SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 10 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 001-36837
ENERGIZER HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
|(State or other jurisdiction of||(I. R. S. Employer|
|incorporation or organization)||Identification No.)|
|533 Maryville University Drive|| |
|(Address of principal executive offices)||(Zip Code)|
|(Registrant’s telephone number, including area code)|
Securities registered pursuant to Section 12(b) of the Act:
|Title of each class||Trading Symbol||Name of each exchange on which registered|
|Common Stock, par value $.01 per share||ENR||New York Stock Exchange|
|Series A Mandatory Convertible Preferred Stock, par value $.01 per share||ENR PRA||New York Stock Exchange|
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes: ☒ No: ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes: ☐ No: ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: ☒ No: ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes: ☒ No: ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|Large accelerated filer||☒||Accelerated filer||☐|
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|Non-accelerated filer||☐||Smaller reporting company||☐|
| || || || |
| ||Emerging growth company||☐|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting common equity held by nonaffiliates of the registrant as of the close of business on March 31, 2020, the last day of the registrant's most recently completed second quarter: $2,070,832,297.
(For purposes of this calculation only, without determining whether the following are affiliates of the registrant, the registrant has assumed that (i) its directors and executive officers are affiliates, and (ii) no party who has filed a Schedule 13D or 13G is an affiliate. Registrant does not have a class of non-voting common equity securities.)
Number of shares of Energizer Holdings, Inc. Common Stock (“ENR Stock”), $.01 par value, outstanding as of close of business on November 10, 2020: 68,518,729.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Energizer Holdings, Inc. Notice of Annual Meeting and Proxy Statement (“Proxy Statement”) for our Annual Meeting of Shareholders which will be held February 1, 2021 have been incorporated into Part III of this Annual Report on Form 10-K. The Proxy Statement will be filed within 120 days of the end of the fiscal year ended September 30, 2020.
Item 1. Business.
Additional information required by this item is incorporated herein by reference to Part II, Item 7, "Management's Discussion and Analysis" (MD&A); and Notes 1 and 2 to our Consolidated Financial Statements. Unless the context indicates otherwise, the terms “Energizer,” the “Company,” “we,” “us” or “our” in this Annual Report on Form 10-K, we mean Energizer Holdings, Inc. and its subsidiaries on a consolidated basis, unless we state or the context implies otherwise.
Energizer, through its operating subsidiaries, is a global diversified household products leader in batteries, lights and auto care. Energizer is one of the world’s largest manufacturers, marketers and distributors of household and specialty batteries; portable lights; and automotive appearance, performance, refrigerants and freshener products. Information about our legal separation from our former parent company, recent acquisitions and divestment can be found in the MD&A and Notes 1, 4 and 5 to our Consolidated Financial Statements.
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 operates as an independent, publicly traded company, whose shares of common stock are traded on the New York Stock Exchange under the symbol "ENR."
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 section 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.
Unless indicated otherwise, the information concerning our industry contained in this Annual Report is based on Energizer’s general knowledge of and expectations concerning the industry. Energizer’s market position, market share and industry market size are based on estimates using Energizer’s internal data and estimates, based on data from various industry analyses, its internal research and adjustments and assumptions that it believes to be reasonable. Energizer has not independently verified data from industry analyses and cannot guarantee their accuracy or completeness. In addition, Energizer believes that data regarding the industry, market size and its market position and market share within such industry provide general guidance but are inherently imprecise. Further, Energizer’s estimates and assumptions involve risks and uncertainties and are subject to change based on various factors, including those discussed in the “Risk Factors” section. These and other factors could cause results to differ materially from those expressed in the estimates and assumptions.
Narrative Description of the Business
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 acquisition of the global battery, lighting and portable power business (Battery Acquisition) from Spectrum Brands Holdings, Inc. (Spectrum) added the Rayovac® brand globally and the Varta® brand in Latin America and Asia Pacific, as well as Rayovac-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.
Additional information about our products can be found in "Management's Discussion and Analysis of Financial Conditions and Results of Operations" ("MD&A") in Part II, Item 7 of this Report, and Note 3, Revenue, to our Consolidated Financial Statements.
We are a branded manufacturing and distribution company that markets and sells in the battery, lights and auto care categories. These categories are highly competitive, both in the U.S. and on a global basis. We invest in our brands and innovation to meet the needs of consumers, and with our large global footprint, we both manufacture and source our products. Competition within our categories is based upon brand perceptions, product performance, price, retail execution and customer service. Key drivers of the battery business are device technology, consumer demographics and disasters. Competition in this category remains aggressive in the U.S. and other markets and could continue to put additional pressure on our results going forward, particularly as consumers shift consumption between channels such as e-commerce and discounters.
Sales and Distribution
We distribute our products to consumers through numerous retail locations worldwide, including mass merchandisers and warehouse clubs, food, drug and convenience stores, electronics specialty stores and department stores, hardware and automotive centers, e-commerce and military stores. Although a large percentage of our sales are attributable to a relatively small number of retail customers, in fiscal year 2020, only Wal-Mart Stores, Inc. accounted for ten percent or more (14.1%) of the Company's annual sales.
Our products are marketed primarily through a direct sales force, but also through exclusive and non-exclusive distributors and wholesalers. Our products are sold through both “modern” and “traditional” trade. “Modern” trade, which is most prevalent in North America, Western Europe, and more developed economies throughout the world, generally refers to sales through large retailers with nationally or regionally recognized brands. “Traditional” trade, which is more common in developing markets in Latin America, Asia, the Middle East and Africa, generally refers to sales by wholesalers or small retailers who may not have a national or regional presence.
Additional information can be found in the MD&A and Note 2, Summary of Significant Accounting Policies, and Note 3, Revenue, of our Consolidated Financial Statements.
Sources and Availability of Raw Materials
The principal raw materials used by Energizer in the production of batteries and lighting products include electrolytic manganese dioxide, zinc, silver, nickel, lithium, graphite, steel, plastic, brass wire, and potassium hydroxide. The principal raw material used by auto care is refrigerant R-134a, plastic and aluminum. The prices and availability of these raw materials have fluctuated over time. We believe that adequate supplies of most raw materials and component parts required for all of our operations are available at the present time, although we cannot predict their future availability or prices. Our raw materials and component parts are generally available from a number of different sources, and are susceptible to currency fluctuations and price fluctuations due to supply and demand, transportation, government regulations, price controls, tariffs, economic climate, or other unforeseen circumstances. We have not experienced any significant interruption in availability of raw materials but have seen some shortages and allocations of component parts due to COVID-19, mainly related to our auto care operations. We are working to qualify additional sources to ensure continued supply of these items. We believe we have extensive experience in purchasing raw materials in the commodity markets. From time to time, our management has purchased materials or entered into forward commitments for raw materials to assure supply and to protect margins on anticipated sales volume.
Our Trademarks, Patents and Technology
Our ability to compete effectively in the battery, auto care and portable lighting categories depends, in part, on our ability to protect our brands and maintain the proprietary nature of our technologies and manufacturing processes through a combination of trademark, patent and trade secret protection. We own thousands of Energizer, Rayovac, and Eveready trademarks globally, and license Varta trademarks, which we consider to be of substantial importance and which are used individually or in conjunction with other sub-brand names. The number of Energizer, Rayovac, Eveready, Energizer Bunny design, and Mr. Energizer design trademarks, including related designs, slogans and sub-brands, is currently over 2,900 worldwide.
In our auto care business, we also have the Refresh Your Car!, California Scents, Driven, Bahama & Co., LEXOL, Eagle One, Armor All, STP, Tuff Stuff, Kent Car Care, A/C Pro and the Nu Finish trademarks. The number of trademarks making up the total of the auto care trademark portfolio globally, including related designs, slogans, and sub-brands, is currently over 1,700 worldwide.
We also own a number of patents, patent applications and other technology that relate primarily to battery, lighting and automotive fragrance, performance and appearance products, which we believe are significant to our business.
Sales and operating profit for our business tends to be seasonal, with increased purchases by consumers and increases in retailer inventories occurring for batteries during our fiscal first quarter and for automotive fragrance, appearance, performance and air conditioning recharge products during our fiscal second and third quarters. In addition, natural disasters such as hurricanes can create conditions that drive short-term increases in the need for portable power and lighting products and thereby increase our battery and flashlight sales. As a result of this seasonality, our inventory and working capital needs fluctuate throughout the year.
Human Capital Resources
As of September 30, 2020, we have approximately 5,900 employees, including approximately 2,400 employees based in the U.S. Approximately 480 employees are unionized, primarily at our Fennimore, Wisconsin, Portage, Wisconsin and Marietta, Ohio facilities. Overall, we consider our employee relations to be good.
Inclusion & Diversity
As a global company, we embrace diversity and collaboration in our workforce, our ways of thinking, and our business experiences. We encourage colleagues to consider other points of view to help deliver better results. At Energizer, inclusion and diversity (I&D) is a business imperative, not strictly a Human Resources initiative. We are building I&D into our culture with a focus on caring, results, learning and continuous improvement and have identified several key objectives that guide our effort and by which we will demonstrate our commitment to fostering inclusion and diversity, including:
•Promoting a work environment that enables colleagues to feel safe to express their ideas and perspectives and feel they belong to our Energizer team;
•Educating colleagues and people managers to build awareness and understanding in I&D; and
•Recruiting, developing and retaining diverse top talent.
We made significant progress in our I&D focus in fiscal 2020. We created and launched our Global Inclusion & Diversity Council, which is sponsored by our Chief Executive Officer and Chief Human Capital Officer. This Council of 13 members represents locations, functions and business segments across the globe. Its top priorities for the next two years include:
•Implementing a comprehensive I&D learning and development plan to build awareness and drive inclusive behaviors; and
•Developing our diversity pipeline through hiring, mentoring and coaching.
Results-Driven, Collaborative Culture
In addition to our focus on I&D, we focus our company-wide efforts on creating an environment where our colleagues feel respected, valued, and can contribute to their fullest potential. To this end, Energizer colleagues are passionate about working together to win. As one team we learn together, care about each other and do the right thing to deliver results. We are working to develop and promote a culture that will drive our business and build a bright future for our brands, our products, our customers and our consumers. From transparent communication channels, change pulse checks to engagement surveys – which we conduct at least annually through a third-party partner – and leadership forums, we seek out colleague feedback to improve our culture. Our culture champion network, with members in all of our major global markets, leads local and global efforts to create inclusive and diverse work environments and bring our values to life. To bring our colleagues together across multiple time zones and geographies and create a global sense of community, we leverage technology from Yammer communities to LinkedIn posts to a “cameras on” standard for video meetings. This promotes online collaborative workspaces.
We recognize how important it is for our colleagues to develop and progress in their careers. That’s why we provide a variety of resources to help our colleagues grow in their current roles and build new skills — including online development resources from a competency model development library to hundreds of online courses in our Learning Management system. We emphasize individual development planning as part of our annual goal setting process, and offer mentoring programs, along with change management and project management upskilling opportunities. We have leadership development resources for all leaders across the organization and continue to build tools for leaders to develop their teams on the job and in roles to create new opportunities to learn and grow.
Our primary compensation strategy is “Pay for Performance” over the long term as well as on an annual basis, which drives a mindset of accountability and productivity. Our compensation guiding principles are to structure compensation that is simple, aligned and balanced. We believe our compensation guiding principles are strongly aligned with our corporate strategic priorities and our vision for shareholder value creation.
We are committed to fair pay and strive to be externally competitive while ensuring internal equity across our organization. We are conducting global pay equity assessments and compensation reviews, and we are actively working to reduce unconscious bias in our hiring practices, performance reviews and promotion opportunities that may contribute to pay inequities.
We care about our colleagues and anyone who enters our workplace. We have a strong Environmental, Health and Safety program that focuses on implementing policies and training programs, as well as performing self-audits to ensure our colleagues leave their workplace safely, every day. Several of our U.S. manufacturing sites have been recognized by the U.S. Occupational Safety & Health Administration’s Voluntary Protection Program (VPP) for their low injury rates, employee engagement and other programs. To put that in context, out of about 8 million workplaces in the entire U.S., only approximately 2,100 have earned VPP recognition. We have globally adopted the same safety programs used by these recognized Energizer sites to maintain a high standard for performance across our operations. Importantly during 2020, our experience and continuing focus on workplace safety have enabled us to preserve business continuity without sacrificing our commitment to keeping our colleagues and workplace visitors safe during the COVID-19 pandemic.
Health and Wellness
Creating a culture where all colleagues feel supported and valued is paramount to our corporate mission. The ongoing COVID-19 pandemic has led to unique challenges, and we are striving to ensure the health, safety and general well-being of our colleagues. We continue to evolve our programs to meet our colleagues’ health and wellness needs, which we believe is essential to attract and retain employees of the highest caliber, and we offer a competitive benefits package focused on fostering work/life integration.
Governmental Regulations and Environmental Matters
Our operations, including the manufacture, packaging, labeling, storage, distribution, advertising and sale of our products, are subject to various federal, state, local and foreign laws and regulations, including those intended to protect
public health and the environment. In the U.S. many of our products are regulated by the Consumer Product Safety Commission, the Environmental Protection Agency, and by the Federal Trade Commission with respect to advertising. Similar regulations have been adopted by authorities in foreign countries where we sell our products, and by state and local authorities in the U.S. We are also subject to regulations regarding the recycling of batteries; transportation, storage or use of certain chemicals to protect the environment; and regulations in other related areas, such as with respect to sustainability in the batteries value chain, including the European Union Batteries Directive. In order to conduct our operations in compliance with these laws and regulations we must obtain and maintain numerous permits, approvals and certificates from various federal, foreign, state and local governmental authorities.
In recent years, refrigerants such as R-134a, which is a critical component of our auto care business’ aftermarket A/C products have become the subject of regulatory focus due to their potential to contribute to global warming. The EU has passed regulations that essentially phased out of R-134a in automotive cooling systems in new vehicles by 2017. Canada has also implemented similar regulations, phasing into effect beginning in 2021. In the United States, while such regulations are not currently in effect at the federal level, the applicable regulations could be implemented and if so, depending on the scope and timing of the regulations, could have a materially adverse impact on our business. In addition, individual states are regulating the sale and distribution of products containing R-134a. In addition, regulations may be enacted governing the packaging, use and disposal of our auto care business' products containing refrigerants.
The U.S. Foreign Corrupt Practices Act (FCPA) prohibits bribery of public officials to obtain or retain business in foreign jurisdictions and requires us to keep accurate books and records and to maintain internal accounting controls to detect and prevent bribery and to ensure that transactions are properly authorized. We are also subject to similar or even more restrictive anti-corruption laws imposed by the governments of other countries where we do business, including the UK Bribery Act of 2010 and the Brazil Clean Company Act. We make sales and operate in countries known to experience corruption that are rated as high-risk nations. Our business activities in such countries create the risk of unauthorized conduct by one or more of our employees, customs brokers, freight forwarders, or distributors that could be in violation of various laws including the FCPA or similar local regulations.
Our business is subject to competition laws in the various jurisdictions where we operate, including the Sherman Antitrust Act and related federal and state antitrust laws in the U.S. These laws and regulations generally prohibit competitors from fixing prices, boycotting competitors, or engaging in other conduct that unreasonably restrains competition. In many jurisdictions, compliance with these competition laws is of special importance to us, and our operations may come under special scrutiny by competition law authorities, due to our competitive position in those jurisdictions.
The Company is also required to comply with increasingly complex and changing laws and regulations enacted to protect business and personal data in the United States and other jurisdictions regarding privacy, data protection and data security, including those related to the collection, storage, use, transmission and protection of personal information and other consumer, customer, vendor or employee data. Such privacy and data protection laws and regulations, including with respect to the European Union’s General Data Protection Regulation (GDPR), the Brazilian Data Protection Law, and the California Consumer Privacy Act of 2018 (CCPA), and the interpretation and enforcement of such laws and regulations, are continuously developing and evolving and there is significant uncertainty with respect to how compliance with these laws and regulations may evolve and the costs and complexity of future compliance.
We also must comply with various environmental laws and regulations in the jurisdictions in which we operate, including those relating to the handling and disposal of solid and hazardous wastes, recycling of batteries and packaging, the remediation of contamination associated with the use and disposal of hazardous substances, chemicals in products and product safety. We are currently involved in or have potential liability with respect to the remediation of past contamination in the operation of some of our current and former facilities. In addition, some of our present and former facilities have or had been in operation for many years and, over that time, some of those facilities may have used substances or generated and disposed of wastes that are or may be considered hazardous. It is possible that those sites, as well as disposal sites owned by third parties to whom we have sent waste, may be identified and become the subject of remediation. We could also become subject to additional environmental liabilities in the future, whether as a result of new laws and regulations or otherwise, which could result in a material adverse effect on our financial condition and results of operations.
For additional information on the laws and regulations that apply to our business, see MD&A and Note 22, Environmental and Regulatory, to our Consolidated Financial Statements. For a discussion of the risks associated with these laws and regulations, see Part I, Item 1A, "Risk Factors."
Energizer regularly files periodic reports with the SEC, including annual reports on Form 10-K and quarterly reports on Form 10-Q, as well as, from time to time, current reports on Form 8-K, and amendments to those reports. The SEC maintains an Internet site containing these reports, and proxy and information statements, at www.sec.gov. These filings are also available free of charge on Energizer's website, at www.energizerholdings.com, as soon as reasonably practicable after their electronic filing with the SEC. Information on Energizer's website does not constitute part of this Form 10-K.
Item 1A. Risk Factors.
In the course of conducting our business operations, we are exposed to a variety of risks, some of which are inherent in our industry and others of which are more specific to our own businesses. The discussion below addresses the material factors, of which we are currently aware, that could affect our businesses, results of operations and financial condition and make an investment in the Company speculative or risky.
Some of these risks include:
•Global economic and financial market conditions, including the conditions resulting from the COVID-19 pandemic, and actions taken by our customers, suppliers, other business partners and governments in markets in which we compete might materially and negatively impact us.
•Competition in our product categories might hinder our ability to execute our business strategy, achieve profitability, or maintain relationships with existing customers.
•Changes in the retail environment and consumer preferences could adversely affect our business, financial condition and results of operations.
•We must successfully manage the demand, supply, and operational challenges brought about by the COVID-19 pandemic and any other disease outbreak, including epidemics, pandemics, or similar widespread public health concerns.
•Loss or impairment of the reputation of our Company or our leading brands or failure of our marketing plans could have an adverse effect on our business.
•Loss of any of our principal customers could significantly decrease our sales and profitability.
•Our ability to meet our growth targets depends on successful product, marketing and operations innovation and successful responses to competitive innovation and changing consumer habits.
•We are subject to risks related to our international operations, including currency fluctuations, which could adversely affect our results of operations.
•If we fail to protect our intellectual property rights, competitors may manufacture and market similar products, which could adversely affect our market share and results of operations.
•Our reliance on certain significant suppliers subjects us to numerous risks, including possible interruptions in supply, which could adversely affect our business.
•Our business is vulnerable to the availability of raw materials, our ability to forecast customer demand and our ability to manage production capacity.
•Changes in production costs, including raw material prices, could erode our profit margins and negatively impact operating results.
•The manufacturing facilities, supply channels or other business operations of the Company and our suppliers may be subject to disruption from events beyond our control.
•We may be unable to generate anticipated cost savings, successfully implement our strategies, or efficiently manage our supply chain and manufacturing processes, and our profitability and cash flow could suffer as a result.
•Sales of certain of our products are seasonal and adverse weather conditions during our peak selling seasons for certain auto care products could have a material adverse effect.
•A failure of a key information technology system could adversely impact our ability to conduct business.
•Our operations depend on the use of information technology systems that are subject to data privacy regulations, including recently effective European Union requirements, and could be the target of cyberattack.
•We have significant debt obligations that could adversely affect our business and our ability to meet our obligations.
•We may experience losses or be subject to increased funding and expenses related to our pension plans.
•The estimates and assumptions on which our financial projections are based may prove to be inaccurate, which may cause our actual results to materially differ from our projections, which may adversely affect our future profitability, cash flows and stock price.
•If we pursue strategic acquisitions, divestitures or joint ventures, we might experience operating difficulties, dilution, and other consequences that may harm our business, financial condition, and operating results, and we may not be able to successfully consummate favorable transactions or successfully integrate acquired businesses.
•We may be unable to realize the anticipated benefits of the 2019 acquisitions of the global auto care and battery, lighting and power businesses from Spectrum Brands.
•The 2019 auto care and battery acquisitions may have liabilities that are not known to us and the acquisition agreements may not provide us with sufficient indemnification with respect to such liabilities.
•Our business involves the potential for claims of product liability, labeling claims, commercial claims and other legal claims against us, which could affect our results of operations and financial condition and result in product recalls or withdrawals.
•Our business is subject to increasing regulation in the U.S. and abroad, the uncertainty and cost of future compliance and consequence of non-compliance with which may have a material adverse effect on our business.
•Increased focus by governmental and non-governmental organizations, customers, consumers and shareholders on sustainability issues, including those related to climate change, may have an adverse effect on our business, financial condition and results of operations and damage our reputation.
•We are subject to environmental laws and regulations that may expose us to significant liabilities and have a material adverse effect on our results of operations and financial condition.
•We cannot guarantee that any share repurchase program will be fully consummated or that any share repurchase program will enhance long-term stockholder value, and share repurchases could increase the volatility of the price of our stock and diminish our cash reserves.
•Our common stock ranks junior to our Mandatory Convertible Preferred Stock with respect to dividends and amounts payable in the event of our liquidation, dissolution or winding-up of our affairs.
•Holders of our Mandatory Convertible Preferred Stock will have the right to elect two directors in the case of certain dividend arrearages.
•Certain rights of the holders of the Mandatory Convertible Preferred Stock could delay or prevent an otherwise beneficial takeover or takeover attempt of us.
Additional factors that could affect our businesses, results of operations and financial condition are discussed in Forward-Looking Statements in MD&A. However, other factors not discussed below or elsewhere in this Annual Report on Form 10-K could also adversely affect our businesses, results of operations and financial condition. Therefore, the risk factors below should not be considered a complete list of potential risks that we may face.
Any risk factor described in this Annual Report on Form 10-K or in any of our other SEC filings could by itself, or together with other factors, materially adversely affect our liquidity, competitive position, business, reputation, results of operations, capital position or financial condition, including by materially increasing our expenses or decreasing our revenues, which could result in material losses.
Economic, Competitive and Industry Risks
Global economic and financial market conditions, including the conditions resulting from the COVID-19 pandemic, and actions taken by our customers, suppliers, other business partners and governments in markets in which we compete might materially and negatively impact us.
Unfavorable global economic conditions and the economies in regions in which we conduct business have experienced substantial economic downturns as a result of the COVID-19 pandemic. We are currently experiencing reduced demand for certain of our consumer products, and in the future might be adversely affected in a material way by lower consumer demand as a result of recessionary economic conditions, including after the direct impact of the COVID-19 pandemic has subsided. In response to unfavorable economic conditions, there could be a reduction in discretionary spending, which may lead to reduced net sales or cause a shift in our product mix from higher-margin to lower-margin product offerings or a shift of purchasing patterns to lower cost options such as “private label” brands sold by retail chains or price brands. This shift could drive the market towards lower margin products or force us to reduce prices for our products in order to compete. Similarly, our retailer
customers could reduce their inventories, shift to different products or require us to lower our prices to retain the shelf placement of our products.
Global markets continued to face threats and uncertainty during fiscal year 2020. Future changes to U.S. or foreign tax and trade policies, imposition of new or increased tariffs, other trade restrictions or other government actions, including any government shutdown, foreign currency fluctuations, including devaluations, and fear of exposure to or actual impacts of a widespread disease outbreak, such as the COVID-19 pandemic, may lead to continuation of such risks and uncertainty. Uncertain economic and financial market conditions may also adversely affect the financial condition of our customers, suppliers and other business partners. Any significant decrease in customers’ purchases of our products or our inability to collect accounts receivable resulting from an adverse impact of the global markets on customers’ financial condition could have a material adverse effect on our business, financial condition and results of operations. Additionally, disruptions in financial markets could reduce our access to debt and equity capital markets, negatively affecting our ability to implement our business strategy.
Competition in our product categories might hinder our ability to execute our business strategy, achieve profitability, or maintain relationships with existing customers.
We face intense competition from consumer product companies both in the U.S. and in global markets. Most of our products compete with other widely advertised, promoted and merchandised brands within each product category. The categories in which we operate are mature and highly competitive, as a limited number of large manufacturers compete for consumer acceptance, limited retail shelf space and e-commerce opportunities. Because of the highly competitive environment in which we operate, our customers, including online retailers, frequently seek to obtain pricing concessions or better trade terms, resulting in either reduction of our margins or losses of distribution to lower-cost competitors.
Competition in our product categories is based upon brand perceptions, innovation, product performance, customer service and price. Our ability to compete effectively could be affected by a number of factors, including:
•Our competitors might have substantially greater financial, marketing, research and development, and other resources and greater market share in certain segments than we do, which could provide them with greater scale and negotiating leverage with retailers and suppliers. These competitors may be able to spend more aggressively on advertising and promotional activities, introduce competing products more quickly and respond more effectively to changing business and economic conditions than we can.
•Our competitors may have lower production, sales and distribution costs, and higher profit margins.
•Our competitors have obtained, and may in the future be able to obtain, exclusivity or sole source at particular retailers or favorable in-store placement.
•We may lose market share to certain retailers, including club stores, grocery, dollar stores, mass merchandisers and internet-based retailers, which may offer private label brands that are typically sold at lower prices and compete with our products in certain categories.
•Despite increased demand for many of our products in response to COVID-19, we expect heightened competitive activity from strong local competitors, other large multinational companies, and new entrants into the market in many of our product categories. We expect such activities to include more aggressive product claims and marketing challenges, increased promotional spending and geographic expansion, and marketing of new products. We expect promotional activities to increase as retailers try aggressively to get consumers back into their stores after prolonged “stay at home” and other government restrictions continue to ease over the coming months. Furthermore, our competitors may attempt to gain market share by offering products at prices at or below those we typically offer.
Changes in the retail environment and consumer preferences could adversely affect our business, financial condition and results of operations.
Our sales are largely concentrated in the traditional retail grocery, mass retail outlet, warehouse club and dollar store channels. However, the retail environment continues to evolve and may change to a more significant extent or at a faster pace in light of the COVID-19 pandemic, with a greater consumer emphasis on health and wellness, and this could significantly change the way traditional retailers do business. Alternative retail channels, including hard discounters, e-commerce retailers and
subscription services, have become more prevalent, and retailers are increasingly selling consumer products through such alternative retail channels. In addition, a growing number of alternative sales channels and business models, such as niche brands, native online brands, private label and store brands, direct-to-consumer brands and channels and discounter channels, have emerged in the markets we serve. In particular, the growing presence of, and increasing sales through, e-commerce retailers have affected, and may continue to affect, consumer preferences (as consumers increasingly shop online, including in response to the COVID-19 pandemic) and market dynamics, including any pricing pressures for consumer goods as retailers face added costs to build their e-commerce capacity. These trends have been magnified due to the COVID-19 pandemic in many of our geographies. Although we are engaged in e-commerce with respect to many of our products, if we are not successful in expanding sales in such alternative retail channels, our business, financial condition and results of operations may be negatively impacted. In addition, the growth of the alternative retail channels that are focused on limiting the number of items they sell and selling predominantly private label products may reduce our ability to market and sell our products through such retailers. If these alternative retail channels were to take significant market share away from traditional retailers and/or we are not successful in these alternative retail channels, our margins and results of operations may be negatively impacted.
Our failure to adapt to changing consumer preferences and market dynamics or expand sales through e-commerce retailers, hard discounters and other alternative retail channels, may negatively impact our business, financial condition and results of operations. With the growing trend towards retailer consolidation, both in the U.S. and internationally, the rapid growth of e-commerce and the integration of traditional and digital operations at key retailers, we are increasingly dependent on certain retailers. This trend, which has been magnified due to the COVID-19 pandemic, has resulted in the increased size and influence of large consolidated retailers, who have in the past changed, and may in the future change, their business strategies, demand lower pricing, or higher trade discounts or impose other burdensome requirements on product suppliers. These business demands may relate to inventory practices, in-store on online product placement, transportation and storage or product packaging. Such customers may also shift their focus away from branded products toward private label or other aspects of the customer-supplier relationship. These large consolidated companies could also exert additional competitive pressure on our other customers, which could in turn lead to such customers demanding lower pricing, higher trade discounts or special packaging or imposing other onerous requirements on us. If we cease doing business with a significant customer or if sales of our products to a significant customer materially decrease due to customer inventory reductions or otherwise, our business, financial condition and results of operations may be harmed.
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 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 us, 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; and
▪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.
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. For example, our incremental COVID-19 related costs of products sold were approximately $24 million in fiscal 2020. In addition, we cannot predict the impact that COVID-19 will have on our customers, suppliers, vendors and other business partners, and their respective financial conditions. However, any material effects on these parties could adversely impact us. This situation is changing rapidly and additional impacts may arise that we are not aware of currently. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and the impacts of any recession that has occurred or may occur in the future.
Loss or impairment of the reputation of our Company or our leading brands or failure of our marketing plans could have an adverse effect on our business.
We depend on the continuing reputation and success of our brands. Maintaining a strong reputation with consumers, customers and trade and other third-party partners is critical to the success of our business. Negative publicity about us or our brands, including product safety, quality, efficacy, environmental impacts (including packaging, energy and water use and waste management) and other sustainability or similar issues, whether real or perceived, could occur and could be widely and rapidly disseminated, including through the use of social media or network sites. Our operating results could be adversely affected if any of our brands suffers damage to its reputation due to real or perceived quality issues. Any damage to our brands could impair our ability to charge premium prices for our products, resulting in the reduction of our margins or losses of distribution to lower price competitors, and adversely affect our business, financial condition and results of operations.
The success of our brands can suffer if our marketing plans or new product offerings do not improve, or have a negative impact on, our brands’ image or ability to attract and retain consumers. Additionally, if claims made in our marketing campaigns subject us to litigation alleging false advertising, which is common in our industry, such litigation could damage our brand or cause us to alter our marketing plans in ways that may materially and adversely affect sales, or result in the imposition of significant damages against us. In addition, our products could face withdrawal, recall or other quality issues, which could lead to decreased demand for, and sales of, such products and harm the reputation of the related brands. We also license certain of our brands to third parties, and such licenses and partnerships may create additional exposure for those brands to product safety, quality, sustainability and other concerns.
Loss of any of our principal customers could significantly decrease our sales and profitability.
A large percentage of our sales are attributable to a relatively small number of retail customers, and we may continue to derive a significant portion of our future revenues from a small number of customers. As a result, changes in the strategies of our largest customers, including a reduction in the number of brands they carry, a shift of shelf space to private label or competitors’ products or a decision to lower pricing of consumer products, including branded products, may harm our net sales or margins, and reduce our ability to offer new, innovative products to consumers. Furthermore, any loss of a key customer or a
significant reduction in net sales to a key customer, could have a material adverse effect on our business, financial condition and results of operations.
Our business is based primarily upon individual sales orders, and we typically do not enter into long-term contracts with our customers. Accordingly, customers could reduce their purchasing levels or cease buying products from us at any time and for any reason. If we do not effectively respond to the demands of our customers, they could decrease their purchases from us, causing our net sales and net earnings to decline.
Our ability to meet our growth targets depends on successful product, marketing and operations innovation and successful responses to competitive innovation and changing consumer habits.
A large percentage of our revenues comes from mature markets that are subject to high levels of competition, and we are a company that relies on continued global demand for our brands and products. Achieving our business results depends, in part, on successfully developing, introducing and marketing new products and on making significant improvements to our equipment and manufacturing processes. The successful development and introduction of new products requires retail and consumer acceptance and overcoming the reaction from competitors. New product introductions in categories where we have existing products will likely also reduce the sales of our existing products. Our investments in research and development may not result in successful products or innovation that will recover the costs of such investments. Our customers or end consumers may not purchase our new products once introduced. Additionally, new products could require regulatory approval which may not be available or may require modification to the product which could impact the production process. Our competitors may introduce new or enhanced products that outperform ours, or develop manufacturing technology that permits them to manufacture at a lower cost relative to ours and sell at a lower price. If we fail to develop and launch successful new products or fail to reduce our cost structure to a competitive level, we may be unable to grow our business and compete successfully.
We must also successfully respond to technological advances made by, and intellectual property rights granted to, competitors. Failure to continually innovate, improve and respond to competitive moves and changing consumer habits could compromise our competitive position and adversely impact our results. With respect to the battery category, we have been assessing volume and device trends in the battery category over the last several years, and although baseline emerging device and demographic trends combined with the stabilization of the device universe lead us to believe the long term outlook for category volume will be flat to slightly positive, there is no assurance this trend will continue. An increasing number of devices are using built-in battery systems, such as rechargeable hearing aids, particularly in developed markets, leading to potential declining volume trend in the battery category. Additionally, there could be a negative impact on the demand for primary batteries and could put additional pressure on results going forward, both directly through reduced consumption and indirectly as manufacturers aggressively price and promote their products to seek to retain market share or gain battery shelf space.
Our business also depends on our ability to continue to manufacture our existing products to meet the applicable product performance claims we have made to our customers. Any decline in these standards could result in the loss of business and negatively impact our performance and financial results. Finally, our ability to maintain favorable margins on our products requires us to manage our manufacturing and other production costs relative to our prices. We may not be able to increase our prices in the event that our production costs increase, which would decrease our profit margins and negatively impact our business and financial results.
We have implemented price increases in the past and may implement price increases in the future, which may slow sales growth or create volume declines in the short term as customers and consumers adjust to these price increases. In addition, our competitors may or may not take competitive actions, which may lead to sales declines and loss of market share. If we are unable to increase market share in existing product lines, develop product innovations, undertake sales, marketing and advertising initiatives that grow our product categories or develop, acquire or successfully launch new products or brands, we may not achieve our sales growth objectives. Furthermore, a general decline in the markets for certain product categories has had and may in the future have a negative impact on our financial condition and results of operation. In addition, changes to the mix of products that we sell, as well as the mix of countries in which we sell our products, may adversely impact our net sales, profitability and cash flow.
We are subject to risks related to our international operations, including currency fluctuations, which could adversely affect our results of operations.
We currently conduct our business on a worldwide basis, with more than 40% of our sales in fiscal year 2020 arising from foreign countries, and a significant portion of our production capacity and cash is located overseas. Consequently, we are subject to a number of risks associated with doing business in foreign countries, including:
•price controls and related government actions;
•the possibility of nationalization, expropriation, confiscatory taxation or other similar government action;
•the inability to repatriate foreign-based cash for strategic needs in the U.S., either at all or without incurring significant income tax and earnings consequences, as well as the heightened counterparty, internal control and country-specific risks associated with holding cash overseas;
•the effect of foreign income taxes, value-added taxes and withholding taxes, including the inability to recover amounts owed to us by a government authority without extended proceedings or at all;
•the effect of the U.S. tax treatment of foreign source income and losses, and other restrictions on the flow of capital between countries;
•adverse changes in local investment, local employment, local training or exchange control regulations;
•legal and regulatory constraints, including the imposition of tariffs, trade restrictions, price, profit or other government controls, labor laws, immigration restrictions, travel restrictions, including as a result of COVID-19 or other pandemics or epidemics, import and export laws or other government actions generating a negative impact on our business, including changes in trade policies that may be implemented;
•currency fluctuations, including the impact of hyper-inflationary conditions in certain economies, particularly where exchange controls limit or eliminate our ability to convert from local currency;
•political or economic instability, labor disputes, government nationalization of business or industries, government corruption and civil unrest, including political or economic instability in the countries of the Eurozone, Egypt, Russia, the Middle East and certain markets in Latin America;
•difficulties in hiring and retaining qualified employees;
•employment litigation related to employees, contractors and suppliers, particularly in Latin America and Europe;
•difficulties in obtaining or unavailability of raw materials, including as a result of lower rates of production due to the COVID-19 pandemic or the financial condition of suppliers and distributors or restrictions on their operations;
•difficulty in enforcing contractual and intellectual property rights;
•lack of well-established or reliable, and impartial legal systems in certain countries where we operate;
•challenges relating to enforcement of or compliance with local laws and regulations and with U.S. laws affecting operations outside of the U.S., including without limitation, the FCPA; and
•risks related to natural disasters, terrorism and other events beyond our control.
In addition, the impact of the United Kingdom’s exit from, and the related ongoing negotiations with, the European Union (commonly referred to as Brexit) are, at this time, unclear. Brexit has created legal, political and economic uncertainty, which could subject us to heightened risks in that region, including disruptions to trade and free movement of goods, services and people to and from the United Kingdom, disruptions to our workforce or the workforce of our suppliers or business partners, and increased foreign exchange volatility with respect to the British pound. All of the foregoing risks could have a significant adverse impact on our ability to commercialize our products on a competitive basis in international markets and may have a material adverse effect on our business, financial condition and results of operations.
We are also exposed to foreign currency exchange rate risks with respect to our net sales, net earnings and cash flow driven by movements of the U.S. dollar relative to other currencies. A weakening of the currencies in which generate sales relative to the currencies in which costs are denominated would decrease net earnings and cash flow, and. our foreign currency hedges only offset a portion of our exposure to foreign currency fluctuations, including devaluations. Foreign currency fluctuations also may affect our ability to achieve sales growth. A weakening of foreign currencies in which we generate sales relative to the U.S. dollar would decrease our net sales. Accordingly, our reported net earnings may be negatively affected by changes in foreign exchange rates.
Furthermore, the imposition of tariffs and/or increases in tariffs on various products by the U.S. and other countries has introduced greater uncertainty with respect to trade policies and government regulations affecting trade between the U.S. and other countries, New and increased tariffs have subjected, and may in the future subject, us to additional costs and expenditures of resources. Major developments in trade relations, including the imposition of new or increased tariffs by the U.S. and/or other countries, and any emerging nationalist trends in specific countries could negatively affect the trade environment and consumer purchasing behavior and have a material adverse effect on our financial condition and results of operations.
If we fail to protect our intellectual property rights, competitors may manufacture and market similar products, which could adversely affect our market share and results of operations.
The vast majority of our total revenues are from products bearing proprietary trademarks and brand names. In addition, we own or license from third parties a number of patents, patent applications and other technology. We rely on trademark, trade secret, patent and copyright laws to protect our intellectual property rights. We cannot be certain that we will be able to effectively utilize these intellectual property rights or that we can successfully assert or defend these rights. There is a risk that we will not be able to obtain and perfect or maintain our own intellectual property rights or, where appropriate, license intellectual property rights necessary to support new product introductions. In addition, even if we can protect such rights in the United States, the laws of some other countries in which we sell our products may not protect intellectual property rights to the same extent as the laws of the United States. It is also possible that our brands may not be available for use in certain countries due to prior third-party rights, thereby limiting expansion of our brands. If other parties infringe our intellectual property rights, they may dilute or diminish the value of our brands and products in the marketplace, which could diminish the value that consumers associate with our brands and harm our net sales. The failure to perfect and protect our intellectual property rights could make us less competitive and could have a material adverse effect on our business, financial condition and results of operations.
We cannot be certain that our intellectual property rights will not be invalidated, circumvented or challenged in the future, and we could incur significant costs in connection with legal actions relating to such rights. As patents expire, we could face increased competition, which could negatively impact our operating results. Additionally, a finding that we have violated the trademark, trade secret, copyright, patent or other intellectual property rights of others, directly or indirectly, through the use of third-party marks, ideas or technologies, could result in the need to cease use of such trademark, trade secret, copyrighted work or patented invention in our business, as well as the obligation to pay for past infringement. If holders are willing to permit us to continue to use such intellectual property rights, they could require a payment of a substantial amount for continued use of those rights. Either ceasing use or paying such amounts could cause us to become less competitive and could have a material adverse effect on our business, financial condition and results of operations.
Operational and Technology Risks
Our reliance on certain significant suppliers subjects us to numerous risks, including possible interruptions in supply, which could adversely affect our business.
Our ability to maintain consistent quality throughout our operations depends in part upon our ability to acquire certain products in sufficient quantities. Supply shortages for a particular component can delay production and thus delay shipments to customers and the associated revenue of all products using that component. This could cause us to experience a reduction in sales, increased inventory levels and costs and could adversely affect relationships with existing and prospective customers. In some cases, we may have only one supplier for a product or service. Our dependence on single-source suppliers subjects us to the possible risks of shortages, interruptions and price fluctuations, and possible litigation when we change vendors because of performance issues. Global economic factors, as a result of the COVID-19 pandemic or otherwise, and the weak economic recovery continue to put significant pressure on suppliers, with some suppliers facing financial distress and others attempting to rebuild profitability, all of which tends to make the supply environment more expensive. The shutdown of one or more of our vendors could disrupt the supply of products necessary to our operations. If any of these vendors is unable to fulfill its obligations, or if we are unable to find replacement suppliers in the event of a supply disruption, we could encounter supply shortages and/or incur higher costs to secure adequate supplies, either of which could materially harm our business.
Our business is vulnerable to the availability of raw materials, our ability to forecast customer demand and our ability to manage production capacity.
Our ability to meet customer demand depends, in part, on our production capacity and on obtaining supplies, a number of which can only be obtained from a single supplier or a limited number of suppliers. A reduction or disruption in our production capacity or our supplies could delay products and fulfillment of orders and otherwise negatively impact our business.
We must accurately predict both the demand for our products and the lead times required to obtain the necessary components and materials. If we overestimate demand, we may experience underutilized capacity and excess inventory levels. If we underestimate demand, we may miss delivery deadlines and sales opportunities and incur additional costs for labor overtime, equipment overuse and logistical complexities. Additionally, our production capacity could be affected by manufacturing problems. Difficulties in the production process could reduce yields or interrupt production, and, as a result, we may not be able to deliver products on time or in a cost-effective, competitive manner. Our failure to adequately manage our capacity could have a material adverse effect on our business, financial condition and results of operations.
Our ability to meet customer demand also depends on our ability to obtain timely and adequate delivery of materials, parts and components from our suppliers. From time to time, suppliers may extend lead times, limit the amounts supplied to us or increase prices due to capacity constraints or other factors. Supply disruptions may also occur due to shortages in critical materials. In addition, a number of our raw materials are obtained from a single supplier. Many of our suppliers must undertake a time-consuming qualification process before we can incorporate their raw materials into our production process. If we are unable to obtain materials from a qualified supplier, it can take up to a year to qualify a new supplier, assuming an alternative source of supply is available. Our raw materials and component parts are also susceptible to currency fluctuations and price fluctuations due to supply and demand, transportation, government regulations, price controls, tariffs, economic climate, or other unforeseen circumstances. We have experienced some shortages and allocations of component parts due to COVID-19, mainly related to our auto care operations. We are working to qualify additional sources to ensure continued supply of these items. A reduction or interruption in supplies or a significant increase in the price of one or more supplies could have a material adverse effect on our business, financial condition and results of operations.
In addition, sales of certain of our products tend to be seasonal. As a result of this seasonality, our inventory and working capital needs fluctuate significantly throughout the year. Orders from retailers are often made late in the period preceding the applicable peak season, making forecasting of production schedules and inventory purchases difficult. If we are unable to accurately forecast and prepare for customer orders or our working capital needs, or there is a general downturn in business or economic conditions during these periods, our business, financial condition and results of operations could be materially and adversely affected.
Additionally, as a result of the desire of retailers to more closely manage inventory levels, there is a growing trend among them to purchase products on a “just-in-time” basis. Due to a number of factors, including (i) manufacturing lead-times, (ii) seasonal purchasing patterns and (iii) the potential for material price increases, we may be required to shorten our lead-time for production and more closely anticipate our retailers’ and customers’ demands, which could in the future require us to carry additional inventories and increase our working capital and related financing requirements. This may increase the cost of warehousing inventory or result in excess inventory becoming difficult to manage, unusable or obsolete. In addition, if our retailers significantly change their inventory management strategies, we may encounter difficulties in filling customer orders or in liquidating excess inventories, or may find that customers are cancelling orders or returning products, which may have a material adverse effect on our business.
Changes in production costs, including raw material prices, could erode our profit margins and negatively impact operating results.
Pricing and availability of raw materials, energy, shipping and other services needed for our business can be volatile due to general economic conditions, labor costs, production levels, import duties and tariffs and other factors beyond our control. There is no certainty that we will be able to offset future cost increases. This volatility can significantly affect our production cost and may, therefore, have a material adverse effect on our business, results of operations and financial condition.
Reduced availability of transportation options has caused, and could continue to cause, us to incur unanticipated expenses. We believe commodity price and other cost increases and volatility, especially due to the COVID-19 pandemic, could continue in the future. If such increases occur or exceed our estimates and we are not able to increase the prices of our
products or achieve cost savings to offset such cost increases, its results of operation would be harmed. In addition, even if we increase the prices of our products in response to increases in the cost of commodities or other cost increases, we may not be able to sustain our price increases. Sustained price increases may lead to declines in volume as competitors may not adjust their prices or customers may decide not to pay the higher prices, which could lead to sales declines and loss of market share. Our projections may not accurately predict the volume impact of price increases, which could adversely affect our business, financial condition and results of operations.
The manufacturing facilities, supply channels or other business operations of the Company and our suppliers may be subject to disruption from events beyond our control.
Operations of the manufacturing and packaging facilities worldwide and corporate offices of the Company and our suppliers, and the methods we and our suppliers use to obtain supplies and to distribute our products, may be subject to disruption for a variety of reasons, including work stoppages, cyber-attacks and other disruptions in information technology systems, demonstrations, disease outbreaks or pandemics, such as the COVID-19 pandemic, acts of war, terrorism, fire, earthquakes, flooding or other natural disasters, disruptions in logistics, loss or impairment of key manufacturing sites, supplier capacity constraints, raw material and product quality or safety issues, industrial accidents or other occupational health and safety issues, availability of raw materials, and other regulatory issues, trade disputes between countries in which we have operations, such as the U.S. and China. There is also a possibility that third-party manufacturers, which produce a significant portion of certain of our products, could discontinue production with little or no advance notice, or experience financial problems or problems with product quality or timeliness of product delivery, resulting in manufacturing delays or disruptions, regulatory sanctions, product liability claims or consumer complaints. If a major disruption were to occur, it could result in delays in shipments of products to customers or suspension of operations. We maintain business interruption insurance to potentially mitigate the impact of business interruption, but such coverage may not be sufficient to offset the financial or reputational impact of an interruption.
We may be unable to generate anticipated cost savings, successfully implement our strategies, or efficiently manage our supply chain and manufacturing processes, and our profitability and cash flow could suffer as a result.
We continue to implement plans to improve our competitive position by reducing material costs and manufacturing inefficiencies and realizing productivity gains, and distribution and supply chain efficiencies. If we cannot successfully implement our cost savings plans or offset the cost of making these changes, we may not realize all anticipated benefits, which could adversely affect our financial condition and results of operations or our long-term strategies. We also continue to seek to penetrate new markets and introduce new products and product innovations. We may fail to implement these goals and strategies or to achieve the desired results, and we may fail to achieve one or more of our financial goals for one or more of the relevant fiscal years.
We expect to continue to restructure our operations as necessary to improve operational efficiency, including occasionally opening or closing offices, facilities or plants. Gaining additional efficiencies may become increasingly difficult over time. There may be one-time and other costs and negative impacts on sales growth relating to facility closures or other restructurings and anticipated cost savings. Our strategies may not be implemented or may fail to achieve desired results. If we are unable to generate anticipated cost savings, successfully implement our strategies or efficiently manage our supply chain and manufacturing processes, our results of operations could suffer. These plans and strategies could also have a negative impact on our relationships with employees or customers, which could also adversely affect our business, financial condition and results of operations.
Sales of certain of our products are seasonal and adverse weather conditions during our peak selling seasons for certain auto care products could have a material adverse effect.
Sales of certain of our auto care products tend to be seasonal. Historically, sales for certain auto care products typically have peaked during the first six months of the calendar year due to customer seasonal purchasing patterns and the timing of promotional activities. Purchases of our auto care products, especially our auto appearance and A/C recharge products, can be significantly impacted by unfavorable weather conditions during the summer period, and as a result we may suffer decreases in net sales if conditions are not favorable for use of our products. If adverse weather conditions during the first six months of the calendar year (our second and third fiscal quarters) when demand for auto care products typically peaks persist, our business, financial condition and results of operations could be materially and adversely affected.
A failure of a key information technology system could adversely impact our ability to conduct business.
We rely extensively on information technology systems, including some that are managed by third-party service providers, in order to conduct business. These systems include, but are not limited to, programs and processes relating to internal and external communications, ordering and managing materials from suppliers, converting materials to finished products, shipping products to customers, processing transactions, summarizing and reporting results of operations, and complying with regulatory, legal or tax requirements. These information technology systems could be damaged or cease to function properly due to the poor performance or failure of third-party service providers, catastrophic events, power outages, security breaches, network outages, failed upgrades or other similar events. If our business continuity plans do not effectively resolve such issues on a timely basis, we may suffer interruptions in conducting our business, which may adversely impact our operating results. In addition, we continuously assess and implement upgrades to improve our information technology systems globally. As such, during these implementation periods, we face a heightened risk of system interruptions and deficiencies or failures in our internal controls involving our information systems and processes.
We continue to utilize various legacy hardware, software and operating systems, which may be vulnerable to increased risks, including the risk of system failures and disruptions. In addition, we will need to upgrade or replace some of the legacy systems in the future as third-party service providers stop supporting these systems. If we do not successfully upgrade or replace these legacy systems in a timely manner, system outages, disruptions or delays, or other issues may arise. We must also successfully integrate the technology systems of acquired companies into our existing and future technology systems, including with third-party service providers and processes. If a new system does not function properly or is not adequately supported by third-party service providers and processes, it could limit or prevent us from processing and delivering customer orders and processing and receiving payments for our products. This could adversely impact our results of operations and cash flows.
Our operations depend on the use of information technology systems that are subject to data privacy regulations, including recently effective European Union requirements, and could be the target of cyberattack.
Our systems and networks, as well as those of our retailer customers, suppliers, service providers, and banks, have and may in the future become the target of cyberattacks or information security breaches, which in turn could result in the unauthorized release and misuse of confidential or proprietary information about our company, employees, customers or consumers, as well as disrupt their and our operations or damage their and our facilities or those of third parties. We have seen an increase in the number of such attacks recently as a large number of our employees are working remotely and accessing our technology infrastructure remotely as a result of the COVID-19 pandemic. Furthermore, such attacks may originate from nation states or attempts by outside parties, hackers, criminal organizations or other threat actors. We cannot guarantee that our security efforts will prevent or timely detect attacks and resulting breaches or breakdowns of our, or our third-party service providers’, databases or systems. In addition, any significant breaches or breakdowns of such databases or systems could result in significant costs, including costs to investigate or remediate. If the systems are damaged or cease to function properly due to any number of causes, including catastrophic events, power outages, security breaches, cyberattacks or other similar events or as a result of legacy systems, and if our business continuity plans do not effectively resolve such issues on a timely basis, we may experience interruptions in our ability to manage or conduct business. We might also experience reputational harm, governmental fines, penalties, regulatory proceedings, litigation and remediation expenses, any of which may adversely impact our business. In addition, such incidents could result in unauthorized disclosure and misuse of material confidential information. Cyber threats are becoming more sophisticated, are constantly evolving and are being made by groups and individuals with a wide range of expertise and motives, and this increases the difficulty of detecting and successfully defending against them. Data breaches or theft of personal information we and our third-party service providers collect, as well as company information and assets, may occur in the future and the failure to implement adequate protections against such intrusions may adversely affect our reputation and financial condition.
Financial and Strategic Risks
We have significant debt obligations that could adversely affect our business and our ability to meet our obligations.
As of September 30, 2020, our total aggregate outstanding indebtedness was approximately $4.2 billion, which included $750 million of senior notes which we repaid on October 16, 2020. We had $392.7 million of additional capacity available under a senior secured revolving credit facility, inclusive of issued and outstanding letters of credit totaling approximately $7.3 million. This significant amount of debt could have important consequences to us and our shareholders, including:
•requiring a substantial portion of our cash flow from operations to make payments on this debt, thereby limiting the cash we have available to fund future growth opportunities, such as research and development, capital expenditures and acquisitions;
•restrictive covenants in our debt arrangements which limit our operations and borrowing, and place restrictions on our ability to pay dividends or repurchase common stock;
•the risk of a future credit ratings downgrade of our debt or rising interest rates on our variable rate debt increasing future debt costs and limiting the future availability of debt financing;
•increasing our vulnerability to general adverse economic and industry conditions and limiting our flexibility in planning for, or reacting to, changes in our business and industry, due to the need to use our cash to service our outstanding debt;
•placing us at a competitive disadvantage relative to our competitors that are not as highly leveraged with debt and that may therefore be able to invest more in their business or use their available cash to pursue other opportunities, including acquisitions; and
•limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise.
In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to repay all of our outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance our debt.
We may need to seek additional financing for our general corporate purposes. For example, we may need to increase our investment in research and development activities or require funding to make acquisitions. Although the indentures and credit agreements relating to our existing debt contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of significant qualifications and exceptions, and, under certain circumstances, the amount of debt that could be incurred in compliance with these restrictions could be substantial. If new debt is added to our and our subsidiaries’ existing debt levels, the related risks that we now face would increase. In addition, none of the indentures or credit agreements relating to our existing debt will prevent us from incurring obligations that do not constitute debt under those agreements. We may be unable to obtain desired additional financing on terms favorable to us, or at all. For example, during periods of volatile credit markets, there is a risk that lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their credit commitments and obligations, including, but not limited to, extending credit up to the maximum permitted by a credit facility and otherwise accessing capital or honoring loan commitments. If our lenders are unable to fund borrowings under their loan commitments or we are unable to borrow, it could be difficult to replace such loan commitments on similar terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund growth opportunities, successfully develop or enhance products, or respond to competitive pressures, any of which could negatively affect our business. If we raise additional funds through the issuance of equity securities, our shareholders will experience dilution of their ownership interest. If we raise additional funds by issuing debt, we may be subject to limitations on our operations and ability to pay dividends due to restrictive covenants. Generally, to the extent that we incur additional indebtedness, all of the risks described above in connection with our debt obligations could increase.
In addition, the London Interbank Offered Rate, or LIBOR, the interest rate benchmark used as a reference rate for certain borrowings under our revolving credit facility and certain derivative instruments, is expected to be phased out by the end of calendar year 2021. A reference rate based on the Secured Overnight Financing Rate, or another alternative benchmark rate, is expected to be established to replace LIBOR. Once the relevant administrator announces that LIBOR has ceased or will cease to be available, or the required lenders elect to opt-in early to a new reference rate, the Company and the lenders under the revolving credit facility will be required to mutually select a substitute reference rate, and if such substitute reference rate, or the replacement reference rate for our derivative instruments, is higher than LIBOR, our interest expense related to such borrowings may increase.
We may experience losses or be subject to increased funding and expenses related to our pension plans.
We assumed pension plan liabilities related to our current and former employees in connection with the separation. Effective January 1, 2014, the pension benefit earned to date by active participants under the legacy U.S. pension plan was frozen and future retirement service benefits are no longer accrued under this retirement program; however, our pension plan obligations remain significant. If the investment of plan assets does not provide the expected long-term returns, if interest rates or other assumptions change, or if governmental regulations change the timing or amounts of required contributions to the plans, we could be required to make significant additional pension contributions, which may have an adverse impact on our
liquidity, our ability to comply with debt covenants and may require recognition of increased expense within our financial statements.
The estimates and assumptions on which our financial projections are based may prove to be inaccurate, which may cause our actual results to materially differ from our projections, which may adversely affect our future profitability, cash flows and stock price.
Our financial projections, including any sales or earnings guidance or outlook we may provide from time to time, depend on certain estimates and assumptions related to, among other things, a number of factors:
•product category growth;
•development and launch of innovative new products;
•market share projections;
•product pricing and sale, volume and product mix;
•foreign exchange rates and volatility;
•manufacturing costs including commodity prices;
•distribution channel volume and costs;
•accruals for estimated liabilities, including litigation reserves, measurement of benefit obligations for pension and other postretirement benefit plans; and
•our ability to generate sufficient cash flow to reinvest in our existing business, fund internal growth, repurchase our stock, make acquisitions, pay dividends and meet debt obligations.
We develop our financial projections based on historical experience and on various other estimates and assumptions that we believe to be reasonable under the circumstances and at the time they are made. Our actual results may differ materially from our financial projections, especially in light of the increased difficulty in making such estimates and assumptions as a result of the COVID-19 pandemic. Any material variation between our financial projections and our actual results may adversely affect our future profitability, cash flows and stock price.
If we pursue strategic acquisitions, divestitures or joint ventures, we might experience operating difficulties, dilution, and other consequences that may harm our business, financial condition, and operating results, and we may not be able to successfully consummate favorable transactions or successfully integrate acquired businesses.
From time to time, we may evaluate potential acquisitions, divestitures or joint ventures that would further our strategic objectives. With respect to acquisitions, we may not be able to identify suitable candidates, consummate a transaction on terms that are favorable to us, or achieve expected returns and other benefits as a result of integration challenges. Some of the areas where we face risks include:
•Diversion of management time and focus from operating our business to challenges related to acquisitions and other strategic transactions;
•Failure to successfully integrate and further develop the acquired business or technology;
•Implementation or remediation of controls, procedures, and policies at the acquired company;
•Integration of the acquired company’s accounting, human resource, and other administrative systems, and coordination of research and development, commercial and marketing functions;
•Transition of operations, users, and customers onto our existing platforms;
•Failure to obtain required approvals on a timely basis, if at all, from governmental authorities, or conditions placed upon approval that could, among other things, delay or prevent us from completing a transaction, or otherwise restrict our ability to realize the expected financial or strategic goals of a transaction;
•In the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political, and regulatory risks associated with specific countries;
•Cultural challenges associated with integrating employees from the acquired company into our organization, and retention of employees from the businesses we acquire;
•Liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, data privacy and security issues, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities; and
•Litigation or other claims in connection with the acquired company, including claims from terminated colleagues, customers, former shareholders, or other third parties.
Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and other strategic transactions could cause us to fail to realize their anticipated benefits, incur unanticipated liabilities, and harm our business generally.
Future acquisitions could also result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities or amortization expenses related to certain intangible assets, and increased operating expenses, which could adversely affect our results of operations and financial condition. Furthermore, if we issue equity or debt securities to raise additional funds, our existing shareholders may experience significant dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing shareholders. Furthermore, if we sell a substantial number of shares of common stock in the public markets, the availability of those shares for sale could adversely affect the market price of our common stock. Such sales, or the perception in the market that holders of a large number of shares intend to sell shares, could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities. For one or more of these transactions, we may:
•use cash that we may need in the future to operate our business;
•incur large charges or substantial liabilities;
•incur debt on terms unfavorable to us or that we are unable to repay; and
•encounter difficulties retaining key employees of the acquired company.
We have divested and may, in the future, divest certain assets, businesses or brands that do not meet our strategic objectives or growth targets. With respect to any potential future divestiture, we may encounter difficulty finding potential acquirers or other divestiture options on favorable terms. Any future divestiture could affect our profitability as a result of the gains or losses on such sale of a business or brand, the loss of the operating income or sales resulting from such sale or the costs or liabilities that we retain, which may negatively impact profitability and cash flow subsequent to any divestiture. We may also be required to recognize impairment charges or other losses as a result of a divestiture.
We may be unable to realize the anticipated benefits of the 2019 acquisitions of the global auto care and battery, lighting and power businesses from Spectrum Brands.
In order to realize the anticipated benefits of our acquisitions of the global auto care business (“Auto Care Acquisition”) and global battery, lighting and power business (“Battery Acquisition” and, together with the Auto Care Acquisition, the “Acquisitions”) from Spectrum Brands Holdings, Inc. in 2019, we have been and will continue to be required to devote significant management attention and resources to aligning the business practices, cultures and operations of the acquired businesses. We may encounter difficulties as we continue to align these businesses in a manner that permits us to achieve the synergies and other benefits anticipated to result from the Acquisitions. Accordingly, the contemplated benefits of the Acquisitions may not be realized fully, or at all, or may take longer to realize than expected.
The successful integration of these Acquisitions depends on our ability to manage the operations and personnel of the acquired businesses. Integrating operations is complex and requires significant efforts and expenses on the part of both us and the acquired businesses. Potential difficulties we may encounter as part of the integration process include, but are not limited to, the following:
•the challenge of integrating complex systems, operating procedures, compliance programs, technology, networks and other assets of the acquired businesses in a manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;
•employees may voluntarily or involuntarily separate employment from us because of the acquisitions;
•our management may have its attention diverted while trying to integrate the acquired businesses;
•we may encounter obstacles when incorporating the acquired businesses into our operations and management, including integrating or separating personnel, financial systems, operating procedures, regulatory compliance programs, technology, networks and other assets in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;
•the challenge of managing the expanded operations of a significantly larger and more complex company and coordinating geographically separate organizations;
•differences in business backgrounds, corporate cultures and management philosophies;
•integration may be more costly, more time consuming and complex or less effective than anticipated;
•inability to maintain uniform standards, controls and procedures; and
•we may discover previously undetected operational or other issues, such as fraud.
Any of these factors could adversely affect our ability to maintain relationships with customers, suppliers, employees and other constituencies. In addition, the success of the Acquisitions will depend, in part, on our ability to realize the anticipated growth opportunities and cost synergies through the successful integration of the acquired businesses. Even if we are successful in integrating the acquired businesses, we may not realize the full benefit of any anticipated growth opportunities or cost synergies or we may not realize these benefits within the expected time frames. In addition, the acquired businesses may have unanticipated liabilities or contingencies.
The benefits that we expect to achieve as a result of the Acquisitions depend, in part, on our ability to realize anticipated growth opportunities and synergies due to cost reductions, alignment of purchase terms and logistics and pricing optimization. Our success in realizing these growth opportunities and synergies, and the timing of this realization, depends on the successful integration of the businesses and operations of the Acquisitions. Even if we successfully integrate the Acquisitions with our existing operations, this integration may not result in the realization of the full benefits of the growth opportunities and annual run-rate synergies that we currently expect from this integration within the estimated three year anticipated time frame. For example, we may be unable to eliminate duplicative costs, or could lose suppliers or customers if we fail to maintain our business relationships. Accordingly, the benefits from the Acquisitions may be offset by costs or delays incurred in integrating the Acquisitions.
The Acquisitions may have liabilities that are not known to us and the acquisition agreements may not provide us with sufficient indemnification with respect to such liabilities.
The Acquisitions may have liabilities that we failed, or were unable, to discover in the course of performing Energizer’s due diligence investigations of the acquired businesses. We cannot assure you that the indemnification available to us under the acquisition agreements in respect of the Acquisitions will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the acquired businesses or that the terms of the acquisition agreements will be complied with. We may learn additional information about the Acquisitions that materially adversely affects us, such as unknown or contingent liabilities and liabilities related to compliance with applicable laws. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.
Legal, Compliance and Sustainability Risks
Our business involves the potential for claims of product liability, labeling claims, commercial claims and other legal claims against us, which could affect our results of operations and financial condition and result in product recalls or withdrawals.
We face exposure to claims arising out of alleged defects in our products, including for property damage, bodily injury or other adverse effects; alleged contaminants in our products; and allegations that our products provide inadequate instructions or warnings regarding their use; and failure to perform as advertised. Product liability, advertising and labeling claims could result in negative publicity that could harm our reputation, sales and results of operation, If any of our products is found to be defective, we may recall such products, which could result in adverse publicity and significant expenses. We maintain product liability insurance, but this insurance does not cover all types of claims, particularly claims that do not involve personal injury or property damage or claims that exceed the amount of insurance coverage. Further, we may not be able to maintain such insurance in sufficient amounts, on desirable terms, or at all, in the future. In addition to the risk of monetary judgments not covered by insurance, product liability claims could result in negative publicity that could harm our products’ reputation and in
certain cases require a product recall. Product withdrawals or product liability claims, and any subsequent remedial actions, could have a material adverse effect on our business, reputation, brand value, results of operations and financial condition.
In addition, we are, and may in the future become, the subject of, or party to, various pending or threatened legal actions, government investigations and proceedings relating to, among other things, advertising disputes with competitors, consumer class actions, including those related to advertising claims, labor claims, breach of contract claims, antitrust litigation, securities litigation, premises liability claims, data privacy and security disputes, employment litigation related to employees, contractors and suppliers, including class action lawsuits, and litigation in foreign jurisdictions. We have been, and may in the future be, subject to additional claims, proceedings and actions as we expand the products within the global auto care product category. In general, claims made by or against us in litigation, investigations, disputes or other proceedings have been and may in the future be expensive and time-consuming to bring or defend against and could result in settlements, injunctions or damages that could significantly affect our business, financial condition and results of operations and harm our reputation. It is not possible to predict the final resolution of litigation, investigations, disputes or proceedings in which we currently are or may in the future become involved and our assessment of the materiality of these matters and any reserves taken in connection therewith may not be consistent with their final resolutions. The impact of these matters, including any reserves taken in connection with such matters, on our business, financial condition and results of operations could be material. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Notes to Consolidated Financial Statements in for additional information related to these matters.
Our business is subject to increasing regulation in the U.S. and abroad, the uncertainty and cost of future compliance and consequence of non-compliance with which may have a material adverse effect on our business.
Federal, state and foreign governments may introduce new or expand existing legislation and regulations, or courts or governmental authorities could impose more stringent interpretations of existing legislation and regulations, that may adversely affect our operations or require us to increase our resources, capabilities and expertise in certain areas, as well as incur increased compliance costs. In order to conduct our operations in compliance with these laws and regulations we must obtain and maintain numerous permits, approvals and certificates from various federal, foreign, state and local governmental authorities.
Additional regulations may be enacted governing the packaging, use and disposal of our auto care business' products containing refrigerants. In recent years, refrigerants such as R-134a have become the subject of regulatory focus due to their potential to contribute to global warming. The EU has passed regulations that essentially phased out of R-134a in automotive cooling systems in new vehicles by 2017. Canada has also implemented similar regulations, phasing into effect beginning in 2021. In the United States, while such regulations are not currently in effect at the federal level, the applicable regulations could be implemented and if so, depending on the scope and timing of the regulations, could have a materially adverse impact on our business. In addition, individual states are regulating the sale and distribution of products containing R-134a. Regulations may also be enacted governing the packaging, use and disposal of our auto care business' products containing refrigerants. If the future use of R-134a is phased out or is limited or prohibited in jurisdictions in which we do business, or if substitutes for R-134a become widely used in A/C systems and their use for DIY and retrofit purposes is not approved by the EPA or other regulatory bodies, the future market for our auto care business' products containing R-134a may be limited, which could have a material adverse impact on our results of operations, financial condition, and cash flows. In addition, any alternatives to R-134a for use in the A/C systems of new vehicles will likely be at a higher cost than that of R-134a and access to supply may be limited. If an alternative becomes widely used, we may be unable to obtain sufficient supply or we may obtain supply at a cost that impacts our net sales and gross margins if we are unable to price products to reflect the increased cost of the alternatives.
Privacy and data protection laws and regulations, including with respect to the European Union’s GDPR, the Brazilian Data Protection Law, and California's CCPA, and the interpretation and enforcement of those and similar laws and regulations, are continuously developing and evolving and there may be uncertainty with respect to how to comply with them. The changes introduced by existing privacy and data protection laws and regulations and the introduction of similar laws and regulations in other jurisdictions, have subjected, and may continue in the future to subject, us to additional costs and have required, and may in the future require, costly changes to our security systems, policies, procedures and practices. Our systems and those of our business partners are subject to regulation to preserve the privacy of certain data held on those systems.
The GDPR imposes more stringent operational requirements for processors and controllers of personal data, including, for example, increased requirements to erase an individual’s information upon request, mandatory data breach notification requirements and onerous new obligations on service providers. The implementation of the GDPR may require substantial amendments to procedures and policies, and these changes could impact our business by increasing operational and compliance costs. The GDPR significantly increases penalties for non-compliance. Non-compliance could also damage our reputation with
retailer customers and consumers and diminish the strength and reputation of their and our brands, or require the payment of monetary penalties. We may also be required to incur additional costs to modify or enhance their or our systems or in order to prevent or remediate any such issues. Our efforts to comply with privacy and data protection laws and regulations may impose significant costs and challenges that are likely to increase over time, which could have a material adverse effect on our financial condition and results of operations.
If the Company is found to be noncompliant with applicable laws and regulations in these or other areas, it could be subject to governmental or regulatory actions, including fines, import detentions, injunctions, product withdrawals or recalls or asset seizures, as well as potential criminal sanctions, any of which could have a material adverse effect on our business. Even if a claim is unsuccessful, is not merited or is not fully pursued, the negative publicity surrounding such assertions could jeopardize our reputation and brand image and have a material adverse effect on our businesses, as well as require resources to rebuild our reputation. Additionally, loss of or failure to obtain necessary permits and registrations, particularly with respect to our global auto care business, could delay or prevent us from meeting current product demand, introducing new products, building new facilities or acquiring new businesses and could adversely affect our financial condition and results of operations.
Increased focus by governmental and non-governmental organizations, customers, consumers and shareholders on sustainability issues, including those related to climate change, may have an adverse effect on our business, financial condition and results of operations and damage our reputation.
As climate change, land use, water use, deforestation, plastic waste, recyclability or recoverability of packaging, including single-use and other plastic packaging, and other sustainability concerns become more prevalent, governmental and non-governmental organizations, customers, consumers and investors are increasingly focusing on these issues. In particular, changing consumer preferences may result in increased customer and consumer concerns and demands regarding plastics and packaging materials, including single-use and non-recyclable plastic packaging, and their environmental impact on sustainability, a growing demand for natural or organic products and ingredients, or increased consumer concerns or perceptions (whether accurate or inaccurate) regarding the effects of ingredients or substances present in certain consumer products. This increased focus on environmental issues and sustainability may result in new or increased regulations and customer, consumer and investor demands that could cause us to incur additional costs or to make changes to our operations to comply with any such regulations and address demands. If we are unable to respond or perceived to be inadequately responding to sustainability concerns, customers and consumers may choose to purchase products from another company or a competitor. Concern over climate change may result in new or increased legal and regulatory requirements to reduce or mitigate the effects of climate change on the environment. Increased costs of energy or compliance with emissions standards due to increased legal or regulatory requirements may cause disruptions in or increased costs associated with manufacturing our products. Any failure to achieve our goals with respect to reducing our impact on the environment or a perception (whether or not valid) of our failure to act responsibly with respect to the environment or to effectively respond to new, or changes in, legal or regulatory requirements concerning climate change or other sustainability concerns could adversely affect our business and reputation.
We are subject to environmental laws and regulations that may expose us to significant liabilities and have a material adverse effect on our results of operations and financial condition.
We must comply with various environmental laws and regulations in the jurisdictions in which we operate, including those relating to the handling and disposal of solid and hazardous wastes, recycling of batteries and packaging, the remediation of contamination associated with the use and disposal of hazardous substances, chemicals in products and product safety. A release of such substances due to accident or an intentional act or the presence of contamination that predates our ownership or operation of our facilities could result in substantial liability to governmental authorities or to third parties. Pursuant to certain environmental laws, we could be subject to joint and several strict liability for contamination relating to our or their predecessors’ current or former properties or any of their respective third-party waste disposal sites. In addition to potentially significant investigation and remediation costs, any such contamination can give rise to claims from governmental authorities or other third parties for natural resource damage, personal injury, property damage or other liabilities. Contamination has been identified at certain of our current and former facilities as well as third-party waste disposal sites, and we are conducting investigation and remediation activities in relation to such properties. The discovery of additional contamination or the imposition of further cleanup obligations at these or other properties or the assertion of tort claims related to such contamination could have a material adverse effect on our businesses, results of operations or financial condition. We have incurred, and will continue to incur, capital and operating expenses and other costs in complying with environmental laws and regulations, including with respect to current and formerly owned facilities, as well as disposal sites owned by third parties to whom we have sent waste. As new laws and regulations are introduced, we could become subject to additional environmental liabilities in the future that could have a material adverse effect on our results of operations or financial condition.
Risks Specific to Our Common Stock
We cannot guarantee that any share repurchase program will be fully consummated or that any share repurchase program will enhance long-term stockholder value, and share repurchases could increase the volatility of the price of our stock and diminish our cash reserves.
In November 2020, the Board of Directors authorized the Company to repurchase up to 7.5 million of our Common Stock. Our repurchase program does not have an expiration date and does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. Our share repurchase program could affect the price of our stock and increase volatility and may be suspended or terminated at any time, which may result in a decrease in the trading price of our stock.
Our common stock ranks junior to our Mandatory Convertible Preferred Stock with respect to dividends and amounts payable in the event of our liquidation, dissolution or winding-up of our affairs.
Our common stock ranks junior to our Mandatory Convertible Preferred Stock, with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up of our affairs. This means that, unless accumulated dividends have been paid on all our Mandatory Convertible Preferred Stock through the most recently completed dividend period, no dividends may be declared or paid on our common stock and we will not be permitted to repurchase any of our common stock, subject to limited exceptions. Likewise, in the event of our voluntary or involuntary liquidation, dissolution or winding-up of our affairs, no distribution of our assets may be made to holders of our common stock until we have paid to holders of our Mandatory Convertible Preferred Stock a liquidation preference equal to $100 per share plus accumulated and unpaid dividends.
Holders of our Mandatory Convertible Preferred Stock will have the right to elect two directors in the case of certain dividend arrearages.
If dividends on any shares of our Mandatory Convertible Preferred Stock have not been declared and paid for the equivalent of six or more quarterly dividend periods, whether or not for consecutive dividend periods, the holders of shares of our Mandatory Convertible Preferred Stock, voting together as a single class with holders of any and all other series of our capital stock on a parity with our Mandatory Convertible Preferred Stock (as to the payment of dividends and amounts payable on a liquidation, dissolution or winding up of our affairs) upon which like voting rights have been conferred and are exercisable will be entitled to vote for the election of a total of two additional members of our Board of Directors, subject to certain terms and limitations. This right to elect directors will dilute the representation of the holders of our common stock on our Board of Directors and may adversely affect the market price of our common stock.
Certain rights of the holders of the Mandatory Convertible Preferred Stock could delay or prevent an otherwise beneficial takeover or takeover attempt of us.
Certain rights of the holders of the Mandatory Convertible Preferred Stock could make it more difficult or more expensive for a third party to acquire us. For example, if a fundamental change were to occur on or prior to January 15, 2022, holders of the Mandatory Convertible Preferred Stock may have the right to convert their Mandatory Convertible Preferred Stock, in whole or in part, at an increased conversion rate and will also be entitled to receive a make-whole amount equal to the present value of all remaining dividend payments on their Mandatory Convertible Preferred Stock as described in the certificate of designation. These features of the Mandatory Convertible Preferred Stock could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.
General Risk Factors
Our growth and expansion could adversely affect our internal control over financial reporting and cause us to incur additional material expense to update and maintain an effective system of internal control.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with generally accepted accounting principles in the U.S. Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance that a misstatement of our
financial statements would be prevented or detected. Our continuing growth and expansion in domestic and globally dispersed markets may place significant additional pressure on our system of internal control over financial reporting and require us to update its internal control over financial reporting. Moreover, the Company engages the services of third parties to assist with business operations and financial reporting processes, which injects additional monitoring obligations and risk into the system of internal control. When the Company is required to comply with new or revised accounting standards or implements changes to its external disclosure processes, it must make any appropriate changes to its internal control over financial reporting to fully implement the standards or such changes, which may require significant effort and judgment. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report its results of operations accurately and on a timely basis, or to detect and prevent fraud and could expose it to regulatory enforcement action and stockholder claims, which could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to attract, retain and develop key personnel.
Our future performance depends in significant part upon the continued service of our executive officers and other key personnel. The loss of the services of one or more of our executive officers or other key employees could have a material adverse effect on our business, prospects, financial condition and results of operations. Our success also depends on our continuing ability to attract, retain and develop highly qualified personnel, including future members of our management team. Competition for such personnel is intense, and there can be no assurance that we can retain and motivate our key employees or attract and retain other highly qualified personnel in the future. Additionally, the escalating costs of offering and administering health care, retirement and other benefits for employees could result in reduced profitability.
As we continue to optimize our operations, the risk of potential employment-related claims and disputes will also increase. As such, we may be subject to claims, allegations or legal proceedings related to employment matters including discrimination, harassment, wrongful termination or retaliation, local, state, federal and non-U.S. labor law violations, injury, and wage violations. In addition, our employees in certain countries in Europe are subject to works council arrangements, exposing us to associated delays, works council claims and associated litigation. In the event we or our partners are subject to one or more employment-related claims, allegations or legal proceedings, we may incur substantial costs, losses or other liabilities in the defense, investigation, settlement, delays associated with, or other disposition of such claims. In addition to the economic impact, we may also suffer reputational harm as a result of such claims, allegations and legal proceedings and the investigation, defense and prosecution of such claims, allegations and legal proceedings could cause substantial disruption in our business and operations, including delaying and reducing the expected benefits of any operations’ optimization. We have policies and procedures in place to reduce our exposure to these risks, but such policies and procedures may not be effective and we may be exposed to such claims, allegations or legal proceedings.
Our credit ratings are important to our cost of capital.
We expect that the major credit rating agencies will continue to evaluate our creditworthiness and give us specified credit ratings. These ratings would be based on a number of factors, including our financial strength and financial policies as well as our strategies, operations and execution. These credit ratings are limited in scope, and do not address all material risks related to investment in Energizer, but rather reflect only the view of each rating agency at the time the rating is issued. Nonetheless, the credit ratings we receive will impact our borrowing costs as well as our access to sources of capital on terms that will be advantageous to our business. Failure to obtain sufficiently high credit ratings could adversely affect the interest rate in future financings, our liquidity or our competitive position and could also restrict our access to capital markets. There can be no assurance that any credit ratings we receive will remain in effect for any given period of time or that a rating will not be lowered, suspended or withdrawn entirely by the applicable rating agencies if, in such rating agency’s judgments, circumstances so warrant.
The resolution of our tax contingencies may result in additional tax liabilities, which could adversely impact our cash flows and results of operations.
Significant estimation and judgment are required in determining our tax provisions for taxes in the U.S. and jurisdictions outside the U.S. In the ordinary course of our business, there are transactions and calculations in which the ultimate tax determination is uncertain. We are regularly audited by tax authorities and, although we believe our tax positions are defensible and our tax provision estimates are reasonable, the final outcome of tax audits and related litigation could be materially different than that reflected in our income tax provisions and accruals.
When particular tax matters arise, a number of years may elapse before such matters are audited and finally resolved. Unfavorable resolution of any tax matter in any of the jurisdictions in which we operate could increase the effective tax rate, which would have an adverse effect on our financial condition and results of operations. Any resolution of a tax issue may require the use of cash in the year of resolution.
We cannot guarantee the timing, amount or payment of dividends or share repurchases on our common stock.
The timing, declaration, amount and payment of future dividends to shareholders or repurchases of our Common Stock will fall within the discretion of our Board of Directors. The Board’s decisions regarding the payment of dividends or repurchase of shares will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, covenants associated with certain of our debt service obligations, industry practice, legal requirements, regulatory constraints and other factors that our Board of Directors deems relevant. The payment of dividends on our common stock is subject to the preferential rights of the Mandatory Convertible Preferred Stock and other preferred stock that the Board may create from time to time. Our indentures and credit agreements relating to our debt also contain limitations on our ability to pay dividends to our shareholders if we are in default, or such dividend payments would cause us to be in default, of our obligations thereunder. In the event that any agreements governing any such debt restrict our ability to declare and pay dividends in cash on our common and preferred stock, we may be unable to declare and pay dividends in cash on our common or preferred stock unless we can repay or refinance the amounts outstanding under such agreements. Our ability to pay dividends and repurchase shares will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend or repurchase shares in the future or continue to pay any dividend or conduct share repurchase programs.
We may take actions that may dilute investors’ percentage of ownership in Energizer in the future.
In the future, we may dilute investors’ percentage ownership in Energizer by issuing additional equity for acquisitions, engaging in capital market transactions or otherwise, including equity awards that we grant to our directors, officers and employees. From time to time, we will issue additional stock-based awards to our employees under our employee benefits plans. Such awards will have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock.
In addition, our amended and restated articles of incorporation authorizes us to issue, without the approval of our shareholders, one or more additional classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our Board of Directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, as in the case of the Mandatory Convertible Preferred Stock, we could grant the holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of our common stock.
Our business could be negatively impacted as a result of shareholder activism or an unsolicited takeover proposal or proxy contest
In recent years, proxy contests and other forms of shareholder activism have been directed against numerous public companies. If we were subject to any form of shareholder activism, we would likely incur significant costs, which could have an adverse effect on our financial condition and results of operations. Shareholder activists may also seek to involve themselves in the governance, strategic direction and operations of the Company through shareholder proposals or otherwise. Such proposals may disrupt our business and divert the attention of our management and other employees, and any perceived uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities, the perception that the Company needs a change in the direction of its business, or the perception that the Company is unstable or lacks continuity, which may be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult for us to attract and retain qualified personnel and business partners, which could adversely affect our business. In addition, actions of activist shareholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
Certain provisions in our amended and restated articles of incorporation and bylaws, and of Missouri law, may deter or delay an acquisition of Energizer.
Our amended and restated articles of incorporation and amended and restated bylaws contain, and the General and Business Corporation Law of Missouri, which we refer to as “Missouri law,” contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with our Board of Directors rather than to attempt a hostile takeover by making the replacement of incumbent directors more time-consuming and difficult. These provisions include, among others:
•limitations on the ability of our shareholders to call a special meeting;
•rules regarding how we may present proposals or nominate directors for election at shareholder meetings;
•the right of our Board of Directors to issue preferred stock without shareholder approval;
•a provision that our shareholders may only remove directors “for cause” and with the approval of the holders of two-thirds of our outstanding voting stock at a special meeting of shareholders called expressly for that purpose; and
•the ability of our directors, and not shareholders, to fill vacancies on our Board of Directors.
In addition, because we have not chosen to opt out of coverage of Section 351.459 of Missouri law, which we refer to as the “business combination statute,” these provisions could also deter or delay a change of control. The business combination statute restricts certain business combination transactions between us and an “interested shareholder,” generally any person who, together with his or her affiliates and associates, owns or controls 20% or more of the outstanding shares of our voting stock, for a period of five years after the date of the transaction in which the person becomes an interested shareholder, unless either such transaction or the interested shareholder’s acquisition of stock is approved by our Board on or before the date the interested shareholder obtains such status. The business combination statute also provides that, after the expiration of such five-year period, business combinations are prohibited unless (i) the holders of a majority of the outstanding voting stock, other than the stock owned by the interested shareholder, or any affiliate or associate of such interested shareholder, approve the business combination or (ii) the business combination satisfies certain detailed fairness and procedural requirements.
We believe that these provisions will help to protect our shareholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some shareholders and could deter or delay an acquisition that our Board of Directors determines is not in our best interests or the best interests of our shareholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.
1B. Unresolved Staff Comments
Item 2. Properties
Our principal executive office is in St. Louis, Missouri. Below is a list of Energizer's principal plants and facilities as of the date of filing. Management believes that the Company's production facilities are adequate to support the business and the properties and equipment have been well maintained.
Asheboro, NC (an owned manufacturing plant and an owned packaging facility)
Bennington, VT (an owned manufacturing plant)
Garrettsville, OH (an owned manufacturing plant)
Marietta, OH (an owned manufacturing plant)
Westlake, OH (an owned research facility)
Dixon, IL (a leased manufacturing and packaging facility)
Dayton, OH (a leased manufacturing and distribution facility)
Fennimore, WI (an owned manufacturing facility)
Portage, WI (an owned manufacturing facility)
Franklin, IN (a leased distribution and packaging facility)
Cimanggis, Indonesia (an owned manufacturing facility on leased land)
Jurong, Singapore (an owned manufacturing facility on leased land)
Alexandria, Egypt (an owned manufacturing facility)
Washington, UK (a leased manufacturing facility)
Rassau, UK (a leased manufacturing facility)
Guatemala City, Guatemala (an owned manufacturing facility)
Curado, Brazil (an owned manufacturing facility)
Santo Domingo, Dominican Republic (an owned distribution facility)
In addition to the properties identified above, Energizer and its subsidiaries own or operate sales offices, regional offices, storage facilities, distribution centers and terminals and related properties.
Through our global supply chain and global manufacturing footprint, we strive to meet diverse consumer demands within each of the markets we serve. Our portfolio of household and specialty batteries, and portable lighting, automotive fragrance and appearance products is distributed through a global sales force and global distributor model.
Item 3. Legal Proceedings
We are parties to a number of legal proceedings in various jurisdictions arising out of our business operations in the normal course of business. 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. However, based upon present information, we believe that our liability, if any, arising from such pending legal proceedings, asserted legal claims and known potential legal claims which are likely to be asserted, are not reasonably likely to be material to our financial position, results of operations, or cash flows, taking into account established accruals for estimated liabilities.
See also the discussion captioned “Governmental Regulations and Environmental Matters” under Item 1 above.
Item 4. Mine Safety Disclosure
Item 4A. Information About Our Executive Officers
A list of the executive officers of Energizer and their business experience follows. Ages shown are as of November 17, 2020. Executive officers are appointed by, and hold office at the discretion of, our Board of Directors.
Alan R. Hoskins - Chief Executive Officer. Mr. Hoskins was President until November 2019 and served as President and Chief Executive Officer of Energizer Household Products Division, a position he held with our former parent company from April 2012 to June 2015. Prior to that position, Mr. Hoskins held several leadership positions at our former parent company, including Vice President, Asia-Pacific, Africa and Middle East from 2008 to 2011, Vice President, North America Household Products Division from 2005 to 2008, Vice President, Sales and Trade Marketing from 1999 to 2005, and Director, Brand Marketing from 1996 to 1999. He started his career at Union Carbide in 1983 following several years in the retailer, wholesaler and broker industry. Mr. Hoskins holds a B.S. in Business Administration from Western New England University and a Masters of Business Administration from Webster University. He also completed the Senior Executive Program at Columbia University. Age: 59. Effective January 1, 2021, Mr. Hoskins will retire as Chief Executive Officer of the Company. Mr. Hoskins will continue to serve as a Director, upon election at the 2021 Annual Shareholders’ Meeting, and has agreed to serve as an advisor to the Company until September 30, 2021.
Mark S. LaVigne - President since November 2019 and Chief Operating Officer since 2015. He previously served as Executive Vice President from 2015 to November 2019. Mr. LaVigne was with our former parent company since 2010. Mr. LaVigne led our Spin-off from our former parent company in 2015, in addition to serving as Vice President, General Counsel and Secretary. Prior to joining the Company, Mr. LaVigne was a partner at Bryan Cave LLP from 2007 to 2010, where he advised our former parent company on several strategic acquisitions. Mr. LaVigne holds a J.D. from St. Louis University School of Law and a B.A. from the University of Notre Dame. Age: 49. The Board of Directors of the Company has appointed Mr. Lavigne to succeed Mr. Hoskins as Chief Executive Officer, which appointment will become effective on January 1, 2021.
Sue K. Drath - Chief Human Capital Officer since 2015. Ms. Drath is responsible for Energizer's global human resources function including culture, talent acquisition, rewards and development for our global colleagues. Ms. Drath was Vice President, Global Rewards of our former parent company. In this role, Ms. Drath was responsible for the design, development, and implementation of all corporate-driven compensation and benefits programs across Energizer’s businesses and areas. Ms. Drath was with our former parent company since 1992, previously serving as Vice President, Global Compensation and Benefits. Ms. Drath graduated from the University of North Dakota with a B.A. degree in Business Administration. Age: 50.
John J. Drabik - SVP, Corporate Controller. Mr. Drabik was appointed as SVP, Corporate Controller and was designated as our Chief Accounting Officer in November 2019. Mr. Drabik has served as the Company's Treasurer since July 2015. Mr. Drabik is responsible for the Company’s global accounting and financial support functions, including global controllership, external reporting, operations accounting and treasury. Mr. Drabik joined Energizer in December 2001 and has held several roles of increasing responsibility, including Vice President, Corporate Development from October 2013 to October 2017 and Vice President, Corporate Controller and Treasurer from October 2017 to November 2019. Mr. Drabik holds an MBA from Washington University in St. Louis and a BS in Accounting from the University of Missouri at Columbia. Age: 48.
Timothy W. Gorman - Executive Vice President, Chief Financial Officer. Mr. Gorman joined the Company in September 2014, and has served as the Chief Financial Officer since June 2017 and as Chief Accounting Officer from July 2015 until November 2019. Prior to that Mr. Gorman served in finance and accounting leadership roles for the Company, including as Vice President of Finance, Controller and Chief Accounting Officer from July 2015 until June 2017 and Vice President, Controller – Household Products of our former parent company from September 2014 to July 2015. Prior to joining the Company, Mr. Gorman worked as an independent financial consultant and in a variety of senior roles during a twenty-five year career at PepsiAmericas, Inc. (previously known as Whitman Corporation), most recently as Senior Vice President and Controller. Mr. Gorman holds a B.S. in Accounting from Indiana University. Age: 60.
Hannah H. Kim - Chief Legal Officer and Corporate Secretary. Ms. Kim was appointed Chief Legal Officer and Corporate Secretary in November 2019. Ms. Kim served as Energizer's Assistant General Counsel and Corporate Secretary from June 2018 to November 2019. Prior to joining Energizer, Ms. Kim was Senior Vice President and Assistant General Counsel for Bank of America from May 2016 to June 2018. Previously, Ms. Kim served as Vice President, Associate General Counsel, Deputy Chief Compliance Officer and Assistant Corporate Secretary for Lowe's Companies, Inc. from October 2008 to May 2016. Ms. Kim holds a law degree and a bachelor's degree in Business Administration and Marketing from the University of Tennessee at Knoxville. Age: 42
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Company's Common Stock is listed on the New York Stock Exchange (NYSE). As of September 30, 2020, there were approximately 5,602 shareholders of record of the Company's Common Stock under the symbol "ENR".
The Company expects to continue to pay regular quarterly dividends. Future dividends are dependent on future earnings, capital requirements and the Company's financial condition and are declared at the sole discretion of the Company's Board of Directors. See Item 1A - Risk Factors - Risks Related to Our Common Stock - We cannot guarantee the timing, amount or payment of dividends or share repurchases on our common stock.
Issuer Purchases of Equity Securities. The following table reports purchases of equity securities during the fourth quarter of fiscal 2020 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|
|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|
|July 1, 2020 - July 31, 2020||31,426 ||$||48.01 ||— ||1,822,655 |
|August 1, 2020 - August 31, 2020||75 ||$||46.29 ||— ||1,822,655 |
|September 1, 2020 - September 30, 2020||47 ||$||40.67 ||— ||1,822,655 |
|Total||31,548 ||$||47.99 ||— |
(1) 31,548 shares purchased during the quarter relate to the surrender to the Company of shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock or execution of net exercises.
(2) On July 1, 2015, the Board of Directors approved a share repurchase authorization for the repurchase of up to 7.5 million shares, of which approximately 1.8 million shares remained authorized for repurchase. No shares were repurchased on the open market during the quarter under the 2015 share repurchase authorization. On November 12, 2020, the Board of Directors approved a new share repurchase authorization for the repurchase of up to 7.5 million shares. This replaced the prior authorization that was outstanding.
The graph below matches Energizer Holdings, Inc.'s cumulative 51-Month total shareholder return on common stock with the cumulative total returns of the S&P Midcap 400 index and the S&P Household Products index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 9/30/2015 to 9/30/2020.
These indices are included only for comparative purposes as required by Securities and Exchange Commission rules and do not necessarily reflect management's opinion that such indices are an appropriate measure of the relative performance of the Common Stock. They are not intended to forecast possible future performance of the Common Stock.
|Energizer Holdings, Inc.||100.0 ||132.2 ||124.8 ||162.3 ||124.0 ||114.2 |
|S&P Midcap 400||100.0 ||115.3 ||135.5 ||154.8 ||150.9 ||147.7 |
|S&P Household Products||100.0 ||125.1 ||128.7 ||125.1 ||175.2 ||200.4 |
Item 6. Selected Financial Data.
All amounts discussed are in millions of U.S. dollars, unless otherwise indicated.
We derived the selected statements of earnings data for the years ended September 30, 2020, 2019, 2018, 2017 and 2016 and selected balance sheet data as of September 30, 2020, 2019, 2018, 2017 and 2016 as set forth below, from our audited Consolidated Financial Statements. The historical results do not necessarily indicate the results expected for any future period. To ensure a full understanding, you should read the selected historical financial data presented below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and accompanying notes included elsewhere in this Annual Report.
|For the Years Ended September 30,|
|Statements of Earnings Data|
|Net sales||$||2,744.8 ||$||2,494.5 ||$||1,797.7 ||$||1,755.7 ||$||1,634.2 |
|Depreciation and amortization||111.9 ||92.8 ||45.1 ||50.2 ||34.3 |
|Earnings before income taxes||67.7 ||73.1 ||175.2 ||273.3 ||165.7 |
|Income taxes||20.9 ||8.4 ||81.7 ||71.8 ||38.0 |
|Net earnings from continuing operations||$||46.8 ||$||64.7 ||$||93.5 ||$||201.5 ||$||127.7 |
|Earnings per common share from continuing operations:|
| Basic ||$||0.44 ||$||0.79 ||$||1.56 ||$||3.27 ||$||2.06 |
| Diluted||$||0.44 ||$||0.78 ||$||1.52 ||$||3.22 ||$||2.04 |
|Average shares outstanding:|
| Basic||68.8 ||66.4 ||59.8 ||61.7 ||61.9 |
| Diluted||69.5 ||67.3 ||61.4 ||62.6 ||62.2 |
|Dividend per common share (a)||$||1.20 ||$||1.20 ||$||1.16 ||$||1.10 ||$||1.00 |
|At September 30,|
|Balance Sheet Data (b)|
|Working capital (c) ||$||562.5 ||$||967.8 ||$||419.9 ||$||438.2 ||$||356.4 |
|Property, plant and equipment, net||352.1 ||362.0 ||166.7 ||176.5 ||201.7 |
|Total assets (d)||5,728.3 ||5,449.6 ||3,178.8 ||1,823.6 ||1,731.5 |
|Long-term debt (e)||3,306.9 ||3,461.6 ||976.1 ||978.5 ||981.7 |
|Long-term debt held in escrow (f)||— ||— ||1,230.7 ||— ||— |
(a)The Company issued a $0.30 per share dividend in each quarter of 2020 and 2019 for a total dividend of $1.20 per share, a $0.29 per share dividend in each quarter of 2018 for a total dividend of $1.16 per share, a $0.275 per share dividend in each quarter of 2017 for a total dividend of $1.10 per share, and a $0.25 per share dividend in each quarter of 2016 for a total dividend of $1.00 per share.
(b)The balances as of September 30, 2020 and 2019 include the working capital and assets of the Battery and Auto Care Acquisitions, as well as the debt assumed to complete those transactions in fiscal 2019. The balances as of September 30, 2019 also included the assets and liabilities held for sale related to the Varta Divestment Business which was sold in fiscal 2020.
(c)Working capital is current assets less current liabilities.
(d)At September 30, 2020, total assets included $790.0 of restricted cash associated with the net proceeds from the September 2020 bond offering which were released subsequent to year-end to fund the full redemption of the $750.0 of Senior Notes. At September 30, 2018, total assets included $1,246.2 of restricted cash associated with the debt from the Battery Acquisition which was funded into escrow in fiscal 2018 and utilized to complete the transaction in fiscal 2019.
(e)At September 30, 2020, the $750.0 of Senior Notes that were redeemed October 16, 2020 were included in the Current portion of long-term debt, which is not included in this Long-term debt balance.
(f)This represents the debt related to the Battery Acquisition which was funded into escrow in fiscal 2018 and then released from escrow in fiscal 2019 to complete the acquisition.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion is a summary of the key factors management considers necessary in reviewing the Company's results of operations, operating segment results, and liquidity and capital resources. Statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) that are not historical may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
You should read the following MD&A in conjunction with the audited Consolidated Financial Statements and corresponding notes included elsewhere in this Annual Report. This MD&A contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements. Please see above “Risk Factors” and “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.
All amounts discussed are in millions of U.S. dollars, unless otherwise indicated.
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’s SEC filings.
Non-GAAP Financial Measures
The Company reports its financial results in accordance with accounting principles generally accepted in the U.S. (GAAP). However, management believes that certain non-GAAP financial measures provide users with additional meaningful comparisons to the corresponding historical or future period. These non-GAAP financial measures exclude items that 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 the December 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.
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 Argentina Operations. The Company is presenting separately all changes in sales and segment profit from our Argentina affiliate due to the designation of the economy as highly inflationary as of July 1, 2018.
Impact of currency. The Company evaluates the operating performance of our Company on a currency neutral basis. The impact of currency is the 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 March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic. The COVID-19 health crisis poses significant and widespread risks to the Company’s business as well as to the business environment and the markets in which the Company operates.
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 the U.S. Center for Disease Control and Prevention and the World 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 others who are directly combatting COVID-19, including doctors, nurses and first responders, as well as others who are performing essential services, such as truck drivers. This has been evident in the recent increased demand for our battery products in the U.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,
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.
On January 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 ended September 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 ended September 30, 2019, the revenue and segment profit from the Acquired Battery Business was $338.9 and $62.7, respectively.
On January 2, 2020, the Company sold the Varta® consumer battery business in the Europe, Middle East and Africa regions, including manufacturing and distribution facilities in Germany (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
On January 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 ended September 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 ended September 30, 2019, the revenue and segment profit associated with the Auto Care Acquisition was $315.8 and $76.8, respectively.
Nu Finish Acquisition
On July 2, 2018, the Company acquired all of the assets of Reed-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 ended September 30, 2020, 2019, and 2018, respectively.
Pre-tax costs recorded in Costs of products sold were $32.0 for the twelve months ended September 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 ended September 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 ended September 30, 2018.
Pre-tax acquisition and integration costs recorded in SG&A were $38.8, $82.3 and $62.9 for the twelve months ended September 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 September 30, 2020 and 2019 the Company recorded $1.3 and $1.1 in research and development, respectively.
Also included in the pre-tax acquisition costs for the twelve months ended September 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 and Auto Care Acquisitions. The pre-tax acquisition costs for the twelve months ended September 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 and Auto Care Acquisitions.
Included in Other items, net was pre-tax income of $4.1, $19.3 and $20.4 in the twelve months ended September 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 ended September 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 ended September 30, 2018. Of the gain, $9.4 was related to contracts which were entered into in June 2018 and locked in the U.S. dollar (USD) value of the Euro notes related to the Battery Acquisition. These contracts were terminated when the funds were placed into escrow on July 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 ended September 30, 2018.
The Company incurred $6.0 of tax withholding costs in the twelve months ended September 30, 2018, related to the cash movement to fund the Battery Acquisition, which were recorded in Income tax provision.
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 by December 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 ended September 30, 2020 and September 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
included within the Americas and International segments in the amount of $27.5 and $2.8, respectively. The restructuring costs for fiscal year 2019, were incurred within the Americas 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.
Through September 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 of September 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.
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 and AAA 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 in Latin America and Asia Pacific, as well as Rayovac-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.
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: Americas and International.
Net earnings from continuing operations for the fiscal year ended September 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 $1.52 per diluted common share, for the fiscal years ended September 30, 2019 and 2018, respectively.
Net earnings from continuing operations and diluted net earnings from continuing operations per common share for the time periods presented were impacted by certain items related to acquisition and integration costs, loss on extinguishment of debt, settlement loss on pension plan termination, gain on sale of real estate, and the one-time impact of the CARES Act and 2017 tax reform as described in the tables below. The impact of these items on reported net earnings from continuing operations and reported diluted net earnings from continuing operations per common share are provided below as a reconciliation to arrive at respective non-GAAP measures. See disclosure under Non-GAAP Financial Measures above.
|For the Twelve Months Ended September 30,|
|Net (loss)/earnings attributable to common shareholders||$||(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 ||$||93.5 |
|Acquisition and integration (1)||68.0||188.4||84.6|
|Loss on extinguishment of debt||94.9 ||— ||— |
|Settlement loss on pension plan terminations (2)||— ||3.7 ||14.1 |
|Gain on sale of real estate||— ||— ||(4.6)|
| Total adjustments, pre-tax||$||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 ||$||216.1 ||$||207.1 |
|For the Twelve Months Ended September 30,|
|Diluted net earnings per common share - continuing operations||$||0.44 ||$||0.78 ||$||1.52 |
|Acquisition and integration ||0.79 ||2.06 ||1.00 |
|Loss on extinguishment of debt||1.05 ||— ||— |
|Settlement loss on pension terminations||— ||0.05 ||0.17 |
|Gain on sale of real estate||— ||— ||(0.06)|
|One-time impact of the CARES Act||0.03 ||— ||— |
|Acquisition withholding tax||— ||— ||0.10 |
|One-time impact of the new U.S. Tax Legislation||— ||(0.01)||0.64 |
|Impact for diluted share calculation ||— ||0.12 ||— |
|Adjusted diluted net earnings per diluted share - continuing operations||$||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 |
(1) Acquisition and integration costs were included in the following lines in the Consolidated Statement of Earnings and Comprehensive Income:
|Twelve Months Ended September 30,|
|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 ||$||188.4 ||$||84.6 |
(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 Ireland pension plan in 2019 and Canadian pension plan in 2018.
(3) This represents the $6.0 of tax withholding expense related to cash movement to fund the Battery Acquisition for the twelve months ended September 30, 2018 recorded in Income tax provision.
(4) The effective tax rate for the Adjusted - Non-GAAP Net earnings from continuing operations and Diluted net earnings from continuing operations per common share was 23.3%, 18.5% and 23.1% for the years ended September 30, 2020, 2019 and 2018, respectively, as calculated utilizing the statutory rate for where the costs were incurred.
(5) For the twelve month ended September 30, 2019 calculation, the Adjusted Weighted average shares of common stock - Diluted assumes conversion of the preferred shares as those results are more dilutive. The shares have been adjusted for the 4.7 million share conversion and the preferred dividend has been excluded from the net earnings.
| For the Years Ended September 30,|
|2020|| % Chg||2019|| % Chg||2018|
|Net sales - prior year||$||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 ||%||$||1,797.7 |
Net sales for the year ended September 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 in Argentina'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 by North 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.
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 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
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 $35.4 in fiscal 2020, $32.8 in fiscal 2019, $22.4 in fiscal 2018. As a percent of net sales, R&D expense was consistent as a percentage of sales at 1.3% in fiscal 2020, 1.3% in fiscal 2019, and 1.2% in fiscal 2018.
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 and Auto 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 and Auto Care businesses.
Gain on Sale of Real Estate
Gain on sale of real estate was $4.6 in fiscal 2018, and included a previously closed manufacturing facility in Asia.
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's July 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 on October 16, 2020. The loss also includes the write off of deferred financing fees related to the term loan refinancing in December 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.
Other Items, Net
Other items, net was expense of $2.0, and income of $14.3 and $6.6 in fiscal 2020, 2019 and 2018, respectively, and is summarized below:
|For the Years Ended September 30,|
|Other items, net|
Interest income on restricted cash (1)
Foreign currency exchange loss
|8.7 ||5.2 ||8.1 |
Pension benefit other than service costs
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
|Gain on sale of assets||(1.0)||— ||— |
|0.2 ||6.1 ||(0.7)|
Total Other items, net
(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 Ireland pension plan in 2019 and Canadian pension plan in 2018.
(3) The loss for the twelve months ended September 30, 2020 related to the hedge contract on the proceeds from the Varta Divestiture. The gain for the twelve months ended September 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 ended September 30, 2018, includes $9.4 related to contracts which were entered into in June 2018 and locked in the U.S. dollar (USD) value of the Euro notes related to the Battery Acquisition. These contracts were terminated when the funds were placed into escrow on July 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.
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 on March 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% statutory U.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.
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 in December 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 statutory U.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 the U.S. on the taxation of international business activities or the adoption of other U.S. tax reform could impact our effective tax rate in the future.
Effective July 1, 2018, the financial statements for our Argentina subsidiary are 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.
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.
|Segment Net Sales|| For the Years Ended September 30,|
|2020|| % Chg||2019|| % Chg||2018|
|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 ||%||$||1,135.6 |
|Net sales - prior year||$||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 |
|Total Net Sales|
|Net sales - prior year||$||2,494.5 ||$||1,797.7 ||$||1,755.7 |