10-Q 1 chd-20240331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended March 31, 2024

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

img12505615_0.jpg 

CHURCH & DWIGHT CO., INC.

(Exact name of registrant as specified in its charter)

 

Delaware

13-4996950

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

500 Charles Ewing Boulevard, Ewing, NJ 08628

(Address of principal executive offices)

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

 

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

Title of each class

 

Trading Symbol(s)

Name of each exchange

on which registered

Common Stock, $1 par value

 

CHD

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of April 30, 2024, there were 244,522,956 shares of Common Stock outstanding.

 

 


 

TABLE OF CONTENTS

PART I

Item

 

 

 

Page

1.

 

Financial Statements

 

3

 

 

 

 

 

2.

 

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

 

21

 

 

 

 

 

3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

28

 

 

 

 

 

4.

 

Controls and Procedures

 

28

PART II

1.

 

Legal Proceedings

 

30

 

 

 

 

 

1A.

 

Risk Factors

 

30

 

 

 

 

 

2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

30

 

 

 

 

 

5.

 

Other Information

 

30

 

 

 

 

 

6.

 

Exhibits

 

31

 

 

 

 

 

 

 

 

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,

 

 

2024

 

 

2023

 

Net Sales

$

1,503.3

 

 

$

1,429.8

 

Cost of sales

 

816.3

 

 

 

807.8

 

Gross Profit

 

687.0

 

 

 

622.0

 

Marketing expenses

 

152.0

 

 

 

122.3

 

Selling, general and administrative expenses

 

230.0

 

 

 

207.8

 

Income from Operations

 

305.0

 

 

 

291.9

 

Equity in earnings of affiliates

 

1.1

 

 

 

4.4

 

Other income (expense), net

 

3.0

 

 

 

1.3

 

Interest expense

 

(25.0

)

 

 

(28.8

)

Income before Income Taxes

 

284.1

 

 

 

268.8

 

Income taxes

 

56.4

 

 

 

65.6

 

Net Income

$

227.7

 

 

$

203.2

 

 

 

 

 

 

 

Weighted average shares outstanding - Basic

 

243.4

 

 

 

243.8

 

Weighted average shares outstanding - Diluted

 

246.1

 

 

 

246.8

 

Net income per share - Basic

$

0.94

 

 

$

0.83

 

Net income per share - Diluted

$

0.93

 

 

$

0.82

 

Cash dividends per share

$

0.28

 

 

$

0.27

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In millions)

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2024

 

 

2023

 

Net Income

$

227.7

 

 

$

203.2

 

Other comprehensive income, net of tax:

 

 

 

 

 

Foreign exchange translation adjustments

 

(3.5

)

 

 

2.4

 

Defined benefit plan adjustments gain (loss)

 

(0.2

)

 

 

1.5

 

Income (loss) from derivative agreements

 

1.6

 

 

 

(0.8

)

Other comprehensive income (loss)

 

(2.1

)

 

 

3.1

 

Comprehensive income

$

225.6

 

 

$

206.3

 

 

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,

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash and cash equivalents

$

349.7

 

 

$

344.5

 

Accounts receivable, less allowances of $8.5 and $7.3

 

545.4

 

 

 

526.9

 

Inventories

 

595.4

 

 

 

613.3

 

Other current assets

 

43.8

 

 

 

45.0

 

Total Current Assets

 

1,534.3

 

 

 

1,529.7

 

 

 

 

 

 

 

Property, Plant and Equipment, Net

 

939.2

 

 

 

927.7

 

Equity Investment in Affiliates

 

12.3

 

 

 

12.0

 

Trade Names and Other Intangibles, Net

 

3,271.1

 

 

 

3,302.3

 

Goodwill

 

2,431.5

 

 

 

2,431.5

 

Other Assets

 

373.1

 

 

 

366.0

 

Total Assets

$

8,561.5

 

 

$

8,569.2

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Short-term borrowings

$

4.0

 

 

$

3.9

 

Current portion of long-term debt

0.0

 

 

 

199.9

 

Accounts payable

 

647.4

 

 

 

630.6

 

Accrued expenses and other liabilities

 

453.5

 

 

 

580.4

 

Income taxes payable

 

46.2

 

 

 

7.2

 

Total Current Liabilities

 

1,151.1

 

 

 

1,422.0

 

 

 

 

 

 

 

Long-term Debt

 

2,202.8

 

 

 

2,202.2

 

Deferred Income Taxes

 

744.1

 

 

 

743.1

 

Deferred and Other Long-term Liabilities

 

330.0

 

 

 

313.7

 

Business Acquisition Liabilities

 

32.8

 

 

 

32.8

 

Total Liabilities

 

4,460.8

 

 

 

4,713.8

 

 

 

 

 

 

 

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 293,709,982 shares issued
      as of March 31, 2024 and December 31, 2023

 

293.7

 

 

 

293.7

 

Additional paid-in capital

 

498.3

 

 

 

454.8

 

Retained earnings

 

6,170.8

 

 

 

6,012.3

 

Accumulated other comprehensive loss

 

(29.3

)

 

 

(27.2

)

Common stock in treasury, at cost: 49,241,423 shares as of March 31, 2024 and 50,557,219 shares as of December 31, 2023

 

(2,832.8

)

 

 

(2,878.2

)

Total Stockholders' Equity

 

4,100.7

 

 

 

3,855.4

 

Total Liabilities and Stockholders' Equity

$

8,561.5

 

 

$

8,569.2

 

 

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,

 

 

2024

 

 

2023

 

Cash Flow From Operating Activities

 

 

 

 

 

Net Income

$

227.7

 

 

$

203.2

 

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

 

 

 

 

 

Depreciation expense

 

18.4

 

 

 

16.9

 

Amortization expense

 

39.2

 

 

 

38.0

 

Deferred income taxes

 

(1.2

)

 

 

(1.6

)

Equity in net earnings of affiliates

 

(1.1

)

 

 

(4.4

)

Distributions from unconsolidated affiliates

 

0.8

 

 

 

3.3

 

Non-cash compensation expense

 

28.9

 

 

 

25.8

 

Other

 

2.7

 

 

 

1.0

 

Change in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(20.0

)

 

 

(2.4

)

Inventories

 

16.1

 

 

 

(4.8

)

Other current assets

 

(5.2

)

 

 

0.7

 

Accounts payable

 

31.4

 

 

 

(19.7

)

Accrued expenses

 

(118.7

)

 

 

(42.3

)

Income taxes payable

 

46.6

 

 

 

57.7

 

Other operating assets and liabilities, net

 

(2.6

)

 

 

1.7

 

Net Cash Provided By Operating Activities

 

263.0

 

 

 

273.1

 

Cash Flow From Investing Activities

 

 

 

 

 

Additions to property, plant and equipment

 

(46.3

)

 

 

(25.0

)

Other

 

(0.5

)

 

 

(4.6

)

Net Cash Used In Investing Activities

 

(46.8

)

 

 

(29.6

)

Cash Flow From Financing Activities

 

 

 

 

 

Long-term debt (repayments)

 

(200.0

)

 

 

(200.0

)

Short-term debt (repayments), net of borrowings

0.0

 

 

 

(55.6

)

Proceeds from stock options exercised

 

59.9

 

 

 

10.2

 

Payment of cash dividends

 

(69.0

)

 

 

(66.3

)

Net Cash Used In Financing Activities

 

(209.1

)

 

 

(311.7

)

Effect of exchange rate changes on cash and cash equivalents

 

(1.9

)

 

 

0.7

 

Net Change In Cash and Cash Equivalents

 

5.2

 

 

 

(67.5

)

Cash and Cash Equivalents at Beginning of Period

 

344.5

 

 

 

270.3

 

Cash and Cash Equivalents at End of Period

$

349.7

 

 

$

202.8

 

 

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,

 

 

2024

 

 

2023

 

Cash paid during the period for:

 

 

 

 

 

Interest (net of amounts capitalized)

$

17.0

 

 

$

21.3

 

Income taxes

$

11.2

 

 

$

9.4

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

Property, plant and equipment expenditures included in Accounts Payable

$

17.3

 

 

$

16.5

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

6


 

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In millions)

 

 

Number of Shares

 

 

Amounts

 

 

Common
Stock

 

 

Treasury
Stock

 

 

Common
Stock

 

 

Additional
Paid-In
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Treasury
Stock

 

 

Total
Stockholders'
Equity

 

December 31, 2022

 

293.7

 

 

 

(49.8

)

 

$

293.7

 

 

$

366.2

 

 

$

5,524.6

 

 

$

(29.3

)

 

$

(2,665.3

)

 

$

3,489.9

 

Net income

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

203.2

 

 

 

0.0

 

 

 

0.0

 

 

 

203.2

 

Other comprehensive
   income (loss)

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

3.1

 

 

 

0.0

 

 

 

3.1

 

Cash dividends

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(66.3

)

 

 

0.0

 

 

 

0.0

 

 

 

(66.3

)

Stock based compensation
   expense and stock option plan
   transactions

 

0.0

 

 

 

0.3

 

 

 

0.0

 

 

 

27.8

 

 

 

(0.3

)

 

 

0.0

 

 

 

10.3

 

 

 

37.8

 

March 31, 2023

 

293.7

 

 

 

(49.5

)

 

$

293.7

 

 

$

394.0

 

 

$

5,661.2

 

 

$

(26.2

)

 

$

(2,655.0

)

 

$

3,667.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

293.7

 

 

 

(50.6

)

 

$

293.7

 

 

$

454.8

 

 

$

6,012.3

 

 

$

(27.2

)

 

$

(2,878.2

)

 

$

3,855.4

 

Net income

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

227.7

 

 

 

0.0

 

 

 

0.0

 

 

 

227.7

 

Other comprehensive
   income (loss)

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(2.1

)

 

 

0.0

 

 

 

(2.1

)

Cash dividends

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(69.0

)

 

 

0.0

 

 

 

0.0

 

 

 

(69.0

)

Stock based compensation
   expense and stock option plan
   transactions

 

0.0

 

 

 

1.4

 

 

 

0.0

 

 

 

43.5

 

 

 

(0.2

)

 

 

0.0

 

 

 

45.4

 

 

 

88.7

 

March 31, 2024

 

293.7

 

 

 

(49.2

)

 

$

293.7

 

 

$

498.3

 

 

$

6,170.8

 

 

$

(29.3

)

 

$

(2,832.8

)

 

$

4,100.7

 

 

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

These condensed consolidated financial statements have been prepared by Church & Dwight Co., Inc. (the “Company”). In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations and cash flows for all periods presented have been made. Results of operations for interim periods may not be representative of results to be expected for the full year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”).

The Company incurred research and development expenses in the first quarter of 2024 and 2023 of $30.1 and $26.7, respectively. These expenses are included in selling, general and administrative (“SG&A”) expenses.

2.
New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In September 2022, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update (“ASU”) 2022-04, Liabilities-Supplier Finance Programs (Topic 405-50): Disclosure of Supplier Finance Program Obligations, intended to add certain qualitative and quantitative disclosure requirements for a buyer in a supplier finance program. The amendments require a buyer that uses supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period, and associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. The amendments are effective for all entities for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods within those fiscal years, except for the requirement to disclose rollforward information, which is effective prospectively for fiscal years beginning after December 15, 2023. The Company adopted the standard on January 1, 2023 which resulted in additional disclosures. Refer to Note 13.

 

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The amendments will require public entities to disclose significant segment expenses that are regularly provided to the chief operating decision maker and included within segment profit and loss. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and will be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adoption on our consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosure which includes amendments that further expand income tax disclosures, by requiring the disaggregation of information in the rate reconciliation table, and income taxes paid by jurisdiction. The amendments are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and are to be applied either prospectively or retrospectively. The Company is currently evaluating the impact of adoption on the Company’s related disclosures.

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.

8


 

3.
Inventories

Inventories consist of the following:

 

March 31,

 

 

December 31,

 

 

2024

 

 

2023

 

Raw materials and supplies

$

137.4

 

 

$

137.5

 

Work in process

 

38.4

 

 

 

40.2

 

Finished goods

 

419.6

 

 

 

435.6

 

Total

$

595.4

 

 

$

613.3

 

 

4.
Property, Plant and Equipment, Net (“PP&E”)

PP&E consists of the following:

 

March 31,

 

 

December 31,

 

 

2024

 

 

2023

 

Land

$

28.2

 

 

$

28.3

 

Buildings and improvements

 

324.8

 

 

 

317.8

 

Machinery and equipment

 

895.0

 

 

 

895.1

 

Software

 

124.1

 

 

 

122.6

 

Office equipment and other assets

 

108.4

 

 

 

105.2

 

Construction in progress

 

336.6

 

 

 

348.4

 

Gross PP&E

 

1,817.1

 

 

 

1,817.4

 

Less accumulated depreciation

 

877.9

 

 

 

889.7

 

Net PP&E

$

939.2

 

 

$

927.7

 

 

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2024

 

 

2023

 

Depreciation expense on PP&E

$

18.4

 

 

$

16.9

 

 

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 Company's stock-based compensation plans.

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,

 

 

2024

 

 

2023

 

Weighted average common shares outstanding - basic

 

243.4

 

 

 

243.8

 

Dilutive effect of stock options and other unvested stock-based awards

 

2.7

 

 

 

3.0

 

Weighted average common shares outstanding - diluted

 

246.1

 

 

 

246.8

 

Antidilutive stock options outstanding

 

1.1

 

 

 

3.9

 

 

 

9


 

6.
Stock Based Compensation Plans

 

In the first quarter of 2023, the Company updated its Long-Term Incentive Program (“LTIP”) to provide employees with an award of stock options and initial grants of restricted stock units (“RSUs”), and made an initial grant of performance share units ("PSUs") to members of the Company's Executive Leadership Team ("ELT"). In connection with this update, the awards are now granted in the first quarter of each year. Prior to 2023, the awards were granted in the second quarter. The Company recognizes the grant-date fair value for each of these awards, less estimated forfeitures, as compensation expense ratably over the vesting period. For employees and directors that meet retirement eligibility requirements, the expense related to share-based compensation is recognized on the date of grant as there is no future service period required for the awards to vest.

 

Stock Options

The following table provides a summary of option activity:

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

Weighted

 

 

Remaining

 

 

 

 

 

 

 

 

Average

 

 

Contractual

 

 

Aggregate

 

 

 

 

 

Exercise

 

 

Term

 

 

Intrinsic

 

 

Options

 

 

Price

 

 

(in Years)

 

 

Value

 

Outstanding at December 31, 2023

 

10.2

 

 

$

68.77

 

 

 

 

 

 

 

Granted

 

1.0

 

 

 

100.28

 

 

 

 

 

 

 

Exercised

 

(1.4

)

 

 

47.37

 

 

 

 

 

 

 

Outstanding at March 31, 2024

 

9.8

 

 

$

74.61

 

 

 

6.4

 

 

$

296.3

 

Exercisable at March 31, 2024

 

5.2

 

 

$

62.32

 

 

 

4.5

 

 

$

217.3

 

 

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

 

 

March 31,

 

 

March 31,

 

 

2024

 

 

2023

 

Intrinsic Value of Stock Options Exercised

$

68.8

 

 

$

10.7

 

Stock Compensation Expense Related to Stock Option Awards

$

16.5

 

 

$

14.5

 

Issued Stock Options

 

1.0

 

 

 

1.0

 

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

$

29.81

 

 

$

23.93

 

Fair Value of Stock Options Issued

$

30.1

 

 

$

23.7

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2024

 

 

2023

 

Risk-free interest rate

 

4.2

%

 

 

4.0

%

Expected life in years

 

7.2

 

 

 

7.3

 

Expected volatility

 

22.3

%

 

 

12.3

%

Dividend yield

 

1.1

%

 

 

1.3

%

 

Restricted Stock Units

The Company granted employees 76,090 RSUs with a total fair value of $7.6 at a weighted average grant date fair value of $100.28 per RSU during the first quarter of 2024 and granted employees 88,480 RSUs with a total fair value of $7.4 at a weighted average grant date fair value of $83.13 per RSU during the first quarter of 2023. The annual RSU grants vest one-third on each of the first, second and third anniversaries of the grant date, subject to the recipient’s continued employment with the Company from the grant date through the applicable vesting date, and are settled with shares of the Company’s Common Stock within 60 days following the applicable vesting date.

Additionally, in connection with the Hero Acquisition (see Note 10), 854,882 shares of restricted stock were issued in October 2022 with a total fair value of $61.5. The restricted stock will be recognized as compensation expense as the stock is subject to vesting requirements for individuals who received the restricted stock and will continue to be employed by the Company. The vesting requirements are satisfied at various dates over a three-year period from the date of the acquisition, with 213,719 vesting in April of 2024. The restricted stock expense associated with the Hero Acquisition for the three months ended March 31, 2024 and 2023 was $7.3 in both periods, and is included in the non-cash compensation expense caption in the consolidated statement of cash flows.

10


 

Performance Stock Units

In the first quarter of 2024 and 2023, respectively, the Company granted PSUs to members of the Executive Leadership Team including the CEO, with an aggregate award equal to 19,960 and 19,650 PSUs. The PSUs were valued at a weighted average grant date fair value equal to $122.24 in 2024 and $110.95 in 2023 per PSU using a Monte Carlo model. The performance target is based on the Company's total shareholder return ("TSR") relative to a Company selected peer group. The PSUs vest on the later of (i) the third anniversary of the grant date, and (ii) the date that the Board's Compensation & Human Capital Committee certifies the achievement of the applicable performance goals, in each case, subject to the recipient’s continued employment with the Company from the grant date through the vesting date. The number of shares that may be issued ranges from 0% to 200% based on relative TSR during the three-year performance period.

 

7.
Share Repurchases

On October 28, 2021, the Board authorized the Company's share repurchase program, under which the Company may repurchase up to $1,000.0 in shares of Common Stock (the “2021 Share Repurchase Program”). The 2021 Share Repurchase Program does not have an expiration and replaced the 2017 Share Repurchase Program. The 2021 Share Repurchase Program did not modify the Company’s 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 its incentive plans.

As of March 31, 2024, there remains $658.9 of share repurchase availability under the 2021 Share Repurchase Program.

 

8.
Fair Value Measurements

The following table presents the carrying amounts and estimated fair values of the Company’s other financial instruments at March 31, 2024 and December 31, 2023:

 

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

Input

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

Level

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

Level 1

 

$

225.7

 

 

$

225.7

 

 

$

217.7

 

 

$

217.7

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

Level 2

 

 

4.0

 

 

 

4.0

 

 

 

3.9

 

 

 

3.9

 

Term loan due December 22, 2024

Level 2

 

0.0

 

 

0.0

 

 

 

200.0

 

 

 

200.0

 

3.15% Senior notes due August 1, 2027

Level 2

 

 

424.9

 

 

 

402.8

 

 

 

424.8

 

 

 

406.9

 

2.3% Senior notes due December 15, 2031

Level 2

 

 

399.4

 

 

 

331.5

 

 

 

399.3

 

 

 

338.6

 

5.6% Senior notes due November 15, 2032

Level 2

 

 

499.2

 

 

 

521.1

 

 

 

499.2

 

 

 

535.6

 

3.95% Senior notes due August 1, 2047

Level 2

 

 

397.7

 

 

 

321.6

 

 

 

397.7

 

 

 

333.7

 

5.0% Senior notes due June 15, 2052

Level 2

 

 

499.8

 

 

 

474.8

 

 

 

499.8

 

 

 

498.1

 

The Company recognizes transfers between input levels as of the actual date of the event. There were no transfers between input levels during the three months ended March 31, 2024.

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 carrying amounts of Accounts Receivable, and Accounts Payable and Accrued Expenses, approximated estimated fair values as of March 31, 2024 and December 31, 2023.

11


 

9.
Derivative Instruments and Risk Management

Changes in interest rates, foreign exchange rates, the price of the Company's 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, 2023.

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

 

 

 

Amount

 

 

Amount

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

Foreign exchange contracts

 

$

225.9

 

 

$

228.9

 

Diesel fuel contracts

 

1.7 gallons

 

 

2.3 gallons

 

Commodities contracts

 

73.0 pounds

 

 

59.0 pounds

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

Equity derivatives

 

$

23.5

 

 

$

23.2

 

 

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 during the three months ended March 31, 2024.

 

 

12


 

10.
Acquisitions

 

On October 13, 2022, the Company acquired all of the issued and outstanding shares of capital stock of Hero Cosmetics, Inc. ("Hero"), the developer of the HERO® brand which includes the MIGHTY PATCH® acne treatment products (the “Hero Acquisition”). The Company paid $546.8, net of cash acquired, at closing, and deferred an additional cash payment of $8.0 for five years to satisfy certain indemnification obligations, if necessary. The Company also issued $61.5 of restricted stock which will be recognized as compensation expense as the vesting requirements for individuals who received the restricted stock, and will continue to be employed by the Company, are satisfied at various dates over a three-year period from the date of the acquisition, with 213,719 vesting in April of 2024. Hero’s annual net sales for the year ended December 31, 2022 were approximately $179.0. The Hero Acquisition was financed with cash on hand and commercial paper borrowings and is managed in the Consumer Domestic segment. In the first quarter of 2023, the Company made a net cash payment of $3.5 primarily associated with final working capital adjustments.

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

 

Accounts receivable

$

19.5

 

Inventory

 

25.4

 

Other current assets

 

1.2

 

Property, plant and equipment

 

0.4

 

Trade name

 

400.0

 

Other intangible assets

 

71.9

 

Goodwill

 

156.1

 

Accounts payable and accrued expenses

 

(1.1

)

Deferred and Other Long-term Liabilities

 

(1.4

)

Deferred income taxes

 

(117.2

)

Business acquisition liabilities - long-term

 

(8.0

)

Cash purchase price (net of cash acquired)

$

546.8

 

 

The trade name and other intangible assets were valued using a discounted cash flow model. The trade name and other intangible assets recognized from the Hero Acquisition have useful lives which range from 10 - 20 years. The goodwill is a result of expected synergies from combined operations of the acquired business and the Company. Pro forma results are not presented because the impact of the acquisition is not material to the Company’s consolidated financial results. The goodwill and other intangible assets associated with the Hero Acquisition are not deductible for U.S. tax purposes.

 

11.
Goodwill and Other Intangibles, Net

The Company has intangible assets of substantial value on its consolidated balance sheet. These intangible assets are generally related to intangible assets with a useful life, indefinite-lived trade names and goodwill. The Company determines whether an intangible asset (other than goodwill) has a useful life based on multiple factors, including how long the Company intends to generate cash flows from the asset. These intangible assets are more fully explained in the following sections.

Intangible Assets With a Useful Life

The following table provides information related to the carrying value of intangible assets with a useful life:

 

March 31, 2024

 

 

 

 

December 31, 2023

 

 

Gross

 

 

 

 

 

 

 

 

Amortization

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

 

 

 

Period

 

Carrying

 

 

Accumulated

 

 

 

 

 

 

 

 

Amount

 

 

Amortization

 

 

Net

 

 

(Years)

 

Amount

 

 

Amortization

 

 

Impairments

 

 

Net

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade Names

$

1,385.2

 

 

$

(422.6

)

 

$

962.6

 

 

3-20

 

$

1,385.5

 

 

$

(403.5

)

 

$

0.0

 

 

$

982.0

 

Customer Relationships

 

641.4

 

 

 

(381.6

)

 

 

259.8

 

 

15-20

 

 

644.9

 

 

 

(373.3

)

 

 

(3.5

)

 

 

268.1

 

Patents/Formulas

 

208.3

 

 

 

(121.1

)

 

 

87.2

 

 

4-20

 

 

208.3

 

 

 

(116.1

)

 

 

(1.9

)

 

 

90.3

 

Total

$

2,234.9

 

 

$

(925.3

)

 

$

1,309.6

 

 

 

 

$

2,238.7

 

 

$

(892.9

)

 

$

(5.4

)

 

$

1,340.4

 

 

Intangible amortization expense was $30.8 and $31.1 for the first quarter of 2024 and 2023, respectively. The Company estimates that intangible amortization expense will be approximately $123.0 in 2024 and approximately $122.0 to $87.0 annually over the next five years.

13


 

In the fourth quarter of 2022, the Company determined that a review of our ability to recover the carrying values of the global FINISHING TOUCH FLAWLESS intangible assets was necessary based on the discontinuance of certain products at a major retailer. The FINISHING TOUCH FLAWLESS assets consisted of the definite-lived trade name, customer relationships and technology assets recorded at acquisition. The Company evaluated our ability to recover the intangible assets by comparing the carrying amount to the future undiscounted cash flows and determined that the cash flows would not be sufficient to recover the carrying value of the assets. After determining the estimated fair value of the assets, which included a reduction in cash flows due to the loss of distribution mentioned above along with an expected continued decline in discretionary consumption and higher interest rates, a non-cash impairment charge of $411.0 was recorded in the fourth quarter of 2022. The impairment charge is included in SG&A with $349.3 recorded in the Consumer Domestic segment and $61.7 recorded in the Consumer International segment. The impairment charge was applied as a full impairment of the customer relationship and technology assets and a partial impairment of the trade name. The remaining net book value of the trade name as of March 31, 2024 is $27.0 and will be amortized over a remaining useful life of approximately two years. The estimated fair value of the intangible assets was determined using the income approach with Level 3 inputs. The Level 3 inputs include the discount rate of 8.5% applied to management’s estimates of future cash flows based on projections of revenue, gross margin, marketing expense and tax rates considering the loss of product distribution and the reduction in customer demand that FINISHING TOUCH FLAWLESS had been experiencing through December 31, 2022. The Company has implemented strategies to address the decline in profitability. However, if unsuccessful, a further decline could trigger a future impairment charge.

Indefinite-Lived Intangible Assets

The following table presents the carrying value of indefinite lived intangible assets:

 

March 31,

 

 

December 31,

 

 

2024

 

 

2023

 

Trade Names

$

1,961.5

 

 

$

1,961.9

 

The Company’s indefinite lived intangible impairment review is completed in the fourth quarter of each year.

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, discount rates and royalty rates. The Company determined tha