EDGEWELL PERSONAL CARE CO Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K) – Marketscreener.com
(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 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. 22 --------------------------------------------------------------------------------
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 items such as restructuring charges, acquisition and integration costs, SKU rationalization charges,
Sun Carereformulation costs, legal, pension, and value-added tax settlements, cost of early debt retirement, UKtax rate increase, COVID-19 pandemic expenses, advisory expenses in connection with the evaluation of the Feminine and Infant Care businesses, the disposition of the Infant and Pet Care business, and the related tax effects of these items. 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: •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 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 sells to a third party. •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, stock keeping unit ("SKU") rationalization charges, legal settlements and other non-standard items.
All comparisons are with the same period in the prior year, unless otherwise
Impact of the COVID-19 Pandemic
Throughout the COVID-19 pandemic, we have taken and continue to take significant measures to protect our employees and business, while remaining in compliance with local guidelines and requirements. The Company's top priority during this time continues to be ensuring the health and wellbeing of our employees and additional health and safety measures have been put in place at all of our manufacturing and office locations. To date, we have not experienced any material operational disruptions across our manufacturing or distribution facilities. The prolonged COVID-19 pandemic environment has resulted in increased supply chain challenges across labor management, raw material procurement and product distribution. The continued duration and severity of COVID-19 pandemic may cause further disruptions related to our key suppliers, increase procurement and distribution costs and impact our ability to hire and retain employees, which may result in higher labor costs going forward. However, the impact, timing and severity of potential disruptions cannot be reasonably estimated at this time. Significant Events Acquisitions On
November 29, 2021, the Company 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. We purchased Billie utilizing a combination of cash on hand and drawing on our U.S.revolving credit facility maturing in 2025 ("Revolving Credit Facility"). As a result, Billie became a wholly owned subsidiary of the Company. Refer to Note 3 of Notes to Condensed Consolidated Financial Statements for further discussion. 23 -------------------------------------------------------------------------------- On September 2, 2020, we completed the acquisition of Cremo, a premier men's grooming company in the U.S., in an all-cash transaction at a purchase price of $233.9, net of cash acquired. As a result of the acquisition, Cremo became a wholly owned subsidiary of the Company. Refer to Note 3 of Notes to Condensed Consolidated Financial Statements for further discussion on the Cremo acquisition. Divestiture On December 17, 2019, we completed the sale of our Infant and Pet Care business included in the All Other segment for $122.5which included consideration for providing services for up to one year under a transition services agreement. For further information on the divestiture of the Infant and Pet Care business, refer to Note 3 of Notes to Condensed Consolidated Financial Statements.
The following is a summary of key results for fiscal 2022, 2021 and 2020. Net earnings and diluted earnings per share ("EPS") for the time periods presented were impacted by restructuring and related costs, acquisition and integration costs, and other non-standard items, 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.
•Net sales were
$2,171.7, an increase of 4.0% from fiscal 2021, inclusive of a 3.6% increase due to the acquisition of Billie and a 3.5% decrease due to negative currency movements. Organic net sales increased 3.9% for fiscal 2022 as compared to the prior year period, driven by growth across all segments and in both North Americaand International markets. •Net earnings for fiscal 2022 was $98.6, as compared to net earnings of $117.0in the prior fiscal year. On an adjusted basis, as illustrated in the table below, net earnings for fiscal 2022 decreased 17.5% to $137.6. The decline was primarily driven by higher cost of goods sold from inflationary pressures and increased amortization expense associated with the Billie acquisition. •Net earnings per diluted share during fiscal 2022 was $1.84compared to earnings of $2.12in the prior fiscal year. On an adjusted basis, as illustrated in the table below, net earnings per diluted share during fiscal 2022 were $2.57compared to $3.02in the prior year.
Operating Gross Profit SG&A Income EBIT Income taxes Net Earnings Diluted EPS GAAP - Reported
$ 879.4 $ 389.1 $ 181.2 $ 123.0 $ 24.4 $ 98.6 $ 1.84Restructuring and related costs 0.1 0.8 16.2 16.2 4.2 12.0 0.23 Acquisition and integration costs 0.8 9.1 9.9 9.9 1.3 8.6 0.16 SKU rationalization charges 22.5 - 22.5 22.5 5.5 17.0 0.32 Sun Care reformulation costs 3.5 - 4.6 4.6 1.2 3.4 0.06 Legal settlement - (7.5) (7.5) (7.5) (1.8) (5.7) (0.11) Value-added tax settlement costs - 3.4 3.4 3.4 1.1 2.3 0.04 Pension settlement expense - - - 1.8 0.4 1.4 0.03
Total Adjusted Non-GAAP
$ 173.9 $ 36.3 $ 137.6 $ 2.57GAAP as a percent of net sales 40.5 % 17.9 % 8.3 % GAAP effective tax rate 19.9 % Adjusted as a percent of net sales 41.7 % 17.6 % 10.6 % Adjusted effective tax rate 20.9 % 24
Gross Profit SG&A Income EBIT Income Taxes Net Earnings Diluted EPS GAAP - Reported
$ 950.1 $ 391.2 $ 238.8 $ 146.0 $ 29.0 $ 117.0 $ 2.12Restructuring and related charges 0.6 8.7 30.1 30.1 7.5 22.6
Acquisition and integration costs 1.3 7.1 8.4 8.4 2.1 6.3
Sun Care reformulation costs 1.1 - 1.1 1.1 0.3 0.8
Cost of early retirement of long-term debt - - - 26.1 6.4 19.7 0.36 UK tax rate increase - - - - (0.3) 0.3 - Total Adjusted Non-GAAP
$ 953.1 $ 375.4 $ 278.4 $ 211.7 $ 45.0 $ 166.7 $ 3.02GAAP as a percent of net sales 45.5 % 18.7 % 11.4 % GAAP effective tax rate 19.8 % Adjusted as a percent of net sales 45.7 % 18.0 % 13.3 % Adjusted effective tax rate 21.2 % Year Ended September 30, 2020
Gross Profit SG&A Income EBIT Income Taxes Net Earnings Diluted EPS GAAP - Reported
$ 880.9 $ 408.8 $ 176.0 $ 87.3 $ 19.7 $ 67.6 $ 1.24Restructuring and related charges 0.2 13.3 38.1 38.1 8.7 29.4
Acquisition and integration costs 0.6 39.2 39.8 39.8 9.7 30.1 0.56 COVID-19 expenses 4.3 - 4.3 4.3 1.1 3.2 0.06 Feminine and Infant Care evaluation costs - 0.3 0.3 0.3 0.1 0.2 - Cost of early retirement of long-term debt - - - 26.2 6.4 19.8
Gain on sale of Infant and Pet Care business - - - (4.1) (2.6) (1.5)
Total Adjusted Non-GAAP
$ 191.9 $ 43.1 $ 148.8
GAAP as a percent of net sales 45.2 % 21.0 % 9.0 % GAAP effective tax rate 22.6 % Adjusted as a percent of net sales 45.4 % 18.3 % 13.3 % Adjusted effective tax rate 22.5 % Operating Results The following table presents changes in net sales for fiscal 2022 and 2021, as compared to the corresponding prior year period, and provides a reconciliation of organic net sales to reported amounts. 25 --------------------------------------------------------------------------------
Net Sales- Total CompanyFor the Years Ended September 30, 2022 %Chg 2021 %Chg Net sales - prior year $ 2,087.3$
Organic 80.4 3.9 %
72.1 3.7 %
Impact of Billie acquisition, net 74.9 3.6 %
– – %
Impact of Cremo acquisition - - %
56.0 2.9 %
Impact of Infant and Pet Care sale - - %
(26.8) (1.4) %
Impact of currency (70.9) (3.5) % 36.3 1.9 % Net sales - current year
$ 2,171.74.0 % $ 2,087.37.1 % For fiscal 2022, net sales increased 4.0% on a reported basis. Organic net sales increased 3.9% versus the prior year, driven in equal part by higher volumes and pricing. By segment, growth was led by strong performance in Sun Careand Grooming and more modest growth in both Wet Shave and Feminine Care. Organic net sales grew across geographies, as North Americaincreased 2.6% and international markets increased 5.9%.
For further discussion regarding net sales, including a summary of reported
versus organic changes, see “Segment Results.”
Gross profit was
$879.4in fiscal 2022, as compared to $950.1in fiscal 2021. Gross margin as a percent of net sales for fiscal 2022 was 40.5%, down 500 basis points as compared to fiscal 2021. Adjusted gross margin as a percent of net sales decreased by 400 basis points compared to fiscal 2021, reflective of higher commodity and transportation related costs net of productivity savings. The positive impact from pricing was largely offset by negative product mix and unfavorable currency.
Selling, General and Administrative Expense
$389.1in fiscal 2022, or 17.9% of net sales, as compared to $391.2in fiscal 2021, or 18.7% of net sales. Adjusted SG&A as a percent of net sales decreased 40 basis points compared to fiscal 2021, as the benefit of sales leverage, operational efficiency programs, lower incentive compensation were partially offset by the increased operating costs associated with the Billie acquisition, including amortization, and increased wages and other operating expenses.
Advertising and Sales Promotion Expense
For fiscal 2022, A&P was
$238.3, down $3.2as compared to $241.5fiscal 2021. A&P as a percent of net sales was 11.0% for fiscal 2022, compared with 11.6% in fiscal 2021. The decline in A&P was due to lower expense for Wet Shave and Feminine Care, partially offset by increases in support for the Sun and Skin Caresegment.
Research and Development Expense
Research and development expense (“R&D”) decreased to
approximately 2.6% for the fiscal 2022 compared with 2.8% for fiscal 2021.
Interest Expense Associated with Debt
Interest expense associated with debt for fiscal 2022 was
$71.4, an increase of $3.5as compared to $67.9in fiscal 2021. The increase in interest expense was the result of a higher overall debt balance from Revolving Credit Facility borrowings in fiscal 2022 primarily to finance the acquisition of Billie. 26 --------------------------------------------------------------------------------
Other (Income) Expense, Net
Other (income) expense, net was income of
foreign currency hedge settlements, which helped to offset other negative
operational impacts from currency.
Income Tax Provision
Income taxes, which include federal, state and foreign taxes, were 19.9% and
19.8% of Earnings before income taxes in fiscal 2022 and 2021, respectively.
The effective income tax rate for fiscal 2022 for operations was 19.9% as compared to 19.8% in the prior year. On an adjusted basis, the effective tax rate for fiscal 2022 was 20.9% compared to 21.2% in the prior year. The fiscal 2022 effective tax rate reflects a favorable mix of earnings in low tax jurisdictions and net 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.
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 charges, 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 2022 and 2021, 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.
Net Sales- Wet Shave For the Years Ended September 30, 2022 %Chg 2021 %Chg Net sales - prior year $ 1,215.9 $ 1,162.3Organic 14.3 1.2 % 26.6 2.3 % Impact of Billie acquisition, net 74.9 6.2 % - - % Impact of currency (62.6) (5.2) % 27.0 2.3 % Net sales - current year $ 1,242.52.2 % $ 1,215.94.6 %
Wet Shave net sales for fiscal 2022 increased 2.2%, inclusive of a 6.2% increase
from the Billie acquisition and a 5.2% decline due to negative currency
movements. Organic net sales increased
increases in Disposables, and Shave Preps, offset by declines in Men’s and
Women’s Systems. Organic net sales in International markets increased 3.9%
compared to declines in
27 -------------------------------------------------------------------------------- Segment Profit - Wet Shave For the Years Ended September 30, 2022 %Chg 2021 %Chg Segment profit - prior year
$ 221.0 $ 206.2Organic (21.2) (9.6) % 8.9 4.3 % Impact of Billie acquisition, net (6.8) (3.1) % - - % Impact of currency (19.0) (8.6) % 5.9
Segment profit – current year
Wet Shave segment profit for fiscal 2022 was
$174.0, down $47.0or 21.3%. Organic segment profit decreased $21.2, or 9.6%. The decline in segment profit was primarily due to inflationary pressures resulting in higher commodity costs and warehousing and distribution costs, partially offset by favorable pricing and lower A&P expense. Sun and Skin Care Net Sales- Sun and Skin CareFor the Years Ended September 30, 2022 %Chg 2021 %Chg Net sales - prior year $ 585.3 $ 462.0Organic 61.4 10.5 % 59.0 12.8 % Impact of Cremo acquisition - - % 56.0 12.1 % Impact of currency (8.2) (1.4) % 8.3
Net sales – current year
Skin Carenet sales for fiscal 2022 increased 9.1%. Organic net sales increased $61.4, or 10.5%, primarily due to Sun Care, resulting in growth of 22%. Grooming organic net sales increased 8%, driven by Cremo and Jack Black. Wet Ones organic net sales declined 24%, driven by lower volumes as consumer demand fell and overall demand continued to return to pre-pandemic levels. Segment Profit - Sun and Skin CareFor the Years Ended September 30, 2022 %Chg 2021
Segment profit - prior year
$ 98.7 $ 69.1Organic 11.4 11.6 % 19.2 27.8 % Impact of Cremo acquisition - - % 8.9 12.9 % Impact of currency (1.6) (1.7) % 1.5
Segment profit – current year
Skin Caresegment profit for fiscal 2022 was $108.5, an increase of 9.9%. Organic segment profit increased $11.4, or 11.6% driven by increased net sales and gross margin from favorable volumes of Sun Careproducts and pricing for Wet Ones, partially offset by higher freight and materials costs. 28 --------------------------------------------------------------------------------
Net Sales- Feminine Care For the Years Ended September 30, 2022 %Chg 2021 %Chg Net sales - prior year $ 286.1 $ 298.6Organic 4.7 1.6 % (13.5) (4.5) % Impact of currency (0.1) - % 1.0 0.3 %
Net sales – current year
Feminine Care net sales for fiscal 2022 increased
$4.6, or 1.6%. Organic segment net sales increased $4.7, or 1.6%, driven largely by higher category consumption compared to the prior year. Segment Profit - Feminine Care For the Years Ended September 30, 2022 %Chg 2021 %Chg Segment profit - prior year $ 37.2 $ 52.3Organic (5.9) (15.9) % (15.7) (30.0) % Impact of currency (0.1) (0.2) % 0.6 1.1 %
Segment profit – current year
Feminine Care segment profit for fiscal 2022 was
16.1%. The decrease is primarily due to inflationary pressures on labor,
materials and distribution, partially offset by favorable pricing.
The Infant and Pet Care business divestiture, completed in
disposed of the entirety of the operations of the All Other segment. The results
below represent the impact of the divestiture to segment performance:
For the Years Ended
Net sales - prior year
$ 26.8Impact of Infant and Pet Care business sale (26.8) (100.0) % Net sales - current year $ - (100.0) % Segment Profit - All Other For the Years Ended September 30, 2021 %Chg Segment profit - prior year $ 3.1
Impact of Infant and Pet Care business sale (3.1) (100.0) %
Segment profit - current year $ - (100.0) % 29
General Corporate and Other Expenses
Fiscal Year 2022 2021
General corporate and other expenses
$ 54.0 $ 56.5 $ 54.9Restructuring and related costs 16.2 30.1
Acquisition and integration costs 9.9 8.4 39.8 SKU rationalization 22.5 - - Legal settlement (7.5) - - Pension settlement 1.8 - - Value-added tax settlement costs 3.4 -
Sun Care reformulation costs 4.6 1.1
Cost of early retirement of long-term debt - 26.1
COVID-19 expenses - -
Gain on sale of Infant and Pet Care business - -
Feminine and Infant Care evaluation costs - -
General corporate and other expenses
% of net sales
4.8 % 5.9 % 8.2 % For fiscal 2022, general corporate expenses were
$54.0, a decrease of $2.5as compared to fiscal 2021. Fiscal 2021 general corporate expenses increased $1.6when compared to fiscal 2020. During the year ended September 30, 2022, the Company recorded a charge of $22.5relating to the write-off of inventory for certain Wet Ones SKUs and related contract termination charges associated with a third-party co-manufacturer. This charge was included in Cost of products sold in the 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 charges of $16.2during fiscal 2022, primarily related to employee severance and benefit costs. In previous years, we incurred restructuring charges related to Project Fuel, our previous enterprise wide initiative, including $30.1in fiscal 2021.
Liquidity and Capital Resources
September 30, 2022, a portion of our cash balances were 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 Condensed 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
Our total borrowings were
$1,424.0at September 30, 2022, including $174.0tied to variable interest rates. Our total borrowings at September 30, 2021were $1,276.5. We had outstanding international borrowings, recorded within Notes payable, of $19.0and $26.5as of September 30, 2022and September 30, 2021, respectively. Effective February 7, 2022, we increased the maximum receivables sold facility amount under the Sixth Amendment to Master Accounts Receivable Purchase Agreement to $180.0from $150.0. Refer to Note 10 of Notes to Condensed Consolidated Financial Statements for further discussion on our $180uncommitted master accounts receivable purchase agreement with The Bank of Tokyo-Mitsubishi UFJ, Ltd., New YorkBranch, 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"), TokyoBranch, 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 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%. 30 -------------------------------------------------------------------------------- Historically, we have generated and expect to continue to generate positive cash flows from operations. Our cash flows are affected by the seasonality of our Sun Carebusiness, typically resulting in higher net sales and increased cash generated in the second and third quarters of each fiscal year. We believe our cash on hand, cash flows from operations and borrowing capacity under our U.S.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. To date, the COVID-19 pandemic has not had a significant impact on our liquidity or capital resources. However, the COVID-19 pandemic has led to disruption and volatility in the global capital markets which could impact our capital resources and liquidity in the future. Short-term financing needs primarily consist of working capital requirements and principal 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. In fiscal 2023, we expect our total capital expenditures to be in the range of $55to $65primarily related to both maintenance of 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 2022, 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 are not required to make any cash contributions to our
pension and postretirement plans in fiscal 2023.
The Revolving Credit Facility governing our outstanding debt at
September 30, 2022contains 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. 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.
covenants associated with the Revolving Credit Facility.
A summary of our cash flow from operating, investing and financing activities is
provided in the following table:
Fiscal Year 2022 2021 2020 Net cash from (used by): Operating activities
$ 102.0 $ 229.0 $ 232.6Investing activities (355.4) (48.7) (196.4) Financing activities (17.6) (65.4) (18.7) Effect of exchange rate changes on cash (19.5)
Net (decrease) increase in cash and cash equivalents
Cash flow from operating activities was
$102.0in fiscal 2022, as compared to $229.0in fiscal 2021. The decrease in fiscal 2022 was a result of lower net earnings and a net cash outflow due to temporarily increased inventory levels in an effort to ensure raw material and product availability in a continued difficult operating environment.
Cash flow used by investing activities was
$355.4in fiscal 2022 as compared to $48.7in fiscal 2021. We completed the acquisition of Billie for $309.4, net of cash acquired, in fiscal 2022. Additionally, we collected $5.0of proceeds from the sale of the Infant and Pet Care business during the first nine months of fiscal 2022, compared to $7.5in the prior year period. Capital expenditures were $56.4and $56.8during fiscal 2022 and 2021, respectively. Additionally, other investing cash inflows related to the collection of receivables from our Accounts Receivable Facility totaled $6.9and $2.6during fiscal 2022 and 2021, respectively, as a result of collections on the deferred purchase price of accounts receivables sold. Financing Activities Net cash used by financing activities was $17.6in fiscal 2022 as compared to $65.4in fiscal 2021. During the fiscal 2022, we had net borrowings of $155.0under our Revolving Credit Facility, primarily to fund the acquisition of Billie. We repurchased $125.3of our common stock under our 2018 Board authorization to repurchase our common stock in fiscal 2022 compared to $9.2in the prior year period. Dividend payments totaled $32.6and $25.6in fiscal 2022 and 2021, respectively. Additionally, cash flows associated with the Accounts Receivable Facility were outflows of $0.8during fiscal 2022 compared to financing outflows of $2.4in the prior year period. In fiscal 2021, the Company repaid its 2022 Senior Notes with the proceeds received from the issuance of the 2029 Senior Notes, together with cash on hand. Additional financing cash outflows incurred in fiscal 2021 were related to costs of early debt retirement of the 2022 Senior Notes totaling $26.1and debt issuance costs of $6.5.
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 2022, we repurchased 3.3 shares of our common stock for $125.3. We have 6.5 shares remaining available for purchase under the January 2018Board authorization. During fiscal 2022, 0.3 shares were purchased related to the surrender of shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock equivalent awards.
There are 6.3 common shares remaining available to be purchased.
November 4, 2021, the Board declared a quarterly cash dividend of $0.15per share of common stock outstanding. The dividend was paid on January 6, 2022to holders of record as of the close of business on December 3, 2021. On February 4, 2022, the Board declared a quarterly cash dividend of $0.15per common share for the first fiscal quarter. The dividend was paid April 5, 2022, to stockholders of record as of the close of business on March 8, 2022.
share for the second fiscal quarter. The dividend was paid
stockholders of record as of the close of business on
common share for the third fiscal quarter. The dividend will be payable on
common share for the fourth fiscal quarter. The dividend will be payable on
Dividends declared during fiscal 2022 totaled
during fiscal 2022 totaled
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.
Customer orders for sun care products within our Sun and
Skin Caresegment 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.
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. Commitments and Contingencies Legal Proceedings During the year ended September 30, 2022, we settled certain legal matters primarily related to intellectual property claims against a third party. The settlement resulted in a gain of $7.5which was included in SG&A in the Condensed Consolidated Financial Statements. The Company received payment for the settlement in the fourth quarter of 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. 33 --------------------------------------------------------------------------------
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, 2022, 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.
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, 2022were $9.6. 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.
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.
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 Careproducts, 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. 34 -------------------------------------------------------------------------------- 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 Careproducts 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 Careproducts 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 Careseason. We estimate the level of Sun Carereturns 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 2022 Sun Care shipments, each percentage point change in our returns rate would have impacted our reported net sales by $4.1and our reported operating income by $2.7. At September 30, 2022and 2021, our reserve on the Consolidated Balance Sheet for returns was $47.5and $52.7, respectively. 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, 2022, a one percentage point decrease or increase in expected asset returns would increase or decrease our pension expense by approximately $4.4. 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 $46.9at September 30, 2022.
As allowed under GAAP, our
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
Further detail on our pension and other postretirement benefit plans is included
in Note 12 of Notes to Consolidated Financial Statements.
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.
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. 36 -------------------------------------------------------------------------------- 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. 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
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 2022, 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 reporting unit. 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, Feminine Care, and Skin Carereporting units, we elected to perform a quantitative impairment test in fiscal 2022. 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 37 -------------------------------------------------------------------------------- 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 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 2022 include terminal growth rates of 2.50% and a weighted-average cost of capital ranging from 11.0% to 12.0%. Our annual impairment testing date was July 1, 2022, and the valuation indicated there was no impairment of the goodwill of the tested reporting units. The results of the valuation indicated that all reporting units had a fair value that exceeded its carrying value by more than 18%. 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 2022, we elected to complete a qualitative assessment for impairment of indefinite lived trade names, except for the Wet Ones trade name, 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 2022. We tested the Wet Ones trade name for impairment by performing a quantitative assessment to estimate the fair value. The estimated fair value was determined using the multi-period excess earnings method, which requires significant assumptions, including estimates regarding future revenue and operating margin growth, and discount 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. The valuation of the Wet Ones trade name had no indication of impairment as of the annual testing date on July 1, 2022. The impairment analysis performed in fiscal 2022 indicated that the Wet Ones trade name had a fair value that exceeded its carrying value by greater than 100%. 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 2022 include a terminal growth rate of 2.50% and a weighted-average cost of capital of 12.0%.
The annual impairment analysis performed in fiscal 2022 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. 38
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