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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10585
Date of the report (Date of earliest event reported): October 20, 2003
--------------------------------------------
CHURCH & DWIGHT CO., INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-4996950
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation)
469 North Harrison Street, Princeton, New Jersey 08543
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (609) 683-5900
N/A
(Former Name or Former Address, if Changed Since Last Report)
--------------------------------------------
The Company is filing this amendment to its Form 8-K filed on November 4, 2003
to provide financial information responsive to Item 7, Financial Statements and
Exhibits, with regard to the purchase of the Oral Care Business from Unilever.
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Table of Contents
Page
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired 1-17
(b) Pro forma financial information 18-23
(c) Exhibit 23 - Consent of Independent Auditors 24
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of business acquired.
(i) Unilever Home & Personal Care North America-Oral Care Business
AUDITED ANNUAL COMBINED FINANCIAL STATEMENTS
Page
Report of Independent Auditors 3
Combined Statement of Net Assets Sold at December 31, 2002 4
Combined Statement of Revenues and Expenses For the Year ended December 31, 2002 5
Notes to Combined Financial Statements 6-11
UNAUDITED INTERIM COMBINED FINANCIAL STATEMENTS
Combined Statement of Net Assets Sold at September 27, 2003 13
Combined Statements of Revenues and Expenses for the Nine Months Ended September 27, 2003
and September 28, 2002 14
Notes to Unaudited Combined Statements 15-17
1
Unilever Home & Personal Care North America
Oral Care Business
Combined Financial Statements
At and for the year ended
December 31, 2002
2
Report of Independent Auditors
To The Board of Directors of Conopco, Inc.:
We have audited the accompanying combined statement of net assets sold of the
Oral Care Business of Unilever Home & Personal Care North America, a division of
Conopco, Inc., a wholly owned subsidiary of Unilever N.V. and Unilever PLC, as
of December 31, 2002 and the related combined statement of revenues and expenses
("combined statements") for the year then ended. These combined statements are
the responsibility of the Unilever Home & Personal Care North America
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying combined statements were prepared to present the assets sold
less liabilities assumed and the net sales, cost of sales, direct and overhead
expenses of the Oral Care Business of Unilever Home & Personal Care North
America pursuant to a purchase agreement as described in Note 1 and are not
intended to be a complete presentation of the Oral Care Business of Unilever
Home & Personal Care North America's financial position, results of operations
and cash flows.
In our opinion, the combined statements referred to above present fairly, in all
material respects, the net assets sold of the Oral Care Business of Unilever
Home & Personal Care North America at December 31, 2002 and the related revenues
and expenses, as described in Note 1, for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
PricewaterhouseCoopers LLP
Stamford, CT
December 16, 2003
3
Unilever Home & Personal Care North America
Oral Care Business
Combined Statement of Net Assets Sold
At December 31, 2002
(Dollars in thousands)
--------------------------------------------------------------------------------
Assets:
Inventories, net $ 10,746
Equipment, net 14,984
------------
Total Assets 25,730
------------
Accrued Liabilities 913
Commitments & Contingencies (Notes 6 and 8)
------------
Net Assets Sold $ 24,817
============
The accompanying notes are an integral part of these
combined financial statements.
4
Unilever Home & Personal Care North America
Oral Care Business
Combined Statement of Revenues and Expenses
For the Year Ended December 31, 2002
(Dollars in thousands)
--------------------------------------------------------------------------------
Net sales $ 165,319
Cost of sales 72,996
-----------
Gross profit 92,323
Advertising and promotion 11,999
Research and development 2,753
-----------
Product contribution 77,571
Overhead expenses 14,570
-----------
Net Product Contribution after Overhead Expenses $ 63,001
===========
The accompanying notes are an integral part of these
combined financial statements.
5
Unilever Home & Personal Care North
America
Oral Care Business
Notes to Combined Financial Statements
--------------------------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------
1. Description of Oral Care Business
The accompanying combined statements of net assets sold and revenues
and expenses present the assets sold less the liabilities assumed and
the net sales, cost of sales, direct and overhead expenses of the Oral
Care Business of Unilever Home & Personal Care North America ("HPC
NA"), a division of Conopco, Inc. ("Conopco") which is wholly owned by
Unilever N.V. and Unilever PLC (collectively, the "Unilever Group").
These accompanying combined financial statements have been prepared
pursuant to the purchase agreement (the "Purchase Agreement") between
Conopco and Church & Dwight Co., Inc. dated September 9, 2003. Church &
Dwight Co., Inc. has acquired certain assets, consisting of inventories
and equipment (pursuant to section 1.02 of the Purchase Agreement), and
assumed certain liabilities, relating to product returns and the
redemption of consumer coupons (pursuant to section 1.04 of the
Purchase Agreement).
The Oral Care Business presented in the combined statements of net
assets sold and revenues and expenses is comprised of a range of oral
care products that are manufactured, marketed and distributed in the
United States, Canada and Puerto Rico, and exported to foreign markets.
Specifically, the Oral Care Business consists of: Mentadent, which
includes toothpaste, toothbrushes and whitening kits, Close-Up
toothpaste, Aim toothpaste and Pepsodent toothpaste. The combined
statements of net assets sold and revenues and expenses specifically
exclude oral care sales by other Unilever Group companies outside of
HPC NA.
2. Basis of Presentation
Complete financial statements of the Oral Care Business have not been
prepared as HPC NA does not maintain the business as a separate
reporting unit and does not prepare separate financial statements in
accordance with generally accepted accounting principles in the United
States of America in the normal course of business. The accompanying
combined financial statements were prepared from the accounting records
of HPC NA and include all revenues and expenses either directly
attributable to or allocated to the Oral Care Business and certain
costs provided by the Unilever Group and its affiliates either directly
attributable to or allocated to the Oral Care Business. Balance sheet
amounts such as cash, accounts receivable, other receivables, accounts
payable, accruals (other than those specifically identified relating to
product returns and the redemption of consumer coupons) and other
payables, and equity are considered excluded from the combined
statement of net assets sold in accordance with the terms of the
Purchase Agreement. These combined statements are not intended to be a
complete presentation of the financial position and results of the Oral
Care Business.
As the Oral Care Business has been integrated within HPC NA, it relies
on HPC NA, the Unilever Group and its affiliates to provide certain
services to the Oral Care Business. All costs associated with managing
the Oral Care Business in North America including those of regional
management have been allocated to the Oral Care Business based on net
sales. Global management costs not directly attributable to the Oral
Care Business have not been allocated to the Oral Care Business.
These financial statements have been presented on a combined basis
because the selected brands within the Oral Care Business are under
common control. All significant intra-brand transactions and balances
within the Oral Care Business have been eliminated.
6
Unilever Home & Personal Care North America
Oral Care Business
Notes to Combined Financial Statements
--------------------------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------
3. Summary of Significant Accounting Policies
Revenue Recognition
Net sales to third parties are recognized upon delivery when title and
risk of loss pass to the customer. Sales are recorded net of returns,
pricing and cash discounts and other rebates. Export sales are
recognized at the time goods leave the point of embarkation, when title
and risk of loss pass to the customer.
Net Sales
Net sales represent gross sales to 3rd parties, less returns, cash
discounts, as well as, customer discounts, coupons, slotting fees and
cooperative advertising allowances made to wholesale customers.
Cost of Sales
Cost of sales are comprised of various internally driven allocations as
well as costs directly attributable to the manufacturing process.
Production costs such as material costs represent a direct charge to
the respective brand production. Other production costs such as
depreciation, direct labor, heat, light and power, repairs and
maintenance and internal transport are allocated based on production
line hours. Supply costs, such as warehousing and customer transport,
are allocated based on pallet throughput and shipping weights,
respectively. Other supply costs, such as buying and planning and
supply support have been allocated based on their pro-rata share of
production costs.
Overhead Expenses
Overhead expenses consist of costs related to personnel, third party
consulting services, supplies, depreciation, repairs and maintenance,
heating, lighting, apportionment of building related charges and other
expenses of operating the Oral Care Business other than those included
in product contribution. In addition, overhead expenses also include
costs from the Unilever Group and its affiliates to provide management,
administrative and other services including, but not limited to,
selling activities, broker commissions, central marketing, information
systems, accounting and financial reporting, treasury, cash management,
human resources, employee benefit administration, payroll, legal and
certain other support. These overhead expenses are either directly
attributable to or have been allocated to the Oral Care Business based
on net sales.
Inventories
Inventories are comprised of finished goods, work-in-progress, and raw
and packaging materials and are stated at the lower of cost or market
based on the first-in, first-out method. The value of finished goods
on-hand includes shipping and handling costs incurred for
transportation from the point of manufacture to distribution centers.
The value of finished goods on-hand also includes costs allocated from
capitalized manufacturing variances at year-end. Appropriate provisions
are made for slow-moving and obsolete inventory as necessary based on
future salability of product.
7
Unilever Home & Personal Care North America
Oral Care Business
Notes to Combined Financial Statements
--------------------------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------
Equipment
Equipment for the Oral Care Business is stated at cost. Depreciation is
determined principally using the straight-line method over the
estimated useful lives of the assets. Estimated useful lives of assets
are:
Machinery and equipment 5 - 16 years
Dies and molds 3 years
Major renewals and betterments are capitalized to the equipment
accounts while minor replacements, maintenance and repairs, which do
not extend the useful lives of the assets, are expensed as incurred.
Long-Lived Assets
Management reviews all long-lived assets for impairment and writes such
assets down to fair value whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. For assets
held for use, management performs undiscounted cash flow analyses to
determine if impairment exists. Impairments are recognized whenever the
expected future cash flows derived from such assets are less than such
assets' carrying value.
Foreign Currency Translation
The financial statements of operations outside of the United States are
maintained in their local currencies. Assets of operations outside of
the United States are translated from their respective functional
currencies to U.S. dollars using exchange rates in effect at the end of
the reporting period. Amounts in the combined statement of revenues and
expenses are translated using the average exchange rates in effect
during the period.
Advertising & Promotions
Advertising includes agency fees and commissions as well as production
and media costs for television, magazines, radio and other media
channels. Advertising costs incurred to produce media advertising are
expensed in the year when the advertising first occurs; other
advertising costs are expensed when incurred.
Promotions include funds used for printing and distribution of coupons
and related freight costs, development and distribution of consumer
samples, promotional materials and related distribution, and
development of display units used for marketing, all of which have
separable and identifiable benefits apart from the sales and for which
the Oral Care Business incurs costs. These costs are expensed as
incurred.
Research & Development
Research includes both consumer and trade marketing research.
Development encompasses the development of products, processes,
materials and packaging from date of conceptual formation up to
production, including design, testing and construction of prototypes.
Research and development costs are expensed as incurred.
8
Unilever Home & Personal Care North America
Oral Care Business
Notes to Combined Financial Statements
--------------------------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------
Use of Estimates
The preparation of combined financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates that affect the amounts
reported in the combined statements and accompanying notes. The most
significant estimates relate to inventory valuation, useful lives of
property, plant and equipment, reserves related to returns, and trade
and promotional allowances, and allocations of costs not directly
attributable to the Oral Care Business. Actual results may differ from
those estimates.
4. Inventories, net
At December 31, 2002, inventories of the Oral Care Business consist of
the following:
Finished goods $ 9,234
Raw, packaging materials, and work-in-progress 1,536
Reserve for slow-moving and obsolescence (24)
-----------
$10,746
===========
The raw, packaging and work-in-progress of the Mentadent Brand
Whitening Kit product are not included in the statement of net assets
sold as they were not considered assets sold in accordance with the
Purchase Agreement.
In accordance with the terms of the Purchase Agreement, finished goods
inventories were acquired by Church & Dwight Co., Inc. upon the
closing. Raw, packaging materials, and work-in-progress will be
acquired by Church & Dwight Co., Inc. upon the completion of the
Transition Services Agreement (See Note 10).
5. Equipment
At December 31, 2002, equipment of the Oral Care Business consisted of
the following:
Machinery and equipment $ 31,499
Dies and molds 3,505
-----------
35,004
Less: accumulated depreciation 20,020
-----------
$ 14,984
===========
Depreciation expense related to the net assets sold of the Oral Care
Business totaled $2,716 for the year ended December 31, 2002. Total
depreciation as reflected in the combined statements of revenues and
expenses, which includes depreciation associated with all assets
related to production and operation of the Oral Care Business
regardless of whether such assets were sold was $5,028 for the year
ended December 31, 2002.
9
Unilever Home & Personal Care North America
Oral Care Business
Notes to Combined Financial Statements
--------------------------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------
6. Leases
Lease expense, principally relating to facilities and equipment in
Jefferson City, MO, amounted to $368 for the year ended December 31,
2002. A portion of these charges was allocated to the Oral Care
Business based on pallet throughput.
The minimum lease payments required by operating leases that have
initial or remaining noncancelable lease terms in excess of one year at
December 31, 2002 are:
2003 $ 279
2004 225
2005 138
2006 95
2007 73
Thereafter 60
-----------
$ 870
===========
Future lease commitments are not conveyable obligations to Church &
Dwight Co., Inc.
7. Related Party
The combined statements reflect only net sales and related cost of
sales to 3rd parties. These businesses also sell to other Unilever
entities outside North America. Had these statements incorporated such
related party sales, additional amounts of $9 in net sales would have
been recognized for the year ended December 31, 2002.
8. Commitments & Contingencies
In the normal course of business, the Oral Care Business may be a party
to claims, disputes, and legal and regulatory proceedings. Management
provides for these legal matters where it is probable that a liability
has been incurred and the amount of cost could be reasonably estimated.
While the ultimate outcome of these claims and lawsuits cannot be
readily determined, it is the opinion of management that such claims
and lawsuits, individually or in the aggregate, will not have a
material adverse effect on the net assets sold or revenues and expenses
of the Oral Care Business.
In the normal course of business, the Oral Care Business has
commitments related to future promotion, advertising and market
research programs. These commitments are generally made approximately
two to four months in advance of the expenditure. In accordance with
the terms of the Purchase Agreement, promotion, advertising and market
research commitments of approximately $8,135 become an obligation of
Church & Dwight Co., Inc.
10
Unilever Home & Personal Care North America
Oral Care Business
Notes to Combined Financial Statements
--------------------------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------
9. Concentration of Credit Risk
Wal-Mart, encompassing Wal-Mart stores and Sam's Warehouse, represented
approximately one quarter of total sales for the Oral Care Business for
the year ended December 31, 2002. Apart from this concentration of
sales with Wal-Mart, management believes credit risk is limited due to
the large number of the remaining customers and their dispersion across
the United States and Canada.
10. Transitional Services Agreement
Pursuant to the Purchase Agreement, Conopco and Church & Dwight Co.,
Inc. entered into a transitional services agreement whereby Conopco
will be a provider of certain business services for an agreed pricing.
The principal business activities include order placement, product
shipping, reporting, customer data transfer, inventory management,
production planning, forecasting, manufacturing, storage, and
management of direct marketing and trade deals. The agreed monthly
pricing ranges from a flat fee of $100 for selling and administrative
services, approximately $230 for research and development services and
actual charges for other specified costs. In accordance with the terms
of the Purchase Agreement, the services provided by the transitional
services agreement will extend from the Closing Date, as defined in the
Purchase Agreement, to January 16, 2004.
11
Unilever Home & Personal Care North America
Oral Care Business
Unaudited Combined Financial Statements
At September 27, 2003 and for the nine months ended September 27, 2003 and
September 28, 2002
12
Unilever Home & Personal Care North America
Oral Care Business
Unaudited Combined Statement of Net Assets Sold
At September 27, 2003
--------------------------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------
Assets:
Inventories, net $ 11,870
Equipment, net 12,651
-----------
Total Assets 24,521
-----------
Accrued Liabilities 1,153
-----------
Commitments & Contingencies (Note 6)
Total Net Assets Sold $ 23,368
===========
13
Unilever Home & Personal Care North America
Oral Care Business
Unaudited Condensed Combined Statements of Revenues and Expenses
For the Nine Months Ended September 27, 2003 and September 28, 2002
--------------------------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------
Sept. 27, 2003 Sept. 28, 2002
-------------- --------------
Net Sales $ 93,563 $ 123,918
Cost of Sales 47,367 51,451
--------- ----------
Gross Profit 46,196 72,467
Advertising and Promotion 7,033 10,560
Research and Development 2,319 2,115
--------- ----------
Product Contribution 36,844 59,792
Overhead Expenses 8,840 10,833
--------- ----------
Net Product Contribution after Overhead Expenses $ 28,004 $ 48,959
========= ==========
14
Unilever Home & Personal Care North
America
Oral Care Business
Notes to Unaudited Combined Financial Statements
--------------------------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------
1. Description of Oral Care Business
The accompanying unaudited combined statements of net assets sold and
revenues and expenses present the assets sold less the liabilities
assumed and the net sales, cost of sales, direct and overhead expenses
of the Oral Care Business of Unilever Home & Personal Care North
America ("HPC NA"), a division of Conopco, Inc. ("Conopco") which is
wholly owned by Unilever N.V. and Unilever PLC (collectively, the
"Unilever Group"). These accompanying unaudited combined financial
statements have been prepared pursuant to the purchase agreement (the
"Purchase Agreement") between Conopco and Church & Dwight Co., Inc.
dated September 9, 2003. Church & Dwight Co., Inc. has acquired certain
assets, consisting of inventories and equipment (pursuant to section
1.02 of the Purchase Agreement), and assumed certain liabilities,
relating to product returns and the redemption of consumer coupons
(pursuant to section 1.04 of the Purchase Agreement).
The Oral Care Business presented in the unaudited combined statements
of net assets sold and revenues and expenses is comprised of a range of
oral care products that are manufactured, marketed and distributed in
the United States, Canada and Puerto Rico, and exported to foreign
markets. Specifically, the Oral Care Business consists of: Mentadent,
which includes toothpaste, toothbrushes and whitening kits, Close-Up
toothpaste, Aim toothpaste and Pepsodent toothpaste. The unaudited
combined statements of net assets sold and revenues and expenses
specifically exclude oral care sales by other Unilever Group companies
outside of HPC NA.
2. Basis of Presentation
Complete financial statements of the Oral Care Business have not been
prepared as HPC NA does not maintain the business as a separate
reporting unit and does not prepare separate financial statements in
accordance with generally accepted accounting principles in the United
States of America in the normal course of business. The accompanying
combined financial statements were prepared from the accounting records
of HPC NA and include all revenues and expenses either directly
attributable to or allocated to the Oral Care Business and certain
costs provided by the Unilever Group and its affiliates either directly
attributable to or allocated to the Oral Care Business. Balance sheet
amounts such as cash, accounts receivable, other receivables, accounts
payable, accruals (other than those specifically identified relating to
product returns and the redemption of consumer coupons) and other
payables, and equity are considered excluded from the combined
statement of net assets sold in accordance with the terms of the
Purchase Agreement. These combined statements are not intended to be a
complete presentation of the financial position and results of the Oral
Care Business.
As the Oral Care Business has been integrated within HPC NA, it relies
on HPC NA, the Unilever Group and its affiliates to provide certain
services to the Oral Care Business. All costs associated with managing
the Oral Care Business in North America including those of regional
management have been allocated to the Oral Care Business based on net
sales. Global management costs not directly attributable to the Oral
Care Business have not been allocated to the Oral Care Business.
These financial statements have been presented on a combined basis
because the selected brands within the Oral Care Business are under
common control. All significant intra-brand transactions and balances
within the Oral Care Business have been eliminated.
15
The interim combined financial statements presented are unaudited. They
include all adjustments necessary to present the assets sold less the
liabilities assumed and the net sales, cost of sales, direct and
overhead expenses of the Oral Care Business at these interim dates.
Certain information and footnote disclosures normally included in
financial statements prepared with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
unaudited interim combined financial statements be read in conjunction
with the financial statements and notes thereto included in the
attached Combined Financial Statements as of and for the year ended
December 31, 2002. Revenues and expenses for the nine month periods
ended September 27, 2003 and September 28, 2002 are not necessarily
indicative of the revenues and expenses for the full year.
3. Inventories, net
At September 27, 2003, inventories of the Oral Care Business consist of
the following:
Finished goods $ 10,568
Raw, packaging materials, and work-in-progress 1,379
Reserve for slow-moving and obsolescence (77)
---------
$ 11,870
=========
The raw, packaging and work-in-progress of the Mentadent Brand
Whitening Kit product are not included in the statement of net assets
sold as they were not considered assets sold in accordance with the
Purchase Agreement.
In accordance with the terms of the Purchase Agreement, finished goods
inventories were acquired by Church & Dwight Co., Inc. upon the
closing. Raw, packaging materials, and work-in-progress will be
acquired by Church & Dwight Co., Inc. upon the completion of the
Transition Services Agreement (see Note 7).
4. Equipment
At September 27, 2003, equipment of the Oral Care Business consisted of
the following:
Machinery and equipment $ 30,726
Dies and molds 3,505
---------
34,231
Less: accumulated depreciation 21,580
---------
$ 12,651
=========
Depreciation expense related to the net assets sold of the Oral Care
Business totaled $2,051 and $2,265 for the nine month periods ended
September 27, 2003 and September 28, 2002, respectively.
5. Related Party
The combined statements reflect only net sales and related cost of
sales to 3rd parties. These businesses also sell to other Unilever
entities outside North America. Had these statements incorporated such
related party sales, additional amounts of $4 and $6 in net sales would
have been recognized for the nine month periods ended September 27,
2003 and September 28, 2002, respectively.
6. Commitments & Contingencies
In the normal course of business, the Oral Care Business may be a party
to claims, disputes, and legal and regulatory proceedings. Management
provides for these legal matters where it is probable that a liability
has been incurred and the amount of cost could be reasonably estimated.
While the ultimate outcome of these claims and lawsuits cannot be
readily determined, it is the opinion of management that such claims
and lawsuits, individually or in the aggregate, will not have a
material adverse effect on the net assets sold or revenues and expenses
of the Oral Care Business.
16
In the normal course of business, the Oral Care Business has
commitments related to future promotion, advertising and market
research programs. These commitments are generally made approximately
two to four months in advance of the expenditure. In accordance with
the terms of the Purchase Agreement, promotion, advertising and market
research commitments of approximately $8,135 become an obligation of
Church & Dwight Co., Inc.
7. Transitional Services Agreement
Pursuant to the Purchase Agreement, Conopco and Church & Dwight Co.,
Inc. entered into a transitional services agreement whereby Conopco
will be a provider of certain business services for an agreed pricing.
The principal business activities include order placement, product
shipping, reporting, customer data transfer, inventory management,
production planning, forecasting, manufacturing, storage, and
management of direct marketing and trade deals. The agreed monthly
pricing ranges from a flat fee of $100 for selling and administrative
services, approximately $230 for research and development services and
actual charges for other specified costs. In accordance with the terms
of the Purchase Agreement, the services provided by the transitional
services agreement will extend from the Closing Date, as defined in the
Purchase Agreement, to January 16, 2004.
17
(b) Pro forma financial information
The unaudited pro forma statement of combined revenues and expenses for the
year ended December 31, 2002 is attached on page 19.
The unaudited pro forma statement of combined revenues and expenses for the
nine month period ended September 27, 2003 and an unaudited balance sheet
as of September 27, 2003, along with a description of all pro forma
adjustments, are attached as pages 20 through 23.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The unaudited pro forma statements of income for the year ended December
31, 2002 and the nine months ended September 27, 2003 give effect to the
acquisition of the Oral Care Business as if it occurred on January 1, 2002. The
unaudited pro forma consolidated balance sheet as of September 27, 2003 gives
effect to the acquisition of the Oral Care Business as if it occurred on
September 27, 2003. The adjustments are described in the accompanying footnotes.
The pro forma statements should not be considered indicative of actual results
that would have been achieved had the acquisition been consummated on the dates
indicated and do not purport to indicate balance sheet data or results of
operations as of any future date or any future period.
The total cost of the transaction will be allocated to the tangible and
intangible assets acquired and liabilities assumed based on their respective
fair values at the time the transaction was consummated. The excess of the
purchase cost over the historical basis of the net assets acquired has been
allocated in the accompanying pro forma financial information based upon
preliminary appraisal estimates which are in process and certain assumptions
that management believes are reasonable. Fixed assets are being valued at
historic amounts until the appraisal is completed. The actual allocation is
subject to finalization of the appraisal and the determination of any working
capital adjustment and the contingent payment. The actual allocation of the
purchase cost and the resulting effect on income from operations may differ
significantly from the pro forma amounts included herein.
The unaudited pro forma consolidated financial statements and accompanying
notes thereto should be read in conjunction with the Company's historical
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2002, and its Quarterly Reports on
Form 10-Q for the quarterly periods ended March 28, 2003, June 27, 2003 and
September 26, 2003.
18
Church & Dwight Co., Inc.and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Income
For the Year Ended December 31, 2002
Historical Acquired Pro forma Pro forma
(Dollars in thousands, except per share data) CHD Business Adjustments Results
--------------------------------------------------------------------------------------------------------------------
Net Sales $ 1,047,149 $ 165,319 $ -- $ 1,212,468
Cost of Sales 735,928 72,996 6,324 (e) 815,248
------------ ------------ ------------ ------------
Gross Profit 311,221 92,323 (6,324) 397,220
Marketing expenses 86,195 14,752 -- 100,947
Selling, general and administrative expenses 120,512 14,570 2,055 (f) 137,137
------------ ------------ ------------ ------------
Income from Operations 104,514 63,001 (8,379) 159,136
Equity in earnings of affiliates 21,520 -- -- 21,520
Investment earnings 1,793 -- -- 1,793
Other income/(expense) (2,618) -- -- (2,618)
Interest expense (23,974) -- (7,257) (g) (34,128)
1,947 (h)
(1,471) (i)
(3,373) (j)
------------ ------------ ------------ ------------
Income before minority interest and taxes 101,235 63,001 (18,533) 145,703
Income taxes 34,402 -- 17,009 (k) 51,411
Minority interest 143 -- -- 143
------------ ------------ ------------ ------------
Net Income $ 66,690 $ 63,001 $ (35,542) $ 94,149
============ ============ ============ ============
Weighted average shares outstanding - Basic 39,630 39,630
============ ============
Weighted average shares outstanding - Diluted 41,809 41,809
============ ============
Earnings Per Share:
Net Income Per Share - Basic $1.68 $2.38
=========== =============
Net Income Per Share - Diluted $1.60 $2.25
=========== =============
See notes to unaudited pro forma consolidated financial statements
19
Church & Dwight Co., Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Income
For the Nine Months Ended September 26, 2003
Historical Acquired Pro forma Pro forma
(Dollars in thousands, except per share data) CHD Business Adjustments Results
---------------------------------------------------------------------------------------------------------------------
Net Sales $ 770,127 $ 93,563 $ -- $ 863,690
Cost of Sales 536,178 47,367 -- 583,545
------------ ----------- ----------- ----------
Gross Profit 233,949 46,196 -- 280,145
Marketing expenses 66,136 9,352 -- 75,488
Selling, general and administrative expenses 85,109 8,840 1,541 (f) 95,490
------------ ----------- ----------- ----------
Income from Operations 82,704 28,004 (1,541) 109,167
Equity in earnings of affiliates 25,844 -- -- 25,844
Investment earnings 910 -- -- 910
Other income/(expense) 534 -- -- 534
Interest expense (14,716) -- 1,796 (h) (16,553)
(1,103) (i)
(2,530) (j)
------------ ----------- ----------- ----------
Income before minority interest and taxes 95,276 28,004 (3,378) 119,902
Income taxes 30,160 -- 9,419 (k) 39,579
Minority interest 22 -- -- 22
------------ ----------- ----------- ----------
Net Income $ 65,094 $ 28,004 $ (12,797) $ 80,301
============ =========== =========== ==========
Weighted average shares outstanding - Basic 40,132 40,132
============ ==========
Weighted average shares outstanding - Diluted 42,058 42,058
============ ==========
Earnings Per Share:
Net Income Per Share - Basic $1.62 $2.00
=========== ==========
Net Income Per Share - Diluted $1.55 $1.91
=========== ==========
See notes to unaudited pro forma consolidated financial statements
20
Church & Dwight Co., Inc.and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
September 26, 2003
Historical Acquired Pro forma Pro forma
(Dollars in thousands) CHD Business Adjustments Consolidated
----------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 76,696 $ -- $ (7,470) (b) $ 69,226
Accounts receivable,
less allowance of $1,547 101,582 -- -- 101,582
Inventories 78,411 11,870 6,324 (a) 96,605
Deferred income taxes 16,841 -- -- 16,841
Note receivable - current 942 -- -- 942
Prepaid expenses 5,702 -- -- 5,702
----------- ----------- ------------ ------------
Total Current Assets 280,174 11,870 (1,146) 290,898
----------- ----------- ------------ ------------
Property, Plant and Equipment (Net) 247,325 12,651 -- 259,976
Note Receivable 8,766 -- -- 8,766
Equity Investment in Affiliates 150,888 -- -- 150,888
Long-term Supply Contracts 5,865 -- -- 5,865
Tradenames and Other Intangibles 87,952 -- 32,383 (a) 120,335
Goodwill 205,691 -- 48,477 (a) 254,168
Other Assets 29,707 -- 2,017 (b) 27,597
(4,127) (c)
----------- ----------- ------------ ------------
Total Assets $ 1,016,368 $ 24,521 $ 77,604 $ 1,118,493
=========== =========== ============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Short-term borrowings $ 62,915 $ -- $ -- $ 62,915
Accounts payable and accrued expenses 152,252 1,153 -- 153,405
Current portion of long-term debt 1,203 -- -- 1,203
Income taxes payable 21,009 -- (1,578) (c) 19,431
----------- ----------- ------------ ------------
Total current liabilities 237,379 1,153 (1,578) 236,954
Long-term Debt 254,574 -- 100,099 (b) 354,673
Deferred Income Taxes 65,682 -- -- 65,682
Deferred and Other Long-term Liabilities 26,626 -- 5,000 (a) 31,626
Postretirement and Postemployment Benefits 15,858 -- -- 15,858
Minority Interest 274 -- -- 274
Total Stockholders' Equity 415,975 23,368 (a) (23,368) (d) 413,426
(2,549) (c)
----------- ----------- ------------ ------------
Total Liabilities and Stockholders' Equity $ 1,016,368 $ 24,521 $ 77,604 $ 1,118,493
=========== =========== ============ ============
See notes to unaudited pro forma consolidated financial statements
21
Church & Dwight Co., Inc.and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Financial Statements
(Dollars in thousands)
a) For the purposes of these pro forma consolidated financial statements, the
Company determined that the value of the total purchase consideration for
the Oral Care Business (including fees and the minimum additional
payment) was approximately $110,552.
The following is a summary of the calculation of the purchase price, as
described above, as well as the preliminary allocation of the purchase
price to the fair value of the net assets acquired:
Purchase of Oral Care Business $ 103,490
Minimum Additional Payment 5,000
Direct acquisition fees 2,062
-----------
Total Purchase Price 110,552
Less fair value of net assets acquired (62,075)
------------
Excess purchase price over net assets acquired $ 48,477
===========
The book value of the net assets acquired as of September 27, 2003 was
$23,368. The fair value of the net assets acquired was $62,075. The
following is a reconciliation between the two amounts:
Book value of net assets $ 23,368
Adjustment of inventory to fair value 6,324
Allocation to brand names 32,383
-----------
$ 62,075
===========
A liability for the minimum additional payment was established as part of
the initial purchase price allocation based upon the terms of the Asset
Purchase Agreement.
b) To record incremental borrowing and cash used to finance the transaction.
The acquisition was funded using available cash and by obtaining new
Tranche B Term Loans through an amendment to the Company's existing credit
agreement. In connection with the amendment, the Company, among other
things, 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 in
connection with the funding of this transaction. The new Tranche B Term
Loans have essentially the same terms as the replaced loans, but with more
favorable interest rate provisions.
Borrowing $ 250,000
Retirement of existing debt (149,901)
------------
Incremental debt 100,099
Financing fees (2,017)
Acquisition of Oral Care Business (including acquisition fees) (105,552)
-----------
Existing cash used to finance transaction $ (7,470)
===========
c) To write-off existing deferred financing fees related to the existing Term
Loan as of September 26, 2003.
Balance as of September 26, 2003 $ 4,127
Tax benefit (1,578)
-----------
Net income effect $ 2,549
===========
d) To eliminate net assets acquired from Stockholders' Equity.
e) To record the effect of the step-up in inventory values related to product
sold.
f) To record tradename amortization expense over the estimated lives of between
10 and 20 years.
22
g) To record the write-off of deferred financing costs related to refinancing.
h) To reverse actual deferred financing cost amortization expense.
i) To record new deferred financing cost amortization expense.
j) To record incremental interest expense.
Fiscal Year Nine Months Ended
2002 September 26, 2003
---- ------------------
Additional amount borrowed $100,099 @ 3.37% $ 3,373 $ 2,530
k) To record tax impact of acquired business results and pro forma adjustments
at 38.25%.
23
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-109048) and Forms S-8 (No. 33-60149, No.
33-60147, No. 33-24553, No. 33-6150 and No. 33-44881) of Church & Dwight Co.,
Inc. of our report dated December 16, 2003 relating to the financial statements
of the Oral Care Business of Unilever Home & Personal Care North America, which
appears in the Current Report on Form 8-K/A of Church & Dwight Co., Inc. dated
December 23, 2003.
PricewaterhouseCoopers LLP
Stamford, CT
January 2, 2004
24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report to be signed on its behalf by
the undersigned hereunto duly authorized.
CHURCH & DWIGHT CO., INC.
a Delaware Corporation
Date: January 2, 2004 By: /s/ Robert A. Davies III
----------------------- -----------------------------------
Robert A. Davies III
Chief Executive Officer
25