(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. 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, cost of early debt retirement,UK tax rate increase, impairment charges, COVID-19 pandemic expenses, advisory expenses in connection with the evaluation of the Feminine and Infant Care businesses,Sun Care reformulation costs, investor settlement expenses, the disposition of the Infant and Pet Care business, the related tax effects of these items and the impact of the Tax Act. 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 the Project Fuel restructuring and recent acquisitions and divestitures, 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 our 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, acquisitions, and divestitures. This information is provided because these types of fluctuations can distort the underlying change in net sales and segment profit either positively or negatively. •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 charges, acquisition and integration costs, cost of early debt retirement,UK tax rate increase, impairment charges, COVID-19 pandemic expenses, advisory expenses in connection with the evaluation of the Feminine and Infant Care businesses,Sun Care reformulation costs, investor settlement expenses, the disposition of the Infant and Pet Care business, and the impact of the Tax Act. All comparisons are with the same period in the prior year, unless otherwise noted. Impact of COVID-19 OnMarch 11, 2020 , theWorld Health Organization declared the novel coronavirus 2019 ("COVID-19") a worldwide pandemic, which has impacted individuals, families, companies and economies around the world. Throughout the 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 welfare of our employees and additional measures have been put in place at all of our manufacturing locations. To date, we have not experienced any material operational disruptions across our manufacturing or distribution facilities. The prolonged COVID-19 environment has resulted in increased supply chain challenges across product procurement and distribution. The continued duration and severity of COVID-19 may cause further disruptions related to our key suppliers, increase procurement 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. We expect to maintain adequate liquidity during these uncertain times and we will continue to assess the impact that COVID-19 has on our liquidity needs and current economic market conditions. As noted within "Liquidity and Capital Resources" below, 24 -------------------------------------------------------------------------------- COVID-19 has not had a significant impact on our liquidity, cash flows or capital resources, including our ability to enter into the unsecured indenture agreement for 4.125% Senior Notes in the amount of$500 dueApril 1, 2029 ("2029 Notes"). Significant Events Acquisitions OnSeptember 2, 2020 , we completed the acquisition of Cremo, a premier men's grooming company in theU.S , in an all-cash transaction at a purchase price of$233.9 . 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.
Assignment
OnDecember 17, 2019 , we completed the sale of our Infant and Pet Care business included in the All Other segment for$122.5 which 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.Goodwill and Intangible Asset Impairment The Company performs an annual test for impairment of goodwill and indefinite-lived intangible assets. The annual test performed in the fourth quarter of fiscal 2021 and 2020, respectively, did not indicate that the Company's goodwill and intangible assets had a fair value below the carrying value. During the third quarter of fiscal 2019, we determined a triggering event had occurred following a decline in our market capitalization and share price. We performed an interim impairment analysis on all long-lived assets, including definite-lived intangibles, goodwill, and indefinite-lived intangible assets, using financial information throughJune 30, 2019 and forecasts for cash flows developed using our three-year strategic plan. The interim impairment review was performed. The results of the impairment review indicated the carrying value of the goodwill of the Wet Shave, Infant Care, andSkin Care reporting units were greater than their respective fair values, resulting in a non-cash goodwill impairment of$369.0 ,$37.0 , and$2.0 , respectively. Additionally, the carrying value of the Wet Ones and Diaper Genie trade names were greater than the fair values and resulted in non-cash impairments of the indefinite-lived intangible assets of$87.0 and$75.0 , respectively. We performed an assessment in the fourth quarter of fiscal 2019 to determine if any significant events or changes in circumstances had occurred that would be considered a potential triggering event. We did not identify any indication of a triggering event that would indicate the existence of additional impairment of the reporting units, indefinite-lived intangible assets, and definite-lived intangible assets. Refer to Notes 2 and 7 of Notes to Consolidated Financial Statements for further discussion on the annual impairment test. Project Fuel Project Fuel was an enterprise-wide transformational initiative that was launched in the second fiscal quarter of 2018, to address all aspects of our business and cost structure, simplifying and transforming the organization, structure and key processes. Project Fuel facilitated further re-investment in our growth strategy while enabling us to achieve our desired future state operations. Fiscal 2021 Project Fuel related gross savings were approximately$68 , bringing final cumulative gross savings for the program to approximately$280 . The savings generated during the project are being used to fuel investments and brand building in strategic growth initiatives, mitigate operational cost headwinds from inflation and other rising input costs and improve the overall profitability and cash flow of the Company. Restructuring and related charges were$30.1 for fiscal 2021, bringing final cumulative charges to$163.7 for the project. Capital expenditures for Project Fuel were$13.6 for fiscal 2021 bringing cumulative capital expenditures to$71.7 for the project. For further information on our restructuring projects, refer to Note 4 of Notes to Condensed Consolidated Financial Statements. 25 -------------------------------------------------------------------------------- Executive Summary Following is a summary of key results for fiscal 2021, 2020 and 2019. Net earnings and diluted earnings per share ("EPS") for the time periods presented were impacted by restructuring charges, acquisition and integration costs, cost of early debt retirement,UK tax rate increase, impairment charges, COVID-19 pandemic expenses, advisory expenses in connection with the evaluation of the Feminine and Infant Care businesses,Sun Care reformulation costs, investor settlement expenses, the disposition of the Infant and Pet Care business, the related tax effects of these items and the impact of the Tax Act. 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 year 2021
•Net sales were$2,087.3 , an increase of 7.1% from fiscal 2020, inclusive of a 2.9% increase due to the acquisition of Cremo, a 1.4% decrease due to the sale of the Infant and Pet Care business and a 1.9% increase due to currency movements. Organic net sales increased 3.7% for fiscal 2021 as compared to the prior year period, as growth in Wet Shave and Sun andSkin Care were partially offset by slight declines in Feminine Care. •Net earnings for fiscal 2021 was$117.0 , as compared to net earnings of$67.6 in the prior fiscal year. On an adjusted basis, as illustrated in the table below, net earnings for fiscal 2021 increased 12.0% to$166.7 . The increase was primarily driven by higher net sales attributable to a rebound from prior year COVID-19 declines. Increased net sales were offset by higher Advertising and sales promotion expense ("A&P") in support of investments in critical commercial efforts compared to the prior year. •Net earnings per diluted share during fiscal 2021 was$2.12 compared to earnings of$1.24 in the prior fiscal year. On an adjusted basis, as illustrated in the table below, net earnings per diluted share during fiscal 2021 were$3.02 compared to$2.73 in the prior year.
Year ended
Operating
Gross Profit SG&A Income EBIT Income taxes Net Earnings Diluted EPS GAAP - Reported$ 950.1 $ 391.2 $ 238.8 $ 146.0 $ 29.0 $ 117.0 $ 2.12 Restructuring and related costs 0.6 8.7 30.1 30.1 7.5 22.6
0.41
Acquisition and integration costs 1.3 7.1 8.4 8.4 2.1 6.3
0.12
Sun Care reformulation costs 1.1 - 1.1 1.1 0.3 0.8
0.01
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 $ 3.02 GAAP 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 % 26
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Year ended
Operating
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 $ 1.24 Restructuring and related charges 0.2 13.3 38.1 38.1 8.7 29.4
0.54
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
0.36
Gain on sale of Infant and Pet Care business - - - (4.1) (2.6) (1.5)
(0.03)
Non-GAAP adjusted total
$ 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 %
Year Ended September 30, 2019
Operating
Gross Profit SG&A Income EBIT Income Taxes Net Earnings Diluted EPS
GAAP - Reported $ 966.6 $ 372.0 $ 243.8 $ (390.3) $ (18.1) $ (372.2) $ (6.88)
Impairment charges - - - 570.0 65.3 504.7 9.33
Restructuring and related
charges 0.6 8.6 55.6 55.6 12.4 43.2 0.80
Acquisition and integration
costs - 6.7 6.7 6.7 1.6 5.1 0.09
Sun Care reformulation costs 2.8 - 2.8 2.8 0.7 2.1 0.04
Feminine and Infant Care
evaluation costs - 2.1 2.1 2.1 0.5 1.6 0.03
Investor settlement expense - 0.9 0.9 0.9 0.2 0.7 0.01
Impact of dilutive shares - - - - - - (0.01)
Income tax reform - - - - (3.6) 3.6 0.07
Non-GAAP adjusted total
$ 247.8 $ 59.0 $
188.8
GAAP as a percent of net
sales 45.1 % 17.4 % 11.4 % GAAP effective tax rate 4.6 %
Adjusted as a percent of net
sales 45.3 % 16.5 % 14.6 % Adjusted effective tax rate 23.8 %
Operating Results
The following table presents changes in net sales for fiscal 2021 and 2020, as
compared to the corresponding prior year period, and provides a reconciliation
of organic net sales to reported amounts.
27
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Net Sales -Total Company For the Years Ended September 30, 2021 %Chg 2020 %Chg Net sales - prior year$ 1,949.7 $
2,141.0
Organic 72.1 3.7 %
(94.9) (4.4)%
Impact of the sale of infant and pet care products (26.8) (1.4)% (93.4) ​​(4.4)%
Impact of Cremo acquisition 56.0 2.9 %
4.5 0.2%
Impact of currency 36.3 1.9 % (7.5) (0.3) %
Net sales - current year $ 2,087.3 7.1 % $ 1,949.7 (8.9) %
For fiscal 2021, net sales increased 7.1% on a reported basis. Organic net sales
increased 3.7% versus the prior year. The increase in organic net sales was
largely driven by improving consumption across all categories and strong growth
in Sun Care , Women's Shave and Men's Grooming. Organic net sales increased in
North America by 5.2% while International organic net sales increased by 1.4%.
For further discussion regarding net sales, including a summary of reported
versus organic changes, see "Segment Results."
Gross Profit
Gross profit was $950.1 in fiscal 2021, as compared to $880.9 in fiscal 2020.
Gross margin as a percent of net sales for fiscal 2021 was 45.5%, up 30 basis
points as compared to fiscal 2020. Adjusted gross margin as a percent of sales
increased by 30 basis points compared to fiscal 2020, driven by Project Fuel
related savings and favorable pricing and promotion, partially offset by
increased commodity and labor costs.
Selling, General and Administrative Expense
SG&A was $391.2 in fiscal 2021, or 18.7% of net sales, as compared to $408.8 in
fiscal 2020, or 21.0% of net sales. Adjusted SG&A as a percent of net sales
decreased 30 basis points compared to fiscal 2020 as stronger cost control and
the benefit of sales leverage more than offset investments made in increased
talent and capabilities and unfavorable foreign currency fluctuations.
Advertising and Sales Promotion Expense
For fiscal 2021, A&P was $241.5 , up $25.3 as compared to fiscal 2020. A&P as a
percent of net sales was 11.6% for fiscal 2021, compared with 11.1% in fiscal
2020. The increase in A&P was the result of investments in and focus on critical
commercial efforts supporting the Schick Hydro relaunch, Schick Stubble Eraser®
product launch, Skintimate campaign, Men's systems development in Japan ,
increased support for the Sun Care business and the inclusion of Cremo brand
investments. Fiscal 2020 had reduced A&P expense as a result of the COVID-19
pandemic.
28 -------------------------------------------------------------------------------- Interest Expense Associated with Debt Interest expense associated with debt for fiscal 2021 was$67.9 , an increase of$6.7 as compared to fiscal 2020. The increase in interest expense was the result of higher average outstanding debt and a higher weighted interest rate, primarily as a result of the issuance of the 5.5%$750 Senior Notes due 2028 issued inMay 2020 (the "2028 Notes"). In addition to the interest expense associated with debt, we incurred$26.1 of costs for the early retirement of the$500 Senior Notes due 2022 in fiscal 2021. Other (Income) Expense, Net Other (income) expense, net was income of$1.2 in fiscal 2021 compared to expense of$5.4 in fiscal 2020. The favorable movement was largely related to foreign currency movements and lower pension benefit expense, partially offset by unfavorable hedge settlements. Income Tax Provision (Benefit) Income taxes, which include federal, state and foreign taxes, were 19.8%, 22.6% and 4.6% of Earnings (loss) before income taxes in fiscal 2021, 2020 and 2019, respectively. The effective income tax rate for fiscal 2021 for operations was 19.8% as compared to 22.6% in the prior year. On an adjusted basis, the effective tax rate for fiscal 2021 was 21.2% compared to 22.5% in the prior year. The fiscal 2021 effective tax rate reflects a more favorable mix of foreign earnings while fiscal 2020 includes the unfavorable impact of the sale of the Infant and Pet Care business. 2021 Adjusted Reported Adjustments (Non-GAAP) Earnings before income taxes$ 146.0 $ 65.7 $ 211.7 Income tax provision 29.0 16.0 45.0 Net earnings$ 117.0 $ 49.7 $ 166.7 Effective tax rate 19.8 % 21.2 % 2020 Adjusted Reported Adjustments (Non-GAAP) Earnings before income taxes$ 87.3 $ 104.6 $ 191.9 Income tax provision 19.7 23.4 43.1 Net earnings$ 67.6 $ 81.2 $ 148.8 Effective tax rate 22.6 % 22.5 % 2019 Adjusted Reported Adjustments (Non-GAAP)
(Loss) profit before income taxes
247.8
Income tax (benefit) provision (18.1) 77.1 59.0 Net (loss) earnings$ (372.2) $ 561.0 $ 188.8 Effective tax rate 4.6 % 23.8 % 29
-------------------------------------------------------------------------------- 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 Results Segment performance is evaluated based on segment profit, exclusive of general corporate expenses, share-based compensation costs, costs associated with restructuring charges, acquisition and integration costs, cost of early debt retirement, COVID-19 pandemic expenses, impairment charges, advisory expenses in connection with the evaluation of the Feminine and Infant Care businesses,Sun Care reformulation costs, investor settlement expenses, the disposition of the Infant and Pet Care business and the amortization and impairment of intangible assets. 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 2021 and 2020, 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 (loss) before income taxes, see Note 18 of Notes to Consolidated Financial Statements.
Wet shave
Net Sales - Wet Shave For the Years Ended September 30, 2021 %Chg 2020 %Chg Net sales - prior year$ 1,162.3 $ 1,250.1 Organic 26.6 2.3 % (83.2) (6.7) % Impact of currency 27.0 2.3 % (4.6) (0.3) % Net sales - current year$ 1,215.9 4.6 %$ 1,162.3 (7.0) % Wet Shave net sales for fiscal 2021 increased 4.6%, inclusive of a 2.3% increase due to currency movements. Organic net sales increased$26.6 , or 2.3%, primarily driven by significantly higher volumes and slightly favorable price mix. The increase in organic net sales was driven by growth in Women's systems, partially offset by declines in Men's systems and Shave Preps. Women's systems growth included increases in Intuition, Skintimate and Hydro Silk, while Men's systems saw growth in Hydro and Bulldog, partially mitigating declines in other brands. By region,North America and International organic net sales both increased by 2.3%. Segment Profit - Wet Shave For the Years Ended September 30, 2021 %Chg 2020
% Chg
Segment profit - prior year$ 206.2 $ 246.5 Organic 8.9 4.3 % (37.9) (15.4) % Impact of currency 5.9 2.9 % (2.4)
(0.9)%
Segment profit – current year
Wet Shave segment profit for fiscal 2021 was$221.0 , up$14.8 or 7.2%, inclusive of the impact of currency movements. Organic segment profit increased$8.9 , or 4.3%. The increase in segment profit was driven by higher volumes, particularly in Women's systems and disposables, partially offset by higher A&P in support of Men's Hydro and Women's Skintimate razors and unfavorable operating costs driven by higher freight and commodity prices. 30 -------------------------------------------------------------------------------- Sun andSkin Care Net Sales - Sun andSkin Care For the Years Ended September 30, 2021 %Chg 2020 %Chg Net sales - prior year$ 462.0 $ 463.1 Organic 59.0 12.8 % (3.1) (0.7) % Impact of Cremo acquisition 56.0 12.1 % 4.5 1.0 % Impact of currency 8.3 1.8 % (2.5)
(0.5)%
Net sales – current year
Sun andSkin Care net sales for fiscal 2021 increased 26.7%, inclusive of a 12.1% increase from the Cremo acquisition and a 1.8% increase due to currency movements. Organic net sales increased$59.0 , or 12.8%, primarily due to increasedSun Care sales asBanana Boat and Hawaiian Tropic both had double digit growth, rebounding from declines in the prior year due to the COVID-19 pandemic, which resulted in travel disruption during the summer vacation season. Organic growth in Men's grooming of 14.8% was driven by favorable volumes inJack Black and Bulldog. Wet Ones sales grew as a result of price, with volumes flat compared to the prior year. Segment Profit - Sun andSkin Care For the Years Ended September 30, 2021 %Chg 2020
% Chg
Segment profit - prior year$ 69.1 $ 80.4 Organic 19.2 27.8 % (11.7) (14.6) % Impact of Cremo acquisition 8.9 12.9 % 1.1 1.4 % Impact of currency 1.5 2.1 % (0.7)
(0.9)%
Segment profit – current year
Sun andSkin Care segment profit for fiscal 2021 was$98.7 , an increase of 42.8% compared to the prior year, inclusive of a 12.9% increase from the Cremo acquisition and a 2.1% increase from currency movements. Organic segment profit increased$19.2 , or 27.8% driven by increased net sales and gross margin from favorable volumes ofSun Care products and pricing forSun Care and Wet Ones, partially offset by higher freight and materials costs. 31 -------------------------------------------------------------------------------- Feminine CareNet Sales - Feminine Care For the Years Ended September 30, 2021 %Chg 2020 %Chg Net sales - prior year$ 298.6 $ 308.1 Organic (13.5) (4.5) % (9.1) (3.0) % Impact of currency 1.0 0.3 % (0.4) (0.1) %
Net sales – current year
Feminine Care net sales for fiscal 2021 decreased$12.5 , or 4.2%, inclusive of a 0.3% increase due to currency movements. Organic segment net sales decreased$13.5 , or 4.5%, driven by overall category declines, lost distribution, and the impact of the prior year pantry loading. Segment Profit - Feminine Care For the Years Ended September 30, 2021 %Chg 2020 %Chg Segment profit - prior year$ 52.3 $ 48.3 Organic (15.7) (30.0) % 4.1 8.5 % Impact of currency 0.6 1.1 % (0.1) (0.2) %
Segment profit – current year
The profit of the Feminine Care segment for the financial year 2021 was
All Other The Infant and Pet Care business divestiture, completed inDecember 2019 , 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 past years
2021 %Chg 2020 %Chg Net sales - prior year$ 26.8 $ 119.7 Organic - - % 0.5 0.4 %
Impact of the sale of Infant and Pet Care activities (26.8) (100.0)%
(93.4) ​​(78.0)%
Impact of currency - - % - - %
Net sales - current year $ - (100.0) %
$ 26.8 (77.6) % Segment Profit - All Other For the Years Ended September 30, 2021 %Chg 2020 %Chg Segment profit - prior year$ 3.1 $ 11.7 Organic - - % 0.5 4.3 % Impact of Infant and Pet Care business sale (3.1) (100.0) % (9.1) (77.8) % Impact of currency - - % - - % Segment profit - current year $ - (100.0) %$ 3.1 (73.5) % 32
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General business and other expenses
Fiscal Year
2021 2020
2019
General corporate and other expenses$ 56.5 $ 54.9 $ 57.3 Restructuring and related costs 30.1 38.1
55.6
Cost of early repayment of long-term debt 26.1 26.2
–
Acquisition and integration planning costs 8.4 39.8
6.7
Sun Care reformulation costs 1.1 -
2.8
Feminine and Infant Care evaluation costs - 0.3
2.1
COVID-19 expenses - 4.3
–
Capital gain on the sale of the Infant and Pet Care activity – (4.1)
- Impairment charges - - 570.0 Investor settlement expense - - 0.9
Company overheads and others
% of net sales
5.9 % 8.2 % 32.5 % For fiscal 2021, general corporate expenses were$56.5 , an increase of$1.6 as compared to fiscal 2020. Fiscal 2020 general corporate expenses decreased$2.4 when compared to fiscal 2019. The increase in general corporate expenses in fiscal 2021 relates to additional benefit and incentive payments, partially offset by savings from Project Fuel and reduced consulting and legal fees. The Company incurred expenses associated with the early retirement of the$500 Senior Notes due 2022 and$600 Senior Notes due 2021, including the recognition of remaining debt issuance costs and interest expense in the second quarter of fiscal 2021 and third quarter of fiscal 2020, respectively. Acquisition and integration costs incurred in fiscal 2021 and the fourth quarter of fiscal 2020 were related to the acquisition of Cremo, which was completed inSeptember 2020 . Additionally, the Company incurred expenses, primarily legal, consulting and financing costs, associated with the termination of the Harry's acquisition in the first half of fiscal 2020. Liquidity and Capital Resources To date, COVID-19 has not had a significant impact on our liquidity or capital resources. However, the ongoing COVID-19 pandemic has led to disruption and volatility in the global capital markets, which, depending on future developments, could impact our capital resources and liquidity in the future. AtSeptember 30, 2021 , a portion of our cash balances were located outside theU.S. Given our extensive international operations, a significant portion of our cash is denominated in foreign currencies. 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 were$1,276.5 atSeptember 30, 2021 , including$26.5 tied to variable interest rates. Our total borrowings atSeptember 30, 2020 were$1,271.1 . We had outstanding international borrowings, recorded within Notes payable, of$26.5 and$21.1 as ofSeptember 30, 2021 andSeptember 30, 2020 , respectively. Historically, we have generated and expect to continue to generate positive cash flows from operations. Our cash flows are affected by the seasonality of ourSun Care products, typically resulting in higher net sales and increased cash generation in the second and third quarter of each fiscal year. While we cannot reasonably estimate the full impact COVID-19 will have on our cash flows, we believe our cash on hand, cash flows from operations and borrowing capacity under ourU.S. Revolving Credit Facility due 2025 (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. 33 -------------------------------------------------------------------------------- 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. 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. 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. In fiscal 2022, we expect our total capital expenditures to be in the range of$60 to$70 primarily 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 2021, we contributed$4.9 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 2022. Debt Covenants The Revolving Credit Facility governing our outstanding debt atSeptember 30, 2021 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. 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 ofSeptember 30, 2021 , 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: Fiscal Year 2021 2020 2019 Net cash from (used by): Operating activities$ 229.0 $ 232.6 $ 190.6 Investing activities (48.7) (196.4) (45.5) Financing activities (65.4) (18.7) (63.8) Effect of exchange rate changes on cash (0.4)
5.6 (6.1) Net increase (decrease) in cash and cash equivalents
Operating Activities Cash flow from operating activities was$229.0 in fiscal 2021, as compared to$232.6 in fiscal 2020. The slight decrease in fiscal 2021 was primarily a result of net cash outflow from working capital in the current period compared to an inflow from working capital changes in the prior year period, partially offset by improved earnings compared to the prior year period. 34 -------------------------------------------------------------------------------- Investing Activities Cash flow used by investing activities was$48.7 in fiscal 2021 as compared to$196.4 in fiscal 2020. During fiscal 2021, we collected$7.5 of proceeds from the sale of the Infant and Pet Care business, compared to$95.8 in the prior year. Capital expenditures were$56.8 and$47.7 during fiscal 2021 and 2020, respectively. Additionally, other investing cash inflows related to the collection of receivables from our$150 uncommitted master accounts receivable purchase agreement withThe Bank of Tokyo-Mitsubishi UFJ, Ltd. ,New York Branch, as the purchaser (the "Accounts Receivable Facility") totaled$2.6 and$4.3 during fiscal 2021 and 2020, respectively, as a result of collections on the deferred purchase price of accounts receivables sold. During fiscal 2020, we completed the acquisition of Cremo for$233.6 and a minority investment of a direct-to-consumer company totaling$13.8 . Financing Activities Net cash used by financing activities was$65.4 in fiscal 2021 as compared to$18.7 in fiscal 2020. During fiscal 2021, we repurchased$9.2 of our common stock under our 2018 Board authorization to repurchase our common stock. 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 were related to costs of early debt retirement of the 2022 Senior Notes totaling$26.1 and debt issuance costs of$6.5 . Dividend payments totaled$25.6 in fiscal 2021. Additionally, cash flows associated with the Accounts Receivable Facility were inflows of$2.4 during fiscal 2021 compared to financing outflows of$11.2 in the prior year period. In the prior year period, the Company replaced its 2021 Senior Notes in the amount of$600 with the 2028 Senior Notes in the amount of$750 . Early debt retirement costs incurred in connection with the repayment of the 2021 Senior Notes totaled$26.2 and debt issuance costs totaling$11.7 . The Company had net repayments of its Revolving Credit Facility during fiscal 2020 totaling$117.0 . Share Repurchases InJanuary 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 fromMay 2015 . During fiscal 2021, we repurchased 0.3 shares of our common stock for$9.2 . We have 9.7 shares remaining available for purchase under theJanuary 2018 Board authorization. As a part of our capital allocation strategy, we plan to implement a more consistent approach to share repurchases and intend to repurchase approximately$300 in shares of our common stock over the next three fiscal years. Additionally, we intend to enter into a Rule 10b5-1 trading plan to facilitate the repurchase of our common shares in accordance with this share repurchase program. During fiscal 2021, 0.1 shares were purchased related to the surrender of shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock equivalent awards. SinceNovember 15, 2021 , we repurchased 0.2 shares of common stock on the open market for$7.4 . We have 9.6 shares remaining available for purchase under theJanuary 2018 Board authorization.
Dividends
OnAugust 5, 2021 , the Company's Board of Directors (the "Board") declared a cash dividend of$0.15 per share of common stock outstanding. The dividend was paid onOctober 5, 2021 to holders of record as of the close of business onSeptember 9, 2021 . Dividends declared during fiscal 2021 totaled$33.7 . Payments made for dividends during fiscal 2021 totaled$25.6 . OnNovember 4, 2021 , the Board declared a quarterly cash dividend of$0.15 per common stock outstanding for the fourth fiscal quarter. The dividend is payableJanuary 6, 2022 to stockholders of record as of the close of business onDecember 3, 2021 .
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. In
general, we have been able to offset or minimize inflation effects through a
variety of methods including pricing actions, cost reductions and productivity
improvements. We can provide no assurance that such mitigation will be available
in the future.
35
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Seasonality
Customer orders for sun care products within our Sun andSkin 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 theU.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. OnJune 23, 2016 , theU.K held a referendum in which voters approved an exit from the E.U., commonly referred to as "Brexit." TheU.K. officially exited the E.U. onJanuary 31, 2020 , however, negotiations between theU.K. and E.U. regarding the separation remain ongoing. OnDecember 24, 2020 , the E.U. and theU.K. agreed on the final terms of a trade and cooperation agreement related to their relationship following Brexit. Future impacts on ourU.K. operations and financial results will depend, in part, on the outcome of tariff, trade, regulatory and other negotiations. Generally, a weaker British pound as compared to theU.S. dollar during a reporting period causes the local currency results of ourU.K. operations to be translated into fewerU.S. dollars. Historically, our hedging strategy has included hedging a portion of our exposure to the British pound, thereby reducing our currency risk. We routinely monitor and evaluate this strategy based on risk and will adjust as necessary to minimize exposure to fluctuations in exchange rates related to ourU.K. operations. For fiscal 2021, net sales of ourU.K. operations were 4% of our consolidated net sales. Commitments and Contingencies 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 ofSeptember 30, 2021 , 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 atSeptember 30, 2021 were$11.8 . 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. 36 -------------------------------------------------------------------------------- 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 the carrying value of intangible assets (and the related impairment testing of goodwill and other indefinite-lived 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 forSun 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 returnSun 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 ofSun Care products can vary in different regions, based on climate and other factors. However, the majority of returns occur in theU.S. from September through January, following the summerSun Care season. We estimate the level ofSun 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 weather conditions, customer inventory levels and competitive activity. Based on our fiscal 2021 Sun Care shipments, each percentage point change in our returns rate would have impacted our reported net sales by$3.4 and our reported operating income by$3.2 . AtSeptember 30, 2021 and 2020, our reserve on the Consolidated Balance Sheet for returns was$52.7 and$44.8 , respectively. 37 -------------------------------------------------------------------------------- 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 ourU.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 atSeptember 30, 2021 , a one percentage point decrease or increase in expected asset returns would increase or decrease our pension expense by approximately$5.1 . 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$82.5 atSeptember 30, 2021 . As allowed under GAAP, ourU.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. 38 -------------------------------------------------------------------------------- Share-Based Compensation We award restricted stock equivalents ("RSE"), which generally vest over 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 theU.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. 39 -------------------------------------------------------------------------------- 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 2020, the Company used variations of the income approach in determining the fair value of intangible assets acquired in the acquisition ofCremo Holding Company, LLC . 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 2021, 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 Feminine 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,Sun Care , andSkin Care reporting units, we elected to perform a quantitative impairment test in fiscal 2021. 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 indication of value. 40 -------------------------------------------------------------------------------- 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 2021 include terminal growth rates ranging from 0.25% to 2.50% and a weighted-average cost of capital of 9.0%. Our annual impairment testing date wasJuly 1, 2021 , 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 30%. 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 2021, we elected to complete a qualitative assessment for impairment of indefinite lived trade names, except for the Banana Boat 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 2021. We tested the Banana Boat 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 Banana Boat trade name had no indication of impairment as of the annual testing date onJuly 1, 2021 . The impairment analysis performed in fiscal 2021 indicated that the Banana Boat trade name had a fair value that exceeded its carrying value by greater than 40%. 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 2021 include a terminal growth rate of 2.50% and a weighted-average cost of capital of 9.5%. The annual impairment analysis performed in fiscal 2021 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. 41
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