Document




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 10-Q
_______________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________

Commission File Number: 001-15401
____________________________________________________________________________________________________________
EDGEWELL PERSONAL CARE COMPANY
(Exact name of registrant as specified in its charter)

Missouri
43-1863181
(State or other jurisdiction of incorporation or organization)
(I. R. S. Employer Identification No.)
 
1350 Timberlake Manor Parkway
 
Chesterfield, Missouri
63017
(Address of principal executive offices)
(Zip Code)
 
 
(314) 594-1900
(Registrant's telephone number, including area code)

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

Indicate number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Common shares, $0.01 par value - 58,950,886 shares as of July 29, 2016.

1



EDGEWELL PERSONAL CARE COMPANY
INDEX TO FORM 10-Q

PART I.
FINANCIAL INFORMATION
 
Item 1.
Financial Statements (Unaudited).
 
 
Condensed Consolidated Statements of Earnings and Comprehensive Income (Loss) for the three and nine months ended June 30, 2016 and 2015.
 
Condensed Consolidated Balance Sheets as of June 30, 2016 and September 30, 2015.
 
Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2016 and 2015.
 
Notes to Condensed Consolidated Financial Statements.
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
Item 4.
Controls and Procedures.
 
 
 
PART II.
OTHER INFORMATION
 
Item 1.
Legal Proceedings.
Item 1A.
Risk Factors.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3.
Defaults Upon Senior Securities.
Item 4.
Mine Safety Disclosures.
Item 5.
Other Information.
Item 6.
Exhibits.
 
 
 
SIGNATURES
 




2



PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

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

 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Net sales
$
645.1

 
$
672.9

 
$
1,751.4

 
$
1,861.1

Cost of products sold
333.9

 
349.5

 
901.6

 
946.6

Gross profit
311.2

 
323.4

 
849.8

 
914.5

 
 
 
 
 
 
 
 
Selling, general and administrative expense
104.8

 
165.4

 
304.9

 
448.1

Advertising and sales promotion expense
122.5

 
142.3

 
254.1

 
271.4

Research and development expense
17.5

 
16.8

 
50.2

 
48.5

Venezuela deconsolidation charge

 

 

 
79.3

Spin restructuring charges

 
4.3

 

 
28.3

2013 restructuring charges
5.8

 
4.6

 
29.3

 
20.4

Industrial sale charges

 
21.9

 
0.2

 
21.9

Interest expense associated with debt
18.3

 
27.5

 
53.8

 
83.4

Cost of early debt retirements

 
59.6

 

 
59.6

Other expense (income), net
8.2

 
(6.6
)
 
1.2

 
(8.3
)
Earnings (loss) from continuing operations before income taxes
34.1

 
(112.4
)
 
156.1

 
(138.1
)
Income tax (benefit) provision
(2.6
)
 
(44.7
)
 
29.6

 
(35.7
)
Earnings (loss) from continuing operations
$
36.7

 
$
(67.7
)
 
$
126.5

 
$
(102.4
)
(Loss) earnings from discontinued operations, net of tax

 
(4.8
)
 

 
46.6

Net earnings (loss)
$
36.7

 
$
(72.5
)
 
$
126.5

 
$
(55.8
)
 
 
 
 
 
 
 
 
Basic earnings (loss) per share:
 
 
 
 
 
 
 
Earnings (loss) from continuing operations
$
0.62

 
$
(1.09
)
 
$
2.13

 
$
(1.65
)
(Loss) earnings from discontinued operations, net of tax

 
(0.08
)
 

 
0.75

Net earnings (loss)
0.62

 
(1.17
)
 
2.13

 
(0.90
)
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share:
 
 
 
 
 
 
 
Earnings (loss) from continuing operations
$
0.61

 
$
(1.09
)
 
$
2.11

 
$
(1.65
)
(Loss) earnings from discontinued operations, net of tax

 
(0.08
)
 

 
0.75

Net earnings (loss)
0.61

 
(1.17
)
 
2.11

 
(0.90
)
 
 
 
 
 
 
 
 
Statement of Comprehensive Income (Loss):
 
 
 
 
 
 
 
Net earnings (loss)
$
36.7

 
$
(72.5
)
 
$
126.5

 
$
(55.8
)
Other comprehensive (loss) income, net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
(8.0
)
 
33.0

 
(0.7
)
 
(106.4
)
Pension and postretirement activity, net of tax of $0.4, ($0.3), $1.1 and $4.7, respectively
3.4

 
(1.4
)
 
(2.6
)
 
9.0

Deferred loss on hedging activity, net of tax of $0.5, ($3.9), $3.4 and ($0.7), respectively
(0.3
)
 
(10.2
)
 
(6.5
)
 
(1.0
)
Total other comprehensive (loss) income, net of tax
(4.9
)
 
21.4

 
(9.8
)
 
(98.4
)
Total comprehensive income (loss)
$
31.8

 
$
(51.1
)
 
$
116.7

 
$
(154.2
)

See accompanying Notes to Condensed Consolidated Financial Statements.

3



EDGEWELL PERSONAL CARE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except share data)  
 
 
June 30,
2016
 
September 30,
2015
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
691.5

 
$
712.1

Trade receivables, less allowance for doubtful accounts of $5.8 and $5.4, respectively
308.7

 
279.8

Inventories
333.6

 
332.8

Other current assets
174.6

 
311.9

Total current assets
1,508.4

 
1,636.6

Property, plant and equipment, net
475.3

 
476.1

Goodwill
1,419.9

 
1,421.8

Other intangible assets, net
1,394.9

 
1,408.5

Other assets
55.5

 
48.7

Total assets
$
4,854.0

 
$
4,991.7

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt
$
278.5

 
$

Notes payable
17.0

 
17.5

Accounts payable
203.2

 
236.9

Other current liabilities
397.8

 
412.4

Total current liabilities
896.5

 
666.8

Long-term debt
1,579.2

 
1,704.0

Deferred income tax liabilities
258.7

 
335.8

Other liabilities
246.3

 
421.0

Total liabilities
2,980.7

 
3,127.6

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

 

Common shares, $0.01 par value, 300,000,000 authorized; 65,251,989 issued; 58,901,055 and 60,176,237 outstanding, respectively
0.7

 
0.7

Additional paid-in capital
1,641.3

 
1,644.2

Retained earnings
896.9

 
772.9

Common shares in treasury at cost, 6,350,934 and 5,075,752, respectively
(484.3
)
 
(382.2
)
Accumulated other comprehensive loss
(181.3
)
 
(171.5
)
Total shareholders' equity
1,873.3

 
1,864.1

Total liabilities and shareholders' equity
$
4,854.0

 
$
4,991.7


See accompanying Notes to Condensed Consolidated Financial Statements.



4



EDGEWELL PERSONAL CARE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)  
 
 
Nine Months Ended
June 30,
 
2016
 
2015
Cash Flow from Operating Activities
 
 
 
Net earnings (loss)
$
126.5

 
$
(55.8
)
Non-cash restructuring costs
2.2

 
40.9

Depreciation and amortization
69.2

 
93.5

Venezuela deconsolidation charge

 
144.5

Non-cash items included in income, net
22.0

 
19.3

International pension funding
(100.5
)
 

Other, net
(28.2
)
 
(28.8
)
Changes in current assets and liabilities used in operations
(87.1
)
 
(189.9
)
Net cash from operating activities
4.1

 
23.7

 
 
 
 
Cash Flow from Investing Activities
 
 
 
Capital expenditures
(50.9
)
 
(72.4
)
Change related to Venezuelan operations

 
(93.8
)
Acquisitions, net of cash acquired

 
(12.1
)
Proceeds from sale of assets

 
14.3

Change in restricted cash

 
13.9

Net cash used by investing activities
(50.9
)
 
(150.1
)
 
 
 
 
Cash Flow from Financing Activities
 
 
 
Cash proceeds from debt with original maturities greater than 90 days
656.3

 
2,414.0

Cash payments on debt with original maturities greater than 90 days
(501.0
)
 
(1,900.0
)
Net decrease in debt with original maturities of 90 days or less
(15.5
)
 
(270.5
)
Deferred finance expense
(0.6
)
 
(15.1
)
Common shares purchased
(114.5
)
 

Cash dividends paid

 
(93.2
)
Proceeds from issuance of common shares, net

 
4.4

Excess tax benefits from share-based payments

 
9.3

Net cash from financing activities
24.7

 
148.9

 
 
 
 
Effect of exchange rate changes on cash
1.5

 
(61.4
)
 
 
 
 
Net decrease in cash and cash equivalents
(20.6
)
 
(38.9
)
Cash and cash equivalents, beginning of period
712.1

 
1,129.0

Cash and cash equivalents, end of period
$
691.5

 
$
1,090.1


See accompanying Notes to Condensed Consolidated Financial Statements.



5



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

Note 1 - Background and Basis of Presentation
Background
Edgewell Personal Care Company and its subsidiaries (collectively, "Edgewell" or the "Company"), is one of the world's largest manufacturers and marketers of personal care products in the wet shave, sun and skin care, feminine care and infant care categories. Edgewell has a portfolio of over 25 brands and a global footprint in more than 50 countries.
The Company conducts its business in the following four segments:
Wet Shave consists of products sold under the Schick®, Wilkinson Sword®, Edge®, Skintimate®, Shave Guard and Personna® brands, as well as non-branded products. The Company's wet shave products include razor handles and refillable blades, disposable shave products and shaving gels and creams.
Sun and Skin Care consists of Banana Boat® and Hawaiian Tropic® sun care products, as well as Wet Ones® hand and face wipes and Playtex® household gloves.
Feminine Care includes tampons, pads and liners sold under the Playtex®, Stayfree®, Carefree® and o.b.® brands, as well as personal cleansing wipes under the Playtex® brand.
All Other includes infant care products, such as bottles, cups and pacifiers, under the Playtex®, OrthoPro® and Binky® brand names, as well as the Diaper Genie® and Litter Genie® disposal systems.

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its controlled subsidiaries and have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP"), under the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results may differ materially from those estimates. All intercompany balances and transactions have been eliminated in consolidation and, in the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included in the interim results reported. The fiscal year-end balance sheet data was derived from audited consolidated financial statements, but do not include all of the annual disclosures required by GAAP; accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited annual consolidated financial statements included in its Annual Report on Form 10-K filed with the SEC on November 30, 2015.
Separation. On July 1, 2015, the Company completed the separation of its Household Products business into a separate publicly-traded company (the "Spin" or the "Separation"). The historical financial results of the Company's Household Products business, which assumed the name Energizer Holdings, Inc. ("New Energizer"), are presented as discontinued operations on the Condensed Consolidated Statements of Earnings and, as such, have been excluded from both continuing operations and segment results for all periods presented. The prior year Condensed Consolidated Statements of Comprehensive Loss and Cash Flows have not been adjusted to reflect the effect of the Separation, as the Company had not adopted the Financial Accounting Standards Board's ("FASB") updated guidance on the presentation of discontinued operations at the time of Separation. Unless indicated otherwise, the information in Notes to Condensed Consolidated Financial Statements relates to the Company's continuing operations. Prior periods have been recast to reflect the Company's current segment reporting. See Note 2 of Notes to Condensed Consolidated Financial Statements for more information on the Separation.
Statement of Cash Flows Presentation. The net presentation of borrowings and repayments under the Company's U.S. revolving credit facility in the Condensed Consolidated Statement of Cash Flows for the three months ended December 31, 2015 has been revised in order to properly reflect borrowings and repayments on a gross basis, resulting in $203.0 of repayments presented gross that were previously netted against borrowings. Net cash from financing activities reported in the Condensed Consolidated Statement of Cash Flows for the three months ended December 31, 2015 was not impacted, and the Company has concluded that the correction was not material to its financial statements and that the error was not material to any prior period.

6



Balance Sheet Presentation of Deferred Taxes. During the third quarter of fiscal 2016, the Company identified a prior period misstatement related to the classification of deferred tax assets and liabilities in its Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015. This resulted in an overstatement of Other assets and Deferred income tax liabilities as of March 31, 2016 and December 31, 2015. The Company assessed the materiality of the misstatement in accordance with SEC Staff Accounting Bulletin No. 99, Materiality, and concluded that this misstatement was not material to the Company's consolidated financial statements for the prior periods and that amendments of previously filed reports were therefore not required. The Company's deferred tax assets and liabilities have been revised in order to properly present the deferred tax position for each tax-paying component of the consolidated entity as a net asset or net liability in accordance with Accounting Standards Update ("ASU") 2015-17. The impact to the Condensed Consolidated Balance Sheets resulted in a misstatement of Other assets, Total assets, Deferred income tax liabilities and Total liabilities of $70.2 as of March 31, 2016 and $71.5 as of December 31, 2015. The impact to the Condensed Consolidating Balance Sheets as of March 31, 2016 and December 31, 2015 resulted in a misstatement of Other assets, Total assets, Deferred income tax liabilities and Total liabilities of $72.4 for each period in the Guarantor column and $2.2 and $0.9, respectively, in the Non-Guarantor column. No other line items on the Company's Condensed Consolidated Balance Sheets, Statements of Earnings or Cash Flows were impacted by the error.
Venezuela Deconsolidation. Venezuelan exchange control regulations have resulted in an other-than-temporary lack of exchangeability between the Venezuelan bolivar and U.S. dollar, resulting in a lack of control over the Company's Venezuelan subsidiaries for accounting purposes. As the Company expects this condition will continue for the foreseeable future, it deconsolidated its Venezuelan subsidiaries on March 31, 2015, and began accounting for the investment in its Venezuelan operations using the cost method of accounting. As a result of deconsolidating its Venezuelan subsidiaries, the Company recorded a charge of $144.5 during the three months ended March 31, 2015, of which $79.3 was included within continuing operations and had no accompanying tax benefit. This charge included the write-off of the investment in the Company's Venezuelan subsidiaries, foreign currency translation losses of $18.5 previously recorded in Accumulated other comprehensive loss and the write-off of $18.5 of intercompany receivables. Since March 31, 2015, the Company's financial results have not included the operating results of its Venezuelan operations.
Recently Adopted Accounting Pronouncements. In November 2015, the FASB issued a new ASU, which simplifies the presentation of deferred income taxes. Under the new guidance, an entity is required to classify deferred tax assets and liabilities as noncurrent in a classified statement of financial position. The current requirement that deferred tax assets and liabilities of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this ASU. The Company has chosen to early adopt this guidance during the first quarter of fiscal 2016. The Company adopted this guidance prospectively, resulting in reductions to Other current assets, Other current liabilities and Deferred income tax liabilities of $85.1, $0.1 and $76.8, respectively, and an increase in Other assets of $8.2 as of June 30, 2016.
Recently Issued Accounting Pronouncements. In February 2016, the FASB issued an ASU which amends existing lease accounting guidance to require recognition of lease assets and lease liabilities on the balance sheet for leases previously classified as operating leases. Additionally, this update requires qualitative disclosure along with specific quantitative disclosures. Lessees and lessors will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The update will be effective for the Company beginning October 1, 2019, with early adoption permitted. The Company does not expect to early adopt this guidance and is in the process of evaluating its impact on the financial statements.
In March 2016, the FASB issued an ASU designed to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The amendments in this update will be effective for the Company beginning October 1, 2017, with early adoption permitted. The Company has not determined whether it will early adopt this guidance, and is in the process of evaluating its impact on the financial statements.
In March, April and May 2016, the FASB issued three ASUs which clarify the revenue recognition implementation guidance on principal versus agent considerations, identifying performance obligations, determining whether an entity's promise to grant a license provides a customer with either a right to use or a right to access the entity's intellectual property, assessing the collectability criteria, presentation of sales and similar taxes, noncash consideration and various other items. The amendments in these ASUs affect the guidance in ASU 2014-09, Revenue from Contracts with Customers, and the effective date and transition requirements are the same as those for ASU 2014-09 which, for the Company, will be October 1, 2018. The Company is in the process of evaluating the impact the guidance will have on its financial statements.

7



In June 2016, the FASB issued an ASU intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The new guidance applies to all financial instruments, including trade receivables, and requires the measurement of all expected credit losses for financial assets held at a reporting date to be based on historical experience, current conditions and reasonable and supportable forecasts. Previous guidance did not include forward-looking information. The update will be effective for the Company beginning October 1, 2020 and early adoption is permitted for fiscal years beginning after December 15, 2018. The Company is in the process of evaluating the impact the guidance will have on its financial statements.

Note 2 - Discontinued Operations
On July 1, 2015, the Company completed the Separation; therefore, the Household Products business has been reclassified to discontinued operations on the Condensed Consolidated Statement of Earnings for the three and nine months ended June 30, 2015. Discontinued operations includes the results of the Household Products business, except for certain corporate overhead and other allocations, which remain in continuing operations. The costs to separate New Energizer are primarily reflected in continuing operations; however, certain costs specifically related to New Energizer are included in discontinued operations. The prior year Condensed Consolidated Statements of Comprehensive Loss and Cash Flows have not been adjusted to reflect the impact of the Separation. Net sales and (loss) earnings from New Energizer's operations were as follows:
 
Three
Months Ended
June 30, 2015
 
Nine
Months Ended
June 30, 2015
Net sales
$
374.2

 
$
1,232.5

 
 
 
 
Earnings before income taxes from discontinued operations
2.4

 
91.1

Income tax provision for discontinued operations
7.2

 
44.5

Net (loss) earnings from discontinued operations, net of tax
$
(4.8
)
 
$
46.6


The Company incurred incremental costs to evaluate, plan and execute the Separation. The Company also initiated certain restructuring activities in order to prepare both businesses to operate as stand-alone entities. These pre-tax charges related to the Spin and Spin restructuring initiatives were included in continuing operations as follows:
$2.8 for the three months ended June 30, 2016 (included in Selling, general and administrative expense ("SG&A"));
$12.0 for the nine months ended June 30, 2016 ($11.8 included in SG&A and $0.2 included in Cost of products sold);
$60.0 for the three months ended June 30, 2015 ($52.4 included in SG&A, $3.3 included in Cost of products sold and $4.3 included in Spin restructuring charges);
$140.0 for the nine months ended June 30, 2015 ($107.7 included in SG&A, $4.0 included in Cost of products sold and $28.3 included in Spin restructuring charges); and
$206.7 for the project-to-date ($174.0 included in SG&A, $4.4 included in Cost of products sold and $28.3 included in Spin restructuring charges).

Of the total Spin and Spin restructuring costs included in continuing operations for the project-to-date, $9.7 were non-cash, primarily related to asset impairments and incremental costs associated with the modification of equity awards. The Company does not expect to incur additional Spin or Spin Restructuring costs.
In addition to the above costs included in continuing operations, $40.2 and $73.3 of pre-tax Spin and $14.3 and $38.6 of pre-tax Spin restructuring costs during the three and nine months ended June 30, 2015, respectively, were included in discontinued operations.


8



Note 3 - Restructuring Charges
Spin Restructuring
As mentioned in Note 2 of Notes to Condensed Consolidated Financial Statements, the Company initiated certain restructuring activities related to the Separation in order to prepare both businesses to operate as stand-alone entities. The restructuring activities included efforts to adapt the global go-to-market footprint to adjust to the future strategies and scale of each stand-alone business; centralize certain back-office functions to increase efficiencies; outsource certain non-core transactional activities; and reduce headcount to optimize the cost structures of each stand-alone business.
The Company incurred $4.3 and $28.3 of pre-tax Spin restructuring costs during the three and nine months ended June 30, 2015. These charges consisted primarily of severance and related benefit costs, non-cash asset write-downs, as well as other exit-related costs. As of June 30, 2016, $6.6 of accrued Spin restructuring charges were included in Other current liabilities. The Company does not expect to incur additional Spin restructuring charges.
The Company does not include restructuring costs in the results of its reportable segments. The estimated impact of allocating such charges to segment results for the three and nine months ended June 30, 2015 would have been as follows:
 
Three Months Ended June 30, 2015
 
Wet
Shave
 
Sun and
Skin Care
 
Feminine
Care
 
All
Other
 
Corporate
 
Total
Spin Restructuring
 
 
 
 
 
 
 
 
 
 
 
Severance and related benefit costs
$
6.0

 
$
0.8

 
$
0.8

 
$
0.1

 
$

 
$
7.7

Other exit costs
(3.5
)
 

 
(0.1
)
 
0.2

 

 
(3.4
)
Total Spin Restructuring
$
2.5

 
$
0.8

 
$
0.7

 
$
0.3

 
$

 
$
4.3

 
Nine Months Ended June 30, 2015
 
Wet
Shave
 
Sun and
Skin Care
 
Feminine
Care
 
All
Other
 
Corporate
 
Total
Spin Restructuring
 
 
 
 
 
 
 
 
 
 
 
Severance and related benefit costs
$
17.3

 
$
3.9

 
$
2.1

 
$
0.4

 
$
1.3

 
$
25.0

Other exit costs
(1.6
)
 
0.6

 
2.6

 
1.7

 

 
3.3

Total Spin Restructuring
$
15.7

 
$
4.5

 
$
4.7

 
$
2.1

 
$
1.3

 
$
28.3


The following table summarizes the Spin restructuring activities and the related accruals which were included in Other current liabilities as of the dates below:
 
 
 
 
 
 
 
Utilized
 
 
 
October 1,
2015
 
Charge to Income
 
Other (1)
 
Cash
 
Non-Cash
 
June 30,
2016
Spin Restructuring
 
 
 
 
 
 
 
 
 
 
 
Severance and related benefit costs
$
10.8

 
$

 
$
0.7

 
$
(4.9
)
 
$

 
$
6.6

Non-cash asset write-down

 

 

 

 

 

Other exit costs
0.3

 

 

 
(0.3
)
 

 

   Total Spin restructuring
$
11.1

 
$

 
$
0.7

 
$
(5.2
)
 
$

 
$
6.6

(1)
Includes the impact of currency translation.


9



 
 
 
 
 
 
 
Utilized
 
 
 
October 1, 2014
 
Charge to Income (1)
 
Other (2)
 
Cash
 
Non-Cash
 
September 30,
2015
Spin Restructuring
 
 
 
 
 
 
 
 
 
 
 
Severance and related benefit costs
$

 
$
54.9

 
$
(15.6
)
 
$
(28.5
)
 
$

 
$
10.8

Non-cash asset write-down

 
7.4

 
(0.1
)
 

 
(7.3
)
 

Other exit costs

 
4.6

 
1.8

 
(6.1
)
 

 
0.3

   Total Spin restructuring
$

 
$
66.9

 
$
(13.9
)
 
$
(34.6
)
 
$
(7.3
)
 
$
11.1

(1)
Includes $38.6 of pre-tax costs that are now reflected in discontinued operations.
(2)
Includes the impact of currency translation and the transfer of liabilities to New Energizer.

2013 Restructuring
In November 2012, the Company's Board of Directors (the "Board") authorized an enterprise-wide restructuring plan (the "2013 Restructuring"). The 2013 Restructuring originally included several initiatives focused on reducing costs in general and administrative functions, as well as reducing manufacturing and operating costs associated with our discontinued operations. In January 2014, the Board authorized an expansion of scope of the previously announced 2013 Restructuring, which included rationalization and streamlining of the Edgewell operating facilities and other cost saving initiatives. Restructuring charges specific to Edgewell have primarily related to plant closure and accelerated depreciation charges and severance and related benefit costs. The Company expects full year restructuring costs to total $35.0 to $40.0 in 2016 and $10.0 to $15.0 for 2017.
Expense incurred under the 2013 Restructuring plan are reflected below, including the estimated impact of allocating such charges to segment results. No 2013 Restructuring charges have been allocated to the Company's All Other segment. The Company does not include restructuring costs in the results of its reportable segments.
 
Three Months Ended June 30, 2016
 
Wet
Shave
 
Sun and
Skin Care
 
Feminine
Care
 
Corporate
 
Total
2013 Restructuring
 
 
 
 
 
 
 
 
 
Severance and related benefit costs
$
0.5

 
$

 
$
0.6

 
$

 
$
1.1

Accelerated depreciation

 

 
1.0

 

 
1.0

Consulting, program management and other exit costs
1.2

 

 
2.5

 

 
3.7

Total 2013 Restructuring
$
1.7

 
$

 
$
4.1

 
$

 
$
5.8

 
Nine Months Ended June 30, 2016
 
Wet
Shave
 
Sun and
Skin Care
 
Feminine
Care
 
Corporate
 
Total
2013 Restructuring
 
 
 
 
 
 
 
 
 
Severance and related benefit costs
$
9.6

 
$
0.2

 
$
5.1

 
$

 
$
14.9

Accelerated depreciation

 

 
2.2

 

 
2.2

Consulting, program management and other exit costs
3.2

 
0.1

 
8.9

 

 
12.2

Total 2013 Restructuring
$
12.8

 
$
0.3

 
$
16.2

 
$

 
$
29.3

 
Three Months Ended June 30, 2015
 
Wet
Shave
 
Sun and
Skin Care
 
Feminine
Care
 
Corporate
 
Total
2013 Restructuring
 
 
 
 
 
 
 
 
 
Severance and related benefit costs
$
0.1

 
$
0.3

 
$

 
$

 
$
0.4

Accelerated depreciation

 

 
0.9

 

 
0.9

Consulting, program management and other exit costs
0.7

 
0.1

 
2.3

 
0.2

 
3.3

Total 2013 Restructuring
$
0.8

 
$
0.4

 
$
3.2

 
$
0.2

 
$
4.6


10



 
Nine Months Ended June 30, 2015
 
Wet
Shave
 
Sun and
Skin Care
 
Feminine
Care
 
Corporate
 
Total
2013 Restructuring
 
 
 
 
 
 
 
 
 
Severance and related benefit costs
$
0.7

 
$
1.0

 
$
2.9

 
$

 
$
4.6

Accelerated depreciation

 

 
3.9

 

 
3.9

Consulting, program management and other exit costs
2.1

 
1.3

 
7.5

 
1.0

 
11.9

Total 2013 Restructuring
$
2.8

 
$
2.3

 
$
14.3

 
$
1.0

 
$
20.4



The following table summarizes the 2013 Restructuring activities and related accrual, which were included in Other current liabilities, for the first nine months of fiscal 2016:
 
 
 
 
 
 
 
Utilized
 
 
 
October 1,
2015
 
Charge to Income
 
Other (1)
 
Cash
 
Non-Cash
 
June 30,
2016
2013 Restructuring
 
 
 
 
 
 
 
 
 
 
 
Severance and termination related costs
$
13.7

 
$
14.9

 
$
0.6

 
$
(9.8
)
 
$

 
$
19.4

Asset impairment and accelerated depreciation

 
2.2

 

 

 
(2.2
)
 

Other related costs

 
12.2

 

 
(12.2
)
 

 

   Total 2013 Restructuring
$
13.7

 
$
29.3

 
$
0.6

 
$
(22.0
)
 
$
(2.2
)
 
$
19.4

(1)
Includes the impact of currency translation.

The following table summarizes the 2013 Restructuring activities and related accrual for fiscal 2015:
 
 
 
 
 
 
 
Utilized
 
 
 
October 1, 2014
 
Charge to Income (1)
 
Other (2)
 
Cash
 
Non-Cash
 
September 30,
2015
2013 Restructuring
 
 
 
 
 
 
 
 
 
 
 
Severance and termination related costs
$
22.1

 
$
13.0

 
$
(8.3
)
 
$
(13.1
)
 
$

 
$
13.7

Asset impairment and accelerated depreciation

 
14.2

 
(0.5
)
 

 
(13.7
)
 

Other related costs
4.3

 
18.8

 
(1.2
)
 
(21.9
)
 

 

Net (gain) loss on asset sales

 
(11.0
)
 
0.5

 
13.9

 
(3.4
)
 

   Total 2013 Restructuring
$
26.4

 
$
35.0

 
$
(9.5
)
 
$
(21.1
)
 
$
(17.1
)
 
$
13.7

(1)
Includes $8.3 of pre-tax costs that are now reflected in discontinued operations.
(2)
Includes the impact of currency translation and the transfer of liabilities to New Energizer.
 
Note 4 - Income Taxes
For the three months ended June 30, 2016, the Company had an income tax benefit of $2.6 and for the nine months ended June 30, 2016, the Company had income tax expense of $29.6 on earnings from continuing operations before income taxes of $34.1 and $156.1, respectively. The effective tax rate for the three and nine months ended June 30, 2016 was (7.6)% and 19.0%, respectively. The negative tax rate for the quarter was largely driven by $8.7 of favorable adjustments related to prior year provision estimates, which includes adjustments related to Separation. In addition, the difference between the federal statutory rate and the effective rate for both periods is due to a higher mix of earnings in lower tax rate jurisdictions and was favorably impacted by Separation and restructuring charges in higher tax rate jurisdictions.
For the three and nine months ended June 30, 2015, the Company had an income tax benefit of $44.7 and $35.7, respectively, on loss before income taxes of $112.4 and $138.1, respectively. The effective tax rate for the three and nine months ended June 30, 2015, was 39.8% and 25.9%, respectively. For both periods, the effective tax rate represents a benefit. The difference between the federal statutory rate and the effective rate for the nine months ended June 30, 2015 is largely driven by the Venezuela deconsolidation charge of $79.3 in the second quarter of fiscal 2015, which had no accompanying tax benefit.

11



As of June 30, 2016, the Company's Condensed Consolidated Balance Sheet reflects a liability for unrecognized tax benefits of approximately $29.1. The decrease from the September 30, 2015 balance of $47.1 was primarily due to audit settlements and statute expirations in various tax jurisdictions.

Note 5 - Earnings (Loss) per Share
Basic earnings (loss) per share is based on the average number of common shares outstanding during the period. Diluted earnings (loss) per share is based on the average number of shares used for the basic earnings (loss) per share calculation, adjusted for the dilutive effect of share options and restricted share equivalent ("RSE") awards.
Following is the reconciliation between the number of weighted-average shares used in the basic and diluted earnings (loss) per share calculation:
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Basic weighted-average shares outstanding
59.1

 
62.2

 
59.4

 
62.1

Effect of dilutive securities:
 
 
 
 
 
 
 
Share options

 

 

 

RSE awards
0.6

 

 
0.5

 

Total dilutive securities
0.6

 

 
0.5

 

Diluted weighted-average shares outstanding
59.7

 
62.2

 
59.9

 
62.1


For the three and nine months ended June 30, 2016, the calculation of diluted weighted-average shares outstanding excludes 0.4 of share options because the effect of including these awards was anti-dilutive. For the three months ended June 30, 2016, the number of RSE awards considered anti-dilutive was immaterial. For the nine months ended June 30, 2016, the calculation of diluted weighted-average shares outstanding excludes 0.1 of RSE awards because the effect of including these awards was anti-dilutive. For the three and nine months ended June 30, 2015, the calculation of diluted weighted-average shares outstanding excludes 0.4 of RSE awards that would have otherwise been dilutive, because the Company reported a net loss.
 
Note 6 - Goodwill and Intangible Assets
The following table sets forth goodwill by segment:
 
Wet
Shave
 
Sun and
Skin Care
 
Feminine
Care
 
All
Other
 
Total
Balance at October 1, 2015
$
967.4

 
$
178.0

 
$
206.8

 
$
69.6

 
$
1,421.8

Cumulative translation adjustment
(3.1
)
 

 
1.2

 

 
(1.9
)
Balance at June 30, 2016
$
964.3

 
$
178.0

 
$
208.0

 
$
69.6

 
$
1,419.9


Total amortizable intangible assets were as follows: 
 
June 30, 2016
 
September 30, 2015
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Tradenames and brands
$
14.6

 
$
12.1

 
$
2.5

 
$
14.6

 
$
11.9

 
$
2.7

Technology and patents
76.8

 
68.6

 
8.2

 
76.8

 
65.5

 
11.3

Customer related and other
144.7

 
79.5

 
65.2

 
147.8

 
72.8

 
75.0

Total amortizable intangible assets
$
236.1

 
$
160.2

 
$
75.9

 
$
239.2

 
$
150.2

 
$
89.0



12



Amortization expense was $3.6 and $10.8 for the three and nine months ended June 30, 2016, respectively, and $3.8 and $11.5 for the three and nine months ended June 30, 2015, respectively. Estimated amortization expense for amortizable intangible assets for the remainder of fiscal 2016 and the fiscal years ending September 30, 2017, 2018, 2019, 2020 and 2021 is approximately $3.5, $14.1, $6.7, $5.4, $4.7 and $4.2, respectively, and $37.3 thereafter.
The Company had indefinite-lived intangible assets of $1,319.0 ($264.2 in Wet Shave, $491.4 in Sun and Skin Care, $299.9 in Feminine Care and $263.5 in All Other) at June 30, 2016, a decrease of $0.5 from September 30, 2015, due to changes in foreign currency translation rates.
Goodwill and intangible assets deemed to have an indefinite life are not amortized, but reviewed annually during the fourth fiscal quarter for impairment of value or when indicators of a potential impairment are present. The Company continuously monitors changing business conditions, which may indicate that the remaining useful life of goodwill and other intangible assets may warrant revision or carrying amounts may require adjustment. During fiscal 2015, the Company recorded impairment charges of $318.2 on its Playtex®, Wet Ones® and Skintimate® brand names. Given that the carrying value of these brand names has been reduced to their determined fair value, these intangible assets will be sensitive in the future to changes in forecasted cash flows, as well as other assumptions used in an impairment analysis, including discount rates. The Company is currently in the process of performing the annual impairment testing and expects to complete the process during the fourth quarter of fiscal 2016.


13



Note 7 - Supplemental Balance Sheet Information

 
June 30,
2016
 
September 30,
2015
Inventories
 
 
 
Raw materials and supplies
$
48.4

 
$
57.8

Work in process
49.9

 
50.1

Finished products
235.3

 
224.9

Total inventories
$
333.6

 
$
332.8

Other Current Assets
 
 
 
Miscellaneous receivables
$
46.7

 
$
53.8

Deferred income tax benefits

 
85.1

Prepaid expenses
70.2

 
56.9

Value added tax collectible from customers
24.3

 
19.9

Income taxes receivable
29.2

 
80.8

Other
4.2

 
15.4

Total other current assets
$
174.6

 
$
311.9

Property, Plant and Equipment
 
 
 
Land
$
27.8

 
$
27.7

Buildings
143.9

 
131.1

Machinery and equipment
879.3

 
848.4

Construction in progress
57.5

 
54.3

Total gross property
1,108.5

 
1,061.5

Accumulated depreciation
(633.2
)
 
(585.4
)
Total property, plant and equipment, net
$
475.3

 
$
476.1

Other Current Liabilities
 
 
 
Accrued advertising, sales promotion and allowances
$
64.5

 
$
74.5

Accrued trade allowances
28.1

 
45.3

Accrued salaries, vacations and incentive compensation
48.0

 
46.8

Income taxes payable
23.0

 
25.3

Returns reserve
48.0

 
50.3

Restructuring reserve
26.0

 
24.8

Value added tax payable
36.6

 
21.9

Deferred compensation
29.9

 

Other
93.7

 
123.5

Total other current liabilities
$
397.8

 
$
412.4

Other Liabilities
 
 
 
Pensions and other retirement benefits
$
128.3

 
$
242.7

Deferred compensation
57.1

 
90.6

Other non-current liabilities
60.9

 
87.7

Total other liabilities
$
246.3

 
$
421.0




14



Note 8 - Debt
The detail of long-term debt was as follows:
 
June 30,
2016
 
September 30,
2015
Senior Notes, fixed interest rate of 4.7%, due 2021
$
600.0

 
$
600.0

Senior Notes, fixed interest rate of 4.7%, due 2022, net of discount (1)
499.2

 
499.1

U.S. revolving credit facility due 2020
295.0

 
335.0

Netherlands revolving credit facility due 2017
278.5

 
269.9

Term loan due 2019
185.0

 

Total long-term debt, including current maturities
1,857.7

 
1,704.0

Less current portion
278.5

 

Total long-term debt
$
1,579.2

 
$
1,704.0

(1)
At June 30, 2016, balances for the Senior Notes due 2022 are reflected net of discount of approximately $0.8.

The Company had outstanding international borrowings, recorded in Notes payable, of $17.0 and $17.5 as of June 30, 2016 and September 30, 2015, respectively.

Credit Agreement Amendment
On April 26, 2016, the Company, along with its wholly-owned subsidiary, Edgewell Personal Care Brands, LLC, ("Brands"), and certain other of its subsidiaries entered into Amendment No. 2 to Credit Agreement (the "Amendment"), amending the Credit Agreement dated June 1, 2015, as amended (the "Credit Agreement"), by and among the Company, Brands, JPMorgan Chase Bank, N.A., as administrative agent, and the various lenders who are a party thereto.
The Amendment provides for an increase of $50.0 (from $600.0 to $650.0) in the revolving loans available to the Company and Brands pursuant to the Credit Agreement and the availability of a $185.0 term loan to Brands pursuant to the Credit Agreement. On April 26, 2016, Brands borrowed $185.0 in a term loan under the Credit Agreement. The term loan matures on the third anniversary of the date of the Amendment, and bears interest at an annual rate equal to LIBOR plus the applicable margin of 1.075% - 1.575% based on total leverage, or the Alternate Base Rate plus the applicable margin, which will be 1.0% lower than for LIBOR loans (as such terms are defined in the Credit Agreement). The proceeds of the term loan borrowing were used to pay down existing indebtedness.

Note 9 - Retirement Plans
The Company has several defined benefit pension plans covering employees in the U.S. and certain employees in other countries. The plans provide retirement benefits based on years of service and earnings.
The Company also sponsors or participates in a number of other non-U.S. pension and postretirement arrangements, including various retirement and termination benefit plans, some of which are required by local law or coordinated with government-sponsored plans, which are not significant in the aggregate and, therefore, are not included in the information presented below.
As part of the Separation, and in accordance with an employee matters agreement entered into with New Energizer, certain combined plans were split between Edgewell and New Energizer. Accordingly, the Company transferred to New Energizer pension obligations associated with their active, retired and other former employees for those impacted defined benefit pension plans. The allocation of plan assets was determined in accordance with applicable ERISA (The Employee Retirement Income Security Act of 1974), Internal Revenue Service and other jurisdictional requirements. In June 2016, the Company transferred the remaining international pension obligation to New Energizer, which had been pending jurisdictional approval. In connection with this transfer, the Company's pension liability decreased by approximately $10.6.
As of June 30, 2016, certain international defined benefit plans retained by Edgewell are unfunded. The Company funds its pension plans in compliance with ERISA or local funding requirements. The Company has evaluated the discretionary funding of certain international defined benefit plans and contributed approximately $100.5 to one of its plans during the three months ended March 31, 2016. Additionally, the Company remeasured the pension benefit obligation and unrecognized loss in accumulated other comprehensive income for the funded plan, using an updated discount rate of 2.40% as of January 31, 2016, increasing the liability and decreasing accumulated other comprehensive income by approximately $7.7.

15



The Company's net periodic pension benefit cost for these plans was as follows: 
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Service cost
$
1.3

 
$
2.2

 
$
3.9

 
$
6.6

Interest cost
5.6

 
12.0

 
16.7

 
36.0

Expected return on plan assets
(8.2
)
 
(17.6
)
 
(22.8
)
 
(53.0
)
Amortization of unrecognized prior service cost

 
0.1

 

 
0.2

Recognized net actuarial loss
1.1

 
2.4

 
3.1

 
7.2

Settlement charge

 
0.1

 

 
0.1

Net periodic benefit (credit) cost
(0.2
)
 
(0.8
)
 
0.9

 
(2.9
)
Net periodic benefit cost associated with New Energizer

 
(1.9
)
 

 
(5.9
)
Net periodic benefit (credit) cost included in continuing operations
$
(0.2
)
 
$
1.1

 
$
0.9

 
$
3.0


Note 10 - Shareholders' Equity
In May 2015, the Board approved an authorization to repurchase up to 10.0 shares of the Company's common stock. This authorization replaced a prior share repurchase authorization. During the nine months ended June 30, 2016, the Company repurchased 1.4 shares of its common stock for $114.5, all of which were purchased under this authorization. The Company has 6.5 shares remaining under the Board authorization to repurchase its common shares in the future. Future share repurchases, if any, would be made in the open market, privately negotiated transactions or otherwise, in such amounts and at such times as the Company deems appropriate based upon prevailing market conditions, business needs and other factors.
During the nine months ended June 30, 2016, 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 RSE awards.
On May 21, 2015, the Board declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of common stock of the Company. The Rights were issued on June 1, 2015 to the shareholders of record on such date, and accompanied each new share of common stock issued between that date and the date of the Separation. Each Right allowed the holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock which would have given the shareholder approximately the same dividend, voting and liquidation rights as would one share of the Company common stock. The Rights expired on December 31, 2015.
The Company did not declare or pay any dividends during the first three quarters of fiscal 2016. During each of the first, second and third quarters of fiscal 2015, the Company declared cash dividends of $31.1, or $0.50 per share.


16


Note 11 - Accumulated Other Comprehensive Loss
The following table presents the changes in accumulated other comprehensive loss ("AOCI"), net of tax, by component:
 
Foreign Currency Translation Adjustments
 
Pension and Post-retirement Activity
 
Hedging Activity
 
Total
Balance at October 1, 2015
$
(69.1
)
 
$
(105.7
)
 
$
3.3

 
$
(171.5
)
OCI before reclassifications (1)
(0.7
)
 
(4.6
)
 
(8.8
)
 
(14.1
)
Reclassifications to earnings

 
2.0

 
2.3

 
4.3

Balance at June 30, 2016
$
(69.8
)
 
$
(108.3
)
 
$
(3.2
)
 
$
(181.3
)
 
Foreign Currency Translation Adjustments
 
Pension and Post-retirement Activity
 
Hedging Activity
 
Total
Balance at October 1, 2014 (2)
$
(78.2
)
 
$
(202.8
)
 
$
9.9

 
$
(271.1
)
OCI before reclassifications (1)
(140.1
)
 
4.6

 
(17.8
)
 
(153.3
)
Venezuela deconsolidation charge
33.7

 

 

 
33.7

Reclassifications to earnings

 
4.4

 
16.8

 
21.2

Balance at June 30, 2015 (2)
$
(184.6
)
 
$
(193.8
)
 
$
8.9

 
$
(369.5
)
(1)
OCI is defined as Other comprehensive loss.
(2)
Includes balances related to New Energizer.

The following table presents the reclassifications out of AOCI:
 
 
For the Three Months Ended
June 30,
 
For the Nine Months Ended
June 30,
 
Affected Line Item in the Condensed Consolidated Statements of Earnings
Details of AOCI Components
 
2016
 
2015
 
2016
 
2015
 
Gains and losses on cash flow hedges
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
$
(1.4
)
 
$
9.5

 
$
3.2

 
$
24.0

 
Other expense (income), net
 
 
(1.4
)
 
9.5

 
3.2

 
24.0

 
Total before tax
 
 
0.5

 
(2.9
)
 
(0.9
)
 
(7.2
)
 
Tax expense
 
 
$
(0.9
)
 
$
6.6

 
$
2.3

 
$
16.8

 
Net of tax
Amortization of defined benefit pension and postretirement items
 
 
 
 
 
 
 
 
 
 
Prior service costs
 
$

 
$

 
$

 
$

 
(1)
Actuarial losses
 
1.1

 
2.2

 
3.1

 
6.6

 
(1)
 
 
1.1

 
2.2

 
3.1

 
6.6

 
Total before tax
 
 
(0.4
)
 
(0.7
)
 
(1.1
)
 
(2.2
)
 
Tax expense
 
 
$
0.7

 
$
1.5

 
$
2.0

 
$
4.4

 
Net of tax
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
Venezuela deconsolidation charge
 
$

 
$

 
$

 
$
33.7

 
Venezuela deconsolidation charge
 
 
$

 
$

 
$

 
$
33.7

 
 
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
(0.2
)
 
$
8.1

 
$
4.3

 
$
54.9

 
Net of tax
(1)
These AOCI components are included in the computation of net periodic benefit cost (see Note 9 of Notes to Condensed Consolidated Financial Statements for further details).


17



Note 12 - Financial Instruments and Risk Management
At times, the Company enters into contractual arrangements (derivatives) to reduce its exposure to foreign currency and interest rate risks. The section below outlines the types of derivatives that existed at June 30, 2016 and September 30, 2015, as well as the Company's objectives and strategies for holding derivative instruments.

Foreign Currency Risk
A significant share of the Company's sales are tied to currencies other than the U.S. dollar, the Company's reporting currency. As such, a weakening of currencies relative to the U.S. dollar can have a negative impact to reported earnings. Conversely, strengthening of currencies relative to the U.S. dollar can improve reported results. The primary currencies to which the Company is exposed include the Euro, the Japanese Yen, the British Pound, the Canadian Dollar and the Australian Dollar.
Additionally, the Company's foreign subsidiaries enter into internal and external transactions that create non-functional currency balance sheet positions at the foreign subsidiary level. These exposures are generally the result of intercompany purchases, intercompany loans and, to a lesser extent, external purchases, and are revalued in the foreign subsidiary's local currency at the end of each period. Changes in the value of the non-functional currency balance sheet positions in relation to the foreign subsidiary's local currency results in an exchange gain or loss recorded in Other expense (income), net. The primary currency to which the Company's foreign subsidiaries are exposed is the U.S. dollar.

Interest Rate Risk
The Company has interest rate risk with respect to interest expense on variable rate debt. At June 30, 2016, the Company had $758.5 of variable rate debt outstanding, which consisted primarily of outstanding borrowings under the Company's revolving credit facilities in the U.S. and the Netherlands.
 
Cash Flow Hedges
At June 30, 2016, the Company maintained a cash flow hedging program related to foreign currency risk. These derivative instruments have a high correlation to the underlying exposure being hedged and have been deemed highly effective for accounting purposes in offsetting the associated risk.
The Company entered into a series of forward currency contracts to hedge cash flow uncertainty associated with currency fluctuations. These transactions are accounted for as cash flow hedges. The Company had an unrealized pre-tax loss of $5.3 at June 30, 2016 and a pre-tax gain of $4.6 at September 30, 2015 on these forward currency contracts accounted for as cash flow hedges included in Accumulated other comprehensive loss. Assuming foreign exchange rates versus the U.S. dollar remain at June 30, 2016 levels over the next twelve months, the majority of the pre-tax loss included in Accumulated other comprehensive loss at June 30, 2016 is expected to be included in Other expense (income), net. Contract maturities for these hedges extend into fiscal 2018. There were 69 open foreign currency contracts at June 30, 2016 with a total notional value of $146.3.
 
Derivatives not Designated in Hedging Relationships
The Company held a share option with a major financial institution to mitigate the impact of changes in certain of the Company's deferred compensation liabilities, which were tied to the Company's common share price. The contract matured in November 2014 and was subsequently not renewed. Period activity related to the share option is classified in the same category in the cash flow statement as the period activity associated with the Company's deferred compensation liability, which is cash flow from operations.
The Company entered into foreign currency derivative contracts which are not designated as cash flow hedges for accounting purposes to hedge balance sheet exposures. Any gains or losses on these contracts are expected to be offset by exchange gains or losses on the underlying exposures, thus they are not subject to significant market risk. The change in estimated fair value of the foreign currency contracts for the three and nine months ended June 30, 2016 resulted in losses of $6.5 and $10.8, respectively, and for the three and nine months ended June 30, 2015 resulted in income of $1.4 and $6.8, respectively, and was recorded in Other expense (income), net. There were five open foreign currency derivative contracts, which were not designated as cash flow hedges at June 30, 2016, with a total notional value of $114.6.

18



The following table provides estimated fair values and the amounts of gains and losses on derivative instruments classified as cash flow hedges:

 
At June 30,
2016
 
For the Three Months Ended
June 30, 2016
 
For the Nine Months Ended
June 30, 2016
Derivatives designated as Cash Flow Hedging Relationships
 
Estimated Fair Value, Liability
(1) (2)
 
Loss Recognized
in OCI (3)
 
Loss Reclassified From OCI into Income(Effective
Portion) (4) (5)
 
Loss Recognized
in OCI (3)
 
Gain Reclassified From OCI into Income(Effective
Portion) (4) (5)
Foreign currency contracts
 
$
(5.3
)
 
$
(2.2
)
 
$
(1.4
)
 
$
(6.7
)
 
$
3.2

 
 
 
 
 
 
 
 
 
 
 
 
 
At September 30,
2015
 
For the Three Months Ended
June 30, 2015
 
For the Nine Months Ended
June 30, 2015
Derivatives designated as Cash Flow Hedging Relationships
 
Estimated Fair Value, Asset
(1) (2)
 
Loss Recognized
in OCI
(3)
 
Gain Reclassified From OCI into Income(Effective
Portion)
(4) (5)
 
Gain Recognized
in OCI (3)
 
Gain Reclassified From OCI into Income(Effective
Portion) (4) (5)
Foreign currency contracts
 
$
4.6

 
$
(4.6
)
 
$
9.5

 
$
22.3

 
$
24.0

(1)
All derivative assets are presented in Other current assets or Other assets.
(2)
All derivative liabilities are presented in Other current liabilities or Other liabilities.
(3)
OCI is defined as Other comprehensive loss.
(4)
(Loss) gain reclassified to income was recorded in Other expense (income), net.
(5)
Each of these derivative instruments had a high correlation to the underlying exposure being hedged for the periods indicated and had been deemed highly effective in offsetting associated risk.

The following table provides estimated fair values and the amounts of gains and losses on derivative instruments not classified as cash flow hedges:
 
 
At June 30,
2016
 
For the Three Months Ended
June 30, 2016
 
For the Nine
Months Ended
June 30, 2016
Derivatives not designated as Cash Flow Hedging Relationships
 
Estimated Fair Value, Liability
 
Loss Recognized in Income (1)
 
Loss Recognized in Income (1)
Foreign currency contracts
 
$
(4.9
)
 
$
(6.5
)
 
$
(10.8
)
 
 
 
 
 
 
 
 
 
At September 30,
2015
 
For the Three Months Ended
June 30, 2015
 
For the Nine
Months Ended
June 30, 2015
Derivatives not designated as Cash Flow Hedging Relationships
 
Estimated Fair Value, Asset
 
Gain Recognized in Income (1)
 
Gain Recognized in Income (1)
Share option (2)
 
$

 
$

 
$
0.5

Foreign currency contracts
 
1.3

 
1.4

 
6.8

Total
 
$
1.3

 
$
1.4

 
$
7.3

(1)
Gain (loss) recognized in income was recorded as follows: share option in SG&A and foreign currency contracts in Other expense (income), net.
(2)
The Company held a share option with a major financial institution, which matured in November 2014 and was subsequently not renewed.


19



The following table provides financial assets and liabilities as required by applicable accounting guidance for balance sheet offsetting:
Offsetting of derivative assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2016
 
At September 30, 2015
Description
 
Balance Sheet location
 
Gross amounts of recognized assets
 
Gross amounts offset in the Balance Sheet
 
Net amounts of assets presented in the Balance Sheet
 
Gross amounts of recognized assets
 
Gross amounts offset in the Balance Sheet
 
Net amounts of assets presented in the Balance Sheet
Foreign Currency Contracts
 
Other Current Assets, Other Assets
 
$
2.2

 
$

 
$
2.2

 
$
6.6

 
$
(0.5
)
 
$
6.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Offsetting of derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2016
 
At September 30, 2015
Description
 
Balance Sheet location
 
Gross amounts of recognized liabilities
 
Gross amounts offset in the Balance Sheet
 
Net amounts of liabilities presented in the Balance Sheet
 
Gross amounts of recognized liabilities
 
Gross amounts offset in the Balance Sheet
 
Net amounts of liabilities presented in the Balance Sheet
Foreign Currency Contracts
 
Other Current Liabilities, Other Liabilities
 
$
(12.7
)
 
$
0.3

 
$
(12.4
)
 
$
(0.2
)
 
$

 
$
(0.2
)

Fair Value Hierarchy
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs reflecting the reporting entity's own assumptions or external inputs from inactive markets.

Under the fair value accounting guidance hierarchy, an entity is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The following table sets forth the Company's financial assets and liabilities, which are carried at fair value that are measured on a recurring basis during the period, segregated by level within the fair value hierarchy:
 
Level 2
 
June 30,
2016
 
September 30,
2015
Assets (Liabilities) at estimated fair value:
 
 
 
Deferred compensation
$
(86.3
)
 
$
(90.0
)
Derivatives - foreign currency contracts
(10.2
)
 
5.9

Net liabilities at estimated fair value
$
(96.5
)
 
$
(84.1
)

At June 30, 2016 and September 30, 2015, the Company had no level 1 or level 3 financial assets or liabilities, other than pension plan assets.
At June 30, 2016 and September 30, 2015, the fair market value of fixed rate long-term debt was $1,076.6 and $1,059.8, respectively, compared to its carrying value of $1,099.2 and $1,099.1, respectively. The estimated fair value of the long-term debt is estimated using yields obtained from independent pricing sources for similar types of borrowing arrangements. The estimated fair value of fixed rate long-term debt has been determined based on level 2 inputs.

20



Due to the nature of cash and cash equivalents and short-term borrowings, including notes payable, carrying amounts on the balance sheets approximate fair value. The estimated fair value of cash and cash equivalents and short-term borrowings have been determined based on level 2 inputs.
At June 30, 2016, the estimated fair value of foreign currency contracts is the amount that the Company would receive or pay to terminate the contracts, considering first the quoted market prices of comparable agreements or, in the absence of quoted market prices, factors such as interest rates, currency exchange rates and remaining maturities. The estimated fair value of the deferred compensation liability is determined based upon the quoted market prices of the investment options that are offered under the plan.

Note 13 - Commitments and Contingencies
The Company and its affiliates are subject to a number of legal proceedings in various jurisdictions arising out of its 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. The Company reviews its 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. The Company establishes 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. The Company does not record liabilities when the likelihood that the liability has been incurred is probable, if the amount cannot be reasonably estimated. Based upon present information, the Company believes 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 the Company's financial position, results of operations or cash flows, taking into account established accruals for estimated liabilities.

Note 14 - Segment Data
The Company conducts its business in the following four segments:
Wet Shave consists of products sold under the Schick®, Wilkinson Sword®, Edge®, Skintimate®, Shave Guard and Personna® brands, as well as non-branded products. The Company's wet shave products include razor handles and refillable blades, disposable shave products and shaving gels and creams.
Sun and Skin Care consists of Banana Boat® and Hawaiian Tropic® sun care products, as well as Wet Ones® hand and face wipes and Playtex® household gloves.
Feminine Care includes tampons, pads and liners sold under the Playtex®, Stayfree®, Carefree® and o.b.® brands, as well as personal cleansing wipes under the Playtex® brand.
All Other includes infant care products, such as bottles, cups and pacifiers, under the Playtex®, OrthoPro® and Binky® brand names, as well as the Diaper Genie® and Litter Genie® disposal systems.

Segment performance is evaluated based on segment profit, exclusive of general corporate expenses, share-based compensation costs, costs associated with most restructuring initiatives (including the Spin restructuring and the 2013 Restructuring), the Venezuela deconsolidation charge, Industrial sale charges, Cost of early debt retirements and the amortization of intangible assets. Financial items, such as interest income and expense, are managed on a global basis at the corporate level. The exclusion of such charges from segment results reflects management's view on how it evaluates segment performance.
The Company's operating model includes some shared business functions across the segments, including product warehousing and distribution, transaction processing functions, and in most cases a combined sales force and management teams. The Company applies a fully allocated cost basis, in which shared business functions are allocated between the segments. Such allocations are estimates, and do not represent the costs of such services if performed on a stand-alone basis.
Prior periods have been recast to reflect the Company's current segment reporting.

21



Segment net sales and profitability are presented below:
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Net Sales
 
 
 
 
 
 
 
Wet Shave
$
364.6

 
$
369.3

 
$
1,034.3

 
$
1,082.9

Sun and Skin Care
151.3

 
153.3

 
337.3

 
337.8

Feminine Care
97.1

 
104.1

 
281.2

 
301.5

All Other
32.1

 
46.2

 
98.6

 
138.9

Total net sales
$
645.1

 
$
672.9

 
$
1,751.4

 
$
1,861.1

 
 
 
 
 
 
 
 
Segment Profit
 
 
 
 
 
 
 
Wet Shave
$
45.5

 
$
56.4

 
$
190.0

 
$
246.7

Sun and Skin Care
34.3

 
25.8

 
75.2

 
66.8

Feminine Care
7.4

 
7.9

 
35.5

 
44.0

All Other
6.1

 
5.2

 
21.3

 
19.1

Total segment profit
93.3

 
95.3

 
322.0

 
376.6

 
 
 
 
 
 
 
 
General corporate and other expenses
(20.5
)
 
(36.6
)
 
(58.5
)
 
(106.6
)
Venezuela deconsolidation charge

 

 

 
(79.3
)
Spin costs (1)
(2.8
)
 
(55.7
)
 
(12.0
)
 
(111.7
)
Spin restructuring charges

 
(4.3
)
 

 
(28.3
)
2013 Restructuring and related costs (2)
(5.8
)
 
(4.9
)
 
(29.4
)
 
(20.7
)
Industrial sale charges

 
(21.9
)
 
(0.2
)
 
(21.9
)
Amortization of intangibles
(3.6
)
 
(3.8
)
 
(10.8
)
 
(11.5
)
Cost of early debt retirements

 
(59.6
)
 

 
(59.6
)
Interest and other expense, net
(26.5
)
 
(20.9
)
 
(55.0
)
 
(75.1
)
Total earnings (loss) before income taxes
$
34.1

 
$
(112.4
)
 
$
156.1

 
$
(138.1
)
(1)
Includes pre-tax SG&A of $2.8 and $11.8 for the three and nine months ended June 30, 2016, respectively, and $52.4 and $107.7 for the three and nine months ended June 30, 2015, respectively, and pre-tax Cost of products sold of $0.2 for the nine months ended June 30, 2016 and $3.3 and $4.0 for the three and nine months ended June 30, 2015, respectively.
(2)
Includes pre-tax Cost of products sold of $0.1 for the nine months ended June 30, 2016 associated with obsolescence charges related to the exit of certain non-core product lines as part of the restructuring. Also includes $0.3 pre-tax SG&A costs associated with certain information technology and related activities during the three and nine months ended June 30, 2015. These non-core inventory obsolescence charges and information technology costs are considered part of the total project costs incurred for the restructuring project.

Supplemental product information is presented below for net sales:
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Razors and blades
$
323.7

 
$
325.9

 
$
913.5

 
$
962.3

Tampons, pads and liners
97.1

 
104.1

 
281.2