-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HxH5wywo9YMwQHGjaC1nSncK7RnzyxpRburd4zYdXJj4wZlVhgWK4nAs1W3RWn8t tmeW5NqhrBZIqLIDazWs5Q== 0000018000-97-000002.txt : 19970124 0000018000-97-000002.hdr.sgml : 19970124 ACCESSION NUMBER: 0000018000-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970123 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARTER WALLACE INC /DE/ CENTRAL INDEX KEY: 0000018000 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 134986583 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05910 FILM NUMBER: 97509554 BUSINESS ADDRESS: STREET 1: 1345 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10105 BUSINESS PHONE: 2123395000 10-Q 1 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, 1996 ( ) 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, 1996 were 33,988,000 and 12,409,800, respectively. CARTER-WALLACE, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q DECEMBER 31, 1996 PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Statements of Earnings for the three months and nine months ended December 31, 1996 and 1995 1 Condensed Consolidated Balance Sheets at December 31, 1996 and March 31, 1996 2 Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 1996 and 1995 3 Notes to Condensed Consolidated Financial Statements 4 Report by KPMG Peat Marwick LLP on their Limited Review 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 11 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 (Unaudited)
Three Months Ended Nine Months Ended December 31, December 31, 1996 1995 1996 1995 Revenues: Net sales $163,020,000 $162,004,000 $492,441,000 $493,851,000 Other revenues 2,067,000 1,885,000 5,639,000 6,175,000 165,087,000 163,889,000 498,080,000 500,026,000 Cost and expenses: Cost of goods sold 58,254,000 58,861,000 183,025,000 180,965,000 Advertising, marketing & other selling expenses 60,821,000 59,320,000 184,957,000 183,903,000 Research & development expenses 6,993,000 6,764,000 19,885,000 20,121,000 General, administrative & other expenses 20,084,000 20,460,000 64,091,000 64,418,000 Provision for restructuring - - - 16,500,000 Provision for condom plant closing - - - 20,100,000 Interest expense 1,114,000 1,063,000 3,113,000 2,807,000 147,266,000 146,468,000 455,071,000 488,814,000 Earnings before taxes on income 17,821,000 17,421,000 43,009,000 11,212,000 Provision for taxes on income 7,307,000 7,143,000 17,634,000 4,597,000 Net earnings $ 10,514,000 $ 10,278,000 $ 25,375,000 $ 6,615,000 Net earnings per average share of common stock outstanding $ .23 $ .22 $ .55 $ .14 Cash dividends per share $ .04 $ .04 $ .12 $ .12 Average shares of common stock outstanding 46,396,000 46,138,000 46,392,000 46,136,000
CARTER-WALLACE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31, 1996 1996 Assets (Unaudited) Current Assets: Cash and cash equivalents $ 34,353,000 $ 51,185,000 Short-term investments 18,033,000 20,034,000 Accounts and other receivables less allowances of $6,930,000 at December 31, 1996 and $6,716,000 at March 31, 1996 127,231,000 131,931,000 Inventories: Finished goods 52,007,000 55,427,000 Work in process 11,723,000 13,327,000 Raw materials and supplies 26,055,000 23,450,000 89,785,000 92,204,000 Deferred taxes, prepaid expenses and other current assets 40,740,000 41,419,000 Total Current Assets 310,142,000 336,773,000 Property, plant and equipment, at cost 289,295,000 261,255,000 Less: accumulated depreciation and amortization 133,306,000 121,982,000 155,989,000 139,273,000 Intangible assets 126,060,000 131,422,000 Deferred taxes and other assets 111,062,000 111,457,000 Total Assets $703,253,000 $718,925,000 Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 30,415,000 $ 38,941,000 Accrued expenses 140,997,000 154,695,000 Notes payable 3,295,000 6,054,000 Total Current Liabilities 174,707,000 199,690,000 Long-Term Liabilities: Long-term debt 52,361,000 55,928,000 Deferred compensation 14,996,000 13,503,000 Accrued postretirement benefit obligation 69,404,000 68,588,000 Other long-term liabilities 39,324,000 48,320,000 Total Long-Term Liabilities 176,085,000 186,339,000 Stockholders' Equity: Common stock 34,642,000 34,613,000 Class B common stock 12,563,000 12,592,000 Capital in excess of par value 3,591,000 3,268,000 Retained earnings 330,381,000 310,573,000 Less: Foreign currency translation adjustment and other 18,926,000 18,059,000 Treasury stock, at cost 9,790,000 10,091,000 Total Stockholders' Equity 352,461,000 332,896,000 Total Liabilities and Stockholders' Equity $703,253,000 $718,925,000
CARTER-WALLACE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995 (Unaudited)
1996 1995 Cash flows from operations: Net earnings $ 25,375,000 $ 6,615,000 Provision for one-time charges - 36,600,000 Cash payments for prior years' one-time charges (22,634,000) (25,817,000) Changes in assets and liabilities 1,087,000 (762,000) Depreciation and amortization 17,308,000 18,777,000 21,136,000 35,413,000 Cash flows used in investing activities: Additions to property, plant and equipment (27,474,000) (25,700,000) Acquisition of product lines from BioWhittaker Inc. and Clark Laboratories (500,000) (11,555,000) Decrease (increase) in short-term investments 1,863,000 (4,898,000) Other investing activities 325,000 617,000 (25,786,000) (41,536,000) Cash flows used in financing activities: Dividends paid (5,567,000) (5,537,000) Increase in borrowings 92,000 43,204,000 Payments of debt (6,341,000) (2,973,000) Purchase of treasury stock (134,000) (4,216,000) (11,950,000) 30,478,000 Effect of exchange rate changes on cash and cash equivalents (232,000) (97,000) (Decrease) increase in cash and cash equivalents $(16,832,000) $ 24,258,000
CARTER-WALLACE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 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 In connection with its restructuring program, the Company incurred one-time pre-tax charges of $16,500,000 in the year ended March 31, 1996, all of which was incurred in the nine month period ended December 31, 1995, and $74,060,000 in the year ended March 31, 1995. The restructuring charges of $90,560,000 recorded over the two years consist primarily of estimated employee termination costs ($30,800,000), estimated plant closing costs including equipment write-offs ($26,000,000) and costs associated with the planned subleasing of office space on which the Company holds a long-term lease ($27,800,000). The restructuring program resulted in a worldwide reduction of approximately 990 employees, including 120 vacancies that were not filled. Through December 31, 1996, employee termination costs of $29,500,000 have been applied against the restructuring liability. Net plant closing costs of $26,000,000 as well as $7,200,000 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 $21,700,000 of the $90,560,000 provision for restructuring charges remains to be utilized in future periods. Substantially all of the $21,700,000 represents expected future cash outlays for subleasing costs and employee severance. Note 4: Closure of the Trenton Condom Manufacturing Facility In the quarter ended June 30, 1995, the Company incurred a one-time pre-tax charge of $20,100,000 ($11,860,000 after taxes or $.26 per share) related to the planned closure of the Company's condom manufacturing plant in Trenton, New Jersey. Condom production previously performed at Trenton has been transferred to the Company's facility in Colonial Heights, Virginia. This pre-tax charge was subsequently adjusted by $3,000,000 to $23,100,000 in the quarter ended March 31, 1996. (Continued) CARTER-WALLACE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (Continued) Note 5: 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 quarter 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 $25,000,000 to $30,000,000 on a pre-tax basis. Note 6: Litigation Information regarding Legal Proceedings involving the Company is presented in Note 20 "Litigation Including Environmental Matters" of the Notes to the Consolidated Financial Statements on pages 31 to 33 of the Company's 1996 Annual Report to Stockholders incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and is herein expressly incorporated by reference. In addition to the legal proceedings outlined in the Company's 1996 Annual Report to Stockholders, eleven additional individual product liability actions related to Felbatol have been filed against the Company. Damages are specified in one of the actions where the complaint seeks compensatory damages of $2,000,000. In the other actions the damages sought are unspecified. The U.S. Court of Appeals for the Ninth Circuit has reversed and vacated the Order of the U.S. District Court, Northern District of California, which had certified a product liability action against the Company as a nation-wide class action. With respect to the action filed by New Horizons Diagnostic Corporation ("NHDC") against Tambrands, Inc. ("Tambrands") and the Company, the parties have agreed to a settlement which required a payment by the Company related to "stick test" claims that was immaterial to its consolidated financial statements. The Company has filed an action against Tambrands which, among other things, seeks a declaratory judgment that the Company has no liability for any payments made to NHDC with respect to the "cup test" claims. The action filed by an alleged shareholder of the Company which purported to be brought derivatively on behalf and for the benefit of the Company against the directors of the Company has been dismissed by the Supreme Court of the State and County of New York. The plaintiff has filed a notice of appeal. 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. 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, 1996, and the related condensed consolidated statements of earnings for the three month and nine month periods ended December 31, 1996 and 1995 and the condensed consolidated statements of cash flows for the nine month periods ended December 31, 1996 and 1995. 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, 1996, 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 6, 1996, 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, 1996 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 January 23, 1997 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, 1996 compared to three months ended December 31, 1995 Consolidated earnings after taxes in the three months ended December 31, 1996 were $10,514,000 or $.23 per share compared with net earnings of $10,278,000 or $.22 per share in the three months ended December 31, 1995. Net sales increased $1,016,000 (0.6%) in the current year period as compared to net sales in the prior year period. The higher sales level resulted primarily from selling price increases, largely in the Health Care segment. Unit volume in the Health Care segment was also higher. Sales of the recently acquired BioWhittaker and Clark diagnostic product lines had a positive effect on Health Care sales. Sales of pharmaceutical products in the Health Care segment continue to be adversely impacted by generic competition. Sales of Organidin NR may be particularly affected by generic competition. Unit volume in the Consumer Products segment was lower. Higher foreign exchange rates had the effect of increasing sales in the current year period by approximately $700,000. Other revenues increased $182,000 (9.7%) from $1,885,000 in the prior year period to $2,067,000 in the current year period. Cost of goods sold as a percentage of net sales decreased from 36.3% in the prior year period to 35.7% in the current year period primarily due to selling price increases in the Health Care segment. Advertising, marketing and other selling expenses increased by $1,501,000 or 2.5% versus the prior year period due to increased expenses in both the Consumer Products and Health care segments. Spending in the Health Care segment includes expenses related to the introduction of Astelin nasal spray planned for the fourth quarter of fiscal 1997. Research and development expenses increased by $229,000 or 3.4% versus the prior year period due to higher spending in the Consumer Products segment. General, administrative and other expenses decreased $376,000 or 1.8% versus the prior year period, largely due to the timing of certain expenditures which occurred earlier in the year. Interest expense increased by $51,000 from $1,063,000 in the prior year period to $1,114,000 in the current year period. The estimated annual effective tax rate applied in the current year period was 41%, 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 Results of Operations - Nine months ended December 31, 1996 compared to nine months ended December 31, 1995 Consolidated earnings after taxes in the nine months ended December 31, 1996 were $25,375,000 or $.55 per share compared with net earnings of $6,615,000 or $.14 per share in the nine months ended December 31, 1995. Excluding the one-time charges for the condom plant closing and restructuring, net earnings for the nine months ended December 31, 1995 were approximately $28,200,000 or $.61 per share. Net sales decreased $1,410,000 (0.3%) in the current year period as compared to net sales in the prior year period. The lower sales level resulted primarily from reduced unit volume in both the Health Care and Consumer Products segments. Sales of pharmaceutical products in the Health Care segment continue to be adversely impacted by generic competition. Sales of Organidin NR may be particularly affected by generic competition. Sales of the recently acquired BioWhittaker and Clark diagnostic product lines had a positive effect on Health Care sales. Selling price increases, primarily in the Health Care segment, had a positive effect on sales in comparison with the prior year period. Higher foreign exchange rates had the effect of increasing sales in the current year period by approximately $400,000 versus the prior year period. Other revenues, primarily interest income, decreased $536,000 (8.7%) from $6,175,000 in the prior year period to $5,639,000 in the current year period. Cost of goods sold as a percentage of net sales increased from 36.6% 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 $1,054,000 or 0.6% versus the prior year period due to increased expenses in the Health Care segment, including spending related to the introduction of Astelin nasal spray planned for the fourth quarter of fiscal 1997. Spending in the Consumer Products segment decreased versus the prior year period. Research and development expenses decreased by $236,000 or 1.2% versus the prior year period due to lower spending in the Health Care segment. General, administrative and other expenses decreased $327,000 or 0.5% versus the prior year period. The decrease in the current year period is due to lower rent expense and reduced compensation including fringe benefits, offset in part by the establishment of a provision for a trade receivable related to the bankruptcy of a pharmaceutical wholesaler and a payment related to settlement of a patent infringement claim. (Continued) CARTER-WALLACE, INC. Management's Discussion and Dnalysis of Financial Condition and Results of Operations (Continued) Interest expense increased by $306,000 or 10.9% over the prior year period as a result of increased borrowings related largely to the expansion of the Colonial Heights, VA condom facility. The estimated annual effective tax rate applied in the current year period was 41%, the same rate as in the prior year period. Restructuring of Operations and Facilities In connection with its restructuring program, the Company incurred one-time pre-tax charges of $16,500,000 in the year ended March 31, 1996 and $74,060,000 in the year ended March 31, 1995. The restructuring charges of $90,560,000 recorded over the two years consist primarily of estimated employee termination costs ($30,800,000), estimated plant closing costs including equipment write-offs ($26,000,000) and costs associated with the planned subleasing of office space on which the Company holds a long-term lease ($27,800,000). The restructuring program resulted in a worldwide reduction of approximately 990 employees, including 120 vacancies that were not filled. Through December 31, 1996, employee termination costs of $29,500,000 have been applied against the restructuring liability. Net plant closing costs of $26,000,000, as well as $7,200,000 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 $21,700,000 of the $90,560,000 provision for restructuring charges remains to be utilized in future periods. Substantially all of the $21,700,000 represents expected future cash outlays for subleasing costs and employee severance. Closure of the Trenton Condom Manufacturing Facility In the quarter ended June 30, 1995, the Company incurred a one-time pre-tax charge of $20,100,000 ($11,860,000 after taxes or $.26 per share) related to the planned closure of the Company's condom manufacturing plant in Trenton, New Jersey. Condom production previously performed at Trenton has been transferred to the Company's facility in Colonial Heights, Virginia. This pre-tax charge was subsequently adjusted by $3,000,000 to $23,100,000 in the quarter ended March 31, 1996. Continued) CARTER-WALLACE, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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 quarter 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 $25,000,000 to $30,000,000 on a pre-tax basis. Astelin In November, 1996, the Food and Drug Administration approved the Company's New Drug Application to market Astelin nasal spray for seasonal allergic rhinitis. The Company will launch Astelin nasal spray in the fourth quarter of fiscal 1997 with introductory levels of marketing spending planned. The results of operations for the three months and nine months ended December 31, 1996 included spending related to the introduction of Astelin nasal spray. Liquidity and Capital Resources Funds provided from operations are used for capital expenditures, acquisitions, the purchase of treasury stock, the payment of dividends and working capital requirements. External borrowings are incurred as needed to satisfy cash requirements relating to seasonal business fluctuations, to finance major facility expansion programs and to finance major acquisitions. In the Statement of Cash Flows the positive change in assets and liabilities in the current year period compared to that in the prior year period is due primarily to reduced working capital requirements in the current year as well as an increase in deferred taxes in the prior year. Cash outlays in the nine months ended December 31, 1996 relating to prior years' one-time charges amount to $22,634,000 as compared to $25,817,000 in the prior year. PART II - OTHER INFORMATION Item 1 - Legal Proceedings Please refer to Note 6: Litigation of Notes to Condensed Consolidated Financial Statements for information regarding legal proceedings. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits - None (b) Reports on Form 8-K - No reports on Form 8-K have been filed during the quarter ended December 31, 1996 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 23, 1997 /s/Daniel J. Black Daniel J. Black President & Chief Operating Officer Date: January 23, 1997 /s/Paul A. Veteri Paul A. Veteri Vice President, Finance & Chief Financial Officer EX-27 2
5 9-MOS MAR-31-1997 DEC-31-1996 34,353,000 18,033,000 134,161,000 6,930,000 89,785,000 310,142,000 289,295,000 133,306,000 703,253,000 174,707,000 55,656,000 0 0 47,205,000 305,256,000 703,253,000 492,441,000 498,080,000 183,025,000 455,071,000 0 0 3,113,000 43,009,000 17,634,000 25,375,000 0 0 0 25,375,000 .55 0
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