Church & Dwight - Concordia University & Dwight has 5 key factors that ... Church & Dwight products grew their market share in 6 of its 8 ... Its principal competitors, P&G and Colgate

Fund Manager: Ludovic Jacques

Kenneth Woods Portfolio Management Program

Church &

Dwight

Qualitative Analysis

March 23, 2012

Ludovic Jacques

Kenneth Woods Portfolio

Management Program

Sector: Consumer Staples



1

Table of Content Executive Summary .................................................................................................................................................... 2

Summary of the Report .............................................................................................................................................. 3

Description and Segmentation ................................................................................................................................... 4

Industry (North America)............................................................................................................................................ 5

Key Drivers .............................................................................................................................................................. 5

Recent Trends and Forecasts.................................................................................................................................. 6

Business Model ........................................................................................................................................................... 7

Strong Brands ......................................................................................................................................................... 7

Leading Market Share in Niche Markets ................................................................................................................ 8

Very Defensive ........................................................................................................................................................ 8

Limited scale ........................................................................................................................................................... 9

Relatively Low Emerging Markets Exposure ........................................................................................................11

What do they do with their money? ........................................................................................................................12

Who Are the Managers? ..........................................................................................................................................13

“Others” ................................................................................................................................................................13

Guidance ...................................................................................................................................................................14

Assumptions .............................................................................................................................................................15

Income Statement ................................................................................................................................................15

Analysis .................................................................................................................................................................15

Cash Flow Statement ............................................................................................................................................16

Analysis .................................................................................................................................................................17

Target Price ...............................................................................................................................................................18

Sensitivity Table ........................................................................................................................................................18

Analysis .................................................................................................................................................................18

Appendix 1 - Key Brand Names ................................................................................................................................19

Appendix 2 – Recent Acquisitions ............................................................................................................................21

Appendix 3 – The 3-Steps Model ..............................................................................................................................22

Income Statement (Model) ..................................................................................................................................23

Cash Flow Statement (Model) ..............................................................................................................................24

Balance Sheet .......................................................................................................................................................26



2

Executive Summary The Company Church & Dwight, Co., Inc develops manufactures, and markets household, personal care, and specialty products, primarily in North America. Unlike most of its peers, the company produces a unique mix of premium (primarily personal care) and value products which is considered more defensive. Furthermore, Church & Dwight is geographically focused with more than 82% of its sales coming from the United States. The Industry The industry is dominated by large players such as Johnson & Johnson, Colgate or Procter & Gamble, that can benefit from a leading brand and economies of scale. Recently, commodity prices went up which negatively affected the margins of several companies. According to S&P NetAdvantage, this trend is expected to slow down this year, but we might not see margins going back to their historical levels given that there is a lag of 6-12 months caused by hedging. Its Business Model Church & Dwight concentrates its efforts on niche markets, leading brands, and a focus portfolio which compensate for its disadvantage of scale. Moreover, Church & Dwight owns several strong brands which have an excellent reputation with customers and a strong penetration with retailers. For example, you probably know Trojan or Arm & Hammer. Finally, despite its defensive positioning, management has proven that it can grow its business by acquisitions and defends itself effectively against larger competitors. Its Acquisition Strategy Management has outlined the following criteria for possible targets, which we believe are in line with the positioning of the company: (1) Companies with No. 1 and No. 2 market share in niche categories, (2) higher-margin brands than the company average, (3) a target light in terms of assets, (4) a possibility to leverage Church & Dwight’s capital base in manufacturing, logistics, and , logistics, and purchasing and (5) the possibility to achieve a sustainable competitive advantage. Given that eight of their power brands represent 80% of their revenues and profits of which seven were acquired in the past 10 years, we can conclude that they succeeded. Management Team However, when acquisition opportunity does not arise, management remains disciplined. This view is shared by most investors and could be further proven by Church & Dwight’s current low debt (net cash) and its 100% dividend increase in 2010. Valuation Using the sell-side consensus for the FY2012, Barclay`s estimates for FY2013 and very conservative assumptions for the remaining years, we arrived to an intrinsic value of $55.91 which implies a premium of 12.8% over the current market price. Indeed, we assumed sales growth and margin expansions below management’s targets and long-term growth and a WACC below the estimates of Bloomberg.



3

Summary of the Report

Company Description

What is Church & Dwight?

Industry Summary

What are the key drivers? What are the recent trends in the industry? Can Church & Dwight benefit from them?

Business Model

Church & Dwight has 5 key factors that characterize its business model:

1. Strong Brands

2. Leading Market Share in Niche Markets

3. Very Defensive

4. Limited scale

5. Relatively Low Emerging Markets Exposure

We will briefly explain what it means and assess if it creates a competitive advantage.

Acquisition Strategy

We will continue by explaining how they deploy their cash. Is their acquisition strategy consistent with the 5

factors listed above and in line with the shareholders’ interest?

Management Team

Overall, do we believe that the management will increase are money?

Valuation

First, we will review and summarize the guidance which we will use for our assumptions.

Secondly, we will explain our assumptions and compare them to the sell-sides estimates.

Finally, we will give our target price and include a sensitivity table.



4

Description and Segmentation A list of Church & Dwight’s products by segment is included in Appendix 1 Church & Dwight, Co., Inc., based in Princeton, New Jersey, develops, manufactures, and markets household, personal care, and specialty products, primarily in North America. Unlike most of its peers, the company produces a unique mix of premium (primarily personal care) and value products which is considered more defensive. Furthermore, Church & Dwight is geographically focused with more than 82% of its sales coming from the United States. The brand portfolio is anchored by Arm & Hammer, but the company has also built a portfolio of leading brands in niche segments through acquisitions. Marketing efforts are focused on eight “power brands,” which in addition to Arm & Hammer (brand name used in multiple product categories) include Trojan condoms, Xtra laundry detergent, OxiClean laundry additive, Nair depilatories, First Response home pregnancy test kits, Orajel oral analgesics, and SpinBrush battery-operated toothbrushes.

8 “Power Brands”

~80% of sales

Emerging Markets

~5% of sales

Premium/Value Products

~60%/40%



5

Industry (North America)

Household Products - % of Sales

Key Drivers Size The household products market is difficult to enter on a small scale as the manufacturers of most household products utilize inherently large-scale processes that require significant capital input to set up. Indeed, companies such as Procter & Gamble, Johnson & Johnson and Colgate dominates the industry. Market Share Creates an Advantage Having a product with a leading market share is important for several reasons:

- First, the higher a company’s market share, the more power it will have with retailers. This helps to ensure that its products are given prime shelf space.

- Second, if a product is in high demand, the company will be able to produce it in large volumes, resulting in manufacturing and distribution efficiencies.

- Third, a substantial market share translates into more sales dollars, which the company can use for additional advertising and promotional spending to support the brand further. A company can also leverage a strong brand name by developing product line extensions

For that reason, large companies are often advantage

Demographics Overall demand for consumer products is closely linked to population growth; more people means more bodies to bathe and more homes to clean. However, as the US population ages, the rate of new household formations—a major driver of consumer goods demand—decreases correspondingly. According to Net Advantage, the US population is expanding at an annual rate of just under 1%.

United States 61%

Brazil 15%

Mexico 8%

Canada 7%

Rest of Americas

9%



6

Recent Trends and Forecasts In 2011, plastic resins and materials prices were up 14.1%

S&P NetAdvantage anticipate that cost pressure from raw materials (such as ingredients) for manufacturers of

household nondurable and personal care products will generally be less than what it was in 2011. Although a

number of commodity prices have already declined significantly from their 2011 highs, it can take a while for the

impact of hedging activity.

Trading down

S&P NetAdvantage also believe that purchasing power has taken a hit from food and gasoline inflation. Further,

according to their survey, 48% of the respondents said they are trying new brands that are priced below the

brands they purchase regularly, and 40% said they are giving up some of their favorite brands to save money

owing to this greater emphasis on value.



7

Business Model Strong Brands Arm & Hammer Arm & Hammer is a well-known brand with a good reputation and a good penetration within retailers. For that reason, management uses its logo, and therefore, the strength of the brand name, on other products such as the Arm & Hammer toothpaste to facilitate their penetration. Indeed, Arm & Hammer has reached a status where the image of the initial product, the baking soda, has outshined the product itself. Trojan (Sales of around $300M year) Similarly to Arm & Hammer, the Trojan brand is well-known and has a good reputation. Once again, management uses the name to create new variation of products such as Fire & Ice Condoms or even new products such as lubricants. Furthermore, according to Wells Fargo, Trojan is one of the highest-margin brands in Church & Dwight’s portfolio. This is normal; people are ready to pay a little extra to not have a child! OxiClean (Sales of around $240M year) It is also possible to mix multiple brands. For example, the brand OxiClean, initially a stain fighter, was mixed with the brand Arm & Hammer to produce a new premium detergent. Church & Dwight does not have to heavily promote this product since it already has a strong image. Marketing One of the most interesting effects of these strong brands is the scale advantage that it implies for marketing. Indeed, Church & Dwight can promote a logo instead of a single product.



8

Leading Market Share in Niche Markets These brands also have leading market share since they principally compete in niche markets. This is an important factor for Church & Dwight since it can avoid competition from larger peers. Indeed, an $80M market is not attractive for a company such as P&G, especially when it has to build a brand name. For that reason, these niche markets constitute a clear competitive advantage for Church & Dwight. Moreover, Church & Dwight products grew their market share in 6 of its 8 power brands in 2010.

Category Market Size (Millions)

CHD Brand Market Share Rank

Value Liquid Laundry Detergent $1600 Arm & Hammer and Xtra >40% #1

Stain Fighters $690 OxiClean >35% #1

Condoms $400 Trojan >75% #1

Pregnancy Kits $300 First Response >25% #1

Battery-Powered Toothbrushes $190 SpinBrush >40% #1

Depilatories $110 Nair >45% #1

Toothache Relief $80 Orajel >55% #1

Source: Company Reports, 2010

Very Defensive The company’s value brands have clearly benefited from consumers trading down during the recession, although this has resulted in a negative mix impact to sales due to the lower price per unit of value versus premium products. Premium brands are primarily personal care products in niche categories along with household products like laundry additives. Value brands include the Arm & Hammer and Xtra laundry brands, but also include value-oriented toothpaste and pregnancy kits. Value-branded products typically sell at 33-50% of the price of premium brands. Naturally, if the US economy improves and customers begin to trade up, Church & Dwight will most likely lag its peers.



9

Limited scale Its principal competitors, P&G and Colgate-Palmolive Company, have more than 7 times its market capitalization and as a result, benefit from a scale advantage. This difference is especially reflected in the operating margins and in the marketing expenses. Competitors Even if Church & Dwight principally competes in niche markets, it has some brands that are exposed to “main markets” and therefore, to a price war which is exactly what is happening in the liquid detergent segment. Moreover, Church & Dwight is further suffering from this aggressive pricing since input costs are raising rapidly and Church & Dwight is unable to increase its prices due to its large exposure to the value segment. In our view, this war could possibly continue for a long time which would permanently decrease margins for this segment. Customers In each of the years ended December 31, 2010, 2009, and 2008, net sales to the Company’s largest customer, Wal-Mart Stores, Inc. and its affiliates were 23%, 22% and 22% respectively, of the Company’s total consolidated net sales. Moreover, Church & Dwight top three customers accounted for approximately 33% of net sales in 2010, 32% of net sales in 2009 and 31% of net sales in 2008. As we can understand from the table below, Wal-Mart Stores, Inc. represents a large portion of Church & Dwight sales while Church & Dwight is only a small portion of Wal-Mart’s sales. We can conclude that Wal-Mart has a strong negotiation power which limits Church & Dwight’s pricing power.

Company Market Capitalization Sales Operating Margin (%)

Church & Dwight $6B $2 589M 17,2%

Procter & Gamble $174B $82 559M 19,2%

Colgate-Palmolive Company

$43B $15 564M 22,4%

The Clorox Company $9B $5 534M 19,0%

Wal-Mart $200B $421 849M (Unrelated)

Source: Annual Reports



10

Marketing Advertising spending has grown consistently as a percentage of sales over the past ten years. In 2000-03, marketing expenses were consistently below 10% of sales, but have increased nearly every year since then, reaching 14.0% in 2009. However, even if it is a high percentage, it remains low in absolute dollars compared to its competitors.

Company Marketing as a % of sales

In dollars (Millions)

Church & Dwight 13,0% (Note 1) 330

Procter & Gamble 11,3% 9 300

Colgate-Palmolive 10,6% 1 650

Clorox 9,4% 520

Source: Annual Reports 2010 Note 1: CHD increased its discount “spending” in 2010 which is recorded in net sales instead of marketing. It is usually 14% of sales. The company also recently changed its strategy to have more impactful and well-supported product launches. In 2007, the company launched 58 new products, which fell to 35 new products in 2009. In 2010, the company launched approximately 40 new products. Management also decided to focus its efforts on the eight power brands. For example, the company now spends approximately $100 million annually on advertising for the Arm & Hammer brand. R&D R&D spending has remained consistent over the past decade, ranging between 2.0% and 2.5% of sales. Nominal spending increased at a 12.3% compound annual growth rate over the 2000-09 time frame, growing to $55.1 million in 2009. Investment in R&D has been a critical component driving organic growth through the consistent introduction of new products.

Company R&D as a % of sales

In dollars (Millions)

Church & Dwight 2,1% 55

Procter & Gamble 2,4% 2 000

Colgate-Palmolive 1,6% 250

Clorox 2,2% 120

Source: Annual Reports 2010



11

Relatively Low Emerging Markets Exposure Another explanation for its lower margin could be its low emerging markets exposure. Typically, emerging markets customers do not save money and live on a day-to-day basis. For that reason, they buy smaller packages more frequently, a more profitable business model for companies. However, Church & Dwight has a lower exposure given that the consumer international segment sales were only 15.6% of net sales in 2009 and an estimated 16.9% in 2010. In addition, these sales are focused in developed countries since 95% of Church and Dwight’s international sales occur in six countries of which only two are emerging countries (Canada, France, the United Kingdom, Mexico, Australia, and Brazil).

Church & Dwight Exposure by Currencies

Company % of Sales from EM

Colgate-Palmolive Co. ~45.0%

Procter & Gamble Co. 33.0%

Clorox Co. ~16.0%

Church & Dwight Co. <5.0%

Source: Company Reports

US Dollar 81%

Canadian Dollar

6%

Euro 4% Others

9%



12

What do they do with their money?

Growth by Acquisitions Recent acquisitions are listed in Appendix 2 “Eight of their power brands represent 80% of their revenues and profits. Seven of those were acquired in the past 10 years.” Historically, Church & Dwight has made accretive niche acquisitions every 18-24 months, with the last being Orajel in July 2008, and the company has announced that M&A is the top priority for the use of company cash. Church & Dwight has created a distinctive niche market brand portfolio of leading premium and value brands within the household and personal care (HPC) industry.

Management has outlined the following criteria for possible targets, which we believe are in line with the positioning of the company:

Why a Growth by Acquisition Strategy Would Be Good for Church & Dwight? Church & Dwight already has fixed costs such as its distribution channel, its logistics and its warehouses which could easily be leveraged by new acquisitions. For example, Wells Fargo affirms that usually only approximately 10% of the staff of the acquired company is kept, and acquired companies are fully integrated within one year. In addition, Church & Dwight is looking for margin-accretive new products which could add to the effect of an increasing scale.

2007 2008 2009 2010 2011

Employees 3,700 3,500 3,700 3,600 3,500

Moreover, as it will be further explained in the next section, management has a proven track record and a disciplined approach.

Companies with No. 1 and No. 2 market share in niche categories

Higher-growth, higher-margin brands than the company average

That transactions be light in terms of assets

The ability to leverage Church & Dwight’s capital base in manufacturing, logistics, and purchasing

To achieve a sustainable competitive advantage



13

Who Are the Managers? “Jim Craigie was awarded the Baker Scholar at Harvard which is the highest distinction for the Harvard MBA program.” Management Structure and Compensation According to Wells Fargo, Church & Dwight has a very lean management structure with the highest revenue per employee compared to close competitors in the household and personal care industry. CEO James Craigie has ten direct reports and the company has three layers of management from top to bottom. Since the current CEO took over in July 2004, sales have increased approximately 60%, with no change in management size. The lean senior management team enables the company to make decisions much more quickly than competitors. Proven Track Record One of the greatest concerns in the investment community is that the company could buy a large company and not integrate it successfully. According to us, this is an important risk since Church & Dwight has an experienced management team with a strong track record, including: 1- Strong execution through the recession against much larger competitors 2- Successful integration of multiple acquisitions 3- Brand management and development (including sales and share building marketing efforts) 4- Day-to-day operational execution Moreover, when acquisition opportunity does not arise, management remains disciplined. This view is shared by most investors and could be further proven by;

- Church & Dwight’s low debt - The 100% dividend increase in 2010

“Others” No US Pension Fund Management is also in the process of terminating its domestic defined benefit pension plan, which covers 766 individuals, including 46 active employees.



14

Guidance Church & Dwight unveiled its long-term annual guidance with a 3-5 year time frame in mind. Management has outlined long-term diluted organic EPS growth of 9-10%. To achieve this growth, management expects to realize the following annual objectives: Income Statement Net sales: 3% to 4% organic revenue growth Gross Margin: 25 basis points to 50 basis points per year coming from a new plant in California, [that will be] producing both laundry and Cat Litter, their two heaviest products, that will save them lots of money on distributing those products. It really starts next year, because there is some start-up cost this year but that's another big investment for them to continue to keep their cost structure down. Marketing expenses: Approximately 13% of sales Tax rate: Approximately 36% EPS: 9% to 10% Organic EPS growth Total shareholders return (EPS) accretion from acquisitions: 2-3% Balance Sheet 2-3x total debt-to-EBITDA Cash Flow Statement Capital expenditure of approximately $70 million Free cash flow to exceed $300 million



15

Assumptions We derived our target price from these assumptions:

Key Income Statement & Cash Flow Assumptions

2012 Numbers Sell-Side Average

2013 Numbers Barclay's Estimates

2014 Numbers Guidance and Personal Estimates

Income Statement

FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

Sales (Organic Growth) 3.7% 3.2% 3.5% 3.5% 3.5%

Sales (Acquisitions) 0.0% 1.0% 1.5% 1.5% 1.5%

Sales (Total Growth) 3.7% 4.2% 5.0% 5.0% 5.0%

Gross Margin (%) 42.7% 44.3% 44.6% 44.9% 45.2%

Operating Margin (%) 18.7% 20.7% 21.1% 21.5% 21.9%

Total Interest Expense Flat

Other Non-Operating Expense Flat

Tax Rate 35.1% 34.9% 36.0% 36.0% 36.0%

Net Income 11.8% 11.0% 8.1% 7.0% 7.0%

Comparable Companies (Profitability Ratio)

Gross Margin Operating Margin Profit Margin Dividend Payout Ratio

Dividend Yield

P/B ROE

CHURCH & DWIGHT CO INC 44% 18% 11% 31% 1.5% 3.44 16%

Average 54% 20% 13% 66% 3.3% 7.60 43%

PROCTER & GAMBLE CO/THE 51% 19% 14% 48% 3.1% 2.94 18%

COLGATE-PALMOLIVE CO 57% 23% 15% 49% 2.4% 19.49 98%

JOHNSON & JOHNSON 69% 25% 15% 64% 3.5% 3.11 24%

CLOROX COMPANY 43% 18% 11% 107% 3.5% N/A N/A

UNILEVER PLC 48% 15% 9% 60% 4.2% 4.88 32%

Analysis As we can see, the assumption is that Church & Dwight`s margins will converge to comparable companies. Its

ROE is also lower which is normal given that CHD is net cash.



16

Cash Flow Statement

Non-Cash Items (% of Sales) FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 Average Assumption

Depreciation / Depletion 2.6% 1.9% 2.3% 1.7% 1.8% 2.0% 2.0%

Amortization 0.0% 1.1% 1.1% 1.1% 1.0% 0.8% 0.8%

Deferred Taxes 0.7% 0.6% 0.9% 1.5% 2.2% 1.2% 1.2%

Unusual Items 0.2% 0.3% 0.5% 0.3% 0.1% 0.3% 0.3%

Equity in Net Earnings (Loss) -0.4% -0.5% -0.5% -0.2% -0.4% -0.4% -0.4%

Other Non-Cash Items 0.4% 1.0% 0.5% 0.5% 0.3% 0.6% 0.6%

Working Capital FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 Average Assumption

Days Sales Outstanding (DSO) 40.7 31.8 32.2 32.6 35.1 34.5 34.6

Days Sales of Inventory (DSI) 35.1 30.0 31.4 27.5 26.6 30.1 27.5

Days Payable Outstanding (DPO) 27.5 28.2 25.7 29.1 30.8 28.3 30.5

Days Payable Accrued Expenses 22.3 18.6 22.4 21.0 19.6 20.8 20.0

Other Non-Cash Items (% of Sales) FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 Average Assumption

Taxes Payable 0.5% 0.2% 0.7% -0.3% 0.7% 0.4% 0.4%

Other Liabilities 0.2% -0.3% 0.4% 0.1% -0.3% 0.0% 0.0%

Investing Activities (% of Sales) FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 Average Assumption

Capital Expenditures -2.2% -4.1% -5.4% -2.5% -2.8% -3.4% 3.0%

Acquisition of Business -0.1% -15.9% 0.0% -4.9% -2.5% -4.7% 4.0%

Sale of Fixed Assets 0.3% 0.6% 1.2% 0.3% 0.0% 0.5% 0.2%

Investment, Net 0.0% 0.1% 0.1% 0.1% 0.1% 0.0% 0.0%

Purchase of Investments 0.0% 0.0% 0.0% 0.0% -0.1% 0.0% 0.0%

Other Investing Cash Flow 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%



17

Key Assumptions

Discount Rate Calculations

R-F Rate 3%

Excess Market Return 8%

Beta 0.6

D/E 0

WACC 7.80%

Growth

Discount Rate 8%

Long-Term Growth (6-10 Years)

9.0%

Terminal Growth 2.7%

Comparable Companies (WACC Ratio)

ROIC WACC Spread BETA RAW BETA

CHURCH & DWIGHT CO INC 12% 7% 5% 0.60 0.40

Average 21% 7% 14% 0.63 0.44

PROCTER & GAMBLE CO/THE 12% 7% 5% 0.62 0.43

COLGATE-PALMOLIVE CO 36% 7% 29% 0.62 0.43

JOHNSON & JOHNSON 18% 7% 11% 0.63 0.45

CLOROX COMPANY 18% 6% 12% 0.62 0.43

UNILEVER PLC 19% 7% 12% 0.63 0.45

Analysis Bloomberg uses a WACC of 7% and a long-term growth rate of 10.53% so our assumptions are conservative.



18

Target Price Results

Total PV of FCF 8161.17

Add: Cash 251.4

Less: L-T Debt 249.2

Diluted Number of Shares 146

Intrinsic Value $55.91

Current Price $49.59

Premium 12.8%

Sensitivity Table Discount Rate

7.0% 7.5% 8.0% 8.5% 9.0%

8.0% $67.71 $60.13 $54.00 $48.95 $44.72

L-T 8.5% $68.97 $61.21 $54.95 $49.79 $45.47

Growth 9.0% $70.25 $62.32 $55.91 $50.64 $46.22

9.5% $71.55 $63.44 $56.89 $51.50 $46.99

10.0% $72.87 $64.58 $57.89 $52.38 $47.77

Comparable Companies (Price Ratio)

PE Ratio 1YR PE Ratio 2YR PE Ratio 1YR-Growth 2YR-Growth EV/EBITDA P/CF P/FCF

CHURCH & DWIGHT CO INC 23.2 20.4 18.6 14% 25% 11.4 16.2 19.6

Average 16.5 15.9 14.6 4% 13% 10.5 14.1 19.7

PROCTER & GAMBLE CO/THE 17.9 16.9 15.4 6% 16% 11.5 14.1 19.7

COLGATE-PALMOLIVE CO 19.2 17.9 16.3 7% 17% 11.4 16.2 19.9

JOHNSON & JOHNSON 13.0 12.8 11.9 2% 9% 8.6 12.5 15.7

CLOROX COMPANY 16.2 16.6 15.4 -2% 5% 10.4 13.7 20.6

UNILEVER PLC 16.4 15.2 14.0 8% 17% 10.4 13.8 22.7

Analysis On a P/E basis, Church & Dwight is more expensive than its peers. However, it is compensated by its implied EPS

growth over the next following years. Therefore, if we assume that its FCF growth will be similar to its EPS

growth, it is cheaper since it P/FCF is lower. Indeed, Church & Dwight has CAPEX as percentage of sales that is

much lower than its peers.



19

Appendix 1 - Key Brand Names Consumer Products

Household

Arm & Hammer Pure Baking Soda Arm & Hammer Carpet & Room Deodorizers Arm & Hammer Cat Litter Deodorizer Arm & Hammer Clumping Cat Litters Scrub Free Bathroom Cleaners Clean Shower Daily Shower Cleaner Cameo Aluminum & Stainless Steel Cleaner Sno Bol Toilet Bowl Cleaner Arm & Hammer and Xtra Powder and Liquid Laundry Detergents Xtra and Nice'n Fluffy Fabric Softners Arm & Hammer Fresh'n Soft Fabric Softners Delicare Fine Fabric Wash Arm & Hammer Super Washing Soda OxiClean Detergent and Cleaning Solution Kaboom Cleaning Products Orange Glo Cleaning Products

Personal Care Arm & Hammer Toothpastes SpinBrush Battery-operated Toothbrushes Mentadent Toothpaste, Toothbrushes Aim Toothpaste Pepsodent Toothpaste Close-Up Toothpaste Pearl Drops Toothpolish and Toothpaste Rigident Denture Adhesive Arm & Hammer Deodorants & Antiperspirants Arrid Antiperspirants Lady's Choice Antiperspirants Trojan Condoms Naturalamb Condoms Class Act Condoms First Response Home Pregnancy and Ovulation Test Kits Answer Home Pregnancy and Ovulation Test Kits Nair Depilatories, Lotions, Creams and Waxes Carters Little Pills Laxative Orajel Oral Analgesics Simply Saline Nasal Solution



20

Specialty Chemicals

Arm & Hammer Performance Grade Sodium Bicarbonate Armand Products Potassium Carbonate and Potassium Bicarbonate Animal Nutrition

Arm & Hammer Feed Grade Sodium Bicarbonate Megalac Rumen Bypass Fat SQ-810 Natural Sodium Sesquicarbonate Bio-Chlor and Fermenten Rumen Fermentation Enhancers DCAD Plus Feed Grade Potassium Carbonate Megalac R , Omega 3 & Omega 6 Essential Fatty Acids Megamine-L , Rumen Bypass Lysine Specialty Cleaners

Commercial & Professional Cleaners and Deodorizers Armakleen Aqueous Cleaners Armex Blast Medi



21

Appendix 2 – Recent Acquisitions 2001

- Purchased USA Detergents, Inc. which included laundry brands XTRA and NICE’N FLUFFY. - Acquired the consumer products business of Carter-Wallace, Inc., which included the remainder of the

business, including TROJAN Condoms, NAIR Depilatories and FIRST RESPONSE Home Pregnancy and Ovulation Test Kits, through Armkel LLC, a 50/50 joint venture with a private equity company.

2003

- Acquired the former Unilever oral care business in the United States and Canada, which included the MENTADENT, PEPSODENT and AIM Toothpaste brands, and exclusive licensing rights to CLOSE-UP Toothpaste.

2004 - Acquired the remaining 50% interest and merged Armkel into Church & Dwight.

2005 - Acquired the SPINBRUSH battery-operated toothbrush business from Procter & Gamble.

2006 - Acquired Orange Glo International, which included OXI CLEAN, a premium-priced leader in the fast

growing laundry pre-wash additive category, KABOOM bathroom cleaners, and ORANGE GLO household cleaner products.

2008 - Acquired Del Pharmaceuticals, Inc., from Coty Inc., which included the ORAJEL analgesic brand.

2010 - Acquired SIMPLY SALINE nasal solution brand from Blairex Laboratories, Inc.



22

Appendix 3 – The 3-Steps Model



23

Income Statement (Model) 4-Year CAGR FY2007 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E FY2014E FY2015E FY2016E

Net Sales 5.5% 2220.9 2422.4 2520.9 2589.2 2749.3 2850.0 2970.0 3074.0 3227.6 3389.0

3.7% 4.2% 3.5% 5.0% 5.0%

COGS 3.2% 1353.0 1450.7 1419.9 1431.5 1534.8 1600.0 1654.3 1703.0 1778.4 1857.2

Gross Profit 8.8% 867.9 971.7 1101.0 1157.8 1214.5 1250.0 1315.7 1371.0 1449.2 1531.8

Gross Margin (%)

39.1% 40.1% 43.7% 44.7% 44.2% 43.9% 44.3% 44.6% 44.9% 45.2%

Selling / General / Administrative Expenses, Total 6.6% 558.7 625.7 708.1 712.8 721.9 717.0 725.7 722.4 755.3 789.6

Selling / General / Administrative Expenses (%)

25.2% 25.8% 28.1% 27.5% 26.3% 25.2% 24.4% 23.5% 23.4% 23.3%

Litigation

0.0 0.0 -20.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Impairment-Assets Held for Use

4.2 5.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Unusual Expense

4.2 5.7 -20.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Operating Expense 4.2% 1915.9 2082.1 2108.0 2144.3 2256.7 2317.0 2380.0 2425.3 2533.7 2646.8

Operating Income 12.7% 305.0 340.3 412.9 445.0 492.6 533.0 590.0 648.6 693.9 742.2

Pro-Forma Operating Income 13.1% 300.8 334.6 432.9 445.0 492.6 533.0 590.0 648.6 693.9 742.2

Operating Margin (%)

13.5% 13.8% 17.2% 17.2% 17.9% 18.7% 20.7% 21.1% 21.5% 21.9%

Interest Expense, Net Non-Operating

-58.9 -47.0 -35.6 -27.8 -8.7 -8.7 -8.7 -8.7 -8.7 -8.7

Interest / Investment Income, Non-Operating

16.3 18.1 13.4 5.6 11.9 11.9 11.9 11.9 11.9 11.9

Total Interest Expense

-42.6 -28.9 -22.2 -22.1 3.2 3.2 3.2 3.2 3.2 3.2

Other Non-Operating Income (Expense)

2.5 -3.2 1.5 -4.6 -1.2 -3.2 -3.2 -3.2 -3.2 -3.2

Net Income Before Taxes 16.9% 264.9 308.3 392.2 418.3 494.6 533.0 590.0 648.6 693.9 742.2

Pro-Forma Net Income Before Taxes 17.4% 260.7 302.6 412.2 418.3 494.6 533.0 590.0 648.6 693.9 742.2

Operating Margin (%)

11.7% 12.5% 16.4% 16.2% 18.0% 18.7% 20.7% 21.1% 21.5% 21.9%

Provision for Income Taxes 17.9% 95.9 113.1 148.7 147.6 185.0 186.9 206.0 233.5 249.8 267.2

Tax Rate

36.8% 37.4% 36.1% 35.3% 37.4% 35.1% 34.9% 36% 36% 36%

Net Income 16.3% 169.0 195.2 243.5 270.7 309.6 346.1 384.0 415.1 444.1 475.0

Pro-Forma Net Income 15.9% 171.7 198.7 230.7 270.7 309.6 346.1 384.0 415.1 444.1 475.0

Profit Margin (%)

7.7% 8.2% 9.2% 10.5% 11.3% 12.1% 12.9% 13.5% 13.8% 14.0%



24

Cash Flow Statement (Model)

4-Year CAGR FY2007 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E FY2014E FY2015E FY2016E

Pro-Forma Net Income 15.9% 171.7 198.7 230.7 270.7 309.6 346.1 384.0 415.1 444.1 475.0

Depreciation / Depletion

56.7 45.6 56.9 44.1 49.8 58.2 60.6 62.8 65.9 69.2

Amortization

0.0 25.8 28.4 27.5 27.3 24.2 25.2 26.1 27.4 28.8

Deferred Taxes

16.5 15.2 23.2 38.9 59.4 33.9 35.3 36.6 38.4 40.3

Unusual Items

4.1 7.3 12.2 7.4 3.1 7.8 8.1 8.4 8.8 9.3

Equity in Net Earnings (Loss)

-8.2 -11.3 -12.1 -5.0 -10.0 -10.7 -11.1 -11.5 -12.1 -12.7

Other Non-Cash Items

8.6 23.6 13.4 13.5 9.6 15.7 16.4 17.0 17.8 18.7

Total Non-Cash Items 15.7% 77.7 106.1 122.0 126.2 139.2 129.1 134.6 139.3 146.2 153.5

Accounts Receivable

-6.9 26.5 6.2 -12.7 -35.3 -5.6 -11.4 -9.9 -14.6 -15.3

Inventories

-13.8 2.4 -10.6 24.1 -9.0 -14.4 -9.1 -7.8 -11.6 -12.2

Other Assets

1.1 -1.4 -0.4 2.0 -6.1 0.0 1.0 2.0 3.0 4.0

Payable / Accrued

5.3 10.0 12.7 22.7 27.4 15.0 16.6 14.4 21.3 22.3

Taxes Payable

11.8 5.1 17.4 -7.6 19.1 10.5 0.0 0.0 0.0 0.0

Other Liabilities

4.5 -7.8 10.1 3.2 -7.1 0.0 1.0 2.0 3.0 4.0

Changes in Working Capital

2.0 34.9 35.4 31.6 -11.0 5.5 -1.8 0.7 1.1 2.9

Pro-Forma Cash from Operating Activities 14.9% 251.3 339.7 388.2 428.5 437.8 480.7 516.7 555.1 591.5 631.4

Capital Expenditures

-49.1 -98.3 -135.4 -63.8 -76.6 -71.6 -73.8 -76.0 -78.3 -80.6

Acquisition of Business

-1.3 -384.4 -0.8 -126.6 -69.6 -114.0 -118.8 -123.0 -129.1 -135.6

Sale of Fixed Assets

7.2 15.6 30.1 8.2 0.0 5.7 5.9 6.1 6.5 6.8

Investment, Net

0.0 1.3 1.3 1.8 1.6 0.0 0.0 0.0 0.0 0.0

Purchase of Investments

0.0 0.0 0.0 0.0 -3.2 0.0 0.0 0.0 0.0 0.0

Other Investing Cash Flow

0.6 -0.3 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other Investing Cash Flow Items, Total

6.6 -367.8 31.2 -116.6 -71.2 0.0 0.0 0.0 0.0 0.0

Cash from Investing Activities 36.5% -42.5 -466.2 -104.1 -180.5 -147.8 -179.9 -186.6 -192.8 -200.9 -209.4



25


Financing Cash Flow Items

7.7 -2.1 5.0 1.1 11.4 0.0 0.0 0.0 0.0 0.0

Total Cash Dividends Paid

-19.8 -23.1 -32.3 -44.0 -97.4 -108.9 -120.8 -130.6 -139.7 -149.4

Repurchase / Retirement of Common

-0.3 -0.4 -0.4 -0.1 -80.2 -250.0 -275.0 -302.5 -332.8 -366.0

Options Exercised

16.1 12.7 10.0 16.0 27.1 16.0 27.1 16.0 27.1 16.0

Issuance (Retirement) of Stock, Net

15.8 12.3 9.6 15.9 -53.1 -234.0 -247.9 -286.5 -305.7 -350.1

Short Term Debt, Net

12.7 -111.8 30.9 55.1 -87.4 20.0 20.0 20.0 20.0 20.0

Long Term Debt Issued

0.0 250.0 0.0 249.7 0.0 0.0 0.0 0.0 0.0 0.0

Long Term Debt Reduction

-90.1 -38.2 -71.5 -781.4 0.0 0.0 0.0 0.0 0.0 0.0

Issuance (Retirement) of Debt, Net

-77.4 100.1 -40.6 -476.6 -87.4 20.0 20.0 20.0 20.0 20.0

Cash from Financing Activities 32.4% -73.6 87.2 -58.3 -503.7 -226.5 -322.9 -348.7 -397.1 -425.4 -479.5

Foreign Exchange Effects

6.8 -9.0 10.7 -2.3 -1.3 0.0 0.0 0.0 0.0 0.0

Net Change in Cash

139.3 -51.8 249.1 -257.9 62.2 157.8 168.0 157.9 166.1 151.9

Net Cash - Beginning Balance

110.5 249.8 198.0 447.1 189.2 251.4 409.2 577.3 735.2 901.3

Net Cash - Ending Balance

249.8 198.0 447.1 189.2 251.4 409.2 577.3 735.2 901.3 1053.2

Cash Interest Paid

55.5 43.3 29.9 29.3 9.2 0.0 0.0 0.0 0.0 0.0



26

Balance Sheet


Cash & Equivalents

249.8 198.0 447.1 189.2 251.4 409.2 577.3 735.2 901.3 1053.2

Accounts Receivable - Trade, Net

247.9 211.2 222.2 231.1 264.6 270.2 281.5 291.4 306.0 321.3

Days Sales Outstanding (DSO)

40.7 31.8 32.2 32.6 35.1 34.6 34.6 34.6 34.6 34.6

Notes Receivable - Short Term

1.3 31.7 10.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Receivables, Net

249.2 242.9 232.4 231.1 264.6 270.2 281.5 291.4 306.0 321.3

Total Inventory

213.7 198.9 216.9 195.4 200.7 215.1 224.1 232.0 243.6 255.8

Days Sales of Inventory (DSI)

35.1 30.0 31.4 27.5 26.6 27.5 27.5 27.5 27.5 27.5

Prepaid Expenses

9.2 10.2 11.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Deferred Income Tax - Current Asset

13.5 15.1 20.4 16.3 6.0 0.0 0.0 0.0 0.0 0.0

Other Current Assets

0.0 0.0 0.0 17.5 32.5 0.0 0.0 0.0 0.0 0.0

Other Current Assets, Total

13.5 15.1 20.4 33.8 38.5 0.0 0.0 0.0 0.0 0.0

Total Current Assets 0.7% 735.4 665.1 928.3 649.5 755.2 1164.6 1364.5 1550.0 1756.8 1951.5

Buildings - Gross

147.1 143.6 226.8 229.0 224.5 245.5 264.0 283.0 302.5 322.7

Machinery / Equipment - Gross

509.8 498.9 522.7 567.1 602.1 736.6 791.9 848.9 907.6 968.1

Property / Plant / Equipment, Total - Gross

685.7 730.3 806.3 863.2 910.5 982.1 1055.9 1131.9 1210.1 1290.7

Accumulated Depreciation, Total

-334.8 -345.7 -350.6 -394.9 -404.5 -462.7 -523.3 -586.1 -651.9 -721.1

Property / Plant / Equipment, Total - Net

350.9 384.5 455.6 468.3 506.0 519.4 532.6 545.8 558.2 569.6

Goodwill, Net

688.8 845.2 838.1 857.4 868.4 868.4 868.4 868.4 868.4 868.4

Intangibles, Net

667.7 810.2 794.9 872.5 904.1 949.3 996.8 1046.6 1098.9 1153.9

LT Investment - Affiliate Companies

10.3 10.1 12.8 9.2 12.0 12.0 12.0 12.0 12.0 12.0

Long Term Investments

10.3 10.1 12.8 9.2 12.0 12.0 12.0 12.0 12.0 12.0

Other Long Term Assets

75.8 86.3 88.8 88.3 71.9 71.9 71.9 71.9 71.9 71.9

Total Assets 5.3% 2532.5 2801.4 3118.5 2945.2 3117.6 3597.7 3858.1 4106.7 4378.2 4639.3



27


Accounts Payable

167.5 187.0 177.8 206.3 231.8 238.1 248.2 256.9 269.7 283.2

Days Payable Outstanding (DPO)

27.5 28.2 25.7 29.1 30.8 30.5 30.5 30.5 30.5 30.5

Accrued Expenses

135.6 123.6 154.7 149.0 147.5 156.2 162.7 168.4 176.9 185.7

Days Payable Accrued Expenses

22.3 18.6 22.4 21.0 19.6 20.0 20.0 20.0 20.0 20.0

Notes Payable / Short Term Debt

115.0 3.3 34.9 90.0 2.6 2.6 2.6 2.6 2.6 2.6

Current Portion of Long Term Debt / Capital Leases

33.7 71.5 184.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Income Taxes Payable

6.0 1.8 15.6 1.8 1.7 0.0 0.0 0.0 0.0 0.0

Total Current Liabilities -4.3% 457.8 387.1 567.0 447.1 383.6 396.9 413.5 427.9 449.2 471.5

Long Term Debt

707.3 781.4 597.4 249.7 249.7 249.7 249.7 249.7 249.7 249.7

Total Debt (S-T + Current Portion of L-T + L-T)

856.0 856.1 816.3 339.7 252.3 252.3 252.3 252.3 252.3 252.3

Deferred Income Tax – Long Term Liability

162.8 172.0 201.3 254.3 292.3 321.5 353.7 389.1 428.0 470.8

Pension Benefits - Underfunded

36.4 35.8 38.6 38.0 45.0 0.0 0.0 0.0 0.0 0.0

Other Long Term Liabilities

87.8 93.4 112.4 85.2 106.2 111.5 117.1 122.9 129.1 135.5

Other Liabilities, Total

124.2 129.2 151.0 123.2 151.2 111.5 117.1 122.9 129.1 135.5

Total Liabilities -7.2% 1452.2 1469.9 1516.9 1074.5 1077.0 1079.7 1134.0 1189.6 1255.9 1327.5

Common Stock

70.0 73.2 73.2 146.4 146.4 146.4 146.4 146.4 146.4 146.4

Additional Paid-In Capital

121.9 252.1 276.1 230.8 271.7 271.7 271.7 271.7 271.7 271.7

Retained Earnings (Accumulated Deficit)

891.9 1063.9 1275.1 1501.8 1714.0 2194.3 2400.4 2593.4 2798.6 2988.1

Treasury Stock - Common

-42.6 -37.3 -32.9 -24.6 -94.4 -94.4 -94.4 -94.4 -94.4 -94.4

Other Comprehensive Income

39.1 -20.5 10.1 16.3 2.9 0.0 0.0 0.0 0.0 0.0

Total Equity 17.2% 1080.3 1331.5 1601.6 1870.7 2040.6 2518.0 2724.1 2917.1 3122.3 3311.8

Total Liabilities & Shareholders' Equity 5.3% 2532.5 2801.4 3118.5 2945.2 3117.6 3597.7 3858.1 4106.7 4378.2 4639.3

Documents

Church & Dwight - Concordia University & Dwight has 5 key factors that ... Church & Dwight products grew their market share in 6 of its 8 ... Its principal competitors, P&G and Colgate