1 of 11 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarter ended April 2, 1999 Commission file No. 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 April 30, 1999, there were 19,382,589 shares of Common Stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (Unaudited) Three Months Ended - ---------------------------------------------------------------------------------------------------------------- April 2, March 27, (In thousands, except per share data) 1999 1998 - ---------------------------------------------------------------------------------------------------------------- Net Sales $174,708 $152,011 Cost of sales 97,590 84,393 --------------------------------- Gross profit 77,118 67,618 Advertising, consumer and trade promotion expenses 44,572 40,795 Selling, general and administrative expenses 21,024 18,369 Gain on sale of mineral rights 11,772 - Impairment and other items 5,320 - -------------------------------- Income from Operations 17,974 8,454 Equity in earnings of affiliates 2,020 1,224 Investment income 372 309 Other income 102 34 Interest expense (605) (572) -------------------------------- Income before taxes 19,863 9,449 Income taxes 7,498 3,553 -------------------------------- Net Income 12,365 5,896 Retained earnings at beginning of period 218,618 197,622 -------------------------------- 230,983 203,518 Dividends paid 2,321 2,326 -------------------------------- Retained earnings at end of period $228,662 $201,192 - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- Weighted average shares outstanding - Basic 19,354 19,396 Weighted average shares outstanding - Diluted 20,362 19,932 - ----------------------------------------------------------------------------------------------------------------- Earnings Per Share: Net income per share - Basic $.64 $.30 Net income per share - Diluted $.61 $.30 - ---------------------------------------------------------------------------------------------------------------- Dividends Per Share: $.12 $.12 - ---------------------------------------------------------------------------------------------------------------- 2 of 11 CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS April 2, December 31, 1999 1998 - ---------------------------------------------------------------------------------------------------------------- (Dollars in thousands) (Unaudited) - ---------------------------------------------------------------------------------------------------------------- Assets - ---------------------------------------------------------------------------------------------------------------- Current Assets Cash and cash equivalents $20,175 $ 16,189 Short-term investments 3,051 2,042 Accounts receivable, less allowances of $1,559 and $1,579 61,816 65,014 Inventories (Note 2) 65,379 60,285 Current portion of note receivable 11,178 7,485 Deferred income taxes 10,535 10,535 Prepaid expenses 7,483 5,258 -------------------------------- Total Current Assets 179,617 166,808 - ---------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment (Note 3) 153,396 161,712 Notes Receivable 12,272 2,384 Equity Investment in Affiliates 28,763 27,751 Long-Term Supply Contracts 4,714 4,918 Intangibles and Other Assets 29,653 27,865 - ---------------------------------------------------------------------------------------------------------------- Total Assets $408,415 $391,438 - ---------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity - ---------------------------------------------------------------------------------------------------------------- Current Liabilities Short-term borrowings $ 13,000 $ 18,500 Accounts payable and accrued expenses 101,603 98,069 Current portion of long-term debt 856 685 Income taxes payable 13,280 6,983 -------------------------------- Total Current Liabilities 128,739 124,237 - ---------------------------------------------------------------------------------------------------------------- Long-Term Debt 27,959 29,630 Deferred Income Taxes 20,975 21,178 Deferred Liabilities 8,907 6,785 Nonpension Postretirement and Postemployment Benefits 14,995 14,770 Commitments and Contingencies Stockholders' Equity Preferred Stock - $1 par value Authorized 2,500,000 shares, none issued - - Common Stock - $1 par value Authorized 100,000,000 shares, issued 23,330,494 shares 23,330 23,330 Additional paid-in capital 38,606 36,502 Retained earnings 228,662 218,618 Accumulated other comprehensive income (loss) (895) (782) -------------------------------- 289,703 277,668 Common stock in treasury, at cost: 3,923,105 shares in 1999 and 4,019,505 shares in 1998 (82,314) (82,281) Due from officer (549) (549) - ------------------------------------------------------------------------------------------------------------------ Total Stockholders' Equity 206,840 194,838 - ---------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $408,415 $391,438 - ---------------------------------------------------------------------------------------------------------------- 3 of 11 CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) Three Months Ended - ---------------------------------------------------------------------------------------------------------------- April 2, March 27, (Dollars in thousands) 1999 1998 - ---------------------------------------------------------------------------------------------------------------- Cash Flow From Operating Activities - ---------------------------------------------------------------------------------------------------------------- Net Income $12,365 $5,896 Adjustments to reconcile net income to net cash used in operating activities: Depreciation, depletion and amortization 4,529 4,055 Deferred income taxes (191) (284) Equity in unconsolidated affiliates (2,020) (1,224) Gain on sale of mineral rights (11,772) - Asset disposals 4,612 - Other 117 173 Change in assets and liabilities: (Increase) decrease in short-term investments (1,009) 996 Decrease (increase) in accounts receivable 3,148 (6,492) (Increase) in inventories (5,087) (6,461) (Increase) in prepaid expenses (2,223) (553) Increase in accounts payable 3,351 8,558 Increase in income taxes payable 7,355 3,602 Increase in other liabilities 2,348 1,017 - ---------------------------------------------------------------------------------------------------------------- Net Cash Provided By Operating Activities 15,523 9,283 Cash Flow From Investing Activities - ---------------------------------------------------------------------------------------------------------------- Additions to property, plant and equipment (5,415) (6,778) Proceeds from sale of mineral rights 3,000 - Purchase of other assets (2,157) (1,382) Distributions from unconsolidated affiliates 1,158 1,465 Proceeds from repayment of notes receivable 360 665 Investment in affiliates (150) - Purchase of new product lines - (6,975) - ---------------------------------------------------------------------------------------------------------------- Net Cash Used In Investing Activities (3,204) (13,005) Cash Flow From Financing Activities - ---------------------------------------------------------------------------------------------------------------- (Repayments) proceeds from short-term borrowing (5,500) 10,000 Long-term debt repayments (1,500) - Payment of cash dividends (2,321) (2,326) Proceeds from stock options exercised 2,640 678 Purchase of treasury stock (1,652) (3,130) - ---------------------------------------------------------------------------------------------------------------- Net Cash (Used In) Provided By Financing Activities (8,333) 5,222 Net Change In Cash and Cash Equivalents 3,986 1,500 Cash And Cash Equivalents At Beginning Of Year 16,189 14,949 - ---------------------------------------------------------------------------------------------------------------- Cash And Cash Equivalents At End Of Period $20,175 $16,449 - ---------------------------------------------------------------------------------------------------------------- 4 of 11 CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The consolidated balance sheet as of April 2, 1999, the consolidated statements of income and retained earnings for the three months ended April 2, 1999 and March 27, 1998 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, except for the item described in note 7) necessary to present fairly the financial position, results of operations and cash flow at April 2, 1999 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, 1998 annual report to shareholders. The results of operations for the period ended April 2, 1999 are not necessarily indicative of the operating results for the full year. 2. Inventories consist of the following: April 2, Dec. 31, (In thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------ Raw materials and supplies $20,450 $16,278 Work in process 159 160 Finished goods 44,770 43,847 ---------------------------- $65,379 $60,285 - ---------------------------------------------------------------------------------------------------------------- 3. Property, Plant and Equipment consist of the following: April 2, Dec. 31, (In thousands) 1999 1998 - ---------------------------------------------------------------------------------------------------------------- Land $ 4,898 $ 4,896 Buildings and improvements 73,320 73,529 Machinery and equipment 164,271 173,595 Office equipment and other assets 14,359 14,347 Software 5,311 5,311 Mineral rights 200 5,931 Construction in progress 19,317 14,148 ----------------------------- 281,676 291,757 Less accumulated depreciation, depletion and amortization 128,280 130,045 ----------------------------- Net Property, Plant and Equipment $153,396 $161,712 - ---------------------------------------------------------------------------------------------------------------- 5 of 11 CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. Equity Investment in Joint Venture The following table reflects summarized financial information for the Armand Products Company joint venture. The Company accounts for its 50 percent interest in the joint venture under the equity method. Product and services are provided to the Armand Products Company by the joint venture partners at cost. As a result, the following information would not be indicative of the financial position or results of operation had the joint venture operated on a stand-alone basis. Three Months Ended ----------------------------- April 2, March 27, (In thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------ Net sales $ 9,891 $ 9,242 Gross profit 3,709 3,214 Net income 2,978 2,424 Company's share in net income 1,489 1,212 Elimination of Company's share of intercompany interest expense 69 110 ----------------------------- Equity in joint venture income $ 1,558 $ 1,322 - ------------------------------------------------------------------------------------------------------------ 5. 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 6. Gain on Sale of Mineral Rights As previously announced, the Company sold most of its trona mineral leases in Wyoming for approximately $22.5 million to Solvay Minerals, Inc., which was due in annual payments beginning on January 5, 1999 and concluding on January 5, 2011. The Company received its initial payment of $3.0 million and recorded a note receivable from Solvay for the present value of the remaining payments of approximately $13.9 million using estimated market discount rates. This, when combined with the initial receipt, resulted in a gain of approximately $11.8 million. The Company is negotiating to assign and sell the note to an insurance company for an amount that approximates the carrying amount on April 2, 1999. 7. Impairment and Other Items As previously announced, the Company recorded a charge for impairment and certain other items relating to a planned plant shutdown late in 1999 which includes the rationalization of both toothpaste and powder laundry detergent production. The pre-tax charge of $5.3 million is comprised of the following: (In thousands) -------------------------------------------------- Fixed asset impairment $4,612 Severance and other charges 708 ------- $5,320 6 of 11 8. Segment Information Segment sales and operating profit for the first quarter of 1999 and 1998 are as follows: Unconsolidated (In thousands) Consumer Specialty Affiliates Corporate Total - -------------------------------------------------------------------------------------------------------------------- Net Sales - 1999 $143,108 $37,910 $(6,310) - $174,708 - 1998 124,367 32,265 (4,621) - 152,011 Operating Profit - 1999 7,521 5,967 (1,966) 6,452 17,974 - 1998 5,226 4,428 (1,200) - 8,454 - -------------------------------------------------------------------------------------------------------------------- Product line net sales data for the first quarter is as follows: Laundry and Household Oral and Specialty Animal Specialty Unconsolidated Cleaners Personal Care Deodorizing Chemicals Nutrition Cleaners Affiliates Total - -------------------------------------------------------------------------------------------------------------------- 1999 $69,030 $40,851 $33,227 $20,668 $15,004 $2,238 $(6,310) $174,708 1998 63,826 33,932 26,609 19,085 10,294 2,886 (4,621) 152,011 - -------------------------------------------------------------------------------------------------------------------- 9. Comprehensive Income The following table presents the Company's Comprehensive Income for the three months ending April 2, 1999 and March 27, 1998: Three Months Ended --------------------------------- April 2, March 27, (In thousands) 1999 1998 - ------------------------------------------------------------------------------------------------ Net Income $12,365 $5,896 Other Comprehensive Income, net of tax: Foreign exchange transaction adjustments (113) 167 ------------------------------- Comprehensive Income $12,252 $6,063 - ------------------------------------------------------------------------------------------------ 10. Subsequent Event On May 7, 1999, the Company exercised its option and purchased an additional 35% interest in two Brazilian bicarbonate/carbonate-related chemical companies. The acquisition, costing approximately $9.1 million, had approximately $4.2 million allocated to Goodwill and was financed by short-term borrowing. An additional amount of approximately $2.0 million, may be payable in March, 2001, contingent upon the performance of the two Brazilian companies. 11. 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. 12. Reclassification Certain prior year amounts have been reclassified in order to conform with the current year presentation. 7 of 11 MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations - --------------------- For the quarter ended April 2, 1999, net income was $12.4 million, equivalent to basic earnings of $.64 per share, from $5.9 million or $.30 per share, in last year's first quarter. Diluted earnings were $.61 per share compared to $.30 per share last year. These results include a net pre-tax gain of $6.5 million or $.19 per share from two previously announced events - the sale of trona mineral leases in January, less a charge for impairment and certain other items related to the planned plant shutdown later in 1999. Excluding this one-time net gain, net income would have increased by 43% to $8.5 million, or $.42 per diluted share. Net sales increased by 15% to $174.7 million from $152.0 million in the same period last year. All major consumer product lines - oral and personal care, deodorizing and laundry and cleaning products - were well ahead of last year. Animal nutrition was particularly strong in the specialty products business Gross margin was 44.1% in the first quarter, as compared with 44.5% last year. The major reasons for the decline was the shift in the high margin specialty cleaning business from having its results fully consolidated in 1998 to being accounted for as an equity investment in 1999 and the use of co-packers to meet higher than expected order requirements. These items were partially offset by a favorable product sales mix. Advertising, consumer and trade promotion expenses increased by $3.8 million to $44.6 million in the current quarter. This is due to high promotion costs in support of both the oral and personal care and deodorizing product lines. Selling, general and administrative expenses increased $2.7 million versus last year. This increase is primarily due to higher personnel-related costs and outside service costs, particularly in information systems. Earnings from affiliates increased due to the formation of the ArmaKleen Company as a 50% owned affiliate, which product line prior to this quarter was fully consolidated, and increases in earnings from the Armand Products Company and the Brazilian affiliate. Interest expense was virtually unchanged from last year, while investment income increased slightly. Liquidity and Capital Resources - ------------------------------- The Company considers cash and short-term investments as the principal measurement of its liquidity. At April 2, 1999, cash, including cash equivalents and short-term investments totaled $23.2 million as compared to $18.2 million. During the first quarter of 1999, the Company generated $15.5 million of cash flow from operating activities, received an initial payment of $3.0 million from the sale of mineral rights and received $2.6 million from stock options exercised. Significant expenditures include the partial repayment of debt of $7.0 million, additions to property, plant and equipment of $5.4 million, the payment of cash dividends of $2.3 million and the purchase of treasury stock of $1.7 million. Year 2000 Update - ---------------- As outlined in the 10-K for the year ended December 31, 1998, the Company has developed plans to address the possible exposures related to the impact on its computer systems of the Year 2000. These plans have not changed materially in terms of scope or estimated costs to complete, and are progressing according to previously identified time schedules. Total expenditures incurred on Y2K-related projects through the first quarter of 1999 are estimated at approximately $11.5 million. While the costs of the remaining required changes is not yet fully known, we expect the total estimated costs of the Y2K-related projects to be in the $13 million to $14 million range. 8 of 11 PART II - Other Information Item 4. Results of Vote of Security Holders ----------------------------------- The Company's Annual Meeting of Stockholders was held on May 6, 1999. The following nominees were elected to the Company's Board of Directors for a term of three years. Nominee For Withhold Cyril C. Baldwin, Jr. 38,264,357 414,374 William R. Becklean 38,294,718 384,013 Rosina B. Dixon, M.D. 38,267,271 411,460 Robert D. LeBlanc 38,287,672 391,059 The results of voting on the following additional items were as follows: Approval of the appointment of Deloitte & Touche LLP as independent auditors of the Company's 1999 financial statements. For Against Abstained Broker Non-Votes 38,473,531 71,552 133,648 0 To consider and act upon a stockholder proposal requesting that the Board of Directors take the steps necessary to provide for cumulative voting in the election of Directors annually and not by class. For Against Abstained Broker Non-Votes 3,130,102 33,642,879 165,380 1,740,370 To consider and act upon a stockholder proposal requesting that the Company prepare and place available to stockholders and employees an equal employment diversity report. For Against Abstained Broker Non-Votes 2,274,231 34,115,996 548,132 1,740,372 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 April 2, 1999. 9 of 11 CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES EXHIBIT 11 - Computation of Earnings Per Share (In thousands except per share amounts) (Unaudited) Three Months Ended -------------------------------- April 2, March 27, 1999 1998 - ---------------------------------------------------------------------------------------------- BASIC: Net Income $12,365 $ 5,896 Weighted average shares outstanding 19,354 19,396 Basic earnings per share $.64 $.30 DILUTED: Net Income $12,365 $ 5,896 Weighted average shares outstanding 19,354 19,396 Incremental shares under stock option plans 1,008 536 ------------------------------ Adjusted weighted average shares outstanding 20,362 19,932 ------------------------------ Diluted earnings per share $.61 $.30 10 of 11 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 11, 1999 Zvi Eiref -------------------------------------- ZVI EIREF VICE PRESIDENT FINANCE DATE: May 11, 1999 Gary P. Halker -------------------------------------- GARY P. HALKER VICE PRESIDENT, CONTROLLER AND CHIEF INFORMATION OFFICER 11 of 11