Company: CHD
Filing Date: 2025-02-13
Form Type: 10-K
Source: 0000950170-25-019801
Chunk: 99

Company: CHURCH & DWIGHT CO INC /DE/
Filing Date: 2025-02-13
Form: 10-K
Item: Item 1B
Chunk 99
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  The continued decline in profitability caused management to reassess its long-term strategy and financial outlook of the business.  The revised financial outlook reflected lower estimates of future sales growth and cash flow, which resulted in a triggering event.  The triggering event required the Company 

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to evaluate its ability to recover the carrying value of the trade name by comparing the carrying value of the trade name to its fair value.  The valuation resulted in a full impairment of the $281.3 million VITAFUSION and L’IL CRITTERS trade name as of September 30, 2024.   

Additionally, the Company’s global WATERPIK business has continued to experience a decline in customer demand for many of its products, primarily due to lower consumer spending for discretionary products and a growing number of water flosser consumers switching to more value-branded products.  As a result, the business has experienced declining sales and profits resulting in a reduction in expected future cash flows, eroding a substantial portion of the excess between the fair and carrying value of the trade name.  The carrying value of the WATERPIK trade name is $644.7 million and the fair value represented 135% of the carrying value as of October 1, 2024.  

Management estimates the fair value of these trade names based on an “excess earnings” discounted cash flow method.  The determination of fair value requires management to make significant estimates and assumptions related to future performance, such as revenue growth rates, as well as the selection of appropriate valuation assumptions, such as discount rates.  Changes in these assumptions could have a significant impact on the fair value of the trade names, leading to an impairment or a change in an identified impairment.  

Given the significant judgments made by management to estimate the trade names’ fair value, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the revenue growth rates and the selection of the discount rates involved a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the determination of revenue growth rates and the selection of discount rates for the trade names included the following, among others: 

•We tested the effectiveness of controls over the account balance, including those over the revenue growth rates and the selection of the discount rates. 

•We evaluated management’s ability to accurately forecast revenue growth by comparing actual performance to management’s historical forecasts.

•We evaluated the