10-QPeriod: Q2 FY2002

CHURCH & DWIGHT CO INC /DE/ Quarterly Report for Q2 Ended Jun 28, 2002

Filed August 9, 2002For Securities:CHD

Summary

Church & Dwight Co., Inc. reported a strong second quarter and first half of 2002, with net sales increasing by 12.6% for the quarter and 12.9% year-to-date. This growth was primarily driven by the inclusion of recently acquired businesses, notably Arrid antiperspirant and Lambert Kay pet care products from the Carter-Wallace acquisition, and Biovance Technologies in the animal nutrition segment. Net income saw a significant increase of 36% for the quarter, reaching $18.7 million ($0.47 basic EPS), and a 31% increase year-to-date to $33.6 million ($0.85 basic EPS). This improved profitability reflects the successful integration of acquisitions, despite some pressure on gross margins due to startup costs at a new animal nutrition facility and higher marketing expenses. The company's financial position remains solid, with increased cash reserves and sufficient liquidity to meet ongoing needs.

Key Highlights

  • 1Net sales increased by 12.6% for the quarter ended June 28, 2002, reaching $258.5 million, driven by acquisitions.
  • 2Net income grew by 36% in the second quarter to $18.7 million, with diluted earnings per share at $0.45.
  • 3Year-to-date net sales increased by 12.9% to $515.3 million, with net income up 31% to $33.6 million.
  • 4The company adopted new accounting standards for sales incentives (EITF 00-14, 00-25, 01-9), reclassifying certain costs from marketing expense to a reduction of revenue.
  • 5Goodwill and intangible assets are no longer amortized following the adoption of SFAS 142, which positively impacted reported earnings per share.
  • 6Cash and cash equivalents increased to $75.3 million at June 28, 2002, from $52.4 million at December 31, 2001, indicating improved liquidity.
  • 7Interest expense increased significantly due to debt financing for recent acquisitions.

Frequently Asked Questions

Sales growth was primarily driven by the inclusion of recently acquired businesses, including the Arrid antiperspirant and Lambert Kay pet care products from the Carter-Wallace acquisition, and Biovance Technologies in the animal nutrition segment. Organic growth in consumer sales was around 4%.

The adoption of EITF 00-14, 00-25, and 01-9 required the company to reclassify certain sales incentives and promotional costs from marketing expense to a direct reduction of net sales. This change impacted the presentation of net sales but did not affect net income. Additionally, the non-amortization of goodwill and certain intangibles due to SFAS 142 improved reported earnings per share compared to prior periods.

The company's liquidity appears strong, with cash and cash equivalents increasing to $75.3 million. Combined with an unused revolving credit facility of $100 million, the company believes it has sufficient resources to meet its liquidity needs. Operating activities generated $46.5 million in cash flow for the first half of the year.

The company is involved in legal action brought by former shareholders of Carter-Wallace regarding the fairness of consideration received. Armkel could be liable for up to $12 million, and Church & Dwight for up to $2 million, under indemnification agreements. The company also faces various other legal actions in the ordinary course of business, but management believes these will not have a material adverse effect.