UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended September 30, 2019March 31, 2020
OR
☐ | 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 1-10585
CHURCH & DWIGHT CO., INC.
(Exact name of registrant as specified in its charter)
Delaware |
| 13-4996950 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
500 Charles Ewing Boulevard, Ewing, NJ 08628
(Address of principal executive offices)
Registrant’s telephone number, including area code: (609) 806-1200
|
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $1 par value |
| CHD | New York Stock Exchange |
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 twelve 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☒ |
| Accelerated filer |
| ☐ |
Non-accelerated filer |
| ☐ |
| Smaller reporting company |
| ☐ |
Emerging growth company |
| ☐ |
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 29, 2019,April 28, 2020, there were 245,401,975245,892,719 shares of Common Stock outstanding.
TABLE OF CONTENTS
PART I
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2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 22 |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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PART II
1. |
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1A. |
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2. |
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6. |
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2
PART I – FINANCIAL INFORMATION
ITEM 1: | FINANCIAL STATEMENTS |
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions, except per share data)
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
| |||||||||||||||
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| March 31, |
|
| March 31, |
| ||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||||
Net Sales | $ | 1,089.4 |
|
| $ | 1,037.6 |
|
| $ | 3,213.5 |
|
| $ | 3,071.5 |
| $ | 1,165.2 |
|
| $ | 1,044.7 |
|
Cost of sales |
| 581.7 |
|
|
| 577.5 |
|
|
| 1,753.5 |
|
|
| 1,705.0 |
|
| 633.2 |
|
|
| 573.9 |
|
Gross Profit |
| 507.7 |
|
|
| 460.1 |
|
|
| 1,460.0 |
|
|
| 1,366.5 |
|
| 532.0 |
|
|
| 470.8 |
|
Marketing expenses |
| 125.2 |
|
|
| 120.5 |
|
|
| 352.4 |
|
|
| 356.8 |
|
| 96.4 |
|
|
| 98.1 |
|
Selling, general and administrative expenses |
| 165.7 |
|
|
| 135.4 |
|
|
| 462.6 |
|
|
| 411.4 |
|
| 121.0 |
|
|
| 131.9 |
|
Income from Operations |
| 216.8 |
|
|
| 204.2 |
|
|
| 645.0 |
|
|
| 598.3 |
|
| 314.6 |
|
|
| 240.8 |
|
Equity in earnings of affiliates |
| 2.1 |
|
|
| 2.5 |
|
|
| 5.5 |
|
|
| 7.0 |
|
| 1.6 |
|
|
| 1.7 |
|
Investment earnings |
| 0.3 |
|
|
| 0.3 |
|
|
| 1.0 |
|
|
| 0.9 |
|
| 0.1 |
|
|
| 0.5 |
|
Other income (expense), net |
| 0.3 |
|
|
| (0.3 | ) |
|
| 0.1 |
|
|
| (3.1 | ) |
| (0.6 | ) |
|
| (0.1 | ) |
Interest expense |
| (18.9 | ) |
|
| (19.4 | ) |
|
| (55.6 | ) |
|
| (59.7 | ) |
| (16.3 | ) |
|
| (17.8 | ) |
Income before Income Taxes |
| 200.6 |
|
|
| 187.3 |
|
|
| 596.0 |
|
|
| 543.4 |
|
| 299.4 |
|
|
| 225.1 |
|
Income taxes |
| 43.3 |
|
|
| 41.0 |
|
|
| 124.5 |
|
|
| 117.6 |
|
| 69.6 |
|
|
| 49.4 |
|
Net Income | $ | 157.3 |
|
| $ | 146.3 |
|
| $ | 471.5 |
|
| $ | 425.8 |
| $ | 229.8 |
|
| $ | 175.7 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - Basic |
| 246.8 |
|
|
| 245.7 |
|
|
| 246.4 |
|
|
| 245.2 |
|
| 245.6 |
|
|
| 246.1 |
|
Weighted average shares outstanding - Diluted |
| 252.9 |
|
|
| 251.1 |
|
|
| 252.5 |
|
|
| 250.1 |
|
| 251.0 |
|
|
| 251.9 |
|
Net income per share - Basic | $ | 0.64 |
|
| $ | 0.60 |
|
| $ | 1.91 |
|
| $ | 1.74 |
| $ | 0.94 |
|
| $ | 0.71 |
|
Net income per share - Diluted | $ | 0.62 |
|
| $ | 0.58 |
|
| $ | 1.87 |
|
| $ | 1.70 |
| $ | 0.92 |
|
| $ | 0.70 |
|
Cash dividends per share | $ | 0.23 |
|
| $ | 0.22 |
|
| $ | 0.68 |
|
| $ | 0.65 |
| $ | 0.24 |
|
| $ | 0.23 |
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
| |||||||||||||||
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| March 31, |
|
| March 31, |
| ||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||||
Net Income | $ | 157.3 |
|
| $ | 146.3 |
|
| $ | 471.5 |
|
| $ | 425.8 |
| $ | 229.8 |
|
| $ | 175.7 |
|
Other comprehensive income, net of tax: |
|
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|
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Foreign exchange translation adjustments |
| (5.1 | ) |
|
| (0.2 | ) |
|
| (2.2 | ) |
|
| (6.6 | ) |
| (13.0 | ) |
|
| 1.8 |
|
Income (loss) from derivative agreements |
| (7.2 | ) |
|
| 6.6 |
|
|
| (24.9 | ) |
|
| 0.7 |
|
| (19.7 | ) |
|
| (7.7 | ) |
Other comprehensive income (loss) |
| (12.3 | ) |
|
| 6.4 |
|
|
| (27.1 | ) |
|
| (5.9 | ) |
| (32.7 | ) |
|
| (5.9 | ) |
Comprehensive income | $ | 145.0 |
|
| $ | 152.7 |
|
| $ | 444.4 |
|
| $ | 419.9 |
| $ | 197.1 |
|
|
| 169.8 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
3
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share and per share data)
| September 30, |
|
| December 31, |
| March 31, |
|
| December 31, |
| ||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Assets |
|
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Current Assets |
|
|
|
|
|
|
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|
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Cash and cash equivalents | $ | 114.7 |
|
| $ | 316.7 |
| $ | 1,046.6 |
|
| $ | 155.7 |
|
Accounts receivable, less allowances of $2.4 and $3.1 |
| 384.4 |
|
|
| 345.3 |
| |||||||
Accounts receivable, less allowances of $3.7 and $2.4 |
| 353.5 |
|
|
| 356.4 |
| |||||||
Inventories |
| 388.8 |
|
|
| 382.8 |
|
| 395.7 |
|
|
| 417.4 |
|
Other current assets |
| 20.9 |
|
|
| 33.4 |
|
| 33.0 |
|
|
| 26.9 |
|
Total Current Assets |
| 908.8 |
|
|
| 1,078.2 |
|
| 1,828.8 |
|
|
| 956.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, Net |
| 553.1 |
|
|
| 598.2 |
|
| 566.7 |
|
|
| 573.0 |
|
Equity Investment in Affiliates |
| 10.2 |
|
|
| 8.5 |
|
| 10.0 |
|
|
| 9.7 |
|
Trade Names and Other Intangibles, Net |
| 2,777.3 |
|
|
| 2,274.0 |
|
| 2,721.6 |
|
|
| 2,750.0 |
|
Goodwill |
| 2,079.5 |
|
|
| 1,992.9 |
|
| 2,078.2 |
|
|
| 2,079.5 |
|
Other Assets |
| 281.2 |
|
|
| 117.4 |
|
| 280.6 |
|
|
| 288.8 |
|
Total Assets | $ | 6,610.1 |
|
| $ | 6,069.2 |
| $ | 7,485.9 |
|
| $ | 6,657.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
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|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings | $ | 74.0 |
|
| $ | 1.8 |
| $ | 971.9 |
|
| $ | 252.9 |
|
Current portion of long-term debt |
| 299.6 |
|
|
| 596.5 |
| |||||||
Accounts payable and accrued expenses |
| 754.4 |
|
|
| 725.1 |
|
| 741.2 |
|
|
| 831.9 |
|
Income taxes payable |
| 14.1 |
|
|
| 2.9 |
|
| 55.9 |
|
|
| 7.5 |
|
Total Current Liabilities |
| 1,142.1 |
|
|
| 1,326.3 |
|
| 1,769.0 |
|
|
| 1,092.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt |
| 1,809.6 |
|
|
| 1,508.8 |
|
| 1,810.8 |
|
|
| 1,810.2 |
|
Deferred Income Taxes |
| 578.2 |
|
|
| 576.4 |
|
| 580.2 |
|
|
| 579.6 |
|
Deferred and Other Long-term Liabilities |
| 321.9 |
|
|
| 180.9 |
|
| 343.1 |
|
|
| 315.5 |
|
Business Acquisition Liabilities |
| 199.0 |
|
|
| 23.0 |
|
| 165.0 |
|
|
| 192.0 |
|
Total Liabilities |
| 4,050.8 |
|
|
| 3,615.4 |
|
| 4,668.1 |
|
|
| 3,989.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock, $1.00 par value, Authorized 2,500,000 shares; NaN issued |
| 0.0 |
|
|
| 0.0 |
|
| 0.0 |
|
|
| 0.0 |
|
Common Stock, $1.00 par value, Authorized 600,000,000 shares and 292,855,100 shares issued as of September 30, 2019 and December 31, 2018 |
| 292.8 |
|
|
| 292.8 |
| |||||||
Common Stock, $1.00 par value, Authorized 600,000,000 shares and 292,855,100 shares issued as of March 31, 2020 and December 31, 2019 |
| 292.8 |
|
|
| 292.8 |
| |||||||
Additional paid-in capital |
| 293.6 |
|
|
| 280.8 |
|
| 295.7 |
|
|
| 295.5 |
|
Retained earnings |
| 4,148.9 |
|
|
| 3,832.6 |
|
| 4,408.2 |
|
|
| 4,237.4 |
|
Accumulated other comprehensive loss |
| (80.7 | ) |
|
| (53.6 | ) |
| (99.4 | ) |
|
| (66.7 | ) |
Common stock in treasury, at cost: 47,559,052 shares as of September 30, 2019 and 45,969,515 shares as of December 31, 2018 |
| (2,095.3 | ) |
|
| (1,898.8 | ) | |||||||
Common stock in treasury, at cost: 47,099,092 shares as of March 31, 2020 and 47,439,300 shares as of December 31, 2019 |
| (2,079.5 | ) |
|
| (2,091.2 | ) | |||||||
Total Stockholders' Equity |
| 2,559.3 |
|
|
| 2,453.8 |
|
| 2,817.8 |
|
|
| 2,667.8 |
|
Total Liabilities and Stockholders' Equity | $ | 6,610.1 |
|
| $ | 6,069.2 |
| $ | 7,485.9 |
|
| $ | 6,657.4 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
4
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(In millions)
| Nine Months Ended |
| Three Months Ended |
| ||||||||||
| September 30, |
|
| September 30, |
| March 31, |
|
| March 31, |
| ||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Cash Flow From Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income | $ | 471.5 |
|
| $ | 425.8 |
| $ | 229.8 |
|
| $ | 175.7 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense |
| 47.9 |
|
|
| 47.6 |
|
| 16.0 |
|
|
| 15.8 |
|
Amortization expense |
| 82.0 |
|
|
| 57.8 |
|
| 30.2 |
|
|
| 22.8 |
|
Deferred income taxes |
| 6.1 |
|
|
| 4.5 |
|
| 8.1 |
|
|
| 2.8 |
|
Equity in net earnings of affiliates |
| (5.5 | ) |
|
| (7.0 | ) |
| (1.6 | ) |
|
| (1.7 | ) |
Distributions from unconsolidated affiliates |
| 3.8 |
|
|
| 7.6 |
|
| 1.3 |
|
|
| 0.7 |
|
Non-cash compensation expense |
| 17.7 |
|
|
| 19.8 |
|
| 2.7 |
|
|
| 2.4 |
|
Gain on sale of assets |
| (3.0 | ) |
|
| 0.0 |
| |||||||
Other |
| 6.7 |
|
|
| 0.3 |
|
| 2.1 |
|
|
| (0.7 | ) |
Change in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
| (41.8 | ) |
|
| (17.2 | ) |
| (8.3 | ) |
|
| (36.0 | ) |
Inventories |
| (7.1 | ) |
|
| (60.5 | ) |
| 15.2 |
|
|
| (15.9 | ) |
Other current assets |
| 6.5 |
|
|
| 24.6 |
|
| (5.0 | ) |
|
| 0.5 |
|
Accounts payable and accrued expenses |
| 1.8 |
|
|
| 43.8 |
|
| (74.0 | ) |
|
| (59.2 | ) |
Income taxes payable |
| 14.9 |
|
|
| 15.2 |
|
| 54.0 |
|
|
| 34.3 |
|
Change in fair value of business acquisition liabilities |
| 9.7 |
|
|
| 0.0 |
|
| (27.0 | ) |
|
| 0.0 |
|
Other operating assets and liabilities, net |
| 3.3 |
|
|
| 5.7 |
|
| (4.0 | ) |
|
| (3.6 | ) |
Net Cash Provided By Operating Activities |
| 617.5 |
|
|
| 568.0 |
|
| 236.5 |
|
|
| 137.9 |
|
Cash Flow From Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
| (39.7 | ) |
|
| (30.4 | ) |
| (16.8 | ) |
|
| (11.7 | ) |
Acquisitions |
| (475.0 | ) |
|
| (49.8 | ) | |||||||
Proceeds from sale of assets |
| 7.0 |
|
|
| 0.0 |
| |||||||
Other |
| (4.3 | ) |
|
| (2.1 | ) |
| (1.6 | ) |
|
| (0.7 | ) |
Net Cash Used In Investing Activities |
| (519.0 | ) |
|
| (82.3 | ) |
| (11.4 | ) |
|
| (12.4 | ) |
Cash Flow From Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt borrowings |
| 300.0 |
|
|
| 0.0 |
| |||||||
Long-term debt (repayments) |
| (300.0 | ) |
|
| 0.0 |
|
| 0.0 |
|
|
| (300.0 | ) |
Short-term debt (repayments), net of borrowings |
| 72.4 |
|
|
| (269.5 | ) | |||||||
Short-term debt borrowings, net of (repayments) |
| 719.9 |
|
|
| 98.0 |
| |||||||
Proceeds from stock options exercised |
| 49.8 |
|
|
| 58.0 |
|
| 9.3 |
|
|
| 15.1 |
|
Payment of cash dividends |
| (168.2 | ) |
|
| (159.6 | ) |
| (59.0 | ) |
|
| (55.9 | ) |
Purchase of treasury stock |
| (250.0 | ) |
|
| (200.0 | ) |
| 0.0 |
|
|
| (100.0 | ) |
Deferred financing and other |
| (2.6 | ) |
|
| (3.0 | ) |
| (0.1 | ) |
|
| (1.5 | ) |
Net Cash Used In Financing Activities |
| (298.6 | ) |
|
| (574.1 | ) | |||||||
Net Cash Provided By (Used In) Financing Activities |
| 670.1 |
|
|
| (344.3 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents |
| (1.9 | ) |
|
| (2.2 | ) |
| (4.3 | ) |
|
| 0.0 |
|
Net Change In Cash and Cash Equivalents |
| (202.0 | ) |
|
| (90.6 | ) |
| 890.9 |
|
|
| (218.8 | ) |
Cash and Cash Equivalents at Beginning of Period |
| 316.7 |
|
|
| 278.9 |
|
| 155.7 |
|
|
| 316.7 |
|
Cash and Cash Equivalents at End of Period | $ | 114.7 |
|
| $ | 188.3 |
| $ | 1,046.6 |
|
| $ | 97.9 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
5
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW-CONTINUED
(Unaudited)
(In millions)
| Nine Months Ended |
| Three Months Ended |
| ||||||||||
| September 30, |
|
| September 30, |
| March 31, |
|
| March 31, |
| ||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (net of amounts capitalized) | $ | 57.4 |
|
| $ | 60.3 |
| $ | 21.9 |
|
| $ | 21.8 |
|
Income taxes | $ | 91.3 |
|
| $ | 71.7 |
| $ | 7.4 |
|
| $ | 12.3 |
|
Supplemental disclosure of non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment expenditures included in Accounts Payable | $ | 8.5 |
|
| $ | 6.9 |
| $ | 7.0 |
|
| $ | 6.0 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
6
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In millions)
| Number of Shares |
|
| Amounts |
| ||||||||||||||||||||||||||
| Common Stock |
|
| Treasury Stock |
|
| Common Stock |
|
| Additional Paid-In Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Total Stockholders' Equity |
| ||||||||
December 31, 2017 |
| 292.8 |
|
|
| (45.2 | ) |
| $ | 292.8 |
|
| $ | 264.6 |
|
| $ | 3,479.0 |
|
| $ | (36.4 | ) |
| $ | (1,782.0 | ) |
| $ | 2,218.0 |
|
Adoption of new accounting pronouncements |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (1.7 | ) |
|
| (0.6 | ) |
|
| 0.0 |
|
|
| (2.3 | ) |
Net income |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 157.8 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 157.8 |
|
Other comprehensive income (loss) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 3.3 |
|
|
| 0.0 |
|
|
| 3.3 |
|
Cash dividends |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (53.0 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (53.0 | ) |
Stock purchases |
| 0.0 |
|
|
| (4.1 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (200.0 | ) |
|
| (200.0 | ) |
Stock based compensation expense and stock option plan transactions |
| 0.0 |
|
|
| 0.9 |
|
|
| 0.0 |
|
|
| (4.2 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 23.7 |
|
|
| 19.5 |
|
March 31, 2018 |
| 292.8 |
|
|
| (48.4 | ) |
| $ | 292.8 |
|
| $ | 260.4 |
|
| $ | 3,582.1 |
|
| $ | (33.7 | ) |
| $ | (1,958.3 | ) |
| $ | 2,143.3 |
|
Net income |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 121.7 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 121.7 |
|
Other comprehensive income (loss) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (15.6 | ) |
|
| 0.0 |
|
|
| (15.6 | ) |
Cash dividends |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (53.2 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (53.2 | ) |
Stock purchases |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
Stock based compensation expense and stock option plan transactions |
| 0.0 |
|
|
| 0.6 |
|
|
| 0.0 |
|
|
| 11.4 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 13.5 |
|
|
| 24.9 |
|
June 30, 2018 |
| 292.8 |
|
|
| (47.8 | ) |
| $ | 292.8 |
|
| $ | 271.8 |
|
| $ | 3,650.6 |
|
| $ | (49.3 | ) |
| $ | (1,944.8 | ) |
| $ | 2,221.1 |
|
Net income |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 146.3 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 146.3 |
|
Other comprehensive income (loss) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 6.4 |
|
|
| 0.0 |
|
|
| 6.4 |
|
Cash dividends |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (53.4 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (53.4 | ) |
Stock purchases |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
Stock based compensation expense and stock option plan transactions |
| 0.0 |
|
|
| 1.0 |
|
|
| 0.0 |
|
|
| 8.5 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 24.5 |
|
|
| 33.0 |
|
September 30, 2018 |
| 292.8 |
|
|
| (46.8 | ) |
| $ | 292.8 |
|
| $ | 280.3 |
|
| $ | 3,743.5 |
|
| $ | (42.9 | ) |
| $ | (1,920.3 | ) |
| $ | 2,353.4 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
7
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY-CONTINUED
(Unaudited)
(In millions)
| Number of Shares |
|
| Amounts |
| Number of Shares |
|
| Amounts |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock |
|
| Treasury Stock |
|
| Common Stock |
|
|
|
| Additional Paid-In Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Total Stockholders' Equity |
| Common Stock |
|
| Treasury Stock |
|
| Common Stock |
|
| Additional Paid-In Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Total Stockholders' Equity |
| ||||||||||||||||
December 31, 2018 |
| 292.8 |
|
|
| (46.0 | ) |
| $ | 292.8 |
| $ | 280.8 |
|
| $ | 3,832.6 |
|
| $ | (53.6 | ) |
| $ | (1,898.8 | ) |
| $ | 2,453.8 |
|
| 292.8 |
|
|
| (46.0 | ) |
| $ | 292.8 |
|
| $ | 280.8 |
|
| $ | 3,832.6 |
|
| $ | (53.6 | ) |
| $ | (1,898.8 | ) |
| $ | 2,453.8 |
| |||
Adoption of new accounting pronouncements |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 13.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 13.0 |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 13.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 13.0 |
| ||||
Net income |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 175.7 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 175.7 |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 175.7 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 175.7 |
| ||||
Other comprehensive income (loss) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| (5.9 | ) |
|
| 0.0 |
|
|
| (5.9 | ) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (5.9 | ) |
|
| 0.0 |
|
|
| (5.9 | ) | ||||
Cash dividends |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| (55.9 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (55.9 | ) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (55.9 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (55.9 | ) | ||||
Stock purchases |
| 0.0 |
|
|
| (1.5 | ) |
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (100.0 | ) |
|
| (100.0 | ) |
| 0.0 |
|
|
| (1.5 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (100.0 | ) |
|
| (100.0 | ) | ||||
Stock based compensation expense and stock option plan transactions |
| 0.0 |
|
|
| 0.7 |
|
|
| 0.0 |
|
| 0.5 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 18.1 |
|
|
| 18.6 |
|
| 0.0 |
|
|
| 0.7 |
|
|
| 0.0 |
|
|
| 0.5 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 18.1 |
|
|
| 18.6 |
| |||
March 31, 2019 |
| 292.8 |
|
|
| (46.8 | ) |
| $ | 292.8 |
| $ | 281.3 |
|
| $ | 3,965.4 |
|
| $ | (59.5 | ) |
| $ | (1,980.7 | ) |
| $ | 2,499.3 |
|
| 292.8 |
|
|
| (46.8 | ) |
| $ | 292.8 |
|
| $ | 281.3 |
|
| $ | 3,965.4 |
|
| $ | (59.5 | ) |
| $ | (1,980.7 | ) |
| $ | 2,499.3 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
December 31, 2019 |
| 292.8 |
|
|
| (47.4 | ) |
| $ | 292.8 |
|
| $ | 295.5 |
|
| $ | 4,237.4 |
|
| $ | (66.7 | ) |
| $ | (2,091.2 | ) |
| $ | 2,667.8 |
| |||||||||||||||||||||||||||||||||
Net income |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 138.5 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 138.5 |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 229.8 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 229.8 |
| ||||
Other comprehensive income (loss) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| (8.9 | ) |
|
| 0.0 |
|
|
| (8.9 | ) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (32.7 | ) |
|
| 0.0 |
|
|
| (32.7 | ) | ||||
Cash dividends |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| (56.1 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (56.1 | ) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (59.0 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (59.0 | ) | ||||
Stock purchases |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| |||||||||||||||||||||||||||||||||||
Stock based compensation expense and stock option plan transactions |
| 0.0 |
|
|
| 0.9 |
|
|
| 0.0 |
|
| 7.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 25.0 |
|
|
| 32.0 |
|
| 0.0 |
|
|
| 0.3 |
|
|
| 0.0 |
|
|
| 0.2 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 11.7 |
|
|
| 11.9 |
| |||
June 30, 2019 |
| 292.8 |
|
|
| (45.9 | ) |
| $ | 292.8 |
|
|
| $ | 288.3 |
|
| $ | 4,047.8 |
|
| $ | (68.4 | ) |
| $ | (1,955.7 | ) |
| $ | 2,604.8 |
| ||||||||||||||||||||||||||||||||
Net income |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 157.3 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 157.3 |
| |||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| (12.3 | ) |
|
| 0.0 |
|
|
| (12.3 | ) | |||||||||||||||||||||||||||||||||||
Cash dividends |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| (56.2 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (56.2 | ) | |||||||||||||||||||||||||||||||||||
Stock purchases |
| 0.0 |
|
|
| (2.1 | ) |
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (150.0 | ) |
|
| (150.0 | ) | |||||||||||||||||||||||||||||||||||
Stock based compensation expense and stock option plan transactions |
| 0.0 |
|
|
| 0.4 |
|
|
| 0.0 |
|
| 5.3 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 10.4 |
|
|
| 15.7 |
| ||||||||||||||||||||||||||||||||||
September 30, 2019 |
| 292.8 |
|
|
| (47.6 | ) |
| $ | 292.8 |
|
|
| $ | 293.6 |
|
| $ | 4,148.9 |
|
| $ | (80.7 | ) |
| $ | (2,095.3 | ) |
| $ | 2,559.3 |
| ||||||||||||||||||||||||||||||||
March 31, 2020 |
| 292.8 |
|
|
| (47.1 | ) |
| $ | 292.8 |
|
| $ | 295.7 |
|
| $ | 4,408.2 |
|
| $ | (99.4 | ) |
| $ | (2,079.5 | ) |
| $ | 2,817.8 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
8
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In millions, except per share data)
1. | Basis of Presentation |
These condensed consolidated financial statements have been prepared by Church & Dwight Co., Inc. (the “Company”). In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations and cash flows for all periods presented have been made. Results of operations for interim periods may not be representative of results to be expected for the full year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20182019 (the “Form 10-K”). Certain prior period amounts previously included in Deferred and Other Long-term Liabilities have been reclassified to Business Acquisition Liabilities in the condensed consolidated balance sheet to conform to the presentation for the current period.
The Company incurred research and development expenses in the thirdfirst quarter of 2020 and 2019 of $21.7 and 2018 of $24.5 and $23.1,$20.7, respectively. The Company incurred research and development expenses in the first nine months of 2019 and 2018 of $67.6 and $64.4, respectively. These expenses are included in selling, general and administrative (“SG&A”) expenses.
2. | New Accounting Pronouncements |
Recently Adopted Accounting Pronouncements
In August 2017 and October 2018,June 2016, the Financial Accounting Standards Board (“FASB”)FASB issued new accounting guidance (with subsequent targeted amendments) which is intended to improvemodifies the measurements of expected credit losses for certain financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in itsinstruments and financial statements. These amendments also make targeted improvements to simplify the application of hedge accounting. Theassets, including trade receivables. This guidance wasis effective for annual and interim periodsfiscal years beginning after December 15, 2018,2019 and was adopted by the Company in the first quarter of 2019.interim periods within those fiscal years. The standard’s adoptionstandard did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In February 2016 and July 2018,March 2020, the FASB issued new lease accounting guidance, requiring lessees to recognize right-of-use lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases, with a term greater than a year. The new guidance also expands the required quantitative and qualitative disclosures surrounding leases. The guidance was effective for annual and interim periods beginning after December 15, 2018, and allowed companies to apply the requirements retrospectively, either to all prior periods presented or through a cumulative adjustment in the year of adoption. The Company adopted the new standard on January 1, 2019 using the optional transition method of adoption which permits the entity to continue presenting all periods prior to January 1, 2019 under the previous lease accounting guidance. The Company has implemented the appropriate internal controls and applications to monitor and record historical and future lease arrangements and required disclosures.
For all existing operating leases as of December 31, 2018, the Company recorded Right of Use Assets of approximately $55.0 and corresponding lease liabilities of approximately $57.0 with an offset to Deferred and Other Long-term Liabilities of approximately $2.0 to eliminate deferred rent on the consolidated balance sheet.
In addition, based on the transition guidance surrounding failed sale-and-leaseback transactions, the Company re-evaluated the lease for its corporate headquarters in Ewing, New Jersey. This lease was previously considered a failed sale-and-leaseback transaction underFinancial Accounting Standards CodificationBoard (“ASC”FASB”) 840 because of continuing involvement. The re-evaluation resulted in a change in classification from a finance transaction to an operating lease. The corporate headquarters building, which had a net book value of approximately $35.0 recorded in Property, Plant and Equipment as of December 31, 2018, was derecognized on January 1, 2019 and a Right of Use Asset of approximately $52.0 was recorded with an offset to Deferred Income Taxes of $4.0 and Retained Earnings of $13.0. The Lease Liability pertaining to this asset of $52.0 remained unchanged.
In total, at the adoption of theissued new accounting guidance there were Right of Use Assets of approximately $107.0intended to provide temporary optional expedients and a corresponding Lease Liabilities of $109.0. This did not include an existing cease-use liability of approximately $7.0 pertaining to one
9
of the Company’s previous corporate offices that remained unchanged as a result of the transition. Refer to Note 12 for the Company’s lease disclosures.
The effects of the recently adopted lease accounting standardexceptions to the Company’s consolidated balance sheet as of January 1, 2019US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This guidance is as follows:
| Balance at |
|
| New Lease |
|
| Balance at |
| |||
| December 31, |
|
| Standard |
|
| January 1, |
| |||
| 2018 |
|
| Adjustment |
|
| 2019 |
| |||
Property, plant and equipment, net | $ | 598.2 |
|
| $ | (35.2 | ) |
| $ | 563.0 |
|
Other assets |
| 117.4 |
|
|
| 107.5 |
|
|
| 224.9 |
|
Accounts payable and accrued expenses |
| 725.1 |
|
|
| 13.6 |
|
|
| 738.7 |
|
Deferred and other long-term liabilities |
| 180.9 |
|
|
| 41.3 |
|
|
| 222.2 |
|
Deferred income taxes |
| 576.4 |
|
|
| 4.4 |
|
|
| 580.8 |
|
Retained earnings |
| 3,832.6 |
|
|
| 13.0 |
|
|
| 3,845.6 |
|
effective beginning on March 12, 2020, and the Company may apply the amendments prospectively to contract modifications made or relationships entered into or evaluated through December 31, 2022. The adoption ofCompany is currently evaluating contracts and the optional expedients provided by the new lease accounting standard did not have a material impact on the Company’s results of operations or cash flows.standard.
There have been no other accounting pronouncements issued but not yet adopted by the Company which are expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
3. | Inventories |
Inventories consist of the following:
| September 30, |
|
| December 31, |
| March 31, |
|
| December 31, |
| ||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Raw materials and supplies | $ | 82.5 |
|
| $ | 84.4 |
| $ | 85.0 |
|
| $ | 85.9 |
|
Work in process |
| 31.1 |
|
|
| 34.1 |
|
| 30.4 |
|
|
| 29.0 |
|
Finished goods |
| 275.2 |
|
|
| 264.3 |
|
| 280.3 |
|
|
| 302.5 |
|
Total | $ | 388.8 |
|
| $ | 382.8 |
| $ | 395.7 |
|
| $ | 417.4 |
|
4. | Property, Plant and Equipment, Net (“PP&E”) |
PP&E consists of the following:
| September 30, |
|
| December 31, |
| March 31, |
|
| December 31, |
| ||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Land | $ | 27.8 |
|
| $ | 27.8 |
| $ | 27.7 |
|
| $ | 27.8 |
|
Buildings and improvements |
| 253.7 |
|
|
| 301.3 |
|
| 256.0 |
|
|
| 255.4 |
|
Machinery and equipment |
| 735.1 |
|
|
| 716.7 |
|
| 739.4 |
|
|
| 737.4 |
|
Software |
| 98.0 |
|
|
| 97.9 |
|
| 98.2 |
|
|
| 96.7 |
|
Office equipment and other assets |
| 78.1 |
|
|
| 73.8 |
|
| 78.9 |
|
|
| 76.0 |
|
Construction in progress |
| 49.1 |
|
|
| 49.7 |
|
| 72.0 |
|
|
| 72.9 |
|
Gross PP&E |
| 1,241.8 |
|
|
| 1,267.2 |
|
| 1,272.2 |
|
|
| 1,266.2 |
|
Less accumulated depreciation and amortization |
| 688.7 |
|
|
| 669.0 |
|
| 705.5 |
|
|
| 693.2 |
|
Net PP&E | $ | 553.1 |
|
| $ | 598.2 |
| $ | 566.7 |
|
| $ | 573.0 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Depreciation and amortization on PP&E | $ | 16.0 |
|
| $ | 16.2 |
|
| $ | 47.9 |
|
| $ | 47.6 |
|
| Three Months Ended |
| |||||
| March 31, |
|
| March 31, |
| ||
| 2020 |
|
| 2019 |
| ||
Depreciation and amortization on PP&E | $ | 16.0 |
|
| $ | 15.8 |
|
10
5. | Earnings Per Share (“EPS”) |
Basic EPS is calculated based on income available to holders of the Company’s common stock (“Common Stock”) and the weighted average number of shares outstanding during the reported period. Diluted EPS includes additional dilution from potential Common Stock issuable pursuant to the exercise of outstanding stock options.
The following table sets forth a reconciliation of the weighted average number of shares of Common Stock outstanding to the weighted average number of shares outstanding on a diluted basis:
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
|
| |||||||||||||||
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| March 31, |
|
| March 31, |
|
| ||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| ||||||
Weighted average common shares outstanding - basic |
| 246.8 |
|
|
| 245.7 |
|
|
| 246.4 |
|
|
| 245.2 |
|
| 245.6 |
|
|
| 246.1 |
|
|
Dilutive effect of stock options |
| 6.1 |
|
|
| 5.4 |
|
|
| 6.1 |
|
|
| 4.9 |
|
| 5.4 |
|
|
| 5.8 |
|
|
Weighted average common shares outstanding - diluted |
| 252.9 |
|
|
| 251.1 |
|
|
| 252.5 |
|
|
| 250.1 |
|
| 251.0 |
|
|
| 251.9 |
|
|
Antidilutive stock options outstanding |
| 1.4 |
|
|
| 2.6 |
|
|
| 1.4 |
|
|
| 3.3 |
|
| 1.5 |
|
|
| 0.1 |
|
|
6. | Stock Based Compensation Plans |
The following table provides a summary of option activity:
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
| |
|
|
|
|
| Weighted |
|
| Remaining |
|
|
|
|
| ||
|
|
|
|
| Average |
|
| Contractual |
|
| Aggregate |
| |||
|
|
|
|
| Exercise |
|
| Term |
|
| Intrinsic |
| |||
| Options |
|
| Price |
|
| (in Years) |
|
| Value |
| ||||
Outstanding at December 31, 2018 |
| 14.7 |
|
| $ | 37.63 |
|
|
|
|
|
|
|
|
|
Granted |
| 1.4 |
|
|
| 77.30 |
|
|
|
|
|
|
|
|
|
Exercised |
| (1.9 | ) |
|
| 26.50 |
|
|
|
|
|
|
|
|
|
Cancelled |
| (0.1 | ) |
|
| 54.06 |
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2019 |
| 14.1 |
|
| $ | 43.02 |
|
|
| 5.6 |
|
| $ | 456.7 |
|
Exercisable at September 30, 2019 |
| 8.7 |
|
| $ | 34.09 |
|
|
| 4.0 |
|
| $ | 359.1 |
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
| |
|
|
|
|
| Weighted |
|
| Remaining |
|
|
|
|
| ||
|
|
|
|
| Average |
|
| Contractual |
|
| Aggregate |
| |||
|
|
|
|
| Exercise |
|
| Term |
|
| Intrinsic |
| |||
| Options |
|
| Price |
|
| (in Years) |
|
| Value |
| ||||
Outstanding at December 31, 2019 |
| 14.0 |
|
| $ | 43.23 |
|
|
|
|
|
|
|
|
|
Exercised |
| (0.3 | ) |
|
| 29.31 |
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2020 |
| 13.7 |
|
| $ | 43.62 |
|
|
| 5.2 |
|
| $ | 300.3 |
|
Exercisable at March 31, 2020 |
| 8.4 |
|
| $ | 34.47 |
|
|
| 3.6 |
|
| $ | 250.5 |
|
The following table provides information regarding the intrinsic value of stock options exercised and stock compensation expense related to stock option awards:
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Intrinsic Value of Stock Options Exercised | $ | 15.7 |
|
| $ | 26.8 |
|
| $ | 87.6 |
|
| $ | 72.0 |
|
Stock Compensation Expense Related to Stock Option Awards | $ | 2.7 |
|
| $ | 3.7 |
|
| $ | 17.2 |
|
| $ | 18.7 |
|
Issued Stock Options |
| 0.0 |
|
| 0.0 |
|
|
| 1.4 |
|
|
| 1.9 |
| |
Weighted Average Fair Value of Stock Options issued (per share) | $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 14.94 |
|
| $ | 9.63 |
|
Fair Value of Stock Options Issued | $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 21.3 |
|
| $ | 18.1 |
|
| Three Months Ended |
|
| |||||
| March 31, |
|
| March 31, |
|
| ||
| 2020 |
|
| 2019 |
|
| ||
Intrinsic Value of Stock Options Exercised | $ | 14.3 |
|
| $ | 24.1 |
|
|
Stock Compensation Expense Related to Stock Option Awards | $ | 2.7 |
|
| $ | 2.3 |
|
|
The following table provides a summary of the assumptions used in the valuation of issued stock options:
| Three Months Ended |
| Nine Months Ended |
| |||||||
| September 30, |
| September 30, |
| September 30, |
|
| September 30, |
| ||
| 2019 |
| 2018 |
| 2019 |
|
| 2018 |
| ||
Risk-free interest rate | - |
| - |
|
| 2.1 | % |
|
| 2.9 | % |
Expected life in years | - |
| - |
|
| 7.3 |
|
|
| 7.3 |
|
Expected volatility | - |
| - |
|
| 17.2 | % |
|
| 17.1 | % |
Dividend yield | - |
| - |
|
| 1.2 | % |
|
| 1.7 | % |
11
7. Share Repurchases
On November 1, 2017, the Company’s Board of Directors (the “Board”) authorized a share repurchase program, under which the Company may repurchase up to $500.0 in shares of Common Stock (the “2017 Share Repurchase Program”). The 2017 Share Repurchase Program does not have an expiration. The Company also continued its evergreen share repurchase program, authorized by the Board on January 29, 2014, under which the Company may repurchase, from time to time, Common Stock to reduce or eliminate dilution associated with issuances of Common Stock under the Company’s incentive plans. plans.
In connection with the evergreen shareThe Company did 0t repurchase program, in January 2019, the Company executed open market purchases of $100.0any shares of its Common Stock.
In September 2019,common stock in the Company executed open market purchasesfirst quarter of $150.0 of its Common Stock of which $50.0 was purchased under the evergreen share repurchase program and $100.0 was purchased under the 2017 Share Repurchase Program.2020. As a result of thesethe Company’s stock repurchases in recent years, there remainedremains $210.0 of share repurchase availability under the 2017 Share Repurchase Program as of September 30, 2019.March 31, 2020.
8.Fair Value Measurements
The following table presents the carrying amounts and estimated fair values of the Company’s other financial instruments at September 30, 2019March 31, 2020 and December 31, 2018:2019:
|
|
| September 30, 2019 |
|
| December 31, 2018 |
|
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||
| Input |
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
| Input |
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
| ||||||||
| Level |
| Amount |
|
| Value |
|
| Amount |
|
| Value |
| Level |
| Amount |
|
| Value |
|
| Amount |
|
| Value |
| ||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents | Level 1 |
| $ | 43.4 |
|
| $ | 43.4 |
|
| $ | 234.6 |
|
| $ | 234.6 |
| Level 1 |
| $ | 963.0 |
|
| $ | 963.0 |
|
| $ | 65.3 |
|
| $ | 65.3 |
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings | Level 2 |
|
| 74.0 |
|
|
| 74.0 |
|
|
| 1.8 |
|
|
| 1.8 |
| Level 2 |
|
| 971.9 |
|
|
| 971.9 |
|
|
| 252.9 |
|
|
| 252.9 |
|
Floating Rate Senior notes due January 25, 2019 | Level 2 |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 300.0 |
|
|
| 299.9 |
| |||||||||||||||||
2.45% Senior notes due December 15, 2019 | Level 2 |
|
| 300.0 |
|
|
| 299.7 |
|
|
| 300.0 |
|
|
| 297.4 |
| |||||||||||||||||
Term loan due May 1, 2022 | Level 2 |
|
| 300.0 |
|
|
| 300.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| Level 2 |
|
| 300.0 |
|
|
| 300.0 |
|
|
| 300.0 |
|
|
| 300.0 |
|
2.45% Senior notes due August 1, 2022 | Level 2 |
|
| 299.8 |
|
|
| 303.0 |
|
|
| 299.7 |
|
|
| 289.7 |
| Level 2 |
|
| 299.8 |
|
|
| 296.9 |
|
|
| 299.8 |
|
|
| 302.6 |
|
2.875% Senior notes due October 1, 2022 | Level 2 |
|
| 399.9 |
|
|
| 409.1 |
|
|
| 399.9 |
|
|
| 393.0 |
| Level 2 |
|
| 399.9 |
|
|
| 400.6 |
|
|
| 399.9 |
|
|
| 408.2 |
|
3.15% Senior notes due August 1, 2027 | Level 2 |
|
| 424.6 |
|
|
| 441.8 |
|
|
| 424.6 |
|
|
| 400.0 |
| Level 2 |
|
| 424.7 |
|
|
| 424.8 |
|
|
| 424.7 |
|
|
| 438.9 |
|
3.95% Senior notes due August 1, 2047 | Level 2 |
|
| 397.3 |
|
|
| 434.4 |
|
|
| 397.2 |
|
|
| 363.7 |
| Level 2 |
|
| 397.3 |
|
|
| 413.3 |
|
|
| 397.3 |
|
|
| 427.1 |
|
Business Acquisition Liabilities | Level 3 |
|
| 214.7 |
|
|
| 214.7 |
|
|
| 23.0 |
|
|
| 23.0 |
| Level 3 |
|
| 165.0 |
|
|
| 165.0 |
|
|
| 206.2 |
|
|
| 206.2 |
|
Fair value adjustment asset (liability) related to hedged fixed rate debt instrument | Level 2 |
|
| (0.3 | ) |
|
| (0.3 | ) |
|
| (3.0 | ) |
|
| (3.0 | ) | |||||||||||||||||
Interest Rate Swap Lock Agreement asset (liability) | Level 2 |
|
| (40.6 | ) |
|
| (40.6 | ) |
|
| (7.0 | ) |
|
| (7.0 | ) | Level 2 |
|
| (66.4 | ) |
|
| (66.4 | ) |
|
| (29.5 | ) |
|
| (29.5 | ) |
The Company recognizes transfers between input levels as of the actual date of the event. There were no transfers between input levels during the ninethree months ended September 30, 2019.March 31, 2020.
Refer to Note 2 in the Form 10-K for a description of the methods and assumptions used to estimate the fair value of each class of financial instruments reflected in the condensed consolidated balance sheets.
The business acquisition liabilities represent the estimated fair value of additional future earn-outs payable for acquisitions of businesses that included earn-out clauses. The valuation of the contingent consideration will beis being evaluated on an ongoing basis and is based on management estimates and entity-specific assumptions which are considered Level 3 inputs. Subsequent toIn the datefirst quarter of the Flawless Acquisition,2020, the Company increaseddecreased the estimate of the contingent consideration liability for the Flawless Acquisition by $17.0$27.0 from $182.0$192.0 to $199.0$165.0 based on the revised valuation due to updated sales forecasts as well as the passage of time. The charge$27.0 reduction of SG&A expense was recorded to SG&A expense in bothwithin the Consumer Domestic and Consumer International Segments. DuringThe business acquisition liabilities for December 31, 2019 also includes a $14.2 liability for the Agro Acquisition. The Agro Acquisition earnout was finalized in December 2019 and the liability was paid in the second quarter of 2020. As of December 31, 2019 and March 31, 2020, the Company reversedliability was recorded within Accounts Payable and Accrued Expenses.
The interest rate swap lock agreements were used to hedge the full $7.3 contingentrisk of changes in the interest payments attributable to changes in the benchmark U.S. Dollar London Interbank Offered Rate (“LIBOR”) interest rate associated with anticipated issuances of debt. The liability increased by $36.9 during the first quarter of 2020 primarily due to lower current and projected interest rates associated with the Passport Acquisition based on the revised valuation due to updated sales forecasts. The reduction was recorded in SG&A in the SPD segment. A portion of the business acquisition liabilities are included in accounts payable and accrued expenses.COVID-19 pandemic.
12
The carrying amounts of accounts receivable, and accounts payable and accrued expenses, approximated estimated fair values as of September 30, 2019March 31, 2020 and December 31, 2018. 2019.
9. | Derivative Instruments and Risk Management |
Changes in interest rates, foreign exchange rates, the price of the Common Stock and commodity prices expose the Company to market risk. The Company manages these risks by the use of derivative instruments, such as cash flow and fair value hedges, diesel and commodity hedge contracts, equity derivatives and foreign exchange forward contracts. The Company does not use derivatives for trading or speculative purposes. Refer to Note 3 in the Form 10-K for a discussion of each of the Company’s derivative instruments in effect as of December 31, 2018.2019.
The notional amount of a derivative instrument is the nominal or face amount used to calculate payments made on that instrument. Notional amounts are presented in the following table:
|
| Notional |
|
| Notional |
|
| Notional |
|
| Notional |
| ||||
|
| Amount |
|
| Amount |
|
| Amount |
|
| Amount |
| ||||
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| $ | 208.9 |
|
| $ | 146.6 |
|
| $ | 223.6 |
|
| $ | 216.0 |
|
Interest rate swap |
| $ | 300.0 |
|
| $ | 300.0 |
| ||||||||
Interest rate swap lock |
| $ | 300.0 |
|
| $ | 250.0 |
|
| $ | 300.0 |
|
| $ | 300.0 |
|
Diesel fuel contracts |
| 6.1 gallons |
|
| 8.2 gallons |
|
| 7.0 gallons |
|
| 4.8 gallons |
| ||||
Commodities contracts |
| 77.2 pounds |
|
| 94.7 pounds |
|
| 88.2 pounds |
|
| 81.2 pounds |
| ||||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity derivatives |
| $ | 26.0 |
|
| $ | 21.0 |
|
| $ | 20.2 |
|
| $ | 22.1 |
|
Excluding the Interest Rate Swap Lock Agreement disclosed in Note 8, the fair values and amount of gain (loss) recognized in income and Other Comprehensive Income (“OCI”) associated with the derivative instruments disclosed above did not have a material impact on the Company’s condensed consolidated financial statements.
10. | Acquisitions |
On May 1, 2019, the Company closed on its previously announced acquisition of the FLAWLESS™ and FINISHING TOUCH™FLAWLESS hair removal business (the “Flawless Acquisition”) from Ideavillage Products Corporation (“Ideavillage”). The Company paid $475.0 at closing and willmay make an additional earn-outcontingent consideration payment up to a maximum of $425.0 in cash, based on a trailing twelve-month net sales target ending no later than December 31, 2021. The transaction was funded with a three-year term loan and commercial paper borrowings. The Company anticipates there will beThere was a six-month integration transition period in which the net cash received from Ideavillage will bewas accounted for as other revenue as a component of net sales. The Company will purchasepurchased the inventory following the transition period, at such time, the Company will bebecame the principal party to the transaction. FLAWLESSsales transactions. The Flawless hair removal business is managed in the Consumer Domestic and Consumer International segments and represents an addition to our specialty haircare portfolio which includes BATISTE dry shampoo, VIVISCAL hair thinning supplements, and TOPPIK hair fibers.
The preliminary fair values of the net assets acquired are set forth as follows:
| Flawless |
| ||||
| Acquisition Date |
| ||||
| Preliminary |
| ||||
| Fair Value |
| ||||
Trade name | $ | 447.3 |
| $ | 447.3 |
|
Other intangible assets |
| 121.8 |
|
| 121.8 |
|
Goodwill |
| 87.9 |
|
| 87.9 |
|
Contingent consideration |
| (182.0 | ) |
| (182.0 | ) |
Cash purchase price | $ | 475.0 |
| $ | 475.0 |
|
TheAs a result of the Company purchasing assets, the goodwill and other intangible assets associated with the Flawless Acquisition are deductible for U.S. tax purposes. The trade names and other intangible assets were valued using a discounted cash flow model. The life of the amortizable intangible assets recognized from the Flawless Acquisition ranges from 15 - 20 years. The goodwill is a result of expected synergies from combined operations of the acquisition and the Company. Pro forma results are not presented because the impact of the acquisition is not material to the Company’s consolidated financial results. The contingent liability will be reassessedis remeasured at each balance sheet date until the completion of the earn-out period. Subsequent to the date of the Flawless Acquisition, the Company decreased the estimate of the contingent consideration liability by $17.0 from $182.0 to $165.0 based on the revised valuation due to updated sales forecasts as well as the passage of time. Ideavillage will help support the business through a separate long-term transition services agreement.
13
On March 8, 2018, the Company purchased Passport Food Safety Solutions, Inc. (“Passport,” and the acquisition, the “Passport Acquisition”). Passport sells products for pre- and post-harvest treatment in the poultry, swine, and beef production markets. The total purchase price was approximately $50.0, which is subject to an additional payment of up to $25.0 based on sales performance through 2020. Passport’s annual sales were approximately $21.0 in 2017. The Passport Acquisition was funded with short-term borrowings and is managed in the Specialty Products (“SPD”) segment.
The fair values of the net assets acquired are set forth as follows:
| Passport |
| |
| Acquisition Date |
| |
| Fair Value |
| |
Inventory and other working capital | $ | 3.3 |
|
Long-term assets |
| 1.0 |
|
Trade names and other intangibles |
| 28.5 |
|
Goodwill |
| 32.5 |
|
Current liabilities |
| (1.1 | ) |
Long-term liabilities |
| (7.1 | ) |
Contingent consideration |
| (7.3 | ) |
Cash purchase price (net of cash acquired) | $ | 49.8 |
|
The life of the amortizable intangible assets recognized from the Passport Acquisition ranges from 10 - 15 years. The goodwill is a result of expected synergies from combined operations of the acquisition and the Company. Pro forma results are not presented because the impact is not material to the Company’s consolidated financial results. The contingent liability will be reassessed at each balance sheet date leading up to December 31, 2020.
The goodwill and other intangible assets associated with the Passport Acquisition are not deductible for U.S. tax purposes.
11. | Goodwill and Other Intangibles, Net |
The following table provides information related to the carrying value of all intangible assets, other than goodwill:
| September 30, 2019 |
|
|
|
| December 31, 2018 |
| March 31, 2020 |
|
|
|
|
| December 31, 2019 |
| ||||||||||||||||||||||||||||||||||||
| Gross |
|
|
|
|
|
|
|
|
|
| Amortization |
| Gross |
|
|
|
|
|
|
|
|
| Gross |
|
|
|
|
|
|
|
|
|
|
| Amortization |
| Gross |
|
|
|
|
|
|
|
|
| ||||
| Carrying |
|
| Accumulated |
|
|
|
|
|
| Period |
| Carrying |
|
| Accumulated |
|
|
|
|
| Carrying |
|
| Accumulated |
|
|
|
|
|
|
| Period |
| Carrying |
|
| Accumulated |
|
|
|
|
| ||||||||
| Amount |
|
| Amortization |
|
| Net |
|
| (Years) |
| Amount |
|
| Amortization |
|
| Net |
| Amount |
|
| Amortization |
|
| Net |
|
|
| (Years) |
| Amount |
|
| Amortization |
|
| Net |
| ||||||||||||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Names | $ | 1,025.4 |
|
| $ | (206.6 | ) |
| $ | 818.8 |
|
| 3-20 |
| $ | 578.6 |
|
| $ | (175.2 | ) |
| $ | 403.4 |
| $ | 1,019.9 |
|
| $ | (229.2 | ) |
| $ | 790.7 |
|
|
| 3-20 |
| $ | 1,025.8 |
|
| $ | (219.7 | ) |
| $ | 806.1 |
|
Customer Relationships |
| 584.8 |
|
|
| (246.1 | ) |
|
| 338.7 |
|
| 15-20 |
|
| 506.3 |
|
|
| (220.8 | ) |
|
| 285.5 |
|
| 584.8 |
|
|
| (264.0 | ) |
|
| 320.8 |
|
|
| 15-20 |
|
| 584.8 |
|
|
| (255.0 | ) |
|
| 329.8 |
|
Patents/Formulas |
| 211.4 |
|
|
| (69.9 | ) |
|
| 141.5 |
|
| 4-20 |
|
| 165.4 |
|
|
| (61.5 | ) |
|
| 103.9 |
|
| 211.4 |
|
|
| (76.0 | ) |
|
| 135.4 |
|
|
| 4-20 |
|
| 211.4 |
|
|
| (73.0 | ) |
|
| 138.4 |
|
Non-Compete Agreement |
| 0.4 |
|
|
| (0.4 | ) |
|
| 0.0 |
|
| 5-10 |
|
| 0.4 |
|
|
| (0.3 | ) |
|
| 0.1 |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 5-10 |
|
| 0.4 |
|
|
| (0.4 | ) |
|
| 0.0 |
|
Total | $ | 1,822.0 |
|
| $ | (523.0 | ) |
| $ | 1,299.0 |
|
|
|
| $ | 1,250.7 |
|
| $ | (457.8 | ) |
| $ | 792.9 |
| $ | 1,816.1 |
|
| $ | (569.2 | ) |
| $ | 1,246.9 |
|
|
|
|
| $ | 1,822.4 |
|
| $ | (548.1 | ) |
| $ | 1,274.3 |
|
Indefinite Lived Intangible Assets - Gross Carrying Amount
| September 30, |
|
|
|
|
|
|
|
| December 31, |
|
|
|
|
| ||
| 2019 |
|
|
|
|
|
|
|
| 2018 |
|
|
|
|
| ||
Trade Names | $ | 1,478.3 |
|
|
|
|
|
|
|
| $ | 1,481.1 |
|
|
|
|
|
| March 31, |
|
|
|
|
|
|
|
|
| December 31, |
|
|
|
|
| ||
| 2020 |
|
|
|
|
|
|
|
|
| 2019 |
|
|
|
|
| ||
Trade Names | $ | 1,474.7 |
|
|
|
|
|
|
|
|
| $ | 1,475.7 |
|
|
|
|
|
Intangible amortization expense was $25.2 and $17.6 for the third quarter of 2019 and 2018, respectively. Intangible amortization expense amounted to $65.5$24.5 and $53.4$17.6 for the first ninethree months of 20192020 and 2018,2019, respectively. The Company estimates that intangible amortization expense will be approximately $90.0$98.0 in 20192020 and approximately $98.0$96.0 to $89.0$88.0 annually over the next five years.
During the first quarter of 2020, the Company sold its PERL WEISS® toothpaste brand in Germany with a tradename net book value of $2.7 and corresponding goodwill of $1.3 for cash proceeds of $7.0. The $3.0 gain associated with this transaction was recorded as a reduction of SG&A expense in the Consumer International Segment.
Fair value for indefinite lived intangible assets was estimated based on a “relief from royalty” or “excess earnings” discounted cash flow method, which contains numerous variables that are subject to change as business conditions change, and therefore could impact fair values in the future. The key assumptions used in determining fair value are sales growth, profitability margins, tax rates and discount rates. The Company determined that the carryingfair value of its trade names asall other intangible assets for each of the years in the three-year period ended December 31, 2018 and 2017, was recoverable2019 exceeded their respective carrying values based upon the forecasted cash flows and profitabilityprofitability. The Company considers all of the brands. In 2017 there was aits personal care trade name that, based on performance, hadbrands fair value to substantially exceed their carrying value. However, in recent years the Company’s Trojan business, specifically the condom category, has not grown and competition has increased resulting in a potential reduction in cash flows. As a result, the Trojan business has experienced sales and profit declines that hadhas eroded a significant portion of the excess between fair and carrying value, which could potentially result in an impairment of the asset.tradename. The performancecarrying value of the Trojan tradename improved since 2017, thereby
14
increasing the excess betweenis $176.4 million. As of December 31, 2019, fair value exceeded carrying value by 26%. Key assumptions used in the projections include discount rates of 9.5% in the U.S. and carrying11.5% internationally, growth assumptions of 0% to 2% and an average royalty rate of approximately 10%. This indefinite-lived intangible asset is susceptible to impairment risk. While management can and has implemented strategies to address the risk, including lowering the Company’s production costs, investing in new product ideas, and developing new creative advertising, significant changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair value. This could result in a decline in fair value that could trigger a future impairment charge of the tradename.
As a result of the pandemic, consumers are stocking up on household staple products, such as laundry detergent, cat litter, bathroom cleaners, baking soda and personal care products such as vitamins and supplements and nasal hygiene products. However, sales of some of our personal care products have slowed due to retailer closures or reduced hours of or consumer capacity in their stores. The Company continuesis monitoring the impact the virus and the associated governmental response is having on its customers and consumer demand, as well as the potential impact on the Company’s short and long term cash flows as it relates to monitor performanceits intangible asset carrying values.
In addition, the Company’s Passport Food Safety business, under pressure as a result of theCOVID-19 pandemic and should there be any significant changenew competitive activities, is experiencing sales and profit declines due to closures of meat processing plants and decreased demand for its products that could result in forecasted assumptions or estimates, including sales, profitability and discount rate, the Company may be required to recognize an impairment of the associated tradename and other intangible assets. The assets have a current net book value of approximately $24.0 million and are being amortized over their remaining life of 12 years. The Company is implementing strategies to address the decline, however if unsuccessful, this decline could trigger a future impairment charge.
The carrying amount of goodwill is as follows:
| Consumer |
|
| Consumer |
|
| Specialty |
|
|
|
|
| |||
| Domestic |
|
| International |
|
| Products |
|
| Total |
| ||||
Balance at December 31, 2018 | $ | 1,633.2 |
|
| $ | 223.7 |
|
| $ | 136.0 |
|
| $ | 1,992.9 |
|
Flawless acquired goodwill |
| 74.7 |
|
|
| 13.2 |
|
|
| 0.0 |
|
|
| 87.9 |
|
Other |
| 0.0 |
|
|
| (1.3 | ) |
|
| 0.0 |
|
|
| (1.3 | ) |
Balance at September 30, 2019 | $ | 1,707.9 |
|
| $ | 235.6 |
|
| $ | 136.0 |
|
| $ | 2,079.5 |
|
| Consumer |
|
| Consumer |
|
| Specialty |
|
|
|
|
| |||
| Domestic |
|
| International |
|
| Products |
|
| Total |
| ||||
Balance at December 31, 2019 | $ | 1,707.9 |
|
| $ | 235.6 |
|
| $ | 136.0 |
|
| $ | 2,079.5 |
|
Perl Weiss divestiture |
| 0.0 |
|
|
| (1.3 | ) |
|
| 0.0 |
|
|
| (1.3 | ) |
Balance at March 31, 2020 | $ | 1,707.9 |
|
| $ | 234.3 |
|
| $ | 136.0 |
|
| $ | 2,078.2 |
|
In connection with itsThe result of the Company’s annual goodwill impairment test, performed in the beginning of the second quarter of 2019, the Company determined that the estimated fair value substantially exceeded the carrying values of all reporting units. The determination of fair value contains numerous variables that are subject to change as business conditions change and therefore could impact fair value in the future. The Company has never incurred a goodwill impairment charge.
15
12. | Leases |
The Company leases certain manufacturing facilities, warehouses, office space, railcars and equipment. Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheet. All recorded leases are classified as operating leases and lease expense is recognized on a straight-line basis over the lease term. For leases beginning in 2019, lease components (base rental costs) are accounted for separately from the nonlease components (e.g., common-area maintenance costs). For leases that do not provide an implicit rate, the Company uses its estimated secured incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
A summary of the Company’s lease information is as follows:
|
| September 30, |
|
| March 31, |
| December 31, |
| |||
| Classification | 2019 |
| Classification | 2020 |
| 2019 |
| |||
Assets |
|
|
|
|
|
|
|
|
|
|
|
Right of use assets | Other Assets | $ | 152.8 |
| Other Assets | $ | 155.2 |
| $ | 150.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
Current lease liabilities | Accounts Payable and Accrued Expenses | $ | 16.1 |
| Accounts Payable and Accrued Expenses | $ | 16.5 |
| $ | 16.4 |
|
Long-term lease liabilities | Deferred and Other Long-term Liabilities |
| 145.9 |
| Deferred and Other Long-term Liabilities |
| 148.6 |
|
| 144.0 |
|
Total lease liabilities |
| $ | 162.0 |
|
| $ | 165.1 |
| $ | 160.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term (years) |
|
| 11.5 |
|
|
| 11.2 |
|
| 11.1 |
|
Weighted-average discount rate |
|
| 4.9 | % |
|
| 4.9 | % |
| 4.9 | % |
| Three Months |
| Nine Months |
| Three Months |
| Three Months |
| ||||
| Ended |
| Ended |
| Ended |
| Ended |
| ||||
| September 30, 2019 |
| September 30, 2019 |
| March 31, 2020 |
| March 31, 2019 |
| ||||
Statement of Income |
|
|
|
|
|
|
|
|
|
|
|
|
Lease cost(1) | $ | 6.5 |
| $ | 18.1 |
| $ | 6.6 |
| $ | 5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Other information |
|
|
|
|
|
|
|
|
|
|
| |
Leased assets obtained in exchange for new lease liabilities(2) | $ | 2.0 |
| $ | 59.1 |
| $ | 10.2 |
| $ | 1.3 |
|
Cash paid for amounts included in the measurement of lease liabilities | $ | 6.1 |
| $ | 18.2 |
| $ | 6.2 |
| $ | 6.0 |
|
| (1) | Lease expense is included in cost of sales or SG&A expenses based on the nature of the |
| (2) | In |
16
The Company’s minimum annual rentals including reasonably assured renewal options under lease agreements are as follows:
|
| Operating |
|
| Operating |
| ||
|
| Leases |
|
| Leases |
| ||
2019 |
| $ | 6.0 |
| ||||
2020 |
|
| 22.6 |
|
| $ | 17.5 |
|
2021 |
|
| 22.7 |
|
|
| 24.0 |
|
2022 |
|
| 20.5 |
|
|
| 21.6 |
|
2023 |
|
| 16.2 |
|
|
| 16.8 |
|
2024 and thereafter |
|
| 126.0 |
| ||||
2024 |
|
| 15.6 |
| ||||
2025 and thereafter |
|
| 120.5 |
| ||||
Total future minimum lease commitments |
|
| 214.0 |
|
|
| 216.0 |
|
Less: Imputed Interest |
|
| (52.0 | ) |
|
| (50.9 | ) |
Present value of lease liabilities |
| $ | 162.0 |
|
| $ | 165.1 |
|
13. | Accounts Payable and Accrued Expenses |
Accounts payable and accrued expenses consist of the following:
| September 30, |
|
| December 31, |
| March 31, |
|
| December 31, |
| ||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Trade accounts payable | $ | 449.0 |
|
| $ | 430.2 |
| $ | 460.1 |
|
| $ | 473.3 |
|
Accrued marketing and promotion costs |
| 116.2 |
|
|
| 116.2 |
|
| 123.9 |
|
|
| 138.1 |
|
Accrued wages and related benefit costs |
| 73.5 |
|
|
| 84.2 |
|
| 37.6 |
|
|
| 96.5 |
|
Other accrued current liabilities |
| 115.7 |
|
|
| 94.5 |
|
| 119.6 |
|
|
| 124.0 |
|
Total | $ | 754.4 |
|
| $ | 725.1 |
| $ | 741.2 |
|
| $ | 831.9 |
|
14. | Short-Term Borrowings and Long-Term Debt |
Short-term borrowings and long-term debt consist of the following:
| September 30, |
|
| December 31, |
| March 31, |
|
| December 31, |
| ||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Short-term borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit agreement borrowings(a) | $ | 825.0 |
|
| $ | 0.0 |
| |||||||
Commercial paper issuances | $ | 69.9 |
|
| $ | 0.0 |
|
| 144.1 |
|
|
| 248.6 |
|
Various debt due to international banks |
| 4.1 |
|
|
| 1.8 |
|
| 2.8 |
|
|
| 4.3 |
|
Total short-term borrowings | $ | 74.0 |
|
| $ | 1.8 |
| $ | 971.9 |
|
| $ | 252.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating Rate Senior notes due January 25, 2019 | $ | 0.0 |
|
| $ | 300.0 |
| |||||||
2.45% Senior notes due December 15, 2019 |
| 300.0 |
|
|
| 300.0 |
| |||||||
Term loan due May 1, 2022 |
| 300.0 |
|
|
| 0.0 |
|
| 300.0 |
|
|
| 300.0 |
|
2.45% Senior notes due August 1, 2022 |
| 300.0 |
|
|
| 300.0 |
|
| 300.0 |
|
|
| 300.0 |
|
Less: Discount |
| (0.2 | ) |
|
| (0.3 | ) |
| (0.2 | ) |
|
| (0.2 | ) |
2.875% Senior notes due October 1, 2022 |
| 400.0 |
|
|
| 400.0 |
|
| 400.0 |
|
|
| 400.0 |
|
Less: Discount |
| (0.1 | ) |
|
| (0.1 | ) |
| (0.1 | ) |
|
| (0.1 | ) |
3.15% Senior notes due August 1, 2027 |
| 425.0 |
|
|
| 425.0 |
|
| 425.0 |
|
|
| 425.0 |
|
Less: Discount |
| (0.4 | ) |
|
| (0.4 | ) |
| (0.3 | ) |
|
| (0.3 | ) |
3.95% Senior notes due August 1, 2047 |
| 400.0 |
|
|
| 400.0 |
|
| 400.0 |
|
|
| 400.0 |
|
Less: Discount |
| (2.7 | ) |
|
| (2.8 | ) |
| (2.7 | ) |
|
| (2.7 | ) |
Debt issuance costs, net |
| (12.1 | ) |
|
| (13.1 | ) |
| (10.9 | ) |
|
| (11.5 | ) |
Fair value adjustment asset (liability) related to hedged fixed rate debt instrument |
| (0.3 | ) |
|
| (3.0 | ) | |||||||
Total long-term debt |
| 2,109.2 |
|
|
| 2,105.3 |
| |||||||
Less: current maturities |
| (299.6 | ) |
|
| (596.5 | ) | |||||||
Net long-term debt | $ | 1,809.6 |
|
| $ | 1,508.8 |
| $ | 1,810.8 |
|
| $ | 1,810.2 |
|
17
(a) | The Company is party to a credit agreement dated March 29, 2018, as amended (the “Credit Agreement”), that provides for a $1.0 billion unsecured revolving credit facility (the “Revolving Credit Facility”). In March of 2020, the Company drew down a total amount of $825.0 million under the Revolving Credit Facility. Borrowings under the Revolving Credit Facility are scheduled to mature on March 29, 2024, and the Company may repay amounts borrowed any time without penalty. Based on the Company’s current corporate credit ratings, the currently applicable interest rate margins are 1.0% for adjusted LIBOR rate borrowings and 0.0% for Base Rate borrowings. The Company initiated borrowings under the Revolving Credit Facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic. |
Amended Credit Agreement
On May 1, 2019, the Companyamended its $1,000.0 unsecured revolving credit facility (the “Credit Agreement”) to extend the term of the Credit Agreement from March 29, 2023 to March 29, 2024. Under the Credit Agreement, the Company continues to have the ability to increase its borrowing up to an additional $600.0, subject to lender commitments and certain conditions as described in the Credit Agreement. Borrowings under the Credit Agreement are available for general corporate purposes and are used to support the Company’s $1,000.0 commercial paper program.
Term Loan
On May 1, 2019, the Company entered into a $300.0 unsecured term loan credit facility with various banks, the proceeds of which were used to partially fund the Flawless Acquisition. Unless prepaid, the loan is due on May 1, 2022. The interest rate is LIBOR plus an applicable margin based on the Company’s credit rating, which can range from 60 basis points (“bps”) to 113 bps.
15. | Accumulated Other Comprehensive Income (Loss) |
The components of changes in accumulated other comprehensive income (loss) are as follows:
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| Accumulated |
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| Accumulated |
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| Foreign |
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| Defined |
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| Other |
| Foreign |
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| Defined |
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| Other |
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| Currency |
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| Benefit |
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| Derivative |
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| Comprehensive |
| Currency |
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| Benefit |
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| Derivative |
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| Comprehensive |
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| Adjustments |
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| Plans |
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| Agreements |
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| Income (Loss) |
| Adjustments |
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| Plans |
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| Agreements |
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| Income (Loss) |
| ||||||||
Balance at December 31, 2017 | $ | (31.6 | ) |
| $ | (0.6 | ) |
| $ | (4.2 | ) |
| $ | (36.4 | ) | |||||||||||||||
Adoption of new accounting pronouncements |
| (0.3 | ) |
|
| 0.1 |
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|
| (0.4 | ) |
|
| (0.6 | ) | |||||||||||||||
Balance at December 31, 2018 | $ | (42.5 | ) |
| $ | 0.9 |
|
| $ | (12.0 | ) |
| $ | (53.6 | ) | |||||||||||||||
Other comprehensive income (loss) before reclassifications |
| (6.6 | ) |
|
| 0.0 |
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| 0.5 |
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| (6.1 | ) |
| 1.8 |
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| 0.0 |
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| (10.4 | ) |
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| (8.6 | ) |
Amounts reclassified to consolidated statement of income (a) (b) |
| 0.0 |
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| 0.0 |
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| 0.6 |
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| 0.6 |
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Amounts reclassified to consolidated statement of income (a) |
| 0.0 |
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| 0.0 |
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| 0.0 |
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| 0.0 |
| |||||||||||||||
Tax benefit (expense) |
| 0.0 |
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| 0.0 |
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| (0.4 | ) |
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| (0.4 | ) |
| 0.0 |
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| 0.0 |
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| 2.7 |
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| 2.7 |
|
Other comprehensive income (loss) |
| (6.6 | ) |
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| 0.0 |
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| 0.7 |
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|
| (5.9 | ) |
| 1.8 |
|
|
| 0.0 |
|
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| (7.7 | ) |
|
| (5.9 | ) |
Balance at September 30, 2018 | $ | (38.5 | ) |
| $ | (0.5 | ) |
| $ | (3.9 | ) |
| $ | (42.9 | ) | |||||||||||||||
Balance at March 31, 2019 | $ | (40.7 | ) |
| $ | 0.9 |
|
| $ | (19.7 | ) |
| $ | (59.5 | ) | |||||||||||||||
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Balance at December 31, 2018 | $ | (42.5 | ) |
| $ | 0.9 |
|
| $ | (12.0 | ) |
| $ | (53.6 | ) | |||||||||||||||
Balance at December 31, 2019 | $ | (36.8 | ) |
| $ | 0.0 |
|
| $ | (29.9 | ) |
| $ | (66.7 | ) | |||||||||||||||
Other comprehensive income (loss) before reclassifications |
| (4.1 | ) |
|
| 0.0 |
|
|
| (37.1 | ) |
|
| (41.2 | ) |
| (13.0 | ) |
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| 0.0 |
|
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| (27.0 | ) |
|
| (40.0 | ) |
Amounts reclassified to consolidated statement of income (a) (b) |
| 1.9 |
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|
| 0.0 |
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| 3.8 |
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| 5.7 |
| |||||||||||||||
Amounts reclassified to consolidated statement of income (a)(b) |
| 0.0 |
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| 0.0 |
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|
| 1.1 |
|
|
| 1.1 |
| |||||||||||||||
Tax benefit (expense) |
| 0.0 |
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| 0.0 |
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|
| 8.4 |
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| 8.4 |
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| 0.0 |
|
|
| 0.0 |
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| 6.2 |
|
|
| 6.2 |
|
Other comprehensive income (loss) |
| (2.2 | ) |
|
| 0.0 |
|
|
| (24.9 | ) |
|
| (27.1 | ) |
| (13.0 | ) |
|
| 0.0 |
|
|
| (19.7 | ) |
|
| (32.7 | ) |
Balance at September 30, 2019 | $ | (44.7 | ) |
| $ | 0.9 |
|
| $ | (36.9 | ) |
| $ | (80.7 | ) | |||||||||||||||
Balance at March 31, 2020 | $ | (49.8 | ) |
| $ | 0.0 |
|
| $ | (49.6 | ) |
| $ | (99.4 | ) |
(a) | Amounts reclassified to cost of sales, selling, general and administrative expenses or interest expense. |
(b) | The Company reclassified a loss of |
16. | Commitments, Contingencies and Guarantees |
Commitments
a. The Company has a partnership with a supplier of raw materials that mines and processes sodium-based mineral deposits. The Company purchases the majority of its sodium-based raw material requirements from the partnership. The partnership agreement terminates upon two years’ written notice by either partner. Under the partnership agreement, the Company has an annual commitment to purchase 240,000 tons of sodium-based raw materials at the prevailing market price. The Company is not engaged in any other material transactions with the partnership or the partner supplier.
b. As of September 30, 2019,March 31, 2020, the Company had commitments of approximately $227.3273.1. These commitments include the purchase of raw materials, packaging supplies and services from its vendors at market prices to enable the Company to respond quickly to changes in customer orders or requirements, as well as costs associated with licensing and promotion agreements.
18
c. As of September 30, 2019,March 31, 2020, the Company had various guarantees and letters of credit totaling $4.9. $4.2.
d. In connection with the Company’s acquisition of Agro BioSciences, Inc. (the “Agro Acquisition”) on January 17, 2017, the Company is obligated to pay an additional amount of up to $25.0 based on sales performance in 2019. The initial fair value of this contingent liability was $17.8, which was established in the purchase price allocation. Subsequent to the Agro Acquisition, the Company decreased the estimate of the contingent consideration liabilityby $2.1 to $15.7 based on updated sales forecasts. The reduction was recorded in SG&A in the SPD segment. There were no changes to the liability during the third quarter ofIn December 2019, and the final liability, will be determined at December 31, 2019.which was paid in the second quarter of 2020, was lowered to $14.2 based on 2019 sales.
In connection with the Passport Acquisition, the Company is obligated to pay an additional amount of up to $25.0 based on sales performance through 2020. The initial fair value of this contingent liability was $7.3, which was established in the purchase price allocation. During the second quarter of 2019, the Company reversedrecorded a reduction in fair value of the fullentire $7.3 ($5.5 after tax or $0.02 diluted per share)Passport contingent liability based on the revised valuation due to updated sales forecasts. The reduction was recorded in SG&A in the SPD segment. TheThere was 0 change in the contingent liability in the first quarter 2020 and it will be reassessed at each balance sheet date leading up to December 31, 2020.
In connection with the Flawless Acquisition, the Company is obligated to pay an additional amount of up to $425.0 based on sales performance through 2021. The initial fair value of this contingent liability was $182.0, which$182.0. That amount was established in the preliminary purchase price allocation. Subsequent to the date of the Flawless Acquisition, the Company increaseddecreased the estimate of the contingent consideration liability by $17.0 ($12.7 after tax or $0.05 diluted per share) from $182.0 to $199.0$165.0 based on the revised valuation due to updated sales forecasts as well as the passage of time. The charge wasCompany recorded a $27.0 reduction to SG&A expense in bothwithin the Consumer Domestic and Consumer International Segments.Segments during the first quarter of 2020. The contingent liability will be reassessedis remeasured at each balance sheet date until the completion of the earn-out period. Ideavillage will help support the business through a separate long-term transition services agreement.
Legal proceedings
e. The Company has been named as a defendant in a breach of contract action filed by Scantibodies Laboratory, Inc. (the “Plaintiff”) on April 1, 2014, in the U.S. District Court for the Southern District of New York.
The complaint alleges, among other things, that the Company (i) breached two agreements for the manufacture and supply of pregnancy and ovulation test kits by switching suppliers, (ii) failed to give Plaintiff the proper notice, (iii) failed to reimburse Plaintiff for costs and expenses under the agreements and (iv) misrepresented its future requirements. The complaint seeks compensatory and punitive damages in an amount in excess of $20.0, as well as declaratory relief, statutory prejudgment interest and attorneys’ fees and costs.
The Company is vigorously defending itself in this matter. On September 19, 2018, the trial court granted the Company’s motion for summary judgment, dismissing all claims brought by the Plaintiff.Plaintiff as a matter of law. The Plaintiff has filed an appeal.
appealed that decision, and the 2nd Circuit Court of Appeals reversed it in April 2020, remanding the case back to the lower court for a jury trial.
In connection with this matter, the Company has reserved an amount that is immaterial. However, it is reasonably possible that the Company may ultimately be required to pay all or substantially all of the damages and other amounts sought by Plaintiff in the event the summary judgment entered in favor of the Company is reversed.Plaintiff.
f. In addition, in conjunction with the Company’s acquisition and divestiture activities, the Company entered into select guarantees and indemnifications of performance with respect to the fulfillment of the Company’s commitments under applicable purchase and sale agreements. The arrangements generally indemnify the buyer or seller for damages associated with breach of contract, inaccuracies in representations and warranties surviving the closing date and satisfaction of liabilities and commitments retained under the applicable contract. Representations and warranties that survive the closing date generally survive for periods up to five years or the expiration of the applicable statutes of limitations. Potential losses under the indemnifications are generally limited to a portion of the original transaction price, or to other lesser specific dollar amounts for select provisions. With respect to sale transactions, the Company also routinely enters into non-competition agreements for varying periods of time. Guarantees and indemnifications with respect to acquisition and divestiture activities, if triggered, could have a materially adverse impact on the Company’s financial condition, results of operations and cash flows.
g. In addition to the matters described above, from time to time in the ordinary course of its business the Company is the subject of, or party to, various pending or threatened legal, regulatory or governmental actions or other proceedings,, including, without limitation, those relating to, intellectual property, commercial transactions, product liability, purported consumer class actions, employment matters, antitrust, environmental, health, safety and other compliance related matters. Such proceedings are generally subject to considerable uncertainty and their outcomes, and any related damages, may not be reasonably predictable or estimable.
19
While any such proceedings could result in an adverse outcome for the Company, any such adverse outcome is not expected to have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. flows.
17.Related Party Transactions |
|
The following summarizes the balances and transactions between the Company and Armand Products Company (“Armand”) and The ArmaKleen Company (“ArmaKleen”), in each of which the Company holds a 50% ownership interest:
| Armand |
|
| ArmaKleen |
| Armand |
|
| ArmaKleen |
| ||||||||||||||||||||
| Nine Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||||
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| March 31, |
|
| March 31, |
|
| March 31, |
|
| March 31, |
| ||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Purchases by Company | $ | 10.5 |
|
| $ | 11.9 |
|
| $ | 0.0 |
|
| $ | 0.0 |
| $ | 3.3 |
|
| $ | 2.8 |
|
| $ | 0.0 |
|
| $ | 0.0 |
|
Sales by Company | $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 0.9 |
|
| $ | 0.9 |
| $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 0.3 |
|
| $ | 0.3 |
|
Outstanding Accounts Receivable | $ | 0.3 |
|
| $ | 0.4 |
|
| $ | 0.7 |
|
| $ | 0.6 |
| $ | 0.4 |
|
| $ | 0.5 |
|
| $ | 0.7 |
|
| $ | 0.8 |
|
Outstanding Accounts Payable | $ | 1.2 |
|
| $ | 1.2 |
|
| $ | 0.0 |
|
| $ | 0.0 |
| $ | 1.2 |
|
| $ | 1.0 |
|
| $ | 0.0 |
|
| $ | 0.0 |
|
Administration & Management Oversight Services (1) | $ | 1.9 |
|
| $ | 1.9 |
|
| $ | 1.6 |
|
| $ | 1.6 |
| $ | 0.5 |
|
| $ | 0.6 |
|
| $ | 0.5 |
|
| $ | 0.5 |
|
(1) | Billed by the Company and recorded as a reduction of SG&A expenses. |
18. | Segments |
Segment Information
The Company operates 3 reportable segments: Consumer Domestic, Consumer International and SPD.Specialty Products Division. These segments are determined based on differences in the nature of products and organizational and ownership structures. The Company also has a Corporate segment.
Segment revenues are derived from the sale of the following products:
Segment |
|
| Products |
|
Consumer Domestic |
| Household and personal care products | ||
Consumer International |
| Primarily personal care products | ||
SPD |
| Specialty chemical products |
The Corporate segment income consists of equity in earnings of affiliates. As of September 30, 2019,March 31, 2020, the Company held 50% ownership interests in each of Armand and ArmaKleen, respectively. The Company’s equity in earnings of Armand and ArmaKleen, totaling $1.6 and $1.7 for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 are included in the Corporate segment.
20
Certain subsidiaries that are included in the Consumer International segment manufacture and sell personal care products to the Consumer Domestic segment. These sales are eliminated from the Consumer International segment results set forth in the table below.
Segment net sales and income before income taxes are as follows:
| Consumer |
|
| Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Domestic |
|
| International |
|
| SPD |
|
| Corporate |
|
| Total |
| |||||
Net Sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2019 | $ | 827.6 |
|
| $ | 186.4 |
|
| $ | 75.4 |
|
| $ | 0.0 |
|
| $ | 1,089.4 |
|
Third Quarter 2018 |
| 784.9 |
|
|
| 174.1 |
|
|
| 78.6 |
|
|
| 0.0 |
|
|
| 1,037.6 |
|
First Nine Months of 2019 | $ | 2,431.8 |
|
| $ | 559.7 |
|
| $ | 222.0 |
|
| $ | 0.0 |
|
| $ | 3,213.5 |
|
First Nine Months of 2018 |
| 2,310.4 |
|
|
| 530.9 |
|
|
| 230.2 |
|
|
| 0.0 |
|
|
| 3,071.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2019 | $ | 165.9 |
|
| $ | 22.1 |
|
| $ | 10.5 |
|
| $ | 2.1 |
|
| $ | 200.6 |
|
Third Quarter 2018 |
| 149.6 |
|
|
| 21.9 |
|
|
| 13.3 |
|
|
| 2.5 |
|
|
| 187.3 |
|
First Nine Months of 2019 | $ | 484.8 |
|
| $ | 67.4 |
|
| $ | 38.3 |
|
| $ | 5.5 |
|
| $ | 596.0 |
|
First Nine Months of 2018 |
| 428.3 |
|
|
| 67.6 |
|
|
| 40.5 |
|
|
| 7.0 |
|
|
| 543.4 |
|
| Consumer |
|
| Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Domestic |
|
| International |
|
| SPD |
|
| Corporate |
|
| Total |
| |||||
Net Sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2020 | $ | 891.0 |
|
| $ | 198.6 |
|
| $ | 75.6 |
|
| $ | 0.0 |
|
| $ | 1,165.2 |
|
First Quarter 2019 |
| 784.9 |
|
|
| 186.7 |
|
|
| 73.1 |
|
|
| 0.0 |
|
|
| 1,044.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2020 | $ | 250.8 |
|
| $ | 38.2 |
|
| $ | 8.8 |
|
| $ | 1.6 |
|
| $ | 299.4 |
|
First Quarter 2019 |
| 182.7 |
|
|
| 28.4 |
|
|
| 12.3 |
|
|
| 1.7 |
|
|
| 225.1 |
|
(1) | Intersegment sales from Consumer International to Consumer Domestic, which are not reflected in the table, were |
(2) | In determining income before income taxes, interest expense, investment earnings and certain aspects of other income and expense were allocated among segments based upon each segment’s relative income from operations. |
Product line revenues from external customers are as follows:
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
| |||||||||||||||
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| March 31, |
|
| March 31, |
| ||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||||
Household Products | $ | 463.5 |
|
| $ | 448.9 |
|
| $ | 1,371.1 |
|
| $ | 1,291.8 |
| $ | 494.3 |
|
| $ | 443.3 |
|
Personal Care Products |
| 364.1 |
|
|
| 336.0 |
|
|
| 1,060.7 |
|
|
| 1,018.6 |
|
| 396.7 |
|
|
| 341.6 |
|
Total Consumer Domestic |
| 827.6 |
|
|
| 784.9 |
|
|
| 2,431.8 |
|
|
| 2,310.4 |
|
| 891.0 |
|
|
| 784.9 |
|
Total Consumer International |
| 186.4 |
|
|
| 174.1 |
|
|
| 559.7 |
|
|
| 530.9 |
|
| 198.6 |
|
|
| 186.7 |
|
Total SPD |
| 75.4 |
|
|
| 78.6 |
|
|
| 222.0 |
|
|
| 230.2 |
|
| 75.6 |
|
|
| 73.1 |
|
Total Consolidated Net Sales | $ | 1,089.4 |
|
| $ | 1,037.6 |
|
| $ | 3,213.5 |
|
| $ | 3,071.5 |
| $ | 1,165.2 |
|
| $ | 1,044.7 |
|
Household Products include laundry, deodorizing and cleaning products. Personal Care Products include condoms, pregnancy kits, oral care products, skin care and hair care products and gummy dietary supplements.
|
|
During the second quarter of 2019, we decided to sell and subsequently sold our Brazilian consumer business, resulting in a $7.6 ($0.03 diluted per share) charge recorded in SG&A expense for severance, asset write-offs, and other charges. Net sales for the Brazilian consumer business in 2018 were approximately $15.0 in the Consumer International segment.
21
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
(In millions, except per share data)
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Recent Developments
Flawless AcquisitionCOVID-19 Disclosure
On May 1, 2019, we closed onThe COVID-19 pandemic is positively impacting certain of our previously announced acquisitionbusinesses, while negatively impacting the short-term results of certain others. During the last month of the FLAWLESS™quarter, we experienced a significant increase in consumer demand for many of our products, including Vitafusion gummy vitamins, Simply Saline and FINISHING TOUCH™ hair removalSterimar nasal hygiene products, A&H baking soda, A&H and XTRA laundry detergent, A&H cat litter and Kaboom bathroom cleaners, as we have seen consumers stocking up on household staple products, such as laundry detergent, cat litter, bathroom cleaners, baking soda and personal care products such as vitamins and supplements and nasal hygiene products. On the other hand, our WaterPik business (“Flawless”has been negatively impacted by the temporary closure of dental offices across the United States and some other personal care brands have been negatively impacted by the temporary closures of certain non-essential retailers and the acquisition,reduction of consumer foot traffic at retailers from which these brands derive a significant proportion of sales. Looking forward, we may experience significant reductions in demand or significant volatility in demand for one or more of our products, which may be caused by, among other things, the “Flawless Acquisition”)temporary or prolonged inability of consumers to purchase our products due to illness, quarantine or other travel or gathering restrictions, store closures, unemployment or other financial hardship, shifts in demand away from Ideavillage Products Corporation (“Ideavillage”). We paid $475.0 at closingone or more of our more discretionary or higher priced products to lower priced products, or stockpiling or similar pantry-loading or unloading activity.
Some products have also been impacted by a shift in consumer spending away from more discretionary products. While there is no certainty that current high levels of demand for certain of our products will continue, we have taken steps to increase short term manufacturing capacity for our cleaning products (including laundry detergent, baking soda, and will make an additional earn-out payment upcleaners) and health care products (including vitamins and nasal hygiene) and are working closely with our suppliers, contract manufacturers and retail partners to ensure sustained supply to keep pace with increased demand. Although we have seen increased demand in certain of our product categories, in the future, the pandemic may cause reduced demand for our products if it results in a maximumrecessionary global economic environment, as well as, the timing and impact of $425.0potential consumer pantry destocking in cash, based on a trailing twelve-month net sales target ending no later than December 31, 2021. The transaction was funded with a three-year term loan and commercial paper borrowings. We anticipate there will be a six-month integration transition periodmarkets in which the net cash received from Ideavillage will be accounted for as other revenue as a component of net sales. We will purchase the inventory following the transition period, at such time, we will be the principal party to the transaction. FLAWLESS is managed in the Consumer Domestic and Consumer International segments and represents an addition to our specialty haircare portfolio which includes BATISTE dry shampoo, VIVISCAL hair thinning supplements, and TOPPIK hair fibers. Ideavillage will help support the business through a separate long-term transition services agreement.
Amended Credit Agreement
On May 1, 2019, we amended our $1,000.0 unsecured revolving credit facility (the “Credit Agreement”) to extend the term of the Credit Agreement from March 29, 2023 to March 29, 2024. Under the Credit Agreement,serve. Moreover, we continue to experience and anticipate increased online sales during the pandemic.
The COVID-19 pandemic and the corresponding government response have theled to increased unemployment and economic uncertainty, which could lead to a further reduction in consumer spending. Economic conditions are, and we expect that they will continue to be, highly volatile and uncertain. Recessionary conditions could reduce demand for our discretionary products and put downward pressure on prices. Some of our retail customers have closed their stores or reduced store hours, which has impacted their ability to increase our borrowing up to an additional $600.0, subject to lender commitmentsmeet outstanding obligations and certain conditions as describedmay cause further reductions in their purchases in the Credit Agreement. Borrowings under the Credit Agreement are available for general corporate purposes and are used to support our $1,000.0 commercial paper program.coming months.
Term LoanSubstantially all of our manufacturing facilities and distribution centers, and those of our key suppliers, contract manufacturers, and transportation suppliers, currently remain open and continue to operate. Various state and local governments in the U.S. and other jurisdictions have required cessation of non-essential activities. Substantially all of our products are considered essential under applicable governmental requirements and guidance, including the Department of Homeland Security’s March 19, 2020 Guidance on the Essential Critical Infrastructure Workforce. We intend to continue to work with government authorities, implement our employee safety measuresand supplement our in-house manufacturing with increased use of contract manufacturers to ensure that we are able to continue to manufacture and distribute our products during the pandemic. However, uncertainty resulting from the pandemic could result in an unforeseen disruption to our supply chain (for example a closure of a key manufacturing or distribution facility or the inability of a key supplier, contract manufacturer or transportation supplier to source and transport materials) that could impact our operations and ability to supply products to our customers.
On May 1, 2019, we entered into a $300.0 unsecured term loan credit facility with various banks,We are monitoring the proceeds of which were used to partially fundimpact that the Flawless Acquisition. Unless prepaid, the loanCOVID-19 pandemic and corresponding government action is due on May 1, 2022. The interest rate is LIBOR plus an applicable margin basedhaving on our credit rating, which can range from 60 basis points (“bps”)customers and consumer demand and how potentially it will impact future cash flows for the short and long term and its impact to 113 bps.intangible asset carrying values. While we expect that many of these effects will not be permanent, it is impossible to predict their duration.
Brazil’s Consumer BusinessPERL WEISS Transaction
During the secondfirst quarter of 2019,2020, we decided to sell and subsequently sold our Brazilian consumer business, resultingPERL WEISS® toothpaste brand in Germany with a $7.6 ($0.03 diluted per share) chargenet book value of $4.0 for cash proceeds of $7.0. The $3.0 gain associated with this transaction was recorded inas a reduction of SG&A expense for severance, asset write-offs, and other charges. Net sales for the Brazilian consumer business in 2018 were approximately $15.0 in the Consumer International segment. Segment.
22
Results of Operations
Consolidated results
| Three Months Ended |
|
| Change vs. |
|
| Three Months Ended |
| Three Months Ended |
|
| Change vs. |
|
| Three Months Ended |
| |||||
| September 30, 2019 |
|
| Prior Year |
|
| September 30, 2018 |
| March 31, 2020 |
|
| Prior Year |
|
| March 31, 2019 |
| |||||
Net Sales | $ | 1,089.4 |
|
| 5.0% |
|
| $ | 1,037.6 |
| $ | 1,165.2 |
|
| 11.5% |
|
| $ | 1,044.7 |
| |
Gross Profit | $ | 507.7 |
|
| 10.3% |
|
| $ | 460.1 |
| $ | 532.0 |
|
| 13.0% |
|
| $ | 470.8 |
| |
Gross Margin |
| 46.6 | % |
| +230 basis points |
|
|
| 44.3 | % |
| 45.7 | % |
| +60 basis points |
|
|
| 45.1 | % | |
Marketing Expenses | $ | 125.2 |
|
| 3.9% |
|
| $ | 120.5 |
| $ | 96.4 |
|
| -1.7% |
|
| $ | 98.1 |
| |
Percent of Net Sales |
| 11.5 | % |
| -10 basis points |
|
|
| 11.6 | % |
| 8.3 | % |
| -110 basis points |
|
|
| 9.4 | % | |
Selling, General & Administrative Expenses | $ | 165.7 |
|
| 22.4% |
|
| $ | 135.4 |
| $ | 121.0 |
|
| -8.3% |
|
| $ | 131.9 |
| |
Percent of Net Sales |
| 15.2 | % |
| +220 basis points |
|
|
| 13.0 | % |
| 10.4 | % |
| -220 basis points |
|
|
| 12.6 | % | |
Income from Operations | $ | 216.8 |
|
| 6.2% |
|
| $ | 204.2 |
| $ | 314.6 |
|
| 30.6% |
|
| $ | 240.8 |
| |
Operating Margin |
| 19.9 | % |
| +20 basis points |
|
|
| 19.7 | % |
| 27.0 | % |
| +390 basis points |
|
| 23.1% |
| ||
Net income per share - Diluted | $ | 0.62 |
|
| 6.9% |
|
| $ | 0.58 |
| $ | 0.92 |
|
| 31.4% |
|
| $ | 0.70 |
| |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Nine Months Ended |
|
| Change vs. |
|
| Nine Months Ended |
| |||||||||||||
| September 30, 2019 |
|
| Prior Year |
|
| September 30, 2018 |
| |||||||||||||
Net Sales | $ | 3,213.5 |
|
| 4.6% |
|
| $ | 3,071.5 |
| |||||||||||
Gross Profit | $ | 1,460.0 |
|
| 6.8% |
|
| $ | 1,366.5 |
| |||||||||||
Gross Margin |
| 45.4 | % |
| +90 basis points |
|
|
| 44.5 | % | |||||||||||
Marketing Expenses | $ | 352.4 |
|
| -1.2% |
|
| $ | 356.8 |
| |||||||||||
Percent of Net Sales |
| 10.9 | % |
| -70 basis points |
|
|
| 11.6 | % | |||||||||||
Selling, General & Administrative Expenses | $ | 462.6 |
|
| 12.4% |
|
| $ | 411.4 |
| |||||||||||
Percent of Net Sales |
| 14.4 | % |
| +100 basis points |
|
|
| 13.4 | % | |||||||||||
Income from Operations | $ | 645.0 |
|
| 7.8% |
|
| $ | 598.3 |
| |||||||||||
Operating Margin |
| 20.1 | % |
| +60 basis points |
|
|
| 19.5 | % | |||||||||||
Net income per share - Diluted | $ | 1.87 |
|
| 10.0% |
|
| $ | 1.70 |
|
Diluted Net Income per share was $0.62$0.92 in the thirdfirst quarter of 20192020 as compared to $0.58 in the third quarter of 2018. Diluted Net Income per share was $1.87$0.70 in the first nine monthsquarter of 2019 as compared to $1.70 in the same period in 2018. 2019.
During the second quarter and thirdfirst quarter of 2019, respectively,2020, we increasedreduced the estimatefair value of theour contingent liability by $5.0$27.0 ($3.720.2 after tax or $0.01 diluted per share) and $12.0 ($9.0 after tax or $0.04$0.08 diluted per share) associated with the Flawless Acquisition for a total of $17.0, based on updated sales forecasts and the passage of time. In the second quarter of 2019 we reversed the fullThe contingent liability of $7.3 ($5.5 after tax or $0.02 diluted per share) associated with the acquisition of Passport Food and Safety Solutions, Inc. (“Passport,” and the acquisition, the “Passport Acquisition”), based on updated sales forecasts. These contingent liability adjustments wereadjustment was recorded in SG&A expense.
DuringAlso during the secondfirst quarter of 2019,2020, we decided to sell and subsequently sold our consumer businesscompleted the sale of the PERL WEISS® toothpaste brand in Brazil, and recordedGermany which resulted in a pre- and post-gain of $3.0 ($2.2 after tax charge of $7.6 ($0.03or $0.01 diluted per share) recorded in selling and general administrative expenses.SG&A expense.
23
Net Sales
Net sales for the quarter ended September 30, 2019March 31, 2020 were $1,089.4,$1,165.2, an increase of $51.8$120.5 or 5.0%11.5% as compared to the same period in 2018. Net sales for the nine months ended September 30, 2019 were $3,213.5, an increase of $142.0 or 4.6% over the comparable nine month period of 2018.2019. The components of the net sales increase are as follows:
| Three Months Ended |
|
| Nine Months Ended |
| ||
| September 30, |
|
| September 30, |
| ||
Net Sales - Consolidated | 2019 |
|
| 2019 |
| ||
Product volumes sold |
| (0.7 | )% |
|
| 0.5 | % |
Pricing/Product mix |
| 4.3 | % |
|
| 3.9 | % |
Foreign exchange rate fluctuations |
| (0.6 | )% |
|
| (0.7 | )% |
Acquired product lines (1) |
| 2.0 | % |
|
| 0.9 | % |
Net Sales increase |
| 5.0 | % |
|
| 4.6 | % |
Three Months Ended | |||
March 31, | |||
Net Sales - Consolidated | 2020 | ||
Product volumes sold | 6.9 | % | |
Pricing/Product mix | 2.3 | % | |
Foreign exchange rate fluctuations | (0.4 | %) | |
Acquired product lines (net of divestiture) (1) | 2.7 | % | |
Net Sales increase | 11.5 | % |
(1) |
|
For the three months ended September 30, 2019,March 31, 2020, the volume change reflects increased product sales in the Consumer International segment, with volume declines in Specialty Products (“SPD”) and Consumer Domesticall three of our segments. Price/mix was favorable in the Consumer Domestic and Consumer International segments, but was partially offset by unfavorable price/mix in the SPDSpecialty Products (“SPD”) segment. For the nine months ended September 30, 2019, the volume change primarily reflects increased product sales in the Consumer International segment, with volume declines in SPD and Consumer Domestic segments and price/mix was favorable in all three segments.
Gross Profit / Gross Margin
Our gross profit was $507.7$532.0 for the three months ended September 30, 2019,March 31, 2020, a $47.6$61.2 increase as compared to the same period in 2018.2019. Gross margin increased 23060 basis points (“bps”) in the thirdfirst quarter of 20192020 compared to the same period in 2018,2019, primarily due to favorable price/volume mix of 180140 bps, productivity programs of 120110 bps, the impact of higher margins on acquired businesses of 10010 bps, partially offset by higher manufacturing cost increases of 180 bps (including costs of approximately 30 bps associated with the COVID-19 pandemic), commodity and transportation costs of 110 bps and manufacturing cost increases of 15010 bps and unfavorable foreign exchange rates of 10 bps. In addition, in mid-2018, as part of the Tier 2 tariff regulation, the United States Trade Representative (“USTR”) imposed tariffs on certain products of ours that are imported from China. Subsequently, we appealed. In the third quarter of 2019, the USTR ruled in our favor with respect to some of the products and granted us a retroactive adjustment and a one year forward exemption. As a result, our 2019 third quarter gross margin was favorably impacted by 100 bps.
Gross profit was $1,460.0 for the nine months ended September 30, 2019, a $93.5 increase compared to the same period of 2018. Gross margin increased 90 bps in the first nine months of 2019 compared to the same period in 2018, primarily due to favorable price/volume mix of 150 bps, productivity programs of 130 bps, the impact of higher margins on acquired businesses of 50 bps, favorable impact of 30 bps due to the USTR ruling in favor of our appeal of Tier 2 tariffs on certain products, partially offset by manufacturing cost increases of 200 bps and higher commodity costs of 70 bps.
Operating Expenses
Marketing expenses for the three months ended September 30, 2019March 31, 2020 were $125.2, an increase$96.4, a decrease of $4.7$1.7 or 3.9%1.7% as compared to the same period in 2018.2019. Marketing expenses as a percentage of net sales in the thirdfirst quarter of 20192020 decreased by 10110 bps to 11.5%8.3% as compared to 11.6%9.4% in the same period in 20182019 due to 50 bps of leverage on higher net sales partially offset by 40 bps on higher expenses. Marketing expenses for the nine months ended September 30, 2019 were $352.4, a decrease of $4.4 or 1.2% as compared to the same period in 2018. Marketing expenses as a percentage of net sales for the first nine months of 2019 decreased by 70 bps to 10.9% as compared to 11.6% in the same period in 2018 due to 50100 bps of leverage on higher net sales and 2010 bps on lower expenses.
Selling, general and administrative (“SG&A”) expenses were $165.7$121.0 in the thirdfirst quarter of 2019, an increase2020, a decrease of $30.3$10.9 or 22.4%8.3% as compared to the same period in 2018.2019. SG&A as a percentage of net sales increaseddecreased 220 bps to 15.2%10.4% in the thirdfirst quarter of 20192020 as compared to 13.0%12.6% in the same period in 2018.2019. The increasedecrease is due to 280 bps on higher expenses, partially offset by 60130 bps of leverage associated with higher sales. sales and 90 bps on lower expenses. SG&AThe lower expenses for the first nine months of 2019 was $462.6, an increase of $51.2 or 12.4% as compared to the samethree month period in 2018. SG&A as a percentage of net sales increased 100 bps to 14.4% in the first nine months of 2019 compared to 13.4% in 2018 due to 160 bps on higher expenses, partially offset by 60 bps of leverage associated with higher sales. The higher expenses for both the three and nine month periods ended September 30, 2019March 31, 2020 is primarily due to transition and ongoing acquisition-related costs (including amortization expense anda reduction of the $12.0 and $17.0 Flawless earnout adjustment for the three and nine month periods respectively)by $27.0 and the charge$3.0 gain associated with selling our consumer business in Brazilthe sale of $7.6,PERL WEISS, partially offset by the reversal of a $7.3 contingent consideration liability associated with the Passport Acquisition. acquisition-related costs(including amortization expense), higher compensation costs, and higher selling costs.
24
Other Income and Expenses
Other expense, net for the three and nine months ended September 30, 2019 decreased $0.6 and $3.2 respectively,March 31, 2020 increased $0.5, compared to the same period in 20182019 primarily due to the effect of changes in foreign exchange rates.
Interest expense for the three and nine months ended September 30, 2019March 31, 2020 decreased $0.5 and $4.1 respectively,$1.5, as compared to the same period in 20182019 primarily due to the repayment of the $300.0 Floating Rate2.45% Senior Notes that matured on January 25, 2019. This was partially offset byin the fourth quarter of 2019 and lower interest on the $300.0 unsecured term loan credit facility entered into on May 1, 2019. rates.
Income Taxes
The effective tax rate for the three and nine months ended September 30, 2019March 31, 2020 was 21.6% and 20.9% respectively,23.2% compared to 21.9% and 21.6% in the same periodsperiod in 2018. 2019. The increase in the tax rate is primarily due to a lower tax benefit on a lower amount of stock option exercises.
Segment results
We operate three reportable segments: Consumer Domestic, Consumer International and SPD. These segments are determined based on differences in the nature of products and organizational and ownership structures. We also have a Corporate segment.
Segment |
|
| Products |
|
Consumer Domestic |
| Household and personal care products | ||
Consumer International |
| Primarily personal care products | ||
SPD |
| Specialty chemical products |
The Corporate segment income consists of equity in earnings of affiliates. As of September 30, 2019,March 31, 2020, we held 50% ownership interests in each of Armand Products Company (“Armand”) and The ArmaKleen Company (“ArmaKleen”), respectively. Our equity in earnings of Armand and ArmaKleen, totaling $1.6 and $1.7 for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 are included in the Corporate segment. Certain subsidiaries that are included in the Consumer International segment manufacture and sell personal care products to the Consumer Domestic segment. These sales are eliminated from the Consumer International segment results set forth below.
Segment net sales and income before income taxes for the three and nine months ended September 30,March 31, 2020 and March 31, 2019 and September 30, 2018 are as follows:
| Consumer |
|
| Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Domestic |
|
| International |
|
| SPD |
|
| Corporate |
|
| Total |
| |||||
Net Sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2019 | $ | 827.6 |
|
| $ | 186.4 |
|
| $ | 75.4 |
|
| $ | 0.0 |
|
| $ | 1,089.4 |
|
Third Quarter 2018 |
| 784.9 |
|
|
| 174.1 |
|
|
| 78.6 |
|
|
| 0.0 |
|
|
| 1,037.6 |
|
First Nine Months of 2019 | $ | 2,431.8 |
|
| $ | 559.7 |
|
| $ | 222.0 |
|
| $ | 0.0 |
|
| $ | 3,213.5 |
|
First Nine Months of 2018 |
| 2,310.4 |
|
|
| 530.9 |
|
|
| 230.2 |
|
|
| 0.0 |
|
|
| 3,071.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2019 | $ | 165.9 |
|
| $ | 22.1 |
|
| $ | 10.5 |
|
| $ | 2.1 |
|
| $ | 200.6 |
|
Third Quarter 2018 |
| 149.6 |
|
|
| 21.9 |
|
|
| 13.3 |
|
|
| 2.5 |
|
|
| 187.3 |
|
First Nine Months of 2019 | $ | 484.8 |
|
| $ | 67.4 |
|
| $ | 38.3 |
|
| $ | 5.5 |
|
| $ | 596.0 |
|
First Nine Months of 2018 |
| 428.3 |
|
|
| 67.6 |
|
|
| 40.5 |
|
|
| 7.0 |
|
|
| 543.4 |
|
| Consumer |
|
| Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Domestic |
|
| International |
|
| SPD |
|
| Corporate |
|
| Total |
| |||||
Net Sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2020 | $ | 891.0 |
|
| $ | 198.6 |
|
| $ | 75.6 |
|
| $ | 0.0 |
|
| $ | 1,165.2 |
|
First Quarter 2019 |
| 784.9 |
|
|
| 186.7 |
|
|
| 73.1 |
|
|
| 0.0 |
|
|
| 1,044.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2020 | $ | 250.8 |
|
| $ | 38.2 |
|
| $ | 8.8 |
|
| $ | 1.6 |
|
| $ | 299.4 |
|
First Quarter 2019 |
| 182.7 |
|
|
| 28.4 |
|
|
| 12.3 |
|
|
| 1.7 |
|
|
| 225.1 |
|
(1) | Intersegment sales from Consumer International to Consumer Domestic, which are not reflected in the table, were |
(2) | In determining income before income taxes, interest expense, investment earnings and certain aspects of other income and expense were allocated among the segments based upon each segment’s relative income from operations. |
25
Product line revenues from external customers are as follows:
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
| |||||||||||||||
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| March 31, |
|
| March 31, |
| ||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||||
Household Products | $ | 463.5 |
|
| $ | 448.9 |
|
| $ | 1,371.1 |
|
| $ | 1,291.8 |
| $ | 494.3 |
|
| $ | 443.3 |
|
Personal Care Products |
| 364.1 |
|
|
| 336.0 |
|
|
| 1,060.7 |
|
|
| 1,018.6 |
|
| 396.7 |
|
|
| 341.6 |
|
Total Consumer Domestic |
| 827.6 |
|
|
| 784.9 |
|
|
| 2,431.8 |
|
|
| 2,310.4 |
|
| 891.0 |
|
|
| 784.9 |
|
Total Consumer International |
| 186.4 |
|
|
| 174.1 |
|
|
| 559.7 |
|
|
| 530.9 |
|
| 198.6 |
|
|
| 186.7 |
|
Total SPD |
| 75.4 |
|
|
| 78.6 |
|
|
| 222.0 |
|
|
| 230.2 |
|
| 75.6 |
|
|
| 73.1 |
|
Total Consolidated Net Sales | $ | 1,089.4 |
|
| $ | 1,037.6 |
|
| $ | 3,213.5 |
|
| $ | 3,071.5 |
| $ | 1,165.2 |
|
| $ | 1,044.7 |
|
Household Products include laundry, deodorizing, and cleaning products. Personal Care Products include condoms, pregnancy kits, oral care products, skin care and hair care products and gummy dietary supplements.
Consumer Domestic
Consumer Domestic net sales in the thirdfirst quarter of 20192020 were $827.6,$891.0, an increase of $42.7$106.1 or 5.4%13.5% as compared to the same period in 2018. Consumer Domestic net sales for the nine months ended September 30, 2019 were $2,431.8 an increase of $121.4 or 5.3% as compared to the same period in 2018.2019. The components of the net sales change are the following:
| Three Months Ended |
|
| Nine Months Ended |
| ||
| September 30, |
|
| September 30, |
| ||
Net Sales - Consumer Domestic | 2019 |
|
| 2019 |
| ||
Product volumes sold |
| (1.8 | )% |
|
| (0.6 | )% |
Pricing/Product mix |
| 5.1 | % |
|
| 4.8 | % |
Acquired product lines (1) |
| 2.1 | % |
|
| 1.1 | % |
Net Sales increase |
| 5.4 | % |
|
| 5.3 | % |
Three Months Ended | |||
March 31, | |||
Net Sales - Consumer Domestic | 2020 | ||
Product volumes sold | 7.4 | % | |
Pricing/Product mix | 2.8 | % | |
Acquired product lines (1) | 3.3 | % | |
Net Sales increase | 13.5 | % |
(1) | Includes the Flawless Acquisition since the date of acquisition. |
The increase in net sales for the three months ended September 30, 2019,March 31, 2020, reflects the impact of the Flawless Acquisition, higher sales of ARM & HAMMER liquid laundry detergent, WATERPIK oral care products, VITAFUSION and L’IL CRITTERS gummy vitamins, BATISTE dry shampoo,OXICLEAN® stain fighters, ARM & HAMMER clumping cat litter and ARM & HAMMER scent booster. The increase in net sales for the nine month period ending September 30, 2019, reflects the impact of the Flawless Acquisition, higher sales of ARM & HAMMER liquid detergent, WATERPIK oral care products, ARM & HAMMER clumping cat litter, ARM & HAMMER scent booster, XTRA liquid laundry detergent,baking soda, BATISTE dry shampoo, and VITAFUSION and L’IL CRITTERS gummy vitamins.
SIMPLY SALINE nasal congestion spray. A number of these brands realized higher than anticipated sales due to higher consumer demand due to the COVID-19 pandemic.
There continues to be significant product competition in the gummy vitamin category. The category has grown from eight competitorssix brands to 30over 50 in the last fiveeight years. Moreover, condom usage has declined, as a result of a lower 18 to 24-year old population, alternate birth control options, less fear of HIV, less sex acts and, increased competition, all of which have contributed to lower demand for our products. We continue to evaluate and vigorously combataddress these pressures through, among other things, new product introductions and increased marketing and trade spending. However, there is no assurance this category will not decline in the future and that we will be able to offset any such decline.
Consumer Domestic income before income taxes for the thirdfirst quarter of 20192020 was $165.9,$250.8, a $16.3$68.1 increase as compared to the thirdfirst quarter of 2018.2019. The increase is due primarily to volumes of $43.5 (including the impact of the pandemic), favorable price/mix of $51.0$20.0 and favorable manufacturing and distribution costs of $2.5 (including the tariff recovery), partially offset by higherlower SG&A costs of $24.0$7.2 (in large part due to thea $23.0 Flawless earn-out chargeadjustment and other costs associated with the Flawless Acquisition), lower volumes of $10.0, and higher marketing expenses costs of $3.7.
For the nine month period ended September 30, 2019, income before income taxes was $484.8, a $56.5 increase as compared to the first nine months of 2018. The increase is due primarily to favorable price/mix of $114.9, lower marketing expenses of $7.6 and lower interest and other expenses of $3.8, partially offset by higher SG&A costs of $40.3 (in large part due to the Flawless earn-out charge and other costs associated with the Flawless Acquisition), unfavorable manufacturing and distribution costs of $17.2 (which includes the benefit of the third quarter tariff recovery), and lower volumes of $12.8.$3.0.
26
Consumer International
Consumer International net sales were $186.4$198.6 in the thirdfirst quarter of 2019,2020, an increase of $12.3$11.9 or 7.1%6.4% as compared to the same period in 2018. Consumer International net sales in the first nine months of 2019 were $559.7, an increase of $28.8 or approximately 5.4% as compared to the same period in 2018. 2019. The components of the net sales change are the following:
| Three Months Ended |
|
| Nine Months Ended |
| ||
| September 30, |
|
| September 30, |
| ||
Net Sales - Consumer International | 2019 |
|
| 2019 |
| ||
Product volumes sold |
| 5.4 | % |
|
| 7.8 | % |
Pricing/Product mix |
| 3.3 | % |
|
| 1.0 | % |
Foreign exchange rate fluctuations / Other |
| (3.3 | )% |
|
| (4.1 | )% |
Acquired product lines (1) |
| 1.7 | % |
|
| 0.7 | % |
Net Sales increase |
| 7.1 | % |
|
| 5.4 | % |
Three Months Ended | |||
March 31, | |||
Net Sales - Consumer International | 2020 | ||
Product volumes sold | 4.9 | % | |
Pricing/Product mix | 2.2 | % | |
Foreign exchange rate fluctuations / Other | (2.3 | %) | |
Acquired product lines (net of divestiture) (1) | 1.6 | % | |
Net Sales increase | 6.4 | % |
(1) | Includes the Flawless Acquisition since the date of acquisition. During the second quarter of 2019, we sold our consumer business in Brazil. During the first quarter of 2020 we completed the sale of the Perl Weiss brand. |
Excluding the impact of foreign exchange rates and the Flawless Acquisition, higher sales in the thirdfirst quarter ended September 30, 2019March 31, 2020 were driven primarily by BATISTE dry shampoo and VITAFUSION gummy vitamins in the Global Markets Group (formerly export business), ARM & HAMMER liquid laundry detergent and STERIMAR in Mexico, BATISTE in Australia and Germany, and WATERPIK in the Global Markets Group, Canada, U.K., Australia, and France. For the nine months ended September 30, 2019 higher sales were driven primarily by VITAFUSION & L’IL CRITTERS gummy vitamins, FEMFRESH, BATISTE and STERIMAR in the Global Markets Group business, ARM & HAMMER cat litter and& liquid laundry detergent GRAVOL and TROJAN in Canada, ARM & HAMMER liquid laundry detergentCURASH® baby wipes and STERIMARthe FEMFRESH® feminine hygiene portfolio in Mexico, and BATISTE and ANUSOLAustralia, STERIMAR® nasal spray in the U.K. WATERPIK, and BATISTE dry shampoo in Germany. A number of these brands realized higher than anticipated sales grew acrossdue to higher consumer demand due to the Global Markets Group business, U.K., Canada, Australia, and France. COVID-19 pandemic.
Consumer International income before income taxes was $22.1$38.2 in the thirdfirst quarter of 2019,2020, an increase of $0.2$9.8 compared to the same period in 20182019 due primarily to favorable price/mix of $9.4, higher sales volumes of $5.2 and$4.8, lower interest and other expenses of $0.4, partially offset byhigher SG&A costs of $6.2$4.4 (in part due to thea $4.0 Flawless earn-out chargeadjustment and other costs associated with the Flawless Acquisition)Acquisition and gain on sale of PERL WEISS® assets), favorable price/mix of $3.4, and lower marketing expenses of $1.2, partially offset by unfavorable foreign exchange rates of $1.9, unfavorable manufacturing costs of $5.6, higher marketing expenses of $1.8, and unfavorable foreign exchange rates of $1.4. For the first nine months of 2019, income before income taxes was $67.4, a $0.2 decrease as compared to the same period in 2018, due primarily to higher SG&A costs of $18.6 (in part due to the Flawless earn-out charge and other costs associated with the Flawless Acquisition), unfavorable manufacturing costs of $11.2, higher marketing expenses of $6.5, and unfavorable foreign exchange rates of $4.0, partially offset by higher sales volumes of $23.3, favorable price/mix of $14.5, and lower interest and other expenses of $2.3. The higher SG&A costs for the nine months also include the $7.6 charge associated with the sale of the Consumer business in Brazil.$0.4.
Specialty Products (“SPD”)
SPD net sales were $75.4$75.6 in the thirdfirst quarter of 2019, a decrease2020, an increase of $3.2$2.5 or 4.1%3.4% as compared to the same period in 2018. SPD net sales were $222.0 for the first nine months of 2019, a decrease of $8.2, or 3.6% as compared to the same period of 2018.2019. The components of the net sales change are the following:
| Three Months Ended |
|
| Nine Months Ended |
| ||
| September 30, |
|
| September 30, |
| ||
Net Sales - SPD | 2019 |
|
| 2019 |
| ||
Product volumes sold |
| (3.1 | )% |
|
| (4.8 | )% |
Pricing/Product mix |
| (1.0 | )% |
|
| 0.2 | % |
Acquired product lines (1) |
| (— | )% |
|
| 1.0 | % |
Net Sales increase |
| (4.1 | )% |
|
| (3.6 | )% |
|
| ||
March 31, | |||
Net Sales - SPD | 2020 | ||
Product volumes sold | 6.7 | % | |
Pricing/Product mix | (3.3 | %) | |
Net Sales increase | 3.4 | % |
Excluding the impact of the acquisition, theThe net sales decreaseincrease in the thirdfirst quarter and nine month period of 20192020 was driven by lowerhigher volumes in the animal and food production business. DemandDairy farm profitability in the dairy industryfirst quarter of 2020 is significantly reduced due to low dairy farm profitability.greatly improved versus prior year and has driven higher demand for our products.
27
SPD income before income taxes was $10.5$8.8 in the thirdfirst quarter of 2019,2020, a decrease of $2.8$3.5 as compared to the same period in 20182019 due primarily to unfavorable manufacturing costs of $2.7, unfavorable price/product mix of $2.4, higher SG&A costs of $1.5, lower sales volumes of $0.9, unfavorable price/product mix of $0.8,$1.0, and higher marketing costs of $0.2, and unfavorable manufacturing costs of $0.1, partially offset by lower interest and other expenses of $0.6. SPD income before income taxes was $38.3 in the first nine months of 2019, a decrease of $2.2 as compared to the same period in 2018 due to higher SG&A costs of $4.8 (in part due to costs associated with the Passport acquisition), lower sales volumes of $3.4, and unfavorable manufacturing costs of $3.1, partially offset by the reversal of a $7.3 contingent consideration liability associated with the Passport acquisition, favorable price/product mix of $0.4, lower marketing costs of $0.2,$2.4 and lower interest and other expenses of $1.2.$0.5.
Corporate
The Corporate segment includes equity in earnings of affiliates from Armand and ArmaKleen in the thirdfirst quarter of 20192020 and 2018.2019. The Corporate segment income before income taxes was $2.1$1.6 in the thirdfirst quarter of 2019,2020, as compared to $2.5$1.7 in the same period in 2018.2019. The Corporate segment income before income taxes was $5.5 for the first nine months of 2019, as compared to $7.0 in the same period in 2018.
Liquidity and Capital Resources
On May 1, 2019, we amended our $1,000.0 unsecured revolving credit facility (the “Credit Agreement”) to extend the term of the Credit Agreement from March 29, 2023 to March 29, 2024. Under the Credit Agreement, we continue to have the ability to increase our borrowing up to an additional $600.0, subject to lender commitments and certain conditions as described in the Credit Agreement. Borrowings under the Credit Agreement are available for general corporate purposes and are used to support ourpurposes.
During the week of March 23, 2020, we drew an additional $825.0 million under the Credit Agreement. As a result of this additional borrowing, we have now drawn almost the entirety of the $1,000.0 commercial paper program.
On May 1, 2019, we entered into a $300.0 unsecured term loan credit facilityavailable, with various banks, the proceeds of which were used to partially fund the Flawless Acquisition. Unless prepaid, the loan is due on May 1, 2022. The interest rate is LIBOR plus an applicable margin based on our credit rating, which can range from 60 bps to 113 bps.
As of September 30, 2019, we had $114.7 in cash and cash equivalents, and approximately $927.0$27.0 available through the revolving facility under our Credit Agreement and our commercial paper program. Although we do not have any presently anticipated need for this additional liquidity, we decided to draw this additional amount as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic.
As of March 31, 2020, we had $1,046.6 in cash and cash equivalents. To preserve our liquidity, we invest cash primarily in government money market funds, prime money market funds, short-term commercial paper and short-term bank deposits.
We repatriate excess cash held at our foreign subsidiaries. We repatriated approximately $28.0 during the first nine months of 2019. As of September 30, 2019, there is $67.0 of cash and cash equivalents held at foreign subsidiaries.
The current economic environment presents risks that could have adverse consequences for our liquidity. See “Unfavorable economic conditions could adversely affect demand for our products” under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 20182019 (the “Form 10-K”). and in Item 1A of Part II of this Quarterly Report. Although there is uncertainty related to the anticipated impact of the COVID-19 pandemic on our future results, we believe our efficient business model and the recent steps we have taken to strengthen our balance sheet positioned us to manage our business through this crisis as it continues to unfold. We continue to manage all aspects of our business including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships, implementing gross margin enhancement strategies and developing new opportunities for growth. We do not anticipate that current economic conditions will adversely affect our ability to comply with the financial covenant in the Credit Agreement because we currently are, and anticipate that we will continue to be, in compliance with the maximum leverage ratio requirement under the Credit Agreement.
On February 5, 2019,January 31, 2020, the Board declared a 5%5.5% increase in the regular quarterly dividend from $0.2175$0.2275 to $0.2275$0.24 per share, equivalent to an annual dividend of $0.91$0.96 per share.share payable to stockholders of record as of February 14, 2020. The increase raises the annual dividend payout from $213.3$224.0 to approximately $225.0.$237.0.
In connection with the evergreen shareWe did not repurchase program, in January 2019, we executed open market purchases of $100.0any shares of our Common Stock.
In September 2019, we executed open market purchasescommon stock in the first quarter of $150.0 of our Common Stock of which $50.0 was purchased under the evergreen share repurchase program and $100.0 was purchased under the 2017 Share Repurchase Program.2020. As a result of our treasury stock purchases,repurchases in recent years, there remainedremains $210.0 of share repurchase availability under the 2017 Share Repurchase Program as of September 30, 2019.March 31, 2020.
We anticipate that our cash holdings, cash from operations, together withand our currentremaining borrowing capacity, will be sufficient to meet our spending requirements, including capital expenditure program costs,expenditures, which are expected to be approximately $80.0 in 2019, fund our2020, debt payments, dividends, and any share repurchase programsactivity to the extent implemented by management, pay the upcoming maturing notes and pay dividends at the latest approved rate. Cash, together with our current borrowing capacity,management. We may be used foralso fund acquisitions that wouldwill complement our existing product lines or geographicexpand our presence in international markets. We diddo not have any mandatory fixed rate debt principal payments in 2018. We paid the $300.0 Floating Rate Senior Notes that
28
matured on January 25, 2019 with cash on hand and commercial paper. The $300.0 Senior Notes (2.45%) will mature on December 15, 2019 and we currently intend to repay or redeem these notes with cash on hand and commercial paper borrowing if necessary. 2020.
Cash Flow Analysis
| Nine Months Ended |
| Three Months Ended |
| ||||||||||
| September 30, |
|
| September 30, |
| March 31, |
|
| March 31, |
| ||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Net cash provided by operating activities | $ | 617.5 |
|
| $ | 568.0 |
| $ | 236.5 |
|
| $ | 137.9 |
|
Net cash used in investing activities | $ | (519.0 | ) |
| $ | (82.3 | ) | $ | (11.4 | ) |
| $ | (12.4 | ) |
Net cash used in financing activities | $ | (298.6 | ) |
| $ | (574.1 | ) | |||||||
Net cash provided by (used in) financing activities | $ | 670.1 |
|
| $ | (344.3 | ) |
Net Cash Provided by Operating Activities– Our primary source of liquidity is the cash flow provided by operating activities, which is dependent on net income and changes in working capital. Our net cash provided by operating activities in the ninethree months ended September 30, 2019March 31, 2020 increased by $49.5$98.6 to $617.5$236.5 as compared to $568.0$137.9 in the same period in 20182019 due to higher cash earnings (net income plus non-cash expenses such as depreciation, amortization, deferred taxes, and non-cash compensation) partially offset by ana smaller increase in working capital.capital and a decrease in the fair value of business acquisition liabilities. The change in working capital is primarily due to a larger increasereduction in accounts receivable due to the timing of salesinventory and a smaller increase in accounts payablereceivable and accrued expenses due to higher incentive compensation and profit sharing payments partially offset by our continued program to extend payment terms with our suppliers. However, wea larger increase in taxes payable. We measure working capital effectiveness based on our cash conversion cycle. The following table presents our cash conversion cycle information for the quarters ended September 30, 2019March 31, 2020 and 2018:2019:
| As of |
|
|
|
|
| As of |
|
|
|
|
| ||||||||||
| September 30, 2019 |
|
| September 30, 2018 |
|
| Change |
| March 31, 2020 |
|
| March 31, 2019 |
|
| Change |
| ||||||
Days of sales outstanding in accounts receivable ("DSO") |
| 32 |
|
|
| 31 |
|
|
| 1 |
|
| 27 |
|
|
| 31 |
|
|
| (4 | ) |
Days of inventory outstanding ("DIO") |
| 60 |
|
|
| 59 |
|
|
| 1 |
|
| 58 |
|
|
| 61 |
|
|
| (3 | ) |
Days of accounts payable outstanding ("DPO") |
| 69 |
|
|
| 68 |
|
|
| (1 | ) |
| 66 |
|
|
| 67 |
|
|
| 1 |
|
Cash conversion cycle |
| 23 |
|
|
| 22 |
|
|
| 1 |
|
| 19 |
|
|
| 25 |
|
|
| (6 | ) |
Our cash conversion cycle (defined as the sum of DSO and DIO less DPO) which is calculated using a two period average method, remained consistent compareddecreased 6 days from the prior year amount of 25 days to the same period19 days at March 31, 2020 due primarily to a decrease in 2018.DSO of 4 days and a decrease in DIO of 3 days. The decrease in the cash conversion cycle is generally unchanged from a year ago.primarily due to lower inventory and increased receivable factoring due to COVID-19 related sales increases. We continue to focus on reducing our working capital requirements.
Net Cash Used in Investing Activities – Net cash used in investing activities during the first ninethree months of 20192020 was $519.0,$11.4, primarily reflecting $475.0 for the Flawless Acquisition, and $39.7$16.8 for property, plant and equipment additions. additions, partially offset by cash proceeds of $7.0 from the sale of the PERL WEISS® toothpaste brand in Germany. Net cash used in investing activities during the first ninethree months of 20182019 was $82.3,$12.4, primarily reflecting $49.8 for the Passport Acquisition, and $30.4$11.7 for property, plant and equipment additions.
Net Cash Used inProvided by (Used in) Financing Activities – Net cash provided by financing activities during the first three months of 2020 was $670.1, reflecting $719.9 of net debt borrowings and $9.3 of proceeds from stock option exercises, partially offset by $59.0 of cash dividend payments. Net cash used in financing activities during the first ninethree months of 2019 was $298.6,$344.3, reflecting $250.0$202.0 of net debt payments, $100.0 of repurchases of our common stock (“Common Stock”), $168.2$55.9 of cash dividend payments, partially offset by $72.4 of net debt borrowings and $49.8 of proceeds from stock option exercises. Net cash used in financing activities during the first nine months of 2018 was $574.1, reflecting $200.0 of repurchases of our common stock (“Common Stock”), $159.6 of cash dividend payments, $269.5 of debt payments, partially offset by $58.0$15.1 of proceeds from stock option exercises.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
Market risk
We are subject to market risks particularly due to changes in interest rates, diesel and other commodity costs, fluctuations in foreign currency exchange rates, and changes in the market price of the Common Stock. We use derivative agreements to manage these risks. The current economic environment associated with COVID-19 has led to significant volatility and uncertainty with each of these market risks. For economic and other impacts of the COVID-19 pandemic on the Company, see “Recent Developments” within Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q.
For historical quantitative and qualitative disclosures about market risk affecting the Company, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II in the Form 10-K. Our exposure to market risk has not changed materially since December 31, 2018.
ITEM 4. | CONTROLS AND PROCEDURES |
a) Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
29
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) at the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, are effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission (the “Commission”), and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the disclosure.
b) Change in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurring during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
CAUTIONARY NOTE ON FORWARD-LOOKING INFORMATION
This report contains forward-looking statements, including, among others, statements relating to net sales and earnings growth; the impact of the COVID-19 outbreak and the Company’s anticipated response; gross margin changes; trade marketing and SG&Amarketing spending; marketing and SG&A expense as a percentage of net sales; sufficiency of cash flows from operations; earnings per share; the impact of new accounting pronouncements; cost savings programs; consumer demand and spending; the effects of competition; the effect of product mix; volume growth, including the effects of new product launches into new and existing categories; the increase in the number of gummy dietary supplement competitors; the decline of condom usage; the Company’s hedge programs; the impact of foreign exchange, tariffs, and commodity price fluctuations; impairments and other charges; the Company’s investments in joint ventures; the impact of acquisitions and divestitures (and any related earn-out estimates);divestitures; capital expenditures; the Company’s effective tax rate; the impact of the Tax Cuts and Jobs Act; the impact of tax audits; tax changes and the lapse of applicable statutes of limitations; the effect of the credit environment on the Company’s liquidity and capital resources; the Company’s fixed rate debt and the repayment of outstanding notes as they become due;debt; compliance with covenants under the Company’s debt instruments; the Company’s commercial paper program; the Company’s current and anticipated future borrowing capacity to meet capital expenditure program costs; and the Company’s share repurchase programs; payment of dividends; environmental and regulatory matters; the availability and adequacy of raw materials, including trona reserves and the conversion of such reserves; and the customers and consumer acceptance of certain ingredients in our products. These statements represent the intentions, plans, expectations and beliefs of the Company, and are based on assumptions that the Company believes are reasonable but may prove to be incorrect. In addition, these statements are subject to risks, uncertainties and other factors, many of which are outside the Company’s control and could cause actual results to differ materially from such forward-looking statements. Factors that could cause such differences include a decline in market growth, retailer distribution and consumer demand (as a result of, among other things, political, economic and marketplace conditions and events);, including those relating to the outbreak of contagious diseases; other impacts of the COVID-19 pandemic and its impact on the Company’s operations, customers, suppliers, employees, and other constituents, and market volatility and impact on the economy (including causing recessionary conditions), regulatory changes or policies, and the risk that the Company will not be able to successfully execute its response plans with respect to the pandemic; unanticipated increases in raw material and energy prices; delays or other problems in manufacturing or distribution; adverse developments affecting the financial condition of major customers and suppliers; competition; changes in marketing and promotional spending; growth or declines in various product categories and the impact of customer actions in response to changes in consumer demand and the economy, including increasing shelf space or on line share of private label products;and retailer-branded products or other changes in the retail environment; consumer and competitor reaction to, and customer acceptance of, new product introductions and features; the Company’s ability to maintain product quality and characteristics at a level acceptable to our customers and consumers; disruptions in the banking system and financial markets; foreign currency exchange rate fluctuations; implications of the United Kingdom’s withdrawal from the European Union; shifting economic policies in the United States; potential changes in export/import and trade laws, regulations and policies of the United States and other countries, including any increased trade restrictions or tariffs, including the actual and potential effect of tariffs on Chinese goods imposed by the United States; increased or changing regulation regarding the Company’s products in the United States and other countries where it or its suppliers operate; issues relating to the Company’s information technology and controls; the impact of natural disasters, including those related to climate change, on the Company and its customers and suppliers, including third party information technology service providers; the acquisition or divestiture of assets; the outcome of contingencies, including litigation, pending regulatory proceedings and environmental matters; and changes in the regulatory environment.
The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the United States federal securities laws. You are advised, however, to consult any further disclosures the Company makes on related subjects in its filings with the United States Securities and Exchange Commission (the “Commission”).
30
PART II – OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
General
The Company, in the ordinary course of its business, is subject of, or party to, various pending or threatened legal actions, government investigations and proceedings from time to time, including, without limitation, those relating to commercial transactions, product liability, purported consumer class actions, employment matters, antitrust, environmental, health, safety and other compliance
related matters. Such proceedings are subject to many uncertainties and the outcome of certain pending or threatened legal actions may not be reasonably predictable and any related damages may not be estimable. Certain legal actions, including the one described below, could result in an adverse outcome for us, and any such adverse outcome could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Scantibodies Laboratory, Inc.
The Company has been named as a defendant in a breach of contract action filed by Scantibodies Laboratory, Inc. (the “Plaintiff”) on April 1, 2014, in the U.S. District Court for the Southern District of New York.
The complaint alleges, among other things, that the Company (i) breached two agreements for the manufacture and supply of pregnancy and ovulation test kits by switching suppliers, (ii) failed to give Plaintiff the proper notice, (iii) failed to reimburse Plaintiff for costs and expenses under the agreements and (iv) misrepresented its future requirements. The complaint seeks compensatory and punitive damages in an amount in excess of $20.0 million, as well as declaratory relief, statutory prejudgment interest and attorneys’ fees and costs.
The Company is vigorously defending itself in this matter. On September 19, 2018, the trial court granted the Company’s motion for summary judgment, dismissing all claims brought by the Plaintiff.Plaintiff as a matter of law. The Plaintiff has filed an appeal. appealed that decision, and the 2nd Circuit Court of Appeals reversed it in April 2020, remanding the case back to the lower court for a jury trial.
In connection with this matter, the Company has reserved an amount that is immaterial. However, it is reasonably possible that the Company may ultimately be required to pay all or substantially all of the damages and other amounts sought by Plaintiff in the event the summary judgment entered in favor of the Company is reversed. Plaintiff.
ITEM 1A. | RISK FACTORS |
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A, “Risk Factors” in the Form 10-K, which is modified by the disclosure below. These risks and uncertainties, along with those previously disclosed, could materially affect the Company’s business, financial condition or future results.
• | We must successfully manage the demand, supply, and operational challenges associated with the actual or perceived effects of the novel coronavirus (COVID-19) pandemic. |
Our business and financial results have been, and may continue to be, negatively impacted by the fear of exposure to or actual effects of the coronavirus (COVID-19) pandemic, such as negative impact on the global and U.S. domestic economy, significant unemployment, market volatility, reduced travel or recommendations or mandates from governmental authorities to avoid various sized gatherings, close facilities, suspend operations, or to self-quarantine. These impacts include, but are not limited to:
• | Significant reductions in demand or significant volatility in demand for one or more of our products, which may be caused by, among other things: the temporary or prolonged inability of consumers to purchase our products due to illness, quarantine or other travel or gathering restrictions, store closures, unemployment or other financial hardship, shifts in demand away from one or more of our more discretionary or higher priced products to lower priced products, or stockpiling or similar pantry-loading or unloading activity. For example, our WaterPik business has been negatively impacted by the temporary closure of dental offices across the United States and some other personal care brands have been negatively impacted by the temporary closures of certain non-essential retailers and the reduction of consumer foot traffic at retailers from which they derive a significant proportion of their sales. WaterPik and some other personal care brands have also been impacted by reduced demand for discretionary consumable products by consumers due the impact of the pandemic, including increased unemployment and concerns about the economy. Continuing recessionary economic conditions, including after the direct impact of the pandemic has subsided, may continue to impact consumer demand for certain of our productsand put downward pressure on product prices. Some of our retail customers have been forced to shut down or reduce their hours, which has impacted and may continue to impact their orders. If these impacts are prolonged, they can further increase the difficulty of planning for operations and may adversely impact our results. |
• | Inability to meet our retailer orders and customers’ needs due to disruptions in our manufacturing and distribution network or those of our finished goods, raw materials, or transportation suppliers caused by the closure or suspension of operations due to governmental prohibitions or employees becoming infected or refusing to work. In addition, our retailers have begun to prioritize household product orders and we may be unable to shift our production capacity to address this shift, which could also impact our ability to meet customer demand. While many of our facilities produce essential products and have been allowed to continue to operate despite general shut-down orders by certain governmental authorities, we could face challenges in continuing to operate such facilities as a result of employee absenteeism or sickness, additional governmental or |
regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities or those of our suppliers. |
• | If key employees become ill as a result of the COVID-19 pandemic or otherwise our business activities may be adversely affected and our management team's attention may be diverted. In addition, we may not be able to locate suitable replacements for any key employees who become ill. |
• | Although we are actively monitoring the impact of the COVID-19 pandemic on our supply chain, we are unable to accurately predict the impact that the COVID-19 pandemic will have due to various uncertainties, including the ultimate geographic spread of the virus, the severity of the pandemic, and the duration of the pandemic and corresponding government action. Restrictions resulting from the COVID-19 pandemic could impact our supply chain both in the United States and globally. These restrictions may cause the price of certain raw materials used in our products to increase and/or we may experience disruptions to our operations. |
• | Some of our customers, including mass merchandisers, supermarkets, drugstores, convenience stores, wholesale clubs, home stores, and dollar, pet and other specialty stores, have experienced, and may experience in the future, closures or reduced hours of or consumer capacity in their stores, declining financial performance, which could affect their ability to pay amounts due to us on a timely basis or at all, and any protracted economic downturn or recession that may adversely affect our suppliers and customers and could adversely affect our sales and results of operations. In addition, we may be unable to maintain the same level of sales and profitability if consumers shift to pushing a higher percentage of their purchases online and we are unable to shift our sales strategies or execute on them. |
• | Due to government orders and the need to protect our workforce, the majority of our office and management personnel are working remotely, which could increase our exposure to technological failures or cybersecurity risks, which could negatively impact our operations. |
Despite our efforts to manage and remedy these impacts to the Company, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of any such outbreak as well as third-party or governmental actions taken to contain its spread and mitigate its public health effects. While the vast majority of our products are consumer staples that generally are less vulnerable to decreases in discretionary spending than other products, some of our products, particularly WaterPik and some other personal care brands, are more discretionary in nature and, are more likely to be affected by consumer decisions to control spending and the impact and duration of recessionary economic conditions.
31
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The Company repurchases shares of its Common Stock from time to time pursuant to its publicly announced share repurchase programs. During the first quarter of 2020 the Company did not repurchase any shares of Common Stock pursuant to its share repurchase programs. The following table contains information for shares repurchased during the thirdfirst quarter of 2019.2020, which was solely due to shares of Common Stock withheld by the Company to satisfy tax withholding obligations in connection with the vesting of restricted stock.
Period |
| Total Number of Shares Purchased(1)(2) |
|
| Average Price Paid per Share(3) |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Approximate Dollar Value of Shares that May Yet Be Purchased Under All Programs(4) |
| ||||
7/1/2019 to 7/31/2019 |
| 0 |
|
| 0 |
|
| 0 |
|
| $ | 310,000,000 |
| |||
8/1/2019 to 8/31/2019 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 310,000,000 |
|
9/1/2019 to 9/30/2019 |
|
| 2,043,750 |
|
| $ | 73.68 |
|
|
| 2,036,750 |
|
| $ | 210,000,000 |
|
Total |
|
| 2,043,750 |
|
| $ | 73.68 |
|
|
| 2,036,750 |
|
|
|
|
|
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Approximate Dollar Value of Shares that May Yet Be Purchased Under All Programs |
| ||||
1/1/2020 to 1/31/2020 |
|
| 602 |
|
| $ | 69.23 |
|
|
| 0 |
|
| $ | 210,000,000 |
|
2/1/2020 to 2/29/2020 |
|
| 568 |
|
|
| 73.96 |
|
|
| 0 |
|
| $ | 210,000,000 |
|
3/1/2020 to 3/31/2020 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 210,000,000 |
|
Total |
|
| 1,170 |
|
| $ | 71.53 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
32
ITEM 6. | EXHIBITS |
Exhibit Index
|
|
|
|
| |||
|
| (3.1) |
| ||||
|
|
|
|
| |||
|
| (3.2) |
| ||||
|
|
| |||||
|
| ||||||
|
|
|
|
| |||
• |
| (31.1) |
| ||||
|
|
|
|
| |||
• |
| (31.2) |
| ||||
|
|
|
|
| |||
• |
| (32.1) |
| ||||
|
|
|
|
| |||
• |
| (32.2) |
| ||||
|
|
|
|
| |||
|
| (101.INS) |
| Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||
|
|
|
|
| |||
|
| (101.SCH) |
| Inline XBRL Taxonomy Extension Schema Document.
| |||
|
| (101.CAL) |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||
|
|
|
|
| |||
|
| (101.DEF) |
| Inline XBRL Taxonomy Extension Definition Linkbase Document.
| |||
|
| (101.LAB) |
| Inline XBRL Taxonomy Extension Label Linkbase Document. | |||
|
|
|
|
| |||
|
| (101.PRE) |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||
|
|
|
| ||||
|
| (104) |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
|
• | Indicates documents filed herewith. |
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
| CHURCH & DWIGHT CO., INC. |
|
|
|
| (REGISTRANT) |
|
|
|
|
|
DATE: |
|
|
| /s/ Richard A. Dierker |
|
|
|
| RICHARD A. DIERKER |
|
|
|
| Executive Vice President |
|
|
|
| and Chief Financial Officer |
|
|
|
| (Principal Financial Officer) |
|
|
|
|
|
DATE: |
|
|
| /s/ Steven J. Katz |
|
|
|
| STEVEN J. KATZ |
|
|
|
| VICE PRESIDENT AND |
|
|
|
| CONTROLLER |
|
|
|
| (PRINCIPAL ACCOUNTING OFFICER) |
3432