8-K/A 1 y54741e8-ka.txt CHURCH & DWIGHT CO., INC. ------------------------------ OMB APPROVAL ------------------------------ OMB Number: 3235-0060 Expires: May 31, 2000 Estimated average burden hours per response . . . 5.00 ------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) September 28, 2001 CHURCH & DWIGHT CO., INC. (Exact name of registrant as specified in its charter) Delaware 1-10585 13-4996950 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 469 North Harrison Street, Princeton, New Jersey 08543 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (609) 683-5900 N/A (Former name and former address, if changed since last report.) POTENTIAL PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF INFORMATION CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A CURRENTLY VALID OMB CONTROL NUMBER. SEC 873 (1/99) Church & Dwight Co., Inc. is filing this amendment to its current report on Form 8-K filed October 12, 2001 to amend Item 7, Financial Statements and Exhibits, therein. Item 7 is hereby amended as follows: ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements of businesses acquired. (i) Carter-Wallace, Inc. -- Consumer Business Excluding Antiperspirant/Deodorant Products in the United States and Canada and Pet Products AUDITED ANNUAL COMBINED FINANCIAL STATEMENTS Independent Auditors' Report.................................................... 3 Combined Statements of Net Assets to be Sold as of March 31, 2001 and 2000...... 4 Combined Statements of Revenues and Expenses for the Years Ended March 31, 2001, 2000 and 1999 .............................................. 6 Combined Statements of Changes in Net Assets and Comprehensive Earnings for the Years Ended March 31, 2001, 2000 and 1999................................... 7 Combined Statements of Cash Flows for the Years Ended March 31, 2001, 2000 and 1999 .............................................................. 8 Notes to Combined Statements.................................................... 9 UNAUDITED INTERIM COMBINED FINANCIAL STATEMENTS Combined Statements of Net Assets to be Sold as of June 30, 2001................ 28 Combined Statements of Revenues and Expenses for the Three Months Ended June 30, 2001 and 2000 .................................................... 30 Combined Statements of Changes in Net Assets and Comprehensive Earnings for the Three Months Ended June 30, 2001 and 2000................................... 31 Combined Statements of Cash Flows for the Three Months Ended June 30, 2001 and 2000 ................................................................... 32 Notes to Unaudited Combined Statements.......................................... 33 (ii) Carter-Wallace, Inc. -- Consumer Business - Antiperspirant/Deodorant Products in the United States and Canada and Pet Products AUDITED ANNUAL COMBINED FINANCIAL STATEMENTS Independent Auditors' Report.................................................... 42 Combined Statements of Net Assets to be Sold as of March 31, 2001 and 2000...... 43 Combined Statements of Revenues and Expenses for the Years Ended March 31, 2001, 2000 and 1999 ........................................................ 45 Combined Statements of Changes in Net Assets and Comprehensive Earnings for the Years Ended March 31, 2001, 2000 and 1999................................... 46 Combined Statements of Cash Flows for the Years Ended March 31, 2001, 2000 and 1999 ................................................................... 47 Notes to Combined Statements.................................................... 48 UNAUDITED INTERIM COMBINED FINANCIAL STATEMENTS Combined Statements of Net Assets to be Sold as of June 30, 2001................ 58 Combined Statements of Revenues and Expenses for the Three Months Ended June 30, 2001 and 2000 .............................................................. 60 Combined Statements of Changes in Net Assets and Comprehensive Earnings for the Three Months Ended June 30, 2001 and 2000................................... 61 Combined Statements of Cash Flows for the Three Months Ended June 30, 2001 and 2000 ....................................................................... 62 Notes to Unaudited Combined Statements.......................................... 63
2 INDEPENDENT AUDITORS' REPORT The Board of Directors Carter-Wallace, Inc.: We have audited the accompanying combined statements of net assets to be sold of Carter-Wallace, Inc. Consumer Business -- Excluding Antiperspirant/Deodorant Products in the United States and Canada and Pet Products as of March 31, 2001 and 2000, and the related combined statements of revenues and expenses, changes in net assets and comprehensive earnings, and cash flows for each of the years in the three-year period ended March 31, 2001. These combined statements are the responsibility of the Consumer Business management. Our responsibility is to express an opinion on these combined statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in and to the extent of note 1, the accompanying combined statements were prepared to present the net assets to be sold of Carter-Wallace, Inc. Consumer Business -- Excluding Antiperspirant/Deodorant Products in the United States and Canada and Pet Products as of March 31, 2001 and 2000, and the related combined statements of revenues and expenses, changes in net assets and comprehensive earnings, and cash flows for each of the years in the three-year period ended March 31, 2001, pursuant to the Asset Purchase Agreement between Carter-Wallace, Inc. and Armkel, LLC and the Product Line Purchase Agreement between Armkel, LLC and Church & Dwight Co. In our opinion, the accompanying combined statements referred to above present fairly, in all material respects, the net assets to be sold of Carter-Wallace, Inc. Consumer Business -- Excluding Antiperspirant/Deodorant Products in the United States and Canada and Pet Products as of March 31, 2001 and 2000, and its revenues and expenses and its cash flows for each of the years in the three-year period ended March 31, 2001, pursuant to the Asset Purchase Agreement between Carter-Wallace, Inc. and Armkel, LLC and the Product Line Purchase Agreement between Armkel, LLC and Church & Dwight Co. referred to in note 1, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP June 27, 2001 3 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS COMBINED STATEMENTS OF NET ASSETS TO BE SOLD
MARCH 31, MARCH 31, 2001 2000 ---- ---- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents................................................................ $12,836 8,026 Accounts receivable -- trade, less allowances of $4,089 and $3,843 at March 31, 2001 and 2000, respectively....................................................... 84,806 78,928 Other receivables........................................................................ 3,883 3,627 Inventories: Finished goods...................................................................... 37,809 36,045 Work in process..................................................................... 8,634 10,700 Raw materials and supplies.......................................................... 14,046 14,631 -------- ------- 60,489 61,376 Deferred taxes........................................................................... 6,281 4,947 Prepaid expenses and other current assets................................................ 6,031 5,638 -------- ------- Total current assets........................................................... 174,326 162,542 -------- ------- Property, plant, and equipment at cost: Land.................................................................................... 2,521 2,580 Buildings and improvements............................................................... 105,666 102,823 Machinery, equipment, and fixtures....................................................... 117,513 115,758 Leasehold improvements................................................................... 4,721 5,371 -------- ------- 230,421 226,532 Accumulated depreciation and amortization................................................ 117,497 109,040 -------- ------- 112,924 117,492 -------- ------- Intangible assets: Excess of purchase price of businesses acquired over the net assets at date of acquisition, less amortization........................................................ 53,769 57,382 Patents, trademarks, contracts, and formulae, less amortization.......................... 26,560 28,606 -------- ------- 80,329 85,988 -------- ------- Other assets ................................................................................. 3,624 3,436 -------- ------- Total assets................................................................... $371,203 369,458 ======== =======
4 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS COMBINED STATEMENTS OF NET ASSETS TO BE SOLD
MARCH 31, MARCH 31, 2001 2000 ---- ---- (IN THOUSANDS) LIABILITIES AND NET ASSETS TO BE SOLD Current liabilities: Accounts payable........................................................................ $ 41,180 36,930 Accrued expenses........................................................................ 32,877 31,171 Notes payable........................................................................... 6,358 5,287 Taxes on income......................................................................... 4,621 2,635 -------- ------- Total current liabilities..................................................... 85,036 76,023 -------- ------- Long-term liabilities: Long-term debt.......................................................................... 17,921 21,541 Accrued postretirement benefit obligation in Canada..................................... 2,560 2,883 Other long-term liabilities............................................................. 6,693 6,723 Deferred tax liability.................................................................. 3,231 2,791 -------- ------- Total long-term liabilities................................................... 30,405 33,938 -------- ------- Total liabilities............................................................. 115,441 109,961 Net assets to be sold........................................................................ 255,762 259,497 -------- ------- Total liabilities and net assets to be sold................................... $371,203 369,458 ======== =======
See accompanying notes to combined statements. 5 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS COMBINED STATEMENTS OF REVENUES AND EXPENSES
YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31, MARCH 31, MARCH 31, 2001 2000 1999 ---- ---- ---- (IN THOUSANDS) Net sales.................................................................... $435,538 412,929 360,611 Cost of goods sold........................................................... 159,515 160,308 141,958 -------- ------ ------ Gross profit............................................................ 276,023 252,621 218,653 -------- ------ ------ Operating expenses: Advertising and promotion............................................... 92,312 84,881 73,102 Marketing and other selling............................................. 49,813 51,713 46,171 Distribution expense.................................................... 14,938 14,724 13,399 Research and development................................................ 7,866 8,785 8,451 General and administrative.............................................. 22,667 22,656 22,514 Interest expense........................................................ 1,277 1,497 1,258 Interest income......................................................... (497) (394) (479) Other expense, net...................................................... 1,392 2,639 999 -------- ------ ------ 189,768 186,501 165,415 -------- ------ ------ Revenues in excess of expenses before provision for taxes on income............................................................... 86,255 66,120 53,238 Provision for taxes on income................................................ 36,329 25,669 21,889 -------- ------ ------ Revenues in excess of expenses.......................................... $ 49,926 40,451 31,349 ======== ====== ======
See accompanying notes to combined statements. 6 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS COMBINED STATEMENTS OF CHANGES IN NET ASSETS AND COMPREHENSIVE EARNINGS
YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31, MARCH 31, MARCH 31, 2001 2000 1999 ---- ---- ---- (IN THOUSANDS) Amount at beginning of year............................................. $259,497 238,397 230,156 Revenues in excess of expenses.......................................... 49,926 40,451 31,349 Foreign currency translation adjustments................................ (8,223) (3,695) (3,092) -------- ------- ------- Comprehensive earnings.................................................. 41,703 36,756 28,257 Cash and other transfers to Carter-Wallace, Inc......................... (45,438) (15,656) (20,016) -------- ------- ------- Amount at end of year................................................... $255,762 259,497 238,397 ======== ======= =======
See accompanying notes to combined statements. 7 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS COMBINED STATEMENTS OF CASH FLOWS
MARCH 31, MARCH 31, MARCH 31, 2001 2000 1999 ---- ---- ---- (IN THOUSANDS) Cash flows from operating activities: Revenues in excess of expenses................................................. $49,926 40,451 31,349 Adjustments to reconcile revenues in excess of expenses to cash flows from operations: Depreciation and amortization................................................ 8,615 7,684 6,592 Amortization of excess of purchase price of businesses acquired over the net assets at date of acquisition, patents, trademarks, contracts, and formulae.................................................................. 2,930 3,500 3,432 Other changes in assets and liabilities: (Increase) decrease in accounts receivable and other receivables.......... (10,524) (13,868) 621 Increase in inventories................................................... (1,575) (11,537) (7,176) Increase in prepaid expenses.............................................. (697) (1,569) (658) Increase in accounts payable and accrued expenses......................... 11,941 5,304 10,523 (Increase) decrease in deferred taxes..................................... (894) (4,303) 511 Other changes............................................................. (1,312) (1,505) (2,028) --------- --------- --------- Cash flows provided by operating activities............................. 58,410 24,157 43,166 --------- --------- --------- Cash flows used in investing activities: Additions to property, plant, and equipment -- net of acquisitions............. (11,370) (15,216) (14,803) Cash paid for acquisitions..................................................... -- -- (18,762) (Increase) decrease in short-term investments.................................. -- 313 (313) Proceeds from sale of property, plant, and equipment........................... 1,443 1,025 371 --------- --------- --------- Cash flows used in investing activities................................. (9,927) (13,878) (33,507) --------- --------- --------- Cash flows used in financing activities: Payments of debt............................................................... (3,596) (5,008) (7,089) Cash transferred to Carter-Wallace, Inc........................................ (41,697) (11,802) (17,299) Increase in borrowings......................................................... 2,173 2,781 17,385 --------- --------- --------- Cash flows used in financing activities................................. (43,120) (14,029) (7,003) --------- --------- --------- Effect of foreign exchange rate changes on cash and cash equivalents.............. (553) (522) (603) --------- --------- --------- Increase (decrease) in cash and cash equivalents........................ $4,810 (4,272) 2,053 ========= ========= =========
See accompanying notes to combined statements. 8 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands) (1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION On May 7, 2001, Carter-Wallace, Inc. (the "Company") entered into definitive agreements for the sale of the Company in a two-step transaction. In accordance with an Asset Purchase Agreement, the Company will first sell the net assets and business of the Company's Consumer Business, as defined in the Asset Purchase Agreement, to Armkel, LLC ("Armkel") for $739 million, less certain debt outstanding. Armkel is jointly owned by two private investment funds formed by Kelso & Company L.P. and by Church & Dwight Co. Such funds will be paid directly to the Company. Pursuant to an Agreement and Plan of Merger, immediately following the sale of the Consumer Business, the buying group will offer to purchase the Company's outstanding common stock and Class B common stock for $20.30 per share subject to certain closing adjustments. CPI Development Corporation, a private holding company that controls approximately 83% of the voting power of the Company has entered into an agreement to vote in favor of the merger, subject to certain limited exceptions. The aggregate consideration from both parts of the transaction is estimated to be $1.121 billion, less approximately $160 million of corporate taxes to be paid on the sale of the Consumer Business. Each agreement is conditioned on the other, so one will not be completed without the other. The asset sale and merger have been approved by the Board of Directors of each party to the agreement and are subject to certain conditions, including a financing condition for each buyer, various regulatory approvals, and the approval of the Company's stockholders. Under a separate Product Line Purchase Agreement effective May 7, 2001, as amended, Church & Dwight Co. will acquire the antiperspirant/deodorant products business in the United States and Canada and the pet products business from Armkel. Excluded from this transaction are the antiperspirants/deodorants product business in the United Kingdom and Australia. Products sold domestically by this component of the Consumer Business primarily include condoms, at-home pregnancy and ovulation test kits, hair removal products, and tooth-whitening products. These products are promoted directly to the consumer by television and other advertising media and are sold to wholesalers and various retailers. Many of the products sold by foreign subsidiaries are the same products which are sold domestically, as well as certain other products which are sold exclusively in international markets. Products are sold throughout the world by various subsidiaries and distributors. The accompanying combined statements pertain to the Consumer Business of the Company -- Excluding Antiperspirant/Deodorant Products in the United States and Canada and Pet Products and have been prepared pursuant to the Asset Purchase Agreement and Product Line Purchase Agreement in accordance with accounting principles generally accepted in the United States of America. All significant intercompany transactions have been eliminated. This component of the Consumer Business has no separate legal status and operates as an integral part of the Company's Consumer Business which operates as an integral part of Carter-Wallace, Inc. overall operations. These combined statements have been prepared from the historical accounting records of the Company which have been stated on a going-concern basis and do not necessarily reflect liquidity values. The accompanying combined statements of revenues and expenses are not necessarily indicative of the costs and expenses that would have been incurred had the component been operated as a stand-alone entity. 9 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands) Certain indirect operating expenses for selling and general and administrative costs of the Consumer Business were allocated to the Carter-Wallace, Inc. Consumer Business -- Excluding Antiperspirant/Deodorant Products in the United States and Canada and Pet Products based on a percentage of net sales. Such allocated selling and other general and administrative costs for the years ended March 31, 2001, 2000, and 1999 included in the accompanying combined statements amounted to approximately $19,700,000, $19,300,000 and $17,000,000, respectively. Corporate income and expenses of the Company included in this component of the Consumer Business include those items specifically identifiable to this component and allocation, primarily based on usage estimates, of certain other corporate expenses, including accounting, human resources and corporate systems. Corporate expenses allocated to this component of the Consumer Business are costs which benefit and are required for its operations. Certain general corporate expenses of the Company have not been allocated to this component of the Consumer Business because they did not provide a direct or material benefit to this business. In addition, if the Consumer Business had not been a part of the Company during the periods presented, such corporate expenses would not have significantly changed as a result of not having to operate this business. In the opinion of management, these methods of allocating costs are reasonable; however, such costs do not necessarily equal the costs that this component of the Consumer Business would have incurred on a stand-alone basis. Therefore, the financial information included herein may not necessarily reflect assets and liabilities, revenues and expenses, and cash flows of this component of the Consumer Business on a stand-alone basis in the future. Certain expenses, such as postretirement benefit costs which are included in the combined statements of revenues and expenses for this component of the Consumer Business, relate to assets and/or liabilities which have not been included in the accompanying combined statements of net assets to be sold of this component of the Consumer Business. Such assets and/or liabilities will be retained by Carter-Wallace, Inc. in accordance with the terms of the definitive sales agreements. In accordance with such agreements, Armkel will assume the liability for 60% of the retiree medical obligations incurred with respect to any specified consumer business employee who terminates employment between May 7, 2001, through the sale closing date. In the opinion of management, these obligations are not expected to be significant. This component of the Consumer Business includes only the cash of the foreign subsidiaries, except for Canada where the amount of cash is limited to U.S.$1,000,000. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) REVENUE RECOGNITION POLICY Revenue is recognized when products are shipped. (b) USE OF ESTIMATES The preparation of statements in conformity with generally accepted accounting principles requires management to make estimates and use assumptions that affect certain reported amounts and disclosures. Actual amounts may differ. (c) CASH EQUIVALENTS Cash equivalents consist of short-term securities with maturities of three months or less when purchased. The carrying value of cash equivalents approximates fair value at March 31, 2001 and 2000. (d) INVENTORIES Inventories are valued at the lower of cost or market on the first-in, first-out ("FIFO") method, except for certain domestic inventories which are stated at cost on the last-in, first-out ("LIFO") method. (e) PROPERTY, PLANT, AND EQUIPMENT Depreciation is provided over the estimated useful lives of the assets, principally using the straight-line method. Machinery, equipment, and fixtures are depreciated over a period ranging from 5 to 20 years. Buildings and improvements are depreciated over a period ranging from 20 to 40 years. Leasehold improvements are amortized on a straight-line basis over the life of the related asset or the life of the lease, whichever is shorter. 10 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands) Expenditures for renewal and betterments are capitalized. Upon sale or retirement of assets, the appropriate asset and related accumulated depreciation accounts are adjusted and the resultant gain or loss is reflected in earnings. Maintenance and repairs are charged to expense as incurred. (f) INTANGIBLE ASSETS The excess of purchase price of businesses acquired over the net assets at date of acquisition is assessed to the product or group of products which constitute the business acquired and amortized over no longer than 40 years for amounts relating to acquisitions subsequent to October 31, 1970. The cost of patents, formulae, and contracts is amortized on a straight-line basis over their legal or contractual lives. The cost of trademarks is being amortized over no longer than 40 years for amounts relating to acquisitions subsequent to October 31, 1970. Amounts related to intangible assets acquired prior to October 31, 1970 are not material. The policy of the Consumer Business in assessing the recoverability of intangible assets is to compare the carrying value of the intangible asset with the undiscounted cash flow generated by products related to the intangible asset. In addition, the Consumer Business continually evaluates whether adverse developments indicate that an intangible asset may be impaired. (g) INCOME TAXES The income and expenses for the Consumer Business -- Excluding Antiperspirant/Deodorant Products in the United States and Canada and Pet Products are included in the tax returns of the Company. The provision for taxes on income is computed as if this component of the Consumer Business was filing income tax returns on a stand-alone basis. (h) ADVERTISING AND MARKETING COSTS Advertising, promotion, and other marketing costs are charged to earnings in the period in which they are incurred. (i) ACCRUED EXPENSES Accruals related to certain employee costs such as management bonuses and vacation pay are calculated based upon the proportioned number of employees designated as part of this component of the Consumer Business. (j) FOREIGN CURRENCY TRANSLATION The assets and liabilities of foreign subsidiaries are translated at the year-end rate of exchange, and income statement items are translated at the average rates prevailing during the year. The effects of foreign exchange gains and losses arising from these translations of assets and liabilities are included as a component of comprehensive earnings. (k) NEW ACCOUNTING PRONOUNCEMENTS Emerging Issues Task Force Issue No. 00-14, "Accounting for Certain Sales Incentives" ("EITF Issue No. 00-14"), outlines required accounting treatment for certain sales incentives, including manufacturer's coupons. EITF Issue No. 00-14 requires companies to record coupon expense as a reduction of sales, rather than marketing expense. The Consumer Business currently records coupon expense as a component of marketing expense. The Consumer Business is required to implement EITF Issue No. 00-14 for the quarter beginning January 1, 2002. It will require the Consumer Business to report coupon expense as a reduction of net sales. Coupon expense in this component of the Consumer Business approximates $3,000,000 per year based on historical amounts, spread relatively evenly throughout the year. Issue No. 00-25, "Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer" ("EITF Issue No. 00-25"), outlines required accounting treatment of certain sales incentives, including slotting or placement fees, cooperative advertising arrangements, buydowns, and other allowances. The Consumer Business currently records such costs as marketing expenses. EITF Issue No. 00-25 will require the Consumer 11 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands) Business to report the paid consideration expense as a reduction of sales, rather than marketing expense. The Consumer Business is required to implement EITF Issue No. 00-25 for the quarter beginning January 1, 2002. The Consumer Business has not yet determined the effect of implementing the guidelines of EITF Issue No. 00-25, but, in any case, implementation will not have an effect on net earnings. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement requires that companies recognize all derivatives as either assets or liabilities on the balance sheet and measure these instruments at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133." This Statement deferred the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," which made minor amendments to SFAS No. 133. The Consumer Business will adopt SFAS No. 133, as amended, effective April 1, 2001. The adoption of this accounting requirement is not expected to have a material effect on the accompanying combined statements. (3) PROPERTY, PLANT, AND EQUIPMENT Included in property, plant, and equipment are all operating assets related directly to the Consumer Business -- Excluding Antiperspirant/Deodorant Products in the United States and Canada and Pet Products. These include manufacturing and other facilities in: Cranbury, New Jersey; Colonial Heights, Virginia; Montreal, Canada; Toronto, Canada; Folkestone, England; Milan, Italy; Mexico City, Mexico; and New Plymouth, New Zealand. Specifically excluded from this component of the Consumer Business property, plant, and equipment and the accompanying combined statements is certain vacant land adjacent to the Consumer Business facility in Cranbury, New Jersey and machinery, equipment, and other fixed assets related to antiperspirant/deodorant products in the United States and Canada and pet products. The vacant land will be retained by the Company. (4) INVENTORIES Inventories computed on the LIFO method comprised 8% and 6% of inventories included in current assets at March 31, 2001 and 2000, respectively. If these inventories had been valued on the FIFO inventory method (which approximates current or replacement costs), total inventories would have been approximately $3,000,000 and $2,700,000 higher than reported at March 31, 2001 and 2000, respectively. 12 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands) (5) TAXES ON INCOME The provision (benefit) for taxes on income was as follows:
YEAR ENDED MARCH 31, ----------------------------------------------- 2001 2000 1999 ---- ---- ---- Current: Domestic............................................... $26,366,000 $ 18,725,000 $13,232,000 Foreign................................................ 10,117,000 7,285,000 7,041,000 ----------- ------------ ----------- 36,483,000 26,010,000 20,273,000 ----------- ------------ ----------- Deferred: Domestic............................................... (249,000) (8,000) 1,403,000 Foreign................................................ 95,000 (333,000) 213,000 ----------- ------------ ----------- (154,000) (341,000) 1,616,000 ----------- ------------ ----------- Total............................................. $36,329,000 $ 25,669,000 $21,889,000 =========== ============ ===========
Deferred income taxes are provided for temporary differences between the financial statement and tax bases of the assets and liabilities of this component of the Consumer Business. The temporary differences gave rise to the following deferred tax assets and liabilities at March 31
2001 2000 ----- ---- Postretirement benefit plans.................................................. $ 1,048,000 $ 1,192,000 Employee benefit plans........................................................ 6,430,000 5,158,000 Accrued liabilities........................................................... 4,938,000 3,836,000 Asset valuation accounts...................................................... 1,979,000 1,711,000 All other..................................................................... 3,672,000 3,075,000 ----------- ------------ Total deferred tax assets................................................ 18,067,000 14,972,000 ----------- ------------ Depreciation.................................................................. (10,428,000) (9,891,000) All other..................................................................... (4,589,000) (2,925,000) ----------- ------------ Total deferred tax liabilities........................................... (15,017,000) $(12,816,000) ----------- ------------ Net deferred tax assets.................................................. $ 3,050,000 $ 2,156,000 =========== ===========
Realization of the deferred tax assets of this component of the Consumer Business is dependent on generating sufficient taxable income in future years. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. However, the deferred tax assets could be reduced if estimates of future taxable income are lowered. Deferred taxes have not been provided on undistributed earnings of foreign subsidiaries. It has been management's practice and intent to reinvest such earnings in the operations of these subsidiaries. 13 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands) The effective tax rate of the provision for taxes on income as compared with the U.S. Federal statutory income tax rate was as follows:
YEAR ENDED MARCH 31, -------------------------------------------------------------------------- 2001 2000 1999 ---------------------- ---------------------- ---------------------- % TO % TO % TO TAX PRETAX TAX PRETAX TAX PRETAX AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME ------ ------ ------ ------ ------ ------ Computed tax expense........................ $30,189,000 35.0% $23,142,000 35.0% $18,633,000 35.0% Foreign income taxed at a different effective rate............................. 3,065,000 3.6% 392,000 0.6% 1,518,000 2.9% State income taxes, net of Federal tax benefit................................ 3,729,000 4.3% 1,907,000 2.9% 1,505,000 2.8% Amortization of intangibles................. 268,000 0.3% 268,000 0.4% 268,000 0.5% Other....................................... (1.1)% (0.1)% (0.1)% ---- ---- ---- (922,000) (40,000) (35,000) -------- ------- ------- Provision for taxes on income........... $36,329,000 42.1% $25,669,000 38.8% $ 21,889,000 41.1% ========== ==== ========== ==== ========== ====
The results of this component of the Consumer Business are included in the income tax returns of Carter-Wallace, Inc. and subsidiaries. The provision for taxes on income is computed as if this component of the Consumer Business was filing income tax returns on a stand-alone basis. The U.S. Internal Revenue Service completed its examination of Carter-Wallace, Inc. and subsidiaries' tax returns through fiscal year 1995, resulting in no material impact on the Company or this component of the Consumer Business. The statute of limitations for the examination of Carter-Wallace, Inc. and subsidiaries' U.S. Federal income tax return has expired for fiscal years 1996 and 1997. (6) NOTES PAYABLE AND LONG-TERM DEBT NOTES PAYABLE Notes payable consisting of borrowings from banks under available lines of credit were $2,740,000, $1,047,000, and $2,752,000 and the current portion of long-term debt was $2,188,000, $2,745,000, and $2,706,000 at March 31, 2001, 2000, and 1999, respectively. In addition, other short-term notes payable in international operations amounted to $1,430,000, $1,495,000, and $2,279,000 at March 31, 2001, 2000, and 1999, respectively. Interest rates on short-term borrowings range from 3.0% to 7.0%. The Consumer Business has available various bank credit lines amounting to $15,400,000, all of which relate to international operations. The availability of the lines of credit is subject to review by the banks involved. Commitment fees are immaterial. 14 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands) LONG-TERM DEBT Long-term debt is summarized below:
MARCH 31,2001 MARCH 31,2000 ------------- ------------- Unsecured Euro term loan, 4.10%, payable in installments beginning June 1, 2002 through March 1, 2004............................................ $8,493,000 8,882,000 Unsecured French franc term loan, 4.10%, payable in installments through February 25, 2006..................................................... 3,135,000 3,860,000 Unsecured French franc loan, 5.10%, payable February 24, 2003.................... 2,814,000 2,944,000 Unsecured Italian lira term loan, adjustable rate, payable in installments through December 31, 2004..................................................... 2,358,000 2,992,000 Unsecured French franc loan, adjustable rate, payable in installments through April 1, 2006......................................................... 1,809,000 2,208,000 Unsecured French franc loan, adjustable rate, payable in installments through September 18, 2003.................................................... 492,000 1,105,000 Secured Italian lira term loans, adjustable rate, payable in installments through July 1, 2001.......................................................... 490,000 1,499,000 Unsecured French franc loan, 4.50%, payable in installments through August 5, 2001................................................................ 193,000 399,000 Other long-term debt............................................................. 325,000 397,000 ----------- ----------- 20,109,000 24,286,000 Less current portion of long-term debt included in notes payable................. (2,188,000) (2,745,000) ---------- ---------- Total....................................................................... $17,921,000 21,541,000 =========== ===========
Maturities of long-term debt outstanding at March 31, 2001 for each of the fiscal years 2003 through 2006 are $7,658,000, $6,148,000, $2,678,000, and $998,000, respectively. International debt of $19,800,000 at March 31, 2001 is guaranteed by the Company. This debt may be called by the lender if the Company ceases to be the majority stockholder of the borrowing subsidiary. With respect to the Italian lira loan payable through December 31, 2004, interest on this loan is the Euro Interbank Offered Rate plus a nominal increment. With respect to the French franc loan payable February 24, 2003, interest is adjustable based on the Euro Interbank Offered Rate plus a nominal increment, adjusted quarterly, and is converted to a fixed rate at the inception of the loan. With respect to the French franc loan payable through April 1, 2006, interest on this loan is the Euro Interbank Offered Rate plus a nominal increment. The Italian lira loans due July 1, 2001 are secured by irrevocable letters of credit. Commitment fees are immaterial. Interest on these loans is the Euro Interbank Offered Rate plus a nominal increment, adjusted quarterly. With respect to the French franc loan payable through September 18, 2003, interest on this loan is the Euro Interbank Offered Rate plus a nominal increment. The fair value of long-term debt, including current maturities, was $20,109,000 and $24,286,000 at March 31, 2001 and 2000, respectively. (7) RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS Retirement plan obligations included in the Consumer Business -- Excluding Antiperspirant/Deodorant Products in the United States and Canada and Pet Products, consist of the Retirement Plan for Bargaining Employees of Carter-Wallace, Inc., and certain obligations of foreign subsidiaries. Obligations for the Executive Pension Benefits Plan and the Employees Retirement Plan of Carter-Wallace, Inc. have been excluded from the accompanying combined statements, as these are obligations of the Company. Pension expense for domestic 15 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands) salaried employees has not been included in the accompanying combined statements because such expense was immaterial in each of the periods presented. Postretirement benefit obligations for domestic employees have been excluded from this component of the Consumer Business as these are obligations of the Company. However, expense related to postretirement benefits for domestic employees of the Consumer Business -- Excluding Antiperspirant/Deodorant Products in the United States and Canada and Pet Products is included in the accompanying combined statements of revenues and expenses. Expense related to the postretirement benefit obligations for domestic employees of the Consumer Business -- Excluding Antiperspirant/Deodorant Products in the United States and Canada and Pet Products amounted to $1,044,000, $999,000, and $453,000 for the fiscal years ended March 31, 2001, 2000, and 1999, respectively. Postretirement benefit obligations related to the Consumer Business employees in Canada are included in the accompanying combined statements in accordance with SFAS No. 106, "Employers' Obligations for Postretirement Benefits Other Than Pensions." Obligations for retirement-related plans exist in each of the foreign subsidiaries. Both Canada and the United Kingdom have defined benefit pension plans. The plans in Canada are accounted for in accordance with SFAS No. 87, "Accounting for Pensions." Pension plans also exist in other foreign subsidiaries which, in totality, are not material to these combined statements. The components of the pension and postretirement benefit expense reflected in the accompanying combined statements for the years ended March 31, 2001, 2000, and 1999 were as follows:
OTHER POSTRETIREMENT RETIREMENT PLANS BENEFITS -------------------------- ------------------------ 2001 2000 1999 2001 2000 1999 ------- -------- -------- -------- ------ ----- (AMOUNTS IN THOUSANDS) Service cost................................................. $ 1,208 1,291 1,244 42 41 37 Interest cost................................................ 3,600 3,507 3,357 90 102 96 Expected return on assets.................................... (4,676) (4,315) (4,117) -- -- -- Amortization of prior service cost........................... 91 95 91 -- (147) (157) Amortization of transition cost.............................. 77 (288) (279) (156) -- -- Amortization of actuarial gain............................... (264) (107) (195) -- -- -- ------- ------ ------ ------ ------ ----- Benefit cost (income)........................................ 36 183 101 (24) (4) (24) Cost for domestic Consumer Business employees charged 999 from Carter-Wallace, Inc................................... -- -- -- 1,044 453 ------- ------ ------ ------ ------ ----- Total benefit cost......................................... $ 36 183 101 1,020 995 429 ======= ====== ====== ====== ====== =====
16 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands) The components of the changes in the benefit obligation for the years ended March 31, 2001 and 2000 were as follows:
OTHER POSTRETIREMENT RETIREMENT PLANS BENEFITS ------------------ ---------------- 2001 2000 2001 2000 ----- ----- ----- ---- (AMOUNTS IN THOUSANDS) Benefit obligation at beginning of year................................ $47,615 48,818 1,392 1,286 Service cost........................................................... 1,208 1,291 42 41 Interest cost.......................................................... 3,600 3,507 90 102 Plan participants' contributions....................................... 391 367 -- -- Actuarial (gain) loss.................................................. 3,167 (3,797) (14) 1 Effect of exchange rate changes........................................ (1,455) 737 (143) 54 Benefits paid.......................................................... (3,411) (3,308) (69) (92) ------- ------ ----- ----- Benefit obligation at end of year...................................... $51,115 47,615 1,298 1,392 ======= ====== ===== =====
The components of the changes in plan assets for the years ended March 31, 2001 and 2000 were as follows:
OTHER POSTRETIREMENT RETIREMENT PLANS BENEFITS ----------------- ---------------- 2001 2000 2001 2000 ----- ----- ---- ---- (AMOUNTS IN THOUSANDS) Fair value of plan assets at beginning of year......................... $58,460 51,647 -- -- Actual return on plan assets........................................... (1,982) 8,673 -- -- Employer contributions................................................. 171 279 69 92 Plan participants' contributions....................................... 391 367 -- -- Effect of exchange rate changes........................................ (1,801) 802 -- -- Benefits paid.......................................................... (3,411) (3,308) (69) (92) ------- ------ ------ ------- Fair value of plan assets at end of year............................... $51,828 58,460 -- -- ======= ====== ======= =======
The following is a reconciliation of the funded status of the plans to the accompanying combined statements of net assets to be sold at March 31, 2001 and 2000:
OTHER POSTRETIREMENT RETIREMENT PLANS BENEFITS ----------------- ---------------- 2001 2000 2001 2000 ---- ---- ---- ---- (AMOUNTS IN THOUSANDS) Funded status.......................................................... $ 713 10,845 (1,298) (1,392) Unrecognized actuarial gain............................................ (2,121) (12,378) (1,262) (1,491) Unrecognized prior service cost........................................ 96 199 -- -- Unrecognized transition amounts........................................ 191 276 -- -- ------- ------ ------ ------ Accrued benefit cost................................................... $(1,121) (1,058) (2,560) (2,883) ======= ====== ====== ======
17 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands) Amounts recognized in the accompanying combined statements of net assets to be sold at March 31, 2001 and 2000 were as follows:
OTHER POSTRETIREMENT RETIREMENT PLANS BENEFITS ----------------- ----------------- 2001 2000 2001 2000 ---- ---- ---- ---- (AMOUNTS IN THOUSANDS) Other assets........................................................... $3,307 3,183 -- -- Accrued expenses....................................................... (779) (816) -- -- Long-term liabilities.................................................. (3,649) (3,425) (2,560) (2,883) ------- -------- -------- --------- Net amount recognized.................................................. $(1,121) (1,058) (2,560) (2,883) ======= ======== ======== =========
The principal assumptions used in determining 2001, 2000, and 1999 actuarial values were: Discount rate............................................... 6.75% - 8% Rate of increase in compensation levels..................... 4% - 6% Expected long-term rate of return on plan assets............ 7% - 10%
Expense for the employee savings plan under which the Consumer Business matches the contributions of participating employees up to a designated level was approximately $350,000 in each of the years ended March 31, 2001, 2000, and 1999. The assumed health care cost trend rate used to measure the accumulated postretirement benefit obligation for those over age 65 is 8% for 2001 trending to 5% over a three-year period. For those under age 65, the trend rate is 6.3% for 2001 trending to 5% over a three-year period. A 1% increase or decrease in the assumed respective annual medical cost trend rate would change the accumulated postretirement benefit obligation by approximately $100,000, and the service and interest components of net postretirement benefit expense would be immaterially affected. (8) LONG-TERM INCENTIVE PLANS Obligations for deferred stock awards and stock option grants made under the 1996 Long-Term Incentive Plan for Corporate Officers of the Company have been excluded from the accompanying combined statements of net assets to be sold of this component of the Consumer Business, as these are obligations of the Company. As of March 31, 2001, the outstanding stock awards for the four Consumer Business executives totaled 105,000 shares and the outstanding stock options totaled 567,000. Outstanding awards of deferred stock become fully vested and outstanding options become immediately exercisable upon the occurrence of a change in control of the Company. Expense for stock award amortization has been included in the accompanying combined statements of revenues and expenses. This stock award amortization expense amounted to $232,000, $334,000, and $193,000 for the fiscal years ended March 31, 2001, 2000, and 1999, respectively. The Consumer Business has chosen to continue to account for options granted under the plan using the intrinsic value method. Accordingly, no compensation expense has been recognized for these options. Had the fair value method of accounting, as defined in SFAS No. 123, "Accounting for Stock-Based Compensation," been applied to these stock options, pro forma revenue in excess of expenses for this component of the Consumer Business would not have been materially different from the actual amounts. 18 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands) (9) RENTAL EXPENSE AND LEASE COMMITMENTS Rental expense for operating leases with a term greater than one year for 2001, 2000, and 1999 was as follows (amounts in thousands):
REAL EQUIPMENT RENTAL EXPENSE PROPERTY AND OTHER -------------- -------- --------- March 31, 2001............................... $1,691 7,244 March 31, 2000............................... 1,541 6,916 March 31, 1999............................... 1,568 6,763
Minimum rental commitments under noncancelable leases in effect at March 31, 2001 were as follows (amounts in thousands):
REAL EQUIPMENT CAPITAL LEASE MINIMUM RENTAL COMMITMENTS PROPERTY AND OTHER OBLIGATIONS -------------------------- -------- --------- ----------- 2002......................................... $1,533 896 275 2003......................................... 1,469 564 216 2004......................................... 601 249 203 2005......................................... 363 69 190 2006......................................... 94 15 127 2007 and thereafter.......................... 7 -- -- ------- 1,011 Less interest and executory cost............. (163) ------- Present value of minimum lease payments (of which $213 is included in accrued expenses).............. $ 848 =======
(10) LITIGATION The Consumer Business is engaged in litigation with Tambrands Inc. ("Tambrands") in the Supreme Court of the State and County of New York ("Supreme Court"), arising out of a patent infringement and misappropriation suit previously filed against both companies in the United States District Court, Southern District of New York, by New Horizons Diagnostics Corporation ("NHDC"), et al. The NHDC suit, which was settled and discontinued in July 1996, asserted claims with respect to certain "gold sol" technology (used in First Response and Answer home pregnancy and ovulation predictor test kits) that the Consumer Business had acquired from Tambrands pursuant to a written purchase agreement in March 1990. The Consumer Business paid an immaterial amount toward that settlement. In the pending Supreme Court action, Tambrands seeks reimbursement from the Consumer Business of an unspecified portion of the amount paid by Tambrands in settlement of the NHDC suit, and for defense costs. Cross-motions for summary judgment have been filed. The Consumer Business believes it has good defenses, under the terms of the purchase agreement, to Tambrands' claim. The Consumer Business is subject to other legal actions arising out of its operations. The Consumer Business believes, based on the opinion of counsel, that it has good defenses to such actions and should prevail. (11) EMPLOYMENT AGREEMENTS AND TERMINATION AND CHANGE IN CONTROL ARRANGEMENTS The Company has entered into agreements with four executives of the Consumer Business as well as seven foreign subsidiary general managers, whose services are being made available to the Consumer Business. These obligations will be assumed by Armkel as part of the acquisition of the Consumer Business. These agreements generally provide for payments equal to salary and bonus multiples, and in the case of the four executives, certain pension enhancements if the executives' employment is terminated as specified in the agreements after a change in control of the Company. The payments required by these agreements, based on a termination under the agreements of all of the executives, is approximately $15,000,000. 19 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands) The transactions disclosed in note 1 relating to the contemplated sale of the Consumer Business and the Company meet the definition of a change in control as defined in the various agreements. (12) ACQUISITIONS At the beginning of fiscal year 1999, the Consumer Business acquired the Femfresh line of feminine hygiene products in England for approximately $3,600,000. In February 1999, the Consumer Business acquired the Barbara Gould line of skin care products in France for approximately $15,100,000. Sales of this product line commenced in the fiscal year beginning April 1, 1999. These acquisitions are being accounted for by the purchase method and, accordingly, their results of operations are included in this component of the Consumer Business' revenues and expenses from the acquisition date. Pro forma revenue in excess of expenses are not presented since the effect would not be material. (13) SUPPLEMENTAL FINANCIAL INFORMATION The following is presented in support of the accompanying combined statements of net assets to be sold:
MARCH 31, ------------------- 2001 2000 ---- ---- (AMOUNTS IN THOUSANDS) Accrued expenses: Salaries and wages................. $ 9,985 9,849 Advertising and promotion.......... 11,925 12,613 Retirement and related plans....... 1,947 1,617 Other.............................. 9,020 7,092 ------- ------ $32,877 31,171 ======= ====== Other long-term liabilities: Retirement plans................... $ 3,649 3,425 Other.............................. 3,044 3,298 ------- ------ $ 6,693 6,723 ======= ======
Interest paid was $1,278,000, $1,497,000, and $1,296,000 in 2001, 2000, and 1999, respectively. 20 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands) (14) FOREIGN OPERATIONS Net current assets and net sales of this component of the Consumer Business foreign subsidiaries and branches operating outside of the United States and the Consumer Business' equity in net assets and revenues in excess of expenses of such operations of this component were:
MARCH 31, ----------------------------------------------- 2001 2000 1999 ----------- ----------- ----------- Net current assets............... $ 56,230,000 57,675,000 49,604,000 Equity in net assets............. 101,734,000 102,722,000 91,038,000 Net sales........................ 228,162,000 230,395,000 197,155,000 Revenue in excess of expenses.... 10,492,000 12,026,000 9,562,000
The adjustment from foreign currency translation is included as a reduction of the net assets to be sold. The cumulative balances are included as a component of stockholders' equity of Carter-Wallace, Inc. The adjustments are comprised of the following:
MARCH 31, ------------------------------ 2001 2000 ----------- ----------- Opening balance.................. $31,258,000 27,563,000 Current year change.............. 8,223,000 3,695,000 ----------- ----------- Ending balance................... $39,481,000 31,258,000 =========== ===========
21 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands) (15) SUPPLEMENTAL FINANCIAL INFORMATION OF DOMESTIC AND INTERNATIONAL OPERATIONS Supplemental information for combined condensed revenues in excess of expenses, net assets to be sold, and cash flows data as of March 31, 2001 and 2000, and for the years ended March 31, 2001, 2000 and 1999 is summarized as follows (in thousands):
YEAR ENDED MARCH 31, 2001 --------------------------------------- TOTAL DOMESTIC INTERNATIONAL COMBINED -------- -------------- ---------- Net sales............................................................. $207,376 $ 228,162 $435,538 Cost of goods sold.................................................... 61,316 98,199 159,515 -------- --------- ---------- Gross profit....................................................... 146,060 129,963 276,023 Operating Expenses.................................................... 79,716 110,052 189,768 -------- --------- ---------- Revenues in excess of expenses before provision for taxes on income....................................................... 66,344 19,911 86,255 Provision for taxes on income......................................... 26,910 9,419 36,329 -------- --------- ---------- Revenues in excess of expenses..................................... $ 39,434 $10,492 $ 49,926 ======== ========= ==========
YEAR ENDED MARCH 31, 2000 --------------------------------------- TOTAL DOMESTIC INTERNATIONAL COMBINED -------- -------------- ---------- Net sales............................................................. $182,534 $ 230,395 $412,929 Cost of goods sold.................................................... 58,095 102,213 160,308 -------- --------- ---------- Gross profit....................................................... 124,439 128,182 252,621 Operating Expenses.................................................... 76,346 110,155 186,501 -------- --------- ---------- Revenues in excess of expenses before provision for taxes on income....................................................... 48,093 18,027 66,120 Provision for taxes on income......................................... 19,668 6,001 25,669 -------- --------- ---------- Revenues in excess of expenses..................................... $28,425 $12,026 $40,451 ======== ========= ==========
YEAR ENDED MARCH 31, 1999 --------------------------------------- TOTAL DOMESTIC INTERNATIONAL COMBINED -------- -------------- ---------- Net sales............................................................. $163,456 $ 197,155 $360,611 Cost of goods sold.................................................... 52,899 89,059 141,958 -------- --------- ---------- Gross profit....................................................... 110,557 108,096 218,653 Operating Expenses.................................................... 73,210 92,205 165,415 -------- --------- ---------- Revenues in excess of expenses before provision for taxes on income....................................................... 37,347 15,891 53,238 Provision for taxes on income......................................... 15,560 6,329 21,889 -------- --------- ---------- Revenues in excess of expenses..................................... $21,787 $ 9,562 $31,349 ======== ========= ==========
22 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands)
AS OF MARCH 31, 2001 ----------------------------------------- TOTAL DOMESTIC INTERNATIONAL COMBINED ------------- -------------- -------- Cash and cash equivalents......................................................... $ 99 $12,737 $12,836 Accounts receivable -- trade, less allowance...................................... 20,462 64,344 84,806 Other receivables................................................................. 487 3,396 3,883 Inventories....................................................................... 25,521 34,968 60,489 Deferred taxes.................................................................... 6,281 -- 6,281 Prepaid expenses and other current assets......................................... 2,109 3,922 6,031 -------- --------- ---------- Total current assets......................................................... 54,959 119,367 174,326 Property, plant and equipment, net................................................ 91,785 21,139 112,924 Intangible assets: Excess of purchase price of businesses acquired over the net assets at date of acquisition, less amortization....................................... 28,662 25,107 53,769 Patents, trademarks, contracts, and formulae, less amortization................ 8,921 17,639 26,560 -------- --------- ---------- Total intangible assets...................................................... 37,583 42,746 80,329 Other assets...................................................................... -- 3,624 3,624 -------- --------- ---------- Total assets................................................................. $184,327 $ 186,876 $ 371,203 ======== ========= ========= Accounts payable.................................................................. $ 5,600 $35,580 $41,180 Accrued expenses.................................................................. 16,299 16,578 32,877 Notes payable..................................................................... -- 6,358 6,358 Taxes on income................................................................... -- 4,621 4,621 -------- --------- ---------- Total current liabilities.................................................... 21,899 63,137 85,036 Long-term liabilities............................................................. 5,104 25,301 30,405 Total liabilities............................................................ 27,003 88,438 115,441 Net assets to be sold............................................................. 157,324 98,438 255,762 -------- --------- ---------- Total liabilities and net assets to be sold.................................. $184,327 $ 186,876 $ 371,203 ======== ========= =========
AS OF MARCH 31, 2000 ----------------------------------------- TOTAL DOMESTIC INTERNATIONAL COMBINED ------------- -------------- -------- Cash and cash equivalents........................................................ $ -- $ 8,026 $ 8,026 Accounts receivable -- trade, less allowance..................................... 18,963 59,965 78,928 Other receivables................................................................ 531 3,096 3,627 Inventories...................................................................... 25,448 35,928 61,376 Deferred taxes................................................................... 4,947 -- 4,947 Prepaid expenses and other current assets........................................ 1,838 3,800 5,638 --------- --------- ---------- Total current assets........................................................ 51,727 110,815 162,542 Property, plant and equipment, net............................................... 95,881 21,611 117,492 Intangible assets: Excess of purchase price of businesses acquired over the net assets at date of acquisition, less amortization...................................... 29,474 27,908 57,382 Patents, trademarks, contracts, and formulae, less amortization............... 9,212 19,394 28,606 --------- --------- ---------- Total intangible assets..................................................... 38,686 47,302 85,988 Other assets..................................................................... -- 3,436 3,436 --------- --------- ---------- Total assets................................................................ $ 186,294 $ 183,164 $ 369,458 ========= ========= ========= Accounts payable................................................................. $ 5,100 $31,830 $36,930 Accrued expenses................................................................. 17,783 13,388 31,171
23 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands)
AS OF MARCH 31, 2000 ----------------------------------------- TOTAL DOMESTIC INTERNATIONAL COMBINED ------------- -------------- -------- Notes payable.................................................................... -- 5,287 5,287 Taxes on income.................................................................. -- 2,635 2,635 --------- --------- ---------- Total current liabilities................................................... 22,883 53,140 76,023 Long-term liabilities............................................................ 5,125 28,813 33,938 --------- --------- ---------- Total liabilities........................................................... 28,008 81,953 109,961 Net assets to be sold............................................................ 158,286 101,211 259,497 --------- --------- ---------- Total liabilities and net assets to be sold................................. $ 186,294 $ 183,164 $ 369,458 ========= ========= =========
24 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands)
YEAR ENDED MARCH 31, 2001 ----------------------------------------- TOTAL DOMESTIC INTERNATIONAL COMBINED ------------- -------------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Revenues in excess of expenses.................................................... $ 39,434 $ 10,492 $ 49,926 Adjustments to reconcile revenues in excess of expenses to cash flows from operations: Depreciation and amortization................................................ 5,439 3,176 8,615 Amortization................................................................. 1,071 1,859 2,930 OTHER CHANGES IN ASSETS AND LIABILITIES: Increase in accounts receivable.............................................. (1,455) (9,069) (10,524) Increase in inventories...................................................... (73) (1,502) (1,575) Increase in prepaid expenses................................................. (271) (426) (697) Increase (decrease) in accounts payable & accrued expenses................... (984) 12,925 11,941 Increase (decrease) in deferred taxes........................................ (1,579) 685 (894) Other changes................................................................ 224 (1,536) (1,312) --------- --------- ---------- Changes in assets & liabilities................................................... (4,138) 1,077 (3,061) --------- --------- ---------- Cash flows provided by operations................................................. 41,806 16,604 58,410 --------- --------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment -- net of acquisitions............ (6,995) (4,375) (11,370) Proceeds from sale of property, plant and equipment.......................... 1,086 357 1,443 --------- --------- ---------- Cash flows used in investing activities........................................... (5,909) (4,018) (9,927) --------- --------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of debt............................................................. -- (3,596) (3,596) Cash transferred to CWI...................................................... (35,798) (5,899) (41,697) Increase in borrowings....................................................... -- 2,173 2,173 --------- --------- ---------- Cash flows provided by (used in) financing activities............................. (35,798) (7,322) (43,120) --------- --------- ---------- Foreign exchange effect on cash & cash equivalents................................ -- (553) (553) --------- --------- ---------- Increase in cash & cash equivalents............................................... $ 99 $4,711 $ 4,810 ========= ========= ==========
25 Carter-Wallace, Inc. Consumer Business Excluding Antiperspirant/ Deodorant Products in the United States and Canada and Pet Products March 31, 2001 (in thousands)
YEAR ENDED MARCH 31, 2000 ----------------------------------------- TOTAL DOMESTIC INTERNATIONAL COMBINED ------------- -------------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Revenues in excess of expenses..................................................... $ 28,425 $ 12,026 $ 40,451 Adjustments to reconcile revenues in excess of expenses to cash flows from operations: Depreciation and amortization...................................................... 4,625 3,059 7,684 Amortization....................................................................... 1,187 2,313 3,500 OTHER CHANGES IN ASSETS & LIABILITIES: Increase in accounts receivable............................................... (2,472) (11,396) (13,868) Increase in inventories....................................................... (6,343) (5,194) (11,537) Increase in prepaid expenses.................................................. (474) (1,095) (1,569) Increase in accounts payable & accrued expenses............................... 574 4,730 5,304 Decrease in deferred taxes.................................................... (4,027) (276) (4,303) Other changes................................................................. 408 (1,913) (1,505) --------- --------- --------- Changes in assets & liabilities............................................... (12,334) (15,144) (27,478) --------- --------- --------- Cash flows provided by operations.................................................. 21,903 2,254 24,157 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment -- net of acquisitions............. (6,886) (8,330) (15,216) Cash paid for acquisitions.................................................... -- -- -- Decrease in short-term investments............................................ -- 313 313 Proceeds from sale of property, plant and equipment........................... 353 672 1,025 --------- --------- --------- Cash flows used in investing activities............................................ (6,533) (7,345) (13,878) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of debt.............................................................. -- (5,008) (5,008) Cash transferred (to) from CHI................................................ (15,407) 3,605 (11,802) Increase in borrowings........................................................ -- 2,781 2,781 --------- --------- --------- Cash flows provided by (used in) financing activities.............................. (15,407) 1,378 (14,029) --------- --------- --------- Foreign exchange effect on cash & cash equivalents................................. -- (522) (522) --------- --------- --------- Decrease in cash & cash equivalents................................................ $ (37) $ (4,235) $ (4,272) ========= ========= =========
26 CARTER WALLACE, INC. CONSUMER BUSINESS EXCLUDING ANTIPERSPIRANT/ DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS March 31, 2001 (in thousands)
YEAR ENDED MARCH 31, 1999 ------------------------------------ TOTAL DOMESTIC INTERNATIONAL COMBINED ---------- ------------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Revenues in excess of expenses............................................ $21,787 $ 9,562 $31,349 Adjustments to reconcile revenues in excess of expenses to cash flows from operations: Depreciation and Amortization.......................................... 3,578 3,014 6,592 Amortization........................................................... 1,028 2,404 3,432 OTHER CHANGES IN ASSETS & LIABILITIES: (Increase) decrease in accounts receivable............................. 2,437 (1,816) 621 Increase in inventories................................................ (3,153) (4,023) (7,176) Increase in prepaid expenses .......................................... (273) (385) (658) Increase in accounts payable & accrued expenses........................ 1,340 9,183 10,523 Increase in deferred taxes............................................. 381 130 511 Other changes.......................................................... 667 (2,695) (2,028) --------- --------- --------- Changes in assets & liabilities........................................ 1,399 394 1,793 --------- --------- --------- Cash flows provided by operations......................................... 27,792 15,374 43,166 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment -- net of acquisitions...... (11,965) (2,838) (14,803) Cash paid for acquisitions............................................. -- (18,762) (18,762) Increase in short-term investments..................................... -- (313) (313) Proceeds from sale of property, plant and equipment.................... 130 241 371 --------- --------- --------- Cash flows used in investing activities................................... (11,835) (21,672) (33,507) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of debt....................................................... -- (7,089) (7,089) Cash transferred to CWI................................................ (15,929) (1,370) (17,299) Increase in borrowings................................................. -- 17,385 17,385 --------- --------- --------- Cash flows provided by (used in) financing activities..................... (15,929) 8,926 (7,003) --------- --------- --------- Foreign exchange effect on cash & cash equivalents........................ -- (603) (603) --------- --------- --------- Increase in cash & cash equivalents....................................... $ 28 $ 2,025 $ 2,053 ========= ========= =========
27 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Combined Statements of Net Assets To Be Sold
ASSETS JUNE 30, 2001 MARCH 31, 2001 ------------- -------------- (unaudited) (in thousands) CURRENT ASSETS: Cash and cash equivalents.............................................. $ 7,155 $ 12,836 Accounts receivable -- trade, less allowance of $4,461 and $4,089...... 105,775 84,806 Other receivables...................................................... 3,299 3,883 Inventories: Finished goods....................................................... 34,214 37,809 Work in process...................................................... 8,102 8,634 Raw materials and supplies........................................... 14,173 14,046 --------- -------- 56,489 60,489 Deferred taxes......................................................... 6,281 6,281 Prepaid expenses and other current assets.............................. 8,145 6,031 --------- -------- Total current assets.................................... 187,144 174,326 --------- -------- PROPERTY, PLANT, AND EQUIPMENT AT COST: Land................................................................... 2,563 2,521 Buildings and improvements............................................. 105,463 105,666 Machinery, equipment, and fixtures..................................... 117,486 117,513 Leasehold improvements................................................. 4,238 4,721 --------- -------- 229,750 230,421 Accumulated depreciation and amortization.............................. 117,977 117,497 --------- -------- 111,773 112,924 --------- -------- INTANGIBLE ASSETS: Excess of purchase price of businesses acquired over the net assets at date of acquisition, less amortization..................... 51,507 53,769 Patents, trademarks, contracts, and formulae, less amortization........ 25,143 26,560 --------- -------- 76,650 80,329 --------- -------- OTHER ASSETS.............................................................. 3,800 3,624 --------- -------- Total assets............................................ $ 379,367 $371,203 ========= ========
28 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Combined Statements of Net Assets To Be Sold
JUNE 30, MARCH 31, 2001 2001 -------- --------- (unaudited) LIABILITIES AND NET ASSETS TO BE SOLD (in thousands) CURRENT LIABILITIES: Accounts payable................................................................ $ 40,294 $ 41,180 Accrued expenses................................................................ 29,519 32,877 Notes payable................................................................... 7,031 6,358 Taxes on income................................................................. 4,026 4,621 --------- -------- Total current liabilities........................................ 80,870 85,036 --------- -------- LONG-TERM LIABILITIES: Long-term debt.................................................................. 15,838 17,921 Accrued postretirement benefit obligation in Canada............................. 2,637 2,560 Other long-term liabilities..................................................... 6,749 6,693 Deferred tax liability.......................................................... 3,217 3,231 --------- -------- Total long-term liabilities...................................... 28,441 30,405 --------- -------- Total liabilities................................................ 109,311 115,441 NET ASSETS TO BE SOLD.............................................................. 270,056 255,762 --------- -------- Total liabilities and net assets to be sold...................... $ 379,367 $371,203 ========= ========
See accompanying notes to unaudited combined statements. 29 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Combined Statements of Revenues and Expenses (unaudited)
THREE MONTHS THREE MONTHS ENDED ENDED JUNE 30, JUNE 30, 2001 2000 ------------ ------------ (in thousands) Net sales ........................................ $ 125,231 $ 123,276 Cost of goods sold ............................... 44,739 45,200 --------- --------- Gross profit ........................ 80,492 78,076 --------- --------- OPERATING EXPENSES: Advertising and promotion .................... 23,679 23,871 Marketing and other selling .................. 12,305 13,461 Distribution expense ......................... 4,039 4,246 Research and development ..................... 1,673 1,984 General and administrative ................... 7,030 6,191 Interest expense ............................. 257 320 Interest income ............................. (98) (74) Other expense, net ........................... (704) (660) --------- --------- 48,181 49,339 --------- --------- Revenues in excess of expenses before provision for taxes on income ..... 32,311 28,737 Provision for taxes on income .................... 13,539 11,353 --------- --------- Revenues in excess of expenses ...... $ 18,772 $ 17,384 ========= =========
See accompanying notes to unaudited combined statements. 30 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Combined Statements of Changes in Net Assets and Comprehensive Earnings (unaudited)
THREE MONTHS THREE MONTHS ENDED ENDED JUNE 30, JUNE 30, 2001 2000 ------------ ------------ (in thousands) Amount at beginning of period ........................................... $ 255,762 $ 259,497 Revenues in excess of expenses .......................................... 18,772 17,384 Foreign currency translation adjustments ................................ (2,325) (3,721) --------- --------- Comprehensive earnings .................................................. 16,447 13,663 Cash and other transfers to Carter-Wallace, Inc. ........................ (2,153) (2,616) --------- --------- Amount at end of period ................................................. $ 270,056 $ 270,544 ========= =========
See accompanying notes to unaudited combined statements. 31 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Combined Statements of Cash Flows (unaudited)
THREE MONTHS THREE MONTHS ENDED ENDED JUNE 30, JUNE 30, 2001 2000 ------------ ------------ (in thousands) CASH FLOWS (USED BY) PROVIDED BY OPERATING ACTIVITIES: Revenues in excess of expenses .................................. $ 18,772 17,384 Adjustments to reconcile revenues in excess of expenses to cash flows from operations: Depreciation and amortization ............................... 2,304 2,151 Amortization of excess of purchase price of businesses acquired over the net assets at date of acquisition, patents, trademarks, contracts, and formulae .............................................. 689 721 Other changes in assets and liabilities: (Increase) in accounts receivable and other receivables ....................................... (23,811) (24,455) Decrease in inventories ................................... 3,009 1,221 (Increase) decrease in prepaid expenses ................... (2,242) 689 (Decrease) increase in accounts payable and accrued expenses .................................... (1,910) 6,338 (Increase) in deferred taxes .............................. (14) (97) Other changes ............................................. 673 (155) -------- ------ Cash flows (used by) provided by operating activities .................... (2,530) 3,797 -------- ------ CASH FLOWS USED IN INVESTING ACTIVITIES: Additions to property, plant, and equipment ..................... (2,423) (2,648) (Increase) in short-term investments ............................ -- (617) Proceeds from sale of property, plant, and equipment ............ 45 33 -------- ------ Cash flows used in investing activities . (2,378) (3,232) -------- ------ CASH FLOWS USED IN FINANCING ACTIVITIES: Payments of debt ................................................ (751) (773) Cash transferred to Carter-Wallace, Inc. ........................ (1,017) (1,751) Increase in borrowings .......................................... 1,372 502 -------- ------ Cash flows used in financing activities . (396) (2,022) -------- ------ Effect of foreign exchange rate changes on cash and cash equivalents (377) (318) -------- ------ (Decrease) in cash and cash equivalents . $ (5,681) (1,775) ======== ====== SUPPLEMENTAL INFORMATION: Interest Paid ............................................. $ 346 313 -------- ------
See accompanying notes to unaudited combined statements. 32 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements June 30, 2001 and 2000 (Unaudited) (1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION On May 7, 2001, Carter-Wallace, Inc. (the "Company") entered into definitive agreements for the sale of the Company in a two-step transaction which was consummated on September 28, 2001. In accordance with the Asset Purchase Agreement, the Company first sold the net assets and business of the Company's Consumer Business, as defined in the Asset Purchase Agreement, to Armkel, LLC ("Armkel") for $738.4 million, less certain debt outstanding. Armkel is jointly owned by two private investment funds formed by Kelso & Company L.P. and by Church & Dwight Co. Such funds were paid directly to the Company. Pursuant to the Agreement and Plan of Merger, immediately following the sale of the Consumer Business, a buying group purchased the Company's outstanding common stock and Class B common stock for $20.30 per share subject to certain closing adjustments. The aggregate consideration from both parts of the transaction was $1.121 billion, less approximately $160 million of corporate taxes paid on the sale of the Consumer Business. Under a separate Product Line Purchase Agreement effective May 7, 2001, as amended, Church & Dwight Co. acquired the antiperspirant/deodorant products business in the United States and Canada and the pet products business from Armkel. Excluded from this transaction are the antiperspirants/deodorants product business in the United Kingdom and Australia. Products sold domestically by this component of the Consumer Business primarily include condoms, at-home pregnancy and ovulation test kits, hair removal products, and tooth-whitening products. These products are promoted directly to the consumer by television and other advertising media and are sold to wholesalers and various retailers. Many of the products sold by foreign subsidiaries are the same products which are sold domestically, as well as certain other products which are sold exclusively in international markets. Products are sold throughout the world by various subsidiaries and distributors. The accompanying combined unaudited statements pertain to the Consumer Business of the Company -- Excluding Antiperspirant/Deodorant Products in the United States and Canada and Pet Products and have been prepared pursuant to the Asset Purchase Agreement and Product Line Purchase Agreement in accordance with accounting principles generally accepted in the United States of America. All significant intercompany transactions have been eliminated. This component of the Consumer Business has no separate legal status and operated as an integral part of the Company's Consumer Business which operated as an integral part of Carter-Wallace, Inc. overall operations. These combined unaudited statements have been prepared from the historical accounting records of the Company which have been stated on a going-concern basis and do not necessarily reflect liquidity values. The accompanying unaudited combined statements of revenues and expenses are not necessarily indicative of the costs and expenses that would have been incurred had the component been operated as a stand-alone entity. Certain indirect operating expenses for selling and general and administrative costs of the Consumer Business were allocated to the Carter-Wallace, Inc. Consumer Business - Excluding Antiperspirant/Deodorant Products in the United States and Canada and Pet Products based on a percentage of net sales. Such allocated selling and other general and administrative costs for the three month periods ended June 30, 2001 and 2000 included in the accompanying combined statements amounted to approximately $5,200,000 and $5,000,000 respectively. Corporate income and expenses of the Company included in this component of the Consumer Business include those items specifically identifiable to this component and allocation, primarily based on usage estimates, of certain other corporate expenses, including accounting, human resources, and corporate systems. Corporate expenses allocated to this component of the Consumer Business are costs which benefit and are required for its operations. Certain general corporate expenses of the Company have not been allocated to this component of the Consumer Business because they did not provide a direct or material benefit to this business. In addition, if the Consumer Business had not been a part of the Company during the periods presented, such corporate expenses would not have significantly changed as a result of not having to operate this business. In the opinion of management, these methods of allocating these 33 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements June 30, 2001 and 2000 (Unaudited) costs are reasonable; however, such costs do not necessarily equal the costs that this component of the Consumer Business would have incurred on a stand-alone basis. Therefore, the financial information included herein may not necessarily reflect assets and liabilities, revenues and expenses, and cash flows of this component of the Consumer Business on a stand-alone basis in the future. Certain expenses, such as postretirement benefit costs which are included in the combined statements of revenues and expenses for this component of the Consumer Business, relate to assets and/or liabilities which have not been included in the accompanying unaudited combined statements of net assets to be sold of this component of the Consumer Business. Such assets and/or liabilities will be retained by Carter-Wallace, Inc. in accordance with the terms of the definitive sales agreements. In accordance with such agreements, Armkel will assume the liability for 60% of the retiree medical obligations incurred with respect to any specified consumer business employee who terminates employment between May 7, 2001 through September 28, 2001. These obligations were not significant. This component of the Consumer Business includes only the cash of the foreign subsidiaries, except for Canada where the amount of cash is limited to U.S. $1,000,000. The accompanying statements as of June 30, 2001 and for the three months ended June 30, 2001 and 2000 are unaudited. The results of the interim periods are not necessarily indicative of results expected for a full year's operations. In the opinion of management, all adjustments necessary for a fair statement of results of these interim periods have been reflected in these financial statements and are of a normal recurring nature. These statements should be read in conjunction with the audited statements and notes thereto included on pages F-3 through F-26 of this prospectus. (2) NEW ACCOUNTING PRONOUNCEMENTS Accounting for Certain Sales Incentives Emerging Issues Task Force Issue No. 00-14, "Accounting for Certain Sales Incentives" ("ETIF Issues No. 00-14"), outlines required accounting treatment for certain sales incentives, including manufacturer's coupons. ETIF Issues No. 00-14 requires companies to record coupon expense as a reduction of sales, rather than marketing expense. The Consumer Business currently records coupon expense as a component of marketing expense. The Consumer Business is required to implement ETIF Issues No. 00-14 for the quarter beginning January 1, 2002. It will require the Consumer Business to report coupon expense as a reduction of net sales. Coupon expense in this component of the Consumer Business approximates $3,000,000 per year based on historical amounts, spread relatively evenly throughout the year. Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer ETIF Issues No. 00-25, "Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer" (ETIF Issues No. 00-25"), outlines required accounting treatment of certain sales incentives, including slotting or placement fees, cooperative advertising arrangements, buydowns, and other allowances. The Consumer Business currently records such costs as marketing expenses. ETIF Issues No. 00-25 will require the Consumer Business to report the paid consideration expense as a reduction of sales, rather than marketing expense. The Consumer Business is required to implement ETIF Issues No. 00-25 for the quarter beginning January 1, 2002. The Consumer Business has not yet determined the effect of implementing the guidelines of ETIF Issues No. 00-25, but, in any case, implementation will not have an effect on net earnings. Derivative Instruments and Hedging Activities 34 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements June 30, 2001 and 2000 (Unaudited) In June 1998, the Financial Accounting Standards ("FASB") issues Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires that companies recognize all derivatives as either assets or liabilities on the balance sheet and measure these instruments at fair value. In June 1999, the FASB issues SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." This statement deferred the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", which made minor amendments to SFAS 133. The Company has adopted SFAS No. 133, as amended, effective April 1, 2001. The Company's derivatives are all qualified hedges. The derivatives are comprised of interest rate swaps and foreign exchange forward contracts. The valuation of these derivatives at June 30, 2001 resulted in a net asset of approximately $150,000. The adoption of this accounting requirement did not have a material effect on the Company's combined statements. Business Combinations, Goodwill and Other Intangible Assets In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." This Statement addresses the financial accounting and reporting for business combinations and supercedes Accounting Principles Bulletin ("APB") No. 16 "Business Combinations," and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and establishes criteria to separately recognize intangible assets apart from goodwill. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supercedes APB No. 17, "Intangible Assets." This Statement requires, among other things, that goodwill and intangible assets that have indefinite useful lives should not be amortized, but rather should be tested at least annually for impairment, using the guidance for measuring impairment set forth in the Statement. The acquisition of this component of the Consumer Business will be accounted for as a purchase under SFAS No. 141 and the resulting goodwill and other intangible assets will be accounted for under SFAS No. 142. At June 30, 2001, unamortized goodwill in the accompanying statements amounted to approximately $51,500,000 and amortization expense related to this goodwill for the year ended March 31, 2001 amounted to approximately $2,800,000. 35 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements June 30, 2001 and 2000 (Unaudited) (3) LITIGATION The Consumer Business is engaged in litigation with Tambrands Inc. in the Supreme Court of the State and County of New York, arising out of a patent infringement and misappropriation suit previously filed against both companies in the United States District Court, Southern District of New York, by New Horizons Diagnostics Corporation ("NHDC"), et al. The NHDC suit, which was settled and discontinued in July 1996, asserted claims with respect to certain "gold sol" technology (used in First Response and Answer home pregnancy and ovulation predictor test kits) that the Consumer Business had acquired from Tambrands pursuant to a written purchase agreement in March 1990. The Consumer Business paid an immaterial amount toward that settlement. In the pending Supreme Court action, Tambrands seeks reimbursement from the Consumer Business of an unspecified portion of the amount paid by Tambrands in settlement of the NHDC suit, and for defense costs. Cross-motions for summary judgment have been filed. The Consumer Business believes it has good defenses, under the terms of the purchase agreement, to Tambrands' claim. The Consumer Business is subject to other legal actions arising out of its operations. The Consumer Business believes, based on the opinion of counsel, that it has good defenses to such actions and should prevail. (4) EMPLOYMENT AGREEMENTS AND TERMINATION AND CHANGE IN CONTROL ARRANGEMENTS The Company has entered into agreements with four executives of the Consumer Business as well as seven foreign subsidiary general managers, whose services are being made available to the Consumer Business. These obligations were assumed by Armkel as part of the acquisition of the Consumer Business. These agreements provide for payments equal to salary and bonus multiples, and in the case of the four executives, certain pension enhancements upon termination as specified in the agreements after a change in control of the Company. The payments required by these agreements, based on a termination under the agreements of all of the executives, is approximately $15,000,000. No accrual of such amount is reflected in the accompanying unaudited statements. The transactions disclosed in note 1 relating to the sale of the Consumer Business and the Company met the definition of a change in control as defined in the various agreements. 36 CARTER-WALLACE, INC. CONSUMER BUSINESS -- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements June 30, 2001 and 2000 (Unaudited) (5) FOREIGN OPERATIONS Net current assets and net sales of this component of the Consumer Business foreign subsidiaries and branches operating outside of the United States and the Consumer Business' equity in net assets and revenues in excess of expenses of such operations of this component were:
AS OF AND FOR THE THREE MONTHS ENDED JUNE 30, -------------------------------- 2000 2001 ------------ ------------- Net current assets $ 58,091,000 $ 55,612,000 Equity in net assets 112,377,000 112,957,000 Net Sales 60,560,000 63,969,000 Revenue in excess of expenses 4,173,000 4,456,000
The adjustment from foreign currency translation is included as a reduction of the net assets to be sold. The cumulative balances are included as a component of stockholders' equity of Carter-Wallace, Inc. The adjustment is comprised of the following:
Opening balance $39,481,000 Current year change 2,325,000 ----------- Ending balance $41,806,000
37 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements June 30, 2001 and 2000 (Unaudited) (6) SUPPLEMENTAL FINANCIAL INFORMATION OF DOMESTIC AND INTERNATIONAL OPERATIONS Supplemental information for combined condensed revenues in excess of expenses, net assets to be sold, and cash flows data as of June 30, 2001 and for the three months ended June 30, 2001 and 2000 is summarized as follows (in thousands):
THREE MONTHS ENDED JUNE 30, 2001 -------------------------------- TOTAL DOMESTIC INTERNATIONAL COMBINED -------- ------------- -------- Net sales $64,671 $60,560 $125,231 Cost of goods sold 19,212 25,527 44,739 ------- ------- ------- Gross profit 45,459 35,033 80,492 ------- ------- ------- Operating Expenses 19,944 28,237 48,181 ------- ------- ------- Revenues in excess of expenses before provision for taxes on income 25,515 6,796 32,311 Provision for taxes on income 10,916 2,623 13,539 ------- ------- ------- Revenues in excess of expenses $14,599 $ 4,173 $18,722 ======= ======= =======
THREE MONTHS ENDED JUNE 30, 2000 -------------------------------- TOTAL DOMESTIC INTERNATIONAL COMBINED -------- ------------- -------- Net sales $59,307 $63,969 $123,276 Cost of goods sold 17,877 27,323 45,200 ------- ------- -------- Gross profit 41,430 36,646 78,076 ------- ------- -------- Operating Expenses 19,951 29,388 49,339 ------- ------- -------- Revenues in excess of expenses before provision for taxes on income 21,479 7,258 28,737 Provision for taxes on income 8,551 2,802 11,353 ------- ------- -------- Revenues in excess of expenses $12,928 $ 4,456 $ 17,384 ======= ======= ========
38 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements June 30, 2001 and 2000 (Unaudited)
AS OF JUNE 30, 2001 ------------------- TOTAL DOMESTIC INTERNATIONAL COMBINED -------- ------------- -------- Cash and cash equivalents $ -- $ 7,155 $ 7,155 Accounts receivable - trade, less allowance 32,943 72,832 105,775 Other receivables 565 2,734 3,299 Inventories 22,576 33,913 56,489 Deferred taxes 6,281 -- 6,281 Prepaid expenses and other current assets 1,967 6,178 8,145 -------- -------- -------- Total current assets 64,332 122,812 187,144 Property, plant and equipment, net 90,852 20,921 111,773 Intangible assets: Excess of purchase price of businesses acquired over the net assets at date of acquisition, less amortization 18,095 33,412 51,507 Patents, trademarks, contracts, and formulae, less amortization 5,690 19,453 25,143 -------- -------- -------- Total intangible assets 23,785 52,865 76,650 Other assets -- 3,800 3,800 -------- -------- -------- Total assets $178,969 $200,398 $379,367 ======== ======== ======== Accounts payable $ 3,199 $ 37,095 $ 40,294 Accrued expenses 12,950 16,569 29,519 Notes payable -- 7,031 7,031 Taxes on income -- 4,026 4,026 -------- -------- -------- Total current liabilities 16,149 64,721 80,870 Long-term liabilities 5,141 23,300 28,441 -------- -------- -------- Total liabilities 21,290 88,021 109,311 Net assets to be sold 157,679 112,377 270,056 -------- -------- -------- Total liabilities and net assets to be sold $178,969 $200,398 $379,367 ======== ======== ========
39 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements June 30, 2001 and 2000 (Unaudited)
AS OF MARCH 31, 2001 -------------------- TOTAL DOMESTIC INTERNATIONAL COMBINED -------- ------------- -------- Cash and cash equivalents $ 99 $ 12,737 $ 12,836 Accounts receivable - trade, less allowance 20,462 64,344 84,806 Other receivables 487 3,396 3,883 Inventories 25,521 34,968 60,489 Deferred taxes 6,281 - 6,281 Prepaid expenses and other current assets 2,109 3,922 6,031 -------- -------- -------- Total current assets 54,959 119,367 174,326 Property, plant and equipment, net 91,785 21,139 112,924 Intangible assets: Excess of purchase price of businesses acquired over the net assets at date of acquisition, less amortization 28,662 25,107 53,769 Patents, trademarks, contracts, and formulae, less amortization 8,921 17,639 26,560 -------- -------- -------- Total intangible assets 37,583 42,746 80,329 Other assets - 3,624 3,624 -------- -------- -------- Total assets $184,327 $186,676 $371,203 ======== ======== ======== Accounts payable $ 5,600 $ 35,580 $ 41,180 Accrued expenses 16,299 16,578 32,877 Notes payable - 6,358 6,358 Taxes on income - 4,621 4,621 -------- -------- -------- Total current liabilities 21,899 63,137 85,036 Long-term liabilities 5,104 25,301 30,405 -------- -------- -------- Total liabilities 27,003 88,438 115,441 Net assets to be sold 157,324 98,438 255,762 -------- -------- -------- Total liabilities and net assets to be sold $184,327 $186,876 $371,203 ======== ======== ========
40 CARTER-WALLACE, INC. CONSUMER BUSINESS-- EXCLUDING ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements June 30, 2001 and 2000 (Unaudited)
THREE MONTHS ENDED JUNE 30, 2001 -------------------------------- TOTAL DOMESTIC INTERNATIONAL COMBINED -------- ------------- -------- Net cash provided by (used in) operating activities $ 1,143 $ (3,673) $(2,530) Net cash provided by (used in) investing activities (1,569) (809) (2,378) Net cash provided by (used in) financing activities 327 (723) (396) Effect of exchange rate changes on cash -- (377) (377) Cash at beginning of period 99 12,737 12,836 --------- -------- ------- Cash at end of period $ -- $ 7,155 $ 7,155 ========= ======== =======
THREE MONTHS ENDED JUNE 30, 2000 -------------------------------- TOTAL DOMESTIC INTERNATIONAL COMBINED -------- ------------- -------- Net cash provided by (used in) operating activities $ 504 $ 3,293 $ 3,797 Net cash provided by (used in) investing activities (1,441) (1,791) (3,232) Net cash provided by (used in) financing activities 937 (2,959) (2,022) Effect of exchange rate changes on cash -- (318) (318) Cash at beginning of period -- 8,026 8,026 ------ ------ ------ Cash at end of period $ -- $ 6,251 $ 6,251 ====== ====== ======
41 INDEPENDENT AUDITORS' REPORT The Board of Directors Carter-Wallace, Inc.: We have audited the accompanying combined statements of net assets to be sold of Carter-Wallace, Inc. Consumer Business - Antiperspirant/Deodorant Products in the United States and Canada and Pet Products as of March 31, 2001 and 2000, and the related combined statements of revenues and expenses, changes in net assets and comprehensive earnings, and cash flows for each of the years in the three-year period ended March 31, 2001. These combined statements are the responsibility of the Consumer Business management. Our responsibility is to express an opinion on these combined statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in and to the extent of note 1, the accompanying combined statements were prepared to present the net assets to be sold of Carter-Wallace, Inc. Consumer Business - Antiperspirant/Deodorant Products in the United States and Canada and Pet Products as of March 31, 2001 and 2000, and the related combined statements of revenues and expenses, changes in net assets and comprehensive earnings, and cash flows for each of the years in the three-year period ended March 31, 2001, pursuant to the Asset Purchase Agreement between Carter-Wallace, Inc. and Armkel, LLC and the Product Line Purchase Agreement between Armkel, LLC and Church & Dwight Co. In our opinion, the accompanying combined statements referred to above present fairly, in all material respects, the net assets to be sold of Carter-Wallace, Inc. Consumer Business - Antiperspirant/Deodorant Products in the United States and Canada and Pet Products as of March 31, 2001 and 2000, and its revenues and expenses, and its cash flows for each of the years in the three-year period ended March 31, 2001, pursuant to the Asset Purchase Agreement between Carter-Wallace, Inc. and Armkel, LLC and the Product Line Purchase Agreement between Armkel, LLC and Church & Dwight Co., referred to in note 1, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP June 27, 2001 42 CARTER-WALLACE, INC. CONSUMER BUSINESS - ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Combined Statements of Net Assets To Be Sold (in thousands)
MARCH 31, MARCH 31, ASSETS 2001 2000 ------- ------- Current assets: Accounts receivable - trade, less allowances of $2,818 and $2,524 at March 31, 2001 and 2000, respectively $12,805 10,978 Other receivables 298 396 Inventories: Finished goods 14,421 15,613 Work in process 1,162 1,107 Raw materials and supplies 6,701 7,682 ------- ------- 22,284 24,402 Deferred taxes 1,025 1,140 Prepaid expenses and other current assets 1,441 1,125 ------- ------- Total current assets 37,853 38,041 ------- ------- Property, plant, and equipment, at cost: Land 445 445 Buildings and improvements 3,080 3,080 Machinery, equipment, and fixtures 36,579 36,012 Leasehold improvements 28 28 ------- ------- 40,132 39,565 Accumulated depreciation and amortization 29,262 27,042 ------- ------- 10,870 12,523 ------- ------- Intangible assets: Excess of purchase price of businesses acquired over the net assets at date of acquisition, less amortization 1,926 1,965 Patents, trademarks, contracts, and formulae, less amortization 4,141 4,551 ------- ------- 6,067 6,516 ------- ------- Total assets $54,790 57,080 ======= =======
(Continued) 43 CARTER-WALLACE, INC. CONSUMER BUSINESS - ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Combined Statements of Net Assets To Be Sold (in thousands)
MARCH 31, MARCH 31, LIABILITIES AND NET ASSETS TO BE SOLD 2001 2000 ------- ------- Current liabilities: Accounts payable $ 3,747 5,210 Accrued expenses 9,588 7,753 ------- ------- Total current liabilities 13,335 12,963 ------- ------- Long-term liabilities: Deferred tax liability 931 1,030 ------- ------- Total long-term liabilities 931 1,030 ------- ------- Total liabilities 14,266 13,993 Net assets to be sold 40,524 43,087 ------- ------- Total liabilities and net assets to be sold $54,790 57,080 ======= =======
See accompanying notes to combined statements. 44 CARTER-WALLACE, INC. CONSUMER BUSINESS - ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Combined Statements of Revenues and Expenses (in thousands)
YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31, MARCH 31, MARCH 31, 2001 2000 1999 --------- --------- --------- Net sales $ 123,127 126,873 125,416 Cost of goods sold 64,062 64,227 65,242 --------- --------- --------- Gross profit 59,065 62,646 60,174 --------- --------- --------- Operating expenses: Advertising and promotion 25,093 25,857 25,492 Marketing and other selling 10,342 11,036 11,873 Distribution expense 12,221 12,238 12,033 Research and development 3,540 2,961 2,639 General and administrative 7,327 7,721 7,962 Other expense, net 1,015 230 146 --------- --------- --------- 59,538 60,043 60,145 --------- --------- --------- (Expenses in excess of revenues) revenues in excess of expenses before (benefit) provision for taxes on income (473) 2,603 29 (Benefit) provision for taxes on income (103) 1,081 36 --------- --------- --------- (Expenses in excess of revenues) revenues in excess of expenses $ (370) 1,522 (7) ========= ========= =========
See accompanying notes to combined statements. 45 CARTER-WALLACE, INC. CONSUMER BUSINESS - ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Combined Statements of Changes in Net Assets and Comprehensive Earnings (in thousands)
YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31, MARCH 31, MARCH 31, 2001 2000 1999 -------- -------- -------- Amount at beginning of year $ 43,087 44,232 50,438 (Expenses in excess of revenues) revenues in excess of expenses (370) 1,522 (7) Foreign currency translation adjustments (50) 95 118 -------- -------- -------- Comprehensive (loss) earnings (420) 1,617 111 Cash and other transfers to Carter-Wallace, Inc. (2,143) (2,762) (6,317) -------- -------- -------- Amount at end of year $ 40,524 43,087 44,232 ======== ======== ========
See accompanying notes to combined statements. 46 CARTER-WALLACE, INC. CONSUMER BUSINESS - ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Combined Statements of Cash Flows (in thousands)
MARCH 31, MARCH 31, MARCH 31, 2001 2000 1999 ------- ------- ------- Cash flows from operating activities: (Expenses in excess of revenues) $ (370) 1,522 (7) revenues in excess of expenses Adjustments to reconcile (expenses in excess of revenues) revenues in excess of expenses to cash flows from operations: Depreciation and amortization 5,147 5,717 5,777 Amortization of excess of purchase price of businesses acquired over the net assets at date of acquisition, patents, trademarks, contracts, and formulae 578 724 643 Other changes in assets and liabilities: (Increase) decrease in accounts receivable and other receivables (1,768) 1,764 4,137 Decrease (increase) in inventories 2,055 (2,644) (779) Increase in prepaid expenses (316) (7) (277) Increase (decrease) in accounts payable and accrued expenses 426 (597) 932 Decrease (increase) in deferred taxes 16 (77) (41) ------- ------- ------- Cash flows provided by operating activities 5,768 6,402 10,385 ------- ------- ------- Cash flows used in investing activities: Additions to property, plant, and equipment - net of acquisitions (408) (785) (960) Proceeds from sale of property, plant, and equipment 3 17 -- ------- ------- ------- Cash flows used in investing activities (405) (768) (960) ------- ------- ------- Cash flows used in financing activities: Cash transferred to Carter-Wallace, Inc. (5,363) (5,634) (9,425) ------- ------- ------- Cash flows used in financing activities (5,363) (5,634) (9,425) ------- ------- ------- Increase in cash and cash equivalents $ -- -- -- ======= ======= =======
See accompanying notes to combined statements. 47 CARTER-WALLACE, INC. CONSUMER BUSINESS - ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements March 31, 2001 and 2000 (1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION On May 7, 2001, Carter-Wallace, Inc. (the "Company") entered into definitive agreements for the sale of the Company in a two-step transaction. In accordance with an Asset Purchase Agreement, the Company will first sell the net assets and business of the Company's Consumer Business, as defined in the Asset Purchase Agreement, to Armkel, LLC ("Armkel") for $739 million, less certain debt outstanding. Armkel is jointly owned by two private investment funds formed by Kelso & Company L.P. and by Church & Dwight Co. Such funds will be paid directly to the Company. Pursuant to an Agreement and Plan of Merger, immediately following the sale of the Consumer Business, the buying group will offer to purchase the Company's outstanding common stock and Class B common stock for $20.30 per share subject to certain closing adjustments. CPI Development Corporation, a private holding company that controls approximately 83% of the voting power of the Company, has entered into an agreement to vote in favor of the merger, subject to certain limited exceptions. The aggregate consideration from both parts of the transaction is estimated to be $1.121 billion, less approximately $160 million of corporate taxes to be paid on the sale of the Consumer Business. Each agreement is conditioned on the other, so one will not be completed without the other. The asset sale and merger have been approved by the Board of Directors of each party to the agreement and is subject to certain conditions, including a financing condition for each buyer, various regulatory approvals, and the approval of the Company's stockholders. Under a separate Product Line Purchase Agreement effective May 7, 2001, as amended, Church & Dwight Co. will acquire the antiperspirant/deodorant product business in the United States and Canada and the pet products business from Armkel. Excluded from this transaction are the antiperspirant/deodorant product business in the United Kingdom and Australia. The accompanying combined statements pertain to the antiperspirant/deodorant products in the United States and Canada and the pet products of the Consumer Business of the Company and have been prepared pursuant to the Asset Purchase Agreement and the Product Line Purchase Agreement in accordance with accounting principles generally accepted in the United States of America. All significant intercompany transactions have been eliminated. This component of the Consumer Business has no separate legal status and operates as an integral part of the Company's Consumer Business, which operates as an integral part of the Company's overall operations. These combined statements have been prepared from the historical accounting records of the Company, which have been stated on a going-concern basis and do not necessarily reflect liquidity values. The accompanying combined statements of revenues and expenses are not necessarily indicative of the costs and expenses that would have been incurred had this component been operated as a stand-alone entity. (Continued) 48 CARTER-WALLACE, INC. CONSUMER BUSINESS - ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements March 31, 2001 and 2000 Certain indirect operating expenses for selling and general and administrative costs of the Consumer Business were allocated to the Carter-Wallace, Inc. Consumer Business - Antiperspirant/Deodorant Products in the United States and Canada and Pet Products based on a percentage of net sales. Such allocated selling and other general and administrative costs for the years ended March 31, 2001, 2000, and 1999 included in the accompanying combined statements amounted to approximately $11,900,000, $13,000,000, and $13,600,000, respectively. Corporate income and expenses of the Company included in this component of the Consumer Business include those items specifically identifiable to this component and allocation, primarily based on usage estimates, of certain other corporate expenses, including accounting, human resources, and corporate systems. Corporate expenses allocated to this component of the Consumer Business are costs which benefit and are required for its operations. Certain general corporate expenses of the Company have not been allocated to this component of the Consumer Business because they did not provide a direct or material benefit to this business. In addition, if the Consumer Business had not been a part of the Company during the periods presented, such corporate expenses would not have significantly changed as a result of not having to operate this business. In the opinion of management, these methods of allocating these costs are reasonable; however, such costs do not necessarily equal the costs that this component of the Consumer Business would have incurred on a stand-alone basis. Therefore, the financial information included herein may not necessarily reflect the assets and liabilities, revenue and expenses, and cash flows of this component of the Consumer Business on a stand-alone basis in the future. Certain expenses, such as postretirement benefit costs which are included in the combined statements of revenues and expenses for this component of the Consumer Business, relate to assets and/or liabilities which have not been included in the combined statements of net assets to be sold of this component of the Consumer Business. Such assets and/or liabilities will be retained by either the Company or Armkel in accordance with the definitive sales agreement. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) REVENUE RECOGNITION POLICY Revenue is recognized when products are shipped. (b) USE OF ESTIMATES The preparation of statements in conformity with generally accepted accounting principles requires management to make estimates and use assumptions that affect certain reported amounts and disclosures. Actual amounts may differ. (c) INVENTORIES Inventories are valued at the lower of cost or market on the first-in, first-out ("FIFO") method, except for certain domestic inventories, which are stated at cost on the last-in, first-out ("LIFO") method. (Continued) 49 CARTER-WALLACE, INC. CONSUMER BUSINESS - ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements March 31, 2001 and 2000 (d) PROPERTY, PLANT, AND EQUIPMENT Depreciation is provided over the estimated useful lives of the assets, principally using the straight-line method. Machinery, equipment, and fixtures are depreciated over a period ranging from 5 to 20 years. Buildings and improvements are depreciated over a period ranging from 20 to 40 years. Leasehold improvements are amortized on a straight-line basis over the life of the related asset or the life of the lease, whichever is shorter. Expenditures for renewal and betterments are capitalized. Upon sale or retirement of assets, the appropriate asset and related accumulated depreciation accounts are adjusted and the resultant gain or loss is reflected in earnings. Maintenance and repairs are charged to expense as incurred. (e) INTANGIBLE ASSETS The excess of purchase price of businesses acquired over the net assets at date of acquisition is assessed to the product or group of products which constitute the business acquired and amortized over no longer than 40 years for amounts relating to acquisitions subsequent to October 31, 1970. The cost of patents, formulae, and contracts is amortized on a straight-line basis over their legal or contractual lives. The cost of trademarks is being amortized over no longer than 40 years for amounts relating to acquisitions subsequent to October 31, 1970. Amounts related to intangible assets acquired prior to October 31, 1970 are not material. The policy of the Consumer Business in assessing the recoverability of intangible assets is to compare the carrying value of the intangible asset with the undiscounted cash flow generated by products related to the intangible asset. In addition, the Consumer Business continually evaluates whether adverse developments indicate that an intangible asset may be impaired. (f) INCOME TAXES The income and expenses for the antiperspirant/deodorant products in the United States and Canada and pet products of the Consumer Business are included in the tax returns of the Company. The provision for taxes on income is computed as if this component of the Consumer Business were filing income tax returns on a stand-alone basis. (g) ADVERTISING AND MARKETING COSTS Advertising, promotion, and other marketing costs are charged to earnings in the period in which they are incurred. (Continued) 50 CARTER-WALLACE, INC. CONSUMER BUSINESS - ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements March 31, 2001 and 2000 (h) ACCRUED EXPENSES Accruals related to certain employee costs such as management bonuses and vacation pay are calculated based upon the proportioned number of employees designated as part of the antiperspirant/deodorant products in the United States and Canada and pet products component of the Consumer Business. (i) FOREIGN CURRENCY TRANSLATION The assets and liabilities of foreign subsidiaries are translated at the year-end rate of exchange, and income statement items are translated at the average rates prevailing during the year. The effects of foreign exchange gains and losses arising from these translations of assets and liabilities are included as a component of comprehensive earnings. (j) NEW ACCOUNTING PRONOUNCEMENTS Emerging Issues Task Force Issue No. 00-14, "Accounting for Certain Sales Incentives" ("EITF Issue No. 00-14"), outlines required accounting treatment for certain sales incentives, including manufacturer's coupons. EITF Issue No. 00-14 requires companies to record coupon expense as a reduction of sales, rather than marketing expense. The Consumer Business, including the antiperspirant/deodorant products in the United States and Canada and pet products component, currently records coupon expense as a component of marketing expense. The Consumer Business is required to implement EITF Issue No. 00-14 for the quarter beginning January 1, 2002. EITF No. 0014 will require the Consumer Business to report coupon expense as a reduction of net sales. Coupon expense in this component of the Consumer Business approximates $3,000,000 per year based on historical amounts, spread relatively evenly throughout the year. Emerging Issues Task Force Issue No. 00-25, "Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer" ("EITF Issue No. 00-25"), outlines required accounting treatment of certain sales incentives, including slotting or placement fees, cooperative advertising arrangements, buydowns, and other allowances. The Consumer Business currently records such costs as marketing expenses. EITF Issue No. 00-25 will require the Consumer Business to report the paid consideration expense as a reduction of sales, rather than marketing expense. The Consumer Business is required to implement EITF Issue No. 00-25 for the quarter beginning January 1, 2002. The Consumer Business has not yet determined the effect of implementing the guidelines of EITF Issue No. 00-25, but, in any case, implementation will not have an effect on net earnings. (Continued) 51 CARTER-WALLACE, INC. CONSUMER BUSINESS - ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements March 31, 2001 and 2000 In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement requires that companies recognize all derivatives as either assets or liabilities on the balance sheet and measure these instruments at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." This Statement deferred the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," which made minor amendments to SFAS No. 133. The Consumer Business will adopt SFAS No. 133, as amended, effective April 1, 2001. The adoption of this accounting requirement is not expected to have a material effect on the accompanying combined statements. (3) PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment includes the pet products manufacturing facility in Winsted, Connecticut and machinery, equipment, and other fixed assets related to the manufacturing of antiperspirants/deodorants and pet products at Cranbury, New Jersey and antiperspirants/deodorants in Canada. Specifically excluded from the Consumer Business property, plant, and equipment and the accompanying combined statements is certain vacant land adjacent to the Consumer Business facility in Cranbury, New Jersey which will be retained by the Company. (4) INVENTORIES Inventories computed on the LIFO method comprised 49% and 42% of inventories included in current assets at March 31, 2001 and 2000, respectively. If these inventories had been valued on the FIFO inventory method (which approximates current or replacement costs), total inventories would have been approximately $6,600,000 and $6,800,000 higher than reported at March 31, 2001 and 2000, respectively. (Continued) 52 CARTER-WALLACE, INC. CONSUMER BUSINESS - ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements March 31, 2001 and 2000 (5) TAXES ON INCOME The provision (benefit) for taxes on income was as follows:
YEAR ENDED MARCH 31 --------------------------------------------------------- 2001 2000 1999 ----------- ----------- ----------- Current: Domestic $ 401,000 995,000 (111,000) Foreign (211,000) 230,000 63,000 ----------- ----------- ----------- 190,000 1,225,000 (48,000) ----------- ----------- ----------- Deferred: Domestic (293,000) (144,000) 84,000 Foreign -- -- -- ----------- ----------- ----------- (293,000) (144,000) 84,000 ----------- ----------- ----------- Total $ (103,000) 1,081,000 36,000 =========== =========== ===========
Deferred income taxes are provided for temporary differences between the financial statement and tax bases of the assets and liabilities of this component of the Consumer Business. The temporary differences gave rise to the following deferred tax assets and liabilities at March 31:
2001 2000 ----------- ----------- Accrued liabilities $ 67,000 87,000 Asset valuation accounts 796,000 745,000 All other 501,000 518,000 ----------- ----------- Total deferred tax assets 1,364,000 1,350,000 ----------- ----------- Depreciation (1,227,000) (1,174,000) All other (43,000) (66,000) ----------- ----------- Total deferred tax liabilities (1,270,000) (1,240,000) ----------- ----------- Net deferred tax assets $ 94,000 110,000 =========== ===========
(Continued) 53 CARTER-WALLACE, INC. CONSUMER BUSINESS - ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements March 31, 2001 and 2000 Realization of the deferred tax assets of this component of the Consumer Business is dependent on generating sufficient taxable income in future years. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. However, the deferred tax assets could be reduced if estimates of future taxable income are lowered. Deferred taxes have not been provided on undistributed earnings of foreign subsidiaries. It has been management's practice and intent to reinvest such earnings in the operations of these subsidiaries. The effective tax rate of the provision for taxes on income as compared with the U.S. Federal statutory income tax rate was as follows:
YEAR ENDED MARCH 31 -------------------------------------------------------------------------------------- 2001 2000 1999 ------------------------ ----------------------- ------------------------ % TO % TO % TO PRETAX PRETAX PRETAX TAX AMOUNT INCOME TAX AMOUNT INCOME TAX AMOUNT INCOME ---------- ------ ---------- ------ ---------- ------ Computed tax (benefit) expense $ (165,000) (35.0)% $ 911,000 35.0% $ 10,000 35.0% Foreign income taxed at a different effective rate (37,000) (7.8)% 29,000 1.0% 3,000 10.3% State income taxes, net of Federal tax benefit 73,000 15.4% 103,000 4.0% (12,000) (41.4)% Other 26,000 5.5% 38,000 1.5% 35,000 120.7% ---------- ----- ---------- ----- ---------- ----- (Benefit) provision for taxes on income $ (103,000) (21.9)% $1,081,000 41.5% $ 36,000 124.6% ========== ===== ========== ===== ========== =====
The results of this component of the Consumer Business are included in the income tax returns of Carter-Wallace, Inc. and subsidiaries. The provision for taxes on income is computed as if this component of the Consumer Business was filing income tax returns on a stand-alone basis. The U.S. Internal Revenue Service completed its examination of Carter-Wallace, Inc. and subsidiaries' tax returns through fiscal year 1995, resulting in no material impact on the Company or this component of the Consumer Business. The statute of limitations for the examination of the Carter-Wallace Inc. and subsidiaries' U.S. Federal income tax return has expired for fiscal years 1996 and 1997. (6) RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS Retirement plan obligations for the Retirement Plan for Bargaining Employees of Carter-Wallace, Inc. and certain obligations of foreign subsidiaries have been excluded from the accompanying combined statements, as these obligations will be assumed and retained by Armkel. Obligations for the Executive Pension Benefits Plan and the Employees Retirement Plan of Carter-Wallace, Inc. have also been excluded from the accompanying combined statements, as these are obligations of the Company. (Continued) 54 CARTER-WALLACE, INC. CONSUMER BUSINESS - ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements March 31, 2001 and 2000 Pension expense for domestic salaried employees in this component has not been included in the accompanying combined statements because such expense was immaterial in each of the periods presented. Postretirement benefit obligations for domestic employees of this component of the Consumer Business have been excluded from the accompanying combined statements as these are obligations of the Company. However, expense related to postretirement benefits for domestic employees of this component is included in the accompanying combined statements of revenue and expenses. Expense related to the postretirement benefit obligations for domestic employees of this component amounted to $804,000, $757,000 and $379,000 for the fiscal years ended March 31, 2001, 2000 and 1999, respectively. Postretirement benefit obligations in Canada related to the Consumer Business - Antiperspirant/Deodorant Products in the United States and Canada and Pet Products have also been excluded from this component, as these obligations will be assumed and retained by Armkel. Expenses for the employee savings plan under which the Consumer Business matches the contributions of participating employees up to a designated level was approximately $250,000 in each of the years ended March 31, 2001, 2000, and 1999. (7) LONG-TERM INCENTIVE PLANS Obligations for deferred stock awards and stock option grants made under the 1996 Long-Term Incentive Plan for Corporate Officers of the Company have been excluded from the accompanying combined statements of net assets to be sold of this component of the Consumer Business, as these are obligations of the Company. As of March 31, 2001, the outstanding stock awards for the four Consumer Business executives totaled 105,000 shares and the outstanding stock options totaled 567,000. Outstanding awards of deferred stock become fully vested and outstanding options become immediately exercisable upon the occurrence of a change in control of the Company. Expense for stock award amortization has been allocated to this component of the Consumer Business and included in the accompanying combined statements of revenues and expenses. This stock award amortization expense amounted to $129,000, $222,000, and $134,000 for the fiscal years ended March 31, 2001, 2000, and 1999, respectively. The Consumer Business has chosen to continue to account for options granted under the plan using the intrinsic value method. Accordingly, no compensation expense has been recognized for these options. Had the fair value method of accounting, as defined in SFAS No. 123, "Accounting for Stock-Based Compensation," been applied to these stock options, pro forma revenue in excess of expenses for this component of the Consumer Business would not have been materially different from the actual amounts. (Continued) 55 CARTER-WALLACE, INC. CONSUMER BUSINESS - ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements March 31, 2001 and 2000 (8) RENTAL EXPENSE AND LEASE COMMITMENTS Rental expense for operating leases with a term greater than one year for 2001, 2000, and 1999 was as follows (amounts in thousands):
EQUIPMENT AND RENTAL EXPENSE REAL PROPERTY OTHER -------------- ------------- ------------- March 31, 2001 $ 199 76 March 31, 2000 184 74 March 31, 1999 158 74
Minimum rental commitments under noncancelable leases in effect at March 31, 2001 were $84,000 for 2002 with nothing thereafter. (9) SUPPLEMENTAL FINANCIAL INFORMATION The following is presented in support of the statements of net assets to be sold:
MARCH 31 --------------------- 2001 2000 ------ ------ (Amounts in thousands) Accrued expenses: Salaries and wages $3,554 2,912 Advertising and promotion 4,157 3,935 Other 1,877 906 ------ ------ $9,588 7,753 ====== ======
(Continued) 56 CARTER-WALLACE, INC. CONSUMER BUSINESS - ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements March 31, 2001 and 2000 (10) FOREIGN OPERATIONS Net current assets and net sales of the antiperspirant/deodorant products in the United States and Canada and pet products component of the Consumer Business related to Canadian operations and the equity in net assets and revenues in excess of expenses of such operations were:
MARCH 31 ------------------------------------------------ 2001 2000 1999 ----------- --------- --------- Net current assets $ 557,000 2,414,000 1,857,000 Equity in net assets 577,000 2,428,000 1,880,000 Net sales 3,917,000 5,154,000 5,644,000 (Expenses in excess of revenues) revenues in excess of expenses (284,000) 368,000 94,000
The adjustment from foreign currency translation is included as a reduction of the net assets to be sold of the antiperspirant/deodorant products in the United States and Canada and pet products component of the Consumer Business. The cumulative balances are included as a component of stockholders' equity of the Company. The adjustments are comprised of the following:
MARCH 31 ------------------------- 2001 2000 -------- -------- Opening balance $127,000 222,000 Current year change 50,000 (95,000) -------- -------- Ending balance $177,000 127,000 ======== ========
57 CARTER-WALLACE, INC. CONSUMER BUSINESS -- ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS COMBINED STATEMENTS OF NET ASSETS TO BE SOLD
JUNE 30, MARCH 31, ASSETS 2001 2001 -------- --------- (UNAUDITED) (IN THOUSANDS) CURRENT ASSETS: Accounts receivable - trade, less allowances of $2,747 and $2,818 $14,425 12,805 Other receivables 256 298 Inventories: Finished goods 14,506 14,421 Work in process 1,124 1,162 Raw materials and supplies 7,590 6,701 ------- ------ 23,220 22,284 Deferred taxes 1,025 1,025 Prepaid expenses and other current assets 1,479 1,441 ------- ------ Total current assets 40,405 37,853 ------- ------ PROPERTY, PLANT, AND EQUIPMENT, AT COST: Land 445 445 Buildings and improvements 3,080 3,080 Machinery, equipment, and fixtures 37,421 36,579 Leasehold improvements 28 28 ------- ------ 40,974 40,132 Accumulated depreciation and amortization 30,420 29,262 ------- ------ 10,554 10,870 ------- ------ INTANGIBLE ASSETS: Excess of purchase price of businesses acquired over the net assets at date of acquisition, less amortization 1,916 1,926 Patents, trademarks, contracts, and formulae, less amortization 4,039 4,141 ------- ------ 5,955 6,067 ------- ------ Total assets $56,914 54,790 ======= ======
(Continued) 58 CARTER-WALLACE, INC. CONSUMER BUSINESS -- ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS COMBINED STATEMENTS OF NET ASSETS TO BE SOLD
JUNE 30, MARCH 31, LIABILITIES AND NET ASSETS TO BE SOLD 2001 2000 ---------- -------- (unaudited) (IN THOUSANDS) CURRENT LIABILITIES: Accounts payable $ 2,673 3,747 Accrued expenses 6,363 9,588 ------- ------ Total current liabilities 9,036 13,335 ------- ------ LONG-TERM LIABILITIES: Deferred tax liability 931 931 ------- ------ Total long-term liabilities 931 931 ------- ------ Total liabilities 9,967 14,266 NET ASSETS TO BE SOLD 46,947 40,524 ------- ------ Total liabilities and net assets to be sold $56,914 54,790 ======= ======
See accompanying notes to unaudited combined statements. 59 CARTER-WALLACE, INC. CONSUMER BUSINESS -- ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS COMBINED STATEMENTS OF REVENUES AND EXPENSES (UNAUDITED)
THREE MONTHS THREE MONTHS ENDED ENDED JUNE 30, JUNE 30, 2001 2000 ------------ ------------ (IN THOUSANDS) Net sales $32,695 34,410 Cost of goods sold 16,579 18,952 ------- ------ Gross profit 16,116 15,458 ------- ------ Operating expenses: Advertising and promotion 4,735 5,504 Marketing and other selling 2,633 2,654 Distribution expense 3,165 3,086 Research and development 714 624 General and administrative 2,275 2,120 Other expense, net 49 58 ------- ------ 13,571 14,046 ------- ------ Revenues in excess of expenses before provision for taxes on income 2,545 1,412 Provision for taxes on income 994 469 ------- ------ Revenues in excess of expenses $ 1,551 943 ======= ======
See accompanying notes to unaudited combined statements. 60 CARTER-WALLACE, INC. CONSUMER BUSINESS -- ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS COMBINED STATEMENTS OF CHANGES IN NET ASSETS AND COMPREHENSIVE EARNINGS (UNAUDITED)
THREE MONTHS THREE MONTHS ENDED ENDED JUNE 30, JUNE 30, 2001 2000 ------------ ------------ (IN THOUSANDS) Amount at beginning of period $40,524 43,087 Revenues in excess of expenses 1,551 943 Foreign currency translation adjustments 42 (39) ------- ------ Comprehensive earnings 1,593 904 Cash and other transfers from Carter-Wallace, Inc. 4,830 2,743 ------- ------ Amount at end of period $46,947 46,734 ======= ======
See accompanying notes to unaudited combined statements. 61 CARTER-WALLACE, INC. CONSUMER BUSINESS -- ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS THREE MONTHS ENDED ENDED JUNE 30, JUNE 30, 2001 2000 ------------ ------------ (in thousands) Cash flows used in operating activities: Revenues in excess of expenses $ 1,551 943 Adjustments to reconcile revenues in excess of expenses to cash flows from operations: Depreciation and amortization 1,174 1,273 Amortization of excess of purchase price of businesses acquired over the net assets at date of acquisition, patents, trademarks, contracts, and formulae 132 141 Other changes in assets and liabilities: Increase in assets and liabilities other receivables (1,555) (2,926) (Increase) decrease in inventories (903) 1,083 Increase in prepaid expenses (38) (118) Decrease in accounts payable and accrued expenses (4,314) (2,369) ------- ------ Cash flows used in operating activities (3,953) (1,973) ------- ------ Cash flows used in investing activities: Additions to property, plant, and equipment (2) (81) ------- ------ Cash flows used in investing activities (2) (81) ------- ------ Cash flows used in financing activities: Cash transferred from Carter-Wallace, Inc. 3,955 2,054 ------- ------ Cash flows used in financing activities 3,955 2,054 ------- ------ Increase in cash and cash equivalents $ -- -- ======= ======
See accompanying notes to unaudited combined statements. 62 CARTER-WALLACE, INC. CONSUMER BUSINESS-- ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements June 30, 2001 and 2000 (Unaudited) (1) Description of Business and Basis of Presentation On May 7, 2001, Carter-Wallace, Inc. (the "Company") entered into definitive agreements for the sale of the Company in a two-step transaction. In accordance with the Asset Purchase Agreement, the Company first sold the net assets and business of the Company's Consumer Business, as defined in the Asset Purchase Agreement, to Armkel, LLC ("Armkel") for $738.4 million, less certain debt outstanding. Armkel is jointly owned by two private investment funds formed by Kelso & Company L.P. and by Church & Dwight Co. Such funds were paid directly to the Company. Pursuant to the Agreement and Plan of Merger, immediately following the sale of the Consumer Business, a buying group purchased the Company's outstanding common stock and Class B common stock for $20.30 per share subject to certain closing adjustments. The aggregate consideration from both parts of the transaction was $1.121 billion, less approximately $160 million of corporate taxes paid on the sale of the Consumer Business. Under a separate Product Line Purchase Agreement effective May 7, 2001, as amended, Church & Dwight Co. acquired the antiperspirant/deodorant product business in the United States and Canada and the pet products business from Armkel. Excluded from this transaction are the antiperspirant/deodorant product business in the United Kingdom and Australia. The accompanying combined unaudited statements pertain to the antiperspirant/deodorant products in the United States and Canada and the pet products of the Consumer Business of the Company and have been prepared pursuant to the Asset Purchase Agreement and the Product Line Purchase Agreement in accordance with accounting principles generally accepted in the United States of America. All significant intercompany transactions have been eliminated. This component of the Consumer Business has no separate legal status and operates as an integral part of the Company's Consumer Business, which operates as an integral part of the Company's overall operations. These combined unaudited statements have been prepared from the historical accounting records of the Company, which have been stated on a going-concern basis and do not necessarily reflect liquidity values. The accompanying combined unaudited statements of revenues and expenses are not necessarily indicative of the costs and expenses that would have been incurred had this component been operated as a stand-alone entity. 63 CARTER-WALLACE, INC. CONSUMER BUSINESS-- ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements June 30, 2001 and 2000 (Unaudited) Certain indirect operating expenses for selling and general and administrative costs of the Consumer Business were allocated to the Carter-Wallace, Inc. Consumer Business - Antiperspirant/Deodorant Products in the United States and Canada and Pet Products based on a percentage of net sales. Such allocated selling and other general and administrative costs for the three month periods ended June 30, 2001 and 2000 included in the accompanying combined statements amounts to approximately $3,000,000 and $3,200,000 respectively. Corporate income and expenses of the Company included in this component of the Consumer Business include those items specifically identifiable to this component and allocation, primarily based on usage estimates, of certain other corporate expenses, including accounting, human resources, and corporate systems. Corporate expenses allocated to this component of the Consumer Business are costs which benefit and are required for its operations. Certain general corporate expenses of the Company have not been allocated to this component of the Consumer Business because they did not provide a direct or material benefit to this business. In addition, if the Consumer Business had not been a part of the Company during the periods presented, such corporate expenses would not have significantly changed as a result of not having to operate this business. In the opinion of management, these methods of allocating these costs are reasonable; however, such costs do not necessarily equal the costs that this component of the Consumer Business would have incurred on a stand-alone basis. Therefore, the financial information included herein may not necessarily reflect the assets and liabilities, revenue and expenses, and cash flows of this component of the Consumer Business on a stand-alone basis in the future. Certain expenses, such as postretirement benefit costs which are included in the combined statements of revenues and expenses for this component of the Consumer Business, relate to assets and/or liabilities which have not been included in the combined statements of net assets to be sold of this component of the Consumer Business. Such assets and/or liabilities will be retained by either the Company or Armkel in accordance with the definitive sales agreement. The accompanying statements as of June 30, 2001 and for the three months ended June 30, 2001 and 2000 are unaudited. The results of the interim periods are not necessarily indicative of results expected for a full year's operations. In the opinion of management, all adjustments necessary for a fair statement of results of these interim periods have been reflected in these financial statements and are of a normal recurring nature. These statements should be read in conjunction with the March 31, 2001 audited statements and notes. (2) New Accounting Pronouncements ACCOUNTING FOR CERTAIN SALES INCENTIVES --------------------------------------- Emerging Issues Task Force Issue No. 00-14, "Accounting for Certain Sales Incentives" ("EITF Issue No. 00-14"), outlines required accounting treatment for certain sales incentives, including manufacturer's coupons. EITF Issue No. 00-14 requires companies to record coupon expense as a reduction of sales, rather than marketing expense. The Consumer Business records coupon expense as a component of marketing expense. The Consumer Business is required to implement EITF Issue No. 00-14 for the quarter beginning January 1, 2002. It will require the Consumer Business to report coupon expense as a reduction of net sales. Coupon expense in this component of the Consumer Business approximates $3,000,000 per year based on historical amounts, spread relatively evenly throughout the year. VENDOR INCOME STATEMENT CHARACTERIZATION OF CONSIDERATION FROM A VENDOR ----------------------------------------------------------------------- TO A RETAILER ------------- Issue No. 00-25, "Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer" ("EITF Issue No. 00-25"), outlines required accounting treatment of certain sales incentives, 64 CARTER-WALLACE, INC. CONSUMER BUSINESS-- ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements June 30, 2001 and 2000 (Unaudited) including slotting or placement fees, cooperative advertising arrangements, buydowns, and other allowances. The Consumer Business currently records such costs as marketing expenses. EITF Issue No. 00-25 will require the Consumer Business to report the paid consideration expense as a reduction of sales, rather than marketing expense. The Consumer Business is required to implement EITF Issue No. 00-25 for the quarter beginning January 1, 2002. The Consumer Business has not yet determined the effect of implementing the guidelines of EITF Issue No. 00-25, but, in any case, implementation will not have an effect on net earnings. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES --------------------------------------------- In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires that companies recognize all derivatives as either assets or liabilities on the balance sheet and measure these instruments at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133". This statement deferred the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", which made minor amendments to SFAS No. 133. The Company has adopted SFAS No. 133, as amended, effective April 1, 2001. The adoption of this accounting requirement did not have an effect on the Company's combined statements. BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS ----------------------------------------------------------- In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 141, "Business Combinations." This Statement addresses the financial accounting and reporting for business combinations and supersedes Accounting Principles Bulletin ("APB") No. 16, "Business Combinations," and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and establishes criteria to separately recognize intangible assets apart from goodwill. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assts and supersedes APB No. 17, "Intangible Assets." This Statement requires, amount other things, that goodwill and intangible assets that have indefinite useful lives should not be amortized, but rather should be tested at least annually for impairment, using the guidance for measuring impairment set forth in the Statement. The acquisition of this component of the Consumer Business will be accounted for as a purchase under SFAS No. 141 and the resulting goodwill and other intangible assets will be accounted for under SFAS No. 142. At June 30, 2001 unamortized goodwill in the accompanying statements amounted to approximately $1,916,000 and amortization expense related to this goodwill for the year ended March 31, 2001 amounted to approximately $40,000. (3) Foreign Operations Net current assets and net sales of this component of the Consumer Business related to Canadian Operations and the equity in net assets and revenues in excess of expenses of such operations of this component were: 65 CARTER-WALLACE, INC. CONSUMER BUSINESS-- ANTIPERSPIRANT/DEODORANT PRODUCTS IN THE UNITED STATES AND CANADA AND PET PRODUCTS Notes to Combined Statements June 30, 2001 and 2000 (Unaudited)
As of and For the Three Months Ended June 30, -------------------------------- 2000 2001 ------------- ------------ Net current assets......................................... $1,882,000 $1,059,000 Equity in net assets....................................... 1,896,000 1,079,000 Net Sales.................................................. 1,168,000 1,016,000 Revenues in excess of expenses............................. (180,000) (61,000)
The adjustment from foreign currency translation is included as a reduction of the net assets to be sold. The cumulative balances are included as a component of stockholders' equity of Carter-Wallace, Inc. The adjustment is comprised of the following:
June 30, 2001 ------------- Opening balance ........................................... $177,000 Current year change ....................................... (42,000) -------- Ending balance ............................................ $135,000 ========
66 (b) Pro Forma financial information. PRO FORMA STATEMENTS The following unaudited pro forma statements of consolidated operations for the year ended December 31, 2000 and the six months ended June 29, 2001 give effect to the acquisition of the antiperspirant and pet-care business of Carter Wallace and the 50% investment in the Armkel joint venture (Armkel) (collectively, the "Acquired Businesses") as if they had occurred on January 1, 2000. The unaudited pro forma statement of consolidated operations for the year ended December 31, 2000 includes adjustments to reflect the historical operating results of the Acquired Businesses for the twelve months ended March 31, 2001. The unaudited pro forma statements of consolidated operations for the year ended December 31, 2000 and the six months ended June 29, 2001 also give effect to the acquisition of U.S.A. Detergents, Inc. (USAD) as if it had occurred on January 1, 2000. The pro forma operating results for the year ended December 31, 2000 of Church & Dwight Co. (CHD), Inc. and USAD are derived from the Unaudited Pro Forma Combined Statements of Income included in the Form 8-K/A filed by CHD on August 3, 2001 in conjunction with the acquisition of USAD. The historical operating results of CHD included in the unaudited pro forma statement of consolidated operations for the six months ended June 29, 2001 include the operating results of USAD subsequent to the date of acquisition (May 25, 2001). The unaudited pro forma statement of consolidated operations for the six months ended June 29, 2001 includes adjustments to reflect the historical operating results of USAD for the period prior to the date of acquisition (May 25, 2001) and the historical operating results of the Acquired Businesses for the six months ended June 29, 2001. The historical operating results of the Acquired Businesses for the quarter ended March 31, 2001 were included in both the unaudited pro forma statements of consolidation operations for the year ended December 31, 2001 and June 29, 2001. Historical net sales and net income for the Acquired Businesses for this quarter were $28,737,000 and $3,417,000, respectively. The unaudited pro forma consolidated balance sheet as of June 30, 2001 gives effect to the acquisition of the Acquired Businesses as if it had occurred on June 30, 2001. The adjustments are described in the accompanying notes. The pro forma statements should not be considered indicative of actual results that would have been achieved had the acquisitions of USAD and the Acquired Businesses been consummated on the dates indicated and do not purport to indicate balance sheet data or results of operations as of any future date or any future period. The transaction described above will be accounted for using the purchase method of accounting. The total cost of the transactions will be allocated to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values at the time the transactions are consummated. The excess of purchase cost over the historical basis of the net assets acquired has been allocated in the accompanying pro forma financial information based on preliminary appraisal estimates which are in process and certain assumptions that management believes are reasonable. The actual allocation is subject to the finalization of the appraisal and the determination of any working capital adjustments. The actual allocation of purchase cost and the resulting effect on income from operations may differ significantly from the pro forma amounts included herein. The unaudited pro forma consolidated financial statements and accompanying notes thereto should be read in conjunction with the CHD historical consolidated financial statements and notes thereto included in CHD's Annual Report on Form 10-K for the year ended December 31, 67 2000 and CHD's Quarterly Reports on Form 10-Q for the quarterly periods ended March 30, 2001 and June 29, 2001, CHD's Current Report on Form 8-K/A dated August 3, 2001 relating to the acquisition of USAD, USAD's historical financial statements as of December 31, 2000 and 1999 and for the three months ended March 31, 2001 and notes thereto, as well as Armkel's and the antiperspirant and pet-care businesses' historical financial statements as of and for the three years ended March 31, 2001 and as of and for the quarter ended June 30, 2001 and the notes thereto included herein. 68 Church & Dwight Co., Inc and Subsidiaries Unaudited Pro Forma Statement of Consolidated Operations For the Year ended December 31, 2000 (Dollars in thousands, except per share data)
HISTORICAL PRO-FORMA ACQUIRED PRO FORMA PRO FORMA CHD/USAD BUSINESSES ADJUSTMENTS RESULTS -------- ---------- ----------- ------- Net sales $1,044,729 $123,127 $ -- $1,167,856 Cost of sales 622,348 64,062 778(d) 687,188 ---------- -------- -------- ---------- Gross profit 422,381 59,065 (778) 480,668 Operating expenses Marketing and G&A 346,869 58,523 -- 405,392 Impairment and other items 23,601 -- -- 23,601 ---------- -------- -------- ---------- Income from operations 51,911 542 (778) 51,675 Equity income 3,011 24,963(g) (6,565)(g) 21,409 Other income/(expense) (12,428) (1,015) (13,152)(e) (27,809) (1,214)(f) ---------- -------- -------- ---------- Income before minority interest and taxes 42,494 24,490 (21,709) 45,275 Minority interest 287 -- -- 287 ---------- -------- -------- ---------- Income before taxes 42,207 24,490 (21,709) 44,988 Taxes 15,048 (103) (8,032)(h) 16,149 9,236(i) ---------- -------- -------- ---------- Net income $ 27,159 $ 24,593 $(22,913) $ 28,839 ========== ======== ======== ========== ------------------------------------------------------------------------------------------------------------------------ Weighted average shares outstanding - Basic 38,321 38,321 EPS - Basic $ 0.71 $ 0.75 Weighted average shares outstanding - Diluted 39,933 39,933 EPS - Diluted $ 0.68 $ 0.72 ------------------------------------------------------------------------------------------------------------------------
See notes to unaudited pro forma consolidated financial statements 69 Church & Dwight Co., Inc. and Subsidiaries Unaudited Pro Forma Statement of Consolidated Operations For the Six Months ended June 29, 2001 (Dollars in thousands, except per share data)
HISTORICAL HISTORICAL PRO FORMA ---------- ------------------------ PRO FORMA RESULTS ACQUIRED PRO FORMA PRO FORMA CHD (C) 5 MOS. USAD ADJUSTMENTS CHD/USAD BUSINESSES ADJUSTMENTS RESULTS --- ----------- ----------- -------- ---------- ----------- ------- Net sales $ 513,622 $ 113,542 $(94,103)(m) $ 529,527 $ 61,432 $ -- $ 590,959 (3,534)(n) Cost of sales 322,525 101,860 (94,103)(m) 330,330 30,751 389(d) 361,470 48 (l) --------- --------- -------- --------- -------- ------- --------- Gross profit 191,097 11,682 (3,582) 199,197 30,681 - (389) 229,489 Marketing & G&A 147,640 18,149 1,363(o) 167,152 29,796 -- 196,948 Impairment & other items -- -- -- -- -- --------- --------- -------- --------- -------- ------- --------- Income from operations 43,457 (6,467) (4,945) 32,045 885 - (389) 32,541 Equity income 2,183 -- -- 2,183 14,548 (g) 495(g) 17,226 Other income/(expense) (2,342) 208 (129)(p) (4,700) (925) (5,344)(e) (11,600) (2,437)(q) (631)(f) --------- --------- -------- --------- -------- ------- --------- Income before minority interest, taxes and extraordinary item 43,298 (6,259) (7,511) 29,528 14,508 (5,869) 38,167 Minority interest 3,754 -- (3,534)(n) 220 -- -- 220 --------- --------- -------- --------- -------- ------- --------- Income before taxes and extraordinary item 39,544 (6,259) (3,977) 29,308 14,508 (5,869) 37,947 (2,172)(h) 15,937 Taxes 13,919 125 (1,472)(h) 12,572 154 5,383 (i) --------- --------- -------- --------- -------- ------- --------- Income before extraordinary item $ 25,625 $ (6,384) $ (2,505) $ 16,736 $ 14,354 $- $(9,080) $ 22,010 ========= ========= ======== ========= ======== ======= ========= ---------------------------------------------------------------------------------------------------------------------------------- Weighted average shares outstanding - Basic 38,699 38,699 38,699 EPS - Basic $ 0.66 $ 0.43 $ 0.57 Weighted average shares outstanding - Diluted 40,596 40,596 40,596 EPS - Diluted $ 0.63 $ 0.41 $ 0.54 ----------------------------------------------------------------------------------------------------------------------------------
See notes to unaudited pro forma consolidated financial statements 70 Church & Dwight Co., Inc and Subsidiaries Unaudited Pro Forma Consolidated Balance Sheet June 29, 2001 (Dollars in thousands)
HISTORICAL ---------- ANTIPERSPIRANTS PRO-FORMA PRO-FORMA CHD /PET-CARE ADJUSTMENTS RESULTS --- --------- ----------- ------- ASSETS CURRENT ASSETS -Cash & Cash Equivalents $ 17,255 $ -- $ 21,180(a) $ 38,435 -Short Term Investments 996 -- -- 996 -Accounts receivable, Less Allowance ($2,176) 88,726 14,681 -- 103,407 -Inventories 66,841 23,220 9,257(b5) 99,318 -Deferred Income Taxes 11,475 1,025 (1,025)(b2) 11,475 -Prepaid Expenses 10,594 1,479 -- 12,073 -Notes Receivable 8,088 -- -- 8,088 --------- --------- --------- --------- TOTAL CURRENT ASSETS 203,975 40,405 29,412 273,792 --------- --------- --------- --------- Property, Plant & Equipment 217,146 10,554 11,673(b4) 239,373 Equity Investment in Affiliates 18,594 -- 108,250(a) 126,844 Long-Term Supply Contracts 8,290 -- -- 8,290 Goodwill and Other Intangibles 176,467 5,955 (5,955)(b2) 243,578 52,200(b6) 14,911(b) Other Assets 11,694 -- 4,057(a) 19,577 4,574 (b) (748)(k) --------- --------- --------- --------- TOTAL ASSETS $ 636,166 $ 56,914 $ 218,374 $ 911,454 ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES -Short Term Borrowings $ 145,025 $ -- $(143,000)(j) $ 2,025 -Accounts Payable and Accrued Expenses 165,811 9,036 -- 174,847 -Current Portion of Long Term Debt 685 -- -- 685 -Income Taxes Payable 4,298 -- -- 4,298 --------- --------- --------- --------- TOTAL CURRENT LIABILITIES 315,819 9,036 (143,000) 181,855 --------- --------- --------- --------- Long Term Debt 5,437 -- 410,000(j) 415,437 Deferred Income Taxes 14,109 931 (931)(b2) 14,109 Deferred and Other Long Term Liabilities 16,128 -- -- 16,128 Nonpension Postretirement and Postemployment Benefits 15,800 -- -- 15,800 Minority Interest 3,116 -- -- 3,116 Total stockholders equity 265,757 46,947 (46,947)(b1) 265,009 (748)(k) --------- --------- --------- --------- --------- --------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 636,166 $ 56,914 $ 218,374 $ 911,454 ========= ========= ========= =========
See notes to unaudited pro forma consolidated financial statements 71 CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (a) On September 28, 2001, Church & Dwight Co., Inc, ("CHD") made a $111,750,000 cash contribution necessary to complete the acquisition of a 50% equity interest in Armkel, LLC ("Armkel"). Armkel, an equally owned joint venture between CHD and affiliates of Kelso and Company, L.P., acquired on September 28, 2001 the consumer products business of Carter Wallace, Inc. Also on September 28, 2001, CHD acquired the antiperspirant and pet-care businesses of Carter-Wallace for $128,500,000. The following is a summary of the calculation of the net investment in Armkel as described above: Equity contribution $111,750,000 Direct acquisition costs 4,057,000 ------------ 115,807,000 Less payment from Armkel (3,500,000) Deferred financing costs associated with the investment in Armkel (4,057,000) ------------ Net investment in Armkel $108,250,000 ============
The funds used for the acquisition of the equity interest in Armkel and the acquisition of the antiperspirant and pet-care businesses were comprised of borrowings under CHD's credit facility dated as of September 28, 2001. Sources and uses of funds for this transaction are as follows: Sources: Term loans $410,000,000 Payment from Armkel 3,500,000 ------------ Total $413,500,000 ============ Uses: Purchase price for acquisition $128,500,000 Investment in Armkel 111,750,000 Retire existing CHD debt 143,000,000 Fees and expenses 9,070,000 Increase in cash on hand 21,180,000 ------------ Total $413,500,000 ============
(b) For the purposes of these pro forma consolidated financial statements, CHD determined that the value of the total purchase consideration for the antiperspirant and pet-care businesses (including fees) was approximately $133,513,000. The following is a summary of the calculation of the purchase price, as described above, as well as the allocation of the purchase price to the fair value of the net assets acquired: 72 Purchase of antiperspirant and pet-care businesses $ 128,500,000 Direct acquisition costs 5,013,000 ------------- Total Purchase Price 133,513,000 Less fair value of net assets acquired (114,028,000) Deferred financing costs associated with the merger (4,574,000) ------------- Excess purchase price over net assets acquired $ 14,911,000 =============
The book value of the net assets acquired as of June 29, 2001 was $40,898,000. The fair value of the net assets are estimated to be $114,028,000. The following is a reconciliation between the two amounts: (b1) Book value of net assets $ 46,947,000 (b2) Less assets/liabilities not acquired (deferred taxes and historical goodwill) (6,049,000) ------------ (b3) Book value of net assets acquired 40,898,000 (b4) Adjustment of property, plant and equipment to fair value 11,673,000 (b5) Adjustment of inventory to fair value 9,257,000 (b6) Adjustment of brand names and other identifiable to fair value 52,200,000 ------------ $114,028,000 ============
As the merger closed subsequent to July 1, 2001, it will be accounted for as a purchase under the newly issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and the resulting goodwill and other intangible assets will be accounted for under SFAS No. 142, "Goodwill and Other Intangible Assets." The purchase price allocation and the lives assigned to the assets are preliminary and have been made solely for the purpose of developing the CHD Pro Forma Financial Statements. After the closing of the transaction, CHD will complete its evaluation of the fair value and the lives of the assets acquired. Accordingly, the allocation of the purchase price and the lives of the assets acquired, and resulting amortization expense which are based on preliminary estimates, may differ from the final purchase price allocation and the final lives assigned to the assets. Any change in fair values or lives assigned to amortizable or depreciable assets would impact the results of future operations. Other intangible assets consist primarily of brand names. Management has determined that the brand names have indefinite lives and therefore will not be amortized. (c) The historical results of CHD for the six months ended June 29, 2001 include the results of USAD subsequent to the acquisition date (May 25, 2001). (d) To record depreciation expense of property, plant and equipment due to fair value adjustment Depreciation period - 15 years $ 11,673,000 Annual depreciation $(778,000) 6 months depreciation $(389,000)
73 (e) To record additional interest expense as a result of the transaction.
Year ended December 31, 2000 ----------------- Term A interest $ 7,500,000 Term B interest 18,525,000 Eliminate historical interest expense on debt retired (12,873,000) ------------ $ 13,152,000 ============
6 months ended June 29, 2001 ------------- Term A interest $ 2,898,000 Term B interest 7,321,000 Eliminate historical interest expense on debt retired (4,875,000) ----------- $ 5,344,000 ===========
Term loan A has a principal amount of $125,000,000 and is payable quarterly in varying amounts beginning September 30, 2002 through September 30, 2006. Term loan B has a principal amount of $285,000,000 and is payable quarterly in varying amounts beginning September 30, 2002 through September 30, 2007. These loans bear interest, which is payable monthly, as described below. For the year ended December 31, 2000, interest is calculated at an assumed rate of 6.0% (London Interbank Offered Rate ("LIBOR") of 4.0% + 2.0%) for the term loan A facility and 6.5% (LIBOR +2.5%) for the term loan B facility. The effect of a 1/8% increase or decrease in interest rates would increase or decrease total pro forma interest expense by approximately $512,000 for the year ended December 31, 2000. For the six months ended June 29, 2001 interest is calculated at an assumed rate of 4.6375% (LIBOR of 2.6375% + 2.0%) for the term loan A facility and 5.1375% (LIBOR + 2.5%) for the term loan B facility. The effect of a 1/8% increase or decrease in interest rates would increase or decrease total pro forma interest expense by approximately $257,000 for the six months ended June 29, 2001. (f) To record amortization of deferred financing fees.
Year ended December 31, 2000 ----------------- Amortization of deferred financing fees on Term Loans A and B $1,526,000 Eliminate historical amortization of deferred financing fees (312,000) ---------- $1,214,000 ==========
6 months ended June 29, 2001 ------------- Amortization of deferred financing fees
74 on Term Loans A and B $ 763,000 Eliminate historical amortization of deferred financing fees (132,000) --------- $ 631,000 =========
(g) To record equity income from Armkel joint venture.
Year ended CHD March 31, 2001 50% interest -------------- ------------ Armkel historical revenues in excess of expenses $ 49,926,000 $24,963,000 Pro forma adjustments: Adjustment of depreciation and amortization due to fair value adjustment (3,379,000) Adjustment to interest expense (39,045,000) Adjustment to provision for income taxes 29,294,000 ------------ ----------- Total pro forma adjustments (13,130,000) (6,565,000) ------------ ----------- Armkel pro forma results $ 36,796,000 $18,398,000 ============ ===========
6 months ended CHD June 29, 2001 50% interest ------------- ------------ Armkel historical revenues in excess of expenses $ 29,096,000 $14,548,000 Pro forma adjustments: Adjustment of depreciation and amortization due to fair value adjustment (1,476,000) Adjustment to interest expense (18,586,000) Adjustment to provision for income taxes 21,051,000 ------------ ----------- Total pro forma adjustments 989,000 495,000 ------------ ----------- Armkel pro forma results $ 30,085,000 $15,043,000 ============ ===========
(h) To record tax impact of pro forma adjustments at 37%. (i) To reflect tax provision relating to historical partnership income of Armkel. As the partnership is not a tax paying entity, taxes were not reflected in the historical financial statements. (j) To reflect incremental borrowing. Borrowings $ 410,000,000 Retirement of existing debt (143,000,000) Investment in Armkel (see note (a)) (111,750,000) Acquisition of antiperspirant and pet care businesses (see note (b)) (128,500,000) Fees relating to transaction (see notes (a) and (b)) (9,070,000) ------------- Excess cash from borrowings $ 17,680,000 =============
(k) To write-off deferred financing fees of debt retired based on unamortized balance at June 30, 2001. Such amount will be recorded as a loss on extinguishment of debt in the historical financial statements of CHD; however, such loss has not been reflected in the accompanying pro forma statements of operations because it is not recurring and will not have a continuing impact on operations. 75 ADJUSTMENTS RELATED TO ACQUISITION OF USAD The following adjustments relate to the acquisition of USAD and are derived from the Form 8K/A filed by CHD on August 3, 2001. (l) To record additional 5 months depreciation expense due to fair value adjustment of assets acquired from USAD. (m) To eliminate intercompany sales. (n) To eliminate USAD portion of Armus joint venture profit. (o) To record excess purchase price amortization. Excess purchase price $98,116,000 Amortization period - 30 years Additional 5 months amortization $ 1,363,000
(p) Amortization of deferred financing costs relating to financing of USAD acquisition. Deferred financing fees $935,000 Amortization period - 3 years Additional 5 months amortization $129,000
(q) To accrue additional interest expense associated with the acquisition for the period from January 1, 2001 through May 28, 2001. Average debt excl. mortgage $130,782,000 @ 6% $ 3,270,000 Mortgage debt $10,650,000 @ 10% 444,000 Eliminate USAD interest expense (1,277,000) ----------- $ 2,437,000 ===========
(c) Exhibits: No change. 76 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 hereunto duly authorized. CHURCH & DWIGHT CO., INC., -------------------------------------------- a Delaware corporation Date November 9, 2001 /s/ Zvi Eiref --------------------- -------------------------------------------- Zvi Eiref Vice President Finance and Chief Financial Officer *Print name and title of the signing officer under this signature 77