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\  

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, 2019

Commission file number 1-10585

 

CHURCH & DWIGHT CO., INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

13-4996950

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

500 Charles Ewing Boulevard, Ewing, N.J. 08628

(Address of principal executive offices)

Registrant’s telephone number, including area code: (609) 806-1200

 

 

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 April 30, 2019, there were 246,219,083 shares of Common Stock outstanding.

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

Name of each exchange

on which registered

Common Stock, $1 par value

 

CHD

New York Stock Exchange

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

 

 

 

 


TABLE OF CONTENTS

PART I

 

Item

 

 

 

Page

1.

 

Financial Statements

 

3

 

 

 

 

 

2.

 

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

 

20

 

 

 

 

 

3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

26

 

 

 

 

 

4.

 

Controls and Procedures

 

26

PART II

 

1.

 

Legal Proceedings

 

27

 

 

 

 

 

1A.

 

Risk Factors

 

27

 

 

 

 

 

2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

28

 

 

 

 

 

6.

 

Exhibits

 

29

 

 

 

 

 

 

 

 

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

 

 

March 31,

 

 

March 31,

 

 

2019

 

 

2018

 

Net Sales

$

1,044.7

 

 

$

1,006.0

 

Cost of sales

 

573.9

 

 

 

554.5

 

Gross Profit

 

470.8

 

 

 

451.5

 

Marketing expenses

 

98.1

 

 

 

99.9

 

Selling, general and administrative expenses

 

131.9

 

 

 

131.3

 

Income from Operations

 

240.8

 

 

 

220.3

 

Equity in earnings of affiliates

 

1.7

 

 

 

2.1

 

Investment earnings

 

0.5

 

 

 

0.5

 

Other income (expense), net

 

(0.1

)

 

 

(2.1

)

Interest expense

 

(17.8

)

 

 

(20.1

)

Income before Income Taxes

 

225.1

 

 

 

200.7

 

Income taxes

 

49.4

 

 

 

42.9

 

Net Income

$

175.7

 

 

$

157.8

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - Basic

 

246.1

 

 

 

244.9

 

Weighted average shares outstanding - Diluted

 

251.9

 

 

 

250.0

 

Net income per share - Basic

$

0.71

 

 

$

0.64

 

Net income per share - Diluted

$

0.70

 

 

$

0.63

 

Cash dividends per share

$

0.23

 

 

$

0.22

 

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In millions)

 

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2019

 

 

2018

 

Net Income

$

175.7

 

 

$

157.8

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

Foreign exchange translation adjustments

 

1.8

 

 

 

3.5

 

Income (loss) from derivative agreements

 

(7.7

)

 

 

(0.2

)

Other comprehensive income (loss)

 

(5.9

)

 

 

3.3

 

Comprehensive income

$

169.8

 

 

 

161.1

 

 

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)

 

 

March 31,

 

 

December 31,

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

97.9

 

 

$

316.7

 

Accounts receivable, less allowances of $2.9 and $3.1

 

384.6

 

 

 

345.3

 

Inventories

 

399.5

 

 

 

382.8

 

Other current assets

 

31.7

 

 

 

33.4

 

Total Current Assets

 

913.7

 

 

 

1,078.2

 

 

 

 

 

 

 

 

 

Property, Plant and Equipment, Net

 

558.8

 

 

 

598.2

 

Equity Investment in Affiliates

 

9.4

 

 

 

8.5

 

Trade Names and Other Intangibles, Net

 

2,256.3

 

 

 

2,274.0

 

Goodwill

 

1,992.9

 

 

 

1,992.9

 

Other Assets

 

229.5

 

 

 

117.4

 

Total Assets

$

5,960.6

 

 

$

6,069.2

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Short-term borrowings

$

99.8

 

 

$

1.8

 

Current portion of long-term debt

 

297.7

 

 

 

596.5

 

Accounts payable and accrued expenses

 

699.1

 

 

 

725.1

 

Income taxes payable

 

36.7

 

 

 

2.9

 

Total Current Liabilities

 

1,133.3

 

 

 

1,326.3

 

 

 

 

 

 

 

 

 

Long-term Debt

 

1,509.4

 

 

 

1,508.8

 

Deferred Income Taxes

 

580.5

 

 

 

576.4

 

Deferred and Other Long-term Liabilities

 

238.1

 

 

 

203.9

 

Total Liabilities

 

3,461.3

 

 

 

3,615.4

 

 

 

 

 

 

 

 

 

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 March 31, 2019 and December 31, 2018

 

292.8

 

 

 

292.8

 

Additional paid-in capital

 

281.3

 

 

 

280.8

 

Retained earnings

 

3,965.4

 

 

 

3,832.6

 

Accumulated other comprehensive loss

 

(59.5

)

 

 

(53.6

)

Common stock in treasury, at cost: 46,789,017 shares as of March 31, 2019 and 45,969,515 shares as of December 31, 2018

 

(1,980.7

)

 

 

(1,898.8

)

Total Stockholders' Equity

 

2,499.3

 

 

 

2,453.8

 

Total Liabilities and Stockholders' Equity

$

5,960.6

 

 

$

6,069.2

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

4


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(In millions)

 

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2019

 

 

2018

 

Cash Flow From Operating Activities

 

 

 

 

 

 

 

Net Income

$

175.7

 

 

$

157.8

 

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

 

 

 

 

 

 

 

Depreciation expense

 

15.8

 

 

 

16.4

 

Amortization expense

 

22.8

 

 

 

19.3

 

Deferred income taxes

 

2.8

 

 

 

(2.5

)

Equity in net earnings of affiliates

 

(1.7

)

 

 

(2.1

)

Distributions from unconsolidated affiliates

 

0.7

 

 

 

2.1

 

Non-cash compensation expense

 

2.4

 

 

 

3.1

 

Other

 

(0.7

)

 

 

(1.0

)

Change in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(36.0

)

 

 

(11.3

)

Inventories

 

(15.9

)

 

 

(23.5

)

Other current assets

 

0.5

 

 

 

(4.7

)

Accounts payable and accrued expenses

 

(59.2

)

 

 

(32.6

)

Income taxes payable

 

34.3

 

 

 

34.5

 

Other operating assets and liabilities, net

 

(3.6

)

 

 

0.0

 

Net Cash Provided By Operating Activities

 

137.9

 

 

 

155.5

 

Cash Flow From Investing Activities

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

(11.7

)

 

 

(9.9

)

Acquisitions

 

0.0

 

 

 

(49.9

)

Other

 

(0.7

)

 

 

(0.2

)

Net Cash Used In Investing Activities

 

(12.4

)

 

 

(60.0

)

Cash Flow From Financing Activities

 

 

 

 

 

 

 

Long-term debt (repayments)

 

(300.0

)

 

 

0.0

 

Short-term debt (repayments), net of borrowings

 

98.0

 

 

 

(17.4

)

Proceeds from stock options exercised

 

15.1

 

 

 

16.4

 

Payment of cash dividends

 

(55.9

)

 

 

(53.0

)

Purchase of treasury stock

 

(100.0

)

 

 

(200.0

)

Deferred financing and other

 

(1.5

)

 

 

(1.6

)

Net Cash Used In Financing Activities

 

(344.3

)

 

 

(255.6

)

Effect of exchange rate changes on cash and cash equivalents

 

0.0

 

 

 

1.0

 

Net Change In Cash and Cash Equivalents

 

(218.8

)

 

 

(159.1

)

Cash and Cash Equivalents at Beginning of Period

 

316.7

 

 

 

278.9

 

Cash and Cash Equivalents at End of Period

$

97.9

 

 

$

119.8

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

5


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW-CONTINUED

(Unaudited)

(In millions)

 

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2019

 

 

2018

 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest (net of amounts capitalized)

$

21.8

 

 

$

23.9

 

Income taxes

$

12.3

 

 

$

11.0

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

Property, plant and equipment expenditures included in Accounts Payable

$

6.0

 

 

$

6.3

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

6


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2019 and 2018

(Unaudited)

(In millions)

 

 

Number of Shares

 

 

Amounts

 

 

Common

Stock

 

 

Treasury

Stock

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

 

 

Total

Stockholders'

Equity

 

December 31, 2017

 

292.8

 

 

 

(45.2

)

 

$

292.8

 

 

$

264.6

 

 

$

3,479.0

 

 

$

(36.4

)

 

$

(1,782.0

)

 

$

2,218.0

 

Adoption of new accounting pronouncements

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(1.7

)

 

 

(0.6

)

 

 

0.0

 

 

 

(2.3

)

Net income

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

157.8

 

 

 

0.0

 

 

 

0.0

 

 

 

157.8

 

Other comprehensive

   income (loss)

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

3.3

 

 

 

0.0

 

 

 

3.3

 

Cash dividends

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(53.0

)

 

 

0.0

 

 

 

0.0

 

 

 

(53.0

)

Stock purchases

 

0.0

 

 

 

(4.1

)

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(200.0

)

 

 

(200.0

)

Stock based compensation

   expense and stock option plan

   transactions

 

0.0

 

 

 

0.9

 

 

 

0.0

 

 

 

(4.2

)

 

 

0.0

 

 

 

0.0

 

 

 

23.7

 

 

 

19.5

 

March 31, 2018

 

292.8

 

 

 

(48.4

)

 

$

292.8

 

 

$

260.4

 

 

$

3,582.1

 

 

$

(33.7

)

 

$

(1,958.3

)

 

$

2,143.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Net income

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

175.7

 

 

 

0.0

 

 

 

0.0

 

 

 

175.7

 

Other comprehensive

   income (loss)

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(5.9

)

 

 

0.0

 

 

 

(5.9

)

Cash dividends

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(55.9

)

 

 

0.0

 

 

 

0.0

 

 

 

(55.9

)

Stock purchases

 

0.0

 

 

 

(1.5

)

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(100.0

)

 

 

(100.0

)

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

 

March 31, 2019

 

292.8

 

 

 

(46.8

)

 

$

292.8

 

 

$

281.3

 

 

$

3,965.4

 

 

$

(59.5

)

 

$

(1,980.7

)

 

$

2,499.3

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

7


 

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In millions, except per share data)

 

1.

Basis of Presentation

The condensed consolidated balance sheets as of March 31, 2019 and December 31, 2018, the condensed consolidated statements of income and comprehensive income, cash flow and stockholders’ equity for the three months ended March 31, 2019 and March 31, 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 March 31, 2019 and results of operations and cash flows for all periods presented have been made.  

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted.  These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “Form 10-K”).  The results of operations for the period ended March 31, 2019 are not necessarily indicative of the operating results for the full year.

The Company incurred research and development expenses in the first quarter of 2019 and 2018 of $20.7 and $19.5, 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, the FASB issued new accounting guidance, which is intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. These amendments also make targeted improvements to simplify the application of the hedge accounting. The guidance was effective for annual and interim periods beginning after December 15, 2018, and was adopted by the Company in the first quarter of 2019. The standard’s adoption did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In February 2016 and July 2018, the FASB issued new lease accounting guidance, requiring lessees to recognize right-of-use lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases, with a term greater than a year. The new guidance also expands the required quantitative and qualitative disclosures surrounding leases. The guidance was effective for annual and interim periods beginning after December 15, 2018, and allowed companies to apply the requirements retrospectively, either to all prior periods presented or through a cumulative adjustment in the year of adoption. The Company adopted the new standard on January 1, 2019 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 will be a Right of Use Asset of approximately $107.0 and a corresponding Lease Liability of $109.0.  This does not include an existing cease-use liability of approximately $7.0 pertaining to one

8


 

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

 

203.9

 

 

 

41.3

 

 

 

245.2

 

Deferred income taxes

 

576.4

 

 

 

4.4

 

 

 

580.8

 

Retained earnings

 

3,832.6

 

 

 

13.0

 

 

 

3,845.6

 

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

There have been no 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:

 

 

March 31,

 

 

December 31,

 

 

2019

 

 

2018

 

Raw materials and supplies

$

81.7

 

 

$

84.4

 

Work in process

 

36.1

 

 

 

34.1

 

Finished goods

 

281.7

 

 

 

264.3

 

Total

$

399.5

 

 

$

382.8

 

  

 

4.

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

PP&E consists of the following:

 

March 31,

 

 

December 31,

 

 

2019

 

 

2018

 

Land

$

27.8

 

 

$

27.8

 

Buildings and improvements

 

250.8

 

 

 

301.3

 

Machinery and equipment

 

726.9

 

 

 

716.7

 

Software

 

99.0

 

 

 

97.9

 

Office equipment and other assets

 

75.6

 

 

 

73.8

 

Construction in progress

 

46.8

 

 

 

49.7

 

Gross PP&E

 

1,226.9

 

 

 

1,267.2

 

Less accumulated depreciation and amortization

 

668.1

 

 

 

669.0

 

Net PP&E

$

558.8

 

 

$

598.2

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2019

 

 

2018

 

Depreciation and amortization on PP&E

$

15.8

 

 

$

16.4

 

 

9


 

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

 

 

March 31,

 

 

March 31,

 

 

2019

 

 

2018

 

Weighted average common shares outstanding -  basic

 

246.1

 

 

 

244.9

 

Dilutive effect of stock options

 

5.8

 

 

 

5.1

 

Weighted average common shares outstanding - diluted

 

251.9