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, 2000
( ) 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, 2000 were 33,022,000 and 12,235,200, respectively.
CARTER-WALLACE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
DECEMBER 31, 2000
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, 2000 and 1999 1
Condensed Consolidated Balance Sheets at
December 31, 2000 and March 31, 2000 2
Condensed Consolidated Statements of Cash Flows
for the nine months ended December 31, 2000 and 1999 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
Financial Market Risk 12
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
Statement of Earnings 2000 1999 2000 1999
Net sales $196,250,000 $192,066,000 $603,192,000 $577,167,000
Other income 3,137,000 2,813,000 10,114,000 10,072,000
199,387,000 194,879,000 613,306,000 587,239,000
Cost and expenses:
Cost of goods sold 66,401,000 65,753,000 210,727,000 209,761,000
Advertising, marketing &
other selling expenses 71,436,000 72,852,000 219,007,000 219,693,000
Research & development
expenses 8,283,000 7,903,000 22,061,000 20,533,000
General, administrative
& other expenses 31,634,000 24,261,000 87,683,000 73,752,000
Interest expense 1,086,000 1,231,000 3,327,000 3,636,000
178,840,000 172,000,000 542,805,000 527,375,000
Earnings before taxes
on income 20,547,000 22,879,000 70,501,000 59,864,000
Provision for taxes
on income 8,013,000 8,923,000 27,495,000 23,347,000
Net earnings $ 12,534,000 $13,956,000 $43,006,000 $36,517,000
Earnings per share - Basic $.28 $ .31 $.95 $.81
Earnings per share - Diluted $.26 $ .30 $.91 $.79
Cash dividends per share $.08 $ .06 $.24 $.18
Average shares of common
stock outstanding 45,257,000 44,994,000 45,242,000 44,987,000
Statement of
Comprehensive Earnings
Net Earnings $ 12,534,000 $13,956,000 $43,006,000 $36,517,000
Other comprehensive earnings
(loss): Foreign currency
translation adjustment (1,413,000) (1,042,000) (7,902,000) (1,253,000)
Total Comprehensive
Earnings $ 11,121,000 $12,914,000 $35,104,000 $35,264,000
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31,
2000 2000
Assets (Unaudited)
Current Assets:
Cash and cash equivalents $126,460,000 $ 62,638,000
Short-term investments 48,155,000 41,150,000
Accounts and other receivables less
allowances of $8,014,000 at December 31,
2000 and $8,030,000 at March 31, 2000 119,257,000 126,469,000
Inventories:
Finished goods 51,876,000 63,684,000
Work in process 10,711,000 13,376,000
Raw materials and supplies 30,570,000 29,208,000
93,157,000 106,268,000
Deferred taxes, prepaid expenses
and other current assets 35,556,000 37,493,000
Total Current Assets 422,585,000 374,018,000
Property, plant and equipment, at cost 340,344,000 323,913,000
Less: accumulated depreciation and amortization 190,375,000 174,503,000
149,969,000 149,410,000
Intangible assets 115,162,000 124,684,000
Deferred taxes and other assets 116,983,000 114,124,000
Total Assets $804,699,000 $762,236,000
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 41,495,000 $ 46,935,000
Accrued expenses 136,487,000 114,925,000
Notes payable 9,501,000 6,711,000
Total Current Liabilities 187,483,000 168,571,000
Long-Term Liabilities:
Long-term debt 52,568,000 59,541,000
Deferred compensation 26,044,000 26,647,000
Accrued postretirement benefit obligation 71,659,000 70,308,000
Other long-term liabilities 50,792,000 46,131,000
Total Long-Term Liabilities 201,063,000 202,627,000
Stockholders' Equity:
Common stock 34,817,000 34,776,000
Class B common stock 12,388,000 12,429,000
Capital in excess of par value 4,110,000 4,231,000
Retained earnings 432,766,000 400,616,000
Less: Foreign currency translation
adjustment 39,287,000 31,385,000
Treasury stock, at cost 28,641,000 29,629,000
Total Stockholders' Equity 416,153,000 391,038,000
Total Liabilities and Stockholders' Equity $804,699,000 $762,236,000
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 2000 AND 1999
(Unaudited)
2000 1999
Cash flows from operations:
Net earnings $43,006,000 $36,517,000
Depreciation and amortization 26,395,000 23,327,000
Changes in assets and liabilities 25,707,000 (27,246,000)
Cash payments for one-time charges
incurred in prior years (440,000) (842,000)
94,668,000 31,756,000
Cash flows used in investing activities:
Additions to property, plant and equipment (11,391,000) (13,895,000)
Increase in short-term investments (7,048,000) (8,070,000)
Proceeds from sale of property, plant
and equipment 176,000 636,000
(18,263,000) (21,329,000)
Cash flows used in financing activities:
Dividends paid (10,856,000) (8,098,000)
Increase in borrowings 4,390,000 3,964,000
Payments of debt (5,948,000) (5,884,000)
Proceeds from exercise of stock options 787,000 -
(11,627,000) (10,018,000)
Effect of exchange rate changes on
cash and cash equivalents (956,000) (17,000)
Increase in cash and
cash equivalents $63,822,000 $ 392,000
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
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 interim financial statements and notes thereto included in this Form have
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 $15,000,000 on a pre-tax basis.
Note 4: Litigation
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 28 of the Company's 2000
Annual Report to Stockholders incorporated by reference in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 2000 and is
herein expressly incorporated by reference.
In August 2000 the United States Court of Appeals for the Second Circuit
affirmed a lower court dismissal with prejudice of all shareholder Security
Act claims against the Company relating to Felbatol, the Company's anti-epilepsy
drug. 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, 2000 AND 1999
(Continued)
Note 5: Business Segments (In Thousands)
Business segment information for the three months and nine months ended
December 31, 2000 and 1999 is as follows:
Three Months Ended Nine Months Ended
December 31 December 31
2000 1999 2000 1999
Sales
Domestic Consumer Products $ 71,910 $ 68,307 $249,166 $234,550
Domestic Health Care 70,017 66,931 177,199 159,990
International 54,323 56,828 176,827 182,627
Consolidated $196,250 $192,066 $603,192 $577,167
Operating Profit
Domestic Consumer Products $ 13,318 $ 9,913 $ 62,024 49,622
Domestic Health Care 22,459 22,789 47,000 40,886
International 4,699 3,774 15,332 13,650
Domestic net interest income (expense) 523 (512) 912 (1,557)
Other (expense) net of other income (10,473) (4,012) (24,810) (14,483)
General Corporate expenses (9,979) (9,073) (29,957) (28,254)
Earnings before taxes on income $ 20,547 $ 22,879 $ 70,501 $ 59,864
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, 2000 incremental shares
for purposes of calculating diluted earnings per share amounted to 2,978,700
and 2,275,200 shares, respectively. This compares to 1,089,200 and 1,006,500
incremental shares in the three months and nine months ended December 31, 1999,
respectively.
Note 7: Acceleration of Certain Pension And Other Costs
Included in general, administrative and other expenses for the three and nine
month periods ended December 31, 2000 is a pre-tax charge amounting to
$6,110,000 ($3,730,000 after tax or $.08 per share) related to the acceleration
of certain pension and other costs as a result of the retirement of Henry H.
Hoyt, Jr., the Company's former Chairman of the Board and Chief Executive
Officer, effective December 31, 2000.
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors And Stockholders
Carter-Wallace, Inc.:
We have reviewed the condensed consolidated balance sheet of Carter-Wallace,
Inc. and subsidiaries as of December 31, 2000, and the related condensed
consolidated statements of earnings and comprehensive earnings for the three
month and nine month periods ended December 31, 2000 and 1999 and the condensed
consolidated statements of cash flows for the nine month periods ended December
31, 2000 and 1999. 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, 2000, 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 10,
2000, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed balance sheet as of March 31, 2000 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 31, 2001
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, 2000 compared to three
months ended December 31, 1999
Consolidated earnings after taxes in the three months ended December 31, 2000
were $12,534,000 compared with net earnings of $13,956,000 in the three months
ended December 31, 1999. Basic earnings per share were $.28 per share in the
three months ended December 31, 2000 compared to $.31 per share in the three
months ended December 31, 1999.
Included in the operating results for the three months ended December 31, 2000
is a pre-tax charge amounting to $6,110,000 ($3,730,000 after tax or $.08 per
share) related to the acceleration of certain pension and other costs as a
result of the retirement of Henry H. Hoyt, Jr., the Company's former Chairman
of the Board and Chief Executive Officer, effective December 31, 2000.
Excluding this charge, pre-tax profits would have been $26,657,000
($16,264,000 after tax or $.36 per basic share) in the three month period ended
December 31, 2000.000.
Net sales increased $4,184,000 (2.2%) in the current three month period as
compared to net sales in the prior year period. Domestic Consumer Products
sales were higher by $3,603,000 or 5.3% this year due to increased unit sales,
and to a lesser extent, selling price increases. Sales of Domestic Health
Care products were higher by $3,086,000 or 4.6% due to selling price increases.
Unit sales volume was lower in this segment. Sales of pharmaceutical products
in the Domestic Health Care segment continue to be adversely affected by
generic competition. The decrease in International sales of $2,505,000 or
4.4% was due to unfavorable foreign exchange rates. International unit sales
were higher and selling price increases had a favorable effect on sales in
this segment in comparison to the prior year period.
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 $6,300,000. The effect of
changes in foreign exchange on earnings was not material.
Other income increased by $324,000 from $2,813,000 in the prior year period to
$3,137,000 in the current year period. Included in other income is higher
interest income of $1,326,000 due to increased cash levels. Included in
other income in the prior year period are credits of $1,011,000 related to
ASTA Medica's share of joint venture operations.
Cost of goods sold as a percentage of net sales decreased from 34.2% in the
prior year period to 33.8% in the current year period primarily due to changes
in product mix and the favorable effect of selling price increases in excess
of cost increases.
Advertising, marketing and other selling expenses decreased by $1,416,000 or
1.9% versus the prior year period due to lower spending in the International
and Domestic Health Care segments. Spending was higher in the Domestic
Consumer Products segment.
Research and development expenses increased by $380,000 or 4.8% versus the
prior year period due to higher spending in the Domestic Health Care segment,
including spending for taurolidine, a compound being tested to determine if
it has clinically important antineoplastic activity.
(Continued)
CARTER-WALLACE, INC.
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Results of Operations - Three months ended December 31, 2000 compared to
three months ended December 31, 1999
General, administrative and other expenses increased $7,373,000 or 30.4%
versus the prior year period due largely to pre-tax charges of $6,110,000
related to the acceleration of certain pension and other costs referred to
in the second paragraph above. In addition, the current year includes costs
associated with the sharing of profits on a reformulated product and increased
compensation related expenses.
The estimated annual effective tax rate applied in the three months ended
December 31, 2000 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, 2000 compared to nine
months ended December 31, 1999
Consolidated earnings after taxes in the nine months ended December 31, 2000
were $43,006,000 compared with net earnings of $36,517,000 in the nine months
ended December 31, 1999. Basic earnings per share were $.95 per share in the
nine months ended December 31, 2000 compared to $.81 per share in the nine
months ended December 31, 1999.
Included in the operating results for the nine months ended December 31, 2000
is a pre-tax charge amounting to $6,110,000 ($3,730,000 after tax or $.08 per
share) related to the acceleration of certain pension and other costs as a
result of the retirement of Henry H. Hoyt, Jr., the Company's former Chairman
of the Board and Chief Executive Officer, effective December 31, 2000.
Excluding this charge, pre-tax profits would have been $76,611,000
($46,736,000 after tax or $1.03 per basic share) in the nine month period ended
December 31, 2000.
Net sales increased $26,025,000 (4.5%) in the current nine month period as
compared to net sales in the prior year period. Domestic Consumer Products
sales were higher by $14,616,000 or 6.2% this year due to increased unit
sales, and to a lesser extent, selling price increases. Sales of Domestic
Health Care products were higher by $17,209,000 or 10.8% reflecting selling
price increases and unit sales gains. Sales of pharmaceutical products in
the Domestic Health Care segment continue to be adversely affected by generic
competition. The decrease in International sales of $5,800,000 or 3.2% was
due to unfavorable foreign exchange rates. International unit sales were
higher and selling price increases had a favorable effect on sales in this
segment in comparison to the prior year period.
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 $18,000,000. The effect
of changes in foreign exchange on earnings was not material.
Other income increased by $42,000 from $10,072,000 in the prior year period to
$10,114,000 in the current year period. Included in other income is higher
interest income which increased versus the prior year by $3,389,000 as a
result of higher cash balances. The current year also includes a gain on
the sale of a foreign facility of approximately $1,150,000. Included in
other income in the prior year are credits of $4,370,000 related to ASTA
Medica's share of joint venture operations.
Cost of goods sold as a percentage of net sales decreased from 36.3% in the
prior year period to 34.9% in the current year period primarily due to changes
in product mix and the favorable effect of selling price increases in excess
of cost increases.
(Continued)
CARTER-WALLACE, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Results of Operations - Nine Months ended December 31, 2000 compared to nine
months ended December 31, 1999
Advertising, marketing and other selling expenses decreased by $686,000 or
0.3% versus the prior year period due to decreased spending in the Domestic
Health Care segment. Spending was higher in the Domestic Consumer Products
segment.
Research and development expenses increased by $1,528,000 or 7.4% versus the
prior year period due to higher spending in the Domestic Health Care segment,
including spending for taurolidine, a compound being tested to determine if
it has clinically important antineoplastic activity.
General, administrative and other expenses increased by $13,931,000 or 18.9%
versus the prior year period due largely to pre-tax charges of $6,110,000
related to the acceleration of certain pension and other costs referred to
in the second paragraph above. In addition, the current year includes costs
associated with the sharing of profits on a reformulated product, a charge of
$1,323,000 related to ASTA Medica's share of joint venture operations, and
increased compensation related expenses.
The estimated annual effective tax rate applied in the nine months ended
December 31, 2000 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 $15,000,000 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.
In September 2000, the Company entered into two revolving credit agreements
with a group of banks providing credit lines totaling $100,000,000. These
revolving credit agreements replace the $150,000,000 revolving credit
agreement which expired on October 1, 2000.
In the Statement of Cash Flows, cash and cash equivalents increased by
$63,822,000 in the current year period, as compared to an increase of
392,000 in the prior year period. In the current year period, accrued
expenses increased while inventory levels and accounts receivable decreased.
In the prior year period, accrued expenses decreased while accounts receivable
and inventory levels increased.
In June 2000 the Company entered into an agreement to sell two parcels of
vacant land adjacent to its Cranbury, NJ facility totaling approximately 210
acres. The closings of these transactions are contingent upon certain
approvals being obtained and the satisfactory resolution of other conditions.
No assurance can be given that the closings will take place. The Company does
not anticipate that these transactions will close during the fiscal year ending
March 31, 2001; however, one of the transactions could close late in the fourth
quarter of the current fiscal year. The total proceeds from these land sales
will be approximately $22,050,000, less commissions and other expenses,
payable one-third at closing with the balance due in two equal annual
installments with interest. A down payment of $500,000 has been received as
escrow. The cost basis for the land being sold is approximately $1,000,000.
CARTER-WALLACE, INC.
ITEM 3 - QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT FINANCIAL 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 financial market risk
exposure during the nine-month period ended December 31, 2000.
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 LLP 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, 2000.
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 8, 2001 /s/ Paul A. Veteri
Paul A. Veteri
President & Chief
Operating Officer
Date: February 8, 2001 /s/ Peter J. Griffin
Peter J. Griffin
Vice President, Finance
and Controller