EDGEWELL PERSONAL CARE Co (EPC) FY 2023 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(in millions, except per share data)

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the accompanying notes included in this Annual Report on Form 10-K. The fiscal 2022 amounts have been revised to reflect the immaterial revisions described in Item 8 - Note 1 and Note 19, in the notes to our Consolidated Financial Statements. In addition, the fiscal 2023 amounts have been updated from those preliminarily reported in our earnings release, dated November 9, 2023, as a result of the immaterial revisions to both the three-months ended and fiscal year ended September 30, 2023, as described in Item 8 - Note 1. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs and involve risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed in Item 1A. Risk Factors and “Forward-Looking Statements” included within this Annual Report on Form 10-K.

Non-GAAP Financial Measures

While we report financial results in accordance with GAAP, this discussion also includes non-GAAP measures. These non-GAAP measures are referred to as “adjusted” or “organic” and exclude certain costs deemed non-recurring in nature. Reconciliations of non-GAAP measures are included within this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. We use this non-GAAP information internally to make operating decisions and believe it is helpful to investors because it allows more meaningful period-to-period comparisons of ongoing operating results. Given the various significant events, including restructuring projects and recent acquisitions, we view the use of non-GAAP measures that take into account the impact of these unique events as particularly valuable in understanding our underlying operational results and providing insights into future performance. The information can also be used to perform trend analysis and to better identify operating trends that may otherwise be masked or distorted by the types of items that are excluded. This non-GAAP information is also a component in determining management’s incentive compensation. Finally, we believe this information provides more transparency. The following provides additional detail on our non-GAAP measures for the periods presented:

•We analyze net sales and segment profit on an organic basis to better measure the comparability of results between periods. Organic net sales and organic segment profit exclude the impact of changes in foreign currency and the impact of acquisitions and divestitures:

◦Organic net sales was unfavorably impacted in fiscal 2022 and 2023 by the Billie Acquisition as sales that were previously reported as third party sales to Billie were included as inter-company sales. Organic net sales for fiscal 2021 was impacted by the Cremo acquisition and the divestiture of the Infant and Pet Care products.

◦Segment profit was unfavorably impacted in fiscal 2022 as a result of a change in the timing of profit recognition due to the Billie Acquisition. Subsequent to the acquisition of Billie, profit previously earned on sales to Billie was deferred until Billie sold to a third party.

◦Segment profit will be impacted by fluctuations in translation and transactional foreign currency. The impact of currency was applied to segments using management’s best estimate.

•We utilize “adjusted” non-GAAP measures including gross profit, SG&A, operating income, income taxes, net earnings, and diluted earnings per share internally to make operating decisions. The following items are excluded when analyzing non-GAAP measures: restructuring and related costs, acquisition and integration costs, Sun Care reformulation, SKU rationalization, pension settlement expense, income from resolution of legal matters, VAT settlement costs, cost of early debt retirement and at times management excludes other costs and income.

All comparisons are with the same period in the prior year, unless otherwise noted.

Significant Events

Acquisitions

On November 29, 2021, we completed the acquisition of Billie, a leading U.S. based consumer brand company that offers a broad portfolio of personal care products for women, for a purchase price of $309.4, net of cash acquired, utilizing a combination of cash on hand and drawing on our U.S. revolving credit facility maturing in 2025 between the Company and Bank of America, N.A., as administrative agent, and lenders parties thereto (the “Revolving Credit Facility”). As a result, Billie became a wholly owned subsidiary of the Company. Refer to Note 3 of Notes to the Consolidated Financial Statements for further discussion.

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Executive Summary

The following is a summary of key results for fiscal 2023, 2022 and 2021. Net earnings and diluted earnings per share (“EPS”) for the time periods presented were impacted by restructuring and related costs, acquisition and integration costs, SKU Rationalization, Sun Care reformulation, income from resolution of legal matters, pension settlement expense, VAT settlement costs, cost of early debt retirement and other costs or income, as described in the table below. The impact of these items on reported net earnings and EPS are provided below as a reconciliation of net earnings and EPS to adjusted net earnings and adjusted diluted EPS, which are non-GAAP measures.

Fiscal 2023

•Net sales in fiscal 2023 increased $79.9, or 3.7%, to $2,251.6, including a net benefit of $12.0 or 0.6% from the acquisition of Billie and a $26.1 or 1.2% unfavorable impact due to currency movements. Organic net sales increased $94.0, or 4.3%, reflecting growth in all segments, as increased pricing was only partly offset by a slight decrease in volumes. International markets increased 6.2%, reflecting both volume and price gains and were driven by strong double digit growth in Sun and Skin Care, and low single digit growth in Wet Shave. North America markets increased 3.3%, with growth in Sun Care, Feminine Care, Grooming and Wet One’s partly offset by a slight decline in Wet Shave.

•Net earnings for fiscal 2023 increased $15.2, or 15.3% to $114.7. On an adjusted basis, net earnings for fiscal 2023 decreased 2.9% to $134.5. Adjusted net earnings decreased primarily due to unfavorable currency movements.

•Diluted net earnings per share during fiscal 2023 was $2.21 compared to earnings of $1.85 in the prior fiscal year. On an adjusted basis, as illustrated in the table below, net earnings per diluted share during fiscal 2023 were $2.59 compared to $2.58 in the prior year.

(1) Also includes pre-tax research and development (“R&D) costs of $3.3 related to the reformulation, recall, and destruction of certain Sun Care products

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For further discussion of these items refer to Note 18 of Notes to Consolidated Financial Statements.

Operating Results

The following table presents changes in net sales for fiscal 2023 and 2022, as compared to the corresponding prior year period, and provides a reconciliation of organic net sales to reported amounts.

Net Sales

For fiscal 2023, net sales were $2,251.6, an increase of $79.9, or 3.7%, including a net benefit of $12.0 or 0.6% from the acquisition of Billie and a $26.1, or 1.2% unfavorable impact due to currency movements. Organic net sales increased $94.0, or 4.3%, reflecting growth in all segments, as increased pricing was only partially offset by a slight decrease in volumes. International markets increased 6.2%, driven by strong double digit growth in Sun and Skin Care and a low single digit growth

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in Wet Shave. North America markets increased 3.3%, with growth in Sun Care, Feminine Care, Grooming and Wet One’s partially offset by a slight decline in Wet Shave.

For further discussion regarding net sales, including a summary of reported versus organic changes, see “Segment Results.”

Gross Profit

Gross profit was $940.8 in fiscal 2023, as compared to $880.5 in fiscal 2022, an increase of $60.3, or 6.8%, including a $33.7 unfavorable impact from currency movements. Gross margin as a percent of net sales for fiscal 2023 was 41.8% compared to 40.5% in the prior year period. Contributing to the increase were higher sales and the absence of a $22.5 charge within Cost of products sold in the prior year period for the write-off of inventory for certain Wet Ones SKUs and a related contract termination charge. Adjusted gross margin as a percent of net sales was 41.7% compared to 41.8% in the prior year period. The decrease of 10-basis points as productivity savings of 230-basis points and the benefit from higher pricing of 305-basis points were more than offset by gross inflationary pressures of approximately 400-basis points and 55-basis points of negative mix.

Selling, General and Administrative Expense

SG&A was $409.6, or 18.2%, of net sales in fiscal 2023 compared to $389.1, or 17.9%, of net sales in the prior year period primarily due to higher people costs and travel expenses. Adjusted SG&A as a percent of net sales was 18.1%, an increase of 50-basis points, as higher incentive compensation, people costs and travel expense was only partially offset by the benefits of leverage, savings from ongoing operational efficiency programs and favorable currency movements.

Advertising and Sales Promotion Expense

For fiscal 2023, A&P was $229.1, down $9.2, or 3.9%, compared to fiscal 2022. A&P as a percent of net sales was 10.2% for fiscal 2023, compared with 11.0% in fiscal 2022. The decrease in A&P was primarily due to lower media spend and agency fees partially offset by higher investment in Feminine Care.

Research and Development Expense

Research and development expense (“R&D”) was $58.5 in fiscal 2023, an increase of $3.0, or 5.4%, compared to the prior year. As a percent of net sales, R&D remained flat at 2.6%.

Interest Expense Associated with Debt

Interest expense associated with debt for fiscal 2023 was $78.5, an increase of $7.1, or 9.9%, as compared to $71.4 in fiscal 2022. The increase in interest expense was the result of higher interest rates and a higher overall debt balance on the Company’s Revolving Credit Facility compared to fiscal 2022.

Other Expense (income), Net

Other expense (income), net was income of $0.8 in fiscal 2023 compared to income of $13.2 in fiscal 2022, which included currency hedge and remeasurement gains of $12.7 in fiscal 2023 compared to $11.5 in fiscal 2022. Current year expense includes higher accounts receivable factoring costs, higher pension expense in the current year, including the loss on the settlement of the Canada Plan of $7.9 compared to a pension benefit in the prior year.

Income Tax Provision

Income taxes, which include federal, state and foreign taxes, were 22.3% and 19.9% of Earnings before income taxes in fiscal 2023 and 2022, respectively. On an adjusted basis, the effective tax rate for fiscal 2023 was 23.0% compared to 20.9% in the prior year. The fiscal 2023 effective tax rate reflects an unfavorable mix of earnings in low tax jurisdictions with an increase in valuation allowances partially offset by favorable discrete items including the impact of a change in our prior estimates.

Our effective tax rate is highly sensitive to the mix of countries from which earnings or losses are derived. Declines in earnings in lower tax rate jurisdictions, earnings increases in higher tax rate jurisdictions, or repatriation of foreign earnings or operating losses in the future could increase future tax rates. Additionally, adjustments to prior year tax provision estimates could increase or decrease future tax provisions.

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Operating Model Redesign

In fiscal 2023, the Company is continuing to strengthen its operating model, simplify the organization and improve manufacturing and supply chain efficiency. As a result of these actions, we incurred charges of approximately $17.1 in fiscal 2023, primarily related to employee severance, project implementation and other exit costs.

Segment Results

Segment performance is evaluated based on segment profit, exclusive of general corporate expenses, share-based compensation costs, amortization of intangible assets, and costs associated with restructuring charges, acquisition and integration costs, SKU rationalization, and other non-standard expenses. The exclusion of such changes from segment results reflects management’s view on how it evaluates segment performance. Financial items, such as interest income and expense, are managed on a global basis at the corporate level.

Our operating model includes some shared business functions across the segments, including product warehousing and distribution, transaction processing functions and, in most cases, a combined sales force and management teams. We apply a fully allocated cost basis, in which shared business functions are allocated between the segments on a percentage of net sales basis. Such allocations are estimates and do not represent the costs of such services if performed on a stand-alone basis.

The following tables present changes in segment net sales and segment profit for fiscal 2023 and 2022, as compared to the corresponding prior year periods, and also provide a reconciliation of organic segment net sales and organic segment profit to reported amounts. For a reconciliation of Segment profit to Earnings before income taxes, see Note 18 of Notes to Consolidated Financial Statements. Net sales and segment profit activity related to Billie products were included in the Wet Shave segment for the post-acquisition period.

Wet Shave

Wet Shave net sales for fiscal 2023 was $1,230.9, a decrease of $11.6, or 0.9%, as compared to the prior year period, including $24.2 or 1.9% decline due to unfavorable impact from currency, partially offset by an increase of $12.0, or 1.0%, from the Billie Acquisition. Organic net sales were flat with an increase of $0.6, or 0.0%. Organic net sales were primarily impacted by increases in Women’s Systems, Disposables, and Men’s Shave Preps, offset by declines in Men’s Systems and Women’s Shave Preps. Organic net sales in International markets increased 1.2% compared to declines in North America of 1.1%.

Wet Shave segment profit for fiscal 2023 was $158.3, a decrease of $16.2, or 9.3%. Organic segment profit increased $9.3, or 5.3% primarily driven by growth in International markets and was partially offset by unfavorable impact from currency.

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Sun and Skin Care

Sun and Skin Care net sales for fiscal 2023 was $705.5, an increase of $67.0, or 10.5%. Organic net sales increased $68.1, or 10.7%, with organic net sales in International markets increasing 29.9% with the impact of favorable pricing and higher volumes. North America markets increased 5.8% with strong growth with favorable volumes in Grooming and Wet One’s and favorable pricing in Sun Care.

Sun and Skin Care segment profit for fiscal 2023 was $137.4, an increase of $28.6, or 26.3%. Organic segment profit increased $28.7, or 26.4% driven by increased net sales and gross margin from favorable volumes of Sun Care products and Grooming, partially offset by higher commodity costs.

Feminine Care

Feminine Care net sales for fiscal 2023 was $315.2, an increase of $24.5, or 8.4%. Organic segment net sales increased $25.3, or 8.7%, with growth in North America markets of 8.0% driven largely by pricing.

Feminine Care segment profit for fiscal 2023 was $49.7, an increase of $18.2, or 57.8%. The increase is primarily due to favorable pricing offset by higher marketing expense.

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General Corporate and Other Expenses

For fiscal 2023, general corporate expenses were $68.7, an increase of $14.7 as compared to fiscal 2022.

In fiscal 2022, we recorded a charge of $22.5 relating to the write-off of inventory and related contract termination charges associated with a third-party co-manufacturer. During fiscal 2023, the Company released a reserve of $1.7 related to certain accrued expenses associated with the write-off of inventory for certain Wet Ones SKUs. This charge was included in Cost of products sold in the Consolidated Statements of Earnings and Comprehensive Income.

In fiscal 2023, the Company recorded a charge of $7.9 related to the wind-up of its Canadian defined benefit pension plan. For further information see Note 12 of Notes to Consolidated Financial Statements.

In fiscal 2022, the Company took specific actions to strengthen our operating model, simplify our organization and improve manufacturing and supply chain efficiency and productivity. As a result of these actions, we incurred restructuring and related costs of $17.1 and $16.2 during fiscal 2023 and fiscal 2022, respectively, primarily related to employee severance, project implementation and other exit benefit costs.

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Liquidity and Capital Resources

At September 30, 2023, we had cash of $216.4, a portion which was located outside the U.S. Given our extensive international operations, a significant portion of our cash is denominated in foreign currencies. Refer to Note 16 of Notes to Consolidated Financial Statements for a discussion of the primary currencies to which the Company is exposed. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct business and the cost effectiveness with which those funds can be accessed. We generally repatriate a portion of current year earnings from select non-U.S. subsidiaries only if the economic cost of the repatriation is not considered material.

Our cash is deposited with multiple counterparties which consist of major financial institutions. We consistently monitor positions with, and credit ratings of, counterparties both internally and by using outside ratings agencies.

Our total borrowings as of September 30, 2023 and 2022 were as follows:

Our Revolver utilization is summarized below.

On February 6, 2023, we amended our Revolving Credit Facility to transition from using the London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”) as LIBOR is no longer available as of June 30, 2023.

Effective February 7, 2022, we increased the maximum receivables sold facility amount under the Sixth Amendment to Master Accounts Receivable Purchase Agreement to $180.0 from $150.0. Refer to Note 10 of Notes to the Consolidated Financial Statements for further discussion on our $180.0 uncommitted master accounts receivable purchase agreement with The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as the purchaser (the “Accounts Receivable Facility”).

On August 5, 2022, we entered into the Master Receivable Assignment Agreement (the "Japan Agreement"). The Japan Agreement was between Schick Japan K.K. and Concerto Receivables Corporation (the “Purchaser”), Tokyo Branch, a subsidiary of MUFG Bank, LTD., which allows us to assign third party accounts receivable to the Purchaser. The Japan Agreement allows for the sale of up to ¥3,000 (approximately $20.0 using the exchange rate as of September 30, 2023) with limits set between individual customers. The terms of the agreement expire one year after the date of execution and will be renewed annually unless either party notifies of its intent not to renew. The assigned receivables will be discounted using the funding rate from the Tokyo Interbank Market plus 1.1%.

Historically, we have generated, and expect to continue to generate, favorable cash flows from operations. Our cash flows are affected by the seasonality of our Sun Care business, typically resulting in higher net sales and increased cash generated in the second and third quarter of each fiscal year. We believe our cash on hand, cash flows from operations and borrowing capacity under the Revolving Credit Facility will be sufficient to satisfy our future working capital requirements, interest payments, R&D activities, capital expenditures, and other financing requirements for at least the next 12 months. We will continue to monitor our cash flows, spending and liquidity needs.

Short-term financing needs primarily consist of working capital requirements and interest payments on our long-term debt. Long-term financing needs will depend largely on potential growth opportunities, including acquisition activity and repayment or refinancing of our long-term debt obligations. Our long-term liquidity may be influenced by our ability to borrow additional funds, renegotiate existing debt, and raise equity under terms that are favorable to us. We may, from time-to-time, seek to repurchase shares of our common stock. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

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In fiscal 2024, we expect our total capital expenditures to be in the range of $55 to $65 primarily on maintenance and productivity efforts across manufacturing facilities, new product development and information technology system enhancements. While we intend to fund these capital expenditures with cash generated from operations, we may also utilize our borrowing facilities.

During fiscal 2023, we did not make any contributions to our pension and postretirement plans. Due to the election of certain terms of the American Rescue Plan Act, we were not required to make any cash contributions to our pension and postretirement plans in fiscal 2023. Pension contributions required beyond fiscal 2024 represent future pension payments to comply with local funding requirements in the U.S. only. The projected contributions for the U.S. pension plans total $7.0 in fiscal 2024, $9.2 in fiscal 2025, $10.4 in fiscal 2026, $10.2 in fiscal 2027, and $10.1 in fiscal 2028. Estimated contributions beyond fiscal 2028 are not determinable. The Company may also elect to make discretionary contributions.

Debt Covenants

The Revolving Credit Facility governing our outstanding debt at September 30, 2023 contains certain customary representations and warranties, financial covenants, covenants restricting our ability to take certain actions, affirmative covenants, and provisions relating to events of default. Under the terms of the Revolving Credit Facility, the ratio of our indebtedness to our earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined in the agreement and detailed below, cannot be greater than 4.0 to 1.0, however, there is an exception for acquisition activity. In addition, under the Revolving Credit Facility, the ratio of our EBITDA to total interest expense must exceed 3.0 to 1.0. If we fail to comply with these covenants or with other requirements of the Revolving Credit Facility, the lenders may have the right to accelerate the maturity of the debt. Acceleration under one of our facilities would trigger cross-defaults on our other borrowings. Under the Revolving Credit Facility, EBITDA is defined as net earnings, as adjusted to add-back interest expense, income taxes, depreciation and amortization, all of which are determined in accordance with GAAP. In addition, the Revolving Credit Facility allows certain non-cash charges such as stock award amortization and asset write-offs including, but not limited to, impairment and accelerated depreciation, and operating expense reductions or synergies to be “added-back” in determining EBITDA for purposes of the indebtedness ratio. Total debt and interest expense are calculated in accordance with GAAP.

As of September 30, 2023, we were in compliance with the provisions and covenants associated with the Revolving Credit Facility.

Cash Flows

A summary of our cash flow from operating, investing and financing activities is provided in the following table:

Operating Activities

Cash flow from operating activities was $216.1 in fiscal 2023, as compared to $102.0 in fiscal 2022. The increase in fiscal 2023 was driven by favorable changes in working capital and increased earnings.

Investing Activities

Cash flow used by investing activities was $50.5 in fiscal 2023 as compared to $355.4 in fiscal 2022. Capital expenditures were $49.5 during fiscal 2023, compared to $56.4 in the prior year period. In fiscal 2022, we completed the Billie acquisition for $309.4, net of cash acquired.

Financing Activities

Net cash used by financing activities was $146.5 in fiscal 2023 as compared to $17.6 in fiscal 2022. During the fiscal 2023, we had net repayments of $33.0 under the Revolving Credit Facility, compared to net borrowings of $155.0 in the prior year

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period. During fiscal 2023, we repurchased $75.2 of our common stock under our 2018 Board authorization to repurchase our common stock (the “Repurchase Plan”) compared to $125.3 in the prior year period. Dividend payments totaled $31.5 in fiscal 2023, compared to $32.6 in the prior year period. We had financing outflows for employee equity awards held for taxes totaling $9.0 in fiscal 2023, compared to $10.7 in the prior year period.

In January 2018, our Board approved an authorization to repurchase up to 10.0 shares of our common stock. This authorization replaced a prior share repurchase authorization from May 2015. During fiscal 2023, we repurchased 1.9 shares of our common stock for $75.2. We have 4.6 shares remaining available for purchase under the January 2018 Board authorization.

Since September 30, 2023, we repurchased 0.1 shares of common stock for $3.5. There are 4.5 common shares remaining available to be purchased.

Dividends

The following is a summary of cash dividends paid and declared per share on the Company’s Common Stock during the year ended September 30, 2023

On November 2, 2023, the Board declared a quarterly cash dividend of $0.15 per common share for the third fiscal quarter of 2023. The dividend will be paid on January 4, 2024 to shareholders of record as the close of business on December 6, 2023.

Dividends declared during fiscal 2023 totaled $31.7. Payments made for dividends during fiscal 2023 totaled $31.5.

Inflation

Management recognizes that inflationary pressures may have an adverse effect on our company through higher material, labor and transportation costs, asset replacement costs and related depreciation, healthcare and other costs. We continued to navigate the challenging and uncertain inflationary environment and resultant cost pressure with a combination of productivity efforts to achieve efficiencies and lower costs to our Cost of products sold and SG&A expenses and increase focus on revenue management. We can provide no assurance that such mitigation will be available in the future.

Seasonality

Customer orders for sun care products within our Sun and Skin Care segment are highly seasonal. This has historically resulted in higher sun care sales to retailers during the late winter through mid-summer months. Within our Wet Shave segment, sales of women’s products are moderately seasonal, with increased consumer demand in the spring and summer months. See “Our business is subject to seasonal volatility” in Item 1A. Risk Factors.

Foreign Currency

Certain net sales and costs of our international operations are denominated in the local currency of the respective countries. As such, sales and profits from these subsidiaries may be impacted by fluctuations in the value of these local currencies relative to the U.S. dollar. We also have significant intercompany financing arrangements that may result in gains and losses in our results of operations. In an effort to mitigate the impact of currency exchange rate effects, we may hedge certain operational and intercompany transactions; however, our hedging strategies may not fully offset gains and losses recognized in our results of operations.

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Commitments and Contingencies

Legal Proceedings

During fiscal 2023, the Company settled a legal matter which resulted in a gain of $4.9 related to an intellectual property claim against a third party. This was included in selling, general and administrative (“SG&A”) in the Consolidated Statements of Earnings and Comprehensive Income. The Company received payment for the intellectual property claim settlement during fiscal 2023.

Additionally, during fiscal 2023, the Company received a favorable court ruling regarding an international VAT matter, which the plaintiff has no ability to appeal. As the Company had previously recorded an accrual for this matter, based on its best estimate of the facts and circumstances at that time, the result of the favorable court ruling was a release of the reserve established which resulted in a gain of $2.2. This was included in SG&A in the Consolidated Statements of Earnings and Comprehensive Income.

During fiscal 2022 the Company settled certain legal matters which resulted in a gain of $7.5 related to intellectual property claims against a third party. This was included in SG&A in the Consolidated Statements of Earnings and Comprehensive Income. The Company received payment for the settlement in fiscal 2022.

We are subject to a number of legal proceedings in various jurisdictions arising out of our operations during the ordinary course of business. Many of these legal matters are in preliminary stages and involve complex issues of law and fact and may proceed for protracted periods of time. The amount of liability, if any, from these proceedings cannot be determined with certainty. We review legal proceedings and claims, regulatory reviews and inspections and other legal proceedings on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. We establish accruals for those contingencies when the incurrence of a loss is probable and can be reasonably estimated and discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued if such disclosure is necessary for its financial statements to not be misleading. We do not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated. Based upon present information, we believe that its liability, if any, arising from such pending legal proceedings, asserted legal claims, and known potential legal claims which are likely to be asserted, is not reasonably likely to be material to its financial position, results of operations or cash flows, when taking into account established accruals for estimated liabilities.

Contractual Obligations

We have significant contractual obligations to fulfill our business operations including the repayment of short and long term debt, periodic interest payments, minimum levels of pension funding, and other obligations including payments for various leases of real estate, vehicles, and equipment, and minimum fixed costs to be paid to third party logistics vendors. We are also party to various service and supply contracts that generally extend one to three months. These arrangements are primarily individual, short-term purchase orders for routine goods and services at market prices, which are part of our normal operations and are reflected in historical operating cash flow trends. These contracts can generally be canceled at our option at any time. We do not believe such arrangements will adversely affect our liquidity position. In addition, we have various commitments related to service and supply contracts that contain penalty provisions for early termination. Because of the short period between order and shipment date (generally less than one month) for most of our orders, the dollar amount of current backlog is not material and is not considered to be a reliable indicator of future sales volume. Generally, sales to our top customers are made pursuant to purchase orders and we do not have supply agreements or guarantees of minimum purchases from them. As a result, these customers may cancel their purchase orders or reschedule or decrease their level of purchases from us at any time. As of September 30, 2023, we do not believe such purchase arrangements or termination penalties will have a significant effect on our results of operations, financial position or liquidity position in the future.

Environmental Matters

Our operations, like those of other companies, are subject to various federal, state, local and foreign laws and regulations intended to protect public health and the environment. These regulations relate primarily to worker safety, air and water quality, underground fuel storage tanks, and waste handling and disposal. Accrued environmental costs at September 30, 2023 were $9.3. It is difficult to quantify with reasonable certainty the cost of environmental matters, particularly remediation and future capital expenditures for environmental control equipment. Total environmental capital expenditures and operating expenses are not expected to have a material effect on our total capital and operating expenditures, consolidated earnings or competitive position. However, current environmental spending estimates could be modified as a result of changes in our plans or our understanding of underlying facts, changes in legal requirements, including any requirements related to global climate change, or other factors.

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Critical Accounting Policies

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements. Specific areas, among others, requiring the application of management’s estimates and judgment include assumptions pertaining to accruals for consumer and trade promotion programs, pension and postretirement benefit costs, share-based compensation, future cash flows associated with impairment testing of goodwill and other long-lived assets, uncertain tax positions, the reinvestment of undistributed foreign earnings and tax valuation allowances. On an ongoing basis, we evaluate our estimates, but actual results could differ materially from those estimates.

Our most critical accounting policies are revenue recognition, pension and other postretirement benefits, the valuation of long-lived assets (including property, plant and equipment), income taxes (including uncertain tax positions) and valuation related to acquisitions, goodwill and intangible assets. A summary of our significant accounting policies is contained in Note 2 of Notes to Consolidated Financial Statements. This listing is not intended to be a comprehensive list of all of our accounting policies.

Revenue Recognition

We derive revenue from the sale of our products. Revenue is recognized when the customer obtains control of the goods, which occurs when the ability to use and obtain benefits from the goods are passed to the customer, most commonly upon the delivery of the goods. Discounts are offered to customers for early payment, and an estimate of the discounts is recorded as a reduction of Net sales in the same period as the sale. Our standard sales terms are final and returns or exchanges are not permitted with the exception of end of season returns for Sun Care products, as detailed below. Reserves are established and recorded in cases where the right of return does exist for a particular sale.

We assess the contractual obligations in customers’ purchase orders and identify performance obligations related to the transferred goods (or a bundle of goods) that are distinct. To identify the performance obligations, we consider all the goods promised, whether explicitly stated or implied based on customary business practices. Our purchase orders are short term in nature, lasting less than one year, and contain a single delivery element. For a purchase order that has more than one performance obligation, we allocate the total consideration to each distinct performance obligation on a relative stand-alone selling price basis. We do not exclude variable consideration in determining the remaining value of performance obligations.

We record sales at the time that control of goods passes to the customer. The terms of these sales vary, but, in all instances, the following conditions are met: (1) the sales arrangement is evidenced by purchase orders submitted by customers; (2) the selling price is fixed or determinable; (3) title to the product has transferred; (4) there is an obligation to pay at a specified date without any additional conditions or actions required by us; and (5) collectability is reasonably assured. Simultaneously with the sale, we reduce Net sales and Cost of products sold and reserve amounts on the Consolidated Balance Sheet for anticipated returns based upon an estimated return level in accordance with GAAP. Customers are required to pay for the Sun Care product purchased during the season under the required terms. Under certain circumstances, we allow customers to return Sun Care products that have not been sold by the end of the Sun Care season, which is normal practice in the Sun Care industry. The timing of returns of Sun Care products can vary in different regions, based on climate and other factors. However, the majority of returns occur in the U.S. from September through January, following the summer Sun Care season. We estimate the level of Sun Care returns as the Sun Care season progresses, using a variety of inputs including historical experience, consumption trends during the Sun Care season, obsolescence factors including expiration dates and inventory positions at key retailers. We monitor shipment activity and inventory levels at key retailers during the season in an effort to more accurately estimate potential returns. This allows us to manage shipment activity to our customers, especially in the latter stages of the Sun Care season, to reduce the potential for returned product. The level of returns may fluctuate from our estimates due to several factors, including, but not limited to, weather conditions, customer inventory levels and competitive activity. Based on our fiscal 2023 Sun Care shipments, each percentage point change in our returns rate would have impacted our reported net sales by $2.5 and our reported operating income by $2.4. At September 30, 2023 and 2022, our reserve on the Consolidated Balance Sheet for returns was $53.5 and $47.5 respectively.

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We offer a variety of programs, primarily to our retail customers, designed to promote sales of our products. Such programs require periodic payments and allowances based on estimated results of specific programs and are recorded as a reduction to net sales. We accrue, at the time of sale, the estimated total payments and allowances associated with each transaction. Additionally, we offer programs directly to consumers to promote the sale of our products. Promotions which reduce the ultimate consumer sale prices are recorded as a reduction of net sales at the time the promotional offer is made, generally using estimated redemption and participation levels. Taxes we collect on behalf of governmental authorities, which are generally included in the price to the customer, are also recorded as a reduction of net sales.

We continually assess the adequacy of accruals for customer and consumer promotional program costs not yet paid. To the extent total program payments differ from estimates, adjustments may be necessary. Historically, these adjustments have not been material to annual results.

Pension Plans and Other Postretirement Benefits

The determination of our obligation and expense for pension and other postretirement benefits is dependent on certain assumptions developed by us and used by actuaries in calculating such amounts. Assumptions include, among others, the discount rate, the expected long-term rate of return on plan assets, and future salary increases, where applicable. Actual results that differ from assumptions made are recognized on the balance sheet and subsequently amortized to earnings over future periods. Significant differences in actual experience or significant changes in macroeconomic conditions resulting in changes to assumptions may materially affect pension and other postretirement obligations. In determining the discount rate, we use the yield on high-quality bonds that coincide with the cash flows of our plans’ estimated payouts. For our U.S. plans, which represent our most significant obligations, we use the Mercer yield curve in determining the discount rates.

We utilize a spot discount rate approach to estimate service and interest components of net periodic benefit cost for our pension benefits. The spot discount rate approach applies the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows and is a more precise application of the yield curve spot rates used in the traditional single discount rate approach.

Of the assumptions listed above, changes in the expected long-term rate of return on plan assets and changes in the discount rate used in developing plan obligations will likely have the most significant impact on our annual earnings, prospectively. Based on plan assets at September 30, 2023, a one percentage point decrease or increase in expected asset returns would increase or decrease our pension expense by approximately $4.0. In addition, it may increase and accelerate the rate of required pension contributions in the future. Uncertainty related to economic markets and the availability of credit may produce changes in the yields on corporate bonds rated as high-quality. As a result, discount rates based on high-quality corporate bonds may increase or decrease, leading to lower or higher pension obligations, respectively. A one percentage point decrease in the discount rate would increase pension obligations by approximately $41.8 at September 30, 2023.

As allowed under GAAP, our U.S. qualified pension plan uses market related value, which recognizes market appreciation or depreciation in the portfolio over five years, thereby reducing the short-term impact of market fluctuations.

We have historically provided defined benefit pension plans to our eligible employees, former employees and retirees. We fund our pension plans in compliance with the Employee Retirement Income Security Act of 1974 or local funding requirements.

Further detail on our pension and other postretirement benefit plans is included in Note 12 of Notes to Consolidated Financial Statements.

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Share-Based Compensation

We award restricted stock equivalents (“RSE”), which generally vest over a range of two to four years. The fair value of each grant is estimated on the date of grant based on the current market price of our shares of common stock.

We also award performance restricted stock equivalents (“PRSE”) which may provide for the issuance of common stock to certain managerial staff and executive management if specified performance or market targets are achieved. The recipient of the PRSE award may earn a total award ranging from 0% to 200% of the target award.

For PRSE awards with performance conditions, the fair value of each grant is estimated on the date of grant based on the current market price of our shares of common stock. The total amount of compensation expense recognized reflects the initial assumption that target performance goals will be achieved. Compensation expense may be adjusted during the life of the performance grant based on management’s assessment of the probability that performance goals will be achieved. If such goals are not met or it is determined that achievement of performance goals is not probable, compensation expense is adjusted to reflect the reduced expected payout level. If it is determined that the performance goals will be exceeded, additional compensation expense is recognized.

For PRSE awards based on market conditions, the fair value is estimated on the grant date using a Monte Carlo simulation. The payout for PRSE awards with market conditions are assessed by comparing our total shareholder return (“TSR”) during a certain three year period to the respective TSRs of companies in a selected performance peer group.

Non-qualified stock options (“share options”) are granted at the market price of our common stock on the grant date and generally vest ratably over three years. We calculate the fair value of total share-based compensation for share options using the Black-Scholes option pricing model, which utilizes certain assumptions and estimates that have a material impact on the amount of total compensation cost recognized in our consolidated financial statements, including the expected term, expected stock price volatility, risk-free interest rate and expected dividends. The original estimate of the grant date fair value is not subsequently revised unless the awards are modified or there is a change in the number of awards expected to forfeit prior to vesting.

Further detail on Share-Based Payments is included in Note 13 of Notes to Consolidated Financial Statements.

Valuation of Long-Lived Assets

We periodically evaluate our long-lived assets, including property, plant and equipment, goodwill, and intangible assets, for potential impairment indicators. Judgments regarding the existence of impairment indicators, including lower than expected cash flows from acquired businesses, are based on legal factors, market conditions and operational performance. Future events could cause us to conclude that impairment indicators exist. We estimate fair value using valuation techniques such as discounted cash flows. This requires management to make assumptions regarding future income, working capital, and discount rates, which would affect the impairment calculation.

Income Taxes

Our annual effective income tax rate is determined based on our income, statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Tax law requires certain items to be included in the tax return at different times than the items reflected in the financial statements. Some of these differences are permanent, such as expenses that are not deductible in our tax return, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities.

Deferred tax assets generally represent the tax effect of items that can be used as a tax deduction or credit in future years for which we have already recorded the tax benefit in our income statement. Deferred tax liabilities generally represent tax expense recognized in our financial statements for which payment has been deferred, the tax effect of expenditures for which a deduction has already been taken in our tax return but has not yet been recognized in our financial statements, or assets recorded at estimated fair value in business combinations for which there was no corresponding tax basis adjustment.

We estimate income taxes and the effective income tax rate in each jurisdiction that we operate. This involves estimating taxable earnings, specific taxable and deductible items, the likelihood of generating sufficient future taxable income to utilize deferred tax assets, the portion of the income of foreign subsidiaries that is expected to be remitted to the U.S. and be taxable and possible exposures related to future tax audits. Deferred tax assets are evaluated on a subsidiary by subsidiary basis to ensure that the asset will be realized. Valuation allowances are established when the realization is not deemed to be more likely than not. Future performance is monitored, and when objectively measurable operating trends change, adjustments are made to the valuation allowances accordingly. To the extent the estimates described above change, adjustments to income taxes are made in the period in which the estimate is changed.

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We operate in multiple jurisdictions with complex tax and regulatory environments, which are subject to differing interpretations by the taxpayer and the taxing authorities. At times, we may take positions that management believes are supportable, but are potentially subject to successful challenges by the appropriate taxing authority. We evaluate our tax positions and establish liabilities in accordance with guidance governing accounting for uncertainty in income taxes. We review these tax uncertainties in light of the changing facts and circumstances, such as the progress of tax audits, and adjust them accordingly.

Further detail on Income Taxes is included in Note 5 of Notes to Consolidated Financial Statements.

Acquisitions, Goodwill and Intangible Assets

We allocate the cost of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess value of the cost of an acquired business over the estimated fair value of the assets acquired and liabilities assumed is recognized as goodwill. The valuation of the acquired assets and liabilities will impact the determination of future operating results. We use a variety of information sources to determine the value of acquired assets and liabilities, including: third-party appraisers for the values and lives of property, identifiable intangibles and inventories; actuaries for defined benefit retirement plans; and legal counsel or other experts to assess the obligations associated with legal, environmental or other claims.

During fiscal 2022, the Company used variations of the income approach in determining the fair value of intangible assets acquired in the acquisition of Billie, Inc. Specifically, we utilized the multi-period excess earnings method to determine the fair value of the definite lived customer relationships acquired and the relief from royalty method to determine the fair value of the definite lived trade name and proprietary technology that we acquired.

Our determination of the fair value of customer relationships acquired involved significant estimates and assumptions related to revenue growth rates, discount rates, and customer attrition rates. The determination of the fair value of trade names and proprietary technology acquired involved the use of significant estimates and assumptions related to revenue growth rates, royalty rates and discount rates. We believe that the fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that marketplace participants would use.

The recorded value of goodwill and intangible assets from recently acquired businesses are derived from more recent business operating plans and macroeconomic environmental conditions and, therefore, are likely more susceptible to an adverse change that could require an impairment charge. As such, significant judgment is required in estimating the fair value of goodwill and intangible assets. Additionally, significant judgment is needed when assigning a useful life to intangible assets. Certain intangible assets are expected to have determinable useful lives. Our assessment of intangible assets that have a determinable life is based on a number of factors including the competitive environment, market share, brand history, underlying product life cycles, operating plans and the macroeconomic environment. The costs of determinable-lived intangible assets are amortized to expense over the estimated useful life. The value of residual goodwill is not amortized, but is tested at least annually for impairment. See Note 7 of Notes to Consolidated Financial Statements.

However, future changes in the judgments, assumptions and estimates that are used in our acquisition valuations and intangible asset and goodwill impairment testing, including discount rates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the future. An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year.

During the fourth quarter of fiscal 2023, we performed an annual test for impairment of goodwill on each of our reporting units. We elected to perform a qualitative test of goodwill impairment for the Sun Care and Feminine Care reporting units. Taking into account the excess fair value over carrying value in the prior valuation, as well as macroeconomic factors, industry conditions and actual results relative to the amounts projected in the prior quantitative test, we determined it was not more likely than not that the fair value of the reporting unit is less than the carrying amount. For the Wet Shave and Skin Care reporting units, we elected to perform a quantitative impairment test in fiscal 2023. As part of the quantitative goodwill impairment test, we estimated the fair value of each reporting unit using both market and income approaches of valuation. The income approach utilizes the discounted cash flow method and incorporates significant estimates and assumptions, including long-term projections of future cash flows, market conditions, and discount rates reflecting the risk inherent in future cash flows. The projections for future cash flows are generated using our company’s strategic plan to determine a five-year period of forecasted cash flows and operating data. The market approach uses the guideline public company method to calculate the value of each reporting unit based on the operating data of similar assets from competing publicly traded companies. Multiples derived from guideline companies provide an indication of how much a knowledgeable investor in the marketplace would be willing to pay for a company. The multiples are adjusted given the specific characteristics of the reporting unit including its position in the market relative to the guideline companies and applied to the reporting unit’s operating data to arrive at an

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indication of value. The income and market approaches are weighted based on circumstances specific to each reporting unit and combined are used to calculate fair value.

Determining the fair value of a reporting unit requires the use of significant judgment, estimates and assumptions. While we believe that the estimates and assumptions underlying the valuation methodology are reasonable, these estimates and assumptions could have a significant impact on whether an impairment charge is recognized, and also on the magnitude of any such charge. The results of an impairment analysis are as of a point in time. There is no assurance that actual future earnings or cash flows of the reporting units will not decline significantly from these projections. We will monitor any changes to these assumptions and will evaluate goodwill as deemed warranted during future periods.

The key assumptions for the market and income approaches used to determine fair value of the reporting units are updated at least annually. Those assumptions and estimates include market data and market multiples, discount rates and terminal growth rates, as well as future levels of revenue growth and operating margins based upon our strategic plan. The assumptions used for the annual goodwill impairment test for fiscal year 2023 include terminal growth rates of 2.50% and a weighted-average cost of capital ranging from 10.0% to 11.0%.

Our annual impairment testing date was July 1, 2023, and the valuation indicated there was no impairment of the goodwill of the tested reporting units. The results of the valuation indicated that all tested reporting units had a fair value that exceeded its carrying value by more than 27%.

We evaluate the fair value of indefinite-lived intangible assets annually in conjunction with the goodwill impairment test. Our assessment of intangible assets that have an indefinite life is based on a number of factors including the competitive environment, market share, brand history, underlying product life cycles, operating plans and the macroeconomic environment.

During the fourth quarter of fiscal 2023, we elected to complete a qualitative assessment for impairment of indefinite lived trade names, except for the Schick, Bulldog, and Carefree, o.b., Stayfree trade names, for which we completed a quantitative assessment. There were no significant events nor adverse trends that indicated any of the indefinite lived intangible assets were impaired during the fourth quarter of fiscal 2023.

We tested the Schick, Bulldog, and Carefree, o.b., Stayfree trade names for impairment by performing a quantitative assessment to estimate the fair value. The estimated fair value was determined using two incomes approaches: the multi-period excess earnings method and the relief-from-royalty method, both of which requires significant assumptions, including estimates regarding future revenue and operating margin growth, discount rates, and appropriate royalty rates. Revenue and operating margin growth assumptions are based on historical trends and management’s expectations for future growth by brand. The discount rates were based on a weighted-average cost of capital utilizing industry market data of similar companies, in addition to estimated returns on the assets utilized in the operations of the applicable reporting unit, including net working capital, fixed assets and intangible assets. We estimated royalty rates based on operating profits of the brand.

The valuation of the tested trade names had no indication of impairment as of the annual testing date on July 1, 2023. The impairment analysis performed in fiscal 2023 indicated that the tested trade names all had a fair value that exceeded its carrying value by more than 22%.

Future changes in the judgment, assumptions and estimates that are used in our impairment testing could result in significantly different estimates of the fair values in the future. An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year. The assumptions used for the annual valuation for indefinite-lived intangible assets for fiscal year 2023 include a terminal growth rate ranging from 0.3% to 2.50% and a weighted-average cost of capital of 10.25%.

The annual impairment analysis performed in fiscal 2023 did not indicate that impairment existed in the reporting units or indefinite lived trade names.

Recently Issued Accounting Standards

Refer to Note 2 of Notes to Consolidated Financial Statements for a discussion regarding recently issued accounting standards and their estimated impact on our financial statements.

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