UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(MARK ONE)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018                                                  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, N.J.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

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes      No  

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 20182020 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $12.5$18.4 billion.  For purposes of making this calculation only, the registrant included all directors, executive officers and beneficial owners of more than ten percent of the common stock (the “Common Stock”) of Church & Dwight Co., Inc. (the “Company”).  The aggregate market value is based on the closing price of such stock on the New York Stock Exchange on June 30, 2018.2020.

As of February 19, 2019,15, 2021, there were 245,901,066245,073,576 shares of Common Stock outstanding.

Documents Incorporated by Reference

Certain provisions of the registrant’s definitive proxy statement to be filed not later than April 30, 20192021 are incorporated by reference in Items 10 through 14 of Part III of this Annual Report on Form 10‑K (this “Annual Report”).  

 


 


 

CAUTIONARY NOTE ON FORWARD-LOOKING INFORMATION

This Annual Report contains forward-looking statements, including, among others, statements relating to net sales and earnings growth; the impact of the COVID-19 pandemic and the Company’s response; gross margin changes; trade and marketing spending; marketing 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 numberdecline of gummy dietary supplement competitors; the impact of competitive laundry detergent products, including unit dose laundry detergent;condom usage; the Company’s hedge programs; the impact of foreign exchange, tariffs, and commodity price fluctuations; actual voluntary and expected cash contributions to pension plans; impairments and other charges including the pension settlement charge and asset impairment charges; the Company’s investments in joint ventures; the impact of acquisitions and 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; 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. Other forward-looking statements in this report are generally identified by the use of such terms as “may,” “could,” “expect,” “intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,” “to be,” “to make” or other comparable terms.  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), resulting from global, nationwide or local or regional outbreaks or increases in infections, and the risk that the Company will not be able to successfully execute its response plans with respect to the pandemic or localized outbreaks and the corresponding uncertainty; the impact of regulatory changes or policies associated with the COVID-19 pandemic, including continuing or renewed shutdowns of retail and other businesses in various jurisdictions; the impact of the CARES Act and other governmental actions; the impact of continued shifts in consumer behavior, including accelerating shifts to online shopping; 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; market volatility; 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.

For a description of additional factors that could cause actual results to differ materially from the forward lookingforward-looking statements, please see Item 1A, “Risk Factors” in this Annual Report.

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”).

All applicable amounts in the consolidated financial statements and related disclosure included in this annual report have been retroactively adjusted to reflect the Company’s two for one stock split effected September 1, 2016.

Unless otherwise specified or the context otherwise requires, all references in this Annual Report on Form 10-K to “Church & Dwight,” “we,” “us,” “our” and “Company” refer to Church & Dwight Co., Inc. and its consolidated subsidiaries.

 

 

 

 

 

2


TABLE OF CONTENTS

PART I

Item

 

 

Page

 

 

Page

1.

Business

 

4

Business

 

4

1A.

Risk Factors

 

12

Risk Factors

 

14

1B.

Unresolved Staff Comments

 

24

Unresolved Staff Comments

 

27

2.

Properties

 

24

Properties

 

27

3.

Legal Proceedings

 

24

Legal Proceedings

 

27

4.

Mine Safety Disclosures

 

25

Mine Safety Disclosures

 

27

 

PART II

5.

Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities

 

26

Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities

 

28

6.

Selected Financial Data

 

28

Selected Financial Data

 

30

7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

29

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

31

7A.

Quantitative and Qualitative Disclosures about Market Risk

 

44

Quantitative and Qualitative Disclosures about Market Risk

 

45

8.

Financial Statements and Supplementary Data

 

45

Financial Statements and Supplementary Data

 

46

9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

81

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

83

9A.

Controls and Procedures

 

81

Controls and Procedures

 

83

9B.

Other Information

 

81

Other Information

 

83

 

PART III

10.

Directors, Executive Officers and Corporate Governance

 

82

Directors, Executive Officers and Corporate Governance

 

84

11.

Executive Compensation

 

82

Executive Compensation

 

84

12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

82

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

84

13.

Certain Relationships and Related Transactions, and Director Independence

 

82

Certain Relationships and Related Transactions, and Director Independence

 

84

14.

Principal Accounting Fees and Services

 

82

Principal Accounting Fees and Services

 

84

PART IV

 

 

PART IV

 

 

15.

Exhibits, Financial Statement Schedule

 

83

Exhibits, Financial Statement Schedule

 

85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


PARTPART I

 

ITEMITEM 1.

BUSINESS

 

OVERVIEW OF BUSINESS

We were founded in 1846 and incorporated in Delaware in 1925.  We develop, manufacture and market a broad range of consumer household and personal care products and specialty products focused on animal productivity,and food production, chemicals and cleaners. Our consumer products marketing efforts are focused principally on our 11 13 power brands. These well-recognized brand names include ARM & HAMMERHAMMER® baking soda, cat litter, laundry detergent, carpet deodorizer and other baking soda based products; TROJANTROJAN® condoms, lubricants and vibrators; OXICLEANOXICLEAN® stain removers, cleaning solutions, laundry detergents and bleach alternatives; SPINBRUSHSPINBRUSH® battery-operated toothbrushes; FIRST RESPONSERESPONSE® home pregnancy and ovulation test kits; NAIRNAIR® depilatories; ORAJELORAJEL® oral analgesic; XTRAXTRA® laundry detergent; LIL CRITTERSCRITTERS® and VITAFUSIONVITAFUSION® gummy dietary supplements for children and adults, respectively; BATISTEBATISTE® dry shampoo; and WATERPIKWATERPIK® water flossers and showerheads.showerheads, FLAWLESS® products and ZICAM® cold remedy products.

We sell our consumer products under a variety of brands through a broad distribution platform that includes supermarkets, mass merchandisers, wholesale clubs, drugstores, convenience stores, home stores, dollar and other discount stores, pet and other specialty stores and websites and other e-commerce channels, all of which sell our products to consumers. We sell our specialty products to industrial customers, livestock producers and through distributors.

Sustainabilityand Environmental, Social and Governance (“ESG”)

We maintainbelieve that sustainable operations are both financially and operationally beneficial to our business, and critical to the health of the communities in which we operate. Accordingly, each year we publish a strong heritage of commitment to peopleSustainability Report that discloses our business and the planet.  In 2018, we continued to progress oncorporate responsibility commitments by detailing our commitment to robust and transparent environmental, social and governance practices. Our corporate sustainability goals include improving the sustainability profileperformance, including our metrics and targetsand other key components of our products (including both packagingsustainability platform. Our 2019 Sustainability Report is available on our web site at https://churchdwight.com/responsibility/sustainability-reports.aspx, and ingredients), reducingour 2020 Sustainability Report will be available in April 2021 (the “2020 Sustainability Report” and together with the 2019 Sustainability Report, the “Sustainability Reports”).   References to our Sustainability Reports are for informational purposes only and neither the Sustainability Reports nor the other information on our website is incorporated by reference into this Annual Report on Form 10-K.  See pages 11-12 in this Item 1 of this Annual Report under “Employees and Human Capital” for a discussion of our human capital management.

Our operations are subject to federal, state, local and foreign laws, rules and regulations relating to environmental concerns, including air emissions, wastewater discharges, solid and hazardous waste management activities, and the safety of our employees. We endeavor to take actions necessary to comply with such regulations. These steps include periodic environmental and health and safety audits of our facilities. The audits, conducted by independent firms with expertise in environmental, health and safety compliance, include site visits at each location, as well as, a review of documentary information, to determine compliance with such federal, state, local and foreign laws, rules and regulations. However, our environmental footprint (includingpriorities extend beyond our compliance efforts.

Our global sustainability platform is one of our leadership strategies, which we have derived from our heritage and organizational values. The following six pillars are the core focus of our sustainability efforts, and are identified with their corresponding primary ESG priorities:

Our Brands: Delight consumers with our brands and contribute towards a more sustainable world (Environmental and Social).

Products: Provide safe and effective products for consumers and the environment (Environmental and Social).

Packaging: Utilize consumer friendly and environmentally responsible packaging (Environmental).

Employees and Communities: Embrace the principles ofdiversity, equity and inclusion and good corporate citizenship and social responsibility within the communities we can impact (Social).

Responsible Sourcing: Improve our suppliers’ environmental, labor, health & safety and ethical practices (Environmental and Social).

Environment: Minimize environmental impact of our global operations, with a focus on increased renewable energy usage, reduced water consumption, greenhouse gas emissions and solid waste to landfills (Environmental).

Our governance focus includes the processes, resources and systems in support of our sustainability and ESG efforts, as well as our corporate governance, which is separate from our sustainability program, all as will be described in our Proxy Statement for our upcoming Annual Meeting of Stockholders under the caption “Sustainability and ESG” and in our 2020 Sustainability Report.   Our Corporate Issues Council (the “Council”), comprised of senior executives representing all of our key functional areas, guides the integration of sustainability with all


parts of our business and drives continuous improvement in our sustainability approach and performance. The Council takes the lead in defining and implementing our sustainability strategies across the six pillars of our global sustainability program. Our Board of Directors, acting principally through increased renewable energy usageits Governance & Nominating Committee, oversees our sustainability and reduced water and greenhouse gas emissions and solid waste to landfill) and positively impacting our employeesESG efforts, with that Committee and the communities where we operate.  Further, weCompensation & Organization and Audit Committees each focusing on specified areas of sustainability and ESG. Our Independent Lead Director is responsible for ensuring that stockholder sustainability requests, recommendations and proposals are placing considerable focusevaluated by the Governance & Nominating Committee, additional committees within the Board as appropriate, and effort onthen by the Board of Directors, if needed.

In 2020, our supplier base through the execution of our responsible sourcing program.

Our continued progress in variouskey areas of corporate responsibility receivedsustainability earned recognition from various external recognitions, including inclusion in the 2018 Barron’sthird parties, Newsweek’s America’s Most SustainableResponsible Companies list andTop 100 List, the EPA’s Green Power Partnership Top 100 list.  In addition, the Company ranked 196th in the Drucker Institute/WSJ “Management Top 250 List” while also ranking in the JUST Capital “America’s Most Just Companies” list, and the FTSE4Good Index Series.Series, among others.

We use the standards and guidelines of the Global Reporting Initiative, Sustainability Accounting Standards Board industry specific standards and the Task Force on Climate-related Financial Disclosures to inform our sustainability and ESG disclosures included in this Annual Report, our Proxy Statement and our Sustainability Reports.  The “materiality” thresholds in those standards and guidelines may differ from the concept of “materiality” for purposes of the federal securities laws and disclosures required by the Commission’s rules in this Annual Report.  Moreover, the inclusion of sustainability and ESG disclosures in 2005,this Annual Report and in our other filings with the Commission does not necessarily imply that we establishedconsider them to be materialfor purposes of the Church & Dwight Employee Giving Fund, Inc. (EGF), an employee-run giving program, where employees’ donations are matched dollar-for-dollar by us, that primarily supports charitable organizations in New Jerseyfederal securities laws or the Commission’s rules and Eastern Pennsylvania.  Additionally, we contribute to deserving nonprofits benefiting social and other charitable causes.regulations governing such disclosure.

FINANCIAL INFORMATION ABOUT SEGMENTS AND PRINCIPAL PRODUCTS

 

As discussed in more detail below, we operate in three principal segments: Consumer Domestic, Consumer International, and our Specialty Products Division (“SPD”). Refer to Note 1617 to the consolidated financial statements included in this Annual Report and the discussion in “Item 7: Managements Discussion and Analysis of Financial Condition and Results of Operations for information concerning the results of each of our segments.

All domestic brand rankings contained in this Annual Report are based on dollar share rankings from ACNielsen AOC (All Outlets Combined) for the 52 weeks ended December 29, 2018.31, 2020. Foreign brand rankings are derived from several sources.

 

Recent Acquisitions

On March 8, 2018,December 1, 2020, we acquired Passport Food Safety Solutions, Inc. (“Passport”).  Passport sellsall of the outstanding equity of Consumer Health Holdco LLC, the owner of the ZICAM® brand and cold remedy products for pre- and post-harvest treatment of poultry, swine, and beefbusiness (the “Passport“Zicam Acquisition”).  The total purchase price was approximately $50.0, which is subject toWe paid $512.7, net of cash acquired, at closing and deferred an additional cash payment of up$20.0 related to $25.0 basedcertain indemnifications provided by the seller.  The additional amount is payable five years from the closing.  Zicam’s annual net sales for the year ended December 31, 2020 were approximately $107.0.  The acquisition was financed by us with a combination of cash on sales performance through 2020.  hand and short-term borrowings.  The ZICAM business is managed in the Consumer Domestic segment.

 

Consumer Domestic

Our founders first marketed sodium bicarbonate, otherwise known as baking soda, in 1846 for use in home baking. Today, this product has a wide variety of uses in the home, including as a refrigerator and freezer deodorizer, scratch-free cleaner and deodorizer for kitchen surfaces and cooking appliances, bath additive, dentifrice, cat litter deodorizer and swimming pool pH stabilizer. We specialize in baking soda-based products, as well as other products which use the same raw materials or technology or which are sold in the same markets.  Our Consumer Domestic segment includes each of our 1113 power brands, as well as other well-known brands and household and personal care products.  We divide the Consumer Domestic segment into household and personal care product groups.  



Household Products

In 2018,2020, household products constituted approximately 55%54% of our Consumer Domestic Consumer sales and approximately 42% of our consolidated net sales.

ARM & HAMMER Baking Soda remains the number one leading brand of baking soda in terms of consumer recognition of the brand name and reputation for quality and value. The cleaning and deodorizing properties of baking soda have led to the development of numerous baking soda-based household products. For example, we market ARM & HAMMER FRIDGE FRESH®, a refrigerator deodorizer equipped with a baking soda filter to help keep food tasting fresher, and ARM & HAMMER Carpet Deodorizer.  Our other primary household products include laundry detergents marketed under the ARM & HAMMER, OXICLEAN and XTRA brands, fabric softener sheets marketed under the ARM & HAMMER and NICE’N FLUFFY brands,brand, cat litter under our ARM & HAMMER brand, and household cleaning products under the CLEAN SHOWER®, SCRUB FREE®, ORANGE GLO®, OXICLEAN and KABOOM® brands.  Our laundry detergents constitute our largest consumer business, measured by net sales.

 

Personal Care Products

In 2018,2020, personal care products constituted approximately 45%46% of our Consumer Domestic sales and approximately 34%35% of our consolidated net sales.

Our personal care business was founded on the unique strengths of our ARM & HAMMER trademark and baking soda technology. We have expanded our personal care business through the acquisition of antiperspirants, oral care products, depilatories, reproductive health products, oral analgesics, nasal saline moisturizers, and dietary supplements under a variety of other leading brand names.

ARM & HAMMER Baking Soda, when used as a dentifrice, helps whiten and polish teeth, removes plaque and leaves the mouth feeling fresh and clean. These properties led to the development of a complete line of sodium bicarbonate-based dentifrice products that are marketed and sold nationally primarily under the ARM & HAMMER brand name. Our other personal care products include antiperspirants and deodorants under the ARRID® and ARM & HAMMER brands, condoms under the TROJAN brand (the number one condom brand in the U.S.), battery-operated toothbrushes under the SPINBRUSH brand (the number onetwo leading brand of battery-operated toothbrushes in the U.S. in 2018)2020), water flossers and showerheads under the WATERPIK brand (the number one water flosser and replacement showerhead brand in the U.S.), home pregnancy and ovulation test kits under the FIRST RESPONSE brand (the number one selling brand in the U.S.), hair-removal products under the NAIR, brand,FLAWLESS and FINISHING TOUCH brands, oral analgesics and oral care products under the ORAJEL brand (the market leader in the toothache, canker sore, and children’s teething categories in the U.S.), children’s gummy dietary supplements under the LIL CRITTERS brand and adult gummy dietary supplements under the VITAFUSION brand (both number one leading brands in their respective categories), ZICAM brand (the #1 zinc supplement in the United States in the vitamins, minerals, and supplements cough/cold shortening category), a growing number of hair products under the BATISTE (the number one dry shampoo in the U.S.), VIVISCAL (the number one leading supplement for thinning hair), TOPPIK® (the number one leading brand of cosmetics for thinning hair), and XFUSION® brands, and nasal saline moisturizers and solutions under the SIMPLY SALINE and STERIMAR brands.® brand.

Consumer International

Our Consumer International segment markets a variety of personal care, household and over-the-counter products in international subsidiary markets, including Australia, Brazil, Canada, France, Germany, Mexico and the United Kingdom and in over 130 global export markets around the world.world, including China and Japan (the “Global Markets Group” or “GMG”).

Total Consumer International net sales represented approximately 17% of our consolidated net sales in 2018.2020.  Net sales of the subsidiary businesses locatedoriginating in Europe, Canada, MexicoAustralia and AustraliaMexico accounted for 33%34%, 29%27%, 9%8% and 9%7%, respectively, of our 20182020 international net sales in this segment. No other country in which we operate accounts for more than 9%20% of our total international net sales and no product line accounts for more than 20% of total international net sales.

Some of our U.S. Power Brandspower brands such as ARM & HAMMER, BATISTE, NAIR, OXICLEAN, TROJAN, L’LLL’IL CRITTERS, SPINBRUSH, WATERPIK, FLAWLESS and VITAFUSION are distributed in mostmany of our international markets. In addition, we also export unique brands such as STERIMAR®, natural nasal decongestant out of France and FEMFRESH®, feminine hygiene portfolio out of the United Kingdom, into many countries around the world.

We also market the CURASH® line of babycare products in Australia, and GRAVOL® anti-nauseant and RUB-A535 topical analgesic in Canada and other international markets.  We also sell WATERPIK water flossers and showerheads in Australia, Canada, Germany, France, the United Kingdom, Mexico and in other international markets.



Specialty Products Division

Our SPD segment focuses on sales to businesses and participates in three product areas: Animal Productivity,and Food Production, Specialty Chemicals and Specialty Cleaners, and accounted for approximately 7%6% of our consolidated net sales in 2018.  2020.

Animal Productivityand Food Production Products

Since the ARM & HAMMER animal productivityAnimal and Food Production business began in 1972, with its launch of ARM & HAMMER baking soda as a feed additive to help dairy cows produce more milk, we have built a leading portfolio of nutritional supplements designed to help improve the health and productivity of dairy cows.  Today our portfolio of dairy nutritional supplements includes brands such as MEGALAC® rumen bypass fat (licensed from Volac International Limited) –fat– a supplement made from natural oils – which enables cows to maintain energy levels during the period of high milk production, resulting in improved milk yields.  In addition, we market a line of high qualityhigh-quality protein and amino acid products, including BIO-CHLOR® and FERMENTEN®, which are designed to help reduce health issues associated with calving, as well as provide needed protein to ensure proper growth and milk production.

Over the last five years, we have expanded our product offerings to include unique prebiotics and probiotics.  CELMANAX® Refined Functional Carbohydrate is a yeast basedyeast-based prebiotic that helps ensure a well-functioning gastrointestinal track in dairy cows, beef cattle, poultry and other livestock.  On May 1, 2017, we acquired the Agro Biosciences, Inc. business and we now market the CERTILLUS® family of probiotics products in the poultry, dairy, beef and swine industries.  On March 8, 2018, we acquired Passport Food Safety Solutions, Inc., focused on providing pre- and post-harvest food safety solutions for beef, poultry, and swine primarily for the application to carcasses to reduce food borne pathogens.

Specialty Chemicals

Our specialty chemicals business primarily encompasses the manufacture, marketing and sale of sodium bicarbonate in a range of grades and granulations for use in industrial markets. In industrial markets, sodium bicarbonate is used by other manufacturing companies as a leavening agent for commercial baked goods, as an antacid in pharmaceuticals, as a carbon dioxide release agent in fire extinguishers, as an alkaline agent in swimming pool chemicals, and as a buffer in kidney dialysis.

We and Occidental Chemical Corporation are equal partners in a joint venture, Armand Products Company, which manufactures and markets potassium carbonate and potassium bicarbonate for sale in domestic and international markets. The potassium-based products are used in a wide variety of applications, including agricultural products, specialty glass and ceramics, and potassium silicates. Armand also manufactures a potassium carbonate-based animal feed additive for sale by the Companyus in the dairy industry, described above under Animal Productivityand Food Production Products.Armand’s results are included in our Corporate segment.

Specialty Cleaners

We also provide a line of cleaning and deodorizing products for use in commercial and industrial applications such as office buildings, hotels, restaurants and other facilities.

We and Safety-Kleen Systems, Inc. (Safety-Kleen) are equal partners in a joint venture, ArmaKleen,ARMAKLEEN®, which has built a specialty cleaning products business based on our technology and Safety-Kleens sales and distribution organization. In North America, this joint venture distributes our proprietary product line of aqueous cleaners along with our ARMEXARMEX® blast media line, which is designed for the removal of a wide variety of surface coatings.  These results are included in our Corporate segment.  

COMPETITION

We compete in the household and personal care consumer product categories, which are highly innovative categories, characterized by a continuous flow of new products and line extensions, and require significant advertising and promotion. We compete in these categories primarily on the basis of product innovation and performance, brand recognition, price, value and other consumer benefits. Consumer products, particularly laundry and dietary supplements, are subject to significant price competition. As a result, we, from time to time, may need to reduce the prices for some of our products to respond to competitive and customer pressures and to maintain market share.  Product introductions typically involve heavy marketing and trade spending in the year of launch, and we usually are not able to determine whether the new products and line extensions will be successful until a period of time has elapsed following the introduction of the new products or the extension of the product line.

Because of the competitive retail environment, we face pricing pressure from our retail customers and customers selling through other channels, particularly high-volume retail customers including, internet basedinternet-based retailers, who have increasingly sought to obtain pricing concessions or better trade terms that could reduce our margins. Furthermore, if we are unable to maintain price or trade terms


acceptable to our customers, they could increase product purchases from competitors and reduce purchases from us, which would harm our sales and profitability.


Our competitors in the Consumer Domestic and Consumer International segments include, among others, Procter & Gamble Company (“P&G,&G”), The Clorox Company, Colgate-Palmolive Company, S.C. Johnson & Son, Inc., Nestle Purina PetCare Company, Henkel, Reckitt Benckiser Group plc, Johnson & Johnson, Ansell Limited, Pfizer Inc., Bayer AG, Alere Inc., NBTY, Inc., Koninklijke Philips N.V., Unilever PLC and Pharmavite LLC. Many of these companies have greater financial resources than we do and have the capacity to outspend us in their attempts to gain market share.  In addition, the growing number of sales channels and business models, such as niche brands, internet-only brands and discounter channels, have increased competition in certain product categories, such as oral care, from less well capitalized competitors.

Competition within our animal and food production and our specialty chemicals and animal productivity product lines is intense. The specialty chemicals business operates in a competitive environment influenced by capacity utilization, customers leverage and the impact of raw material and energy costs. Product introductions typically involve introductory educational costs in the year of launch, and we usually are not able to determine whether new products and line extensions will be successful until a period of time has elapsed following the introduction of new products or the extension of the product lines. Our key competitors with respect to our SPD segment are Archer Daniels Midland Company, Cargill Incorporated, Lallemand Inc., Solvay Chemicals, Inc., Genesis Alkali and Natural Soda, Inc.  For additional discussion of the competitive environment in which we conduct our business, see Item 1A, "Risk Factors."

DISTRIBUTION OF OUR PRODUCTS

Our Consumer Domestic and Consumer International segments products are marketed primarily through a broad distribution platform that includes supermarkets, mass merchandisers, wholesale clubs, drugstores, convenience stores, home stores, dollar and other discount stores, pet and other specialty stores, and websites and other e-commerce channels, all of which sell our products to consumers. The Consumer Domestic Segment employs a sales force based regionally throughout the U.S. and utilizes the services of independent brokers, who represent our products in the food, mass, pet, dollar, club, and numerous other classes of trade. Our Consumer International segment conducts business through subsidiaries and global export markets. Our subsidiaries employ local sales and marketing teams that manage the retailer and trade relationships while export sales and marketing professionals also manage an extensive distributor network in our global export markets.  Our products are stored in our plants and third-party owned warehouses and are either delivered by independent trucking companies or picked up by customers at our facilities.

SPD markets sodium bicarbonate and other chemicals to industrial and agricultural customers primarily throughout the U.S. and Canada. Distribution is accomplished through a dedicated sales force supplemented by manufacturers representatives and independent distributors. Our products in this segment are stored in our plants and public warehouses and are either delivered by independent trucking companies or picked up by customers at our facilities.

SEASONALITY

 

Our business is generally not seasonal, although the Consumer Domestic and Consumer International segments are affected by sales of SPINBRUSH battery-operated toothbrushes and WATERPIK water flossers (which typically are higher during the fall, in advance of the holiday season), sales of NAIR depilatories and waxes (which typically are higher in the spring and summer months),  and sales of VITAFUSION and LIL CRITTERS dietary supplements and ZICAM cold remedy products (which typically are slightly higher in the fourth quarter of each year, in advance of the cold and flu season and renewed commitments to health), and sales of FLAWLESS (which are typically higher in the second half of the year). In SPD, several of our Animal and Food Production products experience higher demand in warmer weather months creating higher seasonal demand in the second and third quarters of the year.  

RAW MATERIALS AND SOURCES OF SUPPLY

We manufacture sodium bicarbonate for our consumer and specialty products businesses at our plants located at Green River, Wyoming and Old Fort, Ohio. The primary source of soda ash, a basic raw material used in the production of sodium bicarbonate, is the mineral trona, which is found in abundance in southwestern Wyoming near our Green River plant. We have adequate trona reserves under mineral leases to support our sodium bicarbonate requirements for the foreseeable future.

We are a party to a partnership agreement with Tata Chemicals (Soda Ash) Partners, which mines and processes trona reserves in Wyoming.  We fulfill a substantial amount of our soda ash requirements through the partnership and related supply and services agreements, enabling us to achieve some of the economies of an integrated business capable of producing sodium bicarbonate and related products from the basic raw material. We also have an agreement for the supply of soda ash from another company. The partnership agreement and other supply agreements between the Tata Chemicals (Soda Ash) Partners and us are terminable upon two years notice by either of us. We believe that sufficient alternative sources of soda ash supply are available.

We believe that ample sources of raw materials are available for all our other major products. Detergent chemicals are used in a variety of our products and are available from a number of sources. Bottles, paper products and clay are available from multiple suppliers, although we choose to source most of these materials from single sources under long-term supply agreements in order to gain favorable economies of scale. We also use certifiable sustainable palm oil derivatives in a number of products, including


primarily in our rumen bypass fats products. Alternative sources of supply are available in case of the disruption or termination of the supply agreements.


The cost of raw materials, including surfactants, diesel fuel and oil-based raw and packaging materials used primarily in our consumer businesses, were higher in 20182020 relative to 2017,2019, increasing our core commodity costs. Increases in the prices of certain raw materials could materially impact our costs and financial results if we are unable to pass such costs along in the form of price increases to our customers.

We utilize the services of third party contract manufacturers around the world for certain products.

PATENTS AND TRADEMARKS

Our trademarks appear in upper case letters throughout this Annual Report. The majority of our trademarks are registered with either the U.S. Patent and Trademark Office or with the trademark offices of many foreign countries. The ARM & HAMMER trademark has been used by us since 1867 and is a valuable asset and important to the successful operation of our business. Our products are sold under many other valuable trademarks held by the Company,us, including TROJAN, NAIR, ORAJEL, WATERPIK, FIRST RESPONSE, XTRA, OXICLEAN, SPINBRUSH, BATISTE, SIMPLY SALINE, LIL CRITTERS, VITAFUSION, FLAWLESS and VITAFUSION.ZICAM. Our portfolio of trademarks represents substantial value in the businesses using the trademarks.

U.S. patents are currently granted for a term of 20 years from the date the patent application is filed. Although we actively seek and maintain a number of patents, no single patent is considered significant to the business as a whole.

CUSTOMERS AND ORDER BACKLOG

In each of the years ended December 31, 2018, 20172020, 2019 and 2016,2018, net sales to our largest customer, Walmart Inc. and its affiliates (Walmart), were 23%, 24% and 24%23% respectively, of our consolidated net sales. No other customer accounted for 10% or more of our consolidated net sales in the three-year period. The time between receipt of orders and shipment is generally short, and as a result, backlog is not significant.

GOVERNMENT REGULATION

General

Some of our products are subject to regulation by one or more U.S. agencies, including the U.S. Food and Drug Administration (FDA), the Environmental Protection Agency (EPA), the Federal Trade Commission (FTC), the Consumer Product Safety Commission (CPSC) and foreign agencies.

FDA regulations govern a variety of matters relating to our products, such as product development, manufacturing, premarket clearance or approval, advertisinglabeling and distribution. The regulations adopted and standards imposed by the FDA and similar foreign agencies evolve over time and can require us to make changes in our manufacturing processes and quality systems to remain in compliance. These agencies periodically inspect manufacturing and other facilities. If we fail to comply with applicable regulations and standards, we may be subject to sanctions, including fines and penalties, the recall of products and cessation of manufacturing and/or distribution.

In addition, we sell products that are subject to regulation under the Federal Insecticide, Fungicide and Rodenticide Act and the Toxic Substances Control Act, both of which are administered by the EPA.

We are also subject to regulation by the FTC in connection with the content and truthfulness of our labeling, advertising, promotion, trade practices and other matters.  The FTC has instituted numerous enforcement actions against companies for failure to adequately substantiate claims made in advertising or for the use of otherwise false or misleading advertising claims. These enforcement actions have resulted in consent decrees and the payment of civil penalties and/or restitution by the companies involved. Such actions can result in substantial financial penalties and significantly restrict the marketing of a dietary supplement.our products.

The CPSC has jurisdiction over consumer products, regulates their safety and has authority over recalls.  The CPSC administers the Poison Prevention Packaging Act and has issued regulations requiring special child resistant packaging for certain products, including pharmaceuticals, dietary supplements, and dietary substances, containing certain ingredients (e.g., iron).

Our relationship with certain union employees is regulated by various agencies of the countries, states, provinces and other localities in which we sell our products.


Medical Device Clearance and Approval

To be commercially distributed in the U.S., a medical device must, unless exempt, receive clearance or approval from the FDA pursuant to the Federal Food, Drug, and Cosmetic Act (FDCA). For lower risk class II devices, we must generally submit a premarket notification requesting clearance for commercial distribution known as a 510(k) clearance. Our condoms, lubricants, contact lens solution, wound wash, and home pregnancy test kits and WATERPIK professional dental products are regulated as class II devices. Some other low risk devices, including SPINBRUSH and other battery powered toothbrushes, and WATERPIK water flossers, are in class I and are generally exempted


from the 510(k) requirement. To obtain 510(k) clearance, a device must be determined to be substantially equivalent in intended use and in safety and effectiveness to a benchmark device, or predicate that is already legally in commercial distribution. Any modification to a 510(k) cleared device that could significantly affect its safety or effectiveness, or that would constitute a change in its intended use, generally requires a new 510(k) clearance. We may determine that a new 510(k) clearance is not required, but if the FDA disagrees, it may retroactively require a 510(k) clearance and may require us to cease marketing or recall the modified device until 510(k) clearance is obtained.

Medical Device Postmarket Regulation

After a medical device is commercialized, numerous regulatory requirements apply, including:

the quality system regulation, which imposes FDA current Good Manufacturing Practice (cGMP) requirements governing the methods used in, and the facilities and controls used for, the design, manufacture, packaging, servicing, labeling, storage, installation, and distribution of all finished medical devices intended for human use;

labeling regulations, including a prohibition on product promotion for unapproved or off label uses;

the medical device reporting regulation requiring a manufacturer to report to the FDA if its device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur; and

the reports of corrections and removals regulation, which requires a manufacturer to report recalls and field actions to the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health.

OTC Pharmaceutical

We market over-the-counter (OTC(“OTC”) pharmaceutical products, such as toothpaste, antiperspirant, and oral analgesics products, that are also subject to FDA and foreign regulation. Under the U.S. OTC monograph system, selected OTC pharmaceutical products are generally recognized as safe and effective and do not require the submission and approval of a new drug application. The FDA OTC monographs include well-known ingredients and specify requirements for permitted indications, required warnings and precautions, allowable combinations of ingredients and dosage levels. Pharmaceutical products marketed under the OTC monograph system must conform to specific quality, formula and labeling requirements.  Products not in the monograph system can be deemed to be unapproved new drugs and can be forced from the market.  This is particularly the case for homeopathic drug products like certain ZICAM products.  Both the FDA and the FTC have taken the position that homeopathic products are unapproved new drugs.  Regulatory action against these products is deemed unlikely unless the products present an unreasonable safety risk.  ZICAM homeopathic products are not currently perceived to pose any such risk.

All facilities where OTC pharmaceutical products are manufactured, tested, packaged, stored or distributed must comply with cGMP regulations and/or regulations promulgated by competent authorities in the countries where the facilities are located. All of our pharmaceutical products are manufactured, tested, packaged, stored and distributed according to cGMP regulations. The FDA performs periodic audits to ensure that our facilities remain in compliance with all appropriate regulations. The failure of a facility to be in compliance may lead to a breach of representations made to customers or to regulatory action against us related to the products made in that facility, such as seizure, injunction or recall. Serious product quality concerns could also result in governmental actions against us that, among other things, could result in the suspension of production or distribution of our products, product seizures, loss of certain licenses or other governmental penalties, and could have a material adverse effect on our financial condition or operating results. We are required to report serious adverse events associated with the use of our OTC pharmaceutical products marketed in the U.S.

We cannot predict whether new legislation regulating our activities will be enacted or what effect any legislation would have on our business.

Medical Device and OTC Pharmaceutical Postmarket Regulation

After a medical device and/or OTC pharmaceutical is commercialized, numerous regulatory requirements apply, including:

the quality system regulation, which imposes FDA current Good Manufacturing Practice (cGMP) requirements governing the methods used in, and the facilities and controls used for, the design, manufacture, packaging, servicing, labeling, storage, installation, and distribution of all finished medical devices and OTC intended for human use;

labeling regulations, including a prohibition on product promotion for unapproved or off label uses;

the medical device reporting regulation requiring a manufacturer to report to the FDA if its device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur and ongoing post-market surveillance of the product and like-products to continuously evaluate the benefit/risk over the life of the product; and

the reports of corrections and removals regulation, which requires a manufacturer to report recalls and field actions to the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health.

Food Products

We market baking soda and animal feed products, such as rumen fermentation enhancers and Dietary Cation-Anion Difference (DCAD) balancers that are also subject to FDA and foreign regulation. The Food Safety Modernization Act (FSMA) regulates food and animal feed products and mandates preventive controls, including hazard analysis, risk controls, supplier qualifications and controls and increased record keeping. FSMA grants the FDA the authority to require mandatory recalls for products under certain


conditions. The FDA is currently in the process of establishing rules and guidance to implement the provisions of FSMA. The potential impact of these rules and applicable guidance cannot be determined now.



Dietary Supplements

The processing, formulation, safety, manufacturing, packaging, labeling, advertising, distribution, importing, selling, and storing of dietary supplements are subject to regulation by one or more federal agencies, including the FDA, the FTC, the CPSC, the EPA, and by various agencies of the states and localities in which our products are sold. The FDCA governs the composition, safety, labeling, manufacturing and marketing of dietary supplements.

It is unlawful to market as a dietary supplement any article that is approved as a new drug or is authorized for investigation as a new drug for which substantial clinical investigations have been instituted and made public, unless that article was first marketed as a dietary supplement or food. The FDA has authority to effectively void that restriction through the issuance of a regulation finding the article lawful. To date, the FDA has not exercised that rulemaking authority for any article.

Dietary ingredients that were not marketed in the U.S. before October 15, 1994 must be the subject of a new dietary ingredient notification submitted to the FDA at least 75 days before the initial marketing, unless the ingredient has been present in the food supply as an article used for food without being chemically altered. The notification must provide evidence of a history of use or other evidence establishing that use of the dietary ingredient is reasonably expected to be safe. The FDA may determine that notification does not provide an adequate basis to conclude that a new ingredient is reasonably expected to be safe, which could effectively prevent the marketing of the ingredient. On July 5, 2011,In August of 2016, the FDA issued draft guidance governing notification of new dietary ingredientsingredients.  Although the draft guidance was issued for public comment and not for implementation. The FDA has not taken any further steps to implementimplementation, it is a strong indication of the FDA’s current thinking on the topics discussed in the guidance, which, if implemented,including the FDA’s approach to enforcement. If the FDA enforces the applicable statutes and regulations in accord with the draft guidance, that could effectively change the status of dietary ingredients that the industry has marketed as old dietary ingredients to new dietary ingredients thatand may require submission of a new dietary ingredient notification.

A company that uses a statement of nutritional support in labeling must possess information substantiating that the statement is truthful and not misleading.  If the FDA determines that a particular statement of nutritional support is an unacceptable drug claim or an unauthorized version of a health claim, or if the FDA determines that a particular claim is not adequately supported by existing scientific evidence or is otherwise false or misleading, the claim could not be used and any product bearing the claim could be subject to regulatory action.

The FDAs cGMP regulations govern the manufacturing, packaging, labeling and holding operations of dietary supplement manufacturers. As with OTC products, the FDA performs periodic audits to ensure that our dietary supplement facilities remain in compliance with all appropriate regulations. The failure of a facility to be in compliance may lead to a breach of representation made to consumers or to regulatory action against us related to the products made in that facility, seizure, injunction or recall. There is considerable uncertainty with respect to the FDAs interpretation and implementation of the cGMP regulations. The failure of a manufacturing facility to comply with the cGMP regulations may render products manufactured in that facility adulterated and subjects those products and the manufacturer to a variety of potential FDA enforcement actions. The manufacturer, packer, or distributor of a dietary supplement marketed in the U.S. whose name appears on the label of the supplement is required to report serious adverse events associated with the use of that supplement to the FDA.

Additional legislation may be introduced which, if passed, would impose substantial new regulatory requirements on dietary supplements. The effect of additional domestic or international governmental legislation, regulations, or administrative orders, if and when promulgated, cannot be determined. New legislation or regulations may require the reformulation of certain products to meet new standards and require the recall or discontinuance of certain products not capable of reformulation.  

ENVIRONMENTAL MATTERSHUMAN CAPITAL

Our operations are subjectOverview

We take great pride in fostering an enduring culture of “doing well by doing good.” By having the opportunity to federal, state, localmake meaningful contributions to society, each of our employees can help create a stronger, more resilient company while contributing to a better world. In their everyday work, employees embody our core values of integrity, quality, commitment and foreign laws, rulesinnovation, and regulations relatingin doing so, directly contribute to environmental concerns, including air emissions, wastewater discharges, solidour long-standing character and hazardous waste management activities,reputation.

Safety and Wellness

Employee safety remains our top priority. We develop and administer company-wide policies to ensure the safety of each team member and compliance with OSHA standards. In 2020, we implemented COVID-19 protocols across all locations in response to the pandemic, to ensure both the safety of our employees. We endeavor to take actions necessary to comply with such regulations. These steps include periodic environmentalemployees and health and safety audits of our facilities. The audits, conducted by independent firms with expertise in environmental, health and safety compliance, include site visits at each location, as well as, a review of documentary information, to determine compliance with such federal state,and local requirement and foreign laws, rules and regulations.guidelines.

EMPLOYEES


Our Employees

AtAs of December 31, 2018,2020, we had approximately 4,700 employees. Internationally, we employ union5,100 global employees, an increase of approximately 300 compared to December 31, 2019.  The increase is primarily due to increased staffing at our global manufacturing plants. Approximately 87% of our workforce is located in France, Mexico, Brazilthe Americas, 10% in Europe, Middle East, and New Zealand. We believeAfrica, and 3% in the Asia-Pacific region. About 50% of our relations with both our union and non-union employees are satisfactory.salaried and about 50% are paid hourly wages. During fiscal 2020, our turnover rate was approximately 14.9%.  Our revenue per employee in fiscal 2020 was approximately $958,000.

Diversity, Equity and Inclusion

We embrace the diversity of our employees and believe that a diverse workforcereflective of our consumer base fosters innovation and cultivates an environment filled with unique perspectives. As a result, diversity, equity and inclusion (DEI”) are critical to help us meet the needs of our customers and consumers around the world. As of December 31, 2020, females represented 40.6% of our global workforce. We strive to cultivate a culture and processes that support and enhance our ability to recruit, develop and retain diverse talent at every level.

We have established a Diversity & Inclusion Council that provides strategic direction, guidance and advocacy for our DEI initiatives which is led by our Chief Executive Officer and our Director, Diversity & Inclusion and includes diverse employees at every level from around the world. Our Board of Directors, acting principally through its Compensation & Organization Committee, oversees our DEI efforts.

Hiring, Development and Retention

Our talent strategy is focused on attracting the best talent and recognizing and rewarding performance, while continually developing, engaging and retaining our talented employees.

We invest resources in professional development and growth as a means of improving employee performance and improving retention. This includes our bi-annual “LEAP” (Leadership Empowerment Achievement Program), which is aimed at continuous learning, professional training and development opportunities, targeted leadership development courses for new and existing leaders of different levels of seniority, tuition reimbursement, and job specific programs for our employees.  

Compensation and Benefits

As part of our overall effort to attract, develop and retain talented employees, our compensation programs are designed to align the compensation of our employees with our and their performance, and to provide the proper incentives to attract, retain and motivate employees to achieve superior results. Moreover, our policies and procedures are designed to ensure compensation is fair for employees of the same job, at the same level, location and performance. These include utilizing pay grades for appropriate job groupings, making pay decisions based on relevant factors, such as education, experience, and performance, and subjecting pay decisions to higher levels of leadership and Human Resources review to ensure those decisions are fair, equitable and align with our equal employment opportunity policies and objectives.

Employees are eligible for health insurance, prescription drug benefits, dental, vision, hospital indemnity, accident, critical illness, and disability insurance, life insurance, health savings accounts, flexible spending accounts, reproductive rights coverage, and identity theft insurance.

Communities

We encourage our employees to become involved in their communities, and in 2020, our Employee Giving Fund supported our communities by providing $1.2 million to 205 deserving organizations through annual grants, disaster relief, and other monetary support.  Employees purchased back-to-school supplies online to support disadvantaged youth, donated clothes and non-perishable items for clothing and food drives and provided supplies for a summer camp and holiday dinner for families in need.In addition, the Company has contributed approximately $4.8 million to our communities, which includes the retail value of product donations, delivering masks and hand sanitizers to hospitals where we live, donating to local food banks, and supporting local food establishments with gift certificates.



PUBLIC INFORMATION

We maintain a website at www.churchdwight.com and on the Investors-Financial Information-SEC Filings page of reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file these materials with, or furnish them to, the Securities and Exchange Commission (the “Commission”). Also available on the Investors-Corporate Governance page on our website are our Corporate Governance Guidelines, charters for the Audit, Compensation & Organization and Governance & Nominating Committees of our Board of Directors (the Board), our Code of Conduct and our Proxy Statement. We also publish a Sustainability Report that summarizes our business and corporate responsibility commitments and accomplishments including those related to our environmental, social, and governance performance.  For more information regarding the Company’sour sustainability and ESG initiatives please see the “Responsibility” page on our website.website and the discussion under the capital “Sustainabilityand Environmental, Social and Governance (“ESG”)” included above.  Each of the foregoing is also available in print free of charge and may be obtained upon written request to: Church & Dwight Co., Inc., 500 Charles Ewing Boulevard, Ewing, New Jersey 08628, attention: Secretary. The information presented on our website is not a part of this Annual Report and the reference to our website is intended to be an inactive textual reference only.



ITEMITEM 1A.RISK FACTORS

The following risks and uncertainties, as well as other factors described elsewhere in this Annual Report or in our other filings with the Commission, could, materially adversely affect our business, results of operationsindividually and financial condition:

Unfavorable economic conditions could adversely affect demand for our products.  

Unfavorable and uncertain economic conditionscollectively, have adversely affected, and in the future may adversely affect, demand for some of the categories of products we sell, resulting in reduced sales volume or market share or a shift in our product mix from higher margin to lower margin products.  Factors that can affect demand include competitors’ products, advertising and pricing actions, rates of unemployment, consumer confidence, health care costs, including increased costs as a result of changes in federal regulations, significant shifts in government policies, commodity costs, fuel and other energy costs and other economic factors affecting consumer spending behavior, including delays in the timing of tax refunds from the federal government, gasoline and home heating oil pricing, reduced unemployment benefits in periods of high unemployment and changes in tax policies, or other effects of governmental shutdowns or a lapse of appropriations.  While the vast majority of our products are consumer staples that generally are less vulnerable to decreases in discretionary spending than other products, certain products have become, and others may become, subject to increasing price competition.  Additionally, some of our products, such as laundry additives, gummy dietary supplements, battery-operated toothbrushes and water flossers, are more likely to be affected by consumer decisions to control spending.  

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 declining financial performance, which could affect their ability to pay amounts due to us on a timely basis or at all.  We regularly review the financial strength of our key customers and, where appropriate, modify customer credit limits, which may have an adverse impact on future sales.  Because the same economic conditions that affect us also affect many of our suppliers, we regularly conduct a similar review of our suppliers to assess both their financial viability and the importance of their products to our operations.  When appropriate, we identify alternate sources of materials and services.  To date, we have not experienced a material adverse impact from economic conditions affecting our customers or suppliers.  However, a protracted economic downturn or recession that adversely affects our suppliers and customers could adversely affect our sales and results of operations.  

We face intense competition in our markets, and the failure to compete effectively could have a material adverse effect on our business, reputation, financial results, financial condition and/or the trading price of our Common Stock:

Business and results of operations.Operational Risks

We face intense competition in our markets.

We face intense competition from consumer products companies, both in the U.S. and in international markets.  Most of our products compete with other widely-advertised promoted and merchandised brands within each product category and from retailers, including supermarkets, mass merchandisers, wholesale clubs, drugstores, convenience stores, home stores, dollar and other discount stores, pet and other specialty stores and websites and other e-commerce channels, which are increasingly offering private label and retailer-branded brands and generic non-branded products of our customers in certain categories, which typically are sold at lower prices.  In China, in particular we face strong competition from local manufacturers offering both generic and branded products. The use of evolving technology to develop more complex pricing models by retailers may lead to pricing pressures in some categories. In addition, during times of economic uncertainty, consumers may purchase more “private label” or other lower price brands. These developments have increased competition in certain product categories in particular, including dietary supplements, diagnostic kits and oral analgesics. In addition to competition across all our product categories, there continues to be significant product competition in the gummy dietary supplement category, which has grown from six brands to over 55 in the last nine years.  Shifting consumer behavior, including accelerated shifts to online shoppingwhich has been accelerated by the COVID-19 pandemic, have also increased competition in e-commerce in many of our categories, from our larger legacy competitors and newer digitally native brands which have increasingly moved into consumer products and staples.

Many of our competitors are large companies, including, among others, The Proctor & Gamble Company, The Clorox Company, Colgate-Palmolive Company, Henkel, Reckitt Benckiser Group plc, Johnson & Johnson, Nestle Purina PetCare Company, Ansell Limited, Alere Inc., Pfizer Inc., Bayer AG, S.C. Johnson & Son, Inc., Pharmavite LLC, Koninklijke Philips N.V., Unilever PLC and NBTY, Inc. Many of these companies have greater financial resources than we do, and, therefore, have the capacity to outspend us on advertising and promotional activities and introduce competing products more quickly and respond more effectively to changing business and economic conditions than we can.  

Our products generally compete on the basis of performance, brand recognition, price, value or other benefits to consumers. Consumer products are subject to significantSignificant price competition.  As a result, wecompetition may needrequire us to reduce the prices for some of our products or increase prices by an amountprice levels that doesdo not coveroffset manufacturing cost increases, to respond to competitive and customer pressures and to maintain market share.  Any reduction in prices, or inability to raise prices sufficiently to cover manufacturing cost increases, would harm profit margins.  In addition, if our sales volumes fail to grow sufficiently to offset any reduction in margins, our sales growth and other results of operations would suffer.

Advertising, promotion, merchandising and packaging also have a significant impact on retail customer decisions regarding the brands and product lines they sell and on consumer purchasing decisions.  A newly introduced consumer product (whether improved or newly developed) usually encounters intense competition requiring substantial expenditures for advertising, sales promotion and trade merchandising.  If a product gains consumer acceptance, it normally requires continued advertising, promotional support and product improvements to maintain its relative market position.  If our advertising, marketing and promotional programs are not effective, our sales growth may decline.  

Many of our competitors are large companies, including The Proctor & Gamble Company, The Clorox Company, Colgate-Palmolive Company, Henkel, Reckitt Benckiser Group plc, Johnson & Johnson, Nestle Purina PetCare Company, Ansell Limited, Alere Inc., Pfizer Inc., Bayer AG, S.C. Johnson & Son, Inc., Pharmavite LLC and NBTY, Inc. Many of these companies have greater financial resources than we do, and, therefore, have the capacity to outspend us on advertising and promotional activities and introduce competing products more quickly and respond more effectively to changing business and economic conditions than we can.  In addition, our competitors may attempt to gain market share by offering products at prices at or below those typically offered by us.  Competitive activity may require us to increase our spending on advertising and promotions and/or reduce prices, which could lead to


reduced profits and adversely affect growth.  If we lose market share or the markets in which we compete do not grow substantially, our sales growth will decline.

In addition, we derive a substantial percentage of our revenues from sales of laundry detergent. The continued customer demand for these products are critical to our future success. As a result, any commercialization, delays or reduction of sales of these products could have a material adverse effect on our business, financial condition and operating results.

There continues to be significant product competition in the gummy dietary supplement category.  The category has grown from eight competitors to 30 in the last five years.  We continue to evaluate and vigorously combat 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 or that we will be able to offset any such decline.

Loss of any of our principal customers could significantly decrease our sales and profitability.  

Loss of any of our principal customers could significantly decrease our sales and profitability.  

A limited number of customers account for a large percentage of our net sales.sales and/or net sales of specific product lines.  Walmart is our largest customer, accounting for approximately 23% of net sales in 2018,2020, 24% of net sales in 20172019 and 24%23% of net sales in 2016.2018.  Our top three customers accounted for approximately 36% of net sales each year in 2018, 36% of net sales in 20172020, 2019 and 35% of net sales in 2016.  2018.  We expect that a significant portion of our net sales will continue to be derived from a small number of customers and that these percentages may increase if the growth of mass merchandisers continues.  As a result, changes in the strategies of Walmart or any of our other largest customers, including a reduction in the number of brands they carry or of shelf space they dedicate to private label products, could materially harm our net sales and profitability. In addition, certainprofitability. Changes in consumer behavior, including shifting to online shopping instead of physical retail shopping as a result of the COVID-19 pandemic and other trends, could also impact our sales to our largest customers.  Some of our product linesretail customers have been forced to shut down or reduce their hours, which has impacted and may continue to impact their orders. Some of our retail customers have experienced and may experience in the future declining financial performance, which could affect their ability to pay amounts due to us on a timely basis or at all. If these impacts are concentrated with certain customers.  prolonged, they can further increase the difficulty of planning for operations. Moreover, the use of evolving technology by our customers to develop more complex pricing models may lead to category pricing pressures.  If we were toWe could also lose a significant customer due to customer service levels or real or perceived product quality or appearance issues, this could also have a material adverse effect on our business, financial condition and results of operations.  

Moreover,issues.  As our business is based primarily upon individual sales orders as we rarely enter intorather than long-term contracts with our customers and most customer agreements include customer termination rights after short notice.  Accordingly, thesenotice, many of our customers could reduce their purchasing levels or cease buying products from us at any time and for any reason.  If

Decreases in demand for our products would decrease our sales and profitability.

Factors that can affect demand include competitors’ products, advertising and pricing actions, rates of unemployment, consumer confidence, health care costs, including increased costs as a result of changes in federal regulations, significant shifts in government policies,


the deterioration of economic or trade relations between countries or regions, commodity costs, fuel and other energy costs and other economic factors affecting consumer spending behavior, including gasoline and home heating oil pricing, reduced unemployment benefits in periods of high unemployment, including the historically high unemployment rates resulting from the COVID-19 pandemic, and changes in tax policies, other effects of governmental shutdowns or a lapse of appropriations or fear of exposure to or actual impacts of a widespread disease outbreak, such as, COVID-19.  In particular, we losederive a significantsubstantial percentage of our revenues from sales of laundry detergent, and the continued customer or if salesdemand for these products are critical to our future success. Some products have seen decreasing demand in recent years, including condoms, as a result of demographic and other changes.  An increasing number of our products are more durable in nature and, therefore are more likely to be affected by consumer decisions to control spending.  

Changes resulting from the COVID-19 impact may also impact demand for our vitamin and supplement products. The vitamins and supplements and cold remedy categories have seen increased demand as trends in health and wellness focus have accelerated. However, demand for these products has typically increased during winter months when consumers have increased rates of flu and cold infection and increased social distancing and flu vaccination rates may have a negative impact.

A continued change in the retail environment and changing consumer preferences could cause our sales to decline.  

Despite increasing shifts to e-commerce, sales of our products remain strongest in the traditional mass merchandiser, food and drug retail stores, and our products are also sold in club stores and dollar stores channels.  However, alternative retail channels, including e-commerce retailers, hard discounters, subscription services and buying clubs, have become more prevalent and the volume of consumer products that are sold through such alternative retail channels is continuing to increase, which may affect customer and consumer preferences, including in response to the COVID-19 pandemic and market dynamics, including any pricing pressures for consumer goods as retailers face added costs to build their e-commerce capacity.  Further, consumer preferences continue to evolve due to a significant customer materially decrease, it couldnumber of factors, including fragmentation of the consumer market and changes in consumer demographics, including the aging of the general population and the emergence of Millennials and Generation Z who have different spending, consumption and purchasing habits; evolving consumer concerns or perceptions regarding ESG and sustainability practices of manufacturers, including, packaging materials, such as plastic packaging, and their environmental impact; a material adverse effect on our business, financial conditiongrowing demand for natural or organic products and resultsingredients; changing consumer sentiment toward non-local products or sources among millennials and other demographic groups; evolving consumer concerns or perceptions (whether accurate or inaccurate) regarding the effects of operations.  

Changesingredients or substances present in certain consumer products; and concerns regarding human capital, including diversity and inclusion.

The movement of consumers to online purchases of consumer products has greatly accelerated as a result of the policiesCOVID-19 pandemic, as store closures, quarantine and gathering restrictions, and social distancing efforts have reduced physical retail shopping. We and many of our retailercompetitors have increased our online sales as a result, benefiting from scale, brand recognition, and other factors. However, as consumers continue to shift their behavior, retailers may incur higher e-commerce operating costs and will seek to recover those costs by passing them onto customers and manufacturers.   Additionally, we cannot predict the extent to which our increased e-commerce demand will continue as pandemic conditions change, including as a result of vaccines or reduced rates of infection.

We rely on the policies of our key retailer customers.  

Larger and increasingly consolidated retailers have increasing dependence on key retailer customers in developed markets may adversely affect our business.  

In recent years, retailer consolidation both in the U.S.influence, and internationally has increased.  This trend has resulted in the increased size and influence of large consolidated retail customers, including internet based retailers, who may demandhave sought to obtain lower pricing, special packaging or impose other requirements on us.  These business demands may relate to inventory practices, logistics or other aspects ofchanges to the customer-supplier relationship.  Somerelationship as a result of our customers, particularly our high-volume retail customers, have sought to obtain pricing and other concessions and better trade terms.this influence.  To the extent we provide concessions or better trade terms to those customers, our profit margins are reduced.  Further, if we are unable to effectively respond to the demands of our customers, these customers could reduce their purchases of our products and increase their purchases of products from competitors which would harm our sales and profitability.  In addition, reductions.  Reductions in inventory by our customers, including as a result of consolidationsconsolidation in the retail industry, or these customers managing their working capital requirements, could result in reduced orders for our products and adversely affect our results of operations for the financial periods affected by such reductions.  reductions.

Protracted unfavorable market conditions, including those caused by the COVID-19 pandemic, have caused many of our customers to more critically analyze the number of brands they sell, and reduce or discontinue certain of our product lines, particularly those products that were not number one or two in their category.

In addition, private label and retail-branded products sold by retail trade chains are typically sold at lower prices than branded products.  As consumers look for opportunities to decrease discretionary spending, our customers have discontinued or reduced distribution of some of our products to encourage those consumers to purchase the customers’ less expensive and, in some cases, more profitable private label and retail-branded products (primarily in the dietary supplements, diagnostic kits and oral analgesics categories).  To the extent customers discontinue or reduce distribution of our products or these products are adversely affected by customers’ actions to increase shelf space for their private label products, we would seek to improve distribution with other customers.  However, if our efforts are not effective, our sales growth and other results, as well as our market share, could be adversely affected.


A continued shift in the retail market from food and drug stores to club stores, dollar stores and mass merchandisers, internet-based retailers and subscription services could cause our sales to decline.  

We have pursued and may continue to pursue strategic acquisitions and divestures.  

Our performance depends upon the general health of the economy and of the retail environment in particular, and could be significantly harmed by changes affecting retailing and the financial difficulties of our retailer customers.  Consumer products, such as those marketed by us, are increasingly being sold by club stores, dollar stores, mass merchandisers and, in particular, internet-based and e-commerce retailers.  Sales of our products remain strongest in the traditional mass merchandiser, food and drug retail stores, and our products are also being sold in club stores and dollar stores channels. However, alternative retail channels, including e-commerce retailers, hard discounters, subscription services and buying clubs, have become more prevalent and the volume of consumer products that are sold through such alternative retail channels is continuing to increase. In addition, the growing number of sales channels and business models, such as niche brands, internet only brands and discounter channels, may affect customer and consumer preferences.  Our failure to successfully respond could negatively impact our results. In particular, the growing presence of e-commerce retailers has affected, andWe may continue to affect,pursue and consummate additional acquisitions or substantial investments in complementary businesses or products in the future.  Those acquisitions may be significantly larger than the ones completed in the past and may require us to increase our levels of debt, potentially resulting in us being assigned a lower credit rating.  However, we may not be able to identify and successfully negotiate suitable strategic acquisition at attractive valuations, obtain financing for future acquisitions on satisfactory terms or otherwise complete future acquisitions.  In recent periods, competition from other consumer preferences and market dynamics. Although we have taken steps to improve, and have seen improvement in, sales to club stores, dollar stores and internet-based retailers, and are engaged in e-commerce with respect to our TOPPIK, VIVISCAL, FELINE PINE and WATERPIK brands, if the current trend continues and we are not successful in further improving sales to these or the alternative retail channels noted above, our financial condition and operating results could suffer.  In addition, the growth of the alternative retail channelsproducts companies that are focusedseeking similar opportunities has been


particularly strong, and valuations for potential acquisition assets have been high, which has placed pressure on limiting the number of items they sell and selling predominantly private label products may reduce our ability to marketidentify, structure and sellexecute transactions.  In addition, acquisitions and investments entail various risks, including the difficulty of entering new markets or product categories, the challenges of integrating the operations and personnel of the acquired businesses or products, the potential disruption of our ongoing business and the ongoing business of the acquired company, the need to review and, if necessary, upgrade processes and systems of the acquired company to conform to our own processes and systems and applicable legal and regulatory requirements, managing an increasingly broad and complex range of businesses and products, through such retailers. The retail environment is changing withand, generally, our potential inability to obtain the growthdesired financial and strategic benefits from the acquisition or investment. Any of alternative retail channelsthese risks may divert management and this could significantly changeother resources, require us to incur unanticipated costs or delay the way traditional retailers do business. If these alternative retail channels were to take significant market share away from traditional retailers and/or we are not successful in these alternative retail channels,anticipated positive impact on our marginsbusiness and results of the acquisition.  The risks associated with assimilation are increased to the extent we acquire businesses that have stand-alone operations or businesses that are in new categories that cannot easily be integrated or operations or sources of supply outside of the U.S. and Canada, for which products are manufactured locally by third parties.  

Acquired companies or operations or newly-created ventures may not be negatively impacted.profitable or may not achieve sales levels and profitability that justify the investments made.  In addition, future acquisitions or investments could result in substantial cash expenditures, the potentially dilutive issuances of new equity by us or the incurrence of additional debt or business acquisition liabilities.  

Market category declines and changes to our product and geographic mix may impact the achievement of our sales growth targets, planned pricing and financial results.

Market category declines and changes to our product and geographic mix may impact the achievement of our sales growth targets, planned pricing and financial results.

A significant percentage of our revenues come from mature markets that are subject to high levels of competition.  During 2018,2020, approximately 82%83% of our sales were generated in U.S. markets.  U.S. markets for consumer products are considered mature and commonly characterized by high household penetration, particularly with respect to our most significant product categories, such as laundry detergents, deodorizers, household cleaning products, toothpastes, dietary supplements, antiperspirants and deodorants. Our ability to achieve unit sales growth in domestic markets will depend on increased use of our products by consumers relative to competitors’ products, our ability to drive growth through product innovation in existing and new product categories, investment in our established brands and enhanced merchandising and our ability to capture market share from our competitors. In addition, we derive a large percentage of our revenues from sales of laundry detergent. Moreover, our ability to quickly innovate to adapt our products to meet changing consumer demands is essential, especially in light of e-commerce significantly reducing the barriers for even small competitors to quickly introduce new brands and products directly to consumers. This risk is further heightened by the continued evolution of consumer needs, habits and preferences because of shifts in U.S. demographics, reflecting various factors, including cultural and socioeconomic changes.  If we are unable to increase market share in existing product lines, develop product improvements, undertake sales, marketing and advertising initiatives that expand our product categories and develop, acquire or successfully launch new products, we may not achieve our sales growth objectives.  Even if we are successful in increasing sales within our product categories, a continuing or accelerating decline in the overall markets for our products could have a negative impact on our financial results.results.

If newSome of our 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 salesdue to the COVID-19 pandemic. FLAWLESS and some other personal care brands have also been impacted by reduced demand for discretionary consumable products by consumers due the impact of the COVID-19 pandemic, including increased unemployment and concerns about the economy. Some product categories have seen decreasing demand in recent years, including condoms, as a result of demographic and other changes.   Continuing recessionary economic conditions, including after the direct impact of the pandemic has subsided, may continue to impact consumer demand for certain of our products and put downward pressure on product line extensions do not gain widespread customer acceptance or are otherwise discontinued, or if they cause sales of existing products to decline, our financial performance could decline.  prices.

New products and product line extensions may not gain widespread customer acceptance, may be otherwise discontinued, or cause sales of existing products to decline.  

Our future performance and growth dependsdepend on our ability to successfully identify, develop and introduce new products, and product line extensions.  We cannot be certain that we will achieveextensions, products in adjacent categories to our innovation goals.current products, and anticipate changes in consumer preferences.  In addition, some of our products have shorter product life spans and depend heavily on our ability to continuously and timely introduce innovative new products to the marketplace.  The successful development and introduction of new products involves substantial research, development, marketing and promotional expenditures, which we may be unable to recover if the new products do not gain widespread market acceptance.  New product development and marketing efforts, including efforts to enter markets or product categories in which we have limited or no prior experience, have inherent risks.  These risks include product development or launch delays, competitor actions, regulatory approval hurdles and the failure of new products and line extensions to achieve anticipated levels of market acceptance.  In addition, if sales generated by new products could result in a concomitant decline in sales of existing products our financial performance could be harmed.  

Each year, we introduce new products, including launches into new “white space” categories, across the majority of our marketed brands.  Historically, new product acceptance has generally been widespread across the retailer base.  ThereHowever, there is no assurance however, that our customers and consumersnew products will continue to purchase these new products.  If new products are not successful in generating sales growth, our financial results could suffer.have widespread acceptance.  From time to time, we have discontinued certain products and product lines, which resulted in returns from customers, asset write-offs and shutdown costs.  We may suffer similar adverse consequences in the future to the extent we discontinue products that do not meet retailer or consumer expectations or no longer satisfy consumer demand.  


CostWe are subject to cost overruns and delays, regulatory requirements, and miscalculations in capacity needs with respect to our expansion projects and our manufacturing facilities, as well as disruptions to our manufacturing facilities and those of our contract manufacturers and other suppliers could adversely affect our business.suppliers.

From time to time, we initiate planned and unplanned expansion projects with respect to our facilities and those of our contract manufacturers and other suppliers.  As is customary with large construction projects, these projectssuppliers which are subject to risks of, and we have from time to time experienced, delay or cost overruns resulting from numerous factors, including the following: shortages of equipment, materials or skilled labor; work stoppages; unscheduled delays in


the delivery of ordered materials and equipment; unanticipated cost increases; difficulties in obtaining necessary permits or in meeting permit conditions; difficulties in meeting regulatory or quality requirements or obtaining regulatory approvals; availability of suppliers to certify equipment for existing and enhanced regulations; design and engineering problems; and failure or delay of third party service providers,providers; and civil unrest, labor disputes,natural disasters and labor disputes. Significant cost overruns or delays in completing a project, or the miscalculations of our anticipated capacity needs, including as a result of expansion into new product lines or into new markets, could have a material adverse effect on our return on investment, results of operations and cash flows.pandemics. If we were to experience delays or cost overruns in the future it could result in product allocation and retailer frustration, the loss of a significant customer or customersand the material decrease of the sales of one or if salesmore of our products. In addition, we could miscalculate our anticipated capacity needs in any of our products were to materially decrease due to customer service levelscategories, such as our laundry detergent, cat litter and dietary supplement categories, including as a result of meeting the anticipated demand of our customers, or realexpansion into new product lines or perceived product quality or appearance issues, this could have a material adverse effect on our business, financial condition and results of operations.into new markets.  

Additionally, the supply of our products depends on the uninterrupted efficient operation of our manufacturing facilities and those of our contract manufacturers and other suppliers and our ability to meet customer service levels.  Many of our manufacturing processes and those of our contract manufacturers and other suppliers and our ability to meet customer service levels, and the manufacturing of certain of our products is concentrated in one or more of our plants, contract manufacturers or other suppliers, with limited alternate qualified facilities available.  Many of our manufacturing processes and those of our contract manufacturers and other suppliers are complex and present difficult technical challenges to obtain the manufacturing yields necessary to operate profitably.  In addition, our manufacturing processesprofitably and those of our contract manufacturers and other suppliers may require complex and specialized equipment which can be expensive to repair or replace with required lead times of up to a year.

The manufacturing of certain of our products is concentrated in one or more of our plants, contract manufacturers or other suppliers, with limited alternate facilities.  Any event that disrupts or otherwise negatively impacts manufacturing facilities, manufacturing systems or equipment, or contract manufacturers or other suppliers including work stoppages, cyberattacks, acts of war, fire, flooding or other natural disasters, could delay or suspend shipments of products or the release of new products or could result in the delivery of inferior products.productsor our ability to meet customer requirements or service levels.  As the COVID-19 pandemic continues, wecould face challenges and retailer penalties in continuing to operate our facilities and delivery of on time and in full product shipments as a result our revenues from the affected products would decline and we could incur losses until such time as weof employee absenteeism or our contract manufacturerssickness, additional governmental or regulatory actions, closures or other suppliers are able to restore production processesrestrictions that limit or are able to put in place alternative contract manufacturersclose our operating and manufacturing facilities or otherthose of our suppliers.

Our relianceWe rely on a limited number of contract manufacturers and suppliers, including sole source contract manufacturers and suppliers for certain products, could materially and adversely affect our operations and financial results.  products.  

We rely on a limited number of contract manufacturers and suppliers for certain of our commodities and raw materials, including sole source suppliers for certain of our raw materials, packaging, product components, finished products and other necessary supplies.  New suppliers must be qualified pursuant to our standards and may also have to be qualified under governmental and industry standards and any other standards of our customers, which can require additional investment and time.  We could experience material disruptions in production and other supply chain issues, including as a result of our dependence on sole source and other suppliers, which could result in out-of-stock conditions.  Moreover, our relationships with customers could be adversely affected if new or existing suppliers are unable to meet any standards set by us, government or industry regulations, or our  customers, if we are unable to contract with suppliers at the quantity, quality and price levels needed for our business, if any of our  key suppliers becomes insolvent, ceases or significantly reduces its operations or experiences financial distress, as a result of the COVID-19 pandemic or otherwise, or if any environmental, economic or other outside factors impact its operations.  We may be unable to qualify any needed new contract manufacturers or suppliers or maintain supplier arrangements and relationships based on a variety of factors; we may be unable to contract with suppliers at the quantity, quality and price levels needed for our business; certain of our suppliers may not meet the standards of our customers or licensors; or certain of our key contract manufacturers or suppliers may become insolvent or experience other financial distress.distressor face closure or suspension of operations.  If any of these events occurs and we have failed to identify and qualify an alternative vendor, then we may be unable to meet our contractual obligations and customer expectations, which could damage our reputation and result in lost customers and sales, or we may incurthe incurrence of fines or higher than expected expenses either of which could materially and adversely affect our business, operations and results of operations.

Volatility and  Further, the COVID-19 pandemic has caused worldwide increases in the price of rawdemand for some products and packaging materials or energy costs could erodereduced demand for other products, which has caused strain on our profit margins, which could harm operating results,supply chain network and effortsits ability to hedge against raw material price increases may adversely affect our operating results if raw material prices decline.meet such demand.

Volatility and increases in the price of raw and packaging materials or energy costs could erode our profit margins.

The principal raw materials and packaging used by us and certain of our suppliers and contract manufacturers include surfactants (cleaning agents), paper products and resin-based molded components.  Volatility and increases in the price of raw materials,disruptions in production or transportation, or increases in the costs of energy, shipping and other necessary services, could significantly affect our profit margins if we are unable to pass along any higher costs in the form of price increases or otherwise achieve cost efficiencies, such as in manufacturing and distribution.  Historically, we have attempted to address such price increases through cost reduction programs and price increases of our products, entering into pre-buying or locked-in pricing arrangements with certain suppliers and entering into hedge agreements.distribution  There is no assurance however, that we will be able to fully offset any price increases,through cost reduction programs or price increases of our products or enter locked-in price arrangements or hedge agreements, especially given the competitive environment.


Sustained price increases may lead to declines in volume as competitors may not adjust their prices or customers may decide not to pay the higher prices, which could lead to sales declines and loss of market share. While we seek to project tradeoffs between price increases and volume, our projections may not accurately predict the volume impact of price increases.  In addition, volatility in certain commodity markets could significantly affect our production cost and, therefore, harm our financial condition and operating results.  

From time to time, we use hedge agreements to mitigate the volatility of commodities and diesel fuel prices.  The hedge agreements are designed to add stability to product costs, enabling us to make pricing decisions and lessen the economic impact of abrupt changes in prices over the term of the contract.  However, in periods of declining fuel or other commodity prices, the hedge agreements can have the effect of locking us in at above-market prices.


Reduced availability of transportation or disruptions in our transportation network could adversely affect us.

Reduced availability of transportation or disruptions in our transportation network could adversely affect us.

We distribute our products and receive raw materials and packaging components primarily by truck, rail and ship and through various ports of entry.  Reduced availability of trucking, rail or shipping capacity due to adverse weather conditions, natural disasters, including climatic events (including any potential effect of climate change), allocation of assets to other industries or geographies or otherwise, work stoppages, closure of operations due to government restrictions or sick employees or other impacts of pandemics, strikes or shutdowns of ports of entry or such transportation sources, could cause us to incur unanticipated expenses and impair our ability to distribute our products or receive our raw materials or packaging components in a timely manner, which could disrupt our operations, strain our customer relationships and competitive position, and adversely affect our operating profits.  In particular, the recent reduced trucking capacity due to a shortage of drivers, the recent enforcement deadline for a federal regulation requiring drivers to electronically log their driving hours and adverse weather conditions, among other reasons, caused an increase in the cost of transportation for us and many other companies.position.  

If the reputation of one or more of our leading brands erodes, our financial results could suffer.  

Damage to the reputation of one or more of our leading brands could adversely affect us.  

Our financial success is directly dependent on the reputation and success of our brands, particularly the ARM & HAMMER, BATISTE, FIRST RESPONSE, NAIR, ORAJEL, OXICLEAN, TROJAN, L’IL CRITTERS and VITAFUSION,SPINBRUSH, WATERPIK, XTRA, FLAWLESS, and XTRAZICAM brands.  The effectiveness of these brands could suffer if our marketing plans or product initiatives do not have the desired impact on a brand’s image or its ability to attract consumers.  Further, our resultsOur brands could be adversely affected if one or more of our leading brands sufferssuffer damage to its reputationtheir reputations due to real or perceived, sustainability, quality or safety issues, including as a result of, among other things, a significant product recall,recalls, product-related litigation, defects or impurities in our products, product misuse, changing consumer perceptions of certain ingredients or environmental impacts (including packaging, energy and water use and waste management), or allegations of product tampering.  In addition,as our sales on various e-commerce platforms grow, we may be unable to prevent sales of counterfeit, pirated, or stolen goods, unlawful or unethical sales, unauthorized resellers online, or sales in violation of our policies. To the extent any of this occurs, it could result in customers delisting our products and damage to our reputation and business.

Additionally, claims made in our marketing campaigns may become subject to litigation alleging false advertising which, if successful,and could cause us to alter our marketing plans and may materially and adversely affect sales or result in the imposition of significant damages against us, or other customer or consumer dissatisfaction, especially if such dissatisfaction were to be broadly disseminated, including through the use of social media.us.  

 

Widespread use of social media and networking sites by consumers has greatly increased the accessibility and speed of dissemination of negative information.  Negative online consumer reviews or inaccurate posting or comments about us or our brands in the media or on any social networking website, whether accurate or inaccurate, or the disclosure of non-public sensitive information through social media, could generate adverse publicity that could damage the reputation of our brands.  In addition, given the association of our individual products with us, an issue with one of our products could negatively affect the reputation of our other products, or us as a whole, thereby potentially adversely impacting our financial results.whole.  

Product liability claims and withdrawals or recalls

We are subject to risks related to our expansion and international operations that could adversely affect our results of operations.  

Our ability to continue to grow our sales and operating results and the reputation of our brands.  

From time to time, we are subject to product liability claims.  We may be required to pay for losses or injuries actually or purportedly caused by our products, including losses or injuries caused by raw materials or other components provided by third party suppliers that are included in our products.  Claims could be basedprofits is dependent on allegations that, among other things, our products contain contaminants, are improperly labeled or designed, or provide inadequate instructions regarding their use or inadequate warnings concerning interactions with other substances.  Whether or not successful, product liability claims could result in negative publicity that could harm our sales and operating results and the reputation of our brands.  In addition, if one of our products is found to be defective or non-compliant with applicable rules or regulations, we could be required to withdraw or recall it, which could result in adverse publicity and significant expenses.  Although we maintain product liability and product recall insurance coverage, potential product liability claims and withdrawal and recall costs may exceed the amount of insurance coverage or may be excluded under the terms of the policy, which could have a material adverse effect on our business, operating results and financial condition.


Environmental matters create potential liability risks.  

We must comply with various environmental laws and regulationsexpanding in the jurisdictionslocations in which we operate, including those relating to the handling and disposal of solid and hazardous wastes and the remediation of contamination associated with the use and disposal of hazardous substances.  A release of such substances due to accident or an intentional act could result in substantial liability to governmental authorities or to third parties.  We have incurred, and will continue to incur, capital and operating expenditures and other costs in complying with environmental laws and regulations.  It is possible that we could become subject to other environmental remediation costs and liabilities in the future that could have a material adverse effect on our results of operations or financial condition.

We are subject to increasing customer, consumer and investor sensitivity to sustainability issues.

As climate change, ingredients, packaging and other sustainability concerns become more prevalent, federal, state and local governments and our customers, consumers and investors are increasingly sensitive to these issues. This increased focus on sustainability may result in new regulations and customer and investor requirements that could negatively affect us. This could cause us to incur additional direct costs or to make changes to our operations to comply with any new regulations and customer requirements, or to meet the demands of our investors. We could also lose revenue if our consumers change brands or our customers divert business from us because we have not complied with their sustainability requirements. Additionally, environmentally-conscious investors may choose not to invest in our Common Stock if wealready do not comply with their demands for sustainable business practices. These costs, changes, potential loss of revenue and potential reputational harm could have a material adverse effect on our financial condition, results of operations, liquidity, cash flows and share price.

From time to time, we are involved in litigation, arbitration or regulatory matters where the outcome is uncertain and which could entail significant expense.

We, in the ordinary course of our business are, and from time to time, may become, the subject of, or party to, various pending or threatened legal actions, government investigations and proceedings, 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 pending or future legal actions 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.

Current and future laws and regulations in the countries in which we and our suppliers operate could expose us to increased costs and other adverse consequences.  

The manufacturing, processing, formulation (including stability), packaging, labeling, marketing, distribution and sale of our products are subject to regulation by federal agencies, including the FDA, the FTC, the EPA and the CPSC.  In addition, our and our suppliers’ operations are subject to the oversight of the Occupational Safety and Health Administration and the National Labor Relations Board.  Our activities are also regulated by various agencies of the states, localities and foreign countries in which our products are sold.  

In particular, the FDA regulates the formulation, safety, manufacturing, packaging, labeling and distribution of condoms, home pregnancy and ovulation test kits, battery operated toothbrushes, over-the-counter pharmaceuticals and dietary supplements, including vitamins and minerals.  The FDA also exercises oversight over cosmetic products such as depilatories.  In addition, under a memorandum of understanding between the FDA and the FTC, the FTC has jurisdiction with regard to the promotion and advertising of these products, and the FTC regulates the promotion and advertising of our other products as well.  As part of its regulatory authority, the FDA may periodically conduct inspections of the physical facilities, machinery, processes and procedures that we and our suppliers use to manufacture regulated products and may identify compliance issues that would require us and our suppliers to make certain changes in our manufacturing facilities and processes.  The failure of a facility to be in compliance may lead to regulatory action against the products made in that facility, including seizure, injunction or recall, as well as to possible action against the owner of the facility/manufacturer.  We may be required to make additional expenditures to address these issues or possibly stop selling certain products until the compliance issue has been remediated.  As a result, our business could be adversely affected.

Likewise, any future determination by the FDA or a similar foreign agency, or by us in reviewing our compliance with applicable rules and regulations, that our products or quality systems do not comply with applicable regulations could result in future compliance activities, including product withdrawals or recalls, import detentions, injunctions preventing the shipment of products, or other enforcement actions.  For example, the FDA may determine that a particular claim that we use to support the marketing of a product is not substantiated, may not accept the evidence of safety for a new product that we may wish to market, may challenge the safety or


effectiveness of existing products based on, among other things, changes in formulations, inadequate stability or “shelf-life,” consumer complaints, or improper labeling, and may determine that our dietary supplement business manufacturing, packaging, labeling and holding operations do not comply with cGMPs.  Similarly, we may identify these or other issues in internal compliance reviews of our operations and the operations and products of vendors and acquired companies.  These other issues may include the identification of contaminants or non-compliant levels of particular ingredients.  Any of the foregoing could subject us to adverse publicity, force us to incur unanticipated costs and have a material adverse effect on our business, financial condition and results of operations.  Additionally, delays in the acceptance, review and approval of products by the FDA, or other required governmental approvals, may result from government shutdowns due to the failure by Congress to enact regular appropriations.

From time to time, Congress, the FDA, the FTC, the Commission or other federal, state, local or foreign legislative and regulatory authorities may impose additional laws or regulations that apply to us, repeal laws or regulations that we consider favorable, or impose more stringent interpretations of current laws or regulations.  For example, we are subject to regulations regarding the transportation, storage or use of certain chemicals to protect the environment, as well as the Commission’s rules with respect to “conflict minerals.” Additionally, recent reform proposals have introduced greater uncertainty with respect to trade policies, tariffs and government regulations affecting trade between the U.S. and other countries, in addition to the major changes to U.S. tax law signed into law in 2017.  Major developments in trade relations could have a material effect on our balance sheet and results of operations.  We are not able to predict the nature of these changes or of such future laws, regulations, repeals or interpretations or to predict the effect additional or shifting governmental regulation, when and if it occurs, would have on our business in the future.  Such developments could require reformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, expanded adverse event reporting or other new requirements.  Any such developments could increase our costs significantly and could have a material adverse effect on our business, financial condition and results of operations.

In addition, we collect, use and store personal data of our employees, customers and other third parties in the ordinary course of business and we are required to comply with increasingly complexentering into new geographic locations, both of which require significant resources and changing data privacy and security laws and regulations, that apply to the collection, storage, use, transmission and protection of personal information and other consumer data, including particularly the transfer of personal data between or among countries. In particular, the European Union ("EU") has adopted strict data privacy regulations. Following recent developments such as the passage of the EU’s General Data Protection Regulation ((EU) 2016/679) (“GDPR”) in May 2018 and the long-awaited Regulation on Privacy and Electronic Communications (the “ePrivacy Regulation”),investments which is slated to be finalized in 2019 and will replace the current ePrivacy Directive (2002/58/EC), data privacy and security compliance in the EU are increasingly complex and challenging. The GDPR in particular has broad extraterritorial effect and imposes a strict data protection compliance regime with significant penalties for non-compliance (up to 4% of worldwide annual turnover or €20 million, whichever is higher). It is also important to note that many countries are following the EU in producing a broad omnibus law in relation to privacy protection. For instance, Brazil has just published a GDPR-like law. In general, the GDPR and ePrivacy Regulation, and other local privacy laws, could also require adaptation of our technologies or practices to satisfy local privacy requirements and standards. We may also face audits or investigations by one or more domestic or foreign government agencies relating to our compliance with these regulations. An adverse outcome under any such investigation or audit could subject us to fines, penalties or orders to cease, delay or modify collection, use or transfers of personal data. We could also face rights requests, complaints, claims, actions or class actions from those persons whose data we collect, use and store. Any of these events or other circumstances related to our collection, use and transfer of personal data could also lead to negative media attention, cause a loss of reputation in the market or otherwise adverselywould affect our business.

We are subject to risks related torisk profile.  Further, our international operations that could adversely affect our results of operations.  

Our international operations subject us to risks customarily associated with foreign operations, including:

currency fluctuations;

currency fluctuations;

import and export license and taxation requirements and restrictions;

widespread health emergencies, such as COVID-19 or other pandemics or epidemics;

trade restrictions, including local investment or exchange control regulations;

import and export license and taxation requirements and restrictions;

changes in tariffs and taxes;

trade restrictions, including local investment or exchange control regulations;

changes in tariffs and taxes;

the effect of foreign income taxes, value-added taxes and withholding taxes, including the inability to recover amounts owed to us by foreign governments, and the determination of the U.S. Internal Revenue Service (the “I.R.S.”) regarding the applicability of certain regulations, including the Foreign Account Tax Compliance Act, to our international transactions;

the possibility of expropriation, confiscatory taxation or price controls;

restrictions on or the costs related to repatriating foreign profits back to the U.S.;

political or economic instability, and civil unrest;

disruptions in the global transportation network, such as work stoppages, strikes or shutdowns of ports of entry or such other transportation sources, or other labor unrest;

compliance with laws and regulations concerning ethical business practices, including without limitation, the U.S. Foreign Corrupt Practices Act and United Kingdom Bribery Act;

the impact of the United Kingdom’s exit from the European Union;

difficulty in enforcing contractual and intellectual property rights;

regulatory and quality system requirements for certain products; and

difficulties in staffing and managing international operations.  

The COVID-19 pandemic has had and may continue to have a negative impact on the global economy, with reduced international travel, restrictions and social distancing measures, and recessionary conditions in many countries. Major developments in trade relations, including the inability to recover amounts owed to usimposition of new or increased tariffs by foreign governments, and the determination of the U.S. Internal Revenue Service (the “I.R.S.”) regarding the applicability of certain regulations, including the Foreign Account Tax Compliance Act, to our international transactions;

the possibility of expropriation, confiscatory taxation or price controls;

restrictions on or the costs related to repatriating foreign profits back to the U.S.;


political or economic instability, and civil unrest;

disruptions in the global transportation network, such as work stoppages, strikes or shutdowns of ports of entry or such other transportation sources, and/or other labor unrest;

compliance with lawscountries, and regulations concerning ethical business practices, including without limitation,any emerging nationalist trends in specific countries could


alter the U.S. Foreign Corrupt Practices Acttrade environment and United Kingdom Bribery Act;

difficultyconsumer purchasing.  All the foregoing risks could have a significant impact on our ability to commercialize our products on a competitive basis in enforcing contractual and intellectual property rights;

regulatory requirements for certain products; and

difficulties in staffing and managing international operations.  markets.

In addition, changes as result of the United Kingdom’s decision and subsequent negotiations to exit the EU could subject us to heightened risks in that region, including disruptions to trade and free movement of goods, services and people to and from the United Kingdom, increased foreign exchange volatility with respect to the British pound and additional legal and economic uncertainty.  Additional costs have been incurred in 20182020 because of measures implemented to address or mitigate risks.  There is a risk that the exit will cause an untenablea material rise in the cost of doing business in the UK.  Moreover, in all foreign jurisdictions in which we operate, we are subject to laws and regulations that govern foreign investment, foreign trade and currency exchange transactions.  The recent imposition of tariffs on products imported from certain countries has introduced greater uncertainty with respect to trade policies and government regulations affecting trade between the U.S. and other countries. Major developments in trade relations, including the imposition of new or increased tariffs by the U.S. and/or other countries, and any emerging nationalist trends in specific countries could alter the trade environment and consumer purchasing behavior which, in turn, could have a material effect on our balance sheet and results of operations.  All the foregoing risks could have a significant impact on our ability to commercialize our products on a competitive basis in international markets and may have a material adverse effect on our results of operations or financial position.  

Failure to effectively utilize or successfully assert intellectual property rights, and the loss or expiration of such rights, could materially adversely affect our competitiveness.  Infringement by us of third-party intellectual property rights could result in costly litigation and/or the modification or discontinuance of our products.  

The market for our products depends to a significant extent upon the value associated with our trademarks and brand names.  We own the material trademarks and brand names used in connection with the marketing and distribution of our major products both in the U.S. and in other countries.  While we hold several valuable patents on our products, they may not serve as an effective barrier to entry for new competitors.  Accordingly, we rely on trademark, trade secret, patent and copyright laws to protect our intellectual property rights.  Although most of our material intellectual property is registered in the U.S. and in certain foreign countries in which we operate, we cannot be sure that our intellectual property rights will be sufficient or effectively utilized or, if necessary, successfully asserted.  There is a risk that we will not be able to obtain and perfect our own intellectual property rights, or, where appropriate, license from others intellectual property rights necessary to support new product introductions.  We cannot be sure that these rights, if obtained, will not be invalidated, circumvented or challenged in the future, and we could incur significant costs in connection with legal actions relating to such rights.  In addition, even if such rights are obtained in the U.S., the laws of some of the other countries in which our products are or may be sold do not protect intellectual property rights to the same extent as the laws of the U.S.  If other parties infringe our intellectual property rights, they may dilute the value of our brands in the marketplace, which could diminish the value that consumers associate with our brands and harm our sales.  Our failure to expand in existing geographic locationsperfect or enter new geographic locationssuccessfully assert intellectual property rights could make us less competitive and could have a material adverse effect on our business, operating results and financial condition.  

In addition, if our products are found to infringe intellectual property rights of others, the growthowners of those rights could bring legal actions against us claiming substantial damages for past infringement and seeking to enjoin manufacturing and marketing of the affected products.  If these legal actions are successful, in addition to any potential liability for damages from past infringement, we could be required to obtain a license in order to continue to manufacture or market the affected products, potentially adding significant costs.  We might not prevail in any action brought against us or we may be unsuccessful in securing any license for continued use and therefore have to discontinue the marketing and sale of a product.  

Impairment of our goodwill and other long-lived intangible and tangible assets may result in a reduction in net income.

We have a material amount of goodwill, trademarks and other intangible assets, as well as other long-lived tangible assets, which are periodically evaluated for impairment in accordance with current accounting standards.  Declines in our profitability and/or estimated cash flows related to specific intangible assets, as well as potential changes in market valuations for similar assets and market discount rates, has resulted in impairment charges from time to time, and may result in future impairment charges.  

Regulatory and Litigation Risks

We may be subject to product liability claims, withdrawals or recalls or other legal proceedings and from time to time we are involved in litigation, arbitration or regulatory matters where the outcome is uncertain and which could entail significant expense.  

From time to time, we are subject to product liability or other product-related claims.  We may be required to pay for losses or injuries actually or purportedly caused by our products, including losses or injuries caused by raw materials or other components provided by third party suppliers that are included in our products.  Claims could be based on allegations that, among other things, our products contain contaminants, are improperly tested, labeled or designed, or provide inadequate instructions regarding their use or inadequate warnings of potential dangers related to their use.  Whether or not successful, product liability claims could result in negative publicity that could harm


our sales and operating results and the reputation of our brands.  In addition, if one of our products is found to be defective or non-compliant with applicable rules or regulations, we could be required to withdraw or recall it, which could result in adverse publicity and significant expenses.  Although we maintain product liability and product recall insurance coverage, potential product liability or other product-related damages claims and/or withdrawal and recall costs may exceed the amount of insurance coverage or may be excluded under the terms of the policy.

Litigation, arbitration or regulatory matters where the outcome is uncertain could entail significant expense.

From time to time, we are the subject of, or party to, various pending or threatened legal actions (including class actions), government investigations and proceedings, including, without limitation, those relating to, commercial transactions, product liability, consumer, employment, antitrust, environmental, health, safety and compliance-related matters.  Such proceedings are subject to many uncertainties and the outcome of certain pending or threatened legal actions, investigations and proceedings may not be reasonably predictable and any related damages, injunctions and/or settlements may not be estimable.

Environmental matters create potential liability risks.  

We must comply with various environmental laws and regulations in the jurisdictions in which we operate, including those relating to the handling and disposal of solid and hazardous wastes and the remediation of contamination associated with the use and disposal of hazardous substances.  A release of such substances due to accident or an intentional act could result in substantial liability to governmental authorities or to third parties.  We have incurred, and will continue to incur, capital and operating expenditures and other costs in complying with environmental laws and regulations.  

We are subject to increasing focus and sensitivity by governmental, non-governmental organizations, customers, consumers and investors to sustainability issues, including those related to climate change.

As climate change, land use, water use, deforestation, recyclability or recoverability of packaging, plastic waste, ingredients and other ESG and sustainability concerns become more prevalent, federal, state and local governments, non-governmental organizations and our customers, consumers and investors are increasingly sensitive to these issues. This increased focus on sustainability may result in new laws, regulations and requirements that could cause disruptions in or increased costs associated with manufacturing our products. This could cause us to incur additional costs or to make changes to our operations to comply with any of the foregoing. We could also lose revenue if our consumers change brands or our customers move business from us because we have not complied with their ESG and sustainability requirementsand environmentally-conscious investors may choose not to invest in our Common Stock if we do not comply with their business expectations.

We have recognized that our customers and consumers are increasingly demanding transparency regarding our efforts to mitigate our impacts on climate change. For example, during 2020, some of our major customers requested we respond to various questionnaires, including the Climate Disclosure Project (“CDP”) Climate Change and Forests Questionnaires and use our responses and CDP grades to evaluate us.  Efforts to meet these standards could impact our costs, and failure to meet our customers’ expectations could impact our sales.

Certain of our business salesactivities and resultsthe production of operations.

Our ability to continue to growsome of the materials used in our salesproducts and profits is dependent on expanding in the locations in which we already do business and entering into new geographic locations, both of which would require significant resources and investments which would affect our risk profile. The failure to successfully enter into or expand our business in such locations could materially affect the growthcertain of our business salesactivities, including petroleum based, agricultural and resultsforest materials, and the growing global demand for livestock products which is a focus of operations.our Animal and Food Production business, contribute to  deforestation and climate change and reduction in biodiversity, and can adversely impact water quality and availability, people and communities.  Climate change is, in turn, a threat to each of those activities.  While we strive to minimize the environmental impact of our global operations, a potential loss in business could result from reduced demand for our products and loss of customers if we do not meet their expectations related to our efforts towards sustainability and fighting climate change.

Current and future laws and regulations in the countries in which we and our suppliers operate could expose us to increased costs and other adverse consequences.  

The development, manufacturing, processing, formulation (including stability), packaging, labeling, marketing, distribution and sale of our products are subject to regulation by federal agencies, including the FDA, the FTC, the EPA and the CPSC and foreign regulators and agencies.  In addition, our and our suppliers’ operations are subject to the oversight of the Occupational Safety and Health Administration and the National Labor Relations Board.  Our activities are also regulated by various agencies of the states, localities and foreign countries in which our products and their constituent materials and components are manufactured and sold.  

In particular, the FDA and foreign counterparts regulate the formulation, safety, development, manufacturing, packaging, labeling and distribution of condoms, home pregnancy and ovulation test kits, vaginal lubricants,electric and battery powered medical devices, over-the-counter pharmaceuticals and dietary supplements, including vitamins, minerals,and homeopathic products.  The FDA also exercises oversight over cosmetic products such as depilatories.  In addition, under a memorandum of understanding between the FDA and the FTC, the FTC has jurisdiction with regard to the promotion and advertising of these products, and the FTC regulates the promotion and advertising of our other products as well.  As part of its regulatory authority, the FDA may periodically conduct inspections of the physical facilities, machinery, processes and procedures that we and our suppliers use to manufacture regulated products and may identify compliance issues


that would require us and our suppliers to make certain changes in our manufacturing facilities and processes.  The failure of a facility to be in compliance may lead to regulatory action against the products made in that facility, including seizure, injunction or recall, as well as to possible action against the owner of the facility/manufacturer.  We may not be ablerequired to continue to identify and complete strategic acquisitions and effectively integrate acquired companies to achieve desired financial benefits.  

We seek to acquire or invest in businesses that offer products, services or technologies that are complementary.  We have made numerous acquisitions in the past 15 years.

We may make additional acquisitionsexpenditures to address these issues or substantial investmentspossibly stop selling certain products until the compliance issue has been remediated.  

Likewise, any future determination by the FDA or a similar foreign agency, or by us in complementary businessesreviewing our compliance with applicable rules and regulations, that our products or quality systems do not comply with applicable regulations could result in future compliance activities, including product withdrawals or recalls, import detentions, injunctions preventing the shipment of products, or other enforcement actions.  For example, the FDA may determine that a particular claim that we use to support the marketing of a product is not substantiated, may not accept the evidence of safety for a new product that we may wish to market, may challenge the safety or effectiveness of existing products based on, among other things, changes in the future.  Those acquisitions may be significantly larger than the ones completed in the pastformulations, inadequate stability or “shelf-life,” consumer complaints, or improper labeling, and may require the Company to increase its levels of debt, potentially resulting in the Company being assigned a lower credit rating.  However,determine that our dietary supplement business manufacturing, packaging, labeling and holding operations do not comply with cGMPs.  Similarly, we may not be able to identify and successfully negotiate suitable strategic acquisitions at attractive valuations, obtain financing for future acquisitions on satisfactory termsthese or otherwise complete future acquisitions. In recent periods, competition from other consumer products companies that are seeking similar opportunities has been particularly strong,issues in internal compliance reviews of our operations and valuations for potential acquisition assets have been high, which has placed pressure on our ability to identify, structure and execute transactions.  In addition, all acquisitions and investments entail various risks, including the difficulty of entering new markets or product categories, the challenges of integrating the operations and personnelproducts of vendors and acquired companies.  These other issues may include the identification of contaminants or non-compliant levels of particular ingredients.  Any of the acquired businesses or products, the potential disruption of our ongoing business and the ongoing business of the acquired company, the needforegoing could subject us to review and, if necessary, upgrade processes of the acquired company to conform to our own processes and applicable legal and regulatory requirements, and, generally, our potential inability to obtain the desired financial and strategic benefits from the acquisition or investment. Any of these risks may divert management and other resources, requireadverse publicity, force us to incur unanticipated costs or delay the anticipated positive impactand have a material adverse effect on our business, financial condition and results of operations.  Additionally, delays in the acquisition.acceptance, review and approval of products by the FDA, or other required governmental approvals, may result from government shutdowns due to the failure by Congress to enact regular appropriations.

In 2019, our VITAFUSION brand launched CBD Full Spectrum Hemp Extract gummies, a new product line made with full spectrum hemp extract containing cannabidiol (“CBD”).  Hemp was exempted from federal regulation as a controlled substance under the Agriculture Improvement Act of 2018 (the “2018 Farm Bill”).  The risks2018 Farm Bill did not eliminate or affect regulation of hemp and its derivatives by the FDA, FTC, or state governments. We believe that our new product line complies with applicable FDA requirements, although the FDA takes the position that CBD products cannot be marketed as dietary supplements and that CBD cannot be added to food. To date, the FDA’s enforcement activity has focused primarily on CBD products that bear express or implied claims suggesting that the products are intended to treat, cure, prevent, or mitigate a disease.  The FTC has similarly focused on disease claims. Our products do not bear disease claims.

The FDA is considering whether to engage in rulemaking to permit the marketing of CBD products as dietary supplements.  There has also been discussion of legislative changes.  For example, HR 5587 was introduced in January 2020. HR5587 would amend the FDC Act to include hemp-derived CBD in the definition of a dietary supplement. Although state laws have been evolving in the wake of the 2018 Farm Bill, we do not intend to sell our products in states that continue to prohibit sales of certain hemp-based CBD products.  In 2021, our Nair brand is launching one depilatory cosmetic product that contains broad spectrum hemp extract. FDA’s position that CBD products cannot be marketed as dietary supplements and that CBD cannot be added to food does not extend to cosmetic products. We do not intend to sell our Nair product in states that continue to prohibit sales of certain hemp-based CBD products. The FDA and certain states and local governments may enact regulations or change their enforcement priorities in a manner that further limits the marketing and use of CBD products. We do not know what the impact of such regulatory activities would be on our products, and what costs, requirements, and possible prohibitions may be associated with assimilation are increasedsuch regulatory activities. Our failure to the extent we acquire businesses that have stand-alonecomply with applicable regulatory requirements or FDA’s or any other state’s disagreeing with our interpretation of applicable FDA or state requirements could result in, among other things, administrative, civil, or criminal penalties or fines; product seizure, mandatory or voluntary product recalls; warning or untitled letters; cease and desist orders against operations that cannot easily be integratedare not in compliance; closure of facilities or operationsoperations; the loss, revocation, or sourcesmodification of supply outsideany existing licenses, permits, registrations, or approvals; or the failure to obtain additional licenses, permits, registrations, or approvals in new jurisdictions where we intend to do business. These laws and regulations may change in the future and we may incur material costs in our efforts to comply with current or future laws and regulations or in any product recalls.

We are subject to regulations regarding the transportation, storage or use of certain chemicals to protect the environment, as well as the Commission’s rules with respect to “conflict minerals.” The new administration and Congress in the United States may seek to pass more stringent regulations in these areas, or more aggressively enforce existing regulations. Recent trade policies, tariffs and government regulations affecting trade between the U.S. and Canada,other countries,have introduced greater uncertainty and volatility. In addition, any additional or renewed significant governmental actions pertaining to the COVID-19 pandemic, including lockdowns, quarantines or other restrictions on the ability of our employees to travel or perform necessary business functions or our ability to develop, manufacture, distribute, market or sell our products, or the ability of our suppliers, customers or third-party partners to effectively run their operations, may negatively impact our ability to manufacture, distribute, market and sell our products.  We are not able to predict the nature of these changes or of such future laws, regulations, repeals or interpretations or to predict the effect additional or shifting governmental regulation, when and if it occurs, would have on our business in the future.  Such developments could require reformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, expanded adverse event reporting or other new requirements.

There is also an increased risk of fraud or corruption in certain foreign jurisdictions and related difficulties in maintaining effective internal controls. Additionally, we could be subject to future inquiries or investigations by governmental and other regulatory bodies, which may be delayed or disrupted due to any government furlough. We could also be adversely affected by violations, or allegations of violations, of the Foreign Corrupt Practices Act and similar international anti-bribery laws. The Foreign Corrupt Practices Act and similar international


anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to government officials or other third parties for which productsthe purpose of obtaining or retaining business.

We are subject to increasingly stringent privacy and security regulation.

We collect, use and store personal data of our employees, customers and other third parties in the ordinary course of business, and we are manufactured locallyrequired to comply with increasingly complex and changing data privacy and security laws and regulations, that apply to the collection, storage, use, transmission and protection of personal information and other consumer and employee data, including particularly the transfer of personal data between or among countries. Recent high-profile security breaches of the information systems of a number of government agencies and U.S. companies may result in increased regulations and new security laws. The new administration and Congress in the United States may seek to pass more stringent regulations in these areas, or more aggressively enforce existing regulations.

Numerous local, municipal, state, federal and international law and regulations address privacy and security including the California Online Privacy Protection Act, the Personal information Protection and Electronic Documents Act, the Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act, the Telephone Consumer Protection Act of 1991, the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Section 5(c) of the Federal Trade Commission Act, and, effective as of January 1, 2020 the California Consumer Privacy Act (CCPA).  These privacy and security laws and regulations change frequently, and new legislation continues to be introduced.  In particular, the CCPA requires new disclosures to California consumers, gives California consumers new rights with respect to their data, and permits California consumers to opt-out of certain sales of personal information. The CCPA provides for fines of up to $7,500 per violation.

In Europe, the European Union ("EU") has adopted strict data privacy regulations. Following the passage of the EU’s General Data Protection Regulation ((EU) 2016/679) (“GDPR”) and the Regulation on Privacy and Electronic Communications (the “ePrivacy Regulation”), data privacy and security compliance in the EU are increasingly complex and challenging. The GDPR in particular has broad extraterritorial effect and imposes a strict data protection compliance regime with significant penalties for non-compliance (up to 4% of worldwide annual turnover or €20 million, whichever is higher). It is also important to note that many countries are following the EU in producing a broad omnibus law in relation to privacy protection. For instance, Brazil has just published a GDPR-like law. In general, the GDPR and ePrivacy Regulation, CCPA, and other local privacy laws, could also require adaptation of our technologies or practices, increased costs and changes to operations to satisfy local privacy requirements and standards.

We may also face audits or investigations by third parties.  These factorsone or more domestic or foreign government agencies relating to our compliance with these regulations. An adverse outcome under any such investigation or audit could harmsubject us to fines, penalties or orders to cease, delay or modify collection, use or transfers of personal data. We could also face rights requests, complaints, claims, or litigation from those persons whose data we collect, use and store as well as government investigations and fines. Any of these events or other circumstances related to our collection, use and transfer of personal data could also lead to negative media attention, damage to our reputation in the market or otherwise adversely affect our business.

Changes in tax laws and regulations or in our operations may impact our effective tax rate and may adversely affect our business, financial condition and operating results.  Larger acquisitions, such asresults.  

Our future effective tax rate could be affected by changes in tax laws and regulations or their interpretation, changes in the mix of earnings in countries with differing statutory tax rates, or changes in the valuation of deferred tax assets and liabilities.  In addition, we evaluate our acquisitiondeferred income tax assets and record a valuation allowance if it is “more likely than not” that all or a portion of the Waterpik businessdeferred tax asset will not be realized.  If the actual amount of our future taxable income is less than the amount we are currently projecting with respect to specific tax jurisdictions, or if there is a change in 2017,the time period within which the deferred tax asset becomes deductible, we could be required to record a valuation allowance against our deferred tax assets.  The recording of a valuation allowance would result in an increase in our effective tax rate and would have an adverse effect on our operating results. In addition, changes in statutory tax rates may change our deferred tax assets or liability balances, which would also impact our effective tax rate.  The new presidential administration has introduced greater uncertainty with respect to tax policies in the United States and major developments in tax policy could impact our business.

Resolutions of tax disputes may adversely affect our earnings and cash flow.  

Significant judgment is required in determining our effective tax rate and in evaluating our tax positions.  We provide for uncertain tax positions with respect to tax positions that do not meet the recognition thresholds or measurement standards mandated by applicable accounting guidance.  Fluctuations in federal, state, local and foreign taxes or changes to uncertain tax positions, including related interest and penalties, may impact our effective tax rate and our financial results.  We are regularly under audit by tax authorities, and although we believe our tax estimates are reasonable, the final outcome of tax audits and related litigation could be materially different than that reflected in our historical income tax provisions and accruals.  In addition, when particular tax matters arise, a number of years may elapse before such matters are audited and finally resolved.  Favorable resolution of such matters could be recognized as a reduction to our effective tax rate in the year of resolution.  Unfavorable resolution of any tax matter could increase the effective tax rate.  Any resolution of a tax issue may require usthe use of cash in the year of resolution.  


Our amended and restated bylaws include an exclusive forum provision.

Our amended and restated bylaws include an “exclusive forum provision,” which  may limit the ability of our stockholders to significantly increase our levels of debt.

Acquired companies or operations or newly-created ventures may not be profitable or may not achieve sales levels and profitabilitybring a claim in a judicial forum that justify the investments made.  In addition, future acquisitions or investments could result in substantial cash expenditures, the potentially dilutive issuances of new equity bysuch stockholders find favorable for disputes with us or our directors or officers, which may discourage such lawsuits against us and our directors and officers. If a court outside of Delaware were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the incurrencespecified types of actions or proceedings described above, we could incur additional debt or contingent liabilities, all of


costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations and financial condition.  In addition, any potential acquisitions or investments, whether or not ultimately completed, could divert the attention of management and resources from other matters that are critical to our operations.  operations.

Financial Risks

Our substantial indebtedness and our financial covenants could adversely affect our operations and financial results and prevent us from fulfilling our obligations, and we may incur substantially more debt in the future, which could exacerbate these risks.  

We have substantial indebtedness and we may incur substantially more debt in the future.  

As of December 31, 2018,2020, we had approximately $2,107$2,164 million of total consolidated indebtedness, net of debt issuance costs.  This amount of indebtedness could have important consequences, including:

making it more difficult for us to satisfy our cash obligations;

making it more difficult for us to satisfy our cash obligations;

limiting our ability to fund potential acquisitions;

limiting our ability to fund potential acquisitions;

requiring us to dedicate a portion of our cash flow from operations to payments on our indebtedness, which would reduce the availability of cash flow to fund capital expenditures and other general corporate purposes;

requiring us to dedicate a portion of our cash flow from operations to payments on our indebtedness, which would reduce the availability of cash flow to fund capital expenditures and other general corporate purposes;

limiting our flexibility in planning for, or reacting to, general adverse economic conditions or changes in our business and the industry in which we operate;

limiting our flexibility in planning for, or reacting to, general adverse economic conditions or changes in our business and the industry in which we operate;

limiting our ability to repurchase our Common Stock; and

limiting our ability to repurchase our Common Stock; and

placing us at a competitive disadvantage compared to our competitors that have less debt.

placing us at a competitive disadvantage compared to our competitors that have less debt.

Additionally, our credit facility is subject to certain financial and other customary covenants.  In the event of a breach of those covenants, our lenders under the credit facility may be entitled to accelerate the related debt (and any lenders in respect of any other debt to which a cross-default provision applies may be entitled to accelerate such other debt), and we could be required to seek amendments or waivers under the debt instruments or to refinance the debt.

Moreover, we  We may incur substantial additional indebtedness in the future to fund acquisitions, to repurchase shares or to fund other activities for general business purposes.  For example, we substantially increased our indebtedness in order to finance the acquisition of the Waterpik business in 2017.  If additional new debt is added to the current debt levels, the related risks that we now face could intensify.  A substantial increase in our indebtedness could also have a negative impact on our credit ratingratings. In this regard, failure to maintain our credit ratings could adversely affect the interest rate available to us in future financings, as well as our liquidity, competitive position and access to capital markets.  Any decision regarding future borrowings will be based on the facts and circumstances existing at the time, including market conditions and our credit ratingratings.  

We may not have sufficient cash flow to service our indebtedness or fund capital expenditures.  

Our ability to repay and refinance our indebtedness and to fund capital expenditures depends primarilyLIBOR, the interest rate benchmark used as a reference rate on our variable rate debt, including our revolving credit facility, term loan, and interest rate swaps was expected to be fully phased out by the end of 2021, when private-sector banks are no longer required to report the information used to set the rate. However, in late 2020, ICE Benchmark Administration (“IBA”), the organization responsible for administering LIBOR, announced its intention to extend the publication of certain USD LIBOR tenors until June 30, 2023.  While it appears that some measure of phase out will still occur by the end of 2021, IBA’s announcement creates uncertainty with respect to timing and implementation of a new reference rate. Given the inherent differences between LIBOR and SOFR or any other alternative benchmark rate that may be established, there are additional uncertainties regarding a transition from LIBOR, including but not limited to the need to amend all contracts with LIBOR as the reference rate and how this will impact our cost of variable rate debt and certain derivative financial instruments. We will also need to consider new contracts and if they should reference an alternative benchmark rate or include suggested fallback language, as published by the Alternative Reference Rates Committee from time to time.

Our business is exposed to domestic and foreign currency fluctuations.  

We are exposed to foreign currency exchange rate risk (both transaction and translation) with respect to our sales, profits, assets and liabilities denominated in currencies other than the U.S. Dollar.  Outside of the U.S., sales and costs are denominated in a variety of currencies, including the Canadian Dollar, Euro, Pound, Mexican Peso and Australian Dollar, among others.  A weakening of the currencies in which sales are generated relative to the currencies in which costs are denominated would decrease operating profits and cash flow.  Cash flow is often subjectChanges in currency exchange rates may also affect the relative prices at which we purchase materials and services in foreign markets.  Although we, from time to general economic, financial, competitive, legislative, regulatorytime, enter into forward exchange contracts to reduce the impact of foreign exchange rate fluctuations related to anticipated but not yet committed sales or purchases denominated in the U.S. Dollar, Canadian Dollar, Pound, Euro, Mexican Peso and other factors beyond our control, and such factors may limit our ability to repay indebtedness and fund capital expenditures.  A failure to service our indebtedness or obtain additional financing as needed


Australian Dollar, foreign currency fluctuations could have a material adverse effect on our business, operatingfinancial condition and results of operations.  

General Risks

We must successfully manage the demand, supply, and operational challenges associated with the actual or perceived effects of the COVID-19 pandemic.

Our business and financial condition.results have been, and may continue to be, negatively impacted by the fear of exposure to or actual effects of the COVID-19 pandemic, such as, but not limited to:

negative impact on the global and U.S. domestic economy, significant unemployment, and market volatility;

reduced travel or recommendations or mandates from governmental authorities to avoid various sized gatherings, close facilities, suspend operations, or reduce hours, or to self-quarantine:

the impact of the CARES Act or other laws or regulations, employee-quarantines or similar other restrictions on our business operations or those of our customers;

significant increases in or reductions in demand or significant volatility in demand for one or more of our products, resulting in pressure on our operations and supply chain networks and the ability to meet such demand;

inability to meet our retailer orders and customers’ needs due to disruptions in our manufacturing and distribution network, supply chain, or capacity constraints or those of our finished goods, raw materials, or transportation suppliers;

continued shifts in consumer demand, including accelerated shifts to online shopping and increased competition in e-commerce in many of our categories from our larger legacy competitors and newer digitally native brands which have increasingly moved into consumer products and staples;

pricing pressures on our products as retailers face added costs to build their e-commerce capacity;

retailer fines related to our underperformance with respect to on time and in full shipments due to  restrictions on our ability to produce and deliver products as a result of employee absenteeism or sickness, a tight trucking market or reduced shipping capacity, additional governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities or those of our suppliers;

closures or reduced hours by our customers; and  

the impact of ongoing government orders and the need to protect our workforce.

We rely significantlyDespite our efforts to manage and remedy these impacts, their ultimate impact also depends on information technology.  Any inadequacy, interruption, theftfactors beyond our knowledge or losscontrol, including the duration and severity of data, malicious attack, integration failure, failureany such outbreak as well as third-party or governmental actions taken to maintaincontain its spread and mitigate its public health effects. While the security, confidentialityvast 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.

In early 2021, vaccines for combatting COVID-19 were approved by health agencies in certain countries/regions in which we operate (including the U.S., United Kingdom, European Union, Canada and Mexico) and began to be administered. However, initial quantities of vaccines are limited and vaccine distributions, controlled by local authorities, are being allocated, generally first to front-line health care workers and other essential workers and next to those members of individual populations believed most susceptible to severe effects from COVID-19. Full administration of the COVID-19 vaccines is unlikely to occur in most jurisdictions until mid- to late- 2021. The impact of COVID-19, including the impact of restrictions imposed to combat its spread, could result in additional businesses being shut down, additional work restrictions and supply chains being interrupted, slowed, or privacyrendered inoperable. As a result, it may be even more challenging to obtain and process raw materials to support our business needs, and more individuals could become ill, quarantined or otherwise unable to work and/or travel due to health reasons or governmental restrictions. Also, governments may impose other laws, regulations or taxes which could adversely impact our business, financial condition or results of sensitive data residingoperations. Further, as some of our customers’ businesses are similarly affected, they might delay or reduce purchases from us, which could adversely affect our results of our business, financial condition or results of operations. The potential effects of COVID-19 also could impact many of the other risk factors described herein, but given the evolving health, economic, social and governmental environments, such potential impact remains uncertain. While we expect the impacts of COVID-19 to continue to have an effect on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at this time.


Our operating results have been, and could be in the future, adversely affected by natural disasters, public health crises, political crises, or other catastrophic events, or unfavorable worldwide, regional and local economic and financial market conditions.

Our operations, as well as the operations of our third-party manufacturers, suppliers and customers, may be subject to disruption from a variety of causes, including a protracted economic downturn, material shortages, financial difficulties, work stoppages, cyberattacks, and other disruptions in information technology systems, demonstrations,political instability or uncertainty in the U.S. or abroad, disease outbreaks or pandemics (for example, an outbreak of a virus such as COVID-19), acts of war, terrorism, fire, earthquakes, flooding or other security failurenatural disasters, disruptions in logistics, loss or impairment of that technologykey manufacturing sites, supplier capacity constraints, raw material and product quality or safety issues, industrial accidents or other occupational health and safety issues. If a major disruption were to occur, it could result in harm our ability to effectively operate ourpeople or the natural environment, delays in shipments of products to customers or suspension of operations.  

The global economy and the economies in regions in which we conduct business and damagehave experienced substantial economic downturns as a result of the reputationCOVID-19 pandemic. We are currently experiencing reduced demand for certain of our brands.  consumer products and may in the future be adversely affected in a material way by lower consumer demand as a result of recessionary economic conditions, including after the direct impact of the COVID-19 pandemic has subsided. In addition, ongoing political uncertainty in many countries, including the ongoing political transition in Hong Kong, the exit of the United Kingdom from the European Union, and the transition of presidential administrations in the United States have created additional economic uncertainty and volatility in the financial markets.

We rely significantly on information technology.  Any inadequacy, interruption, theft or loss of data, malicious attack, integration failure, failure to maintain the security, confidentiality or privacy of sensitive data residing on our systems or other security failure of that technology could harm our ability to effectively operate our business and damage the reputation of our brands.  

We rely extensively on information technology systems, some of which are managed by third-party service providers, to conduct our business.  These systems include, but are not limited to, programs and processes relating to internal communications and communications with other parties, ordering and managing materials from suppliers, converting materials to finished products, shipping product to customers, billing customers and receiving and applying payment, processing transactions, summarizing and reporting results of operations, complying with regulatory, legal or tax requirements, collecting and storing customer, consumer, employee, investor, and other stakeholder information and personal data, and other processes necessary to manage our business.  We sell certain of our products directly to consumers online and through websites, mobile apps and connected devices, and we offer promotions, rebates, customer loyalty and other programs through which it may receive personal information, and we or our vendors could experience cyber-attacks, privacy breaches, data breaches or other incidents that may result in unauthorized access, disclosure and misuse of consumer, customer, employee, vendor or Company information.  

Increased information technology security threats and more sophisticated computer crime, including ransomware, denial of service and phishing attacks and advanced persistent threats, pose a potential risk to the security of our information technology systems, networks, and services, and those of our customers and other business partners, as well as the confidentiality, availability, and integrity of our data, and the data of our customers and other business partners.  As a result, our information technology systems, networks or service providers could be damaged or cease to function properly or we could suffer a loss or disclosure of business,


personal or stakeholder information, due to any number of causes, including catastrophic events, power outages and security breaches.  Although we have business continuity plans in place and have implemented a breach response plan to address service interruptions, if these plans do not provide effective alternative processes on a timely basis, we may suffer interruptions in our ability to manage or conduct our operations which may adversely affect our business. In addition, if our service providers, suppliers or customers experience a breach or unauthorized disclosure or system failure, their businesses could be disrupted or otherwise negatively affected, which may result in a disruption in our supply chain or reduced customer orders or other business operations, which would adversely affect our business.operations.  Recently, there have been high profile security breaches of the information systems of a number of government agencies and U.S. companies, resulting in significant disruptions.

Our information technology systems and, our third-party providers’ systems, have been, and will likely continue to be, subject to advanced computer viruses or other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing, social engineering, hacking and other cyberattacks. Such attacks may originate from nation states or attempts by outside parties, hackers, criminal organizations or other threat actors.  In addition, insider actors-malicious or otherwise-could cause technical disruptions and/or confidential data leakage. To date, we have seen no material impact on our business or operations from these attacks; however, we cannot guarantee that our security efforts will prevent attacks and resulting breaches or breakdowns of our, or our third-party service providers’ databases or systems.  In addition, although we have policies and procedures in place governing the secure storage of personal information collected by us or our third-party service providers, data breaches due to human error or intentional or unintentional conduct may occur in the future.  

 

Although we are currently implementing enterprise-wide upgrades to our systems and will continue to monitor and upgrade systems as appropriate, legacy systems may be vulnerable to increased risk. Additionally, if a new system does not function properly, it could affect our ability to order supplies, process and deliver customer orders and process and receive payments for our products. This could adversely impact our results of operations and cash flows.  Moreover, because the techniques, tools and tactics used in cyberattacks frequently change and may be difficult to detect for periods of time, we may face difficulties in anticipating and implementing adequate preventative measures or fully mitigating harms after such an attack. As such, we may need to expend additional resources and incur additional costs in the future to continue to protect against or address problems caused by any business interruptions or data security breaches.


There can be no guarantee that we will continue to make dividend payments or repurchase our Common Stock at sustained levels or at all.

We may not be able to attract, retain and develop key personnel.  

Although the Board authorized new share repurchase programs in each of 2016 and 2017 and recently increased the amount of the quarterly cash dividends payable on our Common Stock, any Board determinations to continue to repurchase our Common Stock or to continue to pay cash dividends on our Common Stock, in each case at levels consistent with recent practice or at all, will be based primarily upon our financial condition, results of operations, business requirements, price of our Common StockThe labor market in the case of the repurchase programs, our ability to access debt capital markets or other sources of financing and the Board’s continuing determination that the repurchase programs and the declaration of dividends under the dividend policy are in the best interests of our stockholders and are in compliance with all laws and agreements applicable to the repurchase and dividend programs.  In the event we do not declare a quarterly dividend, or discontinue our share repurchases, our stock price could be adversely affected.

Volatility in the financial markets may negatively impact our ability to access the credit markets.

Over the years, the banking system and financial markets have experienced severe disruption, including, among other things, bank failures and consolidations, severely diminished liquidity and credit availability, rating downgrades, declines in asset valuations and fluctuations in foreign currency exchange rates.  These conditions present the following risks to us, among others:

We are dependent on the continued viability of the financial institutions that participate in the syndicate thatUnited States is generally obligated to fund our $1 billion unsecured revolving credit facility dated March 29, 2018 (as amended, the “Credit Agreement”).  In addition, the Credit Agreement includes a “commitment increase” feature that enables us to increase the amount of our borrowing under the Credit Agreement, subject to lending commitments and certain conditions.  Any disruption in the credit markets could limit the availability of credit or the ability or willingness of financial institutions to extend credit, which could adversely affect our liquidity and capital resources.  

Our short- and long-term credit ratings affect our borrowing costs and access to financing.  A downgrade in our credit ratings, as a result of a substantial increase in our indebtedness or otherwise, would increase our borrowing costs and could affect our ability to issue commercial paper.  Disruptions in the commercial paper market or other effects of volatile economic conditions on the credit market also could raise our borrowing costs for both short- and long-term debt offerings.  Either scenario could adversely affect our liquidity and capital resources.  Failure to maintain our credit ratings could adversely affect the interest rate in future financings, liquidity, competitive position and access to capital markets.


Although we believe that our operating cash flows, together with our access to the credit markets, provides us with significant discretionary funding capacity, the inability of one or more institutions to fulfill funding obligations under the Credit Agreement could have a material adverse effect on our liquidity and operations.

Our business is exposed to domestic and foreign currency fluctuations that could have a material adverse effect on our business, financial condition and results of operations.  

Approximately 18% of our net sales in 2018 were to customers outside the U.S.  We are exposed to foreign currency exchange rate risk (both transaction and translation) with respect to our sales, profits, assets and liabilities denominated in currencies other than the U.S. Dollar.  Outside of the U.S., sales and costs are denominated in a variety of currencies, including the Canadian Dollar, Euro, Pound, Brazilian Real, Mexican Peso and Australian Dollar, among others.  A weakening of the currencies in which sales are generated relative to the currencies in which costs are denominated would decrease operating profits and cash flow.  Changes in currency exchange rates may also affect the relative prices at which we purchase materials and services in foreign markets.  Although we, from time to time, enter into forward exchange contracts to reduce the impact of foreign exchange rate fluctuations related to anticipated but not yet committed sales or purchases denominated in the U.S. Dollar, Canadian Dollar, Pound, Euro, Mexican Peso and Australian Dollar, foreign currency fluctuations could have a material adverse effect on our business, financial condition and results of operations.  

Changes in tax laws and regulations or in our operations may impact our effective tax rate and may adversely affect our business, financial condition and operating results.  

Our future effective tax rate could be affected by changes in tax laws and regulations or their interpretation, changes in the mix of earnings in countries with differing statutory tax rates, or changes in the valuation of deferred tax assets and liabilities.  The realization of deferred income tax assets is assessed and a valuation allowance is recorded if it is “more likely than not” that all or a portion of the deferred tax asset will not be realized.  If the actual amount of our future taxable income is less than the amount we are currently projecting with respect to specific tax jurisdictions, or if there is a change in the time period within which the deferred tax asset becomes deductible, we could be required to record a valuation allowance against our deferred tax assets.  The recording of a valuation allowance would result in an increase in our effective tax rate, and would have an adverse effect on our operating results. In addition, changes in statutory tax rates may change our deferred tax assets or liability balances, which would have either a favorable or unfavorable impact on our effective tax rate.  Major developments in tax policy or trade relations could have a material adverse effect on our business, results of operations and liquidity.

Newly enacted laws, such as the Tax Cuts and Jobs Act, or regulations and future changes in the U.S. taxation of businesses may impact our effective tax rate or may adversely affect our business, financial condition and operating results.

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act, which significantly changed the Code, including a reduction in the statutory corporate income tax rate to 21%, a new limitation on the deductibility of business interest expense, restrictions on the use of net operating loss carryforwards arising in taxable years beginning after December 31, 2017 and changes to the taxation of income earned from foreign sources and foreign subsidiaries (including requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries).  The Tax Cuts and Jobs Act also authorizes the Treasury Department to issue regulations with respect to the new provisions.  We cannot predict how the changes in the Tax Cuts and Jobs Act, regulations, other guidance issued under it or conforming or non-conforming state tax rules might affect us or our business.  In addition, there can be no assurance that U.S. tax laws, including the corporate income tax rate, would not undergo significant changes in the near future.

Resolutions of tax disputes may adversely affect our earnings and cash flow.  

Significant judgment is required in determining our effective tax rate and in evaluating our tax positions.  We provide for uncertain tax positions with respect to tax positions that do not meet the recognition thresholds or measurement standards mandated by applicable accounting guidance.  Fluctuations in federal, state, local and foreign taxes or changes to uncertain tax positions, including related interest and penalties, may impact our effective tax rate and our financial results.  We are regularly under audit by tax authorities, and although we believe our tax estimates are reasonable, the final outcome of tax audits and related litigation could be materially different than that reflected in our historical income tax provisions and accruals.  In addition, when particular tax matters arise, a number of years may elapse before such matters are audited and finally resolved.  Favorable resolution of such matters could be recognized as a reduction to our effective tax rate in the year of resolution.  Unfavorable resolution of any tax matter could increase the effective tax rate.  Any resolution of a tax issue may require the use of cash in the year of resolution.  Additionally, adverse outcomes from tax audits that we may be subject to in any of the jurisdictions in which we operate, could result in an unfavorable change in our effective tax rate, which could adversely affect our business, financial condition and operating results.


Failure to effectively utilize or successfully assert intellectual property rights, and the loss or expiration of such rights, could materially adversely affect our competitiveness.  Infringement by us of third-party intellectual property rights could result in costly litigation and/or the modification or discontinuance of our products.  

The market for our products depends to a significant extent upon the value associated with our trademarks and brand names, including ARM & HAMMER, BATISTE, FIRST RESPONSE, NAIR, ORAJEL, OXICLEAN, TROJAN, L’IL CRITTERS and VITAFUSION, SPINBRUSH, WATERPIK and XTRA.  We own the material trademarks and brand names used in connection with the marketing and distribution of our major products both in the U.S. and in other countries.  In addition, we hold several valuable patents on our products, which we believe serve as an effective barrier to entry for new competitors.  Accordingly, we rely on trademark, trade secret, patent and copyright laws to protect our intellectual property rights.  Although most of our material intellectual property is registered in the U.S. and in certain foreign countries in which we operate, we cannot be sure that our intellectual property rights will be effectively utilized or, if necessary, successfully asserted.  There is a risk that we will not be able to obtain and perfect our own intellectual property rights, or, where appropriate, license from others intellectual property rights necessary to support new product introductions.  We cannot be sure that these rights, if obtained, will not be invalidated, circumvented or challenged in the future, and we could incur significant costs in connection with legal actions relating to such rights.  In addition, even if such rights are obtained in the U.S., the laws of some of the other countries in which our products are or may be sold do not protect intellectual property rights to the same extent as the laws of the U.S.  If other parties infringe our intellectual property rights, they may dilute the value of our brands in the marketplace, which could diminish the value that consumers associate with our brands and harm our sales.  Our failure to perfect or successfully assert intellectual property rights could make us less competitive and could have a material adverse effect on our business, operating results and financial condition.  Also, our patents are granted for a term of 20 years from the date the patent application is filed.  We do not consider any single patent to be material to the business as a whole.

In addition, if our products are found to infringe intellectual property rights of others, the owners of those rights could bring legal actions against us claiming substantial damages for past infringement and seeking to enjoin manufacturing and marketing of the affected products.  If these legal actions are successful, in addition to any potential liability for damages from past infringement, we could be required to obtain a license in order to continue to manufacture or market the affected products, potentially adding significant costs.  We might not prevail in any action brought against us or we may be unsuccessful in securing any license for continued use and therefore have to discontinue the marketing and sale of a product.  This could make us less competitive and could have a material adverse impact on our business, operating results and financial condition.

Impairment of our goodwill and other intangible assets may result in a reduction in net income.

We have a material amount of goodwill, trademarks and other intangible assets, as well as other long-lived assets, which are periodically evaluated for impairment in accordance with current accounting standards.  Declines in our profitability and/or estimated cash flows related to specific intangible assets, as well as potential changes in market valuations for similar assets and market discount rates, has resulted in impairment charges from time to time, and may result in future impairment charges, which could reduce our net income and otherwise have an adverse impact on operating results.  

Our operations and the operations of our third-party manufacturers, suppliers and customers may be subject to disruption from events beyond our or their control.  

Our operations, as well as the operations of our third-party manufacturers, suppliers and customers, may be subject to disruption from a variety of causes, including material shortages, financial difficulties, work stoppages, cyberattacks, demonstrations, disease outbreaks or pandemics, acts of war, terrorism, fire, earthquakes, flooding or other natural disasters, disruptions in logistics, loss or impairment of key manufacturing sites, supplier capacity constraints, raw material and product quality or safety issues, industrial accidents or other occupational health and safety issues. Additionally, as certain of our businesses grow at unanticipated levels, we may be required to add capacity, requiring substantial and unanticipated capital expenditures.   If a major disruption were to occur, it could result in harm to people or the natural environment, delays in shipments of products to customers or suspension of operations, any of which could have a material adverse effect on our business.  

We may not be able to attract, retain and develop key personnel.  

very competitive.  Our future performance depends in significant part upon the continued service of our executive officers and other key personnel.personnel, including at our plants. Competition for qualified plant personnel has been intense. The loss of the services of one or more executive officers or other key employees, including as a result of illness to themselves or their families due to the COVID-19 pandemic or otherwise, could have a material adverse effect on our business, prospects, financial condition and results of operations.  This effect could be exacerbated if any officers or other key personnel left as a group or at the same time.  Our success also depends, in part, on our continuing ability to attract, retain and develop highly qualified and diverse personnel.  Competition for such personnel is intense, and there can be no assurance that we can retain our key employees or attract, assimilate and retain other highly qualified personnel in the future.  Factors that may affect our ability to attract and retain sufficient numbers of key employees include employee morale, our reputation, competition from other employers and the availability of qualified personnel in a tightening labor market.


Our continued growth and expansion, reliance on third-party service providers and implementation of new accounting standards could adversely affect our internal control over financial reporting.

Our amendedmanagement is responsible for establishing and restated bylaws designatemaintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the state courtsreliability of the State of Delaware, or, if no state court locatedfinancial reporting for external purposes in accordance with generally accepted accounting principles in the StateU.S. Because of Delaware has jurisdiction,its inherent limitations, internal control over financial reporting cannot provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Our continuing growth and expansion in domestic and globally dispersed markets, such as our acquisition of WATERPIK, FLAWLESS, PASSPORT, ZICAM and others, may place significant additional pressure on our system of internal control over financial reporting and require us to update our internal control over financial reporting to integrate such acquisitions. Moreover, we engage the federal courtservices of third parties to assist with business operations and financial reporting processes, which injects additional monitoring obligations and risk into the system of internal control. When we are required to comply with new or revised accounting standards, we must make any appropriate changes to our internal control over financial reporting to fully implement the standards, which may require significant effort and judgment. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our results of operations accurately and on a timely basis, or to detect and prevent fraud and could expose us to regulatory enforcement action and stockholder claims.

Our business could be negatively impacted as a result of stockholder activism, an unsolicited takeover proposal or a proxy contest or short sellers.

In recent years, proxy contests,unsolicited takeovers and other forms of stockholder activism have been directed against numerous companiesin our industry, including us. If such a campaign or proposal were to be made against us, we would likely incur significant costs. Stockholder activists may also seek to involve themselves in the governance, strategic direction and operations of our business through stockholder proposals or otherwise disrupting our business and diverting the attention of our management and employees, and any perceived uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities, the perception that we need a change in the direction of our business, or the perception that we are unstable or lack continuity, which may be exploited by our competitors, cause concern to our current or potential customers, and may make it more difficult for us to attract and retain qualified personnel and business partners. Actions of activist stockholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the Districtunderlying fundamentals and prospects of Delaware, asour business.  We may also be the sole and exclusive forum for certain typestarget of actions and proceedingsshort sellers who engage in negative publicity campaigns that may use selective information that may be initiated by our stockholders, which could discourage lawsuits against uspresented out of context or that may misrepresent facts and our directors and officers.

Our amended and restated bylaws provide that unlesscircumstances.  During 2019, we were the corporation otherwise determines, the Court of Chancery of the State of Delaware, or, solely to the extent that the Court of Chancery of the State of Delaware does not have jurisdiction, a state court of the State of Delaware, or, if no state court located in the State of Delaware has jurisdiction, the federal court for the District of Delaware, will be the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breachtarget of a fiduciary duty owednegative publicity campaign by any ofa short-seller, which negatively impacted our current or former directors, officers or other employees or stockholders to either us or our stockholders, any action asserting a claim against us or any of our directors or officers arising pursuant to any provision of the Delaware General Corporation Law (“DGCL”) or our amended and restated certificate of incorporation or bylaws, or any action asserting a claim against us or any of our directors or officers governed by the internal affairs doctrine. This exclusive forum provision may limit the ability of our stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with us or our directors or officers, which may discourage such lawsuits against us and our directors and officers. Alternatively, if a court outside of Delaware were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we could incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.stock price.


 

ITEMITEM 1B.

UNRESOLVED STAFF COMMENTS

Not applicable.

ITEMITEM 2.

PROPERTIES

We lease a corporate office building in Ewing, New Jersey for our global corporate headquarters.  The lease expires in 2033 and includes two 10-year extension terms at our option.  In addition, we own an office building in Fort Collins, Colorado and an office building in Princeton, New Jersey that is occupied by our research and development and SPD personnel.department.

 

In the U.S., weWe own or lease 12 manufacturing facilities, 11 warehouses and six other offices in 16 different states. In addition, we own or lease four manufacturing facilities, three warehousesU.S. states and 10 offices in 8 different countries outside of the U.S.  Many of our domestic and international sites manufacture and distribute products for multiple segments of our business.  Consumer Domestic products are manufactured or distributed by 21 of these locations, 10 of which we own and 11 of which we lease. Consumer International products are manufactured or distributed by 33 of these locations, 13 of which we own and 20 of which we lease. SPD products are manufactured or distributed by 13 of these locations, six of which we own and seven of which we lease.  We believe that our operating and administrative facilities are adequate and suitable for the conduct of our business.  We also believe that our production facilities are suitable for current manufacturing requirements for our consumer and specialty products businesses.  In addition, the facilities possess a capacity sufficient to accommodate our estimated increases in production requirements over the next several years, based on our current product lines.  

 

ITEMITEM 3.

General

The Company,We, in the ordinary course of our business are the 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 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 court granted the Company’s motion for summary judgment, dismissing all claims brought by the Plaintiff.  The Plaintiff has filed an appeal.  

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.  

 

 

ITEMITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.



PARTPART II

 

 

ITEM 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’sOur shares of common stock are traded on the New York Stock Exchange with the stock ticker symbol “CHD”.

Approximate number of record holders of our Common Stock as of December 31, 2018:2020: 1,900.  

The following graph compares the yearly change in the cumulative total stockholder return on our Common Stock for the past five fiscal years with the cumulative total return of the S&P 500 Index and the S&P 500 Household Products Index described more fully below.  The returns are indexed to a value of $100 at December 31, 2013.2015.  Dividend reinvestment has been assumed.  

Comparison of Cumulative Five-Year Total Return among Company, S&P 500 Index and the S&P 500 Household Products Index(1)(1)

(1)

S&P 500 Household Products Index consists of THE CLOROX COMPANY, COLGATE-PALMOLIVE COMPANY, KIMBERLY-CLARK CORPORATIONthe Church & Dwight Co., Inc., Clorox Company, Colgate-Palmolive Company, Kimberly-Clark Corporation and P&G.

 

 

 

INDEXED RETURNS (Years ending)

 

 

INDEXED RETURNS (Years ending)

 

Company / Index

 

2013

 

2014

 

2015

 

2016

 

2017

 

2018

 

 

2015

 

2016

 

2017

 

2018

 

2019

 

2020

 

Church & Dwight Co., Inc.

 

 

100.00

 

 

121.10

 

 

132.52

 

 

140.11

 

 

161.58

 

 

215.26

 

 

 

100.00

 

 

105.73

 

 

121.93

 

 

162.44

 

 

176.02

 

 

220.87

 

S&P 500 Index

 

 

100.00

 

113.68

 

115.24

 

129.02

 

157.17

 

150.27

 

 

 

100.00

 

111.95

 

136.38

 

130.39

 

171.44

 

202.96

 

S&P 500 Household Products Index

 

 

100.00

 

114.65

 

109.42

 

114.70

 

130.58

 

130.59

 

 

 

100.00

 

104.83

 

119.35

 

119.36

 

156.95

 

181.69

 

 



Share Repurchase Authorization

On November 1, 2017, the Board authorized a new share repurchase program, under which we may repurchase up to $500.0 million in shares of Common Stock (the “2017 Share Repurchase Program”).  The 2017 Share Repurchase Program does not have an expiration and replaced the 2016 Share Repurchase Program.date.  We also continued our evergreen share repurchase program, authorized by the Board on January 29, 2014, under which we may repurchase, from time to time, Common Stock to reduce or eliminate dilution associated with issuances of Common Stock under our incentive plans.

In DecemberNovember of 2017, the Company entered into an accelerated share repurchase (“ASR”) contract with a commercial bank to purchase $200.0 millionwe executed open market purchases of $100.0 of our Common Stock.  Stock under the 2017 Share Repurchase Program.  In the first quarter of 2018, the Companywe settled the ASRan accelerated share repurchase (“ASR”) contract and purchased approximately 4.1 million shares of Common Stock for $200.0, million, of which approximately $110.0 million was purchased under the evergreen share repurchase program and $90.0 million was purchased under the 2017 Share Repurchase Program.

In January 2019, we executed open market purchases of $100.0 of our Common Stock, all of which were purchased under the evergreen share repurchase program.  In September 2019, we executed open market purchases 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.

In December 2020, we entered into an ASR contract with a commercial bank to purchase our Common Stock.  We paid $300.0 to the bank, inclusive of fees, and received an initial delivery of shares equal to $270.0, or 3.1 million shares.  We used cash on hand and short-term borrowings to fund the initial purchase price.  Upon the completion of the ASR, which ended in February 2021, the bank delivered to us an additional 0.4 million shares.  The final shares delivered to the us were determined by the average price per share paid by the bank during the purchase period.  All 3.5 million shares were purchased under our evergreen program.  

As a result of the Company’s purchases,our Common Stock repurchases in recent years, there remained $310.0 millionremains $210.0 of share repurchase availability under the 2017 Share Repurchase Program as of December 31, 2018.  2020.

 

Period

 

Total Number of Shares Purchased(1)

 

 

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

 

10/1/2020 to 10/31/2020

 

 

-

 

 

$

-

 

 

 

-

 

 

$

210,000,000

 

11/1/2020 to 11/30/2020

 

 

-

 

 

 

-

 

 

 

-

 

 

$

210,000,000

 

12/1/2020 to 12/31/2020

 

 

3,130,072

 

 

 

86.26

 

 

 

3,130,072

 

 

$

210,000,000

 

Total

 

 

3,130,072

 

 

$

86.26

 

 

 

3,130,072

 

 

 

 

 

In connection with the evergreen repurchase program, in January 2019, the Company executed open market purchases of $100.0 million of Common Stock. 

(1)

There were no shares of Common Stock withheld by us to satisfy tax withholding obligations in connection with the vesting of restricted stock.

 



ITEMITEM 6.

SELECTED FINANCIAL DATA

The following selected historical consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes to those statements included in this Annual Report.  The selected historical consolidated financial data for the periods presented have been derived from our audited consolidated financial statements.

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

FIVE‑YEAR FINANCIAL REVIEW

(Dollars in millions, except per share data and employees)

  

 

2018 (1)

 

 

2017 (1)

 

 

2016 (1)

 

 

2015 (1)

 

 

2014 (1)

 

 

2020 (1)

 

 

2019 (1)

 

 

2018 (1)

 

 

2017 (1)

 

 

2016 (1)

 

Operating Results

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

4,145.9

 

 

 

3,776.2

 

 

 

3,493.1

 

 

 

3,394.8

 

 

 

3,297.6

 

 

$

4,895.8

 

 

 

4,357.7

 

 

 

4,145.9

 

 

 

3,776.2

 

 

 

3,493.1

 

Marketing expenses

 

$

483.2

 

 

 

454.2

 

 

 

427.2

 

 

 

417.5

 

 

 

416.9

 

 

$

591.2

 

 

 

515.0

 

 

 

483.2

 

 

 

454.2

 

 

 

427.2

 

Research and development expenses

 

$

89.7

 

 

 

70.8

 

 

 

63.2

 

 

 

64.7

 

 

 

59.8

 

 

$

102.6

 

 

 

93.6

 

 

 

89.7

 

 

 

70.8

 

 

 

63.2

 

Income from Operations (3)

 

$

791.7

 

 

 

732.7

 

 

 

724.2

 

 

 

674.2

 

 

 

641.2

 

Income from Operations (2, 3)

 

$

1,029.7

 

 

 

840.2

 

 

 

791.7

 

 

 

732.7

 

 

 

724.2

 

% of Sales

 

 

19.1

%

 

 

19.4

%

 

 

20.7

%

 

 

19.9

%

 

 

19.4

%

 

 

21.0

%

 

 

19.3

%

 

 

19.1

%

 

 

19.4

%

 

 

20.7

%

Net Income (2, 4)

 

$

568.6

 

 

 

743.4

 

 

 

459.0

 

 

 

410.4

 

 

 

413.9

 

Net Income per Share-Basic (3, 4, 5)

 

$

2.32

 

 

 

2.97

 

 

 

1.78

 

 

 

1.57

 

 

 

1.53

 

Net Income per Share-Diluted (3, 4, 5)

 

$

2.27

 

 

 

2.90

 

 

 

1.75

 

 

 

1.54

 

 

 

1.51

 

Net Income (2, 3, 4, 5)

 

$

785.9

 

 

 

615.9

 

 

 

568.6

 

 

 

743.4

 

 

 

459.0

 

Net Income per Share-Basic (2, 3, 4, 5, 6)

 

$

3.18

 

 

 

2.50

 

 

 

2.32

 

 

 

2.97

 

 

 

1.78

 

Net Income per Share-Diluted (2, 3, 4, 5, 6)

 

$

3.12

 

 

 

2.44

 

 

 

2.27

 

 

 

2.90

 

 

 

1.75

 

Financial Position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$

6,069.2

 

 

 

6,014.8

 

 

 

4,354.1

 

 

 

4,256.9

 

 

 

4,359.2

 

 

$

7,414.5

 

 

 

6,657.4

 

 

 

6,069.2

 

 

 

6,014.8

 

 

 

4,354.1

 

Total Debt (2)(4)

 

$

2,107.1

 

 

 

2,374.3

 

 

 

1,120.2

 

 

 

1,050.0

 

 

 

1,086.6

 

 

$

2,163.9

 

 

 

2,063.1

 

 

 

2,107.1

 

 

 

2,374.3

 

 

 

1,120.2

 

Total Stockholders' Equity

 

$

2,453.8

 

 

 

2,218.0

 

 

 

1,977.9

 

 

 

2,023.2

 

 

 

2,101.9

 

 

$

3,020.4

 

 

 

2,667.8

 

 

 

2,453.8

 

 

 

2,218.0

 

 

 

1,977.9

 

Total Debt as a % of Total Capitalization

 

 

46

%

 

 

52

%

 

 

36

%

 

 

34

%

 

 

34

%

 

 

42

%

 

 

44

%

 

 

46

%

 

 

52

%

 

 

36

%

Other Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Common Shares Outstanding-Basic (5)(6)

 

 

245.5

 

 

 

250.6

 

 

 

257.6

 

 

 

262.2

 

 

 

270.2

 

 

 

246.8

 

 

 

246.2

 

 

 

245.5

 

 

 

250.6

 

 

 

257.6

 

Cash Dividends Paid

 

$

213.3

 

 

 

190.4

 

 

 

183.0

 

 

 

175.3

 

 

 

167.5

 

 

$

237.3

 

 

 

224.1

 

 

 

213.3

 

 

 

190.4

 

 

 

183.0

 

Cash Dividends Paid per Common Share (5)(6)

 

$

0.87

 

 

 

0.76

 

 

 

0.71

 

 

 

0.67

 

 

 

0.62

 

 

$

0.96

 

 

 

0.91

 

 

 

0.87

 

 

 

0.76

 

 

 

0.71

 

Stockholders' Equity per Common Share (5)(6)

 

$

10.00

 

 

 

8.85

 

 

 

7.68

 

 

 

7.72

 

 

 

7.78

 

 

$

12.24

 

 

 

10.84

 

 

 

10.00

 

 

 

8.85

 

 

 

7.68

 

Additions to Property, Plant & Equipment (6)

 

$

60.4

 

 

 

45.0

 

 

 

49.8

 

 

 

61.8

 

 

 

70.5

 

 

$

98.9

 

 

 

73.7

 

 

 

60.4

 

 

 

45.0

 

 

 

49.8

 

Depreciation & Amortization(7)

 

$

141.1

 

 

 

125.4

 

 

 

107.6

 

 

 

101.0

 

 

 

91.2

 

 

$

189.7

 

 

 

176.4

 

 

 

141.1

 

 

 

125.4

 

 

 

107.6

 

Employees at Year-End

 

 

4,700

 

 

 

4,700

 

 

 

4,500

 

 

 

4,406

 

 

 

4,145

 

 

 

5,100

 

 

 

4,800

 

 

 

4,700

 

 

 

4,700

 

 

 

4,500

 

(1)

Period to period comparisons of the data presented above are impacted by the effect of acquisitions and divestitures made by the Company.us.  For further explanation of the impact of the acquisitions occurring in 2018, 2017,2020, 2019, and 20162018 refer to Note 6 to the consolidated financial statements.

(2)

2020, 2019, 2018, and 2017 results contain acquisition-related business acquisition liability adjustments of $94.0 of additional income or $0.28 per share in 2020, $1.2 of additional expense or $0.01 per share in 2019, $7.5 of income or $0.02 per share in 2018, and $5.4 of additional expense or $0.02 per share in 2017.

(3)

2017 results include a $39.2 pre-tax charge or $0.12 per share to settle an international defined benefit pension plan.  2019 results include an SG&A charge associated with selling our consumer business in Brazil of $7.6 (or $0.03 per share).  2020 results include a $3.0 pre-tax gain or $0.01 per share for the sale of our PERL WEISS® toothpaste brand in Germany.

(4)

2019 results include $600.0 of senior note payments, partially offset by a new $300.0 term loan due May 1, 2022 and additional net commercial paper borrowings of $248.6.  2017 results reflect additional debt borrowings of $1,425.0 to fund the Waterpik Acquisition with a corresponding increase in interest expense.

(3)(5)

2017 results include a $39.2 pre-tax charge or $0.12 per share to settle an international defined benefit pension plan.  2015 results include an $8.9 pre-tax charge or $0.03 per share to settle an international defined benefit pension plan.

(4)

2018 results reflect a lower tax rate due to the 2017 Tax Cuts and Jobs Act.  2017 results include a tax benefit of $272.9 or $1.06 per share due to the enactment of the Tax Cuts and Jobs Act and a tax benefit of $7.6 or $0.03 due to the reversal of a valuation allowance related to the Natronx impairment charge recorded in 2015.  2015 results include a $17.0 or $0.06 per share impairment charge to write-off the remaining investment in Natronx Technologies LLC (“Natronx”).

(5)(6)

On August 4, 2016, we announced a two-for-one stock split of our common stock. Share and per share information has been retroactively adjusted to reflect the stock split which was effected on September 1, 2016.

(6)(7)

20152020 and 2014 results2019 include approximately $18.1$20.1 and $34.0,$17.9 of amortization expense, respectively, for expenditures forrelated to right of use leased assets recognized upon the gummy dietary supplement product line expansion atadoption of the York facilities.  new lease accounting standard.

 

 


2830


CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

 

ITEMITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’sour consolidated financial statements.

OVERVIEW

Our Business

We develop, manufacture and market a broad range of consumer household and personal care and specialty products focused on animal productivity,and food production, chemicals and cleaners.  We focus our consumer products marketing efforts principally on our 1113 “power brands.”  These well-recognized brand names include ARM & HAMMER, used in multiple product categories such as baking soda, cat litter, carpet deodorization and laundry detergent; TROJAN condoms, lubricants and vibrators; OXICLEAN stain removers, cleaning solutions, laundry detergent and bleach alternatives; SPINBRUSH battery-operated and manual toothbrushes;  FIRST RESPONSE home pregnancy and ovulation test kits; NAIR depilatories; ORAJEL oral analgesic; XTRA laundry detergent; L’IL CRITTERS and VITAFUSION gummy dietary supplements,supplements; BATISTE dry shampoos andshampoos; WATERPIK water flossers and replacement showerheads.showerheads; FLAWLESS products; and ZICAM cold remedy products.

We sell our consumer products under a variety of brands through a broad distribution platform that includes supermarkets, mass merchandisers, wholesale clubs, drugstores, convenience stores, home stores, dollar, pet and other specialty stores and websites and other e-commerce channels, all of which sell the products to consumers. We sell our specialty products to industrial customers, livestock producers and through distributors.

We operate our business in three segments: Consumer Domestic, Consumer International and SPD.  the Specialty Products Division (“SPD”).  The segments are based on differences in the nature of products and organizational and ownership structures.  In 2018,2020, the Consumer Domestic, Consumer International and SPD segments represented approximately 76%77%, 17% and 7%6%, respectively, of our consolidated net sales.

2018

COVID-19 Pandemic

The COVID-19 pandemic is positively impacting certain of our businesses, while negatively impacting the short-term results of certain others. We have continued to experience a significant increase in consumer demand for many of our products that began in March of 2020, including VITAFUSION and L’IL CRITTERS gummy vitamins, A&H Liquid laundry detergent, A&H baking soda, A&H cat litter and Kaboom bathroom cleaners.  On the other hand, 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 these brands derive a significant proportion of sales.  Our WaterPik business had been negatively impacted by the temporary closure of dental offices across the United States in the first half of the year but had positive sales growth in the second half and full year as dental offices have re-opened.  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 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.  

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 cleaners) 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.  We will also make investments in the expansion of long-term in-house and third-party manufacturing capacity.  Although we have seen increased demand in certain of our product categories, in the future, the COVID-19 pandemic may cause reduced demand for our products if it results in a recessionary global economic environment.  The timing and impact of potential consumer pantry destocking in markets in which we serve may also have a negative impact on demand.  Moreover, we continue to experience and anticipate increased online sales during the COVID-19 pandemic.

The COVID-19 pandemic and the corresponding government response have led to increased unemployment and economic uncertainty, which could lead to a further reduction in consumer spending.  In early 2021, vaccines for combatting COVID-19 were approved by health agencies in some countries in which we operate, including the U.S., U.K., European Union, Canada and Mexico. However, initial quantities of vaccines are limited and vaccine distributions, controlled by local authorities, are being allocated, generally first to front-line health care workers and other essential workers and next to those members of individual populations believed most susceptible to severe effects from COVID-19. Full administration of the COVID-19 vaccines is unlikely to occur in most jurisdictions until mid- to late- 2021. 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

31


CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

hours, which has impacted their ability to meet outstanding obligations and may cause further reductions in their purchases in the coming months.  

Substantially all of our products are considered by various governmental authorities to be essential for purposes of continuing our operations during the Covid-19 pandemic and our manufacturing and distribution facilities and those of our suppliers and contract manufacturers are open and continue to operate 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 measures and 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 COVID-19 pandemic. However, uncertainty resulting from the COVID-19 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.

We are monitoring the impact that the COVID-19 pandemic and corresponding government action is having on our customers and consumer demand and how potentially it will impact future cash flows for the short and long term and its impact to intangible asset carrying values.  While we expect that many of these effects will not be permanent, it is impossible to predict their duration.  

2020 Financial Highlights

Key fiscal year 20182020 financial results include:

2018 net sales grew 9.8% over fiscal year 2017, with gains in all three segments, primarily due to volume growth in Consumer Domestic and Consumer International, helped in part by the August 2017 acquisition of Waterpik and partially offset by volume declines in Specialty Products.

2020 net sales grew 12.3% over 2019, with gains in all three of our segments.  The gains are primarily due to favorable volumes in all three segments, as well as favorable pricing/product mix in the Consumer Domestic and Consumer International segments, partially offset by unfavorable pricing/product mix in SPD.

Gross margin decreased 140 basis points to 44.4% in fiscal year 2018 from 45.8% in fiscal year 2017, primarily due to higher commodity, transportation and manufacturing costs.

Gross margin decreased 30 basis points to 45.2% in 2020 from 45.5% in 2019, primarily due to higher manufacturing costs, in part due to costs associated with the COVID-19 pandemic, higher tariffs, and the impact on margins from acquired businesses, partially offset by favorable volume price/product mix and the impact of productivity programs.

Operating margin decreased 30 basis points to 19.1% in fiscal year 2018 from 19.4% in fiscal year 2017, reflecting lower gross margin, partially offset by lower selling, general and administrative expenses and lower marketing costs.

Operating margin increased 170 basis points to 21.0% in 2020 from 19.3% in 2019, reflecting lower selling, general and administrative expenses (including the impact of the Flawless business acquisition liability adjustment), partially offset by lower gross margin and higher marketing costs as a percentage of sales.

We reported diluted net earnings per share in fiscal year 2018 of $2.27, a decrease of approximately 21.7% from fiscal year 2017 diluted net earnings per share of $2.90.  The prior year includes a one-time favorable adjustment of $1.06 associated with the Tax Cuts and Jobs Act.

We reported diluted net earnings per share in 2020 of $3.12, an increase of approximately 27.9% from 2019 diluted net earnings per share of $2.44.  

Cash provided by operations was $763.6, an $82.1 increase from the prior year, due to higher cash earnings and lower working capital.

Cash provided by operations was $990.3 in 2020, an $125.8 increase from the prior year, due to higher cash earnings (net income adjusted for non-cash items such as depreciation, amortization, non-cash compensation and changes in business acquisition liabilities and deferred taxes) and an improvement in working capital.

We returned $413.3 to our stockholders through dividends and share repurchases.

We returned $537.3 in 2020 to our stockholders through dividends and share repurchases.

Strategic Goals, Challenges and Initiatives

Our ability to generate sales depends on consumer demand for our products and retail customers’ decisions to carry our products, which are, in part, affected by general economic conditions in our markets. AlthoughWhile a vast majority of our consumer products generally are consumer staples and less vulnerable to decreases in discretionary spending than other products, an increasing number of our products, particularly those from our recent acquisitions, are more durable in 2018, many of the product categories in which we operate continuednature and are more likely to experience pricing pressures, and weak or inconsistentbe affected by consumer demand.decisions to control spending.  Some customers have responded to economic conditions by increasing their private label offerings (primarily in the dietary supplements, diagnostic kits and oral analgesics categories), launching their own brands, and consolidating the product selections they offer to the top few leading brands in each category.  In

29


CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

addition, an increasing portion of our product categories is being sold by club stores, dollar stores, mass merchandisers and internet-based retailers.  These factors have placed downward pressure on our sales and gross margins.

We expect a competitive marketplace in 20192021 due to new product introductions by competitors and continuing competitive pricing pressures.competitors.  In this environment, we intend to continue to aggressively pursue several key strategic initiatives: maintain competitive marketing and trade spending, tightly control our cost structure, continue to develop and launch new and differentiated products, and pursue strategic acquisitions.  We also intend to continue to grow our product sales globally and maintain an offering of premium and value brand products to appeal to a wide range of consumers.

32


CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

We derive a substantial percentage of our revenues from sales of liquid laundry detergent. The continued customer demand for these products are critical to our future success.  As a result, any commercialization, delays or reduction of sales of these products, in the event that our diversification efforts discussed below are not successful, could have a material adverse effect on our business, financial condition and operating results.results and cash flows. In addition, there continuescondom usage has declined, as a result of a lower 18 to be significant product24 year-old population, alternate birth control options, less fear of HIV, social distancing, decreased sexual activity, and increased competition, all of which have contributed to lower demand for our products in the gummy vitamincondom category.  The category has grown from eight competitors to 30 in the last five years. 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 that the category will not decline in the future and that we will be able to offset any such decline.

We are continuously focused on strengthening our key brands such as ARM & HAMMER, OXICLEAN, TROJAN, L’IL CRITTERS and VITAFUSION, BATISTE and WATERPIK, through the launch of innovative new products, which span various product categories, including premium and value household products supported by increased marketing and trade spending.  There can be no assurance that these measures will be successful.  

In the domestic business, seven out of 1113 “power brands” met or exceeded category growth for the full year 2018.2020.  Our global product portfolio consists of both premium (65%(58% of total worldwide consumer revenue in 2018)2020) and value (35%(42% of total worldwide consumer revenue in 2018)2020) brands, which we believe enables us to succeed in a range of economic environments.  We intend to continue to develop a portfolio of appealing new products to build loyalty among cost-conscious consumers.

Over the past two decades, we have diversified from an almost exclusively U.S. business to a global company with approximately 18%17% of sales derived from foreigninternational countries in 2018.2020.  We have subsidiary operations in sevensix countries (Canada, Mexico, U.K., France, Germany, Australia, and Brazil)Australia) and exportsell to over 130 other countries.  In 2018,2020, we benefited from our expanded global footprint and expect to continue to focus on selectively expanding our global business.  If we are unable to expand our business internationally at the rate that we expect, we may not realize the operational benefits that we anticipate.  

Although we believe ongoing international expansion represents a significant opportunity to grow our business, our increasing activity in global markets exposes us to additional complexity and uncertainty.  Net sales generated outside of the U.S. are exposed to foreign currency exchange rate fluctuations as well as political uncertainty which could impact future operating results.  Moreover, the current domestic and international political environment, including existing and potential changes to U.S. policies related to global trade and tariffs, have resulted in uncertainty regarding the global economy. The impact of U.S. tariffs primarily on WATERPIKcertain products was a component of increased cost of sale during the year ended December 31, 2018.2020. The implementation of more restrictive trade policies, such as higher tariffs or new barriers to entry, in countries in which we manufacture or sell large quantities of products and services could negatively impact our business, results of operations and financial condition.

We also continue to focus on controlling our costs.  Historically, we have been able to mitigate the effects of cost increases primarily by implementing cost reduction programs and, to a lesser extent, by passing along some of these cost increases to customers.  We have also entered into set pricing and pre-buying arrangements with certain suppliers and hedge agreements for diesel fuel. To combat higher input costsfuel and tariffs, in 2018,other commodities. Should we announced pricebe required to address cost increases on approximately 30% ofby increasing the prices that our portfolio. Should additional price increases be warranted,customers pay for our products, we cannot be certain they will be accepted by our customers.accepted. Additionally, maintaining tight controls on overhead costs has been a hallmark of ours and has enabled us to effectively navigate recent challenging economic conditions.  

The identification and integration of strategic acquisitions are an important component of our overall strategyand product category diversification.  Acquisitions have added significantly to our sales and profits and product category diversification over the last decade.  This is recently evidenced by our 2015 acquisition of certain assets of Varied Industries Corporation (the “VI-COR“Vi-cor Acquisition”), 2016 acquisitions of Spencer Forrest, Inc., the maker of TOPPIK (the “TOPPIK“Toppik Acquisition”), and the ANUSOL and RECTINOL businesses from Johnson & Johnson (the “ANUSOL“Anusol Acquisition”) and, 2017 acquisitions of VIVISCAL from Lifes2Good Holdings Limited (the “Viviscal Acquisition”), Agro BioSciences, Inc. (the “Agro Acquisition”), and WATERPIK from Pik Holdings, Inc. (the “Waterpik Acquisition”),  and 2018 acquisition of Passport Food Safety Solutions, Inc. (the “Passport Acquisition”).  , the 2019 acquisition of FLAWLESS; and the 2020 acquisition of ZICAM from Consumer Health Holdco LLC. However, the failure to effectively identify or integrate any acquisition or achieve expected synergies may cause us to incur material asset write-downs.  We actively seek acquisitions that fit our guidelines, and our strong financial position provides us with

30


CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

flexibility to take advantage of acquisition opportunities.  In addition, our ability to quickly integrate acquisitions and leverage existing infrastructure has enabled us to establish a strong track record in making accretive acquisitions.  Since 2001, we have acquired 1012 of our 1113 “power brands”.    

We believe we are positioned to meet the ongoing challenges described above due to our strong financial condition, experience operating in challenging environments and continued focus on key strategic initiatives: maintaining competitive marketing and trade spending, managing our cost structure, continuing to develop and launch new and differentiated products, and pursuing strategic acquisitions.  This focus, together with the strength of our portfolio of premium and value brands, has enabled us to succeed in a range of economic environments, and is expected to position us to continue to increase stockholder value over the long-term.  Moreover, the generation of a significant amount of cash from operations, as a result of net income and effective working capital management, combined with an investment grade credit rating provides us with the financial flexibility to pursue acquisitions, drive new product development, make capital

33


CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

expenditures to support organic growth and gross margin improvements, return cash to stockholders through dividends and share buy backs, and reduce outstanding debt, positioning us to continue to create stockholder value.  

For information regarding risks and uncertainties that could materially adversely affect our business, results of operations and financial condition and cash flows, see “Risk Factors” in Item 1A of this Annual Report.

Recent Developments

Zicam Acquisition

On December 1, 2020, we acquired all of the outstanding equity of Consumer Health Holdco LLC, the owner of the ZICAM® brand and cold remedy products business.  We paid $512.7, net of cash acquired, at closing and deferred an additional cash payment of $20.0 related to certain indemnifications provided by the seller.  The additional amount is payable five years from the closing.  Zicam’s annual sales for the year ended December 31, 2020 were approximately $107.0.  The acquisition was financed by us with a combination of cash on hand and short-term borrowings.  The ZICAM business is managed in the Consumer Domestic segment.

Dividend Increase

On January 29, 2021, the Board declared a 5.2% increase in the regular quarterly dividend from $0.24 to $0.2525 per share, equivalent to an annual dividend of $1.01 per share payable to stockholders of record as of February 16, 2021.  The increase raises the annual dividend payout from $237.0 to approximately $250.0.  

 

 

Accelerated Share Repurchase Program

In December of 2017,2020, we entered into an accelerated share repurchase (“ASR”) contract with a commercial bank to purchase $200.0 of our Common Stock.  InWe paid $300.0 to the first quarterbank, inclusive of 2018, we settledfees, and received an initial delivery of shares equal to $270.0, or 3.1 million shares.  We used cash on hand and short-term borrowings to fund the initial purchase price.  Upon the completion of the ASR, contract and purchased approximately 4.1which ended in February 2021, the bank delivered to us an additional 0.4 million shares.  The final shares delivered to the us were determined by the average price per share paid by the bank during the purchase period.  All 3.5 million shares of Common Stock for $200.0, of which approximately $110.0 waswere purchased under theour evergreen share repurchase program and $90.0 was purchased under the 2017 Share Repurchase Program.program.  As a result of our purchases,stock repurchases in recent years, there remained $310.0remains $210.0 of share repurchase availability under the 2017 Share Repurchase Program as of December 31, 2018.2020.  

 

In connection with the evergreen repurchase program, in January 2019, we executed open market purchases of $100.0 of our Common Stock.  PERL WEISS Transaction

 

Passport Acquisition

On March 8, 2018,During the first quarter of 2020, we purchased Passport Food Safety Solutions, Inc.sold our 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 selling, general & administrative (“Passport”SG&A”).  Passport sells products for pre-and post-harvest treatment of poultry, swine, and beef.  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 expense in the SPDConsumer International segment.

Dividend Increase

On February 5, 2019, the Board declared a 5% increase in the regular quarterly dividend from $0.2175 to $0.2275 per share, equivalent to an annual dividend of $0.91 per share payable to stockholders of record as of February 15, 2019.  The increase raises the annual dividend payout from $213.3 to approximately $222.0.  

On February 5, 2018, the Board of Directors declared a 14% increase in the regular quarterly dividend from $0.19 to $0.2175 per share, equivalent to an annual dividend of $0.87 per share payable to stockholders of record as of February 15, 2018.  The increase raised the annual dividend payout from approximately $190 to $213.3.

 


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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP).  The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.  By their nature, these judgments are subject to uncertainty.  They are based on our historical experience, our observation of trends in industry, information provided by our customers and information available from other outside sources, as appropriate.  Our significant accounting policies and estimates are described below.  

Revenue Recognition and Promotional and Sales Return Reserves

Virtually all of our revenue represents sales of finished goods inventory and is recognized when received or picked up by our customers.  The reserves for consumer and trade promotion liabilities and sales returns are established based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date.  Promotional reserves are provided for sales incentives, such as coupons to consumers, and sales incentives provided to customers (such as slotting, cooperative advertising, incentive discounts based on volume of sales and other arrangements made directly with customers).  All such costs are netted against sales.  Slotting costs are recorded when the product is delivered to the customer.  Cooperative advertising costs are recorded when the customer places the advertisement for our products.  Discounts relating to price reduction arrangements and coupons are recorded when the related sale takes place.  Costs associated with end-aisle or other in-store displays are recorded when product that is subject to the promotion is sold.  We rely on historical experience and forecasted data to determine the required reserves.  For example, we use historical experience to project coupon redemption rates to determine reserve requirements.  Based on the total face value of Consumer Domestic coupons redeemed over the past several years, if the actual rate of redemptions were to deviate by 0.1% from the rate for which reserves are accrued in the financial statements, a difference of approximately $3.1$1.0 in the reserve required for coupons would result.  With regard to other promotional reserves and sales returns, we use experience-based estimates, customer and sales organization inputs and historical trend analysis in arriving at the reserves required.  If our estimates for promotional activities and sales returns reserves were to change by 10% the impact to promotional spending and sales return accruals would be approximately $6.4.$9.6.  While management believes that its promotional and sales returns reserves are reasonable and that appropriate judgments have been made, estimated amounts could differ materially from actual future obligations.  Reserve adjustments made in 2018, 2017 and 2016 are immaterial relative to the amount of trade promotion expense incurred annually by us.  

Impairment of goodwill, trade names and other intangible assets

Carrying values of goodwill and indefinite-lived tradenamestrade names are reviewed periodically for possible impairment.  Finite intangible assets are assessed when there are business triggering events.  Our impairment analysis is based on a discounted cash flow approach that requires significant judgment with respect to unit volume, revenue and expense growth rates, and the selection of an appropriate discount rate.  Management uses estimates based on expected trends in making these assumptions.  With respect to goodwill, impairment occurs when the carrying value of the reporting unit exceeds the discounted present value of cash flows for that reporting unit.  For trade names and other intangible assets, an impairment charge is recorded for the difference between the carrying value and the net present value of estimated future cash flows, which represents the estimated fair value of the asset.  Judgment is required in assessing whether assets may have become impaired between annual valuations.  Indicators such as unexpected adverse economic factors, unanticipated technological change, distribution losses, or competitive activities and acts by governments and courts may indicate that an asset has become impaired.  The result of our annual goodwill impairment test determined that the estimated fair value substantially exceeded the carrying values of all reporting units.  In addition, there were no goodwill impairment charges for each of the years in the three-year period ended December 31, 2018.2020.

 

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.  We determined that the fair value of all other intangible assets for each of the years in the three-year period ended December 31, 20182020 exceeded their respective carrying values based upon the forecasted cash flows and profitability. In 2017 there wasHowever, in recent years our TROJAN business, specifically the condom category, has not grown and competition has increased resulting in a personal care trade name that, based on recent performance, hadreduction in expected future cash flows.  As a result, the TROJAN business has experienced sales and profit declines that hadhas eroded a significant portion of the excess between the fair and carrying value of the tradename, which could potentially result in an impairment of the asset.  In 2017, this excess had been reduced due in large part to an increased competitive market environment therefore resulting in reduced cash flow projections. The performance of the tradename improved in 2018, thereby increasing the excess between fair value and carrying value.  This indefinite-lived intangible asset could still be susceptible to impairment risk.impairment.  While management can and has implemented strategies to address the risk, significant changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that could trigger future impairment charges of this asset. these assets.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

It is possible that our conclusions regarding impairment or recoverability of goodwill or other intangible assets could change in future periods if, for example, (i) the businesses or brands do not perform as projected, (ii) overall economic conditions in 2018 or future years vary from current assumptions (including changes in discount rates), (iii) business conditions or strategies change from current assumptions, (iv) investors require higher rates of return on equity investments in the marketplace or (v) enterprise values of comparable publicly traded companies, or actual sales transactions of comparable companies, were to decline, resulting in lower multiples of revenues and EBITDA.  A future impairment charge for goodwill or intangible assets could have a material effect on our consolidated financial position or results of operations.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Income Taxes

Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized to reflect the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be recovered or settled.  Management provides a valuation allowance against deferred tax assets for amounts which are not considered “more likely than not” to be realized.  We record liabilities for potential assessments in various tax jurisdictions under U.S. GAAP guidelines.  The liabilities relate to tax return positions that, although supportable by us, may be challenged by the tax authorities and do not meet the minimum recognition threshold required under applicable accounting guidance for the related tax benefit to be recognized in the income statement.  We adjust this liability as a result of changes in tax legislation, interpretations of laws by courts, rulings by tax authorities, changes in estimates and the expiration of the statute of limitations.  Many of the judgments involved in adjusting the liability involve assumptions and estimates that are highly uncertain and subject to change.  In this regard, settlement of any issue, or an adverse determination in litigation, with a taxing authority could require the use of cash and result in an increase in our annual tax rate.  Conversely, favorable resolution of an issue with a taxing authority would be recognized as a reduction to our annual tax rate.  

New Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of December 31, 2018.2020.

 

 


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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

 

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2018, 20172020, 2019 AND 20162018

The discussion of results of operations at the consolidated level presented below is followed by a more detailed discussion of results of operations by segment.  The discussionThis section of this Form 10-K generally discusses 2020 and 2019 results and year-to-year comparisons between 2020 and 2019.  Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our consolidated results of operations and segment operating results is presentedAnnual Report on a historical basisForm 10-K for the yearsyear ended December 31, 2018, 2017, and 2016.2019. The segment discussion also addresses certain product line information.  Our operating unitssegments are consistent with our reportable segments.  

Consolidated results

20182020 compared to 20172019

Twelve Months Ended

 

 

Change vs.

 

 

Twelve Months Ended

 

Twelve Months Ended

 

 

Change vs.

 

 

Twelve Months Ended

 

December 31, 2018

 

 

Prior Year

 

 

December 31, 2017

 

December 31, 2020

 

 

Prior Year

 

 

December 31, 2019

 

Net Sales

$

4,145.9

 

 

9.8%

 

 

$

3,776.2

 

$

4,895.8

 

 

12.3%

 

 

$

4,357.7

 

Gross Profit

$

1,840.8

 

 

6.4%

 

 

$

1,729.6

 

$

2,214.2

 

 

11.6%

 

 

$

1,984.0

 

Gross Margin

 

44.4

%

 

-140 basis points

 

 

 

45.8

%

 

45.2

%

 

-30 basis points

 

 

 

45.5

%

Marketing Expenses

$

483.2

 

 

6.4%

 

 

$

454.2

 

$

591.2

 

 

14.8%

 

 

$

515.0

 

Percent of Net Sales

 

11.7

%

 

-30 basis points

 

 

 

12.0

%

 

12.1

%

 

+30 basis points

 

 

 

11.8

%

Selling, General & Administrative Expenses

$

565.9

 

 

4.3%

 

 

$

542.7

 

$

593.3

 

 

-5.6%

 

 

$

628.8

 

Percent of Net Sales

 

13.6

%

 

-80 basis points

 

 

 

14.4

%

 

12.1

%

 

-230 basis points

 

 

 

14.4

%

Income from Operations

$

791.7

 

 

8.1%

 

 

$

732.7

 

$

1,029.7

 

 

22.6%

 

 

$

840.2

 

Operating Margin

 

19.1

%

 

-30 basis points

 

 

 

19.4

%

 

21.0

%

 

+170 basis points

 

 

 

19.3

%

Net income per share - Diluted

$

2.27

 

 

-21.7%

 

 

$

2.90

 

$

3.12

 

 

27.9%

 

 

$

2.44

 

Net Sales

Net sales for the year ended December 31, 20182020 were $4,145.9,$4,895.8, an increase of $369.7,$538.1, or 9.8%12.3% compared to 20172019 net sales.  The components of the net sales increase are as follows:

Net Sales - Consolidated

December 31, 20182020

 

Product volumes sold

 

3.78.1

%

Pricing/Product mix

 

0.61.5

%

Foreign exchange rate fluctuations / Other

 

(0.1

%)

Volume from acquired product lines (net of divestiture) (1)

 

5.42.8

%

Net Sales increase

 

9.812.3

%

 

(1)

On March 8, 2018,December 1, 2020, we completed the Passport Acquisition.  On January 17, 2017, we completed the ViviscalZicam Acquisition.  On May 1, 2017,2019, we completed the Agro Acquisition.  On August 7, 2017, we completed the Waterpik Acquisition.  Net salesFlawless Acquisition.  The results of these acquisitions are included in our results since the datesdate of acquisition.  In March 2017,During the second quarter of 2019, we sold our chemicalconsumer business in Brazil.  During the first quarter of 2020 we completed the sale of the PERL WEISS brand.  

The volume change primarily reflects increased product sales in bothall three of our segments. Price/mix was favorable in the Consumer Domestic and Consumer International segments, with volume declinesbut was partially offset by slightly unfavorable price/mix in Specialty Products. All three segments experienced favorable price/product mix.the SPD segment.  

Our gross profit for 20182020 was $1,840.8,$2,214.2, a $111.2$230.2 increase compared to 2017.2019.  Gross margin was 44.4%45.2% in 20182020 compared to 45.8%45.5% in 2017,2019, a 14030 basis points (“bps”) decrease.  The decrease is due to the impact of higher commodity costs and transportation costs of 170 bps and higher manufacturing costs of 80240 bps, primarily due to costs associated with the COVID-19 pandemic, higher costs of 50 bps as a result of incremental tariffs, and the impact on margins from acquired businesses of 30 bps, partially offset by productivity programs of 80 bps, favorable volume price/product volume/mix of 20150 bps (primarily due to a reduction in trade promotion and coupons to reduce retail depletion of inventories), and the impact of favorable foreign exchange ratesproductivity programs of 10140 bps.

Operating Costs

Marketing expenses for 20182020 were $483.2,$591.2, an increase of $29.0$76.2 compared to 2017.  Acquired businesses contributed modestly2019.  The higher marketing expenses is due to the increase.investments behind new product launches, consumer research and digital advertising.  Marketing expenses as a percentage of net sales decreasedincreased 30 bps to 11.7%12.1% in 20182020 as compared to 20172019 due to 100160 bps on higher expenses partially offset by 130 bps of leverage on higher net sales partially offset by 70 bps on higher expenses.sales.  

Selling, general and administrative expenses (“SG&A”)&A expenses for 20182020 were $565.9, an increase$593.3, a decrease of $23.2$35.5 or 4.3%5.6% compared to 2017.2019.  The prior year includes the $39.2 international pension settlement charge.  The increasedecrease is primarily due to transition and ongoing acquisition-related costs, higher compensation, information system (in part in supportthe reduction of new technologies and securitythe Flawless business acquisition liability by $94.0, the reduction of expenses related to the 2019 charge associated with selling our consumer

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

 

upgrades)business in Brazil of $7.6, and the 2020 gain of $3.0 associated with the sale of PERL WEISS, partially offset by higher amortization expense related to the Flawless and Zicam Acquisitions, and higher incentive compensation, information system, R&D and selling costs. SG&A as a percentage of net sales decreased 80230 bps to 13.6%12.1% in 20182020 compared to 14.4% in 2017.2019.  The decrease is due to 130160 bps of leverage associated with higher sales partially offset by higher costsand 70 bps on lower expenses, including the impact of 50 bps. The comparison is helped by approximately 100 bps associated with the 2017 pension settlement charge. Flawless business acquisition liability adjustment.

Other Income and Expenses

Equity in earnings of affiliates decreased by $1.6 in 2018 as compared to 2017.  The decrease in earnings during 2018 was due primarily to lower DCAD sales.

Other expense increased by $3.6$1.0 in 20182020 as compared to 20172019, primarily due to the effect of changes in foreign exchange rates.

Interest expense in 20182020 was $79.4, an increase$61.0, a decrease of $26.8 compared to 2017 primarily due to a higher amount of average debt outstanding associated with the $1,425.0 aggregate principal amount of Senior Notes issued on July 25, 2017.  

Taxation

$12.6. The 2018 tax rate was 21.0% compared to -7.3% in 2017.  The 2017 tax rate was positively impacted by 39.4% as a result of the Tax Act, which lowered the U.S. corporate income tax rate to 21% starting in 2018 and resulted in a negative tax rate for 2017.

2017 compared to 2016

Net Sales

Net sales for the year ended December 31, 2017 were $3,776.2, an increase of $283.1, or 8.1% compared to 2016 net sales.  The components of the net sales increase are as follows:

Net Sales - Consolidated

December 31, 2017

Product volumes sold

5.0

%

Pricing/Product mix

(2.3

%)

Volume from acquired product lines (1)

5.4

%

Net Sales increase

8.1

%

(1)

On January 17, 2017, we completed the Viviscal Acquisition, on May 1, 2017, we completed the Agro Acquisition and on August 7, 2017, we completed the Waterpik Acquisition.  Net sales of these acquisitions are included in our results since the dates of acquisition.  In March 2017, we sold our chemical business in Brazil.

All three segments reported volume increases. Both Consumer Domestic and Consumer International experienced unfavorable price/product mix.

Our gross profit for 2017 was $1,729.6, a $139.0 increase compared to 2016.  Gross margin was 45.8% in 2017 compared to 45.5% in 2016, a 30 bps increase.  The increase was due to the impact of higher margins on acquired businesses representing 80 bps, favorable volume of 70 bps, and lower manufacturing costs of 40 bps, partially offset by unfavorable price/product mix of 140 bps (primarily due to higher promotion and coupon costs), higher commodity costs of 30 bps, and the impact of unfavorable foreign exchange rates of 10 bps.  Gross margin in 2016 included a plant impairment charge of 20 bps at an international subsidiary.

Operating Costs

Marketing expenses for 2017 were $454.2, an increase of $27.0 compared to 2016.  Acquired businesses contributed modestly to the increase.  Marketing expenses as a percentage of net sales decreased 20 bps to 12.0% in 2017 as compared to 2016 due to 90 bps of leverage on higher net sales partially offset by 70 bps on higher expenses.  

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

SG&A expenses for 2017 were $542.7, an increase of $103.5 or 23.6% compared to 2016.  The increase wasdecrease is primarily due to the $39.2 international pension settlement charge, transition and ongoing acquisition-related costs, higher information system and legal costs and costs associated with sellingrepayment of the chemical business in Brazil.  SG&A as a percentage of net sales increased 180 bps to 14.4% in 2017 compared to 12.6% in 2016.  The increase was due to higher costs of 280 bps, partially offset by 100 bps of leverage associated with higher sales. The pension charge contributed 110 bps to the increase.

Other Income and Expenses

Equity in earnings of affiliates increased by $1.6 in 2017 as compared to 2016.  The increase in earnings during 2017 was due primarily to profit improvement from Armand Products due to lower raw material costs.

Interest expense in 2017 was $52.6, an increase of $24.9 compared to 2016 due to a higher amount of average debt outstanding associated with the $1,425.0 aggregate principal amount of$300.0 2.45% Senior Notes issued on July 25, 2017.  that matured in the fourth quarter of 2019 and lower interest rates.

Taxation

The 20172020 U.S. federal effective income tax rate was -7.3%19.3% compared to 35.0%20.4% in 2016.2019. The 2017 tax ratedecrease of 110 basis points was positively impacted by 39.4% ashigher stock option exercises and a result of the Tax Act and 2.2% related to the adoption of the new accounting standard which modifies how companies account for certain aspects of share-based payment awards to employees.  Previously, this tax benefit related to the adoption of the new accounting standard was accounted forsettlement in our Stockholders’ Equity section of the Balance Sheet.  Starting in 2017, the tax benefit has been accounted for as a reduction of income tax expense.2020.

Segment results for 2018, 20172020, 2019 and 20162018

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 earningsof affiliates.  As of December 31, 2018,2020, we held 50% ownership interests in each of Armand and ArmaKleen, respectively.  Our equity in earnings of Armand and ArmaKleen, totaling $6.7, $6.6 and $9.2 for the yearthree years ended December 31, 2020, 2019 and 2018, 2017 and 2016respectively, are included in the Corporate segment.  


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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

 

Some of the 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 each of the three years ended December 31, 2018, 20172020, 2019 and 20162018 were as follows:

Consumer

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

 

International

 

 

SPD

 

 

Corporate(3)

 

 

Total

 

Domestic

 

 

International

 

 

SPD

 

 

Corporate(3)

 

 

Total

 

Net Sales(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

$

3,767.6

 

 

$

828.2

 

 

$

300.0

 

 

$

0.0

 

 

$

4,895.8

 

2019

 

3,302.6

 

 

 

756.3

 

 

 

298.8

 

 

 

0.0

 

 

 

4,357.7

 

2018

$

3,129.9

 

 

$

709.5

 

 

$

306.5

 

 

$

0.0

 

 

$

4,145.9

 

 

3,129.9

 

 

 

709.5

 

 

 

306.5

 

 

 

0.0

 

 

 

4,145.9

 

2017

 

2,854.9

 

 

 

621.1

 

 

 

300.2

 

 

 

0.0

 

 

 

3,776.2

 

2016

 

2,677.8

 

 

 

525.2

 

 

 

290.1

 

 

 

0.0

 

 

 

3,493.1

 

Income before Income Taxes(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

$

577.2

 

 

$

81.5

 

 

$

51.6

 

 

$

9.2

 

 

$

719.5

 

2017

 

606.4

 

 

 

32.0

 

 

 

43.5

 

 

 

10.8

 

 

 

692.7

 

2016

 

590.6

 

 

 

66.3

 

 

 

39.8

 

 

 

9.2

 

 

 

705.9

 

2020(4)

$

832.4

 

 

$

105.0

 

 

$

29.7

 

 

$

6.7

 

 

$

973.8

 

2019(5)

 

645.8

 

 

 

74.0

 

 

 

47.3

 

 

 

6.6

 

 

 

773.7

 

2018(6)

 

577.2

 

 

 

81.5

 

 

 

51.6

 

 

 

9.2

 

 

 

719.5

 

(1)

Intersegment sales from Consumer International to Consumer Domestic, which are not reflected in the table, were $5.7, $4.5$11.7, $10.5 and $3.4$5.7 for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively.

(2)

In determining Incomeincome before Income Taxes,income taxes, interest expense, investment earnings and certain aspects of other income and expense were allocated among segments based upon each segment’s relative Incomeincome from Operations.operations.

(3)

Corporate segment consists of equity in earnings of affiliates from Armand and ArmaKleen in 2020, 2019 and 2018.

(4)

2020 results include a $94.0 reduction of SG&A expenses to adjust the Flawless business acquisition liability, of which $79.9 was recorded to Consumer Domestic and $14.1 was recorded to Consumer International.  During 2020, we sold our PERL WEISS® toothpaste brand in Germany resulting in a reduction in SG&A expenses of $3.0 recorded in Consumer International.

(5)

2019 results include an SG&A charge associated with selling our consumer business in Brazil of $7.6 recorded in Consumer International and a $10.0 SG&A charge to adjust the Flawless business acquisition liability, of which $8.5 was recorded to Consumer Domestic and $1.5 was recorded to Consumer International.  These charges were partially offset by a $7.3 adjustment to the Passport business acquisition liability and a $1.5 adjustment to the Agro business acquisition liability, both of which reduced SG&A expenses in SPD.

(6)

2018 2017 and 2016.results include a $7.5 reduction of SG&A expenses to adjust the Agro business acquisition liability in SPD.

Product line revenues for external customers for the years ended December 31, 2018, 20172020, 2019 and 20162018 were as follows:

 

 

2018

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

 

2018

 

Household Products

 

$

1,725.5

 

 

$

1,640.0

 

 

$

1,593.4

 

 

$

2,038.5

 

 

$

1,821.7

 

 

$

1,725.5

 

Personal Care Products

 

 

1,404.4

 

 

 

1,214.9

 

 

 

1,084.4

 

 

 

1,729.1

 

 

 

1,480.9

 

 

 

1,404.4

 

Total Consumer Domestic

 

 

3,129.9

 

 

 

2,854.9

 

 

 

2,677.8

 

 

 

3,767.6

 

 

 

3,302.6

 

 

 

3,129.9

 

Total Consumer International

 

 

709.5

 

 

 

621.1

 

 

 

525.2

 

 

 

828.2

 

 

 

756.3

 

 

 

709.5

 

Total SPD

 

 

306.5

 

 

 

300.2

 

 

 

290.1

 

 

 

300.0

 

 

 

298.8

 

 

 

306.5

 

Total Consolidated Net Sales

 

$

4,145.9

 

 

$

3,776.2

 

 

$

3,493.1

 

 

$

4,895.8

 

 

$

4,357.7

 

 

$

4,145.9

 

Household Products include deodorizing, cleaning and laundry products.  Personal Care Products include condoms, pregnancy kits, oral care products, skin care products, hair care products and gummy dietary supplements.

Consumer Domestic

20182020 compared to 20172019

Consumer Domestic net sales in 20182020 were $3,129.9,$3,767.6, an increase of $275.0$465.0 or 9.6%14.1% compared to net sales of $2,854.9$3,302.6 in 2017.2019.  The components of the net sales change are the following:

Net Sales - Consumer Domestic

December 31, 20182020

 

Product volumes sold

 

4.08.9

%

Pricing/Product mix

 

0.31.8

%

Volume from acquiredAcquired product lines (1)

 

5.33.4

%

Net Sales increase

 

9.614.1

%

 

(1)

Includes net sales of the brands acquired in the Viviscal AcquisitionFlawless and the Waterpik AcquisitionZicam Acquisitions since the date of acquisition.

The increase in net sales for 2018 reflects the impact of acquisitions and higher sales of ARM & HAMMER liquid and unit dose detergents, ARM & HAMMER cat litter, BATISTE dry shampoo, OXICLEAN stain fighters and gummy vitamins, partially offset by lower sales of KABOOM cleaning products.

3739


CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

 

ThereThe increase in net sales for 2020 reflects the impact of the Flawless and Zicam Acquisitions, higher sales of VITAFUSION and L’IL CRITTERS gummy vitamins, ARM & HAMMER liquid laundry detergent, OXICLEAN® stain fighters, ARM & HAMMER clumping cat litter and baking soda, WATERPIK water flossers and showerheads, KABOOM bathroom cleaners, and ARM & HAMMER laundry detergent scent boosters.  A number of these brands realized higher than anticipated sales due to higher consumer demand due to the COVID-19 pandemic.

Condom usage has declined, as a result of a lower 18 to 24 year-old population, alternate birth control options, less fear of HIV, decreased sexual activity, and increased competition, all of which have contributed to lower demand for our products in the condom category.  Due primarily to the recent social distancing requirements related to the COVID-19 pandemic, condom usage continues to be significant product competitiondecline.  As a result, the TROJAN business has experienced sales and profit declines that has eroded a portion of the excess between the fair and carrying value of the tradename, which could potentially result in an impairment.  The carrying value of the gummy vitamin category.  The categoryTROJAN tradename is $176.4 and fair value exceeded carrying value by 53% as of December 31, 2020.  This indefinite-lived intangible asset is susceptible to impairment risk. While management can and has grown from eight competitorsimplemented strategies to 30address the risk, including lowering our production costs, investing in the last five years.  We continue to evaluate and vigorously combat these pressures through, among other things, new product introductionsideas, and increased marketing and trade spending.  However, there is no assurance this category will not declinedeveloping new creative advertising, significant changes in operating plans or adverse changes in the future andcould reduce the underlying cash flows used to estimate fair value.  This could result in a decline in fair value that we will be able to offset any such decline.

could trigger a future impairment charge of the tradename.

Consumer Domestic income before income taxes for 20182020 was $577.2,$832.4, a $29.2 decrease$186.6 increase as compared to 2017.2019.  The decreaseincrease is due primarily to the impacthigher volumes of higher$206.6, favorable price/mix of $60.1, lower SG&A costsexpenses of $56.1, unfavorable commodity$14.4 (driven by the Flawless business acquisition liability adjustment of $79.9 in 2020), and manufacturing costs of $49.6, higherlower interest and other expenses of $22.5,$9.8, partially offset by higher marketing expenses of $19.3$62.7, and unfavorable price/product mix of $11.8, partially offset by higher sales volumes of $130.3.

2017 compared to 2016

Consumer Domestic net sales in 2017 were $2,854.9, an increase of $177.1 or 6.6% compared to net sales of $2,677.8 in 2016.  The components of the net sales change are the following:

Net Sales - Consumer Domestic

December 31, 2017

Product volumes sold

4.6

%

Pricing/Product mix

(3.2

%)

Volume from acquired product lines (1)

5.2

%

Net Sales increase

6.6

%

(1)

Includes net sales of the brands acquired in the Viviscal Acquisition and the Waterpik Acquisition since the dates of acquisition.

The increase in net sales for 2017, reflects the impact of acquisitions, higher sales of ARM & HAMMER liquidmanufacturing and unit dose detergents, BATISTE dry shampoo, OXICLEAN stain fighters and ARM & HAMMER cat litter, partially offset by lower sales of TROJAN condoms, XTRA laundry detergent and gummy vitamins.

There was significant product and price competition in the premium and deep value laundry detergent categories and more recently, product competition in the gummy vitamin category.   For example, in the laundry detergent category, P&G and Henkel, the two largest laundry detergent companies in the U.S., were engaged in aggressive pricing promotions, and retailers were de-emphasizing the deep value tier of laundry detergents, which is where XTRA competes.  In addition, the gummy vitamin category has grown from eight competitors to 30 in the last five years.  We continue to evaluate and vigorously combat these pressures through, among other things, new product introductions and increased marketing and trade spending.  However, there is no assurance that the categories will not decline in the future and that we will be able to offset any such decline. 

Consumer Domestic income before income taxes for 2017 was $606.4, a $15.8 increase as compared to 2016.  The increase was due primarily to the impact of higher sales volumes of $146.5 and favorable commodity and manufacturing costs of $15.1, partially offset by unfavorable price/product mix of $90.5, higher marketingdistribution expenses of $18.9, higher interest expense of $20.7, and higher SG&A costs of $15.8.$40.9.

Consumer International

20182020 compared to 20172019

Consumer International net sales in 20182020 were $709.5,$828.2, an increase of $88.4$71.9 or 14.2%9.5% as compared to 2017.2019.  The components of the net sales change are the following:

 

Net Sales - Consumer International

December 31, 20182020

 

Product volumes sold

 

6.97.7

%

Pricing/Product mix

 

0.9

%

Foreign exchange rate fluctuations

 

0.5(0.7

%)

Volume from acquired product lines (net of divestiture) (1)

 

5.91.6

%

Net Sales increase

 

14.29.5

%

 

(1)

Includes net sales of the brands acquired in the Viviscal Acquisition and the WaterpikFlawless Acquisition since the datesdate 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.

38Excluding the impact of foreign exchange rates and the Flawless Acquisition, higher sales were driven primarily by the Global Markets Group, as well as Canada and Australia domestic markets, partially offset by declines in Mexico and UK.  A number of brands in these regions realized higher than anticipated sales due to higher consumer demand resulting from the COVID-19 pandemic.

Consumer International income before income taxes was $105.0 in 2020, an increase of $31.0 compared to 2019 due primarily to higher sales volumes of $38.9, lower SG&A costs of $22.7 (driven by the Flawless business acquisition liability adjustment of $14.1 in 2020), and lower interest expense of $0.4, partially offset by higher marketing expenses of $13.4, unfavorable manufacturing and commodity costs of $6.5, unfavorable price/product mix of $6.3, unfavorable foreign exchange rates of $3.6, and higher other expenses of $1.0.


40


CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

 

Excluding the impact of foreign exchange rates, higher sales for the year occurred in exports, Europe, Canada, Mexico and Australia. The addition of the acquired businesses contributed significantly to the sales growth.  Of the existing brands, the net sales increase is due primarily to OXICLEAN, BATISTE, L’IL CRITTERS & VITAFUSION and NAIR in the export business, ARM & HAMMER clumping cat litter and BATISTE in Canada, OXICLEAN, ARM & HAMMER liquid laundry detergent and ARM & HAMMER dental care in Mexico and Waterpik in several countries.Specialty Products

Consumer International income before income taxes was $81.5 in 2018, an increase of $49.52020 compared to 2017 due primarily to lower costs as a result of the 2017 pension settlement of $39.2, higher sales volumes of $42.2, favorable foreign exchange rates of $3.8, and favorable price/product mix of $0.7, partially offset by higher other SG&A costs of $12.2, higher marketing costs of $9.4, unfavorable manufacturing and commodity costs of $9.6, and higher interest and other expenses of $5.2.

   2017 compared to 2016

Consumer International net sales in 2017 were $621.1, an increase of $95.9 or 18.3% as compared to 2016.  The components of the net sales change are the following:

Net Sales - Consumer International

December 31, 2017

Product volumes sold

8.1

%

Pricing/Product mix

(0.3

%)

Foreign exchange rate fluctuations

0.1

%

Volume from acquired product lines (1)

10.4

%

Net Sales increase

18.3

%

(1)

Includes net sales of the brands acquired in the Anusol Acquisition, the Viviscal Acquisition and the Waterpik Acquisition since the date of acquisition.

Excluding the impact of foreign exchange rates, higher sales for the year occurred in exports, Canada, Australia, Europe and Mexico. The addition of the acquired businesses contributed significantly to the sales growth.  Of the existing brands, BATISTE, STERIMAR, FEMFRESH, OXICLEAN and ARM & HAMMER cat litter brands had strong sales growth.

Consumer International income before income taxes was $32.0 in 2017, a decrease of $34.3 compared to 2016 due primarily to the pension settlement charge of $39.2, higher SG&A costs of $29.7, higher marketing costs of $7.4, unfavorable manufacturing and commodity costs of $6.9, unfavorable foreign exchange rates of $4.0, and unfavorable price/product mix of $2.3, partially offset by higher sales volumes of $57.9.

Specialty Products

2018 compared to 20172019

SPD net sales were $306.5$300.0 for 2018,2020, an increase of $6.3,$1.2, or 2.1%0.4% compared to 2017.2019.  The components of the net sales change are the following:

 

Net Sales - SPD

December 31, 20182020

 

Product volumes sold

 

(6.4

%)

Pricing/Product mix

3.0

%

Volume from acquired product lines (net of divestiture) (1)

5.5

%

Net Sales increase

2.1

%

(1)

Includes net sales of Passport and Agro BioSciences, Inc. since the dates of acquisition, partially offset by the sale of our Brazilian chemical business.

Excluding the impact of the acquisitions and divestiture, the net sales decrease in 2018 was driven primarily by lower volumes in the animal productivity business, partially offset by higher broad-based pricing.  Although demand for our products continues to grow in the poultry industry, demand in the dairy industry continues to be significantly reduced due to low milk prices.

39


CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

SPD income before income taxes was $51.6 in 2018, an increase of $8.1 compared to 2017.  The increase in income before income taxes for 2018 is due primarily to favorable price/product mix of $9.1, lower costs associated with selling the Brazilian chemical business of $3.5, higher sales volume of $3.3, and lower manufacturing costs of $2.6, partially offset by higher SG&A costs of $7.4 and higher interest and other expenses of $2.7.

2017 compared to 2016

SPD net sales were $300.2 for 2017, an increase of $10.1, or 3.5% compared to 2016.  The components of the net sales change are the following:

Net Sales - SPD

December 31, 2017

Product volumes sold

2.60.8

%

Pricing/Product mix

 

2.7

%

Foreign exchange rate fluctuations

(0.4

%

Volume from acquired product lines (net of divestiture) (1)

(2.2

%)

Net Sales increase

 

3.50.4

%

(1)       Includes net sales of the Agro Acquisition since the date of acquisition and is negatively impacted by the sale of the Brazilian chemical business.

Excluding the impact of the acquisitions and divestiture, the net sales increase in 2017 was driven primarily by improved price andHigher volumes in the animal productivitynon-dairy segment of the Animal and Food Production business where U.S.were partially offset by lower volumes in the dairy farm profitability throughout 2017segment, while the Specialty Chemicals business had flat volumes.  Lower pricing primarily due to product mix in the non-dairy segment and the Specialty Chemicals business was partially offset by higher thanpricing in the prior year.  dairy segment.  Overall demand for these segments were impacted by factors relating to the COVID-19 pandemic.

SPD income before income taxes was $43.5$29.7 in 2017, an increase2020, a decrease of $3.7$17.6 compared to 2016.2019.  The increasedecrease in income before income taxes for 2017 was2020 is due primarily to higher sales volumeSG&A costs of $13.0, favorable$13.6, unfavorable manufacturing costs of $8.6, and unfavorable price/product mix of $7.0, lower costs associated with selling the Brazilian chemical business of $4.9, and lower costs associated with the Natronx joint venture of $1.7,$1.3, partially offset by higher SG&A costssales volumes of $14.0 and higher manufacturing costs$3.2, lower expenses of $7.4.$2.9 including $0.4 of lower marketing expenses.

Corporate

The Corporate segment reflects the reclassification of administrative costs of the production, planning and logistics functions which are included in SG&A expenses in the operating segments but are elements of cost of sales in our Consolidated Statements of Income.  Such amounts were $59.8, $48.2 and $44.0 $32.8for 2020, 2019 and $36.6 for 2018, 2017 and 2016, respectively.  

Also included in corporate segment are the equity in earnings of affiliates from Armand and ArmaKleen.ArmaKleen, totaling $6.7, $6.6 and $9.2 for the three years ended December 31, 2020, 2019 and 2018, respectively.    

Liquidity and capital resources

On March 29, 2018,May 1, 2019, we replacedamended the credit agreement (the “Credit Agreement”) that provides for our former $1,000.0 unsecured revolving credit facility that was scheduled to terminate on December 4, 2020 with a new $1,000.0 unsecured revolving credit facility (the “Credit Agreement”“Revolving Credit Facility”).  Under to extend the term of the Revolving Credit Agreement, weFacility from March 29, 2023 to March 29, 2024.  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 purposespurposes.  

In March 2020, we borrowed $825.0 under the Revolving Credit Facility as a precautionary measure to increase our cash position and are usedpreserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic.  The full $825.0 was repaid in May 2020.  We have the ability to support our $1,000.0 commercial paper program.  Unless extended,borrow under the Revolving Credit Agreement will terminate and all amounts outstanding thereunder will be due and payable on March 29, 2023.Facility at any time up to the borrowing limit.  

As of December 31, 2018,2020, we had $316.7$183.1 in cash and cash equivalents, and approximately $997.0$648.0 available through the revolving facility under our Credit Agreement and our commercial paper program.  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.  

As a result of the Tax Act, we repatriated excess cash held at our foreign subsidiaries in 2018. We repatriated approximately $150.0 of the $194.0 that was held outside the U.S as of December 31, 2017.  ForOn May 1, 2019, we estimate that we will repatriate approximately $35.0entered into a $300.0 unsecured term loan credit facility with various banks, the proceeds of which were used to partially fund the $68.0 held outsideFlawless Acquisition.  Unless prepaid, the U.S as of December 31, 2018.  loan is due on May 1, 2022.  The interest rate is U.S. Dollar London Interbank Offered Rate (“LIBOR”) plus an applicable margin based on our credit rating, which can range from 60 bps to 113 bps.

We financed the Waterpik Acquisition with a portion of the proceeds from an underwritten public offering of $1,425.0 aggregate principal amount of Senior Notes completed on July 25, 2017, consisting of $300.0 aggregate principal amount of Floating Rate Senior Notes that were due in 2019 and have been fully repaid, $300.0 aggregate principal amount of 2.45% Senior Notes due 2022, $425.0 aggregate principal amount of

40


CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

3.15% Senior Notes due 2027 and $400.0 aggregate principal amount of 3.95% Senior Notes due 2047 (collectively, the “Senior Notes”).  The Floating Rate Senior Notes, which matured and were repaid in full with cash on hand and commercial paper on January 25, 2019, bore interest at a rate, reset quarterly, equal to three-month U.S. Dollar London Interbank Offered Rate (“LIBOR”)LIBOR plus 0.15%.  

On December 9, 2014, we issued $300.0 aggregate principal amount of 2.45% Senior Notes due December 15, 2019 (the “2019 Notes”).  The 2019These Notes were issued underrepaid in full in the first supplemental indenture (the “First Supplemental Indenture”)fourth quarter of 2019 with cash on hand and proceeds from the issuance of commercial paper.

41


CHURCH & DWIGHT CO., dated December 9, 2014, to the indenture dated December 9, 2014 (the “Base Indenture”), between usINC AND SUBSIDIARIES

(Dollars in millions, except share and Wells Fargo Bank, N.A., as trustee.  The 2019 Notes will mature on December 15, 2019, unless earlier retired or redeemed pursuant to the terms of the First Supplemental Indenture.per share data)

On September 26, 2012, we issued $400.0 aggregate principal amount of 2.875% Senior Notes due 2022 (the “2022 Notes”).  The 2022 Notes were issued under the second supplemental indenture, dated September 26, 2012 (the “BNY Mellon Second Supplemental Indenture”) to the indenture dated December 15, 2010 (the “BNY Mellon Base Indenture”) between us and The Bank of New York Mellon Trust Company, N.A., as trustee.  The 2022These Notes will mature on October 1, 2022, unless earlier retired or redeemed pursuant to the terms of the BNY Mellon Second Supplemental Indenture.  

In 2015, we initiated a Supply Chain Finance program (“SCF Program”).  Under the SCF Program, qualifying suppliers may elect to sell their receivables from us for early payment. Participating suppliers negotiate their receivables sales arrangements directly with a third party. We are not party to those agreements and do not have an economic interest in the supplier’s decision to sell their receivables.  The SCF Program may allow suppliers more favorable terms than they could secure on their own.  The terms of our payment obligations are not impacted by a supplier’s participation in the SCF Program.   Our payment terms with suppliers are consistent between suppliers that elect to participate in the SCF Program and those that do not participate.  As a result, the program does not have an impact to our average days outstanding.

All amounts outstanding to suppliers participating in the SCF Program are recorded within Accounts Payable in our Consolidated Balance Sheets, and the associated payments are included in operating activities within our Consolidated Statements of Cash Flows.

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”the discussion of this and other risks under “Risk Factors” in Item 1A of this Annual Report.  Although there is uncertainty related to the impact of the COVID-19 pandemic on our future results, we believe our efficient business model and strong balance sheet position us to manage our business through this crisis. 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 29, 2021, the Board declared a 5%5.2% increase in the regular quarterly dividend from $0.2175$0.24 to $0.2275$0.2525 per share, equivalent to an annual dividend of $0.91$1.01 per share payable to stockholders of record as of February 15, 2019.16, 2021.  The increase raises the annual dividend payout from $213.3$237.0 to approximately $222.0.$250.0.  

On November 1, 2017, the Board authorized a new share repurchase program, under which we 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 and replaced the 2016 Share Repurchase Program.date.  We also continued our evergreen share repurchase program, authorized by the Board on January 29, 2014, under which we may repurchase, from time to time, Common Stock to reduce or eliminate dilution associated with issuances of Common Stock under our incentive plans.

In DecemberNovember of 2017, we entered into an accelerated share repurchase (“ASR”) contract with a commercial bank to purchase $200.0executed open market purchases of $100.0 of our Common Stock.Stock under the 2017 Share Repurchase Program.  In the first quarter of 2018, we settled the ASRan accelerated share repurchase (“ASR”) contract and purchased approximately 4.1 million shares of Common Stock for $200.0, of which approximately $110.0 was purchased under the evergreen share repurchase program and $90.0 was purchased under the 2017 Share Repurchase Program.

In January 2019, we executed open market purchases of $100.0 of our Common Stock, all of which were purchased under the evergreen share repurchase program.  In September 2019, we executed open market purchases 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.  

In December 2020, we entered into an accelerated share repurchase (“ASR”) contract with a commercial bank to purchase Common Stock.  We paid $300.0 to the bank, inclusive of fees, and received an initial delivery of shares equal to $270.0, or 3.1 million shares.  We used cash on hand and short-term borrowings to fund the initial purchase price.  Upon the completion of the ASR, which ended in February 2021, the bank delivered to us an additional 0.4 million shares.  The final shares delivered to us were determined by the average price per share paid by the bank during the purchase period.  All 3.5 million shares were purchased under our evergreen program.  

As a result of our purchases,these Common Stock repurchases, there remained $310.0remains $210.0 of share repurchase availability under the 2017 Share Repurchase Program as of December 31, 2018.       2020.

 

In connection with the evergreen repurchase program, in January 2019, we executed open market purchases of $100.0 of our Common Stock.  

We anticipate that our cash from operations, together with our current borrowing capacity, will be sufficient to fund our share repurchase programs to the extent implemented by management, pay debt and interest as it comes due and pay dividends at the latest approved rate, and meet our capital expenditure program costs, which are expected to be approximately $85.0$180 in 2018, fund our share repurchase programs2021 primarily for manufacturing capacity investments in laundry, litter and vitamins to the extent implemented by management, pay the upcoming maturing notes and pay dividends at the latest approved rate.support expected future sales growth.  We do not have any mandatory fixed rate debt principal payments due in 2021.  Cash, together with our current borrowing capacity, may be used for acquisitions that would complement our existing product lines or geographic markets.  We did not have any mandatory fixed rate debt principal payments in 2018.  We paid the $300.0 Floating Rate Senior Notes that 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 will be repaid with cash on hand plus if necessary, available borrowings.

Cash Flow Analysis

 

Year Ended

 

 

December 31,

 

 

December 31,

 

 

December 31,

 

 

2018

 

 

2017

 

 

2016

 

Net cash provided by operating activities

$

763.6

 

 

$

681.5

 

 

$

655.3

 

Net cash used in investing activities

$

(112.1

)

 

$

(1,303.4

)

 

$

(354.6

)

Net cash (used in) provided by financing activities

$

(609.0

)

 

$

698.9

 

 

$

(439.6

)

4142


CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

 

2018Cash Flow Analysis

 

Year Ended

 

 

December 31,

 

 

December 31,

 

 

December 31,

 

 

2020

 

 

2019

 

 

2018

 

Net cash provided by operating activities

$

990.3

 

 

$

864.5

 

 

$

763.6

 

Net cash used in investing activities

$

(608.1

)

 

$

(553.5

)

 

$

(112.1

)

Net cash used in financing activities

$

(360.1

)

 

$

(472.9

)

 

$

(609.0

)

2020 compared to 20172019

Net Cash Provided by Operating ActivitiesOur primary source of liquidity is our cash flow provided by operating activities, which is dependent on the level of net income and changes in working capital.  Our net cash provided by operating activities in 20182020 increased by $82.1$125.8 to $763.6$990.3 as compared to $681.5$864.5 in 20172019 due to higher cash earnings (net income plusadjusted for non-cash expensesitems such as depreciation, amortization, non-cash compensation and asset impairment charges)changes in business acquisition liabilities and lowerdeferred taxes) and an improvement in working capital.  The change in working capital is primarily due to an increase inhigher accounts payable and accrued expenses, and lower other current assets partially offset bywhich in part is due to higher inventories.inventories to support sales growth.  We measure working capital effectiveness based on our cash conversion cycle.  The following table presents our cash conversion cycle information for the quarters ended December 31, 20182020 and 2017:2019:

As of

 

 

 

 

 

As of

 

 

 

 

 

December 31, 2018

 

 

December 31, 2017

 

 

Change

 

December 31, 2020

 

 

December 31, 2019

 

 

Change

 

Days of sales outstanding in accounts receivable ("DSO")

 

30

 

 

 

31

 

 

 

(1

)

 

28

 

 

 

29

 

 

 

(1

)

Days of inventory outstanding ("DIO")

 

58

 

 

 

52

 

 

 

6

 

 

62

 

 

 

61

 

 

 

1

 

Days of accounts payable outstanding ("DPO")

 

66

 

 

 

65

 

 

 

(1

)

 

72

 

 

 

69

 

 

 

(3

)

Cash conversion cycle

 

22

 

 

 

18

 

 

 

4

 

 

18

 

 

 

21

 

 

 

(3

)

Our cash conversion cycle (defined as the sum of DSO andplus DIO less DPO) at December 31, 2018,2020, which is calculated using a two period average method, increased 4decreased 3 days from the prior year amount of 1821 days to 2218 days at December 31, 20182020 due primarily to an increase in DIODPO of six days. DPO increased one day from 653 days due to 66 days,payable term extensions and DSO decreased one day from 31payables related to 30 days.  The increase in the cash conversion cycle is primarily due a certain recent acquisition, which currently requires a higher level of working capital.inventory purchases.  We continue to focus on reducing our working capital requirements.

 

Net Cash Used in Investing Activities – Net cash used in investing activities during 20182020 was $112.1, principally$608.1, primarily reflecting $60.4$512.7 for the Zicam Acquisition, $98.9 for property, plant and equipment expenditures and $49.8additions, 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 2019 was $553.5, primarily reflecting $475.0 for the Passport Acquisition.Flawless Acquisition, and $73.7 for property, plant and equipment additions.  

 

Net Cash (Used in) Provided byUsed in Financing Activities – Net cash used in financing activities during 2018the twelve months of 2020 was $609.0, primarily$360.1, reflecting $200.0$300.0 of repurchases of our Common Stock, $213.3$237.3 of cash dividend payments, and $268.8 of debt payments,$14.5 for the Agro business acquisition liability settlement, partially offset by $76.6$99.0 of short-term debt borrowings, net of repayments, and $93.0 of proceeds from stock option exercises.

2017 compared to 2016

Net Cash Provided by Operating Activities – Our primary source of liquidity is our cash flow provided by operating activities, which is dependent on the level of net income and changes in working capital.  Our net cash provided by operating activities in 2017 increased by $26.2 to $681.5 as compared to $655.3 in 2016 due to higher cash earnings (net income plus non-cash expenses such as depreciation, amortization, non-cash compensation and asset impairment charges) partially offset by slightly higher working capital.  The change in working capital is primarily due to an increase in inventories and a smaller increase in accounts payable and accrued expenses.

Net Cash Used in Investing ActivitiesNet cash used in investing activities during 2017 was $1,303.4, principally reflecting $1,260.0 for acquisitions and $45.0 for property, plant and equipment expenditures.

Net Cash Provided by (Used in) Financing Activities – Net cash provided by financing activities during 2017the twelve months of 2019 was $698.9, primarily$472.9, reflecting $1,621.3$250.0 of long-termrepurchases of our common stock, $224.1 of cash dividend payments, and $49.0 of net debt borrowings and $42.1repayments, partially offset by $52.8 of proceeds from stock option exercises, partially offset by $400.0 of repurchases of our Common Stock, $200.0 of long-term debt repayments, $190.4 of cash dividend payments, $151.3 of net commercial paper repayments, $17.8 of financing costs and $4.5 of short-term debt repayments at an international subsidiary.  exercises.  

42


43


CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

 

Commitments as of December 31, 20182020

The table below summarizes our material contractual obligations and commitments as of December 31, 2018.2020.

 

Payments Due by Period

 

 

Payments Due by Period

 

 

 

 

 

 

 

 

 

 

2020 to

 

 

 

 

2022 to

 

 

After

 

 

 

 

 

 

 

 

 

 

2022 to

 

 

 

 

2024 to

 

 

After

 

 

Total

 

 

2019

 

 

2021

 

 

 

 

2023

 

 

2023

 

 

Total

 

 

2021

 

 

2023

 

 

 

 

2025

 

 

2025

 

Short & Long-Term Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Floating Rate Senior Notes due 2019(1)

 

$

300.0

 

 

$

300.0

 

 

$

0.0

 

$

0.0

 

 

$

0.0

 

2.45% Senior Notes due 2019

 

 

300.0

 

 

 

300.0

 

 

 

0.0

 

0.0

 

 

 

0.0

 

Term loan due 2022

 

$

300.0

 

 

$

0.0

 

 

$

300.0

 

$

0.0

 

 

$

0.0

 

2.45% Senior Notes due 2022

 

 

300.0

 

 

 

0.0

 

 

 

0.0

 

300.0

 

 

 

0.0

 

 

 

300.0

 

 

 

0.0

 

 

 

300.0

 

0.0

 

 

 

0.0

 

2.875% Senior Notes due 2022

 

 

400.0

 

 

 

0.0

 

 

 

0.0

 

400.0

 

 

 

0.0

 

 

 

400.0

 

 

 

0.0

 

 

 

400.0

 

0.0

 

 

 

0.0

 

3.15% Senior Notes due 2027

 

 

425.0

 

 

 

0.0

 

 

 

0.0

 

0.0

 

 

 

425.0

 

 

 

425.0

 

 

 

0.0

 

 

 

0.0

 

0.0

 

 

 

425.0

 

3.95% Senior Notes due 2047

 

 

400.0

 

 

 

0.0

 

 

 

0.0

 

0.0

 

 

 

400.0

 

 

 

400.0

 

 

 

0.0

 

 

 

0.0

 

0.0

 

 

 

400.0

 

Debt obligations of foreign subsidiaries

 

 

1.8

 

 

 

1.8

 

 

 

0.0

 

 

 

 

0.0

 

 

 

0.0

 

 

 

2.4

 

 

 

2.4

 

 

 

0.0

 

 

 

 

0.0

 

 

 

0.0

 

 

 

2,126.8

 

 

 

601.8

 

 

 

0.0

 

 

 

 

 

700.0

 

 

 

825.0

 

 

 

1,827.4

 

 

 

2.4

 

 

 

1,000.0

 

 

 

 

 

0.0

 

 

 

825.0

 

Interest on Fixed Rate Debt(2)

 

 

643.0

 

 

 

55.1

 

 

 

96.0

 

 

 

 

71.3

 

 

 

420.6

 

Interest on Fixed Rate Debt(1)

 

 

539.9

 

 

 

48.0

 

 

 

71.3

 

 

 

 

58.4

 

 

 

362.2

 

Lease Obligations

 

 

157.8

 

 

 

24.7

 

 

 

38.3

 

29.0

 

 

 

65.8

 

 

 

240.3

 

 

 

32.2

 

 

 

55.8

 

 

 

45.7

 

 

 

106.6

 

Other Long-Term Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Letters of Credit(3)

 

 

3.3

 

 

 

3.3

 

 

 

0.0

 

0.0

 

 

 

0.0

 

Purchase Obligations(4)

 

 

249.5

 

 

 

180.2

 

 

 

60.5

 

7.6

 

 

 

1.2

 

Other(5)

 

 

13.0

 

 

 

5.5

 

 

 

1.0

 

 

1.0

 

 

 

5.5

 

Letters of Credit(2)

 

 

3.1

 

 

 

3.1

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

Purchase Obligations(3)

 

 

291.3

 

 

 

205.8

 

 

 

75.4

 

 

 

10.1

 

 

 

0.0

 

Other(4)

 

 

9.1

 

 

 

4.5

 

 

 

4.6

 

 

 

0.0

 

 

 

0.0

 

Total

 

$

3,193.4

 

 

$

870.6

 

 

$

195.8

 

$

808.9

 

 

$

1,318.1

 

 

$

2,911.1

 

 

$

296.0

 

 

$

1,207.1

 

 

$

114.2

 

 

$

1,293.8

 

 

(1)

The Floating Rate Senior Notes matured and were repaid in full with cash on hand and commercial paper on January 25, 2019.

(2)

Represents interest on our 2.45% Senior Notes due in 2019 and 2022, 2.875% Senior Notes due in 2022, 3.15% Senior Notes due 2027 and 3.95% Senior Notes due 2047.

(3)(2)

Letters of credit with several banks guarantee payment for items such as insurance claims in the event of our insolvency.  

(4)(3)

We have outstanding purchase obligations with suppliers at the end of 20182020 for raw, packaging and other materials and services in the normal course of business.  These purchase obligation amounts represent only those items which are based on agreements that are enforceable and legally binding, and do not represent total anticipated purchases.

(5)(4)

Other includes payments for stadium naming rights for a period of 20 years until December 2032.baseball marketing and sponsorship.

Off-Balance Sheet Arrangements

We do not have off-balance sheet financing or unconsolidated special purpose entities.

OTHER ITEMS

Market risk

Concentration of Risk

A group of three customers accounted for approximately 36%, 36% and 35% of consolidated net sales each year in 2018, 20172020, 2019 and 2016,2018, respectively, of which a single customer, Walmart, accounted for approximately 23%, 24% and 24%23% in 2020, 2019 and 2018, 2017 and 2016, respectively.  

Interest Rate Risk

We had outstanding total debt at December 31, 2018,2020, of $2,107.1,$2,163.9, net of debt issuance costs, of which 86%70% has a fixed weighted average interest rate of 3.0%3.1% and the remaining 14%30% was constituted primarily of commercial paper issued by us that currently has a weighted average interest rate of approximately 0.26% and the Floating Rate Senior Notes that matured and were repaid in full on January 25, 2019Term loan due 2022 with a current rate of approximately 2.64%0.88%.  In December 2014,2019, we entered into interest rate swap lock agreements on an aggregateto hedge the risk of changes in the interest payments attributable to changes in the benchmark LIBOR interest rate associated with anticipated issuances of debt.  The notional amount of $300.0 to convert the fixed interest rate onswap locks is $300.0. These interest rate swap lock agreements have been designated as hedges of the Notes due December 15, 2019changes in fair value of the underlying debt obligation attributable to a floating rate of three-month LIBOR plus a fixed spread of 0.756%.  

43


CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollarschanges in millions, except shareinterest rates and per share data)

are accounted for as fair value hedges.  

Other Market Risks

We are also subject to market risks relating to our diesel and other commodity costs, fluctuations in foreign currency exchange rates, and changes in the market price of the Common Stock.  Refer to Note 3 to the Consolidated Financial Statements for a discussion of these market

44


CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

risks and the derivatives used to manage the risks associated with changing diesel fuel and other commodity prices, foreign exchange rates and the price of our Common Stock.

 

ITEMITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information appears under the heading “Market Risk” in the “Management’s Discussion and Analysis” section.  Refer to page 4344 of this Annual Report.


ITEMITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Church & Dwight Co., Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.  

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  

Management evaluated the Company’s internal control over financial reporting as of December 31, 2018.2020.  In making this assessment, management used the framework established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  As a result of this assessment and based on the criteria in the COSO framework, management has concluded that as of December 31, 2018,2020, the Company’s internal control over financial reporting was effective.

The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has audited the Company’s internal control over financial reporting.  Their opinions on the effectiveness of the Company’s internal control over financial reporting and on the Company’s consolidated financial statements and financial statement schedule appear on pages 4647 and 4750 of this Annual Report on Form 10-K.

 

 

/s/ Matthew T. Farrell

 

/s/ Richard A. Dierker

Matthew T. Farrell

 

Richard A. Dierker

President and Chief Executive Officer

 

Executive Vice President

 

 

and Chief Financial Officer

 

 

(Principal Financial Officer)

February 21, 201918, 2021

 

 

 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Church & Dwight Co., Inc.

Ewing, New Jersey

 

 

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Church & Dwight Co., Inc. and subsidiaries (the "Company") as of December 31, 20182020 and 2017,2019, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2018,2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2020, in conformity with the accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2019,18, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2019, the Company adopted the Financial Accounting Standard Board’s new standard related to leases using the optional transition method of adoption, which permits the Company to continue presenting all periods prior to January 1, 2019 under the previous lease accounting guidance.  

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Tradenames and Other Intangibles, Net – Trojan - Refer to Notes 1 and 7 to the Consolidated Financial Statements

Critical Audit Matter Description

The Company owns tradenames that are considered to have indefinite lives. These tradenames are required to be measured periodically for impairment. In recent years the Company’s Trojan business, specifically the condom category, has not grown and competition has increased resulting in a reduction in expected future cash flows.  As a result, the Trojan business has experienced sales and profit declines that has eroded a portion of the excess between the fair and carrying value, which could result in an impairment of the asset if such sales and profit declines continue.  The carrying value of the Trojan tradename is $176.4 million and fair value exceeded the carrying value by 53% as of December 31, 2020.  



Management estimates the fair value of this tradename on a periodic basis. The determination of the fair value requires management to make significant estimates and assumptions related to future performance, such as unit volume, revenue growth rates, royalty rates, as well as the selection of appropriate discount rates. Changes in these assumptions could have a significant impact on the fair value of the tradename, leading to an impairment.  

Given the significant judgments made by management to estimate the tradename’s fair value, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate and forecasts of future performance involved a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to forecasts of future performance and selection of the discount rate for the tradename included the following, among others:

We tested the effectiveness of controls over the account balance, including those over the forecast of future performance and the selection of the discount rate.

We evaluated management’s ability to accurately forecast future performance by comparing actual performance to management’s historical forecasts.

We evaluated the reasonableness of management’s performance forecasts by comparing the forecasts to:

Historical performance.

Internal communications to management and the Board of Directors.

Forecasted information included in analyst and industry reports for the Company and certain of its peer companies.

With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and discount rate by:

Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation.

Developing a range of independent estimates and comparing those to the discount rate selected by management.

Acquisition – Zicam Tradename – Refer to Note 6 to the Consolidated Financial Statements

Critical Audit Matter Description

The Company acquired all of the outstanding equity of Consumer Health Holdco LLC, the owner of the ZICAM™ brand and cold remedy products business (the “Zicam Acquisition”).  The Company paid $512.7 million, net of cash acquired, at closing and deferred an additional cash payment of $20.0 million related to certain indemnifications provided by the seller.  The Company accounted for the Zicam Acquisition under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including a tradename of $367.8 million. Management estimated the fair value of the tradename using a discounted cash flow method. The fair value determination of the tradename required management to make significant estimates and assumptions related to future revenue, cash flows and the selection of a discount rate.

Given that the fair value determination of the tradename requires management to make significant estimates and assumptions related to the forecasts of future revenue and cash flow, and the selection of a discount rate, performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.



How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecast of future revenue and cash flows for the valuation of the tradename, as well as the selection of the associated discount rates, included the following, among others:

We tested the effectiveness of controls over the valuation of the tradename, including management’s controls over forecasts of future revenue and cash flows and selection of discount rates.

We assessed the reasonableness of management’s forecasts of future revenue and cash flows by comparing the projections to

Historical performance.

Internal communications to management and the Board of Directors.

Forecasted information included in analyst and industry reports for the Company and certain of its peer companies.

With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodologies and discount rates by:

Testing the source information underlying the determination of the discount rate and testing the mathematical accuracy of the calculation.

Developing a range of independent estimates and comparing those to the discount rate selected by management.

 

/s/ DELOITTE & TOUCHE LLP

Parsippany, NJ

February 21, 2019

18, 2021

We have served as the Company's auditor since 1968.



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Church & Dwight Co., Inc.

Ewing, New Jersey

 

Opinion on Internal Control over Financial Reporting

 

We have audited the internal control over financial reporting of Church & Dwight Co., Inc. and subsidiaries (the "Company") as of December 31, 2018,2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018,2020, of the Company and our report dated February 21, 2019,18, 2021, expressed an unqualified opinion on those consolidated financial statements.

 

Basis for Opinion

 

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Parsippany, NJ

February 21, 201918, 2021

 

 



CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

 

 

Year Ended December 31,

 

Year Ended December 31,

 

2018

 

 

2017

 

 

2016

 

2020

 

 

2019

 

 

2018

 

Net Sales

$

4,145.9

 

 

$

3,776.2

 

 

$

3,493.1

 

$

4,895.8

 

 

$

4,357.7

 

 

$

4,145.9

 

Cost of sales

 

2,305.1

 

 

 

2,046.6

 

 

 

1,902.5

 

 

2,681.6

 

 

 

2,373.7

 

 

 

2,305.1

 

Gross Profit

 

1,840.8

 

 

 

1,729.6

 

 

 

1,590.6

 

 

2,214.2

 

 

 

1,984.0

 

 

 

1,840.8

 

Marketing expenses

 

483.2

 

 

 

454.2

 

 

 

427.2

 

 

591.2

 

 

 

515.0

 

 

 

483.2

 

Selling, general and administrative expenses

 

565.9

 

 

 

542.7

 

 

 

439.2

 

 

593.3

 

 

 

628.8

 

 

 

565.9

 

Income from Operations

 

791.7

 

 

 

732.7

 

 

 

724.2

 

 

1,029.7

 

 

 

840.2

 

 

 

791.7

 

Equity in earnings of affiliates

 

9.2

 

 

 

10.8

 

 

 

9.2

 

 

6.7

 

 

 

6.6

 

 

 

9.2

 

Investment earnings

 

1.9

 

 

 

2.1

 

 

 

1.7

 

 

0.5

 

 

 

1.6

 

 

 

1.9

 

Other income (expense), net

 

(3.9

)

 

 

(0.3

)

 

 

(1.5

)

 

(2.1

)

 

 

(1.1

)

 

 

(3.9

)

Interest expense

 

(79.4

)

 

 

(52.6

)

 

 

(27.7

)

 

(61.0

)

 

 

(73.6

)

 

 

(79.4

)

Income before Income Taxes

 

719.5

 

 

 

692.7

 

 

 

705.9

 

 

973.8

 

 

 

773.7

 

 

 

719.5

 

Income taxes

 

150.9

 

 

 

(50.7

)

 

 

246.9

 

 

187.9

 

 

 

157.8

 

 

 

150.9

 

Net Income

$

568.6

 

 

$

743.4

 

 

$

459.0

 

$

785.9

 

 

$

615.9

 

 

$

568.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - Basic

 

245.5

 

 

 

250.6

 

 

 

257.6

 

 

246.8

 

 

 

246.2

 

 

 

245.5

 

Weighted average shares outstanding - Diluted

 

250.7

 

 

 

256.1

 

 

 

262.1

 

 

252.2

 

 

 

252.1

 

 

 

250.7

 

Net income per share - Basic

$

2.32

 

 

$

2.97

 

 

$

1.78

 

$

3.18

 

 

$

2.50

 

 

$

2.32

 

Net income per share - Diluted

$

2.27

 

 

$

2.90

 

 

$

1.75

 

$

3.12

 

 

$

2.44

 

 

$

2.27

 

Cash dividends per share

$

0.87

 

 

$

0.76

 

 

$

0.71

 

$

0.96

 

 

$

0.91

 

 

$

0.87

 

 

 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

 

 

Year Ended December 31,

 

Year Ended December 31,

 

2018

 

 

2017

 

 

2016

 

2020

 

 

2019

 

 

2018

 

Net Income

$

568.6

 

 

$

743.4

 

 

$

459.0

 

$

785.9

 

 

$

615.9

 

 

$

568.6

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange translation adjustments

 

(10.6

)

 

 

18.4

 

 

 

(11.5

)

 

10.4

 

 

 

5.7

 

 

 

(10.6

)

Defined benefit plan adjustments gain (loss)

 

1.4

 

 

 

12.6

 

 

 

(1.7

)

 

0.0

 

 

 

(0.9

)

 

 

1.4

 

Income (loss) from derivative agreements

 

(7.4

)

 

 

(3.6

)

 

 

(4.7

)

 

(21.3

)

 

 

(17.9

)

 

 

(7.4

)

Other comprehensive (loss) income

 

(16.6

)

 

 

27.4

 

 

 

(17.9

)

 

(10.9

)

 

 

(13.1

)

 

 

(16.6

)

Comprehensive income

$

552.0

 

 

$

770.8

 

 

$

441.1

 

$

775.0

 

 

$

602.8

 

 

$

552.0

 

See Notes to Consolidated Financial Statements.

 

 

 


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share data)

 

December 31,

 

 

December 31,

 

December 31,

 

 

December 31,

 

2018

 

 

2017

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

316.7

 

 

$

278.9

 

$

183.1

 

 

$

155.7

 

Accounts receivable, less allowances of $3.1 and $2.9

 

345.3

 

 

 

345.9

 

Accounts receivable, less allowances of $3.7 and $2.4

 

398.8

 

 

 

356.4

 

Inventories

 

382.8

 

 

 

330.7

 

 

495.4

 

 

 

417.4

 

Other current assets

 

33.4

 

 

 

44.7

 

 

35.1

 

 

 

26.9

 

Total Current Assets

 

1,078.2

 

 

 

1,000.2

 

 

1,112.4

 

 

 

956.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, Plant and Equipment, Net

 

598.2

 

 

 

607.7

 

 

612.8

 

 

 

573.0

 

Equity Investment in Affiliates

 

8.5

 

 

 

9.3

 

 

9.1

 

 

 

9.7

 

Trade Names and Other Intangibles, Net

 

2,274.0

 

 

 

2,320.5

 

 

3,110.2

 

 

 

2,750.0

 

Goodwill

 

1,992.9

 

 

 

1,958.9

 

 

2,229.6

 

 

 

2,079.5

 

Other Assets

 

117.4

 

 

 

118.2

 

 

340.4

 

 

 

288.8

 

Total Assets

$

6,069.2

 

 

$

6,014.8

 

$

7,414.5

 

 

$

6,657.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

$

1.8

 

 

$

270.9

 

$

351.4

 

 

$

252.9

 

Current portion of long-term debt

 

596.5

 

 

 

0.0

 

Accounts payable and accrued expenses

 

725.1

 

 

 

659.1

 

 

1,024.5

 

 

 

831.9

 

Income taxes payable

 

2.9

 

 

 

5.0

 

 

12.7

 

 

 

7.5

 

Total Current Liabilities

 

1,326.3

 

 

 

935.0

 

 

1,388.6

 

 

 

1,092.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term Debt

 

1,508.8

 

 

 

2,103.4

 

 

1,812.5

 

 

 

1,810.2

 

Deferred Income Taxes

 

576.4

 

 

 

561.2

 

 

707.3

 

 

 

579.6

 

Deferred and Other Long-term Liabilities

 

203.9

 

 

 

197.2

 

 

367.7

 

 

 

315.5

 

Business Acquisition Liabilities

 

118.0

 

 

 

192.0

 

Total Liabilities

 

3,615.4

 

 

 

3,796.8

 

 

4,394.1

 

 

 

3,989.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock, $1.00 par value, Authorized 2,500,000 shares; none issued

 

0.0

 

 

 

0.0

 

Common Stock, $1.00 par value, Authorized 600,000,000 shares; 292,855,100 shares issued as of December 31, 2018 and 2017

 

292.8

 

 

 

292.8

 

Preferred Stock, $1.00 par value, Authorized 2,500,000 shares; NaN issued

 

0.0

 

 

 

0.0

 

Common Stock, $1.00 par value, Authorized 600,000,000 shares; 292,855,100 shares issued as of December 31, 2020 and 2019

 

292.8

 

 

 

292.8

 

Additional paid-in capital

 

280.8

 

 

 

264.6

 

 

274.4

 

 

 

295.5

 

Retained earnings

 

3,832.6

 

 

 

3,479.0

 

 

4,786.0

 

 

 

4,237.4

 

Accumulated other comprehensive loss

 

(53.6

)

 

 

(36.4

)

 

(77.6

)

 

 

(66.7

)

Common stock in treasury, at cost: 45,969,515 shares as of December 31, 2018 and 45,225,202 shares as of December 31, 2017

 

(1,898.8

)

 

 

(1,782.0

)

Common stock in treasury, at cost: 47,494,982 shares as of December 31, 2020 and 47,439,300 shares as of December 31, 2019

 

(2,255.2

)

 

 

(2,091.2

)

Total Stockholders' Equity

 

2,453.8

 

 

 

2,218.0

 

 

3,020.4

 

 

 

2,667.8

 

Total Liabilities and Stockholders’ Equity

$

6,069.2

 

 

$

6,014.8

 

$

7,414.5

 

 

$

6,657.4

 

 

 

See Notes to Consolidated Financial Statements.

 

 

 

 

 

 



CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

(In millions)

 

 

Year Ended December 31,

 

Year Ended December 31,

 

2018

 

 

2017

 

 

2016

 

2020

 

 

2019

 

 

2018

 

Cash Flow From Operating Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

$

568.6

 

 

$

743.4

 

 

$

459.0

 

$

785.9

 

 

$

615.9

 

 

$

568.6

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

64.4

 

 

 

60.9

 

 

 

59.7

 

 

66.2

 

 

 

63.8

 

 

 

64.4

 

Amortization expense

 

76.7

 

 

 

64.5

 

 

 

47.9

 

 

123.5

 

 

 

112.6

 

 

 

76.7

 

Change in fair value of business acquisition liabilities

 

(93.7

)

 

 

1.3

 

 

 

0.0

 

Deferred income taxes

 

11.1

 

 

 

(237.6

)

 

 

24.9

 

 

25.7

 

 

 

5.6

 

 

 

11.1

 

Equity in net earnings of affiliates

 

(9.2

)

 

 

(10.8

)

 

 

(9.2

)

 

(6.7

)

 

 

(6.6

)

 

 

(9.2

)

Distributions from unconsolidated affiliates

 

10.1

 

 

 

10.1

 

 

 

9.0

 

 

7.4

 

 

 

5.3

 

 

 

10.1

 

Non-cash compensation expense

 

23.3

 

 

 

18.1

 

 

 

16.0

 

 

21.5

 

 

 

20.8

 

 

 

23.3

 

Non-cash pension settlement charge

 

0.0

 

 

 

31.7

 

 

 

0.0

 

Asset impairment charge and other asset write-offs

 

3.6

 

 

 

2.1

 

 

 

5.6

 

 

1.9

 

 

 

13.8

 

 

 

3.6

 

Gain on sale of assets

 

(3.0

)

 

 

0.0

 

 

 

0.0

 

Other

 

1.0

 

 

 

(1.7

)

 

 

(1.8

)

 

2.3

 

 

 

0.1

 

 

 

1.0

 

Change in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

(3.4

)

 

 

(9.7

)

 

 

(12.7

)

 

(13.4

)

 

 

(9.2

)

 

 

(3.4

)

Inventories

 

(55.1

)

 

 

(25.2

)

 

 

19.2

 

 

(61.9

)

 

 

(33.8

)

 

 

(55.1

)

Other current assets

 

18.9

 

 

 

10.2

 

 

 

2.1

 

 

(10.2

)

 

 

4.9

 

 

 

18.9

 

Accounts payable and accrued expenses

 

54.9

 

 

 

30.3

 

 

 

50.5

 

 

168.0

 

 

 

72.8

 

 

 

54.9

 

Income taxes payable

 

(6.1

)

 

 

(11.2

)

 

 

32.8

 

 

12.2

 

 

 

3.4

 

 

 

(6.1

)

Excess tax benefit on stock options exercised

 

0.0

 

 

 

0.0

 

 

 

(30.0

)

Other operating assets and liabilities, net

 

4.8

 

 

 

6.4

 

 

 

(17.7

)

 

(35.4

)

 

 

(6.2

)

 

 

4.8

 

Net Cash Provided By Operating Activities

 

763.6

 

 

 

681.5

 

 

 

655.3

 

 

990.3

 

 

 

864.5

 

 

 

763.6

 

Cash Flow From Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

(60.4

)

 

 

(45.0

)

 

 

(49.8

)

 

(98.9

)

 

 

(73.7

)

 

 

(60.4

)

Proceeds from sale of assets

 

7.0

 

 

 

0.0

 

 

 

0.0

 

Acquisitions

 

(49.8

)

 

 

(1,260.0

)

 

 

(305.3

)

 

(512.7

)

 

 

(475.0

)

 

 

(49.8

)

Other

 

(1.9

)

 

 

1.6

 

 

 

0.5

 

 

(3.5

)

 

 

(4.8

)

 

 

(1.9

)

Net Cash Used In Investing Activities

 

(112.1

)

 

 

(1,303.4

)

 

 

(354.6

)

 

(608.1

)

 

 

(553.5

)

 

 

(112.1

)

Cash Flow From Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt borrowings

 

0.0

 

 

 

1,621.3

 

 

 

0.0

 

 

0.0

 

 

 

300.0

 

 

 

0.0

 

Long-term debt (repayments)

 

0.0

 

 

 

(200.0

)

 

 

0.0

 

 

0.0

 

 

 

(600.0

)

 

 

0.0

 

Short-term debt (repayments), net of borrowings

 

(268.8

)

 

 

(155.8

)

 

 

68.9

 

Short-term debt borrowings, net of repayments

 

99.0

 

 

 

251.0

 

 

 

(268.8

)

Proceeds from stock options exercised

 

76.6

 

 

 

42.1

 

 

 

50.5

 

 

93.0

 

 

 

52.8

 

 

 

76.6

 

Excess tax benefit on stock options exercised

 

0.0

 

 

 

0.0

 

 

 

30.0

 

Payment of cash dividends

 

(213.3

)

 

 

(190.4

)

 

 

(183.0

)

 

(237.3

)

 

 

(224.1

)

 

 

(213.3

)

Purchase of treasury stock

 

(200.0

)

 

 

(400.0

)

 

 

(400.0

)

 

(300.0

)

 

 

(250.0

)

 

 

(200.0

)

Payment of business acquisition liabilities

 

(14.5

)

 

 

0.0

 

 

 

0.0

 

Deferred financing and other

 

(3.5

)

 

 

(18.3

)

 

 

(6.0

)

 

(0.3

)

 

 

(2.6

)

 

 

(3.5

)

Net Cash (Used In) Provided By Financing Activities

 

(609.0

)

 

 

698.9

 

 

 

(439.6

)

Net Cash Used In Financing Activities

 

(360.1

)

 

 

(472.9

)

 

 

(609.0

)

Effect of exchange rate changes on cash and cash equivalents

 

(4.7

)

 

 

14.1

 

 

 

(3.3

)

 

5.3

 

 

 

0.9

 

 

 

(4.7

)

Net Change In Cash and Cash Equivalents

 

37.8

 

 

 

91.1

 

 

 

(142.2

)

 

27.4

 

 

 

(161.0

)

 

 

37.8

 

Cash and Cash Equivalents at Beginning of Period

 

278.9

 

 

 

187.8

 

 

 

330.0

 

 

155.7

 

 

 

316.7

 

 

 

278.9

 

Cash and Cash Equivalents at End of Period

$

316.7

 

 

$

278.9

 

 

$

187.8

 

$

183.1

 

 

$

155.7

 

 

$

316.7

 

 

See Notes to Consolidated Financial Statements.



CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW-CONTINUED

(In millions)

 

 

Year Ended December 31,

 

Year Ended December 31,

 

2018

 

 

2017

 

 

2016

 

2020

 

 

2019

 

 

2018

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest (net of amounts capitalized)

$

74.9

 

 

$

33.3

 

 

$

25.6

 

$

58.8

 

 

$

70.6

 

 

$

74.9

 

Income taxes

$

116.8

 

 

$

198.1

 

 

$

188.4

 

$

162.1

 

 

$

134.8

 

 

$

116.8

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment expenditures included in Accounts Payable

$

6.9

 

 

$

7.7

 

 

$

3.4

 

$

20.1

 

 

$

10.4

 

 

$

6.9

 

See Notes to Consolidated Financial Statements.

 



 

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years Ended December 31, 2018, 20172020, 2019 and 20162018

(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

Church &

Dwight Co., Inc.

Stockholders'

Equity

 

 

Common

Stock

 

 

Treasury

Stock

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

 

 

Total

Church &

Dwight Co., Inc.

Stockholders'

Equity

 

 

December 31, 2015

 

292.8

 

 

 

(32.8

)

 

$

292.8

 

 

$

230.0

 

 

$

2,650.0

 

 

$

(45.9

)

 

$

(1,103.7

)

 

$

2,023.2

 

 

Net income

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

459.0

 

 

 

0.0

 

 

 

0.0

 

 

 

459.0

 

 

Other comprehensive (loss) income

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0

 

 

 

(17.9

)

 

 

0.0

 

 

 

(17.9

)

 

Cash dividends

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(183.0

)

 

 

0.0

 

 

 

0.0

 

 

 

(183.0

)

 

Stock purchases

 

0.0

 

 

 

(9.0

)

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(400.0

)

 

 

(400.0

)

 

Stock based compensation

expense and stock option plan

transactions

 

0.0

 

 

 

2.9

 

 

 

0.0

 

 

 

21.4

 

 

 

0.0

 

 

 

0.0

 

 

 

75.2

 

 

 

96.6

 

 

December 31, 2016

 

292.8

 

 

 

(38.9

)

 

$

292.8

 

 

$

251.4

 

 

$

2,926.0

 

 

$

(63.8

)

 

$

(1,428.5

)

 

$

1,977.9

 

 

Net income

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

743.4

 

 

 

0.0

 

 

 

0.0

 

 

 

743.4

 

 

Other comprehensive (loss) income

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

27.4

 

 

 

0.0

 

 

 

27.4

 

 

Cash dividends

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(190.4

)

 

 

0.0

 

 

 

0.0

 

 

 

(190.4

)

 

Stock purchases

 

0.0

 

 

 

(8.2

)

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(400.0

)

 

 

(400.0

)

 

Stock based compensation

expense and stock option plan

transactions

 

0.0

 

 

 

1.9

 

 

 

0.0

 

 

 

13.2

 

 

 

0.0

 

 

 

0.0

 

 

 

46.5

 

 

 

59.7

 

 

December 31, 2017

 

292.8

 

 

 

(45.2

)

 

$

292.8

 

 

$

264.6

 

 

$

3,479.0

 

 

$

(36.4

)

 

$

(1,782.0

)

 

$

2,218.0

 

 

 

292.8

 

 

 

(45.2

)

 

$

292.8

 

 

$

264.6

 

 

$

3,479.0

 

 

$

(36.4

)

 

$

(1,782.0

)

 

$

2,218.0

 

 

Adoption of new accounting pronouncements (Note 1)

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(1.7

)

 

 

(0.6

)

 

 

0.0

 

 

 

(2.3

)

 

 

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

 

 

 

568.6

 

 

 

0.0

 

 

 

0.0

 

 

 

568.6

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

568.6

 

 

 

0.0

 

 

 

0.0

 

 

 

568.6

 

 

Other comprehensive (loss) income

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(16.6

)

 

 

0.0

 

 

 

(16.6

)

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0

 

 

 

(16.6

)

 

 

0.0

 

 

 

(16.6

)

 

Cash dividends

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(213.3

)

 

 

0.0

 

 

 

0.0

 

 

 

(213.3

)

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(213.3

)

 

 

0.0

 

 

 

0.0

 

 

 

(213.3

)

 

Stock purchases

 

0.0

 

 

 

(4.1

)

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(200.0

)

 

 

(200.0

)

 

 

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

 

 

 

3.3

 

 

 

0.0

 

 

 

16.2

 

 

 

0.0

 

 

 

0.0

 

 

 

83.2

 

 

 

99.4

 

 

 

0.0

 

 

 

3.3

 

 

 

0.0

 

 

 

16.2

 

 

 

0.0

 

 

 

0.0

 

 

 

83.2

 

 

 

99.4

 

 

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 (Note 1)

 

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

 

 

 

615.9

 

 

 

0.0

 

 

 

0.0

 

 

 

615.9

 

 

Other comprehensive income (loss)

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(13.1

)

 

 

0.0

 

 

 

(13.1

)

 

Cash dividends

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(224.1

)

 

 

0.0

 

 

 

0.0

 

 

 

(224.1

)

 

Stock purchases

 

0.0

 

 

 

(3.6

)

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(250.0

)

 

 

(250.0

)

 

Stock based compensation

expense and stock option plan

transactions

 

0.0

 

 

 

2.2

 

 

 

0.0

 

 

 

14.7

 

 

 

0.0

 

 

 

0.0

 

 

 

57.6

 

 

 

72.3

 

 

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

 

 

 

785.9

 

 

 

0.0

 

 

 

0.0

 

 

 

785.9

 

 

Other comprehensive income (loss)

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(10.9

)

 

 

0.0

 

 

 

(10.9

)

 

Cash dividends

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(237.3

)

 

 

0.0

 

 

 

0.0

 

 

 

(237.3

)

 

Stock purchases

 

0.0

 

 

 

(3.1

)

 

 

0.0

 

 

 

(30.0

)

 

 

0.0

 

 

 

0.0

 

 

 

(270.0

)

 

 

(300.0

)

 

Stock based compensation

expense and stock option plan

transactions

 

0.0

 

 

 

3.1

 

 

 

0.0

 

 

 

8.9

 

 

 

0.0

 

 

 

0.0

 

 

 

106.0

 

 

 

114.9

 

 

December 31, 2020

 

292.8

 

 

 

(47.4

)

 

$

292.8

 

 

$

274.4

 

 

$

4,786.0

 

 

$

(77.6

)

 

$

(2,255.2

)

 

$

3,020.4

 

 

 

 

See Notes to Consolidated Financial Statements.

 

 

 

5255


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data)

 

 

1.

Significant Accounting Policies

Business

The Company, founded in 1846, develops, manufactures and markets a broad range of household, personal care and specialty products focused on animal productivity, chemicals and cleaners.  The Company sells its consumer products under a variety of brands through a broad distribution platform that includes supermarkets, mass merchandisers, wholesale clubs, drugstores, convenience stores, home stores, dollar, pet and other specialty stores and websites and other e-commerce channels, all of which sell the products to consumers.  The Company also sells specialty products to industrial customers, livestock producers and through distributors.  

Basis of Presentation

 

The accompanying Consolidated Financial Statements are presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and include the accounts of the Company and its majority‑owned subsidiaries.  For equity investments in which the Company does not control or have the ability to exert significant influence over the investee, which generally is when the Company has less than a 20% ownership interest, the investments are accounted for under the cost method.  In circumstances where the Company has greater than a 20% ownership interest and has the ability to exercise significant influence over, but does not control, the investee, the investment is accounted for under the equity method.  As a result, the Company accounts for its 50% interest in its Armand Products Company (“Armand”) joint venture and its 50% interest in The ArmaKleen Company (“ArmaKleen”) joint venture under the equity method.  Armand and ArmaKleen are specialty chemical businesses.  The Company’s equity in earnings of Armand and ArmaKleen are included in the Corporate segment, as described in Note 16.    

  

  In March 2016, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance that makes modifications to how companies account for certain aspects of share-based payment awards to employees, including accounting for income taxes, forfeitures, and statutory withholding requirements, as well as the classification of excess tax benefits in the statement of cash flows.  The Company prospectively adopted the standard in the first quarter of 2017.  The adoption resulted in excess tax benefits of $22.1 and $15.1 or approximately $0.08 and $0.05 per share recorded in the provision for income taxes rather than in the Company’s Stockholders’ Equity section of the Balance Sheet for the years ended December 31, 2018 and 2017, respectively.  It also resulted in an increase to both net cash provided by operating activities and net cash provided by financing activities of $22.1 and $15.1 for the twelve months ended December 31, 2018 and 2017, respectively. The Company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of diluted earnings per share, which did not have a material impact on the Company’s diluted earnings per share for the three and twelve months ended December 31, 2018 and 2017.  The Company has also elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period.    

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent gains and losses at the date of the financial statements and reported amounts of revenue and expenses during the reporting period.  Management makes estimates regarding inventory valuation, promotional and sales returns reserves, the carrying amount of goodwill and other intangible assets, the realization of deferred tax assets, tax reserves, business acquisition liabilities, liabilities related to pensions and other postretirement benefit obligations and other matters that affect the reported amounts and other disclosures in the financial statements.  These estimates are based on judgment and available information.  Actual results could differ materially from those estimates, and it is possible that changes in such estimates could occur in the near term.

53


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

Revenue Recognition

Revenue is recognized when control of a promised good is transferred to a customer in an amount that reflects the consideration that the Company expects to be entitled to in exchange for that good.  This usually occurs when finished goods are delivered to the Company’s customers or when finished goods are picked up by a customer or a customer’s carrier.

Adoption of the new revenue recognition pronouncement as discussed below did not have a significant impact on the Company’s consolidated financial statements.  The adoption required the Company to recognize certain costs earlier, primarily due to the timing of coupon expense recognition, which was not material.  Refer to the table below on page 5861 for a presentation of the impacts of adoption of the guidance on the Company’s January 1, 2018 balance sheet.  

 

a.

Nature of Goods and Services

The Company primarily ships finished goods to its customers and operates in three3 segments: Consumer Domestic, Consumer International and Specialty Products Division (“SPD”).  The segments are based on differences in the nature of products and organizational and ownership structures.  The Consumer Domestic and Consumer International segments market a variety of personal care and household products and over-the-counter products, including but not limited to baking soda, cat litter, laundry detergent, condoms, stain removers, hair removal, gummy dietary supplements, dry shampoo, water flossers and showerheads.  The SPD segment focuses on sales to businesses and participates in three3 product areas: Animal Productivity,and Food Production, Specialty Chemicals and Specialty Cleaners.  The Company’s products are distinct and separately identifiable on customer contracts or invoices, with each product sale representing a separate performance obligation.

The Company sells consumer products under a variety of brands through a broad distribution platform that includes supermarkets, mass merchandisers, wholesale clubs, drugstores, convenience stores, home stores, dollar, pet and other specialty stores and websites and other e-commerce channels, all of which sell ourits products to consumers. The Company sells its specialty products to industrial customers, livestock producers and through distributors.

56


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

Refer to Note 1617 for disaggregated revenue information with respect to each of ourthe Company’s segments.

 

b.

When Performance Obligations are Satisfied

For performance obligations related to the shipping and invoicing of products, control transfers at the point in time upon which finished goods are delivered to the Company’s customers or when finished goods are picked up by a customer or a customer’s carrier. Once a product has been delivered or picked up by the customer, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset. The Company considers control to have transferred upon delivery or customer receipt because the Company has an enforceable right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risk and rewards of ownership of the asset.

 

c.

Variable Consideration

The Company conducts extensive promotional activities, primarily through the use of off-list discounts, slotting, coupons, cooperative advertising, periodic price reduction arrangements, and end-aisle and other in-store displays.  The costs of such activities are netted against sales and are recorded when the related sale takes place.  The reserves for sales returns and consumer and trade promotion liabilities are established based on the Company’s best estimate of the amounts necessary to settle future and existing obligations for products sold as of the balance sheet date.  The Company uses historical trend experience and coupon redemption inputs in arriving at coupon reserve requirements, and uses forecasted appropriations, customer and sales organization inputs, and historical trend analysis in determining the reserves for other promotional activities and sales returns.  

 

d.

Practical Expedients

The Company expenses incremental direct costs of obtaining a contract (broker commissions) when the related sale takes place. These costs are recorded in SG&A expenses in the accompanying consolidated statements of income.

The Company accounts for shipping and handling costs as fulfillment activities which are therefore recognized upon shipment of the goods.

54


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

The Company has applied the portfolio approach to all open contracts as they have similar characteristics and can reasonably expect that the effects on the financial statements of applying this new guidance to the portfolio of contracts would not differ materially from applying this guidance to the individual contracts within the portfolio.

 

The Company excludes from its revenue any amounts collected from customers for sales (and similar) taxes.

 

Sales of Accounts Receivable

The Company entered into a factoring agreement with a financial institution to sell certain customer receivables at discounted rates in 2015.  Transactions under this agreement are accounted for as sales of accounts receivable and wereare removed from the Consolidated Balance Sheet at the time of the sales transaction.  As the customers associated with the Company’s factoring program have been consistent in recent years, the sales performance by customer has driven the amount factored each year.  The Company factored an additional$21.1, $26.0, and $7.5 in 2018, resulting in a total of $112.9 and $105.4 as ofduring the years ended December 31, 20182020, 2019 and 2017,2018, respectively.  

Cost of Sales, Marketing and Selling, General and Administrative Expenses

Cost of sales include costs related to the manufacture of the Company’s products, including raw material, inbound freight, direct labor (including employee compensation benefits) and indirect plant costs such as plant supervision, receiving, inspection, maintenance labor and materials, depreciation, taxes and insurance, purchasing, production planning, operations management, logistics, freight to customers, warehousing costs, internal transfer freight costs and plant impairment charges.

Marketing expenses include costs for advertising (excluding the costs of cooperative advertising programs, which are reflected in net sales), costs for coupon insertion (mainly the cost of printing and distribution), consumer promotion costs (such as on-shelf advertisements and floor ads), public relations, package design expense and market research costs.

Selling, general and administrative expenses (“SG&A”) expenses include, among others, costs related to functions such as sales, corporate management, research and development, marketing administration, information technology and legal.  Such costs include salary compensation related costs (such as benefits, incentive compensation and profit sharing), stock option costs, depreciation, travel and entertainment related expenses, professional and other consulting fees and amortization of intangible assets.

57


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

Foreign Currency Translation

Unrealized gains and losses related to currency translation are recorded in Accumulated Other Comprehensive Income (Loss).  Gains and losses on foreign currency transactions are recorded in the Consolidated Statements of Income.

Cash Equivalents

Cash equivalents consist of highly liquid short-term investments and term bank deposits, which mature within three months of their original maturity date.

Inventories

Inventories are valued at the lower of cost or market (net realizable value, which reflects any costs to sell or dispose).  The Company identifies any slow moving, obsolete or excess inventory to determine whether an adjustment is required to establish a new carrying value.  The determination of whether inventory items are slow moving, obsolete or in excess of needs requires estimates and assumptions about the future demand for the Company’s products, technological changes, and new product introductions.  Estimates as to the future demand used in the valuation of inventory involve judgments regarding the ongoing success of the Company’s products.  The Company evaluates its inventory levels and expected usage on a periodic basis and records adjustments as required.  Adjustments to reflect inventory at net realizable value were $17.0 at December 31, 2018,2020, and $12.8$16.0 at December 31, 2017.2019.

 

On April 1, 2018, the Company changed its method of accounting for inventories from last-in-first-out (“LIFO”) to first-in-first-out (“FIFO”) for the approximately 17% of consolidated inventory not previously valued using FIFO. Substantially all of the Company’s SPD segment inventory, as well as domestic inventory sold primarily under the ARM & HAMMER trademark in the Consumer Domestic segment, was previously determined using LIFO. After this change, the value of all of the Company’s inventory was determined by the FIFO method.  The Company believes this change is preferable as the predominant method to value inventory has been FIFO, which will provide a uniform costing method across all inventory. Prior financial statements have not been retroactively adjusted due to immateriality. The cumulative effect of the change in accounting principle of approximately $4.0 pre-tax was recorded as a decrease to cost of goods sold for the quarter ending June 30, 2018.

55


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

2018.

Property, Plant and Equipment

Property, Plant and Equipment (“PP&E”) are stated at cost.  Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets.  Estimated useful lives for building and improvements, machinery and equipment, and office equipment range from 9-40, 3-20 and 3-10 years, respectively.  Routine repairs and maintenance are expensed when incurred.  Leasehold improvements are depreciated over a period no longer than the respective lease term, except where a lease renewal has been determined to be reasonably assured and failure to renew the lease results in a significant penalty to the Company.

PP&E areis reviewed annually and whenever events or changes in circumstances indicate that possible impairment exists.  The Company’s impairment review is based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of Company assets and liabilities.  The analysis requires management judgment with respect to changes in technology, the continued success of product lines, and future volume, revenue and expense growth rates.  The Company conducts annual reviews to identify idle and underutilized equipment, and reviews business plans for possible impairment.  Impairment occurs when the carrying value of the asset exceeds the future undiscounted cash flows.  When an impairment is indicated, the estimated future cash flows are then discounted to determine the estimated fair value of the asset and an impairment charge is recorded for the difference between the carrying value and the net present value of estimated future cash flows.  

Software

The Company capitalizes certain costs of developing computer software.  Amortization is recorded using the straight‑line method over the estimated useful life of the software, which is estimated to be no longer than 10 years.

Fair Value of Financial Instruments

Certain financial instruments are required to be recorded at fair value.  The estimated fair values of such financial instruments (including investment securities and other derivatives) have been determined using market information and valuation methodologies.  Changes in assumptions or estimation methods could affect the fair value estimates.  Other financial instruments, including cash equivalents and short-term debt, are recorded at cost, which approximates fair value.  Additional information regarding the Company’s risk management activities, including derivative instruments and hedging activities, are separately disclosed.  See Notes 2 and 3.  

58


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

Goodwill and Other Intangible Assets

Carrying values of goodwill and indefinite-lived tradenamestrade names are reviewed periodically for possible impairment.  The Company’s impairment analysis is based on a discounted cash flow approach that requires significant judgment with respect to unit volume, revenue and expense growth rates, and the selection of an appropriate discount rate.  Management uses estimates based on expected trends in making these assumptions.  With respect to goodwill, impairment occurs when the carrying value of the reporting unit exceeds the discounted present value of cash flows for that reporting unit.  For trade names and other intangible assets, an impairment charge is recorded for the difference between the carrying value and the net present value of estimated future cash flows, which represents the estimated fair value of the asset.  Judgment is required in assessing whether assets may have become impaired between annual valuations.  Indicators such as unexpected adverse economic factors, unanticipated technological change, distribution losses, or competitive activities and acts by governments and courts may indicate that an asset has become impaired.  Intangible assets with finite lives are amortized over their estimated useful lives, which range from 3-20 years, using the straight-line method, and reviewed for impairment when changes in market circumstances occur.  

It is possible that the Company’s conclusions regarding impairment or recoverability of goodwill or other intangible assets could change in future periods if, for example, (i) the businesses or brands do not perform as projected, (ii) overall economic conditions in 2019 or future years vary from current assumptions (including changes in discount rates), (iii) business conditions or strategies change from current assumptions, (iv) investors require higher rates of return on equity investments in the marketplace or (v) enterprise values of comparable publicly traded companies, or actual sales transactions of comparable companies, were to decline, resulting in lower multiples of revenues and EBITDA.  

Research and Development

The Company incurred research and development expenses in the amount of $102.6, $93.6 and $89.7 $70.8in 2020, 2019 and $63.2 in 2018, 2017 and 2016, respectively.  These expenses are included in SG&A expenses and are expensed as incurred.

56


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

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:

 

2018

 

 

2017

 

 

2016

 

2020

 

 

2019

 

 

2018

 

Weighted average common shares outstanding - basic

 

245.5

 

 

 

250.6

 

 

 

257.6

 

 

246.8

 

 

 

246.2

 

 

 

245.5

 

Dilutive effect of stock options

 

5.2

 

 

 

5.5

 

 

 

4.5

 

 

5.4

 

 

 

5.9

 

 

 

5.2

 

Weighted average common shares outstanding - diluted

 

250.7

 

 

 

256.1

 

 

 

262.1

 

 

252.2

 

 

 

252.1

 

 

 

250.7

 

Antidilutive stock options outstanding

 

1.9

 

 

 

3.2

 

 

 

1.4

 

 

1.5

 

 

 

1.5

 

 

 

1.9

 

Employee and Director Stock Based Compensation

The fair value of share-based compensation is determined at the grant date and the related expense is recognized over the required employee service period in which the share-based compensation vests.  The following table presents the pre-tax expense associated with the fair value of unvested stock options and restricted stock awards included in SG&A expenses and in cost of sales:

 

For the Year Ended December 31,

 

For the Year Ended December 31,

 

2018

 

 

2017

 

 

2016

 

2020

 

 

2019

 

 

2018

 

Cost of sales

$

2.6

 

 

$

1.8

 

 

$

1.9

 

$

3.6

 

 

$

2.8

 

 

$

2.6

 

Selling, general and administrative expenses

 

22.3

 

 

 

16.3

 

 

 

14.1

 

 

21.0

 

 

 

19.6

 

 

 

22.3

 

Total

$

24.9

 

 

$

18.1

 

 

$

16.0

 

$

24.6

 

 

$

22.4

 

 

$

24.9

 

 

Income Taxes

Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized to reflect the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be recovered or settled.  Management provides a valuation allowance against deferred tax assets for amounts which are not considered “more likely than not” to be realized.  The Company records liabilities for potential assessments in various tax jurisdictions in accordance with accounting principles generally accepted in the U.S. (GAAP).GAAP.  The liabilities relate to tax return positions that, although supportable by the Company, may be challenged by the tax authorities and do not meet the minimum recognition threshold

59


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

required under applicable accounting guidance for the related tax benefit to be recognized in the income statement.  The Company adjusts this liability as a result of changes in tax legislation, interpretations of laws by courts, rulings by tax authorities, changes in estimates and the expiration of the statute of limitations.  Many of the judgments involved in adjusting the liability involve assumptions and estimates that are highly uncertain and subject to change.  In this regard, settlement of any issue with, or an adverse determination in litigation against, a taxing authority could require the use of cash and result in an increase in the Company’s annual tax rate.  Conversely, favorable resolution of an issue with a taxing authority would be recognized as a reduction to the Company’s annual tax rate.  

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued accounting guidance (with subsequent targeted amendments) which modifies the measurements of expected credit losses for certain financial instruments and financial assets, including trade receivables.  This guidance was effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.  The standard did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In March 2020, the FASB issued new accounting guidance intended to provide temporary optional expedients and exceptions to the U.S. 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 was 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 of this guidance did not have an impact on the Company’s consolidated financial position, results of operations or cash flows in the current period.  The Company will continue to evaluate the impacts of this guidance on future contract modifications.

In August 2017 and October 2018, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance, which is intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. These amendments also make targeted improvements to simplify the application of hedge accounting. The guidance was effective for annual and interim periods beginning after December 15, 2018, and was adopted by the Company in the first quarter of 2019. The standard’s adoption 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, 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 under Accounting Standards Codification (“ASC”) 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 the new accounting guidance there were Right of Use Assets of approximately $107.0 and a corresponding Lease Liabilities of $109.0.  This did not include an existing cease-use liability of approximately $7.0 pertaining to one of the Company’s previous corporate offices that remained unchanged as a result of the transition.  Refer to Note 8 for the Company’s lease disclosures.

60


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

The effects of the recently adopted lease accounting standard to the Company’s consolidated balance sheet as of January 1, 2019 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

 

The adoption of the new lease accounting standard did not have a material impact on the Company’s results of operations or cash flows.

 

In August 2018, the FASB issued new accounting guidance requiring a customer in a hosting arrangement that is a service contract to apply the guidance on internal-use software to determine which implementation costs to recognize as an asset and which costs to expense.  The capitalized implementation costs are required to be expensed over the term of the hosting arrangement.  The guidance is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted.  The Company has adopted this new standard during the third quarter of 2018 and elected to use the prospective approach.  The standard did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

 

In February 2018, the FASB issued new accounting guidance which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) and requires certain disclosures regarding stranded tax effects. The guidance is effective for fiscal years beginning after December 15,

57


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

2018, and interim periods within those fiscal years, with early adoption permitted.  The Company adopted this change using the modified retrospective approach by adjusting certain December 31, 2017 stockholders’ equity accounts (see below).      

 

In 2016, the FASB issued guidance that clarifies the principles for recognizing revenue.  The amendments clarify the guidance for identifying performance obligations, licensing arrangements and principal versus agent considerations.  The amendments additionally provide clarification on how to assess collectability, present sales tax, treat noncash consideration, and account for completed and modified contracts at the time of transition.  The new standard was adopted by the Company using the modified retrospective approach in the first quarter of 2018.  See page 5456 for the Company’s revenue recognition accounting policy.      

 

The effects of the recently adopted accounting pronouncements to the Company’s consolidated balance sheet as of January 1, 2018 is as follows:

 

Balance at

 

 

New Revenue

 

 

New Tax

 

 

Balance at

 

 

December 31,

 

 

Standard

 

 

Reform

 

 

January 1,

 

 

2017

 

 

Adjustment

 

 

Adjustment

 

 

2018

 

Accounts payable and accrued expenses

$

659.1

 

 

$

3.0

 

 

$

0.0

 

 

$

662.1

 

Income taxes payable

 

5.0

 

 

 

(0.7

)

 

 

0.0

 

 

 

4.3

 

Retained earnings

 

3,479.0

 

 

 

(2.3

)

 

 

0.6

 

 

 

3,477.3

 

Accumulated other comprehensive loss

 

(36.4

)

 

 

0.0

 

 

 

(0.6

)

 

 

(37.0

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The adoption had noAdoption of the new revenue recognition pronouncement as discussed above did not have a significant impact on the Company’s results of operations or cash flow.consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In August 2017 and October 2018, the FASB issued new accounting guidance, which is intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. These amendments also make targeted improvements to simplify the application of the hedge accounting. The guidance is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The standard is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows. 

In February 2016 and July 2018, 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 is effective for annual and interim periods beginning after December 15, 2018, and allows 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 on a modified retrospective basis and will elect the package of practical expedients permitted under the transition guidance, which eliminates the reassessment of past leases, classification, and initial direct costs.  The Company has implemented the appropriate internal controls and tools to monitor and record historical and future lease arrangements and required disclosures.

For all existing operating leases as of December 31, 2018, the Company anticipates recording Right of Use Assets of approximately $55 and corresponding lease liabilities of approximately $57 with an offset to Deferred and Other Long-term Liabilities of approximately $2 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 its Corporate Headquarters lease.  This lease was previously considered a failed sale-and-leaseback transaction under ASC 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 has a book value of approximately $35 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 will be recorded with an offset to Deferred Income Taxes of $4 and Retained Earnings of $13. The Lease Liability pertaining to this asset of $52 remains unchanged.  In total, at the adoption of the new accounting guidance there will be a Right of Use Asset of approximately $107 and a corresponding Lease Liability of $109.        

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.

58


61


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

 

2.

Fair Value Measurements

Fair Value Hierarchy

Accounting guidance on fair value measurements and disclosures establishes a hierarchy that prioritizes the inputs used to measure fair value (generally, assumptions that market participants would use in pricing an asset or liability) based on the quality and reliability of the information provided by the inputs, as follows:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.  

Fair Values of Other Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s other financial instruments at December 31, 20182020 and December 31, 2017:2019:

 

 

 

December 31, 2018

 

 

December 31, 2017

 

 

 

December 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

 

$

234.6

 

 

$

234.6

 

 

$

95.8

 

 

$

95.8

 

Level 1

 

$

73.7

 

 

$

73.7

 

 

$

65.3

 

 

$

65.3

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

Level 2

 

 

1.8

 

 

 

1.8

 

 

 

270.9

 

 

 

270.9

 

Level 2

 

 

351.4

 

 

 

351.4

 

 

 

252.9

 

 

 

252.9

 

Floating Rate Senior notes due January 25, 2019

Level 2

 

 

300.0

 

 

 

299.9

 

 

 

300.0

 

 

 

299.9

 

2.45% Senior notes due December 15, 2019

Level 2

 

 

300.0

 

 

 

297.4

 

 

 

299.9

 

 

 

300.9

 

Term loan due May 1, 2022

Level 2

 

 

300.0

 

 

 

300.0

 

 

 

300.0

 

 

 

300.0

 

2.45% Senior notes due August 1, 2022

Level 2

 

 

299.7

 

 

 

289.7

 

 

 

299.7

 

 

 

296.1

 

Level 2

 

 

299.9

 

 

 

310.1

 

 

 

299.8

 

 

 

302.6

 

2.875% Senior notes due October 1, 2022

Level 2

 

 

399.9

 

 

 

393.0

 

 

 

399.8

 

 

 

400.2

 

Level 2

 

 

399.9

 

 

 

416.6

 

 

 

399.9

 

 

 

408.2

 

3.15% Senior notes due August 1, 2027

Level 2

 

 

424.6

 

 

 

400.0

 

 

 

424.6

 

 

 

417.8

 

Level 2

 

 

424.7

 

 

 

472.4

 

 

 

424.7

 

 

 

438.9

 

3.95% Senior notes due August 1, 2047

Level 2

 

 

397.2

 

 

 

363.7

 

 

 

397.1

 

 

 

397.4

 

Level 2

 

 

397.4

 

 

 

502.2

 

 

 

397.3

 

 

 

427.1

 

Contingent Consideration

Level 3

 

 

23.0

 

 

 

23.0

 

 

 

23.2

 

 

 

23.2

 

Fair value adjustment (liability) asset related to hedged fixed rate debt instrument

Level 2

 

 

(3.0

)

 

 

(3.0

)

 

 

(2.2

)

 

 

(2.2

)

Interest Rate Swap Lock Agreement

Level 2

 

 

(7.0

)

 

 

(7.0

)

 

 

0.0

 

 

 

0.0

 

Interest Rate Swap Lock Agreement asset (liability)

Level 2

 

 

(57.0

)

 

 

(57.0

)

 

 

(29.5

)

 

 

(29.5

)

Business Acquisition Liabilities

Level 3

 

 

118.0

 

 

 

118.0

 

 

 

206.2

 

 

 

206.2

 

The Company recognizes transfers between input levels as of the actual date of the event.  There were no transfers between input levels during the twelve months ended December 31, 2018.2020.

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments reflected in the Consolidated Balance Sheets:

Cash Equivalents: Cash equivalents consist of highly liquid short-term investments and term bank deposits, which mature within three months.  The estimated fair value of the Company’s cash equivalents approximates their carrying value.

Short-Term Borrowings: The carrying amounts of the Company’s unsecured lines of credit and commercial paper issuances approximates fair value because of their short maturities and variable interest rates.

Senior Notes: The Company determines the fair value of its senior notes based on their quoted market value or broker quotes, when possible.  In the absence of observable market quotes, the notes are valued using non-binding market consensus prices that the Company seeks to corroborate with observable market data.

Hedged Fixed Rated Debt: The interest rate swap agreements convert the fixed interest rate to a variable rate based on LIBOR.  These agreements are designated as hedges of the changes in fair value of the underlying debt obligation attributable to changes in interest rates and are accounted for as fair value hedges.  The fair value of these interest rate swap agreements is reflected in the Consolidated Balance Sheet within Other Current Assets or Accounts Payable and Accrued Expenses, with an offsetting amount recorded in the Current portion of long-term debt to adjust the carrying amount of the hedged debt obligation.  

59


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

Interest Rate Swap Lock Agreement:  The Company entered into interest rate swap lock agreements to hedge the risk of changes in the interest payments attributable to changes in the benchmark LIBORU.S. Dollar London Interbank Offered Rate (“LIBOR”) interest rate associated with anticipated issuances of debt.  debt.  The notional amount of the interest rate swap lock agreementslocks is $250.0. $300.0. These interest rate swap lock agreements have been designated as hedges of the changes in fair value of the underlying debt obligation attributable to changes in interest rates and are accounted as fair value hedges.  The fair value of theseliability increased by $27.5 during the year ended December 31, 2020 primarily due to lower current and projected interest rate swap lock agreementsrates and is reflectedrecorded in the Consolidated Balance Sheet within Deferred and Other Long-term Liabilities.Liabilities with the offset to Accumulated Other Comprehensive Loss and Deferred Taxes.

Business Acquisition Liabilities: The business acquisition liabilities represent the estimated fair value of additional future contingent consideration payable for acquisitions of businesses that included contingent consideration clauses.  The fair value of business acquisition liabilities are evaluated on an ongoing basis and are based on management estimates and entity-specific assumptions which are considered Level 3 inputs.  As of December 31, 2020, the Company had a business acquisition liability related to the Flawless Acquisition of $98.0 and

62


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

also a $20.0 liability in connection with the Zicam acquisition which is payable five years from the closing.  As of December 31, 2019, the Company had business acquisition liabilities related to the Flawless Acquisition of $192.0 and related to the Agro Acquisition of $14.2.  In April 2020, a payment of $14.5 was paid to settle the Agro Acquisition liability. As of December 31, 2019, the Agro Acquisition liability was recorded within Accounts Payable and Accrued Expenses.  

The initial fair value of the Passport business acquisition liability was $7.3.  That amount was first established in the purchase allocation after Passport was acquired on March 8, 2018.  During the second quarter of 2019, the Company recorded a reduction in fair value of the entire $7.3 Passport business acquisition liability based on the revised valuation due to updated sales forecasts.  There was 0 change in the business acquisition liability for the year ended December 31, 2020.  

The initial fair value of the Flawless business acquisition liability was $182.0. That amount was first established in the purchase allocation after Flawless was acquired on May 1, 2019 and has since been decreased by $84.0 to $98.0 based on the revised valuation due to updated sales forecasts.  The $84.0 reduction of SG&A expense was recorded within the Consumer Domestic and Consumer International segments.  The Flawless business acquisition liability is expected to be paid in the first half of 2022.  See Note 15 for further details.

The fair value measurement of the business acquisition liabilities are determined using Level 3 inputs. The fair value is determined using the present value of the weighted probabilities of the possible payments due to randomly changing revenue growth. These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the fair value of the business acquisition liabilities. Changes in the fair value of the business acquisition liabilities are recorded in general and administrative expenses in the accompanying consolidated statements of operations.  

Other:  The carrying amounts of accounts receivable, and accounts payable and accrued expenses, approximated estimated fair values as of December 31, 20182020 and 2017.  2019.  

 

 

3.

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.

The Company formally designates and documents qualifying instruments as hedges of underlying exposures when it enters into derivative arrangements.  Changes in the fair value of derivatives designated as hedges and qualifying for hedge accounting are recorded in other comprehensive income and reclassified into earnings during the period in which the hedged exposure affects earnings.  The Company reviews the effectiveness of its hedging instruments on a quarterly basis.  If the Company determines that a derivative instrument is no longer effective in offsetting changes in fair values or cash flows, it recognizes the hedge ineffectiveness in current period earnings and discontinues hedge accounting with respect to the derivative instrument.  Changes in the fair value of derivatives not designated as hedges or those not qualifying for hedge accounting are recognized in current period earnings.  Upon termination of cash flow hedges, the Company reclassifies gains and losses from other comprehensive income based on the timing of the underlying cash flows, unless the termination results from the failure of the intended transaction to occur in the expected timeframe.  Such untimely transactions require immediate recognition in earnings of gains and losses previously recorded in other comprehensive income.

During 20182020 and 2017,2019, the Company used derivative instruments to mitigate risk, some of which were designated as hedging instruments.  The tables following the discussion of the derivative instruments below summarize the fair value of the Company’s derivative instruments and the effect of derivative instruments on the Company’s consolidated statements of income and on other comprehensive income.

Derivatives Designated as Hedging Instruments

Diesel Fuel Hedges

The Company uses independent freight carriers to deliver its products.  These carriers currently charge the Company a basic rate per mile for diesel fuel price increases.  During 2018 and 2017, theThe Company has entered into hedge agreements with counterparties to mitigate the volatility of diesel fuel prices, and not to speculate in the future price of diesel fuel.  Under the hedge agreements, the Company agreed to pay a fixed price per gallon of diesel fuel determined at the time the agreements were executed and to receive a floating rate payment that is determined on a monthly basis based on the average price of the Department of Energy’s Diesel Fuel Index during the applicable month and is designed to offset any increase or decrease in fuel costs that the Company pays to it common carriers.  The agreements covered approximately 64%70% of the Company’s 20182020 diesel fuel requirements and are expected to cover approximately 79% and 50%75% of the Company’s estimated diesel fuel requirements

63


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

for 2019 and 2020, respectively.2021.  These diesel fuel hedge agreements qualify for hedge accounting.  Therefore, changes in the fair value of such agreements are recorded under Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet.

Foreign Currency

The Company is subject to exposure from fluctuations in foreign currency exchange rates, primarily U.S. Dollar/Euro, U.S. Dollar/ Pound, U.S. Dollar/Canadian Dollar, U.S. Dollar/Mexican Peso, and U.S. Dollar/Australian Dollar.  

The Company enters into forward exchange contracts to reduce the impact of foreign exchange rate fluctuations related to anticipated but not yet committed sales or purchases denominated in U.S. Dollar, Canadian Dollar, Pound, Euro, Mexican Peso, and Australian Dollar.  The Company entered into forward exchange contracts to hedge itself from the risk that, due to fluctuations in

60


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

currency exchange rates, it would be adversely affected by net cash outflows.  The face value of the unexpired contracts as of December 31, 20182020 totaled $146.6$260.7 in U.S. Dollars, of whichall$252.7 qualifies as foreign currency cash flow hedges and, therefore, changes in the fair value of the contracts are recorded in Accumulated Other Comprehensive Income (Loss) and reclassified to earnings when the hedged transaction affected earnings.  

Interest Rate Swaps

On December 9, 2014, the Company entered into interest rate swap agreements that effectively convert the interest rate on the $300.0 aggregate principal amount of 2.45% senior notes, due December 15, 2019, to a floating rate of three-month LIBOR plus a fixed spread of 0.756%.  These interest rate swap agreements have been designated as hedges of the changes in fair value of the underlying debt obligation attributable to changes in interest rates and are accounted as fair value hedges.  The fair value of these interest rate swap agreements is reflected in the Consolidated Balance Sheet within Other Current Assets or Accounts Payable and Accrued Expenses, with an offsetting amount recorded in the Current portion of long-term debt to adjust the carrying amount of the hedged debt obligation.    

Interest Rate Swap Lock Agreement

The Company entered into interest rate swap lock agreements to hedge the risk of changes in the interest payments attributable to changes in the benchmark LIBOR interest rate associated with anticipated issuances of debt.  The notional amount of the interest rate swap locks is $250.0. $300.0. These interest rate swap lock agreements have been designated as hedges of the changes in fair value of the underlying debt obligation attributable to changes in interest rates and are accounted as fair value hedges.  The fair value of thesethe interest rate swap lock agreements is reflected in the Consolidated Balance Sheet within Deferred and Other Long-term Liabilities.

Commodity Hedges

The Company is subject to exposure due to changes in prices of commodities used in production. To limit the effects of fluctuations in the future market price paid and related volatility in cash flows, the Company enters into Over-the-Counter commodity forward swap contracts. These agreements cover approximately 60% of the Company’s 2018 and 2019 exposure.  These hedges are designated as cash flow hedges for accounting purposes and, therefore, changes in the fair value of the contracts are recorded in Accumulated Other Comprehensive Income (Loss) and reclassified to earnings when the hedged transaction affected earnings.  The fair value of these commodity hedge agreements is reflected in the Consolidated Balance Sheet within Other Current Assets and Accounts Payable and Accrued Expenses.  

Derivatives not Designated as Hedging Instruments

Equity Derivatives

The Company has entered into equity derivative contracts covering the Common Stock in order to minimize its liability under its Executive Deferred Compensation Plan resulting from changes in the quoted fair values of the Common Stock to participants who have investments under the Plan in a notional Common Stock fund.  The contracts are settled in cash.  Since the equity derivatives contracts do not qualify for hedge accounting,the Company is required to mark such contracts to market throughout the contract term and record changes in fair value in the consolidated statement of income.


61


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

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

 

 

December 31, 2018

 

December 31, 2017

 

 

December 31, 2020

 

December 31, 2019

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

146.6

 

$

91.6

 

 

$

252.7

 

$

216.0

 

Interest rate swap

 

$

300.0

 

$

300.0

 

Interest rate swap lock

 

$

250.0

 

$

0.0

 

 

$

300.0

 

$

300.0

 

Diesel fuel contracts

 

8.2 gallons

 

3.0 gallons

 

 

6.7 gallons

 

4.8 gallons

 

Commodities contracts

 

94.7 pounds

 

28.3 pounds

 

 

84.0 pounds

 

81.2 pounds

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

8.0

 

$

0.0

 

Equity derivatives

 

$

21.0

 

$

22.2

 

 

$

23.3

 

$

22.1

 

TheExcluding the interest rate swap lock disclosed in note 2, the fair values and amount of gain (loss) recognized in income and other comprehensive income associated with the derivative instruments disclosed above do not have a material impact on the Company’s consolidated financial statements.

64


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

 

4.

Inventories

Inventories consist of the following:

 

December 31,

 

 

December 31,

 

December 31,

 

 

December 31,

 

2018

 

 

2017

 

2020

 

 

2019

 

Raw materials and supplies

$

84.4

 

 

$

85.6

 

$

112.9

 

 

$

85.9

 

Work in process

 

34.1

 

 

 

30.8

 

 

33.0

 

 

 

29.0

 

Finished goods

 

264.3

 

 

 

214.3

 

 

349.5

 

 

 

302.5

 

Total

$

382.8

 

 

$

330.7

 

$

495.4

 

 

$

417.4

 

 

On April 1, 2018, the Company changed its method of accounting for inventories from last-in-first-out (“LIFO”) to first-in-first-out (“FIFO”) for the approximately 17% of consolidated inventory not previously valued using FIFO. Substantially all of the Company’s Specialty Products Division segment inventory as well as domestic inventory sold primarily under the ARM & HAMMER trademark in the Consumer Domestic segment was previously determined using LIFO. After this change, the value of all of the Company’s inventory was determined by the FIFO method.  The Company believes this change is preferable as the predominant method to value inventory has been FIFO, which will provide a uniform costing method across all inventory. Prior financial statements have not been retroactively adjusted due to immateriality. The cumulative effect of the change in accounting principle of approximately $4.0 pre-tax was recorded as a decrease to cost of goods sold for the quarter endingended June 30, 2018.2018.

 

 

5.

Property, Plant and Equipment, Net (“PP&E”)

PP&E consist of the following:

December 31,

 

 

December 31,

 

December 31,

 

 

December 31,

 

2018

 

 

2017

 

2020

 

 

2019

 

Land

$

27.8

 

 

$

27.9

 

$

28.3

 

 

$

27.8

 

Buildings and improvements

 

301.3

 

 

 

300.3

 

 

265.3

 

 

 

255.4

 

Machinery and equipment

 

716.7

 

 

 

699.3

 

 

793.4

 

 

 

737.4

 

Software

 

97.9

 

 

 

95.8

 

 

103.0

 

 

 

96.7

 

Office equipment and other assets

 

73.8

 

 

 

66.7

 

 

85.1

 

 

 

76.0

 

Construction in progress

 

49.7

 

 

 

36.4

 

 

86.8

 

 

 

72.9

 

Gross PP&E

 

1,267.2

 

 

 

1,226.4

 

 

1,361.9

 

 

 

1,266.2

 

Less accumulated depreciation and amortization

 

669.0

 

 

 

618.7

 

 

749.1

 

 

 

693.2

 

Net PP&E

$

598.2

 

 

$

607.7

 

$

612.8

 

 

$

573.0

 

62

 

For the Year Ended December 31,

 

 

2020

 

 

2019

 

 

2018

 

Depreciation and amortization on PP&E

$

66.2

 

 

$

63.8

 

 

$

64.4

 

6.

Acquisitions

On December 1, 2020, the Company acquired all of the outstanding equity of Consumer Health Holdco LLC, the owner of the ZICAM™ brand and cold remedy products business (the “Zicam Acquisition”).  The Company paid $512.7, net of cash acquired, at closing and deferred an additional cash payment of $20.0 related to certain indemnifications provided by the seller.  The additional amount is payable five years from the closing and is recorded in Business Acquisition Liabilities on the balance sheet.  Zicam’s annual net sales for the year ended December 31, 2020 were approximately $107.0.  The acquisition was financed by the Company with a combination of cash on hand and short-term borrowings.  The ZICAM business is managed in the Consumer Domestic segment.


65


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

 

 

The preliminary fair values of the net assets acquired are set forth as follows:

 

 

For the Year Ended December 31,

 

 

2018

 

 

2017

 

 

2016

 

Depreciation and amortization on PP&E

$

64.4

 

 

$

60.9

 

 

$

59.7

 

Inventory and other working capital

$

40.2

 

Property, plant and equipment

 

0.5

 

Trade name

 

367.8

 

Other intangible assets

 

93.8

 

Goodwill

 

151.4

 

Current liabilities

 

(13.1

)

Deferred Income Taxes

 

(107.2

)

Other long-term liabilities

 

(20.7

)

Cash purchase price (net of cash acquired)

$

512.7

 

 

The trade names and other intangible assets were valued using a discounted cash flow model.  All of the intangible assets recognized from the Zicam Acquisition have a useful life which ranges from 10 - 20 years.  The goodwill is a result of expected synergies from combined operations of the acquired business 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 goodwill and other intangible assets associated with the Zicam Acquisition are not deductible for U.S. tax purposes.

On May 1, 2019, the Company closed on its previously announced acquisition of the FLAWLESS business (the “Flawless Acquisition”) from Ideavillage Products Corporation (“Ideavillage”). The Company paid $475.0 at closing and may make an additional business acquisition liability 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. There was a six-month integration transition period in which the net cash received from Ideavillage was accounted for as other revenue as a component of net sales. The Company purchased the inventory following the transition period, at such time, the Company became the principal party to the sales transactions. The Flawless business is managed in the Consumer Domestic and Consumer International segments and represents an addition to the Company’s specialty haircare portfolio which includes BATISTE dry shampoo, VIVISCAL hair thinning supplements, and TOPPIK hair fibers.

The fair values of the net assets acquired are set forth as follows:

6.

Trade name

$

447.3

 

Other intangible assets

 

121.8

 

Goodwill

 

87.9

 

Business acquisition liability

 

(182.0

)

Cash purchase price

$

475.0

 

As 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.  All of the intangible assets recognized from the Flawless Acquisition have a useful life which ranges from 15 - 20 years.  The goodwill is a result of expected synergies from combined operations of the acquired business 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 business acquisition liability will be reassessed 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 business acquisition liability by $84.0 from $182.0 to $98.0 based on the revised valuation due to updated sales forecasts.  Ideavillage will continue to help support the business through a separate long-term transition services agreement.

Acquisitions

 

On March 8, 2018, the Company purchased Passport Food Safety Solutions, Inc. (“Passport”).  Passport sells products for pre- and post-harvest treatment in the poultry, swine, and beef production markets (the “Passport Acquisition”).  The total purchase price was approximately $50.0, which iswas 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 withshort-term borrowings and is managed in the SPD segment.  

 


66


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

The fair values of the net assets acquired are set forth as follows:

 

2018

 

Passport

 

Inventory and other working capital

$

3.3

 

$

3.3

 

Long-term assets

 

1.0

 

 

1.0

 

Trade names and other intangibles

 

28.5

 

 

28.5

 

Goodwill

 

32.5

 

 

32.5

 

Current liabilities

 

(1.1

)

 

(1.1

)

Long-term liabilities

 

(7.1

)

 

(7.1

)

Contingent consideration

 

(7.3

)

Business acquisition liability

 

(7.3

)

Cash purchase price (net of cash acquired)

$

49.8

 

$

49.8

 

 

The lifetrade names and other intangible assets were valued using a discounted cash flow model.  All of the amortizable intangible assets recognized from the Passport Acquisition have a useful life which 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.During the second quarter of 2019, the Company reduced the entire fair value of the $7.3 business acquisition liability based on the revised valuation and updated sales forecasts.  The reduction was recorded in SG&A in the SPD segment.  There was no change in the business acquisition liability for the year ended December 31, 2020.  The goodwill and other intangible assets associated with the Passport Acquisition are not deductible for U.S. tax purposes.  

 

On August 7, 2017,

7.

Goodwill and Other Intangibles, Net

The following table provides information related to the carrying value of all intangible assets, other than goodwill:

 

December 31, 2020

 

 

 

 

December 31, 2019

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Amortization

 

Gross

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

 

 

 

 

Period

 

Carrying

 

 

Accumulated

 

 

 

 

 

 

Amount

 

 

Amortization

 

 

Net

 

 

(Years)

 

Amount

 

 

Amortization

 

 

Net

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

$

1,389.6

 

 

$

(269.6

)

 

$

1,120.0

 

 

3-20

 

$

1,025.8

 

 

$

(219.7

)

 

$

806.1

 

Customer Relationships

 

659.5

 

 

 

(291.2

)

 

 

368.3

 

 

15-20

 

 

584.8

 

 

 

(255.0

)

 

 

329.8

 

Patents/Formulas

 

230.5

 

 

 

(85.3

)

 

 

145.2

 

 

4-20

 

 

211.4

 

 

 

(73.0

)

 

 

138.4

 

Non Compete Agreement

0.0

 

 

0.0

 

 

 

0.0

 

 

5-10

 

 

0.4

 

 

 

(0.4

)

 

 

0.0

 

Total

$

2,279.6

 

 

$

(646.1

)

 

$

1,633.5

 

 

 

 

$

1,822.4

 

 

$

(548.1

)

 

$

1,274.3

 

Indefinite lived intangible assets - Carrying value

 

December 31,

 

 

December 31,

 

 

2020

 

 

2019

 

Trade names

$

1,476.7

 

 

$

1,475.7

 

During the first quarter of 2020, the Company acquired Pik Holdings, Inc. (“Waterpik”),sold its PERL WEISS® toothpaste brand in Germany with a water-jet technology company that designstradename net book value of $2.7 and sells both oral water flosserscorresponding 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.

Intangible amortization expense amounted to approximately $99.9 for 2020, $90.4 for 2019 and replacement showerheads (the “Waterpik Acquisition”).  The total purchase price was $1,024.6 (net of cash acquired).  Waterpik’s annual sales were approximately $265.0$71.2 for the trailing twelve months through June 30, 2017.2018, respectively.  The Company financedestimates that intangible amortization expense will be approximately $120.3 in 2021 and approximately $116.1 to $107.4 annually over the Waterpik Acquisition with proceeds from its underwritten public offering of $1,425.0 aggregate principal amount of Senior Notes (as defined in Note 9) completed on July 25, 2017.  Subsequent to the Waterpik Acquisition, Waterpik is managed by the Consumer Domestic and Consumer International segments.next five years.

 

The Company determined that the carrying value of its trade names as of December 31, 2020 and 2019, was recoverable based upon the forecasted cash flows and profitability of the brands.  

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 fair value of all indefinite lived intangible assets for each of the net assets acquired are set forth as follows:

 

2017

 

 

Waterpik

 

Current assets

$

95.4

 

Property, plant and equipment

 

28.4

 

Trade name (indefinite lived)

 

644.7

 

Other intangible assets

 

146.1

 

Goodwill

 

425.8

 

Current liabilities

 

(31.8

)

Long-term liabilities

 

(284.0

)

Cash purchase price (net of cash acquired)

$

1,024.6

 

years in the three-year period ended December 31, 2020 exceeded their respective carrying values based upon the forecasted cash flows and profitability. However, in recent years the

The life of the amortizable intangible assets recognized from the Waterpik Acquisition will be amortized over 15 years.  The goodwill is a result of expected synergies from combined operations of the acquisition and the Company.  

6367


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

 

The following unaudited pro forma information is based onCompany’s TROJAN business, specifically the Company’s historical datacondom category, has not grown and assumptions for consolidated results of operations, and gives effect to the Waterpik Acquisition as if the acquisition occurred on January 1, 2016. These unaudited pro forma results include adjustments havingcompetition has increased resulting in a continuing impact on the Company’s consolidated statements of income. These adjustments primarily consist of adjustments to depreciation for the fair value and depreciable lives of property and equipment, amortization of intangible assets, stock compensation expense, interest expense and adjustments to tax expense based on condensed consolidated pro forma results. These results have been prepared using assumptions the Company’s management believes are reasonable, are not necessarily indicative of the actual results that would have occurred if the acquisition had occurred on January 1, 2016, and are not necessarily indicative of the results that may be achievedreduction in theexpected future including but not limited to the realization of operating synergies that the Company may realize ascash flows.  As a result, of the acquisition.

Unaudited condensed consolidated pro forma results

Twelve Months Ended

 

 

Twelve Months Ended

��

 

December 31,

 

 

December 31,

 

 

2017

 

 

2016

 

 

Reported

 

 

Pro forma

 

 

Reported

 

 

Pro forma

 

Net Sales

$

3,776.2

 

 

$

3,936.2

 

 

$

3,493.1

 

 

$

3,739.3

 

Net Income

$

743.4

 

 

$

753.4

 

 

$

459.0

 

 

$

467.2

 

Net income per share - Basic

$

2.97

 

 

$

3.01

 

 

$

1.78

 

 

$

1.81

 

Net income per share - Diluted

$

2.90

 

 

$

2.94

 

 

$

1.75

 

 

$

1.78

 

On May 1, 2017, the Company acquired Agro BioSciences, Inc. (“Agro”), an innovator and leader in developing custom probiotic products for poultry, cattle and swine (the “Agro Acquisition”).  The total purchase price was approximately $75.0, and an additional payment of up to $25.0 after 3 years based on sales performance. Agro’s annual sales were approximately $11.0 in 2016.  The Agro Acquisition was funded with short-term borrowings and is managed in the SPD segment.

The fair values of the net assets acquired are set forth as follows:

 

2017

 

 

Agro

 

Inventory and other assets

$

2.5

 

Trade names and other intangibles

 

37.0

 

Goodwill

 

53.4

 

Contingent consideration

 

(17.8

)

Cash purchase price (net of cash acquired)

$

75.1

 

The life of the amortizable intangible assets recognized from the Agro Acquisition ranges from 5 - 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 of the acquisition is not material to the Company’s consolidated financial results.  Subsequent to the acquisition, the Company increased the estimate of the contingent consideration liability $5.4 from $17.8 to $23.2 based on updated sales forecasts. However in 2018, the Company lowered its estimate by $7.5 to $15.7 based on updated sales forecasts.  The reduction was recorded in SG&A in the SPD segment.

On January 17, 2017, the Company acquired the ViviscalTROJAN business (“VIVISCAL”) from Lifes2Good Holdings Limited for $160.3 (the “Viviscal Acquisition”).  VIVISCAL is a leading hair care supplement brand both in the U.S. and the U.K. with global annual sales of $44.0 in 2016.  The VIVISCAL brand is complementary to the Company’s global BATISTE dry shampoo and TOPPIK hair care business. The Viviscal Acquisition was funded with short-term borrowings and is managed by the Consumer Domestic and Consumer International segments.

The fair values of the net assets acquired are set forth as follows:

 

 

 

 

 

2017

 

 

Viviscal

 

Inventory and other working capital

$

10.3

 

Trade names and other intangibles

 

119.6

 

Goodwill

 

36.9

 

Current liabilities

 

(6.5

)

Cash purchase price (net of cash acquired)

$

160.3

 

64


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

The life of the amortizable intangible assets recognized from the Viviscal Acquisition ranges from15 - 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.  

On December 22, 2016, the Company acquired the ANUSOL and RECTINOL business from Johnson & Johnson, Inc. for $130 (the “Anusol Acquisition”).  ANUSOL and RECTINOL are the leading hemorrhoid care brands in each market in which they operate, primarily in the U.K., Canada, Australia and South Africa with total annual sales of $24 in 2016.  The Anusol Acquisition was funded with additional short-term borrowings and is managed in the Consumer International segment.

The fair values of the net assets acquired are set forth as follows:

 

2016

 

 

Anusol

 

Inventory and other working capital

$

0.5

 

Trade names and other intangibles

 

91.7

 

Goodwill

 

37.8

 

Cash purchase price

$

130.0

 

The life of the amortizable intangible assets recognized from the Anusol 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 is not material to the Company’s consolidated financial results.

On January 4, 2016, the Company acquired Spencer Forrest, Inc., the maker of TOPPIK, the leading brand of hair building fibers for people with thinning hair for a total purchase price was $175.3 (the “Toppik Acquisition”).  The Company financed the TOPPIK Acquisition with short-term borrowings.  The TOPPIK brand is managed in the Consumer Domestic and Consumer International segments.  

The fair values of the net assets acquired are set forth as follows:

 

2016

 

 

Toppik

 

Inventory and other working capital

$

9.3

 

Property, plant and equipment and other long-term assets

 

0.2

 

Trade names and other intangibles

 

115.8

 

Goodwill

 

52.3

 

Current liabilities

 

(2.3

)

Cash purchase price (net of cash acquired)

$

175.3

 

The life of the amortizable intangible assets recognized from the Toppik Acquisition ranges from 10 - 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 is not material to the Company’s consolidated financial results.

The goodwill and other intangible assets associated with the Waterpik Acquisition and the Passport Acquisition are not deductible for U.S. tax purposes.  The goodwill and other intangible assets associated with the Agro, Viviscal, Anusol, and Toppik Acquisitions are deductible for U.S. tax purposes.

65


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

7.

Goodwill and Other Intangibles, Net

The following table provides information related to the carrying value of all intangible assets, other than goodwill:

 

December 31, 2018

 

 

 

 

December 31, 2017

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Amortization

 

Gross

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

 

 

 

 

Period

 

Carrying

 

 

Accumulated

 

 

 

 

 

 

Amount

 

 

Amortization

 

 

Net

 

 

(Years)

 

Amount

 

 

Amortization

 

 

Net

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

$

578.6

 

 

$

(175.2

)

 

$

403.4

 

 

3-20

 

$

576.7

 

 

$

(145.2

)

 

$

431.5

 

Customer Relationships

 

506.3

 

 

 

(220.8

)

 

 

285.5

 

 

15-20

 

 

480.5

 

 

 

(190.2

)

 

 

290.3

 

Patents/Formulas

 

165.4

 

 

 

(61.5

)

 

 

103.9

 

 

4-20

 

 

165.4

 

 

 

(51.7

)

 

 

113.7

 

Non-Compete Agreement

 

0.4

 

 

 

(0.3

)

 

 

0.1

 

 

5-10

 

 

0.4

 

 

 

(0.2

)

 

 

0.2

 

Total

$

1,250.7

 

 

$

(457.8

)

 

$

792.9

 

 

 

 

$

1,223.0

 

 

$

(387.3

)

 

$

835.7

 

Indefinite lived intangible assets - Carrying value

 

December 31,

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

Trade names

$

1,481.1

 

 

 

 

 

 

 

 

$

1,484.8

 

 

 

 

 

The Company determined that the carrying value of its trade names as of December 31, 2018 and 2017, was recoverable based upon the forecasted cash flows and profitability of the brands.  In 2017 there was a personal care trade name that, based on recent performance, hadhas experienced sales and profit declines that hadhas eroded a significant portion of the excess between the fair and carrying value of the tradename, which could potentially result in an impairmentimpairment.  The carrying value of the asset.  In 2017, this excess had beenTROJAN tradename is $176.4 and fair value exceeded carrying value by 53% as of December 31, 2020.  The key assumptions used in the projections from the Company’s October 1, 2020 impairment analysis include discount rates of 7.0% in the U.S. and 9.0% internationally, growth assumptions commensurate with its outlook for the brand and the category, and an average royalty rate of approximately 10%.  These discount rates were reduced dueby 250 basis points from the October 1, 2019 impairment analysis to reflect the inherent reduction in large part to an increased competitive market environment therefore resulting in reduced cash flow projections. The performancethe risk profile of the tradename improvedCompany’s cash flows.  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 2018, thereby increasingnew product ideas, and developing new creative advertising, significant changes in operating plans or adverse changes in the excess betweenfuture could reduce the underlying cash flows used to estimate fair value.  This could result in a decline in fair value and carrying value.that could trigger a future impairment charge of the tradename.  The Company continues to monitor performance and should there be any significant changeCompany’s indefinite lived intangible impairment review is completed in forecasted assumptions or estimates, including sales, profitability and discount rate, the Company may be required to recognize an impairment charge.       

Intangible amortization expense amounted to approximately $71.2 for 2018, $61.0 for 2017 and $46.0 for 2016, respectively.  The Company estimates that intangible amortization expense will be approximately $70.0 in 2019 and approximately $68.0 to $59.0 annually over the next five years.

During the fourth quarter of 2017,each year.  

The Company has continued to experience a significant increase in consumer demand for many of its products that began in March of 2020, including VITAFUSION and L’IL CRITTERS gummy vitamins, A&H Liquid laundry detergent, A&H baking soda, and A&H cat litter and KABOOM bathroom cleaners.  On the other hand, 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 these brands derive a significant proportion of sales.  The Company’s WATERPIK business had been negatively impacted by the temporary closure of dental offices across the United States in the first half of the year but had positive sales growth in the second half and full year as dental offices have re-opened.  The Company determined thatis monitoring the impact the pandemic 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 its intangible asset carrying values. 

In addition, the Company’s Passport Food Safety business, under pressure as a Consumer Domestic tradename should be re-characterized from indefinite lived to finite lived assets. This conclusion was based upon lower forecastedresult of theCOVID-19 pandemic and new competitive activities, is experiencing sales and profitabilityprofit declines due to closures of meat processing plants and competitive pressures. This change was made after the annual impairment test was performeddecreased demand for its products that could result in which an impairment was not indicated.of the associated tradename and other intangible assets. The carryingassets have a current net book value of this tradename as of December 31, 2017 was approximately $22.0 million$23.0 and isare being amortized over 20 years based upontheir remaining weighted average life of 12 years.  The Company is implementing strategies to address the estimated cash flows.decline, however if unsuccessful, this decline could trigger a future impairment charge.

The changes in the carrying amount of goodwill for the years ended December 31, 20182020 and 20172019 are as follows:

 

 

Consumer

 

 

Consumer

 

 

Specialty

 

 

 

 

 

 

Domestic

 

 

International

 

 

Products

 

 

Total

 

Balance at December 31, 2016

$

1,280.1

 

 

$

113.9

 

 

$

50.1

 

 

$

1,444.1

 

VIVISCAL acquired goodwill

 

29.5

 

 

 

7.4

 

 

 

0.0

 

 

$

36.9

 

Agro acquired goodwill

 

0.0

 

 

 

0.0

 

 

 

53.4

 

 

$

53.4

 

Waterpik acquired goodwill

 

322.5

 

 

 

101.8

 

 

 

0.0

 

 

$

424.3

 

Other

 

0.0

 

 

 

0.2

 

 

 

0.0

 

 

 

0.2

 

Balance at December 31, 2017

$

1,632.1

 

 

$

223.3

 

 

$

103.5

 

 

$

1,958.9

 

Passport acquired goodwill

 

0.0

 

 

 

0.0

 

 

 

32.5

 

 

 

32.5

 

Waterpik adjustment

 

1.1

 

 

 

0.4

 

 

 

0.0

 

 

 

1.5

 

Balance at December 31, 2018

$

1,633.2

 

 

$

223.7

 

 

$

136.0

 

 

$

1,992.9

 

 

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 December 31, 2019

$

1,707.9

 

 

$

235.6

 

 

$

136.0

 

 

$

2,079.5

 

PERL WEISS divestiture

 

0.0

 

 

 

(1.3

)

 

 

0.0

 

 

 

(1.3

)

Zicam acquired goodwill

 

151.4

 

 

 

0.0

 

 

 

0.0

 

 

 

151.4

 

Balance at December 31, 2020

$

1,859.3

 

 

$

234.3

 

 

$

136.0

 

 

$

2,229.6

 

 

66


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

The result of the Company’s annual goodwill impairment test, performed in the beginning of the second quarter of 2018,2020, 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.

 

68


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

 

8.

Accounts Payable and Accrued ExpensesLeases

Accounts payable

The Company leases certain manufacturing facilities, warehouses, office space, railcars and accrued expenses consistequipment. 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 following:Company’s lease information is as follows:  

 

 

December 31,

 

 

December 31,

 

 

Classification

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Right of use assets

Other Assets

$

181.6

 

 

$

150.7

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current lease liabilities

Accounts Payable and Accrued Expenses

$

25.0

 

 

$

16.4

 

Long-term lease liabilities

Deferred and Other Long-term Liabilities

 

168.3

 

 

 

144.0

 

Total lease liabilities

 

$

193.3

 

 

$

160.4

 

 

 

 

 

 

 

 

 

 

Other information

 

 

 

 

 

 

 

 

Weighted-average remaining lease term (years)

 

 

9.7

 

 

 

11.1

 

Weighted-average discount rate

 

 

4.3

%

 

 

4.9

%

 

 

December 31,

 

 

December 31,

 

 

2018

 

 

2017

 

Trade accounts payable

$

430.2

 

 

$

398.9

 

Accrued marketing and promotion costs

 

116.2

 

 

 

108.4

 

Accrued wages and related benefit costs

 

84.2

 

 

 

61.8

 

Other accrued current liabilities

 

94.5

 

 

 

90.0

 

Total

$

725.1

 

 

$

659.1

 

 

 

Twelve Months

 

 

Twelve Months

 

 

 

Ended

 

 

Ended

 

 

 

December 31, 2020

 

 

December 31, 2019

 

Statement of Income

 

 

 

 

 

 

 

 

Lease cost(1)

 

$

27.7

 

 

$

24.6

 

 

 

 

 

 

 

 

 

 

Other information

 

 

 

 

 

 

 

 

Leased assets obtained in exchange for new lease liabilities(2)

 

$

50.4

 

 

$

61.1

 

Cash paid for amounts included in the measurement of lease liabilities

 

$

25.6

 

 

$

24.3

 

9.

Short-Term Borrowings(1)

Lease expense is included in cost of sales or SG&A expenses based on the nature of the leased item.  Short-term lease expense is excluded from this amount and Long-Term Debtis not material.  The Company also has certain variable leases which are not material.  The noncash component of lease expense for the twelve months ended December 31, 2020 and 2019 was $20.1 and $17.9 and is included in the Amortization caption in the condensed consolidated statement of cash flows.

(2)

In October 2020, the Company entered into an agreement with a third-party warehouse provider.  This resulted in an increase to the Company’s right of use assets and corresponding lease liabilities of approximately $24.2.  In March 2020, the Company approved a capital project to purchase additional machinery and equipment at one of its leased manufacturing facilities. This led to a lease modification to include a renewal option that would extend the lease for an additional five years through 2029.  The modification resulted in an increase to the Company’s right of use assets and corresponding lease liabilities of approximately $7.3 recorded in the first quarter of 2020.  In June 2019, the Company amended an operating lease for one of its manufacturing facilities to extend the lease an additional ten years through 2033.  The amendment resulted in an increase to the Company’s right of use assets and corresponding lease liabilities of approximately $53.0 recorded in the second quarter of 2019.

Short-term borrowings and long-term debt consist of the following:

 

December 31,

 

 

December 31,

 

 

2018

 

 

2017

 

Short-term borrowings

 

 

 

 

 

 

 

Commercial paper issuances

$

0.0

 

 

$

268.7

 

Various debt due to international banks

 

1.8

 

 

 

2.2

 

Total short-term borrowings

$

1.8

 

 

$

270.9

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

 

 

 

 

 

Floating Rate Senior notes due January 25, 2019

$

300.0

 

 

$

300.0

 

2.45% Senior notes due December 15, 2019

 

300.0

 

 

 

300.0

 

Less: Discount

 

0.0

 

 

 

(0.1

)

2.45% Senior notes due August 1, 2022

 

300.0

 

 

 

300.0

 

Less: Discount

 

(0.3

)

 

 

(0.3

)

2.875% Senior notes due October 1, 2022

 

400.0

 

 

 

400.0

 

Less: Discount

 

(0.1

)

 

 

(0.2

)

3.15% Senior notes due August 1, 2027

 

425.0

 

 

 

425.0

 

Less: Discount

 

(0.4

)

 

 

(0.4

)

3.95% Senior notes due August 1, 2047

 

400.0

 

 

 

400.0

 

Less: Discount

 

(2.8

)

 

 

(2.9

)

Debt issuance costs, net

 

(13.1

)

 

 

(15.5

)

Fair value adjustment asset (liability) related to hedged fixed rate debt instrument

 

(3.0

)

 

 

(2.2

)

Total long-term debt

 

2,105.3

 

 

 

2,103.4

 

Less: current maturities

 

(596.5

)

 

 

0.0

 

Net long-term debt

$

1,508.8

 

 

$

2,103.4

 


Revolving Credit Facility

On March 29, 2018, we replaced our former $1,000.0 unsecured revolving credit facility that was scheduled to terminate on December 4, 2020 with a new $1,000.0 unsecured revolving credit facility (the “Credit Agreement”).  Under the Credit Agreement, we 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

6769


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

 

The Company’s minimum annual rentals including reasonably assured renewal options under lease agreements are as follows:

 

 

Operating

 

 

 

Leases

 

2021

 

$

32.2

 

2022

 

 

30.3

 

2023

 

 

25.5

 

2024

 

 

23.4

 

2025

 

 

22.3

 

2026 and thereafter

 

 

106.6

 

Total future minimum lease commitments

 

 

240.3

 

Less: Imputed Interest

 

 

(47.0

)

Present value of lease liabilities

 

$

193.3

 

9.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

 

December 31,

 

 

December 31,

 

 

2020

 

 

2019

 

Trade accounts payable

$

588.1

 

 

$

473.3

 

Accrued marketing and promotion costs

 

177.8

 

 

 

138.1

 

Accrued wages and related benefit costs

 

124.2

 

 

 

96.5

 

Other accrued current liabilities

 

134.4

 

 

 

124.0

 

Total

$

1,024.5

 

 

$

831.9

 

10.

Short-Term Borrowings and Long-Term Debt

Short-term borrowings and long-term debt consist of the following:

 

December 31,

 

 

December 31,

 

 

2020

 

 

2019

 

Short-term borrowings

 

 

 

 

 

 

 

Commercial paper issuances

$

349.0

 

 

$

248.6

 

Various debt due to international banks

 

2.4

 

 

 

4.3

 

Total short-term borrowings

$

351.4

 

 

$

252.9

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

 

 

 

 

 

Term loan due May 1, 2022

 

300.0

 

 

 

300.0

 

2.45% Senior notes due August 1, 2022

 

300.0

 

 

 

300.0

 

Less: Discount

 

(0.1

)

 

 

(0.2

)

2.875% Senior notes due October 1, 2022

 

400.0

 

 

 

400.0

 

Less: Discount

 

(0.1

)

 

 

(0.1

)

3.15% Senior notes due August 1, 2027

 

425.0

 

 

 

425.0

 

Less: Discount

 

(0.3

)

 

 

(0.3

)

3.95% Senior notes due August 1, 2047

 

400.0

 

 

 

400.0

 

Less: Discount

 

(2.6

)

 

 

(2.7

)

Debt issuance costs, net

 

(9.4

)

 

 

(11.5

)

Net long-term debt

$

1,812.5

 

 

$

1,810.2

 

Revolving Credit Facility

On May 1, 2019, the Company amended 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 has the ability to increase its borrowing up to an additional $600.0, subject to lender commitments and certain conditions as described in the Credit

70


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

Agreement.  Borrowings under the Credit Agreement are available for general corporate purposes and are used to support ourthe Company’s $1,000.0 commercial paper program.  Unless extended,In March 2020, the Company drew down a total amount of $825.0 under the Revolving Credit Agreement will terminateFacility. The Company initiated borrowings under the Revolving Credit Facility as a precautionary measure to increase its cash position and all amounts outstanding thereunder will be due and payable on March 29, 2023.  preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic.  The full $825.0 was repaid in May 2020. 

Interest on the Company’s borrowings under the Credit Agreement will accrue at a per annum rate equal to the sum of (x) either (at the Company’s option) (i) the adjusted LIBOR rate (generally, the LIBOR rate for an interest period selected by the Company and adjusted for statutory reserves) or (ii) the Base Rate (generally equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) Bank of America’s “prime rate” and (c) the adjusted LIBOR rate for an interest period of one-month plus 1.00%), in any case not less than zero, plus (y) the applicable margin. The applicable margin is determined based upon the corporate credit rating of the Company and ranges from 0.875% to 1.500% per annum, in the case of any borrowing bearing interest by reference to the adjusted LIBOR rate, and 0% to 0.50%, in the case of any borrowing bearing interest by reference to the Base Rate. In addition, the Company will bear certain customary fees, including a commitment fee, determined based upon the corporate credit rating of the Company and ranging from 0.070% to 0.175% per annum on the aggregate unused commitments under the Credit Agreement, and additional issuance fees and participation fees in respect of any letters of credit issued under the Credit Agreement.

The Credit Agreement contains customary affirmative and negative covenants, including without limitation, restrictions on the indebtedness, liens, investments, asset dispositions, fundamental changes, changes in the nature of the business conducted, affiliate transactions, burdensome agreements and use of proceeds.  

Under the Credit Agreement, the Company is required to maintain its leverage ratio, defined as the ratio of its Consolidated Funded Indebtedness (as defined in the Credit Agreement) to EBITDA, at a level no greater than 3.75 to 1.00 (or, to the extent the Company or any Subsidiary has consummated a material acquisition , (i) at a level no greater than 4.25:1.00 for the 12 month period commencing on the date the Company or any Subsidiary consummates the first material acquisition after the closing date and (ii) at a level no greater than 4.25:1.00 for the 12 month period commencing on the date the Company or any Subsidiary consummates any additional material acquisition, provided that the Company has maintained a leverage ratio of 3:75:1.00 or less during each of the immediately preceding four consecutive fiscal quarters before the date of such additional material acquisition).

The Credit Agreement also contains customary events of default, including failure to make certain payments under the Credit Agreement when due, breach of covenants, materially incorrect representations and warranties, default on other material indebtedness, events of bankruptcy, material adverse judgments, certain events relating to pension plans, the failure of any of the loan documents to remain in full force and effect and the occurrence of any change in control with respect to the Company.

$1.425M Senior Notes

The Company financed the Waterpik Acquisition with a portion of the proceeds from an underwritten public offering of $1,425.0 aggregate principal amount of Senior Notes completed on July 25, 2017, consisting of $300.0 aggregate principal amount of Floating Rate Senior Notes that were due in 2019 and fully repaid, $300.0 aggregate principal amount of 2.45% Senior Notes due 2022, $425.0 aggregate principal amount of 3.15% Senior Notes due 2027 and $400.0 aggregate principal amount of 3.95% Senior Notes due 2047 (collectively, the “Senior Notes”).  The Floating Rate Senior Notes which matured and were repaid in full on January 25, 2019, bore interest at a rate, reset quarterly, equal to three-month U.S. Dollar London Interbank Offered Rate (“LIBOR”)LIBOR plus 0.15%.  The remaining proceeds of the offering of the Senior Notes were used to pay down in its entirety and terminate the Company’s $200.0 term loan borrowed in the second quarter of 2017 and to repay a portion of the Company’s outstanding commercial paper borrowings.

2.45% Senior Notes

On December 9, 2014, the Company issued $300.0 aggregate principal amount of 2.45% Senior Notes due 2019 (the “2019 Notes”). The 2019These Notes were issued underrepaid in full in the first supplemental indenture (the “First Supplemental Indenture”), dated December 9, 2014, tofourth quarter of 2019 with cash on hand and proceeds from the indenture dated December 9, 2014 (the “Base Indenture”), between the Company and Wells Fargo Bank, N.A., as trustee.  Interest on the 2019 Notes is payable semi-annually, on each June 15 and December 1.  The 2019 Notes will mature on December 15, 2019, unless earlier retired or redeemed.issuance of commercial paper borrowings.

2.875% Senior Notes

On September 26, 2012, the Company issued $400.0 aggregate principal amount of 2.875% Senior Notes due 2022 (the “2022 Notes”).  The 2022These Notes were issued under the second supplemental indenture dated September 26, 2012 (the “BNY Mellon Second Supplemental Indenture”) to the indenture dated December 15, 2010 (the “BNY Mellon Base Indenture”) between the Company and The Bank of New York Mellon Trust Company, N.A. (“BNY Mellon”), as trustee.  Interest on the 2022 Notes is payable semi-annually, on each April 1 and October 1.  The 2022 Notes will mature on October 1, 2022, unless earlier retired or redeemed.

6871


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

 

May 1, 2022 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.

Commercial Paper

The Company has an agreement with four banks to establish a commercial paper program (the “Program”).  Under the Program, the Company may issue notes from time to time up to an aggregate principal amount outstanding at any given time of $1,000.0.  The Program was amended on February 23, 2017 to increase the amount from $500.0 to $1,000.0.  The maturities of the notes will vary but may not exceed 397 days.  The notes will be sold under customary terms in the commercial paper market and will be issued at a discount to par or, alternatively, will be sold at par and will bear varying interest rates based on a fixed or floating rate basis.  The interest rates will vary based on market conditions and the ratings assigned to the notes by the rating agencies designated in the agreement at the time of issuance.  Subject to market conditions, the Company intends to utilize the Program as its primary short-term borrowing facility and does not intend to sell unsecured commercial paper notes in excess of the available amount under the revolving credit agreement.  If, for any reason, the Company is unable to access the commercial paper market, the revolving credit facility would be utilized to meet the Company’s short-term liquidity needs.  The Company did not have anyhad $349.0 of commercial paper outstanding as of December 31, 2018 and had $268.7 as of December 31, 20172020 with a weighted-average interest rate of approximately 1.6%0.26% and had $248.6 of commercial paper outstanding as of December 31, 2019 with a weighted-average interest rate of approximately 1.92%.

Interest Rate Swaps

Concurrent with the 20192.45% Senior Notes offering,that matured in December of 2019, the Company entered into interest rate swaps to hedge changes in the fair value of the 2019these Notes.  Under the terms of the swaps, the counterparties will paypaid the Company a fixed rate of 2.45% and the Company will paypaid interest at a floating rate of three-month LIBOR plus a fixed spread of 0.756%.  The fair value of these interest rate swap agreements iswas reflected in the Consolidated Balance Sheet within Other Current Assets or Accounts Payable and Accrued Expenses, with an offsetting amount recorded in the Current portion of long-term debt to adjust the carrying amount of the hedged debt obligation.      obligation until this derivative was settled in December of 2019.     

Interest Rate Swap Lock Agreement

The Company entered into interest rate swap lock agreements to hedge the risk of changes in the interest payments attributable to changes in the benchmark LIBOR interest rate associated with anticipated issuances of debt.  The notional amount of the interest rate swap locks is $300.0. These interest rate swap lock agreements have been designated as hedges of the changes in fair value of the underlying debt obligation attributable to changes in interest rates and are accounted as fair value hedges.  The fair value of these interest rate swap lock agreements is reflected in the Consolidated Balance Sheet within Deferred and Other Long-term Liabilities.

 

 

10.11.

Income Taxes

The components of income before taxes are as follows:

 

 

2018

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

 

2018

 

Domestic

 

$

671.8

 

 

$

683.2

 

 

$

665.0

 

 

$

921.6

 

 

$

726.7

 

 

$

671.8

 

Foreign

 

 

47.7

 

 

 

9.5

 

 

 

40.9

 

 

 

52.2

 

 

 

47.0

 

 

 

47.7

 

Total

 

$

719.5

 

 

$

692.7

 

 

$

705.9

 

 

$

973.8

 

 

$

773.7

 

 

$

719.5

 

The following table summarizes the provision for U.S. federal, state and foreign income taxes:

 

 

2018

 

 

2017

 

 

2016

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. federal

 

$

103.4

 

 

$

146.7

 

 

$

183.4

 

State

 

 

23.4

 

 

 

29.0

 

 

 

27.2

 

Foreign

 

 

13.0

 

 

 

11.2

 

 

 

11.4

 

 

 

 

139.8

 

 

 

186.9

 

 

 

222.0

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. federal

 

 

5.4

 

 

 

(235.0

)

 

 

19.2

 

State

 

 

4.6

 

 

 

3.8

 

 

 

4.1

 

Foreign

 

 

1.1

 

 

 

(6.4

)

 

 

1.6

 

 

 

 

11.1

 

 

 

(237.6

)

 

 

24.9

 

Total provision

 

$

150.9

 

 

$

(50.7

)

 

$

246.9

 

6972


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

 

 

The following table summarizes the provision for U.S. federal, state and foreign income taxes:

 

 

2020

 

 

2019

 

 

2018

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. federal

 

$

114.2

 

 

$

117.2

 

 

$

103.4

 

State

 

 

32.1

 

 

 

24.9

 

 

 

23.4

 

Foreign

 

 

15.9

 

 

 

10.1

 

 

 

13.0

 

 

 

 

162.2

 

 

 

152.2

 

 

 

139.8

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. federal

 

 

22.9

 

 

 

3.6

 

 

 

5.4

 

State

 

 

4.2

 

 

 

(0.5

)

 

 

4.6

 

Foreign

 

 

(1.4

)

 

 

2.5

 

 

 

1.1

 

 

 

 

25.7

 

 

 

5.6

 

 

 

11.1

 

Total provision

 

$

187.9

 

 

$

157.8

 

 

$

150.9

 

Deferred tax assets (liabilities) consist of the following at December 31:

 

2018

 

 

2017

 

 

2020

 

 

2019

 

Deferred tax assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$

3.4

 

 

$

3.7

 

 

$

6.8

 

 

$

3.8

 

Deferred compensation

 

 

44.8

 

 

 

45.5

 

 

 

48.6

 

 

 

47.7

 

Pension, postretirement and postemployment benefits

 

 

5.8

 

 

 

7.5

 

 

 

6.3

 

 

 

5.6

 

Other

 

 

22.1

 

 

 

23.4

 

 

 

19.9

 

 

 

18.5

 

Tax credit carryforwards/other tax attributes

 

 

10.7

 

 

 

3.9

 

 

 

17.9

 

 

 

9.0

 

International operating loss carryforwards

 

 

10.8

 

 

 

11.6

 

 

 

8.7

 

 

 

11.4

 

Interest rate swaps

 

 

14.2

 

 

 

7.4

 

Total gross deferred tax assets

 

 

97.6

 

 

 

95.6

 

 

 

122.4

 

 

 

103.4

 

Valuation allowances

 

 

(24.5

)

 

 

(23.5

)

 

 

(22.6

)

 

 

(23.2

)

Total deferred tax assets

 

 

73.1

 

 

 

72.1

 

 

 

99.8

 

 

 

80.2

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

(165.6

)

 

 

(153.6

)

 

 

(226.9

)

 

 

(184.5

)

Trade names and other intangibles

 

 

(420.1

)

 

 

(411.8

)

 

 

(520.4

)

 

 

(414.1

)

Property, plant and equipment

 

 

(62.1

)

 

 

(65.8

)

 

 

(56.1

)

 

 

(59.7

)

Total deferred tax liabilities

 

 

(647.8

)

 

 

(631.2

)

 

 

(803.4

)

 

 

(658.3

)

Net deferred tax liability

 

$

(574.7

)

 

$

(559.1

)

 

$

(703.6

)

 

$

(578.1

)

Long term net deferred tax asset

 

 

1.7

 

 

 

2.1

 

 

 

3.7

 

 

 

1.5

 

Long term net deferred tax liability

 

 

(576.4

)

 

 

(561.2

)

 

 

(707.3

)

 

 

(579.6

)

Net deferred tax liability

 

$

(574.7

)

 

$

(559.1

)

 

$

(703.6

)

 

$

(578.1

)

73


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ��� (Continued)

(In millions, except share and per share data)

 

The difference between tax expense and the tax that would result from the application of the federal statutory rate is as follows:

 

 

2018

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

 

2018

 

Statutory rate

 

 

21

%

 

 

35

%

 

 

35

%

 

 

21

%

 

 

21

%

 

 

21

%

Tax that would result from use of the federal statutory rate

 

$

151.1

 

 

$

242.4

 

 

$

247.1

 

 

$

204.5

 

 

$

162.4

 

 

$

151.1

 

State and local income tax, net of federal effect

 

 

22.1

 

 

 

21.4

 

 

 

20.3

 

 

 

28.7

 

 

 

19.3

 

 

 

22.1

 

Varying tax rates of foreign affiliates

 

 

3.3

 

 

 

(0.1

)

 

 

(4.1

)

 

 

2.8

 

 

 

1.8

 

 

 

3.3

 

Benefit from domestic manufacturing deduction

 

 

0.0

 

 

 

(15.2

)

 

 

(14.2

)

Valuation Allowances

 

 

1.0

 

 

 

(6.2

)

 

 

2.9

 

 

 

2.9

 

 

 

0.9

 

 

 

1.0

 

Stock Options Exercised

 

 

(22.1

)

 

 

(15.1

)

 

 

0.0

 

 

 

(29.4

)

 

 

(16.1

)

 

 

(22.1

)

US Tax Reform

 

 

0.0

 

 

 

(272.9

)

 

 

0.0

 

Worthless Stock Deduction - Investment in Brazil

 

 

0.0

 

 

 

(12.0

)

 

 

0.0

 

Reserve for Uncertain Tax Position - Investment in Brazil

 

 

(10.6

)

 

 

12.0

 

 

 

0.0

 

Other

 

 

(4.5

)

 

 

(5.0

)

 

 

(5.1

)

 

 

(11.0

)

 

 

(10.5

)

 

 

(4.5

)

Recorded tax expense

 

$

150.9

 

 

$

(50.7

)

 

$

246.9

 

 

$

187.9

 

 

$

157.8

 

 

$

150.9

 

Effective tax rate

 

 

21.0

%

 

 

-7.3

%

 

 

35.0

%

 

 

19.3

%

 

 

20.4

%

 

 

21.0

%

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly changed the U.S. corporate income tax regime by, among other things, lowering U.S. corporate income tax rates to 21%. However, the Tax Act eliminated the domestic manufacturing deduction and moves toward a territorial system, which also eliminated the ability to credit certain foreign taxes that existed prior to enactment of the Tax Act. As part of the transition to the new territorial tax system, the Tax Act imposed a one-time repatriation tax on a deemed repatriation of historical earnings of foreign subsidiaries. In the year ended December 31, 2018, the Company repatriated approximately $150.0 of its non-U.S. earnings and paid the associated withholding tax.  In addition, the reduction of the U.S. corporate tax rate caused the Company to adjust its U.S. deferred tax assets and liabilities to the lower federal base rate of 21%. These provisional impacts resulted in a reduction of tax expense of approximately $273.0 for the quarter and year ended December 31, 2017. This was primarily due to the adjustment to the U.S. deferred tax assets and liabilities.

The changes included in the Tax Act are broad and complex. The Commission has issued guidance that allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the provisional tax impact originally recorded in the quarter and year ended December 31, 2017. This measurement period expired in the fourth quarter of 2018, and there

70


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

were no adjustments to the provisional tax impact of approximately $273.0 recorded in the quarter and year ended December 31, 2017.

  

At December 31, 2018,2020, certain foreign subsidiaries of the Company had net operating loss carryforwards of approximately $34.0.$27.2.  Approximately $0.6$0.3 of such net operating loss carryforwards expire on various dates through December 31, 2023.2024.  The remaining net operating loss carryforwards are not subject to expiration.

 

The Company believes that it is more likely than not that the benefit from most of these net operating loss carryforwards will not be realized.  In recognition of this risk, the Company has provided a valuation allowance of $10.3$8.7 and $11.2$11.4 at December 31, 20182020 and 2017,2019, respectively, on the deferred tax asset relating to these net operating loss carryforwards.

 

The Company also believes that it is more likely than not that the benefit from certain additional deferred tax assets of a foreign subsidiary will not be realized.  In recognition of this risk, the Company maintains a valuation allowance of $1.9$1.3 and $2.4$1.3 at December 31, 20182020 and 2017,2019, respectively, on these deferred tax assets.  

Due to changes in the ability to credit certain foreign taxes resulting from the Tax Act, the

The Company has determined that it is more likely than not that the benefit from certain foreign tax credit carryforwards will not be realized.  In recognition of this risk, the Company established a valuation allowance of $9.9 at December 31, 2017 and maintained a valuation allowance of $12.3$12.6 and $10.5 at December 31, 20182020 and December 31, 2019, respectively, on the deferred tax asset relating to these foreign tax credit carryforwards.  

In 2015, the Company reported an impairment charge relating to its investment in Natronx.  At the time, the Company believed that it was more likely than not that a tax benefit relating to the impairment would not be realized.  In recognition of this risk, the Company established a valuation allowance of $7.7 in 2015.  

The Company has since determined that it was more likely thandoes not that the tax benefit relating to the impairment would be realized and reversed the valuation allowance in 2017.

The Tax Act imposed a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries in 2017, and moved toward a territorial tax system.  As a result, the Company will no longer have any undistributed earnings of foreign subsidiaries that are considered to be permanently reinvested outside of the U.S.

The Company has recorded liabilities in connection with uncertain tax positions, which, although supportable by the Company, may be challenged by tax authorities.  Under applicable accounting guidance, these tax positions do not meet the minimum threshold required for the related tax benefit to be recognized in the income statement.  The Company had no uncertain tax positions or unrecognized tax benefits at December 31, 2017 and 2016.  

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

 

2018

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

 

2018

 

Unrecognized tax benefits at January 1

 

$

0.0

 

 

$

0.0

 

 

$

0.0

 

 

$

18.9

 

 

$

4.7

 

 

$

0.0

 

Gross increases - tax positions in current period

 

 

0.0

 

 

 

13.2

 

 

 

0.0

 

Gross increases - tax positions in prior period

 

 

5.1

 

 

 

0.0

 

 

 

0.0

 

 

 

1.6

 

 

 

1.4

 

 

 

5.1

 

Gross decreases - tax positions in prior period

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(11.8

)

 

 

0.0

 

 

 

0.0

 

Settlements

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

Decreases due to settlements and payments

 

 

(1.4

)

 

 

0.0

 

 

 

0.0

 

Lapse of statute of limitations

 

 

(0.4

)

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(0.4

)

 

 

(0.4

)

Unrecognized tax benefits at December 31

 

$

4.7

 

 

$

0.0

 

 

$

0.0

 

 

$

7.3

 

 

$

18.9

 

 

$

4.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During 2019 the Company ceased conducting business in Brazil and recorded a $12.0 reserve for an uncertain tax position relating to a worthless stock deduction for its investment in Brazil.  The Company requested a ruling from the IRS in connection with the worthless stock deduction.  During 2020 the Company reached a settlement with the IRS for $1.4 relating to the worthless stock deduction and released the related $12.0 reserve,which resulted in a $10.6 income tax benefit.  

74


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

 

Included in the balance of unrecognized tax benefits at December 31, 2020, December 31, 2019 and December 31, 2018 isare $6.2, $18.0 and $3.9, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of unrecognized tax benefits at December 31, 2020, December 31, 2019 and December 31, 2018 isare $1.1, $0.9 and $0.8, respectively, of tax benefits that, if recognized, would result in adjustments to deferred taxes.

 

The Company is subject to U.S. federal income tax as well as income tax in multiple state and international jurisdictions.  The IRS has completed its audit ofCompany’s U.S. federal income tax returns are closed for tax years through 2014.2016.  The Company is currently under audit by several state and international taxing authorities for the years 20132015 through 2016.  In addition, certain statutes of limitations are scheduled to expire in the near future.2018. It is reasonably possible that a decrease of approximately $0.4$0.7 in the unrecognized tax benefits may occur within the next twelve months related to the settlement of these audits or the lapse of applicable statutes of limitations.

71


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

 

The Company’s policy for recording interest associated with income tax examinations is to record interest as a component of Income before Income Taxes. During the twelve months ended December 31, 2020, December 31, 2019, and December 31, 2018, the Company recognized approximately $0.2 in interest expense associated with uncertain tax positions.positions of approximately $0.4, $0.4 and $0.2, respectively. As of December 31, 2020, December 31, 2019, and December 31, 2018 the Company had $0.3 in accrued interest expense related to unrecognized tax benefits.benefits of $1.0, $0.6 and $0.3, respectively.    

 

11.12.Stock Based Compensation Plans and Other Benefit Plans

The Company has non-qualified options outstanding under four4 equity compensation plans.  Under the Amended and Restated Omnibus Equity Plan, the Company may grant stock options and other stock-based awards to employees and directors.  Under the 1983 Stock Option Plan and the Stock Award Plan, the Company granted stock options to key management employees.  Under the Stock Option Plan for Directors, the Company granted stock options to non‑employee directors.  Following adoptionapproval of the original Omnibus Equity Plan by stockholders in 2008, no further grants were permitted under the other equity compensation plans.  OptionsStock options outstanding under the plans are issued at market value on the date of grant (with the exception of options granted to former WaterpikWATERPIK employees as part of the Waterpik Acquisition), vest on the third anniversary of the date of grant and must be exercised within 10 years of the date of grant.  

If, upon termination of a participant’s employment (other than a termination for cause), a participant is at least 55 years old, has at least five years of service, and the sum of the participant’s age and years of service is at least 65, the participant may exercise any stock options granted inbetween 2007 or laterthrough 2017 within a period of three years from the date of termination or, if earlier, the date such stock options otherwise would have expired, subject to specified conditions.  Starting with stock options granted in 2018, a terminated employee who meets the above conditions may exercise any stock options within a period of ten years from the date of termination or, if earlier, the date such stock options otherwise would have expired, subject to specified conditions.  Issuances of Common Stock to satisfy employee stock option exercises currently are made from treasury stock.

Stock option transactions for the three yearsyear ended December 31, 20182020 were as follows:  

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

 

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

Options

 

 

Price

 

 

Term

 

 

Value

 

Options

 

 

Price

 

 

Term

 

 

Value

 

Outstanding as of December 31, 2015

 

17.2

 

 

$

25.89

 

 

 

 

 

 

 

 

 

Outstanding as of December 31, 2019

 

14.0

 

 

$

43.23

 

 

 

 

 

 

 

 

 

Granted

 

2.1

 

 

 

46.75

 

 

 

 

 

 

 

 

 

 

1.9

 

 

 

74.39

 

 

 

 

 

 

 

 

 

Exercised

 

(3.0

)

 

 

16.96

 

 

 

 

 

 

 

 

 

 

(3.1

)

 

 

30.23

 

 

 

 

 

 

 

 

 

Cancelled

 

(0.3

)

 

 

39.60

 

 

 

 

 

 

 

 

 

 

(0.1

)

 

 

65.44

 

 

 

 

 

 

 

 

 

Outstanding as of December 31, 2016

 

16.0

 

 

$

30.06

 

 

 

 

 

 

 

 

 

Granted

 

2.1

 

 

 

48.39

 

 

 

 

 

 

 

 

 

Exercised

 

(1.8

)

 

 

23.06

 

 

 

 

 

 

 

 

 

Cancelled

 

(0.2

)

 

 

43.64

 

 

 

 

 

 

 

 

 

Outstanding as of December 31, 2017

 

16.1

 

 

$

33.11

 

 

 

 

 

 

 

 

 

Granted

 

2.0

 

 

 

50.77

 

 

 

 

 

 

 

 

 

Exercised

 

(3.3

)

 

 

23.07

 

 

 

 

 

 

 

 

 

Cancelled

 

(0.1

)

 

 

48.54

 

 

 

 

 

 

 

 

 

Outstanding as of December 31, 2018

 

14.7

 

 

$

37.63

 

 

 

5.6

 

 

$

412.5

 

Exercisable as of December 31, 2018

 

8.8

 

 

$

29.82

 

 

 

4.0

 

 

$

314.7

 

Outstanding as of December 31, 2020

 

12.7

 

 

$

50.72

 

 

 

5.8

 

 

$

463.4

 

Exercisable as of December 31, 2020

 

7.6

 

 

$

39.92

 

 

 

4.0

 

 

$

357.7

 

7275


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

 

The following table summarizes information relating to options outstanding and exercisable as of December 31, 2018:2020:

 

 

 

Options Outstanding

 

 

Options Exercisable

 

 

 

 

 

 

 

Weighted

 

 

Weighted

 

 

 

 

 

 

Weighted

 

 

 

Outstanding

 

 

Average

 

 

Average

 

 

Exercisable

 

 

Average

 

Range of

 

as of

 

 

Remaining

 

 

Exercise

 

 

as of

 

 

Exercise

 

Exercise Prices

 

12/31/2018

 

 

Contractual Life

 

 

Price

 

 

12/31/2018

 

 

Price

 

$0.01 - $25.00

 

 

2.3

 

 

 

1.9

 

 

$

17.04

 

 

 

2.2

 

 

$

17.66

 

$25.01 - $30.00

 

 

1.4

 

 

 

3.4

 

 

$

26.92

 

 

 

1.4

 

 

$

26.92

 

$30.01 - $35.00

 

 

3.5

 

 

 

4.7

 

 

$

32.73

 

 

 

3.5

 

 

$

32.73

 

$35.01 - $40.00

 

 

0.0

 

 

 

5.8

 

 

$

36.06

 

 

 

0.0

 

 

$

36.06

 

$40.01 - $45.00

 

 

2.4

 

 

 

6.3

 

 

$

41.88

 

 

 

1.7

 

 

$

41.92

 

$45.01 - $50.00

 

 

1.4

 

 

 

6.7

 

 

$

49.15

 

 

 

0.0

 

 

$

46.64

 

$50.01 - $55.00

 

 

3.6

 

 

 

8.7

 

 

$

51.93

 

 

 

0.0

 

 

$

0.0

 

$55.01 - $60.00

 

 

0.1

 

 

 

9.8

 

 

$

59.42

 

 

 

0.0

 

 

$

0.0

 

 

 

 

14.7

 

 

 

5.6

 

 

$

37.63

 

 

 

8.8

 

 

$

29.82

 

 

 

Options Outstanding

 

 

Options Exercisable

 

 

 

 

 

 

 

Weighted

 

 

Weighted

 

 

 

 

 

 

Weighted

 

 

 

Outstanding

 

 

Average

 

 

Average

 

 

Exercisable

 

 

Average

 

Range of

 

as of

 

 

Remaining

 

 

Exercise

 

 

as of

 

 

Exercise

 

Exercise Prices

 

12/31/2020

 

 

Contractual Life

 

 

Price

 

 

12/31/2020

 

 

Price

 

$0.01 - $20.00

 

 

0.1

 

 

 

2.5

 

 

$

3.44

 

 

 

0.1

 

 

$

3.44

 

$20.01 - $30.00

 

 

0.9

 

 

 

1.4

 

 

$

26.11

 

 

 

0.9

 

 

$

26.11

 

$30.01 - $40.00

 

 

2.5

 

 

 

2.9

 

 

$

32.80

 

 

 

2.5

 

 

$

32.80

 

$40.01 - $50.00

 

 

2.8

 

 

 

4.8

 

 

$

44.24

 

 

 

2.8

 

 

$

44.21

 

$50.01 - $60.00

 

 

3.1

 

 

 

6.9

 

 

$

51.98

 

 

 

1.3

 

 

$

53.64

 

$60.01 - $70.00

 

 

0.1

 

 

 

7.9

 

 

$

65.52

 

 

 

0.0

 

 

$

0.0

 

$70.01 - $80.00

 

 

3.2

 

 

 

9.0

 

 

$

75.35

 

 

 

0.0

 

 

$

0.0

 

 

 

 

12.7

 

 

 

5.8

 

 

$

50.72

 

 

 

7.6

 

 

$

39.92

 

The table above represents the Company’s estimate of stock options fully vested and expected to vest.  Expected forfeitures are not material and, therefore, are not reflected in the table above.

The following table provides information regarding the intrinsic value of stock options exercised and stock compensation expense related to stock option awards:

2018

 

 

2017

 

 

2016

 

2020

 

 

2019

 

 

2018

 

Intrinsic Value of Stock Options Exercised

$

109.6

 

 

$

48.0

 

 

$

91.5

 

$

159.8

 

 

$

93.1

 

 

$

109.6

 

Stock Compensation Expense Related to Stock Option Awards

$

21.3

 

 

$

15.7

 

 

$

14.4

 

$

21.1

 

 

$

20.3

 

 

$

21.3

 

Issued Stock Options

 

2.0

 

 

 

2.1

 

 

 

2.1

 

 

1.9

 

 

 

1.5

 

 

 

2.0

 

Weighted Average Fair Value of Stock Options issued (per share)

$

9.79

 

 

$

12.90

 

 

$

7.57

 

$

12.85

 

 

$

14.90

 

 

$

9.79

 

Fair Value of Stock Options Issued

$

19.4

 

 

$

27.8

 

 

$

16.1

 

$

24.5

 

 

$

22.1

 

 

$

19.4

 

 

 

The following table provides a summary of the assumptions used in the valuation of issued stock options:

 

2018

 

 

2017

 

 

2016

 

2020

 

 

2019

 

 

2018

 

Risk-free interest rate

 

2.9

%

 

 

2.0

%

 

 

1.7

%

 

0.5

%

 

 

2.0

%

 

 

2.9

%

Expected life in years

 

7.3

 

 

 

6.9

 

 

 

6.8

 

 

7.3

 

 

 

7.3

 

 

 

7.3

 

Expected volatility

 

17.1

%

 

 

16.7

%

 

 

17.0

%

 

19.9

%

 

 

17.2

%

 

 

17.1

%

Dividend yield

 

1.7

%

 

 

1.4

%

 

 

1.5

%

 

1.3

%

 

 

1.2

%

 

 

1.7

%

 

The fair value of stock options is based upon the Black Scholes option pricing model.  The Company determined the stock options’ lives based on historical exercise behavior and their expected volatility and dividend yield based on the historical changes in stock price and dividend payments.  The risk freerisk-free interest rate is based on the yield of an applicable term Treasury instrument.

As of December 31, 2018,2020, there was a fair value of $15.3$16.5 related to unamortized stock option compensation expense, which is expected to be recognized over the next three years.  The Company’s Consolidated Statements of Cash Flow reflect an add back to Net Cash Provided by Operating Activities of $21.5, $20.8 and $23.3 $18.1in 2020, 2019 and $16.0 in 2018, 2017 and 2016, respectively, for non-cash compensation expense, primarily stock option expense.  The excess tax benefits on stock options exercised for 2018, 2017 and 2016 was $22.1, $15.1 and $30.0, respectively.

DuringIn May 2018, the Company issued cash settled restricted shares to all employees.  These shares follow the vesting schedulecash-settled stock units under the Amended and Restated Omnibus Equity Plan.Plan to all employees at the level of vice president and below.  These restricted stock units were scheduled to vest and be settled on the third anniversary of the date of grant.  In December 2020, the Company accelerated the grant to vest in December 2020.  As a result, the Company recorded stock compensation expense of $3.1 and a corresponding$1.5 in 2020 and 2019, and there was 0 liability as of $1.6.December 31, 2020.  The unamortized amount isliability was approximately $3.1 based on the year-end stock price.as of December 31, 2019.  


7376


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

 

Other Benefit Plans

International Pension Plan Termination

In 2016, the Company authorized the termination of international defined benefit pension plans under which approximately 336 participants, including 53 active employees, had accrued benefits.  The Company completed the termination of this plan in the second quarter of 2017.  In addition to plan assets, the Company made a one-time payment of $7.5 to purchase annuities for participants.  The Company recorded a one-time SG&A expense of $39.2 ($31.5 after tax) in the Consumer International segment in the second quarter of 2017.  This expense primarily included the effect of the additional cash payment required at settlement and pension settlement accounting rules which require accelerated recognition of actuarial losses that were to be amortized over the expected benefit lives of participants.  As of June 30, 2017, the Company had no further obligations with respect to material defined benefit pension plans.

Deferred Compensation Plans

The Company maintains a non-qualified deferred compensation plan under which certain members of management are eligible to defer a maximum of 85% of their regular compensation (i.e., salary) and, in general, up to 85% of their incentive bonus.  The amounts deferred under this plan are credited with earnings or losses based upon changes in values of notional investments electedselected by the plan participant.  The investment options available include notional investments in various stock, bond and money market funds as well as ourthe Company’s Common Stock.  Each plan participant is fully vested in the amounts the participant defers.  The plan also functions as an “excess” plan wherebypermits the Company to make profit sharing contributions that cannot otherwise be contributed to the qualified savings and profit sharing plan due to limitations under Department of Treasury regulations are credited to this plan.established by the Internal Revenue Service.  These contributions vest under the same vesting schedule applicable to the qualified plan.

The liability to plan participants for contributions designated for notional investment in Common Stock is based on the quoted fair value of the Common Stock plus any dividends credited.  The Company uses cash-settled hedging instruments to minimize the cost related to the volatility of Common Stock.  At December 31, 20182020 and 2017,2019, the amount of the Company’s liability under the deferred compensation plan is included in Current and Deferred and Other Long-term Liabilities and was $92.7$116.9 and $90.6,$102.8, respectively and the funded balances recorded in Other Assets amounted to $79.4$101.4 and $81.4,$98.2, respectively.  The amounts charged to earnings, including the effect of the hedges, totaled $2.4, $1.9,expense of $2.1 in 2020, income of $1.0 in 2019 and $2.3expense of $2.4 in 2018, 2017 and 2016, respectively.

Non-employee members of the Company’s Board are eligible to defer up to 100% of their directors’ compensation into a similar plan; however, the only option for investment is Common Stock.  Members of the Board are fully vested in their account balance.  As of December 31, 2018,2020, there were approximately 280,000169,000 shares of Common Stock from shares held as Treasury Stock in a rabbi trust to protect the interest of the directors’ deferred compensation plan participants in the event of a change of control.

 

12.13.

Share Repurchases

On November 1, 2017, the Board authorized a new 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 and will replace the 2016 Share Repurchase Program.  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.  

In DecemberNovember of 2017, the Company entered into an accelerated share repurchase (“ASR”) contract with a commercial bank to purchase $200.0executed open market purchases of $100.0 of its Common Stock.Stock under the 2017 Share Repurchase Program.  In the first quarter of 2018, the Company settled the ASRan accelerated share repurchase (“ASR”) contract and purchased approximately 4.1 million shares of Common Stock for $200.0, of which approximately $110.0 was purchased under the evergreen share repurchase program and $90.0 was purchased under the 2017 Share Repurchase Program.

In January 2019, the Company executed open market purchases of $100.0 of its Common Stock, all of which were purchased under the evergreen share repurchase program.  In September 2019, the Company executed open market purchases 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.  

In December 2020, the Company entered into an accelerated share repurchase (“ASR”) contract with a commercial bank to purchase Common Stock.  The Company paid $300.0 to the bank, inclusive of fees, and received an initial delivery of shares equal to $270.0, or 3.1 million shares.  The Company used cash on hand and short-term borrowings to fund the initial purchase price.  Upon the completion of the ASR, which ended in February 2021, the bank delivered an additional 0.4 million shares to the Company.  The final shares delivered to the Company were determined by the average price per share paid by the bank during the purchase period.  All 3.5 million shares were purchased under the Company’s evergreen program.  As a result of the Company’s purchases,stock repurchases in recent years, there remained $310.0remains $210.0 of share repurchase availability under the 2017 Share Repurchase Program as of December 31, 2018.            2020.  

 


74


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

 

13.14.

Accumulated Other Comprehensive Income (Loss)

Comprehensive income is defined as net income and other changes in stockholders’ equity from transactions and other events from sources other than stockholders.

The components of changes in accumulated other comprehensive income (“AOCI”) are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Foreign

 

 

Defined

 

 

 

 

 

 

Other

 

 

Currency

 

 

Benefit

 

 

Derivative

 

 

Comprehensive

 

 

Adjustments

 

 

Plans

 

 

Agreements

 

 

Income (Loss)

 

Balance December 31, 2015

$

(38.5

)

 

$

(11.5

)

 

$

4.1

 

 

$

(45.9

)

Other comprehensive income before reclassifications

 

(12.1

)

 

 

(2.2

)

 

 

(5.9

)

 

 

(20.2

)

Amounts reclassified to consolidated statement of

   income(a)

 

0.0

 

 

 

0.0

 

 

 

(0.1

)

 

 

(0.1

)

Tax benefit (expense)

 

0.6

 

 

 

0.5

 

 

 

1.3

 

 

 

2.4

 

Other comprehensive income (loss)

 

(11.5

)

 

 

(1.7

)

 

 

(4.7

)

 

 

(17.9

)

Balance December 31, 2016

$

(50.0

)

 

$

(13.2

)

 

$

(0.6

)

 

$

(63.8

)

Other comprehensive income before reclassifications

 

20.0

 

 

 

3.3

 

 

 

(7.9

)

 

 

15.4

 

Amounts reclassified to consolidated statement of

   income(a)(b)

 

0.0

 

 

 

11.9

 

 

 

2.6

 

 

 

14.5

 

Tax benefit (expense)

 

(1.6

)

 

 

(2.6

)

 

 

1.7

 

 

 

(2.5

)

Other comprehensive income (loss)

 

18.4

 

 

 

12.6

 

 

 

(3.6

)

 

 

27.4

 

Balance December 31, 2017

$

(31.6

)

 

$

(0.6

)

 

$

(4.2

)

 

$

(36.4

)

Adoption of new accounting pronouncements (Note 1)

$

(0.3

)

 

$

0.1

 

 

$

(0.4

)

 

$

(0.6

)

Other comprehensive income before reclassifications

 

(10.6

)

 

 

1.9

 

 

 

(9.7

)

 

 

(18.4

)

Amounts reclassified to consolidated statement of

   income(c)

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

Tax benefit (expense)

 

0.0

 

 

 

(0.5

)

 

 

2.3

 

 

 

1.8

 

Other comprehensive income (loss)

 

(10.6

)

 

 

1.4

 

 

 

(7.4

)

 

 

(16.6

)

Balance December 31, 2018

$

(42.5

)

 

$

0.9

 

 

$

(12.0

)

 

$

(53.6

)

(a)

Amounts reclassified to cost of sales or selling, general and administrative expenses.  

(b)

In connection with the termination of international defined benefit pension plans, $11.9 was reclassified to SG&A.  All other amounts were reclassified to Cost of Sales.  

(c)

Amounts reclassified to cost of sales or interest expense.

14.

Commitments, Contingencies and Guarantees

Commitments

a. Operating lease rent expense, included in income from operations, amounted to $24.5, $24.5 and $18.8 in 2018, 2017 and 2016, respectively.  Beginning January 1, 2013, financing lease expense was recorded primarily for the Company’s Corporate Headquarters building.  In 2018, interest expense associated with this lease amounted to $3.8 and depreciation expense amounted to $2.5.  

7577


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

 

The Company is obligated to pay minimum annual rentals under different operating and financing lease agreementscomponents of changes in accumulated other comprehensive income (“AOCI”) are as follows:

 

 

Operating

 

 

Financing

 

 

 

 

 

 

 

Leases

 

 

Leases

 

 

Total

 

2019

 

$

18.7

 

 

$

6.0

 

 

$

24.7

 

2020

 

 

14.6

 

 

 

5.8

 

 

 

20.4

 

2021

 

 

12.2

 

 

 

5.7

 

 

 

17.9

 

2022

 

 

10.9

 

 

 

5.7

 

 

 

16.6

 

2023

 

 

6.4

 

 

 

6.0

 

 

 

12.4

 

2024 and thereafter

 

 

10.5

 

 

 

55.3

 

 

 

65.8

 

Total future minimum lease commitments

 

$

73.3

 

 

$

84.5

 

 

$

157.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Foreign

 

 

Defined

 

 

 

 

 

 

Other

 

 

Currency

 

 

Benefit

 

 

Derivative

 

 

Comprehensive

 

 

Adjustments

 

 

Plans

 

 

Agreements

 

 

Income (Loss)

 

Balance December 31, 2017

$

(31.6

)

 

$

(0.6

)

 

$

(4.2

)

 

$

(36.4

)

Adoption of new accounting pronouncements (Note 1)

 

(0.3

)

 

 

0.1

 

 

 

(0.4

)

 

 

(0.6

)

Other comprehensive income before reclassifications

 

(10.6

)

 

 

1.9

 

 

 

(9.7

)

 

 

(18.4

)

Amounts reclassified to consolidated statement of

   income(a)

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

Tax benefit (expense)

 

0.0

 

 

 

(0.5

)

 

 

2.3

 

 

 

1.8

 

Other comprehensive income (loss)

 

(10.6

)

 

 

1.4

 

 

 

(7.4

)

 

 

(16.6

)

Balance December 31, 2018

$

(42.5

)

 

$

0.9

 

 

$

(12.0

)

 

$

(53.6

)

Other comprehensive income (loss) before reclassifications

 

3.8

 

 

 

(1.3

)

 

 

(30.2

)

 

 

(27.7

)

Amounts reclassified to consolidated statement of

   income(b)

 

1.9

 

 

 

0.0

 

 

 

6.1

 

 

 

8.0

 

Tax benefit (expense)

 

0.0

 

 

 

0.4

 

 

 

6.2

 

 

 

6.6

 

Other comprehensive income (loss)

 

5.7

 

 

 

(0.9

)

 

 

(17.9

)

 

 

(13.1

)

Balance December 31, 2019

$

(36.8

)

 

$

0.0

 

 

$

(29.9

)

 

$

(66.7

)

Other comprehensive income (loss) before reclassifications

 

10.4

 

 

 

0.0

 

 

 

(34.8

)

 

 

(24.4

)

Amounts reclassified to consolidated statement of

   income(b)

 

0.0

 

 

 

0.0

 

 

 

5.8

 

 

 

5.8

 

Tax benefit (expense)

 

0.0

 

 

 

0.0

 

 

 

7.7

 

 

 

7.7

 

Other comprehensive income (loss)

 

10.4

 

 

 

0.0

 

 

 

(21.3

)

 

 

(10.9

)

Balance December 31, 2020

$

(26.4

)

 

$

0.0

 

 

$

(51.2

)

 

$

(77.6

)

(a)

Amounts reclassified to cost of sales or interest expense.

(b)

Amounts reclassified to cost of sales, selling, general and administrative expenses, or interest expense.  

b.

15.

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.  

c.b. As of December 31, 2018,2020, the Company had commitments of approximately $262.5.$300.4.  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.  

d.c. As of December 31, 2018,2020, the Company had various guarantees and letters of credit totaling $5.2.     $4.6.  

e.  d.In connection with the Company’s acquisition of Agro Acquisition,BioSciences, Inc. on January 17, 2017, the Company iswas obligated to pay an additional amount of up to $25.0 based on sales performance in 2019. The initial fair value of this contingentbusiness acquisition liability was $17.8, which was established in the purchase price allocation.  SubsequentIn December 2019, the liability was lowered to the Agro Acquisition, the Company increased the estimate of the contingent consideration liability $5.4 in the fourth quarter of 2017 from $17.8 to $23.2$14.2 based on updated sales forecasts. However in 2018, the Company lowered its estimate by $7.5 to $15.7 based on updated sales forecasts.2019 sales.  The reduction was recorded in SG&A in the SPD segment.  TheIn April 2020, a payment of $14.5 was paid to settle the liability will be assessed for re-measurement at each balance sheet date leading up to the end of the 3-year period.  .  

In connection with the Passport Acquisition, the Company iswas obligated to pay an additional amount of up to $25.0 based on sales performance through 2020.  The initial fair value of this contingentbusiness acquisition liability was $7.3, which was established in the purchase price allocation.  During the second quarter of 2019, the Company recorded a reduction in fair value of the entire $7.3 Passport business acquisition liability based on the revised valuation due to updated sales forecasts.  The reduction was recorded in SG&A in the SPD segment.  

78


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

The business acquisitionliability will be assessed for re-measurementwas reassessed at each balance sheet date leading up to December 31, 2020.

Legal proceedings

f. 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, in2020 with no additional changes to 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, 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 court granted the Company’s motion for summary judgment, dismissing all claims brought by the Plaintiff.  The Plaintiff has filed an appeal.  fair value.

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 ofFlawless Acquisition, the Company is reversed.obligated to pay an additional amount of up to $425.0 based on sales performance through 2021.  The initial fair value of this business acquisition liability was $182.0.  That amount was established in the purchase price allocation.  During the years ended December 31, 2020 and 2019, the Company decreased the fair value of the business acquisition liability by $94.0 and increased the fair value of the business acquisition liability by $10.0, respectively, based on updated sales forecasts.  As a result of these adjustments, the fair value of this business acquisition liability was $98.0 as of December 31, 2020.  The change in fair value was recorded within the Consumer Domestic and Consumer International segments. The business acquisition liability will be reassessed at each balance sheet date until the completion of the earn-out period.  The liability is expected to be paid in the first half of 2022.  

g. In connection with the Zicam Acquisition, the Company deferred an additional cash payment of $20.0 related to certain indemnifications provided by the seller.  The additional amount is payable five years from the closing.

Legal proceedings

e. 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

76


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

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.

h. f.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.   While anyAny 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.  

 

 

15.16.

Related Party Transactions

The following summarizes the balances and transactions between the Company and each of Armand and ArmaKleen, in which the Company holds a 50% ownership interest:

 

Armand

 

 

ArmaKleen

 

Armand

 

 

ArmaKleen

 

Year Ended December 31,

 

 

Year Ended December 31,

 

Year Ended December 31,

 

 

Year Ended December 31,

 

2018

 

 

2017

 

 

2016

 

 

2018

 

 

2017

 

 

2016

 

2020

 

 

2019

 

 

2018

 

 

2020

 

 

2019

 

 

2018

 

Purchases by Company

$

15.6

 

 

$

20.5

 

 

$

20.9

 

 

$

0.0

 

 

$

0.0

 

 

$

0.0

 

$

14.2

 

 

$

14.3

 

 

$

15.6

 

 

$

0.0

 

 

$

0.0

 

 

$

0.0

 

Sales by Company

$

0.0

 

 

$

0.0

 

 

$

0.0

 

 

$

1.2

 

 

$

1.2

 

 

$

1.0

 

$

0.0

 

 

$

0.0

 

 

$

0.0

 

 

$

1.1

 

 

$

1.1

 

 

$

1.2

 

Outstanding Accounts Receivable

$

0.8

 

 

$

0.7

 

 

$

0.5

 

 

$

0.7

 

 

$

0.8

 

 

$

0.7

 

$

0.7

 

 

$

0.6

 

 

$

0.8

 

 

$

0.5

 

 

$

0.8

 

 

$

0.7

 

Outstanding Accounts Payable

$

1.0

 

 

$

1.7

 

 

$

1.7

 

 

$

0.0

 

 

$

0.0

 

 

$

0.0

 

$

1.4

 

 

$

1.6

 

 

$

1.0

 

 

$

0.0

 

 

$

0.0

 

 

$

0.0

 

Administration & Management Oversight Services(1)

$

2.5

 

 

$

2.4

 

 

$

2.3

 

 

$

2.1

 

 

$

2.0

 

 

$

2.0

 

$

2.1

 

 

$

2.7

 

 

$

2.5

 

 

$

2.2

 

 

$

2.1

 

 

$

2.1

 

(1)

Billed by Company and recorded as a reduction of SG&A expenses.

 

79


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

16.17.

Segments

Segment Information

The Company operates three3 reportable segments: Consumer Domestic, Consumer International and 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 December 31, 2018,2020, the Company held 50% ownership interests in each of Armand and ArmaKleen, respectively.  The Company’s equity in earnings of Armand and ArmaKleen, totaling $6.7, $6.6, and $9.2 for the year endedthree years ending December 31, 2020, 2019 and 2018, 2017 and 2016respectively, are included in the Corporate segment.

Some of theCertain 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.

 

77

80


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

 

The following table presents selected financial information relating to the Company’s segments for each of the three years in the period ended December 31, 2018:   

2020:   

 

Consumer

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

 

International

 

 

SPD

 

 

Corporate(1)

 

 

As Reported

 

 

Domestic

 

 

International

 

 

SPD

 

 

Corporate(1)

 

 

As Reported

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

$

3,767.6

 

 

$

828.2

 

 

$

300.0

 

 

$

0.0

 

 

$

4,895.8

 

2019

 

 

3,302.6

 

 

 

756.3

 

 

 

298.8

 

 

 

0.0

 

 

 

4,357.7

 

2018

 

$

3,129.9

 

 

$

709.5

 

 

$

306.5

 

 

$

0.0

 

 

$

4,145.9

 

 

 

3,129.9

 

 

 

709.5

 

 

 

306.5

 

 

 

0.0

 

 

 

4,145.9

 

2017

 

 

2,854.9

 

 

 

621.1

 

 

 

300.2

 

 

 

0.0

 

 

 

3,776.2

 

2016

 

 

2,677.8

 

 

 

525.2

 

 

 

290.1

 

 

 

0.0

 

 

 

3,493.1

 

Gross profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

1,801.1

 

 

 

368.8

 

 

 

104.1

 

 

 

(59.8

)

 

 

2,214.2

 

2019

 

 

1,575.2

 

 

 

346.1

 

 

 

110.9

 

 

 

(48.2

)

 

 

1,984.0

 

2018

 

 

1,448.9

 

 

 

318.4

 

 

 

117.5

 

 

 

(44.0

)

 

 

1,840.8

 

 

 

1,448.9

 

 

 

318.4

 

 

 

117.5

 

 

 

(44.0

)

 

 

1,840.8

 

2017

 

 

1,380.1

 

 

 

281.0

 

 

 

101.3

 

 

 

(32.8

)

 

 

1,729.6

 

2016

 

 

1,308.8

 

 

 

235.4

 

 

 

83.0

 

 

 

(36.6

)

 

 

1,590.6

 

Marketing Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

460.6

 

 

 

126.9

 

 

 

3.7

 

 

 

0.0

 

 

 

591.2

 

2019

 

 

398.0

 

 

 

112.9

 

 

 

4.1

 

 

 

0.0

 

 

 

515.0

 

2018

 

 

383.3

 

 

 

95.4

 

 

 

4.5

 

 

 

0.0

 

 

 

483.2

 

 

 

383.3

 

 

 

95.4

 

 

 

4.5

 

 

 

0.0

 

 

 

483.2

 

2017

 

 

364.1

 

 

 

85.7

 

 

 

4.4

 

 

 

0.0

 

 

 

454.2

 

2016

 

 

345.2

 

 

 

78.2

 

 

 

3.8

 

 

 

0.0

 

 

 

427.2

 

Selling, General and Administrative Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

455.6

 

 

 

128.7

 

 

 

68.8

 

 

 

(59.8

)

 

 

593.3

 

2019

 

 

470.1

 

 

 

151.7

 

 

 

55.2

 

 

 

(48.2

)

 

 

628.8

 

2018

 

 

422.7

 

 

 

131.6

 

 

 

55.6

 

 

 

(44.0

)

 

 

565.9

 

 

 

422.7

 

 

 

131.6

 

 

 

55.6

 

 

 

(44.0

)

 

 

565.9

 

2017

 

 

366.6

 

 

 

158.5

 

 

 

50.4

 

 

 

(32.8

)

 

 

542.7

 

2016

 

 

350.7

 

 

 

89.0

 

 

 

36.1

 

 

 

(36.6

)

 

 

439.2

 

Income from Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

884.9

 

 

 

113.2

 

 

 

31.6

 

 

 

0.0

 

 

 

1,029.7

 

2019

 

 

707.1

 

 

 

81.5

 

 

 

51.6

 

 

 

0.0

 

 

 

840.2

 

2018

 

 

642.9

 

 

 

91.4

 

 

 

57.4

 

 

 

0.0

 

 

 

791.7

 

 

 

642.9

 

 

 

91.4

 

 

 

57.4

 

 

 

0.0

 

 

 

791.7

 

2017

 

 

649.4

 

 

 

36.8

 

 

 

46.5

 

 

 

0.0

 

 

 

732.7

 

2016

 

 

612.9

 

 

 

68.2

 

 

 

43.1

 

 

 

0.0

 

 

 

724.2

 

Equity in Earnings of Affiliates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

6.7

 

 

 

6.7

 

2019

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

6.6

 

 

 

6.6

 

2018

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

9.2

 

 

 

9.2

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

9.2

 

 

 

9.2

 

2017

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

10.8

 

 

 

10.8

 

2016

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

9.2

 

 

 

9.2

 

Income Before Income Taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

832.4

 

 

 

105.0

 

 

 

29.7

 

 

 

6.7

 

 

 

973.8

 

2019

 

 

645.8

 

 

 

74.0

 

 

 

47.3

 

 

 

6.6

 

 

 

773.7

 

2018

 

 

577.2

 

 

 

81.5

 

 

 

51.6

 

 

 

9.2

 

 

 

719.5

 

 

 

577.2

 

 

 

81.5

 

 

 

51.6

 

 

 

9.2

 

 

 

719.5

 

2017

 

 

606.4

 

 

 

32.0

 

 

 

43.5

 

 

 

10.8

 

 

 

692.7

 

2016

 

 

590.6

 

 

 

66.3

 

 

 

39.8

 

 

 

9.2

 

 

 

705.9

 

Identifiable Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

5,819.8

 

 

 

1,144.5

 

 

 

339.7

 

 

 

110.5

 

 

 

7,414.5

 

2019

 

 

5,099.1

 

 

 

1,110.0

 

 

 

340.4

 

 

 

107.9

 

 

 

6,657.4

 

2018

 

 

4,642.4

 

 

 

991.6

 

 

 

347.4

 

 

 

87.8

 

 

 

6,069.2

 

 

 

4,642.4

 

 

 

991.6

 

 

 

347.4

 

 

 

87.8

 

 

 

6,069.2

 

2017

 

 

4,543.2

 

 

 

1,112.4

 

 

 

268.5

 

 

 

90.7

 

 

 

6,014.8

 

2016

 

 

3,374.4

 

 

 

714.5

 

 

 

181.3

 

 

 

83.9

 

 

 

4,354.1

 

Capital Expenditures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

81.8

 

 

 

7.1

 

 

 

10.0

 

 

 

0.0

 

 

 

98.9

 

2019

 

 

53.9

 

 

 

9.4

 

 

 

10.4

 

 

 

0.0

 

 

 

73.7

 

2018

 

 

36.0

 

 

 

12.5

 

 

 

11.9

 

 

 

0.0

 

 

 

60.4

 

 

 

36.0

 

 

 

12.5

 

 

 

11.9

 

 

 

0.0

 

 

 

60.4

 

2017

 

 

30.6

 

 

 

8.9

 

 

 

5.5

 

 

 

0.0

 

 

 

45.0

 

2016

 

 

34.9

 

 

 

8.8

 

 

 

6.1

 

 

 

0.0

 

 

 

49.8

 

Depreciation & Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

142.8

 

 

 

29.6

 

 

 

14.5

 

 

 

2.8

 

 

 

189.7

 

2019

 

 

131.9

 

 

 

27.1

 

 

 

14.1

 

 

 

3.3

 

 

 

176.4

 

2018

 

 

103.5

 

 

 

19.9

 

 

 

13.5

 

 

 

4.2

 

 

 

141.1

 

 

 

103.5

 

 

 

19.9

 

 

 

13.5

 

 

 

4.2

 

 

 

141.1

 

2017

 

 

95.5

 

 

 

16.8

 

 

 

10.3

 

 

 

2.8

 

 

 

125.4

 

2016

 

 

87.8

 

 

 

9.5

 

 

 

8.6

 

 

 

1.7

 

 

 

107.6

 

(1)

The Corporate segment reflects the following:
(A)The administrative costs of the production planning and logistics functions are included in segment Selling, General and Administrative expenses but are elements of Cost of Sales in the Company’s Consolidated Statements of Income.  Such amounts were $59.8, $48.2, and $44.0 $32.8,for 2020, 2019 and $36.6 for 2018, 2017 and 2016, respectively.
(B) Equity in earnings (loss) of affiliates from Armand and ArmaKleen for the year ended December 31, 2018, 20172020, 2019 and 2016.2018.
(C) Corporate assets include deferred compensation investments and the Company's investment in unconsolidated affiliates.

78


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

Other than the differences noted in the footnote above, the accounting policies followed by each of the segments, including intersegment transactions, are substantially consistent with the accounting policies described in Note 1.

Intersegment sales from Consumer International to Consumer Domestic, which are not reflected in the table above, were $5.7, $4.5$11.7, $10.5 and $3.4$5.7 for the twelve months ended December 31, 2018,2020, December 31, 20172019 and December 31, 2016,2018, respectively.

81


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

Product line revenues from external customers for each of the three years ended December 31, 2018,2020, December 31, 20172019 and December 31, 20162018 were as follows:

 

 

2018

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

 

2018

 

Household Products

 

$

1,725.5

 

 

$

1,640.0

 

 

$

1,593.4

 

 

$

2,038.5

 

 

$

1,821.7

 

 

$

1,725.5

 

Personal Care Products

 

 

1,404.4

 

 

 

1,214.9

 

 

 

1,084.4

 

 

 

1,729.1

 

 

 

1,480.9

 

 

 

1,404.4

 

Total Consumer Domestic

 

 

3,129.9

 

 

 

2,854.9

 

 

 

2,677.8

 

 

 

3,767.6

 

 

 

3,302.6

 

 

 

3,129.9

 

Total Consumer International

 

 

709.5

 

 

 

621.1

 

 

 

525.2

 

 

 

828.2

 

 

 

756.3

 

 

 

709.5

 

Total SPD

 

 

306.5

 

 

 

300.2

 

 

 

290.1

 

 

 

300.0

 

 

 

298.8

 

 

 

306.5

 

Total Consolidated Net Sales

 

$

4,145.9

 

 

$

3,776.2

 

 

$

3,493.1

 

 

$

4,895.8

 

 

$

4,357.7

 

 

$

4,145.9

 

 

Household Products include laundry, deodorizing, and cleaning products. Personal Care Products include condoms, pregnancy kits, oral care products, skin care products, hair care products and gummy dietary supplements.

Geographic Information

Approximately 82%83%, 83%82% and 84%82% of the net sales reported in the accompanying consolidated financial statements in 2018, 20172020, 2019 and 2016,2018, respectively, were to customers in the U.S.  Approximately 95%96%, 95% and 98%95% of long-lived assets were located in the U.S. at December 31, 2018, 20172020, 2019 and 2016,2018, respectively.  Other than the U.S., no one country accounts for more than 5% of consolidated net sales and 5% of total assets.

Customers

A group of three customers accounted for approximately 36%, 36% and 35% of consolidated net sales each year in 2018, 20172020, 2019 and 2016, respectively,2018, of which a single customer (Walmart Inc. and its affiliates) accounted for approximately 23%, 24% and 24%23% in 2020, 2019 and 2018, 2017 and 2016, respectively.

17.Brazilian Chemical Business

During the fourth quarter of 2016, the Company decided to sell its Brazilian chemical business, resulting in a plant impairment charge of $4.9 recognized in the fourth quarter of 2016 based upon an expected sales price.  During the first quarter of 2017, the Company sold the business for approximately $4.5, and recorded an approximate $3.5 expense for severance and other charges for the three months ended March 31, 2017.  These charges were included in the SPD segment.  Sales for the Brazilian chemical business in 2016 were approximately $22.0.   

18.Subsequent Event

In connection with the evergreen repurchase program, in January 2019, the Company executed open market purchases of $100.0 of Common Stock.  

79


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In millions, except share and per share data)

  

 

19.18.Unaudited Quarterly Financial Information

The unaudited quarterly results of operations are prepared in conformity with generally accepted accounting principles and reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results of operations for the periods presented.  Adjustments are of a normal, recurring nature, except as discussed in the accompanying notes.  Due to rounding differences, the sum of the quarterly amounts may not add precisely to the annual amounts.

 

 

 

First

 

 

Second

 

 

Third

 

 

Fourth

 

 

Full

 

 

First

 

 

Second

 

 

Third

 

 

Fourth

 

 

Full

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

Year

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

Year

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

1,006.0

 

 

$

1,027.9

 

 

$

1,037.6

 

 

$

1,074.4

 

 

$

4,145.9

 

 

$

1,165.2

 

 

$

1,194.3

 

 

$

1,241.0

 

 

$

1,295.3

 

 

$

4,895.8

 

Gross Profit

 

 

451.5

 

 

 

454.9

 

 

 

460.1

 

 

 

474.3

 

 

 

1,840.8

 

 

 

532.0

 

 

 

559.6

 

 

 

565.2

 

 

 

557.4

 

 

 

2,214.2

 

Income from Operations

 

 

220.3

 

 

 

173.8

 

 

 

204.2

 

 

 

193.4

 

 

 

791.7

 

 

 

314.6

 

 

 

250.7

 

 

 

273.8

 

 

 

190.6

 

 

 

1,029.7

 

Net Income

 

 

157.8

 

 

 

121.7

 

 

 

146.3

 

 

 

142.8

 

 

 

568.6

 

 

 

229.8

 

 

 

189.7

 

 

 

216.2

 

 

 

150.2

 

 

 

785.9

 

Net Income per Share-Basic

 

$

0.64

 

 

$

0.50

 

 

$

0.60

 

 

$

0.58

 

 

$

2.32

 

 

$

0.94

 

 

$

0.77

 

 

$

0.87

 

 

$

0.61

 

 

$

3.18

 

Net Income per Share-Diluted

 

$

0.63

 

 

$

0.49

 

 

$

0.58

 

 

$

0.57

 

 

$

2.27

 

 

$

0.92

 

 

$

0.75

 

 

$

0.85

 

 

$

0.59

 

 

$

3.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

877.2

 

 

$

898.0

 

 

$

967.9

 

 

$

1,033.1

 

 

$

3,776.2

 

 

$

1,044.7

 

 

$

1,079.4

 

 

$

1,089.4

 

 

$

1,144.2

 

 

$

4,357.7

 

Gross Profit

 

 

399.3

 

 

 

410.4

 

 

 

438.5

 

 

 

481.4

 

 

 

1,729.6

 

 

 

470.8

 

 

 

481.5

 

 

 

507.7

 

 

 

524.0

 

 

 

1,984.0

 

Income from Operations

 

 

196.1

 

 

 

123.2

 

 

 

198.7

 

 

 

214.7

 

 

 

732.7

 

 

 

240.8

 

 

 

187.4

 

 

 

216.8

 

 

 

195.2

 

 

 

840.2

 

Net Income

 

 

131.5

 

 

 

72.9

 

 

 

133.4

 

 

 

405.6

 

 

 

743.4

 

 

 

175.7

 

 

 

138.5

 

 

 

157.3

 

 

 

144.4

 

 

 

615.9

 

Net Income per Share-Basic

 

$

0.52

 

 

$

0.29

 

 

$

0.53

 

 

$

1.63

 

 

$

2.97

 

 

$

0.71

 

 

$

0.56

 

 

$

0.64

 

 

$

0.59

 

 

$

2.50

 

Net Income per Share-Diluted

 

$

0.51

 

 

$

0.29

 

 

$

0.52

 

 

$

1.60

 

 

$

2.90

 

 

$

0.70

 

 

$

0.55

 

 

$

0.62

 

 

$

0.58

 

 

$

2.44

 

 

 


ITEMITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.  

 

 

ITEMITEM 9A.

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 the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) at the end of the period covered by this Annual 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 Annual Report are effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act are (i) recorded, processed, summarized and reported within the time periods specified in the Commission’s  rules and forms, 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)Management’s Report on Internal Control Over Financial Reporting

The Company’s management’s report on internal control over financial reporting is set forth in Item 8 of this Annual Report and is incorporated by reference herein.  The Company’s independent registered public accounting firm has issued an audit report on the effectiveness of the Company’s internal control over financial reporting, which is set forth in Item 8 of this Annual Report.

c)Change in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

ITEMITEM 9B.

OTHER INFORMATION

Not applicable.

 

 

 


PARTPART III

 

 

ITEMITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by this item is incorporated by reference to the information under the captions “Election of Directors,” “Our“Information about the Company’s Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance and Other Board Matters – Code of Conduct,” and “Corporate Governance  and Other Board Matters– Board of Directors Meetings and Committees – Audit Committee,” in ourthe Company’s definitive proxy statement, which will be filed with the Commission not later than 120 days after the close of thethe fiscal year covered by this Annual Report.

 

 

ITEMITEM 11.

EXECUTIVE COMPENSATION

Information required by this item is incorporated by reference to the information under the captions “Compensation Discussion and Analysis,” “2018“2020 Summary Compensation Table,” “2018“2020 Grants of Plan Based Awards,” “2018“2020 Outstanding Equity Awards at Fiscal Year-End,” “2018“2020 Option Exercises and Stock Vested,” “2018“2020 Nonqualified Deferred Compensation,” “Potential Payments Upon Termination or Change in Control” and “Compensation & Organization Committee Report” in ourthe Company’s definitive proxy statement, which will be filed with the Commission not later than 120 days after the close of the fiscal year covered by this Annual Report.

 

 

ITEMITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by this item is incorporated by reference to the information under the captions “Equity Compensation Plan Information as of December 31, 2018”2020” and “Securities Ownership of Certain Beneficial Owners and Management” in ourthe Company’s definitive proxy statement, which will be filed with the Commission not later than 120 days after the close of the fiscal year covered by this Annual Report.

 

 

ITEMITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required by this item is incorporated by reference to the information under the caption “Corporate Governance and other Board Matters – Board of Directors Independence” in ourthe Company’s definitive proxy statement, which will be filed with the Commission not later than 120 days after the close of the fiscal year covered by this Annual Report.

 

 

ITEMITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

Information required by this item is incorporated by reference to the information under the caption “Fees Paid to Independent Registered Public Accounting Firm” in ourthe Company’s definitive proxy statement, which will be filed with the Commission not later than 120 days after the close of the fiscal year covered by this Annual Report.

 

 

 


PARTPART IV

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)  1.  Financial Statements and Schedule

The following Consolidated Financial Statements are included in Item 8 of this Form 10-K:

 

Consolidated Statements of Income for each of the three years in the period ended December 31, 20182020

4851

 

 

Consolidated Balance Sheets as of December 31, 20182020 and 20172019

4952

 

 

Consolidated Statements of Cash Flow for each of the three years in the period ended December 31, 20182020

5053

 

 

Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 20182020

5255

 

 

Notes to Consolidated Financial Statements

5356

 

 

Schedule II ‑ Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 20182020

8890

 

(a)  3.  Exhibits

Unless otherwise noted, the file number for all ourthe Company’s filings with the Securities and Exchange Commission referenced below is 1-10585.

 

 

 

(3.1)

Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the Company’s Current Reportquarterly report on Form 8-K filed on May 4, 2018.10-Q for the quarter ended June 30, 2020.

 

 

 

 

 

 

(3.2)

By-laws of the Company, amended and restated as of May 2, 2018,1, 2020, incorporated by reference to Exhibit 3.2 to the Company’s current report on Form 8-K filed on May 4, 2018.1, 2020.

 

 

 

 

 

 

(4.1)

Indenture, dated as of December 15, 2010, between Church & Dwight Co., Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the 2.875% Notes due 2022, incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K filed on December 15, 2010.

 

 

 

 

 

 

(4.2)

Second Supplemental Indenture, dated as of September 26, 2012, between Church & Dwight Co., Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the 2.875% Notes due 2022, incorporated by reference to Exhibit 4.2 to the Company’s current report on Form 8-K filed on September 26, 2012.

 

 

 

 

 

 

(4.3)

Indenture, dated as of December 9, 2014, between Church & Dwight Co., Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K filed on December 9, 2014.

 

 

 

 

 

 

(4.4)

First Supplemental Indenture, dated as of December 9, 2014, between Church & Dwight Co., Inc. and Wells Fargo Bank, National Association, as trustee, relating to the 2.450% Notes due 2019, incorporated by reference to Exhibit 4.2 to the Company’s current report on Form 8-K filed on December 9, 2014

(4.5)

Second Supplemental Indenture, dated as of July 25, 2017, between Church & Dwight Co., Inc. and Wells Fargo Bank, National Association, as trustee, relating to the Notes, incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on July 25, 2017.

 

 

 

 

(4.5)

Description of Registrant’s Securities, incorporated by reference to Exhibit 4.5 to the Company’s annual report on Form 10-K for the year ended December 31, 2019.

 

 

(10.1)

Credit Agreement, dated March 29, 2018,as of May 1, 2019, among Church & Dwight Co., Inc., the lenders party thereto from time to time, Bank of America, N.A., as administrative agent and a lender, Wells Fargo Bank, National Association and SunTrust Bank, as syndication agents and Bank of Montreal, as documentation agent, incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed on May 7, 2019.

(10.1.1)

First Amendment to the Credit Agreement, dated as of May 1, 2019, among Church  & Dwight Co., Inc., the initial lenders named therein, Bank of America, N.A., as lead administrative agent, swing line lender, and L/C issuer, Wells Fargo Bank, National Association, as co-administrative agent, syndication agent and swing line lender, SunTrust Bank, as syndication agent and swing line lender, Bank of Montreal, Deutsche Bank Securities Inc., HSBC Bank USA, National Association, The Bank of Nova Scotia and The Bank of Tokyo-Mitsubishi UFJ, LTD., as documentation agents, the other lenders party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated, SunTrust Robinson Humphrey, Inc. and Wells Fargo Securities, LLC, as joint lead arrangers and joint bookrunners, incorporated by reference to Exhibit 10.1 ofto the Company’s Current Reportcurrent report on Form 8-K filed on March 29, 2018. May 7, 2019.

 

 

 

 

 

 

(10.2)

Form of Commercial Paper Dealer Agreement, dated February 23, 2017, by and between Church & Dwight Co., Inc. and Dealer, incorporated by reference to Exhibit 10.2 to the Company’s annual report on Form 10-K for the year ended December 31, 2016.  

 

 

 

 


 

 

(10.2.1)

Form of Amended and Restated Commercial Paper Dealer Agreement, dated February 23, 2017, by and between Church & Dwight Co., Inc. and Dealer, incorporated by reference to Exhibit 10.3 to the Company’s annual report on Form 10-K for the year ended December 31, 2016.

 

 

 

 

 

 

(10.4)

(10.3)

Stock Purchase Agreement, dated as of August 17, 2012, among Church & Dwight Co., Inc., Avid Health, Inc., the Seller Representative and the sellers party thereto, incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on August 20, 2012.

(10.5)

Stock Purchase Agreement, dated as of July 17, 2017, among Church & Dwight Co., Inc., PIK Holdings, Inc., the Representative and the stockholders party thereto, incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed on July 17, 2017.

 

 

 

 

 

*

(10.6)(10.4)

Church & Dwight Co., Inc. Executive Deferred Compensation Plan, effective as of June 1, 1997, incorporated by reference to Exhibit 10(f) to the Company’s annual report on Form 10-K for the year ended December 31, 1997.

 

 

 

 

 

*

(10.6.1)(10.4.1)

Amendment to the Church & Dwight Co., Inc. Executive Deferred Compensation Plan, effective January 1, 2007, incorporated by reference to Exhibit 10.4.1 to the Company’s annual report on Form 10-K for the year ended December 31, 2011.

 

 

 

 

 

*

(10.6.2)(10.4.2)

Amendment to the Church & Dwight Co., Inc. Executive Deferred Compensation Plan, effective February 1, 2012, incorporated by reference to Exhibit 10.4.2 to the Company’s annual report on Form 10-K for the year ended December 31, 2011.

 

 

 

 

 

*

(10.7)(10.5)

Church & Dwight Co., Inc. Executive Deferred Compensation Plan II, amended and restated as of January 1, 2012, incorporated by reference to Exhibit 10.5 to the Company’s annual report on Form 10-K for the year ended December 31, 2011.

 

 

 

 

 

*

(10.8)(10.6)

Deferred Compensation Plan for Directors effective as of May 1, 2008, incorporated by reference to Exhibit 10.5 to the Company’s quarterly report on Form 10-Q for the quarter ended March 28, 2008.

 

 

 

 

 

*

(10.9.1)(10.7)

Amended and Restated Compensation Plan for Directors, effective January 1, 2015, incorporated by reference to Exhibit 10.7 to the Company’s annual report on Form 10-K for the year ended December 31, 2015.

 

 

 

 

 

*

(10.9.2)(10.8)

Amended and Restated Compensation Plan for Directors, dated November 1, 2017, incorporated by reference to Exhibit 10.9.2 to the Company’s annual report on Form 10-K for the year ended December 31, 2017.

 

 

 

 

 

*

(10.10)(10.9)

The Stock Option Plan for Directors, effective as of January 1, 1991, incorporated by reference to Exhibit 10(j) to the Company’s annual report on Form 10-K for the year ended December 31, 2005.

 

 

 

 

 

*

(10.11)(10.10)

The Church & Dwight Co., Inc. Stock Award Plan as amended, incorporated by reference to Exhibit 10 to the Company’s quarterly report on Form 10-Q for the quarter ended June 29, 2007.

 

 

 

 

 

*

(10.12)(10.11)

Church & Dwight Co., Inc., Amended and Restated Omnibus Equity Compensation Plan, incorporated by reference to Exhibit A to the Company’s Proxy Statement for its 2013 Annual Meeting of Stockholders, filed on March 21, 2013.

 

 

 

 

*

*(10.12.1)(10.11.1)

First Amendment to Church & Dwight Co., Inc. Amended and Restated Omnibus Equity Compensation Plan, incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q for the quarter ended October 31, 2019.

*

(10.12)

Form of Award Agreement for Directors Under the Church & Dwight Co., Inc., Amended and Restated Omnibus Equity Compensation Plan, incorporated by reference to Exhibit 10.12.1 to the Company’s annual report on Form 10-K for the year ended December 31, 2018.

 

 

 

 

*

(10.13)

Form of Award Agreement for CEO and EVPs Under the Church & Dwight Co., Inc., Amended and Restated Omnibus Equity Compensation Plan, incorporated by reference to Exhibit 10.2 to the Company’s quarterly report on Form 10-Q for the quarter ended October 31, 2019.

 

 

 

*

(10.12.2)(10.14)

Form of Award Agreement for Employees Under the Church & Dwight Co., Inc., Amended and Restated Omnibus Equity Compensation Plan, incorporated by reference to Exhibit 10.12.2 to the Company’s annual report on Form 10-K for the year ended December 31, 2018.

 

 

 

 

 

*

(10.13)(10.15)

Church & Dwight Co., Inc. Third Amended and Restated Annual Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 6, 2018.

 

 

 

 

 

*

(10.14)(10.16)

Employment Agreement, dated October 31, 2011, by and between the Company and Patrick de Maynadier, incorporated by reference to Exhibit 10.18 to the Company’s annual report on Form 10-K for the year ended December 31, 2011.

 

 

 

 

 

*

(10.15)(10.17)

Employment Agreement, dated August 23, 2006, by and between the Company and Matthew T. Farrell, incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q for the quarter ended September 29, 2006.

 

 

 

 

 

*

(10.16)(10.18)

Employment Agreement, dated July 13, 2004, by and between Church & Dwight Co., Inc. and Louis H. Tursi, incorporated by reference to Exhibit 10(w) to the Company’s annual report on Form 10-K for the year ended December 31, 2004.


*

(10.17)

Amended and Restated Change in Control and Severance Agreement, entered into by and between the Company and Matthew T. Farrell, incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on February 2, 2016.

 

 

 

 


 

*

(10.18)(10.19)

Form of Amended and Restated Change in Control and Severance Agreement entered into by and between the Company and each of the senior executive officers (other than Matthew T. Farrell), incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed on February 2, 2016.

 

 

 

 

 

 

(10.19)(10.20)

Lease Agreement (Build to Suit), dated July 20, 2011, between Church & Dwight Co., Inc. and CD 95 L.L.C., incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2011.

 

 

 

 

 

(21)

List of the Company’s subsidiaries.

 

 

 

 

 

(23.1)(23)

Consent of Independent Registered Public Accounting Firm.

 

 

 

 

 

(31.1)

Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act.

 

 

 

 

 

(31.2)

Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act.

 

 

 

 

 

(32.1)

Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350.

 

 

 

 

 

(32.2)

Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350.

 

 

 

 

 

 

(101)(101.INS)

The following materials from Church & Dwight Co., Inc.’s annual report on Form 10-K forInline XBRL Instance Document - the year ended December 31, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Income for each of the three yearsinstance document does not appear in the period ended December 31, 2018, (ii) Consolidated Balance Sheets at December 31, 2018 and December 31, 2017, (iii) Consolidated Statements of Cash Flows for each ofInteractive Data File because its XBRL tags are embedded within the three years in the period ended December 31, 2018, (iv) Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2018 and (v) Notes to Consolidated Financial Statements.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.

Indicates documents filed herewith.

*

Constitutes management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report.

 

ITEM 16.FORM 10-K SUMMARY

     None.

 

 

 


 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 21, 2019.18, 2021.

 

 

 

 

CHURCH & DWIGHT CO., INC.

 

 

 

 

 

By:

 

/s/ Matthew T. Farrell

 

 

 

MATTHEW T. FARRELL

 

 

 

PRESIDENT AND CHIEF EXECUTIVE OFFICER

 

 

 


 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

/s/ James R. CraigieMatthew T. Farrell

 

Chairman, President and Chief Executive Officer, Director

 

February 21, 201918, 2021

James R. CraigieMatthew T. Farrell

 

 

 

 

 

 

 

 

 

/s/ Matthew T. FarrellJames R. Craigie

 

President and Chief Executive Officer, Director

 

February 21, 201918, 2021

Matthew T. FarrellJames R. Craigie

 

 

 

 

 

 

 

 

 

/s/ Bradley C. Irwin

 

Director

 

February 21, 201918, 2021

Bradley C. Irwin

/s/ Robert D. LeBlanc

Director

February 21, 2019

Robert D. LeBlanc

 

 

 

 

 

 

 

 

 

/s/ Penry W. Price

 

Director

 

February 21, 201918, 2021

Penry W. Price

/s/ Susan G. Saideman

Director

February 18, 2021

Susan G. Saideman

 

 

 

 

 

 

 

 

 

/s/ Ravichandra K. Saligram

 

Director

 

February 21, 201918, 2021

Ravichandra K. Saligram

 

 

 

 

 

 

 

 

 

/s/ Robert K. Shearer

 

Director

 

February 21, 201918, 2021

Robert K. Shearer

 

 

 

 

 

 

 

 

 

/s/ Janet S. Vergis

 

Director

 

February 21, 201918, 2021

Janet S. Vergis

 

 

 

 

 

 

 

 

 

/s/ Arthur B. Winkleblack

 

Director

 

February 21, 201918, 2021

Arthur B. Winkleblack

 

 

 

 

 

 

 

 

 

 

 

 

 

 

/s/ Laurie J. Yoler

 

Director

 

February 21, 201918, 2021

Laurie J. Yoler

 

 

 

 

 

/s/ Richard A. Dierker

 

Executive Vice President

 

February 21, 201918, 2021

Richard A. Dierker

 

and Chief Financial Officer

 

 

 

 

(Principal Financial Officer)

 

 

 

 

 

 

 

/s/ StevenJoseph J. KatzLongo

 

Vice President and Controller

 

February 21, 201918, 2021

StevenJoseph J. KatzLongo

 

(Principal Accounting Officer)

 

 

 



 

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

 

SCHEDULE II - Valuation and Qualifying Accounts

For each of the three years in the period ended December 31, 20182020

(Dollars in millions)

 

 

 

 

 

 

 

Additions

 

 

Deductions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions

 

 

Deductions

 

 

 

 

 

 

 

 

 

 

Beginning

 

 

Charged to

 

 

 

 

 

 

Amounts

 

 

Foreign

 

 

Ending

 

 

Beginning

 

 

Charged to

 

 

 

 

 

 

Amounts

 

 

Foreign

 

 

Ending

 

 

Balance

 

 

Expenses

 

 

Acquired

 

 

Written Off

 

 

Exchange

 

 

Balance

 

 

Balance

 

 

Expenses

 

 

Acquired

 

 

Written Off

 

 

Exchange

 

 

Balance

 

Allowance for Doubtful Accounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

$

2.4

 

 

$

1.4

 

 

$

0.0

 

 

$

(0.1

)

 

$

0.0

 

 

$

3.7

 

2019

 

 

3.1

 

 

 

0.4

 

 

 

0.0

 

 

 

(1.1

)

 

 

0.0

 

 

 

2.4

 

2018

 

$

2.9

 

 

$

1.1

 

 

$

0.0

 

 

$

(0.8

)

 

$

(0.1

)

 

$

3.1

 

 

 

2.9

 

 

 

1.1

 

 

 

0.0

 

 

 

(0.8

)

 

 

(0.1

)

 

 

3.1

 

2017

 

 

2.1

 

 

 

1.2

 

 

 

0.2

 

 

 

(0.6

)

 

 

0.0

 

 

 

2.9

 

2016

 

 

1.0

 

 

 

1.3

 

 

 

0.0

 

 

 

(0.3

)

 

 

0.1

 

 

 

2.1

 

Allowance for Cash Discounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

$

5.1

 

 

$

96.0

 

 

$

0.4

 

 

$

(95.5

)

 

$

0.0

 

 

$

6.0

 

2019

 

 

5.0

 

 

 

86.9

 

 

 

0.0

 

 

 

(86.8

)

 

 

0.0

 

 

 

5.1

 

2018

 

$

5.1

 

 

$

83.8

 

 

$

0.0

 

 

$

(83.8

)

 

$

(0.1

)

 

$

5.0

 

 

 

5.1

 

 

 

83.8

 

 

 

0.0

 

 

 

(83.8

)

 

 

(0.1

)

 

 

5.0

 

2017

 

 

4.6

 

 

 

75.5

 

 

 

0.7

 

 

 

(75.8

)

 

 

0.1

 

 

 

5.1

 

2016

 

 

4.6

 

 

 

69.8

 

 

 

0.0

 

 

 

(69.8

)

 

 

0.0

 

 

 

4.6

 

Sales Returns and Allowances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

$

13.0

 

 

$

110.9

 

 

$

0.4

 

 

$

(99.8

)

 

$

0.0

 

 

$

24.5

 

2019

 

 

12.1

 

 

 

97.2

 

 

 

0.0

 

 

 

(96.4

)

 

 

0.1

 

 

 

13.0

 

2018

 

$

13.9

 

 

$

93.3

 

 

$

0.0

 

 

$

(95.0

)

 

$

(0.1

)

 

$

12.1

 

 

 

13.9

 

 

 

93.3

 

 

 

0.0

 

 

 

(95.0

)

 

 

(0.1

)

 

 

12.1

 

2017

 

 

12.1

 

 

 

74.9

 

 

 

0.1

 

 

 

(73.4

)

 

 

0.2

 

 

 

13.9

 

2016

 

 

11.9

 

 

 

56.7

 

 

 

0.0

 

 

 

(56.8

)

 

 

0.3

 

 

 

12.1

 

 

 

8890