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, 1998
( ) 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 June 30, 1998 were 32,982,800 and 12,345,900, respectively.
CARTER-WALLACE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
JUNE 30, 1998
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Earnings for
the three months ended June 30, 1998 and 1997 1
Condensed Consolidated Balance Sheets at
June 30, 1998 and March 31, 1998 2
Condensed Consolidated Statements of Cash Flows
for the three months ended June 30, 1998 and 1997 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 9
Item 6 - Exhibits and Reports on Form 8-K 9
Signatures 10
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<CAPTION>
Three Months Ended
June 30,
1998 1997
Revenues:
<S> <C> <C>
Net sales $169,662,000 $170,115,000
Other revenues 3,084,000 1,423,000
172,746,000 171,538,000
Cost and expenses:
Cost of goods sold 63,415,000 59,982,000
Advertising, marketing &
other selling expenses 63,366,000 65,878,000
Research & development
expenses 6,688,000 6,227,000
General, administrative
& other expenses 22,449,000 22,854,000
Interest expense 1,266,000 1,080,000
157,184,000 156,021,000
Earnings before taxes
on income 15,562,000 15,517,000
Provision for taxes
on income 6,069,000 6,207,000
Net earnings $ 9,493,000 $ 9,310,000
Earnings per share -
Basic and Diluted $ .21 $ .20
Cash dividends per share $ .04 $ .04
Average shares of common
stock outstanding 45,343,000 46,338,000
</TABLE>
<TABLE>
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, March 31,
1998 1998
Assets (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 11,068,000 $ 51,661,000
Short-term investments 40,016,000 25,826,000
Accounts and other receivables less
allowances of $7,727,000 at June 30,
1998 and $7,306,000 at March 31, 1998 154,168,000 133,011,000
Inventories:
Finished goods 43,728,000 45,811,000
Work in process 10,632,000 9,751,000
Raw materials and supplies 26,870,000 25,408,000
81,230,000 80,970,000
Deferred taxes, prepaid expenses
and other current assets 33,103,000 28,470,000
Total Current Assets 319,585,000 319,938,000
Property, plant and equipment, at cost 302,159,000 300,051,000
Less: accumulated depreciation and amortization 153,402,000 149,828,000
148,757,000 150,223,000
Intangible assets 126,284,000 124,542,000
Deferred taxes and other assets 100,919,000 98,910,000
Total Assets $695,545,000 $693,613,000
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 36,796,000 $ 32,506,000
Accrued expenses 114,522,000 123,863,000
Notes payable 17,792,000 17,854,000
Total Current Liabilities 169,110,000 174,223,000
Long-Term Liabilities:
Long-term debt 48,728,000 48,887,000
Deferred compensation 19,089,000 17,553,000
Accrued postretirement benefit obligation 69,494,000 69,292,000
Other long-term liabilities 33,813,000 34,008,000
Total Long-Term Liabilities 171,124,000 169,740,000
Stockholders' Equity:
Common stock 34,705,000 34,698,000
Class B common stock 12,500,000 12,507,000
Capital in excess of par value 4,399,000 4,204,000
Retained earnings 357,495,000 349,815,000
Less: Foreign currency translation
adjustment 26,002,000 24,811,000
Treasury stock, at cost 27,786,000 26,763,000
Total Stockholders' Equity 355,311,000 349,650,000
Total Liabilities and Stockholders' Equity $695,545,000 $693,613,000
</TABLE>
<TABLE>
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<CAPTION>
1998 1997
Cash flows from operations:
<S> <C> <C>
Net earnings $ 9,493,000 $ 9,310,000
Cash payments for one-time charges (1,578,000) (7,637,000)
Changes in assets and liabilities (29,046,000) (8,772,000)
Depreciation and amortization 6,312,000 6,009,000
(14,819,000) (1,090,000)
Cash flows used in investing activities:
Additions to property, plant and equipment (2,648,000) (3,799,000)
Cash paid for acquisitions (3,633,000) -
(Increase) decrease in short-term investments (14,789,000) 5,984,000
Proceeds from sale of property, plant
and equipment 136,000 5,940,000
(20,934,000) 8,125,000
Cash flows used in financing activities:
Dividends paid (1,813,000) (1,854,000)
Increase in borrowings 1,507,000 -
Payments of debt (2,059,000) (515,000)
Purchase of treasury stock (1,286,000) (796,000)
(3,651,000) (3,165,000)
Effect of exchange rate changes on
cash and cash equivalents (1,189,000) (73,000)
(Decrease) increase in cash and
cash equivalents $(40,593,000) $ 3,797,000
</TABLE>
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
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 fiscal years ended March 31, 1995 and 1996 the
Company incurred one-time charges to pre-tax earnings totaling $45,980,000
related to use restrictions for Felbatol. 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, consisting primarily of inventory
write-offs and anticipated returns of product currently in the market, in the
range of $20,000,000 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 1998 Annual
Report to Stockholders incorporated by reference in the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1998 and is herein expressly
incorporated by reference.
In July 1998, the United States Court of Appeals for the Second Circuit affirmed
in part and reversed and remanded in part the decision of the United States
District Court, Southern District of New York, which had dismissed with
prejudice the Second Amended Class Action Complaint alleging that certain
statements made by the Company with respect to the safety and anticipated future
sales of its anti-epilepsy drug Felbatol were false and misleading.
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.
(Continued)
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(Continued)
Note 5: Accounting Pronouncement
The Company has adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income". This Statement establishes standards for
reporting and displaying comprehensive income and its components. Comprehensive
income for the three months ended June 30, 1998 and June 30, 1997 was $8,302,000
and $9,195,000, respectively.
<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 June 30, 1998, and the related condensed
consolidated statements of earnings for the three month periods ended
June 30, 1998 and 1997 and the condensed consolidated statements of cash flows
for the three month periods ended June 30, 1998 and 1997. 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, 1998, 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 7, 1998, 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, 1998 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
July 29, 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 June 30, 1998 compared to three
months ended June 30, 1997
Consolidated earnings after taxes in the three months ended June 30, 1998 were
$9,493,000 or $.21 per share compared with net earnings of $9,310,000 or $.20
per share in the three months ended June 30, 1997.
Net sales decreased $453,000 (0.3%) in the current year period as compared to
net sales in the prior year period. The decline was due primarily to lower unit
volume in the Health Care segment and unfavorable foreign exchange rates in
international operations. Sales of 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 both the Health Care and Consumer
Products segments. Unit volume in the Consumer Products segment was higher than
in the prior year.
Sales and earnings from foreign operations are subject to fluctuations in
exchange rates. Lower foreign exchange rates had the effect of decreasing sales
in the current year period by approximately $2,800,000. The effect of changes
in foreign exchange on earnings was not material.
Other revenues increased by $1,661,000 from $1,423,000 in the prior year period
to $3,084,000 in the current year period. Included in the current year period
is a credit related to joint venture operations.
Cost of goods sold as a percentage of net sales increased from 35.3% in the
prior year period to 37.4% in the current year period primarily due to changes
in product mix.
Advertising, marketing and other selling expenses decreased by $2,512,000 or
3.8% versus the prior year period due to reduced spending in both the Consumer
Products and Health Care segments.
Research and development expenses increased by $461,000 or 7.4% versus the prior
year period due primarily to increased spending in the Health Care segment.
General, administrative and other expenses decreased $405,000 or 1.8% versus the
prior year period due primarily to reduced legal expenses.
The estimated annual effective tax rate applied in the three months ended June
30, 1998 was 39%, the same as the fiscal 1998 annual tax rate. However, this
rate is lower than the 40% rate applied in the three months ended
June 30, 1997.
(Continued)
CARTER-WALLACE, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Astelin
In July 1998, the Company entered into a joint venture agreement with ASTA
Medica AG with an effective date of November, 1997. Under the terms of the
agreement the Company is responsible for all manufacturing, selling, marketing
and administrative activities for Astelin and Depen, another product licensed
from ASTA Medica AG, and receives compensation for these activities from the
joint venture.
Felbatol
As previously reported, in the fiscal years ended March 31, 1995 and 1996 the
Company incurred one-time charges to pre-tax earnings totaling $45,980,000
related to use restrictions for Felbatol. 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, consisting primarily of inventory
write-offs and anticipated returns of product currently in the market, in the
range of $20,000,000 on a pre-tax basis.
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.
In October 1997, the Company's Board of Directors 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. Under this program the Company
repurchased 945,000 shares at a total cost of $15,890,000 through March 31, 1998
with the balance of the shares repurchased in April 1998 at a total cost of
$985,000.
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 - On April 7, 1998, the Company filed a report
on Form 8-K announcing that, because the clinical data to date does
not support efficacy, it had terminated its clinical study of the
intravenous use of Taurolin (taurolidine) for sepsis.
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: July 29, 1998 /s/Ralph Levine
Ralph Levine
President & Chief
Operating Officer
Date: July 29, 1998 /s/Paul A. Veteri
Paul A. Veteri
Executive Vice President
& Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 11,068,000
<SECURITIES> 40,016,000
<RECEIVABLES> 161,895,000
<ALLOWANCES> 7,727,000
<INVENTORY> 81,230,000
<CURRENT-ASSETS> 319,585,000
<PP&E> 302,159,000
<DEPRECIATION> 153,402,000
<TOTAL-ASSETS> 695,545,000
<CURRENT-LIABILITIES> 169,110,000
<BONDS> 66,520,000
0
0
<COMMON> 47,205,000
<OTHER-SE> 308,106,000
<TOTAL-LIABILITY-AND-EQUITY> 695,545,000
<SALES> 169,662,000
<TOTAL-REVENUES> 172,746,000
<CGS> 63,415,000
<TOTAL-COSTS> 157,184,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,266,000
<INCOME-PRETAX> 15,562,000
<INCOME-TAX> 6,069,000
<INCOME-CONTINUING> 9,493,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,493,000
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
