Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
All amounts discussed are in millions of U.S. dollars, unless otherwise indicated.
The Company reports its financial results in accordance with accounting principles generally accepted in the U.S. ("GAAP"). However, management believes that certain non-GAAP financial measures provide users with additional meaningful comparisons to the corresponding historical or future period. These non-GAAP financial measures exclude items that are not reflective of the Company's on-going operating performance, such as acquisition and integration costs costsand related to the spin,items, loss on extinguishment of debt, and the one-time impact of the new U.S.Coronavirus Aid, Relief and Economic Security (CARES) Act and the December 2017 Tax Cuts and Jobs Act (2017 tax legislation.reform). In addition, these measures help investors to seeanalyze 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:
Net earnings from continuing operations and Diluted
EPSnet earnings from continuing operations per common share for the time periods presented were impacted by certain items related to
spin restructuring costs, acquisition and integration costs,
the loss on extinguishment of debt and the one-time impact of the
new U.S.CARES Act and the 2017 tax
legislationreform as described in the tables below. The impact of these items are provided below as a reconciliation of
Earning before income taxes, Net earnings
from continuing operations and Diluted
EPSnet earnings from continuing operations per common share to
adjusted Earnings before income taxes, adjusted NetAdjusted net earnings
from continuing operations and
adjusted Diluted EPS,Adjusted diluted net earnings from continuing operations per common share, which are non-GAAP measures. See disclosure on
non-GAAP measuresNon-GAAP Financial Measures above.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarters Ended December 31, |
(in millions, except per share data) | | Earnings Before Income Taxes | | Net Earnings | | Diluted EPS |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Reported - GAAP | | $ | 119.0 |
| | $ | 134.1 |
| | $ | 60.4 |
| | $ | 95.6 |
| | $ | 0.98 |
| | $ | 1.52 |
|
Impacts: Expense (Income) | | | | | | | | | | | | |
Spin restructuring | | — |
| | (1.3 | ) | | — |
| | (1.0 | ) | | — |
| | (0.02 | ) |
Acquisition and integration costs (1) | | 5.7 |
| | 0.8 |
| | 4.1 |
| | 0.5 |
| | 0.07 |
| | 0.01 |
|
One-time impact of the new U.S. tax legislation | | — |
| | — |
| | 31.0 |
| | — |
| | 0.50 |
| | — |
|
Adjusted - Non-GAAP (2) | | $ | 124.7 |
| | $ | 133.6 |
| | $ | 95.5 |
| | $ | 95.1 |
| | $ | 1.55 |
| | $ | 1.51 |
|
Weighted average shares - Diluted | |
|
| |
|
| |
|
| |
| | 61.5 |
| | 62.9 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Quarter Ended June 30, | | | | For the Nine Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Net earnings/(loss) attributable to common shareholders | $ | 25.8 | | | $ | 3.0 | | | $ | (53.9) | | | $ | (2.8) | |
Mandatory preferred stock dividends | (4.0) | | | (4.4) | | | (12.1) | | | (7.7) | |
Net earnings/(loss) | 29.8 | | | 7.4 | | | (41.8) | | | 4.9 | |
Net earnings/(loss) from discontinued operations | 0.8 | | | (1.8) | | | (130.3) | | | (12.8) | |
Net earnings from continuing operations | $ | 29.0 | | | $ | 9.2 | | | $ | 88.5 | | | $ | 17.7 | |
Pre-tax adjustments | | | | | | | |
Acquisition and integration (1) | 11.4 | | | 28.0 | | | 47.6 | | | 159.9 | |
| | | | | | | |
Loss on extinguishment of debt (2) | — | | | — | | | 4.2 | | | — | |
Total adjustments, pre-tax | 11.4 | | | 28.0 | | | 51.8 | | | 159.9 | |
After tax adjustments | | | | | | | |
Acquisition and integration | 7.8 | | | 22.1 | | | 35.3 | | | 129.1 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Loss on extinguishment of debt | — | | | — | | | 3.2 | | | — | |
One-time impact of the CARES Act | 1.7 | | | — | | | 5.1 | | | — | |
One-time impact of 2017 tax reform | — | | | (0.8) | | | — | | | 0.7 | |
Total adjustments, after tax | 9.5 | | | 21.3 | | | 43.6 | | | 129.8 | |
Adjusted net earnings from continuing operations (3) | $ | 38.5 | | | $ | 30.5 | | | $ | 132.1 | | | $ | 147.5 | |
Mandatory preferred stock dividends | (4.0) | | | (4.4) | | | (12.1) | | | (7.7) | |
Adjusted net earnings from continuing operations attributable to common shareholders | $ | 34.5 | | | $ | 26.1 | | | $ | 120.0 | | | $ | 139.8 | |
| | | | | | | |
Diluted net earnings per common share - continuing operations | $ | 0.37 | | | $ | 0.07 | | | $ | 1.10 | | | $ | 0.15 | |
Adjustments (per common share) | | | | | | | |
Acquisition and integration | 0.11 | | | 0.31 | | | 0.51 | | | 1.81 | |
| | | | | | | |
Loss on extinguishment of debt | — | | | — | | | 0.05 | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
One time impact of the CARES Act | 0.02 | | | — | | | 0.07 | | | — | |
One-time impact of 2017 tax reform | — | | | (0.01) | | | — | | | 0.01 | |
Impact for diluted share calculation (4) | — | | | — | | | — | | | 0.10 | |
Adjusted diluted net earnings per diluted common share - continuing operations | $ | 0.50 | | | $ | 0.37 | | | $ | 1.73 | | | $ | 2.07 | |
Weighted average shares of common stock - Diluted | 68.7 | | | 70.6 | | | 69.4 | | | 66.5 | |
Adjusted Weighted average shares of common stock - Diluted (4) | 68.7 | | | 70.6 | | | 69.4 | | | 71.2 | |
| | | | | | | |
(1) AmountsAcquisition and integration costs were included in SG&Athe following lines in the unaudited Consolidated Condensed(Condensed) Statement of Earnings and Comprehensive Income:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Quarter Ended June 30, | | | | For the Nine Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Inventory step up (COGS) | $ | — | | | $ | 6.5 | | | $ | — | | | $ | 33.7 | |
Cost of products sold | 5.5 | | | 5.9 | | | 20.7 | | | 10.4 | |
SG&A | 6.1 | | | 15.1 | | | 25.3 | | | 63.1 | |
Research and development | 0.2 | | | 0.3 | | | 1.2 | | | 0.3 | |
Interest expense | — | | | — | | | — | | | 65.6 | |
Other items, net | (0.4) | | | 0.2 | | | 0.4 | | | (13.2) | |
Acquisition and integration related items | $ | 11.4 | | | $ | 28.0 | | | $ | 47.6 | | | $ | 159.9 | |
(2) This loss on extinguishment of debt is associated with the term loan refinancing which occurred in the first fiscal quarter of 2020 and was recorded in interest expense on the Consolidated (Condensed) Statement of Earnings and Comprehensive Income.
(2)
(3) The effective tax rate for the quartersquarter ended December 31, 2017June 30, 2020 and 20162019 for the Adjusted - Non-GAAP Net Earnings and Diluted EPS was 23.4%23.5% and 28.8%18.4%, respectively, as calculated utilizing the statutory rate for where the costs were incurred. The neteffective tax impact associated with the non-GAAP adjustments highlighted in the table was a benefit of $29.4 and zero, respectively,rate for the quartersnine months ended December 31, 2017June 30, 2020 and 2016.2019 for the Adjusted - Non-GAAP Net Earnings and Diluted EPS was 22.9% and 20.4%, respectively, as calculated utilizing the statutory rate for where the costs were incurred.
(4) For the nine months ended June 30, 2019 calculation, the Adjusted Weighted average shares of common stock - Diluted is assuming conversion of the preferred shares as those results are more dilutive. The shares have been adjusted for the 4.7 million share conversion and the preferred dividend has been adjusted out of the Adjusted net earnings.
Highlights
|
| | | | | | | |
Total Net Sales (In millions - Unaudited) |
Quarter Ended December 31, 2017 |
Total Net Sales | | Q1 | | % Chg |
Net sales - FY '17 | | $ | 559.6 |
| | |
Organic | | 5.9 |
| | 1.1 | % |
Impact of currency | | 7.8 |
| | 1.3 | % |
Net sales - FY '18 | | $ | 573.3 |
| | 2.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Total Net sales (In millions - Unaudited) | | | | | | | |
| For the Quarter Ended June 30, 2020 | | | | For the Nine Months Ended June 30, 2020 | | |
| $ Change | | % Chg | | $ Change | | % Chg |
Net sales - prior year | $ | 647.2 | | | | | $ | 1,775.5 | | | |
Organic | 22.3 | | | 3.4 | % | | 17.6 | | | 1.0 | % |
Impact of Battery Acquisition | — | | | — | % | | 125.5 | | | 7.1 | % |
Impact of Auto Care Acquisition | — | | | — | % | | 85.1 | | | 4.8 | % |
| | | | | | | |
Change in Argentina | 0.1 | | | — | % | | (0.4) | | | — | % |
Impact of currency | (11.6) | | | (1.7) | % | | (21.5) | | | (1.3) | % |
Net Sales - current year | $ | 658.0 | | | 1.7 | % | | $ | 1,981.8 | | | 11.6 | % |
See non-GAAP measure disclosures above.
Net sales were $573.3$658.0 for the firstthird quarter of 2018,2020, an increase of $13.7$10.8 as compared to the prior year quarter driven by the following items:
•Organic netNet sales were up 1.1%increased 3.4%, or $22.3, in the firstthird fiscal quarter due to the following items:
| |
◦ | Favorable pricing across several markets increased net sales by 3%; |
| |
◦ | Investments made for our portfolio realignment in the back half of fiscal 2017 benefited our top-line in the first fiscal quarter of 2018 accounting for 0.5% of the organic sales increase; and |
| |
◦ | Partially offsetting the above increases in organic net sales were retailer merchandising changes in the U.S. that negatively impacted net sales by 1.3%, lapping of storm volume from prior year of 0.6% and the May 2017 divestiture of the non-core promotional sales business acquired with the auto care acquisition that negatively impacted net sales by 0.5%. |
◦Increased distribution, primarily in North America, contributed 2.7% to the organic increase;
◦Increased year over year replenishment volume, primarily in North America battery sales, contributed 1.4% to the organic increase, which was almost entirely offset by the decrease in organic sales of 1.3% caused by the pandemic impact, primarily in the international developing and distributor markets; and
◦Favorable pricing added 0.6%.
•Our Argentina operations had a favorable impact on Net sales of $0.1.
•Unfavorable movement in foreign currencies resulted in decreased sales of $11.6, or 1.7%.
Net sales for the nine months ended June 30, 2020 were $1,981.8, an increase of $206.3 as compared to the prior year comparative period, driven by the following items:
•Organic net sales were up 1.0% due to the following items:
◦Increased distribution across both of our segments contributed 2.4% to the organic increase;
◦Pricing actions, slightly offset by channel and product mix in addition to increased trade investment, contributed 0.3% to the organic increase;
◦A net decline in replenishment offset the organic increase by 0.9%, which was driven by the US price increase taken in the prior year and the impacts of a competitive launch, coupled with lower replenishment volumes associated with hurricane activity in the fourth fiscal quarter of 2019. This decline was partially offset by the beneficial net impacts of COVID-19 on battery demand; and
◦Phasing of holiday activity from the first quarter to the fourth quarter of fiscal 2019 offset the organic increase by 0.8%.
•The positive impact of the acquisitions was $210.6, or 11.9%;
•The unfavorable impact due to the change in Argentina operations was $0.4; and
•Unfavorable currency impacts were $7.8,$21.5, or 1.3%.
The above sales discussion reflects our view of the impacts of the pandemic on our business based on trends that existed prior to its escalation on a global scale. Overall, we experienced significant disruption in auto care and many of our international markets in the first part of the third quarter, while battery sales in North America experienced a consistently high level of demand throughout the third quarter. As countries and states began to reopen, we did experience recovery in auto care and international sales during the latter part of the third quarter.
Gross margin percentageon a reported basis for the firstthird fiscal quarter of 20182020 was 48.5% and40.0%, compared to 38.1% in the prior year. Excluding $5.5 of integration costs in the current quarter, adjusted gross margin was flat40.8%, compared to 40.0% in the prior year, excluding inventory step up costs of $6.5 and acquisition and integration costs of $5.9 in the prior year. The 80 basis point increase from prior year was driven by realized synergies and favorable material pricing partially offset by operational costs related to COVID-19 of approximately $9, or 140 basis points, and unfavorable foreign currency movements of $9.3, or 70 basis points.
Gross margin percentage on a reported basis for the nine months ended June 30, 2020 was 40.4%, compared to 40.3% in the prior year comparative period. Excluding $20.7 of acquisition and integration costs in the current year, adjusted gross margin was 41.4%, compared to 42.8% in the prior year, excluding inventory step up costs of $33.7 and acquisition and integration costs of $10.4 in the prior year. The 140 basis point decrease from prior year was largely driven by the lower margin rate profile of the acquired businesses, as well as unfavorable channel and product mix, foreign currency movements, tariffs and the operational impact of COVID-19 of approximately $10. These decreases were partially offset by improved material pricing and the favorable impact of foreign currency. These items were primarily offset by less favorable overhead absorption versus the prior fiscal quarter and investments made in continuous improvement initiatives.realized synergies.
Advertising and sales promotion expense (A&P) was $37.3, or 5.7% of net sales, in the firstthird fiscal quarter of 2018,2020, as compared to $34.3, or 6.5%5.3% of net sales, in the prior third fiscal quarter 2019. The increase of $3.0 was planned incremental investment in our branded product portfolio.
A&P was $106.9, or 5.4% of net sales, as compared to $34.3,$99.9, or 6.1%5.6% of net sales, in the prior periodyear comparative period. The increase of $7.0 over the prior year is driven by incremental spending of $3.5 on our acquired businesses which was primarily for product and packaging innovation and promotional support for our auto care brands, in support of portfolio initiatives and holiday programs.addition to planned incremental investment in our branded product portfolio.
Selling, general, and administrative expense (SG&A) was $99.2$112.8 in the firstthird fiscal quarter of 2018,2020, or 17.3%17.1% of net sales, as compared to $84.4,$127.6, or 15.1%19.7% of net sales, in the prior period. Included in the firstthird fiscal quarter of 2020 and 2019 results were costs of $5.7 related to acquisition and integration costs. Included in the prior year quarter results were costs of $0.8 related to acquisition$6.1 and integration costs.$15.1, respectively. Excluding acquisition and integration costs, in both years,adjusted SG&A was $93.5, an increase of $9.9 over the prior year due to our current year investments in our continuous improvement initiatives to simplify and streamline our business processes to reduce costs. SG&A, excluding acquisition and integration costs, was 16.3%$106.7, or 16.2% of net sales, as compared to 14.9%$112.5, or 17.4% of net sales, in the prior year. The decrease of $5.8 was driven by synergy realization primarily due to transition service agreement (TSA) exits and reduced spending in the quarter due in part to net COVID-19 impacts, including travel restrictions.
Research and Development (R&D) decreased to $5.3,SG&A was $351.0 for the nine months ended June 30, 2020, or 0.9%17.7% of net sales, for the quarter ended December 31, 2017, as compared to $5.8,$373.5, or 1.0%21.0% of net sales, in the prior year comparative period. Included in the nine months ended June 30, 2020 and 2019 results were acquisition and integration costs of $25.3 and $63.1, respectively. Excluding the acquisition and integration costs, adjusted SG&A was $325.7, or 16.4% of net sales, as compared to the $310.4, or 17.5% of net sales, in the prior year. The absolute dollar increase was due to the incremental SG&A of approximately $26 from the acquired businesses in fiscal 2020 compared to fiscal 2019, offset by synergy realization and reduced spending due in part to net COVID-19 impacts, including travel restrictions. The decrease in percentage was driven by synergy realization, primarily due to TSA exits and reduced spending in the back half of the period due in part to COVID-19 impacts and restrictions.
Research and Development (R&D) was $8.4, or 1.3% of net sales, for the quarter ended June 30, 2020, as compared to $9.5, or 1.5% of net sales, in the prior year comparative period. For the nine months ended June 30, 2020, R&D was $25.6, or 1.3% of net sales, as compared to $23.7, or 1.3% of net sales in the prior year comparative period.
Interest expense was $13.4$50.8 for the firstthird fiscal quarter of 2018,2020, compared to $13.3$51.9 for the prior year comparative period. Despite approximately $4 in incremental interest resulting from our April 2020 $250.0 bond add on offering and additional revolver draw to increase financial flexibility during the pandemic, interest expense decreased by $1.1 due to lower rates in the current year.
Other items, net Interest expense was expense of $1.3$149.0 for the first fiscal quarter of 2018 compared to income of $1.6 for the prior year first quarter. The current year expense primarily reflects net revaluation losses on nonfunctional currency balance sheet exposuresnine months ended June 30, 2020, and translational hedge losses offset by the impact of interest income, non-compensation related pension benefit and transactional hedge gains. The prior fiscal quarter income of $1.6 reflects the net impact of interest income, non-compensation related pension benefit and hedging contract gains offset by revaluation losses on nonfunctional currency balance sheet exposures.
The effective tax rate was 49.2% in the first three months of the current fiscal year as compared to 28.7%$177.3 for the prior year comparative period. Excluding the current year $4.2 loss on extinguishment of debt and the prior year interest expense and ticking fees related to the the Battery Acquisition as well as the issuance fees associated with the Battery and Auto Care Acquisitions' new debt issued in January 2019 of $65.6, the current year interest expense increased $33.1 attributed to a higher average debt balance associated with the acquisitions.
Other items, net was expense of $0.7 for the third fiscal quarter of 2020 compared to a benefit of $0.8 for the prior year third quarter. Other items, net was expense of $5.8 and a benefit of $13.9 for nine months ended June 30, 2020 and 2019, respectively.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Quarter Ended June 30, | | | | For the Nine Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Other items, net | | | | | | | |
Interest income | $ | (0.2) | | | $ | (0.3) | | | $ | (0.4) | | | $ | (1.3) | |
Foreign currency exchange loss/(gain) | 2.9 | | | (0.3) | | | 8.0 | | | 2.4 | |
Pension benefit other than service costs | (0.5) | | | (0.7) | | | (1.5) | | | (2.1) | |
Other | (1.1) | | | 0.3 | | | (0.7) | | | 0.3 | |
Acquisition foreign currency loss/(gain) | — | | | 0.9 | | | 2.2 | | | (8.1) | |
Interest income on restricted cash | — | | | — | | | — | | | (5.8) | |
Transition services agreement income | (0.4) | | | (0.7) | | | (0.8) | | | (0.8) | |
Gain on sale of assets | — | | | — | | | (1.0) | | | — | |
Settlement of acquired business hedging contract | — | | | — | | | — | | | 1.5 | |
Total Other items, net | $ | 0.7 | | | $ | (0.8) | | | $ | 5.8 | | | $ | (13.9) | |
The effective tax rate on a year to date basis was 25.9% as compared to 30.3% in the prior year. The current year rate includes a $31.0 chargecosts related to acquisition and integration in addition to the unfavorable impact of $5.1 for the CARES
Act, which was signed into law on March 27, 2020 and provides, among other things, increased interest deduction limitations to companies which can decrease overall cash taxes paid. The prior year rate includes $0.7 for the one-time impact of 2017 tax reform and includes the new U.S.impact of the disallowed transaction costs resulting from the acquisitions, which drove a higher tax legislation passedrate in December 2017. the prior year.
Excluding the impact of our non-GAAPthese Non-GAAP adjustments, the year to date adjusted effective tax rate was 23.4%22.9% as compared to 28.8%,20.4% in the prior year. The decreaseincrease in the rate versus prior year is driven bydue to the U.S.country mix of earnings which drove a higher foreign tax legislation and takes into account the new statutory U.S. rate that is now effective for fiscal year 2018.
Spin Costs
There were no costs associated with the spin transaction recorded in the first fiscal quarter of 2018as well as the project has been completed. During the quarter ended December 31, 2016, the Company recorded $1.3expiration of certain tax holidays in income in spin restructuring. On a project to date basis, the total costs incurred or allocated to Energizer for the spin were $197.6, inclusive of the costs of early debt retirement recorded in fiscal 2015. We do not expect any additional costs related to spin.foreign jurisdictions.
Segment Results
Operations for Energizer are managed via threetwo major geographic reportable segments: Americas (North America and Latin America), Europe, Middle East and Africa (“EMEA”), and Asia Pacific.
International. Segment performance is evaluated based on segment operating profit, exclusive of general corporate expenses, share-based compensation costs, costs associated with restructuring initiatives, acquisition and integration activities, amortization costs, business realignment activities, research & development costs and other items determined to be corporate in nature. Financial items, such as interest income and expense, are managed on a global basis at the corporate level. The exclusion of substantially all acquisition integration, restructuring and realignmentintegration costs from segment results reflects management’s view on how it evaluates segment performance.
Energizer’s operating model includes a combination of standalone and shared business functions between the geographic segments, varying by country and region of the world. Shared functions include, but are not limited to, IT, procurement and finance. Energizer applies a fully allocated cost basis, in which shared business functions are allocated between segments. Such allocations are estimates, and do not represent the costs of such services if performed on a standalone basis. This structure is the basis for Energizer's reportable operating segments information, as included in the tables in Note 6,9, Segments, to the unaudited Consolidated Condensed(Condensed) Financial Statements for the quarterperiods ended December 31, 2017.
June 30, 2020 and 2019. Segment sales and profitabilitySegment profit analysis for the quarter and nine months ended December 31, 2017June 30, 2020 are presented below.
Segment Net Salessales (In millions)
Quarter Ended December 31, 2017and nine months ended June 30, 2020
|
| | | | | |
| Quarter Ended December 31, 2017 |
| $ Change | % Chg |
Americas | | |
Net sales - FY '17 | $ | 365.1 |
| |
Organic | 7.2 |
| 2.0 | % |
Impact of currency | 0.8 |
| 0.2 | % |
Net Sales - FY '18 | $ | 373.1 |
| 2.2 | % |
| | |
EMEA | | |
Net sales - FY '17 | $ | 114.7 |
| |
Organic | (3.0 | ) | (2.6 | )% |
Impact of currency | 5.9 |
| 5.1 | % |
Net Sales - FY '18 | $ | 117.6 |
| 2.5 | % |
| | |
Asia Pacific | | |
Net sales - FY '17 | $ | 79.8 |
| |
Organic | 1.7 |
| 2.1 | % |
Impact of currency | 1.1 |
| 1.4 | % |
Net Sales - FY '18 | $ | 82.6 |
| 3.5 | % |
| | |
Total Net Sales | | |
Net sales - FY '17 | $ | 559.6 |
| |
Organic | 5.9 |
| 1.1 | % |
Impact of currency | 7.8 |
| 1.3 | % |
Net Sales - FY '18 | $ | 573.3 |
| 2.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended June 30, 2020 | | | | Nine Months Ended June 30, 2020 | | |
| | | | | | | |
| $ Change | | % Chg | | $ Change | | % Chg |
Americas | | | | | | | |
Net sales - FY '19 | $ | 465.1 | | | | | $ | 1,220.2 | | | |
Organic | 33.6 | | | 7.2 | % | | 25.5 | | | 2.1 | % |
Impact of Battery Acquisition | — | | | — | % | | 107.1 | | | 8.8 | % |
Impact of Auto Care Acquisition | — | | | — | % | | 74.0 | | | 6.1 | % |
| | | | | | | |
Change in Argentina | 0.1 | | | — | % | | (0.4) | | | — | % |
Impact of currency | (6.9) | | | (1.4) | % | | (10.1) | | | (0.9) | % |
Net sales - FY '20 | $ | 491.9 | | | 5.8 | % | | $ | 1,416.3 | | | 16.1 | % |
| | | | | | | |
International | | | | | | | |
Net sales - FY '19 | $ | 182.1 | | | | | $ | 555.3 | | | |
Organic | (11.3) | | | (6.2) | % | | (7.9) | | | (1.4) | % |
Impact of Battery Acquisition | — | | | — | % | | 18.4 | | | 3.3 | % |
Impact of Auto Care Acquisition | — | | | — | % | | 11.1 | | | 2.0 | % |
| | | | | | | |
Impact of currency | (4.7) | | | (2.6) | % | | (11.4) | | | (2.1) | % |
Net sales - FY '20 | $ | 166.1 | | | (8.8) | % | | $ | 565.5 | | | 1.8 | % |
| | | | | | | |
Total Net sales | | | | | | | |
Net sales - FY '19 | $ | 647.2 | | | | | $ | 1,775.5 | | | |
Organic | 22.3 | | | 3.4 | % | | 17.6 | | | 1.0 | % |
Impact of Battery Acquisition | — | | | — | % | | 125.5 | | | 7.1 | % |
Impact of Auto Care Acquisition | — | | | — | % | | 85.1 | | | 4.8 | % |
| | | | | | | |
Change in Argentina | 0.1 | | | — | % | | (0.4) | | | — | % |
Impact of currency | (11.6) | | | (1.7) | % | | (21.5) | | | (1.3) | % |
Net sales - FY '20 | $ | 658.0 | | | 1.7 | % | | $ | 1,981.8 | | | 11.6 | % |
Results for the Quarter Ended December 31, 2017June 30, 2020
Americas reported a netNet sales increase of 2.2% which was positively impacted by5.8%. Excluding unfavorable foreign currency impact of 0.8,$6.9, or 0.2%. Organic1.4%, organic net sales increased 2.0% due primarily to price increases7.2% for the third fiscal quarter. The organic increase was driven by distribution gains in both the battery and auto categories, the beneficial net impacts of COVID-19 driven by battery sales in North America and favorable netpricing.
International reported a Net sales decrease of 8.8%. Excluding the impact of our portfolio optimization. These amounts were partially offset by the retailer merchandising changes, lapping of storm volume and the May 2017 divestiture of the non-core promotional sales business acquired with the auto care acquisition.
EMEA reported net sales increased 2.5% positively impacted byunfavorable foreign currency movement of 5.1%. Organic$4.7, or 2.6%, organic net sales decreased by 2.6%6.2% driven by the shiftnegative impacts of holiday orders into the fourth quarterpandemic across all international markets and increased trade investment. These decreases were slightly offset by increased distribution and replenishment volumes in both modern and developing markets.
Results for the Nine Months Ended June 30, 2020
Americas reported a Net sales increase of fiscal 2017.
Asia Pacific reported net sales increased by 3.5%, including16.1%. Excluding the positive impact of acquisitions, which positively impacted Net sales by $181.1, or 14.9%, and unfavorable foreign currency impact of 1.4%. Organic$10.1, or 0.9%, organic net sales increased 2.1% for the nine month period. The organic increase was driven by distribution gains, the beneficial net impacts of COVID-19 and favorable pricing. Partially offsetting the organic increase was a net decline in
replenishment driven by the US price increasesincrease taken in severalthe prior year and the impacts of a competitive launch, coupled with lower replenishment volumes associated with hurricane activity in the fourth fiscal quarter of 2019.
International reported a Net sales increase of 1.8%. Excluding the impact of acquisitions, which positively impacted net sales by $29.5, or 5.3%, and the unfavorable foreign currency movement of $11.4, or 2.1%, organic net sales decreased 1.4% driven by the negative impacts of the pandemic and increased trade investment in modern markets. These decreases were slightly offset by increased distribution and replenishment volumes across all markets.
Segment Profit (In millions)
Quarter and Nine Months Ended December 31, 2017June 30, 2020
|
| | | | | |
| Quarter Ended December 31, 2017 |
| $ Change | % Chg |
Americas | | |
Segment Profit - FY '17 | $ | 123.1 |
| |
Organic | (0.5 | ) | (0.4 | )% |
Impact of currency | 0.5 |
| 0.4 | % |
Segment Profit - FY '18 | $ | 123.1 |
| — | % |
| | |
EMEA | | |
Segment Profit - FY '17 | $ | 26.1 |
| |
Organic | (4.5 | ) | (17.2 | )% |
Impact of currency | 3.9 |
| 14.9 | % |
Segment Profit - FY '18 | $ | 25.5 |
| (2.3 | )% |
| | |
Asia Pacific | | |
Segment Profit - FY '17 | $ | 24.7 |
| |
Organic | (1.5 | ) | (6.1 | )% |
Impact of currency | 0.5 |
| 2.1 | % |
Segment Profit - FY '18 | $ | 23.7 |
| (4.0 | )% |
| | |
Total Segment Profit | | |
Segment Profit - FY '17 | $ | 173.9 |
| |
Organic | (6.5 | ) | (3.7 | )% |
Impact of currency | 4.9 |
| 2.8 | % |
Segment Profit - FY '18 | $ | 172.3 |
| (0.9 | )% |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Quarter Ended June 30, 2020 | | | | Nine Months Ended June 30, 2020 | | |
| $ Change | | % Chg | | $ Change | | % Chg |
Americas | | | | | | | |
Segment profit - FY '19 | $ | 103.8 | | | | | $ | 308.6 | | | |
Organic | 22.8 | | | 22.0 | % | | 14.3 | | | 4.6 | % |
Impact of Battery Acquisition | — | | | — | % | | 21.8 | | | 7.1 | % |
Impact of Auto Care Acquisition | — | | | — | % | | 15.8 | | | 5.1 | % |
Change in Argentina | 0.4 | | | 0.4 | % | | (0.5) | | | (0.2) | % |
Impact of currency | (4.1) | | | (4.0) | % | | (6.1) | | | (1.9) | % |
Segment profit - FY '20 | $ | 122.9 | | | 18.4 | % | | $ | 353.9 | | | 14.7 | % |
| | | | | | | |
International | | | | | | | |
Segment profit - FY '19 | $ | 41.0 | | | | | $ | 132.0 | | | |
Organic | (3.1) | | | (7.6) | % | | (5.3) | | | (4.0) | % |
Impact of Battery Acquisition | — | | | — | % | | 6.1 | | | 4.6 | % |
Impact of Auto Care Acquisition | — | | | — | % | | 1.3 | | | 1.0 | % |
Impact of currency | (3.1) | | | (7.5) | % | | (6.7) | | | (5.1) | % |
Segment profit - FY '20 | $ | 34.8 | | | (15.1) | % | | $ | 127.4 | | | (3.5) | % |
| | | | | | | |
Total Segment profit | | | | | | | |
Segment Profit - FY '19 | $ | 144.8 | | | | | $ | 440.6 | | | |
Organic | 19.7 | | | 13.6 | % | | 9.0 | | | 2.0 | % |
Impact of Battery Acquisition | — | | | — | % | | 27.9 | | | 6.3 | % |
Impact of Auto Care Acquisition | — | | | — | % | | 17.1 | | | 3.9 | % |
Change in Argentina | 0.4 | | | 0.3 | % | | (0.5) | | | (0.1) | % |
Impact of currency | (7.2) | | | (5.0) | % | | (12.8) | | | (2.9) | % |
Segment profit - FY '20 | $ | 157.7 | | | 8.9 | % | | $ | 481.3 | | | 9.2 | % |
Refer to Note 6,9, Segments, in the unaudited Condensed Consolidated (Condensed) Financial Statements for a reconciliation from segment profit to earnings before income taxes.
Results for the Quarter Ended December 31, 2017June 30, 2020
Global reported segment profit declinedincreased by $1.6,$12.9, or 0.9%8.9%. The organic increase of $19.7, or 13.6%, was driven by top-line organic growth, realized synergies and improved material pricing. In addition, we experienced favorable SG&A due to reduced spending, driven in pat by COVID-19 related travel restrictions and realized synergies. Slightly offsetting the organic growth were operational costs related to COVID-19 of approximately $9, which impacted gross margin, as well as the planned higher A&P investment. Argentina operations, which had a favorable impact on segment profit, contributed $0.4, or 0.3%, and unfavorable foreign currency impacts had a negative impact of $7.2, or 5.0%.
Americas reported segment profit increased by $19.1, or 18.4%. The change in Argentina operations had a favorable impact on segment profit of $0.4, or 0.4%, while the unfavorable impact from foreign currency was $4.1. Excluding these items, organic segment profit increased by $22.8, or 22.0%, driven by top-line growth, realized synergies, improved material pricing and favorable overhead spending driven in part by net COVID-19 impacts. These increases were slightly offset by planned incremental A&P investment.
International reported segment profit decreased $6.2, or 15.1%. This was driven by the favorableunfavorable movement in foreign currencies of $4.9,$3.1 and organic segment profit decreased $6.5,decrease of $3.1, or 3.7%7.6%, indriven by the current fiscal period. Top-line growth in the quarter was more thannet sales decrease and higher operational costs due to COVID-19, which impacted gross margin. These decreases were slightly offset by increaseslower A&P investment, due to timing, and lower overhead spending, driven in part by COVID-19 impacts and restrictions.
Results for the Nine Months Ended June 30, 2020
Global reported segment profit increased by $40.7, or 9.2%. The favorable impact of the acquisitions added $45.0, or 10.2% while the organic increase of $9.0, or 2.0%, was driven by the net sales increase, realized synergies, favorable material pricing, and favorable SG&A due to our continuous improvement initiatives to simplify and streamline our business processes to reducereduced spending driven by the pandemic. Slightly offsetting the organic growth was the negative impact of tariffs, operational costs and higher A&P spending related to our portfolio optimizationCOVID-19 and holiday programs.unfavorable foreign currency movements, which impacted gross margin, as well as slightly higher planned A&P investment. Our Argentina operations had an unfavorable impact on segment profit of $0.5, or 0.1% and foreign currency impacts were unfavorable by $12.8, or 2.9%.
Americas reported segment profit remained flat compared toincreased by $45.3, or 14.7%. The increase was driven by the prior period inclusiveacquisitions which contributed $37.6, or 12.2%. The change in Argentina operations had a negative impact on segment profit of $0.5, or 0.2%, while the positiveunfavorable impact from foreign currency of $0.5. Organicwas $6.1. Excluding these items, organic segment profit decreasedincreased by $0.5 as top-line growth was fully offset by increased A&P spending in support of portfolio initiatives and holiday programs.
EMEA reported segment profit declined $0.6 inclusive of the positive impact from foreign currency of $3.9. Organic segment profit decreased by $4.5$14.3, or 4.6%, driven by the decrease innet sales due to the shift of holiday orders into the fourth quarter of fiscal 2017 as well as increasedincrease, realized synergies, improved material pricing and favorable overhead spending duedriven in part by net COVID-19 impacts and restrictions. These increases were slightly offset by higher planned incremental A&P investment and operational costs related to current year investments in our continuous improvement initiatives.COVID-19, which impacted gross margin.
Asia PacificInternational reported segment profit decreased $1.0.$4.6, or 3.5%. Excluding the favorablepositive impact fromof the acquisitions of $7.4, the movement in foreign currency of $0.5,currencies decreased $6.7 and organic segment profit declineddecreased $5.3, or 4.0%, driven by $1.5 as top-line growth was more thanthe net sales decrease and higher operational costs due to COVID-19, which impacted gross margin. These decreases were slightly offset by increasedlower A&P investment, due to timing, and lower overhead spending, due to current year investmentsdriven in our continuous improvement initiatives.part by COVID-19 impacts and restrictions.
General Corporate and Global Marketing Expenses
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Quarter Ended June 30, | | | | For the Nine Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
General corporate and other expenses | $ | 25.6 | | | $ | 29.9 | | | $ | 74.0 | | | $ | 78.3 | |
Global marketing expense | 7.4 | | | 3.0 | | | 19.1 | | | 12.5 | |
General corporate and global marketing expense | $ | 33.0 | | | $ | 32.9 | | | $ | 93.1 | | | $ | 90.8 | |
% of Net Sales | 5.0 | % | | 5.1 | % | | 4.7 | % | | 5.1 | % |
|
| | | | | | | |
| For the Quarter Ended December 31, |
| 2017 | | 2016 |
General corporate and other expenses | $ | 21.6 |
| | $ | 17.2 |
|
Global marketing expense | 3.2 |
| | 3.0 |
|
General corporate and global marketing expense | $ | 24.8 |
| | $ | 20.2 |
|
% of Net Sales | 4.3 | % | | 3.6 | % |
For the quarter ended December 31, 2017,June 30, 2020, general corporate and other expenses were $21.6, an increase$25.6, a decrease of $4.4$4.3 as compared to the prior year comparative period, driven by synergy realization primarily due to increased compensationTSA exits and reduced spending in the quarter largely driven by COVID-19 impacts and restrictions.
For the nine months ended June 30, 2020, general corporate and other expenses were $74.0, a decrease of $4.3 to prior year. The current year included additional costs from the acquired businesses of $5.6. These costs were offset by synergy realization, primarily due to TSA exits and higher mark to market expense on our unfunded deferred compensation liability.reduced spending largely driven by COVID-19 impacts and restrictions.
For the quarter and nine months ended December 31, 2017,June 30, 2020, global marketing expenses were $3.2$7.4 and $19.1, respectively, compared to $3.0 and $12.5, respectively, in the prior year comparative periods. The global marketing expense represents a center led approach to managing global marketing activities in support of our brands.
Liquidity and Capital Resources
Energizer’s primary future cash needs will be centered on operating activities, working capital, strategic investments and strategic investments.debt reductions. We believe that our future cash from operations, together with our access to capital markets, will provide adequate resources to fund our operating and financing needs. Our access to, and the availability of, financing on acceptable terms in the future will be affected by many factors, including: (i) our credit rating, (ii) the liquidity of the overall capital markets and (iii) the current state of the economy. There can be no assurances that we will continue to have access to capital markets on terms acceptable to us. See the “Risk Factors” section of our Annual Report on Form 10-K for the year ended September 30, 20172019 filed with the Securities and Exchange Commission on November 14, 201719, 2019, as well as in Item 1A. Risk Factors of this Form 10-Q.
Cash is managed centrally with net earnings reinvested locally and working capital requirements met from existing liquid funds. At December 31, 2017,June 30, 2020, Energizer had $454.3$595.6 of cash and cash equivalents, substantially allapproximately 40% of which was held outside of the U.S. Given our extensive international operations, a significant portion of our cash is denominated in foreign currencies. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences or be subject to regulatory capital requirements; however, those balances are generally available without legal restrictions to fund ordinary business operations.
TheOn December 17, 2018, the Company hasentered into a $350.0 senior securedcredit agreement which provided for a 5-year $400.0 revolving credit facility (Revolving Credit Facility) which matures in 2020. Borrowings under the Revolving Facility. The borrowings will 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 credit agreement also contains customary affirmative and restrictive covenants. As of December 31, 2017,June 30, 2020, the Company had $87.5$200.0 of outstanding borrowings under the Revolving Credit Facility and had $6.7$7.3 of outstanding letters of credit. Taking into account outstanding letters of credit, $255.8 remains$192.7 remained available as of December 31, 2017.June 30, 2020. During the year, the Company also amended its credit agreement to reduce the contractual step-down in the maximum Total Net Leverage Ratio at the end of the fourth quarter of fiscal 2021.
On April 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 and to pay fees and expenses relating to the offering. Refer to Note 12 for additional details.
Subsequent to the quarter, on January 15, 2018,July 1, 2020, the Company entered intocompleted a definitive acquisition agreement with Spectrum Brands Holdings, Inc. to acquire its global battery, lighting, and portable power businessbond offering for $600.0 Senior Notes due in 2028 at 4.750% (2028 Notes). The Company utilized a purchase priceportion of $2,000.0 in cash, subject to certain purchase price adjustments. Energizer intendsthe net proceeds from the sale of the 2028 Notes to fund the acquisition throughpurchase 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 combinationcash tender offer. The Company used the remaining net proceeds from such sale, together with cash on hand, to fund the redemption of existing cash2025 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 committed debt facilities, expectedunpaid interest thereon to, ultimately consistbut 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 new term loantotal call premium for tendered and senior notes. In addition, Energizer intends to maintain its existing seniorcalled notes maturing in 2025. The closing of this transaction is subject to various conditions and regulatory approvals.$18.3.
The Company's required debt repayments are $93.0 over the next 12 months.
While the Company is also committedbelieves it had sufficient liquidity prior to paytaking these actions to fund its operations and meet its obligations, the Company has increased its cash position as a $100.0 termination feeprecautionary measure in order to Spectrum if the transaction does not close by July 15, 2019, and all conditions precedent to the Company’s obligation to consummate the acquisition have otherwise been satisfied except for one or morepreserve financial flexibility in light of the regulatory approval conditions specifiedcurrent uncertainty in the acquisition agreement. Success fees are due toglobal markets resulting from the financial adviser of $13.0, of which $2.0 was paid in January with the remainder to be paid subject to the closing of the transaction.COVID-19 pandemic.
Operating Activities
Cash flow from operating activities from continuing operations was $141.0$231.9 in the threenine months ended December 31, 2017,June 30, 2020, as compared to $91.8$30.4 in the prior year comparative period. The increaseThis change of $201.5 was primarily driven by thehigher year over year improvementnet earnings resulting from lower cash expenditures of approximately $116 associated with the Battery and Auto Care Acquisitions, most notably the payment of interest and ticking fees associated with the Term Loan facility that was utilized to fund the Battery Acquisition and the fees paid related to the issuance of the bonds to fund the Auto Care Acquisition in the prior year.
In addition, working capital of $38.5. Accountschanges favorably impacted cash flow from operations year over year by approximately $93. These changes were driven by approximately $30 related to the agreement and final cash settlement from the Central Authority in Spain on a Spanish VAT refund payment, approximately $30 related to favorable accounts receivable collections as the Company's factoring program was more established throughout fiscal 2020 compared to the main driver in theprior year, and approximately $35 related to working capital improvementsettlements associated with the Acquisitions as the strong operating performance in the last quarter of fiscal 2017, largelywell as higher trade and A&P accruals driven by hurricane activity in the U.S., distribution gains in international markets and timing of holiday activity resulted in higher collections in the first fiscal quarter of 2018 as compared to 2017.payments and programs.
Investing Activities
Net cash used by investing activities from continuing operations was $5.5$47.4 and $0.6 in three$2,490.1 for the nine months ended December 31, 2017June 30, 2020 and 2016,2019, respectively, and consisted of the following:
•Capital expenditures of $5.5$44.4 and $4.9$36.4 in the threenine months ended December 31, 2017June 30, 2020 and 2016,2019, respectively. These capital expenditures were funded by cash flow
•Proceeds from operations.
The prior year expenditures were partially offset by proceeds from the sale of assets of $4.3 related$1.5 and $0.1 in the nine months ended June 30, 2020 and 2019, respectively.
•Acquisitions, net of cash acquired was $4.5 in the nine months ended June 30, 2020. The majority of this payment was due to the salefinalization of two previously closed facilities.working capital adjustments with Spectrum for the Auto Care Acquisition while $0.9 was utilized to complete the CAE acquisition.
•Acquisitions, net of cash acquired was $2,453.8 in the nine months ended June 30, 2019. This included$1,518.4 for the Battery Acquisition and $935.4 for the cash portion of the Auto Care Acquisition. Net cash from discontinued operations includes the remaining $400.0 currently allocated to the purchase of the Divestment Business.
Investing cash outflows of approximately $30$20 to $35$30 are anticipated for the full fiscal year 20182020 for capital expenditures relating to maintenance, product development and cost reduction initiatives. Totalinvestments. Additional investing cash outflows of approximately $40 to $50 are anticipated in full fiscal year 2020 for integration related capital expenditures are expectedexpenditures. The Company will also weigh market conditions and other capital needs, the potential impact of COVID-19 and other factors deemed relevant, in the decisions to be financed with funds generated from operations.prioritize or delay funding and may adjust these projected amounts if necessary.
Financing Activities
Net cash used by financing activities from continuing operations was $63.9$115.4 for the threenine months ended December 31, 2017June 30, 2020 as compared to $63.2net cash inflow from financing activities from continuing operations of $1,328.5 in the prior fiscal year comparative period. For threethe nine months ended December 31, 2017,June 30, 2020, cash flow used by financing activities from continuing operations consists of the following:
•Cash proceeds from the issuance of debt with original maturities greater than 90 days of $620.6 relating to the add on offering of $250.0 of our 6.375% Senior Notes due 2026 in April 2020 and the refinancing of the 2018 Term Loans in December 2019;
•Payments of debt with maturities greater than 90 days of $770.3, related to the Term Loan refinancing in December 2019, the repayment of $345.8 of debt from the proceeds of the Varta divestiture as well as incremental payments on the 2018 Term Loan A and 2018 Term Loan B;
•Net increase in debt with original maturities of 90 days or less of $6.5;$171.5, primarily related to borrowings on the Revolving Credit Facility;
•Dividends paid on common stock of $17.6$64.3 (see below);
•Dividends paid on mandatory convertible preferred stock of $12.1;
•Common stock repurchases of $50.0$45.0 at an average price of $44.41$45.93 per share (see below);
•Debt issuance costs of $6.1 relating to the add on offering of $250.0 of our 6.37% Senior Notes due in 2026 and the Term Loan refinancing; and
•Taxes paid for withheld share-based payments of $1.8;$9.7.
For the nine months ended June 30, 2019, cash from financing activities from continuing operations consisted 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 and the bonds utilized to fund the Battery and Auto Care acquisitions;
•Net proceeds from the issuance of common stock of $205.3 utilized to fund the Auto Care Acquisition;
•Net proceeds from the issuance of Mandatory Preferred Convertible Stock of $199.5 utilized to fund the Auto Care Acquisition;
•Payments of debt with maturities greater than 90 days of $1.0.
$513.8, primarily related to the repayment of our Term Loan due in 2022 and an additional $125.0 payment on the 2018 Term Loan A and 2018 Term Loan B;
For the three months ended December 31, 2016, cash used by financing activities consisted of the following:
•Net decrease in debt with original maturities of 90 days or less of $27.9,$204.5, primarily related to the repayment of
borrowings on our Revolving Credit Facility;
•Dividends paid of $18.1;$61.7;
•Dividends paid on mandatory convertible preferred stock of $4.0;
•Common stock repurchasespurchased of $8.1$45.0 at an average price of $44.43 per share;$43.46;
•Debt issuance costs of $40.1; and
•Taxes paid for withheld share-based payments of $8.1; and$7.2.
Payments of debt with maturities greater than 90 days of $1.0.
Dividends
On November 13, 2017,11, 2019, the Board of Directors declared a dividend for the first quarter of fiscal 20182020 of $0.29$0.30 per share of common stock. The dividend was paid on December 14, 2017 to shareholders on record as of November 30, 2017 and totaled $17.3. The incremental dividend payments of $0.3 made in the first three months of 2018 were related to restricted stock awards that vested during November 2017.
Subsequent to the fiscal quarter end, on January 29, 2018, the Board of Directors declared a dividend for the second quarter of 2018 of $0.29 per share of common stock, payable on March 13, 2018December 17, 2019, to all shareholders of record as of the close of business on November 26, 2019. On January 27, 2020, the Board of Directors declared a cash dividend for the second quarter of fiscal 2020 of $0.30 per common share of common stock, payable on March 18, 2020, to all shareholders of record as of the close of business on February 22, 2020. On April 27, 2020, the Board of Directors declared a cash dividend for the third quarter of 2020 of $0.30 per share of common stock, payable on June 10, 2020, to all shareholders of record as of the close of business May 20, 2018.2020.
The Company also paid a cash dividend of $1.875 per share of MCPS on October 15, 2019 which had been declared in fiscal 2019. On November 11, 2019, the Board of Directors declared a cash dividend of $1.875 per
share of MCPS to all shareholders of record as of the close of January 1, 2020, which was paid on January 15, 2020. On January 27, 2020, the Board of Directors declared a cash dividend of $1.875 per share of MCPS to all shareholders of record as of the close of April 1, 2020, which was paid on April 15, 2020. On April 27, 2020, the Board of Directors declared a cash dividend of $1.875 per share of MCPS to all shareholders of record as of the close of July 1, 2020. This dividend was accrued at June 30, 2020 and was paid on July 15, 2020.
Subsequent to the end of the fiscal quarter, on July 27, 2020, the Board of Directors declared a cash dividend for the fourth quarter of 2020 of $0.30 per share of common stock, payable on September 10, 2020, to all shareholders of record as of the close of business August 20, 2020.
Subsequent to the end of the fiscal quarter, on July 27, 2020, the Board of Directors declared a cash dividend of $1.875 per share of MCPS, payable on October 15, 2020, to all shareholders of record as of the close of business on October 1, 2020.
Share Repurchases
In July 2015, the Company's Board of Directors approved an authorization for the Company to acquire up to 7.5 million shares of its common stock. During the threenine months ended December 31, 2017,June 30, 2020, the Company repurchased 1,126,379980,136 shares for $45.0, at an average price of $44.41$45.93 per share, or $50.0, under this authorization. Future share repurchase,repurchases, if any, will be determined by the Company based on its evaluation of the market conditions, capital allocation objectives, legal and regulatory requirements and other factors.
From July 2015 and Share repurchases may be effected through the date of this filing, a total of 3.3 million shares were repurchased on the open market at an average pricepurchases or privately negotiated transactions, including repurchase plans that satisfy the conditions of $42.17 underRule 10b5-1 of the current shareExchange Act.
The timing, declaration, amount and payment of future dividends to shareholders or repurchases of the Company’s Common stock will fall within the discretion of our Board of Directors. The Board’s decisions regarding the payment of dividends or repurchase authorization. At January 31, 2018, the date of this filing, 4.2 million shares remain available for repurchase.will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, covenants associated with certain of our debt service obligations, industry practice, legal requirements, regulatory constraints and other factors that our Board of Directors deems relevant.
Other Matters
Environmental Matters
Accrued environmental costs at December 31, 2017June 30, 2020 were $5.2.$8.4. It is difficult to quantify with certainty the cost of environmental matters, particularly remediation and future capital expenditures for environmental control equipment. Total environmental capital expenditures and operating expenses are not expected to have a material effect on our total capital and operating expenditures, earnings or competitive position. However, current environmental spending estimates could be modified as a result of changes in our plans or our understanding of underlying facts, changes in legal requirements, including any requirements related to global climate change, or other factors.
Contractual Obligations
A summary of Energizer's significant contractual obligations at December 31, 2017June 30, 2020 is showshown below: |
| | | | | | | | | | | | | | | |
| Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years |
Long term debt, including current maturities | $ | 991.0 |
| $ | 4.0 |
| $ | 8.0 |
| $ | 379.0 |
| $ | 600.0 |
|
Interest on long-term debt (1) | 310.3 |
| 27.2 |
| 94.0 |
| 90.1 |
| 99.0 |
|
Notes payable | 110.5 |
| 110.5 |
| — |
| — |
| — |
|
Operating leases | 55.0 |
| 9.4 |
| 20.4 |
| 8.1 |
| 17.1 |
|
Pension plans (2) | 7.7 |
| 7.7 |
| — |
| — |
| — |
|
Purchase obligations and other (3) | 98.2 |
| 48.6 |
| 49.6 |
| — |
| — |
|
Mandatory transition tax | 30.0 |
| 2.6 |
| 4.7 |
| 9.2 |
| 13.5 |
|
Total | $ | 1,602.7 |
| $ | 210.0 |
| $ | 176.7 |
| $ | 486.4 |
| $ | 729.6 |
|
| | | | | | | | | | | | | | | | | |
| Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years |
Long-term debt, including current maturities | $ | 3,335.9 | | $ | 91.3 | | $ | 253.5 | | $ | 620.0 | | $ | 2,371.1 | |
| | | | | |
Interest on long-term debt (1) | 1,085.1 | | 92.0 | | 354.9 | | 335.8 | | 302.4 | |
Notes payable | 205.4 | | 205.4 | | — | | — | | |
Operating leases (2) | 182.9 | | 4.6 | | 35.6 | | 32.2 | | 110.5 | |
Capital leases (3) | 90.3 | | 1.2 | | 9.3 | | 9.0 | | 70.8 | |
Pension plans (4) | 2.6 | | 2.6 | | — | | — | | — | |
Purchase obligations and other (5) | 24.8 | | 15.3 | | 9.5 | | — | | — | |
Mandatory transition tax | 16.7 | | — | | — | | 9.4 | | 7.3 | |
Total | $ | 4,943.7 | | $ | 412.4 | | $ | 662.8 | | $ | 1,006.4 | | $ | 2,862.1 | |
(1) The above table is based upon the debt balance and LIBOR rate as of December 31, 2017. In March 2017,June 30, 2020. Energizer entered intohas an interest rate swap agreement with one major financial institution that fixed the variable benchmark component (LIBOR) on $200 of Energizer's variable rate debt through June 2022 at an interest rate of 2.03% and an interest rate swap agreement that fixed the variable benchmark component (LIBOR) on $400 of variable rate debt at 2.47%.
(2) Operating lease payments include the net present value of the lease obligation of $126.9 as well as the imputed interest included in the payment of $56.
(3) Capital lease payments include the full capital leases obligation of $46.1 as well as the interest included in the payment of $44.2.
(4) Globally, total expected pension contributions for the Company for fiscal year 20182020 are estimated to be $8.9.$5.7. The Company has made payments of $1.2$3.1 year to date. The projected payments beyond fiscal year 20182021 are not currently estimable.
(3)(5) 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Sensitive Instruments and Positions
The market risk inherent in the Company's financial instruments’ positions represents the potential loss arising from adverse changes in currency rates, commodity prices and interest rates. The following risk management discussion and the estimated amounts generated from the sensitivity analysis are forward-looking statements of market risk assuming certain adverse market conditions occur. The Company's derivatives are used only for identifiable exposures, and we have not entered into hedges for trading purposes where the sole objective is to generate profits.
Derivatives Designated as Cash Flow Hedging Relationships
A significant share of Energizer's product cost is more closely tied to the U.S. dollar than to the local currencies in which the product is sold. As such, a weakening of currencies relative to the U.S. dollar results in margin declines unless mitigated through pricing actions, which are not always available due to the economic or competitive environment. Conversely, strengthening of currencies relative to the U.S. dollar can improve reported results. The primary currencies to which Energizer is exposed include the Euro, the British pound, the Canadian dollar and the Australian dollar. However, the Company also has significant exposures in many other currencies which, in the aggregate, may have a material impact on the Company's operations.
The Company has entered into a series of forward currency contracts to hedge the cash flow uncertainty of forecasted payment of inventory purchases due to short term currency fluctuations. Energizer’s foreign affiliates, which have the largest exposure to U.S. dollar purchases, have the Euro, the British pound, the Canadian dollar and the Australian dollar as their local currencies. These foreign currencies represent a significant portion of Energizer's foreign currency exposure. At December 31, 2017June 30, 2020 and September 30, 2017,2019, Energizer had an unrealized pre-tax loss of $4.2$1.2 and $5.8,unrealized pre-tax gain of $4.5, respectively, on these forward currency contracts accounted for as cash flow hedges, included in Accumulated other comprehensive loss on the Unaudited Condensed Consolidated (Condensed) Balance Sheets. Assuming foreign exchange rates versus the U.S. dollar remain at December 31, 2017June 30, 2020 levels over the next twelve months, $4.1$1.0 of the pre-tax loss included in Accumulated other comprehensive loss at December 31, 2017,June 30, 2020 is expected to be includedrecognized in earnings. Contract maturities for these hedges extend into fiscal year 2019.2021.
Derivatives Not Designated as Cash Flow Hedging Relationships
Energizer's foreign subsidiaries enter into internal and external transactions that create nonfunctional currency balance sheet positions at the foreign subsidiary level. These exposures are generally the result of intercompany purchases, intercompany loans and to a lesser extent, external purchases, and are revalued in the foreign subsidiary’s local currency at the end of each period. Changes in the value of the non-functional currency balance sheet positions in relation to the foreign subsidiary’s local currency results in an exchange gain or loss recorded in Other items, net on the Consolidated Statements of Earnings and Comprehensive Income. The primary currency to which Energizer’s foreign subsidiaries are exposed is the U.S. dollar.
The Company enters into foreign currency derivative contracts which are not designated as cash flow hedges for accounting purposes to hedge balance sheet exposures. Any gains or losses on these contracts are expected to be offset by exchange gains or losses on the underlying exposures, thus they are not subject to significant market risk. The change in estimated fair value of the foreign currency contracts for the quarterquarters ended December 31, 2017June 30, 2020 and 2019 resulted in incomea loss of $0.3$0.6 and expense$1.3, respectively, and a loss of $1.9$2.2 and $0.2 for the quarternine months ended December 31, 2016June 30, 2020 and was2019, respectively. These losses were recorded in Other items, net on the unaudited Consolidated (Condensed) Statements of Earnings and Comprehensive Income (Condensed).Income.
Commodity Price Exposure
The Company uses raw materials that are subject to price volatility. TheAt times, the Company has used, and may in the future use,uses hedging instruments to reduce exposure to variability in cash flows associated with future purchases of certain raw materials and commodities. At December 31, 2017, there
The Company began entering into hedging contract on zinc purchases in fiscal 2019. The contracts are determined to be cash flow hedges and qualify for hedge accounting. The contract maturity for these hedges extend into 2022. There were nonineteen open derivative or hedging instruments for future purchasescontracts at June 30, 2020, with a total notional value of raw materials or commodities.approximately $51. The pre-tax loss recognized on the zinc contracts was $3.5 at June 30, 2020 and $1.0 at September 30, 2019, and was included in Accumulated other comprehensive loss on the Consolidated (Condensed) Balance Sheet.
Interest Rate Exposure
The Company has interest rate risk with respect to interest expense on variable rate debt. At December 31, 2017,June 30, 2020, Energizer had variable rate debt outstanding with an originala principal balance of $400.0$855.7 under the refinanced 2018 and 2019 Term Loan.Loans and the Revolving Credit Facility. In March 2017, the Company also entered into an interest rate swap agreement with one major financial institution that fixed the variable benchmark component (LIBOR) on $200.0 of Energizer's variable rate debt through June 2022 at an interest rate of 2.03%. In February 2018, the Company entered into a forward starting interest rate swap with an effective date of October 1, 2018, with one major financial institution that fixed the variable benchmark component (LIBOR) on additional variable rate debt of $400.0 at an interest rate of 2.47%. Beginning April 1, 2019, the notional amount decreases $50.0 each quarter until its termination date of December 31, 2020.
For the quarter ended December 31, 2017,June 30, 2020, our weighted average interest rate on variable rate debt, inclusive of the interest rate swap, was 3.42%3.51%.
Argentina Currency Exposure and Hyperinflation
Effective July 1, 2018, the financial statements for our Argentina subsidiary were consolidated under the rules
governing the translation of financial information in a highly inflationary economy. Under U.S. GAAP, an economy is
considered highly inflationary if the cumulative inflation rate for a three year period meets or exceeds 100 percent. The Argentina economy exceeded the three year cumulative inflation rate of 100 percent as of June 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 for Argentina may have on our consolidated financial statements as such impact is dependent upon movements in the applicable exchange rates between the local currency and the U.S. dollar and the amount of monetary assets and liabilities included in our affiliates' balance sheet.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain a comprehensive set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to Energizer's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Based on that evaluation performed, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of December 31, 2017,June 30, 2020, to provide reasonable assurance of the achievement of these objectives. Notwithstanding the foregoing, there can be no assurance that the Company's disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to report material information otherwise required to be set forth in the Company's reports.
TheyThe Chief Executive Officer and Chief Financial Officer have also determined in their evaluation that there was no change in the Company's internal control over financial reporting during the quarter ended December 31, 2017June 30, 2020 that has materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting.
PART II -- OTHER INFORMATION
Item 1. 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 and other legal proceedings 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, when taking into account established accruals for estimated liabilities.
Item 1A. Risk Factors
Our Annual Report on Form 10-K for the year ended September 30, 2017,2019, which was filed with the Securities and Exchange Commission on November 14, 2017,19, 2019, contains a detailed discussion of risk factors that could materially adversely affect our business, our operating results or our financial condition. There have been no material changes
Due to the events that occurred during fiscal 2020 relating to the COVID-19 global pandemic, we filed an additional risk factor that should be considered when reviewing our financial information in addition to the risk factors includedin Item 1A filed on our Annual Report on From 10-K for the year ended September 30, 2019. The additional risk factor is presented below:
We must successfully manage the demand, supply, and operational challenges brought about by the COVID-19 pandemic and any other disease outbreak, including epidemics, pandemics, or similar widespread public health concerns.
Our operations are impacted by consumer spending levels, impulse purchases, the availability of our products to retail and our ability to manufacture, store and distribute products to our customers and consumers in an effective and efficient manner. The fear of exposure to or actual effects of a disease outbreak, epidemic, pandemic or similar widespread public health concern, such as the novel coronavirus (COVID-19), has negatively impacted portions of our business and could negatively impact our overall business, financial position and financial results. These impacts caused by fear of exposure or the effects of a widespread public health concern may include, but are not limited to:
•Significant reductions, shifts or fluctuations in demand for one or more of our products, which may be caused by, among other things:
◦a decrease in consumer traffic in brick-and-mortar stores across all our major markets and the resulting negative impact on our net sales to customers in that channel;
◦the temporary inability of our consumers to purchase our products due to illness, quarantine, other travel restrictions, or financial hardship;
◦shifts in demand away from one or more of our premium products to lower priced value or private label products and lower demand in our discretionary product categories;
◦stockpiling or similar “pantry-loading” activity by consumers, which may cause volatility in our quarterly results and, if prolonged, further increase the complexity of our operations planning and financial forecasting and adversely impact our results of operations;
◦significant reductions in the availability of one or more of our products as a result of retailers, common carriers or other shippers modifying restocking, fulfillment and shipping practices; or
◦shifts, fluctuations, or cancellation of orders due to the impact on customers’ operations, including the possibility of temporary or permanent closure;
•Inability to meet our customers’ needs due to disruptions in our manufacturing and supply chain arrangements caused by the loss or disruption of essential manufacturing and supply chain elements, such as raw materials or other finished product components, transportation, workforce, or other manufacturing and distribution capability. In addition, we may incur higher costs for transportation, workforce and distribution capability in order maintain the surety of supplying product to our customers;
•Failure of third parties upon which we rely, including our suppliers, contract manufacturers, distributors, contractors and commercial banks, to meet their obligations to the Company, or significant disruptions in their ability to meet those obligations in a timely manner, which may be caused by their own financial or operational difficulties and may adversely impact our operations, liquidity and financial results;
•Significant changes in the political and regulatory landscape in the markets in which we manufacture, sell or distribute our products. These changes may include, but are not limited to, expanded quarantines, restrictions on international trade, governmental or regulatory actions, closures or other restrictions that limit or suspend our operating and manufacturing capabilities, restrict our employees’ ability to travel or perform necessary business functions, or otherwise prevent our third-party partners or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products, which could adversely impact our results.
Our management is focused on mitigating COVID-19, which has required and will continue to require, a large investment of time and resources across our enterprise. We expect to expend all necessary efforts to ensure the business continuity of our operations. We have incurred additional costs and may continue to incur additional costs, which may be significant, if we are required to implement additional operational changes in response to this pandemic. 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 delay our growth or impact business plan. However, it may be that despite our efforts to manage and remedy these impacts to the Company, the ultimate impact may depend on factors beyond our knowledge or control, including the duration and severity of any widespread public health concern as well as third-party actions, including governments and our business partners upon which we rely, taken to contain the spread and mitigate the public health effects of such concern.
In addition, we cannot predict the impact that COVID-19 will have on our customers, suppliers, vendors and other business partners, and each of their financial conditions; however, any material effect on these parties could adversely impact us. The impact of COVID-19 may also exacerbate other risks discussed in this “Risk Factors” section as well as in Item 1A. Risk Factors in our Annual Report on Form 10-K, for the year ended September 30, 2017, except for the additionany of the following:
Risks Related to the Acquisition of the Global Battery, Lighting, and Portable Power Business of Spectrum Brands Holdings, Inc. (the “Acquisition”)
The pending Acquisition is subject to the satisfaction of certain conditions, including obtaining required regulatory approvals, and may not be consummated, and if not consummated under certain circumstances, we may be subject to monetary or other damages under the acquisition agreement.
On January 16, 2018, we announced that we had entered into a definitive acquisition agreement to acquire the global battery, lighting, and portable power business (the “Business”) of Spectrum Brands Holdings, Inc. (“Spectrum”). The consummation of the Acquisition is subject to certain customary conditions, including, among other things, (i) the absence ofwhich could have a material adverse effect on the Business, (ii) the expiration or terminationus, including risks such as those relating to our high level of required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”), (iii) the receipt of certain other antitrust approvals in certain specified foreign jurisdictions (the conditions contained in (ii) and (iii) together, the “Antitrust Conditions”), (iv) the accuracy of the representations and warranties of the parties (generally subjectindebtedness, our need to a customary material adverse effect standard (as described in the acquisition agreement) or other customary materiality qualifications), (v) the absence of governmental restrictions on the consummation of the Acquisition in certain jurisdictions, and (vi) material compliance by the parties with their respective covenants and agreements under the acquisition agreement.
Many of the closing conditions are not withingenerate sufficient cash flows to service our control, and there can be no assurance that the closing conditions for the Acquisition will be satisfied in a timely manner, or at all. Any delay could cause us not to realize some or all of the cost savings, synergies and other benefits that we expect to achieve if the Acquisition were to be successfully completed within its expected time frame. If any of these conditions are not satisfied or waived prior to July 15, 2019 (the “Termination Date”), it is possible that the acquisition agreement may be terminated. Further, if the Acquisition has not been consummated by the Termination Date and all conditions precedent to the Company’s obligation to consummate the Acquisition have otherwise been satisfied except for one or more of the Antitrust Conditions, then the Company would be required to pay Spectrum a termination fee of $100 million.
We may be unable to obtain the regulatory clearances required to complete the Acquisition or, in order to do so, we or Spectrum may be required to comply with material restrictions or satisfy material conditions.
The Acquisition is subject to review by the U.S. Department of Justice and the Federal Trade Commission under the HSR Act, and other regulatory agencies. The closing of the Acquisition is subject to the condition that the applicable waiting period, and any applicable extensions thereof, under the HSR Act have expired or been duly terminated, and that certain other antitrust approvals in specified foreign jurisdictions have been received. We cannot provide any assurance that all required antitrust clearances will be obtained. There can be no assurance as to the cost, scope or impact of the actions that may be required to obtain antitrust approval. In addition, the acquisition agreement provides that we are required to commit to dispositions of assets up to a certain amount in order to obtain regulatory clearance. If we are required to or otherwise decide to take such actions in order to close the Acquisition, it could be detrimental to the combined organization following the consummation of the Acquisition. Furthermore, these actions could have the effect of delaying or preventing completion of the proposed Acquisition or imposing additional costs on or limiting the revenues or cash of the combined organization following the consummation of the Acquisition. However, if certain antitrust clearances are not obtained and the acquisition agreement is terminated under specified circumstances, we could be liable to Spectrum for a termination fee of $100 million.
Even if the parties receive early termination of the statutory waiting period under the HSR Act or the waiting period required expires, the U.S. Department of Justice, the Federal Trade Commission, or other regulatory authorities could take action under the antitrust laws to prevent or rescind the Acquisition, require the divestiture of assets or seek other remedies. Additionally, state attorneys general could seek to block or challenge the Acquisition as they deem necessary or desirable in the public interest at any time, including after completion of the transaction. In addition, in some circumstances, a third party could initiate a private action under antitrust laws challenging or seeking to enjoin the merger, before or after it is completed. We may not prevail and may incur significant costs in defending or settling any action under the antitrust laws.
Our indebtedness following the completion of the Acquisition will be significant and could adversely affect our business and our ability to meetcomply with the covenants contained in the agreements that govern our obligations,indebtedness. This situation is changing rapidly and if sufficient financing on favorable terms or other sources of capitaladditional impacts may arise that we are not available,aware of currently. Even after the COVID-19 outbreak has subsided, we may be subjectcontinue to significant monetary or other damages under the Acquisition Agreement.
We currently expectexperience materially adverse impacts to incur indebtedness in excess of $2 billion to finance the Acquisition. Interest costs related to this debt or other debt we may incur in connection with the Acquisition will be significant. Our new indebtedness may contain negative or financial covenants that would limit our operational flexibility. Our increased level of indebtedness could reduce funds available for additional acquisitions or other business purposes, restrict our financial and operating flexibility, or create competitive disadvantages compared to other companies with lower debt levels. This in turn may reduce our flexibility in responding to changes in our businesses and in our industry.
Additionally, although we have obtained financing commitments with respect to the Acquisition in an amount which we believe would be sufficient to allow us to complete the transaction, the consummation of the financing pursuant to these commitments is subject to conditions that may not be satisfied. Our ability to obtain any financing to fund a portion of the purchase price is not a condition to closing under the acquisition agreement. However, if we are unable to obtain sufficient financing on favorable terms or experience a significant diminution of our existing cash and cash equivalents or other sources of capital, and as a result we do not have sufficient funds to complete the Acquisition, we may be subject to monetary or other damages under the acquisition agreement as a result of our failure to complete the Acquisition.
We may be unable to integrate the Business successfully and realize the anticipated benefits of the Acquisition.
The pending Acquisition involves the combination of two companies that have operated independently. We will be required to devote significant management attention and resources to integrating business practices, cultures and operations of each business. Potential difficulties we may encounter as part of the integration process include the following:
the inability to successfully combine our respective businesses in a manner that permits us to achieve the cost savings, synergies and other anticipated benefits from the Acquisition;
the challenge of integrating complex systems, operating procedures, compliance programs, technology, networks and other assets of the Business in a manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;
difficulties in retaining key management and other key employees;
the challenge of managing the expanded operations of a significantly larger and more complex company and coordinating geographically separate organizations; and
potential unknown liabilities, liabilities that are significantly larger than we currently anticipate, and unforeseen increased expenses or delays associated with the Acquisition, including cash costs to integrate the two businesses that may exceed the cash costs that we currently anticipate.
Any one of these factors could result in increased costs, decreases in the amount of anticipated benefits and diversion of management’s attention, which could materially impact our business financial condition and results of operations. In addition, even if we are able to integrate the Business successfully, the anticipated benefits of the pending Acquisition may not be realized fully, or at all, or may take longer to realize than expected.
Failure to complete the Acquisition could impact our stock price and our future business and financial results.
If the Acquisition is not completed, our ongoing business and financial results may be adversely affected and we will be subject to a number of risks, including the following: depending on the reasons for the failure to complete the Acquisition, we could be liable to Spectrum for monetary or other damages in connection with the termination or breach of the acquisition agreement, including a termination fee of $100 million; we have dedicated significant time and resources, financial and otherwise, in planning for the Acquisition and the associated integration, of which we would lose the benefit if the Acquisition is not completed; we are responsible for certain transaction costs relating to the Acquisition, whether or not the Acquisition is completed; while the acquisition agreement is in force, we are subject to certain restrictions on the conduct of our business, including our ability to make any other significant acquisition which would reasonably be expected to delay, hinder or otherwise obstruct the consummation of the Acquisition, which restrictions may adversely affect our ability to execute certain of our business strategies; and matters relating to the Acquisition (including integration planning) may require substantial commitments of time and resources by our management, whether or not the Acquisition is completed, which could otherwise have been devoted to other opportunities that may have been beneficial to us.
In addition, if the Acquisition is not completed, we may experience negative reactions from the financial markets and from our customers and employees. We also may be subject to litigation related to any failure to complete the Acquisition or to enforcement proceedings commenced against us to perform our obligations under the acquisition agreement. If the Acquisition is not completed, these risks may materialize and may adversely affect our business, financial results and financial condition, as well as the price of our common stock.
While the Acquisition is pending, we and Spectrum will be subject to business uncertainties that could adversely affect our respective businesses.
Our success following the Acquisition will depend in part upon the ability of us and Spectrum to maintain our respective business relationships. Uncertainty about the effect of the Acquisition on customers, suppliers, employees and other constituencies may have a material adverse effect on us and the Business. Customers, suppliers and others who deal with us or Spectrum may delay or defer business decisions, decide to terminate, modify or renegotiate their relationships or take other actions as a result of the Acquisitionvirus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and the impacts of any recession that could negatively affecthas occurred or may occur in the revenues, earnings and cash flows of the Company or the Business. If we are unable to maintain these business and operational relationships, our financial position, results of operations or cash flows could be materially affected.future.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table reports purchases of equity securities during the firstthird quarter of fiscal 20182020 by Energizer and any affiliated purchasers pursuant to SEC rules, including any treasury shares withheld to satisfy employee withholding obligations upon vesting of restricted stock and the execution of net exercises.
| | Issuer Purchases of Equity Securities | Issuer Purchases of Equity Securities | Issuer Purchases of Equity Securities | |
Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number That May Yet Be Purchased Under the Plans or Programs (2) | Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number That May Yet Be Purchased Under the Plans or Programs (2) |
October 1 - October 31 | — |
| $ | — |
| — |
| 5,278,002 |
| |
November 1 - November 30 | 1,167,170 |
| $ | 44.38 |
| 1,126,379 |
| 4,151,623 |
| |
December 1 - December 31 | — |
| — |
| — |
| 4,151,623 |
| |
April 1 - April 30 | | April 1 - April 30 | — | | — | | — | | 1,822,655 | |
May 1 - May 31 | | May 1 - May 31 | — | | $ | — | | — | | 1,822,655 | |
June 1 - June 30 | | June 1 - June 30 | 787 | | $ | 46.29 | | — | | 1,822,655 | |
Total | 1,167,170 |
| $ | 44.38 |
| 1,126,379 |
| | Total | 787 | | $ | 46.29 | | — | | 1,822,655 | |
(2) On July 1, 2015, the Board of Directors approved a share repurchase authorization for the repurchase of up to 7.5 million shares. 1,126,379No shares were repurchased on the open market during the quarter under this share repurchase authorization.
Item 6. Exhibits
See the Exhibit Index hereto.