Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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, 2003

Commission File Number 1-10585

CHURCH & DWIGHT CO., INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (609) 683-5900

Securities registered pursuant to Section 12(b) of the Act:

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 27, 2003 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $1,268 million. For purposes of determining this number, 1,401,391 shares of Common Stock held by affiliates were excluded. For purposes of making this calculation only, the registrant included all directors, 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 27, 2003.

As of March 10, 2004, 40,961,857 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, 2004 are incorporated by reference in Items 10 through 14 of Item III of this Annual Report on Form 10-K.

Table of Contents

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.

Table of Contents

TABLE OF CONTENTS

Table of Contents

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, rumen bypass fat products, rumen efficiency enhancers and cleaners and deodorizers, which are used in a variety of industrial, institutional, animal nutrition, medical and food applications. In 2003, Consumer Products represented approximately 82% and Specialty Products represented approximately 18% of the Company’s sales. Approximately 91% of the Company’s sales revenues were derived from sales in the United States.

During 2003, the Company completed the integration of the consumer products business purchased in 2001 from Carter Wallace by the Company and Armkel LLC, our 50/50 joint venture established with Kelso & Company, L.P., a private equity firm. Our position in the Personal Care Product line is bolstered by Armkel’s products. Armkel’s domestic portfolio of products includes TROJAN Condoms, NAIR Depilatories and Waxes and FIRST RESPONSE and ANSWER Home Pregnancy and Ovulation Test Kits. Internationally, Armkel primarily markets oral care products, depilatories, condoms, skin care products, home pregnancy test kits and other regional niche products. We exert significant influence over Armkel through our membership on Armkel’s board of directors and our various agreements with Armkel, but do not control its operating and financial decisions. As a result, Armkel’s operations are not consolidated in our consolidated financial statements. However, the Company considers Armkel to be a separate business segment because our Chief Executive Officer (the Company’s principal operating decision maker) regularly reviews their operating results and performance. The Company’s investment in Armkel is described more fully under the heading “Armkel” and “Liquidity and Capital Resources” in Item 7 of 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. Several facets of Armkel’s business, including sales, manufacturing and distribution are administered by the Company pursuant to management agreements with Armkel.

In January 2003, the Company entered into a receivables purchase agreement with PNC Bank in order to refinance $60 million of the Company’s primary credit facility. The Company entered into this transaction to reduce expenses associated with the credit facility and to lower the Company’s financing costs by accessing the commercial paper market. The Company continues to sell its receivables pursuant to the receivables purchase agreement.

In August 2003, the Company refinanced $100 million of its term loans principally through the sale of $100 million principal amount of 5.25% convertible senior debentures due on August 15, 2033 pursuant to a private placement to qualified institutional buyers. Holders of the debentures may convert their debentures into shares of Company common stock at a conversion rate of 21.5054 shares of common stock per each $1,000 principal amount of debentures, prior to maturity upon the occurrence of certain circumstances.

On October 20, 2003, the Company acquired from Conopco, Inc., a New York corporation and a wholly owned subsidiary of Unilever N.V. and Unilever PLC (“Seller”), certain assets of Seller’s oral care business in the United States (including Puerto Rico) and Canada. The purchase price was approximately $104,000,000 in cash, plus additional performance-based payments of between $5,000,000 and $12,000,000 payable at specified times following the closing. The acquisition included assets related to the MENTADENT brand of toothpaste and toothbrushes, PEPSODENT and AIM brands of toothpaste and exclusive licensing rights to the CLOSE-UP brand of toothpaste, in each case in the United States (including Puerto Rico) and Canada. Assets acquired in the transaction principally include the equipment, inventory, intellectual property, permits, contracts and books and records relating to the aforementioned brands. The integration of this oral care business is expected to be completed in the latter part of 2004.

The Company financed the acquisition of the Oral Care Brands by refinancing the term loan portion of its $510 million credit facility originally issued in 2001, as well as available cash. In connection with the refinancing, the Company was provided with new term loans in the amount of $250 million, of which $150 million was used to replace existing term loans and the remaining $100 million was used in connection with the acquisition.

1

Table of Contents

The financing transactions referenced above are described in detail under the heading “Liquidity and Capital Resources” in “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” which is Item 7 of this Annual Report on Form 10-K.

As previously disclosed, in January 2002, the Company acquired Biovance Technologies, Inc. (subsequently renamed C&D 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 C&D Technologies’ 2002 operating performance. A final earn-out payment of $ 3.2 million was paid in February 2004 based upon C&D Technologies’ 2003 operating performance.

Also as previously disclosed, in addition to the acquisition of certain Carter-Wallace brands in 2001 the Company acquired the XTRA laundry detergent and NICE’N FLUFFY liquid fabric softener brands as part of its acquisition of USA Detergents, Inc.

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 them to, the Securities and Exchange Commission. Also available on the Company’s website are the Company’s Corporate Governance Guidelines, charters for the Audit, Compensation and Organization and Governance and Nominating Committees of the Company’s Board of Directors and the Company’s Code of Conduct. The information presented in the Company’s web site is not a part of this report and the reference to the Company’s web site is intended to be an inactive textual reference only. The foregoing is also available in print free of charge and may be obtained upon written request to: Church & Dwight Co., Inc. 469 North Harrison Street, Princeton, New Jersey 08543, attention: Secretary.

FINANCIAL INFORMATION ABOUT SEGMENTS

The Company’s business is organized into four segments, Church & Dwight Consumer (“C&D Consumer”), Armkel LLC (“Armkel”), Church & Dwight Specialty Products Division (“SPD”) and Other Equity Affiliates. None of these segments are seasonal with the exception of the depilatories and waxes product group in the Armkel segment which performs better in the spring and summer months. Information concerning the net sales, operating income and identifiable assets of each of the segments is set forth in Note 16 to the consolidated financial statements and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is Item 7 of this report.

CONSUMER PRODUCTS

C&D Consumer

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. In addition, this segment includes other deodorizing and household cleaning products, as well as laundry and personal care products. The following table sets forth the principal products of the Company’s C&D Consumer segment.

2

Table of Contents

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 2003, Deodorizing and Cleaning Products constituted approximately 28% of the Company’s consumer sales and approximately 23% of the Company’s total sales (sales percentage does not include unconsolidated entities). The deodorizer products include ARM & HAMMER Carpet & Room Deodorizer, ARM & HAMMER VACUUM-FREE Foam Carpet Deodorizer, ARM & HAMMER Deodorizing Air Freshener and ARM & HAMMER Cat Litter Deodorizer. In 2003 the Company launched ARM & HAMMER PET FRESH plus Pet Hair Release Carpet & Room

3

Table of Contents

Deodorizer, 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. ARM & HAMMER Carpet and Room Deodorizer was the leading brand in the domestic carpet and room deodorizer market in 2003. All brand “rankings” contained in this report are based on IRI FDTKS, excluding Wal-Mart, for the 52 weeks ending December 22, 2003.

The Company markets a line of cat litter products such as ARM & HAMMER SUPER SCOOP Clumping Cat Litter, which is the number three brand in the clumping segment of the cat litter market. 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. In 2003, the Company introduced ARM & HAMMER EASY FLUSH Clumping Cat Litter, a flushable cat litter that enables consumers to flush litter box clumps in the bathroom so odors do not escape into the home. ARM & HAMMER SUPER CLAY Cat Litter was discontinued in 2003. The Company also markets a line of pet care products under the LAMBERT KAY brand name. The Company intends to continue to innovate and offer new products under the ARM & HAMMER brand in the household and pet care categories.

The Company also markets a variety of household cleaning products including, BRILLO Soap Pads, PARSONS Ammonia, CAMEO Metal Polish, SNO BOL Cleaners, CLEAN SHOWER Daily Shower Preventer and SCRUB FREE Bathroom Cleaner. In 2003, the Company launched BRILLO SCRUB’N TOSS Disposable Cleaning Pads, a multi-use, disposable cleaning pad product. The Company intends to capitalize on the well recognized BRILLO name by extending its line of soap pads and expanding into new categories.

Laundry Products.

The Company’s largest consumer business, measured by sales volume, is in the laundry detergent market. In 2003, Laundry Products constituted approximately 47% 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 liquid laundry detergent brands at several price points is intended to increase market share, and in 2003, the Company’s liquid laundry detergent products enjoyed an increase in market share. Although the powder laundry detergent segment continued its long-term decline throughout 2003, the ARM & HAMMER FABRICARE powder maintained its position as the leading powder detergent value brand.

The Company’s Laundry Products also include fabric softeners that prevent static cling and soften and freshen clothes. In 2003, the Company launched ARM & HAMMER FRESH ‘N SOFT Liquid Fabric Softener. The Company also offers another liquid fabric softener, XTRA NICE’N FLUFFY, at a slightly lower price enabling the Company to compete at several price points.

Personal Care Products.

The Company entered the personal care business using the unique strengths of its ARM & HAMMER trademark and baking soda technology, and has expanded its presence through its acquisition of antiperspirant and oral care products in recent years. The personal care market is highly innovative and is characterized by a continuous flow of new products and line extensions and intense competition, requiring heavy advertising and promotion. In 2003, Personal Care Products (excluding Armkel) constituted approximately 21% of the Company’s consumer sales and approximately 18% of the Company’s total sales.

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 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, following 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. The introduction in 2003 of ARM & HAMMER COMPLETE CARE, the first ARM & HAMMER all-in-one toothpaste that cleans and whitens teeth and freshens breath, stabilized the Company’s toothpaste franchise during the year. Early in 2004, the Company

4

Table of Contents

launched ARM & HAMMER ENAMEL CARE Advanced Cleaning and Natural Whitening toothpastes, based on proprietary formulation and dual chamber tube packaging technology, which combines the cleaning and whitening properties of baking soda with fluoride and liquid calcium to fill tooth surfaces and restore enamel luster. The ARM & HAMMER ADVANCE BREATH CARE line of products were discontinued in 2003.

In addition, on October 20, 2003, the Company acquired, in the United States (including Puerto Rico) and Canada, the MENTADENT brand of toothpaste and toothbrushes, PEPSODENT and AIM toothpaste, and exclusive licensing rights to CLOSE-UP toothpaste from Conopco, Inc., a wholly owned subsidiary of Unilever N.V. and Unilever PLC. The acquisition strengthens the Company’s strategically important oral care business, tripling its unit sales and more than doubling its dollar sales within the U.S. oral care sector.

The Company’s antiperspirant products are marketed under the ARM & HAMMER, ARRID and LADY’S CHOICE brand names. 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.

International

The Company is seeking opportunities to expand distribution of ARM & HAMMER products sold in several other countries. Two such initiatives by the Company were the 2003 introduction of ARM & HAMMER Toothpaste, ARM & HAMMER Fridge-n-Freezer and ARM & HAMMER Baking Soda Shaker in Korea, and the 2002 introduction of ARM & HAMMER Baking Soda Shaker into Japan.

Armkel

Principal Products

The following table sets forth the principal products sold by Armkel:

The Company’s position in the Personal Care product line is bolstered by, and is marketed and sold in conjunction with, Armkel’s products. Armkel’s domestic business primarily competes in two major product lines: reproductive health (TROJAN Condoms and FIRST RESPONSE and ANSWER Home Pregnancy and Ovulation Test Kits) and, skin care (NAIR Depilatories and Waxes).

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 2003, the brand continued its share leadership in the United States behind the success of such products as EXTENDED PLEASURE and HER PLEASURE, the introduction of TWISTED PLEASURE, the continuation of the TROJAN MAN advertising campaign, and an ongoing comprehensive educational program. In 2004, Armkel added two new products to the TROJAN condom line, SHARED PLEASURE and MAGNUM With WARM SENSATIONS, a unique lubricant system which warms the skin on contact for enhanced pleasure.

5

Table of Contents

In 2003, Armkel’s home pregnancey and test kit business was led by FIRST RESPONSE, the number two brand in this category. Armkel also markets a second brand, ANSWER, which competes in the price-value segment of the Home Pregnancy and Ovulation Test Kit market.

The NAIR line of non-shaving hair removal products is the number two brand in both dollar and unit sales in the United States, with innovative products that address consumer needs for quick, complete and longer-lasting hair removal. In 2003, new waxes, depilatory creams and cloth strips were launched to further strengthen NAIR’s leadership position. In 2004, Armkel will launch its line of “No Touch” depilatory products including NAIR mousse, a product designed for direct application and improved ease of use.

In February 2003, Armkel 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. As a result of insufficient consumer demand for these products, the LINEANCE line in the United States will be discontinued in 2004 to enable the Company to focus and consolidate efforts behind its NAIR brand.

International

Armkel’s international consumer products primarily include condoms, home pregnancy and ovulation test kits, antiperspirants, skin care products and oral hygiene products. Armkel has operations in France, the United Kingdom, Canada, Mexico, Australia and Spain, which are also its principal markets. Armkel also exports some of its products to other European countries and the Middle East.

The Company believes that approximately 33% of its international net sales in this segment are attributable to brands which hold the number one or two position in their respective local markets. With the exception of France which accounts for 33% of the Company’s international sales in this segment no other country in which the Company operates accounts for more than 23% of it’s total international net sales, and no brand accounts for more than 12% of its total international net sales. Certain of the Company’s international product lines are similar to its domestic product lines. For example, the Company markets depilatories and waxes, home pregnancy and ovulation test kits and oral care products in most of its international markets, as well as condoms in Canada and Mexico.

In 2003 Armkel introduced new products to its product ranges of TAKY/ NAIR Waxes and Depilatories in Spain, the United Kingdom, Canada and Australia, as well as new PEARL DROPS products in Australia, LINEANCE BODY CARE products in Spain and STERIMAR Nasal Hygiene products in Canada and Australia.

In personal care, Armkel’s United Kingdom subsidiary launched, in limited distribution, TROJAN Condoms. LINEANCE, one of Armkel’s skin care products, is the leading supermarket brand in slimming body care in France.

In 2002, Armkel assumed responsibility for distribution of the ARM & HAMMER toothpaste product line in the United Kingdom.

COMPETITION FOR C&D CONSUMER AND ARMKEL

For information regarding Consumer Products Competition, see “Competitive Environment” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is Item 7 of this report.

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.

DISTRIBUTION FOR C&D CONSUMER AND ARMKEL

Products in the C&D Consumer and Armkel segments 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 Company plants and public warehouses and either picked up by customers or delivered by independent trucking companies.

6

Table of Contents

SPECIALTY PRODUCTS

SPD

Principal Products

The Company’s SPD segment focuses on sales to businesses and participates in three product areas: Specialty Chemicals, Animal Nutrition and Specialty Cleaners. The following table sets forth the principal products of the Company’s SPD segment.

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 buffer in kidney dialysis.

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 Speciality 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 also markets and sells DCAD Plus Feed Grade Potassium Carbonate as a feed additive into the animal feed market. This product is manufactured for the Company by Armand Products Company, the Company’s joint venture with Occidental Petroleum.

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 subsidiary, C&D Technologies, Inc., the Company produces BIO-CHLOR and FERMENTEN, a range of specialty feed ingredients for dairy cows, which improve rumen feed efficiency and help increase milk production.

Specialty Cleaners

The Company also provides a line of cleaning and deodorizing products for use in commercial and industrial applications such as office buildings, hotels, restaurants and the like.

7

Table of Contents

Other Equity Affiliates

General

From time to time the Company has formed joint ventures with third parties to take advantage of the strengths and expertise of each of the partners. 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.

The Company also formed a joint venture in 1999 with the Safety-Kleen Corporation called The ArmaKleen Company. The ArmaKleen Company was formed to build a specialty cleaning products business based on the Company’s technology and Safety-Kleen’s sales and distribution organization. This joint venture distributes the Company’s proprietary product line of aqueous cleaners along with the Company’s Armex Blast Media line.

Principal Products

The following table sets forth the principal products of the Company’s Other Equity Affiliates segment.

Specialty Chemicals

Potassium chemicals are sold to, among others, the glass industry for use in TV and computer monitor screens. Armand Products also manufactures for the Company a potassium carbonate based animal feed additive for sale in the dairy industry.

Specialty Cleaners.

During the year, the Company continued to pursue opportunities to build a specialized industrial cleaning business using our aqueous-based technology as well as The Armakleen Company’s ARMEX Blast Media line of products, which is designed for the removal of a wide variety of surface coatings. Within two years after formation the alliance was affected by Safety-Kleen’s financial difficulties which lead to their Chapter 11 filing and implementation of a major reorganization during 2000. In 2003 Safety-Kleen emerged from bankruptcy, and although The ArmaKleen Company continues to demonstrate increased stability, the Company is unable to predict the long-term prospects for this joint venture.

COMPETITION FOR SPD AND OTHER EQUITY AFFILIATES

For information regarding Specialty Products Competition, see “Competitive Environment” in Management’s Discussion and Analysis of Financial Condition and Results of Operations which is Item 7 of this report.

DISTRIBUTION FOR SPD AND OTHER EQUITY AFFILIATES

In the SPD and Other Equity Affiliates segments the Company markets sodium bicarbonate and other chemicals to industrial and agricultural customers primarily 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. The Company’s products in these segments are strategically located in Company plants and public warehouses and are either delivered by independent trucking companies or picked up by customers at the Company’s facilities.

8

Table of Contents

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 under mineral leases to support the requirements of its 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. 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. Although the Company actively develops and maintains a number of patents, no single patent is considered significant to the business as a whole.

CUSTOMERS AND ORDER BACKLOG

A group of three Consumer Products customers accounted for approximately 26% of consolidated net sales, excluding unconsolidated entities, in 2003, including a single customer, Wal-Mart Stores, Inc., which accounted for approximately 17%. A group of three customers accounted for approximately 23% of consolidated net sales in 2002 including a single customer, Wal-Mart, which accounted for approximately 16%. This group also accounted for approximately 23% of net sales (of which Wal-Mart accounted for 14%) in 2001.

The time between receipt of orders and shipment is generally short, and, as a result, backlog is not significant.

9

Table of Contents

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, to provide 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 2003, $26,917,000 was spent on research activities as compared to $26,877,000 in 2002 and $21,803,000 in 2001.

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, 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 a 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 91% of net sales of the Company (exclusive of unconsolidated entities) in 2003, 92% in 2002 and 90% in 2001 were to customers in the United States and approximately 94% of long-lived assets of the Company (exclusive of unconsolidated entities) in 2003, 95% in 2002 and 92% in 2001 were located in the United States.

EMPLOYEES

At December 31, 2003, the Company had 2,266 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, exclusive of unconsolidated entities, constitute two operating segments, C&D Consumer and SPD. 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, 2001 through December 31, 2003.

The table above reflects consolidated net sales, exclusive of unconsolidated entities. Segment information that includes unconsolidated entities is contained in Note 16 of the Company’s Consolidated Financial Statements included in this report.

10

Table of Contents

CERTAIN RISKS AND UNCERTAINTIES RELATED TO THE COMPANY’S BUSINESS

The following risks and uncertainties, as well as others described in this Annual Report on Form 10-K, could materially adversely affect the Company’s business, results of operations and financial condition:

The Company has recently introduced a number of new consumer products, such as BRILLO SCRUB ‘N TOSS disposable cleaning pads and ARM & HAMMER EASY FLUSH clumping cat litter. 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 cause sales of the Company’s existing products to decline, the financial performance of the Company could be harmed.

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.

During 2003, 91% of the Company’s sales were generated in U.S. markets. U.S. markets for consumer products are considered mature and commonly characterized by high household penetration, particularly with respect to the Company’s most significant product categories, such as laundry detergents, deodorizers and household cleaning products, toothpastes and antipersipirants and deodorants. The Company’s unit sales growth in domestic markets will depend on increased use of its products by consumers, product innovation and its ability to capture market share from competitors. The Company may not 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 its 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 market share and could result in lower sales and profits. Many of the Company’s competitors, including The Procter & Gamble Company, Unilever, Inc., The Clorox Company, Colgate-Palmolive Company, Gillette Co., Dial Corp. and S.C. Johnson & Son, Inc., are substantially larger companies that have greater financial resources than the Company has. These competitors have the capacity to outspend the Company should they attempt to gain market share. In addition, if the Company loses market share and the markets in which it competes do not grow, the Company’s sales levels and operating results would decline.

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.

11

Table of Contents

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. To the extent the Company provides concessions or better trade terms, its margins are reduced. Further, if the Company is unable to maintain terms that are acceptable to its trade customers, these trade customers could reduce purchases of the Company’s products and increase purchases of products from its competitors, which would harm the Company’s sales and profitability.

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 for the financial periods affected by the reductions. In particular, continued consolidation within the retail industry could potentially reduce inventory levels maintained by the Company’s retail customers, which could adversely affect its results of operations for the financial periods affected by the reductions.

The Company’s performance also depends 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. 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 sales in club stores and mass merchandisers, if it is not successful in improving sales to these channels, and the current trend continues, the Company’s financial condition and operating results could suffer.

Wal-Mart, including its affiliate Sam’s Club, is the Company’s largest customer, accounting for 17% of net sales in 2003, 16% of net sales in 2002 and 14% of net sales in 2001. The Company’s top three customers accounted for 26% of net sales in 2003 and 23% of net sales in each of 2002 and 2001. 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 has made several acquisitions in the past few years, including the acquisition of USA Detergents, Inc., Biovance Technologies, Inc., Unilever’s oral care brands in the United States and Canada and some of the consumer products businesses of Carter-Wallace, Inc., 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 divert other resources from other matters that are critical to the Company’s operations.

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

12

Table of Contents

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 it is cooperating with the FDA concerning the appropriate labeling revisions, if any. However, the Company cannot predict the outcome of the FDA review. While labeling guidance from the FDA is pending, the Company has implemented an interim label statement change cautioning against rectal use and multiple daily acts of vaginal intercourse. The Company also disseminates this cautionary statement on its product web site and in other consumer product vehicles.

In addition, in March 2003, a non-binding resolution was introduced in the California State Assembly which, if passed, would urge the FDA to ban condoms containing N-9, and encourage California manufacturers and retailers to cease the production and sale of condoms containing N-9. As amended in August 2003, the resolution cites the reports noted in the preceding paragraph as well as more recent information suggesting that N-9 may lead to an increase in urinary tract infections among females. The passage of this resolution could result in publicity that may add to activist pressure on retailers to cease carrying condoms with N-9. While the Company does not consider the level of retailer concern on this issue to be significant, it cannot predict the impact of the introduction of this resolution.

If the FDA or state governments take action that prohibit or restrict the use of N-9 in condoms (such as new labeling requirements), Armkel could incur further 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.

Increases in the prices of raw materials such as surfactants, which are cleaning agents, paper products and bottles, or increases in energy costs, could significantly affect the Company’s profit margins. The Company uses surfactants and bottles in the manufacture and marketing of laundry and household cleaning products such as ARM & HAMMER and XTRA laundry detergents and SCRUB FREE and CLEAN SHOWER bathroom cleaners. The Company uses paper products for packaging in many of its consumer and specialty chemical products. If price increases were to occur, the Company may not be able to increase the prices of its products to offset these increases. This could harm the Company’s financial condition and operating results.

13

Table of Contents

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, as set forth in the following table:

In Syracuse, New York, the Company owns a 21 acre site which include a group of connected buildings. This facility was closed in 2001 and a portion of the facility is now leased to a third party.

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 was sold on January 5, 2004.

Brotherton Speciality Products Ltd., a wholly-owned United Kingdom subsidiary, owns and operates the 71,000 square foot manufacturing facility in Wakefield, England on about 7 acres of land.

14

Table of Contents

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. In addition to the above, QGN owns and operates manufacturing facilities and warehouses in Itapura in the state of Bahia and Nova Ponte in the state of Minas Gerais. QGN also leases warehouses in Diadema in the state of Sao Paulo, Camacari and Feira de Santana.

The Old Fort plant has a productive capacity for sodium bicarbonate of 280,000 tons per year. The Green River plant has a productive capacity for sodium bicarbonate of 200,000 tons per year.

The Company believes that its operating and administrative facilities are adequate and suitable for the conduct of its business. The Company also believes that its production facilities are suitable for current manufacturing requirements for its consumer and specialty products. In addition, the facilities possess a capacity sufficient to accommodate the Company’s estimated increases in production requirements over the next several years, based on its current product line.

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 2.3 million 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 for 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 sentence, 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 March 27, 2003, GAMCO Investors, Inc., a party to the legal action described above, filed another complaint in the New York Supreme Court seeking damages from MedPointe Healthcare Inc. (the new name of the company formerly known as Carter-Wallace), the former directors of Carter-Wallace, and one of the former shareholders of Carter-Wallace. The complaint alleges breaches of fiduciary duty in connection with certain employment agreements with former Carter-Wallace executives, the sale of Carter Wallace’s consumer products business to Armkel (some of the products acquired by Armkel were subsequently sold by Armkel to the Company) and the merger of MCC Acquisition Sub Corporation with and into Carter-Wallace. The complaint seeks monetary damages and equitable relief, including among other things, invalidation of the transactions. The defendants have moved to dismiss the complaint. The Company has not been named as a defendant in this action and believes it has no liability.

On January 30, 2004 a suit was filed against the Company by Fleming Companies, Inc. in the US Bankruptcy Court, District of Delaware. Fleming, a customer of the Company, previously filed a voluntary petition for bankruptcy

15

Table of Contents

under Chapter 11, Title 11 of the United States Bankruptcy Code on April 1, 2003. Fleming has continued to operate its business and properties as a Debtor-in-possession. Fleming is seeking the recovery of certain preference payments and overpayments made to the Company in the amount of approximately $4.2 million. In addition, Fleming claims that it is owed approximately $1.9 million relating to a vendor agreement with the Company.

The Company intends to vigorously defend this matter. However, in the opinion of management, the ultimate amount of liability, if any, will not have a material adverse effect on the Company’s financial position.

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 claimed that Pfizer’s “ept” product infringed these patents. On June 23, 2003 Armkel agreed to a settlement with Pfizer resulting in a gain, after attorney’s fees and costs, of $12.7 million. As part of the settlement Armkel granted Pfizer a fully paid-up non-exclusive worldwide license to practice and use Armkel’s pregnancy test kit patents until July 1, 2004.

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.

16

Table of Contents

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 32 of this annual report on Form 10-K.

ITEM 6. SELECTED FINANCIAL DATA.

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

ELEVEN-YEAR FINANCIAL REVIEW

(Dollars in millions, except per share data)

17

Table of Contents

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)

Overview

The Company develops, manufactures and markets a broad range of consumer and specialty products. It recognizes revenues and profits from selling its products, primarily under the ARM &HAMMER trademark, to consumers through supermarkets, drug stores and mass merchandisers; and to industrial customers and distributors. In 2003, Consumer Products represented approximately 82% and Specialty Products 18% of the Company’s net sales. The Company does approximately 91% of its business in the United States.

Armkel LLC, an equally owned joint venture between the Company and the private equity group Kelso & Company, manufactures and markets well-recognized branded personal care consumer products. Armkel’s Trojan brand occupies the number one position in the domestic condom market, and its Nair brand occupies the number two position in the domestic depilatory and waxes market. Furthermore, Armkel is the number two provider of home pregnancy and ovulation test kits to consumers in the United States. These kits are marketed under the First Response and Answer brand names. Under the terms of its joint venture agreement with Kelso, the Company has a call option to acquire Kelso’s interest in Armkel beginning in the fourth quarter of 2004, at fair market value as defined in the joint venture agreement subject to a floor and a cap. The call option remains in effect through the beginning of the fourth quarter of 2006, at which time Kelso may request the Company to purchase its interest. For further discussion surrounding the joint venture agreement see the Armkel section of Liquidity and Capital Resources contained herein.

The Company’s primary financial objective and key performance indicator is to achieve average annual earnings per share growth of 12.5% to 15% for the period 2003 to 2005. The Company expects to achieve this objective through a combination of sales from newly created and existing products (referred to as organic growth), margin improvement, acquisition benefits from the recently acquired oral care brands, lower financing costs and, potentially, the acquisition of the remaining 50% interest in Armkel.

With regard to sales objectives, the Company plans to concentrate on a few high-value initiatives plus the stabilization of the declining sales trend in the former Unilever brands. In 2004, the Company will also be reviewing and modifying its promotion strategy, using new systems tools which became operational late in 2003. While difficult to predict, the Company currently expects high single digit sales growth for the year, including the acquired brands. As to margins, the Company’s objective is to improve its combined gross margin by an average of at least 1% a year, assuming no significant change in commodity prices.

The Company operates in highly competitive consumer-product markets, in which cost efficiency, new product offerings and innovation are critical to success. The consumer products markets are particularly mature in North America and characterized by high household penetration, particularly with respect to our most significant product categories such as laundry detergents. The consumer products industry, particularly the laundry detergent, personal care and deodorizing categories, is intensely competitive and is not expected to improve any time soon. Furthermore, because of ongoing retail sector consolidation and the competitive environment facing retailers, the Company faces pricing pressure from these customers, particularly the high-volume retail store customers, who have increasingly sought to obtain pricing concessions or better trade terms. To protect our existing market share or to capture increased market share, the Company has had to increase expenditures for promotions and advertising and to introduce and establish new products. Consequently, the need for on-going cost cutting initiatives needs to be sustained as new product introductions or product-line extensions remain the most viable path to generating organic top-line growth given the mature nature of most product categories in North American markets. Through the recent acquisitions of USA Detergents and Carter-Wallace’s Consumer Business in 2001 and the fourth quarter 2003 acquisition of Unilever’s Oral Care Business, as well as additional purchasing, manufacturing and distribution efficiencies obtained through economies of scale achieved in 2003, the Company has been able to lower its overall unit costs and increase the productivity of its various manufacturing facilities. This has resulted in generating higher levels of free cash flow.

With regard to the acquisition of Unilever’s Oral Care Business, which had experienced sales declines over the past few years, management believes the acquisition provides attractive opportunities for the following reasons:

18

Table of Contents

In the Specialty Products business, competition within the specialty chemicals and animal nutrition product lines remained intense in 2003. Specialty chemicals, particularly sodium bicarbonate, have been negatively impacted for several years through new technology developed by a number of nahcolite-based sodium bicarbonate manufacturers, who have been operating at the lower end of the business and have been making an effort to enter the higher end. To strengthen its competitive position, the Company over the last couple of years completed the modernization of its Green River facility to provide better availability of specialized grades, and increased production capacity at the Old Fort facility. The Company also has been increasing its R&D spending on health care, food processing, and other high-end applications for sodium bicarbonate, as well as alternative products to compete with the lower end of the market. As a result, merchant performance sodium bicarbonate sales volume grew 1% from 2002. With respect to the animal nutrition product line, the Company faced significantly higher ingredient costs for its line of nutritional supplements under the Megalac brand name, and weathered a poor U.S. dairy economy, which had a severe impact on the purchasing ability and financial viability of dairymen. Consequently, animal nutrition sales were virtually flat and operating profit declined by $1.6 million. To meet these challenges, the Specialty Products business pursued an important business improvement initiative which was aimed at improving its longer term operational effectiveness and cost structure. This 36 week project completed in the later part of 2003, is expected to deliver annualized benefits in excess of $1.7 million, a rigorous stage-gate process for new product development, a redesigned organization and a business management system based on key performance indicators.

Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, our observance of trends in industry, information provided by our customers and information available from other outside sources, as appropriate. Our critical accounting policies include:

Promotional and Sales Returns Reserves

The reserves for consumer and trade promotion liabilities, and sales returns are established based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. Promotional reserves are provided for sales incentives made directly to consumers such as coupons, and sales incentives made to vendors such as slotting, cooperative advertising, incentive discounts based on volume of sales and other arrangements. All such costs are netted against sales. Slotting costs are expensed when the related sale is recognized. Co-op advertising costs are expensed when the customer places the advertisement for the Company’s products. Discounts relating to price reduction arrangements are recorded when the related sale takes place. Costs associated with end-aisle or other in-store displays are recorded at the completion of the related sale. The Company relies on historical experience and forecasted data to determine the required reserves. For example, the Company uses historical experience to project coupon redemption rates to determine reserve requirements. Based on the total face value of coupons dropped over the past couple of years, a .1% deviation in the actual rate of redemptions versus the rate accrued for in the financial statements could result in approximately a $3 million difference in the reserve required. With regard to other promotional reserves and sales returns, we use experience-based appropriations, customer and sales organization inputs, and historical trend analysis in arriving at the reserves required. If the Company’s estimates for vendor promotional activities and sales returns were to differ by 10%, the impact to promotional spending and sales return accruals would be approximately $3.9 million. While we believe that our promotional and sales returns reserves are adequate and that the judgment applied is appropriate, such amounts estimated to be due and payable could differ materially from what will actually transpire in the future. During 2003, the Company reversed prior year promotion liabilities of approximately $1.3 million based on adjustments to previous estimates, and in 2002 the Company reversed prior year promotion liabilities of approximately $5.3 million.

Impairment of Goodwill, Trademarks and Other Intangible Assets and Property, Plant and Equipment

Carrying values of goodwill, trademarks and other intangible assets are reviewed periodically for possible impairment in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”. The Company’s impairment review is based on a discounted cash flow approach that requires significant judgment with respect to future volume, revenue and expense growth rates, and the selection of an appropriate discount rate. Management uses estimates based on expected trends in making these assumptions. With respect to goodwill, impairment occurs when the carrying value of the reporting unit exceeds the discounted present value of cash flows for that reporting unit. For trademarks and other intangible assets, an impairment charge is recorded for the difference between the carrying value and the net present value of estimated cash flows, which represents the estimated fair value of the asset. The Company uses its judgment in assessing whether assets may have become impaired between annual valuations. Indicators such as unexpected adverse, economic factors, unanticipated technological change or competitive activities, acts by governments and courts, may signal that an asset has become impaired.

19

Table of Contents

Property, plant and equipment and other long-lived assets are reviewed periodically for possible impairment in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”. The Company’s impairment review is based on an undiscounted cash flow analysis at the lowest level for which identifiable cash flows exist. The analysis requires management judgment with respect to changes in technology, the continued success of product lines, and future volume, revenue and expense growth rates. The Company conducts annual reviews for idle and underutilized equipment, and reviews business plans for possible impairment implications. Impairment occurs when the carrying value of the asset exceeds the future undiscounted cash flows. When an impairment is indicated, the estimated future cash flows are then discounted to determine the estimated fair value of the asset and an impairment charge is recorded for the difference between the carrying value and the net present value of estimated future cash flows.

The estimates and assumptions used are consistent with the business plans and estimates that the Company uses to manage its business operations. The use of different assumptions would increase or decrease the estimated value of future cash flows and would have increased or decreased any impairment charge taken. Future outcomes may also differ. If the Company’s products fail to achieve estimated volume and pricing targets, market conditions unfavorably change or other significant estimates are not realized, then the Company’s revenue and cost forecasts may not be achieved, and the Company may be required to recognize additional impairment charges. In 2003 the Company recognized an impairment charge of $2.7 million on manufacturing equipment. In 2002, the Company recognized trademark, equipment obsolescence and plant impairment charges of approximately $6.2 million.

Inventory Valuation

When appropriate, the Company provides allowances to adjust the carrying value of its inventory to the lower of cost or market (net realizable value), including any costs to sell or dispose. The Company identifies any slow moving, obsolete or excess inventory to determine whether a valuation allowance is indicated. The determination of whether inventory items are slow moving, obsolete or in excess of needs requires estimates and assumptions about the future demand for the Company’s products, technological changes, and new product introductions. The estimates as to the future demand used in the valuation of inventory are dependent on the ongoing success of its products. In addition, the Company’s allowance for obsolescence may be impacted by the rationalization of the number of stock keeping units. To minimize this risk, the Company evaluates its inventory levels and expected usage on a periodic basis and records adjustments as required. Adjustments to the inventory’s net realizable value were $3.2 million at December 31, 2003, and $5.3 million at December 31, 2002.

Valuation of Pension and Postretirement Benefit Costs

The Company’s pension and postretirement benefit costs are developed from actuarial valuations. Inherent in these valuations are key assumptions provided by the Company to our actuaries, including the discount rate and expected long-term rate of return on plan assets. Material changes in the Company’s pension and postretirement benefit costs may occur in the future due to changes in these assumptions.

The discount rate is subject to change each year, consistent with changes in applicable high-quality, long-term corporate bond indices. Based on the expected duration of the benefit payments for our pension plans and postretirement plans we refer to applicable indices such as the Moody’s AA Corporate Bond Index to select a rate at which we believe the pension benefits could be effectively settled. Based on the published rates as of December 31, 2003, the Company used a discount rate of 6.0% for both plans, a decline of 75 basis points from the 6.75% rate used in 2002. This had the effect of increasing the projected benefit obligation for pensions and the accumulated postretirement benefit obligation by approximately $1.9 million and $1.1 million, respectively, for the year ended December 31, 2003.

The expected long-term rate of return on pension plan assets is selected by taking into account a historical trend based on a 15 year average, the expected duration of the projected benefit obligation for the plans, the asset mix of the plans, and known economic and market conditions at the time of valuation. Based on these factors, the Company’s expected long-term rate of return as of December 31, 2003 is 8.25%, a decline of 50 basis points from the 8.75% rate used at December 31, 2002. A 50 basis point change in the expected long-term rate of return would result in less than a $.1 million change in pension expense for 2004.

On December 31, 2003 the accumulated benefit obligation related to our pension plans exceeded the fair value of the pension plan assets (such excess is referred to as an un-funded accumulated benefit obligation). This difference is attributed to (1) an increase in the accumulated benefit obligation that resulted from the decrease in the interest rate used to discount the projected benefit obligation to its present settlement amount from 6.75% to 6.00%, partially offset by (2) the increase in the market value of the plan assets at December 31, 2003. As a result, in accordance with SFAS No. 87, the Company recognized an additional minimum pension liability of $2.4 million included in benefit obligations, and recorded a charge, net of tax, to accumulated other comprehensive loss of $1.5 million which decreased stockholders’ equity. The charge to stockholders’ equity for the excess of additional pension liability represents a net loss not yet recognized as pension expense. Based on the aforementioned assumptions, the income statement impact for 2004 is estimated to be approximately $0.8 million charged to earnings. On a cash basis, an estimated contribution of approximately $0.7 million will be required in 2004.

20

Table of Contents

Tax Contingencies

Tax contingencies are recorded to address potential exposures involving tax positions we have taken that could be challenged by taxing authorities. These potential exposures result from the varying applications of statutes, rules, regulations and interpretations. The Company’s estimated value of tax contingencies contains assumptions based on past experiences and judgments about potential actions by taxing jurisdictions. The Company believes these tax contingencies are reasonable.

RESULTS OF OPERATIONS

The discussion of results of operations at the consolidated level is followed by a more detailed discussion of results of operations by segment. The discussion of our segment operating results is presented on a historical basis for the years ending December 31, 2003, 2002, and 2001, including the results of unconsolidated affiliates. The segment discussion also presents certain product line fluctuations.

Consolidated Results

2003 Compared to 2002

Net Sales

Net sales increased by $9.8 million or .9% to $1056.9 million, compared to $1047.1 million in the previous year. The majority of this increase was due to the additional sales stemming from the fourth quarter acquisition of the former Unilever oral care business. Other increases included the effects of foreign exchange of approximately $3.0 million and the reversal of prior period promotion reserves of approximately $1.3 million due to a change in estimate. These increases were partially offset by the Company’s change in revenue recognition policy from FOB shipping point to FOB destination point, which reduced sales by approximately $6.3 million in 2003. Last year’s sales included a similar change in promotion estimate of $5.3 million, as well as the discontinuation of certain former USA Detergents cleaners and former Carter-Wallace pet care products of approximately $8.6 million. The impact of such discontinued products was approximately $1.2 million in 2003. Adjusting for acquisitions and discontinued product lines, as well as foreign exchange, the change in revenue recognition policy, and reversal of prior period promotion liabilities, sales of existing products were $1,032.5 million in 2003 as compared to $1,033.2 million in 2002.

Operating Costs

The Company’s gross margin increased to 30.1% from 29.7% in the prior year. This increase in gross margin represents a substantial improvement in the consumer product margin partially offset by a substantial reduction in specialty products. The higher consumer products margin was due to the full-year benefits of the Carter-Wallace integration completed in 2002, as well as additional purchasing, manufacturing and distribution efficiencies associated with economies of scale achieved in 2003, partially offset by higher start-up costs and promotion expenses associated with new product introductions. The lower specialty products margin was primarily due to higher ingredient costs for the animal nutrition business.

Marketing expenses increased $2.6 million to $88.8 million. The increase was primarily associated with advertising expenses for Personal Care products, namely higher Arm & Hammer Dentifrice and Arrid brands, as well as the marketing costs associated with the newly introduced Cleaning Product Brillo Scrub N Toss, partially offset by a reduction in advertising expenses for other Personal Care products.

Selling, general and administrative expenses decreased $3.2 million. This decreases was primarily a result of the elimination of transition related expenses incurred in 2002 associated with the acquired Carter-Wallace products, and tradename impairment charges recorded in 2002, partially offset by higher personnel related expenses.

Other Income and Expenses

The increase in equity in earnings of affiliates of $7.1 million was almost entirely due to the Company’s pro-rata share in the year over year increase in earnings from Armkel LLC. Armkel’s earnings increase for the year was primarily a result of a litigation settlement in the second quarter, partially offset by an impairment of an asset held for sale for a net contribution to the Company of approximately $5 million. This increase over the prior year also reflected a strong performance by International operations, partially offset by significantly weaker Domestic results. Earnings in 2002 reflected the disproportionate recapture of $5 million of allocated losses sustained in the fourth quarter of 2001 in accordance with the terms of the Armkel joint venture agreement. (See note 6 to the consolidated financial statements for additional information.) The prior period increase was also impacted by the inventory step-up charge in the first quarter of 2002 relating to Armkel’s opening inventory values. The combined results of Company’s other equity investments, Armand Products and Armakleen, were virtually unchanged.

Investment earnings were lower as a result of lower interest rates on funds invested.

Interest expense increased $.5 million for the year even though there was a significant reduction in average debt outstanding at lower interest rates. This is because the Company recorded a $4.9 million charge to write off deferred financing costs related to previous financing transactions and settlement of interest rate swaps.

21

Table of Contents

Other income and expense includes foreign exchange gains realized by the Company’s Brazilian subsidiary, while 2002 was unfavorably affected by foreign exchange losses incurred by the same subsidiary.

Taxation

The tax rate for the year was 30.8%, compared to 34.0% in the previous year. This decrease is primarily a result of a settlement of a state tax matter as well as the resolution of other tax contingencies.

2002 Compared to 2001

Net Sales

Net sales increased by $87.4 million or 9.1% to $1047.1 million, compared to $959.7 million in the previous year. The majority of this increase was due to the additional sales in Consumer Products stemming from businesses acquired from Carter-Wallace in the fourth quarter of 2001 amounting to approximately $73.8 million, and additional sales in the Specialty Products acquisition of Biovance Products Inc. of approximately $7.1 million at the beginning of 2002. Adjusting for acquisitions and discontinued product lines, as well as the reversal of prior year promotion liabilities of approximately $5.3 million (based on latest estimates), sales of existing products increased to $925.2 million for 2002 from $907.7 million in 2001.

Operating Costs

The Company’s gross margin increased to 29.7% from 29.1% in the prior year. This improvement reflected a significant improvement in Laundry Products gross margins of 2.7 points due to the virtually full year benefits of the USA Detergents acquisition and the prior year promotion liability adjustment of $5.3 million, partially offset by a reduced gross margin of 3.9 points on Personal Care resulting from higher promotional spending related to 2002 sales, and higher manufacturing costs associated with the Cranbury production of Arrid Antiperspirant earlier in the year. To a lesser extent, gross margin was further hampered by approximately $4 million of equipment obsolescence charges related to process improvements at two plants, and downsizing and impairment charges at two other plants. The start-up costs of the Madera, California animal nutrition facility also negatively impacted gross margin.

Marketing expenses increased $11.4 million to $86.2 million. This increase was mainly due to the acquired brands and higher spending in support of deodorizing products, partially offset by lower spending on existing personal care products.

Selling, general and administrative expenses increased $8.7 million. Higher personnel related expenses and transition expenses associated with acquired products, and a $2.3 million impairment charge related to the tradename valuation of a recently acquired brand name, were partially offset by the elimination of goodwill and certain tradename amortization expense associated with the Company’s adoption of SFAS No. 142.

Other Income and Expenses

The increase in equity in earnings of affiliates was due to the inclusion of $18.1 million of allocated full year profits from Armkel LLC, which reflected a disproportionate recapture of $5 million of allocated losses sustained in the fourth quarter of 2001 (See footnote 6 for further explanation of Armkel’s results). The Company’s other equity investments, Armand Products and Armakleen, were virtually unchanged.

Investment income was slightly lower due to lower interest rates on funds invested.

Interest expense increased significantly from the prior year as a result of the Company carrying the debt used to finance the two significant acquisitions in 2001.

Other expenses consisted mostly of foreign exchange losses of approximately $2 million associated with the Company’s Brazilian subsidiary QGN.

Taxation

The effective tax rate for 2002 was 34.0%, compared to 36.4% in the previous year. The lower rate in 2002 reflected the impact of Armkel’s foreign subsidiaries, whose post-tax results were included in equity in earnings of affiliates, partially offset by a higher state tax rate.

22

Table of Contents

Segment Results

Current and prior year results by segment are presented based upon segments as described in Note 16 of the Notes to Consolidated Financial Statements.

The Company has identified its operating segments based on differences in the nature of products and organizational and ownership structures. Specifically, the Company has identified the following segments: Church & Dwight (“C&D”) Consumer, Armkel LLC (“Armkel”), C&D Specialty Products Division (“SPD”), Other Equity Affiliates (includes Armand Products Company (“Armand”) and The ArmaKleen Company (“Armakleen”)) and Corporate.

Segment revenues are derived from the sale of the following products:

The Company has 50 percent ownership interests in Armkel, Armand and Armakleen. Since the Company does not control these entities, they are accounted for under the equity method in the consolidated financial statements of the Company. However, they are included in the segment disclosures presented below because the chief operating decision maker regularly reviews their operating results and performance.

The following table presents selected financial information relating to the Company’s segments for each of the three years in the period ended December 31, 2003. All amounts are presented in thousands. The Company’s segment presentation for 2002 and 2001 has been revised from prior period presentations to separately present Armkel and Other Equity Investees, which were formerly included in the Consumer Products and Specialty Products segments, respectively. The segment discussion also presents product line fluctuations.

C&D Consumer Products

2003 compared to 2002

C&D Consumer Net Sales of the Company grew .6% to $869.0 million for the year, including the fourth quarter acquisition of the oral care brands from Unilever, partially offset by the aforementioned change in revenue recognition policy. Major factors that impacted comparative product lines performance included a $1.3 million reversal of prior year promotion reserves due to a change in estimate; last year’s sales included a similar change in promotion estimate of $5.3 million. Furthermore, C&D Consumer Net Sales were also lower due to discontinuation of some former USA Detergents cleaners and former Carter-Wallace pet care products, which impacted the Deodorizing and Cleaning Products line. Net sales of liquid laundry detergent were significantly higher and more than offset the continuing industry trend of declining powder laundry detergent sales as more and more consumers switch to the liquid form of the product in the Laundry Products line. Personal Care Products, aside from the Unilever impact, were lower in part because of a reduction in gum sales and the discontinued Breathcare line.

23

Table of Contents

C&D Consumer Income Before Taxes and Minority Interest increased $9.7 million or 15.5% to $72.8 million mostly due to an $11.6 million increase in gross profit with almost half of this increase coming from the acquired Unilever brands. The remainder of this gross profit improvement was the result of improved Laundry Product margins as well as lower manufacturing costs for Arrid Antiperspirant since its relocation to the Lakewood plant from the former Carter-Wallace Cranbury plant. Higher marketing expenses of $4.1 million were mainly in support of the newly introduced Cleaning Product Brillo Scrub N Toss, followed by higher advertising for Arrid Antiperspirant and Arm & Hammer Dentifrice, and partially offset by lower marketing costs for the gum line and the discontinued Breathcare line. Selling, general and administrative expenses were $2.0 million lower because of the elimination of transition related expenses incurred in 2002 associated with the acquired Carter-Wallace products, and tradename impairment charges recorded in 2002, partially offset by higher personnel related costs.

2002 compared to 2001

C&D Consumer Net Sales of the Company grew almost 10% in 2002 to $864.1 million, as compared to $786.9 million in 2001. Virtually all of this increase was due to the additional sales stemming from businesses acquired from Carter-Wallace in the fourth quarter of 2001 amounting to approximately $73.8 million, and to a lesser extent the reversal of prior year promotion liabilities of approximately $5.3 million (based on latest estimates).

C&D Consumer Income Before Taxes and Minority Interest of $63.1 million in 2002 were flat with 2001. Higher gross profit of $32.0 million resulted from the acquired businesses, improved Laundry Product profit margins of 2.7 points due to the virtually full year benefits of the USA acquisition, the promotion adjustment of prior year reserves of $5.3 million, partially offset by a reduced gross margin of 3.9 points on existing Personal Care Products from higher promotional spending related to 2002 sales, and higher manufacturing costs associated with the Cranbury production of Arrid Antiperspirant earlier in the year. To a lesser extent gross profit absorbed approximately $4 million of equipment obsolescence charges related to process improvements at two plants, and downsizing and impairment charges at two other plants. The marketing expense increase of $10.7 million over 2001 was mainly due to the acquired brands and higher spending in support of deodorizing products, partially offset by lower spending on existing personal care brands. Selling, general and administrative expenses increased $9.1 million over the prior year as higher personnel related expenses and transition expenses associated with acquired products, and a $2.3 million impairment charge related to a tradename valuation of a recently acquired brand name, were partially offset by the elimination of Goodwill and certain tradename amortization expense associated with the Company’s adoption of SFAS 142. Furthermore, interest expense increased $10.2 million from the prior year as a result of the Company carrying the debt used to finance the two significant acquisitions in 2001.

Armkel LLC

2003 compared to 2002

Armkel’s Net Sales increased by $26.9 million or 7.0% to $410.7 million, as compared to $383.8 million in 2002. This year’s increase was impacted by favorable foreign exchange rates of approximately $19.1 million offset by the change in revenue recognition of approximately $3.4 million. At the brand level, international sales on a constant dollar basis increased $13.3 million or 7.6% reflecting higher sales of Arm & Hammer dentifrice in the United Kingdom and Mexico, higher export sales from the United Kingdom, the addition of the Selsun brand in Australia and stronger sales of Lineance and Nair in France. These higher international sales were partially offset by a 2.6% reduction in domestic sales primarily of First Response Pregnancy Test Kits and Nair depilatories, the latter of which was impacted by weather and competitive factors.

Armkel’s Income Before Taxes and Minority Interest of $57.2 million in 2003 was $21.7 million higher than the $35.4 million in 2002. Gross profit increased $17.6 million on the higher sales and a .7% margin improvement reflecting the full year benefits of its operations integration with Church & Dwight, partially offset by start-up costs and promotion expenses associated with new product introduction. Last year’s gross profit included an $8.1 million acquisition-related inventory step-up charge. Marketing expenses increased $6.5 million above the prior year and were driven by the Lineance launch in the US, as well as increased advertising behind Arm & Hammer dentifrice products and Trojan condoms in the UK, Lineance and Nair in France and other initiatives. Selling, general and administrative expenses decreased by approximately $8.0 million mainly due to a $12.7 million settlement of litigation on pregnancy test kits, partially offset by a $3.1 million impairment charge for an asset held for sale at Cranbury, NJ. Interest expense was reduced by $2.1 million on a lower level of average debt outstanding at lower interest rates. The combination of higher gross profit, higher marketing expenses, lower selling, general and administrative expenses and lower interest expense resulted in the increase in Income Before Taxes and Minority Interest in 2003, as compared to 2002.

2002 compared to the three months ended December 31, 2001

Armkel’s Net Sales increased $306.2 million in 2002 to $383.8 million from $77.6 million in 2001. This net sales increase is primarily due to the businesses acquired from Carter-Wallace at the end of September 2001.

Armkel’s Income Before Taxes of $35.4 million in 2002 increased from the $15.4 million loss incurred during the start-up in 2001 when among full year activities Armkel recognized transition related costs, and incurred a $15.1 million charge for the step-up of opening inventory values established as part of purchase accounting. The remaining step-up of opening inventory values of $8.1 million was charged off in 2002.

24

Table of Contents

Specialty Products

2003 compared to 2002

Specialty Products Net Sales grew $4.8 million or 2.6% due to higher specialty chemicals sales, which included the impact of favorable foreign exchange rates at its subsidiaries in the United Kingdom and Brazil, partially offset by lower sales of animal nutrition products and the impact from the change in revenue recognition policy.

Specialty Products Income Before Taxes and Minority Interest decreased by $1.1 million to $15.5 million for the year. This is mainly a result of a $3.7 million decrease in gross profit due to higher manufacturing costs in certain animal nutrition and specialty chemical products, particularly a palm oil derivative used in animal nutrition. Lower gross profit along with lower marketing expenses of $1.5 million mostly in the animal nutrition products, combined with flat year over year selling, general and administrative expenses, and a $.7 million reduction in interest expense.

2002 compared to 2001

Specialty Products Net Sales grew $10.2 million or 5.9% to $183.0 million in 2002 from $172.8 million in 2001 largely as a result of the acquisition of Biovance Technologies Inc. of approximately $7.1 million at the beginning of 2002.

Specialty Products Income Before Taxes and Minority Interest declined by $3.4 million reflecting a negative impact to gross profit stemming from the start-up costs of the new Madera, California animal nutrition facility, for the production of Megalac Rumen Bypass Fats and related higher-value Megalac products for the West Coast dairy feed additives market. Gross profit was also negatively impacted by higher raw material costs for Megalac related products. These gross profit decreases were mainly offset by a higher gross profit contribution from the addition of the Biovance acquisition. A higher gross profit of approximately $1.4 million together with the Biovance acquisition helped to drive higher marketing expenses of approximately $.7 million, higher selling, general and administrative expenses of approximately $1.2 million, and higher interest costs of $2.2 million.

Other Equity Affiliates

2003 compared to 2002

Other Equity Affiliates Net Sales of Armand Products Company and ArmaKleen Company increased by $3.1 million to $48.9 million, with the increase being almost equally split between the two companies.

Other Equity Affiliates Income Before Taxes and Minority Interest were slightly ahead of the prior year reflecting better gross profit margins on the ArmaKleen cleaning businesses higher net sales, offset by lower gross margins on the Armand Products net sales because of a mix change toward more export business as the video glass industry in the US continues to experience rapid dislocation.

2002 compared to 2001

Other Equity Affiliates Net Sales of Armand Products Company and ArmaKleen Company decreased by $.7 million to $45.7 million in 2002 from 2001, largely because of lower ArmaKleen sales.

Other Equity Affiliates Income Before Taxes and Minority Interest decreased $.3 million on the lower net sales resulting in a reduction in gross profit of $.9 million which was partially offset by a $.5 million reduction in selling, general and administrative expenses principally resulting from an ArmaKleen reorganization in 2001.

Liquidity and Capital Resources

The Company had outstanding total debt of $397.0 million, and cash of $75.6 million, for a net debt position of $321.4 million at December 31, 2003. This compares to $292.1 million at December 31, 2002.

In the fourth quarter of 2001, the Company financed its investment in Armkel, the acquisition of USA Detergents and the Antiperspirant and Pet Care businesses from Carter-Wallace with a $510 million credit facility consisting of a $125 million five year term loan (Term Loan A), a $285 million six year term loan (Term Loan B) and a $100 million revolving credit facility. The entire amount of the term loans was drawn at closing and the revolving credit facility remains fully un-drawn. Term Loan A paid interest at 200 basis points over LIBOR and Term Loan B pays interest at 250 basis points over LIBOR, with interest rates determined based on the ratio of total debt to EBITDA as defined in the Company’s loan agreement (“Adjusted EBITDA”). The Term Loan A was paid off in full during the first half of 2003 primarily from the proceeds of the receivables purchase agreement and operating cash flows.

25

Table of Contents

On October 20, 2003 the Company completed its purchase of four oral care brands from Unilever in the United States and Canada. The acquisition was funded by obtaining new Tranche B Term Loans through an Amendment to the Company’s Credit Agreement dated September 28, 2001 as well as available cash. In connection with the Amendment, the Company, was provided with new Tranche B Term Loans in the amount of $250 million, which were used to replace the existing Tranche B Term Loans of approximately $150 million, and used the remaining $100 million to fund the Unilever transaction. The new Tranche B Loans, which have essentially the same terms as the replaced loans, but with more favorable interest rate provisions at 225 basis points over LIBOR, repayable in approximately $0.6 million quarterly installments through September 2006 and thereafter in substantial quarterly installments until September 2007, when the loan is fully paid. As a result of the refinancing, the Company wrote-off the balance of the deferred financing costs associated with the previous financing in the fourth quarter of 2003.

During the first quarter of 2003, the Company entered into a receivables purchase agreement with an issuer of receivables-backed commercial paper in order to refinance a portion, $60 million, of its primary credit facility. The transaction resulted in a reclassification of long-term debt to short-term debt in the Company’s Consolidated Balance Sheet. Under this arrangement, the Company sold, and will sell from time to time, throughout the 3 year term of the agreement, its trade accounts receivable to a wholly-owned, consolidated, special purpose finance subsidiary, Harrison Street Funding LLC, a Delaware limited liability company (“Harrison”). Harrison in turn sold, and will sell on an ongoing basis, to the commercial paper issuer an undivided interest in the pool of accounts receivable. The receivables assets and the short-term borrowings of Harrison are included in the consolidated financial statements of the Company. The transactions were entered into to reduce certain expenses associated with the credit facility in addition to lowering the Company’s financing costs by accessing the commercial paper market. The balance outstanding under the agreement was $56.3 million at December 31, 2003.

In early August of 2003, the Company refinanced $100 Million of its Term Loan bank debt principally through the sale of $100 million principal amount of 5.25% convertible senior debentures due on August 15, 2033 through a private placement to qualified institutional buyers. The debentures rank equal in right of payment with all of the Company’s existing and future unsecured senior indebtedness. The debentures are effectively subordinated in right of payment to all of the Company’s existing and future secured indebtedness to the extent of the value of the assets securing that indebtedness and to all of the existing and future indebtedness and other liabilities of the Company’s subsidiaries. The Company has the right to repurchase all or part of the debentures on or after August 15, 2008. Interest is paid semi-annually on August 15^th and February 15^th of each year.

On each of August 15, 2010, August 15, 2013, August 15, 2018, August 15, 2023 and August 15, 2028, or in the event of a change in control, holders may require the Company to repurchase all or any portion of the debentures at a purchase price equal to 100% of the principal amount of the debentures, plus accrued and unpaid interest to the date of repurchase. The Company must pay cash for any debentures repurchased on August 15, 2010. However, the Company may choose to pay cash, shares of its common stock, or a combination of cash of shares of its common stock for any debentures repurchased on August 15, 2013, August 15, 2018, August 15, 2023 or August 15, 2028 or following a change in control.

Holders may convert their debentures into shares of the Company’s common stock prior to maturity at a conversion rate of 21.5054 shares of common stock per each $1,000 principal amount of debentures, which is equivalent to an initial conversion price of approximately $46.50 per share, subject to adjustment in certain circumstances. The initial conversion price represents a 42.16% premium over the closing price of the Company’s common stock on August 5, 2003, which was $32.71 per share. A holder may convert the debentures into the Company’s common stock under the following circumstances: the sale price of the Company’s common stock is more that 120% of the conversion price (the “20% conversion price premium”); the trading price of a debenture falls below a specified threshold; specified credit rating events with respect to the debentures occur; the Company calls the debentures for redemption; or specified corporate transactions occur.

Because of the inclusion of the restricted convertibility feature of the debentures, the Company’s diluted net income per common share calculation does not give effect to the dilution from the conversion of the debentures until the Company’s share price exceeds the 20% conversion price premium or one of the other events described above occurs.

The issuance of debentures is reflected on the Company’s Statement of Cash Flow opposite the captions of Proceeds from long-term borrowings and Deferred financing costs.

Adjusted EBITDA is a required component of the financial covenants contained in the Company’s primary credit facility and management believes that the presentation of Adjusted EBITDA is useful to investors as a financial indicator of the Company’s ability to service its indebtedness. Adjusted EBITDA may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to cash flows from operating activities, which is determined in accordance with accounting principles generally accepted in the United States. Financial covenants include a total debt to Adjusted EBITDA leverage ratio and an interest coverage ratio, which if not met, could result in an event of default and trigger the early termination of the credit facility, if not remedied within a certain period of time. Adjusted EBITDA was approximately $151 million for the full year 2003. The leverage ratio (total debt to Adjusted EBITDA) at December 31, 2003 per the loan agreement was approximately 2.58 versus the agreement’s maximum 3.00, and the interest coverage ratio was approximately 6.13 versus the agreement’s minimum of 4.75. This credit facility is secured by a blanket lien on all of the Company’s assets. The reconciliation of Net Cash Provided by Operating Activities (the most directly comparable GAAP financial measure) to the Company’s key liquidity measure, Adjusted EBITDA, is as follows (in millions):

26

Table of Contents

During 2003, cash flow from operating activities was $117.9 million. Major factors contributing to the cash flow from operating activities included operating earnings before non-cash charges for depreciation and amortization, a decrease in working capital, in particular inventory partially offset by the net non-cash impact from the equity in earnings of affiliates. Operating cash flow together with the aforementioned new bank borrowing activity, the issuance of convertible debt and proceeds obtained through a receivables purchase agreement, described herein, were used to fund the investing activities to acquire the oral care brands from Unilever, and to pay for additions to property, plant and equipment. Remaining cash was used to make both voluntary and mandatory debt repayments and the proceeds from stock options exercised helped to pay cash dividends.

In 2002, operating cash flow was $113.8 million. Major factors contributing to the cash flow from operating activities included operating earnings before non-cash charges for depreciation and amortization, and a significant reduction in working capital, particularly inventories, offset by the net non-cash impact from the equity in earnings of affiliates. Operating cash flow was used for additions to property, plant and equipment and to consummate the acquisition of Biovance. Operating cash together with proceeds from stock options exercised and a collected note receivable, were used to make both voluntary and mandatory debt repayments and to pay cash dividends.

Commitments as of December 31, 2003.

The table below summarizes the Company’s material contractual obligations and commitments as of December 31, 2003.

27

Table of Contents

The Company generally relies on operating cash flows supplemented by borrowings to meet its financing requirements. Our diverse product offerings, strong brand names and market positions have provided a stable base of cash flow. Our diverse product line is marketed through multiple distribution channels, reducing our dependence on any one category or type of customer. Similar to other basic consumer products, we believe that consumers purchase our products largely independent of economic cycles. However, the Company’s ability to meet its financial obligations depends on successful financial and operating performance. The Company cannot guarantee that its business strategy will succeed or that it will achieve the anticipated financial results. The Company’s financial and operational performance depends upon a number of factors, many of which are beyond its control. These factors include:

The Company cannot give assurance that it will generate sufficient cash flow from operations or that it will be able to obtain sufficient funding to satisfy all its obligations, including those noted above. If the Company is unable to pay its obligations, it will be required to pursue one or more alternative strategies, such as selling assets, refinancing or restructuring indebtedness or raising additional equity capital. However, the Company cannot give assurance that any alternative strategies will be feasible or prove adequate to satisfy its obligation.

The Company has a total debt-to-capital ratio of approximately 48%. At December 31, 2003 the Company had $100 million of additional domestic borrowing capacity available through its revolving credit agreement. Capital expenditures in 2004 are expected to be moderately lower than the level of the prior year. Management believes that operating cash flow, coupled with the Company’s access to credit markets, will be sufficient to meet the anticipated cash requirements for the coming year.

Armkel

The Armkel venture was initially financed with $229 million in equity contributions, of which approximately $112 million was contributed by the Company, and an additional $445 million of debt.

Armkel LLC had outstanding long-term debt of $367 million, and cash less short-term debt of $69 million, for a net debt position of $298 million at year-end. In addition, Armkel had unused revolving credit bank lines of $85 million. Any debt on Armkel’s balance sheet is without recourse to the Company.

Under the terms of its joint venture agreement with Kelso, the Company has a call option to acquire Kelso’s interest in Armkel in three to five years after the closing, at fair market value as defined in the agreement subject to a floor and a cap. If the Company does not exercise its call option, then Kelso may request the Company to purchase its interest. If the Company elects not to purchase Kelso’s interest, then Kelso’s and the Company’s equity in the joint venture may be offered to a third party. If such a sale should occur, depending on the proceeds received, the Company may be required to make a payment to Kelso up to an amount of approximately $112 million. Kelso also may elect to have the Company purchase its interest for $112 million. This amount is not payable until the eighth year from the formation of the venture. Finally, Kelso may require the Company to purchase its interest upon a change in control as defined in the joint venture agreement. The venture’s Board has equal representation from both the Company and Kelso.

If the Company were to exercise its call option, it would likely incur additional debt; however, that decision would be made only after a number of financing alternatives were considered.

OTHER ITEMS

Market Risk

Concentration of Risk

A group of three C&D Consumer customers accounted for approximately 26% of consolidated net sales in 2003, including a single customer Walmart, which accounted for approximately 17%. A group of three C&D Consumer customers accounted for approximately 23% of consolidated net sales in 2002, including Walmart, which accounted for approximately 16%. This group accounted for 23% in 2001.

As part of the USA Detergents merger agreement, the Company divested USA Detergents non-laundry business and other non-core assets to former USA Detergents executives under the new company name of USA Metro, Inc. (“USAM”), subsequently renamed USA Detergents (“USAD”).

The Company has a concentration of risk with USAD at December 31, 2003 in the form of trade accounts receivable and an amount due for leased space of approximately $3.2 million, a 16% equity interest in USAD of $0.4 million and a note receivable for other assets of $2.0 million-payments start with the beginning of 2006. This note has a carrying value of approximately $1.4 million using an effective interest rate of 17%.

Should USAD be unable to meet these obligations, the impact would have an adverse effect on the Company’s Consolidated Statement of Income.

28

Table of Contents

Interest Rate Risk

The Company’s primary domestic borrowing facility is made up of a $ 510 million (amended) credit agreement of which $230.0 million remained outstanding as of December 31, 2003; and $100 million of a revolving credit agreement all of which was un-drawn at December 31, 2003. The Company entered into a receivables purchase agreement with the issuer of receivables-backed commercial paper in order to refinance a portion of its primary borrowing facility. The balance outstanding under this agreement was $56.3 million at December 31, 2003. During the third quarter of 2003, the Company also refinanced $100 million of its primary borrowing facility through the sale of $100 million principal amount of 5.25% fixed rate convertible senior debentures due on August 15, 2033. The weighted average interest rate on all these borrowings at December 31, 2003, excluding deferred financing costs and commitment fees, was approximately 3.7% including the effect of hedges. The Company entered into interest rate swap agreements to reduce the impact of interest rate fluctuations on this debt, as required by the credit agreement. The swap agreements are contracts to exchange floating rate for fixed interest rate payments periodically over the life of the agreements without the exchange of the underlying notional amounts. As of December 31, 2003, the Company entered into agreements for a notional amount of $56 million, swapping debt with a one- month LIBOR rate for a fixed rate that averages 4.0%. As a result, the swap agreements eliminate the variability of interest expense for that portion of the Company’s debt. On an annualized basis a drop of 10% in interest rates would result in a $.4 million payment under the swap agreement in excess of what would have been paid based on the variable rate. However, a 10% increase in interest rates would result in a $.3 million increase in interest expense on the debt not hedged.

The Company’s domestic operations and its Brazilian subsidiary have other short and long- term debts that are floating rate obligations. If the floating rate were to change by 10% from the December 31, 2003 level, annual interest expense associated with the floating rate debt would be immaterial.

Foreign Currency

The Company is subject to exposure from fluctuations in foreign currency exchange rates, primarily U.S. Dollar/British Pound, U.S. Dollar/Canadian Dollar and U.S. Dollar/Brazilian Real.

The Company, from time to time, enters into forward exchange contracts to hedge anticipated but not yet committed sales denominated in the Canadian dollar, the British pound and the Japanese Yen. The terms of these contracts are for periods of under 12 months. The purpose of the Company’s foreign currency hedging activities is to protect the Company from the risk that the eventual dollar net cash inflows from the sale of products to foreign customers will be adversely affected by changes in exchange rates. The Company did not have any forward exchange contracts outstanding at December 31, 2003 and December 31, 2002.

The Company is also subject to translation exposure of the Company’s foreign subsidiary’s financial statements. A hypothetical 10% change in the exchange rates for the U.S. Dollar to the Canadian Dollar, the British Pound and the Brazilian Real from those at December 31, 2003 and 2002, would result in an annual currency translation gain or loss of approximately $.5 million in 2003 and $.3 million in 2002.

Equity Derivatives

The Company has entered into equity derivative contracts of its own stock in order to minimize the impact on earnings resulting from fluctuations in market price of shares in the Company’s deferred compensation plan. These contracts, which consist of cash settled call options in the amount of 185,000 shares, hedge approximately 50% of the shares related to the plan and are marked to market through earnings. As a result, the Company recognized income of approximately $1.5 million in 2003, and $.4 million in 2002, which reduced the charge for deferred compensation.

Related Party Transactions

The Company has achieved substantial synergies by combining certain of its operations with those of Armkel, particularly in the areas of sales, manufacturing and distribution, and most service functions. Armkel has retained its core marketing, research & development, and financial planning capabilities, and continues to manufacture condoms, but purchases virtually all the support services it requires for its U.S. domestic business from the Company under a management services agreement, which has a term of five years with possible renewal.

During 2003, the Company invoiced Armkel $24.4 million for administrative services, purchased $1.9 million of deodorant anti-perspirant inventory produced by Armkel at its cost and sold $2.9 million of Arm & Hammer products that were sold in international markets. The Company has an open receivable from Armkel at December 31, 2003 of approximately $6.7 million that primarily related to administrative services.

As noted in the Concentration of Risk section of this exhibit, the Company divested USA Detergents non-laundry business and other non-core assets to former USA Detergents executives concurrent with the merger agreement. The Company has a 16% ownership interest in the newly formed company USAD. The Company supplies USAD with certain laundry and cleaning products it produces to meet the needs of the markets USAD is in at cost plus a mark-up. In addition, the Company leases manufacturing and office space to USAD under a separate agreement.

29

Table of Contents

During 2003, the Company sold $21.8 million of laundry and cleaning products to USAD. Furthermore, the Company billed USAD $.5 million and USAD billed the Company $.2 million for leased space. For open amounts receivable at December 31, 2003, see Concentration of Risk section on page 28.

The Company’s only financial interest in Armkel and USAD is the Company’s direct equity investments in Armkel and USAD. The Company has no relationship with the other equity holders of Armkel and USAD, respectively. For this reason, the Company believes it has no incentive to negotiate with either Armkel or USAD in a manner that is not in the best interests of its stockholders generally.

Recent Accounting Pronouncements

In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The effective date for the Company was January 1, 2003. The adoption of SFAS No. 143 did not have a material impact on the Company’s financial statements.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“Interpretation”). The Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair market value of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions of the Interpretation apply on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of this Interpretation did not have a material impact on the Company’s financial statements.

In December 2002, the FASB issued Statement No 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 was effective for the year ended December 31, 2002 and for interim financial statements for the first quarter of 2003. The Company has not elected to voluntarily change its stock compensation accounting method.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement was effective for contracts entered into or modified after June 30, 2003, with certain exceptions. The adoption of the provisions of SFAS 149 did not have an impact on the Company’s consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, which aims to eliminate diversity in practice by requiring that the “freestanding” financial instruments be reported as liabilities by their issuers. The provisions of SFAS 150, which also include a number of new disclosure requirements, were effective for instruments entered into or modified after May 31, 2003 and for pre-existing instruments as of the beginning of the first interim period that commences after June 15, 2003. The adoption of the provisions of SFAS 150 did not have an impact on the Company’s consolidated financial statements.

In January 2003, the FASB issued Financial Interpretation No. 46, (FIN No. 46) “Consolidation of Variable Interest Entities.” FIN No. 46 sets forth criteria to be used in determining whether an investment in a variable interest entity (VIE) should be consolidated and is based on the general premise that companies that control another entity through interests other than voting interests should consolidate the controlled entity. FIN No. 46 would require the immediate consolidation of specified VIEs created after January 31, 2003. For specified VIEs created before February 1, 2003, FIN No. 46 would require consolidation in interim or annual financial statements issued for periods beginning after December 15, 2003. The Company has evaluated the impact of FIN 46 with regard to Armkel LLC, the Armand Products Joint Venture and the Armakleen Company and has determined that none of these investments qualifies as a VIE.

In December 2003, the FASB issued a revised version of SFAS No. 132, “Employers Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106.” This Statement retained the disclosure requirements as originally included in SFAS No. 132 and contained additional disclosure requirements. The Company has included the required disclosures in Note 11 to its financial statements.

In January 2004, the FASB issued FASB Staff Position (FSP) No. 106-1 “Accounting and Disclosure Requirements to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the Act). The Act introduces a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The FSP permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Act. The Company’s Consolidated Financial Statements or notes do not reflect the effects of the Act on the postretirement health care plan and specific guidance on the accounting for the deferral subsidy is pending and once guidance is issued, could require the Company to change previously reported information.

30

Table of Contents

Competitive Environment

Many of our competitors are large 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. These companies have the capacity to outspend the Company in an attempt to gain market share.

Because of the competitive environment facing retailers, the Company faces pricing pressure from these customers, particularly the high-volume retail store customers, who have increasingly sought to obtain pricing concessions or better trade terms. These concessions or terms could reduce the Company’s margins. Furthermore, if the Company is unable to maintain price or trade terms acceptable to its trade customers, the customers could increase product purchases from our competitors, which would harm the Company’s sales and profitability.

Consumer products, particularly those that are value-priced, such as laundry and household cleaning products, are subject to significant price competition. 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.

The Company has entered the oral care and personal care and deodorizing 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 requiring heavy advertising and promotion.

In the toothpaste category, after leading its category in growth several years ago, driven by the success of ARM & HAMMER ADVANCE WHITE toothpaste, the Company’s share dropped in both 2002 and 2003 mainly as a result of competitive new products and aggressive spending by other manufacturers in the category.

In the personal care category, several new products and line extensions in oral care were expanded during the final quarter of 2001, in particular ARM & HAMMER ADVANCE BREATH CARE, a line of oral deodorization products including mouthwash, mints and toothpaste. This oral care line of products did not live up to our expectations in 2002 and 2003 particularly since key retailers started moving away from mints and therapeutic gums in the oral care aisle of the store. Because this trend cannot be halted or reversed, this particular line of products is being discontinued.

In 2003, the Company announced several new consumer product initiatives. 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. To strengthen its toothpaste franchise, the Company introduced ARM & HAMMER COMPLETE CARE, the first ARM & HAMMER all-in-one toothpaste. In the laundry area, the Company launched ARM & HAMMER FRESH ‘N SOFT Liquid Fabric Softener as a companion product to the existing fabric softener dryer sheets. These products all reached broad national distribution during the second quarter. In addition, beginning in the second quarter, the Company launched BRILLO SCRUB ‘N TOSS, a disposable cleaning pad, and the Company’s first major extension to the BRILLO line. These introductions usually involve heavy marketing costs in the year of launch, and the eventual success of these new product and line extensions will not be known for some time.

During the fourth quarter of 2003, the Company completed the national distribution of ARM & HAMMER^® EASY FLUSH Clumping Cat Litter, a major new addition to its cat litter line. The Company also repackaged its XTRA Liquid Laundry Detergent line in vibrant new bottle colors cued to the product’s fragrance variants, and expanded distribution of this product line in the mass channel.

Early in 2004, the Company launched ARM & HAMMER ENAMEL CARE toothpaste, its most important oral care innovation in several years. Enamel Care is based on proprietary formulation and packaging technology which combines the cleaning and whitening properties of baking soda with fluoride and patented liquid calcium in a dual chamber tube to fill tooth surfaces and restore enamel luster. The product is available in two variants: Advanced Cleaning and Natural Whitening. In addition, the entire ARM & HAMMER toothpaste line has been re-staged with new packaging graphics designed to return the brand to its original emphasis on therapeutic benefits. Other important personal care initiatives, early in 2004, include additions to the ARRID TOTAL and ARM & HAMMER ULTRAMAX antiperspirant lines.

In the Specialty Products business, competition within the two major product categories, sodium bicarbonate and potassium carbonate, remained intense in 2003. Sodium bicarbonate sales have been negatively impacted for several years by nahcolite-based sodium bicarbonate manufacturers. As for potassium carbonate, the Company expects imports of video glass and production from foreign suppliers to affect U.S. demand in 2004 as it did in 2003.

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 impacted by Safety-Kleen’s financial difficulties leading to a Chapter 11 filing in June of 2000, and a major reorganization implemented during the second half of that year. Since then Safety-Kleen Corp. has emerged from its bankruptcy in 2003. While this opportunity has demonstrated more stability in 2003 and continues to hold great promise, the outcome will not be known for some time.

31

Table of Contents

Cautionary Note on Forward-Looking Statements

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.

Based on composite trades reported by the New York Stock Exchange.

Approximate number of holders of Church & Dwight’s Common Stock as of December 31, 2003: 10,000.

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 28 through 30 of this annual report on Form 10-K.

32

Table of Contents

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME