UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2005
Commission file number 1-10585
CHURCH & DWIGHT CO., INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction
of incorporation or organization)
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes x No ¨
As of May 6, 2005, there were 63,485,239 shares of Common Stock outstanding.
TABLE OF CONTENTS
PART I
2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
Net Sales
Cost of sales
Gross Profit
Marketing expense
Selling, general and administrative expenses
Income from Operations
Equity in earnings of affiliates
Investment earnings
Other income (expense) — net
Interest expense
Income before minority interest and taxes
Minority interest
Income before taxes
Income taxes
Net Income
Retained earnings at beginning of period
Dividends paid
Retained earnings at end of period
Weighted average shares outstanding - Basic
Weighted average shares outstanding - Diluted
Net income per share - Basic
Net income per share - Diluted
Dividends per share
See Notes to Condensed Consolidated Financial Statements.
3
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
Current Assets
Cash and cash equivalents
Accounts receivable, less allowances of $1,879 and $1,171
Inventories
Deferred income taxes
Current portion of long-term note receivable
Prepaid expenses
Assets held for sale
Total Current Assets
Property, Plant and Equipment (Net)
Note Receivable
Equity Investment in Affiliates
Long-term Supply Contracts
Tradenames and Other Intangibles
Goodwill
Other Assets
Total Assets
Liabilities and Stockholders’ Equity
Current Liabilities
Short-term borrowings
Accounts payable and accrued expenses
Current portion of long-term debt
Income taxes payable
Total Current Liabilities
Long-term Debt
Deferred Income Taxes
Deferred and Other Long-term Liabilities
Pension, Nonpension Postretirement and Postemployment Benefits
Minority Interest
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 69,991,482 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss)
Common stock in treasury, at cost:
6,542,719 shares in 2005 and 6,803,296 shares in 2004
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Cash Flow From Operating Activities
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization
Net loss (gain) on disposal of assets
Other (principally foreign exchange)
Change in assets and liabilities:
(Increase) decrease in accounts receivable
Increase in inventories
Decrease in prepaid expenses
Decrease in accounts payable and accrued expenses
Increase in income taxes payable
Increase in other liabilities
Net Cash Provided By Operating Activities
Cash Flow From Investing Activities
Additions to property, plant and equipment
Distributions from affiliates
Proceeds from notes receivable
Proceeds from sale of fixed assets
Contingent acquisition payments
Other
Net Cash Used In Investing Activities
Cash Flow From Financing Activities
Repayment of long-term debt
Net borrowing of short-term debt
Proceeds from stock options exercised
Payment of cash dividends
Deferred financing costs
Net Cash Used In Financing Activities
Effect of exchange rate changes on cash and cash equivalents
Net Change In Cash and Cash Equivalents
Cash And Cash Equivalents At Beginning Of Year
Cash And Cash Equivalents At End Of Period
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet as of April 1, 2005 and the consolidated statements of income and consolidated statements of cash flow for the three months ending April 1, 2005 and April 2, 2004 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 April 1, 2005 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 annual report on Form 10-K for the year ended December 31, 2004. The results of operations for the period ended April 1, 2005 are not necessarily indicative of the operating results for the full year.
On May 28, 2004, the Company purchased the remaining 50% ownership interest of Armkel, LLC (“Armkel”) that it did not own from affiliates of Kelso & Company (“the Armkel acquisition”) for a purchase price of approximately $262.0 million and Armkel was merged into the Company. Results of operations for Armkel’s business are included in the Company’s consolidated financial statements from May 29, 2004. Prior to May 28, 2004, the Company accounted for its investment in Armkel under the equity method. All material intercompany transactions and profits have been eliminated in consolidation.
The Company’s fiscal year begins on January 1 of the year stated and ends on December 31. Quarterly periods are based on a 4 weeks - 4 weeks - 5 weeks methodology. As a result, the first quarter can include a partial or expanded week in the first four week period of the quarter. Similarly, the last five week period in the fourth quarter could be a partial or expanded week.
2. Inventories consist of the following:
Raw materials and supplies
Work in process
Finished goods
3. Property, Plant and Equipment consist of the following:
Land
Buildings and improvements
Machinery and equipment
Office equipment and other assets
Software
Mineral rights
Construction in progress
Less accumulated depreciation, depletion and amortization
Net Property, Plant and Equipment
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 and the dilutive effect of contingently convertible debt instruments. The weighted average number of common shares outstanding used to calculate Basic EPS is reconciled to those shares used in calculating Diluted EPS as follows:
Basic
Dilutive effect of stock options
Dilutive effect of convertible debt
Diluted
Anti-dilutive stock options outstanding
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Stock-Based Compensation
The Company accounts for costs of stock-based compensation in accordance with Accounting Principles Board Opinion No. 25 (“APB 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”. In connection with the Armkel acquisition, the Company paid cash and issued options to purchase 97,500 shares of Company common stock at an exercise price of $22.88 per share to certain executives in accordance with the provisions of Armkel’s Equity Appreciation Rights Plan (“EAR Plan”). The unvested portion of the EAR Plan options is being amortized over a two year vesting period and is recognized as expense as vesting occurs. In 2005, the amount recognized as expense for the stock options granted under the EAR Plan was $0.3 million for the first quarter.
The Company’s pro forma net income and pro forma net income per share for the first quarter of 2005 and 2004, determined as if the Company had adopted the fair value method of SFAS 123, are as follows:
As reported
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects
Pro forma
Net Income per Share: basic
Net Income per Share: diluted
6. Segment Information
The Company maintains three reportable segments. These segments are based on differences in the nature of products and organizational and ownership structures. Specifically, the Company has identified the following segments: Consumer Domestic, Consumer International and Specialty Products Division (“SPD”).
Segment revenues are derived from the sale of the following products:
Segment
Products
Consumer Domestic
Consumer International
SPD
The Company has 50 percent ownership interests in Armand Products Company (“Armand”) and The ArmaKleen Company (“ArmaKleen”). Since the Company does not control these entities, they are accounted for under the equity method in the consolidated financial statements of the Company. With respect to periods prior to the Armkel acquisition, the equity earnings of Armkel’s domestic results are included in the Consumer Domestic segment, and its international results in the Consumer International segment. The equity earnings of Armand and ArmaKleen are included in Corporate.
Some of the subsidiaries that are included in Consumer International manufacture and sell personal care products to Consumer Domestic. These sales are eliminated from the Consumer International results.
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Segment sales and income before taxes and minority interest for the first quarters of 2005 and 2004 are as follows:
First Quarter 2005
First Quarter 2004
Income Before Taxes and Minority Interest (1)
The following table discloses product line revenues from external customers for the three months ended April 1, 2005 and April 2, 2004.
Deodorizing Products
Laundry Products
Personal Care Products
Total Consumer Domestic
Total Consumer International
Total SPD
Total Consolidated Net Sales
7. Supplemental Financial Information of Guarantor and Non-Guarantor Operations
The 6% senior subordinated notes are fully and unconditionally guaranteed by Church & Dwight Company, a Wyoming corporation, and the 9 ½% senior subordinated notes are fully and unconditionally guaranteed by several domestic subsidiaries of the Company on a joint and several basis. The guarantor financial information includes the Parent Company and an immaterial subsidiary whose total assets are approximately 1% of total guarantor assets. The following information is being presented in response to Item 3-10 of Regulation S-X, promulgated by the Securities and Exchange Commission.
Supplemental information for condensed consolidated balance sheets at April 1, 2005 and December 31, 2004, condensed consolidated income statements and statements of cash flows for the three months ended April 1, 2005 and April 2, 2004 are summarized as follows (amounts in thousands):
Statements of Income
Net sales
Gross profit
8
Consolidated Balance Sheets
Other Liabilities
9
Statements of Cash Flow
For The Three Months Ended
April 1, 2005
Net Cash Provided by (Used in) Operating Activities
Net Cash Used in Investing Activities
Net Cash (Used in) Provided by Financing Activities
Net Change In Cash & Cash Equivalents
Cash And Cash Equivalents At Beginning of Year
Cash And Cash Equivalents At End of Period
April 2, 2004
Net Cash Provided by Operating Activities
8. Armkel, LLC
On May 28, 2004, the Company purchased the remaining 50% of Armkel that it did not previously own from affiliates of Kelso for a purchase price of approximately $262.0 million.
Pro forma comparative net sales, net income and basic and diluted earnings per share for the three months ended April 2, 2004 are as follows:
Three Months Ended
Earnings Per Share Basic
Earnings Per Share Diluted
The pro forma information gives effect to the Company’s purchase of Kelso’s interest in Armkel as if it occurred at January 1, 2003. Pro forma adjustments included the inventory step-up charge, equity appreciation rights, additional interest expense and the related income tax impact, as well as elimination of intercompany sales.
The allocation of purchase price to certain intangibles has not yet been finalized since an independent appraisal is still in process. However, management does not believe that the finalization of the purchase price allocation will have a material impact on the consolidated financial statements.
10
The following table summarizes financial information for Armkel for the quarter ended April 2, 2004 during which the Company accounted for its 50% interest under the equity method.
Income statement data:
Net income
Equity in affiliate’s income recorded by the Company
The Company invoiced Armkel $6.6 million primarily for administrative and management oversight services (which is included as a reduction of selling, general and administrative expenses), and purchased $0.5 million of deodorant anti-perspirant inventory produced by Armkel in the first quarter of 2004. The Company sold Armkel $0.4 million of Arm & Hammer products to be sold in international markets in the first quarter of 2004.
9. Short-term Borrowings and Long-Term Debt
Short-term borrowings and long-term debt consist of the following:
Securitization of Accounts Receivable due on April 13, 2005
Various borrowings due to Brazilian Banks
Other International Debt
Total short-term borrowings
Long-term debt
Term B Loan
Amount due 2005
Amount due 2006
Amount due 2007
Amount due 2008
Amount due 2009
Amount due 2010 and subsequent
Convertible Debentures due on August 15, 2033
Senior Subordinated Note (6%) due December 22, 2012
Senior Subordinated Note (9 ½%) due August 15, 2009
Premium on 9 ½% Senior Subordinated Note
Various debt due to Brazilian Banks $630 in 2005, $469 in 2006, $228 in 2007
Industrial Revenue Refunding Bond Due in installments of $685 from 2005-2007 and $650 in 2008
Total long-term debt
Less: current maturities
Net long-term debt
The long-term debt principal payments required to be made are as follows:
(In thousands)
2005
2006
2007
2008
2009
2010 and subsequent
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During the first quarter of 2005, the Company paid approximately $77.0 million of its Term B Loan, of which $75.0 million were voluntary payments.
In April 2005, the accounts receivable securitization facility was renewed with a new maturity date in April 2006.
10. Goodwill and Other Intangible Assets
The following tables disclose the carrying value of all intangible assets:
Amortized intangible assets:
Tradenames
Formulas
Non Compete Agreement
Total
Unamortized intangible assets – Carrying value:
Intangible amortization expense amounted to $1.8 million for the three months of 2005 and $1.5 million for the same period of 2004. The Company’s estimated intangible amortization will be approximately $7.2 million in each of the next five years.
The changes in the carrying amount of goodwill for the three months ended April 1, 2005 are as follows:
Balance December 31, 2004
Tradename reclassification (related to Armkel)
Goodwill associated with the Armkel acquisition
Balance April 1, 2005
11. Comprehensive Income
The following table discloses the Company’s comprehensive income for the three months ended April 1, 2005 and April 2, 2004:
Other Comprehensive Income, net of tax:
Foreign exchange translation adjustments
Interest rate swap agreements
Company’s portion of Armkel’s accumulated other comprehensive income
Comprehensive Income
12
12. Pension and Postretirement Plans
The following table discloses the net periodic benefit cost for the Company’s pension and postretirement plans for the three months ended April 1, 2005 and April 2, 2004.
Components of Net Periodic Benefit Cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized actuarial loss
Net periodic benefit cost
Recognized actuarial gain
The Company made cash contributions of approximately $1.7 million to certain of its pension plans in the first quarter and expects to make additional contributions of $2.8 million during the remainder of 2005.
13. Commitments, contingencies and guarantees
13
14. Assets Held For Sale
As part of the Armkel acquisition, the Company has title to property and facilities in Cranbury, New Jersey, which includes research facilities that are in use as well as assets that are held for sale. In the third quarter of 2004, the Company entered into a contract to sell sections of the land available for development (and demolish the remaining buildings at the buyer’s expense), subject to obtaining environmental and other regulatory approvals. The Company expects to close on the sale before the end of 2005. In the first quarter of 2005, the Company entered into a contract to sell the remaining assets held for sale. The contract is subject to the buyer’s due diligence. The value expected to be received for all land at the Cranbury, NJ location (other than that related to the research facilities), net of costs to sell, is approximately $11.0 million. These assets are included in the Consumer Domestic segment.
In January 2005, the Company signed an agreement to sell its manufacturing plant in Mexico. The new owner of the plant will manufacture products for the Company. At the end of April, the Company closed on the sale of this facility and received, net of costs to sell, approximately $2.3 million, which is included in the Consumer International segment.
15. Reclassification
Certain prior year amounts have been reclassified in order to conform with the current year presentation.
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Results of Operations
The discussion of results of operations at the consolidated level is followed by a more detailed discussion of results of operations by segment for the first quarter of 2005 compared to the first quarter 2004. The segment discussion also presents certain product line fluctuations. With the acquisition of the remaining 50% interest in Armkel, LLC (“Armkel”) that the Company did not previously own from affiliates of Kelso & Company (“Kelso”) on May 28, 2004, and Armkel’s subsequent merger with the Company, the results of operations of the former Armkel business are consolidated in the accompanying financial statements from the date of acquisition.
Consolidated Results
Net sales for the quarter increased by $124.7 million or 42.1% to $420.7 million, as compared to $296.0 million in the previous year’s first quarter. Of the increase, $122.6 million reflects sales of products formerly owned by Armkel, which are included in the Company’s condensed consolidated results, and favorable foreign exchange rates of $0.8 million.
Operating Costs
The Company’s gross margin in the current quarter increased to 38.1% from 32.6% in the prior year. The increase is in large part a result of the products formerly owned by Armkel, which carry on average a higher gross profit margin than other Company products. Excluding the impact of the former Armkel business, gross margin declined. This decline is due to sharp price increases for oil-based raw and packaging materials and certain commodity chemicals during the second half of 2004.
Marketing expenses in the current quarter were $37.6 million, an increase of $13.5 million as compared to the same period of 2004 primarily as a result of approximately $15.0 million in expenses associated with the former Armkel products. Marketing expenses for the Company’s pre-existing product lines were slightly lower than last year as a result of lower expenses for certain deodorizing and cleaning products.
Selling, general and administrative (“SG&A”) expenses in the current quarter increased $21.5 million as compared to the same period last year. This is primarily a result of costs associated with the former Armkel business of approximately $24.0 million. Other SG&A expenses declined due to lower deferred and performance-based compensation costs and decreases in information system costs and costs to comply with the Sarbanes-Oxley legislation.
Other Income and Expenses
The decrease in equity in earnings of affiliates of $8.6 million in the current quarter as compared to the year ago period is due to the Company’s acquisition of Kelso’s interest in Armkel on May 28, 2004. The combined earnings of the Company’s other equity investments slightly increased.
Other income and expense in 2005 includes the effect of foreign exchange remeasurement losses related to intercompany loans between the Company’s subsidiaries. The 2004 amount reflects a gain on the sale of a warehouse by our Canadian subsidiary.
Interest expense increased in the quarter as a result of interest associated with the assumption of Armkel’s indebtedness and the Company’s additional indebtedness required to purchase Kelso’s interest in Armkel.
Taxation
The effective tax rate for the quarter was 34.8% as compared to 33.0% for the same period of last year. Last year’s tax rate was impacted favorably by an amended prior year tax return that resulted in a benefit related to a prior year research and development tax credit.
Segment results
15
For the first quarter of 2005, Consumer Domestic Net Sales increased $61.7 million or 26.1% to $297.7 million. Personal care products increased $61.0 million due to sales of $62.9 million associated with the domestic results of the former Armkel products. Deodorizing products increased $2.7 million and laundry products decreased $2.0 million. Net sales of the former Armkel products in the first quarter of 2004, when their sales were not consolidated with those of the Company, totaled approximately $58.0 million.
Consumer Domestic Income before Taxes and Minority Interest for the current quarter increased $7.2 million to $41.0 million. This is due to the increased contribution from the former Armkel products, slightly lower marketing costs associated with certain deodorizing and cleaning products and lower SG&A for the reasons noted above attributable to the non-Armkel portion of the business. The higher profitability was partially offset by higher oil based manufacturing and freight costs. The segment was also impacted by higher interest costs resulting from the Armkel purchase.
Consumer International Net Sales for the current quarter as compared to the same period of last year increased $60.3 million to $69.4 million. The current quarter included $59.7 million of sales attributable to the former Armkel international business and the effect of favorable foreign exchange rates. Net sales of the former Armkel subsidiaries in the first quarter of 2004, when their sales were not consolidated with those of the Company, totaled approximately $55.8 million. The increase of $3.9 million includes a favorable foreign exchange effect of $3.1 million.
Income before Taxes and Minority Interest increased $6.2 million to $10.9 million as a result of the inclusion of the former Armkel international business results following the acquisition, partially offset by higher interest costs associated with the Armkel acquisition.
Specialty Products (SPD)
Specialty Products Net Sales grew $2.7 million or 5.3% to $53.6 million in the first quarter of 2005, as a result of higher sales of animal nutrition products and favorable foreign exchange rates.
Specialty Products Income before Taxes and Minority Interest decreased $0.7 million to $4.7 million as a result of higher manufacturing costs for certain specialty chemicals, and an increase in allocated interest expense, partially offset by higher profit contribution associated with higher animal nutrition product sales.
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Liquidity and Capital Resources
The Company had outstanding total debt of $790.5 million and cash of $101.9 million (of which approximately $58.4 million resides in foreign subsidiaries). This compares to total debt of $858.7 million at December 31, 2004. The reduction of debt since the beginning of the fiscal year is primarily due to voluntary bank debt payments of $75.0 million, partially offset by an increase of $6.3 million associated with the Company’s accounts receivable securitization. In April 2005, the accounts receivable securitization facility was renewed with a new maturity date of April 2006.
Adjusted EBITDA is a required component of the financial covenants contained in the Company’s primary credit facility and management believes that the presentation of Adjusted EBITDA is useful to investors as a financial indicator of the Company’s ability to service its indebtedness. Adjusted EBITDA may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to cash flows from operating activities, which is determined in accordance with accounting principles generally accepted in the United States. Financial covenants include a total debt to Adjusted EBITDA leverage ratio and an interest coverage ratio, which if not met, could result in an event of default and trigger the early termination of the credit facility, if not remedied within a certain period of time. Adjusted EBITDA was approximately $79.5 million for the first quarter of 2005. The leverage ratio (total debt to Adjusted EBITDA) for the 12 months ended April 1, 2005 which, under the loan agreement, permits the inclusion of Armkel’s EBITDA prior to its acquisition by the Company for pro forma purposes was approximately 2.74 versus the agreement’s maximum 4.25, and the interest coverage ratio (Adjusted EBITDA to total interest expense) for the twelve months ended April 1, 2005 was approximately 5.44 versus the agreement’s minimum of 3.0. This credit facility is secured by the assets of the Company and certain domestic subsidiaries. The reconciliation of Net Cash Provided by Operating Activities (the most directly comparable GAAP financial measure) to Adjusted EBITDA for the three months ended April 1, 2005 is as follows (in thousands):
Interest Expense
Current Income Tax Provision
Distributions from Affiliates
Change in Working Capital and Other Liabilities
Investment Income
Adjusted EBITDA (per loan agreement)
Net Cash Used in Financing Activities
During the first quarter of 2005, cash flow from operating activities was $31.2 million. Major factors affecting cash flow from operating activities included operating earnings before non-cash charges for depreciation and amortization, and a $22.7 million increase in working capital (excluding cash and cash equivalents) and other liabilities. Operating cash flow, together with distributions from affiliates, proceeds from stock option exercises and existing cash, were used to make voluntary and mandatory debt repayments, additions to property, plant and equipment, and the payment of dividends.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (“FASB”) issued a revised version of SFAS No. 123, “Share-Based Payment”, a revision of FASB Statement No. 123, “Accounting for Stock Based Compensation” and eliminates the alternative of using the intrinsic value method under Accounting Principles Board Opinion No. 25 (“APB 25”) which was permitted in Statement 123 as originally issued. Under APB 25, issuing stock options to employees generally resulted in recognition of no compensation cost. SFAS No. 123R requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards in their income statements. For the Company, this Statement becomes effective January 1, 2006. As of the required effective date, any public company that used the fair-value method of disclosure under Statement 123 will apply this Statement using a modified version of prospective application. Under the transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant date fair value of those awards calculated under Statement 123 for either recognition or pro forma disclosures.
The American Jobs Creation Act of 2004 (the “AJCA”) was enacted on October 22, 2004. The AJCA repeals an export incentive, creates a new deduction for qualified domestic manufacturing activities and includes a special one-time deduction of 85% of certain foreign earnings repatriated to the U.S.
The FASB issued FSP FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004” (FSP FAS 109-1) on December 21, 2004. In accordance with FSP FAS 109-1, the Company will treat the deduction for qualified domestic manufacturing activities, which is effective for the Company beginning January 1, 2005, as a reduction of the income tax provision in future years as realized.
17
In December 2004, the FASB issued FSP FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,” allowing companies additional time to evaluate the effect of the AJCA on plans for reinvestment or repatriation of foreign earnings. The Company is in the process of evaluating the effects of the repatriation provision.
The Company is facing higher costs for several categories of raw and packaging materials, particularly those based on energy prices. In response, the Company has intensified its margin enhancement strategies, and is in the process of implementing a range of formulation, packaging, logistics and other cost reduction programs.
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.
No change in the Company’s internal control over financial reporting occurred during the Company’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Cautionary Note on Forward-Looking Statements
This report contains forward-looking statements relating to, among other things, short- and long-term financial objectives, sales and earnings growth, gross profit margin, earnings per share, non-cash accounting charges, cash flow, adoption of new accounting guidance, financial forecasts and cost improvement programs. These statements represent the intentions, plans, expectations and beliefs of the Company, and are subject to risks, uncertainties and other factors, many of which are outside the Company’s control and could cause actual results to differ materially from such forward-looking statements. The uncertainties include assumptions as to market growth and consumer demand (including the effect of political and economic events on consumer demand), increases in raw material, packaging and energy prices, the Company’s ability to raise prices or reduce promotion spending, the Company’s ability to implement cost reduction programs in response to commodity price increases, the financial condition of major customers, the risks of currency fluctuations, changes in foreign laws and other risks associated with our international operations and trade, and competitive and consumer reactions to the Company’s products. Other factors, which could materially affect the results, include the outcome of contingencies, including litigation, pending regulatory proceedings, environmental remediation and the acquisition or divestiture of assets.
The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures the Company makes on related subjects in our filings with the U.S. Securities and Exchange Commission.
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PART II - OTHER INFORMATION
The Company’s Annual Meeting of Stockholders was held on May 5, 2005. The following nominees were elected to the Company’s Board of Directors for a term of three years:
Nominee
James R. Craigie
Robert A. Davies, III
Rosina B. Dixon, M.D.
Robert D. LeBlanc
Lionel L. Nowell, III
The Company’s continuing directors are as follows: John D. Leggett, III, John F. Maypole, Robert A. McCabe, Burton B. Staniar, T. Rosie Albright, Robert H. Beeby, J. Richard Leaman, Jr., Dwight C. Minton, John O. Whitney.
The voting results on other matters submitted to a stockholder vote at the Annual Meeting were as follows:
Proposal for the amendment of the Restated Certificate of Incorporation of the Company to increase the Company’s authorized common stock from 100 million shares to 150 million shares:
For
56,320,712
Proposal for adoption of the 2005 Employee Stock Purchase Plan:
48,134,883
Ratification of the appointment of Deloitte & Touche LLP as independent auditors of the Company’s 2005 financial statements:
57,455,907
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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.
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EXHIBITS
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