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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 June 28, 2002
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
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As of August 6, 2002, there were 39,783,883 shares of Common Stock outstanding.
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PART I - FINANCIAL INFORMATION
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
Three Months Ended Six Months Ended
(Dollars in thousands, except per share data) June 28, June 29, June 28, June 29,
2002 2001 2002 2001
---- ---- ---- ----
Net Sales.......................................... $ 258,463 $ 229,636 $ 515,265 $ 456,416
Cost of sales...................................... 182,525 160,096 366,077 322,525
---------- ---------- ---------- ----------
Gross Profit....................................... 75,938 69,540 149,188 133,891
Marketing expense.................................. 22,153 18,859 38,985 35,245
Selling, general and administrative expenses....... 29,492 28,176 58,683 55,189
---------- ---------- ---------- ----------
Income from Operations............................. 24,293 22,505 51,520 43,457
Equity in earnings of affiliates................... 11,364 1,151 12,281 2,183
Investment earnings................................ 440 446 1,005 851
Other income (expense)............................. (894) (340) (1,087) (1,343)
Interest expense................................... (6,097) (1,180) (12,185) (1,850)
---------- ---------- ---------- ----------
Income before minority interest and taxes ......... 29,106 22,582 51,534 43,298
Minority interest.................................. 40 1,770 129 3,754
---------- ---------- ---------- ----------
Income before taxes................................ 29,066 20,812 51,405 39,544
Income taxes....................................... 10,414 7,334 17,830 13,919
---------- ---------- ---------- ----------
Net Income......................................... 18,652 13,478 33,575 25,625
Retained earnings at beginning of period........... 324,390 286,148 312,409 276,700
---------- ---------- ---------- ----------
343,042 299,626 345,984 302,325
Dividends paid..................................... 2,970 2,719 5,912 5,418
---------- ---------- ---------- ----------
Retained earnings at end of period................. $ 340,072 $ 296,907 $ 340,072 $ 296,907
========== ========== ========== ==========
Weighted average shares outstanding - Basic........ 39,584 38,861 39,425 38,699
Weighted average shares outstanding - Diluted...... 41,855 40,850 41,677 40,596
Earnings Per Share:
Net income per share - Basic....................... $.47 $.35 $.85 $.66
Net income per share - Diluted..................... $.45 $.33 $.81 $.63
Dividends Per Share................................ $.075 $.07 $.15 $.14
See Notes to Condensed Consolidated Financial Statements.
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 28, 2002 Dec. 31, 2001
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(Dollars in thousands) (Unaudited)
Assets
Current Assets
Cash and cash equivalents........................................................... $ 75,285 $ 52,446
Accounts receivable, less allowances of $2,170 and $3,666........................... 107,257 106,291
Inventories......................................................................... 97,137 101,214
Deferred income taxes............................................................... 24,906 19,849
Note receivable and current portion of long-term note receivable.................... 5,870 5,803
Prepaid expenses.................................................................... 4,573 7,604
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Total Current Assets................................................................ 315,028 293,207
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Property, Plant and Equipment (Net)................................................. 239,546 231,449
Notes Receivable.................................................................... 9,708 11,951
Equity Investment in Affiliates..................................................... 125,775 115,121
Long-term Supply Contracts.......................................................... 7,117 7,695
Tradenames.......................................................................... 108,776 136,934
Goodwill ........................................................................... 163,370 127,320
Other Assets........................................................................ 26,382 25,408
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Total Assets........................................................................ $ 995,702 $ 949,085
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Short-term borrowings............................................................... $ 4,395 $ 3,220
Accounts payable and accrued expenses............................................... 169,296 176,176
Current portion of long-term debt................................................... 16,035 8,360
Income taxes payable................................................................ 4,998 8,260
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Total Current Liabilities........................................................... 194,724 196,016
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Long-term Debt...................................................................... 399,201 406,564
Deferred Income Taxes............................................................... 40,330 27,032
Deferred and Other Long-term Liabilities............................................ 22,550 19,164
Nonpension Postretirement and Postemployment Benefits............................... 15,621 15,880
Minority Interest................................................................... 1,854 2,126
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.......................................................... 36,065 28,414
Retained earnings................................................................... 340,072 312,409
Accumulated other comprehensive (loss).............................................. (11,494) (9,728)
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411,304 377,756
Common stock in treasury, at cost:
6,880,905 shares in 2002 and 7,518,105 shares in 2001.......................... (89,882) (95,453)
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Total Stockholders' Equity.......................................................... 321,422 282,303
========== ==========
Total Liabilities and Stockholders' Equity.......................................... $ 995,702 $ 949,085
========== ==========
See Notes to Condensed Consolidated Financial Statements.
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Six Months Ended
(Dollars in thousands) June 28, 2002 June 29, 2001
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Cash Flow From Operating Activities
Net Income.......................................................................... $ 33,575 $ 25,625
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization....................................... 13,985 12,350
Equity in earnings of affiliates............................................... (12,281) (2,183)
Deferred income taxes.......................................................... 10,482 1,961
Other.......................................................................... 1,609 (182)
Change in assets and liabilities:
(Increase) in accounts receivable.............................................. (332) (24,728)
Decrease/(increase) in inventories............................................. 2,861 (3,615)
Decrease/(increase) in prepaid expenses........................................ 2,957 (1,499)
(Decrease) in accounts payable................................................. (8,582) (11,713)
Increase in income taxes payable............................................... 544 1,000
Increase in other liabilities.................................................. 1,688 1,794
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Net Cash Provided By (Used In)Operating Activities.................................. 46,506 (1,190)
Cash Flow From Investing Activities
Decrease in short-term investments.................................................. -- 1,994
Additions to property, plant and equipment.......................................... (20,268) (15,964)
Acquisition of Biovance stock (net of cash acquired of $365)........................ (7,714) --
Investment in note receivable....................................................... -- (5,000)
Proceeds from note receivable....................................................... 803 --
Distributions from affiliates....................................................... 1,627 3,005
Other long-term assets.............................................................. (740) (797)
Proceeds from sale of fixed assets.................................................. 81 2,349
Purchase of USAD stock.............................................................. -- (101,642)
Adjustment to purchase price of product lines....................................... (137) --
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Net Cash Used In Investing Activities............................................... (26,348) (116,055)
Cash Flow From Financing Activities
Long-term debt (repayment).......................................................... (1,879) (19,950)
Short-term debt borrowing........................................................... 1,482 130,952
Proceeds from stock options exercised............................................... 9,465 7,343
Deferred financing costs............................................................ (475) --
Payment of cash dividends........................................................... (5,912) (5,418)
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Net Cash Provided By Financing Activities........................................... 2,681 112,927
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Net Change In Cash and Cash Equivalents............................................. 22,839 (4,318)
Cash And Cash Equivalents At Beginning Of Year...................................... 52,446 21,573
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Cash And Cash Equivalents At End Of Period.......................................... $ 75,285 $ 17,255
========= =========
Acquisition in which liabilities were assumed are as follows:
Fair value of assets................................................................ $ 14,656 $ 169,907
Cash paid for stock................................................................. (7,714) $ (110,877)*
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Liabilities assumed................................................................. $ (6,942) $ (59,030)
========= ==========
*Includes $9.2 million paid in 2000
See Notes to Condensed Consolidated Financial Statements.
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet as of June 28, 2002, the consolidated
statements of income and retained earnings for the three months and six months
ended June 28, 2002 and June 29, 2001 and the consolidated statements of cash
flow for the six 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 June 28, 2002 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, 2001 annual
report to shareholders. The results of operations for the period ended June 28,
2002 are not necessarily indicative of the operating results for the full year.
2. Inventories consist of the following:
(In thousands) June 28, 2002 Dec. 31, 2001
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Raw materials and supplies.......................................................... $ 28,288 $ 28,869
Work in process..................................................................... 236 651
Finished goods ..................................................................... 68,613 71,694
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$ 97,137 $ 101,214
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3. Property, Plant and Equipment consist of the following:
(In thousands) June 28, 2002 Dec. 31, 2001
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Land................................................................................ $ 6,397 $ 6,503
Buildings and improvements.......................................................... 100,200 92,577
Machinery and equipment............................................................. 255,767 253,749
Office equipment and other assets................................................... 24,976 25,037
Software ........................................................................... 5,593 5,652
Mineral rights ..................................................................... 211 257
Construction in progress............................................................ 24,966 17,593
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418,110 401,368
Less accumulated depreciation, depletion and amortization........................... 178,564 169,919
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Net Property, Plant and Equipment................................................... $ 239,546 $ 231,449
========== ==========
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.
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Impairment and Other Items
During 2000, the Company recorded a pre-tax charge of $21.9 million relating to
three major elements: a $14.3 million write-down of the Company's Syracuse N.Y.
manufacturing facility, a $2.1 million charge for potential carrying and site
clearance costs, and a $5.5 million severance charge (including $2.2 million
pension plan amendment) related to both the Syracuse shutdown and the sales
force reorganization. The Company also incurred depreciation and other charges
of $1.8 million in 2000 and $1.4 million in 2001 relating to a plant and
warehouses that were shutdown. This brings the total one-time cost to
approximately $25 million. The cash portion of this one-time cost, however, was
less than $5 million after tax.
Components of the outstanding reserve balance included in accounts payable and
accrued expenses consist of the following:
Reserves at Payments & Reserves at
(In thousands) Dec. 31, 2001 Adjustments June 28, 2002
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Severance and other charges....................................... $ 762 $ (240) $ 522
Site clearance costs.............................................. 1,186 (467) 719
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$ 1,948 $ (707) $ 1,241
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6. Segment Information
Segment sales and operating profit for the second quarter and year to date of
2002 and 2001 are as follows:
Unconsolidated
(In thousands) Consumer Specialty Affiliates Total
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Net Sales
Second quarter 2002....................... $327,835 $56,804 $(126,176) $258,463
Second quarter 2001....................... 185,608 56,812 (12,784) 229,636
Year to date 2002......................... 637,119 110,049 (231,903) 515,265
Year to date 2001......................... 369,225 112,308 (25,117) 456,416
Operating Profit
Second quarter 2002....................... 44,763 7,938 (28,408) 24,293
Second quarter 2001....................... 15,300 9,260 (2,055) 22,505
Year to date 2002......................... 77,442 15,042 (40,964) 51,520
Year to date 2001......................... 31,311 16,241 (4,095) 43,457
Both Consumer and Specialty net sales and operating profit include 100 percent
of the results of unconsolidated affiliates.
Product line net sales data for the second quarter and year to date periods are
as follows:
Deodorizing Uncon-
and Personal International Specialty solidated
Cleaning Laundry Care Consumer Products Affiliates Total
-------- ------- ---- -------- -------- ---------- -----
2nd Qtr 2002.... $ 63,267 $ 97,694 $ 101,562 $ 65,312 $ 56,804 $ (126,176) $ 258,463
2nd Qtr 2001.... 55,572 92,499 26,756 10,781 56,812 (12,784) 229,636
YTD 2002........ $ 125,774 $ 197,904 $ 192,073 $ 121,368 $ 110,049 $ (231,903) $ 515,265
YTD 2001........ 105,637 190,435 54,302 18,851 112,308 (25,117) 456,416
As a result of the Arrid Antiperspirant acquisition and the formation of Armkel,
the Company has reclassified the consumer product division into four product
lines, which breaks out international from the underlying products and combines
the specialty products division into one product line. Prior year sales have
been reclassified.
7. Armkel LLC
The following table summarizes financial information for Armkel LLC. The Company
accounts for its 50% interest under the equity method.
Quarter Ended Six Months Ended
(In thousands) June 28, 2002 June 28, 2002
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Income statement data:
Net sales....................................................................... $ 115,858 $ 212,311
Gross profit.................................................................... 63,282 108,716
Net income ..................................................................... 15,585 15,893
Equity earnings in affiliate ................................................... 10,138 10,446
June 28, December 31,
(In thousands) 2002 2001
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Balance sheet data:
Current assets.................................................................. $ 233,466 $ 225,104
Noncurrent assets............................................................... 578,645 587,489
Short-term debt................................................................. 9,377 5,671
Current liabilities (excluding short-term debt)................................. 121,044 135,057
Long-term debt.................................................................. 436,487 439,750
Other long-term liabilities..................................................... 26,696 28,711
Partners' equity................................................................ 218,507 203,404
Under the partnership agreement with Kelso, the Company is allocated 50% of all
book and tax profits. If there are losses, the Company is allocated 50% of all
book and tax losses up to $10 million and 100% of such losses above that level
for the period starting September 29, 2001, the date of the acquisition. The
Company is entitled to 100% of the profits until an amount equal to the
accumulated excess losses is recorded.
During 2002, the Company invoiced Armkel $10.1 million for administrative and
management oversight services, and purchased $5.4 million of deodorant
antiperspirant inventory produced by Armkel at its cost. Armkel invoiced the
Company $1.1 million of transition administrative services. The Company has a
receivable from Armkel at June 28, 2002 of approximately $8.2 million that
primarily related to administration fees and invoices paid by the Company on
behalf of Armkel.
8. Acquisitions
a. As previously announced, in January the Company acquired Biovance
Technologies, Inc., a small Oskaloosa, Iowa-based producer of specialty
feed ingredients which complement our existing range of animal nutrition
products. The purchase price paid in the first quarter was $7.7 million
(net of cash acquired) and included an additional $6.9 million for the
assumption of liabilities. The Company has accrued $3.0 million of
additional payments based upon contractual obligations, which will be paid
in 2003. Additional payments will be required based on operating
performance. Pro forma results of operations are not included as they would
not have a material effect on the Company's results of operations.
The following table summarizes the estimated fair value of the assets
acquired and liabilities assumed at the date of acquisition:
(In thousands)
Current assets............................................ $ 1,374
Property, plant and equipment............................. 3,540
Tradenames................................................ 46
Goodwill.................................................. 10,061
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Total assets acquired (includes cash of $365)............. 15,021
Current liabilities....................................... (4,603)
Long-term liabilities..................................... (2,339)
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Net assets acquired....................................... $ 8,079
===========
The results of operations are included in the accompanying financial
statements from January 1, 2002, and were not significant.
An appraisal is currently in process and the purchase price allocation will
be modified based on its results. Goodwill is not being amortized, based on
the provisions of SFAS 142 "Goodwill and Other Intangible Assets." The
Goodwill is not expected to be deductible for tax purposes and will be
included in the specialty products segment.
b. During July, the Company increased its ownership position of its
Brazilian Subsidiary, QGN to approximately 98.5% from 85% at a cost of
approximately $4.4 million. Approximately one half was paid in July and the
balance is due in 2003.
9. Recent Accounting Pronouncements
a. Effective January 1, 2002, the Company adopted EITF 00-14 "Accounting
for Certain Sales Incentives" and EITF 00-25 "Vendor Income Statement
Characterization of Consideration from a Vendor to a Retailer" and EITF
01-9 "Accounting for Consideration given to a Customer or a Reseller of the
Vendor's Products." EITF 00-14 addresses the income statement
classification for offers by a vendor directly to end consumers that are
exercisable after a single exchange transaction in the form of coupons,
rebate offers, or free products or services disbursed on the same date as
the underlying exchange transaction. The issue requires the cost of these
items to be accounted for as a reduction of revenues, not included as a
marketing expense as the Company did previously. EITF 00-25 outlines
required accounting treatment of certain sales incentives, including
slotting or placement fees, cooperative advertising arrangements, buydowns
and other allowances. The Company previously recorded such costs as
marketing expenses. The issue requires the Company to report the paid
consideration expense as a reduction of sales, rather than marketing
expense. EITF 01-9 codifies and reconciles certain issues from EITF 00-14
and EITF 00-25. The second quarter and year to date 2001 net sales have
been reclassified to conform with these pronouncements. The impact was a
reduction of net sales for the second quarter and year to date periods of
approximately $32.7 and $64.0 million in 2002 and $27.5 and $57.2 million
in 2001, and did not have an effect on net income.
b. In January 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement supersedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets to Be Disposed Of" and
the accounting and reporting provisions of APB Opinion No. 30, Reporting
the Results of Operations Reporting the Effects of Disposal of a Segment of
a Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions", for the disposal of a business (as previously defined in
that Opinion). This statement also amends ARB No. 51, "Consolidated
Financial Statements"' to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. The Company has
evaluated this statement and has determined there is no material impact on
the Company's consolidated financial statements.
c. During the second quarter, the FASB issued SFAS No. 145, "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." This Statement rescinds FASB Statement No. 4,
"Reporting Gains and Losses from Extinguishment of Debt", and an amendment
of that Statement, FASB Statement No. 64, "Extinguishment of Debt Made to
Satisfy Sinking-Fund Requirements." This Statement also rescinds FASB
Statement No. 44, "Accounting for Intangible Assets of Motor Carriers."
This Statement amends FASB Statement No. 13, "Accounting for Leases", to
eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings or
describe their applicability under changed conditions. The Company will
adopt the provisions of this Statement upon its effective date and does not
anticipate it to have a material effect on its financial statements.
d. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The standard requires
companies to recognize costs associated with exit or disposal commitment to
an exit or disposal plan. Examples of costs covered by the standard include
lease termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant closing, or
other exit or disposal activity. Statement 146 is to be applied
prospectively to exit or disposal activities initiated after December 31,
2002. The Company is currently evaluating the impact this pronouncement
will have on its consolidated financial statements.
10. Goodwill and Other Intangibles
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which supersedes APB Opinion No. 17, "Intangible Assets". Under its
changes, SFAS No. 142 establishes new standards for goodwill acquired in a
business combination and eliminates amortization of goodwill and instead sets
forth methods to periodically evaluate goodwill for impairment. The Company
adopted this statement upon its effective date.
The following tables discloses the carrying value of all intangible assets:
June 28, 2002 December 31, 2001
------------- -----------------
Gross Carrying Accum. Gross Carrying Accum.
Amount Amortization Net Amount Amortization Net
-------------- ------------ --- -------------- ------------ ---
Amortized intangible assets:
- ---------------------------
Tradenames............ $ 31,400 $ (4,055) $ 27,345 $ 31,400 $ (3,271) $ 28,129
Technology............ 4,241 (482) 3,759 4,241 (302) 3,939
--------- --------- --------- ---------- -------- ---------
Total................. $ 35,641 $ (4,537) $ 31,104 $ 35,641 $ (3,573) $ 32,068
========= =========- ========= ========== ======== =========
Unamortized intangible assets - Carrying value
Tradenames............ $ 81,431 $ 108,805
--------- ----------
Total................. $ 81,431 $ 108,805
========= ==========
Intangible amortization expense amounted to $1.0 million in 2002 and $2.4 in
2001. The estimated intangible amortization for each of the next five years is
approximately $1.9 million.
The changes in the carrying amount of goodwill for the six months ended June 28,
2002 is as follows:
(In thousands) Consumer Specialty Total
-------- --------- -----
Balance December 31, 2001......................................... $ 116,372 $ 10,948 $ 127,320
Purchase accounting adjustments................................... 26,225 -- 26,225
Goodwill acquired during 2002..................................... -- 10,061 10,261
FAS 109 adjustment................................................ -- (130) (130)
Foreign exchange/other............................................ 207 (313) 305
----------- ---------- -----------
Balance June 28, 2002............................................. $ 142,804 $ 20,566 $ 163,370
=========== ========== ===========
In accordance with FAS 142, the Company completed the impairment test of the
valuation of goodwill and intangibles as of January 1, 2002 and based upon the
results, there was no impairment.
During the second quarter, the Company completed the purchase price allocation
of the USAD acquisition, which adjusted the valuation of indefinite lived
tradenames and goodwill. The Company in 2001 amortized tradenames and goodwill
using the same useful life, therefore, there was no impact to the 2001
amortization expense recorded by the Company. With regard to the Carter-Wallace
acquired brands, an appraisal is still in process and the purchase price
allocation will be modified based on its results.
Net income results and per share amounts for the quarter and six months ended
June 28, 2002 and June 29, 2001 reflecting goodwill and intangible assets that
are no longer being amortized is as follows:
Three Months Ended Six Months Ended
------------------ ----------------
June 28, June 29, June 28, June 29,
2002 2001 2002 2001
---- ---- ---- ----
Reported net income.................................... $ 18,652 $ 13,478 $ 33,575 $ 25,625
Goodwill amortization (net of tax)..................... -- 427 -- 838
Discontinued tradename amortization (net of tax)....... -- -- -- 140
---------- ---------- ---------- ----------
Adjusted net income.................................... $ 18,652 $ 13,905 $ 33,575 $ 26,603
========== ========== ========== ==========
Basic earnings per share
As reported........................................ $0.47 $0.35 $0.85 $0.66
Goodwill amortization.............................. -- 0.01 -- 0.02
Tradename amortization............................. -- -- -- --
---------- ---------- ---------- ----------
Adjusted net income................................ $0.47 $0.36 $0.85 $0.68
========== ========== ========== ==========
Diluted earnings per share
As reported........................................ $0.45 $0.33 $0.81 $0.63
Goodwill amortization.............................. -- 0.01 -- 0.02
Tradename amortization............................. -- -- -- --
---------- ---------- ---------- ----------
Adjusted net income................................ $0.45 $0.34 $0.81 $0.65
========== ========== ========== ==========
11. Comprehensive Income
The following table presents the Company's Comprehensive Income for the three
months ending June 28, 2002 and June 29, 2001:
Three Months Ended Six Months Ended
(In thousands) June 28, June 29, June 28, June 29,
2002 2001 2002 2001
---- ---- ---- ----
Net Income......................................... $ 18,652 $ 13,478 $ 33,575 $ 25,625
Other Comprehensive Income, net of tax:
Foreign exchange translation adjustments........ (1,263) (503) (1,494) (2,092)
Interest rate swap agreements................... (1,318) -- (272) --
Available for Sale securities................... -- (1,421) -- 3,202
---------- ----------- ---------- ----------
Comprehensive Income............................... $ 16,071 $ 11,554 $ 31,809 $ 26,735
========== ========== ========== ==========
12. Commitments and Contingencies
a. Certain former shareholders of Carter-Wallace have brought legal action
against the company that purchased the pharmaceutical business of
Carter-Wallace regarding the fairness of the consideration these
shareholders received. Pursuant to various indemnification agreements,
Armkel could be liable for damages up to $12 million, and the Company could
be liable directly to Armkel for an amount up to $2 million.
The Company believes that the consideration offered was fair to the former
Carter-Wallace shareholders, and it cannot predict with certainty the
outcome of this litigation.
b. The Company has commitments to acquire approximately $15 million of raw
material and packaging supplies from our vendors. The packaging supplies
are in either a converted or non-converted status. This enables the Company
to respond quickly to changes in customer orders/requirements.
c. 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.
13. Reclassification
Certain prior year amounts have been reclassified in order to conform with the
current year presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS - (Continued)
Results of Operations
- ---------------------
For the quarter ended June 28,2002 net sales increased 12.6% from $229.6 million
to $258.5 million. Consumer sales increased 14.2% to $212.0 million, primarily
due to the addition of the Arrid antiperspirant and Lambert Kay pet care
businesses as part of the Carter-Wallace acquisition. Excluding the acquired
brands as well as some minor divestitures and the export operation being
reorganized, consumer sales increased 4% with higher deodorizers and cleaners
and laundry products, partially offset by lower personal care products.
Specialty products increased 5.6% to $46.5 million, primarily due an increase in
animal nutrition products, which was impacted by the Biovance acquisition. For
the six-month period, net sales increased 12.9% to $515.3 million from $456.4
million. Consumer sales increased 15.1 % to $424.8 million for the same reasons
as the current quarter. Excluding the items noted earlier, consumer sales
increased 3%. Specialty products increased 3.7% to $90.5 million, again for the
same reason as the current quarter.
Effective January 1, 2002, the Company adopted EITF 00-14 "Accounting for
Certain Sales Incentives" and EITF 00-25 "Vendor Income Statement
Characterization of Consideration from a Vendor to a Retailer" and EITF 01-9
"Accounting for Consideration Given to a Customer or a Reseller of the Vendor's
Products." EITF 00-14 addresses the income statement classification for offers
by a vendor directly to end consumers that are exercisable after a single
exchange transaction in the form of coupons, rebate offers, or free products or
services disbursed on the same date as the underlying exchange transaction. The
issue requires the cost of these items to be accounted for as a reduction of
revenues, not included as a marketing expense as the Company did previously.
EITF 00-25 outlines required accounting treatment of certain sales incentives,
including slotting or placement fees, cooperative advertising arrangements,
buydowns and other allowances. The Company previously recorded such costs as
marketing expenses. The issue requires the Company to report the paid
consideration expense as a reduction of sales, rather than marketing expense.
EITF 01-9 codifies and reconciles certain issues from EITF 00-14 and EITF 00-25.
The second quarter and year to date 2001 net sales have been reclassified to
conform with these pronouncements. The impact was a reduction of net sales for
the second quarter and year to date periods of approximately $32.7 and $64.0
million in 2002 and $27.5 and $57.2 million in 2001, and did not have an effect
on net income.
Gross profit margin for the quarter was 29.4%, down from 30.3% in 2001. During
the quarter, the Company incurred expenses associated with the startup of its
Madera, California animal nutrition facility, higher expenses associated with
the Cranbury manufactured Arrid Antiperspirant, an increase in consumer coupon
expenses which reduced net sales and lower sales on its existing personal care
products. This decline was partially offset by lower manufacturing and
distribution costs on laundry products. Gross profit margin for the six month
period was 29.0%, down slightly from 29.3% in 2001. Excluding the Madera startup
costs, the reason for the decline was consistent with the second quarter.
Marketing expenses increased $3.3 million in the quarter and $3.7 million for
the six-month period. During the current quarter, increased spending on Arm &
Hammer deodorant antiperspirant and spending associated with the acquired
products were partially offset by lower spending on the deodorizing and cleaner
product line. For the six-month period, the increase is primarily due to the
acquired products partially offset by lower spending on existing personal care
products.
Selling, general and administrative expenses increased $1.3 million to $29.5
million in the quarter and $3.5 million to $58.7 for the six-month period.
Higher personnel related expenses and transition expenses associated with the
Carter-Wallace acquired products were partially offset by lower deferred
compensation expenses and the elimination of Goodwill and certain tradename
amortization expense associated with the Company's adoption of FAS 142.
Earnings from affiliates increased due to the inclusion of Armkel LLC. The
Company's existing equity investments, Armand Products and Armakleen were
virtually unchanged.
Interest expense increased significantly from last year as a result of the
Company carrying the debt that was used to finance the two significant
acquisitions in 2001. Other expenses include in the quarter and six month period
foreign exchange losses associated with the Company's Brazilian subsidiary.
Earnings were negatively impacted in 2001 by a change in the fair value of
derivative instruments not designated as hedging instruments. Subsequently,
these contracts were designated as hedging instruments of debt incurred as part
of the Carter-Wallace acquisition and changes in value were made through other
comprehensive income in the equity portion of the Company's Balance Sheet.
The effective tax rate for the current quarter and six-month period was 35.8%
and 34.7%, respectively, versus 35.2% in last year's second quarter and
six-month period. This reflects the impact of Armkel's foreign subsidiaries,
whose post-tax results are included in equity in earnings of affiliates,
partially offset in the current quarter by a cumulative adjustment for a higher
state tax rate.
For the quarter, net income was $18.7 million or $0.47 per basic share and $0.45
per diluted share, a 36% increase over the $13.5 million or $0.35 per basic
share and $0.33 per diluted share in the same period last year. This year's
results included a $0.05 per share gain related to the allocation of profits by
the Company's affiliate, Armkel, LLC, a reversal of prior year promotion
liabilities of approximately $.03 per share, partially offset by a receivable
reserve of $.01 per share. Last year's results included a $0.01 per share charge
related to intangibles amortization that was discontinued in 2002 with the
adoption of accounting standard FAS 142.
For the six months, net income increased to $33.6 million or $0.85 per basic
share and $0.81 per diluted share compared to $25.6 million or $0.66 per basic
share and $0.63 per diluted share in the same period last year. This year's
results included a $0.06 per share first quarter accounting charge relating to
the step-up of opening inventory values by Armkel, as well as the $0.05 per
share second quarter gain and the other two items referred to earlier. Last
year's results included a $0.02 plant shutdown charge, as well as a $0.02
intangibles amortization charge discontinued in 2002.
Liquidity and Capital Resources
- -------------------------------
The Company considers cash and short-term investments as the principal
measurement of its liquidity. At June 28, 2002, cash including cash equivalents
totaled $75.3 million as compared to $52.4 million at December 31, 2001.
The Company has outstanding long-term debt of $399.2 million, and the
aforementioned cash equivalents less short-term debt of $54.9 million, for a net
debt position of $344.3 million at quarter-end. In addition, the Company had an
unused revolving credit facility of $100 million. Based on the definition in its
loan agreements, the Company's cash flow (EBITDA) is estimated at $67.0 million
for the six months.
Financial covenants include a leverage ratio and an interest coverage ratio,
which were both met for the quarter. The Company believes cash on hand along
with the $100 million revolving credit facility is sufficient to meet its
liquidity needs.
During the first half of 2002, the Company generated $46.5 million of cash flow
from operating activities and received $9.5 million from stock option exercises.
Significant expenditures include the purchase of Biovance stock of $7.7 million,
property, plant and equipment additions of $20.3 million and the payment of cash
dividends of $5.9 million.
Cautionary Note on Forward-Looking Statements
- ---------------------------------------------
This report contains forward-looking statements relating, among others, to
financial objectives, liquidity needs, contingencies and other matters. These
statements represent the intentions, expectations and beliefs of the Company,
and are subject to risks, uncertainties and other factors, many of which are
outside the Company's control. These factors, which include the ability of the
Company to successfully complete the integration of the operations of the
consumer products business of Carter-Wallace into the Armkel joint venture and
the Company, and assumptions as to market growth and consumer demand (including
but not limited to general economic and market place conditions and events,
competitors actions and the Company's costs), and the outcome of contingencies,
including litigation, environmental remediation and the divestiture of assets,
could cause actual results to differ materially from such forward-looking
statements. For a description of additional cautionary statements, see the
Company's Annual Report on Form 10-K for the year ended December 31, 2001 and in
the Company's subsequent SEC filings, as well as Carter-Wallace's historical SEC
reports.
PART II - Other Information
Item 4. Results of Vote of Security Holders
- --------------------------------------------
The Company's Annual Meeting of Stockholders was held on May 9, 2002. The
following nominees were elected to the Company's Board of Directors for a term
of three years.
Nominee For Withheld
- ------- --- --------
Rosina B. Dixon 56,731,532 1,047,151
Robert D. Le Blanc 56,705,168 1,073,515
The results of voting on the following additional item is as follows:
Approval of the appointment of Deloitte & Touche LLP as independent auditors
of the Company's 2002 financial statements.
For Against Abstained Broker Non-Votes
- --- ------- --------- ----------------
55,801,991 1,069,717 906,975 --
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
(11) Computation of earnings per share
(99.1) Statement regarding the Certification of the CEO of Church
& Dwight Co., Inc. Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to 906 of the Sarbanes-Oxley Act of 2002
(99.2) Statement regarding the Certification of the CFO of Church
& Dwight Co., Inc. Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to 906 of the Sarbanes-Oxley Act of 2002
b. No reports on Form 8-K were filed for the three months ended June
28, 2002.
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
EXHIBIT 11 - Computation of Earnings Per Share
(In thousands except per share amounts)
Three Months Ended Six Months Ended
------------------ ----------------
June 28, June 29, June 28, June 29,
2002 2001 2002 2001
---- ---- ---- ----
BASIC:
Net Income.................................... $ 18,652 $ 13,478 $ 33,575 $ 25,625
Weighted average shares outstanding................ 39,584 38,861 39,425 38,699
Basic earnings per share........................... $.47 $.35 $.85 $.66
DILUTED:
Net Income.................................... $ 18,652 $ 13,478 $ 33,575 $ 25,625
Weighted average shares outstanding................ 39,584 38,861 39,425 38,699
Incremental shares under stock option plans........ 2,271 1,989 2,252 1,897
---------- ---------- ---------- ----------
Adjusted weighted average shares outstanding....... 41,855 40,850 41,677 40,596
---------- ---------- ---------- ----------
Diluted earnings per share......................... $.45 $.33 $.81 $.63
EXHIBIT 99.1
The Certification of the Chief Executive Officer of Church & Dwight Co., Inc.
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 is not being filed with the Quarterly Report but has
been submitted to the Securities and Exchange Commission under separate cover.
EXHIBIT 99.2
The Certification of the Chief Financial Officer of Church & Dwight Co., Inc.
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 is not being filed with the Quarterly Report but has
been submitted to the Securities and Exchange Commission under separate cover.
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: August 9, 2002 /s/ Zvi Eiref
----------------------- -----------------------------------------
ZVI EIREF
VICE PRESIDENT FINANCE
DATE: August 9, 2002 /s/ Gary P. Halker
----------------------- -----------------------------------------
GARY P. HALKER
VICE PRESIDENT, CONTROLLER AND
CHIEF INFORMATION OFFICER