UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20541
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, 1995
( ) 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
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, 1995 were 33,696,700 and 12,471,600,
respectively.
CARTER-WALLACE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
DECEMBER 31, 1995
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Earnings for the
three and nine months ended December 31, 1995 and 1994 1
Condensed Consolidated Balance Sheets at
December 31, 1995 and March 31, 1995 2
Condensed Consolidated Statements of Cash Flows
for the nine months ended December 31, 1995 and 1994 3
Notes to Condensed Consolidated Financial Statements 4
Report by KPMG Peat Marwick LLP on their Limited Review 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
PART I - FINANCIAL INFORMATION
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
1995 1994 1995 1994
Revenues:
Net sales $162,004,000 $156,680,000 $493,851,000 $508,095,000
Other revenues 1,885,000 1,463,000 6,175,000 4,291,000
163,889,000 158,143,000 500,026,000 512,386,000
Cost and expenses:
Cost of goods sold 58,861,000 54,038,000 180,965,000 180,031,000
Advertising, marketing
& other selling
expenses 59,320,000 60,959,000 183,903,000 191,866,000
Research & development
expenses 6,764,000 6,536,000 20,121,000 32,261,000
General, administrative
& other expenses 20,460,000 22,835,000 64,418,000 67,168,000
Provision for
restructuring - 20,500,000 16,500,000 69,500,000
Provision for loss on
Felbatol - - - 36,640,000
Provision for condom
plant closing - - 20,100,000 -
Provision for loss on
discontinuance of the
Organidin (iodinated
glycerol) product line - - - 17,500,000
Interest expense 1,063,000 917,000 2,807,000 1,785,000
146,468,000 165,785,000 488,814,000 596,751,000
Earnings (loss) before
taxes on income 17,421,000 (7,642,000) 11,212,000 (84,365,000)
Provision (benefit) for
taxes on income 7,143,000 (2,980,000) 4,597,000 (32,902,000)
Net earnings (loss) $ 10,278,000 $ (4,662,000)$ 6,615,000 $(51,463,000)
Net earnings (loss) per
average share of common
stock outstanding $.22 $ (.10) $.14 $(1.12)
Cash dividends per share $.04 $ .0833 $.12 $ .2499
Average shares of common
stock outstanding 46,138,000 46,119,000 46,136,000 46,086,000
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1995 1995
Assets (Unaudited)
Current Assets:
Cash and cash equivalents $ 64,356,000 $ 40,098,000
Short-term investments 23,391,000 18,188,000
Accounts and other receivables
less allowances of $7,154,000
at December 31, 1995 and
$6,344,000 at March 31, 1995 120,662,000 123,805,000
Inventories:
Finished goods 53,644,000 55,499,000
Work in process 15,055,000 12,359,000
Raw materials and supplies 24,130,000 21,359,000
92,829,000 89,217,000
Deferred taxes, prepaid expenses
and other current assets 37,756,000 32,009,000
Total Current Assets 338,994,000 303,317,000
Property, plant and equipment, at cost 252,342,000 252,226,000
Less: accumulated depreciation and
amortization 115,437,000 114,618,000
136,905,000 137,608,000
Intangible assets 136,445,000 129,852,000
Deferred taxes and other assets 105,269,000 109,447,000
Total Assets $717,613,000 $680,224,000
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 30,979,000 $ 31,318,000
Accrued expenses 161,143,000 165,987,000
Notes payable 14,987,000 5,416,000
Total Current Liabilities 207,109,000 202,721,000
Long-Term Liabilities:
Long-term debt 54,353,000 23,115,000
Deferred compensation 14,476,000 10,216,000
Accrued postretirement benefit obligation 70,450,000 68,969,000
Other long-term liabilities 39,512,000 48,064,000
Total Long-Term Liabilities 178,791,000 150,364,000
Stockholders' Equity:
Common stock 34,580,000 34,528,000
Class B common stock 12,625,000 12,677,000
Capital in excess of par value 3,248,000 2,184,000
Retained earnings 311,485,000 310,407,000
Less: Foreign currency translation adj. 17,317,000 18,949,000
Treasury stock, at cost 12,908,000 13,708,000
Total Stockholders' Equity 331,713,000 327,139,000
Total Liabilities and Stockholders' Equity $717,613,000 $680,224,000
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
1995 1994
Cash flows from operations:
Net earnings (loss) $ 6,615,000 $(51,463,000)
Current period one-time charges 36,600,000 123,640,000
Cash payments for current and
prior year one-time charges (25,817,000) (9,028,000)
Changes in assets and liabilities (762,000) (25,354,000)
Depreciation and Amortization 18,777,000 21,463,000
35,413,000 59,258,000
Cash flows used in investing activities:
Additions to property, plant and
equipment (25,700,000) (15,369,000)
Acquisition of product lines from
BioWhittaker Inc. and Clark Laboratories (11,555,000) -
Payments for international acquisitions,
net of cash received:
The Sante Beaute line in France - (19,876,000)
Technogenetics in Italy - (4,928,000)
The Curash line in Australia - (3,660,000)
(Increase) decrease in short-term
investments (4,898,000) 16,041,000
Other investing activities 617,000 (356,000)
(41,536,000) (28,148,000)
Cash flows used in financing activities:
Dividends paid (5,537,000) (11,525,000)
Increase in borrowings 43,204,000 13,018,000
Payments of debt (2,973,000) (3,529,000)
Purchase of treasury stock (4,216,000) (859,000)
30,478,000 (2,895,000)
Effect of exchange rate changes on
cash and cash equivalents (97,000) (865,000)
Increase in cash and cash equivalents $ 24,258,000 $ 27,350,000
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
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, except as
separately disclosed herein, are of a normal recurring nature.
Note 2: Review of Independent Auditors
The financial information included in this report 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: Restructuring of Operations and Facilities
(a) As part of its restructuring program, the Company decided in September,
1995 to consolidate its two Canadian operations in order to reduce costs
and increase efficiencies. In this regard, the Company incurred a one-
time pre-tax charge of $6,300,000 ($3,720,000 after taxes or $.08 per
share) in the quarter ended September 30, 1995 consisting primarily of
employee termination costs ($3,900,000), pension and other benefit costs
($1,300,000) and plant closing costs including equipment write-offs
($700,000).
Also included in the quarter ended September 30, 1995 is a one-time pre-
tax charge of $8,400,000 ($4,960,000 after taxes or $.11 per share)
representing an increase to the restructuring charge recorded in the
prior year. The increase relates primarily to lower than anticipated
sub-rental income associated with the subleasing of office space on which
the Company holds a long-term lease.
In addition, as previously announced, the Company incurred a one-time
pre-tax charge of $1,800,000 ($1,060,000 after taxes or $.02 per share)
in the quarter ended September 30, 1995 related to the relocation of one
of the Company's divisions to its Cranbury, New Jersey facility.
(b) In connection with its restructuring program from inception in fiscal
year 1995 through December 31, 1995, the Company has incurred one-time
pre-tax charges of $90,560,000 consisting primarily of employee
termination costs ($31,700,000), net plant closing costs including
equipment write-offs ($23,800,000) and costs associated with the
subleasing of office space on which the Company holds a long-term lease
($27,800,000).
The total anticipated reduction in the number of worldwide employees will
be approximately 1,030 including 120 vacancies that will not be filled.
Through December 31, 1995, 625 employees have been terminated with
employee termination costs of $17,900,000 applied against the
restructuring liability. In addition, approximately 70 positions have
been eliminated as a result of voluntary resignations.
(Continued)
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Continued)
Note 3: Restructuring of Operations and Facilities (Continued)
Net plant closing costs of $10,900,000, as well as $2,800,000 in costs
associated with the subleasing of office space on which the Company holds a
long-term lease have been applied against the restructuring liability.
Approximately $55,300,000 of the $90,560,000 provision for restructuring
charges remains to be utilized in future periods. Of the $55,300,000,
approximately $37,200,000 represents expected cash payments over a period of
years.
Note 4: Closure of the Trenton Condom Manufacturing Facility
As previously announced, the Company decided in mid-May, 1995 to close its
condom manufacturing plant in Trenton, New Jersey over a projected period of
eighteen to twenty-four months. The condom production currently performed at
Trenton will be transferred to the Company's recently acquired facility in
Colonial Heights, VA. The decision to close the Trenton plant resulted in a
one-time charge to pre-tax earnings in the quarter ended June 30, 1995 of
$20,100,000 ($11,860,000 after taxes or $.26 per share), consisting of plant
closing costs including equipment write-offs ($14,800,000) and employee
termination costs ($5,300,000). Additional pre-tax charges of approximately
$2,000,000 related to the Trenton closing are expected to be incurred in
fiscal year 1997.
Note 5: Discontinuance of the Organidin (Iodinated Glycerol) Product Line
As previously announced, in June, 1994 the Company and the Food and Drug
Administration reached an agreement to discontinue the manufacture and
shipment of the Company's Organidin (iodinated glycerol) line of products.
As a result of this agreement, the Company incurred in the quarter ended June
30, 1994 a one-time charge to pre-tax earnings of $17,500,000 primarily
related to a provision for any product returns ($8,500,000) and for inventory
write-offs ($3,600,000).
Note 6: Felbatol
As previously reported, in the quarter ended September 30, 1994 the Company
incurred a one-time charge to pre-tax earnings of $36,640,000 related to use
restrictions for Felbatol. This charge was adjusted by $1,140,000 to
$37,780,000 in the quarter ended March 31, 1995. 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 $25,000,000 to $30,000,000
on a pre-tax basis.
(Continued)
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Continued)
Note 7: 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 30 to 32 of the Company's 1995
Annual Report to Stockholders incorporated by reference in the Company's Form
10-K for the year ended March 31, 1995 and is herein expressly incorporated
by reference.
In addition to the legal proceedings outlined in the Company's 1995 Annual
Report to Stockholders, nineteen additional product liability actions related
to Felbatol have been filed against the Company, bringing the total number of
such actions to twenty-nine. Damages are specified in thirteen of those
actions, where the complaints seek compensatory damages of $39,850,000 and
punitive damages of $217,100,000. In the other actions, the damages sought
are unspecified.
The Company continues to believe, based upon opinion of counsel, it has good
defenses to all of the above actions and should prevail.
Note 8: Acquisitions
In December, 1995, the Company acquired the enzyme immunoassay line of
diagnostics products from BioWhittaker Inc. and agreed to purchase within 90
days thereafter BioWhittaker's immunofluorescent line of diagnostic products.
The purchase price for these product lines was $10,000,000. The Company also
agreed to purchase certain inventories at cost.
In a separate transaction with Clark Laboratories in December, 1995, the
Company has obtained exclusive sales and marketing rights to Clark's line of
enzyme immunoassay diagnostic products in the United States and has entered
into a long-term supply agreement with Clark related to the manufacture of
certain diagnostic products. The fee for these rights was $2,000,000, a
portion of which will be paid over the next two years.
These acquisitions are being accounted for by the purchase method and
accordingly, the results of operations for these lines are included in the
Company's results of operations from the acquisition date. Pro forma results
of operations are not presented since the effect would not be material.
Note 9: Recent Accounting Pronouncement
Effective April 1, 1995 the Company adopted Statement of Position 93-7,
"Reporting on Advertising Costs" issued by the American Institute of
Certified Public Accountants. Adoption of this statement had no material
impact on the Company's financial statements.
- Continued -
<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, 1995, and the related condensed
consolidated statements of earnings for the three-month and nine month
periods ended December 31, 1995 and 1994 and the condensed consolidated
statements of cash flows for the nine-month periods ended December 31, 1995
and 1994 in accordance with standards established by the American Institute
of Certified Public Accountants. These condensed consolidated financial
statements are the responsibility of the Company's management.
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. The contingencies discussed in the explanatory paragraphs of our
unqualified opinion, included in our report dated May 3, 1995, on the March
31, 1995 consolidated financial statements still exist.
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, 1995, 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 3, 1995, we expressed an
unqualified opinion on those consolidated financial statements. This opinion
included explanatory paragraphs related to the Felbatol and litigation
matters discussed in footnote 17 and 19, respectively, to those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of March 31, 1995 is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
KPMG Peat Marwick LLP
January 30, 1996
New York, New York
</AUDIT-REPORT>
CARTER-WALLACE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three months ended December 31, 1995 compared to
three months ended December 31, 1994
Consolidated earnings after taxes in the three months ended December 31, 1995
("fiscal 1996 period") were approximately $10,300,000 or $.22 per share.
This compares to net earnings after taxes, before the one-time charges for
restructuring, in the three months ended December 31, 1994 ("fiscal 1995
period") of $7,800,000 or $.17 per share.
Net sales increased $5,324,000 (3.4%) in the fiscal 1996 period as compared
to net sales in the fiscal 1995 period. The higher sales level was
principally related to the Health Care segment which benefitted from both
selling price increases and unit volume gains of pharmaceutical products,
primarily Organidin NR and Felbatol reduced in part by lower sales of other
pharmaceuticals. Sales of pharmaceutical products in the Health Care segment
continue to be adversely impacted by generic competition. Sales were lower
in the Consumer Products segment due to unit volume declines, including
reduced sales of anti-perspirant and deodorant products.
Lower foreign exchange rates in comparison with the prior year had the effect
of decreasing sales in the fiscal 1996 period by approximately $1,400,000.
Lower foreign exchange rates in Mexico were partially offset by higher
exchange rates in Europe. The effect of changes in foreign exchange rates on
results of operations in the fiscal 1996 period compared to the prior year
period was not significant.
Other revenues increased $422,000 or 28.8% due principally to higher interest
income.
Cost of goods sold as a percentage of net sales increased from 34.5% in the
fiscal 1995 period to 36.3% in the 1996 period primarily due to higher
production costs.
Advertising, marketing and other selling expenses decreased by $1,639,000 or
2.7% primarily due to lower spending levels in the Consumer Products segment.
Spending in the Health Care segment increased versus the prior year period.
Research and development expenses increased by $228,000 or 3.5%.
General, administrative and other expenses decreased $2,375,000 or 10.4%
primarily due to reduced compensation including fringe benefits and lower
rent expense, as well as a non-recurring prior year cost for a trade
receivable reserve.
Interest expense increased by $146,000 (15.9%) over the prior year period as
a result of increased borrowings.
(Continued)
CARTER-WALLACE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations - Three months ended December 31, 1995 compared to
three months ended December 31, 1994 (Continued)
The estimated annual effective tax rate applied in the fiscal 1996 period was
41%, compared to the fiscal 1995 annual net tax rate benefit of 35.3%. The
tax rate benefit applied in the quarter ended December 31, 1994 was 39%. The
tax rates in the fiscal 1996 period and future years are and will be
adversely affected by the absence of tax savings resulting from the cessation
of Puerto Rico operations and the absence of research and development tax
credits.
(Continued)
CARTER-WALLACE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Nine months ended December 31, 1995 compared to nine
months ended December 31, 1994
Consolidated earnings after taxes in the nine months ended December 31, 1995
("fiscal 1996 period") before the one-time charges were approximately
$28,200,000 or $.61 per share. This compares to net earnings after taxes in
the nine months ended December 31, 1994 ("fiscal 1995 period"), before
restructuring and other one-time charges, of $23,500,000 or $.51 per share.
The one-time charges in the current year period for the condom manufacturing
integration, the Canadian facilities integration and other restructuring
charges resulted in pre-tax charges of $36,600,000 ($21,600,000 after taxes
or $.47 per share). The one-time charges in the prior year period were
$123,640,000 on a pre-tax basis ($75,000,000 after taxes or $1.63 per share).
Net sales decreased $14,244,000 (2.8%) in the fiscal 1996 period as compared
to net sales in the fiscal 1995 period. The lower sales level was
attributable to reduced unit volume in the Health Care segment largely as a
result of reduced sales of Felbatol. Felbatol sales were adversely affected
by use restrictions beginning in August, 1994. The absence of sales of
Organidin Iodinated Glycerol (I.G.), which in the prior year period amounted
to approximately $21,000,000, was largely offset by increased sales of
Organidin NR, a reformulated version of Organidin which was introduced in
September, 1994. Current year sales of Organidin NR amount to $24,300,000,
an increase of $18,200,000 above the prior year. The Company continues to
maintain the $8,000,000 provision established in the prior year for possible
Organidin NR returns. As previously announced, sales of Organidin I.G. were
discontinued in June, 1994. Health Care sales were favorably impacted by
unit volume gains from the Technogenetics line of diagnostic products in
Italy acquired during the second quarter of fiscal 1995. Sales of
pharmaceutical products in the Health Care segment continue to be adversely
impacted by generic competition. Future sales of Organidin NR may be
particularly affected by generic competition.
Sales were higher in the Consumer Products segment predominately due to unit
volume gains from the Sante Beaute product line in France acquired in the
second quarter of fiscal 1995. Sales of anti-perspirants and deodorants,
also included in the Consumer Products segment, were lower than the prior
year period.
Selling price increases in both business segments had a positive effect on
sales in comparison with the prior year period. Lower foreign exchange rates
in comparison with the prior year had the effect of decreasing sales in the
fiscal 1996 period by approximately $2,800,000. Lower foreign exchange rates
in Mexico were partially offset by higher exchange rates in Europe. The
effect of changes in foreign exchange rates on results of operations in the
fiscal 1996 period compared to the prior year period was not significant.
Other revenues increased $1,884,000 or 43.9% due principally to higher
interest income.
(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, 1995 compared to nine
months ended December 31, 1994 (Continued)
Cost of goods sold as a percentage of net sales increased from 35.4% in the
fiscal 1995 period to 36.6% in the 1996 period primarily due to changes in
product mix and cost increases.
Advertising, marketing and other selling expenses decreased by $7,963,000 or
4.2% due to reduced spending levels in the Health Care segment primarily for
Felbatol. The Company substantially reduced its pharmaceutical sales force
and marketing support staff in October, 1994. Spending in the Consumer
Products segment increased over the prior year primarily related to the Sante
Beaute line of products in France acquired in the second quarter of fiscal
1995.
Research and development expenses decreased by $12,140,000 or 37.6%,
primarily due to lower spending in the Health Care segment. This decline was
due to the termination of Organidin and Felbatol clinical activities coupled
with a reduction in Astelin clinical activities. In October, 1994 the
Company virtually eliminated its Wallace Laboratories Division internal
research and development capability. However, the Company has continued its
research and development of Astelin (azelastine) for rhinitis, and
taurolidine, an antitoxin for the treatment of sepsis, and to the extent such
work exceeds the Company's remaining internal research and development
resources, such work is being done through independent research facilities.
General, administrative and other expenses decreased $2,750,000 or 4.1% due
primarily to reduced compensation including fringe benefits, lower rent
expense in the current year and non-recurring prior year costs for a foreign
patent claim provision and trade receivable reserves.
Interest expense increased by $1,022,000 in fiscal 1996 over the prior year
as a result of financing costs related to international acquisitions.
The estimated annual effective tax rate applied in the fiscal 1996 period was
41%, compared to the fiscal 1995 annual net tax rate benefit of 35.3%. The
tax rate benefit applied in the nine months ended December 31, 1994 was 39%.
The tax rates in the fiscal 1996 period and future years are and will be
adversely affected by the absence of tax savings resulting from the cessation
of Puerto Rico operations and the absence of research and development tax
credits.
(Continued)
CARTER-WALLACE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Restructuring of Operations and Facilities
(a) As part of its restructuring program, the Company decided in September,
1995 to consolidate its two Canadian operations in order to reduce costs
and increase efficiencies. In this regard, the Company incurred a one-
time pre-tax charge of $6,300,000 ($3,720,000 after taxes or $.08 per
share) in the quarter ended September 30, 1995 consisting primarily of
employee termination costs ($3,900,000), pension and other benefit costs
($1,300,000) and plant closing costs including equipment write-offs
($700,000).
Also included in the quarter ended September 30, 1995 is a one-time pre-
tax charge of $8,400,000 ($4,960,000 after taxes or $.11 per share)
representing an increase to the restructuring charge recorded in the
prior year. The increase relates primarily to lower than anticipated
sub-rental income associated with the subleasing of office space on
which the Company holds a long-term lease.
In addition, as previously announced, the Company incurred a one-time
pre-tax charge of $1,800,000 ($1,060,000 after taxes or $.02 per share)
in the quarter ended September 30, 1995 related to the relocation of one
of the Company's divisions to its Cranbury, New Jersey facility.
(b) In connection with its restructuring program from inception in fiscal
year 1995 through December 31, 1995, the Company has incurred one-time
pre-tax charges of $90,560,000 consisting primarily of employee
termination costs ($31,700,000), net plant closing costs including
equipment write-offs ($23,800,000) and costs associated with the
subleasing of office space on which the Company holds a long-term lease
($27,800,000).
The total anticipated reduction in the number of worldwide employees
will be approximately 1,030 including 120 vacancies that will not be
filled. Through December 31, 1995, 625 employees have been terminated
with employee termination costs of $17,900,000 applied against the
restructuring liability. In addition, approximately 70 positions have
been eliminated as a result of voluntary resignations.
Net plant closing costs of $10,900,000, as well as $2,800,000 in costs
associated with the subleasing of office space on which the Company
holds a long-term lease have been applied against the restructuring
liability.
Approximately $55,300,000 of the $90,560,000 provision for restructuring
charges remains to be utilized in future periods. Of the $55,300,000,
approximately $37,200,000 represents expected cash payments over a
period of years.
(Continued)
CARTER-WALLACE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Closure of the Trenton Condom Manufacturing Facility
As previously announced, the Company decided in mid-May, 1995 to close its
condom manufacturing plant in Trenton, New Jersey over a projected period of
eighteen to twenty-four months. The condom production currently performed at
Trenton will be transferred to the Company's recently acquired facility in
Colonial Heights, VA. The decision to close the Trenton plant resulted in a
one-time charge to pre-tax earnings in the quarter ended June 30, 1995 of
$20,100,000 ($11,860,000 after taxes or $.26 per share), consisting of plant
closing costs including equipment write-offs ($14,800,000) and employee
termination costs ($5,300,000). Additional pre-tax charges of approximately
$2,000,000 related to the Trenton closing are expected to be incurred in
fiscal year 1997.
Discontinuance of the Organidin (Iodinated Glycerol) Product Line
As previously announced, in June, 1994 the Company and the Food and Drug
Administration reached an agreement to discontinue the manufacture and
shipment of the Company's Organidin (iodinated glycerol) line of products.
As a result of this agreement, the Company incurred in the quarter ended June
30, 1994 a one-time charge to pre-tax earnings of $17,500,000 primarily
related to a provision for any product returns ($8,500,000) and for inventory
write-offs ($3,600,000).
Felbatol
As previously reported, in the quarter ended September 30, 1994 the Company
incurred a one-time charge to pre-tax earnings of $36,640,000 related to use
restrictions for Felbatol. This charge was adjusted by $1,140,000 to
$37,780,000 in the quarter ended March 31, 1995. 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 $25,000,000 to $30,000,000
on a pre-tax basis.
(Continued)
CARTER-WALLACE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Astelin
Three Astelin (azelastine) New Drug Applications ("NDA") are pending at the
FDA. Following a unanimous recommendation for approval of the Astelin Nasal
Spray NDA for seasonal allergic rhinitis by the FDA's Pulmonary Advisory
Committee in November, 1995, the Company received an "approvable letter" in
January, 1996. The Company is preparing responses to the questions raised by
FDA in the "approvable letter" and will commence discussions with FDA
regarding these responses as well as the final labeling for the product.
Additional formulation work will be required on the tablet for rhinitis which
will remain pending during 1996. The Company is unable at this time to
determine when and if the Astelin tablet NDA for rhinitis will be approved.
The NDA for asthma will not be pursued but the NDA will remain filed for
administrative purposes while the tablet NDA for rhinitis is pending.
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 December, 1995, the Company entered into a long-term private placement
financing in the amount of $35,000,000. The proceeds of this loan will
primarily be used to finance the expansion of the condom manufacturing
facility in Colonial Heights, VA.
The Company amended its revolving credit agreement with a group of banks to
increase the credit line from $75,000,000 to $150,000,000. The amended
revolving credit line is for a five year period beginning in October, 1995.
In the Statements of Cash Flows the change in assets and liabilities in the
current year period is lower than that in the prior year period due primarily
to a smaller increase in deferred taxes.
Cash outlays in the nine months ended December 31, 1995 relating to both
current and prior year one-time charges amount to approximately $25,800,000.
The cash requirements for the one-time charges of $36,600,000 recorded in the
nine months ended December 31, 1995 are estimated to be $23,500,000 of which
approximately $6,500,000 is expected to be incurred in the fiscal year ending
March 31, 1996, $11,300,000 in the fiscal year ending March 31, 1997 and the
remainder over a period of years. After taking into account estimated tax
benefits of $15,000,000 to be received over a period of years, the one-time
charges taken in the nine months ended December 31, 1995 are expected
ultimately to result in a net cash outlay of approximately $8,500,000.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Please refer to Note 7 "Litigation" of Notes to Condensed Consolidated
Financial Statements for information regarding legal proceedings.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit - Private placement note agreement dated as of December 1,
1995
(b) Reports on Form 8-K - No reports on Form 8-K have been filed
during the quarter ended December 31, 1995
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 30, 1996 s/Daniel J. Black
Daniel J. Black
President & Chief
Operating Officer
Date: January 30, 1996 s/Paul A. Veteri
Paul A. Veteri
Vice President, Finance
& Chief Financial Officer