1 of 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 June 29, 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 August 2, 2001, there were 38,981,068 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 Six Months Ended -------------------------- --------------------------- June 29, June 30, June 29, June 30, (In thousands, except per share data) 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> NET SALES $257,095 $202,415 $513,622 $396,354 Cost of sales 160,096 112,573 322,525 222,035 --------------------------- -------------------------- GROSS PROFIT 96,999 89,842 191,097 174,319 Advertising, consumer and trade promotion expenses 46,318 46,822 92,451 91,286 Selling, general and administrative expenses 28,176 23,679 55,189 45,028 --------------------------- -------------------------- INCOME FROM OPERATIONS 22,505 19,341 43,457 38,005 Investment earnings 446 866 851 1,185 Other income/(expense) (340) (137) (1,343) 113 Interest expense (1,180) (1,477) (1,850) (2,854) Equity in earnings of affiliates 1,151 324 2,183 1,178 --------------------------- -------------------------- Income before minority interest and taxes 22,582 18,917 43,298 37,627 Minority interest 1,770 107 3,754 162 --------------------------- -------------------------- Income before taxes 20,812 18,810 39,544 37,465 Income taxes 7,334 6,435 13,919 13,358 --------------------------- -------------------------- NET INCOME 13,478 12,375 25,625 24,107 Retained earnings at beginning of period 286,148 262,899 276,700 253,885 --------------------------- -------------------------- 299,626 275,274 302,325 277,992 Dividends paid 2,719 2,674 5,418 5,392 --------------------------- -------------------------- Retained earnings at end of period $296,907 $272,600 $296,907 $272,600 - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Weighted average shares outstanding - Basic 38,861 38,152 38,699 38,416 Weighted average shares outstanding - Diluted 40,850 39,650 40,596 40,052 - ----------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE: Net income per share - Basic $.35 $.32 $.66 $.63 Net income per share - Diluted $.33 $.31 $.63 $.60 - ----------------------------------------------------------------------------------------------------------------------- DIVIDENDS PER SHARE: $.07 $.07 $.14 $.14 - ----------------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements. </TABLE>
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> (Dollars in thousands) June 29, 2001 Dec. 31, 2000 - -------------------------------------------------------------------------------- ----------------- --------------- Assets - -------------------------------------------------------------------------------- ----------------- --------------- <S> <C> <C> Current Assets Cash and cash equivalents $17,255 $21,573 Short-term investments 996 2,990 Accounts receivable, less allowances of $2,176 and $2,052 88,726 64,958 Inventories (Note 2) 66,841 55,165 Deferred income taxes 11,475 11,679 Prepaid expenses 10,594 6,162 Notes Receivable 8,088 - ----------------- --------------- Total Current Assets 203,975 162,527 - -------------------------------------------------------------------------------- ----------------- --------------- Property, Plant and Equipment (Net) (Note 3) 217,146 168,570 Equity Investment in Affiliates 18,594 19,416 Long-Term Supply Contracts 8,290 8,152 Goodwill and Other Intangibles 176,467 83,974 Other Assets 11,694 12,993 - -------------------------------------------------------------------------------- ----------------- --------------- TOTAL ASSETS $636,166 $455,632 - -------------------------------------------------------------------------------- ----------------- --------------- LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- ----------------- --------------- Current Liabilities Short-term borrowings $145,025 $13,178 Accounts payable and accrued expenses 165,811 129,268 Current portion of long-term debt 685 685 Income taxes payable 4,298 6,007 ----------------- --------------- Total Current Liabilities 315,819 149,138 - -------------------------------------------------------------------------------- ----------------- --------------- Long-Term Debt 5,437 20,136 Deferred Income Taxes 14,109 17,852 Deferred and Other Long-Term Liabilities 16,128 15,009 Nonpension Postretirement and Postemployment Benefits 15,800 15,392 Minority Interest 3,116 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 27,429 22,514 Retained earnings 296,907 276,700 Accumulated other comprehensive (loss) (8,278) (9,389) ----------------- --------------- 362,719 336,486 Common stock in treasury, at cost: 7,690,720 shares in 2001 and 8,283,086 shares in 2000 (96,962) (101,836) - -------------------------------------------------------------------------------- ----------------- --------------- TOTAL STOCKHOLDERS' EQUITY 265,757 234,650 - -------------------------------------------------------------------------------- ----------------- --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $636,166 $455,632 - -------------------------------------------------------------------------------- ----------------- --------------- See Notes to Consolidated Financial Statements. </TABLE>
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW <TABLE> Six Months Ended ------------------------------------ <CAPTION> (Dollars in thousands) June 29, 2001 June 30, 2000 - ------------------------------------------------------------------------------ ------------------ ------------------ CASH FLOW FROM OPERATING ACTIVITIES - ------------------------------------------------------------------------------ ------------------ ------------------ <S> <C> <C> NET INCOME $25,625 $24,107 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 12,350 11,489 Equity in income from affiliates (2,183) (1,178) Deferred income taxes 1,961 1,373 Other (182) (154) Change in assets and liabilities: (Increase) in accounts receivable (24,728) (2,922) (Increase)/decrease in inventories (3,615) 3,492 (Increase) in prepaid expenses (1,499) (784) (Decrease)/increase in accounts payable (11,713) 14,504 Increase/(decrease) in income taxes payable 1,000 (4,915) Increase in other liabilities 1,794 142 - ------------------------------------------------------------------------------ ------------------ ------------------ NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (1,190) 45,154 CASH FLOW FROM INVESTING ACTIVITIES Decrease in short-term investments 1,994 4 Additions to property, plant and equipment (15,964) (10,506) Purchase of USA Detergent common stock (101,642) (10,080) Investment in Note Receivable (5,000) - Investment in affiliates (797) (2,860) Distributions from unconsolidated affiliates 3,005 1,953 Purchase of other assets - (1,148) Proceeds from repayment of notes receivable - 3,000 Goodwill and other intangibles adjustment - 1,507 Proceeds from sale of fixed assets 2,349 864 - ------------------------------------------------------------------------------ ------------------ ------------------ NET CASH (USED IN) INVESTING ACTIVITIES (116,055) (17,266) CASH FLOW FROM FINANCING ACTIVITIES - ------------------------------------------------------------------------------ ------------------ ------------------ Short term debt borrowing 150,000 - Long-term debt (repayments) borrowing (19,950) 6,753 Short term debts (repayments) (19,048) (7,563) Payment of cash dividends (5,418) (5,392) Proceeds from stock options exercised 7,343 2,999 Purchase of treasury stock - (15,875) - ------------------------------------------------------------------------------ ------------------ ------------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 112,927 (19,078) NET CHANGE IN CASH AND CASH EQUIVALENTS (4,318) 8,810 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 21,573 19,765 - ------------------------------------------------------------------------------ ------------------ ------------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $17,255 $28,575 - ------------------------------------------------------------------------------ ------------------ ------------------ See Notes to Consolidated Financial Statements. </TABLE>
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated balance sheet as of June 29, 2001, the consolidated statements of income and retained earnings for the three and six months ended June 29, 2001 and June 30, 2000, and the consolidated statements of cash flow for the six months ended June 29, 2001 and June 30, 2000 have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flow at June 29, 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 June 29, 2001 are not necessarily indicative of the operating results for the full year. 2. Inventories consist of the following: <TABLE> <CAPTION> June 29, Dec. 31, (in thousands) 2001 2000 - ------------------------------------------------------------------------------------- --------------- --------------- <S> <C> <C> Raw materials and supplies $25,446 $18,696 Work in process 585 25 Finished goods 40,810 36,444 --------------- --------------- $66,841 $55,165 - ------------------------------------------------------------------------------------- --------------- --------------- </TABLE> 3. Property, Plant and Equipment consist of the following: <TABLE> <CAPTION> June 29, Dec. 31, (in thousands) 2001 2000 - ------------------------------------------------------------------------------------- --------------- --------------- <S> <C> <C> Land $6,396 $ 5,546 Buildings and improvements 79,184 78,781 Machinery and equipment 235,262 214,926 Office equipment and other assets 19,751 15,664 Software 5,335 5,355 Mineral rights 257 304 Construction in progress 33,927 6,463 --------------- --------------- 380,112 327,039 Less accumulated depreciation and amortization 162,966 158,469 --------------- --------------- Net Property, Plant and Equipment $217,146 $168,570 - ------------------------------------------------------------------------------------- --------------- --------------- </TABLE> 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. The EITF also issued EITF No. 00-25, "Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer". This issue outlines required accounting treatment of certain sales incentives, including slotting or placement fees, cooperative advertising arrangements, buydowns and other allowances. The Company currently records such costs as marketing expenses. EITF 00-25 will require the Company to report the paid consideration expense as a reduction of sales, rather than marketing expense. The Company is required to implement EITF 00-25 for the quarter beginning January 1, 2002. The Company has not yet determined the effect of implementing the guidelines of EITF 00-25, but in any case, implementation will not have an effect on net income. 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 interest payments for fixed interest payments periodically over the life of the agreements without the exchange of the underlying notional amounts. As of December 31, 2000, the Company had swap agreements for a notional amount of $20 million, and as of June 29, 2001, the Company had swap agreements in the amount of $120 million, swapping debt with a three-month libor rate for a fixed interest rate. These swaps, of which $20 million expire in May 2002 and $100 million expire in December 2003, were recorded as a liability in the amount of $.6 million. 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. The changes in the value of these swaps of $.2 million during the first six months of the year were recorded as part of other expense. In July 2001, the FASB issued SFAS No. 141, "Business Combinations" which establishes new standards for accounting and reporting requirements for business combinations and will require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. The Company expects to adopt this statement for transactions that occur after June 30, 2001. Management does not believe that SFAS No. 141 will have a material impact on the Company's consolidated financial statements. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which supersedes APB Opinion No. 17, "Intangible Assets". Under its changes, SFAS No. 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment. The Company expects to adopt this statement upon its effective date. Management is currently evaluating the impact that this statement will have on the Company's financial statements. 6. USAD Acquisition and Non-Core Business Divestiture On May 25, 2001, the Company and USA Detergents, Inc. ("USAD") closed on its previously announced merger agreement under which the Company acquired USAD, its partner in the previously announced ARMUS LLC joint venture, for $7 per share in an all-cash transaction. This combination increased 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 had 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 had 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 over the next 12 months. As part of the ARMUS venture, the Company had already acquired 2.1 million shares or 15% of USAD's stock for $15 million or $7 a share. The acquisition agreement extended the same offer price to USAD's remaining stockholders. The Company estimates the total transaction cost, including the assumption of debt, and the initial stock purchase, to be approximately $135 million before disposal of unwanted assets. The Company financed the acquisition with a short term bridge loan. The Company divested USAD's non-laundry business, which accounted for less than 20% of USAD's sales in 2000, and other non-core assets to former USAD executives. A preliminary allocation of the purchase price is as follows: (in thousands) - -------------------------------------------------------------- ---------------- Consideration paid (excluding debt assumption) $112,027 Financing Costs (935) Net assets acquired as of May 25, 2001 (2,093) Deferred tax adjustment (7,325) Fixed asset adjustments (2,309) Note receivable for divestiture of unwanted assets (2,000) Other purchase accounting adjustments 751 ---------------- Preliminary excess purchase price $98,116 - ------------------------------------------------------------------------------- An appraisal of USAD is currently in process. The purchase price allocation will be modified based on its results. The preliminary excess purchase price is included in the Goodwill and Other Intangibles caption in the Consolidated Balance sheet as of June 29,2001 and is being amortized, using the straight line method over 30 years. As noted, the Company divested USAD's non-laundry business and other non-core assets to former USAD executives concurrent with the merger agreement. The Company will have a 20% ownership interest in the newly formed company and contribute $200,000. The new company, USA Metro, Inc. ("USAM"), purchased inventory and other assets for a total of $5,087,000, in the form of two notes receivable. The inventory note of $3,087,000 is secured by a lien on the inventory. The note shall be due on December 31, 2001 and shall bear interest at 8% for the first ninety days and 10% thereafter. The interest rate shall increase to 12% for any period the loan remains outstanding beyond December 31, 2001. The note for all the other assets of $2,000,000 shall have a maturity of five years and bear interest at 8% for the first two years, 9% for the third year, 10% for the fourth year and 11% for the fifth year. There shall be interest only payments for the first two years. Commencing with the start of the third year the principal and accrued interest shall be paid monthly based upon a five-year amortization. The unpaid principal and accrued interest as of the maturity date shall be payable in a lump sum at such time. In the event the unpaid principal and interest is not paid as of the maturity date, the interest rate shall increase by 300 basis points. In the case of default by USAM that is not remedied as provided in the note, the Company may convert the note to additional ownership in USAM. 7. USAD Pro forma Results The following are Pro forma Income Statements to reflect the USAD acquisition as if the merger had occurred on January 1, 2001. A comparable income statement for the year ago period is also presented. <TABLE> <CAPTION> (in thousands except for per share data) For the Six Months Ended - ------------------------------------------------------------------------------------------------------------------------ June 29, 2001 June 30, 2000 ---------------------------------------------- -------------------------------------------------- C&D USAD Adj's Total C&D USAD Adj's Total - ---------------- ---------- ---------- ---------------- ---------- -- ----------- ----------- --------------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Net Sales $513,622 $113,542 $(97,638) (1) $529,526 $396,354 $125,809 $ - $522,163 (39) (6) (47) (2) (818) (7) (986) (3) Net Income 25,625 (6,384) (1,519) (8) 16,784 $24,107 867 (1,830) (4) 22,014 (81) (9) (97) (5) Diluted E.P.S. $ .63 $ .42 $ .60 $ .55 - ------------------------------------------------------------------------------------------------------------------------ (1) To eliminate inter-company sales (2) To record six months of additional depreciation due to fair value adjustment - net of tax (3) To record six months of excess purchase price amortization - net of tax (4) To record six months of interest expense - net of tax (5) To record six months of deferred financing cost amortization - net of tax (6) To record five months of additional depreciation due to fair value adjustment - net of tax (7) To record five months of excess purchase price amortization - net of tax (8) To record five months of interest expense - net of tax (9) To record five months of deferred financing cost amortization - net of tax </TABLE> 8. Other Item - Concentration of Risk The Company has a concentration of risk with USA Metro, Inc. (USAM) at June 29, 2001 in the form of the following: <TABLE> <CAPTION> (in thousands) - ----------------------------------------------------------------------------------------------------------------------------- <S> <C> A 20% equity interest in USAM $ 200 Note receivable for inventory - due December 31, 2001 3,087 Note receivable for other assets - payments start with the beginning of the third year 2,000 Trade accounts receivable 2,362 - ----------------------------------------------------------------------------------------------------------------------------- $ 7,649 </TABLE> Should USAM be unable to meet these obligations, the impact would have a material adverse effect to the Company's Consolidated Statement of Income. 9. Carter-Wallace Acquisition On May 8, 2001, the Company announced that it 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 plus transaction costs. 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 the equity method. Carter-Wallace's consumer business is estimated to have sales of more than $500 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 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 commitment letters from various banks, led by JPMorgan for a $510 million senior credit facility. 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. 10. 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 half of 2001 and expects an estimated $1.6 million in integration costs over the next 12 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 June 29, 2001 - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Severance and other charges $ 5,239 $ (1,218) $ 4,021 Site clearance costs 2,129 (404) 1,725 - ----------------------------------------------------------------------------------------------------------------------------------- $ 7,368 $ (1,622) $ 5,746 </TABLE> 11. Segment Information Segment sales and operating profit for the second quarter of 2001 and 2000 and identifiable assets for the second 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 Second quarter 2001 $213,067 $50,419 $(6,391) - $257,095 Second quarter 2000 161,290 47,683 (6,558) - 202,415 Year to date 2001 426,431 99,749 (12,558) - 513,622 Year to date 2000 316,742 92,455 (12,843) - 396,354 OPERATING PROFIT Second quarter 2001 15,302 8,346 (1,143) 22,505 Second quarter 2000 13,393 6,248 (300) - 19,341 Year to date 2001 31,313 14,303 (2,159) 43,457 Year to date 2000 26,131 13,003 (1,129) - 38,005 IDENTIFIABLE ASSETS June 29,2001 466,702 140,656 - 28,808 636,166 December 31, 2000 282,678 143,112 - 29,842 455,632 - ----------------------------------------------------------------------------------------------------------------------------- </TABLE> Consumer assets increased as a result of the USAD acquisition. Product line net sales data for the second quarter and year to date periods are as follows: <TABLE> - ----------------------------------------------------------------------------------------------------------------------------- <CAPTION> Oral and Deodor- Uncon- Laundry Personal izing and Specialty Animal Specialty solidated Products Care leaners Chemicals Nutrition Cleaners Affiliates Total - ----------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 2nd Qtr 2001 $109,205 $38,301 $65,561 $28,892 $19,288 $2,239 $(6,391) $257,095 2nd Qtr 2000 58,337 39,535 63,418 28,481 17,125 2,077 (6,558) 202,415 YTD 2001 227,292 75,080 124,059 58,222 37,093 4,434 (12,558) 513,622 YTD 2000 116,500 81,105 119,137 55,176 32,966 4,313 (12,843) 396,354 - ----------------------------------------------------------------------------------------------------------------------------- </TABLE> 12. Comprehensive Income The following table presents the Company's Comprehensive Income for the three and six months ending June 29, 2001 and June 30, 2000. <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------------------ ------------------------------ June 29, June 30, June 29, June 30, (in thousands) 2001 2000 2001 2000 ----------------------------------------------------- -------------- ------------ ------------- ------------- <S> <C> <C> <C> <C> Net Income $13,478 $12,375 $25,625 $24,107 Other Comprehensive Income, net of tax: Foreign exchange translation adjustments (503) (901) (2,092) (611) Available for Sale securities (1,421) (2,351) 3,202 (2,351) -------------- ------------ ------------- ------------- Comprehensive Income $11,554 $9,123 $26,735 $21,145 ----------------------------------------------------- -------------- ------------ ------------- ------------- </TABLE> 13. 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. 14. 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 June 29, 2001, net income was $13.5 million, equivalent to basic earnings of $.35 per share, from $12.4 million or $.32 per share, in last year's second quarter. Diluted earnings were $.33 per share compared to $.31 per share last year. For the first six months of 2001, net income was $25.6 million or basic earnings of $.66 per share compared to $24.1 million or $.63 per share last year. Diluted earnings were $.63 per share compared to $.60 per share last year. This years results included $1.4 million in previously announced plant and warehouse shutdown costs related to the start-up of the Armus joint venture. Last years results included a deferred compensation gain of $1.2 million. Adjusting for these unusual items, diluted earnings for the current quarter were $.33 per share compared to $.32 per share last year and $.65 per share and $.58 per share for the six month period. Net sales for the quarter increased by 27% to $257.1 million from $202.4 million in the same period last year. Consumer product sales increased 32.1%, primarily because of the addition of the USAD acquired brands. Higher sales of Deodorizer and cleaner brands were offset by lower personal care brand sales. Specialty products sales increased 7.1% led by growth in animal nutrition and international operations. Net sales for the first six months of 2001 increased 29.6% to $513.6 million, with consumer products up 34.6% and specialty products up 9.5%. The reasons for the increase are consistent with the second quarter. The Company's gross margin of 37.7% and 37.2% for the quarter and six-month period, respectively, was lower than the same periods of 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 were virtually unchanged versus in the second quarter and $1.2 million higher for the six month period. Increases in laundry products as a result of the USAD brands were partially offset by reductions in deodorizers and cleaners and personal care products. Selling, general and administrative expenses increased $4.5 million in the quarter and $10.2 million for the six month period. Higher deferred compensation costs, costs associated with the Armus joint venture and USAD acquisition along with the higher professional fees and outside service costs were the main reason for the increases in both the quarter and six month periods. Earnings from affiliates increased in the quarter and six month period due to higher ArmaKleen earnings as a result of improved performance in the current year and the prior year bad debt provision associated with Safety-Kleen filing chapter 11. Interest expense decreased $.3 million in the quarter and $1.0 million for the six month period as a result of lower average debt and lower interest rates. The Company did borrow $150,000,000 at the end of May to purchase USA Detergents and to pay off existing bank debt which will result in higher expense in the second half of the year. Investment earnings decreased $.4 million in the quarter and $.3 million for the six month period as a result of the receipt of interest from the Fluid Packaging note in 2000. Other expenses increased in the quarter and year to date as a result of foreign exchanges losses associated with the Brazilian subsidiary. In addition, 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 cashflows, 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 first half were recorded as part of other expense. Minority interest expense is primarily the 35% of the earnings generated by the Armus joint venture through the month of May that accrued to USAD. The effective tax rate for the six-month period was 35.2%, down from 35.7% last year which reflects a lower state tax rate. Liquidity and Capital Resources - ------------------------------- The Company has secured a $150 million short-term bridge loan to finance the USAD transaction and to refinance existing debt. The Company estimates its financing needs for the purchase of Carter-Wallace's antiperspirant and pet care business and the initial capital contribution to ArmKel at approximately $240 million, making the total requirements approximately $400 million. The Company has obtained commitment letters from various banks, led by JPMorgan for a $510 million senior secured credit facility. The credit facility is comprised of a 5 year $100 million revolver that carries an interest rate of libor plus 200 basis points on the used portion and libor plus 50 basis points on the unused portion, a 5 year $125 million term loan at libor plus 200 basis points and a 6 year $285 million term loan at libor plus 250 basis points. Financial covenants include EBITDA to total debt and interest coverage. The Company is comfortable the excess of approximately $110 million is sufficient to meet its liquidity needs. During the first half of 2001, the Company used $1.2 million to support operating activities, namely a $24.7 million increase in accounts receivable and $11.7 million decrease in accounts payable. Significant inflows of cash arose from the net increase in debt of $111 million, and proceeds from stock option exercises of $7.3 million. Significant expenditures include the purchase of USAD of $101.6 million, additions to property, plant and equipment of $16.0 million, payment of cash dividends of $5.4 million and an investment in a note receivable of $5.0 million. Other Item - Concentration of Risk - ---------------------------------- The Company has a concentration of risk with USA Metro, Inc. (USAM) at June 29, 2001 in the form of the following: <TABLE> <CAPTION> (in thousands) - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> A 20% equity interest in USAM $ 200 Note receivable for inventory - due December 31, 2001 3,087 Note receivable for other assets - payments start with the beginning of the third year 2,000 Trade accounts receivable 2,362 - ------------------------------------------------------------------------------------------------------------------------------- $ 7,649 </TABLE> Should USAM be unable to meet these obligations, the impact would have a material adverse effect to the Company's Consolidated Statement of Income.
PART II - Other Information Item 4. Results of Vote of Security Holders ----------------------------------- The Company's Annual Meeting of Stockholders was held on May 10, 2001. The following nominees were elected to the Company's Board of Directors for a term of three years. NOMINEE FOR WITHHELD Robert H. Beeby 58,054,839 501,959 J. Richard Leaman, Jr. 58,048,857 507,941 Dwight C. Minton 57,958,398 598,400 John O. Whitney 58,049,499 507,299 The results of voting on the following additional item is as follows: Approval of the appointment of Deloitte & Touche LLP as independent auditors of the Company's 2001 financial statements. FOR AGAINST ABSTAINED BROKER NON-VOTES 58,190,976 266,467 99,355 -- Item 6. Exhibits and Reports on Form 8-K -------------------------------- On June 5, 2001, the Company issued Report 8-K, dated May 21, 2001, to announce the completion of the USA Detergents acquisition.
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES EXHIBIT 11 - Computation of Earnings Per Share (In thousands except per share amounts) <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------ ------------ ------------ ------------ June 29, June 30, June 29, June 30, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> BASIC: Net Income $13,478 $12,375 $25,625 $24,107 Weighted average shares outstanding 38,861 38,152 38,699 38,416 Basic earnings per share $.35 $.32 $.66 $.63 DILUTED: Net Income $13,478 $12,375 $25,625 $24,107 Weighted average shares outstanding 38,861 38,152 38,699 38,416 Incremental shares under stock option plans 1,989 1,498 1,897 1,636 ------------ ------------ ------------ ------------ Adjusted weighted average shares outstanding 40,850 39,650 40,596 40,052 ------------ ------------ ------------ ------------ Diluted earnings per share $.33 $.31 $.63 $.60 </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: August 9, 2001 /s/ Zvi Eiref ---------------------------- ------------------------------------------ ZVI EIREF VICE PRESIDENT FINANCE AND CHIEF FINANCIAL OFFICER DATE: August 9, 2001 /s/ Gary P. Halker --------------------------- ------------------------------------------ GARY P. HALKER VICE PRESIDENT, CONTROLLER AND CHIEF INFORMATION OFFICER