-----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, J7zig44UufOWUluUhvBHJymSy09V6ZZ80ckqWtIrUuX27L1GocBiMELDz5VUfqFJ EkgV+XQFb1nWRc8CIQx/rw== 0000018000-00-000001.txt : 20000203 0000018000-00-000001.hdr.sgml : 20000203 ACCESSION NUMBER: 0000018000-00-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000201 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: SEC FILE NUMBER: 001-05910 FILM NUMBER: 518640 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, 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 December 31, 1999 were 32,711,000 and 12,286,600,respectively. CARTER-WALLACE, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q December 31, 1999 PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Statements of Earnings and Comprehensive Earnings for the three and nine months ended December 31, 1999 and 1998 1 Condensed Consolidated Balance Sheets at December 31, 1999 and March 31, 1999 2 Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 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 10 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 10 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 AND COMPREHENSIVE EARNINGS (Unaudited)
Three Months Ended Nine Months Ended December 31, December 31, Statement of Earnings 1999 1998 1999 1998 Net sales $192,066,000 $162,241,000 $577,167,000 $501,072,000 Other income 2,813,000 5,254,000 10,072,000 13,178,000 194,879,000 167,495,000 587,239,000 514,250,000 Cost and expenses: Cost of goods sold 65,753,000 62,724,000 209,761,000 192,906,000 Advertising, marketing & other selling expenses 72,852,000 62,580,000 219,693,000 191,770,000 Research & development expenses 7,903,000 6,416,000 20,533,000 19,393,000 General, administrative & other expenses 24,261,000 21,827,000 73,752,000 68,414,000 Interest expense 1,231,000 1,098,000 3,636,000 3,656,000 172,000,000 154,645,000 527,375,000 476,139,000 Earnings before taxes on income 22,879,000 12,850,000 59,864,000 38,111,000 Provision for taxes on income 8,923,000 5,011,000 23,347,000 14,863,000 Net earnings $ 13,956,000 $ 7,839,000 $ 36,517,000 $ 23,248,000 Earnings per share - Basic $.31 $ .17 $.81 $.51 Earnings per share - Diluted $.30 $ .17 $.79 $.51 Cash dividends per share $.06 $ .06 $.18 $.16 Average shares of common stock outstanding 44,994,000 45,093,000 44,987,000 45,240,000 Statement of Comprehensive Earnings Net Earnings $ 13,956,000 $ 7,839,000 $ 36,517,000 $ 23,248,000 Other comprehensive earnings (loss): Foreign currency translation adjustment (1,042,000) 1,514,000 (1,253,000) (496,000) Total Comprehensive Earnings $ 12,914,000 $ 9,353,000 $ 35,264,000 $ 22,752,000
CARTER-WALLACE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31, 1999 1999 Assets (Unaudited) Current Assets: Cash and cash equivalents $ 49,774,000 $ 49,382,000 Short-term investments 40,031,000 31,870,000 Accounts and other receivables less allowances of $8,026,000 at December 31, 1999 and $7,415,000 at March 31, 1999 141,975,000 129,360,000 Inventories: Finished goods 55,674,000 54,019,000 Work in process 12,517,000 10,875,000 Raw materials and supplies 29,472,000 25,714,000 97,663,000 90,608,000 Deferred taxes, prepaid expenses and other current assets 29,507,000 28,370,000 Total Current Assets 358,950,000 329,590,000 Property, plant and equipment, at cost 325,398,000 316,759,000 Less: accumulated depreciation and amortization 175,153,000 166,163,000 150,245,000 150,596,000 Intangible assets 129,538,000 136,389,000 Deferred taxes and other assets 115,770,000 105,377,000 Total Assets $754,503,000 $721,952,000 Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 40,015,000 $ 44,084,000 Accrued expenses 118,689,000 117,823,000 Notes payable 6,869,000 8,134,000 Total Current Liabilities 165,573,000 170,041,000 Long-Term Liabilities: Long-term debt 61,896,000 64,861,000 Deferred compensation 25,035,000 19,931,000 Accrued postretirement benefit obligation 69,434,000 69,241,000 Other long-term liabilities 45,976,000 38,722,000 Total Long-Term Liabilities 202,341,000 192,755,000 Stockholders' Equity: Common stock 34,765,000 34,740,000 Class B common stock 12,440,000 12,465,000 Capital in excess of par value 4,572,000 4,483,000 Retained earnings 396,512,000 368,093,000 Less: Foreign currency translation adjustment 29,038,000 27,785,000 Treasury stock, at cost 32,662,000 32,840,000 Total Stockholders' Equity 386,589,000 359,156,000 Total Liabilities and Stockholders' Equity $754,503,000 $721,952,000
CARTER-WALLACE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998 (Unaudited)
1999 1998 Cash flows from operations: Net earnings $ 36,517,000 $23,248,000 Depreciation and amortization 23,327,000 20,840,000 Changes in assets and liabilities (27,246,000) 5,196,000 Cash payments for one-time charges incurred in prior years (842,000) 20,840,000 31,756,000 46,863,000 Cash flows used in investing activities: Additions to property, plant and equipment (13,895,000) (11,138,000) Cash paid for acquisitions - (3,633,000) Increase in short-term investments (8,070,000) (5,318,000) Proceeds from sale of property, plant and equipment 636,000 159,000 (21,329,000) (19,930,000) Cash flows used in financing activities: Dividends paid (8,098,000) (7,232,000) Increase in borrowings 3,964,000 2,463,000 Payments of debt (5,884,000) (8,751,000) Purchase of treasury stock - (4,381,000) (10,018,000) (17,901,000) Effect of exchange rate changes on cash and cash equivalents (17,000) (878,000) Increase in cash and cash equivalents $ 392,000 $ 8,154,000
CARTER-WALLACE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 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 market, 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. In November 1999, the United States District Court, Southern District of New York, granted the Company's motion for judgment on the pleadings with respect to the remaining claims of the Consolidated Securities Class Action Complaint and dismissed the case. Plaintiffs have appealed such order to the United States Court of Appeals for the Second Circuit. With respect to the three pending product liability actions against the Company alleging various adverse reactions and other injuries suffered as a result of using Felbatol, two of the actions have been resolved with no material adverse effect on the Company's financial statements. The Company continues to believe, based upon opinion of counsel, that it has good defenses to all of the pending actions referenced above and should prevail. (Continued) CARTER-WALLACE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 (Continued) Note 5: Business Segments (In Thousands) Business segment information for the three and nine months ended December 31, 1999 and 1998 is as follows: Three Months Ended Nine Months Ended December 31 December 31 1999 1998 1999 1998 Net Sales Domestic Consumer Products $ 68,307 $ 65,495 $234,550 $217,902 Domestic Health Care 66,931 46,310 159,990 128,688 International 56,828 50,436 182,627 154,482 Total Net Sales $192,066 $162,241 $577,167 $501,072 Operating Profit Domestic Consumer Products $ 9,913 $ 9,446 $ 49,622 $ 38,062 Domestic Health Care 22,789 11,756 40,886 30,264 International 3,774 3,759 13,650 12,342 Domestic net interest expense (512) (508) (1,557) (1,617) Other (expense) net of other income (4,012) (2,208) (14,483) (12,003) General Corporate expenses (9,073) (9,395) (28,254) (28,937) Earnings before taxes on income $ 22,879 $ 12,850 $ 59,864 $ 38,111
Note 6: Earnings per Share Basic earnings per share for each period presented has been calculated using the weighted average shares outstanding. In computing diluted earnings per share incremental shares issuable upon the assumed exercise of stock options and the vesting of stock awards have been added to the weighted average shares outstanding. For the three months and nine months ended December 31, 1999 incremental shares for purposes of calculating diluted earnings per share amounted to 1,089,200 and 1,006,500 shares, respectively. This compares to 827,900 and 656,300 incremental shares in the three months and nine months ended December 31, 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. 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 December 31, 1999, and the related condensed consolidated statements of earnings and comprehensive earnings for the three month and nine month periods ended December 31, 1999 and 1998 and the condensed consolidated statements of cash flows for the nine month periods ended December 31, 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 January 28, 2000 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, 1999 compared to three months ended December 31, 1998 Consolidated earnings after taxes in the three months ended December 31, 1999 were $13,956,000 compared with net earnings of $7,839,000 in the three months ended December 31, 1998. Basic earnings per share were $.31 per share in the three months ended December 31, 1999, compared to $.17 per share in the three months ended December 31, 1998. Net sales increased $29,825,000 (18.4%) 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 Domestic Health Care segment. Sales of pharmaceutical products in the Domestic Health Care segment continue to be adversely affected by generic competition. 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. The Company believes that a certain portion of the increase in sales and profits in the quarter ended December 31, 1999 resulted from the timing of purchases by Domestic Health Care customers due to changes in wholesaler distribution patterns and possibly to such customers increasing their inventory prior to Y2K. As a result, the Company's sales of Domestic Health Care products and related profits may be adversely affected in the quarter ending March 31, 2000. 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 $3,500,000. The effect of changes in foreign exchange on earnings was not material. Other income decreased by $2,441,000 from $5,254,000 in the prior year period to $2,813,000 in the current year period. Included in other income are credits of $1,011,000 in the current year and $2,976,000 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 38.7% in the prior year period to 34.2% in the current year period primarily due to changes in product mix. Advertising, marketing and other selling expenses increased by $10,272,000 or 16.4% versus the prior year period due mostly to higher spending in all segments, with the largest increases in the Domestic Health Care and International segments. The International segment increase was due in part to promotional support for the recently acquired Barbara Gould product line. Research and development expenses increased by $1,487,000 or 23.2% versus the prior year period due mostly to increased spending in the Domestic Health Care segment. General, administrative and other expenses increased $2,434,000 or 11.2% versus the prior year period due largely to increased compensation related expenses and costs associated with the sharing of profits on a reformulated product. The estimated annual effective tax rate applied in the three months ended December 31, 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 - Nine months ended December 31, 1999 compared to nine months ended December 31, 1998 Consolidated earnings after taxes in the nine months ended December 31, 1999 were $36,517,000 compared with net earnings of $23,248,000 in the nine months ended December 31, 1998. Basic earnings per share were $.81 per share in the nine months ended December 31, 1999, compared to $.51 per share in the nine months ended December 31, 1998. Net Sales increased $76,095,000 (15.2%) in the current nine month period as compared to net sales in the prior year period, with all Company business segments recording sales gains. Sales of Domestic Health Care products were higher by $31,302,000 or 24.3% reflecting unit sales gains and selling price increases. Sales of pharmaceutical products in the Domestic Health Care segment continue to be adversely affected by generic competition. Domestic Consumer Products segment sales were higher by $16,648,000 or 7.6% this year due almost entirely to increased unit sales. The increase in International sales of $28,145,000 or 18.2% was due in part 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. The Company believes that a certain portion of the increase in sales and profits in the quarter ended December 31, 1999 resulted from the timing of purchases by Domestic Health care customers due to changes in wholesaler distribution patterns and possibly to such customers increasing their inventory prior to Y2K. As a result, the Company's sales of Domestic Health Care products and related profits may be adversely affected in the quarter ending March 31, 2000. Sales and earnings from foreign operations are subject to fluctuations in exchange rates. Lower foreign exchange rates had the effect of decreasing sales in the current year period by approximately $6,800,000. The effect of changes in foreign exchange on earnings was not material. Other income decreased by $3,106,000 from $13,178,000 in the prior year period to $10,072,000 in the current year period. Included in other income are credits of $4,370,000 in the current year and $6,482,000 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 38.5% in the prior year period to 36.3% in the current year period primarily due to changes in product mix. Advertising, marketing and other selling expenses increased by $27,923,000 or 14.6% 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 the introduction of a reformulated version of an existing product and product introductions. Research and development expenses increased by $1,140,000 or 5.9% versus the prior year period due mostly to increased spending in the Domestic Health Care segment. (Continued) CARTER-WALLACE, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) General, administrative and other expenses increased $5,338,000 or 7.8% versus the prior year period due largely to increased compensation related expenses. The estimated annual effective tax rate applied in the nine months ended December 31, 1999 was 39%, the same rate as in the prior year period. Felbatol As previously reported, in the fiscal years ended March 31, 1995 and 1996 the Company incurred one-time charges to pre-tax earnings totaling $45,980,000 related to use restrictions for Felbatol. Depending on future sales levels, additional inventory write-offs may be required. If for any reason the product at some future date should no longer be available in the market, the Company will incur an additional one-time charge, consisting primarily of inventory write-offs and anticipated returns of product currently in the market, in the range of $20,000,000 on a pre-tax basis. Year 2000 Compliance The Company successfully implemented a plan addressing Year 2000 technology compliance for its information technology ("IT") and non-IT systems. The cost of the entire project was approximately $1,500,000 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. 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 increased sales volume as well as the timing of collections in comparison to the prior year. CARTER-WALLACE, INC. ITEM 3 - QUANTITATIVE AND QUALITATIVE 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. Changes in interest rates could affect interest income and expense in future periods. The Company invests on a short-term basis. There has been no material impact on operations from market risk exposures during the nine-month period ended December 31, 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 6 - Exhibits and Reports on Form 8-K (a) Exhibit 23 - KPMG Letter Regarding Interim Review Report Exhibit 27 - Financial Data Schedule (EDGAR filing only). (b) Reports on Form 8-K - No reports on Form 8-K have been filed during the quarter ended December 31, 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: January 31, 2000 /s/Ralph Levine Ralph Levine President & Chief Operating Officer Date: January 31, 2000 /s/Paul A. Veteri Paul A. Veteri Executive Vice President & Chief Financial Officer EX-27 2
5 9-MOS MAR-31-2000 DEC-31-1999 49,774,000 40,031,000 141,975,000 8,026,000 97,663,000 358,950,000 325,398,000 175,153,000 754,503,000 165,573,000 61,896,000 0 0 47,205,000 339,384,000 754,503,000 577,167,000 587,239,000 209,761,000 527,375,000 0 0 3,636,000 59,864,000 23,347,000 36,517,000 0 0 0 36,517,000 .81 .79
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