Edgewell Personal Care(EPC) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents Edgewell Personal Care Company's unaudited condensed consolidated financial statements and detailed notes for Q1 FY2022 and Q1 FY2021 Item 1. Financial Statements. This section provides Edgewell's unaudited condensed consolidated financial statements, including earnings, balance sheets, cash flows, and equity changes, with explanatory notes Condensed Consolidated Statements of Earnings and Comprehensive Income This statement details the company's financial performance, including net sales, gross profit, operating income, and net earnings for the three months ended December 31, 2021 and 2020 Condensed Consolidated Statements of Earnings and Comprehensive Income (Three Months Ended December 31) | Metric (in millions) | 2021 | 2020 | | :------------------- | :---- | :---- | | Net sales | $463.3 | $451.1 | | Gross profit | $189.9 | $193.3 | | Operating income | $31.8 | $41.6 | | Net earnings | $11.2 | $17.7 | | Basic net EPS | $0.21 | $0.33 | | Diluted net EPS | $0.20 | $0.32 | | Total comprehensive income | $4.7 | $47.6 | - Net sales increased by 2.7% from $451.1 million in 2020 to $463.3 million in 2021[9] - Net earnings decreased significantly from $17.7 million in 2020 to $11.2 million in 2021, a 36.7% decline[9] Condensed Consolidated Balance Sheets This statement presents the company's financial position, including assets, liabilities, and shareholders' equity, as of December 31, 2021, and September 30, 2021 Condensed Consolidated Balance Sheets (as of December 31, 2021 vs. September 30, 2021) | Metric (in millions) | Dec 31, 2021 | Sep 30, 2021 | | :------------------- | :----------- | :----------- | | Cash and cash equivalents | $239.8 | $479.2 | | Inventories | $407.5 | $345.7 | | Total current assets | $966.9 | $1,135.7 | | Goodwill | $1,342.7 | $1,162.8 | | Other intangible assets, net | $1,035.0 | $906.4 | | Total assets | $3,807.1 | $3,674.6 | | Total current liabilities | $483.9 | $536.8 | | Long-term debt | $1,432.7 | $1,234.2 | | Total liabilities | $2,254.8 | $2,090.3 | | Total shareholders' equity | $1,552.3 | $1,584.3 | - Cash and cash equivalents decreased by 49.9% from $479.2 million to $239.8 million QoQ[12] - Goodwill increased by $179.9 million, and other intangible assets increased by $128.6 million, primarily due to the Billie acquisition[12] Condensed Consolidated Statements of Cash Flows This statement outlines the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended December 31, 2021 and 2020 Condensed Consolidated Statements of Cash Flows (Three Months Ended December 31) | Cash Flow Activity (in millions) | 2021 | 2020 | | :------------------------------- | :------ | :------ | | Net cash used by operating activities | $(79.0) | $(82.5) | | Net cash used by investing activities | $(312.7) | $(2.3) | | Net cash from (used by) financing activities | $155.5 | $(5.5) | | Net decrease in cash and cash equivalents | $(239.4) | $(83.9) | - Net cash used by investing activities significantly increased from $(2.3) million in 2020 to $(312.7) million in 2021, primarily due to the $308.8 million acquisition of Billie[15] - Net cash from financing activities turned positive at $155.5 million in 2021, compared to $(5.5) million used in 2020, driven by $198.0 million cash proceeds from debt[15] Condensed Consolidated Statements of Changes in Shareholders' Equity This statement details changes in common shares, treasury shares, additional paid-in capital, retained earnings, and accumulated other comprehensive loss Changes in Shareholders' Equity (Three Months Ended December 31, 2021) | Item (in millions) | Balance at Sep 30, 2021 | Net Earnings | Foreign Currency Translation Adjustments | Deferred Gain on Hedging Activity | Dividends Declared | Repurchase of Shares | Activity under Share Plans | Balance at Dec 31, 2021 | | :----------------- | :---------------------- | :----------- | :--------------------------------------- | :-------------------------------- | :----------------- | :------------------- | :------------------------- | :---------------------- | | Common Shares Par Value | $0.7 | — | — | — | — | — | — | $0.7 | | Treasury Shares Amount | $(776.3) | — | — | — | — | $(24.5) | $33.6 | $(767.2) | | Additional Paid-In Capital | $1,631.1 | — | — | — | — | — | $(37.4) | $1,593.7 | | Retained Earnings | $865.7 | $11.2 | — | — | $(8.4) | — | — | $868.5 | | Accumulated Other Comprehensive Loss | $(136.9) | — | $(6.9) | $0.4 | — | — | — | $(143.4) | | Total Shareholders' Equity | $1,584.3 | $11.2 | $(6.9) | $0.4 | $(8.4) | $(24.5) | $(3.8) | $1,552.3 | - Total shareholders' equity decreased from $1,584.3 million to $1,552.3 million during the quarter, primarily due to share repurchases ($24.5 million) and foreign currency translation adjustments ($(6.9) million)[20] - The company repurchased 0.5 million shares for $24.5 million during the quarter[20] Notes to Condensed Consolidated Financial Statements. This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering accounting policies, acquisitions, and other financial items Note 1 - Background and Basis of Presentation This note describes Edgewell Personal Care Company's business segments, the basis of financial statement presentation, and the impact of recent accounting standard updates - Edgewell operates in three segments: Wet Shave (Schick®, Wilkinson Sword®, Billie®), Sun and Skin Care (Banana Boat®, Hawaiian Tropic®, Jack Black®, Bulldog®, Cremo®, Wet Ones®), and Feminine Care (Playtex®, Stayfree®, Carefree®, o.b.®)[24] - The company completed the acquisition of Billie, Inc. on November 29, 2021, and its results are included from that date[25] - The company adopted ASU 2019-12 as of October 1, 2021, with no material effect on financial position, results of operations, or cash flows[26] Note 2 - Business Combinations This note details the acquisition of Billie, Inc., including the purchase price, preliminary allocation, and its contribution to net sales and earnings - Acquisition of Billie, Inc. completed on November 29, 2021, for $308.8 million cash, net of cash acquired[28] Preliminary Purchase Price Allocation for Billie Acquisition (in millions) | Item | Amount | | :----------------------------------------- | :----- | | Current assets | $16.9 | | Goodwill | $181.0 | | Intangible assets | $136.0 | | Other assets, including property, plant and equipment, net | $3.2 | | Current liabilities | $(6.8) | | Deferred tax liabilities | $(21.5) | | Total | $308.8 | - Billie contributed $8.9 million in Net sales and a $1.1 million Loss before income taxes for the post-acquisition period ending December 31, 2021[28] Unaudited Pro Forma Consolidated Results (Three Months Ended December 31) | Metric (in millions) | 2021 | 2020 | | :------------------- | :----- | :----- | | Proforma net sales | $473.3 | $467.3 | | Proforma net earnings | $14.8 | $10.2 | Note 3 - Restructuring Charges This note outlines restructuring charges incurred for the Operating Model Redesign and the completion of the prior Project Fuel initiative - Expected one-time charges of approximately $17 million in fiscal 2022 for Operating Model Redesign[31] Restructuring Charges (Three Months Ended December 31) | Charge Type (in millions) | 2021 (Operating Model Redesign) | 2020 (Project Fuel) | | :------------------------ | :------------------------------ | :------------------ | | Severance and related benefit costs | $1.3 | $2.3 | | Consulting, project implementation and management, and other exit costs | $0.9 | $2.0 | | Asset impairment and accelerated depreciation | — | $0.1 | | Total restructuring | $2.2 | $4.4 | - Project Fuel, an enterprise-wide transformational initiative, was completed on September 30, 2021[31] Note 4 - Income Taxes This note explains the effective tax rates for the periods presented and the factors influencing their changes Effective Tax Rates (Three Months Ended December 31) | Metric | 2021 | 2020 | | :----- | :---- | :---- | | Earnings before income taxes (in millions) | $16.2 | $25.2 | | Income tax provision (in millions) | $5.0 | $7.5 | | Effective tax rate | 30.9% | 29.7% | - The increase in the effective tax rate in 2021 was primarily due to unfavorable earnings mix in higher tax jurisdictions, Section 162(m) adjustments, and non-deductible Billie acquisition expenses[34] Note 5 - Earnings per Share This note details the calculation of basic and diluted earnings per share, including weighted-average shares outstanding and dilutive securities Weighted-Average Shares Outstanding (Three Months Ended December 31) | Metric (in millions) | 2021 | 2020 | | :------------------- | :--- | :--- | | Basic weighted-average shares outstanding | 54.4 | 54.4 | | Effect of dilutive securities (RSE and PRSE awards) | 0.6 | 0.4 | | Total dilutive securities | 0.6 | 0.4 | | Diluted weighted-average shares outstanding | 55.0 | 54.8 | - Anti-dilutive share options (1.2 million) and RSE/PRSE awards (0.5 million) were excluded from diluted EPS calculation in 2021[35] Note 6 - Goodwill and Intangible Assets This note provides a breakdown of goodwill by segment and intangible assets by class, highlighting the impact of the Billie acquisition Goodwill by Segment (in millions) | Segment | Net Balance at Oct 1, 2021 | Billie Acquisition | Cumulative Translation Adjustment | Net Balance at Dec 31, 2021 | | :---------------- | :------------------------- | :----------------- | :------------------------------ | :-------------------------- | | Wet Shave | $598.5 | $181.0 | $(1.4) | $778.1 | | Sun and Skin Care | $355.6 | — | $0.1 | $355.7 | | Feminine Care | $208.7 | — | $0.2 | $208.9 | | Total | $1,162.8 | $181.0 | $(1.1) | $1,342.7 | Intangible Assets by Class (in millions) | Class | Dec 31, 2021 Net | Sep 30, 2021 Net | | :------------------ | :--------------- | :--------------- | | Indefinite lived Trade names and brands | $599.4 | $600.8 | | Amortizable Trade names and brands | $278.8 | $198.5 | | Amortizable Technology and patents | $3.2 | $3.3 | | Amortizable Customer related and other | $153.6 | $103.8 | | Total amortizable intangible assets | $435.6 | $305.6 | - Amortization expense was $6.1 million for the three months ended December 31, 2021, up from $5.5 million in 2020[37] Note 7 - Inventories, Other Current Assets, Property, Plant and Equipment, Other Current Liabilities, Other Liabilities This note provides detailed breakdowns of inventories, other current assets, property, plant and equipment, and various current and other liabilities Inventories (in millions) | Category | Dec 31, 2021 | Sep 30, 2021 | | :------------------- | :----------- | :----------- | | Raw materials and supplies | $65.2 | $61.3 | | Work in process | $85.7 | $83.4 | | Finished products | $256.6 | $201.0 | | Total inventories | $407.5 | $345.7 | Other Current Liabilities (in millions) | Category | Dec 31, 2021 | Sep 30, 2021 | | :------------------- | :----------- | :----------- | | Accrued advertising, sales promotion and allowances | $36.4 | $33.8 | | Accrued trade allowances | $28.4 | $34.0 | | Accrued salaries, vacations and incentive compensation | $27.9 | $66.4 | | Returns reserve | $41.9 | $52.7 | | Restructuring reserve | $2.5 | $5.5 | | Total other current liabilities | $238.7 | $300.8 | - Finished products inventory increased by $55.6 million from September 30, 2021, to December 31, 2021[39] Note 8 - Leases This note describes the company's lease arrangements, including right-of-use assets, lease liabilities, and future lease payment commitments Lease Information (in millions, except years and rates) | Metric | Dec 31, 2021 | Sep 30, 2021 | | :-------------------------------- | :----------- | :----------- | | Right of use assets | $56.0 | $57.7 | | Total lease liabilities | $56.5 | $57.9 | | Weighted-average remaining lease term (years) | 10 | 10 | | Weighted-average incremental borrowing rate | 6.4% | 6.3% | | Lease cost (three months ended Dec 31) | $3.5 (2021) | $3.9 (2020) | Future Lease Payments (as of December 31, 2021, in millions) | Fiscal Year | Amount | | :------------ | :----- | | Remainder of fiscal 2022 | $10.5 | | 2023 | $11.1 | | 2024 | $9.0 | | 2025 | $8.1 | | 2026 | $6.7 | | 2027 and thereafter | $37.1 | | Total future minimum lease commitments | $82.5 | | Less: Imputed interest | $(26.0) | | Present value of lease liabilities | $56.5 | Note 9 - Accounts Receivable Facility This note details the company's accounts receivable purchase agreement, including recent amendments and amounts sold - Accounts Receivable Facility maximum receivables sold amount increased to $180.0 million from $150.0 million, effective February 7, 2022[45] - Pricing index for the Accounts Receivable Facility changed from LIBOR to the Bloomberg Short Term Bank Yield Index (BSBY)[45] - Accounts receivables sold were $155.3 million for the three months ended December 31, 2021, compared to $138.4 million in 2020[45] Note 10 - Debt This note outlines the company's long-term debt, including senior notes and revolving credit facility draws, and their impact on total debt Long-Term Debt (in millions) | Debt Type | Dec 31, 2021 | Sep 30, 2021 | | :-------------------------------- | :----------- | :----------- | | Senior notes, fixed interest rate of 5.500%, due 2028 | $750.0 | $750.0 | | Senior notes, fixed interest rate of 4.125%, due 2029 | $500.0 | $500.0 | | U.S. revolving credit facility due 2025 | $198.0 | — | | Total long-term debt, including current maturities | $1,448.0 | $1,250.0 | | Less unamortized debt issuance costs and discount | $15.3 | $15.8 | | Total long-term debt | $1,432.7 | $1,234.2 | - The company had outstanding variable-rate international borrowings (Notes payable) of $27.4 million as of December 31, 2021[46] Note 11 - Retirement Plans This note details the net periodic cost for the company's defined benefit pension plans for both U.S. and international employees Net Periodic Cost for Retirement Plans (Three Months Ended December 31) | Component (in millions) | 2021 | 2020 | | :---------------------- | :----- | :----- | | Service cost | $1.0 | $1.1 | | Interest cost | $2.6 | $2.5 | | Expected return on plan assets | $(5.3) | $(5.6) | | Recognized net actuarial loss | $1.5 | $2.3 | | Net periodic cost | $(0.2) | $0.3 | Note 12 - Shareholders' Equity This note describes share repurchase activities and cash dividends declared during the reporting period - Repurchased 0.5 million shares of common stock for $24.5 million during the three months ended December 31, 2021[50] - 9.2 million shares of common stock remain available for repurchase under the Board's authorization[50] - Declared a cash dividend of $0.15 per share on November 4, 2021, totaling $8.4 million, paid on January 6, 2022[51] Note 13 - Accumulated Other Comprehensive Loss This note explains the changes in accumulated other comprehensive loss, primarily due to foreign currency translation adjustments Changes in Accumulated Other Comprehensive Loss (AOCI) (in millions) | Component | Balance at Oct 1, 2021 | OCI before Reclassifications | Reclassifications to Earnings | Balance at Dec 31, 2021 | | :-------------------------------- | :--------------------- | :--------------------------- | :---------------------------- | :---------------------- | | Foreign Currency Translation Adjustments | $(41.8) | $(6.9) | — | $(48.7) | | Pension and Post-retirement Activity | $(97.3) | $(1.1) | $1.1 | $(97.3) | | Hedging Activity | $2.2 | $1.2 | $(0.8) | $2.6 | | Total | $(136.9) | $(6.8) | $0.3 | $(143.4) | - Foreign currency translation adjustments contributed $(6.9) million to OCI before reclassifications for the three months ended December 31, 2021[52] Note 14 - Financial Instruments and Risk Management This note discusses the company's use of derivative instruments to manage foreign currency risk and its approach to counterparty risk - The company is exposed to foreign currency risk, primarily from the euro, Japanese yen, British pound, Canadian dollar, and Australian dollar[57] - At December 31, 2021, the company had an unrealized pre-tax gain of $3.8 million on forward currency contracts designated as cash flow hedges[58] Estimated Fair Values of Derivative Instruments (in millions) | Derivative Type | Dec 31, 2021 Fair Value of Asset (Liability) | Sep 30, 2021 Fair Value of Asset (Liability) | | :----------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Derivatives designated as cash flow hedging relationships: Foreign currency contracts | $3.8 | $3.3 | | Derivatives not designated as cash flow hedging relationships: Foreign currency contracts | $0.7 | $0.5 | Note 15 - Segment Data This note provides detailed financial performance data by business segment and geographic area, including net sales and segment profit Segment Net Sales and Profitability (Three Months Ended December 31) | Segment (in millions) | 2021 Net Sales | 2020 Net Sales | 2021 Segment Profit | 2020 Segment Profit | | :-------------------- | :------------- | :------------- | :------------------ | :------------------ | | Wet Shave | $286.1 | $279.1 | $51.5 | $52.6 | | Sun and Skin Care | $104.8 | $103.0 | $3.7 | $5.2 | | Feminine Care | $72.4 | $69.0 | $8.4 | $8.8 | | Total net sales | $463.3 | $451.1 | $63.6 | $66.6 | Net Sales by Geographic Area (Three Months Ended December 31) | Geographic Area (in millions) | 2021 | 2020 | | :---------------------------- | :---- | :---- | | United States | $262.5 | $250.8 | | International | $200.8 | $200.3 | | Total net sales | $463.3 | $451.1 | Net Sales by Product Category (Three Months Ended December 31) | Product Category (in millions) | 2021 | 2020 | | :----------------------------- | :---- | :---- | | Razors and blades | $255.7 | $246.3 | | Tampons, pads, and liners | $72.4 | $69.0 | | Sun care products | $40.2 | $28.8 | | Grooming products | $46.3 | $43.1 | | Wipes and other skin care | $18.3 | $31.1 | | Shaving gels and creams | $30.4 | $32.8 | | Total net sales | $463.3 | $451.1 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management discusses the company's financial condition and operating results, covering key metrics, the Billie acquisition, restructuring, COVID-19 impacts, and non-GAAP reconciliations Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ - The document contains forward-looking statements regarding future results, events, and the integration of the Billie acquisition, including growth opportunities and cost savings[73] - These statements are subject to known and unknown risks, uncertainties, and assumptions that could cause actual results to differ materially[73] Non-GAAP Financial Measures This section defines and explains the company's use of non-GAAP financial measures, such as adjusted and organic metrics, for performance evaluation - Non-GAAP measures like 'adjusted' or 'organic' exclude items such as restructuring costs, acquisition and integration costs, and other non-standard items[74] - Organic net sales and segment profit exclude the impact of foreign currency changes and the Billie acquisition[74] - The Billie acquisition will unfavorably impact organic net sales and segment profit in fiscal 2022 due to reclassification of sales and timing of profit recognition[74] Industry and Market Data This section clarifies that industry and market data presented are based on the company's estimates and are not independently verified - Information concerning the industry, market position, market share, and market size is based on the company's estimates using internal and external data, which are inherently imprecise and not independently verified[77] Trademarks and Trade Names This section confirms the company's ownership or rights to use various trademarks and trade names essential to its business operations - The company owns or has rights to use trademarks and trade names for its business operations[78] Impact of COVID-19 This section assesses the impact of COVID-19 on the company's operations, supply chain, liquidity, and financial performance - The company has not experienced material operational disruptions in manufacturing or distribution facilities due to COVID-19[79] - COVID-19 has led to increased supply chain challenges in labor management, product procurement, and distribution, potentially increasing costs[79] - COVID-19 has not had a significant impact on the company's liquidity, cash flows, or capital resources to date[79] Significant Events This section highlights key events, including the acquisition of Billie, Inc., and its funding sources - On November 29, 2021, the company acquired Billie, a U.S.-based consumer brand company for women's personal care products, for $308.8 million, net of cash acquired[80] - The Billie acquisition was funded using a combination of cash on hand and drawing on the U.S. revolving credit facility[80] Executive Summary This section provides a high-level overview of the company's key financial results, including net sales, earnings, and margins, for the reporting period Key Financial Results (Three Months Ended December 31, 2021 vs. 2020) | Metric | 2021 GAAP | 2020 GAAP | 2021 Adjusted | 2020 Adjusted | | :-------------------- | :-------- | :-------- | :------------ | :------------ | | Net sales (in millions) | $463.3 | $451.1 | N/A | N/A | | Net earnings (in millions) | $11.2 | $17.7 | $23.2 | $23.3 | | Diluted EPS | $0.20 | $0.32 | $0.42 | $0.43 | | Gross margin % | 41.0% | 42.9% | 41.8% | 43.2% | | Operating income % | 6.9% | 9.2% | 10.1% | 10.9% | | Effective tax rate | 30.9% | 29.7% | 25.3% | 28.4% | - Net sales increased 2.7% to $463.3 million, with organic net sales up 2.5% driven by higher volumes and pricing across all segments[84] - Adjusted net earnings were flat at $23.2 million, as higher net sales were offset by lower margins due to increased material, labor, warehousing costs, and higher advertising and promotional expense[84] Operating Results This section analyzes the company's operational performance, detailing changes in net sales, gross profit, and various expenses Net Sales - Total Company This section analyzes the drivers of total company net sales, including organic growth, acquisition impact, and currency effects Net Sales - Total Company (Q1 Fiscal 2022 vs. Q1 Fiscal 2021) | Component | Amount (in millions) | % Change | | :------------------------ | :------------------- | :------- | | Net sales - fiscal 2021 | $451.1 | | | Organic | $11.3 | 2.5% | | Impact of Billie acquisition, net | $6.8 | 1.5% | | Impact of currency | $(5.9) | (1.3)% | | Net sales - fiscal 2022 | $463.3 | 2.7% | - Wet Ones organic net sales declined 41%, cycling over 110% growth in the prior year quarter due to COVID-19[88] Gross Profit This section examines changes in gross profit and adjusted gross margin, attributing shifts to cost of goods, pricing, and currency - Gross profit was $189.9 million in Q1 FY22, down from $193.3 million in Q1 FY21[89] - Adjusted gross margin percentage was 41.8%, a 140-basis point decline YoY[89] - The decline in adjusted gross margin was primarily due to a 220-basis point net impact from higher cost of goods and a 50-basis point impact from negative currency translation, partially offset by 130-basis points of favorable pricing, promotional efficiency, and mix[89] Selling, General and Administrative Expense This section details the changes in selling, general and administrative expenses, both in absolute terms and as a percentage of net sales - SG&A was $96.9 million (20.9% of net sales) in Q1 FY22, up from $93.1 million (20.6% of net sales) in Q1 FY21[90] - Adjusted SG&A as a percent of net sales declined by 110 basis points to 19.0%[90] - The decline in adjusted SG&A percentage was due to lower incentive and fringe benefit costs, partially offset by higher compensation and Billie acquisition costs[90] Advertising and Sales Promotion Expense This section analyzes the increase in advertising and sales promotion expense and its impact on net sales percentage - A&P was $46.2 million in Q1 FY22, up $5.0 million from $41.2 million in Q1 FY21[91] - A&P as a percent of net sales increased to 10.0% in Q1 FY22 from 9.1% in Q1 FY21[91] - The increase in A&P was driven by higher investments in Sun and Skin Care and Wet Shave[91] Research and Development Expense This section reports on the company's research and development expenditures and their proportion to net sales - R&D expense was $12.8 million in Q1 FY22, down from $13.7 million in Q1 FY21[92] - R&D as a percent of net sales decreased to 2.8% in Q1 FY22 from 3.0% in Q1 FY21[92] Interest Expense Associated with Debt This section details the interest expense related to the company's debt, explaining the factors influencing its change - Interest expense was $17.3 million in Q1 FY22, compared to $17.4 million in Q1 FY21[93] - The decline was due to a lower interest rate on the 4.125% $500 million Senior Notes due 2029, partially offset by a higher overall debt balance from the Revolving Credit Facility draw[93] Other Income, Net This section explains the components contributing to other income, net, including pension activity and foreign exchange gains - Other income, net, was $1.7 million in Q1 FY22, compared to $1.0 million in Q1 FY21[95] - The increase was driven by favorable pension activity and foreign exchange gains[95] Income Tax Provision This section discusses the effective tax rates, both GAAP and adjusted, and the factors influencing their changes Effective Tax Rates (Three Months Ended December 31) | Metric | 2021 GAAP | 2020 GAAP | 2021 Adjusted | 2020 Adjusted | | :------------------- | :-------- | :-------- | :------------ | :------------ | | Effective tax rate | 30.9% | 29.7% | 25.3% | 28.4% | - The fiscal 2022 effective tax rate and adjusted effective tax rate reflect an increase in Internal Revenue Service Code Section 162(m) permanent adjustments partially offset by favorable stock compensation vests[96] Operating Model Redesign This section outlines the expected charges and progress of the company's Operating Model Redesign initiative - Expected one-time charges of approximately $17 million in fiscal 2022 for Operating Model Redesign[97] - $2.2 million in charges, primarily for employee severance and benefit costs, were incurred in Q1 FY22[97] Segment Results This section provides a detailed analysis of financial performance for each of the company's operating segments Wet Shave This section details the net sales and segment profit performance of the Wet Shave segment, including organic growth and acquisition impact Wet Shave Net Sales (Q1 Fiscal 2022 vs. Q1 Fiscal 2021) | Component | Amount (in millions) | % Change | | :------------------------ | :------------------- | :------- | | Net sales - fiscal 2021 | $279.1 | | | Organic | $6.0 | 2.1% | | Impact of Billie acquisition, net | $6.8 | 2.4% | | Impact of currency | $(5.8) | (2.0)% | | Net sales - fiscal 2022 | $286.1 | 2.5% | Wet Shave Segment Profit (Q1 Fiscal 2022 vs. Q1 Fiscal 2021) | Component | Amount (in millions) | % Change | | :------------------------ | :------------------- | :------- | | Segment profit - fiscal 2021 | $52.6 | | | Organic | $3.2 | 6.1% | | Impact of Billie acquisition, net | $(2.4) | (4.6)% | | Impact of currency | $(1.9) | (3.6)% | | Segment profit - fiscal 2022 | $51.5 | (2.1)% | - Organic net sales growth was partly offset by declines in Men's Systems (North America) and Shave Preps due to supply chain issues[100] Sun and Skin Care This section analyzes the net sales and segment profit for the Sun and Skin Care segment, highlighting growth drivers and cost pressures Sun and Skin Care Net Sales (Q1 Fiscal 2022 vs. Q1 Fiscal 2021) | Component | Amount (in millions) | % Change | | :------------------------ | :------------------- | :------- | | Net sales - fiscal 2021 | $103.0 | | | Organic | $2.0 | 1.9% | | Impact of currency | $(0.2) | (0.2)% | | Net sales - fiscal 2022 | $104.8 | 1.7% | Sun and Skin Care Segment Profit (Q1 Fiscal 2022 vs. Q1 Fiscal 2021) | Component | Amount (in millions) | % Change | | :------------------------ | :------------------- | :------- | | Segment profit - fiscal 2021 | $5.2 | | | Organic | $(1.3) | (25.0)% | | Impact of currency | $(0.2) | (3.8)% | | Segment profit - fiscal 2022 | $3.7 | (28.8)% | - Sun Care growth of over 40% reflects market share gains and category recovery in both U.S. and international markets[101] Feminine Care This section reports on the net sales and segment profit performance of the Feminine Care segment, driven by pricing and volumes Feminine Care Net Sales (Q1 Fiscal 2022 vs. Q1 Fiscal 2021) | Component | Amount (in millions) | % Change | | :------------------------ | :------------------- | :------- | | Net sales - fiscal 2021 | $69.0 | | | Organic | $3.3 | 4.8% | | Impact of currency | $0.1 | 0.1% | | Net sales - fiscal 2022 | $72.4 | 4.9% | Feminine Care Segment Profit (Q1 Fiscal 2022 vs. Q1 Fiscal 2021) | Component | Amount (in millions) | % Change | | :------------------------ | :------------------- | :------- | | Segment profit - fiscal 2021 | $8.8 | | | Organic | $(0.5) | (5.6)% | | Impact of currency | $0.1 | 1.1% | | Segment profit - fiscal 2022 | $8.4 | (4.5)% | General Corporate and Other Expenses This section details general corporate expenses and other non-operating costs, including restructuring and acquisition-related expenses General Corporate and Other Expenses (Q1 Fiscal 2022 vs. Q1 Fiscal 2021) | Expense Category (in millions) | 2021 | 2020 | | :----------------------------- | :---- | :---- | | Corporate expenses | $10.8 | $12.1 | | Restructuring and related costs | $2.2 | $4.4 | | Acquisition and integration costs | $6.0 | $3.0 | | Value-added tax settlement costs | $3.4 | — | | Sun Care reformulation costs | $3.3 | — | | Total general corporate and other expenses | $25.7 | $19.5 | | % of net sales | 5.5% | 4.3% | - The decline in corporate expense was primarily due to lower incentive and fringe benefit costs[104] Liquidity and Capital Resources This section assesses the company's ability to meet its short-term and long-term financial obligations, including debt, cash, and borrowing capacity - Total borrowings were $1,475.4 million at December 31, 2021, including $225.4 million tied to variable interest rates[106] - The company drew $198.0 million on its Revolving Credit Facility, primarily to fund the Billie acquisition, leaving $220.7 million available[106] - The maximum receivables sold amount under the Accounts Receivable Facility was increased to $180.0 million from $150.0 million, effective February 7, 2022[106] - The company expects cash on hand, cash flows from operations, and borrowing capacity to be sufficient for future working capital, interest payments, R&D, capital expenditures, and other financing requirements for at least the next 12 months[106] Cash Flows This section summarizes the net cash flows from operating, investing, and financing activities for the reporting period Net Cash Flow Summary (Three Months Ended December 31) | Activity (in millions) | 2021 | 2020 | | :--------------------- | :------ | :------ | | Operating activities | $(79.0) | $(82.5) | | Investing activities | $(312.7) | $(2.3) | | Financing activities | $155.5 | $(5.5) | | Effect of exchange rate changes on cash | $(3.2) | $6.4 | | Net decrease in cash and cash equivalents | $(239.4) | $(83.9) | Operating Activities This section details the cash flows generated from or used by the company's primary business operations - Cash flow used by operating activities decreased to $79.0 million in Q1 FY22 from $82.5 million in Q1 FY21, primarily due to favorable changes in working capital[109] Investing Activities This section outlines cash flows related to the acquisition and disposal of long-term assets, including business combinations and capital expenditures - Cash flow used by investing activities significantly increased to $312.7 million in Q1 FY22 from $2.3 million in Q1 FY21[110] - The primary driver was the $308.8 million acquisition of Billie, net of cash acquired[110] - Capital expenditures were $9.4 million in Q1 FY22, down from $10.2 million in Q1 FY21[110] Financing Activities This section describes cash flows from debt, equity transactions, and dividend payments - Net cash from financing activities was $155.5 million in Q1 FY22, compared to $5.5 million used in Q1 FY21[111] - This was driven by a $198.0 million draw on the Revolving Credit Facility to fund the Billie acquisition[111] - Share repurchases totaled $24.5 million in Q1 FY22, up from $9.2 million in Q1 FY21[111] Share Repurchases This section details the company's common stock repurchase activities during the quarter - During Q1 FY22, the company repurchased 0.5 million shares of common stock for $24.5 million[112] - 9.2 million shares remain available for repurchase under the 2018 Board authorization[112] Dividends This section reports on cash dividends declared and paid to shareholders - A cash dividend of $0.15 per share was declared on November 4, 2021, totaling $8.4 million, and paid on January 6, 2022[113] - Another quarterly cash dividend of $0.15 per common share was declared on February 4, 2022, payable April 5, 2022[113] Commitments and Contingencies This section outlines the company's future minimum debt repayments and other contractual obligations - Future minimum repayments of debt as of December 31, 2021, include $198.0 million in fiscal 2025, $750.0 million in fiscal 2028, and $500.0 million in fiscal 2029[114] - No other material changes in contractual obligations since the 2021 Annual Report[114] Item 3. Quantitative and Qualitative Disclosures About Market Risk. This section details the company's exposure to market risks from currency, commodity, and interest rate fluctuations, and its mitigation strategies - Market risk exposures include currency rates, commodity prices, and interest rates[117] - Variable-rate debt instruments totaled $225.4 million as of December 31, 2021[117] - A one-percent increase in applicable interest rates would increase annual interest expense by approximately $2.0 million[117] Item 4. Controls and Procedures. Management, including the CEO and CFO, assessed disclosure controls and procedures as effective, with no material changes in internal control - Disclosure controls and procedures were evaluated and deemed effective as of December 31, 2021, by the CEO and CFO[119] - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2021[120] PART II. OTHER INFORMATION This section contains additional information not covered in Part I, including details on equity security sales and exhibits Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. This section details the company's common stock repurchases during Q1 FY2022, including shares purchased and average prices Purchases of Equity Securities (Q1 Fiscal 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | 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 | | :------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------- | :------------------------------------------------------------------- | | October 1 to 31, 2021 | — | $— | — | 9,750,000 | | November 1 to 30, 2021 | 473,022 | $43.40 | 249,000 | 9,501,000 | | December 1 to 31, 2021 | 308,963 | $44.13 | 308,963 | 9,192,037 | Item 6. Exhibits. This section lists all exhibits filed with the Form 10-Q, including organizational documents, agreements, and certifications - Exhibits include Amended and Restated Articles of Incorporation and Bylaws, Credit Agreement, Indentures for Senior Notes, and the Sixth Amendment to Master Accounts Receivable Purchase Agreement[123] - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350 are included[123]