-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QgS5Z5/EzZ47FLjyViaJzLlrhQlSgLgHV4Jjb7vDMPflR23jqfJAaPRQ3omu/yw7 Jc/6XplKt0UZrVg7ik+9lw== 0000313927-02-000048.txt : 20021108 0000313927-02-000048.hdr.sgml : 20021108 20021108164719 ACCESSION NUMBER: 0000313927-02-000048 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020927 FILED AS OF DATE: 20021108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHURCH & DWIGHT CO INC /DE/ CENTRAL INDEX KEY: 0000313927 STANDARD INDUSTRIAL CLASSIFICATION: SOAP, DETERGENT, CLEANING PREPARATIONS, PERFUMES, COSMETICS [2840] IRS NUMBER: 134996950 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10585 FILM NUMBER: 02814545 BUSINESS ADDRESS: STREET 1: 409 N HARRISON ST CITY: PRINCETON STATE: NJ ZIP: 08543-5297 BUSINESS PHONE: 6096835900 MAIL ADDRESS: STREET 1: 409 N HARRISON STREET CITY: PRINCETON STATE: NJ ZIP: 08543-5297 10-Q 1 f10q023q.txt 10-Q 3RD QUARTER 2002 1 of 20 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 September 27, 2002 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 November 1, 2002, there were 39,880,333 shares of Common Stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (Unaudited)
Three Months Ended Nine Months Ended (Dollars in thousands, except per share data) Sept. 27, Sept. 28, Sept. 27, Sept. 28, 2002 2001 2002 2001 ---- ---- ---- ---- Net Sales.......................................... $ 263,786 $ 238,372 $ 779,051 $ 694,788 Cost of sales...................................... 182,586 166,524 548,663 489,049 ---------- ---------- ---------- ---------- Gross Profit....................................... 81,200 71,848 230,388 205,739 Marketing expense.................................. 22,752 19,995 61,737 55,240 Selling, general and administrative expenses....... 30,299 26,018 88,982 81,207 ---------- ---------- ---------- ---------- Income from Operations............................. 28,149 25,835 79,669 69,292 Equity in earnings of affiliates................... 5,453 886 17,734 3,069 Investment earnings................................ 295 360 1,300 1,211 Other income (expense)............................. (1,394) (110) (2,481) (1,453) Interest expense................................... (5,663) (3,278) (17,848) (5,128) ----------- ----------- ----------- ----------- Income before minority interest and taxes ......... 26,840 23,693 78,374 66,991 Minority interest.................................. -- 29 129 3,783 ---------- ---------- ---------- ---------- Income before taxes................................ 26,840 23,664 78,245 63,208 Income taxes....................................... 9,265 8,418 27,095 22,337 ---------- ---------- ---------- ---------- Net Income......................................... 17,575 15,246 51,150 40,871 Retained earnings at beginning of period........... 340,072 296,907 312,409 276,700 ---------- ---------- ---------- ---------- 357,647 312,153 363,559 317,571 Dividends paid..................................... 2,985 2,924 8,897 8,342 ---------- ---------- ---------- ---------- Retained earnings at end of period................. $ 354,662 $ 309,229 $ 354,662 $ 309,229 ========== ========== ========== ========== Weighted average shares outstanding - Basic........ 39,794 39,011 39,548 38,803 Weighted average shares outstanding - Diluted...... 41,875 41,037 41,749 40,724 Earnings Per Share: Net income per share - Basic....................... $.44 $.39 $1.29 $1.05 Net income per share - Diluted..................... $.42 $.37 $1.23 $1.00 Dividends Per Share................................ $.075 $.075 $.225 $.215
See Notes to Condensed Consolidated Financial Statements. CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
Sept. 27, 2002 Dec. 31, 2001 -------------- ------------- (Dollars in thousands) (Unaudited) Assets Current Assets Cash and cash equivalents........................................................... $ 76,148 $ 52,446 Accounts receivable, less allowances of $2,030 and $3,666........................... 102,600 106,291 Inventories......................................................................... 89,133 101,214 Deferred income taxes............................................................... 25,260 19,849 Note receivable and current portion of long-term note receivable.................... 870 5,803 Prepaid expenses.................................................................... 6,432 7,604 ---------- ---------- Total Current Assets................................................................ 300,443 293,207 ---------- ---------- Property, Plant and Equipment (Net)................................................. 240,975 231,449 Notes Receivable.................................................................... 9,708 11,951 Equity Investment in Affiliates..................................................... 129,408 115,121 Long-term Supply Contracts.......................................................... 6,827 7,695 Tradenames.......................................................................... 85,272 136,934 Goodwill ........................................................................... 184,352 127,320 Other Assets........................................................................ 29,223 25,408 ---------- ---------- Total Assets........................................................................ $ 986,208 $ 949,085 ========== ========== Liabilities and Stockholders' Equity Current Liabilities Short-term borrowings............................................................... $ 4,737 $ 3,220 Accounts payable and accrued expenses............................................... 158,825 176,176 Current portion of long-term debt................................................... 16,035 8,360 Income taxes payable................................................................ 6,038 8,260 ---------- ---------- Total Current Liabilities........................................................... 185,635 196,016 ---------- ---------- Long-term Debt...................................................................... 379,969 406,564 Deferred Income Taxes............................................................... 47,564 27,032 Deferred and Other Long-term Liabilities............................................ 24,346 19,164 Nonpension Postretirement and Postemployment Benefits............................... 15,857 15,880 Minority Interest................................................................... 173 2,126 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.......................................................... 36,488 28,414 Retained earnings................................................................... 354,662 312,409 Accumulated other comprehensive (loss).............................................. (15,624) (9,728) ----------- ---------- 422,187 377,756 Common stock in treasury, at cost: 6,839,805 shares in 2002 and 7,518,105 shares in 2001.......................... (89,523) (95,453) ----------- ---------- Total Stockholders' Equity.......................................................... 332,664 282,303 ========== ========== Total Liabilities and Stockholders' Equity.......................................... $ 986,208 $ 949,085 ========== ==========
See Notes to Condensed Consolidated Financial Statements. CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Nine Months Ended (Dollars in thousands) Sept. 27, 2002 Sept. 28, 2001 -------------- --------------- Cash Flow From Operating Activities Net Income.......................................................................... $ 51,150 $ 40,871 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization....................................... 21,319 19,649 Equity in earnings of affiliates............................................... (17,734) (3,069) Deferred income taxes.......................................................... 18,110 1,696 Other.......................................................................... 2,439 (782) Change in assets and liabilities: Decrease/(increase) in accounts receivable..................................... 3,304 (29,686) Decrease/(increase) in inventories............................................. 10,436 (11,540) Decrease/(increase) in prepaid expenses........................................ 634 (79) (Decrease) in accounts payable................................................. (19,846) (11,722) Increase in income taxes payable............................................... 1,945 9,242 Increase in other liabilities.................................................. 1,220 2,009 --------- --------- Net Cash Provided By Operating Activities........................................... 72,977 16,589 Cash Flow From Investing Activities Decrease in short-term investments.................................................. -- 1,993 Additions to property, plant and equipment.......................................... (30,879) (22,323) Acquisition of Biovance stock (net of cash acquired of $365)........................ (7,747) -- Investment in note receivable....................................................... -- (16,380) Proceeds from note receivable....................................................... 5,803 -- Distributions from affiliates....................................................... 3,447 4,901 Other long-term assets.............................................................. (717) -- Proceeds from sale of fixed assets.................................................. 211 2,349 Purchase of USAD stock.............................................................. -- (101,642) Investment in affiliates............................................................ (2,631) (108,450) Investment in supply contract....................................................... -- (808) Purchase of and adjustment to purchase price of product lines....................... (919) (128,939) Purchase of intangibles............................................................. -- (1,625) --------- --------- Net Cash Used In Investing Activities............................................... (33,432) (370,924) Cash Flow From Financing Activities Long-term debt borrowing............................................................ -- 560,000 Long-term debt (repayment).......................................................... (20,480) (170,179) Short-term debt borrowing/(repayment)............................................... 3,576 (11,896) Proceeds from stock options exercised............................................... 9,958 8,561 Deferred financing costs............................................................ -- (8,632) Payment of cash dividends........................................................... (8,897) (8,342) ---------- ---------- Net Cash (Used In) Provided By Financing Activities................................. (15,843) 369,512 ---------- --------- Net Change In Cash and Cash Equivalents............................................. 23,702 15,177 Cash And Cash Equivalents At Beginning Of Year...................................... 52,446 21,573 --------- --------- Cash And Cash Equivalents At End Of Period.......................................... $ 76,148 $ 36,750 ========= ========= Acquisition in which liabilities were assumed are as follows: Fair value of assets................................................................ $ 14,880 $ 169,907 Cash paid for stock................................................................. (8,112) (110,877)* --------- ---------- Liabilities assumed................................................................. $ (6,768) $ (59,030) ========= =========
*Includes $9.2 million paid in 2000 See Notes to Condensed Consolidated Financial Statements. CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated balance sheet as of September 27, 2002, the consolidated statements of income and retained earnings for the three months and nine months ended September 27, 2002 and September 28, 2001 and the consolidated statements of cash flow for the nine months then ended have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments, except as noted in Management's Discussion and Analysis) necessary to present fairly the financial position, results of operations and cash flow at September 27, 2002 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, 2001 annual report to shareholders. The results of operations for the period ended September 27, 2002 are not necessarily indicative of the operating results for the full year. 2. Inventories consist of the following:
(In thousands) Sept. 27, 2002 Dec. 31, 2001 -------------- ------------- Raw materials and supplies.......................................................... $ 29,648 $ 28,869 Work in process..................................................................... 254 651 Finished goods ..................................................................... 59,231 71,694 ---------- ----------- $ 89,133 $ 101,214 ========== ==========
3. Property, Plant and Equipment consist of the following:
(In thousands) Sept. 27, 2002 Dec. 31, 2001 -------------- ------------- Land................................................................................ $ 6,285 $ 6,503 Buildings and improvements.......................................................... 101,148 92,577 Machinery and equipment............................................................. 249,376 253,749 Office equipment and other assets................................................... 25,298 25,037 Software ........................................................................... 5,547 5,652 Mineral rights ..................................................................... 153 257 Construction in progress............................................................ 34,074 17,593 ---------- ---------- 421,881 401,368 Less accumulated depreciation, depletion and amortization........................... 180,906 169,919 ---------- ---------- Net Property, Plant and Equipment................................................... $ 240,975 $ 231,449 ========== ==========
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. CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 5. Segment Information Segment sales and operating profit for the third quarter and year to date of 2002 and 2001 are as follows:
Unconsolidated (In thousands) Consumer Specialty Affiliates Total -------- --------- ---------- ----- Net Sales Third quarter 2002........................ $326,752 $56,523 $(119,489) $263,786 Third quarter 2001........................ 195,569 54,105 (11,302) 238,372 Year to date 2002......................... 963,871 166,572 (351,392) 779,051 Year to date 2001......................... 564,794 166,413 (36,419) 694,788 Operating Profit Third quarter 2002........................ 42,202 7,628 (21,681) 28,149 Third quarter 2001........................ 19,028 8,358 (1,551) 25,835 Year to date 2002......................... 119,644 22,670 (62,645) 79,669 Year to date 2001......................... 50,339 24,599 (5,646) 69,292
Both Consumer and Specialty net sales and operating profit include 100 percent of the results of unconsolidated affiliates. Product line net sales data for the third quarter and year to date periods are as follows:
Deodorizing Uncon- and Personal International Specialty solidated Cleaning Laundry Care Consumer Products Affiliates Total -------- ------- ---- -------- -------- ---------- ----- 3rd Qtr 2002.... $ 62,349 $ 101,142 $ 101,806 $ 61,455 $ 56,523 $ (119,489) $ 263,786 3rd Qtr 2001.... 59,640 98,308 26,243 11,378 54,105 (11,302) 238,372 YTD 2002........ $ 188,123 $ 299,046 $ 293,879 $ 182,823 $ 166,572 $ (351,392) $ 779,051 YTD 2001........ 165,277 288,743 80,545 30,229 166,413 (36,419) 694,788
As a result of the Arrid Antiperspirant acquisition and the formation of Armkel, the Company has reclassified the consumer product division into four product lines, which breaks out international from the underlying products and combines the specialty products division into one product line. Prior year sales have been reclassified. 6. Armkel, LLC The following table summarizes financial information for Armkel, LLC. The Company accounts for its 50% interest under the equity method.
Quarter Ended Nine Months Ended (In thousands) Sept. 27, 2002 Sept. 27, 2002 -------------- -------------- Income statement data: Net sales....................................................................... $ 110,290 $ 322,601 Gross profit.................................................................... 61,756 170,472 Net income ..................................................................... 9,316 25,209 Equity earnings in affiliate ................................................... 4,658 15,104
Sept. 27, December 31, (In thousands) 2002 2001 ---- ---- Balance sheet data: Current assets.................................................................. $ 252,152 $ 269,343 Noncurrent assets............................................................... 568,759 544,450 Short-term debt................................................................. 12,441 5,671 Current liabilities (excluding short-term debt)................................. 115,647 136,257 Long-term debt.................................................................. 433,656 439,750 Other long-term liabilities..................................................... 28,478 28,711 Partners' equity................................................................ 230,689 203,404
Under the partnership agreement with Kelso, the Company is allocated 50% of all book and tax profits. If there are losses, the Company is allocated 50% of all book and tax losses up to $10 million and 100% of such losses above that level for the period starting September 28, 2001, the date of the acquisition. The Company is entitled to 100% of the profits until an amount equal to the accumulated excess losses is recorded. During 2002, the Company invoiced Armkel $15.7 million for administrative and management oversight services, and purchased $5.4 million of deodorant antiperspirant inventory produced by Armkel at its cost. Armkel invoiced the Company $1.6 million of transition administrative services. The Company has a receivable from Armkel at September 27, 2002 of approximately $5.0 million that primarily related to administration fees and invoices paid by the Company on behalf of Armkel. 7. Acquisitions a. As previously announced, in January the Company acquired Biovance Technologies, Inc., a small Oskaloosa, Iowa-based producer of specialty feed ingredients which complement our existing range of animal nutrition products. The purchase price paid in the first quarter was $7.7 million (net of cash acquired) and included an additional $6.8 million for the assumption of liabilities. The Company has accrued $3.0 million of additional payments based upon contractual obligations, which will be paid in 2003. Additional payments will be required based on operating performance. Pro forma results of operations are not included as they would not have a material effect on the Company's results of operations. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:
(In thousands) Current assets.......................................................................... $ 1,374 Property, plant and equipment........................................................... 4,640 Patents and non-compete agreement....................................................... 3,183 Tradenames.............................................................................. 490 Goodwill................................................................................ 5,193 ----------- Total assets acquired (includes cash of $365)........................................... 14,880 Current liabilities..................................................................... (4,529) Long-term liabilities................................................................... (2,239) ----------- Net assets acquired..................................................................... $ 8,112 ===========
The results of operations are included in the accompanying financial statements from January 1, 2002, and were not significant. An appraisal has been completed and the purchase price allocation was modified based on its results. Goodwill is not being amortized, based on the provisions of SFAS 142 "Goodwill and Other Intangible Assets." The Goodwill is not expected to be deductible for tax purposes and will be included in the specialty products segment. All other intangibles are being amortized based on their estimated useful lives. b. During July, the Company increased its ownership position of its Brazilian Subsidiary, QGN to approximately 98.5% from 85% at a cost of approximately $4.4 million. Approximately one half was paid in July and the balance is due in 2003. 8. Recent Accounting Pronouncements a. Effective January 1, 2002, the Company adopted EITF 00-14 "Accounting for Certain Sales Incentives" and EITF 00-25 "Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer" and EITF 01-9 "Accounting for Consideration given to a Customer or a Reseller of the Vendor's Products." EITF 00-14 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 did previously. EITF 00-25 outlines required accounting treatment of certain sales incentives, including slotting or placement fees, cooperative advertising arrangements, buydowns and other allowances. The Company previously recorded such costs as marketing expenses. The issue requires the Company to report the paid consideration expense as a reduction of sales, rather than marketing expense. EITF 01-9 codifies and reconciles certain issues from EITF 00-14 and EITF 00-25. The third quarter and year to date 2001 net sales have been reclassified to conform with these pronouncements. The impact was a reduction of net sales for the third quarter and year to date periods of approximately $35.9 and $100.6 million in 2002 and $32.2 and $89.5 million in 2001, respectively, and did not have an effect on net income. b. In January 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of" and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a business (as previously defined in that Opinion). This statement also amends ARB No. 51, "Consolidated Financial Statements" to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The Company has evaluated this statement and has determined there is no material impact on the Company's consolidated financial statements. c. During the second quarter, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, FASB Statement No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements." This Statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers." This Statement amends FASB Statement No. 13, "Accounting for Leases", to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. The Company will adopt the provisions of this Statement upon its effective date and does not anticipate it to have a material effect on its financial statements. d. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with exit or disposal commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company is currently evaluating the impact this pronouncement will have on its consolidated financial statements. 9. Goodwill and Other Intangibles 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 adopted this statement upon its effective date. The following tables discloses the carrying value of all intangible assets:
(In thousands) September 27, 2002 December 31, 2001 ------------------ ----------------- Gross Carrying Accum. Gross Carrying Accum. Amount Amortization Net Amount Amortization Net Amortized intangible assets: - --------------------------- Tradenames............ $ 31,890 $ (4,485) $ 27,405 $ 31,400 $ (3,271) $ 28,129 Technology............ 6,281 (725) 5,556 4,241 (302) 3,939 Non Compete Agreement. 1,143 (88) 1,055 -- -- -- --------- -------- --------- -------- ------- ------- Total................. $ 39,314 $ (5,298) $ 34,016 $ 35,641 $ (3,573) $ 32,068 ========= ========= ========= ========== ======== =========
Unamortized intangible assets - Carrying value Tradenames............ $ 57,867 $ 108,805 --------- ---------- Total................. $ 57,867 $ 108,805 ========= ==========
Intangible amortization expense amounted to $1.7 million in 2002 and $4.3 in 2001. The estimated intangible amortization for each of the next five years is approximately $2.3 million. The changes in the carrying amount of goodwill for the nine months ended September 27, 2002 is as follows:
(In thousands) Consumer Specialty Total Balance December 31, 2001......................................... $ 116,372 $ 10,948 $ 127,320 Purchase accounting adjustments................................... 49,885 -- 49,885 Goodwill acquired during 2002..................................... -- 7,859 7,859 FAS 109 adjustment................................................ -- (137) (137) Foreign exchange/other............................................ 1 (576) (575) ----------- ---------- ----------- Balance September 27, 2002........................................ $ 166,258 $ 18,094 $ 184,352 =========== ========== ===========
In accordance with FAS 142, the Company completed the impairment test of the valuation of goodwill and intangibles as of January 1, 2002 and its annual review as of April 1, 2002 and based upon the results, there was no impairment. During the third quarter, the Company took a $1.1 million impairment charge included in selling, general and administrative expenses related to one of its unamortized tradenames due to changes in market conditions since April 1, 2002. Fair value was determined using discounted cash flows. During the second quarter, the Company completed the purchase price allocation of the USAD acquisition and during the third quarter completed the purchase price allocation of the Carter-Wallace acquired brands, which adjusted the valuation of indefinite lived tradenames and goodwill. The Company in 2001 amortized tradenames and goodwill under rules in effect prior to the issuance of FAS 142 using the same useful life, therefore, there was no impact to the 2001 amortization expense recorded by the Company. Net income results and per share amounts for the quarter and nine months ended September 27, 2002 and September 28, 2001 reflecting goodwill and intangible assets that are no longer being amortized is as follows:
(Dollars in thousands, except per share data) Three Months Ended Nine Months Ended ------------------ ----------------- Sept. 27, Sept. 28, Sept. 27, Sept. 28, 2002 2001 2002 2001 ---- ---- ---- ---- Reported net income.................................... $ 17,575 $ 15,246 $ 51,150 $ 40,871 Goodwill amortization (net of tax)..................... -- 604 -- 1,443 Discontinued tradename amortization (net of tax)....... -- 301 -- 401 ---------- ---------- ---------- ---------- Adjusted net income.................................... $ 17,575 $ 16,151 $ 51,150 $ 42,715 ========== ========== ========== ========== Basic earnings per share As reported........................................ $.44 $.39 $1.29 $1.05 Goodwill amortization.............................. -- .01 -- .03 Tradename amortization............................. -- .01 -- .01 ---------- ---------- ---------- ---------- Adjusted net income................................ $.44 $.41 $1.29 $1.09 ========== ========== ========== ========== Diluted earnings per share As reported........................................ $.42 $.37 $1.23 $1.00 Goodwill amortization.............................. -- .01 -- .03 Tradename amortization............................. -- .01 -- .01 ---------- ---------- ---------- ---------- Adjusted net income................................ $.42 $.39 $1.23 $1.04 ========== ========== ========== ==========
10. Comprehensive Income The following table presents the Company's Comprehensive Income for the three months ending September 27, 2002 and September 28, 2001:
Three Months Ended Nine Months Ended (In thousands) Sept. 27, Sept. 28, Sept. 27, Sept. 28, 2002 2001 2002 2001 ---- ---- ---- ---- Net Income......................................... $ 17,545 $ 15,246 $ 51,150 $ 40,871 Other Comprehensive Income, net of tax: Foreign exchange translation adjustments........ (3,184) (1,420) (4,678) (3,512) Interest rate swap agreements................... (946) -- (1,218) -- Available for Sale securities................... -- (1,050) -- 2,152 ---------- ----------- ---------- ---------- Comprehensive Income............................... $ 13,415 $ 12,776 $ 45,254 $ 39,511 ========== ========== ========== ==========
11. Commitments and Contingencies a. Certain former shareholders of Carter-Wallace have brought legal action against the company that purchased the pharmaceutical business of Carter-Wallace regarding the fairness of the consideration these shareholders received. Pursuant to various indemnification agreements, Armkel could be liable for damages up to $12 million, and the Company could be liable directly to Armkel for an amount up to $2 million. The Company believes that the consideration offered was fair to the former Carter-Wallace shareholders, and it cannot predict with certainty the outcome of this litigation. b. The Company has commitments to acquire approximately $15 million of raw material and packaging supplies from our vendors. The packaging supplies are in either a converted or non-converted status. This enables the Company to respond quickly to changes in customer orders/requirements. c. The Company, in the ordinary course of its business, is the subject of, or a party to, various pending or threatened legal actions. The Company believes that any ultimate liability arising from these actions will not have a material adverse effect on its consolidated financial statements. 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 September 27,2002 net sales increased 10.7% from $238.4 million to $263.8 million. Consumer sales increased 11.2% to $217.6 million, primarily due to the addition of the Arrid antiperspirant and Lambert Kay pet care businesses as part of the Carter-Wallace acquisition. Specialty products increased 7.9% to $46.2 million, primarily due an increase in animal nutrition products, which was impacted by the Biovance acquisition. Excluding acquisitions and disposals, and an adjustment of $2.5 million for prior year promotion reserves based upon latest estimates, sales of existing products increased 3%, with higher laundry, deodorizer and specialty products sales, and slightly lower personal care sales. For the nine-month period, net sales increased 12.1% to $779.1 million from $694.8 million. Consumer sales increased 13.7% to $642.4 million for the same reasons as the current quarter which also includes the $1.8 million prior year promotion reserve adjustment from the second quarter 2002. Specialty products increased 5.1% to $136.7 million, again for the same reason as the current quarter. Excluding the items noted earlier, total sales increased 2.9%. Effective January 1, 2002, the Company adopted EITF 00-14 "Accounting for Certain Sales Incentives" and EITF 00-25 "Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer" and EITF 01-9 "Accounting for Consideration Given to a Customer or a Reseller of the Vendor's Products." EITF 00-14 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 did previously. EITF 00-25 outlines required accounting treatment of certain sales incentives, including slotting or placement fees, cooperative advertising arrangements, buydowns and other allowances. The Company previously recorded such costs as marketing expenses. The issue requires the Company to report the paid consideration expense as a reduction of sales, rather than marketing expense. EITF 01-9 codifies and reconciles certain issues from EITF 00-14 and EITF 00-25. The third quarter and year to date 2001 net sales have been reclassified to conform with these pronouncements. The impact was a reduction of net sales for the third quarter and year to date periods of approximately $35.9 and $100.6 million in 2002 and $32.2 and $89.5 million in 2001, and did not have an effect on net income. Gross profit margin for the quarter was 30.8% and 30.1% as adjusted for the change in promotion reserves versus 30.1% in 2001. During the quarter, the Company sold the remaining high cost antiperspirant inventories produced at the Carter-Wallace Cranbury plant. Gross profit margin for the nine-month period was 29.6%, unchanged from 2001. This is a result of expenses associated with the startup of its Madera, California animal nutrition facility, higher expenses associated with the Cranbury manufactured Arrid Antiperspirant, an increase in consumer coupon expenses related to 2002 sales which reduced net sales and lower sales on its existing personal care products. This was offset by lower manufacturing and distribution costs on laundry products and the prior year promotion reserve adjustments. Marketing expenses increased $2.8 million in the quarter and $6.5 million for the nine-month period. During the current quarter, increased spending on Arm & Hammer deodorant antiperspirant and spending associated with the acquired products were partially offset by lower spending on other personal care products. For the nine-month period, the increase is primarily due to the acquired products partially offset by lower spending on existing personal care products. Selling, general and administrative expenses increased $4.3 million to $30.3 million in the quarter and $7.8 million to $89.0 for the nine-month period. In the quarter, higher personnel related expenses and transition expenses associated with the Carter-Wallace acquired products, a $1.1 million impairment charge related to the tradename valuation of a recently acquired brand and higher deferred compensation expenses in the current quarter were partially offset by the elimination of Goodwill and certain tradename amortization expense associated with the Company's adoption of FAS 142. Excluding deferred compensation expenses, the reason for the nine month increase is consistent with the third quarter. Earnings from affiliates increased due to the inclusion of Armkel, LLC. The Company's existing equity investments, Armand Products and Armakleen were virtually unchanged. Interest expense increased significantly from last year as a result of the Company carrying the debt that was used to finance the two significant acquisitions in 2001. Other expenses include in the quarter and nine-month period foreign exchange losses associated with the Company's Brazilian subsidiary of $1.3 million and $2.5 million, respectively. Earnings were negatively impacted in 2001 by a change in the fair value of derivative instruments not designated as MANAGEMENT'S DISCUSSION AND ANALYSIS - (Continued) hedging instruments. Subsequently, these contracts were designated as hedging instruments of debt incurred as part of the Carter-Wallace acquisition and changes in value were recorded through other comprehensive income in the equity portion of the Company's Balance Sheet. The effective tax rate for the nine-month period was 34.6% versus 35.3% last year. This reflects the impact of Armkel's foreign subsidiaries, whose post-tax results are included in equity in earnings of affiliates, partially offset by a higher state tax rate. For the quarter, net income was $17.6 million or $.44 per basic share and $.42 per diluted share, compared to $15.2 million or $.39 per basic share and $.37 per diluted share in the same period last year. This year's results included a reversal of prior year promotion liabilities of approximately $.04 per share, partially offset by the tradename impairment charge of $.02 per share. Last year's results included a $.02 per share charge related to intangibles amortization that was discontinued in 2002 with the adoption of accounting standard FAS 142. For the nine months, net income increased to $51.1 million or $1.29 per basic share and $1.23 per diluted share compared to $40.9 million or $1.05 per basic share and $1.00 per diluted share in the same period last year. This year's results included a $.06 per share first quarter accounting charge relating to the purchase accounting step-up of opening inventory carrying values by Armkel, as well as a $.05 per share second quarter gain related to the allocation of profits of Armkel, a note receivable reserve of approximately $.02 per share, the reversal of prior year promotion reserves of $.07 per share and a $.02 per share charge associated with the tradename impairment referred to earlier. Last year's results included a $.02 plant shutdown charge, as well as a $.04 intangibles amortization charge discontinued in 2002. Liquidity and Capital Resources The Company considers cash and short-term investments as the principal measurement of its liquidity. At September 27, 2002, cash including cash equivalents totaled $76.1 million as compared to $52.4 million at December 31, 2001. The Company has outstanding long-term debt of $380.0 million, and the aforementioned cash equivalents less short-term debt of $20.8 million, for a net debt position of $324.7 million at quarter-end. In addition, the Company had an unused revolving credit facility of $100 million. Based on the definition in its loan agreements, the Company's cash flow (EBITDA) is estimated to be over $102 million for the nine months. Financial covenants include a leverage ratio and an interest coverage ratio, which were both met for the quarter. The Company believes cash on hand, along with the $100 million revolving credit facility is sufficient to meet its liquidity needs, which includes future capital projects. During the first nine months of 2002, the Company generated $73.0 million of cash flow from operating activities and received $10.0 million from stock option exercises. Significant expenditures include the purchase of Biovance stock of $7.7 million, property, plant and equipment additions of $30.9 million, the net repayment of debt of $16.9 million and the payment of cash dividends of $8.9 million. Cautionary Note on Forward-Looking Statements This report contains forward-looking statements relating, among others, to liquidity needs, contingencies and other matters. These statements, represent the intentions, expectations and beliefs of Church & Dwight, and are subject to risks, uncertainties and other factors, many of which are outside the Company's control. These factors, which include the ability of Church & Dwight to successfully complete the integration of the operations of the consumer products business of Carter-Wallace into the Armkel joint venture and Church & Dwight, and assumptions as to market growth and consumer demand (including the effect of recent political and economic events on consumer purchases), and the outcome of contingencies, including litigation, environmental remediation and the divestiture of assets, could cause actual results to differ materially from such forward-looking statements. With regard to new product introductions, there is particular uncertainty related to trade, competitive and consumer reactions. For a description of additional cautionary statements, see Church & Dwight's annual report filed with the SEC. Item 4. Controls and Procedures Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, we have concluded that the Company's disclosure controls and procedures are effective in recording, processing, summarizing and reporting within the time periods specified in the SEC's rules and forms material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings. Since Messrs. Davies' and Eiref's most recent review of the Company's internal controls systems, there have been no significant changes in internal controls or in other factors that could significantly affect these controls. PART II - Other Information Item 6. Exhibits and Reports on Form 8-K a. Exhibits (11) Computation of earnings per share (99.1) Statement regarding the Certification of the CEO of Church & Dwight Co., Inc. Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002 (99.2) Statement regarding the Certification of the CFO of Church & Dwight Co., Inc. Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002 (10) Compensation Plans and Arrangements (a) Employment letter dated July 24, 2002, by and between Church & Dwight Co., Inc. and Andrew B. Steinberg for the position of Vice President, General Counsel and Secretary. (b) Separation and Consulting Agreement dated October 4, 2002, by and between Church & Dwight Co., Inc. and Mark A. Bilawsky. b. No reports on Form 8-K were filed for the three months ended September 27, 2002. CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES EXHIBIT 11 - Computation of Earnings Per Share (In thousands except per share amounts)
Three Months Ended Nine Months Ended ------------------ ----------------- Sept. 27, Sept. 28, Sept. 27, Sept. 28, 2002 2001 2002 2001 ---- ---- ---- ---- BASIC: Net Income.................................... $ 17,575 $ 15,246 $ 51,150 $ 40,871 Weighted average shares outstanding................ 39,794 39,011 39,548 38,803 Basic earnings per share........................... $.44 $.39 $1.29 $1.05 DILUTED: Net Income.................................... $ 17,575 $ 15,246 $ 51,150 $ 40,871 Weighted average shares outstanding................ 39,794 39,011 39,548 38,803 Incremental shares under stock option plans........ 2,081 2,026 2,201 1,921 ---------- ---------- ---------- ---------- Adjusted weighted average shares outstanding....... 41,875 41,037 41,749 40,724 ---------- ---------- ---------- ---------- Diluted earnings per share......................... $.42 $.37 $1.23 $1.00
EXHIBIT 99.1 The Certification of the Chief Executive Officer of Church & Dwight Co., Inc. Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is not being filed with the Quarterly Report but has been submitted to the Securities and Exchange Commission under separate cover. EXHIBIT 99.2 The Certification of the Chief Financial Officer of Church & Dwight Co., Inc. Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is not being filed with the Quarterly Report but has been submitted to the Securities and Exchange Commission under separate cover 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: November 8, 2002 /s/ Zvi Eiref --------------------------- ------------------------------------- ZVI EIREF VICE PRESIDENT FINANCE DATE: November 8, 2002 /s/ Gary P. Halker --------------------------- ------------------------------------- GARY P. HALKER VICE PRESIDENT, CONTROLLER AND CHIEF INFORMATION OFFICER CERTIFICATION I, Robert A. Davies, III, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Church & Dwight Co., Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of any material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by other within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (of persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls: and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls: and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 8, 2002 ---------------- /s/ Robert A. Davies, III --------------------------------- Robert A. Davies, III Chief Executive Officer CERTIFICATION I, Zvi Eiref, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Church & Dwight Co., Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of any material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by other within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (of persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls: and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls: and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 8, 2002 ---------------- /s/ Zvi Eiref --------------------------------- Zvi Eiref Chief Financial Officer EX-10 3 ex10a.txt EMPLOYMENT LETTER July 24, 2002 Mr. Andrew Steinberg 6921 Baxtershire Drive Dallas, TX 75230 Dear Andy: This letter will confirm our offer for the position of Vice President, General Counsel & Corporate Secretary. In this position you will report directly to Robert Davies, Chief Executive Officer. As discussed, we are offering an attractive package of both direct and indirect benefits. Some of the major highlights of our employment offer are detailed below: |X| Your starting base salary will be $10,833.33 semi-monthly ($260,000 annually). |X| You will receive a one-time sign on bonus of $15,000 (taxable) |X| Vacation Entitlement -You will receive ten days vacation and one personal day in 2002. For 2003 you will receive four weeks vacation and two personal days. |X| You will participate in the Church & Dwight Incentive Compensation Program with a target bonus of 45% (range of 0 - 90%) of base salary earned during the year. Your first award will be due in February, 2003. Your 2002 award will be no less than 45% of base salary earned in 2002. |X| You will participate in the Company's Stock Option plan. Options are annually distributed in the May time frame. You will receive stock options based on a formula equal to the one used to determine the option grant for other employees at your level. In addition, you will receive 15,000 stock options with an exercise price equal to the average of the high and low on your start date |X| You will be eligible to receive relocation assistance to cover the costs of your move to this area. More details are available in the attached relocation policy. Please call me if you have further questions. |X| You will participate in Church & Dwight's comprehensive health, welfare and retirement programs. Kathy McAleer of the Human Resources Department will be contacting you to schedule a full benefits orientation shortly after your start date. In the interim, the attached "Summary of Benefits" should provide a helpful outline of our benefits programs. Your benefits become active on the first day of the month following 30 days of active employment. |X| Your anticipated start date will be September 1, 2002 Andrew Steinberg July 24, 2002 Page 2 This offer is contingent upon the satisfactory completion of reference checking and drug screening, as well as verification of your eligibility to work in the United States (I-9). Please sign one copy of this letter, complete the enclosed documents and return them to the Human Resources Department as soon as possible. Please fill out only the top portion of the I-9 form and be sure to bring it with you on your start date along with the appropriate identification required to complete the form (see back of form). Please report to the Human Resources Department at 8:30 a.m. on your start date. Martin Hayes of the Human Resources Department will arrange for a drug-screening test at a facility located in your area. Please call Martin at (609) 279-7313 with your social security number so this test can be scheduled. Andy, we look forward to your joining Church & Dwight Co., Inc. and believe you will have a successful, rewarding career with us. Please do not hesitate to contact me with regard to the specifics of this offer and/or related benefit programs. Sincerely, /s/ Steven P. Cugine - --------------------- Steven P. Cugine Vice President Human Resources Accepted by: /s/Andrew Steinberg July 29, 2002 ------------------------------ ------------------ Andrew Steinberg Date Enclosures EX-10 4 ex10b.txt SEPARATION AND CONSULTING AGREEMENT SEPARATION AND CONSULTING AGREEMENT This Separation and Consulting Agreement (the "Agreement") is entered into by and between Mark Bilawsky, residing at 6638 Bristol Lake South, Delray Beach, Florida 33446 (the "Employee") and Church & Dwight Co., Inc., with its corporate headquarters at 469 North Harrison Street, Princeton, New Jersey 08543 (the "Company"). WHEREAS, the Employee is employed by the Company as its Vice President, General Counsel, and Secretary; and WHEREAS, the Company and the Employee have agreed that the Employee will resign and retire from his position as Vice President, General Counsel, and Secretary effective as of September 30, 2002, or such later date as provided herein; and WHEREAS, the Company and the Employee wish to fully settle all matters between them arising out of the Employee's employment or his resignation and retirement therefrom; and WHEREAS, as a result of the personalized knowledge gained by the Employee during his employment, the Company desires to retain the services of the Employee as an independent consultant following his resignation and retirement. NOW THEREFORE, in consideration of the mutual promises contained herein, the parties hereto, intending to be legally bound, agree as follows: 1. Agreement to Resign and Retire. 1.1 The Employee hereby resigns and retires, effective September 30, 2002, or such later date as provided in Section 1.1(a) or (b) below (the "Retirement Date"), from his position as the Company's Vice President, General Counsel, and Secretary. Until such time, the Employee will continue to be an employee of the Company, subject to the terms of this Agreement, and the Employee will continue to devote his full time and best efforts to performing his duties as the Company's Vice President, General Counsel and Secretary, as assigned to him from time to time in accordance with the Company's policies. 1.1(a) The Company may, in its sole discretion, delay the Retirement Date beyond September 30, 2002, until such time as the Company hires an individual to replace the Employee in his position as the Company's Vice President, General Counsel, and Secretary, and such individual commences employment with the Company; provided, however, except as provided in Section 1.1(b) below, the Retirement Date shall not be later than December 31, 2002. 1.1(b) The Company may, in its sole discretion, extend the Retirement Date beyond December 31, 2002, for additional three (3) month periods commencing on January 1, 2003; provided that: (i) The Company shall give the Employee no less than thirty (30) days prior notice of its election to extend the Retirement for an additional three (3) month period; and (ii) The compensation paid to the Employee under Sections 1.2, 1.3, and 1.4 below, shall continue during such three (3) month period, except that the Employee's regular base salary shall be increased to $235,000 per annum effective as of January 1, 2003; and (iii) The Annual Consulting Fee payable to the Employee in accordance with the terms of the Consulting Agreement shall be increased as described in Section 6.1 below. 1.2 Subject to Section 1.1(b), until the Retirement Date, the Company will continue to pay the Employee his regular base salary of $225,000 per annum (which became effective as of January 1, 2002), and the Employee shall receive a par bonus for 2002 equal to 39% of his base salary prorated for that portion of the year he is employed by the Company prior to the Retirement Date payable at such time and manner as the Company normally pays such bonuses (less required withholding). 1.3 Until the Retirement Date, the Employee may continue to utilize any vacation time he has accrued under the Company's vacation policy. As soon as practicable following the Retirement Date, the Company shall pay the Employee in a single lump sum payment, less applicable withholding, for any accrued, but unused vacation time in accordance with the terms of the Company's vacation policy. 1.4 Until the Retirement Date, the Employee may continue to participate in the Company's various retirement, health, welfare and fringe benefit plans, programs, policies and arrangements ("Employee Benefit Plans") for which the Employee is otherwise eligible, pursuant to the terms of such plans. Following the Retirement Date, the Employee generally will cease to participate in the Employee Benefit Plans, except to the extent provided therein or by applicable law. Nothing in this Agreement or the Consulting Agreement shall be interpreted to expand any right the Employee may have under the Employee Benefit Plans unless otherwise expressly provided herein. 1.5 Following the Retirement Date, the Employee will be eligible for continued dental coverage for himself and his dependants in accordance with the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). The Employee shall be required to pay one-hundred percent (100%) of the COBRA premiums for such coverage. 1.6 Following the Retirement Date, the Employee shall be eligible to apply for and receive medical insurance under the Company's Medical Insurance Plan, as it may be amended from time to time. Benefits for retirees are currently the same as those for active employees, but the Plan is subject to amendment or termination at any time by the Company. If the Employee elects not to apply for such coverage within thirty (30) days following his Retirement Date or if the Employee terminates coverage under the Medical Insurance Plan at any time for any reason, the Employee shall not thereafter be eligible to reapply for coverage under the Medical Insurance Plan. The Employee shall be required to pay one-hundred percent (100%) of the premiums paid by the Company (or other cost of coverage, if self insured in whole or in part) for coverage under the Medical Insurance Plan. Upon the Employee's attainment of age 65, the Employee's coverage under the Company's Medical Insurance Plan shall cease, except as otherwise provided therein. 2. Stock Options. For a period of two (2) years following the Retirement Date, the Company agrees that any issued and outstanding nonqualified stock options granted to the Employee after December 31, 1998, under the Company's 1983, 1994, and 1998 Stock Option Plans shall continue to vest and be exercisable as if the Employee were still actively employed. After such two (2) year period, any remaining options shall automatically expire and terminate. With respect to vested but unexercised nonqualified stock options granted to the Employee prior to January 1, 1999, the Employee shall have three (3) years from the Retirement Date to exercise such options. 3. Computer. Following the Employee's resignation and retirement, the Company agrees to give the Employee the computer that was provided by the Company to the Employee for use in his employment as of the execution date of this Agreement; provided that, the Company expressly reserves the right to remove any and all secret, confidential, proprietary or other sensitive information, software, program, or application relating to the Company that the Company determines, in its sole and absolute discretion, is necessary or advisable prior to turning the computer over to the Employee. The Company further reserves the right to remove any and all software, programs, or other applications to the extent that failing to do so would violate any licensing or usage agreement the Company may have. The Employee agrees to cooperate in the identification and removal of all such items, and agrees not to make any copies or otherwise retain or transfer any of such information. 4. No Other Severance. Except as provided in this Agreement, the Employee shall not be entitled to receive any other payment, benefit or other form of compensation as a result of his employment or his resignation and retirement therefrom. Specifically, the Employee shall not be eligible for severance benefits under any plan, program or arrangement sponsored or funded by the Company, and he hereby waives any right to any such benefits. 5. Return of Company Property. Subject to Section 3 above, no later than the Employee's Retirement Date, the Employee agrees to return any Company property in the Employee's possession or control, including all equipment, the original and all copies of books, notebooks, documents, reports, files, memoranda, records, computer software and programs, correspondence, mailing lists, client or contact lists, calendars, card files, rolodexes, cardkey passes, door, file and computer keys, computer access codes or disks, company charge cards, instructional employee manuals, and other Company property which the Employee received or had control over during his employment with the Company, except to the extent the Company and the Employee mutually agree such item or items may be required by the Employee in connection with the performance of services under the Consulting Agreement. 6. Consulting Agreement. 6.1 Agreement for Services. For a period of three (3) years following the Employee's Retirement Date (each such year referred to hereinafter as a "Consulting Year"), the Employee agrees to make himself available at the Company's reasonable request to provide legal and other related services the Company may reasonably request to the Company, its subsidiaries, partnerships, joint ventures, and affiliates (including, without limitation Armkel, LLC) in accordance with the terms set forth below (the "Consulting Agreement"). Such services shall be performed at such locations as the Company may reasonably request, and the Employee agrees to use his best skill, efforts and judgment in performing such services. So long as Employee renders services, as provided for in this Agreement and the Consulting Agreement, in good faith and in accordance with the Company's "Guidelines for Personal Business Conduct," and in accordance with the best of his abilities, Employee shall be indemnified from any liability by the Company arising from the course and scope of his employment or consulting services to the Company, in the same manner and to the same extent as such indemnification is provided to the executive officers of the Company pursuant to the Company's Restated Articles of Incorporation and/or Bylaws. The Company agrees to pay the Employee an Annual Consulting Fee for services provided up to the Maximum Hour Allotment for each Consulting Year as set forth below. The Annual Consulting Fee shall be payable in twelve (12) equal monthly installments, in arrears, whether or not the Company requires the Employee to provide services up to the Maximum Hour Allotment for the Consulting Year. If the Company requests the Employee to provide services that exceed the Maximum Hour Allotment for any Consulting Year, and the Employee agrees to do so, upon submitting reasonable documentation of the same, the Company agrees to pay the Employee $275 for each hour of service provided in excess of the Maximum Hour Allotment for the Consulting Year. The Company agrees to reimburse the Employee for all reasonable travel and other reasonable and necessary out-of-pocket business related expenses incurred by the Employee at the request of the Company in connection with the performance of services under the Consulting Agreement; provided that the Employee shall be required to submit reasonable documentation of such expenses to the Company prior to receiving reimbursement. If the Employee's Retirement Date is on or before December 31, 2002, the Maximum Hour Allotment and Annual Consulting Fee for each of the three (3) Consulting Years following the Employee's Retirement Date shall be as follows: - -------------------------------------------------------------------------------- Consulting Year Maximum Hour Allotment Annual Consulting Fee - -------------------- -------------------------------- ------------------------ - -------------------- -------------------------------- ------------------------ 1 750 $225,000 - -------------------- -------------------------------- ------------------------ 2 375 $112,500 - -------------------- -------------------------------- ------------------------ 3 188 $56,250 - -------------------------------------------------------------------------------- Notwithstanding the foregoing chart, if the Company extends the Retirement Date beyond December 31, 2002, pursuant to Section 1.1(b) above, the Maximum Hour Allotment and Annual Consulting Fee for each of the three (3) Consulting Years following the Employee's Retirement Date shall be as follows: - -------------------------------------------------------------------------------- Consulting Year Maximum Hour Allotment Annual Consulting Fee - -------------------- -------------------------------- ------------------------ - -------------------- -------------------------------- ------------------------ 1 750 $235,000 - -------------------- -------------------------------- ------------------------ 2 375 $117,500 - -------------------- -------------------------------- ------------------------ 3 188 $58,750 - -------------------------------------------------------------------------------- 6.2 Termination for Cause. The Company may terminate the Employee's employment and/or the Consulting Agreement at any time for Cause. Any termination shall be effective on the date of delivery of notice of such termination to the Employee if notice is provided in person, by hand delivery or facsimile, or one (1) day after the Company sends notice to the Employee if such notice is sent via Federal Express or other overnight delivery service, or, in all other cases, the termination shall be effective three (3) days after the Company sends notice to the Employee. In the event of termination for Cause under subsections (a) (b) (c) or (d) of this Section, the Company shall have no further obligations to make any payments or provide any benefits under the Consulting Agreement after the date of the event given rise to termination for Cause under subsections (a) (b) (c) or (d). For purposes of this Section "Cause" shall mean the following: (a) the Employee's conviction of or plea of guilty or nolo contendere to a felony or crime involving moral turpitude; (b) the Employee's personal dishonesty, willful violation of any laws, rule or regulation (other than minor traffic violations or similar offenses), or Employer's obtaining evidence of employee's breach of any covenant contained in Sections 9 or 10 hereof; (c) the Employee's mismanagement or nonperformance in the conduct of the services requested by the Company; or (d) alcohol or substance abuse or addiction on the part of the Employee. Notwithstanding the foregoing, no act or omission described in (c) above shall constitute "Cause" unless the Company notifies the Employee in writing of the acts or omissions that the Company believes constitute Cause, the Company first meets with Employee to discuss the same (which the Company shall use its best efforts to schedule within two weeks of any such notice), and the Employee fails to cure such acts or omissions to the Company's reasonable satisfaction within 72 hours of such meeting. However, if said meeting is not held within two weeks due to the refusal of the Employee to be present at such meeting, then the Employee's employment will be deemed terminated for Cause 72 hours after the expiration of such two week period, unless the Employee will have cured such acts or omissions constituting Cause to the Company's reasonable satisfaction within such time period. 6.3 Termination upon Death or Disability. This Agreement and the Consulting Agreement shall automatically terminate in the event the Employee dies or suffers a disability that renders the Employee unable to perform the services requested by the Company to its reasonable satisfaction. If the Consulting Agreement terminates during the first two (2) Consulting Years following the Retirement Date due to the Employee's death or disability, the Company will pay to the Employee, his estate, or designated beneficiary, in a single lump sum payment, for the year of such death or disability, the sum of (a) the remaining unpaid portion of the consulting fee due for such year, plus (b) $150/hour in the case of death, or $75/hour in the case of disability, for each hour Employee actually worked in such year (i.e., either Year 1 or Year 2, as the case may be), but only with respect to the hours worked in the particular year in which the death or disability actually occurred. Thus, for example, if Employee dies or becomes disabled in Year 2, he (or his estate or beneficiary) will only be paid the remaining unpaid Consulting Fee for Year 2 plus the special death or disability payments for hours worked in Year 2, and not for any hours worked in Year 1. Thereafter the Company shall have no further obligation to make any further payments or provide any benefits under the Consulting Agreement to the Employee, his estate, beneficiaries, heirs, or assigns. If the Consulting Agreement terminates on or after the second anniversary following the Retirement Date due to the Employee's death or disability, the Company shall have no further obligation to make any payments or provide any benefits under the Consulting Agreement (including, without limitation, any unpaid portion of an Annual Consulting Fee) to the Employee, his estate, beneficiaries, heirs or assigns, except for any previously earned but unpaid fees. 6.4 Independent Contractor. The Employee shall perform the services requested by the Company under the Consulting Agreement as an independent contractor and shall not be deemed an employee of the Company. Accordingly, the Company will not withhold federal or state income, social security, or other taxes from the consulting fee paid under the terms of the Consulting Agreement, unless otherwise required by law. Further, during the term of the Consulting Agreement, the Employee is free to render legal and other related services to third parties as the Employee sees fit. Notwithstanding the foregoing, the Employee shall not be permitted to engage in any activity in competition with (including rendering legal services to a competitor) any of the businesses conducted by the Company, its subsidiaries, partnerships, joint ventures, or affiliates, without the prior written approval of the Company. Employee may apply for a waiver of these restrictions, which the Company may grant in its reasonable discretion. 7. Ongoing Assistance. Following the termination of the Consulting Agreement, the Employee shall execute any and all documents and take any and all actions which the Company may reasonably request to effect the transition of the projects being worked on by the Employee at the time of termination and, subject to mutual agreement regarding time and compensation, the Employee agrees to make himself available with respect to, and to cooperate in conjunction with, any litigation or investigation arising from events that occurred during the Employee's employment or provision of services under the Consulting Agreement (whether such litigation or investigation is pending or subsequently initiated) involving the Company or any of its affiliates or other Released Parties (as defined below), including providing testimony and preparing to provide testimony if so requested by the Company or any of its affiliates. 8. Releases. The Employee hereby releases the Company and its agents, employees, representatives, officers, directors, shareholders, trustees, attorneys, affiliates, subsidiaries, joint ventures, partnerships and any employee benefit plan fiduciary, and the successors and assigns of each (collectively referred to as the "Released Parties") from any debts, duty, claim, counterclaim, cost, expense, cause of action, liability or other obligation, whether known or unknown, against the Released Parties, which the Employee may have relating to the employment of the Employee or the Employee's resignation and retirement therefrom, including, without limitation, any dispute arising prior to the date of execution of the Agreement under the Age Discrimination in Employment Act of 1967; the Civil Rights Acts of 1964 and 1991; the Americans with Disabilities Act of 1990; and any other federal or state statute or regulation under which the Employee may have a potential claim; and any claim based on theories of contract, tort, or other equitable or legal grounds; Provided, however, that (i) this Release shall only relate to claims relating to Employee's employment or the termination thereof, and (ii) this Section 8 shall not apply to any claim the Employee may have for accrued vested benefits under any federal or state workers' compensation act, under the Employee Retirement Income Security Act of 1974, or with respect to any obligation of the Company specifically provided for in or pursuant to this Agreement. The Employee affirms that he will not cause or permit to be filed on his behalf any charge, complaint or action before any court or administrative agency alleging discrimination or any unfair employment practices, whether know or unknown, against the Released Parties relating to the employment of the Employee or the Employee's resignation and retirement. 9. Nondisclosure. During the Employee's employment with the Company and during the term of the Consulting Agreement, the Employee has and will have access to and become acquainted with the Company's confidential and proprietary information, including, but not limited to, information or plans regarding customer relationships; personnel, sales, marketing, and financial operations and methods; trade secrets; formulas; devices; inventions; processes; and other compilations of information, records, and specifications (collectively "Proprietary Information"). The Employee shall not disclose, transfer, or permit access to any of the Company's Proprietary Information directly or indirectly, or use it in any way, either during the term of this Agreement or at any time thereafter, except as required in the course of his employment or provision of services under the Consulting Agreement for the Company or as authorized in writing by the Company. All files, records, documents, computer-recorded information, drawings, specifications, equipment and similar items relating to the business of the Company, whether prepared by the Employee or otherwise coming into his possession or control, shall remain the exclusive property of the Company and shall not be removed from the premises of the Company except when (and only for the period) necessary to carry out the Employee's duties hereunder, and if removed shall be immediately returned to the Company upon any termination of this Agreement. Notwithstanding the foregoing, Proprietary Information shall not include (i) information which is or becomes general public knowledge except through disclosure by the Employee in violation of this Agreement; (ii) information that may be required to be disclosed by applicable law; (iii) information disclosed to the Employee without obligation of confidence by a third party; and (iv) information that is, or has been developed without having violated this Agreement. The Employee further agrees to keep the terms and provisions of this Agreement confidential. 10. Nondisparagement. The Employee represents and warrants that, during the course of his employment with the Company, he has conducted himself in a manner consistent with the "Guidelines for Personal Business Conduct," as disseminated to employees from time to time and has done nothing which may adversely affect the goodwill enjoyed by the Company; and the Employee agrees to continue to do so during the term of this Agreement and the Consulting Agreement and to reexecute said Guidelines in his capacity as an independent contractor/consultant. 11. Remedies. The Employee acknowledges that a material breach or threatened material breach on the Employee's part of any nondisclosure or nondisparagement covenants contained herein will cause such damage to the Company as will be irreparable and for that reason the Employee further agrees that the Company shall be entitled as a matter of right to an injunction from any court of competent jurisdiction (without the need to post bond or prove irreparable injury or inadequate remedy at law), restraining any further violation of such covenants by the Employee. The rights to injunction shall be cumulative and in addition to any and all other remedies the Company may have, including, specifically, recovery of money damages and any other legal or equitable relief available. 12. Taxes. The Employee agrees that the Employee will be fully and solely responsible for any income or other tax liability imposed on Employee in his capacity as an "independent contractor." 13. Acknowledgement. The Employee acknowledges that he has carefully read and fully understands all of the terms of this Agreement, including without limitation the releases contained herein. The Employee further acknowledges that the consideration provided for herein represents amounts and benefits greater than he otherwise would be entitled to receive absent this Agreement, and that the Employee has entered into this Agreement willingly, freely, without threat, duress, coercion, undue influence, or intimidation of any kind. The Employee further acknowledges that he has been advised to consult with an attorney of his choosing prior to executing this Agreement. The Employee has had, or has had the opportunity to have, this Agreement in his possession for at least twenty-one (21) days and has had that same period to consider whether to sign it. Once accepted, the Employee's acceptance to this Agreement can be revoked only within the seven (7) day period following the date of its execution by the Employee. After the expiration of seven (7) days, this Agreement will become effective and legally binding in all aspects. 14. Entire Agreement. In executing this Agreement, the Employee is not relying on any oral representation or statement by any employee, agent, or representative of the Company regarding the subject matter, basis, or effect of this Agreement. Rather this Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supercedes all prior agreements between the parties with respect to such matters unless specifically provided otherwise herein. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto. 15. Reformation. If any provision of this Agreement is determined to be invalid, illegal, or unenforceable, in whole or in part, neither the validity of the remaining parts of such provision nor the validity of any other provision of this Agreement shall in any way be affected thereby. In lieu of such invalid, illegal, or unenforceable provision, there shall be added automatically as part of this Agreement a provision as similar in terms to such invalid, illegal, or unenforceable provision as may be possible to be valid, legal, and enforceable. 16. Governing Law. This agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without reference to its conflicts of law provisions, and shall be binding upon the parties and their respective heirs, executors, successors and assigns. 17. Breach. The Employee agrees to indemnify, defend and hold each and all of the Released Parties harmless from and against any loss, cost, damage or expense (including, without limitation, attorney's fees) incurred by the Released Parties as a result of any breach of Sections 8, 9, or 10 of this Agreement by the Employee. 18. Notice. Any notice required or permitted to be given hereunder shall be deemed sufficient if delivered in person or sent by hand delivery, facsimile, overnight mail, or registered or certified mail, postage prepaid, addressed to the addressee at his or its last known address and shall be effective as of the time provided in Section 6.2. 19. Assignment. None of the rights of the Employee to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through testamentary disposition or by the laws of descent and distribution upon the death of the Employee. Any attempted assignment, transfer, conveyance, or other disposition of any interest in the rights of the Employee herein shall be void. This Agreement and the Consulting Agreement are for the Employee' personal services and the Employee may not assign, transfer, or delegate any duty or obligation to perform such services. Any attempted assignment, transfer or delegation in violation of this Section 19 shall be null and void and shall constitute a breach of this Agreement and/or the Consulting Agreement. 20. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but which together shall constitute one and the same instrument. 21. Death or Disability Prior to Retirement. In the event of the Employee's death or disability prior to the Retirement Date, this Agreement shall automatically terminate and the Company shall have no further obligations to make any payments or take any actions under this Agreement or the Consulting Agreement. In such event, the Employee shall be entitled to benefits under the Company's Employee Benefit Plans in effect as of the date of the Employee's death or disability, for which the Employee is eligible pursuant to the terms of such plans. For purpose of this Section, the Employee shall be deemed to be disabled if he is unable to perform the essential function of his employment as the Company's Vice President, General Counsel and Secretary as may be determined by the Company in a manner consistent with past practice. 22. Headings, Numbering & Captions. The headings, numbering and captions herein are included solely for convenience, and if there is any conflict between such headings, numbering or captions and the text of this Agreement, the text shall control. [SIGNATURES ON NEXT PAGE] IN WITNESS WHEREOF, the parties have executed this Agreement this 4th day of October, 2002. CHURCH & DWIGHT CO., INC. By: /s/ Steven P. Cugine ----------------------------------- Title: Vice President Human Resources -------------------------------- EMPLOYEE /s/ Mark Bilawsky --------------------------------------- Mark Bilawsky -----END PRIVACY-ENHANCED MESSAGE-----