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, 1999
( ) 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, 1999 were 32,711,000 and 12,286,600,respectively.
CARTER-WALLACE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
December 31, 1999
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Earnings and
Comprehensive Earnings for the three and nine months
ended December 31, 1999 and 1998 1
Condensed Consolidated Balance Sheets at
December 31, 1999 and March 31, 1999 2
Condensed Consolidated Statements of Cash Flows
for the nine months ended December 31, 1999 and 1998 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
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 10
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
AND COMPREHENSIVE EARNINGS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
Statement of Earnings 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $192,066,000 $162,241,000 $577,167,000 $501,072,000
Other income 2,813,000 5,254,000 10,072,000 13,178,000
194,879,000 167,495,000 587,239,000 514,250,000
Cost and expenses:
Cost of goods sold 65,753,000 62,724,000 209,761,000 192,906,000
Advertising, marketing &
other selling expenses 72,852,000 62,580,000 219,693,000 191,770,000
Research & development
expenses 7,903,000 6,416,000 20,533,000 19,393,000
General, administrative
& other expenses 24,261,000 21,827,000 73,752,000 68,414,000
Interest expense 1,231,000 1,098,000 3,636,000 3,656,000
172,000,000 154,645,000 527,375,000 476,139,000
Earnings before taxes
on income 22,879,000 12,850,000 59,864,000 38,111,000
Provision for taxes
on income 8,923,000 5,011,000 23,347,000 14,863,000
Net earnings $ 13,956,000 $ 7,839,000 $ 36,517,000 $ 23,248,000
Earnings per share - Basic $.31 $ .17 $.81 $.51
Earnings per share - Diluted $.30 $ .17 $.79 $.51
Cash dividends per share $.06 $ .06 $.18 $.16
Average shares of common
stock outstanding 44,994,000 45,093,000 44,987,000 45,240,000
Statement of
Comprehensive Earnings
Net Earnings $ 13,956,000 $ 7,839,000 $ 36,517,000 $ 23,248,000
Other comprehensive earnings
(loss): Foreign currency
translation adjustment (1,042,000) 1,514,000 (1,253,000) (496,000)
Total Comprehensive
Earnings $ 12,914,000 $ 9,353,000 $ 35,264,000 $ 22,752,000
</TABLE>
<TABLE>
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, March 31,
1999 1999
Assets (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 49,774,000 $ 49,382,000
Short-term investments 40,031,000 31,870,000
Accounts and other receivables less
allowances of $8,026,000 at December 31,
1999 and $7,415,000 at March 31, 1999 141,975,000 129,360,000
Inventories:
Finished goods 55,674,000 54,019,000
Work in process 12,517,000 10,875,000
Raw materials and supplies 29,472,000 25,714,000
97,663,000 90,608,000
Deferred taxes, prepaid expenses
and other current assets 29,507,000 28,370,000
Total Current Assets 358,950,000 329,590,000
Property, plant and equipment, at cost 325,398,000 316,759,000
Less: accumulated depreciation and amortization 175,153,000 166,163,000
150,245,000 150,596,000
Intangible assets 129,538,000 136,389,000
Deferred taxes and other assets 115,770,000 105,377,000
Total Assets $754,503,000 $721,952,000
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 40,015,000 $ 44,084,000
Accrued expenses 118,689,000 117,823,000
Notes payable 6,869,000 8,134,000
Total Current Liabilities 165,573,000 170,041,000
Long-Term Liabilities:
Long-term debt 61,896,000 64,861,000
Deferred compensation 25,035,000 19,931,000
Accrued postretirement benefit obligation 69,434,000 69,241,000
Other long-term liabilities 45,976,000 38,722,000
Total Long-Term Liabilities 202,341,000 192,755,000
Stockholders' Equity:
Common stock 34,765,000 34,740,000
Class B common stock 12,440,000 12,465,000
Capital in excess of par value 4,572,000 4,483,000
Retained earnings 396,512,000 368,093,000
Less: Foreign currency translation
adjustment 29,038,000 27,785,000
Treasury stock, at cost 32,662,000 32,840,000
Total Stockholders' Equity 386,589,000 359,156,000
Total Liabilities and Stockholders' Equity $754,503,000 $721,952,000
</TABLE>
<TABLE>
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(Unaudited)
<CAPTION>
1999 1998
Cash flows from operations:
<S> <C> <C>
Net earnings $ 36,517,000 $23,248,000
Depreciation and amortization 23,327,000 20,840,000
Changes in assets and liabilities (27,246,000) 5,196,000
Cash payments for one-time charges
incurred in prior years (842,000) 20,840,000
31,756,000 46,863,000
Cash flows used in investing activities:
Additions to property, plant and equipment (13,895,000) (11,138,000)
Cash paid for acquisitions - (3,633,000)
Increase in short-term investments (8,070,000) (5,318,000)
Proceeds from sale of property, plant
and equipment 636,000 159,000
(21,329,000) (19,930,000)
Cash flows used in financing activities:
Dividends paid (8,098,000) (7,232,000)
Increase in borrowings 3,964,000 2,463,000
Payments of debt (5,884,000) (8,751,000)
Purchase of treasury stock - (4,381,000)
(10,018,000) (17,901,000)
Effect of exchange rate changes on
cash and cash equivalents (17,000) (878,000)
Increase in cash and
cash equivalents $ 392,000 $ 8,154,000
</TABLE>
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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
The Company is involved in various legal proceedings involving securities
litigation, product liability, anti-trust, contract dispute and environmental
matters. Further information regarding Legal Proceedings involving the Company
is presented in Note 14 "Litigation Including Environmental Matter" of the Notes
to the Consolidated Financial Statements on pages 27 to 29 of the Company's 1999
Annual Report to Stockholders incorporated by reference in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1999 and is herein
expressly incorporated by reference.
In November 1999, the United States District Court, Southern District of New
York, granted the Company's motion for judgment on the pleadings with respect to
the remaining claims of the Consolidated Securities Class Action Complaint and
dismissed the case. Plaintiffs have appealed such order to the United States
Court of Appeals for the Second Circuit.
With respect to the three pending product liability actions against the Company
alleging various adverse reactions and other injuries suffered as a result of
using Felbatol, two of the actions have been resolved with no material adverse
effect on the Company's financial statements.
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, 1999 AND 1998
(Continued)
Note 5: Business Segments (In Thousands)
Business segment information for the three and nine months ended December 31,
1999 and 1998 is as follows:
<TABLE>
Three Months Ended Nine Months Ended
December 31 December 31
<S> 1999 1998 1999 1998
Net Sales <C> <C> <C> <C>
Domestic Consumer Products $ 68,307 $ 65,495 $234,550 $217,902
Domestic Health Care 66,931 46,310 159,990 128,688
International 56,828 50,436 182,627 154,482
Total Net Sales $192,066 $162,241 $577,167 $501,072
Operating Profit
Domestic Consumer Products $ 9,913 $ 9,446 $ 49,622 $ 38,062
Domestic Health Care 22,789 11,756 40,886 30,264
International 3,774 3,759 13,650 12,342
Domestic net interest expense (512) (508) (1,557) (1,617)
Other (expense) net of other income (4,012) (2,208) (14,483) (12,003)
General Corporate expenses (9,073) (9,395) (28,254) (28,937)
Earnings before taxes on income $ 22,879 $ 12,850 $ 59,864 $ 38,111
</TABLE>
Note 6: Earnings per Share
Basic earnings per share for each period presented has been calculated using the
weighted average shares outstanding. In computing diluted earnings per share
incremental shares issuable upon the assumed exercise of stock options and the
vesting of stock awards have been added to the weighted average shares
outstanding.
For the three months and nine months ended December 31, 1999 incremental shares
for purposes of calculating diluted earnings per share amounted to 1,089,200 and
1,006,500 shares, respectively. This compares to 827,900 and 656,300
incremental shares in the three months and nine months ended December 31, 1998,
respectively.
Note 7: Long-Term Incentive Plan
At the Annual Meeting of Stockholders held on July 20, 1999 the stockholders
approved a proposal amending the 1996 Long-Term Incentive Plan to increase by
4,500,000 shares the number of shares of Common Stock that may be delivered or
purchased pursuant to awards made under the Plan.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REVIEW 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, 1999, and the related condensed
consolidated statements of earnings and comprehensive earnings for the three
month and nine month periods ended December 31, 1999 and 1998 and the condensed
consolidated statements of cash flows for the nine month periods ended
December 31, 1999 and 1998. 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, 1999, and the related consolidated statements of
earnings, retained earnings, and comprehensive earnings, and cash flows for the
year then ended (not presented herein); and in our report dated May 5, 1999, 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, 1999 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 28, 2000
</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, 1999 compared to three
months ended December 31, 1998
Consolidated earnings after taxes in the three months ended December 31, 1999
were $13,956,000 compared with net earnings of $7,839,000 in the three months
ended December 31, 1998. Basic earnings per share were $.31 per share in the
three months ended December 31, 1999, compared to $.17 per share in the three
months ended December 31, 1998.
Net sales increased $29,825,000 (18.4%) in the current year period as compared
to net sales in the prior year period. The sales increase was due largely to
higher unit volume in all business segments, with the largest increase in the
Domestic Health Care segment. Sales of pharmaceutical products in the Domestic
Health Care segment continue to be adversely affected by generic competition.
The increase in International unit volume was due in part to the acquisition of
the Barbara Gould line of skin care products in France and product
introductions. Selling price increases in the Domestic Health Care and
International segments also contributed to the sales increase.
The Company believes that a certain portion of the increase in sales and profits
in the quarter ended December 31, 1999 resulted from the timing of purchases by
Domestic Health Care customers due to changes in wholesaler distribution
patterns and possibly to such customers increasing their inventory prior to Y2K.
As a result, the Company's sales of Domestic Health Care products and related
profits may be adversely affected in the quarter ending March 31, 2000.
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 $3,500,000. The effect of changes
in foreign exchange on earnings was not material.
Other income decreased by $2,441,000 from $5,254,000 in the prior year period to
$2,813,000 in the current year period. Included in other income are credits of
$1,011,000 in the current year and $2,976,000 in the prior year related to ASTA
Medica's share of joint venture operations.
Cost of goods sold as a percentage of net sales decreased from 38.7% in the
prior year period to 34.2% in the current year period primarily due to changes
in product mix.
Advertising, marketing and other selling expenses increased by $10,272,000 or
16.4% versus the prior year period due mostly to higher spending in all
segments, with the largest increases in the Domestic Health Care and
International segments. The International segment increase was due in part to
promotional support for the recently acquired Barbara Gould product line.
Research and development expenses increased by $1,487,000 or 23.2% versus the
prior year period due mostly to increased spending in the Domestic Health Care
segment.
General, administrative and other expenses increased $2,434,000 or 11.2% versus
the prior year period due largely to increased compensation related expenses and
costs associated with the sharing of profits on a reformulated product.
The estimated annual effective tax rate applied in the three months ended
December 31, 1999 was 39%, the same rate as in the prior year period.
(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, 1999 compared to nine
months ended December 31, 1998
Consolidated earnings after taxes in the nine months ended December 31, 1999
were $36,517,000 compared with net earnings of $23,248,000 in the nine months
ended December 31, 1998. Basic earnings per share were $.81 per share in the
nine months ended December 31, 1999, compared to $.51 per share in the nine
months ended December 31, 1998.
Net Sales increased $76,095,000 (15.2%) in the current nine month period as
compared to net sales in the prior year period, with all Company business
segments recording sales gains. Sales of Domestic Health Care products were
higher by $31,302,000 or 24.3% reflecting unit sales gains and selling price
increases. Sales of pharmaceutical products in the Domestic Health Care segment
continue to be adversely affected by generic competition. Domestic Consumer
Products segment sales were higher by $16,648,000 or 7.6% this year due almost
entirely to increased unit sales. The increase in International sales of
$28,145,000 or 18.2% was due in part to unit volume gains mostly from the
acquistion of the Barbara Gould line of skin care products in France and product
introductions. Selling price increases also helped increase International
sales.
The Company believes that a certain portion of the increase in sales and profits
in the quarter ended December 31, 1999 resulted from the timing of purchases by
Domestic Health care customers due to changes in wholesaler distribution
patterns and possibly to such customers increasing their inventory prior to
Y2K. As a result, the Company's sales of Domestic Health Care products and
related profits may be adversely affected in the quarter ending March 31, 2000.
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 $6,800,000. The effect of changes
in foreign exchange on earnings was not material.
Other income decreased by $3,106,000 from $13,178,000 in the prior year period
to $10,072,000 in the current year period. Included in other income are credits
of $4,370,000 in the current year and $6,482,000 in the prior year related to
ASTA Medica's share of joint venture operations.
Cost of goods sold as a percentage of net sales decreased from 38.5% in the
prior year period to 36.3% in the current year period primarily due to changes
in product mix.
Advertising, marketing and other selling expenses increased by $27,923,000 or
14.6% versus the prior year period due mostly to increased spending in the
International and Domestic Health Care segments. Spending was higher in the
International segment due in part to promotional support for the recently
acquired Barbara Gould product line and product introductions. Spending was
higher in the Domestic Health Care segment partly as a result of costs
associated with the introduction of a reformulated version of an existing
product and product introductions.
Research and development expenses increased by $1,140,000 or 5.9% versus the
prior year period due mostly to increased spending in the Domestic Health Care
segment.
(Continued)
CARTER-WALLACE, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
General, administrative and other expenses increased $5,338,000 or 7.8% versus
the prior year period due largely to increased compensation related expenses.
The estimated annual effective tax rate applied in the nine months ended
December 31, 1999 was 39%, the same rate as in the prior year period.
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 successfully implemented a plan addressing Year 2000 technology
compliance for its information technology ("IT") and non-IT systems. The cost
of the entire project was approximately $1,500,000 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.
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 largely to
increased working capital requirements in the current year, including higher
accounts receivable and inventory levels, as well as a reduced level of accounts
payable and accrued expenses. The increase in accounts receivable is due
largely to increased sales volume as well as the timing of collections in
comparison to the prior year.
CARTER-WALLACE, INC.
ITEM 3 - QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
A portion of the Company's revenues and earnings are exposed to changes in
foreign exchange rates. Where practical, the Company seeks to relate expected
local currency revenues with local currency costs and local currency assets with
local currency liabilities.
The Company's interest bearing investments and a portion of its debt are subject
to interest rate risk. Changes in interest rates could affect interest income
and expense in future periods. The Company invests on a short-term basis.
There has been no material impact on operations from market risk exposures
during the nine-month period ended December 31, 1999.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
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 23 - KPMG Letter Regarding Interim Review Report
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, 1999.
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 31, 2000 /s/Ralph Levine
Ralph Levine
President & Chief
Operating Officer
Date: January 31, 2000 /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-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 49,774,000
<SECURITIES> 40,031,000
<RECEIVABLES> 141,975,000
<ALLOWANCES> 8,026,000
<INVENTORY> 97,663,000
<CURRENT-ASSETS> 358,950,000
<PP&E> 325,398,000
<DEPRECIATION> 175,153,000
<TOTAL-ASSETS> 754,503,000
<CURRENT-LIABILITIES> 165,573,000
<BONDS> 61,896,000
0
0
<COMMON> 47,205,000
<OTHER-SE> 339,384,000
<TOTAL-LIABILITY-AND-EQUITY> 754,503,000
<SALES> 577,167,000
<TOTAL-REVENUES> 587,239,000
<CGS> 209,761,000
<TOTAL-COSTS> 527,375,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,636,000
<INCOME-PRETAX> 59,864,000
<INCOME-TAX> 23,347,000
<INCOME-CONTINUING> 36,517,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,517,000
<EPS-BASIC> .81
<EPS-DILUTED> .79
</TABLE>
