UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2004
Commission file Number 333-73160
ARMKEL, LLC
(Exact name of registrant as specified in its certificate of formation)
| Organized in Delaware | ||
| 469 North Harrison Street | ||
| Princeton, New Jersey 08543-5297 | 13-4181336 | |
| (Address of principal executive offices) (Zip Code) | I.R.S Employer Identification No. |
(609) 683-5900
Registrant’s telephone Number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
As of May 11, 2004, all of the 10,000 outstanding membership interests in Armkel, LLC were held by affiliates.
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PART I - FINANCIAL INFORMATION
ARMKEL, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
CHANGES IN MEMBERS’ EQUITY
(Unaudited)
| Three Months Ended |
||||||||
| (Dollars in thousands)
|
April 2, 2004 |
March 28, 2003 |
||||||
| Net Sales |
$ | 113,773 | $ | 99,654 | ||||
| Cost of goods sold |
48,088 | 41,169 | ||||||
| Gross Profit |
65,685 | 58,485 | ||||||
| Marketing expenses |
12,830 | 12,009 | ||||||
| Selling, general and administrative expenses |
23,044 | 21,376 | ||||||
| Income from Operations |
29,811 | 25,100 | ||||||
| Interest expense |
(7,765 | ) | (8,890 | ) | ||||
| Interest income |
291 | 281 | ||||||
| Other expense |
(669 | ) | (284 | ) | ||||
| Income before taxes |
21,668 | 16,207 | ||||||
| Income taxes |
3,505 | 3,104 | ||||||
| Income from continuing operations |
18,163 | 13,103 | ||||||
| Income from discontinued operations |
— | 254 | ||||||
| Gain on disposition of discontinued operations |
— | 1,862 | ||||||
| Net Income |
18,163 | 15,219 | ||||||
| Other comprehensive income |
4,833 | 648 | ||||||
| Total comprehensive income |
22,996 | 15,867 | ||||||
| Members’ Equity at Beginning of Period |
279,437 | 229,680 | ||||||
| Members’ Equity at End of Period |
$ | 302,433 | $ | 245,547 | ||||
See Notes to Condensed Consolidated Financial Statements.
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ARMKEL, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| (Dollars in thousands) | April 2, 2004 |
Dec. 31, 2003 |
||||||
| (Unaudited) | ||||||||
| Assets |
||||||||
| Current Assets |
||||||||
| Cash and cash equivalents |
$ | 64,757 | $ | 69,188 | ||||
| Accounts receivable, less allowances of $1,558 and $1,509 |
90,892 | 74,783 | ||||||
| Inventories |
55,619 | 53,782 | ||||||
| Prepaid expenses |
6,361 | 6,436 | ||||||
| Net assets held for sale |
11,500 | 11,500 | ||||||
| Total Current Assets |
229,129 | 215,689 | ||||||
| Property, Plant and Equipment (Net) |
76,153 | 75,815 | ||||||
| Tradenames and Patents |
255,650 | 256,775 | ||||||
| Goodwill |
205,156 | 205,156 | ||||||
| Deferred Financing Costs |
13,073 | 13,877 | ||||||
| Other Assets |
8,513 | 8,009 | ||||||
| Total Assets |
$ | 787,674 | $ | 775,321 | ||||
| Liabilities and Members’ Equity |
||||||||
| Current Liabilities |
||||||||
| Accounts payable and accrued expenses |
$ | 86,916 | $ | 86,347 | ||||
| Current portion of long-term debt |
3,029 | 2,705 | ||||||
| Taxes payable |
4,749 | 7,214 | ||||||
| Total Current Liabilities |
94,694 | 96,266 | ||||||
| Long-term Debt |
356,886 | 364,838 | ||||||
| Deferred Income Taxes |
8,165 | 9,669 | ||||||
| Deferred and Other Long-term Liabilities |
25,496 | 25,111 | ||||||
| Commitments and Contingencies |
— | — | ||||||
| Total Liabilities |
485,241 | 495,884 | ||||||
| Members’ Equity |
||||||||
| Net contributed capital |
220,500 | 220,500 | ||||||
| Retained earnings |
83,968 | 65,805 | ||||||
| Accumulated other comprehensive loss |
(2,035 | ) | (6,868 | ) | ||||
| Total Members’ Equity |
302,433 | 279,437 | ||||||
| Total Liabilities and Members’ Equity |
$ | 787,674 | $ | 775,321 | ||||
See Notes to Condensed Consolidated Financial Statements.
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ARMKEL, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
| Three Months Ended |
||||||||
| (Dollars in thousands)
|
April 2, 2004 |
March 28, 2003 |
||||||
| Cash Flow From Operating Activities: |
||||||||
| Net Income |
$ | 18,163 | $ | 15,219 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
4,127 | 3,933 | ||||||
| Unrealized gain on foreign exchange transactions |
429 | 81 | ||||||
| Net (income) loss from discontinued operations |
— | (254 | ) | |||||
| Net gain on sale of discontinued operations |
— | (1,862 | ) | |||||
| Change in assets and liabilities: |
||||||||
| Increase in accounts receivable |
(13,406 | ) | (12,337 | ) | ||||
| Increase in inventories |
(613 | ) | (1,995 | ) | ||||
| Decrease in prepaid expenses and other current assets |
146 | 326 | ||||||
| Decrease in accounts payable and other accrued expenses |
(3,865 | ) | (2,549 | ) | ||||
| Decrease in other liabilities |
(2,221 | ) | (1,927 | ) | ||||
| Net Cash Provided by (Used in) Operating Activities |
2,760 | (1,365 | ) | |||||
| Cash Flow From Investing Activities: |
||||||||
| Additions to property, plant and equipment |
(1,938 | ) | (2,054 | ) | ||||
| Proceeds from divestiture |
— | 22,573 | ||||||
| Net Cash Provided by (Used in) Investing Activities |
(1,938 | ) | 20,519 | |||||
| Cash Flow From Financing Activities: |
||||||||
| Repayment of syndicated bank credit facility |
(7,500 | ) | (26,253 | ) | ||||
| Net Cash Used in Financing Activities |
(7,500 | ) | (26,253 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents |
2,247 | 925 | ||||||
| Net Change in Cash and Cash Equivalents |
(4,431 | ) | (6,174 | ) | ||||
| Cash and Cash Equivalents at Beginning of Period |
69,188 | 54,780 | ||||||
| Cash and Cash Equivalents at End of Period |
$ | 64,757 | $ | 48,606 | ||||
See Notes to Condensed Consolidated Financial Statements.
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ARMKEL, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Statement Presentation
The condensed consolidated balance sheet as of April 2, 2004, the condensed consolidated statements of income and changes in members’ equity for the three months ended April 2, 2004 and March 28, 2003, and the consolidated statements of cash flow for the three months ended April 2, 2004 and March 28, 2003 have been prepared by Armkel, LLC and subsidiaries (the “Company”) and are unaudited. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flow at April 2, 2004 and for all periods presented have been made.
Fifty-percent (50%) of the membership interests in the Company is owned by each of Church & Dwight Co., Inc. (“C&D”) and certain affiliates of Kelso & Company, L.P. (“Kelso”).
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2003 required Form 10-K filing. The financial statement effect of the Italian operations that were divested in February 2003 is recognized as discontinued operations. The results of operations for the period ended April 2, 2004 are not necessarily indicative of the operating results for the full year.
2. Inventories consist of the following (in thousands):
| April 2, 2004 |
Dec. 31, 2003 | |||||
| Raw materials and supplies |
$ | 12,319 | $ | 11,913 | ||
| Work in process |
7,537 | 6,427 | ||||
| Finished goods |
35,763 | 35,442 | ||||
| $ | 55,619 | $ | 53,782 | |||
3. Property, Plant and Equipment consist of the following (in thousands):
| April 2, 2004 |
Dec. 31, 2003 | |||||
| Land |
$ | 7,198 | $ | 7,206 | ||
| Buildings and improvements |
25,419 | 25,351 | ||||
| Machinery and equipment |
51,851 | 52,384 | ||||
| Office equipment and other assets |
6,430 | 5,999 | ||||
| Construction in progress |
3,516 | 816 | ||||
| 94,414 | 91,756 | |||||
| Less accumulated depreciation and amortization |
18,261 | 15,941 | ||||
| Net Property, Plant and Equipment |
$ | 76,153 | $ | 75,815 | ||
4. Goodwill and Intangible Assets
The following tables discloses the carrying value of all intangible assets (in thousands):
| April 2, 2004 |
December 31, 2003 | |||||||||||||||||
| Gross Carrying Amount |
Accum. Amortization |
Net |
Gross Carrying Amount |
Accum. Amortization |
Net | |||||||||||||
| Amortized intangible assets: |
||||||||||||||||||
| Patents |
$ | 27,500 | $ | 11,250 | $ | 16,250 | $ | 27,500 | $ | 10,125 | $ | 17,375 | ||||||
| Unamortized intangible assets - Carrying value: |
||||||||||||||||||
| Tradenames |
$ | 239,400 | $ | 239,400 | ||||||||||||||
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ARMKEL, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Intangible amortization expense amounted to $1.1 million for the three months ended April 2, 2004 and March 28, 2003. The estimated intangible amortization is approximately $4.5 million per year over the remaining amortization period. The weighted average amortization period for patents is 6.4 years.
There were no changes in the carrying amount of goodwill for the three months ended April 2, 2004. The balances are as follows (in thousands):
| Domestic |
International |
Total | |||||||
| Balance April 2, 2004 |
$ | 172,318 | $ | 32,838 | $ | 205,156 | |||
5. Related Party Transactions
Arrangements with Church & Dwight
The Company owed C&D $6.6 million and $6.4 million for primarily administrative and management oversight services for the three months ended April 2, 2004 and March 28, 2003, respectively. The Company sold $0.5 million and $0.7 million of deodorant/antiperspirant inventory to C&D at its cost during the three months ended April 2, 2004 and March 28, 2003, respectively. The Company purchased $0.4 million and $0.8 million of Arm & Hammer products to be sold in international markets during the three months ended April 2, 2004 and March 28, 2003, respectively. The Company had a net payable to C&D at April 2, 2004 and March 28, 2003, respectively, of approximately $3.6 million and $3.5 million that primarily related to administration fees and invoices paid by C&D on behalf of Armkel, offset by amounts owed for inventory.
Arrangements with Kelso
Kelso provides the Company with financial advisory services for which the Company pays an annual fee of $1.0 million. The Company indemnifies Kelso against certain liabilities and reimburses expenses in connection with its engagement. For the three months ended April 2, 2004, the Company paid Kelso $0.3 million. The Company prepaid Kelso’s 2003 annual fee at the end of December 2002.
6. Commitments, Contingencies and Guarantees
| a. | On January 17, 2002, a petition for appraisal, Cede & Co., Inc. and GAMCO Investors, Inc. v. Medpointe Healthcare Inc., Civil |