ENERGIZER HOLDINGS, INC.
The following discussion is meant to provide investors with information
management believes is helpful in reviewing Energizer's historical-basis 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 Consolidated (Condensed) Financial Statements (unaudited) and
corresponding notes included herein.
All amounts discussed are in millions of
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 the Company. These statements generally can be identified by the use of forward-looking words or phrases such as "believe," "expect," "expectation," "anticipate," "may," "could," "will," "intend," "belief," "estimate," "plan," "target," "predict," "likely," "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 you 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. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation:
•Global economic and financial market conditions, including the conditions resulting from the COVID-19 pandemic, and actions taken by our customers, suppliers, other business partners and governments in markets in which we compete might materially and negatively impact us.
•Competition in our product categories might hinder our ability to execute our business strategy, achieve profitability, or maintain relationships with existing customers.
•Changes in the retail environment and consumer preferences could adversely affect our business, financial condition and results of operations.
•We must successfully manage the demand, supply, and operational challenges brought about by the COVID-19 pandemic and any other disease outbreak, including epidemics, pandemics, or similar widespread public health concerns.
•Loss or impairment of the reputation of our Company or our leading brands or failure of our marketing plans could have an adverse effect on our business.
•Loss of any of our principal customers could significantly decrease our sales and profitability.
•Our ability to meet our growth targets depends on successful product, marketing and operations innovation and successful responses to competitive innovation and changing consumer habits.
•We are subject to risks related to our international operations, including currency fluctuations, which could adversely affect our results of operations.
•If we fail to protect our intellectual property rights, competitors may manufacture and market similar products, which could adversely affect our market share and results of operations.
•Changes in production costs, including raw material prices and transportation costs, from inflation or otherwise, have adversely affected, and in the future could erode, our profit margins and negatively impact operating results. •Our reliance on certain significant suppliers subjects us to numerous risks, including possible interruptions in supply, which could adversely affect our business.
•Our business is vulnerable to the availability of raw materials, our ability to forecast customer demand and our ability to manage production capacity.
•The manufacturing facilities, supply channels or other business operations of
the Company and our suppliers may be subject to disruption from events beyond
our control.
•The Company's future results may be affected by its operational execution,
including scenarios where the Company generates fewer productivity improvements
than estimated.
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•If our goodwill and indefinite-lived intangible assets become impaired, we will be required to record impairment charges, which may be significant.
•A failure of a key information technology system could adversely impact our ability to conduct business.
•We rely significantly on information technology and any inadequacy, interruption, theft or loss of data, malicious attack, integration failure, failure to maintain the security, confidentiality or privacy of sensitive data residing on our systems or other security failure of that technology could harm our ability to effectively operate our business and damage the reputation of our brands.
•We have significant debt obligations that could adversely affect our business and our ability to meet our obligations.
•If we pursue strategic acquisitions, divestitures or joint ventures, we might experience operating difficulties, dilution, and other consequences that may harm our business, financial condition, and operating results, and we may not be able to successfully consummate favorable transactions or successfully integrate acquired businesses. •Our business involves the potential for product liability claims, labeling claims, commercial claims and other legal claims against us, which could affect our results of operations and financial condition and result in product recalls or withdrawals.
•Our business is subject to increasing government regulations in both the
•Increased focus by governmental and non-governmental organizations, customers, consumers and shareholders on environmental, social and governance (ESG) issues, including those related to sustainability and climate change, may have an adverse effect on our business, financial condition and results of operations and damage our reputation. •We are subject to environmental laws and regulations that may expose us to significant liabilities and have a material adverse effect on our results of operations and financial condition. 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 discussed herein and detailed from time to time in our other publicly filed documents, including those described under the heading "Risk Factors" in our Form 10-K filed with theSecurities and Exchange Commission onNovember 15, 2022 . Non-GAAP Financial Measures The Company reports its financial results in accordance with accounting principles generally accepted in theU.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 are not reflective of the Company's on-going operating performance, such as restructuring costs, acquisition and integration costs, an acquisition earn out and the gain on extinguishment of debt. In addition, these measures help investors to analyze year over year comparability when excluding currency fluctuations 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 methods 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 two reportable
segments including allocations for shared support functions. General corporate
and other expenses, intangible amortization expense, interest expense, gain on
extinguishment of debt, other items, net, restructuring charges, the charges
related to acquisition and integration costs, and an acquisition earn out have
all been excluded from segment profit.
Adjusted Net Earnings and Adjusted Diluted Net Earnings Per Common Share (EPS).
These measures exclude the impact of the costs related to restructuring
activities, acquisition and integration, an acquisition earn out and the gain on
extinguishment of debt.
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Non-GAAP Tax Rate. This is the tax rate when excluding the pre-tax impact of
restructuring activities, acquisition and integration, an acquisition earn out
and the gain on extinguishment of debt, as well as the related tax impact for
these items, calculated utilizing the statutory rate for where the impact was
incurred.
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
change in
Change inRussia Operations. The Company exited the Russian market in the second quarter of fiscal 2022 due to the increased global and economic and political uncertainty resulting from the ongoing conflict betweenRussia andUkraine . This adjusts for the change in Russian sales and segment profit from the prior year post exit. Change inArgentina Operations. The Company is presenting separately all changes in sales and segment profit from ourArgentina affiliate due to the designation of the economy as highly inflationary as ofJuly 1, 2018 . Impact of currency. The Company evaluates the operating performance of our Company on a currency neutral basis. The Impact of Currency is the change in foreign currency exchange rates year-over-year on reported results, which is calculated by comparing the value of current year foreign operations at the current period USD exchange rate versus the value of current year foreign operations at the prior period USD exchange rate. The impact of currency also includes gains/(losses) of currency hedging programs, and it excludes hyper-inflationary markets. Adjusted Selling, General & Administrative (SG&A) and Gross Margin as a percent of sales. Detail for adjusted gross margin and adjusted SG&A as a percent of sales are also supplemental non-GAAP measures. These measures exclude the impact of costs related to restructuring activities, acquisition and integration and an acquisition earn out. Coronavirus (COVID-19) For the quarter endedDecember 31, 2022 , Energizer continued to be impacted by the coronavirus (COVID-19) pandemic and its related effects. While it is not feasible to identify or quantify all of the direct and indirect implications of the COVID-19 pandemic on the Company's results of operations, the Company believes that the overall impact of the COVID-19 pandemic continued to be primarily driven by factors related to disruption in our global supply chain and changes in demand for products during the first quarter of fiscal 2023. An inflationary environment marked by higher manufacturing and transportation costs as well as increased commodity costs is expected to continue in fiscal 2023. While we did not experience significant disruptions in our operations during the first quarter of fiscal 2023, the risks of future negative impacts due to transportation, logistical or supply constraints and higher commodity costs for certain raw materials remain present, and the Company continues to experience corresponding incremental costs and gross margin pressures.
The full impact of COVID-19 on our financial and operating performance will depend significantly on the duration and severity of the pandemic and related disruption to our global supply chain, the emergence of variants and the effectiveness of vaccines against these variants, and any future government actions affecting consumers and the economy in general, among other factors beyond our knowledge or control.
Restructuring Costs
Project Momentum Restructuring Program
InNovember 2022 , the Board of Directors approved a profit recovery program, Project Momentum, which includes an enterprise-wide restructuring focused on recovering operating margins, optimizing our manufacturing, distribution and global supply chain networks, and enhancing our organizational efficiency across both segments. The restructuring component of the program is expected to generate$65 to$80 of annual pre-tax savings, and the Company estimates that it will incur one-time operating costs of$40 to$50 and capital expenditures of$35 to$45 over the next two years. Additionally, along side the restructuring component of the program, Project Momentum includes continuous improvement and working capital initiatives that are designed to strengthen our balance sheet, focus on cash flow, and generate P&L savings of approximately$15 to$20 annually. Total expected pre-tax savings 31
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of Project Momentum are between
In the first quarter of fiscal 2023, the total pre-tax expense related to Project Momentum restructuring was$6.6 . The expense primarily consisted of consulting, severance and other benefit related costs. These costs were reflected within Cost of products sold and Selling, general and administrative expense on the Consolidated (Condensed) Statements of Earnings and Comprehensive Income. Although the Company's Project Momentum restructuring costs are recorded outside of segment profit, if allocated to our reportable segments, the restructuring costs for the quarter endedDecember 31, 2022 would be incurred within the Battery & Lights segment in the amounts of$5.8 and the Auto Care segment in the amount of$0.8 .
Total pre-tax charges relating to the Project Momentum restructuring program
since inception are
Refer to Note 4, Restructuring, to the Consolidated (Condensed) Financial Statements for additional discussion on the Company's restructuring costs.
2019 and 2020 Restructuring Programs
In the fourth fiscal quarter of 2019, the Company began implementing restructuring related integration plans for our manufacturing and distribution networks. These plans include the closure and combination of distribution and manufacturing facilities in order to reduce complexity and realize greater efficiencies in our manufacturing, packaging and distribution processes. All activities within this plan were substantially complete byDecember 31, 2021 . In the fourth fiscal quarter of 2020, the Company initiated a new restructuring program with a primary focus on reorganizing our global end-to-end supply chain network and ensuring accountability by category. This program included streamlining the Company's end-to-end supply chain model to enable rapid response to category specific demands and enhancing our ability to better serve our customers. Planning and execution of this program began in fiscal year 2021, and all activities within this program were substantially complete byDecember 31, 2021 . The total pre-tax expense related to the 2019 and 2020 restructuring plans for the quarter endedDecember 31, 2021 was$5.3 . The expense consisted of charges for employee severance, retention, related benefit costs, accelerated depreciation, asset write-offs, relocation, environmental investigatory and mitigation costs, consulting costs and other exit costs. The costs were reflected in Cost of products sold and Selling, general and administrative expense on the Consolidated (Condensed) Statements of Earnings and Comprehensive Income. Although the Company's 2019 and 2020 restructuring program costs are recorded outside of segment profit, if allocated to our reportable segments, the restructuring costs noted above for the quarter endedDecember 31, 2021 would be incurred within the Battery & Lights segment in the amounts of$5.1 and the Auto Care segment in the amount of$0.2 . Total pre-tax charges relating to the 2019 restructuring program and 2020 restructuring program since inceptions were$60.6 and$19.4 , respectively. Fiscal 2022 marked the conclusion of the 2019 and 2020 Restructuring programs. The full amount of savings from these projects of approximately$55 to$60 are now included within our annual run-rate cost structure. The primary impact of the savings were reflected in Cost of products sold. We do not expect to incur additional material charges for these programs. 32 --------------------------------------------------------------------------------
Refer to Note 4, Restructuring, to the Consolidated (Condensed) Financial Statements for additional discussion on the Company's restructuring costs.
Acquisition and Integration Costs
There were no acquisition and integration costs in the three months endedDecember 31, 2022 . Acquisition and integration costs incurred during fiscal year 2022 relate to the Formulations Acquisition, and the Battery andAuto Care Acquisitions which occurred in fiscal year 2019. The Company incurred pre-tax acquisition and integration costs of$16.5 in the three months endedDecember 31, 2021 . Pre-tax acquisition and integration costs recorded in Costs of products sold were$6.0 for the three months endedDecember 31, 2021 , primarily related to the facility exit and restructuring related costs, discussed in Note 4, Restructuring. Pre-tax acquisition and integration costs recorded in Selling, general and administrative expense (SG&A) were$9.4 for the three months endedDecember 31, 2021 . The SG&A expenses incurred during the three months endedDecember 31, 2021 primarily related to the integration of the acquired information technology systems, consulting costs, and retention-related compensation costs.
For the three months ended
Highlights / Operating Results
Financial Results (in millions, except per share data)
Energizer reported first fiscal quarter Net earnings of$49.0 , or$0.68 per diluted common share, compared to Net earnings of$60.0 , or$0.83 per diluted common share, in the prior year first fiscal quarter. Adjusted diluted net earnings per common share was$0.72 for the first fiscal quarter as compared to$1.03 in the prior year quarter, a decline of 30%.
Net earnings and Diluted net earnings per common share for the time periods presented were impacted by certain items related to restructuring costs, acquisition and integration costs, an acquisition earn out and the gain on extinguishment of debt as described in the tables below. The impact of these items is provided below as a reconciliation of Net earnings and Diluted net earnings per common share to Adjusted net earnings and Adjusted diluted net earnings per common share, which are non-GAAP measures. See disclosure on Non-GAAP Financial Measures above.
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For the
Quarters Ended
2022 2021
Net earnings attributable to common shareholders $ 49.0 $ 56.0
Mandatory preferred stock dividends - (4.0)
Net earnings 49.0 60.0
Pre-tax adjustments
Project Momentum restructuring costs (1) 6.6 -
Acquisition and integration (2) - 16.5
Acquisition earn out (3) - 1.1
Gain on extinguishment of debt (2.9) -
Total adjustments, pre-tax $ 3.7 $ 17.6
Total adjustments, after tax $ 2.8 $ 13.8
Adjusted net earnings (4) $ 51.8 $ 73.8
Mandatory preferred stock dividends - (4.0)
Adjusted net earnings attributable to common shareholders $ 51.8 $ 69.8
Diluted net earnings per common share $ 0.68 $ 0.83 Adjustments (per common share) Project Momentum restructuring costs 0.07 - Acquisition and integration - 0.18 Acquisition earn out - 0.01 Gain on extinguishment of debt (0.03) - Impact for diluted share calculation (5) - 0.01
Adjusted diluted net earnings per diluted common share (5)
$ 0.72 $ 1.03
Weighted average shares of common stock - Diluted 72.2 67.1
Adjusted Weighted average shares of common stock - Diluted (5)
72.2 71.8
Currency had an adverse impact in the three months ended
(1) Project Momentum Restructuring costs included
(2) Acquisition and integration costs included
(3) This represents the earn out achieved through
(4) The effective tax rate for the Adjusted - Non-GAAP Earnings and Diluted EPS for the quarters endedDecember 31, 2022 and 2021 was 21.5% and 21.6%, respectively, as calculated utilizing the statutory rate for where the costs were incurred. (5) For the quarter endedDecember 31, 2021 , the Adjusted diluted net earnings per common share and Weighted average shares of common stock - Diluted is assuming the conversion of the Mandatory convertible preferred stock (MCPS) as those results are more dilutive. The shares have been adjusted for the 4.7 million share conversion and the preferred dividend has been excluded from the Adjusted net earnings.The Company no longer has any MCPS outstanding in fiscal 2023. 34
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Highlights
Total Net sales For the
Quarter Ended
$ Change % Chg
Net sales - prior year $ 846.3
Organic (45.6) (5.4) %
Change in Argentina 1.3 0.2 %
Change in Russia (7.5) (0.9) %
Impact of currency (29.4) (3.5) %
Net Sales - current year $ 765.1 (9.6) %
See non-GAAP measure disclosures above.
Net sales were
•Approximately 13.5% of the decline to organic sales was due to lower volumes driven by the timing of holiday orders in the battery business and category declines from higher retail pricing and retailer inventory management in both battery and auto care; and •As part of our focus on gross margin restoration, the Company exited some lower margin profile battery customers and products resulting in approximately 1.5% of additional decline to organic sales.
•Partially offsetting these declines was the continued benefit of global pricing actions in both the battery and auto care businesses which contributed approximately 9.5% of the increase to organic sales.
Gross margin percentage on a reported basis for the first fiscal quarter of 2023 was 39.0%, compared to 36.8% in the prior year. Excluding$0.3 of restructuring costs in the current quarter and$6.0 of integration costs in the prior year quarter results, adjusted gross margin was 39.0% compared to 37.5% in the prior year, an increase of 150 basis points from prior year and 280 basis points from the fourth quarter of fiscal 2022. First Quarter Gross margin - FY'22 Reported 36.8 % Prior year impact of Acquisition and integration costs 0.7 % Gross margin - FY'22 Adjusted 37.5 % Pricing 5.5 % Project Momentum continuous improvement initiatives 0.8 % Mix impact 0.3 % Product cost impacts (4.2) % Currency impact and other (0.9) % Gross margin - FY'23 Reported and Adjusted 39.0 % The Gross margin increase was largely driven by the continued benefit of the pricing initiatives and Project Momentum savings of$6.5 as well as the positive impact from exiting lower margin business. These benefits were partially offset by higher operating costs, including material and ocean freight costs, consistent with ongoing inflationary trends, as well as adverse currency impacts. Selling, general, and administrative expense (SG&A) was$120.4 in the first fiscal quarter of 2023, or 15.7% of Net sales, as compared to$122.1 , or 14.4% of Net sales, in the prior year period. Included in the first fiscal quarter of 2023 results were restructuring costs of$6.3 and included in the first quarter of 2022 results were integration costs of$9.4 and acquisition earn out costs of$1.1 . Excluding restructuring and integration costs and the acquisition earn out, adjusted SG&A was$114.1 , or 14.9% of Net sales in the first fiscal quarter of 2023, as compared to$111.6 , or 13.2% of Net sales in the prior year period. The year-over-year increase was primarily driven by higher stock compensation expense, factoring fees and increased depreciation expense from our digital 35
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transformation initiatives. These increases were partially offset by Project Momentum savings and favorable currency impacts.
Advertising and sales promotion expense (A&P) was$53.4 , or 7.0% of net sales, in the first fiscal quarter of 2023, as compared to$51.7 , or 6.1% of Net sales, in the first fiscal quarter of 2022. The increase in the current year was due to planned brand support during the holiday season. Research and Development (R&D) was$7.6 , or 1.0% of Net sales, for the quarter endedDecember 31, 2022 , as compared to$8.9 , or 1.1% of Net sales, in the prior year comparative period, which included integration costs of$1.1 . Interest expense was$42.9 for the first fiscal quarter of 2023 compared to$37.0 for the prior year comparative period. The increased interest expense was due to higher interest rates in fiscal 2023 compared to fiscal 2022, partially offset by lower average outstanding debt in the current quarter. Gain on extinguishment of debt was$2.9 for the first fiscal quarter of 2023, and relates to the Company's retirement of$25.0 of outstanding Senior Notes at a discount and the repayment of$25.0 outstanding on the term loan.
Other items, net was a credit of
For the Quarters Ended December 31,
2022 2021
Other items, net
Interest income $ (0.2) $ (0.2)
Foreign currency exchange (gain)/loss (1.0) 1.3
Pension cost/(benefit) other than service costs 0.7 (1.1)
Other (0.9) 0.2
Total Other items, net $ (1.4) $ 0.2
The effective tax rate on a year to date basis was 21.3% as compared to 21.6% in
the prior year. Excluding the impact of restructuring costs, acquisition and
integration costs, acquisition earn out and the gain on extinguishment in debt,
the year to date adjusted effective tax rate was 21.5% as compared to 21.6% in
the prior year.
Segment Results
Operations for Energizer are managed via two product segments: Batteries &
Lights and Auto Care . Segment performance is evaluated based on segment
operating profit, exclusive of general corporate expenses (including share-based
compensation costs), amortization of intangibles, restructuring costs,
acquisition and integration activities, acquisition earn out and other items
determined to be corporate in nature. Financial items, such as interest income
and expense and gain on extinguishment of debt are managed on a global basis at
the corporate level. The exclusion of restructuring and acquisition and
integration 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 product segments, varying by country and region
of the world. Shared functions include the sales and marketing functions, as
well as human resources, 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 may not represent the
costs of such services if performed on a standalone basis.
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Segment Net Sales Quarter Ended December 31, 2022
$ Change % Chg
Batteries & Lights
Net sales - prior year $ 740.2
Organic (34.8) (4.7) %
Change in Argentina 1.3 0.2 %
Change in Russia (7.3) (1.0) %
Impact of currency (27.8) (3.8) %
Net sales - current year $ 671.6 (9.3) %
Auto Care
Net sales - prior year $ 106.1
Organic (10.8) (10.2) %
Change in Russia (0.2) (0.2) %
Impact of currency (1.6) (1.5) %
Net sales - current year $ 93.5 (11.9) %
Total Net Sales
Net sales - prior year $ 846.3
Organic (45.6) (5.4) %
Change in Argentina 1.3 0.2 %
Change in Russia (7.5) (0.9) %
Impact of currency (29.4) (3.5) %
Net sales - current year $ 765.1 (9.6) %
Results for the Quarter Ended
Battery & Lights reportedNet Sales decreased 9.3% as compared to the prior year. Organic net sales decreased$34.8 , or 4.7%, for the first fiscal quarter. The organic decline was due to lower volumes, driven by the timing of holiday orders, category declines from higher retail pricing and retailer inventory management at the end of the calendar year (approximately 13%), as well as the exit of some lower margin profile customers and products as a part of Project Momentum initiatives (approximately 2%). This was partially offset by the continued benefits of global pricing actions (approximately 10%).Auto Care reported Net sales decreased 11.9% as compared to the prior year. Organic net sales decreased$10.8 , or 10.2%, for the first fiscal quarter. The organic decline was driven by deceased volumes from inflationary pressures, the comp of elevated prior year demand and retailer inventory management (approximately 17%). This was partially offset by the continued benefits of global pricing actions (approximately 7%). 37 --------------------------------------------------------------------------------
Segment Profit Quarter Ended December 31, 2022
$ Change % Chg
Batteries & Lights
Segment profit - prior year $ 168.4
Organic (15.6) (9.3) %
Change in Russia (0.6) (0.4) %
Impact of currency (13.9) (8.2) %
Segment profit - current year $ 138.3 (17.9) %
Auto Care
Segment profit/(loss) - prior year (0.2)
Organic 12.3 NM *
Change in Argentina (0.1) NM *
Impact of currency (1.4) NM *
Segment profit - current year $ 10.6 NM *
Total Segment Profit
Segment profit - prior year 168.2
Organic (3.3) (2.0) %
Change in Argentina (0.1) (0.1) %
Change in Russia (0.6) (0.4) %
Impact of currency (15.3) (9.0) %
Segment profit - current year $ 148.9 (11.5) %
Refer to Note 6, Segments, in the Consolidated (Condensed) Financial Statements for a reconciliation from segment profit to earnings before income taxes.
*NM - These percentage calculations are not meaningful.
Results for the Quarter Ended
Global reported segment profit decreased 11.5% as compared to the prior year. Organic profit decrease was$3.3 , or 2.0%. The organic decrease was driven by the decrease in organic net sales as well as higher A&P and SG&A spend compared to the prior year. This decrease was partially offset by savings from Project Momentum initiatives. Battery & Lights reported segment profit decreased by 17.9% as compared to the prior year. Organic segment profit decreased by$15.6 , or 9.3%, due to the decrease in organic net sales discussed above as well as higher SG&A and A&P spending. Partially offsetting this decline was savings from Project Momentum initiatives.Auto Care reported segment profit increased$10.8 as compared to the prior year driven by the favorable organic segment profit increase of$12.3 . The increase was driven by an improvement in gross margin due to Project Momentum initiatives as well as a decrease in SG&A. These increases were partially offset by the decline in organic revenue growth inAuto Care noted above and higher A&P spending. General Corporate For the Quarters Ended December 31, 2022 2021 General corporate and other expenses $ 25.4$ 21.7 % of Net Sales 3.3 % 2.6 % 38
-------------------------------------------------------------------------------- For the quarter endedDecember 31, 2022 , general corporate and other expenses were$25.4 , an increase of$3.7 as compared to the prior year comparative period. The current quarter increase was primarily driven by increased stock compensation expense in the current year.
Liquidity and Capital Resources
Energizer's primary future cash needs will be centered on operating activities, working capital, strategic investments and debt reductions. 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: (i) our financial condition and prospects, (ii) for debt, our credit rating, (iii) the liquidity of the overall capital markets and (iv) 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 the "Risk Factors" section of our Annual Report on Form 10-K for the year endedSeptember 30, 2022 filed with theSecurities and Exchange Commission onNovember 15, 2022 for additional information. Cash is managed centrally with net earnings reinvested locally and working capital requirements met from existing liquid funds. AtDecember 31, 2022 , Energizer had$280.3 of cash and cash equivalents, approximately 73% of which was held outside of theU.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. InDecember 2020 , the Company entered into a Credit Agreement which provided for a 5-year$400.0 revolving credit facility (2020 Revolving Facility) and a$1,200.0 Term Loan dueDecember 2027 . InDecember 2021 , the Company amended the Credit Agreement to increase the 2020 Revolving Facility to$500.0 . The borrowings under the Term Loan require quarterly principal payments at a rate of 0.25% of the original principal balance. Borrowings under the 2020 Revolving Facility bear interest at a rate per annum equal to, at the option of the Company, LIBOR or the Base Rate (as defined) plus the applicable margin. The Term Loan bears interest at a rate per annum equal to, at the option of the Company, LIBOR or Base Rate (as defined) plus the applicable margin. During the quarter, the Company repurchased$16.3 of the 4.750% Senior Notes due in 2028 and$8.7 of the 4.375% Senior Notes due in 2029 at a total discount of$3.4 . The Company also paid down$28.0 of the Term Loan during the quarter. The extinguishment of this debt, less the write-off of associated deferred financing fees, resulted in a Gain on extinguishment of debt during the quarter of$2.9 . As ofDecember 31, 2022 , the Company had no outstanding borrowing under the 2020 Revolving Facility and$7.1 of outstanding letters of credit. Taking into account outstanding letters of credit,$492.9 remained available under the 2020 Revolving Facility as ofDecember 31, 2022 . The Company is in compliance with the provisions and covenants associated with its debt agreements, and expects to remain in compliance throughout the next twelve months.
Operating Activities
Cash flow from operating activities was
•Approximately$120 is due to collections of accounts receivable, net of trade spend, in the current year compared to the prior year. The Company had reduced its factoring at the end of fiscal year 2022 compared to the prior year, which resulted in higher collections in the first quarter of fiscal 2023. •Approximately$64 of less inventory investment compared to the prior year as the Company was proactively building safety stock in the prior year and reduced the investment in the current year as inventory levels return to a more normalized level; and 39 --------------------------------------------------------------------------------
•Approximately
Investing Activities
Net cash used by investing activities was
•Capital expenditures of
•Proceeds from assets sales were
•Acquisitions, net of cash acquired and working capital settlements was an inflow of$0.4 from the Formulations Acquisition working capital settlement in fiscal 2022. Investing cash outflows of approximately$55 to$65 are anticipated in fiscal 2023 for capital expenditures relating to maintenance, product development and cost reduction investments, including Project Momentum capital initiatives.
Financing Activities
Net cash used by financing activities was$79.4 for the three months endedDecember 31, 2022 as compared to cash from financing activities of$61.4 in the prior fiscal year period. For the three months endedDecember 31, 2022 , cash used by financing activities consists of the following:
•Payments of debt with maturities greater than 90 days of
•Net decrease in debt with original maturities of 90 days or less of
•Dividends paid on common stock of
•Taxes paid for withheld share-based payments of
For the three months ended
•Payments of debt with maturities greater than 90 days of
•Net increase in debt with original maturities of 90 days or less of
•Debt issuance costs of
•Dividends paid on common stock of
•Dividends paid on MCPS of
•Taxes paid for withheld share-based payments of
Dividends
OnNovember 7, 2022 , the Board of Directors declared a cash dividend for the first quarter of fiscal 2023 of$0.30 per share of common stock, payable onDecember 16, 2022 . Subsequent to the end of the quarter, onJanuary 30, 2023 , the Board of Directors declared a cash dividend for the second quarter of 2023 of$0.30 per share of common stock, payable onMarch 16, 2023 , to all shareholders of record as of the close of business onFebruary 21, 2023 . 40
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Share Repurchases
InNovember 2020 , the Company's Board of Directors put in place an authorization for the Company to acquire up to 7.5 million shares of its common stock. The Company has 5.0 million shares remaining under this authorization. Future share repurchases, if any, will be determined by the Company based on its evaluation of the market conditions, capital allocation objectives, legal and regulatory requirements and other factors. Share repurchases may be effected through open market purchases or privately negotiated transactions, including repurchase plans that satisfy the conditions of Rule 10b5-1 of the Securities Exchange Act of 1934. The timing, declaration, amount and payment of future dividends to shareholders or repurchases of the Company's Common stock will fall within the discretion of our Board of Directors. The Board's decisions regarding the payment of dividends or repurchase of shares will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, covenants associated with certain of our debt service obligations, industry practice, legal requirements, regulatory constraints and other factors that our Board of Directors deems relevant. Other Matters Environmental Matters Accrued environmental costs atDecember 31, 2022 were$14.6 . It is difficult to quantify with certainty the cost of environmental matters, particularly remediation and future capital expenditures for environmental control equipment. Total environmental capital expenditures and operating expenses are not expected to have a material effect on our total capital and operating expenditures, earnings or competitive position. However, 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, including any requirements related to global climate change, or other factors.
Contractual Obligations
The Company believes it has sufficient liquidity to fund its operations and meet its short-term and long-term obligations. The Company's material future obligations include the contractual and purchase commitments described below.
The Company has a contractual commitment to repay its long-term debt of$3,524.9 based on the defined terms of our debt agreements. Within the next twelve months, the Company is obligated to pay$12.0 of this total debt. Our interest commitments based on the current debt balance and LIBOR rate on drawn debt atDecember 31, 2022 is$905.8 , with$158.2 expected within the next twelve months. The Company has entered into an interest rate swap agreement that fixed the variable benchmark component (LIBOR) on$700.0 of variable rate debt. Refer to Note 8, Debt, for further details.
The Company has a long-term obligation to pay a mandatory transition tax of
Additionally, Energizer has material future purchase commitments for goods and services which are legally binding and that specify all significant terms including price and/or quantity. Total future commitments for these obligations over the next 5 years is$17.2 . Of this amount,$10.2 is due within the next twelve months. Refer to Note 14, Legal proceeding/contingencies and other obligations, for additional details. 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. Finally, Energizer has operating and financing leases for real estate, equipment, and other assets that include future minimum payments with initial terms of one year or more. Total future operating and finance lease payments atDecember 31, 2022 are$151.5 and$68.0 , respectively. Within the next twelve months, operating and finance lease payments are expected to be$19.7 and$2.5 , respectively. 41
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