form10q2q2008.htm
 


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 June 27, 2008

Commission file number 1-10585
     

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 or organization)
 

469 North Harrison Street, Princeton, N.J. 08543-5297
(Address of principal executive office)

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

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 twelve 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 o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer      x    Accelerated filer  o  
 Non-accelerated filer  o    Smaller reporting company  o  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x
 
As of August 1, 2008, there were 66,629,878 shares of Common Stock outstanding.
 



 
 
TABLE OF CONTENTS
 
PART I
 
Item
 
Page
1.
3
2.
25
3.
33
4.
34
 
 
PART II
 
1.
34
1A.
Risk Factors       
34
5.
34
6.
35
 


PART I - FINANCIAL INFORMATION

ITEM 1:   FINANCIAL STATEMENTS

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

   
Three Months Ended
   
Six Months Ended
 
   
June 27,
   
June 29,
   
June 27,
   
June 29,
 
(Dollars in thousands, except per share data)
 
2008
   
2007
   
2008
   
2007
 
Net Sales
  $ 593,959     $ 546,472     $ 1,146,826     $ 1,060,807  
Cost of sales
    351,479       329,779       680,240       644,238  
Gross Profit
    242,480       216,693       466,586       416,569  
Marketing expense
    79,170       66,102       132,655       111,954  
Selling, general and administrative expenses
    81,427       74,041       159,286       145,922  
Income from Operations
    81,883       76,550       174,645       158,693  
Equity in earnings of affiliates
    2,152       1,760       4,532       4,020  
Investment earnings
    1,957       1,520       4,526       3,153  
Other income (expense), net
    100       523       2,298       109  
Interest expense
    (10,638 )     (14,216 )     (23,143 )     (29,417 )
Income before minority interest and income taxes
    75,454       66,137       162,858       136,558  
Income taxes
    29,684       25,611       60,895       50,938  
Minority interest
    5       (7 )     7       (12 )
Net Income
  $ 45,765     $ 40,533     $ 101,956     $ 85,632  
Weighted average shares outstanding - Basic
    66,574       65,804       66,459       65,687  
Weighted average shares outstanding - Diluted
    71,067       70,322       70,944       70,179  
Net income per share - Basic
  $ 0.69     $ 0.62     $ 1.53     $ 1.30  
Net income per share - Diluted
  $ 0.66     $ 0.59     $ 1.46     $ 1.25  
Dividends Per Share
  $ 0.08     $ 0.07     $ 0.16     $ 0.14  
 
See Notes to Condensed Consolidated Financial Statements.
 

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
June 27,
   
December 31,
 
(Dollars in thousands, except share and per share data)
 
2008
   
2007
 
Assets
           
Current Assets
           
Cash and cash equivalents
  $ 255,933     $ 249,809  
Accounts receivable, less allowances of $4,039 and $4,548
    272,071       247,898  
Inventories
    219,244       213,651  
Deferred income taxes
    13,267       13,508  
Note receivable – current
    1,324       1,263  
Prepaid expenses and other assets
    14,783       9,224  
Total Current Assets
    776,622       735,353  
Property, Plant and Equipment (Net)
    339,971       350,853  
Note Receivable
    2,342       3,670  
Equity Investment in Affiliates
    10,094       10,324  
Long-term Supply Contracts
    2,126       2,519  
Tradenames and Other Intangibles
    654,257       665,168  
Goodwill
    688,399       688,842  
Other Assets
    77,658       75,761  
Total Assets
  $ 2,551,469     $ 2,532,490  
Liabilities and Stockholders' Equity
               
Current Liabilities
               
Short-term borrowings
  $ 15,618     $ 115,000  
Accounts payable and accrued expenses
    316,512       303,071  
Current portion of long-term debt
    45,459       33,706  
Income taxes payable
    6,130       6,012  
Total Current Liabilities
    383,719       457,789  
Long-term Debt
    678,651       707,311  
Deferred Income Taxes
    169,591       162,746  
Other Long Term Liabilities
    85,681       87,769  
Pension, Postretirement and Postemployment Benefits
    33,455       36,416  
Minority Interest
    203       194  
Total Liabilities
    1,351,300       1,452,225  
Commitments and Contingencies
               
Stockholders' Equity
               
Preferred Stock-$1.00 par value
               
Authorized 2,500,000 shares, none issued
    --       --  
Common Stock-$1.00 par value
               
Authorized 300,000,000 shares, issued 69,991,482
    69,991       69,991  
Additional paid-in capital
    142,605       121,902  
Retained earnings
    983,199       891,868  
Accumulated other comprehensive income
    44,146       39,128  
      1,239,941       1,122,889  
Common stock in treasury, at cost:
               
3,425,715 shares in 2008 and 3,747,719 shares in 2007
    (39,772 )     (42,624 )
Total Stockholders’ Equity
    1,200,169       1,080,265  
Total Liabilities and Stockholders’ Equity
  $ 2,551,469     $ 2,532,490  
 
See Notes to Condensed Consolidated Financial Statements.


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)

   
Six Months Ended
 
   
June 27,
   
June 29,
 
(Dollars in thousands)
 
2008
   
2007
 
Cash Flow From Operating Activities
           
Net Income
  $ 101,956     $ 85,632  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    31,651       29,033  
Equity in earnings of affiliates
    (4,532 )     (4,020 )
Distributions from unconsolidated affiliates
    4,184       3,224  
Deferred income taxes
    5,708       12,442  
Gain on sale of subsidiary
    (2,986 )     --  
Asset impairment charges and other asset write-offs
    6,710       1,264  
Non cash compensation expense
    6,698       6,450  
Unrealized gain on diesel hedge contract
    (3,566 )     - -  
Unrealized foreign exchange gain and other
    (2,380 )     (747 )
Change in assets and liabilities:
               
Accounts receivable
    (21,750 )     (10,510 )
Inventories
    (5,714 )     (14,850 )
Prepaid expenses
    (1,811 )     (3,508 )
Accounts payable and accrued expenses
    11,463       (30,855 )
Income taxes payable
    4,024       6,679  
Excess tax benefit on stock options exercised
    (3,451 )     (5,039 )
Other liabilities
    4,140       (57 )
Net Cash Provided By Operating Activities
    130,344       75,138  
Cash Flow From Investing Activities
               
Additions to property, plant and equipment
    (16,656 )     (25,395 )
Proceeds from sale of subsidiary
    11,235       --  
Acquisitions (net of cash acquired)
    --       (208 )
Return of capital from equity affiliates
    --       400  
Proceeds from note receivable
    1,263       --  
Contingent acquisition payments
    (562 )     (692 )
Other
    (152 )     (137 )
Net Cash Used In Investing Activities
    (4,872 )     (26,032 )
Cash Flow From Financing Activities
               
Long-term debt repayment
    (16,907 )     (73,158 )
Short-term debt (repayments) borrowings - net
    (99,382 )     16,385  
Bank overdrafts
    --       (1,956 )
Proceeds from stock options exercised
    6,020       8,500  
Excess tax benefit on stock options exercised
    3,451       5,039  
Payment of cash dividends
    (10,625 )     (9,191 )
Deferred financing costs
    (2,666 )     --  
Net Cash Used In Financing Activities
    (120,109 )     (54,381 )
Effect of exchange rate changes on cash and cash equivalents
    761       1,686  
Net Change in Cash and Cash Equivalents
    6,124       (3,589 )
Cash and Cash Equivalents at Beginning Of Period
    249,809       110,476  
Cash and Cash Equivalents at End Of Period
  $ 255,933     $ 106,887  

See Notes to Condensed Consolidated Financial Statements.


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW-CONTINUED
 (Unaudited)

SUPPLEMENTAL CASH FLOW INFORMATION
 
Six Months Ended
 
   
June 27,
   
June 29,
 
(Dollars in thousands)
 
2008
   
2007
 
Cash paid for:
           
Interest (net of amounts capitalized)
  $ 21,133     $ 28,169  
Income taxes (net of refunds)
  $ 42,952     $ 30,551  
Supplemental disclosure of non-cash investing activities:
               
Property, plant and equipment expenditures included in Accounts Payable
  $ 571     $ 850  

See Notes to Condensed Consolidated Financial Statements.

 

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Six Months Ended June 27, 2008
(Unaudited)

   
Number of Shares
   
Amounts
 
(In thousands)
 
Common Stock
   
Treasury Stock
   
Common Stock
   
Treasury Stock
   
Additional
Paid-in Capital
   
Retained Earnings
   
Accumulated Other Comprehensive Income (Loss)
   
Comprehensive Income
 
December 31, 2007
    69,991       (3,748 )   $ 69,991     $ (42,624 )   $ 121,902     $ 891,868     $ 39,128        
Net income
    -       -       -       -       -       101,956       -     $ 101,956  
Translation adjustments
    -       -       -       -       -       -       5,131       5,131  
Interest rate agreements (net of taxes)
    -       -       -       -       -       -       (113 )     (113 )
Comprehensive income
                                                          $ 106,974  
Cash dividends
    -       -       -       -       -       (10,625 )     -          
Stock based compensation expense and stock
  option plan transactions (including tax benefit)
    -       312       -       2,768       13,683       -       -          
Directors' deferred compensation plan (See Note 6)
    -       -       -       -       6,580       -       -          
Other stock issuances
    -       10       -       84       440       -       -          
June 27, 2008
    69,991       (3,426 )   $ 69,991     $ (39,772 )   $ 142,605     $ 983,199     $ 44,146          

See Notes to Condensed Consolidated Financial Statements.
 

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.  
 Basis of Presentation
 
The condensed consolidated balance sheets as of June 27, 2008 and December 31, 2007, the condensed consolidated statements of income for the three months and six months ended June 27, 2008 and June 29, 2007 and the condensed consolidated statement of stockholders’ equity and cash flow for the six months ended June 27, 2008 and June 29, 2007 have been prepared by the Company. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at June 27, 2008 and results of operations and cash flow for all periods presented have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.  These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2007.  The results of operations for the periods ended June 27, 2008 are not necessarily indicative of the operating results for the full year.

The Company’s fiscal year begins on January 1st and ends on December 31st.  Quarterly periods are based on a 4 weeks - 4 weeks - 5 weeks methodology.  As a result, the first quarter can include a partial or expanded week in the first four week period of the quarter.  Similarly, the last five week period in the fourth quarter could include a partial or expanded week.  Certain subsidiaries operating outside of North America are included for periods beginning and ending one month prior to the period presented, which enables timely processing of consolidating results.  There were no material intervening events that occurred with respect to these subsidiaries in the one month period prior to the period presented.

The Company incurred research & development expenses in the second quarter of 2008 and 2007 of $12.7 million and $11.3 million, respectively. The Company incurred research & development expenses in the first six months of 2008 and 2007 of $24.7 million and $21.6 million, respectively. These expenses are included in selling, general and administrative expenses.

2.  
Recently Adopted Accounting Pronouncements

Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements”, was issued in September 2006 and, except as noted below, is effective for fiscal years beginning after November 15, 2007. SFAS No. 157 provides a single definition of fair value to be utilized under other accounting pronouncements that require fair value measurements, establishes a framework for measuring fair value in Generally Accepted Accounting Principles (“GAAP”), and expands disclosures about fair value measurements. Under Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157,” the FASB deferred for one year, the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157 enables the reader of the financial statements to assess the inputs (generally, assumptions that market participants would use) used in pricing an asset or liability by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. SFAS No. 157 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.

 
The following table summarizes the carrying amounts and fair values of certain assets and liabilities:

   
June 27, 2008
 
 
 
 
(In thousands)
 
Carrying Amount
   
Quoted Prices in Active Markets for Identical Assets
(Level 1)
   
Significant Other Observable Inputs
(Level 2)
   
Significant Unobservable Inputs
(Level 3)
 
Assets
                       
Deferred compensation related investments
  $ 31,139     $ -     $ 31,139     $ -  
Diesel hedge contract
  $ 3,566     $ -     $ 3,566     $ -  
    $ 34,705     $ -     $ 34,705     $ -  
Liabilities
                               
Interest rate collars
  $ 2,091     $ -     $ 2,091     $ -  
    $ 2,091     $ -     $ 2,091     $ -  
 
The fair value of the deferred compensation asset is characterized as Level 2 since it derives its value from observable investments.

The fair value of the diesel hedge is based on home heating oil future prices for the duration of the contract.

The fair value for the interest rate collars was derived using the forward three month LIBOR curve for the duration of the respective collars and a credit spread.

3.  
Inventories consist of the following:

   
June 27,
   
December 31,
 
(In thousands)
 
2008
   
2007
 
Raw materials and supplies
  $ 56,978     $ 53,516  
Work in process
    9,949       9,169  
Finished goods
    152,317       150,966  
    $ 219,244     $ 213,651  


 
4.  
Property, Plant and Equipment consist of the following:

   
June 27
   
December 31,
 
(In thousands)
 
2008
   
2007
 
Land
  $ 11,112     $ 11,343  
Buildings and improvements
    146,594       147,114  
Machinery and equipment
    429,113       436,104  
Office equipment and other assets
    39,038       40,380  
Software
    33,423       33,336  
Mineral rights
    1,663       1,490  
Construction in progress
    23,688       15,915  
      684,631       685,682  
Less accumulated depreciation and amortization
    344,660       334,829  
Net Property, Plant and Equipment
  $ 339,971     $ 350,853  
 
Depreciation and amortization of property, plant and equipment amounted to $10.9 million and $9.2 million for the three months ended June 27, 2008 and June 29, 2007, respectively. Depreciation and amortization of property, plant and equipment amounted to $20.4 million and $18.6 million for the six months ended June 27, 2008 and June 29, 2007, respectively. Interest charges in the amount of $0.2 million and $0.2 million were capitalized in connection with construction projects for the three months ended June 27, 2008 and June 29, 2007, respectively.  Interest charges in the amount of $0.3 million and $0.4 million were capitalized in connection with construction projects for the six months ended June 27, 2008 and June 29, 2007, respectively. During the first quarter the Company determined that the carrying value of certain property, plant and equipment assets should be written down to zero in accordance with the guidelines of SFAS No. 144.  The write down resulted in a charge of $1.5 million that was principally reflected with selling, general and administration (“SG&A”) expense for the Consumer International segment.

During the second quarter, the Company announced it will be closing its North Brunswick, New Jersey facility in 2009. As a result, the Company recorded an accelerated depreciation charge of $1.1 million (see Note 14).

5.  
Earnings Per Share (“EPS”)
 
Basic EPS is calculated based on income available to common shareholders and the weighted-average number of shares outstanding during the reported period.  Diluted EPS includes additional dilution from potential common stock issuable pursuant to the exercise of stock options outstanding and the dilutive effect of convertible debentures.  The weighted average number of common shares outstanding used to calculate Basic EPS is reconciled to those shares used in calculating Diluted EPS as follows:

   
Three Months Ended
   
Six Months Ended
 
   
June 27,
   
June 29,
   
June 27,
   
June 29,
 
(In thousands)
 
2008
   
2007
   
2008
   
2007
 
Basic
  $ 66,574     $ 65,804     $ 66,459     $ 65,687  
Dilutive effect of stock options
    1,259       1,289       1,251       1,264  
Dilutive effect of convertible debentures
    3,234       3,229       3,234       3,228  
Diluted
  $ 71,067     $ 70,322     $ 70,944     $ 70,179  
Anti-dilutive stock options outstanding - not included in the calculation of earnings per share
  $ 1,030     $ 556     $ 1,148     $ 632  


 
6.  
Stock-Based Compensation

A summary of option activity during the six months ended June 27, 2008 is as follows:

   
Options
(000)
   
Weighted-Average Exercise Price
   
Weighted-Average Remaining Contractual Term
   
Aggregate Intrinsic Value ($000)
 
Outstanding at January 1, 2008
    4,231     $ 30.24              
Granted
    665       55.68              
Exercised
    (312 )     19.00              
Cancelled
    (35 )     36.16              
Outstanding at June 27, 2008
    4,549     $ 34.67       6.6     $ 96,549  
Exercisable at June 27, 2008
    2,374     $ 24.99       4.7     $ 73,319  
 
 
   
Three Months Ended
   
Six Months Ended
 
   
June 27,
   
June 29,
   
June 27,
   
June 29,
 
   
2008
   
2007
   
2008
   
2007
 
Intrinsic Value of Stock Options Exercised (in millions)
  $ 5.1     $ 3.2     $ 11.1     $ 15.5  
Stock Compensation Expense Related To Stock  Option Awards (in millions)
  $ 4.1     $ 3.4     $ 6.4     $ 6.2  
Issued Stock Options (in thousands)
    655       600       665       600  
Average Fair Value of Stock Options Issued
  $ 16.65     $ 16.85     $ 16.64     $ 16.85  
Assumptions Used:
                               
Risk-free interest rate
    3.7 %     5.1 %     3.7 %     5.1 %
Expected life in years
    6.6       6.2       6.6       6.2  
Expected volatility
    22.5 %     25.0 %     22.5 %     25.0 %
Dividend yield
    0.6 %     0.6 %     0.6 %     0.6 %

The average fair value is based upon the Black Scholes option pricing model. The Company determined the options’ life based on historical exercise behavior and determined the options’ expected volatility and dividend yield based on the historical changes in stock price and dividend payments. The risk free interest rate is based on the yield of an applicable term Treasury instrument. Stock compensation expense related to restricted stock awards was $0.2 million in the second quarter of 2008. This expense amounted to $0.2 million for the same period of 2007. Stock compensation expense related to restricted stock awards was $0.3 million in the six months ending June 27, 2008. This expense amounted to $0.2 million for the same period of 2007.

The Company amended the Directors’ deferred compensation plan during the second quarter of 2008 to provide that compensation deferrals credited to a director’s account will be settled in the Company’s stock.  Previously, compensation deferrals consisted of notional investments in Company stock that settled in cash.  This change required a $6.6 million reclassification of the value of the stock from long term liabilities to equity.  Subsequent changes in the fair value of the Company’s stock are not recognized.  The stock settlement obligation is reflected in the weighted average number of basic and diluted shares used for the EPS calculations.   

 
7.  
Goodwill and Other Intangible Assets

The following table provides information related to the carrying value of all intangible assets:

   
June 27, 2008
   
December 31, 2007
 
 (In thousands)
 
Gross Carrying Amount
   
Accumulated Amortization
   
Net
   
Gross Carrying Amount
   
Accumulated Amortization
   
Net
 
Amortizable intangible assets:
                                   
Tradenames
  $ 122,079     $ (33,275 )   $ 88,804     $ 107,066     $ (31,154 )   $ 75,912  
Customer Relationships
    130,640       (17,465 )     113,175       131,366       (13,758 )     117,608  
Patents/Formulas
    27,220       (13,396 )     13,824       27,220       (11,816 )     15,404  
Non Compete Agreement
    1,143       (751 )     392       1,143       (695 )     448  
Total
  $ 281,082     $ (64,887 )   $ 216,195     $ 266,795     $ (57,423 )   $ 209,372  
Unamortizable intangible assets - carrying value
                                               
Tradenames
  $ 438,062                     $ 455,796                  
 
Intangible amortization expense amounted to $4.8 million for the second quarter of 2008 and $4.5 million for the same period of 2007.  Intangible amortization expense amounted to $9.6 million for the first six months of 2008 and $9.0 million for the same period of 2007. The Company estimates that intangible amortization expense will be approximately $19.0 million in the twelve months of 2009, $18.4 million in 2010, $17.9 million in 2011, $17.4 million in 2012, and $16.4 million in 2013.

During the first quarter of 2008, the Company recorded tradename impairment charges of $3.4 million related to Consumer International brands.  These charges are included in selling, general and administrative expenses in this segment and were the result of lower forecasted sales and profitability.  The amount of the impairment charges was determined by comparing the estimated fair value of the asset to its carrying amount.

Effective January 1, 2008 approximately $19.0 million of tradenames previously considered indefinite lived assets were recharacterized as finite lived due to increased competition in their respective categories and are now being amortized over lives ranging from 5 to 15 years.  The lives were determined based upon the estimated future cash flows of these brands.

The changes in the carrying amount of goodwill for the six months ended June 27, 2008 are as follows:

(In thousands)
 
Consumer Domestic
   
Consumer International
   
SPD
   
Total
 
Balance December 31, 2007
  $ 633,030     $ 33,224     $ 22,588     $ 688,842  
Subsidiary Divestiture (see Note 13)
    --       --       (971 )     (971 )
Additional Unilever contingent consideration (see Note 11e)
    528       --       --       528  
Balance June 27, 2008
  $ 633,558     $ 33,224     $ 21,617     $ 688,399  
 

8.  
Short-term Borrowings and Long-Term Debt

Short-term borrowings and long-term debt consist of the following:

   
June 27,
   
December 31,
 
(In thousands)
 
2008
   
2007
 
Short-term borrowings
           
Securitization of accounts receivable
  $ 15,000     $ 115,000  
International debt
    618       --  
Total short-term borrowings
  $ 15,618     $ 115,000  
Long-term debt
               
Term Loan facility
  $ 374,216     $ 391,069  
Convertible debentures due on August 15, 2033
    99,894       99,948  
Senior subordinated notes (6%) due December 22, 2012
    250,000       250,000  
Total long-term debt
    724,110       741,017  
Less: current maturities
    45,459       33,706  
Net long-term debt
  $ 678,651     $ 707,311  

 
The long-term debt principal payments required to be made are as follows:
 
(In thousands)
     
Due by June 30, 2009
  $ 45,459  
Due by June 30, 2010
    98,345  
Due by June 30, 2011
    105,445  
Due by June 30, 2012
    96,914  
Due by June 30, 2013
    278,053  
Due June 30, 2014 and subsequent
    99,894  
    $ 724,110  

During the first quarter of 2008, the Company repaid $100.0 million of its accounts receivable securitization facility. In the first six months of 2008, the Company paid approximately $16.9 million of its Term Loan. In April 2008, the accounts receivable securitization facility of $115.0 million was renewed with similar terms to the facility previously in place and with a new maturity date of April 2009.
 
The Company has announced that it will redeem all of its outstanding 5.25% Senior Convertible Debentures due 2033 (the “Debentures”) on August 15, 2008 (the "Redemption Date") at 101.50% of the principal amount of the Debentures plus accrued and unpaid interest to the Redemption Date. The aggregate principal amount of the Debentures outstanding is approximately $99.9 million.
 
In lieu of surrendering the Debentures for cash, holders may elect to convert their Debentures into shares of Company common stock. The conversion rate is 32.26 shares of Company common stock per $1,000 principal amount of Debentures (equivalent to a conversion price of $31.00 per share). Cash will be paid in lieu of fractional shares. In order to exercise the conversion right, Debentures must be surrendered for conversion prior to the close of business on August 14, 2008. After that time, holders will be entitled only to the redemption price for the Debentures.
 
Shares of Company common stock issuable upon conversion of the Debentures are reflected in the Company's diluted earnings per share computation.
 

9.  
Comprehensive Income

The following table provides information relating to the Company’s comprehensive income for the three and six months ended June 27, 2008 and June 29, 2007:

   
Three Months Ended
   
Six Months Ended
 
   
June 27,
   
June 29,
   
June 27,
   
June 29,
 
(In thousands)
 
2008
   
2007
   
2008
   
2007
 
Net Income
  $ 45,765     $ 40,533     $ 101,956     $ 85,632  
Other Comprehensive Income, Net of Tax:
                               
 Foreign Exchange Translation Adjustments (Net of Divestiture)
    8,011       7,993       5,131       9,045  
  Interest Rate Hedge Agreements
    2,213       156       (113 )     83  
Comprehensive Income
  $ 55,989     $ 48,682     $ 106,974     $ 94,760  

10.  
Pension and Postretirement Plans

The following table discloses the net periodic benefit cost for the Company’s pension and postretirement plans for the three and six months ended June 27, 2008 and June 29, 2007.

   
Pension Costs
   
Pension Costs
 
   
Three Months Ended
   
Six Months Ended
 
   
June 27,
   
June 29,
   
June 27,
   
June 29,
 
(In thousands)
 
2008
   
2007
   
2008
   
2007
 
Components of Net Periodic Benefit Cost:
                       
Service cost
  $ 710     $ 722     $ 1,433     $ 1,348  
Interest cost
    1,908       1,858       3,845       3,566  
Expected return on plan assets
    (2,148 )     (2,021 )     (4,327 )     (3,877 )
Amortization of prior service cost
    3       4       7       7  
Recognized actuarial loss
    (9 )     52       (18 )     103  
Net periodic benefit cost
  $ 464     $ 615     $ 940     $ 1,147  
                                 
   
Postretirement Costs
   
Postretirement Costs
 
   
Three Months Ended
   
Six Months Ended
 
   
June 27,
   
June 29,
   
June 27,
   
June 29,
 
(In thousands)
 
2008
   
2007
   
2008
   
2007
 
Components of Net Periodic Benefit Cost:
                               
Service cost
  $ 187     $ 197     $ 374     $ 379  
Interest cost
    366       367       733       721  
Amortization of prior service cost
    12       9       23       19  
Recognized actuarial loss
    --       6       --       11  
Net periodic benefit cost
  $ 565     $ 579     $ 1,130     $ 1,130  
 
The Company made cash contributions of approximately $3.9 million to its pension plans during the first six months of 2008. The Company estimates it will be required to make total cash contributions to its pension plans during the remainder of the year of approximately $1.2 million.

 
11.  
Commitments, contingencies and guarantees

a.  
The Company has a partnership with a supplier of raw materials which mines and processes sodium mineral deposits.   This agreement terminates upon two years’ written notice by either company.  The Company has an annual commitment to purchase 240,000 tons at the prevailing market price and purchases the majority of its sodium raw material requirements from the partnership.  The Company is not engaged in any other material transactions with the partnership or the Company’s partner.

b.  
The Company’s distribution of condoms under the TROJAN and other trademarks is regulated by the U.S. Food and Drug Administration (FDA). Certain of the Company’s condoms and similar condoms sold by its competitors contain the spermicide nonoxynol-9 (N-9). The World Health Organization and other interested groups have issued reports suggesting that N-9 should not be used rectally or for multiple daily acts of vaginal intercourse, given the ingredient’s potential to cause irritation to human membranes. In 2005, the FDA issued non-binding draft guidance concerning the labeling of condoms in general and those with N-9 in particular. The Company filed a response recommending alternative labeling to the FDA and has engaged in further discussions with the FDA since that time. While awaiting further FDA guidance, the Company implemented an interim label statement change cautioning against rectal use and more-than-once-a-day vaginal use of condoms with N-9 and launched a public information campaign to communicate these messages to the affected communities. The Company believes that its present labeling for condoms with N-9 is compliant with the overall objectives of the FDA’s draft guidance and that condoms with N-9 will remain a viable contraceptive choice for those couples who wish to use them.  The Company cannot predict the nature of the labeling that ultimately will be required by the FDA. If the FDA or state governments eventually promulgate rules that prohibit or restrict the use of N-9 in condoms (such as new labeling requirements), the Company could incur costs from obsolete products, packaging or raw materials, and sales of condoms could decline, which, in turn, could decrease the Company’s operating income.

c.  
As of June 27, 2008, the Company has commitments to acquire approximately $92.7 million of raw material, packaging supplies and services from its vendors at market prices.

d.  
The Company has $4.5 million of outstanding letters of credit drawn on several banks which guarantee payment for such things as finished goods inventory, insurance claims and one year of rent on a warehouse in the event of the Company’s insolvency.

e.  
In connection with the Company’s October 2003 acquisition of Unilever’s oral care brands in the United States and Canada in October 2003, the Company is required to make additional performance-based payments of a minimum of $5.0 million and a maximum of $12.0 million over the eight year period following the acquisition.  The Company made cash payments of $0.5 million, and accrued a payment of $0.3 million in the first six months of 2008.  The payment and accrual were accounted for as additional purchase price.  The Company has paid approximately $8.6 million, exclusive of the $0.3 million accrual, in additional performance-based payments since the acquisition.

f.  
The Company filed suit against Abbott Laboratories, Inc (“Abbott”) in April 2005 claiming infringement of certain patents resulting from Abbott’s manufacture and sale of its Fact Plus pregnancy diagnostic test kits.  Following a trial in February 2008, the jury found that the Company’s patents were valid and willfully infringed by Abbott during the period from April 1999 through September 2003 and awarded damages to the Company in the amount of $14.6 million. On June 23, 2008, the District Court issued an opinion finding that Abbott’s conduct had been willful and doubled the damages awarded to the Company to $29.2 million before prejudgment interest. There remains a post-trial motion pending with the District Court with respect to the damages awarded at trial. The Company will vigorously contest the motion. In June 2007, Abbott filed suit against the Company claiming infringement of certain patents that are licensed to Abbott, also in relation to pregnancy diagnostic test kits.  The Company intends to continue its vigorous defense of this action.

g.  
The Company, in the ordinary course of its business, is the subject of, or a 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.

 
12.  
Related Party Transactions

For the six months ended June 27, 2008 and June 29, 2007, the Company invoiced Armand Products Company (“Armand”), which is 50% owned by the Company, $0.8 and $0.8 million, respectively, for administration and management oversight services (which were recorded as a reduction of selling, general and administrative expenses). Sales of Armand products to the Company over the same periods were $6.2 and $4.2 million, respectively. As of June 27, 2008 and June 29, 2007, the Company had outstanding accounts receivable from Armand of $0.5 and $1.3 million, respectively. Also, the Company had outstanding accounts payable to Armand of $2.8 and $0.8 million as of June 27, 2008 and June 29, 2007, respectively.

For the six months ended June 27, 2008 and June 29, 2007, the Company invoiced The ArmaKleen Company, (“ArmaKleen”), which is 50% owned by the Company, $1.4 and $1.5 million, respectively, for administration and management oversight services (which were recorded as a reduction of selling, general and administrative expenses). Sales of inventory to ArmaKleen over the same periods were $2.7 and $2.7 million, respectively. As of June 27, 2008 and June 29, 2007, the Company had outstanding accounts receivable from ArmaKleen of $0.6 and $1.1 million, respectively.
 
13.  
Gain on Sale of Business
 
In February 2008, the Company sold its wholly-owned British subsidiary, Brotherton Specialty Products Ltd. (“Brotherton”) for a total of $11.2 million net of fees.  The sale resulted in a pretax gain of $3.0 million, which was included as a reduction of selling, general and administrative expenses in the Specialty Products Division.
 
14.  
Plant Shutdown
 
On June 5, 2008, the Company announced plans to construct a new integrated laundry detergent manufacturing plant and distribution center in York County, Pennsylvania. Construction is anticipated to begin in September 2008 and the site is scheduled to be operational by the end of 2009. In conjunction with the opening of the new facility, the Company will close its existing laundry detergent manufacturing plant and distribution buildings in North Brunswick, New Jersey.

The Company's existing North Brunswick complex is comprised of five separate buildings which has resulted in significant inefficiencies and does not enable expansion to address expected future growth. The Company plans to provide severance and transition benefits to approximately 300 affected employees at the North Brunswick complex, as well as consideration for employment opportunities at other Company operations.

The Company expects to invest approximately $150.0 million in capital expenditures to build the facility and incur the following cash and non–cash costs relating to the closing of the North Brunswick complex, which are included in Cost of Sales and charged to the Consumer Domestic segment:

Cash Costs
Severance - $5.0 million
Exit and disposal costs - $6.0 million

Non Cash Costs
Accelerated Depreciation - $21.0 million

The severance costs are being recognized ratably over the employees’ respective service requirement. In the second quarter of 2008, the Company accrued $0.3 million.  The exit and disposal costs, which include asset disposition and lease related costs, will not be incurred until late in 2009 and early 2010. As a result, no expense has yet been recognized for these costs. The Company anticipates it will spend approximately $3.0 million in 2009 and the balance primarily in 2010 associated with closing the facilities.

The accelerated depreciation charge is being recognized ratably over the remaining life of the North Brunswick complex. In the second quarter of 2008, the Company recorded a charge of $1.1 million related to the accelerated depreciation.

 
15.  
Segment Information
 
The Company operates three reportable segments: Consumer Domestic, Consumer International and Specialty Products Division (“SPD”).  These segments are determined based on differences in the nature of products and organizational and ownership structures.  The Company also has a Corporate segment.

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

Segment
Products
Consumer Domestic
Household and personal care products
Consumer International
Primarily personal care products
SPD
Specialty chemical products

The Company had 50% ownership interests in Armand Products Company (“Armand”) and The ArmaKleen Company (“ArmaKleen”) as of June 27, 2008.  The Company’s 50% ownership interest in Esseco U.K. LLP (“Esseco”) was divested as part of the sale of its wholly-owned British subsidiary, Brotherton Specialty Products Ltd. The equity in earnings of Armand and ArmaKleen for the six months ended June 27, 2008 and Esseco for the two months ended February 29, 2008, prior to its sale, is included in the Corporate segment.

Some of the subsidiaries that are included in the Consumer International segment manufacture and sell personal care products to the Consumer Domestic segment.  These sales are eliminated from the Consumer International segment results set forth below.
 
 
Segment sales and income before taxes and minority interest for the three and six month periods ended June 27, 2008 and June 29, 2007 were as follows:

(in thousands)
 
Consumer Domestic
(3)
   
Consumer International
(3)
   
SPD
   
Corporate
   
Total
 
Net Sales(1)
                             
Second Quarter 2008
  $ 411,592     $ 112,809     $ 69,558     $ -     $ 593,959  
Second Quarter 2007
  $ 383,337     $ 101,794     $ 61,341     $ -     $ 546,472  
First Six Months of 2008
  $ 794,336     $ 212,503     $ 139,987     $ -     $ 1,146,826  
First Six Months of 2007
  $ 753,171     $ 188,533     $ 119,103     $ -     $ 1,060,807  
Income before Minority Interest and Income Taxes(2)
                                 
Second Quarter 2008
  $ 56,095     $ 11,490     $ 5,717     $ 2,152     $ 75,454  
Second Quarter 2007
  $ 47,730     $ 11,526     $ 5,121     $ 1,760     $ 66,137  
First Six Months of 2008
  $ 123,926     $ 18,742     $ 15,658     $ 4,532     $ 162,858  
First Six Months of 2007
  $ 100,495     $ 22,395     $ 9,648     $ 4,020     $ 136,558  

(1)  
Intersegment sales from Consumer International to Consumer Domestic were $1.4 million and $1.7 million for the second quarter ended June 27, 2008 and June 29, 2007, respectively. Intersegment sales from Consumer International to Consumer Domestic were $3.5 million and $2.9 million for the six months ended June 27, 2008 and June 29, 2007, respectively.

(2)  
In determining Income Before Minority Interest and Income Taxes, interest expense, investment earnings, and other income (expense)were allocated to the segments based upon each segment’s relative operating profit. The Corporate segment income consists of equity in earnings of affiliates.

(3)  
As of January 1, 2008, the Company modified its organizational structure, resulting in a change in classification of certain Consumer Domestic export sales to Consumer International.  Therefore, 2007 results have been restated to reflect a reclassification in sales of $2.9 million and $5.4 million for the three and six months ended June 29, 2007, respectively.  In addition, Income Before Minority Interest and Income Taxes of $0.6 million and $0.9 million for the three and six months ended June 29, 2007, respectively, has been reclassified from the Consumer Domestic to the Consumer International Segment.
 
 
The following table discloses product line revenues from external customers for the three and six months ended June 27, 2008 and June 29, 2007.
 
   
Three Months Ended
   
Six Months Ended
 
   
June 27,
   
June 29,
   
June 27,
   
June 29,
 
(In thousands)
 
2008
   
2007
   
2008
   
2007
 
Household Products
  $ 266,521     $ 244,804     $ 509,348     $ 481,182  
Personal Care Products
    145,071       138,533       284,988       271,989  
Total Consumer Domestic
    411,592       383,337       794,336       753,171  
Total Consumer International
    112,809       101,794       212,503       188,533  
Total SPD
    69,558       61,341       139,987       119,103  
Total Consolidated Net Sales
  $ 593,959     $ 546,472     $ 1,146,826     $ 1,060,807  

Household Products include deodorizing and cleaning products and laundry products. Personal Care Products include condoms, pregnancy kits, oral care and skin care products.


Supplemental Financial Information of Guarantor and Non-Guarantor Operations

The Company’s 6% senior subordinated notes are fully and unconditionally guaranteed, by a 100% owned domestic subsidiary of the Company on a joint and several basis. The following information is presented in response to Rule 3-10 of Regulation S-X, promulgated by the Securities and Exchange Commission. The Guarantor subsidiary’s net sales are principally to, and other operating activities are principally with, the Company, which is referred to in the table below as “Parent.”

Effective in the second quarter of 2008, one of the Company’s guarantor subsidiaries was merged into the Parent Company.  Results of the merged subsidiary in the second quarter 2008 are reflected in the “Company” column below. Prior year results were not restated.

Supplemental information for the condensed consolidated balance sheets at June 27, 2008 and December 31, 2007, the condensed consolidated income statements  for three and six months ended June 27, 2008 and June 29, 2007, and statements of cash flows for the six months ended June 27, 2008 and June 29, 2007, are summarized as follows (amounts in thousands):

INCOME STATEMENTS

   
For the Three Months Ended June 27, 2008
 
         
Guarantor
   
Non-Guarantor
         
Total
 
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net Sales
  $ 478,597     $ 31,138     $ 127,987     $ (43,763 )   $ 593,959  
Cost of sales
    307,039       13,631       74,572       (43,763 )     351,479  
Gross Profit
    171,558       17,507       53,415       -       242,480  
Marketing expenses
    61,123       -       18,047       -       79,170  
Selling, general and administrative expenses
    57,439       4,885       19,104       -       81,428  
Income from Operations
    52,996       12,622       16,264       -       81,882  
Equity in earnings of affiliates
    17,304       -       1,609       (16,761 )     2,152  
Investment earnings
    1,402       -       555       -       1,957  
Intercompany dividends/interest
    2,587       -       (2,587 )     -       -  
Other income (expense), net
    (411 )     -       511       -       100  
Interest expense
    (9,908 )     -       (730 )     -       (10,638 )
Income before minority interest and taxes
    63,970       12,622       15,622       (16,761 )     75,453  
Minority interest
    -       -       4       -       4  
Income before income taxes
    63,970       12,622       15,618       (16,761 )     75,449  
Income taxes
    18,205       4,745       6,734       -       29,684  
Net Income
  $ 45,765     $ 7,877     $ 8,884     $ (16,761 )   $ 45,765  
 
 
   
For the Three Months Ended June 29, 2007
 
         
Guarantor
   
Non-Guarantor
         
Total
 
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net Sales
  $ 446,411     $ 33,768     $ 111,701     $ (45,408 )   $ 546,472  
Cost of sales
    298,258       14,199       62,730       (45,408 )     329,779  
Gross Profit
    148,153       19,569       48,971       -       216,693  
Marketing expenses
    49,155       -       16,947       -       66,102  
Selling, general and administrative expenses
    53,170       3,590       17,281       -       74,041  
Income from Operations
    45,828       15,979       14,743       -       76,550  
Equity in earnings of affiliates
    25,468       -       1,229       (24,937 )     1,760  
Investment earnings
    697       224       599       -       1,520  
Intercompany dividends/interest
    (10,861 )     9,846       1,015       -       -  
Other income (expense), net
    532       -       (9 )     -       523  
Interest expense
    (12,244 )     -       (1,972 )     -       (14,216 )
Income before minority interest and taxes
    49,420       26,049       15,605       (24,937 )     66,137  
Minority interest
    -       -       (7 )     -       (7 )
Income before income taxes
    49,420       26,049       15,612       (24,937 )     66,144  
Income taxes
    8,887       9,638       7,086       -       25,611  
Net Income
  $ 40,533     $ 16,411     $ 8,526     $ (24,937 )   $ 40,533  
 
 
      For the Six Months Ended June 27, 2008  
         
Guarantor
   
Non-Guarantor
         
Total
 
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net Sales
  $ 923,949     $ 63,608     $ 245,494     $ (86,225 )   $ 1,146,826  
Cost of sales
    595,278       27,326       143,861       (86,225 )     680,240  
Gross Profit
    328,671       36,282       101,633       -       466,586  
Marketing expenses
    103,093       -       29,562       -       132,655  
Selling, general and administrative expenses
    104,251       10,426       44,609       -       159,286  
Income from Operations
    121,327       25,856       27,462       -       174,645  
Equity in earnings of affiliates
    41,725       -       3,489       (40,682 )     4,532  
Investment earnings
    3,050       216       1,260       -       4,526  
Intercompany dividends/interest
    (6,453 )     10,030       (3,577 )     -       -  
Other income (expense), net
    950       -       1,348       -       2,298  
Interest expense
    (20,993 )     -       (2,150 )     -       (23,143 )
Income before minority interest and taxes
    139,606       36,102       27,832       (40,682 )     162,858  
Minority interest
    -       -       7       -       7  
Income before income taxes
    139,606       36,102       27,825       (40,682 )     162,851  
Income taxes
    37,650       13,574       9,671       -       60,895  
Net Income
  $ 101,956     $ 22,528     $ 18,154     $ (40,682 )   $ 101,956  
 
 
   
For the Six Months Ended June 29, 2007
 
         
Guarantor
   
Non-Guarantor
         
Total
 
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net Sales
  $ 872,686     $ 65,553     $ 210,685     $ (88,117 )   $ 1,060,807  
Cost of sales
    583,657       27,615       121,083       (88,117 )     644,238  
Gross Profit
    289,029       37,938       89,602       -       416,569  
Marketing expenses
    85,023       -       26,931       -       111,954  
Selling, general and administrative expenses
    105,866       7,236       32,820       -       145,922  
Income from Operations
    98,140       30,702       29,851       -       158,693  
Equity in earnings of affiliates
    53,046       -       2,916       (51,942 )     4,020  
Investment earnings
    1,659       443       1,051       -       3,153  
Intercompany dividends/interest
    (22,134 )     18,768       3,366       -       -  
Other income (expense), net
    588       -       (479 )     -       109  
Interest expense
    (25,902 )     -       (3,515 )     -       (29,417 )
Income before minority interest and taxes
    105,397       49,913       33,190       (51,942 )     136,558  
Minority interest
    -       -       (12 )     -       (12 )
Income before income taxes
    105,397       49,913       33,202       (51,942 )     136,570  
Income taxes
    19,765       18,468       12,705