EX-99 2 exh99_3q.txt 3RD Q 2003 PRESS RELEASE News Release Contact: Zvi Eiref Chief Financial Officer 609/279-7666 CHURCH & DWIGHT REPORTS THIRD QUARTER RESULTS -------------------------------------------------------------------------------- PRINCETON, NJ, NOVEMBER 3, 2003 - Church & Dwight Co., Inc. (NYSE:CHD) today reported third quarter net income of $19.5 million or $0.46 per diluted share, a $0.04 per share or 10% increase over the $17.6 million or $0.42 per diluted share for the same period last year. "We are pleased with our third quarter earnings, as well as with several other positive developments, including expanded distribution for several product lines, acquisition of Unilever's oral care business in the United States and Canada, and the strengthening of the Company's capital structure," said Chairman and Chief Executive Officer of Church & Dwight Robert A. Davies, III. "We expect to increase fourth quarter spending on marketing and R&D, in advance of planned new product introductions next year. For the full year, we remain comfortable with our previously announced earnings objective of around $1.85 per diluted share, even after an anticipated loss of $0.05 to $0.07 per diluted share due to non-cash accounting charges for the recently acquired oral care business. Excluding this last item, our objective would be at least $1.90 per diluted share for the full year 2003." Church & Dwight third quarter sales of $265.6 million were $1.8 million or 0.7% above last year. This year's sales included a $0.7 million reversal of prior year promotion reserves due to a change in estimate; last year's sales included a similar change in estimate of $2.5 million. At the brand level, significantly higher sales of liquid laundry detergent were partially offset by lower powder laundry detergent sales. Deodorizer sales benefited from recent cat litter and carpet deodorizer product introductions; however, cleaner sales were affected by the Company's decision to recall, for safety reasons, a single item from the Sno Bol(R) toilet bowl cleaner line. Toothpaste and antiperspirant sales were lower due to a combination of competitive activity and lower promotional spending than last year. International and specialty products sales were moderately higher than last year. During the quarter, the Company strengthened the presence of its Arm & Hammer(R) and Xtra(R) laundry detergent product lines in the mass channel. In addition, the Company expanded distribution of two products introduced earlier in the year, Brillo(R) Scrub'n'Toss(TM) disposable cleaning pads and Arm & Hammer Liquid Fabric Softener. Early in the quarter, the Company also launched a major new variant of its cat litter line, Arm & Hammer Easy Flush(TM) Clumping Cat Litter. - more - Third quarter gross margin of 30.3% was 0.5% below the same period last year. Excluding the promotion reserve adjustments referred to earlier, gross margin was flat, with a slightly higher margin on consumer products offset by a substantially lower margin on specialty products. The lower specialty products margin was largely due to a sharp increase in the cost of a palm oil derivative, which is a key ingredient in the animal nutrition business. The higher consumer products margin was due to improved manufacturing and purchasing efficiencies, which were large enough to absorb significant start-up and introductory promotion costs associated with the new product introductions, as well as the cost of the product recall referred to earlier, and costs related to a 10% reduction in inventory levels during the quarter. The third quarter $2.1 million reduction in Other Expense was due to a significant reduction in debt and lower interest rates, as well a $1.3 million foreign exchange loss in the same period last year. Nine months net income was $65.1 million or $1.55 per diluted share, which is $0.32 per share or 26% above last year's $51.2 million or $1.23 per share. This year's first half results included a net $0.07 per share contribution by the Company's affiliate, Armkel LLC, primarily resulting from the settlement of litigation, as well as a $0.06 per share gain from the reversal of prior year tax reserves. Last year's first half results included a net $0.01 per share acquisition-related charge. Excluding these special items in both years, net income would have increased by $0.18 per share or 15% to $1.42 per share from $1.24 per share last year. Nine months net sales of $770.1 million were $8.9 million or 1.1% below last year's $779.1 million. This reduction reflects the change in promotion reserve estimates mentioned above, which amounted to $1.1 million this year and $5.3 million last year for the nine-month period, as well as the discontinuance during the first half of 2002 of certain cleaning and pet care products previously acquired from USA Detergents and Carter-Wallace, respectively. As previously announced, in early August, the Company strengthened its financial position by issuing $100 million in 5 1/4% unsecured convertible senior debentures and used the proceeds to pay down existing debt. At quarter-end, the Company had total outstanding debt of $318.7 million, and cash of $76.7 million, for a net debt position of $242.0 million, a reduction of $82.6 million from the same period last year. Earnings before interest, taxes, depreciation and amortization (EBITDA), a measure widely used by investors, are estimated at $107 million for the nine months, based on the definition in the Company's loan agreement, as shown on an attached exhibit. Net Cash Provided by Operating Activities, the most directly comparable GAAP financial measure, was $79.7 million for the period. Mr. Davies added, "Cash flow remains strong. In the two years since the acquisition of the Carter-Wallace consumer products business in September 2001, Church & Dwight has reduced its net debt position by almost $140 million, and Armkel has reduced its net debt position by $60 million after spending more than $60 million on integration and other acquisition-related costs." - more - ARMKEL, LLC Armkel, a 50/50 joint venture between Church & Dwight and the private equity group, Kelso & Company, reported net income of $9.0 million compared to $9.3 million in the same period last year. Third quarter sales of $103.4 million were $2.4 million or 2.4% above last year's $101.0 million as reported, and 1.8% below last year after excluding foreign exchange translation gains. Domestic sales of $50.7 million were 8.5% below last year. As previously reported, sales of Nair(R) depilatories were severely affected by the cool and wet summer weather, which reduced the total market size, as well as by increased competition. Sales of First Response(R) pregnancy kits were also affected by competitive activity; and sales of Trojan(R) condoms, while robust at the retail level, were slightly lower at the wholesale level due to the timing of promotion activity. International sales of $52.7 million were 15.6% ahead of last year as reported, and 6.4% higher excluding foreign exchange translation gains. This increase reflects strong sales of oral and skin care products in Europe, and condoms in Canada and Mexico. Nine months net income of $46.7 million compares to last year's $25.2 million. This year's first half results included a gain from the settlement of litigation. Excluding this and other special items, as shown on the attached exhibit, net income would have increased $3.4 million or 10.8% to $34.9 million from $31.5 million last year. Nine months sales of $316.5 million were $23.7 million or 8.1% higher than last year's $292.8 million as reported, and 3.4% higher adjusted for foreign exchange translation gains. Domestic sales of $160.3 million were 1.2% below last year. International sales of $156.2 million were 19.7% higher as reported, and 9.3% higher adjusted for foreign exchange translation gains. Armkel had total outstanding debt of $386.9 million, and cash of $52.4 million, for a net debt position of $334.5 million at quarter-end, a reduction of $63.0 million from the same period last year. During this 12-month period, the Company paid over $15 million in severance, integration and other acquisition-related costs, and sold its Italian subsidiary for approximately $22.6 million. Armkel's EBITDA, as defined in its loan agreement and excluding the settlement proceeds described earlier, is estimated at approximately $75.3 million for the nine-month period, as shown on the attached exhibit. Net Cash Provided by Operating Activities was $35.5 million for the period. ACQUISITION OF UNILEVER ORAL CARE BUSINESS As previously reported, the Company completed its acquisition of Unilever's oral care business in the United States and Canada on October 20, 2003. The purchase price was approximately $104 million in cash, plus additional performance-based payments of between $5 million and $12 million payable over the next eight years. The acquisition was funded by refinancing an existing medium-term borrowing facility managed by JPMorgan, and adding $100 million to the amount available under such facility. - more - The purchase includes the Mentadent(R) brand of toothpaste and toothbrushes, Pepsodent(R) and Aim(R) toothpaste, and exclusive licensing rights to Close-Up(R) toothpaste. Nine months sales for these brands are estimated at approximately $90 million. While the business has been in decline for several years, the Company believes that the brand equities remain strong, and that the business can be revitalized over a period of time through additional focus, new product development and marketing support. While it is difficult to predict, the Company currently expects the acquired business to report a fourth quarter loss equivalent to approximately $0.05 to $0.07 per share due to non-cash accounting charges related to the valuation of opening inventories and the accelerated write-down of deferred financing costs incurred on a previous financing transaction. While it is also difficult to predict the earnings effect in 2004 due to manufacturing transition and other considerations, the Company believes that the acquisition will become accretive some time during the next 12 months. Mr. Davies concluded, "The acquisition doubles the size of our oral care business, and strengthens our position with both consumers and the trade, in the same way as the 2001 acquisitions of USA Detergents and the consumer business of Carter-Wallace strengthened our position in the detergents and antiperspirants businesses, respectively. The expected earnings accretion also makes us more confident in our ability to meet our previously announced objective of achieving 12.5%-15% average annual earnings per share growth for the three year period 2003-2005." As previously reported, at its October 22 Board Meeting, the Board declared a regular quarterly dividend of $0.08 per share. The dividend is payable December 1, 2003 to stockholders of record at the close of business on November 7, 2003. This is the Company's 411th regular quarterly dividend. Church & Dwight will host a conference call to discuss third quarter 2003 earnings results with the investment community on November 3 at 10:00 a.m. (EST). To participate, dial in at 800-901-5241. A replay will be available two hours after the call at 888-286-8010, access code 69293334, as well as on the company's website. Also, you can participate via webcast by visiting the Investor Relations section of the company's website at www.churchdwight.com. Church & Dwight Co., Inc. is the manufacturer of household, personal care and specialty products, sold under the ARM & HAMMER brand name and other well-known trademarks. This release contains forward-looking statements relating, among others, to anticipated earnings per share and annual earnings per share growth, prospects for revitalization of the oral care business acquired from Unilever and anticipated financial performance of such oral care business, and increased spending in marketing and R&D. These statements represent the intentions, plans, expectations and beliefs of Church & Dwight, 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), raw material and energy prices, the financial condition of major customers, the Company's ability to realize efficiencies from the integration of the oral care business acquired from Unilever with the Company's existing oral care business, and the Company's determination and ability to exercise its option to acquire the remaining 50% interest in Armkel. With regard to the new product introductions referred to in this release, there is particular uncertainty relating to trade, competitive and consumer reactions. 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 the Company's disclosures, in its filings with the U.S. Securities and Exchange Commission, particularly those contained in Risk Factors in Item 1 of Part 1 of the Company's Annual Report on Form 10K for the year ended December 31, 2002. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995. # # # CHURCH & DWIGHT CO., INC. Product Line Net Sales 3rd Quarter and Nine Months 2003 vs. 2002
(Dollars in Millions) Three Months Ended Nine Months Ended ------------------ ----------------- Sept. 26, 2003 Sept. 27, 2002 Sept. 26, 2003 Sept. 27, 2002 -------------- -------------- -------------- -------------- Deodorizers and Cleaners $ 61.3 $ 62.7 $175.7 $188.7 Laundry $ 105.6 $101.1 $304.4 $299.1 Personal Care $ 41.7 $ 46.1 $125.2 $130.9 International $ 9.8 $ 7.7 $ 26.9 $ 23.7 ------- ------- ------- ------- Total Consumer Products $218.4 $217.6 $632.2 $642.4 Specialty Products $ 47.2 $ 46.2 $137.9 $136.7 ------- ------- ------ ------ Total Net Sales $265.6 $263.8 $770.1 $779.1 ====== ====== ====== ======
Reconciliation of Net Cash Provided By Operating Activities to EBITDA: ----------------------------------- Nine Months Ended Sept. 26, 2003 --------------------------------
------------------ ------------- (Dollars in Millions) CHD Armkel --- ------ Net Cash Provided by Operating Activities $ 79.7 $ 35.5 Interest Expense $ 14.7 $ 25.9 Current Income Tax Provision $ 20.0 $ 7.2 Proceeds from Affiliates $ 3.6 $ - Increase (Decrease) in Working Capital $ (6.4) $ 20.2 Interest Income $ (0.9) $ (0.8) Litigation Settlement $ - $ (12.7) Other $ (3.7) $ - ---------- --------- EBITDA $ 107.0 $ 75.3 ========== =========
ARMKEL LLC Net Income Reconciliation -------------------------
(Dollars in Millions) Nine Months Ended ----------------- Sept. 26, 2003 Sept. 27, 2002 -------------- -------------- Net Income as Reported $ 46.7 $ 25.2 Litigation Settlement $ (12.7) - Write-down of Asset Held for Sale $ 3.1 - Gain on sale of Italian Subsidiary $ (1.9) - Italian Subsidiary Net Income $ (0.3) $ (1.8) Inventory Step-up Charge - $ 8.1 --------- -------- Adjusted Net Income $ 34.9 $ 31.5 ========= ========
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended --------------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) Sept. 26, 2003 Sept. 27, 2002 Sept. 26, 2003 Sept. 27, 2002 ------------------------------------------------------------------------------------------------------------------------------------ Net Sales $265,566 $263,786 $770,127 $779,051 Cost of sales 185,024 182,586 536,178 548,663 ------------------------------------------------------------------------------------------------------------------------------------ Gross profit 80,542 81,200 233,949 230,388 Marketing expenses 22,905 22,752 66,136 61,737 Selling, general and administrative expenses 28,763 30,299 85,109 88,982 ------------------------------------------------------------------------------------------------------------------------------------ Income from Operations 28,874 28,149 82,704 79,669 Equity in earnings of affiliates 5,164 5,453 25,844 17,734 Other income (expense), net (4,648) (6,762) (13,272) (19,029) ------------------------------------------------------------------------------------------------------------------------------------ Income before minority interest and taxes 29,390 26,840 95,276 78,374 Income taxes 9,861 9,265 30,160 27,095 Minority Interest 7 -- 22 129 ------------------------------------------------------------------------------------------------------------------------------------ Net Income $19,522 $17,575 $65,094 $51,150 ------------------------------------------------------------------------------------------------------------------------------------ Net Income per share - Basic $0.48 $0.44 $1.62 $1.29 Net Income per share - Diluted $0.46 $0.42 $1.55 $1.23 ------------------------------------------------------------------------------------------------------------------------------------ Dividend per share $0.08 $0.075 $0.23 $0.225 Weighted average shares outstanding - Basic 40,318 39,794 40,132 39,548 Weighted average shares outstanding - Diluted 42,248 41,875 42,058 41,749 ------------------------------------------------------------------------------------------------------------------------------------
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands) Sept. 26, 2003 Sept. 27, 2002 --------------------------------------------------------------------------------------------------------------------------------- Assets --------------------------------------------------------------------------------------------------------------------------------- Current Assets Cash, equivalents and securities $76,696 $76,148 Accounts receivable 101,582 102,600 Inventories 78,411 89,133 Other current assets 23,485 32,562 --------------------------------------------------------------------------------------------------------------------------------- Total Current Assets 280,174 300,443 --------------------------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment (Net) 247,325 240,975 Equity Investment in Affiliates 150,888 129,408 Intangibles and other assets 337,981 315,382 --------------------------------------------------------------------------------------------------------------------------------- Total Assets $1,016,368 $986,208 --------------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity --------------------------------------------------------------------------------------------------------------------------------- Short-Term Debt $64,118 $20,772 Other Current Liabilities 173,261 164,863 --------------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 237,379 185,635 --------------------------------------------------------------------------------------------------------------------------------- Long-Term Debt 254,574 379,969 Other Long-Term Liabilities 108,440 87,940 Stockholders' Equity 415,975 332,664 --------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $1,016,368 $986,208 ---------------------------------------------------------------------------------------------------------------------------------