UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________

FORM 10-Q

_______________________________

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

Or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                         to

Commission File Number: 001-36837

____________________________________________________________________________________________________________

ENERGIZER HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Missouri			36-4802442
(State or other jurisdiction of			(I. R. S. Employer
incorporation or organization)			Identification No.)
533 Maryville University Drive
St. Louis,	Missouri		63141
(Address of principal executive offices)			(Zip Code)
	(314)	985-2000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	ENR	New York Stock Exchange
7.50% Series A Mandatory Convertible Preferred Stock, par value $.01 per share	ENR PRA	New York Stock Exchange

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 such files).  Yes ☒ No ☐

1

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	☐
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

Indicate the number of shares of Energizer Holdings, Inc. common stock, $.01 par value, outstanding as of the close of business on August 2, 2019: 68,902,033.

2

INDEX
	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Earnings and Comprehensive Income (Condensed) for the Quarter and Nine Months Ended June 30, 2019 and 2018	4
Consolidated Balance Sheets (Condensed) as of June 30, 2019 and September 30, 2018	5
Consolidated Statements of Cash Flows (Condensed) for the Nine Months Ended June 30, 2019 and 2018	6
Consolidated Statements of Shareholders' Equity/(Deficit) (Condensed) for the Nine Months Ended June 30, 2019 and 2018	7
Notes to Consolidated (Condensed) Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3. Quantitative and Qualitative Disclosures About Market Risk	53
Item 4. Controls and Procedures	55
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	56
Item 1A. Risk Factors	56
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 6. Exhibits	60
EXHIBIT INDEX	61
SIGNATURES	63

3

ENERGIZER HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(Condensed)

(In millions, except per share data - Unaudited)  

	For the Quarter Ended June 30,						For the Nine Months Ended June 30,
	2019			2018			2019			2018
Net sales	$	647.2		$	392.8		$	1,775.5		$	1,340.5
Cost of products sold	400.9			216.7			1,059.5			717.6
Gross profit	246.3			176.1			716.0			622.9
Selling, general and administrative expense	127.6			111.9			373.5			315.3
Advertising and sales promotion expense	34.3			22.9			99.9			81.1
Research and development expense	9.5			5.2			23.7			15.9
Amortization of intangible assets	14.4			2.8			30.1			8.4
Gain on sale of real estate	—			(4.6		)	—			(4.6		)
Interest expense	51.9			17.7			177.3			47.6
Other items, net	(0.8		)	(11.3		)	(13.9		)	(9.1		)
Earnings before income taxes	9.4			31.5			25.4			168.3
Income tax provision	0.2			7.7			7.7			76.3
Earnings from continuing operations	9.2			23.8			17.7			92.0
Net loss from discontinued operations, net of income tax expense of $0.4 and a benefit of $2.5 for the quarter and nine months ended June 30, 2019, respectively.	(1.8		)	—			(12.8		)	—
Net earnings	7.4			23.8			4.9			92.0
Mandatory convertible preferred stock dividends	(4.4		)	—			(7.7		)	—
Net earnings/(loss) attributable to common shareholders	$	3.0		$	23.8		$	(2.8	)	$	92.0
Basic net earnings per common share - continuing operations	$	0.07		$	0.40		$	0.15		$	1.54
Basic net loss per common share - discontinued operations	(0.03		)	—			(0.19		)	—
Basic net earnings/(loss) per common share	$	0.04		$	0.40		$	(0.04	)	$	1.54
Diluted net earnings per common share - continuing operations	$	0.07		$	0.39		$	0.15		$	1.50
Diluted net loss per common share - discontinued operations	(0.03		)	—			(0.19		)	—
Diluted net earnings/(loss) per common share	$	0.04		$	0.39		$	(0.04	)	$	1.50
Weighted average shares of common stock - Basic	69.6			59.7			65.5			59.9
Weighted average shares of common stock - Diluted	70.6			61.4			66.5			61.4
Statements of Comprehensive Income:
Net earnings	$	7.4		$	23.8		$	4.9		$	92.0
Other comprehensive (loss)/income, net of tax (benefit)/expense
Foreign currency translation adjustments	(12.3		)	(31.5		)	4.3			(14.9		)
Pension activity, net of tax of $0.2 and $0.8, for the quarter and nine months ended June 30, 2019, respectively, and $0.4 and $1.2 for the quarter and nine months ended June 30, 2018, respectively.	0.9			3.0			3.0			4.8
Deferred (loss)/gain on hedging activity, net of tax of ($1.9) and ($3.7), for the quarter and nine months ended June 30, 2019, respectively, and $2.1 and $4.7 for the quarter and nine months ended June 30, 2018, respectively.	(6.4		)	6.7			(10.8		)	13.0
Total comprehensive (loss)/income	$	(10.4	)	$	2.0		$	1.4		$	94.9

The above financial statements should be read in conjunction with the Notes To Consolidated (Condensed) Financial Statements (Unaudited).

4

ENERGIZER HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(Condensed)

(In millions - Unaudited)

Assets	June 30, 2019			September 30, 2018
Current assets
Cash and cash equivalents	$	206.4		$	522.1
Trade receivables, less allowance for doubtful accounts of $6.1 and $4.0, respectively	341.1			230.4
Inventories	524.3			323.1
Other current assets	196.0			95.5
Assets held for sale	807.6			—
Total current assets	2,075.4			1,171.1
Restricted cash	—			1,246.2
Property, plant and equipment, net	361.0			166.7
Goodwill	1,062.4			244.2
Other intangible assets, net	1,922.2			232.7
Deferred tax asset	52.9			36.9
Other assets	103.8			81.0
Total assets	$	5,577.7		$	3,178.8
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt	$	10.0		$	4.0
Current portion of capital leases	1.6			—
Notes payable	41.5			247.3
Accounts payable	308.4			228.9
Other current liabilities	359.2			271.0
Liabilities held for sale	384.9			—
Total current liabilities	1,105.6			751.2
Long-term debt	3,493.2			976.1
Long-term debt held in escrow	—			1,230.7
Other liabilities	408.2			196.3
Total liabilities	5,007.0			3,154.3
Shareholders' equity
Common stock	0.7			0.6
Mandatory convertible preferred stock	—			—
Additional paid-in capital	867.2			217.8
Retained earnings	109.5			177.3
Treasury stock	(161.4		)	(129.4		)
Accumulated other comprehensive loss	(245.3		)	(241.8		)
Total shareholders' equity	570.7			24.5
Total liabilities and shareholders' equity	$	5,577.7		$	3,178.8

The above financial statements should be read in conjunction with the Notes To Consolidated (Condensed) Financial Statements (Unaudited).

5

ENERGIZER HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Condensed)

(In millions - Unaudited)

	For the Nine Months Ended June 30,
	2019			2018
Cash Flow from Operating Activities
Net earnings	$	4.9		$	92.0
Loss from discontinued operations, net of tax	(12.8		)	—
Net earnings from continuing operations	17.7			92.0
Depreciation and amortization	70.8			33.8
Deferred income taxes	(1.2		)	11.1
Share-based compensation expense	20.8			21.0
Gain on sale of real estate	—			(4.6		)
Mandatory transition tax	0.7			28.2
Inventory step up	33.7			—
Non-cash items included in income, net	(3.0		)	(2.1		)
Other, net	(16.7		)	(7.8		)
Changes in current assets and liabilities used in operations	(92.4		)	16.4
Net cash from operating activities from continuing operations	30.4			188.0
Net cash used by operating activities from discontinued operations	(23.4		)	—
Net cash from operating activities	7.0			188.0
Cash Flow from Investing Activities
Capital expenditures	(36.4		)	(17.2		)
Proceeds from sale of assets	0.1			6.1
Acquisitions, net of cash acquired	(2,453.8		)	—
Net cash used by investing activities from continuing operations	(2,490.1		)	(11.1		)
Net cash used by investing activities from discontinued operations	(403.1		)	—
Net cash used by investing activities	(2,893.2		)	(11.1		)
Cash Flow from Financing Activities
Cash proceeds from issuance of debt with original maturities greater than 90 days	1,800.0			—
Payments on debt with maturities greater than 90 days	(513.8		)	(3.0		)
Net (decrease)/increase in debt with original maturities of 90 days or less	(204.5		)	70.6
Debt issuance costs	(40.1		)	(1.4		)
Net proceeds from issuance of mandatory convertible preferred stock	199.5			—
Net proceeds from issuance of common stock	205.3			—
Dividends paid on mandatory convertible preferred stock	(4.0		)	—
Dividends paid on common stock	(61.7		)	(52.3		)
Common stock purchased	(45.0		)	(50.0		)
Taxes paid for withheld share-based payments	(7.2		)	(1.8		)
Net cash from/(used by) financing activities from continuing operations	1,328.5			(37.9		)
Net cash used by financing activities from discontinued operations	(2.9		)	—
Net cash from/(used by) financing activities	1,325.6			(37.9		)
Effect of exchange rate changes on cash	(1.3		)	(6.1		)
Net (decrease)/increase in cash, cash equivalents, and restricted cash from continuing operations	(1,132.5		)	132.9
Net decrease in cash, cash equivalents, and restricted cash from discontinued operations	(429.4		)	—
Net (decrease)/increase in cash, cash equivalents, and restricted cash	(1,561.9		)	132.9
Cash, cash equivalents, and restricted cash, beginning of period	1,768.3			378.0
Cash, cash equivalents, and restricted cash, end of period	$	206.4		$	510.9

The above financial statements should be read in conjunction with the Notes To Consolidated (Condensed) Financial Statements (Unaudited).

6

ENERGIZER HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIT)

(Condensed)

(Amounts in millions, Shares in thousands - Unaudited)

	Number of Shares			Amount
	Preferred Stock	Common Stock		Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss)/Income			Total Shareholders' Equity/(Deficit)
September 30, 2018	—	59,608		$	—	$	0.6	$	217.8		$	177.3		$	(129.4	)	$	(241.8	)	$	24.5
Net earnings from continuing operations	—	—		—		—		—			70.8			—			—			70.8
Share based payments	—	—		—		—		6.5			—			—			—			6.5
Activity under stock plans	—	290		—		—		(16.1		)	(3.6		)	12.6			—			(7.1		)
Dividends to shareholders ($0.30 per share)	—	—		—		—		—			(18.4		)	—			—			(18.4		)
Other comprehensive loss	—	—		—		—		—			—			—			(5.9		)	(5.9		)
December 31, 2018	—	59,898		$	—	$	0.6	$	208.2		$	226.1		$	(116.8	)	$	(247.7	)	$	70.4
Net loss from continuing operations	—	—		—		—		—			(62.3		)	—			—			(62.3		)
Net loss from discontinued operations	—	—		—		—		—			(11.0		)	—			—			(11.0		)
Share based payments	—	—		—		—		7.6			—			—			—			7.6
Issuance of common stock	—	9,966				0.1		445.7			—			—			—			445.8
Issuance of preferred stock	2,156	—		—		—		199.5			—			—			—			199.5
Activity under stock plans	—	11		—		—		(0.5		)	—			0.5			—			—
Dividends to common shareholders ($0.30 per share)	—	—		—		—		—			(21.6		)	—			—			(21.6		)
Dividends to preferred shareholders ($1.83 per share)	—	—		—		—		—			(3.3		)	—			—			(3.3		)
Other comprehensive income	—	—		—		—		—			—			—			20.2			20.2
March 31, 2019	2,156	69,875		$	—	$	0.7	$	860.5		$	127.9		$	(116.3	)	$	(227.5	)	$	645.3
Net earnings from continuing operations	—	—		—		—		—			9.2			—			—			9.2
Net loss from discontinued operations	—	—		—		—		—			(1.8		)	—			—			(1.8		)
Share based payments	—	—		—		—		6.7			—			—			—			6.7
Common stock purchased	—	(1,036	)	—		—		—			—			(45.0		)	—			(45.0		)
Activity under stock plans	—	1		—		—					—			(0.1		)	—			(0.1		)
Dividends to common shareholders ($0.30 per share)	—	—		—		—		—			(21.4		)	—			—			(21.4		)
Dividends to preferred shareholders ($1.875 per share)	—	—		—		—		—			(4.4		)	—			—			(4.4		)
Other comprehensive loss	—	—		—		—		—			—			—			(17.8		)	(17.8		)
June 30, 2019	2,156	68,840		$	—	$	0.7	$	867.2		$	109.5		$	(161.4	)	$	(245.3	)	$	570.7

7

ENERGIZER HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIT)

(Condensed)

(Amounts in millions, Shares in thousands - Unaudited)

	Number of Shares			Amount
	Preferred Stock	Common Stock		Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss)/Income			Total Shareholders' Equity/(Deficit)
September 30, 2017	—	60,709		$	—	$	0.6	$	196.7		$	198.7		$	(72.1	)	$	(238.8	)	$	85.1
Net earnings	—	—		—		—		—			60.4			—			—			60.4
Adoption of ASU 2016-16	—	—		—		—		—			(59.2		)	—			—			(59.2		)
Share based payments	—	—		—		—		6.7			—			—			—			6.7
Common stock purchased	—	(1,126	)	—		—		—			—			(50.0		)	—			(50.0		)
Activity under stock plans	—	91		—		—		(4.8		)	(0.8		)	3.8			—			(1.8		)
Dividends to shareholders ($0.29 per share)	—	—		—		—		—			(18.7		)	—			—			(18.7		)
Other comprehensive income	—	—		—		—		—			—			—			11.1			11.1
December 31, 2017	—	59,674		$	—	$	0.6	$	198.6		$	180.4		$	(118.3	)	$	(227.7	)	$	33.6
Net earnings	—	—		—		—		—			7.8			—			—			7.8
Adoption of ASU 2018-02	—	—		—		—		—			20.1			—			(20.1		)	—
Share based payments	—	—		—		—		7.3			—			—			—			7.3
Activity under stock plans	—	12		—		—		(0.5		)	—			0.6			—			0.1
Dividends to shareholders ($0.29 per share)	—	—		—		—		—			(17.8		)	—			—			(17.8		)
Other comprehensive income	—	—		—		—		—			—			—			13.7			13.7
March 31, 2018	—	59,686		$	—	$	0.6	$	205.4		$	190.5		$	(117.7	)	$	(234.1	)	$	44.7
Net earnings	—	—		—		—		—			23.8			—			—			23.8
Share based payments	—	—		—		—		7.0			—			—			—			7.0
Deferred compensation plan	—	—		—		—		12.0			—			—			—			12.0
Dividends to shareholders ($0.29 per share)	—	—		—		—		—			(17.9		)	—			—			(17.9		)
Other comprehensive loss	—	—		—		—		—			—			—			(21.8		)	(21.8		)
June 30, 2018	—	59,686		$	—	$	0.6	$	224.4		$	196.4		$	(117.7	)	$	(255.9	)	$	47.8

The above financial statements should be read in conjunction with the Notes To Consolidated (Condensed) Financial Statement (Unaudited).

8

ENERGIZER HOLDINGS, INC.

NOTES TO CONSOLIDATED (CONDENSED) FINANCIAL STATEMENTS

(In millions - Unaudited)

(1) Description of Business and Basis of Presentation

Description of Business - Energizer Holdings, Inc. and its subsidiaries (Energizer or the Company) is a global manufacturer, marketer and distributer of household batteries, specialty batteries and portable lights under the Energizer® and Eveready® brand names. Energizer offers batteries using lithium, alkaline, carbon zinc, nickel metal hydride, zinc air and silver oxide constructions.

On July 1, 2016, Energizer expanded its portfolio of brands with an acquisition of a leading designer and marketer of automotive fragrance and appearance products. The Company's brands include Refresh Your Car!®, California Scents®, Driven®, Bahama & Co.®, LEXOL® and Eagle One®. On July 2, 2018, Energizer acquired the Nu Finish® and Scratch Doctor® brands to add to its automotive appearance offerings.

On January 2, 2019, Energizer expanded its battery portfolio with the acquisitions of Spectrum Holdings, Inc.’s (Spectrum) global battery, lighting, and portable power business (Battery Acquisition). The Battery Acquisition included the Rayovac® and Varta® brands (Acquired Battery Business).

On January 28, 2019, Energizer further expanded its auto care portfolio with the acquisitions of Spectrum's global auto care business (Auto Care Acquisition). The Auto Care Acquisition included the Armor All®, STP®, and A/C PRO® brands (Acquired Auto Care Business).

On May 29, 2019, the Company entered into a definitive Acquisition Agreement (the “Acquisition Agreement”) with VARTA Aktiengesellschaft (VARTA AG) to divest the Varta® consumer battery business in the Europe, Middle East and Africa regions, including manufacturing and distribution facilities in Germany (Divestment Business). The Company will sell the Divestment Business for an aggregate purchase price of €180.0, subject to purchase price adjustments (Varta Divestiture). Pursuant to the terms of the acquisition agreement with Spectrum for the Battery Acquisition, Spectrum will be contributing an additional $200.0 to Energizer in connection with the divestiture.

Basis of Presentation - The accompanying Consolidated (Condensed) Financial Statements include the accounts of Energizer and its subsidiaries. All significant intercompany transactions are eliminated. Energizer has no material equity method investments, variable interests or non-controlling interests.

The accompanying Consolidated (Condensed) Financial Statements have been prepared in accordance with Article 10 of Regulation S-X and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The year-end Consolidated (Condensed) Balance Sheet was derived from the audited financial statements included in Energizer's Report on Form 10-K, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of our operations, financial position and cash flows

have been included. Certain reclassifications have been made to the prior year financial statements to conform to the current presentation. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for the full year. These statements should be read in conjunction with the financial statements and notes thereto for Energizer for the year ended September 30, 2018 included in the Annual Report on Form 10-K dated November 16, 2018.

On January 2, 2019, the Company completed the Battery Acquisition. The European Commission approved the acquisition conditioned on the divestiture of the Divestment Business. On May 29, 2019, the Company signed a definitive agreement for the sale of the Divestment Business to VARTA AG and expects to complete this divestiture by the end of calendar year 2019, subject to customary closing conditions. As a result, the assets and liabilities associated with the Divestment Business have been classified as held for sale in the accompanying Consolidated (Condensed) Balance Sheets and the respective operations of the Divestment Business have been classified as discontinued operations in the accompanying Consolidated (Condensed) Statements of Earnings and Comprehensive Income and Statements of Cash Flows. See Note 4 - Divestment for more information on the assets and liabilities classified as held for sale and discontinued operations.

Recently Adopted Accounting Pronouncements - In the prior quarter, the Company early adopted ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, on a modified retrospective basis effective October 1, 2018. This update simplifies hedge accounting and decreases complexity for both the preparation and understanding of hedging disclosures in the financial statements. Upon adoption, the Company reclassified $4.8 of

9

ENERGIZER HOLDINGS, INC.

NOTES TO CONSOLIDATED (CONDENSED) FINANCIAL STATEMENTS

(In millions - Unaudited)

hedging settlement gains for the six months ended March 31, 2019 from Other items, net and into Cost of products sold. The gains were related to our currency hedges on payment of inventory purchases and will now be recorded in Cost of products sold to align with the new guidance. The Company recorded gains of $6.7 related to these hedging programs during the nine months ended June 30, 2019. The Company also began a zinc hedging program in the second quarter. See additional discussion in Note 13, Financial Instruments and Risk Management.

Effective October 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, on a modified retrospective basis for all contracts as of the effective date. This guidance provides a single comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries and across capital markets. There was no material impact to retained earnings as a result of the adoption. See Note 2, Revenue Recognition, for additional discussion.

Effective October 1, 2018, the Company early adopted ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This update requires implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement similar to internal-use software guidance. The Company will defer and recognize allowable implementation costs for future projects. Capitalized implementation costs were not material for the quarter and nine months ended June 30, 2019.

Effective October 1, 2018, the Company adopted ASU 2016-15, Statement of Cash Flows- Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice in how certain transactions are classified in the statements of cash flows. The Company has determined that this new guidance has no immediate impact on the Company's consolidated financial position, results of operations or cash flows.

Recently Issued Accounting Pronouncements - On February 25, 2016, the FASB issued ASU 2016-02, Leases. This update aligns the measurement of leases under GAAP more closely with International Financial Reporting Standards by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this update will be effective for Energizer beginning October 1, 2019. Energizer is in the process of evaluating the impact the guidance will have on its financial statements.

(2) Revenue Recognition

Effective for the Company October 1, 2018, ASU 2014-09, Revenue from Contracts with Customers, introduced a five-step model for revenue recognition. In this new model, each contract should be reviewed and analyzed to determine its performance obligations, items affecting the transaction price, how to allocate the transaction price to the performance obligations and when to recognize revenue. The Company performed a review of its contracts and accounting policies considering the new revenue model. Through this review the Company determined that there was no material impact to our financial statements. The Company's revenue recognition policy, controls and processes have been updated to align with the new revenue recognition model.

Nature of Our Business

The Company, 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. 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. We sell to our customers through a combination of a direct sales force and exclusive and non-exclusive third-party distributors and wholesalers.

Our Americas segment sales are comprised of North America and Latin America market groups. North America sales are generally through large retailers with nationally or regionally recognized brands. Latin America sales are generally through distributors or sales by wholesalers or small retailers who may not have national or regional presence.

Our International segment sales are comprised of modern trade, developing and distributor market groups. Modern trade, which is most prevalent in Western Europe and more developed economies throughout the world, generally refers to sales through large retailers with nationally or regionally recognized brands. Developing markets generally

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ENERGIZER HOLDINGS, INC.

NOTES TO CONSOLIDATED (CONDENSED) FINANCIAL STATEMENTS

(In millions - Unaudited)

include sales by wholesalers or small retailers who may not have a national or regional presence. Distributors are utilized in other markets where the Company does not have a direct sales force. Each market's determination is based on the predominant customer type or sales strategy utilized in the market.

Supplemental product and market information is presented below for revenues from external customers for the quarter and nine months ended June 30, 2019 and 2018:

	For the Quarter Ended June 30,				For the Nine Months Ended June 30,
Net Sales	2019		2018		2019		2018
Batteries	$	457.2	$	350.1	$	1,398.5	$	1,204.9
Auto Care	160.8		24.1		289.9		68.9
Lights and Licensing	29.2		18.6		87.1		66.7
Total Net Sales	$	647.2	$	392.8	$	1,775.5	$	1,340.5

	For the Quarter Ended June 30,				For the Nine Months Ended June 30,
	2019		2018		2019		2018
Net Sales
North America	$	410.3	$	216.5	$	1,075.2	$	748.1
Latin America	54.8		24.8		145.0		90.4
Americas	465.1		241.3		1,220.2		838.5
Modern Markets	101.9		81.3		331.8		295.1
Developing Markets	47.6		44.9		142.2		136.2
Distributors Markets	32.6		25.3		81.3		70.7
International	182.1		151.5		555.3		502.0
Total Net Sales	$	647.2	$	392.8	$	1,775.5	$	1,340.5

When Performance Obligations are Satisfied

The Company’s revenue is primarily generated from the sale of finished product to customers. Sales predominantly contain a single delivery element, or performance obligation, and revenue is recognized at a single point in time when title, ownership and risk of loss pass to the customer. This typically occurs when finished goods are delivered to the customer or when finished goods are picked up by a customer or customer’s carrier, depending on contract terms.

Transaction Price

In accordance with the guidance, the Company measures revenue as the amount of consideration for which it expects to be entitled in exchange for transferring goods. Net sales reflect the transaction prices for contracts, which include units shipped at selling list prices reduced by variable consideration as determined by the terms of each individual contract. Discounts are offered to customers for early payment and an estimate of the discount is recorded as a reduction of net sales in the same period as the sale.

The Company offers a variety of programs, primarily to its retail customers, designed to promote sales of its products. Such programs require periodic payments and allowances based on estimated results of specific programs. These programs are considered variable consideration and are recorded as a reduction to net sales at the time revenue is recognized. Methodologies for determining these provisions are dependent on specific customer pricing and promotional practices, which range from contractually fixed percentage price reductions to reimbursement based on actual occurrence or performance. Where applicable, future reimbursements are estimated based on a combination of historical patterns and future expectations regarding specific in-market product performance. The Company accrues, at the time of sale, the estimated total payments and allowances associated with each transaction. Customers redeem trade promotions in the form of payments from the accrued trade allowances or invoice credits against trade receivables. Additionally, the Company offers programs directly to

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ENERGIZER HOLDINGS, INC.

NOTES TO CONSOLIDATED (CONDENSED) FINANCIAL STATEMENTS

(In millions - Unaudited)

consumers to promote the sale of its products. The Company continually assesses the adequacy of accruals for customer and consumer promotional program costs not yet paid. To the extent total program payments differ from estimates, adjustments may be necessary. Historically, these adjustments have not been material.

Our standard sales terms generally include payments within 30 to 60 days and are final with returns or exchanges not permitted unless a special exception is made. Reserves are established based on historical data and recorded in cases where the right of return does exist for a particular sale. The Company does not offer warranties on products.

The Company’s contracts with customers do not have significant financing components or non-cash consideration and the Company does not have unbilled revenue or significant amounts of prepayments from customers. Revenue is recorded net of the taxes we collect on behalf of governmental authorities which are generally included in the price to the customer. Shipping and handling activities are accounted for as contract fulfillment costs and recorded in Cost of products sold.

(3) Acquisitions

Battery Acquisition - On January 2, 2019, the Company completed the Battery Acquisition with a contractual purchase price of $2,000.0, subject to certain purchase price adjustments. The acquisition expanded our battery portfolio globally with the addition of a strong value brand. The initial cash paid after contractual and estimated working capital adjustments was $1,956.2. Included in the above amount is $400.0 of cash consideration that has preliminarily been allocated to the Divestment business discussed below. Energizer funded the Battery Acquisition through net proceeds from the issuance of senior notes, term loans and cash on hand. See Note 10, Debt, for additional discussion on the senior notes and term loans issued.

Success fees of $13.0 were earned by financial advisers in January 2019 after closing the acquisition. This was in addition to the $2.0 paid in January 2018 for services rendered on the transaction.

On December 11, 2018, the European Commission approved the acquisition of the Acquired Battery Business conditioned on the divestiture of the Divestiture Business. Energizer will retain the rights to the Varta brand in Latin America and Asia Pacific, as well as Spectrum’s global Rayovac branded consumer and hearing aid batteries business. On May 29, 2019, the Company signed a definitive agreement for the sale of the Divestment Business to VARTA AG and expects to complete this divestiture by the end of calendar year 2019, subject to customary closing conditions. The assets and liabilities associated with this business have been reported as held for sale both on the preliminary purchase price allocation and the Consolidated (Condensed) Balance Sheets as of June 30, 2019.

The Battery Acquisition was accounted for as a business combination using the acquisition method of accounting which requires assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date.

We have calculated fair values of assets and liabilities acquired for the Battery Acquisition based on our preliminary valuation analysis. Certain preliminary values, including Inventory, Property, plant and equipment, Intangible assets, Deferred taxes and the resultant Goodwill, are not yet finalized pending the final purchase price allocation and are subject to change as additional information is obtained and the final valuation is completed. Preliminary estimates will be finalized within one year of the date of acquisition. 

For purposes of the allocation, the Company determined a preliminary fair value adjustment for inventory based on the estimated selling price of finished goods on hand at the closing date less the sum of (a) costs of disposal and (b) a reasonable profit allowance for the selling effort of the acquiring entity. The preliminary fair value adjustment for the inventory of $14.2 was recorded as expense to Cost of products sold in the second quarter 2019 as that inventory was sold. The fair values of the Battery Acquisition's Property, plant and equipment were estimated using the market approach for land and variations of the cost approach for the buildings and equipment. The fair values of the Battery Acquisition's identifiable intangible assets were estimated using variations of the income approach such as the relief from royalty method and the multi-period excess earnings method.

The Company is still evaluating the current and deferred tax implications and the accounting implications of the asset versus stock deal by legal jurisdiction, as well as the varying statutory tax rates across the global business. The Company maintained the deferred balances from the carrying amount of the Acquired Battery Business as of January 2, 2019 until that evaluation is completed. Preliminary step ups on the deferred tax liabilities have been recorded based on the valuation of the Property, plant and equipment and Intangible assets.

12

ENERGIZER HOLDINGS, INC.

NOTES TO CONSOLIDATED (CONDENSED) FINANCIAL STATEMENTS

(In millions - Unaudited)

Assets held for sale include the valuation of Inventory, Property, plant and equipment and Intangible assets consistent with the valuation methods discussed above. The preliminary fair value adjustment for the inventory of $11.2 was recorded as expense in the results from discontinued operations in the second quarter 2019 as that inventory was sold. A preliminary estimate of goodwill has also been allocated to the Assets held for sale.

The following table outlines the preliminary purchase price allocation as of the date of acquisition:

Cash and cash equivalents	$	37.8
Trade receivables	59.4
Inventories	82.4
Other current assets	22.5
Assets held for sale	805.0
Property, plant and equipment, net	138.5
Goodwill	547.2
Other intangible assets, net	747.5
Other assets	14.1
Current portion of capital leases	(1.2		)
Accounts payable	(39.2		)
Other current liabilities	(24.8		)
Long-term debt	(14.7		)
Liabilities held for sale	(405.0		)
Other liabilities	(13.3		)
Net assets acquired	$	1,956.2

The table below outlines the purchased identifiable intangible assets of $747.5:

	Total		Weighted Average Useful Lives
Trade names	$	513.0	Indefinite
Proprietary technology	61.0		5.9
Customer relationships	173.5		15.0
Total Other intangible assets, net	$	747.5

During the quarter, the Company continued to review its allocation of fair value to assets acquired and liabilities assumed. The Company adjusted the allocation of goodwill between the assets held for sale of the Divestment Business and the remaining assets of the Battery Acquisition. The goodwill allocated to the Divestment business was decreased by $50.0.

Estimated asset valuations and assumed liabilities, including deferred income taxes, may be adjusted in subsequent filings as final purchase price allocations are completed. Any changes to the initial estimates of the fair value of assets and liabilities acquired will be allocated to residual goodwill.

The goodwill acquired in this acquisition is attributable to the workforce of the acquired business and the synergies expected to arise with this transaction through network optimization, selling, general and administrative reductions and procurement efficiencies. The assignment of goodwill to our reportable segments, as well as the allocation to Assets held for sale, is not currently complete. The goodwill associated with this acquisition is deductible for tax purposes.

Auto Care Acquisition - On November