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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 COMMISSION FILE NUMBER 1-10585
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CHURCH & DWIGHT CO., INC.
(Exact name of registrant as specified in its charter)
I.R.S. EMPLOYER IDENTIFICATION
INCORPORATED IN DELAWARE NO. 13-4996950
469 NORTH HARRISON STREET, PRINCETON, NEW JERSEY 08543-5297
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 683-5900
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $1 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. | |
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes |X| No | |
The aggregate market value of the voting and non-voting common equity held by
non-affiliates as of June 28, 2002 (the last business day of the registrant's
most recently completed second fiscal quarter) was approximately $1,203 million.
For purposes of determining this number, 1,388,993 shares of Common Stock held
by affiliates were excluded. For purposes of making this calculation only, the
registrant included all directors, certain executive officers and beneficial
owners of more than ten percent of the Common Stock of the Company as
affiliates. The aggregate market value is based on the closing price of such
stock on the New York Stock Exchange on June 28, 2002.
As of March 21, 2003, 40,009,034 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain provisions of the registrant's definitive proxy statement to be filed
not later than April 30, 2003 pursuant to Regulation 14A are incorporated by
reference in Items 10 through 13 of Item III of this Annual Report on Form 10-K.
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CAUTIONARY NOTE ON FORWARD LOOKING INFORMATION
This Annual Report contains forward-looking statements relating to, among
other things, short- and long-term financial objectives, sales growth, cash flow
and cost improvement programs. These statements represent the intentions, plans,
expectations and beliefs of the Company, and are subject to risk, uncertainties
and other factors, many of which are outside the Company's control and could
cause actual results to differ materially from such forward-looking statements.
The uncertainties include assumptions as to market growth and consumer demand
(including the effect of political and economic events on consumer demand), raw
material and energy prices, the financial condition of major customers, and the
Company's determination and ability to exercise its option to acquire the
remaining 50% interest in Armkel LLC. With regard to the new product
introductions referred to in this report, there is particular uncertainty
relating to trade, competitive and consumer reactions. Other factors, which
could materially affect the results, include the outcome of contingencies,
including litigation, pending regulatory proceedings, environmental remediation
and the acquisition or divestiture of assets.
The Company undertakes no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise. You are advised, however, to consult any further
disclosures we make on related subjects in our filings with the U.S. Securities
and Exchange Commission. This discussion is provided as permitted by the Private
Securities Litigation Reform Act of 1995.
TABLE OF CONTENTS
PART I
ITEM PAGE
1. Business -1-
2. Properties -12-
3. Legal Proceedings -13-
4. Submission of Matters to a Vote of Security Holders -13-
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters -13-
6. Selected Financial Data -14-
7. Management's Discussion and Analysis of Financial Condition and Results of Operations -14-
7A. Quantitative and Qualitative Disclosures about Market Risk -14-
8. Financial Statements and Supplementary Data -14-
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure -14-
PART III
10. Directors and Executive Officers of the Registrant -14-
11. Executive Compensation -14-
12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters -14-
13. Certain Relationships and Related Transactions -14-
14. Controls and Procedures -14-
PART IV
15. Exhibits, Financial Statement Schedules and Reports on Form 8-K -15-
PART I
ITEM 1. BUSINESS.
GENERAL; RECENT DEVELOPMENTS
The Company, founded in 1846, develops, manufactures and markets a broad
range of consumer and specialty products under its well-recognized ARM & HAMMER
brand name and other familiar brand names such as ARRID, BRILLO and XTRA. The
Company is the world's leading producer of sodium bicarbonate, popularly known
as baking soda. Baking soda is a versatile chemical which cleans, deodorizes,
leavens and buffers. The Company's Consumer Products include Deodorizing and
Household Cleaning Products, such as baking soda and cat litter; Laundry
Products, such as detergent and fabric softeners; and Personal Care Products,
such as antiperspirants and toothpaste. The Company's Specialty Products
include, in addition to sodium bicarbonate, sodium sesquicarbonate, ammonium
bicarbonate, and a rumen bypass fat product, which are used in a variety of
industrial, animal nutrition, and food products. In 2002, Consumer Products
represented approximately 83% and Specialty Products represented approximately
17% of the Company's sales. Approximately 92% of the Company's sales revenues
were derived from sales in the United States.
In January 2002, the Company acquired Biovance Technologies, Inc., a small
Oskaloosa, Iowa based producer of specialty animal feed ingredients which
complement the Company's existing range of animal nutrition products. The
purchase price paid in 2002 was approximately $7.8 million (exclusive of cash
acquired) and included the assumption of debt. An additional earn-out payment of
$3.4 million was paid in February 2003 based upon Biovance's 2002 operating
performance. A final earn-out payment (not to exceed $8.6 million) will be
required next year based upon Biovance's 2003 operating performance.
During 2002, the Company completed the integration of the XTRA and NICE'N
FLUFFY laundry brands that were obtained in the acquisition of USA Detergents,
Inc. in 2001. The integration began in the fourth quarter of 2000, prior to the
acquisition, with the consolidation of sales organizations, continued after the
acquisition through the integration of manufacturing and distribution and
concluded with the standardization of formulations and packaging in 2002.
Also during 2002, the Company continued the integration of the consumer
products business purchased in 2001 from Carter Wallace by the Company and
Armkel, LLC, a 50/50 joint venture with Kelso & Company. The integration began
in the fourth quarter of 2001 with the consolidation of sales organizations,
continued through the integration of manufacturing and distribution and was
materially completed with the shut down of the former Carter-Wallace facility in
Cranbury, New Jersey in the third quarter of 2002.
The Company financed the acquisition of USA Detergents, the acquisition of
the antiperspirant and pet care businesses from Carter-Wallace and its
investment in Armkel with a $510 million credit facility originally issued in
2001. In January 2003, the Company entered into a receivables purchase agreement
with PNC Bank in order to refinance $60 million of this credit facility. This
was done to reduce expenses associated with the credit facility and to lower the
Company's financing costs by accessing the commercial paper market. These
financing transactions are described in detail under the heading "Liquidity and
Capital Resources" in Exhibit 99.1 to this Annual Report on Form 10-K.
The Company maintains a web site at www.churchdwight.com and makes
available free of charge on this web site the Company's annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, as soon as reasonably practicable
after the Company electronically files these materials with, or furnishes it to,
the Securities and Exchange Commission. The information presented in the
Company's web site is not a part of this report.
FINANCIAL INFORMATION ABOUT SEGMENTS
The Company's business is organized into two segments, Consumer Products
and Specialty Products. Neither of these segments is seasonal. Information
concerning the net sales, operating income and identifiable assets of each of
the segments is set forth in Note 17 to the consolidated financial statements
included in Exhibit 99.1 to this Form 10-K which is incorporated herein by
reference. All sales percentages, presented in the following Consumer Products
and Specialty Products paragraphs, are exclusive of unconsolidated affiliates.
CONSUMER PRODUCTS
PRINCIPAL PRODUCTS
The Company's founders first marketed baking soda in 1846 for use in home
baking. Today, this product is known for a wide variety of uses in the home,
including as a refrigerator and freezer deodorizer, scratchless cleaner and
deodorizer for kitchen surfaces and cooking appliances, bath additive,
dentifrice, cat litter deodorizer, and swimming pool pH stabilizer. The Company
specializes in baking soda-based products, as well as other products which use
the same raw materials or technology or are sold in the same markets. The
following table sets forth the principal products of the Company's Consumer
Products division.
TYPE OF PRODUCT KEY BRAND NAMES
Deodorizing and Cleaning ARM & HAMMER Pure Baking Soda
ARM & HAMMER Fridge-n-Freezer
ARM & HAMMER Carpet & Room Deodorizer
ARM & HAMMER VACUUM-FREE Foam Carpet Deodorizer
ARM & HAMMER Cat Litter Deodorizer
ARM & HAMMER SUPER SCOOP Clumping Cat Litter
ARM & HAMMER SUPER CLAY Cat Litter
ARM & HAMMER CRYSTAL BLEND Cat Litter
LAMBERT KAY Pet Care Products
BRILLO Soap Pads
BRILLO SCRUB'N TOSS Disposable Cleaning Pads
SCRUB FREE Bathroom Cleaners
CLEAN SHOWER Daily Shower Cleaner
CAMEO Aluminum & Stainless Steel Cleaner
SNO BOL Toilet Bowl Cleaner
PARSONS' Ammonia
Laundry ARM & HAMMER FABRICARE Powder Laundry Detergent
ARM & HAMMER Liquid Laundry Detergent
XTRA Liquid Laundry Detergent
XTRA Powder Laundry Detergent
NICE'N FLUFFY Liquid Fabric Softener
ARM & HAMMER FRESH'N SOFT Fabric Softener Sheets
ARM & HAMMER FRESH'N SOFT Liquid Fabric Softener
DELICARE Fine Fabric Wash
ARM & HAMMER Super Washing Soda
Personal Care ARM & HAMMER DENTAL CARE Toothpaste, Gum and Powder
ARM & HAMMER PEROXICARE Toothpaste
ARM & HAMMER ADVANCE WHITE Toothpaste, Gum
ARM & HAMMER ADVANCE BREATH CARE
Toothpaste, Gum, Mouthwash, Breathmints
ARM & HAMMER COMPLETE CARE Toothpaste
ARM & HAMMER ULTRAMAX Deodorant & Antiperspirants
ARRID Antiperspirants
LADY'S CHOICE Antiperspirants
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The following table sets forth the principal Consumer Products sold by
Armkel:
TYPE OF PRODUCT KEY BRAND NAME
Personal Care TROJAN Condoms
TROJAN Personal Lubricants
NATURALAMB Condoms
CLASS-ACT Condoms
NAIR Depilatories, lotions, creams and waxes
LINEANCE European Body Essentials, Depilatories Skin Care
FIRST RESPONSE Home Pregnancy and Ovulation Kits
PEARL DROPS Toothpolish and Toothpaste
RIGIDENT Denture Adhesive
CARTERS LITTLE PILLS, Laxative
Armkel is the Company's 50% owned joint venture with Kelso. The Company
exerts significant influence over Armkel through its membership on Armkel's
board and the Company's various agreements with Armkel, but does not control its
financial and operating decisions. As a result, Armkel's operations are not
consolidated on the Company's consolidated financial statements. This
arrangement is described more fully under the heading "Armkel" in the Liquidity
and Capital Resources section of the MD&A contained in Exhibit 99.1 to this
Annual Report on Form 10-K. Armkel has issued publicly traded debt and is
required to file reports with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934. However, those reports are not part of the
Company's Annual Report on this Form 10-K.
Deodorizing and Cleaning Products.
The Company has sold baking soda since 1846. The ARM & HAMMER trademark
was adopted in 1867. ARM & HAMMER Baking Soda remains the leading brand of
baking soda in terms of consumer recognition of the brand name and reputation
for quality and value.
The deodorizing properties of baking soda have led to the development of
several other household products. In 2002, Deodorizing and Cleaning Products
constituted approximately 30% of the Company's consumer sales and approximately
25% of the Company's total sales. The deodorizer products include ARM & HAMMER
Carpet & Room Deodorizer, ARM & HAMMER VACCUM-FREE Foam Carpet Deodorizer, ARM &
HAMMER Deodorizing Air Freshener and ARM & HAMMER Cat Litter Deodorizer. The
Carpet and Room Deodorizer products led the category for carpet deodorizers in
2002.
The Company markets a line of cat litter products such as ARM & HAMMER
SUPER SCOOP Clumping Cat Litter, which is the number two brand in the
fast-growing clumping segment of the cat litter market. All brand "rankings"
contained herein are based on IRI FDTKS, excluding Wal Mart, for the 52 weeks
ending December 22, 2002. A line extension of SUPER SCOOP is ARM & HAMMER
CRYSTAL BLEND, a premium-priced clumping cat litter which uses silica crystals,
baking soda and an anti-microbial ingredient to inhibit growth of bacterial
odors. The Company's pet care products also include LAMBERT KAY Pet Products and
ARM & HAMMER Super Clay cat litter. The Company intends to continue to innovate
and offer new products under the ARM & HAMMER brand in the household and pet
care categories. To this end, in 2003 the Company has launched ARM & HAMMER PET
FRESH Carpet & Room Deodorizer plus Pet Hair Release, a product that combines a
carpet deodorizer with a pet hair release agent that breaks the static charge
that holds hair to the carpet, thereby making vacuuming easier.
The Company also markets a variety of household cleaning products
including, BRILLO Soap Pads and other steel wool products, PARSONS Ammonia,
CAMEO Metal Polish, SNO BOL Cleaners and CLEAN SHOWER Daily Shower Cleaner and
SCRUB FREE Bathroom Cleaner. The Company intends to capitalize on the well
recognized
3
BRILLO name by extending its line of soap pads and expanding into new
categories. As a result, in 2003, the Company is launching BRILLO SCRUB'N TOSS
Disposable Cleaning Pads, a new, multi-use, disposable cleaning pad product.
Product introductions usually involve heavy marketing costs in the year of
launch, and the eventual success of the new product and line extensions
described in this Annual Report on Form 10-K will not be known for some time.
Laundry Products.
The Company's largest consumer business, measured by sales volume, is in
the laundry detergent market. In 2002, Laundry Products constituted
approximately 46% of the Company's consumer sales and approximately 38% of the
Company's total sales.
The Company markets its ARM & HAMMER Brand Laundry Detergents, in both
powder and liquid forms, as value products, priced at a discount from products
identified by the Company as market leaders. The Company markets its XTRA
laundry detergent in both powder and liquid at a slightly lower price than ARM &
HAMMER Brand Laundry Detergents. The marketing of distinct brands at several
price points is intended to increase market share. Although the powder laundry
detergent segment continued its long-term decline throughout 2002, the ARM &
HAMMER FABRICARE powder gained market share and maintained its position as the
leading powder detergent value brand.
The Company's Laundry Products include fabric softeners that prevent
static cling and soften and freshen clothes. In 2002, ARM & HAMMER FRESH 'N SOFT
Fabric Softener Sheets enjoyed an increase in dollar market share. In order to
build on this success, the Company has recently launched ARM & HAMMER FRESH 'N
SOFT Liquid Fabric Softener. The Company also offers another liquid fabric
softener, NICE'N FLUFFY, at a slightly lower price in an attempt to increase
market share by competing at several price points.
Personal Care Products.
The Company has entered the personal care and oral care businesses using
the unique strengths of its ARM & HAMMER trademark and baking soda technology.
These are highly innovative markets, characterized by a continuous flow of new
products and line extensions and intense competition, requiring heavy
advertising and promotion. In 2002, Personal Care Products (excluding Armkel)
constituted approximately 20% of the Company's consumer sales and approximately
17% of the Company's total sales.
Early in 2002, the Company accomplished a major objective by transferring
production of ARRID and LADY'S CHOICE deodorant antiperspirants from the former
Carter-Wallace plant at Cranbury, New Jersey, to the more efficient Company
plant at Lakewood, New Jersey. Early in 2003, the Company launched ARRID Total
Soft Solid antiperspirants targeted primarily to women, and broadened its ARM &
HAMMER ULTRAMAX antiperspirant line by adding a gel primarily targeted at men.
ARM & HAMMER Baking Soda, when used as a dentifrice, whitens and polishes
teeth, removes plaque and leaves the mouth feeling fresh and clean. These
properties have led to the development of a complete line of sodium
bicarbonate-based dentifrice products which are marketed and sold nationally
primarily under the ARM & HAMMER DENTAL CARE brand name. The Company also
markets ARM & HAMMER DENTAL CARE Gum, a baking soda based oral care product that
is available in four flavors.
In the toothpaste category, after two years of leading its category in
growth, driven by the success of ARM & HAMMER ADVANCE WHITE toothpaste, the
Company's share dropped in 2001 and again in 2002 mainly as a result of
competitive new products and aggressive spending by other manufacturers in the
category. To strengthen its toothpaste franchise, the Company introduced ARM &
HAMMER Complete Care, a product that cleans and whitens teeth and freshens
breath, the first ARM & HAMMER all-in-one toothpaste.
The Company's position in the Personal Care product line is bolstered by
Armkel's products. Armkel's domestic business primarily competes in three (3)
major product lines: reproductive health (TROJAN Condoms), skin care (NAIR
Depilatories/Waxes), and feminine health and hygiene (FIRST RESPONSE and ANSWER
Home Pregnancy /Ovulation Test Kits).
Condoms are recognized as highly reliable contraceptives as well as an
effective means of reducing the risk of sexually transmitted diseases (STDs).
The TROJAN condom brand has been in use for more than 80 years. In 2002, the
brand continued its share leadership in the United States behind the success of
such products as EXTENDED
4
PLEASURE and HER PLEASURE, the evolution of the TROJAN MAN advertising campaign,
and its on-going comprehensive educational programs.
The NAIR line of non-shaving hair removal products is the leading brand in
both dollar and unit sales in the United States, with several consecutive years
of double-digit sales growth behind innovative new products that address
consumer needs for quick, complete and longer-lasting hair removal. In 2003, new
waxes, depilatory creams and cloth strips will be launched to further strengthen
NAIR's leadership position.
Armkel recognizes the need to introduce new products to become a stronger
skin care company. In February 2003, it began shipping LINEANCE European Body
Essentials, a line of upscale hair removal and skin care treatments that offer
consumers the opportunity for a pampering spa experience in their own homes.
In 2002 Armkel's emerging feminine health and hygiene business was led by
FIRST RESPONSE, the number two brand in the Home Pregnancy Test Kit category.
Armkel also markets a second brand, ANSWER, which competes in the price-value
segment of the Home Pregnancy and Ovulation Test Kit market.
International
The Company markets and sells in Canada many of the same consumer products
that are sold in the United States through its wholly-owned Canadian subsidiary
Church & Dwight Ltd./Ltee.
Together with Armkel, the Company's international operations are also
focused on selected priority categories such as Oral Care, Depilatories,
Condoms, Home Pregnancy Test Kits and other regional niche products.
Armkel included continued strong growth for NAIR Waxes and Depilatories,
particularly in Canada and Mexico.
In oral care, Armkel's German distributor launched PERL WEISS Beauty
Pearls, a premium-priced cosmetic whitening toothpolish in a bottle. Armkel also
markets skin care products, including LINEANCE, the leading supermarket brand in
slimming body care in France.
In 2002, Armkel took over distribution of the ARM & HAMMER toothpaste
product line in the United Kingdom. The Company is looking for opportunities to
expand distribution of ARM & HAMMER products sold in several other countries.
Two such initiatives by the Company in 2002 were the introductions of ARM &
HAMMER toothpaste in Mexico, and ARM & HAMMER Baking Soda Shaker into Japan.
COMPETITION
For information regarding Competition, see pages 12 through 14 of Exhibit
99.1 hereto, incorporated herein by reference.
DISTRIBUTION
The Company's consumer products are primarily marketed throughout the
United States and Canada and sold through a broad distribution platform that
includes supermarkets, mass merchandisers, such as Wal-Mart, and drugstores. The
Company employs a sales force based regionally throughout the United States.
This sales force utilizes the services of independent food brokers in each
market. The Company's products are strategically located in Church & Dwight
plant and public warehouses and either picked up by customers or delivered by
independent trucking companies.
SPECIALTY PRODUCTS
PRINCIPAL PRODUCTS
As the world's leading supplier of sodium bicarbonate for both consumer
and industrial applications, the Company considers the Specialty Products
division its arm into the business-to-business arena. Currently, this division
participates in three product areas: Specialty Chemicals, Animal Nutrition and
Specialty Cleaners. The following table sets forth the principal products of the
Company's Specialty Products division.
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TYPE OF PRODUCT KEY BRAND NAMES
Specialty Chemicals ARM & HAMMER Performance Grade Sodium
ARM & HAMMER TORTILLA BLEND Leavening Mix
ARMAND PRODUCTS Potassium Carbonate and Potassium Bicarbonate
ARMICARB 100 Fungicide
ARMAGRIP Anti-Slip Floor Treatment
SORB-N-C Pollution Control
Animal Nutrition ARM & HAMMER Feed Grade Sodium Bicarbonate
MEGALAC Rumen Bypass Fat
SQ-810 Natural Sodium Sesquicarbonate
DCAD Plus Feed Grade Potassium Carbonate
BIO-CHLOR and FERMENTEN Rumen Fermentation Enhancers
Specialty Cleaners ARMEX Blast Media
ARMAKLEEN Aqueous Cleaners
AQUAWORKS Aqueous Cleaners
Commercial & Professional Cleaners and Deodorizers
Specialty Chemicals.
The Company's specialty chemicals business primarily consists of the
manufacture, marketing and sale of sodium bicarbonate in a range of grades and
granulations for use in industrial and agricultural markets. In industrial
markets, sodium bicarbonate is used by other manufacturing companies as a
leavening agent for commercial baked goods, as an antacid in pharmaceuticals, as
a carbon dioxide release agent in fire extinguishers, as an alkaline agent in
swimming pool chemicals, and as a filtration agent in kidney dialysis.
The Company and Occidental Petroleum Corporation are equal partners in a
joint venture named Armand Products Company, which produces and markets
potassium carbonate and potassium bicarbonate. Potassium chemicals are sold to,
among others, the glass industry for use in TV and computer monitor screens.
The Company markets and sells ammonium bicarbonate and other specialty
chemicals to food and agricultural markets in Europe through its wholly-owned
British subsidiary Brotherton Specialty Products Ltd.
The Company's 99% owned Brazilian subsidiary, Quimica Geral do Nordeste,
is South America's leading provider of sodium bicarbonate.
Animal Nutrition Products.
A special grade of sodium bicarbonate, as well as sodium sesquicarbonate,
is sold to the animal feed market as a feed additive for use by dairymen as a
buffer, or antacid, for dairy cattle.
The Company markets and sells MEGALAC Rumen Bypass Fat, a nutritional
supplement made from natural oils, which allows cows to maintain energy levels
during the period of high-milk production, resulting in improved milk yields and
minimal weight loss. The product and the trademark MEGALAC are licensed under a
long-term license agreement from a British company, Volac Ltd.
Through its recently acquired Biovance subsidiary, the Company produces
BIO-CHLOR and FERMENTEN, a range of specialty feed ingredients for dairy cows,
which improve feed efficiency and help increase milk production.
Specialty Cleaners.
The Company formed a joint venture in 1999 with the Safety-Kleen
Corporation called the ArmaKleen Company. This joint venture distributes the
Company's proprietary product line of aqueous cleaners along with the Company's
Armex Blast Media line which is designed for the removal of a wide variety of
surface coatings.
6
During the year, the Company continued to pursue opportunities to build a
specialized industrial cleaning business using our aqueous-based technology. In
early 1999, the Company extended its alliance with Safety-Kleen Corp. to build a
specialty cleaning products business based on our technology and their sales and
distribution organization. The second year of this alliance was affected by
Safety-Kleen's financial difficulties which lead to their Chapter 11 filing and
implementation of a major reorganization during 2000. While the joint venture
has demonstrated more stability in 2002 and continues to hold great promise, the
outcome will not be known for some time.
COMPETITION
For information regarding Competition, see pages 13 and 14 of Exhibit
99.1 hereto; incorporated herein by reference.
DISTRIBUTION
The Company markets sodium bicarbonate and other chemicals to industrial
and agricultural customers throughout the United States and Canada. Distribution
is accomplished through regional sales offices and manufacturer's
representatives augmented by the sales personnel of independent distributors
throughout the country.
RAW MATERIALS AND SOURCES OF SUPPLY
The Company manufactures sodium bicarbonate for both of its consumer and
specialty products businesses at two of its plants located at Green River,
Wyoming and Old Fort, Ohio. The production of sodium bicarbonate requires two
basic raw materials, soda ash and carbon dioxide. The primary source of soda ash
used by the Company is the mineral, trona, which is found in abundance in
southwestern Wyoming, near the Company's Green River plant. The Company has
adequate trona reserves to support the requirements of the sodium bicarbonate
business and may acquire other leases in the future as the need arises.
The Company is party to a partnership agreement with General Chemical
Corporation, which mines and processes trona reserves in Wyoming. Through the
partnership and related supply and services agreements, the Company fulfills a
substantial amount of its soda ash requirements, enabling the Company to achieve
some of the economies of an integrated business capable of producing sodium
bicarbonate and related products from the basic raw material. The Company also
has an agreement for the supply of soda ash from another company. The
partnership agreement and other supply agreements between the Company and
General Chemical are terminable upon two years notice by either company. The
Company believes that alternative sources of supply are available.
The Company obtains its supply of the second basic raw material for the
production of sodium bicarbonate, carbon dioxide, under long-term supply
contracts. The Company believes that its sources of carbon dioxide are adequate.
The Company believes that ample sources of raw materials are available for
all of its other major products. Detergent chemicals are used in a variety of
the Company's products and are available from a number of sources. Bottles,
paper products and clay are available from multiple suppliers although the
Company chooses to source most of these materials from single sources under
long-term supply agreements in order to gain favorable pricing. Alternative
sources of supply are available in case of disruption or termination of the
agreements.
Increases in the prices of certain raw materials could materially impact
the Company's costs and financial results if the Company is unable to pass such
costs along in the form of price increases to its customers.
The main raw material used in the production of potassium carbonate is
liquid potassium hydroxide. Armand Products obtains its supply of liquid
potassium hydroxide under a long term supply arrangement.
PATENTS AND TRADEMARKS
The Company's trademarks (identified throughout this annual report in
capitalized letters), including ARM & HAMMER, are registered with the United
States Patent and Trademark Office and also with the trademark offices of many
foreign countries. The ARM & HAMMER trademark has been used by the Company since
the late 1800's, and is a valuable asset and important to the successful
operation of the Company's business. The Company's other valuable trademarks
include XTRA, BRILLO, ARRID, SNO BOL, PARSONS', SCRUB FREE and CLEAN SHOWER.
7
United States trademark registrations are for a term of 10 years,
renewable every 10 years so long as the trademarks are used in the regular
course of trade. The Company maintains a portfolio of trademarks representing
substantial goodwill in the businesses using the trademarks.
United States patents are currently granted for a term of 20 years from
the date the patent application is filed. The Company owns a number of patents
and believes that some of them may provide competitive advantages in the
marketplace for particular products.
CUSTOMERS AND ORDER BACKLOG
A group of three Consumer Products customers accounted for approximately
23% of consolidated net sales in 2002, including a single customer, Wal-Mart,
which accounted for approximately 16%. A group of three customers accounted for
approximately 23% of consolidated net sales in 2001 including a single customer,
Wal-Mart, which accounted for approximately 14%. This group accounted for 21% in
2000.
Although not included in the top three customers noted above, Kmart
Corporation historically has represented approximately 3% of our consolidated
net sales. Kmart's bankruptcy followed by its announcement to close an
additional 329 stores in the first half of 2003 could cause a reduction in sales
of approximately 15-20% to Kmart. It is not clear whether, and to what extent,
these lost sales may be made to other retailers.
The time between receipt of orders and shipment is generally short, and,
as a result, backlog is not significant.
RESEARCH & DEVELOPMENT
The Company conducts research and development primarily at its facility in
Princeton, New Jersey. The Company devotes significant resources and attention
to product development, process technology and basic research to develop
differentiated products with new and distinctive features, which provided
increased convenience and/or value to its customers. To increase its innovative
capabilities the Company engages outside contractors for general research and
development in activities beyond its core areas of expertise. During 2002,
$26,877,000 was spent on research activities as compared to $21,803,000 in 2001
and $19,363,000 in 2000.
GOVERNMENTAL REGULATION
Some of the Company's products are subject to regulation under the Food,
Drug and Cosmetic Act, which is administered by the Food and Drug
Administration, the Fair Packaging and Labeling Act and the Insecticide,
Fungicide and Rodenticide Act and the Toxic Substances Control Act, which are
administered by the Environmental Protection Agency. The Company is also subject
to regulation by the Federal Trade Commission in connection with the content of
its labeling, advertising, promotion, trade practices and other matters. The
Company's relationship with certain unionized employees may be overseen by the
National Labor Relations Board.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
regulations governing air emissions, waste and steam discharges, and solid and
hazardous waste management activities. The Company endeavors to take actions
necessary to comply with such regulations. These steps include periodic
environmental audits of each Company facility. The audits, conducted by an
independent engineering concern with expertise in the area of environmental
compliance, include site visits at each location, as well as a review of
documentary information, to determine compliance with such federal, state and
local regulations. The Company believes that its compliance with existing
environmental regulations will not have any material adverse effect with regard
to the Company's capital expenditures, earnings or competitive position. No
material capital expenditures relating to environmental control or remediation
are presently anticipated.
GEOGRAPHIC AREAS
Approximately 92% of net sales of the Company in 2002, 90% in 2001 and 88%
in 2000 were to customers in the United States and approximately 95% of
long-lived assets of the Company in 2002, 92% in 2001 and 88% in 2000 were
located in the United States.
8
EMPLOYEES
At December 31, 2002, the Company had 2,256 employees. The Company is
party to a labor contract with the United Industrial Workers of North America at
its London, Ohio plant which contract continues until September 28, 2007. The
Company believes that its relations with both its union and non-union employees
are satisfactory.
CLASSES OF SIMILAR PRODUCTS
The Company's operations constitute two operating segments. The table set
forth below shows the percentage of the Company's net sales contributed by each
group of similar products marketed by the Company during the period from January
1, 2000 through December 31, 2002.
% of Net Sales
2002 2001 2000
---- ---- ----
Consumer Products
Deodorizing and Cleaning 25 25 30
Laundry 38 40 26
Personal Care 17 13 16
International 3 4 5
Specialty Products 17 18 23
The table above reflects consolidated net sales, exclusive of
unconsolidated entities. Segment information that includes unconsolidated
entities is contained in Note 17 of the Company's Consolidated Financial
Statement attached as Exhibit 99.1.
CERTAIN RISKS AND UNCERTAINTIES RELATED TO THE COMPANY'S BUSINESS
The Company's future results and financial condition are dependent upon
its ability to develop, manufacture and market consumer and specialty products
successfully. Inherent in this process are a number of factors that the Company
must successfully manage to achieve favorable future operating results and
financial condition. In addition to the other information contained in this
Annual Report on Form 10-K, the following risks and uncertainties could affect
the Company's future operating results and financial condition:
- - THE COMPANY HAS RECENTLY DEVELOPED AND COMMENCED SALES OF A NUMBER OF NEW
PRODUCTS WHICH, IF THEY DO NOT GAIN WIDESPREAD CUSTOMER ACCEPTANCE OR IF
THEY CANNIBALIZE SALES OF EXISTING PRODUCTS, COULD HARM THE COMPANY'S
EFFORTS TO IMPROVE ITS FINANCIAL PERFORMANCE.
The Company has introduced a number of new consumer products. The
development and introduction of new products involves substantial research,
development and marketing expenditures, which the Company may be unable to
recoup if the new products do not gain widespread market acceptance. In
addition, if the new products merely cannibalize sales of existing products, the
Company's financial performance could be harmed.
- - THE COMPANY MAY DISCONTINUE PRODUCTS OR PRODUCT LINES, WHICH COULD RESULT
IN RETURNS, ASSET WRITE-OFFS AND SHUT DOWN COSTS.
In the past, the Company has discontinued certain products and product
lines, which resulted in returns from customers, asset write-offs, and shut down
costs. The Company may suffer similar adverse consequences in the future to the
extent it discontinues products that do not meet expectations or no longer
satisfy consumer demand. Product returns, write-offs or shut down costs would
reduce cash flow and earnings. Product efficacy or safety concerns could result
in product recalls or declining sales which would reduce cash flow and earnings.
- - THE COMPANY FACES INTENSE COMPETITION IN A MATURE INDUSTRY THAT MAY
REQUIRE IT TO INCREASE EXPENDITURES AND ACCEPT LOWER PROFIT MARGINS TO
PRESERVE OR MAINTAIN ITS MARKET SHARE. UNLESS THE MARKETS IN WHICH THE
COMPANY COMPETES GROW SUBSTANTIALLY, A LOSS OF MARKET SHARE WILL RESULT IN
REDUCED SALES LEVELS AND DECLINING OPERATING RESULTS.
Currently, 92% of our sales are generated in U.S. markets. U.S. markets
for consumer products are mature and characterized by high household
penetration, particularly with respect to the Company's most significant product
9
categories, including laundry detergents and deodorizers and household cleaning
products. The Company's unit sales growth in domestic markets will depend on
increasing usage by consumers, product innovation and capturing market share
from competitors. The Company may not be able to succeed in implementing its
strategies to increase domestic revenues.
The consumer products industry, particularly the laundry detergent,
personal care and air deodorizer categories, is intensely competitive. To
protect the Company's existing market share or to capture increased market
share, the Company may need to increase expenditures for promotions and
advertising and introduce and establish new products. Increased expenditures may
not prove successful in maintaining or enhancing the Company's market share and
could result in lower sales and profits.
Many of the Company's competitors are substantially larger companies,
including The Procter & Gamble Company, Unilever, Inc., the Clorox Company,
Colgate-Palmolive Company, and S.C. Johnson & Son, Inc., which have greater
financial resources than the Company. They have the capacity to outspend the
Company in an attempt to take market share from the Company.
- - PROVIDING PRICE CONCESSIONS OR TRADE TERMS THAT ARE ACCEPTABLE TO THE
COMPANY'S TRADE CUSTOMERS, OR THE FAILURE TO DO SO, COULD ADVERSELY AFFECT
THE COMPANY'S SALES AND PROFITABILITY. IN ADDITION, REDUCTIONS IN
INVENTORY BY THE COMPANY'S TRADE CUSTOMERS, INCLUDING AS A RESULT OF
CONSOLIDATIONS IN THE RETAIL INDUSTRY, OR A SHIFT IN THE IMPORTANCE OF
CERTAIN CHANNELS OF TRADE COULD ADVERSELY AFFECT ITS SALES.
Consumer products, particularly those that are value-priced like many of
the Company's products, are subject to significant price competition and in
recent years have been characterized by price deflation. From time to time, the
Company may need to reduce the prices for some of its products to respond to
competitive and customer pressures and to maintain market share. Any reduction
in prices to respond to these pressures would harm profit margins. In addition,
if the Company's sales volumes fail to grow sufficiently to offset any reduction
in margins, its results of operations would suffer.
Because of the competitive environment facing retailers, many of the
Company's trade customers, particularly its high-volume retail store customers,
have increasingly sought to obtain pricing concessions or better trade terms.
These concessions or terms could reduce the Company's margins. Further, if the
Company is unable to maintain price or trade terms that are acceptable to its
trade customers, they could reduce product purchases from the Company and
increase product purchases from the Company's competitors, which would harm the
Company's sales and profitability. In addition, from time to time the Company's
retail customers have reduced inventory levels in managing their working capital
requirements. Any reduction in inventory levels by the Company's retail
customers would harm its operating results. In particular, continued
consolidation within the retail industry could potentially reduce inventory
levels maintained by the Company's retail customers, which could adversely
impact its results of operations. The Company's performance is also dependent
upon the general health of the economy and of the retail environment in
particular and could be significantly harmed by changes affecting retailing and
by the financial difficulties of retailers, including the ongoing bankruptcy
proceedings involving Kmart.
Industry wide, consumer products such as those marketed by the Company are
increasingly being sold in club stores and mass merchandisers, while sales of
consumer products by food and drug stores are comprising a smaller proportion of
the total volume of consumer products sold. Sales of the Company's products are
stronger in the food and drug channels of trade and not as strong with the club
stores and mass merchandisers. Although the Company has taken steps to improve
its representation in club stores and mass merchandisers, if the Company is not
successful in doing so, and the current trend continues, the financial condition
and operating results of the Company could suffer.
- - LOSS OF ANY OF THE COMPANY'S PRINCIPAL CUSTOMERS COULD SIGNIFICANTLY
DECREASE ITS SALES AND PROFITABILITY.
Wal-Mart, including its affiliate Sam's Club, was the Company's largest
customer, accounting for 16% of net sales in 2002, 14% of net sales in 2001, and
13% of net sales in 2000. The loss of or a substantial decrease in the volume of
purchases by Wal-Mart or any of the Company's other top customers would harm the
Company's sales and profitability.
- - THE COMPANY MAY MAKE ACQUISITIONS THAT, IF NOT PROPERLY INTEGRATED OR IF
OTHERWISE UNSUCCESSFUL, COULD STRAIN OR DIVERT ITS RESOURCES.
10
The Company has made several acquisitions in the past few years and may
make additional acquisitions or substantial investments in complementary
businesses or products in the future. Any future acquisitions or investments
would entail, various risks, including the difficulty of assimilating the
operations and personnel of the acquired businesses or products, the potential
disruption of the Company's ongoing business and, generally, the Company's
potential inability to obtain the desired financial and strategic benefits from
the acquisition or investment. These factors could harm the Company's financial
condition and operating results. Any future acquisitions or investments could
result in substantial cash expenditures, the issuance of new equity in the
Company and the incurrence of additional debt and contingent liabilities. In
addition, any potential acquisitions or investments, whether or not they are
ultimately completed, could divert the attention of management and other
resources from other issues that are more critical to the Company's operations.
- - THE CONDOM PRODUCT LINE OF THE COMPANY'S ARMKEL JOINT VENTURE COULD SUFFER
IF THE SPERMICIDE N-9 IS PROVED OR PERCEIVED TO BE HARMFUL.
Armkel's distribution of condoms under the TROJAN and other trademarks is
regulated by the U.S. Food and Drug Administration (FDA). Certain of Armkel's
condoms contain the spermicide nonoxynol-9 (N-9). The World Health Organization
and other interested groups have issued reports suggesting that N-9 should not
be used rectally or for multiple daily acts of vaginal intercourse, given the
ingredient's potential to cause irritation to human membranes. The Company
expects the FDA to issue non-binding draft guidance concerning the labeling of
condoms with N-9, although the timing of such draft guidance is uncertain. The
Company believes that condoms with N-9 provide an acceptable added means of
contraceptive protection and is cooperating with the FDA concerning the
appropriate labeling revisions, if any. However, the Company cannot predict the
outcome of the FDA review. If the FDA or state governments promulgate rules
which prohibit or restrict the use of N-9 in condoms (such as new labeling
requirements), Armkel could incur costs from obsolete products, packaging or raw
materials and sales of condoms could decline, which, in turn, could decrease the
value of the Company's interest in Armkel.
Related to this issue, on February 28, 2003 a purported class action suit,
Lissette Velez v. Church & Dwight Co., Inc., et al., was filed against the
Company and Armkel, and two other condom manufacturers, in the Superior Court of
New Jersey. The lawsuit alleges that condoms lubricated with N-9 are being
marketed in a misleading manner because the makers of such condoms claim they
aid in the prevention of sexually transmitted diseases whereas, according to the
plaintiffs, public health organizations have found that N-9 usage can under some
circumstances increase the risk of transmission of disease. Condoms with N-9
have been marketed for many years as a cleared medical device under applicable
FDA regulations, however, the Company cannot predict the outcome of this
litigation.
- - PRICE INCREASES IN CERTAIN RAW MATERIALS OR ENERGY COSTS COULD ERODE OUR
PROFIT MARGINS, WHICH COULD HARM OUR OPERATING RESULTS.
Increases in the prices of certain raw materials or increases in energy
costs could significantly impact our profit margins. If price increases were to
occur we may not be able to increase the prices of our products to offset these
increases. This could harm the Company's financial condition and operating
results.
11
ITEM 2. PROPERTIES.
The Company's executive offices and research and development facilities
are owned by the Company and are located on 22 acres of land in Princeton, New
Jersey, with approximately 127,000 square feet of office and laboratory space.
In addition, the Company leases space in two buildings adjacent to this
facility, pursuant to a multi-year lease, which contain approximately 90,000
square feet of office space. The Company also leases regional sales offices in
various locations throughout the United States.
The Company also owns or leases other facilities in the United States.
They are:
LOCATION PRODUCTS MANUFACTURED AREA (SQ. FEET)
- ---------------------------------------------------------------------------------------------------------------
OWNED:
Manufacturing facilities
Green River, Wyoming Sodium bicarbonate and various consumer products 273,000
Old Fort, Ohio Sodium bicarbonate and various consumer products 208,000
Lakewood, New Jersey Various consumer products 250,000
London, Ohio Soap pads and fabric softener sheets 114,000
Harrisonville, Missouri Liquid laundry detergent and fabric softener 360,000
Chicago, Illinois (1) Powder laundry detergent 105,000
Madera, California Rumen bypass fats and related products 50,000
Oskaloosa, Iowa Animal nutrition products 27,000
Warehouse
Green River, Wyoming 101,000
Harrisonville, Missouri 150,000
LEASED:
Manufacturing facility
North Brunswick, New Jersey (2) Liquid laundry detergent and other consumer products 360,000
Warehouse
North Brunswick, New Jersey (3) 525,000
North Brunswick, New Jersey (4) 156,000
1. The facility is situated on a three-acre land parcel whose lease
expires in 2080.
2. Expires in 2004, subject to two five-year extensions at the option
of the Company.
3. Expires in 2010.
4. Expires in 2011.
In Syracuse, New York the Company owns a 16 acre site which include a
group of connected buildings. This facility was closed in 2001 and is now leased
to a third party.
In 2002 the Company sold its facility in Winsted, Connecticut for
$1,250,000.
In Ontario, Canada, the Company owns a 36,000 square foot distribution
center which was used for the purpose of warehousing and distribution of
products sold into Canada. The facility was closed in 2002 and is currently for
sale.
Brotherton Specialty Products Ltd., a wholly-owned United Kingdom
subsidiary, owns and operates a 71,000 square foot manufacturing facility in
Wakefield, England on about 7 acres of land.
The Armand Products partnership, in which the Company has a 50% interest,
owns and operates a potassium carbonate manufacturing plant located in Muscle
Shoals, Alabama. This facility contains approximately 53,000 square feet of
space and has a capacity of 103,000 tons of potassium carbonate per year.
The Company's 99% owned subsidiary, QGN, has its administrative
headquarters in Rio de Janeiro, Brazil in leased office space expiring in 2005.
QGN owns and operates manufacturing facilities in Camaoari, Feira de Santana,
and Itapura in the state of Bahia and Diadema in the state of Sao Paulo.
12
The Company believes that its manufacturing, distribution and office
facilities are adequate for the conduct of its business at the present time.
ITEM 3. LEGAL PROCEEDINGS.
On January 17, 2002, a petition for appraisal, Cede & Co., Inc. and GAMCO
Investors, Inc. v. MedPointe Healthcare, Inc., Civil Action No. 19354, was filed
in the Court of Chancery of the State of Delaware demanding a determination of
the fair value of shares of MedPointe. The action was brought by purported
former shareholders of Carter-Wallace in connection with the merger on September
28, 2001 of MCC Acquisition Sub Corporation with and into Carter-Wallace. The
merged entity subsequently changed its name to MedPointe. The petitioners seek
an appraisal of the fair value of their shares in accordance with Section 262 of
the Delaware General Corporation Law. The matter was heard on March 10 and 11,
2003, at which time the petitioners purportedly held 2.3million shares of
MedPointe. No decision has yet been rendered by the court.
MedPointe and certain former Carter-Wallace shareholders are party to an
indemnification agreement pursuant to which such shareholders will be required
to indemnify MedPointe from a portion of the damages, if any, suffered by
MedPointe in relation to the exercise of appraisal rights by other former
Carter-Wallace shareholders in the merger. Pursuant to the agreement, the
shareholders have agreed to indemnify MedPointe for 40% of any Appraisal Damages
(defined as the recovery greater than the per share merger price times the
number of shares in the appraisal class) suffered by MedPointe in relation to
the merger; provided that if the total amount of Appraisal Damages exceeds
$33,333,333.33, then the indemnifying stockholders will indemnify MedPointe for
100% of any damages suffered in excess of that amount. Armkel, in turn, is party
to an agreement with MedPointe pursuant to which it has agreed to indemnify
MedPointe and certain related parties against 60% of any Appraisal Damages for
which MedPointe remains liable. The maximum liability to Armkel pursuant to the
indemnification agreements and prior to any indemnification from the Company, as
described in the following, is $12 million. The Company is party to an agreement
with Armkel pursuant to which it has agreed to indemnify Armkel for 17.38% of
any Appraisal Damages for which Armkel becomes liable, up to a maximum of $2.1
million.
The Company believes that the consideration offered in the merger was fair
to the former Carter-Wallace shareholders and have vigorously defended
petitioner's claim. However, the Company cannot predict with certainty the
outcome of the proceedings.
On August 26, 2002, Armkel filed suit against Pfizer in the District Court
of New Jersey to redress infringement of two (2) Armkel patents directed to
pregnancy diagnostic devices. The suit claims that Pfizer's "ept" product
infringes these patents. The Company is seeking a reasonable royalty and
associated damages as compensation for Pfizer's infringement. The Court has
ordered a Settlement Conference for April 11, 2003, and has set dates throughout
2003 for various stages of discovery.
The Company, in the ordinary course of its business, is the subject of, or
party to, various pending or threatened legal actions. The Company believes that
any ultimate liability arising from these actions will not have a material
adverse effect on its financial position or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
This information appears under the heading "MD&A" on page 14 of Exhibit
99.1 hereto, incorporated by reference.
13
ITEM 6. SELECTED FINANCIAL DATA.
This information appears under the heading "Eleven Year Financial Summary"
on page 43 of Exhibit 99.1 hereto, incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ("MD&A").
This information appears under the heading "MD&A" on pages 1 through 14 of
Exhibit 99.1 hereto, incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This information appears under the heading "Market Risk" in the
"Management's Discussion and Analysis" section on pages 7 and 8 of Exhibit 99.1
hereto, incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company and its subsidiaries
and supplementary data required by this item appears on pages 15 through 42 of
Exhibit 99.1 hereto, incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item is incorporated by reference to the
Company's definitive proxy statement which will be filed pursuant to Regulation
14A with the Commission not later than 120 days after the close of the fiscal
year ended December 31, 2002.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this item is incorporated by reference to the
Company's definitive proxy statement which will be filed pursuant to Regulation
14A with the Commission not later than 120 days after the close of the fiscal
year ended December 31, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
Information required by this item is incorporated by reference to the
Company's definitive proxy statement which will be filed pursuant to Regulation
14A with the Commission not later than 120 days after the close of the fiscal
year ended December 31, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this item is incorporated by reference to the
Company's definitive proxy statement which will be filed pursuant to Regulation
14A with the Commission not later than 120 days after the close of the fiscal
year ended December 31, 2002.
ITEM 14. CONTROLS AND PROCEDURES.
Within the ninety (90) days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, we have concluded that
14
the Company's disclosure controls and procedures are effective in recording,
processing, summarizing and reporting within the time periods specified in the
SEC's rules and forms material information relating to the Company (including
its consolidated subsidiaries) required to be included in the Company's periodic
SEC filings.
Since the Chief Executive Officer's and Chief Financial Officer's most
recent review of the Company's internal controls systems, there have been no
significant changes in internal controls or in other factors that could
significantly affect these controls.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements and Independent Auditors'
Report are attached hereto on Exhibit 99.1:
Independent Auditors' Report
Consolidated Statements of Income for each of the three years in the
period ended December 31, 2002
Consolidated Balance Sheets as of December 31, 2002 and 2001
Consolidated Statements of Cash Flow for each of the three years in
the period ended December 31, 2002
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended December 31, 2002
Notes to Financial Statements
(a) 2. FINANCIAL STATEMENT SCHEDULES
The following Financial Statement Schedules are attached hereto as Exhibit
99.2:
Independent Auditors' Report on Schedule
For each of the three years in the period ended December 31, 2002:
Schedule II - Valuation and Qualifying Accounts
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the financial
statements or notes thereto.
(a) 3. EXHIBITS
(3) (a) Restated Certificate of Incorporation, dated October 22, 1992.
(b) By-Laws have previously been filed with the Securities and
Exchange Commission on the Company's Form 10-K for the year
ended December 31, 1985, (Commission file no. 1-10585) which
is incorporated herein by reference.
(4) (a) Credit Agreement, dated as of September 28, 2001, by and
between Church & Dwight Co., Inc., the several banks and other
financial institutions or entities from time to time parties
to the Agreement as Lenders, PNC Bank, National Association,
Fleet National Bank, The Bank of Nova Scotia, National City
Bank and The Chase Manhattan Bank, as administrative agent
previously filed with the Securities and Exchange Commission
on the Company's Form 10-K filed on March 18, 2002 (Commission
File No. 1-10585) and incorporated by reference.
15
(b) Credit Agreement, dated as of May 23, 2001, by and between
Church & Dwight Co., Inc., the several banks and other
financial institutions or entities from time to time parties
to the Agreement as Lenders, Fleet National Bank, National
City Bank, First Union National Bank, PNC Bank, and The Chase
Manhattan Bank, as administrative agent previously filed with
the Securities and Exchange Commission on the Company's Form
8-K filed on June 5, 2001 (Commission file no. 1-10585) and
incorporated by reference.
(c) The Company is party to a Loan Agreement dated May 31, 1991
with the New Jersey Economic Development Authority. The
principal amount of the loan thereunder is less than ten
percent of the Company's consolidated assets. The Company will
furnish a copy of said agreement to the Commission upon
request.
(d) Purchase and Sale Agreement dated January 16, 2003, by and
among Church & Dwight Co., Inc. and Harrison Street Funding
LLC previously filed with the Securities and Exchange
Commission on the Company's Form 8-K filed on January 30, 2003
(Commission File No. 1-10585) and incorporated by reference.
(e) Receivables Purchase Agreement, dated January 16, 2003, by and
among Harrison Street Funding, LLC, Church & Dwight Co., Inc.,
Market Street Funding Corporation and PNC Bank, previously
filed with the Securities and Exchange Commission on the
Company's Form 8-K filed on January 30, 2003 (Commission File
No. 1-10585) and incorporated by reference.
(10) (a) Amended and Restated Limited Liability Company Agreement
of Armkel LLC, dated as of August 27, 2001, by and between
Church & Dwight Co., Inc. and Kelso Protection Venture, LLC, a
Delaware limited liability company ("LLC Agreement") and
Amendment Number 1 to the LLC Agreement, dated as of September
24, 2001 previously filed with the Securities and Exchange
Commission on the Company's Form 8-K filed on October 12, 2001
(Commission file no. 1-10585) and are incorporated by
reference.
(b) Amendment Number 2 to the LLC Agreement, dated as of September
24, 2001 previously filed with the Securities and Exchange
Commission on the Company's Form 10-K filed on March 18, 2002
(Commission File No. 1-10585) and incorporated by reference.
(c) Amended and Restated Product Line Purchase Agreement, dated as
of July 30, 2001 and effective as of May 7, 2001 by and
between Church & Dwight Co., Inc. and Armkel LLC ("PLPA") and
Amendment Number 1 to the PLPA, dated as of September 28, 2001
previously filed with the Securities and Exchange Commission
on the Company's Form 8-K filed on October 12, 2001
(Commission file no. 1-10585) and are incorporated by
reference.
(d) Asset Purchase Agreement, dated May 7, 2001, by and between
Armkel LLC and Carter-Wallace, Inc. for the purchase of
certain consumer brands previously filed with the Securities
and Exchange Commission on the Company's Form 10-K filed on
March 18, 2002 (Commission File No. 1-10585) and incorporated
by reference.
(e) Supply Agreement between Church & Dwight Co., Inc. and ALCAD
Partnership for supply of soda ash. This document is not
attached hereto, but has been separately submitted to the
Securities and Exchange Commission and granted confidential
treatment pursuant to the Company's application under Exchange
Act Rule 24b-2.
(f) Limited Liability Company Operation Agreement of Armus, LLC,
dated as of June 14, 2000, between Church & Dwight Co., Inc.
and USA Detergents, Inc. This document has been previously
filed with the Securities and Exchange Commission on the
Company's Quarterly Report on Form 10-Q, filed on August 14,
2000. Portions of this document have been omitted pursuant to
the Company's confidential treatment request under Exchange
Act Rule 24b-2.
(g) Stock Purchase Agreement dated as of June 14, 2000, among USA
Detergents, Inc., Church & Dwight Co., Inc. and Frederick R.
Adler. This document has been previously filed with the
Securities and Exchange Commission on the Company's Quarterly
Report on Form 10-Q, filed on August 14, 2000.
16
(h) Employment Agreement, dated February 2, 2001, by and between
Church & Dwight Co., Inc. and Jon L. Finley for the position
of President and COO, previously filed with the Securities and
Exchange Commission on the Company's Form 10-K filed on March
18, 2002 (Commission File No. 1-10585) and incorporated by
reference.
*(i) Supplemental Employment Agreement, dated October 5, 2001, by
and between Church & Dwight Co., Inc. and Jon L. Finley,
previously filed with the Securities and Exchange Commission
on the Company's Form 10-K filed on March 18, 2002 (Commission
File No. 1-10585) and incorporated by reference.
*(j) Employment Agreement, dated January 3, 2002, by and between
Church & Dwight Co., Inc. and Joseph A. Sipia, Jr., previously
filed with the Securities and Exchange Commission on the
Company's Form 10-K filed on March 18, 2002 (Commission File
No. 1-10585) and incorporated by reference.
*(k) Employment Agreement, dated February 26, 2002, by and between
Church & Dwight Co., Inc. and Bradley A. Casper, previously
filed with the Securities and Exchange Commission on the
Company's Form 10-K filed on March 18, 2002 (Commission File
No. 1-10585) and incorporated by reference.
*(l) The Company's 1983 Stock Option Plan, which was approved by
stockholders at the Annual Meeting of Stockholders on May 5,
1983, and was included in the Company's definitive Proxy
Statement dated April 4, 1983, (Commission file no. 1-10585)
which is incorporated herein by reference.
*(m) Restricted Stock Plan for Directors which was approved by
stockholders at the Annual Meeting of Stockholders on May 7,
1987, and was included in the Company's definitive Proxy
Statement dated April 6, 1987, (Commission file no. 1-10585)
which is incorporated herein by reference.
*(n) Church & Dwight Co., Inc. Executive Deferred Compensation
Plan, effective as of June 1, 1997, (Commission file no.
1-10585) which is incorporated herein by reference.
*(o) Deferred Compensation Plan for Directors has previously been
filed with the Securities and Exchange Commission on the
Company's Form 10-K for the year ended December 31, 1987,
(Commission file no. 1-10585) which is incorporated herein by
reference.
*(p) Employment Service Agreement with Senior Management of Church
& Dwight Co., Inc. has previously been filed with the
Securities and Exchange Commission on the Company's Form 10-K
for the year ended December 31, 1990, (Commission file no.
1-10585) which is incorporated herein by reference.
*(q) The Stock Option Plan for Directors which was approved by
stockholders in May 1991, authorized the granting of options
to non-employee directors. The full text of the Church &
Dwight Co., Inc. Stock Option Plan for Directors was contained
in the definitive Proxy Statement filed with the Commission on
April 2, 1991, (Commission file no. 1-10585) which is
incorporated herein by reference.
*(r) A description of the Company's Incentive Compensation Plan has
previously been filed with the Securities and Exchange
Commission on the Company's Form 10-K for the year ended
December 31, 1992, (Commission file no. 1-10585) which is
incorporated herein by reference.
*(s) Church & Dwight Co., Inc. Executive Stock Purchase Plan has
previously been filed with the Securities and Exchange
Commission on the Company's Form 10-K for the year ended
December 31, 1993, (Commission file no. 1-10585) which is
incorporated herein by reference.
*(t) The 1994 Incentive Stock Option Plan has previously been filed
with the Securities and Exchange Commission on the Company's
Form 10-K for the year ended December 31, 1994, (Commission
file no. 1-10585) which is incorporated herein by reference.
17
*(u) The Compensation Plan for Directors, which was approved by
stockholders at the Annual Meeting of Stockholders on May 9,
1996, and was included in the Company's definitive Proxy
Statement filed with the Commission on April 1, 1996,
(Commission file no. 1-10585) which is incorporated herein
by reference.
*(v) The Church & Dwight Co., Inc. 1998 Stock Option Plan, which
was approved by stockholders at the Annual Meeting of
Stockholders on May 7, 1998, and was amended and restated as
of July 24, 2002.
- - *(w) Armkel, LLC Equity Appreciation Plan, effective
September 29, 2002.
- - *(x) Employment Agreement, dated July 24, 2002, by and between
Church & Dwight Co., Inc. and Andrew B. Steinberg for the
position of Vice President, General Counsel and Secretary.
- - (11) Computation of earnings per share.
- - (21) List of the Company's subsidiaries.
- - (23) Consent of Independent Auditor.
- - (99.1) Financial Statements.
- - (99.2) Financial Statement Schedules.
- - (99.3) Statement regarding the Certification of the CEO of Church &
Dwight Co., Inc. pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- - (99.4) Statement regarding the Certification of the CFO of Church &
Dwight Co., Inc. pursuant to 18 U.S .C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form.
- - indicates documents filed herewith.
(b) REPORTS ON FORM 8-K
The Company filed an 8-K on January 30, 2003 to announce that the Company
had entered into a receivable purchase agreement in order to refinance a
portion of its primary credit facility.
The Company filed an 8-K on February 10, 2003 to announce that the Company
had issued a press release relating to earnings for the quarter and year
ended December 31, 2002.
- --------------------------------------------------------------------------------
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 27, 2003.
CHURCH & DWIGHT CO., INC.
By: /s/ Robert A. Davies, III
-------------------------------------
Robert A. Davies, III
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Robert A. Davies, III Chairman and March 27, 2003
- ------------------------- Chief Executive Officer
Robert A. Davies, III
/s/ Zvi Eiref Vice President Finance and March 27, 2003
- -------------------------- Chief Financial Officer
Zvi Eiref (Principal Financial Officer)
/s/ Gary P. Halker Vice President Finance and March 27, 2003
- ------------------------- Treasurer
Gary P. Halker (Principal Accounting Officer)
19
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Robert H. Beeby Director March 27, 2003
- -------------------
Robert H. Beeby
/s/ Robert A. Davies, III Director March 27, 2003
- -------------------------
Robert A. Davies, III
/s/ Rosina B. Dixon, M.D. Director March 27, 2003
- -------------------------
Rosina B. Dixon, M.D.
/s/ J. Richard Leaman, Jr. Director March 27, 2003
- --------------------------
J. Richard Leaman, Jr.
/s/ Robert D. LeBlanc Director March 27, 2003
- ---------------------
Robert D. LeBlanc
/s/ John D. Leggett, III, Ph.D Director March 27, 2003
- ------------------------------
John D. Leggett, III, Ph.D.
/s/ John F. Maypole Director March 27, 2003
- -------------------
John F. Maypole
/s/ Robert A. McCabe Director March 27, 2003
- --------------------
Robert A. McCabe
/s/ Dwight C. Minton Director March 27, 2003
- --------------------
Dwight C. Minton
/s/ Burton B. Staniar Director March 27, 2003
- ---------------------
Burton B. Staniar
/s/ John O. Whitney Director March 27, 2003
- -------------------
John O. Whitney
20
CERTIFICATIONS
I, Robert A. Davies, III, certify that:
1. I have reviewed this annual report on Form 10-K of Church & Dwight Co.,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the period presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within ninety (90) days prior to the filing
date of this annual report (the "Evaluation Date); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By: /s/ Robert A. Davies, III
----------------------------------------------
Name: Robert A. Davies, III
Title: Chairman and Chief Executive Officer
Dated: March 27, 2003
21
CERTIFICATIONS
I, Zvi Eiref, certify that:
1. I have reviewed this annual report on Form 10-K of Church & Dwight Co.
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the period presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within ninety (90) days prior to the filing
date of this annual report (the "Evaluation Date); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By: /s/ Zvi Eiref
-------------------------------------
Name: Zvi Eiref
Title: Vice President, Finance
Dated: March 27, 2003
22