10-Q 1 f10q20022.txt SECOND QUARTER 2002 FILING ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 28, 2002 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file Number 333-73160 ------------------ ARMKEL, LLC (Exact name of registrant as specified in its certificate of formation)

------------------ 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 |_| As of August 8, 2002, all of the 10,000 outstanding membership interests in Armkel, LLC were held by affiliates. ================================================================================ PART I - FINANCIAL INFORMATION ARMKEL, LLC AND SUBSIDIARIES ("SUCCESSOR") CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND CHANGES IN MEMBERS' EQUITY/NET ASSETS TO BE SOLD (Unaudited)

See Notes to Condensed Consolidated Financial Statements. ARMKEL, LLC AND SUBSIDIARIES ("SUCCESSOR") CONDENSED CONSOLIDATED BALANCE SHEETS

See Notes to Condensed Consolidated Financial Statements. ARMKEL, LLC AND SUBSIDIARIES ("SUCCESSOR") CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)

See Notes to Condensed Consolidated Financial Statements. ARMKEL, LLC AND SUBSIDIARIES ("SUCCESSOR") NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Financial Statement Presentation The consolidated balance sheet as of June 28, 2002, the consolidated statements of income and members' equity and consolidated statements of cash flow for the three months and six months ended June 28, 2002 have been prepared by Armkel, LLC and subsidiaries (the "Company" or the "Successor") and are unaudited. The period for the three months and six months ended June 30, 2001 represents the combined income statement of the Carter-Wallace Consumer Business - Excluding Antiperspirant/Deodorant Products in the United States and Canada and Pet Products (the "Predecessor") and is 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 June 28, 2002 and for all periods presented have been made. The Company acquired the Predecessor on September 28, 2001 (see Note 6 for further details on the acquisition). The Predecessor income statement has been prepared pursuant to the Asset Purchase Agreement and Product Line Purchase Agreement in accordance with accounting principles generally accepted in the United States of America as detailed in the Company's December 31, 2001 Form 10-K filing. The principal differences in accounting between the Company and the Predecessor relate to the income tax status of the entities and amortization. As the Company is treated as a partnership for U.S. tax purposes, it is generally not subject to U.S taxes on income. The Predecessor tax provision was calculated as if it was fully taxable under U.S tax law and as if it was filing tax returns on a stand-alone basis. As the Company adopted Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets, the Company does not amortize goodwill and tradenames. The Predecessor recorded amortization expense for its goodwill and tradenames. 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, 2001 required Form 10-K filing. Certain items previously reported in specific captions in the accompanying financial statements have been reclassed to conform with current period classification. The results of operations for the period ended June 28, 2002 are not necessarily indicative of the operating results for the full year. 2. Inventories consist of the following:

4. Recent Accounting Pronouncements a. Effective January 1, 2002, the Company adopted EITF 01-9, "Accounting for Consideration given to a Customer or a Reseller of the Vendor's Products", which codifies and reconciles certain issues from EITF 00-14, "Accounting for Certain Sales Incentives", and EITF 00-25, "Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer." EITF 01-9 addresses the income statement classification for offers by a vendor directly to end consumers that are exercisable after a single exchange transaction in the form of coupons, ARMKEL, LLC AND SUBSIDIARIES ("SUCCESSOR") NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) rebate offers, or free products or services disbursed on the same date as the underlying exchange transaction. The issue requires the cost of these items to be accounted for as a reduction of revenues, not included as a marketing expense as the Company did previously. The issue also outlines required accounting treatment of certain sales incentives, including slotting or placement fees, cooperative advertising arrangements, buydowns and other allowances. The Company previously recorded such costs as marketing expenses. The issue requires the Company to report the paid consideration expense as a reduction of sales, rather than marketing expense. The Predecessor's second quarter and year to date 2001 net sales have been restated for this issue. The impact was a reduction of net sales and marketing expense for the three month and six month periods of approximately $13.1 million and $25.3 million in 2002 and $11.3 million and $22.3 million in 2001, respectively, and did not have an effect on net income. b. In January 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of" and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a business (as previously defined in that Opinion). This statement also amends ARB No. 51, "Consolidated Financial Statements"' to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The Company has evaluated this statement and has determined there is no material impact on the Company's consolidated financial statements. c. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, FASB Statement No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements." This Statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers." This Statement amends FASB Statement No. 13, "Accounting for Leases", to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. The Company will adopt the provisions of this Statement upon its effective date and does not anticipate it to have a material effect on its financial statements. d. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with exit or disposal commitments to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company is currently evaluating the impact this pronouncement will have on its consolidated financial statements. 5. Goodwill and Intangible Assets In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which supersedes APB Opinion No. 17, "Intangible Assets". Under its changes, SFAS No. 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment. The Company, at its inception, adopted certain provisions of this statement. The impairment provisions of the statement were adopted January 1, 2002 and did not have any impact on the Company's consolidated financial statements. ARMKEL, LLC AND SUBSIDIARIES ("SUCCESSOR") NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following tables discloses the carrying value of all intangible assets:

Intangible amortization expense amounted to $2.3 million and $1.4 million for the six months ended June 28, 2002 and June 30, 2001, respectively. The estimated intangible amortization for each of the next five years is approximately $4.5 million. The weighted average amortization period for patents is 6.4 years. The changes in the carrying amount of goodwill for the six months ended June 28, 2002 is as follows:

In accordance with SFAS No. 142, the Company completed the impairment test of the valuation of goodwill and intangibles as of January 1, 2002 and based upon the results, there was no impairment. 6. Acquisitions On May 7, 2001 the Company and Carter-Wallace entered into a definitive Asset Purchase Agreement which was consummated on September 28, 2001. The Company acquired the assets and liabilities that related primarily to the consumer products business of Carter-Wallace, as well as 100% of the capital stock of certain foreign subsidiaries of Carter-Wallace (the "Acquisition"). Under a separate agreement dated May 7, 2001, Church & Dwight Co., Inc. ("C&D") agreed to simultaneously purchase from the Company the assets relating to the antiperspirant/deodorant product lines in the United States and Canada and the assets relating to the Lambert-Kay line of pet products, and assumed the liabilities of these businesses. The Acquisition was accounted for as a purchase under the provisions of SFAS No. 141, "Business Combinations" and has been included in the Company's financial statements from the date of the acquisition. An appraisal is currently in process and the purchase price allocation will be modified based on its results by the end of the third quarter. Pro forma results The following reflects pro forma results for the three and six months ended June 30, 2001.

The pro forma results adjusts for additional interest expense related principally to the debt incurred to finance the Acquisition and for income taxes under the Company's LLC status. Adjustments were also made to depreciation and amortization expense related to the fair value of the assets acquired and the implementation of SFAS No. 142, "Goodwill and Other Intangible Assets." ARMKEL, LLC AND SUBSIDIARIES ("SUCCESSOR") NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 7. Related Party Transactions Arrangements with Church & Dwight As part of the acquisition, the Company entered into a management services agreement ("MSA") with C&D whereby C&D has agreed to provide the Company with corporate management and administrative services primarily for the Company's domestic operations. These services generally include, but are not limited to, sales, marketing, facilities operations, finance, accounting, MIS, legal and regulatory, human resources, R&D, Canadian sales and executive and senior management oversight of each of the above services. The term of the management services agreement is five years, with automatic one-year renewals unless the Company provides six months' notice that it does not want to renew the agreement. For the three and six months ended June 28, 2002, the Company paid C&D $5.4 and $10.1 million for administrative and management oversight services and sold $0.0 million and $5.4 million of deodorant antiperspirant inventory to C&D at its cost, respectively. The Company charged C&D $0.1 million and $1.1 million of transition administrative services for the current quarter and six months, respectively. The Company had a net payable at June 28, 2002 of approximately $8.2 million to C&D that primarily related to administration fees and invoices paid by C&D on behalf of Armkel. Arrangements with Kelso Kelso has agreed to provide the Company with financial advisory services for which the Company will pay an annual fee of $1.0 million. The Company has agreed to indemnify Kelso against certain liabilities and reimburse expenses in connection with its engagement. For the three and six months ended June 28, 2002, the Company paid Kelso $0.3 million and $0.5 million, respectively. 8. Contingencies The Acquisition, and the concurrent sale of the remainder of Carter-Wallace's business to a third party, involved a number of arrangements between the Company and Medpointe (the successor to Carter-Wallace) relating to assets and liabilities purchased and assumed as part of the transaction. These arrangements have given rise to a number of disputes among the parties which may lead to the incurrence of costs or liabilities, and the Company's payment of funds. There exists a dispute related to retiree medical costs. Pursuant to the Asset Purchase Agreement, the Company has agreed to assume the liability for 60% of the future retiree medical costs incurred with respect to certain specifically identified employees of the consumer products business that terminated employment with Carter-Wallace during the period from May 7, 2001, through and including September 28, 2001, the date the Acquisition was consummated. Medpointe has asserted that all of the specifically identified employees of the consumer products business were terminated by Carter-Wallace on the date of closing, and that the Company is therefore liable for 60% of the future retiree medical costs with respect to all of those former employees. Medpointe estimates the Company's share of the liability for the specifically identified employees to be approximately $6 million to $10 million (depending upon final actuarial valuation), based on current plan design, which is subject to change at any time by such entity. The Company disagrees with Medpointe's position although it does not believe that it has any liability for those employees who chose not to retire but to instead work for the Company or C&D, it cannot be certain that the dispute will be resolved in the Company's favor. Due to the uncertainty regarding the resolution of this dispute, any potential liability for this amount has not been reflected in these financial statements. Pursuant to the Asset Purchase Agreement, the purchase price shall be adjusted with respect to domestic net working capital at close. The Company and Medpointe are currently negotiating this adjustment. This may result in an approximate $4 million liability to the Company. However, due to the uncertainty of the outcome, no amount has been reflected in these financial statements. The Company has entered into an agreement with Medpointe pursuant to which the Company has agreed to indemnify it and certain related parties against 60% of all liabilities relating to any action challenging the validity of ARMKEL, LLC AND SUBSIDIARIES ("SUCCESSOR") NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) the Acquisition or the merger (other than antitrust-based action), including 60% of all Appraisal Damages (defined as the recovery greater than the per share merger price times the number of shares in the appraisal class) claims made by former Carter-Wallace shareholders. While the Company's potential exposure with respect to the Appraisal Damages claims is effectively capped at $12 million (because of a separate agreement between Carter-Wallace and certain shareholders of Carter-Wallace), there is no cap on the Company's indemnification obligation arising out of other transaction related liabilities of Carter-Wallace. Due to uncertainty of the outcome of currently asserted Appraisal Damages claims, no amount has been reflected in these financial statements. In connection with the sale of the Disposed Businesses to C&D, C&D agreed to indemnify the Company for up to 17.4% of any amounts that the Company may become liable for pursuant to the Company's indemnification agreement with Carter-Wallace. If the Company is required to perform under these indemnification obligations, its liability could be substantial. This could materially and adversely affect the Company's financial condition and results of operations. Carter-Wallace has been engaged in litigation with Tambrands Inc. in the Supreme Court of the State and County of New York arising out of a patent infringement and misappropriation suit previously filed against both companies in the United States District Court, Southern District of New York, by New Horizons Diagnostics Corporation, or "NHDC", et al. The NHDC suit, which was settled and discontinued in July 1996, asserted claims with respect to certain "gold sol" technology (used in the First Response and Answer home pregnancy and ovulation test kits) that Carter-Wallace had acquired from Tambrands pursuant to a written purchase agreement in March 1990. Carter-Wallace paid an immaterial amount toward that settlement. In the pending Supreme Court action, Tambrands seeks reimbursement from Carter-Wallace of an unspecified portion of the amount paid by Tambrands in settlement of the NHDC suit, and for defense costs. Both Tambrands and Carter-Wallace moved for summary judgment, and the Supreme Court granted Carter-Wallace's motion. Tambrands has appealed that ruling. The Company has assumed this litigation as part of the Acquisition. The Company believes it has good defenses, under the terms of the 1990 purchase agreement, to Tambrands' claim. The Company, in the ordinary course of its business, is the subject of, or party to, various pending or threatened legal actions. The Company believes that any ultimate liability arising from these actions will not have a material adverse effect on its financial position or results of operation. 9. Restructuring Reserve As of the date of the Acquisition, the Company started to implement a plan to reorganize the operation of the acquired consumer business. The main components of the plan included rationalizing facilities for which the Company expects to incur lease termination costs of $1.8 million, environmental remediation costs of $1.8 million and rationalizing the Company's work force. The accrual for severance is consistent with the Company's plan to have C&D provide various services instead of the current infrastructure of the Predecessor company. The accrued severance is for identified employees from various areas including executives, administrative support and corporate functions (finance, human resources, legal, MIS, R&D, logistics, marketing, sales and purchasing). There may be other employees identified for involuntary termination to complete the plan and, if so, an additional amount of severance will be accrued and goodwill will increase. Actions required by the plan of termination began immediately after consummation of the transaction and the period of time to complete the plan will not extend past 12 months after the Acquisition date. The following table summarizes the activity in the Company's restructuring accruals:

ARMKEL, LLC AND SUBSIDIARIES ("SUCCESSOR") NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 10. Segments and Supplemental Information Segment Information The Company has two operating segments: Domestic Consumer Products Division and International Consumer Products Division. Measurement of Segment Results and Assets The accounting policies of the segments are generally the same as those described in Note 1. Supplemental Financial Information of Domestic and International Operations The senior subordinated notes registered by the Company are fully and unconditionally guaranteed by the domestic subsidiaries of the Company on a joint and several basis. The following information is being presented to comply with SEC Regulation SX, Item 3-10 and to provide required segment disclosures. Supplemental information for condensed consolidated balance sheets at June 28, 2002, condensed consolidated income statements and consolidated cash flows for the period from December 31, 2001 to June 28, 2002 is summarized as follows (amounts in thousands): ARMKEL, LLC AND SUBSIDIARIES ("SUCCESSOR") NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

ARMKEL, LLC AND SUBSIDIARIES ("SUCCESSOR") NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

ARMKEL, LLC AND SUBSIDIARIES ("SUCCESSOR") NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table sets forth the Company's principal product lines and related data for the three and six months period ended June 28, 2002 and June 30, 2001.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Armkel, LLC and subsidiaries (the "Company" or the "Successor") is an equally owned joint venture formed by Church & Dwight Co., Inc. (C&D) and affiliates of Kelso & Company, L.P. (Kelso). On September 28, 2001, the Company acquired certain of the domestic consumer product assets of Carter-Wallace, primarily Trojan condoms, Nair depilatories, and First Response and Answer test kits, and the international subsidiaries of Carter-Wallace. The remainder of Carter-Wallace, comprised of its healthcare and pharmaceuticals businesses, was merged with an unrelated third party after the completion of the Acquisition. Simultaneously with the consummation of the acquisition, the Company sold the remainder of the consumer products businesses, Arrid antiperspirant in the U.S and Canada and the Lambert-Kay line of pet care products, to C&D (the "Disposed Businesses"). Prior to the Acquisition, Carter-Wallace reported its historical financial results for the combined business, including the business the Company acquired, the Disposed Businesses and the healthcare and pharmaceuticals business on a consolidated basis. In connection with the Acquisition, the Carter-Wallace consumer business predecessor financial statements were prepared to reflect the operating performance of the Company's business for the years ended March 31, 2000 and 2001 and for the period from April 1, 2001 to September 28, 2001. The Company's historical financial statements were not compiled separately at any prior time, as the Company was not a stand-alone subsidiary, with the exception of the international division. As a result, certain cost allocation assumptions were made. The following section discusses comparisons to the three-month and six-month period ended June 28, 2002 compared to the same period in the prior year for the predecessor company.

(1) Net Sales for the predecessor financial statements has been adjusted to conform with EITF 01-9. (2) Distribution expense reclassified from operating expense to cost of goods sold for predecessor financial statements in order to conform to the Company's presentation. The results of operations for the period from January 1, 2002 to June 28, 2002 are affected by certain expenses related to accounting and other acquisition related integration expenses. These items are outlined below and addressed in further detail in the discussion below:

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Net Sales Net sales for the quarter increased $2.0 million, or 1.8%, to $115.9 million from $113.9 million in the same period last year. Domestic Net Sales decreased $1.8 million, or 3.0%, to $58.3 million from $60.1 million. This decrease in Domestic Net Sales (net of intercompany eliminations) is primarily due to lower sales for condoms and depilatories in the quarter due to promotional timing differences for the Company compared to the predecessor company. International Net Sales increased $3.7 million, or 7.0%, to $57.6 million from $53.8 million. The increase in International Net Sales is principally due to higher sales of Nair and Trojan. Net sales for the six months ended June 28, 2002 increased $4.1 million, or 2.0%, to $212.3 million from $208.2 million in the same period last year. Domestic Net Sales increased $1.4 million, or 1.3%, to $106.9 million from $105.5 million. This increase in Domestic Net Sales (net of intercompany eliminations) is primarily due to the continued growth in the domestic condoms and depilatories businesses. International Net Sales increased $2.7 million, or 2.6%, to $105.4 million from $102.7 million. The increase in International Net Sales is principally due to higher sales of Sterimar, Nair and Trojan. Effective January 1, 2002, the Company adopted EITF 01-9 "Accounting for Consideration given to a Customer or a Reseller of the Vendor's Products", which codifies and reconciles certain issues from EITF 00-14 and EITF 00-25. EITF 01-9 addresses the income statement classification for offers by a vendor directly to end consumers that are exercisable after a single exchange transaction in the form of coupons, rebate offers, or free products or services disbursed on the same date as the underlying exchange transaction. The issue requires the cost of these items to be accounted for as a reduction of revenues, not included as a marketing expense as the Company did previously. The EITF also outlines required accounting treatment of certain sales incentives, including slotting or placement fees, cooperative advertising arrangements, buydowns and other allowances. The Company previously recorded such costs as marketing expenses. The issue requires the Company to report the paid consideration expense as a reduction of sales, rather than marketing expense. The Predecessor's second quarter and year to date 2001 net sales have been restated for this issue. The impact was a reduction of net sales and marketing expense for the three month and six month periods of approximately $13.1 million and $25.3 million in 2002 and $11.3 million and $22.3 million in 2001, respectively, and did not have an effect on net income. Cost of Goods Sold Cost of goods sold for the quarter increased $3.8 million, or 7.8%, to $52.6 million from $48.8 million in the same period last year. As a percentage of net sales, cost of goods sold for the quarter grew to 45.4% from 42.8% in 2001. The increase in cost of goods sold is primarily due to the $1.6 million excess cost to carry the Cranbury plant with minimal production in the quarter. Excluding this cost, cost of goods sold, as a percentage of net sales, would be 44.0% of net sales. Cost of goods sold for the six months ended June 28, 2002 increased $11.9 million, or 13.0%, to $103.6 million from $91.7 million in the same period last year. As a percentage of net sales, cost of goods sold year to date grew to 48.8% from 44.0% in 2001. This increase in cost of goods sold is due to the remaining $8.1 million of additional expense relating to inventory step-up adjustments incurred at the Acquisition and due to the excess cost to carry the Cranbury plant of $1.6 million. Excluding these adjustments, cost of goods sold, as a percentage of net sales, would be 44.2% of net sales. Operating Costs excluding Interest Expense and Other Income Total operating expenses for the quarter, excluding interest expense and other income, increased $3.7 million, or 11.1%, to $37.0 million from $33.3 million in the same period last year. Total operating expenses for the six months ended June 28, 2002, excluding interest expense and other income, increased $8.4 million, or 13.4%, to $71.2 million from $62.8 million in the six months ended June 30, 2001. The operating expense increases are addressed below. Marketing expenses for the quarter increased by $1.1 million, or 8.9%, to $13.4 million from $12.3 million in the same period last year. The increase in spending in the quarter is primarily related to higher advertising spending behind Trojan, Nair and First Response in the domestic market. Marketing expenses in the six months ended June 28, 2002 increased by $1.6 million, or 6.9%, to $24.9 million from $23.3 million in the six months ended June 30, 2001. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Selling, general and administrative expenses for the quarter increased $2.6 million, or 12.4%, to $23.6 million from $21.0 million in the same period last year. Selling, general and administrative expenses in the six months ended June 28, 2002 increased $6.8 million, or 17.2% to $46.3 million from $39.5 million in the same period last year. This year to date increase is primarily related to estimated transitional costs of $2.6 million for former Carter-Wallace employees employed during the integration process, $3.1 million in fees to Church & Dwight and Kelso, and a net increase of $0.9 million in amortization for acquired patents and goodwill. Interest Expense and Other Income Interest expense for the quarter was $8.9 million compared to $0.3 million for the same period last year. Interest expense for the six months ended June 28, 2002 was $18.4 million compared to $0.6 million for the same period last year. The interest expense in 2002 is related to the $225 million in outstanding bonds and $220 million in term loans incurred at the time of the Acquisition. Interest income for the quarter of $0.3 million increased $0.2 million compared to the same period last year. Interest income for the six months ended June 28, 2002 of $0.6 million increased $0.3 million compared to the same period last year. Liquidity and capital resources The Company considers cash and cash equivalents, and availability under its revolving credit facility, as the principal measurement of its liquidity. At June 28, 2002, cash, including cash equivalents, totaled $41.1 million as compared to $55.8 million at December 31, 2001. At June 28, 2002, the Company had an unused revolving credit facility of $85 million. The Company had outstanding long-term debt of $436 million, and the aforementioned cash and cash equivalents less short term and related party debt of $23 million, for a net debt position of $413 million at June 28, 2002. Based on the definition in its loan agreements, the Company's EBITDA is estimated at $33 million for the three months ending June 28, 2002 and $57 million for the six months ended June 28, 2002. Financial covenants in the Company's loan agreements include a leverage ratio and an interest coverage ratio, both of which the Company was in compliance. The Company believes cash on hand, along with the $85 million revolving credit facility, is sufficient to operate its businesses, to make expected capital expenditures, to make severance payments, and to meet foreseeable liquidity requirements. Cash flow used in operating activities for the six months ended June 28, 2002 was $8.1 million which includes $9.9 million in semi-annual subordinated debt interest payments and $21 million in severance payments partially offset by income from operations. Cash flow used in investing activities for the six months ended June 28, 2002 was $5.8 million which is related to capital expenditures and acquisition related costs. The Company has incurred and will incur severance and other change in control related liabilities to certain employees. In the six-month period ending June 28, 2002 it paid $21 million in severance payments. The Company currently anticipates that the total severance payments will equal approximately $44 million and the Company has paid out $31 million since the start of the acquisition. It anticipates the remaining $13 million in severance and related costs to be principally paid out in 2002 and 2003, although the restructuring plan will be completed in the third quarter of 2002. Cautionary Note on Forward-Looking Statements This report contains forward-looking statements relating, among others, to financial objectives, liquidity needs, severance costs, contingencies and other matters. These statements, represent the intentions, expectations and beliefs of the Company, and are subject to risks, uncertainties and other factors, many of which are outside the Company's control. These factors, which include the ability of Church & Dwight to successfully complete the integration of the Company's operations, and assumptions as to market growth and consumer demand (including but not limited to general economic and marketplace conditions and events, competitors' actions and the Company's costs), and the MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) outcome of contingencies, including litigation, environmental remediation and the divestiture of assets, could cause actual results to differ materially from such forward-looking statements. For a description of additional cautionary statements, see the Company's 2001 Form 10-K for the year ended December 31, 2001 and in the Company's subsequent SEC filings, as well as Carter-Wallace's historical SEC reports. PART II - Other Information Item 6. Exhibits and Reports on Form 8-K a. Exhibits (99.1) Statement regarding the Certification of the CEO of Armkel, LLC Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002 (99.2) Statement regarding the Certification of the CFO of Armkel, LLC Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002 b. No reports on Form 8-K were filed for the three months ended June 28, 2002. EXHIBIT 99.1 The Certification of the Chief Executive Officer of Armkel, LLC Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is not being filed with the Quarterly Report but has been submitted to the Securities and Exchange Commission under separate cover. EXHIBIT 99.2 The Certification of the Chief Financial Officer of Armkel, LLC Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is not being filed with the Quarterly Report but has been submitted to the Securities and Exchange Commission under separate cover. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ARMKEL, LLC. --------------------------------------- (REGISTRANT) DATE: August 9, 2002 /s/ Maureen K. Usifer -------------------- --------------------------------------- MAUREEN K. USIFER CHIEF FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER DATE: August 9, 2002 /s/ Zvi Eiref -------------------- --------------------------------------- ZVI EIREF DIRECTOR

ARMKEL LLC 10-Q