\
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 20162017
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. 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 |
| Name of each exchange on which registered |
Common Stock, $1 par value |
| New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
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 x☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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| Accelerated filer |
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Non-accelerated filer |
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| Smaller reporting company |
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Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒
As of August 2, 2016,1, 2017, there were 128,798,641249,509,049 shares of Common Stock outstanding.
PART I
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2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 18 |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 19 |
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3. |
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4. |
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PART II
1. |
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1A. |
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2. |
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6. |
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2
PART I – FINANCIAL INFORMATION
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions, except per share data)
| Three Months Ended |
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| Six Months Ended |
| Three Months Ended |
|
| Six Months Ended |
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| June 30, |
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| June 30, |
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| June 30, |
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| June 30, |
| June 30, |
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| June 30, |
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| June 30, |
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| June 30, |
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| 2016 |
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| 2015 |
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| 2016 |
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| 2015 |
| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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Net Sales | $ | 877.4 |
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| $ | 847.1 |
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| $ | 1,726.4 |
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| $ | 1,659.4 |
| $ | 898.0 |
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| $ | 877.4 |
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| $ | 1,775.2 |
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| $ | 1,726.4 |
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Cost of sales |
| 469.4 |
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| 474.0 |
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| 939.4 |
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| 930.8 |
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| 487.6 |
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| 469.4 |
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| 965.5 |
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| 939.4 |
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Gross Profit |
| 408.0 |
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| 373.1 |
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| 787.0 |
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| 728.6 |
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| 410.4 |
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| 408.0 |
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| 809.7 |
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| 787.0 |
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Marketing expenses |
| 120.2 |
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| 115.8 |
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| 212.7 |
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| 204.6 |
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| 130.9 |
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| 120.2 |
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| 221.7 |
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| 212.7 |
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Selling, general and administrative expenses |
| 112.5 |
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| 115.0 |
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| 219.5 |
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| 209.6 |
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| 156.3 |
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| 112.5 |
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| 268.7 |
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| 219.5 |
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Income from Operations |
| 175.3 |
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| 142.3 |
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| 354.8 |
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| 314.4 |
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| 123.2 |
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| 175.3 |
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| 319.3 |
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| 354.8 |
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Equity in earnings of affiliates |
| 2.5 |
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| (13.8 | ) |
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| 4.2 |
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| (11.5 | ) |
| 3.1 |
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| 2.5 |
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| 5.2 |
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| 4.2 |
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Investment earnings |
| 0.4 |
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| 0.5 |
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| 0.7 |
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| 1.0 |
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| 0.3 |
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| 0.4 |
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| 0.7 |
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| 0.7 |
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Other income (expense), net |
| (0.1 | ) |
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| (1.6 | ) |
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| (1.8 | ) |
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| (3.6 | ) |
| (0.5 | ) |
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| (0.1 | ) |
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| (0.7 | ) |
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| (1.8 | ) |
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Interest expense |
| (7.1 | ) |
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| (7.9 | ) |
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| (13.9 | ) |
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| (15.5 | ) |
| (9.3 | ) |
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| (7.1 | ) |
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| (17.5 | ) |
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| (13.9 | ) |
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Income before Income Taxes |
| 171.0 |
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| 119.5 |
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| 344.0 |
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| 284.8 |
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| 116.8 |
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| 171.0 |
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| 307.0 |
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| 344.0 |
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Income taxes |
| 59.4 |
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| 45.8 |
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| 119.4 |
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| 103.9 |
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| 43.9 |
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| 59.4 |
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| 102.6 |
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| 119.4 |
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Net Income | $ | 111.6 |
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| $ | 73.7 |
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| $ | 224.6 |
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| $ | 180.9 |
| $ | 72.9 |
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| $ | 111.6 |
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| $ | 204.4 |
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| $ | 224.6 |
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Weighted average shares outstanding - Basic |
| 128.5 |
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| 130.9 |
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| 129.0 |
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| 131.4 |
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| 249.8 |
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| 257.0 |
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| 252.0 |
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| 258.0 |
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Weighted average shares outstanding - Diluted |
| 130.9 |
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| 133.4 |
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| 131.4 |
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| 134.0 |
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| 255.6 |
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| 261.9 |
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| 257.7 |
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| 262.8 |
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Net income per share - Basic | $ | 0.87 |
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| $ | 0.56 |
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| $ | 1.74 |
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| $ | 1.38 |
| $ | 0.29 |
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| $ | 0.43 |
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| $ | 0.81 |
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| $ | 0.87 |
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Net income per share - Diluted | $ | 0.85 |
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| $ | 0.55 |
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| $ | 1.71 |
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| $ | 1.35 |
| $ | 0.29 |
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| $ | 0.43 |
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| $ | 0.79 |
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| $ | 0.85 |
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Cash dividends per share | $ | 0.355 |
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| $ | 0.335 |
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| $ | 0.71 |
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| $ | 0.67 |
| $ | 0.19 |
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| $ | 0.18 |
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| $ | 0.38 |
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| $ | 0.355 |
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
| Three Months Ended |
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| Six Months Ended |
| Three Months Ended |
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| Six Months Ended |
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| June 30, |
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| June 30, |
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| June 30, |
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| June 30, |
| June 30, |
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| June 30, |
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| June 30, |
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| June 30, |
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| 2016 |
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| 2015 |
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| 2016 |
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| 2015 |
| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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Net Income | $ | 111.6 |
|
| $ | 73.7 |
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| $ | 224.6 |
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| $ | 180.9 |
| $ | 72.9 |
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| $ | 111.6 |
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| $ | 204.4 |
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| $ | 224.6 |
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Other comprehensive income, net of tax: |
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Foreign exchange translation adjustments |
| (6.5 | ) |
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| 19.6 |
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| 3.4 |
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| (4.7 | ) |
| 6.7 |
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| (6.5 | ) |
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| 14.6 |
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| 3.4 |
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Defined benefit plan adjustments gain (loss) |
| - |
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| 3.9 |
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| - |
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| 3.9 |
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| 11.9 |
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| 0.0 |
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| 11.9 |
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| 0.0 |
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Income (loss) from derivative agreements |
| (0.8 | ) |
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| (1.5 | ) |
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| (7.5 | ) |
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| 1.4 |
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| (3.4 | ) |
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| (0.8 | ) |
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| (4.0 | ) |
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| (7.5 | ) |
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Other comprehensive income (loss) |
| (7.3 | ) |
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| 22.0 |
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| (4.1 | ) |
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| 0.6 |
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| 15.2 |
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| (7.3 | ) |
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| 22.5 |
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| (4.1 | ) |
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Comprehensive income | $ | 104.3 |
|
| $ | 95.7 |
|
| $ | 220.5 |
|
| $ | 181.5 |
| $ | 88.1 |
|
| $ | 104.3 |
|
| $ | 226.9 |
|
| $ | 220.5 |
|
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
3
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share and per share data)
| June 30, |
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| December 31, |
| June 30, |
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| December 31, |
| ||||
| 2016 |
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| 2015 |
| 2017 |
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| 2016 |
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Assets |
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Current Assets |
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Cash and cash equivalents | $ | 210.8 |
|
| $ | 330.0 |
| $ | 237.6 |
|
| $ | 187.8 |
|
Accounts receivable, less allowances of $1.8 and $1.0 |
| 278.9 |
|
|
| 276.2 |
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Accounts receivable, less allowances of $1.9 and $2.1 |
| 303.8 |
|
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| 287.0 |
| |||||||
Inventories |
| 290.3 |
|
|
| 274.0 |
|
| 292.3 |
|
|
| 258.2 |
|
Other current assets |
| 37.9 |
|
|
| 25.8 |
|
| 43.5 |
|
|
| 23.8 |
|
Total Current Assets |
| 817.9 |
|
|
| 906.0 |
|
| 877.2 |
|
|
| 756.8 |
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Property, Plant and Equipment, Net |
| 594.6 |
|
|
| 609.6 |
|
| 573.2 |
|
|
| 588.6 |
|
Equity Investment in Affiliates |
| 9.1 |
|
|
| 8.4 |
|
| 9.5 |
|
|
| 8.5 |
|
Trade Names and Other Intangibles, Net |
| 1,364.4 |
|
|
| 1,269.5 |
|
| 1,561.8 |
|
|
| 1,431.8 |
|
Goodwill |
| 1,406.3 |
|
|
| 1,354.9 |
|
| 1,534.7 |
|
|
| 1,444.1 |
|
Other Assets |
| 117.9 |
|
|
| 108.5 |
|
| 110.6 |
|
|
| 124.3 |
|
Total Assets | $ | 4,310.2 |
|
| $ | 4,256.9 |
| $ | 4,667.0 |
|
| $ | 4,354.1 |
|
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Liabilities and Stockholders' Equity |
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Current Liabilities |
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Short-term borrowings | $ | 381.6 |
|
| $ | 357.2 |
| $ | 629.3 |
|
| $ | 426.8 |
|
Accounts payable and accrued expenses |
| 543.7 |
|
|
| 508.3 |
|
| 581.6 |
|
|
| 568.9 |
|
Income taxes payable |
| 1.6 |
|
|
| 7.2 |
|
| 0.8 |
|
|
| 6.2 |
|
Total Current Liabilities |
| 926.9 |
|
|
| 872.7 |
|
| 1,211.7 |
|
|
| 1,001.9 |
|
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Long-term Debt |
| 700.7 |
|
|
| 692.8 |
|
| 894.1 |
|
|
| 693.4 |
|
Deferred Income Taxes |
| 499.9 |
|
|
| 484.8 |
|
| 524.7 |
|
|
| 512.2 |
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Deferred and Other Long-term Liabilities |
| 145.5 |
|
|
| 158.3 |
|
| 188.2 |
|
|
| 168.7 |
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Pension, Postretirement and Postemployment Benefits |
| 25.3 |
|
|
| 25.1 |
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Total Liabilities |
| 2,298.3 |
|
|
| 2,233.7 |
|
| 2,818.7 |
|
|
| 2,376.2 |
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Commitments and Contingencies |
|
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Stockholders' Equity |
|
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Preferred Stock, $1.00 par value, Authorized 2,500,000 shares; none issued |
| 0.0 |
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|
| 0.0 |
|
| 0.0 |
|
|
| 0.0 |
|
Common Stock, $1.00 par value, Authorized 300,000,000 shares; 146,427,550 shares issued |
| 146.4 |
|
|
| 146.4 |
| |||||||
Common Stock, $1.00 par value, Authorized 600,000,000 shares and 292,855,100 shares issued as of June 30, 2017 |
| 292.8 |
|
|
| 292.8 |
| |||||||
Additional paid-in capital |
| 389.8 |
|
|
| 376.4 |
|
| 258.1 |
|
|
| 251.4 |
|
Retained earnings |
| 2,782.9 |
|
|
| 2,650.0 |
|
| 3,034.7 |
|
|
| 2,926.0 |
|
Accumulated other comprehensive loss |
| (50.0 | ) |
|
| (45.9 | ) |
| (41.3 | ) |
|
| (63.8 | ) |
Common stock in treasury, at cost: 17,774,983 shares in 2016 and 16,473,506 shares in 2015 |
| (1,257.2 | ) |
|
| (1,103.7 | ) | |||||||
Common stock in treasury, at cost: 43,571,217 shares in 2017 and 38,892,165 shares in 2016 |
| (1,696.0 | ) |
|
| (1,428.5 | ) | |||||||
Total Stockholders' Equity |
| 2,011.9 |
|
|
| 2,023.2 |
|
| 1,848.3 |
|
|
| 1,977.9 |
|
Total Liabilities and Stockholders’ Equity | $ | 4,310.2 |
|
| $ | 4,256.9 |
| $ | 4,667.0 |
|
| $ | 4,354.1 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
4
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(In millions)
| Six Months Ended |
| Six Months Ended |
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| June 30, |
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| June 30, |
| June 30, |
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| June 30, |
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| 2016 |
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| 2015 |
| 2017 |
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| 2016 |
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Cash Flow From Operating Activities |
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Net Income | $ | 224.6 |
|
| $ | 180.9 |
| $ | 204.4 |
|
| $ | 224.6 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation expense |
| 30.7 |
|
|
| 29.6 |
|
| 29.7 |
|
|
| 30.7 |
|
|
Amortization expense |
| 23.7 |
|
|
| 21.8 |
|
| 29.5 |
|
|
| 23.7 |
|
|
Deferred income taxes |
| 14.2 |
|
|
| 10.6 |
|
| 11.3 |
|
|
| 14.2 |
|
|
Equity in net earnings of affiliates |
| (4.2 | ) |
|
| (5.5 | ) |
| (5.2 | ) |
|
| (4.2 | ) |
|
Distributions from unconsolidated affiliates |
| 3.4 |
|
|
| 5.4 |
|
| 4.3 |
|
|
| 3.4 |
|
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Non-cash compensation expense |
| 12.3 |
|
|
| 12.3 |
|
| |||||||
Non-cash pension settlement charge |
| - |
|
|
| 8.4 |
|
| 31.7 |
|
|
| 0.0 |
|
|
Non-cash compensation expense |
| 12.3 |
|
|
| 12.4 |
| ||||||||
Asset impairment charge and other asset write-offs |
| 0.9 |
|
|
| 17.4 |
| ||||||||
Other |
| 0.3 |
|
|
| 0.8 |
|
| (0.4 | ) |
|
| 1.2 |
|
|
Change in assets and liabilities: |
|
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Accounts receivable |
| 0.3 |
|
|
| (22.9 | ) |
| (6.8 | ) |
|
| 0.3 |
|
|
Inventories |
| (9.3 | ) |
|
| (27.6 | ) |
| (30.1 | ) |
|
| (9.3 | ) |
|
Other current assets |
| (1.9 | ) |
|
| 0.8 |
|
| (10.4 | ) |
|
| (1.9 | ) |
|
Accounts payable and accrued expenses |
| 20.1 |
|
|
| 12.6 |
|
| (14.2 | ) |
|
| 20.1 |
|
|
Income taxes payable |
| 0.2 |
|
|
| 20.1 |
|
| (10.7 | ) |
|
| 0.2 |
|
|
Excess tax benefit on stock options exercised |
| (18.2 | ) |
|
| (10.7 | ) |
| 0.0 |
|
|
| (18.2 | ) |
|
Other operating assets and liabilities, net |
| (0.6 | ) |
|
| (5.7 | ) |
| 3.9 |
|
|
| (0.6 | ) |
|
Net Cash Provided By Operating Activities |
| 296.5 |
|
|
| 248.4 |
|
| 249.3 |
|
|
| 296.5 |
|
|
Cash Flow From Investing Activities |
|
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|
|
|
|
Additions to property, plant and equipment |
| (17.8 | ) |
|
| (34.0 | ) |
| (10.4 | ) |
|
| (17.8 | ) |
|
Acquisitions |
| (175.5 | ) |
|
| (74.9 | ) |
| (235.3 | ) |
|
| (175.5 | ) |
|
Other |
| (0.3 | ) |
|
| (2.0 | ) |
| 3.4 |
|
|
| (0.3 | ) |
|
Net Cash Used In Investing Activities |
| (193.6 | ) |
|
| (110.9 | ) |
| (242.3 | ) |
|
| (193.6 | ) |
|
Cash Flow From Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt borrowings |
| 200.0 |
|
|
| 0.0 |
|
| |||||||
Short-term debt borrowings (repayments) |
| 23.8 |
|
|
| (23.0 | ) |
| 202.6 |
|
|
| 23.8 |
|
|
Proceeds from stock options exercised |
| 29.4 |
|
|
| 15.7 |
|
| 27.3 |
|
|
| 29.4 |
|
|
Excess tax benefit on stock options exercised |
| 18.2 |
|
|
| 10.7 |
|
| 0.0 |
|
|
| 18.2 |
|
|
Payment of cash dividends |
| (91.7 | ) |
|
| (87.5 | ) |
| (95.7 | ) |
|
| (91.7 | ) |
|
Purchase of treasury stock |
| (200.0 | ) |
|
| (263.1 | ) |
| (300.0 | ) |
|
| (200.0 | ) |
|
Other |
| (5.3 | ) |
|
| (0.7 | ) |
| (1.0 | ) |
|
| (5.3 | ) |
|
Net Cash Used In Financing Activities |
| (225.6 | ) |
|
| (347.9 | ) | ||||||||
Net Cash Provided By (Used In) Financing Activities |
| 33.2 |
|
|
| (225.6 | ) |
| |||||||
Effect of exchange rate changes on cash and cash equivalents |
| 3.5 |
|
|
| (9.4 | ) |
| 9.6 |
|
|
| 3.5 |
|
|
Net Change In Cash and Cash Equivalents |
| (119.2 | ) |
|
| (219.8 | ) |
| 49.8 |
|
|
| (119.2 | ) |
|
Cash and Cash Equivalents at Beginning of Period |
| 330.0 |
|
|
| 423.0 |
|
| 187.8 |
|
|
| 330.0 |
|
|
Cash and Cash Equivalents at End of Period | $ | 210.8 |
|
| $ | 203.2 |
| $ | 237.6 |
|
| $ | 210.8 |
|
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
5
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW-CONTINUED
(Unaudited)
(In millions)
| Six Months Ended |
| Six Months Ended |
| ||||||||||
| June 30, |
|
| June 30, |
| June 30, |
|
| June 30, |
| ||||
| 2016 |
|
| 2015 |
| 2017 |
|
| 2016 |
| ||||
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (net of amounts capitalized) | $ | 13.0 |
|
| $ | 14.5 |
| $ | 16.8 |
|
| $ | 13.0 |
|
Income taxes | $ | 104.8 |
|
| $ | 76.8 |
| $ | 102.0 |
|
| $ | 104.8 |
|
Supplemental disclosure of non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment expenditures included in Accounts Payable | $ | 4.5 |
|
| $ | 4.5 |
| $ | 5.3 |
|
| $ | 4.5 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
6
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Six Months Ended June 30, 20162017 and 20152016
(Unaudited)
(In millions)
| Number of Shares |
|
| Amounts |
| Number of Shares |
|
| Amounts |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock |
|
| Treasury Stock |
|
| Common Stock |
|
| Additional Paid-In Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Total Stockholders' Equity |
| Common Stock |
|
| Treasury Stock |
|
| Common Stock |
|
| Additional Paid-In Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Total Stockholders' Equity |
| ||||||||||||||||
December 31, 2014 |
| 146.4 |
|
|
| (13.1 | ) |
| $ | 146.4 |
|
| $ | 364.8 |
|
| $ | 2,414.9 |
|
| $ | (34.7 | ) |
| $ | (789.5 | ) |
| $ | 2,101.9 |
| |||||||||||||||||||||||||||||||
Net income |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 180.9 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 180.9 |
| |||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.6 |
|
|
| 0.0 |
|
|
| 0.6 |
| |||||||||||||||||||||||||||||||
Cash dividends |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (87.5 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (87.5 | ) | |||||||||||||||||||||||||||||||
Stock purchases |
| 0.0 |
|
|
| (3.2 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (263.1 | ) |
|
| (263.1 | ) | |||||||||||||||||||||||||||||||
Transfer of stock for settlement of share repurchase agreement |
| 0.0 |
|
|
| 0.1 |
|
|
| 0.0 |
|
|
| (4.1 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 4.1 |
|
|
| 0.0 |
| |||||||||||||||||||||||||||||||
Stock based compensation expense and stock option plan transactions, including related income tax benefits of $10.7 |
| 0.0 |
|
|
| 0.6 |
|
|
| 0.0 |
|
|
| 10.6 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 28.2 |
|
|
| 38.8 |
| |||||||||||||||||||||||||||||||
June 30, 2015 |
| 146.4 |
|
|
| (15.6 | ) |
| $ | 146.4 |
|
| $ | 371.3 |
|
| $ | 2,508.3 |
|
| $ | (34.1 | ) |
| $ | (1,020.3 | ) |
| $ | 1,971.6 |
| |||||||||||||||||||||||||||||||
December 31, 2015 |
| 146.4 |
|
|
| (16.4 | ) |
| $ | 146.4 |
|
| $ | 376.4 |
|
| $ | 2,650.0 |
|
| $ | (45.9 | ) |
| $ | (1,103.7 | ) |
| $ | 2,023.2 |
|
| 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 |
|
|
| 224.6 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 224.6 |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 224.6 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 224.6 |
|
Other comprehensive income (loss) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (4.1 | ) |
|
| 0.0 |
|
|
| (4.1 | ) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (4.1 | ) |
|
| 0.0 |
|
|
| (4.1 | ) |
Cash dividends |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (91.7 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (91.7 | ) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
| �� | (91.7 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (91.7 | ) |
Stock purchases |
| 0.0 |
|
|
| (2.2 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (200.0 | ) |
|
| (200.0 | ) |
| 0.0 |
|
|
| (4.4 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (200.0 | ) |
|
| (200.0 | ) |
Stock based compensation expense and stock option plan transactions, including related income tax benefits of $18.2 |
| 0.0 |
|
|
| 0.8 |
|
|
| 0.0 |
|
|
| 13.4 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 46.5 |
|
|
| 59.9 |
|
| 0.0 |
|
|
| 1.6 |
|
|
| 0.0 |
|
|
| 13.4 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 46.5 |
|
|
| 59.9 |
|
June 30, 2016 |
| 146.4 |
|
|
| (17.8 | ) |
| $ | 146.4 |
|
| $ | 389.8 |
|
| $ | 2,782.9 |
|
| $ | (50.0 | ) |
| $ | (1,257.2 | ) |
| $ | 2,011.9 |
|
| 292.8 |
|
|
| (35.6 | ) |
| $ | 292.8 |
|
| $ | 243.4 |
|
| $ | 2,782.9 |
|
| $ | (50.0 | ) |
| $ | (1,257.2 | ) |
| $ | 2,011.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
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 |
|
|
| 204.4 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 204.4 |
| |||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 22.5 |
|
|
| 0.0 |
|
|
| 22.5 |
| |||||||||||||||||||||||||||||||
Cash dividends |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (95.7 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (95.7 | ) | |||||||||||||||||||||||||||||||
Stock purchases |
| 0.0 |
|
|
| (6.0 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (300.0 | ) |
|
| (300.0 | ) | |||||||||||||||||||||||||||||||
Stock based compensation expense and stock option plan transactions |
| 0.0 |
|
|
| 1.3 |
|
|
| 0.0 |
|
|
| 6.7 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 32.5 |
|
|
| 39.2 |
| |||||||||||||||||||||||||||||||
June 30, 2017 |
| 292.8 |
|
|
| (43.6 | ) |
| $ | 292.8 |
|
| $ | 258.1 |
|
| $ | 3,034.7 |
|
| $ | (41.3 | ) |
| $ | (1,696.0 | ) |
| $ | 1,848.3 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In millions, except per share data)
1. | Basis of Presentation |
The condensed consolidated balance sheets as of June 30, 20162017 and December 31, 2015,2016, the condensed consolidated statements of income and comprehensive income for the three and six months ended June 30, 20162017 and June 30, 2015,2016, and the condensed consolidated statements of cash flow and stockholders’ equity for the six months ended June 30, 20162017 and June 30, 20152016 have been prepared by Church & Dwight Co., Inc. (the “Company”). In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at June 30, 20162017 and results of operations and cash flows for all periods presented have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20152016 (the “Form 10-K”). The results of operations for the period ended June 30, 20162017 are not necessarily indicative of the operating results for the full year.
On August 4, 2016, the Company announced a two-for-one stock split of the Company’s common stock (“Common Stock”). The stock split was structured in the form of a 100% stock dividend, payable on September 1, 2016 to stockholders of record as of August 15, 2016. All applicable amounts in the condensed consolidated financial statements and related disclosures have been retroactively adjusted to reflect the stock split. On May 8, 2017, the Company amended its Restated Certificate of Incorporation to increase its authorized shares of common stock to 600,000,000 from 300,000,000 at December 31, 2016.
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 $11.1 or $0.04 per share recorded in the provision for income taxes rather than in the Company’s Stockholders’ Equity Section of the Balance Sheet and an increase to both net cash provided by operating activities and net cash used in financing activities of $11.1 million for the six months ended June 30, 2017. 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 our diluted earnings per share for the three and six months ended June 30, 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.
The Company incurred research and development expenses in the second quarter of 2017 and 2016 of $16.0 and 2015 of $16.1, and $18.3, respectively. The Company incurred research and development expenses in the first six months of 2017 and 2016 of $30.1 and 2015 of $30.5, and $32.1, respectively. These expenses are included in selling, general and administrative expenses.
2. | New Accounting Pronouncements |
In March 2017, the FASB issued new accounting guidance that requires employers to report the service cost component separate from the other components of net benefit pension and postretirement costs. The employer is required to report the service cost component in the same line item or items as other compensation costs arising from services rendered during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside the subtotal of income from operations. Only the service cost component is eligible for capitalization. The guidance is effective for annual and interim periods beginning after December 15, 2017, and requires retrospective adoption, with early adoption permitted. The guidance is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In March, April, and May of 2016, the FASB issued amended 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 guidance is effective for annual periods, including interim reporting periods within those periods, beginning after December 15, 2017, 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
new standard will be effective for the Company at the beginning of its first quarter of fiscal year 2018. The guidance is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In February 2016, the Financial Accounting Standards Board (the "FASB")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 requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact that adoption of the guidance will have on itsthe Company’s consolidated financial position, results of operations and cash flows.
In March 2016, the 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 classification in the statement of cash flows. The guidance is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact that adoption of the guidance will have on its consolidated financial position, results of operations and cash flows.
In March, April, and May of 2016, the FASB issued amended 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 guidance is effective for annual and interim periods beginning after December 15, 2017, and allows companies to apply the requirements retrospectively, either to all prior periods presented or through a cumulative adjustment in the year of adoption. Early adoption is allowed for annual and interim periods beginning after December 15, 2016. While the Company is still in the process of evaluating the financial statement impact of the standard adoption, it is not currently expected to have a material impact on its consolidated financial position, results of operations or cash flows.
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.
Inventories consist of the following:
| June 30, |
|
| December 31, |
| June 30, |
|
| December 31, |
| ||||
| 2016 |
|
| 2015 |
| 2017 |
|
| 2016 |
| ||||
Raw materials and supplies | $ | 76.2 |
|
| $ | 84.6 |
| $ | 74.9 |
|
| $ | 69.8 |
|
Work in process |
| 32.8 |
|
|
| 33.1 |
|
| 32.9 |
|
|
| 28.8 |
|
Finished goods |
| 181.3 |
|
|
| 156.3 |
|
| 184.5 |
|
|
| 159.6 |
|
Total | $ | 290.3 |
|
| $ | 274.0 |
| $ | 292.3 |
|
| $ | 258.2 |
|
4. | Property, Plant and Equipment, Net (“PP&E”) |
PP&E consists of the following:
| June 30, |
|
| December 31, |
| June 30, |
|
| December 31, |
| ||||
| 2016 |
|
| 2015 |
| 2017 |
|
| 2016 |
| ||||
Land | $ | 25.2 |
|
| $ | 25.2 |
| $ | 25.1 |
|
| $ | 25.1 |
|
Buildings and improvements |
| 288.7 |
|
|
| 277.3 |
|
| 290.1 |
|
|
| 284.7 |
|
Machinery and equipment |
| 674.0 |
|
|
| 665.2 |
|
| 693.0 |
|
|
| 680.1 |
|
Software |
| 85.8 |
|
|
| 84.9 |
|
| 91.0 |
|
|
| 90.4 |
|
Office equipment and other assets |
| 60.6 |
|
|
| 59.2 |
|
| 63.3 |
|
|
| 60.8 |
|
Construction in progress |
| 26.7 |
|
|
| 33.2 |
|
| 18.2 |
|
|
| 24.2 |
|
Gross PP&E |
| 1,161.0 |
|
|
| 1,145.0 |
|
| 1,180.7 |
|
|
| 1,165.3 |
|
Less accumulated depreciation and amortization |
| 566.4 |
|
|
| 535.4 |
|
| 607.5 |
|
|
| 576.7 |
|
Net PP&E | $ | 594.6 |
|
| $ | 609.6 |
| $ | 573.2 |
|
| $ | 588.6 |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||
Depreciation and amortization on PP&E | $ | 14.7 |
|
| $ | 15.0 |
|
| $ | 30.7 |
|
| $ | 29.6 |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Depreciation and amortization on PP&E | $ | 14.9 |
|
| $ | 14.7 |
|
| $ | 29.7 |
|
| $ | 30.7 |
|
Basic EPS is calculated based on income available to holders of the Company’s common stock (“Common Stock”)Stock and the weighted average number of shares outstanding during the reported period. Diluted EPS includes additional dilution from potential Common Stock issuable pursuant to the exercise of outstanding stock options.
The following table sets forth a reconciliation of the weighted average number of shares of Common Stock outstanding to the weighted average number of shares outstanding on a diluted basis:
| Three Months Ended |
|
| Six Months Ended |
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||||
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| ||||||||
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| ||||||||
Weighted average common shares outstanding - basic |
| 128.5 |
|
|
| 130.9 |
|
|
| 129.0 |
|
|
| 131.4 |
|
| 249.8 |
|
|
| 257.0 |
|
|
| 252.0 |
|
|
| 258.0 |
|
|
Dilutive effect of stock options |
| 2.4 |
|
|
| 2.5 |
|
|
| 2.4 |
|
|
| 2.6 |
|
| 5.8 |
|
|
| 4.9 |
|
|
| 5.7 |
|
|
| 4.8 |
|
|
Weighted average common shares outstanding - diluted |
| 130.9 |
|
|
| 133.4 |
|
|
| 131.4 |
|
|
| 134.0 |
|
| 255.6 |
|
|
| 261.9 |
|
|
| 257.7 |
|
|
| 262.8 |
|
|
Antidilutive stock options outstanding |
| 0.6 |
|
|
| 1.1 |
|
|
| 1.0 |
|
|
| 1.1 |
|
| 2.5 |
|
|
| 1.3 |
|
|
| 3.1 |
|
|
| 2.1 |
|
|
The following table provides a summary of option activity during the six months ended June 30, 2016:
activity:
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
| ||
|
|
|
|
| Weighted |
|
| Average |
|
|
|
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
| |||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
|
|
|
|
| Weighted |
|
| Remaining |
|
|
|
|
| |||||
|
|
|
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
|
|
|
|
| Average |
|
| Contractual |
|
| Aggregate |
| ||||||
| Options |
|
| Price |
|
| Term |
|
| Value |
|
|
|
|
| Exercise |
|
| Term |
|
| Intrinsic |
| |||||||
Outstanding at December 31, 2015 |
| 8.6 |
|
| $ | 51.77 |
|
|
|
|
|
|
|
|
| |||||||||||||||
| Options |
|
| Price |
|
| (in Years) |
|
| Value |
| |||||||||||||||||||
Outstanding at December 31, 2016 |
| 16.0 |
|
| $ | 30.06 |
|
|
|
|
|
|
|
|
| |||||||||||||||
Granted |
| 1.0 |
|
|
| 93.32 |
|
|
|
|
|
|
|
|
|
| 1.8 |
|
|
| 53.57 |
|
|
|
|
|
|
|
|
|
Exercised |
| (0.9 | ) |
|
| 32.18 |
|
|
|
|
|
|
|
|
|
| (1.3 | ) |
|
| 21.64 |
|
|
|
|
|
|
|
|
|
Cancelled |
| (0.1 | ) |
|
| 72.47 |
|
|
|
|
|
|
|
|
|
| (0.1 | ) |
|
| 42.59 |
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2016 |
| 8.6 |
|
| $ | 58.47 |
|
|
| 6.1 |
|
| $ | 381.9 |
| |||||||||||||||
Exercisable at June 30, 2016 |
| 5.4 |
|
| $ | 44.64 |
|
|
| 4.6 |
|
| $ | 313.3 |
| |||||||||||||||
Outstanding at June 30, 2017 |
| 16.4 |
|
| $ | 33.17 |
|
|
| 6.1 |
|
| $ | 310.2 |
| |||||||||||||||
Exercisable at June 30, 2017 |
| 10.5 |
|
| $ | 25.35 |
|
|
| 4.6 |
|
| $ | 278.1 |
|
The following table provides information regarding the intrinsic value of stock options exercised and stock compensation expense related to stock option awards.
| Three Months Ended |
|
| Six Months Ended |
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||||
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| ||||||||
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| ||||||||
Intrinsic Value of Stock Options Exercised | $ | 31.1 |
|
| $ | 8.5 |
|
| $ | 55.3 |
|
| $ | 32.3 |
| $ | 7.5 |
|
| $ | 31.1 |
|
| $ | 34.7 |
|
| $ | 55.3 |
|
|
Stock Compensation Expense Related to Stock Option Awards | $ | 5.7 |
|
| $ | 9.7 |
|
| $ | 11.2 |
|
| $ | 11.4 |
| $ | 9.0 |
|
| $ | 5.7 |
|
| $ | 10.7 |
|
| $ | 11.2 |
|
|
Issued Stock Options |
| 0.6 |
|
|
| 1.1 |
|
|
| 1.0 |
|
|
| 1.1 |
|
| 1.8 |
|
|
| 1.3 |
|
|
| 1.8 |
|
|
| 2.0 |
|
|
Weighted Average Fair Value of Stock Options issued (per share) | $ | 16.11 |
|
| $ | 13.73 |
|
| $ | 15.15 |
|
| $ | 13.73 |
| $ | 9.70 |
|
| $ | 8.06 |
|
| $ | 9.67 |
|
| $ | 7.58 |
|
|
Fair Value of Stock Options Issued | $ | 10.2 |
|
| $ | 14.8 |
|
| $ | 15.2 |
|
| $ | 14.8 |
| $ | 17.1 |
|
| $ | 10.2 |
|
| $ | 17.5 |
|
| $ | 15.2 |
|
|
The following table provides a summary of the assumptions used in the valuation of issued stock options:
| Three Months Ended |
|
| Six Months Ended |
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||||
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| ||||||||
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| ||||||||
Risk-free interest rate |
| 1.5 | % |
|
| 2.0 | % |
|
| 1.7 | % |
|
| 2.0 | % |
| 2.1 | % |
|
| 1.5 | % |
|
| 2.1 | % |
|
| 1.7 | % |
|
Expected life in years |
| 7.0 |
|
|
| 6.3 |
|
|
| 6.8 |
|
|
| 6.3 |
|
| 7.2 |
|
|
| 7.0 |
|
|
| 7.2 |
|
|
| 6.8 |
|
|
Expected volatility |
| 17.1 | % |
|
| 17.2 | % |
|
| 17.0 | % |
|
| 17.2 | % |
| 16.9 | % |
|
| 17.1 | % |
|
| 16.9 | % |
|
| 17.0 | % |
|
Dividend yield |
| 1.4 | % |
|
| 1.6 | % |
|
| 1.5 | % |
|
| 1.6 | % |
| 1.4 | % |
|
| 1.4 | % |
|
| 1.4 | % |
|
| 1.5 | % |
|
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 historical changes in stock price and dividend payments. The risk free interest rate is based on the yield of an applicable term U.S. Treasury instrument.
On January 28, 2015,November 2, 2016, the Board authorized a new share repurchase program, under which the Company may repurchase up to $500$500.0 million in shares of Common Stock (the “2015“2016 Share Repurchase Program”). The 20152016 Share Repurchase Program does not have an expiration and replaced the 20142015 Share Repurchase Program. 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 connection with the Company’s 2015 Share Repurchase Program and its evergreen repurchase program,six months ended June 30, 2017, the Company repurchasedpurchased approximately 2.26.0 million shares in the first quarter of 2016 at a cost of $200.0,Common Stock for $300.0, of which approximately $103.0 $125.0 was purchased under the evergreen share repurchase program and approximately $97.0$175.0 was purchased under the 20152016 Share Repurchase Program. The Company did notProgram. As a result of the Company’s purchases, there remained $125.0 of share repurchase any sharesavailability under the 2016 Share Repurchase Program as of Common Stock during the quarter ended June 30, 2016.2017.
8. | 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 June 30, 20162017 and December 31, 2015:
2016:
|
|
| June 30, 2016 |
|
| December 31, 2015 |
|
|
| June 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||||
| 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 |
| $ | 98.2 |
|
| $ | 98.2 |
|
| $ | 89.3 |
|
| $ | 89.3 |
| Level 1 |
| $ | 104.1 |
|
| $ | 104.1 |
|
| $ | 72.4 |
|
| $ | 72.4 |
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings | Level 2 |
|
| 381.6 |
|
|
| 381.6 |
|
|
| 357.2 |
|
|
| 357.2 |
| Level 2 |
|
| 629.3 |
|
|
| 629.3 |
|
|
| 426.8 |
|
|
| 426.8 |
|
2.875% Senior notes due October 1, 2022 | Level 2 |
|
| 399.7 |
|
|
| 412.1 |
|
|
| 399.7 |
|
|
| 390.5 |
| Level 2 |
|
| 399.8 |
|
|
| 404.0 |
|
|
| 399.8 |
|
|
| 396.9 |
|
2.45% Senior notes due December 15, 2019 | Level 2 |
|
| 299.9 |
|
|
| 303.2 |
|
|
| 299.9 |
|
|
| 296.0 |
| Level 2 |
|
| 299.9 |
|
|
| 303.1 |
|
|
| 299.9 |
|
|
| 302.0 |
|
Variable term loan due September 27, 2018 | Level 2 |
|
| 200.0 |
|
|
| 200.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| |||||||||||||||||
Contingent consideration | Level 3 |
|
| 17.8 |
|
|
| 17.8 |
|
|
| 0.0 |
|
|
| 0.0 |
| |||||||||||||||||
Fair value adjustment asset (liability) related to hedged fixed rate debt instrument | Level 2 |
|
| 8.4 |
|
|
| 8.4 |
|
|
| 1.3 |
|
|
| 1.3 |
| Level 2 |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.2 |
|
|
| 0.2 |
|
The Company recognizes transfers between input levels as of the actual date of the event. There were no transfers between input levels during the six months ended June 30, 2016.2017.
Refer to Note 2 in the Form 10-K for the year ended December 31, 2016 for a description of the methods and assumptions used to estimate the fair value of each class of financial instruments reflected in the condensed Consolidated Balance Sheets.
The carrying amounts of accounts receivable, and accounts payable and accrued expenses, approximated estimated fair values as of June 30, 20162017 and December 31, 2015.2016.
Changes in interest rates, foreign exchange rates, the price of Common Stock and commodity prices expose the Company to market risk. The Company manages these risks through the use of derivative instruments, such as cash flow and fair value hedges, diesel hedge contracts, equity derivatives and foreign exchange forward contracts. The Company does not use derivatives for trading or speculative purposes. Refer to Note 3 in the Form 10-K for a discussion of each of the Company’s derivative instruments.instruments in effect as of December 31, 2016.
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 |
| ||||
|
| June 30, 2016 |
|
| December 31, 2015 |
|
| June 30, 2017 |
|
| December 31, 2016 |
| ||||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| $ | 118.8 |
|
| $ | 118.0 |
|
| $ | 111.3 |
|
| $ | 94.1 |
|
Interest rate swap |
| $ | 300.0 |
|
| $ | 300.0 |
|
| $ | 300.0 |
|
| $ | 300.0 |
|
Interest rate lock agreements(1) |
| $ | 400.0 |
|
| $ | 0.0 |
| ||||||||
Diesel fuel contracts |
| 1.0 gallons |
|
| 2.0 gallons |
|
| 5.5 gallons |
|
| 2.0 gallons |
| ||||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| $ | 17.7 |
|
| $ | 33.2 |
|
| $ | 0.0 |
|
| $ | 1.8 |
|
Equity derivatives |
| $ | 36.1 |
|
| $ | 32.4 |
|
| $ | 23.2 |
|
| $ | 34.4 |
|
(1) | The Company entered into interest rate lock agreements in the second quarter of 2017 to effectively hedge the interest rate risk of the 10-year Senior Notes issued on July 25, 2017. These agreements have been designated as cash flow hedges on the semi-annual interest payments of the 10-year Senior Notes and the fair value is reflected within Other Current Assets with an offsetting amount recorded in other comprehensive income (“OCI”), net of tax. The resulting gain or loss will be amortized and reclassified to interest expense over the life of the 10-year Senior Notes. See Note 20 for further details on the Senior Notes issued July 25, 2017. |
The fair values and amount of gain (loss) recognized in income and other comprehensive incomeOCI associated with the derivative instruments disclosed above did not have a material impact on the Company’s condensed consolidated financial statements.
10. |
|
On January 4, 2016,May 1, 2017, the Company acquired Spencer Forrest,Agro BioSciences, Inc., the maker of TOPPIK, (the “Toppik“Agro Acquisition”), the leading brand of hair building fibersan innovator and leader in developing custom probiotic products for people with thinning hair.poultry, cattle and swine. The total purchase price was approximately $175.5,$75.0, which is subject to a working capital adjustment, and an additional payment of up to $25.0 after 3 years based on the closing working capital. The Company financed the acquisition with commercial paper. Toppik’ssales performance. Agro BioSciences, Inc.’s annual sales arewere approximately $30.0. This brand will be$11.0 in 2016. The acquisition was funded with short-term borrowings and is managed withinin the Consumer Domestic and Consumer International segments. Specialty Products Division (“SPD”) segment.
The preliminary fair values of the net assets acquired are set forth below:as follows:
| Acquisition Date |
| |
| Preliminary |
| |
Toppik Acquisition | Fair Value |
| |
Inventory and other working capital assets | $ | 9.5 |
|
Property, plant and equipment and other long-term assets |
| 0.2 |
|
Trade names and other intangibles |
| 115.8 |
|
Goodwill |
| 52.2 |
|
Current liabilities |
| (2.2 | ) |
Cash purchase price as of June 30, 2016 (net of cash acquired) | $ | 175.5 |
|
| Agro |
| |
| Acquisition Date |
| |
| Preliminary |
| |
| Fair Value |
| |
Inventory and other assets | $ | 2.4 |
|
Trade names and other intangibles |
| 37.0 |
|
Goodwill |
| 53.4 |
|
Long-term liabilities |
| (17.8 | ) |
Cash purchase price (net of cash acquired) | $ | 75.0 |
|
The life of the amortizable intangible assets recognized from the ToppikAgro Acquisition ranges from 105 - 2015 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 January 17, 2017, the Company acquired the VIVISCAL 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 in the Consumer Domestic and Consumer International segments.
The preliminary fair values of the net assets acquired are set forth as follows:
| Viviscal |
| |
| Acquisition Date |
| |
| Preliminary |
| |
| Fair Value |
| |
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 |
|
The life of the amortizable intangible assets recognized from the Viviscal Acquisition ranges from 15 - 20 years. The goodwill is a result of expected synergies from combined operations of the acquisition and the Company. Pro forma results are not presented because the impact of the acquisition is not material to the Company’s consolidated financial results.
The fair values of the assets and liabilities of the acquisitions above are considered preliminary as the purchase price allocations are not finalized.
11. | Goodwill and Other Intangibles, Net |
The following table provides information related to the carrying value of all intangible assets, other than goodwill:
|
| June 30, 2016 |
|
|
|
| December 31, 2015 |
|
| June 30, 2017 |
|
|
|
| December 31, 2016 |
| ||||||||||||||||||||||||||||||||||||
|
| Gross |
|
|
|
|
|
|
|
|
|
| Amortization |
| Gross |
|
|
|
|
|
|
|
|
|
| Gross |
|
|
|
|
|
|
|
|
|
| Amortization |
| Gross |
|
|
|
|
|
|
|
|
| ||||
|
| Carrying |
|
| Accumulated |
|
|
|
|
|
| Period |
| Carrying |
|
| Accumulated |
|
|
|
|
|
| Carrying |
|
| Accumulated |
|
|
|
|
|
| Period |
| Carrying |
|
| Accumulated |
|
|
|
|
| ||||||||
|
| Amount |
|
| Amortization |
|
| Net |
|
| (Years) |
| Amount |
|
| Amortization |
|
| Net |
|
| Amount |
|
| Amortization |
|
| Net |
|
| (Years) |
| Amount |
|
| Amortization |
|
| Net |
| ||||||||||||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Names |
| $ | 356.6 |
|
| $ | (106.3 | ) |
| $ | 250.3 |
|
| 3-20 |
| $ | 259.5 |
|
| $ | (96.4 | ) |
| $ | 163.1 |
|
| $ | 553.9 |
|
| $ | (130.3 | ) |
| $ | 423.6 |
|
| 3-20 |
| $ | 442.6 |
|
| $ | (115.0 | ) |
| $ | 327.6 |
|
Customer Relationships |
|
| 380.5 |
|
|
| (153.0 | ) |
|
| 227.5 |
|
| 15-20 |
|
| 372.4 |
|
|
| (141.8 | ) |
|
| 230.6 |
|
|
| 412.2 |
|
|
| (176.1 | ) |
|
| 236.1 |
|
| 15-20 |
|
| 384.4 |
|
|
| (164.2 | ) |
|
| 220.2 |
|
Patents/Formulas |
|
| 68.7 |
|
|
| (43.7 | ) |
|
| 25.0 |
|
| 4-20 |
|
| 57.4 |
|
|
| (41.9 | ) |
|
| 15.5 |
|
|
| 87.6 |
|
|
| (47.3 | ) |
|
| 40.3 |
|
| 4-20 |
|
| 68.7 |
|
|
| (45.4 | ) |
|
| 23.3 |
|
Non Compete Agreement |
|
| 1.8 |
|
|
| (1.5 | ) |
|
| 0.3 |
|
| 5-10 |
|
| 1.8 |
|
|
| (1.5 | ) |
|
| 0.3 |
|
|
| 1.8 |
|
|
| (1.6 | ) |
|
| 0.2 |
|
| 5-10 |
|
| 1.8 |
|
|
| (1.6 | ) |
|
| 0.2 |
|
Total |
| $ | 807.6 |
|
| $ | (304.5 | ) |
| $ | 503.1 |
|
|
|
| $ | 691.1 |
|
| $ | (281.6 | ) |
| $ | 409.5 |
|
| $ | 1,055.5 |
|
| $ | (355.3 | ) |
| $ | 700.2 |
|
|
|
| $ | 897.5 |
|
| $ | (326.2 | ) |
| $ | 571.3 |
|
Indefinite lived intangible assets - Carrying value
|
| June 30, |
|
|
|
|
|
|
|
| December 31, |
|
|
|
|
| ||
|
| 2016 |
|
|
|
|
|
|
|
| 2015 |
|
|
|
|
| ||
Trade Names |
| $ | 861.3 |
|
|
|
|
|
|
|
| $ | 860.0 |
|
|
|
|
|
|
| June 30, |
|
|
|
|
|
|
|
| December 31, |
|
|
|
|
| ||
|
| 2017 |
|
|
|
|
|
|
|
| 2016 |
|
|
|
|
| ||
Trade Names |
| $ | 861.6 |
|
|
|
|
|
|
|
| $ | 860.5 |
|
|
|
|
|
Intangible amortization expense was $11.1$14.4 and $9.7$11.1 for the second quarter of 20162017 and 2015,2016, respectively. Intangible amortization expense amounted to $22.4$28.3 and $20.4$22.4 for the first six months of 20162017 and 2015,2016, respectively. The Company estimates that intangible amortization expense related to amortizable intangible assets held as of June 30, 2017 will be approximately $45.0$58.0 in 2016 and approximately $40.02017, reducing to $45.0$52.0 annually over the next five years.
The carrying amount of goodwill as of June 30, 2016 and December 31, 2015, respectively, is as follows:
| Consumer |
|
| Consumer |
|
| Specialty |
|
|
|
|
| |||
| Domestic |
|
| International |
|
| Products |
|
| Total |
| ||||
Balance at December 31, 2015 | $ | 1,242.2 |
|
| $ | 62.6 |
|
| $ | 50.1 |
|
| $ | 1,354.9 |
|
Toppik acquired goodwill |
| 39.2 |
|
|
| 13.0 |
|
|
| 0.0 |
|
|
| 52.2 |
|
Other |
| (0.8 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (0.8 | ) |
Balance at June 30, 2016 | $ | 1,280.6 |
|
| $ | 75.6 |
|
| $ | 50.1 |
|
| $ | 1,406.3 |
|
| 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 |
| 25.8 |
|
|
| 11.1 |
|
|
| 0.0 |
|
|
| 36.9 |
|
AGRO acquired goodwill |
| 0.0 |
|
|
| 0.0 |
|
|
| 53.4 |
|
|
| 53.4 |
|
Other |
| 0.0 |
|
|
| 0.3 |
|
|
| 0.0 |
|
|
| 0.3 |
|
Balance at June 30, 2017 | $ | 1,305.9 |
|
| $ | 125.3 |
|
| $ | 103.5 |
|
| $ | 1,534.7 |
|
VIVISCAL and AGRO acquired goodwill is deductible for U.S. tax purposes. In connection with its annual goodwill impairment test, performed in the beginning of the second quarter of 2016,2017, the Company determined that the estimated fair value substantially exceeded the carrying values of all reporting units.
12. | Accounts Payable and Accrued Expenses |
Accounts payable and accrued expenses consist of the following:
| June 30, |
|
| December 31, |
| June 30, |
|
| December 31, |
| ||||
| 2016 |
|
| 2015 |
| 2017 |
|
| 2016 |
| ||||
Trade accounts payable | $ | 316.1 |
|
| $ | 293.9 |
| $ | 375.0 |
|
| $ | 331.6 |
|
Accrued marketing and promotion costs |
| 108.1 |
|
|
| 91.5 |
|
| 100.7 |
|
|
| 82.0 |
|
Accrued wages and related benefit costs |
| 39.6 |
|
|
| 59.4 |
|
| 38.8 |
|
|
| 73.2 |
|
Other accrued current liabilities |
| 79.9 |
|
|
| 63.5 |
|
| 67.1 |
|
|
| 82.1 |
|
Total | $ | 543.7 |
|
| $ | 508.3 |
| $ | 581.6 |
|
| $ | 568.9 |
|
13. | Short-Term Borrowings and Long-Term Debt |
Short-term borrowings and long-term debt consist of the following:
| June 30, |
|
| December 31, |
| June 30, |
|
| December 31, |
| ||||
| 2016 |
|
| 2015 |
| 2017 |
|
| 2016 |
| ||||
Short-term borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper issuances | $ | 375.0 |
|
| $ | 354.5 |
| $ | 627.2 |
|
| $ | 420.0 |
|
Various debt due to international banks |
| 6.6 |
|
|
| 2.7 |
|
| 2.1 |
|
|
| 6.8 |
|
Total short-term borrowings | $ | 381.6 |
|
| $ | 357.2 |
| $ | 629.3 |
|
| $ | 426.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.875% Senior notes due October 1, 2022 | $ | 400.0 |
|
| $ | 400.0 |
| $ | 400.0 |
|
| $ | 400.0 |
|
Less: Discount |
| (0.3 | ) |
|
| (0.3 | ) |
| (0.2 | ) |
|
| (0.2 | ) |
2.45% Senior notes due December 15, 2019 |
| 300.0 |
|
|
| 300.0 |
|
| 300.0 |
|
|
| 300.0 |
|
Less: Discount |
| (0.1 | ) |
|
| (0.1 | ) |
| (0.1 | ) |
|
| (0.1 | ) |
Variable term loan due September 27, 2018 |
| 200.0 |
|
|
| 0.0 |
| |||||||
Debt issuance costs, net |
| (7.3 | ) |
|
| (8.1 | ) |
| (5.6 | ) |
|
| (6.5 | ) |
Fair value adjustment related to hedged fixed rate debt instrument |
| 8.4 |
|
|
| 1.3 |
| |||||||
Fair value adjustment asset (liability) related to hedged fixed rate debt instrument |
| 0.0 |
|
|
| 0.2 |
| |||||||
Net long-term debt | $ | 700.7 |
|
| $ | 692.8 |
| $ | 894.1 |
|
| $ | 693.4 |
|
On April 3, 2017, the Company’s $200.0 variable term loan facility due September 27, 2018 was drawn upon in full to improve liquidity and to pay a portion of the outstanding commercial paper. This $200.0 variable term loan was repaid with a portion of the proceeds from the Company’s underwritten public offering totaling $1,425.0 on July 25, 2017. See Note 20 for further details.
The components of changes in accumulated other comprehensive income (loss) for the six months ended June 30, 2016 and June 30, 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| ||
| Foreign |
|
| Defined |
|
|
|
|
|
| Other |
| Foreign |
|
| Defined |
|
|
|
|
|
| Other |
| ||||||
| Currency |
|
| Benefit |
|
| Derivative |
|
| Comprehensive |
| Currency |
|
| Benefit |
|
| Derivative |
|
| Comprehensive |
| ||||||||
| Adjustments |
|
| Plans |
|
| Agreements |
|
| Income (Loss) |
| Adjustments |
|
| Plans |
|
| Agreements |
|
| Income (Loss) |
| ||||||||
Balance at December 31, 2014 | $ | (16.4 | ) |
| $ | (17.7 | ) |
| $ | (0.6 | ) |
| $ | (34.7 | ) | |||||||||||||||
Balance at December 31, 2015 | $ | (38.5 | ) |
| $ | (11.5 | ) |
| $ | 4.1 |
|
| $ | (45.9 | ) | |||||||||||||||
Other comprehensive income (loss) before reclassifications |
| 3.4 |
|
|
| 0.0 |
|
|
| (9.5 | ) |
|
| (6.1 | ) | |||||||||||||||
Amounts reclassified to consolidated statement of income |
| 0.0 |
|
|
| 0.0 |
|
|
| (0.3 | ) |
|
| (0.3 | ) | |||||||||||||||
Tax benefit (expense) |
| 0.0 |
|
|
| 0.0 |
|
|
| 2.3 |
|
|
| 2.3 |
| |||||||||||||||
Other comprehensive income (loss) |
| 3.4 |
|
|
| 0.0 |
|
|
| (7.5 | ) |
|
| (4.1 | ) | |||||||||||||||
Balance at June 30, 2016 | $ | (35.1 | ) |
| $ | (11.5 | ) |
| $ | (3.4 | ) |
| $ | (50.0 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance at December 31, 2016 | $ | (50.0 | ) |
| $ | (13.2 | ) |
| $ | (0.6 | ) |
| $ | (63.8 | ) | |||||||||||||||
Other comprehensive income (loss) before reclassifications |
| (16.3 | ) |
|
| 0.0 |
|
|
| 5.9 |
|
|
| (10.4 | ) |
| 14.6 |
|
|
| 2.2 |
|
|
| (6.2 | ) |
|
| 10.6 |
|
Amounts reclassified to consolidated statement of income (a) (b) |
| 0.0 |
|
|
| 5.2 |
|
|
| (3.6 | ) |
|
| 1.6 |
|
| 0.0 |
|
|
| 11.9 |
|
|
| 0.3 |
|
|
| 12.2 |
|
Tax benefit (expense) |
| 11.6 |
| (c) |
| (1.3 | ) |
|
| (0.9 | ) |
|
| 9.4 |
|
| 0.0 |
|
|
| (2.2 | ) |
|
| 1.9 |
|
|
| (0.3 | ) |
Other comprehensive income (loss) |
| (4.7 | ) |
|
| 3.9 |
|
|
| 1.4 |
|
|
| 0.6 |
|
| 14.6 |
|
|
| 11.9 |
|
|
| (4.0 | ) |
|
| 22.5 |
|
Balance at June 30, 2015 | $ | (21.1 | ) |
| $ | (13.8 | ) |
| $ | 0.8 |
|
| $ | (34.1 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance at December 31, 2015 | $ | (38.5 | ) |
| $ | (11.5 | ) |
| $ | 4.1 |
|
| $ | (45.9 | ) | |||||||||||||||
Other comprehensive income (loss) before reclassifications |
| 3.4 |
|
|
| 0.0 |
|
|
| (9.5 | ) |
|
| (6.1 | ) | |||||||||||||||
Amounts reclassified to consolidated statement of income (a) (b) |
| 0.0 |
|
|
| 0.0 |
|
|
| (0.3 | ) |
|
| (0.3 | ) | |||||||||||||||
Tax benefit (expense) |
| 0.0 |
| �� |
| 0.0 |
|
|
| 2.3 |
|
|
| 2.3 |
| |||||||||||||||
Other comprehensive income (loss) |
| 3.4 |
|
|
| 0.0 |
|
|
| (7.5 | ) |
|
| (4.1 | ) | |||||||||||||||
Balance at June 30, 2016 | $ | (35.1 | ) |
| $ | (11.5 | ) |
| $ | (3.4 | ) |
| $ | (50.0 | ) | |||||||||||||||
Balance at June 30, 2017 | $ | (35.4 | ) |
| $ | (1.3 | ) |
| $ | (4.6 | ) |
| $ | (41.3 | ) |
| (a) |
|
| (b) | The Company reclassified a loss of |
|
|
15.Benefit Plans
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. 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 has no further obligations with respect to material defined benefit pension plans.
| 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 for the partnership 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. With the exception of the Natronx Technologies LLC (“Natronx”) joint venture, in which the Company and the partner supplier are each one-third owners, the Company is not engaged in any other material transactions with the partnership or the partner supplier.
b. As of June 30, 2016,2017, the Company had commitments of approximately $245.0242.5. 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.
c. As of June 30, 2016,2017, the Company had various guarantees and letters of credit of approximately $23.0.
d. On November 8, 2011, the Company acquired a license for certain oral care technology for cash consideration of $4.3. In addition to this initial payment, the Company was required to make advance royalty payments of up to $5.5 upon the launch of a product utilizing the licensed technology, of which the entire $5.5 has been paid as of December 31, 2015. As of June 30, 2016, no additional payments are required under the license agreement. However, upon the approval of certain New Drug Applications by the U.S. Food and Drug Administration for products incorporating the acquired technology, the Company would be required to make an additional $7.0 license payment.totaling $6.6.
e.d. 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 of an amount in excess of $20.0, as well as declaratory relief, statutory prejudgment interest and attorneys’ fees and costs.
The Company is vigorously defending itself in this matter. On June 16, 2014, the Company filed an amended answer to the complaint denying all of the Plaintiff’s material allegations. The parties have been engaged in fact discovery, which is ongoing.
In connection with this matter, the Company has reserved an amount that is immaterial. However, it does not believe is material. Although any damages ultimately paid byreasonably possible that the Company may exceed this amount, itultimately be required to pay all or substantially all of the damages and other amounts sought by Plaintiff. It is not currently possible to more precisely estimate the amount or range of any such excess; however, any suchamounts that the Company may be required to pay in excess could have a material adverse effect onof the Company’s business, financial condition, results of operationsreserved amount because expert discovery with respect to damages is not sufficiently advanced and cash flows.the outcome thereof is uncertain.
f.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 contract, inaccuracies in representations and warranties surviving the closing date and satisfaction of liabilities and commitments retained under the applicable contract. Representations and warranties that survive the closing date generally survive for periods up to five years or the expiration of the applicable statutes of limitations. Potential losses under the indemnifications are generally limited to a portion of the original transaction price, or to other lesser specific dollar amounts for select provisions. With respect to sale transactions, the Company also routinely enters into non-competition agreements for varying periods of time. Guarantees and indemnifications with respect to acquisition and divestiture activities, if triggered, could have a materially adverse impact on the Company’s financial condition, results of operations and cash flows.
g. The Company,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 government investigations andor other proceedings from time to time,, 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 many uncertaintiesconsiderable uncertainty and the outcome of certain pending or threatened legal actions may not be reasonably predictabletheir outcomes, and any related damages, may not be reasonably predictable or estimable. Certain legal actions, including those described above,While any such proceedings could result in an adverse outcome for the Company, and any such adverse outcome couldis not expected to have a material adverse effect on the Company’s business, financial condition, results of operations andor cash flows.
| Related Party Transactions |
The following summarizes the balances and transactions between the Company and each of (i) Armand Products Company (“Armand”) and The ArmaKleen Company (“ArmaKleen”), in each of which the Company holds a 50% ownership interest, and (ii) Natronx, in which the Company holds a one-third ownership interest:
| Armand |
|
| ArmaKleen |
|
| Natronx |
| Armand |
|
| ArmaKleen |
|
| Natronx |
| ||||||||||||||||||||||||||||||
| Six Months Ended |
|
| Six Months Ended |
|
| Six Months Ended |
| Six Months Ended |
|
| Six Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||||||||||||
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||||||||||
Purchases by Company | $ | 10.0 |
|
| $ | 11.2 |
|
| $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 0.0 |
| $ | 10.0 |
|
| $ | 10.0 |
|
| $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 0.0 |
|
Sales by Company | $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 0.6 |
|
| $ | 0.7 |
|
| $ | 0.8 |
|
| $ | 1.0 |
| $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 0.6 |
|
| $ | 0.6 |
|
| $ | 0.0 |
|
| $ | 0.8 |
|
Outstanding Accounts Receivable | $ | 0.5 |
|
| $ | 0.8 |
|
| $ | 0.6 |
|
| $ | 1.0 |
|
| $ | 0.1 |
|
| $ | 0.1 |
| $ | 0.4 |
|
| $ | 0.5 |
|
| $ | 0.8 |
|
| $ | 0.6 |
|
| $ | 0.0 |
|
| $ | 0.1 |
|
Outstanding Accounts Payable | $ | 2.3 |
|
| $ | 2.3 |
|
| $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 0.0 |
| $ | 2.3 |
|
| $ | 2.3 |
|
| $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 0.0 |
|
Administration & Management Oversight Services (1) | $ | 1.2 |
|
| $ | 1.2 |
|
| $ | 1.0 |
|
| $ | 1.0 |
|
| $ | 0.3 |
|
| $ | 0.4 |
| $ | 1.2 |
|
| $ | 1.2 |
|
| $ | 1.0 |
|
| $ | 1.0 |
|
| $ | 0.0 |
|
| $ | 0.3 |
|
(1) Billed by Company and recorded as a reduction of selling, general and administrative expenses.
Segment Information
The Company operates 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. 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 (losses) of affiliates. As of June 30, 2016,2017, the Company held 50% ownership interests in each of Armand and ArmaKleen, respectively, and a one-third ownership interest in Natronx. The Company’s equity in earnings (losses) of Armand and ArmaKleen for the three and six months ended June 30, 20162017 and Armand, ArmaKleen and Natronx for the three and six months ended June 30, 2015, respectively,2016 are included in the Corporate segment.
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 in the table below.
Segment Net Sales and Income before Income Taxes for the three and six months ended June 30, 2016 and June 30, 2015 respectively, are as follows:
| Consumer |
|
| Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
| Consumer |
|
| Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Domestic |
|
| International |
|
| SPD |
|
| Corporate(3) |
|
| Total |
| Domestic |
|
| International |
|
| SPD |
|
| Corporate(3) |
|
| Total |
| ||||||||||
Net Sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2017 | $ | 678.2 |
|
| $ | 145.1 |
|
| $ | 74.7 |
|
| $ | 0.0 |
|
| $ | 898.0 |
| |||||||||||||||||||
Second Quarter 2016 | $ | 669.8 |
|
| $ | 136.4 |
|
| $ | 71.2 |
|
| $ | 0.0 |
|
| $ | 877.4 |
|
| 669.8 |
|
|
| 136.4 |
|
|
| 71.2 |
|
|
| 0.0 |
|
|
| 877.4 |
|
Second Quarter 2015 |
| 638.3 |
|
|
| 130.9 |
|
|
| 77.9 |
|
|
| 0.0 |
|
|
| 847.1 |
| |||||||||||||||||||
First Six Months of 2017 | $ | 1,337.9 |
|
| $ | 288.2 |
|
| $ | 149.1 |
|
| $ | 0.0 |
|
| $ | 1,775.2 |
| |||||||||||||||||||
First Six Months of 2016 | $ | 1,317.6 |
|
| $ | 263.8 |
|
| $ | 145.0 |
|
| $ | 0.0 |
|
| $ | 1,726.4 |
|
| 1,317.6 |
|
|
| 263.8 |
|
|
| 145.0 |
|
|
| 0.0 |
|
|
| 1,726.4 |
|
First Six Months of 2015 |
| 1,252.9 |
|
|
| 251.3 |
|
|
| 155.2 |
|
|
| 0.0 |
|
|
| 1,659.4 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2017(3) | $ | 123.7 |
|
| $ | (23.7 | ) |
| $ | 13.7 |
|
| $ | 3.1 |
|
| $ | 116.8 |
| |||||||||||||||||||
Second Quarter 2016 | $ | 141.6 |
|
| $ | 16.2 |
|
| $ | 10.7 |
|
| $ | 2.5 |
|
| $ | 171.0 |
|
| 141.6 |
|
|
| 16.2 |
|
|
| 10.7 |
|
|
| 2.5 |
|
|
| 171.0 |
|
Second Quarter 2015 |
| 112.6 |
|
|
| 4.5 |
|
|
| 16.1 |
|
|
| (13.7 | ) |
|
| 119.5 |
| |||||||||||||||||||
First Six Months of 2017(3) | $ | 284.6 |
|
| $ | (4.3 | ) |
| $ | 21.5 |
|
| $ | 5.2 |
|
| $ | 307.0 |
| |||||||||||||||||||
First Six Months of 2016 | $ | 281.5 |
|
| $ | 34.3 |
|
| $ | 24.0 |
|
| $ | 4.2 |
|
| $ | 344.0 |
|
| 281.5 |
|
|
| 34.3 |
|
|
| 24.0 |
|
|
| 4.2 |
|
|
| 344.0 |
|
First Six Months of 2015 |
| 242.2 |
|
|
| 23.9 |
|
|
| 30.1 |
|
|
| (11.4 | ) |
|
| 284.8 |
|
(1) | Intersegment sales from Consumer International to Consumer Domestic, which are not reflected in the table, were |
(2) | In determining Income before Income Taxes, interest expense and investment earnings were allocated among segments based upon each segment’s relative Income from Operations. |
(3) |
|
Product line revenues from external customers are as follows:
| Three Months Ended |
|
| Six Months Ended |
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||||
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| ||||||||
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| ||||||||
Household Products | $ | 397.8 |
|
| $ | 390.9 |
|
| $ | 786.1 |
|
| $ | 757.4 |
| $ | 410.8 |
|
| $ | 397.8 |
|
| $ | 805.3 |
|
| $ | 786.1 |
|
|
Personal Care Products |
| 272.0 |
|
|
| 247.4 |
|
|
| 531.5 |
|
|
| 495.5 |
|
| 267.4 |
|
|
| 272.0 |
|
|
| 532.6 |
|
|
| 531.5 |
|
|
Total Consumer Domestic |
| 669.8 |
|
|
| 638.3 |
|
|
| 1,317.6 |
|
|
| 1,252.9 |
|
| 678.2 |
|
|
| 669.8 |
|
|
| 1,337.9 |
|
|
| 1,317.6 |
|
|
Total Consumer International |
| 136.4 |
|
|
| 130.9 |
|
|
| 263.8 |
|
|
| 251.3 |
|
| 145.1 |
|
|
| 136.4 |
|
|
| 288.2 |
|
|
| 263.8 |
|
|
Total SPD |
| 71.2 |
|
|
| 77.9 |
|
|
| 145.0 |
|
|
| 155.2 |
|
| 74.7 |
|
|
| 71.2 |
|
|
| 149.1 |
|
|
| 145.0 |
|
|
Total Consolidated Net Sales | $ | 877.4 |
|
| $ | 847.1 |
|
| $ | 1,726.4 |
|
| $ | 1,659.4 |
| $ | 898.0 |
|
| $ | 877.4 |
|
| $ | 1,775.2 |
|
| $ | 1,726.4 |
|
|
Household Products include laundry, deodorizing and cleaning products. Personal Care Products include condoms, pregnancy kits, oral care products, skin care and hair care products and gummy dietary supplements.
19. | 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. Sales for the Brazilian chemical business in 2016 were approximately $22.0. Future costs associated with the sale of the Brazilian chemical business are expected to be immaterial.
| Subsequent |
Two-for-One Stock Split
Water Pik, Inc. Acquisition
On August 4, 2016,July 17, 2017, the Company announcedentered into a Stock Purchase Agreement (the “Agreement”) with PIK Holdings, Inc. (“Waterpik”), the stockholders of Waterpik (the “Company Stockholders”) and MidOcean Partners III, L.P. in its capacity as a Company Stockholder and as the representative of the Company Stockholders (the “Representative”), pursuant to which the Company agreed to acquire all of the issued and outstanding shares of capital stock of Waterpik (the “Waterpik Acquisition”). Waterpik is a water-jet technology company that designs and sells both oral water flossers and replacement showerheads. Pursuant to the terms of the Agreement, the total purchase price of Waterpik’s outstanding shares of capital stock, which is subject to adjustments based on the closing working capital of Waterpik and its Boardsubsidiaries, is estimated to be $1,033.0.
The closing of Directors has approvedthe Waterpik Acquisition is expected to occur in the third quarter of 2017 and is subject to customary closing conditions, as set forth in the Agreement filed by the Company as an exhibit to its Current Report on Form 8-K on July 17, 2017. The closing of the Waterpik Acquisition is not subject to any financing condition. The Agreement contains certain customary pre-closing covenants and certain customary termination rights, including the right of either the Company or the Representative to terminate the Agreement if the Waterpik Acquisition is not consummated on or before October 16, 2017.
Waterpik’s annual sales were approximately $265.0 for the trailing twelve months through June 30, 2017. The Company expects that Waterpik will be managed by the Consumer Domestic and Consumer International segments.
Debt for Acquisition
The Company will finance the acquisition of Waterpik with a two-for-one stock splitportion 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 due 2019, $300.0 aggregate principal amount of 2.450% Senior Notes due 2022, $425.0 aggregate principal amount of 3.150% Senior Notes due 2027 and $400.0 aggregate principal amount of 3.950% Senior Notes due 2047. The remaining proceeds were used to pay down in its entirety and terminate the Company’s $200.0 term loan and to repay a portion of the Company’s common stock in the form of a stock dividend, payable on September 1, 2016 to shareholders of record as of August 15, 2016. The split will increase the Company’s total shares outstanding from approximately 129 million shares to approximately 258 million shares. The financial statements presented in this quarterly report on Form 10-Q do not reflect the effect of the stock split. commercial paper borrowings.
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
(In millions, except per share data)
RESULTS OF OPERATIONS
Recent Developments
Water Pik, Inc. Acquisition
On July 17, 2017, the Company entered into a stock purchase agreement to acquire Water Pik, Inc. (“Waterpik”), the market leader in water-jet technology in both oral water flossers and replacement showerheads. The total purchase price, which is subject to adjustments based on the closing working capital of Waterpik and its subsidiaries, is estimated to be $1,033.0. Waterpik’s annual sales were approximately $265.0 for the trailing twelve months through June 30, 2017. The Company will finance the acquisition with the proceeds of an underwritten public offering of $1.425.0 aggregate principal amount of senior notes that was completed on July 25, 2017. Waterpik will be managed by the Consumer Domestic and Consumer International segments. Refer to Note 20 of the condensed consolidated financial statements for the period ended June 30, 2017 included in this Form 10-Q and our Current Report on Form 8-K filed on July 17, 2017 for additional information with respect to the acquisition of Waterpik.
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. 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 has no further obligations with respect to material defined benefit pension plans.
Consolidated results
| Three Months Ended |
|
| Change vs. |
|
| Three Months Ended |
| Three Months Ended |
|
| Change vs. |
|
| Three Months Ended |
| ||||||
| June 30, 2016 |
|
| Prior Year |
|
| June 30, 2015 |
| June 30, 2017 |
|
| Prior Year |
|
| June 30, 2016 |
| ||||||
Net Sales | $ | 877.4 |
|
|
| 3.6% |
|
| $ | 847.1 |
| $ | 898.0 |
|
|
| 2.3% |
|
| $ | 877.4 |
|
Gross Profit | $ | 408.0 |
|
|
| 9.4% |
|
| $ | 373.1 |
| $ | 410.4 |
|
|
| 0.6% |
|
| $ | 408.0 |
|
Gross Margin |
| 46.5 | % |
| +250 basis points |
|
|
| 44.0 | % |
| 45.7 | % |
| -80 basis points |
|
|
| 46.5 | % | ||
Marketing Expenses | $ | 120.2 |
|
|
| 3.8% |
|
| $ | 115.8 |
| $ | 130.9 |
|
|
| 8.9% |
|
| $ | 120.2 |
|
Percent of Net Sales |
| 13.7 | % |
| 0 basis points |
|
|
| 13.7 | % |
| 14.6 | % |
| +90 basis points |
|
|
| 13.7 | % | ||
Selling, General & Administrative Expenses | $ | 112.5 |
|
|
| -2.2% |
|
| $ | 115.0 |
| $ | 156.3 |
|
|
| 38.9% |
|
| $ | 112.5 |
|
Percent of Net Sales |
| 12.8 | % |
| -70 basis points |
|
|
| 13.5 | % |
| 17.4 | % |
| +460 basis points |
|
|
| 12.8 | % | ||
Income from Operations | $ | 175.3 |
|
|
| 23.2% |
|
| $ | 142.3 |
| $ | 123.2 |
|
|
| -29.7% |
|
| $ | 175.3 |
|
Operating Margin |
| 20.0 | % |
| +320 basis points |
|
|
| 16.8 | % |
| 13.7 | % |
| -630 basis points |
|
|
| 20.0 | % | ||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income per share - Diluted | $ | 0.29 |
|
|
| -32.6% |
|
| $ | 0.43 |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
|
| Change vs. |
|
| Six Months Ended |
| Six Months Ended |
|
| Change vs. |
|
| Six Months Ended |
| ||||||
| June 30, 2016 |
|
| Prior Year |
|
| June 30, 2015 |
| June 30, 2017 |
|
| Prior Year |
|
| June 30, 2016 |
| ||||||
Net Sales | $ | 1,726.4 |
|
|
| 4.0% |
|
| $ | 1,659.4 |
| $ | 1,775.2 |
|
|
| 2.8% |
|
| $ | 1,726.4 |
|
Gross Profit | $ | 787.0 |
|
|
| 8.0% |
|
| $ | 728.6 |
| $ | 809.7 |
|
|
| 2.9% |
|
| $ | 787.0 |
|
Gross Margin |
| 45.6 | % |
| +170 basis points |
|
|
| 43.9 | % |
| 45.6 | % |
| 0 basis points |
|
|
| 45.6 | % | ||
Marketing Expenses | $ | 212.7 |
|
|
| 4.0% |
|
| $ | 204.6 |
| $ | 221.7 |
|
|
| 4.2% |
|
| $ | 212.7 |
|
Percent of Net Sales |
| 12.3 | % |
| 0 basis points |
|
|
| 12.3 | % |
| 12.5 | % |
| +20 basis points |
|
|
| 12.3 | % | ||
Selling, General & Administrative Expenses | $ | 219.5 |
|
|
| 4.7% |
|
| $ | 209.6 |
| $ | 268.7 |
|
|
| 22.4% |
|
| $ | 219.5 |
|
Percent of Net Sales |
| 12.7 | % |
| 0 basis points |
|
|
| 12.7 | % |
| 15.1 | % |
| +240 basis points |
|
|
| 12.7 | % | ||
Income from Operations | $ | 354.8 |
|
|
| 12.8% |
|
| $ | 314.4 |
| $ | 319.3 |
|
|
| -10.0% |
|
| $ | 354.8 |
|
Operating Margin |
| 20.6 | % |
| +170 basis points |
|
|
| 18.9 | % |
| 18.0 | % |
| -260 basis points |
|
|
| 20.6 | % | ||
Net income per share - Diluted | $ | 0.79 |
|
|
| -7.1% |
|
| $ | 0.85 |
|
Diluted Net Income per share was $0.29 in the second quarter of 2017 as compared to $0.43 in the same period in 2016. Diluted Net Income per share was $0.79 in the first six months of 2017 as compared to $0.85 in the same period in 2016. In the second quarter of 2017, the Company settled an international defined benefit plan, resulting in a pre-tax charge recorded in selling, general and administrative expenses of $39.2 ($31.5 after tax or $0.12 per share). During the first quarter of 2017, the Company closed the previously announced sale of its chemical business in Brazil. As a result, a pre and post- tax charge of $3.5 was recorded ($1.3 in cost of goods sold and $2.2 in selling, general and administrative expenses). This equated to $0.01 per share. Also during the first quarter, the Company adopted a new accounting standard related to certain aspects of share-based payment awards to employees. This standard requires that any excess tax benefits related to share-based payment awards to employees be recorded as a reduction to income tax expense. Previously, this benefit was recorded in the stockholders’ equity section of the Balance Sheet. The amount recorded in the three and six months ended June 30, 2017 as a reduction to income tax expense was $2.4 ($0.01 per share) and $11.1 ($0.04 per share), respectively.
On August 4, 2016, the Company announced a two-for-one stock split of the Company’s common stock (“Common Stock”). The stock split was structured in the form of a 100% stock dividend, payable on September 1, 2016 to stockholders of record as of August 15, 2016. All applicable amounts in the consolidated financial statements and related disclosures have been retroactively adjusted to reflect the stock split.
Net sales for the quarter ended June 30, 20162017 were $877.4,$898.0, an increase of $30.3$20.6 or 3.6% over2.3% as compared to the second quarter of 2015. same period in 2016. Net sales for the six months ended June 30, 20162017 were $1,726.4,$1,775.2, an increase of $67.0$48.8 or 4.0%2.8% over the comparable six month period of 2015. 2016. The components of the net sales increase are as follows:
| Three Months Ended |
| Six Months Ended | Three Months Ended |
|
| Six Months Ended |
|
| ||
| June 30, |
| June 30, | June 30, |
|
| June 30, |
|
| ||
Net Sales - Consolidated | 2016 |
| 2016 | 2017 |
|
| 2017 |
|
| ||
Product volumes sold | 3.1% |
| 4.3% |
| 6.2 | % |
|
| 4.5 | % |
|
Pricing/Product mix | 0.6% |
| 0.1% |
| (4.4 | %) |
|
| (2.4 | %) |
|
Foreign exchange rate fluctuations | (1.0)% |
| (1.2%) |
| (0.6 | %) |
|
| (0.6 | %) |
|
Volume from acquired product lines (1) | 0.9% |
| 0.8% | ||||||||
Volume from acquired product lines (net of divestiture) (1) |
| 1.1 | % |
|
| 1.3 | % |
| |||
Net Sales increase | 3.6% |
| 4.0% |
| 2.3 | % |
|
| 2.8 | % |
|
| (1) | On |
For the three months and six months ended June 30, 2016,2017, the volume change primarily reflects increased product sales in both the Consumer Domestic and Consumer International segments, with volume declines in Specialty Products (“SPD”). all three segments.
The Company’s gross profit was $408.0$410.4 for the quarter ended June 30, 2016,2017, a $34.9$2.4 increase as compared to the same period in 2015.2016. Gross margin increased 250decreased 80 basis points (“bps”) in the second quarter of 20162017 compared to the same period in 20152016, primarily due to lower manufacturing costsunfavorable price/mix of 130250 bps (including productivity programs(primarily due to promotion and the absence of start-up costs incurred in 2015 associated with the Company’s new vitamin manufacturing facility)coupon costs), higher commodity costs of 7030 bps, favorable price/volume mix of 60 bps,and the impact of the higher margin acquired business of 20 bps partially offset by unfavorable foreign exchange rates of 3010 bps, partially offset by the impact of higher margins on acquired businesses representing 80 bps, favorable volume of 70 bps and cost improvement projects representing 60 bps. Gross profit was $787.0$809.7 for the six months ended June 30, 2016,2017, a $58.4$22.7 increase compared to the same period of 2015.2016. Gross margin increased 170 bps to 45.6% infor the first six months of 2017 and 2016 aswas 45.6%. Gross margin remained consistent for the first six months of 2017 compared to 43.9% in the same period of 2015. This isin 2016, primarily due to the favorableunfavorable price/mix of 150 bps (primarily due to promotion and coupon costs), higher commodity costs of 90 bps, lower manufacturing costs of 60 bps (including productivity programs and the absence of start-up costs incurred in 2015 associated with the Company’s new vitamin manufacturing facility), favorable price/volume mix of 4030 bps, and the impact of the higher margin acquired business of 20 bps, partially offset by unfavorable foreign exchange rates of 4010 bps, partially offset by the impact of higher margins on acquired businesses representing 70 bps, favorable volume of 60 bps and cost improvement projects representing 60 bps.
Operating Expenses
Marketing expenses for the second quarter of 20162017 were $120.2,$130.9, an increase of $4.4$10.7 or 3.8%8.9% as compared to the same period in 2015.2016. Marketing expenses as a percentage of net sales in the second quarter of both2017 increased 90 bps to 14.6% as compared to 13.7% in 2016 and 2015 were 13.7%. due to 120 bps on higher expenses partially offset by 30 bps of leverage on higher net sales. Marketing expenses for the first six months of 20162017 were $212.7,$221.7, an increase of $8.1$9.0 as compared to the same period in 2015.2016. Marketing expenses as a percentage of net sales for the six months of 2017 increased by 20 bps to 12.5% as compared to 12.3% in 2016 and 2015 were 12.3%due to 50 bps on higher expenses partially offset by 30 bps of leverage on higher net sales.
Selling, general and administrative (“SG&A”) expenses were $112.5$156.3 in the second quarter of 2016, a decrease2017, an increase of $2.5$43.8 or 2.2%38.9% as compared to the same period in 20152016 primarily due to an $8.9 expense charge associated with the settlement of ana $39.2 international pension plansettlement charge or 440 bps in 2015, partially offset by2017 and transition and ongoing costs associated with the ToppikViviscal Acquisition, the Anusol Acquisition, and the Agro Acquisition. SG&A as a percentage of net sales decreased 70increased 460 bps to 12.8%17.4% in the second quarter of 20162017 as compared to 13.5%12.8% in the same period in 2015.2016. The decreaseincrease is due to lowerhigher costs, including pension settlement expense of 490 bps, partially offset by 30 bps of leverage associated with higher sales. SG&A for the first six months of 2017 was $268.7, an increase of $49.2 as compared to the same period in 2016. The increase is primarily due to the $39.2 international pension settlement charge or 220 bps in 2017, transition and ongoing acquisition-related costs, higher information costs and costs associated with selling its chemical business in Brazil. SG&A as a percentage of net sales increased 240 bps to 15.1% in the first six months of 2017 compared to 12.7% in 2016 due to higher costs, including pension settlement expense, of 280 bps partially offset by 40 bps of leverage associated with higher sales. SG&A for the first six months of 2016 was $219.5, an increase of $9.9 as compared to the same period in 2015. The increase is primarily due to costs associated with the Toppik Acquisition and higher compensation costs, partially offset by the 2015 pension settlement charge. SG&A as a percentage of net sales was 12.7% in the first six months of both 2016 and 2015. Higher costs contributed an increase of 50 bps offset by 50 bps of leverage associated with higher sales.
Equity in earnings of affiliates for the three and six month periods ended June 30, 20162017 increased by $16.3$0.6 and $15.7, respectively,$1.0 as compared to the same periodsperiod in 2015. The increase in earnings was2016, primarily due primarily to a $17.0 impairment charge in 2015 associated with the Company’s remaining investment in Natronx. profit improvement from Armand Products due to lower raw material costs.
Other expense, net for the three and six month periodsmonths ended June 30, 2016 decreased $1.5 and $1.8, respectively, as2017 increased $0.4 compared to the same periodsperiod in 20152016 primarily due to the effect of changes in foreign currency rates.exchange rates and decreased $1.1 for the six months ended June 30, 2017 compared to the same period in 2016 due to the impact of costs incurred in 2016 associated with the Natronx Technologies, LLC (“Natronx”) joint venture.
Interest expense for the three and six month periods ended June 30, 2016 decreased $0.82017 increased $2.2 and $1.6, respectively,$3.6 as compared to the same periodperiods in 20152016 due to a lowerhigher amount of average debt outstanding.outstanding and increased borrowing costs due to an increase in short-term interest rates.
Income Taxes
The effective tax rate in bothfor the three and six month periodsmonths ended June 30, 20162017 was 34.7%,37.6% compared to 38.3% and 36.5%34.7% in the same periodsperiod in 2015.2016. The differenceincrease in the tax rate is associated with events that occurred during the second quarter of 2015. During the quarter ended June 30, 2015, the Company reportedprimarily due to an impairmentinternational pension settlement charge of $17.0 relating to its investment in a joint venture. The Company recorded a valuation allowance against the resulting tax benefit which negatively impacted the tax rate for both the quarter and six month periods ended June 30, 2015. Also during the quarter ended June 30, 2015, the Company liquidated its subsidiary in the Netherlands and determined that the earnings of its subsidiary in France would no longer be permanently reinvested outside of the U.S. As a result of liquidating its subsidiary in the Netherlands, the Company recordedrepresenting 450 bps, partially offset by a tax benefit of $2.7200 bps 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 was accounted for in the Consolidated StatementCompany’s Stockholders’ Equity section of Incomethe Balance Sheet. Starting in 2017, the quartertax benefit is accounted for as a reduction of income tax expense.
The effective tax rate for the six months ended June 30, 2015.2017 was 33.4% compared to 34.7% in the same period in 2016. The decrease in the tax rate is primarily due to the impact of the new accounting standard relating to share based payment awards representing 360 bps, partially offset by the international pension settlement charge representing 150 bps.
Segment results
The Company operates 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. The Company also has a Corporate segment.
Segment |
|
| Products |
|
Consumer Domestic |
| Household and personal care products | ||
Consumer International |
| Primarily personal care products | ||
SPD |
| Specialty chemical products |
The Corporate segment income consists of equity in earnings of affiliates. As of June 30, 2016,2017, the Company held 50% ownership interests in each of Armand Products Company (“Armand”) and The ArmaKleen Company (“ArmaKleen”), respectively, and a one-third ownership interest in Natronx. The Company’s equity in earnings of Armand and ArmaKleen for the three and six month periods ended June 30, 20162017 and Armand, ArmaKleen and Natronx for the three and six month periods ended June 30, 20152016 are included in the Corporate segment.
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 the three and six month periods ended June 30, 20162017 and June 30, 20152016 are as follows:
| Consumer |
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| Consumer |
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| Consumer |
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| Consumer |
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| Domestic |
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| International |
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| SPD |
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| Corporate(3) |
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| Total |
| Domestic |
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| International |
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| SPD |
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| Corporate(3) |
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| Total |
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Net Sales(1) |
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Second Quarter 2017 | $ | 678.2 |
|
| $ | 145.1 |
|
| $ | 74.7 |
|
| $ | 0.0 |
|
| $ | 898.0 |
| |||||||||||||||||||
Second Quarter 2016 | $ | 669.8 |
|
| $ | 136.4 |
|
| $ | 71.2 |
|
| $ | 0.0 |
|
| $ | 877.4 |
|
| 669.8 |
|
|
| 136.4 |
|
|
| 71.2 |
|
|
| 0.0 |
|
|
| 877.4 |
|
Second Quarter 2015 |
| 638.3 |
|
|
| 130.9 |
|
|
| 77.9 |
|
|
| 0.0 |
|
|
| 847.1 |
| |||||||||||||||||||
First Six Months of 2017 | $ | 1,337.9 |
|
| $ | 288.2 |
|
| $ | 149.1 |
|
| $ | 0.0 |
|
| $ | 1,775.2 |
| |||||||||||||||||||
First Six Months of 2016 | $ | 1,317.6 |
|
| $ | 263.8 |
|
| $ | 145.0 |
|
| $ | 0.0 |
|
| $ | 1,726.4 |
|
| 1,317.6 |
|
|
| 263.8 |
|
|
| 145.0 |
|
|
| 0.0 |
|
|
| 1,726.4 |
|
First Six Months of 2015 |
| 1,252.9 |
|
|
| 251.3 |
|
|
| 155.2 |
|
|
| 0.0 |
|
|
| 1,659.4 |
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Income before Income Taxes(2) |
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Second Quarter 2017(3) | $ | 123.7 |
|
| $ | (23.7 | ) |
| $ | 13.7 |
|
| $ | 3.1 |
|
| $ | 116.8 |
| |||||||||||||||||||
Second Quarter 2016 | $ | 141.6 |
|
| $ | 16.2 |
|
| $ | 10.7 |
|
| $ | 2.5 |
|
| $ | 171.0 |
|
| 141.6 |
|
|
| 16.2 |
|
|
| 10.7 |
|
|
| 2.5 |
|
|
| 171.0 |
|
Second Quarter 2015 |
| 112.6 |
|
|
| 4.5 |
|
|
| 16.1 |
|
|
| (13.7 | ) |
|
| 119.5 |
| |||||||||||||||||||
First Six Months of 2017(3) | $ | 284.6 |
|
| $ | (4.3 | ) |
| $ | 21.5 |
|
| $ | 5.2 |
|
| $ | 307.0 |
| |||||||||||||||||||
First Six Months of 2016 | $ | 281.5 |
|
| $ | 34.3 |
|
| $ | 24.0 |
|
| $ | 4.2 |
|
| $ | 344.0 |
|
| 281.5 |
|
|
| 34.3 |
|
|
| 24.0 |
|
|
| 4.2 |
|
|
| 344.0 |
|
First Six Months of 2015 |
| 242.2 |
|
|
| 23.9 |
|
|
| 30.1 |
|
|
| (11.4 | ) |
|
| 284.8 |
|
(1) | Intersegment sales from Consumer International to Consumer Domestic, which are not reflected in the table, were |
(2) | In determining Income before Income Taxes, interest expense and investment earnings were allocated among the segments based upon each segment’s relative Income from Operations. |
(3) |
|
Product line revenues from external customers are as follows:
| Three Months Ended |
|
| Six Months Ended |
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||||
| June 30, |
|
| June 30, |
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| June 30, |
|
| June 30, |
| June 30, |
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| June 30, |
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| June 30, |
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| June 30, |
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| ||||||||
| 2016 |
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| 2015 |
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| 2016 |
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| 2015 |
| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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| ||||||||
Household Products | $ | 397.8 |
|
| $ | 390.9 |
|
| $ | 786.1 |
|
| $ | 757.4 |
| $ | 410.8 |
|
| $ | 397.8 |
|
| $ | 805.3 |
|
| $ | 786.1 |
|
|
Personal Care Products |
| 272.0 |
|
|
| 247.4 |
|
|
| 531.5 |
|
|
| 495.5 |
|
| 267.4 |
|
|
| 272.0 |
|
|
| 532.6 |
|
|
| 531.5 |
|
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Total Consumer Domestic |
| 669.8 |
|
|
| 638.3 |
|
|
| 1,317.6 |
|
|
| 1,252.9 |
|
| 678.2 |
|
|
| 669.8 |
|
|
| 1,337.9 |
|
|
| 1,317.6 |
|
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Total Consumer International |
| 136.4 |
|
|
| 130.9 |
|
|
| 263.8 |
|
|
| 251.3 |
|
| 145.1 |
|
|
| 136.4 |
|
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| 288.2 |
|
|
| 263.8 |
|
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Total SPD |
| 71.2 |
|
|
| 77.9 |
|
|
| 145.0 |
|
|
| 155.2 |
|
| 74.7 |
|
|
| 71.2 |
|
|
| 149.1 |
|
|
| 145.0 |
|
|
Total Consolidated Net Sales | $ | 877.4 |
|
| $ | 847.1 |
|
| $ | 1,726.4 |
|
| $ | 1,659.4 |
| $ | 898.0 |
|
| $ | 877.4 |
|
| $ | 1,775.2 |
|
| $ | 1,726.4 |
|
|
Household Products include laundry, deodorizing, and cleaning products. Personal Care Products include condoms, pregnancy kits, oral care products, skin care and hair care products and gummy dietary supplements.
Consumer Domestic net sales in the second quarter of 20162017 were $669.8,$678.2, an increase of $31.5$8.4 or 4.9%1.3% as compared to the same period in 2015. 2016. Consumer Domestic net sales for the six months ended June 30, 20162017 were $1,317.6,$1,337.9, an increase of $64.7$20.3 or 5.2%1.5% as compared to the same period in 20152016. The components of the net sales change are the following:
| Three Months Ended |
| Six Months Ended | Three Months Ended |
|
| Six Months Ended |
|
| ||
| June 30, |
| June 30, | June 30, |
|
| June 30, |
|
| ||
Net Sales - Consumer Domestic | 2016 |
| 2016 | 2017 |
|
| 2017 |
|
| ||
Product volumes sold | 3.9% |
| 4.7% |
| 6.2 | % |
|
| 3.7 | % |
|
Pricing/Product mix | 0.5% |
| (0.3%) |
| (6.3 | %) |
|
| (3.4 | %) |
|
Volume from acquired product lines (1) | 0.5% |
| 0.8% |
| 1.4 | % |
|
| 1.2 | % |
|
Net Sales increase | 4.9% |
| 5.2% |
| 1.3 | % |
|
| 1.5 | % |
|
(1) | Includes net sales of the brands acquired in the |
The increase in net sales for the three and six month periods endingmonths ended June 30, 2016,2017, reflects higher sales of VITAFUSION gummy vitamins,ARM & HAMMER liquid and unit dose detergents, OXICLEAN laundry additive,detergent and stain fighters, ARM & HAMMER cat litter, and BATISTE dry shampoo, partially offset by lower sales of KABOOM cleaning products. TROJAN condoms, XTRA laundry detergent and FIRST RESPONSE pregnancy test kits. The increase in net sales for the six month period ending June 30, 2017, reflects higher sales of ARM & HAMMER liquid and unit dose detergents, BATISTE dry shampoo, OXICLEAN laundry detergent and stain fighters, and ARM & HAMMER cat litter, partially offset by lower sales of TROJAN condoms and XTRA laundry detergent.
There continues to be significant product and price competition in the laundry detergent category. For example, the Procter & Gamble Company markets a premium line of unit dose products under the Tide Pods brand and a lower-priced line of laundry detergents that competes directly with the Company’s core value laundry detergents. Henkel AG & Co. KGaA (“Henkel”) has entered the U.S. market with Persil, its leading worldwide premium laundry detergent, and recently announced its anticipated acquisition of thein 2016 acquired The Sun Products Corporation (“Sun Products”), the maker of ALL, WISK and SUN laundry detergents. It is too early to assess whatThese actions have increased price competition and distribution pressures in the premium and extreme value laundry categories and could adversely impact these competitive actionssales and consolidation will have on the category ormarket share of the Company’s laundry detergent business. However, the unit dose laundry detergent segment is the fastest growing segment in the laundry detergent category, having grown to approximately 15% of the category since the introduction of this form in 2012, and the Company faces pressure to achieve its proportionate share of the segment with a potential adverse impact on its share of the laundry detergent category. Moreover, the introduction of Persil could precipitate greater price competition in the premium laundry category and distribution pressure with a potential adverse impact on OXICLEAN laundry detergent.brands. The Company continues to evaluate and vigorously combat these pressures through, among other things, new product introductions, and increased marketing and trade spending. Additionally, while the category grew approximately 4.4% in the first half of 2016 and 1.6% in the full year of 2015, after experiencing declines in 2013 and 2014, there is no assurance the category will not decline in the future and that the Company will be able to offset any such decline.
Consumer Domestic income before income taxes for the second quarter of 20162017 was $141.6,$123.7, a $29.0 increase$17.9 decrease as compared to the second quarter of 2015.2016. The increasedecrease is due primarily to unfavorable price/mix (in part due to higher promotional spending) of $42.9, higher marketing expenses of $9.2, and higher interest expense of $1.7, partially offset by the impact of higher sales volumes of $18.6, $30.4, and favorable commodity and manufacturing costs of $17.4, offset by higher SG&A costs of $5.4 and higher marketing expenses of $2.6. $6.1. For the six month period ended June 30, 2016,2017, income before income taxes was $281.5,$284.6, a $39.3$3.1 increase as compared to the first six months of 2015.2016. The increase is due primarily to the impact of higher sales volumes of $41.9, $40.3, favorable commodity and manufacturing costs of $24.4, offset by higher$16.8 and lower SG&A costs of $14.8, $2.9, partially offset by unfavorable price/mix of $8.3 and$47.5, higher marketing expenses of $5.0.$5.7 and higher interest expense of $3.1.
Consumer International
Consumer International net sales were $136.4$145.1 in the second quarter of 2016,2017, an increase of $5.5$8.7 or 4.2%6.4% as compared to the same period in 2015. 2016. Consumer International net sales in the first six months of 20162017 were $263.8,$288.2, an increase of $12.5$24.4 or approximately 5.0%9.2% as compared to the same period in 2015. 2016. The components of the net sales change are the following:
Three Months Ended |
| Six Months Ended | |
| June 30, |
| June 30, |
Net Sales - Consumer International | 2016 |
| 2016 |
Product volumes sold | 5.9% |
| 7.7% |
Pricing/Product mix | 1.5% |
| 2.5% |
Foreign exchange rate fluctuations / Other | (5.0%) |
| (6.9%) |
Volume from acquired product lines (1) | 1.8% |
| 1.7% |
Net Sales increase | 4.2% |
| 5.0% |
| Three Months Ended |
|
| Six Months Ended |
|
| ||
| June 30, |
|
| June 30, |
|
| ||
Net Sales - Consumer International | 2017 |
|
| 2017 |
|
| ||
Product volumes sold |
| 6.8 | % |
|
| 9.7 | % |
|
Pricing/Product mix |
| 0.6 | % |
|
| (0.2 | %) |
|
Foreign exchange rate fluctuations / Other |
| (4.4 | %) |
|
| (4.0 | %) |
|
Volume from acquired product lines (1) |
| 3.4 | % |
|
| 3.7 | % |
|
Net Sales increase |
| 6.4 | % |
|
| 9.2 | % |
|
(1) | Includes net sales of the brands acquired in the |
Excluding the impact of unfavorable foreign exchange rates, higher sales in the second quarter of 2016 occurredended June 30, 2017 were primarily due to FEMFRESH and BATISTE in Australia,the export business, ARM & HAMMER liquid laundry detergent, STERIMAR and OXICLEAN stain fighter gel in Mexico Canada and exports. BATISTE, VITAFUSION/L’IL CRITTERS and FEMFRESH in Australia. For the six months ended June 30, 2016,2017 higher sales primarily occurred in Mexico, the U.K., Australia,exports, Canada, and exports.Mexico, and were attributable to BATISTE, FEMFRESH, ARM & HAMMER liquid detergent, STERIMAR and ARM & HAMMER cat litter.
Consumer International incomeloss before income taxes was $16.2$23.7 in the second quarter 2017, a decrease of 2016, an increase of $11.7$39.9 compared to the same period in 20152016 due primarily to higher volumea pension settlement charge of $5.7, favorable price/mix$39.2, unfavorable manufacturing and commodity costs of $3.5 and lower$3.2, higher SG&A costs of $7.3, partially offset by$2.7, higher marketing costs of $2.6 and unfavorable foreign exchange rates of $1.6,$2.2, partially offset by higher sales volumes of $9.3 and higher marketing costsfavorable price/mix of $2.6. Last year’s results included an $8.9 pension settlement charge. $1.4. For the first six months of 2016, income2017, loss before income taxes was $34.3,$4.3, a $10.4 increase$38.6 decrease as compared to the same period in 2015,2016, due primarily to higher volumesthe pension settlement charge of $12.6, favorable price/mix of $7.3 and lower$39.2, higher SG&A costs of $3.3, partially offset by$8.0, higher marketing costs of $5.3, unfavorable manufacturing and commodity costs of $3.6, unfavorable foreign exchange rates of $6.6$3.4, and unfavorable price/mix of $0.9, partially offset by higher marketing costssales volumes of $4.9. Last year’s results included an $8.9 pension settlement charge.$22.1.
SPD net sales were $71.2 for$74.7 in the second quarter of 2016, a decrease2017, an increase of $6.7$3.5 or 8.6%4.9% as compared to the same period in 2015. SPD2016. SPD net sales were $145.0$149.1 for the first six months of 2016, a decrease2017, an increase of $10.2,$4.1, or 6.6%2.8% as compared to the same period of 2015. 2016. The components of the net sales change are the following:
| Three Months Ended |
| Six Months Ended |
| Three Months Ended |
|
| Six Months Ended |
| ||
| June 30, |
| June 30, |
| June 30, |
|
| June 30, |
| ||
Net Sales - SPD | 2016 |
| 2016 |
| 2017 |
|
| 2017 |
| ||
Product volumes sold | (7.7%) |
| (4.6)% |
|
| 5.6 | % |
|
| 1.7 | % |
Pricing/Product mix | 0.0% |
| (0.3)% |
|
| 3.8 | % |
|
| 2.7 | % |
Foreign exchange rate fluctuations / Other | (0.9)% |
| (1.7)% |
|
| 0.0 | % |
|
| 0.6 | % |
Net Sales (decrease) | (8.6%) |
| (6.6%) | ||||||||
Volume from acquired product lines (net of divestiture) (1) |
|
| (4.5 | )% |
|
| (2.2 | )% | |||
Net Sales increase |
|
| 4.9 | % |
|
| 2.8 | % |
(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. |
The net sales decreaseincrease in the second quarter and six month period of 2016 reflects lower sales2017 was driven primarily by improved price and volumes in the animal nutritionproductivity business driven by further declines inwhere milk prices and U.S. dairy farm profitability remain at a stronghigher level than a year ago results comparison. The low milk prices are due to an excess global supply of milk and weak exports due to a strong U.S. dollar.ago.
SPD income before income taxes was $10.7$13.7 in the second quarter of 2016, a decrease2017, an increase of $5.4$3.0 as compared to the same period in 20152016 due primarily to lower volumeshigher sales volume of $2.5,$3.7, favorable price/product mix of $2.3, partially offset by higher manufacturing costs of $1.8 and higher SG&A costs of $1.8 and higher marketing expenses of $0.5. $1.5. SPD income before income taxes was $24.0$21.5 in the first six months of 2016,2017, a decrease of $6.1$2.5 as compared to the same period in 20152016 due primarily to lower volumeshigher manufacturing costs of $3.3 and$5.9, higher SG&A costs of $2.8.$2.8 and costs associated with the sale of the Brazilian chemical business of $3.5, partially offset by higher sales volume of $3.6, favorable price/product mix of $3.6, lower costs associated with the Natronx joint venture of $1.5, lower marketing costs of $0.4 and favorable foreign exchange rates of $0.4.
Corporate
The administrative costs of the Company’s production, planning and logistics functions are included in the SG&A expenses of each operating segment and as elements of cost of sales in the Company’s Condensed Consolidated Statements of Income. The Corporate segment includes equity in earnings of affiliates from Armand and ArmaKleen in the second quarter of 2016,2017 and Armand, ArmaKleen and Natronx in the second quarter of 2015.2016. The Corporate segment income before income taxes was $2.5$3.1 in the second quarter of 2016,2017, as compared to a loss of $13.7$2.5 in the same period in 2015. 2016. The Corporate segment income before income taxes was $4.2$5.2 for the first six months of 2016,2017, as compared to a loss of $11.4$4.2 in the same period in 2015. The loss for both periods in 2015 was the result of the $17.0 Natronx impairment charge.2016.
Liquidity and capital resourcesCapital Resources
As of June 30, 2016,2017, the Company had $210.8$237.6 in cash and cash equivalents, approximately $620$369 available through the revolving facility under its principal credit agreement (the “Credit Agreement”) and its commercial paper program, and a commitment increase feature under the Credit Agreement that enables the Company to borrow up to an additional $600.0, subject to lending commitments of the participating lenders and certain conditions as described in the Credit Agreement. On April 3, 2017, the Company’s $200.0 term loan facility was drawn upon in full to improve liquidity and pay a portion of the outstanding commercial paper. To preserve its liquidity, the Company invests its cash primarily in government money market funds, prime money market funds, short-term commercial paper and short termshort-term bank deposits.
The current economic environment presents risks that could have adverse consequences for the Company’s liquidity. (See “Unfavorable economic conditions could adversely affect demand for the Company’s products” under “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20152016 (the “Form 10-K”).) The Company does not anticipate that current economic conditions will adversely affect its ability to comply with the financial covenant in the Credit
Agreement because the Company currently is, and anticipates that it will continue to be, in compliance with the maximum leverage ratio requirement under the Credit Agreement.
On February 2, 2016,7, 2017, the Board declared a 6%7% increase in the regular quarterly dividend from $0.335$0.1775 to $0.355$0.19 per share, equivalent to an annual dividend of $1.42$0.76 per share payable to stockholders of record as of February 16, 2016.21, 2017. The decisionincrease raises the annual dividend payout from $175.0$183 to approximately $185.0,$195, and maintains the Company’s payout of dividends relative to net income at approximately 40%.
In connection with the Company’s share repurchase program authorized by the Board in January of 2015November 2016 (the “2015“2016 Share Repurchase Program”) and its evergreen repurchase program, the Company repurchasedpurchased approximately 2.26.0 million shares in the first quartersix months of 20162017 at a cost of $200.0,approximately $300.0, of which approximately $103.0 $125.0 was purchased under the evergreen share repurchase program and approximately $97.0$175.0 was purchased under the 20152016 Share Repurchase Program. As a result of these purchases, there remained approximately $128.0 under the 2015 Share Repurchase Program as of June 30, 2016.The Company will continue its evergreen share repurchase program.
The Company anticipates that its cash from operations, together with its current borrowing capacity, will be sufficient to meet its capital expenditure program costs, which are expected to be a total of approximately $55.0$45.0 in 2016,2017, fund its share repurchase programs to the extent implemented by management and pay dividends at the latest approved rate. Cash, together with the Company’s current borrowing capacity, may be used for acquisitions that would complement the Company’s existing product lines or geographic markets. The Company does not have any mandatory fixed rate debt principal payments in 2016. 2017.
The Company will finance the acquisition of Waterpik 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 due 2019, $300.0 aggregate principal amount of 2.450% Senior Notes due 2022, $425.0 aggregate principal amount of 3.150% Senior Notes due 2027 and $400.0 aggregate principal amount of 3.950% Senior Notes due 2047. The remaining proceeds were used to pay down in its entirety and terminate the Company’s $200.0 term loan and to repay a portion of the Company’s outstanding commercial paper borrowings.
Cash Flow Analysis
| Six Months Ended |
| Six Months Ended |
| ||||||||||
| June 30, |
|
| June 30, |
| June 30, |
|
| June 30, |
| ||||
| 2016 |
|
| 2015 |
| 2017 |
|
| 2016 |
| ||||
Net cash provided by operating activities | $ | 296.5 |
|
| $ | 248.4 |
| $ | 249.3 |
|
| $ | 296.5 |
|
Net cash used in investing activities | $ | (193.6 | ) |
| $ | (110.9 | ) | $ | (242.3 | ) |
| $ | (193.6 | ) |
Net cash used in financing activities | $ | (225.6 | ) |
| $ | (347.9 | ) | |||||||
Net cash provided by (used in) financing activities | $ | 33.2 |
|
| $ | (225.6 | ) |
Net Cash Provided by Operating Activities – The Company’s primary source of liquidity is the strong cash flow provided by operating activities, which is dependent on the level of net income and changes in working capital. The Company’s net cash provided by operating activities in the six months ended June 30, 2016 increased2017 decreased by $48.1$47.2 to $296.5$249.3 as compared to $248.4$296.5 in the same period in 20152016 due to a smalleran increase in working capital, andpartially offset by higher cash earnings (net income plus non-cash expenses such as depreciation, amortization, non-cash compensation and asset impairment charges). The change in working capital is primarily due to lowera large decrease in accounts receivable, as a result of factoring approximately $64.0payable and accrued expenses due to a bank, a smaller increasechange in inventoriesdeferred compensation, incentive compensation and higherprofit sharing payments and larger increases in inventory and accounts payable.receivable. However, Thethe Company measures working capital effectiveness based on its cash conversion cycle. The following table presents the Company’s cash conversion cycle information for the quarters ended June 30, 20162017 and 2015:2016:
| As of |
|
|
|
|
| As of |
|
|
|
|
| ||||||||||
| June 30, 2016 |
|
| June 30, 2015 |
|
| Change |
| June 30, 2017 |
|
| June 30, 2016 |
|
| Change |
| ||||||
Days of sales outstanding in accounts receivable ("DSO") |
| 29 |
|
|
| 36 |
|
|
| (7 | ) |
| 31 |
|
|
| 29 |
|
|
| 2 |
|
Days of inventory outstanding ("DIO") |
| 56 |
|
|
| 50 |
|
|
| 6 |
|
| 53 |
|
|
| 56 |
|
|
| (3 | ) |
Days of accounts payable outstanding ("DPO") |
| 60 |
|
|
| 56 |
|
|
| 4 |
|
| 67 |
|
|
| 60 |
|
|
| (7 | ) |
Cash conversion cycle |
| 25 |
|
|
| 30 |
|
|
| (5 | ) |
| 17 |
|
|
| 25 |
|
|
| (8 | ) |
The Company's cash conversion cycle (defined as the sum of DSO and DIO less DPO) which is calculated using a 2 period average method, improved 58 days from the prior year amount of 3025 days to 2517 days at June 30, 20162017 due primarily to improved DSODPO of 7 days from 36 to 29 days due to factoring. DIO increased 6 days from 50 to 56 days. DPO improved by 4 days as the Company continues to extend payment terms with its suppliers. DIO improved 3 days from 56 to 53 days, offset by DSO which increased 2 days from 29 to 31 days. The improvement in the Company's cash conversion cycle reflects the Company's continued focus on reducing its average working capital requirements.
Net Cash Used in Investing Activities – Net cash used in investing activities during the first six months of 2017 was $242.3, primarily reflecting $160.3 for the Viviscal Acquisition, $75.0 for the Agro Acquisition and $10.4 for property, plant and equipment expenditures, partially offset by $4.5 of cash proceeds from the sale of the Brazil chemical business. Net cash used in investing activities during the first six months of 2016 was $193.6, principally reflecting $175.5 for the Toppik Acquisition and $17.8 for property, plant and equipment expenditures.
Net Cash Provided by (Used in) Financing Activities – Net cash used in investingprovided by financing activities during the first six months of 20152017 was $110.9, principally$33.2, primarily reflecting $74.9 for the acquisition$207.2 of Varied Industries Corporationnet commercial paper borrowings, $200.0 of long-term debt borrowings and $34.0 for property, plant and equipment expenditures, in large part due to$27.3 of proceeds from stock option exercises partially offset by $300.0 of repurchases of the Company’s new gummy vitamin manufacturing facility in York, Pennsylvania.
Net Cash Used in Financing Activities –Common Stock, $95.7 of cash dividend payments, and $4.6 of short-term debt repayments at an international subsidiary. Net cash used in financing activities during the first six months of 2016 was $225.6, primarily reflecting $200.0 of repurchases of the Company’s common stock (“Common Stock”) and $91.7 of cash dividend payments,
offset by $20.5 of commercial paper borrowings, $3.3 of short termshort-term borrowings at an international subsidiary and $47.6 of proceeds and tax benefits from stock option exercises. Net cash used in financing activities during the first six months of 2015 was $347.9, primarily reflecting $263.1 of repurchases of Common Stock, $87.5 of cash dividends and repayment of $23.0 of commercial paper borrowings, offset by $26.4 of proceeds and tax benefits from stock option exercises.
Market risk
For quantitative and qualitative disclosures about market risk affecting the Company, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.2016. Our exposure to market risk has not changed materially since December 31, 2015.2016.
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 report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, are effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission (the “Commission”), and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the disclosure.
b) Change in Internal Control over Financial Reporting
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.
CAUTIONARY NOTE ON FORWARD-LOOKING INFORMATION
This report contains forward-looking statements, including, among others, statements relating to net sales and earnings growth; 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;growth, including the effects of new product launches into new and existing categories; the impact of competitive laundry detergent products, including unit dose laundry detergent; the Company’s hedge programs; the impact of foreign exchange and commodity price fluctuations; the Company’s investments in joint ventures; the impact of acquisitions; capital expenditures;acquisitions and divestitures; the consummation, financing and impact of the two-for-one stock split;Waterpik Acquisition; capital expenditures; pension settlement charges; the Company’s share repurchase programs and the Company’s effective tax rate; 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; the Company’s share repurchase programs; payment of dividends; environmental and regulatory matters; and the availability and adequacy of raw materials, including trona reserves.rate. 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); 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, including The Procter & Gamble Company’s participation in the value laundry detergent category and Henkel’s entry into the U.S. premium laundry detergent category; Henkel’s announced purchaseacquisition of Sun Products,Products; 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 of private label products; 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; the implications of the United Kingdom’s withdrawal from the European Union; issues relating to the Company’s information technology and controls; the impact of natural disasters on the Company and its customers and suppliers,
including third party information technology service providers; the acquisition or divestiture of assets; the outcome of contingencies, including litigation, pending regulatory proceedings and environmental matters; and changes in the regulatory environment.
The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the U. S. federal securities laws. You are advised, however, to consult any further disclosures the Company makes on related subjects in its filings with the Commission.
General
The Company,In addition to the matters described below, 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. Litigation isSuch proceedings are generally subject to many uncertainties,considerable uncertainty, and the outcome of certain individual litigated matters may not be reasonably predictabletheir outcomes, and any related damages, may not be reasonably predictable or estimable. Certain legal actions, including those described below,While any such proceedings could result in an adverse outcome for the Company, and any such adverse outcome couldis not expected to have a material adverse effect on the Company’s business, financial condition, results of operations, andor 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 of 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 June 16, 2014, the Company filed an amended answer to the complaint denying all of the Plaintiff’s material allegations. The parties have been engaged in fact discovery, which is ongoing.
In connection with this matter, the Company has reserved an immaterial amount. Although any damages ultimately paid byamount that is immaterial. However, it is reasonably possible that the Company may exceed this amount, itultimately be required to pay all or substantially all of the damages and other amounts sought by Plaintiff. It is not currently possible to more precisely estimate the amount or range of any such excess; however, any suchamounts that the Company may be required to pay in excess could have a material adverse effect onof the Company’s business, financial condition, results of operationsreserved amount because expert discovery with respect to damages is not sufficiently advanced and cash flows.the outcome thereof is uncertain.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A, “Risk Factors” in the Form 10-K, which could materially affect the Company’s business, financial condition or future results.
The Company repurchases shares of its Common Stock from time to time pursuant to its publicly announced share repurchase programs. The following table contains information for shares repurchased during the second quarter of 2017.
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share(1) |
|
| 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(2) |
| ||||
4/1/2017 to 4/30/2017 |
|
| 2,854,804 |
|
| $ | 50.05 |
|
|
| 142,877,631 |
|
| $ | 125,000,207 |
|
5/1/2017 to 5/31/2017 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 125,000,207 |
|
6/1/2017 to 6/30/2017 |
| 0 |
|
| 0 |
|
| 0 |
|
| $ | 125,000,207 |
| |||
Total |
|
| 2,854,804 |
|
| $ | 50.05 |
|
|
| 142,877,631 |
|
|
|
|
|
(1) Average price paid per share in the period includes commission.
(2) In the second quarter of 2017, the Company purchased 2.9 million shares for $142.9 under the 2016 Share Repurchase Program. The evergreen share repurchase program has no specified cap and therefore is not reflected in this column.
• |
| (3.1) | Certificate of Amendment of Restated Certificate of Incorporation dated May 8, 2017, as filed with the Secretary of the State of Delaware on May 8, 2017. | |
• | (3.2) |
| Restated Certificate of Incorporation of the Company, as | |
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| By-laws of the Company, amended and restated as of January 27, 2016, incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on February 2, 2016. |
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| (10.1) | Church & Dwight Co., Inc. Amended and Restated Annual Incentive Plan, as approved by the Company’s stockholders on May 4, 2017, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 5, 2017. | ||
• |
| (31.1) |
| Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act. |
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|
| (31.2) |
| Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act. |
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|
| (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. |
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|
| (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. |
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|
| (101) |
| The following materials from Church & Dwight Co., Inc.’s quarterly report on Form 10-Q for the quarter ended June 30, |
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Indicates documents filed herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| CHURCH & DWIGHT CO., INC. |
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| (REGISTRANT) |
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DATE: |
| August |
| /s/ Richard A. Dierker |
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| RICHARD A. DIERKER |
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| Executive Vice President |
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| and Chief Financial Officer |
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| (Principal Financial Officer) |
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DATE: |
| August |
| /s/ Steven J. Katz |
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| STEVEN J. KATZ |
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| VICE PRESIDENT AND |
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| CONTROLLER |
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| (PRINCIPAL ACCOUNTING OFFICER) |
• |
| (3.1) | Certificate of Amendment of Restated Certificate of Incorporation dated May 8, 2017, as filed with the Secretary of the State of Delaware on May 8, 2017. | |
• | (3.2) |
| Restated Certificate of Incorporation of the Company, as | |
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| By-laws of the Company, amended and restated as of January 27, 2016, incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on February 2, 2016. |
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| (10.1) | Church & Dwight Co., Inc. Amended and Restated Annual Incentive Plan, as approved by the Company’s stockholders on May 4, 2017, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 5, 2017. | ||
• |
| (31.1) |
| Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act. |
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| (31.2) |
| Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act. |
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| (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. |
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| (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. |
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| (101) |
| The following materials from Church & Dwight Co., Inc.’s quarterly report on Form 10-Q for the quarter ended June 30, |
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Indicates documents filed herewith.
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