UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended June 30, 1994
( ) Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Act of 1934
For the transition period from to
Commission File Number 1-5910
CARTER-WALLACE, INC.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(Exact name of registrant as specified in its charter)
Delaware 13-4986583
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1345 Avenue of the Americas
New York, New York 10105
(Address of principal executive
offices)
Registrant's telephone number, including area code: 212-339-5000
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
The number of shares of the registrant's Common Stock and Class B common
stock outstanding at June 30, 1994 were 33,472,100 and 12,586,900,
respectively.
<PAGE>
CARTER-WALLACE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
JUNE 30, 1994
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Earnings for
the three months ended June 30, 1994 and 1993 1
Condensed Consolidated Balance Sheets at
June 30, 1994 and March 31, 1994 2
Condensed Consolidated Statements of Cash Flows
for the three months ended June 30, 1994 and 1993 3
Notes to Condensed Consolidated Financial Statements 4
Report by KPMG Peat Marwick on their Limited Review 7
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<CAPTION>
Three Months Ended
June 30,
1994 1993 *
<S> <C> <C>
Revenues:
Net sales $183,304,000 $162,750,000
Other revenues 1,368,000 1,315,000
184,672,000 164,065,000
Cost and expenses:
Cost of goods sold 62,283,000 56,354,000
Advertising, marketing
& other selling expenses 69,210,000 65,781,000
Research & development expenses 13,198,000 12,641,000
General, administrative
& other expenses 21,452,000 20,246,000
Provision for loss on discontinuance
of the Organidin (iodinated glycerol)
product line 17,500,000 -
Interest expense 390,000 587,000
184,033,000 155,609,000
Earnings before taxes on income 639,000 8,456,000
Provision for taxes on income 198,000 2,621,000
Net earnings before cumulative
effect of accounting changes 441,000 5,835,000
Cumulative effect of accounting
changes, net of tax - (46,639,000)
Net earnings (loss) $ 441,000 $(40,804,000)
Net earnings (loss) per average
share of common stock outstanding:
Before cumulative effect
of accounting changes $ .01 $ .13
Cumulative effect of accounting
changes - (1.02)
Net earnings (loss) $ .01 $(.89)
Cash dividends per share $ .0833 $ .0833
Average shares of common stock
outstanding 46,067,000 45,779,000
</TABLE>
* Restated to reflect change in accounting for postemployment benefits.
<PAGE>
<TABLE>
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, March 31,
1994 1994
Assets (Unaudited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 34,377,000 $ 23,311,000
Short-term investments 24,644,000 32,883,000
Accounts and other receivables
less allowances of $5,883,000
at June 30, 1994 and
$5,955,000 at March 31, 1994 115,496,000 117,070,000
Inventories:
Finished goods 56,323,000 60,515,000
Work in process 21,664,000 22,121,000
Raw materials and supplies 44,505,000 39,553,000
122,492,000 122,189,000
Prepaid expenses, deferred taxes
and other current assets 20,271,000 19,973,000
Total Current Assets 317,280,000 315,426,000
Property, plant and equipment, at cost 284,508,000 279,040,000
Less: accumulated depreciation and
amortization 126,228,000 121,981,000
158,280,000 157,059,000
Intangible assets 108,420,000 110,213,000
Other assets 49,262,000 45,864,000
Total Assets $633,242,000 $628,562,000
<CAPTION>
Liabilities and Stockholders' Equity
Current Liabilities:
<S> <C> <C>
Accounts payable $ 26,728,000 $ 27,844,000
Accrued expenses 102,776,000 96,714,000
Notes payable 5,783,000 5,709,000
Total Current Liabilities 135,287,000 130,267,000
Long-Term Liabilities:
Long-term debt 9,342,000 9,309,000
Deferred compensation 8,754,000 7,661,000
Accrued postretirement benefit obligation 72,057,000 71,804,000
Other long-term liabilities 16,756,000 16,013,000
Total Long-Term Liabilities 106,909,000 104,787,000
Stockholders' Equity:
Common stock 34,464,000 34,432,000
Class B common stock 12,741,000 12,773,000
Capital in excess of par value 1,975,000 1,972,000
Retained earnings 376,638,000 380,047,000
Less: Foreign currency translation
adjustment 19,249,000 20,404,000
Treasury stock, at cost 15,523,000 15,312,000
Total Stockholders' Equity 391,046,000 393,508,000
Total Liabilities and Stockholders' Equity $633,242,000 $628,562,000
</TABLE>
<PAGE>
<TABLE>
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1994 AND 1993
(Unaudited)
<CAPTION>
1994 1993 *
<S> <C> <C>
Net earnings (loss) $ 441,000 $(40,804,000)
Provision for loss on discontinuance
of the Organidin (iodinated glycerol)
product line 17,500,000 -
Cumulative effect of accounting
changes - 46,639,000
Changes in assets and liabilities (12,808,000) 9,886,000
Other changes 7,056,000 6,862,000
Cash flows from operations 12,189,000 22,583,000
Cash flows used in investing activities:
Additions to property, plant and
equipment (5,135,000) (6,881,000)
Decrease (increase) in short-term
investments 8,252,000 (1,648,000)
Other investing activities (250,000) (78,000)
2,867,000 (8,607,000)
Cash flows used in financing activities:
Dividends paid (3,850,000) (3,817,000)
Increase in borrowings - 307,000
Payments of debt (147,000) (125,000)
Purchase of treasury stock (189,000) (278,000)
(4,186,000) (3,913,000)
Effect of exchange rate changes on
cash and cash equivalents 196,000 (67,000)
Increase in cash and cash equivalents $ 11,066,000 $ 9,996,000
</TABLE>
* Restated to reflect change in accounting for postemployment benefits.
<PAGE>
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994 AND 1993
Note 1: Interim Reports
The results of the interim periods are not necessarily indicative of
results expected for a full year's operations. In the opinion of
management, all adjustments necessary for a fair statement of results of
these interim periods have been reflected in these financial statements
and, except as separately disclosed herein, are of a normal recurring
nature.
Note 2: Review of Independent Auditors
The financial information included in this report has been reviewed by KPMG
Peat Marwick, independent auditors, in accordance with standards and
procedures established by the American Institute of Certified Public
Accountants. All adjustments or additional disclosures proposed by KPMG
Peat Marwick have been reflected in the data presented and a copy of their
report on this limited review is included in this Form.
Note 3: Accounting Changes
The Company provides certain health care and life insurance benefits for
retired employees. Effective April 1, 1993, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions".
SFAS No. 106 requires companies to accrue postretirement benefits during
the years the employees render service until they attain full eligibility
for those benefits. Previously, these costs were recognized as expense as
the premiums were paid. The postretirement benefit plans are unfunded.
The cumulative effect of adopting SFAS No. 106 as of April 1, 1993,
resulted in a charge of $69,554,000 before taxes or $43,819,000 after taxes
($.96 per share). This non-cash charge represents the accumulated benefit
obligation which the Company has elected to recognize immediately. The
initial postretirement benefit obligation was subsequently reduced as a
result of plan modifications made effective July 1, 1993. In accordance
with SFAS No. 106, this reduction in the obligation is being amortized as a
component of the net periodic postretirement expense in current and future
years.
During the quarter ended March 31, 1994, the Company adopted SFAS No. 112
"Employers' Accounting for Postemployment Benefits" effective April 1,
1993. SFAS No. 112 requires accrual accounting for benefits provided to
former or inactive employees after employment but before retirement.
Accordingly, results of operations in the three months ended June 30, 1993
have been restated to reflect the cumulative effect of adopting SFAS No.
112 of $4,700,000 before taxes or $2,820,000 after taxes ($.06 per share).
Annual ongoing costs for these benefits related to the adoption of this
statement are not material.
<PAGE>
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994 AND 1993
(Continued)
Note 4: Discontinuance of the Organidin (Iodinated Glycerol) Product Line
In June, 1994, the Company and the Food and Drug Administration ("FDA")
reached an agreement to discontinue the manufacture and shipment of the
Organidin (iodinated glycerol) line of products. The agreement between the
Company and the FDA permits the continued shipping, prescribing and
dispensing of existing stocks of Organidin product currently in channels of
distribution. As previously disclosed by the Company, in April, 1993 the
Company received a letter from the FDA requesting that it discontinue
marketing the Organidin (iodinated glycerol) products. Subsequent meetings
between the Company and FDA resulted in this agreement.
As a result of the agreement noted above, the Company incurred in the quarter
ended June 30, 1994 a one-time charge to pre-tax earnings of $17,500,000
($11,600,000 after taxes or $.25 per share) primarily related to a provision
for any product returns and for inventory write-offs.
Sales and pre-tax operating profits of the Organidin line included in the
quarter ended June 30, 1994 were $20,300,000 and $11,200,000, respectively,
compared to sales and pre-tax operating profits included in the quarter
ended June 30, 1993 of $10,800,000 and $1,800,000.
Sales and pre-tax operating profits of the Organidin line of products were
$59,900,000 and $22,200,000 for the fiscal year ended March 31, 1992,
$43,400,000 and $7,600,000 for the fiscal year ended March 31, 1993 and
$74,400,000 and $31,600,000 for the fiscal year ended March 31, 1994.
Operating profits were computed on a basis consistent with that used to
report operating profits for the Health Care business segment in the
Company's Annual Report.
Note 5: Subsequent Event - Felbatol (felbamate)
On August 1, 1994, the Company disclosed that it had sent a letter to
approximately 240,000 physicians recommending, in conjunction with the
Federal Food and Drug Administration, the immediate withdrawal of patients
from treatment with Felbatol (felbamate), unless, in the physician's
judgment, an abrupt withdrawal would be deemed to pose a more serious risk
to the patient. Patients on Felbatol are advised to consult their
physicians and not to discontinue the use of Felbatol on their own.
(Continued)
<PAGE>
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994 AND 1993
(Continued)
Note 5: Subsequent Event - Felbatol (felbamate) (Continued)
Carter-Wallace's recommendation was prompted by reports of ten cases (nine
domestic and one foreign) of aplastic anemia in association with the use of
Felbatol. No such cases were observed during the premarketing, clinical
testing and development of Felbatol.
Carter-Wallace introduced Felbatol in September of 1993 for the treatment
of partial seizures with and without secondary generalization in adults and
for Lennox-Gastaut Syndrome, a serious form of childhood epilepsy.
Due to substantial introductory spending levels and continued research and
development, the Company incurred losses with respect to Felbatol since
introduction and for the quarter ended June 30, 1994.
At the present time Felbatol continues to be available on the market. If,
as a result of the matters discussed above, the Company at some future date
is no longer able to continue to sell Felbatol, the Company will incur a
one-time charge that would have a material adverse effect on the Company's
results of operations and on its financial condition. If Felbatol were to
remain on the market but at a substantially reduced level of sales, the
Company would incur a material one-time charge the amount of which would be
dependent on the sales level achieved. Should the Company no longer be
able to sell the product, the Company currently estimates that the one-time
charge consisting primarily of inventory write-offs, purchase commitments
and anticipated returns of product currently in the market, will be in the
range of $60,000,000 to $70,000,000 on a pre-tax basis. See the discussion
in Management's Discussion and Analysis of the Company's income tax rate.
As previously reported, the Company entered into a licensing agreement with
Schering-Plough Corporation, granting Schering-Plough exclusive marketing
rights in all markets except the United States and its territories and
possessions, Canada and Mexico, to Felbatol. Separately, Schering-Plough
and Carter-Wallace agreed that, under certain circumstances, they will put
into effect a co-promotional arrangement with respect to a Schering-Plough
pharmaceutical product to be determined in the future. Based on the
matters discussed above, there could be a significant adverse effect on the
amount of royalties and fees, if any, to be received from Schering-Plough
in the future under these agreements.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Carter-Wallace, Inc.:
We have reviewed the condensed consolidated balance sheet of Carter-Wallace,
Inc. and subsidiaries as of June 30, 1994, and the related condensed
consolidated statements of earnings for the three-month periods ended June 30,
1994 and 1993 and the condensed consolidated statements of cash flows for the
three-month periods ended June 30, 1994 and 1993 in accordance with standards
established by the American Institute of Certified Public Accountants. These
condensed consolidated financial statements are the responsibility of the
Company's management.
A review of interim financial information consists principally of applying
analytical review procedures to financial data, and making inquiries of persons
responsible for financial and accounting matters. It is substantially less in
scope than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Carter-Wallace, Inc. and
subsidiaries as of March 31, 1994, and the related consolidated statements of
earnings and retained earnings, and cash flows for the year then ended (not
presented herein); and in our report dated June 6, 1994, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of March 31, 1994 is fairly stated, in all material respects,
in relation to the consolidated balance sheet from which it has been derived.
As discussed in note 3 to the condensed consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statements No. 106 "Employers' Accounting for Postretirement Benefits Other
Than Pensions" and No. 112 "Employers' Accounting for Postemployment Benefits"
in 1994.
As discussed in note 5 to the condensed consolidated financial statements, the
Company disclosed that it had sent a letter to approximately 240,000 physicians
recommending, in conjunction with the Federal Food and Drug Administration, the
immediate withdrawal of patients from treatment with Felbatol (felbamate),
unless, in the physician's judgment, an abrupt withdrawal would be deemed to
pose a more serious risk to the patient. If, as a result of the matter
discussed above, the Company at some future date is no longer able to continue
to sell Felbatol, the Company will incur a one-time charge that would have a
material adverse effect on the Company's results of operations and on its
financial condition. The Company currently estimates that this one-time charge
will be in a range of $60,000,000 to $70,000,000 on a pre-tax basis. The
ultimate outcome of this matter cannot presently be determined.
August 5, 1994
New York, New York KPMG Peat Marwick
<PAGE>
CARTER-WALLACE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three months ended June 30, 1994 compared to
three months ended June 30, 1993
Net sales increased $20,554,000 (12.6%) in the three months ended June 30,
1994 ("fiscal 1995 period") as compared to net sales in the three months
ended June 30, 1993 ("fiscal 1994 period"). The higher sales level was
attributable to increased sales in both the Health Care and Consumer
Products segments. The sales increase in the Health Care segment was due
to unit volume gains and to a lesser extent selling price increases. The
unit volume increase in Health Care sales was primarily attributable to
sales of Felbatol (felbamate) an antiepileptic drug for the treatment of
certain seizure disorders, which the Company introduced in September, 1993,
and higher sales of the Organidin (iodinated glycerol) line of expectorant/
mucolytic products. As noted below, an agreement was reached with the FDA
to discontinue marketing the Organidin (iodinated glycerol) line of
products in June, 1994 and the Company has sent a letter to physicians
recommending the immediate withdrawal of patients from Felbatol unless in
the physician's judgment, an abrupt withdrawal would be deemed to pose a
more serious risk to the patient. The unit volume gain in the Organidin
(iodinated glycerol) line of expectorant/mucolytic products was due
primarily to a decline in sales of competitive products. The timing and
amount of future price increases in the Health Care segment may be
negatively influenced by competitive pressures and the possibility of
government regulation. Sales of other pharmaceutical products in the
Health Care segment continue to be adversely impacted by generic erosion.
The higher sales level in the Consumer Products segment was due to both
selling price increases and unit volume gains.
Lower foreign exchange rates in comparison with the prior year had the
effect of decreasing sales in the fiscal 1995 period by $2,400,000. The
effect of changes in foreign exchange rates on results of operations in the
fiscal 1995 period compared to the prior year period was not significant.
Other revenues increased $53,000 or 4.0% in the fiscal 1995 period as
compared to the fiscal 1994 period.
Cost of goods sold as a percentage of net sales decreased from 34.6% in the
fiscal 1994 period to 34.0% in the 1995 period primarily due to changes in
product mix.
Advertising, marketing and other selling expenses increased by $3,429,000
or 5.2% due to a higher level of spending in the Health Care segment.
Felbatol, which was introduced in September, 1993, was supported by
substantial spending levels in the fiscal 1995 period.
(Continued)
<PAGE>
CARTER-WALLACE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Research and development expenses increased by $557,000 or 4.4% as part of
the Company's continuing effort to develop new products and improve
existing ones. Research spending, most of which was in the Health Care
segment, was primarily related to Felbatol for the treatment of seizures
associated with epilepsy and Astelin for the relief of asthma and allergic
rhinitis.
General, administrative and other expenses increased $1,206,000 or 6.0% in
the fiscal 1995 period as compared to the fiscal 1994 period. This
increase was related to increased employee benefits and other
administrative costs.
Interest expense decreased $197,000 (33.6%) in the fiscal 1995 period as
compared to the fiscal 1994 period due to reduced levels of borrowings in
the fiscal 1995 period.
The consolidated income tax rate in the fiscal 1995 period was 31%, the
same as the annual tax rate on operations in the fiscal 1994 period. If
significant one-time charges to operations are required as a result of the
Felbatol issues and/or the ongoing review of operations and facilities
noted below, the annual effective tax rate in subsequent quarters and for
the fiscal year ended March 31, 1995 could vary significantly from the
first quarter rate.
Consolidated net earnings in the fiscal 1995 period before the provision
for the loss on the discontinuance of Organidin (iodinated glycerol) were
$12,041,000 or $.26 per share as compared to net earnings before the
cumulative effect of the accounting changes of $5,835,000 or $.13 per share
in the fiscal 1994 period. The net earnings in the 1995 period were
substantially favorably impacted by the increase in sales of the Organidin
line of expectorant/mucolytic products.
Discontinuance of Organidin (Iodinated Glycerol) Product Line
In June, 1994, the Company and the Food and Drug Administration ("FDA")
reached an agreement to discontinue the manufacture and shipment of the
Organidin (iodinated glycerol) line of products. The agreement between the
Company and the FDA permits the continued shipping, prescribing and
dispensing of existing stocks of Organidin product currently in channels of
distribution. As previously disclosed by the Company, in April, 1993, the
Company received a letter from the FDA requesting that it discontinue
marketing Organidin (iodinated glycerol) products. Subsequent meetings
between the Company and FDA resulted in this agreement.
(Continued)
<PAGE>
CARTER-WALLACE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
As a result of the agreement noted above, the Company incurred in the quarter
ended June 30, 1994 a one-time charge to pre-tax earnings of $17,500,000
($11,600,000 after taxes or $.25 per share) primarily related to a provision
for any product returns and for inventory write-offs.
Sales and pre-tax operating profits of the Organidin line included in the
quarter ended June 30, 1994 were $20,300,000 and $11,200,000, respectively,
compared to sales and pre-tax operating profits included in the quarter
ended June 30, 1993 of $10,800,000 and $1,800,000.
Sales and pre-tax operating profits of the Organidin line of products were
$59,900,000 and $22,200,000 for the fiscal year ended March 31, 1992,
$43,400,000 and $7,600,000 for the fiscal year ended March 31, 1993 and
$74,400,000 and $31,600,000 for the fiscal year ended March 31, 1994.
Operating profits were computed on a basis consistent with that used to
report operating profits for the Health Care business segment in the
Company's Annual Report.
Subsequent Event - Felbatol (felbamate)
On August 1, 1994, the Company disclosed that it had sent a letter to
approximately 240,000 physicians recommending, in conjunction with the
Federal Food and Drug Administration, the immediate withdrawal of patients
from treatment with Felbatol (felbamate), unless, in the physician's
judgment, an abrupt withdrawal would be deemed to pose a more serious risk
to the patient. Patients on Felbatol are advised to consult their
physicians and not to discontinue the use of Felbatol on their own.
Carter-Wallace's recommendation was prompted by reports of ten cases (nine
domestic and one foreign) of aplastic anemia in association with the use of
Felbatol. No such cases were observed during the premarketing, clinical
testing and development of Felbatol.
Carter-Wallace introduced Felbatol in September of 1993 for the treatment
of partial seizures with and without secondary generalization in adults and
for Lennox-Gastaut Syndrome, a serious form of childhood epilepsy.
Due to substantial introductory spending levels and continued research and
development, the Company incurred losses with respect to Felbatol since
introduction and for the quarter ended June 30, 1994.
(Continued)
<PAGE>
CARTER-WALLACE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Subsequent Event - Felbatol (felbamate) (Continued)
At the present time Felbatol continues to be available on the market. If,
as a result of the matters discussed above, the Company at some future date
is no longer able to continue to sell Felbatol, the Company will incur a
one-time charge that would have a material adverse effect on the Company's
results of operations and on its financial condition. If Felbatol were to
remain on the market but at a substantially reduced level of sales, the
Company would incur a material one-time charge the amount of which would be
dependent on the sales level achieved. Should the Company no longer be
able to sell the product, the Company currently estimates that the one-time
charge consisting primarily of inventory write-offs, purchase commitments
and anticipated returns of product currently in the market, will be in the
range of $60,000,000 to $70,000,000 on a pre-tax basis. See the discussion
above of the Company's income tax rate.
As previously reported, the Company entered into a licensing agreement with
Schering-Plough Corporation, granting Schering-Plough exclusive marketing
rights in all markets except the United States and its territories and
possessions, Canada and Mexico, to Felbatol. Separately, Schering-Plough
and Carter-Wallace agreed that, under certain circumstances, they will put
into effect a co-promotional arrangement with respect to a Schering-Plough
pharmaceutical product to be determined in the future. Based on the
matters discussed above, there could be a significant adverse effect on the
amount of royalties and fees, if any, to be received from Schering-Plough
in the future under these agreements.
Review of Operations and Facilities
As a result of the discontinuance of the Company's Organidin (iodinated
glycerol) line of products and the suspension and possible withdrawal of
Felbatol, the Company is currently engaged in a detailed review of its
operations and facilities which is intended to reduce costs and increase
efficiencies, the results of which, however, may cause actions to be taken
which would result in an additional material one-time charge to results of
operations.
Accounting Changes
During the fiscal 1994 period the Company adopted Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and elected to immediately recognize the
transition obligation of $69,554,000 before taxes or $43,819,000 after
taxes ($.96 per share). Effective July 1, 1993, the Company amended its
postretirement benefit plan which reduced the annual ongoing costs of these
benefits.
(Continued)
<PAGE>
CARTER-WALLACE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Accounting Changes (Continued)
During the quarter ended March 31, 1994, the Company adopted Statement of
Financial Accounting Standards No. 112 "Employers' Accounting for
Postemployment Benefits" effective April 1, 1993. Accordingly, results of
operations in the quarter ended June 30, 1993 period have been restated to
reflect a one-time pre-tax charge to earnings of $4,700,000 or $2,820,000
after taxes ($.06 per share).
Liquidity and Capital Resources
Funds provided from operations are used for capital expenditures,
acquisitions, the purchase of treasury stock, the payment of dividends and
working capital requirements. External borrowings are incurred as needed
to satisfy cash requirements relating to seasonal business fluctuations, to
finance major facility expansion programs and to finance major
acquisitions.
The Company is a party to a $75,000,000 revolving credit facility with a
group of banks. The events described above with respect to Organidin under
the terms of that facility constitute a material adverse change in the
business of the Company, as a result of which the Company currently does
not have the right to make loans under such facility without the banks'
consent. If the circumstances discussed above relating to Felbatol result
in a material adverse change in the Company's business, the Company would
not have the right to make loans under such facility without the banks'
consent. Although the Company is discussing these matters with the
participating banks and believes that the banks will consent to future draw
downs under such facility, there can be no assurance that the banks will
provide such a consent. However, even if the banks should fail to provide
such a consent, the Company believes its existing capital resources are
adequate to meet the current requirements of its business.
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - During the quarter ended June 30, 1994, the
Company filed a report on Form 8-K dated June 30, 1994 reporting
an agreement reached between the Company and the FDA regarding
the Organidin (iodinated glycerol) product line.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Carter-Wallace, Inc.
(Registrant)
Date: August 5, 1994 s/Daniel J. Black
Daniel J. Black
President & Chief
Operating Officer
Date: August 5, 1994 s/Paul A. Veteri
Paul A. Veteri
Vice President, Finance
& Chief Financial
Officer
