NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except per share data)
Note 1 - Background and Basis of Presentation
Background
Edgewell Personal Care Company and its subsidiaries (collectively, “Edgewell” or the “Company”) is one of the world’s largest manufacturers and marketers of personal care products in the wet shave, sun and skin care, and feminine care categories. Edgewell operates in more than 20 countries and has a global footprint in more than 50 countries.
The Company conducts its business in the following three segments:
•Wet Shave consists of products sold under the Schick®, Wilkinson Sword®, Edge, Skintimate®, Billie®, Shave Guard and Personna® brands, as well as non-branded products. The Company’s wet shave products include razor handles and refillable blades, disposable shave products, and shaving gels and creams.
•Sun and Skin Care consists of Banana Boat® and Hawaiian Tropic® sun care products, Jack Black®, Bulldog® and Cremo® men’s grooming products, and Wet Ones® products.
•Feminine Care includes tampons, pads, and liners sold under the Playtex Gentle Glide® and Sport®, Stayfree®, Carefree®, and o.b.® brands.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its controlled subsidiaries and have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) under the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). The preparation of the unaudited Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results may differ materially from those estimates. All intercompany balances and transactions have been eliminated in consolidation and, in the opinion of management, all normal recurring adjustments considered necessary for a fair statement have been included in the interim results reported. The fiscal year-end balance sheet data was derived from audited consolidated financial statements, but do not include all of the annual disclosures required by GAAP; accordingly, these unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited annual consolidated financial statements included in its Annual Report on Form 10-K filed with the SEC on November 19, 2021.
Acquisition of Billie, Inc. On November 29, 2021, the Company completed the acquisition of Billie, Inc. (“Billie”), a leading U.S. based consumer brand company that offers a broad portfolio of personal care products for women. The results of Billie for the post-acquisition period are included within the Company’s results since the acquisition date for the quarter ended December 31, 2021. For more information on the acquisition, see Note 2 of Notes to Consolidated Financial Statements.
Recently Adopted Accounting Pronouncements.
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update 2019-12, which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period when interim loss exceeds anticipated loss for the year, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The Company adopted this standard as of October 1, 2021. There was no cumulative effect adjustment recorded to retained earnings as the amount was not material. The effects of this standard on our financial position, results of operations and cash flows were not material.
Note 2 - Business Combinations
Billie Inc.
On November 29, 2021, the Company completed the acquisition of Billie (the “Acquisition”) for cash consideration of $308.8, net of cash acquired and subject to certain post-closing adjustments. As a result of the Acquisition, Billie became a wholly owned subsidiary of the Company. The Company accounted for the Acquisition utilizing the acquisition method of accounting, which requires assets and liabilities to be recognized based on estimates of their acquisition date fair values. The determination of the values of the acquired assets and assumed liabilities, including goodwill, other intangible assets and deferred taxes, requires significant judgement. The purchase price allocation remains preliminary, as certain information is not yet available. This includes, but is not limited to, the finalization of the fair value of certain assets and liabilities, including the completion of intangible asset valuations. Additionally, tax returns and analyses required to calculate the underlying tax basis of the Acquisition’s assets, liabilities and net operating losses have not been finalized. We expect to complete the purchase price allocation during the 12-month period following the acquisition date, during which time the value of the assets and liabilities may be revised as appropriate.
The Company used variations of the income approach in determining the fair value of intangible assets acquired in the Acquisition. Specifically, we utilized the multi-period excess earnings method to determine the fair value of the definite lived customer relationships acquired and the relief from royalty method to determine the fair value of the definite lived trade name acquired. Our determination of the fair value of the intangible assets acquired involved the use of significant estimates and assumptions related to revenue growth rates, discount rates, customer attrition rates, and royalty rates. Edgewell believes that the fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that marketplace participants would use.
The following table provides the preliminary allocation of the purchase price related to the Acquisition based upon the fair value of assets and liabilities assumed:
|
|
|
|
|
|
Current assets
|
16.9
|
Goodwill
|
181.0
|
Intangible assets
|
136.0
|
Other assets, including property, plant and equipment, net
|
3.2
|
Current liabilities
|
(6.8)
|
|
Deferred tax liabilities
|
(21.5)
|
|
|
$
|
308.8
|
|
The acquired goodwill represented the value of expansion into new markets and channels of trade and is not deductible for tax purposes. The intangible assets acquired consisted primarily of the Billie trade name and customer relationships with a weighted average useful life of 19 years. All assets are included in the Company’s Wet Shave segment.
Billie contributed Net sales and a Loss before income taxes totaling $8.9 and $1.1, respectively, for the post acquisition period ending December 31, 2021 in the Condensed Consolidated Statements of Earnings and Comprehensive Income. The Loss before income taxes was driven primarily by amortization expense of acquired intangible assets. Acquisition and integration costs related to Billie totaling $5.7 were included in Selling, general and administrative expense (“SG&A”) and acquisition costs of $0.3 were included in Cost of products sold in the Condensed Consolidated Statements of Earnings and Comprehensive Income for the three months ended December 31, 2021.
The following summarizes the company's unaudited pro forma consolidated results of operations for the three months ended December 31, 2021 and December 31, 2020, as though the Acquisition occurred on October 1, 2020:
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|
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|
|
|
|
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|
Three Months Ended
December 31,
|
|
2021
|
|
2020
|
Proforma net sales
|
$
|
473.3
|
|
|
$
|
467.3
|
|
Proforma net earnings
|
14.8
|
|
10.2
|
The unaudited pro forma consolidated results of operations were adjusted by pre-tax amortization expense of $1.3 and $2.2 for the three months ended December 31, 2021, and December 31, 2020, respectively. Additionally, pro forma earnings for the three months ended December 31, 2021, exclude $6.0 of pre-tax acquisition costs which were included in the pro forma earnings for the three months ended December 31, 2020. The pro forma earnings were also adjusted to reflect the capital structure as of the acquisition date and all pro forma adjustments have been included with related tax effects. The unaudited pro forma consolidated results of operations is not necessarily indicative of the results obtained had the Acquisition occurred as of the beginning of fiscal 2021, or of those results that may be obtained in the future. Amounts do not reflect any anticipated cost savings or cross-selling opportunities expected to result from the Acquisition.
Note 3 - Restructuring Charges
Operating Model Redesign
In Fiscal 2022, the Company expects to take specific actions to strengthen its operating model, simplify the organization and improve manufacturing and supply chain efficiency and productivity. As a result of these actions, we expect to incur one-time charges of approximately $17 in fiscal 2022. The Company incurred the following charges for the three months ended December 31, 2021:
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|
|
|
|
|
Three Months Ended December 31, 2021
|
Restructuring Charges
|
|
Severance and related benefit costs
|
1.3
|
|
|
|
Consulting, project implementation and management, and other exit costs
|
0.9
|
|
Total restructuring
|
$
|
2.2
|
|
Project Fuel
Project Fuel was an enterprise-wide transformational initiative launched in the second quarter of fiscal 2018 to take needed steps to improve operational performance and reshape the business’ cost structure. Project Fuel was completed on September 30, 2021.
The Company incurred the following charges in the three months ended December 31, 2020:
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|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Project Fuel
|
|
|
|
|
|
|
|
|
|
Severance and related benefit costs
|
|
|
|
|
|
|
|
|
$
|
2.3
|
|
Asset impairment and accelerated depreciation
|
|
|
|
|
|
|
|
|
0.1
|
|
Consulting, project implementation and management, and other exit costs
|
|
|
|
|
|
|
|
|
2.0
|
|
Total restructuring
|
|
|
|
|
|
|
|
|
$
|
4.4
|
|
Pre-tax SG&A of $0.6 for the three months ended December 31, 2020, associated with certain information technology enablement expenses and compensation expenses for restructuring programs were included in Consulting, project implementation and management, and other exit costs.
The following table summarizes the restructuring activities and related accrual (excluding certain obsolescence charges related to the restructuring) for the three months ended December 31, 2021:
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilized
|
|
|
|
October 1, 2021
|
|
Charge to
Income
|
|
|
|
Cash
|
|
Non-Cash
|
|
December 31,
2021
|
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
Severance and related benefit costs
|
$
|
1.9
|
|
|
$
|
1.3
|
|
|
|
|
$
|
(2.2)
|
|
|
$
|
—
|
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting, project implementation and management, and other exit costs
|
3.6
|
|
|
0.9
|
|
|
|
|
(3.0)
|
|
|
—
|
|
|
1.5
|
|
Total restructuring
|
$
|
5.5
|
|
|
$
|
2.2
|
|
|
|
|
$
|
(5.2)
|
|
|
$
|
—
|
|
|
$
|
2.5
|
|
(1)Includes the impact of currency translation.
Note 4 - Income Taxes
For the three months ended December 31, 2021, the Company had income tax expense of $5.0 on Earnings before income taxes of $16.2. The effective tax rate for the three months ended December 31, 2021 was 30.9%. The difference between the federal statutory rate and the effective rate is primarily due to the unfavorable mix of earnings in higher tax rate jurisdictions, as well as Internal Revenue Service Code Section 162(m) permanent adjustments and the non-deductible expenses related to the Acquisition.
For the three months ended December 31, 2020, the Company had income tax expense of $7.5 on Earnings before income taxes of $25.2. The effective tax rate for the three months ended December 31, 2020 was 29.7%, respectively. The difference between the federal statutory rate and the effective rate was primarily due to the unfavorable mix of earnings in higher tax rate jurisdictions.
Note 5 - Earnings per Share
Basic earnings per share is based on the weighted-average number of common shares outstanding during the period. Diluted earnings per share is based on the number of shares used for the basic earnings per share calculation, adjusted for the dilutive effect of share options and restricted share equivalent (“RSE”) and performance restricted share equivalent (“PRSE”) awards.
The following is the reconciliation between the number of weighted-average shares used in the basic and diluted earnings per share calculation:
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|
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|
|
|
|
Three Months Ended
December 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Basic weighted-average shares outstanding
|
54.4
|
|
|
54.4
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
RSE and PRSE awards
|
0.6
|
|
|
0.4
|
|
|
|
|
|
Total dilutive securities
|
0.6
|
|
|
0.4
|
|
|
|
|
|
Diluted weighted-average shares outstanding
|
55.0
|
|
|
54.8
|
|
|
|
|
|
For the three months ended December 31, 2021, the calculation of diluted weighted-average shares outstanding excludes 1.2 of share options and 0.5 of RSE and PRSE awards because the effect of including these awards was anti-dilutive. For the three months ended December 31, 2020, the calculation of diluted weighted-average shares outstanding excludes 1.0 of share options and 0.1 of RSE and PRSE awards because the effect of including these awards was anti-dilutive.
Note 6 - Goodwill and Intangible Assets
The following table sets forth goodwill by segment:
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
Wet
Shave
|
|
Sun and Skin
Care
|
|
Feminine
Care
|
|
Total
|
Gross balance at October 1, 2021
|
$
|
967.5
|
|
|
$
|
357.6
|
|
|
$
|
208.7
|
|
|
$
|
1,533.8
|
|
Accumulated goodwill impairment
|
(369.0)
|
|
|
(2.0)
|
|
|
—
|
|
|
(371.0)
|
|
Net balance at October 1, 2021
|
$
|
598.5
|
|
|
$
|
355.6
|
|
|
$
|
208.7
|
|
|
$
|
1,162.8
|
|
|
|
|
|
|
|
|
|
Changes in the three-month period ended December 31, 2021
|
|
|
|
|
|
|
|
Billie acquisition
|
181.0
|
|
|
—
|
|
|
—
|
|
|
181.0
|
|
Cumulative translation adjustment
|
(1.4)
|
|
|
0.1
|
|
|
0.2
|
|
|
(1.1)
|
|
|
|
|
|
|
|
|
|
Gross balance at December 31, 2021
|
$
|
1,147.1
|
|
|
$
|
357.7
|
|
|
$
|
208.9
|
|
|
$
|
1,713.7
|
|
Accumulated goodwill impairment
|
(369.0)
|
|
|
(2.0)
|
|
|
—
|
|
|
(371.0)
|
|
Net balance at December 31, 2021
|
$
|
778.1
|
|
|
$
|
355.7
|
|
|
$
|
208.9
|
|
|
$
|
1,342.7
|
|
The following table sets forth intangible assets by class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021
|
|
September 30, 2021
|
|
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
Indefinite lived
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and brands
|
$
|
599.4
|
|
|
$
|
—
|
|
|
$
|
599.4
|
|
|
$
|
600.8
|
|
|
$
|
—
|
|
|
$
|
600.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and brands
|
$
|
339.9
|
|
|
$
|
61.1
|
|
|
$
|
278.8
|
|
|
$
|
256.2
|
|
|
$
|
57.7
|
|
|
$
|
198.5
|
|
Technology and patents
|
78.9
|
|
|
75.7
|
|
|
3.2
|
|
|
79.1
|
|
|
75.8
|
|
|
3.3
|
|
Customer related and other
|
273.5
|
|
|
119.9
|
|
|
153.6
|
|
|
221.2
|
|
|
117.4
|
|
|
103.8
|
|
Total amortizable intangible assets
|
$
|
692.3
|
|
|
$
|
256.7
|
|
|
$
|
435.6
|
|
|
$
|
556.5
|
|
|
$
|
250.9
|
|
|
$
|
305.6
|
|
Amortization expense was $6.1 and 5.5 for the three months ended December 31, 2021 and 2020, respectively. Estimated amortization expense for amortizable intangible assets for the remainder of fiscal 2022 and for fiscal 2023, 2024, 2025, 2026 and 2027 is $23.2, $30.9, $30.8, $30.8, $30.6 and $30.5, respectively, and $258.8 thereafter.
Goodwill and intangible assets deemed to have an indefinite life are not amortized but are instead reviewed annually for impairment of value or when indicators of a potential impairment are present. The Company’s annual impairment testing date is July 1. The Company continuously monitors events which could trigger an interim impairment analysis, such as changing business conditions and environmental factors, including the impact of the ongoing novel coronavirus 2019 (“COVID-19”) pandemic. An interim impairment analysis may indicate that carrying amounts of goodwill and other intangible assets require adjustment or that remaining useful lives should be revised. The Company determined there was no triggering event requiring an interim impairment analysis during the three months ended December 31, 2021.
Note 7 - Supplemental Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2021
|
|
September 30,
2021
|
Inventories
|
|
|
|
Raw materials and supplies
|
$
|
65.2
|
|
|
$
|
61.3
|
|
Work in process
|
85.7
|
|
|
83.4
|
|
Finished products
|
256.6
|
|
|
201.0
|
|
Total inventories
|
$
|
407.5
|
|
|
$
|
345.7
|
|
Other Current Assets
|
|
|
|
Miscellaneous receivables
|
$
|
31.2
|
|
|
$
|
30.3
|
|
Inventory returns receivable
|
0.7
|
|
|
0.9
|
|
Prepaid expenses
|
77.8
|
|
|
67.3
|
|
Value added tax collectible from customers
|
17.2
|
|
|
19.6
|
|
Income taxes receivable
|
30.1
|
|
|
29.1
|
|
Other
|
8.2
|
|
|
12.9
|
|
Total other current assets
|
$
|
165.2
|
|
|
$
|
160.1
|
|
Property, Plant and Equipment
|
|
|
|
Land
|
$
|
19.0
|
|
|
$
|
19.2
|
|
Buildings
|
144.5
|
|
|
144.5
|
|
Machinery and equipment
|
1,050.6
|
|
|
1,049.0
|
|
Capitalized software costs
|
56.7
|
|
|
57.0
|
|
Construction in progress
|
48.1
|
|
|
44.0
|
|
Total gross property, plant and equipment
|
1,318.9
|
|
|
1,313.7
|
|
Accumulated depreciation and amortization
|
(962.3)
|
|
|
(951.1)
|
|
Total property, plant and equipment, net
|
$
|
356.6
|
|
|
$
|
362.6
|
|
Other Current Liabilities
|
|
|
|
Accrued advertising, sales promotion and allowances
|
$
|
36.4
|
|
|
$
|
33.8
|
|
Accrued trade allowances
|
28.4
|
|
|
34.0
|
|
Accrued salaries, vacations and incentive compensation
|
27.9
|
|
|
66.4
|
|
Income taxes payable
|
7.2
|
|
|
9.8
|
|
Returns reserve
|
41.9
|
|
|
52.7
|
|
Restructuring reserve
|
2.5
|
|
|
5.5
|
|
Value added tax payable
|
5.8
|
|
|
4.6
|
|
Deferred compensation
|
6.5
|
|
|
5.9
|
|
Short term lease obligation
|
11.6
|
|
|
11.0
|
|
Customer advance payments
|
2.3
|
|
|
0.6
|
|
Dividends payable
|
8.2
|
|
|
8.2
|
|
Other
|
60.0
|
|
|
68.3
|
|
Total other current liabilities
|
$
|
238.7
|
|
|
$
|
300.8
|
|
Other Liabilities
|
|
|
|
Pensions and other retirement benefits
|
$
|
55.0
|
|
|
$
|
55.4
|
|
Deferred compensation
|
22.4
|
|
|
22.7
|
|
Long term lease obligation
|
44.9
|
|
|
46.9
|
|
Other non-current liabilities
|
65.8
|
|
|
65.3
|
|
Total other liabilities
|
$
|
188.1
|
|
|
$
|
190.3
|
|
Note 8 - Leases
The Company leases certain offices and manufacturing facilities, warehouses, employee vehicles and certain manufacturing related equipment. The Company determines if an arrangement is or contains a lease at inception. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheet. All recorded leases are classified as operating leases and lease expense is recognized on a straight-line basis over the lease term.
A summary of the Company's lease information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2021
|
|
September 30,
2021
|
Assets
|
Classification
|
|
|
|
Right of use assets
|
Other assets
|
$
|
56.0
|
|
|
$
|
57.7
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current lease liabilities
|
Other current liabilities
|
$
|
11.6
|
|
|
$
|
11.0
|
|
Long-term lease liabilities
|
Other liabilities
|
44.9
|
|
|
46.9
|
|
Total lease liabilities
|
|
$
|
56.5
|
|
|
$
|
57.9
|
|
|
|
|
|
|
Other information
|
|
|
|
|
Weighted-average remaining lease term (years)
|
|
10
|
|
10
|
Weighted-average incremental borrowing rate
|
|
6.4
|
%
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2021
|
|
Three Months Ended December 31, 2020
|
Statement of Earnings
|
|
|
|
Lease cost (1)
|
$
|
3.5
|
|
|
$
|
3.9
|
|
|
|
|
|
Other information
|
|
|
|
Leased assets obtained in exchange for new lease liabilities
|
$
|
0.5
|
|
|
$
|
3.9
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
3.6
|
|
|
$
|
4.0
|
|
(1)Lease expense is included in Cost of products sold or SG&A expense based on the nature of the lease. Short-term lease expense is excluded from this amount and is not material.
The Company's future lease payments, including reasonably assured renewal options under lease agreements, are as follows:
|
|
|
|
|
|
Lease liability repayments
|
December 31, 2021
|
Remainder of fiscal 2022
|
$
|
10.5
|
|
2023
|
11.1
|
|
2024
|
9.0
|
|
2025
|
8.1
|
|
2026
|
6.7
|
|
2027 and thereafter
|
37.1
|
|
Total future minimum lease commitments
|
82.5
|
|
Less: Imputed interest
|
(26.0)
|
|
Present value of lease liabilities
|
$
|
56.5
|
|
Note 9 - Accounts Receivable Facility
The Company participates in an uncommitted master accounts receivable purchase agreement with MUFG Bank, Ltd, formerly known as The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as the purchaser (the “Accounts Receivable Facility”). Transfers under the Accounts Receivable Facility are accounted for as sales of receivables, resulting in the receivables being de-recognized from the Consolidated Balance Sheet. The purchaser assumes the credit risk at the time of sale and has the right at any time to assign, transfer, or participate any of its rights under the purchased receivables to another bank or financial institution. The purchase and sale of receivables under the Accounts Receivable Facility is intended to be an absolute and irrevocable transfer without recourse by the purchaser to the Company for the creditworthiness of any obligor. The Company continues to have collection and servicing responsibilities for the receivables sold and receives separate compensation for their servicing. The compensation received is considered acceptable servicing compensation and, as such, the Company does not recognize a servicing asset or liability.
On February 7, 2022, the Company entered into the Sixth Amendment to Master Accounts Receivable Purchase Agreement between Edgewell Personal Care, LLC and MUFG Bank, LTD., formerly known as The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, which increased the maximum receivables sold amount under the Accounts Receivable Facility to $180.0 from $150.0 and amended the pricing index used to determine the purchase price for subject receivables from LIBOR to the Bloomberg Short Term Bank Yield Index (“BSBY”). The applicable margin that is added to the BSBY pricing index specific for each obligor was unchanged. Except as noted above, all other terms, conditions, obligations, covenants or agreements contained in the Accounts Receivable Facility are unmodified in all respects and continue in full force and effect.
As of December 31, 2021, the discount rate used to determine the purchase price for the subject receivables is based upon LIBOR plus a margin applicable to the specified obligor.
Accounts receivables sold were $155.3 and $138.4 for the three months ended December 31, 2021 and 2020, respectively. The trade receivables sold that remained outstanding as of December 31, 2021 and September 30, 2021 were $87.2 and $91.1, respectively. The net proceeds received were included in both Cash provided by operating activities and Cash provided by investing activities on the Condensed Consolidated Statements of Cash Flows. The difference between the carrying amount of the trade receivables sold and the sum of the cash received is recorded as a loss on sale of receivables in Other income, net in the Condensed Consolidated Statements of Earnings and Comprehensive Income. The loss on sale of trade receivables was $0.2 for both the three months ended December 31, 2021 and 2020.
Note 10 - Debt
The detail of long-term debt was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2021
|
|
September 30,
2021
|
Senior notes, fixed interest rate of 5.500%, due 2028
|
$
|
750.0
|
|
|
$
|
750.0
|
|
Senior notes, fixed interest rate of 4.125%, due 2029
|
500.0
|
|
|
500.0
|
|
U.S. revolving credit facility due 2025
|
198.0
|
|
|
—
|
|
Total long-term debt, including current maturities
|
1,448.0
|
|
|
1,250.0
|
|
|
|
|
|
Less unamortized debt issuance costs and discount (1)
|
15.3
|
|
|
15.8
|
|
Total long-term debt
|
$
|
1,432.7
|
|
|
$
|
1,234.2
|
|
(1)At December 31, 2021, the balance for the Senior Notes due 2028 and the Senior Notes due 2029 are reflected net of debt issuance costs of $9.4 and $5.9, respectively. At September 30, 2021, the balance for the Senior Notes due 2028 and the Senior Notes due 2029 are reflected net of debt issuance costs of $9.8 and $6.0, respectively.
The Company had outstanding variable-rate international borrowings, recorded in Notes payable, of $27.4 and $26.5 as of December 31, 2021 and September 30, 2021, respectively.
Note 11 - Retirement Plans
The Company has several defined benefit pension plans covering employees in the U.S. and certain employees in other countries, which are included in the information presented below. The plans provide retirement benefits based on years of service and compensation. The Company also sponsors or participates in several other non-U.S. pension and postretirement arrangements, including various retirement and termination benefit plans, some of which are required by local law or coordinated with government-sponsored plans, which are not significant in the aggregate and, therefore, are not included in the information presented below.
The Company’s net periodic pension and postretirement costs for these plans for the three months ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
2021
|
|
2020
|
Service cost
|
$
|
1.0
|
|
|
$
|
1.1
|
|
Interest cost
|
2.6
|
|
|
2.5
|
|
Expected return on plan assets
|
(5.3)
|
|
|
(5.6)
|
|
Recognized net actuarial loss
|
1.5
|
|
|
2.3
|
|
|
|
|
|
Net periodic cost
|
$
|
(0.2)
|
|
|
$
|
0.3
|
|
The service cost component of the net periodic cost associated with the Company’s retirement plans is recorded to Cost of products sold and SG&A on the Condensed Consolidated Statement of Earnings and Comprehensive Income. The remaining net periodic cost is recorded to Other income, net on the Condensed Consolidated Statement of Earnings and Comprehensive Income.
Note 12 - Shareholders’ Equity
Share Repurchases
In January 2018, the Company’s Board of Directors (the “Board”) approved an authorization to repurchase up to 10.0 shares of the Company’s common stock, replacing the previous share repurchase authorization from May 2015. The Company repurchased 0.5 shares of its common stock for $24.5 during the three months ended December 31, 2021. The Company has 9.2 shares of its common stock available for repurchase in the future under the Board’s authorization. Any future share repurchases may be made in the open market, privately negotiated transactions, or otherwise, and in such amounts and at such times as the Company deems appropriate based upon prevailing market conditions, business needs, and other factors.
Dividends
On November 4, 2021, the Board declared a cash dividend of $0.15 per share of common stock outstanding. The dividend was paid on January 6, 2022 to holders of record as of the close of business on December 3, 2021.
Dividends declared during the three months ended December 31, 2021 totaled $8.4. Payments made for dividends during the three months ended December 31, 2021 totaled $8.5.
On February 4, 2022, the Board declared a quarterly cash dividend of $0.15 per common share for the first fiscal quarter. The dividend is payable April 5, 2022 to stockholders of record as of the close of business on March 8, 2022.
Note 13 - Accumulated Other Comprehensive Loss
The following table presents the changes in accumulated other comprehensive loss (“AOCI”), net of tax, by component:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
Pension and
Post-retirement
Activity
|
|
Hedging
Activity
|
|
Total
|
Balance at October 1, 2021
|
$
|
(41.8)
|
|
|
$
|
(97.3)
|
|
|
$
|
2.2
|
|
|
$
|
(136.9)
|
|
OCI before reclassifications (1)
|
(6.9)
|
|
|
(1.1)
|
|
|
1.2
|
|
|
(6.8)
|
|
Reclassifications to earnings
|
—
|
|
|
1.1
|
|
|
(0.8)
|
|
|
0.3
|
|
Balance at December 31, 2021
|
$
|
(48.7)
|
|
|
$
|
(97.3)
|
|
|
$
|
2.6
|
|
|
$
|
(143.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
Pension and
Post-retirement
Activity
|
|
Hedging
Activity
|
|
Total
|
Balance at October 1, 2020
|
$
|
(47.4)
|
|
|
$
|
(142.1)
|
|
|
$
|
(2.1)
|
|
|
$
|
(191.6)
|
|
OCI before reclassifications (1)
|
33.7
|
|
|
(3.7)
|
|
|
(2.8)
|
|
|
27.2
|
|
Reclassifications to earnings
|
—
|
|
|
1.7
|
|
|
1.0
|
|
|
2.7
|
|
Balance at December 31, 2020
|
$
|
(13.7)
|
|
|
$
|
(144.1)
|
|
|
$
|
(3.9)
|
|
|
$
|
(161.7)
|
|
(1)OCI is defined as other comprehensive income (loss).
The following table presents the reclassifications out of AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Affected Line Item in the
Condensed Consolidated
Statements of Earnings
|
Details of AOCI Components
|
|
2021
|
|
2020
|
|
Gain / (Loss) on cash flow hedges
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
1.3
|
|
|
$
|
(1.4)
|
|
|
Other income, net
|
|
|
1.3
|
|
|
(1.4)
|
|
|
|
|
|
0.5
|
|
|
(0.4)
|
|
|
Income tax provision
|
|
|
0.8
|
|
|
(1.0)
|
|
|
|
Amortization of defined benefit pension and postretirement items
|
|
|
|
|
|
|
Actuarial losses
|
|
$
|
(1.5)
|
|
|
$
|
(2.3)
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
(1.5)
|
|
|
(2.3)
|
|
|
|
|
|
(0.4)
|
|
|
(0.6)
|
|
|
Income tax provision
|
|
|
(1.1)
|
|
|
(1.7)
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(0.3)
|
|
|
$
|
(2.7)
|
|
|
|
(1)These AOCI components are included in the computation of net periodic cost. See Note 11 of Notes to Condensed Consolidated Financial Statements.
Note 14 - Financial Instruments and Risk Management
In the course of ordinary business, the Company enters into contractual arrangements (also referred to as derivatives) to reduce its exposure to foreign currency. The Company has master netting agreements with all of its counterparties that allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default. The Company manages counterparty risk through the utilization of investment grade commercial banks, diversification of counterparties, and its counterparty netting arrangements. The section below outlines the types of derivatives that existed at December 31, 2021 and September 30, 2021, as well as the Company’s objectives and strategies for holding derivative instruments.
Foreign Currency Risk
A significant share of the Company’s sales is tied to currencies other than the U.S. dollar, the Company’s reporting currency. As such, a weakening of currencies relative to the U.S. dollar can have a negative impact on reported earnings. Conversely, strengthening of currencies relative to the U.S. dollar can improve reported results. The primary currencies to which the Company is exposed include the euro, the Japanese yen, the British pound, the Canadian dollar, and the Australian dollar.
Additionally, the Company’s foreign subsidiaries enter into internal and external transactions that create non-functional 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 month. Changes in the value of the non-functional currency balance sheet positions in relation to the foreign subsidiary’s local currency results in an exchange gain or loss recorded in Other income, net. The primary currency to which the Company’s foreign subsidiaries are exposed is the U.S. dollar.
Cash Flow Hedges
At December 31, 2021, the Company maintained a cash flow hedging program related to foreign currency risk. These derivative instruments have a high correlation to the underlying exposure being hedged and have been deemed highly effective by the Company for accounting purposes in offsetting the associated risk.
The Company entered into a series of forward currency contracts to hedge cash flow uncertainty associated with currency fluctuations. These transactions are accounted for as cash flow hedges. The Company had an unrealized pre-tax gain of $3.8 at December 31, 2021 and an unrealized pre-tax gain of $3.3 at September 30, 2021, on these forward currency contracts, which are accounted for as cash flow hedges and included in AOCI. Assuming foreign exchange rates versus the U.S. dollar remain at December 31, 2021 levels over the next 12 months, the majority of the pre-tax gain included in AOCI at December 31, 2021 is expected to be included in Other income, net. Contract maturities for these hedges extend into fiscal 2023. At December 31, 2021, there were 64 open foreign currency contracts with a total notional value of $121.0.
Derivatives not Designated as Hedges
The Company has entered into foreign currency derivative contracts, which are not designated as cash flow hedges for accounting purposes, to hedge balance sheet exposures. Any gains or losses on these contracts are expected to be offset by exchange gains or losses on the underlying exposures and, thus, are not subject to significant market risk. The change in the estimated fair value of the foreign currency contracts for the three months ended December 31, 2021 resulted in a gain of $1.1, compared to a loss of $1.1, for the three months ended December 31, 2020, and was recorded in Other income, net in the Condensed Consolidated Statements of Earnings and Comprehensive Income. At December 31, 2021, there were five open foreign currency derivative contracts not designated as cash flow hedges with a total notional value of $42.0.
The following table provides estimated fair values of derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Asset (Liability) (1)
|
|
December 31,
2021
|
|
September 30,
2021
|
Derivatives designated as cash flow hedging relationships:
|
|
|
|
Foreign currency contracts
|
$
|
3.8
|
|
|
$
|
3.3
|
|
Derivatives not designated as cash flow hedging relationships:
|
|
|
|
Foreign currency contracts
|
$
|
0.7
|
|
|
$
|
0.5
|
|
(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.
The following table provides the amounts of gains and losses on derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
2021
|
|
2020
|
Derivatives designated as cash flow hedging relationships:
|
|
|
|
Foreign currency contracts
|
|
|
|
Gain (loss) recognized in OCI (1)
|
$
|
1.8
|
|
|
$
|
(4.0)
|
|
Gain (loss) reclassified from AOCI into income (1) (2)
|
1.3
|
|
|
(1.4)
|
|
Derivatives not designated as cash flow hedging relationships:
|
|
|
|
Foreign currency contracts
|
|
|
|
Gain (loss) recognized in income (2)
|
$
|
1.1
|
|
|
$
|
(1.1)
|
|
(1)Each of these derivative instruments had a high correlation to the underlying exposure being hedged for the periods indicated and have been deemed highly effective by the Company in offsetting associated risk.
(2)Gain (loss) was recorded in Other income, net.
The following table provides financial assets and liabilities for balance sheet offsetting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2021
|
|
At September 30, 2021
|
|
Assets (1)
|
|
Liabilities (2)
|
|
Assets (1)
|
|
Liabilities (2)
|
Foreign currency contracts
|
|
|
|
|
|
|
|
Gross amounts of recognized assets (liabilities)
|
$
|
4.7
|
|
|
$
|
(0.1)
|
|
|
$
|
3.9
|
|
|
$
|
(0.2)
|
|
Gross amounts offset in the balance sheet
|
(0.1)
|
|
|
—
|
|
|
(0.1)
|
|
|
0.1
|
|
Net amounts of assets (liabilities) presented in the balance sheet
|
$
|
4.6
|
|
|
$
|
(0.1)
|
|
|
$
|
3.8
|
|
|
$
|
(0.1)
|
|
(1)All derivative assets are presented in Other current assets or Other assets.
(2)All derivative liabilities are presented in Other current liabilities or Other liabilities.
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.
The following table sets forth the Company’s financial assets and liabilities, which are carried at fair value and measured on a recurring basis during the period, all of which are classified as Level 2 within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2021
|
|
September 30,
2021
|
Liabilities at estimated fair value:
|
|
|
|
Deferred compensation
|
$
|
(28.9)
|
|
|
$
|
(28.4)
|
|
Derivatives - foreign currency contracts
|
4.5
|
|
|
3.7
|
|
Net liabilities at estimated fair value
|
$
|
(24.4)
|
|
|
$
|
(24.7)
|
|
The estimated fair value of the deferred compensation liability is determined based upon the quoted market prices of the investment options that are offered under the plan. At December 31, 2021, the estimated fair value of foreign currency contracts is the amount that the Company would receive or pay to terminate the contracts, considering first the quoted market prices of comparable agreements or, in the absence of quoted market prices, factors such as interest rates, currency exchange rates, and remaining maturities.
At December 31, 2021 and September 30, 2021, the Company had no Level 1 financial assets or liabilities, other than pension plan assets, and no Level 3 financial assets or liabilities at December 31, 2021 and at September 30, 2021.
At December 31, 2021 and September 30, 2021 the fair market value of fixed rate long-term debt was $1,305.6 and $1,300.1, respectively, compared to its carrying value of $1,250.0 in each period. The estimated fair value of the long-term debt was estimated using yields obtained from independent pricing sources for similar types of borrowing arrangements. The estimated fair value of long-term debt, excluding the U.S. revolving credit facility due 2025 (“Revolving Credit Facility”), have been determined based on Level 2 inputs.
Due to the nature of cash and cash equivalents and short-term borrowings, including notes payable, carrying amounts on the balance sheets approximate fair value. Additionally, the carrying amounts of the Company’s revolving credit facility, which are classified as long-term debt on the balance sheet, approximate fair value due to the revolving nature of the balances. The estimated fair value of cash and cash equivalents, short-term borrowings, and the Revolving Credit Facility have been determined based on Level 2 inputs.
Note 15 - Segment Data
For an overview of the Company’s segments, refer to Note 1 to Notes to Condensed Consolidated Financial Statements.
Segment performance is evaluated based on segment profit, exclusive of general corporate expenses, share-based compensation costs, restructuring charges, and certain costs deemed non-recurring in nature, including acquisition and integration costs, value-added tax (“VAT”) settlement costs, Sun Care reformulation costs, and the amortization of intangible assets. Financial items, such as interest income and expense, are managed on a global basis at the corporate level. The exclusion of such charges from segment results reflects management’s view on how it evaluates segment performance.
The Company’s operating model includes some shared business functions across the segments, including product warehousing and distribution, transaction processing functions and, in most cases, combined sales force and management teams. The Company applies a fully allocated cost basis in which shared business functions are allocated between the segments.
The Company completed the acquisition of Billie on November 29, 2021. As a result, Net Sales and Segment Profit associated with Billie products will be reported in the Wet Shave segment beginning on the acquisition date.
Segment net sales and profitability are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
2021
|
|
2020
|
Net Sales
|
|
|
|
Wet Shave
|
$
|
286.1
|
|
|
$
|
279.1
|
|
Sun and Skin Care
|
104.8
|
|
|
103.0
|
|
Feminine Care
|
72.4
|
|
|
69.0
|
|
Total net sales
|
$
|
463.3
|
|
|
$
|
451.1
|
|
|
|
|
|
Segment Profit
|
|
|
|
Wet Shave
|
$
|
51.5
|
|
|
$
|
52.6
|
|
Sun and Skin Care
|
3.7
|
|
|
5.2
|
|
Feminine Care
|
8.4
|
|
|
8.8
|
|
Total segment profit
|
63.6
|
|
|
66.6
|
|
General corporate and other expenses
|
(10.8)
|
|
|
(12.1)
|
|
Restructuring and related costs
|
(2.2)
|
|
|
(4.4)
|
|
|
|
|
|
Acquisition and integration costs (1)
|
(6.0)
|
|
|
(3.0)
|
|
VAT settlement costs (2)
|
(3.4)
|
|
|
—
|
|
Sun Care reformulation costs (3)
|
(3.3)
|
|
|
—
|
|
Amortization of intangibles
|
(6.1)
|
|
|
(5.5)
|
|
Interest and other expense, net
|
(15.6)
|
|
|
(16.4)
|
|
Total earnings before income taxes
|
$
|
16.2
|
|
|
$
|
25.2
|
|
(1)Includes pre-tax SG&A of $5.7 and $1.7 for the three months ended December 31, 2021 and 2020, respectively. Additionally, Cost of products sold of $0.3 and $1.3 related to the valuation of acquired inventory for the three months ended December 31, 2021 and 2020, respectively, is included. Fiscal 2022 acquisition costs related to the Billie acquisition while Fiscal 2021 related primarily to Cremo which was acquired September 2, 2020.
(2)Includes pre-tax SG&A of $3.4 for the three months ended December 31, 2021 related to the estimated settlement of prior years’ value-added tax audits in Germany.
(3)Includes pre-tax COGS of $3.3 related to the recall and destruction of certain Sun Care products.
The following table presents the Company’s net sales by geographic area:
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|
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|
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Three Months Ended
December 31,
|
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2021
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2020
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Net Sales to Customers
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|
|
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United States
|
$
|
262.5
|
|
|
$
|
250.8
|
|
International
|
200.8
|
|
|
200.3
|
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Total net sales
|
$
|
463.3
|
|
|
$
|
451.1
|
|
Supplemental product information is presented below for net sales:
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|
|
|
|
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Three Months Ended
December 31,
|
|
2021
|
|
2020
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Razors and blades
|
$
|
255.7
|
|
|
$
|
246.3
|
|
Tampons, pads, and liners
|
72.4
|
|
|
69.0
|
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Sun care products
|
40.2
|
|
|
28.8
|
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Grooming products
|
46.3
|
|
|
43.1
|
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Wipes and other skin care
|
18.3
|
|
|
31.1
|
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Shaving gels and creams
|
30.4
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|
|
32.8
|
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Total net sales
|
$
|
463.3
|
|
|
$
|
451.1
|
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