1 of 14 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------- FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file Number 1-10585 CHURCH & DWIGHT CO., INC. (Exact name of registrant as specified in its charter) Delaware 13-4996950 (State of incorporation) (I.R.S. Employer Identification No.) 469 North Harrison Street, Princeton, N.J. 08543-5297 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (609) 683-5900 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ---------- As of May 1, 2001, there were 38,813,586 shares of Common Stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS <TABLE> <CAPTION> Three Months Ended - ------------------------------------------------------------------------------------------------------------------------------------ March 30, Mar 31, (In thousands, except per share data) 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> Net Sales $256,527 $193,939 Cost of sales 162,429 109,462 - ------------------------------------------------------------------------------------------------------------------------------------ Gross Profit 94,098 84,477 Advertising, consumer and trade promotion expenses 46,133 44,464 Selling, general and administrative expenses 27,013 21,349 - ------------------------------------------------------------------------------------------------------------------------------------ Income from Operations 20,952 18,664 Investment earnings 405 319 Other income/(expense) (1,003) 250 Interest expense (670) (1,377) Equity in earnings of affiliates 1,032 854 - ------------------------------------------------------------------------------------------------------------------------------------ Income before minority interest and taxes 20,716 18,710 Minority interest 1,984 55 - ------------------------------------------------------------------------------------------------------------------------------------ Income before taxes 18,732 18,655 Income taxes 6,585 6,923 - ------------------------------------------------------------------------------------------------------------------------------------ Net Income 12,147 11,732 Retained earnings at beginning of period 276,700 253,885 - ------------------------------------------------------------------------------------------------------------------------------------ 288,847 265,617 Dividends paid 2,699 2,718 - ------------------------------------------------------------------------------------------------------------------------------------ Retained earnings at end of period $286,148 $262,899 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Weighted average shares outstanding - Basic 38,538 38,679 - ------------------------------------------------------------------------------------------------------------------------------------ Weighted average shares outstanding - Diluted 40,333 40,449 Earnings Per Share: Net income per share - Basic $.32 $.30 Net income per share - Diluted $.30 $.29 - ------------------------------------------------------------------------------------------------------------------------------------ Dividends Per Share: $.07 $.07 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> See Notes to Consolidated Financial Statements
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> (Dollars in thousands) Mar. 30, 2001 Dec. 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Assets (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> Current Assets Cash and cash equivalents $ 18,774 $ 21,573 Short-term investments 1,994 2,990 Accounts receivable, less allowances of $2,146 and $2,052 85,205 64,958 Inventories (Note 2) 58,296 55,165 Deferred income taxes 11,560 11,679 Prepaid expenses 6,938 6,162 - ------------------------------------------------------------------------------------------------------------------------------------ Total Current Assets 182,767 162,527 - ------------------------------------------------------------------------------------------------------------------------------------ Property, Plant and Equipment(Net) (Note 3) 169,399 168,570 Equity Investment in Affiliates 19,781 19,416 Long-Term Supply Contracts 8,577 8,152 Goodwill and Other Intangibles 82,635 83,974 Other Assets 22,175 12,993 - ------------------------------------------------------------------------------------------------------------------------------------ Total Assets $485,334 $455,632 - ------------------------------------------------------------------------------------------------------------------------------------ Liabilities and Stockholders' Equity - ------------------------------------------------------------------------------------------------------------------------------------ Current Liabilities Short-term borrowings $ 12,500 $ 13,178 Accounts payable and accrued expenses 136,356 129,268 Current portion of long-term debt 685 685 Income taxes payable 8,795 6,007 - ------------------------------------------------------------------------------------------------------------------------------------ Total Current Liabilities 158,336 149,138 - ------------------------------------------------------------------------------------------------------------------------------------ Long-Term Debt 19,749 20,136 Deferred Income Taxes 21,041 17,852 Deferred and Other Long-Term Liabilities 13,494 15,009 Nonpension Postretirement and Postemployment Benefits 15,622 15,392 Minority Interest 5,111 3,455 Commitments and Contingencies Stockholders' Equity Preferred Stock - $1.00 par value Authorized 2,500,000 shares, none issued - - Common Stock - $1.00 par value Authorized 100,000,000 shares, issued 46,660,988 shares 46,661 46,661 Additional paid-in capital 25,016 22,514 Retained earnings 286,148 276,700 Accumulated other comprehensive (loss) (6,355) (9,389) - ------------------------------------------------------------------------------------------------------------------------------------ 351,470 336,486 Common stock in treasury, at cost: 7,990,246 shares in 2001 and 8,283,086 shares in 2000 (99,489) (101,836) - ------------------------------------------------------------------------------------------------------------------------------------ Total Stockholders' Equity 251,981 234,650 - ------------------------------------------------------------------------------------------------------------------------------------ Total Liabilities and Stockholders' Equity $485,334 $455,632 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> See Notes to Consolidated Financial Statements
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW <TABLE> <CAPTION> Three Months Ended - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) Mar. 30, 2001 Mar. 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flow From Operating Activities - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> Net Income $12,147 $11,732 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 6,241 5,597 Equity in earnings of affiliates (1,032) (854) Deferred income taxes 601 372 Other (225) (8) Change in assets and liabilities: (Increase) in accounts receivable (20,767) (1,213) (Increase) in inventories (3,539) (5,038) (Increase) in prepaid expenses (862) (692) Increase in accounts payable 11,049 9,490 Increase in income taxes payable 4,161 4,721 Increase/(decrease) in other liabilities 733 (593) - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Provided By Operating Activities 8,507 23,514 Cash Flow From Investing Activities - ------------------------------------------------------------------------------------------------------------------------------------ Short-term investments decrease/(increase) 997 (1,000) Proceeds from sale of fixed assets 509 - Additions to property, plant and equipment (7,749) (5,358) Purchase of USAD stock (4,948) - Distributions from affiliates 667 323 Purchase of supply contract (786) (2,680) Other long-term assets (185) (1,910) - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Used In Investing Activities (11,495) (10,625) Cash Flow From Financing Activities - ------------------------------------------------------------------------------------------------------------------------------------ Long-term debt (repayment) (273) (10,282) Short-term debt (repayment)/borrowing (402) 7,587 Proceeds from stock options exercised 3,563 1,408 Purchase of treasury stock - (13,934) Payment of cash dividends (2,699) (2,718) - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Provided By (Used In) Financing Activities 189 (17,939) Net Change In Cash and Cash Equivalents (2,799) (5,050) Cash And Cash Equivalents At Beginning Of Year 21,573 19,765 - ------------------------------------------------------------------------------------------------------------------------------------ Cash And Cash Equivalents At End Of Period $ 18,774 $14,715 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> See Notes to Consolidated Financial Statements
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated balance sheet as of March 30, 2001, the consolidated statements of income and retained earnings for the three months ended March 30, 2001 and March 31, 2000 and the consolidated statements of cash flow for the three months then ended have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flow at March 30, 2001 and for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2000 annual report to shareholders. The results of operations for the period ended March 30, 2001 are not necessarily indicative of the operating results for the full year. <TABLE> <CAPTION> 2. Inventories consist of the following: Mar. 30, Dec. 31, (In thousands) 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> Raw materials and supplies $16,381 $18,696 Work in process 18 25 Finished goods 41,897 36,444 - ------------------------------------------------------------------------------------------------------------------------------------ $58,296 $55,165 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> <TABLE> <CAPTION> 3. Property, Plant and Equipment consist of the following: Mar. 30, Dec. 31, (In thousands) 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> Land $ 5,460 $ 5,546 Buildings and improvements 78,007 78,781 Machinery and equipment 212,222 214,926 Office equipment and other assets 15,480 15,664 Software 5,343 5,355 Mineral rights 275 304 Construction in progress 13,813 6,463 - ------------------------------------------------------------------------------------------------------------------------------------ 330,600 327,039 Less accumulated depreciation, depletion and amortization 161,201 158,469 - ------------------------------------------------------------------------------------------------------------------------------------ Net Property, Plant and Equipment $169,399 $168,570 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE>
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Earnings Per Share Basic EPS is calculated based on income available to common shareholders and the weighted-average number of shares outstanding during the reported period. Diluted EPS includes additional dilution from potential common stock issuable pursuant to the exercise of stock options outstanding 5. Recent Accounting Developments The EITF issued EITF 00-14, "Accounting for Certain Sales Incentives". This issue addresses the income statement classification for offers by a vendor directly to end consumers that are exercisable after a single exchange transaction in the form of coupons, rebate offers, or free products or services disbursed on the same date as the underlying exchange transaction. The issue requires the cost of these items to be accounted for as a reduction of revenues, not included as a marketing expense as the Company does today. This reclassification is approximately $20 million annually. The EITF will be effective January, 2002 and there is no net income impact. During the first quarter of 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." Under this statement, all derivatives, whether designated as hedging instruments or not, are required to be recorded on the balance sheet at fair value. Furthermore, changes in fair value of derivative instruments not designated as hedging instruments are recognized in earnings in the current period. The Company entered into interest rate swap agreements, which are considered derivatives, to reduce the impact of changes in interest rates on its floating rate short-term debt. The swap agreements are contracts to exchange floating rate for fixed interest payments periodically over the life of the agreements without the exchange of the underlying notional amounts. As of December 31, 2000 and March 30, 2001, the Company had swap agreements for a notional amount of $20 million, swapping debt with a three month libor rate for a fixed interest rate. These swaps, which expire in May, 2002 were fair valued at March 30, 2001 and January 1, 2001 and were recorded as a liability in the amount of $.6 million and $.4 million, respectively. Because the amounts involved were not material to its financial position or results of operations and cash flows, the Company did not designate its interest rate swaps as hedging instruments, accordingly, the changes in the value of these swaps of $.2 million during the quarter were recorded as part of other expense. 6. USAD Acquisition On April 2, 2001, the Company and USA Detergents, Inc. announced that they have entered into a definitive agreement under which the Company will acquire USA Detergents, its partner in the previously announced ARMUS LLC joint venture, for $7 per share in an all-cash transaction. This combination will increase the Company's laundry products sales to over $400 million a year, making it the third largest company in the $6 billion retail U.S. laundry detergents business with three leading brands: ARM & HAMMER(R) and XTRA(R) Liquid and Powder Laundry Detergents and NICE'N FLUFFY(R) Liquid Fabric Softener. The Company and USAD formed the ARMUS joint venture to combine their laundry products businesses in June 2000. Under its terms, the Company has management control of the venture and an option to buy USAD's interest in five years. The venture became operational on January 1, 2001, and the companies have already coordinated their sales and marketing, order processing and accounting, and manufacturing operations. The final phase of the venture, which is the consolidation of the warehousing and distribution operations, is in progress and scheduled for completion in the fourth quarter of 2001. As part of the ARMUS venture, the Company has already acquired 2.1 million shares or 15% of USAD's stock for $15 million or $7 a share. The acquisition agreement extends the same offer price to USAD's remaining stockholders. The Company estimates the total transaction cost, including the assumption of debt, at approximately $120 million, which brings the Company's total investment in USAD, including the initial stock purchase, to $135 million before disposal of unwanted assets. The Company intends to finance the acquisition with bank debt. The Company currently intends to divest USAD's non-laundry business, which accounted for less than 20% of USAD's sales in 2000, and other non-core assets as soon as possible after the merger. The Company's and USAD's boards of directors have unanimously approved the transaction, which is structured as a $7 per share cash tender offer for at least 51% of the outstanding USAD shares (on a fully diluted basis, not including out of the money options), followed by a merger at the same price per share. The consummation of the tender offer is subject to customary conditions, including expiration of applicable waiting periods under the antitrust/merger control laws of the United States. If the transaction is not consummated under certain circumstances, the agreement obligates USAD to pay the Company a fee of $4 million. USAD is also obligated, if the transaction is not consummated under certain circumstances, to reimburse the Company up to $2 million of expenses. The final merger would require the approval of the USAD shareholders at a special meeting called for such purpose unless the Company acquires at least 90% of the USAD shares in the tender offer, in which case the merger can be effected promptly after the consummation of the tender offer. If the Company acquires at least 90% of the USAD shares in the tender offer, at the close of the tender offer the Company would own a sufficient number of shares to approve the merger without the approval of any other USAD shareholders. The Company filed on April 12, 2001 a Tender Offer Statement with the SEC and mailed a copy to each USAD shareholder. On the same day, USAD filed a Solicitation/Recommendation Statement with the SEC that will also be mailed to its shareholders. Under the terms of the definitive agreement, the offer is to be held open for a minimum of thirty business days. The transaction is expected to close late in the second calendar quarter of 2001. 7. Restructuring, Impairment and Other Items During 2000, the Company recorded a pre-tax charge of $21.9 million relating to three major elements: a $14.3 million book write-down of the Company's Syracuse N.Y. manufacturing facility, a $2.1 million charge for potential carrying and site clearance costs, and a $5.5 million severance charge related to both the Syracuse shutdown and the sales force reorganization. The Company also incurred plant and warehouse shutdown charges of $1.8 million in 2000 and $1.4 million in the first quarter of 2001 and expects an estimated $1.6 million in integration costs over the next 9 months. These additional charges will flow through cost of sales and will bring the total one-time cost to approximately $27 million. The cash portion of this one-time cost, however, will be less that $5 million after tax. <TABLE> <CAPTION> Reserves at Payments & Reserves at (In thousands) Dec. 31, 2000 Adjustments Mar. 30, 2001 - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> Severance and other charges $5,239 $ (823) $4,416 Site clearance costs 2,129 (77) 2,052 - ------------------------------------------------------------------------------------------------------------------------------------ $7,368 $ (900) $6,468 </TABLE> 8. Segment Information Segment sales and operating profit for the first quarter of 2001 and 2000 and identifiable assets for the first quarter of 2001 and December 31, 2000 are as follows: <TABLE> <CAPTION> Unconsolidated (In thousands) Consumer Specialty Affiliates Corporate Total - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Net Sales First quarter 2001 $213,364 $49,330 $(6,167) - $256,527 First quarter 2000 155,452 44,772 (6,285) - 193,939 Operating Profit First quarter 2001 16,011 5,957 (1,016) - 20,952 First quarter 2000 12,738 6,755 (829) - 18,664 Identifiable Assets First quarter 2001 322,646 141,669 - 21,019 485,334 December 31, 2000 282,678 143,112 - 29,842 455,632 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> <TABLE> <CAPTION> Consumer assets increased as a result of the ARMUS joint venture. - ------------------------------------------------------------------------------------------------------------------------------------ Product line net sales data for the first quarter periods are as follows: Oral and Deodorizing Uncon- Personal and Specialty Animal Specialty solidated Laundry Care Cleaners Chemicals Nutrition Cleaners Affiliates Total - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> 1st Qtr 2001 $118,087 $36,779 $58,498 $29,330 $17,805 $2,195 $(6,167) $256,527 1st Qtr 2000 58,163 41,570 55,719 26,695 15,841 2,236 (6,285) 193,939 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> The Company has reclassified household cleaner sales with deodorizer sales due to the Company's internal management structure. Previously, it was combined with laundry products. Prior year sales have been restated. 9. Comprehensive Income The following table presents the Company's Comprehensive Income for the three months ending March 30, 2001 and March 31, 2000: <TABLE> <CAPTION> Three Months Ended - ------------------------------------------------------------------------------------------------------------------------------------ March 30, March 31, (In thousands) 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> Net Income $12,147 $11,732 Other Comprehensive Income, net of tax: Foreign exchange translation adjustments (1,589) 290 Available for Sale securities 4,623 - - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive Income $15,181 $12,022 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> 10. Contingencies The Company, in the ordinary course of its business, is the subject of, or a party to, various pending or threatened legal actions. The Company believes that any ultimate liability arising from these actions will not have a material adverse effect on its consolidated financial statements. 11. Subsequent Event On May 8, 2001, the Company announced that it has reached a definitive agreement to acquire the consumer products business of Carter-Wallace, Inc. in a partnership with the private equity group, Kelso & Company, for a total price of $739 million, including the assumption of certain debt. Under the terms of its agreements with Carter-Wallace and Kelso, the Company will acquire Carter-Wallace's U.S. antiperspirant and pet care businesses outright for about $128 million; and ArmKel, LLC, a 50/50 joint venture between the Company and Kelso, will acquire the rest of Carter-Wallace's domestic and international consumer products business for $611 million. The Company expects to account for its interest in ArmKel on an equity accounting basis. Carter-Wallace's consumer business is estimated to have sales of more than $500 million and EBITDA of approximately $100 million. Major brands include Arrid(R) antiperspirants, Trojan(R) condoms, Nair(R) depilatories, First Response(R) pregnancy test kits, Pearl Drops(R) toothpaste and Lambert Kay pet care products. Approximately 60% of the sales are in the U.S., and the remaining 40% abroad, including Canada and the U.K. where the Company also operates, as well as Mexico, Western Europe and Australia. Under the terms of its joint venture agreement with Kelso, the Company will have a call option to acquire Kelso's interest in ArmKel in three to five years after the closing, at fair market value subject to certain limits. If the Company does not exercise its call option, there are provisions for the sale of the assets after a certain period. The venture's Board will have equal representation from both sides, with the Company appointing the Chairman. The Company estimates its financing needs for the purchase of Carter-Wallace's antiperspirant and pet care businesses and the initial capital contribution to ArmKel at approximately $240 million. In addition, as previously announced, the Company has $150 million of financing needs related to the USA Detergents transaction and existing debt, making the total requirements approximately $400 million. The Company has obtained a commitment letter from JPMorgan for a fully underwritten $500 million senior credit facility which will be syndicated in the bank and institutional markets. The ArmKel venture itself will be financed with $229 million in equity contributions from the Company and Kelso and an additional $420 million in debt. ArmKel has obtained a commitment letter from JPMorgan and Deutsche Bank for $505 million to finance the debt portion of the joint venture balance sheet. Any debt on ArmKel's balance sheet will be without recourse to the Company. The transaction is subject to approval by the Carter-Wallace stockholders, and to regulatory approvals and other customary conditions, including the satisfaction of bank financing conditions at the closing date. In addition, simultaneous with this transaction, Carter-Wallace and its pharmaceutical business will merge into a newly formed company set up by pharmaceutical industry executives and backed by two well-known private equity firms. While the Company and ArmKel are not affiliated with the pharmaceutical venture, ArmKel has agreed to provide certain transitional services to help this venture with the start-up of its operations at Carter-Wallace's main Cranbury, New Jersey facility. The closing of the consumer products acquisition is conditioned on the closing of the pharmaceutical company merger. The Company currently expects these transactions to close late in the third quarter. 12. Reclassification Certain prior year amounts have been reclassified in order to conform with the current year presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations For the quarter ended March 30, 2001, net income was $12.1 million, equivalent to basic earnings of $.32 per share, from $11.7 million or $.30 per share, in last year's first quarter. Diluted earnings were $.30 per share compared to $.29 per share last year. This year's first quarter results included $1.4 million in previously announced plant and warehouse shutdown costs related to the start-up of the ARMUS venture, which became operational January 1, 2001. Last year's first quarter results included a deferred compensation gain of $2.1 million which the Company had previously excluded in reporting ongoing earnings. Adjusting for these unusual items, diluted earnings increased 23% to $.32 per share from $.26 per share in the same quarter last year. Sales increased 32.3% to $256.5 million from $193.9 million in the same period last year. Consumer products rose 37.3% primarily because of the addition of USAD's XTRA(R) Laundry Detergent and NICE'N FLUFFY(R) Liquid Fabric Softener brands. Deodorizers increased due to continued growth in cat litter; however, personal care sales declined. Specialty products increased 12.2% due to growth in animal nutrition and international operations. Gross margin was 36.7% in the quarter, down from 43.6% a year ago. This reflects the impact of the consolidation of the lower margin USAD brands, which accounts for the majority of the decline. In addition, the plant and warehouse shutdown costs and lower personal care sales also contributed to the decline. Advertising, consumer and trade promotion expenses increased $1.7 million versus 2000. Increases in laundry products as a result of the USAD brands were partially offset by reductions in deodorizers and cleaners. Selling, general and administrative expenses increased from $21.3 million to $27.0 million. Higher deferred compensation expenses, costs associated with the ARMUS joint venture and higher professional costs were the main drivers of the increase. Earnings from affiliates were higher as a result of an increase in ArmaKleen earnings. Interest expense decreased from last year as a result of lower debt. Other expenses increased as a result that during the first quarter of 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." Under this statement, all derivatives, whether designated as hedging instruments or not, are required to be recorded on the balance sheet at fair value. Furthermore, changes in fair value of derivative instruments not designated as hedging instruments are recognized in earnings in the current period. Because the amounts involved were not material to its financial position or results of operations and cash flows, the Company did not designate its interest rate swaps as hedging instruments and changes in the value of these swaps of $.2 million during the quarter were recorded as part of other expense. In addition, foreign exchange losses associated with the Brazilian subsidiary also contributed to the increase. The effective tax rate for the quarter was 35.2%, down from 37.1% in last year's first quarter which reflects a lower state tax rate. Liquidity and Capital Resources The Company considers cash and short-term investments as the principal measurement of its liquidity. At March 30, 2001, cash including cash equivalents and short-term investments totaled $20.8 million as compared to $24.6 million at December 31, 2000. During the first quarter of 2001, the Company generated $8.5 million of cash flow from operating activities and received $3.6 million from stock option exercises. Significant expenditures include the purchase of approximately 704,000 shares of USAD stock for $4.9 million, property plant and equipment additions of $7.7 million and the payment of cash dividends of $2.7 million. The Company estimates its financing needs for the purchase of Carter-Wallace's antiperspirant and pet care businesses and the initial capital contribution to ArmKel at approximately $240 million. In addition, as previously announced, the Company has $150 million of financing needs related to the USA Detergents transaction and existing debt, making the total requirements approximately $400 million. The Company has obtained a commitment letter from JPMorgan for a fully underwritten $500 million senior credit facility which will be syndicated in the bank and institutional markets. Cautionary Note on Forward-Looking Statements This report contains forward-looking statements relating, among others, to financial objectives, sales growth and cost reduction programs. Many of these statements depend on factors outside the Company's control, such as economic conditions, market growth and consumer demand, competitive products and pricing, raw material costs and other matters. With regard to new product introductions, there is particular uncertainty related to trade, competitive and consumer reactions. If the Company's assumptions are incorrect, or there is a significant change in some of these key factors, the Company's performance could vary materially from the forward-looking statements in this report.
PART II - Other Information Item 5. Other Information On May 8, 2001, the Company announced that it has reached a definitive agreement to acquire the consumer products business of Carter-Wallace, Inc. in a partnership with the private equity group, Kelso & Company, for a total price of $739 million, including the assumption of certain debt. Under the terms of its agreements with Carter-Wallace and Kelso, the Company will acquire Carter-Wallace's U.S. antiperspirant and pet care businesses outright for about $128 million; and ArmKel, LLC, a 50/50 joint venture between the Company and Kelso, will acquire the rest of Carter-Wallace's domestic and international consumer products business for $611 million. The Company expects to account for its interest in ArmKel on an equity accounting basis. Carter-Wallace's consumer business is estimated to have sales of more than $500 million and EBITDA of approximately $100 million. Major brands include Arrid(R) antiperspirants, Trojan(R) condoms, Nair(R) depilatories, First Response(R) pregnancy test kits, Pearl Drops(R) toothpaste and Lambert Kay pet care products. Approximately 60% of the sales are in the U.S., and the remaining 40% abroad, including Canada and the U.K. where the Company also operates, as well as Mexico, Western Europe and Australia. Under the terms of its joint venture agreement with Kelso, the Company will have a call option to acquire Kelso's interest in ArmKel in three to five years after the closing, at fair market value subject to certain limits. If the Company does not exercise its call option, there are provisions for the sale of the assets after a certain period. The venture's Board will have equal representation from both sides, with the Company appointing the Chairman. The Company estimates its financing needs for the purchase of Carter-Wallace's antiperspirant and pet care businesses and the initial capital contribution to ArmKel at approximately $240 million. In addition, as previously announced, the Company has $150 million of financing needs related to the USA Detergents transaction and existing debt, making the total requirements approximately $400 million. The Company has obtained a commitment letter from JPMorgan for a fully underwritten $500 million senior credit facility which will be syndicated in the bank and institutional markets. The ArmKel venture itself will be financed with $229 million in equity contributions from the Company and Kelso and an additional $420 million in debt. ArmKel has obtained a commitment letter from JPMorgan and Deutsche Bank for $505 million to finance the debt portion of the joint venture balance sheet. Any debt on ArmKel's balance sheet will be without recourse to the Company. The transaction is subject to approval by the Carter-Wallace stockholders, and to regulatory approvals and other customary conditions, including the satisfaction of bank financing conditions at the closing date. In addition, simultaneous with this transaction, Carter-Wallace and its pharmaceutical business will merge into a newly formed company set up by pharmaceutical industry executives and backed by two well-known private equity firms. While the Company and ArmKel are not affiliated with the pharmaceutical venture, ArmKel has agreed to provide certain transitional services to help this venture with the start-up of its operations at Carter-Wallace's main Cranbury, New Jersey facility. The closing of the consumer products acquisition is conditioned on the closing of the pharmaceutical company merger. The Company currently expects these transactions to close late in the third quarter. Item 6. Exhibits and Reports on Form 8-K a. Exhibits (11) Computation of earnings per share b. No reports on Form 8-K were filed for the three months ended March 30, 2001.
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES EXHIBIT 11 - Computation of Earnings Per Share (In thousands except per share amounts) <TABLE> <CAPTION> Three Months Ended - ------------------------------------------------------------------------------------------------------------------------------------ March 30, March 31, 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> BASIC: Net Income $12,147 $11,732 Weighted average shares outstanding 38,538 38,679 Basic earnings per share $.32 $.30 DILUTED: Net Income $12,147 $11,732 Weighted average shares outstanding 38,538 38,679 Incremental shares under stock option plans 1,795 1,770 - ------------------------------------------------------------------------------------------------------------------------------------ Adjusted weighted average shares outstanding 40,333 40,449 - ------------------------------------------------------------------------------------------------------------------------------------ Diluted earnings per share $.30 $.29 </TABLE> SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHURCH & DWIGHT CO.,INC. ------------------------------------------ (REGISTRANT) DATE: May 8, 2001 /s/Zvi Eiref ----------------------- ------------------------------------------ ZVI EIREF VICE PRESIDENT FINANCE DATE: May 8, 2001 /s/Gary P. Halker ----------------------- ------------------------------------------ GARY P. HALKER VICE PRESIDENT, CONTROLLER AND CHIEF INFORMATION OFFICER