10-Q 1 f10q-03_3.txt 3RD Q 2003 REPORT ================================================================================ 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 September 26, 2003 Commission file Number 333-73160 ------------------ ARMKEL, LLC (Exact name of registrant as specified in its certificate of formation) Delaware 13-4181336 (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) (Zip Code) Registrant's telephone Number, including area code: (609) 683-5900 ------------------ 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 November 10, 2003, all of the 10,000 outstanding membership interests in Armkel, LLC were held by affiliates. ================================================================================ TABLE OF CONTENTS PART I ITEM PAGE 1. Financial Statements 3 2. Management's Discussion and Analysis 17 3. Quantitative and Qualitative Disclosure About Market Risk 20 4. Controls and Procedures 20 PART II 6. Exhibits and Reports on Form 8-K 22 PART I - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS ARMKEL, LLC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND CHANGES IN MEMBERS' EQUITY (Unaudited) Three Months Ended Nine Months Ended ----------------------- ------------------------- (Dollars in thousands) Sept. 26, Sept. 27, Sept. 26, Sept. 27, 2003 2002 2003 2002 ---- ---- ---- ---- Net Sales................................................. $ 103,351 $ 101,003 $ 316,481 $ 292,806 Cost of goods sold........................................ 45,749 42,463 135,868 133,248 ---------- --------- ---------- --------- Gross Profit.............................................. 57,602 58,540 180,613 159,558 Marketing expenses........................................ 16,655 16,475 48,409 40,856 Selling, general and administrative expenses.............. 22,254 22,728 69,107 64,033 Patent infringement...................................... -- -- (12,717) -- ---------- --------- ---------- --------- Income from Operations.................................... 18,693 19,337 75,814 54,669 Interest expense.......................................... (8,278) (9,088) (25,884) (27,355) Interest income........................................... 234 240 754 793 Other income (expense).................................... (59) (546) 1,061 584 ----------- ---------- ---------- --------- Income before taxes....................................... 10,590 9,943 51,745 28,691 Income taxes.............................................. 1,632 944 7,163 5,297 ---------- --------- ---------- --------- Income from continuing operations ........................ 8,958 8,999 44,582 23,394 Income from discontinued operations....................... -- 317 254 1,815 Gain on disposition of discontinued operations............ -- -- 1,862 -- ---------- --------- ---------- --------- Net Income................................................ 8,958 9,316 46,698 25,209 Other comprehensive income (loss) ........................ (2,762) 2,162 (186) 1,008 ----------- --------- ----------- --------- Total comprehensive income ............................... 6,196 11,478 46,512 26,217 Members' Equity at Beginning of Period.................... 269,996 218,325 229,680 203,586 ---------- --------- ---------- --------- Members' Equity at End of Period.......................... $ 276,192 $ 229,803 $ 276,192 $ 229,803 ========== ========= ========== =========

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

~~Three~~(Dollars ~~Months~~in ~~Ended~~thousands) ~~Six~~Sept. ~~Months~~26, ~~Ended~~2003 Dec. 31, 2002 ---------------~~---~~ -------------~~---~~ (~~Dollars~~Unaudited) inAssets ~~thousands)~~Current ~~June~~Assets ~~27,~~Cash ~~June~~and ~~28,~~cash ~~June~~equivalents....................................................... 27$ 52,410 ~~June~~$ 2854,780 ~~2003~~Accounts ~~2002~~receivable, ~~2003~~less ~~2002~~allowances ~~--------~~of ~~--------~~$1,913 ~~--------~~and ~~---------~~$2,177....................... ~~Net~~93,253 ~~Sales~~75,864 Inventories..................................................................... ~~$ 113~~56,~~477~~389 ~~$ 104~~53,~~431~~427 $Prepaid ~~213~~expenses................................................................ 3,~~130~~711 ~~$ 191~~5,~~803~~557 ~~Cost~~Assets of ~~goods~~discontinued ~~sold~~operations............................................... ~~48,950~~-- 4542,~~551~~079 90Net assets held for sale........................................................ 11,~~119~~500 9014,~~785~~600 ---------- -~~--------~~ ---------- -~~--------~~ ~~Gross~~Total ~~Profit~~Current Assets............................................................ 64217,~~527~~263 58246,~~880~~307 ~~123~~Property,~~011~~ ~~101,018~~Plant ~~Marketing~~and ~~expenses~~Equipment (Net)............................................. 1974,~~746~~847 1272,~~932~~867 31Tradenames and Patents.......................................................... 257,~~755~~900 24261,~~381~~275 ~~Selling~~Goodwill........................................................................ 205,844 ~~general~~205,467 ~~and~~Deferred ~~administrative~~Financing ~~expenses~~Costs........................................................ 2514,~~810~~815 2017,~~884~~380 ~~46,852~~Other ~~41,305 Patent infringement~~Assets.................................................................... ~~(13~~9,~~050)~~531 ~~-- (12~~5,~~717)~~218 -- -------- -~~--------~~ ---------- -~~--------~~ ~~Income~~Total ~~from Operations~~Assets.................................................................... ~~32,021~~$ 25780,~~064~~200 ~~57,121~~$ 35808,~~332~~514 ~~Interest~~=========== ~~expense~~=========== Liabilities and Members' Equity Current Liabilities Short-term borrowings........................................................... ~~(8,717)~~$ ~~(8,888)~~-- ~~(17,606)~~$ ~~(18,267)~~55 ~~Interest~~Accounts ~~income~~payable and accrued expenses........................................... ~~239~~78,592 ~~268~~85,036 ~~520~~Liabilities ~~553~~of ~~Other~~discontinued ~~income (expense)~~operations.......................................... ~~1,404~~-- 123,~~202~~582 ~~1,119~~Current ~~1,130~~portion ~~----------~~of long-~~--------~~term ~~---------- --------- Income before taxes~~debt............................................... 244,~~947~~734 1728,~~646~~501 ~~41,154~~Taxes ~~18,748 Income taxes~~payable................................................................... ~~2,427 2,989~~ 5,~~530~~474 41,~~353~~606 ---------- -~~--------~~ ---------- -~~--------~~ ~~Income~~Total ~~from~~Current ~~continuing operations~~ Liabilities....................................................... 2288,~~520~~800 14138,~~657~~780 35Long-term Debt.................................................................. 382,~~624~~122 14411,~~395~~634 Deferred Income ~~from discontinued operations~~Taxes........................................................... --11,590 ~~928 254 1~~8,~~498~~500 ~~Gain~~Deferred onand ~~disposition~~Other ofLong-term ~~discontinued operations~~Liabilities........................................ --21,496 ~~-- 1~~19,~~862~~920 --Commitments ~~----------~~and ~~---------~~Contingencies ~~----------~~Members' ~~---------~~Equity Net ~~Income~~contributed capital......................................................... 22220,~~520~~500 15220,~~585~~500 37Retained earnings............................................................... 62,~~740~~264 15,~~893~~566 ~~Other~~Accumulated other comprehensive ~~income (~~loss) ............................................ ~~1,929~~ (236,572) ~~2,576~~ (16,~~154~~386) ---------- -~~--------~~ ---------- -~~--------~~ Total ~~comprehensive~~Members' ~~income~~ Equity............................... ~~24,449 15,562 40,316 14,739 Members' Equity at Beginning of Period~~............................ ~~245~~276,~~547~~192 ~~202,763~~ 229,680 ~~203,586~~ ---------- -~~--------~~ ---------- -~~------~~ ~~Members'~~Total ~~Equity~~Liabilities atand ~~End~~Members' ~~of Period~~Equity........................................... $ ~~269~~780,~~996~~200 $ ~~218~~808,~~325~~514 ~~$ 269,996 $ 218,325~~ ========== =~~========~~ ========== =~~=========~~

See Notes to Condensed Consolidated Financial Statements. ARMKEL, LLC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Nine Months Ended --------------------------- Sept. 26, Sept. 27, (Dollars in thousands) 2003 2002 ---- ---- Cash Flow From Operating Activities: Net Income...................................................................... $ 46,698 $ 25,209 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ............................................... 12,686 12,028 Unrealized gain on foreign exchange transactions............................. (1,208) (514) Fair market value adjustment of assets held for sale......................... 3,100 -- Net income from discontinued operations...................................... (254) (1,815) Net gain on sale of discontinued operations.................................. (1,862) -- Change in assets and liabilities: (Increase) in accounts receivable............................................ (13,635) (13,465) (Increase) Decrease in inventories........................................... (985) 11,295 Decrease (Increase) in prepaid expenses and other current assets............. 1,147 (48) (Decrease) in accounts payable and other accrued expenses.................... (6,725) (27,421) (Increase) in other.......................................................... (3,428) (644) ------------ ------------ Net Cash Provided by Operating Activities....................................... 35,534 4,625 ----------- ----------- Cash Flow From Investing Activities: Additions to property, plant and equipment...................................... (6,665) (6,526) Proceeds from divestiture....................................................... 22,573 -- Payment for purchase price adjustments and costs related to the acquisition of the Carter-Wallace Consumer Business ............................................. -- (8,266) ----------- ----------- Net Cash Provided by (Used in) Investing Activities............................. 15,908 (14,792) ----------- ------------ Cash Flow From Financing Activities: Repayment of syndicated bank credit facility.................................... (55,797) (750) Payment of deferred financing costs............................................. -- (459) ----------- ------------ Net Cash Used in Financing Activities........................................... (55,797) (1,209) ------------ ------------ Effect of exchange rate changes on cash and cash equivalents.................... 1,985 856 ----------- ----------- Net Change in Cash and Cash Equivalents......................................... (2,370) (10,520) Cash and Cash Equivalents at Beginning of Period................................ 54,780 55,617 ----------- ----------- Cash and Cash Equivalents at End of Period...................................... $ 52,410 $ 45,097 =========== ===========

See Notes to Condensed Consolidated Financial Statements. ARMKEL, LLC AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Financial Statement Presentation The condensed consolidated balance sheet as of September 26, 2003, the condensed consolidated statements of income and changes in members' equity for the three and nine months ended September 26, 2003 and September 27, 2002, and the condensed consolidated statement of cash flows for the nine months ended September 26, 2003 and September 27, 2002 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 September 26, 2003 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, 2002 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 financial statement effect of the recently divested Italian operations is recognized as discontinued operations in all periods. The results of operations for the period ended September 26, 2003 are not necessarily indicative of the operating results for the full year. 2. Inventories consist of the following:

~~(Dollars~~Sept. ~~in thousands) June 27~~26, 2003 Dec. 31, 2002 -------------- ------------- (~~Unaudited~~In thousands) ~~Assets~~Raw ~~Current~~materials ~~Assets Cash~~ and ~~cash equivalents~~supplies.............................................~~..........~~ $ 4412,~~398~~648 $ 5410,~~780~~561 ~~Accounts~~Work ~~receivable,~~in ~~less allowances of $1,865 and $2,177~~process....................... ~~110,385 75,864 Patent infringement receivable~~.................................~~.................~~ ~~18,000 -- Inventories..................................................................... 60,622 53,427 Prepaid expenses................................................................~~ 5,~~080~~935 5,~~557~~983 ~~Assets~~Finished ~~of discontinued operations~~goods............................................... ~~-- 42,079 Net assets held for sale~~..........~~..............................................~~ 1137,~~500~~806 1436,~~600~~883 ----------- ----------- Total Current Assets............................................................ 249,985 246,307 Property, Plant and Equipment (Net)............................................. 74,639 72,867 Tradenames and Patents.......................................................... 259,025 261,275 Goodwill........................................................................ 205,844 205,467 Deferred Financing Costs........................................................ 15,661 17,380 Other Assets.................................................................... 5,475 5,218 ----------- ----------- Total Assets.................................................................... $ ~~810~~56,~~629~~389 $ 808,514 =========== =========== Liabilities and Members' Equity Current Liabilities Short-term borrowings........................................................... $ -- $ 55 Accounts payable and accrued expenses........................................... 98,912 85,036 Liabilities of discontinued operations.......................................... -- 23,582 Current portion of long-term debt............................................... 7,217 28,501 Taxes payable................................................................... 5,351 1,606 ----------- ----------- Total Current Liabilities....................................................... 111,480 138,780 Long-term Debt.................................................................. 398,888 411,634 Deferred Income Taxes........................................................... 9,234 8,500 Deferred and Other Long-term Liabilities........................................ 21,031 19,920 Commitments and Contingencies Members' Equity Net contributed capital......................................................... 220,500 220,500 Retained earnings............................................................... 53,~~306~~427 15,566 Accumulated other comprehensive loss............................................ (3,810) (6,386) ----------- ----------- Total Members' Equity........................................................... 269,996 229,680 ----------- ----------- Total Liabilities and Members' Equity........................................... $ 810,629 $ 808,514 =========== ===========

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

~~Six~~Sept. ~~Months~~26, ~~Ended~~2003 Dec. 31, 2002 -------------- -- ~~June 27, June 28, (Dollars in thousands) 2003 2002~~ ---- ------- ~~Cash~~(In ~~Flow~~thousands) ~~From Operating Activities: Net Income~~Land...................................................................~~...~~ $ 377,~~740~~180 $ 157,~~893~~067 ~~Adjustments~~Buildings ~~to reconcile net income to net cash provided by (used in) operating activities: Depreciation~~ and ~~amortization~~ improvements............................................... 722,~~946~~502 821,~~355~~620 ~~Unrealized~~Machinery gain on foreign exchange transactions............................. (1,239) (999) Fair market value adjustment of assets held for sale......................... 3,100 -- Net income from discontinued operations...................................... (254) (1,498) Net gain on sale of discontinued operations.................................. (1,862) -- Change in assets and ~~liabilities: (Increase) in accounts receivable~~equipment............................................ ~~(26,430) (23,570) (Increase) in patent infringement receivable~~....~~.............................~~ ~~(18~~47,~~000)~~120 ~~-- (Increase) Decrease in inventories........................................... (3~~44,~~554)~~946 ~~10,613~~Office ~~Decrease~~equipment ~~in prepaid expenses~~ and other ~~current~~ assets............. ~~646 163 Increase (Decrease) in accounts payable and other accrued expenses~~........... ~~8,556 (18,405) (Increase) Decrease in other~~..............~~...................................~~ ~~(1,475) 581 ----------- ----------- Net Cash Provided by (Used in) Operating Activities.............................~~ 5,~~174~~387 ~~(8,867) ----------- ----------- Cash Flow From Investing Activities: Additions to property, plant and equipment...................................... (~~3,~~791)~~800 ~~(4,435)~~Construction ~~Proceeds~~in ~~from divestiture~~progress...............................................~~........~~ 227,~~573~~972 ~~-- Payment of acquisition-related costs ........................................... -- (1~~4,~~132)~~716 ----------- ----------- ~~Net Cash Provided by (Used in) Investing Activities............................. 18~~90,~~782~~161 (582,~~567)~~149 ~~-----------~~Less ~~-----------~~accumulated ~~Cash~~depreciation ~~Flow~~and ~~From Financing Activities: Repayment of syndicated bank credit facility~~amortization.........................~~...........~~ ~~(36~~15,~~597)~~314 (750) Payment of deferred financing costs............................................. -- (459) ----------- ----------- Net Cash Used in Financing Activities........................................... (369,~~597)~~282 ~~(1,209)~~ ------------ ----------- ~~Effect of exchange rate changes on cash and cash equivalents.................... 2,259 404 ----------- -----------~~ Net ~~Change in Cash and Cash Equivalents......................................... (10~~Property,~~382)~~ ~~(15,239)~~Plant ~~Cash~~ and ~~Cash Equivalents at Beginning of Period~~Equipment................................ ~~54,780 55,617 ----------- ----------- Cash and Cash Equivalents at End of Period~~......~~................................~~ $ 4474,~~398~~847 $ 4072,~~378~~867 =========== ===========

4. Goodwill and Intangible Assets The following tables disclose the carrying value of all intangible assets:

~~June~~September 2726, 2003 ~~Dec.~~December 31, 2002 -------------------- ----------------- Gross Carrying Accum. Gross Carrying Accum. (In thousands) ~~Raw~~Amount ~~materials~~Amortization ~~and~~Net ~~supplies.............................................~~Amount Amortization Net ------ ------------ --- ------ ------------ --- Amortized intangible assets: --------------------------- Patents $ 1527,~~778~~500 $ 109,~~561~~000 ~~Work~~$ in18,500 ~~process........................................................~~$ 527,~~863~~500 $ 5,~~983~~625 ~~Finished~~$ ~~goods......................................................... 38~~21,~~981~~875 ~~36,883~~========= ======== ========== ========== ======= ========= Unamortized intangible assets - Carrying value --------- -------------------- Tradenames $ 60239,~~622~~400 $ 53239,~~427~~400 ========== ==========

ARMKEL, LLC AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Intangible amortization expense amounted to $3.4 million for the nine months ended September 26, 2003 and September 27, 2002. 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. The changes in the carrying amount of goodwill for the nine months ended September 26, 2003 is as follows:

~~June~~(In 27thousands) ~~2003~~Domestic ~~Dec.~~International ~~31,~~Total ~~2002~~ -------- ---- --------- ------- ~~(In~~Balance ~~thousands)~~December ~~Land~~31, 2002.....................................~~..............................~~ $ 7173,~~223~~006 $ 732,~~067~~461 ~~Buildings~~$ ~~and improvements............................................. 22~~205,~~698~~467 ~~21,620~~Foreign ~~Machinery and equipment................................................ 46,378 44,946 Office equipment and~~ exchange/other ~~assets~~...................................... ~~4,599 3,800 Construction in progress~~..~~.............................................~~ ~~7,267 4,716~~ --~~--------~~ 377 377 --------- ~~88,165 82,149 Less accumulated depreciation and amortization......................... 13,526 9,282~~ ---------- ----------- ~~Net~~Balance ~~Property~~September 26, ~~Plant and Equipment~~2003...................................... $173,006 74$ 32,~~639~~838 $ 72205,~~867~~844 ======== ========== ===========

5. Related Party Transactions Arrangements with Church & Dwight --------------------------------- C&D charged the Company $5.0 million and $19.0 million for primarily administrative and management oversight services for the three and nine months ended September 26, 2003. C&D charged the Company $5.6 million and $15.7 million for primarily administrative and management services for the three and nine months ended September 27, 2002. The Company sold $0.3 and $1.4 million of deodorant/antiperspirant inventory to C&D at its cost during the three and nine months ended September 26, 2003, compared with $0.0 and $5.4 million of deodorant/antiperspirant during the three and nine months ended September 27, 2002. The Company purchased $0.6 million and $1.9 million of Arm & Hammer products to be sold in international markets during the three and nine months ended September 26, 2003, compared with $1.0 million and $1.1 million during the three and nine months ended September 27, 2002. During the three and nine months ended September 27, 2002, the Company charged C&D $0.5 and $1.6 million of transition administrative services. The Company had a net payable to C&D at September 26, 2003 and December 31, 2002 of approximately $2.3 million and $4.8 million, respectively, 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. The Company prepaid Kelso's 2003 annual fee at the end of December 2002. For the three and nine months ended September 27, 2002, the Company paid Kelso $0.3 and $0.8 million. 6. Contingencies On January 17, 2002, a petition for appraisal, Cede & Co., Inc. and GAMCO Investors, Inc. v. Medpointe Healthcare Inc., Civil Action No. 19354, was filed in the Court of Chancery of the State of Delaware demanding a determination of the fair value of shares of Medpointe. The action was brought by purported former shareholders of Carter-Wallace in connection with the merger on September 28, 2001 of MCC Acquisition Sub Corporation with and into Carter-Wallace. The merged entity subsequently changed its name to Medpointe. The petitioners seek an appraisal of the fair value of their shares in accordance with Section 262 of the Delaware General Corporation Law. The matter was heard on March 10 and 11, 2003, at which time the petitioners purportedly held approximately 2.3 million shares of Medpointe. No decision has yet been rendered by the court. Medpointe and certain former Carter-Wallace shareholders are party to an indemnification agreement pursuant to which such shareholders will be required to indemnify Medpointe from a portion of the damages, if any, suffered by Medpointe in relation to the exercise of appraisal rights by other former Carter-Wallace shareholders in the merger. Pursuant to the agreement, the shareholders have agreed to indemnify Medpointe for 40% of any Appraisal Damages (defined as the recovery greater than the per share merger price times the number of shares in the appraisal class) suffered by Medpointe in relation to the merger; provided that if the total amount of Appraisal Damages exceeds $33.3 million, then the indemnifying stockholders will indemnify Medpointe for 100% of any damages suffered in excess of that amount. The Company, in turn, is party to an agreement with Medpointe pursuant to which it has agreed to indemnify Medpointe and certain related parties against 60% of any Appraisal Damages for which Medpointe remains liable. The maximum liability to the Company pursuant to the indemnification agreement and prior to any indemnification from C&D, as described in the following sentence is $12 million. C&D is party to an agreement with the Company pursuant to which it has agreed to indemnify the Company for 17.4% of any Appraisal Damages, or up to a maximum of $2.1 million for which the Company becomes liable. The Company, Medpointe and the indemnifying shareholders believe that the consideration offered in the merger was fair to the former Carter-Wallace shareholders and have vigorously defended the petitioner's claim. However, the Company cannot predict the outcome of the proceedings. On March 27, 2003, GAMCO Investors, Inc. filed another complaint in the New York Supreme Court seeking damages from MedPointe Healthcare Inc., the former directors of Carter-Wallace, and one of the former shareholders of Carter-Wallace. The complaint alleges breaches of fiduciary duty in connection with certain employment agreements with former Carter-Wallace executives, the sale of Carter Wallace's consumer products business to the Company (some of the products acquired by the Company were subsequently sold by the Company to C&D) and the merger of MCC Acquisition Sub Corporation with and into Carter-Wallace. The complaint seeks monetary damages and equitable relief, including among other things, invalidation of the transactions. The defendants have moved to dismiss the complaint. The Company has not been named as a defendant in this action and believes it has no liability. In 2002, a purported class action suit, Sandra J. Wagner v. Church & Dwight Co., Inc., et al, was filed against the Company and C&D in the Superior Court of New Jersey. The lawsuit alleged that the Company's ovulation test kits ("OTK") are being marketed in a misleading manner because they do not advise women with certain ovarian conditions that test results may be inaccurate. The plaintiffs seek monetary damages as well as injunctive relief against the OTK's marketing materials. The products in question have been cleared for marketing as medical devices under applicable FDA regulations. The Company is vigorously defending the action but cannot predict the outcome of the proceedings. If the Company is not successful in defending against a claim, the Company could be liable for substantial damages or may be prevented from offering some of the Company's products. These events could harm the Company's financial condition and results of operations. 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 Armkel's condoms and similar condoms sold by Armkel's major 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. The Company expects the FDA to issue non-binding draft guidance concerning the labeling of condoms with N-9, although the timing of such draft guidance is uncertain. The Company believes that condoms with N-9 provide an acceptable added means of contraceptive protection and is cooperating with the FDA concerning the appropriate labeling revisions, if any. However, the Company cannot predict the outcome of the FDA review. While awaiting further FDA guidance, the Company has implemented interim labeling revisions that caution against rectal use and more-than-once-a-day vaginal use of N-9-containing condoms, and has launched a public information campaign to communicate these messages to the affected communities. If the FDA or state governments promulgate rules which prohibit or restrict the use of N-9 in condoms (such as new labeling requirements), the financial condition and operating results of the Company could suffer. In February 2003, two members of the California Assembly introduced a non-binding resolution calling on FDA to ban condoms containing N-9. The proposed resolution was not brought to a vote since legally California could not ban an FDA approved medical device from marketing. Instead, the proposed resolution was announced at a public press release and retailers were asked voluntarily not to stock any condom containing N-9. The Company had previously supplied the Assemblymen and the Assembly Speaker with information explaining why a ban would be inappropriate and outlining the interim labeling revisions and public information efforts the Company has implemented. While the resolution cannot be voted upon and passed and cannot be legally binding, making it public (as was done here) could impair public perception of the product with resultant impairment of operating results of the Company. ARMKEL, LLC AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. 7. Reorganization Reserve As of September 28, 2001, the date of the acquisition of the Carter-Wallace Consumer Business (the "Predecessor"), 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 had incurred lease termination costs, environmental remediation costs and work force rationalization costs. The plan was finalized in 2002 and the Company expects to complete the plan in 2003 except for certain long-term contractual obligations related to benefits for certain former executives of Carter-Wallace, Inc. and certain environmental remediation activities. The Company established an accrual for severance to reflect the purchase of various services from C&D in lieu of obtaining such services through continued employment of certain personnel by the 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). The following table summarizes the activity in the Company's reorganization accruals:

~~June~~Reserves ~~27,~~at ~~2003~~Payments ~~December~~and ~~31,~~Reserves ~~2002~~at ~~-------------- ----------------- Gross Carrying Accum. Gross Carrying Accum.~~ (In thousands) ~~Amount~~Dec. ~~Amortization~~31, ~~Net~~2002 ~~Amount~~Adjustments ~~Amortization~~Sept. ~~Net~~26, 2003 ------ ------- ----- --- ---~~---~~ ------------ --- ~~Amortized~~Severance ~~intangible~~and ~~assets:~~other ~~Patents~~charges....................................... $ 276,~~500~~005 $ 7(3,~~875~~103) $ 192,~~625~~902 $Environmental ~~27,500~~remediation $costs................................... 51,~~625~~828 $(220) 211,~~875~~608 ~~=========~~Lease ~~========~~termination ~~==========~~costs........................................... ~~==========~~110 ~~=======~~(25) ~~=========~~85 ~~Unamortized intangible assets~~ - ~~Carrying value~~ -------- ----------- ---------- ~~Tradenames~~$ 7,943 $ ~~239~~(3,~~400~~348) $ ~~239~~4,~~400~~595 ========= =========== ==========

8. Assets Held for Sale In the third quarter of 2002, the Company made a commitment to sell its land and buildings, excluding the research and development building, at its Cranbury, New Jersey location and, as such, has classified these assets as held for sale. In the second quarter of 2003, a $3.1 million reduction to fair market value was recorded based on a recent proposal for sale of the property. This property, with a current fair market value of $11.5 million, will likely be sold to land developers who would use it for purposes other than manufacturing. 9. Discontinued Operations At the end of December 2002, the Company signed a definitive agreement to sell its Italian operations. On February 20, 2003, the sale was completed with proceeds of $22.6 million. The Company recorded an after-tax gain on the sale of these operations of approximately $1.9 million. As part of this transaction, the Company recorded a $0.5 million guarantee reserve which was the estimated fair value of the contractual indemnification obligation of the Company to the buyer of the Italian operations. In June 2003, the Company signed an agreement which effectively reduced the selling price by requiring the payment of 0.1 million euros by the Company to the buyer in the third quarter of 2003 in return for a release from any indemnification obligations that might arise with respect to certain tax matters under the definitive sales agreement. Upon payment of the 0.1 million euros the guarantee reserve was reduced accordingly. Exposure under such indemnification obligation is capped at 1.5 million Euros. For the three and nine months ended September 26, 2003, net sales from the Italian operations was $0.0 and $10.0 million as compared to $9.3 and $29.8 million for the same period in 2002 and income from discontinued operations was $0.0 and $0.3 million (net of taxes of $0.0 and $0.3 million) in 2003 as compared to $0.3 and $1.8 million (net of taxes ARMKEL, LLC AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) of $0.3 and $1.4 million) for the same period in 2002. The proceeds were used to pay down the term loan debt and costs associated with the divestiture. The financial statements of the comparable periods of a year ago in this report have been reclassified for discontinued operations. 10. Patent Infringement On August 26, 2002, the Company filed suit against Pfizer in the District Court of New Jersey to redress infringement of two (2) of the Company's patents directed to pregnancy diagnostic devices. The suit claimed that Pfizer's "ept" product infringes these patents. On June 23, 2003 the Company agreed to a settlement with Pfizer resulting in a gain, after attorney's fees and costs, of $12.7 million. As part of the settlement the Company granted Pfizer a fully paid-up non-exclusive worldwide license to practice and use the Company's pregnancy test kit patents until July 1, 2004. The patent infringement settlement required Pfizer to pay the Company $18.0 million within 45 days. The payment was received on August 7, 2003. The Company has incurred approximately $5.3 million in legal and related settlement expenses. 11. Recent Accounting Pronouncements In April 2003, the FASB issued SFAS No. 149,"Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This Statement is effective for contracts entered into or modified after June 30, 2003, with certain exceptions. The Company adopted the provisions of the statement on its effective date and does not anticipate a material impact to its consolidated financial statements. On May 15, 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", which aims to eliminate diversity in practice by requiring that the "freestanding" financial instruments be reported as liabilities by their issuers. The provisions of SFAS No. 150, which also include a number of new disclosure requirements, are effective for instruments entered into or modified after May 31, 2003 and for pre-existing instruments as of the beginning of the first interim period that commences after June 15, 2003. The Company adopted the provisions of the statement on its effective date and does not anticipate a material impact to its consolidated financial statements. 12. 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 noted 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 September 26, 2003, condensed consolidated income statements for the three and nine months ended September 26, 2003 and September 27, 2002, and condensed consolidated cash flows for the nine month periods ended September 26, 2003 and September 27, 2002 is summarized as follows (amounts in thousands): ARMKEL, LLC AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Statements of Income

~~(In~~For ~~thousands)~~The Three Months Ended September 26, 2003 --------------------------------------------- Total Domestic International ~~Total~~Eliminations Consolidated -------- ------------- ------------ ~~Balance~~------------ ~~December~~Net ~~31, 2002~~sales........................................ $~~173~~ 51,~~006~~853 $ 3252,~~461~~717 $ ~~205~~(1,~~467~~219) ~~Foreign~~$ ~~exchange/other~~103,351 Cost of goods sold............................... 20,190 26,778 (1,219) 45,749 ----------- ------------- ------------ ----------- Gross profit..................................... 31,663 25,939 -- ~~377~~57,602 ~~377~~Operating expenses............................... 18,185 20,724 -- 38,909 ----------- ------------- ----------- ~~Balance~~----------- ~~June~~Income 27from operations........................... 13,478 ~~2003~~5,215 -- 18,693 Interest expense................................. (8,164) (114) -- (8,278) Interest income.................................. 60 174 -- 234 Intercompany accounts............................ 1,485 (1,485) -- -- Other income (expense)........................... (132) 73 -- (59) ------------ ------------- ----------- ------------ Income before taxes.............................. 6,727 3,863 -- 10,590 Income taxes..................................... -- 1,632 -- 1,632 ----------- ------------- ----------- ----------- Income from continuing operations................ 6,727 2,231 -- 8,958 Income from discontinued operations.............. -- -- -- -- Gain on disposition of discontinued operations... -- -- -- -- ----------- ------------- ----------- ----------- Net Income.................................. $~~173~~ 6,~~006~~727 $ 322,~~838~~231 $ ~~205~~-- $ 8,~~844~~958 =========== ============= =========== ===========

~~Reserves~~For atthe ~~Payments~~Three ~~and~~Months ~~Reserves~~Ended atSeptember ~~(In~~27, ~~thousands)~~2002 ~~Dec.~~---------------------------------------------- ~~31,~~Total ~~2002~~Domestic ~~Adjustments~~International ~~June~~Eliminations ~~27,~~Consolidated ~~2003~~-------- ------------- ------------ ------------- ~~Severance~~Net ~~and other charges~~sales......................................... $ 658,~~005~~120 $ 45,597 $ (2,~~785~~714) $ 3101,~~220~~003 ~~Environmental~~Cost ~~remediation~~of ~~costs~~goods sold................................ 22,274 22,903 (2,714) 42,463 ----------- ------------ ----------- ----------- Gross profit...................................... 135,~~828~~846 22,694 -- 58,540 Operating expenses................................ 20,320 18,883 -- 39,203 ----------- ------------ ---------- ----------- Income from operations............................ 15,526 3,811 -- 19,337 Interest expense.................................. (898,804) ~~1,739~~(284) ~~Lease~~-- ~~termination~~(9,088) ~~costs~~Interest income................................... 101 139 -- 240 Intercompany accounts............................. ~~110~~1,404 (251,404) -- -- Other income (expense)............................ (461) (85) -- (546) ------------ ------------- ---------- $------------ Income before taxes............................... 7,766 2,177 -- 9,943 Income taxes...................................... -- 944 -- 944 ----------- ------------ ---------- ----------- Income from continuing operations................. 7,766 1,233 -- 8,999 Income from discontinued operations............... -- 317 -- 317 Gain on disposition of discontinued operations.... -- -- -- -- ----------- ------------ ---------- ----------- Net Income................................... $ (27,~~899)~~766 $ 51,~~044~~550 $ -- $ 9,316 =========== ============ ========== ===========

ARMKEL, LLC AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Statements of Income

For The ~~Three~~Nine Months Ended ~~June~~September 2726, 2003 -------------------------------------------- Total Domestic International Eliminations Consolidated --------~~---~~ ------------- ------------ ------------ Net sales...................................~~.....~~ $ 59164,~~265~~823 $ 55156,~~924~~166 $ (14,~~712~~508) $ ~~113~~316,~~477~~481 Cost of goods sold..........................~~.....~~ 2464,~~075~~502 2675,~~587~~874 (14,~~712~~508) 48135,~~950~~868 ----------- ------------- ------------ ----------- Gross profit................................~~.....~~ 35100,~~190~~321 2980,~~337~~292 -- 64180,~~527~~613 Operating expenses..........................~~.....~~ 1249,~~786~~351 1955,~~720~~448 -- 32104,~~506~~799 ----------- ------------- ----------- ----------- Income from operations......................~~.....~~ 2250,~~404~~970 924,~~617~~844 -- 3275,~~021~~814 Interest expense............................~~.....~~ (825,~~450~~206) (~~267~~678) -- (825,~~717~~884) Interest income.............................~~.....~~ 72230 ~~167~~524 -- ~~239~~754 Intercompany accounts.......................~~.....~~ 14,~~426~~295 (14,~~426~~295) -- -- Other income (expense)......................~~.....~~ 2,~~733~~572 (1,~~329~~511) -- 1,~~404~~061 ----------- -------------- ----------- ----------- Income before taxes.........................~~.....~~ 1832,~~185~~861 618,~~762~~884 -- 2451,~~947~~745 Income taxes................................~~.....~~ -- 27,~~427~~163 -- 27,~~427~~163 ----------- ------------- ----------- ----------- Income from continuing operations...........~~.....~~ 1832,~~185~~861 411,~~335~~721 -- 2244,~~520~~582 Income from discontinued operations.........~~.....~~ -- --254 -- --254 Gain on disposition of discontinued operations~~...~~ -- --1,862 -- --1,862 ----------- ------------- ----------- ----------- Net Income.................................. $ 1832,~~185~~861 $ 413,~~335~~837 $ -- $ 2246,~~520~~698 =========== ============= =========== ===========

For ~~the~~The ~~Three~~Nine Months Ended ~~June~~September 2827, 2002 -------------------------------------------- Total Domestic International Eliminations Consolidated -------- ------------- ------------ ------------ Net sales...................................~~......~~ $ 60170,~~470~~022 $ 46130,~~147~~456 $ (27,~~186~~672) $ ~~104~~292,~~431~~806 Cost of goods sold..........................~~......~~ 2475,~~970~~941 2264,~~767~~979 (27,~~186~~672) 45133,~~551~~248 ----------- ------------ ------------ ----------- Gross profit................................~~......~~ 3594,~~500~~081 2365,~~380~~477 -- 58159,~~880~~558 Operating expenses..........................~~......~~ 2057,~~404~~729 1347,~~412~~160 -- 33104,~~816~~889 ----------- ------------ ----------- ----------- Income from operations......................~~......~~ 1536,~~096~~352 918,~~968~~317 -- 2554,~~064~~669 Interest expense............................~~......~~ (826,~~621~~540) (~~267~~815) -- (827,~~888~~355) Interest income.............................~~......~~ ~~137~~395 ~~131~~398 -- ~~268~~793 Intercompany accounts.......................~~......~~ 14,~~589~~469 (14,~~589~~469) -- -- Other income (expense)......................~~......~~ 43,~~501~~346 (32,~~299~~762) -- ~~1,202~~584 ----------- ------------- ----------- ----------- Income before taxes.........................~~......~~ 1218,~~702~~022 410,~~944~~669 -- 1728,~~646~~691 Income taxes................................~~......~~ -- 25,~~989~~297 -- 25,~~989~~297 ----------- ------------ ----------- ----------- Income from continuing operations...........~~......~~ 1218,~~702~~022 15,~~955~~372 -- 1423,~~657~~394 Income from discontinued operations.........~~......~~ -- ~~928~~1,815 -- ~~928~~1,815 Gain on disposition of discontinued operations~~....~~ -- -- -- -- ----------- ------------ ----------- ----------- Net Income................................~~...~~ $ 1218,~~702~~022 $ 27,~~883~~187 $ -- $ 1525,~~585~~209 =========== ============ =========== ===========

ARMKEL, LLC AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Consolidated Balance Sheet

~~Statements~~September ~~of Income For The Six Months Ended June 27~~26, 2003 ----------------------------------------------------------------- Total Domestic International Eliminations Consolidated ---------- ------------- ------------ ------------ ~~Net~~Cash ~~sales~~and cash equivalents..................~~.................~~ $ ~~112~~25,~~970~~739 $ ~~103~~26,~~449~~671 $ ~~(3,289)~~-- $ ~~213~~52,~~130~~410 ~~Cost~~Accounts ofreceivable, ~~goods~~less ~~sold~~allowances....... 24,982 68,271 -- 93,253 Inventories................................ 4424,~~312~~629 4931,~~096~~760 ~~(3,289) 90,119~~ --~~---------~~ ~~------------~~56,389 ~~------------~~Prepaid ~~----------- Gross profit~~expenses...........................~~.....~~ ~~68,658~~959 542,~~353~~752 -- ~~123~~3,~~011~~711 ~~Operating~~Net ~~expenses~~assets held for sale...................~~.......~~ 3111,~~166~~500 ~~34,724~~-- -- 6511,~~890~~500 ----------- ------------ ----------- ----------- ~~Income~~Total ~~from~~current ~~operations~~assets..................... 87,809 129,454 -- 217,263 Property, plant and equipment (net)........ 3749,~~492~~247 1925,~~629~~600 -- 5774,~~121~~847 ~~Interest~~Intercompany ~~expense~~notes receivable.............. 63,341 -- (63,341) -- Investment in subsidiaries................. ~~(17~~53,~~042)~~760 -- (~~564~~53,760) -- ~~(17~~Tradenames and patents..................... 219,~~606)~~700 ~~Interest~~38,200 ~~income~~-- 257,900 Goodwill................................... ~~170~~173,006 ~~350~~32,838 -- ~~520~~205,844 ~~Intercompany~~Deferred ~~accounts~~financing costs...................~~....~~ 214,~~810~~815 ~~(2,810)~~ -- -- 14,815 Other ~~income (expense)~~assets............................... 23,~~703~~761 (15,~~584)~~770 -- 19,~~119~~531 ----------- ------------- ----------- ----------- ~~Income~~Total ~~before taxes~~assets............................. 26$ 665,~~133~~439 15$ 231,~~021~~862 $ (117,101) $ 780,200 =========== =========== =========== ========== Accounts payable and accrued expenses...... $ 28,569 $ 50,023 $ -- 41$ 78,~~154~~592 ~~Income~~Intercompany ~~taxes~~accounts...................... (1,957) 1,957 -- -- Current portion of long-term debt.......... 2,933 1,801 -- 4,734 Taxes payable.............................. -- 5,~~530~~474 -- 5,~~530~~474 ----------- ------------ ----------- ----------- ~~Income~~Total ~~from~~current ~~continuing operations~~liabilities................ 2629,~~133~~545 959,~~491~~255 -- 3588,~~624~~800 ~~Income~~Long-term ~~from~~debt............................. ~~discontinued~~367,825 ~~operations~~14,297 -- 382,122 Deferred income taxes...................... -- ~~254~~11,590 -- ~~254~~11,590 ~~Gain~~Intercompany onnotes ~~disposition~~payable................. of-- ~~discontinued~~73,778 ~~operations~~(73,778) -- 1Deferred and other long-term liabilities... 10,~~862~~950 10,546 -- 121,~~862~~496 ----------- ------------ ----------- ---------- Total liabilities........................ 408,320 169,466 (73,778) 504,008 Members' Equity and Subsidiary Capital Net ~~Income~~contributed capital.................... 220,500 42,264 (42,264) 220,500 Retained earnings.......................... 41,295 20,969 -- 62,264 Accumulated other comprehensive loss....... (4,676) (837) (1,059) (6,572) ------------ ----------- ------------ ---------- Total members' equity and subsidiary capital 257,119 62,396 (43,323) 276,192 ------------ ----------- ------------ ---------- Total liabilities and members' equity... $ 26665,~~133~~439 $ 11231,~~607~~862 $ --(117,101) $ 37780,~~740~~200 ============ ============ ============ ==========

ARMKEL, LLC AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Consolidated Balance Sheet

~~For~~December ~~The Six Months Ended June 28~~31, 2002 ------------------------------------------------------------------ Total Domestic International Eliminations Consolidated ~~Net~~-------- ~~sales~~------------- ------------ ------------ Cash and cash equivalents................... $ 35,093 $ 19,687 $ -- $ 54,780 Accounts receivable, less allowances........ 21,885 53,979 -- 75,864 Inventories................................. $22,948 ~~111~~30,~~902~~479 $-- 8453,~~859~~427 $Prepaid (expenses............................ 1,428 4,~~958)~~129 $-- ~~191~~5,~~803~~557 ~~Cost~~Net assets of ~~goods~~discontinued ~~sold~~operations....... -- 42,079 -- 42,079 Net assets held for sale ................... 5314,~~667~~600 ~~42,076~~-- ~~(4,958)~~-- 9014,~~785~~600 ---------- ----------- ---------- ----------- Total current assets...................... 95,954 150,353 -- 246,307 Property, plant and equipment (net)......... 48,646 24,221 -- 72,867 Investment in subsidiaries.................. 58,591 -- (58,591) -- Notes receivable............................ 63,557 -- (63,557) -- ~~Gross~~Tradenames ~~profit~~and patents...................... 223,075 38,200 -- 261,275 Goodwill.................................... 58173,~~235~~006 4232,~~783~~461 -- ~~101~~205,~~018~~467 ~~Operating~~Deferred ~~expenses~~financing costs.................... 17,380 -- -- 17,380 Other assets................................ 372,~~409~~665 282,~~277~~553 -- 655,~~686~~218 ---------- ----------- ----------- ----------- ~~Income~~Total ~~from operations~~assets.............................. 20$ 682,~~826~~874 14$ 247,~~506~~788 --$ 35(122,~~332~~148) ~~Interest~~$ ~~expense~~808,514 ========== =========== ========== =========== Short-term borrowings....................... $ -- $ 55 $ -- $ 55 Accounts payable and accrued expenses....... ~~(17~~44,~~736)~~762 ~~(531)~~40,274 -- ~~(18~~85,~~267)~~036 ~~Interest~~Intercompany ~~income~~accounts....................... (3,633) 3,633 -- -- Net liabilities of discontinued operations .~~.....~~ ~~294~~-- ~~259~~23,582 -- ~~553~~23,582 ~~Intercompany~~Current ~~accounts~~portion of long-term debt...........~~............~~ 39,~~065~~541 (318,~~065)~~960 -- --28,501 ~~Other~~Taxes ~~income (expense)~~payable............................... ~~3,807~~-- (21,~~677)~~606 -- 1,~~130~~606 ---------- ------------ ----------- ----------- ~~Income~~Total ~~before~~current ~~taxes~~liabilities................. 50,670 88,110 -- 138,780 Long-term debt.............................. 10397,~~256~~838 813,~~492~~796 -- 18411,~~748~~634 ~~Income~~Deferred income taxes....................... -- 8,500 -- 8,500 Notes payable............................... -- 469,~~353~~138 (69,138) -- 4Deferred and other long-term liabilities.... 10,~~353~~705 9,215 -- 19,920 ---------- ----------- ----------- ----------- ~~Income~~Total ~~from continuing operations~~liabilities........................ 10459,~~256~~213 4188,~~139~~759 --(69,138) 14578,~~395~~834 ~~Income~~Members' ~~from~~Equity ~~discontinued~~and ~~operations~~Subsidiary Capital Net contributed capital..................... --220,500 152,~~498~~061 (52,061) 220,500 Retained earnings........................... 8,434 7,132 -- 115,~~498~~566 ~~Gain~~Accumulated onother ~~disposition~~comprehensive ofloss........ ~~discontinued~~(5,273) ~~operations~~(164) (949) (6,386) ----------- ----------- ---------- ----------- Total members' equity and subsidiary capital 223,661 59,029 (53,010) 229,680 ----------- ----------- ---------- ----------- ~~Net~~Total ~~Income~~liabilities and members' equity....~~............................~~ $ 10682,~~256~~874 $ 5247,~~637~~788 $ --(122,148) $ 15808,~~893~~514 =========== =========== ========== ===========

ARMKEL, LLC AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Statements of Cash Flows

~~Consolidated~~For ~~Balance~~The ~~Sheet~~Nine ~~June~~Months 27Ended September 26, 2003 --------------------------------------------~~--------------------~~ Total Domestic International ~~Eliminations~~ Consolidated -------- ------------- ------------ ~~------------~~ Cash ~~and~~Flow ~~cash~~From ~~equivalents~~Operating Activities: Net Income.................. ~~$ 19,501 $ 24,897 $ -- $ 44,398 Accounts receivable, less allowances~~....... ~~34,263 76,122 -- 110,385 Patent infringement receivable~~............. ~~18,000 -- -- 18,000 Inventories~~..................~~..............~~ 25$ 32,~~777~~861 34$ 13,~~845~~837 --$ 6046,~~622~~698 ~~Prepaid~~Adjustments ~~expenses~~to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization.................................. 19,~~584~~608 3,~~496~~078 ~~-- 5~~12,~~080~~686 ~~Net~~Unrealized ~~assets~~(gain) ~~held~~loss ~~for~~on ~~sale~~foreign exchange transactions........~~...........~~ 11(2,~~500~~871) --1,663 ~~-- 11~~(1,~~500~~208) ~~-----------~~Fair ~~-----------~~market ~~-----------~~value ~~----------~~adjustment ~~Total~~of ~~current~~ assets held for sale...........~~.........~~ ~~110~~3,~~625~~100 ~~139,360~~ -- ~~249~~3,~~985~~100 ~~Property,~~Net ~~plant~~income ~~and~~from ~~equipment~~discontinued ~~(net)~~operations........ ~~49,418 25,221 -- 74,639 Intercompany notes receivable~~................ ~~66,688~~ -- (~~66,688~~254) --(254) ~~Investment~~Net ingain ~~subsidiaries~~on sale of discontinued operations.................... ~~53,761~~ -- (531,~~761~~862) --(1,862) ~~Tradenames~~Change in assets and ~~patents~~liabilities: (Increase) in accounts receivable.............................. ~~220~~(3,~~825~~537) 38(10,~~200~~098) ~~-- 259~~(13,~~025~~635) ~~Goodwill~~(Increase) Decrease in inventories.............................~~......~~ ~~173~~(1,~~006~~681) 32696 (985) (Increase) Decrease in prepaid expenses and other current assets (324) 1,~~838~~471 --1,147 ~~205~~(Decrease) Increase in accounts payable and other accrued expenses (15,~~844~~928) ~~Deferred~~9,203 ~~financing~~(6,725) ~~costs~~(Decrease) in other................... ~~15,661 -- -- 15,661 Other assets~~.........................~~......~~ ~~2,878~~(439) (2,~~597~~989) ~~-- 5~~(3,~~475~~428) -------~~----~~ --------~~---~~ --------~~---~~ ~~----------~~Net ~~Total~~Cash ~~assets~~Provided by Operating Activities.........................~~...~~ ~~$ 692~~20,~~862~~789 ~~$ 238~~14,~~216~~745 ~~$ (120~~35,~~449)~~534 $------- ~~810,629~~-------- ~~===========~~-------- ~~===========~~Cash ~~===========~~Flow ~~==========~~From ~~Accounts~~Investing ~~payable~~Activities: ~~and~~Additions ~~accrued~~to ~~expenses...... $ 45~~property,~~923~~ $plant ~~52,989~~& ~~$ -- $ 98,912 Intercompany accounts~~equipment....................... (23,~~295~~256) 2(3,~~295~~409) --(6,665) --Proceeds ~~Current~~from ~~portion of long-term debt~~divestiture.......... ~~4,312 2,905 -- 7,217 Taxes payable~~.............................. -- 522,~~351~~573 ~~-- 5~~22,~~351~~573 ------- ---- ---- -------- Net Cash (Used in) Provided by Investing Activities............... (3,256) 19,164 15,908 -------- --- ----- -------- ~~Total~~Cash ~~current~~Flow ~~liabilities~~from Financing Activities: Repayment of syndicated bank credit facility................... 47(36,~~940~~740) 63(19,~~540~~057) ~~-- 111~~(55,~~480~~797) ~~Long-term~~Intercompany ~~debt~~capital contribution.............................. ~~384~~9,~~073~~797 14(9,~~815~~797) -- ~~398,888~~Intercompany ~~Deferred~~debt ~~income taxes~~transactions...................... ~~-- 9,234 -- 9,234 Intercompany notes payable~~...........~~......~~ --56 ~~78,639~~ (~~78,639~~56) -- ~~Deferred and other long~~-~~term liabilities... 10,801 10,230~~ -- ~~21,031~~ -----~~-----~~ --------~~---~~ --------~~---~~ ~~----------~~Net ~~Total~~Cash ~~liabilities~~Used in Financing Activities............................. ~~442~~(26,~~814~~887) ~~176~~(28,~~458~~910) (7855,~~639~~797) ~~540,633~~-------- ~~Members'~~-------- ~~Equity~~-------- ~~and~~Effect ~~Subsidiary~~of ~~Capital~~exchange ~~Net~~rate ~~contributed~~changes ~~capital~~on cash and cash equivalents......~~..............~~ ~~220,500~~-- 421,~~264~~985 ~~(42~~1,~~264)~~985 ~~220,500~~-------- ~~Retained~~-------- ~~earnings~~-------- NET CHANGE IN CASH & CASH EQUIVALENTS.......................... ~~34,567 18,739 -- 53,306 Accumulated other comprehensive loss~~...~~....~~ (59,~~019~~354) ~~755~~6,984 ~~454~~ (32,~~810~~370) ~~-----------~~CASH ~~-----------~~& ~~-----------~~CASH ~~----------~~EQUIVALENTS ~~Total~~AT ~~members'~~BEGINNING ~~equity~~OF ~~and~~PERIOD.................... ~~subsidiary capital 250~~35,~~048~~093 6119,~~758~~687 ~~(41~~54,~~810)~~780 ~~269,996~~ --------~~---~~ --------~~---~~ --------~~---~~ ~~----------~~CASH ~~Total~~& ~~liabilities~~CASH ~~and~~EQUIVALENTS ~~members'~~AT ~~equity~~END OF PERIOD.......................... $ ~~692~~25,~~862~~739 $ ~~238~~26,~~216~~671 $ ~~(120~~52,~~449)~~410 ~~$ 810,629~~ =========== =========== ========~~=== ===========~~

ARMKEL, LLC AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Statements of Cash Flows

~~Consolidated~~For ~~Balance~~The ~~Sheet~~Nine ~~December~~Months 31Ended September 27, 2002 ---------------------------------------------~~--------------------~~ Total Domestic International ~~Eliminations~~ Consolidated -------- ------------- ------------ ~~------------~~ Cash ~~and~~Flow ~~cash~~From ~~equivalents~~Operating Activities: Net Income ................... ~~$ 35,093 $ 19,687 $ -- $ 54,780 Accounts receivable, less allowances~~........ ~~21,885 53,979 -- 75,864 Inventories~~............................~~.....~~ 22$ 18,~~948~~022 30$ 7,~~479~~187 --$ 5325,~~427~~209 ~~Prepaid~~Adjustments ~~expenses~~to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization............................ ~~1,428 4,129 -- 5,557 Net assets of discontinued operations~~....... --9,580 422,~~079~~448 ~~-- 42~~12,~~079~~028 ~~Net~~Unrealized ~~assets~~(gain) ~~held~~loss ~~for~~on ~~sale~~foreign exchange transactions........~~...........~~ 14(3,~~600~~522) ~~-- -- 14~~3,~~600~~008 ~~-----------~~(514) ~~-----------~~Net ~~-----------~~income ~~-----------~~from ~~Total~~discontinued ~~current assets~~operations........................ ~~95,954 150,353~~ -- ~~246~~(1,~~307~~815) ~~Property~~(1,815) ~~plant~~Change in assets and ~~equipment~~liabilities: (~~net~~Increase) in accounts receivable......... ~~48,646 24,221 -- 72,867 Investment in subsidiaries~~..................... 58(4,~~591~~677) --(8,788) (5813,~~591~~465) --Decrease ~~Notes~~(Increase) ~~receivable~~in inventories............................. 6313,~~557~~184 -- (631,~~557~~889) --11,295 ~~Tradenames~~(Increase) Decrease in prepaid expenses and ~~patents......................~~other ~~223~~current assets 414 (462) (48) (Decrease) Increase in accounts payable and other accrued expenses (33,~~075~~128) 385,~~200~~707 ~~-- 261~~(27,~~275~~421) ~~Goodwill~~(Decrease) Increase in other.................................... ~~173~~(1,~~006~~036) ~~32,461~~392 (644) ---------- ~~205,467~~----------- ~~Deferred~~---------- ~~financing~~Net ~~costs....................~~Cash ~~17,380~~(Used --in) --Provided ~~17,380~~by ~~Other~~Operating ~~assets~~Activities...............~~.................~~ 2(1,~~665~~163) 25,~~553~~788 ~~-- 5~~4,~~218~~625 ----------- ----------- ----------- ~~-----------~~Cash ~~Total~~Flow ~~assets............................~~From $Investing ~~682,874~~Activities: $Additions ~~247,788~~to ~~$ (122~~property,~~148)~~ $plant ~~808,514~~& ~~========== =========== =========== =========== Short-term borrowings~~equipment....................... $(5,231) --(1,295) $(6,526) 55Payment $for --purchase $price 55adjustments ~~Accounts~~and ~~payable~~costs ~~and~~related ~~accrued~~to ~~expenses.......~~the ~~44,762~~acquisition ~~40,274~~of the Carter--Wallace ~~85,036~~Consumer ~~Intercompany accounts~~Business...........~~............~~ (38,~~633~~266) 3-- (8,~~633~~266) -- -- ~~Net liabilities of discontinued operations .~~ ------ ~~23,582~~ ----------- ~~23,582 Current portion of long~~-~~term~~--------- ~~debt...........~~Net ~~9,541~~Cash ~~18,960~~Used --in ~~28,501~~Investing ~~Taxes payable~~Activities............................... --(13,497) (1,~~606~~295) ~~-- 1~~(14,~~606~~792) ---------- ---------- -~~----------~~ ---------- ~~Total~~Cash ~~current~~Flow ~~liabilities...............~~from ~~50,670~~Financing ~~88,110~~Activities: --Repayment ~~138,780~~of ~~Long-term~~syndicated ~~debt~~bank credit facility...................~~...........~~ ~~397,838~~(750) ~~13,796~~ -- ~~411,634~~(750) ~~Deferred~~Payment ~~income~~of ~~taxes.......................~~deferred financing costs (459) -- ~~8,500~~(459) ---------- ~~8,500~~----------- ~~Notes~~--------- ~~payable~~Net Cash Used in Financing Activities............................... (1,209) -- ~~69,138~~ (691,~~138~~209) -- ~~Deferred and other long~~-~~term~~-------- ~~liabilities.... 10,705 9,215~~ ----------- ~~19,920~~ ----------- Effect of exchange rate changes on cash and cash equivalents...... -- 856 856 ----------- ----------- ----------- ~~Total~~NET ~~liabilities~~CHANGE IN CASH & CASH EQUIVALENTS....................... ~~459,213 188,759 (69,138) 578,834 Members' Equity and Subsidiary Capital Net contributed capital~~......~~...............~~ ~~220~~(15,~~500~~869) 525,~~061~~349 (5210,~~061~~520) ~~220,500~~CASH ~~Retained~~& ~~earnings~~CASH EQUIVALENTS AT BEGINNING OF PERIOD....................~~.......~~ 840,~~434~~444 ~~7,132 --~~ 15,~~566~~173 ~~Accumulated other comprehensive loss........ (5~~55,~~273)~~617 ~~(164) (949) (6,386)~~ ---------- -~~----------~~ ----------- ----------- ~~Total~~CASH ~~members'~~& ~~equity~~CASH ~~and~~EQUIVALENTS ~~subsidiary~~AT ~~capital~~END ~~223,661~~OF ~~59,029 (53,010) 229,680 ---------- ----------- ----------- ----------- Total liabilities and members' equity~~PERIOD.......................... $ ~~682~~24,~~874~~575 $ ~~247~~20,~~788~~522 $ ~~(122~~45,~~148)~~097 ~~$ 808,514~~ ========== =~~==========~~ =========== ===========

The following table sets forth the Company's principal product lines and related data for the three and nine month periods ended September 26, 2003 and September 27, 2002.

~~Statement~~Three ofMonths ~~Cash~~Ended ~~Flows~~Nine ~~For The Six~~ Months Ended ~~June 27, 2003 -------------------------------------- Total Domestic International Consolidated -------- ------------- ------------ Cash Flow From Operating Activities:~~ Net ~~Income..............................................................~~Sales ~~$ 26,133 $ 11,607 $ 37,740 Adjustments to reconcile net income to net cash provided by~~ (~~used~~In inthousands) ~~operating activities: Depreciation and amortization~~Sept.~~......................................~~ 526,~~952~~ ~~1,994~~2003 ~~7,946 Unrealized (gain) loss on foreign exchange transactions~~Sept.~~............~~ (227,~~892)~~ ~~1,653~~2002 ~~(1,239) Fair market value adjustment of assets held for sale~~Sept.~~...............~~ 3,100 -- 3,100 Net income from discontinued operations............................. -- (254) (254) Net gain on sale of discontinued operations......................... -- (1,862) (1,862) Change in assets and liabilities: (Increase) in accounts receivable................................... (12,884) (13,546) (26,~~430)~~ ~~(Increase)~~2003 ~~in patent infringement receivable~~Sept.~~.......................~~ ~~(18~~27,~~000)~~ --2002 (18,000) (Increase) in inventories........................................... (2,829) (725) (3,554) (Increase) Decrease in prepaid expenses and other current assets.... (200) 846 646 (Decrease) Increase in accounts payable and other accrued expenses.. (481) 9,037 8,556 (Decrease) Increase in other........................................ 1,602 (3,077) (1,475) --------- ----- ---- ---------- ~~Net Cash (Used in) Provided by Operating Activities..................... (499) 5,673 5,174~~ --------- ----- ---- ---------- ~~Cash~~Products ~~Flow~~Family ~~From Investing Activities: Additions to property, plant & equipment............................~~ Planning(~~2,551) (~~1~~,240~~) ~~(3,791) Proceeds from divestiture~~..........................~~.................~~ --$ 2246,~~573~~722 22$ 48,~~573~~943 ~~---------~~$ ~~--------- ---------- Net Cash (Used in) Provided by Investing Activities..................... (2~~141,~~551)~~538 ~~21,333~~$ 18139,~~782~~916 ~~---------~~Depilatories ~~---------~~and ~~----------~~waxes; ~~Cash~~face ~~Flow~~and ~~from Financing Activities: Repayment of syndicated bank credit facility~~skincare...~~.....................~~ ~~(19~~22,~~073)~~251 ~~(17~~22,~~524)~~603 ~~(36~~75,~~597)~~464 ~~Intercompany~~68,491 ~~capital~~Oral ~~contribution~~care................................... 9,~~797~~918 (97,~~797)~~708 --27,764 ~~Intercompany~~21,934 ~~debt~~OTC ~~transactions~~Products................................~~......~~ (311,~~266)~~581 310,~~266~~798 --36,557 ~~---------~~33,511 ~~---------~~Other ~~----------~~consumer ~~Net Cash Used in Financing Activities~~products.....................~~..............~~ (12,~~542)~~879 ~~(24~~10,~~055)~~951 ~~(36~~35,~~597)~~158 28,954 --------- --~~-------~~ ----------- ~~Effect of exchange rate changes on cash and cash equivalents............~~ -- ~~2,259 2,259~~ --------- --------- ----~~------~~ ~~NET~~Total ~~CHANGE~~net ~~IN CASH & CASH EQUIVALENTS~~sales.............................~~......~~ ~~(15,592)~~$ 5103,~~210~~351 (10,382) CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................... 35,093 19,687 54,780 --------- --------- ---------- CASH & CASH EQUIVALENTS AT END OF PERIOD................................ $ 19101,~~501~~003 $ 24316,~~897~~481 $ 44292,~~398~~806 ========== ========== =========== =============

---------------- (1) Family Planning includes condom product sales and pregnancy and ovulation kits. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Armkel, LLC (the "Company") 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 (the "Acquisition"), primarily Trojan condoms, Nair depilatories, and First Response and Answer test kits, and the international subsidiaries of Carter-Wallace. Initial financing was obtained on August 28, 2001, however operations did not commence until the Acquisition was consummated on September 28, 2001. The remainder of Carter-Wallace, comprised of its healthcare and pharmaceuticals businesses, was merged with MedPointe, Inc. ("MedPointe") 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"). In December 2002, the Company entered into an agreement to sell its Italian subsidiary to a group, comprising local management and private equity investors. The sale closed in February 2003 for a purchase price of $22.6 million including the repayment of $12.8 million of intercompany debt. The Company retained ownership of certain Italian pregnancy kit and oral care product lines with annual sales of approximately $3.0 million. The remainder of the Italian subsidiary's business included a high percentage of distributor sales as well as hospital diagnostic and other products not related to the Company's core business. The Company reported a $1.9 million gain on the sale and $0.3 million income (net of tax) from discontinued operations in the first quarter of 2003. The financial statements have been reclassified to reflect the Italian business as a discontinued operation in 2003 and prior financial statements. The following section discusses comparisons to the three-month and nine-month period ended September 26, 2003 compared to the same period in the prior year. This section does not include the income from discontinued operations. Results of Continuing Operations -------------------------------- Three and Nine Month Comparison

~~Statement~~Three ofMonths ~~Cash~~Ended ~~Flows~~Nine ~~For The Six~~ Months Ended ~~June 28, 2002~~ ------------------ -----------------~~---~~ ~~Total~~Sept. ~~Domestic~~26, ~~International~~Sept. ~~Consolidated~~27, Sept. 26, Sept. 27, 2003 2002 2003 2002 --------- --------- ---- ----- --------- ~~Cash~~(in ~~Flow~~millions) ~~From Operating Activities:~~ Net ~~Income~~ sales............................................~~.................~~ $ ~~10,256~~103.4 $ ~~5,637~~101.0 $ ~~15,893 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization~~316.~~......................................~~5 ~~6,603~~$ ~~1,752~~ 292.8~~,355~~ ~~Unrealized~~Cost ~~(gain)~~of ~~loss~~goods ~~on foreign exchange transactions~~sold............. ~~(3,891) 2,892 (999) Net income from discontinued operations~~......................~~.......~~ ~~-- (1,498) (1,498) Change in assets and liabilities: (Increase) in accounts receivable~~45.~~..................................~~8 ~~(13,346) (10,224) (23,570) Decrease (Increase) in inventories~~42.~~.................................~~5 ~~10,904 (291) 10,613 (Increase) Decrease in prepaid expenses and other current assets~~135.~~...~~9 ~~196 (33) 163 (Decrease) Increase in accounts payable and other accrued expenses~~133.~~. (21,197)~~ 2~~,792~~ ~~(18,405) (Decrease) Increase in other........................................ (1,524) 2,105 581~~ -------- --- ------ ----- ---- ~~Net Cash (Used in) Provided by Operating Activities..................... (11,999) 3,132 (8,867)~~ -------- --------- --~~-------~~ ~~Cash~~Gross ~~Flow From Investing Activities: Additions to property, plant & equipment~~Profit............................ ~~(3,633) (802) (4,435) Payment of acquisition-related costs~~............. 57.6 58.5 180.6 159.~~...............~~6 ~~(1,132)~~Marketing ~~-- (1,132) -------- --------- --------- Net Cash Used in Investing Activities~~expenses.................................. 16.7 (16.5 48.4~~,765)~~ ~~(802)~~40.9 (5Selling,~~567)~~ ~~--------~~general ~~---------~~& ~~---------~~administrative ~~Cash~~expenses ~~Flow from Financing Activities: Repayment of syndicated bank credit facility........................~~ (~~750~~1) ~~-- (750) Payment of deferred financing costs~~....... 22.2 22.7 56.4 64.~~......................~~0 ~~(459)~~Interest --expense ~~(459)~~& ~~--------~~other ~~--------- --------- Net Cash Used in Financing Activities~~income......................~~.............~~ (8.1~~,209)~~ --9.4 (24.1~~,209)~~ 26.0 -------- --- ------ -----~~----~~ ~~Effect of exchange rate changes on cash and cash equivalents............~~ -- ~~404 404~~ -------- --------- --~~-------~~ ~~NET~~Income ~~CHANGE~~before INtaxes ~~CASH~~from &continuing ~~CASH EQUIVALENTS~~operations.......~~............................~~ ~~(17,973)~~$ ~~2,734 (15,239) CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD~~10.~~.........................~~6 ~~40,444~~$ ~~15,173 55,617 -------- --------- --------- CASH & CASH EQUIVALENTS AT END OF PERIOD~~9.~~...............................~~9 $ ~~22,471~~51.7 $ ~~17,907~~28.7 $========== ~~40,378~~ ========== ========= ==========

(1) In 2003, selling, general and administrative expenses were reduced by the net gain from the Pfizer patent infringement settlement and increased by the writedown of the Cranbury facility, which are discussed further in this section. The results of operations for the period from January 1, 2003 to September 26, 2003 are affected by moderate acquisition related expenses amounting to $2.8 million primarily for the cost to carry the Cranbury facility. The prior year results are affected by $6.3 million in transition expenses and an $8.1 million inventory step-up charge. Net Sales --------- Net sales for the quarter increased $2.4 million, or 2.4%, to $103.4 million in the period ended September 26, 2003 from $101.0 million in the three months ended September 27, 2002. Domestic net sales (net of intercompany eliminations) decreased $4.7 million, or 8.5%, to $50.7 million from $55.4 million. This decrease in Domestic net sales is due to decreased sales of Nair depilatories primarily related to poor weather conditions during the peak depilatory season, lower Trojan condom sales due to promotional timing and lower diagnostic kit sales due to competitive activity. International net sales increased $7.1 million, or 15.6%, to $52.7 million from $45.6 million. The increase in International net sales reflects strong sales of oral and skin care products in Europe and condoms in Canada and Mexico, as well as foreign exchange gains which accounted for $4.2 million of the increase. Net sales for the nine months ended September 26, 2003 increased $23.7 million, or 8.1%, to $316.5 million from $292.8 million in the same period last year. Domestic net sales decreased $2.0 million, or 1.2%, to $160.3 million from $162.3 million for the nine months ended September 26, 2003. This decrease in Domestic net sales (net of intercompany eliminations) is primarily due to the lower sales for Nair depilatories and lower sales pregnancy test kits. International net sales increased $25.7 million, or 19.7%, to $156.2 million from $130.5 million primarily due to the continuation of strong depilatory sales across all markets, stronger oral care sales in Europe, condom sales in Canada and Mexico, higher export sales from the UK, as well as a favorable exchange translation gain of $13.6 million. Cost of Goods Sold ------------------ Cost of goods sold for the quarter increased $3.3 million, or 7.8%, to $45.8 million for the quarter from $42.5 million in the same period last year. As a percentage of net sales, cost of goods sold increased to 44.2% from 42.1% in 2002. The 2.1 percentage point increase over the 2002 results is primarily due to an inventory reserve for slow moving and obsolete depilatory products in the United States. Cost of goods sold for the nine months ended September 26, 2003 increased $2.7 million or 2.0% to $135.9 million from $133.2 million in the same period last year. Cost of goods sold in the first quarter 2002 includes an $8.1 million charge relating to inventory step-up adjustments incurred at the Acquisition. Excluding this adjustment in 2002, cost of goods sold, as a percentage of net sales, would be reduced to 42.7% of net sales for 2002. As a percentage of net sales, cost of goods sold year to date in 2003 increased slightly to 42.9%. The 0.2 percentage point decline over the adjusted 2002 results is primarily related to the domestic inventory reserve for slow moving and obsolete depilatory products. Operating Costs excluding Interest Expense and Other Income ----------------------------------------------------------- Total operating expenses for the quarter excluding interest expense and other income decreased $0.2 million, or 0.1%, to $39.0 million from $39.2 million in the same period last year. Total operating expenses for the nine months ended September 26, 2003, excluding interest expense and other income, decreased $0.1 million, to $104.8 million from $104.9 million in the nine months ended September 27, 2002. The operating expense changes are addressed below. Marketing expenses for the quarter increased by $0.2 million, or 1.2%, to $16.7 million from $16.5 million in 2002. Marketing expenses in the nine months ended September 26, 2003 increased by $7.5 million, or 18.3%, to $48.4 million from $40.9 million in the same period last year. The increase in marketing expenses for the nine months ended September 26, 2003, consists of $5.4 million in the International division primarily behind advertising for Arm & Hammer Dental Care in the UK, Lineance skin care in France and other initiatives and $2.1 million in the Domestic division primarily behind introductory marketing spending behind the launch of Lineance as a depilatory in the United States. Selling, general and administrative expenses for the quarter decreased $0.5 million, or 2.2%, to $22.2 million in the quarter from $22.7 million in 2002. Selling, general and administrative expenses in the nine months ended September 26, 2003 decreased $7.6 million, or 11.9%, to $56.4 million from $64.0 million in the same period last year. The decrease in expenses, for the nine months ended September 26, 2003, is related to a net gain from the settlement of patent infringement with Pfizer of $12.7 million net of legal expenses and costs partially offset by the $3.1 million write-down for the Cranbury facility. Adjusting for these items selling, general and administrative expense would increase to $66.0 million for the nine months ended September 26, 2003. The year to date increase over prior year is primarily related to an increase in R&D spending to support current and future initiatives partially offset by lower transition costs. Interest Expense and Other Income --------------------------------- Interest expense was $8.3 million in the quarter compared to $9.1 million for the prior year. Interest expense for the nine months ended September 26, 2003 was $25.9 million compared to $27.4 million for the same period last year. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) This reduction in interest expense is related to the lower debt position from prior year and lower interest rates on the Company's term loans. Interest income of $0.2 million and $0.8 million for the quarter and nine months ended September 26, 2003 remains unchanged from last year. Other expense was $0.1 million for the quarter compared to $0.5 million last year, and other income was $1.1 million for the nine months ended September 26, 2003 compared to $0.6 million last year and primarily relates to foreign exchange remeasurement on intercompany loans with certain of its subsidiaries. Liquidity and Capital Resources ------------------------------- The Company had outstanding total debt of $386.9 million, and cash of $52.4 million, for a net debt position of $334.5 million at September 26, 2003. This compares to the net debt position of $385.4 at December 31, 2002. The decrease in net debt is attributable to the use of proceeds from the divestiture of the Italian operation and from the Pfizer settlement. Interest payments on the notes and on borrowings under the senior credit facilities affect the Company's liquidity requirements. Borrowings under the term loans and the revolving credit facility bear interest at variable rates plus any applicable margin. The interest rates on the term loans are dependent on the attainment of certain covenants depending on the ratio of total debt to EBITDA as defined in the Company's term loan agreement ("adjusted EBITDA"). Adjusted EBITDA is a required component of the financial covenants contained in the Company's primary credit facility, a material agreement to the Company, and management believes that the presentation of adjusted EBITDA is useful to investors as a financial indicator of the Company's ability to service its indebtedness. Adjusted EBITDA may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to cash flows from operating activities, which is determined in accordance with accounting principles generally accepted in the United States. Financial covenants include a leverage ratio and an interest coverage ratio, which if not met, could result in an event of default and trigger the early termination of the credit facility, if not remedied within a certain period of time. Adjusted EBITDA was approximately $88.0 million for the nine months ended September 26, 2003. The leverage ratio as defined in the term loan agreement was 3.10 versus the agreement's maximum 4.75, and the interest coverage ratio was 3.55 versus the agreement's minimum of 2.25. The reconciliation of Net Cash Provided by Operating Activities to the Company's key liquidity measure, "adjusted EBITDA", per the term loan agreement, is as follows (in millions) for the nine months ended September 26, 2003: Net Cash Provided by Operating Activities................... $ 35.5 Interest Expense (1)................................... 23.2 Interest Income........................................ (0.8) Current Income Tax Provision........................... 7.2 Increase in Working Capital(2)......................... 20.2 Other.................................................. 2.7 --------- Adjusted EBITDA(3).......................................... $ 88.0 ========= Net Cash Provided by Investing Activities $ 15.9 ========= Net Cost Used In Financing Activities $ (55.8) ========= (1) Interest expense excludes the amortization of deferred financing costs. (2) The increase in working capital is primarily due to an increase in accounts receivable and inventories along with a decrease in accounts payable and other accrued expenses. (3) Bank adjusted EBITDA includes the net gain of $12.7 million from the patent infringement settlement. Without this gain, adjusted EBITDA would be $75.3 million. Cash flow from operating activities was $35.5 million for the nine months ended September 26, 2003 which includes $10.7 million in interest payments, $3.1 million in severance payments, and an increase in working capital primarily due to seasonality, more than offset by net income. Cash flow from investing activities was $15.9 million for the nine months ended September 26, 2003. The net cash flows provided by investing activities includes the proceeds from the Italian divestiture of $22.6 million partially offset by $6.7 million in capital expenditures. Cash flow used in financing activities was $55.8 million which includes a $21.6 million payment of debt from proceeds of the Italian sale, $12.5 million from the proceeds of the Pfizer settlement and $21.7 million in voluntary debt repayments generated from income from operations. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The Company incurred severance and other change in control related liabilities to certain employees. Since the Acquisition the Company paid $45.1 million in severance payments, including $3.1 million paid in the nine months ended September 26, 2003. The Company estimates that the total severance payments will be approximately $48.0 million. The Company anticipates the remaining $2.9 million in severance and related costs to be partially paid out in 2003 and 2004 for the remaining transition employees, with the majority of the balance being carried into future years for medical and life insurance payments for two former Carter-Wallace executives. The Company expects that the total capital expenditures will be approximately $12 million in 2003. The Company expects that funds provided from operations and available borrowing of $85 million under its six-year revolving credit facility, none of which was drawn on September 26, 2003, will provide sufficient funds to operate its businesses, to make expected capital expenditures, to make expected severance payments, and to meet foreseeable liquidity requirements. Recent Accounting Pronouncements -------------------------------- In April 2003, the FASB issued SFAS No. 149,"Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This Statement is effective for contracts entered into or modified after June 30, 2003, with certain exceptions. The Company adopted the provisions of the statement on its effective date and does not anticipate a material impact to its consolidated financial statements. On May 15, 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", which aims to eliminate diversity in practice by requiring that the "freestanding" financial instruments be reported as liabilities by their issuers. The provisions of SFAS No. 150, which also include a number of new disclosure requirements, are effective for instruments entered into or modified after May 31, 2003 and for pre-existing instruments as of the beginning of the first interim period that commences after June 15, 2003. The Company adopted the provisions of the statement on its effective date and does not anticipate a material impact to its consolidated financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK There have not been any material changes during the three month period ended September 26, 2003. For further information, please refer to the Company's December 31, 2002 Annual Report on Form 10-K. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. A controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. (b) Change in Internal Control over Financial Reporting No change in the Company's internal control over financial reporting occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Cautionary Note on Forward-Looking Statements --------------------------------------------- This report contains forward-looking statements relating to, among other things, short- and long-term financial objectives, sales growth, cash flow and cost improvement programs. These statements represent the intentions, plans, expectations and beliefs of the Company, and are subject to risk, uncertainties and other factors, many of which are outside the Company's control and could cause actual results to differ materially from such forward-looking statements. The uncertainties include assumptions as to market growth and consumer demand (including the effect of political and economic events on consumer demand), raw material and energy prices and the financial condition of major customers. With regard to the new product introductions referred to in this report, there is particular uncertainty relating to trade, competitive and consumer reactions. Other factors, which could materially affect the results, include the outcome of contingencies, including litigation, pending regulatory proceedings, environmental remediation and the acquisition or divestiture of assets. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures the Company makes on related subjects in its filings with the U.S. Securities and Exchange Commission. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995. PART II - Other Information ITEM 6. Exhibits and Reports on Form 8-K a. Exhibits (31.1) Certifications of the Chief Executive Officer of the Company required by Rule 13a-14(a) under the Securities Exchange Act of 1934. (31.2) Certifications of the Chief Financial Officer of the Company required by Rule 13a-14(a) under the Securities Exchange Act of 1934 (32.1) Certifications of the Chief Executive Officer of the Company required by Rule 13a-14(b) under the Securities Exchange Act of 1934. (32.2) Certifications of the Chief Financial Officer of the Company required by Rule 13a-14(b) under the Securities Exchange Act of 1934. b. No reports on Form 8-K were filed for the three months ended September 26, 2003. 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.

~~Three~~ARMKEL, ~~Months~~LLC. ~~Ended Six Months Ended~~ ------------------ ------------------------------ ~~Net Sales~~ (~~In thousands~~REGISTRANT) ~~June~~DATE: ~~27,~~November ~~2003 June 28~~10, ~~2002 June 27,~~ 2003 ~~June~~/s/ ~~28,~~Maureen ~~2002~~K. Usifer ------------- ----------------- ------------- ----------------------------------- ~~Products~~MAUREEN ~~Family Planning(1)~~K.~~.........................~~ $USIFER ~~50,104~~CHIEF $FINANCIAL ~~48,610~~OFFICER $AND ~~94,816~~PRINCIPAL $ACCOUNTING ~~90,973~~OFFICER ~~Depilatories~~DATE: ~~and~~November ~~waxes; face and skincare... 29,805 27,529 53,213 45,888 Oral care................................... 9,293 8,061 17,846 14,226 OTC Products................................ 12,444~~ 10,~~080~~ ~~24,976~~2003 ~~22,713~~/s/ ~~Other~~Zvi ~~consumer~~Eiref ~~products..................... 11,831 10,151 22,279 18,003~~ ----------- ------------------- ----------- ------------------------------------- ~~Total~~ZVI ~~net~~EIREF ~~sales............................. $ 113,477 $ 104,431 $ 213,130 $ 191,803 ========== ========== =========== =============~~DIRECTOR

INDEX TO EXHIBITS Exhibit Number Title ------- ----- 31.1 Certifications of the Chief Executive Officer of the Company required by Rule 13a-14(a) under the Securities Exchange Act of 1934. 31.2 Certifications of the Chief Financial Officer of the Company required by Rule 13a-14(a) under the Securities Exchange Act of 1934 32.1 Certifications of the Chief Executive Officer of the Company required by Rule 13a-14(b) under the Securities Exchange Act of 1934. 32.2 Certifications of the Chief Financial Officer of the Company required by Rule 13a-14(b) under the Securities Exchange Act of 1934.

Three Months Ended Six Months Ended ------------------ ---------------- June 27, June 28, June 27, June 28, 2003 2002 2003 2002 ---- ---- ---- ---- (in millions) Net sales............................................ $ 113.5 $ 104.4 $ 213.1 $ 191.8 Cost of goods sold................................... 49.0 45.5 90.1 90.8 ----------- ----------- ---------- ----------- Gross Profit......................................... 64.5 58.9 123.0 101.0 Marketing expenses.................................. 19.7 12.9 31.8 24.4 Selling, general & administrative expenses (1)....... 12.8 20.9 34.1 41.3 Interest expense & other income...................... 7.1 7.5 16.0 16.6 ----------- ----------- ---------- ----------- Income before taxes from continuing operations....... $ 24.9 $ 17.6 $ 41.1 $ 18.7 ========== ========== ========= ==========

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