Edgewell Personal Care(EPC) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements. This section presents the unaudited condensed consolidated financial statements for Edgewell Personal Care Company, including statements of earnings and comprehensive income, balance sheets, cash flows, and changes in shareholders' equity, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items Condensed Consolidated Statements of Earnings and Comprehensive Income The company reported a slight increase in net sales and net earnings for the three months ended December 31, 2022, compared to the prior year, with significant positive foreign currency translation adjustments contributing to total comprehensive income Condensed Consolidated Statements of Earnings and Comprehensive Income | Metric | Three Months Ended Dec 31, 2022 (in millions) | Three Months Ended Dec 31, 2021 (in millions) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net sales | $469.1 | $463.3 | | Gross profit | $189.0 | $189.9 | | Operating income | $31.3 | $31.8 | | Net earnings | $11.9 | $11.2 | | Basic net earnings per share | $0.23 | $0.21 | | Diluted net earnings per share | $0.23 | $0.20 | | Foreign currency translation adj. | $48.0 | $(6.9) | | Total comprehensive income | $51.5 | $4.7 | Condensed Consolidated Balance Sheets As of December 31, 2022, total assets increased primarily due to higher inventories and goodwill, while total liabilities also rose, mainly from an increase in long-term debt Condensed Consolidated Balance Sheets | Metric | December 31, 2022 (in millions) | September 30, 2022 (in millions) | | :--------------------------------- | :------------------------------ | :------------------------------- | | Total current assets | $1,007.5 | $942.2 | | Inventories | $540.2 | $449.3 | | Goodwill | $1,332.3 | $1,322.2 | | Total assets | $3,797.0 | $3,713.1 | | Total current liabilities | $501.3 | $548.0 | | Long-term debt | $1,492.0 | $1,391.4 | | Total liabilities | $2,310.3 | $2,253.4 | | Total shareholders' equity | $1,486.7 | $1,459.7 | Condensed Consolidated Statements of Cash Flows The company experienced net cash used by operating activities, a significant decrease in cash used by investing activities due to the prior year's Billie acquisition, and a reduction in net cash from financing activities for the three months ended December 31, 2022 Condensed Consolidated Statements of Cash Flows | Metric | Three Months Ended Dec 31, 2022 (in millions) | Three Months Ended Dec 31, 2021 (in millions) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash used by operating activities | $(86.3) | $(79.0) | | Net cash used by investing activities | $(11.2) | $(312.7) |\n| Net cash from financing activities | $82.9 | $155.5 | | Effect of exchange rate changes on cash | $10.0 | $(3.2) | | Net decrease in cash and cash equivalents | $(4.6) | $(239.4) | | Cash and cash equivalents, end of period | $184.1 | $239.8 | - The decrease in cash used by investing activities in 2022 was primarily due to the Billie acquisition ($308.8 million) occurring in the prior year period[14] Condensed Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased from September 30, 2022, to December 31, 2022, driven by net earnings and positive foreign currency translation adjustments, partially offset by share repurchases and dividends Condensed Consolidated Statements of Changes in Shareholders' Equity | Metric | Balance at Sep 30, 2022 (in millions) | Balance at Dec 31, 2022 (in millions) | | :--------------------------------- | :------------------------------------ | :------------------------------------ | | Total Shareholders' Equity | $1,459.7 | $1,486.7 | | Net earnings | - | $11.9 | | Foreign currency translation adj. | - | $48.0 | | Dividends declared | - | $(8.0) |\n| Repurchase of shares | - | $(15.0) | Notes to Condensed Consolidated Financial Statements. These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering the company's background, significant accounting policies, business combinations, restructuring activities, income taxes, earnings per share, goodwill and intangible assets, supplemental balance sheet information, leases, accounts receivable facilities, debt, retirement plans, shareholders' equity, accumulated other comprehensive loss, financial instruments and risk management, segment data, and subsequent events Note 1 - Background and Basis of Presentation Edgewell Personal Care Company is a global manufacturer and marketer of personal care products across Wet Shave, Sun and Skin Care, and Feminine Care segments, with financial statements prepared in accordance with U.S. GAAP - Edgewell operates in three segments: Wet Shave (Schick®, Wilkinson Sword®, Edge, Skintimate®, Billie®, Shave Guard, Personna®), Sun and Skin Care (Banana Boat®, Hawaiian Tropic®, Jack Black®, Bulldog®, Cremo®, Wet Ones®), and Feminine Care (Playtex Gentle Glide®, Sport®, Stayfree®, Carefree®, o.b.®)[19][23] - The company completed the Billie acquisition, Inc. on November 29, 2021, and its results are included post-acquisition[21] Note 2 - Business Combinations The Billie acquisition, Inc. on November 29, 2021, for $309.4 million cash consideration, was finalized in Q4 fiscal year 2022, with significant goodwill and intangible assets integrated into the Wet Shave segment - Billie, Inc. was acquired for $309.4 million cash, net of cash acquired, on November 29, 2021[24] Note 2 - Business Combinations | Acquired Asset/Liability | Fair Value (in millions) | | :----------------------- | :----------------------- | | Current assets | $17.0 | | Goodwill | $181.2 | | Intangible assets | $136.0 | | Other assets | $3.2 | | Current liabilities | $(6.9) | | Deferred tax liabilities | $(21.1) | | Total | $309.4 | - The acquired goodwill represents expansion into new markets and channels, and intangible assets primarily consist of the Billie trade name and customer relationships with a weighted average useful life of 19 years, all included in the Wet Shave segment[26] Note 3 - Restructuring Charges The company is undertaking an operating model redesign in fiscal 2023, expecting to incur approximately $18 million in restructuring charges, with $2.8 million incurred for the three months ended December 31, 2022 - Expected restructuring charges for fiscal 2023 are approximately $18 million[27] Note 3 - Restructuring Charges | Restructuring Category | Three Months Ended Dec 31, 2022 (in millions) | Three Months Ended Dec 31, 2021 (in millions) | | :--------------------- | :--------------------------------------------- | :--------------------------------------------- | | Severance and related benefit costs | $0.9 | $1.3 | | Consulting, project implementation, and other exit costs | $1.9 | $0.9 | | Total restructuring | $2.8 | $2.2 | Note 4 - Income Taxes The effective tax rate for the three months ended December 31, 2022, was 27.1%, a decrease from 30.9% in the prior year, primarily due to a less unfavorable mix of earnings and the absence of non-deductible acquisition expenses Note 4 - Income Taxes | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | | Income tax provision | $4.5 | $5.0 | | Earnings before income taxes | $16.4 | $16.2 | | Effective tax rate | 27.1% | 30.9% | - The decrease in the effective tax rate was mainly due to a more favorable mix of earnings in higher tax rate jurisdictions and the absence of non-deductible expenses related to the Billie acquisition, which impacted the prior year[29][30] Note 5 - Earnings per Share Basic and diluted earnings per share calculations are based on weighted-average common shares outstanding, adjusted for dilutive securities, with diluted weighted-average shares outstanding decreasing in Q1 fiscal 2023 compared to Q1 fiscal 2022 Note 5 - Earnings per Share | Metric | Three Months Ended Dec 31, 2022 (in millions) | Three Months Ended Dec 31, 2021 (in millions) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Basic weighted-average shares outstanding | 51.6 | 54.4 | | Diluted weighted-average shares outstanding | 51.9 | 55.0 | - Certain share options and RSE/PRSE awards were excluded from diluted EPS calculations as their effect was anti-dilutive[32] Note 6 - Goodwill and Intangible Assets Goodwill increased slightly across all segments, primarily due to cumulative translation adjustments, while net intangible assets decreased due to amortization, with estimated future amortization expenses provided Note 6 - Goodwill and Intangible Assets | Segment | Net Goodwill at Dec 31, 2022 (in millions) | Net Goodwill at Oct 1, 2022 (in millions) | | :---------------- | :----------------------------------------- | :---------------------------------------- | | Wet Shave | $772.5 | $764.5 | | Sun and Skin Care | $353.7 | $352.5 | | Feminine Care | $206.1 | $205.2 | | Total | $1,332.3 | $1,322.2 | Note 6 - Goodwill and Intangible Assets | Intangible Asset Class | Net at Dec 31, 2022 (in millions) | Net at Sep 30, 2022 (in millions) | | :--------------------- | :-------------------------------- | :-------------------------------- | | Indefinite lived trade names and brands | $593.9 | $587.1 | | Amortizable trade names and brands | $263.2 | $267.2 | | Technology and patents | $2.7 | $2.8 | | Customer related and other | $137.0 | $139.5 | | Total amortizable intangible assets | $402.9 | $409.5 | - Amortization expense was $7.7 million for the three months ended December 31, 2022, up from $6.1 million in the prior year, with estimated amortization for the remainder of fiscal 2023 at $23.0 million[34] Note 7 - Supplemental Balance Sheet Information This note provides detailed breakdowns of inventories, other current assets, property, plant and equipment, other current liabilities, and other liabilities, showing changes between December 31, 2022, and September 30, 2022 Note 7 - Supplemental Balance Sheet Information | Category | December 31, 2022 (in millions) | September 30, 2022 (in millions) | | :--------------------------------- | :------------------------------ | :------------------------------- | | Total inventories | $540.2 | $449.3 | | Total other current assets | $160.1 | $167.3 | | Total property, plant and equipment, net | $348.6 | $345.5 | | Total other current liabilities | $231.1 | $291.7 | | Total other liabilities | $176.1 | $173.6 | - Finished products inventory increased significantly from $265.7 million to $342.1 million[36] - Accrued salaries, vacations, and incentive compensation decreased from $51.1 million to $33.2 million[36] Note 8 - Leases The company leases various assets, classifying all recorded leases as operating leases, with right-of-use assets and lease liabilities remaining stable, a weighted-average remaining lease term of 10 years, and an incremental borrowing rate of 6.6% Note 8 - Leases | Lease Metric | December 31, 2022 (in millions) | September 30, 2022 (in millions) | | :--------------------------------- | :------------------------------ | :------------------------------- | | Right of use assets | $50.1 | $50.1 | | Total lease liabilities | $50.4 | $50.3 | | Weighted-average remaining lease term (years) | 10 | 10 | | Weighted-average incremental borrowing rate | 6.6% | 6.6% | Note 8 - Leases | Lease Cost | Three Months Ended Dec 31, 2022 (in millions) | Three Months Ended Dec 31, 2021 (in millions) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Lease cost | $3.0 | $3.5 | Note 9 - Accounts Receivable Facility The company participates in accounts receivable purchase agreements, treating transfers as sales, with accounts receivables sold increasing significantly in Q1 fiscal 2023 compared to the prior year, resulting in a higher loss on sale of trade receivables - Accounts receivable purchase agreements are accounted for as sales, with the purchaser assuming credit risk[40] Note 9 - Accounts Receivable Facility | Metric | Three Months Ended Dec 31, 2022 (in millions) | Three Months Ended Dec 31, 2021 (in millions) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Accounts receivables sold | $212.1 | $155.3 | | Loss on sale of trade receivables | $0.9 | $0.2 | Note 10 - Debt Total long-term debt increased to $1,492.0 million as of December 31, 2022, primarily due to increased borrowings under the U.S. revolving credit facility, which was amended in February 2023 to transition from LIBOR to SOFR Note 10 - Debt | Debt Type | December 31, 2022 (in millions) | September 30, 2022 (in millions) | | :--------------------------------- | :------------------------------ | :------------------------------- | | Senior notes, 5.500%, due 2028 | $750.0 | $750.0 | | Senior notes, 4.125%, due 2029 | $500.0 | $500.0 | | U.S. revolving credit facility | $255.0 | $155.0 | | Total long-term debt | $1,492.0 | $1,391.4 | - The U.S. revolving credit facility was amended on February 6, 2023, to transition from LIBOR to SOFR, with no material impact expected on interest expense[45] Note 11 - Retirement Plans The company's net periodic pension and postretirement costs increased to $0.7 million for the three months ended December 31, 2022, from an income of $(0.2) million in the prior year, mainly due to higher interest costs and recognized net actuarial losses Note 11 - Retirement Plans | Component | Three Months Ended Dec 31, 2022 (in millions) | Three Months Ended Dec 31, 2021 (in millions) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Service cost | $0.5 | $1.0 | | Interest cost | $5.2 | $2.6 | | Expected return on plan assets | $(5.4) | $(5.3) | | Recognized net actuarial loss | $0.4 | $1.5 | | Net periodic cost (income) | $0.7 | $(0.2) | Note 12 - Shareholders' Equity The company repurchased $15.0 million of common stock and declared $8.0 million in dividends during the three months ended December 31, 2022, with a quarterly cash dividend of $0.15 per common share declared for both the fourth fiscal quarter of 2022 and the first fiscal quarter of 2023 - The company repurchased 0.4 million shares of common stock for $15.0 million during the three months ended December 31, 2022, with 6.1 million shares remaining available for repurchase[48] - Dividends declared totaled $8.0 million, and payments made were $8.3 million for the three months ended December 31, 2022[49] - A quarterly cash dividend of $0.15 per common share was declared for both the fourth fiscal quarter of 2022 and the first fiscal quarter of 2023[49][50] Note 13 - Accumulated Other Comprehensive Loss Accumulated other comprehensive loss (AOCI) decreased from $(216.1) million to $(176.5) million, primarily due to positive foreign currency translation adjustments, partially offset by deferred losses on hedging activity Note 13 - Accumulated Other Comprehensive Loss | Component | Balance at Oct 1, 2022 (in millions) | Balance at Dec 31, 2022 (in millions) | | :--------------------------------- | :----------------------------------- | :------------------------------------ | | Foreign Currency Translation Adjustments | $(131.2) | $(83.2) | | Pension and Post-retirement Activity | $(92.6) | $(92.8) | | Hedging Activity | $7.7 | $(0.5) | | Total AOCI | $(216.1) | $(176.5) | - OCI before reclassifications included $48.0 million in foreign currency translation adjustments and $(8.2) million in deferred loss on hedging activity[51] Note 14 - Financial Instruments and Risk Management The company uses derivative instruments, primarily forward currency contracts, to manage foreign currency risk, and as of December 31, 2022, had unrealized pre-tax losses on cash flow hedges and recorded losses on derivatives not designated as hedges - The company is exposed to foreign currency risk, particularly with the euro, Japanese yen, British pound, Canadian dollar, and Australian dollar[54] - At December 31, 2022, the company had unrealized pre-tax losses of $0.7 million on cash flow hedges (forward currency contracts) and recorded a loss of $2.7 million on derivatives not designated as hedges[57][58] Note 14 - Financial Instruments and Risk Management | Derivative Type | Fair Value of Assets (Dec 31, 2022, in millions) | Fair Value of Assets (Sep 30, 2022, in millions) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Designated as cash flow hedges | $(0.7) | $11.3 | | Not designated as cash flow hedges | $(2.7) | $2.0 | Note 15 - Segment Data Segment performance is evaluated based on segment profit, excluding general corporate expenses and non-recurring costs, with Sun and Skin Care and Feminine Care segments showing growth, while Wet Shave experienced declines in Q1 fiscal 2023 Note 15 - Segment Data | Segment | Net Sales Q1 FY23 (in millions) | Net Sales Q1 FY22 (in millions) | Segment Profit Q1 FY23 (in millions) | Segment Profit Q1 FY22 (in millions) | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------------- | :----------------------------------- | | Wet Shave | $275.3 | $286.1 | $35.4 | $51.5 | | Sun and Skin Care | $112.9 | $104.8 | $13.1 | $3.7 | | Feminine Care | $80.9 | $72.4 | $11.8 | $8.4 | | Total | $469.1 | $463.3 | $60.3 | $63.6 | Note 15 - Segment Data | Geographic Area | Net Sales Q1 FY23 (in millions) | Net Sales Q1 FY22 (in millions) | | :---------------- | :------------------------------ | :------------------------------ | | United States | $271.8 | $262.5 | | International | $197.3 | $200.8 | | Total | $469.1 | $463.3 | Note 15 - Segment Data | Product Category | Net Sales Q1 FY23 (in millions) | Net Sales Q1 FY22 (in millions) | | :----------------- | :------------------------------ | :------------------------------ | | Razors and blades | $247.0 | $255.7 | | Tampons, pads, and liners | $80.9 | $72.4 | | Sun care products | $47.8 | $40.2 | | Grooming products | $47.3 | $46.3 | | Wipes and other skin care | $17.8 | $18.3 | | Shaving gels and creams | $28.3 | $30.4 | | Total | $469.1 | $463.3 | Note 16 - Subsequent Event Subsequent to the reporting period, the company received approval to wind-up its Canada Defined Benefit Plan, which will result in a non-cash settlement expense of approximately $8.0 million - On January 25, 2023, approval was received to wind-up the Canada Defined Benefit Plan, leading to an estimated non-cash settlement expense of $8.0 million[74] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides management's perspective on the company's financial performance and condition for the first quarter of fiscal 2023, discussing net sales, earnings, segment results, liquidity, and capital resources, including the impact of non-GAAP measures and significant events like the Billie acquisition Forward-Looking Statements The report contains forward-looking statements reflecting expectations and projections, which are subject to known and unknown risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are not guarantees of performance and are subject to inherent risks and uncertainties[77] - The company disclaims any obligation to publicly update forward-looking statements, except as required by law[77] Non-GAAP Financial Measures The company uses non-GAAP measures like 'adjusted' and 'organic' to supplement GAAP results, excluding items such as restructuring, acquisition, and Sun Care reformulation costs, to provide more meaningful period-to-period comparisons and insights into underlying operational results - Non-GAAP measures (adjusted, organic) exclude restructuring, acquisition and integration costs, Sun Care reformulation charges, and other non-standard items[79][82] - Organic net sales and segment profit exclude the impact of foreign currency translation and the Billie acquisition[81] Industry and Market Data Information regarding industry, market size, market position, and market share is based on internal and external estimates, which are inherently imprecise and subject to change - Market data is based on internal and external estimates, which are inherently imprecise and not independently verified[83] Trademarks and Trade Names The company owns or has rights to use various trademarks and trade names in its business operations, which are referenced throughout the report - The company owns or has rights to use trademarks and trade names in its business operations[85] Impact of the COVID-19 Pandemic The company has implemented health and safety measures and has not experienced material operational disruptions from COVID-19, but acknowledges ongoing supply chain challenges and potential future impacts on costs and labor - No material operational disruptions have been experienced across manufacturing or distribution facilities due to COVID-19[87] - The prolonged pandemic has led to increased supply chain challenges in labor, raw material procurement, and product distribution, potentially increasing costs[88] Significant Events The primary significant event was the Billie acquisition, Inc. on November 29, 2021, for $309.4 million, which became a wholly-owned subsidiary - The Billie acquisition, Inc. was completed on November 29, 2021, for $309.4 million, net of cash acquired[89] Executive Summary For the first quarter of fiscal 2023, net sales increased by 1.3%, while reported net earnings and diluted EPS also rose, though adjusted net earnings and diluted EPS declined due to lower gross margins, inflationary pressures, foreign currency impacts, and higher SG&A and interest costs Executive Summary | Metric | Q1 FY23 GAAP (in millions) | Q1 FY22 GAAP (in millions) | Q1 FY23 Adjusted (in millions) | Q1 FY22 Adjusted (in millions) | | :--------------------------------- | :------------------------- | :------------------------- | :----------------------------- | :----------------------------- | | Net sales | $469.1 | $463.3 | - | - | | Net earnings | $11.9 | $11.2 | $16.0 | $23.2 | | Diluted EPS | $0.23 | $0.20 | $0.31 | $0.42 | - Adjusted earnings declined despite higher net sales due to lower gross margins from inflationary pressures and foreign currency, and higher SG&A and interest costs[94] Operating Results Net sales increased by 1.3% to $469.1 million in Q1 fiscal 2023, driven by organic growth and the Billie acquisition, despite a negative impact from currency movements, while gross profit margin decreased due to higher costs Operating Results | Metric | Q1 FY23 (in millions) | Q1 FY22 (in millions) | % Change | | :--------------------------------- | :-------------------- | :-------------------- | :------- | | Net sales | $469.1 | $463.3 | 1.3% | | Organic net sales growth | $14.0 | - | 3.0% | | Impact of Billie acquisition, net | $12.0 | - | 2.6% | | Impact of currency | $(20.2) | - | (4.3)% | - Gross profit was $189.0 million (40.3% of net sales) in Q1 FY23, down from $189.9 million (41.0% of net sales) in Q1 FY22, primarily due to a 500-basis point impact from higher commodity and transportation costs, partially offset by productivity savings and higher pricing[96] - Interest expense increased to $19.9 million from $17.3 million due to higher interest rates and a larger overall debt balance[100] Operating Model Redesign The company is continuing its operating model redesign in fiscal 2023 to enhance efficiency, expecting approximately $18 million in charges, with $2.8 million incurred in Q1 fiscal 2023 primarily for severance and benefits - The company expects to incur approximately $18 million in restructuring charges in fiscal 2023 for its operating model redesign[103] - $2.8 million in charges were incurred during Q1 fiscal 2023, mainly for employee severance and benefit costs[103] Segment Results Segment results for Q1 fiscal 2023 show varied performance: Wet Shave net sales and profit declined, while Sun and Skin Care and Feminine Care segments reported increases in both net sales and profit Wet Shave Wet Shave net sales decreased by 3.8% to $275.3 million in Q1 fiscal 2023, with organic net sales declining 1.9% due to unit declines, and segment profit falling by 31.3% due to lower sales, higher costs, negative currency impact, and increased brand investment Wet Shave | Metric | Q1 FY23 (in millions) | Q1 FY22 (in millions) | % Change | | :--------------------------------- | :-------------------- | :-------------------- | :------- | | Net sales | $275.3 | $286.1 | (3.8)% | | Organic net sales change | $(5.3) | - | (1.9)% | | Segment profit | $35.4 | $51.5 | (31.3)% | - The decline in segment profit was attributed to lower organic net sales, higher cost of goods sold, negative foreign currency impact, and increased brand investment[107] Sun and Skin Care Sun and Skin Care net sales increased by 7.7% to $112.9 million in Q1 fiscal 2023, driven by 10.1% organic growth, primarily from strong international Sun Care performance, with segment profit surging by 254.1% due to higher sales and stronger gross profit from increased pricing Sun and Skin Care | Metric | Q1 FY23 (in millions) | Q1 FY22 (in millions) | % Change | | :--------------------------------- | :-------------------- | :-------------------- | :------- | | Net sales | $112.9 | $104.8 | 7.7% | | Organic net sales change | $10.6 | - | 10.1% | | Segment profit | $13.1 | $3.7 | 254.1% | - International Sun Care growth was 68%, led by Oceania and Latin America, while North America Sun Care organic net sales decreased 6.5%[109] Feminine Care Feminine Care net sales increased by 11.7% to $80.9 million in Q1 fiscal 2023, driven by higher pricing and improved product availability, with segment profit rising by 40.5% due to increased sales and gross profit, partially offset by higher advertising and promotion support Feminine Care | Metric | Q1 FY23 (in millions) | Q1 FY22 (in millions) | % Change | | :--------------------------------- | :-------------------- | :-------------------- | :------- | | Net sales | $80.9 | $72.4 | 11.7% | | Organic net sales change | $8.7 | - | 12.0% | | Segment profit | $11.8 | $8.4 | 40.5% | - The increase in net sales was driven by higher pricing and improved product availability[111] General Corporate and Other Expenses General corporate and other expenses decreased to $21.3 million in Q1 fiscal 2023 from $25.7 million in the prior year, primarily due to lower acquisition and integration costs and the absence of VAT settlement costs, despite an increase in core corporate expenses General Corporate and Other Expenses | Expense Category | Q1 FY23 (in millions) | Q1 FY22 (in millions) | | :--------------------------------- | :-------------------- | :-------------------- | | Corporate expenses | $15.9 | $10.8 | | Restructuring and related costs | $2.8 | $2.2 | | Acquisition and integration costs | $2.1 | $6.0 | | Sun Care reformulation costs | $0.5 | $3.3 | | Value-added tax settlement costs | — | $3.4 | | Total General corporate and other expenses | $21.3 | $25.7 | - The increase in core corporate expenses was primarily due to higher benefit and legal costs[113] Liquidity and Capital Resources The company's total borrowings increased to $1,530.2 million as of December 31, 2022, with $164.1 million available under its revolving credit facility, and management expects sufficient liquidity from cash on hand, operations, and borrowing capacity to meet future requirements - Total borrowings were $1,530.2 million at December 31, 2022, with $280.2 million tied to variable interest rates[117] - $164.1 million was available under the Revolving Credit Facility as of December 31, 2022[117] - The company expects to generate positive cash flows from operations, which are affected by the seasonality of Sun Care products[119] Cash Flows Net cash used by operating activities increased to $86.3 million in Q1 fiscal 2023 due to a larger working capital build, while net cash used by investing activities significantly decreased due to the prior year's Billie acquisition, and net cash from financing activities also decreased Cash Flows | Cash Flow Activity | Q1 FY23 (in millions) | Q1 FY22 (in millions) | | :--------------------------------- | :-------------------- | :-------------------- | | Operating activities | $(86.3) | $(79.0) | | Investing activities | $(11.2) | $(312.7) | | Financing activities | $82.9 | $155.5 | | Net (decrease) increase in cash and cash equivalents | $(4.6) | $(239.4) | - The decrease in cash flows from operating activities was driven by a larger net working capital build[125] - Investing activities in the prior year included the $308.8 million Billie acquisition and $5.0 million from the sale of the Infant and Pet Care business[126] Share Repurchases The company repurchased 0.4 million shares of common stock for $15.0 million during Q1 fiscal 2023, with 6.1 million shares remaining under the Board's authorization - 0.4 million shares were repurchased for $15.0 million in Q1 fiscal 2023[128] - 6.1 million shares remain available for repurchase under the 2018 Board authorization[128] Dividends Dividends declared totaled $8.0 million in Q1 fiscal 2023, with a quarterly cash dividend of $0.15 per common share declared for both the fourth fiscal quarter of 2022 and the first fiscal quarter of 2023 - Dividends declared during Q1 fiscal 2023 totaled $8.0 million[130] - A quarterly cash dividend of $0.15 per common share was declared for the fourth fiscal quarter of 2022 (paid Jan 4, 2023) and the first fiscal quarter of 2023 (payable April 5, 2023)[129] Commitments and Contingencies As of December 31, 2022, the company had $255.0 million outstanding under its revolving credit facility, with future minimum debt repayments scheduled for fiscal years 2025, 2028, and 2029 - Outstanding borrowings under the Revolving Credit Facility were $255.0 million as of December 31, 2022[131] Commitments and Contingencies | Fiscal Year | Future Minimum Debt Repayments (in millions) | | :---------- | :------------------------------------------- | | 2025 | $255.0 | | 2028 | $750.0 | | 2029 | $500.0 | Critical Accounting Policies There have been no significant changes to the company's critical accounting policies and estimates since September 30, 2022, which are fully described in its 2022 Annual Report - No significant changes to critical accounting policies and estimates since September 30, 2022[132] Item 3. Quantitative and Qualitative Disclosures About Market Risk. The company's market risk primarily stems from adverse changes in currency rates, commodity prices, and interest rates, using derivatives to mitigate foreign currency exposure, where a 1% increase in interest rates would raise annual interest expense by approximately $2.8 million - Market risk is inherent in financial instruments and positions, primarily from currency rates, commodity prices, and interest rates[134] - The company uses contractual arrangements (derivatives) to reduce foreign currency exposures[134] - A one-percent increase in applicable interest rates on variable-rate debt ($280.2 million) would increase annual interest expense by approximately $2.8 million[134] Item 4. Controls and Procedures. Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of December 31, 2022, concluding they were effective, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of December 31, 2022[138] - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2022[139] PART II. OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. During the first quarter of fiscal 2023, the company repurchased 378,301 shares under its 2018 Board authorization, with 6,097,729 shares remaining available for repurchase as of December 31, 2022 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------------- | :------------------------------- | :--------------------------- | | October 1 to 31, 2022 | 129,549 | $38.56 | | November 1 to 30, 2022 | 307,919 | $39.96 | | December 1 to 31, 2022 | 141,907 | $40.65 | - 378,301 shares were repurchased under the 2018 Board authorization during Q1 fiscal 2023[143] - As of December 31, 2022, 6,097,729 shares remained available for repurchase under the plan[142] Item 6. Exhibits. This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, credit agreements, indentures, and certifications from the CEO and CFO - Exhibits include corporate organizational documents (Articles of Incorporation, Bylaws), debt agreements (Credit Agreement, Indentures), and certifications (CEO/CFO certifications under Sarbanes-Oxley Act)[145][146] SIGNATURE The report is duly signed on behalf of Edgewell Personal Care Company by Daniel J. Sullivan, Chief Financial Officer, on February 8, 2023 - The report was signed by Daniel J. Sullivan, Chief Financial Officer, on February 8, 2023[149]