# Church & Dwight Co Inc: Form 10-Q for the period ended Sep 30, 2021

- Company: [Church & Dwight Co Inc](/companies/chd.md) (CIK 313927)
- Form: 10-Q
- Filed: 2021-10-29
- Accepted by EDGAR: Oct 29, 2021, 15:34 ET
- Period: 2021-09-30
- Accession: 0001564590-21-052862
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/313927/000156459021052862/chd-10q_20210930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/313927/000156459021052862/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-07-01 to 2021-09-30 | $1.31bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2021-01-01 to 2021-09-30 | $3.82bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2021-07-01 to 2021-09-30 | $732.2m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2021-01-01 to 2021-09-30 | $2.14bn | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2021-07-01 to 2021-09-30 | $579.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2021-01-01 to 2021-09-30 | $1.68bn | us-gaap:GrossProfit |
| Research and development | 3 months, 2021-07-01 to 2021-09-30 | $27.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2021-01-01 to 2021-09-30 | $77.2m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2021-07-01 to 2021-09-30 | $116.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2021-01-01 to 2021-09-30 | $403.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2021-07-01 to 2021-09-30 | $301.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2021-01-01 to 2021-09-30 | $902.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2021-07-01 to 2021-09-30 | $13.4m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2021-01-01 to 2021-09-30 | $41.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-07-01 to 2021-09-30 | $58.9m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2021-01-01 to 2021-09-30 | $198.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-07-01 to 2021-09-30 | $230.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2021-01-01 to 2021-09-30 | $669.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-07-01 to 2021-09-30 | $0.92 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2021-01-01 to 2021-09-30 | $2.68 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-07-01 to 2021-09-30 | $0.94 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2021-01-01 to 2021-09-30 | $2.73 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-07-01 to 2021-09-30 | 249,800,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2021-01-01 to 2021-09-30 | 249,900,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2021-01-01 to 2021-09-30 | $653.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2021-01-01 to 2021-09-30 | $64.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2021-01-01 to 2021-09-30 | $185.8m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2021-01-01 to 2021-09-30 | $54.9m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2021-09-30 | $180.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-09-30 | $1.18bn | us-gaap:AssetsCurrent |
| Total assets | at 2021-09-30 | $7.38bn | us-gaap:Assets |
| Current liabilities | at 2021-09-30 | $1.58bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2021-09-30 | $3.87bn | us-gaap:Liabilities |
| Long-term debt | at 2021-09-30 | $1.21bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2021-09-30 | $299.6m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2021-09-30 | $279.7m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2021-09-30 | $3.51bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,998 characters.

#### Recent Developments

#### COVID-19 and Other Recent Developments

The COVID-19 pandemic continues to impact certain of our businesses. Since the second quarter ended June 30, 2021, when certain government restrictions were reduced or removed, we have experienced increased demand for certain product categories, mainly in the United States, including ARM & HAMMER® cat litter, VITAFUSION® and L’IL CRITTERS® gummy vitamins, and Batiste® dry shampoo, in particular, that had been negatively impacted by the temporary and permanent closures of certain retailers, reduced consumer foot traffic at retailers, and COVID-19 related precautionary measures. Overall, we have continued to experience increased online sales.

We continue to experience challenges to meet customer demand and significant inflation of manufacturing and distribution costs (including fuel) due to shortages in supplier labor and many key raw and packaging materials as well as transportation challenges experienced by our suppliers and third-party manufacturers due primarily to the pandemic and exacerbated by the impact of Hurricane Ida. We expect this input cost inflation to continue for the remainder of 2021 and into 2022. To attempt to offset some of these cost pressures, we have recently enacted and continue to evaluate price increases. In addition, to address challenges meeting customer demand, we have taken steps to increase short-term manufacturing capacity for many of our products (including laundry detergent, baking soda, cleaners and vitamins), and continue to work closely with our suppliers, contract manufacturers and retail partners to ensure sustained supply to keep pace with increased demand. We have also made investments in the expansion of long-term, in-house and third-party manufacturing capacity and are working to enlist additional suppliers that meet our quality specifications. In addition, due to challenges meeting customer demand we have reduced marketing and promotional spending. While we expect supply availability issues to start improving in the first half of 2022 for most of our brands, there is no assurance that these challenges will abate in the near future or that our customers will accept all or a portion of these price increases or that the other measures we have or may implement will mitigate the impact of supply disruptions or rising costs.

The extent of COVID-19’s and other recent developments’ effect on our operational and financial performance in the future will depend on future developments, including the duration, spread and intensity of the pandemic, the spread and severity of new variants, the impact of vaccines, and our continued ability to manufacture and distribute our products, as well as any future government actions affecting employers, consumers and the economy generally, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. Our priorities during the COVID-19 pandemic continue to be protecting the health and safety of our employees; maximizing the availability of products that help consumers with their health, hygiene and cleaning needs; and using our employees’ talents and our resources to help society meet and overcome the current challenges.

For additional information on the impacts and our response to the COVID-19 pandemic and other recent developments and the risks that could impact our results, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

### Results of Operations

### Consolidated results

|  | Three Months Ended September 30, 2021 | Change vs. Prior Year | Three Months Ended September 30, 2020 |
| --- | ---: | ---: | ---: |
| **Net Sales** | **$1,311.4** | 5.7% | $1,241.0 |
| **Gross Profit** | **$579.2** | 2.5% | $565.2 |
| Gross Margin | **44.2%** | -130 basis points | 45.5% |
| **Marketing Expenses** | **$160.9** | -5.9% | $170.9 |
| Percent of Net Sales | **12.3%** | -150 basis points | 13.8% |
| **Selling, General & Administrative Expenses** | **$116.9** | -3.0% | $120.5 |
| Percent of Net Sales | **8.9%** | -80 basis points | 9.7% |
| **Income from Operations** | **$301.4** | 10.1% | $273.8 |
| Operating Margin | **23.0%** | +100 basis points | 22.0% |
| **Net income per share - Diluted** | **$0.92** | 8.2% | $0.85 |
|  | **Nine Months Ended** | **Change vs.** | **Nine Months Ended** |
|  | **September 30, 2021** | **Prior Year** | **September 30, 2020** |
| **Net Sales** | **$3,821.4** | 6.1% | $3,600.5 |
| **Gross Profit** | **$1,682.3** | 1.5% | $1,656.8 |
| Gross Margin | **44.0%** | -200 basis points | 46.0% |
| **Marketing Expenses** | **$376.6** | -3.3% | $389.6 |
| Percent of Net Sales | **9.9%** | -90 basis points | 10.8% |
| **Selling, General & Administrative Expenses** | **$403.0** | -5.9% | $428.1 |
| Percent of Net Sales | **10.5%** | -140 basis points | 11.9% |
| **Income from Operations** | **$902.7** | 7.6% | $839.1 |
| Operating Margin | **23.6%** | +30 basis points | 23.3% |
| **Net income per share - Diluted** | **$2.68** | 6.3% | $2.52 |

Diluted Net Income per share was $0.92 in the third quarter of 2021 as compared to $0.85 in the third quarter of 2020. Diluted Net Income per share was $2.68 in the first nine months of 2021 as compared to $2.52 in the same period in 2020.

During the third quarter of 2021 we decreased the fair value of our business acquisition liability associated with the 2019 acquisition of the FLAWLESS® hair removal business (the “Flawless Acquisition”) by $41.0 ($30.8 after tax or $0.12 diluted per share), and a total reduction of $98.0 ($73.5 after tax or $0.29 diluted per share) for the nine months ended September 30, 2021, based on updated sales forecasts. After giving effect to the third quarter decrease, the value of the business acquisition liability has been reduced to $0.0. The business acquisition liability adjustments are recorded as a reduction in SG&A expense.

During the third quarter of 2020 we decreased the fair value of our contingent liability associated with the 2019 acquisition of the FLAWLESS hair removal business (the “Flawless Acquisition”) from Ideavillage Products Corporation by $51.0 ($38.2 after tax or $0.15 diluted per share), for a total net reduction of $72.0 ($54.0 after tax or $0.21 diluted per share) for the nine months ended September 30, 2020 based on updated sales forecasts and the passage of time. The business acquisition liability adjustments are recorded as a reduction in SG&A expense.

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 September 30, 2021 were $1,311.4, an increase of $70.4 or 5.7% as compared to the same period in 2020. Net sales for the nine months ended September 30, 2021 were $3,821.4, an increase of $220.9 or 6.1% over the comparable nine month period of 2020. The components of the net sales increase are as follows:

| Net Sales - Consolidated | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 |
| --- | ---: | ---: |
| Product volumes sold | (1.5)% | 1.9% |
| Pricing/Product mix | 5.2% | 2.4% |
| Foreign exchange rate fluctuations | 0.7% | 1.1% |
| Acquired product lines (net of divestiture) (1) | 1.3% | 0.7% |
| **Net Sales increase** | **5.7%** | **6.1%** |

(1) On December 1, 2020, we acquired all of the outstanding equity of Consumer Health Holdco LLC, the owner of the ZICAM® brand and cold remedy products business (the “Zicam 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 September 30, 2021, the volume change reflects decreased product unit sales in the Consumer Domestic segment, partially offset by increased product unit sales in the Consumer International and Specialty Products (“SPD”) segments. For the nine months ended September 30, 2021, the volume change reflects increased product unit sales in all three segments. For the three months ended September 30, 2021, price/mix was favorable in all three segments. For the nine months ended September 30, 2021, price/mix was favorable in the Consumer Domestic and SPD segments, but was partially offset by unfavorable price/mix in the Consumer International segment.

#### Gross Profit / Gross Margin

Our gross profit was $579.2 for the three months ended September 30, 2021, a $14.0 increase as compared to the same period in 2020. Gross margin decreased 130 basis points (“bps”) in the third quarter of 2021 compared to the same period in 2020, due to the impact of higher manufacturing costs including commodities of 440 bps, higher transportation costs of 60 bps, and higher costs of 40 bps as a result of incremental tariffs, partially offset by favorable price/volume/mix of 250 bps, the impact of productivity programs of 120 bps, and business acquisition benefits of 40 bps. Gross profit was $1,682.3 for the nine months ended September 30, 2021, a $25.5 increase compared to the same period in 2020. Gross margin decreased 200 bps in the first nine months of 2021 compared to the same period in 2020, due to the impact of higher manufacturing costs including commodities of 410 bps, higher transportation costs of 70 bps, and higher costs of 40 bps as a result of incremental tariffs, partially offset by the impact of favorable price/volume/mix of 180 bps and productivity programs of 140 bps.

#### Operating Expenses

Marketing expenses for the three months ended September 30, 2021 were $160.9, a decrease of $10.0 or 5.9% as compared to the same period in 2020. Marketing expenses as a percentage of net sales in the third quarter of 2021 decreased by 150 bps to 12.3% as compared to 13.8% in the same period in 2020 due to 80 bps on lower expenses and 70 bps of leverage on higher net sales. We reduced marketing spending in the quarter, mainly in household products, as supply shortages impacted our ability to meet customer demand. Marketing expenses for the nine months ended September 30, 2021 were $376.6, a decrease of $13.0 or 3.3% as compared to the same period in 2020. Marketing expenses as a percentage of net sales for the first nine months of 2021 decreased by 90 bps to 9.9% as compared to 10.8% in the same period in 2020 due to 60 bps of leverage on higher net sales and 30 bps on lower expenses.

SG&A expenses were $116.9 in the third quarter of 2021, a decrease of $3.6 or 3.0% as compared to the same period in 2020. SG&A as a percentage of net sales decreased 80 bps to 8.9% in the third quarter of 2021 as compared to 9.7% in the same period in 2020. The decrease is due to 50 bps of leverage associated with higher sales and 30 bps on lower expenses. The lower expenses for the three-month period ended September 30, 2021 are primarily due to lower incentive compensation and litigation costs, partially offset by higher expense related to the Zicam Acquisition (including amortization) and a lower year-over-year favorable adjustment to the fair value of the Flawless business acquisition liability of $10.0. SG&A expenses for the first nine months of 2021 were $403.0, a decrease of $25.1 or 5.9% as compared to the same period in 2020. SG&A as a percentage of net sales decreased 140 bps to 10.5% in the first nine months of 2021 compared to 11.9% in 2020 due to 70 bps on lower expenses and 70 bps of leverage associated with higher sales. The lower expenses for the nine-month period ended September 30, 2021 included a higher year-over-year favorable adjustment to the fair value of the Flawless business acquisition liability of $26.0 and lower incentive compensation and litigation costs, partially offset by higher expense related to the Zicam Acquisition (including amortization) and the prior year gain on the sale of PERL WEISS.

Other (income) expense, net was nominal for the three and nine months ended September 30, 2021 and 2020.

Interest expense for the three and nine months ended September 30, 2021 decreased $0.5 and $5.5 to $13.4 and $41.5 respectively, as compared to the same period in 2020, primarily due to lower interest rates.

#### Income Taxes

The effective tax rate for the three and nine months ended September 30, 2021 was 20.4% and 22.8% respectively, compared to 17.3% and 20.2% in the same periods in 2020. The increase in the tax rate for both periods is primarily due to lower stock option exercises, offset by the partial reduction of a valuation allowance related to foreign tax credits.

### 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 September 30, 2021, we held 50% ownership interests in each of Armand Products Company (“Armand”) and The ArmaKleen Company (“ArmaKleen”), respectively. Our equity in earnings of Armand and ArmaKleen, totaling $2.0 and $1.9 for the three months ended September 30, 2021 and 2020, respectively, and $7.4 and $5.5 for the nine months ended September 30, 2021 and 2020, respectively are included in the Corporate segment. Certain subsidiaries that are included in the Consumer International segment manufacture and sell personal care products to the Consumer Domestic segment. These sales are eliminated from the Consumer International segment results set forth below.

Segment net sales and income before income taxes for the three and nine months ended September 30, 2021 and September 30, 2020 are as follows:

| Net Sales(1) | Consumer Domestic | Consumer International | SPD | Corporate(3) | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| **Third Quarter 2021** | **$998.1** | **$227.0** | **$86.3** | **$0.0** | **$1,311.4** |
| Third Quarter 2020 | 954.6 | 213.6 | 72.8 | 0.0 | 1,241.0 |
| **First Nine Months of 2021** | **$2,900.2** | **$670.2** | **$251.0** | **$0.0** | **$3,821.4** |
| First Nine Months of 2020 | 2,776.7 | 599.7 | 224.1 | 0.0 | 3,600.5 |
| **Income before Income Taxes(2)** |  |  |  |  |  |
| **Third Quarter 2021(4)** | **$238.6** | **$34.5** | **$14.2** | **$2.0** | **$289.3** |
| Third Quarter 2020(5) | 220.6 | 32.4 | 6.6 | 1.9 | 261.5 |
| **First Nine Months of 2021(4)** | **$713.7** | **$110.9** | **$35.6** | **$7.4** | **$867.6** |
| First Nine Months of 2020(5) | 671.8 | 94.0 | 25.6 | 5.5 | 796.9 |

(1) Intersegment sales from Consumer International to Consumer Domestic, which are not reflected in the table, were $2.6 and $3.3 for the three months ended September 30, 2021 and September 30, 2020, respectively, and were $7.8 and $9.1 for the nine months ended September 30, 2021 and September 30, 2020, 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.

(3) Corporate segment consists of equity in earnings of affiliates from Armand and ArmaKleen for the three and nine months ended September 30, 2021 and September 30, 2020.

(4) Results for the three months ended September 30, 2021 include a $41.0 reduction in SG&A expenses to adjust the Flawless business acquisition liability, of which $34.8 was recorded to Consumer Domestic and $6.2 was recorded to Consumer International. Results for the nine months ended September 30, 2021 include a $98.0 reduction in SG&A expenses to adjust the Flawless business acquisition liability, of which $83.2 was recorded to Consumer Domestic and $14.8 was recorded to Consumer International.

(5) Results for the three months ended September 30, 2020 include a $51.0 reduction in SG&A expenses to adjust the Flawless business acquisition liability, of which $43.3 was recorded to Consumer Domestic and $7.7 was recorded to Consumer International. Results for the nine months ended September 30, 2020 include a $72.0 reduction in SG&A expenses to adjust the Flawless business acquisition liability, of which $61.2 was recorded to Consumer Domestic and $10.8 was recorded to Consumer International. In the first quarter of 2020, we sold our PERL WEISS toothpaste brand in Germany resulting in a reduction in SG&A expenses of $3.0 recorded in Consumer International.

Product line revenues from external customers are as follows:

|  | Three Months Ended September 30, 2021 | September 30, 2020 | Nine Months Ended September 30, 2021 | September 30, 2020 |
| --- | ---: | ---: | ---: | ---: |
| Household Products | **$535.5** | $501.4 | **$1,553.7** | $1,540.4 |
| Personal Care Products | **462.6** | 453.2 | **1,346.5** | 1,236.3 |
| Total Consumer Domestic | **998.1** | 954.6 | **2,900.2** | 2,776.7 |
| Total Consumer International | **227.0** | 213.6 | **670.2** | 599.7 |
| Total SPD | **86.3** | 72.8 | **251.0** | 224.1 |
| **Total Consolidated Net Sales** | **$1,311.4** | $1,241.0 | **$3,821.4** | $3,600.5 |

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 third quarter of 2021 were $998.1, an increase of $43.5 or 4.6% as compared to the same period in 2020. Consumer Domestic net sales for the nine months ended September 30, 2021 were $2,900.2, an increase of $123.5 or 4.4% as compared to the same period in 2020. The components of the net sales change are the following:

| Net Sales - Consumer Domestic | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 |
| --- | ---: | ---: |
| Product volumes sold | (3.2)% | 0.8% |
| Pricing/Product mix | 6.0% | 2.7% |
| Acquired product lines (1) | 1.8% | 0.9% |
| **Net Sales increase** | **4.6%** | **4.4%** |

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

The increase in net sales for the three months ended September 30, 2021, reflects the impact of the Zicam Acquisition, higher net sales in ARM & HAMMER clumping cat litter, ARM & HAMMER liquid detergent, VITAFUSION gummy vitamins, BATISTE dry shampoo and OXICLEAN® powder. The increase in net sales for the nine-month period ending September 30, 2021, reflects the impact of the Zicam Acquisition, higher net sales in ARM & HAMMER clumping cat litter, WATERPIK® oral care products, VITAFUSION and L’IL CRITTERS gummy vitamins, BATISTE dry shampoo, ARM & HAMMER scent booster, and OXICLEAN® powder.

In recent years our TROJAN® business, specifically the condom category, has not grown and competition has increased. Social distancing requirements due to the COVID-19 pandemic have further negatively impacted the business. As a result, the TROJAN business has experienced stagnant sales and profits resulting in a reduction in expected future cash flows which has eroded a portion of the excess between the fair and carrying value of the tradename. This indefinite-lived intangible asset is susceptible to impairment risk and a continued decline in fair value could trigger a future impairment charge of the TROJAN tradename. While management can and has implemented strategies to address the risk, including lowering our production costs, investing in new product ideas, and developing new creative advertising, significant changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair value. More recently, the category is experiencing a recovery as it is benefiting from an easing of COVID-19 social restrictions leading to an increase in sexual activity. We expect this trend will continue into next year with the continued adoption of vaccines and reduction of social distancing restrictions.

The carrying value of the TROJAN tradename is $176.4 and fair value exceeded carrying value by 53% as of December 31, 2020.

Consumer Domestic income before income taxes for the third quarter of 2021 was $238.6, an $18.0 increase as compared to the third quarter of 2020. The increase is due primarily to favorable price/mix of $52.0, lower marketing expenses of $11.7, and lower SG&A expenses of $7.1 (which was impacted by a lower year-over-year favorable adjustment to the fair value of the Flawless business acquisition liability of $8.5), partially offset by unfavorable manufacturing and distribution expenses of $48.8 and $4.0 impact from lower volumes. For the nine-month period ended September 30, 2021, income before income taxes was $713.7, a $41.9 increase as compared to the first nine months of 2020. The increase is due primarily to favorable price/mix of $65.7, a $38.6 benefit from higher volumes, lower SG&A expenses of $29.8 (including a $22.0 favorable year-over-year fair value adjustment to the Flawless business acquisition liability), lower marketing expenses of $24.8, and lower other expenses of $5.1, partially offset by unfavorable manufacturing and distribution expenses of $121.9.

### Consumer International

Consumer International net sales were $227.0 in the third quarter of 2021, an increase of $13.4 or 6.3% as compared to the same period in 2020. Consumer International net sales in the first nine months of 2021 were $670.2, an increase of $70.5 or 11.8% as compared to the same period in 2020. The components of the net sales change are the following:

| Net Sales - Consumer International | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 |
| --- | ---: | ---: |
| Product volumes sold | 1.7% | 5.7% |
| Pricing/Product mix | 0.6% | (0.6%) |
| Foreign exchange rate fluctuations | 4.0% | 6.7% |
| **Net Sales increase** | **6.3%** | **11.8%** |

Excluding the impact of foreign exchange rates, higher sales in the third quarter ended September 30, 2021 were driven primarily by WATERPIK, STERIMAR®, ANUSOL, and BATISTE in Europe, STERIMAR, FEMFRESH®, VITAFUSION and L’IL CRITTERS gummy vitamins, ARM & HAMMER Dental Care, BATISTE, and ANUSOL in the Global Markets Group (“GMG”) business. For the nine months ended September 30, 2021 higher sales were driven primarily by WATERPIK, ARM & HAMMER liquid laundry detergent, and ARM & HAMMER Dental Care in GMG, WATERPIK and ANUSOL in Europe, FIRST RESPONSE® pregnancy kits in Australia, and TROJAN in Mexico.

Consumer International income before income taxes was $34.5 in the third quarter of 2021, a $2.1 increase as compared to the third quarter of 2020. Favorable price mix of $3.2, a $2.6 benefit from higher sales volumes, and favorable foreign exchange rates of $1.3, were partially offset by unfavorable manufacturing and commodity costs of $5.2. For the first nine months of 2021, income before income taxes was $110.9, a $16.9 increase as compared to the same period in 2020, due to a $20.6 benefit from higher sales volumes, favorable foreign exchange rates of $9.0, and lower SG&A costs of $1.2 (including a $4.0 favorable year-over-year fair value adjustment to the Flawless business acquisition liability), favorable price mix of $0.9, and lower other expenses of $0.7 offset by higher marketing expenses of $5.8, and unfavorable manufacturing and commodity costs of $9.6.

### Specialty Products (“SPD”)

SPD net sales were $86.3 in the third quarter of 2021, an increase of $13.5 or 18.5% as compared to the same period in 2020. SPD net sales were $251.0 for the first nine months of 2021, an increase of $26.9, or 12.0% as compared to the same period in 2020. The components of the net sales change are the following:

| Net Sales - SPD | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 |
| --- | ---: | ---: |
| Product volumes sold | 10.8% | 5.1% |
| Pricing/Product mix | 7.7% | 6.9% |
| **Net Sales increase** | **18.5%** | **12.0%** |

Net sales increased in the third quarter and the nine months of 2021 due to higher volumes across all categories, higher pricing for our dairy segment products and reduced competitive imports due to a constrained transportation market.

SPD income before income taxes was $14.2 in the third quarter of 2021, an increase of $7.6 as compared to the same period in 2020, due to favorable price/product mix of $5.6, a $3.6 benefit from higher volumes, and lower SG&A costs of $3.5, offset by unfavorable manufacturing costs of $4.7, higher other expenses of $0.3 and higher marketing expenses of $0.1. SPD income before income taxes was $35.6 in the first nine months of 2021, an increase of $10.0 as compared to the same period in 2020 due primarily to favorable price/product mix of $15.5, lower SG&A costs of $5.7, and a $3.4 benefit from higher sales volumes, partially offset by unfavorable manufacturing costs of $13.9, higher marketing expenses of $0.4 and higher other expenses of $0.2.

### Corporate

The Corporate segment includes equity in earnings of affiliates from Armand and ArmaKleen in the three and nine months of 2021 and 2020. The Corporate segment income before income taxes was $2.0 in the third quarter of 2021, as compared to $1.9 in the same period in 2020. The Corporate segment income before income taxes was $7.4 for the first nine months of 2021, as compared to $5.5 in the same period in 2020.

### Liquidity and Capital Resources

On May 1, 2019, we amended the credit agreement (the “Credit Agreement”) that provides for our $1,000.0 unsecured revolving credit facility (the “Revolving Credit Facility”) to extend the term of the Revolving Credit Facility from March 29, 2023 to March 29, 2024. 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.

As of September 30, 2021, we had $180.0 in cash and cash equivalents, and approximately $716.0 available through the Revolving Credit Facility and our commercial paper program. To preserve our liquidity, we invest cash primarily in government money market funds, prime money market funds, short-term commercial paper and short-term bank deposits.

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, 2020 (the “Form 10-K”). Although there is uncertainty related to the impact of the COVID-19 pandemic and other recent developments on our future results, we believe our efficient business model and strong balance sheet position us to manage our business through this crisis. 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.

In June 2021, we repaid $100.0 principal of the $300.0 term loan due May 1, 2022, with the remaining $200.0 principal repaid in early July 2021. The term loan was repaid with proceeds from commercial paper borrowings and cash on hand.

On January 29, 2021, the Board declared a 5.2% increase in the regular quarterly dividend from $0.24 to $0.2525 per share, equivalent to an annual dividend of $1.01 per share payable to stockholders of record as of February 16, 2021. The increase raises the annual dividend payout from $237.0 to approximately $250.0.

In December 2020, we entered into an accelerated share repurchase (“ASR”) contract with a commercial bank to purchase Common Stock. We paid $300.0 to the bank, inclusive of fees, and received an initial delivery of shares equal to $270.0, or 3.1 million shares. We used cash on hand and short-term borrowings to fund the initial purchase price. Upon the completion of the ASR, which ended in February 2021, the bank delivered to us an additional 0.4 million shares. The final shares delivered to us were determined by the average price per share paid by the bank during the purchase period. All 3.5 million shares were purchased under our evergreen stock repurchase program.

In August 2021, we executed an agreement to purchase up to $200.0 of our Common Stock through October 31, 2021. During the quarter we purchased 0.7 million shares for approximately $55.0, inclusive of fees, all of which was purchased under the 2017 Share Repurchase Program. In October 2021, as of the filing date of this Quarterly Report on Form 10-Q, we purchased an additional 0.9 million shares for approximately $75.0.

On October 28, 2021, the Board authorized a new share repurchase program under which we may purchase 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 replaces the Company’s 2017 Share Repurchase Program. All remaining dollars authorized for repurchase under the 2017 Share Repurchase Plan have been cancelled. The 2021 Share Repurchase Program does not modify our evergreen share repurchase program, authorized by the Board on January 29, 2014, under which we may repurchase, from time to time, Common Stock to reduce or eliminate dilution associated with issuances of Common Stock under our incentive plans.

We anticipate that our cash from operations, together with our current borrowing capacity, will be sufficient to fund our share repurchase programs to the extent implemented by management, pay debt and interest as it comes due and pay dividends at the latest approved rate, and meet our capital expenditure program costs, which are expected to be approximately $120.0 in 2021 primarily for manufacturing capacity investments in laundry, litter and vitamins to support expected future sales growth. We do not have any mandatory fixed rate debt principal payments due in 2021. Cash, together with our current borrowing capacity, may be used for acquisitions that would complement our existing product lines or geographic markets.

#### Cash Flow Analysis

|  | Nine Months Ended September 30, 2021 | September 30, 2020 |
| --- | ---: | ---: |
| Net cash provided by operating activities | **$653.6** | $798.2 |
| Net cash used in investing activities | **$(69.7)** | $(51.2) |
| Net cash used in financing activities | **$(585.4)** | $(353.7) |

**Net Cash Provided by Operating Activities –** Our primary source of liquidity is the cash flow provided by operating activities, which is dependent on net income and changes in working capital. Our net cash provided by operating activities in the nine months ended September 30, 2021 decreased by $144.6 to $653.6 as compared to $798.2 in the same period in 2020 due to an increase in working capital partially offset by higher cash earnings (net income adjusted for non-cash items such as depreciation, amortization, non-cash compensation and changes in business acquisition liabilities and deferred taxes). The increase in working capital is primarily related to lower obligations for incentive compensation and marketing as well as higher inventory levels. We measure working capital effectiveness based on our cash conversion cycle. The following table presents our cash conversion cycle information for the quarters ended September 30, 2021 and 2020:

|  | As of September 30, 2021 | September 30, 2020 | Change |
| --- | ---: | ---: | ---: |
| Days of sales outstanding in accounts receivable ("DSO") | **28** | 26 | 2 |
| Days of inventory outstanding ("DIO") | **68** | 64 | 4 |
| Days of accounts payable outstanding ("DPO") | **73** | 74 | 1 |
| Cash conversion cycle | **23** | 16 | 7 |

Our cash conversion cycle (defined as the sum of DSO and DIO less DPO) which is calculated using a two-period average method, increased 7 days from the prior year due to higher inventory to support expected sales growth and improvement in service levels, as well as higher accounts receivable primarily related to the timing of sales. 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 nine months of 2021 was $69.7, primarily reflecting $64.1 for property, plant and equipment additions. Net cash used in investing activities during the first nine months of 2020 was $51.2, primarily reflecting $54.6 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 Financing Activities –** Net cash used in financing activities during the first nine months of 2021 was $585.4, reflecting $371.6 of net debt payments, $185.8 of cash dividend payments, and $54.9 of treasury stock purchases, partially offset by $26.9 of proceeds from stock option exercises. Net cash used in financing activities during the first nine months of 2020 was $353.7, reflecting $250.4 of net debt payments, $177.7 of cash dividend payments, and $14.5 for the Agro business acquisition liability settlement, partially offset by $89.1 of proceeds from stock option exercises.

## Market risk

As filed, 205 characters.

### Market risk

For quantitative and qualitative disclosures about market risk affecting the Company, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II in the Form 10-K.

## Controls and procedures

As filed, 7,602 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 pandemic and the Company’s response; gross margin changes; trade and marketing spending; marketing expense as a percentage of net sales; sufficiency of cash flows from operations; earnings per share; the impact of new accounting pronouncements; cost savings programs; consumer demand and spending; the effects of competition; the effect of product mix; volume growth, including the effects of new product launches into new and existing categories; the 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 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. Other forward-looking statements in this report are generally identified by the use of such terms as “may,” “could,” “expect,” “intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,” “to be,” “to make” or other comparable terms. These statements represent the intentions, plans, expectations and beliefs of the Company, and are based on assumptions that the Company believes are reasonable but may prove to be incorrect. In addition, these statements are subject to risks, uncertainties and other factors, many of which are outside the Company’s control and could cause actual results to differ materially from such forward-looking statements. Factors that could cause such differences include a decline in market growth, retailer distribution and consumer demand (as a result of, among other things, political, economic and marketplace conditions and events), including those relating to the outbreak of contagious diseases; other impacts of the COVID-19 pandemic and its impact on the Company’s operations, customers, suppliers, employees, and other constituents, and market volatility and impact on the economy (including causing recessionary conditions), resulting from global, nationwide or local or regional outbreaks or increases in infections, new variants, and the risk that the Company will not be able to successfully execute its response plans with respect to the pandemic or localized outbreaks and the corresponding uncertainty; the impact of regulatory changes or policies associated with the COVID-19 pandemic, including continuing or renewed shutdowns of retail and other businesses in various jurisdictions; the impact of the CARES Act and other governmental actions; the impact of continued shifts in consumer behavior, including accelerating shifts to on-line shopping; unanticipated increases in raw material and energy prices; delays and increased costs in manufacturing and distribution; increases in transportation costs; labor shortages; the impact of price increases for our products; the impact of supply chain disruptions; the impact of inclement weather on raw material and transportation costs; 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; transition to, and 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; market volatility; 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; integrations of acquisitions 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, 252 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 could materially affect the Company’s business, financial condition or future results.

Filed Oct 29, 2021.
Source: SEC EDGAR, the filing index for accession 0001564590-21-052862. Last ingested by Listed: Nov 14, 2026, 21:34 ET. No prices; not investment advice.