1 of 11 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------- FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file Number 1-10585 CHURCH & DWIGHT CO., INC. (Exact name of registrant as specified in its charter) Delaware 13-4996950 (State of incorporation) (I.R.S. Employer Identification No.) 469 North Harrison Street, Princeton, N.J. 08543-5297 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (609) 683-5900 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 As of May 5, 2000, there were 38,113,504 shares of Common Stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS Three Months Ended - ----------------------------------------------------------------------------------------------------------------------------------- March 31, April 2, (In thousands, except per share data) 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Net Sales $191,632 $174,708 Cost of sales 107,155 97,590 ----------------------------------------------------- Gross Profit 84,477 77,118 Advertising, consumer and trade promotion expenses 44,464 44,572 Selling, general and administrative expenses 21,349 21,024 Gain on sale of mineral rights - (11,772) Impairment and other items - 5,320 ----------------------------------------------------- Income from Operations 18,664 17,974 Equity in earnings of affiliates 854 2,020 Investment earnings 319 372 Other income (expense) 250 102 Interest expense (1,377) (605) ----------------------------------------------------- Income before taxes 18,710 19,863 Income taxes 6,923 7,498 Minority interest; net of taxes 55 - ----------------------------------------------------- Net Income 11,732 12,365 Retained earnings at beginning of period 253,885 218,618 ----------------------------------------------------- 265,617 230,983 Dividends paid 2,718 2,321 ----------------------------------------------------- Retained earnings at end of period $262,899 $228,662 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Weighted average shares outstanding - Basic 38,679 38,708 Weighted average shares outstanding - Diluted 40,449 40,724 - ----------------------------------------------------------------------------------------------------------------------------------- Earnings Per Share: Net income per share - Basic $.30 $.32 Net income per share - Diluted $.29 $.30 - ----------------------------------------------------------------------------------------------------------------------------------- Dividends Per Share: $.07 $.06 - ----------------------------------------------------------------------------------------------------------------------------------- CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) Mar. 31, 2000 Dec. 31, 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Assets (Unaudited) - ----------------------------------------------------------------------------------------------------------------------------------- Current Assets Cash and cash equivalents $ 14,715 $ 19,765 Short-term investments 5,000 4,000 Accounts receivable, less allowances of $1,639 and $1,552 65,775 64,505 Inventories (Note 2) 77,855 72,670 Deferred income taxes 8,347 8,221 Prepaid expenses 6,936 6,622 ------------------------------------------------------- Total Current Assets 178,628 175,783 - ----------------------------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment (Net) (Note 3) 183,759 182,219 Note Receivable 3,000 3,000 Equity Investment in Affiliates 23,388 20,177 Long-Term Supply Contracts 4,268 4,105 Goodwill and Other Intangibles 82,766 83,744 Other Assets 9,195 7,278 - ----------------------------------------------------------------------------------------------------------------------------------- Total Assets $485,004 $476,306 - ----------------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity - ----------------------------------------------------------------------------------------------------------------------------------- Current Liabilities Short-term borrowings $ 33,259 $ 25,574 Accounts payable and accrued expenses 115,719 106,109 Current portion of long-term debt 685 685 Income taxes payable 12,597 8,240 -------------------------------------------------------- Total Current Liabilities 162,260 140,608 - ----------------------------------------------------------------------------------------------------------------------------------- Long-Term Debt 47,930 58,107 Deferred Income Taxes 20,889 20,416 Deferred Liabilities 11,003 11,860 Nonpension Postretirement and Postemployment Benefits 15,351 15,145 Minority Interest 3,639 3,437 Commitments and Contingencies Stockholders' Equity Preferred Stock - $1.00 par value Authorized 2,500,000 shares, none issued - - Common Stock - $1.00 par value Authorized 100,000,000 shares, issued 46,660,988 shares 46,661 46,661 Additional paid-in capital 19,449 18,356 Retained earnings 262,899 253,885 Accumulated other comprehensive (loss) (4,309) (4,599) -------------------------------------------------------- 324,700 314,303 Common stock in treasury, at cost: 8,482,284 shares in 2000 and 7,805,152 shares in 1999 (100,219) (87,021) Due from shareholder (549) (549) - ----------------------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 223,932 226,733 - ----------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $485,004 $476,306 - ----------------------------------------------------------------------------------------------------------------------------------- CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW Three Months Ended - ----------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Mar. 31, 2000 Apr. 2, 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Cash Flow From Operating Activities - ----------------------------------------------------------------------------------------------------------------------------------- Net Income $11,732 $12,365 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 5,597 4,529 Equity in earnings of affiliates (854) (2,020) Deferred income taxes 372 (191) Gain on sale of mineral rights - (11,772) Disposal of fixed assets - 4,612 Other (8) 117 Change in assets and liabilities: (Increase) decrease in accounts receivable (1,213) 3,148 (Increase) in inventories (5,038) (5,087) (Increase) in prepaid expenses (692) (2,223) Increase in accounts payable 9,490 3,351 Increase in income taxes payable 4,721 7,355 (Decrease) increase in other liabilities (593) 2,348 - ----------------------------------------------------------------------------------------------------------------------------------- Net Cash Provided By Operating Activities 23,514 16,532 Cash Flow From Investing Activities - ----------------------------------------------------------------------------------------------------------------------------------- (Increase) in short-term investments (1,000) (1,009) Additions to property, plant and equipment (5,358) (5,415) Proceeds from sale of mineral rights - 3,000 Distributions from affiliates 323 1,158 Investment in affiliates (2,680) (150) Purchase of other assets (1,910) (2,157) Proceeds from note receivable - 360 - ----------------------------------------------------------------------------------------------------------------------------------- Net Cash Used In Investing Activities (10,625) (4,213) Cash Flow From Financing Activities - ----------------------------------------------------------------------------------------------------------------------------------- Proceeds (repayments) from short-term borrowing 7,587 (5,500) Proceeds from stock options exercised 1,408 2,640 Purchase of treasury stock (13,934) (1,652) Payment of cash dividends (2,718) (2,321) Long-term debt repayments (10,282) (1,500) - ----------------------------------------------------------------------------------------------------------------------------------- Net Cash (Used In) Financing Activities (17,939) (8,333) Net Change In Cash and Cash Equivalents (5,050) 3,986 Cash And Cash Equivalents At Beginning Of Year 19,765 16,189 - ----------------------------------------------------------------------------------------------------------------------------------- Cash And Cash Equivalents At End Of Period $14,715 $20,175 - ----------------------------------------------------------------------------------------------------------------------------------- CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated balance sheet as of March 31, 2000, the consolidated statements of income and retained earnings for the three months ended March 31, 2000 and April 2, 1999 and the consolidated statements of cash flow for the three months then ended have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flow at March 31, 2000 and 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 have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1999 annual report to shareholders. The results of operations for the period ended March 31, 2000 are not necessarily indicative of the operating results for the full year. 2. Inventories consist of the following: Mar. 31, Dec. 31, (In thousands) 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Raw materials and supplies $25,500 $25,698 Work in process 23 22 Finished goods 52,332 46,950 ------------------------------------------------------- $77,855 $72,670 - ----------------------------------------------------------------------------------------------------------------------------------- 3. Property, Plant and Equipment consist of the following: Mar. 31, Dec. 31, (In thousands) 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Land $ 5,775 $ 5,741 Buildings and improvements 85,761 85,411 Machinery and equipment 222,849 221,783 Office equipment and other assets 15,373 15,434 Software 5,857 5,857 Mineral rights 342 328 Construction in progress 10,258 4,960 --------------------------------------------------- 346,215 339,514 Less accumulated depreciation, depletion and amortization 162,456 157,295 --------------------------------------------------- Net Property, Plant and Equipment $183,759 $182,219 - ----------------------------------------------------------------------------------------------------------------------------------- CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Earnings Per Share Basic EPS is calculated based on income available to common shareholders 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 stock options outstanding 5. Impairment and Other Items During 1999, the Company recorded a pre-tax charge of $6.6 million for impairment and certain other items relating to a planned plant shutdown which included the rationalization of both toothpaste and powder laundry detergent production. Components of the outstanding reserve balance included in accounts payable and accrued expenses consist of the following: Reserves at Reserves at (In thousands) Dec. 31, 1999 (Payments) Mar. 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------ Severance and other charges $268 $(26) $242 - ------------------------------------------------------------------------------------------------------------------------------ 6. Segment Information Segment sales and operating profit for the first quarter of 2000 and 1999 are as follows: Unconsolidated (In thousands) Consumer Specialty Affiliates Corporate Total - ----------------------------------------------------------------------------------------------------------------------------------- Net Sales First quarter 2000 $155,452 $42,190 $(6,010) - $191,632 First quarter 1999 143,108 37,910 (6,310) - 174,708 Operating Profit First quarter 2000 12,738 6,755 (829) - 18,664 First quarter 1999 7,521 5,967 (1,966) 6,452 17,974 Product line net sales data for the first quarter periods are as follows: - ----------------------------------------------------------------------------------------------------------------------------------- Laundry and Oral and Uncon- Household Personal Deodor- Specialty Animal Specialty solidated Cleaners Care izing Chemicals Nutrition Cleaners Affiliates Total - ----------------------------------------------------------------------------------------------------------------------------------- 1st Qtr 2000 $77,252 $41,570 $36,630 $25,079 $14,970 $2,141 $(6,010) $191,632 1st Qtr 1999 69,030 40,851 33,227 20,668 15,004 2,238 (6,310) 174,708 - ----------------------------------------------------------------------------------------------------------------------------------- 7. Comprehensive Income The following table presents the Company's Comprehensive Income for the three months ending March 31, 2000 and April 2, 1999: Three Months Ended - ----------------------------------------------------------------------------------------------------------------------------------- March 31, April 2, (In thousands) 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income $11,732 $12,365 Other Comprehensive Income, net of tax: Foreign exchange translation adjustments 290 (113) ------------------------------------------------------ Comprehensive Income $12,022 $12,252 - ----------------------------------------------------------------------------------------------------------------------------------- 8. Contingencies The Company, in the ordinary course of its business, is the subject of, or a party to, various pending or threatened legal actions. The Company believes that any ultimate liability arising from these actions will not have a material adverse effect on its consolidated financial statements. 9. Reclassification Certain prior year amounts have been reclassified in order to conform with the current year presentation. MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations - --------------------- For the quarter ended March 31,2000, net income was $11.7 million, equivalent to basic earnings of $.30 per share, from $12.4 million or $.32 per share, in last years first quarter. Diluted earnings were $.29 per share compared to $.30 per share last year. This year's results include an unusual pretax gain of $2.1 million from a reduction in deferred compensation liability related to the sharp decline in the Company's share price during the quarter; last year's results included a $6.5 million pretax net gain from the sale of mineral reserves partially offset by plant impairment charges. Excluding the unusual gains in both years, net income rose 24% to $10.4 million or $.26 per share compared to $8.4 million or $.21 per share last year. Sales increased 9.7% to $191.6 million from $174.7 million in the comparable period last year. This year's number includes two acquisitions completed in 1999: the Brazilian specialty chemicals company QGN, in which the Company acquired a controlling interest in May, and the two bathroom cleaners, SCRUB FREE(R) and CLEAN SHOWER(R) acquired in December. Excluding these acquisitions, the sales of existing brands and product lines rose approximately 2% for the quarter. On the consumer products side of the business, deodorizer sales increased due to strong cat litter growth; laundry and cleaning products rose due to the newly acquired bathroom cleaner brands; and oral and personal care products were slightly higher, led by strong toothpaste growth. On the specialty products side, specialty chemicals increased due to the acquisition of the Brazilian business, and animal nutrition and specialty cleaner sales were flat. In the same period last year, sales increased 15% due largely to heavy promotion spending in support of new consumer products and exceptional growth for the animal nutrition business. Gross margin was 44.1% in the quarter, unchanged versus a year ago. This reflects manufacturing and distribution efficiencies offset by higher raw and packaging materials for consumer products and plant startup costs. Advertising, consumer and trade promotion expenses were essentially unchanged versus 1999. Increases in laundry and household cleaners and deodorizing products were offset by reductions in oral and personal care products. Selling, general and administrative expenses increased slightly from $21.0 million to $21.3 million. Higher selling, personnel-related costs and amortization of intangibles related to the bathroom cleaners acquisition were virtually offset by reduction in deferred compensation liability. Earnings from affiliates were lower as a result of a decline in Armand Products earnings and consolidating the results of the Brazilian subsidiary in 2000. Interest expense increased from last year as a result of the debt needed to acquire the bathroom cleaner products and the consolidation of the Brazilian subsidiary. The effective tax rate for the quarter was 37.0%, down from 37.7% in last year's first quarter which reflects the lower tax rate associated with the Brazilian subsidiary. Liquidity and Capital Resources - ------------------------------- The Company considers cash and short-term investments as the principal measurement of its liquidity. At March 31,2000, cash including cash equivalents and short-term investments totaled $19.7 million as compared to $23.8 million at December 31,1999. During the first quarter of 2000, the Company generated $23.5 million of cash flow from operating activities and received $1.4 million from stock option exercises. Significant expenditures include the purchase of 805,000 shares of treasury stock for $13.9 million, net debt repayments of $2.7 million, property plant and equipment additions of $5.4 million and the payment of cash dividends of $2.7 million. Fluid Note Receivable - --------------------- In conjunction with the July 1998 purchase of the Lakewood, New Jersey, manufacturing facility, the Company loaned Fluid Packaging Co., Inc. $3.0 million at an interest rate of 8% per annum. The note was payable no later than July 15, 1999 and is secured by a pledge of and security interest in 65% of the capital stock of Allied Mexico, S.A. de C.V., a wholly-owned subsidiary of Fluid Packaging. The note was not paid by its maturity date. The Company is proceeding toward the resolution of the matter, leading to the collection of the note. After reviewing the value of the collateral, the Company believes the carrying value of the note is fully recoverable. Cautionary Note on Forward-Looking Statements - --------------------------------------------- This report contains forward-looking statements relating, among others, to financial objectives, sales growth and cost reduction programs. Many of these statements depend on factors outside the Company's control, such as economic conditions, market growth and consumer demand, competitive products and pricing, raw material costs and other matters. With regard to new product introductions, there is particular uncertainty related to trade, competitive and consumer reactions. If the Company's assumptions are incorrect, or there is a significant change in some of these key factors, the Company's performance could vary materially from the forward-looking statements in this report. PART II - Other Information Item 6. Exhibits and Reports on Form 8-K a. Exhibits (11) Computation of earnings per share (27) Financial Data Schedule b. No reports on Form 8-K were filed for the three months ended March 31, 2000. CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES EXHIBIT 11 - Computation of Earnings Per Share (In thousands except per share amounts) Three Months Ended - ---------------------------------------------------------------------------------------------------------------------- March 31, April 2, 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- BASIC: Net Income $11,732 $12,365 Weighted average shares outstanding 38,679 38,708 Basic earnings per share .30 $.32 DILUTED: Net Income $11,732 $12,365 Weighted average shares outstanding 38,679 38,708 Incremental shares under stock option plans 1,770 2,016 ------------------------------------------------------- Adjusted weighted average shares outstanding 40,449 40,724 ------------------------------------------------------- Diluted earnings per share $.29 $.30 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHURCH & DWIGHT CO., INC. (REGISTRANT) DATE: May 8, 2000 Zvi Eiref ------------------------------ ------------------------------ ZVI EIREF VICE PRESIDENT FINANCE DATE: May 8, 2000 Gary P. Halker ------------------------------ ------------------------------ GARY P. HALKER VICE PRESIDENT, CONTROLLER AND CHIEF INFORMATION OFFICER