# Church & Dwight Co Inc: Form 10-Q for the period ended Mar 31, 2020

- Company: [Church & Dwight Co Inc](/companies/chd.md) (CIK 313927)
- Form: 10-Q
- Filed: 2020-04-30
- Accepted by EDGAR: Apr 30, 2020, 17:12 ET
- Period: 2020-03-31
- Accession: 0001564590-20-020074
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/313927/000156459020020074/chd-10q_20200331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/313927/000156459020020074/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-01-01 to 2020-03-31 | $1.17bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2020-01-01 to 2020-03-31 | $633.2m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2020-01-01 to 2020-03-31 | $532.0m | us-gaap:GrossProfit |
| Research and development | 3 months, 2020-01-01 to 2020-03-31 | $21.7m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2020-01-01 to 2020-03-31 | $121.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2020-01-01 to 2020-03-31 | $314.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-01-01 to 2020-03-31 | $16.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-01-01 to 2020-03-31 | $69.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-01-01 to 2020-03-31 | $229.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-01-01 to 2020-03-31 | $0.92 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-01-01 to 2020-03-31 | $0.94 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-01-01 to 2020-03-31 | 251,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2020-01-01 to 2020-03-31 | $236.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2020-01-01 to 2020-03-31 | $16.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2020-01-01 to 2020-03-31 | $59.0m | us-gaap:PaymentsOfDividends |
| Share repurchases | 3 months, 2020-01-01 to 2020-03-31 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2020-03-31 | $1.05bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-03-31 | $1.83bn | us-gaap:AssetsCurrent |
| Total assets | at 2020-03-31 | $7.49bn | us-gaap:Assets |
| Current liabilities | at 2020-03-31 | $1.77bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-03-31 | $4.67bn | us-gaap:Liabilities |
| Long-term debt | at 2020-03-31 | $1.81bn | us-gaap:LongTermDebtNoncurrent |
| Short-term borrowings | at 2020-03-31 | $971.9m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2020-03-31 | $2.82bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 25,240 characters.

#### Recent Developments

#### COVID-19 Disclosure

The COVID-19 pandemic is positively impacting certain of our businesses, while negatively impacting the short-term results of certain others. During the last month of the quarter, we experienced a significant increase in consumer demand for many of our products, including Vitafusion gummy vitamins, Simply Saline and Sterimar nasal hygiene products, A&H baking soda, A&H and XTRA laundry detergent, A&H cat litter and Kaboom bathroom cleaners, as we have seen consumers stocking up on household staple products, such as laundry detergent, cat litter, bathroom cleaners, baking soda and personal care products such as vitamins and supplements and nasal hygiene products. On the other hand, 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 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 temporary or prolonged inability of consumers to purchase our products due to illness, quarantine or other travel or gathering restrictions, store closures, unemployment or other financial hardship, shifts in demand away from one or more of our more discretionary or higher priced products to lower priced products, or stockpiling or similar pantry-loading or unloading activity.

Some products have also been impacted by a shift in consumer spending away from more discretionary products. While there is no certainty that current high levels of demand for certain of our products will continue, we have taken steps to increase short term manufacturing capacity for our cleaning products (including laundry detergent, baking soda, and cleaners) and health care products (including vitamins and nasal hygiene) and are working closely with our suppliers, contract manufacturers and retail partners to ensure sustained supply to keep pace with increased demand. 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 recessionary global economic environment, as well as, the timing and impact of potential consumer pantry destocking in markets in which we serve. Moreover, we continue to experience and anticipate increased online sales during the pandemic.

The COVID-19 pandemic and the corresponding government response have led to increased unemployment and economic uncertainty, which could lead to a further reduction in consumer spending. 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 meet outstanding obligations and may cause further reductions in their purchases in the coming months.

Substantially 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 measures and supplement our in-house manufacturing with increased use of contract manufacturers to ensure that we are able to continue to manufacture and distribute our products during the 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.

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

#### PERL WEISS Transaction

During the first quarter of 2020, we sold our PERL WEISS® toothpaste brand in Germany with a net book value of $4.0 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.

### Results of Operations

### Consolidated results

|  | Three Months Ended March 31, 2020 | Change vs. Prior Year | Three Months Ended March 31, 2019 |
| --- | ---: | ---: | ---: |
| **Net Sales** | **$1,165.2** | 11.5% | $1,044.7 |
| **Gross Profit** | **$532.0** | 13.0% | $470.8 |
| Gross Margin | **45.7%** | +60 basis points | 45.1% |
| **Marketing Expenses** | **$96.4** | -1.7% | $98.1 |
| Percent of Net Sales | **8.3%** | -110 basis points | 9.4% |
| **Selling, General & Administrative Expenses** | **$121.0** | -8.3% | $131.9 |
| Percent of Net Sales | **10.4%** | -220 basis points | 12.6% |
| **Income from Operations** | **$314.6** | 30.6% | $240.8 |
| Operating Margin | **27.0%** | +390 basis points | 23.1% |
| **Net income per share - Diluted** | **$0.92** | 31.4% | $0.70 |

Diluted Net Income per share was $0.92 in the first quarter of 2020 as compared to $0.70 in the first quarter of 2019.

During the first quarter of 2020, we reduced the fair value of our contingent liability by $27.0 ($20.2 after tax or $0.08 diluted per share) associated with the Flawless Acquisition based on updated sales forecasts and the passage of time. The contingent liability adjustment was recorded in SG&A expense.

Also during the first quarter of 2020, we completed the sale of the PERL WEISS® toothpaste brand in Germany which resulted in a gain of $3.0 ($2.2 after tax or $0.01 diluted per share) recorded in SG&A expense.

#### Net Sales

Net sales for the quarter ended March 31, 2020 were $1,165.2, an increase of $120.5 or 11.5% as compared to the same period in 2019. The components of the net sales increase are as follows:

| Net Sales - Consolidated | Three Months Ended March 31, 2020 |
| --- | ---: |
| Product volumes sold | 6.9% |
| Pricing/Product mix | 2.3% |
| Foreign exchange rate fluctuations | (0.4%) |
| Acquired product lines (net of divestiture) (1) | 2.7% |
| **Net Sales increase** | **11.5%** |

(1) On May 1, 2019, we completed the Flawless Acquisition. The results of this acquisition are included in our results since the date of acquisition. During the first quarter of 2020 we completed the sale of the Perl Weiss brand.

For the three months ended March 31, 2020, the volume change reflects increased product sales in all three of our segments. Price/mix was favorable in the Consumer Domestic and Consumer International segments, but was partially offset by unfavorable price/mix in the Specialty Products (“SPD”) segment.

#### Gross Profit / Gross Margin

Our gross profit was $532.0 for the three months ended March 31, 2020, a $61.2 increase as compared to the same period in 2019. Gross margin increased 60 basis points (“bps”) in the first quarter of 2020 compared to the same period in 2019, primarily due to favorable price/volume mix of 140 bps, productivity programs of 110 bps, the impact of higher margins on acquired businesses of 10 bps, partially offset by higher manufacturing cost increases of 180 bps (including costs of approximately 30 bps associated with the COVID-19 pandemic), commodity and transportation costs of 10 bps and unfavorable foreign exchange rates of 10 bps.

#### Operating Expenses

Marketing expenses for the three months ended March 31, 2020 were $96.4, a decrease of $1.7 or 1.7% as compared to the same period in 2019. Marketing expenses as a percentage of net sales in the first quarter of 2020 decreased by 110 bps to 8.3% as compared to 9.4% in the same period in 2019 due to 100 bps of leverage on higher net sales and 10 bps on lower expenses.

Selling, general and administrative (“SG&A”) expenses were $121.0 in the first quarter of 2020, a decrease of $10.9 or 8.3% as compared to the same period in 2019. SG&A as a percentage of net sales decreased 220 bps to 10.4% in the first quarter of 2020 as compared to 12.6% in the same period in 2019. The decrease is due 130 bps of leverage associated with higher sales and 90 bps on lower expenses. The lower expenses for the three month period ended March 31, 2020 is primarily due to a reduction of the Flawless earnout adjustment by $27.0 and the $3.0 gain associated with the sale of PERL WEISS, partially offset by acquisition-related costs (including amortization expense), higher compensation costs, and higher selling costs.

#### Other Income and Expenses

Other expense, net for the three months ended March 31, 2020 increased $0.5, compared to the same period in 2019 primarily due to the effect of changes in foreign exchange rates.

Interest expense for the three months ended March 31, 2020 decreased $1.5, as compared to the same period in 2019 primarily due to the repayment of the $300.0 2.45% Senior Notes that matured in the fourth quarter of 2019 and lower interest rates.

#### Income Taxes

The effective tax rate for the three months ended March 31, 2020 was 23.2% compared to 21.9% in the same period in 2019. The increase in the tax rate is primarily due to a lower tax benefit on a lower amount of 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 March 31, 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 $1.6 and $1.7 for the three months ended March 31, 2020 and 2019 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 months ended March 31, 2020 and March 31, 2019 are as follows:

| Net Sales(1) | Consumer Domestic | Consumer International | SPD | Corporate | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| **First Quarter 2020** | **$891.0** | **$198.6** | **$75.6** | **$0.0** | **$1,165.2** |
| First Quarter 2019 | 784.9 | 186.7 | 73.1 | 0.0 | 1,044.7 |
| **Income before Income Taxes(2)** |  |  |  |  |  |
| **First Quarter 2020** | **$250.8** | **$38.2** | **$8.8** | **$1.6** | **$299.4** |
| First Quarter 2019 | 182.7 | 28.4 | 12.3 | 1.7 | 225.1 |

(1) Intersegment sales from Consumer International to Consumer Domestic, which are not reflected in the table, were $3.0 and $2.3 for the three months ended March 31, 2020 and March 31, 2019, respectively.

(2) In determining income before income taxes, interest expense, investment earnings and certain aspects of other income and expense were allocated among the segments based upon each segment’s relative income from operations.

Product line revenues from external customers are as follows:

|  | Three Months Ended March 31, 2020 | March 31, 2019 |
| --- | ---: | ---: |
| Household Products | **$494.3** | $443.3 |
| Personal Care Products | **396.7** | 341.6 |
| Total Consumer Domestic | **891.0** | 784.9 |
| Total Consumer International | **198.6** | 186.7 |
| Total SPD | **75.6** | 73.1 |
| **Total Consolidated Net Sales** | **$1,165.2** | $1,044.7 |

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 first quarter of 2020 were $891.0, an increase of $106.1 or 13.5% as compared to the same period in 2019. The components of the net sales change are the following:

| Net Sales - Consumer Domestic | Three Months Ended March 31, 2020 |
| --- | ---: |
| Product volumes sold | 7.4% |
| Pricing/Product mix | 2.8% |
| Acquired product lines (1) | 3.3% |
| **Net Sales increase** | **13.5%** |

(1) Includes the Flawless Acquisition since the date of acquisition.

The increase in net sales for the three months ended March 31, 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 and baking soda, BATISTE dry shampoo, and SIMPLY SALINE nasal congestion spray. A number of these brands realized higher than anticipated sales due to higher consumer demand due to the COVID-19 pandemic.

There continues to be significant product competition in the gummy vitamin category. The category has grown from six brands to over 50 in the last eight years. Moreover, condom usage has declined, as a result of a lower 18 to 24-year old population, alternate birth control options, less fear of HIV, less sex acts and, increased competition, all of which have contributed to lower demand for our products. We continue to evaluate and vigorously address these pressures through, among other things, new product introductions and increased marketing and trade spending. However, there is no assurance this category will not decline in the future and that we will be able to offset any such decline.

Consumer Domestic income before income taxes for the first quarter of 2020 was $250.8, a $68.1 increase as compared to the first quarter of 2019. The increase is due primarily to volumes of $43.5 (including the impact of the pandemic), favorable price/mix of $20.0 and lower SG&A costs of $7.2 (in part due to a $23.0 Flawless earn-out adjustment and other costs associated with the Flawless Acquisition), partially offset by higher manufacturing and distribution costs of $3.0.

### Consumer International

Consumer International net sales were $198.6 in the first quarter of 2020, an increase of $11.9 or 6.4% as compared to the same period in 2019. The components of the net sales change are the following:

| Net Sales - Consumer International | Three Months Ended March 31, 2020 |
| --- | ---: |
| Product volumes sold | 4.9% |
| Pricing/Product mix | 2.2% |
| Foreign exchange rate fluctuations / Other | (2.3%) |
| Acquired product lines (net of divestiture) (1) | 1.6% |
| **Net Sales increase** | **6.4%** |

(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 first quarter ended March 31, 2020 were driven primarily by ARM & HAMMER cat litter & liquid laundry detergent in Canada, CURASH® baby wipes and the FEMFRESH® feminine hygiene portfolio in Australia, STERIMAR® nasal spray in the U.K., and BATISTE dry shampoo in Germany. A number of these brands realized higher than anticipated sales due to higher consumer demand due to the COVID-19 pandemic.

Consumer International income before income taxes was $38.2 in the first quarter of 2020, an increase of $9.8 compared to the same period in 2019 due primarily to higher sales volumes of $4.8, lower SG&A costs of $4.4 (in part due to a $4.0 Flawless earn-out adjustment and other costs associated with the Flawless Acquisition and gain on sale of PERL WEISS® assets), favorable price/mix of $3.4, and lower marketing expenses of $1.2, partially offset by unfavorable foreign exchange rates of $1.9, unfavorable manufacturing costs of $1.8, and higher other expenses of $0.4.

### Specialty Products (“SPD”)

SPD net sales were $75.6 in the first quarter of 2020, an increase of $2.5 or 3.4% as compared to the same period in 2019. The components of the net sales change are the following:

| Net Sales - SPD | Three Months Ended March 31, 2020 |
| --- | ---: |
| Product volumes sold | 6.7% |
| Pricing/Product mix | (3.3%) |
| **Net Sales increase** | **3.4%** |

The net sales increase in the first quarter of 2020 was driven by higher volumes in the animal and food production business. Dairy farm profitability in the first quarter of 2020 is greatly improved versus prior year and has driven higher demand for our products.

SPD income before income taxes was $8.8 in the first quarter of 2020, a decrease of $3.5 as compared to the same period in 2019 due primarily to unfavorable manufacturing costs of $2.7, unfavorable price/product mix of $2.4, higher SG&A costs of $1.0, and higher marketing costs of $0.1, partially offset by higher volumes of $2.4 and lower interest and other expenses of $0.5.

### Corporate

The Corporate segment includes equity in earnings of affiliates from Armand and ArmaKleen in the first quarter of 2020 and 2019. The Corporate segment income before income taxes was $1.6 in the first quarter of 2020, as compared to $1.7 in the same period in 2019.

### Liquidity and Capital Resources

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, we continue to have the ability to increase our borrowing up to an additional $600.0, subject to lender commitments and certain conditions as described in the Credit Agreement. Borrowings under the Credit Agreement are available for general corporate purposes.

During the week of March 23, 2020, we drew an additional $825.0 million under the Credit Agreement. As a result of this additional borrowing, we have now drawn almost the entirety of the $1,000.0 available, with approximately $27.0 available through the revolving facility under our Credit Agreement and our commercial paper program. Although we do not have any presently anticipated need for this additional liquidity, we decided to draw this additional amount as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic.

As of March 31, 2020, we had $1,046.6 in cash and cash equivalents. 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.

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, 2019 (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 covenant in the Credit Agreement because we currently are, and anticipate that we will continue to be, in compliance with the maximum leverage ratio requirement under the Credit Agreement.

On January 31, 2020, the Board declared a 5.5% increase in the regular quarterly dividend from $0.2275 to $0.24 per share, equivalent to an annual dividend of $0.96 per share payable to stockholders of record as of February 14, 2020. The increase raises the annual dividend payout from $224.0 to approximately $237.0.

We did not repurchase any shares of our common stock in the first quarter of 2020. As a result of our stock repurchases in recent years, there remains $210.0 of share repurchase availability under the 2017 Share Repurchase Program as of March 31, 2020.

We anticipate that our cash holdings, cash from operations, and our remaining borrowing capacity, will be sufficient to meet our spending requirements, including capital expenditures, which are expected to be approximately $80.0 in 2020, debt payments, dividends, and any share repurchase activity to the extent implemented by management. We may also fund acquisitions that will complement our existing product lines or expand our presence in international markets. We do not have any mandatory fixed rate debt principal payments in 2020.

#### Cash Flow Analysis

|  | Three Months Ended March 31, 2020 | March 31, 2019 |
| --- | ---: | ---: |
| Net cash provided by operating activities | **$236.5** | $137.9 |
| Net cash used in investing activities | **$(11.4)** | $(12.4) |
| Net cash provided by (used in) financing activities | **$670.1** | $(344.3) |

25

**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 three months ended March 31, 2020 increased by $98.6 to $236.5 as compared to $137.9 in the same period in 2019 due to higher cash earnings (net income plus non-cash expenses such as depreciation, amortization, deferred taxes, and non-cash compensation) partially offset by a smaller increase in working capital and a decrease in the fair value of business acquisition liabilities. The change in working capital is primarily due to a reduction in inventory and a smaller increase in accounts receivable and a larger increase in taxes payable. We measure working capital effectiveness based on our cash conversion cycle. The following table presents our cash conversion cycle information for the quarters ended March 31, 2020 and 2019:

|  | As of March 31, 2020 | March 31, 2019 | Change |
| --- | ---: | ---: | ---: |
| Days of sales outstanding in accounts receivable ("DSO") | 27 | 31 | (4) |
| Days of inventory outstanding ("DIO") | 58 | 61 | (3) |
| Days of accounts payable outstanding ("DPO") | 66 | 67 | 1 |
| Cash conversion cycle | 19 | 25 | (6) |

Our cash conversion cycle (defined as the sum of DSO and DIO less DPO) which is calculated using a two period average method, decreased 6 days from the prior year amount of 25 days to 19 days at March 31, 2020 due primarily to a decrease in DSO of 4 days and a decrease in DIO of 3 days. The decrease in the cash conversion cycle is primarily due to lower inventory and increased receivable factoring due to COVID-19 related sales increases. 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 three months of 2020 was $11.4, primarily reflecting $16.8 for property, plant and equipment 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 three months of 2019 was $12.4, primarily reflecting $11.7 for property, plant and equipment additions.

**Net Cash Provided by (Used in) Financing Activities –** Net cash provided by financing activities during the first three months of 2020 was $670.1, reflecting $719.9 of net debt borrowings and $9.3 of proceeds from stock option exercises, partially offset by $59.0 of cash dividend payments. Net cash used in financing activities during the first three months of 2019 was $344.3, reflecting $202.0 of net debt payments, $100.0 of repurchases of our common stock (“Common Stock”), $55.9 of cash dividend payments, partially offset by $15.1 of proceeds from stock option exercises.

## Market risk

As filed, 843 characters.

### 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.

## Controls and procedures

As filed, 6,724 characters.

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 outbreak and the Company’s anticipated 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 number of gummy dietary supplement competitors; the decline of 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; capital expenditures; the Company’s effective tax rate; the impact of the Tax Cuts and Jobs Act; the impact of tax audits; tax changes and the lapse of applicable statutes of limitations; the effect of the credit environment on the Company’s liquidity and capital resources; the Company’s fixed rate debt; compliance with covenants under the Company’s debt instruments; the Company’s commercial paper program; the Company’s current and anticipated future borrowing capacity to meet capital expenditure program costs; and the Company’s share repurchase programs; payment of dividends; environmental and regulatory matters; the availability and adequacy of raw materials, including trona reserves and the conversion of such reserves; and the customers and consumer acceptance of certain ingredients in our products. 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), regulatory changes or policies, and the risk that the Company will not be able to successfully execute its response plans with respect to the pandemic; 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 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”).

## Risk factors

As filed, 6,433 characters.

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 products and 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 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 have begun to prioritize household product orders and we may be unable to shift our production capacity to address this shift, 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 pushing 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.

Filed Apr 30, 2020.
Source: SEC EDGAR, the filing index for accession 0001564590-20-020074. Last ingested by Listed: Nov 13, 2026, 16:10 ET. No prices; not investment advice.