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Financial Instruments and Risk Management | 9 Months Ended
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Jun. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments and Risk Management | Financial Instruments and Risk Management The market risk inherent in the Company's operations creates potential earnings volatility arising from changes in currency rates, interest rates and commodity prices. The Company's policy allows derivatives to be used only for identifiable exposures and, therefore, the Company does not enter into hedges for trading or speculative purposes where the sole objective is to generate profits. Concentration of Credit Risk—The counterparties to derivative contracts consist of a number of major financial institutions and are generally institutions with which the Company maintains lines of credit. The Company does not enter into derivative contracts through brokers nor does it trade derivative contracts on any other exchange or over-the-counter markets. Risk of currency positions and mark-to-market valuation of positions are strictly monitored. The Company continually monitors positions with, and credit ratings of, counterparties both internally and by using outside rating agencies. While nonperformance by these counterparties exposes Energizer to potential credit losses, such losses are not anticipated. In the ordinary course of business, the Company may enter into contractual arrangements (derivatives) to reduce its exposure to commodity price and foreign currency risks. The section below outlines the types of derivatives that existed at June 30, 2019 and September 30, 2018, as well as the Company's objectives and strategies for holding these derivative instruments. Commodity Price Risk—The Company uses raw materials that are subject to price volatility. At times, the Company uses hedging instruments to reduce exposure to variability in cash flows associated with future purchases of certain materials and commodities. The Company began entering into hedging contracts on zinc purchases in March 2019. The contracts are determined to be cash flow hedges and qualify for hedge accounting. The contract maturities for these hedges extend into 2020. There were four open contracts at June 30, 2019, with a total notional value of approximately$16. The pre-tax loss recognized on the zinc contracts was $0.7 at June 30, 2019, and was included in Accumulated other comprehensive income on the Consolidated (Condensed) Balance Sheet. Foreign Currency Risk—A significant portion of Energizer’s product cost is more closely tied to the U.S. dollar than to the local currencies in which the product is sold. As such, a weakening of currencies relative to the U.S. dollar results in margin declines unless mitigated through pricing actions, which are not always available due to the economic or competitive environment. Conversely, a strengthening in currencies relative to the U.S. dollar can improve margins. The primary currencies to which Energizer is exposed include the Euro, the British pound, the Canadian dollar and the Australian dollar. However, the Company also has significant exposures in many other currencies which, in the aggregate, may have a material impact on the Company's operations. Additionally, Energizer’s foreign subsidiaries enter into internal and external transactions that create nonfunctional currency balance sheet positions at the foreign subsidiary level. These exposures are generally the result of intercompany purchases, intercompany loans and, to a lesser extent, external purchases, and are revalued in the foreign subsidiary’s local currency at the end of each period. Changes in the value of the non-functional currency balance sheet positions in relation to the foreign subsidiary’s local currency results in a transaction gain or loss recorded in Other items, net on the Consolidated (Condensed) Statement of Earnings and Comprehensive Income. The primary currency to which Energizer’s foreign subsidiaries are exposed is the U.S. dollar. Interest Rate Risk—Energizer has interest rate risk with respect to interest expense on variable rate debt. At June 30, 2019, Energizer had variable rate debt outstanding with a principal balance of $1,075.0 under the 2018 Term Loans. In March 2017, the Company entered into an interest rate swap agreement (2017 Interest rate swap) with one major financial institution that fixed the variable benchmark component (LIBOR) on $200.0 of Energizer's variable rate debt through June 2022 at an interest rate of 2.03%. In February 2018, the Company entered into a forward starting interest rate swap (2018 Interest rate swap) with an effective date of October 1, 2018, with one major financial institution that fixed the variable benchmark component (LIBOR) on additional variable rate debt of $400.0 at an interest rate of 2.47%. Beginning April 1, 2019, the notional amount decreases $50.0 each quarter until its termination date of December 31, 2020. These hedging instruments are considered cash flow hedges for accounting purposes. At June 30, 2019 and September 30, 2018, Energizer recorded an unrealized pre-tax net loss of $3.9 and a net gain of $7.7, respectively, on these interest rate swap contracts, both of which were included in Accumulated other comprehensive loss on the Consolidated Balance Sheet. Cash Flow Hedges—The Company has entered into a series of forward currency contracts to hedge the cash flow uncertainty of the forecasted payment of inventory purchases due to short term currency fluctuations. Energizer’s foreign affiliates, which have the largest exposure to U.S. dollar purchases, have the Euro, the British pound, the Canadian dollar and the Australian dollar as their local currencies. These foreign currencies represent a significant portion of Energizer's foreign currency exposure. At June 30, 2019 and September 30, 2018, Energizer had an unrealized pre-tax gain of $1.3 and $4.3, respectively, on these forward currency contracts accounted for as cash flow hedges included in Accumulated other comprehensive loss on the Consolidated (Condensed) Balance Sheets. Assuming foreign exchange rates versus the U.S. dollar remain at June 30, 2019 levels, over the next 12 months, $1.5 of the pre-tax gain included in Accumulated other comprehensive loss is expected to be recognized in earnings. Contract maturities for these hedges extend into fiscal year 2020. There were 64 open foreign currency contracts at June 30, 2019, with a total notional value of approximately $140. Derivatives not Designated in Hedging Relationships—Energizer enters into foreign currency derivative contracts which are not designated as cash flow hedges for accounting purposes, to hedge existing balance sheet exposures. Any gains or losses on these contracts are expected to be offset by corresponding exchange losses or gains on the underlying exposures, and as such are not subject to significant market risk. There were ten open foreign currency derivative contracts which are not designated as cash flow hedges at June 30, 2019, with a total notional value of approximately $206. The following table provides the Company's estimated fair values as of June 30, 2019 and September 30, 2018, and the amounts of gains and losses on derivative instruments classified as cash flow hedges for the quarter and nine months ended June 30, 2019 and 2018, respectively:
|  | At June 30, 2019 |  | For the Quarter Ended June 30, 2019 |  | For the Nine Months Ended June 30, 2019
Derivatives designated as Cash Flow Hedging Relationships |  | Estimated Fair Value Asset/(Liability) (1) |  | Loss Recognized in OCI (2) |  | Gain Reclassified From OCI into Income (3) (4) |  | Gain/(Loss) Recognized in OCI (2) |  | Gain Reclassified From OCI into Income (3) (4)
Foreign currency contracts |  | $ | 1.3 |  |  | $ | (0.4 | ) |  | $ | 1.9 |  |  | $ | 3.7 |  |  | $ | 6.7 |
Interest rate swaps (2017 and 2018) |  | (3.9 | ) |  | (4.1 | ) |  | 0.2 |  |  | (11.0 | ) |  | 0.4 |
Zinc contracts |  | (0.7 | ) |  | (0.9 | ) |  | — |  |  | (0.7 | ) |  | — |
Total |  | $ | (3.3 | ) |  | $ | (5.4 | ) |  | $ | 2.1 |  |  | $ | (8.0 | ) |  | $ | 7.1 |
|  | At September 30, 2018 |  | For the Quarter Ended June 30, 2018 |  | For the Nine Months Ended June 30, 2018
Derivatives designated as Cash Flow Hedging Relationships |  | Estimated Fair Value Asset (1) |  | Gain Recognized in OCI (2) |  | Loss Reclassified From OCI into Income (4) (5) |  | Gain Recognized in OCI (2) |  | Loss Reclassified From OCI into Income (4) (5)
Foreign currency contracts |  | $ | 4.3 |  |  | $ | 5.6 |  |  | $ | (0.8 | ) |  | $ | 4.8 |  |  | $ | (5.1 | )
Interest rate swaps (2017 and 2018) |  | 7.7 |  |  | 2.2 |  |  | (0.2 | ) |  | 6.7 |  |  | (1.0 | )
Total |  | $ | 12.0 |  |  | $ | 7.8 |  |  | $ | (1.0 | ) |  | $ | 11.5 |  |  | $ | (6.1 | )
(1) All derivative assets are presented in Other current assets or Other assets. All derivative liabilities are presented in Other current liabilities or Other liabilities. (2) OCI is defined as other comprehensive income. (3) Gain reclassified to Income was recorded as follows: Foreign currency contracts in Cost of products sold, interest rate contracts in Interest expense, and commodity contracts in Cost of products sold. (4) Each of these hedging relationships has derivative instruments with a high correlation to the underlying exposure being hedged and has been deemed highly effective in offsetting the underlying risk. (5) Loss reclassified to Income was recorded as follows: Foreign currency contracts in Other items, net, interest rate contracts in Interest expense, and commodity contracts in Cost of products sold. The following table provides estimated fair values as of June 30, 2019 and September 30, 2018 and the gains and losses on derivative instruments not classified as cash flow hedges for the quarter and nine months ended June 30, 2019 and 2018, respectively:
|  | At June 30, 2019 |  | For the Quarter Ended June 30, 2019 |  | For the Nine Months Ended June 30, 2019
|  | Estimated Fair Value Liability (1) |  | Loss Recognized in Income (2) (3) |  | Loss Recognized in Income (2) (3)
Foreign currency contracts |  | $ | (1.0 | ) |  | $ | (1.3 | ) |  | $ | (0.2 | )
|  | At September 30, 2018 |  | For the Quarter Ended June 30, 2018 |  | For the Nine Months Ended June 30, 2018
|  | Estimated Fair Value Liability (1) |  | Gain Recognized in Income (4) |  | Gain Recognized in Income (4)
Foreign currency contracts |  | $ | (0.1 | ) |  | $ | 8.7 |  |  | $ | 10.0 |
(1) All derivative liabilities are presented in Other current liabilities or Other liabilities. (2) Loss recognized in Income was recorded as foreign currency in Cost of products sold. (3) Includes a $0.9 loss on a hedge contract on the Euro proceeds anticipated from the Varta divestiture. (4) Gain recognized in Income was recorded as foreign currency in Other items, net. Energizer has the following recognized financial assets resulting from those transactions that meet the scope of the disclosure requirements as necessitated by applicable accounting guidance for balance sheet offsetting.
Offsetting of derivative assets
|  |  |  | At June 30, 2019 |  | At September 30, 2018
Description |  | Balance Sheet location |  | Gross amounts of recognized assets |  | Gross amounts offset in the Balance Sheet |  | Net amounts of assets presented in the Balance Sheet |  | Gross amounts of recognized assets |  | Gross amounts offset in the Balance Sheet |  | Net amounts of assets presented in the Balance Sheet
Foreign Currency Contracts |  | Other Current Assets, Other Assets |  | $ | 2.3 |  |  | $ | (0.4 | ) |  | $ | 1.9 |  |  | $ | 4.7 |  |  | $ | (0.2 | ) |  | $ | 4.5 |
Offsetting of derivative liabilities
|  |  |  | At June 30, 2019 |  | At September 30, 2018
Description |  | Balance Sheet location |  | Gross amounts of recognized liabilities |  | Gross amounts offset in the Balance Sheet |  | Net amounts of liabilities presented in the Balance Sheet |  | Gross amounts of recognized liabilities |  | Gross amounts offset in the Balance Sheet |  | Net amounts of liabilities presented in the Balance Sheet
Foreign Currency Contracts |  | Other Current Liabilities, Other Liabilities |  | $ | (1.6 | ) |  | $ | — |  |  | $ | (1.6 | ) |  | $ | (0.3 | ) |  | $ | — |  |  | $ | (0.3 | )
Fair Value Hierarchy—Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified in one of the following three categories: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions or external inputs from inactive markets. Under the fair value accounting guidance hierarchy, an entity is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The following table sets forth the Company's financial assets and liabilities, which are carried at fair value, as of June 30, 2019 and September 30, 2018 that are measured on a recurring basis during the period, segregated by level within the fair value hierarchy:
| Level 2
Assets/(Liabilities) at estimated fair value: | June 30, 2019 |  | September 30, 2018
Deferred compensation | $ | (27.4 | ) |  | $ | (29.0 | )
Derivatives - Foreign Currency contracts | 1.3 |  |  | 4.3 |
Derivatives - Foreign Currency contracts (non-hedge) | (1.0 | ) |  | (0.1 | )
Derivatives - 2017 and 2018 Interest Rate swaps | (3.9 | ) |  | 7.7 |
Derivatives - Zinc contracts | (0.7 | ) |  | — |
Exit lease liability | (0.3 | ) |  | (0.6 | )
Net Liabilities at estimated fair value | $ | (32.0 | ) |  | $ | (17.7 | )
Energizer had no Level 1 financial assets or liabilities, other than pension plan assets, and no Level 3 financial assets or liabilities at June 30, 2019 and at September 30, 2018. Due to the nature of cash, cash equivalents and restricted cash, carrying amounts on the balance sheets approximate estimated fair value. The estimated fair value of cash was determined based on level 1 inputs and cash equivalents and restricted cash are determined based on level 2 inputs. At June 30, 2019, the estimated fair value of the Company's unfunded deferred compensation liability is determined based upon the quoted market prices of investment options that are offered under the plan. The estimated fair value of foreign currency contracts, interest rate swap and zinc contracts, as described above, is the amount that the Company would receive or pay to terminate the contracts, considering first, quoted market prices of comparable agreements, or in the absence of quoted market prices, such factors as interest rates, currency exchange rates and remaining maturities. The estimated fair value of the exit lease liability was determined based on the discounted cash flows of the remaining lease rentals reduced by estimated sublease rentals that could be reasonably obtained for the property. At June 30, 2019, the fair market value of fixed rate long-term debt was $2,493.4 compared to its carrying value of $2,439.2 and at September 30, 2018, the fair market value of fixed rate long-term debt was $599.2 compared to its carrying value of $600.0. At September 30, 2018, the fair market value of the fixed rate long-term debt held in escrow was $1,274.4 compared to its carrying value $1,254.2. The long term debt held in escrow outstanding at September 30, 2018 was funded in the the second quarter and was no longer held in escrow at June 30, 2019. The estimated fair value of the long-term debt is estimated using yields obtained from independent pricing sources for similar types of borrowing arrangements. The estimated fair value of fixed rate long-term debt has been determined based on Level 2 inputs.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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