ENERGIZER HOLDINGS, INC. 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
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," "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. See Part I, Item 1A, "Risk Factors," as updated from time to time in the Company'sSEC filings. 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 acquisition and integration costs and related items, loss on extinguishment of debt, settlement loss on pension plan termination, gains on sale of real estate, and the one-time impact of Coronavirus Aid, Relief and Economic Security (CARES) Act and theDecember 2017 Tax Cuts and Jobs Act (2017 tax reform). In addition, these measures help investors to analyze 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 two reportable
segments including allocations for shared support functions. General corporate
and other expenses, global marketing expenses, R&D expenses, amortization
expense, interest expense, loss on extinguishment of debt, other items, net,
charges related to acquisition and integration, settlement loss on pension plan
termination and gains on sale of real estate have all been excluded from segment
profit.
Adjusted net earnings from continuing operations and Adjusted Diluted net
earnings per common share - continuing operations (EPS). These measures exclude
the impact of the costs related to acquisition and integration, loss on
extinguishment of debt, settlement loss on pension plan terminations and the
gain on sale of real estate and the one-time impact of the CARES Act and 2017
tax reform.
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Organic. This is the non-GAAP financial measurement of the change in revenue
or segment profit that excludes or otherwise adjusts for the impact of
acquisitions, change in Argentina operations and the impact of currency from the
changes in foreign currency exchange rates as defined below:
Impact of acquisitions. Energizer completed the Auto Care Acquisition on
January 28, 2019 , the Battery Acquisition on January 2, 2019 , and the Nu Finish
Acquisition on July 2, 2018 . These adjustments include the impact each
acquisition's on-going operations contributed to each respective income
statement caption for the first year's operations directly after the acquisition
date. This does not include the impact of acquisition and integration costs or
the one time inventory fair value step up costs associated with the
acquisitions.
Change in
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 Profit, 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 and inventory step up from purchase accounting.
Novel Coronavirus (COVID-19)
In
During these challenging times, the Company is operating with two enduring principles - ensuring the health of our colleagues and business continuity. We are following the guidelines issued by theU.S. Center for Disease Control and Prevention and theWorld Health Organization and have instituted work from home for our office locations. We have also instituted additional measures at our production facilities, including temperature monitoring, enhanced facility cleaning, visual cues to aid in social distancing, and staggered shifts to minimize the number of colleagues on-site at any given time. We track and monitor suspected and confirmed cases of COVID-19, and we encourage colleagues to stay home if they or their family members are ill. During natural disasters and other crises such as the COVID-19 pandemic, our battery products are needed not only by end consumers, but also by healthcare professionals and otherswho are directly combatting COVID-19, including doctors, nurses and first responders, as well as otherswho are performing essential services, such as truck drivers. This has been evident in the recent increased demand for our battery products in theU.S. across nearly all retail channels. Energizer provides batteries that power medical devices, including thermometers, blood pressure, heart and fall monitors and pulse oximeters, and other products that are critical during the COVID-19 outbreak. Energizer's batteries also power devices and equipment that keep people safe and working and studying at home, such as water heaters, smoke alarms, carbon monoxide detectors and wireless keyboards. Initially, auto care products were negatively impacted by COVID-19 due to shelter in place orders that negatively impacted auto travel. However, as countries and states began to reopen, the use of automobiles increased as consumers avoided public transportation, including turning to car travel versus air for vacations. During this time, consumers turned their focus to Do It Yourself versus Do It for Me with strong demand for wipes and cleaning products as the year progressed. Specifically, during the third and fourth quarter of fiscal 2020, as countries and states began to reopen, we did experience recovery in auto care sales. If countries return to shelter-in-place orders, work and travel restrictions or other similar measures in order to contain the virus, this could have a negative impact on our auto care products. Our core batteries and auto care businesses had strong net sales growth in the later part of fiscal 2020, however, this did not translate to earnings growth due to COVID-19. Gross margin was down reflecting the impact from elevated and prolonged demand, especially in batteries, which put significant stress on our global battery supply network. This impact was compounded in the fourth fiscal quarter due to preparation for the upcoming holiday season. In order to serve our customers, 37 -------------------------------------------------------------------------------- we took a series of actions, including increasing internal production, aggressively sourcing raw materials and finished goods, which triggered tariffs, and increasing air freight and co-packing capacity. These efforts resulted in incremental COVID-19 costs in fiscal 2020 of approximately$29 and approximately$7 of higher interest to strengthen liquidity in the later half of the fiscal year. While the full impact of COVID-19 is uncertain, we have multiple options to further mitigate the liquidity impact of the COVID-19 pandemic and preserve our financial flexibility in light of current uncertainty in the global markets, including the deferral or reduction of capital expenditures and reduction or delay of overhead expenses and other expenditures. Such delays could slow future growth or impact our business plan. The full impact of COVID-19 on our financial and operating performance will depend significantly on the duration and severity of the outbreak, the actions taken to contain or mitigate its impact, disruption to our global supply chain, and the pace with which customers and consumers return to more normalized purchasing behavior, among others factors beyond our knowledge or control. See the section entitled "Risk Factors" in this Report for further considerations. Battery Acquisition OnJanuary 2, 2019 , the Company acquired Spectrum Brands Holdings, Inc.'s (Spectrum) global battery, lighting and portable power business (Battery Acquisition) including the brands Rayovac® and Varta® (Acquired Battery Business). The acquisition expanded our battery portfolio globally with the addition of a strong value brand. For the twelve months endedSeptember 30, 2020 , the revenue and segment profit from the Acquired Battery Business was$125.5 and$27.9 , respectively, relating to the three months of activity for which they were not owned in the comparable periods in fiscal 2019. For the twelve months endedSeptember 30, 2019 , the revenue and segment profit from the Acquired Battery Business was$338.9 and$62.7 , respectively. OnJanuary 2, 2020 , the Company sold the Varta® consumer battery business in theEurope ,Middle East andAfrica regions, including manufacturing and distribution facilities inGermany (Divestment Business) to VARTA Aktiengesellschaft (VARTA AG) for a contractual purchase price of €180.0, subject to purchase price adjustments (Varta Divestiture). In addition, pursuant to the terms of the Battery Acquisition agreement, Spectrum also contributed cash proceeds toward this sale. Total cash proceeds received, net of the working capital settlement, were approximately$323.1 . Auto Care Acquisition OnJanuary 28, 2019 , the Company acquired Spectrum's global auto care business, including Armor All®, STP®, and A/C PRO® brands (Auto Care Acquisition). For the twelve months endedSeptember 30, 2020 , the revenue and segment profit associated with the Auto Care Acquisition was$85.1 and$17.1 , respectively, relating to the four months of activity for which they were not owned in the comparable periods in fiscal 2019. For the twelve months endedSeptember 30, 2019 , the revenue and segment profit associated with the Auto Care Acquisition was$315.8 and$76.8 , respectively.
Nu Finish Acquisition
OnJuly 2, 2018 , the Company acquired all of the assets ofReed-Union Corporation's automotive appearance business, including Nu Finish Car Polish® and Scratch Doctor® brands (Nu Finish Acquisition). The acquisition purchase price of$38.1 was funded through a combination of cash on hand and committed debt facilities. The revenue in the first nine months of fiscal 2019 and the last quarter of fiscal 2018 associated with the Nu Finish acquisition was$5.9 and 2.3, respectively, and segment profit was$2.0 and 0.9, respectively.
Acquisition and Integration Costs
The Company incurred pre-tax acquisition and integration costs related to the Battery Acquisition, the Auto Care Acquisition, and the Nu Finish Acquisition of$68.0 ,$188.4 and$84.6 in the twelve months endedSeptember 30, 2020 , 2019, and 2018, respectively. Pre-tax costs recorded in Costs of products sold were$32.0 for the twelve months endedSeptember 30, 2020 and primarily related to the integration restructuring costs of$29.3 as discussed in Note 6, Restructuring. Pre-tax costs recorded in Costs of products sold were$58.7 for the twelve months endedSeptember 30, 2019 , which primarily related to the inventory fair value adjustment of$36.2 and integration restructuring costs of$12.1 . Pre-tax costs recorded in Costs of products sold were$0.2 for the twelve months endedSeptember 30, 2018 . 38 -------------------------------------------------------------------------------- Pre-tax acquisition and integration costs recorded in SG&A were$38.8 ,$82.3 and$62.9 for the twelve months endedSeptember 30, 2020 , 2019 and 2018, respectively. In fiscal 2020 these expenses primarily related to consulting fees, success incentives, and costs of integrating the information technology systems of the business. In fiscal 2019 and 2018 these expenses primarily related to acquisition success fees and legal, consulting and advisory fees to assist with obtaining regulatory approval around the globe and to plan for the closing and integration of the Battery Acquisition and Auto Care Acquisition.
For the twelve months ended
Also included in the pre-tax acquisition costs for the twelve months endedSeptember 30, 2019 was$65.6 of interest expense, including ticking fees, related to the escrowed debt for the Battery Acquisition and the financing fees incurred related to amending and issuing the debt for the Battery andAuto Care Acquisitions. The pre-tax acquisition costs for the twelve months endedSeptember 30, 2018 was$41.9 of interest expense, including ticking fees, related to the escrowed debt for the Battery Acquisition and the financing fees incurred related to amending and issuing the debt for the Battery andAuto Care Acquisitions. Included in Other items, net was pre-tax income of$4.1 ,$19.3 and$20.4 in the twelve months endedSeptember 30, 2020 , 2019 and 2018, respectively. The pre-tax income recorded in fiscal 2020 was primarily driven by pre-acquisition insurance proceeds of$4.9 , a$1.0 gain on the sale of assets and$0.9 of transition services income, offset by a$2.2 loss related to the hedge contract on the proceeds from the Varta Divestiture and$0.5 of other items. The pre-tax income of$19.3 recorded in fiscal 2019 was primarily driven by the escrowed debt funds held in restricted cash prior to the closing of the Battery Acquisition. The Company recorded a pre-tax gain of$9.0 related to the favorable movement in the escrowed USD restricted cash held in our European Euro functional entity. The Company also recorded interest income of$5.8 earned on the Restricted cash funds held in escrow associated with the Battery Acquisition. The Company recorded a gain of$4.6 related to the hedge contract on the expected proceeds from the anticipated Varta Divestiture and recorded income on transition services agreements of$1.4 for the twelve months endedSeptember 30, 2019 . These income items were offset by$1.5 of expense to settle hedge contracts of the acquired business. The Company recorded pre-tax income in Other items, net of$15.2 on foreign currency gains related to the Battery Acquisition during the twelve months endedSeptember 30, 2018 . Of the gain,$9.4 was related to contracts which were entered into inJune 2018 and locked in theU.S. dollar (USD) value of the Euro notes related to the Battery Acquisition. These contracts were terminated when the funds were placed into escrow onJuly 6, 2018 . The remaining$5.8 related to the movement in the escrowed USD restricted cash held in our European Euro functional entity. The Company also recorded interest income in Other items, net of$5.2 earned in Restricted cash funds held in escrow associated with this acquisition during the twelve months endedSeptember 30, 2018 .
The Company incurred
Restructuring Costs
In the fourth fiscal quarter of 2019, Energizer's Board of Directors approved 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 are expected to be completed 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 includes 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 will begin in fiscal year 2021, with completion by the beginning of fiscal year 2022. The total pre-tax expense related to these restructuring plans for the twelve months endedSeptember 30, 2020 andSeptember 30, 2019 were$30.3 and$12.1 , respectively. These 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 Statements of Earnings and Comprehensive Income. The restructuring costs for fiscal year 2020 were 39 -------------------------------------------------------------------------------- included within theAmericas and International segments in the amount of$27.5 and$2.8 , respectively. The restructuring costs for fiscal year 2019, were incurred within theAmericas and International segments in the amount of$6.0 and$6.1 , respectively. Total pre-tax charges relating to the 2019 restructuring program since inception were$41.2 . We expect to incur additional severance and related benefit costs and other exit-related costs associated with these plans of up to$34 through the end of calendar 2021.Total pre-tax charges relating to the 2020 restructuring program since inception are$1.2 . We expect to incur a total of approximately$10 to$12 for this program through the end of fiscal year 2021. ThroughSeptember 30, 2020 we have realized approximately$10 of savings from the 2019 restructuring program. There have been no savings realized for the 2020 restructuring program as ofSeptember 30, 2020 . Total cost savings by the end of fiscal 2022 are expected to be approximately$67 to$75 annually for both programs primarily within Costs of products sold.
Refer to Note 6 Restructuring for further detail.
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--------------------------------------------------------------------------------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, appearance, performance and air conditioning recharge products. Energizer manufactures, markets and/or licenses one of the most extensive product portfolios of household batteries, specialty batteries, auto care products and portable lights. Energizer is the beneficiary of over 100 years of expertise in the battery and portable lighting products industries. Its brand names, Energizer and Eveready, have worldwide recognition for innovation, quality and dependability, and are marketed and sold around the world. Energizer has a long history of innovation within our categories. Since our commercialization of the first dry-cell battery in 1893 and the first flashlight in 1899, we have been committed to developing and marketing new products to meet evolving consumer needs and consistently advancing battery technology as the universe of devices powered by batteries has evolved. Over the past 100+ years we have developed or brought to market: •the first flashlight; •the first dry cell alkaline battery; •the first mercury-free alkaline battery; and •Energizer Ultimate Lithium®, the world's longest-lasting AA andAAA battery for high-tech devices. 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, and the Battery Acquisition added the Rayovac brand globally and the Varta brand inLatin America andAsia Pacific , as well asRayovac -branded hearing aid batteries sold globally. These products include primary, rechargeable, specialty and hearing aid batteries and are offered in the performance, premium and price segments. In addition, we offer an extensive line of lighting products designed to meet a variety of consumer needs. We manufacture, distribute, and market lighting products including headlights, lanterns, children's lights and area lights. In addition to the Energizer, Eveready and Rayovac brands, we market our flashlights under the Hard Case®, Dolphin®, and WeatherReady® sub-brands. In addition to batteries and portable lights, Energizer licenses the Energizer and Eveready brands to companies developing consumer solutions in gaming, automotive batteries, portable power for critical devices (like smart phones), generators, power tools, household light bulbs and other lighting products. In addition, we offer auto care products in the appearance, fragrance, performance and air conditioning recharge product categories. The appearance and fragrance categories include protectants, wipes, tire and wheel care products, glass cleaners, leather care products, air fresheners and washes designed to clean, shine, refresh and protect interior and exterior automobile surfaces under the brand names Armor All®, Nu Finish®, Refresh Your Car!®, LEXOL®, Eagle One®, California Scents®, Driven® and Bahama & Co.® The performance product category includes STP branded fuel and oil additives, functional fluids and other performance chemical products that benefit from a rich heritage in the car enthusiast and racing scenes, characterized by a commitment to technology, performance and motor sports partnerships for over 60 years. The brand equity of STP also provides for attractive licensing opportunities that augment our presence in our core performance categories.
The air conditioning recharge product category includes do-it-yourself automotive air conditioning recharge products led by the A/C PRO brand name, along with other refrigerant and recharge kits, sealants and accessories.
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, e-commerce, convenience,
sporting goods, hobby/craft, 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.
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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 MD&A 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.
Operations for Energizer are managed via two major geographic reportable
segments:
Financial Results
Net earnings from continuing operations for the fiscal year endedSeptember 30, 2020 was$46.8 , or$0.44 per diluted common share, compared to$64.7 , or$0.78 per diluted common share, and$93.5 , or$1.52 per diluted common share, for the fiscal years endedSeptember 30, 2019 and 2018, respectively. Net earnings from continuing operations and diluted net earnings from continuing operations per common share for the time periods presented were impacted by certain items related to acquisition and integration costs, loss on extinguishment of debt, settlement loss on pension plan termination, gain on sale of real estate, and the one-time impact of the CARES Act and 2017 tax reform as described in the tables below. The impact of these items on reported net earnings from continuing operations and reported diluted net earnings from continuing operations per common share are provided below as a reconciliation to arrive at respective non-GAAP measures. See disclosure under Non-GAAP Financial Measures above. 42 -------------------------------------------------------------------------------- For the Twelve
Months Ended
2020 2019 2018
Net (loss)/earnings attributable to common
shareholders $ (109.5) $ 39.1 $ 93.5
Mandatory preferred stock dividends (16.2) (12.0) -
Net (loss)/earnings (93.3) 51.1 93.5
Net loss from discontinued operations, net of
income tax expense (140.1) (13.6) -
Net earnings from continuing operations $ 46.8 $ 64.7 $ 93.5
Pre-tax adjustments
Acquisition and integration (1) 68.0 188.4 84.6
Loss on extinguishment of debt 94.9 - -
Settlement loss on pension plan terminations (2) - 3.7 14.1
Gain on sale of real estate - - (4.6)
Total adjustments, pre-tax $ 162.9 $ 192.1 $ 94.1
After tax adjustments
Acquisition and integration 55.2 148.1 61.6
Loss on extinguishment of debt 73.0 - -
Settlement loss on pension terminations - 3.7 10.4
Gain on sale of real estate - - (3.5)
One-time impact of the CARES Act 1.8 - -
Acquisition withholding tax (3) - - 6.0
One-time impact of 2017 tax reform - (0.4) 39.1
Total adjustments, after tax $ 130.0 $ 151.4 $ 113.6
Adjusted net earnings from continuing operations
(4) $ 176.8
For the Twelve
Months Ended
2020 2019 2018
Diluted net earnings per common share -
continuing operations $ 0.44 $ 0.78 $ 1.52
Adjustments
Acquisition and integration 0.79 2.06 1.00
Loss on extinguishment of debt 1.05 - -
Settlement loss on pension terminations - 0.05 0.17
Gain on sale of real estate - - (0.06)
One-time impact of the CARES Act 0.03 - -
Acquisition withholding tax - - 0.10
One-time impact of the new U.S. Tax Legislation - (0.01) 0.64
Impact for diluted share calculation - 0.12 -
Adjusted diluted net earnings per diluted share -
continuing operations $ 2.31 $ 3.00 $ 3.37
Weighted average shares of common stock - Diluted 69.5 67.3 61.4
Adjusted weighted average shares of common stock
- Diluted (5) 69.5 72.0 61.4
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(1) Acquisition and integration costs were included in the following lines in the Consolidated Statement of Earnings and Comprehensive Income:
Twelve Months
Ended
2020 2019 2018
Cost of products sold $ 32.0 $ 58.7 $ 0.2
Selling, general and administrative expense 38.8 82.3 62.9
Research and development expense 1.3 1.1 -
Interest expense - 65.6 41.9
Other items, net (4.1) (19.3) (20.4)
Total acquisition and integration costs $ 68.0 $
188.4
(2) Represents the actuarial losses that were previously recorded to Other
comprehensive loss, and then recognized to Other items, net upon the termination
of the
(3) This represents the$6.0 of tax withholding expense related to cash movement to fund the Battery Acquisition for the twelve months endedSeptember 30, 2018 recorded in Income tax provision. (4) The effective tax rate for the Adjusted - Non-GAAP Net earnings from continuing operations and Diluted net earnings from continuing operations per common share was 23.3%, 18.5% and 23.1% for the years endedSeptember 30, 2020 , 2019 and 2018, respectively, as calculated utilizing the statutory rate for where the costs were incurred.
(5) For the twelve month ended
Operating ResultsNet Sales For the Years Ended September 30, 2020 % Chg 2019 % Chg 2018 Net sales - prior year$ 2,494.5 $ 1,797.7 $ 1,755.7 Organic 61.4 2.5 % 73.4 4.1 % 22.5 Impact of Battery Acquisition 125.5 5.0 % 338.9 18.9 % - Impact of Auto Care Acquisition 85.1 3.4 % 315.8 17.6 % - Impact of Nu Finish Acquisition - - %
5.9 0.3 % 2.3
Change in Argentina operations 1.6 0.1 %
(4.5) (0.3) % (1.9)
Impact of currency (23.3) (1.0) %
(32.7) (1.8) % 19.1
Net sales - current year$ 2,744.8 10.0 % $
2,494.5 38.8 %
Net sales for the year endedSeptember 30, 2020 increased 10.0%. The increase was driven by the impact of the acquisitions which added$210.6 , or 8.4%, the increase in organic sales of$61.4 , or 2.5%, and favorable change inArgentina's operations of$1.6 , or 0.1%. These increases were partially offset by the unfavorable impact of currency of$23.3 , or 1.0%.
Organic net sales increased 2.5% primarily due to:
•Distribution gains contributed 2.7% of the increase;
•Favorable carryover impact of the fiscal 2019 price increases, together with the net COVID-19 pandemic impact driven byNorth America battery, contributed 1.0% of the increase; and
•Lower replenishment volume early in the year, and the year-over-year impact of lower storm activity partially offset the increases.
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Net sales for the year ended September 30, 2019 increased 38.8%. The increase
was driven by the impact of the acquisitions which added $660.6 , or 36.8%, and
the increase in organic sales of $73.4 , or 4.1%. These increases were partially
offset by the unfavorable impact of currency of $32.7 , or 1.8% and the
unfavorable change in Argentina's operations of $4.5 , or 0.3%.
Organic net sales increased 4.1% primarily due to:
•Category growth and distribution gains which contributed 2.7% to the organic increase;
•Favorable pricing across several markets increased net sales by 0.9%; and
•The impact of the reclassification of licensing revenues contributed 0.5%.
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$1,081.9 in fiscal 2020 versus$1,003.8 in fiscal 2019. Excluding the current and prior year acquisition and integration costs and the prior year inventory step up resulting from purchase accounting, gross profit dollars were$1,113.9 in fiscal 2020 versus$1,062.5 in fiscal 2019. The increase in gross profit dollars was due to the impact of our acquisitions and synergies achieved during the year, as well as the increase in net sales mentioned earlier partially offset by incremental COVID-19 costs and unfavorable movement in foreign currencies and tariffs. Gross margin as a percent of net sales for fiscal 2020 was 39.4% versus 40.2% in the prior year. Excluding the current and prior year acquisition and integration costs and prior year inventory step up resulting from purchase accounting, gross margin was 40.6%, down 200 basis points from prior year. The decrease was driven by the lower margin rate profile of the acquired businesses, which accounted for 80 basis points, unfavorable movement in foreign currencies and tariffs (60 basis points) and a shift in market, customer and product mix as well as$29 of incremental costs to serve, both of which were driven by the COVID-19 pandemic and decreased margin by 190 basis points. Partially offsetting these impacts was the realization of synergies, which contributed 130 basis points. Gross profit dollars were$1,003.8 in fiscal 2019 versus$830.9 in fiscal 2018. Excluding the current and prior year inventory step up resulting from purchase accounting and the current and prior year acquisition and integration costs, gross profit dollars were$1,062.5 in fiscal 2019 versus$831.1 in fiscal 2018. The increase in gross profit dollars was due to the impact of our acquisitions and the increase in net sales mentioned earlier slightly offset by unfavorable movement in foreign currencies. Gross margin as a percent of net sales for fiscal 2019 was 40.2% versus 46.2% in the prior year. Excluding the current and prior year inventory step up resulting from purchase accounting and the current year acquisition and integration costs, gross margin was 42.6%, down 360 basis points from prior year, largely driven by the lower margin rate profile of the acquired businesses, which accounted for 350 basis points of the decrease. The remaining decrease was driven by unfavorable movement in foreign currencies and tariffs partially offset by benefits realized from pricing, synergy recognition and continuous improvement initiatives.
Selling, General and Administrative
SG&A expenses were$483.3 in fiscal 2020, or 17.6% of net sales as compared to$515.7 , or 20.7% of net sales for fiscal 2019 and$421.7 , or 23.5% of net sales for fiscal 2018. Included in SG&A in fiscal 2020, 2019 and 2018 were acquisition and integration costs of$38.8 ,$82.3 and$62.9 , respectively. Excluding the impacts of these items, SG&A as a percent of net sales was 16.2% in fiscal 2020 as compared to 17.4% in fiscal 2019 and 20.0% in fiscal 2018. In fiscal 2020, the SG&A excluding acquisition and integration costs was$444.5 compared to fiscal 2019 of$433.4 . The changes were due to incremental SG&A of approximately$26 due to the acquisitions partially offset by synergy realization and reduced spending. In fiscal 2019, the acquired businesses added$83.8 of SG&A. The legacy business as a percent of net sales, and excluding acquisition and integration costs, was 19.1%, or$349.6 , down 90 basis points to fiscal 2018. The improvement versus the prior year reflects improved top-line performance due to organic sales growth, the realization of synergies and cost 45 -------------------------------------------------------------------------------- savings from our continuous improvement initiatives and the lapping of prior year investments in those initiatives. These improvements were slightly offset by the licensing revenue reclassification to net sales.
Advertising and Sales Promotion
A&P was$147.1 in fiscal 2020, up$19.8 as compared to fiscal 2019. A&P as a percent of net sales was 5.4%, 5.1% and 6.3% in fiscal years 2020, 2019, and 2018, respectively. The increase over prior year is driven by incremental spending of$3.5 for our acquired businesses, which was primarily for product and packaging innovation and promotional support for our auto care brands, in addition to planned incremental investment in our branded product portfolio. In fiscal 2019, excluding$15.9 of A&P from the acquired businesses, the legacy business A&P was$111.4 , or 6.1% of net sales, consistent with the fiscal year 2018. 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
Amortization Expense
Amortization expense for fiscal 2020 was$56.5 compared to$43.2 in fiscal 2019 and$11.5 in fiscal 2018. The fiscal 2020 results included the full year of amortization on the Acquired Battery andAuto Care businesses, as well as amortization for the Custom Accessories Europe (CAE) acquisition, discussed in Note 4. The fiscal 2019 results only included a partial year of amortization for the Acquired Battery andAuto Care businesses.
Gain on Sale of Real Estate
Gain on sale of real estate was
Interest expense
Interest expense for fiscal 2020 was$195.0 , as compared to fiscal 2019 expense of$226.0 and$98.4 in fiscal 2018. Interest expense for fiscal 2019 and 2018 include$65.6 and$41.9 , respectively, for ticking and debt commitment fees related to the acquisitions. Excluding the prior year acquisition costs of$65.6 , the current year interest expense increased$34.6 attributable to higher debt associated with the acquisitions, which was outstanding the full fiscal year 2020. Excluding acquisition amounts for both years, fiscal 2019 interest expense increased$103.9 over fiscal 2018 attributable to higher debt associated with the acquisitions.
Loss on extinguishment of debt
The Loss on the extinguishment of debt was$94.9 for fiscal year 2020 and relates to the Company'sJuly 2020 redemption of its$600.0 Senior Notes due in 2025 and the redemption of the$750.0 Senior Notes due in 2026, which were redeemed subsequent to year-end onOctober 16, 2020 . The loss also includes the write off of deferred financing fees related to the term loan refinancing inDecember 2019 . During the fourth quarter, the Company took advantage of favorable debt markets and refinanced its Senior Notes due 2025 and 2026, totaling$1.35 billion in principal amount, with new Senior Notes which come due in 2028 and 2029, respectively. The new Senior Notes have significantly lower interest rates and will result in approximately$17.5 in annual interest savings, as well as an extension of the weighted average maturity of these borrowings by roughly three years. 46 --------------------------------------------------------------------------------
Other Items, Net
Other items, net was expense of
For
the Years Ended
2020 2019 2018
Other items, net
Interest income $ (0.6) $ (7.7) $ (1.4)
Interest income on restricted cash (1) - (5.8) (5.2)
Foreign currency exchange loss 8.7 5.2 8.1
Pension benefit other than service costs (1.7) (2.3) (6.3)
Settlement loss on pension plan terminations (2) - 3.7 14.1
Acquisition foreign currency loss/(gain) (3) 2.2 (13.6) (15.2)
Pre-acquisition insurance proceeds (4) (4.9) - -
Settlement of acquired business hedging contracts (5) - 1.5 -
Transition services agreement income (0.9) (1.4) -
Gain on sale of assets (1.0) - -
Other 0.2 6.1 (0.7)
Total Other items, net $ 2.0 $ (14.3) $ (6.6) (1) Represents the interest income earned on the restricted cash held for the Battery Acquisition.
(2) Represents the actuarial losses that were previously recorded to Other
comprehensive income, and then recognized to Other items, net upon the
termination of the
(3) The loss for the twelve months endedSeptember 30, 2020 related to the hedge contract on the proceeds from the Varta Divestiture. The gain for the twelve months endedSeptember 30, 2019 , includes$9.0 related to currency movement in the escrowed USD funds held in our European Euro functional currency entity and$4.6 related to the gain on our hedge contract for the expected proceeds from the anticipated sale of the Divestment Business. The gain for the twelve months endedSeptember 30, 2018 , includes$9.4 related to contracts which were entered into inJune 2018 and locked in theU.S. dollar (USD) value of the Euro notes related to the Battery Acquisition. These contracts were terminated when the funds were placed into escrow onJuly 6, 2018 . The remaining$5.8 related to the movement in the escrowed USD funds held in our European Euro functional entity.
(4) The pre-acquisition insurance proceeds are related to assets from the Battery Acquisition that were damaged after signing the acquisition agreement, but prior to closing on the acquisition.
(5) Settlement of acquired business hedging contracts that were terminated upon the Company's request at the acquisition date.
Income Taxes
For fiscal 2020, the effective tax rate was 30.9%. The current year rate includes costs related to acquisition and integration in addition to the unfavorable impact of$1.8 for the CARES Act, which was signed into law onMarch 27, 2020 and provides, among other things, increased interest deduction limitations to companies which can decrease overall cash taxes paid. Excluding the impact of these non-GAAP adjustments, the year to date adjusted effective tax rate was 23.3% as compared to 18.5% in the prior year. The increase in the rate versus prior year is due to the country mix of earnings which drove a higher foreign tax rate as well as the expiration of certain tax holidays in foreign jurisdictions. For fiscal 2019, the effective tax rate was 11.5%. The current year rate was favorably impacted by lower overall foreign tax rates and a return to provision benefit slightly offset by disallowed transaction costs. Excluding the impact of all of our non-GAAP adjustments, the effective tax rate for fiscal 2019 was 18.5% as compared to 23.1% in the prior year. The decrease in the rate is driven primarily by the new 21% statutoryU.S. rate that is now effective for all of fiscal year 2019 compared to the statutory rate of 24.5% in fiscal year 2018 as well as more favorable return to provision adjustments in the current fiscal year. 47 -------------------------------------------------------------------------------- For fiscal 2018, the effective tax rate was 46.6%. The rate includes a$39.1 charge for the one-time impact of the Tax Cuts and Jobs Act (the Tax Act) passed inDecember 2017 , as well as the impact of$6.0 related to tax withholding expense for cash movement to fund the Battery Acquisition. Excluding the impact of all of our non-GAAP adjustments, the effective tax rate for fiscal 2018 was 23.1%. The decrease was driven primarily by the lower statutoryU.S. rate that became effective for fiscal 2018 brought about by the Tax Act passed at the end of the calendar year 2017. 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 theU.S. on the taxation of international business activities or the adoption of otherU.S. tax reform could impact our effective tax rate in the future.
Argentina Hyperinflation
EffectiveJuly 1, 2018 , the financial statements for ourArgentina subsidiary are consolidated under the rules governing the translation of financial information in a highly inflationary economy. UnderU.S. GAAP, an economy is considered highly inflationary if the cumulative inflation rate for a three year period meets or exceeds 100 percent. TheArgentina economy exceeded the three year cumulative inflation rate of 100 percent as ofJune 2018 . If a subsidiary is considered to be in a highly inflationary economy, the financial statements of the subsidiary must be remeasured into the Company's reporting currency (U.S. dollar) and future exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in current earnings, rather than exclusively in the equity section of the balance sheet, until such time as the economy is no longer considered highly inflationary. It is difficult to determine what continuing impact the use of highly inflationary accounting forArgentina may have on our consolidated financial statements as such impact is dependent upon movements in the applicable exchange rates between the local currency and theU.S. dollar and the amount of monetary assets and liabilities included in our affiliates balance sheet. Segment Results Operations for Energizer are managed via two major geographic reportable segments:Americas and International. Segment performance is evaluated based on segment operating profit, exclusive of general corporate expenses, share-based compensation costs, acquisition and integration activities, amortization costs, business realignment activities, research & development costs, gains on sale of real estate, settlement loss on pension plan termination, and other items determined to be corporate in nature. Financial items, such as interest income and expense and the loss on extinguishment of debt, 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. 48 --------------------------------------------------------------------------------
Segment Net Sales For the Years Ended September 30,
2020 % Chg 2019 % Chg 2018
Americas
Net sales - prior year $ 1,734.8 1,135.6 $ 1,111.8
Organic 69.8 4.0 % 36.1 3.2 % 20.5
Impact of Battery Acquisition 107.1 6.2 % 278.5 24.5 % -
Impact of Auto Care Acquisition 74.0 4.3 % 288.7 25.4 % -
Impact of Nu Finish Acquisition - - % 5.7 0.5 % 2.2
Change in Argentina operations 1.6 0.1 % (4.5) (0.4) % (1.9)
Impact of currency (16.1) (1.0) % (5.3) (0.4) % 3.0
Net sales - current year$ 1,971.2 13.6 % 1,734.8 52.8 %$ 1,135.6 International Net sales - prior year$ 759.7 662.1$ 643.9 Organic (8.4) (1.1) % 37.3 5.6 % 2.0 Impact of Battery Acquisition 18.4 2.4 % 60.4 9.1 % - Impact of Auto Care Acquisition 11.1 1.5 % 27.1 4.1 % - Impact of Nu Finish Acquisition - - % 0.2 - % 0.1 Impact of currency (7.2) (1.0) %
(27.4) (4.1) % 16.1
Net sales - current year$ 773.6 1.8 %$ 759.7 14.7 %$ 662.1 TotalNet Sales Net sales - prior year$ 2,494.5 $ 1,797.7 $ 1,755.7 Organic 61.4 2.5 % 73.4 4.1 % 22.5 Impact of Battery Acquisition 125.5 5.0 % 338.9 18.9 % - Impact of Auto Care Acquisition 85.1 3.4 % 315.8 17.6 % - Impact of Nu Finish Acquisition - - % 5.9 0.3 % 2.3 Change in Argentina operations 1.6 0.1 % (4.5) (0.3) % (1.9) Impact of currency (23.3) (1.0) %
(32.7) (1.8) % 19.1
Net sales - current year$ 2,744.8 10.0 % $
2,494.5 38.8 %
Total net sales for the twelve months endedSeptember 30, 2020 increased 10.0%, including organic sales increase of$61.4 , or 2.5%, sales related to the acquisitions of$210.6 , or 8.4% and a$1.6 increase from ourArgentina operations, which were deemed to be highly inflationary. These increases were partially offset by the unfavorable impact of currency of$23.3 , or 1.0%. Segment sales results for the twelve months endedSeptember 30, 2020 are as follows: •Americas net sales improved 13.6% versus the prior fiscal year, including the impact of the acquisitions which increased net sales by 10.5%, a 0.1% increase due to ourArgentina operations, and an unfavorable currency impact on sales of 1.0%. Excluding the impact ofArgentina , currency movement and the acquisitions, organic net sales increased 4.0% driven by distribution gains, favorable carryover impact of the fiscal 2019 price increases and the beneficial net impacts of COVID-19. These increases were partially offset by lower replenishment volume early in the year and the year-over-year impact of lower storm activity. •International net sales improved 1.8% versus the prior fiscal year, which included an increase of 3.9% from the impact of the acquisitions and unfavorable foreign currency movements of 1.0%. Excluding the impacts of the acquisitions and foreign currency movements, organic net sales declined 1.1% as the impact of COVID-19, particularly on our developing and distributor markets, more than offset the positive impact from distribution gains. Total net sales for the twelve months endedSeptember 30, 2019 increased 38.8%, including organic sales increase of$73.4 , or 4.1%, and sales related to the acquisitions of$660.6 , or 36.8%. These increases were partially offset by the unfavorable impact of currency of$32.7 , or 1.8%, and a$4.5 decrease due to ourArgentina operations, which were deemed to be highly inflationary. Segment sales results for the twelve months endedSeptember 30, 2019 are as follows: 49 -------------------------------------------------------------------------------- •Americas net sales improved 52.8% versus the prior fiscal year, including the impact of the acquisitions which increased net sales by 50.4%, a 0.4% decline due to ourArgentina operations, and an unfavorable currency impact on sales of 0.4%. Excluding the impact ofArgentina , currency movement and the acquisitions, organic net sales increased 3.2% due to category growth, distribution gains, pricing and the reclassification of licensing income. •International net sales improved 14.7% versus the prior fiscal year, which included an increase of 13.2% from the impact of the acquisitions and unfavorable foreign currency movements of 4.1%. Excluding the impacts of the acquisitions and foreign currency movements, organic net sales improved 5.6% resulting from strong volumes, phasing of holiday promotional activity and pricing actions in our developed and modern markets as well as the reclassification of licensing revenue. Segment Profit
For the Years Ended
2020 % Chg 2019 % Chg 2018
Americas
Segment Profit - prior year $ 456.6 326.1 $ 310.0
Organic 14.8 3.2 % 17.4 5.3 % 13.7
Impact of Battery Acquisition 21.8 4.8 % 42.5 13.0 % -
Impact of Auto Care Acquisition 15.8 3.5 % 74.5 22.8 % -
Impact of Nu Finish Acquisition - - % 1.9 0.6 % 0.9
Change in Argentina operations (0.6) (0.1) % (2.2) (0.7) % (0.6)
Impact of currency (9.9) (2.2) % (3.6) (1.0) % 2.1
Segment Profit - current year $ 498.5 9.2 % $ 456.6 40.0 % $ 326.1
International
Segment Profit - prior year $ 174.9 149.6 $ 143.0
Organic (22.4) (12.8) % 22.5 15.0 % (3.7)
Impact of Battery Acquisition 6.1 3.5 % 20.2 13.5 % -
Impact of Auto Care Acquisition 1.3 0.7 % 2.3 1.5 % -
Impact of Nu Finish Acquisition - - % 0.1 0.1 % -
Impact of currency (4.1) (2.3) % (19.8) (13.2) % 10.3
Segment Profit - current year $ 155.8 (10.9) % $ 174.9 16.9 % $ 149.6
Total Segment Profit
Segment Profit - prior year $ 631.5 $ 475.7 $ 453.0
Organic (7.6) (1.2) % 39.9 8.4 % 10.0
Impact of Battery Acquisition 27.9 4.4 % 62.7 13.2 % -
Impact of Auto Care Acquisition 17.1 2.7 % 76.8 16.1 % -
Impact of Nu Finish Acquisition - - % 2.0 0.4 % 0.9
Change in Argentina operations (0.6) (0.1) % (2.2) (0.5) % (0.6)
Impact of currency (14.0) (2.2) % (23.4) (4.8) % 12.4
Segment Profit - current year $ 654.3 3.6 % $ 631.5 32.8 % $ 475.7 Refer to Note 10, Segments, in the Consolidated Financial Statements for a reconciliation from segment profit to earnings before income taxes.
Total segment profit in fiscal 2020 was$654.3 , an increase of 3.6% versus the prior fiscal year, driven by an increase of$45.0 , or 7.1% from the acquisitions. This increase was partially offset by organic segment profit decline of 1.2%, unfavorable movement in foreign currency of$14.0 , or 2.2% and by$0.6 , or 0.1%, of unfavorable changes inArgentina operations. Segment operating profit results for the twelve months endedSeptember 30, 2020 are as follows: •Americas segment profit was$498.5 , an increase of$41.9 , or 9.2%, versus the prior fiscal year inclusive of the$37.6 increase due to the acquisitions. This increase was partially offset by$0.6 of unfavorable changes in 50 --------------------------------------------------------------------------------Argentina operations and unfavorable foreign currency movements of$9.9 . Excluding the impact of currency movements, the acquisitions, and changes inArgentina operations, segment profit increased$14.8 , or 3.2%. The increase was driven by the net sales increase and realized synergies. These increases were partially offset by higher planned incremental A&P investment and incremental costs related to COVID-19, which impacted gross margin. •International segment profit was$155.8 , a decrease of$19.1 , or 10.9%, versus the prior fiscal year inclusive of the positive impact of the acquisitions of$7.4 as well as the unfavorable$4.1 impact of currency movements. Excluding the impact of the acquisitions and currency movements, segment profit decreased$22.4 , or 12.8%, as the impact of the top-line organic decline was compounded by incremental costs related to Covid-19 costs and increased A&P investment, primarily in our modern markets. Total segment profit in fiscal 2019 was$631.5 , an increase of 32.8% versus the prior fiscal year, driven by an increase of$141.5 , or 29.7%, from the acquisitions and organic segment profit increase of 8.4%. These increases were partially offset by unfavorable movement in foreign currency of$23.4 , or 4.8% and by$2.2 , or 0.5%, of unfavorable changes inArgentina operations. Segment operating profit results for the twelve months endedSeptember 30, 2019 are as follows: •Americas segment profit was$456.6 , an increase of$130.5 , or 40.0%, versus the prior fiscal year inclusive of the$118.9 increase due to the acquisitions. This increase was partially offset by$2.2 of unfavorable changes inArgentina operations and unfavorable foreign currency movements of$3.6 . Excluding the impact of currency movements, the acquisitions, and changes inArgentina operations, segment profit increased$17.4 , or 5.3%. This increase was driven by top-line growth noted above as well as favorable gross profit improvement slightly offset by higher overhead spending. •International segment profit was$174.9 , an increase of$25.3 , or 16.9%, versus the prior fiscal year inclusive of the positive impact of the acquisitions of$22.6 as well as the unfavorable$19.8 impact of currency movements. Excluding the impact of the acquisitions and currency movements, segment profit increased$22.5 , or 15.0%, driven by top-line growth and the benefit of our continuous improvement initiatives as well as lapping prior year investments in those initiatives slightly offset by higher overheads versus the prior year comparative period and increased A&P driven by the brand refresh across our international markets. GENERAL CORPORATE For the Years Ended September 30, 2020 2019 2018 General corporate and other expenses$ 103.8 $ 111.5 $ 97.3 Global marketing expenses 28.2 18.2 19.0 Total$ 132.0 $ 129.7 $ 116.3 % of net sales 4.8 % 5.2 % 6.5 % For fiscal 2020, general corporate expenses were$103.8 , a decrease of$7.7 compared to fiscal 2019 expense of$111.5 . The decrease was driven byTSA exits, reduced travel and other expenses due to COVID-19 as well as reduced stock compensation expense. For fiscal 2019, general corporate expenses were$111.5 , an increase of$14.2 compared to fiscal 2018 expense of$97.3 . Excluding the corporate and other expenses of$23.3 related to the acquisitions in fiscal 2019, the legacy business accounted for a decrease of$9.1 compared to fiscal 2018. The decreases were due to lower mark to market expense on our unfunded deferred compensation liability in the current year, the lapping of unfavorable legal reserves in the prior year and benefits realized from our prior year continuous improvement initiatives.
Global marketing expenses were
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 financial condition and
prospects, (ii) for debt, our credit rating, (iii) the liquidity of the overall
capital markets and (iv) the current state of
51
--------------------------------------------------------------------------------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. AtSeptember 30, 2020 , Energizer had$459.8 of cash and cash equivalents, 61.8% of which was 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. OnDecember 17, 2018 , the Company entered into a credit agreement which provided for a 5-year$400.0 revolving credit facility (2018 Revolving Credit Facility). The borrowings 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 based on total Company leverage. The 2018 Revolving Credit Facility also contains customary affirmative and restrictive covenants. As ofSeptember 30, 2020 , there were no borrowings outstanding under the 2018 Revolving Credit Facility, but the Company did have$7.3 of outstanding letters of credit. Taking into account outstanding letters of credit,$392.7 remained available as ofSeptember 30, 2020 . OnApril 22, 2020 , the Company completed an add-on offering of$250.0 of our 6.375% Senior Notes due 2026 (2026 Notes). The 2026 Notes priced at 102.25% of principal. The Company utilized the proceeds from the add-on offering to repay indebtedness on the Revolving Credit Facility related to funds defensively drawn at the beginning of the COVID-19 pandemic and to pay fees and expenses relating to the offering. OnJuly 1, 2020 , the Company completed a bond offering for$600.0 Senior Notes due in 2028 at 4.750% (2028 Notes). The Company utilized a portion of the net proceeds from the sale of the 2028 Notes to fund the purchase of$488.8 in aggregate principal amount of the Company's outstanding 5.50% Senior Notes due 2025 (2025 Notes) accepted for purchase pursuant to a cash tender offer. The Company used the remaining net proceeds from such sale, together with cash on hand, to fund the redemption of 2025 Notes not purchased pursuant to the tender offer, at a redemption price equal to 102.750% of the aggregate principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest thereon to, but excluding, the redemption date. As a result of such redemption, all 2025 Notes that were not tendered and purchased by the Company pursuant to the tender offer were redeemed. The Company paid a total call premium for tendered and called notes of$18.3 . The transaction resulted in a Loss on extinguishment of debt of$22.1 . OnSeptember 30, 2020 , the Company completed a bond offering for$800.0 Senior Notes due in 2029 at 4.375% (2029 Notes). Subsequent to the fiscal year, onOctober 16, 2020 , the Company used the proceeds from the sale of the 2029 Notes to fund the redemption of all the$750.0 USD Senior Notes due in 2026 at 6.375% (2026 USD Notes). Due to the timing of the transaction crossing fiscal years and the Company's obligation to redeem the 2026 USD Notes, the 2026 USD Notes were classified as Current maturities of long term debt and the proceeds from the 2029 Notes, net of financing fees paid, were classified as Restricted cash on the Consolidated Balance Sheet atSeptember 30, 2020 . The company paid a redemption premium of$55.9 in fiscal 2021, and the transaction resulted in a Loss on extinguishment of debt of$68.6 . While the Company believes it had sufficient liquidity prior to taking these actions to fund its operations and meet its obligations, the Company increased its cash position during fiscal year 2020 as a precautionary measure in order to preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic. Subsequent toSeptember 30, 2020 , the Company paid down$120.0 on Term loan B and$42.8 on Term loan A, which included the required quarterly payments.
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 ofSeptember 30, 2020 , the Company was, and expects to remain, in compliance with the provisions and covenants associated with its debt agreements. 52 --------------------------------------------------------------------------------
Operating Activities
Cash flow from operating activities from continuing operations is the primary
funding source for operating needs and capital investments. Cash flow from
operating activities was
Cash flow from operating activities from continuing operations was$389.3 in fiscal 2020 as compared to$142.1 in the prior fiscal year. This change of$247 was primarily driven by higher year-over-year cash net earnings resulting from lower cash expenditures of approximately$126 associated with the Battery and Auto Care Acquisitions, most notably the payment of interest and ticking fees associated with the debt utilized to fund the Battery Acquisition and other success and consulting fees paid to finalize the acquisitions in the prior year. In addition, working capital changes favorably impacted cash flow from operations year-over-year. These changes were driven by approximately$30 related to the agreement and final cash settlement from the Central Authority inSpain on a Spanish VAT refund payment, approximately$70 related to higher year-over-year accounts receivable collections as the Company's factoring program was more established throughout fiscal 2020 compared to the prior year, and approximately$36 related to the timing of payments and programs, most notably for higher trade and A&P accruals. Cash flow from operating activities from continuing operations was$142.1 in fiscal 2019 as compared to$228.7 in fiscal 2018. The decrease was driven by lower year over year net earnings and increased working capital. Strong organic growth in the business was more than offset by cash expenditures of approximately$159 , versus$27 in the prior year, associated with the Battery and Auto Care Acquisitions, most notably the payment of interest and ticking fees associated with the debt utilized to fund the Battery Acquisition and the fees paid related to the issuance of the bonds to fund the Auto Care Acquisition. The working capital increase was driven by the timing of collections and payments on our transition services agreement and working capital settlements with Spectrum and an increase in accounts receivable due to strong organic growth in our legacy business year over year
Investing Activities
Net cash used by investing activities from continuing operations was$64.0 in fiscal 2020 and$2,514.9 in fiscal 2019, and net cash from investing activities from continuing operations was$56.2 in fiscal 2018, and consisted of the following:
•Capital expenditures were
•Proceeds from asset sales were$6.4 ,$0.2 and$6.1 in fiscal 2020, 2019 and 2018, respectively. The fiscal 2020 proceeds primarily represent insurance proceeds received from property, plant and equipment utilized by the Acquired Battery Business damaged in a flood. The fiscal 2018 proceeds were related to the sale of a previously closed manufacturing facility. •Acquisitions, net of cash acquired, were$5.1 ,$2,460.0 and$38.1 in fiscal 2020, 2019, and 2018, respectively. The majority of the fiscal 2020 of this payment was due to the finalization of working capital adjustments with Spectrum for the Auto Care Acquisition while$1.5 was utilized to complete the CAE acquisition. The fiscal 2019 outflow was utilized to purchase the Battery and Auto Care Acquisitions and the fiscal 2018 outflow for the purchase of Nu Finish. Investing cash outflows of approximately$35 to$45 are anticipated in fiscal 2021 for capital expenditures relating to maintenance, product development and cost reduction investments. Additional investing cash outflows of approximately$30 to$40 are anticipated in fiscal 2021 for integration related capital expenditures for the Battery and Auto Care Acquisitions.
Financing Activities
Net cash from financing activities from continuing operations was$394.2 ,$1,276.8 and$1,226.3 in fiscal 2020, 2019 and 2018, respectively. For fiscal 2020, cash flow from financing activities from continuing operations consists of the following: •Cash proceeds from issuance of debt with original maturities greater than 90 days of$2,020.6 related to theDecember 2019 refinancing of$365.0 of the 2018 Term Loan, theApril 2020 add on offering of$250.0 of our 6.375% Senior Notes due in 2026, theJuly 2020 offering of$600.0 of our 4.750% Senior Notes due in 2028 and theSeptember 2020 offering of$800.0 of our 4.375% Senior Notes due in 2029. 53 -------------------------------------------------------------------------------- •Payments on debt with maturities greater than 90 days of$1,393.5 , related to the Term Loan refinancing inDecember 2019 , the repayment of$345.8 of debt from the proceeds of the Varta divestiture, the redemption of$600.0 of our 5.50% Senior Notes due 2025 as well as required quarterly payments on the 2018 Term Loan A and 2018 Term Loan B;
•Payments of debt with maturities of 90 days or less of
•Debt issuance costs of$26.5 relating to our Term Loan refinancing, the add on offering of$250.0 of our 6.37% Senior Notes due in 2026, the offering of$600.0 of our 4.750% Senior Notes due in 2028 and an offering of$800.0 of our 4.375% Senior Notes due in 2029;
•Premiums paid on extinguishment of debt of
•Dividends paid on common stock of
•Dividends paid on mandatory convertible preferred stock of
•Purchase of treasury stock representing the cash paid for stock repurchases under the current authorization during the twelve months endedSeptember 30, 2020 (see below); and
•Taxes paid for withheld share-based payments of
For fiscal 2019, cash flow from financing activities from continuing operations consists of the following:
•Cash proceeds from issuance of debt with original maturities greater than 90 days of$1,800.0 related to the funding of the 2018 Term Loans utilized to fund the Battery Acquisition and the bonds utilized to fund the Auto Care Acquisition; •Payments on debt with maturities greater than 90 days of$529.5 , primarily related to the repayment of our Term Loan due in 2022 and additional$140.0 of payments on the 2018 Term Loan A and 2018 Term Loan B;
•Payments of debt with maturities of 90 days or less of
•Debt issuance costs of
•Net proceeds from the issuance of common stock of
•Net proceeds from the issuance of Mandatory Preferred Convertible Stock (MCPS)
of
•Dividends paid on common stock of
•Dividends paid on mandatory convertible preferred stock of
•Purchase of treasury stock representing the cash paid for stock repurchases under the current authorization during the twelve months endedSeptember 30, 2019 (see below); and
•Taxes paid for withheld share-based payments of
For fiscal 2018, cash flow from financing activities from continuing operations consists of the following:
•Cash proceeds from issuance of debt with original maturities greater than 90 days of$1,259.9 representing the funds currently held in escrow for the Battery Acquisition; 54 --------------------------------------------------------------------------------
•Payments on debt with maturities greater than 90 days representing the
quarterly principal payments on the seven-year
•Increase on debt with maturities of 90 days or less of
•Debt issuance costs of
•Dividends paid on common stock of
•Purchase of treasury stock representing the cash paid for stock repurchases under the current authorization during the twelve months endedSeptember 30, 2018 (see below); and
•Taxes paid for withheld share-based payments of
Dividends
Total dividends declared to common shareholders were$84.0 of which$85.4 were paid. The dividends paid included amounts on restricted shares that vested in the period. Total dividends declared and paid to preferred shareholders were$16.2 . The payment included an accrued dividend from fiscal 2019 and the final dividend of fiscal 2020 was recorded in Other liabilities atSeptember 30, 2020 and was paid to the preferred shareholders onOctober 15, 2020 . Subsequent to the fiscal year end, onNovember 12, 2020 , the Board of Directors declared a dividend for the first quarter of fiscal 2021 of$0.30 per share of common stock, payable onDecember 18, 2020 , to all shareholders of record as of the close of business onNovember 30, 2020 . Subsequent to the end of the fiscal year, onNovember 12, 2020 , the Board of Directors declared a dividend of$1.875 per share of MCPS, payable onJanuary 15, 2021 , to all shareholders of record as of the close of businessJanuary 1, 2021 . Share Repurchases OnJuly 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. Under this authorization, the Company has repurchased 980,000 shares for$45.0 , at an average price of$45.93 per share, 1,036,000 shares for$45.0 , at an average price of$43.46 per share, and 1,439,211 shares for$70.0 , at an average price of$48.66 per share, during the twelve months endedSeptember 30, 2020 , 2019 and 2018. OnNovember 12, 2020 , theBoard of Director's put in place a new authorization for up to 7.5 million shares. This replaced the prior authorization that was outstanding. Future share repurchase, if any, would be made on the open market and the timing and the amount of any purchases will be determined by the Company based on its evaluation of the market conditions, capital allocation objectives, legal and regulatory requirements and other factors. 55 --------------------------------------------------------------------------------
Contractual Obligations
A summary of Energizer's contractual obligations atSeptember 30, 2020 is shown below: Less than More than Total 1 year 1-3 years 3-5 years 5 years Long-term debt, including current maturities (1)$ 4,144.8 $
841.3
Interest on long-term debt (2) 1,097.5 165.2 314.0 303.7 314.6 Redemption premium on long-term debt 55.9 55.9 - - - Notes payable 3.8 3.8 - - - Operating leases 187.7 20.4 37.1 32.7 97.5 Capital leases (3) 89.1 4.9 10.0 9.9 64.3 Pension plans (4) 4.4 4.4 - - - Purchase of FDK Indonesia (5) 16.9 16.9 - - - Purchase obligations and other (6) 18.5 8.8 9.4 0.3 - Mandatory transition tax 16.7 - - 9.4 7.3 Total$ 5,635.3 $ 1,121.6 $ 603.7 $ 376.0 $ 3,534.0 (1)Long-term debt, including current maturities, includes the$750.0 Senior Notes at 6.375% that were originally due in 2026. The obligation to pay back these notes is in the less than 1 year category as these notes were redeemed subsequent to the fiscal year onOctober 16, 2020 using the proceeds from the$800.0 Senior Notes at 4.375% due in 2029 issued inSeptember 2020 . These notes were classified as current on the Consolidated Balance Sheet atSeptember 30, 2020 . Refer to Note 13 Debt for additional information on this refinancing transaction. (2)The above table is based upon the debt balance and LIBOR rate on drawn debt as ofSeptember 30, 2020 . Energizer has entered into two interest rate swap agreements that fixed the variable benchmark component (LIBOR) on (1)$200.0 of Energizer's variable rate debt throughJune 2022 at an interest rate of 2.03% and (2) up to$400.0 of variable rate debt at an interest rate of 2.47%. At the effective date, the second swap has a notional value of$400.0 . BeginningApril 1, 2019 , the notional amount decreases$50.0 each quarter, and continues to decrease until its termination date ofDecember 31, 2020 . The notional value of the swap was$100.0 atSeptember 30, 2020 . (3)Capital lease payments include the full capital lease obligation of$45.8 , as well as interest included in the payment of$43.3 . (4)Globally, total pension contributions for the Company in the next year are estimated to be$4.4 . The projected payments beyond fiscal year 2021 are not currently estimable. (5)During the fourth quarter of fiscal 2020, the Company entered into an agreement with FDK Corporation to acquire its subsidiary FDK Indonesia, a battery manufacturing facility. Subsequent to the fiscal year end onOctober 1, 2020 , the Company completed the acquisition and paid$16.9 of cash to FDK Corporation. Refer to Note 4 Acquisitions for further details. (6)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 theU.S. Accrued environmental costs atSeptember 30, 2020 were$9.3 , of which approximately$2.1 is expected to be spent during fiscal 2021. 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 56 --------------------------------------------------------------------------------
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 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. •Revenue Recognition - The Company measures revenue as the amount of consideration for which it expects to be entitled in exchange for transferring goods. Net sales reflect the transaction prices for contracts, which include units shipped at selling list prices reduced by variable consideration as determined by the terms of each individual contract. 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, 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. Methodologies for determining these provisions are dependent on specific customer pricing and promotional practices, which range from contractually fixed percentage price reductions to reimbursement based on actual occurrence or performance. Where applicable, future reimbursements are estimated based on a combination of historical patterns and future expectations regarding specific in-market product performance. Energizer accrues, at the time of sale, the estimated total payments and allowances associated with each transaction. Customers redeem trade promotions in the form of payments from the accrued trade allowances or invoice credits against trade receivables. Additionally, Energizer offers programs directly to consumers to promote the sale of its products. 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. Our standard sales terms generally include payments within 30 to 60 days and are final with returns or exchanges not permitted unless a special exception is made. OurAuto Care channel terms are longer, in some cases up to 365 days, in which case we use our Trade Receivables factoring program for more timely collection. Reserves are established based on historical data and recorded in cases where the right of return does exist for a particular sale. The Company does not offer warranties on products. 57 -------------------------------------------------------------------------------- The Company's contracts with customers do not have significant financing components or non-cash consideration and the Company does not have unbilled revenue or significant amounts of prepayments from customers. Revenue is recorded net of the taxes we collect on behalf of governmental authorities which are generally included in the price to the customer. Shipping and handling activities are accounted for as contract fulfillment costs and recorded in Cost of products sold. •Pension Plans - The determination of the Company's obligation and expense for pension benefits is 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, or impacts to the obligation that are due to changes to assumptions, 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 in conjunction with the cash flows of its plans' estimated payouts. For theU.S. plans, which were frozenJanuary 1, 2014 and represent the Company's most significant obligations, we consider the Mercer Above-Mean yield curve in determining the discount rates. 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 atSeptember 30, 2020 , a 100 basis point decrease or increase in expected asset returns would increase or decrease the Company'sU.S. pre-tax pension expense by$4.4 . 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 increaseU.S. pension obligations by$55.0 atSeptember 30, 2020 .
As allowed under GAAP, the Company's
•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 advisors to assess the obligations associated with legal, environmental or other claims. During fiscal 2019, Energizer used variations of the income approach in determining the fair value of intangible assets acquired in the Battery and Auto Care Acquisitions. Specifically, the Company utilized the multi-period excess earnings method for determining the fair value of the indefinite lived trade names and customer relationships acquired, and the relief from royalty method to determine the fair value of the proprietary technology acquired. Our determination of the fair value of the indefinite lived trade names acquired involved the use of significant estimates and assumptions related to revenue growth rates and discount rates. Our determination of the fair value of customer relationships acquired involved significant estimates and assumptions related to revenue growth rates, discount rates, and customer attrition rates. Our determination of the fair value of the proprietary technology acquired involved the use of significant estimates and assumptions related to revenue growth rates, royalty rates and discount rates. Energizer believes that the fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that marketplace participants would use. However, our assumptions are inherently risky and actual results could differ from those estimates. Significant judgment is also required in assigning the respective useful lives of intangible assets. 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 58 -------------------------------------------------------------------------------- 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 12,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 acquisition valuations and intangible asset and goodwill impairment testing, including discount rates, revenue growth rates, 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. During fiscal 2020, we performed our annual goodwill test for impairment. There were no indications of impairment of goodwill noted during this testing. In addition, we completed impairment testing on indefinite-lived intangible assets other than goodwill, which are trademarks/brand names used in our various product categories. No impairment was indicated as a result of this testing. •Income Taxes - Our annual effective income tax rate is determined based on our income, statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Tax law requires certain items be included in the tax return at different times than the items are reflected in the financial statements. Some of these differences are permanent, such as expenses that are not deductible in our tax return, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities. 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 theU.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. InJanuary 2018 , the Financial Accounting Standard Board released guidance on the accounting for tax on the global intangible low-taxed income (GILTI) provisions of the Tax Cuts and Jobs Act (the Tax Act). The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as a period cost are both acceptable methods subject to an accounting policy election. The Company has completed its analysis of the GILTI rules and has made an accounting policy election to treat the taxes due from GILTI as a period expense when incurred. In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or very minimal, and that position has not changed after incurring the transition tax under the Tax Act. No provision has been provided for taxes that would result upon repatriation of our foreign investments tothe United States . 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 7, Income Taxes, of the Notes to Consolidated Financial Statements for further discussion. 59 --------------------------------------------------------------------------------
Recently Adopted Accounting Pronouncements
EffectiveOctober 1, 2019 , the Company adopted ASU 2016-02 and related standards (collectively ASC 842, Leases). This new guidance 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 Company elected the optional transition method and adopted the new guidance on a modified retrospective basis with no restatement of prior period amounts. Further, the Company elected to apply the package of practical expedients which allows companies to carry forward original lease determinations, lease classifications, and accounting for initial direct costs. Energizer also made the policy elections upon adoption for the exclusion of short term leases on the balance sheet and to not separate lease and non-lease components The adoption of ASC 842, Leases, resulted in the recognition of additional assets and corresponding liabilities on the Consolidated Balance Sheet for the Company's operating leases; however, it did not have a material impact on the Consolidated Statement of Earnings and Comprehensive Income, the Consolidated Statement of Cash Flows and the Consolidated Statement of Shareholders' Equity/(Deficit), including retained earnings. Refer to Note 11, Leases, for further information.
Recently Issued Accounting Pronouncements
InMarch 2020 , the FASB issued ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendment provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on contracts, hedging relationships and other transactions that reference LIBOR. These updates are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or beforeDecember 31, 2022 . The Company is currently evaluating our contracts and the optional expedients provided by this update. InAugust 2020 , the FASB issued ASU 2020-06 Changes to Accounting for Convertible Debt. This amendment simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. The FASB has reduced the number of accounting models for convertible debt and convertible preferred stock instruments and made certain disclosure amendments to improve the information provided to financial statement users. The new guidance also modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendment goes into affect for fiscal years starting afterDecember 15, 2021 , which for Energizer would be the beginning of fiscal year 2023. Early adoption is permitted, but no earlier than fiscal years beginning afterDecember 15, 2020 . The Company is currently evaluating the impact that this updated may have on our financial statements, however it is not expected to be material.
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