | Capital expenditures | (11.7) | (4.8) | | Proceeds from sale of assets | 1.5 | 0.1 | | Acquisitions, net of cash acquired | (3.6) | — | | Net cash used by investing activities from continuing operations | (13.8) | (4.7) | | Net cash used by investing activities from discontinued operations | (2.4) | — | | Net cash used by investing activities | (16.2) | (4.7) | | Cash Flow from Financing Activities | | | | Cash proceeds from issuance of debt with original maturities greater than 90 days | 365.0 | 1,200.0 | | Payments on debt with maturities greater than 90 days | (400.3) | (1.0) | | Net (decrease)/increase in debt with original maturities of 90 days or less | (4.0) | 28.0 | | Debt issuance costs | (0.9) | (16.5) | | Dividends paid on mandatory convertible preferred stock | (4.0) | — | | Dividends paid on common stock | (22.7) | (19.8) | | Taxes paid for withheld share-based payments | (9.4) | (7.1) | | Net cash (used by)/from financing activities from continuing operations | (76.3) | 1,183.6 | | Net cash used by financing activities from discontinued operations | (1.1) | — | | Net cash (used by)/from financing activities | (77.4) | 1,183.6 | | Effect of exchange rate changes on cash | 5.1 | (2.3) | | Net increase in cash, cash equivalents, and restricted cash from continuing operations | 48.5 | 1,295.5 | | Net decrease in cash, cash equivalents, and restricted cash from discontinued operations | (13.5) | — | | Net increase in cash, cash equivalents, and restricted cash | 35.0 | 1,295.5 | | Cash, cash equivalents, and restricted cash, beginning of period | 258.5 | 1,768.3 | | Cash, cash equivalents, and restricted cash, end of period | $293.5 | $3,063.8 | Consolidated Statements of Shareholders' Equity (Condensed) This statement presents the changes in the company's shareholders' equity over the reporting period, including net earnings and other comprehensive income Consolidated Statements of Shareholders' Equity (Condensed) (Amounts in millions, Shares in thousands - Unaudited) | Metric | Sep 30, 2019 | Dec 31, 2019 | | :-------------------------------------------- | :----------- | :----------- | | Total Shareholders' Equity | $543.8 | $587.5 | | Net earnings from continuing operations | — | 45.8 | | Net earnings from discontinued operations | — | 0.3 | | Share based payments | — | 7.2 | | Activity under stock plans | — | (9.4) | | Dividends to common shareholders | — | (21.4) | | Dividends to preferred shareholders | — | (4.0) | | Other comprehensive loss | — | 25.2 | | Total Shareholders' Equity (Dec 31, 2019) | | $587.5 | | Total Shareholders' Equity (Sep 30, 2018) | $24.5 | | | Net earnings from continuing operations | — | 70.8 | | Share based payments | — | 6.5 | | Activity under stock plans | — | (7.1) | | Dividends to common shareholders | — | (18.4) | | Other comprehensive loss | — | (5.9) | | Total Shareholders' Equity (Dec 31, 2018) | | $70.4 | Notes to Consolidated (Condensed) Financial Statements This section provides detailed explanations and disclosures supporting the condensed financial statements Description of Business and Basis of Presentation This note describes Energizer Holdings, Inc.'s global operations, key brands, and the accounting principles applied in preparing the financial statements - Energizer Holdings, Inc. is a global manufacturer, marketer, and distributor of household batteries, specialty batteries, portable lights, and automotive appearance, performance, refrigerants, and freshener products[19] - The company's battery and light brands include Energizer®, Eveready®, Rayovac®, and Varta® (following the fiscal 2019 Battery Acquisition)[20] - Automotive product brands include Refresh Your Car!®, California Scents®, Driven®, Bahama & Co.®, LEXOL®, Eagle One®, Armor All®, STP®, and A/C PRO® (following the fiscal 2019 Auto Care Acquisition)[21] - Subsequent to the quarter, on January 2, 2020, the Varta® consumer battery business in Europe, Middle East, and Africa was sold to VARTA Aktiengesellschaft for €180.0, with initial proceeds of approximately $345 million[22] - The Varta Divestiture resulted in the classification of associated assets and liabilities as held for sale and operations as discontinued operations in the financial statements[25] - Effective October 1, 2019, the Company adopted ASC 842, Leases, recognizing lease assets and liabilities on the balance sheet, which did not materially impact earnings, cash flows, or shareholder's equity[26][29] Revenue Recognition This note outlines the company's policies for recognizing revenue from product sales and provides a breakdown of net sales by product and geography - Revenue is primarily generated from finished product sales, recognized at a single point in time when title, ownership, and risk of loss transfer to the customer, typically upon delivery or pickup[31] Net Sales by Product and Geography (In millions) | Net Sales by Product | Dec 2019 | Dec 2018 | | :------------------- | :------- | :------- | | Batteries | $621.9 | $521.9 | | Auto Care | 78.7 | 20.5 | | Lights and Licensing | 36.2 | 29.5 | | Total Net Sales | $736.8 | $571.9 | | Net Sales by Geography | 2019 | 2018 | | :--------------------- | :------- | :------- | | North America | $453.7 | $341.0 |\ | Latin America | 60.8 | 32.5 | | Americas | 514.5 | 373.5 | | Modern Markets | 142.8 | 127.4 | | Developing Markets | 51.2 | 49.7 | | Distributors Markets | 28.3 | 21.3 | | International | 222.3 | 198.4 | | Total Net Sales | $736.8 | $571.9 | Acquisitions This note details the Battery and Auto Care Acquisitions, including purchase prices, acquired assets, and associated integration costs - The Battery Acquisition was completed on January 2, 2019, for a contractual purchase price of $2,000.0 million, expanding the global battery portfolio with Rayovac® and Varta® brands[35] - The Auto Care Acquisition was completed on January 28, 2019, for a contractual purchase price of $1,250.0 million, adding Armor All®, STP®, and A/C PRO® brands and establishing the Company as a global leader in auto care[44] - Goodwill from the Battery Acquisition ($496.0 million) is tax-deductible, while goodwill from the Auto Care Acquisition ($274.0 million) is not[43][50] Battery Acquisition Purchase Price Allocation (as of acquisition date, in millions) | Asset/Liability | Amount | | :-------------------------- | :------- | | Cash and cash equivalents | 37.8 | | Trade receivables | 54.2 | | Inventories | 80.8 | | Other current assets | 28.2 | | Assets held for sale | 794.6 | | Property, plant and equipment, net | 133.2 | | Goodwill | 496.0 | | Other intangible assets, net | 805.8 | | Other assets | 10.3 | | Current portion of capital leases | (1.2) | | Accounts payable | (39.2) | | Other current liabilities | (19.3) | | Long-term debt | (14.7) | | Liabilities held for sale | (394.6) | | Other liabilities | (9.5) | | Net assets acquired | 1,962.4| Auto Care Acquisition Purchase Price Allocation (as of acquisition date, in millions) | Asset/Liability | Amount | | :-------------------------- | :------- | | Cash and cash equivalents | 3.3 | | Trade receivables | 39.7 | | Inventories | 98.6 | | Other current assets | 8.9 | | Property, plant and equipment, net | 70.8 | | Goodwill | 274.0 | | Other intangible assets, net | 965.3 | | Deferred tax assets | 4.2 | | Other assets | 1.7 | | Current portion of capital leases | (0.4) | | Accounts payable | (28.6) | | Other current liabilities | (10.9) | | Long-term debt | (31.9) | | Other liabilities (deferred tax liabilities) | (211.9) | | Net assets acquired | 1,182.8| Acquisition and Integration Costs (Pre-tax, in millions) | Quarter Ended Dec 31 | 2019 | 2018 | | :------------------- | :---- | :---- | | Total Costs | $19.3 | $36.5 | Divestment This note describes the classification and subsequent sale of the Varta® consumer battery business in EMEA as discontinued operations - The Divestment Business (Varta® consumer battery business in EMEA) was classified as held for sale as of December 31, 2019, and its operations as discontinued operations[67] - The sale to VARTA AG was completed on January 2, 2020, for €180.0, with initial combined cash proceeds of approximately $345 million[72] - The Company estimates a pre-tax loss of $80 to $90 million from the divestiture based on preliminary cash proceeds[72] Assets and Liabilities of Divestment Business Held for Sale (In millions) | Category | Dec 31, 2019 | Sep 30, 2019 | | :----------------- | :----------- | :----------- | | Assets | | | | Trade receivables | $60.1 | $50.9 | | Inventories | 44.8 | 59.8 | | Other current assets | 34.7 | 41.5 | | Property, plant and equipment, net | 83.7 | 78.8 | | Goodwill | 47.2 | 50.5 | | Other intangible assets, net | 503.9 | 489.0 | | Other assets | 31.1 | 21.2 | | Assets held for sale | $805.5 | $791.7 | | Liabilities | | | | Current portion of capital leases | $5.5 | $5.3 | | Accounts payable | 29.5 | 45.9 | | Notes payable | 0.6 | 0.6 | | Other current liabilities | 90.8 | 99.8 | | Long-term debt | 22.9 | 23.5 | | Long term deferred tax liability | 166.0 | 169.9 | | Other liabilities | 71.8 | 57.9 | | Liabilities held for sale | $387.1 | $402.9 | Net Earnings from Discontinued Operations (Quarter Ended Dec 31, 2019, in millions) | Metric | Amount | | :-------------------------------------- | :----- | | Net sales | $115.8 | | Cost of products sold | 88.2 | | Gross profit | 27.6 | | Selling, general and administrative expense | 17.4 | | Advertising and sales promotion expense | 0.3 | | Research and development expense | 0.8 | | Interest expense | 5.2 | | TSA income | (3.8) | | Other items, net | (0.1) | | Earnings before income taxes | 7.8 | | Income tax expense | 7.5 | | Net earnings from discontinued operations | $0.3 | Restructuring This note outlines the company's restructuring plans to optimize manufacturing and distribution networks, including associated pre-tax expenses - Energizer's Board approved restructuring plans in Q4 2019 to optimize manufacturing and distribution networks, aiming for completion by December 31, 2021[73] Restructuring Pre-Tax Expense (Quarter Ended Dec 31, 2019, in millions) | Category | Amount | | :-------------------------------------- | :----- | | Severance and related benefit costs | $0.9 | | Accelerated depreciation & asset write-offs | 3.4 | | Other exit costs | 2.0 | | Total | $6.3 | - Restructuring costs for the quarter were $6.3 million, primarily in the Americas ($5.9 million) and International ($0.4 million) segments, recorded in Cost of products sold[74] - Additional severance and exit-related costs of approximately $55 million are expected through calendar 2021[77] Income Taxes This note explains the company's effective tax rate and the factors influencing its changes Effective Tax Rate | Period | Effective Tax Rate | | :-------------------- | :----------------- | | Q4 2019 | 22.0% | | Q4 2018 | 21.3% | - The increase in the effective tax rate from 21.3% in Q4 2018 to 22.0% in Q4 2019 is due to changes in the country mix of earnings, leading to a higher foreign tax rate, and the expiration of certain foreign tax holidays[78] Share-Based Payments This note details the company's share-based compensation plans, including the Omnibus Incentive Plan and various equity awards granted - The Company's shareholders approved the Energizer Holdings, Inc. Omnibus Incentive Plan on January 27, 2020, replacing the 2015 Plan and authorizing 6.5 million new shares for awards[80][81] Total Share-Based Compensation Cost (In millions) | Quarter Ended Dec 31 | 2019 | 2018 | | :------------------- | :--- | :--- | | Total Cost | $7.2 | $6.5 | - In November 2019, RSE awards for approximately 134,000 shares (ratably vesting over four years) and 81,000 shares (vesting on third anniversary) were granted to key employees and executives[83][86] - Additionally, 306,000 performance shares were granted, with a maximum payout of 612,000 shares based on cumulative adjusted EPS and free cash flow targets[83][86] Earnings per share This note defines basic and diluted earnings per share calculations and presents the per-share data for continuing and discontinued operations - Basic EPS is based on average common shares outstanding, while diluted EPS adjusts for dilutive effects of restricted stock equivalents, performance share awards, and deferred compensation equity plans[92] Basic and Diluted Earnings Per Share (In millions, except per share data) | Metric | Q4 2019 | Q4 2018 | | :------------------------------------------------------------------ | :------ | :------ | | Net earnings from continuing operations attributable to common shareholders | $41.8 | $70.8 | | Net earnings from discontinued operations, net of tax | 0.3 | — | | Net earnings attributable to common shareholders | $42.1 | $70.8 | | Weighted average common shares outstanding - Basic | 69.1 | 59.7 | | Basic net earnings per common share from continuing operations | $0.60 | $1.19 | | Basic net earnings per common share from discontinued operations | 0.01 | — | | Basic net earnings per common share | $0.61 | $1.19 | | Weighted average common shares outstanding - Diluted | 70.2 | 61.0 | | Diluted net earnings per common share from continuing operations| $0.60 | $1.16 | | Diluted net earnings per common share from discontinued operations | — | — | | Diluted net earnings per common share | $0.60 | $1.16 | - As of December 31, 2019, all Mandatory Convertible Preferred Stock (MCPS) was considered anti-dilutive and excluded from diluted EPS calculations[94] Segments This note provides financial information by the company's two reportable segments, Americas and International, including net sales, segment profit, and total assets - Energizer manages operations through two geographic reportable segments: Americas and International[97] - Segment performance is evaluated based on segment operating profit, excluding corporate expenses, share-based compensation, acquisition/integration costs, amortization, R&D, and other corporate items[97] Segment Sales and Profitability (In millions) | Metric | Dec 2019 | Dec 2018 | | :----------------- | :------- | :------- | | Net Sales | | | | Americas | $514.5 | $373.5 | | International | 222.3 | 198.4 | | Total net sales| $736.8 | $571.9 | | Segment Profit | | | | Americas | $129.2 | $116.1 | | International | 52.2 | 54.6 | | Total segment profit | $181.4 | $170.7 | Total Assets by Segment (In millions) | Segment | Dec 31, 2019 | Sep 30, 2019 | | :--------------------------- | :----------- | :----------- | | Americas | $1,006.5 | $991.9 | | International | 691.0 | 621.0 | | Total segment assets | $1,697.5 | $1,612.9 | | Corporate | 95.0 | 81.3 | | Goodwill and other intangible assets | 2,968.8 | 2,963.7 | | Assets held for sale | 805.5 | 791.7 | | Total assets | $5,566.8 | $5,449.6 | Leases This note details the company's adoption of ASC 842, Leases, and presents information on operating and finance lease assets, liabilities, and expenses - The Company adopted ASC 842, Leases, on October 1, 2019, recognizing operating lease right-of-use assets and liabilities based on the present value of lease payments[105][106] Lease Information (as of Dec 31, 2019, in millions) | Category | Amount | | :-------------------------------------- | :------- | | Operating Leases: | | | Operating lease asset | $82.9 | | Operating lease liabilities - current | 15.6 | | Operating lease liabilities | 68.4 | | Total Operating Lease Liabilities | $84.0 | | Weighted-average remaining lease term (in years) | 17.9 | | Weighted-average discount rate | 4.4% | | Finance Leases: | | | Property, plant and equipment, net | $45.7 | | Current portion of capital leases | 1.7 | | Long-term debt | 45.1 | | Total Finance Lease Liabilities | $46.8 | | Weighted Average remaining lease term (in years) | 20.8 | | Weighted-average discount rate | 6.7% | Components of Lease Expense (Quarter Ended Dec 31, 2019, in millions) | Component | Amount | | :------------------------ | :----- | | Operating lease cost | $4.5 | | Finance lease cost: | | | Amortization of assets | 0.8 | | Interest on lease liabilities | 0.8 | | Variable lease costs | 0.3 | | Total lease costs | $6.4 | - During Q1 fiscal 2020, Energizer entered into a material embedded operating lease agreement, resulting in a non-cash increase of $33.6 million in lease assets and liabilities[113] Goodwill and intangible assets This note provides a breakdown of goodwill by segment and details the net carrying amounts of amortizable and indefinite-lived intangible assets - Goodwill and indefinite-lived intangible assets are not amortized but are evaluated annually for impairment[115] Goodwill by Segment (In millions) | Segment | Oct 1, 2019 | Dec 31, 2019 | | :-------------- | :---------- | :----------- | | Americas | $861.6 | $866.4 | | International | 143.2 | 156.1 | | Total | $1,004.8| $1,022.5 | Total Intangible Assets (In millions) | Category | Dec 31, 2019 Net Carrying Amount | Sep 30, 2019 Net Carrying Amount | | :---------------------------------------- | :------------------------------- | :------------------------------- | | Trademarks and trade names (amortizable) | $48.8 | $49.8 | | Customer relationships | 353.2 | 359.9 | | Patents | 25.7 | 26.3 | | Proprietary technology | 151.4 | 156.8 | | Proprietary formulas | 2.1 | 2.1 | | Non-compete | 0.1 | 0.2 | | Total Amortizable intangible assets | $581.3 | $595.1 | | Trademarks and trade names - indefinite lived | 1,365.0 | 1,363.8 | | Total Other intangible assets, net | $1,946.3 | $1,958.9 | Debt This note details the company's long-term debt structure, including various term loan facilities and senior notes, and recent refinancing activities Long-Term Debt Detail (In millions) | Debt Type | Dec 31, 2019 | Sep 30, 2019 | | :------------------------------------------ | :----------- | :----------- | | 2019 Senior Secured Term Loan A Facility Due 2022 | $365.0 | $— | | Senior Secured Term Loan A Facility due 2021 | — | 77.5 | | Senior Secured Term Loan B Facility due 2025 | 660.0 | 982.5 | | 5.50% Senior Notes due 2025 | 600.0 | 600.0 | | 6.375% Senior Notes due 2026 | 500.0 | 500.0 | | 4.625% Senior Notes due 2026 (Euro Notes of €650.0) | 728.8 | 708.4 | | 7.750% Senior Notes due 2027 | 600.0 | 600.0 | | Capital lease obligations | 46.8 | 46.9 | | Total long-term debt, including current maturities | 3,500.6 | 3,515.3 | | Less current portion | (70.1) | (1.6) | | Less unamortized debt discount and debt issuance fees | (46.9) | (52.1) | | Total long-term debt | $3,383.6 | $3,461.6 | - On December 27, 2019, the Company refinanced $365.0 million of term loan debt, establishing a new Term Loan A facility due December 2022 and paying down existing Term Loan B and A facilities[124] - Subsequent to the quarter, proceeds from the Varta Divestiture were used to pay down borrowings on the Term Loan B facility[125] - As of December 31, 2019, the Company had $20.0 million outstanding under the Revolving Facility, with $372.7 million available[126] - The Company was in compliance with all debt covenants as of December 31, 2019[130] Pension Plans This note provides information on the company's defined benefit pension plans, including net periodic pension costs for U.S. and international operations - The Company sponsors several defined benefit pension plans in the U.S. (frozen in fiscal 2015) and other countries[135] Net Periodic Pension (Benefit)/Cost (In millions) | Component | Q4 2019 (U.S.) | Q4 2018 (U.S.) | Q4 2019 (International) | Q4 2018 (International) | | :------------------------------ | :------------- | :------------- | :---------------------- | :---------------------- | | Service cost | $— | $— | $0.2 | $0.1 | | Interest cost | 4.0 | 5.1 | 0.3 | 0.7 | | Expected return on plan assets | (6.1) | (6.5) | (0.6) | (1.2) | | Amortization of unrecognized net losses | 1.6 | 1.0 | 0.3 | 0.3 | | Net periodic (benefit)/cost | $(0.5) | $(0.4) | $0.2 | $(0.1) | - A pension plan was acquired as part of the Divestment Business and is included in Liabilities held for sale[138] Shareholders' Equity This note details changes in shareholders' equity, including common stock repurchases and dividends declared and paid on common and preferred stock - The Board authorized the repurchase of up to 7.5 million common shares in July 2015; no shares were repurchased in Q1 fiscal 2020 or 2019[139] Dividends Declared and Paid (In millions) | Dividend Type | Q4 2019 Declared | Q4 2018 Declared | Q4 2019 Paid | Q4 2018 Paid | | :-------------------------------- | :--------------- | :--------------- | :----------- | :----------- | | Common Stock | $21.4 | $18.4 | $22.7 | $19.8 | | Mandatory Convertible Preferred Stock | $4.0 | — | $4.0 | — | - Subsequent to the quarter, the Board declared a cash dividend of $0.30 per common share for Q2 2020 and $1.875 per MCPS share[142][143] Financial Instruments and Risk Management This note describes the company's use of derivative instruments to hedge exposures to currency rates, interest rates, and commodity prices - The Company uses derivatives solely for hedging identifiable exposures to currency rates, interest rates, and commodity prices, not for trading or speculative purposes[145] - Primary foreign currency exposures include the Euro, British pound, Canadian dollar, and Australian dollar, impacting product costs and margins[150] - Energizer had $1,025.0 million in variable rate debt outstanding as of December 31, 2019, with interest rate swaps hedging $200.0 million (fixed at 2.03% LIBOR) and $250.0 million (fixed at 2.47% LIBOR)[152][158] Fair Values and Gains/Losses on Derivative Instruments (In millions) | Derivative Type (Cash Flow Hedges) | Dec 31, 2019 Estimated Fair Value (Liability) | Q4 2019 Recognized OCI (Loss)/Gain | Q4 2019 Reclassified into Income (Gain)/(Loss) | | :--------------------------------- | :-------------------------------------------- | :--------------------------------- | :--------------------------------------------- | | Foreign currency contracts | $(1.4) | $(4.0) | $1.9 | | Interest rate swaps | $(3.7) | $0.5 | $(0.5) | | Zinc contracts | $(1.7) | $(1.0) | $(0.3) | | Total | $(6.8) | $(4.5) | $1.1 | | Derivative Type (Non-Hedges) | Dec 31, 2019 Estimated Fair Value (Asset) | Q4 2019 Loss Recognized in Income | | :--------------------------------- | :-------------------------------------------- | :-------------------------------- | | Foreign currency contracts | $0.1 | $(0.9) | Accumulated Other Comprehensive (Loss)/Income This note details the changes in accumulated other comprehensive income (AOCI), including foreign currency translation adjustments, pension activity, and hedging gains/losses Changes in Accumulated Other Comprehensive (Loss)/Income (AOCI) (In millions) | Component | Sep 30, 2019 Balance | OCI before Reclassifications | Reclassifications to Earnings | Activity related to Discontinued Operations | Dec 31, 2019 Balance | | :-------------------------------- | :------------------- | :--------------------------- | :---------------------------- | :------------------------------------------ | :------------------- | | Foreign Currency Translation Adjustments | $(124.0) | $14.1 | $— | $15.9 | $(94.0) | | Pension Activity | $(173.3) | $1.3 | $(1.4) | $(0.1) | $(173.5) | | Zinc Contracts | $0.2 | $(0.8) | $0.2 | $(0.4) | $(0.8) | | Foreign Currency Contracts | $3.1 | $(3.0) | $(1.5) | $— | $(1.4) | | Interest Rate Contracts | $(4.3) | $0.5 | $0.4 | $— | $(3.4) | | Total | $(298.3) | $12.1 | $(2.3) | $15.4 | $(273.1) | Reclassifications out of AOCI to Earnings (In millions) | Details of AOCI Components | Q4 2019 Amount from Reclassified AOCI | Q4 2018 Amount from Reclassified AOCI | | :-------------------------------- | :------------------------------------ | :------------------------------------ | | Foreign currency contracts | $1.9 | $2.8 | | Interest rate contracts | $(0.5) | $(0.1) | | Zinc contracts | $(0.3) | $— | | Total Gains and losses on cash flow hedges | $1.1 | $2.7 | | Actuarial gain/(loss) | $1.9 | $(1.3) | | Total Amortization of defined benefit pension items | $1.9 | $(1.3) | | Total reclassifications to earnings | $2.3 | $1.0 | Supplemental Financial Statement Information This note provides additional detail on various balance sheet and income statement components, such as inventories, other current assets, and other liabilities Other Items, Net (In millions) | Component | Q4 2019 | Q4 2018 | | :-------------------------------------- | :------ | :------ | | Interest income | $(0.1) | $(0.2) | | Interest income on restricted cash | — | $(5.8) | | Foreign currency exchange gain | $(0.4) | $(1.1) | | Pension benefit other than service costs | $(0.5) | $(0.7) | | Acquisition foreign currency loss/(gain) | 2.2 | $(9.0) | | Gain on sale of assets | $(1.0) | — | | Transition services agreement income | $(0.3) | — | | Other | 0.1 | $(0.1) | | Total Other items, net | $— | $(16.9) | Inventories (In millions) | Category | Dec 31, 2019 | Sep 30, 2019 | | :----------------------- | :----------- | :----------- | | Raw materials and supplies | $73.7 | $70.5 | | Work in process | 92.3 | 103.7 | | Finished products | 269.8 | 295.1 | | Total inventories | $435.8 | $469.3 | Other Current Assets (In millions) | Category | Dec 31, 2019 | Sep 30, 2019 | | :------------------------------------- | :----------- | :----------- | | Miscellaneous receivables | $15.4 | $16.5 | | Due from Spectrum | 13.0 | 7.6 | | Prepaid expenses | 91.0 | 71.3 | | Value added tax collectible from customers | 32.3 | 23.1 | | Other | 11.3 | 58.6 | | Total other current assets | $163.0 | $177.1 | Property, Plant and Equipment, Net (In millions) | Category | Dec 31, 2019 | Sep 30, 2019 | | :--------------------------- | :----------- | :----------- | | Land | $9.7 | $9.6 | | Buildings | 121.5 | 119.9 | | Machinery and equipment | 834.8 | 823.0 | | Capital leases | 45.7 | 50.4 | | Construction in progress | 31.9 | 25.8 | | Total gross property | 1,043.6 | 1,028.7 | | Accumulated depreciation | (685.9) | (666.7) | | Total property, plant and equipment, net | $357.7 | $362.0 | Other Current Liabilities (In millions) | Category | Dec 31, 2019 | Sep 30, 2019 | | :----------------------------------------- | :----------- | :----------- | | Accrued advertising, sales promotion and allowances | $26.7 | $11.8 | | Accrued trade allowances | 59.8 | 53.1 | | Accrued salaries, vacations and incentive compensation | 29.8 | 59.2 | | Accrued interest expense | 55.9 | 37.4 | | Due to Spectrum | 4.4 | 2.6 | | Accrued acquisition and integration costs | 6.1 | 7.9 | | Restructuring reserve | 6.9 | 9.8 | | Income taxes payable | 43.3 | 23.4 | | Other | 122.2 | 128.4 | | Total other current liabilities | $355.1 | $333.6 | Other Liabilities (In millions) | Category | Dec 31, 2019 | Sep 30, 2019 | | :------------------------------- | :----------- | :----------- | | Pensions and other retirement benefits | $107.0 | $109.0 | | Deferred compensation | 28.6 | 28.1 | | Restructuring reserve | 4.5 | — | | Mandatory transition tax | 16.7 | 16.7 | | Other non-current liabilities | 49.4 | 50.8 | | Total other liabilities | $206.2 | $204.6 | Related Party Transactions This note describes transactions and agreements with Spectrum, a related party, including transition service agreements and supply arrangements - Spectrum, a related party, owns 7.6% of the Company's outstanding common shares as of December 31, 2019, following the Auto Care Acquisition[186] - The Company and Spectrum have transition service agreements (TSA) and reverse TSAs for back-office support, with most agreements exited by January 31, 2020, but some information systems and back-office support continuing through fiscal 2020[187][188] - For Q4 2019, the Company incurred $4.4 million in SG&A and $0.2 million in Cost of products sold related to TSAs, and recorded $0.3 million in income from reverse TSAs[190] - A supply agreement with Spectrum resulted in $4.8 million in expense for Q4 2019[191] Legal proceedings/contingencies and other obligations This note addresses the company's involvement in legal proceedings and outlines its purchase obligations from supply and service contracts - The Company is subject to various legal proceedings, but based on current information, the liability from these is not reasonably likely to be material to its financial position, results of operations, or cash flows[193] - As of December 31, 2019, the Company had approximately $8.6 million in purchase obligations from supply and service contracts[195] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Energizer's financial condition and results of operations for the quarter ended December 31, 2019, discussing key financial highlights, segment performance, liquidity, and capital resources, including the impact of recent acquisitions and restructuring activities Forward-Looking Statements This section highlights that the document contains forward-looking statements subject to various risks and uncertainties, including market conditions and integration challenges - The document contains forward-looking statements reflecting expectations, estimates, or projections about future results, which are subject to known and unknown risks and uncertainties[199] - Key risk factors include market and economic conditions, integration of acquired businesses, new product success, customer retention, strategic initiative execution, competitive pressure, foreign currency impacts, commodity costs, and compliance with debt covenants[199] Non-GAAP Financial Measures This section explains the company's use of non-GAAP financial measures to provide additional insights into operating performance, excluding certain non-recurring items - Management uses non-GAAP financial measures (e.g., Segment Profit, Adjusted Net Earnings, Non-GAAP Tax Rate, Organic measures) to provide additional meaningful comparisons and assist investors in understanding ongoing operating performance, excluding items like acquisition/integration costs and one-time tax impacts[202][203][204][205][206] Battery Acquisition This section discusses the financial contribution of the Battery Acquisition and the subsequent divestiture of the Varta® consumer battery business - The Battery Acquisition was completed on January 2, 2019, for $2,000.0 million, adding Rayovac® and Varta® brands[211] Battery Acquisition Financial Contribution (Quarter Ended Dec 31, 2019, in millions) | Metric | Amount | | :--------------------- | :----- | | Revenue | $125.5 | | Income before income taxes | $17.1 | - The Varta® consumer battery business in EMEA was sold on January 2, 2020, for €180.0, with initial proceeds of approximately $345 million, and an estimated pre-tax loss of $80-$90 million[212] Auto Care Acquisition This section details the financial contribution of the Auto Care Acquisition, which expanded the company's automotive product portfolio - The Auto Care Acquisition was completed on January 28, 2019, for $1,250.0 million, including Armor All®, STP®, and A/C PRO® brands[213] Auto Care Acquisition Financial Contribution (Quarter Ended Dec 31, 2019, in millions) | Metric | Amount | | :--------------------- | :----- | | Revenue | $61.4 | | Income before income taxes | $0.4 | Acquisition and Integration Costs This section outlines the pre-tax costs incurred for acquisitions and integration activities, categorized by expense type Pre-Tax Acquisition and Integration Costs (In millions) | Quarter Ended Dec 31 | 2019 | 2018 | | :------------------- | :---- | :---- | | Total Costs | $19.3 | $36.5 | - Q4 2019 costs included $6.9 million in Cost of products sold (facility exit/restructuring), $11.1 million in SG&A (integration consulting, IT systems), and $0.4 million in R&D[214][215][216] - Q4 2018 costs included $18.9 million in SG&A (legal, consulting, regulatory approval) and $32.4 million in interest expense (escrowed debt ticking fees)[215][216] - Other items, net for Q4 2019 included a $2.2 million loss on a hedge contract for Varta Divestiture proceeds, offset by a $1.0 million gain on asset sale and $0.3 million transition services income[217] Restructuring Costs This section details the pre-tax expenses associated with the company's restructuring plans aimed at improving operational efficiency - Restructuring plans approved in Q4 2019 aim to reduce complexity and improve efficiency in manufacturing and distribution, with completion expected by December 31, 2021[219] Pre-Tax Restructuring Expense (Quarter Ended Dec 31, 2019, in millions) | Category | Amount | | :-------------------------------------- | :----- | | Total pre-tax expense | $6.3 | - These costs, primarily in Cost of products sold, included severance, accelerated depreciation, asset write-offs, and other exit costs, totaling $6.3 million for Q4 2019[220] - Expected annual cost savings of $60-$65 million are anticipated by the end of calendar 2021, mainly from Cost of products sold[221] Highlights / Operating Results This section summarizes key financial and operational performance metrics, including net earnings, sales, and segment results Financial Results This section presents the company's net earnings and diluted earnings per share, including adjusted non-GAAP measures Net Earnings and EPS (In millions, except per share data) | Metric | Q4 2019 | Q4 2018 | | :------------------------------------------------------------------ | :------ | :------ | | Net earnings from continuing operations | $45.8 | $70.8 | | Diluted net earnings per common share - continuing operations | $0.60 | $1.16 | | Adjusted diluted net earnings per diluted common share - continuing operations | $0.85 | $1.64 | - Adjusted diluted net earnings from continuing operations per common share decreased by 48.2% year-over-year[223] - Adjustments for non-GAAP measures include acquisition and integration costs, loss on extinguishment of debt, and the one-time impact of U.S. tax legislation[224] Net Sales This section analyzes the drivers of net sales changes, including organic growth, acquisition impacts, and currency fluctuations Net Sales Breakdown (In millions) | Component | Q4 2019 Change | % Chg |\ | :---------------------------- | :------------- | :---- |\ | Net Sales - prior year | $571.9 | |\ | Organic | $(19.7) | (3.4)%|\ | Impact of Battery Acquisition | 125.5 | 21.9 %|\ | Impact of Auto Care Acquisition | 61.4 | 10.7 %|\ | Change in Argentina | 0.2 | — % |\ | Impact of currency | (2.5) | (0.4)%|\ | Net Sales - current year | $736.8 | 28.8 %| - Total net sales increased by $164.9 million (28.8%) to $736.8 million in Q4 2019, primarily driven by acquisitions ($186.9 million, or 32.6%)[230][231] - Organic net sales decreased by 3.4% due to declining point-of-sale trends (US price increase, competitive launch, lower hurricane-related replenishment volumes) and holiday phasing, partially offset by improved pricing[230] Gross Margin This section discusses the reported and adjusted gross margin percentages and the factors influencing their year-over-year changes Gross Margin Percentage | Period | Reported Gross Margin % | Adjusted Gross Margin % (Excl. Integration Costs) | | :-------------------- | :---------------------- | :------------------------------------------------ | | Q4 2019 | 40.9% | 41.8% | | Q4 2018 | 48.2% | 48.2% | - Adjusted gross margin decreased by 640 basis points year-over-year, mainly due to the lower margin profile of acquired businesses, customer mix, unfavorable foreign currency, tariffs, and higher product costs from lower Q4 2019 production volumes[232] - These decreases were partially offset by improved pricing and realized synergies[232] Advertising and Sales Promotion Expense (A&P) This section details the company's advertising and sales promotion expenses and their impact on net sales Advertising and Sales Promotion Expense (A&P) (In millions) | Period | A&P Amount | A&P as % of Net Sales | | :----- | :--------- | :-------------------- | | Q4 2019| $46.8 | 6.4% | | Q4 2018| $40.9 | 7.2% | - Excluding acquired businesses, legacy A&P increased by $3.3 million, reflecting continued support for the broad portfolio and increased spending for product/packaging innovation and promotional support for auto care brands[233] Selling, General, and Administrative Expense (SG&A) This section analyzes reported and adjusted selling, general, and administrative expenses and their percentage of net sales Selling, General, and Administrative Expense (SG&A) (In millions) | Period | Reported SG&A | Reported SG&A as % of Net Sales | Adjusted SG&A (Excl. Acquisition Costs) | Adjusted SG&A as % of Net Sales | | :----- | :------------ | :------------------------------ | :-------------------------------------- | :------------------------------ | | Q4 2019| $122.1 | 16.6% | $111.0 | 15.1% | | Q4 2018| $104.6 | 18.3% | $85.7 | 15.0% | - Adjusted SG&A (excluding acquisition and integration costs) increased by $25.3 million, with legacy SG&A as a percentage of net sales increasing by 90 basis points due to higher mark-to-market adjustments on the deferred compensation plan[234] Research and Development (R&D) This section presents the company's research and development expenses and their proportion to net sales Research and Development (R&D) Expense (In millions) | Period | R&D Amount | R&D as % of Net Sales | | :----- | :--------- | :-------------------- | | Q4 2019| $8.9 | 1.2% | | Q4 2018| $5.5 | 1.0% | Interest Expense This section details the company's interest expense, highlighting the impact of debt from recent acquisitions Interest Expense (In millions) | Period | Reported Interest Expense | | :----- | :------------------------ | | Q4 2019| $51.0 | | Q4 2018| $48.2 | - Excluding the $4.2 million loss on extinguishment of debt in Q4 2019 and $32.4 million in acquisition costs in Q4 2018, current year interest expense increased by $31.0 million