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, 1998
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 8, 1998 was 32,979,400 and 12,349,300, respectively.
The aggregate market value of voting stock held by non-affiliates of the
registrant as of June 8, 1998 was approximately $392,706,000.
Documents Incorporated by Reference
-----------------------------------
Annual Report to Stockholders for the fiscal
year ended March 31, 1998 Parts I & II
Proxy Statement for the Annual Meeting of
Stockholders to be held July 21, 1998 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 1998 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, 1998 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 1998 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 $13,500,000 in the fiscal year ended March 31, 1998 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 1998 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 1998, the Company's "Arrid" line of anti-perspirants and
deodorants is believed to have accounted for an estimated 6.4% share of the
domestic anti-perspirant and deodorant market. The "Trojan", "Class Act" and
"Naturalamb" condom brands are estimated to have accounted for approximately 65%
of total domestic retail condom sales. The Company's worldwide condom sales were
approximately $104,700,000, $95,400,000 and $98,700,000 in the fiscal years
ended March 31, 1998, 1997 and 1996, respectively. Additional information is
presented on page 8 under the caption "Net Sales and Earnings" in the 1998
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.
In February 1998 the Company was issued a patent (U.S. Patent No. 5,714,389)
covering technology used in pregnancy, ovulation and other diagnostic products.
The Company has commenced a program to license and enforce this patent.
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 1998 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 1998 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 1998 Annual Report to
Stockholders and herein expressly incorporated by reference.
2
<PAGE>
Research and Development
Expenditures for research and development totaled $28,785,000 in 1998,
$27,284,000 in 1997 and $26,494,000 in 1996. Research and development expenses
in 1998 increased $1,501,000 or 5.5% as a result of higher spending in the
Consumer Products segment due in part to employee termination costs related to
organizational changes. Research and development expense in the Health Care
segment was lower than the prior year. In 1997 research and development expenses
increased by $790,000 or 3.0% from the prior year as a result of higher spending
in the Consumer Products segment, partly offset by lower spending in the Health
Care segment.
Research and development of "Taurolin" (taurolidine) for the treatment of
vancomycin resistant enterococcal infection has continued through independent
research facilities managed by the Company's internal supervisory personnel.
The "Astelin" Nasal Spray New Drug Application ("NDA") was approved on November
4, 1996 and the product was 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.
In April 1998 a large scale, multi-centered clinical efficacy trial for the use
of "Taurolin" intravenously in treating sepsis was terminated when it was
determined that the results did not support efficacy. "Taurolin" research in
other areas, such as vancomycin resistant enterococcal infection, is not
affected by the termination of the sepsis trial.
Approximately 130 employees are employed in research and development activities.
Employees
The Company, together with its subsidiaries, employed approximately 3,360 people
worldwide at March 31, 1998.
Discontinuation of the Organidin (Iodinated Glycerol) Product Line
Information regarding the effect of discontinuing the "Organidin" (iodinated
glycerol) product line is presented on page 9 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 1998 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 1998 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 and Pet Products 108,000
Winsted, Connecticut Pet products 45,000
Montreal, Canada Pharmaceuticals 157,000
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 58,400
Milan, Italy Diagnostics 19,000
Warehouse and Offices:
Dayton, New Jersey 200,000
Momence, Illinois 43,000
Plainsboro, New Jersey * 23,300
Sydney, Australia 19,000
Folkestone, England 50,000
Levallois, France * 20,400
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. With minor exceptions, all other facilities are operating at normal
capacity.
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 1998 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. 70 Chairman of the Board and
Chief Executive Officer 1974
Ralph Levine 62 President and Chief Operating Officer 1997
Paul A. Veteri 56 Executive Vice President and
Chief Financial Officer 1997
T. Rosie Albright 51 Vice President, Consumer Products, U.S. 1995
John Bridgen, Ph.D. 51 Vice President, Diagnostics, U.S. 1984
Donald R. Daoust, Ph.D. 62 Vice President, Quality Control 1978
Peter J. Griffin 55 Vice President and Controller 1983
Adrian J. L. Huns 50 Vice President, International 1996
Michael J. Kopec 58 Vice President, Manufacturing 1978
Stephen R. Lang 63 Vice President, Secretary and
General Counsel 1997
Thomas B. Moorhead 64 Vice President, Human Resources 1987
Herbert Sosman 65 Vice President, Pharmaceuticals, U.S. 1984
C. Richard Stafford 62 Vice President, Corporate Development 1977
James L. Wagar 63 Vice President and Treasurer 1981
Mark Wertlieb 42 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 21, 1998.
* 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 1993 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 1993 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 1993 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
1993 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.
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
1993 until May, 1996.
Part II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information required by this item is presented on pages 1 and 7 of the 1998
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 1998 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 1998 Annual Report to Stockholders.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
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 1998 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 24, 1998, for the Annual
Meeting of Stockholders to be held July 21, 1998, 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 24, 1998, for the Annual Meeting of
Stockholders to be held July 21, 1998, 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 24, 1998, for the Annual Meeting of Stockholders to be
held July 21, 1998, 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 24, 1998, for the Annual Meeting of
Stockholders to be held July 21, 1998, 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 through 5/15/97.
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 June 4, 1998, between the Company and
Ralph Levine.
10.7 Employment Agreement, dated June 4, 1998, 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 (incorporated
herein by reference to Exhibit 10.8 of the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997).
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).
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).
(Continued)
9
<PAGE>
(a) (3) Exhibits (cont'd)
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 (incorporated herein by reference
to Exhibit 10.19 of the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1997).
10.20 Consulting Agreement, dated July 15, 1996, between the Company
and Daniel J. Black (incorporated herein by reference to Exhibit
10.20 of the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1997).
13 Annual Report to Stockholders for the fiscal year ended March 31,
1998.
(Continued)
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, 1998.
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 17 1998 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 17, 1998
- --------------------- Chief Executive Officer,
Henry H. Hoyt, Jr. Director (Principal Execu-
tive Officer)
/s/Daniel J. Black Director June 17, 1998
- ---------------------
Daniel J. Black
/s/David M. Baldwin Director June 17, 1998
- ---------------------
David M. Baldwin
/s/Dr. Richard L. Cruess Director June 17, 1998
- ------------------------
Dr. Richard L. Cruess
/s/Suzanne H. Garcia Director June 17, 1998
- ----------------------
Suzanne H. Garcia
12
<PAGE>
SIGNATURE TITLE DATE
/s/Scott C. Hoyt Director June 17, 1998
- -----------------------
Scott C. Hoyt
/s/Ralph Levine President and Chief June 17, 1998
- ----------------------- Operating Officer,
Ralph Levine Director
/s/Herbert M. Rinaldi Director June 17, 1998
- ------------------------
Herbert M. Rinaldi
/s/Paul A. Veteri Executive Vice President June 17, 1998
- -------------------------- and Chief Financial Officer,
Paul A. Veteri Director (Principal Financial
Officer)
/s/Peter J. Griffin Vice President and June 17, 1998
- -------------------------- Controller (Principal
Peter J. Griffin 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 7, 1998 appearing on pages 12 through 32 of the 1998
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, 1998 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 7, 1998, we reported on the consolidated balance sheets of
Carter-Wallace, Inc. and subsidiaries as of March 31, 1998 and 1997, 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, 1998, as
contained in the 1998 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 1998. 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 7, 1998
15
<PAGE>
SCHEDULE II
CARTER-WALLACE, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Three Years Ended March 31, 1998
(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, 1998:
Deducted from assets
to which they apply:
Allowance for
doubtful accounts $ 5,314 $ 1,134 $ - $ 732 (a) $ 5,716
Allowance for cash
discounts 1,416 8,741 - 8,567 (b) 1,590
------- ------- ------ ------- -------
$ 6,730 $ 9,875 $ - $ 9,299 $ 7,306
------- ------- ------ ------- -------
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) $ -
------- ------- ------ ------- -------
<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.
</TABLE>
16
As amended 5/15/97
BY-LAWS
OF
CARTER-WALLACE, INC.
a Delaware corporation ("Corporation")
ARTICLE I
OFFICES
SECTION 1.1. LOCATION. The address of the registered office of the
Corporation in the State of Delaware and the name of the registered agent at
such address shall be as specified in the Certificate of Incorporation or, if
subsequently changed, as specified in the most recent certificate of change
filed pursuant to law. The Corporation may also have other offices at such
places within or without the State of Delaware as the Board of Directors may
from time to time designate or the business of the Corporation may require.
SECTION 1.2. CHANGE OF LOCATION. In the manner permitted by law, the Board
of Directors or the registered agent may change the address of the Corporation's
registered office in the State of Delaware and the Board of Directors may make,
revoke or change the designation of the registered agent.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may be stated in the notice of the meeting shall be held at such
place within or without the State of Delaware and at such time and date as the
Board of Directors, by resolution, shall determine and as set forth in the
notice of meeting. In the event the Board of Directors fails to so determine the
time, date and place of meeting, the annual meeting of stockholders shall be
held at the principal office of the Corporation in the State of Delaware on the
third Tuesday of July of each year, or if such a date is a legal holiday, then
on the next succeeding business day.
SECTION 2.2. SPECIAL MEETINGS. Special meetings of stockholders, unless
otherwise prescribed by law, may be called at any time by the Chairman of the
Board or by order of the Board of Directors and shall be called by the Chairman
of the Board or Secretary whenever requested to do so by stockholders owning not
less than one-third of all votes of the outstanding shares of the Corporation
entitled to vote at such meeting. Special meetings of stockholders prescribed by
law for the election of directors shall be called by the Board of Directors, the
Chairman of the Board or the Secretary whenever required to do so pursuant to
the applicable law. Special meetings of stockholders shall be held at such place
within or without the State of Delaware as shall be designated in the notice of
meeting.
SECTION 2.3. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has
charge of the stock ledger of the Corporation shall prepare and make, or cause
to be prepared and made, at least ten days before every meeting of stockholders,
a complete list, based upon the record date for such meeting determined pursuant
to Section 5.8, of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if such place
shall not be so specified, at the place where said meeting is to be held. The
list shall also be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is present.
1
<PAGE>
The stock ledger shall be the only evidence as to who are the stockholders
entitled (i) to examine the stock ledger, the list of stockholders entitled to
vote at any meeting, or the books of the Corporation, or (ii) to vote in person
or by proxy at any meeting of stockholders.
SECTION 2.4. NOTICE OF MEETINGS. Written notice of each annual and special
meeting of stockholders, other than any meeting the giving of notice of which is
otherwise prescribed by law, stating the place, date and hour of the meeting,
and, in the case of a special meeting, the purpose or purposes thereof, shall be
delivered or mailed in writing at least ten but not more than sixty days before
such meeting, to each stockholder required or permitted to take any action or
entitled to vote thereat. If mailed, such notice shall be deposited in the
United States mail, postage prepaid, directed to such stockholder at his address
as the same appears on the records of the Corporation. An affidavit of the
Secretary, an Assistant Secretary or the transfer agent of the Corporation that
notice has been duly given shall be evidence of the facts stated herein.
SECTION 2.5. ADJOURNED MEETINGS AND NOTICE THEREOF. Any meeting of
stockholders may be adjourned to another time or place, and the Corporation may
transact at any adjourned meeting any business which might have been transacted
at the original meeting. Notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken, unless (a) any adjournment or series of adjournments cause the
original meeting to be adjourned for more than thirty days after the date
originally fixed therefor, or (b) a new record date is fixed for the adjourned
meeting. If notice of an adjourned meeting is given, such notice shall be given
to each stockholder of record entitled to vote at the adjourned meeting in the
manner prescribed in Section 2.4 for the giving of notice of meetings.
SECTION 2.6. QUORUM. At any meeting of stockholders, except as otherwise
expressly required by law, or by the Certificate of Incorporation, the holders
of record of at least a majority of the votes of the outstanding shares of
capital stock entitled to vote or act at such meetings shall be present or
represented by proxy in order to constitute a quorum for the transaction of any
business, but less than a quorum shall have power to adjourn any meeting until a
quorum shall be present. When a quorum is once present to organize a meeting,
the quorum cannot be destroyed by the subsequent withdrawal or revocation of the
proxy of any stockholder. Shares of capital stock owned by the Corporation or by
another corporation, if a majority of the shares of such other corporation
entitled to vote in the election of directors is held by the Corporation, shall
not be counted for quorum purposes or entitled to vote.
SECTION 2.7. VOTING. At any meeting of stockholders, each stockholder
holding as of the record date shares of stock entitled to be voted on any matter
at such meeting shall have such votes as provided in the Certificate of
Incorporation.
Each stockholder entitled to vote at a meeting of stockholders or to express
consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by proxy, provided that no
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only so long as, it is coupled
with an interest, whether in the stock itself or in the Corporation, sufficient
in law to support an irrevocable power.
Unless otherwise provided by law or the Certificate of Incorporation, the
vote that shall be necessary for the transaction of business shall be a majority
of the votes of the outstanding shares entitled to vote at such meeting.
The Board of Directors, the Chairman of the Board or the President shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. If no inspector or alternative is
able to act at a meeting of stockholders, the person presiding at the meeting
shall appoint one or more inspectors to act at the meeting.
The inspectors shall (i) ascertain the number of shares outstanding and the
voting power of each, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, (v) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots and (vi) take such other actions, if any, as may
be required or permitted by the Delaware General Corporation Law as it currently
exists or as it may hereafter be amended.
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SECTION 2.8. ACTION BY CONSENT OF STOCKHOLDERS. Unless otherwise provided
in the Certificate of Incorporation whenever any action by the stockholders at a
meeting thereof is required or permitted by law, the Certificate of
Incorporation, or these By-Laws, such action may be taken without a meeting,
without prior notice and without a vote if a consent in writing, setting forth
the action so taken, shall be signed by the holders of the outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. Prompt notice of the taking of such action
without a meeting and by less than unanimous written consent shall be given to
those stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. The property, business and affairs of the
Corporation shall be managed by the Board of Directors. The Board of Directors
may exercise all such powers of the Corporation and have such authority and do
all such lawful acts and things as are permitted by law, the Certificate of
Incorporation or these By-Laws.
SECTION 3.2. NUMBER OF DIRECTORS. The Board of Directors of the Corporation
shall consist of three or more members; the exact number of directors which
shall constitute the whole Board of Directors shall be fixed from time to time
by resolution adopted by a majority of the whole Board of Directors. Until the
number of directors has been so fixed by the Board of Directors, the number of
directors constituting the whole Board of Directors shall be seven. After fixing
the number of directors constituting the whole Board of Directors, the Board of
Directors may, by resolution adopted by a majority of the whole Board of
Directors, from time to time change the number of directors constituting the
whole Board of Directors.
SECTION 3.3. QUALIFICATION. Directors need not be stockholders of the
Corporation.
SECTION 3.4. ELECTION. Except as otherwise provided by law, the Certificate
of Incorporation, or these By-Laws, after the first meeting of the Corporation
at which directors are elected, directors of the Corporation shall be elected in
each year at the annual meeting of stockholders, or at a special meeting in lieu
of the annual meeting called for such purpose, by a vote of a majority of the
shares entitled to vote at such meeting. The voting on directors at any such
meeting need not be by written ballot.
SECTION 3.5. TERM. Each director shall hold office until his successor is
duly elected and qualified, except in the event of the earlier termination of
his term of office by reason of death, resignation, removal or other reason.
SECTION 3.6. RESIGNATION AND REMOVAL. Any director may resign at any time
upon written notice to the Board of Directors, the Chairman of the Board or the
Secretary. The resignation of any director shall take effect upon receipt of
notice thereof or at such later time as shall be specified in such notice, and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective. Any director may be removed at any time with
or without cause by a vote of a majority in interest of the votes of the
outstanding shares of stock of the corporation entitled to vote on the election
of directors at any special meeting of stockholders called for such purpose.
SECTION 3.7. VACANCIES. Vacancies in the Board of Directors (unless the
vacancy be caused by the removal of a director) and newly created directorships
resulting from any increase in the authorized number of directors shall be
filled by a majority of the directors then in office, though less than a quorum
or by as sole remaining director. The vacancy caused by the removal of a
director shall be filled by a vote of a majority in interest of the votes of the
outstanding shares of stock of the corporation entitled to vote on the election
of directors at any special meeting of stockholders called for such purposes.
If one or more directors shall resign from the Board of Directors effective
at a future date, a majority of the directors then in office, including those
who have so resigned at a future date, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect and the vacancy to be filled when
such resignation or resignations shall become effective, and each director so
chosen shall hold office as provided in this section in the filling of other
vacancies.
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Each director chosen to fill a vacancy on the Board of Directors shall hold
office until the next annual election of directors and until his successor shall
be elected and qualified.
SECTION 3.8. QUORUM AND VOTING. Unless the Certificate of Incorporation
provides otherwise, at all meetings of the Board of Directors a majority of the
whole Board of Directors shall be present to constitute a quorum for the
transaction of business. A director interested in a contract or transaction may
be counted in determining the presence of a quorum at a meeting of the Board of
Directors which authorizes the contract or transaction. In the absence of a
quorum, a majority of the directors present may adjourn the meeting until a
quorum shall be present.
Unless the Certificate of Incorporation provides otherwise, members of the
Board of Directors or any committee designated by the Board of Directors may
participate in a meeting of the Board of Directors or such committee by means of
a conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
such a meeting shall constitute presence in person at such meeting.
The vote of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors unless the
Certificate of Incorporation or these By-Laws shall require a vote of a greater
number.
SECTION 3.9. REGULATIONS. The Board of Directors may adopt such rules and
regulations for the conduct of the business and management of the Corporation,
not inconsistent with law or the Certificate of Incorporation or these By-Laws,
as the Board of Directors may deem proper. The Board of Directors may hold its
meetings and cause the books and records of the Corporation to be kept at such
place or places within or without the State of Delaware as the Board of
Directors may from time to time determine. A member of the Board of Directors
shall, in the performance of his duties, be fully protected in relying in good
faith upon the books of account or reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser
selected with reasonable care by the Board of Directors or any committee of the
Board of Directors or in relying in good faith upon other records of the
Corporation.
SECTION 3.10. ANNUAL MEETING OF BOARD OF DIRECTORS. An annual meeting of
the Board of Directors shall be called and held for the purpose of organization,
election of officers and transaction of any other business. If such meeting is
held promptly after the annual meeting of stockholders, no notice of the annual
meeting of the Board of Directors need be given. Otherwise such annual meeting
shall be held at such time (not more than thirty days after the annual meeting
of stockholders) and place as may be specified in a notice of the meeting.
SECTION 3.11. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at the time and place, within or without the State of Delaware, as
shall from time to time be determined by the Board of Directors. After there has
been such determination and notice thereof has been given to each member of the
Board of Directors, no further notice shall be required for any such regular
meeting. Except as otherwise provided by law, any business may be transacted at
any regular meeting.
SECTION 3.12. SPECIAL MEETINGS. Special meetings of the Board of Directors
may, unless otherwise prescribed by law, be called from time by the Chairman of
the Board and shall be called by the Chairman of the Board or the Secretary upon
the written request of two members of the Board of Directors directed to the
Chairman of the Board or the Secretary. Except as provided below, notice of any
special meeting of the Board of Directors, stating the time, place and purpose
of such special meeting, shall be given to each director.
SECTION 3.13. NOTICE OF MEETINGS; WAIVER OF NOTICE. Notice of any meeting
of the Board of Directors shall be deemed to be duly given to a director (i) if
mailed to such director, addressed to him at his address as it appears upon the
books of the Corporation, or at the address last made known in writing to the
Corporation by such director as the address to which such notices are to be
sent, at least two days before the day on which such special meeting is to be
held, or (ii) if sent to him at such address by telegraph, cable, radio or
wireless not later than the day before the day on which such meeting is to be
held, or (iii) if delivered to him personally or orally, by telephone or
otherwise, not later than the day before the day on which such special meeting
to to be held. Each such notice shall state the time and place of the meeting
and the purposes thereof.
Notice of any meeting of the Board of Directors need not be given to any
director if waived by him in writing (or by telegram, cable, radio or wireless
and confirmed in writing) whether before or after the holding of such meeting,
or if such director is present at such
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meeting. Any meeting of the Board of Directors shall be a duly constituted
meeting without any notice thereof having been given if all directors then in
office shall be present thereat.
SECTION 3.14. COMMITTEES OF DIRECTORS. The Board of Directors, by resolution
or resolutions passed by a majority of the whole Board of Directors, shall
designate an Executive Committee to consist of one or more directors of the
Corporation and may designate one or more other committees, each such other
committee to consist of one or more of the directors of the Corporation.
Except as herein provided, vacancies in membership of any committee shall be
filled by the vote of a majority of the whole Board of Directors. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of any member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Members of a committee shall hold office
for such period as may be fixed by a resolution adopted by a majority of the
whole Board of Directors, subject, however, to removal at any time by the vote
of a majority of the whole Board of Directors.
SECTION 3.15. POWERS AND DUTIES OF COMMITTEES. Any committee, to the extent
provided in the resolution or resolutions creating such committee, shall have
and may exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it. No such committee
shall have the power or authority with regard to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-Laws. The Board of Directors may, in the resolution creating a committee,
grant to such committee the power and authority to declare a dividend or
authorize the issuance of stock.
Each committee may adopt its own rules of procedure and may meet at stated
times or on such notice as such committee may determine. Except as otherwise
permitted by these By-Laws, each committee shall keep regular minutes of its
proceedings and report the same to the Board of Directors when required.
SECTION 3.16. COMPENSATION OF DIRECTORS. The Board of Directors may from
time to time, in its discretion, fix the amounts which shall be payable to
directors and to members of any committee of the Board of Directors for
attendance at the meetings of the Board of Directors or of such committee and
for services rendered to the Corporation.
SECTION 3.17. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board of Directors or of such committee, as the case may be, and such written
consent is filed with the minutes of proceedings of the Board of Directors or
such committee.
ARTICLE IV
OFFICERS
SECTION 4.1. PRINCIPAL OFFICERS. The principal officers of the Corporation
shall be elected by the Board of Directors and shall include a Chairman of the
Board, a President, one or more Vice Presidents, a Secretary, a Treasurer and a
Controller. Except as otherwise provided in the Certificate of Incorporation or
these By-Laws, one person may hold the offices and perform the duties of any two
or more of said principal offices except the offices and duties of President and
Secretary or of Treasurer and Controller. None of the principal officers, other
than the Chairman of the Board and the President, need be a director of the
Corporation.
SECTION 4.2. ELECTION OF PRINCIPAL OFFICERS; TERM OF OFFICE. The principal
officers of the Corporation shall be elected annually by the Board of Directors
at each annual meeting of the Board of Directors. Failure to elect any principal
officer annually shall not dissolve the Corporation.
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If the Board of Directors shall fail to fill any principal office at an
annual meeting, or if any vacancy in any principal office shall occur, or if any
principal office shall be newly created, such principal office may be filled at
any regular or special meeting of the Board of Directors.
Each principal officer shall hold office until his successor is duly elected
and qualified, or until his earlier death, resignation or removal, provided that
the terms of office of all Vice Presidents shall terminate at any annual meeting
of the Board of Directors at which the Chairman of the Board, the President, or
any Vice President is elected.
SECTION 4.3. SUBORDINATE OFFICERS, AGENTS AND EMPLOYEES. In addition to the
principal officers, the Corporation may have one or more Assistant Treasurers,
Assistant Secretaries and such other subordinate officers, agents and employees
as the Board of Directors may deem advisable, each of whom shall hold office for
such period and have such authority and perform such duties as the Board of
Directors, the President or any other officer designated by the Board of
Directors, may from time to time determine. The Board of Directors at any time
may appoint and remove, or may delegate to any principal officer the power to
appoint and to remove, any subordinate officer, agent, or employee of the
Corporation.
SECTION 4.4. DELEGATION OF DUTIES OF OFFICERS. The Board of Directors may
delegate the duties and powers of any officer of the Corporation to any other
officer or to any director for a specified period of time for any reason that
the Board of Directors may deem sufficient.
SECTION 4.5. REMOVAL AND RESIGNATION OF OFFICERS. Any officer of the
Corporation may be removed with or without cause by resolution adopted by a
majority of the directors then in office at any regular or special meeting of
the Board of Directors or by a written consent signed by all of the directors
then in office.
Any officer may resign at any time by giving written notice of resignation
to the Board of Directors, to the Chairman of the Board, the President or the
Secretary. Any such resignation shall take effect upon receipt of such notice or
at any later time specified therein. Unless otherwise specified in the notice,
the acceptance of a resignation shall not be necessary to make the resignation
effective.
SECTION 4.6. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be the
Chief Executive Officer of the Corporation and shall preside at all meetings of
stockholders and of the Board of Directors at which he is present. The Chairman
of the Board shall be a member of the Corporate Office. The Chairman of the
Board shall supervise the conformance of operations with objectives and policies
and shall advise the President on matters of general policy. The Chairman of the
Board shall have such other powers and perform such other duties as may be
assigned to him from time to time by the Board of Directors.
SECTION 4.7. PRESIDENT. The President shall be the chief operating officer
of the Corporation. The President shall be responsible for carrying out the
policies and objectives established by the Board of Directors and the Corporate
Office. The President shall, in the absence of the Chairman of the Board,
preside at all meetings of stockholders and of the Board of Directors at which
he is present. The President shall have such other powers and perform such other
duties as may be assigned to him from time to time by the Board of Directors.
SECTION 4.8. CORPORATE OFFICE. The Corporate Office shall consist of the
Chairman of the Board, the President, and such other officer or officers as the
Board of Directors may select. Subject to the direction of the Board of
Directors, the Corporate Office shall be responsible for establishing corporate
objectives and long-range policies and shall have general supervision over the
business of the Corporation. The Corporate Office shall have such other powers
and perform such other duties as may be assigned to it from time to time by the
Board of Directors.
SECTION 4.9. VICE PRESIDENTS. The Vice Presidents shall generally assist the
President in such manner as the President shall direct. Any Vice President may
have such additional designation in his title as the Board of Directors may
determine. Each Vice President shall have such other powers and perform such
other duties as may be assigned to him from time to time by the Board of
Directors or the President.
SECTION 4.10. SECRETARY. The Secretary shall act as Secretary of all
meetings of stockholders and of the Board of Directors
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at which he is present, shall record all the proceedings of all such meetings in
a book to be kept for that purpose, shall have supervision over the giving and
service of notices of the Corporation, and shall have supervision over the care
and custody of the records and seal of the Corporation. The Secretary shall be
empowered to affix the corporate seal to documents, the execution of which on
behalf of the Corporation under its seal is duly authorized, and when so affixed
may attest the same. The Secretary shall have all powers and duties usually
incident to the office of Secretary, except as specifically limited by a
resolution of the Board of Directors. The Secretary shall have such other powers
and perform such other duties as may be assigned to him from time to time by the
Board of Directors or the President.
SECTION 4.11. TREASURER. The Treasurer shall have general supervision over
the care and custody of the funds and over the receipts and disbursements of the
Corporation and shall cause the funds of the Corporation to be deposited in the
name of the Corporation in such banks or other depositaries as the Board of
Directors may designate. The Treasurer shall have supervision over the care and
safekeeping of the securities of the Corporation. The Treasurer shall have all
powers and duties usually incident to the office of Treasurer except as
specifically limited by a resolution of the Board of Directors. The Treasurer
shall have such other powers and perform such other duties as may be assigned to
him from time to time by the Board of Directors or the President.
SECTION 4.12. CONTROLLER. The Controller shall be the chief accounting
officer of the Corporation and shall have supervision over the maintenance and
custody of the accounting operations of the Corporation, including the keeping
of accurate accounts of all receipts and disbursements and all other financial
transactions. The Controller shall have all powers and duties usually incident
to the office of Controller except as specifically limited by a resolution of
the Board of Directors. The Controller shall have such other powers and perform
such other duties as may be assigned to him from time to time by the Board of
Directors or the President.
SECTION 4.13. BOND. The Board of Directors shall have power, to the extent
permitted by law, to require any officer, agent or employee of the Corporation
to give bond for the faithful discharge of his duties in such form and with such
surety or sureties as the Board of Directors may determine.
ARTICLE V
CAPITAL STOCK
SECTION 5.1. ISSUANCE OF CERTIFICATES FOR STOCK. Each stockholder of the
Corporation shall be entitled to a certificate or certificates in such form as
shall be approved by the Board of Directors, certifying the number of shares of
capital stock of the Corporation owned by such stockholder.
SECTION 5.2. SIGNATURES ON STOCK CERTIFICATES. Certificates for shares of
capital stock of the Corporation shall be signed by, or in the name of the
Corporation by, the Chairman of the Board or the President and by the Secretary,
the Treasurer, an Assistant Secretary or an Assistant Treasurer and shall bear
the corporate seal of the Corporation or a printed or engraved facsimile
thereof. Any of or all the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, such
certificate may be issued by the Corporation with the same effect as if such
signer were such officer, transfer agent or registrar at the date of issue.
SECTION 5.3. STOCK LEDGER. A record of all certificates for capital stock
issued by the Corporation shall be kept by the Secretary or any other officer,
employee or agent designated by the Board of Directors. Such record shall show
the name and address of the person, firm or corporation in which certificates
for capital stock are registered, the number of shares represented by each such
certificate, the date of each such certificate, and in case of certificates
which have been canceled the dates of cancellation thereof.
The Corporation shall be entitled to treat the holder of record of shares of
capital stock as shown on the stock ledger as the owner thereof and as the
person entitled to receive dividends thereon, to vote such shares and to receive
notice of meetings, and for all other purposes. The Corporation shall not be
bound to recognize any equitable or other claim to or interest in any share of
capital stock on the part of any other person whether or not the Corporation
shall have express or other notice thereof.
SECTION 5.4. REGULATIONS RELATING TO TRANSFER. The Board of Directors may
make such rules and regulations as it
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may deem expedient, not inconsistent with law, the Certificate of Incorporation
or these By-Laws, concerning issuance, transfer and registration of certificates
for shares of capital stock of the Corporation. The Board of Directors may
appoint, or authorize any principal officer to appoint, one or more transfer
clerks or one or more transfer agents and one or more registrars and may require
all certificates for capital stock to bear the signature or signatures of any of
them.
SECTION 5.5. TRANSFERS. Transfers of capital stock shall be made on the
books of the Corporation only upon delivery to the Corporation or its transfer
agent of (i) a written direction of the registered holder named in the
certificate or such holder's attorney lawfully constituted in writing, (ii) the
certificate for the shares of capital stock being transferred, and (iii) a
written assignment of the shares of capital stock evidenced thereby.
SECTION 5.6. CANCELLATION. Each certificate for capital stock surrendered to
the Corporation for exchange or transfer shall be canceled and no new
certificate or certificates shall be issued in exchange for any existing
certificate (other than pursuant to Section 5.7) until such existing certificate
shall have been canceled.
SECTION 5.7. LOST, DESTROYED, STOLEN AND MUTILATED CERTIFICATES. In the
event that any certificate for shares of capital stock of the Corporation shall
be mutilated the Corporation shall issue a new certificate in place of such
mutilated certificate. In case any such certificate shall be lost, stolen or
destroyed the Corporation may, in the discretion of the Board of Directors or a
committee designated thereby with power so to act, issue a new certificate for
capital stock in the place of any such lost, stolen or destroyed certificate.
The applicant for any substituted certificate or certificates shall surrender
any mutilated certificate or, in the case of any lost, stolen or destroyed
certificate, furnish satisfactory proof of such loss, theft or destruction of
such certificate and of the ownership thereof. The Board of Directors or such
committee may, in its discretion, require the owner of a lost or destroyed,
certificate, or his representatives, to furnish to the Corporation a bond with
an acceptable surety or sureties and in such sum as will be sufficient to
indemnify the Corporation against any claim that may be made against it on
account of the lost, stolen or destroyed certificate of the issuance of such new
certificate. A new certificate may be issued without requiring a bond when in
the judgment of the Board of Directors, it is proper to do so.
SECTION 5.8. FIXING OF RECORD DATES.
(a) The Board of Directors may fix, in advance, a record date, which
shall not be more than sixty nor less than ten days before the date of any
meeting of stockholders, not more than sixty days prior to any other action,
for the purpose of determining stockholders entitled to notice of or to vote
at such meeting of stockholders or any adjournment thereof, or to express
consent or dissent to corporate action in writing without a meeting, or to
receive payment or any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action.
(b) If no record date is fixed by the Board of Directors:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close
of business on the day next preceding the day on which notice is given,
or if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held;
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when
no prior action by the Board of Directors is necessary, shall be the
day on which the first consent is expressed and delivered to the
Corporation as provided by law;
(iii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided that the Board of Directors may fix a new record date for
the adjourned meeting.
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ARTICLE VI
INDEMNIFICATION
SECTION 6.1. INDEMNIFICATION.
(a) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere (or its equivalent), shall not of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect to any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnify for such expenses which the Court of Chancery of Delaware
or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1(a) or 6.1(b), or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorney's fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under these Sections 6.1(a) or 6.1(b) (unless
ordered by the Court), shall be made by the Corporation only as authorized in
the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standards of conduct set forth in Sections 6.1(a) and 6.1(b). Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses (including attorney's fees) incurred in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon the receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized in this Section 6.1.
(f) The indemnification and advancement of expenses provided by or granted
pursuant to the provisions of this Section 6.1 shall not be deemed exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) The indemnification and advancement of expenses provided by, or granted
pursuant to, this Section 6.1 shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
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SECTION 6.2. INDEMNIFICATION INSURANCE. The Corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under applicable
law.
SECTION 6.3. CONSTITUENT CORPORATIONS. For the purposes of this article VI,
references to the "Corporation" include all constituent corporations absorbed in
a consolidation or merger, as well as the resulting or surviving corporation, so
that any person who is or was a director, officer, employee or agent of such a
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this section with respect to the resulting or
surviving corporation as he would if he had served the resulting or surviving
corporation in the same capacity.
SECTION 6.4. OTHER ENTERPRISES. For purposes of this Article VI, references
to "other enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with respect to any
employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or agent
of the Corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VI.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. CORPORATE SEAL. The seal of the Corporation shall be circular
in form with the name of the Corporation in the circumference and the words and
figures "Corporate Seal -- 1968 Delaware" in the center. The seal may be used by
causing it to be affixed or impressed, or a facsimile thereof may be reproduced
or otherwise used in such manner as the Board of Directors may determine.
SECTION 7.2. FISCAL YEAR. The fiscal year of the Corporation shall be from
the first day of April to the thirty-first day of March, inclusive, in each
year, or such other twelve consecutive months as the Board of Directors may
designate.
SECTION 7.3. WAIVER OF NOTICE. Whenever any notice is required to be given
under any provision of law, the Certificate of Incorporation, or these By-Laws,
a written waiver thereof, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders, directors, or members of
a committee of directors need be specified in any written waiver of notice
unless so required by the Certificate of Incorporation.
Attendance of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
SECTION 7.4. EXECUTION OF INSTRUMENTS, CONTRACTS, ETC. All checks, drafts,
bills of exchange, notes or other obligations or orders for the payment of money
shall be signed in the name of the Corporation by such officer or officers or
person or persons, as the Board of Directors may from time to time designate by
resolution.
The Chairman of the Board or the President shall have authority, in the name
and on behalf of the Corporation, to enter into or execute and deliver any and
all deeds, bonds, mortgages, contracts and other obligations or instruments.
Except as otherwise provided by law, the Board of Directors, any committee
given specific authority in the premises by the Board of
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Directors, or any committee given authority to exercise generally the powers of
the Board of Directors during the intervals between meetings of the Board of
Directors, may authorize any other officer, employee or agent, in the name of
and on behalf of the Corporation, to enter into or execute and deliver deeds,
bonds, mortgages, contracts and other obligations or instruments, and such
authority may be general or confined to specific instances.
All applications, written instruments and papers required by or filed with
any department of the United States Government or by any state, county,
municipal or other governmental official or authority, may, if permitted by
applicable law, be executed in the name of the Corporation by any principal
officer or subordinate officer of the Corporation, or, to the extent designated
for such purpose from time to time by the Board of Directors, by an employee or
agent of the Corporation. Such designation may contain the power to substitute,
in the discretion of the person named, one or more other persons.
SECTION 7.5. VOTING OF STOCK. Unless otherwise ordered by the Board of
Directors, the Chairman of the Board or the President shall have full power and
authority in behalf of the Corporation to attend and to act and to vote at any
meetings of stockholders of any corporation in which the Corporation may hold
stock, and at any such meeting shall possess and may exercise any and all the
rights and powers incident to the ownership of such stock, and which, as the
owner thereof, the Corporation might have possessed and exercised if present.
The Board of Directors, by resolution, from time to time may confer like powers
upon any other person or persons.
ARTICLE VIII
AMENDMENTS; EMERGENCY BY-LAWS
SECTION 8.1. BY STOCKHOLDERS. These By-Laws may be amended, added to,
altered or repealed, or new By-Laws may be adopted, at any meeting of
stockholders by the vote of the holders of not less than a majority of the votes
of the outstanding shares of stock entitled to vote thereat, provided that, in
the case of a special meeting, notice that an amendment is to be considered and
acted upon shall be inserted in the notice or waiver of notice of said meeting.
SECTION 8.2. BY DIRECTORS. To the extent permitted by the Certificate of
Incorporation, these By-Laws may be amended, added to, altered or repealed, or
new By-Laws may be adopted by a resolution adopted by a majority of the whole
Board of Directors at any regular or special meeting of the Board of Directors.
SECTION 8.3. EMERGENCY BY-LAWS. The Board of Directors may adopt emergency
by-laws subject to repeal or change by action of the stockholders which shall,
notwithstanding any different provision of law, the Certificate of Incorporation
or these By-Laws, be operative during any emergency resulting from any nuclear
or atomic disaster, an attack on the United States or on a locality in which the
Corporation conducts its business or customarily holds meetings of the Board of
Directors or stockholders, any catastrophe, or other similar emergency
condition, as a result of which a quorum of the Board of Directors or a standing
committee thereof cannot readily be convened for action. Such emergency by-laws
may make any provision that may be practicable and necessary for the
circumstances of the emergency. No officer, director or employee acting in
accordance with any emergency by-laws shall be liable except for willful
misconduct.
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EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT, dated as of June 4, 1998, 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 pursuant to this Agreement for a period (the "Term")
commencing as of the date hereof and continuing until terminated
as provided in Section 8 of this Agreement.
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2. Compensation. The Executive shall be paid a base salary at
the rate of not less than $884,000 per year during the Term, payable in equal
semi-monthly installments. Notwithstand ing 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, on a basis consistent with his position with the Company, 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 Executive. During the Term, the
Executive shall have the title of President and Chief Operating Officer, shall
report directly to the Chief Executive Officer of the Company (or, if the
Company becomes a subsidiary of another company, to the Chief Executive Officer
of the ultimate parent of such company) and shall have the powers, status and
duties that are normally exercised in and ordinarily pertain to these positions.
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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 and a member of the Company's Executive Committee and
Corporate Office.
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 and comparable 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,
the Executive shall devote his best efforts to the service of the Company and to
the performance of the duties specified above. The Executive shall be permitted
to take vacation in each year of his employment in conformance with Company
vacation policy, the terms of which (as applied to the Executive) shall be no
less favorable than the terms of such policy as in effect on the date hereof.
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6. Covenant Not to Compete; Nonsolicitation. (a) Except with
the prior written consent of the Company authorized by a resolution adopted by
the Board of Directors of the Company, during the Term and for a period of one
year after the termination of the Executive's 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.
(b) During the Term and for a period of one year after the
termination of the Executive's employment for any reason, the Executive shall
not personally (and shall not personally cause others to) (i) take any action to
solicit or divert any material business or customers away from the Company, (ii)
induce customers, potential customers, suppliers, agents or other persons
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under contract or otherwise associated or doing business with the Company to
terminate, reduce or alter any such association or business, or (iii) induce any
person employed by the Company to (A) terminate such employment arrangement, (B)
accept employment with another person, or (C) interfere with the customers or
suppliers or otherwise with the Company in any manner.
7. Secrecy; Nondisparagement. (a) 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 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
Company, unless such information shall have previously become public knowledge.
(b) The Executive agrees that he will not make any disparaging
statements about the Company or the directors,
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officers or employees of the Company; provided that this Section 7(b) shall not
apply to truthful testimony as a witness, compliance with other legal
obligations, or truthful assertion of or defense against any claim or breach of
this Agreement, or to the Executive's truthful statements or disclosures to
officers or directors of the Company, and shall not require the Executive to
make false statements or disclosures. The Company agrees that neither the
directors nor the officers of the Company nor any spokesperson for the Company
shall make any disparaging statements about the Executive; provided that this
Section 7(b) shall not apply to truthful testimony as a witness, compliance with
other legal obligations, truthful assertion of or defense against any claim of
breach of this Agreement, or truthful statements or disclosures to the
Executive, and shall not require false statements or disclosures to be made.
8. Termination. (a) Cause. The Board of Directors, by a vote
of three-quarters of the entire 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 cause for immediate dismissal. As used in this
Agreement, the term "cause" shall mean (i) the Executive's willful and material
breach of Sections 6 or 7 of this Agreement;
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(ii) the Executive's conviction of a felony; or (iii) the Executive's engagement
in conduct that constitutes willful gross neglect or willful gross misconduct in
carrying out his duties under this Agreement, resulting, in either case, in
material harm to the financial condition or reputation of the Company. For
purposes of this Agreement, an act or failure to act on the Executive's part
shall be considered "willful" if it was done or omitted to be done by him not in
good faith, and shall not include any act or failure to act resulting from any
incapacity of the Executive. Notwithstanding the foregoing, a termination for
"cause" shall not take effect unless the Executive has been given written notice
by the Company of its intention to terminate him for "cause", such notice (A) to
state in detail the particular act or acts or failure or failures to act that
constitute the grounds on which the proposed termination for "cause" is based
and (B) to be given within 90 days of the Company's learning of such act or acts
or failure or failures to act. The Executive shall have 20 days after the date
that such written notice has been given to him in which to cure such conduct, to
the extent such cure is possible. If he fails to cure such conduct, the
Executive shall then be entitled to a hearing before the Board of Directors at
which the Executive and
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his counsel are entitled to appear. Such hearing shall be held within 25 days of
such notice to the Executive, provided he requests such hearing within 10 days
of the written notice from the Company of the intention to terminate him for
"cause". If, within five days following such hearing, the Executive is furnished
written notice by the Board of Directors confirming that, in its judgment,
grounds for "cause" on the basis of the original notice exist, he shall
thereupon be terminated for "cause."
(b) Without Cause. The Board of Directors, by a majority vote
of the entire Board of Directors, may terminate the employment of the Executive
without cause.
(c) Disability. The Board of Directors of the Company, by a
vote of a majority of the entire Board of Directors, may terminate the
employment of the Executive under this Agreement if 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.
(d) Death. The employment of the Executive shall terminate if
the Executive shall die.
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(e) Voluntary Termination or Retirement. The employment of the
Executive shall terminate if the Executive shall voluntarily leave the
employment of the Company for other than good reason or shall retire. As used
herein, "good reason" shall mean (i) the assignment to the Executive of any
duties inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting relationships), authority, duties or
responsibilities as contemplated by Section 4 of this Agreement or any other
action by the Company that results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith that is remedied by
the Company promptly after receipt of notice thereof given by the Executive;
(ii) a decrease in the target annual incentive award opportunity below 56.25% of
his base salary; (iii) the transfer or attempted assignment of the Executive
without his consent to a location outside New York City or the assignment to the
Executive of duties that require that he travel outside New York City in any
fiscal year for more than the average number of days of business-related travel
in the preceding three fiscal years; or (iv) any failure of the Company to
comply with and satisfy Section 13(c) of this Agreement or any
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other material breach of this Agreement by the Company. For purposes of this
Agreement, "retire" or "retirement" shall mean the Executive's voluntary
termination of employment with the Company after attaining age 65 or, if
earlier, the date on which the Executive is eligible to terminate employment
with the Company and promptly thereafter commence receiving retirement benefits
pursuant to any pension plan maintained by the Company without any reduction for
the failure to attain a prescribed age.
(f) Good Reason. The employment of the Executive may be
terminated by the Executive for good reason.
9. Obligations of the Company Upon Termination.
(a) Cause; Voluntary Termination or Retirement. If the
Executive's employment is terminated under subsections (a) or (e) of Section 8,
the Company shall have no further obligations to the Executive hereunder, except
that the Company shall pay to the Executive the Accrued Amounts (as hereinafter
defined) and, in the case of a retirement, a Pro-Rated Bonus (as hereinafter
defined). Moreover, in the case of a retirement, all of the Executive's then
outstanding options to purchase common stock of the Company shall become
immediately vested and exercisable for the remaining term of the options, and
all of the Executive's then outstanding restricted and deferred stock grants
relating to
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common stock of the Company shall become immediately vested. For purposes of
this Agreement, the "Accrued Amounts" means the full amount due to the Executive
and not theretofore paid for base salary up to the date of such termination, the
amount of any accrued but unpaid bonus on account of the last full fiscal year
preceding the date of such termination and the amount of any accrued vacation
pay. A "Pro-Rated Bonus" means a pro-rated bonus reflecting the number of months
(treating any partial month as a full month for this purpose) in the Termination
Year (as hereinafter defined) during which the Executive was employed, such
bonus to be calculated and paid as soon as practicable following the end of the
Termination Year. As used herein, "Termination Year" means the fiscal year in
which the Executive's employment is terminated.
(b) Without Cause; Good Reason. If the Executive's employment
is terminated pursuant to subsections (b) or (f) of Section 8, the Company shall
pay to the Executive in a lump sum in cash within seven days after the date of
termination the aggregate of the following amounts:
(i) The Accrued Amounts;
(ii) Three times the Executive's Final
Compensation. For purposes of this Agreement, the
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Executive's "Final Compensation" means the sum of (A) the Executive's
annual base salary as in effect immediately prior to the termination
and (B) the greater of (x) the highest bonus earned by the Executive in
any of the three full fiscal years preceding the date of termination
and (y) the target bonus (based on the assumed attainment of 100% of
the performance objectives) for the Termination Year; and
(iii) An amount equal to the increase in the lump-sum
benefit to which the Executive would be entitled under the
Carter-Wallace, Inc. Executive Pension Benefits Plan (assuming for this
purpose that he had elected a lump-sum benefit payable upon his
termination) if the calculation of the gross benefit thereunder (but
not of any offset amounts) were modified by (A) increasing his number
of years of benefit service by five and (B) substituting his Final
Compensation for his "Modified Average Compensation" in the benefit
formula.
In addition, for a period of three years following termination of the
Executive's employment, or such longer period as any plan, program, practice or
policy may provide, the Company shall continue benefits to the Executive and/or
his family at least equal to those which would have been provided in accordance
with
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the welfare benefit plans, programs, practices and policies of the Company if
the Executive's employment had not been terminated, including medical, dental,
disability and group life insurance plans and programs, in accordance with the
most favorable plans, practices, programs or policies of the Company during the
90-day period immediately preceding the date the Executive's employment is
terminated or, if more favorable, as in effect from time to time thereafter with
respect to other senior executives of the Company and their families and, for
purposes of eligibility for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to have remained
employed until the end of such three-year period and to have retired on the last
day of such period. Moreover, all of the Executive's then outstanding options to
purchase common stock of the Company shall become immediately vested and
exercisable for the remaining term of the options, and all of the Executive's
then outstanding restricted and deferred stock grants relating to common stock
of the Company shall become immediately vested.
(c) Disability. If the Executive's employment is terminated
pursuant to subsection (c) of Section 8, the Company shall (i) pay to the
Executive the Accrued Amounts and a Pro
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Rated Bonus and (ii) 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 of the Executive's annual base
salary rate in effect immediately prior to the termination of employment of the
Executive, payable in equal semi-monthly payments, from the date of such
termination until the date on which payments would cease to be payable under the
terms of such Plan as in effect on the date hereof.
(d) Death. If the Executive's employment is terminated
pursuant to subsection (d) of Section 8, the Company shall pay to the
Executive's estate the Accrued Amounts and a Pro-Rated Bonus.
(e) Nothing in this Section 9 shall be interpreted as reducing
or eliminating any benefits to which the Executive or his beneficiaries are
entitled, without regard to this Agreement, under any plan or program of the
Company following a termination of employment for any reason.
(f) In the event of any termination of employment under
Section 8, the Executive shall be under no obligation to seek other employment,
and there shall be no offset against any amounts due the Executive under this
Agreement on account of the
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remuneration attributable to any subsequent employment that the Executive may
obtain. Any amounts due under this Section 9 are in the nature of severance
payments, or liquidated damages, or both, and are not in the nature of a
penalty.
(g) The Company shall pay fees and expenses reasonably
incurred by the Executive as a result of his seeking to obtain or enforce any
right or benefit provided by this Agreement, promptly and from time to time, at
his request as such fees and expenses are incurred unless the Executive's
actions in such regard are determined to be frivolous or in bad faith.
(h) The Executive agrees, as a condition to receipt of the
termination payments and benefits provided for in this Section 9, that he will
execute a release agreement, in a form reasonably satisfactory to the Company
and the Executive, releasing any and all claims arising out of the Executive's
employment (other than enforcement of this Agreement, the Executive's rights
under any of the Company's incentive compensation and employee benefit plans and
programs to which he is entitled under this Agreement or otherwise, and any
claim for any tort for personal injury not arising out of or related to his
termination of employment).
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10. Excise Tax Gross-Up. If the Executive becomes entitled to
one or more payments (including, without limitation, the vesting of any non-cash
benefit or property), whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company (all such amounts,
exclusive of additional payments pursuant to this Section 10, being referred to
herein as the "Total Payments"), which are or become subject to the tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any similar tax that may hereafter be imposed) (the "Excise Tax"), the
Company shall pay to the Executive at the time specified below an additional
amount (the "Gross-Up Payment") such that the net amount retained by the
Executive, after reduction for (x) any Excise Tax (including any penalties or
interest thereon) on the Total Payments and on the Gross-Up Payment and (y) any
federal, state, or local income or employment tax on the Gross-Up Payment, shall
be equal to the sum of (a) the Total Payments, and (b) an amount equal to the
product of any deductions disallowed for federal, state, or local income tax
purposes because of the inclusion of the Gross-Up Payment in the Executive's
adjusted gross income multiplied by the highest applicable marginal rate
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of federal, state, or local income taxation, respectively, for the calendar year
in which the Gross-Up Payment is to be made.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax, (i) the
Total Payments shall be treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) of the Code shall be treated as subject to the
Excise Tax, unless, and except to the extent that, in the written opinion of
independent tax counsel or auditors of nationally recognized standing selected
by the Company and reasonably acceptable to the Executive ("Independent
Advisors"), the Total Payments do not constitute parachute payments, or such
excess parachute payments in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4) of the Code or are
otherwise not subject to the Excise Tax; and (ii) the value of any non-cash
benefits or any deferred payment or benefit shall be determined by the
Independent Advisors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code. If more than one Gross- Up Payment is made (including for
this purpose any parachute
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excise tax gross-up payment pursuant to the terms of any other plan,
arrangement, or agreement with the Company), the amount of each Gross-Up Payment
shall be computed so as not to duplicate any prior Gross-Up Payment.
For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-Up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-Up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of the Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local income
tax purposes at least equal to those disallowed because of the inclusion of the
Gross-Up Payment in the Executive's adjusted gross income.
The Gross-Up Payment shall be paid on or before the earlier of
(i) the 30th day after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise
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Tax, or (ii) the date on which the Excise Tax becomes due and payable to the
taxing authorities; provided, however, that if the amount of such Gross-Up
Payment or portion thereof cannot be finally determined on or before such day,
the Company shall pay to the Executive on such day an estimate, as determined by
the Independent Advisors, of the minimum amount of such payments and shall pay
the remainder of such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined. In the event that the amount of the estimated payments exceeds the
amount subsequently determined by the Independent Advisors to have been due, the
Executive shall repay to the Company the amount of such excess, plus interest at
the rate provided in Section 1274(b)(2)(B) of the Code, within five days
following the Company's demand therefor.
In the event that the Excise Tax is subsequently determined,
in a final judicial determination or a final administrative settlement to which
the Executive is a party (a "Final Determination"), to be less than the amount
taken into account hereunder at the time the Gross-Up Payment is made, the
Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined (but, if
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previously paid to the taxing authorities, not prior to the time the amount of
such reduction is refunded to the Executive or otherwise realized as a benefit
by the Executive), the portion of the Gross-Up Payment that would not have been
paid if such Excise Tax as finally determined had been applied in initially
calculating the Gross-Up Payment, plus interest on the amount of such repayment
at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined in a Final Determination to exceed the amount taken
into account hereunder at the time the Gross-Up Payment is made (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-Up Payment), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest and penalties payable with
respect to such excess) at the time that the amount of such excess if finally
determined.
The Company shall have the right to control all proceedings
with the Internal Revenue Service that may arise in connection with the
determination and assessment of any Excise Tax and, at its sole option, the
Company may pursue or forego any and all administrative appeals, proceedings,
hearings, and conferences with any taxing authority in respect of such Excise
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Tax (including any interest or penalties thereon); provided, however, that the
Company's control over any such proceedings shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder, and the
Executive shall be entitled to settle or contest any other issue raised by the
Internal Revenue Service or any other taxing authority. The Executive shall
cooperate with the Company in any proceedings relating to the determination and
assessment of any Excise Tax and shall not take any position or action that
would materially increase the amount of any Gross-Up Payment hereunder.
11. 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, or any other remedy, including the recovery
of damages from the Executive. If the Executive shall 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.
12. Assistance in Litigation. The Executive shall, upon
reasonable notice, furnish such information and proper
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assistance to the Company as may reasonably be required by the Company in
connection with any litigation in which it or any of its subsidiaries or
affiliates is or may become a party.
13. Successors. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
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14. 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.
15. 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.
16. Arbitration. The parties agree that any dispute or
controversy arising under or in connection with this Agreement shall be
submitted to and determined by arbitration in New York, New York in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
and agree to be bound by the decision in any such arbitration provision.
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17. Renewals and Amendments. This Agreement may be renewed,
extended, altered or amended at any time by mutual written agreement signed by
both parties.
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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
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Chairman of the Board
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Ralph Levine
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EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT, dated as of June 4, 1998, 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 pursuant to this Agreement for a period (the "Term") commencing as of
the date hereof and continuing until terminated as provided in Section 8 of this
Agreement.
2. Compensation. The Executive shall be paid a base salary at
the rate of not less than $780,000 per year during the Term, payable in equal
semi-monthly installments. Notwithstand ing 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, on a basis consistent with his position with the Company, 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 Executive. During the Term,
the Executive shall have the title of Executive Vice President
and Chief Financial Officer, shall report directly to the
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President and Chief Operating Officer of the Company and shall have the powers,
status 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 and a member of the Company's Executive Committee and
Corporate Office.
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 and comparable 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,
the Executive shall devote his best efforts to the service of the Company and to
the performance of the duties specified above. The Executive shall be permitted
to take vacation in each year of his employment in conformance with Company
vacation policy, the terms of which (as applied to the Executive) shall be no
less favorable than the terms of such policy as in effect on the date hereof.
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6. Covenant Not to Compete; Nonsolicitation. (a) Except with
the prior written consent of the Company authorized by a resolution adopted by
the Board of Directors of the Company, during the Term and for a period of one
year after the termination of the Executive's 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.
(b) During the Term and for a period of one year after the
termination of the Executive's employment for any reason, the Executive shall
not personally (and shall not personally cause others to) (i) take any action to
solicit or divert any material business or customers away from the Company, (ii)
induce customers, potential customers, suppliers, agents or other persons under
contract or otherwise associated or doing business with the Company to
terminate, reduce or alter any such
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association or business, or (iii) induce any person employed by the Company to
(A) terminate such employment arrangement, (B) accept employment with another
person, or (C) interfere with the customers or suppliers or otherwise with the
Company in any manner.
7. Secrecy; Nondisparagement. (a) 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 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
Company, unless such information shall have previously become public knowledge.
(b) The Executive agrees that he will not make any disparaging
statements about the Company or the directors, officers or employees of the
Company; provided that this Section 7(b) shall not apply to truthful testimony
as a witness,
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compliance with other legal obligations, or truthful assertion of or defense
against any claim or breach of this Agreement, or to the Executive's truthful
statements or disclosures to officers or directors of the Company, and shall not
require the Executive to make false statements or disclosures. The Company
agrees that neither the directors nor the officers of the Company nor any
spokesperson for the Company shall make any disparaging statements about the
Executive; provided that this Section 7(b) shall not apply to truthful testimony
as a witness, compliance with other legal obligations, truthful assertion of or
defense against any claim of breach of this Agreement, or truthful statements or
disclosures to the Executive, and shall not require false statements or
disclosures to be made.
8. Termination. (a) Cause. The Board of Directors, by a vote
of three-quarters of the entire 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 cause for immediate dismissal. As used in this
Agreement, the term "cause" shall mean (i) the Executive's willful and material
breach of Sections 6 or 7 of this Agreement; (ii) the Executive's conviction of
a felony; or (iii) the Executive's engagement in conduct that constitutes
willful gross
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neglect or willful gross misconduct in carrying out his duties under this
Agreement, resulting, in either case, in material harm to the financial
condition or reputation of the Company. For purposes of this Agreement, an act
or failure to act on the Executive's part shall be considered "willful" if it
was done or omitted to be done by him not in good faith, and shall not include
any act or failure to act resulting from any incapacity of the Executive.
Notwithstanding the foregoing, a termination for "cause" shall not take effect
unless the Executive has been given written notice by the Company of its
intention to terminate him for "cause", such notice (A) to state in detail the
particular act or acts or failure or failures to act that constitute the grounds
on which the proposed termination for "cause" is based and (B) to be given
within 90 days of the Company's learning of such act or acts or failure or
failures to act. The Executive shall have 20 days after the date that such
written notice has been given to him in which to cure such conduct, to the
extent such cure is possible. If he fails to cure such conduct, the Executive
shall then be entitled to a hearing before the Board of Directors at which the
Executive and his counsel are entitled to appear. Such hearing shall be held
within 25 days of such notice to the Executive, provided he
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requests such hearing within 10 days of the written notice from the Company of
the intention to terminate him for "cause". If, within five days following such
hearing, the Executive is furnished written notice by the Board of Directors
confirming that, in its judgment, grounds for "cause" on the basis of the
original notice exist, he shall thereupon be terminated for "cause."
(b) Without Cause. The Board of Directors, by a majority vote
of the entire Board of Directors, may terminate the employment of the Executive
without cause.
(c) Disability. The Board of Directors of the Company, by a
vote of a majority of the entire Board of Directors, may terminate the
employment of the Executive under this Agreement if 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.
(d) Death. The employment of the Executive shall terminate if
the Executive shall die.
(e) Voluntary Termination or Retirement. The employment of the
Executive shall terminate if the Executive
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shall voluntarily leave the employment of the Company for other than good reason
or shall retire. As used herein, "good reason" shall mean (i) the assignment to
the Executive of any duties inconsistent in any respect with the Executive's
position (including status, offices, titles and reporting relationships),
authority, duties or responsibilities as contemplated by Section 4 of this
Agreement or any other action by the Company that results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith that is
remedied by the Company promptly after receipt of notice thereof given by the
Executive; (ii) a decrease in the target annual incentive award opportunity
below 56.25% of his base salary; (iii) the transfer or attempted assignment of
the Executive without his consent to a location outside New York City or the
assignment to the Executive of duties that require that he travel outside New
York City in any fiscal year for more than the average number of days of
business-related travel in the preceding three fiscal years; or (iv) any failure
of the Company to comply with and satisfy Section 13(c) of this Agreement or any
other material breach of this Agreement by the Company. For purposes of this
Agreement, "retire" or "retirement" shall mean
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the Executive's voluntary termination of employment with the Company after
attaining age 65 or, if earlier, the date on which the Executive is eligible to
terminate employment with the Company and promptly thereafter commence receiving
retirement benefits pursuant to any pension plan maintained by the Company
without any reduction for the failure to attain a prescribed age.
(f) Good Reason. The employment of the Executive may be
terminated by the Executive for good reason.
9. Obligations of the Company Upon Termination.
(a) Cause; Voluntary Termination or Retirement. If the
Executive's employment is terminated under subsections (a) or (e) of Section 8,
the Company shall have no further obligations to the Executive hereunder, except
that the Company shall pay to the Executive the Accrued Amounts (as hereinafter
defined) and, in the case of a retirement, a Pro-Rated Bonus (as hereinafter
defined). Moreover, in the case of a retirement, all of the Executive's then
outstanding options to purchase common stock of the Company shall become
immediately vested and exercisable for the remaining term of the options, and
all of the Executive's then outstanding restricted and deferred stock grants
relating to common stock of the Company shall become immediately vested. For
purposes of this Agreement, the "Accrued Amounts" means the full
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amount due to the Executive and not theretofore paid for base salary up to the
date of such termination, the amount of any accrued but unpaid bonus on account
of the last full fiscal year preceding the date of such termination and the
amount of any accrued vacation pay. A "Pro-Rated Bonus" means a pro-rated bonus
reflecting the number of months (treating any partial month as a full month for
this purpose) in the Termination Year (as hereinafter defined) during which the
Executive was employed, such bonus to be calculated and paid as soon as
practicable following the end of the Termination Year. As used herein,
"Termination Year" means the fiscal year in which the Executive's employment is
terminated.
(b) Without Cause; Good Reason. If the Executive's employment
is terminated pursuant to subsections (b) or (f) of Section 8, the Company shall
pay to the Executive in a lump sum in cash within seven days after the date of
termination the aggregate of the following amounts:
(i) The Accrued Amounts;
(ii) Three times the Executive's Final
Compensation. For purposes of this Agreement, the
Executive's "Final Compensation" means the sum of (A) the
Executive's annual base salary as in effect immediately
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prior to the termination and (B) the greater of (x) the highest bonus
earned by the Executive in any of the three full fiscal years preceding
the date of termination and (y) the target bonus (based on the assumed
attainment of 100% of the performance objectives) for the Termination
Year; and
(iii) An amount equal to the increase in the lump-sum
benefit to which the Executive would be entitled under the
Carter-Wallace, Inc. Executive Pension Benefits Plan (assuming for this
purpose that he had elected a lump-sum benefit payable upon his
termination) if the calculation of the gross benefit thereunder (but
not of any offset amounts) were modified by (A) increasing his number
of years of benefit service and age by five and (B) substituting his
Final Compensation for his "Modified Average Compensation" in the
benefit formula.
In addition, for a period of three years following termination
of the Executive's employment, or such longer period as any plan, program,
practice or policy may provide, the Company shall continue benefits to the
Executive and/or his family at least equal to those which would have been
provided in accordance with the welfare benefit plans, programs, practices and
policies of the Company if the Executive's employment had not been
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terminated, including medical, dental, disability and group life insurance plans
and programs, in accordance with the most favorable plans, practices, programs
or policies of the Company during the 90-day period immediately preceding the
date the Executive's employment is terminated or, if more favorable, as in
effect from time to time thereafter with respect to other senior executives of
the Company and their families and, for purposes of eligibility for retiree
benefits pursuant to such plans, practices, programs and policies, the Executive
shall be considered to have remained employed until the end of such three-year
period and to have retired on the last day of such period. Moreover, all of the
Executive's then outstanding options to purchase common stock of the Company
shall become immediately vested and exercisable for the remaining term of the
options, and all of the Executive's then outstanding restricted and deferred
stock grants relating to common stock of the Company shall become immediately
vested.
(c) Disability. If the Executive's employment is terminated
pursuant to subsection (c) of Section 8, the Company shall (i) pay to the
Executive the Accrued Amounts and a ProRated Bonus and (ii) make, or cause to be
made, payments to the Executive, including any payments made to the Executive
under the
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Company's Long-Term Disability Income Plan, equal to sixty percent of the
Executive's annual base salary rate in effect immediately prior to the
termination of employment of the Executive, payable in equal semi-monthly
payments, from the date of such termination until the date on which payments
would cease to be payable under the terms of such Plan as in effect on the date
hereof.
(d) Death. If the Executive's employment is terminated
pursuant to subsection (d) of Section 8, the Company shall pay to the
Executive's estate the Accrued Amounts and a Pro-Rated Bonus.
(e) Nothing in this Section 9 shall be interpreted as reducing
or eliminating any benefits to which the Executive or his beneficiaries are
entitled, without regard to this Agreement, under any plan or program of the
Company following a termination of employment for any reason.
(f) In the event of any termination of employment under
Section 8, the Executive shall be under no obligation to seek other employment,
and there shall be no offset against any amounts due the Executive under this
Agreement on account of the remuneration attributable to any subsequent
employment that the Executive may obtain. Any amounts due under this Section 9
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are in the nature of severance payments, or liquidated damages, or both, and are
not in the nature of a penalty.
(g) The Company shall pay fees and expenses reasonably
incurred by the Executive as a result of his seeking to obtain or enforce any
right or benefit provided by this Agreement, promptly and from time to time, at
his request as such fees and expenses are incurred unless the Executive's
actions in such regard are determined to be frivolous or in bad faith.
(h) The Executive agrees, as a condition to receipt of the
termination payments and benefits provided for in this Section 9, that he will
execute a release agreement, in a form reasonably satisfactory to the Company
and the Executive, releasing any and all claims arising out of the Executive's
employment (other than enforcement of this Agreement, the Executive's rights
under any of the Company's incentive compensation and employee benefit plans and
programs to which he is entitled under this Agreement or otherwise, and any
claim for any tort for personal injury not arising out of or related to his
termination of employment).
10. Excise Tax Gross-Up. If the Executive becomes entitled to
one or more payments (including, without limitation, the vesting of any non-cash
benefit or property), whether
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pursuant to the terms of this Agreement or any other plan, arrangement, or
agreement with the Company (all such amounts, exclusive of additional payments
pursuant to this Section 10, being referred to herein as the "Total Payments"),
which are or become subject to the tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") (or any similar tax that may
hereafter be imposed) (the "Excise Tax"), the Company shall pay to the Executive
at the time specified below an additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive, after reduction for (x) any
Excise Tax (including any penalties or interest thereon) on the Total Payments
and on the Gross-Up Payment and (y) any federal, state, or local income or
employment tax on the Gross-Up Payment, shall be equal to the sum of (a) the
Total Payments, and (b) an amount equal to the product of any deductions
disallowed for federal, state, or local income tax purposes because of the
inclusion of the Gross-Up Payment in the Executive's adjusted gross income
multiplied by the highest applicable marginal rate of federal, state, or local
income taxation, respectively, for the calendar year in which the Gross-Up
Payment is to be made.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such
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Excise Tax, (i) the Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax, unless, and except to the extent that, in the
written opinion of independent tax counsel or auditors of nationally recognized
standing selected by the Company and reasonably acceptable to the Executive
("Independent Advisors"), the Total Payments do not constitute parachute
payments, or such excess parachute payments in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code represent reasonable compensation
for services actually rendered within the meaning of Section 280G(b)(4) of the
Code or are otherwise not subject to the Excise Tax; and (ii) the value of any
non-cash benefits or any deferred payment or benefit shall be determined by the
Independent Advisors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code. If more than one Gross- Up Payment is made (including for
this purpose any parachute excise tax gross-up payment pursuant to the terms of
any other plan, arrangement, or agreement with the Company), the amount of each
Gross-Up Payment shall be computed so as not to duplicate any prior Gross-Up
Payment.
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For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-Up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-Up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of the Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local income
tax purposes at least equal to those disallowed because of the inclusion of the
Gross-Up Payment in the Executive's adjusted gross income.
The Gross-Up Payment shall be paid on or before the earlier of
(i) the 30th day after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax, or (ii) the date on which the
Excise Tax becomes due and payable to the taxing authorities; provided, however,
that if the amount of such Gross-Up Payment or portion thereof cannot be finally
determined on or before such day, the Company shall pay
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to the Executive on such day an estimate, as determined by the Independent
Advisors, of the minimum amount of such payments and shall pay the remainder of
such payments (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined. In
the event that the amount of the estimated payments exceeds the amount
subsequently determined by the Independent Advisors to have been due, the
Executive shall repay to the Company the amount of such excess, plus interest at
the rate provided in Section 1274(b)(2)(B) of the Code, within five days
following the Company's demand therefor.
In the event that the Excise Tax is subsequently determined,
in a final judicial determination or a final administrative settlement to which
the Executive is a party (a "Final Determination"), to be less than the amount
taken into account hereunder at the time the Gross-Up Payment is made, the
Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined (but, if previously paid to the
taxing authorities, not prior to the time the amount of such reduction is
refunded to the Executive or otherwise realized as a benefit by the Executive),
the portion of the Gross-Up Payment that would not have been paid if such Excise
Tax as finally determined had been applied in initially calculating the Gross-Up
Payment, plus interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is
determined in a Final Determination to exceed the amount taken into account
hereunder at the time the Gross-Up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest and penalties payable with respect to
such excess) at the time that the amount of such excess if finally determined.
The Company shall have the right to control all proceedings
with the Internal Revenue Service that may arise in connection with the
determination and assessment of any Excise Tax and, at its sole option, the
Company may pursue or forego any and all administrative appeals, proceedings,
hearings, and conferences with any taxing authority in respect of such Excise
Tax (including any interest or penalties thereon); provided, however, that the
Company's control over any such proceedings shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder, and the
Executive shall be
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entitled to settle or contest any other issue raised by the Internal Revenue
Service or any other taxing authority. The Executive shall cooperate with the
Company in any proceedings relating to the determination and assessment of any
Excise Tax and shall not take any position or action that would materially
increase the amount of any Gross-Up Payment hereunder.
11. 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, or any other remedy, including the recovery
of damages from the Executive. If the Executive shall 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.
12. Assistance in Litigation. The Executive shall, upon
reasonable notice, furnish such information and proper assistance to the Company
as may reasonably be required by the Company in connection with any litigation
in which it or any of its subsidiaries or affiliates is or may become a party.
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<PAGE>
13. Successors. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
14. 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 21
-22-
<PAGE>
Londonderry Drive, Greenwich, Connecticut 06830, unless another address has been
given to the other party hereto in writing.
15. 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.
16. Arbitration. The parties agree that any dispute or
controversy arising under or in connection with this Agreement shall be
submitted to and determined by arbitration in New York, New York in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
and agree to be bound by the decision in any such arbitration provision.
17. Renewals and Amendments. This Agreement may be renewed,
extended, altered or amended at any time by mutual written agreement signed by
both parties.
-23-
<PAGE>
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
-24-
<PAGE>
CARTER-WALLACE, INC.
ANNUAL REPORT
For the year ended March 31, 1998
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS 1998 1997
<S> <C> <C>
Net sales $662,229,000 $648,755,000
Earnings before taxes 44,755,000 45,349,000
Net earnings 27,301,000 26,756,000
Earnings per share--basic and diluted $ .59 $ .58
Dividends 7,392,000 7,423,000
Dividends per share $ .16 $ .16
Average shares outstanding 46,093,000 46,389,000
Number of stockholders of record
Common 2,340 2,656
Class B common 1,343 1,471
</TABLE>
CW
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, 1998, the Company's consolidated sales were
$662,229,000 compared to the prior year's sales of $648,755,000.
The Company earned $.59 per share for the fiscal year ended March 31, 1998
compared to $.58 per share in the prior year.
SALES
Sales in the Company's two business segments were Consumer Products $400,506,000
and Health Care Products $261,723,000. Consumer Products were 60% and Health
Care Products were 40% of total sales. These sales compare to a year ago of
$405,592,000 and $243,163,000, respectively.
Foreign sales by subsidiaries and branches operating outside the United States
were $194,780,000 for the fiscal year ended March 31, 1998 compared with
$210,606,000 the previous year. This represents 29% and 32%, respectively of
total sales. Lower foreign exchange rates had the effect of decreasing foreign
sales by approximately $13,500,000. Health Care Products accounted for 36% and
Consumer Products 64% of foreign sales.
DIVIDENDS
Dividends of $.16 per share were paid in both the current and prior year. The
Company has paid dividends for 115 consecutive years.
CARTER PRODUCTS DIVISION
The Division achieved increased sales revenues through innovative product
introductions and the strengthening of several core franchises. This was
achieved in spite of continued retail trade consolidations, particularly in the
drug trade class, competitive new product innovations in several of the
Division's key brand segments and competition from private label products.
Nevertheless, two of the Division's products were the number one brand in their
category.
Factory shipments of the Division's Trojan brand condoms reached another record
high. Market share of the Division's condom brands climbed to over 65% of total
condom category sales. Both Trojan and Naturalamb brands increased their market
position. Leadership advertising, effective promotion, comprehensive educational
programs and innovative line extensions helped improve the Division's already
strong position in the market. Trojan Shared Sensation condoms were successfully
introduced into the growing "enhanced sensation" segment of the business.
Sales volume for the Arrid line declined. The Arrid brand continued to introduce
new products which included Arrid XX Total Sport, a line of solid anti-
perspirant/deodorants targeted to men, and new fragrances such as Ultimate Sport
in the Arrid XX Ultra Clear Spray line and Morning Clean in the Arrid XX Solid
line.
The Nair depilatory line continues to be the number one brand of hair remover
with increases in sales volume. Nair Quick & Simple 15 Second Microwave Wax was
successfully introduced during the year, further expanding Nair's presence in
the fast growing home hair waxing segment.
The Division continues to be one of the leading marketers of in-home pregnancy
and ovulation test kits. The First Response and Answer pregnancy and ovulation
test kits performed well. On a combined basis, First Response and Answer put
Carter Products in the number one position in the ovulation test kit category.
The Pearl Drops line continues to be competitive in the tooth whitening
category.
WALLACE LABORATORIES DIVISION
The Division had a successful year highlighted by the first full year of
marketing a new antihistamine,
2
<PAGE>
Astelin (azelastine) Nasal Spray. Astelin Nasal Spray is unique in that it is
the only prescription antihistamine nasal spray available in the U.S. market.
Clinical studies demonstrate that Astelin Nasal Spray is effective in relieving
symptoms of seasonal allergic rhinitis on the very first dose with relief
lasting a full 12 hours.
In accordance with the terms of the Company's agreement with ASTA Medica AG, a
joint venture is to be formed with an effective date of November 1997. Under
this agreement, the Company, through the Wallace Laboratories Division, is
responsible for all manufacturing, selling, marketing and administrative
services for Astelin and will receive compensation from the joint company for
these activities.
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 Laboratories Division sales force. It will receive major
promotional support, especially during the spring and fall allergy seasons.
The Division also concentrated its sales and marketing efforts on products that
have demonstrated response to promotion. These products include the Soma line of
muscle relaxants and Rynatan and Rynatuss cough/cold product lines.
The Division continues to explore new pharmaceutical products and acquisition
opportunities that would broaden or complement existing product lines, as well
as co-promotion agreements with other companies.
WAMPOLE LABORATORIES DIVISION
Wampole Laboratories emphasizes its breadth of product lines within key areas by
providing highly efficient, automated test systems for the centralized
laboratory and by expanding its menu of simple, rapid tests for the point of
care market.
The Division strengthened its market leading position in enzyme immunoassay
testing with the introduction of new products to detect parasitic diseases
(giardia, entamoeba) and intestinal diseases (C. difficile toxins A and B) as
well as autoimmune diseases. Strong sales were recorded in the areas of enteric
disease and syphilis testing. These sales gains were aided by the successful
launch of the Biochem LaboTec automated instrument system for enzyme immunoassay
testing. This system offers the laboratory significant improvements in
productivity and has been very well accepted by the customer base.
Sales of Wampole's immunofluorescent products from Zeus Scientific also
increased, primarily because of improved sales to national reference
laboratories.
The physician's office market continues to be highly competitive as an increased
number of product offerings continued to exert downward pressure on pricing. The
Mono-plus test for the detection of infectious mononucleosis continued to show
strong sales gains aided by the decision from the Centers for Disease Control
and Prevention to grant the product waived status under the Clinical
Laboratories Improvement Act, the first such test to be granted this status. At
the end of the fiscal year, Clearview C. difficile, a rapid test for the
detection of clostridium difficile toxin A, was launched. This product is
expected to aid point of care product sales as well as strengthen Wampole's
overall position in enteric testing.
LAMBERT KAY DIVISION
Lambert Kay's pet products fall into six broad categories: medical/chemical,
grooming, nutritional, insecticide, hardware and toys. These product categories
are further separated into two marketing segments: Lambert Kay products, which
are sold through pet stores and the Lassie and Tiny Tiger brands produced for
the mass market. Lambert Kay's Lassie and Tiny Tiger mass market brands
increased their sales.
The Division introduced several new products and line extensions during the
year. A line of seven ferret products was introduced to participate in the
increasing popularity of these easy care pets. Hair Raiser shedding tools for
dogs and cats were introduced to a very favorable response. With their improved
grip handles, two sided stainless steel blades and easy
3
<PAGE>
open feature, the Hair Raiser shedding tool offers a distinct improvement over
typical consumer shedding tools.
Lassie Left Alone floor protection pads were successfully introduced this year.
These pads are designed to ease a busy family's concern over leaving a pet at
home for extended periods.
Three new shampoos were introduced in the popular "fun family" line. Itch Craft
medicated shampoo, Sensitive Issue puppy shampoo and Delicate Subject
hypoallergenic shampoo bring the number of shampoos in the line to eight, all in
the economically priced 18 oz. size featuring whimsical costumed dogs on their
labels.
Line extensions were added to Lambert Kay's unique colored choke collars and
leads with black, teal and purple added to the original red, blue and gold
colors.
Boundary repellent for cats was added to Lambert Kay's popular Boundary line of
indoor/outdoor repellents. These products are intended to discourage pets from
frequenting restricted areas in the home or garden.
Two new sizes (4 oz. and 8 oz.) were added to the Evict Liquid Wormer line. In
addition, the FDA approved Lambert Kay's double strength Evict wormer.
Introduction of this product to the marketplace is planned for later this year.
INTERNATIONAL DIVISION
International Division's sales as measured in local currency were strong this
year, with foreign subsidiary operations showing overall growth. The sales gains
were achieved through selective selling price increases as well as unit volume
advances in a number of operations including Australia, England, France and
Spain. Division results, however, were impeded by foreign exchange translation
pressures related to a strong U.S. dollar and reduced export sales from the U.S.
Consumer product sales continued to advance in several areas. In Canada, Trojan
condom sales reached record levels in terms of both dollars and market share.
Sales of Antiphlogistine Rub A-535 also advanced in Canada as the result of the
introduction of several new products. The brand also continued to maintain a
dominant market share in the topical analgesic category.
Fueled by the introduction of new products, Pearl Drops toothpolish showed
notable growth in England in the expanding whitening segment. This product
continues to be a leading brand in Germany and several other European countries
as well.
In Italy, results were enhanced by the acquisition of Sanodent, a company well
established in the manufacture and marketing of denture adhesive products under
the Orasiv trademark.
In England, the Anne French line of skin care products was acquired near the end
of the fiscal year. Anne French is a well established niche brand in the England
and Ireland skin care markets, concentrating on facial cleansing products.
After the close of the fiscal year, the Femfresh range of feminine hygiene
products was also acquired. These products will be marketed in England, France
and Australia.
Double-digit sales growth was achieved in France for Lineance, a line of
cosmetic products. Effective media and promotional support and the introduction
of several new products were the primary reasons for these results. Advances
were also achieved in France for Email Diamant toothpolish, the Poupina line of
baby products and Bi-Solution, an over-the-counter acne treatment. Sales of
Eudermin hand cream were strong in the Spanish market.
Nair depilatories with new packaging in both England and Australia achieved
excellent results. Nair continued to enjoy a strong presence in the Middle East,
particularly Saudi Arabia. In Spain, where the Division markets its range of
depilatories under the Taky brand, sales and market share advanced.
The Division's line of health care products maintained strong positions in a
number of foreign markets. In Canada, higher sales were achieved for Gravol
antinauseant, Ovol antiflatulent and Bentasil throat lozenges. In France,
Sterimar, a nasal
4
<PAGE>
decongestant, showed considerable unit growth due to continued consumer
advertising and promotional activity. A pocketsize version was successfully
introduced as well. New products such as the analgesic Calmine and Noctis, a
mild valerian-based sedative, as well as higher sales of Cerulisina, a
preparation to remove ear wax, enhanced our line of ethical OTC products in
Italy. Pharmaceutical sales in Mexico grew to record levels, led by Pangavit
vitamin supplements, Colfur antidiarrheal and Hidramox, a broad-spectrum
antibiotic.
In the professional diagnostics sector, our Italian subsidiary successfully
launched a new family of products for identification of infectious diseases.
Targeted towards hospitals and clinical laboratories, these offerings will add
to the range of products that can be run with the new Gralis Star 3 automated
instrument system. A broad range of new blood testing reagents was also
introduced for biotechnology and immunology research laboratories. France
continued its leadership position in parasitology test products with the
introduction of new rapid tests for intestinal parasites. The Division also
launched a new rapid test for pregnancy in the professional market.
RESEARCH & DEVELOPMENT
Expenses for research and development totaled $28,785,000 for the fiscal year
ended March 31, 1998 compared to $27,284,000 in the prior year.
Research and development of Taurolin (taurolidine) for the treatment of
vancomycin resistant enterococcal infection has continued through independent
research facilities managed by the Company's internal supervisory personnel.
The Astelin Nasal Spray New Drug Application (NDA) was approved on November 4,
1996 and the product was launched on March 10, 1997. The Astelin tablet NDA for
rhinitis is pending at the FDA. The Company has not decided whether to seek
final approval for the NDA.
In April 1998 a large scale, multi-centered clinical efficacy trial for the use
of Taurolin intravenously in treating sepsis was terminated when it was
determined that the results did not support efficacy. Taurolin research in other
areas, such as vancomycin resistant enterococcal infection, is not affected by
the termination of the sepsis trial.
A Patient Registry for Felbatol (felbamate), Wallace Laboratories'
anti-epileptic drug, was introduced in July 1997. The purpose of the Registry is
to provide information to the practicing neurologist in the use of Felbatol and
to serve as a source of patients for ongoing research into screening and/or
monitoring tests which would allow Felbatol to be used with greater safety in
patients with epilepsy.
In February 1998 the Company was issued a patent (U.S. Patent No. 5,714,389)
covering technology used in pregnancy, ovulation and other diagnostic products.
The Company has commenced a program to license and enforce this patent.
FACILITIES
During the year manufacturing operations at our Cranbury plant were modified to
accommodate new product introductions and the production of Lady's Choice Gel
previously made at a contract manufacturer.
The Company has approved a major expansion of its condom manufacturing facility
in Colonial Heights, VA. Construction is expected to begin during fiscal 1999.
PEOPLE
Thomas M. McShane was appointed President, Lambert Kay Division. Mr. McShane
joined Lambert Kay in 1979 as Marketing Manager, New Products and was later
elected Vice President of Marketing. He succeeded Robert A. Cuthbert, Corporate
Vice President and President, Lambert Kay Division who retired after almost 20
years of service.
Stephen W. Riley has joined the company as President, Carter Wallace, S.A.
(Mexico). Mr. Riley was previously with Rhone-Poulenc Rorer/Fisons Group since
1970. Apart from being a seasoned executive in business development, sales and
marketing, Mr. Riley has extensive experience in Mexico, the
5
<PAGE>
U.K. and other Latin American markets. Francis Santiago retired from the Company
following nearly 20 years of service as President of Carter Wallace, S.A.
(Mexico).
George H. Ohye, Corporate Vice President, Compliance and Regulatory also elected
to retire during the year. The Company has restructured the Compliance and
Regulatory functions and his former position will not be filled.
* * *
We have streamlined our business and will strive to focus our assets and
energies in the areas of our business which we believe have the best potential
for long term sales and profit growth.
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 17, 1998
6
<PAGE>
Carter-Wallace, Inc. and Subsidiaries
SUMMARY OF SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
----------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AND EMPLOYEE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales $662,229 $648,755 $658,940 $663,642 $664,789
Earnings before one-time charges in 1996
and 1995, taxes and the cumulative effect
of accounting changes in 1994 44,755 45,349 54,797 42,310 37,382
Net earnings (loss) before the
cumulative effect of accounting
changes 27,301 26,756 7,550(a) (56,268)(b) 26,609
Net earnings (loss) 27,301 26,756 7,550(a) (56,268)(b) (20,030)(c)
Earnings (loss) per share before the
cumulative effect of accounting
changes in 1994--basic and diluted .59 .58 .16(a) (1.22)(b) .58
Earnings (loss) per share--basic and
diluted .59 .58 .16(a) (1.22)(b) (.44)(c)
Dividends per share .16 .16 .16 .29 .33
Average common shares outstanding 46,093 46,389 46,160 46,108 45,900
FINANCIAL POSITION
Working capital $145,715 $142,972 $137,083 $100,596 $185,159
Net property, plant and equipment 150,223 154,844 139,273 137,608 157,059
Total assets 693,613 685,922 718,925 680,224 628,562
Long-term debt 48,887 51,025 55,928 23,115 9,309
Stockholders' equity 349,650 349,154 332,896 327,139 393,508
OTHER DATA
Capital expenditures $ 15,676 $ 31,066 $ 35,228 $ 18,853 $ 24,305
Book value per share 7.70 7.53 7.18 7.08 8.54
Number of employees 3,360 3,460 3,610 3,670 4,060
<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.
</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
-----------------------------------------------------
1998 1997
------------------------- -------------------------
QUARTER ENDED HIGH LOW HIGH LOW
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
June 30 $19 $12 3/4 $18 $13 1/4
September 30 19 3/4 15 3/8 14 5/8 10 3/8
December 31 17 3/8 14 16 1/2 11 3/8
March 31 18 3/4 16 16 1/2 13 1/8
</TABLE>
A dividend of $.04 per share was declared in all four
quarters of 1998 and 1997.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
- --------------------------------------------------------------------------------
NET SALES AND EARNINGS
Net earnings were $27,301,000 or $.59 per share in the year ended March 31,
1998, compared to net earnings of $26,756,000 or $.58 per share in the prior
year.
Net sales in 1998 were $662,229,000 compared to prior year's sales of
$648,755,000. Domestic sales increased $29,300,000 or 6.7% and foreign sales
decreased $15,826,000 or 7.5%. Lower foreign exchange rates had the effect of
decreasing foreign sales by approximately $13,500,000.
Sales of Consumer Products decreased $5,086,000 or 1.3% in 1998 due to
unfavorable foreign exchange rates in foreign operations. Higher unit volume and
selling price increases had a positive effect on sales in this segment. Condom
sales were higher than the prior year. Worldwide factory sales of
anti-perspirant and deodorant products were $105,829,000 in 1998, or 5.4% lower
than the $111,923,000 sales level in 1997 due to reduced unit volume.
Health Care sales increased $18,560,000 or 7.6% in 1998 from the prior year due
to selling price increases and higher unit volume. Health Care sales in the
current year benefited from a full year's sales of Astelin Nasal Spray for
seasonal allergic rhinitis which was launched in the fourth quarter of the prior
fiscal year. Sales of other pharmaceutical products continue to be adversely
affected by generic competition. Lower foreign exchange rates also had an
unfavorable effect on sales in this segment. The Company maintains a reserve for
possible Organidin NR returns.
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. Worldwide factory sales of anti-perspirant 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.
In 1997, Health Care sales decreased $3,415,000 or 1.4% from the prior year due
to lower unit volume. Health Care sales benefited from the introduction of
Astelin Nasal Spray for seasonal 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. Selling price increases had a positive effect on
sales in comparison to the prior year period.
Interest income decreased in 1998 compared to the previous two years due to a
reduced level of interest bearing investments.
COSTS AND EXPENSES
Cost of goods sold as a percentage of net sales was 36.4% in 1998, 37.6% in 1997
and 37.4% in 1996. The variations from year to year were due primarily to
changes in product mix. Throughout this period the Company has attempted to
minimize the effects of higher costs by selective price increases and cost
control measures.
In 1998, advertising, marketing and other selling expenses increased from the
prior year by $10,884,000 or 4.4% due to increased expenses in the Health Care
segment related to the introduction of Astelin Nasal Spray for seasonal allergic
rhinitis which was launched in the fourth quarter of 1997. In the Consumer
Products segment spending in this category was approximately the same as the
prior year. 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.
Research and development expenses in 1998 increased $1,501,000 or 5.5% as a
result of higher spending in the Consumer Products segment due in part to
employee termination costs related to organizational changes. Research and
development expense in the Health Care segment was lower than the prior year. In
1997, research and development expenses increased $790,000 or 3.0% versus the
prior year 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 April 1998 a large scale, multi-centered clinical efficacy trial
for the use of Taurolin intravenously in treating sepsis was terminated when it
was determined that the results did not support efficacy. Taurolin research in
other areas, such as vancomycin resistant enterococcal infection, is not
affected by the termination of the sepsis trial.
General and administrative expenses increased $3,525,000, or 4.4% due largely to
higher product liability and group insurance costs. In 1997, 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.
Interest expense increased in 1998 by $122,000 or 2.9%. In 1997, interest
expense increased by $297,000 or 7.6% over the prior year as a result of
borrowings related largely to the
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
expansion of the Company's Colonial Heights, VA condom facility.
Other expenses decreased in 1998 by $226,000 or 3.5%. In 1997, other expenses
decreased by $2,691,000 or 29.6% from the prior year principally as a result of
a charge in 1996 of approximately $2,400,000 related to the write-off of the
carrying value of a discontinued product.
The consolidated income tax rate in 1998 was 39%. In 1997 and 1996, the
consolidated income tax rate was 41%. The reduced rate in 1998 was due primarily
to a change in the mix of domestic and international income.
ASTELIN
In accordance with the terms of the Company's agreement with ASTA Medica AG, a
joint venture is to be formed with an effective date of November 1997. Under
this agreement, the Company, through the Wallace Laboratories Division, is
responsible for all manufacturing, selling, marketing and administrative
services for Astelin and will receive compensation from the joint company for
these activities.
YEAR 2000 COMPLIANCE
The Company is implementing a comprehensive plan to ensure that its computer and
other systems are compliant with the requirements to process transactions in the
Year 2000. Additionally, a review of the Company's suppliers and customers is
being made to assure that they are working toward Year 2000 compliance.
Management does not expect the cost of implementing this plan to be material to
the Company's financial statements.
CLOSURE OF THE TRENTON CONDOM MANUFACTURING FACILITY
The Company closed its condom manufacturing plant in Trenton, New Jersey in
October, 1996 and transferred condom production to the Company's facility in
Colonial Heights, VA. The closure of 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).
RESTRUCTURING OF OPERATIONS AND FACILITIES
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.
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, consisting primarily of inventory write-offs and
anticipated returns of product currently in the market, in the range of
$20,000,000 on a pre-tax basis.
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income", which
establishes standards for reporting comprehensive income and its components,
Statement of Financial Accounting Standards No. 131 "Disclosures about Segments
of an Enterprise and Related Information", which establishes revised reporting
and disclosure requirements for operating segments, and Statement of Financial
Accounting Standards No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits", which revises employers disclosures about pensions and
postretirement benefit plans. The Company will adopt Statement No. 130 in the
first quarter of fiscal 1999 and Statement Nos. 131 and 132 no later than the
fiscal year ending March 31, 1999. Adoption of these statements will result in
revised reporting and disclosure requirements but will have no effect on the
Company's financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
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
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
seasonal business fluctuations and to finance major facility expansion programs
and major acquisitions.
At March 31, 1998, the Company had available various bank credit lines amounting
to $198,000,000 consisting of $175,000,000 in domestic credit lines and
$23,000,000 in foreign credit lines, of which $3,400,000 of the foreign lines
were utilized at March 31, 1998. There were no domestic borrowings under credit
lines at March 31, 1998. The domestic lines are made up of a $150,000,000
revolving credit facility expiring on October 1, 2000 and $25,000,000 in an
uncommitted credit line.
The pre-tax one-time charges of $171,340,000 recorded in the years ended March
31, 1995 and March 31, 1996, consists of net cash requirements of $115,000,000
and non-cash write-offs of $56,340,000. Approximately $102,000,000 of the total
cash requirements of $115,000,000 was paid through March 31, 1998 and $2,600,000
is expected to be paid in the fiscal year ending March 31, 1999. The net cash
outlay for the one-time charges after consideration of the tax benefits is
approximately $49,000,000.
In October 1997 the Company's Board of Directors approved repurchase by the
Company of up to 1,000,000 shares of its outstanding common stock in the open
market or in privately negotiated transactions. Under this program the Company
repurchased 945,000 shares at a total cost of $15,890,000 through March 31,
1998, with the balance of the shares repurchased in April, 1998.
CAPITAL EXPENDITURES
Capital expenditures were $15,680,000 in 1998, $31,070,000 in 1997 and
$35,230,000 in 1996.
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
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, chlamydia and C. difficile
* 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
* Stat-Crit and Spuncrit, portable instruments for use in measuring blood
hematocrit levels
------------------------
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
* Anne French facial cleansing 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
* Femfresh line of feminine hygiene products
* GranVista non-prescription eyeglasses
* Lineance line of anti-cellulite and associated skin care products
* Odontovax line of oral hygiene products
* Orasiv denture adhesive
* 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, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 51,661,000 $ 35,124,000
Short-term investments, principally certificates of deposit 25,826,000 18,667,000
Accounts receivable-trade, less allowances of
$7,306,000 in 1998 and $6,730,000 in 1997 126,579,000 117,466,000
Other receivables 6,432,000 5,219,000
Inventories
Finished goods 45,811,000 50,918,000
Work in process 9,751,000 11,744,000
Raw materials and supplies 25,408,000 24,559,000
------------ ------------
80,970,000 87,221,000
------------ ------------
Deferred taxes 20,591,000 27,932,000
Prepaid expenses and other current assets 7,879,000 9,527,000
------------ ------------
TOTAL CURRENT ASSETS 319,938,000 301,156,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land 3,070,000 3,008,000
Buildings and improvements 106,737,000 110,031,000
Machinery, equipment and fixtures 168,041,000 156,329,000
Leasehold improvements 22,203,000 22,118,000
------------ ------------
300,051,000 291,486,000
Accumulated depreciation and amortization 149,828,000 136,642,000
------------ ------------
150,223,000 154,844,000
------------ ------------
INTANGIBLE ASSETS
Excess of purchase price of businesses acquired
over the net assets at date of acquisition, less
amortization 87,658,000 88,855,000
Patents, trademarks, contracts and formulae, less
amortization 36,884,000 34,484,000
------------ ------------
124,542,000 123,339,000
------------ ------------
DEFERRED TAXES 37,901,000 41,889,000
OTHER ASSETS 61,009,000 64,694,000
------------ ------------
$693,613,000 $685,922,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 32,506,000 $ 34,867,000
Accrued expenses 106,851,000 102,790,000
Notes payable 17,854,000 3,258,000
Taxes on income 17,012,000 17,269,000
------------ ------------
TOTAL CURRENT LIABILITIES 174,223,000 158,184,000
------------ ------------
LONG-TERM LIABILITIES
Long-term debt 48,887,000 51,025,000
Deferred compensation 17,553,000 14,631,000
Accrued postretirement benefit obligation 69,292,000 69,432,000
Other long-term liabilities 34,008,000 43,496,000
------------ ------------
TOTAL LONG-TERM LIABILITIES 169,740,000 178,584,000
------------ ------------
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
34,698,000 shares in 1998 and 34,655,000 shares in 1997 34,698,000 34,655,000
Class B common stock, authorized 13,056,800 shares, par
value $1 per share, ten votes per share; issued
12,507,000 shares
in 1998 and 12,550,000 in 1997 12,507,000 12,550,000
Capital in excess of par value 4,204,000 3,588,000
Retained earnings 349,815,000 329,906,000
------------ ------------
401,224,000 380,699,000
Less:
Foreign currency translation adjustment 24,811,000 20,965,000
Treasury stock at cost--1,667,400 common and
153,600 Class B common shares in 1998 and
710,800 common and 153,600 Class B common shares in
1997 26,763,000 10,580,000
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 349,650,000 349,154,000
------------ ------------
$693,613,000 $685,922,000
------------ ------------
------------ ------------
</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, 1998
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
Revenues:
Net sales $662,229,000 $648,755,000 $658,940,000
Interest income 3,869,000 4,226,000 5,128,000
Royalty and other income 2,827,000 3,200,000 3,409,000
------------ ------------ ------------
668,925,000 656,181,000 667,477,000
------------ ------------ ------------
Cost and Expenses:
Cost of goods sold 241,189,000 243,657,000 246,220,000
Advertising and promotion 134,478,000 122,407,000 123,573,000
Marketing and other selling 126,257,000 127,444,000 124,765,000
Research and development 28,785,000 27,284,000 26,494,000
General and administrative 82,965,000 79,440,000 78,634,000
Provision for restructuring of operations and
facilities -- -- 16,500,000
Provision for condom plant closing -- -- 23,100,000
Provision for loss on Felbatol -- -- 8,200,000
Reduction in the prior year provision for
loss on discontinuance of the Organidin
(iodinated glycerol) product line -- -- (5,800,000)
Interest 4,308,000 4,186,000 3,889,000
Other 6,188,000 6,414,000 9,105,000
------------ ------------ ------------
624,170,000 610,832,000 654,680,000
------------ ------------ ------------
Earnings before taxes on income 44,755,000 45,349,000 12,797,000
Provision for taxes on income 17,454,000 18,593,000 5,247,000
------------ ------------ ------------
Net earnings $ 27,301,000 $ 26,756,000 $ 7,550,000
------------ ------------ ------------
------------ ------------ ------------
Earnings per share--basic and diluted $ .59 $ .58 $ .16
------------ ------------ ------------
------------ ------------ ------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Amount at beginning of year $329,906,000 $310,573,000 $310,407,000
Net earnings 27,301,000 26,756,000 7,550,000
------------ ------------ ------------
357,207,000 337,329,000 317,957,000
Dividends--$.16 per share (7,392,000) (7,423,000) (7,384,000)
------------ ------------ ------------
Amount at end of year $349,815,000 $329,906,000 $310,573,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
CONSOLIDATED STATEMENTS OF
CASH FLOWS
THREE YEARS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $ 27,301,000 $ 26,756,000 $ 7,550,000
Adjustments to reconcile net earnings to cash flows
provided by operating activities:
Provision for one-time charges -- -- 42,000,000
Cash payments for one-time charges (12,495,000) (31,302,000) (35,063,000)
Depreciation and amortization 15,746,000 14,604,000 15,356,000
Amortization of patents, trademarks,
contracts and formulae 4,996,000 4,645,000 6,090,000
Amortization of excess of purchase
price of businesses
acquired over the net
assets at date of acquisition 3,994,000 4,088,000 3,474,000
Other changes in assets and
liabilities:
(Increase) decrease in
accounts and other receivables (13,151,000) 5,787,000 (6,217,000)
Decrease (increase) in
inventories 5,110,000 3,918,000 (986,000)
Decrease (increase) in
prepaid expenses 1,743,000 (635,000) (1,810,000)
Increase (decrease) in
accounts payable and accrued expenses 15,131,000 (6,152,000) 12,343,000
Increase in deferred
compensation 1,797,000 803,000 4,762,000
Decrease (increase) in
deferred taxes 11,329,000 12,847,000 (84,000)
Other changes (10,362,000) (6,181,000) (9,605,000)
------------ ------------ ------------
Cash flows provided by operating activities 51,139,000 29,178,000 37,810,000
------------ ------------ ------------
Cash flows used in investing activities:
Additions to property, plant and equipment (15,676,000) (31,066,000) (35,228,000)
Acquisition of product lines from BioWhittaker,
Inc. and Clark Laboratories -- (500,000) (12,977,000)
Payments for international acquisitions, net of
cash received:
Sanodent S.r.l. in Italy (3,717,000) -- --
Anne French product line in the U.K. (1,613,000) -- --
Payments for licensing agreements -- -- (250,000)
(Increase) decrease in short-term investments (7,790,000) 1,043,000 (1,451,000)
Proceeds from sale of property, plant and
equipment 5,881,000 186,000 2,089,000
------------ ------------ ------------
Cash flows used in investing activities (22,915,000) (30,337,000) (47,817,000)
------------ ------------ ------------
Cash flows used in financing activities:
Dividends paid (7,392,000) (7,423,000) (7,384,000)
Increase in borrowings 15,719,000 347,000 37,033,000
Payments of debt (2,644,000) (6,624,000) (4,280,000)
Purchase of treasury stock (16,685,000) (380,000) (4,216,000)
------------ ------------ ------------
Cash flows used in financing activities (11,002,000) (14,080,000) 21,153,000
------------ ------------ ------------
Effect of foreign exchange rate changes on cash
and cash equivalents (685,000) (822,000) (59,000)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents $ 16,537,000 $(16,061,000) $ 11,087,000
------------ ------------ ------------
------------ ------------ ------------
</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 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, 1998 and 1997.
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
Basic earnings per share is based on the average number of common and Class B
common shares outstanding during the year: 46,093,000 in 1998, 46,389,000 in
1997, and 46,160,000 in 1996. The Company has adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share". This Statement establishes
standards for computing and presenting earnings per share. The calculation of
basic and fully diluted earnings per share resulted in the same per share amount
for all periods presented.
2. INVENTORIES
Inventories computed on the last-in, first-out (LIFO) method comprised 11% and
10% of inventories included in current assets at year end 1998 and 1997,
respectively. If these inventories had been valued on the FIFO inventory method
(which approximates current or replacement cost), total inventories would have
been approximately $9,900,000 and $9,600,000 higher than reported at March 31,
1998 and 1997, respectively. Felbatol inventories of $10,750,000 at March 31,
1998 and $12,850,000 at March 31, 1997, not expected to be sold in the next
fiscal year, are included in Other Assets.
16
<PAGE>
3. TAXES ON INCOME
The provision for taxes on earnings was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Domestic $ (563,000) $ 1,474,000 $ 415,000
Foreign 6,606,000 4,496,000 5,517,000
----------- ----------- -----------
6,043,000 5,970,000 5,932,000
----------- ----------- -----------
Deferred:
Domestic 11,436,000 10,486,000 816,000
Foreign (25,000) 2,137,000 (1,501,000)
----------- ----------- -----------
11,411,000 12,623,000 (685,000)
----------- ----------- -----------
Total $17,454,000 $18,593,000 $ 5,247,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The components of income before taxes were as follows:
<TABLE>
Domestic $27,367,000 $26,824,000 $ 909,000
<S> <C> <C> <C>
Foreign 17,388,000 18,525,000 11,888,000
----------- ----------- -----------
Total $44,755,000 $45,349,000 $12,797,000
----------- ----------- -----------
----------- ----------- -----------
</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>
1998 1997
----------- -----------
<S> <C> <C>
Postretirement benefit plans $30,333,000 $30,542,000
Employee benefit plans 8,805,000 12,325,000
Accrued liabilities 18,899,000 23,076,000
Asset valuation accounts 17,350,000 18,971,000
All other 8,024,000 11,320,000
Valuation allowances (3,247,000) (3,247,000)
----------- -----------
Total deferred tax assets 80,164,000 92,987,000
----------- -----------
Depreciation 13,817,000 13,735,000
All other 7,855,000 9,431,000
----------- -----------
Total deferred tax liabilities 21,672,000 23,166,000
----------- -----------
Net deferred tax assets $58,492,000 $69,821,000
----------- -----------
</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 for taxes on earnings as compared with
the U.S. Federal statutory income tax rate was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
% TO % TO % TO
TAX PRE-TAX TAX PRE-TAX TAX PRE-TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
----------- ----- ----------- ----- ------------ -----
Computed tax expense $15,664,000 35.0% $15,872,000 35.0% $ 4,479,000 35.0%
Foreign income taxed at a
different
effective rate 987,000 2.2 1,581,000 3.5 (8,000) --
State income taxes, net of
federal tax benefit 2,082,000 4.7 1,145,000 2.5 339,000 2.6
Amortization of intangibles 534,000 1.2 534,000 1.2 606,000 4.7
Valuation allowance -- -- -- -- 949,000 7.4
Other (1,813,000) (4.1) (539,000) (1.2) (1,118,000) (8.7)
----------- ------- ----------- ------- ------------ -------
$17,454,000 39.0% $18,593,000 41.0% $ 5,247,000 41.0%
----------- ------- ----------- ------- ------------ -------
----------- ------- ----------- ------- ------------ -------
</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>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net current assets $ 94,378,000 $ 83,540,000 $ 88,440,000
Equity in net assets 132,718,000 125,757,000 117,585,000
Net sales 194,780,000 210,606,000 206,576,000
Net earnings 10,807,000 11,892,000 7,872,000
</TABLE>
The equity adjustment from foreign currency translation is comprised of the
following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
------------------------------------
<S> <C> <C>
1998 1997
----------- -----------
Opening balance $20,965,000 $17,245,000
Current year 3,846,000 3,720,000
----------- -----------
Ending balance $24,811,000 $20,965,000
----------- -----------
----------- -----------
</TABLE>
5. NOTES PAYABLE AND LONG-TERM DEBT
Notes Payable
Notes payable consisting of borrowings from banks under available lines of
credit were $3,402,000, $347,000 and $746,000 and the current portion of
long-term debt was $8,471,000, $2,911,000 and $5,308,000 at March 31, 1998, 1997
and 1996, respectively. In addition, other short-term notes payable in
international operations amounted to $5,981,000 at March 31, 1998. Additional
data related to the amount of short-term borrowings is not presented since it is
immaterial.
The Company has available various bank credit lines amounting to $198,000,000 of
which $175,000,000 is for domestic borrowings and $23,000,000 is for
international borrowings. The availability of the lines of credit is subject to
review by the banks involved. Commitment fees are immaterial.
18
<PAGE>
Long-Term Debt
Long-term debt at March 31 is summarized below:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<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
Connecticut Development Authority Industrial Development
Bond, 6.75% payable October 1, 1998 4,300,000 4,300,000
Secured Italian lira term loans, adjustable rate, payable in
installments through July 1, 2001 3,727,000 4,942,000
Unsecured Italian lira term loan, 6.30% payable in
installments through December 31, 2004 3,354,000 --
Unsecured French franc loan, 5.10%, payable February 24,
2003 3,284,000 --
City of Decatur, Illinois adjustable rate Industrial Revenue
Bond, payable December 1, 2010 3,000,000 3,000,000
Unsecured French franc loans, at fixed and variable rates,
payable in installments through August 5, 2001 2,048,000 3,135,000
Promissory Notes, 6.02%, payable no later than September 12,
1998 1,811,000 2,069,000
Unsecured Italian lira loans, rates of 4.5%-5.5%, payable in
semi-annual installments through July, 2002 495,000 712,000
Unsecured Australian dollar term loan, 9.64%, payable in
equal annual installments through July 28, 1998 339,000 778,000
----------- -----------
57,358,000 53,936,000
Less, current portion of long-term debt included in notes
payable (8,471,000) (2,911,000)
----------- -----------
$48,887,000 $51,025,000
----------- -----------
----------- -----------
</TABLE>
Maturities of long-term debt for each of the four fiscal years 2000 through 2003
are $1,865,000, $2,088,000, $1,460,000 and $4,007,000, respectively.
The Italian lira loans due July 1, 2001 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 loan payable February 24, 2003, interest is
adjustable based on the Paris Interbank Offered Rate plus a nominal increment,
adjusted quarterly and was converted to a fixed rate at the inception of the
loan.
Interest on the City of Decatur, Illinois Industrial Revenue Bond is 70% of the
prime rate through December, 2000, adjustable thereafter.
With respect to the French franc loans payable through August 5, 2001, 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.
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 $59,025,000
at March 31, 1998 and $53,103,000 at March 31, 1997.
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, 1998, 1997 and 1996 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, 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
Conversion of Class B common stock to Common Stock 43,000 (43,000) --
Cost of treasury stock under market value at date of
award or issuance -- -- 616,000
----------- ----------- -----------
Balance at March 31, 1998 $34,698,000 $12,507,000 $ 4,204,000
----------- ----------- -----------
----------- ----------- -----------
</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.
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 1998, 1997 and 1996 included the
following components:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 7,511,000 $ 8,127,000 $ 6,839,000
Interest cost on projected benefit obligation 14,785,000 14,721,000 14,484,000
Actual return on assets (39,339,000) (27,487,000) (42,145,000)
Net amortization and deferral 20,753,000 9,875,000 25,385,000
Settlement/curtailment losses 728,000 106,000 1,611,000
----------- ----------- -----------
Total pension expense $ 4,438,000 $ 5,342,000 $ 6,174,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Company recognized settlement losses of $728,000 in 1998 and $106,000 in
1997 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.
20
<PAGE>
The following table sets forth the funded status of the plans at March 31, 1998
and 1997:
<TABLE>
<CAPTION>
PLANS IN WHICH
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
------------------------------ ------------------------------
<CAPTION>
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested $152,292,000 $130,082,000 $ 25,807,000 $ 27,343,000
Nonvested 3,936,000 3,444,000 134,000 286,000
------------ ------------ ------------ ------------
Accumulated benefit obligation $156,228,000 $133,526,000 $ 25,941,000 $ 27,629,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Projected benefit obligation $178,766,000 $154,455,000 $ 34,545,000 $ 40,900,000
Plan assets at fair value 241,454,000 213,286,000 -- 2,929,000
------------ ------------ ------------ ------------
Plan assets in excess of (less than)
projected benefit obligation 62,688,000 58,831,000 (34,545,000) (37,971,000)
Unrecognized net (gain) or loss (38,543,000) (34,381,000) 2,380,000 (140,000)
Prior service not recognized in pension
costs (1,107,000) (1,202,000) 12,863,000 14,333,000
Unrecognized net transition (asset)
liability (4,047,000) (6,122,000) 171,000 105,000
Minimum liability adjustment -- -- (6,718,000) (1,686,000)
------------ ------------ ------------ ------------
Prepaid (accrued) pension costs recognized
in the consolidated balance sheets $ 18,991,000 $ 17,126,000 $(25,849,000) $(25,359,000)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The principal assumptions used in determining 1998, 1997 and 1996 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
$1,473,000, $1,421,000 and $1,506,000 in 1998, 1997 and 1996 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, 1998, 1997 and 1996 are:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Service cost -- benefits earned during the year $ 1,689,000 $ 1,914,000 $ 1,615,000
Interest cost on accumulated postretirement benefit
obligation 3,871,000 3,659,000 3,697,000
Net amortization and deferral (3,760,000) (3,414,000) (3,540,000)
Curtailment gain -- -- (1,313,000)
----------- ----------- -----------
Net periodic postretirement benefit expense $ 1,800,000 $ 2,159,000 $ 459,000
----------- ----------- -----------
----------- ----------- -----------
</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.
21
<PAGE>
The following table sets forth the accumulated postretirement benefit obligation
of the plans at March 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Retirees $32,782,000 $28,079,000
Active participants eligible for
retirement 8,197,000 10,544,000
Other active participants 14,365,000 14,194,000
----------- -----------
Accumulated postretirement benefit
obligation 55,344,000 52,817,000
Unrecognized net gain 9,029,000 8,438,000
Unrecognized prior service credit 4,919,000 8,177,000
----------- -----------
Accrued postretirement benefit
obligation $69,292,000 $69,432,000
----------- -----------
----------- -----------
</TABLE>
The assumed health care cost trend rate used to measure the accumulated
postretirement benefit obligation for those over age 65 is 10 percent for 1998
trending to 5 percent over a six year period. For those under age 65, the trend
rate is 7.1 percent for 1998 trending to 5 percent over a six year period. A one
percent increase in the assumed respective annual medical cost trend rate would
increase the accumulated postretirement benefit obligation by approximately
$3,000,000 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:
Discount rate 7-8%
Rate of increase in compensation levels 4-6%
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.
Cumulative awards as of March 31, 1998 amount to 3,466,250 shares. There were no
new awards granted in any of the past three fiscal years.
The financial statements reflect the transfer of the awarded shares from
treasury stock as of the date of their issuance. Outstanding awards of 55,145
shares at March 31, 1998 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 $1,118,000, $680,000 and $6,080,000 in 1998,
1997, and 1996, respectively. The cost of treasury stock for these awards was
$502,000, $346,000 and $5,015,000 in 1998, 1997 and 1996, 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, 1998 there
were 1,413,710 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
$1,940,000 or $.04 per share in 1998, $1,020,000, or $.02 per share in 1997 and
$160,000, or less than $.01 per share in 1996. The weighted-average fair market
value of options granted was $7.31, $6.54 and $6.43 in 1998, 1997 and 1996,
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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-Free Interest Rate 5.9% 6.4% 5.6%
Expected Life 8 yrs. 8 yrs. 8 yrs.
Volatility 36.3% 41.0% 41.0%
Dividend Yield 1.3% 1.5% 1.5%
</TABLE>
A summary of the status of stock options granted under this plan as of March 31,
1998, 1997 and 1996 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED-AVG. WEIGHTED-AVG. WEIGHTED-AVG.
OPTION EXERCISE OPTION EXERCISE OPTION EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ------ --------- ------ --------- ------
Outstanding April 1 1,432,220 $13.63 1,054,080 $13.75 -- $ --
Granted 1,047,381 16.16 549,860 13.43 1,054,080 13.75
Exercised -- -- -- -- -- --
Forfeited -- -- (171,720) 13.75 -- --
--------- --------- ---------
Outstanding March 31 2,479,601 $14.70 1,432,220 $13.63 1,054,080 $13.75
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table summarizes information about stock options outstanding at
March 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
RANGE OF NUMBER WEIGHTED-AVG. WEIGHTED-AVG. NUMBER WEIGHTED-AVG.
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 3/31/98 LIFE PRICE AT 3/31/98 PRICE
- --------------------- --------- --------- ------ ------- ------
$12.13 to
$16.81 2,479,601 8.8 years $14.70 658,898 $13.68
</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.
23
<PAGE>
Award transactions for the past three years were:
<TABLE>
<CAPTION>
SHARES
---------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------- ------- -------
Cumulative Awards--Beginning of Year 361,168 263,520 --
New Awards 245,521 172,800 263,520
Forfeited Awards -- (75,152) --
------- ------- -------
Cumulative Awards--End of Year 606,689 361,168 263,520
------- ------- -------
------- ------- -------
</TABLE>
The financial statements reflect the transfer of the awarded shares from
treasury stock as of the date of their issuance. Included in total outstanding
awards of 589,261 shares at March 31, 1998 are 433,721 shares to be issued at a
future date no later than four years from the date of the award. For shares that
have been issued, the market value at the date of the awards was $91,000 and
$2,836,000 in 1997 and 1996, respectively. The cost of treasury stock for these
awards was $101,000 and $2,817,000 in 1997 and 1996, respectively. Awards
forfeited during 1997 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 or retained earnings.
10. ACQUISITIONS
In December, 1997, the Company acquired Sanodent S.r.l. in Italy for
approximately $3,800,000. Sanodent manufactures and sells denture adhesives
under the Orasiv brand name.
In February, 1998, the Company acquired the Anne French line of skin care
products in England for approximately $1,600,000.
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.
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, 1998 and 1997, short-term investments were intended to be held to
maturity as defined in SFAS No. 115 and have remaining maturities of less than
one year. The amortized cost approximated fair value. The amortized cost of
certificates of deposit were $23,768,000 and $18,667,000, respectively, in 1998
and 1997. In addition, included in 1998 are Canadian government securities in
the amount of $2,058,000.
12. CLOSURE OF THE TRENTON CONDOM MANUFACTURING FACILITY
The Company closed its condom manufacturing plant in Trenton, New Jersey in
October, 1996 and transferred condom production to the Company's facility in
Colonial Heights, VA. The closure of 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).
13. RESTRUCTURING OF OPERATIONS AND FACILITIES
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.
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 1998.
<TABLE>
<CAPTION>
MARCH 31
Business Segments ---------------------------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- -------- --------
Sales
Health Care $ 261,723 $243,163 $246,578
Consumer
Anti-Perspirants and Deodorants 105,829 111,923 110,147
Other Consumer Products 294,677 293,669 302,215
--------- -------- --------
Consolidated $ 662,229 $648,755 $658,940
--------- -------- --------
--------- -------- --------
Operating Profit
Health Care $ 55,620 $ 48,792 $ 53,477 (a)
Consumer
Anti-Perspirants and Deodorants (8,064) 3,290 (12,073)(b)
Other Consumer Products 45,970 38,935 18,881 (c)
Net interest income (expense) (439) 40 1,239
Other (expense) net of other income (1,961) (1,049) (1,629)
General corporate expenses (46,371) (44,659) (47,098)(d)
--------- -------- --------
Earnings before taxes on income $ 44,755 $ 45,349 $ 12,797
--------- -------- --------
--------- -------- --------
</TABLE>
(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.
25
<PAGE>
<TABLE>
<CAPTION>
Business Segments (Continued) MARCH 31
---------------------------------------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Identifiable Assets
Health Care $ 178,014 $178,608 $190,926
Consumer
Anti-Perspirants and Deodorants 59,074 62,246 61,323
Other Consumer Products 250,208 254,281 251,544
Corporate Assets 206,317 190,787 215,132
--------- -------- --------
Total Assets $ 693,613 $685,922 $718,925
--------- -------- --------
--------- -------- --------
Depreciation and Amortization
Health Care $ 8,102 $ 8,135 $ 9,726
Consumer
Anti-Perspirants and Deodorants 3,912 3,745 3,481
Other Consumer Products 9,347 8,242 8,570
--------- -------- --------
Total Operating Segments $ 21,361 $ 20,122 $ 21,777
--------- -------- --------
--------- -------- --------
Capital Expenditures
Health Care $ 5,371 $ 4,473 $ 3,020
Consumer
Anti-Perspirants and Deodorants 3,268 2,627 1,141
Other Consumer Products 6,595 22,736 30,705
--------- -------- --------
Total Operating Segments $ 15,234 $ 29,836 $ 34,866
--------- -------- --------
--------- -------- --------
Geographic Areas
Sales
U.S.A. $ 467,449 $438,149 $452,364
Other North America 54,085 60,930 58,637
Other Countries 140,695 149,676 147,939
--------- -------- --------
Consolidated $ 662,229 $648,755 $658,940
--------- -------- --------
--------- -------- --------
Operating Profit
U.S.A. $ 76,471 $ 71,680 $ 47,128 (a)
Other North America 8,646 10,604 1,658 (b)
Other Countries 8,409 8,733 11,499
Net interest income (expense) (439) 40 1,239
Other (expense) net of other income (1,961) (1,049) (1,629)
General corporate expenses (46,371) (44,659) (47,098)(c)
--------- -------- --------
Earnings before taxes on income $ 44,755 $ 45,349 $ 12,797
--------- -------- --------
--------- -------- --------
Identifiable Assets
U.S.A. $ 332,795 $336,740 $331,339
Other North America 35,765 37,223 39,342
Other Countries 118,736 121,172 133,112
Corporate Assets 206,317 190,787 215,132
--------- -------- --------
Total Assets $ 693,613 $685,922 $718,925
--------- -------- --------
--------- -------- --------
</TABLE>
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.
26
<PAGE>
15. RENTAL EXPENSE AND LEASE COMMITMENTS (DOLLARS IN THOUSANDS)
Rental expense for operating leases with a term greater than one year for 1998,
1997 and 1996 was as follows:
REAL PROPERTY
RENTAL REAL SUB-RENTAL NET REAL EQUIPMENT
EXPENSE PROPERTY INCOME PROPERTY AND OTHER
- -------------- ------- -------- ------- -------
1998 $ 8,056 $ (2,749) $ 5,307 $ 6,615
1997 6,600 (1,640) 4,960 6,260
1996 6,308 (484) 5,824 6,170
The real property rental expense for 1998, 1997 and 1996 excludes approximately
$900, $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, 1998 were as follows:
REAL PROPERTY
MINIMUM RENTAL REAL SUB-RENTAL NET REAL EQUIPMENT CAPITAL LEASE
COMMITMENTS PROPERTY INCOME PROPERTY AND OTHER OBLIGATIONS
- -------------- -------- ------------- -------- --------- -------------
1999 $ 8,653 $ (3,005) $ 5,648 $ 465 $ 276
2000 8,382 (3,005) 5,377 235 252
2001 8,684 (3,088) 5,596 50 252
2002 8,140 (3,315) 4,825 28 244
2003 7,281 (3,315) 3,966 -- 174
2004-2012 60,969 (28,457) 32,512 -- 480
------
1,678
Less interest and executory cost (448)
------
Present value of minimum lease payments (of which $148 is
included in current liabilities) $1,230
------
------
Included in the real property rental commitments indicated above is
approximately $16,100 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
-----------------------------------
1998 1997
-------- --------
Intangible Assets: (dollars in thousands)
<S> <C> <C>
Excess of purchase price of businesses acquired over the
net assets at date of acquisition $120,348 $117,152
Trademarks 29,090 28,908
Other 33,832 29,046
-------- --------
183,270 175,106
Accumulated amortization 58,728 51,767
-------- --------
$124,542 $123,339
-------- --------
-------- --------
Accounts Payable:
Trade $ 31,943 $ 33,716
Other 563 1,151
-------- --------
$ 32,506 $ 34,867
-------- --------
-------- --------
Accrued Expenses:
Salaries and wages $ 30,388 $ 29,361
Advertising and promotion 19,042 14,418
One-time charges 2,592 8,929
Retirement plans 14,794 7,390
Other 40,035 42,692
-------- --------
$106,851 $102,790
-------- --------
-------- --------
Other Long-Term Liabilities:
Retirement plans $ 14,246 $ 20,679
One-time charges 11,036 15,520
Other 8,726 7,297
-------- --------
$ 34,008 $ 43,496
-------- --------
-------- --------
</TABLE>
Income taxes paid were $6,584,000, $10,240,000 and $14,204,000 in 1998, 1997 and
1996 respectively. Interest paid was $4,047,000, $4,498,000 and $3,256,000 in
1998, 1997 and 1996, 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, consisting primarily of inventory write-offs and
anticipated returns of product currently in the market, in the range of
$20,000,000 on a pre-tax basis.
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
In 1982 the United States Environmental Protection Agency ("EPA") advised the
Company and over 200 other companies 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 former Lone
Pine Landfill in Freehold, NJ. In 1989 and 1991 respectively, the Company and
approximately 122 other PRPs, without admitting liability, entered into two
consent decrees with EPA, agreeing to conduct a cleanup of the Lone Pine
Landfill, and that cleanup is in progress. The total estimated cost of the
cleanup, which will continue many years into the future, is $104 to $120 million
in current dollars. In addition, on October 23, 1997 the Company and 8 other
PRPs entered into a third consent decree with EPA, the Department of Interior,
and New Jersey to resolve the government's natural resource damage claims, which
obligation could cost as much as $2 million. After factoring in past and
expected recoveries from nonsettlors, the Company's net share of cleanup costs
and natural resource damage claims (exclusive of defense costs) is expected to
be from $8.4 to $10.2 million, of which it has paid about $7 million to date.
In August, 1989 the Company instituted suit in New Jersey state court against 22
of its liability insurers to recover, inter alia, the Company's share of costs
at Lone Pine, including related legal defense costs. The Company reached
settlements in this case with 18 of the insurers. There is only 1 remaining
solvent insurer with whom the Company has not settled, and with whom it is
litigating; however, it is not believed that any recovery from that insurer will
be significant. To date, the Company has received approximately $12.35 million
in settlement payments from its insurers. Except for a portion of its legal fees
incurred in pursuing its insurers for coverage, the Company expects to be fully
reimbursed for its share of past and currently estimated future 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 against a former 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 a separate action against the contractor on
July 10, 1995. Both lawsuits were subsequently consolidated. A settlement was
reached in these cases wherein the settling PRPs paid $1,287,500 to the
contractor. The Company's share of that $1,287,500 was approximately $115,000.
These amounts are included in the cleanup cost estimate and the Company's
estimated share thereof 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 $4.1 million. The Company's share of this cost is estimated
to be $135,000. To date the Company has paid or received credit for about
$124,000. 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 site investigation work
(which is not completed), the total cost for performing the current and
28
<PAGE>
future work at Barkhamsted, including the site investigation work, is estimated
to be from $9 to $32 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 by that amount those cleanup costs subject to PRP funding. Based on
expected PRP participation in future cleanup work and other factors, the Company
anticipates that its share of projected cleanup costs subject to PRP funding
(including costs incurred to date) will be not more than 4 to 5% of total
cleanup costs, and that the Company's total expenditure will therefore range
from about $281,000 to $1,510,000. Thus, although applicable environmental law
provides for joint and several liability for the cost of cleanup work, based on
present estimates, the Company believes that the other PRPs will pay
substantially all of their allocated percentage shares of cleanup costs.
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, were consolidated for all
purposes. A Consolidated Amended Complaint was filed, followed by 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 the safety and anticipated future sales of its
anti-epilepsy drug Felbatol were false and 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 of the Second Amended Class Action
Complaint to the United States Court of Appeals for the Second Circuit.
In December, 1994, an alleged shareholder of the Company instituted a derivative
action in the Supreme Court of the State and County of New York, purportedly 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 sought unspecified compensatory and punitive damages, was ordered
dismissed by the Supreme Court. The dismissal was affirmed on appeal to the
Appellate Division, First Department, and plaintiff's time to seek leave to
appeal to the Court of Appeals has expired.
There are 9 pending product liability actions against the Company alleging
various adverse reactions and other injuries suffered as a result of using
Felbatol. While damages are alleged in 5 of these actions in amounts ranging
from $100,000 to $169,000,000, the 4 remaining actions do not specify the
damages sought. 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.
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 ended 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 have
been reduced for some of the fiscal years by payments made for negotiated
settlements of certain claims. 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 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.
These suits were brought on behalf of all California independent retail
pharmacists who had 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, establishing 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
29
<PAGE>
claims and demands for relief. Plaintiffs in that action have 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. The complaint alleges that
certain drug manufacturers, 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" class action complaints 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. This suit was brought on behalf of a class of independent drug stores
and pharmacies, and alleged 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.
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.
Plaintiffs' motion for class certification and defendants' motion to strike the
class action allegations are now pending before the court.
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.
These jurisdictions include Alabama, the District of Columbia, Kansas, Maine,
Michigan, Minnesota, Mississippi, New Mexico and Wisconsin. Plaintiffs allege
that defendants, in violation of Alabama law, 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
higher than competitive prices for brand-name prescription drugs. Plaintiffs
seek unspecified compensatory and punitive damages, an injunction, litigation
costs and attorney's fees. 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 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 was granted and the
district court's order reversed. As a result, the case was remanded to Alabama
state court. Defendants have filed two motions to dismiss the complaint, but
these motions have not yet been argued.
The Company believes, based on opinion of counsel, that 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.
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.
In December, 1997, Conopco, Inc., an affiliate of Unilever PLC, filed suit
against the Company in the United States District Court, Southern District of
New York, alleging patent infringement by certain of the Company's diagnostic
products. The Complaint seeks a declaration of infringement, preliminary and
permanent injunctive relief and unspecified damages.
In March, 1998, the Company instituted an action against two companies
affiliated with Unilever PLC, Unipath Limited and Conopco Inc., in the United
States District Court, Eastern District of Virginia, alleging infringement of
the Company's U.S.
30
<PAGE>
Patent No. 5,714,389, which discloses a test device and method for colored
particle immunoassay. The Complaint seeks a declaration of infringement,
preliminary and permanent injunctive relief and unspecified damages.
In May, 1998, the Company and Unilever PLC reached an agreement in principle for
a global settlement of all patent litigation between them and for the
cross-licensing of certain U.S. and foreign patents relating to diagnostic
products. This agreement in principle will not have a material adverse effect on
the Company's financial statements.
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 both companies 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) that 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.
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly net sales, gross margin, net earnings and earnings 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>
1998 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 TOTAL YEAR
Net sales $170,115 $168,459 $152,521 $171,134 $662,229
Gross margin 110,133 106,119 95,855 108,933 421,040
Net earnings 9,310 4,726 6,819 6,446 27,301
Earnings per share--basic and
diluted .20 .10 .15 .14 .59
1997
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--basic and
diluted .20 .12 .23 .03 .58
</TABLE>
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, 1998 and 1997 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, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1998, in conformity with generally accepted accounting
principles.
May 7, 1998
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 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
Director, Brown-Tufts Cancer Center
Providence, RI - Boston, MA
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 Laboratories
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 and Chief Financial Officer
T. Rosie Albright
Vice President, Consumer Products, U.S.
John Bridgen, Ph.D.
Vice President, Diagnostics, 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
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
Adrian J. L. Huns, President, International
Michael J. Kopec, President, Manufacturing
Thomas M. McShane, President, Lambert Kay
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)
Stephen W. Riley, President, Carter Wallace, S. A. (Mexico)
Lino Santambrogio, Managing Director, S.p.A. Italiana
Laboratori Bouty (Italy)
Printed in U.S.A.
<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.
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, 1998:
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, 1998,
relating to the consolidated balance sheets of Carter-Wallace, Inc. and
subsidiaries as of March 31, 1998 and 1997, 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, 1998, and related financial
statement schedule which report appears in the March 31, 1998 Annual Report on
Form 10-K of Carter-Wallace, Inc.
KPMG PEAT MARWICK LLP
New York, New York
June 17, 1998
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<NAME> CARTER WALLACE INC
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 51,661,000
<SECURITIES> 25,826,000
<RECEIVABLES> 140,317,000
<ALLOWANCES> 7,306,000
<INVENTORY> 80,970,000
<CURRENT-ASSETS> 319,938,000
<PP&E> 300,051,000
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<TOTAL-ASSETS> 693,613,000
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0
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<TOTAL-LIABILITY-AND-EQUITY> 693,613,000
<SALES> 662,229,000
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