Document




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 10-Q
_______________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2018
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________

Commission File Number: 001-15401
____________________________________________________________________________________________________________
edgewelllogo123118a06.jpg
EDGEWELL PERSONAL CARE COMPANY
(Exact name of registrant as specified in its charter)
Missouri
43-1863181
(State or other jurisdiction of incorporation or organization)
(I. R. S. Employer Identification No.)
 
6 Research Drive
 
Shelton, Connecticut
06484
(Address of principal executive offices)
(Zip Code)
 
 
(203) 944-5500
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
 
Accelerated filer
o
 
 
 
 
 
Non-accelerated filer
o
 (Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
 
 
 
 
 
 
Emerging growth company
o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

Indicate number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Common shares, $0.01 par value - 54,117,516 shares as of January 31, 2019.

1



EDGEWELL PERSONAL CARE COMPANY
INDEX TO FORM 10-Q

PART I.
FINANCIAL INFORMATION
 
Item 1.
Financial Statements (Unaudited).
 
 
Condensed Consolidated Statements of Earnings and Comprehensive Income for the three months ended December 31, 2018 and 2017.
 
Condensed Consolidated Balance Sheets as of December 31, 2018 and September 30, 2018.
 
Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2018 and 2017.
 
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended December 31, 2018 and 2017.
 
Notes to Condensed Consolidated Financial Statements.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
Item 4.
Controls and Procedures.
 
 
 
PART II.
OTHER INFORMATION
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
Item 5.
Other Information.
Item 6.
Exhibits.
 
 
 
SIGNATURE
 




2



PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

EDGEWELL PERSONAL CARE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(unaudited, in millions, except per share data)  

 
Three Months Ended
December 31,
 
2018
 
2017
Net sales
$
457.1

 
$
468.3

Cost of products sold
263.6

 
269.0

Gross profit
193.5

 
199.3

 
 
 
 
Selling, general and administrative expense
87.3

 
97.9

Advertising and sales promotion expense
51.6

 
49.0

Research and development expense
12.6

 
16.1

Restructuring charges
17.1

 

Gain on sale of Playtex gloves

 
(15.9
)
Interest expense associated with debt
16.0

 
17.8

Other expense, net
1.3

 
1.3

Earnings before income taxes
7.6

 
33.1

Income tax provision
8.0

 
26.4

Net (loss) earnings
$
(0.4
)
 
$
6.7

 
 
 
 
Earnings per share:
 
 
 
Basic net (loss) earnings per share
$
(0.01
)
 
$
0.12

Diluted net (loss) earnings per share
$
(0.01
)
 
$
0.12

 
 
 
 
Statements of Comprehensive Income:
 
 
 
Net (loss) earnings
$
(0.4
)
 
$
6.7

Other comprehensive (loss) income, net of tax
 
 
 
Foreign currency translation adjustments
(10.8
)
 
9.5

Pension and postretirement activity, net of tax of $0.1 and $0.3

 
0.4

Deferred (loss) gain on hedging activity, net of tax of $(0.7) and $0.1
(1.3
)
 
0.2

Total other comprehensive (loss) income, net of tax
(12.1
)
 
10.1

Total comprehensive (loss) income
$
(12.5
)
 
$
16.8


See accompanying Notes to Condensed Consolidated Financial Statements.

3



EDGEWELL PERSONAL CARE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except share data)  
 
 
December 31,
2018
 
September 30,
2018
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
239.9

 
$
266.4

Trade receivables, less allowance for doubtful accounts of $5.7 and $6.0
163.6

 
226.5

Inventories
367.3

 
329.5

Other current assets
128.8

 
128.8

Total current assets
899.6

 
951.2

Property, plant and equipment, net
410.4

 
424.1

Goodwill
1,446.2

 
1,450.8

Other intangible assets, net
1,092.8

 
1,099.0

Other assets
32.3

 
28.2

Total assets
$
3,881.3

 
$
3,953.3

 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt
$
185.0

 
$
184.9

Notes payable
10.1

 
8.2

Accounts payable
207.3

 
238.4

Other current liabilities
212.6

 
285.5

Total current liabilities
615.0

 
717.0

Long-term debt
1,136.0

 
1,103.8

Deferred income tax liabilities
175.7

 
176.1

Other liabilities
215.3

 
211.8

Total liabilities
2,142.0

 
2,208.7

Shareholders’ equity
 
 
 
Preferred shares, $0.01 par value, 10,000,000 authorized; none issued or outstanding

 

Common shares, $0.01 par value, 300,000,000 authorized; 65,251,989 issued; 54,116,990 and 54,040,386 outstanding
0.7

 
0.7

Additional paid-in capital
1,625.0

 
1,628.3

Retained earnings
1,086.6

 
1,083.1

Common shares in treasury at cost, 11,134,999 and 11,211,603
(812.6
)
 
(819.2
)
Accumulated other comprehensive loss
(160.4
)
 
(148.3
)
Total shareholders’ equity
1,739.3

 
1,744.6

Total liabilities and shareholders’ equity
$
3,881.3

 
$
3,953.3


See accompanying Notes to Condensed Consolidated Financial Statements.



4



EDGEWELL PERSONAL CARE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)  
 
 
Three Months Ended
December 31,
 
2018
 
2017
Cash Flow from Operating Activities
 
 
 
Net (loss) earnings
$
(0.4
)
 
$
6.7

Depreciation and amortization
22.1

 
24.8

Share-based compensation expense
4.9

 
4.8

Loss (gain) on sale of assets
0.7

 
(13.9
)
Deferred income taxes
(0.1
)
 
(28.9
)
Other, net
5.1

 
(4.8
)
Changes in operating assets and liabilities
(78.7
)
 
(12.8
)
Net cash used by operating activities
(46.4
)
 
(24.1
)
 
 
 
 
Cash Flow from Investing Activities
 
 
 
Capital expenditures
(9.4
)
 
(11.6
)
Playtex gloves sale

 
19.0

Proceeds from sale of assets
4.0

 
2.1

Collection of deferred purchase price on accounts receivable sold
2.5

 
1.7

Net cash (used by) from investing activities
(2.9
)
 
11.2

 
 
 
 
Cash Flow from Financing Activities
 
 
 
Cash proceeds from debt with original maturities greater than 90 days
137.0

 
253.0

Cash payments on debt with original maturities greater than 90 days
(105.0
)
 
(100.0
)
Net decrease in debt with original maturities of 90 days or less
(0.9
)
 
(1.3
)
Common shares purchased

 
(115.2
)
Net financing inflow (outflow) from the Accounts Receivable Facility
(5.1
)
 
1.4

Employee shares withheld for taxes
(1.5
)
 
(2.0
)
Net cash from financing activities
24.5

 
35.9

 
 
 
 
Effect of exchange rate changes on cash
(1.7
)
 
4.0

 
 
 
 
Net (decrease) increase in cash and cash equivalents
(26.5
)
 
27.0

Cash and cash equivalents, beginning of period
266.4

 
502.9

Cash and cash equivalents, end of period
$
239.9

 
$
529.9


See accompanying Notes to Condensed Consolidated Financial Statements.



5



EDGEWELL PERSONAL CARE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited, in millions)

 
Common Shares
 
Treasury Shares
 
 
 
 
 
 
 
 
 
Number
 
Par Value
 
Number
 
Amount
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total Shareholders’ Equity
Balance at September 30, 2018
65.2

 
$
0.7

 
(11.2
)
 
$
(819.2
)
 
$
1,628.3

 
$
1,083.1

 
$
(148.3
)
 
$
1,744.6

Net loss

 

 

 

 

 
(0.4
)
 

 
(0.4
)
Foreign currency translation adjustments

 

 

 

 

 

 
(10.8
)
 
(10.8
)
Pension and postretirement activity

 

 

 

 

 

 

 

Impact of ASU 2016-16

 

 

 

 

 
3.9

 

 
3.9

Deferred loss on hedging activity

 

 

 

 

 

 
(1.3
)
 
(1.3
)
Activity under share plans

 

 
0.1

 
6.6

 
(3.3
)
 

 

 
3.3

Balance at December 31, 2018
65.2

 
$
0.7

 
(11.1
)
 
$
(812.6
)
 
$
1,625.0

 
$
1,086.6

 
$
(160.4
)
 
$
1,739.3


 
Common Shares
 
Treasury Shares
 
 
 
 
 
 
 
 
 
Number
 
Par Value
 
Number
 
Amount
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total Shareholders’ Equity
Balance at September 30, 2017
65.2

 
$
0.7

 
(9.2
)
 
$
(703.9
)
 
$
1,623.4

 
$
952.9

 
$
(131.4
)
 
$
1,741.7

Net earnings

 

 

 

 

 
6.7

 

 
6.7

Foreign currency translation adjustments

 

 

 

 

 

 
9.5

 
9.5

Pension and postretirement activity

 

 

 

 

 

 
0.4

 
0.4

Deferred gain on hedging activity

 

 

 

 

 

 
0.2

 
0.2

Repurchase of shares

 

 
(2.0
)
 
(115.2
)
 

 

 

 
(115.2
)
Activity under share plans

 

 
0.1

 
5.6

 
(2.7
)
 
9.6

 

 
12.5

Balance at December 31, 2017
65.2

 
$
0.7

 
(11.1
)
 
$
(813.5
)
 
$
1,620.7

 
$
969.2

 
$
(121.3
)
 
$
1,655.8


See accompanying Notes to Condensed Consolidated Financial Statements.



6



EDGEWELL PERSONAL CARE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except per share data)

Note 1 - Background and Basis of Presentation
Background
Edgewell Personal Care Company, and its subsidiaries (collectively, “Edgewell” or the “Company”), is one of the world’s largest manufacturers and marketers of personal care products in the wet shave, sun and skin care, feminine care, and infant care categories. Edgewell has a portfolio of over 25 brands and a global footprint in more than 50 countries.
The Company conducts its business in the following four 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, Jack Black® and Bulldog® men’s skin care products, Wet Ones® wipes, and, until its sale in October 2017, the Playtex® household gloves business.
Feminine Care includes tampons, pads, and liners sold under the Playtex Gentle Glide® and Sport®, Stayfree®, Carefree®, and o.b.® brands.
All Other includes infant 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.

Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its controlled subsidiaries and have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”), under the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). The preparation of the unaudited Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results may differ materially from those estimates. All intercompany balances and transactions have been eliminated in consolidation and, in the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included in the interim results reported. The fiscal year-end balance sheet data was derived from audited consolidated financial statements, but do not include all of the annual disclosures required by GAAP; accordingly, these unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited annual consolidated financial statements included in its Annual Report on Form 10-K filed with the SEC on November 19, 2018.
Recently Adopted Accounting Pronouncements. In May 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) which provides a single comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries, and across capital markets. During 2016, the FASB issued three ASUs clarifying the revenue recognition implementation guidance on various topics included within the original ASU. The Company adopted the ASU for revenue recognition beginning October 1, 2018 using the modified retrospective method. Revenues are primarily generated from the sale of finished products to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks, and rewards transfer. As a result, the adoption of the ASU did not have a material impact on the timing of revenue recognition. The adoption resulted in the recognition of a $5.3 inventory return asset included in Miscellaneous receivables on the Condensed Consolidated Balance Sheet as of October 1, 2018 with an offsetting increase to the returns reserve in Other current liabilities. The adoption resulted in the recognition of a $1.3 liability for advanced payments from customers in Other current liabilities with a corresponding increase to Trade receivables to reclassify advanced payments from customers from contra-Trade receivables as of October 1, 2018. Refer to Note 2 in the Notes to the Condensed Consolidated Financial Statements for further discussion.

7



In August 2016, the FASB issued an ASU intended to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on specific cash flow issues, including debt prepayment or debt extinguishment costs, the sale of accounts receivable, contingent consideration payments on business combinations, proceeds from the settlement of insurance claims, and distributions received from equity method investees, among others. The Company adopted the ASU beginning October 1, 2018. The Company noted that the adoption of the ASU resulted in the reclassification of approximately $2.5 and $1.7 in operating cash inflows for the quarters ended December 31, 2018 and 2017, respectively, associated with the $150 uncommitted master accounts receivable purchase agreement entered into on September 15, 2017 with The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as the purchaser (the “Accounts Receivable Facility”) to investing cash inflows in the Consolidated Statement of Cash Flows.
In October 2016, the FASB issued an ASU intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Under the new guidance, an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory, such as intellectual property and property, plant, and equipment, when the transfer occurs. The Company adopted the standard beginning October 1, 2018. The impact of the adoption of the ASU resulted in the recognition of a deferred tax asset and a credit to retained earnings of $3.9.
In January 2017, the FASB issued an ASU clarifying the definition of a business, reducing the number of transactions that need to be further evaluated, and providing a framework to assist entities in evaluating whether both an input and a substantive process are present. The amendments set forth in the ASU specify that when the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or a group of similarly identifiable assets, the integrated set of assets and activities is not a business. The guidance also requires that an integrated set of assets and activities must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output to be considered a business and removes the evaluation of whether a market participant could replace the missing elements. The Company adopted the ASU beginning October 1, 2018. The impact of the ASU will be dependent upon the nature of any future acquisitions or dispositions made by the Company.
In March 2017, the FASB issued an ASU intended to improve the presentation of net periodic pension and postretirement benefit cost. The amendment changes these requirements so that only the service cost component is recorded in the same line item as other compensation costs for the applicable employees, and all other components of net periodic pension and postretirement benefit cost are recorded on a separate line item outside of income from operations. The amendments also specify that only the service cost component is eligible for capitalization. The Company adopted the ASU as of October 1, 2018, applied the ASU retrospectively for the presentation of the cost components, and applied the ASU prospectively for the capitalization of the service cost component. The adoption impacted the Consolidated Statement of Operations for the quarter ended December 31, 2017 and resulted in a reclassification that increased Cost of products sold, Selling, general and administrative expense (“SG&A”) and Other income, net by $1.0, $0.7, and $1.7, respectively.
In May 2017, the FASB issued an ASU that clarifies the scope of accounting for modifications of share-based payment awards. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The Company adopted the ASU beginning October 1, 2018 and noted that the impact on its financial statements was not material.
Recently Issued Accounting Pronouncements. In February 2016, the FASB issued an ASU 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. Lessees and lessors will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The update will be effective for the Company beginning October 1, 2019, with early adoption permitted. The Company has begun assessing the impact of the standard including identification of the lease portfolio and business process changes required to correctly apply the guidance. The Company does not expect to early adopt this guidance and is in the process of evaluating its impact on the financial statements; however, the Company believes the primary impacts will be a material increase in both assets and liabilities to include operating leases on the Consolidated Balance Sheets.
No other new accounting pronouncement issued or effective during the fiscal 2019 which was not previously disclosed in our Annual Report on Form 10-K filed with the SEC on November 19, 2018 had or is expected to have a material impact on our consolidated financial statements or related disclosures.


8



Note 2 - Revenue Recognition
On October 1, 2018, the Company adopted ASU 2014-09 which provided guidance for accounting for revenue from contracts with customers. The Company adopted the standard beginning October 1, 2018 using the modified retrospective method and applied the standard to contracts not completed at the adoption date. No adjustment to retained earnings was required on October 1, 2018. The adoption resulted in changes to how the Company reflects returns and advanced payments received from customers on the Consolidated Balance Sheet. Results for periods ending after October 1, 2018 are recognized and presented in accordance with the new standard, while prior period amounts have not been adjusted and continue to be reported in accordance with the prior accounting guidance.
Other impacts related to the adoption of the standard were not material to the Consolidated Financial Statements. Refer to Note 15 in the Notes to the Condensed Consolidated Financial Statements for the Company’s disaggregation of revenue by operating segments and products.
Practical Expedients
The Company elected to apply the following practical expedients when adopting ASU 2014-09:
Accounting for shipping and handling costs that occur before the customer has obtained control of the goods as a fulfillment activity (i.e., expense) instead of as a promised service.
Performance obligations are completed at a point in time which is less than 12 months from when the costs to obtain the contract are incurred. As such, the Company will continue to expense any costs to obtain a contract.
Principal Revenue Streams and Significant Judgments
Our principal revenue streams can be distinguished 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 that are made to the specifications of customers.
Performance Obligations
The Company’s revenue is 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 does exist for a particular sale.

The Company assesses the goods promised in its customers’ purchase orders and identifies a performance obligation to transfer goods (or 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 standalone selling price basis. The Company does not exclude variable consideration in determining the remaining value of performance obligations.

Significant Judgments

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 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: (1) the sales arrangement is evidenced by purchase orders submitted by customers; (2) the selling price is fixed or determinable; (3) title to the product has transferred; (4) there is an obligation to pay at a specified date without any additional conditions or actions required by the Company; and (5) collectability is reasonably assured. Simultaneous with the sale, the Company reduces sales and cost of sales 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. 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 US from September through January following the summer sun care season. The Company estimates the level of sun care returns 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 as the sun care season progresses. 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,

9



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 known issues as of period end. The Company had a reserve for returns of $31.3 and $58.6 at December 31, 2018 and September 30, 2018, respectively. The adoption of ASU 2014-09 required changes in the presentation of returns on the Condensed Consolidated Balance Sheet. The ASU indicated 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. The Company had an inventory return asset of $5.3 as of the adoption date. The Company has recorded an inventory return asset of $1.7 as of December 31, 2018. The recognition of an inventory return asset resulted in a corresponding increase to the reserve for returns as of December 31, 2018. The inventory return asset and the reserve for returns are included in Other current assets and Other current liabilities, respectively, on the Condensed Consolidated Balance Sheet.
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 prices 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 the customer’s receipt 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 as of the adoption date were $1.3. Contract liabilities were $0.8 at December 31, 2018 and were classified within Other current liabilities on our Consolidated Balance Sheets. Of the amount deferred, substantially all will be recognized within a year, with the significant majority to be captured within a quarter following deferral.
Accounts receivable 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.

Note 3 - Business Combinations and Divestitures
Jack Black, L.L.C.
On March 1, 2018, the Company completed the acquisition of Jack Black, L.L.C. (“Jack Black”), a men’s luxury skincare products company based in the U.S., for $90.2, net of cash acquired. The acquisition creates opportunities to expand the Company’s personal care portfolio into a growing global category where it can leverage its international geographic footprint. The acquisition was financed through available operating cash.
The Company has 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.
At March 1, 2018, the opening balance sheet for Jack Black included net assets acquired 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 expected to be 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 $0.5 in the three months ended December 31, 2018, were included in SG&A.

10



Sale of Playtex Gloves Business
On October 3, 2017, the Company entered into an agreement to sell its Playtex gloves business to a household products company (the “Acquirer”) for $19.0 to allow the Company to better focus and utilize its resources on its other product lines. The agreement also provided the Acquirer with indefinite and exclusive worldwide rights to the Playtex trademark for gloves. The sale was completed on October 26, 2017. Total assets sold were approximately $3.1 resulting in a pre-tax gain on sale of $15.9 in the first quarter of fiscal 2018. The gain on sale of Playtex gloves recognized for fiscal year 2018 was $15.3.

Note 4 - Restructuring Charges
Project Fuel
In February 2018, the Company announced Project Fuel, an enterprise-wide transformational initiative that is designed to address all aspects of the Company’s business and cost structure, simplifying and transforming the organization, structure, and key processes that will enable the Company to achieve its desired future state operations.
The project will incorporate the Company’s Zero-Based Spending (“ZBS”) and global productivity initiatives and will include a new global restructuring initiative. Initial costs for Project Fuel relate to efforts to fully define the scope and reach of the project. In addition, the Company has incurred global severance costs related to the reduction of overhead. While the Company incurred costs and realized savings for Project Fuel in fiscal 2018, most costs will be incurred, and savings will be achieved during fiscal 2019 through fiscal 2021.
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 2019 would have been as follows:
 
Three Months Ended December 31, 2018
 
Wet
Shave
 
Sun and Skin Care
 
Feminine Care
 
All Other
 
Corporate
 
Total
Project Fuel
 
 
 
 
 
 
 
 
 
 
 
Severance and related benefit costs
$
7.3

 
$
0.5

 
$
0.3

 
$
0.1

 
$
1.0

 
$
9.2

Asset impairment and accelerated depreciation

 

 

 

 
0.5

 
0.5

Consulting, project implementation and management and, other exit costs
2.3

 

 

 

 
6.5

 
8.8

Total Restructuring
$
9.6

 
$
0.5

 
$
0.3

 
$
0.1

 
$
8.0

 
$
18.5

Pre-tax SG&A of $1.4 associated with certain information technology enablement expenses related to Project Fuel were included in Consulting, project implementation and management, and other exit costs.
The following table summarizes the Restructuring activities and related accrual (excluding certain obsolescence charges related to the restructuring) for fiscal 2019:
 
 
 
 
 
 
 
Utilized
 
 
 
October 1, 2018
 
Charge to
Income
 
Other (1)
 
Cash
 
Non-Cash
 
December 31,
2018
Restructuring
 
 
 
 
 
 
 
 
 
 
 
Severance and related benefit costs
$
5.1

 
$
9.2

 
$

 
$
(4.8
)
 
$

 
$
9.5

Asset impairment and accelerated depreciation

 
0.5

 

 
4.0

 
(4.5
)
 

Consulting, project implementation and management, and other exit costs
2.6

 
8.8

 

 
(10.5
)
 

 
0.9

   Total Restructuring
$
7.7

 
$
18.5

 
$

 
$
(11.3
)
 
$
(4.5
)
 
$
10.4

(1)
Includes the impact of currency translation.

Note 5 - Income Taxes
For the three months ended December 31, 2018, the Company had income tax expense of $8.0 on Earnings before income taxes of $7.6. The effective tax rate for the three months ended December 31, 2018 was 105.7%. The difference between the federal statutory rate and the effective rate is primarily due to a $4.7 net transitional charge resulting from the enactment of the Tax Cuts and Jobs Act (the “Tax Act”), as discussed below. The rate was also unfavorably impacted by $18.5 of restructuring and

11



other related costs in lower tax rate jurisdictions and unfavorable tax adjustments, including the impact of the share-based payment guidance.
For the three months ended December 31, 2017, the Company had income tax expense of $26.4 on Earnings before income taxes of $33.1. The effective tax rate for the three months ended December 31, 2017 was 79.8%. The difference between the federal statutory rate and the effective rate is primarily due to a $16.2 net charge related to the Tax Act, as discussed below. The rate was also affected by unfavorable tax adjustments, including the impact of the new share-based payment guidance and changes to prior year provision estimates, which increased the effective rate by 5%.

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 ending September 30, 2018 and 21% for subsequent fiscal years. The reduction in the U.S. corporate tax rate required the Company to remeasure its U.S. deferred tax assets and liabilities to the lower federal rate of 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 the three months ended December 31, 2018, the discrete tax adjustment for the one-time transition tax on foreign earnings was $4.7 compared to $97.2 for the three months ended December 31, 2017. The December 31, 2017 transition tax expense was offset by the estimated benefit of remeasurement of U.S. deferred tax assets and liabilities of $81.0, resulting in a net charge of $16.2 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 has 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 new Tax Act impacted the Company in fiscal 2018 while others are effective for fiscal year 2019 and beyond. The significant provisions of the Tax Act which the Company is subject to 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 has recorded tax liabilities/(benefits) for the various provisions during the first three months of 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 (1) 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 (2) 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 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. The Company has historically considered the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested and, accordingly, no taxes have been provided on such earnings. We continue to evaluate our plans for reinvestment or repatriation of unremitted foreign earnings and have not changed our previous indefinite reinvestment determination following the enactment of the Tax Act. If we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, the Company may be subject to additional foreign withholding taxes, U.S. federal and state income taxes beyond the Tax Act’s one-time transition tax.


12



Note 6 - Earnings per Share
Basic earnings per share is based on the weighted-average number of common shares outstanding during the period. Diluted earnings per share is based on the number of shares used for the basic earnings per share calculation, adjusted for the dilutive effect of share options and restricted share equivalent (“RSE”) awards.
The following is the reconciliation between the number of weighted-average shares used in the basic and diluted earnings per share calculation:    
 
Three Months Ended
December 31,
 
2018
 
2017
Basic weighted-average shares outstanding
54.1

 
55.4

Effect of dilutive securities:
 
 
 
RSE awards

 
0.2

Total dilutive securities

 
0.2

Diluted weighted-average shares outstanding
54.1

 
55.6

For the three months ended December 31, 2018 and 2017, the calculation of diluted weighted-average shares outstanding excludes 0.6 of share options because the effect of including these awards was anti-dilutive. For the three months ended December 31, 2018, the calculation of diluted weighted-average shares outstanding excludes 0.2 of RSE awards that would have otherwise been dilutive, because the Company reported a net loss. For the three months ended December 31, 2017, the number of RSE awards considered anti-dilutive was immaterial.
 
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
Balance at October 1, 2018
$
968.2

 
$
229.4

 
$
208.0

 
$
45.2

 
$
1,450.8

Cumulative translation adjustment
(2.1
)
 
(0.3
)
 
(2.2
)
 

 
(4.6
)
Balance at December 31, 2018
$
966.1

 
$
229.1

 
$
205.8

 
$
45.2

 
$
1,446.2


Balances at October 1, 2018 and December 31, 2018 are net of accumulated goodwill impairment losses in the All Other segment totaling $24.4.
 
December 31, 2018
 
September 30, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Trade names and brands
$
206.6

 
$
27.8

 
$
178.8

 
$
206.7

 
$
25.4

 
$
181.3

Technology and patents
78.9

 
76.1

 
2.8

 
79.0

 
75.9

 
3.1

Customer related and other
178.5

 
97.7

 
80.8

 
179.3

 
96.2

 
83.1

Total amortizable intangible assets
$
464.0

 
$
201.6

 
$
262.4

 
$
465.0

 
$
197.5

 
$
267.5

Amortization expense was $4.5 and $4.4 for the three months ended December 31, 2018 and 2017, respectively. Estimated amortization expense for amortizable intangible assets for the remainder of fiscal 2019 and for fiscal 2020, 2021, 2022, 2023, and 2024 is $13.3, $17.1, $16.5, $16.3, $16.3, and $16.2, respectively, and $166.7 thereafter.
The Company had indefinite-lived intangible assets of $830.4 ($181.3 in Wet Shave, $475.4 in Sun and Skin Care, $29.9 in Feminine Care, and $143.8 in All Other) at December 31, 2018, a decrease of $1.1 from September 30, 2018, resulting from changes in foreign currency translation rates. The Company had indefinite-lived trade names and brands of $831.5 ($182.2 in Wet Shave, $475.6 in Sun and Skin Care, $29.9 in Feminine Care, and $143.8 in All Other) at September 30, 2018.

13



Goodwill and intangible assets deemed to have an indefinite life are not amortized but are instead reviewed annually for impairment of value or when indicators of a potential impairment are present. The Company’s annual impairment testing date is July 1. The Company continuously monitors events which could trigger an interim impairment analysis, such as changing business conditions and environmental factors. An interim impairment analysis may indicate that carrying amounts of goodwill and other intangible assets require adjustment or that remaining useful lives should be revised. Refer to the sensitivity analysis in Note 8 to the Company’s audited annual consolidated financial statements included in its Annual Report on Form 10-K filed with the SEC on November 19, 2018.
During 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 because of higher discount rates, lower forecasted revenue growth rates, and earnings margins, which resulted in lower projected long-term future cash flows when interim impairment analysis was performed.

Note 8 - Supplemental Balance Sheet Information

 
December 31,
2018
 
September 30,
2018
Inventories
 
 
 
Raw materials and supplies
$
59.6

 
$
52.0

Work in process
71.2

 
67.5

Finished products
236.5

 
210.0

Total inventories
$
367.3

 
$
329.5

Other Current Assets
 
 
 
Miscellaneous receivables
$
14.4

 
$
12.6

Prepaid expenses
70.4

 
68.4

Value added tax collectible from customers
19.1

 
25.2

Income taxes receivable
20.2

 
17.3

Other
4.7

 
5.3

Total other current assets
$
128.8

 
$
128.8

Property, Plant and Equipment
 
 
 
Land
$
19.1

 
$
19.2

Buildings
136.7

 
141.9

Machinery and equipment
963.8

 
964.8

Capitalized software costs
50.9

 
48.4

Construction in progress
52.9

 
59.9

Total gross property, plant and equipment
1,223.4

 
1,234.2

Accumulated depreciation and amortization
(813.0
)
 
(810.1
)
Total property, plant and equipment, net
$
410.4

 
$
424.1

Other Current Liabilities
 
 
 
Accrued advertising, sales promotion and allowances
$
35.0

 
$
28.2

Accrued trade allowances
22.3

 
29.9

Accrued salaries, vacations and incentive compensation
27.0

 
44.2

Income taxes payable
5.0

 
20.3

Returns reserve
31.3

 
58.6

Restructuring reserve
10.4

 
7.7

Value added tax payable
5.0

 
4.0

Deferred compensation
6.0

 
6.3

Other
70.6

 
86.3

Total other current liabilities
$
212.6

 
$
285.5

Other Liabilities
 
 
 
Pensions and other retirement benefits
$
90.2

 
$
91.5

Deferred compensation
39.7

 
40.7

Other non-current liabilities
85.4

 
79.6

Total other liabilities
$
215.3

 
$
211.8



14



Note 9 - Accounts Receivable Facility
On September 15, 2017, the Company entered into the 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 agreement 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.
As of December 31, 2018, the discount rate used to determine the purchase price for the subject receivables is based upon LIBOR plus a margin applicable to the specified obligor.
Accounts receivables sold under this agreement for the quarter ended December 31, 2018 and 2017 were $213.9 and $210.1, respectively. The trade receivables sold that remained outstanding under this agreement as of December 31, 2018 and September 30, 2018 were $78.2 and $77.9, respectively. The net proceeds received were included in cash provided by operating activities and cash provided by investing activities on 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 three months ended December 31, 2018 and 2017, the loss on sale of trade receivables was $0.6 and $0.4, respectively.

Note 10 - Debt
The detail of long-term debt was as follows:
 
December 31,
2018
 
September 30,
2018
Senior notes, fixed interest rate of 4.7%, due 2021
$
600.0

 
$
600.0

Senior notes, fixed interest rate of 4.7%, due 2022
500.0

 
500.0

U.S. revolving credit facility due 2020
39.0

 
7.0

Term loan, due 2019
185.0

 
185.0

Total long-term debt, including current maturities
1,324.0

 
1,292.0

Less current portion
185.0

 
184.9

Less unamortized debt issuance costs and discount (1) (2)
3.0

 
3.3

Total long-term debt
$
1,136.0

 
$
1,103.8

(1)
At December 31, 2018, the balance for the senior notes due 2021 and the senior notes due 2022 are reflected net of debt issuance costs of $1.1 and $1.4, respectively. At September 30, 2018, the balance for the senior notes due 2021, the senior notes due 2022, and the term loan are reflected net of debt issuance costs of $1.2, $1.5 and $0.1, respectively.
(2)
At December 31, 2018 and September 30, 2018, the balance for the senior notes due 2022 was reflected net of discount of $0.5 and $0.5, respectively.

The Company had outstanding, variable-rate international borrowings, recorded in Notes payable, of $10.1 and $8.2 as of December 31, 2018 and September 30, 2018, respectively.

Note 11 - Retirement Plans
The Company has several defined benefit pension plans covering employees in the U.S. and certain employees in other countries, which are included in the information presented below. The plans provide retirement benefits based on years of service and earnings. The Company also sponsors or participates in several other non-U.S. pension and postretirement arrangements, including various retirement and termination benefit plans, some of which are required by local law or coordinated with government-sponsored plans, which are not significant in the aggregate and, therefore, are not included in the information presented below.

15



The Company’s net periodic pension and postretirement cost (benefit) for these plans was as follows: 
 
Three Months Ended
December 31,
 
2018
 
2017
Service cost
$
0.7

 
$
0.7

Interest cost
4.7

 
4.3

Expected return on plan assets
(6.3
)
 
(7.1
)
Recognized net actuarial loss
1.0

 
1.1

Net periodic cost (benefit)
$
0.1

 
$
(1.0
)
The service cost component of the net periodic cost (benefit) associated with the Company’s retirement plans is recorded to Cost of products sold and SG&A on the Condensed Consolidated Statement of Earnings. The remaining net periodic cost (benefit) is recorded to Other expense, net on the Condensed Consolidated Statement of Earnings.

Note 12 - Shareholders’ Equity
In January 2018, the Board approved an authorization to repurchase up to 10.0 shares of the Company’s common stock, replacing the previous stock repurchase authorization from May 2015. The Company did not repurchase any shares under this authorization during the three months ended December 31, 2018. The Company has 10.0 shares of its common shares available for repurchase in the future under the Board’s authorization. Any future share repurchases may be made in the open market, privately negotiated transactions, or otherwise, in such amounts and at such times as the Company deems appropriate based upon prevailing market conditions, business needs, and other factors.
The Company has not declared any dividends since the third quarter of fiscal 2015 and does not currently intend to declare dividends in the foreseeable future.

Note 13 - Accumulated Other Comprehensive (Loss) Income
The following table presents the changes in accumulated other comprehensive (loss) income (“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)
(10.8
)
 
(0.7
)
 
(0.1
)
 
(11.6
)
Reclassifications to earnings

 
0.7

 
(1.2
)
 
(0.5
)
Balance at December 31, 2018
$
(51.4
)
 
$
(110.3
)
 
$
1.3

 
$
(160.4
)
 
Foreign
Currency
Translation
Adjustments
 
Pension and
Post-retirement
Activity
 
Hedging
Activity
 
Total
Balance at October 1, 2017
$
(29.0
)
 
$
(101.3
)
 
$
(1.1
)
 
$
(131.4
)
OCI before reclassifications (1)
9.5

 
(0.3
)
 
(0.3
)
 
8.9

Reclassifications to earnings

 
0.7

 
0.5

 
1.2

Balance at December 31, 2017
$
(19.5
)
 
$
(100.9
)
 
$
(0.9
)
 
$
(121.3
)
(1)
OCI is defined as other comprehensive income (loss).

16



The following table presents the reclassifications out of AOCI:
 
 
For the Three Months Ended
December 31,
 
Affected Line Item in the
Condensed Consolidated
Statements of Earnings
Details of AOCI Components
 
2018
 
2017
 
Gain / Loss on cash flow hedges
 
 
 
 
 
 
Foreign exchange contracts
 
$
1.8

 
$
(0.7
)
 
Other expense, net
 
 
1.8

 
(0.7
)
 
Total before tax
 
 
0.6

 
(0.2
)
 
Income tax provision
 
 
1.2

 
(0.5
)
 
Net of tax
Amortization of defined benefit pension and postretirement items
 
 
 
 
 
 
Actuarial losses
 
$
(1.0
)
 
$
(1.1
)
 
(1)
 
 
(1.0
)
 
(1.1
)
 
Total before tax
 
 
(0.3
)
 
(0.4
)
 
Income tax provision
 
 
(0.7
)
 
(0.7
)
 
Net of tax
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
0.5

 
$
(1.2
)
 
Net of tax
(1)
These AOCI components are included in the computation of net periodic cost (benefit). See Note 11 of Notes to Condensed Consolidated Financial Statements.

Note 14 - Financial Instruments and Risk Management
At times, the Company enters into contractual arrangements (also referred to as derivatives), to reduce its exposure to foreign currency. The Company has master netting agreements with all of its counterparties that allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default. The Company manages counterparty risk through the utilization of investment grade commercial banks, diversification of counterparties, and its counterparty netting arrangements. The section below outlines the types of derivatives that existed at December 31, 2018 and September 30, 2018, as well as the Company’s objectives and strategies for holding derivative instruments.

Foreign Currency Risk
A significant share of the Company’s sales is tied to currencies other than the U.S. dollar, the Company’s reporting currency. As such, a weakening of currencies relative to the U.S. dollar can have a negative impact on reported earnings. Conversely, strengthening of currencies relative to the U.S. dollar can improve reported results. The primary currencies to which the Company is exposed include the euro, the Japanese yen, the British pound, the Canadian dollar, and the Australian dollar.
Additionally, the Company’s foreign subsidiaries enter into internal and external transactions that create non-functional currency balance sheet positions at the foreign subsidiary level. These exposures are generally the result of intercompany purchases, intercompany loans and, to a lesser extent, external purchases, and are revalued in the foreign subsidiary’s local currency at the end of each 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, net. The primary currency to which the Company’s foreign subsidiaries are exposed is the U.S. dollar.

Cash Flow Hedges
At December 31, 2018, 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.

17



The Company entered into a series of forward currency contracts to hedge cash flow uncertainty associated with currency fluctuations. These transactions are accounted for as cash flow hedges. The Company had unrealized pre-tax gains of $1.9 and $3.9 at December 31, 2018 and September 30, 2018, respectively, on these forward currency contracts, which are accounted for as cash flow hedges, and are included in AOCI. Assuming foreign exchange rates versus the U.S. dollar remain at December 31, 2018 levels over the next 12 months, most of the pre-tax gain included in AOCI at December 31, 2018 is expected to be included in Other (income) expense, net. Contract maturities for these hedges extend into fiscal 2020. At December 31, 2018, there were 61 open foreign currency contracts with a total notional value of $120.8.
 
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 and thus are not subject to significant market risk. The change in estimated fair value of the foreign currency contracts for the three months ended December 31, 2018 resulted in a loss of $1.3, compared to a loss of $0.2 for the three months ended December 31, 2017, and was recorded in Other expense, net in the Condensed Consolidated Statements of Earnings. At December 31, 2018, there were five open foreign currency derivative contracts not designated as cash flow hedges, with a total notional value of $62.2.

The following table provides estimated fair values of derivative instruments:
 
Fair Value of Asset (Liability) (1)
 
December 31,
2018
 
September 30,
2018
Derivatives designated as cash flow hedging relationships:
 
 
 
Foreign currency contracts
$
1.9

 
$
3.9

Derivatives not designated as cash flow hedging relationships:
 
 
 
Foreign currency contracts
$
(1.0
)
 
$
1.3

(1)
All derivative assets are presented in Other current assets or Other assets. All derivative liabilities are presented in Other current liabilities or Other liabilities.

The following table provides the amounts of gains and losses on derivative instruments:
 
Three Months Ended December 31,
 
2018
 
2017
Derivatives designated as cash flow hedging relationships:
 
 
 
Foreign currency contracts
 
 
 
Gain (loss) recognized in OCI (1)
$
(0.2
)
 
$
(0.4
)
Gain (loss) reclassified from AOCI into income (effective portion) (1) (2)
1.8

 
(0.7
)
Derivatives not designated as cash flow hedging relationships:
 
 
 
Foreign currency contracts
 
 
 
Gain (loss) recognized in income (2)
$
(1.3
)
 
$
(0.2
)
(1)
Each of these derivative instruments had a high correlation to the underlying exposure being hedged for the periods indicated and had been deemed highly effective in offsetting associated risk.
(2)
Gain (loss) was recorded in Other (income) expense, net.

18




The following table provides financial assets and liabilities for balance sheet offsetting:
 
At December 31, 2018
 
At September 30, 2018
 
Assets (1)
 
Liabilities (2)
 
Assets (1)
 
Liabilities (2)
Foreign currency contracts
 
 
 
 
 
 
 
Gross amounts of recognized assets (liabilities)
$
2.4

 
$
(1.5
)
 
$
5.3

 
$

Gross amounts offset in the balance sheet
(0.2
)
 
0.2

 
(0.1
)
 

Net amounts of assets (liabilities) presented in the balance sheet
$
2.2

 
$
(1.3
)
 
$
5.2

 
$

(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 and measured on a recurring basis during the period, all of which are classified as Level 2 within the fair value hierarchy:
 
December 31,
2018
 
September 30,
2018
Liabilities at estimated fair value:
 
 
 
Deferred compensation
$
(45.5
)
 
$
(46.9
)
Derivatives - foreign currency contracts
0.9

 
5.2

Net liabilities at estimated fair value
$
(44.6
)
 
$
(41.7
)

At December 31, 2018, 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.
At December 31, 2018 and September 30, 2018, the Company had no Level 1 or Level 3 financial assets or liabilities, other than pension plan assets.
At December 31, 2018 and September 30, 2018, the fair market value of fixed rate long-term debt was $1,042.1 and $1,061.2, respectively, compared to its carrying value of $1,100.0 and $1,100.0, respectively. The estimated fair value of the long-term debt was estimated using yields obtained from independent pricing sources for similar types of borrowing arrangements. The estimated fair value of variable-rate debt, which consists of bank debt and excludes revolving credit facilities, was $185.0 compared to its carrying value of $185.0 at December 31, 2018 and $184.9 at September 30, 2018. The estimated fair value was equal to the face value of the debt. The estimated fair value 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.


19



Note 15 - Segment Data
For an overview of the Company’s segments, refer to Note 1 to Notes to Condensed Consolidated Financial Statements.
Segment performance is evaluated based on segment profit, exclusive of general corporate expenses, share-based compensation costs, costs associated with restructuring initiatives, the gain on the sale of the Playtex gloves business, and the amortization of intangible assets. Financial items, such as interest income and expense, are managed on a global basis at the corporate level. The exclusion of such charges from segment results reflects management’s view on how it evaluates segment performance.
The Company’s operating model includes some shared business functions across the segments, including product warehousing and distribution, transaction processing functions and, in most cases, combined sales force and management teams. The Company applies a fully allocated cost basis in which shared business functions are allocated between the segments. Such allocations are estimates and do not represent the costs of such services if performed on a stand-alone basis.
Segment net sales and profitability are presented below:
 
Three Months Ended
December 31,
 
2018
 
2017
Net Sales
 
 
 
Wet Shave
$
287.7

 
$
294.1

Sun and Skin Care
66.7

 
59.1

Feminine Care
74.7

 
82.6

All Other
28.0

 
32.5

Total net sales
$
457.1

 
$
468.3

 
 
 
 
Segment Profit
 
 
 
Wet Shave
$
55.0

 
$
53.7

Sun and Skin Care
(0.6
)
 
(6.2
)
Feminine Care
7.5

 
4.8

All Other
1.2

 
7.1

Total segment profit
63.1

 
59.4

General corporate and other expenses
(13.7
)
 
(18.7
)
Restructuring and related costs (1)
(18.5
)
 

Investor settlement expense (2)
(0.9
)
 

Jack Black acquisition and integration costs (3)
(0.5
)
 

Sun Care reformulation costs (4)
(0.1
)
 

Gain on sale of Playtex gloves

 
15.9

Amortization of intangibles
(4.5
)
 
(4.4
)
Interest and other expense, net
(17.3
)
 
(19.1
)
Total earnings before income taxes
$
7.6

 
$
33.1

(1)
Includes pre-tax SG&A of $1.4 for the three months ended December 31, 2018, associated with certain information technology enablement expenses for Project Fuel.
(2)
Includes pre-tax SG&A of $0.9 for the three months ended December 31, 2018.
(3)
Includes pre-tax SG&A of $0.5 for the three months ended December 31, 2018.
(4)
Includes pre-tax Cost of products sold of $0.1 for the three months ended December 31, 2018, associated with supply chain changes on select Sun Care products.
The following table presents the Company’s net sales by geographic area:
 
Three Months Ended December 31,
 
2018
 
2017
Net Sales to Customers
 
 
 
United States
$
251.3

 
$
258.3

International
205.8

 
210.0

Total net sales
$
457.1

 
$
468.3



20






Supplemental product information is presented below for net sales:
 
Three Months Ended
December 31,
 
2018
 
2017
Razors and blades
$
255.3

 
$
261.5

Tampons, pads, and liners
74.7

 
82.6

Skin care products
33.5

 
20.8

Sun care products
33.2

 
38.3

Shaving gels and creams
32.4

 
32.6

Infant care and other
28.0

 
32.5

Total net sales
$
457.1

 
$
468.3


Note 16 - Guarantor and Non-Guarantor Financial Information
Set forth below are the condensed consolidating financial statements presenting the results of operations, financial position, and cash flows of Edgewell Personal Care Company (the “Parent Company”), the Guarantors on a combined basis, the Non-Guarantors on a combined basis, and eliminations necessary to arrive at the information for the Company, as reported on a consolidated basis. Eliminations represent adjustments to eliminate investments in subsidiaries and intercompany balances and transactions between or among the Parent Company, the Guarantors, and the Non-Guarantors.




21




EDGEWELL PERSONAL CARE COMPANY
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
Three Months Ended December 31, 2018 

 
 Parent Company
 
 Guarantors
 
 Non-Guarantors
 
 Eliminations
 
 Total
Net sales
$

 
$
299.7

 
$
236.7

 
$
(79.3
)
 
$
457.1

Cost of products sold

 
192.8

 
150.1

 
(79.3
)
 
263.6

Gross profit

 
106.9

 
86.6

 

 
193.5

 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expense

 
51.2

 
36.1

 

 
87.3

Advertising and sales promotion expense

 
27.4

 
24.2

 

 
51.6

Research and development expense

 
12.6

 

 

 
12.6

Restructuring charges

 
8.9

 
8.2

 

 
17.1

Interest expense associated with debt
13.4

 
2.5

 
0.1

 

 
16.0

Other expense, net

 
0.6

 
0.7

 

 
1.3

Intercompany service fees

 
(3.6
)
 
3.6

 

 

Equity in earnings of subsidiaries
(9.7
)
 
(11.5
)
 

 
21.2

 

Earnings before income taxes
(3.7
)
 
18.8

 
13.7

 
(21.2
)
 
7.6

Income tax (benefit) provision
(3.3
)
 
9.1

 
2.2

 

 
8.0

Net (loss) earnings
$
(0.4
)
 
$
9.7

 
$
11.5

 
$
(21.2
)
 
$
(0.4
)
 
 
 
 
 
 
 
 
 
 
Statements of Comprehensive Income:
 
 
 
 
 
 
 
 
 
Net earnings
$
(0.4
)
 
$
9.7

 
$
11.5

 
$
(21.2
)
 
$
(0.4
)
Other comprehensive income, net of tax
(12.1
)
 
(12.1
)
 
(11.6
)
 
23.7

 
(12.1
)
Total comprehensive income
$
(12.5
)
 
$
(2.4
)
 
$
(0.1
)
 
$
2.5

 
$
(12.5
)


22




EDGEWELL PERSONAL CARE COMPANY
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
Three Months Ended December 31, 2017

 
 Parent Company
 
 Guarantors
 
 Non-Guarantors
 
 Eliminations
 
 Total
Net sales
$

 
$
312.1

 
$
227.5

 
$
(71.3
)
 
$
468.3

Cost of products sold

 
195.4

 
144.9

 
(71.3
)
 
269.0

Gross profit

 
116.7

 
82.6

 

 
199.3

 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expense

 
62.2

 
35.7

 

 
97.9

Advertising and sales promotion expense

 
26.5

 
22.5

 

 
49.0

Research and development expense

 
16.1

 

 

 
16.1

Gain on sale of Playtex gloves

 
(15.9
)
 

 

 
(15.9
)
Interest expense associated with debt
13.4

 
4.2

 
0.2

 

 
17.8

Other expense, net

 
(0.5
)
 
1.8

 

 
1.3

Intercompany service fees

 
(6.9
)
 
6.9

 

 

Equity in earnings of subsidiaries
(16.5
)
 
(12.8
)
 

 
29.3

 

Earnings before income taxes
3.1

 
43.8

 
15.5

 
(29.3
)
 
33.1

Income tax (benefit) provision
(3.6
)
 
27.3

 
2.7

 

 
26.4

Net earnings
$
6.7

 
$
16.5

 
$
12.8

 
$
(29.3
)
 
$
6.7

 
 
 
 
 
 
 
 
 
 
Statements of Comprehensive Income:
 
 
 
 
 
 
 
 
 
Net earnings
$
6.7

 
$
16.5

 
$
12.8

 
$
(29.3
)
 
$
6.7

Other comprehensive (loss), net of tax
10.1

 
10.1

 
9.6

 
(19.7
)
 
10.1

Total comprehensive income (loss)
$
16.8

 
$
26.6

 
$
22.4

 
$
(49.0
)
 
$
16.8








23




EDGEWELL PERSONAL CARE COMPANY
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2018 

 
 Parent Company
 
 Guarantors
 
 Non-Guarantors
 
 Eliminations
 
 Total
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
2.2

 
$
237.7

 
$

 
$
239.9

Trade receivables, net

 
30.3

 
133.3

 

 
163.6

Inventories

 
207.8

 
159.5

 

 
367.3

Other current assets

 
51.0

 
77.8

 

 
128.8

Total current assets

 
291.3

 
608.3

 

 
899.6

Investment in subsidiaries
3,761.7

 
1,186.1

 

 
(4,947.8
)
 

Intercompany receivables, net (1)

 
863.3

 
56.3

 
(919.6
)
 

Property, plant and equipment, net

 
306.7

 
103.7

 

 
410.4

Goodwill

 
1,037.4

 
408.8

 

 
1,446.2

Other intangible assets, net

 
883.2

 
209.6

 

 
1,092.8

Other assets
0.9

 

 
31.4

 

 
32.3

Total assets
$
3,762.6

 
$
4,568.0

 
$
1,418.1

 
$
(5,867.4
)
 
$
3,881.3

 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
 
 
 
 
 
Current liabilities
$
6.7

 
$
425.4

 
$
182.9

 
$

 
$
615.0

Intercompany payables, net (1)
919.6

 

 

 
(919.6
)
 

Long-term debt
1,097.0

 
39.0

 

 

 
1,136.0

Deferred income tax liabilities

 
142.4

 
33.3

 

 
175.7

Other liabilities

 
199.5

 
15.8

 

 
215.3

Total liabilities
2,023.3

 
806.3

 
232.0

 
(919.6
)
 
2,142.0

Total shareholders' equity
1,739.3

 
3,761.7

 
1,186.1

 
(4,947.8
)
 
1,739.3

Total liabilities and shareholders' equity
$
3,762.6

 
$
4,568.0

 
$
1,418.1

 
$
(5,867.4
)
 
$
3,881.3

(1)
Intercompany activities include product purchases between Guarantors and Non-Guarantors, charges for services provided by the Parent Company and various subsidiaries to other affiliates within the consolidated entity, and other intercompany activities in the normal course of business.


24




EDGEWELL PERSONAL CARE COMPANY
CONDENSED CONSOLIDATING BALANCE SHEETS
September 30, 2018

 
 Parent Company
 
 Guarantors
 
 Non-Guarantors
 
 Eliminations
 
 Total
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
2.5

 
$
263.9

 
$

 
$
266.4

Trade receivables, net

 
46.1

 
180.4

 

 
226.5

Inventories

 
175.4

 
154.1

 

 
329.5

Other current assets

 
48.8

 
80.0

 

 
128.8

Total current assets

 
272.8

 
678.4

 

 
951.2

Investment in subsidiaries
3,760.0

 
1,227.4

 

 
(4,987.4
)
 

Intercompany receivables, net (1)

 
836.1

 
63.9

 
(900.0
)
 

Property, plant and equipment, net

 
316.7

 
107.4

 

 
424.1

Goodwill

 
1,037.5

 
413.3

 

 
1,450.8

Other intangible assets, net

 
886.5

 
212.5

 

 
1,099.0

Other assets
1.0

 
0.1

 
27.1

 

 
28.2

Total assets
$
3,761.0

 
$
4,577.1

 
$
1,502.6

 
$
(5,887.4
)
 
$
3,953.3

 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
 
 
Current liabilities
$
19.7

 
$
471.8

 
$
225.5

 
$

 
$
717.0

Intercompany payables, net (1)
900.0

 

 

 
(900.0
)
 

Long-term debt
1,096.7

 
7.1

 

 

 
1,103.8

Deferred income tax liabilities

 
142.6

 
33.5

 

 
176.1

Other liabilities

 
195.6

 
16.2

 

 
211.8

Total liabilities
2,016.4

 
817.1

 
275.2

 
(900.0
)
 
2,208.7

Total shareholders’ equity
1,744.6

 
3,760.0

 
1,227.4

 
(4,987.4
)
 
1,744.6

Total liabilities and shareholders’ equity
$
3,761.0

 
$
4,577.1

 
$
1,502.6

 
$
(5,887.4
)
 
$