EDGEWELL PERSONAL CARE Co: Form 10-Q for the period ended Jun 30, 2024

(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 28, 2023 (the “2023 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 2023 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 “Exchange Act”). 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 the 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 2023 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 which are considered by the Company as unusual or non-recurring, and which may have a disproportionate positive or negative impact on the Company’s financial results in any particular period. 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, 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.
• 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 margin, adjusted selling general and administrative (“SG&A”), adjusted operating income, adjusted effective tax rate, adjusted net earnings, and adjusted diluted net earnings per share internally to make operating decisions.

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 2023 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.

Executive Summary

The following is a summary of key results for the third quarter and the first nine months of fiscal 2024, as compared to the corresponding periods in fiscal 2023. In addition to net sales, net earnings and earnings per share (“EPS”) for the periods presented were also impacted by certain costs or income, 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.

Third Quarter of Fiscal 2024

• Net sales in the third quarter of fiscal 2024 decreased $2.2, or 0.3%, to $647.8, as compared to the prior year quarter. Organic net sales increased $4.0, or 0.6%, compared to the prior year quarter, as continued strong performance in International markets as well as growth in our Right to Win portfolio of Sun Care and Grooming were partly offset by declines in North America Wet Shave and Feminine Care. Overall, the increase in organic net sales was the result of a 6.1% increase in International markets which was partially offset by a 2.4% decline in North America. In aggregate, volume growth in International markets and increased pricing and revenue management globally more than offset the impact of lower volumes in North America.
• Net earnings in the third quarter of fiscal 2024 were $49.0 compared to $53.0 in the prior year quarter. On an adjusted basis, net earnings for the third quarter of fiscal 2024 were $61.2 compared to $51.3 in the prior year quarter. Adjusted net earnings increased primarily due to higher gross margin.
• Diluted net earnings per share during the third quarter of fiscal 2024 were $0.98 compared to $1.02 in the prior year quarter. On an adjusted basis, diluted net earnings per share during the third quarter of fiscal 2024 were $1.22 compared to $0.99 in the prior year quarter.

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

First Nine Months of Fiscal 2024

• Net sales for the first nine months of fiscal 2024 increased $18.6, or 1.1%, to $1,736.1. Organic net sales increased $19.0, or 1.1%, compared to the prior year period, as International markets increased 9.0%, and were partially offset by lower organic net sales in North America of 3.2%. In aggregate, organic net sales growth was driven by volume growth across International markets and global pricing and revenue management gains, partially offset by lower volume in North America.
• Net earnings for the first nine months of fiscal 2024 were $89.8 compared to $84.8 in the prior year period. On an adjusted basis, net earnings for the first nine months of fiscal 2024 were $117.2 compared to $97.2 in the prior year period. Adjusted net earnings increased primarily due to higher gross margin.
• Diluted net earnings per share during the first nine months of fiscal 2024 were $1.79 compared to $1.63 in the prior year period. On an adjusted basis, diluted net earnings per share during the first nine months of fiscal 2024 were $2.33 compared to $1.87 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 third quarter and first nine months of fiscal 2024, as compared to the corresponding periods in fiscal 2023, and provides a reconciliation of organic net sales to reported amounts.

Net Sales

For the third quarter of fiscal 2024, net sales were $647.8, a decrease of $2.2, or 0.3%, including a $6.2, or 0.9%, unfavorable impact from currency movements. Organic net sales increased $4.0, or 0.6%, as continued strong performance in International markets as well as growth in our Right to Win portfolio of Sun Care and Grooming were partly offset by declines in North America Wet Shave and Feminine Care. Overall, the increase in organic net sales was the result of a 6.1% increase in International markets, which was partially offset by a 2.4% decline in North America. In aggregate, increased pricing and revenue management more than offset the impact of lower volumes in North America.

For the first nine months of fiscal 2024, net sales were $1,736.1, an increase of $18.6, or 1.1%, including a $0.4 unfavorable impact from currency movements. Organic net sales increased $19.0, or 1.1%, as International markets increased 9.0%, which was partially offset by lower organic net sales in North America, which decreased 3.2%. In aggregate, organic net sales growth was driven by increased pricing and revenue management, partially offset by lower volume in North America.

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

Gross Profit

Gross profit was $287.1 during the third quarter of fiscal 2024, compared to $280.3 in the prior year quarter, an increase of $6.8, or 2.4%. Gross margin as a percent of net sales for the third quarter of fiscal 2024 increased 120-basis points, to 44.3% in the quarter. Adjusted gross margin as a percent of net sales increased 160-basis points, to 44.7% in the quarter. The adjusted gross margin increase was due to the productivity savings of approximately 225-basis points and the benefit of higher pricing and strategic revenue management of approximately 110-basis points more than offset core inflation and lower volume absorption of approximately 60-basis points, unfavorable mix and other of approximately 100-basis points and an unfavorable currency impact of approximately 15-basis points.

Gross profit was $742.9 during the first nine months of fiscal 2024, compared to $712.2 in the prior year period, an increase of $30.7, or 4.3%. Gross margin as a percent of net sales for the first nine months of fiscal 2024 increased 130-basis points, to 42.8%. Adjusted gross margin as a percent of net sales increased 180-basis points, to 43.3%. The adjusted gross margin increase was primarily due to productivity savings, the benefits of higher pricing and strategic revenue management as well as a favorable impact from currency, which more than offset lower volume absorption, unfavorable mix and other costs and core gross inflationary pressures.

Selling, General and Administrative Expense

SG&A was $110.1, or 17.0%, of net sales in the third quarter of fiscal 2024 compared to $96.3, or 14.8%, of net sales in the prior year quarter. Adjusted SG&A was 16.2% of net sales, an increase of 50-basis points, primarily driven by higher people expenses and legal costs, partially offset by operational efficiency savings, lower bad debt and favorable currency impacts.

SG&A was $320.9, or 18.5%, of net sales in the first nine months of fiscal 2024 compared to $297.2, or 17.3%, of net sales in the prior year period. Adjusted SG&A was 18.0% of net sales, an increase of 60-basis points, primarily driven by higher people expenses, partially offset by operational efficiency savings, lower bad debt and other corporate costs.

Advertising and Sales Promotion Expense

For the third quarter of fiscal 2024, advertising and sales promotion expense (“A&P”) was $76.6, a decrease of $3.4, or 4.3%, compared to $80.0 in the prior year quarter. A&P was 11.8% of net sales, compared to 12.3% in the prior year quarter, reflecting a reallocation of brand investment from A&P into increased trade promotion and consumer activation spend.

For the first nine months of fiscal 2024, A&P was $187.9, a decrease of $0.9, or 0.5%, compared to $188.8 in the prior year period. A&P was 10.8% of net sales, compared to 11.0% in the prior year period.

Research and Development Expense

Research and development (“R&D”) expense for the third quarter of fiscal 2024 was $14.6, a decrease of $0.2, or 1.4%, compared to $14.8 in the prior year quarter. As a percentage of net sales, R&D expense was 2.3% in the third quarter of fiscal 2024, which was flat compared to the prior year quarter.

R&D expense for the first nine months of fiscal 2024 was $42.1, a decrease of $0.5, or 1.2%, compared to $42.6 in the prior year period. As a percentage of net sales, R&D expense was 2.4% in the first nine months of fiscal 2024 compared to 2.5% in the prior year period.

Interest Expense Associated with Debt

Interest expense associated with debt for the third quarter of fiscal 2024 was $18.8, a decrease of $0.4, or 2.1%, compared to $19.2 in the prior year quarter. For the first nine months of fiscal 2024, interest expense was $59.0, a decrease of $0.8, or 1.3%, compared to $59.8 in the prior year period. The decrease in interest expense was the result of a lower overall debt balance on the Company’s Revolving Credit Facility, partially offset by higher interest rates.

Other expense (income), net

Other expense (income), net, was $1.4 of expense in the third quarter of fiscal 2024 compared to $3.8 of income in the prior year quarter. Other expense (income), net, was $4.4 of expense during the first nine months of fiscal 2024, an increase of $3.7 compared to $0.7 of expense in the prior year period. The third quarter and first nine months of 2024 included a loss on investment of $3.1. The first nine months of 2023 included a $7.2 charge for the wind-up of the Canada Plan, which was partially offset by other financing expenses and foreign currency.

Income Tax Provision

The effective tax rate for the third quarter and first nine months ended June 30, 2024, was 21.6% and 22.2%, respectively, compared to 25.3% and 25.9% in the prior year period. The fiscal 2024 effective tax rate reflects the favorable mix of earnings in lower tax rate jurisdictions and the impact of a change in the Company’s prior estimates. On an adjusted basis, the effective tax rate was 21.2% and 22.3%, for the third quarter and first nine months ended June 30, 2024, respectively, and 25.3% and 25.9% for the third quarter and first nine months June 30, 2023 respectively.

Operating Model Redesign

In fiscal 2024, the Company continues to strengthen its operating model, simplify the organization’s ways of working and improve manufacturing and supply chain efficiency. As a result of these actions, we expect to incur charges of approximately $19 in fiscal 2024. We incurred $3.2 and $13.2 during the third quarter and first nine months of fiscal 2024, respectively, primarily related to employee severance and related costs.

Segment Results

The following tables present changes in segment net sales and segment profit for the third quarter and first nine months of fiscal 2024, compared to the corresponding periods in fiscal 2023, 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 13 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 third quarter of fiscal 2024 decreased $7.8, or 2.4%, as compared to the prior year quarter, including a $5.8, or 1.8%, unfavorable impact from currency. Organic net sales decreased $2.0, or 0.6%, as 4.5% growth in international markets, driven by both higher volumes and price, was more than offset by a 6.7% decline in North America, driven by volume. North America sales were impacted by continued weak category and channel dynamics, particularly in the highly promotional drug channel, along with heightened competitive dynamics in Women’s shave, as well as significant declines in Shave Preps.

Wet Shave net sales for the first nine months of fiscal 2024 increased $3.1, or 0.3%, as compared to the prior year period, including a $3.4, or 0.4%, unfavorable impact from currency. Organic net sales increased $6.5, or 0.7%, driven by a 8.8% increase in International organic sales driven by both higher volumes and price. North America sales declined 7.8%, primarily due to lower volumes. North America sales were impacted by continued weak category and channel dynamics, particularly in the highly promotional drug channel, along with heightened competitive dynamics in Women’s shave, as well as significant declines in Shave Preps and Disposables.

Wet Shave segment profit for the third quarter of fiscal 2024 was $47.6, an increase of $15.3, or 47.4%, and inclusive of a $2.2, or 6.8%, unfavorable impact from currency. Organic segment profit increased $17.5, or 54.2%, reflecting higher gross margins and lower marketing expenses.

Wet Shave segment profit for the first nine months of fiscal 2024 was $141.7, an increase of $38.3, or 37.0%, and inclusive of a $0.4, or 0.4%, unfavorable impact from currency. Organic segment profit increased $38.7, or 37.4%, reflecting higher net sales, higher gross margin and lower marketing expense.

Sun and Skin Care

Sun and Skin Care net sales for the third quarter of fiscal 2024 increased $12.0, or 4.9%. Organic net sales increased $12.4, or 5.1%, driven by Sun Care growth of 16.0% in international markets and a 1.0% increase in North America markets, which reflected weak early-season weather dynamics in the U.S., followed by a very strong month of June. Global grooming net sales increased 14.0%, driven by both price and volume.

Sun and Skin Care net sales for the first nine months of fiscal 2024 increased $40.6, or 7.2%. Organic net sales increased $37.6, or 6.6%, driven by Sun Care growth of 12.1% in International markets and 6.1% in North America, as well as 9.0% growth in global grooming, partially offset by lower sales in Wet Ones.

Sun and Skin Care segment profit for the third quarter of fiscal 2024 was $64.2, an increase of $2.8, or 4.6%, all which is related organic segment profit and was primarily driven by higher gross margins, partly offset by higher marketing and SG&A expenses.

Sun and Skin Care segment profit for the first nine months of fiscal 2024 was $117.3, an increase of $2.6, or 2.3%. Organic segment profit increased $1.0, or 0.9%, primarily driven by higher gross margins, partly offset by higher SG&A and marketing expenses.

Feminine Care

Feminine Care net sales for the third quarter of fiscal 2024 was $74.6, a decrease of $6.4, or 7.9%, largely driven by a decline in Tampons and Pads, partly offset by growth in Liners.

Feminine Care net sales for the first nine months of fiscal 2024 was $216.9, a decrease of $25.1, or 10.4%, primarily due to a decline in Tampons and Pads.

Feminine Care segment profit for the third quarter of fiscal 2024 was $6.6, a decrease of $7.4, or 52.9%. Organic segment profit decreased $7.4, or 52.9%, primarily driven by lower sales and the resulting impact on gross profit as well as higher marketing expenses.

Feminine Care segment profit for the first nine months of fiscal 2024 was $22.6, a decrease of $15.5, or 40.7%. Organic segment profit decreased $15.4, or 40.4%, primarily driven by lower sales and the resulting impact on gross profit as well as higher marketing expenses.

General Corporate and Other Expenses

For the third quarter of fiscal 2024 and 2023, corporate expenses were $15.8, or 2.4%, of net sales. For the third quarter of fiscal 2024, corporate expenses remained flat, as lower corporate consulting and project costs were equally offset by higher people and incentive compensation costs.

For the first nine months of fiscal 2024, corporate expenses were $47.0, or 2.7%, of net sales, compared to $48.7, or 2.8%, of net sales in the prior year period. For the first nine months of fiscal 2024, the decrease in corporate expenses is primarily due to a decrease in corporate consulting and project costs, which was partially offset by higher people and incentive compensation costs.

Wet Ones manufacturing plant fire

On December 1, 2023, a fire occurred at our Wet Ones manufacturing plant in Sidney, Ohio. There were no injuries reported and damage was limited to a single manufacturing process. As a consequence of the fire damage, there was a partial shutdown of the operations that manufacture Wet Ones raw materials. For the third quarter and the first nine months of fiscal 2024, we incurred $2.7 and $8.0, respectively, in incremental costs related to material charges, increased labor and absorption and other inefficiency costs as a result of the fire.

Liquidity and Capital Resources

As of June 30, 2024, a significant 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 12 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.

Effective August 5, 2024, we amended the pricing index used to determine the purchase price for subject receivables under the Sixth Amendment to Master Accounts Receivable Purchase Agreement from BSBY to Term SOFR. Except as noted above, all other material terms, conditions, obligations, covenants or agreements contained in the Accounts Receivable Facility are unmodified in all respects and continue in full force and effect. Refer to Note 7 of Notes to Condensed Consolidated Financial Statements for additional discussion.

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

Our total borrowings as of June 30, 2024 and September 30, 2023 were as follows:

Our Revolver utilization is summarized below.

On April 2, 2024, we amended our Revolving Credit Facility pursuant to the Restatement Agreement. Refer to Note 8 of Notes to Condensed Consolidated Financial Statement for additional discussion.

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 quarters of each fiscal year. We believe our cash on hand, cash flows from operations and borrowing capacity under the Revolving Credit Facility will be sufficient to satisfy our future working capital requirements, interest payments, R&D activities, capital expenditures, and other financing requirements for at least the next 12 months. We will continue to monitor our cash flows, spending and liquidity needs.

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

As of June 30, 2024, 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 provided by operating activities was $157.3 during the first nine months of fiscal 2024, compared to $168.3 of cash provided from operations during the prior year period. The decrease in cash provided by operating activities was largely driven by changes in net working capital which was partially offset by increased earnings.

Investing Activities

Net cash used by investing activities was $36.9 during the first nine months of fiscal 2024, compared to $31.6 of cash used during the prior year period. The increase in cash used was due to an additional investment. Capital expenditures were $30.6 during the first nine months of fiscal 2024, compared to $31.1 in the prior year period. The decrease in cash provided by investing activities is primarily due to an outflow of $6.5 for an investment.

Financing Activities

Net cash used by financing activities was $139.3 during the first nine months of fiscal 2024, compared to $132.3 of cash used in the prior year period. During the first nine months of fiscal 2024, we had net borrowings of $72.0 under the Revolving Credit Facility, compared to $70.0 in the prior year period. Dividend payments totaled $23.3 in the first nine months of fiscal 2024, compared to $23.8 in the prior year period. We had financing outflows for employee equity awards held for taxes totaling $7.1 in the first nine months of fiscal 2024, compared to $9.0 in the prior year period.

Share Repurchases

During the first nine months of fiscal 2024, we repurchased 1.1 shares of our common stock for $40.2. We have 3.5 shares remaining under the Repurchase Plan as of June 30, 2024. 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.

Dividends

Dividend activity for the nine months ended June 30, 2024 are as follows:

On August 6, 2024, the Board declared a quarterly cash dividend of $0.15 per common share for the fourth fiscal quarter of 2024. The dividend will be payable on October 3, 2024 to shareholders of record as the close of business on September 4, 2024.

Dividends declared during the nine months ended June 30, 2024 totaled $22.9. Payments made for dividends during the nine months ended June 30, 2024 totaled $23.3.

Commitments and Contingencies

Contractual Obligations

As of June 30, 2024, we had outstanding borrowings of $50.0 under the Revolving Credit Facility. As of June 30, 2024, future minimum repayments of debt were: $750.0 in fiscal 2028 and $550.0 in fiscal 2029. Refer to Note 8 of the Notes to Condensed Consolidated Financial Statements for additional discussion.

There have been no other material changes in our contractual obligations since the presentation in our 2023 Annual Report.

Recent Accounting Pronouncements

Information regarding new accounting pronouncements is included in Note 1 of the Notes to Condensed Consolidated Financial Statements.

Critical Accounting Policies

Our critical accounting policies and estimates are fully described in our 2023 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, 2023.

(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 12 of Notes to our Condensed Consolidated Financial Statements. As of June 30, 2024, 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 Secured Overnight Financing Rate (SOFR) plus margin. As of June 30, 2024, our outstanding variable-rate debt included $72.1 related to the 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 $0.7.

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 2023 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 June 30, 2024. 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 June 30, 2024 that have materially affected, or are likely to materially affect, our internal control over financial reporting.