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 September 30, 1997
( ) 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 September 30, 1997 were 33,960,900 and 12,367,900, respectively.
CARTER-WALLACE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
SEPTEMBER 30, 1997
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Earnings for the
three and six months ended September 30, 1997 and 1996 1
Condensed Consolidated Balance Sheets at
September 30, 1997 and March 31, 1997 2
Condensed Consolidated Statements of Cash Flows
for the six months ended September 30, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements 4
Report by KPMG Peat Marwick LLP on their limited review 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 9
Item 4 - Submission of Matters to a Vote of Security Holders 9
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues:
Net sales $168,459,000 $159,532,000 $338,574,000 $329,421,000
Other revenues 1,452,000 1,660,000 2,875,000 3,572,000
169,911,000 161,192,000 341,449,000 332,993,000
Cost and expenses:
Cost of goods sold 62,340,000 62,308,000 122,322,000 124,771,000
Advertising, marketing &
other selling expenses 68,954,000 60,408,000 134,832,000 124,136,000
Research & development
expenses 7,923,000 6,244,000 14,150,000 12,892,000
General, administrative
& other expenses 21,704,000 21,826,000 44,558,000 44,007,000
Interest expense 1,114,000 913,000 2,194,000 1,999,000
162,035,000 151,699,000 318,056,000 307,805,000
Earnings before taxes
on income 7,876,000 9,493,000 23,393,000 25,188,000
Provision for taxes
on income 3,150,000 3,892,000 9,357,000 10,327,000
Net earnings $ 4,726,000 $ 5,601,000 $ 14,036,000 $ 14,861,000
Net earnings per average
share of common stock
outstanding $ .10 $ .12 $ .30 $ .32
Cash dividends per share $ .04 $ .04 $ .08 $ .08
Average shares of common
stock outstanding 46,329,000 46,391,000 46,334,000 46,389,000
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, March 31,
1997 1997
Assets (Unaudited)
Current Assets:
Cash and cash equivalents $ 34,455,000 $ 35,124,000
Short-term investments 19,764,000 18,667,000
Accounts and other receivables less
allowances of $6,972,000 at September 30,
1997 and $6,730,000 at March 31, 1997 134,883,000 122,685,000
Inventories:
Finished goods 43,993,000 50,918,000
Work in process 11,922,000 11,744,000
Raw materials and supplies 27,638,000 24,559,000
83,553,000 87,221,000
Deferred taxes, prepaid expenses
and other current assets 38,248,000 37,459,000
Total Current Assets 310,903,000 301,156,000
Property, plant and equipment, at cost 294,493,000 291,486,000
Less: accumulated depreciation and amortization 143,606,000 136,642,000
150,887,000 154,844,000
Intangible assets 118,212,000 123,339,000
Deferred taxes and other assets 93,681,000 106,583,000
Total Assets $673,683,000 $685,922,000
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 33,513,000 $ 34,867,000
Accrued expenses 117,256,000 120,059,000
Notes payable 4,673,000 3,258,000
Total Current Liabilities 155,442,000 158,184,000
Long-Term Liabilities:
Long-term debt 47,286,000 51,025,000
Deferred compensation 16,637,000 14,631,000
Accrued postretirement benefit obligation 69,852,000 69,432,000
Other long-term liabilities 28,201,000 43,496,000
Total Long-Term Liabilities 161,976,000 178,584,000
Stockholders' Equity:
Common stock 34,683,000 34,655,000
Class B common stock 12,522,000 12,550,000
Capital in excess of par value 4,204,000 3,588,000
Retained earnings 340,235,000 329,906,000
Less: Foreign currency translation
adjustment and other 24,504,000 20,965,000
Treasury stock, at cost 10,875,000 10,580,000
Total Stockholders' Equity 356,265,000 349,154,000
Total Liabilities and Stockholders' Equity $673,683,000 $685,922,000
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1997 1996
Cash flows from operations:
Net earnings $ 14,036,000 $ 14,861,000
Cash payments for one-time charges (11,092,000) (15,138,000)
Changes in assets and liabilities (5,949,000) 6,037,000
Depreciation and amortization 12,044,000 11,519,000
9,039,000 17,279,000
Cash flows used in investing activities:
Additions to property, plant and equipment (8,138,000) (19,944,000)
(Increase) decrease in short-term investments (1,051,000) 4,189,000
Proceeds from sale of property, plant
and equipment 6,142,000 452,000
(3,047,000) (15,303,000)
Cash flows used in financing activities:
Dividends paid (3,707,000) (3,711,000)
Increase in borrowings 34,000 414,000
Payments of debt (1,837,000) (6,096,000)
Purchase of treasury stock (796,000) (134,000)
(6,306,000) (9,527,000)
Effect of exchange rate changes on
cash and cash equivalents (355,000) (156,000)
(Decrease) in cash and cash equivalents $ (669,000) $ (7,707,000)
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
Note 1: Interim Reports
The results of the interim periods are not necessarily indicative of results
expected for a full year's operations. In the opinion of management, all
adjustments necessary for a fair statement of results of these interim periods
have been reflected in these financial statements and are of a normal recurring
nature.
Note 2: Review of Independent Auditors
The financial information included in this Form has been reviewed by KPMG Peat
Marwick LLP, independent auditors. A copy of their report on this limited
review is included in this Form.
Note 3: Felbatol
As previously reported, in the year ended March 31, 1995 the Company incurred a
one-time charge to pre-tax earnings of $37,780,000 related to use restrictions
for Felbatol. This charge was adjusted by $8,200,000 to $45,980,000 in the year
ended March 31, 1996. 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
$20,000,000 to $25,000,000 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 1997 Annual
Report to Stockholders incorporated by reference in the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1997 and is herein expressly
incorporated by reference.
The Company continues to believe, based upon opinion of counsel, that it has
good defenses to all of the above pending actions and should prevail.
<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 September 30, 1997, and the related condensed
consolidated statements of earnings for the three month and six month periods
ended September 30, 1997 and 1996 and the condensed consolidated statements of
cash flows for the six month periods ended September 30, 1997 and 1996. 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, 1997, 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 27, 1997, 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, 1997 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
KPMG PEAT MARWICK LLP
New York, New York
October 29, 1997
</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 September 30, 1997 compared to three
months ended September 30, 1996
Consolidated earnings after taxes in the three months ended September 30, 1997
were $4,726,000 or $.10 per share compared with net earnings of $5,601,000 or
$.12 per share in the three months ended September 30, 1996.
Net sales increased $8,927,000 (5.6%) in the current year period as compared to
net sales in the prior year period. The higher sales level resulted primarily
from unit volume and selling price increases in the Health Care segment. Unit
volume in the Health Care segment was higher due largely to sales of Astelin
Nasal Spray, which was launched in the fourth quarter of fiscal 1997. Sales of
other pharmaceutical products in the Health Care segment continue to be
adversely impacted by generic competition.
Sales and earnings from foreign operations are subject to fluctuations in
exchange rates. Lower foreign exchange rates, primarily in France and Italy,
had the effect of decreasing sales in the current year period by approximately
$4,000,000. The effect of changes in foreign exchange on earnings was not
material.
Other revenues decreased $208,000 (12.5%) from $1,660,000 in the prior year
period to $1,452,000 in the current year period. Interest income was lower than
in the prior year period.
Cost of goods sold as a percentage of net sales decreased from 39.1% in the
prior year period to 37.0% in the current year period primarily due to changes
in product mix.
Advertising, marketing and other selling expenses increased by $8,546,000 or
14.1% versus the prior year period due largely to increased expenses in the
Health Care segment related to the introduction of Astelin Nasal Spray which was
launched in the fourth quarter of fiscal 1997. Spending in the Consumer
Products segment was also higher.
Research and development expenses increased by $1,679,000 or 26.9% versus the
prior year period due to higher spending in both the Consumer Products and
Health Care segments. The increased spending in the Consumer Products segment
was due to employee termination costs related to organizational changes.
General, administrative and other expenses decreased $122,000 or 0.6% versus the
prior year period.
The estimated annual effective tax rate applied in the current year period was
40%, as compared to a 41% rate in the prior fiscal year due primarily to the mix
of domestic and international income.
(Continued)
CARTER-WALLACE, INC.
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Results of Operations - Six months ended September 30, 1997 compared to six
months ended September 30, 1996
Consolidated earnings after taxes in the six months ended September 30, 1997
were $14,036,000 or $.30 per share compared with net earnings of $14,861,000 or
$.32 per share in the six months ended September 30, 1996.
Net sales increased $9,153,000 (2.8%) in the current year period as compared to
net sales in the prior year period. The higher sales level resulted primarily
from unit volume and selling price increases, largely in the Health Care
segment. Unit volume in the Health Care segment was higher due to sales of
Astelin Nasal Spray, which was launched in the fourth quarter of fiscal 1997.
Sales of other pharmaceutical products in the Health Care segment continue to be
adversely impacted by generic competition. Unit volume in the Consumer Products
segment was also higher.
Sales and earnings from foreign operations are subject to fluctuations in
exchange rates. Lower foreign exchange rates, primarily in France and Italy,
had the effect of decreasing sales in the current year period by approximately
$6,900,000. The effect of changes in foreign exchange on earnings was not
material.
Other revenues decreased $697,000 (19.5%) from $3,572,000 in the prior year
period to $2,875,000 in the current year period due largely to reduced interest
income.
Cost of goods sold as a percentage of net sales decreased from 37.9% in the
prior year period to 36.1% in the current year period primarily due to changes
in product mix.
Advertising, marketing and other selling expenses increased by $10,696,000 or
8.6% versus the prior year period due largely to increased expenses in the
Health Care segment related entirely to the introduction of Astelin Nasal Spray
which was launched in the fourth quarter of fiscal 1997. Spending in the
Consumer Products segment was also higher.
Research and development expenses increased by $1,258,000 or 9.8% versus the
prior year period due to higher spending in the Consumer Products segment,
largely as a result of employee termination costs related to organizational
changes.
General, administrative and other expenses increased $551,000 or 1.3% versus the
prior year period.
The estimated annual effective tax rate applied in the current year period was
40%, as compared to a 41% rate in the prior fiscal year due primarily to the mix
of domestic and international income.
(Continued)
CARTER-WALLACE, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
The Company is required to adopt Statement of Financial Accounting Standards No.
128, "Earnings Per Share" as of December 31, 1997. Adoption of this statement
is not expected to have a material effect on the Company's earnings per share.
Astelin
In accordance with the terms of the Company's agreement with ASTA Medica AG, a
joint venture is expected to be formed during the quarter ending December 31,
1997 under which the Company will be responsible for all manufacturing, selling,
marketing and administrative activities for Astelin and Depen, another product
licensed from ASTA Medica AG, and will receive compensation for these activities
from the joint venture.
Felbatol
As previously reported, in the year ended March 31, 1995 the Company incurred a
one-time charge to pre-tax earnings of $37,780,000 related to use restrictions
for Felbatol. This charge was adjusted by $8,200,000 to $45,980,000 in the year
ended March 31, 1996. 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
$20,000,000 to $25,000,000 on a pre-tax basis.
Liquidity and Capital Resources
Funds provided from operations are used for capital expenditures, acquisitions,
the purchase of treasury stock, the payment of dividends and working capital
requirements. External borrowings are incurred as needed to satisfy cash
requirements relating to seasonal business fluctuations, to finance major
facility expansion programs and to finance major acquisitions.
Approximately 15% of the Company's debt is financed at variable interest rates.
Changes in interest rates could affect interest expense in future periods.
In the Statement of Cash Flows the cash outflow from the change in assets and
liabilities in the current year period compared to that in the prior year period
is due primarily to increased working capital requirements in the current year,
primarily accounts receivable.
Cash outlays before income tax benefit considerations in the six months ended
September 30, 1997 relating to prior years one-time charges amount to
$11,092,000 as compared to $15,138,000 in the prior year.
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 4 - Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Company was held on July 15,
1997.
(b) At the Annual Meeting the following matters were submitted to a vote of
security holders:
(1) Each person named below received the number of votes set opposite his
or her name for election as Director of the Company to serve until the
next Annual Meeting of Stockholders and until his or her successor
shall have been elected and qualified:
David M. Baldwin 148,678,667
Daniel J. Black 148,612,329
Richard L. Cruess 148,702,211
Suzanne H. Garcia 148,625,245
Henry H. Hoyt, Jr. 148,622,361
Scott C. Hoyt 148,605,240
Ralph Levine 148,646,735
Herbert M. Rinaldi 148,624,245
Paul A. Veteri 148,648,097
1,843,517 votes were withheld from voting on Directors.
(2) On the resolution relating to the appointment of KPMG Peat Marwick
LLP, independent auditors, to audit the financial statements of the
Company for the fiscal year ending March 31, 1998, the number of votes
cast in favor of this proposal was 149,359,537 and the number of votes
cast against this proposal was 1,118,404.
(3) On the resolution relating to amendment of the 1996 Long-Term
Incentive Plan with respect to the rights of participants who retire
under the Company's Pension Plan to exercise options, the number of
votes cast in favor of this proposal was 147,727,324 and the number
of votes cast against this proposal was 2,565,548.
(4) On the resolution relating to certain attributes of individuals to be
directors of the Company, the number of votes cast in favor of this
proposal was 8,050,033 and the number of votes cast against this
proposal was 136,565,345.
(5) On the resolution relating to the form of compensation to be paid to
non-employee directors, the number of votes cast in favor of this
proposal was 3,392,724 and the number of votes cast against this
proposal was 141,123,226.
PART II - OTHER INFORMATION
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 September 30, 1997
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: October 29, 1997 /s/Ralph Levine
Ralph Levine
President & Chief
Operating Officer
Date: October 29, 1997 /s/Paul A. Veteri
Paul A. Veteri
Executive Vice President,
Finance & Chief Financial
Officer