UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, 2015

Commission file number 1-10585

 

CHURCH & DWIGHT CO., INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

13-4996950

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

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

(Address of principal executive offices)

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

 

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

 

Title of each class

 

Name of each exchange

on which registered

Common Stock, $1 par value

 

New York Stock Exchange

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

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨

  

Smaller reporting company

 

¨

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

As of May 5, 2015, there were 130,873,558 shares of Common Stock outstanding.

 

 

 

 

 


TABLE OF CONTENTS

PART I

 

Item

 

 

 

Page

1.

 

Financial Statements

 

3

 

 

 

 

 

2.

 

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

 

19

 

 

 

 

 

3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

25

 

 

 

 

 

4.

 

Controls and Procedures

 

25

PART II

 

1.

 

Legal Proceedings

 

26

 

 

 

 

 

1A.

 

Risk Factors

 

26

 

 

 

 

 

2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

27

 

 

 

 

 

6.

 

Exhibits

 

28

 

 

 

2


PART I – FINANCIAL INFORMATION

ITEM 1:

FINANCIAL STATEMENTS

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In millions, except per share data)

 

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2015

 

 

2014

 

Net Sales

$

812.3

 

 

$

782.0

 

Cost of sales

 

456.8

 

 

 

442.6

 

Gross Profit

 

355.5

 

 

 

339.4

 

Marketing expenses

 

88.8

 

 

 

87.8

 

Selling, general and administrative expenses

 

94.6

 

 

 

89.6

 

Income from Operations

 

172.1

 

 

 

162.0

 

Equity in earnings of affiliates

 

2.3

 

 

 

1.6

 

Investment earnings

 

0.5

 

 

 

0.5

 

Other income (expense), net

 

(2.0

)

 

 

(0.7

)

Interest expense

 

(7.6

)

 

 

(6.7

)

Income before Income Taxes

 

165.3

 

 

 

156.7

 

Income taxes

 

58.1

 

 

 

54.1

 

Net Income

$

107.2

 

 

$

102.6

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - Basic

 

132.0

 

 

 

138.0

 

Weighted average shares outstanding - Diluted

 

134.6

 

 

 

140.6

 

Net income per share - Basic

$

0.81

 

 

$

0.74

 

Net income per share - Diluted

$

0.80

 

 

$

0.73

 

Cash dividends per share

$

0.335

 

 

$

0.31

 

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In millions)

 

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2015

 

 

2014

 

Net Income

$

107.2

 

 

$

102.6

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

Foreign exchange translation adjustments

 

(24.3

)

 

 

(1.6

)

Income (loss) from derivative agreements

 

2.9

 

 

 

0.0

 

Other comprehensive loss

 

(21.4

)

 

 

(1.6

)

Comprehensive income

$

85.8

 

 

$

101.0

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

3


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions, except share and per share data)

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

299.7

 

 

$

423.0

 

Accounts receivable, less allowances of $1.0 and $1.9

 

337.1

 

 

 

322.9

 

Inventories

 

256.8

 

 

 

245.9

 

Deferred income taxes

 

13.8

 

 

 

14.4

 

Other current assets

 

24.6

 

 

 

26.3

 

Total Current Assets

 

932.0

 

 

 

1,032.5

 

 

 

 

 

 

 

 

 

Property, Plant and Equipment, Net

 

617.8

 

 

 

616.2

 

Equity Investment in Affiliates

 

24.9

 

 

 

24.8

 

Trade Names and Other Intangibles, Net

 

1,299.6

 

 

 

1,272.4

 

Goodwill

 

1,354.6

 

 

 

1,325.0

 

Other Assets

 

115.8

 

 

 

110.4

 

Total Assets

$

4,344.7

 

 

$

4,381.3

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Short-term borrowings

$

273.4

 

 

$

146.7

 

Current portion of long-term debt

 

249.9

 

 

 

249.9

 

Accounts payable and accrued expenses

 

492.4

 

 

 

507.7

 

Income taxes payable

 

34.7

 

 

 

1.0

 

Total Current Liabilities

 

1,050.4

 

 

 

905.3

 

 

 

 

 

 

 

 

 

Long-term Debt

 

703.5

 

 

 

698.6

 

Deferred Income Taxes

 

491.6

 

 

 

484.1

 

Deferred and Other Long-term Liabilities

 

163.1

 

 

 

163.1

 

Pension, Postretirement and Postemployment Benefits

 

27.4

 

 

 

28.3

 

Total Liabilities

 

2,436.0

 

 

 

2,279.4

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

Preferred Stock, $1.00 par value, Authorized 2,500,000 shares; none issued

 

0.0

 

 

 

0.0

 

Common Stock, $1.00 par value, Authorized 300,000,000 shares; 146,427,550 shares issued

 

146.4

 

 

 

146.4

 

Additional paid-in capital

 

365.6

 

 

 

364.8

 

Retained earnings

 

2,478.4

 

 

 

2,414.9

 

Accumulated other comprehensive loss

 

(56.1

)

 

 

(34.7

)

Common stock in treasury, at cost: 15,786,016 shares in 2015 and 13,075,944 shares in 2014

 

(1,025.6

)

 

 

(789.5

)

Total Stockholders' Equity

 

1,908.7

 

 

 

2,101.9

 

Total Liabilities and Stockholders’ Equity

$

4,344.7

 

 

$

4,381.3

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

4


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(In millions)

 

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2015

 

 

2014

 

Cash Flow From Operating Activities

 

 

 

 

 

 

 

Net Income

$

107.2

 

 

$

102.6

 

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

 

 

 

 

 

 

 

Depreciation expense

 

14.6

 

 

 

14.7

 

Amortization expense

 

11.4

 

 

 

8.1

 

Deferred income taxes

 

6.0

 

 

 

5.2

 

Equity in net earnings of affiliates

 

(2.3

)

 

 

(1.6

)

Distributions from unconsolidated affiliates

 

2.7

 

 

 

2.2

 

Non-cash compensation expense

 

1.7

 

 

 

2.3

 

Other

 

3.5

 

 

 

0.9

 

Change in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(22.0

)

 

 

(13.8

)

Inventories

 

(15.2

)

 

 

(14.3

)

Other current assets

 

(1.3

)

 

 

(2.7

)

Accounts payable and accrued expenses

 

(2.5

)

 

 

(27.7

)

Income taxes payable

 

48.3

 

 

 

37.1

 

Excess tax benefit on stock options exercised

 

(8.0

)

 

 

(6.1

)

Other operating assets and liabilities, net

 

0.1

 

 

 

(4.5

)

Net Cash Provided By Operating Activities

 

144.2

 

 

 

102.4

 

Cash Flow From Investing Activities

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

(21.9

)

 

 

(6.3

)

Acquisition

 

(74.9

)

 

 

0.0

 

Other

 

(1.1

)

 

 

(0.3

)

Net Cash Used In Investing Activities

 

(97.9

)

 

 

(6.6

)

Cash Flow From Financing Activities

 

 

 

 

 

 

 

Short-term debt borrowings (repayments)

 

127.1

 

 

 

(0.5

)

Proceeds from stock options exercised

 

11.3

 

 

 

7.2

 

Excess tax benefit on stock options exercised

 

8.0

 

 

 

6.1

 

Payment of cash dividends

 

(43.7

)

 

 

(42.5

)

Purchase of treasury stock

 

(256.2

)

 

 

(260.0

)

Other

 

(0.4

)

 

 

(0.2

)

Net Cash Used In Financing Activities

 

(153.9

)

 

 

(289.9

)

Effect of exchange rate changes on cash and cash equivalents

 

(15.7

)

 

 

(2.8

)

Net Change In Cash and Cash Equivalents

 

(123.3

)

 

 

(196.9

)

Cash and Cash Equivalents at Beginning of Period

 

423.0

 

 

 

496.9

 

Cash and Cash Equivalents at End of Period

$

299.7

 

 

$

300.0

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

5


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW-CONTINUED

(Unaudited)

(In millions)

 

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2015

 

 

2014

 

Cash paid during the year for:

 

 

 

 

 

 

 

Interest (net of amounts capitalized)

$

1.4

 

 

$

1.3

 

Income taxes

$

3.7

 

 

$

11.7

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

Property, plant and equipment expenditures included in Accounts Payable

$

5.3

 

 

$

4.8

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

6


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2015 and 2014

(Unaudited)

(In millions)

 

 

Number of Shares

 

 

Amounts

 

 

Common

Stock

 

 

Treasury

Stock

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

 

 

Total

Church &

Dwight Co., Inc.

Stockholders'

Equity

 

 

Noncontrolling

Interest

 

 

Total

Stockholders'

Equity

 

December 31, 2013

 

146.4

 

 

 

(7.5

)

 

$

146.4

 

 

$

352.9

 

 

$

2,168.5

 

 

$

0.2

 

 

$

(368.1

)

 

$

2,299.9

 

 

$

0.1

 

 

$

2,300.0

 

Net income

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

102.6

 

 

 

0.0

 

 

 

0.0

 

 

 

102.6

 

 

 

0.0

 

 

 

102.6

 

Other comprehensive

   income (loss)

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(1.6

)

 

 

0.0

 

 

 

(1.6

)

 

 

0.0

 

 

 

(1.6

)

Cash dividends

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(42.5

)

 

 

0.0

 

 

 

0.0

 

 

 

(42.5

)

 

 

0.0

 

 

 

(42.5

)

Stock purchases

 

0.0

 

 

 

(3.5

)

 

 

0.0

 

 

 

(26.0

)

 

 

0.0

 

 

 

0.0

 

 

 

(234.0

)

 

 

(260.0

)

 

 

0.0

 

 

 

(260.0

)

Stock based compensation

   expense and stock option plan

   transactions, including related

   income tax benefits of $5.8

 

0.0

 

 

 

0.3

 

 

 

0.0

 

 

 

(0.1

)

 

 

0.0

 

 

 

0.0

 

 

 

15.2

 

 

 

15.1

 

 

 

0.0

 

 

 

15.1

 

Other stock issuances

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.3

 

 

 

0.0

 

 

 

0.0

 

 

 

(0.5

)

 

 

(0.2

)

 

 

0.0

 

 

 

(0.2

)

March 31, 2014

 

146.4

 

 

 

(10.7

)

 

 

146.4

 

 

 

327.1

 

 

 

2,228.6

 

 

 

(1.4

)

 

 

(587.4

)

 

 

2,113.3

 

 

 

0.1

 

 

 

2,113.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

146.4

 

 

 

(13.1

)

 

$

146.4

 

 

$

364.8

 

 

$

2,414.9

 

 

$

(34.7

)

 

$

(789.5

)

 

$

2,101.9

 

 

$

0.0

 

 

$

2,101.9

 

Net income

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

107.2

 

 

 

0.0

 

 

 

0.0

 

 

 

107.2

 

 

 

0.0

 

 

 

107.2

 

Other comprehensive

   income  (loss)

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(21.4

)

 

 

0.0

 

 

 

(21.4

)

 

 

0.0

 

 

 

(21.4

)

Cash dividends

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(43.7

)

 

 

0.0

 

 

 

0.0

 

 

 

(43.7

)

 

 

0.0

 

 

 

(43.7

)

Stock purchases

 

0.0

 

 

 

(3.1

)

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(256.2

)

 

 

(256.2

)

 

 

0.0

 

 

 

(256.2

)

Stock based compensation

   expense and stock option plan

   transactions, including related

   income tax benefits of $8.0

 

0.0

 

 

 

0.4

 

 

 

0.0

 

 

 

0.8

 

 

 

0.0

 

 

 

0.0

 

 

 

20.1

 

 

 

20.9

 

 

 

0.0

 

 

 

20.9

 

March 31, 2015

 

146.4

 

 

 

(15.8

)

 

$

146.4

 

 

$

365.6

 

 

$

2,478.4

 

 

$

(56.1

)

 

$

(1,025.6

)

 

$

1,908.7

 

 

$

0.0

 

 

$

1,908.7

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

7


 

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In millions, except per share data)

 

1.

Basis of Presentation

The condensed consolidated balance sheets as of March 31, 2015 and December 31, 2014 and the condensed consolidated statements of income, comprehensive income, cash flow and stockholders’ equity for the three months ended March 31, 2015 and March 31, 2014 have been prepared by Church & Dwight Co., Inc. (the “Company”).  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at March 31, 2015 and results of operations and cash flow for all periods presented have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted.  These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (the “Form 10-K”).  The results of operations for the period ended March 31, 2015 are not necessarily indicative of the operating results for the full year.

The Company incurred research and development expenses in the first quarter of 2015 and 2014 of $13.8 and $13.1, respectively.  These expenses are included in selling, general and administrative expenses.

 

2.

New Accounting Pronouncements  

In April 2015, the Financial Accounting Standards Board (“FASB”) issued guidance that changes the presentation of certain debt issuance costs in the financial statements.  The new guidance requires debt issuance costs to be presented as a direct deduction from the associated debt liability rather than as an asset.  Amortization of the costs will continue to be reported as interest expense.  The new guidance is effective for interim and annual reporting periods beginning after December 15, 2015, and will be applied retrospectively for each prior period presented in the financial statements.  This new guidance is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In April 2015, the FASB issued guidance that clarifies the accounting treatment for cloud computing arrangements.  The new guidance provides that if an arrangement includes a software license, then the software license element should be accounted for consistent with the acquisition of other software licenses.  If the arrangement does not include a software license, the arrangement should be accounted for as a service contract.  This new guidance is effective for interim and annual periods beginning after December 15, 2015, and may be applied retrospectively or prospectively.  This new guidance is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.  

There have been no accounting pronouncements issued but not yet adopted by the Company, which are expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows, other than those previously disclosed in the Company’s 2014 Annual Report on Form 10-K.  

 

3.

Inventories

Inventories consist of the following:

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

Raw materials and supplies

$

72.3

 

 

$

70.8

 

Work in process

 

26.0

 

 

 

25.0

 

Finished goods

 

158.5

 

 

 

150.1

 

Total

$

256.8

 

 

$

245.9

 

 

 

 

8


 

4.

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

PP&E consists of the following:

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

Land

$

25.3

 

 

$

25.5

 

Buildings and improvements

 

299.9

 

 

 

281.7

 

Machinery and equipment

 

634.6

 

 

 

599.3

 

Software

 

85.9

 

 

 

86.4

 

Office equipment and other assets

 

61.0

 

 

 

57.2

 

Construction in progress

 

27.0

 

 

 

71.5

 

Gross Property, Plant and Equipment

 

1,133.7

 

 

 

1,121.6

 

Less accumulated depreciation and amortization

 

515.9

 

 

 

505.4

 

Net Property, Plant and Equipment

$

617.8

 

 

$

616.2

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2015

 

 

2014

 

Depreciation and amortization on PP&E

$

14.6

 

 

$

14.7

 

Interest charges capitalized (in construction in progress)

$

0.3

 

 

$

0.2

 

 

The reduction in construction in progress is due to the completion of the Company’s new vitamin manufacturing facility in York, Pennsylvania.  

 

5.

Earnings Per Share (“EPS”)

Basic EPS is calculated based on income available to holders of the Company’s common stock (“Common Stock”) and the weighted average number of shares outstanding during the reported period.  Diluted EPS includes additional dilution from potential Common Stock issuable pursuant to the exercise of outstanding stock options.

The following table sets forth a reconciliation of the weighted average number of shares of Common Stock outstanding to the weighted average number of shares outstanding on a diluted basis:

 

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2015

 

 

2014

 

Weighted average common shares outstanding -  basic

 

132.0

 

 

 

138.0

 

Dilutive effect of stock options

 

2.6

 

 

 

2.6

 

Weighted average common shares outstanding - diluted

 

134.6

 

 

 

140.6

 

Antidilutive stock options outstanding

 

0.0

 

 

 

0.7

 

 

 

6.

Stock Based Compensation Plans

The following table provides a summary of option activity during the three months ended March 31, 2015:

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

 

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

Options

 

 

Price

 

 

Term

 

 

Value

 

Outstanding at December 31, 2014

 

8.5

 

 

$

45.50

 

 

 

 

 

 

 

 

 

Granted

 

0.0

 

 

 

0.00

 

 

 

 

 

 

 

 

 

Exercised

 

(0.4

)

 

 

26.88

 

 

 

 

 

 

 

 

 

Cancelled

 

0.0

 

 

 

0.00

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2015

 

8.1

 

 

$

46.43

 

 

 

6.0

 

 

$

314.2

 

Exercisable at March 31, 2015

 

3.9

 

 

$

30.46

 

 

 

4.0

 

 

$

213.0

 

 

9


 

The following table provides information regarding the intrinsic value of stock options exercised and stock compensation expense related to stock option awards.  The fair value of stock options issued was immaterial in the three months ended March 31, 2015 and March 31, 2014.

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2015

 

 

2014

 

Intrinsic Value of Stock Options Exercised

$

23.8

 

 

$

16.3

 

Stock Compensation Expense Related to Stock Option Awards

$

1.7

 

 

$

2.1

 

 

 

7.

Share Repurchases

 

On January 29, 2014, the Company authorized an evergreen share repurchase program to reduce or eliminate dilution associated with the issuance of Common Stock under the Company’s incentive plans.  As part of the evergreen share repurchase program, in January 2015, the Company repurchased 0.5 million shares at a cost of $41.2.  On January 28, 2015, the Board authorized a share repurchase program under which the Company may repurchase up to $500.0 shares in Common Stock (the “2015 Share Repurchase Program”). In February 2015, the Company entered into an accelerated share repurchase contract with a commercial bank to repurchase 2.6 million shares of Common Stock at a cost of $215.0, of which approximately $47.0 was purchased under the evergreen share repurchase program and approximately $168.0 was purchased under the 2015 Share Repurchase Program.  Under the terms of the accelerated share repurchase contract, upon final settlement of the contract, the Company would receive additional shares, or, if the Company is required to deliver additional value to the bank, the Company would pay additional shares or cash to the bank based on the average market price of Common Stock over the repurchase period.  On April 24, 2015, the settlement date, the Company issued 83 thousand shares of Common Stock to the commercial bank in a private transaction for approximately $7.0 to settle the accelerated share repurchase contract. 

 

8.

Fair Value Measurements

Fair Value Hierarchy

Accounting guidance on fair value measurements and disclosures establishes a hierarchy that prioritizes the inputs used to measure fair value (generally, assumptions that market participants would use in pricing an asset or liability) based on the quality and reliability of the information provided by the inputs, as follows:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The Company recognizes transfers between input levels as of the actual date of the event.  There were no transfers between input levels during the three months ended March 31, 2015.

Fair Values of Other Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s other financial instruments at March 31, 2015 and December 31, 2014:

 

 

 

 

March 31, 2015

 

 

December 31, 2014

 

 

Input

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

Level

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

Level 2

 

$

162.8

 

 

$

162.8

 

 

$

298.0

 

 

$

298.0

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

Level 2

 

 

273.4

 

 

 

273.4

 

 

 

146.7

 

 

 

146.7

 

2.875% Senior notes

Level 2

 

 

399.7

 

 

 

400.6

 

 

 

399.7

 

 

 

393.3

 

3.35% Senior notes

Level 2

 

 

249.9

 

 

 

254.1

 

 

 

249.9

 

 

 

255.6

 

2.45% Senior notes

Level 2

 

 

299.9

 

 

 

304.1

 

 

 

299.8

 

 

 

298.6

 

Fair value adjustment asset (liability) related to hedged fixed rate debt instrument

Level 2

 

 

3.9

 

 

 

3.9

 

 

 

(0.9

)

 

 

(0.9

)

 

10


 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments reflected in the Consolidated Balance Sheets:

Cash Equivalents: Cash equivalents consist of highly liquid short-term investments and term bank deposits, which mature within three months.  The estimated fair value of the Company’s cash equivalents approximates their carrying value.

Short-Term Borrowings: The carrying amounts of the Company’s unsecured lines of credit and commercial paper issuances approximates fair value because of their short maturities and variable interest rates.

Senior Notes: The Company determines the fair value of its senior notes based on their quoted market value or broker quotes, when possible.  In the absence of observable market quotes, the notes are valued using non-binding market consensus prices that the Company seeks to corroborate with observable market data.

Hedged Fixed Rated Debt: The interest rate swap agreements the Company entered into in December 2014 convert the fixed interest rate of the 2.45% Senior Notes to a variable rate based on LIBOR.  These agreements are 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 these interest rate swap agreements is determined using broker quotes that the Company seeks to corroborate with observable market data and is reflected in the Consolidated Balance Sheet within Other Assets or Deferred and Other Long-term Liabilities, with an offsetting amount recorded in long-term debt to adjust the carrying amount of the hedged debt obligation.

Other: The carrying amounts of accounts receivable, and accounts payable and accrued expenses, approximated estimated fair values as of March 31, 2015 and December 31, 2014.

 

 

11


 

9.

Derivative Instruments and Risk Management

The following tables summarize the fair value of the Company’s derivative instruments and the effect of such derivative instruments on the Company’s Consolidated Statements of Income and on Other Comprehensive Income (“OCI”):

 

 

 

 

 

Notional

 

 

Fair Value at

 

 

 

 

 

Amount

 

 

March 31,

 

 

December 31,

 

 

 

Balance Sheet Location

 

March 31, 2015

 

 

2015

 

 

2014

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Other current assets

 

$

131.5

 

 

$

5.6

 

 

$

2.8

 

Interest rate swap

 

Other assets

 

$

300.0

 

 

 

3.9

 

 

 

0.0

 

Total assets

 

 

 

 

 

 

 

$

9.5

 

 

$

2.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diesel fuel contracts

 

Accounts payable and accrued expenses

 

4.4 gallons

 

 

$

3.9

 

 

$

4.4

 

Interest rate swap

 

Deferred and other long-term liabilities

 

$

300.0

 

 

 

0.0

 

 

 

0.9

 

Total liabilities

 

 

 

 

 

 

 

$

3.9

 

 

$

5.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging

     instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity derivatives

 

Other current assets

 

$

31.7

 

 

$

0.1

 

 

$

2.8

 

Foreign exchange contracts

 

Other current assets

 

$

35.8

 

 

 

0.9

 

 

 

0.0

 

Total assets