CHURCH & DWIGHT CO INC /DE/ (CHD)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements.

OVERVIEW

Our Business

We develop, manufacture and market a broad range of consumer household, personal care and specialty products. Our well-recognized brands include ARM & HAMMER® baking soda, cat litter, laundry detergent, carpet deodorizer and other baking soda-based products; OXICLEAN® stain removers, cleaning solutions, laundry detergents and bleach alternatives; VITAFUSION® and L’IL CRITTERS® gummy dietary supplements for adults and children, respectively; BATISTE® dry shampoo; WATERPIK® water flossers and showerheads; THERABREATH® oral care products; HERO® acne treatment products; TROJAN condoms, lubricants and vibrators; SPINBRUSH battery-operated toothbrushes; FIRST RESPONSE home pregnancy and ovulation test kits; NAIR depilatories; ORAJEL oral analgesic; XTRA laundry detergent; and ZICAM cold shortening and relief products. Seven of those brands are designated as "power brands" because they compete in large categories, and we believe they have the potential for significant global expansion. Those seven brands are ARM & HAMMER®; OXICLEAN®; VITAFUSION® and L’IL CRITTERS®; BATISTE®; WATERPIK®; THERABREATH®; and HERO® and represent approximately 70% of our net sales and profits.

We sell our consumer products under a variety of brands through a broad distribution platform that includes supermarkets, mass merchandisers, wholesale clubs, drugstores, convenience stores, home stores, dollar, pet and other specialty stores and websites and other e-commerce channels, all of which sell the products to consumers. We sell our specialty products to industrial and commercial customers, livestock producers and through distributors.

We operate our business in three segments: Consumer Domestic, Consumer International and the Specialty Products Division (“SPD”). The segments are based on differences in the nature of products sold and management organizational structures. In 2024, the Consumer Domestic, Consumer International and SPD segments represented approximately 77%, 18% and 5%, respectively, of our consolidated net sales.

Recent Developments

Pillar Two Tax Laws

In October 2021, members of the Organisation for Economic Co-operation and Development (“OECD”) agreed to a global minimum tax rate of 15%. In December 2021, OECD published its model rules on the agreed minimum tax known as the Global Anti-Base Erosion (“GloBE”) or Pillar Two rules. The Pillar Two rules are designed to be implemented into the domestic law of each jurisdiction to ensure large multinational enterprise groups are subject to a minimum effective tax rate of 15% in each jurisdiction where they operate. In December 2022, the European Union (“EU”) Member States formally adopted the EU’s Pillar Two Directive. January 1, 2024 marked the official effective date of the 15% global corporate minimum tax imposed by the EU's Pillar Two Directive. We are monitoring developments and evaluating the impacts of the Pillar Two rules on our tax rate. Based on current legislation and available guidance, we do not anticipate a material impact to the Company.

Sale of MEGALAC supplement portfolio

During the first quarter of 2024, we exited the MEGALAC supplement portion of our Animal Nutrition business within our SPD segment. Net sales for the years ended December 31, 2024 and 2023 were $7.6 and $38.1, respectively.

Graphico Acquisition

On June 3, 2024, we acquired substantially all of the issued and outstanding shares of capital stock of Graphico, Inc. ("Graphico"), a Japan-based distributor focused on consumer goods primarily in the Japanese market (the “Graphico Acquisition”). We paid $19.9, net of cash acquired, at closing. We acquired the remaining minority shares for approximately $2.0 in July 2024. The Graphico Acquisition was financed with cash on hand, is expected to contribute to greater expansion of our business in the Asia-Pacific (APAC) region, and is managed in the Consumer International segment.

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Sale of Passport Food Safety Business

During the second quarter of 2024, we sold our Passport food safety business, Passport Food Safety Solutions, Inc., with assets of $7.0, inclusive of intangible assets of $2.7 and corresponding goodwill of $1.0, for cash proceeds of $6.6 and $0.5 held in escrow for a gain of $0.1. Net sales for the years ended December 31, 2024 and 2023 were $6.4 and $13.0, respectively.

Favorable Tariff Ruling

During the second quarter of 2024, we received a favorable tariff ruling from the U.S. government associated with certain products imported from China, which resulted in $40.1 of cash refunds (pre tax) in the year ended December 31, 2024. The refunds resulted in a $31.6 reduction of Cost of goods sold and an increase in Interest income of $4.8 in the year ended December 31, 2024.

Vitamin Business Intangible Impairment

During the third quarter of 2024, the Company continued to experience a decline in market share and a deterioration in the financial performance for its Vitamins, Minerals and Supplements ("VMS") business, which includes the VITAFUSION and L'IL CRITTERS trade name, primarily due to significant product competition coming from new category entrants, including private label. The continued decline in profitability caused management to reassess its long-term strategy and financial outlook of the business. The revised financial outlook reflects lower estimates of future sales growth and cash flows which resulted in a triggering event in the third quarter. The triggering event required the Company to review the carrying value of assets supporting the business resulting in impairment charges of $357.1 in the year ended December 31, 2024.

Sale of 50% Ownership in Joint Venture

The Company’s 50% interest in The ArmaKleen Company was sold to our joint venture partner in October of 2024. The transaction is not material to the Company’s results of operations or cash flows.

Dividend Increase

On January 29, 2025, the Board declared a 4% increase in the regular quarterly dividend from $0.28375 to $ 0.295 per share (equivalent to an annual dividend of $1.18 per share) payable to stockholders of record as of February 14, 2025. The increase raises the annualized dividend payout from $277.0 to approximately $287.0 on an annualized basis.

2024 Financial Highlights

Key 2024 financial results include:

•
Net sales for the year ended December 31, 2024 grew 4.1% over 2023, with gains in Consumer Domestic and Consumer International, partially offset by lower sales in SPD. The gains are primarily due to favorable volumes, and pricing/product mix across all three segments, including the benefit of recent acquisitions in Consumer Domestic and Consumer International, partially offset by the exit of product lines in SPD and unfavorable foreign currency exchange rates in Consumer International.

•
Gross margin increased 160 basis points to 45.7% in 2024 from 44.1% in 2023, which includes an approximate 50 basis point benefit from a favorable tariff ruling. Excluding the tariff ruling gross margin increased due to the positive impact of productivity programs, favorable price/volume/mix, and business acquisition benefits, offset by higher manufacturing costs including labor and higher commodities.

•
Operating margin decreased 470 basis points to 13.3% in 2024 from 18.0% in 2023. The 2024 operating margin includes a non-cash charge of $357.1 or 580 basis points related to the impairment of the VITAFUSION and L'IL CRITTERS indefinite-lived trade name as well as a definite-lived customer relationship intangible asset and PP&E specific to the VMS business. Excluding the impairment charge, operating margin increased 110 basis points due to favorable gross margins, slightly offset by higher marketing expenses.

•
We reported diluted net earnings per share in 2024 of $2.37, a decrease of approximately 22.3% from 2023 diluted net earnings per share of $3.05. Earnings per share in 2024 includes the non-cash VMS trade name and other asset impairment charges of $1.10 per share. Excluding the impairment charges, 2024 diluted net earnings per share was $3.47 compared to 2023 diluted earnings per share of $3.05.

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•
Cash provided by operations was $1,156.2 in 2024, a $125.6 increase from the prior year primarily due to an increase in cash earnings (net income adjusted for non-cash items).

•
We returned $277.0 in 2024 to our stockholders through cash dividends paid.

Strategic Goals, Challenges and Initiatives

Our ability to generate sales depends on consumer demand for our products and retail customers’ decisions to carry our products, which are, in part, affected by general economic conditions in our markets. While a vast majority of our products are consumer staples and less vulnerable to decreases in discretionary spending than other products, certain of our products, are more likely to be affected by consumer decisions to control spending. Some retail customers have responded to economic conditions by increasing their private label offerings (primarily in the dietary supplements, stain fighters, diagnostic kits and oral analgesics categories), launching their own brands, and consolidating the product selections they offer to the top few leading brands in each category. In addition, an increasing portion of our product categories are being sold by club stores, dollar stores, mass merchandisers and internet-based retailers. These factors have placed downward pressure on our sales and gross margins.

We intend to continue to aggressively pursue several key strategic initiatives: maintain competitive marketing and trade spending, tightly control our cost structure, expand our online market share by continuing to invest in e-commerce (global on-line sales were 21.4% of consumer sales in 2024), expand our presence and product offerings to consumers outside of the United States, continue to develop and launch new and differentiated products, pursue strategic acquisitions, continue to grow our product sales globally and maintain an offering of premium and value brand products to appeal to a wide range of consumers. Our global product portfolio consists of both premium (64% of total worldwide consumer revenue in 2024) and value (36% of total worldwide consumer revenue in 2024) brands, which we believe enables us to succeed in a range of economic environments. We intend to continue to develop a portfolio of appealing new products to build loyalty among cost-conscious consumers. We derive a substantial percentage of our revenues from sales of liquid laundry detergent. We continue to evaluate and vigorously address pressures on this business through, among other things, new product introductions and increased marketing and trade spending.

Over the past two decades, we have diversified from an almost exclusively U.S. business to a global company with approximately 18% of sales derived from countries outside of the United States in 2024, and we believe ongoing international expansion represents a significant opportunity to grow our business. We have subsidiary operations in eight countries (Canada, Mexico, U.K., France, Germany, China, Australia, and Japan). We also export products to over 130 other countries through our Global Markets Group using a broad network of third-party distributors. In 2024, we benefited from our expanded global footprint and expect to continue to focus on selectively expanding our global business.

We also continue to focus on controlling our costs. Historically, we have been able to mitigate the effects of cost increases primarily by implementing cost reduction programs and, to a lesser extent, by passing along cost increases to customers. We have also entered into set pricing and pre-buying arrangements with certain suppliers and hedge agreements for diesel fuel and other commodities. Additionally, our focus on tight cost controls has enabled us to effectively navigate challenging economic conditions. However, the current domestic and international political environment, including existing and potential changes to U.S. policies related to global trade and tariffs, including tariffs imposed by other countries in response to or in anticipation of U.S. tariffs, have resulted in uncertainty regarding the global economy and with respect to our operations and costs.

The identification and integration of strategic acquisitions are an important component of our overall strategy and product category diversification. Acquisitions have added significantly to our sales, profits and product category diversification over the last decade. This is evidenced by our 2015 acquisition of certain assets of Varied Industries Corporation (the “Vi-cor Acquisition”), the 2016 acquisitions of Spencer Forrest, Inc., the maker of TOPPIK (the “Toppik Acquisition”), and the ANUSOL and RECTINOL businesses from Johnson & Johnson (the “Anusol Acquisition”), the 2017 acquisitions of the VIVISCAL brand from Lifes2Good Holdings Limited (the “Viviscal Acquisition”), and the WATERPIK brand from Pik Holdings, Inc. (the “Waterpik Acquisition”), the 2020 acquisition of the ZICAM brand from Consumer Health Holdco LLC, the 2021 acquisition of the THERABREATH brand from Dr. Harold Katz, LLC and HK-IP International, Inc, 2022 acquisition of the HERO brand which includes the MIGHTY PATCH acne treatment products and 2024 acquisition of Graphico, Inc. (the “Graphico Acquisition”), a Japan-based distributor. We actively seek acquisitions that fit our guidelines, and our strong financial position provides us with flexibility to take advantage of acquisition opportunities. In addition, our ability to quickly integrate acquisitions and leverage existing infrastructure has enabled us to establish a strong track record in making accretive acquisitions. Since 2001, we have acquired six of our seven “power brands.”

We believe we are well positioned to meet the ongoing challenges described above due to our strong financial condition, experience operating in challenging environments and continued focus on key strategic initiatives. Our focus is to maintain competitive marketing and

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trade spending, manage our cost structure, continue to develop and launch new and differentiated products, while pursuing strategic acquisitions. This focus, together with the strength of our portfolio of premium and value brands, has enabled us to succeed in a range of economic environments. Moreover, the generation of a significant amount of cash from operations provides us with the financial flexibility to pursue acquisitions, drive new product development, make capital expenditures to support organic growth and gross margin improvements, return cash to stockholders through dividends and share buy backs, and reduce outstanding debt. These factors position us to continue to increase stockholder value over the long-term.

For information regarding risks and uncertainties that could materially adversely affect our business, results of operations and financial condition and cash flows, see “Risk Factors” in Item 1A of this Annual Report.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (US GAAP). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. By their nature, these judgments are subject to uncertainty. They are based on our historical experience, our observation of trends in industry, information provided by our customers and information available from other outside sources, as appropriate. Our significant accounting policies and estimates are described below.

Revenue Recognition and Promotional and Sales Return Reserves

Virtually all of our revenue represents sales of finished goods inventory and is recognized when received or picked up by our customers. The reserves for consumer and trade promotion liabilities and sales returns are established based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. Promotional reserves are provided for sales incentives, such as coupons to consumers, and sales incentives provided to customers (such as slotting, cooperative advertising, incentive discounts based on volume of sales and other arrangements made directly with customers). All such costs are netted against sales. Slotting costs are recorded when the product is delivered to the customer. Cooperative advertising costs are recorded when the customer places the advertisement for our products. Discounts relating to price reduction arrangements and coupons are recorded when the related sale takes place. Costs associated with end-aisle or other in-store displays are recorded when product that is subject to the promotion is sold. We rely on historical experience and forecasted data to determine the required reserves. For example, we use historical experience to project coupon redemption rates to determine reserve requirements. Based on the total face value of Consumer Domestic coupons redeemed over the past several years, if the actual rate of redemptions were to deviate by 0.1% from the rate for which reserves are accrued in the financial statements, a difference of approximately $0.1 in the reserve required for coupons would result. With regard to other promotional reserves and sales returns, we use experience-based estimates, customer and sales organization inputs and historical trend analysis in arriving at the reserves required. If our estimates for promotional activities and sales returns reserves were to change by 10%, the impact to promotional spending and sales return accruals would be approximately $14.7. While management believes that its promotional and sales returns reserves are reasonable and that appropriate judgments have been made, estimated amounts could differ materially from actual future obligations.

Impairment of goodwill, trade names and other intangible assets

The Company has intangible assets of substantial value on its consolidated balance sheet. Intangible assets relate 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.

Intangible assets with a useful life are assessed for impairment when there are business triggering events. Carrying values of goodwill and indefinite-lived trade names are reviewed at least annually for possible impairment.

Our impairment analysis is based on a discounted cash flow approach that requires significant judgment with respect to unit volume, revenue and expense growth rates, and the selection of an appropriate discount rate and royalty rate. Management uses estimates based on expected trends in making these assumptions. With respect to goodwill, impairment occurs when the carrying value of the reporting unit exceeds the discounted present value of cash flows for that reporting unit. For trade names and other intangible assets, an impairment charge is recorded for the difference between the carrying value and the net present value of estimated future cash flows, which represents the estimated fair value of the asset. Fair value for indefinite-lived intangible assets is 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. Judgment is required in assessing whether assets may have become impaired between annual valuations. Indicators such as unexpected adverse economic factors, unanticipated technological change, distribution losses, or competitive activities and acts by governments and courts may indicate that an asset has become impaired.

The result of our annual goodwill impairment test determined that the estimated fair value substantially exceeded the carrying values of all reporting units. We determined that the fair value of all indefinite-lived intangible assets for each of the years in the three-year period ended December 31, 2024, exceeded their respective carrying values based upon the forecasted cash flows and profitability, with the exception of our VMS business described below.

During the third quarter of 2024, we continued to experience a decline in market share and a deterioration in the financial performance of our VMS business, which includes the VITAFUSION and L'IL CRITTERS trade name, primarily due to significant product competition coming from new category entrants, including private label. The continued decline in profitability caused management to reassess its

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long-term strategy and financial outlook of the business. The revised financial outlook reflects lower estimates of future sales growth and cash flows which resulted in a triggering event in the third quarter. The triggering event required the Company to review the carrying value of assets supporting the business. The assets supporting the VMS business include the VITAFUSION and L'IL CRITTERS indefinite-lived trade name, a definite-lived customer relationship intangible asset and PP&E specific to our VMS business.

We used an excess earnings discounted cash flow model to determine the fair value of the trade name. The assumptions used in the model require significant judgement in determining the expected future cash flows. The key assumptions utilized in our impairment analysis included, but were not limited to, net sales growth rates between -15.2% and 2.1%, EBITA margins in the low single digits, and a discount rate of 8.25%. Estimates are based on market conditions and management’s current expectation of the success of growth and profitability initiatives. The valuation resulted in a full impairment of the $281.3 trade name and a $15.8 impairment for the remaining carrying value of the customer relationship intangible asset. The remaining carry value of both the trade name and customer relationship intangible asset at December 31, 2024 is $0.0.

Our global WATERPIK business has continued to experience a significant decline in customer demand for many of its products, primarily due to lower consumer spending for discretionary products resulting in part from inflation and a growing number of water flosser consumers switching to more value-branded products. As a result, the WATERPIK business has experienced declining sales and profits resulting in a reduction in expected future cash flows which have eroded a substantial portion of the excess between the fair and carrying value of the trade name. This indefinite-lived intangible asset may be susceptible to impairment and a continued decline in fair value could trigger a future impairment charge of the WATERPIK trade name. While management can and has implemented strategies to address the risk, significant changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that could trigger future impairment charges of these assets. The carrying value of the WATERPIK trade name is $644.7 and fair value represented 135% of the carrying value as of October 1, 2024. The fair value represented 109% of the carrying value as of October 1, 2023. The increase in fair value is mainly attributable to a favorable tariff ruling on certain Waterpik products imported from China.

In the fourth quarter of 2022, we 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 consist of the definite-lived trade name, customer relationships and technology assets recorded at acquisition. We evaluated our ability to recover the carrying values of 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 remaining net book value of the trade name as of December 31, 2024 is $15.4 and will be amortized over a remaining useful life of one year.

It is possible that our conclusions regarding impairment or recoverability of goodwill or other intangible assets could change in future periods if, for example, (i) the businesses or brands do not perform as projected, (ii) overall economic conditions in future years vary from current assumptions (including changes in discount rates and tariffs), (iii) business conditions or strategies change from current assumptions, (iv) investors require higher rates of return on equity investments in the marketplace or (v) enterprise values of comparable publicly traded companies, or actual sales transactions of comparable companies, were to decline, resulting in lower multiples of revenues and EBITDA. A future impairment charge for goodwill or intangible assets could have a material effect on our consolidated financial position or results of operations.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized to reflect the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be recovered or settled. Management provides a valuation allowance against deferred tax assets for amounts which are not considered “more likely than not” to be realized. We record liabilities for potential assessments in various tax jurisdictions under U.S. GAAP guidelines. The liabilities relate to tax return positions that, although supportable by us, may be challenged by the tax authorities and do not meet the minimum recognition threshold required under applicable accounting guidance for the related tax benefit to be recognized on the income statement. We adjust this liability as a result of changes in tax legislation, interpretations of laws by courts, guidance and rulings issued by tax authorities, changes in estimates and the expiration of the statute of limitations. Many of the judgments involved in adjusting the liability involve assumptions and estimates that are highly uncertain and subject to change. In this regard, settlement of any issue, or an adverse determination in litigation, with a taxing

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authority could require the use of cash and result in an increase in our annual effective tax rate. Conversely, favorable resolution of an issue with a taxing authority would be recognized as a reduction to our annual effective tax rate.

New Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements included in this Annual Report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of December 31, 2024.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

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RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2024, 2023 AND 2022

The discussion of consolidated results of operations presented below is followed by a more detailed discussion of results of operations by segment. This section of this Form 10-K generally discusses 2024 and 2023 results and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. The segment discussion also addresses certain product line information. Our operating segments are consistent with our reportable segments.

Consolidated results

2024 compared to 2023

Net Sales

Net sales for the year ended December 31, 2024 were $6,107.1, an increase of $239.2, or 4.1% compared to 2023 net sales. The components of the net sales increase are as follows:

(1)
The volume change reflects increased product unit sales in all three segments.

(2)
Price/mix was favorable in all three segments.

(3)
In the first quarter of 2024, we exited the MEGALAC supplement portion of the SPD Animal Nutrition business. In the second quarter of 2024 we acquired substantially all of Graphico and sold the Passport food safety business.

Gross Profit

Our gross profit for 2024 was $2,790.1, a $201.6 increase compared to 2023. Gross margin was 45.7% in 2024 compared to 44.1% in 2023, a 160 basis points (“bps”) increase. The increase is due to the positive impact of productivity programs of 140 bps, favorable price/volume/mix of 100 bps, a favorable tariff ruling of 50 bps, and benefits from the Graphico Acquisition of 10 bps, offset by the impact of higher manufacturing costs including labor and commodities of 140 bps.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Operating Costs

Marketing expenses for 2024 were $698.1, an increase of $56.8 compared to 2023. Marketing expenses as a percentage of net sales increased 50 bps to 11.4% in 2024 as compared to 2023 due to 90 bps on higher expense primarily from increased marketing spend to support new product introductions, offset by 40 bps of leverage on higher net sales.

SG&A expenses for 2024 were $927.8, a decrease of $38.0 or 4.3% compared to 2023. SG&A as a percentage of net sales was 15.2% in 2024 and 2023. SG&A as a percentage of net sales was flat compared to 2023, as expenses were higher by 60 bps, primarily due to growth investments in our international division, Research and Development ("R&D") and Information Technology ("IT"), and the Graphico acquisition, offset by 60 bps of leverage associated with higher sales.

Nonoperating Expenses

Trade name and other asset impairment charges were $357.1 million in 2024 related to non-cash charges to adjust the carrying value of intangible assets and property, plant, and equipment related to the VMS business. The impairment was due to a continued decline in market share and a deterioration in the financial performance for the VMS business, which includes the VITAFUSION and L'IL CRITTERS trade name, primarily due to significant product competition coming from new category entrants, including private label. See Note 7, “Goodwill and Other Intangibles, Net” to the Consolidated Financial Statements included herein for additional information.

Interest income was $26.3 in 2024, an increase of $13.3 as compared to 2023, due to higher interest income primarily associated with higher cash balances.

Interest expense in 2024 was $95.0, a decrease of $15.9 primarily due to lower average outstanding debt.

Other income increased $9.6 in 2024 as compared to 2023 primarily due to the sale of our 50% interest in Armakleen to our joint venture partner.

Taxation

The 2024 effective income tax rate was 22.6% compared to 21.9% in 2023. The increase in the rate is due to lower stock option benefits related to executive compensation and other non-recurring tax items.

Segment results for 2024, 2023 and 2022

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.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

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Segment net sales and income from operations for each of the three years ended December 31, 2024, 2023 and 2022 were as follows:

(1)
2024 results include the VMS non-cash intangible and PP&E impairment charges of $357.1 in SG&A expenses, of which $327.4 was recorded in the Consumer Domestic segment and $29.7 was recorded in the Consumer International segment.

(2)
2022 results include the FLAWLESS non-cash intangible asset impairment charges of $411.0 in SG&A expenses, of which $349.3 was recorded in the Consumer Domestic segment and $61.7 was recorded in the Consumer International segment.

Product line revenues for external customers for the years ended December 31, 2024, 2023 and 2022 were as follows:

Household Products include deodorizing, cleaning and laundry products. Personal Care Products include condoms, pregnancy kits, oral care products, skin care products, hair care products and gummy dietary supplements.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

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Consumer Domestic

2024 compared to 2023

Consumer Domestic net sales in 2024 were $4,732.3, an increase of $161.1 or 3.5% compared to net sales of $4,571.2 in 2023. The components of the net sales change are the following:

The increase in net sales for 2024 includes growth from THERABREATH® mouth wash, HERO® acne treatment products, ARM & HAMMER® liquid detergent, ARM & HAMMER® cat litter, and ARM & HAMMER® baking soda, partially offset by declines in VITAFUSION® and L’IL CRITTERS® gummy vitamins, FINISHING TOUCH FLAWLESS® hair removal products, and WATERPIK® Shower Heads.

Consumer Domestic income from operations for 2024 was $684.9, a $244.8 decrease as compared to 2023. The decrease is due to the VMS non-cash intangible and PP&E impairment charges of $327.4. Excluding the non-cash impairment charges, Consumer Domestic income from operations increased by $82.6 driven by higher sales volumes of $77.2, the benefit of productivity programs of $75.6, favorable price/mix of $22.9, and a favorable tariff ruling of $31.6, partially offset by higher manufacturing and distribution expenses of $62.5, higher SG&A expenses of $32.6 from growth investments, and higher marketing expenses of $29.0.

Consumer International

2024 compared to 2023

Consumer International net sales in 2024 were $1,071.5, an increase of $95.8 or 9.8% as compared to 2023. The components of the net sales change are the following:

(1)
The Graphico acquisition is included in our results since June 3, 2024, the date of acquisition.

Excluding the impact of foreign exchange rates and the Graphico acquisition, the increase in net sales for the year ended December 31, 2024, was driven by OXICLEAN® stain removers, THERABREATH® mouth wash, ULTRAMAX® antiperspirant deodorant, and VITAFUSION® and L’IL CRITTERS® gummy vitamins in GMG, HERO® acne treatment products in Europe, HERO® acne treatment products in Canada, and THERABREATH® mouth wash in Mexico.

Consumer International income from operations was $83.1 in 2024, a decrease of $21.1 compared to 2023 due to the VMS non-cash intangible and PP&E impairment charges of $29.7. Excluding the non-cash impairment charges, Consumer International income from operations increased $8.6 and was driven by favorable price/mix of $36.2, higher sales volumes of $27.1, partially offset by higher marketing expenses of $29.2, higher SG&A expenses of $21.2 from growth investments, unfavorable foreign exchange rates of $3.4 and higher manufacturing and commodity costs of $0.6.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

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Specialty Products

2024 compared to 2023

SPD net sales were $303.3 for 2024, a decrease of $17.7, or 5.5% compared to 2023. The components of the net sales change are the following:

(1) We exited the MEGALAC supplement portion of the Animal Nutrition business in the first quarter of 2024 and sold the Passport food safety business in the second quarter of 2024.

Net sales excluding product line divestitures increased in the year ended December 31, 2024 primarily due to growth in our animal nutrition and specialty chemicals segments.

SPD income from operations was $39.1 in 2024, an increase of $15.6 compared to 2023. The increase in income from operations for 2024 is due to favorable price/mix of $9.1, higher sales volumes of $3.4, lower SG&A costs of $9.1 primarily from product line exits, and lower marketing expenses of $1.4, partially offset by the gross margin impact of product line exits of $7.1, and unfavorable manufacturing costs of $0.4.

Corporate

Corporate includes administrative costs of the production, planning and logistics functions which are reported as Cost of Sales in our Consolidated Statements of Income but are allocated to the operating segments in SG&A expenses to determine segment income from operations. Such amounts were $67.9, $60.4 and $34.3 for 2024, 2023 and 2022, respectively. The increase in 2023 compared to 2022 is primarily due to higher incentive compensation costs.

Also included in corporate are the equity in earnings of affiliates from Armand and ArmaKleen, totaling $9.1, $8.7 and $12.3 for the three years ended December 31, 2024, 2023 and 2022, respectively. In October 2024, the Company sold its 50% interest in ArmaKleen to our joint venture partner.

Liquidity and Capital Resources

On June 16, 2022, we entered into a credit agreement (the “Credit Agreement”) that provides for our $1,500.0 unsecured revolving credit facility (the “Revolving Credit Facility”) that matures on June 16, 2027, unless extended. We have the ability to increase our borrowing up to an additional $750.0, subject to lender commitments and certain conditions as described in the Credit Agreement. Borrowings under the Credit Agreement are available for general corporate purposes and are used to support our $1,500.0 commercial paper program.

As of December 31, 2024, we had $964.1 in cash and cash equivalents, and approximately $1,494.0 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.

On October 31, 2022, we issued $500.0 aggregate principal amount of 5.60% Senior Notes due 2032 (the “2032 Notes”). The proceeds from the sale of the 2032 Notes were used to repay commercial paper debt incurred to finance the Hero Acquisition, and related fees and expenses. The 2032 Notes will mature on November 15, 2032, unless earlier retired or redeemed pursuant to the terms of the supplemental indenture governing the terms of the 2032 Notes.

On June 2, 2022, we issued $500.0 aggregate principal amount of 5.00% Senior Notes due 2052 (the “2052 Notes”). In July 2022 a portion of the proceeds from the sale of the 2052 Notes were used to repay all of our outstanding $300.0 2.45% Senior Notes due August 1, 2022. The 2052 Notes will mature on June 15, 2052, unless earlier retired or redeemed pursuant to the terms of the supplemental indenture governing the terms of the 2052 Notes.

In October 2022, we repaid all of the outstanding $400.0 2.875% Senior notes due October 1, 2022 with a portion of the proceeds from the 2052 Notes and cash on hand.

47

CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

On December 22, 2021, we entered into a $400.0 unsecured term loan facility (as amended on June 16, 2022, the “Term Loan Facility”) with various banks. The loan under the Term Loan Facility (the “Term Loan”) was fully drawn at closing. The Term Loan was due on December 22, 2024. The interest rate was the Secured Overnight Financing Rate (“SOFR”) plus a spread and an applicable margin based on the Company’s credit rating, which can range from 60 basis points to 125 bps. The proceeds of the Term Loan were used to partially fund the TheraBreath Acquisition, with the remaining proceeds used for the repayment of commercial paper. In 2023, we repaid $200.0 of the Term Loan with cash on hand and commercial paper borrowings. In the first quarter of 2024, we repaid the remaining $200.0 of the Term Loan with cash on hand.

Additionally, we financed the TheraBreath Acquisition with a portion of the proceeds from an underwritten public offering of $400.0 aggregate principal amount of 2.3% Senior Notes due 2031 (the “2031 Notes”) completed on December 10, 2021. The 2031 Notes will mature on December 15, 2031, unless earlier retired or redeemed pursuant to the terms of the supplemental indenture governing the terms of the 2031 Notes.

We financed the Waterpik Acquisition with a portion of the proceeds from an underwritten public offering of $1,425.0 aggregate principal amount of Senior Notes completed on July 25, 2017, consisting of $300.0 aggregate principal amount of Floating Rate Senior Notes that were due in 2019 and have been fully repaid, $300.0 aggregate principal amount of 2.45% Senior Notes that were due in 2022 and have been fully repaid, $425.0 aggregate principal amount of 3.15% Senior Notes due 2027 and $400.0 aggregate principal amount of 3.95% Senior Notes due 2047.

In 2015, we initiated a Supply Chain Finance program (“SCF Program”). Under the SCF Program, qualifying suppliers may elect to sell their receivables from us for early payment. Participating suppliers negotiate their receivables sales arrangements directly with a third party. We are not party to those agreements and do not have an economic interest in the supplier’s decision to sell their receivables. The SCF Program may allow suppliers more favorable terms than they could secure on their own. The terms of our payment obligations are not impacted by a supplier’s participation in the SCF Program. Our payment terms with suppliers are consistent between suppliers that elect to participate in the SCF Program and those that do not participate. As a result, the program does not have an impact to our average days outstanding.

All amounts outstanding to suppliers participating in the SCF Program are recorded within Accounts Payable in our Consolidated Balance Sheets, and the associated payments are included in operating activities within our Consolidated Statements of Cash Flows.

The current economic environment presents risks that could have adverse consequences for our liquidity. See the discussion of this and other risks under “Risk Factors” in Item 1A of this Annual Report. 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 October 28, 2021, the Board authorized a new share repurchase program, under which we 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. The 2021 Share Repurchase Program did 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 its incentive plans.

As a result of our stock repurchases, there remains $658.9 of share repurchase availability under the 2021 Share Repurchase Program as of December 31, 2024.

On January 29, 2025, the Board declared a 4% increase in the regular quarterly dividend from $0.28375 to $0.295 per share, equivalent to an annual dividend of $1.18 per share payable to stockholders of record as of February 14, 2025. The increase raises the annual dividend payout from $277.0 to approximately $287.0 on an annualized basis.

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, pay dividends at the latest approved rate, and meet our capital expenditure program costs, which are expected to be approximately $130.0 in 2025 including manufacturing capacity investments for Therabreath and Sterimar and an ERP project. Cash, together with our current borrowing capacity, may be used for acquisitions that would complement our existing product lines or geographic markets.

48

CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Cash Flow Analysis

2024 compared to 2023

Net Cash Provided by Operating Activities – Our primary source of liquidity is our cash flow provided by operating activities, which is dependent on the level of net income and changes in working capital. Our net cash provided by operating activities in 2024 increased by $125.6 to $1,156.2 as compared to $1,030.6 in 2023 primarily due to an increase in cash earnings (net income adjusted for non-cash items). We measure working capital effectiveness based on our cash conversion cycle. The following table presents our cash conversion cycle information for the years ended December 31, 2024 and 2023:

Our cash conversion cycle (defined as the sum of DSO plus DIO less DPO) at December 31, 2024, which is calculated using a two period average method, increased one day from the prior year. The change in cash conversion cycle is due to an increase in DSO primarily from a reduction in our accounts receivable factoring program in response to higher interest rates, partially offset with a decrease in DIO mainly from a reduction in inventory related to our discretionary brands and an increase in DPO primarily from agreeing to extended payment terms with some vendors. We continue to focus on reducing our working capital requirements.

Net Cash Used in Investing Activities – Net cash used in investing activities during 2024 was $183.3, primarily reflecting property, plant and equipment additions of $179.8 and $19.9 for the Graphico Acquisition, partially offset by $14.0 of proceeds from the sale of assets (including the ArmaKleen joint venture). Net cash used in investing activities during 2023 was $234.3, primarily reflecting property, plant and equipment additions of $223.5.

Net Cash Used in Financing Activities – Net cash used in financing activities during the twelve months of 2024 was $343.4 reflecting $208.2 of net debt payments and $277.0 of cash dividend payments, partially offset by $142.9 of proceeds from stock option exercises. Net cash used in financing activities during the twelve months of 2023 was $725.6, reflecting $300.1 of treasury stock purchases, $266.5 of cash dividend payments and $270.6 of net debt repayments, partially offset by $111.7 of proceeds from stock option exercises.

49

CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

OTHER ITEMS

Market risk

Concentration of Risk

A group of four customers accounted for approximately 43% and 44% of consolidated net sales in 2024 and 2023, respectively. A group of four customers accounted for approximately 42% of consolidated net sales in 2022, of which a single customer (Walmart Inc. and its affiliates) accounted for approximately 23%, 23% and 24% in 2024, 2023 and 2022, respectively.

Interest Rate Risk

We had outstanding total debt at December 31, 2024, of $2,204.6, net of debt issuance costs, all of which has a fixed weighted average interest rate of 4.1%. From time to time the Company will enter into interest rate lock agreements to hedge the risk of changes in the interest payments attributable to changes in the interest rate associated with anticipated issuances of debt.

Other Market Risks

We are also subject to market risks relating to our diesel and other commodity costs, fluctuations in foreign currency exchange rates, and changes in the market price of our Common Stock. Refer to Note 3 to the Consolidated Financial Statements included in this Annual Report for a discussion of these market risks and the derivatives used to manage the risks associated with changing diesel fuel and other commodity prices, foreign exchange rates and the price of our Common Stock.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements.

OVERVIEW

Our Business

We develop, manufacture and market a broad range of consumer household, personal care and specialty products. Our well-recognized brands include ARM & HAMMER® baking soda, cat litter, laundry detergent, carpet deodorizer and other baking soda-based products; OXICLEAN® stain removers, cleaning solutions, laundry detergents and bleach alternatives; VITAFUSION® and L’IL CRITTERS® gummy dietary supplements for adults and children, respectively; BATISTE® dry shampoo; WATERPIK® water flossers and showerheads; THERABREATH® oral care products; HERO® acne treatment products; TROJAN condoms, lubricants and vibrators; SPINBRUSH battery-operated toothbrushes; FIRST RESPONSE home pregnancy and ovulation test kits; NAIR depilatories; ORAJEL oral analgesic; XTRA laundry detergent; and ZICAM cold shortening and relief products. Seven of those brands are designated as "power brands" because they compete in large categories, and we believe they have the potential for significant global expansion. Those seven brands are ARM & HAMMER®; OXICLEAN®; VITAFUSION® and L’IL CRITTERS®; BATISTE®; WATERPIK®; THERABREATH®; and HERO® and represent approximately 70% of our net sales and profits.

We sell our consumer products under a variety of brands through a broad distribution platform that includes supermarkets, mass merchandisers, wholesale clubs, drugstores, convenience stores, home stores, dollar, pet and other specialty stores and websites and other e-commerce channels, all of which sell the products to consumers. We sell our specialty products to industrial customers, livestock producers and through distributors.

We operate our business in three segments: Consumer Domestic, Consumer International and the Specialty Products Division (“SPD”). The segments are based on differences in the nature of products and organizational and ownership structures. In 2023, the Consumer Domestic, Consumer International and SPD segments represented approximately 78%, 17% and 5%, respectively, of our consolidated net sales.

Supply Chain, Inflation, Consumer Demand and Competition

We continue to monitor the impact of both inflation and recessionary indicators including the effect of corresponding government actions, such as raising interest rates to counteract inflation, that may negatively impact consumer spending, especially for our discretionary brands, and how these factors will potentially influence future cash flows for the short and long term.

We believe that inflation and recessionary concerns are continuing to drive a decline in consumer spending for our most discretionary brands, Waterpik and Flawless, as consumers reduce spending in these categories and shift to lower cost alternatives. Most notably, a growing number of water flosser consumers have switched to more value-branded products. To address these demand shifts, we are taking steps to better manage production schedules and inventory levels for those products along with increasing promotional activities and marketing spend, as well as continuing efforts to develop lower cost water flosser alternatives.

Our vitamin business continues to experience a softening of growth from record high levels during the COVID-19 pandemic and has seen a significant ramp up in competition coming from new gummy vitamin category entrants which have increased from about six competitors a decade ago to more than 60 of significance today. In addition, residual impacts from previous vitamin-specific supply chain challenges resulted in increased shelf space and/ or display for certain of our competitors. We are improving our product offerings, redesigning packaging, launching new advertising and increasing global promotional and marketing efforts to solidify the business and, ultimately, regain lost market share.

Net sales in our Specialty Products Division declined in 2023, largely due to declining sales of our MEGALAC dairy supplement within our Animal Nutrition business. During the first quarter of 2024, we will be exiting this part of the Animal Nutrition business as a result of the return of foreign competition in the United States dairy market.

Looking forward, the impact that these challenges will continue to have on our operational and financial performance will depend in part on future developments, including inflationary impacts, interest rates, recessionary concerns, as well as retail customers' acceptance of all or a portion of any price increases. Additionally, we may be impacted by our ability to recruit and retain a workforce and engage third-parties to manufacture and distribute our products, as well as any future government actions affecting employers and employees, consumers and the economy in general. While we expect that many of these effects will be transitory and that our value-focused portfolio positions us well in challenging economic environments, it is impossible to predict their impact.

35

CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

2023 Financial Highlights

Key 2023 financial results include:

•
2023 net sales grew 9.2% over 2022, with gains in Consumer Domestic and Consumer International, partially offset by lower sales in SPD. The gains are primarily due to favorable pricing/product mix, favorable volumes, and the benefit of recent acquisitions in Consumer Domestic and Consumer International, partially offset by unfavorable volumes and pricing/product mix in SPD.

•
Gross margin increased 220 basis points to 44.1% in 2023 from 41.9% in 2022, primarily due to favorable price/volume/mix, the impact of productivity programs, lower transportation costs, and business acquisition benefits, partially offset by higher manufacturing costs including labor and higher commodities.

•
Operating margin increased 690 basis points to 18.0% in 2023 from 11.1% in 2022. The 2022 operating margin included a non-cash charge of $411.0 or 760 basis points related to the Flawless intangible asset impairment. Excluding the impairment charge, operating margin decreased 70 basis points as an increase in gross margins was offset by higher marketing expenses and selling general and administrative costs.

•
We reported diluted net earnings per share in 2023 of $3.05, an increase of approximately 81.5% from 2022 diluted net earnings per share of $1.68 which included the non-cash Flawless intangible asset impairment charge of $1.26 per share.

•
Cash provided by operations was $1,030.6 in 2023, a $145.4 increase from the prior year due to an improvement in working capital and an increase in cash earnings (net income adjusted for non-cash items) including the impact of recent acquisitions.

•
We returned $566.6 in 2023 to our stockholders through cash dividends paid and share repurchases.

Strategic Goals, Challenges and Initiatives

Our ability to generate sales depends on consumer demand for our products and retail customers’ decisions to carry our products, which are, in part, affected by general economic conditions in our markets. While a vast majority of our products are consumer staples and less vulnerable to decreases in discretionary spending than other products, certain of our products, are more likely to be affected by consumer decisions to control spending. Some retail customers have responded to economic conditions by increasing their private label offerings (primarily in the dietary supplements, diagnostic kits and oral analgesics categories), launching their own brands, and consolidating the product selections they offer to the top few leading brands in each category. In addition, an increasing portion of our product categories are being sold by club stores, dollar stores, mass merchandisers and internet-based retailers. These factors have placed downward pressure on our sales and gross margins.

We intend to continue to aggressively pursue several key strategic initiatives: maintain competitive marketing and trade spending, tightly control our cost structure, expand our online market share, continue to develop and launch new and differentiated products, and pursue strategic acquisitions. We also intend to continue to grow our product sales globally and maintain an offering of premium and value brand products to appeal to a wide range of consumers.

We derive a substantial percentage of our revenues from sales of liquid laundry detergent. As a result, any delays or reduction of sales of these products, in the event that our product category diversification efforts discussed below are not successful, could have a material adverse effect on our business, financial condition, operating results and cash flows. 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 the category will not decline in the future and that we will be able to offset any such decline.

We are continuously focused on strengthening our key brands through the launch of innovative new products, which span various product categories, including premium and value household products supported by increased marketing and trade spending. There can be no assurance that these measures will be successful.

Our global product portfolio consists of both premium (63% of total worldwide consumer revenue in 2023) and value (37% of total worldwide consumer revenue in 2023) brands, which we believe enables us to succeed in a range of economic environments. We intend to continue to develop a portfolio of appealing new products to build loyalty among cost-conscious consumers.

Over the past two decades, we have diversified from an almost exclusively U.S. business to a global company with approximately 17% of sales derived from countries outside of the United States in 2023. We have subsidiary operations in seven countries (Canada, Mexico, U.K., France, Germany, China and Australia). We also export products to over 130 other countries through our Global Markets Group using a broad network of third-party distributors. In 2023, we benefited from our expanded global footprint and expect to continue to focus on selectively expanding our global business. If we are unable to expand our business internationally at the rate that we expect, we may not realize our anticipated growth targets.

36

CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Although we believe ongoing international expansion represents a significant opportunity to grow our business, our increasing activity in global markets exposes us to additional complexity and uncertainty. Sales generated outside of the U.S. are exposed to foreign currency exchange rate fluctuations as well as political uncertainty which could impact future operating results. Moreover, the current domestic and international political environment, including existing and potential changes to U.S. policies related to global trade and tariffs, have resulted in uncertainty regarding the global economy. The impact of U.S. tariffs on certain products was a component of increased cost of sale during the year ended December 31, 2023. The implementation of more restrictive trade policies, such as higher tariffs or new barriers to entry, in countries in which we manufacture or sell large quantities of products could negatively impact our business, cash flows, results of operations and financial condition.

We also continue to focus on controlling our costs. Historically, we have been able to mitigate the effects of cost increases primarily by implementing cost reduction programs and, to a lesser extent, by passing along cost increases to customers. We have also entered into set pricing and pre-buying arrangements with certain suppliers and hedge agreements for diesel fuel and other commodities. Additionally, our focus on tight cost controls has enabled us to effectively navigate challenging economic conditions.

The identification and integration of strategic acquisitions are an important component of our overall strategy and product category diversification. Acquisitions have added significantly to our sales, profits and product category diversification over the last decade. This is evidenced by our 2015 acquisition of certain assets of Varied Industries Corporation (the “Vi-cor Acquisition”), the 2016 acquisitions of Spencer Forrest, Inc., the maker of TOPPIK (the “Toppik Acquisition”), and the ANUSOL and RECTINOL businesses from Johnson & Johnson (the “Anusol Acquisition”), the 2017 acquisitions of the VIVISCAL brand from Lifes2Good Holdings Limited (the “Viviscal Acquisition”), and the WATERPIK brand from Pik Holdings, Inc. (the “Waterpik Acquisition”), the 2020 acquisition of the ZICAM brand from Consumer Health Holdco LLC, the 2021 acquisition of the THERABREATH brand from Dr. Harold Katz, LLC and HK-IP International, Inc, and the 2022 acquisition of the HERO brand which includes the MIGHTY PATCH acne treatment products. The failure to effectively identify or integrate any acquisition or achieve expected synergies may cause us to incur material asset write-downs. We actively seek acquisitions that fit our guidelines, and our strong financial position provides us with flexibility to take advantage of acquisition opportunities. In addition, our ability to quickly integrate acquisitions and leverage existing infrastructure has enabled us to establish a strong track record in making accretive acquisitions. Since 2001, we have acquired six of our seven “power brands.”

We believe we are well positioned to meet the ongoing challenges described above due to our strong financial condition, experience operating in challenging environments and continued focus on key strategic initiatives. Our focus is to maintain competitive marketing and trade spending, manage our cost structure, continue to develop and launch new and differentiated products, while pursuing strategic acquisitions. This focus, together with the strength of our portfolio of premium and value brands, has enabled us to succeed in a range of economic environments. Moreover, the generation of a significant amount of cash from operations provides us with the financial flexibility to pursue acquisitions, drive new product development, make capital expenditures to support organic growth and gross margin improvements, return cash to stockholders through dividends and share buy backs, and reduce outstanding debt. These factors position us to continue to increase stockholder value over the long-term.

For information regarding risks and uncertainties that could materially adversely affect our business, results of operations and financial condition and cash flows, see “Risk Factors” in Item 1A of this Annual Report.

Recent Developments

Dividend Increase

On January 31, 2024, the Board declared a 4% increase in the regular quarterly dividend from $0.2725 to $0.28375 per share (equivalent to an annual dividend of $1.135 per share) payable to stockholders of record as of February 15, 2024. The increase raises the annualized dividend payout from $267.0 to approximately $276.0 on an annualized basis.

37

CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. By their nature, these judgments are subject to uncertainty. They are based on our historical experience, our observation of trends in industry, information provided by our customers and information available from other outside sources, as appropriate. Our significant accounting policies and estimates are described below.

Revenue Recognition and Promotional and Sales Return Reserves

Virtually all of our revenue represents sales of finished goods inventory and is recognized when received or picked up by our customers. The reserves for consumer and trade promotion liabilities and sales returns are established based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. Promotional reserves are provided for sales incentives, such as coupons to consumers, and sales incentives provided to customers (such as slotting, cooperative advertising, incentive discounts based on volume of sales and other arrangements made directly with customers). All such costs are netted against sales. Slotting costs are recorded when the product is delivered to the customer. Cooperative advertising costs are recorded when the customer places the advertisement for our products. Discounts relating to price reduction arrangements and coupons are recorded when the related sale takes place. Costs associated with end-aisle or other in-store displays are recorded when product that is subject to the promotion is sold. We rely on historical experience and forecasted data to determine the required reserves. For example, we use historical experience to project coupon redemption rates to determine reserve requirements. Based on the total face value of Consumer Domestic coupons redeemed over the past several years, if the actual rate of redemptions were to deviate by 0.1% from the rate for which reserves are accrued in the financial statements, a difference of approximately $0.7 in the reserve required for coupons would result. With regard to other promotional reserves and sales returns, we use experience-based estimates, customer and sales organization inputs and historical trend analysis in arriving at the reserves required. If our estimates for promotional activities and sales returns reserves were to change by 10% the impact to promotional spending and sales return accruals would be approximately $16.0. While management believes that its promotional and sales returns reserves are reasonable and that appropriate judgments have been made, estimated amounts could differ materially from actual future obligations.

Impairment of goodwill, trade names and other intangible assets

The Company has intangible assets of substantial value on its consolidated balance sheet. Intangible assets relate 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.

Intangible assets with a useful life are assessed for impairment when there are business triggering events. Carrying values of goodwill and indefinite-lived trade names are reviewed at least annually for possible impairment.

Our impairment analysis is based on a discounted cash flow approach that requires significant judgment with respect to unit volume, revenue and expense growth rates, and the selection of an appropriate discount rate and royalty rate. Management uses estimates based on expected trends in making these assumptions. With respect to goodwill, impairment occurs when the carrying value of the reporting unit exceeds the discounted present value of cash flows for that reporting unit. For trade names and other intangible assets, an impairment charge is recorded for the difference between the carrying value and the net present value of estimated future cash flows, which represents the estimated fair value of the asset. Fair value for indefinite-lived intangible assets is 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. Judgment is required in assessing whether assets may have become impaired between annual valuations. Indicators such as unexpected adverse economic factors, unanticipated technological change, distribution losses, or competitive activities and acts by governments and courts may indicate that an asset has become impaired.

The result of our annual goodwill impairment test determined that the estimated fair value substantially exceeded the carrying values of all reporting units. We determined that the fair value of all indefinite-lived intangible assets for each of the years in the three-year period ended December 31, 2023 exceeded their respective carrying values based upon the forecasted cash flows and profitability.

Recently, our global TROJAN business has benefited from the successful introduction of new products, such as TROJAN BARESKIN RAW, which has contributed to expanded distribution resulting in sales growth in 2023 and an improvement in the expected sales growth outlook for this business. While the Company cannot predict future changes in economic or competitive factors that may adversely impact the underlying cash flows used to estimate fair value of the trade name, it believes that the improved growth and profitability outlook for this business has reduced the near-term risk of impairment of the TROJAN trade name. The carrying value of the TROJAN trade name is $176.4 and fair value represented 162% of the carrying value as of October 1, 2023.

38

CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Our global WATERPIK business has continued to experience a significant decline in customer demand for many of its products, primarily due to lower consumer spending for discretionary products resulting in part from inflation and a growing number of water flosser consumers switching to more value-branded products. Waterpik's profitability has also been impacted by tariffs imposed on its products imported into the United States that were manufactured in China. As a result, the WATERPIK business has experienced declining sales and profits resulting in a reduction in expected future cash flows which have eroded a substantial portion of the excess between the fair and carrying value of the trade name. This indefinite-lived intangible asset may be susceptible to impairment and a continued decline in fair value could trigger a future impairment charge of the WATERPIK trade name. While management can and has implemented strategies to address the risk, significant changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that could trigger future impairment charges of these assets. The carrying value of the WATERPIK trade name is $644.7 and fair value represented 109% of the carrying value as of October 1, 2023.

The vitamin category continues to experience a softening of growth from record high levels during the COVID-19 pandemic and significant product competition coming from new category entrants. The category has grown from about 6 competitors a decade ago to more than 60 of significance in recent years. In addition, residual impacts from previous vitamin-specific supply chain challenges have resulted in reduced shelf space for VITAFUSION and LIL CRITTERS at certain retailers and consumers switching to competitor’s brands. These factors, along with higher interest rates, have resulted in a reduction in expected future cash flows which have eroded a substantial portion of the excess between the fair and carrying value of the trade name. This indefinite-lived intangible asset may be susceptible to impairment and a continued decline in fair value could trigger a future impairment charge of the VITAFUSION and LIL' CRITTERS trade name. While management has implemented strategies to address the risk, significant changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair value. The carrying value of the VITAFUSION and LIL' CRITTERS trade name is $281.3 and fair value represented 154% of the carrying value as of October 1, 2023.

In the fourth quarter of 2022, we 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 consist of the definite-lived trade name, customer relationships and technology assets recorded at acquisition. We evaluated our ability to recover the carrying values of 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 remaining net book value of the trade name as of December 31, 2023 is $30.9 and will be amortized over a remaining useful life of two years. We have implemented strategies to address the decline in profitability. However, if unsuccessful, a further decline could trigger a future impairment charge.

It is possible that our conclusions regarding impairment or recoverability of goodwill or other intangible assets could change in future periods if, for example, (i) the businesses or brands do not perform as projected, (ii) overall economic conditions in future years vary from current assumptions (including changes in discount rates), (iii) business conditions or strategies change from current assumptions, (iv) investors require higher rates of return on equity investments in the marketplace or (v) enterprise values of comparable publicly traded companies, or actual sales transactions of comparable companies, were to decline, resulting in lower multiples of revenues and EBITDA. A future impairment charge for goodwill or intangible assets could have a material effect on our consolidated financial position or results of operations.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized to reflect the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be recovered or settled. Management provides a valuation allowance against deferred tax assets for amounts which are not considered “more likely than not” to be realized. We record liabilities for potential assessments in various tax jurisdictions under U.S. GAAP guidelines. The liabilities relate to tax return positions that, although supportable by us, may be challenged by the tax authorities and do not meet the minimum recognition threshold required under applicable accounting guidance for the related tax benefit to be recognized on the income statement. We adjust this liability as a result of changes in tax legislation, interpretations of laws by courts, guidance and rulings issued by tax authorities, changes in estimates and the expiration of the statute of limitations. Many of the judgments involved in adjusting the liability involve assumptions and estimates that are highly uncertain and subject to change. In this regard, settlement of any issue, or an adverse determination in litigation, with a taxing authority could require the use of cash and result in an increase in our annual effective tax rate. Conversely, favorable resolution of an issue with a taxing authority would be recognized as a reduction to our annual effective tax rate.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

New Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements included in this Annual Report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of December 31, 2023.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

The discussion of results of operations at the consolidated level presented below is followed by a more detailed discussion of results of operations by segment. This section of this Form 10-K generally discusses 2023 and 2022 results and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022. The segment discussion also addresses certain product line information. Our operating segments are consistent with our reportable segments.

Consolidated results

2023 compared to 2022

Net Sales

Net sales for the year ended December 31, 2023 were $5,867.9, an increase of $492.3, or 9.2% compared to 2022 net sales. The components of the net sales increase are as follows:

(1)
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 volume change reflects increased volumes in the Consumer Domestic and Consumer International Segments partially offset by volume declines in SPD. Price/mix was favorable in the Consumer Domestic and Consumer International Segments partially offset by slightly unfavorable price/mix in the SPD segment.

Gross Profit

Our gross profit for 2023 was $2,588.5, a $338.5 increase compared to 2022. Gross margin was 44.1% in 2023 compared to 41.9% in 2022, a 220 basis points (“bps”) increase. The increase is due to favorable price/volume/mix of 220 bps, the impact of productivity programs of 150 bps, lower transportation costs of 100 bps, and benefits from the Hero Acquisition of 90 bps, partially offset by higher manufacturing costs including labor and higher commodities of 340 bps.

Operating Costs

Marketing expenses for 2023 were $641.3, an increase of $106.1 compared to 2022. Marketing expenses as a percentage of net sales increased 90 bps to 10.9% in 2023 as compared to 2022 due to 180 bps on higher expense from increased marketing spend as our ability to meet customer demand improved, offset by 90 bps of leverage on higher net sales.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

SG&A expenses for 2023 were $889.8, a decrease of $227.2 or 20.3% compared to 2022. SG&A as a percentage of net sales decreased 560 bps to 15.2% in 2023 compared to 20.8% in 2022 due to 390 bps on lower expenses and 170 bps of leverage associated with higher sales. The lower expenses of 390 bps were primarily due to the non-cash Flawless intangible asset impairment charges of $411.0 or 760 bps in 2022, partially offset by higher expenses associated with the Hero Acquisition of $78.7, investment spending for future growth and higher incentive compensation costs which reflects improved business performance.

Other Income and Expenses

Other income increased $9.4 in 2023 as compared to 2022 primarily due to higher investment income.

Interest expense in 2023 was $110.9, an increase of $21.3 primarily due to higher average interest rates on outstanding debt.

Taxation

The 2023 effective income tax rate was 21.9% compared to 20.9% in 2022. The increase in the rate is due to the tax rate benefit of the FLAWLESS impairment charge recorded in 2022.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which contains provisions effective January 1, 2023, including a 15% corporate minimum tax and a 1% excise tax on stock buybacks. The new law did not have a material impact on our consolidated financial position, results of operations or cash flows during the year ended December 31, 2023.

Segment results for 2023, 2022 and 2021

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.

The Corporate segment income consists of equity in earnings of affiliates. As of December 31, 2023, we held 50% ownership interests in each of Armand and ArmaKleen, respectively. Our equity in earnings of Armand and ArmaKleen, totaling $8.7, $12.3 and $9.4 for the three years ended December 31, 2023, 2022 and 2021, respectively, are included in the Corporate segment.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Some of the 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 each of the three years ended December 31, 2023, 2022 and 2021 were as follows:

(1)
Intersegment sales from Consumer International to Consumer Domestic, which are not reflected in the table, were $17.0, $15.1 and $10.8 for the years ended December 31, 2023, 2022 and 2021, respectively.

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

(3)
Corporate segment consists of equity in earnings of affiliates from Armand and ArmaKleen in 2023, 2022 and 2021.

(4)
2022 results include the FLAWLESS non-cash intangible asset impairment charges of $411.0 in SG&A expenses, of which $349.3 was recorded in the Consumer Domestic segment and $61.7 was recorded in the Consumer International segment.

(5)
2021 results include a $98.0 reduction in SG&A expenses to reduce the Flawless business acquisition liability, of which $83.2 was recorded to Consumer Domestic and $14.8 was recorded to Consumer International.

Product line revenues for external customers for the years ended December 31, 2023, 2022 and 2021 were as follows:

Household Products include deodorizing, cleaning and laundry products. Personal Care Products include condoms, pregnancy kits, oral care products, skin care products, hair care products and gummy dietary supplements.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Consumer Domestic

2023 compared to 2022

Consumer Domestic net sales in 2023 were $4,571.2, an increase of $440.2 or 10.7% compared to net sales of $4,131.0 in 2022. The components of the net sales change are the following:

(1)
Includes the Hero Acquisition since October 13, 2022 (the date of the acquisition).

The increase in net sales for 2023 reflects the impact of the Hero Acquisition, and the impact of higher sales of THERABREATH® mouth wash, ARM & HAMMER® cat litter, ARM & HAMMER® liquid detergent, and ARM & HAMMER® baking soda, partially offset by declines in FINISHING TOUCH FLAWLESS® hair removal products, VITAFUSION® and L’IL CRITTERS® gummy dietary supplements, and WATERPIK® water flossers.

Consumer Domestic income before income taxes for 2023 was $842.7, a $415.4 increase as compared to 2022. The 2022 results include the FINISHING TOUCH FLAWLESS intangible asset impairment charge of $349.3 in SG&A expenses. Excluding the impairment charge, income before income taxes increased $66.1 due to favorable price/mix of $193.0, the gross margin benefit of higher sales volumes related to the Hero Acquisition of $138.1, lower manufacturing and distribution expenses of $12.0, partially offset by higher SG&A expenses of $165.2 from higher expenses associated with the Hero Acquisition and higher incentive compensation costs, higher marketing expenses of $96.5, and higher interest and other expenses of $15.3.

Consumer International

2023 compared to 2022

Consumer International net sales in 2023 were $975.7, an increase of $79.6 or 8.9% as compared to 2022. The components of the net sales change are the following:

(1)
Includes the Hero Acquisition since October 13, 2022 (the date of the acquisition).

Excluding the impact of foreign exchange rates and acquired product lines, the increase in net sales for the year ended December 31, 2023, is driven by STERIMAR® nasal congestion relief, THERABREATH® mouth wash, BATISTE® dry shampoo, OXICLEAN® stain removers and WATERPIK in the Global Markets Group; BATISTE® dry shampoo, OXICLEAN® stain removers, THERABREATH® mouth wash, and GRAVOL® anti-nauseant in Canada; STERIMAR® nasal congestion relief and BATISTE® dry shampoo in Europe and STERIMAR® nasal congestion relief, ARM & HAMMER® dental care, ARM & HAMMER® baking soda, and ARM & HAMMER® liquid detergent in Mexico.

Consumer International income before income taxes was $94.8 in 2023, an increase of $56.0 compared to 2022. The increase is due to favorable price/mix of $53.4, lower SG&A expenses of $33.3 (including the 2022 FLAWLESS intangible asset impairment charge of $61.7, partially offset by higher incentive compensation costs), the gross margin benefit of higher sales volumes of $12.1, and favorable foreign exchange rates of $3.1, partially offset by higher manufacturing and commodity costs of $33.5, higher marketing expenses of $10.2, and higher interest and other expenses of $2.1.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Specialty Products

2023 compared to 2022

SPD net sales were $321.0 for 2023, a decrease of $27.5, or 7.9% compared to 2022. The components of the net sales change are the following:

Net sales decreased in the year ended December 31, 2023 primarily due to competitive imports within our domestic dairy business.

SPD income before income taxes was $21.2 in 2023, a decrease of $23.7 compared to 2022. The decrease in income before income taxes for 2023 is due to higher SG&A costs of $16.4 (including the Passport intangible asset impairment charge of $3.5 and higher incentive compensation costs), the gross margin impact of lower sales volumes of $7.2, unfavorable manufacturing costs of $3.4, and unfavorable price/mix of $2.5, partially offset by lower interest and other expenses of $5.4, and lower marketing expenses of $0.5.

Corporate

Corporate includes administrative costs of the production, planning and logistics functions which are elements of Cost of Sales in our Consolidated Statements of Income but are allocated to the operating segments in SG&A expenses to determine operating segment income before income taxes. Such amounts were $60.4, $34.3 and $47.1 for 2023, 2022 and 2021, respectively. The increase in 2023 compared to 2022 is primarily due to higher incentive compensation costs.

Also included in corporate are the equity in earnings of affiliates from Armand and ArmaKleen, totaling $8.7, $12.3 and $9.4 for the three years ended December 31, 2023, 2022 and 2021, respectively.

Liquidity and Capital Resources

On June 16, 2022, we entered into a credit agreement (the “Credit Agreement”) that provides for our $1,500.0 unsecured revolving credit facility (the “Revolving Credit Facility”) that matures on June 16, 2027, unless extended. The Credit Agreement replaced our prior $1,000.0 unsecured revolving credit facility that would have matured on March 29, 2024 that was entered into on March 29, 2018. We have the ability to increase our borrowing up to an additional $750.0, subject to lender commitments and certain conditions as described in the Credit Agreement. Borrowings under the Credit Agreement are available for general corporate purposes and are used to support our $1,500.0 commercial paper program.

As of December 31, 2023, we had $344.5 in cash and cash equivalents, and approximately $1,495.0 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.

On October 31, 2022, we issued $500.0 aggregate principal amount of 5.60% Senior Notes due 2032 (the “2032 Notes”). The proceeds from the sale of the 2032 Notes were used to repay commercial paper debt incurred to finance the Hero Acquisition, and related fees and expenses. The 2032 Notes will mature on November 15, 2032, unless earlier retired or redeemed pursuant to the terms of the supplemental indenture governing the terms of the 2032 Notes.

On June 2, 2022, we issued $500.0 aggregate principal amount of 5.00% Senior Notes due 2052 (the “2052 Notes”). In July 2022 a portion of the proceeds from the sale of the 2052 Notes were used to repay all of our outstanding $300.0 2.45% Senior Notes due August 1, 2022. The 2052 Notes will mature on June 15, 2052, unless earlier retired or redeemed pursuant to the terms of the supplemental indenture governing the terms of the 2052 Notes.

In October 2022, we repaid all of the outstanding $400.0 2.875% Senior notes due October 1, 2022 with a portion of the proceeds from the 2052 Notes and cash on hand.

On December 22, 2021, we entered into a $400.0 unsecured term loan facility (as amended on June 16, 2022, the “Term Loan Facility”) with various banks. The loan under the Term Loan Facility (the “Term Loan”) was fully drawn at closing. Unless repaid early, the Term Loan is due on December 22, 2024. The interest rate is the Secured Overnight Financing Rate (“SOFR”) plus a spread and an applicable

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

margin based on the Company’s credit rating, which can range from 60 basis points to 125 bps. The proceeds of the Term Loan were used to partially fund the TheraBreath Acquisition, with the remaining proceeds used for the repayment of commercial paper. In 2023, we repaid $200.0 of the Term Loan with cash on hand and commercial paper borrowings. In January 2024, we repaid an additional $100.0 of the Term Loan with cash on hand.

Additionally, we financed the TheraBreath Acquisition with a portion of the proceeds from an underwritten public offering of $400.0 aggregate principal amount of 2.3% Senior Notes due 2031 (the “2031 Notes”) completed on December 10, 2021. The 2031 Notes will mature on December 15, 2031, unless earlier retired or redeemed pursuant to the terms of the supplemental indenture governing the terms of the 2031 Notes.

We financed the Waterpik Acquisition with a portion of the proceeds from an underwritten public offering of $1,425.0 aggregate principal amount of Senior Notes completed on July 25, 2017, consisting of $300.0 aggregate principal amount of Floating Rate Senior Notes that were due in 2019 and have been fully repaid, $300.0 aggregate principal amount of 2.45% Senior Notes that were due in 2022 and have been fully repaid, $425.0 aggregate principal amount of 3.15% Senior Notes due 2027 and $400.0 aggregate principal amount of 3.95% Senior Notes due 2047.

In 2015, we initiated a Supply Chain Finance program (“SCF Program”). Under the SCF Program, qualifying suppliers may elect to sell their receivables from us for early payment. Participating suppliers negotiate their receivables sales arrangements directly with a third party. We are not party to those agreements and do not have an economic interest in the supplier’s decision to sell their receivables. The SCF Program may allow suppliers more favorable terms than they could secure on their own. The terms of our payment obligations are not impacted by a supplier’s participation in the SCF Program. Our payment terms with suppliers are consistent between suppliers that elect to participate in the SCF Program and those that do not participate. As a result, the program does not have an impact to our average days outstanding.

All amounts outstanding to suppliers participating in the SCF Program are recorded within Accounts Payable in our Consolidated Balance Sheets, and the associated payments are included in operating activities within our Consolidated Statements of Cash Flows.

The current economic environment presents risks that could have adverse consequences for our liquidity. See the discussion of this and other risks under “Risk Factors” in Item 1A of this Annual Report. 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 October 28, 2021, the Board authorized a new share repurchase program, under which we 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. All remaining dollars authorized for repurchase under the 2017 Share Repurchase Plan have been cancelled. The 2021 Share Repurchase Program did 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 its incentive plans.

In November 2023, we executed an agreement to purchase 3.3 million shares for $300.1, inclusive of fees, of which $229.3 was purchased under the evergreen share repurchase program and $70.8 was purchased under the 2021 Share Repurchase Program.

As a result of our stock repurchases, there remains $658.9 of share repurchase availability under the 2021 Share Repurchase Program as of December 31, 2023.

On January 31, 2024, the Board declared a 4% increase in the regular quarterly dividend from $0.2725 to $0.28375 per share, equivalent to an annual dividend of $1.135 per share payable to stockholders of record as of February 15, 2024. The increase raises the annual dividend payout from $267.0 to approximately $276.0 on an annualized basis.

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, pay dividends at the latest approved rate, and meet our capital expenditure program costs, which are expected to be approximately $180.0 in 2024 primarily for manufacturing capacity investments in laundry, litter and vitamins to support expected future sales growth. Cash, together with our current borrowing capacity, may be used for acquisitions that would complement our existing product lines or geographic markets.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Cash Flow Analysis

2023 compared to 2022

Net Cash Provided by Operating Activities – Our primary source of liquidity is our cash flow provided by operating activities, which is dependent on the level of net income and changes in working capital. Our net cash provided by operating activities in 2023 increased by $145.4 to $1,030.6 as compared to $885.2 in 2022 due to an improvement in working capital and an increase in cash earnings (net income adjusted for non-cash items) including the impact of recent acquisitions. The improvement in working capital is primarily related to lower investment in inventory in the U.S. as fill rates have improved, lower investment in inventory related to our discretionary brands and higher incentive compensation accruals. We measure working capital effectiveness based on our cash conversion cycle. The following table presents our cash conversion cycle information for the quarters ended December 31, 2023 and 2022:

Our cash conversion cycle (defined as the sum of DSO plus DIO less DPO) at December 31, 2023, which is calculated using a two period average method, increased 8 days from the prior year primarily due to a reduction in DPO of 6 days. The reduction in 2023 DPO compared to 2022 is partially driven by our recent acquisitions. We continue to focus on reducing our working capital requirements.

Net Cash Used in Investing Activities – Net cash used in investing activities during 2023 was $234.3, primarily reflecting property, plant and equipment additions of $223.5. Net cash used in investing activities during 2022 was $728.6, primarily reflecting $546.8 for the Hero Acquisition and $178.8 for property, plant and equipment additions.

Net Cash Used in Financing Activities – Net cash used in financing activities during the twelve months of 2023 was $725.6, reflecting $300.1 of treasury stock purchases, $266.5 of cash dividend payments and $270.6 of net debt repayments, partially offset by $111.7 of proceeds from stock option exercises. Net cash used in financing activities during the twelve months of 2022 was $120.9, reflecting $255.0 of cash dividend payments and $12.0 of financing costs, partially offset by $119.9 of net debt borrowings, and $26.2 of proceeds from stock option exercises.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

OTHER ITEMS

Market risk

Concentration of Risk

A group of four customers accounted for approximately 44% and 42% of consolidated net sales in 2023 and 2022, respectively. A group of three customers accounted for approximately 37% of consolidated net sales in 2021, of which a single customer (Walmart Inc. and its affiliates) accounted for approximately 23%, 24% and 24% in 2023, 2022 and 2021, respectively.

Interest Rate Risk

We had outstanding total debt at December 31, 2023, of $2,406.0, net of debt issuance costs, of which approximately 92% has a fixed weighted average interest rate of 4.1% and the remaining 8% was constituted primarily of the term loan due 2024 with a current rate of approximately 6.2%. From time to time the Company will enter into interest rate lock agreements to hedge the risk of changes in the interest payments attributable to changes in the interest rate associated with anticipated issuances of debt.

Other Market Risks

We are also subject to market risks relating to our diesel and other commodity costs, fluctuations in foreign currency exchange rates, and changes in the market price of the Common Stock. Refer to Note 3 to the Consolidated Financial Statements included in this Annual Report for a discussion of these market risks and the derivatives used to manage the risks associated with changing diesel fuel and other commodity prices, foreign exchange rates and the price of our Common Stock.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements.

OVERVIEW

Our Business

We develop, manufacture and market a broad range of consumer household, personal care and specialty products focused on animal and food production, chemicals and cleaners. We focus our consumer products marketing efforts principally on our 14 “power brands.” These well-recognized brand names include ARM & HAMMER®, used in multiple product categories such as baking soda, cat litter, carpet deodorization and laundry detergent; TROJAN® condoms, lubricants and vibrators; OXICLEAN® stain removers, cleaning solutions, laundry detergent and bleach alternatives; SPINBRUSH® battery-operated and manual toothbrushes; FIRST RESPONSE® home pregnancy and ovulation test kits; NAIR® depilatories; ORAJEL® oral analgesic; XTRA® laundry detergent; L’IL CRITTERS® and VITAFUSION® gummy dietary supplements; BATISTE® dry shampoos; WATERPIK® water flossers and replacement showerheads; ZICAM® cold shortening and relief products, THERABREATH® oral care products and HERO® acne treatment products. We reevaluate the composition of our “power brands” from time to time, and in 2022 removed FINISHING TOUCH FLAWLESS® products from our list of power brands and added HERO®.

We sell our consumer products under a variety of brands through a broad distribution platform that includes supermarkets, mass merchandisers, wholesale clubs, drugstores, convenience stores, home stores, dollar, pet and other specialty stores and websites and other e-commerce channels, all of which sell the products to consumers. We sell our specialty products to industrial customers, livestock producers and through distributors.

We operate our business in three segments: Consumer Domestic, Consumer International and the Specialty Products Division (“SPD”). The segments are based on differences in the nature of products and organizational and ownership structures. In 2022, the Consumer Domestic, Consumer International and SPD segments represented approximately 77%, 17% and 6%, respectively, of our consolidated net sales.

Supply Chain, Inflation, Labor, Consumer Demand and Competition

Throughout 2022, adverse impacts to our business have been primarily supply chain related, including raw material and labor shortages and interruptions, as well as distribution and transportation challenges. These negative impacts have resulted in difficulty meeting consumer demand. In addition, these negative impacts together with significant broad-based cost inflation have affected interest rates, input costs and consumer behavior. In addition, government restrictions in China have further exacerbated global supply chain challenges and have had a negative impact on Chinese consumer demand for our products in China. As restrictions in China ease, we expect those impacts to our business in the future to be less severe. While it is difficult to predict when conditions may improve, we expect raw material and labor shortages and input cost inflation to continue at least through the first half of 2023.

To address challenges meeting retail customer demand for certain categories, including laundry detergent and litter, we have taken steps to increase our short-term manufacturing capacity for those and other products as well as our raw material and packaging capacity, and continue to work closely with our suppliers, contract manufacturers and retail partners to increase capacity and 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 continuing to enlist additional suppliers that meet our quality specifications. We continued to see an improvement in fill rates in the fourth quarter, particularly in the household category, and we expect those improvements to continue into 2023 across most product categories. While we have made significant progress addressing our manufacturing capacity to meet consumer demand, there is no assurance that these challenges will abate in the foreseeable future, or that the other measures we have or may implement will mitigate the impact of supply disruptions or rising costs. If we continue to experience difficulty meeting consumer and retailer demand over an extended period, retailers may decide to discontinue distribution of all or some of our products.

To attempt to offset some of our cost pressures, we have enacted and continue to evaluate price increases in certain categories. However, we are also experiencing a decline in consumer spending for our most discretionary brands, primarily WATERPIK and FINISHING TOUCH FLAWLESS. Our WATERPIK brand has also been impacted by a consumer shift to lower cost alternatives due primarily to inflationary pressures and recessionary concerns. Most notably, a growing number of water flosser consumers are continuing to switch to competitors' value-branded products. In addition, due to the decline in consumer spending, a major retailer has discontinued certain of our FINISHING TOUCH FLAWLESS products. If the decline in consumer spending for our discretionary products persists over an extended period, we may not be able to increase prices to offset cost inflation and retailers may further discontinue distribution of these products. To address these demand shifts, we are taking steps to better manage production schedules and inventory levels for those products

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

along with increasing promotional activities and marketing spend, as well as continuing efforts to develop lower cost water flosser alternatives.

In the vitamin category there continues to be a softening of growth from record high levels during the COVID-19 pandemic and significant product competition coming from new category entrants. In the two-year period from 2019 to 2021 our vitamin products experienced a net sales increase of over 50%. The category has grown from about 10 competitors a decade ago to more than 50 of significance in recent years. Since 2019 alone, over 35 new brands have entered the gummy category. We continue to evaluate and vigorously combat 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. Additionally, the fill rates for our vitamin products have been below historical levels, if we continue to have challenges meeting customer demand, we are vulnerable to retail customers limiting distribution of our vitamin products and consumers shifting their loyalty to competitors’ products.

Approximately 20% of our portfolio is comprised of discretionary products (WATERPIK and FINISHING TOUCH FLAWLESS) and the vitamin business. In addition, our portfolio is comprised of 40% value products and has a low exposure to private label which should help us to mitigate against a potential recessionary environment. We expect share gains to continue as we invest in our brands and supply chain fill levels continue to improve.

Looking forward, the impact that these challenges will continue to have on our operational and financial performance will depend on future developments, including inflationary impacts, retail customer’s acceptance of all or a portion of any price increases, our continued ability to obtain an adequate supply of products and materials, the spread and severity of new COVID-19 variants, and the long-term impact of vaccines. Additionally, we may be impacted by our ability to recruit and retain a workforce and engage third-parties to manufacture and distribute our products, as well as any future government actions affecting employers and employees, consumers and the economy in general. The impact of any of these potential future developments are uncertain and difficult to predict considering the rapidly evolving landscape.

We are monitoring the impact of both inflation and recessionary indicators including the effect of corresponding government actions, such as raising interest rates to counteract inflation, that may negatively impact consumer spending, and how these factors will potentially influence future cash flows for the short and long term. While we expect that many of these effects will be transitory and that our value focused portfolio positions us well in inflationary and slowing economic environments, it is impossible to predict their impact.

2022 Financial Highlights

Key 2022 financial results include:

•
2022 net sales grew 3.6% over 2021, with gains in Consumer Domestic and SPD, partially offset by lower sales in Consumer International. The gains are primarily due to favorable pricing/product mix in all three segments and acquisitions in Consumer Domestic and Consumer International, partially offset by unfavorable volumes in all three segments and unfavorable changes in foreign exchange rates in Consumer International.

•
Gross margin decreased 170 basis points to 41.9% in 2022 from 43.6% in 2021, primarily due to higher manufacturing costs including labor, raw materials and components, and higher transportation and commodity costs, as well as unfavorable volumes, partially offset by favorable price/product mix, the impact of productivity programs, and business acquisition benefits.

•
Operating margin decreased 970 basis points to 11.1% in 2022 from 20.8% in 2021, reflecting a lower gross margin percentage and higher selling general and administrative costs (including the non-cash Flawless intangible asset impairment charge of $411.0 or 760 bps and 2021's favorable $98.0 or 190 bps Flawless business acquisition liability adjustments), partially offset by lower marketing expenses.

•
We reported diluted net earnings per share in 2022 of $1.68 (including the non-cash Flawless intangible asset impairment charge of $1.26 per share), a decrease of approximately 49.4% from 2021 diluted net earnings per share of $3.32 which included the favorable impact of the Flawless business acquisition liability adjustments of $0.30 per share.

•
Cash provided by operations was $885.2 in 2022, a $108.6 decrease from the prior year due to higher working capital and lower cash earnings (net income adjusted for non-cash items).

•
We returned $255.0 in 2022 to our stockholders through cash dividends paid.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Strategic Goals, Challenges and Initiatives

Our ability to generate sales depends on consumer demand for our products and retail customers’ decisions to carry our products, which are, in part, affected by general economic conditions in our markets. While a vast majority of our products are consumer staples and less vulnerable to decreases in discretionary spending than other products, certain of our products, are more likely to be affected by consumer decisions to control spending. Some customers have responded to economic conditions by increasing their private label offerings (primarily in the dietary supplements, diagnostic kits and oral analgesics categories), launching their own brands, and consolidating the product selections they offer to the top few leading brands in each category. In addition, an increasing portion of our product categories are being sold by club stores, dollar stores, mass merchandisers and internet-based retailers. These factors have placed downward pressure on our sales and gross margins.

We intend to continue to aggressively pursue several key strategic initiatives: maintain competitive marketing and trade spending, tightly control our cost structure, expand our online market share, continue to develop and launch new and differentiated products, and pursue strategic acquisitions. We also intend to continue to grow our product sales globally and maintain an offering of premium and value brand products to appeal to a wide range of consumers.

We derive a substantial percentage of our revenues from sales of liquid laundry detergent. As a result, any delays or reduction of sales of these products, in the event that our product category diversification efforts discussed below are not successful, could have a material adverse effect on our business, financial condition and operating results and cash flows. 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 the category will not decline in the future and that we will be able to offset any such decline.

We are continuously focused on strengthening our key brands through the launch of innovative new products, which span various product categories, including premium and value household products supported by increased marketing and trade spending. There can be no assurance that these measures will be successful.

In the domestic business, seven out of 14 “power brands” met or exceeded category growth for the full year 2022. With the acquisition of HERO®, we have 14 “power brands”. Our global product portfolio consists of both premium (60% of total worldwide consumer revenue in 2022) and value (40% of total worldwide consumer revenue in 2022) brands, which we believe enables us to succeed in a range of economic environments. We intend to continue to develop a portfolio of appealing new products to build loyalty among cost-conscious consumers.

Over the past two decades, we have diversified from an almost exclusively U.S. business to a global company with approximately 17% of sales derived from countries outside of the United States in 2022. We have subsidiary operations in seven countries (Canada, Mexico, U.K., France, Germany, China and Australia). We also export products to over 130 other countries through our Global Markets Group using a broad network of third-party distributors. In 2022, we benefited from our expanded global footprint and expect to continue to focus on selectively expanding our global business. If we are unable to expand our business internationally at the rate that we expect, we may not realize our anticipated growth targets.

Although we believe ongoing international expansion represents a significant opportunity to grow our business, our increasing activity in global markets exposes us to additional complexity and uncertainty. Sales generated outside of the U.S. are exposed to foreign currency exchange rate fluctuations as well as political uncertainty which could impact future operating results. Moreover, the current domestic and international political environment, including existing and potential changes to U.S. policies related to global trade and tariffs, have resulted in uncertainty regarding the global economy. The impact of U.S. tariffs on certain products was a component of increased cost of sale during the year ended December 31, 2022. The implementation of more restrictive trade policies, such as higher tariffs or new barriers to entry, in countries in which we manufacture or sell large quantities of products could negatively impact our business, cash flows, results of operations and financial condition.

We also continue to focus on controlling our costs. Historically, we have been able to mitigate the effects of cost increases primarily by implementing cost reduction programs and, to a lesser extent, by passing along cost increases to customers. We have also entered into set pricing and pre-buying arrangements with certain suppliers and hedge agreements for diesel fuel and other commodities. Additionally, our focus on tight cost controls has enabled us to effectively navigate recent challenging economic conditions. In 2022, due to the significant increase in input costs, we have not been able to fully mitigate the impact of these increases with pricing, cost control measures and productivity programs. We have, and will continue to, implement price increases to address cost inflation. However, we cannot be certain that these price increases will be accepted by customers.

The identification and integration of strategic acquisitions are an important component of our overall strategy and product category diversification. Acquisitions have added significantly to our sales, profits and product category diversification over the last decade. This is evidenced by our 2015 acquisition of certain assets of Varied Industries Corporation (the “Vi-cor Acquisition”), the 2016 acquisitions of Spencer Forrest, Inc., the maker of TOPPIK (the “Toppik Acquisition”), and the ANUSOL and RECTINOL businesses from Johnson &

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Johnson (the “Anusol Acquisition”), the 2017 acquisitions of the VIVISCAL brand from Lifes2Good Holdings Limited (the “Viviscal Acquisition”), Agro BioSciences, Inc. (the “Agro Acquisition”), and the WATERPIK brand from Pik Holdings, Inc. (the “Waterpik Acquisition”), the 2018 acquisition of Passport Food Safety Solutions, Inc. (the “Passport Acquisition”), the 2019 acquisition of the FINISHING TOUCH FLAWLESS brand; the 2020 acquisition of the ZICAM brand from Consumer Health Holdco LLC, the 2021 acquisition of the THERABREATH brand from Dr. Harold Katz, LLC and HK-IP International, Inc, and the 2022 acquisition of the HERO brand which includes the MIGHTY PATCH acne treatment products. The failure to effectively identify or integrate any acquisition or achieve expected synergies may cause us to incur material asset write-downs. We actively seek acquisitions that fit our guidelines, and our strong financial position provides us with flexibility to take advantage of acquisition opportunities. In addition, our ability to quickly integrate acquisitions and leverage existing infrastructure has enabled us to establish a strong track record in making accretive acquisitions. Since 2001, we have acquired 13 of our 14 “power brands”.

We believe we are well positioned to meet the ongoing challenges described above due to our strong financial condition, experience operating in challenging environments and continued focus on key strategic initiatives. Our focus is to maintain competitive marketing and trade spending, manage our cost structure, continue to develop and launch new and differentiated products, while pursuing strategic acquisitions. This focus, together with the strength of our portfolio of premium and value brands, has enabled us to succeed in a range of economic environments. Moreover, the generation of a significant amount of cash from operations combined with an investment grade credit rating, provides us with the financial flexibility to pursue acquisitions, drive new product development, make capital expenditures to support organic growth and gross margin improvements, return cash to stockholders through dividends and share buy backs, and reduce outstanding debt. These factors position us to continue to increase stockholder value over the long-term.

For information regarding risks and uncertainties that could materially adversely affect our business, results of operations and financial condition and cash flows, see “Risk Factors” in Item 1A of this Annual Report.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Recent Developments

Hero Acquisition

On October 13, 2022, we 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”). We 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. We 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 us are satisfied. The vesting requirements are satisfied at various dates over a three-year period from the date of the acquisition. 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.

Inflation Reduction Act of 2022

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the “Act”), which contains provisions effective January 1, 2023, including a 15% corporate minimum tax and a 1% excise tax on stock buybacks. While we are still evaluating the impact of the Act, we do not expect any material changes on our consolidated financial position, results of operations or cash flows.

Dividend Increase

On February 1, 2023, the Board declared a 4% increase in the regular quarterly dividend from $0.2625 to $0.2725 per share, equivalent to an annual dividend of $1.09 per share payable to stockholders of record as of February 15, 2023. The increase raises the annual dividend payout from $255.0 to approximately $265.0.

Russia - Ukraine War

The global economy continues to be negatively impacted by the war between Russia and Ukraine. Furthermore, governments in the U.S., United Kingdom, and European Union have each imposed export controls on certain products as well as financial and economic sanctions on certain industry sectors and parties in Russia and Belarus. We have experienced material shortages and increased costs for transportation, energy, and raw material due in part to the negative impact of the Russia-Ukraine war on the global economy including European energy market access to Russian energy sources. Further escalation of geopolitical tensions related to the conflict, including increased trade barriers or restrictions on global trade, could result in, among other things, cyber attacks, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain.

We have no operations in Russia or Ukraine. Sales into Russia and Belarus, which have been suspended indefinitely, are not material to our consolidated net sales and earnings.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. By their nature, these judgments are subject to uncertainty. They are based on our historical experience, our observation of trends in industry, information provided by our customers and information available from other outside sources, as appropriate. Our significant accounting policies and estimates are described below.

Revenue Recognition and Promotional and Sales Return Reserves

Virtually all of our revenue represents sales of finished goods inventory and is recognized when received or picked up by our customers. The reserves for consumer and trade promotion liabilities and sales returns are established based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. Promotional reserves are provided for sales incentives, such as coupons to consumers, and sales incentives provided to customers (such as slotting, cooperative advertising, incentive discounts based on volume of sales and other arrangements made directly with customers). All such costs are netted against sales. Slotting costs are recorded when the product is delivered to the customer. Cooperative advertising costs are recorded when the customer places the advertisement for our products. Discounts relating to price reduction arrangements and coupons are recorded when the related sale takes place. Costs associated with end-aisle or other in-store displays are recorded when product that is subject to the promotion is sold. We rely on historical experience and forecasted data to determine the required reserves. For example, we use historical experience to project coupon redemption rates to determine reserve requirements. Based on the total face value of Consumer Domestic coupons redeemed over the past several years, if the actual rate of redemptions were to deviate by 0.1% from the rate for which reserves are accrued in the financial statements, a difference of approximately $2.7 in the reserve required for coupons would result. With regard to other promotional reserves and sales returns, we use experience-based estimates, customer and sales organization inputs and historical trend analysis in arriving at the reserves required. If our estimates for promotional activities and sales returns reserves were to change by 10% the impact to promotional spending and sales return accruals would be approximately $15.9. While management believes that its promotional and sales returns reserves are reasonable and that appropriate judgments have been made, estimated amounts could differ materially from actual future obligations.

Impairment of goodwill, trade names and other intangible assets

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.

Carrying values of goodwill and indefinite-lived trade names are reviewed periodically for possible impairment. Finite intangible assets are assessed when there are business triggering events. Our impairment analysis is based on a discounted cash flow approach that requires significant judgment with respect to unit volume, revenue and expense growth rates, and the selection of an appropriate discount rate and royalty rate. Management uses estimates based on expected trends in making these assumptions. With respect to goodwill, impairment occurs when the carrying value of the reporting unit exceeds the discounted present value of cash flows for that reporting unit. For trade names and other intangible assets, an impairment charge is recorded for the difference between the carrying value and the net present value of estimated future cash flows, which represents the estimated fair value of the asset. Judgment is required in assessing whether assets may have become impaired between annual valuations. Indicators such as unexpected adverse economic factors, unanticipated technological change, distribution losses, or competitive activities and acts by governments and courts may indicate that an asset has become impaired. The result of our annual goodwill impairment test determined that the estimated fair value substantially exceeded the carrying values of all reporting units.

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. We determined that the fair value of all indefinite-lived intangible assets for each of the years in the three-year period ended December 31, 2022 exceeded their respective carrying values based upon the forecasted cash flows and profitability.

In recent years our global TROJAN business, specifically the condom category, has not grown and competition has increased. In addition, profitability was negatively impacted throughout 2022 by inflation, resulting in higher input costs and discount rates, and supply shortages for packaging materials. As a result, the TROJAN business has experienced sales and profit declines that have eroded a significant portion of the excess between the fair and carrying value of the tradename, which was $176.4 as of December 31, 2022. This indefinite-lived intangible asset may be susceptible to impairment 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, significant changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that could trigger future impairment charges of the asset.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Our global WATERPIK business has recently experienced a significant decline in customer demand for many of its products, primarily due to lower consumer spending for discretionary products from inflation and a growing number of water flosser consumers switching to more value-branded products. As a result, the WATERPIK business has experienced declining sales and profits resulting in a reduction in expected future cash flows which have eroded a substantial portion of the excess between the fair and carrying value of the tradename, which was $644.7 as of December 31, 2022. This indefinite-lived intangible asset may be susceptible to impairment and a continued decline in fair value could trigger a future impairment charge of the WATERPIK tradename. While management can and has implemented strategies to address the risk, significant changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that could trigger future impairment charges of these assets.

In the fourth quarter of 2022, we 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 consist of the definite-lived tradename, customer relationships and technology assets recorded at acquisition. We evaluated our ability to recover the carrying values of 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 remaining net book value of the tradename as of December 31, 2022 is $46.3 and will be amortized over a remaining useful life of three years. We are implementing strategies to address the decline in profitability. However, if unsuccessful, a further decline could trigger a future impairment charge.

It is possible that our conclusions regarding impairment or recoverability of goodwill or other intangible assets could change in future periods if, for example, (i) the businesses or brands do not perform as projected, (ii) overall economic conditions in future years vary from current assumptions (including changes in discount rates), (iii) business conditions or strategies change from current assumptions, (iv) investors require higher rates of return on equity investments in the marketplace or (v) enterprise values of comparable publicly traded companies, or actual sales transactions of comparable companies, were to decline, resulting in lower multiples of revenues and EBITDA. A future impairment charge for goodwill or intangible assets could have a material effect on our consolidated financial position or results of operations.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized to reflect the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be recovered or settled. Management provides a valuation allowance against deferred tax assets for amounts which are not considered “more likely than not” to be realized. We record liabilities for potential assessments in various tax jurisdictions under U.S. GAAP guidelines. The liabilities relate to tax return positions that, although supportable by us, may be challenged by the tax authorities and do not meet the minimum recognition threshold required under applicable accounting guidance for the related tax benefit to be recognized in the income statement. We adjust this liability as a result of changes in tax legislation, interpretations of laws by courts, rulings by tax authorities, changes in estimates and the expiration of the statute of limitations. Many of the judgments involved in adjusting the liability involve assumptions and estimates that are highly uncertain and subject to change. In this regard, settlement of any issue, or an adverse determination in litigation, with a taxing authority could require the use of cash and result in an increase in our annual tax rate. Conversely, favorable resolution of an issue with a taxing authority would be recognized as a reduction to our annual tax rate.

New Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements included in this Annual Report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of December 31, 2022.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020

The discussion of results of operations at the consolidated level presented below is followed by a more detailed discussion of results of operations by segment. This section of this Form 10-K generally discusses 2022 and 2021 results and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021. The segment discussion also addresses certain product line information. Our operating segments are consistent with our reportable segments.

Consolidated results

2022 compared to 2021

Net Sales

Net sales for the year ended December 31, 2022 were $5,375.6, an increase of $185.5, or 3.6% compared to 2021 net sales. The components of the net sales increase are as follows:

(1)
On October 13, 2022, we completed the Hero Acquisition. On December 24, 2021, we completed the TheraBreath Acquisition. The results of these acquisitions are included in our results since the date of acquisition.

The volume change reflects decreased product unit sales for all three segments. Price/mix was favorable in all three segments.

Gross Profit

Our gross profit for 2022 was $2,250.0, a $13.5 decrease compared to 2021. Gross margin was 41.9% in 2022 compared to 43.6% in 2021, a 170 basis points (“bps”) decrease. The decrease is due to the impact of higher manufacturing costs, including labor of 270 bps, higher commodities of 230 bps, the impact of lower sales volumes of 110 bps, and higher transportation costs of 40 bps, partially offset by favorable price/mix of 320 bps, the impact of productivity programs of 110 bps, and business acquisition mix benefits of 50 bps.

Operating Costs

Marketing expenses for 2022 were $535.2, a decrease of $42.5 compared to 2021. Marketing expenses as a percentage of net sales decreased 110 bps to 10.0% in 2022 as compared to 2021 due to 80 bps on lower expenses as we reduced spending throughout most of 2022 due to low case fill rates, and 30 bps of leverage on higher net sales.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

SG&A expenses for 2022 were $1,117.0, an increase of $510.3 or 84.1% compared to 2021. The increase is primarily due to the non-cash Flawless intangible asset impairment charges of $411.0 and 2021’s favorable $98.0 Flawless business acquisition liability adjustments, partially offset by lower incentive compensation. SG&A as a percentage of net sales increased 910 bps to 20.8% in 2022 compared to 11.7% in 2021. The increase is due to 950 bps on higher expenses (including the Flawless impairment), offset by 40 bps of leverage associated with higher sales.

Other Income and Expenses

Other expense increased nominally in 2022 as compared to 2021.

Interest expense in 2022 was $89.6, an increase of $35.1. The increase is primarily due to higher average debt outstanding and higher interest rates.

Taxation

The 2022 U.S. federal effective income tax rate was 20.9% compared to 19.8% in 2021. The increase in the tax rate is primarily due to a lower tax benefit related to lower stock option exercises.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the “Act”), which contains provisions effective January 1, 2023, including a 15% corporate minimum tax and a 1% excise tax on stock buybacks. While we are still evaluating the impact of the Act, we do not expect any material changes on our consolidated financial position, results of operations or cash flows.

Segment results for 2022, 2021 and 2020

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.

The Corporate segment income consists of equity in earnings of affiliates. As of December 31, 2022, we held 50% ownership interests in each of Armand and ArmaKleen, respectively. Our equity in earnings of Armand and ArmaKleen, totaling $12.3, $9.4 and $6.7 for the three years ended December 31, 2022, 2021 and 2020, respectively, are included in the Corporate segment.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Some of the 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 each of the three years ended December 31, 2022, 2021 and 2020 were as follows:

(1)
Intersegment sales from Consumer International to Consumer Domestic, which are not reflected in the table, were $15.1, $10.8 and $11.7 for the years ended December 31, 2022, 2021 and 2020, respectively.

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

(3)
Corporate segment consists of equity in earnings of affiliates from Armand and ArmaKleen in 2022, 2021 and 2020.

(4)
2022 results include the Flawless non-cash intangible asset impairment charges of $411.0 in SG&A expenses, of which $349.3 was recorded in the Consumer Domestic segment and $61.7 was recorded in the Consumer International segment.

(5)
2021 results include a $98.0 reduction in SG&A expenses to reduce the Flawless business acquisition liability, of which $83.2 was recorded to Consumer Domestic and $14.8 was recorded to Consumer International.

(6)
2020 results include a $94.0 reduction of SG&A expenses to reduce the Flawless business acquisition liability, of which $79.9 was recorded to Consumer Domestic and $14.1 was recorded to Consumer International. During 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 for external customers for the years ended December 31, 2022, 2021 and 2020 were as follows:

Household Products include deodorizing, cleaning and laundry products. Personal Care Products include condoms, pregnancy kits, oral care products, skin care products, hair care products and gummy dietary supplements.

44

CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Consumer Domestic

2022 compared to 2021

Consumer Domestic net sales in 2022 were $4,131.0, an increase of $189.1 or 4.8% compared to net sales of $3,941.9 in 2021. The components of the net sales change are the following:

(1)
Includes the Hero and TheraBreath Acquisitions since the date of acquisition.

The increase in net sales for 2022 reflects the impact of the Hero and TheraBreath Acquisitions, and higher net sales in ARM & HAMMER® Liquid Detergent, OXICLEAN® Powder, ARM & HAMMER® Cat Litter, and BATISTE® dry shampoo, partially offset by declines in FINISHING TOUCH FLAWLESS® Hair Removal Products, WATERPIK® Shower Heads, and VITAFUSION® and L’IL CRITTERS® gummy vitamins.

Consumer Domestic income before income taxes for 2022 was $427.3, a $434.1 decrease as compared to 2021. The decrease is due primarily to higher SG&A expenses of $437.7 (from the 2022 FINISHING TOUCH FLAWLESS non-cash intangible asset impairment charge of $349.3 and the favorable reduction in the fair value of the FINISHING TOUCH FLAWLESS business acquisition liability in 2021 of $83.2). Also impacting Consumer Domestic was higher manufacturing and distribution expenses of $150.6, the impact of lower sales volumes of $67.9, and higher interest and other expenses of $24.8, partially offset by a favorable price/mix of $216.7 and lower marketing expenses of $29.1.

Consumer International

2022 compared to 2021

Consumer International net sales in 2022 were $896.1, a decrease of $16.1 or 1.8% as compared to 2021. The components of the net sales change are the following:

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

Excluding the impact of foreign exchange rates and acquired product lines, sales growth is driven by the BATISTE and CURASH brands in Australia, the BATISTE, GRAVOL, and ARM & HAMMER® Cat Litter in Canada, and the BATISTE brand in Europe.

Consumer International income before income taxes was $38.8 in 2022, a decrease of $88.5 compared to 2021 due to higher SG&A expenses of $78.1 (from the 2022 FINISHING TOUCH FLAWLESS non-cash intangible asset impairment charge of $61.7 and favorable reduction in the fair value of the FINISHING TOUCH FLAWLESS business acquisition liability in 2021 of $14.8). Also impacting Consumer International was higher manufacturing and commodity costs of $38.6, unfavorable foreign exchange rates of $19.4, and the impact of lower sales volumes of $4.3, partially offset by a favorable price/mix of $34.0, lower marketing expenses of $17.1, and lower interest and other expenses of $0.6.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Specialty Products

2022 compared to 2021

SPD net sales were $348.5 for 2022, an increase of $12.5, or 3.7% compared to 2021. The components of the net sales change are the following:

Net sales increased primarily due to higher pricing in our dairy and specialty chemicals segments in response to rising costs.

SPD income before income taxes was $44.9 in 2022, an increase of $11.3 compared to 2021. The increase in income before income taxes for 2022 is due primarily to favorable price/product mix of $29.7 and lower SG&A costs of $12.1, which were offset by unfavorable manufacturing costs of $20.8, higher interest and other expenses of $5.8, the impact of lower sales volumes of $3.8 and higher marketing expenses of $0.1.

Corporate

Corporate includes administrative costs of the production, planning and logistics functions which are allocated to the operating segments in SG&A expenses but are elements of cost of sales in our Consolidated Statements of Income. Such amounts were $34.3, $47.1 and $59.8 for 2022, 2021 and 2020, respectively.

Also included in corporate are the equity in earnings of affiliates from Armand and ArmaKleen, totaling $12.3, $9.4 and $6.7 for the three years ended December 31, 2022, 2021 and 2020, respectively.

Liquidity and Capital Resources

On June 16, 2022, we entered into a credit agreement (the “Credit Agreement”) that provides for our $1,500.0 unsecured revolving credit facility (the “Revolving Credit Facility”) that matures on June 16, 2027, unless extended. The Credit Agreement replaced our prior $1,000.0 unsecured revolving credit facility maturing on March 29, 2024 that was entered into on March 29, 2018. We have the ability to increase our borrowing up to an additional $750.0, subject to lender commitments and certain conditions as described in the Credit Agreement. Borrowings under the Credit Agreement are available for general corporate purposes and are used to support our $1,500.0 commercial paper program.

As of December 31, 2022, we had $270.3 in cash and cash equivalents, and approximately $1,426.0 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.

On October 31, 2022, we issued $500.0 aggregate principal amount of 5.60% Senior Notes due 2032 (the “2032 Notes”). The proceeds from the sale of the 2032 Notes were used to repay commercial paper debt incurred to finance the Hero Acquisition, and related fees and expenses. The 2032 Notes will mature on November 15, 2032, unless earlier retired or redeemed pursuant to the terms of the supplemental indenture governing the terms of the 2032 Notes.

On June 2, 2022, we issued $500.0 aggregate principal amount of 5.00% Senior Notes due 2052 (the “2052 Notes”). In July 2022 a portion of the proceeds from the sale of the 2052 Notes were used to repay all of our outstanding $300.0 2.45% Senior Notes due August 1, 2022. The 2052 Notes will mature on June 15, 2052, unless earlier retired or redeemed pursuant to the terms of the supplemental indenture governing the terms of the 2052 Notes.

In October 2022, we repaid all of the outstanding $400.0 2.875% Senior notes due October 1, 2022 with a portion of the proceeds from the 2052 Notes and cash on hand.

On December 22, 2021, we entered into a $400.0 unsecured term loan facility (as amended on June 16, 2022, the “Term Loan Facility”) with various banks. The loan under the Term Loan Facility (the “Term Loan”) was fully drawn at closing. Unless repaid early, the Term Loan is due on December 22, 2024. The interest rate is the Secured Overnight Financing Rate (“SOFR”) plus a spread and an applicable margin based on the Company’s credit rating, which can range from 60 basis points to 125 bps. The proceeds of the Term Loan were used to partially fund the TheraBreath Acquisition, with the remaining proceeds used for the repayment of commercial paper. In January 2023, we repaid $100.0 of the Term Loan with cash on hand and commercial paper borrowings.

46

CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Additionally, we financed the TheraBreath Acquisition with a portion of the proceeds from an underwritten public offering of $400.0 aggregate principal amount Senior Notes due 2031 (the “2031 Notes”) completed on December 10, 2021. The 2031 Notes will mature on December 15, 2031, unless earlier retired or redeemed pursuant to the terms of the supplemental indenture governing the terms of the 2031 Notes.

We financed the Waterpik Acquisition with a portion of the proceeds from an underwritten public offering of $1,425.0 aggregate principal amount of Senior Notes completed on July 25, 2017, consisting of $300.0 aggregate principal amount of Floating Rate Senior Notes that were due in 2019 and have been fully repaid, $300.0 aggregate principal amount of 2.45% Senior Notes that were due in 2022 and have been fully repaid, $425.0 aggregate principal amount of 3.15% Senior Notes due 2027 and $400.0 aggregate principal amount of 3.95% Senior Notes due 2047.

In 2015, we initiated a Supply Chain Finance program (“SCF Program”). Under the SCF Program, qualifying suppliers may elect to sell their receivables from us for early payment. Participating suppliers negotiate their receivables sales arrangements directly with a third party. We are not party to those agreements and do not have an economic interest in the supplier’s decision to sell their receivables. The SCF Program may allow suppliers more favorable terms than they could secure on their own. The terms of our payment obligations are not impacted by a supplier’s participation in the SCF Program. Our payment terms with suppliers are consistent between suppliers that elect to participate in the SCF Program and those that do not participate. As a result, the program does not have an impact to our average days outstanding.

All amounts outstanding to suppliers participating in the SCF Program are recorded within Accounts Payable in our Consolidated Balance Sheets, and the associated payments are included in operating activities within our Consolidated Statements of Cash Flows.

The current economic environment presents risks that could have adverse consequences for our liquidity. See the discussion of this and other risks under “Risk Factors” in Item 1A of this Annual Report. 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 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 our 2017 Share Repurchase Program. 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.

In December 2021, we executed open market purchases of 1.8 million shares for $170.3, inclusive of fees, of which $100.0 was purchased under the evergreen share repurchase program and $70.3 was purchased under the 2021 Share Repurchase Program. In December 2021, we also entered into an ASR contract with a commercial bank to purchase Common Stock. We paid $200.0 to the bank, inclusive of fees, and received an initial delivery of shares equal to $180.0, or 1.8 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 2022, the bank delivered an additional 0.2 million shares to us. The final shares delivered to us were determined by the average price per share paid by the bank during the purchase period. All 2.0 million shares were purchased under our 2021 Share Repurchase Program.

As a result of our stock repurchases, there remains $729.7 of share repurchase availability under the 2021 Share Repurchase Program as of December 31, 2022.

On February 1, 2023, the Board declared a 4% increase in the regular quarterly dividend from $0.2625 to $0.2725 per share, equivalent to an annual dividend of $1.09 per share payable to stockholders of record as of February 15, 2023. The increase raises the annual dividend payout from $255.0 to approximately $265.0.

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 $250.0 in 2023 primarily for manufacturing capacity investments in laundry, litter and vitamins to support expected future sales growth. Cash, together with our current borrowing capacity, may be used for acquisitions that would complement our existing product lines or geographic markets.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Cash Flow Analysis

2022 compared to 2021

Net Cash Provided by Operating Activities – Our primary source of liquidity is our cash flow provided by operating activities, which is dependent on the level of net income and changes in working capital. Our net cash provided by operating activities in 2022 decreased by $108.6 to $885.2 as compared to $993.8 in 2021 due to an increase in working capital and lower cash earnings (net income adjusted for non-cash items). The increase in working capital is primarily related to higher inventory balances as we increased inventory early in 2022 to ensure supply and then experienced lower demand for certain products later in the year. We measure working capital effectiveness based on our cash conversion cycle. The following table presents our cash conversion cycle information for the quarters ended December 31, 2022 and 2021:

Our cash conversion cycle (defined as the sum of DSO plus DIO less DPO) at December 31, 2022, which is calculated using a two period average method, increased 5 days from the prior year due to an increase in DIO of 5 days from the increase in inventory balances as we increased inventory early in 2022 to ensure supply and then experienced lower demand for certain products later in the year. We continue to focus on reducing our working capital requirements.

Net Cash Used in Investing Activities – Net cash used in investing activities during 2022 was $728.6, primarily reflecting $546.8 for the Hero Acquisition and $178.8 for property, plant and equipment additions. Net cash used in investing activities during 2021 was $682.0, primarily reflecting $556.0 for the TheraBreath Acquisition and $118.8 for property, plant and equipment additions.

Net Cash Used in Financing Activities – Net cash used in financing activities during the twelve months of 2022 was $120.9, reflecting $255.0 of cash dividend payments and $12.0 of financing costs, partially offset by $119.9 of net debt borrowings, and $26.2 of proceeds from stock option exercises. Net cash used in financing activities during the twelve months of 2021 was $252.1, reflecting $500.0 of repurchases of our Common Stock, $247.5 of cash dividend payments and $3.9 of financing costs, partially offset by $400.7 of net debt borrowings, and $98.7 of proceeds from stock option exercises.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

OTHER ITEMS

Market risk

Concentration of Risk

A group of four customers accounted for approximately 42% of consolidated net sales in 2022. A group of three customers accounted for approximately 37% of consolidated net sales in 2021 and 36% in 2020, of which a single customer (Walmart Inc. and its affiliates) accounted for approximately 24%, 24% and 23% in 2022, 2021 and 2020, respectively.

Interest Rate Risk

We had outstanding total debt at December 31, 2022, of $2,673.5, net of debt issuance costs, of which approximately 82% has a fixed weighted average interest rate of 4.1% and the remaining 18% was constituted of commercial paper issued by us that currently has a weighted average interest rate of approximately 4.0% and the term loan due 2024 with a current rate of approximately 5.1%. From time to time the Company will enter into interest rate lock agreements to hedge the risk of changes in the interest payments attributable to changes in the interest rate associated with anticipated issuances of debt.

Other Market Risks

We are also subject to market risks relating to our diesel and other commodity costs, fluctuations in foreign currency exchange rates, and changes in the market price of the Common Stock. Refer to Note 3 to the Consolidated Financial Statements included in this Annual Report for a discussion of these market risks and the derivatives used to manage the risks associated with changing diesel fuel and other commodity prices, foreign exchange rates and the price of our Common Stock.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements.

OVERVIEW

Our Business

We develop, manufacture and market a broad range of consumer household, personal care and specialty products focused on animal and food production, chemicals and cleaners.  We focus our consumer products marketing efforts principally on our 14 “power brands.”  These well-recognized brand names include ARM & HAMMER®, used in multiple product categories such as baking soda, cat litter, carpet deodorization and laundry detergent; TROJAN® condoms, lubricants and vibrators; OXICLEAN® stain removers, cleaning solutions, laundry detergent and bleach alternatives; SPINBRUSH® battery-operated and manual toothbrushes;  FIRST RESPONSE® home pregnancy and ovulation test kits; NAIR® depilatories; ORAJEL® oral analgesic; XTRA® laundry detergent; L’IL CRITTERS® and VITAFUSION® gummy dietary supplements; BATISTE® dry shampoos; WATERPIK® water flossers and replacement showerheads; FLAWLESS® products;  ZICAM® cold shortening and relief products and THERABREATH® oral care products.

We sell our consumer products under a variety of brands through a broad distribution platform that includes supermarkets, mass merchandisers, wholesale clubs, drugstores, convenience stores, home stores, dollar, pet and other specialty stores and websites and other e-commerce channels, all of which sell the products to consumers. We sell our specialty products to industrial customers, livestock producers and through distributors.

We operate our business in three segments: Consumer Domestic, Consumer International and the Specialty Products Division (“SPD”).  The segments are based on differences in the nature of products and organizational and ownership structures.  In 2021, the Consumer Domestic, Consumer International and SPD segments represented approximately 76%, 18% and 6%, respectively, of our consolidated net sales.

COVID-19 Pandemic and Other Recent Developments

The COVID-19 pandemic continues to impact most of our businesses.  As 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, 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, largely because of broad-based shortages in suppliers’ labor which impact the availability of many critical components in our supply chain and distribution. Additionally, we and our suppliers are experiencing significant broad-based inflation of manufacturing and distribution costs as well as transportation challenges.  We expect shortages to continue at least through the first half of 2022 and input cost inflation to continue at least throughout 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 our short-term manufacturing capacity for many of our products (including laundry detergent, baking soda, cleaners and vitamins) as well as our raw material and packaging capacity, and continue to work closely with our suppliers, contract manufacturers and retail partners to increase capacity and 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.  While we expect supply availability issues to start improving in the second half of 2022 for most of our brands, there is no assurance that these challenges will abate in the foreseeable future or that our customers will accept all or a portion of any price increases, or that the other measures we have or may implement will mitigate the impact of supply disruptions or rising costs.

Looking forward, the extent that COVID-19 and other recent developments’ have on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, the spread and severity of new variants such as Omicron, 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.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

We are monitoring the impact of both inflation and the COVID-19 pandemic, including the effect of corresponding government actions on consumer demand, and how these factors will potentially influence future cash flows for the short and long term.  While we expect that many of these effects will not be permanent, it is impossible to predict their duration.

2021 Financial Highlights

Key 2021 financial results include:

Strategic Goals, Challenges and Initiatives

Our ability to generate sales depends on consumer demand for our products and retail customers’ decisions to carry our products, which are, in part, affected by general economic conditions in our markets. While a vast majority of our products are consumer staples and less vulnerable to decreases in discretionary spending than other products, an increasing number of our products, particularly those from our recent acquisitions, are more likely to be affected by consumer decisions to control spending.  Some customers have responded to economic conditions by increasing their private label offerings (primarily in the dietary supplements, diagnostic kits and oral analgesics categories), launching their own brands, and consolidating the product selections they offer to the top few leading brands in each category.  In addition, an increasing portion of our product categories are being sold by club stores, dollar stores, mass merchandisers and internet-based retailers.  These factors have placed downward pressure on our sales and gross margins.

We intend to continue to aggressively pursue several key strategic initiatives: maintain competitive marketing and trade spending, tightly control our cost structure, continue to develop and launch new and differentiated products, and pursue strategic acquisitions.  We also intend to continue to grow our product sales globally and maintain an offering of premium and value brand products to appeal to a wide range of consumers.

We derive a substantial percentage of our revenues from sales of liquid laundry detergent. As a result, any delays or reduction of sales of these products, in the event that our product category diversification efforts discussed below are not successful, could have a material adverse effect on our business, financial condition and operating results and cash flows. Condom usage has declined over the last decade.  However, after a large decline in condom sales during 2020 due to social distancing, the condom category began to recover in 2021 with fewer social restrictions leading to an increase in sexual activity. However, there is no assurance the category will not decline in the future and that we will be able to offset any such decline.

We are continuously focused on strengthening our key brands through the launch of innovative new products, which span various product categories, including premium and value household products supported by increased marketing and trade spending.  There can be no assurance that these measures will be successful.

In the domestic business, six out of 13 “power brands” met or exceeded category growth for the full year 2021. With the acquisition of THERABREATH, we now have 14 “power brands”.  Our global product portfolio consists of both premium (60% of total worldwide consumer revenue in 2021) and value (40% of total worldwide consumer revenue in 2021) brands, which we believe enables us to succeed in a range of economic environments.  We intend to continue to develop a portfolio of appealing new products to build loyalty among cost-conscious consumers.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Over the past two decades, we have diversified from an almost exclusively U.S. business to a global company with approximately 18% of sales derived from countries outside of the United States in 2021.  We have subsidiary operations in seven countries (Canada, Mexico, U.K., France, Germany, China and Australia) and sell into over 130 other countries.  In 2021, we benefited from our expanded global footprint and expect to continue to focus on selectively expanding our global business.  If we are unable to expand our business internationally at the rate that we expect, we may not realize our anticipated growth targets.

Although we believe ongoing international expansion represents a significant opportunity to grow our business, our increasing activity in global markets exposes us to additional complexity and uncertainty.  Sales generated outside of the U.S. are exposed to foreign currency exchange rate fluctuations as well as political uncertainty which could impact future operating results.  Moreover, the current domestic and international political environment, including existing and potential changes to U.S. policies related to global trade and tariffs, have resulted in uncertainty regarding the global economy. The impact of U.S. tariffs on certain products was a component of increased cost of sale during the year ended December 31, 2021. The implementation of more restrictive trade policies, such as higher tariffs or new barriers to entry, in countries in which we manufacture or sell large quantities of products could negatively impact our business, cash flows, results of operations and financial condition.

We also continue to focus on controlling our costs.  Historically, we have been able to mitigate the effects of cost increases primarily by implementing cost reduction programs and, to a lesser extent, by passing along cost increases to customers.  We have also entered into set pricing and pre-buying arrangements with certain suppliers and hedge agreements for diesel fuel and other commodities. Additionally, our focus on tight cost controls has enabled us to effectively navigate recent challenging economic conditions.  In 2021, due to the significant increase in input costs, we have not been able to fully mitigate the impact of these increases with cost control measures and productivity programs.  We have, and will continue to, implement price increases to address cost inflation.  However, we cannot be certain that these price increases will be accepted by customers.

The identification and integration of strategic acquisitions are an important component of our overall strategy and product category diversification.  Acquisitions have added significantly to our sales and profits and product category diversification over the last decade.  This is evidenced by our 2015 acquisition of certain assets of Varied Industries Corporation (the “Vi-cor Acquisition”), the 2016 acquisitions of Spencer Forrest, Inc., the maker of TOPPIK (the “Toppik Acquisition”), and the ANUSOL and RECTINOL businesses from Johnson & Johnson (the “Anusol Acquisition”), the 2017 acquisitions of VIVISCAL from Lifes2Good Holdings Limited (the “Viviscal Acquisition”), Agro BioSciences, Inc. (the “Agro Acquisition”), and WATERPIK from Pik Holdings, Inc. (the “Waterpik Acquisition”),  the 2018 acquisition of Passport Food Safety Solutions, Inc. (the “Passport Acquisition”), the 2019 acquisition of FLAWLESS; the 2020 acquisition of ZICAM from Consumer Health Holdco LLC and the 2021 acquisition of THERABREATH from Dr. Harold Katz, LLC and HK-IP International, Inc. The failure to effectively identify or integrate any acquisition or achieve expected synergies may cause us to incur material asset write-downs.  We actively seek acquisitions that fit our guidelines, and our strong financial position provides us with flexibility to take advantage of acquisition opportunities.  In addition, our ability to quickly integrate acquisitions and leverage existing infrastructure has enabled us to establish a strong track record in making accretive acquisitions.  Since 2001, we have acquired 13 of our 14 “power brands”.

We believe we are positioned to meet the ongoing challenges described above due to our strong financial condition, experience operating in challenging environments and continued focus on key strategic initiatives.  Our focus is to maintain competitive marketing and trade spending, manage our cost structure, continue to develop and launch new and differentiated products, while pursuing strategic acquisitions.  This focus, together with the strength of our portfolio of premium and value brands, has enabled us to succeed in a range of economic environments.  Moreover, the generation of a significant amount of cash from operations combined with an investment grade credit rating, provides us with the financial flexibility to pursue acquisitions, drive new product development, make capital expenditures to support organic growth and gross margin improvements, return cash to stockholders through dividends and share buy backs, and reduce outstanding debt.  These factors position us to continue to increase stockholder value over the long-term.

For information regarding risks and uncertainties that could materially adversely affect our business, results of operations and financial condition and cash flows, see “Risk Factors” in Item 1A of this Annual Report.

Recent Developments

TheraBreath Acquisition

On December 24, 2021, we acquired all of the outstanding equity of Dr. Harold Katz, LLC and HK-IP International, Inc., the owners of the THERABREATH brand of oral care products business (the “TheraBreath Acquisition”).  We paid $556.0, net of cash acquired, at closing and deferred an additional cash payment of $14.0 related to certain indemnity obligations provided by the seller.  The additional amount, to the extent not used in satisfaction of such indemnity obligations, is payable in installments between two and four years from the closing.  THERABREATH’s annual net sales for the year ended December 31, 2021 were approximately $100.  The acquisition was financed by the proceeds from a $400.0 three-year term loan and an underwritten public offering of $400.0 aggregate principal Senior Notes due on December 15, 2031 (as defined below) completed on December 10, 2021.  The THERABREATH business is managed in the Consumer Domestic and Consumer International segments.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Dividend Increase

On January 28, 2022, the Board declared a 4% increase in the regular quarterly dividend from $0.2525 to $0.2625 per share, equivalent to an annual dividend of $1.05 per share payable to stockholders of record as of February 15, 2022.  The increase raises the annual dividend payout from $248.0 to approximately $255.0.

Accelerated Share Repurchase Program

In December 2021, we entered into an ASR contract with a commercial bank to purchase Common Stock.  We paid $200.0 to the bank, inclusive of fees, and received an initial delivery of shares equal to $180.0, or 1.8 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 2022, the bank delivered an additional 0.2 million shares to us.  The final shares delivered to us were determined by the average price per share paid by the bank during the purchase period.  All 2.0 million shares were purchased under the 2021 Share Repurchase Program.

As a result of our recent stock repurchases, there remains $729.7 of share repurchase availability under the 2021 Share Repurchase Program as of December 31, 2021.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP).  The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.  By their nature, these judgments are subject to uncertainty.  They are based on our historical experience, our observation of trends in industry, information provided by our customers and information available from other outside sources, as appropriate.  Our significant accounting policies and estimates are described below.

Revenue Recognition and Promotional and Sales Return Reserves

Virtually all of our revenue represents sales of finished goods inventory and is recognized when received or picked up by our customers.  The reserves for consumer and trade promotion liabilities and sales returns are established based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date.  Promotional reserves are provided for sales incentives, such as coupons to consumers, and sales incentives provided to customers (such as slotting, cooperative advertising, incentive discounts based on volume of sales and other arrangements made directly with customers).  All such costs are netted against sales.  Slotting costs are recorded when the product is delivered to the customer.  Cooperative advertising costs are recorded when the customer places the advertisement for our products.  Discounts relating to price reduction arrangements and coupons are recorded when the related sale takes place.  Costs associated with end-aisle or other in-store displays are recorded when product that is subject to the promotion is sold.  We rely on historical experience and forecasted data to determine the required reserves.  For example, we use historical experience to project coupon redemption rates to determine reserve requirements.  Based on the total face value of Consumer Domestic coupons redeemed over the past several years, if the actual rate of redemptions were to deviate by 0.1% from the rate for which reserves are accrued in the financial statements, a difference of approximately $0.1 in the reserve required for coupons would result.  With regard to other promotional reserves and sales returns, we use experience-based estimates, customer and sales organization inputs and historical trend analysis in arriving at the reserves required.  If our estimates for promotional activities and sales returns reserves were to change by 10% the impact to promotional spending and sales return accruals would be approximately $11.3.  While management believes that its promotional and sales returns reserves are reasonable and that appropriate judgments have been made, estimated amounts could differ materially from actual future obligations.

Impairment of goodwill, trade names and other intangible assets

Carrying values of goodwill and indefinite-lived trade names are reviewed periodically for possible impairment.  Finite intangible assets are assessed when there are business triggering events.  Our impairment analysis is based on a discounted cash flow approach that requires significant judgment with respect to unit volume, revenue and expense growth rates, and the selection of an appropriate discount rate and royalty rate.  Management uses estimates based on expected trends in making these assumptions.  With respect to goodwill, impairment occurs when the carrying value of the reporting unit exceeds the discounted present value of cash flows for that reporting unit.  For trade names and other intangible assets, an impairment charge is recorded for the difference between the carrying value and the net present value of estimated future cash flows, which represents the estimated fair value of the asset.  Judgment is required in assessing whether assets may have become impaired between annual valuations.  Indicators such as unexpected adverse economic factors, unanticipated technological change, distribution losses, or competitive activities and acts by governments and courts may indicate that an asset has become impaired.  The result of our annual goodwill impairment test determined that the estimated fair value substantially exceeded the carrying values of all reporting units.  In addition, there were no goodwill impairment charges for each of the years in the three-year period ended December 31, 2021.

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.  We determined that the fair value of all intangible assets for each of the years in the three-year period ended December 31, 2021 exceeded their respective carrying values based upon the forecasted cash flows and profitability. However, in recent years our TROJAN business, specifically the condom category, has not grown and competition has increased resulting in a reduction in expected future cash flows.  In addition, the COVID-19 pandemic has further negatively impacted condom sales due to social distancing.  As a result, the TROJAN business has experienced sales and profit declines that has eroded a significant portion of the excess between the fair and carrying value of the tradename, which, if these trends continue, could potentially result in an impairment.  However, the condom category began to recover in 2021 as fewer social restrictions led to an increase in sexual activity with less shutdowns and governmental restrictions.  While management can and has implemented strategies to address the risk, significant changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that could trigger future impairment charges of these assets.

It is possible that our conclusions regarding impairment or recoverability of goodwill or other intangible assets could change in future periods if, for example, (i) the businesses or brands do not perform as projected, (ii) overall economic conditions in future years vary from current assumptions (including changes in discount rates), (iii) business conditions or strategies change from current assumptions, (iv) investors require higher rates of return on equity investments in the marketplace or (v) enterprise values of comparable publicly traded

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

companies, or actual sales transactions of comparable companies, were to decline, resulting in lower multiples of revenues and EBITDA. A future impairment charge for goodwill or intangible assets could have a material effect on our consolidated financial position or results of operations.

Income Taxes

Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized to reflect the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be recovered or settled.  Management provides a valuation allowance against deferred tax assets for amounts which are not considered “more likely than not” to be realized.  We record liabilities for potential assessments in various tax jurisdictions under U.S. GAAP guidelines.  The liabilities relate to tax return positions that, although supportable by us, may be challenged by the tax authorities and do not meet the minimum recognition threshold required under applicable accounting guidance for the related tax benefit to be recognized in the income statement.  We adjust this liability as a result of changes in tax legislation, interpretations of laws by courts, rulings by tax authorities, changes in estimates and the expiration of the statute of limitations.  Many of the judgments involved in adjusting the liability involve assumptions and estimates that are highly uncertain and subject to change.  In this regard, settlement of any issue, or an adverse determination in litigation, with a taxing authority could require the use of cash and result in an increase in our annual tax rate.  Conversely, favorable resolution of an issue with a taxing authority would be recognized as a reduction to our annual tax rate.

New Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements included in this Annual Report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of December 31, 2021.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019

The discussion of results of operations at the consolidated level presented below is followed by a more detailed discussion of results of operations by segment.  This section of this Form 10-K generally discusses 2021 and 2020 results and year-to-year comparisons between 2021 and 2020.  Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020. The segment discussion also addresses certain product line information.  Our operating segments are consistent with our reportable segments.

Consolidated results

2021 compared to 2020

Net Sales

Net sales for the year ended December 31, 2021 were $5,190.1, an increase of $294.3, or 6.0% compared to 2020 net sales.  The components of the net sales increase are as follows:

The volume change reflects increased product sales in the Consumer International and SPD segments, partially offset by slightly decreased sales in the Consumer Domestic segment. Price/mix was favorable in the Consumer Domestic and SPD segments, but was partially offset by slightly unfavorable price/mix in the Consumer International segment.

Our gross profit for 2021 was $2,263.5, a $49.3 increase compared to 2020.  Gross margin was 43.6% in 2021 compared to 45.2% in 2020, a 160 basis points (“bps”) decrease.  The decrease is due to the impact of higher manufacturing costs including labor and commodities of 400 bps, higher transportation costs of 80 bps, and higher costs of 30 bps as a result of incremental tariffs, partially offset by favorable price/volume/mix of 200 bps, the impact of productivity programs of 130 bps and business acquisition benefits of 20 bps.

Operating Costs

Marketing expenses for 2021 were $577.7, a decrease of $13.5 compared to 2020.  We reduced marketing spending, mainly in household products, as supply shortages impacted our ability to meet customer demand.  Marketing expenses as a percentage of net sales decreased 100 bps to 11.1% in 2021 as compared to 2020 due to 70 bps of leverage on higher net sales and 30 bps on lower expenses.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

SG&A expenses for 2021 were $606.7, an increase of $13.4 or 2.3% compared to 2020.  The increase is primarily due to higher expenses related to the Zicam Acquisition (including amortization), asset impairment charges of $11.3 associated with the Passport business acquired in 2018, and the prior year gain on the sale of PERL WEISS®, partially offset by lower incentive compensation and litigation costs. SG&A as a percentage of net sales decreased 40 bps to 11.7% in 2021 compared to 12.1% in 2020.  The decrease is due to 70 bps of leverage associated with higher sales offset by 30 bps on higher expenses.  The favorable adjustment to the fair value of the Flawless business acquisition liability, which is recognized as a reduction in expense, was $98.0 in 2021 compared to $94.0 in 2020.

Other Income and Expenses

Other expense increased nominally in 2021 as compared to 2020.

Interest expense in 2021 was $54.5, a decrease of $6.5. The decrease is primarily due to lower interest rates.

Taxation

The 2021 U.S. federal effective income tax rate was 19.8% compared to 19.3% in 2020. The increase of 50 basis points was impacted by a favorable tax settlement in 2020.

Segment results for 2021, 2020 and 2019

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.

The Corporate segment income consists of equity in earnings of affiliates.  As of December 31, 2021, we held 50% ownership interests in each of Armand and ArmaKleen, respectively.  Our equity in earnings of Armand and ArmaKleen, totaling $9.4, $6.7 and $6.6 for the three years ended December 31, 2021, 2020 and 2019, respectively, are included in the Corporate segment.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Some of the 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 each of the three years ended December 31, 2021, 2020 and 2019 were as follows:

Product line revenues for external customers for the years ended December 31, 2021, 2020 and 2019 were as follows:

Household Products include deodorizing, cleaning and laundry products.  Personal Care Products include condoms, pregnancy kits, oral care products, skin care products, hair care products and gummy dietary supplements.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Consumer Domestic

2021 compared to 2020

Consumer Domestic net sales in 2021 were $3,941.9, an increase of $174.3 or 4.6% compared to net sales of $3,767.6 in 2020.  The components of the net sales change are the following:

The increase in net sales for 2021 reflects the impact of the TheraBreath and Zicam Acquisitions, 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, had not grown and competition has increased.  Social distancing requirements due to the COVID-19 pandemic had further negatively impacted the business.  As a result, the TROJAN business had experienced stagnant sales and profits resulting in a reduction in expected future cash flows which eroded a portion of the excess between the fair and carrying value of the tradename.  This indefinite-lived intangible asset may be 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.  In 2021, TROJAN experienced a recovery in sales and profits 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, the reduction of social distancing restrictions and the benefit of management strategies to improve sales and profitability.

Consumer Domestic income before income taxes for 2021 was $861.4, a $29.0 increase as compared to 2020.  The increase is due primarily to favorable price/mix of $135.6, a $31.0 benefit from higher sales volumes, lower marketing expenses of $18.6, lower SG&A expenses of $10.3 (including a $3.3 favorable year-over-year fair value adjustment to the Flawless business acquisition liability), and lower interest and other expenses of $5.8, mostly offset by unfavorable manufacturing and distribution expenses of $171.9.

Consumer International

2021 compared to 2020

Consumer International net sales in 2021 were $912.2, an increase of $84.0 or 10.1% as compared to 2020.  The components of the net sales change are the following:

Excluding the impact of foreign exchange rates, higher sales were driven primarily by FEMFRESH® feminine hygiene products, VITAFUSION and L’IL CRITTERS gummy vitamins, STERIMAR nasal spray, and NAIR depilatories in the GMG business.

Consumer International income before income taxes was $127.3 in 2021, an increase of $22.3 compared to 2020 due to a $26.4 benefit from higher sales volumes, favorable foreign exchange rates of $8.8, lower marketing expenses of $1.9 and lower interest expense of $0.2, offset by unfavorable manufacturing and commodity costs of $11.4, higher SG&A costs of $2.4 (partially due to the prior year gain on the sale of PERL WEISS of $3.0), and unfavorable price/product mix of $1.2.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

Specialty Products

2021 compared to 2020

SPD net sales were $336.0 for 2021, an increase of $36.0, or 12.0% compared to 2020.  The components of the net sales change are the following:

Net sales increased 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 $33.6 in 2021, an increase of $3.9 compared to 2020.  The increase in income before income taxes for 2021 is due primarily to favorable price/product mix of $22.4 and a $3.8 benefit from higher sales volumes, which were partially offset by unfavorable manufacturing costs of $17.6, higher SG&A costs of $4.0 primarily due to asset impairments in the Passport business of $11.3, and higher marketing expenses of $0.8.

Corporate

Corporate includes administrative costs of the production, planning and logistics functions which are allocated to the operating segments in SG&A expenses but are elements of cost of sales in our Consolidated Statements of Income.  Such amounts were $47.1, $59.8 and $48.2 for 2021, 2020 and 2019, respectively.

Also included in corporate are the equity in earnings of affiliates from Armand and ArmaKleen, totaling $9.4, $6.7 and $6.6 for the three years ended December 31, 2021, 2020 and 2019, respectively.

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 December 31, 2021, we had $240.6 in cash and cash equivalents, and approximately $746.0 available through the revolving facility under our Credit Agreement 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.

On December 22, 2021, we entered into a $400.0 unsecured term loan facility with various banks.  The loan was fully drawn at closing. Unless prepaid, the loan is due on December 22, 2024.  The interest rate is LIBOR plus an applicable margin based on our credit rating, which can range from 60 basis points (“bps”) to 125 bps.  The proceeds of the loan were used to partially fund the TheraBreath Acquisition, with the remaining proceeds used for the repayment of commercial paper.

Additionally, we financed the TheraBreath Acquisition with a portion of the proceeds from an underwritten public offering of $400.0 aggregate principal amount Senior Notes due 2031 (the “2031 Notes”).  These Notes bear interest at 2.3% and were issued in an underwritten transaction under an indenture with Deutsche Bank Trust Company Americas, as trustee.  Interest on the 2031 Notes is payable semi-annually, on each June 15 and December 15.  The 2031 Notes will mature on December 15, 2031, unless earlier retired or redeemed.

We financed the Waterpik Acquisition with a portion of the proceeds from an underwritten public offering of $1,425.0 aggregate principal amount of Senior Notes completed on July 25, 2017, consisting of $300.0 aggregate principal amount of Floating Rate Senior Notes that were due in 2019 and have been fully repaid, $300.0 aggregate principal amount of 2.45% Senior Notes due 2022, $425.0 aggregate principal amount of 3.15% Senior Notes due 2027 and $400.0 aggregate principal amount of 3.95% Senior Notes due 2047 (collectively with the 2031 Notes, the “Senior Notes”).  The $300.0 Floating Rate Senior Notes, which matured and were repaid in full with cash on hand and commercial paper on January 25, 2019, bore interest at a rate, reset quarterly, equal to three-month LIBOR plus 0.15%.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

On September 26, 2012, we issued $400.0 aggregate principal amount of 2.875% Senior Notes due 2022 (the “2022 Notes”).  The 2022 Notes were issued under the second supplemental indenture, dated September 26, 2012 (the “BNY Mellon Second Supplemental Indenture”) to the indenture dated December 15, 2010 (the “BNY Mellon Base Indenture”) between us and The Bank of New York Mellon Trust Company, N.A., as trustee.  These Notes will mature on October 1, 2022, unless earlier retired or redeemed pursuant to the terms of the BNY Mellon Second Supplemental Indenture.

In 2021, we repaid the $300.0 term loan due May 1, 2022 that was used to partially fund the Flawless acquisition in 2019, with proceeds from commercial paper borrowings and cash on hand.

In 2015, we initiated a Supply Chain Finance program (“SCF Program”).  Under the SCF Program, qualifying suppliers may elect to sell their receivables from us for early payment. Participating suppliers negotiate their receivables sales arrangements directly with a third party. We are not party to those agreements and do not have an economic interest in the supplier’s decision to sell their receivables.  The SCF Program may allow suppliers more favorable terms than they could secure on their own.  The terms of our payment obligations are not impacted by a supplier’s participation in the SCF Program.   Our payment terms with suppliers are consistent between suppliers that elect to participate in the SCF Program and those that do not participate.  As a result, the program does not have an impact to our average days outstanding.

All amounts outstanding to suppliers participating in the SCF Program are recorded within Accounts Payable in our Consolidated Balance Sheets, and the associated payments are included in operating activities within our Consolidated Statements of Cash Flows.

The current economic environment presents risks that could have adverse consequences for our liquidity.  See the discussion of this and other risks under “Risk Factors” in Item 1A of this Annual Report.  Although there is uncertainty related to the impact of the COVID-19 pandemic 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 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 program.

In August 2021, we executed an agreement to purchase up to $200.0 of our Common Stock through October 31, 2021.  We purchased 1.6 million shares for approximately $130.0 through October, inclusive of fees, all of which was purchased under the 2017 Share Repurchase Program.

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 our 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.

In December 2021, we executed open market purchases of 1.8 million shares for $170.3, inclusive of fees, of which $100.0 was purchased under the evergreen share repurchase program and $70.3 was purchased under the 2021 Share Repurchase Program.  In December 2021, we also entered into an ASR contract with a commercial bank to purchase Common Stock.  We paid $200.0 to the bank, inclusive of fees, and received an initial delivery of shares equal to $180.0, or 1.8 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 2022, the bank delivered an additional 0.2 million shares to us.  The final shares delivered to us were determined by the average price per share paid by the bank during the purchase period.  All 2.0 million shares were purchased under our 2021 Share Repurchase Program.

As a result of our recent stock repurchases, there remains $729.7 of share repurchase availability under the 2021 Share Repurchase Program as of December 31, 2021.

On January 28, 2022, the Board declared a 4% increase in the regular quarterly dividend from $0.2525 to $0.2625 per share, equivalent to an annual dividend of $1.05 per share payable to stockholders of record as of February 15, 2022.  The increase raises the annual dividend payout from $248.0 to approximately $255.0.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

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 $216.0 in 2022 primarily for manufacturing capacity investments in laundry, litter and vitamins to support expected future sales growth.  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

2021 compared to 2020

Net Cash Provided by Operating Activities – Our primary source of liquidity is our cash flow provided by operating activities, which is dependent on the level of net income and changes in working capital.  Our net cash provided by operating activities in 2021 increased by $3.5 to $993.8 as compared to $990.3 in 2020 as higher cash earnings (net income adjusted for non-cash items) were mostly offset by higher working capital.  The increase in working capital is primarily related to lower obligations for incentive compensation and marketing.  We measure working capital effectiveness based on our cash conversion cycle.  The following table presents our cash conversion cycle information for the quarters ended December 31, 2021 and 2020:

Our cash conversion cycle (defined as the sum of DSO plus DIO less DPO) at December 31, 2021, which is calculated using a two period average method, decreased 4 days from the prior year due to an increase in DPO of 6 days due to payable term extensions partially offset by an increase in DIO of 2 days.  We continue to focus on reducing our working capital requirements.

Net Cash Used in Investing Activities – Net cash used in investing activities during 2021 was $682.0, primarily reflecting $556.0 for the TheraBreath Acquisition and $118.8 for property, plant and equipment additions.  Net cash used in investing activities during 2020 was $608.1, primarily reflecting $512.7 for the Zicam Acquisition, $98.9 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 twelve months of 2021 was $252.1, reflecting $500.0 of repurchases of our Common Stock, $247.5 of cash dividend payments and $3.9 of financing costs, partially offset by $400.7 of net debt borrowings, and $98.7 of proceeds from stock option exercises. Net cash used in financing activities during the twelve months of 2020 was $360.1, reflecting $300.0 of repurchases of our Common Stock, $237.3 of cash dividend payments, and $14.5 for the Agro business acquisition liability settlement, partially offset by $99.0 of short-term debt borrowings, net of repayments, and $93.0 of proceeds from stock option exercises.

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CHURCH & DWIGHT CO., INC AND SUBSIDIARIES

(Dollars in millions, except share and per share data)

OTHER ITEMS

Market risk

Concentration of Risk

A group of three customers accounted for approximately 37% of consolidated net sales in 2021 and 36% in 2020 and 2019, respectively, of which a single customer, Walmart, accounted for approximately 24%, 23% and 24% in 2021, 2020 and 2019, respectively.

Interest Rate Risk

We had outstanding total debt at December 31, 2021, of $2,562.9, net of debt issuance costs, of which approximately 75% has a fixed weighted average interest rate of 3.0% and the remaining 25% was constituted of commercial paper issued by us that currently has a weighted average interest rate of approximately 0.30% and the term loan due 2024 with a current rate of approximately 0.80%  In 2019, we entered into interest rate swap lock agreements to hedge the risk of changes in the interest payments attributable to changes in the benchmark LIBOR interest rate associated with anticipated issuances of debt.  The notional amount of the interest rate swap locks is $300.0. These interest rate swap lock agreements have been designated as hedges of the changes in fair value of the underlying debt obligation attributable to changes in interest rates and are accounted for as fair value hedges.  The fair value of the interest rate swap lock agreements is $41.6 and is reflected in the Consolidated Balance Sheet included in this Annual Report within Accounts payable and accrued expenses as it will be settled in 2022.

Other Market Risks

We are also subject to market risks relating to our diesel and other commodity costs, fluctuations in foreign currency exchange rates, and changes in the market price of the Common Stock.  Refer to Note 3 to the Consolidated Financial Statements included in this Annual Report for a discussion of these market risks and the derivatives used to manage the risks associated with changing diesel fuel and other commodity prices, foreign exchange rates and the price of our Common Stock.