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, 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 December 31, 1998 were 32,650,600 and 12,331,500, respectively.
CARTER-WALLACE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
DECEMBER 31, 1998
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Earnings for the
three and nine months ended December 31, 1998 and 1997 1
Condensed Consolidated Balance Sheets at
December 31, 1998 and March 31, 1998 2
Condensed Consolidated Statements of Cash Flows
for the nine months ended December 31, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4
Report by KPMG 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,
1998 1997 1998 1997
Revenues:
<S> <C> <C> <C> <C>
Net sales $162,241,000 $152,521,000 $501,072,000 $491,095,000
Other revenues 5,254,000 2,061,000 13,178,000 4,936,000
167,495,000 154,582,000 514,250,000 496,031,000
Cost and expenses:
Cost of goods sold 62,724,000 56,666,000 192,906,000 178,988,000
Advertising, marketing &
other selling expenses 62,580,000 60,380,000 191,770,000 195,212,000
Research & development
expenses 6,416,000 6,261,000 19,393,000 20,411,000
General, administrative
& other expenses 21,827,000 19,362,000 68,414,000 63,920,000
Interest expense 1,098,000 1,118,000 3,656,000 3,312,000
154,645,000 143,787,000 476,139,000 461,843,000
Earnings before taxes
on income 12,850,000 10,795,000 38,111,000 34,188,000
Provision for taxes
on income 5,011,000 3,976,000 14,863,000 13,333,000
Net earnings $ 7,839,000 $ 6,819,000 $ 23,248,000 $ 20,855,000
Earnings per share -
Basic and Diluted $ .17 $ .15 $ .51 $ .45
Cash dividends per share $ .06 $ .04 $ .16 $ .12
Average shares of common
stock outstanding 45,093,000 46,085,000 45,240,000 46,235,000
</TABLE>
<TABLE>
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, March 31,
1998 1998
Assets (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 59,815,000 $ 51,661,000
Short-term investments 31,144,000 25,826,000
Accounts and other receivables less
allowances of $7,510,000 at December 31,
1998 and $7,306,000 at March 31, 1998 115,076,000 133,011,000
Inventories:
Finished goods 46,388,000 45,811,000
Work in process 9,921,000 9,751,000
Raw materials and supplies 24,847,000 25,408,000
81,156,000 80,970,000
Deferred taxes, prepaid expenses
and other current assets 31,664,000 28,470,000
Total Current Assets 318,855,000 319,938,000
Property, plant and equipment, at cost 311,705,000 300,051,000
Less: accumulated depreciation and amortization 162,729,000 149,828,000
148,976,000 150,223,000
Intangible assets 124,129,000 124,542,000
Deferred taxes and other assets 101,935,000 98,910,000
Total Assets $693,895,000 $693,613,000
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 31,152,000 $ 32,506,000
Accrued expenses 117,343,000 123,863,000
Notes payable 7,651,000 17,854,000
Total Current Liabilities 156,146,000 174,223,000
Long-Term Liabilities:
Long-term debt 52,997,000 48,887,000
Deferred compensation 19,458,000 17,553,000
Accrued postretirement benefit obligation 69,653,000 69,292,000
Other long-term liabilities 36,269,000 34,008,000
Total Long-Term Liabilities 178,377,000 169,740,000
Stockholders' Equity:
Common stock 34,720,000 34,698,000
Class B common stock 12,485,000 12,507,000
Capital in excess of par value 4,483,000 4,204,000
Retained earnings 365,831,000 349,815,000
Less: Foreign currency translation
adjustment 25,307,000 24,811,000
Treasury stock, at cost 32,840,000 26,763,000
Total Stockholders' Equity 359,372,000 349,650,000
Total Liabilities and Stockholders' Equity $693,895,000 $693,613,000
</TABLE>
<TABLE>
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
<CAPTION>
1998 1997
Cash flows from operations:
<S> <C> <C>
Net earnings $ 23,248,000 $ 20,855,000
Depreciation and amortization 20,840,000 18,145,000
Changes in assets and liabilities 5,196,000 (8,885,000)
Cash payments for one-time charges
incurred in prior years (2,421,000) (12,685,000)
46,863,000 17,430,000
Cash flows used in investing activities:
Additions to property, plant and equipment (11,138,000) (12,383,000)
Cash paid for acquisitions (3,633,000) -
(Increase) in short-term investments (5,318,000) (8,839,000)
Proceeds from sale of property, plant
and equipment 159,000 6,263,000
(19,930,000) (14,959,000)
Cash flows used in financing activities:
Dividends paid (7,232,000) (5,560,000)
Increase in borrowings 2,463,000 289,000
Payments of debt (8,751,000) (2,473,000)
Purchase of treasury stock (4,381,000) (9,277,000)
(17,901,000) (17,021,000)
Effect of exchange rate changes on
cash and cash equivalents (878,000) (587,000)
Increase (decrease) in cash and
cash equivalents $ 8,154,000 $(15,137,000)
</TABLE>
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 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 pending actions referenced above and should prevail.
(Continued)
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 and nine months ended December 31, 1998 was
$9,353,000 and $22,752,000, respectively. This compares to comprehensive income
for the three months and nine months ended December 31, 1997 of $7,627,000
and $18,124,000, 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 December 31, 1998, and the related condensed
consolidated statements of earnings for the three month and nine month
periods ended December 31, 1998 and 1997 and the condensed consolidated
statements of cash flows for the nine month periods ended December 31, 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 LLP
New York, New York
January 26, 1999
</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, 1998 compared to three
months ended December 31, 1997
Consolidated earnings after taxes in the three months ended December 31, 1998
were $7,839,000 or $.17 per share compared with net earnings of $6,819,000 or
$.15 per share in the three months ended December 31, 1997.
Net sales increased $9,720,000 (6.4%) in the current year period as compared to
net sales in the prior year period. The improvement was due primarily to
increased unit volume in both the Health Care and Consumer Products segments
as well as selling price increases in both the Health Care and Consumer
Products segments. Sales of pharmaceutical products in the Health Care
segment continue to be adversely affected by generic competition.
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 $1,000,000. The effect of
changes in foreign exchange on earnings was not material.
Other revenues increased by $3,193,000 from $2,061,000 in the prior year period
to $5,254,000 in the current year period. Included in the current year period
is a credit related to joint venture operations as well as increased interest
income.
Cost of goods sold as a percentage of net sales increased from 37.2% in the
prior year period to 38.7% in the current year period primarily due to
changes in product mix.
Advertising, marketing and other selling expenses increased by $2,200,000 or
3.6% versus the prior year period due to increased spending in the Health
Care segment. Spending in the Consumer Products segment was lower than in
the prior year period.
Research and development expenses increased by $155,000 or 2.5% versus the prior
year period.
General, administrative and other expenses increased $2,465,000 or 12.7%
versus the prior year period due largely to the timing of certain expenses in
comparison with the prior year period.
The estimated annual effective tax rate applied in the three months ended
December 31, 1998 was 39%, the same as the fiscal 1998 annual tax rate.
However, this rate is higher than the 36.8% rate applied in the three months
ended December 31, 1997.
(Continued)
CARTER-WALLACE, INC.
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations - Nine months ended December 31, 1998 compared to nine
months ended December 31, 1997
Consolidated earnings after taxes in the nine months ended December 31, 1998
were $23,248,000 or $.51 per share compared with net earnings of $20,855,000
or $.45 per share in the nine months ended December 31, 1997.
Net sales increased $9,977,000 (2.0%) in the current year period as compared to
net sales in the prior year period. The improvement was due primarily to
increased unit volume in the Consumer Products segment and selling price
increases in both the Health Care and Consumer Products segments. Unit
volume in the Health Care segment was lower than in the prior year period.
Sales of pharmaceutical products in the Health Care segment continue to be
adversely affected by generic competition.
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 $5,600,000. The effect of
changes in foreign exchange on earnings was not material.
Other revenues increased by $8,242,000 from $4,936,000 in the prior year period
to $13,178,000 in the current year period. Included in the current year
period is a credit related to joint venture operations as well as increased
interest income.
Cost of goods sold as a percentage of net sales increased from 36.4% in the
prior year period to 38.5% in the current year period primarily due to
changes in product mix.
Advertising, marketing and other selling expenses decreased by $3,442,000 or
1.8% versus the prior year period due to reduced spending in the Consumer
Products segment. Spending in the Health Care segment was higher than in the
prior year period.
Research and development expenses decreased by $1,018,000 or 5.0% versus the
prior year period due primarily to decreased spending in the Consumer
Products segment as a result of non-recurring prior year employee termination
costs.
General, administrative and other expenses increased $4,494,000 or 7.0% versus
the prior year period due primarily to employee termination costs related to
organizational changes as well as the timing of certain expenses versus the
prior year period.
The estimated annual effective tax rate applied in the nine months ended
December 31, 1998 was 39%, 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
(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.
Year 2000 Compliance
The Company is implementing a plan which addresses Year 2000 technology
compliance for its information technology ("IT") and non-IT systems. The
plan includes a review of the Company's suppliers and customers to assure
that they are working toward Year 2000 compliance.
Internal IT systems are expected to be made compliant by the second quarter of
the next fiscal year. Material third party vendors have been contacted and
asked to attest to Year 2000 compliance. Alternate vendors will be evaluated
as potential replacements for non-compliant or non-responsive vendors. The
entire project is expected to cost between $1,000,000 and $2,000,000 on a
pre-tax basis.
If IT and non-IT systems affected by the Year 2000 were not addressed as the
Company is doing, they could conceivably cause technological failures throughout
the Company, disrupting normal business operations. These theoretical
consequences are generally shared with other manufacturing companies.
Management does not believe that the Company's business will be materially
affected by Year 2000 issues. Nevertheless, the Company expects to have
contingency plans that address the most reasonably likely worst case Year
2000 scenarios. Contingency plans include a possible increase in key
inventory items in anticipation of vendors not being able to supply stock
and, where appropriate a review of manual operations to provide a back-up for
critical areas.
(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 change in assets and liabilities in the
current year period compared to that in the prior year period is due
primarily to decreased working capital requirements in the current year,
primarily accounts receivable.
In September 1998, 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 has repurchased 191,000 shares at a total cost of $2,900,000 through
December 31, 1998.
Under the stock repurchase program approved in October 1997, the Company
repurchased 945,000 shares at a total cost of $15,890,000 through March 31,
1998, and 55,000 shares 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 - No reports on Form 8-K have been filed during the
quarter ended December 31, 1998.
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: February 2, 1999 /s/Ralph Levine
Ralph Levine
President & Chief
Operating Officer
Date: February 2, 1999 /s/Paul A. Veteri
Paul A. Veteri
Executive Vice President
& Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 59,815,000
<SECURITIES> 31,144,000
<RECEIVABLES> 115,076,000
<ALLOWANCES> 7,510,000
<INVENTORY> 81,156,000
<CURRENT-ASSETS> 318,155,000
<PP&E> 148,976,000
<DEPRECIATION> 162,729,000
<TOTAL-ASSETS> 693,895,000
<CURRENT-LIABILITIES> 156,146,000
<BONDS> 00
0
0
<COMMON> 47,205,000
<OTHER-SE> 312,167,000
<TOTAL-LIABILITY-AND-EQUITY> 693,895,000
<SALES> 501,072,000
<TOTAL-REVENUES> 514,250,000
<CGS> 192,906,000
<TOTAL-COSTS> 476,139,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,656,000
<INCOME-PRETAX> 38,111,000
<INCOME-TAX> 14,863,000
<INCOME-CONTINUING> 23,248,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,248,000
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
