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CHURCH & DWIGHT CO., INC.
1994 ANNUAL REPORT
[ARM & HAMMER LOGO]
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Founded in 1846, Church & Dwight Co., Inc. is the world's leading producer of
sodium bicarbonate, popularly known as baking soda, a natural product which
cleans, deodorizes, leavens and buffers. The Company specializes in developing
uses for sodium bicarbonate and related products which are packaged and sold,
primarily under the ARM & HAMMER(R) trademark, through grocery stores, drug
stores, mass merchandisers and distributors.
ABOUT THIS REPORT
In this frank review of the Company's performance in 1994, we identify the
factors that caused the downturn in our business and describe the corrective
measures, both planned and implemented, for our recovery. We believe that by
focusing our efforts on restoring our existing products to their former strength
and by successfully establishing our new products, we will put the business back
on course in 1995.
FINANCIAL HIGHLIGHTS
(In millions, except for per share data) 1994 1993
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Sales $491.0 $507.7
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Income from operations $ 1.5 $ 35.6
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Net income $ 6.1 $ 26.3
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Net income per share $ 0.31 $ 1.30
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Dividends per share $ 0.44 $ 0.42
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DEAR STOCKHOLDER:
Nineteen ninety-four was the worst year in our recent history. We are relieved
that it's behind us. Sales were down 3.3 percent compared to last year, and net
income declined by 77 percent to $6.1 million. The specialty products business
performed satisfactorily. The shortfall occurred in the consumer products group
as a result of a mix of events, including the changing competitive environment
in which we operate.
During the year, we introduced ARM & HAMMER(R) Deodorant Anti-Perspirant,
ARM & HAMMER PEROXICARE(R) toothpaste, ARM & HAMMER Powder and Liquid Laundry
Detergents with Bleach and the ARM & HAMMER FRIDGE-FREEZER PACK(TM), and
additionally launched ARM & HAMMER DENTAL CARE(R) products in the United
Kingdom. In retrospect, this was too much. The effort required to establish four
new products in one year diverted attention from our existing businesses and
weakened their financial performance. As a result, we were unable to absorb the
$14 million investment in new products without negatively impacting earnings.
Our new products, with the exception of liquid laundry detergent with bleach and
the baking soda FRIDGE-FREEZER PACK, are meeting or exceeding expectations.
In January 1995, Robert A. Davies III rejoined us as President of the Arm &
Hammer Division replacing William C. Egan III who resigned in October 1994. Bob
worked with Church & Dwight from 1969 to 1984, moving from Vice President
Marketing to President/Chief Operating Officer before resigning. This was a
period of extraordinary growth in sales and profitability for the Arm & Hammer
business. After leaving Church & Dwight, he participated in the leveraged buyout
of California Home Brands, Inc., where, as President and Chief Executive
Officer, he successfully built and sold the multidivision canning company. I am
confident that Bob will help us to overcome the challenges we are currently
facing.
We have already addressed the issues in our laundry detergent business. Our
value strategy requires adherence to several simple principles. We drifted away
from several of those principles in our powder business. During 1992 and 1993,
we allowed our pricing to move above its target of 20 percent below the market
average. A ten-percent price decrease, implemented in December 1993, effectively
corrected this price relationship by the middle of 1994. We must follow product
trends, once they have been accepted by the consumer. Our detergent with bleach
was late to market and we lost share. Once introduced, the product was well
accepted. The product line and package graphics should be simple. The number of
product sizes and
In January 1995, Robert A. Davies III rejoined us as President of the Arm &
Hammer Division ... I am confident that Bob will help us to overcome the
challenges we are currently facing.
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At December 31, 1994, the return over my 26 years was 14.7 percent, compared to
the Standard & Poor's 500 Index at 10.1 percent for the same period. My every
effort is being devoted to restoring this measure to the eight-to-nine-point
margin over the S & P 500 that existed for many years.
[PHOTO of Dwight Minton]
Dwight C. Minton
Chairman and
Chief Executive Officer
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variants mushroomed, and our value message was diluted by complicated,
unnecessary additions to the package graphics. We have implemented a program to
decrease the number of product sizes, and the graphics have been drastically
simplified to clearly communicate our value message. We have returned to our
strategy and expect to have a good year in 1995.
The situation in liquid detergents, which have always been extremely price
competitive, is more complicated. Unlike powders, where the conversion to
concentrates was uniform across most products in the category, the liquid market
moved to several different levels of concentration. We converted to a
quarter-cup formulation which offered the consumer superior value and generated
the best margin. Unfortunately, the majority of manufacturers persisted with
less densely concentrated products and, as a result, at retailer shelves it was
difficult for consumers to appreciate our value against a battery of products in
larger bottles at lower prices. This consumer confusion resulted in lower sales
volumes and substantially reduced our profit.
We have reviewed our liquid laundry detergent business and concluded that
we should continue to market a liquid companion to our powder product. However,
in order to compete as a value player, we must continuously strive to reduce our
costs. To this end, we are in the process of bringing production in-house at our
Syracuse, New York, facility. We anticipate coming on-stream during the second
half of 1995, producing product in concentrations that meet consumer
expectations. This event should enable us to return the product to its previous
sales and profit levels during 1996.
The competitive challenge in the dentifrice category took a different form.
Unilever introduced Mentadent(R), a baking soda and peroxide toothpaste,
supported by massive advertising and promotions. Although we invested heavily
behind our product, our support levels were insufficient to prevent a share
loss. Consequently, both sales and profits for this business were down. We are
proud of our achievements in the dentifrice arena. Our success created an
extraordinary level of competitive reaction. Every major brand came out with a
product containing some baking soda, but they had little effect on our market
share. On the other hand, Mentadent's introduction had a significant impact on
our market share, forcing us to recognize our strength as a niche player--the
baking soda toothpaste. In the future, we will capitalize on this unique
position.
Given the lower sales base resulting from these developments, we took steps
to reduce our costs. At the end of September, we laid off approximately ten
percent of our headquarters workforce. The entire incentive compensation pool
and, for the second consecutive year, the majority of the Company's employee
profit sharing contribution were eliminated.
We are proud of our achievements in the dentifrice arena.
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I do not believe that there will be a dramatic turnaround in 1995, although
there are a number of very good things going on in the business. We are bullish
about powder laundry detergent; we now have a full line, including a product
with bleach, and are competitively priced. The solution for our liquid laundry
detergent business has been identified, but since it involves long lead times,
it will not significantly affect 1995. We anticipate that the successful
introduction of ARM & HAMMER PEROXICARE toothpaste, along with a well-balanced
marketing program, will halt the erosion of our dentifrice business.
Additionally, the heavy financial burden of introducing ARM & HAMMER Deodorant
Anti-Perspirant and ARM & HAMMER DENTAL CARE products in the United Kingdom will
be reduced. All of these factors indicate a better year for the Arm & Hammer
Division in 1995.
In the Specialty Products Division, we established the new Specialty
Cleaning Unit in May 1994. The unit will market ARMEX(R) Blast Media;
ARMAKLEEN(R), our aqueous circuit board cleaner; and derivations of these
products for use in metal cleaning. These products are designed to replace
cleaning materials that are being regulated out of existence. We believe that we
have a window in which we can establish ourselves as a market leader in this
rapidly changing category. This is a major strategic decision which will involve
investment in additional sales, technical and marketing support. We also have a
number of new developments which are enabling us to grow our basic sodium
bicarbonate business, including its use as a poultry feed additive and in flue
gas desulfurization.
There are a number of competitive threats on the horizon for the Specialty
Products Division. North American Chemical Company continues to build the market
penetration of low-priced nahcolite-based sodium bicarbonate in the rumen buffer
category. This could continue to dampen prices across the entire sodium
bicarbonate market. Two competitors are adding a total of 50,000 tons of
potassium carbonate capacity, ending our position as sole producer in the North
American market. As consumption is not rising to absorb this additional
capacity, there will inevitably be pressure on pricing as these new competitors
attempt to sell their products. We are also continuing litigation to defend our
MEGALAC(R) Rumen Bypass Fat business against patent infringements by the Norel
Corporation. Each of these threats creates uncertainty. On balance, we believe
that the outlook for the Specialty Products Division is positive.
I have consistently reported results as measured by total return to
investors. Our performance in 1994 has deflated this ratio compared to earlier
years. At December 31, 1994, the return over my 26 years was 14.7 percent,
compared to the Standard & Poor's 500 Index at
... we established the new Specialty Cleaning Unit in May 1994 ... We believe
that we have a window in which we can establish ourselves as a market leader in
this rapidly changing category.
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10.1 percent for the same period. My every effort is being devoted to restoring
this measure to the eight-to-nine-point margin over the S & P 500 that existed
for many years.
On many occasions I have stated that our long-term objective is to perform
in the top quartile of all companies. The reason for this is that most of our
stockholders are heavily dependent on Church & Dwight and cannot justify the
risk they incur without an appropriate return. If we are unable to deliver
against this objective, in my judgment the Board of Directors will either change
the management of the Company to one that can, or take the necessary steps to
extract the best value possible for the stockholders.
Finally, I would like to thank you, our stockholders, as well as all our
employees for your patience and support over the past year. I hope that you will
continue to support us while we work out of our present difficulties. You can be
assured that your management team and I are focused on maximizing the value of
your investment.
Sincerely,
/s/ DWIGHT C. MINTON
DWIGHT C. MINTON
Chairman and Chief Executive Officer
January 25, 1995
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CONSUMER PRODUCTS
Nineteen ninety-four will be remembered as perhaps the most ambitious year in
the history of the Arm & Hammer Division, and certainly the most disappointing.
Sales were $393 million, 4.2 percent below 1993. Our agenda included the launch
of four new products nationwide into a very competitive marketplace. We learned
a difficult lesson--we tried to do too much at the same time. We have adjusted
our focus to nurture the existing businesses as we work to generate top-line
growth through new products introduced in 1994.
HOUSEHOLD PRODUCTS
ARM & HAMMER(R) Baking Soda had a satisfactory year, highlighted by the
introduction of the 20-ounce FRIDGE-FREEZER PACK(TM) and impressive sales gains
by the 10-pound institutional size in warehouse club stores.
[GRAPHICS of ARM & HAMMER Baking Soda and Fridge-Freezer Pack]
The ARM & HAMMER FRIDGE-FREEZER PACK, the new spill-proof package with
FRESH FLO VENTS(R) to allow the product to deodorize without opening the box,
did well in the first half of the year when it had strong advertising and coupon
support. In the second half, support was lower and sales declined. In January
1995, the FRIDGE-FREEZER PACK was the focal point when it was re-introduced with
an advertising flight and a coupon offer. It is a unique vehicle that has the
potential to bring back lapsed users and generate category growth.
In 1994, we expanded our advertising program to include print advertising
comprised of four different full-page advertisements in selected women's
magazines promoting the many uses of baking soda as THE EVERYDAY MIRACLE(TM)
around the house. Each ad included a toll-free phone number, which garnered an
avalanche of reader requests for free leaflet and container offers. The print
campaign did not deliver the expected sales results, however, and diluted
spending which could have achieved greater impact in television commercials
supporting one specific use. After a four-year hiatus, we will return to
television advertising to support the refrigerator--deodorizing campaign.
ARM & HAMMER Carpet Deodorizer still leads the category in market share,
despite increasing competitive activity ranging from significant price declines
to multiple new-product
After a four-year hiatus, we will return to television advertising to support
the refrigerator--deodorizing campaign.
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introductions. In May, we were the first to bring the now popular vanilla
fragrance to the air freshener category. The two PET FRESH(R) scents remain
mainstays in our carpet deodorizer line, though we are losing critical
distribution to competitive pet entries. While our carpet deodorizer offers
consumers the lowest price per ounce, competitors are leveraging their
lower-ounce packages into lower prices and as a result, are increasing their
market share. In the year ahead, we will focus on re-establishing ARM & HAMMER
Carpet Deodorizer's functional position of "real freshness, not just a cover-up"
through both packaging and advertising. We will also ensure our retail pricing
remains competitive. ARM & HAMMER Cat Litter Deodorizer, which features a
moisture-activated fragrance released when cats use the litter box, performed
well ahead of plan.
[GRAPHICS of ARM & HAMMER Carpet Deodorizer]
In the spring of 1995, we will take advantage of the unique benefit of
having the ARM & HAMMER brand represent us in all our categories by investing in
several full-line promotions. All the major ARM & HAMMER consumer products will
tie in with Warner Bros. movie "Free Willy 2," the sequel to the successful
blockbuster movie "Free Willy," during Clean Water Week, May 7-13. The
environmental message will inform children as well as parents how they can help
make a difference in cleaning up the nation's waterways. A fully integrated
promotional campaign, including in-store displays, national advertising and
couponing, will feature ARM & HAMMER brand products exclusively.
[GRAPHICS of ARM & HAMMER Powder Detergent with Bleach]
LAUNDRY PRODUCTS
In 1994, we concentrated our efforts in powder laundry detergent to restoring
our traditional value position. Our product is unadvertised, relying on a
combination of the consumers' trust in the efficacy associated with the ARM &
HAMMER trademark and a 20-percent price discount to the market leaders.
Executing this strategy requires that we follow trends established by the market
leaders. In 1992 and 1993, we strayed from our path. Our discount was
diminished, our packaging became too complicated, and we were slow to introduce
a product with bleach. We reduced our price in December 1993 and, except for a
trade inventory adjustment in the first quarter of 1994, this move stimulated
growth.
In the year ahead, we will focus on re-establishing ARM & HAMMER Carpet
Deodorizer's functional position of "real freshness, not just a cover-up"
through both packaging and advertising.
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CONSUMER PRODUCTS
Simultaneously, we simplified our package graphics and instituted a uniform
design across both the powder and liquid categories. In June, we introduced a
product with bleach following a successful Florida test market. With a full
product line clearly packaged and competitively priced, we are well positioned
to have a good year in 1995.
[GRAPHICS of a woman doing laundry with ARM & HAMMER Powder Detergent
with Bleach]
Our new ARM & HAMMER Powder Detergent with Bleach is a chlorine-free,
color-safe, heavy duty biodegradable detergent.
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[GRAPHICS of ARM & HAMMER Liquid Laundry Detergent with Bleach]
Liquid detergents are providing a different set of challenges, although they too
stem from a diversion from our established positioning. Unlike the powder
category, liquids did not convert to a uniform concentration among the various
brands. Procter & Gamble and Unilever had roughly equal market shares, and
changed to four-tenths and quarter-cup formulations, respectively.
We elected to follow immediately the quarter-cup formula, which offers
superior washload value in smaller containers. Unfortunately, consumers were
confused by the array of different product concentrations, container sizes and
prices on retail shelves. They chose the less densely concentrated products in
larger bottles at lower prices. Our quarter-cup products quickly lost share, and
we have been forced to reconsider our position. Although we will persist with
the quarter-cup product as long as it is economically viable, since it offers
the consumer superior value and is more environmentally beneficial, we must be
prepared to offer a competitive product. At the same time, we have re-examined
the economics of our contract-manufactured product and concluded that a liquid
detergent produced in-house is economically most favorable. We are, therefore,
establishing a manufacturing facility within our Syracuse, New York, plant.
Engineering and equipment acquisition are well under way, and the project should
be completed in the second half of 1995.
During the year, we discontinued ARM & HAMMER(R) FRESH & BRIGHT(R), our
all-fabric bleach which was in limited distribution in a declining market due to
detergent-with-bleach line extensions. In early 1995, ARM & HAMMER Fabric
Softener Sheets were packaged in a new tissue-box container which is more
cost-efficient to produce and more convenient for the consumer. ARM & HAMMER
Super Washing Soda continues to maintain its earnings contribution.
[GRAPHICS of ARM & HAMMER Fresh & Bright all-fabric bleach]
PERSONAL CARE PRODUCTS
ARM & HAMMER DENTAL CARE products enjoyed phenomenal success from their
introduction in 1988 through 1993. During that period we built a strong
double-digit share of the dentifrice market and re-ignited a dormant category.
Inevitably, our growth came at the expense of the market leaders who gradually
introduced baking soda-based product variants, culminating in Unilever's
national launch of Mentadent(R), a baking soda and peroxide toothpaste, in late
1993.
... we have re-examined the economics of our contract- manufactured product and
concluded that a liquid detergent produced in-house is economically most
favorable. We are, therefore, establishing a manufacturing facility within our
Syracuse, New York, plant.
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CONSUMER PRODUCTS
In September, ARM & HAMMER(R) PEROXICARE(R), our baking soda and peroxide
toothpaste, reached retail shelves, and by the end of the year we appeared to
have arrested the decline.
[GRAPHICS of a woman using ARM & HAMMER PEROXICARE]
ARM & HAMMER PEROXICARE is the first major toothpaste with dentist-recommended
baking soda, peroxide and fluoride all in one convenient tube.
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In the face of this massively supported introduction, our share started to
decline in the second quarter of 1994.
This success was achieved at a heavy cost, and profits were severely
curtailed. Because PEROXICARE is a technological breakthrough, in that it is the
first major toothpaste to offer baking soda, peroxide and fluoride in one tube,
we priced it at a premium to our regular line, but at a 20-percent discount to
Mentadent. In 1995, we will reduce the price to parity with our regular line in
order to stimulate volume and generate promotional efficiencies. We hope that an
established PEROXICARE brand will help stabilize our business.
[GRAPHICS of ARM & HAMMER PEROXICARE]
The outstanding success of ARM & HAMMER DENTAL CARE products generated
overly optimistic expectations for this business. There is no doubt that our ARM
& HAMMER DENTAL CARE products are excellent baking soda dentifrices. We can
proudly promote the advantages of baking soda in dental hygiene, and profit as
the baking soda specialists. By single-mindedly understanding this position and
conducting our business accordingly, we can continue to be successful.
[GRAPHICS of ARM & HAMMER DENTAL CARE]
During the year, we introduced ARM & HAMMER DENTAL CARE products in the
United Kingdom where we now lead the baking soda segment despite a host of
competitive entries. This was achieved even though the British consumer was
unaware of either the ARM & HAMMER trademark or the use of baking soda as a
dentifrice. An award-winning commercial and strong trade support assured our
success.
ARM & HAMMER Deodorant Anti-Perspirant with Baking Soda, our entry into the
$1.4 billion deodorant/anti-perspirant category, was launched in the United
States and Canada in the first half of 1994. The product reached retailer
shelves in late June when consumer advertising kicked off with a heavy schedule
of television and multi-media support, continuing into 1995. The new product,
which uses the natural absorbing power of baking soda to eliminate odor, is
meeting its goals in a product line consisting of five deodorant anti-perspirant
sticks and three roll-ons.
[GRAPHICS of ARM & HAMMER Deodorant Anti-Perspirant]
Both PEROXICARE toothpaste and the new deodorant anti-perspirant product
put to best use our unique technological base and the strength of our trademark,
and will receive solid support throughout 1995.
The new product, which uses the natural absorbing power of baking soda to
eliminate odor, is meeting its goals in a product line consisting of five
deodorant anti-perspirant sticks and three roll-ons.
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SPECIALTY PRODUCTS
The Specialty Products Division had a good year. Reported sales were $98.0
million, one percent ahead of last year. Additionally, we also experienced
strong growth in our joint venture with Occidental Chemical Corporation, the
Armand Products Company, where sales increased by 19 percent.
[GRAPHICS of man using ARMEX Cleaning and Coating System]
City governments use ARMEX Cleaning and Coating Removal Systems, our baking soda
blasting technology, to remove graffiti from public buildings while ensuring
environmental and worker safety.
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This new unit will use our core, environmentally-friendly carbonate and
bicarbonate technology in the industrial and precision-cleaning markets to
build a major position both domestically and internationally.
SPECIALTY CLEANING PRODUCTS
In May, a new business unit was formed within the Division called the Specialty
Cleaning Unit, in the anticipation that, over the next few years, many of the
current solvent-based cleaning products will be regulated out of existence.
This new unit will use our core, environmentally-friendly carbonate and
bicarbonate technology in the industrial and precision-cleaning markets to
build a major position both domestically and internationally. The Specialty
Cleaning Unit will include our existing ARMEX Cleaning and Coating Removal
Systems, non-toxic blasting systems for the removal of paint and process
residues; and ARMAKLEEN E-2001, our acqueous cleaning product for printed
circuit boards, an environmentally sensible alternative to chlorofluorocarbon-
based and other chlorinated solvent cleaners. We are also developing a new
line of aqueous industrial metal-cleaning formulations to replace products
which are less friendly to the environment. We expect these new products to be
introduced early in 1995.
[GRAPHICS OF ARMEX Blast Media]
To support this new unit, the Company has committed additional sales,
marketing and R&D resources, including new high-tech laboratories at our
Princeton headquarters, specifically designed for the development and
evaluation of advanced cleaning products. These facilities will enable us to
be on the leading edge of cleaning technologies. The products are also
available in the Far East and Europe, where Brotherton Specialty Products
Limited, our British subsdiary, managed the introduction of ARMAKLEEN products
early in 1994.
[GRAPHICS OF ARMAKLEEN E-2001]
During the year, we continued to build the use and versatility of ARMEX
Blast Media. In July, the Company successfully introduced a new accessory to
pressure-washing equipment called the WADU(TM) Soluble Media Injector which
precisely meters a patented baking soda-based formulation of ARMEX Soluble
Blast Media, called HYDROFLEX(TM) Formula XL, into the high-pressure water
stream, improving cleaning performance and capabilities.
PERFORMANCE PRODUCTS
Sales of our performance products continued to be strong in all segments,
expecially the baking industry, pharmaceuticals, and the medical profession for
use primarily in kidney dialysis. This is largely attributable to our focus on
developing new formulations and packaging designed to improve product
performance and handling.
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... the introduction of the new heat-sealed leak-proof bags ... is creating
competitive advantage by further differentiating ARM & HAMMER sodium
bicarbonate.
[GRAPHICS of ARM & HAMMER sodium bicarbonate]
Our major packaging development in 1994 was the introduction of the new
heat-sealed leak-proof bags to both the agricultural and performance segments
of the sodium bicarbonate business. By eliminating sifting of product and
providing consistent weight control, Church & Dwight is creating competitive
advantage by further differentiating ARM & HAMMER sodium bicarbonate.
During the third quarter, we introduced to the baking industry FLOW-K(TM),
a food-grade potassium bicarbonate with a unique, proprietary flow-aid system
which provides excellent handling and storage properties.
Another new product is SORB-N-C(TM), a formulated sorbent for handling
difficult problems in acid gas control from municipal and hospital
incinerators. It is the first packaged sorbent that contains both sodium
bicarbonate and activated carbon, is non-corrosive, non-irritating, and safe
and easy to handle.
[GRAPHICS of ARM & HAMMER SORB-N-C]
The 50,000-ton expansion of our sodium bicarbonate facility in Old Fort,
Ohio, completed in the first quarter, increased that site's annual production
capacity to 210,000 tons, ensuring our customers long-term uninterrupted
supply. The Old Fort facility produces numerous sodium bicarbonate grades,
from power to coarse granulations, which are used in more than 300 industrial
and agricultural applications, ranging from food and health and beauty aids to
animal feed. Overseas, the construction of a new solution-process sodium
bicarbonate plant in Venezuela is expected to be completed in the first
quarter, 1995.
In June, we achieved ISO 9002 certification making us the only domestic
producer of sodium bicarbonate to earn the quality certification from the
British Standards Institute. Currently, 73 countries have adopted the ISO as a
national standard.
ARMAND PRODUCTS
Armand Products Company, our potasium carbonate joint venture with Occidental
Chemical Corporation, enjoyed robust sales throughout the year. Potassium
carbonate is a major raw material in the manufacture of glass for television
tubes and personal computers. These glass plants ran uninterruptedly in 1994,
generating unprecedented demand for our products.
While Armand Products Company has enjoyed sole-producer status in the
United States for the past nine years, new competitors emerged in the fourth
quarter. Vulcan Materials and
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One of the emerging export markets is Southeast Asia, where the production of
television glass is expected to double in the coming years.
Vicksburg Chemicals both came on-stream with 25,000-ton-per-year plants.
Although the competitive impact was minimal in 1994, the resultant domestic
over-capacity will almost certainly adversely affect sales in the year ahead.
In an effort to minimize the anticipated loss to domestic competition, we built
export sales. One of the emerging export markets is Southeast Asia, where the
production of television glass is expected to double in the coming years. This
demand must eventually be sourced locally, and the Armand Products Company has
announced its intention to build capacity in Southeast Asia. Energineering and
design work are underway.
AGRICULTURAL PRODUCTS
Overall, we saw strong volumes throughout our performance sodium bicarbonate
business resulting in a 10-percent increase in tonnage. However, sales of ARM
& HAMMER Feed Grade Sodium Bicarbonate and ARM & HAMMER SQ-810(TM) Rumen Buffer
lagged most of the year, as a result of severe pricing pressures caused by
low-price competition.
MEGALAC Rumen Bypass Fat, our high-energy nutritional supplement which
boosts milk production, suffered sales shortfalls primarily due to weak export
sales volume in Mexico, aggravated by the sharp decline in the value of the
peso. Expanded availability of a competitive product from the Norel
Corporation also negatively impacted sales. We believe that their product
infringes patents which we license, and we instigated legal proceedings in
March 1993.
[GRAPHICS of MEGALAC Rumen Bypass Fat]
In the year ahead, we will focus our growth effort on developing sodium
bicarbonate markets, including the poultry industry and acid gas control for
municipal and hospital incinerators.
The Specialty Products Division is well positioned for 1995. We intend to
exert great vigilance in identifying opportunities to reduce costs and grow the
base businesses, while at the same time capitalizing on our newly-achieved
competitive advantages such as our ISO certification, expanded capacity and new
products. This effort, in conjunction with our new cleaning business unit,
allows for profitable growth in 1995 and beyond.
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FINANCIAL REVIEW
The Financial Review discusses the Company's performance for 1994 and compares
it to previous years. This Review is an integral part of the Annual Report and
should be read in conjunction with all other sections.
NET SALES
Net sales declined by 3.3% in 1994 as a result of a mix of competitive factors
affecting the consumer products business.
Consumer product sales were $393 million, down 4.2%, despite the introduction
of ARM & HAMMER Deodorant Anti-Perspirant with Baking Soda in the United States
and Canada, and the launch of ARM & HAMMER DENTAL CARE(R) products in the United
Kingdom. Several existing product lines had a difficult year. ARM & HAMMER
DENTAL CARE products' market share declined, largely as a result of Unilever's
introduction of Mentadent, a baking soda and peroxide toothpaste. In the laundry
detergent category, the Company reduced the price of its powder laundry
detergent in order to re-establish its strategic position in the marketplace.
Although this action strengthened market share and unit volume, net sales and
margin were down from a year ago due to the lower pricing. Liquid detergent
sales were also significantly below the preceding year, particularly in the
second half of 1994, due to poor consumer acceptance of the Company's new
concentrated quarter-cup product.
Specialty product sales were $98 million, slightly ahead of 1993. Performance
grades of sodium bicarbonate did particularly well as did ARMEX Blast Media and
equipment. Sales in agricultural markets were somewhat lower than last year as
price competition intensified and export volume of MEGALAC Rumen Bypass Fat
softened.
[GRAPH NO. 1]
OPERATING COSTS
The Company's gross margin declined three points to 43%, mainly as a result of
lower pricing for powder laundry detergent. A less favorable product mix and
higher direct manufacturing and distribution costs were lesser factors in the
decline.
Selling, general and administrative expenses increased by $5 million to $201
million. In the marketing area, heavy advertising and promotion costs,
supporting the introductions of ARM & HAMMER Deodorant Anti-Perspirant in the
United States and Canada and ARM & HAMMER DENTAL CARE products in the United
Kingdom, more than offset lower marketing spending for other products. General
and administrative expenses were flat compared to the previous year. Legal costs
were higher, due to patent litigation and a competitive advertising challenge
instituted by the Company, while systems development spending was lower than a
year ago.
The Company recorded restructuring charges in 1994 covering the cost of a
workforce reduction program resulting in the layoff of 62 employees through
December 31, 1994, and the write-off of fixed assets and accruals related to the
discontinuation of certain liquid detergent products. The cost of restructuring
the workforce and liquid detergent manufacturing in 1994 amounted to $3.9
million and $3.0 million, respectively; the restructuring is expected to be
largely completed by the end of 1995.
[GRAPH NO. 2]
OTHER INCOME AND EXPENSES
Interest expense in 1994 was $.9 million, significantly higher than the $.2
million in 1993 principally due to higher short-term borrowings to fund the
Company's extensive 1994 capital expenditures and stock repurchase program.
Investment income was lower in 1994, compared to the preceding year, as a
result of a lower level of funds available for investment.
The gain on disposal of product lines in 1994 reflects the amortization of
non-compete agreements associated with the sale of the DeWitt product lines,
disposed of in 1990.
In 1993, the gain on the disposal of product lines of $4.1 million was made
up of two items: (1) the final proceeds of $2.2 million received from the 1989
sale of the National Vitamin product line; and (2) the recognition of gains
previously deferred pending the outcome of contractual warranties, and the
amortization of non-compete arrangements negotiated as part of the sale of the
DeWitt product line.
The Armand Products Company, our joint venture with Occidental Chemical
Corporation, had a very good year. Sales of the joint venture rose 19% from the
previous year, resulting in a 13% increase in equity income to nearly $8
million.
[GRAPH NO. 3]
17
19
TAXATION
The effective tax rate for 1994 was 37.1%, compared to 38.3% in the previous
year. The reduction in the effective tax rate is the result of a consistent
level of tax credits relative to a significantly lower level of income taxable
at statutory rates. This effect more than offset the impact of foreign operating
losses for which tax benefits were not recognized.
NET INCOME AND EARNINGS PER SHARE
The Company's net income for 1994 was $6.1 million, compared to $26.3 million in
1993. Earnings per share for the year ended December 31, 1994 were $.31,
compared to $1.30 ($1.46 before the cumulative effect of accounting changes) in
1993.
[GRAPH NO. 4]
1993 COMPARED TO 1992
NET SALES
The Company's net sales rose 2.3% to $508 million in 1993. Despite these
record sales, business results were mixed.
Consumer product sales were essentially flat at $411 million. Intense price
competition across the entire category depressed powder detergent sales,
resulting in lower unit volume and pricing of ARM & HAMMER POWER FRESH(R) Heavy
Duty Powder Laundry Detergent. Sales of the Company's other major brands grew
sufficiently to offset the softness in the powder detergent business. The
introduction of two new scents generated higher unit sales of ARM & HAMMER
Carpet Deodorizer; ARM & HAMMER DENTAL CARE products continued to grow despite a
very competitive environment; sales of ARM & HAMMER Baking Soda increased; and
ARM & HAMMER Cat Litter Deodorizer, which completed its first full year since
its introduction in the fourth quarter of 1992, also contributed to the growth.
Specialty product sales increased by 11.6% to $97 million in 1993. This
change was fueled by higher sales volume across most of the Division's product
lines. Sales of specialty grades of sodium bicarbonate were particularly strong,
as were sales of MEGALAC Rumen Bypass Fat into a new and developing Mexican
market. Sales of ARMEX Blast Media and equipment were also well above the
previous year, as this process gains broader acceptance in a growing number of
applications.
OPERATING COSTS
The Company's gross margin of 46% was essentially unchanged from 1992. Although
the higher-margin ARM & HAMMER DENTAL CARE products contributed a greater
portion of the sales base, the benefit was more than offset by lower pricing of
ARM & HAMMER POWER FRESH Heavy Duty Powder Laundry Detergent in response to the
heightened price competition.
Selling, general and administrative expenses, which increased by $4 million
in 1993, were held at 39% of sales. A slightly lower level of marketing support
for ARM & HAMMER DENTAL CARE products was offset by increased promotional costs
supporting the introduction of a new concentrated liquid detergent, ARM & HAMMER
POWER FRESH Heavy Duty Liquid Laundry Detergent, and higher market research
spending behind new-product development.
In the fourth quarter of 1993, the Company took a $2.9 million charge against
operations to cover one-time costs to consolidate production facilities,
including the expected cost of asset retirements, asset relocation and, to a
lesser extent, employee-related costs. This consolidation included the
conversion of an existing manufacturing facility in Amherstburg, Ontario, to a
distribution center.
OTHER INCOME AND EXPENSES
Interest costs in 1993 were largely unchanged, although interest capitalized in
relation to the heavy capital expenditure program resulted in lower interest
expense.
Investment income increased in 1993 as a result of a higher average level of
funds invested compared to 1992, partially offset by lower investment yields
compared with 1992.
The gain on the disposal of product lines of $4.1 million consisted of two
items: (1) the final proceeds of $2.2 million received from the 1989 sale of the
National Vitamin product line; and (2) the recognition of gains previously
deferred pending the outcome of contractual warranties, and the amortization of
non-compete arrangements negotiated as part of the sale of the DeWitt product
line, disposed of in 1990.
18
20
ACCOUNTING CHANGES
The Company adopted three new accounting standards as of January 1, 1993.
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106), and No. 112,
"Employers' Accounting for Postemployment Benefits" (SFAS 112), require accrual
of the estimated cost of postretirement and postemployment benefits (such as
health care, salary continuation and disability related costs). The cost of
these benefits was previously expensed on a pay-as-you-go basis. Adoption of
SFAS 106 and SFAS 112 resulted in after-tax charges against earnings of $5.6
million and $.5 million, or $.28 and $.03 per share, respectively. The third
standard, No. 109, "Accounting for Income Taxes," changed the method by which
companies account for deferred income taxes, and its adoption resulted in an
after-tax credit of $3.0 million, or $.15 per share. The combined effect of
adopting the new accounting standards was a charge against earnings of $3.2
million, or $.16 per share.
TAXATION
The effective tax rate for 1993 was 38.3%, compared to 37.4% in the previous
year. The higher tax rate is the result of an increase in the U. S. corporate
statutory tax rate from 34% to 35%, somewhat offset by a higher level of tax
credits in 1993.
NET INCOME AND EARNINGS PER SHARE
The Company's net income for 1993 was $26.3 million, compared to $29.5 million
in 1992. Earnings per share for the year ended December 31, 1993 were $1.30
($1.46 before the cumulative effect of accounting changes), compared to $1.45 in
1992.
OTHER ITEMS
PROSPECTIVE INFORMATION
1994 was a difficult year for the Company's consumer products businesses. A mix
of events, including a changing competitive environment, came at a time when the
Company was in the midst of an unprecedented level of new-product introductions.
The result was severely damaging to both sales growth and margins. The coming
year will also represent a challenge, but management believes that the
strategies are in place to get the business on the path to recovery.
In the laundry detergent category, pricing on powder detergents has been
modified to re-establish the ARM & HAMMER brand as the value-priced performer
that consumers have come to expect. However, in order to remain competitive and
restore margins, plans designed to control costs and simplify the product line
will need to be implemented. Results in the liquid detergent business are
expected to be less than satisfactory until the new manufacturing plant starts
up in the second half of 1995.
The ARM & HAMMER DENTAL CARE product line has been very successful over the
past several years not only by breaking into a group of well established brands,
but also in creating an entirely new baking soda segment within the dentifrice
category. In 1994, the brand was confronted with a strong competitive challenge
by Unilever's introduction of Mentadent, a baking soda and peroxide toothpaste.
Unilever's heavy advertising and promotional support of that introduction
ultimately caused ARM & HAMMER DENTAL CARE products' market share to slide. Late
in 1994, ARM & HAMMER PEROXICARE, the Company's new baking soda and peroxide
toothpaste, achieved national distribution. It is anticipated that as the
PEROXICARE brand becomes established, the dentifrice business will stabilize.
Nonetheless, these markets are highly competitive, and the need to respond
quickly with appropriate levels of advertising and promotional support is
essential.
In 1994, the Company introduced several new consumer products and line
extensions, namely: ARM & HAMMER Deodorant Anti-Perspirant, ARM & HAMMER
PEROXICARE toothpaste, ARM & HAMMER Powder and Liquid Laundry Detergents with
Bleach and the ARM & HAMMER FRIDGE-FREEZER PACK. In addition, ARM & HAMMER
DENTAL CARE products were introduced in the United Kingdom. Most of these
products are either meeting or exceeding expectations. Although investment
spending in support of new products is not likely to equal that of the
introductory period, these businesses will no doubt be subject to the same
competitive challenges as our more-established products.
There are a number of competitive threats taking shape for the Specialty
Products Division in 1995. North American Chemical Company continues to gain
market penetration with their nacholite product based on low prices in the dairy
feed category. This will continue to depress prices across the sodium
bicarbonate market. In addition, two competitors have recently added a combined
total of 50,000 tons of potassium carbonate capacity, thus ending our Armand
Products Company joint venture's position as the sole North American producer.
These events have been anticipated for some time, but the extent of their impact
on our business may not be clear until well into 1995.
19
21
LIQUIDITY AND CAPITAL RESOURCES
Despite the lower earnings in 1994, the Company's balance sheet remains strong.
Cash and short-term investments totaled $8 million at the end of 1994, compared
to $10 million at December 31, 1993.
The Company's $16 million cash flow generated from operating activities was
$9 million less than 1993. This decline was principally caused by lower
operating earnings. Operating cash flow combined with the increased utilization
of $23 million of short-term credit lines were used to finance a $28 million
capital expenditure program, to repurchase 697,000 shares of the Company's
common stock at a cost of $15 million, and to pay $9 million in cash dividends.
The Company has maintained a long-term debt-to-capital ratio below 5% for the
last three years. At December 31, 1994, the Company had $17 million available of
its $42 million short-term lines of credit.
Capital expenditures in 1995 are expected to be lower than in either of the
past two years. Management believes that the Company's earnings will begin to
recover in 1995 and that operating cash flow, coupled with its access to credit
markets, will be more than sufficient to meet the anticipated cash requirements
for the coming year.
In 1993, the Company generated $24 million in cash flow from operating
activities, representing a decrease of $11 million compared to 1992. This
decline was principally due to increased tax payments and higher inventory
levels. Capital expenditures of $29 million included a 50,000-ton sodium
bicarbonate capacity expansion at the Company's Old Fort, Ohio, plant. Also
during 1993, the Company acquired over 400,000 shares of its common stock at a
cost of $11 million and paid cash dividends of $8.5 million. Cash and short-term
investments totaled $10 million at the end of 1993, compared to $22 million at
December 31, 1992.
[GRAPH NO. 5]
Common Stock Price Range and Dividends
1994 1993
----------------------------------------------------------------------------------------------
Low High Dividend Low High Dividend
----------------------------------------------------------------------------------------------
1st Quarter $ 21 1/4 $ 29 1/4 $ .11 $ 26 3/4 $31 3/4 $ .10
2nd Quarter 20 1/4 22 7/8 .11 28 32 7/8 .10
3rd Quarter 21 1/4 26 .11 22 7/8 31 .11
4th Quarter 16 5/8 23 5/8 .11 22 7/8 28 1/4 .11
----------------------------------------------------------------------------------------------
Full Year $ 16 5/8 $ 29 1/4 $ .44 $ 22 7/8 $32 7/8 $ .42
----------------------------------------------------------------------------------------------
Based on trades on the New York Stock Exchange.
Approximate number of holders of Church & Dwight's Common Stock as of
December 31, 1994: 10,700.
20
22
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
YEAR ENDED DECEMBER 31, 1994 1993 1992
-------------------------------------------------------------------------------------------------
NET SALES $ 491,048 $ 507,651 $ 496,456
Cost of sales 281,271 272,843 266,817
------------------------------------
Gross profit 209,777 234,808 229,639
Selling, general and administrative expenses 201,362 196,281 191,926
Restructuring charges 6,941 2,904 --
------------------------------------
INCOME FROM OPERATIONS 1,474 35,623 37,713
Equity in joint venture income 7,874 6,962 7,287
Investment earnings 655 963 651
Gain on disposal of product lines 410 4,109 1,272
Other income 209 304 625
Interest expense (890) (165) (398)
------------------------------------
Income before taxes and cumulative
effect of accounting changes 9,732 47,796 47,150
Income taxes 3,615 18,310 17,647
------------------------------------
Income before cumulative effect of
accounting changes 6,117 29,486 29,503
Cumulative effect of accounting changes
(net of income tax effect):
Accrual of postretirement benefits (Note 9) -- (5,647) --
Accrual of postemployment benefits (Note 10) -- (533) --
Accounting for income taxes (Note 11) -- 2,980 --
-------------------------------------------------------------------------------------------------
NET INCOME $ 6,117 $ 26,286 $ 29,503
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Weighted average shares outstanding (in thousands) 19,706 20,223 20,338
-------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Income before cumulative effect of
accounting changes $ .31 $1.46 $1.45
Cumulative effect of accounting changes:
Accrual of postretirement benefits -- (.28) --
Accrual of postemployment benefits -- (.03) --
Accounting for income taxes -- .15 --
------------------------------------
Net income $ .31 $1.30 $1.45
-------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
21
23
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
DECEMBER 31, 1994 1993
-----------------------------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 4,659 $ 5,581
Short-term investments 2,976 4,000
Accounts receivable, less allowances of $912 and $752 44,404 42,340
Inventories 54,683 52,739
Income taxes receivable -- 3,010
Deferred income taxes 11,927 11,149
Prepaid expenses 5,663 4,634
-----------------------
TOTAL CURRENT ASSETS 124,312 123,453
-----------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT (NET) 138,460 122,195
NOTE RECEIVABLE FROM JOINT VENTURE 11,000 11,000
EQUITY INVESTMENT IN JOINT VENTURE 13,868 16,557
LONG-TERM SUPPLY CONTRACTS 4,391 4,929
INTANGIBLES, PRINCIPALLY GOODWILL 3,556 3,607
-----------------------------------------------------------------------------------------------
TOTAL ASSETS $295,587 $281,741
-----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term borrowings $ 25,000 $ 2,000
Accounts payable and accrued expenses 72,974 66,812
Income taxes payable 1,802 --
-----------------------
TOTAL CURRENT LIABILITIES 99,776 68,812
-----------------------------------------------------------------------------------------------
LONG-TERM DEBT 7,500 7,644
DEFERRED INCOME TAXES 19,994 22,530
DEFERRED INCOME 339 749
DEFERRED LIABILITIES 1,176 1,282
NONPENSION POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS 12,861 11,357
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 32,823 32,100
Retained earnings 167,901 170,434
Cumulative translation adjustments (741) (494)
-----------------------
223,313 225,370
Less common stock in treasury, at cost:
3,803,659 shares in 1994 and
3,251,280 shares in 1993 69,372 56,003
-----------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 153,941 169,367
-----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $295,587 $281,741
-----------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
22
24
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in thousands)
YEAR ENDED DECEMBER 31, 1994 1993 1992
-----------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES
-----------------------------------------------------------------------------------------------
NET INCOME $ 6,117 $ 26,286 $ 29,503
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting changes -- 3,200 --
Depreciation, depletion and amortization 11,743 10,622 9,848
(Gain)/loss on asset disposals 700 (582) (831)
Equity in joint venture income (7,874) (6,962) (7,287)
Deferred income taxes (3,319) 1,524 (258)
Other (146) 322 58
Change in assets and liabilities net of
effects of disposals:
(Increase)decrease in short-term investments 1,024 4,060 (4,061)
(Increase)decrease in accounts receivable (2,079) 628 2,309
(Increase)decrease in inventories (2,049) (7,767) 9,016
(Increase)decrease in prepaid expenses (1,043) 1,012 (2,062)
Increase(decrease) in accounts payable 6,209 (68) (1,684)
Increase(decrease) in income taxes payable 4,845 (9,306) 190
Increase in other liabilities 1,399 1,489 310
-----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,527 24,458 35,051
CASH FLOW FROM INVESTING ACTIVITIES
-----------------------------------------------------------------------------------------------
Additions to property, plant and equipment (28,388) (28,802) (12,487)
Proceeds from asset disposals 372 2,330 548
Distributions from joint venture 10,563 8,387 7,041
Investment in subsidiary (625) (325) (93)
Investment in note receivable from joint venture -- -- (11,000)
-----------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (18,078) (18,410) (15,991)
CASH FLOW FROM FINANCING ACTIVITIES
-----------------------------------------------------------------------------------------------
Proceeds from short-term borrowing 23,000 2,000 --
Proceeds from stock options exercised 746 993 1,473
Purchase of treasury stock (15,051) (10,947) (2,979)
Payment of cash dividends (8,650) (8,492) (7,732)
Proceeds from sale of common stock 1,584 1,935 --
-----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,629 (14,511) (9,238)
NET CHANGE IN CASH AND CASH EQUIVALENTS (922) (8,463) 9,822
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,581 14,044 4,222
-----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,659 $ 5,581 $ 14,044
-----------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 1,208 $ 271 $ 290
Income taxes 1,900 24,297 17,803
-----------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
23
25
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
-----------------------------------------------------------------------------------------------------------------------------
Number of Shares Amounts
------------------- ------------------------------------------------------------
Additional Cumulative
Common Treasury Common Treasury Paid-In Retained Translation
Stock Stock Stock Stock Capital Earnings Adjustments
-----------------------------------------------------------------------------------------------------------------------------
JANUARY 1, 1992 23,330 (3,030) $23,330 $(45,379) $29,812 $130,869 $ 522
Net income -- -- -- -- -- 29,503 --
Cash dividends -- -- -- -- -- (7,732) --
Stock option plan transactions
including related income tax benefit -- 126 -- 1,475 329 -- --
Other stock issuances -- 5 -- 59 80 -- --
Purchase of treasury stock -- (96) -- (2,979) -- -- --
Translation adjustments -- -- -- -- -- -- (838)
-----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1992 23,330 (2,995) 23,330 (46,824) 30,221 152,640 (316)
Net income -- -- -- -- -- 26,286 --
Cash dividends -- -- -- -- -- (8,492) --
Stock option plan transactions
including related income tax benefit -- 86 -- 1,001 544 -- --
Sale of stock to senior officers -- 60 -- 700 1,235 -- --
Other stock issuances -- 6 -- 67 100 -- --
Purchase of treasury stock -- (408) -- (10,947) -- -- --
Translation adjustments -- -- -- -- -- -- (178)
-----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993 23,330 (3,251) 23,330 (56,003) 32,100 170,434 (494)
Net income -- -- -- -- -- 6,117 --
Cash dividends -- -- -- -- -- (8,650) --
Stock option plan transactions
including related income tax benefit -- 74 -- 860 (50) -- --
Sale of stock to senior officers -- 70 -- 817 767 -- --
Other stock issuances -- -- -- 5 6 -- --
Purchase of treasury stock -- (697) -- (15,051) -- -- --
Translation adjustments -- -- -- -- -- -- (247)
-----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994 23,330 (3,804) $23,330 $(69,372) $32,823 $167,901 $ (741)
-----------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
24
26
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
BUSINESS
The Company's principal business is the manufacture and sale of sodium
carbonate-based products. Its products are sold to consumers, distributed
principally through retail outlets, and to industrial customers and
distributors.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. The Company's 50-percent interest
in its Armand Products Company joint venture has been accounted for under the
equity method of accounting. All material intercompany transactions and profits
have been eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
Financial statements of foreign subsidiaries are translated into U.S. dollars
in accordance with SFAS No. 52. Gains and losses on foreign currency
transactions were not material.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid short-term investments which mature
within three months of purchase.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
primarily by using the last-in, first-out (LIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and additions thereto are stated at cost.
Depreciation and amortization are provided by the straight-line method over the
estimated useful lives of the respective assets.
LONG-TERM SUPPLY CONTRACTS
Long-term supply contracts represent advance payments under certain multi-year
contracts with suppliers of raw materials. Such advance payments are applied
over the lives of the contracts.
INTANGIBLES
Intangibles are comprised of $3,555,700 of goodwill recorded prior to November
1, 1970 which is not being amortized, as management of the Company believes that
there has been no diminution in carrying value.
RESEARCH & DEVELOPMENT
Research & Development costs in the amount of $20,594,000 in 1994, $21,172,000
in 1993 and $17,826,000 in 1992 were charged to operations as incurred.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding during the period. Common equivalent shares
have been excluded because their effect was not material.
25
27
INCOME TAXES
Upon the adoption of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," effective January 1, 1993, deferred income taxes are provided to
reflect the future consequences of differences between the tax bases of assets
and liabilities and their reported amounts in the financial statements. Prior to
1993, deferred taxes were provided for income or expense recognized in different
periods for financial and income tax reporting purposes.
PRESENTATION
Certain prior-year amounts have been reclassified in order to conform with
current-year presentation.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS AND FOREIGN EXCHANGE RISK MANAGEMENT
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1994 and 1993. Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments," defines the fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction between willing
parties.
(In thousands) 1994 1993
---------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------------------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents $ 4,659 $ 4,659 $ 5,581 $ 5,581
Short-term investments 2,976 2,976 4,000 4,000
Note receivable from joint venture 11,000 11,000 11,000 11,000
---------------------------------------------------------------------------------------------
Financial Liabilities:
Short-term borrowings 25,000 25,000 2,000 2,000
Long-term debt 7,500 7,500 7,500 7,500
---------------------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments reflected in the Statement of Financial
Position:
CASH AND CASH EQUIVALENTS
The Company has included as part of cash equivalents short-term highly liquid
investments that are classified as trading securities. The cost of the
investments can be specifically identified and approximates fair value because
of the short maturity of the instruments.
SHORT-TERM INVESTMENTS
The cost of the investments (trading securities) can be specifically identified
and its fair value is based upon quoted market prices at the reporting date. The
Company included in its Consolidated 1994 Statement of Income an unrealized loss
of $148,000.
NOTE RECEIVABLE FROM JOINT VENTURE
The note receivable represents a loan to the Company's Armand Products Company
joint venture. The note, which is secured by plant and equipment owned by the
joint venture, bears interest at a rate of 8.25% and is due in installments from
January 1998 through June 2000. The Company believes that the note receivable
represents fair market value because the terms and collateral would be similar
to other instruments available to the joint venture in the marketplace.
SHORT-TERM BORROWINGS
The amounts of unsecured lines of credit are valued at fair value.
LONG-TERM DEBT
The Company estimates that based upon the Company's financial position and the
debt's variable interest rate, the carrying value of its long-term debt
approximates fair value.
26
28
FOREIGN EXCHANGE RISK MANAGEMENT
The Company enters into forward exchange contracts to hedge anticipated but not
yet committed sales denominated in the Japanese yen. The terms of these
contracts are for a period of under 18 months. The purpose of the Company's
foreign currency hedging activities is to protect the Company from the risk that
the eventual dollar net cash inflows resulting from the sale of products to
foreign customers will be adversely affected by changes in exchange rates. The
Company believes that because these contracts are traded on exchanges and the
contracts are denominated in a major currency, both credit and market risk is
reduced. The amount outstanding at December 31, 1994 of "sell" contracts,
translated into U.S. dollars using the rates current at the reporting date, was
$2,776,000. The Company's accounting policy is to value these contracts at
market value. At December 31, 1994, the Company had an unrealized gain that was
not material.
3. INVENTORIES
Inventories are summarized as follows:
(In thousands) 1994 1993
---------------------------------------------------------------------------------------------
Raw materials and supplies $12,237 $12,690
Work in process 103 103
Finished goods 42,343 39,946
---------------------------------------------------------------------------------------------
$54,683 $52,739
---------------------------------------------------------------------------------------------
Inventories valued on the LIFO method totaled $48,780,000 and $46,874,000 at
December 31, 1994 and 1993, respectively, and would have been approximately
$2,827,000 and $2,337,000 higher, respectively, had they been valued using the
first-in, first-out (FIFO) method.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
(In thousands) 1994 1993
---------------------------------------------------------------------------------------------
Land $ 3,107 $ 3,103
Buildings and improvements 59,874 54,125
Machinery and equipment 135,188 108,665
Office equipment and other assets 13,324 11,974
Mineral rights 5,020 3,145
Construction in progress 5,859 15,431
---------------------------------------------------------------------------------------------
222,372 196,443
Less accumulated depreciation, depletion and amortization 83,912 74,248
---------------------------------------------------------------------------------------------
Net property, plant and equipment $138,460 $122,195
---------------------------------------------------------------------------------------------
Depreciation, depletion and amortization of property, plant and equipment have
been charged to operations in the amount of $11,153,000, $9,805,000, and
$9,034,000 in 1994, 1993, and 1992, respectively. Interest charges in the amount
of $408,000 and $226,000 were capitalized in connection with construction
projects in 1994 and 1993, respectively.
27
29
5. EQUITY INVESTMENT
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 information below would not be indicative of the financial position
or results of operation had the joint venture operated on a stand-alone basis.
(In thousands) 1994 1993 1992
---------------------------------------------------------------------------------------------
Income Statement Data:
Net sales $47,254 $39,701 $39,965
Gross profit 18,146 16,013 16,530
Net income 14,840 13,017 14,207
Company's share in net income 7,420 6,508 7,103
Elimination of Company's share of
intercompany interest expense 454 454 184
---------------------------------------------------------------------------------------------
Equity in joint venture income $ 7,874 $ 6,962 $ 7,287
---------------------------------------------------------------------------------------------
(In thousands) 1994 1993
---------------------------------------------------------------------------------------------
Balance Sheet Data:
Current assets $10,433 $11,329
Noncurrent assets 32,111 35,245
Current liabilities 3,807 2,459
Note payable--Church & Dwight Co., Inc. 11,000 11,000
Partnership capital 27,737 33,115
----------------------------------------------------------------------------------------------
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
(In thousands) 1994 1993
---------------------------------------------------------------------------------------------
Trade accounts payable $23,372 $22,390
Accrued marketing and promotion costs 37,918 35,509
Accrued wages and related costs 3,852 4,516
Accrued pension and profit-sharing 1,919 257
Other accrued current liabilities 5,913 4,140
---------------------------------------------------------------------------------------------
$72,974 $66,812
---------------------------------------------------------------------------------------------
7. SHORT-TERM BORROWING AND LONG-TERM DEBT
The Company has available unsecured lines of credit with major U.S. banks in the
amount of $42 million of which $25 million was outstanding as of December 31,
1994 and $2 million outstanding as of December 31, 1993. The weighted average
interest rate on borrowings outstanding at December 31, 1994 was 7.2%.
Long-term debt consists of the following:
(In thousands) 1994 1993
---------------------------------------------------------------------------------------------
Industrial Revenue Refunding Bond
due in installments from 1998-2008 $7,500 $7,500
Other -- 144
---------------------------------------------------------------------------------------------
$7,500 $7,644
---------------------------------------------------------------------------------------------
The Industrial Revenue Refunding Bond carries a variable rate of interest
determined weekly, based upon current market conditions for short-term
tax-exempt financing. The average rate of interest charged in 1994 was 3.3%.
28
30
8. PENSION PLANS
The Company has defined benefit pension plans covering certain hourly employees.
Pension benefits to retired employees are based upon their length of service and
a percentage of qualifying compensation during the final years of employment.
The Company's funding policy, which is consistent with federal funding
requirements, is intended to provide not only for benefits attributed to service
to date, but also for those expected to be earned in the future.
Net pension cost includes the following components:
(In thousands) 1994 1993 1992
---------------------------------------------------------------------------------------------
Service cost $ 414 $ 352 $ 389
Interest cost on projected benefit obligation 787 766 816
Actual return on plan assets 162 (808) (658)
Net amortization and deferral (1,091) (125) (334)
---------------------------------------------------------------------------------------------
Net periodic pension cost $ 272 $ 185 $ 213
---------------------------------------------------------------------------------------------
The table below reflects the funded status of the pension plans at December 31:
(In thousands) 1994 1993
---------------------------------------------------------------------------------------------
Actuarial present value of accumulated benefit obligation:
Vested benefits $ (8,176) $ (7,817)
Nonvested benefits (508) (499)
---------------------------------------------------------------------------------------------
$ (8,684) $ (8,316)
---------------------------------------------------------------------------------------------
Actuarial present value of projected benefit obligation
for service rendered to date $(10,668) $(10,442)
Plan assets at fair value 9,819 10,520
----------------------
Plan assets in excess of/(less than) projected benefit obligation (849) 78
Unrecognized net (gain)/loss from past experience different
from that assumed and effects of changes in assumptions 382 (312)
Prior service cost not yet recognized in net periodic
pension cost 289 319
Unrecognized (net asset) at January 1, 1986
being recognized over 15 years 12 (17)
Loss due to currency fluctuations 31 21
---------------------------------------------------------------------------------------------
(Accrued)/prepaid pension cost $ (135) $ 89
---------------------------------------------------------------------------------------------
The assumptions used in determining the present value of the projected benefit
obligation were as follows:
1994 1993
---------------------------------------------------------------------------------------------
Weighted average discount rate 8.0% 7.5%
Future compensation growth rate 5.0% 5.0%
Expected long-term rate of return on plan assets 9.25% 9.4%
---------------------------------------------------------------------------------------------
The plan assets primarily consist of equity mutual funds, fixed income funds
and a guaranteed investment contract fund.
The Company also maintains a defined contribution profit sharing plan for
salaried and certain hourly employees. Contributions to the profit sharing plan
charged to earnings amounted to $1,400,000, $0, and $2,776,000 in 1994, 1993,
and 1992, respectively.
29
31
9. NONPENSION POSTRETIREMENT BENEFITS
The Company maintains unfunded plans which provide medical benefits for eligible
domestic retirees and their dependents. Effective January 1, 1993, the Company
adopted Statement of Financial Accounting Standards No. 106 (SFAS 106),
"Employers' Accounting for Postretirement Benefits Other than Pensions." This
standard requires the cost of such benefits to be recognized during the
employee's active working career. Previously, the Company recognized these costs
as they were incurred, also referred to as the pay-as-you-go basis.
1993 results include the cumulative effect of adopting SFAS 106 on the
immediate-recognition basis. The resulting $5,647,000 charge represents the
accumulated postretirement benefit obligation at January 1, 1993 amounting to
$9,200,000, less an income tax benefit of $3,553,000.
The net periodic postretirement benefit cost under the new method amounted to
$1,695,000 and $1,401,000 in 1994 and 1993, respectively. Had the expense for
1994 and 1993 been determined under the previous cash method of accounting, the
amount recognized as expense would have been $184,000 and $129,000,
respectively.
The following table provides information on the status of the plan at December
31:
(In thousands) 1994 1993
---------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ 3,502 $ 4,121
Fully eligible active participants 2,167 1,910
Other active participants 6,010 6,056
---------------------------------------------------------------------------------------------
11,679 12,087
Unrecognized net gain/(loss) 307 (1,611)
---------------------------------------------------------------------------------------------
Accrued postretirement benefit obligation $11,986 $10,476
---------------------------------------------------------------------------------------------
Net postretirement benefit cost consisted of the following components:
---------------------------------------------------------------------------------------------
Service cost - benefits earned during the year $ 876 $ 629
Interest cost on accumulated postretirement benefit obligation 819 772
---------------------------------------------------------------------------------------------
Net postretirement benefit cost $ 1,695 $ 1,401
---------------------------------------------------------------------------------------------
The accumulated postretirement benefit obligation has been determined by
application of the provisions of the Company's medical plans including
established maximums and sharing of costs, relevant actuarial assumptions and
health-care cost trend rates projected at 12 percent in 1995, and ranging to 5.4
percent through the year 2007 and beyond. The effect of a one-percent increase
in the assumed cost trend rate would increase the accumulated postretirement
benefit obligation by approximately $2,150,000 and increase the net periodic
postretirement benefit cost for 1994 by $382,000. The assumed discount rate used
in determining the accumulated postretirement benefit obligation was 8.0% in
1994 and 7.5% in 1993.
10. POSTEMPLOYMENT BENEFITS
During the fourth quarter of 1993, the Company elected to adopt, effective as
of January 1, 1993, the accounting provisions of Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." This standard requires that the cost of benefits provided to former
or inactive employees be recognized on the accrual basis of accounting.
Previously, the Company recognized postemployment benefit costs (primarily
medical benefits provided to certain employees receiving long-term disability
benefits) when paid. The cumulative effect of this change in accounting
principle resulted in a charge against 1993 earnings of $533,000, net of a
related tax benefit of $348,000. Adoption of this standard did not materially
affect income before cumulative effect of accounting changes in 1993 or 1994.
30
32
11. INCOME TAXES
On January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The adoption of
SFAS 109 changed the Company's method of accounting for income taxes from the
deferred method to an asset-and-liability approach. In 1993, the cumulative
effect of implementing the new standard resulted in an after-tax credit of
$2,980,000, or $.15 per share.
The components of income before taxes and cumulative effect of accounting
changes are as follows:
(In thousands) 1994 1993 1992
---------------------------------------------------------------------------------------------
Domestic $11,321 $48,428 $46,038
Foreign (1,589) (632) 1,112
---------------------------------------------------------------------------------------------
Total $ 9,732 $47,796 $47,150
---------------------------------------------------------------------------------------------
The following table summarizes the provision for U.S. federal, state and
foreign income taxes:
(In thousands) 1994 1993 1992
---------------------------------------------------------------------------------------------
Current:
U.S. federal $ 5,793 $15,238 $14,212
State 1,034 3,309 3,313
Foreign 102 (507) 401
---------------------------------------------------------------------------------------------
$ 6,929 $18,040 $17,926
---------------------------------------------------------------------------------------------
Deferred:
U.S. federal $(3,069) $ 126 $ (259)
State (327) 14 (57)
Foreign 82 130 37
---------------------------------------------------------------------------------------------
$(3,314) $ 270 $ (279)
---------------------------------------------------------------------------------------------
Total Provision $ 3,615 $18,310 $17,647
---------------------------------------------------------------------------------------------
Deferred tax liabilities/(assets) consist of the following at December 31:
(In thousands) 1994 1993
---------------------------------------------------------------------------------------------
Current deferred tax assets:
Marketing expenses, principally coupons $ (7,646) $ (6,115)
Reserves and other liabilities (2,067) (2,356)
Uniform capitalization of expenses (1,193) (1,413)
Accounts receivable (695) (630)
Other (326) (635)
---------------------------------------------------------------------------------------------
Total current deferred tax assets (11,927) (11,149)
---------------------------------------------------------------------------------------------
Noncurrent deferred tax liabilities/(assets):
Nonpension postretirement and postemployment benefits (5,092) (4,542)
Loss carryforward (912) --
Valuation allowance 912 --
Depreciation and amortization 23,068 24,457
Investment in purchased tax credits 1,576 2,152
Provision on foreign subsidiaries' unremitted earnings 282 287
Other 160 176
---------------------------------------------------------------------------------------------
Net noncurrent deferred tax liabilities 19,994 22,530
---------------------------------------------------------------------------------------------
Net deferred tax liability $ 8,067 $ 11,381
---------------------------------------------------------------------------------------------
In 1993, legislation was enacted which increased the U.S. corporate income tax
rate from 34% to 35%. The Company correspondingly increased its net deferred tax
liability for the increase in the rate.
31
33
The difference between tax expense and the "expected" tax which would result
from the use of the federal statutory rate is as follows:
(In thousands) 1994 1993 1992
---------------------------------------------------------------------------------------------
Statutory rate 35% 35% 34%
Tax which would result from use of the
federal statutory rate $3,406 $16,729 $16,031
---------------------------------------------------------------------------------------------
Depletion (415) (459) (462)
Research & Development credit (700) (511) (324)
State and local income tax, net of federal effect 460 2,160 2,183
Varying tax rates of foreign affiliates 12 80 33
Non-recognition of foreign affiliate loss 718 -- --
Effect of tax rate change on deferred tax
assets and liabilities -- 270 --
Other 134 41 186
---------------------------------------------------------------------------------------------
209 1,581 1,616
---------------------------------------------------------------------------------------------
Recorded tax expense $3,615 $18,310 $17,647
---------------------------------------------------------------------------------------------
Effective tax rate 37.1% 38.3% 37.4%
---------------------------------------------------------------------------------------------
12. STOCK OPTION PLANS
The Company has options outstanding under three plans. Under the 1983 Stock
Option Plan and the 1994 Incentive Stock Option Plan, the Company may grant
options to key management employees. The Stock Option Plan for Directors
authorizes the granting of options to non-employee directors. Options
outstanding under the plans are issued at market value, are exercisable on the
third anniversary of the date of grant, and must be exercised within ten years
of the date of grant.
Stock option transactions for the two years Number of Option Price
ended December 31, 1994 were as follows: Shares (range per share)
---------------------------------------------------------------------------------------------
Outstanding at January 1, 1993 1,118,084 $ 5.75 - $ 31.94
Grants 212,200 $ 23.88 - $ 32.25
Exercised 85,801 $ 5.75 - $ 28.88
Cancelled 38,600 $ 19.00 - $ 32.25
---------------------------------------------------------------------------------------------
Outstanding at December 31, 1993 1,205,883 $ 6.08 - $ 32.25
Grants 970,900 $ 17.13 - $ 27.88
Exercised 73,835 $ 6.08 - $ 19.00
Cancelled 165,600 $ 15.75 - $ 32.25
---------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 1,937,348 $ 8.94 - $ 32.25
---------------------------------------------------------------------------------------------
Exercisable at December 31, 1994 650,848 $ 8.94 - $ 31.50
---------------------------------------------------------------------------------------------
13. RESTRUCTURING CHARGES
The Company recorded restructuring charges in 1994 related to items; (1) $3.9
million associated with a cost reduction program designed to trim operating
costs principally through a reduction in workforce; and (2) $3.0 million for the
write-off of assets and accruals associated with the manufacturing of certain
laundry detergent products that were discontinued. As of December 31, 1994, 62
employees had been terminated as a part of the workforce reduction program.
In 1993, the Company recorded a restructuring charge in the amount of $2.9
million in connection with the one-time costs to consolidate production
facilities, including the cost of asset retirements, asset relocation and, to a
lesser extent, employee-related costs.
Components of the restructuring charges and the outstanding reserve balances
included in accounts payable and accrued expenses consist of the following:
Restructuring Disposals/ Reserves
Charges Payments at Dec. 31, 1994
---------------------------------------------------------------------------------------------
Fixed asset disposals $3,287 $(3,287) $ --
Fixed asset removal and demolition 1,118 (126) 992
Severance and related 4,207 (2,053) 2,154
Other 1,233 -- 1,233
---------------------------------------------------------------------------------------------
$9,845 $(5,466) $4,379
32
34
14. DISPOSITIONS
In connection with the disposal of its DeWitt product lines which were sold in
1990, the Company entered into five-year non-compete agreements for
consideration of $2,000,000. Such amount is being amortized from deferred income
on a straight-line basis over the life of the agreements. Also related to this
transaction, in 1993, the Company recognized a $1,450,000 gain which was
previously deferred pending the outcome of certain contractual warranties.
In December 1993, the Company received $2,250,000 in final settlement of a
licensing agreement in connection with its 1989 sale of the National Vitamin
Products line. Pursuant to the licensing agreement, the Company had previously
received fees in the amounts of $378,000, $474,000 and $532,000 in 1992, 1991
and 1990, respectively.
15. OFFICER LOAN GUARANTEES
In accordance with a long-term compensation plan approved by the Board of
Directors, the Company sold shares of its common stock to senior officers
totaling 70,000 shares and 60,000 shares in 1994 and 1993, respectively. The
selling prices were $22.63 and $32.25 per share, respectively, and in each case
represented the market price on the date of sale. These transactions, financed
through loans to the individuals by financial institutions have been guaranteed
by the Company. The amount of these guarantees outstanding at December 31, 1994
was $2,970,000.
16. COMMON STOCK VOTING RIGHTS AND RIGHTS AGREEMENT
Effective February 19, 1986, the Company's Restated Certificate of Incorporation
was amended to provide that every share of Company Common Stock is entitled to
four votes per share if it has been beneficially owned continuously by the same
holder (1) for a period of 48 consecutive months preceding the record date for
the Stockholders' Meeting; or (2) since February 19, 1986. All other shares
carry one vote. Specific provisions for the determination of beneficial
ownership and the voting rights of the Company's common stock are contained in
the Company's Notice of Annual Meeting of Stockholders and Proxy Statement.
On April 26, 1989, the Board of Directors declared a dividend of one right
for each share of outstanding common stock to be issued to stockholders of
record on May 17, 1989 and which will expire in ten years subject to earlier
redemption by the Company. Under certain circumstances, the registered holder of
each right would be entitled to purchase one one-hundredth of a share of the
Junior Participating Cumulative Preferred Stock of the Company, or in certain
circumstances either Company common stock or common stock of an acquiring
company at one-half the market price.
17. COMMITMENTS AND CONTINGENCIES
a. Rent expense amounted to $4,009,000 in 1994, $4,313,000 in 1993, and
$3,650,000 in 1992. The Company is obligated for minimum annual rentals under
non-cancellable long-term operating leases as follows:
(In thousands)
---------------------------------------------------------------------------------------------
1995 $ 3,092
1996 2,804
1997 2,370
1998 1,842
1999 1,668
Thereafter 4,402
---------------------------------------------------------------------------------------------
Total future minimum lease commitments $16,178
---------------------------------------------------------------------------------------------
b. In December 1981, the Company formed a partnership with a supplier of raw
materials which mines and processes sodium mineral deposits owned by each of the
two companies in Wyoming. The partnership supplies the Company with the majority
of its sodium raw material requirements. This agreement terminates upon two
years' written notice by either company.
33
35
18. UNAUDITED QUARTERLY FINANCIAL INFORMATION
(In thousands, except for per share data)
---------------------------------------------------------------------------------------------
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
---------------------------------------------------------------------------------------------
1994
Net sales $111,511 $130,656 $132,581 $116,300 $491,048
Gross profit 47,320 57,798 60,123 44,536 209,777
Income/(loss) from operations 1,778 8,405 (2,642) (6,067) 1,474
Equity in joint venture income 1,621 2,194 2,041 2,018 7,874
Net income/(loss) 2,419 6,388 (259) (2,431) 6,117
Net income/(loss) per share $ .12 $ .32 $(.01) $(.12) $ .31
---------------------------------------------------------------------------------------------
1993
Net sales $123,897 $130,308 $129,183 $124,263 $507,651
Gross profit 59,145 60,877 59,977 54,809 234,808
Income from operations 7,586 7,613 13,300 7,124 35,623
Equity in joint venture income 1,800 2,143 1,312 1,707 6,962
Income before accounting
changes 6,126 6,443 9,694 7,223 29,486
Net income 2,926 6,443 9,694 7,223 26,286
Income per share before
accounting changes $ .30 $ .32 $ .48 $ .36 $1.46
Net income per share .14 .32 .48 .36 1.30
---------------------------------------------------------------------------------------------
1992
Net sales $110,787 $123,241 $128,457 $133,971 $496,456
Gross profit 51,305 55,603 59,287 63,444 229,639
Income from operations 5,108 9,346 13,033 10,226 37,713
Equity in joint venture income 1,725 1,853 1,596 2,113 7,287
Net income 4,410 7,414 9,378 8,301 29,503
Net income per share $ .22 $ .36 $ .46 $ .41 $1.45
---------------------------------------------------------------------------------------------
34
36
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Church & Dwight Co., Inc.
Princeton, NJ
We have audited the accompanying consolidated balance sheets of Church &
Dwight Co., Inc., and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Church & Dwight Co., Inc. and
subsidiaries at December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles.
As discussed in Notes 9, 10, and 11 to the Consolidated Financial Statements,
the Company changed its methods of accounting for postretirement benefits,
postemployment benefits and income taxes effective January 1, 1993 to conform
with Statement of Financial Accounting Standards Nos. 106, 112 and 109,
respectively.
DELOITTE & TOUCHE LLP
Parsippany, NJ
January 25, 1995
35
37
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
ELEVEN-YEAR FINANCIAL REVIEW
(Dollars in millions, except per share data)
OPERATING RESULTS 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
----------------------------------------------------------------------------------------------------------------------------
Net sales:
Consumer products $ 393.0 410.4 409.3 386.1 331.1 295.6 249.4 231.6 218.9 180.2 144.4
Specialty products 98.0 97.3 87.2 80.7 80.2 75.8 82.1 73.5 53.3 51.2 40.2
Total 491.0 507.7 496.5 466.8 411.3 371.4 331.5 305.1 272.2 231.4 184.6
----------------------------------------------------------------------------------------------------------------------------
Marketing $ 128.4 116.1 115.8 89.1 66.3 43.0 35.1 37.1 39.2 29.9 22.8
----------------------------------------------------------------------------------------------------------------------------
Research & Development $ 20.6 21.2 17.8 13.4 12.3 7.9 6.3 5.4 4.9 4.7 3.3
----------------------------------------------------------------------------------------------------------------------------
Income from operations $ 1.5 35.6 37.7 34.0 28.9 25.2 23.6 20.1 17.9 21.7 18.3
----------------------------------------------------------------------------------------------------------------------------
Net income $ 6.1 26.3 29.5 26.5 22.5 8.6 16.5 14.0 12.8 4.7 11.2
----------------------------------------------------------------------------------------------------------------------------
Net income per share $ .31 1.30 1.45 1.29 1.05 .42 .75 .64 .60 .23 .55
----------------------------------------------------------------------------------------------------------------------------
% of sales 1.2% 5.2% 5.9% 5.7% 5.5% 2.3% 5.0% 4.6% 4.7% 2.0% 6.1%
----------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
----------------------------------------------------------------------------------------------------------------------------
Total assets $ 295.6 281.7 261.0 244.3 249.2 242.5 241.7 245.4 227.9 148.9 142.0
Long-term debt 7.5 7.6 7.7 7.8 29.6 52.2 55.6 56.8 59.2 20.8 22.3
Stockholders' equity 153.9 169.4 159.1 139.2 118.7 111.6 112.0 116.1 104.8 74.1 72.6
----------------------------------------------------------------------------------------------------------------------------
Long-term debt as a %
of total capitalization 5% 4% 5% 5% 20% 32% 33% 33% 36% 23% 24%
----------------------------------------------------------------------------------------------------------------------------
Working capital $ 24.5 54.6 40.7 34.1 46.1 66.8 58.8 68.8 61.9 41.5 32.7
----------------------------------------------------------------------------------------------------------------------------
Current ratio 1.2 1.8 1.5 1.4 1.6 2.2 2.2 2.5 2.6 2.3 2.2
----------------------------------------------------------------------------------------------------------------------------
OTHER DATA
----------------------------------------------------------------------------------------------------------------------------
Average common shares
outstanding (in thousands) 19,706 20,223 20,338 19,831 20,455 20,728 21,985 21,976 21,415 20,631 20,453
----------------------------------------------------------------------------------------------------------------------------
Return on average
stockholders' equity 3.8% 16.0% 19.8% 20.5% 19.5% 7.7% 14.4% 12.7% 14.3% 6.4% 16.2%
----------------------------------------------------------------------------------------------------------------------------
Cash dividends paid $ 8.7 8.5 7.7 6.7 6.1 5.4 5.1 4.7 4.3 3.9 3.6
----------------------------------------------------------------------------------------------------------------------------
Cash dividends paid
per common share $ .44 .42 .38 .34 .30 .26 .23 .211/2 .201/2 .191/2 .181/8
----------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
per common share $ 7.88 8.43 7.82 6.85 5.87 5.39 5.35 5.27 4.78 3.68 3.66
----------------------------------------------------------------------------------------------------------------------------
Additions to property,
plant and equipment $ 28.4 28.8 12.5 19.3 10.0 10.4 11.3 12.4 20.6 8.6 17.5
----------------------------------------------------------------------------------------------------------------------------
Depreciation and
amortization $ 11.7 10.6 9.8 9.5 8.9 8.5 8.2 7.8 5.1 5.6 4.2
----------------------------------------------------------------------------------------------------------------------------
Employees at year-end 1,028 1,096 1,092 1,081 994 1,070 1,000 950 900 645 551
Statistics per employee:
(in thousands)
Sales $ 478 463 455 432 414 347 332 321 302 359 335
Operating earnings 1 33 35 31 29 24 24 21 20 34 33
----------------------------------------------------------------------------------------------------------------------------
38
DIRECTORS
CYRIL C. BALDWIN, JR.
Chairman of the Board and
Chief Executive Officer
Cambrex Corporation
Director since 1983
WILLIAM R. BECKLEAN
Senior Vice President
Tucker Anthony, Inc.
Director since 1980
ROBERT H. BEEBY
Retired President and
Chief Executive Officer
Frito-Lay, Inc.
Director since 1992
ROSINA B. DIXON, M.D.
Physician and Consultant
Director since 1979
J. RICHARD LEAMAN, JR.
President and Chief Executive Officer
S. D. Warren Company
Director since 1985
JOHN D. LEGGETT III, PH.D.
President
Sensor Instruments Co., Inc.
Director since 1979
ROBERT A. MCCABE
President
Pilot Capital Corporation
Director since 1987
DWIGHT C. MINTON
Chairman and Chief Executive Officer
Church & Dwight Co., Inc.
Director since 1965
DEAN P. PHYPERS
Retired Senior Vice President
International Business Machines Corporation
Director since 1974
JARVIS J. SLADE
Partner
Hampton Capital Company
Director since 1970
JOHN O. WHITNEY
Professor and Executive Director
The Deming Center for Quality Management
Columbia Business School
Director since 1992
OFFICERS
DWIGHT C. MINTON
Chairman and Chief Executive Officer
MARK A. BILAWSKY
Vice President
General Counsel and Secretary
MARK G. CONISH
Vice President Manufacturing and Distribution
ROBERT A. DAVIES III
Vice President
President Arm & Hammer Division
ANTHONY P. DEASEY
Vice President Finance and
Chief Financial Officer
KENNETH J. GIACIN
Vice President
Business Development and Technology
MICHAEL J. KENNY
Vice President
President Specialty Products Division
HERMAN L. MARDER
Vice President Special Projects
DENNIS M. MOORE
Vice President Administration
LEO T. BELILL
Vice President
Specialty Products Division
JAMES P. CRILLY
Vice President Sales
Arm & Hammer Division
GARY P. HALKER
Vice President and Chief Information Officer
RONALD D. MUNSON
Vice President International Operations
Specialty Products Division
ALBERT R. NICUSANTI
Vice President/General Manager
Household Products
Arm & Hammer Division
MARTIN A. PICKUS
Vice President and Treasurer
MARK L. STOLP
Controller
36
39
INVESTOR INFORMATION
CORPORATE HEADQUARTERS
Church & Dwight Co., Inc.
469 North Harrison Street
Princeton, NJ 08543-5297
(609) 683-5900
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2 Hilton Court
Parsippany, NJ 07054
TRANSFER AGENT AND REGISTRAR
Chemical Bank
450 West 33rd Street
New York, NY 10001
THE ANNUAL MEETING OF STOCKHOLDERS
WILL BE HELD AT:
11:00 a.m. Thursday, May 11, 1995
The Asia Society, 725 Park Avenue,
New York City.
STOCK LISTING
Church & Dwight Co., Inc. shares are listed
on the New York Stock Exchange.
The symbol is CHD.
10-K REPORT
Stockholders may obtain a copy of the Company's Form 10-K Annual Report to the
Securities and Exchange Commission, for the year ended December 31, 1994 by
writing to the Treasurer at Corporate Headquarters.
QUARTERLY REPORTS
Church & Dwight Co., Inc. mails quarterly reports to stockholders of record and
to other persons who request copies. If your shares are not registered in your
name but are held at a broker, bank or other intermediary, you can receive
quarterly reports if you send a written request for such reports and provide
your name and address to Chemical Bank. Your request should be sent to:
Church & Dwight Co., Inc.
Chemical Bank
J.A.F. Building
P. O. Box 3070
New York, NY 10116-3070
STOCKHOLDER INQUIRIES
Communications concerning stockholder records, stock transfer, changes of
ownership, account consolidations, dividends and change of address should be
directed to:
Church & Dwight Co., Inc.
Chemical Bank
J.A.F. Building
P .O. Box 3068
New York, NY 10116-3068
1-800-851-9677
DIVIDEND REINVESTMENT PLAN
Church & Dwight Co., Inc. offers an automatic
Dividend Reinvestment Plan for our Common Stockholders. The Plan provides a
convenient and economical method for stockholders of record to reinvest their
dividends automatically or make optional cash payments toward the purchase of
additional shares without paying brokerage commissions or bank service charges.
For details, contact:
Church & Dwight Co., Inc.
Dividend Reinvestment Plan
Chemical Bank
J.A.F. Building
P. O. Box 3069
New York, NY 10116-3069
1-800-851-9677
Church & Dwight Co., Inc. is an equal opportunity employer. The Company conducts
its business without regard to race, color, age, religion, sex, national origin
or handicap.
(C) CHURCH & DWIGHT CO., INC. 1995
37
40
[ARM & HAMMER LOGO]
CHURCH & DWIGHT CO., INC.
469 North Harrison Street
Princeton, NJ 08543-5297