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CHURCH & DWIGHT CO., INC. 1997 ANNUAL REPORT
CHURCH & DWIGHT CO., INC.(R) Annual Report 1997
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CHURCH & DWIGHT CO., INC.(R) 1997 ANNUAL REPORT
CHURCH & DWIGHT CO., INC.(R)
469 NORTH HARRISON STREET
PRINCETON, NJ 08543-5297
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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,
drugstores and mass merchandisers, and to industrial customers and distributors.
financial highlights (in millions, except for per share data)
1997 1996
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Sales $ 574.9 $ 527.8
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Income from operations $ 30.6 $ 27.3
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Net income $ 24.5 $ 21.2
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Net income per share - basic $ 1.26 $ 1.09
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Net income per share - diluted $ 1.23 $ 1.08
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Dividends per share $ 0.46 $ 0.44
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Dear Fellow Stockholder:
[PHOTO OMITTED]
Dwight C. Minton R. A. Davies, III
Chairman of the Board President and Chief Executive Officer
WE ARE PLEASED TO REPORT THAT THE COMPANY MET ITS FINANCIAL GOALS FOR SOLID
SALES AND EARNINGS GAINS IN 1997. EQUALLY IMPORTANT WAS OUR LAUNCH OF A NUMBER
OF BUSINESS INITIATIVES WHICH SET THE STAGE FOR FUTURE GROWTH. OF PARTICULAR
SIGNIFICANCE IS THE 11.7 PERCENT SALES IMPROVEMENT IN SECOND HALF 1997, A PACE
WE EXPECT TO MAINTAIN OR EXCEED IN 1998. COMING OFF THIS STRONG GROWTH RATE, WE
HAVE BOTH THE ENERGY AND THE MOMENTUM TO BUILD SUBSTANTIAL VALUE FOR OUR
STOCKHOLDERS.
FOR THE FULL YEAR, NET INCOME ADVANCED 15 PERCENT TO $24.5 MILLION, EQUIVALENT
TO BASIC EARNINGS OF $1.26 PER SHARE, COMPARED TO $21.2 MILLION, OR $1.09 PER
SHARE A YEAR AGO. DILUTED EARNINGS WERE $1.23 PER SHARE VERSUS $1.08 IN THE
PRIOR YEAR. BASIC AND DILUTED EARNINGS ARE REPORTED UNDER THE NEW ACCOUNTING
RULES EFFECTIVE YEAR-END 1997. SALES ROSE 8.9 PERCENT TO $574.9 MILLION, UP FROM
$527.8 MILLION IN THE PREVIOUS YEAR.
IN JULY, WE RAISED OUR QUARTERLY DIVIDEND BY 9 PERCENT TO 12 CENTS A SHARE, THE
FIRST INCREASE SINCE 1993.
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FINANCIAL OBJECTIVES In our 1996 Annual Report, I described two key
financial objectives which we believe will produce excellent rewards for
shareholders: first, to achieve annual sales gains in the high single- or
low double-digit range; second, to raise our operating margin to a 10
percent level. Because most of our long-term growth has been internal
rather than by acquisitions, the Company is relatively efficient in its
use of capital. This advantage, together with the combination of the
growth and margin goals, will result in a return on operating capital of
well over 15 percent, a figure equal to or exceeding that of most of our
leading competitors.
SALES GROWTH As to sales, we are clearly on-track, with an 8.9 percent
growth rate for the full year. About a quarter of this amount came from
acquired products, and the balance from a combination of one new product
launch and growth in existing products. In mid-1997, we announced four
major initiatives for future growth which will be discussed in depth later
in this report:
> $10 million acquisition of a 40 percent interest in QGN/Carbonor, Brazil's
largest sodium bicarbonate and only barium bicarbonate producer, in June.
> $31 million acquisition of BRILLO(R) and four other household cleaning
brands from The Dial Corporation, in August.
> National launch of ARM & HAMMER SUPER SCOOPTM, The Baking Soda Clumping
Litter, in August.
> National launch of ARM & HAMMER DENTAL CARETM, The Baking Soda Gum, in
October, with product shipments commencing in early 1998.
Supplementing new products and acquisitions, we are exploring additional
avenues of expansion. In mid-1997, we began a program to license the ARM &
HAMMER trademark for use by related products or product lines which could
benefit from association with our trademark. We are also interested in
entering into strategic alliances with companies with which we could
jointly engage in product development and marketing. To date, we have not
announced any specific product license or strategic alliance, but we hope
to form such relationships later this year.
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Financial Objectives
MARGINS As to margins, our 1997 operating margin level of 6.3 percent,
adjusted for the Armand Products joint venture income, was well below our
10 percent objective and only slightly higher than the reported margin for
the previous year. Underlying this small gain was a significant margin
improvement in our existing businesses, offset by a substantial increase
in investment spending. The unusually high spending level in 1997 included
expenditures of $14.5 million in new product launch and test market
activity and $4.5 million for new information systems. Had we not made
these investments, our operating margin at year-end would have been
approximately 10 percent, compared to 7 percent in 1996 and 5 percent in
1995. The fact remains, however, that our current margins are inadequate
and need to be improved. To this end, we are working on the following key
initiatives to help us reach the margin goal over a two-year period:
> In Second Quarter 1997, we completed the rollout of an improved and
higher-margin reformulation of our laundry detergent powder, which
appreciably strengthened sales. Following the same strategy, in early 1998
we will introduce an improved and higher-margin reformulation of our
laundry detergent liquid.
> Mid-1997, we began a $10 million overhaul of our information systems with
the installation of a new software package which provides greater
capabilities for sales forecasting, inventory management and truckload
planning. During 1998, we will implement the next phase of this strategy
with the installation of an enterprise package with order processing,
accounting, purchasing and production planning capabilities. As we gain
experience with this new software, we expect to see significant
efficiencies, particularly in manufacturing and distribution.
> In Third Quarter 1997, we started the modernization of our Green River,
Wyoming, sodium bicarbonate plant, a $7.3 million project. The new
equipment, to be installed over a two-year period, uses our latest
technology, and will reduce costs, enhance environmental compliance, and
widen the range of specialty grades available.
> In January 1998, we moved our advertising function in-house from an
outside operation, a decision which will broaden our access to creative
resources in a cost-efficient manner.
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VITAL ASSETS Helping us to implement both sets of initiatives is a wealth of
vital assets. Our famous ARM & HAMMER trademark enjoys a 150-year heritage of
quality and reliability. Today, 94 percent of U.S. consumers are familiar with
the logo, which inspires instant trust and credibility, and approximately 50
percent of them purchase at least one ARM & HAMMER product annually, either as a
food ingredient, a household product or for personal care.
Equally outstanding are the many properties of the Company's flagship product.
ARM & HAMMER Baking Soda (sodium bicarbonate) is basically a simple molecule,
NaHCO3, which is safe and widely found in nature, and is present in living cells
where it is essential to maintaining pH in the body. It is an alkali and reacts
with acids to form neutral salts and water. This one product is at the same time
a neutralizer, a leavener, a cleaner, a deodorizer, an antimicrobial, and good
for the environment.
From this core product, Church & Dwight has built worldwide leadership in sodium
bicarbonate and carbonate technology which includes related products in a unique
breadth of applications, ranging from dental care and personal hygiene to
household and industrial cleaning, space deodorization, animal nutrition,
laundry and surface cleaning and environmental uses. This year the Company
invested more than $15 million in R & D, much of it in exploring new
technologies far beyond the confines of baking soda. Innovative products
marketed in recent years include ARM & HAMMER DENTAL CARE(R) toothpastes, which
pioneered the 30 percent baking soda segment of the toothpaste category; ARM &
HAMMER Deodorant Anti-Perspirants, the first controlled-release baking soda
deodorant products; ARM & HAMMER Rumen Buffers and Bypass Fats, a breakthrough
in animal nutrition for dairy cattle; and in the industrial business, the unique
carbonate-based ARMAKLEEN(R) line of safe and effective aqueous cleaning
products.
THE ORGANIZATION Church & Dwight Co., Inc. also benefits from its comparatively
small size which helps a highly motivated and creative organization maintain an
entrepreneurial management style, facilitating fast decisions and rapid
implementation. We are fortunate in having a strong corps of talented and
dedicated employees, at all levels throughout the Company, who have contributed
in a major way to the success of the various businesses.
In rewarding employees, our philosophy is to increase the amount of variable
versus fixed pay. For example, Church & Dwight vice presidents expect to receive
well over half of their compensation in the form of variable pay based on the
Company's performance, specifically annual bonuses and long-term stock options.
Early in 1998, we took another step in this direction by making a special option
award to 31 executives and key managers who either have recently joined the
Company, or for some reason did not have an adequate position in the option
plan. We believe these special awards, which vest at various prices ranging from
$36 to $50 a share, align management's interests even more closely with those of
the stockholders. In addition, we took further steps to tie our annual bonus
awards to absolute results versus our major competitors. In other words,
employees can only receive outstanding bonuses if the Company out-performs the
competition in terms of growth and profitability.
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Outlook
During the year, we added two executives to our Elected Officers Management
Team: Eugene F. Wilcauskas joined Church & Dwight as President and Chief
Operating Officer of the Specialty Products Division on April 1, 1997. From his
career start with Monsanto Company, he moved to Dart & Kraft, and more recently
was President of Akzo Nobel Inc. James P. Crilly was promoted to the elective
office of Senior Vice President Arm & Hammer Division effective February 28,
1997. He had previously served the Company as Vice President Sales from 1980 to
1984 when he left to join California Home Brands, Inc. He returned to Church &
Dwight in February 1995 as Vice President Sales, where he has played a key role
in reinvigorating the sales of our consumer brands.
OUTLOOK The natural role for a company our size is to create value by growing
the business rapidly, even though from time to time this may involve the
short-term sacrifice of operating margin. In 1998, our growth will be led by our
two Consumer Product launches of ARM & HAMMER SUPER SCOOP Clumping Litter and
ARM & HAMMER DENTAL CARE Gum, together with a full year of BRILLO sales and
further development of our Specialty Cleaning businesses. We also expect to see
continued growth in our existing businesses, particularly laundry detergents and
deodorant anti-perspirants. Given these excellent opportunities, our objective
is to achieve a double-digit growth rate in 1998.
Our second major objective is to improve margins. Earlier in this letter, I
described several important initiatives designed to improve the Company's cost
structure. The high level of investment spending required for the two new
product launches, and increased marketing support in defense of our toothpaste
franchise, will affect our operating margin particularly in First Half 1998.
Nevertheless, as our various initiatives take effect, we do expect to see some
improvement in margins before year-end.
While quarterly results will fluctuate, we remain optimistic that for the full
year, the combination of higher sales and some margin improvement will lead to a
solid gain in earnings.
Sincerely,
/s/ R. A. Davies, III
R. A. Davies, III
President and Chief Executive Officer
January 21, 1998
Elected Officers Management Team: (left to right)
James P. Crilly, Mark A. Bilawsky, Raymond L. Bendure,
Eugene F. Wilcauskas, Robert A. Davies, III, Zvi Eiref,
Mark G. Conish, Dennis M. Moore
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Consumer Products
BAKING SODA-BASED HOUSEHOLD PRODUCTS
Over half of our consumer business consists of high performance baking
soda-based products marketed in two major categories, household products
and personal care.
OUR STRATEGY, APPLICABLE TO BOTH HOUSEHOLD PRODUCTS AND PERSONAL
CARE PRODUCTS:
... TO GROW RAPIDLY BY CREATING A SERIES OF UNIQUE, HIGH-VALUE, SERIOUS
ARM & HAMMER BRANDS THAT TAKE ROOT FROM ARM & HAMMER BAKING SODA, OR FROM EACH
OTHER. IN SO DOING, TO CLEARLY ESTABLISH OURSELVES AS THE BAKING SODA EXPERTS,
COMPETENTLY CREATING AND LEADING THE BAKING SODA SEGMENTS OF THE CATEGORIES WE
ENTER.
The most recent household product is ARM & HAMMER SUPER SCOOP, The Baking
Soda Clumping Litter, launched in Third Quarter 1997. Developed to compete
in the fast-growing $350 million clumping segment of the cat litter
market, the product uses today's most advanced clumping technology to
address the primary consumer need of odor control. The baking soda
eliminates the odors on contact, including odors caused by germs; the
superior clumping action is fast and hard, enabling easy removal without
crumbling.
SUPER SCOOP is available in a Fresh Clean Scent or Unscented, in 7-pound
and 14-pound sizes. Consumer promotion began in late November with
high-impact color inserts and coupon offers in major market newspaper
supplements nationwide, followed in First Quarter 1998 by television
commercials demonstrating product superiority versus ordinary clumping
litters, along with consumer testimony to product performance. Heavy
promotional support will continue throughout the year.
A predecessor to ARM & HAMMER SUPER SCOOP, which continues to do well in
its special niche market, is ARM & HAMMER Cat Litter Deodorizer,
introduced in 1992 as a baking-soda based product to destroy odors
naturally when added to ordinary cat litter.
Our flagship product, ARM & HAMMER Baking Soda, is well-known for its many
household and personal care uses. We have underway several initiatives for
cleaning and deodorizing applications, one or more of which will be
introduced late in 1998.
ARM & HAMMER Carpet & Room Deodorizer regained its leadership position in
foodstores in the Third Quarter, following an advertising and promotion
campaign focused on pet owners. We will continue targeting this market, as
well as veterinarians, throughout the year. Soon to appear on the shelves
is a new closure device, a package improvement which not only locks in the
scent but also allows the consumer to sample the fragrance at retail
without spoilage.
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Household Products
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Consumer Products
BAKING SODA-BASED PERSONAL CARE PRODUCTS
ARM & HAMMER DENTAL CARE toothpastes performed satisfactorily over the
year in the face of intensive competition in the category. Two line
extensions, introduced late in 1996, did exceptionally well: ARM & HAMMER
DENTAL CARE Extra Whitening offers baking soda's natural whitening ability
which is clinically proven to whiten teeth in two weeks; and ARM & HAMMER
DENTAL CARE Smooth Spearmint which is flavor-striped to deliver baking
soda benefits with a refreshing mint taste. In Third Quarter 1997, ARM &
HAMMER DENTAL CARE gels were reformulated to deliver improved taste,
texture and the breath-freshening benefit demanded by younger consumers.
The PEROXICARE(R) brand was also restaged with a new stripe formulation
that broadens appeal and better communicates its content of both peroxide
and baking soda.
The toothpaste category has become more and more competitive, and 1998 is
expected to be a record year for heavily supported new product
introductions. Spending for ARM & HAMMER DENTAL CARE dentifrices will be
significantly increased in 1998 as we implement aggressive marketing
strategies in defense of our franchise.
The newest addition to the line is ARM & HAMMER DENTAL CARE, The Baking
Soda Gum, a premium-priced, technically superior baking soda-based oral
care product. After year-long test market research, the national launch to
the trade began in late 1997 followed by shipments to retail outlets in
early 1998.
ARM & HAMMER DENTAL CARE Gum pioneers a new category shelved in the
dentifrice aisle of the store as a companion product to ARM & HAMMER
DENTAL CARE toothpastes. The new product reinforces oral care by cleaning
teeth when you can't brush, and has been clinically proven to reduce
plaque by 25 percent after four weeks of daily chewing. Three
fresh-tasting sugar-free flavors of cinnamon, spearmint and peppermint are
available in 12- or 36-pellet packages. The integrated marketing program
began with dental professional detailing in First Quarter 1998, to be
followed in the Second Quarter by national television advertising and
promotional programs.
Our deodorant anti-perspirant business enjoyed a good year, with ARM &
HAMMER the fastest growing brand in the category. Central to this success
is the product claim that ARM & HAMMER Deodorant Anti-Perspirant with
Baking Soda absorbs and eliminates odor instead of just covering it up.
The national launch of ARM & HAMMER Aerosol Deodorant Anti-Perspirant in
Third Quarter 1997 completes a full product line of aerosols, oval sticks,
wide sticks and roll-ons in the $1.5 billion category.
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Personal Care Products
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Consumer Products
LAUNDRY AND HOUSEHOLD CLEANING PRODUCTS
OUR STRATEGY:
... TO ESTABLISH CHURCH & DWIGHT AS A MAJOR FACTOR IN THE $7 BILLION
HOUSEHOLD PRODUCTS BUSINESS, PRIMARILY USING OUR FAMOUS TRADEMARK TO MARKET
MIDDLE-PRICED BRANDS ACCEPTABLE TO THE GREAT MAJORITY OF AMERICAN CONSUMERS.
... TO ADD TO THIS, VIA ACQUISITION, OTHER STRONG BRAND EQUITIES CAPABLE
OF DELIVERING THE SAME OBJECTIVES.
ARM & HAMMER Powder Laundry Detergent had an exceptionally good year, with
volumes in record territory and well ahead of 1996 sales, moving us up to
the 3 position on a washload basis in food stores nationwide. We are very
satisfied with the brand's growth, as well as with improvements in its
profitability.
We are also pleased with the performance of ARM & HAMMER Liquid Laundry
Detergent, which strongly outpaced the category. Early in 1998, we will be
reformulating the brand and making significant process and packaging
changes.
In late August, we closed our transaction with The Dial Corporation to
acquire a group of five household cleaning brands for a purchase price of
approximately $31 million. The acquired brands, along with a manufacturing
plant located in London, Ohio, are running at an annual sales level of
approximately $40 million, have been fully integrated into the Church &
Dwight business, and are expected to be profitable in 1998.
The best known is BRILLO Steel Wool Soap Pads, designed to clean aluminum
pots and pans and first marketed in 1917. BRILLO Soap Pads, including the
steel wool, are manufactured at the London, Ohio, plant along with a
companion product, BRILLO Supreme, a soapless steel wool pad. A third
product is the BRILLO All-Purpose Pad, a meshed scrubber for scratchless
cleaning.
Other acquired brands include PARSONS'(R) Ammonia, a versatile and
economical all-purpose cleaner; CAMEO(R) Aluminum & Stainless Steel
Cleaner; RAIN DROPS(R), a water softener; and a regional brand, SNO BOL(R)
Toilet Bowl Cleaner.
In early 1998, we reached a further agreement with The Dial Corporation to
acquire its TOSS `N SOFT(R) Dryer Sheets brand, together with a production
line located at the London, Ohio, facility. We will market this product
alongside our existing ARM & HAMMER Fabric Softener Sheets.
All of the acquired products are currently undergoing scrutiny in our R &
D laboratories, and quality improvements are in progress. We see several
opportunities for building the brands and improving their cost structure,
although it is too early to comment on future plans. 10
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Laundry and Household Cleaning Products
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Specialty Products
Specialty products account for approximately 25 percent of Church & Dwight
sales, including our 50 percent share in the Armand Products joint
venture. In recent years, we have expanded the business beyond its base of
sodium bicarbonate to include a range of related chemicals, as well as two
specialized product lines in animal nutrition and specialty cleaning.
OUR STRATEGY:
...TO SOLIDIFY WORLDWIDE LEADERSHIP IN SODIUM BICARBONATE AND POTASSIUM
CARBONATE, WHILE BROADENING OUR PRODUCT OFFERINGS TO OTHER RELATED CHEMICALS.
... TO BUILD A SPECIALIZED HIGH-MARGIN SPECIALTY CLEANING BUSINESS,
ALLYING CARBONATE TECHNOLOGY, THE ARM & HAMMER TRADEMARK AND ENVIRONMENTAL
POSITIONING.
PERFORMANCE PRODUCTS
The Company has maintained its position as the leading supplier worldwide
of sodium bicarbonate for a variety of products in the food, household,
pharmaceutical and healthcare fields. As these businesses mature, we are
focusing our efforts on high-value applications which require exceptional
purity and special granulations. A major step in this direction is the
modernization of our sodium bicarbonate plant in Green River, Wyoming, a
$7.3 million, two-year project and a key initiative for 1998.
Similarly, our Armand Products joint venture continued to be the leading
potassium carbonate producer worldwide. As this market matures, we are
increasing our export business, especially to the Far East. The major
product use continues to be in the manufacture of video glass for
television sets and personal computers.
Seeking to benefit from our strong North American leadership position in
sodium bicarbonate/carbonate technology, we acquired for $10 million, in
June 1997, a 40 percent interest in the Brazilian company, QGN/Carbonor,
South America's largest producer of sodium bicarbonate. The company is
also the country's only producer of barium carbonate, used primarily in
the video glass business and sold in the same markets as potassium
carbonate. Our agreement includes an option for Church & Dwight to
increase its interest in the company to 75 percent by March 31, 1999.
QGN/Carbonor's combined sales for 1997 were approximately $25 million.
Brotherton Speciality Products, Ltd., our United Kingdom subsidiary,
continued its solid performance, expanding its lines of ammonium and
potassium specialty chemicals. Brotherton also distributes all of our
Specialty Cleaning Products throughout Europe.
With strong international growth, over 20 percent of the Specialty
Products business, including our share of affiliates, is conducted
offshore, evenly distributed among the Far East, Latin America and Europe.
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Specialty Products
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Specialty Products
ANIMAL NUTRITION PRODUCTS
In the agricultural area, our animal nutrition lines, both in rumen
buffers and by-pass fats, had an excellent year. MEGALAC(R) Rumen Bypass
Fat enjoyed significant growth. The dairy industry's acceptance of the
product's value as a high-energy nutritional supplement to boost milk
production is expected to continue to rise as milk production per cow
increases. The new value-added MEGALAC products are contributing to this
growth, providing higher margins than the base product.
SPECIALTY CLEANING PRODUCTS
We continue to invest in specialty cleaning, a fragmented industrial
market which we entered in 1995 with the objective of gradually building,
over a period of years, a major business utilizing our aqueous-based
cleaning technology.
In mid-1996, we announced our alliance with Safety-Kleen Corp., the
world's largest recycler of industrial and automotive cleaning fluids, to
provide parts cleaning customers with aqueous-based AquaWorksTM developed
by Church & Dwight technologists. After a slow start, volume is growing,
and we look to further progress in anticipation of legislation enacted by
the South Coast Air Quality Management District of Southern California
which bans the use of products emitting volatile organic compounds after
December 31, 1998.
Such legislation should also benefit our other aqueous cleaners: ARMAKLEEN
M-series for precision cleaning in the optical, aerospace and automotive
industries; and the ARMAKLEEN E-series for cleaning circuit boards in the
electronics industry. In Third Quarter 1997, we concluded an agreement
with Alpha Metals, a division of the Cookson Company, to license Church &
Dwight's ARMAKLEEN E-series technology for worldwide manufacture and
distribution.
In early 1997, ARMEX(R) Cleaning and Coating Removal Systems, our
non-toxic blasting business for the removal of paint and process residues,
consolidated operations at a single location in New Jersey, and is now
focused on high-value process applications.
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CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
Eleven-Year Financial Review
(Dollars in millions, except per share data)
operating results 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
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Net sales:
Consumer products $ 459.0 417.6 380.6 393.0 410.4 409.3 386.1 331.1 295.6 249.4 231.6
Specialty products 115.9 110.2 105.2 98.0 97.3 87.2 80.7 80.2 75.8 82.1 73.5
Total 574.9 527.8 485.8 491.0 507.7 496.5 466.8 411.3 371.4 331.5 305.1
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Marketing $ 142.1 130.6 119.2 128.4 116.1 115.8 89.1 66.3 43.0 35.1 37.1
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Research & development $ 15.8 17.8 18.5 20.6 21.2 17.8 13.4 12.3 7.9 6.3 5.4
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Income from operations $ 30.6 27.3 8.4 1.5 35.6 37.7 34.0 28.9 25.2 23.6 20.1
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Net income $ 24.5 21.2 10.2 6.1 26.3 29.5 26.5 22.5 8.6 16.5 14.0
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% of sales 4.3% 4.0% 2.1% 1.2% 5.2% 5.9% 5.7% 5.5% 2.3% 5.0% 4.6%
===================================================================================================================================
Net income per share - basic $ 1.26 1.09 .52 .31 1.30 1.45 1.29 1.05 .42 .75 .64
===================================================================================================================================
Net income per share - diluted $ 1.23 1.08 .51 .31 1.28 1.42 1.29 1.05 .41 .74 .63
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financial position
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Total assets $ 351.0 308.0 293.2 294.5 281.7 261.0 244.3 249.2 242.5 241.7 245.4
Long-term debt 6.8 7.5 7.5 7.5 7.6 7.7 7.8 29.6 52.2 55.6 56.8
Stockholders' equity 179.3 165.3 153.7 153.9 169.4 159.1 139.2 118.7 111.6 112.0 116.1
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Long-term debt as a %
of total capitalization 4% 4% 5% 5% 4% 5% 5% 20% 32% 33% 33%
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Working capital $ 23.2 36.8 22.1 23.4 54.6 40.7 34.1 46.1 66.8 58.8 68.8
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Current ratio 1.2 1.4 1.2 1.2 1.8 1.5 1.4 1.6 2.2 2.2 2.5
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other data
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Average common shares
outstanding (In thousands) 19,461 19,534 19,567 19,706 20,223 20,338 19,831 20,455 20,728 21,985 21,976
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Return on average
stockholders' equity 14.2% 13.3% 6.6% 3.8% 16.0% 19.8% 20.5% 19.5% 7.7% 14.4% 12.7%
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Cash dividends paid $ 9.0 8.6 8.6 8.7 8.5 7.7 6.7 6.1 5.4 5.1 4.7
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Cash dividends paid
per common share $ .46 .44 .44 .44 .42 .38 .34 .30 .26 .23 .211/2
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Stockholders' equity
per common share $ 9.23 8.50 7.87 7.88 8.43 7.82 6.85 5.87 5.39 5.35 5.27
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Additions to property,
plant and equipment $ 9.9 7.1 19.7 28.4 28.8 12.5 19.3 10.0 10.4 11.3 12.4
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Depreciation and
amortization $ 14.3 13.6 13.1 11.7 10.6 9.8 9.5 8.9 8.5 8.2 7.8
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Employees at year-end 1,137 937 941 1,028 1,096 1,092 1,081 994 1,070 1,000 950
Statistics per employee:
(In thousands)
Sales $ 506 563 516 478 463 455 432 414 347 332 321
Operating earnings 27 29 9 1 33 35 31 29 24 24 21
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FINANCIAL REVIEW
The Financial Review discusses the Company's performance for 1997 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.
1997 COMPARED TO 1996
Net Sales
Net sales increased 8.9% in 1997 primarily due to growth in the consumer
products business.
Consumer products were up 9.9% mainly on higher sales of ARM & HAMMER Laundry
Detergent products, the national introduction of ARM & HAMMER SUPER SCOOP, The
Baking Soda Clumping Litter, and the addition of five product lines, including
BRILLO, acquired in late August from The Dial Corporation. Of the major personal
care product lines, ARM & HAMMER Deodorant Anti-Perspirant sales were higher,
and ARM & HAMMER DENTAL CARE toothpaste sales were lower, than in the previous
year.
Specialty products were up 5.2% led by higher sales of animal nutrition
products, as well as continued growth of the new specialty cleaning product
line. Performance products were slightly lower than in the previous year.
Operating Costs
The Company's gross margin increased .5 points to 42.5%. A major factor was the
reduction in manufacturing costs resulting from cost improvement programs, which
included plant reorganization activities initiated in the latter part of 1996,
as well as the final rollout of a reformulated laundry detergent powder in the
second quarter of 1997. Lower research & development spending on the Xosten drug
development program also contributed to the margin increase. These margin
improvements were partially offset by higher manufacturing costs of ARM & HAMMER
DENTAL CARE toothpaste related to a major buy-one-get-one-free promotion during
the year, and higher research & development spending on consumer and specialty
products.
Selling, general and administrative expenses increased $19.2 million to $213.7
million. This increase largely stemmed from higher selling costs related to the
introductory launch of ARM & HAMMER SUPER SCOOP Clumping Litter and test market
costs associated with ARM & HAMMER DENTAL CARE, The Baking Soda Gum. These
increases were partially offset by lower promotion costs for ARM & HAMMER DENTAL
CARE toothpaste. General and administrative expenses increased primarily as a
result of higher information systems costs related to the installation of a new
logistics system and initial spending on a new enterprise package, as well as
additional personnel costs in support of new business initiatives.
Other Income and Expenses
The Armand Products Company, our potassium carbonate joint venture with
Occidental Chemical Corporation, saw a 4% sales increase driven by higher export
business. The resulting profitability improvement from this joint venture
activity, along with a small partial year contribution from our 40% equity
interest in a Brazilian chemical company, were the primary reasons for the $.9
million increase in equity income.
Investment income was slightly higher than a year ago primarily as a result of
interest earned on a tax refund stemming from resolution of prior year issues.
Other income in 1997 consists mainly of a settlement from a long-standing class
action suit against the carbon dioxide supply industry and minor foreign
exchange gains. Other expenses of $.4 million in 1996 included foreign exchange
losses incurred by our Venezuelan subsidiary due to the devaluation of the local
currency.
Interest expense in 1997 was approximately $.6 million higher than in the
previous year and was the result of using short-term debt to finance the
purchase of the five brands from The Dial Corporation in late August.
Taxation
The effective tax rate for 1997 was 36.7%, compared to 36.0% in the previous
year. The increase in the effective rate is primarily due to a higher effective
state tax rate.
16
20
Net Income and Earnings Per Share
The Company's net income for 1997 was $24.5 million, compared to $21.2 million
in 1996. Basic earnings per share for 1997 were $1.26, compared to $1.09 in
1996. Diluted earnings per share for 1997 were $1.23, compared to $1.08 in 1996.
1996 COMPARED TO 1995
Net Sales
Net sales increased 8.6% in 1996 primarily due to growth in the consumer
products business.
Consumer products were up 9.7% mainly on higher sales of ARM & HAMMER Liquid
Laundry Detergent, which was relaunched as a 4/10-cup formula earlier in the
year, as well as higher sales of ARM & HAMMER DENTAL CARE and ARM & HAMMER
Deodorant Anti-Perspirant with Baking Soda. These increases were partially
offset by lower sales of ARM & HAMMER Carpet & Room Deodorizer, which
experienced intense competition in a declining category.
Specialty products were up 4.8% led by higher sales of MEGALAC Rumen Bypass Fat,
and strong results from the Company's Brotherton subsidiary in the United
Kingdom. Sales of the new liquid cleaning products also increased, although from
a low base.
Operating Costs
The Company's gross margin increased 1.6 points to 42.0%. A major factor was the
reduction in ARM & HAMMER Liquid Laundry Detergent manufacturing costs related
to the start-up of in-house production and the change to a 4/10-cup formula.
Other factors contributing to the margin increase included greater efficiencies
in distribution and lower research & development spending. These margin
improvements were partially offset by higher manufacturing costs on ARM & HAMMER
DENTAL CARE related to a major buy-one-get-one-free promotion in the latter part
of the year, and a provision for plant reorganization costs.
Selling, general and administrative expenses increased $10.8 million to $194.5
million. This increase largely represented higher selling costs for laundry
detergent products, particularly liquid laundry detergent, where heavy promotion
costs were incurred during the relaunch. General and administrative expenses
declined, as expected, reflecting the full-year effect of the reduction in
corporate headcount implemented in mid-1995 and further reductions in legal and
outside service fees, partially offset by higher software costs.
Other Income and Expenses
The Armand Products Company, our potassium carbonate joint venture with
Occidental Chemical Corporation, saw a 22% decline in sales due to lower volume
and pricing caused by new competition in the industry. This competitive
activity, which had been anticipated for some time, was the primary reason for
the $2.2 million decline in equity income.
Investment income was $.3 million higher than the prior year as a result of a
higher level of funds available for investment.
Other expenses of $.4 million in 1996 included foreign exchange losses incurred
by our Venezuelan subsidiary due to the devaluation of the local currency.
Interest expense in 1996 was approximately $.9 million lower than in the
previous year and was the result of the repayment of short-term debt in the
first half of the year.
Taxation
The effective tax rate for 1996 was 36.0%, compared to 37.7% in the previous
year. The decrease in the effective rate is due to the utilization of foreign
operating loss carry-forwards in 1996 for which the benefits were not
recognizable in 1995, as well as a lower effective state tax rate.
Net Income and Earnings Per Share
The Company's net income for 1996 was $21.2 million, compared to $10.2 million
in 1995. Basic earnings per share for 1996 were $1.09, compared to $.52 in 1995.
Diluted earnings per share for 1996 were $1.08, compared to $.51 in 1995.
17
21
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet at December 31, 1997 remains strong as compared to
the balance sheet position at the year-end 1996. Cash and short-term
investments, before considering short-term debt, totaled nearly $19 million at
the end of 1997, compared to $28 million at December 31, 1996.
In 1997, operating cash flow was almost $18 million. Major factors contributing
to the cash flow from operating activities included higher operating earnings,
non-cash charges for depreciation and amortization, offset by a higher working
capital position resulting from an increase in accounts receivable on the higher
sales, and higher inventories from new and acquired products. Operating cash
flow together with short-term borrowings of $32 million were mainly used to fund
the $31 million purchase of the five brands from The Dial Corporation, and to
finance the $10 million investment in a Brazilian chemical company. In addition,
cash flow was used to fund capital expenditures, pay cash dividends, and acquire
116,000 shares of treasury stock.
The Company has maintained a long-term debt-to-capital ratio at or below 5% for
the last seven years. At December 31, 1997, the Company had $43 million
available through short-term lines of credit. Capital expenditures in 1998 are
expected to be higher than in 1997 and comparable to the level of depreciation
and amortization. Management believes that operating cash flow, coupled with the
Company's access to credit markets, will be more than sufficient to meet the
anticipated cash requirements for the coming year.
In 1996, operating cash flow was almost $34 million. Major factors contributing
to the cash flow from operating activities included higher operating earnings
than in 1995, non-cash charges for depreciation and amortization, and a better
overall working capital position. Operating cash flow was used to fund capital
expenditures and an additional investment in the Armand Products Company.
Operating cash flow was also used to repay short-term debt, purchase 139,000
shares of treasury stock, and to pay cash dividends.
OTHER ITEMS
New Accounting Pronouncement
During June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information". This Statement requires the disclosure of
financial and descriptive information about reportable operating segments.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly in
deciding how to allocate resources and in assessing performance. The Company's
disclosures will be affected by this Statement. The Company has not yet
completed its evaluation of the appropriate segments to disclose. This Statement
is effective for the Company's 1998 year-end financial statements.
Year 2000
The Company began implementing a new information system during 1997 which is
year 2000 compliant. Remaining planned expenditures are estimated at
approximately $4 million which is not expected to have a material adverse impact
on the Company's cash flows or financial position. The Company cannot predict,
however, whether its suppliers or customers have appropriately addressed their
year 2000 system processing issues and what impact, if any, this will have on
the Company's operations.
Competitive Environment
The Company operates in highly competitive consumer-product markets, in which
cost efficiency and innovation are critical to success.
ARM & HAMMER laundry detergent products are sold as value brands which makes
their cost position especially important. To stay competitive in this category,
the Company completed its rollout of a reformulated powder laundry detergent
product in 1997, and is working on further cost reductions in 1998 through the
reformulation of its liquid laundry detergent.
18
22
The Company has been very successful in recent years in entering the dentifrice
and personal deodorant businesses using the unique strengths of its ARM & HAMMER
trademark and baking soda technology. These are highly innovative markets,
characterized by a continuous flow of new products and line extensions, and
heavy spending on advertising and promotion. In 1997, the Company reformulated
its DENTAL CARE gels for improved taste and restaged the PEROXICARE brand with a
new stripe formulation in the dentifrice category, and added an aerosol line
extension in the deodorant category. The dentifrice business, in particular, has
become much more competitive and 1998 is expected to be a record year for
heavily supported new product introductions. Because of this competitive
background, the Company anticipates that marketing spending levels will be
higher in 1998 than in the previous year.
In the fourth quarter of 1997, the Company launched ARM & HAMMER SUPER SCOOP,
The Baking Soda Clumping Litter, to compete in the fast growing clumping segment
of the cat litter market. Furthermore, in the first quarter of 1998, the Company
is launching ARM & HAMMER DENTAL CARE, The Baking Soda Gum, a premium-priced,
baking soda-based oral care product. The introduction of new products usually
involves heavy marketing costs in the year of launch, and it generally takes at
least a year, and sometimes much longer, for a new product to become profitable.
In the specialty products business, competition for the two major products,
sodium bicarbonate and potassium carbonate, remained intense in 1997. Sodium
bicarbonate sales have been impacted by a nahcolite-based sodium bicarbonate
manufacturer which has been operating at the lower end of the business and is
now making an effort to enter the higher end. The Company is increasing its
research & development spending, particularly on specialized high-value
applications in the medical and food processing fields, and has begun
modernizing its Green River, Wyoming, plant. As for potassium carbonate, the
Company is expecting market demand to increase in 1998 or 1999 which should help
alleviate pressures from three competitors in this business. These events have
been anticipated for some time, but their effect on the business may not be
clear until well into 1998.
During the year, the Company continued to pursue opportunities to build a
specialized high-margin industrial cleaning business using our recently
developed aqueous-based technology. While this opportunity holds great promise,
it requires a major up-front financial commitment in research & development and
marketing, and the outcome will not be known for some time.
Cautionary Note on Forward-Looking Statements
This Annual Report includes forwarding-looking statements, many of which depend
on factors outside the Company's control, such as economic conditions, market
demand and industry capacity, competitive products and pricing, raw material
costs and other matters. With regard to new product introductions, there is
particular uncertainty related to trade, competitive and consumer reactions.
Future performance may be affected by changes in one or more of these factors.
Common Stock Price Range and Dividends 1997 1996
=======================================================================================================
Low High Dividend Low High Dividend
- -------------------------------------------------------------------------------------------------------
1st Quarter $ 21 5/8 $ 29 $ 0.11 $ 17 1/2 $ 21 5/8 $ 0.11
2nd Quarter 24 1/8 28 3/4 0.11 19 3/4 22 3/4 0.11
3rd Quarter 25 5/8 31 0.12 20 22 1/2 0.11
4th Quarter 26 7/8 32 3/4 0.12 20 23 3/4 0.11
- -------------------------------------------------------------------------------------------------------
Full Year $ 21 5/8 $ 32 3/4 $ 0.46 $ 17 1/2 $ 23 3/4 $ 0.44
=======================================================================================================
Based on composite trades reported by the New York Stock Exchange.
Approximate number of holders of Church & Dwight's Common Stock as of December
31, 1997: 10,000
19
23
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in thousands, except per share data)
Year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------
Net Sales $ 574,906 $ 527,771 $ 485,759
Cost of sales 330,682 306,047 289,734
- ------------------------------------------------------------------------------------------------
Gross profit 244,224 221,724 196,025
Selling, general and administrative expenses 213,668 194,461 183,669
Restructuring charges -- -- 3,987
- ------------------------------------------------------------------------------------------------
Income from Operations 30,556 27,263 8,369
Equity in earnings of affiliates 6,057 5,140 7,389
Investment earnings 1,666 1,544 1,249
Gain on disposal of product lines -- -- 339
Other income(expense) 1,320 (424) 201
Interest expense (912) (352) (1,255)
- ------------------------------------------------------------------------------------------------
Income before taxes 38,687 33,171 16,292
Income taxes 14,181 11,943 6,140
================================================================================================
Net Income $ 24,506 $ 21,228 $ 10,152
================================================================================================
Weighted average shares outstanding (in thousands) - Basic 19,461 19,534 19,567
Weighted average shares outstanding (in thousands) - Diluted 19,971 19,697 19,728
================================================================================================
Net Income Per Share - Basic $ 1.26 $ 1.09 $ .52
Net Income Per Share - Diluted $ 1.23 $ 1.08 $ .51
================================================================================================
See Notes to Consolidated Financial Statements.
20
24
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
December 31, 1997 1996
================================================================================
Assets
================================================================================
Current Assets
Cash and cash equivalents $ 14,949 $ 22,902
Short-term investments 3,993 5,011
Accounts receivable, less allowances of $1,532 and $1,478 49,566 41,837
Inventories 61,275 48,887
Current portion of note receivable 4,131 --
Deferred income taxes 9,802 11,962
Prepaid expenses 5,727 4,920
- --------------------------------------------------------------------------------
Total Current Assets 149,443 135,519
- --------------------------------------------------------------------------------
Property, Plant and Equipment (Net) 142,343 138,371
Note Receivable from Joint Venture 6,869 11,000
Equity Investment in Affiliates 26,871 16,211
Long-term Supply Contract 2,775 3,314
Intangibles and Other Assets 22,713 3,556
- --------------------------------------------------------------------------------
Total Assets $ 351,014 $ 307,971
================================================================================
Liabilities and Stockholders' Equity
================================================================================
Current Liabilities
Short-term borrowings $ 32,000 $ --
Accounts payable and accrued expenses 92,090 93,375
Current portion of long-term debt 685 --
Income taxes payable 1,456 5,379
- --------------------------------------------------------------------------------
Total Current Liabilities 126,231 98,754
- --------------------------------------------------------------------------------
Long-term Debt 6,815 7,500
Deferred Income Taxes 20,578 20,005
Deferred Liabilities 3,786 2,392
Nonpension Postretirement and Postemployment Benefits 14,263 14,008
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 34,097 33,364
Retained earnings 197,622 182,069
Cumulative translation adjustments (591) (194)
- --------------------------------------------------------------------------------
254,458 238,569
Common stock in treasury, at cost:
3,893,155 shares in 1997 and
3,878,435 shares in 1996 (74,568) (72,708)
Due from officers (549) (549)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 179,341 165,312
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 351,014 $ 307,971
================================================================================
See Notes to Consolidated Financial Statements.
21
25
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(Dollars in thousands)
Year ended December 31, 1997 1996 1995
====================================================================================
Cash Flow From Operating Activities
====================================================================================
Net Income $ 24,506 $ 21,228 $ 10,152
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 14,158 13,624 13,138
Loss on asset disposals -- 255 492
Equity in earnings of affiliates (6,057) (5,140) (7,389)
Deferred income taxes 2,733 (272) (198)
Other 155 245 380
Change in assets and liabilities:
Decrease (increase) in short-term investments 1,018 16 (2,051)
(Increase) decrease in accounts receivable (7,875) 2,793 (1)
(Increase) decrease in inventories (7,108) (7,437) 13,772
(Increase) decrease in prepaid expenses (819) 397 (37)
(Decrease) increase in accounts payable (1,118) 6,412 13,808
(Decrease) increase in income taxes payable (3,683) 485 3,613
Increase in other liabilities 1,650 1,076 1,286
- ------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 17,560 33,682 46,965
Cash Flow From Investing Activities
====================================================================================
Additions to property, plant and equipment (9,918) (7,114) (19,702)
Distributions from affiliates 5,818 5,437 9,999
Investment in affiliate (10,421) (5,250) --
Purchase of new product lines (30,973) -- --
Purchase of other assets (727) -- --
Purchase of license agreement (1,000) -- --
Purchase of officer loans -- -- (2,744)
Repayment of officer loans -- 411 137
Proceeds from asset disposals -- 62 389
- ------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (47,221) (6,454) (11,921)
Cash Flow From Financing Activities
====================================================================================
Proceeds (repayments) from short-term borrowing 32,000 (5,000) (20,000)
Proceeds from stock options exercised 1,705 887 1,398
Purchase of treasury stock (3,044) (2,971) (1,131)
Payment of cash dividends (8,953) (8,597) (8,615)
- ------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 21,708 (15,681) (28,348)
Net Change in Cash and Cash Equivalents (7,953) 11,547 6,696
Cash and Cash Equivalents at Beginning of Year 22,902 11,355 4,659
- ------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 14,949 $ 22,902 $ 11,355
- ------------------------------------------------------------------------------------
Cash paid during the year for:
Interest (net of amounts capitalized) $ 698 $ 362 $ 1,266
Income taxes 15,159 12,233 2,465
====================================================================================
Supplemental disclosure of non-cash investing and financing activities:
During 1995, the Company purchased treasury stock from senior officers and
reduced the notes receivable loan balance as consideration for the purchase in
the amount of $1,784,000.
====================================================================================
See Notes to Consolidated Financial Statements.
22
26
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(In thousands)
Years ended December 31, 1997, 1996, 1995
=================================================================================================================================
Number of Shares Amounts
------------------- ------------------------------------------------------------------------
Additional Cumulative Due
Common Treasury Common Treasury Paid-In Retained Translation From
Stock Stock Stock Stock Capital Earnings Adjustments Officers
- ---------------------------------------------------------------------------------------------------------------------------------
January 1, 1995 23,330 (3,804) $23,330 $(69,372) $32,823 $ 167,901 $(741) $ --
Net Income -- -- -- -- -- 10,152 -- --
Cash dividends -- -- -- -- -- (8,615) -- --
Stock option plan
transactions including
related income tax benefit -- 110 -- 1,284 238 -- -- --
Purchase of treasury stock -- (111) -- (2,413) -- -- -- --
Translation adjustments -- -- -- -- -- -- 55 --
Due from officers -- -- -- -- -- -- -- (960)
=================================================================================================================================
December 31, 1995 23,330 (3,805) 23,330 (70,501) 33,061 169,438 (686) (960)
Net Income -- -- -- -- -- 21,228 -- --
Cash dividends -- -- -- -- -- (8,597) -- --
Stock option plan
transactions including
related income tax benefit -- 59 -- 683 229 -- -- --
Purchase of treasury stock -- (139) -- (2,971) -- -- -- --
Other stock issuances -- 7 -- 81 74 -- -- --
Translation adjustments -- -- -- -- -- -- 492 --
Officers repayment -- -- -- -- -- -- -- 411
=================================================================================================================================
December 31, 1996 23,330 (3,878) 23,330 (72,708) 33,364 182,069 (194) (549)
Net Income -- -- -- -- -- 24,506 -- --
Cash dividends -- -- -- -- -- (8,953) -- --
Stock option plan
transactions including
related income tax benefit -- 101 -- 1,184 733 -- -- --
Purchase of treasury stock -- (116) -- (3,044) -- -- -- --
Translation adjustments -- -- -- -- -- -- (397) --
=================================================================================================================================
December 31, 1997 23,330 (3,893) $23,330 $(74,568) $34,097 $ 197,622 $(591) $(549)
=================================================================================================================================
See Notes to Consolidated Financial Statements.
23
27
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. It sells its products, primarily under the ARM &
HAMMER trademark, to consumers through supermarkets, drug stores and mass
merchandisers; and to industrial customers and distributors. In 1997, consumer
products represented 80% and specialty products 20% of the Company's sales. The
Company does approximately 96% of its business in the U.S. and Canada.
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 and its 40 percent interest in a
Brazilian bicarbonate/carbonate-related chemical company have been accounted for
under the equity method of accounting. All material intercompany transactions
and profits have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
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 Contract
Long-term supply contract represents advance payments under a multi-year
contract with a supplier of finished goods inventory. Such advance payments are
applied over the life of the contract.
Goodwill
Goodwill recorded prior to November 1, 1970, is not being amortized, as
management of the Company believes there has been no diminution in carrying
value. Goodwill recorded in 1997 as part of the Brillo and related brand
acquisition from The Dial Corporation and the investment in a Brazilian
bicarbonate/carbonate-related chemical company is being amortized over 20-30
years using the straight line method.
Selected Operating Expenses
Research & development costs in the amount of $15,841,000 in 1997, $17,823,000
in 1996, and $18,544,000 in 1995, were charged to operations as incurred.
Marketing costs in the amounts of $142,100,000 in 1997, $130,600,000 in 1996 and
$119,200,000 in 1995 were charged to operations as incurred.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share" which is
effective for periods after December 15, 1997. The Company's interim and prior
years results have been restated. Under SFAS 128, the Company has presented two
earnings per share amounts.
24
28
Basic EPS is calculated based on income available to common shareholders and the
weighted-average number of shares outstanding during the reported period.
Diluted EPS includes additional dilution from potential common stock issuable
pursuant to the exercise of stock options outstanding. Antidilutive stock
options, in the amounts of 242,900 for 1997, 1,107,850 for 1996 and 767,200 for
1995, have been excluded.
Income Taxes
The Company recognizes deferred income taxes under the liability method;
accordingly, 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.
New Accounting Pronouncement
During June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information". This Statement requires the disclosure of
financial and descriptive information about reportable operating segments.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly in
deciding how to allocate resources and in assessing performance. The Company's
disclosures will be affected by this Statement. The Company has not yet
completed its evaluation of the appropriate segments to disclose. This Statement
is effective for the Company's 1998 year-end financial statements.
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, 1997 and 1996. 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) 1997 1996
=================================================================================================
Carrying Fair Carrying Fair
Amount Value Amount Value
=================================================================================================
Financial Assets:
Cash and cash equivalents $ 14,949 $ 14,949 $ 22,902 $ 22,902
Short-term investments 3,993 3,993 5,011 5,011
Note receivable from joint venture 11,000 11,000 11,000 10,900
Due from officers 549 549 549 549
Financial Liabilities:
Short-term borrowings 32,000 32,000 -- --
Current portion of long-term debt 685 685 -- --
Long-term debt 6,815 6,815 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 Consolidated Balance
Sheets:
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. At
December 31, 1997 and 1996, both the cost and market value of the investments
approximated each other.
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. Fair value is determined based on discounting
cash flows using rates available on notes with similar terms.
25
29
Due from Officers
The amount of notes receivable equals fair value because of its short maturity.
Short-term Borrowings
The amounts of unsecured lines of credit equal fair value because of short
maturities and variable interest rates.
Long-term Debt and Current Portion of Long-term Debt
The Company estimates that based upon the Company's financial position and the
Bond's variable interest rate, the carrying value of its long-term debt
approximates fair value.
Foreign Exchange Risk Management
The Company enters into forward exchange contracts to hedge anticipated but not
yet committed sales denominated in the Japanese yen, English pound and Canadian
dollar. The terms of these contracts are for periods of under 12 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 amounts outstanding at December 31, 1997 and 1996 of
"sell" contracts, translated into U.S. dollars using the rates current at the
reporting date, were $2,419,000 and $5,294,000, respectively. The Company's
accounting policy is to value these contracts at market value. At December 31,
1997, the Company had an immaterial unrealized gain and an immaterial unrealized
loss at December 31, 1996.
3. inventories
Inventories are summarized as follows:
================================================================================
(In thousands) 1997 1996
================================================================================
Raw materials and supplies $ 16,848 $ 13,031
Work in process -- 144
Finished goods 44,427 35,712
- --------------------------------------------------------------------------------
$ 61,275 $ 48,887
================================================================================
Inventories valued on the LIFO method totaled $53,840,000 and $40,724,000 at
December 31, 1997 and 1996, respectively, and would have been approximately
$3,075,000 and $3,814,000 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) 1997 1996
=======================================================================================================
Land $ 3,258 $ 3,195
Buildings and improvements 68,075 64,810
Machinery and equipment 165,174 155,635
Office equipment and other assets 13,355 11,835
Mineral rights 5,931 5,931
Construction in progress 3,304 1,641
- -------------------------------------------------------------------------------------------------------
259,097 243,047
Less accumulated depreciation, depletion and amortization 116,754 104,676
- -------------------------------------------------------------------------------------------------------
Net property, plant and equipment $ 142,343 $ 138,371
=======================================================================================================
Depreciation, depletion and amortization of property, plant and equipment have
been charged to operations in the amount of $13,249,000, $13,085,000 and
$12,600,000 in 1997, 1996 and 1995, respectively. Interest charges in the amount
of $109,000 and $41,000 were capitalized in connection with construction
projects in 1997 and 1996, respectively.
26
30
5. equity investments
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. Products 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) 1997 1996 1995
======================================================================================
Income Statement Data:
Net sales $ 40,870 $ 39,246 $ 50,539
Gross profit 14,050 12,963 17,297
Net income 10,702 9,372 13,870
Company's share in net income 5,351 4,686 6,935
Elimination of Company's share of
intercompany interest expense 454 454 454
- --------------------------------------------------------------------------------------
Equity in joint venture income $ 5,805 $ 5,140 $ 7,389
======================================================================================
(In thousands) 1997 1996
======================================================================================
Balance Sheet Data:
Current assets $ 10,563 $ 8,783
Noncurrent assets 36,057 37,630
Current liabilities 3,224 2,990
Current portion of notes payable 4,131 --
Notes payable-Church & Dwight Co., Inc. 6,869 11,000
Partnership capital 32,396 32,423
======================================================================================
In 1997, the Company acquired a 40 percent interest in a Brazilian
bicarbonate/carbonate-related chemical company. The investment, costing
approximately $10,400,000, was financed internally and includes goodwill of
$4,500,000. The agreement includes an option for the Company to increase its
interest to 75 percent by March 31, 1999.
6. acquisition
During the third quarter of 1997, the Company acquired a group of five household
cleaning brands from The Dial Corporation. The cost of the acquisition was
approximately $31,000,000 and the brands purchased were BRILLO(R) Soap Pads and
related products, PARSONS(R) and BO-PEEP(R) Ammonia, CAMEO(R) Metal Polish, RAIN
DROPS(R) Water Softener and SNO BOL(R) Cleaners. The acquisition was financed
through short-term borrowings. Goodwill in the amount of $17,800,000 was
recorded as part of the acquisition.
During the first quarter of 1998 the company agreed to purchase from The Dial
Corporation Toss `N Soft(R) Dryer Sheets for approximately $5,300,000.
7. accounts payable and accrued expenses
Accounts payable and accrued expenses consist of the following:
===============================================================================
(In thousands) 1997 1996
===============================================================================
Trade accounts payable $ 31,700 $ 28,867
Accrued marketing and promotion costs 45,097 47,739
Accrued wages and related costs 6,580 7,279
Accrued pension and profit-sharing 4,534 4,466
Other accrued current liabilities 4,179 5,024
- -------------------------------------------------------------------------------
$ 92,090 $ 93,375
===============================================================================
27
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8. short-term borrowings and long-term debt
The Company has available unsecured lines of credit with major U.S. banks in the
amount of $75 million of which $32 million was outstanding as of December 31,
1997. The weighted average interest rate on borrowings outstanding at December
31, 1997 was 6.1%.
Long-term debt and current portion of long-term debt consists of the following:
===========================================================================================
(In thousands) 1997 1996
===========================================================================================
Industrial Revenue Refunding Bond
due in installments of $685 from 1998-2007 and $650 in 2008 $ 7,500 $ 7,500
- -------------------------------------------------------------------------------------------
$ 7,500 $ 7,500
===========================================================================================
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 1997 and 1996 was
3.5%.
9. 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) 1997 1996 1995
====================================================================================
Service cost $ 349 $ 355 $ 349
Interest cost on projected benefit obligation 891 852 825
Actual return on plan assets (2,105) (1,576) (2,216)
Net amortization and deferral 936 532 1,357
- ------------------------------------------------------------------------------------
Net periodic pension cost $ 71 $ 163 $ 315
====================================================================================
The table below reflects the funded status of the pension plans at December 31:
======================================================================================================
(In thousands) 1997 1996
======================================================================================================
Actuarial present value of accumulated benefit obligation:
Vested benefits $(10,617) $ (9,790)
Nonvested benefits (516) (448)
- ------------------------------------------------------------------------------------------------------
$(11,133) $(10,238)
- ------------------------------------------------------------------------------------------------------
Actuarial present value of projected benefit obligation
for service rendered to date (13,301) (12,255)
Plan assets at fair value 14,347 12,956
- ------------------------------------------------------------------------------------------------------
Projected benefit obligation less than plan assets 1,046 701
Unrecognized net (gain) from past experience different
from that assumed and effects of changes in assumptions (1,558) (1,148)
Prior service cost not yet recognized in net periodic pension cost 213 234
Unrecognized net obligation at January 1, 1986 being recognized over 15 years 8 5
Loss due to currency fluctuations 38 26
- ------------------------------------------------------------------------------------------------------
Accrued pension cost $ (253) $ (182)
======================================================================================================
The assumptions used in determining the present value
of the projected benefit obligation were as follows: 1997 1996
================================================================================
Weighted average discount rate 7.25% 7.5%
Future compensation growth rate 5.0% 5.0%
Expected long-term rate of return on plan assets 9.25% 9.25%
================================================================================
28
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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 $4,100,000, $3,700,000 and $3,400,000 in 1997,
1996 and 1995, respectively.
The Company also has an employee savings plan. The Company matches 50% of each
employee's contribution up to a maximum of 6% of the employee's earnings. The
Company's matching contributions to the savings plan were $963,000, $940,000 and
$1,001,000 in 1997, 1996 and 1995, respectively.
10. nonpension postretirement benefits
The Company maintains unfunded plans which provide medical benefits for eligible
domestic retirees and their dependents. The Company accounts for these benefits
in accordance with 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.
The following table provides information on the status of the plan at
December 31:
================================================================================
(In thousands) 1997 1996
================================================================================
Accumulated postretirement benefit obligation:
Retirees $ (3,265) $ (2,836)
Fully eligible active participants (1,285) (1,445)
Other active participants (3,321) (2,826)
- --------------------------------------------------------------------------------
(7,871) (7,107)
Unrecognized net gain (4,269) (5,010)
Unrecognized prior service (1,265) (1,014)
- --------------------------------------------------------------------------------
Accrued postretirement benefit obligation $(13,405) $(13,131)
================================================================================
Net postretirement benefit cost consisted of the following components:
==============================================================================================
(In thousands) 1997 1996 1995
==============================================================================================
Service cost - benefits earned during the year $ 371 $ 350 $ 553
Interest cost on accumulated postretirement benefit obligation 530 482 686
Net amortization and deferral (397) (389) (176)
- ----------------------------------------------------------------------------------------------
Net postretirement benefit cost $ 504 $ 443 $ 1,063
==============================================================================================
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 7% in 1998, and ranging to 5.4% for
years 1999 and beyond. The effect of a 1% increase in the assumed cost trend
rate would increase the accumulated postretirement benefit obligation by
approximately $477,000 and increase the net periodic postretirement benefit cost
for 1997 by $80,000. The assumed discount rate used in determining the
accumulated postretirement benefit obligation was 7.25% in 1997 and 7.50% in
1996. During 1996, the Company changed the eligibility requirements of the plan
and established a maximum annual benefit based on years of service for those
over 65 years of age.
29
33
11. income taxes
The components of income before taxes are as follows:
================================================================================
(In thousands) 1997 1996 1995
================================================================================
Domestic $36,099 $30,353 $ 16,295
Foreign 2,588 2,818 (3)
- --------------------------------------------------------------------------------
Total $38,687 $33,171 $ 16,292
================================================================================
The following table summarizes the provision for U.S. federal, state and foreign
income taxes:
================================================================================
(In thousands) 1997 1996 1995
================================================================================
Current:
U.S. federal $ 9,180 $ 9,383 $ 4,831
State 1,794 1,971 1,148
Foreign 474 861 359
- --------------------------------------------------------------------------------
$ 11,448 $ 12,215 $ 6,338
================================================================================
Deferred:
U.S. federal $ 2,243 $ (240) $ (136)
State 439 (30) (92)
Foreign 51 (2) 30
- --------------------------------------------------------------------------------
$ 2,733 $ (272) $ (198)
- --------------------------------------------------------------------------------
Total provision $ 14,181 $ 11,943 $ 6,140
================================================================================
Deferred tax liabilities/(assets) consist of the following at December 31:
================================================================================
(In thousands) 1997 1996
================================================================================
Current deferred tax assets:
Marketing expenses, principally coupons $ (6,953) $ (8,951)
Reserves and other liabilities (1,464) (1,635)
Uniform capitalization of expenses 175 151
Accounts receivable (1,272) (1,049)
Other (288) (478)
- --------------------------------------------------------------------------------
Total current deferred tax assets (9,802) (11,962)
- --------------------------------------------------------------------------------
Noncurrent deferred tax liabilities/(assets):
Nonpension postretirement and postemployment benefits (5,645) (5,550)
Capitalization of items expensed (1,977) (1,856)
Loss carryforward -- (440)
Valuation allowance -- 440
Depreciation and amortization 27,354 26,224
Investment in purchased tax credits 449 842
Provision on foreign subsidiaries' unremitted earnings 397 345
- --------------------------------------------------------------------------------
Net noncurrent deferred tax liabilities 20,578 20,005
- --------------------------------------------------------------------------------
Net deferred tax liability $ 10,776 $ 8,043
================================================================================
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) 1997 1996 1995
==================================================================================================
Statutory rate 35% 35% 35%
Tax which would result from use of the federal statutory rate $ 13,540 $ 11,610 $ 5,702
- --------------------------------------------------------------------------------------------------
Depletion (473) (481) (403)
Research & development credit (200) -- (450)
State and local income tax, net of federal effect 1,451 662 686
Varying tax rates of foreign affiliates 151 (34) 19
Non-recognition of foreign affiliate loss 193 133 387
Recognition of foreign affiliate loss carryforward (416) (253) --
Other (65) 306 199
- --------------------------------------------------------------------------------------------------
641 333 438
- --------------------------------------------------------------------------------------------------
Recorded tax expense $ 14,181 $ 11,943 $ 6,140
- --------------------------------------------------------------------------------------------------
Effective tax rate 36.7% 36.0% 37.7%
==================================================================================================
30
34
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. A grand total of 5,750,000 shares of the Company's common
stock are authorized for issuance for the exercise of stock options.
Stock option transactions for the three years Number of Weighted Avg.
ended December 31, 1997 were as follows: Shares Exercise Price
================================================================================
Outstanding at January 1, 1995 1,937,348 $20.89
Grants 103,700 17.69
Exercised 110,016 12.64
Cancelled 335,000 22.53
- --------------------------------------------------------------------------------
Outstanding at December 31, 1995 1,596,032 20.90
Grants 846,150 21.15
Exercised 58,500 15.29
Cancelled 99,000 22.73
- --------------------------------------------------------------------------------
Outstanding at December 31, 1996 2,284,682 21.06
Grants 57,773 25.15
Exercised 101,400 16.80
Cancelled 49,600 20.78
- --------------------------------------------------------------------------------
Outstanding at December 31, 1997 2,191,455 21.37
At December 31, 1997, 1996 and 1995, 1,240,532 shares, 711,532 shares and
658,232 shares were exercisable.
The table below summarizes information relating to options outstanding and
exercisable at December 31, 1997.
Options Outstanding Options Exercisable
- -------------------------------------------------------------------- --------------------------------
Weighted Weighted
Average Weighted Avg. Average
Exercise Options Exercise Remaining Options Exercise
Prices Outstanding Price Contractual Life Exercisable Price
- -------------------------------------------------------------------- --------------------------------
$13.00 - $15.00 120,300 $13.25 1.0 years 120,300 $13.25
$15.01 - $20.00 544,432 17.48 5.9 484,432 17.34
$20.01 - $25.00 1,248,823 21.89 7.8 378,700 23.39
$25.01 - $30.00 142,100 28.31 3.6 121,300 28.37
$30.01 - $32.25 135,800 32.11 5.3 135,800 32.11
The fair value of options granted in 1997, 1996 and 1995 is $372,000, $4,706,000
and $526,000, respectively and the weighted average fair value per share of
options granted in 1997, 1996 and 1995 is $6.44, $5.56 and $5.07, respectively.
The fair value of options granted in 1997, 1996 and 1995 is estimated on the
date the options are granted based on the Black Scholes option-pricing model
with the following weighted-average assumptions:
1997 1996 1995
---- ---- ----
Risk-free interest rate 6.5% 6.3% 6.6%
Expected life 4.5 years 6.0 years 5.0 years
Expected volatility 23.1% 22.7% 27.0%
Dividend yield 1.7% 2.1% 2.0%
31
35
The Company accounts for costs of stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," rather than the fair value based method in Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." No compensation cost has been recognized for the Company's stock
option plans. Had compensation cost been determined based on the fair values of
the stock options at the date of grant in accordance with SFAS 123, the Company
would have recognized additional compensation expense, net of taxes, of
$1,113,000, $488,000 and $56,000 for 1997, 1996 and 1995, respectively. The
Company's pro forma net income and pro forma net income per share for 1997, 1996
and 1995 would have been as follows:
(in thousands, except for per share data) 1997 1996 1995
================================================================================
Net Income:
================================================================================
As reported $ 24,506 $ 21,228 $ 10,152
Pro forma 23,393 20,740 10,096
Net Income per Share: basic
================================================================================
As reported $ 1.26 $ 1.09 $ .52
Pro forma 1.20 1.06 .52
Net Income per Share: diluted
================================================================================
As reported $ 1.23 $ 1.08 $ .51
Pro forma 1.17 1.05 .51
Since compensation expense associated with option grants is recognized over the
vesting period, the initial impact of applying SFAS No. 123 on pro forma
disclosure is not representative of the potential impact on pro forma net income
for future years, when the effect of the recognition of a portion of
compensation expense from multiple awards would be reflected.
13. restructuring charge
In 1995, the Company recorded a pre-tax restructuring charge of approximately
$4,000,000 in connection with cost reduction programs and the write-off of
assets related to the planned expansion of the Princeton, NJ, headquarters
facility.
14. due from officers
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 price was $22.63 and $32.25 per share, respectively, and in each case
represented the market price on the date of the sale. These transactions,
amounting to $3,520,000, were financed through loans to the individuals by
financial institutions, and had been guaranteed by the Company. During 1995, the
Company paid the financial institutions and lent the outstanding balance of
$2,744,000 directly to the officers. Subsequent to this transaction, the Board
of Directors and Management approved a repurchase plan whereby 60,000 shares
were purchased from the officers at fair market value on October 2, 1995. The
proceeds, along with a forgiveness of loans by the Company, in an amount equal
to the excess of the original cost over the fair value reduced the outstanding
notes receivable balance to $960,000 at December 31, 1995. The Company further
agreed to indemnify each participant on an after-tax basis for the income tax
impact of the loan forgiveness. A pre-tax charge of $662,000 was included in the
Company's 1995 Statement of Income which represented the difference between the
officers' cost and the market value of the stock, and the income tax
indemnification at the date of the repurchase plan. As part of the repurchase,
the officers were to pay off their remaining debt to the Company. The $411,000
loans had interest imputed at a rate of 6% and were paid in full in early 1996.
The terms of the remaining note for $549,000 include a balloon payment due in
four years with interest imputed at 6%. For those officers who borrowed funds to
pay off the loans, the Company guaranteed the loans, but the Company would no
longer be responsible for paying the interest costs. Furthermore, as part of
this transaction, the officers agreed to the cancellation of their Employment
Severance Agreements with the Company.
32
36
15. 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 of 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, 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.
16. commitments and contingencies
a. Rent expense amounted to $3,870,000 in 1997, $3,956,000 in 1996 and
$4,107,000 in 1995. The Company is obligated for minimum annual rentals under
non-cancelable long-term operating leases as follows:
(In thousands)
================================================================================
1998 $ 3,097
1999 2,481
2000 2,161
2001 1,942
2002 1,263
- --------------------------------------------------------------------------------
Total future minimum lease commitments $10,944
================================================================================
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.
c. The Company, in the ordinary course of its business, is the subject of, or a
party to, various pending or threatened legal actions. The Company believes that
any ultimate liability arising from these actions will not have a material
adverse effect on its consolidated financial statements.
33
37
17. unaudited quarterly financial information
(In thousands, except for per share data)
=========================================================================================
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
=========================================================================================
1997
Net sales $ 129,621 $141,850 $146,328 $157,107 $574,906
Gross profit 54,860 60,781 63,167 65,416 244,224
Income from operations 6,180 8,550 9,303 6,523 30,556
Equity in earnings of affiliates 1,416 1,594 1,242 1,805 6,057
Net income 5,227 7,280 6,427 5,572 24,506
Net income per share - basic $ .27 $ .37 $ .33 $ .29 $ 1.26
Net income per share - diluted $ .26 $ .37 $ .32 $ .28 $ 1.23
- -----------------------------------------------------------------------------------------
1996
Net sales $ 121,548 $134,627 $137,090 $134,506 $527,771
Gross profit 51,762 57,731 58,886 53,345 221,724
Income from operations 4,730 8,484 7,030 7,019 27,263
Equity in earnings of affiliates 1,272 1,310 1,061 1,497 5,140
Net income 3,848 6,131 5,198 6,051 21,228
Net income per share - basic $ .20 $ .31 $ .27 $ .31 $ 1.09
Net income per share - diluted $ .20 $ .31 $ .26 $ .31 $ 1.08
- -----------------------------------------------------------------------------------------
1995
Net sales $ 117,963 $128,980 $120,509 $118,307 $485,759
Gross profit 49,270 53,727 49,235 43,793 196,025
Income/(loss) from operations (250) 6,725 1,418 476 8,369
Equity in earnings of affiliates 2,429 2,253 1,116 1,591 7,389
Net income 1,143 5,642 1,566 1,801 10,152
Net income per share - basic $ .06 $ .29 $ .08 $ .09 $ .52
Net income per share - diluted $ .06 $ .29 $ .08 $ .08 $ .51
=========================================================================================
independent auditors' report
- --------------------------------------------------------------------------------
To the Stockholders and Board of Directors of
Church & Dwight Co., Inc.
Princeton, New Jersey
We have audited the accompanying consolidated balance sheets of Church & Dwight
Co., Inc., and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Parsippany, New Jersey
January 21, 1998
34
38
DIRECTORS
Cyril C. Baldwin, Jr.
Chairman of the Board
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
Robert A. Davies, III
President and
Chief Executive Officer
Church & Dwight Co., Inc.
Director since 1995
Rosina B. Dixon, M.D.
Physician and Consultant
Director since 1979
J. Richard Leaman, Jr.
Retired 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 of the Board
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
Robert A. Davies, III
President and
Chief Executive Officer
Raymond L. Bendure, Ph.D.
Vice President
Research & Development
Mark A. Bilawsky
Vice President,
General Counsel and Secretary
Mark G. Conish
Vice President
Manufacturing and Distribution
James P. Crilly
Senior Vice President
Arm & Hammer Division
Zvi Eiref
Vice President Finance and
Chief Financial Officer
Dennis M. Moore
Vice President
Corporate Business Development /
Arm & Hammer International
Eugene F. Wilcauskas
President and
Chief Operating Officer
Specialty Products Division
Leo T. Belill
Vice President
Specialty Products Division
Alfred H. Falter
Vice President
Procurement
W. Patrick Fiedler
Vice President Marketing
Specialty Products Division
Gary P. Halker
Vice President, Controller and
Chief Information Officer
Jaap Ketting
Vice President - Brazil
Henry Kornhauser
Vice President Creative Services
Larry B. Koslow
Vice President Marketing
Personal Care Products
Arm & Hammer Division
Ronald D. Munson
Vice President
International Operations
Specialty Products Division
Joyce F. Srednicki
Vice President Marketing
Household Products
Arm & Hammer Division
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
ChaseMellon
Shareholder Services, LLC
85 Challenger Road
Ridgefield Park, NJ 07660
http://www.chasemellon.com
The Annual Meeting of
Stockholders will be held at:
11:00 a.m. Thursday, May 7, 1998
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, 1997, by
writing to the Vice President Finance 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 and provide your name and
address to:
Church & Dwight Co., Inc.
c/o ChaseMellon
Shareholder Services, LLC
P.O. Box 3316
South Hackensack, NJ 07606
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.
c/o ChaseMellon
Shareholder Services, LLC
P.O. Box 3315
South Hackensack, NJ 07606
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
c/o ChaseMellon
Shareholder Services, LLC
P.O. Box 3338
South Hackensack, NJ 07606
1-800-851-9677
On the Internet
Church & Dwight financial news releases are accessible at
http://www.businesswire.com
Consumer product information: http://www.armhammer.com
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.
(R) Church & Dwight Co., Inc. 1998
Cautionary Note on Forward-Looking Statements
This Annual Report includes forward-looking statements, many of which depend on
factors outside the Company's control, such as economic conditions, market
demand and industry capacity, competitive products and pricing, raw material
costs and other matters. With regard to new product introductions, there is
particular uncertainty related to trade, competitive and consumer reactions.
Future performance may be affected by changes in one or more of these factors.
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