EDGEWELL PERSONAL CARE Co: Form 10-Q for the period ended Mar 31, 2023

(Amounts in millions, except per share data, unaudited)

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and the accompanying notes included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the SEC on November 16, 2022 (the “2022 Annual Report”). 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 within “Forward-Looking Statements” below and in Item 1A. Risk Factors and “Forward-Looking Statements” included within our 2022 Annual Report.

Forward-Looking Statements

This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of Edgewell Personal Care Company or any of our businesses (the “Company”). Forward-looking statements generally can be identified by the use of words or phrases such as “believe,” “expect,” “expectation,” “anticipate,” “may,” “could,” “intend,” “estimate,” “plan,” “target,” “predict,” “likely,” “will,” “should,” “forecast,” “outlook,” “strategy,” or other similar words or phrases. These statements are not based on historical facts, but instead reflect our expectations, estimates or projections concerning future results or events, including, without limitation, the future earnings and performance of Edgewell Personal Care Company or any of our businesses. Many factors outside our control could affect the realization of these estimates. These statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or projections will be achieved. The forward-looking statements included in this report are only made as of the date of this report, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, except as required by law. You should not place undue reliance on these statements.

In addition, other risks and uncertainties not presently known to us or that we presently consider immaterial could significantly affect the forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Risks and uncertainties include those detailed from time to time in our publicly filed documents, including in Item 1A. Risk Factors of Part I of our 2022 Annual Report.

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 costs, acquisition and integration costs, and other non-standard items. Reconciliations of non-GAAP measures are included within this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. We use this non-GAAP information internally to make operating decisions and believe it is helpful to investors because it allows more meaningful period-to-period comparisons of ongoing operating results. Given certain significant events, including the acquisition of Billie, Inc. (“Billie”) (the “Acquisition”) on November 29, 2021, we view the use of non-GAAP measures that take into account the impact of these unique events as particularly valuable in understanding our underlying operational results and providing insights into future performance. The information can also be used to perform trend analysis and to better identify operating trends that may otherwise be masked or distorted by the types of items that are excluded. This non-GAAP information is also a component in determining management’s incentive compensation. Finally, we believe this information provides more transparency.

The following provides additional detail on our non-GAAP measures for the periods presented:

• We analyze net sales and segment profit on an organic basis to better measure the comparability of results between periods. Organic net sales and organic segment profit exclude the impact of changes in foreign currency translation and the impact of acquisitions.
• Organic net sales will be unfavorably impacted in October and November of fiscal 2023 by the Billie acquisition as sales that were previously reported as third party sales to Billie are now included as inter-company sales.
• Segment profit will be impacted by fluctuations in translation and transactional foreign currency. The impact of currency was applied to segments using management’s best estimate.
• Additionally, we utilize “adjusted” non-GAAP measures including adjusted gross profit, adjusted selling general administrative (“SG&A”), adjusted operating income, adjusted income taxes, adjusted net earnings, and adjusted diluted earnings per share internally to make operating decisions. The following items are excluded when analyzing non-GAAP measures: restructuring and related costs, acquisition and integration costs, Sun Care reformulation charges, value-added tax (“VAT”) settlement costs, loss on defined benefit settlement and other costs.

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

Industry and Market Data

Unless we indicate otherwise, we base the information contained or incorporated by reference herein, concerning our industry on our general knowledge and expectations. Our market position, market share, and industry market size are estimates based on internal and external data from various industry analyses, our internal research and adjustments, and assumptions that we believe to be reasonable. We have not independently verified data from industry analyses and cannot guarantee its accuracy or completeness. In addition, we believe that industry, market size, market position and market share data within our industry provides general guidance but is inherently imprecise and has not been verified by any independent source. Further, our estimates and assumptions involve risks and uncertainties and are subject to change based on various factors, including those discussed in Item 1A. Risk Factors in Part I of our 2022 Annual Report. These and other factors could cause results to differ materially from those expressed in the estimates and assumptions. You are cautioned not to place undue reliance on this data.

Retail sales for purposes of market size, market position and market share information are based on retail sales in U.S. dollars.

Trademarks and Trade Names

We own or have rights to use trademarks and trade names that we use in conjunction with the operation of our business, which appear throughout this Quarterly Report on Form 10-Q. We may also refer to brand names, trademarks, service marks and trade names of other companies and organizations, which are the property of their respective owners.

Impact of the COVID-19 Pandemic

Throughout the novel coronavirus 2019 (“COVID-19”) pandemic, we have taken and continue to take significant measures to protect our employees and businesses, while remaining in compliance with local, state and national guidelines.

To date, we have not experienced any material operational disruptions across our manufacturing or distribution facilities. However, due to the uncertainty resulting from COVID-19, the impact and timing of additional unforeseen disruptions cannot be reasonably estimated at this time.

We will continue to monitor for any future material developments regarding COVD-19, if any, and related responses of local, state and national governments and our consumers suppliers and employees.

Significant Events

Acquisitions

On November 29, 2021, we completed the Acquisition, for a purchase price of $309.4, net of cash acquired, utilizing a combination of cash on hand and by drawing on that certain U.S. revolving credit facility due 2025 between the Company and Bank of America, N.A., as administrative agent, and lenders parties thereto (the “Revolving Credit Facility”). As a result, Billie became a wholly owned subsidiary of the Company. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for further discussion.

Executive Summary

The following is a summary of key results for the second quarter and first six months of fiscal 2023, as compared to the corresponding periods in fiscal 2022. Net earnings and earnings per share (“EPS”) for the periods presented were impacted by restructuring and related costs, acquisition and integration costs, Sun Care reformulation costs, VAT settlement costs, loss on defined benefit settlement and other costs, as described in the table below. The impact of these items on reported net earnings and EPS are provided as a reconciliation of net earnings and EPS to adjusted net earnings and adjusted diluted EPS, both of which are non-GAAP measures.

Second Quarter of Fiscal 2023

• Net sales in the second quarter of fiscal 2023 increased 9.3% as compared to the prior year quarter to $598.4. Organic net sales increased 11.4% compared to the prior year quarter, with growth in all segments and major geographic regions, as international markets increased 13.2 % and North America markets increased 10.5%. In aggregate, growth in organic net sales was driven largely in equal parts by increased pricing and volumes.
• Net earnings in the second quarter of fiscal 2023 were $19.0 compared to $23.2 in the prior year quarter. On an adjusted basis, net earnings for the second quarter of fiscal 2023 were $29.0 compared to $27.0 in the prior year quarter. Adjusted net earnings increased primarily due to higher sales and gross profit.
• Net earnings per diluted share during the second quarter of fiscal 2023 were $0.37 compared to $0.43 in the prior year quarter. On an adjusted basis, net earnings per diluted share during the second quarter of fiscal 2023 were $0.56 compared to $0.50 in the prior year quarter.

(1) EBIT is defined as Earnings before Income taxes.

First Six Months of Fiscal 2023

• Net sales for the first six months of fiscal 2023 increased 5.6% to $1,067.5. Organic net sales increased 7.6% compared to the prior year period, with strong Sun Care and Grooming sales globally, and strong sales in North America for Men’s Shave and Feminine Care.
• Net earnings for the first six months of fiscal 2023 were $30.9 compared to $34.4 in the prior year period. On an adjusted basis, net earnings for the first six months of fiscal 2023 were $45.0 compared to $50.2 in the prior year period. Adjusted net earnings declined despite higher net sales, due the impact of higher input costs, foreign currency and interest costs.
• Net earnings per diluted share during the first six months of fiscal 2023 were $0.60 compared to $0.63 in the prior year period. On an adjusted basis, net earnings per diluted share during the first six months of fiscal 2023 were $0.87 compared to $0.92 in the prior year period.

(1) EBIT is defined as Earnings before Income taxes.

Operating Results

The following table presents changes in net sales for the second quarter and first six months of fiscal 2023, as compared to the corresponding periods in fiscal 2022, and provides a reconciliation of organic net sales to reported amounts.

Net Sales

For the second quarter of fiscal 2023, net sales were $598.4, an increase of 9.3%, including a $11.8, or 2.1% unfavorable impact from currency movements. Organic net sales increased 11.4%, with growth in all segments and major geographic regions, as international markets increased 13.2% and North America markets increased 10.5%.In aggregate, growth in organic net sales was driven largely in equal parts by increased pricing and volumes.

For the first six months of fiscal 2023, net sales were $1,067.5, an increase of 5.6%, including a $12.0, or 1.2% increase from the Acquisition and a $32.0 or 3.2% decrease due to unfavorable impact from currency movements. Organic net sales increased 7.6% driven by favorable pricing and volumes for Sun Care and Feminine Care and favorable pricing for Wet Shave.

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

Gross Profit

Gross profit was $241.7 during the second quarter of fiscal 2023, including a $10.6 unfavorable impact from currency movements, compared to $230.1 in the prior year quarter. Gross margin as a percent of net sales for the second quarter of fiscal 2023 was 40.4% compared to 42.0% in the prior year quarter. Adjusted gross margin percentage decreased 170-basis points as gross inflationary pressures of approximately 550-basis points was mostly offset by approximately 220-basis points of productivity savings and a 285-basis points benefit from higher pricing and promotion management.

Gross profit was $430.7 during the first six months of fiscal 2023, compared to $420.0 in the prior year period. Gross margin as a percent of net sales for the first six months of fiscal 2023 was 40.3% compared to 41.5% in the prior year period. Adjusted gross margin percentage decreased by 160-basis points, driven by higher commodity costs and the impact of inflation, and was partially offset by productivity savings and the benefits from higher pricing and promotion management.

Selling, General and Administrative Expense

SG&A was $105.2 in the second quarter of fiscal 2023, or 17.6% of net sales, compared to $101.3 in the prior year quarter, or 18.5% of net sales. Adjusted SG&A as a percent of net sales was 17.2%, a decrease of 110-basis points, as improved leverage, the benefits of operational efficiency programs and favorable impact from currency movements more than offset the impact of higher people costs and travel expense.

SG&A was $200.9 in the first six months of fiscal 2023, or 18.8% of net sales, compared to $198.2 in the prior year period, or 19.6% of net sales. Adjusted SG&A as a percent of net sales was 18.4%, a decline of 20-basis points, as the benefits of operational efficiency programs and favorable impact from currency movements more than offset the impact of higher people costs and additional costs associated with the Acquisition, including amortization expense.

Advertising and Sales Promotion Expense

For the second quarter of fiscal 2023, advertising and promotion expense (“A&P”) was $62.9, a decrease of $7.0 compared to $69.9 in the prior year quarter. A&P as a percent of net sales was 10.5%, as compared to 12.8% in the prior year quarter, primarily due to timing of brand investments and marketing campaigns.

For the first six months of fiscal 2023, A&P was $108.8, a decrease of $7.3, compared to the prior year period. A&P as a percent of net sales was 10.2%, compared to 11.5% in the prior year period. The decrease in A&P was primarily due to lower media spend and agency fees offset by higher investment in Wet Shave.

Research and Development Expense

Research and development expense (“R&D”) for the second quarter of fiscal 2023 was $14.4, compared to $13.7 in the prior year quarter. As a percent of net sales, R&D was 2.4% in the second quarter of fiscal 2023 compared to 2.5% in the prior year quarter. R&D for the first six months of fiscal 2023 was $27.8, compared to $26.5 in the prior year period. As a percent of net sales, R&D was 2.6% in the first six months of fiscal 2023 as well as 2.6% in the prior year period.

Interest Expense Associated with Debt

Interest expense associated with debt for the second quarter of fiscal 2023 was $20.7, compared to $18.0 in the prior year quarter. For the first six months of fiscal 2023, interest expense was $40.6 compared to $35.3 in the prior year period. The increase in interest expense was the result of higher interest rates and a higher overall debt balance on the Company’s Revolving Credit Facility.

Other expense (income), net

Other expense (income), net was $9.5 of expense in the second quarter of fiscal 2023, compared to $3.4 of income in the prior year quarter. Other expense (income), net was $4.5 of expense during the first six months of fiscal 2023, compared to $5.1 of income during the prior year period. The second quarter and first six months of 2023 include the loss on the settlement of the Canadian Plan of $7.2.

Income Tax Provision

The effective tax rate for the three and six months ended March 31, 2023 was 26.9% and 27.0%, respectively, compared to 14.4% and 20.5% in the prior year period. The fiscal 2023 effective tax rate reflects the unfavorable mix of earnings in higher tax rate jurisdictions. On an adjusted basis, the effective tax rate was 26.5% and 26.6% for the three and six months ended March 31, 2023 and 16.0% and 20.5% for the three and six months ended March 31, 2022, respectively.

Operating Model Redesign

In fiscal 2023, the Company is continuing to strengthen its operating model, simplify the organization and improve manufacturing and supply chain efficiency. As a result of these actions, we expect to incur charges of approximately $19 in fiscal 2023. We incurred $3.2 and $6.0 during the second quarter and first six months of fiscal 2023, respectively, primarily related to employee severance and benefit costs.

Segment Results

The following tables present changes in segment net sales and segment profit for the second quarter and first six months of fiscal 2023, compared to the corresponding periods in fiscal 2022, and provide a reconciliation of organic segment net sales and organic segment profit to reported amounts. For a reconciliation of segment profit to Earnings before income taxes, refer to Note 15 of Notes to Condensed Consolidated Financial Statements.

Our operating model includes some shared business functions across 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 segments.

Wet Shave

Wet Shave net sales for the second quarter of fiscal 2023 increased $3.6, or 1.2%. Organic net sales increased $14.0, or 4.6%, primarily driven by balanced growth in both North America and international markets, driven largely by increased pricing, as volumes were essentially flat. Growth in Men’s Systems, Disposable’s and Shave Preps was partly offset by declines in Women’s Systems in North America.

Wet Shave net sales for the first six months of fiscal 2023 decreased $7.2, or 1.4% as compared to the prior year period. Organic net sales increase of $8.3, million was primarily driven by growth in International Women’s systems. Organic growth was more than offset by the unfavorable impact of currency movements.

Wet Shave segment profit for the second quarter of fiscal 2023 was $35.1, an increase of $7.5, or 27.1%. The increase in segment profit was reflective of higher organic net sales and gross profit as well as lower marketing expense.

Wet Shave segment profit for the first six months of fiscal 2023 was $70.5, a decrease of $8.6, or 10.9%. Organic segment profit increased $6.4, or 8.1%, primarily driven by growth in both North American and International markets.

Sun and Skin Care

Sun and Skin Care net sales for the second quarter of fiscal 2023 increased $26.4, or 14.4%. Organic net sales increased $27.5, or 15.0% driven by strong Sun Care and Men’s Grooming sales. International organic net sales increased 53.4%, driven by higher volumes and pricing in Europe, Latin America and Oceania, while North America organic net sales increased 7.6%, also reflecting higher volumes and pricing.

Sun and Skin Care net sales for the first six months of fiscal 2023 increased $34.5, or 12.0%. Organic net sales increased $38.5, or 13.4%. Organic net sales increases due to favorable price and volumes for Sun Care globally and favorable price and mix in Men’s grooming in North America.

Segment profit for the second quarter of fiscal 2023 was $39.9, a decrease of $2.4, or 5.6%. Organic segment profit decreased $2.3, or 5.4%, driven primarily by higher input costs and increased marketing expense.

Segment profit for the first six months of fiscal 2023 was $53.0, an increase of $7.0, or 15.2%. Organic segment profit increased $7.7, or 16.7%, driven primarily by higher sales volumes and pricing, partially offset by higher A&P expense and mix.

Feminine Care

Feminine Care net sales for the second quarter of fiscal 2023 increased $20.7, or 34.9%. Organic net sales increased $21.0, or 35.4%. Organic net sales increase was driven by higher pricing and improved product availability.

Feminine Care net sales for the first six months of fiscal 2023 increased $29.2, or 22.1%. Organic net sales increased $29.7, or 22.5%. The increase in organic net sales was primarily driven by higher pricing and improved product availability.

Feminine Care segment profit for the second quarter of fiscal 2023 was $12.0, an increase of $10.1, or 531.7%. Organic segment profit increased $10.4 or 547.5%, largely driven by higher organic net sales and gross profit.

Feminine Care segment profit for the first six months of fiscal 2023 was $23.8 an increase of $13.5, or 131.1%. Organic segment profit increased $14.2 or 137.9%, primarily due to increased sales volumes and favorable pricing.

General Corporate and Other Expenses

For the second quarter of fiscal 2023, corporate expenses were $17.0, or 2.8% of net sales, compared to $17.2, or 3.1% of net sales. For the first six months of fiscal 2023, corporate expenses were $32.9, or 3.1% of net sales, compared to $28.0, or 2.8% of net sales. For the first six months of fiscal 2023, the increase in corporate expense was primarily due to higher people costs.

Liquidity and Capital Resources

As of March 31, 2023, a portion of our cash balances was located outside the U.S. Given our extensive international operations, a significant portion of our cash is denominated in foreign currencies. Refer to Note 14 of Notes to Condensed Consolidated Financial Statements for a discussion of the primary currencies to which the Company is exposed. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct business and the cost effectiveness with which those funds can be accessed. We generally repatriate a portion of current year earnings from select non-U.S. subsidiaries only if the economic cost of the repatriation is not considered material.

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

Our total borrowings were $1,447.5 as of March 31, 2023, including $195.2 tied to variable interest rates. Our total borrowings as of September 30, 2022 were $1,424.0. We had outstanding borrowings of $176.0 under the Revolving Credit Facility as of March 31, 2023. Taking into account outstanding letters of credit of $5.9, as of March 31, 2023, $243.1 was available under the Revolving Credit Facility. Additionally, we had other short term borrowings, of $21.5 and $19.0 as of March 31, 2023 and September 30, 2022, respectively, related to our international subsidiaries, of which $19.2 and $19.0 were variable-rate borrowings and recorded in Notes Payable.

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

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

To date, the COVID-19 pandemic has not had a significant impact on our liquidity or capital resources. However, the COVID-19 pandemic has led to disruption and volatility in the global capital markets which could impact our capital resources and liquidity in the future. For further information, please refer to Item 1A. Risk Factors in Part I of our 2022 Annual Report.

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

As of March 31, 2023, we were in compliance with the provisions and covenants associated with our debt agreements.

Cash Flows

A summary of our cash flow activities is provided in the following table:

Operating Activities

Cash flow from operating activities was $1.9 during the first six months of fiscal 2023, compared to cash used of $39.9 during the prior year period. The increase in cash flows versus the same period in the prior year was driven by a lower net working capital requirements.

Investing Activities

Net cash used by investing activities was $20.0 during the first six months of fiscal 2023, compared to $325.7 used during the prior year period. Capital expenditures were $18.8 during the first six months of fiscal 2023, compared to $25.0 in the prior year period. We completed the Acquisition for $309.4, net of cash acquired, in the prior year period. Additionally, we collected $5.0 of proceeds from the sale of the Infant and Pet Care business in the prior year period.

Financing Activities

Net cash (used by) from financing activities was ($29.0) during the first six months of fiscal 2023, compared to a source of $78.3 in the prior year period. During the first six months of fiscal 2023, we had net borrowings of $21.0 under the Revolving Credit Facility, compared to $179.0 in the prior year period. We repurchased $30.0 of our common stock under our 2018 Board authorization to repurchase our common stock (the “Repurchase Plan”) compared to $75.4 in the prior year period. Dividend payments totaled $16.1 in the first six months of fiscal 2023, compared to $16.7 in the prior year period. We had financing outflows for employee equity awards held for taxes totaling $8.1 in the first six months of fiscal 2023, compared to $9.7 in the prior year period.

Share Repurchases

During the first six months of fiscal 2023, we repurchased 0.8 shares of our common stock for $30.0. We have 5.7 shares remaining under the Repurchase Plan as of March 31, 2023. 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 we deem appropriate based upon prevailing market conditions, business needs and other factors.

Dividends

On November 3, 2022, the Board declared a quarterly cash dividend of $0.15 per common share for the fourth fiscal quarter of 2022. The dividend was paid on January 4, 2023 to shareholders of record as of the close of business on November 29, 2022.

On February 3, 2023, the Board declared a quarterly cash dividend of $0.15 per common share for the first fiscal quarter of 2023. The dividend was paid on April 5, 2023 to stockholders of record as of the close of business on March 8, 2023.

On May 8, 2023, the Board declared a quarterly cash dividend of $0.15 per common share for the second fiscal quarter of 2023. The dividend will be payable on July 6, 2023 to stockholders of record as of the close of business on June 7, 2023.

Dividends declared during the six months ended March 31, 2023 totaled $16.2. Payments made for dividends during the six months ended March 31, 2022 totaled $16.1.

Commitments and Contingencies

Contractual Obligations

As of March 31, 2023, we had outstanding borrowings of $176.0 under the Revolving Credit Facility. As of March 31, 2023, future minimum repayments of debt were: $176.0 in fiscal 2025, $750.0 in fiscal 2028 and $500.0 in fiscal 2029.

There have been no other material changes in our contractual obligations since the presentation in our 2022 Annual Report.

Critical Accounting Policies

Our critical accounting policies and estimates are fully described in our 2022 Annual Report. The preparation of these financial statements requires us to make estimates and assumptions. These estimates and assumptions can be subjective and complex, and consequently, actual results could differ from those estimates. There have been no significant changes to our critical accounting policies and estimates since September 30, 2022.

(Amounts in millions)

The market risk inherent in our financial instruments and positions represents the potential loss arising from adverse changes in currency rates, commodity prices, and interest rates. At times, we enter into contractual arrangements (derivatives) to reduce these exposures. For further information on our foreign currency derivative instruments, refer to Note 14 of Notes to Condensed Consolidated Financial Statements. As of March 31, 2023, there were no open derivative or hedging instruments for future purchases of raw materials or commodities. Our exposure to interest rate risk relates primarily to our variable-rate debt instruments, which currently bear interest based on SOFR plus margin. As of March 31, 2023, our outstanding variable-rate debt included $195.2 related to our Revolving Credit Facility and international, variable-rate notes payable. Assuming a one-percent increase in the applicable interest rates, annual interest expense on these variable-rate debt instruments would increase approximately $2.0.

There have been no material changes in our assessment of market risk sensitivity since our presentation of Quantitative and Qualitative Disclosures About Market Risk in our 2022 Annual Report.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Exchange Act, is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2023. Based on that evaluation, our CEO and CFO concluded that, as of that date, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are likely to materially affect, our internal control over financial reporting.