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, 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 September 30, 1999 were 32,688,300 and 12,293,800, respectively.
CARTER-WALLACE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
September 30, 1999
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Earnings and
Comprehensive Earnings for the three and six months
ended September 30, 1999 and 1998 1
Condensed Consolidated Balance Sheets at
September 30, 1999 and March 31, 1999 2
Condensed Consolidated Statements of Cash Flows
for the six months ended September 30, 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 9
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 10
Item 4 - Submission of Matters to a Vote of Security Holders 10
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
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 Six Months Ended
September 30, September 30,
Statement of Earnings 1999 1998 1999 1998
Net sales $185,147,000 $169,169,000 $385,101,000 $338,831,000
Other income 4,472,000 4,840,000 7,259,000 7,924,000
189,619,000 174,009,000 392,360,000 346,755,000
Cost and expenses:
Cost of goods sold 68,932,000 66,767,000 144,008,000 130,182,000
Advertising, marketing &
other selling expenses 73,296,000 65,824,000 146,841,000 129,190,000
Research & development
expenses 6,587,000 6,289,000 12,630,000 12,977,000
General, administrative
& other expenses 24,173,000 24,138,000 49,491,000 46,587,000
Interest expense 1,221,000 1,292,000 2,405,000 2,558,000
174,209,000 164,310,000 355,375,000 321,494,000
Earnings before taxes
on income 15,410,000 9,699,000 36,985,000 25,261,000
Provision for taxes
on income 6,010,000 3,783,000 14,424,000 9,852,000
Net earnings $9,400,000 $5,916,000 $22,561,000 $15,409,000
Earnings per share - Basic $.21 $.13 $.50 $.34
Earnings per share - Diluted $.20 $.13 $.49 $.34
Cash dividends per share $.06 $.06 $.12 $.10
Average shares of common
stock outstanding 44,982,000 45,314,000 44,982,000 45,328,000
Statement of
Comprehensive Earnings
Net Earnings $9,400,000 $5,916,000 $22,561,000 $15,409,000
Other comprehensive earnings
(loss): Foreign currency
translation adjustment 1,064,000 (819,000) (211,000) (2,010,000)
Total Comprehensive
Earnings $10,464,000 $5,097,000 $22,350,000 $13,399,000
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, March 31,
1999 1999
Assets (Unaudited)
Current Assets:
Cash and cash equivalents $59,911,000 $49,382,000
Short-term investments 18,863,000 31,870,000
Accounts and other receivables less
allowances of $7,857,000 at September 30,
1999 and $7,415,000 at March 31, 1999 142,650,000 129,360,000
Inventories:
Finished goods 54,707,000 54,019,000
Work in process 11,730,000 10,875,000
Raw materials and supplies 28,332,000 25,714,000
94,769,000 90,608,000
Deferred taxes, prepaid expenses
and other current assets 28,942,000 28,370,000
Total Current Assets 345,135,000 329,590,000
Property, plant and equipment, at cost 323,922,000 316,759,000
Less: accumulated depreciation and amortization 172,858,000 166,163,000
151,064,000 150,596,000
Intangible assets 131,964,000 136,389,000
Deferred taxes and other assets 112,720,000 105,377,000
Total Assets $740,883,000 $721,952,000
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $43,004,000 $44,084,000
Accrued expenses 111,651,000 117,823,000
Notes payable 10,347,000 8,134,000
Total Current Liabilities 165,002,000 170,041,000
Long-Term Liabilities:
Long-term debt 64,997,000 64,861,000
Deferred compensation 21,158,000 19,931,000
Accrued postretirement benefit obligation 69,295,000 69,241,000
Other long-term liabilities 44,274,000 38,722,000
Total Long-Term Liabilities 199,724,000 192,755,000
Stockholders' Equity:
Common stock 34,728,000 34,740,000
Class B common stock 12,477,000 12,465,000
Capital in excess of par value 4,595,000 4,483,000
Retained earnings 385,256,000 368,093,000
Less: Foreign currency translation
adjustment 27,996,000 27,785,000
Treasury stock, at cost 32,903,000 32,840,000
Total Stockholders' Equity 376,157,000 359,156,000
Total Liabilities and Stockholders' Equity $740,883,000 $721,952,000
CARTER-WALLACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
1999 1998
Cash flows from operations:
Net earnings $22,561,000 $15,409,000
Cash payments for one-time charges
incurred in prior years (994,000) (1,953,000)
Changes in assets and liabilities (27,484,000) 4,806,000
Depreciation and amortization 15,401,000 13,188,000
9,484,000 31,450,000
Cash flows used in investing activities:
Additions to property, plant and equipment (9,986,000) (6,757,000)
Cash paid for acquisitions - (3,633,000)
Decrease (increase) in short-term investments 13,063,000 (4,405,000)
Proceeds from sale of property, plant
and equipment 635,000 15,000
3,712,000 (14,780,000)
Cash flows used in financing activities:
Dividends paid (5,398,000) (4,533,000)
Increase in borrowings 3,930,000 3,875,000
Payments of debt (1,296,000) (5,628,000)
Purchase of treasury stock - (2,196,000)
(2,764,000) (8,482,000)
Effect of exchange rate changes on
cash and cash equivalents 97,000 (2,913,000)
Increase in cash and
cash equivalents $10,529,000 $ 5,275,000
CARTER-WALLACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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
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. There have been no
significant developments regarding litigation since the Company filed its Annual
Report on Form 10-K.
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
September 30, 1999 AND 1998
(Continued)
Note 5: Business Segments (In Thousands)
Business segment information for the three months and six months ended
September 30, 1999 and 1998 is as follows:
Three Months Ended Six Months Ended
September 30 September 30
1999 1998 1999 1998
Sales
Domestic Consumer Products $81,176 $79,933 $166,243 $152,407
Domestic Health Care 44,227 39,012 93,059 82,378
International 59,744 50,224 125,799 104,046
Consolidated $185,147 $169,169 $385,101 $338,831
Operating Profit
Domestic Consumer Products $17,443 $14,407 $39,709 $28,616
Domestic Health Care 8,314 7,356 18,097 18,508
International 4,531 4,733 9,876 8,583
Domestic net interest expense (414) (440) (1,045) (1,109)
Other (expense) net of other income (4,818) (6,779) (10,471) (9,795)
General Corporate expenses (9,646) (9,578) (19,181) (19,542)
Earnings before taxes on income $15,410 $9,699 $36,985 $25,261
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 six months ended September 30, 1999
incremental shares for purposes of calculating diluted earnings per share
amounted to 1,005,500 and 965,200 shares, respectively. This compares to
465,000 and 570,500 incremental shares in the three months and six months
ended September 30, 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 September 30, 1999, and the related condensed
consolidated statements of earnings and comprehensive earnings for the three
month and six month periods ended September 30, 1999 and 1998 and the condensed
consolidated statements of cash flows for the six month periods ended September
30, 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
October 27, 1999
</AUDIT-REPORT>
CARTER-WALLACE, INC.
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations - Three months ended September 30, 1999 compared to three
months ended September 30, 1998
Consolidated earnings after taxes in the three months ended September 30, 1999
were $9,400,000 compared with net earnings of $5,916,000 in the three months
ended September 30, 1998. Basic earnings per share were $.21 per share in
the three months ended September 30, 1999 compared to $.13 per share in the
three months ended September 30, 1998.
Net sales increased $15,978,000 (9.4%) 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
International segment. 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.
Sales of pharmaceutical products in the Domestic Health Care segment continue
to be adversely affected by generic competition.
Sales and earnings from foreign operations are subject to fluctuations in
exchange rates. Lower foreign exchange rates had the effect of decreasing
sales in the current year period by approximately $900,000. The effect of
changes in foreign exchange on earnings was not material.
Other income decreased by $368,000 from $4,840,000 in the prior year period
to $4,472,000 in the current year period. Included in other income are
credits of $2,269,000 in the current year and $2,922,000 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 39.5% in the
prior year period to 37.2% in the current year period primarily due to changes
in product mix.
Advertising, marketing and other selling expenses increased by $7,472,000 or
11.4% versus the prior year period due mostly to increased spending 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 a reformulated version of an existing product.
Research and development expenses increased by $298,000 or 4.7% versus the
prior year period due to increased spending in the Domestic Health Care
segment.
General, administrative and other expenses increased $35,000 or 0.1% versus
the prior year period.
The estimated annual effective tax rate applied in the three months ended
September 30, 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 - Six months ended September 30, 1999 compared to six
months ended September 30, 1998
Consolidated earnings after taxes in the six months ended September 30, 1999
were $22,561,000 compared with net earnings of $15,409,000 in the six months
ended September 30, 1998. Basic earnings per share were $.50 per share in
the six months ended September 30, 1999 compared to $.34 per share in the
six months ended September 30, 1998.
Net Sales increased $46,270,000 (13.7%) in the current six month period as
compared to net sales in the prior year period, with all Company business
segments recording sales gains. Domestic Consumer Products segment sales
were higher by $13,836,000 or 9.1% this year due almost entirely to increased
unit sales. The increase in International sales of $21,753,000 or 20.9% was
due primarily 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. Sales of
Health Care products were higher by $10,681,000 or 13.0% 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.
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 $3,300,000. The effect of
changes in foreign exchange on earnings was not material.
Other income decreased by $665,000 from $7,924,000 in the prior year period
to $7,259,000 in the current year period. Interest income was lower than in
the prior year. Included in other income are credits of $3,359,000 in the
current year and $3,506,000 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 38.4% in the
prior year period to 37.4% in the current year period primarily due to changes
in product mix.
Advertising, marketing and other selling expenses increased by $17,651,000
or 13.7% 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 a reformulated version of an existing product.
Research and development expenses decreased by $347,000 or 2.7% versus the
prior year period due to reduced spending in the Domestic Health Care segment.
General, administrative and other expenses increased $2,904,000 or 6.2% versus
the prior year period due largely to increased compensation related expenses.
The estimated annual effective tax rate applied in the six months ended
September 30, 1999 was 39%, the same rate as in the prior year period.
(Continued)
CARTER-WALLACE, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
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 range
of $20,000,000 on a pre-tax basis.
Year 2000 Compliance
The Company has implemented a plan which addresses Year 2000 technology
compliance for its information technology ("IT") and non-IT systems. The
plan included a review of the Company's suppliers and customers to assure that
they were working toward Year 2000 compliance.
With minor exceptions, all internal IT systems have been made compliant.
Material third party vendors have attested to Year 2000 compliance. Alternate
vendors will be evaluated as potential replacements for non-compliant or
non-responsive vendors. The entire project is expected to cost between
$1,000,000 and $2,000,000 on a pre-tax basis.
If IT and non-IT systems affected by the Year 2000 were not addressed as the
Company is doing, they could conceivably cause technological failures
throughout the Company, disrupting normal business operations. These
theoretical consequences are generally shared with other manufacturing
companies.
Management does not believe that the Company's business will be materially
affected by Year 2000 issues. Nevertheless, the Company expects to have
contingency plans that address the most reasonably likely worst case Year 2000
scenarios. Contingency plans include a possible increase in key inventory
items in anticipation of vendors not being able to supply stock and, where
appropriate, a review of manual operations to provide back-up for critical
areas.
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 20% of the Company's debt is financed at variable interest rates.
Changes in interest rates could affect interest expense in future periods.
In the Statement of Cash Flows, the change in assets and liabilities in the
current year period compared to that in the prior year period is due 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 the timing of collections
in comparison to the prior year as well as increased sales volume.
CARTER-WALLACE, INC.
ITEM 3 - QUANTITATIVE AND QUALITIVE
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. The Company invests on a short-term basis.
Approximately 20% of the Company's debt is financed at variable interest rates.
There has been no material impact on operations from market risk exposures
during the six-month period ended September 30, 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 4 - Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Company was held on July 20, 1999.
(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 142,775,652
Richard L. Cruess 142,798,357
Suzanne H. Garcia 142,794,896
Henry H. Hoyt, Jr. 142,762,556
Scott C. Hoyt 142,751,818
Ralph Levine 142,820,758
Herbert M. Rinaldi 142,790,857
Paul A. Veteri 142,806,873
7,455,607 votes were withheld from voting on Directors.
(Continued)
CARTER-WALLACE, INC.
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(Continued)
(2) On the resolution relating to the appointment of KPMG LLP, independent
auditors, to audit the financial statements of the Company for the
fiscal year ending March 31, 2000, the number of votes cast in favor of
this proposal was 150,051,760 and the number of votes cast against
this proposal was 95,555.
(3) On the resolution to amend the Company's 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,
the number of votes cast in favor of this proposal was 133,838,179 and
the number of votes cast against this proposal was 12,366,764.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 23 - KPMG Letter Regarding Interim Review Report
(b) Exhibit 27 - Financial Data Schedule (EDGAR filing only).
(c) Reports on Form 8-K - No reports on Form 8-K have been filed during the
quarter ended September 30, 1999.
EXHIBIT 23
Carter-Wallace, Inc.
New York, New York
Ladies and Gentlemen:
Re: Registration Statement No. 333-00499
With respect to the subject registration statement, we acknowledge our awareness
of the use therein of our report dated October 27, 1999 related to our review
of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
Very truly yours,
KPMG LLP
New York, New York
October 27, 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: October 29, 1999 /s/ Ralph Levine
Ralph Levine
President & Chief
Operating Officer
Date: October 29, 1999 /s/ Paul A. Veteri
Executive Vice President
& Chief Financial Officer