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. Edgewell operates in more than 20 countries and has a global footprint in more than 50 countries.
The Company conducts its business in the following three segments:
•Wet Shave consists of products sold under the Schick®, Wilkinson Sword®, Edge, Skintimate®, 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 and Cremo®, Jack Black® and Bulldog® men’s skin care products, as well as Wet Ones® wipes and Playtex® household gloves until the sale of the gloves assets in October 2017.
•Feminine Care includes tampons, pads and liners sold under the Playtex Gentle Glide® and Sport®, Stayfree®, Carefree® and o.b.® brands.
Through December 2019, the Company also conducted business in its All Other segment which included infant and pet care products, such as bottles, cups and pacifiers, sold under the Playtex®, OrthoPro® and Binky® brand names, as well as the Diaper Genie® and Litter Genie® disposal systems. The Company completed the sale of the Infant and Pet Care business in December 2019.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its controlled subsidiaries and have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”), under the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results may differ materially from those estimates. All intercompany balances and transactions have been eliminated in consolidation and, in the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.
Acquisition of Cremo. On September 2, 2020, the Company completed the acquisition of Cremo Holding Company, LLC (“Cremo”), a men’s skincare products company based in the United States. The results of Cremo for the post-acquisition period are included within the Company’s results since the acquisition date for the fiscal year ended September 30, 2020. For more information on the acquisition, see Note 3 of Notes to Consolidated Financial Statements.
Sale of Infant and Pet Care assets. On December 17, 2019, the Company completed the sale of its Infant and Pet Care business which was included in the All Other segment through the date of the sale. The All Other segment will have no further operating results after the first quarter of fiscal 2020. Operations for the Company’s manicure kits were reclassified to the Sun and Skin Care segment for both the current and prior year periods as these products were not part of the divestiture. The impact of recasting the prior period segment information was not material. For more information on the sale of Infant and Pet Care assets, see Note 3 of Notes to Consolidated Financial Statements.
Acquisition of Jack Black. On March 1, 2018, the Company completed the acquisition of Jack Black, L.L.C. (“Jack Black”), a luxury men’s skincare products company based in the United States. The results of Jack Black for the post-acquisition period are included within the Company’s results since the acquisition date for the fiscal years ended September 30, 2020, 2019 and 2018. For more information on the acquisition, see Note 3 of Notes to Consolidated Financial Statements.
Note 2 - Summary of Significant Accounting Policies
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 income 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 (loss). Foreign currency losses of $10.5, $3.9 and $3.7 during fiscal 2020, 2019 and 2018, respectively, were included within Other expense (income), net. 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 used are selected based on their risk reduction attributes, costs and the related market conditions. The Company has designated certain foreign currency contracts as cash flow hedges for accounting purposes as of September 30, 2020.
At September 30, 2020, the Company had $21.1 of variable rate debt outstanding. The Company has, in the past, used interest rate swaps to hedge the risk of variable rate debt. As of September 30, 2020, 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.
Cash Equivalents
Cash equivalents are considered to be highly liquid investments with a maturity of three months or less when purchased. At September 30, 2020, the Company had $364.7 in available cash and cash equivalents, a portion of which was outside of the U.S. The Company has extensive operations outside of the U.S., including a significant manufacturing footprint. The Company manages its worldwide cash requirements by reviewing available funds among the many subsidiaries through which it conducts its business and the cost effectiveness with which those funds can be accessed. The repatriation of cash balances from certain of the Company’s subsidiaries could have adverse tax consequences or be subject to regulatory capital requirements; however, those balances are generally available without legal restrictions to fund ordinary business operations.
Cash Flow Presentation
The Consolidated Statements of Cash Flows are prepared using the indirect method, which reconciles Net earnings (loss) to Net cash from operating activities. The reconciliation adjustments include the removal of timing differences between the occurrence of operating receipts and payments and their recognition in Net earnings (loss). The adjustments also remove cash flows arising from investing and financing activities, which are presented separately from operating activities. Cash flows from foreign currency transactions and operations are translated at an average exchange rate for the period. Cash flows from hedging activities are included in the same category as the items being hedged, which is primarily operating activities. Cash payments related to income taxes are classified as operating activities.
Trade Receivables
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 the trade receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information. Bad debt expense is included in Selling, general and administrative expense (“SG&A”). The Company began an accounts receivable factoring program in September 2017. For further discussion, see Note 10 of Notes to Consolidated Financial Statements.
Inventories
Inventories are valued at the lower of cost or net realizable value, with cost generally being determined using average cost or the first-in, first-out (“FIFO”) method.
Capitalized Software Costs
Capitalized software costs are included in Property, plant and equipment, net. These costs are amortized using the straight-line method over periods of related benefit ranging from three to seven years. Expenditures related to capitalized software are included within Capital expenditures in the Consolidated Statements of Cash Flows. Amortization expense associated with capitalized software was $5.2, $4.3, and $5.3 in fiscal 2020, 2019 and 2018, respectively.
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 (loss). 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 two to 10 years for machinery and equipment and three to 30 years for buildings and building improvements. Depreciation expense was $66.3, $69.9 and $74.3 in fiscal 2020, 2019 and 2018, respectively. Fiscal 2019 depreciation expense includes accelerated depreciation charges of $1.9 related to restructuring activities. See Note 4 of Notes to Consolidated Financial Statements for further information on restructuring charges.
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.
Goodwill and Other Intangible Assets
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 estimated fair value of each reporting unit (Wet Shave, Sun Care, Skin Care and Feminine Care) is estimated 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 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 vary significantly from these projections. The Company will monitor any changes to these assumptions and will evaluate the carrying value of goodwill as deemed warranted during future periods. The continued duration and severity of the COVID-19 pandemic may result in future impairment charges as a prolonged pandemic could have an additional impact on the results of the Company’s operations due to changes in consumer habits.
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, discount rates and terminal growth rates, as well as future levels of revenue growth, and operating margins, which are based upon the Company’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. The estimated fair value was determined 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 five to 20 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
The Company reviews long-lived assets, other than goodwill and other intangible assets, for impairment when events or changes in business circumstances indicate that the remaining useful life may warrant revision or that the carrying amount of the long-lived asset may not be fully recoverable. The Company performs an undiscounted cash flow analysis to determine if impairment exists for an asset or asset group. If impairment is determined to exist, any related impairment loss is calculated based on estimated fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less cost of disposal.
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 the 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.
Significant Judgments
The Company records sales at the time that control of goods pass to the customer. The terms of these sales vary but, in all instances, the following conditions are met: (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. 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 $44.8 and $60.4 at September 30, 2020 and September 30, 2019, respectively. The adoption of ASU 2014-09 required changes in the presentation of returns on the Consolidated Balance Sheet, namely that a return asset should be recognized for returns expected to be resold, measured at the carrying amount of goods at the time of sale, less the expected costs to recover the goods and any expected reduction in value.
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 $1.4 and $1.7 at September 30, 2020 and September 30, 2019, 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 the receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts, and other currently available information.
Advertising and Sales Promotion Costs
The Company advertises and promotes its products through national and regional media and expenses such activities as incurred. Advertising and sales promotion expense reported on the Consolidated Statements of Earnings and Comprehensive Income (Loss) includes advertising costs of $121.2, $137.9 and $171.3 for fiscal 2020, 2019 and 2018, respectively.
Share-Based Payments
The Company grants restricted share equivalents (“RSE”), which generally vest over two 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. 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 targets will be achieved. If such targets 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 in the period the determination is made. If it is determined that the performance targets will be exceeded, additional compensation expense is recognized.
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 (loss), statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Tax law requires certain items be included in the 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 the changing facts and circumstances, such as the progress of tax audits, and adjusts them accordingly.
Estimated Fair Values of Financial Instruments
Certain financial instruments are required to be recorded at estimated fair value. Changes in assumptions or estimation methods could affect the fair value estimates; however, the Company does not believe any such changes would have a material impact on its financial condition, results of operations or cash flows. Other financial instruments including cash and cash equivalents and short-term borrowings, including notes payable, are recorded at cost, which approximates estimated fair value. The estimated fair values of long-term debt and financial instruments are disclosed in Note 16 of Notes to Consolidated Financial Statements.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02 which amends existing lease accounting guidance to require recognition of lease assets and lease liabilities on the balance sheet for leases previously classified as operating leases. Additionally, this update requires qualitative disclosure along with specific quantitative disclosures. The Company adopted the standard effective October 1, 2019, using the modified retrospective approach with no restatement of prior period amounts. As a result of adoption, the Company recognized leased right of use assets and liabilities of $57.4 and $57.5, respectively. The impact to the Consolidated Statements of Earnings and Comprehensive Income (Loss) and Consolidated Statement of Cash Flows was not material for fiscal 2020. Refer to Note 9 in Notes to Consolidated Financial Statements for further discussion on recently adopted accounting pronouncements.
In August 2017, the FASB issued ASU 2017-12, which eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also modifies the accounting for components excluded from the assessment of hedge effectiveness, eases documentation and assessment requirements and modifies certain disclosure requirements. The Company adopted the standard effective October 1, 2019. The impact from adoption of this new accounting pronouncement was not material to the Company's financial statements for fiscal 2020.
In June 2018, the FASB issued ASU 2018-07, which simplifies the treatment of share-based payment transactions used in acquiring goods and services from non-employees. The amendments note that measurement of share-based payments used to acquire goods or services should be valued at the grant-date fair value. The grant date is defined as the date at which the grantor and grantee reach a mutual understanding of the terms and conditions of the award. Finally, any awards containing a performance condition should be valued considering the probability of satisfying the necessary performance conditions consistent with employee share-based awards. The Company adopted the standard effective October 1, 2019. The impact from adopting this guidance was not material to the Company's financial statements for fiscal 2020.
In March 2020, the SEC issued Final Rule No. 33-10762 and Final Rule No. 34-88307, Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant's Securities. The final rule amends the disclosure requirements in SEC Regulation S-X, Rule 3-10, which currently requires entities to separately present financial statements for subsidiary issuers and guarantors of registered debt securities unless certain exceptions are met. The rule permits entities to provide summarized financial information of the parent company and each issuer and guarantor in either a note to the financial statements or in management's discussion and analysis. The final rule is effective for filings beginning October 1, 2021, with early adoption permitted. The Company adopted the final rule in the second quarter of fiscal 2020.
In March 2020, the FASB issued ASU 2020-04, which provides optional guidance to ease the potential burden in accounting for and recognizing the effects of reference rate reform on financial reporting. The amendments provide expedients and exceptions to GAAP for contracts, hedging relationships, and other transactions affected by reference rate reform including contracts within the scope of Topic 310 Receivables and Topic 470 Debt, which should be accounted for prospectively adjusting the effective interest rate. Modifications within the scope of Topic 842 should be accounted for as a continuation with no reassessment of lease classification and discount rate. Additionally, modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative. These amendments are effective immediately and may be applied prospectively to new contracts and modifications entered into on or before December 31, 2022. The impact on the adoption of the guidance was not material to the financial statements.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13 intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The new guidance applies to all financial instruments, including trade receivables, and requires the measurement of all expected credit losses for financial assets held at a reporting date to be based on historical experience, current conditions and reasonable and supportable forecasts. Previous guidance did not include forward-looking information. The update will be effective for the Company beginning October 1, 2020 and early adoption is permitted for fiscal years beginning after December 15, 2018. The Company is in the process of evaluating the impact the guidance will have on its financial statements. The impact of the new guidance is not expected to be material and will be dependent on the credit quality of the trade receivables outstanding at the date of adoption. The Company evaluates the credit-worthiness of customers when negotiating contracts and, as trade receivables are short term in nature, the timing between recognition of a credit loss under existing guidance and the new guidance is not expected to differ materially.
In August 2018, the FASB issued ASU 2018-13 adjusting the disclosure requirements for fair value measurements. The guidance updates the disclosure requirements regarding leveling of fair value assets and the valuation of Level 3 fair value measurements. The update will be effective for the Company beginning October 1, 2020 and early adoption is permitted. The standard will not result in material changes to the required disclosures.
In August 2018, the FASB issued ASU 2018-14 which modifies the disclosure requirements for defined benefit pension plans and other post retirement plans. The guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. The new standard will be effective for the Company beginning October 1, 2020 and early adoption is permitted. The standard will not result in material changes to the required disclosures.
In August 2018, the FASB issued ASU 2018-15 which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this ASU require an entity that is the customer in a hosting arrangement to follow the guidance on internal-use software to determine which implementation costs to capitalize and which costs to expense. The standard also requires a customer to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement. The new guidance requires an entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The entity is also required to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. The guidance is effective for the Company beginning October 1, 2020 and early adoption is permitted. The adoption of this guidance could impact the timing of expenses associated with implementation costs for internal-use software but does not expect it to have a material impact to the financial statements or required disclosures.
In December 2019, the FASB issued ASU 2019-12, which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period when interim loss exceeds anticipated loss for the year, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard will be effective for the Company beginning October 1, 2021, with early adoption permitted. The Company is in the process of evaluating the impact, if any, this guidance will have on its financial statements.
In May 2020, the SEC issued Final Rule 33-10786, Amendments to Financial Disclosures and Acquired and Disposed Businesses, that amends business acquisition and disposition financial disclosure requirements. Among other modifications, the amendments change certain criteria in the significance tests used to determine the requirements for audited financial statements and related pro forma financial information, the periods audited financial statements must cover, and the form and content of the pro forma financial information. The final rule will be effective beginning January 1, 2021, however early adoption is permitted.
Note 3 - Business Combinations and Divestitures
Cremo Holding Company, LLC
On September 2, 2020, the Company completed the acquisition of Cremo Holding Company, LLC (“Cremo”). The Company accounted for the acquisition of Cremo 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 judgement. We have calculated fair values of assets and liabilities acquired from Cremo based on our preliminary valuation analysis. Certain preliminary values, including working capital adjustments and goodwill, are not yet finalized and are subject to change. The Company expects to complete the final fair value determination of the Cremo acquisition in fiscal year 2021.
The Company used variations of the income approach in determining the fair value of intangible assets acquired in the acquisition of Cremo. 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. 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 Company’s purchase price allocation for Cremo included net assets of $234.3 and consisted of working capital and other net assets of $11.5 (including cash of $0.7), other intangible assets of $95.1 and goodwill of $127.7, representing the value of expansion into new markets. Goodwill 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 the revenues and net earnings of Cremo from the beginning of the period through the acquisition date 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 ASC 805. Acquisition and integration costs related to Cremo totaling $7.0 for the year ended September 30, 2020, were included in SG&A on the Consolidated Statement of Earnings. Additionally, acquisition and integration costs of $0.6 were included in Cost of products sold for the year ended September 30, 2020.
Sale of Infant and Pet Care Business
On December 17, 2019, the Company completed the sale of its Infant and Pet Care business, included in the All Other segment, for $122.5, which included consideration for providing services to the purchaser for up to one year under a transition services agreement. The Company received proceeds of $107.5, which includes the consideration for providing support under the transition services agreement, and the remaining sales price receivable includes $7.5 reported in current assets and $5.0 reported in other assets as of September 30, 2020. Total assets included in the sale were comprised of $18.8 of inventory, $3.6 of property, plant and equipment, and $77.8 of goodwill and intangible assets. The sale of the Infant and Pet Care business resulted in a gain of $4.1, net of expenses incurred to facilitate the closing of the transaction and in support of the transition services agreement.
Jack Black, L.L.C.
The Company acquired Jack Black, L.L.C. on March 1, 2018. The Company recognized the assets and liabilities of Jack Black based on estimates of their acquisition date fair values. The determination of the fair values of the acquired assets and assumed liabilities, including goodwill and other intangible assets, requires significant judgment. The Company completed the final fair value determination during the fourth quarter of fiscal 2018.
The Company’s purchase price allocation for Jack Black included net assets of $93.9 and consisted of working capital and other net assets of $11.9 (including cash of $3.7), other intangible assets of $47.7 and goodwill of $34.3, representing the value of expansion into new markets. Goodwill is deductible for tax purposes. The intangible assets acquired consisted primarily of the Jack Black 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 the revenues and net earnings of Jack Black from the beginning of the period through the acquisition date were not material relative to the total revenues and net earnings of the Company during fiscal 2018. Acquisition and integration costs related to Jack Black, totaling $1.6 for the year ended September 30, 2019, were included in SG&A on the Consolidated Statement of Earnings. Acquisition and integration costs related to Jack Black, totaling $3.4 for the year ended September 30, 2018, were included in SG&A in the Consolidated Statement of Earnings. Additionally, acquisition and integration costs of $1.8 were included in Cost of products sold for the year ended September 30, 2018.
Sale of Playtex Gloves Assets
On October 3, 2017, the Company entered into an agreement to sell its Playtex gloves assets to a household products company for $19.0. The sale was completed on October 26, 2017. Total assets sold were approximately $3.7 resulting in a pre-tax gain on sale of $15.3 in fiscal 2018.
Note 4 - Restructuring Charges
Project Fuel
The Company does not include Project Fuel restructuring costs in the results of its reportable segments. The estimated impact of allocating such charges to segment results for fiscal 2020, 2019, and 2018 would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2020
|
|
Wet
Shave
|
|
Sun and Skin Care
|
|
Feminine Care
|
|
All Other
|
|
Corporate
|
|
Total
|
Project Fuel
|
|
|
|
|
|
|
|
|
|
|
|
Severance and related benefit costs
|
$
|
0.2
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7.6
|
|
|
$
|
8.1
|
|
Asset impairment and accelerated depreciation
|
1.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
1.7
|
|
Consulting, project implementation and management and other exit costs
|
9.5
|
|
|
0.8
|
|
|
0.4
|
|
|
—
|
|
|
17.6
|
|
|
28.3
|
|
Total Restructuring
|
$
|
11.4
|
|
|
$
|
1.1
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
25.2
|
|
|
$
|
38.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019
|
|
Wet
Shave
|
|
Sun and Skin Care
|
|
Feminine
Care
|
|
All Other
|
|
Corporate
|
|
Total
|
Project Fuel
|
|
|
|
|
|
|
|
|
|
|
|
Severance and related benefit costs
|
$
|
12.3
|
|
|
$
|
2.2
|
|
|
$
|
1.2
|
|
|
$
|
0.5
|
|
|
$
|
7.3
|
|
|
$
|
23.5
|
|
Asset impairment and accelerated depreciation
|
3.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.1
|
|
|
$
|
4.2
|
|
Consulting, project implementation and management and other exit costs
|
4.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23.1
|
|
|
27.9
|
|
Total Restructuring
|
$
|
20.2
|
|
|
$
|
2.2
|
|
|
$
|
1.2
|
|
|
$
|
0.5
|
|
|
$
|
31.5
|
|
|
$
|
55.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2018
|
|
Wet
Shave
|
|
Sun and Skin Care
|
|
Feminine
Care
|
|
All Other
|
|
Corporate
|
|
Total
|
Project Fuel
|
|
|
|
|
|
|
|
|
|
|
|
Severance and related benefit costs
|
$
|
3.1
|
|
|
$
|
0.9
|
|
|
$
|
1.1
|
|
|
$
|
0.1
|
|
|
$
|
6.9
|
|
|
$
|
12.1
|
|
Asset impairment and accelerated depreciation
|
1.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
1.8
|
|
Consulting, project implementation and management and other exit costs
|
2.3
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
23.5
|
|
|
26.0
|
|
Total Restructuring
|
$
|
7.2
|
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
|
$
|
0.1
|
|
|
$
|
30.4
|
|
|
$
|
39.9
|
|
Consulting, project implementation and management and other exit costs include pre-tax SG&A of $13.3, $8.6, and $1.4 for fiscal 2020, 2019, and 2018, respectively, associated with certain information technology enablement expenses and compensation expenses related to Project Fuel. Asset impairment and accelerated depreciation includes pre-tax Cost of products sold of $0.2 and $0.6 for fiscal 2020 and 2019, respectively, associated with inventory obsolescence related to Project Fuel. Project-to-date restructuring costs inclusive of information technology enablement charges and inventory obsolescence totaled $133.6.
Restructuring Reserves
The following table summarizes Project Fuel activities and related accruals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilized
|
|
|
|
October 1, 2019
|
|
Charge to
Income
|
|
Other (1)
|
|
Cash
|
|
Non-Cash
|
|
September 30, 2020
|
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
Severance and termination related costs
|
$
|
8.2
|
|
|
$
|
8.1
|
|
|
$
|
0.1
|
|
|
$
|
(12.1)
|
|
|
$
|
—
|
|
|
$
|
4.3
|
|
Asset impairment and accelerated depreciation
|
—
|
|
|
1.7
|
|
|
—
|
|
|
—
|
|
|
(1.7)
|
|
|
—
|
|
Other related costs
|
1.3
|
|
|
28.3
|
|
|
—
|
|
|
(28.5)
|
|
|
—
|
|
|
1.1
|
|
Total Restructuring
|
$
|
9.5
|
|
|
$
|
38.1
|
|
|
$
|
0.1
|
|
|
$
|
(40.6)
|
|
|
$
|
(1.7)
|
|
|
$
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilized
|
|
|
|
October 1, 2018
|
|
Charge to
Income
|
|
Other (1)
|
|
Cash
|
|
Non-Cash
|
|
September 30,
2019
|
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
Severance and termination related costs
|
$
|
5.1
|
|
|
$
|
23.5
|
|
|
$
|
—
|
|
|
$
|
(20.4)
|
|
|
$
|
—
|
|
|
$
|
8.2
|
|
Asset impairment and accelerated depreciation
|
—
|
|
|
4.2
|
|
|
—
|
|
|
—
|
|
|
(4.2)
|
|
|
—
|
|
Other related costs
|
2.6
|
|
|
27.9
|
|
|
—
|
|
|
(29.2)
|
|
|
—
|
|
|
1.3
|
|
Total Restructuring
|
$
|
7.7
|
|
|
$
|
55.6
|
|
|
$
|
—
|
|
|
$
|
(49.6)
|
|
|
$
|
(4.2)
|
|
|
$
|
9.5
|
|
(1)Includes the impact of currency translation.
Note 5 - Income Taxes
The provisions for income taxes from continuing operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2020
|
|
2019
|
|
2018
|
Currently payable:
|
|
|
|
|
|
United States - Federal
|
$
|
1.2
|
|
|
$
|
16.1
|
|
|
$
|
26.4
|
|
State
|
2.3
|
|
|
4.1
|
|
|
1.7
|
|
Foreign
|
19.1
|
|
|
21.7
|
|
|
29.2
|
|
Total current
|
22.6
|
|
|
41.9
|
|
|
57.3
|
|
Deferred:
|
|
|
|
|
|
United States - Federal
|
(2.8)
|
|
|
(52.4)
|
|
|
(4.1)
|
|
State
|
0.5
|
|
|
(7.0)
|
|
|
6.5
|
|
Foreign
|
(0.6)
|
|
|
(0.6)
|
|
|
0.8
|
|
Total deferred
|
(2.9)
|
|
|
(60.0)
|
|
|
3.2
|
|
Income tax provision (benefit)
|
$
|
19.7
|
|
|
$
|
(18.1)
|
|
|
$
|
60.5
|
|
The source of pre-tax earnings (loss) was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2020
|
|
2019
|
|
2018
|
United States
|
$
|
(27.4)
|
|
|
$
|
(415.6)
|
|
|
$
|
5.3
|
|
Foreign
|
114.7
|
|
|
25.3
|
|
|
158.5
|
|
Pre-tax earnings (loss)
|
$
|
87.3
|
|
|
$
|
(390.3)
|
|
|
$
|
163.8
|
|
A reconciliation of income taxes with the amounts computed at the statutory federal income tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2020
|
|
2019
|
|
2018
|
Computed tax at federal statutory rate
|
$
|
18.3
|
|
|
21.0
|
%
|
|
$
|
(81.9)
|
|
|
21.0
|
%
|
|
$
|
40.2
|
|
|
24.5
|
%
|
State income taxes, net of federal tax benefit
|
1.0
|
|
|
1.1
|
|
|
(13.5)
|
|
|
3.5
|
|
|
0.4
|
|
|
0.2
|
|
Foreign tax less than the federal rate
|
(5.6)
|
|
|
(6.4)
|
|
|
15.8
|
|
|
(4.1)
|
|
|
(10.1)
|
|
|
(6.1)
|
|
Adjustments to prior years’ tax accruals
|
(0.5)
|
|
|
(0.5)
|
|
|
(1.5)
|
|
|
0.4
|
|
|
1.2
|
|
|
0.7
|
|
Other taxes including repatriation of foreign earnings
|
8.2
|
|
|
9.4
|
|
|
7.9
|
|
|
(2.0)
|
|
|
3.7
|
|
|
2.3
|
|
Other, net
|
1.1
|
|
|
1.3
|
|
|
5.2
|
|
|
(1.3)
|
|
|
(0.7)
|
|
|
(0.4)
|
|
Impairment
|
—
|
|
|
—
|
|
|
46.8
|
|
|
(12.0)
|
|
|
5.7
|
|
|
3.5
|
|
Sale of Infant and Pet Care business
|
1.6
|
|
|
1.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Uncertain tax positions
|
(4.4)
|
|
|
(5.1)
|
|
|
(0.5)
|
|
|
0.1
|
|
|
(1.2)
|
|
|
(0.8)
|
|
Tax reform
|
—
|
|
|
—
|
|
|
3.6
|
|
|
(1.0)
|
|
|
21.3
|
|
|
13.0
|
|
Total
|
$
|
19.7
|
|
|
22.6
|
%
|
|
$
|
(18.1)
|
|
|
4.6
|
%
|
|
$
|
60.5
|
|
|
36.9
|
%
|
The deferred tax assets and deferred tax liabilities recorded on the balance sheet were as follows, and include current and noncurrent amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2020
|
|
2019
|
Deferred tax liabilities:
|
|
|
|
Depreciation and property differences
|
$
|
(28.4)
|
|
|
$
|
(31.4)
|
|
Intangible assets
|
(180.1)
|
|
|
(185.4)
|
|
Lease liabilities
|
(11.4)
|
|
|
—
|
|
Other tax liabilities
|
(8.6)
|
|
|
(5.5)
|
|
Gross deferred tax liabilities
|
(228.5)
|
|
|
(222.3)
|
|
Deferred tax assets:
|
|
|
|
Accrued liabilities
|
47.2
|
|
|
49.5
|
|
Deferred and share-based compensation
|
16.1
|
|
|
16.4
|
|
Tax loss carryforwards and tax credits
|
11.6
|
|
|
8.0
|
|
Postretirement benefits other than pensions
|
1.6
|
|
|
2.5
|
|
Pension plans
|
53.1
|
|
|
59.1
|
|
Inventory differences
|
5.0
|
|
|
3.9
|
|
Lease right of use assets
|
11.4
|
|
|
—
|
|
Other tax assets
|
11.7
|
|
|
14.1
|
|
Gross deferred tax assets
|
157.7
|
|
|
153.5
|
|
Valuation allowance
|
(8.5)
|
|
|
(7.2)
|
|
Net deferred tax liabilities
|
$
|
(79.3)
|
|
|
$
|
(76.0)
|
|
There were no material tax loss carryforwards that expired in fiscal 2020. Future expirations of tax loss carryforwards and tax credits, if not utilized, are not material from 2021 through 2023. The valuation allowance is primarily attributable to tax loss 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 retirements obligations, fund capital projects and to support foreign growth initiatives including potential acquisitions. As of September 30, 2020, approximately $792.3 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.
Unrecognized tax benefits activity is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Unrecognized tax benefits, beginning of year
|
$
|
25.5
|
|
|
$
|
20.7
|
|
|
$
|
22.7
|
|
Additions based on current year tax positions and acquisitions
|
1.8
|
|
|
9.4
|
|
|
1.8
|
|
Reductions for prior year tax positions and dispositions
|
(1.7)
|
|
|
(0.4)
|
|
|
(2.0)
|
|
Settlements with taxing authorities and statute expirations
|
(3.8)
|
|
|
(4.2)
|
|
|
(1.8)
|
|
Unrecognized tax benefits, end of year
|
$
|
21.8
|
|
|
$
|
25.5
|
|
|
$
|
20.7
|
|
Included in the unrecognized tax benefits noted above was $20.6 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.
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 $4.1 of interest, (net of the deferred tax asset of $0.6) at September 30, 2020, and $5.0 of interest, (net of the deferred tax asset of $0.9) at September 30, 2019. 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. U.S. federal income tax returns for tax years ended September 30, 2016 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, 2010. 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.
U.S. Tax Reform
On December 22, 2017, the U.S. government enacted the Tax Act. This new comprehensive tax legislation reduces the U.S. federal corporate tax rate from 35% to 21% but also limits and/or eliminates certain deductions while creating new taxes on certain foreign sourced earnings. Since the Company has a September 30 fiscal year end, the lower U.S. corporate income tax rate was phased in, resulting in a blended U.S. statutory federal rate of approximately 24.5% for the fiscal year ended September 30, 2018 and 21% for September 30, 2019 and thereafter. The reduction in the U.S. corporate tax rate required the Company to remeasure its U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which can be 24.5% or 21%. The Tax Act also imposed a one-time transition tax on historical earnings of certain foreign subsidiaries that were not previously taxed by the U.S.
For fiscal 2019, the discrete tax adjustment for the one-time transition tax on foreign earnings was $3.6 compared to $98.9 in fiscal 2018. The fiscal 2018 transition tax expense was offset by the estimated benefit of remeasurement of U.S. deferred tax assets and liabilities of $77.6, resulting in a net charge of $21.3 for the period, which was included as a component of income tax expense. The Company has tax loss carryforwards and tax credits, a portion of which are expected to be used to partially offset amounts payable over eight years related to the one-time transition tax on foreign earnings.
Subsequent to the Tax Act, the SEC issued rules under Staff Accounting Bulletin (“SAB”) 118 that allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. As of December 31, 2018, the Company completed the accounting analysis for the Tax Act under SAB 118 based on current guidance, interpretations, and data available. We will continue to monitor and assess the impact of any new guidance and legislative changes.
Due to the Company’s fiscal year end, certain tax provisions of the Tax Act impacted the Company in fiscal 2018 while others were effective for fiscal year 2019 and beyond. The significant provisions of the Tax Act which impacted the Company beginning in fiscal 2019 include the full U.S. federal statutory rate reduction to 21%, the repeal of the domestic production activities deduction, tax on global intangible low-taxed income (“GILTI”), base erosion and anti-avoidance tax (“BEAT”), limitation of deductibility of certain executive compensation, limitation on business interest, and a deduction for foreign derived intangible income (“FDII”). The Company recorded tax liabilities/(benefits) for the various provisions during fiscal 2019.
The Tax Act subjects a U.S. corporation to tax on its GILTI. U.S. GAAP allows companies to make an accounting policy election of either (i) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (ii) factoring such amounts into the Company’s measurement of deferred taxes (the “deferred method”). The Company has made an accounting policy election to treat GILTI taxes as a current period expense.
The Company continues to evaluate its plans for reinvestment or repatriation of unremitted foreign earnings and has not changed its previous indefinite reinvestment determination following the enactment of the Tax Act. If the Company determines that all or a portion of such foreign earnings are no longer indefinitely reinvested, the Company may be subject to additional foreign withholding taxes and U.S. federal and state income taxes beyond the Tax Act’s one-time transition tax.
Note 6 - Earnings (Loss) per Share
Basic earnings (loss) per share is based on the average number of common shares outstanding during the period. Diluted earnings (loss) 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 and RSE awards.
Following is the reconciliation between the number of weighted-average shares used in the basic and diluted earnings (loss) per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
54.3
|
|
|
54.1
|
|
|
54.4
|
|
Effect of dilutive securities:
|
|
|
|
|
|
RSE awards
|
0.3
|
|
|
—
|
|
|
0.1
|
|
Total dilutive securities
|
0.3
|
|
|
—
|
|
|
0.1
|
|
Diluted weighted-average shares outstanding
|
54.6
|
|
|
54.1
|
|
|
54.5
|
|
For fiscal 2020, 2019 and 2018, the calculation of diluted weighted-average shares outstanding excludes 0.7, 0.5 and 0.5, respectively, of share options because the effect of including these awards was anti-dilutive. For fiscal 2020 and 2018, the calculation of diluted weighted-average shares outstanding excludes 0.1 of RSE awards because the effect of including these awards was anti-dilutive. For fiscal 2019, the calculation of diluted weighted-average shares outstanding excludes 0.1 of RSE awards that would have otherwise been dilutive, because the Company reported a net loss.
Note 7 - Goodwill and Intangible Assets
The following table sets forth goodwill by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wet
Shave
|
|
Sun and Skin
Care
|
|
Feminine
Care
|
|
All
Other
|
|
Total
|
Gross balance at October 1, 2019
|
$
|
960.3
|
|
|
$
|
228.3
|
|
|
$
|
207.0
|
|
|
$
|
69.6
|
|
|
$
|
1,465.2
|
|
Accumulated goodwill impairment
|
(369.0)
|
|
|
(2.0)
|
|
|
—
|
|
|
(61.4)
|
|
|
(432.4)
|
|
Net balance at October 1, 2019
|
$
|
591.3
|
|
|
$
|
226.3
|
|
|
$
|
207.0
|
|
|
$
|
8.2
|
|
|
$
|
1,032.8
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the twelve months ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
Cremo acquisition
|
$
|
—
|
|
|
$
|
127.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
127.7
|
|
Infant and Pet Care divestiture
|
—
|
|
|
—
|
|
|
—
|
|
|
(8.2)
|
|
|
(8.2)
|
|
Cumulative translation adjustment
|
6.9
|
|
|
0.8
|
|
|
(0.3)
|
|
|
—
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
Gross balance at September 30, 2020
|
$
|
967.2
|
|
|
$
|
356.8
|
|
|
$
|
206.7
|
|
|
$
|
61.4
|
|
|
$
|
1,592.1
|
|
Accumulated goodwill impairment
|
(369.0)
|
|
|
(2.0)
|
|
|
—
|
|
|
(61.4)
|
|
|
(432.4)
|
|
Net balance at September 30, 2020
|
$
|
598.2
|
|
|
$
|
354.8
|
|
|
$
|
206.7
|
|
|
$
|
—
|
|
|
$
|
1,159.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wet
Shave
|
|
Sun and Skin
Care
|
|
Feminine
Care
|
|
All
Other
|
|
Total
|
Gross balance at October 1, 2018
|
$
|
968.2
|
|
|
$
|
229.4
|
|
|
$
|
208.0
|
|
|
$
|
69.6
|
|
|
$
|
1,475.2
|
|
Accumulated goodwill impairment
|
—
|
|
|
—
|
|
|
—
|
|
|
(24.4)
|
|
|
(24.4)
|
|
Net balance at October 1, 2018
|
$
|
968.2
|
|
|
$
|
229.4
|
|
|
$
|
208.0
|
|
|
$
|
45.2
|
|
|
$
|
1,450.8
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the twelve months ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
Impairment charges
|
$
|
(369.0)
|
|
|
$
|
(2.0)
|
|
|
$
|
—
|
|
|
$
|
(37.0)
|
|
|
$
|
(408.0)
|
|
Cumulative translation adjustment
|
(7.9)
|
|
|
(1.1)
|
|
|
(1.0)
|
|
|
—
|
|
|
(10.0)
|
|
|
|
|
|
|
|
|
|
|
|
Gross balance at September 30, 2019
|
$
|
960.3
|
|
|
$
|
228.3
|
|
|
$
|
207.0
|
|
|
$
|
69.6
|
|
|
$
|
1,465.2
|
|
Accumulated goodwill impairment
|
(369.0)
|
|
|
(2.0)
|
|
|
—
|
|
|
(61.4)
|
|
|
(432.4)
|
|
Net balance at September 30, 2019
|
$
|
591.3
|
|
|
$
|
226.3
|
|
|
$
|
207.0
|
|
|
$
|
8.2
|
|
|
$
|
1,032.8
|
|
Total amortizable intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
September 30, 2019
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
Trade names and brands
|
$
|
256.2
|
|
|
$
|
45.4
|
|
|
$
|
210.8
|
|
|
$
|
206.4
|
|
|
$
|
35.0
|
|
|
$
|
171.4
|
|
Technology and patents
|
79.1
|
|
|
75.3
|
|
|
3.8
|
|
|
78.5
|
|
|
76.4
|
|
|
2.1
|
|
Customer related and other
|
219.9
|
|
|
107.8
|
|
|
112.1
|
|
|
176.0
|
|
|
100.9
|
|
|
75.1
|
|
Total amortizable intangible assets
|
$
|
555.2
|
|
|
$
|
228.5
|
|
|
$
|
326.7
|
|
|
$
|
460.9
|
|
|
$
|
212.3
|
|
|
$
|
248.6
|
|
Amortization expense for intangible assets was $17.3, $17.7 and $17.7 for fiscal 2020, 2019 and 2018, respectively. Estimated amortization expense for amortizable intangible assets for fiscal 2021, 2022, 2023, 2024 and 2025 is approximately $22.0, $21.9, $21.9, $21.8 and $21.8, respectively, and $217.3 thereafter.
The Company had indefinite-lived trade names and brands of $601.4 ($183.1 in Wet Shave, $388.4 in Sun and Skin Care, and $29.9 in Feminine Care) at September 30, 2020, a decrease of $62.9 from September 30, 2019, primarily related to the divestiture of the Infant and Pet Care business, partially offset by foreign currency fluctuations. The Company had indefinite-lived trade names and brands of $664.3 ($177.7 in Wet Shave, $387.9 in Sun and Skin Care, $29.9 in Feminine Care and $68.8 in All Other) at September 30, 2019.
The change in indefinite-lived intangible assets was the result of the disposal of the Diaper Genie trade name in December 2019 and changes in foreign currency translation rates.
Goodwill and intangible assets deemed to have an indefinite life are not amortized but reviewed annually in the fourth quarter 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 impairment testing was conducted on July 1, 2020 using the Company’s strategic plan to calculate a five-year cash flow for all trade names. The valuation of the indefinite-lived intangible assets concluded there was no indication of impairment of indefinite-lived intangible assets for the Company’s annual test. The Company performed an assessment in the fourth quarter 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 additional impairment of the indefinite-lived intangible assets.
The Company performed an interim impairment analysis as of the end of the third quarter of fiscal 2019 as a result of a decline in the price of the Company’s common stock in the third quarter which was considered a triggering event. The interim impairment analysis was performed as of June 30, 2019, using the strategic plan to calculate a five-year cash flow for all trade names. The interim impairment analysis indicated that the indefinite-lived trade names for Wet Ones and Diaper Genie had carrying values that exceeded their fair values, resulting in non-cash impairments of $87.0 and $75.0, respectively, in fiscal 2019.
Goodwill
The Company performed its annual impairment analysis as of July 1, 2020 using the Company’s strategic plan to calculate a five-year cash flow for all reporting units. The analysis indicated that the fair value of each of the reporting units was greater than the respective carrying amounts of the goodwill. Additionally, the Company performed an assessment in the fourth quarter of fiscal 2020 to determine if any significant events or changes in circumstances had occurred that would be considered a potential triggering event. The assessment did not identify a triggering event that would indicate the existence of impairment of the reporting units.
During the third quarter of fiscal 2019, the Company recorded impairment charges on the goodwill of the Wet Shave, Infant Care and Skin Care reporting units totaling $369.0, $37.0 and $2.0, respectively, in fiscal 2019.
During the third quarter of fiscal 2018, the Company recorded impairment charges of $24.4 on the goodwill of the Infant Care reporting unit. The value of the Infant Care reporting unit decreased and required an impairment due to a higher discount rate and lower projected long-term future cash flows when the impairment analysis was performed.
Annual impairment testing
The annual impairment analysis performed in fiscal 2020 did not indicate that impairment existed in the reporting units or indefinite lived trade names. However, the annual impairment analysis indicated that the Wet Shave and Skin Care reporting units had fair values that were less than 110% of the carrying values. Additionally, the Banana Boat trade name had a fair value that was less than 110% of the carrying amount. The carrying amount of the goodwill of the Wet Shave and Skin Care reporting units as of September 30, 2020 was $598.2 and $103.6, respectively, excluding the estimated goodwill associated with the Cremo acquisition as of September 30, 2020. The carrying amount of the Banana Boat trade name was $277.2 as of September 30, 2020. The table below presents, based on the annual impairment test performed in fiscal 2020, the change in value of the Wet Shave and Skin Care reporting units and the Banana Boat trade name, given adjustments to the key assumptions. The analysis performed estimated the fair value of the reporting units if the discount rate was increased by 25 basis points or the long-term revenue growth rate was reduced by 25 basis points. The fair value and percentage that the fair value would have exceeded the carrying amount were recalculated using these adjustments to the assumptions.
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate increased by 25 bps
|
|
Long-term growth rate decreased by 25 bps
|
Wet Shave reporting unit
|
|
|
|
Change in fair value
|
$
|
(24)
|
|
|
$
|
(19)
|
|
Percentage by which fair value exceeds carrying amount
|
1.4
|
%
|
|
1.7
|
%
|
Skin Care reporting unit
|
|
|
|
Change in fair value
|
$
|
(8)
|
|
|
$
|
(6)
|
|
Percentage by which fair value exceeds carrying amount
|
1.8
|
%
|
|
2.6
|
%
|
Banana Boat trade name
|
|
|
|
Change in fair value
|
$
|
(9)
|
|
|
$
|
(7)
|
|
Percentage by which fair value exceeds carrying amount
|
2.2
|
%
|
|
3.0
|
%
|
Note 8 - Supplemental Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
September 30,
2019
|
Inventories
|
|
|
|
Raw materials and supplies
|
$
|
58.5
|
|
|
$
|
55.1
|
|
Work in process
|
71.5
|
|
|
66.5
|
|
Finished products
|
184.1
|
|
|
235.6
|
|
Total inventories
|
$
|
314.1
|
|
|
$
|
357.2
|
|
Other Current Assets
|
|
|
|
Miscellaneous receivables
|
$
|
23.3
|
|
|
$
|
14.9
|
|
Inventory returns receivable
|
1.0
|
|
|
4.9
|
|
Prepaid expenses
|
64.8
|
|
|
65.0
|
|
Value added tax collectible from customers
|
20.4
|
|
|
23.0
|
|
Income taxes receivable
|
26.3
|
|
|
29.1
|
|
Other
|
10.2
|
|
|
3.1
|
|
Total other current assets
|
$
|
146.0
|
|
|
$
|
140.0
|
|
Property, Plant and Equipment
|
|
|
|
Land
|
$
|
19.3
|
|
|
$
|
18.7
|
|
Buildings
|
142.2
|
|
|
137.4
|
|
Machinery and equipment
|
1,014.2
|
|
|
992.3
|
|
Capitalized software costs
|
53.6
|
|
|
47.8
|
|
Construction in progress
|
32.7
|
|
|
40.9
|
|
Total gross property, plant and equipment
|
1,262.0
|
|
|
1,237.1
|
|
Accumulated depreciation
|
(891.1)
|
|
|
(841.1)
|
|
Total property, plant and equipment, net
|
$
|
370.9
|
|
|
$
|
396.0
|
|
Other Current Liabilities
|
|
|
|
Accrued advertising, sales promotion and allowances
|
$
|
49.4
|
|
|
$
|
51.9
|
|
Accrued trade allowances
|
30.8
|
|
|
26.2
|
|
Accrued salaries, vacations and incentive compensation
|
62.6
|
|
|
51.5
|
|
Income taxes payable
|
13.4
|
|
|
11.5
|
|
Returns reserve
|
44.8
|
|
|
60.4
|
|
Restructuring reserve
|
5.4
|
|
|
9.5
|
|
Value added tax payable
|
6.8
|
|
|
3.6
|
|
Deferred compensation
|
5.9
|
|
|
10.4
|
|
Short term lease obligation
|
9.1
|
|
|
—
|
|
Customer advance payments
|
1.4
|
|
|
1.7
|
|
Other
|
77.9
|
|
|
78.7
|
|
Total other current liabilities
|
$
|
307.5
|
|
|
$
|
305.4
|
|
Other Liabilities
|
|
|
|
Pensions and other retirement benefits
|
$
|
121.0
|
|
|
$
|
149.8
|
|
Deferred compensation
|
28.2
|
|
|
30.3
|
|
Long term lease obligation
|
34.6
|
|
|
—
|
|
Other non-current liabilities
|
73.3
|
|
|
78.8
|
|
Total other liabilities
|
$
|
257.1
|
|
|
$
|
258.9
|
|
Note 9 - Leases
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment over a contracted period in exchange for payment. The Company evaluates if an arrangement is a lease at the effective date of the agreement. For operating leases entered into prior to October 1, 2019, the right of use (“ROU”) assets and operating lease liabilities are recognized on the balance sheet based on the present value of the remaining future minimum payments over the lease term from the implementation date. 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. Leases entered into subsequent to the implementation date calculate the operating lease ROU asset and operating lease liabilities based on the present value of minimum payments over the lease term at the effective date of the lease.
The Company leases certain offices and manufacturing facilities, warehouses, employee vehicles and certain manufacturing related equipment. 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 adopted ASU 2016-02 on October 1, 2019. The Company has elected to utilize the package of practical expedients permitted under the transition guidance, which allows it to carryforward its historical lease classification, its assessment on whether a contract was or contains a lease, and its assessment of initial direct costs for any leases that existed prior to October 1, 2019. Additionally, 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. The Company has made an accounting policy election not to recognize ROU assets and lease liabilities for leases that, at the commencement date, are for 12 months or less. 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.
A summary of the Company's lease information is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
Assets
|
Classification
|
|
Right of use assets
|
Other assets
|
$
|
43.5
|
|
|
|
|
Liabilities
|
|
|
Current lease liabilities
|
Other current liabilities
|
$
|
9.1
|
|
Long-term lease liabilities
|
Other liabilities
|
34.6
|
|
Total lease liabilities
|
|
$
|
43.7
|
|
|
|
|
Other information
|
|
|
Weighted-average remaining lease term (years)
|
|
12
|
Weighted-average incremental borrowing rate
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Fiscal Year Ended September 30, 2020
|
Statement of Earnings
|
|
|
|
Lease cost (1)
|
$
|
3.5
|
|
|
$
|
13.9
|
|
|
|
|
|
Other information
|
|
|
|
Leased assets obtained in exchange for new lease liabilities
|
$
|
0.8
|
|
|
$
|
1.9
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
3.0
|
|
|
$
|
13.4
|
|
(1)Lease expense is included in Cost of products sold or SG&A expense based on the nature of the lease. Short-term lease expense is excluded from this amount and is not material.
The Company's future lease payments including reasonably assured renewal options under lease agreements are as follows:
|
|
|
|
|
|
|
Operating Leases
|
Fiscal 2021
|
$
|
10.2
|
|
2022
|
7.6
|
|
2023
|
6.6
|
|
2024
|
5.2
|
|
2025
|
4.3
|
|
2026 and thereafter
|
35.9
|
|
Total future minimum lease commitments
|
69.8
|
|
Less: Imputed interest
|
(26.1)
|
|
Present value of lease liabilities
|
$
|
43.7
|
|
At September 30, 2019, the aggregate future minimum rental commitments under all non-cancelable operating lease agreements were as follows:
|
|
|
|
|
|
|
Operating Leases
|
Fiscal 2020
|
$
|
13.6
|
|
2021
|
10.5
|
|
2022
|
7.4
|
|
2023
|
5.9
|
|
2024
|
4.6
|
|
2025 and thereafter
|
12.5
|
|
Total future minimum lease commitments
|
$
|
54.5
|
|
Note 10 - Accounts Receivable Facility
On September 15, 2017, the Company entered into the $150 uncommitted Accounts Receivable Facility. Transfers under this agreement are accounted for as sales of receivables, resulting in the receivables being de-recognized from the Consolidated Balance Sheet. The purchaser assumes the credit risk at the time of sale and has the right at any time to assign, transfer or participate any of its rights under the purchased receivables to another bank or financial institution. The purchase and sale of receivables under the Accounts Receivable Facility is intended to be an absolute and irrevocable transfer without recourse by the purchaser to the Company for the creditworthiness of any obligor. The Company continues to have collection and servicing responsibilities for the receivables sold and receives separate compensation for their servicing. The compensation received is considered acceptable servicing compensation and, as such, the Company does not recognize a servicing asset or liability under the facility.
As of September 30, 2020, the discount rate used to determine the purchase price for the subject receivables is based upon LIBOR plus a margin applicable to the specified obligor.
Accounts receivable sold under the Accounts Receivable Facility for the year ended September 30, 2020 and 2019 were $869.0 and $995.5, respectively. The trade receivables sold that remained outstanding under the Accounts Receivable Facility as of September 30, 2020 and 2019 were $77.0 and $74.9, respectively. The net proceeds received were included in Net cash from 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 expense (income), net in the Consolidated Statement of Earnings. For the year ended September 30, 2020, the loss on sale of trade receivables was $1.4. For the year ended September 30, 2019, the loss on sale of trade receivables was $3.0.
Note 11 - Debt
The detail of long-term debt was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
September 30,
2019
|
Senior notes, fixed interest rate of 4.7%, due 2021(1)
|
$
|
—
|
|
|
$
|
600.0
|
|
Senior notes, fixed interest rate of 4.7%, due 2022 (1) (2)
|
500.0
|
|
|
500.0
|
|
Senior notes, fixed interest rate of 5.5%, due 2028(1)
|
750.0
|
|
|
—
|
|
U.S. revolving credit facility due 2025 (3)
|
—
|
|
|
—
|
|
U.S. revolving credit facility due 2020 (3)
|
—
|
|
|
117.0
|
|
Total long-term debt, including current maturities
|
1,250.0
|
|
|
1,217.0
|
|
Less current portion
|
—
|
|
|
117.0
|
|
Less unamortized debt issuance costs and discount (1) (2)
|
12.1
|
|
|
2.2
|
|
Total long-term debt
|
$
|
1,237.9
|
|
|
$
|
1,097.8
|
|
(1)At September 30, 2020, the balance for the Senior Notes due 2022 and the Senior Notes due 2028 are reflected net of debt issuance costs of $0.6 and $11.3, respectively. At September 30, 2019, the balance for the Senior Notes due 2021 and the Senior Notes due 2022 are reflected net of debt issuance costs of $0.8 and $1.0, respectively.
(2)At September 30, 2020 and September 30, 2019, the balance for the Senior Notes due 2022 was reflected net of discount of $0.2 and $0.4, respectively.
(3)Variable-rate debt based on LIBOR plus applicable margin.
At September 30, 2020 and 2019, the Company also had outstanding short-term notes payable with financial institutions with original maturities of less than 90 days of $21.1 and $14.4, respectively, with weighted-average interest rates of 4.5% and 5.2%, respectively. These notes were primarily outstanding international borrowings.
Issuance of Senior Notes
On May 22, 2020, the Company entered into a new unsecured indenture agreement for 5.50% Senior Notes in the amount of $750 due June 1, 2028 (the “2028 Notes”). The Company used a portion of the net proceeds of the 2028 Notes to satisfy and discharge its obligations outstanding under its 4.70% Senior Notes in the amount of $600 due 2021 (“2021 Notes”). The remainder of the net proceeds will be used to pay our debt related fees and expenses and for general corporate purposes, which may include, but are not limited to, the repayment of outstanding indebtedness, working capital, capital expenditures and acquisitions. The Company incurred $11.7 in bank, legal and other fees in connection with the 2028 Notes, which will be deferred and amortized to interest expense over the term of the 2028 Notes. Interest expense on the 2028 Notes is due semiannually on June 1 and December 1, with the first interest payment scheduled for December 1, 2020.
In connection with the early repayment of the 2021 Notes, the Company recorded expense of $26.2 in fiscal 2020, which is included in Cost of early retirement of long-term debt in the Consolidated Statements of Earnings and Comprehensive Income (Loss). This expense included a premium of $25.7 and debt issuance cost write-offs of $0.5.
The 2028 Notes are guaranteed, jointly and severally, by each of the Company’s direct and indirect wholly-owned domestic subsidiaries that guarantee the Company’s Revolving Credit Facility (or certain replacements thereof) or that guarantee certain capital markets indebtedness of the Company, in each case provided that the amount of such credit facility or indebtedness exceeds a specified amount, for so long as they remain guarantors under such indebtedness and subject to release in certain other circumstances. The 2028 Notes and guarantees thereof are unsecured, unsubordinated indebtedness of the Company and the guarantors.
Replacement of Credit Agreement
On April 3, 2020, the Company closed its new senior secured revolving credit facility in an aggregate principal amount of $425 (the “Revolving Credit Facility”) dated March 28, 2020, by and among, the Company and certain subsidiaries of the Company, and Bank of America, N.A. as administrative agent and collateral agent, MUFG Bank, Ltd., as syndication agent, TD Securities (USA) LLC, as joint lead arranger, and the several lenders from time to time party thereto.
Interest on any borrowings under the Revolving Credit Facility are paid monthly, bi-monthly or quarterly depending on the interest rate. Any outstanding amounts under the Revolving Credit Facility must be repaid on or before April 3, 2025. Under the Revolving Credit Facility, certain of the Company’s subsidiaries guarantee the Company’s payment and performance obligations. The Revolver will include a letter of credit sub-facility of up to $70 and will provide the Company with the ability to incur certain amounts of additional incremental loans in the future, subject to the satisfaction of certain conditions.
The Revolving Credit Facility, expandable under an accordion feature, provides for a five-year revolving line of credit and bears interest at a range of 1.50% - 2.25% over LIBOR, depending on the net debt leverage level of the Company.
Effective April 3, 2020, and in connection with the Revolving Credit Facility, the Company terminated the Prior Revolving Credit Facility. The Company did not have any outstanding borrowings at the termination date and no early termination penalties were incurred.
Debt Covenants
The credit agreement governing our outstanding debt at September 30, 2020 contain 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. 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 credit agreement, 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 credit agreement, 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, 2020, the Company was in compliance with the provisions and covenants associated with its credit agreement.
Debt Maturities
Aggregate maturities of long-term debt, including current maturities, at September 30, 2020 were as follows: $500.0 within two years and $750.0 in eight years.
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. 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 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
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
635.9
|
|
|
$
|
571.3
|
|
|
$
|
9.4
|
|
|
$
|
8.3
|
|
Service cost
|
4.3
|
|
|
2.9
|
|
|
—
|
|
|
—
|
|
Interest cost
|
13.5
|
|
|
18.5
|
|
|
0.3
|
|
|
0.3
|
|
Actuarial (gain) loss
|
19.0
|
|
|
87.3
|
|
|
(3.3)
|
|
|
1.3
|
|
Benefits paid, net
|
(30.0)
|
|
|
(34.4)
|
|
|
(0.3)
|
|
|
(0.3)
|
|
Plan settlements
|
(2.2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Expenses paid
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency exchange rate changes
|
11.6
|
|
|
(9.7)
|
|
|
(0.1)
|
|
|
(0.2)
|
|
Projected benefit obligation at end of year
|
652.1
|
|
|
635.9
|
|
|
6.0
|
|
|
9.4
|
|
Change in plan assets
|
|
|
|
|
|
|
|
Estimated fair value of plan assets at beginning of year
|
495.0
|
|
|
493.3
|
|
|
—
|
|
|
—
|
|
Actual return on plan assets
|
57.2
|
|
|
37.8
|
|
|
—
|
|
|
—
|
|
Company contributions
|
9.7
|
|
|
6.7
|
|
|
0.3
|
|
|
0.3
|
|
Plan settlements
|
(2.2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Benefits paid
|
(30.0)
|
|
|
(34.4)
|
|
|
(0.3)
|
|
|
(0.3)
|
|
Expenses paid
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency exchange rate changes
|
8.9
|
|
|
(8.4)
|
|
|
—
|
|
|
—
|
|
Estimated fair value of plan assets at end of year
|
538.6
|
|
|
495.0
|
|
|
—
|
|
|
—
|
|
Funded status at end of year
|
$
|
(113.5)
|
|
|
$
|
(140.9)
|
|
|
$
|
(6.0)
|
|
|
$
|
(9.4)
|
|
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
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Amounts recognized in the Consolidated Balance Sheets
|
|
|
|
|
|
|
|
Noncurrent assets
|
$
|
0.4
|
|
|
$
|
1.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Current liabilities
|
(0.9)
|
|
|
(3.1)
|
|
|
(0.2)
|
|
|
(0.3)
|
|
Noncurrent liabilities
|
(113.0)
|
|
|
(138.8)
|
|
|
(5.8)
|
|
|
(9.1)
|
|
Net amount recognized
|
$
|
(113.5)
|
|
|
$
|
(140.9)
|
|
|
$
|
(6.0)
|
|
|
$
|
(9.4)
|
|
Amounts recognized in Accumulated other comprehensive loss
|
|
|
|
|
|
|
|
Net loss (gain)
|
$
|
199.8
|
|
|
$
|
220.7
|
|
|
$
|
(6.5)
|
|
|
$
|
(3.3)
|
|
Prior service credit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net amount recognized, pre-tax
|
$
|
199.8
|
|
|
$
|
220.7
|
|
|
$
|
(6.5)
|
|
|
$
|
(3.3)
|
|
Pre-tax changes recognized in Other comprehensive income for fiscal 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Post-
retirement
|
Changes in plan assets and benefit obligations recognized in Other comprehensive income
|
|
|
|
Net loss arising during the year
|
$
|
(15.1)
|
|
|
$
|
(3.3)
|
|
Effect of exchange rates
|
4.4
|
|
|
—
|
|
Amounts recognized as a component of net periodic benefit cost
|
|
|
|
Amortization or curtailment recognition of prior service cost
|
—
|
|
|
—
|
|
Amortization or settlement recognition of net (loss) gain
|
(10.2)
|
|
|
0.1
|
|
Total recognized in Other comprehensive income
|
$
|
(20.9)
|
|
|
$
|
(3.2)
|
|
The minimum required contribution to our pension and post retirement plans in fiscal 2021 is $6.1 and $0.2, respectively; however, discretionary contributions may also be made.
The Company’s expected future benefit payments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Post-
retirement
|
Fiscal 2021
|
$
|
36.3
|
|
|
$
|
0.2
|
|
Fiscal 2022
|
35.8
|
|
|
0.3
|
|
Fiscal 2023
|
35.1
|
|
|
0.2
|
|
Fiscal 2024
|
35.5
|
|
|
0.3
|
|
Fiscal 2025
|
33.7
|
|
|
0.2
|
|
Fiscal 2026 to 2030
|
161.4
|
|
|
1.2
|
|
The accumulated benefit obligation for defined benefit pension plans was $634.8 and $618.8 at September 30, 2020 and 2019, respectively. The following table shows pension plans with an accumulated benefit obligation in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
2020
|
|
2019
|
Projected benefit obligation
|
$
|
625.0
|
|
|
$
|
609.5
|
|
Accumulated benefit obligation
|
607.8
|
|
|
592.4
|
|
Estimated fair value of plan assets
|
511.1
|
|
|
467.6
|
|
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 47% and (b) debt securities, including U.S. bonds: approximately 53%. Actual allocations at September 30, 2020 approximated these targets. The U.S. plan held no shares of Company common stock at September 30, 2020. Investment objectives are similar for non-U.S. pension arrangements, subject to local regulations.
The following table presents pension and postretirement expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Pension
|
|
Postretirement
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Service cost
|
$
|
4.3
|
|
|
$
|
2.9
|
|
|
$
|
3.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
13.5
|
|
|
18.5
|
|
|
16.7
|
|
|
0.3
|
|
|
0.3
|
|
|
0.4
|
|
Expected return on plan assets
|
(23.1)
|
|
|
(25.3)
|
|
|
(28.6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Recognized net actuarial loss (gain)
|
9.3
|
|
|
4.3
|
|
|
4.7
|
|
|
(0.1)
|
|
|
(0.2)
|
|
|
(0.1)
|
|
Settlement loss recognized
|
0.8
|
|
|
—
|
|
|
5.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost (credit)
|
4.8
|
|
|
0.4
|
|
|
1.2
|
|
|
0.2
|
|
|
0.1
|
|
|
0.3
|
|
The service cost component of the net periodic cost associated with the Company’s retirement plans is recorded to Cost of products sold and SG&A on the Consolidated Statement of Earnings. The remaining net periodic cost is recorded to Other expense (income), net on the Consolidated Statement of Earnings.
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.
Amounts expected to be amortized from accumulated other comprehensive loss into net periodic benefit cost (credit) during fiscal 2021, are as follows:
|
|
|
|
|
|
|
Pension
|
Net actuarial (loss) gain
|
$
|
(5.0)
|
|
Prior service (cost) credit
|
$
|
—
|
|
The following table presents assumptions, which reflect weighted-averages for the component plans, used in determining the above information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Pension
|
|
Postretirement
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Plan obligations:
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
2.1
|
%
|
|
2.5
|
%
|
|
3.7
|
%
|
|
2.8
|
%
|
|
3.0
|
%
|
|
4.0
|
%
|
Compensation increase rate
|
2.5
|
%
|
|
2.5
|
%
|
|
2.5
|
%
|
|
N/A
|
|
N/A
|
|
N/A
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
2.5
|
%
|
|
3.7
|
%
|
|
3.3
|
%
|
|
3.0
|
%
|
|
4.0
|
%
|
|
3.7
|
%
|
Expected long-term rate of return on plan assets
|
4.8
|
%
|
|
5.2
|
%
|
|
6.1
|
%
|
|
N/A
|
|
N/A
|
|
N/A
|
Compensation increase rate
|
2.5
|
%
|
|
2.5
|
%
|
|
2.5
|
%
|
|
N/A
|
|
N/A
|
|
N/A
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2020
|
Pension assets at estimated fair value
|
Level 1
|
|
Level 2
|
|
Total
|
Equity
|
|
|
|
|
|
U.S. equity
|
$
|
96.9
|
|
|
$
|
—
|
|
|
$
|
96.9
|
|
International equity
|
68.7
|
|
|
—
|
|
|
68.7
|
|
Debt
|
|
|
|
|
|
U.S. government
|
—
|
|
|
191.7
|
|
|
191.7
|
|
Other government
|
—
|
|
|
1.4
|
|
|
1.4
|
|
Corporate
|
65.3
|
|
|
2.1
|
|
|
67.4
|
|
Cash and cash equivalents
|
8.4
|
|
|
1.6
|
|
|
10.0
|
|
Other
|
1.0
|
|
|
14.0
|
|
|
15.0
|
|
Total, excluding investments valued at net asset value (“NAV”)
|
$
|
240.3
|
|
|
$
|
210.8
|
|
|
$
|
451.1
|
|
Investments valued at NAV
|
|
|
|
|
87.5
|
|
Total
|
$
|
240.3
|
|
|
$
|
210.8
|
|
|
$
|
538.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019
|
Pension assets at estimated fair value
|
Level 1
|
|
Level 2
|
|
Total
|
Equity
|
|
|
|
|
|
U.S. equity
|
$
|
79.0
|
|
|
$
|
—
|
|
|
$
|
79.0
|
|
International equity
|
62.1
|
|
|
—
|
|
|
62.1
|
|
Debt
|
|
|
|
|
|
U.S. government
|
—
|
|
|
182.1
|
|
|
182.1
|
|
Other government
|
—
|
|
|
2.9
|
|
|
2.9
|
|
Corporate
|
61.1
|
|
|
1.4
|
|
|
62.5
|
|
Cash and cash equivalents
|
10.3
|
|
|
0.6
|
|
|
10.9
|
|
Other
|
0.5
|
|
|
16.5
|
|
|
17.0
|
|
Total, excluding investments valued at NAV
|
$
|
213.0
|
|
|
$
|
203.5
|
|
|
$
|
416.5
|
|
Investments valued at NAV
|
|
|
|
|
78.5
|
|
Total
|
$
|
213.0
|
|
|
$
|
203.5
|
|
|
$
|
495.0
|
|
The following table sets forth the estimated fair value of the Company’s pension assets valued at NAV:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
2020
|
|
2019
|
Pension assets valued at NAV estimated at fair value
|
|
|
|
Equity
|
|
|
|
U.S. equity
|
$
|
10.2
|
|
|
$
|
9.5
|
|
International equity
|
77.3
|
|
|
69.0
|
|
Total investments valued at NAV
|
$
|
87.5
|
|
|
$
|
78.5
|
|
There were no Level 3 pension assets as of September 30, 2020 and 2019.
The Company had no postretirement plan assets as of September 30, 2020 and 2019.
The Company’s investment objective for defined benefit retirement plan assets is to satisfy the current and future pension benefit obligations. The investment philosophy is to achieve this objective through diversification of the retirement plan assets. The goal is to earn 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 the 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
The Company sponsors a defined contribution plan, which extends participation eligibility to the vast majority of U.S. employees. Effective January 1, 2014, the Company matches 100% of participants’ before-tax or Roth contributions up to 6% of eligible compensation. Amounts charged to expense during fiscal 2020, 2019, and 2018 were $9.9, $9.7, and $10.2, respectively, and are reflected in SG&A and Cost of products sold.
Note 13 - Share-Based Payments
As of September 30, 2020, 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 Incentive Stock 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 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 14.9, of which 4.4 were available for future awards as of September 30, 2020.
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. 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 the Separation, 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 $19.2, $17.8 and $17.0 for fiscal 2020, 2019 and 2018, respectively, and were recorded in SG&A. The total income tax benefit recognized for share-based compensation arrangements was $4.6, $4.3 and $4.6, for fiscal 2020, 2019 and 2018, respectively. Restricted stock issuance and shares issued for share option exercises under the Company’s share-based compensation program are generally issued from treasury shares.
Share Options
The following table summarizes Share Option activity during fiscal 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Term
(in years)
|
|
Aggregate Intrinsic Value
|
Outstanding as of October 1, 2019
|
0.5
|
|
|
$
|
82.53
|
|
|
|
|
|
Granted
|
0.2
|
|
|
31.44
|
|
|
|
|
|
Canceled
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
Outstanding as of September 30, 2020
|
0.7
|
|
|
$
|
67.90
|
|
|
6.7
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Vested and unvested expected to vest as of September 30, 2020
|
0.7
|
|
|
$
|
67.90
|
|
|
6.7
|
|
$
|
—
|
|
Exercisable as of September 30, 2020
|
0.4
|
|
|
87.83
|
|
|
|
|
|
No share options were exercised in fiscal 2020, 2019 or 2018.
The Company estimates the grant-date fair value of share option awards using the Black-Scholes option pricing model. During fiscal 2020 and 2019, the Company granted 0.2 and 0.1, respectively, non-qualified share option awards to certain executives and employees with a grant-date fair value of $1.9 and $1.7, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Weighted-average fair value per share option
|
$
|
9.33
|
|
|
$
|
13.02
|
|
Expected volatility
|
27.00
|
%
|
|
24.00
|
%
|
Risk-free interest rate
|
1.66
|
%
|
|
2.95
|
%
|
Expected share option life (in years)
|
6.0
|
|
6.0
|
Dividend yield
|
—
|
%
|
|
—
|
%
|
As of September 30, 2020, there was an estimated $1.5 of total unrecognized compensation costs related to share option awards, which will be recognized over a weighted-average period of approximately 2.8 years.
Restricted Share Equivalents
The following table summarizes RSE award activity during fiscal 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average
Grant Date Estimated Fair
Value
|
Non-vested at October 1, 2019
|
1.1
|
|
|
$
|
48.85
|
|
Granted
|
1.1
|
|
|
28.58
|
|
Vested
|
(0.2)
|
|
|
50.76
|
|
Canceled
|
(0.1)
|
|
|
53.41
|
|
Non-vested at September 30, 2020
|
1.9
|
|
|
36.77
|
|
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 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, 2020, there were 0.9 performance-based RSEs outstanding, which are included in the table above.
As of September 30, 2020, there was an estimated $32.5 of total unrecognized compensation costs related to RSEs, which will be recognized over a weighted-average period of approximately 2.1 years. The weighted-average estimated fair value per RSE
granted in fiscal 2020, 2019 and 2018 was $28.58, $42.93, and $57.23, respectively. The estimated fair value of RSEs vested in fiscal 2020, 2019 and 2018 was $11.5, $13.9, and $15.7, respectively.
Note 14 - Shareholders’ Equity
At September 30, 2020, there were 300.0 shares of the Company’s common stock authorized, of which 4.4 shares were reserved for outstanding awards under the 2018, 2009 and 2000 Incentive Stock Plans. The Company’s Amended and Restated Articles of Incorporation authorize it to issue up to 10.0 shares of $0.01 par value preferred stock. As of September 30, 2020, there were no shares of preferred stock issued or outstanding.
During fiscal 2020, 0.1 shares were purchased related to the surrender of shares of common stock to satisfy tax withholding obligations in connection with the vesting of RSEs.
During fiscal 2018, the Company paid $0.1 of cash dividends related to the vesting of RSEs, which had been declared and accrued during prior fiscal years. Any future dividends are dependent on future earnings, capital requirements and the Company’s financial condition and will be declared at the sole discretion of the Board.
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, 2018
|
$
|
(40.6)
|
|
|
$
|
(110.3)
|
|
|
$
|
2.6
|
|
|
$
|
(148.3)
|
|
OCI before reclassifications (1)
|
(36.7)
|
|
|
(52.5)
|
|
|
1.8
|
|
|
(87.4)
|
|
Reclassifications to earnings
|
—
|
|
|
3.0
|
|
|
(3.2)
|
|
|
(0.2)
|
|
Balance at September 30, 2019
|
(77.3)
|
|
|
(159.8)
|
|
|
1.2
|
|
|
(235.9)
|
|
OCI before reclassifications (1)
|
29.9
|
|
|
10.4
|
|
|
(1.8)
|
|
|
38.5
|
|
Reclassifications to earnings
|
—
|
|
|
7.3
|
|
|
(1.5)
|
|
|
5.8
|
|
Balance at September 30, 2020
|
$
|
(47.4)
|
|
|
$
|
(142.1)
|
|
|
$
|
(2.1)
|
|
|
$
|
(191.6)
|
|
(1)OCI is defined as other comprehensive income (loss).
The following table presents the reclassifications out of AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Details of AOCI Components
|
|
2020
|
|
2019
|
|
Affected Line Item in the Consolidated Statement of Earnings
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
2.1
|
|
|
$
|
4.8
|
|
|
Other expense (income), net
|
|
|
2.1
|
|
|
4.8
|
|
|
Total before tax
|
|
|
0.6
|
|
|
1.6
|
|
|
Income tax provision (benefit)
|
|
|
$
|
1.5
|
|
|
$
|
3.2
|
|
|
Net of tax
|
Amortization of defined benefit pension and postretirement items
|
|
|
|
|
|
|
Prior service costs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
(1)
|
Actuarial losses
|
|
(9.3)
|
|
|
(4.1)
|
|
|
(1)
|
Settlements
|
|
(0.8)
|
|
|
—
|
|
|
(1)
|
|
|
(10.1)
|
|
|
(4.1)
|
|
|
Total before tax
|
|
|
(2.8)
|
|
|
(1.1)
|
|
|
Tax expense (benefit)
|
|
|
$
|
(7.3)
|
|
|
$
|
(3.0)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(5.8)
|
|
|
$
|
0.2
|
|
|
Net of tax
|
(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
At times, the Company enters into contractual arrangements (derivatives) to reduce its exposure to foreign currency and interest rate risks. The section below outlines the types of derivatives that existed at September 30, 2020 and 2019, as well as the Company’s objectives and strategies for holding derivative instruments.
Foreign Currency Risk
A significant share of the Company’s sales are 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. 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, 2020, the Company had $21.1 of variable rate debt outstanding, which consisted primarily of outstanding borrowings under the Company’s revolving credit facilities in the U.S.
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 22% of Net sales in fiscal 2020. 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 2020, Target Corporation represented approximately 10% of net sales for each of our Sun and Skin Care and Feminine Care segments, respectively.
Product Concentration. Within the Wet Shave segment, the Company’s razor and blades represented 52%, 52% and 53% of net sales during fiscal 2020, 2019 and 2018, respectively, and within the Sun and Skin Care segment, sun care products represented 15% of net sales during each of fiscal 2020, 2019 and 2018.
Cash Flow Hedges
At September 30, 2020, 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 for accounting purposes in offsetting the associated risk.
The Company entered into a series of forward currency contracts to hedge cash flow uncertainty associated with currency fluctuations. These transactions are accounted for as cash flow hedges. The Company had an unrealized pre-tax loss of $3.0 and an unrealized pre-tax gain of $1.7 at September 30, 2020 and 2019, respectively, on these forward currency contracts accounted for as cash flow hedges included in AOCI. Assuming foreign exchange rates versus the U.S. dollar remain at September 30, 2020 levels over the next 12 months, the majority of the pre-tax gain included in AOCI at September 30, 2020 is expected to be included in Other expense (income), net. Contract maturities for these hedges extend into fiscal year 2021. At September 30, 2020, there were 64 open foreign currency contracts with a total notional value of $130.2.
Derivatives not Designated as Hedges
The Company entered into foreign currency derivative contracts which are not designated as cash flow hedges for accounting purposes to hedge balance sheet exposures. Any gains or losses on these contracts are expected to be offset by exchange gains or losses on the underlying exposures, thus they are not subject to significant market risk. The change in estimated fair value of the foreign currency contracts resulted in losses of $0.5 and $1.2 for fiscal 2020 and 2019, respectively, which were recorded in Other expense (income), net. There were five open foreign currency derivative contracts which were not designated as cash flow hedges at September 30, 2020, with a total notional value of $39.0.
The following table provides estimated fair values of derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of (Liability) Asset (1)
|
|
September 30,
2020
|
|
September 30,
2019
|
Derivatives designated as cash flow hedging relationships:
|
|
|
|
Foreign currency contracts
|
$
|
(3.0)
|
|
|
$
|
1.7
|
|
Derivatives not designated as cash flow hedging relationships:
|
|
|
|
Foreign currency contracts
|
$
|
(0.6)
|
|
|
$
|
0.4
|
|
(1)All derivative assets are presented in Other current assets or Other assets. All derivative liabilities are presented in Other current liabilities or Other liabilities.
The following table provides the amounts of gains and losses on derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2020
|
|
2019
|
|
2018
|
Derivatives designated as cash flow hedging relationships:
|
|
|
|
|
|
Foreign currency contracts
|
|
|
|
|
|
(Loss) gain recognized in OCI (1)
|
$
|
(2.7)
|
|
|
$
|
2.7
|
|
|
$
|
3.9
|
|
Gain (loss) reclassified from AOCI into income (effective portion) (1) (2)
|
2.1
|
|
|
4.8
|
|
|
(1.5)
|
|
Derivatives not designated as cash flow hedging relationships:
|
|
|
|
|
|
Foreign currency contracts
|
|
|
|
|
|
(Loss) gain recognized in income (2)
|
$
|
(0.5)
|
|
|
$
|
(1.2)
|
|
|
$
|
1.7
|
|
(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.
(2)Gain (loss) was recorded in Other expense (income), net.
The following table provides financial assets and liabilities for balance sheet offsetting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2020
|
|
As of September 30, 2019
|
|
Assets (1)
|
|
Liabilities (2)
|
|
Assets (1)
|
|
Liabilities (2)
|
Foreign currency contracts
|
|
|
|
|
|
|
|
Gross amounts of recognized assets (liabilities)
|
$
|
—
|
|
|
$
|
(3.7)
|
|
|
$
|
2.4
|
|
|
$
|
(0.5)
|
|
Gross amounts offset in the balance sheet
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.2
|
|
Net amounts of assets (liabilities) presented in the balance sheet
|
$
|
—
|
|
|
$
|
(3.6)
|
|
|
$
|
2.4
|
|
|
$
|
(0.3)
|
|
(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,
|
|
2020
|
|
2019
|
(Liabilities) Assets at estimated fair value:
|
|
|
|
Deferred compensation
|
$
|
(33.9)
|
|
|
$
|
(40.6)
|
|
Derivatives - foreign currency contracts
|
(3.6)
|
|
|
2.1
|
|
Net liabilities at estimated fair value
|
$
|
(37.5)
|
|
|
$
|
(38.5)
|
|
At September 30, 2020 and 2019, 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.
At September 30, 2020 and 2019, the fair market value of fixed rate long-term debt was $1,323.1 and $1,071.2, respectively, compared to its carrying value of $1,250.0 and $1,100.0, respectively. 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, 2020. The estimated fair values of long-term debt, excluding revolving credit facilities, have been determined based on Level 2 inputs.
Due to the nature of cash and cash equivalents and short-term borrowings, including notes payable, carrying amounts on the balance sheets approximate fair value. Additionally, the carrying amounts of the Company’s revolving credit facilities, 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 agreements have been determined based on Level 2 inputs.
As of September 30, 2020, the estimated fair value of foreign currency contracts is the amount that the Company would receive or pay to terminate the contracts, considering first the quoted market prices of comparable agreements or, in the absence of quoted market prices, factors such as interest rates, currency exchange rates and remaining maturities. The estimated fair value of the deferred compensation liability is determined based upon the quoted market prices of the investment options that are offered under the plan.
Note 17 - Commitments and Contingencies