<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended MARCH 31, 1997
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 I.R.S. Employer Identification No.)
incorporation or organization)
1345 AVENUE OF THE AMERICAS, NEW YORK, NY 10105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-339-5000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock
Par value $1.00 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock, par value $1.00 per share
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K of any amendment to this
Form 10-K. (X)
The number of shares of the registrant's Common Stock and Class B Common Stock
outstanding at June 2, 1997 was 33,951,256 and 12,389,361, respectively.
The aggregate market value of voting stock held by non-affiliates of the
registrant as of June 2, 1997 was approximately $370,068,000.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Stockholders for the fiscal
year ended March 31, 1997 Parts I & II
Proxy Statement for the Annual Meeting of
Stockholders to be held July 15, 1997 Parts III & IV
<PAGE>
PART I
ITEM 1. BUSINESS
Carter-Wallace, Inc. (the "Company") is engaged in the manufacture and sale of a
diversified line of products in the Consumer Products and Health Care segments.
Additional information is presented on page 11 "Description of Business
Segments" of the 1997 Annual Report to Stockholders and is herein expressly
incorporated by reference.
BUSINESS SEGMENTS AND GEOGRAPHIC DATA
Financial information about the Company's business segments and geographic areas
for the three years ended March 31, 1997 is presented on page 8 under the
caption "Net Sales and Earnings" and also on pages 25 and 26, note 14, "Business
Segments" of the Notes to Consolidated Financial Statements, both included in
the 1997 Annual Report to Stockholders and herein expressly incorporated by
reference.
FOREIGN OPERATIONS
Foreign operations are generally subject to certain political and economic risks
that are not present in domestic operations. Such risks may include
expropriation of assets, restrictions on earnings remittances and fluctuating
exchange rates. Changes in foreign exchange rates had the effect of decreasing
sales by $1,900,000 in the fiscal year ended March 31, 1997 in comparison to the
prior year. Additional information is presented on page 18, note 4, "Foreign
Operations" of the Notes to Consolidated Financial Statements of the 1997 Annual
Report to Stockholders and is herein expressly incorporated by reference.
COMPETITION
Both business segments in which the Company operates are extremely competitive
and include larger corporations with greater resources for research, product
development and promotion. The Company competes on the basis of price,
advertising, promotion, quality of product and other methods relevant to the
business. In fiscal 1997, the Company's "Arrid" line of anti-perspirants and
deodorants is believed to have accounted for an estimated 7.2% share of the
domestic anti-perspirant and deodorant market. The "Trojan", "Class Act" and
"Naturalamb" condom brands are estimated to have accounted for well over 60% of
total domestic retail condom sales. The Company's worldwide condom sales were
approximately $95,400,000, $98,700,000 and $91,900,000 in the fiscal years ended
March 31, 1997, 1996 and 1995, respectively. Additional information is presented
on page 8 under the caption "Net Sales and Earnings" in the 1997 Annual Report
to Stockholders and is herein expressly incorporated by reference.
1
<PAGE>
RAW MATERIALS
The Company's major raw materials are chemicals, plastics, latex, steel cans and
packaging materials. These materials are generally available from several
sources and the Company has had no significant supply problems to date. The
Company generally has two or more approved suppliers for production materials
and issues purchase commitments to provide its suppliers with adequate lead
time.
PATENTS AND LICENSES
The Company owns or is licensed under a number of patents and patent
applications covering several of its products. The expiration or any other
change in any of these patents or patent applications will not materially affect
the Company's business. Royalty income does not constitute a material portion of
total revenue.
RESTRUCTURING OF OPERATIONS AND FACILITIES
Information regarding the Company's restructuring of operations and facilities
is presented on page 9 under the caption "Restructuring of Operations and
Facilities" and on page 24 in note 13, "Restructuring of Operations and
Facilities" of the Notes to Consolidated Financial Statements, both included in
the 1997 Annual Report to Stockholders and herein expressly incorporated by
reference.
FELBATOL (FELBAMATE)
Information regarding the effect of "Felbatol" matters on the Company's business
is presented on page 9 under the caption "Felbatol (Felbamate)" and on page 28
in note 17, "Felbatol (Felbamate)" of the Notes to Consolidated Financial
Statements, both included in the 1997 Annual Report to Stockholders and herein
expressly incorporated by reference.
ENVIRONMENTAL MATTERS
Information regarding environmental matters is presented on pages 28 and 29 in
note 19, "Litigation Including Environmental Matters" of the Notes to
Consolidated Financial Statements, included in the 1997 Annual Report to
Stockholders and herein
expressly incorporated by reference.
2
<PAGE>
RESEARCH AND DEVELOPMENT
Expenditures for research and development totaled $27,284,000 in 1997,
$26,494,000 in 1996 and $41,315,000 in 1995. Research and development expenses
in 1997 increased $790,000 or 3.0% as a result of higher spending in the
Consumer Products segment. Research and development expense in the Health Care
segment was lower than the prior year. In 1996 research and development expenses
decreased by $14,821,000 or 36% from the prior year primarily due to lower
spending for "Felbatol" (felbamate) as well as the completion of the "Astelin"
(azelastine) clinical trials.
Since October 1994, research and development of "Astelin" Nasal Spray for
rhinitis and "Taurolin" (taurolidine), an antitoxin for the treatment of sepsis
has continued through independent research facilities managed by internal
supervisory personnel.
Research is also continuing on "Felbatol" (felbamate).
The "Astelin" Nasal Spray New Drug Application ("NDA") was approved on November
4, 1996 and launched on March 10, 1997. The "Astelin" (azelastine) tablet NDA
for rhinitis is pending at the FDA. The Company has not yet decided whether to
seek final approval for this NDA. The "Astelin" (azelastine) tablet NDA for
asthma will be withdrawn as soon as it is no longer needed to support the other
two NDAs.
A large scale, multi-centered clinical efficacy trial for "Taurolin"
(taurolidine) is ongoing.
Approximately 160 employees are employed in research and development activities.
EMPLOYEES
The Company, together with its subsidiaries, employed approximately 3,460 people
worldwide at March 31, 1997.
DISCONTINUATION OF THE ORGANIDIN (IODINATED GLYCEROL) PRODUCT LINE
Information regarding the effect of discontinuing the "Organidin" (iodinated
glycerol) product line is presented on pages 9 and 10 under the caption
"Discontinuance of the Organidin (Iodinated Glycerol) Product Line" and on page
28 in note 18, "Discontinuance of the Organidin (Iodinated Glycerol) Product
Line" of the Notes to Consolidated Financial Statements, both included in the
1997 Annual Report to Stockholders and herein expressly incorporated by
reference.
ACQUISITIONS
Information regarding acquisitions is presented on page 24 in note 10,
"Acquisitions" of the Notes to Consolidated Financial Statements, included in
the 1997 Annual Report to Stockholders and is herein expressly incorporated by
reference.
3
<PAGE>
ITEM 2. PROPERTIES
The executive offices of the Company are located at 1345 Avenue of the Americas,
New York, New York, in space leased until May, 2011. A portion of this space has
been subleased. The following are the other principal facilities of the Company:
AREA
LOCATION PRODUCTS MANUFACTURED (SQ. FEET)
OWNED IN FEE:
MANUFACTURING FACILITIES
AND OFFICES:
Cranbury, New Jersey Pharmaceuticals, toiletries
and pet products 734,000
Colonial Heights,
Virginia Condoms 200,000
Decatur, Illinois Pharmaceuticals 108,000
Winsted, Connecticut Pet products 45,000
Montreal, Canada Pharmaceuticals 162,000
Folkestone, England Toiletries 76,000
Milan, Italy Pharmaceuticals and diagnostics 52,000
Pisa, Italy Toiletries, adhesive tapes
and bandages 49,000
Mexico City, Mexico Pharmaceuticals and diagnostics 63,000
New Plymouth, New Zealand Condom processing 31,000
WAREHOUSE AND OFFICES:
Toronto, Canada 52,000
LEASED:
MANUFACTURING FACILITIES AND OFFICES:
Santa Ana, California Toiletries 10,400
Mexico City, Mexico Toiletries 56,000
Barcelona, Spain Toiletries 58,600
Milan, Italy Diagnostics 21,000
WAREHOUSE AND OFFICES:
Dayton, New Jersey 200,000
Momence, Illinois 43,000
Plainsboro, New Jersey * 23,300
Sydney, Australia 19,000
Folkestone, England 40,000
Clichy, France * 11,800
Revel, France 36,000
* OFFICES ONLY
4
<PAGE>
The Company has agreements with several agents throughout the world for the
manufacture of certain products to its specifications. The Company has several
other short-term leases for manufacturing plants, warehousing space and sales
offices. In April, 1997, the Company reopened its New Plymouth, New Zealand
facility. In addition, the Company consolidated its two Canadian operations and
has discontinued manufacturing operations at its Toronto, Canada facility. With
minor exceptions, all other facilities are operating at normal capacity.
Maintenance and Repairs were $6,061,000 in 1997, $6,189,000 in 1996 and
$6,950,000 in 1995.
ITEM 3. LEGAL PROCEEDINGS
Information regarding Legal Proceedings involving the Company is presented on
pages 28 through 31 in note 19, "Litigation Including Environmental Matters" of
the Notes to Consolidated Financial Statements, included in the 1997 Annual
Report to Stockholders and herein expressly incorporated by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
5
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT *
Executive Officers of the Registrant are as follows:
HELD PRESENT
NAME AGE OFFICE OFFICE SINCE
Henry H. Hoyt, Jr. 69 Chairman of the Board and
Chief Executive Officer 1974
Ralph Levine 61 President and Chief Operating Officer 1997
Paul A. Veteri 55 Executive Vice President, Finance
and Chief Financial Officer 1997
T. Rosie Albright 50 Vice President, Consumer Products, U.S. 1995
John Bridgen, Ph.D. 50 Vice President, Diagnostics, U.S. 1984
Robert A. Cuthbert 70 Vice President, Pet Products, U.S. 1983
Donald R. Daoust,Ph.D. 61 Vice President, Quality Control 1978
Peter J. Griffin 54 Vice President and Controller 1983
Adrian J. L. Huns 49 Vice President, International 1996
Michael J. Kopec 57 Vice President, Manufacturing 1978
Stephen R. Lang 62 Vice President, Secretary and
General Counsel 1997
Thomas B. Moorhead 63 Vice President, Human Resources 1987
George H. Ohye 61 Vice President, Compliance and
Regulatory 1994
Herbert Sosman 64 Vice President, Pharmaceuticals, U.S. 1984
C. Richard Stafford 61 Vice President, Corporate Development 1977
James L. Wagar 62 Vice President and Treasurer 1981
Mark Wertlieb 41 Vice President, Taxes 1996
Each officer holds office until the first meeting of the Board of Directors
following each Annual Meeting of the Stockholders and until his successor has
been duly elected and qualified (except that the Board of Directors may at any
meeting elect additional officers), unless his term is earlier terminated
through death, resignation, removal or otherwise. The next Annual Meeting of the
Stockholders is scheduled to be held July 15, 1997.
* All executive officers have held their present office for the last five years
except those noted on the following page.
6
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT (CONT'D)
Ralph Levine was appointed President and Chief Operating Officer in April,
1997. Mr. Levine was previously Vice President, Secretary and General Counsel
since prior to 1992 until April, 1997.
Paul A. Veteri was appointed Executive Vice President and Chief Financial
Officer, in April, 1997. Mr. Veteri was previously Vice President and Chief
Financial Officer since prior to 1992 until April, 1997.
Stephen R. Lang was appointed Corporate Vice President in March, 1997 and
Secretary and General Counsel in April, 1997. Mr. Lang was previously a Partner
and Chairman of the Litigation Department of Whitman, Breed, Abbott & Morgan
since prior to 1992 until March, 1997.
Mark Wertlieb was appointed Corporate Vice President, Taxes in August,
1996. Mr. Wertlieb was previously a Tax Partner at KPMG Peat Marwick LLP since
prior to 1992 until August, 1996.
T. Rosie Albright was appointed Corporate Vice President, Consumer
Products, U.S. and President, Carter Products Division, in December, 1995. Ms.
Albright was previously General Manager and Executive Vice President, Beauty
Care with Revlon, Inc. since 1993. She was Executive Vice President of the
Carter Products Division of Carter-Wallace, Inc. from 1992 to 1993.
Adrian J. L. Huns was appointed Corporate Vice President, International and
President, International Division in May, 1996. Mr. Huns was Managing Director
of Carter-Wallace Ltd., a subsidiary of Carter-Wallace, Inc., since prior to
1992 until May, 1996.
George H. Ohye was appointed Vice President, Compliance and Regulatory in
April, 1994. Mr. Ohye was previously Senior Vice President, Regulatory Affairs
with Johnson & Johnson's R.W. Johnson Pharmaceutical Research Institute since
prior to 1992 until April, 1994. He held the concomitant position of Member,
Board of Directors of the Ortho-McNeil Pharmaceutical Division of Johnson &
Johnson.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK-
HOLDER MATTERS
Information required by this item is presented on pages 1 and 7 of the 1997
Annual Report to Stockholders and is herein expressly incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is incorporated herein by reference to page 7
of the 1997 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Information required by this item is incorporated herein by reference to pages 8
through 10 of the 1997 Annual Report to Stockholders.
7
<PAGE>
PART III
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is incorporated herein by reference to pages
12 through 32 of the 1997 Annual Report to Stockholders.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Company is incorporated by
reference to the Company's Proxy Statement, dated June 16, 1997, for the Annual
Meeting of Stockholders to be held July 15, 1997, under the captions "Stock
Ownership", "Election of Directors" and "Board of Directors and Committees".
Information with respect to Executive Officers of the Registrant is set forth
under the heading "Executive Officers of the Registrant" in Part I on pages 6
and 7 of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated herein by reference to the
Company's Proxy Statement, dated June 16, 1997, for the Annual Meeting of
Stockholders to be held July 15, 1997, under the caption "Executive Compensation
and Other Information".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information pertaining to the security ownership of certain beneficial owners
and management is incorporated herein by reference to the Company's Proxy
Statement, dated June 16, 1997, for the Annual Meeting of Stockholders to be
held July 15, 1997, under the captions "Voting Rights" and "Stock Ownership".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated herein by reference to the
Company's Proxy Statement, dated June 16, 1997, for the Annual Meeting of
Stockholders to be held July 15, 1997, under the caption "Election of
Directors".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A)(1),(A)(2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The financial statements and financial statement schedule filed as part of this
report are listed or incorporated by reference in the "Index of Financial
Statements and Financial Statement Schedule" on page 14 of this Form.
8
<PAGE>
(A) (3) EXHIBITS
3.1 Certificate of Incorporation, as amended, of the Company
(incorporated herein by reference to Exhibit 3.1 of the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1992).
3.2 By-Laws of the Company, as amended (incorporated herein by
reference to Exhibit 3.2 of the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1993).
10.2 1977 Restricted Stock Award Plan, as amended (incorporated herein
by reference to Exhibit 10.2 of the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1990).
10.3 Employees' Retirement Plan, as amended (incorporated herein by
reference to Exhibit 10.3 of the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1993).
10.4 Profit Sharing Plan (incorporated herein by reference to the
description of such plan set forth in the Company's Proxy
Statement dated June 18, 1993, for the Annual Meeting of
Stockholders to be held July 20, 1993, under the caption
"Executive Compensation and Other Information").
10.5 Executives' Additional Compensation Plan (incorporated herein by
reference to the description of such plan set forth in the
Company's Proxy Statement dated June 18, 1993, for the Annual
Meeting of Stockholders to be held July 20, 1993, under the
caption "Executive Compensation and Other Information").
10.6 Employment Agreement, dated April 1, 1997, between the Company
and Ralph Levine.
10.7 Employment Agreement, dated April 1, 1997, between the Company
and Paul A. Veteri.
10.8 Employment Agreement, dated April 15, 1997 and effective October
31, 1997, between the Company and Herbert Sosman.
10.9 Employment Agreement, dated November 14, 1991, between the
Company and Herbert Sosman (incorporated herein by reference to
Exhibit 10.10 of the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1992).
10.10 Supplemental Death Benefit Agreement, as amended (incorporated
herein by reference to Exhibit 10.10 of the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1993).
(CONTINUED)
9
<PAGE>
(A) (3) EXHIBITS (CONT'D)
10.11 Lease Agreement, dated December 2, 1988, between the Company and
Fisher - Sixth Avenue Company and Hawaiian Sixth Avenue
Corporation (incorporated herein by reference to Exhibit 10.10 of
the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1989).
10.12 Corporate Officer Medical Expense Reimbursement Plan
(incorporated herein by reference to Exhibit 10.12 of the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1993).
10.13 Executive Medical Expense Reimbursement Plan, as amended
(incorporated herein by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1993).
10.14 Executive Pension Benefits Plan, as amended (incorporated herein
by reference to Exhibit 10.14 of the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1995).
10.15 Executive Savings Plan (incorporated herein by reference to
Exhibit 10.15 of the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994).
10.16 Amendment to Revolving Credit Agreement, dated as of October 1,
1995 (incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995).
10.17 Note Agreement, dated as of December 1, 1995 (incorporated herein
by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1995).
10.18 1996 Long-Term Incentive Plan (incorporated herein by reference
to the description of such plan set forth in the Company's
Consent Solicitation Statement, furnished to its Stockholders on
January 22, 1996, under the caption "Carter- Wallace, Inc. 1996
Long-Term Incentive Plan").
10.19 Employment Agreement, dated September 11, 1996, between the
Company and T. Rosie Albright.
10.20 Consulting Agreement, dated July 15,1996, between the Company
and Daniel J. Black.
13 Annual Report to Stockholders for the fiscal year ended March 31,
1997.
10
<PAGE>
EXHIBITS (CONT'D)
21 Subsidiaries.
23 KPMG Peat Marwick LLP Accountants' Consent
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 March
31, 1997.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
DATED: June 16, 1997 BY: /s/Ralph Levine
------------- ---------------
Ralph Levine
President and Chief
Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the respective dates indicated:
SIGNATURE TITLE DATE
/s/Henry H. Hoyt, Jr. Chairman of the Board and June 16, 1997
- --------------------------
Henry H. Hoyt, Jr. Chief Executive Officer,
Director (Principal Execu-
tive Officer)
/s/Daniel J. Black Director June 16, 1997
- --------------------------
Daniel J. Black
/s/David M. Baldwin Director June 16, 1997
- --------------------------
David M. Baldwin
/s/Dr. Richard L. Cruess Director June 16, 1997
- --------------------------
Dr. Richard L. Cruess
/s/Suzanne H. Garcia Director June 16, 1997
- --------------------------
Suzanne H. Garcia
12
<PAGE>
SIGNATURE TITLE DATE
/s/Scott C. Hoyt Director June 16, 1997
- --------------------------
Scott C. Hoyt
/s/Ralph Levine President and Chief June 16, 1997
- --------------------------
Ralph Levine Operating Officer,
Director
/s/Herbert M. Rinaldi Director June 16, 1997
- --------------------------
Herbert M. Rinaldi
/s/Paul A. Veteri Executive Vice President, June 16, 1997
- --------------------------
Paul A. Veteri Finance, Director (Principal
Financial Officer)
/s/Peter J. Griffin Vice President and June 16, 1997
- --------------------------
Peter J. Griffin Controller (Principal
Accounting Officer)
13
<PAGE>
CARTER-WALLACE, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The consolidated financial statements and the related report of KPMG Peat
Marwick LLP dated May 27, 1997 appearing on pages 12 through 32 of the 1997
Annual Report to Stockholders are incorporated herein by reference in this Form
10-K Annual Report.
The following are set forth in this Annual Report on Form 10-K:
PAGE
INDEPENDENT AUDITORS' REPORT ON SUPPORTING FINANCIAL
STATEMENT SCHEDULE 15
SCHEDULE II - Valuation and qualifying accounts for each
of the three years ended March 31, 1997 16
All other financial statement schedules are omitted because they are not
applicable or not required or because the information is included in the
consolidated financial statements or related notes.
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Carter-Wallace, Inc.:
Under date of May 27, 1997, we reported on the consolidated balance sheets of
Carter-Wallace, Inc. and subsidiaries as of March 31, 1997 and 1996, and the
related consolidated statements of earnings and retained earnings and cash flows
for each of the years in the three-year period ended March 31, 1997, as
contained in the 1997 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1997. In connection with our audits of
the aforementioned consolidated financial statements, we also have audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
New York, New York
May 27, 1997
15
<PAGE>
SCHEDULE II
CARTER-WALLACE, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Three Years Ended March 31, 1997
(in thousands of dollars)
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
beginning costs and to other at end
Description of period expenses accounts Deductions of period
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1997:
Deducted from assets to which they apply:
Allowance for
doubtful accounts $ 5,358 $ 1,182 (c) $ - $ 1,226 (a)(c) $ 5,314
Allowance for cash
discounts 1,358 8,048 - 7,990 (b) 1,416
------- ------- ------ ------- -------
$ 6,716 $ 9,230 $ - $ 9,216 $ 6,730
------- ------- ------ ------- -------
YEAR ENDED MARCH 31, 1996:
Deducted from assets to which they apply:
Allowance for
doubtful accounts $ 4,827 $ 1,090 $ - $ 559 (a) $ 5,358
Allowance for cash
discounts 1,517 8,381 - 8,540 (b) 1,358
------- ------- ------ ------- -------
$ 6,344 $ 9,471 $ - $ 9,099 $ 6,716
------- ------- ------ ------- -------
Reserve for Property
Plant and Equipment $14,308 $16,026 $ - $30,334 (d) $ -
------- ------- ------ ------- ------
YEAR ENDED MARCH 31, 1995:
Deducted from assets to which they apply:
Allowance for
doubtful accounts $ 4,284 $ 2,043 (e) $ - $ 1,500 (a)(e) $ 4,827
Allowance for cash
discounts 1,671 8,127 - 8,281 (b) 1,517
------- ------- ------ ------- -------
$ 5,955 $10,170 $ - $ 9,781 $ 6,344
------- ------- ------ ------- -------
Reserve for Property
Plant and Equipment $ - $18,028 $ - $ 3,720 (d) $14,308
------- ------- ------ ------- -------
<FN>
NOTES:
(A) Accounts written off and recovered.
(B) Net discounts allowed to customers.
(C) Includes $508 related to trade receivables from a wholesaler who filed for
bankruptcy.
(D) Reserves applied against related assets.
(E) Includes $529 related to trade receivables from a drug wholesaler who filed
for bankruptcy.
</TABLE>
16
<PAGE>
EXHIBIT 10.6
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT, dated as of April l, l997, between CARTER-WALLACE,
INC., a Delaware corporation (the "Company"), as the employer, and RALPH LEVINE
(the "Executive"), as the employee.
W I T N E S S E T H:
WHEREAS, the Executive has been employed by the Company
in an executive capacity for a number of years; and
WHEREAS, the Company desires to employ the Executive and the
Executive desires to be employed by the Company on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants
herein, the Company and the Executive agree as follows:
1. Period of Employment. The Company shall employ the
Executive for a period commencing as of the date hereof and continuing for a
period of five (5) years from September 1st of any year in which the Board of
Directors decides, without cause, to terminate this Agreement.
2. Compensation. (a) The Executive shall be paid a
base salary at the rate of not less than $850,000 per year,
payable in equal semi-monthly installments. Notwithstanding the
foregoing, said base salary may be increased (but not decreased)
as determined by the Company in accordance with the policies of
<PAGE>
the Company and said increased salary shall thereafter be the base salary of the
Executive. In addition, the Executive shall be entitled to participate in any
retirement, pension, profit sharing, bonus, stock option and restricted stock
award plans, and death and life insurance benefits and medical insurance
programs, of the Company, now in existence or hereafter adopted, in which other
executive employees participate, in accordance with the terms of any such plan,
benefit or program.
3. Reimbursement for Expenses. The Company shall
reimburse the Executive in a manner consistent with the policies
of the Company for all reasonable expenses of the Company
incurred or paid by the Executive in discharge of his duties
hereunder.
4. Duties and Title of Executives. The Executive shall have
such titles and shall perform such duties in an executive capacity as may be
assigned to him from time to time by the Board of Directors of the Company.
Initially, the Executive shall have the title of President and Chief Operating
Officer, and shall have the powers and duties that are normally exercised in and
ordinarily pertain to these positions.
To the extent feasible and consistent with applicable law, the
Company shall use its best efforts to cause the Executive to be elected a
director of the Company.
The Executive's office shall be located at the Company's
executive office located at 1345 Avenue of the Americas, New York, New York
10105 or in such other suitable space in New York City as the Board of Directors
may select.
-2-
<PAGE>
5. Acceptance by Executive. The Executive accepts the
aforementioned employment at the compensation specified above. During the term
of this Agreement, the Executive shall devote his best efforts to the service of
the Company and to the performance of the duties specified above competently,
carefully and faithfully. The Executive shall be permitted to take an amount of
vacation in each year of his employment in conformance with Company vacation
policy.
6. Covenant Not to Compete. Except with the prior written
consent of the Company authorized by a resolution adopted by the Board of
Directors of the Company, during the period of employment hereunder and for a
period of one year after the termination of such employment for any reason, the
Executive will not, and will not permit any corporation, partnership or other
business entity in which the Executive has a financial interest, to engage
directly or indirectly in any business which is competitive with the business of
the Company; provided that the ownership by the Executive of not more than one
per cent of the capital stock of any other corporation or a one per cent
interest in any partnership or other business entity shall not be deemed to be a
violation of this Section 6.
7. Secrecy. The Executive recognizes and
acknowledges that the information (such as, but not limited to,
financial information), trade secrets, formulae, manufacturing
methods, technical data, know-how and secret processes of the
Company as acquired and used by the Company are special, valuable
and unique assets of the Company. The Executive will not, during
-3-
<PAGE>
the term of his employment or at any time thereafter, disclose any such
information, trade secrets, formulae, manufacturing methods, technical data,
know-how and secret processes to any person, firm, corporation, association or
any other entity for any reason or purpose whatsoever without the prior written
consent of the Board of Directors of the Company, unless such information shall
have previously become public knowledge.
8. Termination. (a) The employment of the Executive
by the Company may be terminated at any time, as follows:
(i) The Board of Directors, by a vote of a
majority of the Board of Directors, may terminate the employment of the
Executive if the conduct of the Executive shall, in the opinion of the Board of
Directors, constitute just cause for immediate dismissal. As used herein, the
term "just cause" shall mean conduct justifying immediate dismissal, consisting
of theft, conviction of a felony, insubordination, gross neglect of duty, breach
of any covenant contained in Section 6 or 7 hereof, habitual drunkenness, or
excessive absenteeism not related to illness.
(ii) The employment of the Executive shall
terminate if the Executive shall voluntarily leave the employment
of the Company.
(iii) The Board of Directors of the Company, by a
vote of a majority of the Board of Directors, may terminate the employment of
the Executive if it shall determine that the Executive has become incapacitated
or disabled to such an extent that he is incapable of performing the duties and
services
-4-
<PAGE>
required to be performed hereunder for a period or periods aggregating in excess
of six months in any twelve month period.
(iv) The employment of the Executive shall
terminate if the Executive shall die.
(b) If the Executive's employment is terminated under clauses
(i) or (ii) of Section 8(a), the Company shall have no further obligations to
the Executive hereunder, except the Company shall pay to the Executive the full
compensation due to the Executive and not theretofore paid for base salary up to
the date of such termination.
(c) If the Executive's employment is terminated pursuant to
clause (iii) of Section 8(a), the Company shall (i) pay to the Executive the
full compensation due to the Executive and not theretofore paid for base salary
and bonus under the Company's Profit Sharing Plan prorated to the date of such
termination, and for this purpose a simple proration shall be made on a monthly
basis, including the month during which the termination took place; and (ii)
shall make, or cause to be made, payments to the Executive, including any
payments made to the Executive under the Company's Long-Term Disability Income
Plan, equal to Sixty Percent (60%) of the Executive's base salary, payable in
equal semi-monthly payments, from the date of such termination until the earlier
of the date on which the Executive reaches age 65 or the death of the Executive.
(d) If the Executive's employment is terminated pursuant to
clause (iii) of Section 8(a) and the Executive shall subsequently die before
September 1 in the fifth year following
-5-
<PAGE>
such termination, or if the Executive's employment is terminated pursuant to
clause (iv) of Section 8(a), the Company shall (i) pay to the Executive's estate
the full compensation due to the Executive and not theretofore paid, for base
salary and bonus prorated to the date of such termination, and for this purpose,
a simple proration shall be made on a monthly basis, including the month during
which the termination took place; (ii) pay in the manner directed by the
Executive's will the total amount of all deferred compensation payable to the
Executive and not theretofore paid under the Company's Executives' Additional
Compensation Plan; (iii) use its best efforts to cause all insurance proceeds to
which the Executive's designated beneficiary or beneficiaries are entitled under
all Company sponsored insurance plans covering the Executive to be paid to such
beneficiary or beneficiaries; and (iv) cause the Executive's contributions to
the Company's retirement plan to be paid as directed by the Executive's will.
(e) If, at any time, the Company terminates the Executive's
employment without cause, the Executive shall not have any right to participate
in the stock option and restricted stock award plans of the Company, but the
Executive's participation in and coverage under other Company plans and
programs, including the Executive Health Plan, shall continue for the term of
this Agreement and thereafter in accordance with the terms of said plans and
programs and the Executive shall be entitled to whatever other rights he has
against the Company at law or in equity.
-6-
<PAGE>
9. Remedies. In the event of a breach or threatened breach by
the Executive of the provisions of Section 6 or Section 7 of this Agreement, the
Company shall be entitled to seek an injunction restraining the Executive from
violating either of said provisions. If the Executive shall breach or threaten
to breach any of the provisions of Section 6 or Section 7 of this Agreement,
nothing herein shall be construed as preventing the Company from withholding any
payment or payments required to be made hereunder to the Executive or from
seeking any other remedy for any such breach or threatened breach by the
Executive, including the recovery of damages from the Executive.
10. Notices. All communications hereunder shall be in writing
and delivered or mailed by registered mail to the Company at 1345 Avenue of the
Americas, New York, New York 10105, Attention: Board of Directors, and to the
Executive, at 930 Park Avenue, Apartment 7-N, New York, New York 10028, unless
another address has been given to the other party hereto in writing.
11. Interpretation. No provision of this Agreement may be
altered or waived except in writing and executed by the other party hereto. This
Agreement constitutes the entire contract between the parties hereto and cancels
and supersedes all prior agreements, written or oral, relating to the employment
of the Executive. No party shall be bound in any manner by any warranties,
representations or guarantees, except as specifically set forth in this
Agreement. This Agreement shall be interpreted under the laws of the State of
New York.
-7-
<PAGE>
12. Renewals and Amendments. This Agreement may be
renewed, extended, altered or amended at any time by mutual
written agreement signed by both parties.
13. Binding Nature. This Agreement shall be binding
upon the Company and its successors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
CARTER-WALLACE, INC.
By___________________________
Chairman of the Board
-----------------------------
RALPH LEVINE
-8-
<PAGE>
EXHIBIT 10.7
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT, dated as of April 1, 1997, between CARTER-WALLACE,
INC., a Delaware corporation (the "Company"), as the employer, and PAUL A.
VETERI (the "Executive"), as the employee.
W I T N E S S E T H:
WHEREAS, the Executive has been employed by the Company
in an executive capacity for a number of years; and
WHEREAS, the Company desires to employ the Executive and the
Executive desires to be employed by the Company on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants
herein, the Company and the Executive agree as follows:
1. Period of Employment. The Company shall employ the
Executive for a period commencing as of the date hereof and continuing for a
period of five (5) years from September 1st of any year in which the Board of
Directors decides, without cause, to terminate this Agreement.
2. Compensation. (a) The Executive shall be paid a
base salary at the rate of not less than $750,000 per year,
payable in equal semi-monthly installments. Notwithstanding the
foregoing, said base salary may be increased (but not decreased)
as determined by the Company in accordance with the policies of
the Company and said increased salary shall thereafter be the
base salary of the Executive. In addition, the Executive shall
<PAGE>
be entitled to participate in any retirement, pension, profit sharing, bonus,
stock option and restricted stock award plans, and death and life insurance
benefits and medical insurance programs, of the Company, now in existence or
hereafter adopted, in which other executive employees participate, in accordance
with the terms of any such plan, benefit or program.
3. Reimbursement for Expenses. The Company shall
reimburse the Executive in a manner consistent with the policies
of the Company for all reasonable expenses of the Company
incurred or paid by the Executive in discharge of his duties
hereunder.
4. Duties and Title of Executives. The Executive shall have
such titles and shall perform such duties in an executive capacity as may be
assigned to him from time to time by the Board of Directors of the Company.
Initially, the Executive shall have the title of Executive Vice-President and
Chief Financial Officer, and shall have the powers and duties that are normally
exercised in and ordinarily pertain to this position.
To the extent feasible and consistent with applicable law, the
Company shall use its best efforts to cause the Executive to be elected a
director of the Company.
The Executive's office shall be located at the Company's
executive office located at 1345 Avenue of the Americas, New York, New York
10105 or in such other suitable space in New York City as the Board of Directors
may select.
5. Acceptance by Executive. The Executive accepts
the aforementioned employment at the compensation specified
-2-
<PAGE>
above. During the term of this Agreement, the Executive shall devote his best
efforts to the service of the Company and to the performance of the duties
specified above competently, carefully and faithfully. The Executive shall be
permitted to take an amount of vacation in each year of his employment in
conformance with Company vacation policy.
6. Covenant Not to Compete. Except with the prior written
consent of the Company authorized by a resolution adopted by the Board of
Directors of the Company, during the period of employment hereunder and for a
period of one year after the termination of such employment for any reason, the
Executive will not, and will not permit any corporation, partnership or other
business entity in which the Executive has a financial interest, to engage
directly or indirectly in any business which is competitive with the business of
the Company; provided that the ownership by the Executive of not more than one
per cent of the capital stock of any other corporation or a one per cent
interest in any partnership or other business entity shall not be deemed to be a
violation of this Section 6.
7. Secrecy. The Executive recognizes and acknowledges that the
information (such as, but not limited to, financial information), trade secrets,
formulae, manufacturing methods, technical data, know-how and secret processes
of the Company as acquired and used by the Company are special, valuable and
unique assets of the Company. The Executive will not, during the term of his
employment or at any time thereafter, disclose any such information, trade
secrets, formulae, manufacturing
-3-
<PAGE>
methods, technical data, know-how and secret processes to any person, firm,
corporation, association or any other entity for any reason or purpose
whatsoever without the prior written consent of the Board of Directors of the
Company, unless such information shall have previously become public knowledge.
8. Termination. (a) The employment of the Executive
by the Company may be terminated at any time, as follows:
(i) The Board of Directors, by a vote of a
majority of the Board of Directors, may terminate the employment of the
Executive if the conduct of the Executive shall, in the opinion of the Board of
Directors, constitute just cause for immediate dismissal. As used herein, the
term "just cause" shall mean conduct justifying immediate dismissal, consisting
of theft, conviction of a felony, insubordination, gross neglect of duty, breach
of any covenant contained in Section 6 or 7 hereof, habitual drunkenness, or
excessive absenteeism not related to illness.
(ii) The employment of the Executive shall
terminate if the Executive shall voluntarily leave the employment
of the Company.
(iii) The Board of Directors of the Company, by a
vote of a majority of the Board of Directors, may terminate the employment of
the Executive if it shall determine that the Executive has become incapacitated
or disabled to such an extent that he is incapable of performing the duties and
services required to be performed hereunder for a period or periods aggregating
in excess of six months in any twelve month period.
-4-
<PAGE>
(iv) The employment of the Executive shall
terminate if the Executive shall die.
(b) If the Executive's employment is terminated under clauses
(i) or (ii) of Section 8(a), the Company shall have no further obligations to
the Executive hereunder, except the Company shall pay to the Executive the full
compensation due to the Executive and not theretofore paid for base salary up to
the date of such termination.
(c) If the Executive's employment is terminated pursuant to
clause (iii) of Section 8(a), the Company shall (i) pay to the Executive the
full compensation due to the Executive and not theretofore paid for base salary
and bonus under the Company's Profit Sharing Plan prorated to the date of such
termination, and for this purpose a simple proration shall be made on a monthly
basis, including the month during which the termination took place; and (ii)
shall make, or cause to be made, payments to the Executive, including any
payments made to the Executive under the Company's Long-Term Disability Income
Plan, equal to Sixty Percent (60%) of the Executive's base salary, payable in
equal semi-monthly payments, from the date of such termination until the earlier
of the date on which the Executive reaches age 65 or the death of the Executive.
(d) If the Executive's employment is terminated pursuant to
clause (iii) of Section 8(a) and the Executive shall subsequently die before
September 1 in the fifth year following such termination, or if the Executive's
employment is terminated pursuant to clause (iv) of Section 8(a), the Company
shall (i)
-5-
<PAGE>
pay to the Executive's estate the full compensation due to the Executive and not
theretofore paid, for base salary and bonus prorated to the date of such
termination, and for this purpose, a simple proration shall be made on a monthly
basis, including the month during which the termination took place; (ii) pay in
the manner directed by the Executive's will the total amount of all deferred
compensation payable to the Executive and not theretofore paid under the
Company's Executives' Additional Compensation Plan; (iii) use its best efforts
to cause all insurance proceeds to which the Executive's designated beneficiary
or beneficiaries are entitled under all Company sponsored insurance plans
covering the Executive to be paid to such beneficiary or beneficiaries; and (iv)
cause the Executive's contributions to the Company's retirement plan to be paid
as directed by the Executive's will.
(e) If, at any time, the Company terminates the Executive's
employment without cause, the Executive shall not have any right to participate
in the stock option and restricted stock award plans of the Company, but the
Executive's participation in and coverage under other Company plans and
programs, including the Executive Health Plan, shall continue for the term of
this Agreement and thereafter in accordance with the terms of said plans and
programs and the Executive shall be entitled to whatever other rights he has
against the Company at law or in equity.
9. Remedies. In the event of a breach or threatened
breach by the Executive of the provisions of Section 6 or Section
-6-
<PAGE>
7 of this Agreement, the Company shall be entitled to seek an injunction
restraining the Executive from violating either of said provisions. If the
Executive shall breach or threaten to breach any of the provisions of Section 6
or Section 7 of this Agreement, nothing herein shall be construed as preventing
the Company from withholding any payment or payments required to be made
hereunder to the Executive or from seeking any other remedy for any such breach
or threatened breach by the Executive, including the recovery of damages from
the Executive.
10. Notices. All communications hereunder shall be in writing
and delivered or mailed by registered mail to the Company at 1345 Avenue of the
Americas, New York, New York 10105, Attention: Board of Directors, and to the
Executive, at 930 Park Avenue, Apartment 7-N, New York, New York 10028, unless
another address has been given to the other party hereto in writing.
11. Interpretation. No provision of this Agreement may be
altered or waived except in writing and executed by the other party hereto. This
Agreement constitutes the entire contract between the parties hereto and cancels
and supersedes all prior agreements, written or oral, relating to the employment
of the Executive. No party shall be bound in any manner by any warranties,
representations or guarantees, except as specifically set forth in this
Agreement. This Agreement shall be interpreted under the laws of the State of
New York.
12. Renewals and Amendments. This Agreement may be
renewed, extended, altered or amended at any time by mutual
written agreement signed by both parties.
-7-
<PAGE>
13. Binding Nature. This Agreement shall be binding
upon the Company and its successors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
CARTER-WALLACE, INC.
By___________________________
Chairman of the Board
-----------------------------
PAUL A. VETERI
-8-
<PAGE>
EXHIBIT 10.8
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT, dated as of April 15, 1997, between CARTER-WALLACE,
INC., a Delaware corporation (the "Company"), as the employer, and HERBERT
SOSMAN (the "Executive"), as the employee.
W I T N E S S E T H:
WHEREAS, the Executive has been employed by the Company
in an executive capacity for a number of years; and
WHEREAS, the Company desires to employ the Executive and the
Executive desires to be employed by the Company on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants
herein, the Company and the Executive agree as follows:
1. Period of Employment. The Company shall employ
the Executive for a period commencing as of October 31, 1997 and
terminating as of October 30, 1999.
2. Compensation. (a) The Executive shall be paid a
base salary at the rate of not less than $521,000 per year,
payable in equal semi-monthly installments. Notwithstanding the
foregoing, said base salary may be increased (but not decreased)
as determined by the Company in accordance with the policies of
the Company and said increased salary shall thereafter be the
base salary of the Executive. In addition, the Executive shall
be entitled to participate in any retirement, pension, profit
<PAGE>
sharing, bonus, stock option and restricted stock award plans, and death and
life insurance benefits and medical insurance programs, of the Company, now in
existence or hereafter adopted, in which other executive employees participate,
in accordance with the terms of any such plan, benefit or program.
3. Reimbursement for Expenses. The Company shall
reimburse the Executive in a manner consistent with the policies
of the Company for all reasonable expenses of the Company
incurred or paid by the Executive in discharge of his duties
hereunder.
4. Duties and Title of Executive. The Executive shall have
such titles and shall perform such duties in an executive capacity as may be
assigned to him from time to time by the Board of Directors of the Company.
Initially, the Executive shall be a Vice President of the Company and have the
title of President of the Company's Wallace Division, and shall have the powers
and duties that are normally exercised in and ordinarily pertain to these
positions.
The Executive's principal office shall be located at the
Company's facilities in Cranbury, New Jersey and/or in such other suitable space
in New York City as the Board of Directors may select.
5. Acceptance by Executive. The Executive accepts
the aforementioned employment at the compensation specified
above. During the term of this Agreement, the Executive shall
devote his best efforts to the service of the Company and to the
-2-
<PAGE>
performance of the duties specified above competently, carefully and faithfully.
The Executive shall be permitted to take an amount of vacation in each year of
his employment in conformance with Company vacation policy.
6. Covenant Not to Compete. Except with the prior written
consent of the Company authorized by a resolution adopted by the Board of
Directors of the Company, during the period of employment hereunder and for a
period of one year after the termination of such employment for any reason, the
Executive will not, and will not permit any corporation, partnership or other
business entity in which the Executive has a financial interest, to engage
directly or indirectly in any business which is competitive with the business of
the Company; provided that the ownership by the Executive of not more than one
per cent of the capital stock of any other corporation or a one per cent
interest in any partnership or other business entity shall not be deemed to be a
violation of this Section 6.
7. Secrecy. The Executive recognizes and acknowledges that the
information (such as, but not limited to, financial information), trade secrets,
formulae, manufacturing methods, technical data, know-how and secret processes
of the Company as acquired and used by the Company are special, valuable and
unique assets of the Company. The Executive will not, during the term of his
employment or at any time thereafter, disclose any such information, trade
secrets, formulae, manufacturing methods, technical data, know-how and secret
processes to any
-3-
<PAGE>
person, firm, corporation, association or any other entity for any reason or
purpose whatsoever without the prior written consent of the Board of Directors
of the Company, unless such information shall have previously become public
knowledge.
8. Termination. (a) The employment of the Executive
by the Company may be terminated at any time, as follows:
(i) The Board of Directors of the Company,
by a vote of a majority of the directors, without cause and in
its sole discretion, may terminate the employment of the
Executive at any time by giving the Executive ninety (90) days
notice in writing of its election to terminate the employment.
(ii) The Board of Directors of the Company,
by a vote of a majority of the directors, may terminate the
employment of the Executive if the conduct of the Executive
shall constitute just cause for immediate dismissal. As used
herein, the term "just cause" shall mean theft, conviction of
a felony, insubordination, gross neglect of duty, breach of
any covenant contained in Sections 6 or 7 hereof, habitual
drunkenness, or excessive absenteeism not related to illness.
(iii) The employment of the Executive shall
terminate if the Executive shall voluntarily leave the
employment of the Company.
(iv) The Board of Directors of the Company,
by a vote of a majority of the directors, may terminate
-4-
<PAGE>
the employment of the Executive if it shall determine that the
Executive has become incapacitated or disabled to such an
extent that he is incapable of performing the duties and
services required to be performed hereunder for a period or
periods aggregating in excess of six months in any twelve
month period.
(v) The employment of the Executive shall
terminate if the Executive shall die.
(b) If the Executive's employment is terminated
under clause (i) of Section 8(a), the Company shall pay the Executive, as
severance, an amount equal to the sum of two times the annual base salary of the
Executive, payable in substantially equal twenty-four (24) monthly payments,
commencing thirty (30) days after the employment is terminated.
(c) If the Executive's employment is terminated
under clauses (ii) or (iii) of Section 8(a), the Company shall have no further
obligations to the Executive hereunder, except the Company shall pay to the
Executive the full compensation due to the Executive and not theretofore paid
for base salary up to the date of such termination.
(d) If the Executive's employment is terminated
pursuant to clause (iv) of Section 8(a), the Company shall (i) pay to the
Executive the full compensation due to the Executive and not theretofore paid
for base salary and bonus under the Company's Profit Sharing Plan prorated to
the date of such termination, and for this purpose a simple proration shall be
-5-
<PAGE>
made on a monthly basis, including the month during which the termination took
place; and (ii) shall make, or cause to be made, payments to the Executive,
including any payments made to the Executive under the Company's Long-Term
Disability Income Plan, equal to Sixty Percent (60%) of the Executive's base
salary, payable in equal semi-monthly payments, from the date of such
termination until the earlier of the date on which the Executive reaches age 65
or the death of the Executive.
(e) If the Executive's employment is terminated
pursuant to clause (v) of Section 8(a), the Company shall (i) pay to the
Executive's estate the full compensation due to the Executive and not
theretofore paid, for base salary and bonus prorated to the date of such
termination, and for this purpose, a simple proration shall be made on a monthly
basis, including the month during which the termination took place; (ii) pay in
the manner directed by the Executive's will the total amount of all deferred
compensation payable to the Executive and not theretofore paid under the
Company's Executives' Additional Compensation Plan; (iii) use its best efforts
to cause all insurance proceeds to which the Executive's designated beneficiary
or beneficiaries are entitled under all Company sponsored insurance plans
covering the Executive to be paid to such beneficiary or beneficiaries; and (iv)
cause the Executive's contributions to the Company's retirement plan to be paid
as directed by the Executive's will.
-6-
<PAGE>
(f) If, at any time, the Company terminates the
Executive's employment without cause, the Executive shall not have any right to
participate in the stock option and restricted stock award plans of the Company,
but the Executive's participation in and coverage under other Company plans and
programs, including the Executive Health Plan, shall continue for the term of
this Agreement and thereafter in accordance with the terms of said plans and
programs.
9. Remedies. In the event of a breach or threatened breach by
the Executive of the provisions of Section 6 or Section 7 of this Agreement, the
Company shall be entitled to seek an injunction restraining the Executive from
violating either of said provisions. If the Executive shall breach or threaten
to breach any of the provisions of Section 6 or Section 7 of this Agreement,
nothing herein shall be construed as preventing the Company from withholding any
payment or payments required to be made hereunder to the Executive or from
seeking any other remedy for any such breach or threatened breach by the
Executive, including the recovery of damages from the Executive.
10. Notices. All communications hereunder shall be in writing
and delivered or mailed by registered mail to the Company at 1345 Avenue of the
Americas, New York, New York 10105, Attention: Board of Directors, and to the
Executive, at 10 Hyde Circle, Watchung, New Jersey 07060, unless another address
has been given to the other party hereto in writing.
-7-
<PAGE>
11. Interpretation. No provision of this Agreement may be
altered or waived except in writing and executed by the other party hereto. This
Agreement constitutes the entire contract between the parties hereto and cancels
and supersedes all prior agreements, written or oral, relating to the employment
of the Executive. No party shall be bound in any manner by any warranties,
representations or guarantees, except as specifically set forth in this
Agreement. This Agreement shall be interpreted under the laws of the State of
New York.
12. Renewals and Amendments. This Agreement may be
renewed, extended, altered or amended at any time by mutual
written agreement signed by both parties.
13. Binding Nature. This Agreement shall be binding
upon the Company and its successors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
CARTER-WALLACE, INC.
By___________________________
Chairman of the Board
-----------------------------
HERBERT SOSMAN
-8-
<PAGE>
EXHIBIT 10.19
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT dated as of September ll, l996, between
CARTER-WALLACE, INC., a Delaware corporation (the "Company") as the employer,
and T. ROSIE ALBRIGHT (the "Executive"), as the employee.
W I T N E S S E T H:
WHEREAS, the Company desires to employ the
Executive and the Executive desires to be employed by the Company
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants
herein, the Company and the Executive agree as follows:
l. Period of Employment. The Company shall employ the
Executive under the terms of this Agreement for a period
commencing as of December 4, l995 and terminating December 3,
2000.
2. Compensation. (a) The Executive shall be paid a base salary
at the rate of $400,000 per year, payable in equal semi-monthly installments.
Notwithstanding the foregoing, said base salary may be increased in the
discretion of the Board of Directors of the Company and said increased salary
shall thereafter be the base salary of the Executive. In addition, the Executive
shall be entitled to participate in any retirement, pension, health and life
insurance benefits and medical insurance programs, profit sharing program, stock
option, restricted stock
<PAGE>
award and any other fringe benefit plans of the Company, now in existence or
hereafter adopted, in which other executive employees participate, in accordance
with the terms of any such plan, benefit or program.
(b) Executive's participation in the Carter Division Profit
Sharing Plan will commence in the fiscal year beginning April l, l996 and
Executive will be guaranteed a bonus for the fiscal year beginning April l, l996
and ending March 3l, l997 at the maximum level for the Division. The Company
agrees to make Executive whole for the loss of all or any part of Executive's
Revlon bonus which Executive has represented she is entitled to and which is
between 40% to 80% of Executive's base pay. To the extent Executive is denied
the entire amount or any portion of the bonus due to Executive leaving Revlon to
work for Carter- Wallace, the Company will pay Executive the amount Executive is
denied upon submission of suitable supporting documentation. For this
calculation, it is agreed that the bonus Executive will be entitled to from
Revlon is 67.2% x Executive's base salary at Revlon of $280,000 for a total
bonus of $l88,l60.
(c) The Company is considering adopting a Stock Option
Plan. This plan is subject to approval by the Board of Directors
of Carter-Wallace, Inc. and the shareholders of the Corporation.
Upon approval and implementation the Executive will be eligible
for participation in accordance with the terms of the plans
approved by the shareholders of the Corporation and it is
projected that the Executive should be awarded approximately
2
<PAGE>
l6,000 shares of restricted stock and options on approximately 64,000 shares in
the first year of adoption.
(d) The Company agrees to provide relocation coverage on
Executive's home in St. Croix. This will include reimbursement for closing
costs, real estate brokerage fees and other approved expenses in accordance with
the terms of the Company's Relocation Policy, a copy of which is attached. For
purposes of guaranteeing the value of Executive's St. Croix house, the Company
will immediately secure two independent fair market value appraisals predicated
on comparables. The average of these appraisals, assuming they are within 5% of
one another, will determine the amount which the Company will guarantee. If they
are not, the Company will secure a third appraisal and use the average of the
two closest appraisals.
3. Reimbursement for Expenses. The Company shall
reimburse the Executive in a manner consistent with the policies
of the Company for all reasonable expenses of the Company
incurred or paid by the Executive in discharge of her duties
hereunder.
4. Duties and Titles of Executive. The Executive shall have
such titles and shall perform such duties in an executive capacity as may be
assigned to her from time to time by the Board of Directors of the Company.
Initially, the Executive shall have the title of President of the Carter
Products Division and Vice-President, Consumer Products, U.S., Carter-Wallace,
Inc.
3
<PAGE>
and shall have the powers and duties that are normally exercised by and
ordinarily pertain to said positions.
The Executive's principal office shall be located at the
Company's facilities located at Cranbury, New Jersey.
5. Acceptance by Executive. The Executive accepts the
aforementioned employment at the compensation specified above. During the term
of this Agreement, the Executive shall devote her best efforts to the service of
the Company and to the performance of the duties specified above competently,
carefully and faithfully. The Executive shall be permitted to take four weeks of
vacation in each year of her employment in conformance with Company vacation
policy.
6. Covenant Not to Compete. Except with the prior written
consent of the Company authorized by a resolution adopted by the Board of
Directors of the Company, during the period of employment hereunder and for a
period of one year after the termination of such employment for any reason, the
Executive will not, and will not permit any corporation, partnership or other
business entity in which the Executive has a financial interest, to engage
directly or indirectly in any business which is competitive with the business of
the Company; provided that the ownership by the Executive of not more than one
percent of the capital stock of any other corporation or a one percent interest
in any partnership or other business entity shall not be deemed to be a
violation of this Section 6.
4
<PAGE>
7. Secrecy. The Executive recognizes and acknowledges that the
information (such as, but not limited to, financial information), trade secrets,
formulae, manufacturing methods, technical data, know-how and secret processes
of the Company as acquired and used by the Company are special, valuable and
unique assets of the Company. The Executive will not, during the term of her
employment or at any time thereafter, disclose any such information, trade
secrets, formulae, manufacturing methods, technical data, know-how and secret
processes to any person, firm, corporation, association or any other entity for
any reason or purpose whatsoever without the prior written consent of the Board
of Directors of the Company, unless such information shall have previously
become public knowledge. On the Effective Date, the Executive will sign the
Company's standard agreement relating to secrecy and inventions (the "Secrecy
Agreement"), a copy of which is annexed hereto as Exhibit "A".
8. Termination. (a) The employment of the Executive
by the Company may be terminated at any time prior to December 3,
2000 as follows:
(i) The Company may terminate the employment of the Executive
if the conduct of the Executive shall, in the opinion of the Company, constitute
just cause for immediate dismissal. As used herein, the term "just cause" shall
mean conduct justifying immediate dismissal, consisting of theft, conviction of
a felony, insubordination, gross neglect of duty, breach of any covenant
contained in Sections 6 or 7 hereof,
5
<PAGE>
habitual drunkenness, or excessive absenteeism not related to
illness.
(ii) The Company may terminate the employment of
the Executive if it shall determine that the Executive has become incapacitated
or disabled to such an extent that she is incapable of performing the duties and
services required to be performed hereunder for a period or periods aggregating
in excess of six months in any twelve month period.
(iii) The employment of the Executive shall
terminate if the Executive shall die before December 3, 2000.
(b) If the Executive's employment is terminated under
clauses (i) of Section 8(a) or if the employee voluntarily leaves the employment
of the Company before December 3, 2000, the Company shall have no further
obligations to the Executive hereunder except the Company shall pay to the
Executive the full compensation due to the Executive and not theretofore paid
for base salary up to the date of such termination.
(c) If the Executive's employment is terminated pursuant to
clause (iii) of Section 8(a), the Company shall (i) pay to the Executive the
full compensation due to the Executive and not theretofore paid for base salary
and bonus under the Company's Profit Sharing Plan prorated to the date of such
termination, and for this purpose a simple proration shall be made on a monthly
basis, including the month during which the termination took place; and (ii)
shall make, or cause to be made, payments to the Executive, including any
payments made to the
6
<PAGE>
Executive under the Company's Long-Term Disability Income Plan.
(d) If the Executive's employment is terminated
pursuant to clause (iii) of Section 8(a) and the Executive shall subsequently
die or if the Executive's employment is terminated pursuant to clause (iv) of
Section 8(a), the Company shall (i) pay to the Executive's estate the full
compensation due to the Executive and not theretofore paid, for base salary and
bonus prorated to the date of such termination, and for this purpose, a simple
proration shall be made on a monthly basis, including the month during which the
termination took place; (ii) pay in the manner directed by the Executive's will
the total amount of all deferred compensation payable to the Executive and not
theretofore paid under the Company's Executives' Additional Compensation Plan;
(iii) use its best efforts to cause all insurance proceeds to which the
Executive's designated beneficiary or beneficiaries are entitled under all
Company sponsored insurance plans covering the Executive to be paid to such
beneficiary or beneficiaries; and (iv) cause the Executive's contributions to
the Company's retirement plan to be paid as directed by the Executive's will.
(e) If, at any time, the Company terminates the Executive's
employment without cause, the Executive shall not have any right to participate
in the stock option and restricted stock award plans of the Company, but the
Executive's participation in and coverage under other Company plans and
programs, including the Executive Health Plan, shall continue for
7
<PAGE>
the term of this Agreement and thereafter in accordance with the terms of said
plans and programs and Executive shall be entitled to whatever other rights she
has against the Company at law or in equity.
9. Remedies. In the event of a breach or threatened breach by
the Executive of the provisions of Section 6 or Section 7 of this Agreement, the
Company shall be entitled to seek an injunction restraining the Executive from
violating either of said provisions. If the Executive shall breach or threaten
to breach any of the provisions of Section 6 or Section 7 of this Agreement,
nothing herein shall be construed as preventing the Company from withholding any
payment or payments required to be made hereunder to the Executive or from
seeking any other remedy for any such breach or threatened breach by the
Executive, including the recovery of damages from the Executive.
10. Notices. All communications hereunder shall be in
writing and delivered or mailed by registered mail to the Company
at 1345 Avenue of the Americas, New York, New York 10105,
Attention: Henry H. Hoyt, Jr., Chairman of the Board, and to the
Executive at 85 Mayapple Road, Stamford, CT. 06903, unless
another address has been given to the other party hereto in
writing.
ll. Interpretation. No provision of the Agreement may
be altered or waived except in writing and executed by the other
party hereto. This Agreement constitutes the entire contract
between the parties hereto and cancels and supersedes all prior
8
<PAGE>
agreements, written or oral, relating to the employment of the Executive. No
party shall be bound in any manner by any warranties, representations or
guarantees, except as specifically set forth in this Agreement. This Agreement
shall be interpreted under the laws of the State of New York.
12. Renewals and Amendments. This Agreement may be
renewed, extended, altered or amended at any time by mutual
written agreement signed by both parties.
13. This Agreement shall be binding upon the Company
and its successors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
CARTER-WALLACE, INC.
By__________________________
Chairman of the Board
--------------------------
T. ROSIE ALBRIGHT
9
<PAGE>
EXHIBIT 10.20
CONSULTING AGREEMENT
AGREEMENT effective the 15th day of July, 1996, between
CARTER-WALLACE, INC., 1345 Avenue of the Americas, New York, New York 10105, a
Delaware corporation (the "Company"), and DANIEL J. BLACK, with a mailing
address at 45 East 62nd Street, New York, New York 10021 ("Consultant").
WHEREAS, the Company desires to secure the services of
Consultant; and,
WHEREAS, Consultant is willing to render consulting and
advisory services to the Company as provided herein upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants
herein, the Company and Consultant agree as follows:
1. Retention. The Company hereby retains Consultant
and Consultant agrees to render consulting and other services to
the Company.
2. Compensation. (a) Consultant shall be paid a fee
of Four Hundred Thousand Dollars ($400,000.00) per year payable
in equal bi-monthly payments. In the event this Agreement is terminated within
any year, there shall be a reduction in the fee equal in percentage to the
percentage of the year remaining at the date this Agreement terminates.
(b) Travel expenses are subject to the Company's
prior written approval. At Company's request, Consultant shall
<PAGE>
provide suitable proof of expenditure of out-of-pocket expenses for travel prior
to payment by Company. Company shall reimburse Consultant for approved and
documented out-of-pocket travel expenses within ten (10) days of receipt of said
bill. During the term of this Agreement, the Company shall also reimburse
Consultant for his reasonable out-of-pocket expenses related to his consulting
services on submission of suitable evidence of expenditure.
3. Term and Termination. (a) (i) This Agreement
shall commence as of April 1, 1997 and shall remain in effect for
a period of three (3) years and thereafter renewable for additional periods of
one (1) year upon mutual agreement of both parties, unless sooner terminated as
provided for herein.
(ii) This Agreement shall automatically
terminate if the Consultant dies, becomes incapacitated or disabled to such an
extent that he is incapable of performing the services required to be performed
hereunder.
(iii) Either party hereto shall have the
right to terminate this Agreement if the other party shall breach any obligation
contained in this Agreement and such breach is not remedied within sixty (60)
days following written notice thereof.
(b) No payments shall be due Consultant except as
specified in this Agreement. The Company shall have no further obligation to
Consultant hereunder after termination or expiration of this Agreement except to
pay the Consultant the consulting fees specified in clause "2" above incurred
prior to
<PAGE>
termination of his consulting services. Consultant shall not be entitled to any
consulting fees relating to any period after termination of this Agreement.
(c) The obligations set forth in clauses "5" and
"6" survive termination of this Agreement.
4. Services. (a) Consultant agrees that the
consulting services shall be personally performed by Daniel J.
Black. Consultant agrees to render the following consulting and
advisory services relating to the subjects listed below:
(i) development and strategies - profit
sharing and other incentive programs;
(ii) long term financial planning and
strategies;
(iii) acquisition review; (iv) membership on
Executive Committee; (v) international
operations; and (vi) such other projects as
may be assigned
to Consultant by Company.
(b) Consultant agrees to be available eighty (80)
working days a year to perform the services listed hereinabove.
(c) Consultant's services shall be conducted
either in the Company's New York office or such other location to be provided by
Consultant.
5. Secrecy. Consultant shall keep strictly
confidential all materials, information, and knowledge obtained
or acquired from the Company, as a result of the performance of
<PAGE>
services hereunder, and Consultant acknowledges that such material, information,
and knowledge are special, valuable, and unique assets of the Company. During
the term of this Agreement or at any time thereafter, Consultant will not use or
disclose to any person, firm or corporation, other than the Company, any such
information without prior written consent of the Company unless such information
shall have previously become public knowledge through no fault of Consultant.
6. Inventions. Worldwide ownership and title in any ideas,
concepts, products, components, developments, patent rights, copyrights,
trademarks, processes, formulations, methodology, know-how, techniques,
improvements, or inventions relating to the subject matter of this Agreement and
resulting from the arrangements provided for herein shall be the sole property
of the Company, and Consultant agrees to execute and/or cause to be executed
upon request by the Company and deliver to the Company any and all documents as
may be necessary or desirable to perfect title to them in the Company, its
successors, assigns, or legal representatives.
7. Notices. All communications hereunder shall be in writing
and delivered or mailed by First Class Mail, postage prepaid, to the Company at
1345 Avenue of the Americas, New York, New York 10105, Attention: Chairman of
the Board, and to Consultant at the address shown hereinabove, unless another
address has been given to the other party hereto in writing.
8. Interpretation. No provision of this Agreement may
<PAGE>
be altered or waived except by written instrument executed by both parties. This
Agreement constitutes the entire contract between the parties hereto in respect
to the subject matter hereof, and no party shall be bound in any manner by any
warranties, representatives, or guarantees, except as specifically set forth in
this Agreement.
9. Independent Contractor. It is understood and agreed that
Consultant is not an agent or employee of the Company for any purpose whatever,
but is an independent contractor, and Consultant shall not act or attempt to act
or represent himself as an agent or employee of the Company. As an independent
contractor, Consultant shall be responsible for payment of any and all taxes in
connection with this Agreement.
10. This Agreement may not be assigned by Consultant.
11. Entire Agreement. This Agreement supersedes all
other agreements that may exist between the parties relating to the subject
matter hereof. This Agreement sets forth the entire agreement and understanding
between the parties pertaining to the subject matter hereof and neither party
shall be bound by any definition, condition, warranty or representation other
than as expressly stated in this Agreement or as subsequently set forth in
writing and executed by Consultant and duly authorized officer of the Company.
12. Waiver. The failure on the part of Company or
Consultant to exercise or enforce any rights conferred upon it
hereunder shall not be deemed to be a waiver of any such rights
<PAGE>
nor operate to bar the exercise or enforcement thereof at any
time or times thereafter.
13. Headings. The various headings of this Agreement
are inserted for convenience only and shall not limit or affect
the meaning of any section hereof.
14. Governing Law. This Agreement shall be construed
and enforced in accordance with the laws of the State of New
York. The parties expressly consent to the jurisdiction over the
parties of the courts of the State of New York and the U. S.
District Court for the Southern District of New York for the
purpose of adjudicating any dispute or claim arising under this
Agreement.
15. Further Assurances. Each of the parties hereto
shall do such acts and make and deliver such instruments and
documents at and after the date of this Agreement as may be
reasonably required to effectuate the agreements herein and the
transactions contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first written above.
CARTER-WALLACE, INC.
By:______________________
Henry H. Hoyt, Jr.
Chairman of the Board
----------------------
Daniel J. Black
<PAGE>
CARTER-WALLACE
ANNUAL REPORT
FOR THE YEAR
ENDED MARCH 31 1997
<PAGE>
EXECUTIVE OFFICES
1345 Avenue of the Americas, New York, N.Y. 10105
212-339-5000
RESEARCH LABORATORIES
Cranbury, New Jersey
Montreal, Canada
MANUFACTURING PLANTS
Cranbury, New Jersey
Colonial Heights, Virginia
Decatur, Illinois
Santa Ana, California
Winsted, Connecticut
Montreal, Canada
Folkestone, England
Milan, Italy
Pisa, Italy
Mexico City, Mexico
New Plymouth, New Zealand
Barcelona, Spain
TRANSFER AND DISBURSING AGENT
The Bank of New York
101 Barclay Street
New York, N.Y. 10286
800-524-4458
REGISTRAR OF STOCK
The Bank of New York
101 Barclay Street
New York, N.Y. 10286
SHAREHOLDER RELATIONS
Ruder Finn, Inc.
800-984-1777
<PAGE>
CARTER-WALLACE, INC.
ANNUAL REPORT
For the year ended March 31, 1997
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS 1997 1996
<S> <C> <C>
Net sales $648,755,000 $658,940,000
Earnings before one-time charges and
taxes 45,349,000 54,797,000
Earnings before taxes 45,349,000 12,797,000
Net earnings 26,756,000 7,550,000
Earnings per share before one-time
charges $ .58 $ .70
Earnings per share $ .58 $ .16
Dividends 7,423,000 7,384,000
Dividends per share $ .16 $ .16
Average shares outstanding 46,389,000 46,160,000
Number of stockholders of record
Common 2,656 2,894
Class B common 1,471 1,605
</TABLE>
- ---------------------------------------------------------------------
[LOGO]
The Company markets
toiletries, pharmaceuticals,
diagnostic specialties,
proprietary drugs and pet products
- ---------------------------------------------------------------------
CONTENTS
Report to Stockholders 2
Summary of Selected Financial Data 7
Management's Discussion and
Analysis of Results of Operations
and Financial Condition 8
Description of Business Segments 11
Consolidated Balance Sheets 12
Consolidated Statements of Earnings
and Retained Earnings 14
Consolidated Statements of Cash Flows 15
Notes to Consolidated Financial Statements 16
Independent Auditors' Report 32
Directors and Officers Inside Back Cover
<PAGE>
REPORT TO STOCKHOLDERS
In the fiscal year ended March 31, 1997, the Company's consolidated sales were
$648,755,000 compared to the prior year's sales of $658,940,000.
The Company earned $.58 per share for the fiscal year ended March 31, 1997
compared to $.16 per share in the prior year. The results of operations for the
year ended March 31, 1997 include introductory spending related to Astelin Nasal
Spray for the symptoms of seasonal allergic rhinitis which was launched during
the fourth quarter. One-time pre-tax charges in the prior year were $42,000,000
or $.54 per share.
SALES
Sales in the Company's two business segments were Consumer Products $405,592,000
and Health Care Products $243,163,000. Consumer Products were 63% and Health
Care Products were 37% of total sales. These sales compare to a year ago of
$412,362,000 and $246,578,000, respectively.
Foreign sales by subsidiaries and branches operating outside the United States
were $210,606,000 for the fiscal year ended March 31, 1997 compared with
$206,576,000 the previous year. This represents 32% and 31%, respectively of
total sales. Health Care Products accounted for 36% and Consumer Products 64% of
foreign sales. Lower foreign exchange rates had the effect of decreasing foreign
sales by approximately $1,900,000.
DIVIDENDS
Dividends of $.16 per share were paid in both the current and prior year. The
Company has paid dividends for 114 consecutive years.
CARTER PRODUCTS DIVISION
A continuation of retail trade consolidations, the trend toward private label
price pressure and competitive product introductions in key business segments
marked this year's business environment. In spite of these conditions, the
Division continued to stimulate the consumers' interest while matching their
desire for fresh products that meet their ever exacting needs by launching
several new products to strengthen the Division's brand franchises.
The Arrid line maintained sales volume despite intense competition in the
anti-perspirant/deodorant market. Innovative product introductions included
Arrid XX Ultra Clear Spray, the first aerosol positioned as a clear spray, and
Arrid XX Ultra Clear Solid, an innovative solid formula that turns clear
instantly when applied. Additionally, Arrid XX Gel was restaged with a new,
faster drying gel formula and an all new, state-of-the-art container. Package
graphics for the entire Arrid line were also contemporized.
The Division's condom brands achieved another record market share of well over
60% of total condom sales. The Trojan, Class Act and Naturalamb brands increased
position in their respective segments. Leadership advertising, strong promotion
and comprehensive educational programs helped improve our dominant position.
Trojan Ultra Pleasure and Class Act Smooth Sensation condoms were successfully
introduced.
The Nair line remained the number one brand of hair remover with increased sales
volume. Nair Cream for the Face achieved a substantial increase in consumer
sales since its repositioning in early 1995. Nair 3-IN-1 Lotion Hair Remover and
Nair Washable Waxing Gel were successfully introduced during the year, adding to
the full array of Nair products.
The Division continues to be one of the leading marketers of in-home pregnancy
and ovulation test kits. The First Response Pregnancy and Ovulation Test Kits
performed well in an increasingly competitive category. Answer Pregnancy and
Ovulation Diagnostic Test Kits faced increased competitive pressure from private
label brands in the price/value segment of this product category.
The Pearl Drops line increased sales volume and refocused on the value of Pearl
Drops Toothpolish with new packaging graphics and the introduction of Pearl
Drops Icy Cool Mint Gel Toothpaste which was successfully launched into the
whitening toothpaste segment of the business.
WALLACE LABORATORIES
The Division's year was highlighted by the FDA's approval and the Division's
subsequent introduction
2
<PAGE>
of Astelin (azelastine) Nasal Spray during the fourth fiscal quarter. Astelin, a
product licensed from ASTA Medica AG, is used to treat symptoms of seasonal
allergic rhinitis in people twelve years of age and older. It is unique in that
it is the only prescription antihistamine nasal spray available in the U.S.
market.
Clinical studies demonstrated that Astelin Nasal Spray is effective in relieving
symptoms of seasonal allergic rhinitis on the very first dose and can be used on
days when symptoms are present.
Astelin Nasal Spray is being co-promoted by the sales force of Muro
Pharmaceutical, Inc., a division of ASTA Medica AG, and is the primary product
promoted by the Wallace Division sales force. It will receive major promotional
support throughout the year with particular emphasis during the spring and fall
allergy seasons.
Division sales and marketing efforts also support those in-line products that
have demonstrated response to promotion such as the cough/cold product lines,
Rynatan and Organidin NR, as well as the Soma line of muscle relaxants. In
addition, sales of Rynatuss Tablets and Pediatric Suspension reached an all-time
high.
Felbatol, the Division's antiepileptic, is promoted for those patients whose
epilepsy is not controlled by other medications and when the risk of its use is
deemed acceptable in light of the benefits it confers.
Phase III clinical development of Taurolin (taurolidine) for use in treatment of
sepsis is continuing.
The Division continues to explore new pharmaceutical product opportunities,
acquisitions that
broaden or complement its product lines, as well as co-promotional agreements
with other companies.
WAMPOLE LABORATORIES
Sales increased substantially over the prior year and achieved the highest level
in the history of the Division.
This strong performance was primarily due to the continued success of the enzyme
immunoassay product lines that were introduced in December, 1995. Tests to
detect the intestinal pathogen C. difficile along with serological tests for H.
pylori, rubella and other infectious diseases were particularly strong
performers. The Division introduced five new enzyme immunoassay tests for
autoimmune and infectious diseases and expects to continue to introduce several
new products to the line throughout calendar year 1997.
The Division maintained its leadership position in rapid serological testing
with impressive sales increases for the MONO-plus and Mono-Latex tests for
infectious mononucleosis. MONO-plus received FDA approval that allows use of the
product with whole blood samples. In January, 1997 the Division signed an
agreement for exclusive marketing rights to a line of color-change serological
tests, the first of which, Color-Card Mono, was introduced in March. The Impact
RPR test for the serologic detection of syphilis also showed good growth.
In January, the Division introduced the Spuncrit system for the measurement of
hematocrit and hemoglobin in whole blood samples. This system is waived under
the Clinical Laboratories Improvement Act and is expected to complement the
Division's Stat-Crit system which recently received waived status for its
hematocrit assay.
The trend in hospital laboratories toward automation of test procedures had a
negative impact on sales of labor-intensive assays such as Isostat for the rapid
detection of micro-organisms in the blood and the Division's line of
immunofluorescent tests.
LAMBERT KAY DIVISION
The pet supply business continued to change rapidly as the larger superstore
chains acquire regional chains, while building more new stores to become
national in scope. Distributors are merging with other distributors and, in one
case, a manufacturer. The Division is developing strategies to effectively
market its products to all segments of the trade. The Lambert Kay brand is sold
through pet stores, while
3
<PAGE>
the Lassie and Tiny Tiger brands are sold through food, drug and discount
stores.
A number of new Lambert Kay products were introduced during the year. To
capitalize on the trend toward natural products, a line of shampoos under the
Grass Roots brand with the natural ingredients of oatmeal, herbal essence, silk
amino acids and aloe was introduced. Further enhancing the broad Lambert Kay
shampoo line, five 18-ounce shampoos offering extra value were added. To lighten
the sometimes arduous task of shampooing, the labels depict dogs in a variety of
costumes and carry whimsical names such as Bust A Bug, Knotty Problems, Groom &
Grow, Polar White and Near & Dear.
Continuing the trend toward natural products, a 16-item line of B-Natural
brewer's yeast nutritional supplements was introduced. Brewer's yeast is
believed by many to provide important health benefits to dogs, including that of
repelling fleas. The line includes tablets, crumbles and treats. Most have
garlic in their formula and all except the treat include Linatone, a well-known
Lambert Kay brand of nutritional supplement.
Capitalizing on the success of both Fresh 'N Clean and Lassie puppy
housebreaking pads, the Home Alone brand with extra absorbency was released for
adult dogs who stay at home all day while their owners are away. Citrus pet
stain and odor remover, containing d-limonene to impart a fresh citrus scent,
was also introduced with three sizes for consumer convenience.
INTERNATIONAL DIVISION
The Division's sales advanced to another record in the past year. In addition to
selective price increases, the Division benefited from higher unit volumes. Very
strong sales results were recorded in a number of countries, particularly in
Australia and Mexico, which showed double-digit growth.
Consumer products continued to advance in several areas. Pearl Drops showed
significant growth in Australia due to the introduction of a new line of
whitening tooth polishes. Pearl Drops continues to be a leading brand in
England, Germany and several other European countries. The Trojan brand of
condoms continued to hold the leading market share in Canada and enjoyed
excellent sales growth in Mexico. Our dominant share in the topical analgesic
market in Canada with Antiphlogistine Rub A-535 was maintained, while Dencorub
continued to perform well in Australia. Strong growth continued for our Lineance
line of cosmetic products in France and the Curash line of baby care products
showed notable growth in Australia. Sales of home pregnancy kits advanced in
several countries including Mexico and Italy, in spite of increasing
competition. Nair depilatories continued to enjoy a strong presence in the
Middle East, particularly Saudi Arabia, while in Spain Taky depilatories showed
growth largely related to the launch of a new microwaveable wax.
The Division's line of health care and pharmaceutical products displayed strong
gains in several markets. In Canada, Ovol, an antiflatulent product, showed
substantially higher sales and Gravol antinauseant maintained its dominant
market share. In France, Sterimar nasal decongestant continued to respond well
to consumer advertising and promotion and showed impressive growth. In Italy,
Cerulisina, an OTC preparation to remove ear wax posted significant gains and
the Odontovax line of oral hygiene products was launched in Italy during the
year with initial acceptance very encouraging. In Mexico, pharmaceutical sales
showed very significant growth led by Pangavit, a line of vitamin supplements,
Alter H2, an antacid, and Hidramox, a wide spectrum antibiotic.
In the diagnostic sector, an automated immunoassay system was introduced in
Italy to accommodate the line of recently acquired radioimmunoassay products.
This system will faciliate the workload and workflow for high volume testing
laboratories. Our subsidiary in Italy now commands a leadership position in
blood testing products for thyroid disorders and autoimmune diseases. New tests
have recently been introduced for disorders of bone metabolism. The
newly-acquired line of ELISA (enzyme immunoassay) tests showed strong sales in
Europe.
4
<PAGE>
Throughout Europe, our Isolator microbiology product line, a rapid and highly
sensitive blood culture system, showed good growth in these expanding markets.
New, rapid color-change tests for the detection of fungal and intestinal
parasite infections were successfully introduced in France.
RESEARCH AND DEVELOPMENT
Expenses for research and development totaled $27, 284,000 for the fiscal year
ended March 31, 1997 compared to $26,494,000 in the prior fiscal year.
Since October 1994, research and development of Astelin Nasal Spray for rhinitis
and Taurolin (taurolidine) for the treatment of sepsis has continued through
independent research facilities managed by internal supervisory personnel.
Research is also continuing on Felbatol (felbamate).
The Astelin Nasal Spray New Drug Application ("NDA") was approved on November 4,
1996 and launched on March 10, 1997. The Astelin (azelastine) tablet NDA for
rhinitis is pending at the FDA. The Company has not yet decided whether to seek
final approval for this NDA. The Astelin (azelastine) tablet NDA for asthma will
be withdrawn as soon as it is no longer needed to support the other two NDAs.
A large scale, multi-centered clinical efficacy trial for Taurolin
(taurolidine), an antitoxin for the treatment of sepsis, is ongoing.
FACILITIES
The expansion and renovation of the condom manufacturing facility in Colonial
Heights, Virginia, which the Company purchased in April, 1995, was completed in
April, 1996. Originally 68,000 square feet, the facility is now 200,000 square
feet and in October, 1996 it was fully equipped and operational.
The facility, one of the finest condom manufacturing plants in the world, has
been equipped with a combination of new state-of-the-art equipment and
refurbished equipment relocated from the Rincon, Puerto Rico and Trenton, New
Jersey facilities which were closed in March, 1995 and October, 1996,
respectively.
LITIGATION
The Company is a defendant in certain actions which are discussed in Note 19,
"Litigation Including Environmental Matters" of the Notes to the Consolidated
Financial Statements.
PEOPLE
Suzanne Hoyt Garcia was elected to the Board of Directors in April, 1997
bringing the Board to nine members. Mrs. Garcia is owner of La Tierra
Beneficiaries (real estate development) and Santa Fe Ranch.
Several senior management changes occurred in the past year. We are fortunate to
have been able to replace our departing executives with seasoned executives who
have considerable knowledge of our business and the strategies we have defined
for the future growth and development of the Company.
In March, 1997 Daniel J. Black, President and Chief Operating Officer, retired
after 37 years with the Company. During his tenure Mr. Black witnessed many
changes in our business environment and contributed much to our development
through some challenging times.
Ralph Levine, formerly Vice President, Secretary and General Counsel replaced
Mr. Black as President and Chief Operating Officer. Mr. Levine has been with the
Company for more than 34 years and is a member of the Company's Board of
Directors and Executive Committee.
Paul A. Veteri became Executive Vice President and Chief Financial Officer,
effective April 1, 1997. Mr. Veteri was Vice President and Chief Financial
Officer and has been with the Company for 21 years. He is a member of the
Company's Board of Directors and Executive Committee.
Stephen R. Lang joined the Company to succeed Mr. Levine as Vice President,
Secretary and General Counsel. Mr. Lang has advised the Company on legal matters
during his 34 years with Whitman Breed Abbott & Morgan where he was a Partner
and Chairman of the Litigation Department.
5
<PAGE>
Mark Wertlieb has joined the Company as Vice President, Taxes. Before joining
Carter-Wallace, Mr. Wertlieb was a Tax Partner with KPMG Peat Marwick LLP. He
succeeded Donald J. Stack, who retired after 21 years with the Company.
Gregory J. Drohan was appointed President of the reorganized Carter-Horner Inc.
Mr. Drohan joined Carter Products, Canada in 1987 as Director of Sales. He was
appointed Vice President Marketing and Sales in 1993 and was named President of
Carter Products, Canada in 1994.
J. Robert Fraser retired as President of Frank W. Horner, Inc., after 31 years
with the Company.
Jordi Pruja was appointed Managing Director of Icart S.A. in Spain.
* * *
We have made considerable progress in our efforts to streamline and strengthen
our businesses and enhance our brand franchises. We appreciate the ongoing trust
and confidence of the consumers and professionals who use our products, and the
loyal support of our employees, shareholders and suppliers. We thank them for
their interest and confidence in Carter-Wallace.
Henry H. Hoyt, Jr.,
Chairman of the Board and
Chief Executive Officer
Ralph Levine,
President and
Chief Operating Officer
June 12, 1997
6
<PAGE>
Carter-Wallace, Inc. and Subsidiaries
SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
----------------------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AND EMPLOYEE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales $648,755 $658,940 $663,642 $664,789 $653,511
Earnings before one-time charges in 1996
and 1995, taxes and the cumulative
effect of accounting changes in 1994 45,349 54,797 42,310 37,382 68,406
Net earnings (loss) before the
cumulative effect of accounting
changes 26,756 7,550(a) (56,268)(b) 26,609 47,200(d)
Net earnings (loss) 26,756 7,550(a) (56,268)(b) (20,030)(c) 47,200(d)
Net earnings (loss) per share before the
cumulative effect of accounting
changes in 1994 .58 .16(a) (1.22)(b) .58 1.03(d)
Net earnings (loss) per average share
of common stock outstanding .58 .16(a) (1.22)(b) (.44)(c) 1.03(d)
Dividends per share .16 .16 .29 .33 .33
Average common shares outstanding 46,389 46,160 46,108 45,900 45,786
FINANCIAL POSITION
Working capital $142,972 $137,083 $100,596 $185,159 $184,175(e)
Net property, plant and equipment 154,844 139,273 137,608 157,059 150,070
Total assets 685,922 718,925 680,224 628,562 595,550(e)
Long-term debt 51,025 55,928 23,115 9,309 13,184
Stockholders' equity 349,154 332,896 327,139 393,508 429,161(e)
OTHER DATA
Capital expenditures $ 31,066 $ 35,228 $ 18,853 $ 24,305 $ 25,500
Book value per share 7.53 7.18 7.08 8.54 9.37(e)
Number of employees 3,460 3,610 3,670 4,060 4,020
<FN>
(a) Reflects one-time charges against pre-tax earnings of $42,000 ($24,780 after
tax or $.54 per share) related to the closure of the Trenton facility,
restructuring charges and net adjustments to the provision for loss on
Felbatol (felbamate) and the discontinuance of the Organidin (iodinated
glycerol) product line.
(b) Reflects one-time charges against pre-tax earnings of $129,340 ($80,566
after tax or $1.75 per share) related to the discontinuance of the Organidin
(iodinated glycerol) product line, the provision for loss on Felbatol
(felbamate) and restructuring charges.
(c) Reflects the cumulative effect of adopting Statements of Financial
Accounting Standards No. 106 "Employers' Accounting for Post Retirement
Benefits Other than Pensions" and No. 112 "Employers' Accounting for
Postemployment Benefits" of $46,639 after tax or $1.02 per share.
(d) Includes income of $10,000 before taxes, or $6,000 after taxes ($.13 per
share) related to a licensing agreement with Schering-Plough Corporation
granting exclusive marketing rights in all markets except the United States
and its territories and possessions, Canada and Mexico, to Felbatol
(felbamate).
(e) Restated to reflect a change in accounting for income taxes.
</TABLE>
------------------------------------------------------
QUARTERLY DATA ON COMMON STOCK
The high and low selling prices of the Company's
common stock, principally traded on the New York Stock
Exchange (symbol CAR), for the two most recent fiscal
years were as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31
----------------------------------------------------
1997 1996
---------------------- ----------------------
QUARTER ENDED HIGH LOW HIGH LOW
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
June 30 $18 $13 1/4 $13 3/8 $10 1/4
September 30 14 5/8 10 3/8 13 1/2 10 1/8
December 31 16 1/2 11 3/8 13 1/8 10 1/8
March 31 16 1/2 13 1/8 16 3/4 11 1/8
</TABLE>
A dividend of $.04 per share was declared in all four
quarters of 1997 and 1996.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
- --------------------------------------------------------------------------------
NET SALES AND EARNINGS
Net earnings were $26,756,000 or $.58 per share in the year ended March 31, 1997
compared with $7,550,000 or $.16 per share in the prior year. The results of
operations for the year ended March 31, 1997 include net introductory spending
related to the launch of Astelin Nasal Spray for seasonal allergic rhinitis. In
the prior year one-time pre-tax charges amounted to $42,000,000 or $.54 per
share.
Net sales in 1997 were $648,755,000 compared to prior year's sales of
$658,940,000. Domestic sales decreased $14,215,000 or 3.1% and foreign sales
increased $4,030,000 or 2.0%. Lower foreign exchange rates had the effect of
decreasing foreign sales by $1,900,000.
Sales of Consumer Products decreased $6,770,000 or 1.6% in 1997 due to reduced
volume in domestic operations. Factory sales of worldwide antiperspirant and
deodorant products were $111,923,000 in 1997, or 1.6% higher than the
$110,147,000 sales level in 1996 due to higher unit volume. Sales of condoms and
certain other consumer product lines were lower than the prior year.
Health Care sales decreased $3,415,000 or 1.4% in 1997 from the prior year due
to lower unit volume. Health Care sales benefited from the introduction of
Astelin Nasal Spray for allergic rhinitis in the fourth quarter of 1997 as well
as a full year's sales of the BioWhittaker and Clark diagnostic lines acquired
in December, 1995. Sales of the Company's pharmaceutical products, particularly
Organidin NR, continue to be adversely affected by generic competition. Selling
price increases had a positive effect on sales in comparison with the prior year
period. The Company continues to maintain the provision previously established
for possible Organidin NR returns.
Net sales in 1996 were $658,940,000 compared to prior year's sales of
$663,642,000. Domestic sales decreased $29,088,000 or 6% and foreign sales
increased $24,386,000 or 13% from the prior year. Lower foreign exchange rates
had the effect of decreasing foreign sales by approximately $2,400,000.
Sales of Consumer Products increased $11,505,000 or 3% in 1996 due to higher
volume in international operations. Acquisitions in France and Australia made in
1995 as well as higher sales of existing products in Europe and Latin America
contributed a substantial portion of the international sales growth of Consumer
Products. Condom sales in 1996 exceeded sales in 1995 principally in the
domestic market. Factory sales of worldwide antiperspirant and deodorant
products were $110,147,000 in 1996, or 10.6% lower than the $123,146,000 sales
level in 1995. This decline was due to reduced unit volume.
In 1996, Health Care sales declined $16,207,000 or 6% from the prior year due to
lower unit volume largely as a result of reduced sales of Felbatol (felbamate).
In 1995, sales of Organidin Iodinated Glycerol, which was discontinued in June
1994, amounted to approximately $21,000,000. 1996 sales of Organidin NR, a
reformulated version of Organidin which was introduced in September, 1994
amounted to approximately $30,100,000, an increase of $18,100,000 over the prior
year. Selling price increases had a positive effect on sales in this segment.
Health Care sales benefited from the acquisitions of the BioWhittaker and Clark
diagnostic lines in 1996 and the Technogenetics line of diagnostic products in
Italy in 1995.
Interest income decreased in 1997 by $902,000 or 17.6% from the prior year due
to a reduction in interest bearing investments. In 1996 interest income was
higher than 1995 due to an increase in interest bearing investments.
COSTS AND EXPENSES
Cost of goods sold as a percentage of net sales was 37.6% in 1997 compared to
37.4% in 1996 due primarily to changes in product mix. The cost of goods sold
percentage in 1996 increased over the 36.2% in 1995 due to changes in product
mix and cost increases. Throughout this period the Company has attempted to
minimize the effects of higher costs by selective price increases and cost
control measures.
In 1997, advertising, marketing and other selling expenses increased from the
prior year by $1,513,000 or .6%. The launch of Astelin Nasal Spray for seasonal
allergic rhinitis in the fourth quarter of 1997 was supported by introductory
spending levels. In the Consumer Products segment spending was lower than the
prior year. In 1996, advertising, marketing and other selling expenses were
lower than the prior year by $4,264,000 or 2%, due to lower expenses in the
Health Care segment. In 1996, spending in the Consumer Products segment was
higher than the prior year due principally to higher expenses in international
operations in support of acquisitions.
Research and development expenses in 1997 increased $790,000 or 3.0% as a result
of higher spending in the Consumer Products segment. Research and development
expense in the Health Care segment was lower than the prior year. In 1996
research and development expenses decreased by $14,821,000 or 36% from the prior
year due primarily to lower spending in the Health Care segment for felbamate as
well as the completion of Astelin (azelastine) clinical trials. The Company is
continuing its research and development of Taurolin (taurolidine), an antitoxin
for the treatment of sepsis, and to the extent such work exceeds the Company's
remaining internal research and development resources,
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
such work will be done through independent research facilities.
General and administrative expenses increased $806,000, or 1%, due primarily to
a provision for a trade receivable related to the bankruptcy of a pharmaceutical
wholesaler, reduced in part by lower rent expense. General and administrative
expenses decreased $2,687,000 or 3% in 1996 primarily as a result of lower rent
and reduced employee benefit costs.
Interest expense increased in 1997 by $297,000 or 7.6% over the prior year as a
result of borrowings related largely to the expansion of the Company's Colonial
Heights, VA condom facility. Interest expense in 1996 was higher than 1995 by
$1,377,000 or 54.8% as a result of the financing related to international
acquisitions made in 1995 and interest costs related to expansion of the
Colonial Heights, VA facility.
Other expenses decreased by $2,691,000 or 29.6% in 1997 from the prior year
principally as a result of a charge in 1996 of approximately $2,400,000 related
to a write-off of the carrying value of a discontinued product. Other expenses
decreased by $495,000 or 5% in 1996 from the prior year principally as a result
of lower expense for long-term incentive awards. As noted above, other expenses
in 1996 included a charge related to a write-off of the carrying value of a
discontinued product.
The consolidated income tax rate in 1997 and 1996 was 41%. In 1995, the Company
had a 35.3% tax benefit on its reported consolidated loss. Tax rates in 1996,
1997 and future years are and will be adversely affected by the cessation of
Puerto Rico operations and the absence of research and development tax credits.
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." The Company is
required to adopt this statement no later than the fiscal year ending March 31,
1998. Adoption of this statement is not expected to have a material effect on
the Company's earnings per share.
CLOSURE OF THE TRENTON CONDOM MANUFACTURING FACILITY
The Company closed its condom manufacturing plant in Trenton, New Jersey in
October, 1996. The condom production previously performed at Trenton has been
transferred to the Company's facility in Colonial Heights, VA. The decision to
close the Trenton plant resulted in a one-time charge to pre-tax earnings in the
year ended March 31, 1996 of $23,100,000 ($13,630,000 after taxes or $.30 per
share), consisting of plant closing costs including equipment write-offs
($17,800,000) and employee termination costs ($5,300,000).
RESTRUCTURING OF OPERATIONS AND FACILITIES
Prompted by the discontinuance of its line of iodinated glycerol formulation of
Organidin products and by the significant adverse effect on existing and
potential sales of Felbatol (felbamate) due to use restrictions, the Company
engaged in a restructuring program beginning in the year ended March 31, 1995
with the intent of reducing costs and increasing efficiencies.
In connection with this 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 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.
Approximately $17,200,000 of the $90,560,000 provision for restructuring charges
remain to be utilized in future periods. Substantially all of the $17,200,000
represents expected future cash outlays for subleasing costs.
FELBATOL (FELBAMATE)
As previously reported, in the year ended March 31, 1995 the Company incurred a
one-time charge to pre-tax earnings of $37,780,000 related to use restrictions
for Felbatol. This charge was adjusted by $8,200,000 to $45,980,000 in the year
ended March 31, 1996. Depending on future sales levels, additional inventory
write-offs may be required. If for any reason the product at some future date
should no longer be available in the market, the Company will incur an
additional one-time charge that would have a material adverse effect on the
Company's results of operations and possibly on its financial condition. Should
the product no longer be available, the Company currently estimates that the
additional one-time charge, consisting primarily of inventory write-offs and
anticipated returns of product currently in the market, will be in the range of
$20,000,000 to $25,000,000 on a pre-tax basis.
DISCONTINUANCE OF THE ORGANIDIN (IODINATED GLYCEROL) PRODUCT LINE
As previously reported, in the year ended March 31, 1995 the Company incurred a
one-time charge to pre-tax earnings of $17,500,000 related to discontinuance of
the Organidin (iodinated glycerol) product line. In the year ended March
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
31, 1996 an adjustment was made to reduce the provision for loss on Organidin by
$5,800,000 largely as a result of smaller than anticipated product returns.
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 launched Astelin Nasal Spray, a product licensed from ASTA Medica
AG, in the fourth quarter of fiscal 1997 supported by introductory levels of
marketing spending.
In accordance with the terms of the Company's agreement with ASTA Medica AG, a
joint venture is expected to be formed during fiscal 1998 under which the
Company will be responsible for all manufacturing, selling, marketing and
administrative activities for Astelin and will receive compensation for these
activities from the joint venture.
LIQUIDITY
Funds provided from operations and the Company's short-term investments and cash
equivalents are the main source for financing working capital requirements,
additions to property, plant and equipment, the payment of dividends and the
purchases of treasury stock. External borrowings are incurred as needed to
satisfy cash requirements relating to seasonal business fluctuations and to
finance major facility expansion programs and major acquisitions.
At March 31, 1997, the Company had available various bank credit lines amounting
to $215,000,000 consisting of $195,000,000 in domestic credit lines and
$20,000,000 in foreign credit lines, of which $347,000 of the foreign lines were
utilized at March 31, 1997. There were no domestic borrowings under credit lines
at March 31, 1997. The domestic lines are made up of a $150,000,000 revolving
credit facility expiring on October 1, 2000 and $45,000,000 in uncommitted
credit lines from various banks.
The pre-tax one-time charges of $171,340,000 recorded in the years ended March
31, 1995 and March 31, 1996, consist of net cash requirements of $115,000,000
and non-cash write-offs of $56,340,000. Approximately $28,800,000 of the total
cash requirements of $115,000,000 was paid in 1995, $35,100,000 was paid in
1996, $31,300,000 was paid in 1997 and $3,300,000 is expected to be paid in the
fiscal year ending March 31, 1998. The anticipated cash benefit from income
taxes related to these one-time charges is estimated to be $66,000,000 which
will be received over a period of years. The net cash outlay for the one-time
charges after consideration of the tax benefits is approximately $49,000,000.
CAPITAL RESOURCES
Capital expenditures were $31,070,000 in 1997, $35,230,000 in 1996 and
$18,850,000 in 1995. Capital expenditures are expected to be lower in 1998 than
in 1997.
10
<PAGE>
DESCRIPTION OF BUSINESS SEGMENTS
- --------------------------------------------------------------------------------
The Company is engaged in the manufacture and sale of a diversified line of
products in the Consumer Products and Health Care business segments described
below:
CONSUMER PRODUCTS
These products are promoted directly to the consumer by television and other
advertising media and are sold to wholesalers and various retailers. They are
manufactured and sold domestically by our consumer products divisions and some
are sold throughout the rest of the world by various subsidiaries and
distributors. Principal products include:
ANTI-PERSPIRANTS AND DEODORANTS
* Arrid Extra Dry and Arrid XX
* Lady's Choice
OTHER CONSUMER PRODUCTS
* Answer and First Response at-home pregnancy and ovulation test kits
* Carter's laxative
* H-R lubricating jelly
* Nair depilatories and waxes
* Pearl Drops whitening toothpolish and whitening toothpaste
* Rigident denture adhesive
* Trojan, Class Act and Naturalamb condoms
* Boundary dog and cat repellant
* Color Guard flea and tick collars and chain products
* Fresh 'n Clean grooming products,
stain and odor remover and puppy housebreaking pads
* Lassie and Tiny Tiger pet product lines
* Linatone food supplement
* Twinco chains, slicker brushes and combs
* Vermont Style chew toys
* X-O-Trol flea and tick household and dog sprays and household foggers
HEALTH CARE
Health care products are promoted primarily to physicians, pharmacists,
hospitals, laboratories and clinics by a staff of specially trained professional
sales representatives and by advertising in professional journals. These
products are manufactured and sold domestically by our professional products
divisions and some are sold throughout the rest of the world by various
subsidiaries and distributors. Principal products include:
* Astelin Nasal Spray for the treatment of symptoms of seasonal allergic
rhinitis
* Felbatol for the treatment of seizures associated with epilepsy
* Organidin NR family of expectorants/antitussives
* Ryna line of cough/cold products
* Soma brand muscle relaxants
* Butisol sedative hypnotic
* Depen penicillamine for severe rheumatoid arthritis
* Doral sedative hypnotic
* Lufyllin xanthine bronchodilator
* Maltsupex laxative
* VoSoL topical antibacterial and antifungal agent
* Clearview product line of rapid tests for the determination of pregnancy,
group A streptococcus and chlamydia
* Impact, FIAX and other branded enzyme and fluorescent immunoassay tests to
detect a broad range of infectious and autoimmune diseases
* Isostat product line to aid in the detection of micro-organisms in blood
* Mono-Test, Mono-Latex and MONO-plus for the detection of mononucleosis
* Rheumaton and Rheumatex for the detection of rheumatoid factor
* Stat-Crit and Spuncrit, portable instruments for use in measuring blood
hematocrit levels
* Streptozyme for the detection of streptococcal antibodies
--------------------------
INTERNATIONAL PRODUCT LINES
In addition to many of the products listed above, the Company sells the
following products exclusively in certain International markets:
CONSUMER PRODUCTS
* Bi-Solution acne treatment products
* Cerox adhesive tapes and bandages
* Confidelle, Discover and Gravix at-home pregnancy test kits
* Cossack line of men's grooming products
* Curash line of skin care products
* Email Diamant toothpastes
* Eudermin line of skin care and toiletry products
* GranVista non-prescription eyeglasses
* Lineance line of anti-cellulite and associated skin care products
* Odontovax line of oral hygiene products
* Poupina line of skin care and toiletry products
* Taky depilatories and waxes
HEALTH CARE
* Antiphlogistine Rub A-535 and Dencorub topical analgesics
* Atasol analgesic/antipyretic
* Bentasil medicated throat lozenges
* Cerulisina otic solution
* Diovol antacid products
* Gravol antinauseant
* Jordan toothbrushes
* Maltlevol and Pangavit vitamin supplements
* Ovol antiflatulent
* Sterimar nasal decongestant
* Technogenetics line of diagnostic tests for thyroid metabolism,
fertility/pregnancy conditions and other hormonal (endocrine) disorders
11
<PAGE>
Carter-Wallace, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 35,124,000 $ 51,185,000
Short-term investments, principally certificates of deposit 18,667,000 20,034,000
Accounts receivable-trade, less allowances of
$6,730,000 in 1997 and $6,716,000 in 1996 117,466,000 126,288,000
Other receivables 5,219,000 5,643,000
Inventories
Finished goods 50,918,000 55,427,000
Work in process 11,744,000 13,327,000
Raw materials and supplies 24,559,000 23,450,000
------------ ------------
87,221,000 92,204,000
------------ ------------
Deferred taxes 27,932,000 32,408,000
Prepaid expenses and other current assets 9,527,000 9,011,000
------------ ------------
TOTAL CURRENT ASSETS 301,156,000 336,773,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land 3,008,000 2,956,000
Buildings and improvements 110,031,000 99,331,000
Machinery, equipment and fixtures 156,329,000 137,645,000
Leasehold improvements 22,118,000 21,323,000
------------ ------------
291,486,000 261,255,000
Accumulated depreciation and amortization 136,642,000 121,982,000
------------ ------------
154,844,000 139,273,000
------------ ------------
INTANGIBLE ASSETS
Excess of purchase price of businesses acquired over the
net assets at date of acquisition, less amortization 88,855,000 95,628,000
Patents, trademarks, contracts and formulae, less
amortization 34,484,000 35,794,000
------------ ------------
123,339,000 131,422,000
------------ ------------
DEFERRED TAXES 41,889,000 50,803,000
OTHER ASSETS 64,694,000 60,654,000
------------ ------------
$685,922,000 $718,925,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 34,867,000 $ 38,941,000
Accrued expenses 102,790,000 132,331,000
Notes payable 3,258,000 6,054,000
Taxes on income 17,269,000 22,364,000
------------ ------------
TOTAL CURRENT LIABILITIES 158,184,000 199,690,000
------------ ------------
LONG-TERM LIABILITIES
Long-term debt 51,025,000 55,928,000
Deferred compensation 14,631,000 13,503,000
Accrued postretirement benefit obligation 69,432,000 68,588,000
Other long-term liabilities 43,496,000 48,320,000
------------ ------------
TOTAL LONG-TERM LIABILITIES 178,584,000 186,339,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, authorized 1,000,000 shares,
without par value; issued--none -- --
Common stock, authorized 80,000,000 shares,
par value $1 per share, one vote per share; issued
34,655,000
shares in 1997 and 34,613,000 shares in 1996 34,655,000 34,613,000
Class B common stock, authorized 13,056,800 shares, par
value $1 per share, ten votes per share; issued 12,550,000
shares in 1997 and 12,592,000 in 1996 12,550,000 12,592,000
Capital in excess of par value 3,588,000 3,268,000
Retained earnings 329,906,000 310,573,000
------------ ------------
380,699,000 361,046,000
Less:
Foreign currency translation adjustment and other 20,965,000 18,059,000
Treasury stock at cost--710,800 common and 153,600
Class B common shares in 1997 and 676,800 common
and 153,600 Class B common shares in 1996 10,580,000 10,091,000
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 349,154,000 332,896,000
------------ ------------
$685,922,000 $718,925,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
Carter-Wallace, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
THREE YEARS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
Revenues:
Net sales $648,755,000 $658,940,000 $663,642,000
Interest income 4,226,000 5,128,000 3,574,000
Royalty and other income 3,200,000 3,409,000 2,762,000
------------ ------------ ------------
656,181,000 667,477,000 669,978,000
------------ ------------ ------------
Cost and Expenses:
Cost of goods sold 243,657,000 246,220,000 240,318,000
Advertising and promotion 122,407,000 123,573,000 125,450,000
Marketing and other selling 127,444,000 124,765,000 127,152,000
Research and development 27,284,000 26,494,000 41,315,000
General and administrative 79,440,000 78,634,000 81,321,000
Provision for restructuring of operations and
facilities -- 16,500,000 74,060,000
Provision for condom plant closing -- 23,100,000 --
Provision for loss on Felbatol -- 8,200,000 37,780,000
Provision for loss on discontinuance of the Organidin
(iodinated glycerol) product line -- (5,800,000) 17,500,000
Interest 4,186,000 3,889,000 2,512,000
Other 6,414,000 9,105,000 9,600,000
------------ ------------ ------------
610,832,000 654,680,000 757,008,000
------------ ------------ ------------
Earnings (loss) before taxes on income 45,349,000 12,797,000 (87,030,000)
Provision (benefit) for taxes on income 18,593,000 5,247,000 (30,762,000)
------------ ------------ ------------
Net earnings (loss) $ 26,756,000 $ 7,550,000 $(56,268,000)
------------ ------------ ------------
------------ ------------ ------------
Net earnings (loss) per average share of common stock $ .58 $ .16 $ (1.22)
------------ ------------ ------------
------------ ------------ ------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Amount at beginning of year $310,573,000 $310,407,000 $380,047,000
Net earnings (loss) 26,756,000 7,550,000 (56,268,000)
------------ ------------ ------------
337,329,000 317,957,000 323,779,000
Dividends--$.16 per share in 1997 and 1996, and
$.29 per share in 1995 (7,423,000) (7,384,000) (13,372,000)
------------ ------------ ------------
Amount at end of year $329,906,000 $310,573,000 $310,407,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 26,756,000 $ 7,550,000 $(56,268,000)
Adjustments to reconcile net earnings (loss) to cash
flows provided by operating activities:
Provision for one-time charges -- 42,000,000 129,340,000
Cash payments for one-time charges (31,302,000) (35,063,000) (28,819,000)
Depreciation and amortization 14,604,000 15,356,000 16,359,000
Amortization of patents, trademarks, contracts and
formulae 4,645,000 6,090,000 8,723,000
Amortization of excess of purchase price of
businesses acquired over the net assets at date
of acquisition 4,088,000 3,474,000 2,760,000
Other changes in assets and liabilities:
Decrease (increase) in accounts and other
receivables 5,787,000 (6,217,000) 13,845,000
Decrease (increase) in inventories 3,918,000 (986,000) 1,058,000
(Increase) decrease in prepaid expenses (635,000) (1,810,000) 1,301,000
(Decrease) increase in accounts payable and
accrued expenses (6,152,000) 12,343,000 28,498,000
Increase in deferred compensation 803,000 4,762,000 2,493,000
Decrease (increase) in deferred taxes 12,847,000 (84,000) (45,939,000)
Other changes (6,181,000) (9,605,000) (11,796,000)
------------ ------------ ------------
Cash flows provided by operating activities 29,178,000 37,810,000 61,555,000
------------ ------------ ------------
Cash flows used in investing activities:
Additions to property, plant and equipment (31,066,000) (35,228,000) (18,853,000)
Acquisition of product lines from BioWhittaker, Inc.
and Clark Laboratories (500,000) (12,977,000) --
Payments for international acquisitions, net of cash
received:
The Sante Beaute line in France -- -- (19,670,000)
Technogenetics in Italy -- -- (4,928,000)
The Curash line in Australia -- -- (3,660,000)
Payments for licensing agreements -- (250,000) (1,000,000)
Decrease (increase) in short-term investments 1,043,000 (1,451,000) 14,081,000
Other investing activities 186,000 2,089,000 856,000
------------ ------------ ------------
Cash flows used in investing activities (30,337,000) (47,817,000) (33,174,000)
------------ ------------ ------------
Cash flows used in financing activities:
Dividends paid (7,423,000) (7,384,000) (13,372,000)
Increase in borrowings 347,000 37,033,000 6,801,000
Payments of debt (6,624,000) (4,280,000) (4,348,000)
Purchase of treasury stock (380,000) (4,216,000) (838,000)
------------ ------------ ------------
Cash flows used in financing activities (14,080,000) 21,153,000 (11,757,000)
------------ ------------ ------------
Effect of foreign exchange rate changes on cash
and cash equivalents (822,000) (59,000) 163,000
------------ ------------ ------------
(Decrease) increase in cash and cash equivalents $(16,061,000) $ 11,087,000 $ 16,787,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
Carter-Wallace, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Carter-Wallace,
Inc. and all of its subsidiaries (the "Company"). All significant intercompany
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and use assumptions
that affect certain reported amounts and disclosures. Actual amounts may differ.
Cash Equivalents and Short-term Investments
Cash equivalents consist of certificates of deposit and other short-term
securities with maturities of three months or less when purchased. Investments
with a maturity of greater than three months but less than one year are
classified as short-term investments. The carrying value of cash equivalents and
short-term investments approximated fair value at March 31, 1997 and 1996.
Inventories
Inventories are valued at the lower of cost or market on the first-in, first-out
(FIFO) method, except for certain domestic inventories which are stated at cost
on the last-in, first-out (LIFO) method.
Property, Plant and Equipment
Depreciation is provided over the estimated useful lives of the assets,
principally using the straight line method. Leasehold improvements are amortized
on a straight line basis over the life of the related asset or the life of the
lease, whichever is shorter. Expenditures for renewals and betterments are
capitalized. Upon sale or retirement of assets, the appropriate asset and
related accumulated depreciation accounts are adjusted and the resultant gain or
loss is reflected in earnings. Maintenance and repairs are charged to expense as
incurred.
Intangible Assets
The excess of purchase price of businesses acquired over net assets at date of
acquisition is assessed to the product or group of products which constitute the
business acquired and amortized over no longer than 40 years for amounts
relating to acquisitions subsequent to October 31, 1970. The cost of patents,
formulae and contracts is amortized on a straight line basis over their legal or
contractual lives. The cost of trademarks is being amortized over no longer than
40 years for amounts relating to acquisitions subsequent to October 31, 1970.
Amounts related to intangibles acquired prior to October 31, 1970 are not
material.
The Company's policy in assessing the recoverability of intangible assets is to
compare the carrying value of the intangible asset with cash flow generated by
products related to the intangible asset. In addition, the Company continually
evaluates whether adverse developments indicate that an intangible asset may be
impaired.
Income Taxes
Deferred income taxes are determined using the liability method based on the
estimated future tax effects of differences between the financial statement and
tax bases of assets and liabilities given the provisions of enacted tax laws.
Advertising and Marketing Costs
Advertising, promotion and other marketing costs are charged to earnings in the
period in which they are incurred.
Earnings per Common Share
Net earnings (loss) per share of common stock is based on the average number of
common and Class B common shares outstanding during the year: 46,389,000 in
1997, 46,160,000 in 1996 and 46,108,000 in 1995. Inclusion of shares issuable
under stock option plans would not reduce reported net earnings per share.
2. INVENTORIES
Inventories computed on the last-in, first-out (LIFO) method comprised 10% and
8% of inventories included in current assets at year end 1997 and 1996,
respectively. If these inventories had been valued on the FIFO inventory method
(which approximates current or replacement cost), total inventories would have
been approximately $9,600,000 and $10,000,000 higher than reported at March 31,
1997 and 1996, respectively. Felbatol inventories of $12,850,000 at March 31,
1997 and $15,350,000 at March 31, 1996, not expected to be sold in the next
fiscal year, are included in Other Assets.
16
<PAGE>
3. TAXES ON INCOME
The provision (benefit) for taxes on earnings was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -------------
<S> <C> <C> <C>
Current:
Domestic $ 1,474,000 $ 415,000 $ 8,361,000
Foreign 4,496,000 5,517,000 6,356,000
----------- ----------- -------------
5,970,000 5,932,000 14,717,000
----------- ----------- -------------
Deferred:
Domestic 10,486,000 816,000 (45,791,000)
Foreign 2,137,000 (1,501,000) 312,000
----------- ----------- -------------
12,623,000 (685,000) (45,479,000)
----------- ----------- -------------
Total $18,593,000 $ 5,247,000 $ (30,762,000)
----------- ----------- -------------
----------- ----------- -------------
The components of income (loss) before taxes were as follows:
Domestic $26,824,000 $ 909,000 $(102,936,000)
Foreign 18,525,000 11,888,000 15,906,000
----------- ----------- -------------
Total $45,349,000 $12,797,000 $ (87,030,000)
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
The Company's Puerto Rican subsidiaries were liquidated as part of the Company's
restructuring program during fiscal 1995 and the early part of fiscal 1996. The
undistributed earnings of these subsidiaries were repatriated free of United
States income taxes upon liquidation.
Deferred income taxes are provided for temporary differences between the
financial statement and tax bases of the Company's assets and liabilities. The
temporary differences gave rise to the following deferred tax assets and
liabilities at March 31:
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Postretirement benefit plans $30,542,000 $ 29,193,000
Employee benefit plans 12,325,000 12,455,000
Accrued liabilities 23,076,000 31,330,000
Asset valuation accounts 18,971,000 19,735,000
All other 11,320,000 15,370,000
Valuation allowances (3,247,000) (3,247,000)
----------- ------------
Total deferred tax assets 92,987,000 104,836,000
----------- ------------
Depreciation 13,735,000 13,424,000
All other 9,431,000 8,201,000
----------- ------------
Total deferred tax liabilities 23,166,000 21,625,000
----------- ------------
Net deferred tax assets $69,821,000 $ 83,211,000
----------- ------------
</TABLE>
Realization of the Company's deferred tax assets is dependent on generating
sufficient taxable income in future years. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
assets will be realized, except for the valuation allowance amount. However, the
deferred tax assets could be reduced if estimates of future taxable income are
lowered. A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized.
17
<PAGE>
The effective tax rate of the provision (benefit) for taxes on earnings as
compared with the U.S. Federal statutory income tax rate was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- -----------------------
% TO % TO % TO
TAX PRE-TAX TAX PRE-TAX TAX PRE-TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
----------- ------- ----------- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Computed tax expense (benefit) $15,872,000 35.0% $ 4,479,000 35.0% $(30,461,000) (35.0%)
Foreign income taxed at a
different effective rate 1,581,000 3.5 (8,000) -- 1,438,000 1.7
State income taxes, net of
federal tax benefit 1,145,000 2.5 339,000 2.6 (4,989,000) (5.7)
Amortization of intangibles 534,000 1.2 606,000 4.7 829,000 .9
Valuation allowance -- -- 949,000 7.4 2,298,000 2.6
Puerto Rican income -- -- (9,000) -- (910,000) (1.0)
Other (539,000) (1.2) (1,109,000) (8.7) 1,033,000 1.2
----------- ------- ----------- ------- ------------ -------
$18,593,000 41.0% $ 5,247,000 41.0% $(30,762,000) (35.3%)
----------- ------- ----------- ------- ------------ -------
----------- ------- ----------- ------- ------------ -------
</TABLE>
The U.S. Internal Revenue Service completed its examination of the Company's tax
returns through fiscal year 1995 resulting in no material impact on the Company.
4. FOREIGN OPERATIONS
Net current assets and net sales of the Company's foreign subsidiaries and
branches operating outside of the United States, and the Company's equity in net
assets and net earnings of such operations were:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net current assets $ 83,540,000 $ 88,440,000 $ 80,147,000
Equity in net assets 125,757,000 117,585,000 108,009,000
Net sales 210,606,000 206,576,000 182,190,000
Net earnings 11,892,000 7,872,000 9,238,000
</TABLE>
The equity adjustment from foreign currency translation is comprised of the
following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
---------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Opening balance $17,245,000 $18,949,000
Current year 3,720,000 (1,704,000)
----------- -----------
Ending balance $20,965,000 $17,245,000
----------- -----------
----------- -----------
</TABLE>
At March 31, 1997, the Company had entered into forward foreign exchange
contracts in the amount of $21,600,000 related to intercompany loans between
certain of its subsidiaries. The forward exchange contracts are intended to
reduce the risk of fluctuating exchange rates on intercompany loan arrangements.
These contracts mature at various dates from April, 1997 to February, 1998.
5. NOTES PAYABLE AND LONG-TERM DEBT
Notes Payable
Notes payable consisting of borrowings from banks under available lines of
credit were $347,000, $746,000 and $4,096,000 and the current portion of
long-term debt was $2,911,000, $5,308,000 and $1,320,000 at March 31, 1997, 1996
and 1995, respectively. Data related to the amount of short-term borrowings
outstanding during the year is not presented since it is immaterial.
18
<PAGE>
The Company has available various bank credit lines amounting to $215,000,000 of
which $195,000,000 is for domestic borrowings and $20,000,000 is for
international borrowings. The availability of the lines of credit is subject to
review by the banks involved. Commitment fees are immaterial.
Long-Term Debt
Long-term debt at March 31 is summarized below:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Promissory Notes, 7.62%, payable in equal annual installments of
$7,000,000 from December 21, 2003 through December 21, 2007 $35,000,000 $35,000,000
Secured Italian lira term loans, adjustable rate payable in installments
through July 1, 2001 4,942,000 6,427,000
Connecticut Development Authority Industrial Development Bond, 6.75%
payable October 1, 1998 4,300,000 4,300,000
Unsecured French franc loans, at fixed and variable rates, payable in
installments through August 5, 2001 3,135,000 8,126,000
City of Decatur, Illinois adjustable rate Industrial Revenue Bond
payable December 1, 2010 3,000,000 3,000,000
Promissory Notes, 6.02%, payable no later than September 12, 1998 2,069,000 2,266,000
Unsecured Australian dollar term loan, 9.64%, payable in equal annual
installments through July 28, 1998 778,000 1,147,000
Unsecured Italian lira loans, rates of 4.5%-5.5%, payable in semi-annual
installments through July, 2002 712,000 970,000
----------- -----------
53,936,000 61,236,000
Less, current portion of long-term debt included in notes payable (2,911,000) (5,308,000)
----------- -----------
$51,025,000 $55,928,000
----------- -----------
----------- -----------
</TABLE>
Maturities of long-term debt for each of the four fiscal years 1999 through 2002
are $8,367,000, $1,836,000, $1,883,000 and $882,000, respectively.
The Italian lira loans are secured by irrevocable letters of credit. Commitment
fees are immaterial. Interest on these loans is the Milan Interbank Offered Rate
plus a nominal increment, adjusted quarterly.
With respect to the French franc loans, interest on the adjustable rate loans is
the Paris Interbank Offered Rate plus a nominal increment, adjusted quarterly.
Fixed rates are from 7.5% to 7.75%. Arrangements were made at the inception of
the loans to convert a portion of the loans from adjustable rate to fixed rate.
Interest on the City of Decatur, Illinois Industrial Revenue Bond is 70% of the
prime rate through December, 2000, adjustable thereafter.
The Company issued promissory notes, payable no later than September 12, 1998,
in connection with the acquisition of the net assets of Youngs Drug Products
Corporation and affiliates. Prepayments of all or portions of the notes are
required as certain contractual conditions are satisfied.
Certain of the Company's long-term debt agreements contain covenants which
require the Company to maintain a minimum level of net worth and limit total
long-term liabilities to a stated percentage of total capitalization.
The fair value of long-term debt, including current maturities, was $53,103,000
at March 31, 1997 and $61,139,000 at March 31, 1996.
19
<PAGE>
6. COMMON STOCK, CLASS B COMMON STOCK AND CAPITAL IN EXCESS OF PAR VALUE
The Company has two classes of common stock with a par value of $1.00 per share.
Class B common stock generally has ten votes per share on all matters and votes
as a class with common stock which has one vote per share. The transfer of Class
B common stock is restricted; however, Class B common stock is at all times
convertible into shares of common stock on a share-for-share basis. Common stock
and Class B common stock have identical rights with respect to cash dividends
and upon liquidation.
Activity for the years ended March 31, 1997, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
CLASS B CAPITAL IN
COMMON COMMON EXCESS OF
STOCK STOCK PAR VALUE
<S> <C> <C> <C>
----------- ----------- -----------
Balance at March 31, 1994 $34,432,000 $12,773,000 $ 1,972,000
Conversion of Class B common stock to Common Stock 96,000 (96,000) --
Cost of treasury stock under market value at date of
award or issuance -- -- 212,000
----------- ----------- -----------
Balance at March 31, 1995 34,528,000 12,677,000 2,184,000
Conversion of Class B common stock to Common Stock 85,000 (85,000) --
Cost of treasury stock under market value at date of
award or issuance -- -- 1,084,000
----------- ----------- -----------
Balance at March 31, 1996 34,613,000 12,592,000 3,268,000
Conversion of Class B common stock to Common Stock 42,000 (42,000) --
Cost of treasury stock under market value at date of
award or issuance -- -- 320,000
----------- ----------- -----------
Balance at March 31, 1997 $34,655,000 $12,550,000 $ 3,588,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The tax benefit on the appreciation of restricted stock awards and the cost of
treasury stock over or under the market value of the stock on the date of the
award or issuance have been applied to capital in excess of par value. To the
extent that charges from the cost of treasury stock over the market value at the
date of the award exceed accumulated credits to capital in excess of par value
in the prior years, the excess was charged to retained earnings.
7. RETIREMENT PLANS
The Company has several contributory and non-contributory pension plans in which
substantially all employees with over one year of service participate. The
Company's funding policy is to make annual contributions to these plans in
amounts equal to the minimum required by applicable regulations. The plans'
assets are invested primarily in common stocks and corporate and government
bonds.
The pension expense for the years ended 1997, 1996 and 1995 included the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 8,127,000 $ 6,839,000 $ 8,019,000
Interest cost on projected benefit obligation 14,721,000 14,484,000 13,689,000
Actual return on assets (27,487,000) (42,145,000) (1,449,000)
Net amortization and deferral 9,875,000 25,385,000 (15,441,000)
Curtailment/settlement (gain) loss 106,000 1,611,000 (549,000)
----------- ----------- -----------
Total pension expense $ 5,342,000 $ 6,174,000 $ 4,269,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
During the year ended March 31, 1997 the Company recognized a settlement loss of
$106,000 in conjunction with retirements.
During the year ended March 31, 1996 the Company recognized curtailment and
settlement losses of $1,611,000 in conjunction with the closure of the Trenton
manufacturing plant and the Canadian facilities integration. These losses were
included as components of the respective one-time charges.
During the year ended March 31, 1995 the Company recognized a curtailment gain
of $549,000 in conjunction with the restructuring program. This gain was
included as a credit to the one-time charges for restructuring of operations and
facilities.
20
<PAGE>
The following table sets forth the funded status of the plans at March 31, 1997
and 1996:
<TABLE>
<CAPTION>
PLANS IN WHICH
-------------------------------------------------------------------
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
----------------------------- -----------------------------
<CAPTION>
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested $130,082,000 $113,945,000 $ 27,343,000 $ 48,981,000
Nonvested 3,444,000 1,790,000 286,000 751,000
------------ ------------ ------------ ------------
Accumulated benefit obligation $133,526,000 $115,735,000 $ 27,629,000 $ 49,732,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Projected benefit obligation $154,455,000 $136,445,000 $ 40,900,000 $ 71,480,000
Plan assets at fair value 213,286,000 177,154,000 2,929,000 25,881,000
------------ ------------ ------------ ------------
Plan assets in excess of (less than)
projected benefit obligation 58,831,000 40,709,000 (37,971,000) (45,599,000)
Unrecognized net (gain) or loss (34,381,000) (14,005,000) (140,000) 5,744,000
Prior service not recognized in pension
costs (1,202,000) (1,442,000) 14,333,000 14,903,000
Unrecognized net transition (asset)
liability (6,122,000) (8,635,000) 105,000 260,000
Minimum liability adjustment -- -- (1,686,000) (1,357,000)
------------ ------------ ------------ ------------
Prepaid (accrued) pension costs recognized
in the consolidated balance sheets $ 17,126,000 $ 16,627,000 $(25,359,000) $(26,049,000)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The principal assumptions used in determining 1997, 1996 and 1995 actuarial
values were:
Discount rate 7 - 9%
Rate of increase in compensation levels 4 - 6%
Expected long-term rate of return on plan assets 8 -10%
Expense for the employee savings plan under which the Company matches the
contributions of participating employees up to a designated level was
$1,421,000, $1,506,000 and $1,597,000 in 1997, 1996 and 1995 respectively.
8. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits for retired
employees. The cost of the benefits is accrued during the years the employees
render service until they attain full eligibility for those benefits.
The components of the postretirement benefit expense for the years ended March
31, 1997, 1996 and 1995 are:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost -- benefits earned during the year $ 1,914,000 $ 1,615,000 $ 2,068,000
Interest cost on accumulated postretirement benefit
obligation 3,659,000 3,697,000 3,770,000
Net amortization and deferral (3,414,000) (3,540,000) (3,198,000)
Curtailment gain -- (1,313,000) (3,357,000)
----------- ----------- -----------
Net periodic postretirement benefit expense (income) $ 2,159,000 $ 459,000 $ (717,000)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
During the year ended March 31, 1996 the Company recognized curtailment gains of
$1,313,000 in conjunction with the closure of the Trenton manufacturing facility
and the Canadian facilities integration. These gains were included as credits to
the respective one-time charges. During the year ended March 31, 1995 the
Company recognized a curtailment gain of $3,357,000 in conjunction with the
restructuring program. This gain was included as a credit to the one-time
charges for restructuring of operations and facilities.
21
<PAGE>
The following table sets forth the accumulated postretirement benefit obligation
of the plans at March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Retirees $28,079,000 $26,174,000
Active participants eligible for
retirement 10,544,000 11,327,000
Other active participants 14,194,000 13,268,000
----------- -----------
Accumulated postretirement benefit
obligation 52,817,000 50,769,000
Unrecognized net gain 8,438,000 7,131,000
Unrecognized prior service credit 8,177,000 10,688,000
----------- -----------
Accrued postretirement benefit
obligation $69,432,000 $68,588,000
----------- -----------
----------- -----------
</TABLE>
The assumed health care cost trend rate used to measure the accumulated
postretirement benefit obligation for those over age 65 is 11 percent for 1997
trending to 5 percent over a seven-year period. For those under age 65, the
trend rate is 7.5 percent for 1997 trending to 5 percent over a seven year
period. A one percent increase in the assumed respective annual medical cost
trend rate would increase the accumulated postretirement benefit obligation by
approximately $3,200,000 and the service and interest components of net
postretirement benefit expense by $300,000.
Other principal actuarial assumptions used in determining the accumulated
postretirement benefit obligation were:
<TABLE>
<S> <C>
Discount rate 7-9%
Rate of increase in compensation levels 4-6%
</TABLE>
9. LONG-TERM INCENTIVE PLANS
1977 Restricted Stock Award Plan
The plan as amended provides for awards of not more than 2,750,000 shares of
common stock, subject to adjustments for stock splits, stock dividends and other
changes in the Company's capitalization to key employees, to be issued either
immediately after the award or at a future date. As a result of the
three-for-one stock split in April, 1992 and the issuance of the Class B common
stock in 1987, the 2,750,000 shares of common stock provided for in the Plan has
been adjusted to 5,593,154 shares. As provided in the Plan and subject to
restrictions, shares awarded may not be disposed of by the recipients for a
period of five years from the date of the award. Cash dividends on shares
awarded are held by the Company for the benefit of the recipients, subject to
the same restrictions as the award. Such dividends (without interest) are paid
to the recipients upon lapse of the restrictions. The cost of the awards, equal
to the fair market value at the date of award, is being charged to operations in
equal annual amounts over a five year period commencing at the date of the
award.
Award transactions for the past three years were:
<TABLE>
<CAPTION>
SHARES
---------------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cumulative awards--beginning of year 3,466,250 3,466,250 3,417,122
New awards -- -- 49,128
--------- --------- ---------
Cumulative awards--end of year 3,466,250 3,466,250 3,466,250
--------- --------- ---------
--------- --------- ---------
</TABLE>
The financial statements reflect the transfer of the awarded shares from
treasury stock as of the date of their issuance. Outstanding awards of 91,793
shares at March 31, 1997 will be issued at a future date no later than five
years from the date of the award. For shares that have been issued, the market
value at the date of the awards was $680,000, $6,080,000 and $2,672,000 in 1997,
1996, and 1995, respectively. The cost of treasury stock for these awards was
$346,000, $5,015,000 and $2,463,000 in 1997, 1996 and 1995, respectively.
1996 Long-Term Incentive Plan
The plan provides for awards of not more than 4,500,000 shares of common stock,
subject to adjustment for stock splits, stock dividends and other changes in the
Company's capitalization to key employees, to be issued either immediately after
the award or at a future date. The awards consist of restricted and/or deferred
stock or options, or a combination thereof. At March 31, 1997 there were
2,706,600 shares available for grant under the 1996 long-term incentive plan.
22
<PAGE>
Stock Options
Under this plan, both qualified and non-qualified options may be granted to key
executive employees at fair market value at the date of grant. The right to
exercise the options, in installments, commences one year from the date of grant
and expires ten years after that date. Effective April 1, 1996, the Company
adopted the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation". As permitted by the
Statement, the Company has chosen to continue to account for options granted
under the plan using the intrinsic value method. Accordingly, no compensation
expense has been recognized for these options. Had the fair value method of
accounting, as defined in SFAS No. 123, been applied to the Company's stock
options, the Company's net income would have been reduced by approximately
$1,020,000, or $.02 per share in 1997 and $160,000, or less than $.01 per share
in 1996. The weighted-average fair value of options granted in 1997 and 1996 was
$6.54 and $6.43, respectively. For purposes of fair market value disclosures,
the fair market value of an option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Risk-Free Interest Rate 6.4 % 5.6 %
Expected Life 8 yrs. 8 yrs.
Volatility 41.0% 41.0%
Dividend Yield 1.5 % 1.5 %
</TABLE>
A summary of the status of stock options granted under this plan as of March 31,
1997 and 1996 and changes during the years ended on those dates is presented
below:
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
WEIGHTED-AVG. WEIGHTED-AVG.
OPTION EXERCISE OPTION EXERCISE
SHARES PRICE SHARES PRICE
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Outstanding April 1 1,054,080 $ 13.75 -- $--
Granted 549,860 13.43 1,054,080 13.75
Exercised -- -- -- --
Forfeited (171,720) 13.75 -- --
--------- ---------
Outstanding March 31 1,432,220 $ 13.63 1,054,080 $ 13.75
--------- ---------
--------- ---------
</TABLE>
The following table summarizes information about stock options outstanding at
March 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- -------------------------------
RANGE OF NUMBER WEIGHTED-AVG. WEIGHTED-AVG. NUMBER WEIGHTED-AVG.
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 3/31/97 LIFE PRICE AT 3/31/97 PRICE
- ------------- ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$12.13 to
$13.75 1,432,220 9.3 years $ 13.63 263,520 $ 13.75
</TABLE>
Stock Awards
Restricted and/or deferred stock awards which are awarded subject to
restrictions, may not be disposed of by the recipient for a period of four years
from the date of the award. Cash dividends on shares awarded are held by the
Company for the benefit of the recipients, subject to the same restrictions as
the award. Such dividends (without interest) are paid to the recipients upon
lapse of the restrictions. The cost of the awards, equal to the fair market
value at the date of award, is being charged to operations in equal annual
amounts over a four year period commencing at the date of the award. During
fiscal year 1997 awards of an aggregate of 172,800 shares were made. At March
31, 1997, 130,960 of these shares have been deferred and will be issued at a
future date no later than four years from the date of the award. For shares that
have been issued in 1997 the market value on the date of the awards was $91,000.
The cost of treasury stock for these awards was $101,000. Awards forfeited
during the year and returned to treasury stock consisted of 40,707 shares valued
at $556,000. The differences between the market value at the date of the awards
and the cost of the treasury stock were included in capital in excess of par
value.
23
<PAGE>
10. ACQUISITIONS
In December, 1995, the Company acquired the enzyme immunoassay and
immunofluorescent lines of diagnostic products from BioWhittaker, Inc. The
purchase price for these product lines was $10,000,000. The Company also agreed
to purchase certain inventories at cost.
In a separate transaction with Clark Laboratories in December, 1995, the Company
has obtained exclusive sales and marketing rights to Clark's line of enzyme
immunoassay diagnostic products in the United States and has entered into a
long-term supply agreement with Clark related to the manufacture of certain
diagnostic products. The fee for these rights was $2,000,000.
In August, 1994, the Company acquired the Sante Beaute line of products in
France for approximately $21,000,000. This business consists of the Email
Diamant oral hygiene products, Lineance body care products and other skin and
bath products.
In August, 1994, the Company acquired Technogenetics S.r.l., a subsidiary of
Recordati S.p.A. for approximately $5,900,000 in Italy. Technogenetics
manufactures and sells diagnostic test kits used by clinical laboratories for
the diagnosis of human diseases.
In July, 1994, the Company acquired for approximately $3,700,000 the Curash line
of baby care and other consumer products in Australia.
These acquisitions are being accounted for by the purchase method and,
accordingly, their results of operations are included in the Company's results
of operations from the acquisition date. Pro forma results of operations are not
presented since the effect would not be material.
11. SHORT-TERM INVESTMENTS
At March 31, 1997 and 1996, short-term investments were intended to be held to
maturity as defined in SFAS No. 115 and have contractual maturities of less than
one year. The amortized cost approximated fair value. The amortized cost of
certificates of deposit were $18,667,000 and $18,577,000, respectively, in 1997
and 1996. In addition, included in 1996 were Canadian government securities in
the amount of $1,457,000.
12. CLOSURE OF THE TRENTON CONDOM MANUFACTURING FACILITY
The Company closed its condom manufacturing plant in Trenton, New Jersey in
October, 1996. The condom production previously performed at Trenton has been
transferred to the Company's facility in Colonial Heights, VA. The decision to
close the Trenton plant resulted in a one-time charge to pre-tax earnings in the
year ended March 31, 1996 of $23,100,000 ($13,630,000 after taxes or $.30 per
share), consisting of plant closing costs including equipment write-offs
($17,800,000) and employee termination costs ($5,300,000).
13. RESTRUCTURING OF OPERATIONS AND FACILITIES
Prompted by the discontinuance of its line of iodinated glycerol formulation of
Organidin products and by the significant adverse effect on existing and
potential sales of Felbatol (felbamate) due to use restrictions, the Company
engaged in a restructuring program beginning in the year ended March 31, 1995
with the intent of reducing costs and increasing efficiencies.
In connection with this 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 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.
Approximately $17,200,000 of the $90,560,000 provision for restructuring charges
remain to be utilized in future periods. Substantially all of the $17,200,000
represents expected future cash outlays for subleasing costs.
24
<PAGE>
14. BUSINESS SEGMENTS (DOLLARS IN THOUSANDS)
Information on the Company's Business Segments is presented below.
Carter-Wallace, Inc. is engaged in the manufacture and sale of a diversified
line of products in the Consumer Products and Health Care business segments. A
listing of the major products in each segment is included in "Description of
Business Segments" on page 11.
Consumer products are promoted directly to the consumer by television and other
advertising media and are sold to wholesalers and various retailers. They are
manufactured and sold domestically by the Company's consumer products divisions
and some are sold throughout the rest of the world by various subsidiaries and
distributors.
Health care products are promoted primarily to physicians, pharmacists,
hospitals, laboratories and clinics by a staff of specially trained professional
sales representatives and by advertising in professional journals. These
products are manufactured and sold domestically by the Company's professional
products divisions and some are sold throughout the rest of the world by various
subsidiaries and distributors.
The Company sells its diversified line of products worldwide. Some of the
Company's domestic divisions sell to a small number of high volume customers,
the largest of which accounted for approximately 9.0% of consolidated net sales
during fiscal 1997.
<TABLE>
<CAPTION>
Business Segments MARCH 31
---------------------------------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Sales
Health Care $ 243,163 $246,578 $262,785
Consumer
Anti-Perspirants and Deodorants 111,923 110,147 123,146
Other Consumer Products 293,669 302,215 277,711
--------- -------- --------
Consolidated $ 648,755 $658,940 $663,642
--------- -------- --------
--------- -------- --------
Operating Profit
Health Care $ 48,792 $ 53,477 (a) $(51,222)(e)
Consumer
Anti-Perspirants and Deodorants 3,290 (12,073)(b) (10,758)(f)
Other Consumer Products 38,935 18,881 (c) 31,547 (g)
Net interest income 40 1,239 1,062
Other (expense) net of other income (1,049) (1,629) (1,765)
General corporate expenses (44,659) (47,098)(d) (55,894)(h)
--------- -------- --------
Earnings (loss) before taxes on income $ 45,349 $ 12,797 $(87,030)
--------- -------- --------
--------- -------- --------
<FN>
(a) Includes one-time pre-tax charges of $3,743 related to restructuring and
adjustments to prior year one-time charges for Organidin (iodinated
glycerol) and Felbatol.
(b) Includes one-time pre-tax charge of $3,916 related to restructuring.
(c) Includes one-time pre-tax charge of $30,330 related to restructuring and
the closure of the Trenton condom manufacturing facility.
(d) Includes one-time pre-tax charge of $4,011 related to restructuring.
(e) Includes one-time pre-tax charges of $92,977 related to Organidin
(iodinated glycerol), Felbatol and restructuring.
(f) Includes one-time pre-tax charge of $5,503 related to restructuring.
(g) Includes one-time pre-tax charge of $18,685 related to restructuring.
(h) Includes one-time pre-tax charge of $12,175 related to restructuring.
</TABLE>
25
<PAGE>
Business Segments (continued)
<TABLE>
<S> <C> <C> <C>
Identifiable Assets
Health Care $ 178,608 $190,926 $188,316
Consumer
Anti-Perspirants and Deodorants 62,246 61,323 72,620
Other Consumer Products 254,281 251,544 231,525
Corporate Assets 190,787 215,132 187,763
--------- -------- --------
Total Assets $ 685,922 $718,925 $680,224
--------- -------- --------
--------- -------- --------
Depreciation and Amortization
Health Care $ 8,135 $ 9,726 $ 11,521
Consumer
Anti-Perspirants and Deodorants 3,745 3,481 3,808
Other Consumer Products 8,242 8,570 8,002
--------- -------- --------
Total Operating Segments $ 20,122 $ 21,777 $ 23,331
--------- -------- --------
--------- -------- --------
Capital Expenditures
Health Care $ 4,473 $ 3,020 $ 4,640
Consumer
Anti-Perspirants and Deodorants 2,627 1,141 1,877
Other Consumer Products 22,736 30,705 11,631
--------- -------- --------
Total Operating Segments $ 29,836 $ 34,866 $ 18,148
--------- -------- --------
--------- -------- --------
Geographic Areas
Sales
U.S.A. $ 438,149 $452,364 $481,452
Other North America 60,930 58,637 60,841
Other Countries 149,676 147,939 121,349
--------- -------- --------
Consolidated $ 648,755 $658,940 $663,642
--------- -------- --------
--------- -------- --------
Operating Profit
U.S.A. $ 71,680 $ 47,128 (a) $(43,765)(d)
Other North America 10,604 1,658 (b) 5,887 (e)
Other Countries 8,733 11,499 7,445 (f)
Net interest income 40 1,239 1,062
Other (expense) net of other income (1,049) (1,629) (1,765)
General corporate expenses (44,659) (47,098)(c) (55,894)(g)
--------- -------- --------
Earnings (loss) before taxes on income $ 45,349 $ 12,797 $(87,030)
--------- -------- --------
--------- -------- --------
Identifiable Assets
U.S.A. $ 336,740 $331,339 $330,493
Other North America 37,223 39,342 37,474
Other Countries 121,172 133,112 124,494
Corporate Assets 190,787 215,132 187,763
--------- -------- --------
Total Assets $ 685,922 $718,925 $680,224
--------- -------- --------
--------- -------- --------
<FN>
Corporate assets include principally cash and cash equivalents, short-term
investments, miscellaneous receivables, deferred taxes and other miscellaneous
assets.
(a) Includes one-time pre-tax charges of $31,987 related to restructuring, the
closure of the Trenton condom manufacturing facility and adjustments to
prior year one-time charges for Organidin (iodinated glycerol) and Felbatol.
(b) Includes one-time pre-tax charges of $6,002 related to restructuring and an
adjustment to the prior year one-time charge for Felbatol.
(c) Includes one-time pre-tax charges of $4,011 related to restructuring.
(d) Includes one-time pre-tax charges of $115,315 related to restructuring,
Organidin (iodinated glycerol) and Felbatol.
(e) Includes one-time pre-tax charge of $950 related to Felbatol.
(f) Includes one-time pre-tax charge of $900 related to restructuring.
(g) Includes one-time pre-tax charge of $12,175 related to restructuring.
</TABLE>
26
<PAGE>
15. RENTAL EXPENSE AND LEASE COMMITMENTS (DOLLARS IN THOUSANDS)
Rental expense for operating leases with a term greater than one year for 1997,
1996 and 1995 was as follows:
<TABLE>
<CAPTION>
REAL PROPERTY
RENTAL REAL SUB-RENTAL NET REAL EQUIPMENT
EXPENSE PROPERTY INCOME PROPERTY AND OTHER
- --------------- -------- ------------- -------- ---------
<S> <C> <C> <C> <C>
1997 $ 6,600 $ (1,640) $ 4,960 $ 6,260
1996 6,308 (484) 5,824 6,170
1995 8,320 (688) 7,632 6,389
</TABLE>
The real property rental expense for 1997 and 1996 excludes approximately $2,200
and $2,400, respectively, of rental costs which have been charged to the
one-time charges for restructuring of operations and facilities.
Minimum rental commitments, in thousands of dollars, under non-cancellable
leases in effect at March 31, 1997 were as follows:
<TABLE>
<CAPTION>
REAL PROPERTY
MINIMUM RENTAL REAL SUB-RENTAL NET REAL EQUIPMENT CAPITAL LEASE
COMMITMENTS PROPERTY INCOME PROPERTY AND OTHER OBLIGATIONS
- --------------- -------- ------------- -------- --------- -------------
<S> <C> <C> <C> <C> <C>
1998 $ 8,187 $ (2,989) $ 5,198 $ 468 $ 81
1999 8,185 (2,989) 5,196 352 81
2000 7,885 (2,989) 4,896 164 81
2001 8,205 (3,084) 5,121 37 82
2002 7,715 (3,299) 4,416 -- 62
2003-2012 67,251 (31,645) 35,606 -- --
-------------
387
Less interest and executory cost (80)
-------------
Present value of minimum lease payments (of which $54 is included in
current liabilities) $ 307
-------------
-------------
</TABLE>
Included in the real property rental commitments indicated above is
approximately $17,000 of future rental costs which were included in the one-time
charges for restructuring of operations and facilities. These costs are
associated with the subleasing of office space on which the Company holds a
long-term lease.
16. SUPPLEMENTAL FINANCIAL INFORMATION
The following is presented in support of balance sheet captions:
<TABLE>
<CAPTION>
MARCH 31
--------------------------------
1997 1996
-------- --------
Intangible Assets: (dollars in thousands)
<S> <C> <C>
Excess of purchase price of businesses acquired over the
net assets at date of acquisition $117,152 $119,836
Trademarks 28,908 29,033
Other 29,046 32,459
-------- --------
175,106 181,328
Accumulated amortization 51,767 49,906
-------- --------
$123,339 $131,422
-------- --------
-------- --------
Accounts Payable:
Trade $ 33,716 $ 37,464
Other 1,151 1,477
-------- --------
$ 34,867 $ 38,941
-------- --------
-------- --------
Accrued Expenses:
Salaries and wages $ 29,361 $ 28,222
Advertising and promotion 14,418 17,597
One-time charges 8,929 31,272
Retirement plans 7,390 10,035
Other 42,692 45,205
-------- --------
$102,790 $132,331
-------- --------
-------- --------
Other Long-Term Liabilities:
Retirement plans $ 20,679 $ 16,920
One-time charges 15,520 24,011
Other 7,297 7,389
-------- --------
$ 43,496 $ 48,320
-------- --------
-------- --------
</TABLE>
Income taxes paid were $10,240,000, $14,204,000 and $7,700,000 in 1997, 1996,
and 1995 respectively. Interest paid was
$4,498,000, $3,256,000 and $2,213,000 in 1997, 1996 and 1995, respectively.
27
<PAGE>
17. FELBATOL (FELBAMATE)
As previously reported, in the year ended March 31, 1995 the Company incurred a
one-time charge to pre-tax earnings of $37,780,000 related to use restrictions
for Felbatol. This charge was adjusted by $8,200,000 to $45,980,000 in the year
ended March 31, 1996. Depending on future sales levels, additional inventory
write-offs may be required. If for any reason the product at some future date
should no longer be available in the market, the Company will incur an
additional one-time charge that would have a material adverse effect on the
Company's results of operations and possibly on its financial condition. Should
the product no longer be available, the Company currently estimates that the
additional one-time charge, consisting primarily of inventory write-offs and
anticipated returns of product currently in the market, will be in the range of
$20,000,000 to $25,000,000 on a pre-tax basis.
18. DISCONTINUANCE OF THE ORGANIDIN (IODINATED GLYCEROL) PRODUCT LINE
As previously reported, in the year ended March 31, 1995 the Company incurred a
one-time charge to pre-tax earnings of $17,500,000 related to discontinuance of
the Organidin (iodinated glycerol) product line. In the year ended March 31,
1996 an adjustment was made to reduce the provision for loss on Organidin by
$5,800,000 largely as a result of smaller than anticipated product returns.
19. LITIGATION INCLUDING ENVIRONMENTAL MATTERS
Environmental Matters
The United States Environmental Protection Agency ("EPA") advised the Company
and over 200 other companies in 1982 that they may be potentially responsible
parties ("PRPs") under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") with respect to waste deposited at the Lone Pine
Landfill in Freehold, NJ. The Company and over 115 other PRPs, without admitting
liability, have entered into two consent decrees with EPA agreeing to conduct a
cleanup of the Lone Pine Landfill, and the cleanup is in progress. The total
estimated cost of the cleanup is $104 to $120 million in current dollars. In
addition, the Company and other PRPs are negotiating with EPA, the Department of
Interior, and New Jersey to resolve natural resource damage claims which could
cost as much as $3 million. After factoring in past and expected recoveries from
nonsettlors, the Company's net share of the cleanup and natural resource damage
claims (exclusive of defense costs) is expected to be $8 to $9.7 million, of
which it has paid about $7 million to date. In August, 1989, the Company
instituted suit in New Jersey state court against twenty-two insurers to
recover, inter alia, the Company's share of costs at Lone Pine, including
related legal fees. The Company has reached settlements in this case with 18 of
the insurers. To date, the Company has received approximately $12.3 million in
settlement payments and is seeking additional reimbursement. The Company expects
to be fully reimbursed for its share of the currently estimated cleanup and
natural resource damage costs at Lone Pine.
The Company and nine other settling PRPs are parties to two actions in N.J.
state court involving a cleanup contractor at Lone Pine concerning amounts
allegedly owed to that contractor. The first action was filed by the contractor
on July 7, 1995 against the settling PRPs (including the Company), who
subsequently filed counterclaims against the contractor. The Company and the
nine other settling PRPs brought an action against the contractor on July 10,
1995. Both lawsuits were subsequently consolidated. A settlement in principle
has been reached in these cases. As part of that settlement, the settling PRPs
will pay $1,287,500 to the contractor. The Company's anticipated share of that
$1,287,500 is approximately $115,000. These amounts are included in the cleanup
cost estimate and the Company's estimated share set forth above.
The Company faces potential liability involving waste material generated by the
Lambert Kay division at its former manufacturing facility in Winsted,
Connecticut. In May 1991, EPA issued special notice letters under CERCLA to
Lambert Kay and about 50 other PRPs notifying them of potential liability with
respect to waste deposited at the Barkhamsted-New Hartford landfill in
Barkhamsted, Connecticut. In September 1991 and in February 1994, the Company
and 21 other PRPs, without admitting liability, entered into consent agreements
under which the PRPs agreed to perform certain investigation and engineering
evaluation work at the site including the remedial investigation and feasibility
study and to reimburse EPA for certain costs. The estimated cost of this work is
about $4.2 million. The Company's share of this cost is estimated to be
$124,000, which the Company has paid or received credit for. In addition, the
Company and other settling PRPs have sued certain nonsettlors for their share of
these costs and have obtained some settlement recoveries. Based on preliminary
information from the investigation work (which is not completed), the total cost
for performing the current and future work at Barkhamsted, including the
investigation work, is estimated to be $13.3 to $41.3 million. In June 1995, the
Connecticut legislature authorized the issuance of bonds to pay for
approximately $7 million of the future cleanup costs at the site. The issuance
of these bonds is expected to reduce the amount of cleanup costs subject to PRP
funding by that amount. Based on
28
<PAGE>
expected PRP participation in future cleanup work and other factors, the Company
anticipates that its share of all cleanup costs subject to PRP funding
(including costs incurred to date) will be not more than 4 to 5%, or about
$252,000 to $1,715,000. Thus, although applicable environmental law provides for
joint and several liability for the cost of cleanup work, the Company believes,
based on present estimates, that substantially all of the cleanup costs will be
paid by other PRPs.
The Company believes, based upon the information available at this time, that
the matters discussed above will not have a material effect on its financial
statements.
Other Litigation
Two federal securities class action suits filed in 1994 by stockholders against
the Company and certain of its present and former officers in the United States
District Court, Southern District of New York have been consolidated for all
purposes and the plaintiffs have filed a Consolidated Amended Complaint and a
Second Amended Class Action Complaint. The consolidated action purports to be on
behalf of all persons who purchased the Company stock in the period from January
20, 1994 through July 31, 1994. The complaint alleges that certain statements
made by the Company with respect to future sales and marketing prospects for
Felbatol were false and fraudulent, and that the Company omitted to state
material facts necessary to make statements made not misleading. Both the
Consolidated Amended Complaint and the Second Amended Class Action Complaint,
which seek damages in an unspecified amount, have been dismissed by the District
Court for failure to state a claim upon which relief can be granted. Plaintiffs
are pursuing an appeal from the dismissal to the United States Court of Appeals
for the Second Circuit.
In December, 1994, an alleged shareholder of the Company instituted an action in
the Supreme Court of the State and County of New York which purports to be
brought derivatively on behalf and for the benefit of the Company against the
directors of the Company for breach of fiduciary duty, gross mismanagement and
waste of corporate assets in connection with the development and marketing of
Felbatol. The complaint, which seeks unspecified compensatory and punitive
damages, was ordered dismissed by the Supreme Court. Plaintiff has noticed an
appeal to the Appellate Division, First Department.
A pharmaceutical product liability class action (Valentino) was filed against
the Company in August, 1994, in the United States District Court, Northern
District of California. The complaint, which was amended in early 1995, purports
to be on behalf of all persons who started using Felbatol prior to August, 1994.
The complaint alleges that the Company is liable for strict product liability,
negligence, breach of express and implied warranty, negligent infliction of
emotional distress and negligent misrepresentation related to side effects of
Felbatol. The complaint seeks unspecified compensatory and punitive damages and
injunctive relief. A second product liability class action seeking substantially
similar relief (Bryan) was filed against the Company in the United States
District Court for the Eastern District of Pennsylvania for injuries allegedly
suffered as a result of using Felbatol, and has been transferred and
consolidated with the action in the Northern District of California.
In addition to these two class actions, 48 individual product liability actions
relating to Felbatol were filed against the Company. While 29 have been settled
and/or dismissed, 19 of these individual actions remain unresolved. Damages are
specified in 10 of these remaining actions in amounts ranging from $100,000 to
$169,000,000. In the aggregate, the complaints in these actions seek $35,000,000
in compensatory damages and $169,000,000 in punitive damages. In the other
unresolved individual actions, the damages sought are unspecified.
The District Court certified the Valentino action as a class action on March 15,
1995. Following interlocutory appeal, on November 5, 1996 the United States
Court of Appeals for the Ninth Circuit vacated and remanded the Valentino class
certification to the District Court, thus decertifying the class. Thereafter,
the parties reached a negotiated settlement of all the individual claims
asserted in the Valentino and Bryan actions, as well as all other
Felbatol-related claims which had been asserted by counsel for the Valentino and
Bryan plaintiffs, whether or not filed as actions. On May 27, 1997 the District
Court, on consent of the class plaintiffs, granted the Company's motion (1) to
dismiss, with prejudice, all claims asserted in the Valentino and Bryan
complaints and (2) to dismiss, without prejudice, all class action claims
averred therein. Payments under this settlement were covered primarily by the
Company's product liability insurance, with the balance covered by reserves
provided in prior years for one-time charges.
The Company has product liability insurance in the amount of $88,000,000 for
claims made in the year ended March 31, 1995 and has obtained comparable limits
of insurance coverage for claims made in the fiscal years ending March 31, 1996,
March 31, 1997 and March 31, 1998, with certain exceptions relating to the
nature of the claimed injury. These amounts of product liability insurance will
be reduced in some of the fiscal years by payments made for the aforementioned
negotiated settlement.
29
<PAGE>
While the Company believes that its product liability insurance would cover
punitive damages judgments, its insurance carriers have neither confirmed nor
denied this belief. In the law of certain states there is an expressed public
policy against the enforceability of insurance covering punitive damages. The
amounts to be paid by the Company in settlement of the Valentino and Bryan cases
were in the nature of compensation only, and did not include any allowance for
dismissal of the plaintiffs' punitive damages allegations. The Company's
principal product liability insurance carriers have confirmed their coverage of
the compensatory claims asserted in Valentino and Bryan and have expressly
approved this settlement. The Company does not believe that they would either
disclaim coverage or oppose any potential settlements or judgments in the
remaining unresolved Felbatol-related actions.
The Company, along with numerous other drug manufacturers, wholesalers and
suppliers, was named in a series of class action suits the first of which was
filed in August, 1994 in the California Superior Court, San Francisco County,
brought on behalf of all California independent retail pharmacists who have
purchased any brand name prescription drugs since August, 1989. The complaint
alleged that the defendants, including the Company, entered into a conspiracy to
fix prices for brand-name prescription drugs and gave lower prices to certain
favored purchasers while the alleged favored prices were denied to the
plaintiffs. Plaintiffs are seeking injunctive relief and unspecified trebled
compensatory damages, restitution of unspecified amounts by which defendants are
alleged to be unjustly enriched and litigation costs, interest and attorney's
fees. Class certification of the price-fixing conspiracy claims was granted by
order dated June 23, 1995 for a class of independent retail pharmacists and
small chains with ten or fewer California locations. An individual action
brought by two mid-size chain pharmacies was subsequently coordinated with the
consolidated class action as an add-on case asserting virtually identical claims
and demands for relief. Plaintiffs in that action amended their complaint to
seek class certification which has not been granted.
The Company, along with numerous other drug manufacturers, has been named in a
class action suit filed in July, 1994 in California Superior Court, County of
San Francisco, brought on behalf of a class of California consumers who
purchased drugs from independent retail pharmacies alleging that certain drug
manufacturers and wholesalers and suppliers, including the Company, conspired to
fix prices for brand-name prescription drugs that were sold to California
independent retail pharmacists. The complaint seeks unspecified trebled
compensatory damages relating to overcharges, restitution of amounts by which
defendants were allegedly unjustly enriched and litigation costs, interest and
attorney's fees. By court order dated August 16, 1995, class certification was
granted to the extent of certifying a class of California consumers who
purchased drugs from independent retail pharmacies and pharmacy chains with ten
or fewer California locations. Two add-on putative class actions were thereafter
filed and coordinated with the consolidated class action, seeking to expand the
class to include consumers who purchased drugs from chain pharmacies with more
than ten locations in California. The expanded class has not been certified.
The Company, along with numerous other drug manufacturers, an Alabama drug
wholesaler and a national mail-order pharmacy, had initially been named in a
class action suit filed in May, 1994 in the Alabama Circuit Court, Greene
County, brought on behalf of a class of independent drug stores and pharmacies
and alleging that the named, and certain unnamed, defendants discriminated
against the plaintiffs in according more favorable prices to mail-order
pharmacies and large health care providers pursuant to an alleged conspiracy to
regulate or fix the price, or limit the quantity, of prescription drugs sold in
the State of Alabama in violation of Alabama law. By a First Amended Complaint
dated January 17, 1995, the three named plaintiffs retracted all class claims.
In subsequent, amended pleadings, plaintiffs have sought to reassert their class
action claims, alleging that the defendant drug manufacturers, wholesalers and
health maintenance organizations had engaged in a price-fixing conspiracy,
monopolization and attempted monopolization, fraud and civil conspiracy, in
violation of Alabama statutory and common law, and seeking a declaratory
judgment, statutory damages of $500 per instance of alleged injury, unspecified
actual and punitive damages, litigation costs and interest. Plaintiffs' motion
for class certification and defendants' motion to strike the class action
allegations are now pending before the court. The court granted defendants'
motion to change the venue of the action and the case has been transferred to
the Alabama Circuit Court for Tuscaloosa County.
The Company, along with numerous other drug manufacturers was named in a class
action lawsuit filed in January, 1996 in Alabama Circuit Court, Clarke County,
brought on behalf of a class of consumers who purchased brand-name prescription
drugs from independent retail pharmacies in jurisdictions alleged to grant
standing to "indirect purchasers" to bring suit upon price overcharge claims,
including Alabama, the District of Columbia, Kansas, Maine, Michigan, Minnesota,
Mississippi, New Mexico and Wisconsin. Plaintiffs allege that, in violation of
Alabama law, defendants conspired to sell brand-name prescription drugs to
mail-order pharmacies at lower prices than those charged to independent retail
drug pharmacies and that as a result, plaintiffs have paid supra-competitive
prices for brand-name prescription drugs. The case was certified for class
treatment by the state court but was then removed by defendants to federal court
and transferred to the Northern District of Illinois. The
30
<PAGE>
federal court vacated the class certification order of the state court. An
appeal by plaintiffs from the federal court's refusal to remand the case to
Alabama state court is pending. Plaintiffs seek unspecified compensatory and
punitive damages, an injunction, litigation costs and attorney's fees.
In October, 1992, a suit was filed by Unilever PLC against the Company's
subsidiary in the United Kingdom alleging patent infringement by certain of the
Company's diagnostic products. The complaint seeks injunctive relief and
unspecified compensatory damages.
The Company believes, based on opinion of counsel, it has good defenses to each
of the above-described legal actions and should prevail. The Company might at
some point in time elect to attempt to settle one or more of these cases. At
this stage, however, the Company does not know whether these cases, or any of
them, will be settled or at what amounts.
The Company is engaged in litigation with Tambrands Inc. in Supreme Court of the
State and County of New York arising out of a patent infringement and
misappropriation suit previously filed against them in the United States
District Court, Southern District of New York, by New Horizons Diagnostics
Corporation ("NHDC"), et al. The NHDC suit, which was settled and discontinued
in July 1996, asserted claims with respect to certain "gold sol" technology
(used in the Company's First Response and Answer home pregnancy and ovulation
predictor test kits) the Company had acquired from Tambrands pursuant to a
written purchase agreement in March 1990. The Company paid an immaterial amount
toward that settlement. In the pending Supreme Court action, Tambrands seeks
reimbursement from the Company of an unspecified portion of the amount paid by
Tambrands in settlement of the NHDC suit and for defense costs. The Company
believes it has good defenses, under the terms of the purchase agreement, to
Tambrands' claim.
Additional product liability claims related to Felbatol use have been threatened
against the Company. At this point, the Company cannot evaluate the merits of
such claims and does not know whether or to what extent legal actions will arise
from such claims and, therefore, is unable to predict the financial impact they
may have.
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly net sales, gross margin, net earnings (loss) and earnings (loss) per
share are set forth in the following table (dollars in thousands, except per
share amounts).
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 TOTAL YEAR
- ---- ------- -------- ------- -------- ----------
Net sales $169,889 $159,532 $163,020 $156,314 $648,755
Gross margin 107,426 97,224 104,766 95,682 405,098
Net earnings 9,260 5,601 10,514 1,381 26,756
Earnings per share .20 .12 .23 .03 .58
1996
- ----
Net sales $177,037 $154,810 $162,004 $165,089 $658,940
Gross margin 114,645 95,098 103,143 99,834 412,720
Net earnings (loss) 861 (4,524) 10,278 935 7,550
Earnings (loss) per share .02 (.10) .22 .02 .16
</TABLE>
The quarter ended June 30, 1995 includes one-time charges to pre-tax earnings of
$20,100 related to the closure of the Trenton condom manufacturing facility.
The quarter ended September 30, 1995 includes one-time charges to pre-tax
earnings of $16,500 consisting of $10,200 for restructuring and $6,300 related
to the consolidation of two Canadian operations.
The quarter ended March 31, 1996 includes one-time charges to pre-tax earnings
of $5,400 related to the closure of the Trenton condom manufacturing plant
($3,000) and a net adjustment of the prior year one-time charges for Felbatol
(an additional $8,200) and for Organidin (a reduction of $5,800). Also included
in the quarter is an approximate $2,400 charge related to a write-off of the
carrying value of a discontinued product.
31
<PAGE>
INDEPENDENT AUDITORS' REPORT
KPMG Peat Marwick LLP CERTIFIED PUBLIC ACCOUNTANTS
345 Park Avenue
New York, NY 10154
The Board of Directors and Stockholders
Carter-Wallace, Inc.:
We have audited the accompanying consolidated balance sheets of Carter-Wallace,
Inc. and subsidiaries as of March 31, 1997 and 1996 and the related consolidated
statements of earnings and retained earnings and cash flows for each of the
years in the three-year period ended March 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Carter-Wallace, Inc.
and subsidiaries as of March 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
May 27, 1997
32
<PAGE>
Carter-Wallace, Inc. and Subsidiaries
BOARD OF DIRECTORS
Henry H. Hoyt, Jr.
Chairman and Chief Executive Officer
Ralph Levine
President and Chief Operating Officer
Paul A. Veteri
Executive Vice President, Finance and Chief Financial Officer
David M. Baldwin
Chairman, David M. Baldwin Realty Company, Inc.
Daniel J. Black
Consultant to the Company
Dr. Richard L. Cruess
Professor of Surgery, Center for Medical Education,
McGill University
Montreal, Quebec, Canada
Suzanne H. Garcia
Owner, La Tierra Beneficiaries (real estate development)
and Santa Fe Ranch
Scott C. Hoyt
Vice President, New Products
Carter Products Division of the Company
Herbert M. Rinaldi
Of Counsel
Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein
SCIENTIFIC ADVISORY BOARD
Joseph S. Harun, M.D., Chairman
Former Vice President, Medical and Scientific Affairs
Carter-Wallace, Inc.
Paul Calabresi, M.D.
Professor of Medicine and Chairman Emeritus,
Department of Medicine
Brown University
Providence, RI
Robert E. Canfield, M.D.
Irving Professor of Medicine
Columbia University, College of Physicians and Surgeons
New York, NY
Barton F. Haynes, M.D.
Chairman, Department of Medicine
Duke University Medical Center
Durham, NC
Noel Rose, M.D., Ph.D.
Professor of Pathology, Molecular Microbiology and Immunology
Director of Immunology
Johns Hopkins University, Schools of Medicine and Public Health
Baltimore, MD
Morton K. Schwartz, Ph.D.
Chairman, Department of Clinical Chemistry
Memorial Sloan Kettering Cancer Center
New York, NY
EXECUTIVE OFFICERS
Henry H. Hoyt, Jr.
Chairman of the Board and Chief Executive Officer
Ralph Levine
President and Chief Operating Officer
Paul A. Veteri
Executive Vice President, Finance and Chief Financial Officer
T. Rosie Albright
Vice President, Consumer Products, U.S.
John Bridgen, Ph.D.
Vice President, Diagnostics, U.S.
Robert A. Cuthbert
Vice President, Pet Products, U.S.
Donald R. Daoust, Ph.D.
Vice President, Quality Control
Peter J. Griffin
Vice President and Controller
Adrian J. L. Huns
Vice President, International
Michael J. Kopec
Vice President, Manufacturing
Stephen R. Lang
Vice President, Secretary and General Counsel
Thomas B. Moorhead
Vice President, Human Resources
George H. Ohye
Vice President, Compliance and Regulatory
Herbert Sosman
Vice President, Pharmaceuticals, U.S.
C. Richard Stafford
Vice President, Corporate Development
James L. Wagar
Vice President and Treasurer
Mark Wertlieb
Vice President, Taxes
DIVISIONAL MANAGEMENT
T. Rosie Albright, President, Carter Products
John Bridgen, Ph.D., President, Wampole Laboratories
Robert A. Cuthbert, President, Lambert Kay
Adrian J. L. Huns, President, International
Michael J. Kopec, President, Manufacturing
Herbert Sosman, President, Wallace Laboratories
PRINCIPAL SUBSIDIARIES
Howard E. Cocker, Managing Director, Carter-Wallace Limited (United Kingdom)
Francois Depoil, President, Laboratoires Fumouze S. A. (France)
Gregory J. Drohan, President, Carter-Horner Inc. (Canada)
Allan W. Nash, Managing Director, Carter-Wallace (Australia)
Pty. Limited
Jordi Pruja, Managing Director, Icart S.A. (Spain)
Lino Santambrogio, Managing Director, S.p.A. Italiana
Laboratori Bouty (Italy)
Francis Santiago, President, Carter Wallace, S. A. (Mexico)
Printed in U.S.A.
<PAGE>
CARTER-WALLACE, INC.
1345 Avenue of the Americas
New York, NY 10105
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
The following is a list of the active subsidiaries of the Company showing the
jurisdiction of incorporation and the percentage of voting securities owned by
the Company or by wholly-owned subsidiaries of the Company as of March 31, 1997:
JURISDICTION PERCENTAGE
OF OF VOTING
NAME OF CORPORATION INCORPORATION SECURITIES
Carter-Wallace, N.S. Inc. Delaware 100%
Carter-Wallace, O.S. Inc. Delaware 100%
Carter-Wallace Limited England 100%
Carter-Wallace (Australia) Pty, Limited Australia 100%
Carter-Wallace, S.A. Mexico 100%
Carter-Wallace FSC Corp. Virgin Islands 100%
Carter-Horner Inc. Canada 100%
Icart, S.A. Spain 100%
International Biological Laboratories, Inc. Maryland 95%
Laboratoires Fumouze, S.A. France 100%
Sante Beaute S.A. France 100%
Sofibel S.A.R.L. France 100%
S.p.A. Italiana Laboratori Bouty Italy 100%
Technogenetics S.r.l. Italy 100%
Tripharma S.A.R.L. France 100%
All of the above subsidiaries are included in the consolidated financial
statements of the Company.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
Carter-Wallace, Inc.
We consent to incorporation by reference in the registration statement (No.
333-00499) on Form S-8 of Carter-Wallace, Inc. of our report dated May 27, 1997,
relating to the consolidated balance sheets of Carter-Wallace, Inc. and
subsidiaries as of March 31, 1997 and 1996, and the related consolidated
statements of earnings and retained earnings and cash flows for each of the
years in the three-year period ended March 31, 1997, and related financial
statement schedule which report appears in the March 31, 1997 Annual Report on
Form 10-K of Carter-Wallace, Inc.
KPMG PEAT MARWICK LLP
New York, New York
June 16, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000018000
<NAME> Carter Wallace Inc.
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 35,124,000
<SECURITIES> 18,667,000
<RECEIVABLES> 124,196,000
<ALLOWANCES> 6,730,000
<INVENTORY> 87,221,000
<CURRENT-ASSETS> 301,156,000
<PP&E> 291,486,000
<DEPRECIATION> 136,642,000
<TOTAL-ASSETS> 685,922,000
<CURRENT-LIABILITIES> 158,184,000
<BONDS> 54,283,000
0
0
<COMMON> 34,655,000
<OTHER-SE> 12,550,000
<TOTAL-LIABILITY-AND-EQUITY> 685,922,000
<SALES> 648,755,000
<TOTAL-REVENUES> 656,181,000
<CGS> 243,657,000
<TOTAL-COSTS> 610,832,000
<OTHER-EXPENSES> 6,414,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,186,000
<INCOME-PRETAX> 45,349,000
<INCOME-TAX> 18,593,000
<INCOME-CONTINUING> 26,756,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,756,000
<EPS-PRIMARY> .58
<EPS-DILUTED> 0
</TABLE>
