EDGEWELL PERSONAL CARE Co 10-K, filed Nov 28, 2023
EDGEWELL PERSONAL CARE Co (EPC)
10-K
2023-11-28
For: 2023-09-30
View Original
Added on
April 08, 2026
About this 10-K
EDGEWELL PERSONAL CARE Co filed this 10-K on November 28, 2023, covering the fiscal year ended September 30, 2023.
Headline figures
Fiscal year ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.25B
- up 3.7% from $2.17B a year earlier
- Net income
- $114.7M
- up 15.3% from net income of $99.5M a year earlier
- Diluted EPS
- $2.21
- up 19.5% from $1.85 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________
FORM 10-K
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended September 30, 2023
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 001-15401
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I. R. S. Employer Identification No.) | |||||||||||||
| (Registrant’s telephone number, including area code) | ||||||||||||||
| (Address of principal executive offices and zip code) | ||||||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Stock symbol | Name of each exchange on which registered | ||||||
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | (Do not check if a smaller reporting company) | Smaller reporting company | |||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of March 31, 2023, the last day of the registrant’s most recently completed second fiscal quarter, was $2,150,494,711 .
The number of shares of the registrant’s common stock outstanding as of October 31, 2023 was 50,021,331 .
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s definitive proxy statement for its 2023 annual meeting of shareholders, to be filed with the Securities and Exchange Commission within 120 days after September 30, 2023, are incorporated by reference into Part III of this report.
EDGEWELL PERSONAL CARE COMPANY
INDEX TO FORM 10-K
| PART I | ||||||||
| Item 1. | Business. | |||||||
| Item 1A. | Risk Factors. | |||||||
| Item 1B. | Unresolved Staff Comments. | |||||||
| Item 1C. | Not applicable. | |||||||
| Item 2. | Properties. | |||||||
| Item 3. | Legal Proceedings. | |||||||
| Item 4. | Mine Safety Disclosures. | |||||||
| PART II | ||||||||
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. | |||||||
| Item 6. | [Reserved] | |||||||
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | |||||||
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. | |||||||
| Item 8. | Financial Statements and Supplementary Data. | |||||||
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. | |||||||
| Item 9A. | Controls and Procedures. | |||||||
| Item 9B. | Other Information. | |||||||
| Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. | |||||||
| PART III | ||||||||
| Item 10. | Directors, Executive Officers and Corporate Governance. | |||||||
| Item 11. | Executive Compensation. | |||||||
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. | |||||||
| Item 13. | Certain Relationships and Related Transactions, and Director Independence. | |||||||
| Item 14. | Principal Accounting Fees and Services. | |||||||
| Part IV | ||||||||
| Item 15. | Exhibit and Financial Statement Schedules. | |||||||
| Item 16. | Form 10-K Summary. | |||||||
| Signatures | ||||||||
| Exhibit Index | ||||||||
Presentation of Information
Unless the context requires otherwise, references to “Edgewell Personal Care Company,” “Edgewell,” “we,” “us,” “our” and “the Company” refer to Edgewell Personal Care Company, and its consolidated subsidiaries.
Trademarks and Trade Names
We own or have rights to use trademarks and trade names that we use in conjunction with the operation of our business, which appear throughout this Annual Report on Form 10-K. Solely for convenience, we only use the ™ or ® symbols the first time any trademark or trade name is mentioned. We may also refer to brand names, trademarks, service marks and trade names of other companies and organizations, and these brand names, trademarks, service marks and trade names are the property of their respective owners.
Industry and Market Data
Unless we indicate otherwise, we base the information concerning our industry contained or incorporated by reference herein on our general knowledge of and expectations concerning the industry. Our market position, market share and industry market size are based on our estimates using internal data and data from various industry analyses, our internal research and adjustments and assumptions that we believe to be reasonable. We have not independently verified data from industry analyses and cannot guarantee its accuracy or completeness. In addition, we believe that data regarding the industry, market size and our market position and market share within such industry provide general guidance but are inherently imprecise. Further, our estimates and assumptions involve risks and uncertainties and are subject to change based on various factors, including those discussed in the “Risk Factors” section of this document. These and other factors could cause results to differ materially from those expressed in the estimates and assumptions.
Retail sales for purposes of market size, market position and market share information are based on retail sales in United States dollars.
Forward-Looking Statements
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of Edgewell Personal Care Company or any of our businesses. Forward-looking statements generally can be identified by the use of words or phrases such as “believe,” “expect,” “expectation,” “anticipate,” “may,” “could,” “intend,” “estimate,” “plan,” “target,” “predict,” “likely,” “will,” “should,” “forecast,” “outlook,” “strategy,” or other similar words or phrases. These statements are not based on historical facts, but instead reflect our expectations, estimates or projections concerning future results or events, including, without limitation, the future earnings and performance of Edgewell Personal Care Company or any of our businesses, and the integration of the Billie, Inc. (“Billie”) acquisition and expected benefits from this transaction, including growth opportunities and cost savings. Many factors outside our control could affect the realization of these estimates. These statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or projections will be achieved. The forward-looking statements included in this report are only made as of the date of this report, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, except as required by law. You should not place undue reliance on these statements. Factors that could cause fluctuations in our actual results include, but are not limited to, the following:
•our ability to compete in products and prices in an intensely competitive industry;
•the loss of any of our principal customers;
•our inability to execute a successful e-commerce strategy;
•fluctuations in the price and supply of raw materials and costs of labor and transportation;
•the ability to successfully manage global financial risks, including foreign currency fluctuations, currency exchange or pricing controls and localized volatility;
•the ability to successfully manage our ongoing acquisition integration activities to achieve our overall business strategy and financial objectives;
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•our failure to maintain our brands’ reputation;
•our failure to achieve projected gross cost savings under our various initiatives;
•legislative or regulatory changes impacting or limiting our business; and
•product quality and safety issues, including recalls and product liability.
In addition, other risks and uncertainties not presently known to us or that we presently consider immaterial could significantly affect the forward-looking statements. The list of factors above is illustrative, but not exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Additional risks and uncertainties include those detailed from time to time in our publicly filed documents, including in Item 1A. Risk Factors of Part I of this Annual Report on Form 10-K.
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PART I
Item 1. Business.
Overview
Edgewell Personal Care Company, and its subsidiaries, 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. With operations in over 20 countries, our products are widely available in more than 50 countries.
History and Development
We were incorporated in the state of Missouri on September 23, 1999 and, prior to April 2000, were a wholly-owned subsidiary of Ralston Purina Company. On April 1, 2000, all of the outstanding shares of our common stock were distributed to shareholders of Ralston Purina Company and we became an independent publicly-owned company. During the years that followed, we implemented a strategy of acquiring several personal care brands, which created the foundation for the company we are today.
In 2003, we completed the acquisition of the Schick-Wilkinson Sword business (“SWS”) from Pfizer, Inc., the second largest manufacturer and marketer of men’s and women’s wet shave products in the world at that time. Our portfolio of wet shave products includes: Hydro® and Quattro® men’s shaving systems; Hydro Silk®, Quattro for Women®, Intuition® and Silk Effects® Plus women’s shaving systems; and the Hydro, Quattro, Xtreme 3®, Slim Twin®, Slim Triple®, Skintimate and Extra3™ disposables. SWS has over 100 years of history in the shaving products industry with a reputation for high quality and innovation in shaving technology. SWS products are sold throughout the world.
In 2007, we acquired Playtex Products, Inc. (“Playtex”), a leading manufacturer and marketer of well-recognized brands such as Playtex® feminine care products, Wet Ones® pre-moistened wipes, and Banana Boat® and Hawaiian Tropic® sun care products, thereby expanding our branded consumer products portfolio.
In 2009, we completed the acquisition of the Edge® and Skintimate® shave preparation brands from S.C. Johnson & Son, Inc., adding market leading United States-based (“U.S.”) shave preparation brands to our existing wet shave product portfolio. In 2010, we completed the acquisition of American Safety Razor, LLC (“ASR”), a leading global manufacturer of private label and value wet shaving razors and blades and specialty blades.
Strengthening our company’s feminine care product portfolio, in 2013 we acquired the Stayfree® pad, Carefree® liner and o.b.® tampon feminine hygiene brands in the U.S., Canada and the Caribbean from Johnson & Johnson.
In 2015, we completed the separation of our Household Products business, which manufactures and markets batteries and portable lighting, into a separate publicly-owned company (the “Spin” or the “Separation”). We completed the tax-free Separation by distributing 100% of the outstanding shares of common stock of Energizer SpinCo, Inc. to our shareholders. The newly formed company assumed the name Energizer Holdings, Inc. (“New Energizer”) and began trading under the symbol “ENR” on the New York Stock Exchange (“NYSE”). Edgewell retained the Personal Care business and trades on the NYSE under the symbol “EPC.” Following the Separation, we do not beneficially own any shares of New Energizer. In connection with the Separation, we changed our name to Edgewell Personal Care Company on June 30, 2015.
In recent years, we have entered the men’s grooming and skin care markets through several acquisitions. On October 31, 2016, we completed the acquisition of Bulldog Skincare Holdings Limited (“Bulldog”), a men’s grooming and skincare company based in the United Kingdom (“U.K.”). On March 1, 2018, we completed the acquisition of Jack Black, L.L.C. (“Jack Black”), a men’s luxury skincare company based in the U.S. On September 2, 2020, we completed the acquisition of Cremo Holding Company, LLC (“Cremo”), a U.S.-based masstige men’s grooming brand. On November 29, 2021, we completed the acquisition of Billie, a high-quality shaving and premium body care brand which strengthens our women’s Wet Shave and grooming product portfolio (the “Billie Acquisition”). These more recent acquisitions have created opportunities to expand our personal care portfolio into the growing, global grooming category, and have allowed us to leverage our international geographic footprint.
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Our Business Segments and Product Strategies
We manage our business in three operating segments: Wet Shave, Sun and Skin Care, and Feminine Care. Segment performance is evaluated based on segment profit, exclusive of general corporate expenses, share-based compensation costs, costs associated with restructuring initiatives and other items that are not representative of management’s view on how segment performance is evaluated. Information regarding the product portfolios of these segments is included within the following discussion. Financial information regarding each of our reportable segments, as well as other geographical information, is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 18 of Notes to Consolidated Financial Statements included within Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Wet Shave
Wet Shave products are sold under the Schick®, Wilkinson Sword®, Edge, Skintimate®, Billie®, Shave Guard and our custom brands group (formerly sold under our Shave Guard and Personna® brands). We manufacture and distribute Schick and Wilkinson Sword razor systems, composed of razor handles and refillable blades, and disposable shave products for men and women. While we market our wet shave products throughout the world, our primary markets are the U.S., Canada, Japan, Germany, France and the U.K. We believe we hold the number two global market share position in wet shaving. The category is highly competitive, with brands vying for consumer loyalty and retail shelf space.
In fiscal 2022, we completed the acquisition of Billie, adding the growing woman’s brand to our portfolio of products. Billie’s strong direct-to-consumer and digital capabilities have underpinned its strong growth, which positioned the brand well for its initial expansion into U.S. brick-and-mortar in 2022. The Billie brand complements and strengthens Edgewell’s position in the women’s shaving category, adding to our portfolio of strong brands such as Schick Intuition, Hydro Silk and Skintimate.
In the U.S., Canada and Japan, we sell market-leading shave preparation products, including shaving gels and creams under the Edge, Skintimate and Shave Guard brands.
We also manufacture, distribute and sell a complete line of private label and disposable razors, shaving systems and replacement blades. These private label wet shave products including emerging direct-to-consumer (“DTC”) brands are sold primarily under a retailer’s store name or under our value brand names such as Personna.
Sun and Skin Care
Sun and Skin Care products are sold under the Banana Boat, Hawaiian Tropic, Bulldog®, Jack Black®, Cremo® and Wet Ones brand names. We market Sun Care products under the Banana Boat and Hawaiian Tropic brands and believe these brands, on a combined basis, hold a leading market share position in the U.S. Sun Care category. We compete across the full spectrum of Sun Care categories: general protection, sport, kids, baby, tanning and after sun. Outside of the U.S., we believe we are also the leading Sun Care manufacturer in Mexico with significant presence in Australia and Canada. We expect to continue to drive our worldwide business through product innovation, increased distribution and geographic expansion.
We offer Wet Ones antibacterial hand wipes and other related products as the leader in the U.S. portable hand wipes category. We expect to utilize our position as market leader to further scale the business and use innovation such as Wet Ones lavender gel, to increase growth.
We have acquired a portfolio of men’s grooming skin care products that have grown under our direction. Our Bulldog skincare products are purpose-built for men and were created to work simply and efficiently while dealing with issues specific to men’s skin. Since acquiring Bulldog, we have expanded sales geographically and we continue to commit resources to further growth and distribution for the brand. We acquired the Jack Black brand and obtained a footprint in the luxury men’s skincare market and continue to use resources at our disposal to grow the Jack Black brand globally. Our Cremo products compete in the masstige category for men’s grooming, and offer a complete line of “barber quality” beard, hair and skin care products.
Feminine Care
In Feminine Care, we market products under the Playtex, Stayfree, Carefree and o.b. brands. We offer tampons under the Playtex Gentle Glide® 360°®, Playtex Sport®, Playtex and o.b. brands, including the Playtex Sport compact tampon launched in 2017. We also market pads and liners under the Stayfree and Carefree brands. We believe we are one of the top three manufacturers of feminine care products in North America, with unique, competitive product technologies and well-known brands that address complementary consumer needs. We intend to continue to invest in innovation in our feminine care brands.
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Competition
The personal care product categories in which we compete are highly competitive, both in the U.S. and in most international markets, as large manufacturers with global operations and new entrants attempting to disrupt the market compete for consumer acceptance and increasingly limited retail shelf space. Competition is based upon several factors, including brand quality and perception, product formulation and performance, customer service and price and promotion. The continued growth in online sales also puts additional competitive pressure on our Company.
Wet Shave
The global shaving products category is comprised of wet shave blades and razors, electric shavers and shaving gels and creams. With our established brands and product lines and global presence, we believe we compete effectively in this market. Our principal competitors in the global wet shave business are: The Procter & Gamble Company, which owns the Gillette brand and is the leading company in the global wet shave segment; Bic Group, which is expanding beyond its historical strength in the disposable segment; and Dorco, which competes primarily in the private label segment. We also compete with newer entrants to the Wet Shave market for both DTC online and traditional retail shelf space including Unilever (Dollar Shave Club brand), Harry's, Perio (Barbasol and PureSilk brands), Beiersdorf (Nivea branded women’s wet shave product in Germany) and numerous other online start-ups.
Sun and Skin Care
The markets for sun and skin care are also highly competitive, characterized by the frequent introduction of new products accompanied by major advertising and promotional programs. Our competitors in these markets consist of a large number of domestic and foreign companies, including Bayer AG and Johnson & Johnson.
The Sun Care categories globally are characterized historically by global growth and is impacted by trends in skin care. With our balanced Sun Care portfolio, depth of Sun Care formulation expertise and global presence, we believe we compete effectively and have more than doubled our international sun care business since acquiring the Banana Boat and Hawaiian Tropic brands in 2008. We intend to continue to compete by driving product innovation, building differentiated brand equity and focusing on in-store visibility.
The global men’s skin care market is expected to continue to grow, with increased demand for men’s personal care products. Our competitors in this market include large companies such as Johnson & Johnson, L’Oréal S.A., The Estee Lauder Companies, Inc. and Unilever, as well as smaller companies. We compete in the market by creating simple and effective skin care products with natural ingredients at multiple price points through our Bulldog and Cremo skin care products and in the luxury men’s skin care market with Jack Black.
Feminine Care
The markets for feminine care and other personal products are characterized by large manufacturers with global presence, as well as new market entrants, and is likewise very competitive, with a large number of domestic and foreign competitors, including The Procter & Gamble Company and Kimberly Clark Corp. With our acquisition of the Stayfree, Carefree and o.b. brands, we expanded our presence within the feminine care product category and became one of the top three manufacturers in North America. We compete by having a portfolio of well-known brands that address complementary consumer needs.
Sales and Distribution
Our products are marketed primarily through a direct sales force and supplemented by strategic exclusive and non-exclusive distributors and wholesalers. In the U.S., Japan and larger markets in Western Europe and Latin America, we have dedicated commercial organizations, reflecting the scale and importance of these businesses to our Company. In several countries where we do not have dedicated commercial organizations, we utilize third-party distributors and wholesalers. As a result of increased competition through the expansion of online markets, we have established e-commerce operations across several business lines, including global Schick.com websites providing men’s and women’s shaving products, Bulldog, Jack Black and Billie DTC sites, an acceleration of e-commerce sales in China through our partnership with T-Mall. We distribute our products to consumers through numerous retail locations worldwide, including mass merchandisers and warehouse clubs, food, drug and convenience stores, and military stores.
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Although a large percentage of our sales are attributable to a relatively small number of retail customers, only Walmart Inc. and its subsidiaries (“Walmart”), as a group, account for more than 10% of our consolidated annual net sales. Walmart accounted for approximately 19.4% of our net sales in fiscal 2023. Purchases by Walmart included products from all of our segments. Target Corporation represented approximately 9.4% of net sales for our Sun and Skin Care segment and 10.0% for our Feminine Care segment, respectively.
Generally, orders are shipped within a month of their order date. Because of the short period of time between order and shipment dates, the dollar amount of current backlog is not material and is not considered to be a reliable indicator of future sales volume.
Government contracts do not represent a material portion of our net sales.
Seasonality
Customer orders for Sun Care products within our Sun and Skin Care segment are highly seasonal, which has historically resulted in higher sun care sales to retailers during the late winter through mid-summer months. Within our Wet Shave segment, sales of women’s products are moderately seasonal, with increased consumer demand in the spring and summer months. See “Our business is subject to seasonal volatility” in Item 1A. Risk Factors.
Sources and Availability of Raw Materials
The principal raw materials used in our products include steel, various plastic resins, plastic based components, textile fibers and non-woven fabrics, organic and inorganic chemicals, soap-based lubricants and plastic-pulp based packaging. These materials are sourced on a regional or global basis, as applicable, and are generally available from multiple sources. Price and availability of our raw materials fluctuate over time. While we have confidence our supply assurance plans adequately support our current operational needs, we cannot predict the future with certainty. Both price and supply are subject to risk from global socio- and macroeconomic influences such as, but not limited to, force majeure, loss or impairment to key manufacturing sites, transportation, government regulation, currency or other unforeseen circumstances. In the past, we have avoided significant interruption in the availability of our input materials and believe that our extensive experience and global reach in procurement will continue to allow us to manage these risks effectively.
Patents, Technology and Trademarks
We own a number of U.S. and international trademarks, which we consider of substantial importance and which are used individually or in conjunction with our other trademarks. These include, but are not limited to: Edgewell™, Schick, Schick Hydro, Schick Hydro Silk, Hydro Connect™, Wilkinson Sword, Intuition, Quattro, Xtreme 3, Billie, Protector™, Silk Effects, Slim Twin, Edge, Skintimate, Personna, Banana Boat, Hawaiian Tropic, Bulldog, Jack Black, Cremo, Gentle Glide, Sport, Sport Level Protection™, Wet Ones, Stayfree, Carefree and o.b. As a result of the Playtex acquisition, we also own royalty-free licenses in perpetuity to the Playtex trademark in the U.S. and in many international jurisdictions related to certain feminine hygiene and other products but excluding certain baby care and apparel-related products. We consider the protection of our trademarks to be important to our business.
Our ability to compete effectively in the Wet Shave, Sun and Skin Care, and Feminine Care personal care categories depends, in part, on our ability to maintain the proprietary nature of technology and manufacturing processes through a combination of patent and trade secret protection, non-disclosure agreements and licensing agreements. We own or license a considerable number of patents, patent applications and other technology from third parties, which we believe are important to our business. These relate primarily to shaving product improvements and additional features, feminine care hygiene products including digital and applicator tampons, pads and liners, sunscreen formulations and manufacturing processes.
As of September 30, 2023, we owned, either directly or beneficially, approximately 370 unexpired U.S. patents, which have a range of expiration dates from October 2023 to February 2040, and we had approximately 55 pending U.S. patent applications. We routinely prepare additional patent applications for filing in the U.S. and actively pursue foreign patent protection in various countries. As of September 30, 2023, we owned, either directly or beneficially, approximately 1,187 foreign patents, having a range of expiration dates from October 2023 to August 2048, and we had approximately 125 pending patent applications in foreign countries.
We rely on trademark, trade secret, patent and copyright laws to protect our intellectual property rights. We cannot be sure that these intellectual property rights will be effectively utilized or, if necessary, successfully asserted. There is a risk that we will not be able to obtain and perfect our own intellectual property rights, or, where appropriate, license intellectual property rights from others.
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Governmental Regulation and Environmental Matters
We are subject to various federal, state, local and foreign laws and regulations by governmental agencies intended to protect the public health and environment, including those governing the manufacture, use, discharge and disposal of hazardous materials, labeling and notice requirements related to consumer exposure to certain chemicals, and requirements for the recycling of our products and their packaging. These agencies include, but are not limited to (i) the U.S. Food and Drug Administration (the “FDA”) and equivalent international agencies that regulate ingredients in consumer products; (ii) the U.S. Environmental Protection Agency (“EPA”) and equivalent international agencies that regulate our manufacturing facilities; and (iii) the Chemical Registration/Notification authorities that regulate chemicals that we use in, or transport to, the various countries in which we manufacture and/or market our products. We have seen an increase in registration and reporting requirements concerning the use of certain chemicals in a number of countries, such as the Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”) regulations in the European Union (the “E.U.”).
Contamination has been identified at certain of our current and former facilities, as well as third-party waste disposal sites, and we are conducting investigation and remediation activities in relation to such properties. In connection with certain sites, we have received notices from the EPA, state agencies and private parties seeking contribution that we have been identified as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) and, as a result, we may be required to share in the cost of cleanup with respect to a number of federal “Superfund” sites. In addition to potential costs to clean up our own properties, we may also be required to share in the cost of cleanup with respect to state-designated sites and certain international locations.
The amount of our ultimate liability in connection with those sites may depend on many factors, including the volume and toxicity of material contributed to the site, the number of other PRPs and their financial viability and the remediation methods and technology to be used. Total environmental capital expenditures and operating expenses are not expected to have a material adverse effect on our total capital and operating expenditures, cash flows, earnings or competitive position. Current environmental spending estimates could be modified as a result of changes in our plans or our understanding of the underlying facts, changes in legal requirements, including any requirements related to global climate change or other factors.
The U.S. Toxic Substances Control Act of 1976 (“TSCA”) and similar laws in other jurisdictions are intended to ensure that chemicals do not pose unreasonable risks to human health or the environment. TSCA requires the EPA to maintain the TSCA registry listing chemicals manufactured or processed in the United States. Chemicals not listed on the TSCA registry cannot be imported into or sold in the U.S. until registered with the EPA. TSCA also sets forth specific reporting, recordkeeping and testing rules for chemicals, including requirements for the import and export of certain chemicals, as well as other restrictions relevant to our business. Pursuant to these laws, the EPA from time to time issues Significant New Use Rules, or SNURs, when it identifies new uses of chemicals that could pose risks to human health or the environment and also requires pre-manufacture notification of new chemical substances that do not appear on the TSCA registry. When we import chemicals into the U.S., we must ensure that chemicals appear on the TSCA registry prior to import, participate in the SNUR process when a chemical we import requires testing data and report to the EPA information relating to quantities, identities and uses of imported chemicals.
Many European countries, as well as the E.U., have been very active in adopting and enforcing environmental regulations. As such, it is possible that new regulations may increase the risk and expense of doing business in such countries.
REACH requires manufacturers and importers of chemical substances to register such substances with the European Chemicals Agency, or the ECHA, and enables European and national authorities to track such substances. Depending on the amount of chemical substances to be manufactured or imported, and the specific risks of each substance, REACH requires different sets of data to be included in the registration submitted to the ECHA. Registration of substances with the ECHA imposes significant recordkeeping requirements that can result in significant financial obligations for companies such as ours to import products into Europe. REACH is accompanied by legislation regulating the classification, labeling and packaging of chemical substances and mixtures.
We believe that our facilities and products are in substantial compliance with current applicable laws and regulations.
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Sustainability
Edgewell’s Sustainable Care 2030 strategy provides a roadmap for delivering on our ambitions and guides us to ensure that we are a successful and responsible business not just today, but for generations to come.
Unveiled in 2020, our Sustainable Care 2030 strategy includes clear targets across our brands, operations and supply chain, as well as our workforce and communities. These 2030 targets include (i) 100% renewable electricity use and carbon neutrality across our global operations; (ii) reducing use of virgin petroleum-based plastic content in products and packaging; (iii) using 100% recyclable, compostable or reusable plastic packaging; and (iv) reducing waste by 10% and pursuing zero waste to landfill across production facilities.
We are making significant progress on our goals, including in priority areas such as sustainable products and packaging, ingredient stewardship and transparency, responsible sourcing, reducing waste, protecting the health and safety of our teammates, and embracing diversity, equity, and inclusion across the organization, among others. However, there is no guarantee that we will achieve our environmental sustainability priorities in whole or in part on or before 2030.
Additional information related to our social and environmental sustainability matters can be found at www.edgewell.com/pages/sustainability. The information contained on, or that may be accessed through, our website, is not part of, and not incorporated into, this Annual Report on Form 10-K.
Human Capital
Employee Profile
At Edgewell, we are committed first and foremost to people: our employees, the consumers who use our products, the suppliers and retailers who partner with us, and the communities in which we operate. As of September 30, 2023, we had approximately 6,800 employees, with 2,200 based in the United States. Certain of our employees outside of the U.S. are represented by unions or works councils. We have cultivated a culture that is centered around our guiding purpose of Making Useful Things Joyful, supported by a set of values and behaviors that guide organizational actions and decisions, underpinned by a focus on diversity, equity, and inclusion.
We believe our foundational values of “People First,” “Move Forward,” “Listen Up and Speak Up” and “Own It Together” support a culture of celebration, agility, authenticity, and collaboration. This culture promotes trust and teamwork, which results in bold and aggressive goals, smart risks, and an environment where innovation and ideation thrive. We continue to reinforce our foundational values through several key initiatives:
•Our performance management process provides for increased accountability to model our values by incorporating a ‘360-degree Values Assessment’ that evaluates each employee’s performance not only on the results achieved, but on how they achieve them.
•In 2021, we launched an internal global recognition and service anniversary platform, InspireJOY, an online tool used to recognize service milestones and for those exhibiting our values through recognition awards from managers and peers. Since launch, we have seen over 100,000 recognition moments.
Employee Wellness and Safety
The wellness of our people remains a primary focus and we believe that the most productive people are those who are at their best, both physically and mentally. Our employees have access to several programs related to employee wellness including onsite biometric screening; cancer screening; weight loss programs and education; mental and emotional health awareness and support; and work-life balance through flextime, remote and hybrid working arrangements and parental leave, among others. As we face new variants, we continue to monitor the Novel Coronavirus 2019 (“COVID-19”) infection rates at all our locations and implement protocols such as the use of masks, when necessary, in order to protect our employees.
We believe that developing and maintaining a strong safety culture in one of the major keys to our continued success. To this end, in fiscal 2023, we implemented a multi-year objective for all sites to achieve either OSHA VPP (US sites) or ISO 45001 (Safety & Health Management Systems). Additionally, facilities have continued an existing machine safety program and assessment initiative, including completing any remaining assessments and implementing fixes for identified items. Finally, our manufacturing sites have revitalized their “Alive and Well” program and initiatives over the last year with some facilities rolling the program out to other levels in their organization.
Ensuring a positive, purposeful working experience for our employees that is reflective of our purpose and values is central to our business operations. We continually monitor employee retention rates and believe our progressive human resources
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policies, learning and development, talent management, workplace health and safety, and community engagement and support activities enable us to attract and retain key personnel.
Diversity, Equity and Inclusion
We remain committed to creating a work environment where every individual feels respected, connected, valued, and empowered. We continually look for ways to support the global workforce, our consumers, and the communities we serve. We recruit the best people for the job regardless of gender, race, ethnicity or other protected traits and it is our policy to comply fully with all domestic, foreign, and local laws relating to discrimination in the workplace. Our diversity, equity, and inclusion (“DEI”) principles are also reflected in our values and behaviors, and in particular with our policies against harassment or bullying. We will continue to evolve our DEI policies to support all individuals who make up our teams.
During 2023, we advanced our focus on DEI through many specific actions including:
•Our CEO continued his commitment through the CEO Action for Diversity & Inclusion™, a coalition uniting business leaders to advance DEI in the workplace through education, training, dialogue and action.
•We continue with our commitment to a diverse and inclusive Board of Directors. Edgewell seeks to maintain a Board comprised of talented and dedicated directors with a mix of experience, skills and backgrounds collectively reflecting the strategic needs of the business and the nature of the environment in which the Company operates.
•We have partnered with Out & Equal Workplace advocates to support our organization as we create a culture of belonging for all and to help LGBTQ+ people thrive in the workplace.
•Our Director of DEI is leading and advancing our global DEI strategy as well as supporting our Teammate Resource Groups who remain focused on influencing Edgewell’s inclusive culture for everyone.
•To continue with the Mitigating Bias training that is delivered to the organization in English, we have offered training globally where teammates could attend in their local language. In addition, we provide opportunities for our teammates to receive mini lessons on issues that are important to them.
Overall, DEI is an important part of our sustainability strategy with a focus on sustaining the safety and well-being of our employees, the people who use our products, the partners with whom we work and the communities we serve. We will build upon the commitments outlined in our Sustainable Care 2030 strategy to promote an open and inclusive culture where everyone is treated fairly and with respect so that we can retain and attract the best talent.
Teammate Experience
We understand that to attract and retain great people, we must listen to and engage them regularly. Each year, we conduct an anonymous employee experience survey to gauge our progress and identify the areas in the employee experience where we excel and areas for improvement. For the survey conducted in June 2023, our overall positivity score was 76% with 6,186 employees interacting with the survey. For 2023, we updated and revised our questions along with leveraging a new survey tool. When comparing to 2022, there was an increase of 15% in employee participation and slight improvement in positivity.
Global Actions that were implemented in the fiscal year 2023 focused on helping employees with prioritization and included:
•Brought awareness to the Global Leadership Team (GLT) Goal Alignment process during the Continuous Performance cycle where part of the process included agreement on Enterprise priorities that performance goals will be developed against. This is meant to gain alignment and prioritization around initiatives and be focused on where we will spend our time.
•Assisted People Managers with support material and direction to help prioritization work through discussions at Continuous Performance Quarterly Check-ins.
•Reintroduced our ‘How We Meet’Ways of Working toolkit with an emphasis on meeting protocols.
In addition to global themes, our employee experience results identified diverse priorities at the functional, country, and team levels. Our goal is to support our People Managers in taking accountability for their results and to empower them to make changes at a local level to improve the employee experience.
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Executive Officers
Set forth below are the names and ages as of September 30, 2023, and current positions of our executive officers.
| Name | Age | Title | ||||||
| Rod R. Little | 54 | Chief Executive Officer | ||||||
| Daniel J. Sullivan | 54 | Chief Financial Officer, President Europe and Latin America | ||||||
| Paul R. Hibbert | 54 | Chief Supply Chain Officer | ||||||
| John N. Hill | 60 | Chief Human Resources Officer | ||||||
| LaTanya Langley | 48 | Chief Legal Officer and Corporate Secretary | ||||||
| Eric O’Toole | 56 | President, North America | ||||||
| Robert A. Schmidt | 46 | Chief Accounting Officer | ||||||
Set forth below is a brief description of the position and business experience of each of our executive officers.
Rod R. Little has served as President and Chief Executive Officer since March 1, 2019. Mr. Little previously served as our Chief Financial Officer beginning in March 2018. Prior to joining Edgewell, Mr. Little served as Chief Financial Officer of HSNi from January 2017 to December 2017, and as Executive Vice President and Chief Financial Officer of Elizabeth Arden, Inc. from April 2014 to November 2016. Prior to joining Elizabeth Arden, Mr. Little spent 17 years with Procter & Gamble where he held numerous positions of increasing responsibility in Procter & Gamble’s divisional and corporate finance organization, ultimately serving as the chief finance officer of their global salon professional division from 2009 until 2014. Mr. Little also served for five years in the United States Air Force prior to joining Procter & Gamble in 1997.
Daniel J. Sullivan has served as Chief Financial Officer since April 1, 2019, and effective October 1, 2022 Mr. Sullivan also serves as President, Europe and Latin America. Prior to joining Edgewell, Mr. Sullivan served as Executive Vice President and Chief Financial Officer of Party City Holdco Inc. Previously, Mr. Sullivan spent six years, from 2010 to 2016, with Ahold USA Inc., where he held positions of increasing responsibility within their control and finance divisions, ultimately serving as Executive Vice President and Chief Financial Officer from 2013 to 2016. Prior to that, Mr. Sullivan spent 13 years at Heineken N.V, most recently as the Chief Financial and Operating Officer of Heineken USA. Mr. Sullivan is a certified public accountant.
Paul R. Hibbert has served as Chief Supply Chain Officer since June 1, 2020. Prior to his current role, Mr. Hibbert was Vice President Global Supply Chain & Operations from February 2018 through May 2020. Before joining Edgewell in 2018, Mr. Hibbert served as the Executive Vice President of Supply Chain for Safety-Kleen Systems, Inc. from 2015 through 2018, and he held various roles of increasing responsibility such as Senior Vice President Supply Chain at Central Garden and Pet Company, Supply Chain Consultant at Chemtura BioLab, Inc., and Supply Chain Vice President Home and Garden Division at Spectrum Brands, Inc.
John N. Hill has served as Chief Human Resources Officer since April 4, 2017. Mr. Hill had previously led the North America commercial organization as our company’s Vice President, North America since July 1, 2015, and as the VP, North America Commercial of Energizer’s Personal Care division from 2007 to 2015. Mr. Hill joined our company in 2003 as General Manager Schick Canada following the acquisition of Schick-Wilkinson Sword from Pfizer, Inc.
LaTanya Langley has served as Chief Legal Officer and Corporate Secretary since February 28, 2022. From 2015 to 2022, Ms. Langley served in roles of increasing responsibility at Société Bic S.A (commonly known as BIC), most recently as General Counsel, Corporate Secretary and Compliance Officer. Prior to joining BIC, Ms. Langley served as Senior Counsel at Diageo plc from 2008 to 2015.
Eric O’Toole has served as President, North America since May 26, 2020. Prior to joining Edgewell, Mr. O’Toole was General Manager of Walmart’s Sporting Goods e-commerce division. Mr. O’Toole had joined e-commerce startup Jet.com in early 2016 prior to Jet.com’s acquisition by Walmart. Earlier in his career, he held various positions at the Groupe Danone from 2003 to 2016 including President Danone Waters of America, SVP Sales and VP Business Development, The Dannon Company.
Robert A. Schmidt has served as Chief Accounting Officer since January 16, 2023. Prior to joining Edgewell, Mr. Schmidt was Chief Accounting Officer of ADC Therapeutics SA, a publicly traded commercial-stage biotechnology company. Prior to his current role, Mr. Schmidt served as Chief Accounting Officer at Newell Brands, Inc. from March 2019 to August 2020 and as Assistant Corporate Controller at Celgene Corporation from 2016 to 2019. Previously, he held roles of increasing responsibility in the finance organization at Tyco International including Vice President and Controller, Assistant Controller, and Senior Director of External Reporting. Mr. Schmidt spent the early part of his career in public accounting with PricewaterhouseCoopers LLP and is a certified public accountant.
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Available Information
Our website address is www.edgewell.com. We are not including the information contained on our website as part of, or incorporating it by reference into, this filing. We make available to the public on our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (“SEC”).
Item 1A. Risk Factors.
The following risks and uncertainties could materially adversely affect our business, results of operations, financial condition and cash flows. We may amend or supplement the risk factors described below from time to time in other reports we file with the SEC.
Macroeconomic Conditions and Related Risk Factors
Changes in production costs, including raw material prices and tariffs, could erode our profit margins and negatively impact operating results.
Pricing and availability of raw materials, energy, shipping, labor and other services needed for our business can be volatile due to general economic conditions, including inflation, supplier capacity restraints, geopolitical developments, changes in supply and demand, natural disasters, energy costs, health epidemics or pandemics (including the COVID-19 pandemic), labor shortages and turnover, production levels, currency fluctuations, governmental actions (including import and export requirements such as new or increased tariffs, sanctions, quotas or trade barriers), port congestions or delays, transport capacity restraints, cybersecurity incidents or other disruptions of key manufacturing sites, acts of terrorism and other factors beyond our control. There is no certainty that we will be able to offset future cost increases. This volatility can significantly affect our production costs and may, therefore, have a material adverse effect on our business, results of operations and financial condition.
If such cost pressures persist or exceed our estimates and we are not able to increase the prices of our products or achieve cost savings to offset such cost increases, our operating margins would be harmed. In addition, even if we increase the prices of our products in response to increases in the cost of commodities or other cost increases, we may not be able to sustain its price increases. Sustained price increases may lead to declines in volume as competitors may not adjust their prices or customers may decide not to pay the higher prices, which could lead to sales declines and loss of market share, and our projections may not accurately predict the volume impact of price increases, which could adversely affect its business, financial condition and results of operations.
We may not be able to attract, retain and develop key personnel.
Our future performance depends in significant part upon the continued service of our executive officers and other key personnel. The loss of the services of one or more of our executive officers or other key employees could have a material adverse effect on our business, prospects, financial condition and results of operations. Our success also depends on our continuing ability to attract, retain and develop highly qualified personnel. Competition for such personnel is intense, and there can be no assurance that we can retain and motivate our key employees or attract and retain other highly qualified personnel in the future.
Competition in our industries may hinder our ability to execute our business strategy, achieve profitability, or maintain relationships with existing customers.
The categories in which we operate are largely mature and highly competitive, both in the U.S. and globally, as a number of companies compete for consumer acceptance, limited retail shelf space and e-commerce opportunities. Because of the highly competitive environment in which we operate, as well as increasing retailer concentration, our retailer customers, including online retailers, frequently seek to obtain pricing concessions or better trade terms, resulting in either reduction of our margins or losses of distribution to lower cost competitors. Competition is based upon brand perceptions, product performance and innovation, customer service and price. Our ability to compete effectively may be affected by a number of factors, including:
•several of our competitors, including The Procter & Gamble Company, Unilever, Johnson & Johnson and others, may have substantially greater financial, marketing, research and development and other resources and greater market share in certain segments than we do, which could provide them with greater scale and negotiating leverage with retailers
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and suppliers, and other competitors are newer companies backed by private-equity investors with the goal of expanding revenue instead of profitability;
•our competitors may have lower production, sales and distribution costs, and higher profit margins, which may enable them to offer aggressive retail discounts and other promotional incentives;
•our competitors may be able to obtain exclusive distribution rights at particular retailers or favorable in-store placement;
•our retailers could reduce inventories, shift to different products, or require us to lower our prices to retain shelf placement of our products; and
•we may lose market share to private label brands sold by retail chains, or to price brands sold by local and regional competitors, which, in each case, are typically sold at lower prices than our products.
Legal, Regulatory, Tax and Other Risks
Our business is subject to increasing global regulation, including product related regulations and environmental regulations, that may expose us to significant liabilities.
The manufacturing, packaging, labeling, storage, distribution, advertising and sale of our products are subject to extensive regulation. For example, a number of our products are regulated by health authorities both in the U.S. and in the E.U. (such as the U.S. Food and Drug Administration), and by consumer protection organizations (such as the U.S. Consumer Product Safety Commission). These regulatory frameworks focus on our ingredients as well as the safety and efficacy of our products. Similarly, the advertising and marketing of our products is regulated by agencies such as the U.S. Federal Trade Commission. All of these regulatory frameworks exist at the federal, state and local level in the U.S. as well as in foreign countries where we sell our products. New or more restrictive regulations or more restrictive interpretations of existing regulations are likely and could lead to additional compliance costs and could have an adverse impact on our business. Additionally, a finding that we are in violation of, or not in compliance with, applicable laws or regulations could subject us to material civil remedies, including fines, damages, injunctions or product recalls, or criminal sanctions. Even if a claim is unsuccessful, is not merited or is not fully pursued, the negative publicity surrounding such assertions could jeopardize our reputation and brand image and have a material adverse effect on our businesses, as well as require resources to rebuild our reputation.
We must comply with various environmental laws and regulations in the jurisdictions in which we operate, including those relating to the handling and disposal of solid and hazardous wastes and the remediation of contamination associated with the use and disposal of hazardous substances. A release of such substances due to an accident or intentional act could result in substantial liability to governmental authorities or to third parties. Pursuant to certain environmental laws, we could be subject to joint and several strict liability for contamination relating to our or our predecessors’ current or former properties or any of their respective third-party waste disposal sites. In addition to potentially significant investigation and remediation costs, any such contamination can give rise to claims from governmental authorities or other third parties for natural resource damage, personal injury, property damage or other liabilities. We have incurred, and will continue to incur, capital and operating expenses and other costs in complying with environmental laws and regulations, including remediation costs relating to our current and former properties and third-party waste disposal sites. As new laws and regulations are introduced, we could become subject to additional environmental liabilities in the future that could cause a material adverse effect on our results of operations or financial condition.
Our Company may be named a party to legal proceedings or may be subject to product liability or other claims that can result in significant expenses, fines, product recalls or withdrawals and reputational damage, which would affect our results of operations and financial condition.
In the ordinary course of business, the Company and its subsidiaries are subject to numerous claims and lawsuits involving various issues such as patent disputes, current and historical product liability claims; claims that our product manufacturing, sales, and marketing practices violate various consumer protection laws both in the U.S. and internationally; and claims arising out of alleged defects in our products, including property damage, bodily injury or other adverse effects. While the Company believes it has substantial defenses in these matters, it is not feasible to predict the ultimate outcome of litigation. The Company could in the future be required to pay significant amounts as a result of settlements or judgments in these matters, including matters where the Company could be held jointly and severally liable among other defendants. In addition to the risk of monetary judgments not covered by insurance, product liability claims could result in negative publicity that could harm our products’ reputation and in certain cases require a product recall. Product recalls or product liability claims, and any subsequent remedial actions, could have a material adverse effect on our business, reputation, brand value, results of operations and financial condition.
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Litigation, in general, and class action and multi-district litigation, in particular, can be expensive and disruptive. Some of these matters may include large numbers of plaintiffs, may involve parties seeking large or indeterminate amounts, including punitive or exemplary damages, and may remain unresolved for several years. Although we maintain product liability insurance, this insurance does not cover all types of claims, particularly claims other than those involving personal injury or property damage or claims that exceed the amount of insurance coverage. Further, we may not be able to maintain such insurance in sufficient amounts, on desirable terms, or at all, in the future.
Our business could be negatively impacted by corporate citizenship and sustainability matters.
There is an increased focus from certain investors, customers, consumers, employees, and other stakeholders concerning corporate citizenship and sustainability matters. From time to time, we announce certain initiatives, including goals, regarding our focus areas, which include environmental matters, packaging, responsible sourcing, social investments and diversity, equity and inclusion. We could fail, or be perceived to have failed, in our achievement of such initiatives or goals, or we could fail in accurately reporting our progress on such initiatives and goals. Such failures could be due to changes in our business (e.g., shifts in business among distribution channels or acquisitions). Moreover, the standards by which citizenship and sustainability efforts and related matters are measured are evolving, and certain areas are subject to assumptions which could change over time. In addition, we could be criticized for the scope of such initiatives or goals or perceived as not acting responsibly in connection with these matters. Adverse incidents related to corporate citizenship or sustainability matters could impact the value of our brands, the cost of our operations, and our relationships with existing and future investors, which could have a material adverse effect on our business.
If we fail to adequately protect our intellectual property rights, competitors may manufacture and market similar products, which could adversely affect our market share and results of operations.
The vast majority of our total net sales are from products bearing proprietary trademarks and brand names. In addition, we own or license from third parties a considerable number of patents, patent applications and other technology. We rely on trademark, trade secret, patent and copyright laws to protect our intellectual property rights. There is a risk that we will not be able to obtain and perfect or maintain our own intellectual property rights or, where appropriate, license intellectual property rights necessary to support new product introductions. In addition, even if such rights are protected in the U.S., the laws of some other countries in which our products are or may be sold do not protect intellectual property rights to the same extent as the laws of the U.S. Our intellectual property rights could be invalidated, circumvented or challenged in the future, and we could incur significant costs in connection with legal actions relating to such rights. As patents expire, we could face increased competition or decreased royalties, either of which could negatively impact our operating results. If other parties infringe our intellectual property rights, they may dilute the value of our brands in the marketplace, which could diminish the value that consumers associate with our brands which may harm our sales.
Legislative changes in applicable tax laws, policies and regulations or unfavorable resolution of tax matters may result in additional tax liabilities, which could adversely impact our cash flows and results of operations.
Our businesses are subject to taxation in the U.S. and multiple foreign jurisdictions. The impact of any legislative tax law, policy or regulation changes by federal, state, local and foreign authorities may result in additional tax liabilities which could adversely impact our cash flows and results of operations. Significant estimation and judgment are required in determining our provisions for taxes in the U.S. and jurisdictions outside the U.S. In the ordinary course of our business, there are transactions and calculations in which the ultimate tax determination is uncertain. We are regularly under audit by tax authorities, and although we believe our tax positions are defensible and our tax provision estimates are reasonable, the final outcome of tax audits and related litigation could be materially different than that reflected in our income tax provisions and accruals. The unfavorable resolution of any audits or litigation could have an adverse impact on future operating results and our financial condition. More aggressive and assertive tax collection policies, particularly in jurisdictions outside the U.S., may increase the costs of resolving tax issues and enhance the likelihood that we will have increased tax liabilities going forward. In addition, international tax reform remains a priority with the Organization for Economic Cooperation and Development’s Action Plan on Base Erosion & Profit Shifting and other proposed foreign jurisdictional tax law changes. Given the uncertainty of the possible changes and their potential interdependency, we are unable to determine the net consolidated impact of changes in global tax legislation, if any.
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Information Technology and Systems
A failure of a key information technology system or a breach of our information security could adversely impact our ability to conduct business.
We rely extensively on information technology systems in order to conduct business, including some that are managed by third-party service providers. These systems include, but are not limited to, programs and processes relating to internal and external communications, ordering and managing materials from suppliers, converting materials to finished products, shipping products to customers, processing transactions, summarizing and reporting results of operations, and complying with regulatory, legal or tax requirements. These information technology systems could be damaged or cease to function properly due to the poor performance or failure of third-party service providers, catastrophic events, power outages, network outages, failed upgrades or other similar events. If our business continuity plans do not effectively resolve such issues on a timely basis, we may suffer interruptions in conducting our business which may adversely impact our operating results.
Periodically, we also need to upgrade our information technology systems or adopt new technologies. If such a new system or technology does not function properly or otherwise exposes us to increased cybersecurity breaches and failures, it could affect our ability to order materials, make and ship orders, and process payments in addition to other operational and information integrity and loss issues. Further, if the information technology systems, networks or service providers we rely upon fail to function properly or cause operational outages or aberrations, or if we or one of our third-party providers suffer significant unavailability of key operations, or inadvertent disclosure of, lack of integrity of, or loss of our sensitive business or stakeholder information, due to any number of causes, ranging from catastrophic events or power outages to improper data handling, security incidents or employee error or malfeasance, and our business continuity plans do not effectively address these failures on a timely basis, we may be exposed to reputational, competitive, operational, financial and business harm as well as litigation and regulatory action. The costs and operational consequences of responding to the above items and implementing remediation measures could be significant and could adversely impact our results.
An information security incident, including a cybersecurity breach, could have a negative impact to the Company’s business or reputation.
Our systems and networks, as well as those of our retailer customers, suppliers, service providers, and banks, may become the target of advanced cyber-attacks or information security breaches which will pose a risk to the security of our services, systems, networks and supply chain, as well as to the confidentiality, availability and integrity of data of our Company, employees, customers or consumers, and disrupt our operations or damage our facilities or those of third parties. As cybersecurity threats rapidly evolve in sophistication and become more prevalent across the industry globally, we are continually increasing our attention to these threats. We assess potential threats and vulnerabilities and make investments seeking to address them, including ongoing monitoring and updating of networks and systems, increasing specialized information security skills, deploying employee security training, and updating security policies for our Company and our third-party providers. However, because the techniques, tools and tactics used in cyber-attacks frequently change and may be difficult to detect for periods of time, we may face difficulties in anticipating and implementing adequate preventative measures or fully mitigating harms after such an attack. As a result, a cyber-attack could negatively impact our net sales and increase our operating and capital costs. In addition, our employees frequently access our suppliers’ and customers’ systems and we may be liable if our employees are the source of any breaches in these third-party systems. It could also damage our reputation with retailer customers and consumers and diminish the strength and reputation of our brands or require us to pay monetary penalties.
Business and Operational Risk Factors
Loss of any of our principal customers could significantly decrease our sales and profitability.
Walmart, together with its subsidiaries, is our largest customer, accounting for approximately 19.4% of our net sales in fiscal 2023. Generally, sales to our top customers are made pursuant to purchase orders and we do not have supply agreements or guarantees of minimum purchases from them. As a result, these customers may decrease their level of purchases from us at any time. The loss or a substantial decrease in the volume of purchases by any of our top customers would harm our sales and profitability. Increasing retailer customer concentration could result in reduced sales outlets for our products, as well as greater negotiating pressures and pricing requirements.
Changes in the policies of our retailer customers and increasing dependence on key retailer customers in developed markets may adversely affect our business.
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In recent years, retailer consolidation both in the U.S. and internationally has increased. This trend has resulted in the increased size and influence of large, highly consolidated retail customers, including internet-based retailers, who may demand lower pricing, special packaging or impose other commercial requirements on us. These business demands may relate to inventory practices, logistics or other aspects of the customer-supplier relationship. Some of our customers, particularly our high-volume retail customers, have sought to obtain pricing and other concessions and better trade terms. To the extent we provide concessions or better trade terms to those customers, our margins are reduced. Further, if we are unable to effectively respond to the demands of our customers, these customers could reduce their purchases of our products and increase their purchases of products from competitors, which would harm our sales and profitability. In addition, reductions in inventory by our customers, including as a result of consolidations in the retail industry, or our customers managing their working capital requirements, could result in reduced orders for our products and adversely affect our results of operations for the financial periods affected by such reductions.
Protracted unfavorable market conditions have caused many of our customers to more critically analyze the number of brands they sell, which could lead to the retailer reducing or discontinuing certain of our product lines, particularly those products that were not number one or two in their category.
Our inability to execute a successful e-commerce strategy could have a significant negative impact on our business.
Sales of consumer products via e-commerce has gained increasing importance among market participants as more end user customers purchase consumer goods through e-commerce. We are engaged in e-commerce sales channels with respect to many of our products; however, if e-commerce and other sales channels were to take significant market share away from traditional brick and mortar retailers, and if we are not successful in achieving sales growth in these sales channels, our business, financial condition and results of operations may be negatively impacted. We have invested and continue to invest resources into our e-commerce business to maintain competitiveness in the market. There can be no assurances that these investments and initiatives will be successful.
We face risks arising from our ongoing efforts to achieve cost savings.
In the normal course of business, we may initiate projects which change our manufacturing footprint or our operations in order to gain production efficiencies and reduce costs. The execution of cost savings initiatives may present a number of significant risks, including:
•actual or perceived disruption of service or reduction in service standards to customers;
•the failure to preserve adequate internal controls as we restructure our general and administrative functions, including our information technology and financial reporting infrastructure;
•the failure to preserve supplier relationships and distribution, sales and other important relationships and to resolve conflicts that may arise;
•loss of sales as we reduce or eliminate staffing on non-core product lines;
•diversion of management attention from ongoing business activities;
•the failure to maintain employee morale and retain key employees while implementing benefit changes and reductions in the workforce; and
•identification of potential synergies in our manufacturing footprint
Because of these and other factors, we cannot predict whether we will realize the purpose and anticipated benefits of these initiatives and, if we do not, our business and results of operations may be adversely affected.
We are subject to risks related to our international operations, including currency fluctuations, which could adversely affect our results of operations.
Our businesses are conducted on a worldwide basis, with nearly 41% of our net sales in fiscal 2023 originating outside the U.S., and a significant portion of our production capacity and cash are located overseas. Consequently, we are subject to a number of risks associated with doing business in foreign countries, including:
•sourcing of raw materials from around the world;
•reliance on China to source, manufacture, and transport materials and goods;
•delays in transportation of goods when shipping globally;
•economic conditions impact availability and capacity of key vendors;
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•the possibility of expropriation, confiscatory taxation or price controls;
•the ability to repatriate foreign-based cash effectively for strategic needs in the U.S., as well as the heightened counterparty, internal control and country-specific risks associated with holding cash overseas;
•the effect of foreign income taxes, value-added taxes and withholding taxes, including the inability to recover amounts owed to us by a government authority without extended proceedings or at all;
•the effect of the U.S. tax treatment of foreign source income and losses, and other restrictions on the flow of capital between countries;
•adverse changes in local investment or exchange control regulations;
•restrictions on and taxation of international imports and exports;
•legal and regulatory constraints, including tariffs and other trade barriers;
•currency fluctuations, including the impact of hyper-inflationary conditions, particularly where exchange controls limit or eliminate our ability to convert from local currency;
•political or economic instability, government nationalization of business or industries, government corruption and civil unrest, including political or economic instability; and
•difficulty in enforcing contractual and intellectual property rights.
One or more of these factors could harm our international operations or investments and our operating results.
We are currently dependent on third party manufacturers to manufacture certain products for our business. Our business could suffer as a result of a third-party manufacturer’s inability to produce our products for us on time or to our specifications.
The inability of a third-party manufacturer to ship orders in a timely manner, in desirable quantities or to meet our safety, quality and social compliance standards or regulatory requirements could have a material adverse impact on our business. While certain of our relationships with these third parties are subject to minimum volume commitments, whereby the third-party manufacturer has committed to produce and we have committed to purchase a minimum quantity of product, we may nonetheless experience situations where such manufacturers are unable to fulfill their obligations under our agreements.
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Our manufacturing facilities, supply channels or other business operations may be subject to disruption from events beyond our control.
Operations of our manufacturing and packaging facilities worldwide, and of our corporate offices, and the methods we use to obtain supplies and to distribute our products, may be subject to disruption for a variety of reasons, including availability of raw materials, work stoppages, industrial accidents, disruptions in logistics, loss or impairment of key manufacturing sites, product quality or safety issues, licensing requirements and other regulatory issues, trade disputes between countries in which we have operations, and acts of war, terrorism, pandemics, fire, earthquake, hurricanes, flooding or other natural disasters. The supply of our raw materials may be similarly disrupted. There is also a possibility that third-party manufacturers, which produce a significant portion of certain of our products, could discontinue production with little or no advance notice, or experience financial problems or problems with product quality or timeliness of product delivery, resulting in manufacturing delays or disruptions, regulatory sanctions, product liability claims or consumer complaints. If a major disruption were to occur, it could result in delays in shipments of products to customers or suspension of operations. We maintain business interruption insurance to potentially mitigate the impact of business interruption, but such coverage may not be sufficient to offset the financial or reputational impact of an interruption.
Loss of reputation of our leading brands or failure of our marketing plans could have an adverse effect on our business.
We depend on the continuing reputation and success of our brands, particularly the Schick, Wilkinson Sword, Billie, Edge, Skintimate, Playtex, Wet Ones, Banana Boat, Hawaiian Tropic, Bulldog, Cremo, Jack Black, Stayfree, Carefree and o.b. brands. Our operating results could be adversely affected if one of our leading brands suffers damage to its reputation due to real or perceived quality issues. Further, the success of our brands can suffer if our marketing plans or new product offerings do not improve or have a negative impact on our brands’ image or ability to attract and retain consumers. Additionally, if claims made in our marketing campaigns become subject to litigation alleging false advertising, it could damage one or several of our brands, cause us to alter our marketing plans in ways that may materially and adversely affect sales, or result in the imposition of significant damages against us. Further, a boycott or other campaign critical of us, through social media or otherwise, could negatively impact our brands’ reputation and, consequently, our products’ sales.
Our business is subject to seasonal volatility.
Customer orders for sun care products within our Sun and Skin Care segment are highly seasonal, which has historically resulted in higher sun care sales to retailers during the late winter through mid-summer months. Accordingly, our sales, financial performance, working capital requirements and cash flow may experience volatility during these periods. Further, purchases of our sun care products can be significantly impacted by unfavorable weather conditions during the summer period, and as a result we may suffer decreases in net sales if conditions are not favorable for use of our products, which could in turn have a material adverse effect on our financial condition, results of operation and cash flows. Within our Wet Shave segment, sales of women’s products are moderately seasonal, with increased consumer demand in the spring and summer months.
Our financial performance depends on our ability to anticipate and respond to consumer trends and changes in consumer preferences. New product introductions may not be as successful as we anticipate, which could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.
We have a rigorous process for the continuous development and evaluation of new product concepts, led by executives in marketing, sales, research and development, product development, operations, legal and finance. However, consumer preference and spending patterns change rapidly and cannot be predicted with certainty. There can be no assurance that we will anticipate and respond to trends for consumer products effectively. Each new product launch, including those resulting from our product development process, carries risks, as well as the possibility of unexpected consequences, including:
•the acceptance of our new product launches and sales of such new products may not be as high as we anticipate;
•our marketing, promotional, advertising and/or pricing strategies for our new products may be less effective than planned and may fail to effectively reach the targeted consumer base or engender the desired consumption of the products by consumers;
•we may incur costs exceeding our expectations as a result of the continued development and launch of new products, including, for example, unanticipated levels of research and development costs, advertising, promotional and/or marketing expenses, sales return expenses or other costs related to launching new products;
•we may experience a decrease in sales of certain of our existing products as a result of newly-launched products, the impact of which could be exacerbated by shelf space limitations and/or any shelf space loss;
17
•our product pricing strategies for new product launches may not be accepted by customers and/or consumers, which may result in sales being less than we anticipate; and/or
•we may experience a decrease in sales of certain of our products as a result of counterfeit products and/or products sold outside of their intended territories.
Each of the risks referred to above could delay or impede our ability to achieve our sales objectives, which could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.
Impairment of our goodwill and other intangible assets would result in a reduction in net income.
We have a material amount of goodwill, trademarks and other intangible assets, as well as other long-lived assets, which are periodically evaluated for impairment in accordance with current accounting standards. Declines in our profitability and estimated cash flows related to specific intangible assets, as well as potential changes in market valuations for similar assets and market discount rates, may result in an impairment charge, which could have an adverse impact on our operating results.
Our access to capital markets and borrowing capacity could be limited.
Our access to capital markets to raise funds through the sale of debt or equity securities is subject to various factors, including general economic and financial market conditions. Significant reduction in market liquidity conditions could impact access to funding and increase associated borrowing costs, which could reduce our earnings and cash flows. Additionally, disruptions in financial markets could reduce our access to debt and equity capital markets, negatively affecting our ability to implement our business plan and strategy.
Our access to debt financing at competitive risk-based interest rates is partly a function of our credit ratings. The major credit rating agencies periodically evaluate our creditworthiness and have assigned us credit ratings. These ratings are based on a number of factors, which include our financial strength and financial policies as well as our strategies, operations and execution. A downgrade to our credit ratings could have a material impact on our business, including increasing our interest rates, limiting our access to public debt markets, limiting the institutions willing to provide us credit facilities, more restrictive credit arrangements and making any future credit facilities or credit facility amendments more costly and difficult to obtain.
We have a substantial level of indebtedness and are subject to various covenants relating to such indebtedness, which could limit our discretion to operate and grow our business.
As of September 30, 2023, our debt level was approximately $1.4 billion. We may be required to dedicate a substantial portion of our cash to debt service, thereby reducing funds available to fund working capital, capital expenditures, acquisitions and investments and other general corporate purposes. Our failure to make scheduled interest payments or to repay or refinance the indebtedness at maturity or obtain additional financing as needed could have a material adverse effect on our business. Approximately $1.3 billion (90%) of our debt balance as of September 30, 2023 is borrowed at fixed interest rates ranging from 4.125% to 5.50% with maturity dates in 2028 and thereafter.
Additionally, certain of our debt instruments are subject to certain financial and other covenants, including debt ratio tests. We may be in breach of such covenants in the event of future declines in our operating cash flows or earnings performance, foreign currency movements or other events. In the event of such breach, our lenders may be entitled to accelerate the related debt as well as any other debt to which a cross-default provision applies, and we could be required to seek amendments or waivers under the debt instruments or to refinance the debt. There is no assurance that we would obtain such amendments or waivers or effect such refinancing, or that we would be able to do so on terms similar to those of our current debt instruments. The covenants and financial ratio requirements contained in our debt instruments could also:
•increase our vulnerability to general adverse economic and industry conditions;
•require a substantial portion of our cash flow from operations to make payments on our indebtedness;
•reduce the cash flow available or limit our ability to borrow additional funds, to pay dividends, to fund capital expenditures and other corporate purposes and to pursue our business strategies;
•limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate; and
•place us at a competitive disadvantage relative to our competitors that have greater financial flexibility or limit, among other things, our ability to borrow additional funds as needed or take advantage of business opportunities as they arise.
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Our Revolving Credit Facility (See Liquidity and Capital Resources for details) contains customary representations and warranties, and affirmative and negative covenants, including limitations on additional indebtedness, dividends, and other distributions, entry into new lines of business, use of loan proceeds, restrictions on liens on the assets of the Company and our subsidiaries, transactions with affiliates and dispositions. The breach of any of these covenants could result in a default under the Revolving Credit Facility, as defined below. In addition, the Revolving Credit Facility contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, failure to make payment on, or defaults with respect to, certain other material indebtedness, bankruptcy and insolvency events, material judgments and change of control provisions. Upon the occurrence of an event of default, and after the expiration of any applicable grace period, payment of any outstanding loans under the Revolving Credit Facility could be accelerated and the lenders thereunder could foreclose on their security interests in the assets of the Company and certain of our subsidiaries.
We may not be able to continue to identify and complete strategic acquisitions and effectively integrate acquired companies to achieve desired financial benefits.
We have completed a number of acquisitions, and we expect to continue making acquisitions if appropriate opportunities arise. Acquisitions could be a key use of our cash and a potential driver of future growth. However, we may not be able to identify and successfully negotiate suitable strategic acquisitions at attractive valuations, obtain financing for future acquisitions on satisfactory terms or otherwise complete future acquisitions. Our size relative to other companies in our industry may make completing desirable acquisitions more challenging.
If we can complete future acquisitions, we may face significant challenges in consolidating functions and effectively integrating procedures, personnel, product lines, and operations in a timely and efficient manner. The integration process can be complex and time consuming, may be disruptive to our existing and acquired business and may cause an interruption of, or a loss of momentum in, the business. Even if we can successfully complete the integration of acquired businesses into our operations, there is no assurance that anticipated cost savings, synergies, or revenue enhancements will be realized within the expected time frame, or at all. Such acquisitions may result in potentially dilutive issuances of our equity securities, the incurrence of additional debt, restructuring charges, impairment charges, contingent liabilities, amortization expenses related to intangible assets, and increased operating expenses, which could adversely affect our results of operations and financial condition.
We may experience losses or be subject to increased funding and expenses related to our pension plans.
The Company has several defined benefit pension plans covering employees in the U.S. and certain employees in other countries. The funding obligations for our pension plans are impacted by the performance of the financial markets, interest rates and governmental regulations. While the pension benefit earned to date by active participants under our legacy U.S. pension plan was frozen effective January 1, 2014, and retirement service benefits no longer accrue under this retirement program, and in 2023, under our Canadian defined benefit pension plan, we derecognized the assets and projected benefit obligation, our pension obligations are expected to remain significant. If the investment of plan assets does not provide the expected long-term returns, if interest rates or other assumptions change, or if governmental regulations change the timing or amounts of required contributions to the plans, we could be required to make additional pension contributions which may have an adverse impact on our liquidity, our ability to comply with debt covenants and may require recognition of increased expense within our financial statements.
Item 1C. Cybersecurity.
Not Applicable.
Item 1B. Unresolved Staff Comments.
None.
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Item 2. Properties.
As of September 30, 2023, we owned or leased 49 properties, 28 in the U.S. and 21 globally. Ten of these properties are used as production plants consisting of 1.8 million square feet that is owned and 0.6 million square feet that is leased. Five of these plants are located in the U.S., and five are in other countries. Six of these plants are used exclusively by our Wet Shave segment, one by our Feminine Care segment, two by our Sun and Skin Care segment and one is shared by our Wet Shave and Sun and Skin Care segments. We also have 14 warehouses consisting of 0.1 million square feet that is owned and 0.8 million square feet that is leased. We operate from 24 different offices throughout the world, totaling 0.3 million square feet, all of which are leased, and includes our corporate headquarters in Shelton, Connecticut. We believe all of our facilities are well-maintained and suitable for the operations conducted in them.
Item 3. Legal Proceedings.
We, and our subsidiaries, are subject to a number of legal proceedings in various jurisdictions arising out of our operations during the ordinary course of business. Many of these legal matters are in preliminary stages and involve complex issues of law and fact and may proceed for protracted periods of time. The amount of liability, if any, from these proceedings cannot be determined with certainty. We review our legal proceedings and claims, regulatory reviews and inspections on an ongoing basis and follow appropriate accounting guidance when making accrual and disclosure decisions. We establish accruals for those contingencies when the incurrence of a loss is probable and can be reasonably estimated, and disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for our financial statements to not be misleading. We do not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated. Based upon present information, we believe that our liability, if any, arising from such pending legal proceedings, asserted legal claims and known potential legal claims, which are likely to be asserted, is not reasonably likely to be material to our financial position, results of operations or cash flows, taking into account established accruals for estimated liabilities.
See also the discussion captioned “Governmental Regulation and Environmental Matters” and “Legal, Regulatory, Tax and Other Risks” included within Item 1. Business of this Annual Report on Form 10-K.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Edgewell common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “EPC.”
There were approximately 4,540 shareholders of record of our common stock as of October 31, 2023.
Issuer Purchases of Equity Securities
In January 2018, our Board of Directors approved an authorization to repurchase up to 10.0 million shares of our common stock. This authorization replaced a prior share repurchase authorization from May 2015. The following table sets forth the purchases of our Company’s securities by our Company and any affiliated purchasers within the meaning of Rule 10b-18(a)(3) (17 CFR 240.10b-18(a)(3)) during the fourth quarter of fiscal 2023:
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share (2) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| July 1, 2023 to July 31, 2023 | 80,892 | $ | 39.19 | 80,892 | 5,307,071 | |||||||||||||||||||||
| August 1, 2023 to August 31, 2023 | 314,622 | $ | 38.51 | 314,622 | 4,992,449 | |||||||||||||||||||||
| September 1, 2023 to September 30, 2023 | 381,722 | $ | 38.50 | 381,772 | 4,610,677 | |||||||||||||||||||||
(1)There were no shares purchased during the quarter related to the surrender of shares of common stock to our Company to satisfy tax withholding obligations in connection with the vesting of restricted stock equivalents.
(2)Includes $0.02 per share of brokerage fee commissions.
During fiscal 2023, we repurchased 1,865,353 shares of common stock under the share repurchase authorization from January 2018 for $75.2 million. Future share repurchases, if any, would be made in the open market, privately negotiated transactions or otherwise, in such amounts and at such times as we deem appropriate based upon prevailing market conditions, business needs and other factors.
During fiscal 2023, we repurchased 227,332 shares related to the surrender of shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock equivalent awards.
During the quarter ended September 30, 2023, our executive officers and directors had no equity trading arrangements nor were there any adoptions, terminations, or modifications to a Rule 10b5-1 equity trading plan or any non-Rule 10b5-1 equity trading arrangements as defined in Item 408 of Regulation S-K.
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Performance Graph
The following graph compares the cumulative five-year total return provided to shareholders of the Company’s common stock relative to the cumulative total returns of the S&P Midcap 400 index and the S&P Household Products index. An investment of $100 (with reinvestment of all dividends and other distributions) is assumed to have been made in our common stock and in each of the indices on September 30, 2018 and its relative performance is tracked through September 30, 2023. These indices are included only for comparative purposes as required by SEC rules and do not necessarily reflect management’s opinion that such indices are an appropriate measure of the relative performance of our common stock. They are not intended to forecast possible future performance of our common stock, nor is our historical common stock price performance necessarily indicative of our future common stock price performance.
* $100 invested on September 30, 2018 in stock or index, with reinvestment of all dividends. Fiscal year ending September 30.
.
| 9/18 | 9/19 | 9/20 | 9/21 | 9/22 | 9/23 | |||||||||||||||||||||||||||||||||
| Edgewell Personal Care Company | $ | 100.00 | $ | 70.28 | $ | 60.31 | $ | 78.52 | $ | 80.90 | $ | 79.95 | ||||||||||||||||||||||||||
| S&P Midcap 400 | $ | 100.00 | $ | 95.84 | $ | 92.16 | $ | 130.75 | $ | 109.11 | $ | 123.89 | ||||||||||||||||||||||||||
| S&P Household Products | $ | 100.00 | $ | 135.46 | $ | 150.26 | $ | 151.73 | $ | 132.47 | $ | 142.05 | ||||||||||||||||||||||||||
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(in millions, except per share data)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the accompanying notes included in this Annual Report on Form 10-K. The fiscal 2022 amounts have been revised to reflect the immaterial revisions described in Item 8 - Note 1 and Note 19, in the notes to our Consolidated Financial Statements. In addition, the fiscal 2023 amounts have been updated from those preliminarily reported in our earnings release, dated November 9, 2023, as a result of the immaterial revisions to both the three-months ended and fiscal year ended September 30, 2023, as described in Item 8 - Note 1. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs and involve risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed in Item 1A. Risk Factors and “Forward-Looking Statements” included within this Annual Report on Form 10-K.
Non-GAAP Financial Measures
While we report financial results in accordance with GAAP, this discussion also includes non-GAAP measures. These non-GAAP measures are referred to as “adjusted” or “organic” and exclude certain costs deemed non-recurring in nature. Reconciliations of non-GAAP measures are included within this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. We use this non-GAAP information internally to make operating decisions and believe it is helpful to investors because it allows more meaningful period-to-period comparisons of ongoing operating results. Given the various significant events, including restructuring projects and recent acquisitions, we view the use of non-GAAP measures that take into account the impact of these unique events as particularly valuable in understanding our underlying operational results and providing insights into future performance. The information can also be used to perform trend analysis and to better identify operating trends that may otherwise be masked or distorted by the types of items that are excluded. This non-GAAP information is also a component in determining management’s incentive compensation. Finally, we believe this information provides more transparency. The following provides additional detail on our non-GAAP measures for the periods presented:
•We analyze net sales and segment profit on an organic basis to better measure the comparability of results between periods. Organic net sales and organic segment profit exclude the impact of changes in foreign currency and the impact of acquisitions and divestitures:
◦Organic net sales was unfavorably impacted in fiscal 2022 and 2023 by the Billie Acquisition as sales that were previously reported as third party sales to Billie were included as inter-company sales. Organic net sales for fiscal 2021 was impacted by the Cremo acquisition and the divestiture of the Infant and Pet Care products.
◦Segment profit was unfavorably impacted in fiscal 2022 as a result of a change in the timing of profit recognition due to the Billie Acquisition. Subsequent to the acquisition of Billie, profit previously earned on sales to Billie was deferred until Billie sold to a third party.
◦Segment profit will be impacted by fluctuations in translation and transactional foreign currency. The impact of currency was applied to segments using management’s best estimate.
•We utilize “adjusted” non-GAAP measures including gross profit, SG&A, operating income, income taxes, net earnings, and diluted earnings per share internally to make operating decisions. The following items are excluded when analyzing non-GAAP measures: restructuring and related costs, acquisition and integration costs, Sun Care reformulation, SKU rationalization, pension settlement expense, income from resolution of legal matters, VAT settlement costs, cost of early debt retirement and at times management excludes other costs and income.
All comparisons are with the same period in the prior year, unless otherwise noted.
Significant Events
Acquisitions
On November 29, 2021, we completed the acquisition of Billie, a leading U.S. based consumer brand company that offers a broad portfolio of personal care products for women, for a purchase price of $309.4, net of cash acquired, utilizing a combination of cash on hand and drawing on our U.S. revolving credit facility maturing in 2025 between the Company and Bank of America, N.A., as administrative agent, and lenders parties thereto (the “Revolving Credit Facility”). As a result, Billie became a wholly owned subsidiary of the Company. Refer to Note 3 of Notes to the Consolidated Financial Statements for further discussion.
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Executive Summary
The following is a summary of key results for fiscal 2023, 2022 and 2021. Net earnings and diluted earnings per share (“EPS”) for the time periods presented were impacted by restructuring and related costs, acquisition and integration costs, SKU Rationalization, Sun Care reformulation, income from resolution of legal matters, pension settlement expense, VAT settlement costs, cost of early debt retirement and other costs or income, as described in the table below. The impact of these items on reported net earnings and EPS are provided below as a reconciliation of net earnings and EPS to adjusted net earnings and adjusted diluted EPS, which are non-GAAP measures.
Fiscal 2023
•Net sales in fiscal 2023 increased $79.9, or 3.7%, to $2,251.6, including a net benefit of $12.0 or 0.6% from the acquisition of Billie and a $26.1 or 1.2% unfavorable impact due to currency movements. Organic net sales increased $94.0, or 4.3%, reflecting growth in all segments, as increased pricing was only partly offset by a slight decrease in volumes. International markets increased 6.2%, reflecting both volume and price gains and were driven by strong double digit growth in Sun and Skin Care, and low single digit growth in Wet Shave. North America markets increased 3.3%, with growth in Sun Care, Feminine Care, Grooming and Wet One’s partly offset by a slight decline in Wet Shave.
•Net earnings for fiscal 2023 increased $15.2, or 15.3% to $114.7. On an adjusted basis, net earnings for fiscal 2023 decreased 2.9% to $134.5. Adjusted net earnings decreased primarily due to unfavorable currency movements.
•Diluted net earnings per share during fiscal 2023 was $2.21 compared to earnings of $1.85 in the prior fiscal year. On an adjusted basis, as illustrated in the table below, net earnings per diluted share during fiscal 2023 were $2.59 compared to $2.58 in the prior year.
| Year Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Gross Profit | SG&A | Operating Income | EBIT | Income Taxes | Net Earnings | Diluted EPS | ||||||||||||||||||||||||||||||||||||||
| GAAP - Reported | $ | 940.8 | $ | 409.6 | $ | 227.0 | $ | 147.7 | $ | 33.0 | $ | 114.7 | $ | 2.21 | ||||||||||||||||||||||||||||||
| Restructuring and related costs | 0.2 | 0.3 | 17.1 | 17.1 | 4.4 | 12.7 | 0.24 | |||||||||||||||||||||||||||||||||||||
| Acquisition and integration costs | — | 7.5 | 7.5 | 7.5 | 1.8 | 5.7 | 0.11 | |||||||||||||||||||||||||||||||||||||
| SKU rationalization | (1.7) | — | (1.7) | (1.7) | (0.4) | (1.3) | (0.03) | |||||||||||||||||||||||||||||||||||||
Sun Care reformulation (1) | (1.4) | — | 1.9 | 1.9 | 0.5 | 1.4 | 0.03 | |||||||||||||||||||||||||||||||||||||
| Legal matters, net income | — | (6.3) | (6.3) | (6.3) | (1.5) | (4.8) | (0.09) | |||||||||||||||||||||||||||||||||||||
| Pension settlement expense | — | — | — | 7.9 | 2.1 | 5.8 | 0.11 | |||||||||||||||||||||||||||||||||||||
| Other costs | — | 0.4 | 0.4 | 0.4 | 0.1 | 0.3 | 0.01 | |||||||||||||||||||||||||||||||||||||
| Total Adjusted Non-GAAP | $ | 937.9 | $ | 407.7 | $ | 245.9 | $ | 174.5 | $ | 40.0 | $ | 134.5 | $ | 2.59 | ||||||||||||||||||||||||||||||
| GAAP as a percent of net sales | 41.8 | % | 18.2 | % | 10.1 | % | GAAP effective tax rate | 22.3 | % | |||||||||||||||||||||||||||||||||||
| Adjusted as a percent of net sales | 41.7 | % | 18.1 | % | 10.9 | % | Adjusted effective tax rate | 23.0 | % | |||||||||||||||||||||||||||||||||||
(1) Also includes pre-tax research and development (“R&D) costs of $3.3 related to the reformulation, recall, and destruction of certain Sun Care products
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| Year Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Gross Profit | SG&A | Operating Income | EBIT | Income Taxes | Net Earnings | Diluted EPS | |||||||||||||||||||||||||||||||||||
| GAAP - Reported | $ | 880.5 | $ | 389.1 | $ | 182.3 | $ | 124.1 | $ | 24.6 | $ | 99.5 | $ | 1.85 | |||||||||||||||||||||||||||
| Restructuring and related costs | 0.1 | 0.8 | 16.2 | 16.2 | 4.2 | 12.0 | 0.23 | ||||||||||||||||||||||||||||||||||
| Acquisition and integration costs | 0.8 | 9.1 | 9.9 | 9.9 | 1.3 | 8.6 | 0.16 | ||||||||||||||||||||||||||||||||||
| SKU rationalization | 22.5 | — | 22.5 | 22.5 | 5.5 | 17.0 | 0.32 | ||||||||||||||||||||||||||||||||||
| Sun Care reformulation | 3.5 | — | 4.6 | 4.6 | 1.2 | 3.4 | 0.06 | ||||||||||||||||||||||||||||||||||
| Legal matters, net income expense | — | (7.5) | (7.5) | (7.5) | (1.8) | (5.7) | (0.11) | ||||||||||||||||||||||||||||||||||
| Value-added tax settlement costs | — | 3.4 | 3.4 | 3.4 | 1.1 | 2.3 | 0.04 | ||||||||||||||||||||||||||||||||||
| Pension settlement expense | — | — | — | 1.8 | 0.4 | 1.4 | 0.03 | ||||||||||||||||||||||||||||||||||
| Total Adjusted Non-GAAP | $ | 907.4 | $ | 383.3 | $ | 231.4 | $ | 175.0 | $ | 36.5 | $ | 138.5 | $ | 2.58 | |||||||||||||||||||||||||||
| GAAP as a percent of net sales | 40.5 | % | 17.9 | % | 8.4 | % | GAAP effective tax rate | 19.9 | % | ||||||||||||||||||||||||||||||||
| Adjusted as a percent of net sales | 41.8 | % | 17.6 | % | 10.7 | % | Adjusted effective tax rate | 20.9 | % | ||||||||||||||||||||||||||||||||
| Year Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Gross Profit | SG&A | Operating Income | EBIT | Income Taxes | Net Earnings | Diluted EPS | |||||||||||||||||||||||||||||||||||
| GAAP — Reported | $ | 951.2 | $ | 391.2 | $ | 239.9 | $ | 147.1 | $ | 29.3 | $ | 117.8 | $ | 2.13 | |||||||||||||||||||||||||||
| Restructuring and related charges | 0.6 | 8.7 | 30.1 | 30.1 | 7.5 | 22.6 | 0.41 | ||||||||||||||||||||||||||||||||||
| Acquisition and integration costs | 1.3 | 7.1 | 8.4 | 8.4 | 2.1 | 6.3 | 0.12 | ||||||||||||||||||||||||||||||||||
| Sun Care reformulation | 1.1 | — | 1.1 | 1.1 | 0.3 | 0.8 | 0.01 | ||||||||||||||||||||||||||||||||||
| Cost of early retirement of long-term debt | — | — | — | 26.1 | 6.4 | 19.7 | 0.36 | ||||||||||||||||||||||||||||||||||
| UK tax rate increase | — | — | — | — | (0.3) | 0.3 | — | ||||||||||||||||||||||||||||||||||
| Total Adjusted Non-GAAP | $ | 954.2 | $ | 375.4 | $ | 279.5 | $ | 212.8 | $ | 45.3 | $ | 167.5 | $ | 3.03 | |||||||||||||||||||||||||||
| GAAP as a percent of net sales | 45.6 | % | 18.7 | % | 11.5 | % | GAAP effective tax rate | 19.8 | % | ||||||||||||||||||||||||||||||||
| Adjusted as a percent of net sales | 45.7 | % | 18.0 | % | 13.4 | % | Adjusted effective tax rate | 21.2 | % | ||||||||||||||||||||||||||||||||
For further discussion of these items refer to Note 18 of Notes to Consolidated Financial Statements.
Operating Results
The following table presents changes in net sales for fiscal 2023 and 2022, as compared to the corresponding prior year period, and provides a reconciliation of organic net sales to reported amounts.
Net Sales
| Net Sales - Total Company | |||||||||||||||||||||||
| For the Years Ended September 30, | |||||||||||||||||||||||
| 2023 | %Chg | 2022 | %Chg | ||||||||||||||||||||
| Net sales - prior year | $ | 2,171.7 | $ | 2,087.3 | |||||||||||||||||||
| Organic | 94.0 | 4.3 | % | 80.4 | 3.9 | % | |||||||||||||||||
| Impact of Billie acquisition, net | 12.0 | 0.6 | % | 74.9 | 3.6 | % | |||||||||||||||||
| Impact of currency | (26.1) | (1.2) | % | (70.9) | (3.5) | % | |||||||||||||||||
| Net sales - current year | $ | 2,251.6 | 3.7 | % | $ | 2,171.7 | 4.0 | % | |||||||||||||||
For fiscal 2023, net sales were $2,251.6, an increase of $79.9, or 3.7%, including a net benefit of $12.0 or 0.6% from the acquisition of Billie and a $26.1, or 1.2% unfavorable impact due to currency movements. Organic net sales increased $94.0, or 4.3%, reflecting growth in all segments, as increased pricing was only partially offset by a slight decrease in volumes. International markets increased 6.2%, driven by strong double digit growth in Sun and Skin Care and a low single digit growth
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in Wet Shave. North America markets increased 3.3%, with growth in Sun Care, Feminine Care, Grooming and Wet One’s partially offset by a slight decline in Wet Shave.
For further discussion regarding net sales, including a summary of reported versus organic changes, see “Segment Results.”
Gross Profit
Gross profit was $940.8 in fiscal 2023, as compared to $880.5 in fiscal 2022, an increase of $60.3, or 6.8%, including a $33.7 unfavorable impact from currency movements. Gross margin as a percent of net sales for fiscal 2023 was 41.8% compared to 40.5% in the prior year period. Contributing to the increase were higher sales and the absence of a $22.5 charge within Cost of products sold in the prior year period for the write-off of inventory for certain Wet Ones SKUs and a related contract termination charge. Adjusted gross margin as a percent of net sales was 41.7% compared to 41.8% in the prior year period. The decrease of 10-basis points as productivity savings of 230-basis points and the benefit from higher pricing of 305-basis points were more than offset by gross inflationary pressures of approximately 400-basis points and 55-basis points of negative mix.
Selling, General and Administrative Expense
SG&A was $409.6, or 18.2%, of net sales in fiscal 2023 compared to $389.1, or 17.9%, of net sales in the prior year period primarily due to higher people costs and travel expenses. Adjusted SG&A as a percent of net sales was 18.1%, an increase of 50-basis points, as higher incentive compensation, people costs and travel expense was only partially offset by the benefits of leverage, savings from ongoing operational efficiency programs and favorable currency movements.
Advertising and Sales Promotion Expense
For fiscal 2023, A&P was $229.1, down $9.2, or 3.9%, compared to fiscal 2022. A&P as a percent of net sales was 10.2% for fiscal 2023, compared with 11.0% in fiscal 2022. The decrease in A&P was primarily due to lower media spend and agency fees partially offset by higher investment in Feminine Care.
Research and Development Expense
Research and development expense (“R&D”) was $58.5 in fiscal 2023, an increase of $3.0, or 5.4%, compared to the prior year. As a percent of net sales, R&D remained flat at 2.6%.
Interest Expense Associated with Debt
Interest expense associated with debt for fiscal 2023 was $78.5, an increase of $7.1, or 9.9%, as compared to $71.4 in fiscal 2022. The increase in interest expense was the result of higher interest rates and a higher overall debt balance on the Company’s Revolving Credit Facility compared to fiscal 2022.
Other Expense (income), Net
Other expense (income), net was income of $0.8 in fiscal 2023 compared to income of $13.2 in fiscal 2022, which included currency hedge and remeasurement gains of $12.7 in fiscal 2023 compared to $11.5 in fiscal 2022. Current year expense includes higher accounts receivable factoring costs, higher pension expense in the current year, including the loss on the settlement of the Canada Plan of $7.9 compared to a pension benefit in the prior year.
Income Tax Provision
Income taxes, which include federal, state and foreign taxes, were 22.3% and 19.9% of Earnings before income taxes in fiscal 2023 and 2022, respectively. On an adjusted basis, the effective tax rate for fiscal 2023 was 23.0% compared to 20.9% in the prior year. The fiscal 2023 effective tax rate reflects an unfavorable mix of earnings in low tax jurisdictions with an increase in valuation allowances partially offset by favorable discrete items including the impact of a change in our prior estimates.
Our effective tax rate is highly sensitive to the mix of countries from which earnings or losses are derived. Declines in earnings in lower tax rate jurisdictions, earnings increases in higher tax rate jurisdictions, or repatriation of foreign earnings or operating losses in the future could increase future tax rates. Additionally, adjustments to prior year tax provision estimates could increase or decrease future tax provisions.
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Operating Model Redesign
In fiscal 2023, the Company is continuing to strengthen its operating model, simplify the organization and improve manufacturing and supply chain efficiency. As a result of these actions, we incurred charges of approximately $17.1 in fiscal 2023, primarily related to employee severance, project implementation and other exit costs.
Segment Results
Segment performance is evaluated based on segment profit, exclusive of general corporate expenses, share-based compensation costs, amortization of intangible assets, and costs associated with restructuring charges, acquisition and integration costs, SKU rationalization, and other non-standard expenses. The exclusion of such changes from segment results reflects management’s view on how it evaluates segment performance. Financial items, such as interest income and expense, are managed on a global basis at the corporate level.
Our operating model includes some shared business functions across the segments, including product warehousing and distribution, transaction processing functions and, in most cases, a combined sales force and management teams. We apply a fully allocated cost basis, in which shared business functions are allocated between the segments on a percentage of net sales basis. Such allocations are estimates and do not represent the costs of such services if performed on a stand-alone basis.
The following tables present changes in segment net sales and segment profit for fiscal 2023 and 2022, as compared to the corresponding prior year periods, and also provide a reconciliation of organic segment net sales and organic segment profit to reported amounts. For a reconciliation of Segment profit to Earnings before income taxes, see Note 18 of Notes to Consolidated Financial Statements. Net sales and segment profit activity related to Billie products were included in the Wet Shave segment for the post-acquisition period.
Wet Shave
| Net Sales - Wet Shave | |||||||||||||||||||||||
| For the Years Ended September 30, | |||||||||||||||||||||||
| 2023 | %Chg | 2022 | %Chg | ||||||||||||||||||||
| Net sales - prior year | $ | 1,242.5 | $ | 1,215.9 | |||||||||||||||||||
| Organic | 0.6 | — | % | 14.3 | 1.2 | % | |||||||||||||||||
| Impact of Billie acquisition, net | 12.0 | 1.0 | % | 74.9 | 6.2 | % | |||||||||||||||||
| Impact of currency | (24.2) | (1.9) | % | (62.6) | (5.2) | % | |||||||||||||||||
| Net sales - current year | $ | 1,230.9 | (0.9) | % | $ | 1,242.5 | 2.2 | % | |||||||||||||||
Wet Shave net sales for fiscal 2023 was $1,230.9, a decrease of $11.6, or 0.9%, as compared to the prior year period, including $24.2 or 1.9% decline due to unfavorable impact from currency, partially offset by an increase of $12.0, or 1.0%, from the Billie Acquisition. Organic net sales were flat with an increase of $0.6, or 0.0%. Organic net sales were primarily impacted by increases in Women’s Systems, Disposables, and Men’s Shave Preps, offset by declines in Men’s Systems and Women’s Shave Preps. Organic net sales in International markets increased 1.2% compared to declines in North America of 1.1%.
| Segment Profit - Wet Shave | |||||||||||||||||||||||
| For the Years Ended September 30, | |||||||||||||||||||||||
| 2023 | %Chg | 2022 | |||||||||||||||||||||
| Segment profit - prior year | $ | 174.5 | $ | 221.5 | |||||||||||||||||||
| Organic | 9.3 | 5.3 | % | (21.2) | (9.5) | % | |||||||||||||||||
| Impact of Billie acquisition, net | — | — | % | (6.8) | (3.1) | % | |||||||||||||||||
| Impact of currency | (25.5) | (14.6) | % | (19.0) | (8.6) | % | |||||||||||||||||
| Segment profit - current year | $ | 158.3 | (9.3) | % | $ | 174.5 | (21.2) | % | |||||||||||||||
Wet Shave segment profit for fiscal 2023 was $158.3, a decrease of $16.2, or 9.3%. Organic segment profit increased $9.3, or 5.3% primarily driven by growth in International markets and was partially offset by unfavorable impact from currency.
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Sun and Skin Care
| Net Sales - Sun and Skin Care | |||||||||||||||||||||||
| For the Years Ended September 30, | |||||||||||||||||||||||
| 2023 | %Chg | 2022 | %Chg | ||||||||||||||||||||
| Net sales - prior year | $ | 638.5 | $ | 585.3 | |||||||||||||||||||
| Organic | 68.1 | 10.7 | % | 61.4 | 10.5 | % | |||||||||||||||||
| Impact of currency | (1.1) | (0.2) | % | (8.2) | (1.4) | % | |||||||||||||||||
| Net sales - current year | $ | 705.5 | 10.5 | % | $ | 638.5 | 9.1 | % | |||||||||||||||
Sun and Skin Care net sales for fiscal 2023 was $705.5, an increase of $67.0, or 10.5%. Organic net sales increased $68.1, or 10.7%, with organic net sales in International markets increasing 29.9% with the impact of favorable pricing and higher volumes. North America markets increased 5.8% with strong growth with favorable volumes in Grooming and Wet One’s and favorable pricing in Sun Care.
| Segment Profit - Sun and Skin Care | |||||||||||||||||||||||
| For the Years Ended September 30, | |||||||||||||||||||||||
| 2023 | %Chg | 2022 | %Chg | ||||||||||||||||||||
| Segment profit - prior year | $ | 108.8 | $ | 99.0 | |||||||||||||||||||
| Organic | 28.7 | 26.4 | % | 11.4 | 11.5 | % | |||||||||||||||||
| Impact of currency | (0.1) | (0.1) | % | (1.6) | (1.6) | % | |||||||||||||||||
| Segment profit - current year | $ | 137.4 | 26.3 | % | $ | 108.8 | 9.9 | % | |||||||||||||||
Sun and Skin Care segment profit for fiscal 2023 was $137.4, an increase of $28.6, or 26.3%. Organic segment profit increased $28.7, or 26.4% driven by increased net sales and gross margin from favorable volumes of Sun Care products and Grooming, partially offset by higher commodity costs.
Feminine Care
| Net Sales - Feminine Care | |||||||||||||||||||||||
| For the Years Ended September 30, | |||||||||||||||||||||||
| 2023 | %Chg | 2022 | %Chg | ||||||||||||||||||||
| Net sales - prior year | $ | 290.7 | $ | 286.1 | |||||||||||||||||||
| Organic | 25.3 | 8.7 | % | 4.7 | 1.6 | % | |||||||||||||||||
| Impact of currency | (0.8) | (0.3) | % | (0.1) | — | % | |||||||||||||||||
| Net sales - current year | $ | 315.2 | 8.4 | % | $ | 290.7 | 1.6 | % | |||||||||||||||
Feminine Care net sales for fiscal 2023 was $315.2, an increase of $24.5, or 8.4%. Organic segment net sales increased $25.3, or 8.7%, with growth in North America markets of 8.0% driven largely by pricing.
| Segment Profit - Feminine Care | |||||||||||||||||||||||
| For the Years Ended September 30, | |||||||||||||||||||||||
| 2023 | %Chg | 2022 | %Chg | ||||||||||||||||||||
| Segment profit - prior year | $ | 31.5 | $ | 37.5 | |||||||||||||||||||
| Organic | 19.2 | 61.0 | % | (5.9) | (15.7) | % | |||||||||||||||||
| Impact of currency | (1.0) | (3.2) | % | (0.1) | (0.3) | % | |||||||||||||||||
| Segment profit - current year | $ | 49.7 | 57.8 | % | $ | 31.5 | (16.0) | % | |||||||||||||||
Feminine Care segment profit for fiscal 2023 was $49.7, an increase of $18.2, or 57.8%. The increase is primarily due to favorable pricing offset by higher marketing expense.
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General Corporate and Other Expenses
| Fiscal Year | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| General corporate and other expenses | $ | (68.7) | $ | (54.0) | |||||||||||||
| Restructuring and related costs | (17.1) | (16.2) | |||||||||||||||
| Acquisition and integration planning costs | (7.5) | (9.9) | |||||||||||||||
| SKU rationalization | 1.7 | (22.5) | |||||||||||||||
| Sun Care reformulation | (1.9) | (4.6) | |||||||||||||||
| Legal matters, net income | 6.3 | 7.5 | |||||||||||||||
| Value- added tax settlement costs | — | (3.4) | |||||||||||||||
| Pension settlement expense | (7.9) | (1.8) | |||||||||||||||
| Other | (0.4) | — | |||||||||||||||
| General corporate and other expenses | $ | (95.5) | $ | (104.9) | |||||||||||||
| % of net sales | (4.2) | % | (4.8) | % | |||||||||||||
For fiscal 2023, general corporate expenses were $68.7, an increase of $14.7 as compared to fiscal 2022.
In fiscal 2022, we recorded a charge of $22.5 relating to the write-off of inventory and related contract termination charges associated with a third-party co-manufacturer. During fiscal 2023, the Company released a reserve of $1.7 related to certain accrued expenses associated with the write-off of inventory for certain Wet Ones SKUs. This charge was included in Cost of products sold in the Consolidated Statements of Earnings and Comprehensive Income.
In fiscal 2023, the Company recorded a charge of $7.9 related to the wind-up of its Canadian defined benefit pension plan. For further information see Note 12 of Notes to Consolidated Financial Statements.
In fiscal 2022, the Company took specific actions to strengthen our operating model, simplify our organization and improve manufacturing and supply chain efficiency and productivity. As a result of these actions, we incurred restructuring and related costs of $17.1 and $16.2 during fiscal 2023 and fiscal 2022, respectively, primarily related to employee severance, project implementation and other exit benefit costs.
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Liquidity and Capital Resources
At September 30, 2023, we had cash of $216.4, a portion which was located outside the U.S. Given our extensive international operations, a significant portion of our cash is denominated in foreign currencies. Refer to Note 16 of Notes to Consolidated Financial Statements for a discussion of the primary currencies to which the Company is exposed. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct business and the cost effectiveness with which those funds can be accessed. We generally repatriate a portion of current year earnings from select non-U.S. subsidiaries only if the economic cost of the repatriation is not considered material.
Our cash is deposited with multiple counterparties which consist of major financial institutions. We consistently monitor positions with, and credit ratings of, counterparties both internally and by using outside ratings agencies.
Our total borrowings as of September 30, 2023 and 2022 were as follows:
| Interest Type | Currency | September 30, 2023 | September 30, 2022 | |||||||||||||||||
| Long-term notes | fixed | USD | $ | 1,250.0 | $ | 1,250.0 | ||||||||||||||
| Revolver loans borrowed under credit facility | variable | USD | 122.0 | 155.0 | ||||||||||||||||
| Short-term notes payable | variable | various | 19.5 | 19.0 | ||||||||||||||||
| Total borrowings | $ | 1,391.5 | $ | 1,424.0 | ||||||||||||||||
Our Revolver utilization is summarized below.
| September 30, 2023 | September 30, 2022 | ||||||||||
| Total Revolver Capacity | $ | 425.0 | $ | 425.0 | |||||||
| Less: Revolver Borrowings | 122.0 | 155.0 | |||||||||
| Less: Outstanding Letters of Credit | 5.9 | 6.5 | |||||||||
| Revolver Balance Available | $ | 297.1 | $ | 263.5 | |||||||
On February 6, 2023, we amended our Revolving Credit Facility to transition from using the London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”) as LIBOR is no longer available as of June 30, 2023.
Effective February 7, 2022, we increased the maximum receivables sold facility amount under the Sixth Amendment to Master Accounts Receivable Purchase Agreement to $180.0 from $150.0. Refer to Note 10 of Notes to the Consolidated Financial Statements for further discussion on our $180.0 uncommitted master accounts receivable purchase agreement with The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as the purchaser (the “Accounts Receivable Facility”).
On August 5, 2022, we entered into the Master Receivable Assignment Agreement (the "Japan Agreement"). The Japan Agreement was between Schick Japan K.K. and Concerto Receivables Corporation (the “Purchaser”), Tokyo Branch, a subsidiary of MUFG Bank, LTD., which allows us to assign third party accounts receivable to the Purchaser. The Japan Agreement allows for the sale of up to ¥3,000 (approximately $20.0 using the exchange rate as of September 30, 2023) with limits set between individual customers. The terms of the agreement expire one year after the date of execution and will be renewed annually unless either party notifies of its intent not to renew. The assigned receivables will be discounted using the funding rate from the Tokyo Interbank Market plus 1.1%.
Historically, we have generated, and expect to continue to generate, favorable cash flows from operations. Our cash flows are affected by the seasonality of our Sun Care business, typically resulting in higher net sales and increased cash generated in the second and third quarter of each fiscal year. We believe our cash on hand, cash flows from operations and borrowing capacity under the Revolving Credit Facility will be sufficient to satisfy our future working capital requirements, interest payments, R&D activities, capital expenditures, and other financing requirements for at least the next 12 months. We will continue to monitor our cash flows, spending and liquidity needs.
Short-term financing needs primarily consist of working capital requirements and interest payments on our long-term debt. Long-term financing needs will depend largely on potential growth opportunities, including acquisition activity and repayment or refinancing of our long-term debt obligations. Our long-term liquidity may be influenced by our ability to borrow additional funds, renegotiate existing debt, and raise equity under terms that are favorable to us. We may, from time-to-time, seek to repurchase shares of our common stock. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
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In fiscal 2024, we expect our total capital expenditures to be in the range of $55 to $65 primarily on maintenance and productivity efforts across manufacturing facilities, new product development and information technology system enhancements. While we intend to fund these capital expenditures with cash generated from operations, we may also utilize our borrowing facilities.
During fiscal 2023, we did not make any contributions to our pension and postretirement plans. Due to the election of certain terms of the American Rescue Plan Act, we were not required to make any cash contributions to our pension and postretirement plans in fiscal 2023. Pension contributions required beyond fiscal 2024 represent future pension payments to comply with local funding requirements in the U.S. only. The projected contributions for the U.S. pension plans total $7.0 in fiscal 2024, $9.2 in fiscal 2025, $10.4 in fiscal 2026, $10.2 in fiscal 2027, and $10.1 in fiscal 2028. Estimated contributions beyond fiscal 2028 are not determinable. The Company may also elect to make discretionary contributions.
Debt Covenants
The Revolving Credit Facility governing our outstanding debt at September 30, 2023 contains certain customary representations and warranties, financial covenants, covenants restricting our ability to take certain actions, affirmative covenants, and provisions relating to events of default. Under the terms of the Revolving Credit Facility, the ratio of our indebtedness to our earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined in the agreement and detailed below, cannot be greater than 4.0 to 1.0, however, there is an exception for acquisition activity. In addition, under the Revolving Credit Facility, the ratio of our EBITDA to total interest expense must exceed 3.0 to 1.0. If we fail to comply with these covenants or with other requirements of the Revolving Credit Facility, the lenders may have the right to accelerate the maturity of the debt. Acceleration under one of our facilities would trigger cross-defaults on our other borrowings. Under the Revolving Credit Facility, EBITDA is defined as net earnings, as adjusted to add-back interest expense, income taxes, depreciation and amortization, all of which are determined in accordance with GAAP. In addition, the Revolving Credit Facility allows certain non-cash charges such as stock award amortization and asset write-offs including, but not limited to, impairment and accelerated depreciation, and operating expense reductions or synergies to be “added-back” in determining EBITDA for purposes of the indebtedness ratio. Total debt and interest expense are calculated in accordance with GAAP.
As of September 30, 2023, we were in compliance with the provisions and covenants associated with the Revolving Credit Facility.
Cash Flows
A summary of our cash flow from operating, investing and financing activities is provided in the following table:
| Fiscal Year | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| Net cash from (used by): | |||||||||||||||||
| Operating activities | $ | 216.1 | $ | 102.0 | |||||||||||||
| Investing activities | (50.5) | (355.4) | |||||||||||||||
| Financing activities | (146.5) | (17.6) | |||||||||||||||
| Effect of exchange rate changes on cash | 8.6 | (19.5) | |||||||||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 27.7 | $ | (290.5) | |||||||||||||
Operating Activities
Cash flow from operating activities was $216.1 in fiscal 2023, as compared to $102.0 in fiscal 2022. The increase in fiscal 2023 was driven by favorable changes in working capital and increased earnings.
Investing Activities
Cash flow used by investing activities was $50.5 in fiscal 2023 as compared to $355.4 in fiscal 2022. Capital expenditures were $49.5 during fiscal 2023, compared to $56.4 in the prior year period. In fiscal 2022, we completed the Billie acquisition for $309.4, net of cash acquired.
Financing Activities
Net cash used by financing activities was $146.5 in fiscal 2023 as compared to $17.6 in fiscal 2022. During the fiscal 2023, we had net repayments of $33.0 under the Revolving Credit Facility, compared to net borrowings of $155.0 in the prior year
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period. During fiscal 2023, we repurchased $75.2 of our common stock under our 2018 Board authorization to repurchase our common stock (the “Repurchase Plan”) compared to $125.3 in the prior year period. Dividend payments totaled $31.5 in fiscal 2023, compared to $32.6 in the prior year period. We had financing outflows for employee equity awards held for taxes totaling $9.0 in fiscal 2023, compared to $10.7 in the prior year period.
In January 2018, our Board approved an authorization to repurchase up to 10.0 shares of our common stock. This authorization replaced a prior share repurchase authorization from May 2015. During fiscal 2023, we repurchased 1.9 shares of our common stock for $75.2. We have 4.6 shares remaining available for purchase under the January 2018 Board authorization.
Since September 30, 2023, we repurchased 0.1 shares of common stock for $3.5. There are 4.5 common shares remaining available to be purchased.
Dividends
The following is a summary of cash dividends paid and declared per share on the Company’s Common Stock during the year ended September 30, 2023
| Date Declared | Record Date | Payable Date | Amount Per Share | |||||||||||||||||
| July 29, 2022 | September 2, 2022 | October 5, 2022 | $ | 0.15 | ||||||||||||||||
| November 3, 2022 | November 29, 2022 | January 4, 2023 | $ | 0.15 | ||||||||||||||||
| February 3, 2023 | March 8, 2023 | April 5, 2023 | $ | 0.15 | ||||||||||||||||
| May 8, 2023 | June 7, 2023 | July 6, 2023 | $ | 0.15 | ||||||||||||||||
| August 1, 2023 | September 7, 2023 | October 4, 2023 | $ | 0.15 | ||||||||||||||||
On November 2, 2023, the Board declared a quarterly cash dividend of $0.15 per common share for the third fiscal quarter of 2023. The dividend will be paid on January 4, 2024 to shareholders of record as the close of business on December 6, 2023.
Dividends declared during fiscal 2023 totaled $31.7. Payments made for dividends during fiscal 2023 totaled $31.5.
Inflation
Management recognizes that inflationary pressures may have an adverse effect on our company through higher material, labor and transportation costs, asset replacement costs and related depreciation, healthcare and other costs. We continued to navigate the challenging and uncertain inflationary environment and resultant cost pressure with a combination of productivity efforts to achieve efficiencies and lower costs to our Cost of products sold and SG&A expenses and increase focus on revenue management. We can provide no assurance that such mitigation will be available in the future.
Seasonality
Customer orders for sun care products within our Sun and Skin Care segment are highly seasonal. This has historically resulted in higher sun care sales to retailers during the late winter through mid-summer months. Within our Wet Shave segment, sales of women’s products are moderately seasonal, with increased consumer demand in the spring and summer months. See “Our business is subject to seasonal volatility” in Item 1A. Risk Factors.
Foreign Currency
Certain net sales and costs of our international operations are denominated in the local currency of the respective countries. As such, sales and profits from these subsidiaries may be impacted by fluctuations in the value of these local currencies relative to the U.S. dollar. We also have significant intercompany financing arrangements that may result in gains and losses in our results of operations. In an effort to mitigate the impact of currency exchange rate effects, we may hedge certain operational and intercompany transactions; however, our hedging strategies may not fully offset gains and losses recognized in our results of operations.
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Commitments and Contingencies
Legal Proceedings
During fiscal 2023, the Company settled a legal matter which resulted in a gain of $4.9 related to an intellectual property claim against a third party. This was included in selling, general and administrative (“SG&A”) in the Consolidated Statements of Earnings and Comprehensive Income. The Company received payment for the intellectual property claim settlement during fiscal 2023.
Additionally, during fiscal 2023, the Company received a favorable court ruling regarding an international VAT matter, which the plaintiff has no ability to appeal. As the Company had previously recorded an accrual for this matter, based on its best estimate of the facts and circumstances at that time, the result of the favorable court ruling was a release of the reserve established which resulted in a gain of $2.2. This was included in SG&A in the Consolidated Statements of Earnings and Comprehensive Income.
During fiscal 2022 the Company settled certain legal matters which resulted in a gain of $7.5 related to intellectual property claims against a third party. This was included in SG&A in the Consolidated Statements of Earnings and Comprehensive Income. The Company received payment for the settlement in fiscal 2022.
We are subject to a number of legal proceedings in various jurisdictions arising out of our operations during the ordinary course of business. Many of these legal matters are in preliminary stages and involve complex issues of law and fact and may proceed for protracted periods of time. The amount of liability, if any, from these proceedings cannot be determined with certainty. We review legal proceedings and claims, regulatory reviews and inspections and other legal proceedings on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. We establish accruals for those contingencies when the incurrence of a loss is probable and can be reasonably estimated and discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued if such disclosure is necessary for its financial statements to not be misleading. We do not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated. Based upon present information, we believe that its liability, if any, arising from such pending legal proceedings, asserted legal claims, and known potential legal claims which are likely to be asserted, is not reasonably likely to be material to its financial position, results of operations or cash flows, when taking into account established accruals for estimated liabilities.
Contractual Obligations
We have significant contractual obligations to fulfill our business operations including the repayment of short and long term debt, periodic interest payments, minimum levels of pension funding, and other obligations including payments for various leases of real estate, vehicles, and equipment, and minimum fixed costs to be paid to third party logistics vendors. We are also party to various service and supply contracts that generally extend one to three months. These arrangements are primarily individual, short-term purchase orders for routine goods and services at market prices, which are part of our normal operations and are reflected in historical operating cash flow trends. These contracts can generally be canceled at our option at any time. We do not believe such arrangements will adversely affect our liquidity position. In addition, we have various commitments related to service and supply contracts that contain penalty provisions for early termination. Because of the short period between order and shipment date (generally less than one month) for most of our orders, the dollar amount of current backlog is not material and is not considered to be a reliable indicator of future sales volume. Generally, sales to our top customers are made pursuant to purchase orders and we do not have supply agreements or guarantees of minimum purchases from them. As a result, these customers may cancel their purchase orders or reschedule or decrease their level of purchases from us at any time. As of September 30, 2023, we do not believe such purchase arrangements or termination penalties will have a significant effect on our results of operations, financial position or liquidity position in the future.
Environmental Matters
Our operations, like those of other companies, are subject to various federal, state, local and foreign laws and regulations intended to protect public health and the environment. These regulations relate primarily to worker safety, air and water quality, underground fuel storage tanks, and waste handling and disposal. Accrued environmental costs at September 30, 2023 were $9.3. It is difficult to quantify with reasonable certainty the cost of environmental matters, particularly remediation and future capital expenditures for environmental control equipment. Total environmental capital expenditures and operating expenses are not expected to have a material effect on our total capital and operating expenditures, consolidated earnings or competitive position. However, current environmental spending estimates could be modified as a result of changes in our plans or our understanding of underlying facts, changes in legal requirements, including any requirements related to global climate change, or other factors.
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Critical Accounting Policies
The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements. Specific areas, among others, requiring the application of management’s estimates and judgment include assumptions pertaining to accruals for consumer and trade promotion programs, pension and postretirement benefit costs, share-based compensation, future cash flows associated with impairment testing of goodwill and other long-lived assets, uncertain tax positions, the reinvestment of undistributed foreign earnings and tax valuation allowances. On an ongoing basis, we evaluate our estimates, but actual results could differ materially from those estimates.
Our most critical accounting policies are revenue recognition, pension and other postretirement benefits, the valuation of long-lived assets (including property, plant and equipment), income taxes (including uncertain tax positions) and valuation related to acquisitions, goodwill and intangible assets. A summary of our significant accounting policies is contained in Note 2 of Notes to Consolidated Financial Statements. This listing is not intended to be a comprehensive list of all of our accounting policies.
Revenue Recognition
We derive revenue from the sale of our products. Revenue is recognized when the customer obtains control of the goods, which occurs when the ability to use and obtain benefits from the goods are passed to the customer, most commonly upon the delivery of the goods. Discounts are offered to customers for early payment, and an estimate of the discounts is recorded as a reduction of Net sales in the same period as the sale. Our standard sales terms are final and returns or exchanges are not permitted with the exception of end of season returns for Sun Care products, as detailed below. Reserves are established and recorded in cases where the right of return does exist for a particular sale.
We assess the contractual obligations in customers’ purchase orders and identify performance obligations related to the transferred goods (or a bundle of goods) that are distinct. To identify the performance obligations, we consider all the goods promised, whether explicitly stated or implied based on customary business practices. Our purchase orders are short term in nature, lasting less than one year, and contain a single delivery element. For a purchase order that has more than one performance obligation, we allocate the total consideration to each distinct performance obligation on a relative stand-alone selling price basis. We do not exclude variable consideration in determining the remaining value of performance obligations.
We record sales at the time that control of goods passes to the customer. The terms of these sales vary, but, in all instances, the following conditions are met: (1) the sales arrangement is evidenced by purchase orders submitted by customers; (2) the selling price is fixed or determinable; (3) title to the product has transferred; (4) there is an obligation to pay at a specified date without any additional conditions or actions required by us; and (5) collectability is reasonably assured. Simultaneously with the sale, we reduce Net sales and Cost of products sold and reserve amounts on the Consolidated Balance Sheet for anticipated returns based upon an estimated return level in accordance with GAAP. Customers are required to pay for the Sun Care product purchased during the season under the required terms. Under certain circumstances, we allow customers to return Sun Care products that have not been sold by the end of the Sun Care season, which is normal practice in the Sun Care industry. The timing of returns of Sun Care products can vary in different regions, based on climate and other factors. However, the majority of returns occur in the U.S. from September through January, following the summer Sun Care season. We estimate the level of Sun Care returns as the Sun Care season progresses, using a variety of inputs including historical experience, consumption trends during the Sun Care season, obsolescence factors including expiration dates and inventory positions at key retailers. We monitor shipment activity and inventory levels at key retailers during the season in an effort to more accurately estimate potential returns. This allows us to manage shipment activity to our customers, especially in the latter stages of the Sun Care season, to reduce the potential for returned product. The level of returns may fluctuate from our estimates due to several factors, including, but not limited to, weather conditions, customer inventory levels and competitive activity. Based on our fiscal 2023 Sun Care shipments, each percentage point change in our returns rate would have impacted our reported net sales by $2.5 and our reported operating income by $2.4. At September 30, 2023 and 2022, our reserve on the Consolidated Balance Sheet for returns was $53.5 and $47.5 respectively.
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We offer a variety of programs, primarily to our retail customers, designed to promote sales of our products. Such programs require periodic payments and allowances based on estimated results of specific programs and are recorded as a reduction to net sales. We accrue, at the time of sale, the estimated total payments and allowances associated with each transaction. Additionally, we offer programs directly to consumers to promote the sale of our products. Promotions which reduce the ultimate consumer sale prices are recorded as a reduction of net sales at the time the promotional offer is made, generally using estimated redemption and participation levels. Taxes we collect on behalf of governmental authorities, which are generally included in the price to the customer, are also recorded as a reduction of net sales.
We continually assess 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 to annual results.
Pension Plans and Other Postretirement Benefits
The determination of our obligation and expense for pension and other postretirement benefits is dependent on certain assumptions developed by us and used by actuaries in calculating such amounts. Assumptions include, among others, the discount rate, the expected long-term rate of return on plan assets, and future salary increases, where applicable. Actual results that differ from assumptions made are recognized on the balance sheet and subsequently amortized to earnings over future periods. Significant differences in actual experience or significant changes in macroeconomic conditions resulting in changes to assumptions may materially affect pension and other postretirement obligations. In determining the discount rate, we use the yield on high-quality bonds that coincide with the cash flows of our plans’ estimated payouts. For our U.S. plans, which represent our most significant obligations, we use the Mercer yield curve in determining the discount rates.
We utilize a spot discount rate approach to estimate service and interest components of net periodic benefit cost for our pension benefits. The spot discount rate approach applies the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows and is a more precise application of the yield curve spot rates used in the traditional single discount rate approach.
Of the assumptions listed above, changes in the expected long-term rate of return on plan assets and changes in the discount rate used in developing plan obligations will likely have the most significant impact on our annual earnings, prospectively. Based on plan assets at September 30, 2023, a one percentage point decrease or increase in expected asset returns would increase or decrease our pension expense by approximately $4.0. In addition, it may increase and accelerate the rate of required pension contributions in the future. Uncertainty related to economic markets and the availability of credit may produce changes in the yields on corporate bonds rated as high-quality. As a result, discount rates based on high-quality corporate bonds may increase or decrease, leading to lower or higher pension obligations, respectively. A one percentage point decrease in the discount rate would increase pension obligations by approximately $41.8 at September 30, 2023.
As allowed under GAAP, our U.S. qualified pension plan uses market related value, which recognizes market appreciation or depreciation in the portfolio over five years, thereby reducing the short-term impact of market fluctuations.
We have historically provided defined benefit pension plans to our eligible employees, former employees and retirees. We fund our pension plans in compliance with the Employee Retirement Income Security Act of 1974 or local funding requirements.
Further detail on our pension and other postretirement benefit plans is included in Note 12 of Notes to Consolidated Financial Statements.
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Share-Based Compensation
We award restricted stock equivalents (“RSE”), which generally vest over a range of two to four years. The fair value of each grant is estimated on the date of grant based on the current market price of our shares of common stock.
We also award performance restricted stock equivalents (“PRSE”) which may provide for the issuance of common stock to certain managerial staff and executive management if specified performance or market targets are achieved. The recipient of the PRSE award may earn a total award ranging from 0% to 200% of the target award.
For PRSE awards with performance conditions, the fair value of each grant is estimated on the date of grant based on the current market price of our shares of common stock. The total amount of compensation expense recognized reflects the initial assumption that target performance goals will be achieved. Compensation expense may be adjusted during the life of the performance grant based on management’s assessment of the probability that performance goals will be achieved. If such goals are not met or it is determined that achievement of performance goals is not probable, compensation expense is adjusted to reflect the reduced expected payout level. If it is determined that the performance goals will be exceeded, additional compensation expense is recognized.
For PRSE awards based on market conditions, the fair value is estimated on the grant date using a Monte Carlo simulation. The payout for PRSE awards with market conditions are assessed by comparing our total shareholder return (“TSR”) during a certain three year period to the respective TSRs of companies in a selected performance peer group.
Non-qualified stock options (“share options”) are granted at the market price of our common stock on the grant date and generally vest ratably over three years. We calculate the fair value of total share-based compensation for share options using the Black-Scholes option pricing model, which utilizes certain assumptions and estimates that have a material impact on the amount of total compensation cost recognized in our consolidated financial statements, including the expected term, expected stock price volatility, risk-free interest rate and expected dividends. The original estimate of the grant date fair value is not subsequently revised unless the awards are modified or there is a change in the number of awards expected to forfeit prior to vesting.
Further detail on Share-Based Payments is included in Note 13 of Notes to Consolidated Financial Statements.
Valuation of Long-Lived Assets
We periodically evaluate our long-lived assets, including property, plant and equipment, goodwill, and intangible assets, for potential impairment indicators. Judgments regarding the existence of impairment indicators, including lower than expected cash flows from acquired businesses, are based on legal factors, market conditions and operational performance. Future events could cause us to conclude that impairment indicators exist. We estimate fair value using valuation techniques such as discounted cash flows. This requires management to make assumptions regarding future income, working capital, and discount rates, which would affect the impairment calculation.
Income Taxes
Our annual effective income tax rate is determined based on our income, statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Tax law requires certain items to be included in the tax return at different times than the items reflected in the financial statements. Some of these differences are permanent, such as expenses that are not deductible in our tax return, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities.
Deferred tax assets generally represent the tax effect of items that can be used as a tax deduction or credit in future years for which we have already recorded the tax benefit in our income statement. Deferred tax liabilities generally represent tax expense recognized in our financial statements for which payment has been deferred, the tax effect of expenditures for which a deduction has already been taken in our tax return but has not yet been recognized in our financial statements, or assets recorded at estimated fair value in business combinations for which there was no corresponding tax basis adjustment.
We estimate income taxes and the effective income tax rate in each jurisdiction that we operate. This involves estimating taxable earnings, specific taxable and deductible items, the likelihood of generating sufficient future taxable income to utilize deferred tax assets, the portion of the income of foreign subsidiaries that is expected to be remitted to the U.S. and be taxable and possible exposures related to future tax audits. Deferred tax assets are evaluated on a subsidiary by subsidiary basis to ensure that the asset will be realized. Valuation allowances are established when the realization is not deemed to be more likely than not. Future performance is monitored, and when objectively measurable operating trends change, adjustments are made to the valuation allowances accordingly. To the extent the estimates described above change, adjustments to income taxes are made in the period in which the estimate is changed.
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We operate in multiple jurisdictions with complex tax and regulatory environments, which are subject to differing interpretations by the taxpayer and the taxing authorities. At times, we may take positions that management believes are supportable, but are potentially subject to successful challenges by the appropriate taxing authority. We evaluate our tax positions and establish liabilities in accordance with guidance governing accounting for uncertainty in income taxes. We review these tax uncertainties in light of the changing facts and circumstances, such as the progress of tax audits, and adjust them accordingly.
Further detail on Income Taxes is included in Note 5 of Notes to Consolidated Financial Statements.
Acquisitions, Goodwill and Intangible Assets
We allocate the cost of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess value of the cost of an acquired business over the estimated fair value of the assets acquired and liabilities assumed is recognized as goodwill. The valuation of the acquired assets and liabilities will impact the determination of future operating results. We use a variety of information sources to determine the value of acquired assets and liabilities, including: third-party appraisers for the values and lives of property, identifiable intangibles and inventories; actuaries for defined benefit retirement plans; and legal counsel or other experts to assess the obligations associated with legal, environmental or other claims.
During fiscal 2022, the Company used variations of the income approach in determining the fair value of intangible assets acquired in the acquisition of Billie, Inc. 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 and proprietary technology that we acquired.
Our determination of the fair value of customer relationships acquired involved significant estimates and assumptions related to revenue growth rates, discount rates, and customer attrition rates. The determination of the fair value of trade names and proprietary technology acquired involved the use of significant estimates and assumptions related to revenue growth rates, royalty rates and discount rates. We believe 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 recorded value of goodwill and intangible assets from recently acquired businesses are derived from more recent business operating plans and macroeconomic environmental conditions and, therefore, are likely more susceptible to an adverse change that could require an impairment charge. As such, significant judgment is required in estimating the fair value of goodwill and intangible assets. Additionally, significant judgment is needed when assigning a useful life to intangible assets. Certain intangible assets are expected to have determinable useful lives. Our assessment of intangible assets that have a determinable life is based on a number of factors including the competitive environment, market share, brand history, underlying product life cycles, operating plans and the macroeconomic environment. The costs of determinable-lived intangible assets are amortized to expense over the estimated useful life. The value of residual goodwill is not amortized, but is tested at least annually for impairment. See Note 7 of Notes to Consolidated Financial Statements.
However, future changes in the judgments, assumptions and estimates that are used in our acquisition valuations and intangible asset and goodwill impairment testing, including discount rates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the future. An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year.
During the fourth quarter of fiscal 2023, we performed an annual test for impairment of goodwill on each of our reporting units. We elected to perform a qualitative test of goodwill impairment for the Sun Care and Feminine Care reporting units. Taking into account the excess fair value over carrying value in the prior valuation, as well as macroeconomic factors, industry conditions and actual results relative to the amounts projected in the prior quantitative test, we determined it was not more likely than not that the fair value of the reporting unit is less than the carrying amount. For the Wet Shave and Skin Care reporting units, we elected to perform a quantitative impairment test in fiscal 2023. As part of the quantitative goodwill impairment test, we estimated the fair value of each reporting unit using both market and income approaches of valuation. The income approach utilizes the discounted cash flow method and incorporates significant estimates and assumptions, including long-term projections of future cash flows, market conditions, and discount rates reflecting the risk inherent in future cash flows. The projections for future cash flows are generated using our company’s strategic plan to determine a five-year period of forecasted cash flows and operating data. The market approach uses the guideline public company method to calculate the value of each reporting unit based on the operating data of similar assets from competing publicly traded companies. Multiples derived from guideline companies provide an indication of how much a knowledgeable investor in the marketplace would be willing to pay for a company. The multiples are adjusted given the specific characteristics of the reporting unit including its position in the market relative to the guideline companies and applied to the reporting unit’s operating data to arrive at an
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indication of value. The income and market approaches are weighted based on circumstances specific to each reporting unit and combined are used to calculate fair value.
Determining the fair value of a reporting unit requires the use of significant judgment, estimates and assumptions. While we believe that the estimates and assumptions underlying the valuation methodology are reasonable, these estimates and assumptions could have a significant impact on whether an impairment charge is recognized, and also on the magnitude of any such charge. The results of an impairment analysis are as of a point in time. There is no assurance that actual future earnings or cash flows of the reporting units will not decline significantly from these projections. We will monitor any changes to these assumptions and will evaluate goodwill as deemed warranted during future periods.
The key assumptions for the market and income approaches used to determine fair value of the reporting units are updated at least annually. Those assumptions and estimates include market data and market multiples, discount rates and terminal growth rates, as well as future levels of revenue growth and operating margins based upon our strategic plan. The assumptions used for the annual goodwill impairment test for fiscal year 2023 include terminal growth rates of 2.50% and a weighted-average cost of capital ranging from 10.0% to 11.0%.
Our annual impairment testing date was July 1, 2023, and the valuation indicated there was no impairment of the goodwill of the tested reporting units. The results of the valuation indicated that all tested reporting units had a fair value that exceeded its carrying value by more than 27%.
We evaluate the fair value of indefinite-lived intangible assets annually in conjunction with the goodwill impairment test. Our assessment of intangible assets that have an indefinite life is based on a number of factors including the competitive environment, market share, brand history, underlying product life cycles, operating plans and the macroeconomic environment.
During the fourth quarter of fiscal 2023, we elected to complete a qualitative assessment for impairment of indefinite lived trade names, except for the Schick, Bulldog, and Carefree, o.b., Stayfree trade names, for which we completed a quantitative assessment. There were no significant events nor adverse trends that indicated any of the indefinite lived intangible assets were impaired during the fourth quarter of fiscal 2023.
We tested the Schick, Bulldog, and Carefree, o.b., Stayfree trade names for impairment by performing a quantitative assessment to estimate the fair value. The estimated fair value was determined using two incomes approaches: the multi-period excess earnings method and the relief-from-royalty method, both of which requires significant assumptions, including estimates regarding future revenue and operating margin growth, discount rates, and appropriate royalty rates. Revenue and operating margin growth assumptions are based on historical trends and management’s expectations for future growth by brand. The discount rates were based on a weighted-average cost of capital utilizing industry market data of similar companies, in addition to estimated returns on the assets utilized in the operations of the applicable reporting unit, including net working capital, fixed assets and intangible assets. We estimated royalty rates based on operating profits of the brand.
The valuation of the tested trade names had no indication of impairment as of the annual testing date on July 1, 2023. The impairment analysis performed in fiscal 2023 indicated that the tested trade names all had a fair value that exceeded its carrying value by more than 22%.
Future changes in the judgment, assumptions and estimates that are used in our impairment testing could result in significantly different estimates of the fair values in the future. An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year. The assumptions used for the annual valuation for indefinite-lived intangible assets for fiscal year 2023 include a terminal growth rate ranging from 0.3% to 2.50% and a weighted-average cost of capital of 10.25%.
The annual impairment analysis performed in fiscal 2023 did not indicate that impairment existed in the reporting units or indefinite lived trade names.
Recently Issued Accounting Standards
Refer to Note 2 of Notes to Consolidated Financial Statements for a discussion regarding recently issued accounting standards and their estimated impact on our financial statements.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
($ in millions)
The market risk inherent in our financial instruments and positions represents the potential loss arising from adverse changes in currency rates, commodity prices, interest rates, and our stock price. The following risk management discussion and the estimated amounts generated from the sensitivity analysis are forward-looking statements of market risk, assuming certain adverse market conditions occur. Company policy allows derivatives to be used only for identifiable exposures and, therefore, we do not enter into hedges for trading purposes where the sole objective is to generate profits.
Currency Rate Exposure
A significant share of our sales is tied to currencies other than the U.S. dollar, our reporting currency. As such, a weakening of currencies relative to the U.S. dollar can have a negative impact to reported earnings. Conversely, strengthening of currencies relative to the U.S. dollar can improve reported results. The primary currencies to which we are exposed include the euro, the Japanese yen, the British pound, the Canadian dollar and the Australian dollar.
We do business in certain developing markets, which may be susceptible to greater volatility of inflation and currency exchange rates, as well as government pricing and import controls. While the activity is not considered material in relation to the consolidated company as a whole, there could be negative impacts to operating results in certain markets if inflationary pressures, exchange volatility and government controls negatively impact our ability to operate effectively and profitably.
Derivatives Designated as Cash Flow Hedging Relationships
At September 30, 2023, we 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.
We enter into forward currency contracts to hedge the cash flow uncertainty associated with currency fluctuations. These transactions are accounted for as cash flow hedges. We had an unrealized pre-tax gains of $4.4 and $11.3 at September 30, 2023 and 2022, respectively, on these forward currency contracts accounted for as cash flow hedges included in Accumulated other comprehensive loss (“AOCI”). Assuming foreign exchange rates versus the U.S. dollar remain at September 30, 2023 levels over the next 12 months, the majority of the pre-tax gain included in AOCI at September 30, 2023 is expected to be included in Other expense (income), net. Contract maturities for these hedges extend into fiscal year 2025. There were 64 open foreign currency contracts at September 30, 2023 with a notional value of approximately $105.4.
For further information on our derivatives designated as cash flow hedging relationships, see Note 16 of Notes to Consolidated Financial Statements.
Derivatives Not Designated as Cash Flow Hedging Relationships
Our foreign subsidiaries enter into internal and external transactions in the ordinary course of business 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 period. Changes in the value of the non-functional currency balance sheet positions in relation to the foreign subsidiary’s local currency result in an exchange gain or loss recorded in Other expense (income), net in the Consolidated Statements of Earnings and Comprehensive Income. The primary currency to which our foreign subsidiaries are exposed is the U.S. dollar.
To mitigate these balance sheet exposures we enter into foreign currency derivative contracts, which are not designated as cash flow hedges for accounting purposes. Any gains or losses on these contracts are expected to be offset by exchange gains or losses on the underlying exposure; thus, they are not subject to significant market risk. The change in the estimated fair value of the foreign currency contracts resulted in a gains of $3.0 and $8.2 for fiscal 2023 and 2022, respectively, which were recorded in Other expense (income), net in the Consolidated Statements of Earnings and Comprehensive Income. There were five open foreign currency derivative contracts which were not designated as cash flow hedges at September 30, 2023, with a notional value of approximately $34.5.
For further information on our derivatives not designated as cash flow hedging relationships, see Note 16 of Notes to Consolidated Financial Statements.
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Commodity Price Exposure
We use raw materials that are subject to price volatility. At times, we have used, and may in the future, use hedging instruments to reduce exposure to variability in cash flows associated with future purchases of certain materials and commodities. At September 30, 2023, there were no open derivative or hedging instruments for future purchases of raw materials or commodities.
Interest Rate Exposure
Our exposure to interest rate risk relates primarily to our variable-rate debt instruments, which currently bear interest based on LIBOR plus margin. As of September 30, 2023, our outstanding debt included $122.0 related to our Revolving Credit Facility and international, variable-rate note payable. Assuming a one percent increase in the applicable interest rates, annual interest expense would increase by approximately $1.2.
The remaining outstanding debt as of September 30, 2023 is fixed-rate debt. Changes in market interest rates generally affect the fair value of fixed-rate debt, but do not impact earnings or cash flows.
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
| Consolidated Financial Statements | |||||
| Responsibility for Financial Statements | |||||
| Report of Independent Registered Public Accounting Firm | |||||
Consolidated Statements of Earnings and Comprehensive Income for the fiscal years ended September 30, 2023, 2022 and 2021. | |||||
Consolidated Balance Sheets as of September 30, 2023 and 2022. | |||||
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2023, 2022 and 2021. | |||||
Consolidated Statements of Changes in Shareholders’ Equity for the period from October 1, 2020 to September 30, 2023. | |||||
| Notes to Consolidated Financial Statements. | |||||
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Responsibility for Financial Statements
The preparation and integrity of the financial statements of Edgewell Personal Care Company (the “Company”) are the responsibility of its management. These statements have been prepared in conformance with generally accepted accounting principles (“GAAP”) in the United States of America, and in the opinion of management, fairly present the Company’s financial position, results of operations and cash flows.
The Company maintains accounting and internal control systems, which it believes are adequate to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition and that financial records are reliable for preparing financial statements. The selection and training of qualified personnel, the establishment and communication of accounting and administrative policies and procedures, and a program of internal audits are important elements of these control systems.
The Board of Directors, through its Audit Committee consisting solely of non-management directors, meets periodically with management, internal audit and the independent auditors to discuss audit and financial reporting matters. To ensure independence, our auditor, PricewaterhouseCoopers LLP, has direct access to the Audit Committee.
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Edgewell Personal Care Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Edgewell Personal Care Company and its subsidiaries (the “Company”) as of September 30, 2023 and 2022, and the related consolidated statements of earnings and comprehensive income, of changes in shareholders’ equity and of cash flows for each of the three years in the period ended September 30, 2023, including the related notes and financial statement schedule listed in the index appearing under Item 15(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment – Skin Care Reporting Unit
As described in Notes 2 and 7 to the consolidated financial statements, the Company’s consolidated goodwill balance as of September 30, 2023 was $1,331.4 million, and the goodwill associated with the Sun and Skin Care segment was $353.9 million. Goodwill from the Skin Care reporting unit makes up a significant portion of the goodwill related to the Sun and Skin Care segment. Management evaluates goodwill annually for impairment in the fourth fiscal quarter, or when indicators of a potential impairment are present. The impairment assessment compares the carrying value of the reporting unit to the estimated fair value. In determining the estimated fair value of the reporting unit when performing a quantitative analysis, both the market approach and the income approach are considered in the valuation, and where appropriate, both methods will be used and weighted, unless appropriate market comparables are not available for a reporting unit. The key assumptions and estimates for the market and income approaches used to determine fair value of the reporting unit included market data and market multiples (for the market approach), discount rate and terminal growth rate (for the income approach), as well as revenue growth rates, and operating margins (for the income approach), which are based upon management’s strategic plan.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Skin Care reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the Skin Care reporting unit; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, operating margins, and the discount rate used in the income approach; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments, including controls over the valuation of the Skin Care reporting unit. These procedures also included, among others (i) testing management’s process for developing the fair value estimate; (ii) evaluating the appropriateness of the income and market approaches used by management; (iii) testing the completeness and accuracy of underlying data used in the income and market approaches; and (iv) evaluating the reasonableness of the significant assumptions used by management related to revenue growth rates, operating margins, and the discount rate used in the income approach for the Skin Care reporting unit. Evaluating management’s assumptions related to revenue growth rates and operating margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Skin Care reporting unit; (ii) the consistency with external relevant industry forecasts and macroeconomic conditions; (iii) management’s historical forecasting accuracy; (iv) management’s objectives and strategies; and (v) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the Company’s income and market approaches and (ii) the reasonableness of the discount rate assumption.
/s/ PricewaterhouseCoopers LLP
November 28, 2023
We have served as the Company’s auditor since 1999.
43
EDGEWELL PERSONAL CARE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(in millions, except per share data)
| Fiscal Year | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net sales | $ | $ | $ | ||||||||||||||
| Cost of products sold | |||||||||||||||||
| Gross profit | |||||||||||||||||
| Selling, general and administrative expense | |||||||||||||||||
| Advertising and sales promotion expense | |||||||||||||||||
| Research and development expense | |||||||||||||||||
| Restructuring charges | |||||||||||||||||
| Operating income | |||||||||||||||||
| Cost of early retirement of long-term debt | |||||||||||||||||
| Interest expense associated with debt | |||||||||||||||||
| Other expense (income), net | ( | ( | |||||||||||||||
| Earnings before income taxes | |||||||||||||||||
| Income tax provision | |||||||||||||||||
| Net earnings | $ | $ | $ | ||||||||||||||
| Earnings per share (Note 6): | |||||||||||||||||
| Basic net earnings per share | $ | $ | $ | ||||||||||||||
| Dilutive net earnings per share | $ | $ | $ | ||||||||||||||
| Statements of Comprehensive Income: | |||||||||||||||||
| Net earnings | $ | $ | $ | ||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||
| Foreign currency translation adjustments | ( | ||||||||||||||||
Pension and postretirement activity, net of tax of $ | |||||||||||||||||
Deferred (loss) gain on hedging activity, net of tax (benefit) provision of $( | ( | ||||||||||||||||
| Total other comprehensive income (loss), net of tax | ( | ||||||||||||||||
| Total comprehensive income | $ | $ | $ | ||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
44
EDGEWELL PERSONAL CARE COMPANY
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
| September 30, 2023 | September 30, 2022 | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Trade receivables, less allowance for doubtful accounts of $ | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Shareholders’ Equity | |||||||||||
| Current liabilities | |||||||||||
| Notes payable | |||||||||||
| Accounts payable | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred income tax liabilities | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 17) | |||||||||||
| Shareholders’ equity | |||||||||||
Preferred shares, $ | |||||||||||
Common shares, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
Common shares in treasury at cost, | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
See accompanying Notes to Consolidated Financial Statements.
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EDGEWELL PERSONAL CARE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| Fiscal Year | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cash Flow from Operating Activities | |||||||||||||||||
| Net earnings | $ | $ | $ | ||||||||||||||
| Adjustments to reconcile net earnings to net cash flow from operations: | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Share-based compensation expense | |||||||||||||||||
| Deferred income taxes | ( | ( | |||||||||||||||
| Deferred compensation payments | ( | ( | ( | ||||||||||||||
| Loss on sale of assets | |||||||||||||||||
| Defined benefit settlement loss | |||||||||||||||||
| Cost of early retirement of long-term debt | |||||||||||||||||
| Other, net | ( | ( | ( | ||||||||||||||
| Changes in current assets and liabilities from operations, net of effects of acquisitions: | |||||||||||||||||
| Accounts receivable, net | ( | ||||||||||||||||
| Inventories | ( | ( | ( | ||||||||||||||
| Other current assets | ( | ( | |||||||||||||||
| Accounts payable | ( | ||||||||||||||||
| Other current liabilities | ( | ||||||||||||||||
| Net cash from operating activities | |||||||||||||||||
| Cash Flow from Investing Activities | |||||||||||||||||
| Capital expenditures | ( | ( | ( | ||||||||||||||
| Acquisitions, net of cash acquired | ( | ( | |||||||||||||||
| Proceeds from sale of Infant Care business | |||||||||||||||||
| Collection of deferred purchase price from accounts receivable sold | |||||||||||||||||
| Other, net | ( | ( | ( | ||||||||||||||
| Net cash used by investing activities | ( | ( | ( | ||||||||||||||
46
EDGEWELL PERSONAL CARE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in millions)
| Fiscal Year | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cash Flow from Financing Activities | |||||||||||||||||
| Cash proceeds from debt with original maturities greater than 90 days | |||||||||||||||||
| Cash payments on debt with original maturities greater than 90 days | ( | ( | |||||||||||||||
| Cash proceeds from the issuance of Senior Notes due 2029 | |||||||||||||||||
| Cash payments on Senior Notes due 2022 | ( | ||||||||||||||||
| Net (decrease) increase in debt with original maturities of 90 days or less | ( | ||||||||||||||||
| Cost of early retirement of long-term debt | ( | ||||||||||||||||
| Debt issuance costs for Senior Notes due 2029 | ( | ||||||||||||||||
| Repurchase of shares | ( | ( | ( | ||||||||||||||
| Dividends paid | ( | ( | ( | ||||||||||||||
| Employee shares withheld for taxes | ( | ( | ( | ||||||||||||||
| Net financing inflow (outflow) from the Accounts Receivable Facility | ( | ||||||||||||||||
| Other, net | ( | ( | |||||||||||||||
| Net cash used by financing activities | ( | ( | ( | ||||||||||||||
| Effect of exchange rate changes on cash | ( | ( | |||||||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||||||||
| Cash and cash equivalents, end of period | $ | $ | $ | ||||||||||||||
| Supplemental Disclosures of Cash Flow Information: | |||||||||||||||||
| Cash paid for interest, net | $ | $ | $ | ||||||||||||||
| Cash paid for income taxes, net | |||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
47
EDGEWELL PERSONAL CARE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in millions)
| Common Shares | Treasury Shares | ||||||||||||||||||||||||||||||||||||||||||||||
| Number | Par Value | Number | Amount | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance at October 1, 2020 (see Note 1) | $ | ( | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends declared to common shareholders | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Pension and postretirement activity | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Deferred gain on hedging activity | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Repurchase of shares | — | — | ( | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Activity under share plans | ( | — | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | ( | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared to common shareholders | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Pension and postretirement activity | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Deferred gain on hedging activity | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Repurchase of shares | — | — | ( | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Activity under share plans | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | ( | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Dividends declared to common shareholders | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Pension and postretirement activity | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Deferred loss on hedging activity | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Repurchase of shares | — | — | ( | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Activity under share plans | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | ( | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
48
EDGEWELL PERSONAL CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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. With operations in over 20 countries, the Company’s products are widely available 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 our custom brands group (formerly sold under our 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, Billie women’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
Acquisition of Billie, Inc. On November 29, 2021 (“the Acquisition Date”), the Company completed the acquisition of Billie, Inc. (“Billie”) (the “Acquisition”), 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 more information on the Acquisition, see Note 3 of Notes to the Consolidated Financial Statements.
Revision of Previously Issued Consolidated Financial Statements
During the fourth quarter of 2023, the Company evaluated aged accrued expenditures related to goods received but not yet invoiced by certain of its vendors (“GRNI”). Based upon an assessment, including evaluating the expiry of the applicable statute of limitations of the accrued expenditures, the Company concluded that $8.5 of aged accrued GRNI originating in years 2014 through 2018 were no longer required to be reflected as accounts payable on the Consolidated Balance Sheet as of September 30, 2023 and should have been reversed in prior fiscal years. The Company concluded that the misstatements were not material, either individually or in the aggregate, to its previously issued consolidated financial statements. To correct the immaterial misstatements, the Company has revised its previously issued consolidated financial statements as of and for the year ended September 30, 2022, as well as for the year ended September 30, 2021.
The Company has revised the Consolidated Statements of Earnings and Comprehensive Income, Consolidated Statements of Cash Flows, and Consolidated Statements of Changes in Shareholders' Equity for the periods ended September 30, 2022 and September 30, 2021 and Consolidated Balance Sheet as of September 30, 2022 as well as the associated Notes to the Consolidated Financial Statements to reflect the corrections of these immaterial misstatements in this Annual Report on Form 10-K for the period ended September 30, 2023. Due to these GRNI misstatements, which originated prior to fiscal 2023, net income for the years ended September 30, 2022, and 2021 and the opening retained earnings balance as of October 1, 2021, were understated by $0.9 , $0.8 , and $5.7 , respectively, with a corresponding overstatement of total liabilities. There were no changes to previously issued total cash flows generated from (used by) operating, investing, or financing activities for any of the impacted periods. Additionally, the Company will further present the revisions of its previously issued 2023 interim financial statements and relevant notes to the consolidated financial statements in connection with the future filings of its 2024
49
interim reporting on Form 10-Q for the periods ended December 31, 2023, March 31, 2024, and June 30, 2024. Refer to Note 19 of Notes to Consolidated Financial Statements for further discussion on the unaudited quarterly financial information.
The following table reflects the revisions to the previously issued Consolidated Statements of Earnings and Comprehensive Income for the fiscal years ended September 30, 2022 and September 30, 2021:
| Fiscal Year | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| As Previously Reported | Adjustment | As Revised | As Previously Reported | Adjustment | As Revised | ||||||||||||||||||||||||||||||
| Cost of products sold | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||||||||||||||
| Earnings before income taxes | |||||||||||||||||||||||||||||||||||
| Income tax provision | |||||||||||||||||||||||||||||||||||
| Net earnings | |||||||||||||||||||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||||||||||||||
| Basic net earnings per share | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Dilutive net earnings per share | |||||||||||||||||||||||||||||||||||
| Total comprehensive income | |||||||||||||||||||||||||||||||||||
The following table reflects the revisions to the previously issued Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2022 and September 30, 2021:
| Fiscal Year | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| As Previously Reported | Adjustment | As Revised | As Previously Reported | Adjustment | As Revised | ||||||||||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Other, net | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Accounts payable | ( | ( | |||||||||||||||||||||||||||||||||
The following table reflects the revisions to the previously issued Consolidated Balance Sheet as of September 30, 2022:
| As of September 30, 2022 | ||||||||||||||||||||
| As Previously Reported | Adjustment | As Revised | ||||||||||||||||||
| Accounts payable | $ | $ | ( | $ | ||||||||||||||||
| Total current liabilities | ( | |||||||||||||||||||
| Other liabilities | ||||||||||||||||||||
| Total liabilities | ( | |||||||||||||||||||
| Retained earnings | ||||||||||||||||||||
| Total shareholders’ equity | ||||||||||||||||||||
50
Note 2 - Summary of Significant Accounting Policies
Cash Equivalents
Cash Flow Presentation
Trade Receivables
Inventories
Capitalized Software Costs
Property, Plant and Equipment, net
Property, plant and equipment, net (“PP&E”) is stated at historical cost. PP&E acquired as part of a business combination is recorded at estimated fair value. Expenditures for new facilities and expenditures that substantially increase the useful life of property, including interest during construction, are capitalized and reported as Capital expenditures in the accompanying Consolidated Statements of Cash Flows. Maintenance, repairs and minor renewals are expensed as incurred. When property is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and gains or losses on the disposition are reflected in Net earnings. Depreciation is generally provided on the straight-line basis by charges to earnings at rates based on estimated useful lives. Estimated useful lives range from to 10 years for machinery and equipment and to 30 years for buildings and building improvements. Depreciation expense was $55.6 , $55.7 and $60.6 in fiscal 2023, 2022 and 2021, respectively.
Estimated useful lives are periodically reviewed and, when appropriate, changes are made and accounted for prospectively. When certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts.
51
Leases
The Company leases certain offices and manufacturing facilities, warehouses, employee vehicles and certain manufacturing related equipment. A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified PP&E over a contracted period in exchange for payment. The Company evaluates if an arrangement is a lease as of the effective date of the agreement. Certain leases include an option to either renew or terminate the lease. For purposes of calculating lease liabilities, these options are included within the lease term when it has become reasonably certain that the Company will exercise such options. Operating lease ROU assets and operating lease liabilities are recorded based on the present value of minimum payments over the lease term at the effective date of the lease. Any costs in excess of the minimum payments are expensed as incurred as variable lease cost.
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. The Company has elected as an accounting policy not to separate non-lease components from lease components and, instead, account for these components as a single lease component. For leases that do not provide an implicit rate, the Company uses its secured incremental borrowing rate, based on the information available for leases, including the lease term and interest rate environment in the country in which the lease exists, to calculate the present value of the future lease payments.
Acquisitions, Goodwill and Other Intangible Assets
The Company allocates the cost of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess value of the cost of an acquired business over the estimated fair value of the assets acquired and liabilities assumed is recognized as goodwill. The valuation of the acquired assets and liabilities will impact the determination of future operating results. The Company uses a variety of information sources to determine the value of acquired assets and liabilities, including: third-party appraisers for the values and lives of property, identifiable intangibles and inventories; actuaries for defined benefit retirement plans; and legal counsel or other experts to assess the obligations associated with legal, environmental or other claims.
Goodwill and indefinite-lived intangibles are not amortized but are instead evaluated annually for impairment as part of the Company’s annual business planning cycle in the fourth fiscal quarter, or when indicators of a potential impairment are present. The annual test for impairment performed for goodwill can be qualitative or quantitative, taking into consideration certain factors surrounding the fair value of the goodwill including, level by which fair value exceeded carrying value in the prior valuation, as well as macroeconomic factors, industry conditions and actual results at the test date. The quantitative analysis to test for impairment will estimate the fair value of each reporting unit (Wet Shave, Sun Care, Skin Care and/or Feminine Care) using valuation models that incorporate assumptions and projections of expected future cash flows and operating plans. In determining the estimated fair value of the reporting units when performing a quantitative analysis, both the market approach and the income approach are considered in the valuation, and where appropriate, both methods will be used and weighted, unless appropriate market comparables are not available for a reporting unit.
Determining the fair value of a reporting unit requires the use of significant judgment, estimates, and assumptions. While the Company believes that the estimates and assumptions underlying the valuation methodology are reasonable, these estimates and assumptions could have a significant impact on whether an impairment charge is recognized and the magnitude of any such charge. The results of an impairment analysis are as of a point in time. There is no assurance that actual future earnings or cash flows of the reporting units will not vary significantly from these projections. The Company will monitor any changes to these assumptions and will evaluate the carrying value of goodwill as warranted during future periods.
52
The key assumptions and estimates for the market and income approaches used to determine fair value of the reporting units included market data and market multiples (for the market approach), discount rates and terminal growth rates (for the income approach), as well as revenue growth rates and operating margins (for the income approach), which are based upon management’s strategic plan.
The Company evaluates indefinite-lived intangible assets, which consist of trademarks and brand names used across the Company’s segments for impairment on an annual basis. Similar to goodwill, the impairment test can be qualitative or quantitative, taking into consideration certain factors surrounding the fair value of the brand names including, level by which fair value exceeded carrying value in the prior valuation, as well as macroeconomic factors, industry conditions and actual results at the test date. The quantitative test will determine the fair value using one of two income approaches: (i) the multi-period excess earnings method and (ii) the relief-from-royalty method, both of which require significant assumptions, including estimates regarding future revenue and operating margin growth, discount rates, and appropriate royalty rates. Revenue and operating margin growth assumptions are based on historical trends and management’s expectations for future growth by brand. The discount rates were based on a weighted-average cost of capital utilizing industry market data of similar companies and estimated returns on the assets utilized in the operations of the applicable reporting unit, including net working capital, fixed assets and intangible assets. The Company estimated royalty rates based on operating profits of the brand.
Intangible assets with finite lives, and a remaining weighted-average life of approximately eight years, are amortized on a straight-line basis over expected lives of to 25 years. Such intangibles are also evaluated for impairment including ongoing monitoring of potential impairment indicators.
Refer to Note 7 of Notes to Consolidated Financial Statements for further discussion on goodwill and other intangible assets.
Impairment of Long-Lived Assets
Revenue Recognition
Principal Revenue Streams and Significant Judgments
Our principal revenue streams can be divided into: (i) sale of personal care products primarily through retailers in North America; (ii) sale of personal care products through a combination of retailers and distributors internationally; and (iii) production and sale of private brands products in North America and internationally that are made to customer specifications.
Performance Obligations
The Company’s revenue is generated from the sale of its products. Revenue is recognized when the customer obtains control of the goods, which occurs when the ability to use and obtain benefits from the goods are passed to the customer, most commonly upon the delivery of goods to the customer. Discounts are offered to customers for early payment and an estimate of discounts is recorded as a reduction of Net sales in the same period as the sale. The Company’s standard sales terms are final and returns or exchanges are not permitted with the exception of end of season returns for Sun Care products. Reserves are established and recorded in cases where the right of return exists for a particular sale.
The Company assesses the goods promised in its customers’ purchase orders and identifies a performance obligation to transfer goods (or a bundle of goods) that is distinct. To identify the performance obligations, the Company considers all the goods promised, whether explicitly stated or implied based on customary business practices. The Company’s purchase orders are short term in nature, lasting less than one year and contain a single delivery element. For a purchase order that has more than one performance obligation, the Company allocates the total consideration to each distinct performance obligation on a relative stand-alone selling price basis. The Company does not exclude variable consideration in determining the remaining value of performance obligations.
53
Significant Judgments
The Company records sales at the time that control of goods pass to the customer. The terms of these sales vary but the following conditions are applicable to all sales: (i) the sales arrangement is evidenced by purchase orders submitted by customers; (ii) the selling price is fixed or determinable; (iii) title to the product has transferred; (iv) there is an obligation to pay at a specified date without any additional conditions or actions required by the Company; and (v) collectability is reasonably assured. Simultaneously with the sale, the Company reduces Net sales and Cost of products sold and reserves amounts on its Consolidated Balance Sheet for anticipated returns based upon an estimated return level in accordance with GAAP. The Company also allows for returns of other products under limited circumstances. Customers are required to pay for the Sun Care product purchased during the season under the required terms. Under certain circumstances, the Company allows customers to return Sun Care products that have not been sold by the end of the Sun Care season, which is normal practice in the Sun Care industry. The timing of returns of Sun Care products can vary in different regions based on climate and other factors. However, the majority of returns occur in the U.S. from September through January following the summer Sun Care season. The Company estimates the level of Sun Care returns as the Sun Care season progresses using a variety of inputs including historical experience, consumption trends during the Sun Care season, obsolescence factors including expiration dates and inventory positions at key retailers. The Company monitors shipment activity and inventory levels at key retailers during the season in an effort to more accurately estimate potential returns. This allows the Company to manage shipment activity to its customers, especially in the latter stages of the Sun Care season, to reduce the potential for returned product. The Company also allows for returns of other products under limited circumstances. Non-Sun Care returns are evaluated each period based on communications with customers and other issues known as of period end. The Company had a reserve for returns of $53.5 and $47.5 at September 30, 2023 and 2022, respectively.
In addition, the Company offers a variety of programs, such as consumer coupons and rebate 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 and are recorded as a reduction to Net sales. The Company accrues, at the time of sale, the estimated total payments and allowances associated with each transaction. Additionally, the Company offers programs directly to consumers to promote the sale of its products. Promotions which reduce the ultimate consumer sale price are recorded as a reduction of Net sales at the time the promotional offer is made using estimated redemption and participation levels. Taxes the Company collects on behalf of governmental authorities, which are generally included in the price to the customer, are also recorded as a reduction of Net sales. 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.
Contract Balances
The timing of revenue recognition is based on completion of performance obligations through the transfer of goods. Standard payment terms with customers require payment after goods have been delivered and risk of ownership has transferred to the customer. The Company has contract liabilities as a result of advanced payments received from certain customers before goods have been delivered and all performance obligations have been completed. Contract liabilities were $0.6 and $1.1 at September 30, 2023 and 2022, respectively, and were classified within Other current liabilities on our Consolidated Balance Sheets. Substantially all of the amount deferred will be recognized within a year, with the significant majority to be captured within a quarter following deferral.
Trade receivables are stated at their net realizable value. The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in its receivables portfolio determined by historical experience, specific allowances for known troubled accounts, and other currently available information.
Advertising and Sales Promotion Costs
54
Share-Based Payments
The Company grants restricted share equivalents (“RSE”), which generally vest over to four years . The estimated fair value of each grant is estimated on the date of grant based on the current market price of the Company’s common shares. The original estimate of the grant date fair value is not subsequently revised unless the awards are modified. The Company has elected to recognize forfeiture of awards as they occur. A portion of the RSE awards provide for the issuance of common stock to certain managerial staff and executive management if the Company achieves specified performance targets. For Performance Restricted Share Equivalents (“PRSE”) granted during fiscal 2020, the Company records estimated expense for performance-based grants based on target achievement of performance metrics for the three-year period for each respective program, unless evidence exists that achievement above or below target for the applicable performance metric is more likely to occur. For PRSE awards granted during fiscal 2023, 2022 and 2021, awards will vest by comparing the Company’s total shareholder return (“TSR”) during a certain three year period to the respective TSRs of companies in a selected performance peer group. The expense recorded for these awards was recorded on a straight-line basis based on the grant date fair value using a Monte Carlo simulation.
Non-qualified stock options (“Share Options”) are granted at the market price on the grant date and generally vest ratably over three years . The Company calculates the fair value of total share-based compensation for Share Options using the Black-Scholes option pricing model, which utilizes certain assumptions and estimates that have a material impact on the amount of total compensation cost recognized in the Consolidated Financial Statements, including the expected term, expected share price volatility, risk-free interest rate and expected dividends. The original estimate of the grant date fair value is not subsequently revised unless the awards are modified. The Company has elected to recognize forfeiture of awards as they occur.
Income Taxes
The Company’s annual effective income tax rate is determined based on its pre-tax income, statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Tax law requires that certain items be included in its federal tax return at different times than the items are reflected in the financial statements. Some of these differences are permanent, such as expenses that are not deductible in the Company’s tax return, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities.
Deferred tax assets generally represent the tax effect of items that can be used as a tax deduction or credit in future years for which the Company has already recorded the tax benefit in the Consolidated Statement of Earnings. Deferred tax liabilities generally represent tax expense recognized in the Company’s financial statements for which payment has been deferred, the tax effect of expenditures for which a deduction has already been taken in its tax return but has not yet been recognized in its financial statements or assets recorded at estimated fair value in business combinations for which there was no corresponding tax basis adjustment.
The Company estimates income taxes and the effective income tax rate in each jurisdiction that it operates. This involves estimating taxable earnings, specific taxable and deductible items, the likelihood of generating sufficient future taxable income to utilize deferred tax assets, the portion of the income of foreign subsidiaries that is expected to be remitted to the U.S. and be taxable and possible exposures related to future tax audits. Deferred tax assets are evaluated on a subsidiary by subsidiary basis to ensure that the asset will be realized. Valuation allowances are established when the realization is not deemed to be more likely than not. Future performance is monitored, and when objectively measurable operating trends change, adjustments are made to the valuation allowances accordingly. To the extent the estimates described above change, adjustments to income taxes are made in the period in which the estimate is changed.
The Company operates in multiple jurisdictions with complex tax and regulatory environments, which are subject to differing interpretations by the taxpayer and the taxing authorities. At times, the Company may take positions that management believes are supportable but are potentially subject to successful challenges by the appropriate taxing authority. The Company evaluates its tax positions and establishes liabilities in accordance with guidance governing accounting for uncertainty in income taxes. The Company reviews these tax uncertainties in light of changing facts and circumstances, such as the progress of tax audits, and adjusts them accordingly.
55
Estimated Fair Values of Financial Instruments
Foreign Currency Translation
Financial statements of foreign operations where the local currency is the functional currency are translated using end-of-period exchange rates for assets and liabilities, and average exchange rates during the period for results of operations. Related translation adjustments are reported as a component within accumulated other comprehensive loss in the shareholders’ equity section of the Consolidated Balance Sheets, except as noted below.
Gains and losses resulting from foreign currency transactions are included in Net earnings. Foreign currency (losses) gains of $(1.7 ), $7.7 and $0.5 during fiscal 2023, 2022 and 2021, respectively, were included within Other expense (income), net in the Consolidated Statements of Earnings and Comprehensive Income. The Company uses foreign exchange (“FX”) instruments to reduce the risk of FX transactions as described below and in Note 16 of Notes to Consolidated Financial Statements.
Financial Instruments and Derivative Securities
The Company uses financial instruments, from time to time, in the management of foreign currency, interest rate, and other risks that are inherent to its business operations. Such instruments are not held or issued for trading purposes.
FX instruments, including forward currency contracts, are used primarily to reduce cash transaction exposures and, to a lesser extent, to manage other translation exposures. FX instruments are selected based on their risk reduction attributes, costs, and related market conditions. The Company has designated certain foreign currency contracts as cash flow hedges for accounting purposes as of September 30, 2023.
At September 30, 2023, the Company had $122.0 of variable rate debt outstanding. In the past the Company has used interest rate swaps to hedge the risk of variable rate debt. As of September 30, 2023, the Company did not have any outstanding interest rate swap agreements.
For further discussion, see Note 11 and Note 16 of Notes to Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations". This guidance requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. These amendments are effective for fiscal years beginning after December 15, 2022, except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023. The Company is assessing the impact, if any, of this guidance on its Consolidated Financial Statements.
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Note 3 - Business Combinations
Billie Inc.
On November 29, 2021, the Company completed the Billie Acquisition for cash consideration of $309.4 , net of cash acquired. 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 Company has calculated fair values of the assets and liabilities acquired from Billie, including goodwill, intangible assets and working capital. The Company completed the final fair value determination of the Acquisition in the fourth quarter of fiscal year 2022.
The Company used variations of the income approach in determining the fair value of intangible assets acquired in the Billie 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 allocation of the purchase price related to the Billie Acquisition based upon the fair value of assets and liabilities assumed:
| Current assets | $ | ||||
| Goodwill | |||||
| Intangible assets | |||||
| Other assets, including property, plant and equipment, net | |||||
| Current liabilities | ( | ||||
| Deferred tax liabilities | ( | ||||
| $ | |||||
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 $93.7 and $1.1 , respectively, for the post-acquisition period ending September 30, 2022 in the 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 $7.5 and nil were included in SG&A and Cost of products sold in the Consolidated Statements of Earnings and Comprehensive Income, respectively, for fiscal 2023. Acquisition and integration costs related to Billie totaling $9.1 and $0.8 were included in SG&A and Cost of products sold in the Consolidated Statements of Earnings and Comprehensive Income, respectively, for fiscal 2022.
The following summarizes the Company's unaudited pro forma consolidated results of operations for the twelve months ended September 30, 2022 and September 30, 2021, as though the Billie Acquisition occurred on October 1, 2020. The twelve months ended September 30, 2022 and 2021 include results of Billie over the full periods presented.
| Twelve Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Pro forma net sales | $ | $ | |||||||||||||||||||||
| Pro forma net earnings | |||||||||||||||||||||||
The unaudited pro forma consolidated results of operations were adjusted by pre-tax amortization expense of $1.3 and $8.9 for the years ended September 30, 2022 and 2021, respectively. Additionally, pro forma earnings for the twelve months ended September 30, 2022 exclude $9.9 of pre-tax acquisition costs, which were included in the pro forma earnings for the twelve months ended September 30, 2021. 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 are not necessarily indicative of the results obtained had the Billie Acquisition occurred on October 1, 2020, 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 Billie Acquisition.
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Cremo Holding Company, LLC
On September 2, 2020, the Company completed the acquisition of Cremo Holding Company, LLC (the “Cremo Acquisition”). The Company accounted for the Cremo 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 and other intangible assets, requires significant judgment. We have calculated fair values of the assets and liabilities acquired from Cremo including goodwill and intangible assets and working capital. The Company completed the final fair value determination of the Cremo Acquisition in the first quarter of fiscal year 2021.
The Company used variations of the income approach in determining the fair value of intangible assets acquired in the Cremo 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 and proprietary technology 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. The Company 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 allocation of the purchase price related to the Cremo Acquisition based upon the fair value of assets and liabilities assumed:
| Working capital and other net assets (including cash of $0.7) | $ | ||||
| Intangible assets | |||||
| Goodwill | |||||
| Net Assets acquired | $ | ||||
The acquired goodwill represented the value of expansion into new markets and channels of trade and is deductible for tax purposes. The intangible assets acquired consisted primarily of the Cremo trade name, customer relationships, and product formulations with a weighted-average useful life of 17 years. All assets are included in the Company’s Sun and Skin Care segment.
The Company noted that the net sales and net earnings of Cremo from the beginning of fiscal 2020 through the date of the closing of the Cremo Acquisition were not material relative to the total net sales and net earnings of the Company during fiscal 2020, and thus pro-forma results for Cremo were not disclosed in accordance with Accounting Standards Codification 805. Acquisition and integration costs related to Cremo totaling $7.1 for the year ended September 30, 2021 were included in SG&A in the Consolidated Statements of Earnings and Comprehensive Income. Additionally, acquisition costs of $1.3 were included in Cost of products sold for the year ended September 30, 2021.
Note 4 - Restructuring Charges
Operating Model Redesign
In fiscal 2023, the Company is continuing to take actions to strengthen its operating model, simplify the organization and improve manufacturing and supply chain efficiency and productivity. As a result of these actions, the Company expects to incur restructuring and re-positioning actions of approximately $19 in fiscal 2024. To date the Company has incurred restructuring and related charges as follows:
| Fiscal 2023 | Fiscal 2022 | ||||||||||
| Severance and related benefit costs | |||||||||||
| Asset write-off and accelerated depreciation | |||||||||||
| Consulting, project implementation and management, and other exit costs | |||||||||||
Total restructuring and related costs (1) (2) | $ | $ | |||||||||
(1) Restructuring and related costs of $0.2 and nil are included within Cost of products sold for fiscal 2023 and 2022, respectively.
(2) Restructuring and related costs of $0.3 and $0.9 are included within SG&A for fiscal 2023 and 2022, respectively.
Project Fuel
Project Fuel was an enterprise-wide transformational initiative launched in fiscal 2018 to improve operational performance and reshape the business’ cost structure. Project Fuel was completed on September 30, 2021.
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The Company does not include Project Fuel restructuring costs in the results of its reportable segments. However, the estimated impact of allocating such charges to segment results for fiscal 2021 would have been as follows:
| Fiscal 2021 | |||||||||||||||||||||||||||||
| Wet Shave | Sun and Skin Care | Feminine Care | Corporate | Total | |||||||||||||||||||||||||
| Project Fuel | |||||||||||||||||||||||||||||
| Severance and related benefit costs | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Asset impairment and accelerated depreciation | $ | ||||||||||||||||||||||||||||
| Consulting, project implementation and management and other exit costs | |||||||||||||||||||||||||||||
| Total Restructuring and related costs | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Consulting, project implementation and management and other exit costs include pre-tax SG&A associated with certain information technology enablement expenses and compensation expenses related to Project Fuel of $8.7 for fiscal 2021. Asset impairment and accelerated depreciation includes pre-tax Cost of products sold associated with inventory obsolescence related to Project Fuel of $0.6 for fiscal 2021. Project-to-date restructuring and related costs inclusive of information technology enablement charges and inventory obsolescence totaled $163.7 .
Restructuring Reserves
The following table summarizes restructuring activities and related accruals:
| Utilized | |||||||||||||||||||||||||||||||||||
| October 1, 2022 | Charge to Income | Cash | Non-Cash | September 30, 2023 | |||||||||||||||||||||||||||||||
| Severance and related benefit costs | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Asset write-off and accelerated depreciation | ( | ||||||||||||||||||||||||||||||||||
| Consulting, project implementation and management, and other exit costs | ( | ||||||||||||||||||||||||||||||||||
| Total restructuring activities and related accrual | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Utilized | |||||||||||||||||||||||||||||||||||
| October 1, 2021 | Charge to Income | Cash | Non-Cash | September 30, 2022 | |||||||||||||||||||||||||||||||
| Severance and related benefit costs | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Asset write-off and accelerated depreciation | ( | ||||||||||||||||||||||||||||||||||
| Consulting, project implementation and management, and other exit costs | ( | ||||||||||||||||||||||||||||||||||
| Total restructuring activities and related accrual | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
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Note 5 - Income Taxes
Amounts have been revised to reflect the correction of certain immaterial misstatements.Refer to Note 1 of Notes to Consolidated Financial Statements, for further discussion. The provisions for income taxes from continuing operations consisted of the following:
| Fiscal Year | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Currently payable: | |||||||||||||||||
| United States - Federal | $ | $ | $ | ( | |||||||||||||
| State | ( | ||||||||||||||||
| Foreign | |||||||||||||||||
| Total current | |||||||||||||||||
| Deferred: | |||||||||||||||||
| United States - Federal | ( | ( | |||||||||||||||
| State | ( | ( | |||||||||||||||
| Foreign | ( | ||||||||||||||||
| Total deferred | ( | ( | |||||||||||||||
| Income tax provision | $ | $ | $ | ||||||||||||||
Amounts have been revised to reflect the correction of certain immaterial misstatements. Refer to Note 1 of Notes to Consolidated Financial Statements, for further discussion. The source of pre-tax earnings was:
| Fiscal Year | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| United States | $ | $ | $ | ( | |||||||||||||
| Foreign | |||||||||||||||||
| Pre-tax earnings | $ | $ | $ | ||||||||||||||
Amounts have been revised to reflect the correction of certain immaterial misstatements. Refer to Note 1 of Notes to Consolidated Financial Statements, for further discussion. A reconciliation of income taxes with the amounts computed at the statutory federal income tax rate follows:
| Fiscal Year | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| Computed tax at federal statutory rate | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||
| State income taxes, net of federal tax benefit | |||||||||||||||||||||||||||||||||||
Foreign tax less than the federal rate (1) | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Adjustments to prior years’ tax accruals | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
Other taxes including repatriation of foreign earnings | |||||||||||||||||||||||||||||||||||
| Other, net | |||||||||||||||||||||||||||||||||||
| Uncertain tax positions | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Total | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||
(1) Includes the impact of foreign valuation allowances.
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The deferred tax assets and deferred tax liabilities recorded on the balance sheet were as follows, and include current and noncurrent amounts:
| September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Deferred tax liabilities: | |||||||||||
| Depreciation and property differences | $ | ( | $ | ( | |||||||
| Amortizable assets | ( | ( | |||||||||
| Lease liabilities | ( | ( | |||||||||
| Other tax liabilities | ( | ( | |||||||||
| Gross deferred tax liabilities | ( | ( | |||||||||
| Deferred tax assets: | |||||||||||
| Accrued liabilities | |||||||||||
| Deferred and share-based compensation | |||||||||||
| Tax carryforwards and tax credits | |||||||||||
| Postretirement benefits other than pensions | |||||||||||
| Pension plans | |||||||||||
| Inventory differences | |||||||||||
| Lease right of use assets | |||||||||||
| Deferred revenue | |||||||||||
| Other tax assets | |||||||||||
| Gross deferred tax assets | |||||||||||
| Valuation allowance | ( | ( | |||||||||
| Net deferred tax liabilities | $ | ( | $ | ( | |||||||
There were no material tax loss carryforwards that expired in fiscal 2023. Future expirations of tax loss carryforwards and tax credits, if not utilized, are not expected to be material from 2023 through 2040. The remaining tax loss carryforwards and credits have no expiration. The valuation allowance is primarily attributable to tax loss carryforwards, other carryforwards, and certain deferred tax assets impacted by the deconsolidation of the Company’s Venezuelan subsidiaries.
The Company generally repatriates a portion of current year earnings from select non-US subsidiaries only if the economic cost of the repatriation is not considered material. No provision is made for additional taxes on undistributed earnings of foreign affiliates that are intended and planned to be indefinitely invested in the affiliate. The Company intends to, and has plans to, reinvest these earnings indefinitely in its foreign subsidiaries to, amongst other things, fund local operations, fund pension and other post-retirement obligations, fund capital projects and to support foreign growth initiatives including potential acquisitions. As of September 30, 2023 , approximately $897.0 of foreign subsidiary earnings were considered indefinitely invested in those businesses. If the Company repatriated any of the earnings it could be subject to withholding tax and the impact of foreign currency movements. Accordingly, it is not practical to calculate a specific potential tax exposure. Applicable income and withholding taxes will be provided on these earnings in the periods in which they are no longer considered reinvested.
Amounts have been revised to reflect the correction of certain immaterial misstatements. Refer to Note 1 of Notes to Consolidated Financial Statements, for further discussion. Unrecognized tax benefits activity is summarized below:
| 2023 | 2022 | 2021 | |||||||||||||||
| Unrecognized tax benefits, beginning of year | $ | $ | $ | ||||||||||||||
| Additions based on current year tax positions and acquisitions | |||||||||||||||||
| Settlements with taxing authorities and statute expirations | ( | ( | ( | ||||||||||||||
| Unrecognized tax benefits, end of year | $ | $ | $ | ||||||||||||||
Included in the unrecognized tax benefits noted above was $18.7 of uncertain tax positions that would affect the Company’s effective tax rate, if recognized. The Company does not expect any significant increases or decreases to its unrecognized tax benefits within 12 months of this reporting date. In the Consolidated Balance Sheets, unrecognized tax benefits are classified as Other liabilities (non-current) to the extent that payments are not anticipated within one year.
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The Company classifies accrued interest and penalties related to unrecognized tax benefits in the income tax provision. The accrued interest and penalties are not included in the table above. The Company accrued approximately $4.4 of interest, (net of the deferred tax asset of $0.8 ) at September 30, 2023, and $4.1 of interest, (net of the deferred tax asset of $0.7 ) at September 30, 2022. Interest was computed on the difference between the tax position recognized in accordance with GAAP and the amount previously taken or expected to be taken in the Company’s tax returns.
The Company files income tax returns in the U.S. federal jurisdiction, various cities and states, and more than 30 foreign jurisdictions where the Company has operations. In general, U.S. federal income tax returns for tax years ended September 30, 2020 and after remain subject to examination by the Internal Revenue Service (the “IRS”). With few exceptions, the Company is no longer subject to state and local income tax examinations for years before September 30, 2013. The status of international income tax examinations varies by jurisdiction. At this time, the Company does not anticipate any material adjustments to its financial statements resulting from tax examinations currently in progress.
Note 6 - Earnings per Share
Basic earnings per share is based on the average number of common shares outstanding during the period. Diluted earnings per share is based on the average number of shares used for the basic earnings per share calculation, adjusted for the dilutive effect of share options, RSE, and PRSE awards.
| Fiscal Year | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Basic weighted-average shares outstanding | |||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||
| RSE and PRSE awards | |||||||||||||||||
| Total dilutive securities | |||||||||||||||||
| Diluted weighted-average shares outstanding | |||||||||||||||||
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Note 7 - Goodwill and Intangible Assets
The following table sets forth goodwill by segment:
| Wet Shave | Sun and Skin Care | Feminine Care | Total | ||||||||||||||||||||
| Gross balance at October 1, 2021 | $ | $ | $ | $ | |||||||||||||||||||
| Accumulated goodwill impairment | ( | ( | ( | ||||||||||||||||||||
| Net balance at October 1, 2021 | $ | $ | $ | $ | |||||||||||||||||||
| Changes in the twelve months ended September 30, 2022 | |||||||||||||||||||||||
| Billie acquisition | |||||||||||||||||||||||
| Cumulative translation adjustment | ( | ( | ( | ( | |||||||||||||||||||
| Gross balance at October 1, 2022 | $ | $ | $ | $ | |||||||||||||||||||
| Accumulated goodwill impairment | ( | ( | ( | ||||||||||||||||||||
| Net balance at October 1, 2022 | $ | $ | $ | $ | |||||||||||||||||||
| Changes in the twelve months ended September 30, 2023 | |||||||||||||||||||||||
| Cumulative translation adjustment | $ | ||||||||||||||||||||||
| Gross balance at September 30, 2023 | $ | $ | $ | $ | |||||||||||||||||||
| Accumulated goodwill impairment | ( | ( | ( | ||||||||||||||||||||
| Net balance at September 30, 2023 | $ | $ | $ | $ | |||||||||||||||||||
Total amortizable intangible assets were as follows:
| September 30, 2023 | September 30, 2022 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||
| Indefinite lived | |||||||||||||||||||||||||||||||||||
| Trade names and brands | $ | $ | — | $ | $ | $ | — | $ | |||||||||||||||||||||||||||
| Definite lived | |||||||||||||||||||||||||||||||||||
| Trade names and brands | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Technology and patents | |||||||||||||||||||||||||||||||||||
| Customer related and other | |||||||||||||||||||||||||||||||||||
| Amortizable intangible assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Total intangible assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Amortization expense for intangible assets was $30.8 , $29.4 and $22.0 for fiscal 2023, 2022 and 2021, respectively.
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Estimated amortization expense for amortizable intangible assets is as follows:
| Estimated amortization expense | |||||
| Fiscal 2024 | $ | ||||
| Fiscal 2025 | $ | ||||
| Fiscal 2026 | $ | ||||
| Fiscal 2027 | $ | ||||
| Fiscal 2028 | $ | ||||
| Thereafter | $ | ||||
Goodwill and intangible assets deemed to have an indefinite life are not amortized but are instead reviewed annually in the fourth quarter of each fiscal year for impairment of value or when indicators of a potential impairment are present. The Company continuously monitors changing business conditions, which may indicate that the remaining useful life of goodwill and other intangible assets may warrant revision or carrying amounts may require adjustment.
Indefinite-lived intangible assets
The Company’s annual indefinite-lived intangible assets impairment testing was conducted on July 1, 2023 using the Company’s strategic plan. The Company elected to perform a qualitative test of impairment for all indefinite lived intangible assets with the exception of the Schick, Bulldog and the Carefree, o.b., Stayfree trade names. For the qualitative test of indefinite lived intangible assets, there were no significant events or adverse trends that could negatively impact the fair value of the intangible assets. For the Schick, Bulldog, and the Carefree, o.b., Stayfree trade names, the Company elected to perform a quantitative impairment test in fiscal 2023 using the Company’s strategic plan to calculate a five-year cash flow. The annual impairment assessment of the indefinite-lived intangible assets concluded there was no indication of impairment of the Company’s indefinite-lived intangible assets. The Company performed an assessment in the fourth quarter of fiscal 2023 to determine if any significant events or changes in circumstances had occurred that would be considered a potential triggering event. The Company did not identify a triggering event that would indicate the existence of any impairment of the indefinite-lived intangible assets.
Goodwill
64
Note 8 - Supplemental Balance Sheet Information
Amounts have been revised to reflect the correction of certain immaterial misstatements. Refer to Note 1 of Notes to Consolidated Financial Statements, for further discussion.
| September 30, 2023 | September 30, 2022 | ||||||||||
| Inventories | |||||||||||
| Raw materials and supplies | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished products | |||||||||||
| Total inventories | $ | $ | |||||||||
| Other Current Assets | |||||||||||
| Prepaid expenses | $ | $ | |||||||||
| Value added tax receivables | |||||||||||
| Income taxes receivable | |||||||||||
| Other | |||||||||||
| Total other current assets | $ | $ | |||||||||
| PP&E | |||||||||||
| Land | $ | $ | |||||||||
| Buildings | |||||||||||
| Machinery and equipment | |||||||||||
| Capitalized software costs | |||||||||||
| Construction in progress | |||||||||||
| Total gross property, plant and equipment | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Total PP&E | $ | $ | |||||||||
| Other Current Liabilities | |||||||||||
| Accrued advertising, sales promotion and allowances | $ | $ | |||||||||
| Accrued trade allowances | |||||||||||
| Accrued salaries, vacations and incentive compensation | |||||||||||
| Returns reserve | |||||||||||
| Accrued interest | |||||||||||
| Income taxes payable | |||||||||||
| Other | |||||||||||
| Total other current liabilities | $ | $ | |||||||||
| Other Liabilities | |||||||||||
| Pensions and other retirement benefits | $ | $ | |||||||||
| Other non-current liabilities | |||||||||||
| Total other liabilities | $ | $ | |||||||||
65
Note 9 - Leases
A summary of the Company's lease information is as follows:
| September 30, 2023 | September 30, 2022 | |||||||||||||
| Assets | Classification | |||||||||||||
| Right of use assets | Other assets | $ | $ | |||||||||||
| Liabilities | ||||||||||||||
| Current lease liabilities | Other current liabilities | $ | $ | |||||||||||
| Long-term lease liabilities | Other liabilities | |||||||||||||
| Total lease liabilities | $ | $ | ||||||||||||
| Other information | ||||||||||||||
| Weighted-average remaining lease term (years) | ||||||||||||||
| Weighted-average incremental borrowing rate | % | % | ||||||||||||
Fiscal Year Ended | Fiscal Year Ended September 30, 2022 | Fiscal Year Ended September 30, 2021 | |||||||||||||||
| Statement of Earnings | |||||||||||||||||
Lease cost (1) | $ | $ | $ | ||||||||||||||
| Other information | |||||||||||||||||
| Leased assets obtained in exchange for new lease liabilities | $ | $ | $ | ||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | $ | $ | ||||||||||||||
The Company's future lease payments including reasonably assured renewal options under lease agreements are as follows:
| Operating Leases | |||||
| Fiscal 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 and thereafter | |||||
| Total future minimum lease commitments | |||||
| Less: Imputed Interest | ( | ||||
| Present value of lease liabilities | $ | ||||
66
Note 10 - Accounts Receivable Facility
The Company participates in accounts receivable facility programs both in the United States and Japan. These receivable agreements are between the Company, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as the purchaser (the “Accounts Receivable Facility”) and the subsidiaries of both parties. Transfers under the Accounts Receivable Facility are accounted for as sales of receivables, resulting in the receivables being derecognized 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.
Effective February 7, 2022, the Company increased the maximum receivables sold facility amount under the Sixth Amendment to Master Accounts Receivable Purchase Agreement 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.
On August 5, 2022, the Company entered into the Master Receivable Assignment Agreement (the "Japan Agreement"). The Japan Agreement was between Schick Japan K.K. and Concerto Receivables Corporation (the “Purchaser”), Tokyo Branch, a subsidiary of MUFG Bank, LTD., which allows the Company to assign third party accounts receivable to the Purchaser. The Japan Agreement allows for the sale of up to ¥3,000 (approximately $20.0 using the exchange rate as of September 30, 2023) with limits set between individual customers. The terms of the agreement expire one year after the date of execution and will be renewed annually unless either party notifies of its intent not to renew. The assigned receivables will be discounted using the funding rate from the Tokyo Interbank Market plus 1.1%.
As of September 30, 2023 , the discount rate used to determine the purchase price for the subject receivables is based upon BSBY plus a margin applicable to the specified obligor.
Accounts receivable sold under the Accounts Receivable Facility for the years ended September 30, 2023 and 2022 were $1,162.7 and $1,046.8 , respectively. The trade receivables sold that remained outstanding under the Accounts Receivable Facility as of September 30, 2023 and 2022 were $82.1 and $78.7 , respectively. The net proceeds received were included in Cash provided by operating activities in the Consolidated Statement 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) expense, net in the Consolidated Statements of Earnings and Comprehensive Income. For the year ended September 30, 2023 and 2022, the loss on sale of trade receivables was $6.2 and $2.0 , respectively.
67
Note 11 - Debt
The detail of long-term debt was as follows:
| September 30, 2023 | September 30, 2022 | ||||||||||
Senior notes, fixed interest rate of 5.5%, due 2028 (1) | |||||||||||
Senior notes, fixed interest rate of 4.1%, due 2029 (1) | |||||||||||
Revolving credit facility (2) | |||||||||||
| Total long-term debt, including current maturities | |||||||||||
Less unamortized debt issuance costs and discount (1) | |||||||||||
| Total long-term debt | $ | $ | |||||||||
(1)At September 30, 2023 , the balance for the Senior Notes due 2028 and the Senior Notes due 2029 are reflected net of debt issuance costs of $6.9 and $4.4 , respectively. At September 30, 2022, the balance for the Senior Notes due 2028 and the Senior Notes due 2029 are reflected net of debt issuance costs of $8.3 and $5.3 , respectively.
(2)The U.S. revolving credit facility matures in 2025.
At September 30, 2023 and 2022, the Company also had outstanding short-term notes payable with financial institutions with original maturities of less than 90 days of $19.5 and $19.0 , respectively, with variable weighted-average interest rates of 3.9 % for both periods. These notes were primarily outstanding international borrowings.
Issuance of Senior Notes
On March 8, 2021, the Company entered into a new unsecured indenture agreement for 4.125 % Senior Notes in the amount of $500 due April 1, 2029 (the “2029 Notes”). The Company used the net proceeds from the issuance of the 2029 Notes, together with cash on hand, to satisfy and discharge its obligations outstanding under its 4.70 % Senior Notes in the amount of $500 due 2022 (the “2022 Notes”) and to pay fees associated therewith. The Company incurred $6.5 in bank, legal, and other fees in connection with the issuance of the 2029 Notes, which has been deferred and is being amortized to interest expense over the term of the 2029 Notes. Interest expense on the 2029 Notes is due semiannually on April 1 and October 1.
In connection with the early repayment of the 2022 Notes, the Company recorded expense of $26.1 in fiscal 2021, which is included in Cost of early retirement of long-term debt in the Consolidated Statements of Earnings and Comprehensive Income. This expense included a premium of $25.5 and debt issuance cost write-offs of $0.6 .
Debt Covenants
The U.S. revolving credit facility maturing in 2025 (“Revolving Credit Facility”) governing our outstanding debt at September 30, 2023 contains certain customary representations and warranties, financial covenants, covenants restricting the Company’s ability to take certain actions, affirmative covenants and provisions relating to events of default. Under the terms of the Revolving Credit Facility, the ratio of the Company’s indebtedness to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined in the agreement and detailed below, cannot be greater than 4.0 to 1.0, however, there is an exception for acquisition activity. In addition, under the Revolving Credit Facility, the ratio of the Company’s EBITDA, as defined in the credit agreement, to total interest expense must exceed 3.0 to 1. Under the Revolving Credit Facility, EBITDA is defined as net earnings, as adjusted to add-back interest expense, income taxes, depreciation and amortization, all of which are determined in accordance with GAAP. In addition, the credit agreement allows certain non-cash charges such as stock award amortization and asset write-offs including, but not limited to, impairment and accelerated depreciation, and operating expense reductions or synergies to be “added-back” in determining EBITDA for purposes of the indebtedness ratio. Total debt and interest expense are calculated in accordance with GAAP. If the Company fails to comply with these covenants or with other requirements of the Revolving Credit Facility, the lenders may have the right to accelerate the maturity of the debt. Acceleration under the Revolving Credit Facility would trigger cross-defaults on its other borrowings.
As of September 30, 2023, the Company was in compliance with the provisions and covenants associated with the Revolving Credit Facility.
Debt Maturities
68
Note 12 - Retirement Plans
Pensions and Postretirement 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 below. The plans provide retirement benefits based on years of service and earnings. The Company also sponsors or participates in a number of 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 initiated the wind-up of its Canadian defined benefit pension plan (“Canada Plan”) in June 2021. On September 1, 2021, Edgewell Personal Care Canada ULC (“EPC Canada”) as administrator of the Canada Plan entered into a buy-in annuity purchase agreement (“Buy-in Agreement”) with Brookfield Annuity Company (“Brookfield Annuity”) for certain members of the Canada Plan. On January 25, 2023, the Company received approval by the Financial Services Regulatory Authority of Ontario to wind-up the Canada Plan. Upon regulatory approval of the Canada Plan, EPC Canada proceeded with purchasing annuities for the remaining Canada Plan participants and converting the Buy-in Agreement to a buy-out annuity purchase agreement (“Buy-out Agreement”), which was purchased and funded by the Canada Plan on March 31, 2023. The Company was relieved of its defined benefit pension obligation through its irrevocable commitment under the Buy-out Agreement. As of the settlement date, the Company remeasured its assets and its projected benefit obligation associated with the Canada Plan. Upon settlement, the Company derecognized the assets, projected benefit obligation and losses remaining in accumulated other comprehensive loss (“AOCI”) associated with the Canada Plan, which resulted in a loss on settlement of $7.9 . The loss was recorded in Other expense (income), net in the Consolidated Statements of Earnings and Comprehensive Income for the fiscal year ended September 30, 2023.
The Company funds its pension plans in compliance with the Employee Retirement Income Security Act of 1974 (“ERISA”) or local funding requirements.
The following tables present the benefit obligation, plan assets, and funded status of the plans:
| As of September 30, | |||||||||||||||||||||||
| Pension | Postretirement | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Change in projected benefit obligation | |||||||||||||||||||||||
| Benefit obligation at beginning of year | $ | $ | $ | $ | |||||||||||||||||||
| Service cost | |||||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Actuarial gain | ( | ( | ( | ( | |||||||||||||||||||
| Benefits paid, net | ( | ( | ( | ( | |||||||||||||||||||
| Plan settlements | ( | ( | |||||||||||||||||||||
| Expenses paid | |||||||||||||||||||||||
| Foreign currency exchange rate changes | ( | ( | |||||||||||||||||||||
| Projected benefit obligation at end of year | |||||||||||||||||||||||
| Change in plan assets | |||||||||||||||||||||||
| Estimated fair value of plan assets at beginning of year | |||||||||||||||||||||||
| Actual return on plan assets | ( | ||||||||||||||||||||||
| Company contributions | |||||||||||||||||||||||
| Plan settlements | ( | ( | |||||||||||||||||||||
| Benefits paid | ( | ( | ( | ( | |||||||||||||||||||
| Expenses paid | |||||||||||||||||||||||
| Foreign currency exchange rate changes | ( | ||||||||||||||||||||||
| Divestiture | (0.8) | — | — | — | |||||||||||||||||||
| Estimated fair value of plan assets at end of year | |||||||||||||||||||||||
| Funded status at end of year | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
69
The following table presents the amounts recognized in the Consolidated Balance Sheets and Consolidated Statements of Changes in Shareholders’ Equity:
| As of September 30, | |||||||||||||||||||||||
| Pension | Postretirement | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Amounts recognized in the Consolidated Balance Sheets | |||||||||||||||||||||||
| Noncurrent assets | $ | $ | $ | $ | |||||||||||||||||||
| Current liabilities | ( | ( | ( | ( | |||||||||||||||||||
| Noncurrent liabilities | ( | ( | ( | ( | |||||||||||||||||||
| Net amount recognized | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Amounts recognized in Accumulated other comprehensive loss | |||||||||||||||||||||||
| Net loss (gain) | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Prior service credit | |||||||||||||||||||||||
| Net amount recognized, pre-tax | $ | $ | $ | ( | $ | ( | |||||||||||||||||
Pre-tax changes recognized in Other comprehensive income for fiscal 2023 were as follows:
| Pension | Post- retirement | ||||||||||
| Changes in plan assets and benefit obligations recognized in Other comprehensive income | |||||||||||
| Net (gain) loss arising during the year | $ | ( | $ | ( | |||||||
| Effect of exchange rates | ( | ||||||||||
| Amounts recognized as a component of net periodic benefit cost | |||||||||||
| Amortization or settlement recognition of net (loss) gain | ( | ||||||||||
| Total recognized in Other comprehensive income | $ | ( | $ | ||||||||
Pension contributions required in fiscal 2024 and beyond represent future pension payments to comply with local funding requirements in the U.S. only. The projected contributions for the U.S. pension plans total $7.0 in fiscal 2024, $9.2 in fiscal 2025, $10.4 in fiscal 2026, $10.2 in fiscal 2027, and $10.1 in fiscal 2028. Estimated contributions beyond fiscal 2028 are not determinable. The Company may also elect to make discretionary contributions.
The Company’s expected future benefit payments are as follows:
| Pension | Post- retirement | ||||||||||
Fiscal 2024 | $ | $ | |||||||||
Fiscal 2025 | |||||||||||
Fiscal 2026 | |||||||||||
Fiscal 2027 | |||||||||||
Fiscal 2028 | |||||||||||
| Fiscal 2029 to 2032 | |||||||||||
70
The accumulated benefit obligation for defined benefit pension plans was $398.1 and $433.0 at September 30, 2023 and 2022, respectively. The following table shows pension plans with an accumulated benefit obligation in excess of plan assets:
| As of September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Projected benefit obligation | $ | $ | |||||||||
| Accumulated benefit obligation | |||||||||||
| Estimated fair value of plan assets | |||||||||||
Pension plan assets in the U.S. plan represent approximately 70 % of assets in all of the Company’s defined benefit pension plans. Investment policy for the U.S. plan includes a mandate to diversify assets and invest in a variety of asset classes to achieve that goal. The U.S. plan’s assets are currently invested in several funds representing most standard equity and debt security classes. The broad target allocations are: (a) equities, including U.S. and foreign: approximately 41 % and (b) debt securities, including U.S. bonds: approximately 59 %. Actual allocations at September 30, 2023 approximated these targets. The U.S. plan held no shares of Company common stock at September 30, 2023. Investment objectives are similar for non-U.S. pension arrangements, subject to local regulations.
The following table presents pension and post-retirement expense:
| Fiscal Year | |||||||||||||||||||||||||||||||||||
| Pension | Postretirement | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||||||||||||||
Expected return on plan assets | |||||||||||||||||||||||||||||||||||
Recognized net actuarial loss (gain) | |||||||||||||||||||||||||||||||||||
| Settlement loss recognized | |||||||||||||||||||||||||||||||||||
| Net periodic benefit cost (credit) | ( | ( | ( | ||||||||||||||||||||||||||||||||
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 in the Consolidated Statements of Earnings and Comprehensive Income. The remaining net periodic cost is recorded to Other expense (income), net in the Consolidated Statements of Earnings and Comprehensive Income.
The Company utilized the spot discount rate approach, which applies the specific spot rates along the yield curve used in the determination of the benefit obligations to the relevant cash flows.
The following table presents assumptions, which reflect weighted-averages for the component plans, used in determining the above information:
| Fiscal Year | |||||||||||||||||||||||||||||||||||
| Pension | Postretirement | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Plan obligations: | |||||||||||||||||||||||||||||||||||
| Discount rate | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Compensation increase rate | % | % | % | % | N/A | ||||||||||||||||||||||||||||||
| Net periodic benefit cost: | |||||||||||||||||||||||||||||||||||
| Discount rate | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Expected long-term rate of return on plan assets | % | % | % | N/A | N/A | N/A | |||||||||||||||||||||||||||||
| Compensation increase rate | % | % | % | % | N/A | ||||||||||||||||||||||||||||||
| Cash balance interest credit rate | % | % | % | N/A | N/A | N/A | |||||||||||||||||||||||||||||
71
The expected return on plan assets was determined based on historical and expected future returns of the various asset classes, using the target allocations described above.
The following table sets forth the estimated fair value of the Company’s pension assets segregated by level within the estimated fair value hierarchy. Refer to Note 16 of Notes to Consolidated Financial Statements for further discussion on the estimated fair value hierarchy and estimated fair value principles.
| September 30, 2023 | |||||||||||||||||
| Pension assets at estimated fair value | Level 1 | Level 2 | Total | ||||||||||||||
| Equity | |||||||||||||||||
| U.S. equity | $ | $ | $ | ||||||||||||||
| International equity | |||||||||||||||||
| Debt | |||||||||||||||||
| U.S. government | |||||||||||||||||
| Other government | |||||||||||||||||
| Corporate | |||||||||||||||||
| Cash and cash equivalents | |||||||||||||||||
| Other | |||||||||||||||||
| Total, excluding investments valued at net asset value (“NAV”) | $ | $ | $ | ||||||||||||||
| Investments valued at NAV | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| September 30, 2022 | |||||||||||||||||
| Pension assets at estimated fair value | Level 1 | Level 2 | Total | ||||||||||||||
| Equity | |||||||||||||||||
| U.S. equity | $ | $ | $ | ||||||||||||||
| International equity | |||||||||||||||||
| Debt | |||||||||||||||||
| U.S. government | |||||||||||||||||
| Other government | |||||||||||||||||
| Corporate | |||||||||||||||||
| Cash and cash equivalents | |||||||||||||||||
| Other | |||||||||||||||||
| Total, excluding investments valued at NAV | $ | $ | $ | ||||||||||||||
| Investments valued at NAV | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
The following table sets forth the estimated fair value of the Company’s pension assets valued at NAV:
| As of September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Pension assets valued at NAV estimated at fair value | |||||||||||
| Equity | |||||||||||
| U.S. equity | $ | $ | |||||||||
| International equity | |||||||||||
| Debt | |||||||||||
| U.S. government | $ | — | |||||||||
| Total investments valued at NAV | $ | $ | |||||||||
72
There were no Level 3 pension assets as of September 30, 2023 and 2022.
The Company had no post-retirement plan assets as of September 30, 2023 and 2022.
The Company’s investment objective for defined benefit retirement plan assets is to satisfy its current and future pension benefit obligations. The investment philosophy is to achieve this objective through diversification of the retirement plan assets with the goal of earning a suitable return with an appropriate level of risk while maintaining adequate liquidity to distribute benefit payments. The diversified asset allocation includes equity positions as well as fixed income investments. The increased volatility associated with equities is offset with higher expected returns, while long duration fixed income investments help dampen the volatility of the overall portfolio. Risk exposure is controlled by re-balancing the retirement plan assets back to target allocations, as needed. Investment firms managing retirement plan assets carry out investment policy within their stated guidelines. Investment performance is monitored against benchmark indices, which reflect the policy and target allocation of the retirement plan assets.
Defined Contribution Plan
Note 13 - Share-Based Payments
As of September 30, 2023, the Company had three share-based compensation plans: the Amended and Restated 2018 Stock Incentive Plan (the “2018 Plan”), the Second Amended and Restated 2009 Incentive Stock Plan (the “2009 Plan”) and the 2000 Incentive Stock Plan (the “2000 Plan”). The 2000 Plan was superseded by the 2009 Plan, which was then superseded by the 2018 Stock Incentive Plan. New awards granted after January 2018 are issued under the 2018 Plan. The 2018 Plan provides for the award of performance restricted stock, RSEs, or Share Options to purchase the Company’s common stock to directors, officers and employees of the Company. The maximum number of shares authorized for issuance under the 2018 Plan is 17.9 , of which 4.6 were available for future awards as of September 30, 2023.
Share options are granted at the market price on the grant date and generally vest ratably over three years . These awards typically have a maximum term of ten years . Performance restricted stock and RSEs may also be granted. Option shares and prices, and restricted stock and RSEs, are adjusted in conjunction with stock splits and other recapitalizations, including our 2015 separation from Energizer, so that the holder is in the same economic position before and after these equity transactions.
The Company uses the straight-line method of recognizing compensation cost. Total compensation costs charged against earnings before income taxes for the Company’s share-based compensation arrangements were $27.5 , $23.9 and $27.3 for fiscal 2023, 2022 and 2021, respectively, and were recorded in SG&A. The total income tax benefit recognized for share-based compensation arrangements was $6.6 , $5.7 and $6.6 , for fiscal 2023, 2022 and 2021, respectively. Restricted stock issuance and shares issued for share option exercises under the Company’s share-based compensation programs are generally issued from treasury shares.
73
Share Options
The following table summarizes Share Option activity during fiscal 2023:
| Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | ||||||||||||||||||||
Outstanding as of October 1, 2022 | $ | ||||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
Outstanding as of September 30, 2023 | $ | $ | |||||||||||||||||||||
Vested and unvested expected to vest as of September 30, 2023 | $ | $ | |||||||||||||||||||||
Exercisable as of September 30, 2023 | $ | ||||||||||||||||||||||
An immaterial number of share options were exercised in fiscal 2023 and 2022. No share options were exercised in fiscal 2021.
The Company estimates the grant-date fair value of share option awards using the Black-Scholes option pricing model. The expected volatility is determined based on historical volatility. The Company utilizes the simplified method in estimating the share option life as the Company does not have sufficient historical share option experience to estimate the share option life. During fiscal 2023 and 2022, the Company granted non-qualified share option awards to certain executives and employees of 0.1 and 0.3 , respectively, with a grant-date fair value of $2.2 and $4.6 , respectively. The following table presents the Company’s weighted average fair value per option and the assumptions utilized in the Black-Scholes option pricing model:
2023 | 2022 | ||||||||||
| Weighted-average fair value per share option | $ | $ | |||||||||
| Expected volatility | % | % | |||||||||
| Risk-free interest rate | % | % | |||||||||
| Expected share option life (in years) | |||||||||||
| Dividend yield | % | % | |||||||||
As of September 30, 2023 , there was an estimated $3.2 of total unrecognized compensation costs related to share option awards, which will be recognized over a weighted-average period of approximately 1.5 years.
Restricted Share Equivalents
The following table summarizes RSE award activity during fiscal 2023:
| Shares | Weighted-Average Grant Date Estimated Fair Value | ||||||||||
Non-vested at October 1, 2022 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Canceled | ( | ||||||||||
Non-vested at September 30, 2023 | |||||||||||
The estimated fair value of the award is determined using the closing share price of the Company’s common stock on the date of grant.
As of September 30, 2023, there was an estimated $24.3 of total unrecognized compensation costs related to RSEs, which will be recognized over a weighted-average period of approximately 2.3 years. The weighted-average estimated fair value per RSE granted in fiscal 2023, 2022 and 2021 was $40.17 , $42.49 , and $35.16 , respectively. The estimated fair value of RSEs vested in fiscal 2023, 2022 and 2021 was $20.2 , $15.4 , and $13.2 , respectively.
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Performance Restricted Share Equivalents
The following table summarizes PRSE award activity during fiscal 2023:
| Shares | Weighted-Average Grant Date Estimated Fair Value | ||||||||||
Non-vested at October 1, 2022 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Canceled | ( | ||||||||||
Non-vested at September 30, 2023 | |||||||||||
As of September 30, 2023 , there was an estimated $9.9 of total unrecognized compensation costs related to PRSEs, which will be recognized over a weighted-average period of approximately 1.8 years. The weighted-average estimated fair value per PRSE granted in fiscal 2023, 2022 and 2021 was $58.55 , $56.53 , and $29.25 , respectively. The estimated fair value of PRSEs vested in fiscal 2023 was $62.09 .
For PRSE awards granted during fiscal 2020, the Company records estimated expense for performance-based grants based on target achievement of performance metrics for the three-year period for each respective program, unless evidence exists that achievement above or below target for the applicable performance metric is more likely to occur. The PRSE awards will vest with a value of 0% to 200% of the targeted award value based upon the achievement of performance metrics. The estimated fair value of the award is determined using the closing share price of the Company’s common stock on the date of grant.
For PRSE awards granted during fiscal 2023, 2022 and 2021, awards will vest by comparing the Company’s TSR during a certain three year period to the respective TSRs of companies in a selected performance peer group. Based upon the Company’s ranking in its performance peer group, a recipient of the PRSE award may earn a total award ranging from 0% to 200% of the target award. The fair value of each PRSE was estimated on the grant date using a Monte Carlo simulation. The assumptions for PRSE awards during the years ended September 30, 2023 and 2022 are summarized in the following table.
| 2023 | 2022 | ||||||||||
| Expected term (in years) | |||||||||||
| Expected stock price volatility | % | % | |||||||||
| Risk-free interest rate | % | % | |||||||||
| Fair value (per award granted) | |||||||||||
Note 14 - Shareholders’ Equity
At September 30, 2023, there were 300.0 4.6 shares were reserved for outstanding awards under the 2018, 2009 and 2000 Plans. The Company’s Amended and Restated Articles of Incorporation authorize it to issue up to 10.0 0.01 no
Share Repurchases
During fiscal 2023, the Company repurchased 1.9 shares of common stock under the share repurchase Board authorization from January 2018 for $75.2 and has 4.6 shares of its common stock available for repurchase in the future under the Board’s authorization. Future share repurchases, if any, would be made in the open market, privately negotiated transactions, or otherwise, in such amounts and at such times as we deem appropriate based upon prevailing market conditions, business needs, and other factors. Additionally, 0.2 shares were purchased related to the surrender of shares of common stock to satisfy tax withholding obligations in connection with the vesting of RSEs.
Since September 30, 2023, the Company repurchased 0.1 shares of common stock for $3.5 under the share repurchase Board authorization from January 2018 which allows the repurchase of up to 10.0 shares. There are 4.5 common shares remaining available to be purchased.
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Dividends
The following is a summary of cash dividends paid and declared per share on the Company’s Common Stock during the year ended September 30, 2023
| Date Declared | Record Date | Payable Date | Amount Per Share | |||||||||||||||||
| July 29, 2022 | September 2, 2022 | October 5, 2022 | $ | |||||||||||||||||
| November 3, 2022 | November 29, 2022 | January 4, 2023 | $ | |||||||||||||||||
| February 3, 2023 | March 8, 2023 | April 5, 2023 | $ | |||||||||||||||||
| May 8, 2023 | June 7, 2023 | July 6, 2023 | $ | |||||||||||||||||
| August 1, 2023 | September 7, 2023 | October 4, 2023 | $ | |||||||||||||||||
On November 2, 2023, the Board declared a quarterly cash dividend of $0.15 per common share for the third fiscal quarter of 2023. The dividend will be paid on January 4, 2024 to shareholders of record as the close of business on December 6, 2023.
Dividends declared during fiscal 2023 totaled $31.7 . Payments made for dividends during fiscal 2023 totaled $31.5 .
Note 15 - 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 | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
OCI before reclassifications (1) | ( | ( | ( | ||||||||||||||||||||
| Reclassifications to earnings | ( | ( | |||||||||||||||||||||
Balance at September 30, 2022 | ( | ( | ( | ||||||||||||||||||||
OCI before reclassifications (1) | ( | ||||||||||||||||||||||
| Reclassifications to earnings | ( | ||||||||||||||||||||||
Balance at September 30, 2023 | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
(1)OCI is defined as other comprehensive income.
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The following table presents the reclassifications out of AOCI:
| Fiscal Year | ||||||||||||||||||||
| Details of AOCI Components | 2023 | 2022 | Affected Line Item in the Consolidated Statement of Earnings | |||||||||||||||||
| Gain on cash flow hedges | ||||||||||||||||||||
| Foreign exchange contracts | $ | $ | Other expense (income), net | |||||||||||||||||
| Income tax expense | Income tax provision | |||||||||||||||||||
| $ | $ | |||||||||||||||||||
| Amortization of defined benefit pension and postretirement items | ||||||||||||||||||||
| Actuarial losses (1) | ( | ( | Other expense (income), net | |||||||||||||||||
| Defined benefit settlement loss (1) | ( | ( | Other expense (income), net | |||||||||||||||||
| Income tax benefit | ( | ( | Income tax provision | |||||||||||||||||
| $ | ( | $ | ( | |||||||||||||||||
| Total reclassifications for the period | $ | ( | $ | |||||||||||||||||
(1)These AOCI components are included in the computation of net periodic benefit cost. See Note 12 of Notes to Consolidated Financial Statements.
Note 16 - 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 September 30, 2023 and 2022, respectively, 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 to 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 period. Changes in the value of the non-functional currency balance sheet positions in relation to the foreign subsidiary’s local currency results in an exchange gain or loss recorded in Other expense (income), net in the Consolidated Statements of Earnings and Comprehensive Income. The primary currency to which the Company’s foreign subsidiaries are exposed is the U.S. dollar.
Interest Rate Risk
The Company has interest rate risk with respect to interest expense on variable rate debt. At September 30, 2023, the Company had $122.0 of variable rate debt outstanding, which consisted primarily of outstanding borrowings under the Revolving Credit Facility in the U.S.
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Other Risks
Customer Concentration. Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of accounts receivable. The Company generally does not require collateral from customers. The Company’s largest customer, Walmart Inc. and its affiliates (collectively, “Walmart”), accounted for approximately 19 % of consolidated net sales in fiscal 2023. No other customer accounted for more than 10% of the Company’s consolidated net sales. Purchases by Walmart included products from all of the Company’s segments. Additionally, in fiscal 2023, Target Corporation represented approximately 9 % of consolidated net sales for the Sun and Skin Care segment and 10 % of consolidated net sales for the Feminine Care segment, respectively.
Product Concentration. Within the Wet Shave segment, the Company’s razor and blades represented 49 %, 51 % and 52 % of consolidated net sales during fiscal 2023, 2022 and 2021, respectively, and within the Sun and Skin Care segment, sun care products represented 20 %,19 %, and 16 % of consolidated net sales during each of fiscal 2023, 2022 and 2021.
Cash Flow Hedges
At September 30, 2023, 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 unrealized pre-tax gains of $4.4 and $11.3 at September 30, 2023 and 2022, respectively, on these forward currency contracts, which are accounted for as cash flow hedges included in AOCI. Assuming foreign exchange rates versus the U.S. dollar remain at September 30, 2023 levels over the next 12 months, the majority of the pre-tax gain included in AOCI at September 30, 2023 is expected to be included in Other expense (income), net in the Consolidated Statements of Earnings and Comprehensive Income. Contract maturities for these hedges extend into fiscal year 2025. At September 30, 2023, there were 64 open foreign currency contracts with a total notional value of $105.4 .
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 and, thus, are not subject to significant market risk. The change in estimated fair value of the foreign currency contracts resulted in gains of $, $, and $ for fiscal 2023, 2022, and 2021, respectively, which were recorded in Other expense (income), net in the Consolidated Statements of Earnings and Comprehensive Income. At September 30, 2023, there were five open foreign currency derivative contracts which were not designated as cash flow hedges with a total notional value of $34.5 .
The following table provides estimated fair values of derivative instruments:
Fair Value of (Liability) Asset (1) | |||||||||||
September 30, 2023 | September 30, 2022 | ||||||||||
| Derivatives designated as cash flow hedging relationships: | |||||||||||
| Foreign currency contracts | $ | $ | |||||||||
| Derivatives not designated as cash flow hedging relationships: | |||||||||||
| Foreign currency contracts | $ | $ | |||||||||
(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.
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The following table provides the amounts of gains and losses on derivative instruments:
| Fiscal Year | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Derivatives designated as cash flow hedging relationships: | |||||||||||||||||
| Foreign currency contracts | |||||||||||||||||
Gain recognized in OCI (1) | $ | $ | $ | ||||||||||||||
Gain (loss) reclassified from AOCI into income (effective portion) (1) (2) | |||||||||||||||||
| Derivatives not designated as cash flow hedging relationships: | |||||||||||||||||
| Foreign currency contracts | |||||||||||||||||
Gain recognized in income (2) | $ | $ | $ | ||||||||||||||
(1)Each of these derivative instruments had a high correlation to the underlying exposure being hedged for the periods indicated and had been deemed highly effective in offsetting associated risk.
The following table provides financial assets and liabilities for balance sheet offsetting:
As of | As of September 30, 2022 | ||||||||||||||||||||||
Assets (1) | Liabilities (2) | Assets (1) | Liabilities (2) | ||||||||||||||||||||
| Foreign currency contracts | |||||||||||||||||||||||
| Gross amounts of recognized assets (liabilities) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Gross amounts offset in the balance sheet | ( | ||||||||||||||||||||||
| Net amounts of assets (liabilities) presented in the balance sheet | $ | $ | ( | $ | $ | ( | |||||||||||||||||
(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.
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, that are measured on a recurring basis during the period, all of which are classified as Level 2 within the fair value hierarchy:
| As of September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (Liabilities) Assets at estimated fair value: | |||||||||||
| Deferred compensation | $ | ( | $ | ( | |||||||
| Derivatives - foreign currency contracts | |||||||||||
| Net liabilities at estimated fair value | $ | ( | $ | ( | |||||||
At September 30, 2023 and 2022, the Company had no Level 1 or Level 3 financial assets or liabilities, other than pension plan assets which contained certain assets classified as Level 1. Refer to Note 12 of Notes to Consolidated Financial Statements for the fair value hierarchy of the pension plan assets.
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At September 30, 2023 and 2022, the fair market value of fixed rate long-term debt was $1,028.6 and $945.9 , respectively, compared to its carrying value of $1,250.0 in each period. The estimated fair value of the fixed-rate long-term debt is estimated using yields obtained from independent pricing sources for similar types of borrowing arrangements. There was no variable rate debt excluding revolving credit facilities as of September 30, 2023. The estimated fair values of long-term debt, excluding the Revolving Credit Facility has 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 amount of the 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 17 - Commitments and Contingencies
Legal Proceedings
During the year ended September 30, 2023, the Company settled a legal matter which resulted in a gain of $4.9 related to an intellectual property claim against a third party. This was included in SG&A in the Consolidated Statements of Earnings and Comprehensive Income. The Company received payment for the intellectual property claim settlement in fiscal 2023.
Additionally, during the year ended September 30, 2023, the Company received a favorable court ruling regarding an international VAT matter, which the plaintiff has no ability to appeal. As the Company had previously recorded an accrual for this matter, based on its best estimate of the facts and circumstances at that time, the result of the favorable court ruling was a release of the reserve established which resulted in a gain of $2.2 . This was included in SG&A in the Consolidated Statements of Earnings and Comprehensive Income.
During the year ended September 30, 2022, the Company settled certain legal matters which resulted in a gain of $7.5 related to intellectual property claims against a third party. This was included in SG&A in the Consolidated Statements of Earnings and Comprehensive Income. The Company received payment for the settlement in fiscal 2022.
The Company and its subsidiaries are subject to a number of legal proceedings in various jurisdictions arising out of its operations during the ordinary course of business. Many of these legal matters are in preliminary stages and involve complex issues of law and fact and may proceed for protracted periods of time. The amount of liability, if any, from these proceedings cannot be determined with certainty. The Company reviews its legal proceedings and claims, regulatory reviews and inspections and other legal proceedings on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. The Company establishes accruals for those contingencies when the incurrence of a loss is probable and can be reasonably estimated and discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued if such disclosure is necessary for its financial statements to not be misleading. The Company does not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated. Based upon present information, the Company believes that its liability, if any, arising from such pending legal proceedings, asserted legal claims, and known potential legal claims which are likely to be asserted, is not reasonably likely to be material to its financial position, results of operations or cash flows, when taking into account established accruals for estimated liabilities.
Government Regulation and Environmental Matters
The operations of the Company are subject to various federal, state, local, and foreign laws and regulations intended to protect the public health and environment.
Contamination has been identified at certain of the Company’s current and former facilities, as well as third-party waste disposal sites, and the Company is conducting investigation and remediation activities in relation to such properties. In connection with certain sites, the Company has received notices from the U.S. Environmental Protection Agency, state agencies and private parties, that it has been identified as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), and may be required to share in the cost of cleanup with respect to a number of federal “Superfund” sites. The Company may also be required to share in the cost of cleanup with respect to state-designated sites, and certain international locations, as well as any of its own properties.
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Accrued environmental costs at September 30, 2023 were $9.3 and were recorded in Other Current Liabilities and Other Liabilities within the Consolidated Balance Sheets.The amount of the Company’s ultimate liability in connection with those sites may depend on many factors, including the volume and toxicity of material contributed to the site, the number of other PRPs and their financial viability, and the remediation methods and technology to be used. Total environmental capital expenditures and operating expenses are not expected to have a material effect on the Company’s total capital and operating expenditures, cash flows, earnings or competitive position. Current environmental spending estimates may be modified as a result of changes in the Company’s plans or its understanding of the underlying facts, changes in legal requirements, including any requirements related to global climate change, or other factors.
Many European countries, as well as the European Union, have been very active in adopting and enforcing environmental regulations. As such, it is possible that new regulations may increase the risk and expense of doing business in such countries.
Note 18 - Segment and Geographical Data
Segment performance is evaluated based on segment profit, exclusive of general corporate expenses, share-based compensation costs, and certain costs deemed non-recurring in nature, including restructuring and related costs, acquisition and integration costs, stock keeping unit (“SKU”) rationalization, Sun Care reformulation, income from resolution of legal matters and other costs or income, pension settlement expense, value-added tax (“VAT”) settlements, cost of early debt retirement, other costs or income, the amortization of intangible assets, and the related tax effects of these items. 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. Amounts have been revised to reflect the correction of certain immaterial misstatements. Refer to Note 1 of Notes to Consolidated Financial Statements, for further discussion.
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, a combined sales force and management teams. The Company applies a fully allocated cost basis, in which shared business functions are allocated among the segments. Such allocations are estimates and do not represent the costs of such services if performed on a stand-alone basis.
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Segment net sales and profitability are presented below:
| Fiscal Year | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net Sales | |||||||||||||||||
| Wet Shave | $ | $ | $ | ||||||||||||||
| Sun and Skin Care | |||||||||||||||||
| Feminine Care | |||||||||||||||||
| Total net sales | $ | $ | $ | ||||||||||||||
| Segment Profit | |||||||||||||||||
| Wet Shave | $ | $ | $ | ||||||||||||||
| Sun and Skin Care | |||||||||||||||||
| Feminine Care | |||||||||||||||||
| Total segment profit | |||||||||||||||||
| General corporate and other expenses | ( | ( | ( | ||||||||||||||
Restructuring and related costs (1) | ( | ( | ( | ||||||||||||||
Acquisition and integration costs (2) | ( | ( | ( | ||||||||||||||
SKU rationalization (3) | ( | ||||||||||||||||
Sun Care reformulation (4) | ( | ( | ( | ||||||||||||||
Legal matters, net income (5) | |||||||||||||||||
VAT settlement costs (6) | ( | ||||||||||||||||
Pension settlement expense (7) | ( | ( | |||||||||||||||
| Cost of early retirement of long-term debt | ( | ||||||||||||||||
Other (8) | ( | — | — | ||||||||||||||
| Amortization of intangibles | ( | ( | ( | ||||||||||||||
| Interest and other expense, net | ( | ( | ( | ||||||||||||||
| Total earnings before income taxes | $ | $ | $ | ||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Wet Shave | $ | $ | $ | ||||||||||||||
| Sun and Skin Care | |||||||||||||||||
| Feminine Care | |||||||||||||||||
| Total segment depreciation and amortization | |||||||||||||||||
| Corporate | |||||||||||||||||
| Total depreciation and amortization | $ | $ | $ | ||||||||||||||
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| Fiscal Year | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Total Assets | |||||||||||||||||
| Wet Shave | $ | $ | |||||||||||||||
| Sun and Skin Care | |||||||||||||||||
| Feminine Care | |||||||||||||||||
| Total segment assets | |||||||||||||||||
Corporate (9) | |||||||||||||||||
| Goodwill and other intangible assets, net | |||||||||||||||||
| Total assets | $ | $ | |||||||||||||||
| Capital Expenditures | |||||||||||||||||
| Wet Shave | $ | $ | $ | ||||||||||||||
| Sun and Skin Care | |||||||||||||||||
| Feminine Care | |||||||||||||||||
| Total capital expenditures | |||||||||||||||||
(1)Includes Restructuring and related costs of $0.2, $0.1 and $0.6 included within COGS and $0.3, $0.8 and $8.7 within SG&A for fiscal 2023, 2022 and 2021, respectively, related to actions to strengthen our operating model.
(2)Includes SG&A of $7.5, $9.1, and $7.1 for fiscal 2023, 2022, and 2021, respectively, related to integration expenses associated with acquisitions and Cost of products sold of nil , $0.8, and $1.3 related to the valuation of acquired inventory for fiscal 2023, 2022, and 2021, respectively.
(3)In fiscal 2022, we recorded a charge of $22.5 in COGS for the write-off of certain Wet Ones SKUs and related contract termination charges. In fiscal 2023, we released a reserve of $1.7 related to certain accrued expenses associated with the write-off of inventory related to these SKUs. Wet Ones products are included within the Sun and Skin Care segment.
(4)Includes pre-tax research and development (“R&D”) costs of $3.3 for fiscal 2023. In fiscal 2023, we released a reserve of $1.4 related to certain accrued expenses associated with the recall and destruction of certain Sun Care products, within COGS. In fiscal 2022 and 2021 we recorded costs of $3.5 and $1.1 respectively, related to the reformulation, recall, and destruction of certain Sun Care products within COGS.
(5)Includes pre-tax SG&A of $6.3 and $7.5 for fiscal 2023 and 2022, respectively, related to the resolution of legal matters. See Note 17 of the Notes to Consolidated Financial Statements.
(7)Includes pre-tax Other expense (income), net of $7.9 and $1.8 for fiscal 2023 and 2022, respectively, related to pension settlement expenses.
(9)Corporate assets include all cash and cash equivalents, financial instruments and deferred tax assets that are managed outside of operating segments.
The following table presents the Company’s net sales and long-lived assets by geographic area:
| Fiscal Year | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net Sales to Customers | |||||||||||||||||
| United States | $ | $ | $ | ||||||||||||||
| International | |||||||||||||||||
| Total net sales | $ | $ | $ | ||||||||||||||
| Long-lived Assets | |||||||||||||||||
| United States | $ | $ | |||||||||||||||
| Germany | |||||||||||||||||
| Other International | |||||||||||||||||
| Total long-lived assets excluding goodwill and other intangibles, net, and other assets | $ | $ | |||||||||||||||
The Company’s international net sales are derived from customers in numerous countries, with no sales to any individual foreign country exceeding 10% of the Company’s total Net sales. For information on customer concentration and product concentration risk, see Note 16 of Notes to Consolidated Financial Statements.
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Supplemental product information is presented below for net sales:
| Fiscal Year | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Razors and blades | $ | $ | $ | ||||||||||||||
| Sun care products | |||||||||||||||||
| Tampons, pads and liners | |||||||||||||||||
| Shaving gels and creams | |||||||||||||||||
| Grooming products | |||||||||||||||||
| Wipes and other skin care | |||||||||||||||||
| Total net sales | $ | $ | $ | ||||||||||||||
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Note 19 - Quarterly Financial Information (Unaudited)
The following tables present selected unaudited financial data for each of the eight quarters in the two-year period ended September 30, 2023, which have been updated to reflect the revisions discussed in Note 1 of Notes to Consolidated Financial Statements.
| Fiscal 2023 | Q1 | Q2 | Q3 | Q4 | |||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Net earnings | |||||||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
Basic earnings per share (1) | |||||||||||||||||||||||
Diluted earnings per share (1) | |||||||||||||||||||||||
(1) Quarterly and annual computations are prepared independently. Therefore, the sum of each quarter may not necessarily total the fiscal period amounts noted elsewhere within this Annual Report on Form 10-K.
| Fiscal 2022 | Q1 | Q2 | Q3 | Q4 | |||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Net earnings | |||||||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
Basic earnings per share (1) | |||||||||||||||||||||||
Diluted earnings per share (1) | |||||||||||||||||||||||
(1) Quarterly and annual computations are prepared independently. Therefore, the sum of each quarter may not necessarily total the fiscal period amounts noted elsewhere within this Annual Report on Form 10-K.
The impact of the revision on the previously reported unaudited quarterly financial data is as follows:
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||
| As Previously Reported | Adjustment | As Revised | |||||||||||||||||||||||||||||||||
| Net sales | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||||||||||||||
| Net earnings | |||||||||||||||||||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||||||||||||||
| Basic net earnings per share | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Dilutive net earnings per share | |||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||||||||||
| As Previously Reported | Adjustment | As Revised | ||||||||||||||||||||||||||||||||||||
| Net sales | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||||||||||||||||
| Earnings per share: | ||||||||||||||||||||||||||||||||||||||
| Basic net earnings per share | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Dilutive net earnings per share | ||||||||||||||||||||||||||||||||||||||
85
| Three Months Ended December 31, 2022 | ||||||||||||||||||||
| As Previously Reported | Adjustment | As Revised | ||||||||||||||||||
| Net sales | $ | $ | $ | |||||||||||||||||
| Gross profit | ||||||||||||||||||||
| Net earnings | $ | |||||||||||||||||||
| Earnings per share: | ||||||||||||||||||||
| Basic net earnings per share | $ | $ | $ | |||||||||||||||||
| Dilutive net earnings per share | ||||||||||||||||||||
| Three Months Ended September 30, 2022 | |||||||||||||||||
| As Previously Reported | Adjustment | As Revised | |||||||||||||||
| Net sales | $ | $ | $ | ||||||||||||||
| Gross profit | |||||||||||||||||
| Net earnings | |||||||||||||||||
| Earnings per share: | |||||||||||||||||
| Basic net earnings per share | $ | $ | $ | ||||||||||||||
| Dilutive net earnings per share | |||||||||||||||||
| Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||
| As Previously Reported | Adjustment | As Revised | ||||||||||||||||||||||||||||||||||||
| Net sales | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||||||||||||||||
| Earnings per share: | ||||||||||||||||||||||||||||||||||||||
| Basic net earnings per share | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Dilutive net earnings per share | ||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||
| As Previously Reported | Adjustment | As Revised | ||||||||||||||||||||||||||||||||||||
| Net sales | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||||||||||||||||
| Earnings per share: | ||||||||||||||||||||||||||||||||||||||
| Basic net earnings per share | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Dilutive net earnings per share | ||||||||||||||||||||||||||||||||||||||
| Three Months Ended December 31, 2021 | ||||||||||||||||||||
| As Previously Reported | Adjustment | As Revised | ||||||||||||||||||
| Net sales | $ | $ | $ | |||||||||||||||||
| Gross profit | ||||||||||||||||||||
| Net earnings | ||||||||||||||||||||
| Earnings per share: | ||||||||||||||||||||
| Basic net earnings per share | $ | $ | $ | |||||||||||||||||
| Dilutive net earnings per share | ||||||||||||||||||||
86
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2023. Based on that evaluation, our CEO and CFO concluded that, as of that date, our disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles (“GAAP”) for external purposes. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Internal control over financial reporting, because of its inherent limitations, may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework set forth in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the Company’s assessment, management has concluded that internal control over financial reporting as of September 30, 2023 was effective.
The Company’s internal control over financial reporting as of September 30, 2023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report that appears herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
87
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information regarding our directors will be included in our definitive proxy statement for our annual meeting of shareholders, which will be filed with the United States Securities and Exchange Commission (“SEC”) within 120 days after September 30, 2023.
Information regarding our executive officers is included in Item 1. Business of this Annual Report on Form 10-K.
We have adopted business practices and standards of conduct that are applicable to all employees, including our CEO and CFO. We have also adopted a code of business conduct applicable to our Board of Directors. The codes have been posted on the Investor section of our website at www.edgewell.com. In the event that an amendment to, or a waiver from, a provision of one of the codes of ethics occurs and it is determined that such amendment or waiver is subject to the disclosure provisions of Item 5.05 of Current Report on Form 8-K, we intend to satisfy such disclosure by posting such information on our website for at least a 12-month period.
Item 11. Executive Compensation.
Information regarding the compensation of our named executive officers and directors will be included in our definitive proxy statement for our annual meeting of shareholders, which will be filed with the SEC within 120 days after September 30, 2023.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information regarding individuals or groups that own more than five percent of our common shares, as well as information regarding the security ownership of our executive officers and directors, information relating to securities authorized for issuance under equity compensation plans and other shareholder matters will be included in our definitive proxy statement for our annual meeting of shareholders, which will be filed with the SEC within 120 days after September 30, 2023.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information regarding transactions with related parties and director independence will be included in our definitive proxy statement for our annual meeting of shareholders, which will be filed with the SEC within 120 days after September 30, 2023.
Item 14. Principal Accounting Fees and Services.
Information regarding the services provided by and fees paid to PricewaterhouseCoopers LLP (PCAOB ID 238 ), our independent auditors, will be included in our definitive proxy statement for our annual meeting of shareholders, which will be filed with the SEC within 120 days after September 30, 2023 .
88
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Documents filed as part of this report:
1)Financial Statements. The following are included within Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
◦Report of Independent Registered Public Accounting Firm.
◦Consolidated Statements of Earnings and Comprehensive Income for the fiscal years ended September 30, 2023, 2022 and 2021.
◦Consolidated Balance Sheets as of September 30, 2023 and 2022.
◦Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2023, 2022 and 2021.
◦Consolidated Statements of Changes in Shareholders’ Equity for the period from October 1, 2020 to September 30, 2023.
◦Notes to Consolidated Financial Statements.
2)Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts
| Fiscal Year | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Allowance for Doubtful Accounts | ||||||||||||||||||||
| Balance at beginning of year | ||||||||||||||||||||
| Provision charged to expense, net of reversals | ( | ( | ||||||||||||||||||
| Write-offs, less recoveries, translation, other | ( | ( | ||||||||||||||||||
| Allowance for acquired receivables | ||||||||||||||||||||
| Balance at end of year | $ | $ | $ | |||||||||||||||||
| Income Tax Valuation Allowance | ||||||||||||||||||||
| Balance at beginning of year | ||||||||||||||||||||
| Provision charged to expense | ||||||||||||||||||||
| Write-offs, less recoveries, translation, other | ( | |||||||||||||||||||
| Balance at end of year | $ | $ | $ | |||||||||||||||||
3)Exhibits. The exhibits are included in the Exhibit Index that appears at the end of this Annual Report on Form 10-K.
Item 16. Form 10-K Summary.
None.
89
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| EDGEWELL PERSONAL CARE COMPANY | |||||||||||
| By: | /s/ Rod R. Little | ||||||||||
| Rod R. Little | |||||||||||
| President and Chief Executive Officer | |||||||||||
Date: November 28, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and as of the date indicated.
| Signature | Title | ||||
| /s/ Rod R. Little | |||||
Rod R. Little (principal executive officer) | President and Chief Executive Officer | ||||
| /s/ Daniel J. Sullivan | |||||
Daniel J. Sullivan (principal financial officer) | Chief Financial Officer | ||||
| /s/ Robert A. Schmidt | |||||
Robert A. Schmidt (principal accounting officer) | Chief Accounting Officer | ||||
| /s/ Robert Black | |||||
| Robert Black | Director | ||||
| /s/ George Corbin | |||||
| George Corbin | Director | ||||
| /s/ Carla C. Hendra | |||||
| Carla C. Hendra | Director | ||||
| /s/ John C. Hunter | |||||
| John C. Hunter | Director | ||||
| /s/ James C. Johnson | |||||
| James C. Johnson | Director | ||||
| /s/ Joseph D. O’Leary | |||||
| Joseph D. O’Leary | Director | ||||
| /s/ Rakesh Sachdev | |||||
| Rakesh Sachdev | Director | ||||
| /s/ Swan Sit | |||||
| Swan Sit | Director | ||||
| /s/ Gary Waring | |||||
| Gary Waring | Director | ||||
| November 28, 2023 | |||||
90
EXHIBIT INDEX
| Exhibit Number | Exhibit | ||||
| 2.1**** | |||||
| 2.2**** | |||||
| 2.3**** | |||||
| 2.4**** | |||||
| 2.5**** | |||||
| 2.6 | |||||
| 2.7 | |||||
| 3.1 | |||||
| 3.2 | |||||
| 3.3 | |||||
| 4.1 | |||||
| 4.2 | |||||
| 4.3 | |||||
| 10.1 | |||||
| 10.2 | |||||
| 10.3 | |||||
| 10.4 | |||||
| 10.5 | |||||
91
| 10.6 | |||||
| 10.7 | |||||
| 10.8 | |||||
| 10.9 | |||||
| 10.10 | |||||
| 10.11 | |||||
| 10.12 | |||||
| 10.13 | |||||
| 10.14 | |||||
| 10.15 | |||||
| 10.16*** | |||||
| 10.17*** | |||||
| 10.18*** | |||||
| 10.19*** | |||||
| 10.20*** | |||||
| 10.21*** | |||||
| 10.22*** | |||||
| 10.23*** | |||||
| 10.24*** | |||||
| 10.25*** | |||||
| 10.26*** | |||||
92
| 10.27*** | |||||
| 10.28*** | |||||
| 10.29*** | |||||
| 10.30*** | |||||
| 10.31*** | |||||
| 10.32*** | |||||
| 10.33*** | |||||
| 10.34*** | |||||
| 10.35*** | |||||
| 10.36*** | |||||
| 10.37*** | |||||
| 10.38*** | |||||
| 21.1* | |||||
| 23.1* | |||||
| 31.1* | |||||
| 31.2* | |||||
| 32.1** | |||||
| 32.2** | |||||
| 101* | The following materials from the Edgewell Personal Care Company Annual Report on Form 10-K formatted in inline eXtensible Business Reporting Language (iXBRL): (i) the Consolidated Statements of Earnings and Comprehensive Income for the years ended September 30, 2021, 2022 and 2023, (ii) the Consolidated Balance Sheets at September 30, 2022 and 2023, (iii) the Consolidated Statements of Cash Flows for the years ended September 30, 2021, 2022 and 2023, (iv) Consolidated Statements of Changes in Shareholders’ Equity for the period from October 1, 2020 to September 30, 2023, and (v) Notes to Consolidated Financial Statements for the year ended September 30, 2023. | ||||
*Filed herewith.
**Furnished herewith.
***Denotes a management contract or compensatory plan or arrangement.
****The Company hereby undertakes to furnish supplementally a copy of any omitted schedule or exhibit to such agreement to the Securities and Exchange Commission upon request.
93
Exhibit 21.1
EDGEWELL PERSONAL CARE COMPANY
List of Subsidiaries
| Subsidiary Name | Jurisdiction of Incorporation | Percentage of Control | ||||||||||||
| American Safety Razor Australia Pty. Limited | Australia | 100% | ||||||||||||
| Edgewell Personal Care Australia Pty. Ltd. | Australia | 100% | ||||||||||||
| Edgewell Personal Care Austria GmbH | Austria | 100% | ||||||||||||
| Edgewell Personal Care Canada ULC | British Columbia (Canada) | 100% | ||||||||||||
| Cremo Holding Company, LLC | California | 100% | ||||||||||||
| Cremo Company, LLC | California | 100% | ||||||||||||
| Schick Cayman Islands Ltd. | Cayman Islands | 100% | ||||||||||||
| Edgewell Cayman Islands Ltd. | Cayman Islands | 100% | ||||||||||||
| Edgewell Personal Care Chile SpA | Chile | 100% | ||||||||||||
| Edgewell Personal Care Netherlands B.V., Agencia en Chile | Chile | 100% | ||||||||||||
| Schick (Guangzhou) Company Limited | China | 100% | ||||||||||||
| Edgewell Personal Care Colombia S.A.S. | Colombia | 100% | ||||||||||||
| Personna International CZ s.r.o. | Czech Republic | 100% | ||||||||||||
| Billie, Inc. | Delaware | 100% | ||||||||||||
| Callahan Corp. | Delaware | 100% | ||||||||||||
| Edgewell Personal Care Brands, LLC | Delaware | 100% | ||||||||||||
| Edgewell Personal Care, LLC | Delaware | 100% | ||||||||||||
| Edgewell Personal Care Middle East, Inc. | Delaware | 100% | ||||||||||||
| Edgewell Personal Care Taiwan Ltd. | Delaware | 100% | ||||||||||||
| Jack Black, L.L.C. | Delaware | 100% | ||||||||||||
| Playtex Manufacturing, Inc. | Delaware | 100% | ||||||||||||
| Playtex Marketing Corporation | Delaware | 50% | ||||||||||||
| Playtex Products, LLC | Delaware | 100% | ||||||||||||
| Schick Manufacturing, Inc. | Delaware | 100% | ||||||||||||
| Sun Pharmaceuticals, LLC | Delaware | 100% | ||||||||||||
| Tanning Research Laboratories, LLC | Delaware | 100% | ||||||||||||
| Edgewell Personal Care Middle East, Inc. DMCC Branch | Dubai | 100% | ||||||||||||
| Hawaiian Tropic Europe, Inc. | Florida | 100% | ||||||||||||
| Edgewell Personal Care France SAS | France | 100% | ||||||||||||
| Edgewell Personal Care Holding GmbH | Germany | 100% | ||||||||||||
| Wilkinson Sword GmbH | Germany | 100% | ||||||||||||
| Edgewell Personal Care Hong Kong Limited | Hong Kong | 100% | ||||||||||||
| Schick Asia Limited | Hong Kong | 100% | ||||||||||||
| Wisely Co., Ltd. | Hong Kong | 13% | ||||||||||||
| Hawaiian Tropic Europe, LLC, Ireland Branch | Ireland | 100% | ||||||||||||
| Edgewell Personal Care Italy S.r.L. | Italy | 100% | ||||||||||||
| Schick Japan Kabushiki Kaisha | Japan | 100% | ||||||||||||
| Centro de Manufactura Edgewell Obregon, S. de R.L. de C.V. | Mexico | 100% (Partnership) | ||||||||||||
| Edgewell Personal Care Mexico S.A. de C.V. | Mexico | 100% | ||||||||||||
| Personna International de Mexico, S.A. de C.V. | Mexico | 100% | ||||||||||||
| Edgewell Personal Care Netherlands B.V. | Netherlands | 100% | ||||||||||||
| Edgewell Personal Care New Zealand ULC | New Zealand | 100% | ||||||||||||
| Carewell Industries, Inc. | New York | 100% | ||||||||||||
| Edgewell Personal Care Peru S.A. | Peru | 100% | ||||||||||||
| Edgewell Personal Care Poland sp.zo.o. | Poland | 100% | ||||||||||||
| Edgewell Personal Care Puerto Rico, Inc. | Puerto Rico | 100% | ||||||||||||
| Schick (Guangzhou) Company Limited, Shanghai Branch | Shanghai | 100% | ||||||||||||
| Edgewell Personal Care Spain, S.L. | Spain | 100% | ||||||||||||
| Edgewell Personal Care Taiwan Ltd., Taiwan Branch | Taiwan | 100% | ||||||||||||
| Bulldog Skincare Holdings Limited | United Kingdom | 100% | ||||||||||||
| Bulldog Skincare Limited | United Kingdom | 100% | ||||||||||||
| Edgewell Personal Care UK Limited | United Kingdom | 100% | ||||||||||||
| Edgewell Personal Care Holdings UK Ltd. | United Kingdom | 100% | ||||||||||||
| Edgewell Personal Care Investments UK Ltd. | United Kingdom | 100% | ||||||||||||
| Shavekit Limited | United Kingdom | 19% | ||||||||||||
| Mintology Limited | United Kingdom | 49% | ||||||||||||
| Wilkinson Sword Limited | United Kingdom | 100% | ||||||||||||
| Edgewell Personal Care VZ, C.A. | Venezuela | 100% | ||||||||||||
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-33690, 333-33676, 333-35116, 333-157070, 333-171921, 333-185082, 333-194033, 333-236414, 333-262579, 333-270027 of Edgewell Personal Care Company of our report dated November 28, 2023 relating to the financial statements, financial statement schedule, and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
St. Louis, Missouri
November 28, 2023
Exhibit 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Rod R. Little, certify that:
1.I have reviewed this annual report on Form 10-K of Edgewell Personal Care Company;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 28, 2023
| /s/ Rod R. Little | ||
| Rod R. Little | ||
| Chief Executive Officer | ||
| (principal executive officer) | ||
Exhibit 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel J. Sullivan, certify that:
1.I have reviewed this annual report on Form 10-K of Edgewell Personal Care Company;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 28, 2023
| /s/ Daniel J. Sullivan | ||
| Daniel J. Sullivan | ||
| Chief Financial Officer | ||
| (principal financial officer) | ||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of Edgewell Personal Care Company (the "Company") hereby certifies to his knowledge that the Company's annual report on Form 10-K for the period ended September 30, 2023 (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: November 28, 2023
| /s/ Rod R. Little | ||
| Rod R. Little | ||
| Chief Executive Officer | ||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of Edgewell Personal Care Company (the "Company") hereby certifies to his knowledge that the Company's annual report on Form 10-K for the period ended September 30, 2023 (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: November 28, 2023
| /s/ Daniel J. Sullivan | ||
| Daniel J. Sullivan | ||
| Chief Financial Officer | ||