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 December 31, 1996
( ) 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 (Zip Code)
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 December 31, 1996 were 33,988,000 and 12,409,800, respectively.
CARTER-WALLACE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
DECEMBER 31, 1996
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Earnings for the
three months and nine months ended December 31, 1996 and 1995 1
Condensed Consolidated Balance Sheets at
December 31, 1996 and March 31, 1996 2
Condensed Consolidated Statements of Cash Flows
for the nine months ended December 31, 1996 and 1995 3
Notes to Condensed Consolidated Financial Statements 4
Report by KPMG Peat Marwick LLP on their Limited Review 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 11
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
Revenues:
<S> <C> <C> <C> <C>
Net sales $163,020,000 $162,004,000 $492,441,000 $493,851,000
Other revenues 2,067,000 1,885,000 5,639,000 6,175,000
165,087,000 163,889,000 498,080,000 500,026,000
Cost and expenses:
Cost of goods sold 58,254,000 58,861,000 183,025,000 180,965,000
Advertising, marketing &
other selling expenses 60,821,000 59,320,000 184,957,000 183,903,000
Research & development
expenses 6,993,000 6,764,000 19,885,000 20,121,000
General, administrative
& other expenses 20,084,000 20,460,000 64,091,000 64,418,000
Provision for
restructuring - - - 16,500,000
Provision for condom
plant closing - - - 20,100,000
Interest expense 1,114,000 1,063,000 3,113,000 2,807,000
147,266,000 146,468,000 455,071,000 488,814,000
Earnings before taxes
on income 17,821,000 17,421,000 43,009,000 11,212,000
Provision for taxes
on income 7,307,000 7,143,000 17,634,000 4,597,000
Net earnings $ 10,514,000 $ 10,278,000 $ 25,375,000 $ 6,615,000
Net earnings per average
share of common stock
outstanding $ .23 $ .22 $ .55 $ .14
Cash dividends per share $ .04 $ .04 $ .12 $ .12
Average shares of common
stock outstanding 46,396,000 46,138,000 46,392,000 46,136,000
</TABLE>
<TABLE>
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, March 31,
1996 1996
Assets (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 34,353,000 $ 51,185,000
Short-term investments 18,033,000 20,034,000
Accounts and other receivables less
allowances of $6,930,000 at December 31,
1996 and $6,716,000 at March 31, 1996 127,231,000 131,931,000
Inventories:
Finished goods 52,007,000 55,427,000
Work in process 11,723,000 13,327,000
Raw materials and supplies 26,055,000 23,450,000
89,785,000 92,204,000
Deferred taxes, prepaid expenses
and other current assets 40,740,000 41,419,000
Total Current Assets 310,142,000 336,773,000
Property, plant and equipment, at cost 289,295,000 261,255,000
Less: accumulated depreciation and amortization 133,306,000 121,982,000
155,989,000 139,273,000
Intangible assets 126,060,000 131,422,000
Deferred taxes and other assets 111,062,000 111,457,000
Total Assets $703,253,000 $718,925,000
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 30,415,000 $ 38,941,000
Accrued expenses 140,997,000 154,695,000
Notes payable 3,295,000 6,054,000
Total Current Liabilities 174,707,000 199,690,000
Long-Term Liabilities:
Long-term debt 52,361,000 55,928,000
Deferred compensation 14,996,000 13,503,000
Accrued postretirement benefit obligation 69,404,000 68,588,000
Other long-term liabilities 39,324,000 48,320,000
Total Long-Term Liabilities 176,085,000 186,339,000
Stockholders' Equity:
Common stock 34,642,000 34,613,000
Class B common stock 12,563,000 12,592,000
Capital in excess of par value 3,591,000 3,268,000
Retained earnings 330,381,000 310,573,000
Less: Foreign currency translation
adjustment and other 18,926,000 18,059,000
Treasury stock, at cost 9,790,000 10,091,000
Total Stockholders' Equity 352,461,000 332,896,000
Total Liabilities and Stockholders' Equity $703,253,000 $718,925,000
</TABLE>
<TABLE>
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
<CAPTION>
1996 1995
Cash flows from operations:
<S> <C> <C>
Net earnings $ 25,375,000 $ 6,615,000
Provision for one-time charges - 36,600,000
Cash payments for prior years'
one-time charges (22,634,000) (25,817,000)
Changes in assets and liabilities 1,087,000 (762,000)
Depreciation and amortization 17,308,000 18,777,000
21,136,000 35,413,000
Cash flows used in investing activities:
Additions to property, plant and equipment (27,474,000) (25,700,000)
Acquisition of product lines from
BioWhittaker Inc. and Clark Laboratories (500,000) (11,555,000)
Decrease (increase) in short-term
investments 1,863,000 (4,898,000)
Other investing activities 325,000 617,000
(25,786,000) (41,536,000)
Cash flows used in financing activities:
Dividends paid (5,567,000) (5,537,000)
Increase in borrowings 92,000 43,204,000
Payments of debt (6,341,000) (2,973,000)
Purchase of treasury stock (134,000) (4,216,000)
(11,950,000) 30,478,000
Effect of exchange rate changes on
cash and cash equivalents (232,000) (97,000)
(Decrease) increase in cash and
cash equivalents $(16,832,000) $ 24,258,000
</TABLE>
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
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 LLP, independent auditors. A copy of their report on this limited
review is included in this Form.
Note 3: Restructuring of Operations and Facilities
In connection with its restructuring program, the Company incurred one-time
pre-tax charges of $16,500,000 in the year ended March 31, 1996, all of which
was incurred in the nine month period ended December 31, 1995, and $74,060,000
in the year ended March 31, 1995. The restructuring charges of $90,560,000
recorded over the two years consist primarily of estimated employee termination
costs ($30,800,000), estimated plant closing costs including equipment
write-offs ($26,000,000) and costs associated with the planned subleasing of
office space on which the Company holds a long-term lease ($27,800,000).
The restructuring program resulted in a worldwide reduction of approximately
990 employees, including 120 vacancies that were not filled. Through
December 31, 1996, employee termination costs of $29,500,000 have been applied
against the restructuring liability.
Net plant closing costs of $26,000,000 as well as $7,200,000 in costs associated
with the subleasing of office space on which the Company holds a long-term lease
have been applied against the restructuring liability.
Approximately $21,700,000 of the $90,560,000 provision for restructuring charges
remains to be utilized in future periods. Substantially all of the $21,700,000
represents expected future cash outlays for subleasing costs and employee
severance.
Note 4: Closure of the Trenton Condom Manufacturing Facility
In the quarter ended June 30, 1995, the Company incurred a one-time pre-tax
charge of $20,100,000 ($11,860,000 after taxes or $.26 per share) related to the
planned closure of the Company's condom manufacturing plant in Trenton, New
Jersey. Condom production previously performed at Trenton has been transferred
to the Company's facility in Colonial Heights, Virginia. This pre-tax charge
was subsequently adjusted by $3,000,000 to $23,100,000 in the quarter ended
March 31, 1996.
(Continued)
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(Continued)
Note 5: Felbatol
As previously reported, in the year ended March 31, 1995 the Company incurred a
one-time charge to pre-tax earnings of $37,780,000 related to use restrictions
for Felbatol. This charge was adjusted by $8,200,000 to $45,980,000 in the
quarter ended March 31, 1996. Depending on future sales levels, additional
inventory write-offs may be required. If for any reason the product at some
future date should no longer be available in the market, the Company will incur
an additional one-time charge that would have a material adverse effect on the
Company's results of operations and possibly on its financial condition. Should
the product no longer be available, the Company currently estimates that the
additional one-time charge, consisting primarily of inventory write-offs and
anticipated returns of product currently in the market, will be in the range of
$25,000,000 to $30,000,000 on a pre-tax basis.
Note 6: Litigation
Information regarding Legal Proceedings involving the Company is presented in
Note 20 "Litigation Including Environmental Matters" of the Notes to the
Consolidated Financial Statements on pages 31 to 33 of the Company's 1996 Annual
Report to Stockholders incorporated by reference in the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1996 and is herein expressly
incorporated by reference.
In addition to the legal proceedings outlined in the Company's 1996 Annual
Report to Stockholders, eleven additional individual product liability actions
related to Felbatol have been filed against the Company. Damages are specified
in one of the actions where the complaint seeks compensatory damages of
$2,000,000. In the other actions the damages sought are unspecified.
The U.S. Court of Appeals for the Ninth Circuit has reversed and vacated the
Order of the U.S. District Court, Northern District of California, which had
certified a product liability action against the Company as a nation-wide class
action.
With respect to the action filed by New Horizons Diagnostic Corporation ("NHDC")
against Tambrands, Inc. ("Tambrands") and the Company, the parties have agreed
to a settlement which required a payment by the Company related to "stick test"
claims that was immaterial to its consolidated financial statements. The
Company has filed an action against Tambrands which, among other things, seeks a
declaratory judgment that the Company has no liability for any payments made to
NHDC with respect to the "cup test" claims.
The action filed by an alleged shareholder of the Company which purported to be
brought derivatively on behalf and for the benefit of the Company against the
directors of the Company has been dismissed by the Supreme Court of the State
and County of New York. The plaintiff has filed a notice of appeal.
The Company continues to believe, based upon opinion of counsel, that it has
good defenses to all of the above pending actions and should prevail.
<AUDIT-REPORT>
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 December 31, 1996, and the related condensed
consolidated statements of earnings for the three month and nine month periods
ended December 31, 1996 and 1995 and the condensed consolidated statements of
cash flows for the nine month periods ended December 31, 1996 and 1995. These
condensed consolidated financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical 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, 1996, 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 May 6, 1996, 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, 1996 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
KPMG Peat Marwick LLP
New York, New York
January 23, 1997
</AUDIT-REPORT>
CARTER-WALLACE, INC.
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations - Three months ended December 31, 1996 compared to three
months ended December 31, 1995
Consolidated earnings after taxes in the three months ended December 31, 1996
were $10,514,000 or $.23 per share compared with net earnings of $10,278,000 or
$.22 per share in the three months ended December 31, 1995.
Net sales increased $1,016,000 (0.6%) in the current year period as compared to
net sales in the prior year period. The higher sales level resulted primarily
from selling price increases, largely in the Health Care segment. Unit volume
in the Health Care segment was also higher. Sales of the recently acquired
BioWhittaker and Clark diagnostic product lines had a positive effect on Health
Care sales. Sales of pharmaceutical products in the Health Care segment
continue to be adversely impacted by generic competition. Sales of Organidin NR
may be particularly affected by generic competition. Unit volume in the
Consumer Products segment was lower.
Higher foreign exchange rates had the effect of increasing sales in the current
year period by approximately $700,000.
Other revenues increased $182,000 (9.7%) from $1,885,000 in the prior year
period to $2,067,000 in the current year period.
Cost of goods sold as a percentage of net sales decreased from 36.3% in the
prior year period to 35.7% in the current year period primarily due to selling
price increases in the Health Care segment.
Advertising, marketing and other selling expenses increased by $1,501,000 or
2.5% versus the prior year period due to increased expenses in both the Consumer
Products and Health care segments. Spending in the Health Care segment includes
expenses related to the introduction of Astelin nasal spray planned for the
fourth quarter of fiscal 1997.
Research and development expenses increased by $229,000 or 3.4% versus the prior
year period due to higher spending in the Consumer Products segment.
General, administrative and other expenses decreased $376,000 or 1.8% versus the
prior year period, largely due to the timing of certain expenditures which
occurred earlier in the year.
Interest expense increased by $51,000 from $1,063,000 in the prior year period
to $1,114,000 in the current year period.
The estimated annual effective tax rate applied in the current year period was
41%, the same rate as in the prior year period.
(Continued)
CARTER-WALLACE, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations - Nine months ended December 31, 1996 compared to nine
months ended December 31, 1995
Consolidated earnings after taxes in the nine months ended December 31, 1996
were $25,375,000 or $.55 per share compared with net earnings of $6,615,000 or
$.14 per share in the nine months ended December 31, 1995. Excluding the
one-time charges for the condom plant closing and restructuring, net earnings
for the nine months ended December 31, 1995 were approximately $28,200,000 or
$.61 per share.
Net sales decreased $1,410,000 (0.3%) in the current year period as compared to
net sales in the prior year period. The lower sales level resulted primarily
from reduced unit volume in both the Health Care and Consumer Products
segments. Sales of pharmaceutical products in the Health Care segment continue
to be adversely impacted by generic competition. Sales of Organidin NR may be
particularly affected by generic competition. Sales of the recently acquired
BioWhittaker and Clark diagnostic product lines had a positive effect on Health
Care sales.
Selling price increases, primarily in the Health Care segment, had a positive
effect on sales in comparison with the prior year period. Higher foreign
exchange rates had the effect of increasing sales in the current year period by
approximately $400,000 versus the prior year period.
Other revenues, primarily interest income, decreased $536,000 (8.7%) from
$6,175,000 in the prior year period to $5,639,000 in the current year period.
Cost of goods sold as a percentage of net sales increased from 36.6% in the
prior year period to 37.2% in the current year period primarily due to changes
in product mix.
Advertising, marketing and other selling expenses increased by $1,054,000 or
0.6% versus the prior year period due to increased expenses in the Health Care
segment, including spending related to the introduction of Astelin nasal spray
planned for the fourth quarter of fiscal 1997. Spending in the Consumer
Products segment decreased versus the prior year period.
Research and development expenses decreased by $236,000 or 1.2% versus the prior
year period due to lower spending in the Health Care segment.
General, administrative and other expenses decreased $327,000 or 0.5% versus the
prior year period. The decrease in the current year period is due to lower rent
expense and reduced compensation including fringe benefits, offset in part by
the establishment of a provision for a trade receivable related to the
bankruptcy of a pharmaceutical wholesaler and a payment related to settlement
of a patent infringement claim.
(Continued)
CARTER-WALLACE, INC.
Management's Discussion and Dnalysis of
Financial Condition and Results of Operations
(Continued)
Interest expense increased by $306,000 or 10.9% over the prior year period as
a result of increased borrowings related largely to the expansion of the
Colonial Heights, VA condom facility.
The estimated annual effective tax rate applied in the current year period was
41%, the same rate as in the prior year period.
Restructuring of Operations and Facilities
In connection with its restructuring program, the Company incurred one-time
pre-tax charges of $16,500,000 in the year ended March 31, 1996 and $74,060,000
in the year ended March 31, 1995. The restructuring charges of $90,560,000
recorded over the two years consist primarily of estimated employee termination
costs ($30,800,000), estimated plant closing costs including equipment
write-offs ($26,000,000) and costs associated with the planned subleasing of
office space on which the Company holds a long-term lease ($27,800,000).
The restructuring program resulted in a worldwide reduction of approximately
990 employees, including 120 vacancies that were not filled. Through
December 31, 1996, employee termination costs of $29,500,000 have been applied
against the restructuring liability.
Net plant closing costs of $26,000,000, as well as $7,200,000 in costs
associated with the subleasing of office space on which the Company holds a
long-term lease have been applied against the restructuring liability.
Approximately $21,700,000 of the $90,560,000 provision for restructuring charges
remains to be utilized in future periods. Substantially all of the $21,700,000
represents expected future cash outlays for subleasing costs and employee
severance.
Closure of the Trenton Condom Manufacturing Facility
In the quarter ended June 30, 1995, the Company incurred a one-time pre-tax
charge of $20,100,000 ($11,860,000 after taxes or $.26 per share) related to the
planned closure of the Company's condom manufacturing plant in Trenton, New
Jersey. Condom production previously performed at Trenton has been transferred
to the Company's facility in Colonial Heights, Virginia. This pre-tax charge
was subsequently adjusted by $3,000,000 to $23,100,000 in the quarter ended
March 31, 1996.
Continued)
CARTER-WALLACE, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Felbatol
As previously reported, in the year ended March 31, 1995 the Company incurred a
one-time charge to pre-tax earnings of $37,780,000 related to use restrictions
for Felbatol. This charge was adjusted by $8,200,000 to $45,980,000 in the
quarter ended March 31, 1996. Depending on future sales levels, additional
inventory write-offs may be required. If for any reason the product at some
future date should no longer be available in the market, the Company will incur
an additional one-time charge that would have a material adverse effect on the
Company's results of operations and possibly on its financial condition. Should
the product no longer be available, the Company currently estimates that the
additional one-time charge, consisting primarily of inventory write-offs and
anticipated returns of product currently in the market, will be in the range of
$25,000,000 to $30,000,000 on a pre-tax basis.
Astelin
In November, 1996, the Food and Drug Administration approved the Company's New
Drug Application to market Astelin nasal spray for seasonal allergic rhinitis.
The Company will launch Astelin nasal spray in the fourth quarter of fiscal 1997
with introductory levels of marketing spending planned. The results of
operations for the three months and nine months ended December 31, 1996 included
spending related to the introduction of Astelin nasal spray.
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.
In the Statement of Cash Flows the positive change in assets and liabilities in
the current year period compared to that in the prior year period is due
primarily to reduced working capital requirements in the current year as well as
an increase in deferred taxes in the prior year.
Cash outlays in the nine months ended December 31, 1996 relating to prior years'
one-time charges amount to $22,634,000 as compared to $25,817,000 in the prior
year.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Please refer to Note 6: Litigation of Notes to Condensed Consolidated
Financial Statements for information regarding legal proceedings.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - No reports on Form 8-K have been filed during the
quarter ended December 31, 1996
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: January 23, 1997 /s/Daniel J. Black
Daniel J. Black
President & Chief
Operating Officer
Date: January 23, 1997 /s/Paul A. Veteri
Paul A. Veteri
Vice President, Finance
& Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 34,353,000
<SECURITIES> 18,033,000
<RECEIVABLES> 134,161,000
<ALLOWANCES> 6,930,000
<INVENTORY> 89,785,000
<CURRENT-ASSETS> 310,142,000
<PP&E> 289,295,000
<DEPRECIATION> 133,306,000
<TOTAL-ASSETS> 703,253,000
<CURRENT-LIABILITIES> 174,707,000
<BONDS> 55,656,000
0
0
<COMMON> 47,205,000
<OTHER-SE> 305,256,000
<TOTAL-LIABILITY-AND-EQUITY> 703,253,000
<SALES> 492,441,000
<TOTAL-REVENUES> 498,080,000
<CGS> 183,025,000
<TOTAL-COSTS> 455,071,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,113,000
<INCOME-PRETAX> 43,009,000
<INCOME-TAX> 17,634,000
<INCOME-CONTINUING> 25,375,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,375,000
<EPS-PRIMARY> .55
<EPS-DILUTED> 0
</TABLE>
