UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF(MARK ONE)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended June 30, 20192020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-10585
CHURCH & DWIGHT CO., INC.
(Exact name of registrant as specified in its charter)
Delaware |
| 13-4996950 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
500 Charles Ewing Boulevard, Ewing, N.J.NJ 08628
(Address of principal executive offices)
Registrant’s telephone number, including area code: (609) 806-1200
|
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $1 par value |
| CHD | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☒ |
| Accelerated filer |
| ☐ |
Non-accelerated filer |
| ☐ |
| Smaller reporting company |
| ☐ |
Emerging growth company |
| ☐ |
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 29, 2019,2020, there were 247,096,324247,311,944 shares of Common Stock outstanding.
TABLE OF CONTENTS
PART I
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2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 21 |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 20 |
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3. |
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PART II
1. |
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1A. |
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2. |
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5. |
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6. |
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2
PART I – FINANCIAL INFORMATION
ITEM 1: | FINANCIAL STATEMENTS |
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions, except per share data)
| Three Months Ended |
|
| Six Months Ended |
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| June 30, |
|
| June 30, |
|
| June 30, |
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| June 30, |
| ||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net Sales | $ | 1,079.4 |
|
| $ | 1,027.9 |
|
| $ | 2,124.1 |
|
| $ | 2,033.9 |
| $ | 1,194.3 |
|
| $ | 1,079.4 |
|
| $ | 2,359.5 |
|
| $ | 2,124.1 |
|
Cost of sales |
| 597.9 |
|
|
| 573.0 |
|
|
| 1,171.8 |
|
|
| 1,127.5 |
|
| 634.7 |
|
|
| 597.9 |
|
|
| 1,267.9 |
|
|
| 1,171.8 |
|
Gross Profit |
| 481.5 |
|
|
| 454.9 |
|
|
| 952.3 |
|
|
| 906.4 |
|
| 559.6 |
|
|
| 481.5 |
|
|
| 1,091.6 |
|
|
| 952.3 |
|
Marketing expenses |
| 129.1 |
|
|
| 136.4 |
|
|
| 227.2 |
|
|
| 236.3 |
|
| 122.3 |
|
|
| 129.1 |
|
|
| 218.7 |
|
|
| 227.2 |
|
Selling, general and administrative expenses |
| 165.0 |
|
|
| 144.7 |
|
|
| 296.9 |
|
|
| 276.0 |
|
| 186.6 |
|
|
| 165.0 |
|
|
| 307.6 |
|
|
| 296.9 |
|
Income from Operations |
| 187.4 |
|
|
| 173.8 |
|
|
| 428.2 |
|
|
| 394.1 |
|
| 250.7 |
|
|
| 187.4 |
|
|
| 565.3 |
|
|
| 428.2 |
|
Equity in earnings of affiliates |
| 1.7 |
|
|
| 2.4 |
|
|
| 3.4 |
|
|
| 4.5 |
|
| 2.0 |
|
|
| 1.7 |
|
|
| 3.6 |
|
|
| 3.4 |
|
Investment earnings |
| 0.2 |
|
|
| 0.1 |
|
|
| 0.7 |
|
|
| 0.6 |
|
| 0.3 |
|
|
| 0.2 |
|
|
| 0.4 |
|
|
| 0.7 |
|
Other income (expense), net |
| (0.1 | ) |
| �� | (0.7 | ) |
|
| (0.2 | ) |
|
| (2.8 | ) |
| (0.2 | ) |
|
| (0.1 | ) |
|
| (0.8 | ) |
|
| (0.2 | ) |
Interest expense |
| (18.9 | ) |
|
| (20.2 | ) |
|
| (36.7 | ) |
|
| (40.3 | ) |
| (16.8 | ) |
|
| (18.9 | ) |
|
| (33.1 | ) |
|
| (36.7 | ) |
Income before Income Taxes |
| 170.3 |
|
|
| 155.4 |
|
|
| 395.4 |
|
|
| 356.1 |
|
| 236.0 |
|
|
| 170.3 |
|
|
| 535.4 |
|
|
| 395.4 |
|
Income taxes |
| 31.8 |
|
|
| 33.7 |
|
|
| 81.2 |
|
|
| 76.6 |
|
| 46.3 |
|
|
| 31.8 |
|
|
| 115.9 |
|
|
| 81.2 |
|
Net Income | $ | 138.5 |
|
| $ | 121.7 |
|
| $ | 314.2 |
|
| $ | 279.5 |
| $ | 189.7 |
|
| $ | 138.5 |
|
| $ | 419.5 |
|
| $ | 314.2 |
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Weighted average shares outstanding - Basic |
| 246.4 |
|
|
| 244.8 |
|
|
| 246.2 |
|
|
| 244.9 |
|
| 246.2 |
|
|
| 246.4 |
|
|
| 245.9 |
|
|
| 246.2 |
|
Weighted average shares outstanding - Diluted |
| 252.7 |
|
|
| 249.3 |
|
|
| 252.3 |
|
|
| 249.7 |
|
| 251.3 |
|
|
| 252.7 |
|
|
| 251.2 |
|
|
| 252.3 |
|
Net income per share - Basic | $ | 0.56 |
|
| $ | 0.50 |
|
| $ | 1.28 |
|
| $ | 1.14 |
| $ | 0.77 |
|
| $ | 0.56 |
|
| $ | 1.71 |
|
| $ | 1.28 |
|
Net income per share - Diluted | $ | 0.55 |
|
| $ | 0.49 |
|
| $ | 1.25 |
|
| $ | 1.12 |
| $ | 0.75 |
|
| $ | 0.55 |
|
| $ | 1.67 |
|
| $ | 1.25 |
|
Cash dividends per share | $ | 0.23 |
|
| $ | 0.22 |
|
| $ | 0.45 |
|
| $ | 0.43 |
| $ | 0.24 |
|
| $ | 0.23 |
|
| $ | 0.48 |
|
| $ | 0.45 |
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
| 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, |
| ||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net Income | $ | 138.5 |
|
| $ | 121.7 |
|
| $ | 314.2 |
|
| $ | 279.5 |
| $ | 189.7 |
|
| $ | 138.5 |
|
| $ | 419.5 |
|
| $ | 314.2 |
|
Other comprehensive income, net of tax: |
|
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Foreign exchange translation adjustments |
| 1.1 |
|
|
| (9.9 | ) |
|
| 2.9 |
|
|
| (6.4 | ) |
| 6.4 |
|
|
| 1.1 |
|
|
| (6.6 | ) |
|
| 2.9 |
|
Income (loss) from derivative agreements |
| (10.0 | ) |
|
| (5.7 | ) |
|
| (17.7 | ) |
|
| (5.9 | ) |
| (5.3 | ) |
|
| (10.0 | ) |
|
| (25.0 | ) |
|
| (17.7 | ) |
Other comprehensive income (loss) |
| (8.9 | ) |
|
| (15.6 | ) |
|
| (14.8 | ) |
|
| (12.3 | ) |
| 1.1 |
|
|
| (8.9 | ) |
|
| (31.6 | ) |
|
| (14.8 | ) |
Comprehensive income | $ | 129.6 |
|
| $ | 106.1 |
|
| $ | 299.4 |
|
| $ | 267.2 |
| $ | 190.8 |
|
| $ | 129.6 |
|
| $ | 387.9 |
|
| $ | 299.4 |
|
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, |
|
| December 31, |
| June 30, |
|
| December 31, |
| ||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Assets |
|
|
|
|
|
|
|
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|
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|
|
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Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 97.9 |
|
| $ | 316.7 |
| $ | 451.7 |
|
| $ | 155.7 |
|
Accounts receivable, less allowances of $3.0 and $3.1 |
| 383.7 |
|
|
| 345.3 |
| |||||||
Accounts receivable, less allowances of $4.2 and $2.4 |
| 344.5 |
|
|
| 356.4 |
| |||||||
Inventories |
| 401.5 |
|
|
| 382.8 |
|
| 455.5 |
|
|
| 417.4 |
|
Other current assets |
| 42.8 |
|
|
| 33.4 |
|
| 25.0 |
|
|
| 26.9 |
|
Total Current Assets |
| 925.9 |
|
|
| 1,078.2 |
|
| 1,276.7 |
|
|
| 956.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, Net |
| 559.0 |
|
|
| 598.2 |
|
| 568.7 |
|
|
| 573.0 |
|
Equity Investment in Affiliates |
| 10.3 |
|
|
| 8.5 |
|
| 10.6 |
|
|
| 9.7 |
|
Trade Names and Other Intangibles, Net |
| 2,803.8 |
|
|
| 2,274.0 |
|
| 2,697.9 |
|
|
| 2,750.0 |
|
Goodwill |
| 2,079.5 |
|
|
| 1,992.9 |
|
| 2,078.2 |
|
|
| 2,079.5 |
|
Other Assets |
| 284.1 |
|
|
| 117.4 |
|
| 286.9 |
|
|
| 288.8 |
|
Total Assets | $ | 6,662.6 |
|
| $ | 6,069.2 |
| $ | 6,919.0 |
|
| $ | 6,657.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
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|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings | $ | 111.6 |
|
| $ | 1.8 |
| $ | 65.8 |
|
| $ | 252.9 |
|
Current portion of long-term debt |
| 299.0 |
|
|
| 596.5 |
| |||||||
Accounts payable and accrued expenses |
| 769.7 |
|
|
| 725.1 |
|
| 842.3 |
|
|
| 831.9 |
|
Income taxes payable |
| 4.4 |
|
|
| 2.9 |
|
| 88.5 |
|
|
| 7.5 |
|
Total Current Liabilities |
| 1,184.7 |
|
|
| 1,326.3 |
|
| 996.6 |
|
|
| 1,092.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt |
| 1,809.0 |
|
|
| 1,508.8 |
|
| 1,811.4 |
|
|
| 1,810.2 |
|
Deferred Income Taxes |
| 580.6 |
|
|
| 576.4 |
|
| 582.2 |
|
|
| 579.6 |
|
Deferred and Other Long-term Liabilities |
| 296.5 |
|
|
| 180.9 |
|
| 359.0 |
|
|
| 315.5 |
|
Business Acquisition Liabilities |
| 187.0 |
|
|
| 23.0 |
|
| 171.0 |
|
|
| 192.0 |
|
Total Liabilities |
| 4,057.8 |
|
|
| 3,615.4 |
|
| 3,920.2 |
|
|
| 3,989.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock, $1.00 par value, Authorized 2,500,000 shares; none issued |
| 0.0 |
|
|
| 0.0 |
| |||||||
Common Stock, $1.00 par value, Authorized 600,000,000 shares and 292,855,100 shares issued as of June 30, 2019 and December 31, 2018 |
| 292.8 |
|
|
| 292.8 |
| |||||||
Preferred Stock, $1.00 par value, Authorized 2,500,000 shares; NaN issued |
| 0.0 |
|
|
| 0.0 |
| |||||||
Common Stock, $1.00 par value, Authorized 600,000,000 shares and 292,855,100 shares issued as of June 30, 2020 and December 31, 2019 |
| 292.8 |
|
|
| 292.8 |
| |||||||
Additional paid-in capital |
| 288.3 |
|
|
| 280.8 |
|
| 302.8 |
|
|
| 295.5 |
|
Retained earnings |
| 4,047.8 |
|
|
| 3,832.6 |
|
| 4,538.8 |
|
|
| 4,237.4 |
|
Accumulated other comprehensive loss |
| (68.4 | ) |
|
| (53.6 | ) |
| (98.3 | ) |
|
| (66.7 | ) |
Common stock in treasury, at cost: 45,894,992 shares as of June 30, 2019 and 45,969,515 shares as of December 31, 2018 |
| (1,955.7 | ) |
|
| (1,898.8 | ) | |||||||
Common stock in treasury, at cost: 45,874,148 shares as of June 30, 2020 and 47,439,300 shares as of December 31, 2019 |
| (2,037.3 | ) |
|
| (2,091.2 | ) | |||||||
Total Stockholders' Equity |
| 2,604.8 |
|
|
| 2,453.8 |
|
| 2,998.8 |
|
|
| 2,667.8 |
|
Total Liabilities and Stockholders' Equity | $ | 6,662.6 |
|
| $ | 6,069.2 |
| $ | 6,919.0 |
|
| $ | 6,657.4 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
4
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(In millions)
| Six Months Ended |
| Six Months Ended |
| ||||||||||
| June 30, |
|
| June 30, |
| June 30, |
|
| June 30, |
| ||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Cash Flow From Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income | $ | 314.2 |
|
| $ | 279.5 |
| $ | 419.5 |
|
| $ | 314.2 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense |
| 31.9 |
|
|
| 31.4 |
|
| 32.0 |
|
|
| 31.9 |
|
Amortization expense |
| 51.0 |
|
|
| 38.5 |
|
| 60.4 |
|
|
| 51.0 |
|
Deferred income taxes |
| 6.0 |
|
|
| 1.2 |
|
| 11.4 |
|
|
| 6.0 |
|
Equity in net earnings of affiliates |
| (3.4 | ) |
|
| (4.5 | ) |
| (3.6 | ) |
|
| (3.4 | ) |
Distributions from unconsolidated affiliates |
| 1.6 |
|
|
| 4.4 |
|
| 2.7 |
|
|
| 1.6 |
|
Non-cash compensation expense |
| 15.0 |
|
|
| 15.9 |
|
| 15.8 |
|
|
| 15.0 |
|
Gain on sale of assets |
| (3.0 | ) |
|
| 0.0 |
| |||||||
Other |
| 3.5 |
|
|
| (1.3 | ) |
| 1.6 |
|
|
| 3.5 |
|
Change in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
| (37.3 | ) |
|
| (4.8 | ) |
| 5.9 |
|
|
| (37.3 | ) |
Inventories |
| (17.9 | ) |
|
| (39.1 | ) |
| (42.7 | ) |
|
| (17.9 | ) |
Other current assets |
| 0.9 |
|
|
| (5.5 | ) |
| (2.1 | ) |
|
| 0.9 |
|
Accounts payable and accrued expenses |
| 6.7 |
|
|
| 13.9 |
|
| 35.8 |
|
|
| 6.7 |
|
Income taxes payable |
| (11.6 | ) |
|
| (8.1 | ) |
| 87.1 |
|
|
| (11.6 | ) |
Change in fair value of business acquisition liabilities |
| (20.7 | ) |
|
| 0.0 |
| |||||||
Other operating assets and liabilities, net |
| (9.4 | ) |
|
| 1.2 |
|
| (1.5 | ) |
|
| (9.4 | ) |
Net Cash Provided By Operating Activities |
| 351.2 |
|
|
| 322.7 |
|
| 598.6 |
|
|
| 351.2 |
|
Cash Flow From Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
| (23.6 | ) |
|
| (19.6 | ) |
| (30.9 | ) |
|
| (23.6 | ) |
Proceeds from sale of assets |
| 7.0 |
|
|
| 0.0 |
| |||||||
Acquisitions |
| (475.0 | ) |
|
| (49.8 | ) |
| 0.0 |
|
|
| (475.0 | ) |
Other |
| (3.8 | ) |
|
| (1.8 | ) |
| (2.5 | ) |
|
| (3.8 | ) |
Net Cash Used In Investing Activities |
| (502.4 | ) |
|
| (71.2 | ) |
| (26.4 | ) |
|
| (502.4 | ) |
Cash Flow From Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt borrowings |
| 300.0 |
|
|
| 0.0 |
|
| 0.0 |
|
|
| 300.0 |
|
Long-term debt (repayments) |
| (300.0 | ) |
|
| 0.0 |
|
| 0.0 |
|
|
| (300.0 | ) |
Short-term debt (repayments), net of borrowings |
| 109.8 |
|
|
| (159.8 | ) | |||||||
Short-term debt borrowings, net of (repayments) |
| (186.2 | ) |
|
| 109.8 |
| |||||||
Proceeds from stock options exercised |
| 37.0 |
|
|
| 28.9 |
|
| 44.9 |
|
|
| 37.0 |
|
Payment of cash dividends |
| (112.0 | ) |
|
| (106.2 | ) |
| (118.1 | ) |
|
| (112.0 | ) |
Purchase of treasury stock |
| (100.0 | ) |
|
| (200.0 | ) |
| 0.0 |
|
|
| (100.0 | ) |
Payment of contingent consideration |
| (14.5 | ) |
|
| 0.0 |
| |||||||
Deferred financing and other |
| (2.5 | ) |
|
| (2.4 | ) |
| (0.1 | ) |
|
| (2.5 | ) |
Net Cash Used In Financing Activities |
| (67.7 | ) |
|
| (439.5 | ) |
| (274.0 | ) |
|
| (67.7 | ) |
Effect of exchange rate changes on cash and cash equivalents |
| 0.1 |
|
|
| (1.6 | ) |
| (2.2 | ) |
|
| 0.1 |
|
Net Change In Cash and Cash Equivalents |
| (218.8 | ) |
|
| (189.6 | ) |
| 296.0 |
|
|
| (218.8 | ) |
Cash and Cash Equivalents at Beginning of Period |
| 316.7 |
|
|
| 278.9 |
|
| 155.7 |
|
|
| 316.7 |
|
Cash and Cash Equivalents at End of Period | $ | 97.9 |
|
| $ | 89.3 |
| $ | 451.7 |
|
| $ | 97.9 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
5
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW-CONTINUED
(Unaudited)
(In millions)
| Six Months Ended |
| Six Months Ended |
| ||||||||||
| June 30, |
|
| June 30, |
| June 30, |
|
| June 30, |
| ||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (net of amounts capitalized) | $ | 34.7 |
|
| $ | 38.1 |
| $ | 32.2 |
|
| $ | 34.7 |
|
Income taxes | $ | 87.1 |
|
| $ | 83.8 |
| $ | 17.3 |
|
| $ | 87.1 |
|
Supplemental disclosure of non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment expenditures included in Accounts Payable | $ | 11.5 |
|
| $ | 6.4 |
| $ | 10.3 |
|
| $ | 11.5 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
6
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three and Six Months Ended June 30, 2019 and 2018
(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, 2017 |
| 292.8 |
|
|
| (45.2 | ) |
| $ | 292.8 |
| $ | 264.6 |
|
| $ | 3,479.0 |
|
| $ | (36.4 | ) |
| $ | (1,782.0 | ) |
| $ | 2,218.0 |
| ||||||||||||||||||||||||||||||||||||
December 31, 2018 |
| 292.8 |
|
|
| (46.0 | ) |
| $ | 292.8 |
| $ | 280.8 |
|
| $ | 3,832.6 |
|
| $ | (53.6 | ) |
| $ | (1,898.8 | ) |
| $ | 2,453.8 |
| ||||||||||||||||||||||||||||||||||||
Adoption of new accounting pronouncements |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| (1.7 | ) |
|
| (0.6 | ) |
|
| 0.0 |
|
|
| (2.3 | ) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 13.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 13.0 |
| ||||||||
Net income |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 157.8 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 157.8 |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 175.7 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 175.7 |
| ||||||||
Other comprehensive income (loss) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| 3.3 |
|
|
| 0.0 |
|
|
| 3.3 |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| (5.9 | ) |
|
| 0.0 |
|
|
| (5.9 | ) | ||||||||
Cash dividends |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| (53.0 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (53.0 | ) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| (55.9 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (55.9 | ) | ||||||||
Stock purchases |
| 0.0 |
|
|
| (4.1 | ) |
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (200.0 | ) |
|
| (200.0 | ) |
| 0.0 |
|
|
| (1.5 | ) |
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (100.0 | ) |
|
| (100.0 | ) | ||||||||
Stock based compensation expense and stock option plan transactions |
| 0.0 |
|
|
| 0.9 |
|
|
| 0.0 |
|
| (4.2 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 23.7 |
|
|
| 19.5 |
|
| 0.0 |
|
|
| 0.7 |
|
|
| 0.0 |
|
| 0.5 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 18.1 |
|
|
| 18.6 |
| ||||||
March 31, 2018 |
| 292.8 |
|
|
| (48.4 | ) |
| $ | 292.8 |
| $ | 260.4 |
|
| $ | 3,582.1 |
|
| $ | (33.7 | ) |
| $ | (1,958.3 | ) |
| $ | 2,143.3 |
| ||||||||||||||||||||||||||||||||||||
March 31, 2019 |
| 292.8 |
|
|
| (46.8 | ) |
| $ | 292.8 |
| $ | 281.3 |
|
| $ | 3,965.4 |
|
| $ | (59.5 | ) |
| $ | (1,980.7 | ) |
| $ | 2,499.3 |
| ||||||||||||||||||||||||||||||||||||
Net income |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 121.7 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 121.7 |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 138.5 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 138.5 |
| ||||||||
Other comprehensive income (loss) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| (15.6 | ) |
|
| 0.0 |
|
|
| (15.6 | ) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| (8.9 | ) |
|
| 0.0 |
|
|
| (8.9 | ) | ||||||||
Cash dividends |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| (53.2 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (53.2 | ) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| (56.1 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (56.1 | ) | ||||||||
Stock purchases |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| |||||||||||||||||||||||||||||||||||||
Stock based compensation expense and stock option plan transactions |
| 0.0 |
|
|
| 0.6 |
|
|
| 0.0 |
|
| 11.4 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 13.5 |
|
|
| 24.9 |
|
| 0.0 |
|
|
| 0.9 |
|
|
| 0.0 |
|
| 7.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 25.0 |
|
|
| 32.0 |
| ||||||
June 30, 2018 |
| 292.8 |
|
|
| (47.8 | ) |
| $ | 292.8 |
|
|
| $ | 271.8 |
|
| $ | 3,650.6 |
|
| $ | (49.3 | ) |
| $ | (1,944.8 | ) |
| $ | 2,221.1 |
| ||||||||||||||||||||||||||||||||||
June 30, 2019 |
| 292.8 |
|
|
| (45.9 | ) |
| $ | 292.8 |
|
|
| $ | 288.3 |
|
| $ | 4,047.8 |
|
| $ | (68.4 | ) |
| $ | (1,955.7 | ) |
| $ | 2,604.8 |
|
| Number of Shares |
|
| Amounts |
| Number of Shares |
|
| Amounts |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock |
|
| Treasury Stock |
|
| Common Stock |
|
|
|
| Additional Paid-In Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Total Stockholders' Equity |
| Common Stock |
|
| Treasury Stock |
|
| Common Stock |
|
|
|
| Additional Paid-In Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Total Stockholders' Equity |
| ||||||||||||||||
December 31, 2018 |
| 292.8 |
|
|
| (46.0 | ) |
| $ | 292.8 |
| $ | 280.8 |
|
| $ | 3,832.6 |
|
| $ | (53.6 | ) |
| $ | (1,898.8 | ) |
| $ | 2,453.8 |
| ||||||||||||||||||||||||||||||||||||
Adoption of new accounting pronouncements (Note 2) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 13.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 13.0 |
| |||||||||||||||||||||||||||||||||||||
December 31, 2019 |
| 292.8 |
|
|
| (47.4 | ) |
| $ | 292.8 |
| $ | 295.5 |
|
| $ | 4,237.4 |
|
| $ | (66.7 | ) |
| $ | (2,091.2 | ) |
| $ | 2,667.8 |
| ||||||||||||||||||||||||||||||||||||
Net income |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 175.7 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 175.7 |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 229.8 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 229.8 |
| ||||||||
Other comprehensive income (loss) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| (5.9 | ) |
|
| 0.0 |
|
|
| (5.9 | ) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| (32.7 | ) |
|
| 0.0 |
|
|
| (32.7 | ) | ||||||||
Cash dividends |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| (55.9 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (55.9 | ) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| (59.0 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (59.0 | ) | ||||||||
Stock purchases |
| 0.0 |
|
|
| (1.5 | ) |
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (100.0 | ) |
|
| (100.0 | ) | |||||||||||||||||||||||||||||||||||||
Stock based compensation expense and stock option plan transactions |
| 0.0 |
|
|
| 0.7 |
|
|
| 0.0 |
|
| 0.5 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 18.1 |
|
|
| 18.6 |
|
| 0.0 |
|
|
| 0.3 |
|
|
| 0.0 |
|
| 0.2 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 11.7 |
|
|
| 11.9 |
| ||||||
March 31, 2019 |
| 292.8 |
|
|
| (46.8 | ) |
| $ | 292.8 |
| $ | 281.3 |
|
| $ | 3,965.4 |
|
| $ | (59.5 | ) |
| $ | (1,980.7 | ) |
| $ | 2,499.3 |
| ||||||||||||||||||||||||||||||||||||
March 31, 2020 |
| 292.8 |
|
|
| (47.1 | ) |
| $ | 292.8 |
| $ | 295.7 |
|
| $ | 4,408.2 |
|
| $ | (99.4 | ) |
| $ | (2,079.5 | ) |
| $ | 2,817.8 |
| ||||||||||||||||||||||||||||||||||||
Net income |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 138.5 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 138.5 |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 189.7 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 189.7 |
| ||||||||
Other comprehensive income (loss) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| (8.9 | ) |
|
| 0.0 |
|
|
| (8.9 | ) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| 1.1 |
|
|
| 0.0 |
|
|
| 1.1 |
| ||||||||
Cash dividends |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| (56.1 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (56.1 | ) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| (59.1 | ) |
|
| 0.0 |
|
|
| 0.0 |
|
|
| (59.1 | ) | ||||||||
Stock purchases |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| |||||||||||||||||||||||||||||||||||||
Stock based compensation expense and stock option plan transactions |
| 0.0 |
|
|
| 0.9 |
|
|
| 0.0 |
|
| 7.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 25.0 |
|
|
| 32.0 |
|
| 0.0 |
|
|
| 1.2 |
|
|
| 0.0 |
|
| 7.1 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 42.2 |
|
|
| 49.3 |
| ||||||
June 30, 2019 |
| 292.8 |
|
|
| (45.9 | ) |
| $ | 292.8 |
|
|
| $ | 288.3 |
|
| $ | 4,047.8 |
|
| $ | (68.4 | ) |
| $ | (1,955.7 | ) |
| $ | 2,604.8 |
| ||||||||||||||||||||||||||||||||||
June 30, 2020 |
| 292.8 |
|
|
| (45.9 | ) |
| $ | 292.8 |
|
|
| $ | 302.8 |
|
| $ | 4,538.8 |
|
| $ | (98.3 | ) |
| $ | (2,037.3 | ) |
| $ | 2,998.8 |
|
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 |
TheThese condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018, the condensed consolidatedfinancial statements of income and comprehensive income for the three and six months ended June 30, 2019 and June 30, 2018, the condensed consolidated statements of cash flow for the six months ended June 30, 2019 and June 30, 2018 and condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2019 and June 30, 2018 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, 2019 and results of operations and cash flows for all periods presented have been made. Results of operations for interim periods may not be representative of results to be expected for the full year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20182019 (the “Form 10-K”). The results of operations for the period ended June 30, 2019 are not necessarily indicative of the operating results for the full year. Certain prior period amounts previously included in Deferred and Other Long-term Liabilities have been reclassified to Business Acquisition Liabilities in the condensed consolidated balance sheet to conform to the presentation for the current period.
The Company incurred research and development expenses in the second quarter of 2020 and 2019 of $24.6 and 2018 of $22.4, and $21.8, respectively. The Company incurred research and development expenses in the first six months of 2020 and 2019 of $46.3 and 2018 of $43.1, and $41.3, respectively.These expenses are included in selling, general and administrative (“SG&A”) expenses.
2. | New Accounting Pronouncements |
Recently Adopted Accounting Pronouncements
In August 2017 and October 2018,June 2016, the Financial Accounting Standards Board (“FASB”)FASB issued new accounting guidance (with subsequent targeted amendments) which is intended to improvemodifies the measurements of expected credit losses for certain financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in itsinstruments and financial statements. These amendments also make targeted improvements to simplify the application of the hedge accounting. Theassets, including trade receivables. This guidance wasis effective for annual and interim periodsfiscal years beginning after December 15, 2018,2019 and was adopted by the Company in the first quarter of 2019.interim periods within those fiscal years. The standard’s adoptionstandard did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In February 2016 and July 2018,March 2020, the FASBFinancial Accounting Standards Board (“FASB”) issued new lease accounting guidance requiring lesseesintended to recognize right-of-use lease assetsprovide temporary optional expedients and lease liabilitiesexceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the balance sheet for those leases previously classified as operating leases, with a term greater than a year. The new guidance also expandsfinancial reporting burdens related to the required quantitativeexpected market transition from the London Interbank Offered Rate (“LIBOR”) and qualitative disclosures surrounding leases. Theother interbank offered rates to alternative reference rates. This guidance was effective for annualbeginning on March 12, 2020, and interim periods beginning after December 15, 2018, and allowed companies tothe Company may apply the requirements retrospectively, eitheramendments prospectively to all prior periods presentedcontract modifications made or relationships entered into or evaluated through a cumulative adjustment in the year of adoption. The Company adopted the new standard on January 1, 2019 on a modified retrospective basis and elected the package of practical expedients permitted under the transition guidance, which eliminates the reassessment of past leases, classification, and initial direct costs. The Company has implemented the appropriate internal controls and tools to monitor and record historical and future lease arrangements and required disclosures.
For all existing operating leases as of December 31, 2018, the Company recorded Right of Use Assets of approximately $55.0 and corresponding lease liabilities of approximately $57.0 with an offset to Deferred and Other Long-term Liabilities of approximately $2.0 to eliminate deferred rent on the consolidated balance sheet.
In addition, based on the transition guidance surrounding failed sale-and-leaseback transactions, the Company re-evaluated the lease for its corporate headquarters in Ewing, New Jersey. This lease was previously considered a failed sale-and-leaseback transaction under Accounting Standards Codification (“ASC”) 840 because of continuing involvement. The re-evaluation resulted in a change in classification from a finance transaction to an operating lease. The corporate headquarters building, which had a net book value of approximately $35.0 recorded in Property, Plant and Equipment as of December 31, 2018, was derecognized on January 1, 2019 and a Right of Use Asset of approximately $52.0 was recorded with an offset to Deferred Income Taxes of $4.0 and Retained Earnings of $13.0. The Lease Liability pertaining to this asset of $52.0 remained unchanged.
In total, at the adoption of the new accounting guidance there were Right of Use Assets of approximately $107.0 and a corresponding Lease Liabilities of $109.0. This did not include an existing cease-use liability of approximately $7.0 pertaining to one of the Company’s previous corporate offices that remained unchanged as a result of the transition. Refer to Note 12 for the Company’s lease disclosures.
The effects of the recently adopted lease accounting standard to the Company’s condensed consolidated balance sheet as of January 1, 2019 is as follows:
| Balance at |
|
| New Lease |
|
| Balance at |
| |||
| December 31, |
|
| Standard |
|
| January 1, |
| |||
| 2018 |
|
| Adjustment |
|
| 2019 |
| |||
Property, plant and equipment, net | $ | 598.2 |
|
| $ | (35.2 | ) |
| $ | 563.0 |
|
Other assets |
| 117.4 |
|
|
| 107.5 |
|
|
| 224.9 |
|
Accounts payable and accrued expenses |
| 725.1 |
|
|
| 13.6 |
|
|
| 738.7 |
|
Deferred and other long-term liabilities |
| 180.9 |
|
|
| 41.3 |
|
|
| 222.2 |
|
Deferred income taxes |
| 576.4 |
|
|
| 4.4 |
|
|
| 580.8 |
|
Retained earnings |
| 3,832.6 |
|
|
| 13.0 |
|
|
| 3,845.6 |
|
2022. The adoption of the new lease accounting standardthis guidance did not have a materialan impact on the Company’s consolidated financial position, results of operations or cash flows.flows in the current period. The Company will continue to evaluate the impacts of this guidance on future contract modifications.
There have been no other accounting pronouncements issued but not yet adopted by the Company which are expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
3. | Inventories |
Inventories consist of the following:
| June 30, |
|
| December 31, |
| ||
| 2020 |
|
| 2019 |
| ||
Raw materials and supplies | $ | 104.4 |
|
| $ | 85.9 |
|
Work in process |
| 28.2 |
|
|
| 29.0 |
|
Finished goods |
| 322.9 |
|
|
| 302.5 |
|
Total | $ | 455.5 |
|
| $ | 417.4 |
|
| June 30, |
|
| December 31, |
| ||
| 2019 |
|
| 2018 |
| ||
Raw materials and supplies | $ | 85.2 |
|
| $ | 84.4 |
|
Work in process |
| 35.0 |
|
|
| 34.1 |
|
Finished goods |
| 281.3 |
|
|
| 264.3 |
|
Total | $ | 401.5 |
|
| $ | 382.8 |
|
4. | Property, Plant and Equipment, Net (“PP&E”) |
PP&E consists of the following:
| June 30, |
|
| December 31, |
| June 30, |
|
| December 31, |
| ||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Land | $ | 27.8 |
|
| $ | 27.8 |
| $ | 28.2 |
|
| $ | 27.8 |
|
Buildings and improvements |
| 252.5 |
|
|
| 301.3 |
|
| 256.6 |
|
|
| 255.4 |
|
Machinery and equipment |
| 735.9 |
|
|
| 716.7 |
|
| 743.6 |
|
|
| 737.4 |
|
Software |
| 98.4 |
|
|
| 97.9 |
|
| 98.9 |
|
|
| 96.7 |
|
Office equipment and other assets |
| 77.9 |
|
|
| 73.8 |
|
| 79.3 |
|
|
| 76.0 |
|
Construction in progress |
| 47.2 |
|
|
| 49.7 |
|
| 83.4 |
|
|
| 72.9 |
|
Gross PP&E |
| 1,239.7 |
|
|
| 1,267.2 |
|
| 1,290.0 |
|
|
| 1,266.2 |
|
Less accumulated depreciation and amortization |
| 680.7 |
|
|
| 669.0 |
|
| 721.3 |
|
|
| 693.2 |
|
Net PP&E | $ | 559.0 |
|
| $ | 598.2 |
| $ | 568.7 |
|
| $ | 573.0 |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Depreciation and amortization on PP&E | $ | 16.0 |
|
| $ | 16.1 |
|
| $ | 32.0 |
|
| $ | 31.9 |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Depreciation and amortization on PP&E | $ | 16.1 |
|
| $ | 15.0 |
|
| $ | 31.9 |
|
| $ | 31.4 |
|
5. | Earnings Per Share (“EPS”) |
Basic EPS is calculated based on income available to holders of the Company’s common stock (“Common Stock”) and the weighted average number of shares outstanding during the reported period. Diluted EPS includes additional dilution from potential Common Stock issuable pursuant to the exercise of outstanding stock options.
The following table sets forth a reconciliation of the weighted average number of shares of Common Stock outstanding to the weighted average number of shares outstanding on a diluted basis:
| Three Months Ended |
|
| 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, |
| ||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Weighted average common shares outstanding - basic |
| 246.4 |
|
|
| 244.8 |
|
|
| 246.2 |
|
|
| 244.9 |
|
| 246.2 |
|
|
| 246.4 |
|
|
| 245.9 |
|
|
| 246.2 |
|
Dilutive effect of stock options |
| 6.3 |
|
|
| 4.5 |
|
|
| 6.1 |
|
|
| 4.8 |
|
| 5.1 |
|
|
| 6.3 |
|
|
| 5.3 |
|
|
| 6.1 |
|
Weighted average common shares outstanding - diluted |
| 252.7 |
|
|
| 249.3 |
|
|
| 252.3 |
|
|
| 249.7 |
|
| 251.3 |
|
|
| 252.7 |
|
|
| 251.2 |
|
|
| 252.3 |
|
Antidilutive stock options outstanding |
| 1.4 |
|
|
| 5.0 |
|
|
| 1.4 |
|
|
| 5.0 |
|
| 3.3 |
|
|
| 1.4 |
|
|
| 3.3 |
|
|
| 1.4 |
|
6. | Stock Based Compensation Plans |
The following table provides a summary of option activity:
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
| ||
|
|
|
|
| Weighted |
|
| Remaining |
|
|
|
|
|
|
|
|
| Weighted |
|
| Remaining |
|
|
|
|
| ||||
|
|
|
|
| Average |
|
| Contractual |
|
| Aggregate |
|
|
|
|
| Average |
|
| Contractual |
|
| Aggregate |
| ||||||
|
|
|
|
| Exercise |
|
| Term |
|
| Intrinsic |
|
|
|
|
| Exercise |
|
| Term |
|
| Intrinsic |
| ||||||
| Options |
|
| Price |
|
| (in Years) |
|
| Value |
| Options |
|
| Price |
|
| (in Years) |
|
| Value |
| ||||||||
Outstanding at December 31, 2018 |
| 14.7 |
|
| $ | 37.63 |
|
|
|
|
|
|
|
|
| |||||||||||||||
Outstanding at December 31, 2019 |
| 14.0 |
|
| $ | 43.23 |
|
|
|
|
|
|
|
|
| |||||||||||||||
Granted |
| 1.4 |
|
|
| 77.30 |
|
|
|
|
|
|
|
|
|
| 1.8 |
|
|
| 73.89 |
|
|
|
|
|
|
|
|
|
Exercised |
| (1.5 | ) |
|
| 24.41 |
|
|
|
|
|
|
|
|
|
| (1.5 | ) |
|
| 29.35 |
|
|
|
|
|
|
|
|
|
Cancelled |
| (0.1 | ) |
|
| 50.11 |
|
|
|
|
|
|
|
|
|
| (0.1 | ) |
|
| 61.87 |
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2019 |
| 14.5 |
|
| $ | 42.85 |
|
|
| 5.9 |
|
| $ | 444.4 |
| |||||||||||||||
Exercisable at June 30, 2019 |
| 9.1 |
|
| $ | 34.07 |
|
|
| 4.2 |
|
| $ | 353.6 |
| |||||||||||||||
Outstanding at June 30, 2020 |
| 14.2 |
|
| $ | 48.61 |
|
|
| 5.9 |
|
| $ | 407.0 |
| |||||||||||||||
Exercisable at June 30, 2020 |
| 8.9 |
|
| $ | 38.78 |
|
|
| 4.2 |
|
| $ | 341.9 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, |
| ||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Intrinsic Value of Stock Options Exercised | $ | 47.8 |
|
| $ | 15.2 |
|
| $ | 71.9 |
|
| $ | 45.2 |
| $ | 54.6 |
|
| $ | 47.8 |
|
| $ | 68.9 |
|
| $ | 71.9 |
|
Stock Compensation Expense Related to Stock Option Awards | $ | 12.2 |
|
| $ | 12.3 |
|
| $ | 14.5 |
|
| $ | 15.0 |
| $ | 12.7 |
|
| $ | 12.2 |
|
| $ | 15.4 |
|
| $ | 14.5 |
|
Issued Stock Options |
| 1.4 |
|
|
| 1.9 |
|
|
| 1.4 |
|
|
| 1.9 |
|
| 1.8 |
|
|
| 1.4 |
|
|
| 1.8 |
|
|
| 1.4 |
|
Weighted Average Fair Value of Stock Options issued (per share) | $ | 14.94 |
|
| $ | 9.63 |
|
| $ | 14.94 |
|
| $ | 9.63 |
| $ | 12.74 |
|
| $ | 14.94 |
|
| $ | 12.73 |
|
| $ | 14.94 |
|
Fair Value of Stock Options Issued | $ | 21.3 |
|
| $ | 18.0 |
|
| $ | 21.3 |
|
| $ | 18.1 |
| $ | 23.1 |
|
| $ | 21.3 |
|
| $ | 23.6 |
|
| $ | 21.3 |
|
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, |
| ||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Risk-free interest rate |
| 2.1 | % |
|
| 2.9 | % |
|
| 2.1 | % |
|
| 2.9 | % |
| 0.5 | % |
|
| 2.1 | % |
|
| 0.5 | % |
|
| 2.1 | % |
Expected life in years |
| 7.3 |
|
|
| 7.3 |
|
|
| 7.3 |
|
|
| 7.3 |
|
| 7.3 |
|
|
| 7.3 |
|
|
| 7.3 |
|
|
| 7.3 |
|
Expected volatility |
| 17.2 | % |
|
| 17.1 | % |
|
| 17.2 | % |
|
| 17.1 | % |
| 19.9 | % |
|
| 17.2 | % |
|
| 19.8 | % |
|
| 17.2 | % |
Dividend yield |
| 1.2 | % |
|
| 1.7 | % |
|
| 1.2 | % |
|
| 1.7 | % |
| 1.3 | % |
|
| 1.2 | % |
|
| 1.3 | % |
|
| 1.2 | % |
7. | Share Repurchases |
On November 1, 2017, the Company’s Board of Directors (the “Board”) authorized a share repurchase program, under which the Company may repurchase up to $500.0 in shares of Common Stock (the “2017 Share Repurchase Program”). The 2017 Share Repurchase Program does not have an expiration. The Company also continued its evergreen share repurchase program, authorized by the Board on January 29, 2014, under which the Company may repurchase, from time to time, Common Stock to reduce or eliminate dilution associated with issuances of Common Stock under the Company’s incentive plans. plans.
The Company did 0t repurchase any shares of its common stock in the first six months of 2020. As a result of the Company’s stock repurchases in recent years, there remains $210.0 of share repurchase availability under the 2017 Share Repurchase Program as of June 30, 2020.
In connection with the evergreen repurchase program, in January 2019, the Company executed open market purchases of $100.0 of its Common Stock.
8.Fair Value Measurements
|
|
The following table presents the carrying amounts and estimated fair values of the Company’s other financial instruments at June 30, 20192020 and December 31, 2018:2019:
|
|
| June 30, 2019 |
|
| December 31, 2018 |
|
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||
| Input |
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
| Input |
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
| ||||||||
| Level |
| Amount |
|
| Value |
|
| Amount |
|
| Value |
| Level |
| Amount |
|
| Value |
|
| Amount |
|
| Value |
| ||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents | Level 1 |
| $ | 48.9 |
|
| $ | 48.9 |
|
| $ | 234.6 |
|
| $ | 234.6 |
| Level 1 |
| $ | 226.8 |
|
| $ | 226.8 |
|
| $ | 65.3 |
|
| $ | 65.3 |
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings | Level 2 |
|
| 111.6 |
|
|
| 111.6 |
|
|
| 1.8 |
|
|
| 1.8 |
| Level 2 |
|
| 65.8 |
|
|
| 65.8 |
|
|
| 252.9 |
|
|
| 252.9 |
|
Floating Rate Senior notes due January 25, 2019 | Level 2 |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 300.0 |
|
|
| 299.9 |
| |||||||||||||||||
2.45% Senior notes due December 15, 2019 | Level 2 |
|
| 300.0 |
|
|
| 299.8 |
|
|
| 300.0 |
|
|
| 297.4 |
| |||||||||||||||||
Term loan due May 1, 2022 | Level 2 |
|
| 300.0 |
|
|
| 300.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| Level 2 |
|
| 300.0 |
|
|
| 300.0 |
|
|
| 300.0 |
|
|
| 300.0 |
|
2.45% Senior notes due August 1, 2022 | Level 2 |
|
| 299.8 |
|
|
| 300.2 |
|
|
| 299.7 |
|
|
| 289.7 |
| Level 2 |
|
| 299.8 |
|
|
| 310.4 |
|
|
| 299.8 |
|
|
| 302.6 |
|
2.875% Senior notes due October 1, 2022 | Level 2 |
|
| 399.9 |
|
|
| 403.8 |
|
|
| 399.9 |
|
|
| 393.0 |
| Level 2 |
|
| 399.9 |
|
|
| 418.5 |
|
|
| 399.9 |
|
|
| 408.2 |
|
3.15% Senior notes due August 1, 2027 | Level 2 |
|
| 424.6 |
|
|
| 427.6 |
|
|
| 424.6 |
|
|
| 400.0 |
| Level 2 |
|
| 424.7 |
|
|
| 465.8 |
|
|
| 424.7 |
|
|
| 438.9 |
|
3.95% Senior notes due August 1, 2047 | Level 2 |
|
| 397.3 |
|
|
| 401.2 |
|
|
| 397.2 |
|
|
| 363.7 |
| Level 2 |
|
| 397.4 |
|
|
| 470.1 |
|
|
| 397.3 |
|
|
| 427.1 |
|
Interest Rate Swap Lock Agreement asset (liability) | Level 2 |
|
| (67.6 | ) |
|
| (67.6 | ) |
|
| (29.5 | ) |
|
| (29.5 | ) | |||||||||||||||||
Business Acquisition Liabilities | Level 3 |
|
| 202.7 |
|
|
| 202.7 |
|
|
| 23.0 |
|
|
| 23.0 |
| Level 3 |
|
| 171.0 |
|
|
| 171.0 |
|
|
| 206.2 |
|
|
| 206.2 |
|
Fair value adjustment asset (liability) related to hedged fixed rate debt instrument | Level 2 |
|
| (0.8 | ) |
|
| (0.8 | ) |
|
| (3.0 | ) |
|
| (3.0 | ) | |||||||||||||||||
Interest Rate Swap Lock Agreement | Level 2 |
|
| (25.4 | ) |
|
| (25.4 | ) |
|
| (7.0 | ) |
|
| (7.0 | ) |
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, 2019.2020.
Refer to Note 2 in the Form 10-K for a description of the methods and assumptions used to estimate the fair value of each class of financial instruments reflected in the condensed consolidated balance sheets.
The business acquisition liabilities represent the estimated fair value of additional future earn-outs payable for acquisitions of businesses that included earn-out clauses. The valuation of the contingent consideration will beis being evaluated on an ongoing basis and is based on management estimates and entity-specific assumptions which are considered Level 3 inputs. A portionIn the six months ended June 30, 2020, the Company decreased the fair value estimate of the contingent consideration liability for the Flawless Acquisition by $21.0 from $192.0 to $171.0 based on the revised valuation due to updated sales forecasts as well as the passage of time. The $21.0 reduction of SG&A expense was recorded within the Consumer Domestic and Consumer International Segments. The business acquisition liabilities for December 31, 2019 also included a $14.2 liability for the Agro Acquisition. The Agro Acquisition earnout was paid in the second quarter of 2020. As of December 31, 2019, the Agro Acquisition liability was recorded within Accounts Payable and Accrued Expenses.
The interest rate swap lock agreements are includedused to hedge the risk of changes in accounts payablethe interest payments attributable to changes in the benchmark U.S. Dollar LIBOR interest rate associated with anticipated issuances of debt. The liability increased by $38.1 during the first six months of 2020 primarily due to lower current and accrued expenses.projected interest rates resulting from the COVID-19 pandemic.
The carrying amounts of accounts receivable, and accounts payable and accrued expenses, approximated estimated fair values as of June 30, 20192020 and December 31, 2018.2019.
9. | Derivative Instruments and Risk Management |
Changes in interest rates, foreign exchange rates, the price of the Common Stock and commodity prices expose the Company to market risk. The Company manages these risks by the use of derivative instruments, such as cash flow and fair value hedges, diesel and commodity hedge contracts, equity derivatives and foreign exchange forward contracts. The Company does not use derivatives for trading or speculative purposes. Refer to Note 3 in the Form 10-K for a discussion of each of the Company’s derivative instruments in effect as of December 31, 2018.2019.
The notional amount of a derivative instrument is the nominal or face amount used to calculate payments made on that instrument. Notional amounts are presented in the following table:
|
| Notional |
|
| Notional |
|
| Notional |
|
| Notional |
| ||||
|
| Amount |
|
| Amount |
|
| Amount |
|
| Amount |
| ||||
|
| June 30, 2019 |
|
| December 31, 2018 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| $ | 245.2 |
|
| $ | 146.6 |
|
| $ | 239.9 |
|
| $ | 216.0 |
|
Interest rate swap |
| $ | 300.0 |
|
| $ | 300.0 |
| ||||||||
Interest rate swap lock |
| $ | 300.0 |
|
| $ | 250.0 |
|
| $ | 300.0 |
|
| $ | 300.0 |
|
Diesel fuel contracts |
| 7.3 gallons |
|
| 8.2 gallons |
|
| 5.9 gallons |
|
| 4.8 gallons |
| ||||
Commodities contracts |
| 105.8 pounds |
|
| 94.7 pounds |
|
| 63.8 pounds |
|
| 81.2 pounds |
| ||||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity derivatives |
| $ | 21.3 |
|
| $ | 21.0 |
|
| $ | 26.6 |
|
| $ | 22.1 |
|
Excluding the Interest Rate Swap Lock Agreement disclosed in Note 8, the fair values and amount of gain (loss) recognized in income and Other Comprehensive Income (“OCI”) associated with the derivative instruments disclosed above did not have a material impact on the Company’s condensed consolidated financial statements.
10. | Acquisitions |
On May 1, 2019, the Company closed on its previously announced acquisition of the FLAWLESS™ and FINISHING TOUCH™FLAWLESS hair removal business (the “Flawless Acquisition”) from Ideavillage Products Corporation (“Ideavillage”). The Company paid $475.0 at closing and willmay make an additional earn-outcontingent consideration payment up to a maximum of $425.0 in cash, based on a trailing twelve-month net sales target ending no later than December 31, 2021. The transaction was funded with a three-year term loan and commercial paper borrowings. The Company anticipates there will beThere was a five-monthsix-month integration transition period in which the net cash received from Ideavillage will bewas accounted for as other revenue as a component of net sales. The Company will purchasepurchased the inventory following the transition period.period, and at such time, the Company became the principal party to the sales transactions. The FLAWLESS hair removal business is managed in the Consumer Domestic and Consumer International segments and represents an addition to ourthe Company’s specialty haircare portfolio which includes BATISTE dry shampoo, VIVISCAL hair thinning supplements, and TOPPIK hair fibers.
The preliminary fair values of the net assets acquired are set forth as follows:
| Flawless |
| ||||
| Acquisition Date |
| ||||
| Preliminary |
| ||||
| Fair Value |
| ||||
Trade name | $ | 447.3 |
| $ | 447.3 |
|
Other intangible assets |
| 121.8 |
|
| 121.8 |
|
Goodwill |
| 87.9 |
|
| 87.9 |
|
Contingent consideration |
| (182.0 | ) |
| (182.0 | ) |
Cash purchase price | $ | 475.0 |
| $ | 475.0 |
|
TheAs a result of the Company purchasing assets, the goodwill and other intangible assets associated with the Flawless Acquisition are deductible for U.S. tax purposes. The trade names and other intangible assets were valued using a discounted cash flow model. The life of the amortizable intangible assets recognized from the Flawless Acquisition ranges from 15 - 20 years. The goodwill is a result of expected synergies from combined operations of the acquisitionacquired business and the Company. Pro forma results are not presented because the impact of the acquisition is not material to the Company’s consolidated financial results.The contingent liability is remeasured at each balance sheet date until the completion of the earn-out period. Subsequent to the date of the Flawless Acquisition, the Company increaseddecreased the fair value estimate of the contingent consideration liability by $5.0 ($3.7 after tax or $0.01 diluted per share) in the second quarter of 2019$11.0 from $182.0 to $187.0$171.0 as of the six months ended June 30, 2020 based on the revised valuation due to updated sales forecasts as well as the passage of time. The charge was recorded to SG&A expense in both the Consumer Domestic and Consumer International Segments. The liability will be assessed for re-measurement at each balance sheet date until the completion of the earn-out period. Ideavillage will continue to help support the business through a separate long-term transition services agreement.
On March 8, 2018, the Company purchased Passport Food Safety Solutions, Inc. (“Passport,” and the acquisition, the “Passport Acquisition”). Passport sells products for pre- and post-harvest treatment in the poultry, swine, and beef production markets. The total purchase price was approximately $50.0, which is subject to an additional payment of up to $25.0 based on sales performance through 2020. Passport’s annual sales were approximately $21.0 in 2017. The Passport Acquisition was funded with short-term borrowings and is managed in the Specialty Products (“SPD”) segment.
The fair values of the net assets acquired are set forth as follows:
| Passport |
| |
| Acquisition Date |
| |
| Fair Value |
| |
Inventory and other working capital | $ | 3.3 |
|
Long-term assets |
| 1.0 |
|
Trade names and other intangibles |
| 28.5 |
|
Goodwill |
| 32.5 |
|
Current liabilities |
| (1.1 | ) |
Long-term liabilities |
| (7.1 | ) |
Contingent consideration |
| (7.3 | ) |
Cash purchase price (net of cash acquired) | $ | 49.8 |
|
The life of the amortizable intangible assets recognized from the Passport Acquisition ranges from 10 - 15 years. The goodwill is a result of expected synergies from combined operations of the acquisition and the Company. Pro forma results are not presented because the impact is not material to the Company’s consolidated financial results. During the second quarter of 2019, the Company reversed the full $7.3 ($5.5 after tax or $0.02 diluted per share) contingent liability based on the revised valuation due to updated sales forecasts. The reduction was recorded in SG&A in the SPD segment. The contingent liability will be assessed for re-measurement at each balance sheet date leading up to December 31, 2020.
The goodwill and other intangible assets associated with the Passport Acquisition are not deductible for U.S. tax purposes.
11. | Goodwill and Other Intangibles, Net |
The following table provides information related to the carrying value of all intangible assets, other than goodwill:
| June 30, 2019 |
|
|
|
| December 31, 2018 |
| June 30, 2020 |
|
|
|
| December 31, 2019 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross |
|
|
|
|
|
|
|
|
|
| Amortization |
| Gross |
|
|
|
|
|
|
|
|
| Gross |
|
|
|
|
|
|
|
|
|
| Amortization |
| Gross |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| Carrying |
|
| Accumulated |
|
|
|
|
|
| Period |
| Carrying |
|
| Accumulated |
|
|
|
|
| Carrying |
|
| Accumulated |
|
|
|
|
|
| Period |
| Carrying |
|
| Accumulated |
|
|
|
|
| |||||||||||||||||||||||||||
| Amount |
|
| Amortization |
|
| Net |
|
| (Years) |
| Amount |
|
| Amortization |
|
| Net |
| Amount |
|
| Amortization |
|
| Net |
|
| (Years) |
| Amount |
|
| Amortization |
|
| Net |
| |||||||||||||||||||||||||||||||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Trade Names | $ | 1,026.0 |
|
| $ | (193.9 | ) |
| $ | 832.1 |
|
| 3-20 |
| $ | 578.6 |
|
| $ | (175.2 | ) |
| $ | 403.4 |
| $ | 1,020.4 |
|
| $ | (242.0 | ) |
| $ | 778.4 |
|
| 3-20 |
| $ | 1,025.8 |
|
| $ | (219.7 | ) |
| $ | 806.1 |
| |||||||||||||||||||
Customer Relationships |
| 584.8 |
|
|
| (237.1 | ) |
|
| 347.7 |
|
| 15-20 |
|
| 506.3 |
|
|
| (220.8 | ) |
|
| 285.5 |
|
| 584.8 |
|
|
| (272.9 | ) |
|
| 311.9 |
|
| 15-20 |
|
| 584.8 |
|
|
| (255.0 | ) |
|
| 329.8 |
| |||||||||||||||||||
Patents/Formulas |
| 211.4 |
|
|
| (66.8 | ) |
|
| 144.6 |
|
| 4-20 |
|
| 165.4 |
|
|
| (61.5 | ) |
|
| 103.9 |
|
| 211.4 |
|
|
| (79.1 | ) |
|
| 132.3 |
|
| 4-20 |
|
| 211.4 |
|
|
| (73.0 | ) |
|
| 138.4 |
| |||||||||||||||||||
Non-Compete Agreement |
| 0.4 |
|
|
| (0.4 | ) |
|
| 0.0 |
|
| 5-10 |
|
| 0.4 |
|
|
| (0.3 | ) |
|
| 0.1 |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
| 5-10 |
|
| 0.4 |
|
|
| (0.4 | ) |
|
| 0.0 |
| |||||||||||||||||||
Total | $ | 1,822.6 |
|
| $ | (498.2 | ) |
| $ | 1,324.4 |
|
|
|
| $ | 1,250.7 |
|
| $ | (457.8 | ) |
| $ | 792.9 |
| $ | 1,816.6 |
|
| $ | (594.0 | ) |
| $ | 1,222.6 |
|
|
|
| $ | 1,822.4 |
|
| $ | (548.1 | ) |
| $ | 1,274.3 |
|
Indefinite Lived Intangible Assets - Gross Carrying Amount
| June 30, |
|
|
|
|
|
|
|
| December 31, |
|
|
|
|
| ||
| 2019 |
|
|
|
|
|
|
|
| 2018 |
|
|
|
|
| ||
Trade Names | $ | 1,479.4 |
|
|
|
|
|
|
|
| $ | 1,481.1 |
|
|
|
|
|
| June 30, |
|
|
|
|
|
|
|
| December 31, |
|
|
|
|
| ||
| 2020 |
|
|
|
|
|
|
|
| 2019 |
|
|
|
|
| ||
Trade Names | $ | 1,475.3 |
|
|
|
|
|
|
|
| $ | 1,475.7 |
|
|
|
|
|
Intangible amortization expense was $22.7$24.5 and $17.8$22.7 for the second quarter of 2020 and 2019, and 2018, respectively. Intangible amortization expense amounted to $40.3$49.0 and $35.8$40.3 for the first six months of 20192020 and 2018,2019, respectively. The Company estimates that intangible amortization expense will be approximately $90.0$98.0 in 20192020 and approximately $98.0$96.0 to $89.0$88.0 annually over the next five years.
During the first quarter of 2020, the Company sold its PERL WEISS® toothpaste brand in Germany with a tradename net book value of $2.7 and corresponding goodwill of $1.3 for cash proceeds of $7.0. The $3.0 gain associated with this transaction was recorded as a reduction of SG&A expense in the Consumer International segment.
Fair value for indefinite lived intangible assets was estimated based on a “relief from royalty” or “excess earnings” discounted cash flow method, which contains numerous variables that are subject to change as business conditions change, and therefore could impact fair values in the future. The key assumptions used in determining fair value are sales growth, profitability margins, tax rates and discount rates. The Company determined that the carryingfair value of its trade names asall other intangible assets for each of the years in the three-year period ended December 31, 2018 and 2017, was recoverable2019 exceeded their respective carrying values based upon the forecasted cash flows and profitabilityprofitability. The Company considers all of the brands. In 2017 there was aits personal care trade name that, based on performance, hadbrands fair value to substantially exceed their carrying value. However, in recent years the Company’s TROJAN business, specifically the condom category, has not grown and competition has increased resulting in a potential reduction in cash flows. As a result, the TROJAN business has experienced sales and profit declines that hadhas eroded a significant portion of the excess between fair and carrying value, which could potentially result in an impairment of the asset. In 2017, this excess had been reduced due in large part to an increased competitive market environment therefore resulting in reduced cash flow projections.tradename. The performancecarrying value of the TROJAN tradename improved since 2017, thereby increasing the excess betweenis $176.4 million. As of December 31, 2019, fair value exceeded carrying value by 26%. Key assumptions used
in the projections include discount rates of 9.5% in the U.S. and carrying11.5% internationally, growth assumptions of 0% to 2% and an average royalty rate of approximately 10%. This indefinite-lived intangible asset is susceptible to impairment risk. While management can and has implemented strategies to address the risk, including lowering the Company’s production costs, investing in new product ideas, and developing new creative advertising, significant changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair value. This could result in a decline in fair value that could trigger a future impairment charge of the tradename.
The Company continueshas continued to monitor performanceexperience a significant increase in consumer demand for many of its products that began in March, including VITAFUSION gummy vitamins, SIMPLY SALINE and should there be anySTERIMAR nasal hygiene products, A&H baking soda, and A&H cat litter and KABOOM bathroom cleaners. On the other hand, the Company’s WATERPIK business has been negatively impacted by the temporary closure of dental offices across the United States and some other personal care brands have been negatively impacted by the temporary closures of certain non-essential retailers and the reduction of consumer foot traffic at retailers from which these brands derive a significant changeproportion of sales. The Company is monitoring the impact the pandemic and the associated governmental response is having on its customers and consumer demand, as well as the potential impact on the Company’s short and long term cash flows as it relates to its intangible asset carrying values.
In addition, the Company’s Passport Food Safety business, under pressure as a result of theCOVID-19 pandemic and new competitive activities, is experiencing sales and profit declines due to closures of meat processing plants and decreased demand for its products that could result in forecasted assumptions or estimates, including sales, profitability and discount rate, the Company may be required to recognize an impairment of the associated tradename and other intangible assets. The assets have a current net book value of approximately $24.0 million and are being amortized over their remaining weighted average life of 12 years. The Company is implementing strategies to address the decline, however if unsuccessful, this decline could trigger a future impairment charge.
The carrying amount of goodwill is as follows:
| Consumer |
|
| Consumer |
|
| Specialty |
|
|
|
|
| |||
| Domestic |
|
| International |
|
| Products |
|
| Total |
| ||||
Balance at December 31, 2018 | $ | 1,633.2 |
|
| $ | 223.7 |
|
| $ | 136.0 |
|
| $ | 1,992.9 |
|
Flawless acquired goodwill |
| 74.7 |
|
|
| 13.2 |
|
|
| 0.0 |
|
|
| 87.9 |
|
Other |
| 0.0 |
|
|
| (1.3 | ) |
|
| 0.0 |
|
|
| (1.3 | ) |
Balance at June 30, 2019 | $ | 1,707.9 |
|
| $ | 235.6 |
|
| $ | 136.0 |
|
| $ | 2,079.5 |
|
| Consumer |
|
| Consumer |
|
| Specialty |
|
|
|
|
| |||
| Domestic |
|
| International |
|
| Products |
|
| Total |
| ||||
Balance at December 31, 2019 | $ | 1,707.9 |
|
| $ | 235.6 |
|
| $ | 136.0 |
|
| $ | 2,079.5 |
|
PERL WEISS divestiture |
| 0.0 |
|
|
| (1.3 | ) |
|
| 0.0 |
|
|
| (1.3 | ) |
Balance at June 30, 2020 | $ | 1,707.9 |
|
| $ | 234.3 |
|
| $ | 136.0 |
|
| $ | 2,078.2 |
|
In connection with itsThe result of the Company’s annual goodwill impairment test, performed in the beginning of the second quarter of 2019, the Company2020, determined that the estimated fair value substantially exceeded the carrying values of all reporting units. The determination of fair value contains numerous variables that are subject to change as business conditions change and therefore could impact fair value in the future. The Company has never incurred a goodwill impairment charge.
12. | Leases |
The Company leases certain manufacturing facilities, warehouses, office space, railcars and equipment. Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheet. All recorded leases are classified as operating leases and lease expense is recognized on a straight-line basis over the lease term. For leases beginning in 2019, lease components (base rental costs) are accounted for separately from the nonlease components (e.g., common-area maintenance costs). For leases that do not provide an implicit rate, the Company uses its estimated secured incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
A summary of the Company’s lease information is as follows:
|
| June 30, |
| |
| Classification | 2019 |
| |
Assets |
|
|
|
|
Right of use assets | Other Assets | $ | 156.0 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Current lease liabilities | Accounts Payable and Accrued Expenses | $ | 16.2 |
|
Long-term lease liabilities | Deferred and Other Long-term Liabilities |
| 148.7 |
|
Total lease liabilities |
| $ | 164.9 |
|
|
|
|
|
|
Other information |
|
|
|
|
Weighted-average remaining lease term (years) |
|
| 11.0 |
|
Weighted-average discount rate |
|
| 4.9 | % |
|
|
| June 30, |
| December 31, |
| |||||||||||||||||||||
|
| Classification | 2020 |
| 2019 |
| |||||||||||||||||||||
Assets | Assets |
|
|
|
|
|
|
| |||||||||||||||||||
Right of use assets | Right of use assets | Other Assets | $ | 156.9 |
| $ | 150.7 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Liabilities | Liabilities |
|
|
|
|
|
|
| |||||||||||||||||||
Current lease liabilities | Current lease liabilities | Accounts Payable and Accrued Expenses | $ | 17.9 |
| $ | 16.4 |
| |||||||||||||||||||
Long-term lease liabilities | Long-term lease liabilities | Deferred and Other Long-term Liabilities |
| 149.3 |
|
| 144.0 |
| |||||||||||||||||||
Total lease liabilities | Total lease liabilities |
| $ | 167.2 |
| $ | 160.4 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Other information | Other information |
|
|
|
|
|
|
| |||||||||||||||||||
Weighted-average remaining lease term (years) | Weighted-average remaining lease term (years) |
|
| 10.9 |
|
| 11.1 |
| |||||||||||||||||||
Weighted-average discount rate | Weighted-average discount rate |
|
| 4.8 | % |
| 4.9 | % | |||||||||||||||||||
| Three Months |
| Six Months |
| Three Months |
|
| Three Months |
|
| Six Months |
|
| Six Months |
| ||||||||||||
| Ended |
| Ended |
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
| ||||||||||||
| June 30, 2019 |
| June 30, 2019 |
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||||||
Statement of Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Lease cost(1) | $ | 6.0 |
| $ | 11.6 |
| $ | 6.8 |
|
| $ | 6.0 |
|
| $ | 13.4 |
|
| $ | 11.6 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Other information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Leased assets obtained in exchange for new lease liabilities(2) | $ | 55.8 |
| $ | 57.1 |
| $ | 6.3 |
|
| $ | 55.8 |
|
| $ | 16.5 |
|
| $ | 57.1 |
| ||||||
Cash paid for amounts included in the measurement of lease liabilities | $ | 6.1 |
| $ | 12.1 |
| $ | 6.4 |
|
| $ | 6.1 |
|
| $ | 12.6 |
|
| $ | 12.1 |
|
| (1) | Lease expense is included in cost of sales or SG&A expenses based on the nature of the |
| (2) | In March 2020, the Company approved a capital project to purchase additional machinery and equipment at one of its leased manufacturing facilities. This led to a lease modification to include a renewal option that would extend the lease for an additional five years through 2029. The modification resulted in an increase to the Company’s right of use assets and corresponding lease liabilities of approximately $7.3 recorded in the first quarter of 2020. In June 2019, the Company amended an operating lease for one of its manufacturing facilities to extend the lease an additional ten years through 2033. The amendment resulted in an increase to the Company’s right of use assets and corresponding lease liabilities of approximately $53.0 recorded in the second quarter of 2019. |
The Company’s minimum annual rentals including reasonably assured renewal options under lease agreements are as follows:
|
| Operating |
|
| Operating |
| ||
|
| Leases |
|
| Leases |
| ||
2019 |
| $ | 11.9 |
| ||||
2020 |
|
| 22.1 |
|
| $ | 11.9 |
|
2021 |
|
| 22.2 |
|
|
| 25.6 |
|
2022 |
|
| 20.2 |
|
|
| 23.3 |
|
2023 |
|
| 16.2 |
|
|
| 17.9 |
|
2024 and thereafter |
|
| 126.0 |
| ||||
2024 |
|
| 16.5 |
| ||||
2025 and thereafter |
|
| 121.7 |
| ||||
Total future minimum lease commitments |
|
| 218.6 |
|
|
| 216.9 |
|
Less: Imputed Interest |
|
| (53.7 | ) |
|
| (49.7 | ) |
Present value of lease liabilities |
| $ | 164.9 |
|
| $ | 167.2 |
|
13. | Accounts Payable and Accrued Expenses |
Accounts payable and accrued expenses consist of the following:
| June 30, |
|
| December 31, |
| June 30, |
|
| December 31, |
| ||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Trade accounts payable | $ | 469.5 |
|
| $ | 430.2 |
| $ | 516.7 |
|
| $ | 473.3 |
|
Accrued marketing and promotion costs |
| 123.4 |
|
|
| 116.2 |
|
| 148.6 |
|
|
| 138.1 |
|
Accrued wages and related benefit costs |
| 53.3 |
|
|
| 84.2 |
|
| 61.7 |
|
|
| 96.5 |
|
Other accrued current liabilities |
| 123.5 |
|
|
| 94.5 |
|
| 115.3 |
|
|
| 124.0 |
|
Total | $ | 769.7 |
|
| $ | 725.1 |
| $ | 842.3 |
|
| $ | 831.9 |
|
14. | 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, |
| ||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Short-term borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper issuances | $ | 109.8 |
|
| $ | 0.0 |
| $ | 64.5 |
|
| $ | 248.6 |
|
Various debt due to international banks |
| 1.8 |
|
|
| 1.8 |
|
| 1.3 |
|
|
| 4.3 |
|
Total short-term borrowings | $ | 111.6 |
|
| $ | 1.8 |
| $ | 65.8 |
|
| $ | 252.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating Rate Senior notes due January 25, 2019 |
| 0.0 |
|
| $ | 300.0 |
| |||||||
2.45% Senior notes due December 15, 2019 |
| 300.0 |
|
|
| 300.0 |
| |||||||
Term loan due May 1, 2022 |
| 300.0 |
|
|
| 0.0 |
|
| 300.0 |
|
|
| 300.0 |
|
2.45% Senior notes due August 1, 2022 |
| 300.0 |
|
|
| 300.0 |
|
| 300.0 |
|
|
| 300.0 |
|
Less: Discount |
| (0.2 | ) |
|
| (0.3 | ) |
| (0.2 | ) |
|
| (0.2 | ) |
2.875% Senior notes due October 1, 2022 |
| 400.0 |
|
|
| 400.0 |
|
| 400.0 |
|
|
| 400.0 |
|
Less: Discount |
| (0.1 | ) |
|
| (0.1 | ) |
| (0.1 | ) |
|
| (0.1 | ) |
3.15% Senior notes due August 1, 2027 |
| 425.0 |
|
|
| 425.0 |
|
| 425.0 |
|
|
| 425.0 |
|
Less: Discount |
| (0.4 | ) |
|
| (0.4 | ) |
| (0.3 | ) |
|
| (0.3 | ) |
3.95% Senior notes due August 1, 2047 |
| 400.0 |
|
|
| 400.0 |
|
| 400.0 |
|
|
| 400.0 |
|
Less: Discount |
| (2.7 | ) |
|
| (2.8 | ) |
| (2.6 | ) |
|
| (2.7 | ) |
Debt issuance costs, net |
| (12.8 | ) |
|
| (13.1 | ) |
| (10.4 | ) |
|
| (11.5 | ) |
Fair value adjustment asset (liability) related to hedged fixed rate debt instrument |
| (0.8 | ) |
|
| (3.0 | ) | |||||||
Total long-term debt |
| 2,108.0 |
|
|
| 2,105.3 |
| |||||||
Less: current maturities |
| (299.0 | ) |
|
| (596.5 | ) | |||||||
Net long-term debt | $ | 1,809.0 |
|
| $ | 1,508.8 |
| $ | 1,811.4 |
|
| $ | 1,810.2 |
|
Amended Credit Agreement
On May 1, 2019, the The Company is party to a credit agreement dated March 29, 2018, as amended its(the “Credit Agreement”), that provides for a $1,000.0 unsecured revolving credit facility (the “Credit Agreement”) to extend the term of the“Revolving Credit Agreement fromFacility”). In March 29, 2023 to March 29, 2024. Under the Credit Agreement,2020, the Company continues to havedrew down a total amount of $825.0 under the abilityRevolving Credit Facility. The Company initiated borrowings under the Revolving Credit Facility as a precautionary measure to increase its borrowing up to an additional $600.0, subject to lender commitmentscash position and certain conditions as describedpreserve financial flexibility in light of uncertainty in the Credit Agreement. Borrowings underglobal markets resulting from the Credit Agreement are available for general corporate purposes and are used to support the Company’s $1,000.0 commercial paper program.COVID-19 pandemic. The full $825.0 was repaid in May 2020.
Term Loan
On May 1, 2019, the Company entered into a $300.0 unsecured term loan credit facility with various banks, the proceeds of which were used to partially fund the Flawless Acquisition. Unless prepaid, the loan is due on May 1, 2022. The interest rate is LIBOR plus an applicable margin based on the Company’s credit rating, which can range from 60 basis points (“bps”) to 113 bps.
15. | Accumulated Other Comprehensive Income (Loss) |
The components of changes in accumulated other comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| ||
| Foreign |
|
| Defined |
|
|
|
|
|
| Other |
| Foreign |
|
| Defined |
|
|
|
|
|
| Other |
| ||||||
| Currency |
|
| Benefit |
|
| Derivative |
|
| Comprehensive |
| Currency |
|
| Benefit |
|
| Derivative |
|
| Comprehensive |
| ||||||||
| Adjustments |
|
| Plans |
|
| Agreements |
|
| Income (Loss) |
| |||||||||||||||||||
Balance at December 31, 2017 | $ | (31.6 | ) |
| $ | (0.6 | ) |
| $ | (4.2 | ) |
| $ | (36.4 | ) | |||||||||||||||
Adoption of new accounting pronouncement |
| (0.3 | ) |
|
| 0.1 |
|
|
| (0.4 | ) |
|
| (0.6 | ) | |||||||||||||||
Other comprehensive income (loss) before reclassifications |
| (6.4 | ) |
|
| 0.0 |
|
|
| (7.7 | ) |
|
| (14.1 | ) | |||||||||||||||
Amounts reclassified to consolidated statement of income (a) (b) |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| |||||||||||||||
Tax benefit (expense) |
| 0.0 |
|
|
| 0.0 |
|
|
| 1.8 |
|
|
| 1.8 |
| |||||||||||||||
Other comprehensive income (loss) |
| (6.4 | ) |
|
| 0.0 |
|
|
| (5.9 | ) |
|
| (12.3 | ) | |||||||||||||||
Balance at June 30, 2018 | $ | (38.3 | ) |
| $ | (0.5 | ) |
| $ | (10.5 | ) |
| $ | (49.3 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjustments |
|
| Plans |
|
| Agreements |
|
| Income (Loss) |
| ||||
Balance at December 31, 2018 | $ | (42.5 | ) |
| $ | 0.9 |
|
| $ | (12.0 | ) |
| $ | (53.6 | ) | $ | (42.5 | ) |
| $ | 0.9 |
|
| $ | (12.0 | ) |
| $ | (53.6 | ) |
Other comprehensive income (loss) before reclassifications |
| 1.0 |
|
|
| 0.0 |
|
|
| (24.7 | ) |
|
| (23.7 | ) |
| 1.0 |
|
|
| 0.0 |
|
|
| (24.7 | ) |
|
| (23.7 | ) |
Amounts reclassified to consolidated statement of income (a) (b) |
| 1.9 |
|
|
| 0.0 |
|
|
| 1.0 |
|
|
| 2.9 |
|
| 1.9 |
|
|
| 0.0 |
|
|
| 1.0 |
|
|
| 2.9 |
|
Tax benefit (expense) |
| 0.0 |
|
|
| 0.0 |
|
|
| 6.0 |
|
|
| 6.0 |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 6.0 |
|
|
| 6.0 |
|
Other comprehensive income (loss) |
| 2.9 |
|
|
| 0.0 |
|
|
| (17.7 | ) |
|
| (14.8 | ) |
| 2.9 |
|
|
| 0.0 |
|
|
| (17.7 | ) |
|
| (14.8 | ) |
Balance at June 30, 2019 | $ | (39.6 | ) |
| $ | 0.9 |
|
| $ | (29.7 | ) |
| $ | (68.4 | ) | $ | (39.6 | ) |
| $ | 0.9 |
|
| $ | (29.7 | ) |
| $ | (68.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance at December 31, 2019 | $ | (36.8 | ) |
| $ | 0.0 |
|
| $ | (29.9 | ) |
| $ | (66.7 | ) | |||||||||||||||
Other comprehensive income (loss) before reclassifications |
| (6.6 | ) |
|
| 0.0 |
|
|
| (35.5 | ) |
|
| (42.1 | ) | |||||||||||||||
Amounts reclassified to consolidated statement of income (a) (b) |
| 0.0 |
|
|
| 0.0 |
|
|
| 1.9 |
|
|
| 1.9 |
| |||||||||||||||
Tax benefit (expense) |
| 0.0 |
|
|
| 0.0 |
|
|
| 8.6 |
|
|
| 8.6 |
| |||||||||||||||
Other comprehensive income (loss) |
| (6.6 | ) |
|
| 0.0 |
|
|
| (25.0 | ) |
|
| (31.6 | ) | |||||||||||||||
Balance at June 30, 2020 | $ | (43.4 | ) |
| $ | 0.0 |
|
| $ | (54.9 | ) |
| $ | (98.3 | ) |
(a) | Amounts reclassified to cost of sales, selling, general and administrative expenses or interest expense. |
(b) | The Company reclassified a loss of |
16. | Commitments, Contingencies and Guarantees |
Commitments
a. The Company has a partnership with a supplier of raw materials that mines and processes sodium-based mineral deposits. The Company purchases the majority of its sodium-based raw material requirements from the partnership. The partnership agreement terminates upon two years’ written notice by either partner. Under the partnership agreement, the Company has an annual commitment to purchase 240,000 tons of sodium-based raw materials at the prevailing market price. The Company is not engaged in any other material transactions with the partnership or the partner supplier.
b. As of June 30, 2019,2020, the Company had commitments of approximately $239.0263.8. 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, 2019,2020, the Company had various guarantees and letters of credit totaling $5.1. $4.2.
d. In connection with the Company’s acquisition of Agro BioSciences, Inc. (the “Agro Acquisition”) on January 17, 2017, the Company iswas obligated to pay an additional amount of up to $25.0 based on sales performance in 2019. The initial fair value of this contingent liability was $17.8, which was established in the purchase price allocation. SubsequentIn April 2020, a payment of $14.5 was paid to settle the Agro Acquisition, the Company decreased the estimate of the contingent consideration liability liability. by $2.1 to $15.7 based on updated sales forecasts. The reduction was recorded in SG&A in the SPD segment. There were no changes to the liability during the second quarter of 2019 and the liability will be assessed for re-measurement at each balance sheet date leading up to December 31, 2019.
In connection with the Passport Acquisition, the Company is obligated to pay an additional amount of up to $25.0 based on sales performance through 2020. The initial fair value of this contingent liability was $7.3, which was established in the purchase price allocation. During the second quarter of 2019, the Company reversedrecorded a reduction in fair value of the fullentire $7.3 ($5.5 after tax or $0.02 diluted per share)Passport contingent liability based on the revised valuation due to updated sales forecasts. The reduction was recorded in SG&A in the SPD segment. TheThere was 0 change in the contingent liability in the first six months of 2020 and it will be assessed for re-measurementreassessed at each balance sheet date leading up to December 31, 2020.
In connection with the Flawless Acquisition, the Company is obligated to pay an additional amount of up to $425.0 based on sales performance through 2021. The initial fair value of this contingent liability wasof $182.0 which was established in the preliminary purchase price allocation. Subsequent toDuring the datefirst quarter of 2020 the Company reduced the fair value of the contingent liability associated with the Flawless Acquisition by $27.0 and during the second quarter of 2020 the Company increased the estimatefair value of the contingent consideration liability by $5.0 ($3.7 after tax or $0.01 diluted per share) in$6.0 for a total reduction of $21.0 for the second quarter of 2019 from $182.0 to $187.0six months ended June 30, 2020 based on the revised valuation due to updated sales forecasts as well asand the passage of time. As a result of these adjustments and further adjustments in 2019, the fair value of this contingent liability was $171.0 as of June 30, 2020. The chargechange in fair value was recorded to SG&A expense in bothwithin the Consumer Domestic and Consumer International Segments.segments. The contingent liability will be assessed for re-measurementis remeasured at each balance sheet date until the completion of the earn-out period. Ideavillage will help support the business through a separate long-term transition services agreement.
Legal proceedings
e. The Company has been named as a defendant in a breach of contract action filed by Scantibodies Laboratory, Inc. (the “Plaintiff”) on April 1, 2014, in the U.S. District Court for the Southern District of New York.
The complaint alleges, among other things, that the Company (i) breached two agreements for the manufacture and supply of pregnancy and ovulation test kits by switching suppliers, (ii) failed to give Plaintiff the proper notice, (iii) failed to reimburse Plaintiff for costs and expenses under the agreements and (iv) misrepresented its future requirements. The complaint seeks compensatory and punitive damages in an amount in excess of $20.0, as well as declaratory relief, statutory prejudgment interest and attorneys’ fees and costs.
The Company is vigorously defending itself in this matter. On September 19, 2018, the trial court granted the Company’s motion for summary judgment, dismissing all claims brought by the Plaintiff.Plaintiff as a matter of law. The Plaintiff has filed an appeal.
appealed that decision, and the 2nd Circuit Court of Appeals reversed it in April 2020, remanding the case back to the lower court for a jury trial.
In connection with this matter, the Company has reserved an amount has been reserved that is immaterial. However, itimmaterial to the Company. It is reasonably possible that the Company may ultimately be required to pay all or substantially all of the damages and other amounts sought by Plaintiff in the event the summary judgment entered in favor of the Company is reversed.Plaintiff.
f. In addition, in conjunction with the Company’s acquisition and divestiture activities, the Company entered into select guarantees and indemnifications of performance with respect to the fulfillment of the Company’s commitments under applicable purchase and sale agreements. The arrangements generally indemnify the buyer or seller for damages associated with breach of contract, inaccuracies in representations and warranties surviving the closing date and satisfaction of liabilities and commitments retained under the applicable contract. Representations and warranties that survive the closing date generally survive for periods up to five years or the expiration of the applicable statutes of limitations. Potential losses under the indemnifications are generally limited to a portion of the original transaction price, or to other lesser specific dollar amounts for select provisions. With respect to sale transactions, the Company also routinely enters into non-competition agreements for varying periods of time. Guarantees and indemnifications with respect to acquisition and divestiture activities, if triggered, could have a materially adverse impact on the Company’s financial condition, results of operations and cash flows.
g. In addition to the matters described above, from time to time in the ordinary course of its business the Company is the subject of, or party to, various pending or threatened legal, regulatory or governmental actions or other proceedings,, including, without limitation, those relating to, intellectual property, commercial transactions, product liability, purported consumer class actions, employment matters, antitrust, environmental, health, safety and other compliance related matters. Such proceedings are generally subject to considerable uncertainty and their outcomes, and any related damages, may not be reasonably predictable or estimable.
While any such proceedings could result in an adverse outcome for the Company, any such adverse outcome is not expected to have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. flows.
17.Related Party Transactions |
|
The following summarizes the balances and transactions between the Company and Armand Products Company (“Armand”) and The ArmaKleen Company (“ArmaKleen”), in each of which the Company holds a 50% ownership interest:
| Armand |
|
| ArmaKleen |
| Armand |
|
| ArmaKleen |
| ||||||||||||||||||||
| 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, |
| ||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Purchases by Company | $ | 6.4 |
|
| $ | 7.4 |
|
| $ | 0.0 |
|
| $ | 0.0 |
| $ | 6.8 |
|
| $ | 6.4 |
|
| $ | 0.0 |
|
| $ | 0.0 |
|
Sales by Company | $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 0.5 |
|
| $ | 0.6 |
| $ | 0.0 |
|
| $ | 0.0 |
|
| $ | 0.5 |
|
| $ | 0.5 |
|
Outstanding Accounts Receivable | $ | 0.6 |
|
| $ | 0.6 |
|
| $ | 0.6 |
|
| $ | 0.5 |
| $ | 0.4 |
|
| $ | 0.6 |
|
| $ | 1.0 |
|
| $ | 0.6 |
|
Outstanding Accounts Payable | $ | 1.2 |
|
| $ | 1.5 |
|
| $ | 0.0 |
|
| $ | 0.0 |
| $ | 1.2 |
|
| $ | 1.2 |
|
| $ | 0.0 |
|
| $ | 0.0 |
|
Administration & Management Oversight Services (1) | $ | 1.3 |
|
| $ | 1.2 |
|
| $ | 1.1 |
|
| $ | 1.1 |
| $ | 1.1 |
|
| $ | 1.3 |
|
| $ | 1.1 |
|
| $ | 1.1 |
|
(1) | Billed by the Company and recorded as a reduction of SG&A expenses. |
18. | Segments |
Segment Information
The Company operates three3 reportable segments: Consumer Domestic, Consumer International and SPD.Specialty Products Division. These segments are determined based on differences in the nature of products and organizational and ownership structures. The Company also has a Corporate segment.
Segment revenues are derived from the sale of the following products:
Segment |
|
| Products |
|
Consumer Domestic |
| Household and personal care products | ||
Consumer International |
| Primarily personal care products | ||
SPD |
| Specialty chemical products |
The Corporate segment income consists of equity in earnings of affiliates. As of June 30, 2019,2020, the Company held 50% ownership interests in each of Armand and ArmaKleen, respectively. The Company’s equity in earnings of Armand and ArmaKleen, totaling $2.0 and $1.7 for the three months ended June 30, 2020 and 2019, respectively, and $3.6 and $3.4 for the six months ended June 30, 2020 and 2019, and 2018respectively, are included in the Corporate segment.
Certain subsidiaries that are included in the Consumer International segment manufacture and sell personal care products to the Consumer Domestic segment. These sales are eliminated from the Consumer International segment results set forth in the table below.
Segment Net Salesnet sales and Incomeincome before Income Taxesincome taxes are as follows:
| Consumer |
|
| Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
| Consumer |
|
| Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Domestic |
|
| International |
|
| SPD |
|
| Corporate |
|
| Total |
| Domestic |
|
| International |
|
| SPD |
|
| Corporate |
|
| Total |
| ||||||||||
Net Sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2020 | $ | 931.1 |
|
| $ | 187.5 |
|
| $ | 75.7 |
|
| $ | 0.0 |
|
| $ | 1,194.3 |
| |||||||||||||||||||
Second Quarter 2019 | $ | 819.3 |
|
| $ | 186.6 |
|
| $ | 73.5 |
|
| $ | 0.0 |
|
| $ | 1,079.4 |
|
| 819.3 |
|
|
| 186.6 |
|
|
| 73.5 |
|
|
| 0.0 |
|
|
| 1,079.4 |
|
Second Quarter 2018 |
| 774.1 |
|
|
| 176.1 |
|
|
| 77.7 |
|
|
| 0.0 |
|
|
| 1,027.9 |
| |||||||||||||||||||
First Six Months of 2020 | $ | 1,822.1 |
|
| $ | 386.1 |
|
| $ | 151.3 |
|
| $ | 0.0 |
|
| $ | 2,359.5 |
| |||||||||||||||||||
First Six Months of 2019 | $ | 1,604.2 |
|
| $ | 373.3 |
|
| $ | 146.6 |
|
| $ | 0.0 |
|
| $ | 2,124.1 |
|
| 1,604.2 |
|
|
| 373.3 |
|
|
| 146.6 |
|
|
| 0.0 |
|
|
| 2,124.1 |
|
First Six Months of 2018 |
| 1,525.5 |
|
|
| 356.8 |
|
|
| 151.6 |
|
|
| 0.0 |
|
|
| 2,033.9 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2020 | $ | 200.4 |
|
| $ | 23.4 |
|
| $ | 10.2 |
|
| $ | 2.0 |
|
| $ | 236.0 |
| |||||||||||||||||||
Second Quarter 2019 | $ | 136.2 |
|
| $ | 16.9 |
|
| $ | 15.5 |
|
| $ | 1.7 |
|
| $ | 170.3 |
|
| 136.2 |
|
|
| 16.9 |
|
|
| 15.5 |
|
|
| 1.7 |
|
|
| 170.3 |
|
Second Quarter 2018 |
| 119.4 |
|
|
| 18.0 |
|
|
| 15.6 |
|
|
| 2.4 |
|
|
| 155.4 |
| |||||||||||||||||||
First Six Months of 2020 | $ | 451.2 |
|
| $ | 61.6 |
|
| $ | 19.0 |
|
| $ | 3.6 |
|
| $ | 535.4 |
| |||||||||||||||||||
First Six Months of 2019 | $ | 318.9 |
|
| $ | 45.3 |
|
| $ | 27.8 |
|
| $ | 3.4 |
|
| $ | 395.4 |
|
| 318.9 |
|
|
| 45.3 |
|
|
| 27.8 |
|
|
| 3.4 |
|
|
| 395.4 |
|
First Six Months of 2018 |
| 278.7 |
|
|
| 45.7 |
|
|
| 27.2 |
|
|
| 4.5 |
|
|
| 356.1 |
|
(1) | Intersegment sales from Consumer International to Consumer Domestic, which are not reflected in the table, were |
(2) | In determining |
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, |
| ||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Household Products | $ | 464.3 |
|
| $ | 429.9 |
|
| $ | 907.6 |
|
| $ | 842.9 |
| $ | 544.7 |
|
| $ | 464.3 |
|
| $ | 1,039.0 |
|
| $ | 907.6 |
|
Personal Care Products |
| 355.0 |
|
|
| 344.2 |
|
|
| 696.6 |
|
|
| 682.6 |
|
| 386.4 |
|
|
| 355.0 |
|
|
| 783.1 |
|
|
| 696.6 |
|
Total Consumer Domestic |
| 819.3 |
|
|
| 774.1 |
|
|
| 1,604.2 |
|
|
| 1,525.5 |
|
| 931.1 |
|
|
| 819.3 |
|
|
| 1,822.1 |
|
|
| 1,604.2 |
|
Total Consumer International |
| 186.6 |
|
|
| 176.1 |
|
|
| 373.3 |
|
|
| 356.8 |
|
| 187.5 |
|
|
| 186.6 |
|
|
| 386.1 |
|
|
| 373.3 |
|
Total SPD |
| 73.5 |
|
|
| 77.7 |
|
|
| 146.6 |
|
|
| 151.6 |
|
| 75.7 |
|
|
| 73.5 |
|
|
| 151.3 |
|
|
| 146.6 |
|
Total Consolidated Net Sales | $ | 1,079.4 |
|
| $ | 1,027.9 |
|
| $ | 2,124.1 |
|
| $ | 2,033.9 |
| $ | 1,194.3 |
|
| $ | 1,079.4 |
|
| $ | 2,359.5 |
|
| $ | 2,124.1 |
|
Household Products include laundry, deodorizing and cleaning products. Personal Care Products include condoms, pregnancy kits, oral care products, skin care and hair care products and gummy dietary supplements.
|
|
During the second quarter of 2019, we decided to sell and subsequently sold our Brazilian consumer business, resulting in a $7.6 ($0.03 diluted per share) charge recorded in SG&A expense for severance, asset write-offs, and other charges. Net sales for the Brazilian consumer business in 2018 were approximately $15.0 in the Consumer International segment.
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
(In millions, except per share data)
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Recent Developments
Flawless AcquisitionCOVID-19 Disclosure
The COVID-19 pandemic is positively impacting certain of our businesses, while negatively impacting the short-term results of certain others. We have continued to experience a significant increase in consumer demand for many of our products that began in March, including VITAFUSION gummy vitamins, Simply Saline and Sterimar nasal hygiene products, A&H baking soda, and A&H cat litter and Kaboom bathroom cleaners. On May 1, 2019, we closed onthe other hand, our previously announced acquisitionWaterPik business has been negatively impacted by the temporary closure of dental offices across the FLAWLESS™United States and FINISHING TOUCH™ hair removal business (“Flawless”some other personal care brands have been negatively impacted by the temporary closures of certain non-essential retailers and the acquisition,reduction of consumer foot traffic at retailers from which these brands derive a significant proportion of sales. Looking forward, we may experience significant reductions in demand or significant volatility in demand for one or more of our products, which may be caused by, among other things, the “Flawless Acquisition”)temporary or prolonged inability of consumers to purchase our products due to illness, quarantine or other travel or gathering restrictions, store closures, unemployment or other financial hardship, shifts in demand away from Ideavillage Products Corporation (“Ideavillage”).one or more of our more discretionary or higher priced products to lower priced products, or stockpiling or similar pantry-loading or unloading activity.
Some products have also been impacted by a shift in consumer spending away from more discretionary products. While there is no certainty that current high levels of demand for certain of our products will continue, we have taken steps to increase short term manufacturing capacity for our cleaning products (including laundry detergent, baking soda, and cleaners) and health care products (including vitamins and nasal hygiene) and are working closely with our suppliers, contract manufacturers and retail partners to ensure sustained supply to keep pace with increased demand. We paid $475.0 at closingwill also make investments in the expansion of long-term in-house and will make an additional earn-out payment up tothird-party manufacturing capacity. Although we have seen increased demand in certain of our product categories, in the future, the pandemic may cause reduced demand for our products if it results in a maximumrecessionary global economic environment. The timing and impact of $425.0potential consumer pantry destocking in cash, based on a trailing twelve-month net sales target ending no later than December 31, 2021. The transaction was funded with a three-year term loan and commercial paper borrowings. We anticipate there will be a five-month integration transition periodmarkets in which the net cash received from Ideavillage will be accounted for as other revenue aswe serve may also have a component of net sales. We will purchase the inventory following the transition period. FLAWLESS is managed in the Consumer Domestic and Consumer International segments and represents an addition to our specialty haircare portfolio which includes BATISTE dry shampoo, VIVISCAL hair thinning supplements, and TOPPIK hair fibers. Ideavillage will help support the business through a separate long-term transition services agreement.
Amended Credit Agreement
On May 1, 2019, we amended our $1,000.0 unsecured revolving credit facility (the “Credit Agreement”) to extend the term of the Credit Agreement from March 29, 2023 to March 29, 2024. Under the Credit Agreement,negative impact on demand. Moreover, we continue to experience and anticipate increased online sales during the pandemic.
The COVID-19 pandemic and the corresponding government response have theled to increased unemployment and economic uncertainty, which could lead to a further reduction in consumer spending. Economic conditions are, and we expect that they will continue to be, highly volatile and uncertain. Recessionary conditions could reduce demand for our discretionary products and put downward pressure on prices. Some of our retail customers have closed their stores or reduced store hours, which has impacted their ability to increase our borrowing up to an additional $600.0, subject to lender commitmentsmeet outstanding obligations and certain conditions as describedmay cause further reductions in their purchases in the Credit Agreement. Borrowings under the Credit Agreement are available for general corporate purposes and are used to support our $1,000.0 commercial paper program.coming months.
Term LoanSubstantially all of our manufacturing facilities and distribution centers, and those of our key suppliers, contract manufacturers, and transportation suppliers, currently remain open and continue to operate. Various state and local governments in the U.S. and other jurisdictions have required cessation of non-essential activities. Substantially all of our products are considered essential under applicable governmental requirements and guidance, including the Department of Homeland Security’s March 19, 2020 Guidance on the Essential Critical Infrastructure Workforce. We intend to continue to work with government authorities, implement our employee safety measuresand supplement our in-house manufacturing with increased use of contract manufacturers to ensure that we are able to continue to manufacture and distribute our products during the pandemic. However, uncertainty resulting from the pandemic could result in an unforeseen disruption to our supply chain (for example a closure of a key manufacturing or distribution facility or the inability of a key supplier, contract manufacturer or transportation supplier to source and transport materials) that could impact our operations and ability to supply products to our customers.
On May 1, 2019, we entered into a $300.0 unsecured term loan credit facility with various banks,We are monitoring the proceeds of which were used to partially fundimpact that the Flawless Acquisition. Unless prepaid, the loanCOVID-19 pandemic and corresponding government action is due on May 1, 2022. The interest rate is LIBOR plus an applicable margin basedhaving on our credit rating, which can range from 60 basis points (“bps”)customers and consumer demand and how potentially it will impact future cash flows for the short and long term and its impact to 113 bps.intangible asset carrying values. While we expect that many of these effects will not be permanent, it is impossible to predict their duration.
Brazil’s Consumer BusinessPERL WEISS Transaction
During the secondfirst quarter of 2019,2020, we decided to sell and subsequently sold our Brazilian consumer business, resultingPERL WEISS® toothpaste brand in Germany with a $7.6 ($0.03 diluted per share) chargenet book value of $4.0 for cash proceeds of $7.0. The $3.0 gain associated with this transaction was recorded inas a reduction of SG&A expense for severance, asset write-offs, and other charges. Net sales for the Brazilian consumer business in 2018 were approximately $15.0 in the Consumer International segment.
Segment.
Results of Operations
Consolidated results
| Three Months Ended |
|
| Change vs. |
|
| Three Months Ended |
| Three Months Ended |
|
| Change vs. |
|
| Three Months Ended |
| ||||||
| June 30, 2019 |
|
| Prior Year |
|
| June 30, 2018 |
| June 30, 2020 |
|
| Prior Year |
|
| June 30, 2019 |
| ||||||
Net Sales | $ | 1,079.4 |
|
| 5.0% |
|
| $ | 1,027.9 |
| $ | 1,194.3 |
|
| 10.6% |
|
| $ | 1,079.4 |
| ||
Gross Profit | $ | 481.5 |
|
| 5.8% |
|
| $ | 454.9 |
| $ | 559.6 |
|
| 16.2% |
|
| $ | 481.5 |
| ||
Gross Margin |
| 44.6 | % |
| +30 basis points |
|
|
| 44.3 | % |
| 46.8 | % |
| +220 basis points |
|
|
| 44.6 | % | ||
Marketing Expenses | $ | 129.1 |
|
| -5.4% |
|
| $ | 136.4 |
| $ | 122.3 |
|
| -5.3% |
|
| $ | 129.1 |
| ||
Percent of Net Sales |
| 12.0 | % |
| -130 basis points |
|
|
| 13.3 | % |
| 10.2 | % |
| -180 basis points |
|
|
| 12.0 | % | ||
Selling, General & Administrative Expenses | $ | 165.0 |
|
| 14.0% |
|
| $ | 144.7 |
| $ | 186.6 |
|
| 13.1% |
|
| $ | 165.0 |
| ||
Percent of Net Sales |
| 15.3 | % |
| +120 basis points |
|
|
| 14.1 | % |
| 15.6 | % |
| +30 basis points |
|
|
| 15.3 | % | ||
Income from Operations | $ | 187.4 |
|
| 7.8% |
|
| $ | 173.8 |
| $ | 250.7 |
|
| 33.8% |
|
| $ | 187.4 |
| ||
Operating Margin |
| 17.3 | % |
| +40 basis points |
|
|
| 16.9 | % |
| 21.0 | % |
| +370 basis points |
|
|
| 17.3 | % | ||
Net income per share - Diluted | $ | 0.55 |
|
| 12.2% |
|
| $ | 0.49 |
| $ | 0.75 |
|
| 36.4% |
|
| $ | 0.55 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
|
| Change vs. |
|
| Six Months Ended |
| Six Months Ended |
|
| Change vs. |
|
| Six Months Ended |
| ||||||
| June 30, 2019 |
|
| Prior Year |
|
| June 30, 2018 |
| June 30, 2020 |
|
| Prior Year |
|
| June 30, 2019 |
| ||||||
Net Sales | $ | 2,124.1 |
|
| 4.4% |
|
| $ | 2,033.9 |
| $ | 2,359.5 |
|
| 11.1% |
|
| $ | 2,124.1 |
| ||
Gross Profit | $ | 952.3 |
|
| 5.1% |
|
| $ | 906.4 |
| $ | 1,091.6 |
|
| 14.6% |
|
| $ | 952.3 |
| ||
Gross Margin |
| 44.8 | % |
| +20 basis points |
|
|
| 44.6 | % |
| 46.3 | % |
| +150 basis points |
|
|
| 44.8 | % | ||
Marketing Expenses | $ | 227.2 |
|
| -3.9% |
|
| $ | 236.3 |
| $ | 218.7 |
|
| -3.7% |
|
| $ | 227.2 |
| ||
Percent of Net Sales |
| 10.7 | % |
| -90 basis points |
|
|
| 11.6 | % |
| 9.3 | % |
| -140 basis points |
|
|
| 10.7 | % | ||
Selling, General & Administrative Expenses | $ | 296.9 |
|
| 7.6% |
|
| $ | 276.0 |
| $ | 307.6 |
|
| 3.6% |
|
| $ | 296.9 |
| ||
Percent of Net Sales |
| 14.0 | % |
| +40 basis points |
|
|
| 13.6 | % |
| 13.0 | % |
| -100 basis points |
|
|
| 14.0 | % | ||
Income from Operations | $ | 428.2 |
|
| 8.7% |
|
| $ | 394.1 |
| $ | 565.3 |
|
| 32.0% |
|
| $ | 428.2 |
| ||
Operating Margin |
| 20.1 | % |
| +70 basis points |
|
|
| 19.4 | % |
| 24.0 | % |
| +390 basis points |
|
|
| 20.1 | % | ||
Net income per share - Diluted | $ | 1.25 |
|
| 11.6% |
|
| $ | 1.12 |
| $ | 1.67 |
|
| 33.6% |
|
| $ | 1.25 |
|
Diluted Net Income per share was $0.75 in the second quarter of 2020 as compared to $0.55 in the second quarter of 2019 as compared to $0.49 in the second quarter of 2018. 2019. Diluted Net Income per share was $1.25$1.67 in the first six months of 20192020 as compared to $1.12$1.25 in the same period in 2018. 2019.
During the second quarter of 2019,2020 we decided to sell and subsequently soldincreased the fair value of our consumer business in Brazil, and recorded a pre- and post-contingent liability associated with the Flawless Acquisition by $6.0 ($4.5 after tax charge of $7.6 ($0.03or $0.02 diluted per share) in selling, for a total net reduction of $21.0 ($15.8 after tax or $0.06 diluted per share) for the six months ended June 30, 2020 based on updated sales forecasts and general administrative expenses.the passage of time. During the second quarter of 2019, we increased the estimate of the contingent liability by $5.0 ($3.7 after tax or $0.01 diluted per share) associated with the Flawless Acquisition and reversed the full. The contingent liability adjustments were recorded in SG&A expense.
During the first quarter of $7.32020, we completed the sale of the PERL WEISS® toothpaste brand in Germany which resulted in a gain of $3.0 ($5.52.2 after tax or $0.02$0.01 diluted per share) associated with the acquisition of Passport Food and Safety Solutions, Inc. (“Passport,” and the acquisition, the “Passport Acquisition”), based on updated sales forecasts. Both contingent liability adjustments were recorded in SG&A expense.
Net Sales
Net sales for the quarter ended June 30, 20192020 were $1,079.4,$1,194.3, an increase of $51.5$114.9 or 5.0%10.6% as compared to the same period in 2018. 2019. Net sales for the six months ended June 30, 20192020 were $2,124.1,$2,359.5, an increase of $90.2$235.4 or 4.4%11.1% over the comparable six month period of 2018.2019. 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 | 2019 |
|
| 2019 |
| |||||||||
Net Sales – Consolidated | 2020 |
|
| 2020 |
| |||||||||
Product volumes sold |
| 0.1 | % |
|
| 1.2 | % |
| 4.9 | % |
|
| 5.8 | % |
Pricing/Product mix |
| 4.8 | % |
|
| 3.5 | % |
| 3.5 | % |
|
| 3.0 | % |
Foreign exchange rate fluctuations |
| (0.6 | %) |
|
| (0.8 | %) |
| (0.7 | %) |
|
| (0.5 | %) |
Acquired product lines (1) |
| 0.7 | % |
|
| 0.5 | % | |||||||
Acquired product lines (net of divestiture) (1) |
| 2.9 | % |
|
| 2.8 | % | |||||||
Net Sales increase |
| 5.0 | % |
|
| 4.4 | % |
| 10.6 | % |
|
| 11.1 | % |
(1) |
|
For the three months ended June 30, 2019,2020, the volume change primarily reflects increased product sales in the Consumer International segment, Domestic and Specialty Products (“SPD”) segments,with volume declines in Specialty Products (“SPD”) andthe Consumer Domestic segments. International segment. For the six months ended June 30, 2019,2020, the volume change primarily reflects increased product sales in the Consumer International segment, with volume declines in SPD, while Consumer Domestic volumes remained unchanged. all three of our segments.For both the three and six months ended June 30, 2019,2020, price/mix was favorable in all three segments. For the six months ended June 30, 2019, favorable price/mix in the Consumer Domestic and SPDConsumer International segments, but was partially offset by unfavorable price/mix in the Consumer InternationalSPD segment.
Gross Profit / Gross Margin
Our gross profit was $481.5$559.6 for the three months ended June 30, 2019,2020, a $26.6$78.1 increase as compared to the same period in 2018.2019. Gross margin increased 30220 basis points (“bps”) in the second quarter of 20192020 compared to the same period in 2018, primarily2019, due to favorable price/volume mix of 230220 bps (primarily due to a reduction in trade promotion and coupons to reduce retail depletion of inventories), productivity programs of 130140 bps, partially offset by higher manufacturing costs of 110 bps, primarily due to costs associated with the COVID-19 pandemic, the impact of higher margins on acquired businesses of 4020 bps partially offset by, manufacturing cost increasesand unfavorable foreign exchange rates of 290 bps (including tariffs) and higher commodity and transportation costs of 8010 bps. Gross profit was $952.3$1,091.6 for the six months ended June 30, 2019,2020, a $45.9$139.3 increase compared to the same period of 2018. in 2019. Gross margin increased 20150 bps in the first six months of 20192020 compared to the same period in 2018, primarily2019, due to favorable price/volume mix of 150180 bps (primarily due to a reduction in trade promotion and coupons to reduce retail depletion of inventories), productivity programs of 130 bps, the impact of higher margins on acquired businesses of 20 bps, partially offset byhigher manufacturing cost increases of 190150 bps (including tariffs) and higher commodity and transportation costs of 90approximately 70 bps associated with the COVID-19 pandemic), and unfavorable foreign exchange rates of 10 bps.
Operating Expenses
Marketing expenses for the three months ended June 30, 20192020 were $129.1,$122.3, a decrease of $7.3$6.8 or 5.4%5.3% as compared to the same period in 2018.2019. Marketing expenses as a percentage of net sales in the second quarter of 20192020 decreased by 130180 bps to 12.0%10.2% as compared to 13.3%12.0% in the same period in 20182019 due to 70 bps on lower expenses and 60120 bps of leverage on higher net sales and 60 bps on lower expenses. Due to retailer out of stocks, marketing expense was significantly reduced. Marketing expenses for the six months ended June 30, 20192020 were $227.2,$218.7, a decrease of $9.1$8.5 or 3.9%3.7% as compared to the same period in 2018.2019. Marketing expenses as a percentage of net sales for the first six months of 2019 2020 decreased by 90140 bps to 10.7%9.3% as compared to 11.6%10.7% in the same period in 20182019 due to 50 100 bps of leverage on higher net sales and 40 bps on lower expenses. The trend of lower marketing expenses is not expected to continue as we intend to make investments behind new product launches, consumer research and digital advertising in the second half of 2020.
Selling, general and administrative (“SG&A”) expenses were $165.0$186.6 in the second quarter of 2019,2020, an increase of $20.3$21.6 or 14.0%13.1% as compared to the same period in 2018.2019. SG&A as a percentage of net sales increased 12030 bps to 15.3%15.6% in the second quarter of 20192020 as compared to 14.1%15.3% in the same period in 2018.2019. The increase is due to 190180 bps onof higher expenses, partially offset by 70150 bps of leverage associated with higher sales. sales. The higher expenses for the three-month period ended June 30, 2020 is primarily due to an increase of the FLAWLESS earnout liability by $6.0, acquisition-related costs (including amortization expense) and higher compensation, information system, research and development (“R&D”) and selling costs. SG&A expenses for the first six months of 2019 was $296.9,2020 were $307.6, an increase of $20.9$10.7 or 7.6%3.6% as compared to the same period in 2018.2019. SG&A as a percentage of net sales increased 40decreased 100 bps to 14.0%13.0% in the first six months of 20192020 compared to 13.6%14.0% in 20182019 due to 100 bps on higher expenses, partially offset by 60140 bps of leverage associated with higher sales, partially offset by 40 bps on higher expenses.. The increasehigher expenses for both the three and six month periodssix-month period ended June 30, 20192020 is primarily due to transition and ongoing acquisition-related costs (including the $5.0 Flawless earnout adjustment)amortization expense) and the charge associated withhigher compensation, information system, R&D and selling our consumer business in Brazil of $7.6,costs, partially offset by reduction of the reversal of a $7.3 contingent considerationFlawless earnout liability by $21.0 and the $3.0 gain associated with the Passport Acquisition. sale of PERL WEISS.
Other Income and Expenses
Other expense, net for the three and six months ended June 30, 2019 decreased2020 increased $0.1 and $0.6 and $2.6 respectively, compared to the same period in 20182019 primarily due to the effect of changes in foreign exchange rates.
Interest expense for the three and six months ended June 30, 20192020 decreased $1.3$2.1 and $3.6 respectively, as compared to the same period in 20182019 primarily due to the repayment of the $300.0 Floating Rate2.45% Senior Notes that matured on January 25,in the fourth quarter of 2019 and lower commercial paper borrowings in 2019 as compared to the same period in 2018. This was partially offset by interest on the $300.0 unsecured term loan credit facility entered into on May 1, 2019. rates.
Income Taxes
The effective tax rate for the three and six months ended June 30, 20192020 was 19.6% and 21.6% respectively, compared to 18.7% and 20.5% respectively, compared to 21.7% and 21.5% in the same periods in 2018.2019. The decreaseincrease in the tax rate for both periods is primarily due to a higherlower tax benefit on a higher amount ofrelated to stock option exercises.
Segment results
We operate three reportable segments: Consumer Domestic, Consumer International and SPD. These segments are determined based on differences in the nature of products and organizational and ownership structures. We also have a Corporate segment.
Segment |
|
| Products |
|
Consumer Domestic |
| Household and personal care products | ||
Consumer International |
| Primarily personal care products | ||
SPD |
| Specialty chemical products |
The Corporate segment income consists of equity in earnings of affiliates. As of June 30, 2019,2020, we held 50% ownership interests in each of Armand Products Company (“Armand”) and The ArmaKleen Company (“ArmaKleen”), respectively. Our equity in earnings of Armand and ArmaKleen, totaling $2.0 and $1.7 for the three months ended June 30, 2020 and 2019, respectively, and $3.6 and $3.4 for the six months ended June 30, 2020 and 2019, and 2018respectively, are included in the Corporate segment.Certain subsidiaries that are included in the Consumer International segment manufacture and sell personal care products to the Consumer Domestic segment. These sales are eliminated from the Consumer International segment results set forth below.
Segment net sales and income before income taxes for the three and six months ended June 30, 20192020 and June 30, 20182019 are as follows:
| Consumer |
|
| Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
| Consumer |
|
| Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Domestic |
|
| International |
|
| SPD |
|
| Corporate |
|
| Total |
| Domestic |
|
| International |
|
| SPD |
|
| Corporate |
|
| Total |
| ||||||||||
Net Sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2020 | $ | 931.1 |
|
| $ | 187.5 |
|
| $ | 75.7 |
|
| $ | 0.0 |
|
| $ | 1,194.3 |
| |||||||||||||||||||
Second Quarter 2019 | $ | 819.3 |
|
| $ | 186.6 |
|
| $ | 73.5 |
|
| $ | 0.0 |
|
| $ | 1,079.4 |
|
| 819.3 |
|
|
| 186.6 |
|
|
| 73.5 |
|
|
| 0.0 |
|
|
| 1,079.4 |
|
Second Quarter 2018 |
| 774.1 |
|
|
| 176.1 |
|
|
| 77.7 |
|
|
| 0.0 |
|
|
| 1,027.9 |
| |||||||||||||||||||
First Six Months of 2020 | $ | 1,822.1 |
|
| $ | 386.1 |
|
| $ | 151.3 |
|
| $ | 0.0 |
|
| $ | 2,359.5 |
| |||||||||||||||||||
First Six Months of 2019 | $ | 1,604.2 |
|
| $ | 373.3 |
|
| $ | 146.6 |
|
| $ | 0.0 |
|
| $ | 2,124.1 |
|
| 1,604.2 |
|
|
| 373.3 |
|
|
| 146.6 |
|
|
| 0.0 |
|
|
| 2,124.1 |
|
First Six Months of 2018 |
| 1,525.5 |
|
|
| 356.8 |
|
|
| 151.6 |
|
|
| 0.0 |
|
|
| 2,033.9 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2020 | $ | 200.4 |
|
| $ | 23.4 |
|
| $ | 10.2 |
|
| $ | 2.0 |
|
| $ | 236.0 |
| |||||||||||||||||||
Second Quarter 2019 | $ | 136.2 |
|
| $ | 16.9 |
|
| $ | 15.5 |
|
| $ | 1.7 |
|
| $ | 170.3 |
|
| 136.2 |
|
|
| 16.9 |
|
|
| 15.5 |
|
|
| 1.7 |
|
|
| 170.3 |
|
Second Quarter 2018 |
| 119.4 |
|
|
| 18.0 |
|
|
| 15.6 |
|
|
| 2.4 |
|
|
| 155.4 |
| |||||||||||||||||||
First Six Months of 2020 | $ | 451.2 |
|
| $ | 61.6 |
|
| $ | 19.0 |
|
| $ | 3.6 |
|
| $ | 535.4 |
| |||||||||||||||||||
First Six Months of 2019 | $ | 318.9 |
|
| $ | 45.3 |
|
| $ | 27.8 |
|
| $ | 3.4 |
|
| $ | 395.4 |
|
| 318.9 |
|
|
| 45.3 |
|
|
| 27.8 |
|
|
| 3.4 |
|
|
| 395.4 |
|
First Six Months of 2018 |
| 278.7 |
|
|
| 45.7 |
|
|
| 27.2 |
|
|
| 4.5 |
|
|
| 356.1 |
|
(1) | Intersegment sales from Consumer International to Consumer Domestic, which are not reflected in the table, were |
(2) | In determining |
Product line revenues from external customers are as follows:
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Household Products | $ | 544.7 |
|
| $ | 464.3 |
|
| $ | 1,039.0 |
|
| $ | 907.6 |
|
Personal Care Products |
| 386.4 |
|
|
| 355.0 |
|
|
| 783.1 |
|
|
| 696.6 |
|
Total Consumer Domestic |
| 931.1 |
|
|
| 819.3 |
|
|
| 1,822.1 |
|
|
| 1,604.2 |
|
Total Consumer International |
| 187.5 |
|
|
| 186.6 |
|
|
| 386.1 |
|
|
| 373.3 |
|
Total SPD |
| 75.7 |
|
|
| 73.5 |
|
|
| 151.3 |
|
|
| 146.6 |
|
Total Consolidated Net Sales | $ | 1,194.3 |
|
| $ | 1,079.4 |
|
| $ | 2,359.5 |
|
| $ | 2,124.1 |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Household Products | $ | 464.3 |
|
| $ | 429.9 |
|
| $ | 907.6 |
|
| $ | 842.9 |
|
Personal Care Products |
| 355.0 |
|
|
| 344.2 |
|
|
| 696.6 |
|
|
| 682.6 |
|
Total Consumer Domestic |
| 819.3 |
|
|
| 774.1 |
|
|
| 1,604.2 |
|
|
| 1,525.5 |
|
Total Consumer International |
| 186.6 |
|
|
| 176.1 |
|
|
| 373.3 |
|
|
| 356.8 |
|
Total SPD |
| 73.5 |
|
|
| 77.7 |
|
|
| 146.6 |
|
|
| 151.6 |
|
Total Consolidated Net Sales | $ | 1,079.4 |
|
| $ | 1,027.9 |
|
| $ | 2,124.1 |
|
| $ | 2,033.9 |
|
Household Products include laundry, deodorizing, and cleaning products. Personal Care Products include condoms, pregnancy kits, oral care products, skin care and hair care products and gummy dietary supplements.
Consumer Domestic
Consumer Domestic net sales in the second quarter of 20192020 were $819.3,$931.1, an increase of $45.2$111.8 or 5.8%13.6% as compared to the same period in 2018. 2019. Consumer Domestic net sales for the six months ended June 30, 20192020 were $1,604.2$1,822.1 an increase of $78.7$217.9 or 5.2%13.6% as compared to the same period in 2018.2019. 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 | 2019 |
|
| 2019 |
| 2020 |
|
| 2020 |
| ||||
Product volumes sold |
| (0.9 | %) |
|
| 0.0 | % |
| 6.3 | % |
|
| 6.8 | % |
Pricing/Product mix |
| 5.9 | % |
|
| 4.7 | % |
| 4.4 | % |
|
| 3.7 | % |
Acquired product lines (1) |
| 0.8 | % |
|
| 0.5 | % |
| 2.9 | % |
|
| 3.1 | % |
Net Sales increase |
| 5.8 | % |
|
| 5.2 | % |
| 13.6 | % |
|
| 13.6 | % |
(1) | Includes the Flawless Acquisition since the date of acquisition. |
The increase in net sales for the three months ended June 30, 2019,2020, reflects the impact of the Flawless Acquisition, higher sales of ARM & HAMMER liquid laundry detergent, VITAFUSION and L’IL CRITTERS gummy vitamins, OXICLEAN® stain fighters, ARM & HAMMER clumping cat litter WATERPIK oral care products, OXICLEAN stain fighters, VITAFUSION gummy vitamins, XTRA liquid laundry detergent,and baking soda, and ARM & HAMMER laundry detergent scent booster, and BATISTE dry shampoo.boosters. The increase in net sales for the six monthsix-month period ending June 30, 2019,2020, reflects the impact of the Flawless Acquisition, higher sales of ARM & HAMMER liquid laundry detergent, VITAFUSION and L’IL CRITTERS gummy vitamins, OXICLEAN® stain fighters, ARM & HAMMER clumping cat litter WATERPIK oral care products, OXICLEAN stain fighters, XTRA liquid laundry detergent,and baking soda, and ARM & HAMMER laundry detergent scent booster,boosters. A number of these brands realized higher than anticipated sales due to higher consumer demand due to the COVID-19 pandemic.
Condom usage has declined, as a result of a lower 18 to 24-year old population, alternate birth control options, less fear of HIV, decreased sexual activity, and BATISTE dry shampoo.
Thereincreased competition, all of which have contributed to lower demand for our products in the condom category. Due primarily to the recent social distancing requirements related to the COVID-19 pandemic, condom usage continues to be significant product competitiondecline. As a result, the TROJAN business has experienced sales and profit declines that has eroded a portion of the excess between fair and carrying value, which could potentially result in an impairment of the gummy vitamin category.tradename. The categorycarrying value of the TROJAN tradename is $176.4 million. As of December 31, 2019, fair value exceeded carrying value by 26%. This indefinite-lived intangible asset is susceptible to impairment risk. While management can and has grown from eight competitorsimplemented strategies to 30address the risk, including lowering our production costs, investing in the last five years. We continue to evaluate and vigorously combat these pressures through, among other things, new product introductionsideas, and increased marketing and trade spending. However, there is no assurance this category will not declinedeveloping new creative advertising, significant changes in operating plans or adverse changes in the future andcould reduce the underlying cash flows used to estimate fair value. This could result in a decline in fair value that we will be able to offset any such decline.could trigger a future impairment charge of the tradename.
Consumer Domestic income before income taxes for the second quarter of 20192020 was $136.2,$200.4, a $16.8$64.2 increase as compared to the second quarter of 2018.2019. The increase is due primarily to favorable price/mix of $44.9 and$40.0, volumes of $34.4 (including the impact of the pandemic), lower marketing costs of $6.2, lower manufacturing and distribution costs of $4.3, and lower interest and other expenses of $7.0, $1.0., partially offset by higher SG&A costs of $17.4, un$21.5 (in part due to the favorable manufacturingFlawless earn-out adjustment and distributionother costs of $14.2 and lower volumes of $4.2. associated with the Flawless Acquisition). For the six monthsix-month period ended June 30, 2019,2020, income before income taxes was $318.9,$451.2, a $40.2$132.3 increase as compared to the first six months of 2018.2019. The increase is due primarily to volumes of $77.8 (including the impact of the pandemic), favorable price/mix of $63.9,$59.9, lower marketing expensescosts of $11.3 $6.2, and lower interest and other expenses of $3.7, $1.8. partially offset by unfavorablehigher SG&A costs of $14.3. Higher manufacturing and distribution costs of $19.6, higher SG&A costs of $16.4 were offset by productivity programs.
and lower volumes of $2.8.
Consumer International
Consumer International net sales were $186.6$187.5 in the second quarter of 2019,2020, an increase of $10.5$0.9 or 6.0%0.5% as compared to the same period in 2018.2019. Consumer International net sales in the first six months of 20192020 were $373.3,$386.1, an increase of $16.5$12.8 or approximately 4.6%3.4% as compared to the same period in 2018.2019. 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 International | 2019 |
|
| 2019 |
| 2020 |
|
| 2020 |
| ||||
Product volumes sold |
| 7.8 | % |
|
| 9.0 | % |
| (0.7 | %) |
|
| 2.1 | % |
Pricing/Product mix |
| 1.3 | % |
|
| (0.2 | %) |
| 1.3 | % |
|
| 1.7 | % |
Foreign exchange rate fluctuations / Other |
| (3.8 | %) |
|
| (4.5 | %) |
| (3.9 | %) |
|
| (3.1 | %) |
Acquired product lines (1) |
| 0.7 | % |
|
| 0.3 | % | |||||||
Acquired product lines (net of divestiture) (1) |
| 3.8 | % |
|
| 2.7 | % | |||||||
Net Sales increase |
| 6.0 | % |
|
| 4.6 | % |
| 0.5 | % |
|
| 3.4 | % |
(1) | Includes the Flawless Acquisition since the date of acquisition. During the second quarter of 2019, we sold our consumer business in Brazil. During the first quarter of 2020 we completed the sale of the PERL WEISS brand. |
Excluding the impact of foreign exchange rates and the Flawless Acquisition, higher sales in the second quarter ended June 30, 20192020 were driven primarily by VITAFUSION and L’IL CRITTERS gummy vitamins, STERIMAR, and ARM & HAMMER baking soda in the Global Markets Group business, BATISTEoffset by declines in the U.K., ARM & HAMMER liquid laundry detergent, STERIMAR,Europe and ARM & HAMMER toothpaste in Mexico. WATERPIK sales grew across the Global Markets Group, Canada, U.K., Australia, and
France. For the six months ended June 30, 20192020 higher sales were driven primarily by VITAFUSION & L’IL CRITTERS gummy vitamins, FEMFRESH, STERIMAR, and BATISTE inby the Global Markets Group, business, ARM & HAMMER cat litterCanada, and liquid laundry detergent, TROJAN and VITAFUSION & L’IL CRITTERS Australia, offset by a decline in Mexicogummy vitamins. During the first quarter of 2020, a number of brands in Canada, ANUSOL and BATISTE inthese regions realized higher than anticipated sales due to higher consumer demand resulting from the U.K., and ARM & HAMMER liquid laundry detergent and STERIMAR in Mexico. For the six months ended June 30, 2019, WATERPIK sales grew across the Global Markets Group business, U.K., Canada, Australia, and France.COVID-19 pandemic.
Consumer International income before income taxes was $16.9$23.4 in the second quarter of 2019, a decrease2020, an increase of $1.1$6.5 compared to the same period in 20182019 due primarily tohigher lower SG&A costs of $11.6,$6.3 and higher sales volumes of $3.6, partially offset by unfavorable foreign exchange rates of $1.6, unfavorable manufacturing costs of $3.2,$1.0, unfavorable price/mix of $0.7, and higher marketing expenses of $1.0, and unfavorable foreign exchange rates of $0.9, partially offset by higher sales volumes of $7.7 and favorable price/mix of $6.8.$0.2. For the first six months of 2019,2020, income before income taxes was $45.3,$61.6, a $0.4 decrease$16.3 increase as compared to the same period in 2018,2019, due primarily to higherlower SG&A costs of $12.7,$10.6, higher sales volumes of $8.4, favorable price/mix of $2.6 and lower marketing expenses of $1.0, partially offset by unfavorable foreign exchange rates of $3.5 and unfavorable manufacturing costs of $5.7, higher marketing expenses of $4.8, and unfavorable foreign exchange rates of $2.4, partially offset by higher sales volumes of $18.1 and favorable price/mix of $5.2. The higher SG&A costs for both the three and six months include the $7.6 charge associated with the sale of the Consumer business in Brazil.$2.6.
Specialty Products (“SPD”)
SPD net sales were $73.5$75.7 in the second quarter of 2019, a decrease2020, an increase of $4.2$2.2 or 5.4%3.0% as compared to the same period in 2018. 2019. SPD net sales were $146.6$151.3 for the first six months of 2019, a decrease2020, an increase of $5.0,$4.7, or 3.3%3.2% as compared to the same period of 2018. in 2019. The components of the net sales change are the following:
| Three Months Ended |
|
| Six Months Ended |
| ||
| June 30, |
|
| June 30, |
| ||
Net Sales - SPD | 2019 |
|
| 2019 |
| ||
Product volumes sold |
| (6.7 | %) |
|
| (5.6 | %) |
Pricing/Product mix |
| 1.3 | % |
|
| 0.8 | % |
Acquired product lines (1) |
| 0.0 | % |
|
| 1.5 | % |
Net Sales increase |
| (5.4 | %) |
|
| (3.3 | %) |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||
| June 30, |
|
| June 30, |
| ||
Net Sales - SPD | 2020 |
|
| 2020 |
| ||
Product volumes sold |
| 3.3 | % |
|
| 5.0 | % |
Pricing/Product mix |
| (0.3 | )% |
|
| (1.8 | )% |
Net Sales increase |
| 3.0 | % |
|
| 3.2 | % |
Excluding the impact of the acquisition, theThe net sales decreaseincrease in the second quarter and the first six month periodmonths of 20192020 was driven by lowerhigher volumes in the animal and food production business, partially offset by higher broad-based pricing. Demandbusiness. The demand for our non-dairy products grew in both domestic and international markets as our prebiotic and probiotic products continued to grow in the poultry industry. Our dairy industry is significantly reducedproduct demand contracted in the second quarter due to lowa short-term decline in dairy farm profitability.profitability and the first six months of 2020 remains improved compared to the same period in 2019. Milk prices have returned to pre-COVID-19 pandemic levels and demand from dairy customers is expected to strengthen in the second half of the year.
SPD income before income taxes was $15.5$10.2 in the second quarter of 2019,2020, a decrease of $0.1$5.3 as compared to the same period in 20182019 due primarily to higher SG&A costs of $7.4, unfavorable manufacturing costs of $4.6,$0.7, and unfavorable price/product mix of $0.2, partially offset by higher other SG&A costs of $2.3, and lower sales volumes of $2.0 partially offsetand lower interest and other expenses of $0.9. SG&A expense in 2019 was favorably impacted by the reversal$7.3 reduction in the fair value of a $7.3the contingent consideration liability associated with the Passport acquisition, favorable price/product mix of $1.0, and lower marketing costs of $0.3. Acquisition. SPD income before income taxes was $27.8$19.0 in the first six months of 2019, an increase2020, a decrease of $0.6$8.8 as compared to the same period in 20182019 due primarily to the reversalhigher SG&A costs of a $7.3 contingent consideration liability associated with$8.5, primarily due to the Passport acquisition, favorableliability adjustment, unfavorable manufacturing costs of $3.4, unfavorable price/product mix of $1.2,$2.6 and lowerhigher marketing costs of $0.4,$0.1, partially offset by higher other SG&A costsvolumes of $3.3, unfavorable manufacturing costs of $3.0$4.3 and lower sales volumesinterest and other expenses of $2.5.$1.4.
Corporate
The Corporate segment includes equity in earnings of affiliates from Armand and ArmaKleen in the second quarter of 20192020 and 2018.2019. The Corporate segment income before income taxes was $1.7$2.0 in the second quarter of 2019,2020, as compared to $2.4$1.7 in the same period in 2018.2019. The Corporate segment income before income taxes was $3.4$3.6 for the first six months of 2019,2020, as compared to $4.5$3.4 in the same period in 2018.2019.
Liquidity and Capital Resources
On May 1, 2019, we amended the credit agreement (the “Credit Agreement”) that provides for our $1,000.0 unsecured revolving credit facility (the “Credit Agreement”“Revolving Credit Facility”) to extend the term of the Revolving Credit AgreementFacility from March 29, 2023 to March 29, 2024. Under the Credit Agreement, weWe continue to have the ability to increase our borrowing up to an additional $600.0, subject to lender commitments and certain conditions as described in the Credit Agreement. Borrowings under the Credit Agreement are available for general corporate purposespurposes.
In March 2020, we borrowed $825.0 under the Revolving Credit Facility as a precautionary measure to increase our cash position and are usedpreserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic. The full $825.0 was repaid in May 2020. We have the ability to support our $1,000.0 commercial paper program.
On May 1, 2019, we entered into a $300.0 unsecured term loan credit facility with various banks,borrow again under the proceeds of which were usedRevolving Credit Facility at any time up to partially fund the Flawless Acquisition. Unless prepaid, the loan is due on May 1, 2022. The interest rate is LIBOR plus an applicable margin based on our credit rating, which can range from 60 bps to 113 bps.borrowing limit.
As of June 30, 2019,2020, we had $97.9$451.7 in cash and cash equivalents, and approximately $886.9$933.0 available through the revolving facility under ourRevolving Credit AgreementFacility and our commercial paper program. To preserve our liquidity, we invest cash primarily in government money market funds, prime money market funds, short-term commercial paper and short-term bank deposits.
We repatriate excess cash held at our foreign subsidiaries. We repatriated approximately $13.0 during the second quarter of 2019 and $28.0 during the first six months of 2019. As of June 30, 2019, there is $47.0 of cash and cash equivalents held at foreign subsidiaries.
The current economic environment presents risks that could have adverse consequences for our liquidity. See “Unfavorable economic conditions could adversely affect demand for our products” under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 20182019 (the “Form 10-K”). and in Item 1A of Part II of this Quarterly Report. Although there is uncertainty related to the anticipated impact of the COVID-19 pandemic on our future results, we believe our efficient business model and the recent steps we have taken to strengthen our balance sheet positioned us to manage our business through this crisis as it continues to unfold. We continue to manage all aspects of our business including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships, implementing gross margin enhancement strategies and developing new opportunities for growth. We do not anticipate that current economic conditions will adversely affect our ability to comply with the financial covenantcovenants in the Credit Agreement because we currently are, and anticipate that we will continue to be, in compliance with the maximum leverage ratio requirement underin the Credit Agreement.
On February 5, 2019,January 31, 2020, the Board declared a 5%5.5% increase in the regular quarterly dividend from $0.2175$0.2275 to $0.2275$0.24 per share, equivalent to an annual dividend of $0.91$0.96 per share.share payable to stockholders of record as of February 14, 2020. The increase raises the annual dividend payout from $213.3$224.0 to approximately $225.0.$237.0.
In connection withWe did not repurchase any shares of our common stock in the evergreenfirst six months of 2020. As a result of our stock repurchases in recent years, there remains $210.0 of share repurchase availability under the share repurchase program approved by our Board of Directors in January 2019, we executed open market purchases2017 as of $100.0 of our Common Stock.June 30, 2020.
We anticipate that our cash holdings, cash from operations, together withand our currentremaining borrowing capacity, will be sufficient to meet our spending requirements, including capital expenditure program costs,expenditures, which are expected to be approximately $85.0$100.0 in 2019, fund our2020, debt payments, dividends, and any share repurchase programsactivity to the extent implemented by management, pay the upcoming maturing notes and pay dividends at the latest approved rate. Cash, together with our current borrowing capacity,management. We may be used foralso fund acquisitions that wouldwill complement our existing product lines or geographicexpand our presence in international markets. We diddo not have any mandatory fixed rate debt principal payments in 2018. We paid the $300.0 Floating Rate Senior Notes that matured on January 25, 2019 with cash on hand and commercial paper. The $300.0 Senior Notes (2.45%) will mature on December 15, 2019 and we currently intend to repay these notes with cash on hand and commercial paper borrowing if necessary.2020.
Cash Flow Analysis
| Six Months Ended |
| Six Months Ended |
| ||||||||||
| June 30, |
|
| June 30, |
| June 30, |
|
| June 30, |
| ||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Net cash provided by operating activities | $ | 351.2 |
|
| $ | 322.7 |
| $ | 598.6 |
|
| $ | 351.2 |
|
Net cash used in investing activities | $ | (502.4 | ) |
| $ | (71.2 | ) | $ | (26.4 | ) |
| $ | (502.4 | ) |
Net cash used in financing activities | $ | (67.7 | ) |
| $ | (439.5 | ) | $ | (274.0 | ) |
| $ | (67.7 | ) |
Net Cash Provided by Operating Activities– Our primary source of liquidity is the cash flow provided by operating activities, which is dependent on net income and changes in working capital. Our net cash provided by operating activities in the six months ended June 30, 20192020 increased by $28.5$247.4 to $351.2$598.6 as compared to $322.7$351.2 in the same period in 20182019 due to higher cash earnings (net income plus non-cash expenses such as depreciation, amortization, deferred taxes, and non-cash compensation) partially offset by an increaseand a reduction in working capital. The change in working capital is primarily due to a larger increase in accounts receivable duethe deferral of U.S. federal income tax payments from the second to the timingthird quarter of sales$81.0 and a smaller increase inhigher accounts payable and accrued expenses, which in part is due to higher incentive compensation and profit sharing payments partially offset by our continued program to extend payment terms with our suppliers. However, weinventories. We measure working capital effectiveness based on our cash conversion cycle. The following table presents our cash conversion cycle information for the quarters ended June 30, 20192020 and 2018:2019:
| As of |
|
|
|
|
| As of |
|
|
|
|
| ||||||||||
| June 30, 2019 |
|
| June 30, 2018 |
|
| Change |
| June 30, 2020 |
|
| June 30, 2019 |
|
| Change |
| ||||||
Days of sales outstanding in accounts receivable ("DSO") |
| 32 |
|
|
| 32 |
|
|
| 0 |
|
| 26 |
|
|
| 32 |
|
|
| (6 | ) |
Days of inventory outstanding ("DIO") |
| 60 |
|
|
| 57 |
|
|
| 3 |
|
| 60 |
|
|
| 60 |
|
|
| - |
|
Days of accounts payable outstanding ("DPO") |
| 68 |
|
|
| 65 |
|
|
| (3 | ) |
| 69 |
|
|
| 68 |
|
|
| (1 | ) |
Cash conversion cycle |
| 24 |
|
|
| 24 |
|
|
| 0 |
|
| 17 |
|
|
| 24 |
|
|
| (7 | ) |
Our cash conversion cycle (defined as the sum of DSO and DIO less DPO) which is calculated using a two periodtwo-period average method, remained consistent compared to the same period in 2018. DIO increased threedecreased 7 days from 57the prior year amount of 24 days to 6017 days DPO increased three days from 65at June 30, 2020 due primarily to 68a decrease in DSO of 6 days and DSO remained consistent comparedan increase in DPO of 1 day. The decrease in the cash conversion cycle is primarily due to the same period in 2018.lower accounts receivable from sales timing and increased receivable factoring. We continue to focus on reducing our working capital requirements.
Net Cash Used in Investing Activities – Net cash used in investing activities during the first six months of 20192020 was $502.4,$26.4, primarily reflecting $475.0 for the Flawless acquisition, and $23.6$30.9 for property, plant and equipment additions.additions, partially offset by cash proceeds of $7.0 from the sale of the PERL WEISS® toothpaste brand in Germany. Net cash used in investing activities during the first six months of 20182019 was $71.2,$502.4, primarily reflecting $49.8$475.0 for the PassportFlawless Acquisition, and $19.6$23.6 for property, plant and equipment additions.
Net Cash Used in Financing Activities – Net cash used in financing activities during the first six months of 2020 was $274.0, reflecting $186.2 of net debt payments, $118.1 of cash dividend payments, and $14.5 for the Agro business acquisition liability settlement, partially offset by $44.9 of proceeds from stock option exercises. Net cash used in financing activities during the first six months of 2019 was $67.7, reflecting $100.0 of repurchases of our common stock (“Common Stock”), $112.0 of cash dividend payments, partially offset by $109.8 of net debt borrowings and $37.0 of proceeds from stock option exercises.Net cash used in financing activities during the first six months of 2018 was $439.5, reflecting $200.0 of repurchases of our common stock (“Common Stock”), $106.2 of cash dividend payments, $159.8 of debt payments, partially offset by $28.9 of proceeds from stock option exercises.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
Market risk
We are subject to market risks particularly due to changes in interest rates, diesel and other commodity costs, fluctuations in foreign currency exchange rates, and changes in the market price of the Common Stock. We use derivative agreements to manage these risks. The current economic environment associated with COVID-19 has led to significant volatility and uncertainty with each of these market risks. For economic and other impacts of the COVID-19 pandemic on the Company, see “Recent Developments” within Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q.
For historical quantitative and qualitative disclosures about market risk affecting the Company, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II in the Form 10-K. Our exposure to market risk has not changed materially since December 31, 2018.
ITEM 4. | CONTROLS AND PROCEDURES |
a) Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) at the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, are effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission (the “Commission”), and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the disclosure.
b) Change in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurring during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
CAUTIONARY NOTE ON FORWARD-LOOKING INFORMATION
This report contains forward-looking statements, including, among others, statements relating to net sales and earnings growth; the impact of the COVID-19 pandemic and the Company’s response; gross margin changes; trade and marketing spending; marketing expense as a percentage of net sales; sufficiency of cash flows from operations; earnings per share; the impact of new accounting pronouncements; cost savings programs; consumer demand and spending; the effects of competition; the effect of product mix; volume growth, including the effects of new product launches into new and existing categories; the increase in the numberdecline of gummy dietary supplement competitors;condom usage; the Company’s hedge programs; the impact of foreign exchange, tariffs, and commodity price fluctuations; impairments and other charges; the Company’s investments in joint ventures; the impact of acquisitions and divestitures (and any related earn-out estimates);divestitures; capital expenditures; the Company’s effective tax rate; the impact of the Tax Cuts and Jobs Act; the impact of tax audits; tax changes and the lapse of applicable statutes of limitations; the effect of the credit environment on the Company’s liquidity and capital resources; the Company’s fixed rate debt and the repayment of outstanding notes as they become due;debt; compliance with covenants under the Company’s debt instruments; the Company’s commercial paper program; the Company’s current and anticipated future borrowing capacity to meet capital expenditure program costs; and the Company’s share repurchase programs; payment of dividends; environmental and regulatory matters; the availability and adequacy of raw materials, including trona reserves and the conversion of such reserves; and the customers and consumer acceptance of certain ingredients in our products. Other forward-looking statements in this report are generally identified by the use of such terms as “may,” “could,” “expect,” “intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,” “to be,” “to make” or other comparable terms. These statements represent the intentions, plans, expectations and beliefs
of the Company, and are based on assumptions that the Company believes are reasonable but may prove to be incorrect. In addition, these statements are subject to risks, uncertainties and other factors, many of which are outside the Company’s control and could cause actual results to differ materially from such forward-looking statements. Factors that could cause such differences include a decline in market growth, retailer distribution and consumer demand (as a result of, among other things, political, economic and marketplace conditions and events);, including those relating to the outbreak of contagious diseases; other impacts of the COVID-19 pandemic and its impact on the Company’s operations, customers, suppliers, employees, and other constituents, and market volatility and impact on the economy (including causing recessionary conditions), resulting from global, nationwide or local or regional outbreaks or increases in infections, and the risk that the Company will not be able to successfully execute its response plans with respect to the pandemic or localized outbreaks and the corresponding uncertainty; the impact of regulatory changes or policies associated with the COVID-19 pandemic, including continuing or renewed shutdowns of retail and other businesses in various jurisdictions; the impact of the CARES Act and other governmental actions; unanticipated increases in raw material and energy prices; delays or other problems in manufacturing or distribution; adverse developments affecting the financial condition of major customers and suppliers; competition; changes in marketing and promotional spending; growth or declines in various product categories and the impact of customer actions in response to changes in consumer demand and the economy, including increasing shelf space or on line share of private label products;and retailer-branded products or other changes in the retail environment; consumer and competitor reaction to, and customer acceptance of, new product introductions and features; the Company’s ability to maintain product quality and characteristics at a level acceptable to our customers and consumers; disruptions in the banking system and financial markets; foreign currency exchange rate fluctuations; implications of the United Kingdom’s withdrawal from the European Union; shifting economic policies in the United States; potential changes in export/import and trade laws, regulations and policies of the United States and other countries, including any increased trade restrictions or tariffs, including the actual and potential effect of tariffs on Chinese goods imposed by the United States; increased or changing regulation regarding the Company’s products in the United States and other countries where it or its suppliers operate; issues relating to the Company’s information technology and controls; the impact of natural disasters, including those related to climate change, on the Company and its customers and suppliers, including third party information technology service providers; the acquisition or divestiture of assets; the outcome of contingencies, including litigation, pending regulatory proceedings and environmental matters; and changes in the regulatory environment.
The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the United States federal securities laws. You are advised, however, to consult any further disclosures the Company makes on related subjects in its filings with the United States Securities and Exchange Commission (the “Commission”).
PART II – OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
General
The Company, in the ordinary course of its business, is subject of, or party to, various pending or threatened legal actions, government investigations and proceedings from time to time, including, without limitation, those relating to commercial transactions, product liability, purported consumer class actions, employment matters, antitrust, environmental, health, safety and other compliance related matters. Such proceedings are subject to many uncertainties and the outcome of certain pending or threatened legal actions may not be reasonably predictable and any related damages may not be estimable. Certain legal actions, including the one described below, could result in an adverse outcome for us, and any such adverse outcome could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Scantibodies Laboratory, Inc.
The Company has been named as a defendant in a breach of contract action filed by Scantibodies Laboratory, Inc. (the “Plaintiff”) on April 1, 2014, in the U.S. District Court for the Southern District of New York.
The complaint alleges, among other things, that the Company (i) breached two agreements for the manufacture and supply of pregnancy and ovulation test kits by switching suppliers, (ii) failed to give Plaintiff the proper notice, (iii) failed to reimburse Plaintiff for costs and expenses under the agreements and (iv) misrepresented its future requirements. The complaint seeks compensatory and punitive damages in an amount in excess of $20.0 million, as well as declaratory relief, statutory prejudgment interest and attorneys’ fees and costs.
The Company is vigorously defending itself in this matter. On September 19, 2018, the trial court granted the Company’s motion for summary judgment, dismissing all claims brought by the Plaintiff.Plaintiff as a matter of law. The Plaintiff has filed an appeal. appealed that decision, and the 2nd Circuit Court of Appeals reversed it in April 2020, remanding the case back to the lower court for a jury trial.
In connection with this matter, the Company has reserved an amount has been reserved that is immaterial. However, itimmaterial to the Company. It is reasonably possible that the Company may ultimately be required to pay all or substantially all of the damages and other amounts sought by Plaintiff in the event the summary judgment entered in favor of the Company is reversed. Plaintiff.
ITEM 1A. | RISK FACTORS |
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A, “Risk Factors” in the Form 10-K, which is modified by the disclosure below. These risks and uncertainties, along with those previously disclosed, could materially affect the Company’s business, financial condition or future results.
• | We must successfully manage the demand, supply, and operational challenges associated with the actual or perceived effects of the novel coronavirus (COVID-19) pandemic. |
Our business and financial results have been, and may continue to be, negatively impacted by the fear of exposure to or actual effects of the coronavirus (COVID-19) pandemic, such as negative impact on the global and U.S. domestic economy, significant unemployment, market volatility, reduced travel or recommendations or mandates from governmental authorities to avoid various sized gatherings, close facilities, suspend operations, or to self-quarantine. These impacts include, but are not limited to:
• | Significant reductions in demand or significant volatility in demand for one or more of our products, which may be caused by, among other things: the temporary or prolonged inability of consumers to purchase our products due to illness, quarantine or other travel or gathering restrictions, store closures, unemployment or other financial hardship, shifts in demand away from one or more of our more discretionary or higher priced products to lower priced products, or stockpiling or similar pantry-loading or unloading activity. For example, our WaterPik business has been negatively impacted by the temporary closure of dental offices across the United States and some other personal care brands have been negatively impacted by the temporary closures of certain non-essential retailers and the reduction of consumer foot traffic at retailers from which they derive a significant proportion of their sales. WaterPik and some other personal care brands have also been impacted by reduced demand for discretionary consumable products by consumers due the impact of the pandemic, including increased unemployment and concerns about the economy. Continuing recessionary economic conditions, including after the direct impact of the pandemic has subsided, may continue to impact consumer demand for certain of our productsand put downward pressure on product prices. Some of our retail customers have been forced to shut down or reduce their hours, which has impacted and may continue to impact their orders. If these impacts are prolonged, they can further increase the difficulty of planning for operations and may adversely impact our results. |
• | Inability to meet our retailer orders and customers’ needs due to disruptions in our manufacturing and distribution network or capacity constraints or those of our finished goods, raw materials, or transportation suppliers caused by the closure or suspension of operations due to governmental prohibitions or employees becoming infected or refusing to work. In addition, our retailers may prioritize certain categories and we may be unable to shift our production capacity to address those shifts, which could also impact our ability to meet customer demand. While many of our facilities produce essential products and have been allowed to continue to operate despite general shut-down orders by certain governmental authorities, we could face challenges in continuing to operate such facilities as a result of employee absenteeism or sickness, additional governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities or those of our suppliers. |
• | If key employees become ill as a result of the COVID-19 pandemic or otherwise our business activities may be adversely affected and our management team's attention may be diverted. In addition, we may not be able to locate suitable replacements for any key employees who become ill. |
• | Although we are actively monitoring the impact of the COVID-19 pandemic on our supply chain, we are unable to accurately predict the impact that the COVID-19 pandemic will have due to various uncertainties, including the ultimate geographic spread of the virus, the severity of the pandemic, and the duration of the pandemic and corresponding government action. Restrictions resulting from the COVID-19 pandemic could impact our supply chain both in the United States and globally. These restrictions may cause the price of certain raw materials used in our products to increase and/or we may experience disruptions to our operations. |
• | Some of our customers, including mass merchandisers, supermarkets, drugstores, convenience stores, wholesale clubs, home stores, and dollar, pet and other specialty stores, have experienced, and may experience in the future, closures or reduced hours of or consumer capacity in their stores, declining financial performance, which could affect their ability to pay amounts due to us on a timely basis or at all, and any protracted economic downturn or recession that may adversely affect our suppliers and customers and could adversely affect our sales and results of operations. In addition, we may be unable to maintain the same level of sales and profitability if consumers shift to a higher percentage of their purchases online and we are unable to shift our sales strategies or execute on them. |
• | Due to government orders and the need to protect our workforce, the majority of our office and management personnel are working remotely, which could increase our exposure to technological failures or cybersecurity risks, which could negatively impact our operations. |
Despite our efforts to manage and remedy these impacts to the Company, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of any such outbreak as well as third-party or governmental actions taken to contain its spread and mitigate its public health effects. While the vast majority of our products are consumer staples that generally are less vulnerable to decreases in discretionary spending than other products, some of our products, particularly WaterPik and some other personal care brands, are more discretionary in nature and, are more likely to be affected by consumer decisions to control spending and the impact and duration of recessionary economic conditions.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The Company repurchases shares of its Common Stock from time to time pursuant to its publicly announced share repurchase programs. During the second quarter of 2020 the Company did not repurchase any shares of Common Stock pursuant to its share repurchase programs. The following table contains information for shares repurchased during the second quarter of 2020, which was solely due to shares of Common Stock withheld by the Company to satisfy tax withholding obligations in connection with the vesting of restricted stock.
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Approximate Dollar Value of Shares that May Yet Be Purchased Under All Programs |
| ||||
4/1/2020 to 4/30/2020 |
|
| 0 |
|
| $ | 0.0 |
|
|
| 0 |
|
| $ | 210,000,000 |
|
5/1/2020 to 5/31/2020 |
|
| 0 |
|
|
| 0.0 |
|
|
| 0 |
|
| $ | 210,000,000 |
|
6/1/2020 to 6/30/2020 |
|
| 623 |
|
|
| 76.15 |
|
|
| 0 |
|
| $ | 210,000,000 |
|
Total |
|
| 623 |
|
| $ | 76.15 |
|
|
| 0 |
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|
|
ITEM 5. | OTHER INFORMATION |
As previously disclosed, effective May 1, 2020, the Company’s Board of Directors approved the amendment and restatement of the Company’s Bylaws (as so amended and restated, the “Amended and Restated Bylaws”). Pursuant to the Amended and Restated Bylaws, in order to be timely, any stockholder who wishes to propose any business to be considered by the stockholders at the Company’s annual meeting, or who wants to nominate a person for election to the Board at that meeting, must provide written notice that sets forth the specified information described in the Amended and Restated Bylaws no more than 120 days and no less than 90 days prior to the first anniversary of the previous year’s annual meeting. Accordingly, any stockholder who wishes to propose any business to be considered by the stockholders at the Company’s 2021 Annual Meeting of Stockholders, other than a proposal for inclusion in the proxy statement pursuant to SEC regulations, or who wants to nominate a person for election to the Company’s Board of Directors at that meeting, other than pursuant to the Company’s “proxy access” provision, must provide a written notice that sets forth the specified information described in the Company’s Amended and Restated Bylaws concerning the proposed business or nominee, and such notice must be delivered to the Secretary at the Company’s principal executive offices, no earlier than December 31, 2020 and no later than January 30, 2021.
ITEM 6. | EXHIBITS |
Exhibit Index
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| Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||
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| Inline XBRL Taxonomy Extension Schema Document.
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| Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||
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| Inline XBRL Taxonomy Extension Definition Linkbase Document.
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| Inline XBRL Taxonomy Extension Label Linkbase Document. | |||
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| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
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• | Indicates documents filed herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| CHURCH & DWIGHT CO., INC. |
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| (REGISTRANT) |
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DATE: |
| July 31, |
| /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: |
| July 31, |
| /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) |
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