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, 1997
( ) 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, 1997 were 33,447,400 and 12,356,900, respectively.
CARTER-WALLACE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
DECEMBER 31, 1997
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Earnings for the
three and nine months ended December 31, 1997 and 1996 1
Condensed Consolidated Balance Sheets at
December 31, 1997 and March 31, 1997 2
Condensed Consolidated Statements of Cash Flows
for the nine months ended December 31, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements 4
Report by KPMG Peat Marwick LLP on their limited review 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 10
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
<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,
1997 1996 1997 1996
Revenues:
<S> <C> <C> <C> <C>
Net sales $152,521,000 $163,020,000 $491,095,000 $492,441,000
Other revenues 2,061,000 2,067,000 4,936,000 5,639,000
154,582,000 165,087,000 496,031,000 498,080,000
Cost and expenses:
Cost of goods sold 56,666,000 58,254,000 178,988,000 183,025,000
Advertising, marketing &
other selling expenses 60,380,000 60,821,000 195,212,000 184,957,000
Research & development
expenses 6,261,000 6,993,000 20,411,000 19,885,000
General, administrative
& other expenses 19,362,000 20,084,000 63,920,000 64,091,000
Interest expense 1,118,000 1,114,000 3,312,000 3,113,000
143,787,000 147,266,000 461,843,000 455,071,000
Earnings before taxes
on income 10,795,000 17,821,000 34,188,000 43,009,000
Provision for taxes
on income 3,976,000 7,307,000 13,333,000 17,634,000
Net earnings $ 6,819,000 $ 10,514,000 $ 20,855,000 $ 25,375,000
Earnings per share -
Basic and Diluted $ .15 $ .23 $ .45 $ .55
Cash dividends per share $ .04 $ .04 $ .12 $ .12
Average shares of common
stock outstanding 46,085,000 46,396,000 46,235,000 46,392,000
</TABLE>
<TABLE>
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, March 31,
1997 1997
Assets (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 19,987,000 $ 35,124,000
Short-term investments 27,072,000 18,667,000
Accounts and other receivables less
allowances of $7,337,000 at December 31,
1997 and $6,730,000 at March 31, 1997 135,929,000 122,685,000
Inventories:
Finished goods 45,167,000 50,918,000
Work in process 11,510,000 11,744,000
Raw materials and supplies 26,216,000 24,559,000
82,893,000 87,221,000
Deferred taxes, prepaid expenses
and other current assets 37,503,000 37,459,000
Total Current Assets 303,384,000 301,156,000
Property, plant and equipment, at cost 298,958,000 291,486,000
Less: accumulated depreciation and amortization 147,728,000 136,642,000
151,230,000 154,844,000
Intangible assets 117,035,000 123,339,000
Deferred taxes and other assets 93,678,000 106,583,000
Total Assets $665,327,000 $685,922,000
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 29,111,000 $ 34,867,000
Accrued expenses 116,092,000 120,059,000
Notes payable 8,994,000 3,258,000
Total Current Liabilities 154,197,000 158,184,000
Long-Term Liabilities:
Long-term debt 42,779,000 51,025,000
Deferred compensation 15,993,000 14,631,000
Accrued postretirement benefit obligation 69,846,000 69,432,000
Other long-term liabilities 28,953,000 43,496,000
Total Long-Term Liabilities 157,571,000 178,584,000
Stockholders' Equity:
Common stock 34,694,000 34,655,000
Class B common stock 12,511,000 12,550,000
Capital in excess of par value 4,204,000 3,588,000
Retained earnings 345,201,000 329,906,000
Less: Foreign currency translation
adjustment and other 23,696,000 20,965,000
Treasury stock, at cost 19,355,000 10,580,000
Total Stockholders' Equity 353,559,000 349,154,000
Total Liabilities and Stockholders' Equity $665,327,000 $685,922,000
</TABLE>
<TABLE>
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(Unaudited)
<CAPTION>
1997 1996
Cash flows from operations:
<S> <C> <C>
Net earnings $ 20,855,000 $ 25,375,000
Cash payments for one-time charges (12,685,000) (22,634,000)
Changes in assets and liabilities (8,885,000) 1,087,000
Depreciation and amortization 18,145,000 17,308,000
17,430,000 21,136,000
Cash flows used in investing activities:
Additions to property, plant and equipment (12,383,000) (27,474,000)
Cash paid for acquisitions - (500,000)
(Increase) decrease in short-term investments (8,839,000) 1,863,000
Proceeds from sale of property, plant
and equipment 6,263,000 325,000
(14,959,000) (25,786,000)
Cash flows used in financing activities:
Dividends paid (5,560,000) (5,567,000)
Increase in borrowings 289,000 92,000
Payments of debt (2,473,000) (6,341,000)
Purchase of treasury stock (9,277,000) (134,000)
(17,021,000) (11,950,000)
Effect of exchange rate changes on
cash and cash equivalents (587,000) (232,000)
(Decrease) in cash and cash equivalents $(15,137,000) $(16,832,000)
</TABLE>
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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 are of a normal recurring
nature.
Note 2: Review of Independent Auditors
The financial information included in this Form 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: 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 year
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
$20,000,000 to $25,000,000 on a pre-tax basis.
Note 4: Litigation
Information regarding Legal Proceedings involving the Company is presented in
Note 19 "Litigation Including Environmental Matters" of the Notes to the
Consolidated Financial Statements on pages 28 to 31 of the Company's 1997 Annual
Report to Stockholders incorporated by reference in the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1997 and is herein expressly
incorporated by reference.
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, 1997, and the related condensed
consolidated statements of earnings for the three month and nine month periods
ended December 31, 1997 and 1996 and the condensed consolidated statements of
cash flows for the nine month periods ended December 31, 1997 and 1996. 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, 1997, 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 27, 1997, 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, 1997 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 27, 1998
</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, 1997 compared to three
months ended December 31, 1996
Consolidated earnings after taxes in the three months ended December 31, 1997
were $6,819,000 or $.15 per share compared with net earnings of $10,514,000 or
$.23 per share in the three months ended December 31, 1996.
Net sales decreased $10,499,000 (6.4%) in the current year period as compared to
net sales in the prior year period. As noted in the following paragraph, lower
foreign exchange rates had the effect of decreasing sales in the current year
period by approximately $4,200,000. Unit volume was lower in the Health Care
segment despite sales of Astelin Nasal Spray which was launched in the fourth
quarter of fiscal 1997. Sales of other pharmaceutical products in the Health
Care segment continue to be adversely impacted by generic competition. Selling
price increases had a positive effect on sales in the Health Care segment. Unit
volume was higher in the Consumer Products segment.
Sales and earnings from foreign operations are subject to fluctuations in
exchange rates. Lower foreign exchange rates, primarily in France and Italy,
had the effect of decreasing sales in the current year period by approximately
$4,200,000. The effect of changes in foreign exchange on earnings was not
material.
Other revenues decreased slightly from $2,067,000 in the prior year period to
$2,061,000 in the current year period. Interest income was lower than in the
prior year period.
Cost of goods sold as a percentage of net sales increased from 35.7% 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 decreased by $441,000 or 0.7%
versus the prior year period due largely to reduced expense in the Consumer
Products segment, principally in the international markets due to lower exchange
rates and reduced spending, offset in part by increased spending in the Health
Care segment related to the introduction of Astelin Nasal Spray which was
launched in the fourth quarter of fiscal 1997.
Research and development expenses decreased by $732,000 or 10.5% versus the
prior year period due to reduced spending in both the Health Care and Consumer
Products segments.
General, administrative and other expenses decreased $722,000 or 3.6% versus the
prior year period, largely in international operations.
The estimated annual effective tax rate applied in the nine months ended
December 31, 1997 was 39%, which was lower than the 40% rate applied in the six
months ended September 30, 1997, thereby resulting in a tax rate in the three
months ended December 31, 1997 of 36.8%. This rate is lower than the fiscal
1997 annual tax rate of 41% due primarily to the mix of domestic and
international income.
(Continued)
CARTER-WALLACE, INC.
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Results of Operations - Nine months ended December 31, 1997 compared to nine
months ended December 31, 1996
Consolidated earnings after taxes in the nine months ended December 31, 1997
were $20,855,000 or $.45 per share compared with net earnings of $25,375,000 or
$.55 per share in the nine months ended December 31, 1996.
Net sales decreased $1,346,000 (0.3%) in the current year period as compared to
net sales in the prior year period. As noted in the following paragraph, lower
foreign exchange rates had the effect of decreasing sales in the current year
period by approximately $11,000,000. Unit volume declined in the Health Care
segment despite sales of Astelin Nasal Spray which was launched in the fourth
quarter of fiscal 1997. Sales of other pharmaceutical products in the Health
Care segment continue to be adversely impacted by generic competition. Unit
volume in the Consumer Products segment was higher. Selling price increases had
a positive effect on sales in both the Health Care and Consumer Products
segments.
Sales and earnings from foreign operations are subject to fluctuations in
exchange rates. Lower foreign exchange rates, primarily in France and Italy,
had the effect of decreasing sales in the current year period by approximately
$11,100,000. The effect of changes in foreign exchange on earnings was not
material.
Other revenues decreased $703,000 (12.5%) from $5,639,000 in the prior year
period to $4,936,000 in the current year period due in part to reduced interest
income.
Cost of goods sold as a percentage of net sales decreased from 37.2% in the
prior year period to 36.4% in the current year period primarily due to changes
in product mix.
Advertising, marketing and other selling expenses increased by $10,255,000 or
5.5% versus the prior year period due largely to increased expenses in the
Health Care segment related entirely to the introduction of Astelin Nasal Spray
which was launched in the fourth quarter of fiscal 1997. Spending in the
Consumer Products segment was also slightly higher.
Research and development expenses increased by $526,000 or 2.6% versus the prior
year period due to higher spending in the Consumer Products segment, largely as
a result of employee termination costs related to organizational changes.
General, administrative and other expenses decreased $171,000 or 0.3% versus the
prior year period.
The estimated annual effective tax rate applied in the fiscal 1998 period was
39%, compared to the fiscal 1997 annual tax rate of 41% due primarily to a
change in the mix of domestic and international income.
(Continued)
CARTER-WALLACE, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
The Company has adopted SFAS No. 128 "Earnings Per Share". This Statement
establishes standards for computing and presenting earnings per share. The
dilutive effect of potential common shares was not significant enough to affect
the reported figures. Accordingly, the Company has reported them together on
one line on the condensed consolidated statements of net earnings.
Astelin
In accordance with the terms of the Company's agreement with ASTA Medica AG, the
sales level for forming the required joint venture was reached during the
quarter ended December 31, 1997. Under the terms of the agreement the Company
will be responsible for all manufacturing, selling, marketing and administrative
activities for Astelin and Depen, another product licensed from ASTA Medica AG,
and will receive compensation for these activities from the joint venture.
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 year
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
$20,000,000 to $25,000,000 on a pre-tax basis.
(Continued)
CARTER-WALLACE, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
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.
Approximately 15% of the Company's debt is financed at variable interest rates.
Changes in interest rates could affect interest expense in future periods.
In the Statement of Cash Flows the cash outflow from the change in assets and
liabilities in the current year period compared to that in the prior year period
is due primarily to increased working capital requirements in the current year,
primarily accounts receivable.
Cash outlays before income tax benefit considerations in the nine months ended
December 31, 1997 relating to prior years' one-time charges amount to
$12,685,000 as compared to $22,634,000 in the prior year.
The Company's Board of Directors has approved repurchase by the Company of up to
1,000,000 shares of its outstanding common stock in the open market or in
privately negotiated transactions. The purchases will be made from time to time
depending on market conditions and price. Under this program the Company has
repurchased approximately 525,000 shares at a total cost of $8,480,000 through
December 31, 1997.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Please refer to Note 4: "Litigation" of Notes to Condensed Consolidated
Financial Statements for information regarding legal proceedings.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K - No reports on Form 8-K have been filed during the
quarter ended December 31, 1997
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 27, 1998 /s/Ralph Levine
Ralph Levine
President & Chief
Operating Officer
Date: January 27, 1998 /s/Paul A. Veteri
Paul A. Veteri
Executive Vice President,
Finance & Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 19,987,000
<SECURITIES> 27,072,000
<RECEIVABLES> 143,266,000
<ALLOWANCES> 7,337,000
<INVENTORY> 82,893,000
<CURRENT-ASSETS> 303,384,000
<PP&E> 298,958,000
<DEPRECIATION> 147,728,000
<TOTAL-ASSETS> 665,327,000
<CURRENT-LIABILITIES> 154,197,000
<BONDS> 51,773,000
0
0
<COMMON> 47,205,000
<OTHER-SE> 306,354,000
<TOTAL-LIABILITY-AND-EQUITY> 665,327,000
<SALES> 491,095,000
<TOTAL-REVENUES> 496,031,000
<CGS> 178,988,000
<TOTAL-COSTS> 461,843,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,312,000
<INCOME-PRETAX> 34,188,000
<INCOME-TAX> 13,333,000
<INCOME-CONTINUING> 20,855,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,855,000
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
