-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Otn1h3VC8qz1ZJR3geTQIq3G75hCMm64llVQ7YPNxIaJCDTMa9MhSiPUw+YiJWY1 nqWHWxWVW1G3MNeQRey5GQ== 0000018000-94-000006.txt : 19940810 0000018000-94-000006.hdr.sgml : 19940810 ACCESSION NUMBER: 0000018000-94-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARTER WALLACE INC /DE/ CENTRAL INDEX KEY: 0000018000 STANDARD INDUSTRIAL CLASSIFICATION: 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: 94541922 BUSINESS ADDRESS: STREET 1: 1345 AVENUE 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 June 30, 1994 ( ) Transition Report Pursuant to Section 13 or 15 (d) of the Securities Act of 1934 For the transition period from to Commission File Number 1-5910 CARTER-WALLACE, INC. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (Exact name of registrant as specified in its charter) Delaware 13-4986583 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1345 Avenue of the Americas New York, New York 10105 (Address of principal executive offices) Registrant's telephone number, including area code: 212-339-5000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares of the registrant's Common Stock and Class B common stock outstanding at June 30, 1994 were 33,472,100 and 12,586,900, respectively. CARTER-WALLACE, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q JUNE 30, 1994 PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Statements of Earnings for the three months ended June 30, 1994 and 1993 1 Condensed Consolidated Balance Sheets at June 30, 1994 and March 31, 1994 2 Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 1994 and 1993 3 Notes to Condensed Consolidated Financial Statements 4 Report by KPMG Peat Marwick on their Limited Review 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 13 Signatures 14 PART I - FINANCIAL INFORMATION CARTER-WALLACE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
Three Months Ended June 30, 1994 1993 * Revenues: Net sales $183,304,000 $162,750,000 Other revenues 1,368,000 1,315,000 184,672,000 164,065,000 Cost and expenses: Cost of goods sold 62,283,000 56,354,000 Advertising, marketing & other selling expenses 69,210,000 65,781,000 Research & development expenses 13,198,000 12,641,000 General, administrative & other expenses 21,452,000 20,246,000 Provision for loss on discontinuance of the Organidin (iodinated glycerol) product line 17,500,000 - Interest expense 390,000 587,000 184,033,000 155,609,000 Earnings before taxes on income 639,000 8,456,000 Provision for taxes on income 198,000 2,621,000 Net earnings before cumulative effect of accounting changes 441,000 5,835,000 Cumulative effect of accounting changes, net of tax - (46,639,000) Net earnings (loss) $ 441,000 $(40,804,000) Net earnings (loss) per average share of common stock outstanding: Before cumulative effect of accounting changes $ .01 $ .13 Cumulative effect of accounting changes - (1.02) Net earnings (loss) $ .01 $(.89) Cash dividends per share $ .0833 $ .0833 Average shares of common stock outstanding 46,067,000 45,779,000
* Restated to reflect change in accounting for postemployment benefits. CARTER-WALLACE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, March 31, 1994 1994 Assets (Unaudited) Current Assets: Cash and cash equivalents $ 34,377,000 $ 23,311,000 Short-term investments 24,644,000 32,883,000 Accounts and other receivables less allowances of $5,883,000 at June 30, 1994 and $5,955,000 at March 31, 1994 115,496,000 117,070,000 Inventories: Finished goods 56,323,000 60,515,000 Work in process 21,664,000 22,121,000 Raw materials and supplies 44,505,000 39,553,000 122,492,000 122,189,000 Prepaid expenses, deferred taxes and other current assets 20,271,000 19,973,000 Total Current Assets 317,280,000 315,426,000 Property, plant and equipment, at cost 284,508,000 279,040,000 Less: accumulated depreciation and amortization 126,228,000 121,981,000 158,280,000 157,059,000 Intangible assets 108,420,000 110,213,000 Other assets 49,262,000 45,864,000 Total Assets $633,242,000 $628,562,000 Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 26,728,000 $ 27,844,000 Accrued expenses 102,776,000 96,714,000 Notes payable 5,783,000 5,709,000 Total Current Liabilities 135,287,000 130,267,000 Long-Term Liabilities: Long-term debt 9,342,000 9,309,000 Deferred compensation 8,754,000 7,661,000 Accrued postretirement benefit obligation 72,057,000 71,804,000 Other long-term liabilities 16,756,000 16,013,000 Total Long-Term Liabilities 106,909,000 104,787,000 Stockholders' Equity: Common stock 34,464,000 34,432,000 Class B common stock 12,741,000 12,773,000 Capital in excess of par value 1,975,000 1,972,000 Retained earnings 376,638,000 380,047,000 Less: Foreign currency translation adjustment 19,249,000 20,404,000 Treasury stock, at cost 15,523,000 15,312,000 Total Stockholders' Equity 391,046,000 393,508,000 Total Liabilities and Stockholders' Equity $633,242,000 $628,562,000
CARTER-WALLACE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED JUNE 30, 1994 AND 1993 (Unaudited)
1994 1993 * Net earnings (loss) $ 441,000 $(40,804,000) Provision for loss on discontinuance of the Organidin (iodinated glycerol) product line 17,500,000 - Cumulative effect of accounting changes - 46,639,000 Changes in assets and liabilities (12,808,000) 9,886,000 Other changes 7,056,000 6,862,000 Cash flows from operations 12,189,000 22,583,000 Cash flows used in investing activities: Additions to property, plant and equipment (5,135,000) (6,881,000) Decrease (increase) in short-term investments 8,252,000 (1,648,000) Other investing activities (250,000) (78,000) 2,867,000 (8,607,000) Cash flows used in financing activities: Dividends paid (3,850,000) (3,817,000) Increase in borrowings - 307,000 Payments of debt (147,000) (125,000) Purchase of treasury stock (189,000) (278,000) (4,186,000) (3,913,000) Effect of exchange rate changes on cash and cash equivalents 196,000 (67,000) Increase in cash and cash equivalents $ 11,066,000 $ 9,996,000
* Restated to reflect change in accounting for postemployment benefits. CARTER-WALLACE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1994 AND 1993 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, independent auditors, in accordance with standards and procedures established by the American Institute of Certified Public Accountants. All adjustments or additional disclosures proposed by KPMG Peat Marwick have been reflected in the data presented and a copy of their report on this limited review is included in this Form. Note 3: Accounting Changes The Company provides certain health care and life insurance benefits for retired employees. Effective April 1, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". SFAS No. 106 requires companies to accrue postretirement benefits during the years the employees render service until they attain full eligibility for those benefits. Previously, these costs were recognized as expense as the premiums were paid. The postretirement benefit plans are unfunded. The cumulative effect of adopting SFAS No. 106 as of April 1, 1993, resulted in a charge of $69,554,000 before taxes or $43,819,000 after taxes ($.96 per share). This non-cash charge represents the accumulated benefit obligation which the Company has elected to recognize immediately. The initial postretirement benefit obligation was subsequently reduced as a result of plan modifications made effective July 1, 1993. In accordance with SFAS No. 106, this reduction in the obligation is being amortized as a component of the net periodic postretirement expense in current and future years. During the quarter ended March 31, 1994, the Company adopted SFAS No. 112 "Employers' Accounting for Postemployment Benefits" effective April 1, 1993. SFAS No. 112 requires accrual accounting for benefits provided to former or inactive employees after employment but before retirement. Accordingly, results of operations in the three months ended June 30, 1993 have been restated to reflect the cumulative effect of adopting SFAS No. 112 of $4,700,000 before taxes or $2,820,000 after taxes ($.06 per share). Annual ongoing costs for these benefits related to the adoption of this statement are not material. CARTER-WALLACE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1994 AND 1993 (Continued) Note 4: Discontinuance of the Organidin (Iodinated Glycerol) Product Line In June, 1994, the Company and the Food and Drug Administration ("FDA") reached an agreement to discontinue the manufacture and shipment of the Organidin (iodinated glycerol) line of products. The agreement between the Company and the FDA permits the continued shipping, prescribing and dispensing of existing stocks of Organidin product currently in channels of distribution. As previously disclosed by the Company, in April, 1993 the Company received a letter from the FDA requesting that it discontinue marketing the Organidin (iodinated glycerol) products. Subsequent meetings between the Company and FDA resulted in this agreement. As a result of the agreement noted above, the Company incurred in the quarter ended June 30, 1994 a one-time charge to pre-tax earnings of $17,500,000 ($11,600,000 after taxes or $.25 per share) primarily related to a provision for any product returns and for inventory write-offs. Sales and pre-tax operating profits of the Organidin line included in the quarter ended June 30, 1994 were $20,300,000 and $11,200,000, respectively, compared to sales and pre-tax operating profits included in the quarter ended June 30, 1993 of $10,800,000 and $1,800,000. Sales and pre-tax operating profits of the Organidin line of products were $59,900,000 and $22,200,000 for the fiscal year ended March 31, 1992, $43,400,000 and $7,600,000 for the fiscal year ended March 31, 1993 and $74,400,000 and $31,600,000 for the fiscal year ended March 31, 1994. Operating profits were computed on a basis consistent with that used to report operating profits for the Health Care business segment in the Company's Annual Report. Note 5: Subsequent Event - Felbatol (felbamate) On August 1, 1994, the Company disclosed that it had sent a letter to approximately 240,000 physicians recommending, in conjunction with the Federal Food and Drug Administration, the immediate withdrawal of patients from treatment with Felbatol (felbamate), unless, in the physician's judgment, an abrupt withdrawal would be deemed to pose a more serious risk to the patient. Patients on Felbatol are advised to consult their physicians and not to discontinue the use of Felbatol on their own. (Continued) CARTER-WALLACE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1994 AND 1993 (Continued) Note 5: Subsequent Event - Felbatol (felbamate) (Continued) Carter-Wallace's recommendation was prompted by reports of ten cases (nine domestic and one foreign) of aplastic anemia in association with the use of Felbatol. No such cases were observed during the premarketing, clinical testing and development of Felbatol. Carter-Wallace introduced Felbatol in September of 1993 for the treatment of partial seizures with and without secondary generalization in adults and for Lennox-Gastaut Syndrome, a serious form of childhood epilepsy. Due to substantial introductory spending levels and continued research and development, the Company incurred losses with respect to Felbatol since introduction and for the quarter ended June 30, 1994. At the present time Felbatol continues to be available on the market. If, as a result of the matters discussed above, the Company at some future date is no longer able to continue to sell Felbatol, the Company will incur a one-time charge that would have a material adverse effect on the Company's results of operations and on its financial condition. If Felbatol were to remain on the market but at a substantially reduced level of sales, the Company would incur a material one-time charge the amount of which would be dependent on the sales level achieved. Should the Company no longer be able to sell the product, the Company currently estimates that the one-time charge consisting primarily of inventory write-offs, purchase commitments and anticipated returns of product currently in the market, will be in the range of $60,000,000 to $70,000,000 on a pre-tax basis. See the discussion in Management's Discussion and Analysis of the Company's income tax rate. As previously reported, the Company entered into a licensing agreement with Schering-Plough Corporation, granting Schering-Plough exclusive marketing rights in all markets except the United States and its territories and possessions, Canada and Mexico, to Felbatol. Separately, Schering-Plough and Carter-Wallace agreed that, under certain circumstances, they will put into effect a co-promotional arrangement with respect to a Schering-Plough pharmaceutical product to be determined in the future. Based on the matters discussed above, there could be a significant adverse effect on the amount of royalties and fees, if any, to be received from Schering-Plough in the future under these agreements. 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 June 30, 1994, and the related condensed consolidated statements of earnings for the three-month periods ended June 30, 1994 and 1993 and the condensed consolidated statements of cash flows for the three-month periods ended June 30, 1994 and 1993 in accordance with standards established by the American Institute of Certified Public Accountants. These condensed consolidated financial statements are the responsibility of the Company's management. A review of interim financial information consists principally of applying analytical review 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, 1994, 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 June 6, 1994, 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, 1994 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. As discussed in note 3 to the condensed consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statements No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" and No. 112 "Employers' Accounting for Postemployment Benefits" in 1994. As discussed in note 5 to the condensed consolidated financial statements, the Company disclosed that it had sent a letter to approximately 240,000 physicians recommending, in conjunction with the Federal Food and Drug Administration, the immediate withdrawal of patients from treatment with Felbatol (felbamate), unless, in the physician's judgment, an abrupt withdrawal would be deemed to pose a more serious risk to the patient. If, as a result of the matter discussed above, the Company at some future date is no longer able to continue to sell Felbatol, the Company will incur a one-time charge that would have a material adverse effect on the Company's results of operations and on its financial condition. The Company currently estimates that this one-time charge will be in a range of $60,000,000 to $70,000,000 on a pre-tax basis. The ultimate outcome of this matter cannot presently be determined. August 5, 1994 New York, New York KPMG Peat Marwick CARTER-WALLACE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - Three months ended June 30, 1994 compared to three months ended June 30, 1993 Net sales increased $20,554,000 (12.6%) in the three months ended June 30, 1994 ("fiscal 1995 period") as compared to net sales in the three months ended June 30, 1993 ("fiscal 1994 period"). The higher sales level was attributable to increased sales in both the Health Care and Consumer Products segments. The sales increase in the Health Care segment was due to unit volume gains and to a lesser extent selling price increases. The unit volume increase in Health Care sales was primarily attributable to sales of Felbatol (felbamate) an antiepileptic drug for the treatment of certain seizure disorders, which the Company introduced in September, 1993, and higher sales of the Organidin (iodinated glycerol) line of expectorant/ mucolytic products. As noted below, an agreement was reached with the FDA to discontinue marketing the Organidin (iodinated glycerol) line of products in June, 1994 and the Company has sent a letter to physicians recommending the immediate withdrawal of patients from Felbatol unless in the physician's judgment, an abrupt withdrawal would be deemed to pose a more serious risk to the patient. The unit volume gain in the Organidin (iodinated glycerol) line of expectorant/mucolytic products was due primarily to a decline in sales of competitive products. The timing and amount of future price increases in the Health Care segment may be negatively influenced by competitive pressures and the possibility of government regulation. Sales of other pharmaceutical products in the Health Care segment continue to be adversely impacted by generic erosion. The higher sales level in the Consumer Products segment was due to both selling price increases and unit volume gains. Lower foreign exchange rates in comparison with the prior year had the effect of decreasing sales in the fiscal 1995 period by $2,400,000. The effect of changes in foreign exchange rates on results of operations in the fiscal 1995 period compared to the prior year period was not significant. Other revenues increased $53,000 or 4.0% in the fiscal 1995 period as compared to the fiscal 1994 period. Cost of goods sold as a percentage of net sales decreased from 34.6% in the fiscal 1994 period to 34.0% in the 1995 period primarily due to changes in product mix. Advertising, marketing and other selling expenses increased by $3,429,000 or 5.2% due to a higher level of spending in the Health Care segment. Felbatol, which was introduced in September, 1993, was supported by substantial spending levels in the fiscal 1995 period. (Continued) CARTER-WALLACE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Research and development expenses increased by $557,000 or 4.4% as part of the Company's continuing effort to develop new products and improve existing ones. Research spending, most of which was in the Health Care segment, was primarily related to Felbatol for the treatment of seizures associated with epilepsy and Astelin for the relief of asthma and allergic rhinitis. General, administrative and other expenses increased $1,206,000 or 6.0% in the fiscal 1995 period as compared to the fiscal 1994 period. This increase was related to increased employee benefits and other administrative costs. Interest expense decreased $197,000 (33.6%) in the fiscal 1995 period as compared to the fiscal 1994 period due to reduced levels of borrowings in the fiscal 1995 period. The consolidated income tax rate in the fiscal 1995 period was 31%, the same as the annual tax rate on operations in the fiscal 1994 period. If significant one-time charges to operations are required as a result of the Felbatol issues and/or the ongoing review of operations and facilities noted below, the annual effective tax rate in subsequent quarters and for the fiscal year ended March 31, 1995 could vary significantly from the first quarter rate. Consolidated net earnings in the fiscal 1995 period before the provision for the loss on the discontinuance of Organidin (iodinated glycerol) were $12,041,000 or $.26 per share as compared to net earnings before the cumulative effect of the accounting changes of $5,835,000 or $.13 per share in the fiscal 1994 period. The net earnings in the 1995 period were substantially favorably impacted by the increase in sales of the Organidin line of expectorant/mucolytic products. Discontinuance of Organidin (Iodinated Glycerol) Product Line In June, 1994, the Company and the Food and Drug Administration ("FDA") reached an agreement to discontinue the manufacture and shipment of the Organidin (iodinated glycerol) line of products. The agreement between the Company and the FDA permits the continued shipping, prescribing and dispensing of existing stocks of Organidin product currently in channels of distribution. As previously disclosed by the Company, in April, 1993, the Company received a letter from the FDA requesting that it discontinue marketing Organidin (iodinated glycerol) products. Subsequent meetings between the Company and FDA resulted in this agreement. (Continued) CARTER-WALLACE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) As a result of the agreement noted above, the Company incurred in the quarter ended June 30, 1994 a one-time charge to pre-tax earnings of $17,500,000 ($11,600,000 after taxes or $.25 per share) primarily related to a provision for any product returns and for inventory write-offs. Sales and pre-tax operating profits of the Organidin line included in the quarter ended June 30, 1994 were $20,300,000 and $11,200,000, respectively, compared to sales and pre-tax operating profits included in the quarter ended June 30, 1993 of $10,800,000 and $1,800,000. Sales and pre-tax operating profits of the Organidin line of products were $59,900,000 and $22,200,000 for the fiscal year ended March 31, 1992, $43,400,000 and $7,600,000 for the fiscal year ended March 31, 1993 and $74,400,000 and $31,600,000 for the fiscal year ended March 31, 1994. Operating profits were computed on a basis consistent with that used to report operating profits for the Health Care business segment in the Company's Annual Report. Subsequent Event - Felbatol (felbamate) On August 1, 1994, the Company disclosed that it had sent a letter to approximately 240,000 physicians recommending, in conjunction with the Federal Food and Drug Administration, the immediate withdrawal of patients from treatment with Felbatol (felbamate), unless, in the physician's judgment, an abrupt withdrawal would be deemed to pose a more serious risk to the patient. Patients on Felbatol are advised to consult their physicians and not to discontinue the use of Felbatol on their own. Carter-Wallace's recommendation was prompted by reports of ten cases (nine domestic and one foreign) of aplastic anemia in association with the use of Felbatol. No such cases were observed during the premarketing, clinical testing and development of Felbatol. Carter-Wallace introduced Felbatol in September of 1993 for the treatment of partial seizures with and without secondary generalization in adults and for Lennox-Gastaut Syndrome, a serious form of childhood epilepsy. Due to substantial introductory spending levels and continued research and development, the Company incurred losses with respect to Felbatol since introduction and for the quarter ended June 30, 1994. (Continued) CARTER-WALLACE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Subsequent Event - Felbatol (felbamate) (Continued) At the present time Felbatol continues to be available on the market. If, as a result of the matters discussed above, the Company at some future date is no longer able to continue to sell Felbatol, the Company will incur a one-time charge that would have a material adverse effect on the Company's results of operations and on its financial condition. If Felbatol were to remain on the market but at a substantially reduced level of sales, the Company would incur a material one-time charge the amount of which would be dependent on the sales level achieved. Should the Company no longer be able to sell the product, the Company currently estimates that the one-time charge consisting primarily of inventory write-offs, purchase commitments and anticipated returns of product currently in the market, will be in the range of $60,000,000 to $70,000,000 on a pre-tax basis. See the discussion above of the Company's income tax rate. As previously reported, the Company entered into a licensing agreement with Schering-Plough Corporation, granting Schering-Plough exclusive marketing rights in all markets except the United States and its territories and possessions, Canada and Mexico, to Felbatol. Separately, Schering-Plough and Carter-Wallace agreed that, under certain circumstances, they will put into effect a co-promotional arrangement with respect to a Schering-Plough pharmaceutical product to be determined in the future. Based on the matters discussed above, there could be a significant adverse effect on the amount of royalties and fees, if any, to be received from Schering-Plough in the future under these agreements. Review of Operations and Facilities As a result of the discontinuance of the Company's Organidin (iodinated glycerol) line of products and the suspension and possible withdrawal of Felbatol, the Company is currently engaged in a detailed review of its operations and facilities which is intended to reduce costs and increase efficiencies, the results of which, however, may cause actions to be taken which would result in an additional material one-time charge to results of operations. Accounting Changes During the fiscal 1994 period the Company adopted Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" and elected to immediately recognize the transition obligation of $69,554,000 before taxes or $43,819,000 after taxes ($.96 per share). Effective July 1, 1993, the Company amended its postretirement benefit plan which reduced the annual ongoing costs of these benefits. (Continued) CARTER-WALLACE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Accounting Changes (Continued) During the quarter ended March 31, 1994, the Company adopted Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits" effective April 1, 1993. Accordingly, results of operations in the quarter ended June 30, 1993 period have been restated to reflect a one-time pre-tax charge to earnings of $4,700,000 or $2,820,000 after taxes ($.06 per share). 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. The Company is a party to a $75,000,000 revolving credit facility with a group of banks. The events described above with respect to Organidin under the terms of that facility constitute a material adverse change in the business of the Company, as a result of which the Company currently does not have the right to make loans under such facility without the banks' consent. If the circumstances discussed above relating to Felbatol result in a material adverse change in the Company's business, the Company would not have the right to make loans under such facility without the banks' consent. Although the Company is discussing these matters with the participating banks and believes that the banks will consent to future draw downs under such facility, there can be no assurance that the banks will provide such a consent. However, even if the banks should fail to provide such a consent, the Company believes its existing capital resources are adequate to meet the current requirements of its business. PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits - None (b) Reports on Form 8-K - During the quarter ended June 30, 1994, the Company filed a report on Form 8-K dated June 30, 1994 reporting an agreement reached between the Company and the FDA regarding the Organidin (iodinated glycerol) product line. 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: August 5, 1994 s/Daniel J. Black Daniel J. Black President & Chief Operating Officer Date: August 5, 1994 s/Paul A. Veteri Paul A. Veteri Vice President, Finance & Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----