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, 1999
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 7, 1999 was 32,678,400 and 12,303,700, respectively.
The aggregate market value of voting stock held by non-affiliates of the
registrant as of June 7, 1999 was approximately $385,174,000.
Documents Incorporated by Reference
-----------------------------------
Annual Report to Stockholders for the fiscal
year ended March 31, 1999 Parts I & II
Proxy Statement for the Annual Meeting of
Stockholders to be held July 20, 1999 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 Domestic Consumer Products, Domestic Health
Care and International segments. Additional information is presented on page 11
"Description of Business Segments" of the 1999 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, 1999 is presented on page 8 under the
caption "Management's Discussion and Analysis of Results of Operations and
Financial Condition - Net Sales and Earnings" and also on pages 24 and 25, note
11, "Business Segments" of the Notes to Consolidated Financial Statements, both
included in the 1999 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 $6,700,000 in the fiscal year ended March 31, 1999 in comparison to the
prior year. Additional information is presented on page 18, note 4, "Foreign
Operations" of the Notes to Consolidated Financial Statements in the 1999 Annual
Report to Stockholders and is herein expressly incorporated by reference.
Competition
The three 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 1999, the Company's "Arrid" line of anti-perspirants and
deodorants is believed to have accounted for an estimated 6.2% share of the
domestic anti-perspirant and deodorant market. The Company's worldwide
antiperspirant and deodorant sales were approximately $101,600,000, $105,800,000
and $111,900,000 in the fiscal years ended March 31, 1999, 1998 and 1997,
respectively. The "Trojan", "Class Act" and "Naturalamb" condom brands are
estimated to have accounted for over 65% of total domestic retail condom sales.
The Company's worldwide condom sales were approximately $114,100,000,
$104,700,000 and $95,400,000 in the fiscal years ended March 31, 1999, 1998 and
1997, respectively. Additional information is presented on page 8 under the
caption "Management's Discussion and Analysis of Results of Operations and
Financial Condition - Net Sales and Earnings" in the 1999 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.
Felbatol (Felbamate)
Information regarding the effect of "Felbatol" matters on the Company's business
is presented on page 10 under the caption "Management's Discussion and Analysis
of Results of Operations and Financial Condition - Felbatol (Felbamate)", on
page 28 in note 14, "Litigation Including Environmental Matter" and on Page 30
in note 16 "Felbatol (Felbamate)" of the Notes to Consolidated Financial
Statements, all included in the 1999 Annual Report to Stockholders and herein
expressly incorporated by reference.
Environmental Matter
Information regarding the environmental matter is presented on pages 27 and 28
in note 14, "Litigation Including Environmental Matter" of the Notes to
Consolidated Financial Statements, included in the 1999 Annual Report to
Stockholders and herein expressly incorporated by reference.
Research and Development
Expenditures for research and development totaled $25,846,000 in 1999,
$28,785,000 in 1998 and $27,284,000 in 1997. Research and development expenses
in 1999 decreased by $2,939,000 or 10.2%, primarily as a result of lower
spending in the Domestic Consumer Products segment related to non-recurring
prior year employee termination costs. In 1998 research and development expenses
increased $1,501,000 or 5.5% from the prior year as a result of higher spending
in the Domestic Consumer Products segment due in part to employee termination
costs related to organizational changes. Research and development expenses in
the Domestic Health Care segment were higher than the prior year, while
International research and development expenses were lower than the prior year.
Work on taurolidine for its use against vancomycin-resistant enterococcus and a
number of other potential indications has continued.
Two multicenter Phase III studies are underway to determine if "Astelin" Nasal
Spray is effective for treating non-allergic vasomotor rhinitis. A Supplemental
New Drug Application will be submitted for the use of "Astelin" Nasal Spray in
children less than 12 years old. The "Astelin" tablet NDA for allergic rhinitis
is pending at the FDA. The Company has not decided whether to seek final
approval for this NDA.
2
<PAGE>
Results from three clinical studies demonstrated "Astelin" is as effective as
the combination of loratadine tablets (Claritin) and beclomethasone nasal spray
(Beconnase) in relieving symptoms of seasonal allergies among patients who do
not respond adequately to monotherapy with either an oral antihistamine or
inhaled nasal steroid. The results of these studies were published in the June
1999 issue of the peer review journal, Annals of Allergy, Asthma & Immunology.
Approximately 120 employees are employed in research and development activities.
Employees
The Company, together with its subsidiaries, employed approximately 3,310 people
worldwide at March 31, 1999.
Acquisitions
Information regarding acquisitions is presented on page 24 in note 9,
"Acquisitions" of the Notes to Consolidated Financial Statements, included in
the 1999 Annual Report to Stockholders and is herein expressly incorporated by
reference.
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 220,000
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
Mexico City, Mexico Pharmaceuticals and diagnostics 63,000
New Plymouth, New Zealand Condom processing 31,000
3
<PAGE>
Warehouse and Offices:
Toronto, Canada 52,000
Leased:
Manufacturing Facilities and Offices:
Santa Ana, California Toiletries 10,400
Mexico City, Mexico Toiletries 13,000
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 24,900
Folkestone, England 58,600
Levallois, France * 20,400
Revel, France 35,500
* Offices only
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. With minor exceptions, all facilities are operating at normal capacity.
An expansion of the Company's condom manufacturing facility in Colonial Heights,
Virginia was approved in fiscal 1998. The additional capacity was warranted by
the increase in demand for Trojan latex condoms. At the end of fiscal 1999, the
expansion approached completion with the installation of new equipment.
Item 3. Legal Proceedings
Information regarding Legal Proceedings involving the Company is presented on
pages 27 through 29 in note 14, "Litigation Including Environmental Matter" of
the Notes to Consolidated Financial Statements, included in the 1999 Annual
Report to Stockholders and herein expressly incorporated by reference.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
4
<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. 71 Chairman of the Board and
Chief Executive Officer 1974
Ralph Levine 63 President and Chief Operating
Officer 1997
Paul A. Veteri 57 Executive Vice President and
Chief Financial Officer 1997
T. Rosie Albright 52 Vice President, Consumer Products, U.S. 1995
John Bridgen, Ph.D. 52 Vice President, Diagnostics, U.S. 1984
James C. Costin, M.D. 55 Vice President, Medical and
Scientific Affairs 1999
Donald R. Daoust, Ph.D. 63 Vice President, Quality Control 1978
Thomas G. Gerstmyer 56 Vice President, Pharmaceuticals, U.S. 1999
Peter J. Griffin 56 Vice President and Controller 1983
Adrian J. L. Huns 51 Vice President, International 1996
Michael J. Kopec 59 Vice President, Manufacturing 1978
Stephen R. Lang 64 Vice President, Secretary and
General Counsel 1997
Thomas B. Moorhead 65 Vice President, Human Resources 1987
C. Richard Stafford 63 Vice President, Corporate Development 1977
James L. Wagar 64 Vice President and Treasurer 1981
Mark Wertlieb 43 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 20, 1999.
* All executive officers have held their present office for the last five years
except those noted on the following page.
5
<PAGE>
Executive Officers of the Registrant (Cont'd)
Thomas G. Gerstmyer was appointed Corporate Vice President, Pharmaceuticals,
U.S. in January, 1999. He was appointed President, Wallace Laboratories Division
in August, 1998. Mr. Gerstmyer was previously Vice President of Marketing,
Wallace Laboratories since prior to 1994.
James C. Costin, M.D., was appointed Corporate Vice President, Medical and
Scientific Affairs in January, 1999. Dr. Costin will continue to be responsible
for the Wallace Laboratories' Research and Development department, where he was
previously Vice President, Research and Development, a position he held since
prior to 1994.
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 1994.
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 1994.
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 1994.
Mark Wertlieb was appointed Corporate Vice President, Taxes in August, 1996. Mr.
Wertlieb was previously a Tax Partner at KPMG LLP since prior to 1994.
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. prior to 1994.
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
1994.
6
<PAGE>
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 1999
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 1999 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 1999 Annual Report to Stockholders.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Part III
Item 8. Financial Statements and Supplementary Data
Information required by this item is incorporated herein by reference to pages
12 through 31 of the 1999 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 18, 1999, for the Annual
Meeting of Stockholders to be held July 20, 1999, 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 5
and 6 of this Form 10-K.
7
<PAGE>
Item 11. Executive Compensation
Information required by this item is incorporated herein by reference to the
Company's Proxy Statement, dated June 18, 1999, for the Annual Meeting of
Stockholders to be held July 20, 1999, 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 18, 1999, for the Annual Meeting of Stockholders to be
held July 20, 1999, 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 18, 1999, for the Annual Meeting of
Stockholders to be held July 20, 1999, 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 13 of this Form.
(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 (incorporated
herein by reference to Exhibit 3.2 of the Company's Annual Report
on Form 10K for the fiscal year ended March 31, 1998).
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).
(Continued)
8
<PAGE>
(a)(3) Exhibits (cont'd)
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 (incorporated herein by reference to Exhibit 10.6 of
the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998).
10.7 Employment Agreement, dated June 4, 1998, between the Company and
Paul A. Veteri (incorporated herein by reference to Exhibit
10.7 of the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1998).
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).
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).
(Continued)
9
<PAGE>
Exhibits (cont'd)
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, as amended.
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).
10.21 Letter Agreement, dated September 14, 1998, between the Company
and T. Rosie Albright.
10.22 Letter Agreement, dated June 4, 1998 between the Company
and Stephen R. Lang.
13 Annual Report to Stockholders for the fiscal year ended March 31,
1999
21 Subsidiaries.
23 KPMG LLP Independent Auditors' 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, 1999.
10
<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 11, 1999 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 11, 1999
Henry H. Hoyt, Jr. Chief Executive Officer,
Director (Principal Execu-
tive Officer)
/s/David M. Baldwin Director June 11, 1999
David M. Baldwin
/s/Dr. Richard L. Cruess Director June 11, 1999
- --------------------------
Dr. Richard L. Cruess
/s/Suzanne H. Garcia Director June 11, 1999
Suzanne H. Garcia
11
<PAGE>
Signature Title Date
/s/Scott C. Hoyt Director June 11, 1999
Scott C. Hoyt
/s/Ralph Levine President and Chief June 11, 1999
- ------------------------- Operating Officer,
Ralph Levine Director
/s/Herbert M. Rinaldi Director June 11, 1999
Herbert M. Rinaldi
/s/Paul A. Veteri Executive Vice President June 11, 1999
- ------------------------- and Chief Financial Officer,
Paul A. Veteri Director (Principal Financial
Officer)
/s/Peter J. Griffin Vice President and June 11, 1999
Peter J. Griffin Controller (Principal
Accounting Officer)
12
<PAGE>
CARTER-WALLACE, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The consolidated financial statements and the related report of KPMG LLP dated
May 5, 1999 appearing on pages 12 through 31 of the 1999 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 14
Schedule II - Valuation and qualifying accounts for each
of the three years ended March 31, 1999 15
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.
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Carter-Wallace, Inc.:
Under date of May 5, 1999, we reported on the consolidated balance sheets of
Carter-Wallace, Inc. and subsidiaries as of March 31, 1999 and 1998, and the
related consolidated statements of earnings, retained earnings and comprehensive
earnings, and cash flows, for each of the years in the three-year period ended
March 31, 1999, as contained in the 1999 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 1999. 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 LLP
New York, New York
May 5, 1999
14
<PAGE>
SCHEDULE II
CARTER-WALLACE, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Three Years Ended March 31, 1999
(in thousands of dollars)
Balance at Charged to Charged Balance
beginning costs and to other at end
Description of period expenses accounts Deductions of period
Year ended March 31, 1999:
Deducted from assets to
which they apply:
Allowance for
doubtful accounts $ 5,716 $ 752 $ - $ 505(a) $ 5,963
Allowance for cash
discounts 1,590 8,737 - 8,875(b) 1,452
------- ------- ------ ------- -------
$ 7,306 $ 9,489 $ - $ 9,380 $ 7,415
------- ------- ------ ------- -------
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
------- ------- ------ ------- -------
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.
15
CARTER-WALLACE
ANNUAL REPORT FOR THE YEAR ENDED MARCH 31 1999
<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
Mexico City, Mexico
New Plymouth, New Zealand
Barcelona, Spain
TRANSFER AND DISBURSING AGENT
The Bank of New York
101 Barclay Street
New York, N.Y. 10286
800-524-4458
REGISTRAR OF STOCK
The Bank of New York
101 Barclay Street
New York, N.Y. 10286
SHAREHOLDER RELATIONS
Ruder Finn, Inc.
800-984-1777
<PAGE>
CARTER-WALLACE, INC.
ANNUAL REPORT
For the year ended March 31, 1999
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS 1999 1998
<S> <C> <C>
Net sales $668,872,000 $662,229,000
Earnings before taxes 46,244,000 44,755,000
Net earnings 28,209,000 27,301,000
Earnings per share--basic and
diluted $ .62 $ .59
Dividends 9,931,000 7,392,000
Dividends per share $ .22 $ .16
Average shares outstanding 45,180,000 46,093,000
Number of stockholders of record
Common 2,108 2,340
Class B common 1,241 1,343
</TABLE>
[LOGO]
The Company markets
toiletries, pharmaceuticals,
diagnostic specialties,
proprietary drugs and pet products
CONTENTS
Report to Stockholders 2
Summary of Selected Financial Data 7
Management's Discussion and
Analysis of Results of Operations
and Financial Condition 8
Description of Business Segments 11
Consolidated Balance Sheets 12
Consolidated Statements of Earnings, Retained
Earnings and Comprehensive Earnings 14
Consolidated Statements of Cash Flows 15
Notes to Consolidated Financial Statements 16
Independent Auditors' Report 31
Directors and Officers 32
<PAGE>
REPORT TO SHAREHOLDERS
In the fiscal year ended March 31, 1999, the Company's consolidated sales were
$668,872,000 compared to prior year's sales of $662,229,000.
The Company earned $.62 per share for the fiscal year ended March 31, 1999
compared to $.59 per share in the prior year.
SALES
Sales in the Company's three business segments were Domestic Consumer Products
$283,228,000, Domestic Health Care $181,157,000 and International $204,487,000.
Domestic Consumer Products were 42%, Domestic Health Care were 27% and
International were 31% of total sales. These sales compare to a year ago of
$276,681,000, $188,961,000 and $196,587,000, respectively. Lower foreign
exchange rates had the effect of decreasing International sales by approximately
$6,700,000.
DIVIDENDS
Dividends of $.22 per share were paid in the fiscal year ended March 31, 1999
compared to $.16 per share in the prior year. The Company has paid dividends for
116 consecutive years.
CARTER PRODUCTS DIVISION
The Division achieved increased sales revenues for the year through innovative
new product introductions and the strengthening of several core franchises. This
performance was achieved even as the retail industry continued to consolidate,
particularly the drug and food classes. The Division's key brand segments
remained prominent in the market and several Carter Products were the number one
brand in their category.
Factory shipments of the Division's Trojan brand condoms reached another record
high. Market share for 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 leading
position in this market.
The Nair line of hair removal products continues to be the number one brand in
this category with increased sales volume in the depilatory and wax segments.
Nair Precision Wax Strips, the Nair Buff-Off Kit and Nair 3-in-1 Brush-on Cream
were successfully introduced in the latter part of the year, further expanding
Nair's presence in the fast growing home hair removal category.
Sales volume for the Arrid line of anti-perspirants and deodorants softened
somewhat as competition in these markets expanded. The Arrid brand introduced a
new, large size Arrid XX Ultra Clear Solid. Arrid also introduced a successful
new advertising campaign, focusing on the powerful protection of Arrid in
stressful situations.
Pearl Drops continues to be competitive in the specialty tooth whitening
category. This segment faces competition from mainstream brands that have
introduced whitening line extensions.
The Division continues to be one of the leading marketers of at-home pregnancy
and ovulation test kits. Sales of the First Response and Answer pregnancy and
ovulation test kits each performed well although private label brands continue
to find buyers in the price/value segment of the product category. On a combined
basis, First Response and Answer ovulation test kits are number one in this
category.
WALLACE LABORATORIES DIVISION
Astelin Nasal Spray, in its second year on the market, continues to post sales
increases. It remains the only
2
<PAGE>
prescription antihistamine nasal spray in the U.S. market.
Results from three clinical studies demonstrated Astelin is as effective as the
combination of loratadine tablets (Claritin(R)) and beclomethasone nasal
spray (Beconnase(R)) in relieving symptoms of seasonal allergies among
patients who do not respond adequately to monotherapy with either an oral
antihistamine or inhaled nasal steroid. The results of these studies were
published in the June 1999 issue of the peer review journal, Annals of Allergy,
Asthma & Immunology.
A joint venture agreement with ASTA Medica AG was 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 is compensated by the joint company
for these activities.
Astelin Nasal Spray was the primary product promoted by Wallace Laboratories and
received major promotional support, especially during the spring and fall
allergy seasons. Astelin was also promoted by the sales force of Muro
Pharmaceutical, Inc., a subsidiary of ASTA Medica AG, and a part-time sales
force.
The Division's introduction of Tussi-12, a prescription cough/cold product, in
December 1998, was well received. The product contains an antitussive,
antihistamine and a decongestant.
The Division also concentrated its sales and marketing efforts on products that
have responded to promotion. These products include the Soma line of muscle
relaxants and Rynatan and Rynatuss cough/ cold product lines.
An agreement was entered into with the Warrick Division of Schering-Plough
Corporation under which the Division's Rynatan tablet was reformulated to
include the antihistamine, azatadine, and the decongestant, pseudoephedrine. The
reformulated product was introduced in May 1999.
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
For the fiscal year 1999, Wampole products achieved double-digit sales gains.
The Division's strategy of emphasizing its breadth of products for an expanding,
automated testing market, along with the continuous introduction of new products
in other areas of its businesses took sales to record levels.
Enzyme immunoassay products showed strong growth in virtually all categories.
Particularly impressive gains were noted in tests for the presence of H. pylori,
a bacterium indicative of peptic ulcers and for C. difficile, an intestinal
pathogen. Customers were also enthusiastic about the Division's tests for a
broad range of autoimmune diseases.
In October 1998 the Division entered into an agreement to market the MicroTrak
line of enzyme and fluorescent immunoassay products. These tests are primarily
used in the detection of sexually transmitted diseases.
Wampole also continued to build its point of care business with the introduction
in October, 1998 of the Analyst physician office chemistry system.
In September 1998, Wampole introduced Macra Lp(a), an enzyme immunoassay for the
detection of lipoprotein(a) in cardiovascular risk assessment. This is the first
of several such products that the Division plans to introduce.
Sales of Mono-plus, a rapid test for the detection of infectious mononucleosis,
continued to show strong gains. The Division is actively developing a number of
other opportunities to increase its presence in the rapid test and point of care
markets.
The diagnostic market remains competitive and complex due to government actions,
rapid development
3
<PAGE>
of new products and the consumer demand for efficiency and quality at lower
prices. Wampole Laboratories has established an outstanding reputation for
products and distribution in the niches it occupies.
LAMBERT KAY DIVISION
Lambert Kay achieved increased sales through the introduction of new products
and line extensions, the acquisition of the Mr. Spats' line of cat products and
sales increases in the Lassie and Tiny Tiger mass market brands.
Lambert Kay's pet products fall into seven broad categories: grooming,
nutrition, medical, training products, flea and tick control, hardware and toys.
These product categories are further separated into two marketing segments: the
Lambert Kay brands are sold through independent and chain pet stores, and the
Lassie and Tiny Tiger products are sold through mass market outlets and grocery
stores.
The Division continued to broaden its product mix during the year. Two new
shampoos were brought to market as extensions to the popular Fun Family shampoo
line: Old Reliable Oatmeal Shampoo with Aloe and Special Agent Citronella
Natural Flea Shampoo.
In the medical and training products categories, new products included: Boundary
Bitters Long Lasting Deterrent, a spray-on treatment that stops a pet from
chewing itself, and Lambert Kay Anti Itch Gel and Spray, products that relieve
pain and itching and deter wound biting.
Following FDA approval, the Division introduced Evict DS liquid wormer for dogs.
This double strength formula which eliminates roundworms and hookworms is an
extension of the popular Evict product.
In the nutrition category, Lassie and Tiny Tiger Shedtrol were introduced. This
skin and coat supplement stops excessive shedding, which is one of the most
mentioned problems among pet owners.
New hardware included the Tuff On Tangles cat brush for removing difficult
matting and tangling and the Twinco nail trimmer for small dogs.
In December, 1998 Lambert Kay acquired the Mr. Spats' line of cat products. This
line includes the Scratch'r Cizer and Scratch'n Roll sisal scratchers, Corner
Diner feeding bowl, Private Reserve gourmet catnip, Lazy Cat Lodge habitat and
the Purrsuit play game.
INTERNATIONAL DIVISION
International Division sales advanced in the past year, although the strong U.S.
dollar exerted some negative pressure on results. The Division benefited from
higher unit volumes for a number of existing products, selective price increases
and the full year impact of several consumer product line acquisitions. Strong
sales results were achieved in subsidiary operations, particularly in Australia,
England, France, Italy and Spain.
Consumer product sales continued to advance in a number of areas. Pearl Drops
toothpolish sales increased substantially in England, Italy and Australia as a
result of the successful introduction of new premium whitening products. Arrid
anti-perspirant deodorant sales showed notable growth in Canada following the
introduction of Arrid XX Ultra Clear Solid and Arrid XX Sport. Arrid also
advanced in England in response to increased advertising and promotional
support.
Our depilatory lines performed extremely well with Nair achieving double-digit
growth in Canada, Australia and Mexico, and Taky depilatories showing
significant market share gains in Spain. A full line of depilatory products was
introduced under the Nair trademark in France near the end of the fiscal year.
Also in France, Lineance, a line of anti-cellulite skin care products, showed
strong growth due to the launch of several new products and effective media and
promotional support. Advances were also achieved in France for Email Diamant
toothpolish and Bi-Solution acne treatment.
4
<PAGE>
The Trojan brand of condoms increased its already leading market share in
Canada, while Antiphlogistine Rub A-535 maintained its leading position in the
topical analgesic market. Dencorub continued to perform well in the Australian
topical analgesic category.
Consumer sales benefited from the acquisitions of Femfresh, a line of feminine
hygiene products sold in England, France and Australia, Anne French, a line of
facial cleansing products sold in England and Ireland and Orasiv, a line of
denture adhesive products sold in Italy. At the end of the fiscal year, our
French subsidiary acquired the Barbara Gould line of facial skin care products
and our Australian subsidiary acquired Ultrafresh, a line of oral hygiene
products.
The Division's line of health care products maintained strong positions in a
number of foreign markets. In Canada, Gravol antinauseant maintained a leading
market share in spite of continuing competition from generic brands. Ovol, an
antiflatulent product line in Canada, added a soft gel capsule offering. In
France, Sterimar, a nasal decongestant, showed growth due to the addition of
new products to the Sterimar line and continued consumer advertising and
promotional activity. In Italy, sales gains were achieved for Cerulisina, a
preparation to remove ear wax and Neo Emocicatrol, a topical coagulant.
Pharmaceutical sales in Mexico grew to record levels led by strong unit volume
advances for the Pangavit line of vitamin supplements and Colfur antidiarrheal.
In the professional diagnostics sector, our French subsidiary realized an
increase in sales and maintained a leadership position in rapid tests for
parasitology. New products containing color change technology for ease of use
and better interpretation of results continue to sell well. Our subsidiary in
Italy introduced several new products to expand their test menu for
identification of infectious diseases. The new generation of ELISA products aids
in early detection of the disease and provides more clinical information on
disease history and progress. Several additional products for detection of
autoimmune diseases and for use in research laboratories were introduced as a
result of successful strategic alliances. The Isolator microbiology product line
achieved growth in European markets.
RESEARCH & DEVELOPMENT
Expenses for research and development totaled $25,846,000 for the fiscal year
ended March 31, 1999, compared to $28,785,000 in the prior year.
Research and development activities continue to produce valuable information and
direction for future projects. These efforts will continue using independent
research facilities managed by the Company's internal supervisory personnel.
Work on taurolidine for its use against vancomycin-resistant enterococcus and a
number of other potential indications has continued.
Two multicenter Phase III studies are underway to determine if Astelin Nasal
Spray is effective for treating non-allergic vasomotor rhinitis. A Supplemental
New Drug Application will be submitted for the use of Astelin Nasal Spray in
children less than 12 years old. The Astelin tablet NDA for allergic rhinitis is
pending at the FDA. The Company has not decided whether to seek final approval
for this NDA.
The Felbatol (felbamate) Patient Registry, introduced in July 1997, is providing
useful patient data to help determine if a certain metabolite level could be
used as a monitoring test that would then allow Felbatol to be prescribed with
greater safety for patients with epilepsy.
FACILITIES
A 22,000 square foot expansion to our condom manufacturing facility in Colonial
Heights, Virginia was approved in fiscal 1998. The additional capacity was
warranted by the increase in demand for Trojan latex condoms. At the end of
fiscal 1999, the expansion approached completion with the installation of new
equipment. The additional square feet of manufacturing area represents a
significant increase to this facility.
5
<PAGE>
PEOPLE
Thomas G. Gerstmyer was appointed Corporate Vice President, Pharmaceuticals,
U.S. and President, Wallace Laboratories Division. Mr. Gerstmyer has been with
the Company for seventeen years, most recently as Vice President, Marketing,
Wallace Laboratories. He succeeded Herbert Sosman who retired after 21 years of
service.
James C. Costin, M.D., Vice President, Research and Development for Wallace
Laboratories, was appointed Corporate Vice President, Medical and Scientific
Affairs. In this position, Dr. Costin will be the Company's senior medical and
scientific affairs officer. In addition to his new duties, he will continue to
be responsible for the Wallace Laboratories Research and Development department.
* * *
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 11, 1999
6
<PAGE>
Carter-Wallace, Inc. and Subsidiaries
SUMMARY OF SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
----------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AND EMPLOYEE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales $668,872 $662,229 $648,755 $658,940 $663,642
Earnings before one-time charges in 1996
and 1995 and taxes 46,244 44,755 45,349 54,797 42,310
Net earnings (loss) 28,209 27,301 26,756 7,550(a) (56,268)(b)
Earnings (loss) per share--basic and
diluted .62 .59 .58 .16(a) (1.22)(b)
Dividends per share .22 .16 .16 .16 .29
Average common shares outstanding 45,180 46,093 46,389 46,160 46,108
FINANCIAL POSITION
Working capital $159,549 $145,715 $142,972 $137,083 $100,596
Net property, plant and equipment 150,596 150,223 154,844 139,273 137,608
Total assets 721,952 693,613 685,922 718,925 680,224
Long-term debt 64,861 48,887 51,025 55,928 23,115
Stockholders' equity 359,156 349,650 349,154 332,896 327,139
OTHER DATA
Capital expenditures $ 17,271 $ 15,676 $ 31,066 $ 35,228 $ 18,853
Book value per share 7.98 7.70 7.53 7.18 7.08
Number of employees 3,310 3,360 3,460 3,610 3,670
</TABLE>
(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.
------------------------------------------------------
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:
FISCAL YEARS ENDED MARCH 31
---------------------------------------------------
1999 1998
----------------------- -----------------------
QUARTER ENDED HIGH LOW HIGH LOW
-------- --------- -------- -------
June 30 $18 9/16 $16 13/16 $19 $12 3/4
September 30 19 1/2 14 5/8 19 3/4 15 3/8
December 31 19 11/16 14 3/8 17 3/8 14
March 31 19 5/8 15 1/2 18 3/4 16
A dividend of $.04 per share was declared in the first
quarter of 1999 and $.06 per share was declared in the
second, third and fourth quarters of 1999. A dividend
of $.04 per share was declared in all four quarters of
1998.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
- --------------------------------------------------------------------------------
NET SALES AND EARNINGS
Net earnings were $28,209,000 or $.62 per share in the year ended March 31,
1999, compared to net earnings of $27,301,000 or $.59 per share in the prior
year.
Net sales in 1999 were $668,872,000 compared to prior year's sales of
$662,229,000.
The Company has adopted Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information." Adoption
of this statement has resulted in a change to the Company's reportable business
segments. Previously, the reportable business segments were Consumer Products
and Health Care. As a result of the adoption of this new standard, the
reportable business segments are Domestic Consumer Products, Domestic Health
Care and International. Prior year segment data is presented in the new format.
Sales of Domestic Consumer Products increased $6,547,000 or 2.4% in 1999 almost
entirely due to higher unit volume. Domestic condom sales increased 10.8% over
the prior year. Market share for the Company's condom brands, principally
Trojan, has climbed to over 65% of the domestic condom market. Domestic
anti-perspirant and deodorant sales declined 5.5% in comparison to the prior
year.
Domestic Health Care sales decreased $7,804,000 or 4.1% in 1999 due to reduced
unit volume. However, sales of Astelin Nasal Spray were higher than in the prior
year. Selling price increases had a positive effect on sales in this segment.
Sales of most pharmaceutical products in the Domestic Health Care segment
continue to be adversely affected by generic competition.
Sales of International products increased $7,900,000 or 4.0% in 1999 versus the
prior year due to higher unit volume and selling price increases. A portion of
the unit volume increase related to acquisitions of consumer products in the
United Kingdom and Italy. Lower foreign exchange rates had the effect of
decreasing sales in the current year period by approximately $6,700,000.
Net sales in 1998 were $662,229,000 compared to prior year's sales of
$648,755,000.
Sales of Domestic Consumer Products increased $5,765,000 or 2.1% in 1998 due to
higher unit volume and to a lesser extent, selling price increases. Condom sales
were higher than the prior year.
Domestic Health Care sales increased $24,387,000 or 14.8% in 1998 from the prior
year due to selling price increases and higher unit volume. Sales in this
segment benefited from a full year's sales of Astelin Nasal Spray for seasonal
allergic rhinitis which was launched in the fourth quarter of fiscal year 1997.
Sales of International products decreased $16,678,000 or 7.8% in 1998 versus the
prior year due primarily to lower foreign exchange rates, which had the effect
of decreasing foreign sales by approximately $13,500,000. Unit volume was lower
in this segment, while selling price increases had a positive effect on sales.
Interest income increased in 1999 by $813,000 or 21% from the prior year due to
an increase in interest bearing investments. In 1998 interest income was lower
than 1997 due to a reduced level of interest bearing investments.
Other income increased by $8,291,000 versus the prior year. See comments in the
Astelin section below.
COSTS AND EXPENSES
Cost of goods sold as a percentage of net sales was 37.9% in 1999, 36.4% in 1998
and 37.6% in 1997. The variations from year to year were due primarily to
changes in product mix. Throughout this period the Company has taken steps to
minimize the effects of higher costs by selective price increases and cost
control and reduction measures.
Advertising, marketing and other selling expenses in 1999 increased $988,000 or
0.4% as a result of higher spending in the Domestic Health Care and
International segments. Spending was lower in the Domestic Consumer Products
segment, primarily media advertising. In 1998, advertising, marketing and other
selling expenses increased from the prior year by $10,884,000 or 4.4% due to
increased expenditures in
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
the Domestic Health Care segment related to the introduction of Astelin Nasal
Spray for seasonal allergic rhinitis which was launched in the fourth quarter of
1997. Spending in the Domestic Consumer Products segment in 1998 was higher than
in the prior year. In International, spending in 1998 was lower than in the
prior year.
In 1999, research and development expenses decreased $2,939,000 or 10.2%,
primarily as a result of lower spending in the Domestic Consumer Products
segment related to non-recurring prior year employee termination costs. In the
Domestic Health Care segment work on taurolidine for its use against
vancomycin-resistant enterococcus and a number of other potential indications
has continued. 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. Research and
development expenses in 1998 increased $1,501,000 or 5.5% versus the prior year
as a result of higher spending in the Domestic Consumer Products segment due in
part to employee termination costs related to organizational changes. Research
and development expenses in the Domestic Health Care segment were higher than
the prior year, while International research and development expenses were lower
than the prior year.
General and administrative expenses increased $2,153,000 or 2.6% in 1999 due
largely to employee termination costs related to organizational changes. In
1998, general and administrative expenses increased $3,525,000, or 4.4% due
largely to higher product liability and group insurance costs.
Interest expense increased in 1999 by $184,000 or 4.3%. In 1998, interest
expense increased by $122,000 or 2.9% over the prior year. Both of these
increases related to higher levels of borrowing.
Other expenses increased in 1999 by $1,614,000 or 26.1% due to higher non-cash
charges related to incentive plans and amortization of intangibles. In 1998,
other expenses decreased by $226,000 or 3.5% from the prior year.
The consolidated income tax rate in 1999 and 1998 was 39%. In 1997 the
consolidated income tax rate was 41%. The reduced rate in 1999 and 1998 compared
with 1997 was due primarily to a change in the mix of domestic and international
taxable income.
ASTELIN
Astelin Nasal Spray, in its second year on the market, recorded higher sales.
Promotional support for Astelin continued at the high introductory level of the
prior year. In addition to the promotional support provided by the Wallace
Laboratories Division, this product was also promoted by the sales force of Muro
Pharmaceutical, Inc., a subsidiary of ASTA Medica AG, and a part-time sales
force.
In July 1998, the Company entered into a joint venture agreement with ASTA
Medica AG with an effective date of November, 1997. Under the terms of the
agreement the Company is responsible for all manufacturing, selling, marketing
and administrative activities for Astelin and Depen, another product licensed
from ASTA Medica AG, and receives compensation for these activities from the
joint venture. Included in other income is $6,782,000 in the current year and
$645,000 in the prior year related to ASTA Medica's share of joint venture
operations.
YEAR 2000 COMPLIANCE
The Company is implementing a plan which addresses Year 2000 technology
compliance for its information technology ("IT") and non-IT systems. The plan
includes a review of the Company's suppliers and customers to determine that
they are working toward Year 2000 compliance.
Internal IT systems are expected to be made compliant by September 1999.
Material third party vendors have been contacted and asked to attest to Year
2000 compliance. Alternate vendors will be evaluated as potential replacements
for non-compliant or non-responsive vendors. The Year 2000 project is expected
to cost between $1,000,000 and $2,000,000 on a pre-tax basis.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
If IT and non-IT systems affected by the Year 2000 were not addressed as the
Company is doing, they could conceivably cause technological failures throughout
the Company, disrupting normal business operations. These theoretical
consequences are generally shared with other manufacturing companies.
Management does not believe that the Company's business will be materially
affected by Year 2000 issues. Nevertheless, the Company expects to have
contingency plans that address the most reasonably likely worst case Year 2000
scenarios. Contingency plans include a possible increase in key product
inventories in anticipation of vendors not being able to supply stock and, where
appropriate, the development of plans to use manual operations as a back-up for
critical automated areas.
FELBATOL (FELBAMATE)
As previously reported, in the years ended March 31, 1995 and 1996 the Company
incurred one-time charges to pre-tax earnings totaling $45,980,000 related to
use restrictions for Felbatol. Depending on future sales levels, additional
inventory write-offs may be required. If for any reason the product at some
future date should no longer be available in the market, the Company will incur
an additional one-time charge, consisting primarily of inventory write-offs and
anticipated returns of product currently in the market, in the range of
$20,000,000 on a pre-tax basis.
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 seasonal business fluctuations and to
finance major facility expansion programs and major acquisitions.
At March 31, 1999, the Company had available various bank credit lines amounting
to $196,000,000 consisting of $175,000,000 in domestic credit lines and
$21,000,000 in foreign credit lines, of which $2,752,000 of the foreign lines
were utilized at March 31, 1999. There were no domestic borrowings under credit
lines at March 31, 1999. 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.
In fiscal 1999 the Company borrowed approximately $15,200,000 to finance
International acquisitions.
Inventory levels increased in 1999 over the previous year due to a planned
increase in condom inventory as well as new product introductions and
acquisitions.
Under stock repurchase programs approved by the Company's Board of Directors,
the Company purchased 246,000 shares at a cost of $3,885,000 in the year ended
March 31, 1999 and 945,000 shares at a cost of $15,890,000 in the year ended
March 31, 1998.
CAPITAL EXPENDITURES
Capital expenditures were $17,271,000 in 1999, $15,676,000 in 1998 and
$31,066,000 in 1997.
10
<PAGE>
DESCRIPTION OF BUSINESS SEGMENTS
- --------------------------------------------------------------------------------
The Company is engaged in the manufacture and sale of a diversified line of
products in the Domestic Consumer Products, Domestic Health Care and
International business segments described below:
DOMESTIC 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 by our consumer products divisions and some are sold
throughout the rest of the world by various subsidiaries and distributors.
Principal products include:
* Arrid Extra Dry and Arrid XX anti-perspirants and deodorants
* Lady's Choice anti-perspirants and deodorants
* Answer and First Response at-home pregnancy and ovulation test kits
* Carter's laxative
* H-R lubricating jelly
* Nair depilatories, waxes and bleach
* Pearl Drops whitening toothpolish and whitening toothpaste
* Rigident denture adhesive
* Trojan, Class Act and Naturalamb condoms
* Boundary dog and cat repellants
* Color Guard 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
DOMESTIC 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 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
* Tussi-12 cough/cold product
* Soma brand muscle relaxants
* Butisol sedative hypnotic
* Depen penicillamine for severe rheumatoid arthritis
* Doral sedative hypnotic
* Lufyllin xanthine bronchodilator
* Maltsupex laxative
* Vo-SoL topical antibacterial and antifungal agent
* Analyst physician office chemistry system
* 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
* MicroTrak line of immunoassay products for the detection of sexually
transmitted diseases, primarily chlamydia
* Mono-Test, Mono-Latex and Mono-plus for the detection of mononucleosis
* Stat-Crit portable instrument for use in measuring blood hematocrit levels
--------------------------
INTERNATIONAL
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
* Barbara Gould facial beauty and 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
* Ultrafresh mouthwash and breath freshening products
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, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 49,382,000 $ 51,661,000
Short-term investments 31,870,000 25,826,000
Accounts receivable-trade, less allowances of
$7,415,000 in 1999 and $7,306,000 in 1998 122,196,000 126,579,000
Other receivables 7,164,000 6,432,000
Inventories
Finished goods 54,019,000 45,811,000
Work in process 10,875,000 9,751,000
Raw materials and supplies 25,714,000 25,408,000
------------ ------------
90,608,000 80,970,000
------------ ------------
Deferred taxes 17,128,000 20,591,000
Prepaid expenses and other current assets 11,242,000 7,879,000
------------ ------------
TOTAL CURRENT ASSETS 329,590,000 319,938,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land 3,880,000 3,070,000
Buildings and improvements 111,625,000 106,737,000
Machinery, equipment and fixtures 178,354,000 168,041,000
Leasehold improvements 22,900,000 22,203,000
------------ ------------
316,759,000 300,051,000
Accumulated depreciation and amortization 166,163,000 149,828,000
------------ ------------
150,596,000 150,223,000
------------ ------------
INTANGIBLE ASSETS
Excess of purchase price of businesses acquired over the
net assets at date of acquisition, less amortization 84,463,000 87,658,000
Patents, trademarks, contracts and formulae, less
amortization 51,926,000 36,884,000
------------ ------------
136,389,000 124,542,000
------------ ------------
DEFERRED TAXES 39,366,000 37,901,000
OTHER ASSETS 66,011,000 61,009,000
------------ ------------
$721,952,000 $693,613,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 44,084,000 $ 32,506,000
Accrued expenses 107,267,000 106,851,000
Notes payable 8,134,000 17,854,000
Taxes on income 10,556,000 17,012,000
------------ ------------
TOTAL CURRENT LIABILITIES 170,041,000 174,223,000
------------ ------------
LONG-TERM LIABILITIES
Long-term debt 64,861,000 48,887,000
Deferred compensation 19,931,000 17,553,000
Accrued postretirement benefit obligation 69,241,000 69,292,000
Other long-term liabilities 38,722,000 34,008,000
------------ ------------
TOTAL LONG-TERM LIABILITIES 192,755,000 169,740,000
------------ ------------
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
34,740,000 shares in 1999 and 34,698,000 shares in 1998 34,740,000 34,698,000
Class B common stock, authorized 13,056,800 shares, par
value $1 per share, ten votes per share; issued 12,465,000
shares in 1999 and 12,507,000 in 1998 12,465,000 12,507,000
Capital in excess of par value 4,483,000 4,204,000
Retained earnings 368,093,000 349,815,000
------------ ------------
419,781,000 401,224,000
Less:
Accumulated other comprehensive loss
Foreign currency translation adjustment 27,785,000 24,811,000
Treasury stock at cost--2,069,300 common and 153,600
Class B common shares in 1999 and 1,667,400 common
and 153,600 Class B common shares in 1998 32,840,000 26,763,000
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 359,156,000 349,650,000
------------ ------------
$721,952,000 $693,613,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
Carter-Wallace, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF
EARNINGS, RETAINED EARNINGS AND
COMPREHENSIVE EARNINGS
THREE YEARS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
Net sales $668,872,000 $662,229,000 $648,755,000
Interest income 4,682,000 3,869,000 4,226,000
Other income 11,118,000 2,827,000 3,200,000
------------ ------------ ------------
684,672,000 668,925,000 656,181,000
------------ ------------ ------------
Cost and Expenses:
Cost of goods sold 253,447,000 241,189,000 243,657,000
Advertising and promotion 131,684,000 134,478,000 122,407,000
Marketing and other selling 130,039,000 126,257,000 127,444,000
Research and development 25,846,000 28,785,000 27,284,000
General and administrative 85,118,000 82,965,000 79,440,000
Interest 4,492,000 4,308,000 4,186,000
Other 7,802,000 6,188,000 6,414,000
------------ ------------ ------------
638,428,000 624,170,000 610,832,000
------------ ------------ ------------
Earnings before taxes on income 46,244,000 44,755,000 45,349,000
Provision for taxes on income 18,035,000 17,454,000 18,593,000
------------ ------------ ------------
Net earnings $ 28,209,000 $ 27,301,000 $ 26,756,000
------------ ------------ ------------
------------ ------------ ------------
Earnings per share--basic and diluted $ .62 $ .59 $ .58
------------ ------------ ------------
------------ ------------ ------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Amount at beginning of year $349,815,000 $329,906,000 $310,573,000
Net earnings 28,209,000 27,301,000 26,756,000
------------ ------------ ------------
378,024,000 357,207,000 337,329,000
Dividends--$.22 per share in 1999 and
$.16 per share in 1998 and 1997 (9,931,000) (7,392,000) (7,423,000)
------------ ------------ ------------
Amount at end of year $368,093,000 $349,815,000 $329,906,000
------------ ------------ ------------
------------ ------------ ------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
Net earnings $ 28,209,000 $ 27,301,000 $ 26,756,000
Other comprehensive (loss) earnings
Foreign currency translation adjustment (2,974,000) (3,846,000) (3,720,000)
Minimum pension liability adjustment, net of tax -- -- 814,000
------------ ------------ ------------
Total comprehensive earnings $ 25,235,000 $ 23,455,000 $ 23,850,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
CONSOLIDATED STATEMENTS OF
CASH FLOWS
THREE YEARS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Net earnings $ 28,209,000 $ 27,301,000 $ 26,756,000
Adjustments to reconcile net earnings to cash flows
provided by operating activities:
Cash payments for one-time charges (2,318,000) (12,495,000) (31,302,000)
Depreciation and amortization 16,372,000 15,746,000 14,604,000
Amortization of patents, trademarks, contracts and
formulae 6,199,000 4,996,000 4,645,000
Amortization of excess of purchase price of
businesses acquired over the net assets at date
of acquisition 4,178,000 3,994,000 4,088,000
Other changes in assets and liabilities:
Decrease (increase) in accounts and other
receivables 3,602,000 (13,151,000) 5,787,000
(Increase) decrease in inventories (10,289,000) 5,110,000 3,918,000
(Increase) decrease in prepaid expenses (3,647,000) 1,743,000 (635,000)
Increase (decrease) in accounts payable and
accrued expenses 8,795,000 15,131,000 (6,152,000)
Increase in deferred compensation 2,548,000 1,797,000 803,000
Decrease in deferred taxes 1,998,000 11,329,000 12,847,000
Other changes (7,263,000) (10,362,000) (6,181,000)
------------ ------------ ------------
Cash flows provided by operating activities 48,384,000 51,139,000 29,178,000
------------ ------------ ------------
Cash flows used in investing activities:
Additions to property, plant and equipment (17,271,000) (15,676,000) (31,066,000)
Payments for international acquisitions, net of cash
received:
Barbara Gould product line in France (15,129,000) -- --
Femfresh product line in the U.K. (3,633,000) -- --
Sanodent S.r.l. in Italy -- (3,717,000) --
Anne French product line in the U.K. -- (1,613,000) --
Acquisition of product lines from BioWhittaker, Inc.
and Clark Laboratories -- -- (500,000)
(Increase) decrease in short-term investments (6,273,000) (7,790,000) 1,043,000
Proceeds from sale of property, plant and equipment 371,000 5,881,000 186,000
------------ ------------ ------------
Cash flows used in investing activities (41,935,000) (22,915,000) (30,337,000)
------------ ------------ ------------
Cash flows used in financing activities:
Dividends paid (9,931,000) (7,392,000) (7,423,000)
Increase in borrowings 17,385,000 15,719,000 347,000
Payments of debt (11,569,000) (2,644,000) (6,624,000)
Purchase of treasury stock (4,381,000) (16,685,000) (380,000)
------------ ------------ ------------
Cash flows used in financing activities (8,496,000) (11,002,000) (14,080,000)
------------ ------------ ------------
Effect of foreign exchange rate changes on cash
and cash equivalents (232,000) (685,000) (822,000)
------------ ------------ ------------
(Decrease) increase in cash and cash equivalents $ (2,279,000) $ 16,537,000 $(16,061,000)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
Carter-Wallace, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT 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, 1999 and 1998.
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. Machinery, equipment and fixtures
are depreciated over a period ranging from five to twenty years. Buildings and
improvements are depreciated over a period ranging from twenty to forty years.
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: 45,180,000 in 1999, 46,093,000 in
1998, and 46,389,000 in 1997. 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 13% and
11% of inventories included in current assets at year end 1999 and 1998,
respectively. If these inventories had been valued on the FIFO inventory method
(which approximates current or replacement cost), total inventories would have
been approximately $10,100,000 and $9,900,000 higher than reported at March 31,
1999 and 1998, respectively. Felbatol inventories of $8,275,000 at March 31,
1999 and $10,750,000 at March 31, 1998, 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>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Domestic $ 8,648,000 $ (563,000) $ 1,474,000
Foreign 7,305,000 6,606,000 4,496,000
----------- ----------- -----------
15,953,000 6,043,000 5,970,000
----------- ----------- -----------
Deferred:
Domestic 1,869,000 11,436,000 10,486,000
Foreign 213,000 (25,000) 2,137,000
----------- ----------- -----------
2,082,000 11,411,000 12,623,000
----------- ----------- -----------
Total $18,035,000 $17,454,000 $18,593,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The components of income before taxes were as follows:
<TABLE>
<S> <C> <C> <C>
Domestic $27,478,000 $27,367,000 $26,824,000
Foreign 18,766,000 17,388,000 18,525,000
----------- ----------- -----------
Total $46,244,000 $44,755,000 $45,349,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
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>
1999 1998
----------- -----------
<S> <C> <C>
Postretirement benefit plans $29,726,000 $30,333,000
Employee benefit plans 11,245,000 8,805,000
Accrued liabilities 16,607,000 18,899,000
Asset valuation accounts 16,458,000 17,350,000
All other 7,698,000 8,024,000
Valuation allowances (3,247,000) (3,247,000)
----------- -----------
Total deferred tax assets 78,487,000 80,164,000
----------- -----------
Depreciation 14,200,000 13,817,000
All other 7,793,000 7,855,000
----------- -----------
Total deferred tax liabilities 21,993,000 21,672,000
----------- -----------
Net deferred tax assets $56,494,000 $58,492,000
----------- -----------
</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>
1999 1998 1997
---------------------- ---------------------- -----------------------
% TO % TO % TO
TAX PRE-TAX TAX PRE-TAX TAX PRE-TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
----------- ----- ----------- ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Computed tax expense $16,185,000 35.0% $15,664,000 35.0% $ 15,872,000 35.0%
Foreign income taxed at a
different effective rate 1,619,000 3.5 987,000 2.2 1,581,000 3.5
State income taxes, net of
federal tax benefit 1,345,000 2.9 2,082,000 4.7 1,145,000 2.5
Amortization of intangibles 534,000 1.2 534,000 1.2 534,000 1.2
Other (1,648,000) (3.6) (1,813,000) (4.1) (539,000) (1.2)
----------- ----- ----------- ----- ------------ -----
$18,035,000 39.0% $17,454,000 39.0% $ 18,593,000 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>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net current assets $ 99,535,000 $ 94,378,000 $ 83,540,000
Equity in net assets 140,992,000 132,718,000 125,757,000
Net sales 202,799,000 194,780,000 210,606,000
Net earnings 11,248,000 10,807,000 11,892,000
</TABLE>
The equity adjustment from foreign currency translation is comprised of the
following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
----------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Opening balance $24,811,000 $20,965,000
Current year 2,974,000 3,846,000
----------- -----------
Ending balance $27,785,000 $24,811,000
----------- -----------
----------- -----------
</TABLE>
5. NOTES PAYABLE AND LONG-TERM DEBT
Notes Payable
Notes payable consisting of borrowings from banks under available lines of
credit were $2,752,000, $3,402,000 and $347,000 and the current portion of
long-term debt was $3,103,000, $8,471,000 and $2,911,000 at March 31, 1999, 1998
and 1997, respectively. In addition, other short-term notes payable in
international operations amounted to $2,279,000 and $5,981,000 at March 31, 1999
and 1998. Additional data related to the amount of short-term borrowings is not
presented since it is immaterial.
18
<PAGE>
The Company has available various bank credit lines amounting to $196,000,000 of
which $175,000,000 is for domestic borrowings and $21,000,000 is for
international borrowings. The availability of the lines of credit is subject to
review by the banks involved. Commitment fees are immaterial.
Long-Term Debt
Long-term debt at March 31 is summarized below:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<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
Unsecured Euro term loan, 4.10%, payable in installments beginning June
1, 2002 through March 1, 2004 10,143,000 --
Unsecured French Franc term loan, 4.10%, payable in installments through
February 25, 2006 5,043,000 --
Unsecured Italian lira term loan, 6.30% payable in installments through
December 31, 2004 3,416,000 3,354,000
Unsecured French franc loan, 5.10%, payable February 24, 2003 3,362,000 3,284,000
City of Decatur, Illinois adjustable rate Industrial Revenue Bond,
payable December 1, 2010 3,000,000 3,000,000
Secured Italian lira term loans, adjustable rate, payable in
installments through July 1, 2001 2,780,000 3,727,000
Unsecured French Franc loan, adjustable rate, payable in installments
through September 18, 2003 1,849,000 --
Promissory Notes, 5.42%, payable no later than September 12, 2000 1,630,000 1,811,000
Unsecured French franc loans, 7.5% to 7.75%, payable in installments
through August 5, 2001 1,192,000 2,048,000
Connecticut Development Authority Industrial Development Bond, 6.75%
repaid October 1, 1998 -- 4,300,000
Other Long-Term Debt 549,000 834,000
----------- -----------
67,964,000 57,358,000
Less, current portion of long-term debt included in notes payable (3,103,000) (8,471,000)
----------- -----------
$64,861,000 $48,887,000
----------- -----------
----------- -----------
</TABLE>
Maturities of long-term debt for each of the four fiscal years 2001 through 2004
are $4,444,000, $2,598,000, $9,040,000 and $13,969,000, respectively.
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.
19
<PAGE>
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.
The Company issued promissory notes, payable no later than September 12, 2000,
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.
With respect to the French franc loans payable through August 5, 2001,
arrangements were made at the inception of the loans to convert a portion of the
loans from an adjustable rate to a fixed rate.
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 $70,532,000
at March 31, 1999 and $59,025,000 at March 31, 1998.
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, 1999, 1998 and 1997 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, 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
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 -- -- 279,000
----------- ----------- -----------
Balance at March 31, 1999 $34,740,000 $12,465,000 $ 4,483,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The cost of treasury stock over or under the market value of the stock on the
date of the award or issuance has been applied to capital in excess of par
value, as well as any tax benefit on the appreciation of restricted stock
awards.
Shares issued from treasury stock for stock awards amounted to 28,000, 36,400
and 32,700 shares at a cost of $429,000, $502,000 and $447,000 in 1999, 1998 and
1997, respectively. Shares purchased and added to treasury stock amounted to
274,400, 993,000 and 26,000 shares at a cost of $4,381,000, $16,685,000 and
$380,000 in 1999, 1998 and 1997, respectively. In 1999, the Company exchanged
155,500 shares with a value of $2,125,000 previously issued as restricted stock
awards for an equivalent number of deferred stock awards.
7. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS (DOLLARS IN THOUSANDS)
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 Company also provides certain health care and 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.
20
<PAGE>
The components of the pension and postretirement benefit expense for the years
ended March 31, 1999, 1998 and 1997 were:
<TABLE>
<CAPTION>
RETIREMENT PLANS OTHER POSTRETIREMENT BENEFITS
------------------------------- -------------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 8,332 $ 7,511 $ 8,127 $ 1,924 $ 1,689 $ 1,914
Interest cost 14,846 14,785 14,721 3,775 3,871 3,659
Expected return on assets (20,179) (18,743) (17,803) -- -- --
Amortization of prior service cost 2,270 2,253 2,198 (3,415) (3,452) (3,414)
Amortization of transition cost (2,065) (2,086) (2,096) -- -- --
Amortization of actuarial (gain)/loss (153) (10) 89 (328) (308)
Settlement losses -- 728 106 -- -- --
------- ------- ------- ------- ------- -------
Total benefit expense $ 3,051 $ 4,438 $ 5,342 $ 1,956 $ 1,800 $ 2,159
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
The Company recognized settlement losses of $728,000 in 1998 and $106,000 in
1997 in conjunction with retirements.
The components of the changes in the benefit obligation were as follows:
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
RETIREMENT PLANS BENEFITS
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year $213,311 $195,355 $ 55,344 $ 52,817
Service cost 8,332 7,511 1,924 1,689
Interest cost 14,846 14,785 3,775 3,871
Plan participants' contributions 331 395 -- --
Amendments 849 889 -- --
Actuarial (gain)/loss 10,255 19,802 (1,369) (1,129)
Effect of exchange rate changes (1,138) (354) (78) (46)
Benefits paid (16,901) (25,072) (1,820) (1,858)
-------- -------- -------- --------
Benefit obligation at end of year $229,885 $213,311 $ 57,776 $ 55,344
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The components of the changes in plan assets were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Fair value of plan assets at beginning of year $241,454 $216,215 -- --
Actual return on plan assets 36,859 39,339 -- --
Employer contributions 2,257 10,879 $ 1,820 $ 1,858
Plan participants' contributions 331 395 -- --
Effect of exchange rate changes (432) (302) -- --
Benefits paid (16,901) (25,072) (1,820) (1,858)
-------- -------- -------- --------
Fair value of plan assets at end of year $263,568 $241,454 -- --
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The following is a reconciliation of the funded status of the plans to the
Company's balance sheets at March 31:
<TABLE>
<S> <C> <C> <C> <C>
Funded status $ 33,683 $ 28,143 $(57,776) $(55,344)
Unrecognized actuarial (gain)/loss (43,255) (36,140) (9,805) (9,029)
Unrecognized prior service cost 10,353 11,756 (1,660) (4,919)
Unrecognized transition obligation (1,801) (3,899) -- --
Minimum liability adjustment (5,509) (6,718) -- --
-------- -------- -------- --------
Accrued benefit cost $ (6,529) $ (6,858) $(69,241) $(69,292)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Amounts recognized in the Company's balance sheets at March 31 were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Other assets $ 24,745 $ 21,489 -- --
Accrued expenses (14,093) (14,101) -- --
Long-term liabilites (17,181) (14,246) $(69,241) $(69,292)
Intangible assets 5,509 6,718 -- --
-------- -------- -------- --------
Net amount recognized $ (1,020) $ (140) $(69,241) $(69,292)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
21
<PAGE>
The values at March 31 for pension plans with accumulated benefit obligations in
excess of plan assets were as follows:
1999 1998
------- -------
Projected Benefit Obligation $39,248 $34,545
------- -------
------- -------
Accumulated Benefit Obligation $28,303 $25,941
------- -------
------- -------
These are unfunded non-qualified plans which had no assets at March
31.
The principal assumptions used in determining 1999, 1998 and 1997 actuarial
values were:
Discount rate 6.75 - 8%
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
$1,478,000, $1,473,000 and $1,421,000 in 1999, 1998 and 1997 respectively.
The assumed health care cost trend rate used to measure the accumulated
postretirement benefit obligation for those over age 65 is 10 percent for 1999
trending to 5 percent over a five year period. For those under age 65, the trend
rate is 7.1 percent for 1999 trending to 5 percent over a five 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.
8. 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
have 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, 1999 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 27,692
shares at March 31, 1999 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 $708,000, $1,118,000 and $680,000 in 1999,
1998, and 1997, respectively. The cost of treasury stock for these awards was
$429,000, $502,000 and $346,000 in 1999, 1998 and 1997, 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, 1999,
4,493,841 shares had been granted under the 1996 long-term incentive plan, with
an additional grant of 87,355 shares made subject to shareholder approval of a
proposal to amend the Company's 1996 long-term incentive plan to increase the
number of shares authorized for issuance under the plan by 4,500,000 shares.
22
<PAGE>
Stock Options
Under the 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
$3,390,000 or $.08 per share in 1999, $1,940,000 or $.04 per share in 1998 and
$1,020,000 or $.02 per share in 1997. The weighted-average fair market value of
options granted was $7.71, $7.31 and $6.54 in 1999, 1998 and 1997, 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk-Free Interest Rate 4.9% 5.9% 6.4%
Expected Life 8 yrs. 8 yrs. 8 yrs.
Volatility 35.4% 36.3% 41.0%
Dividend Yield 1.1% 1.3% 1.5%
</TABLE>
A summary of the status of stock options granted under the plan as of March 31,
1999, 1998 and 1997 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- --------------------------
WEIGHTED-AVG. WEIGHTED-AVG. WEIGHTED-AVG.
OPTION EXERCISE OPTION EXERCISE OPTION EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding April 1 2,479,601 $ 14.70 1,432,220 $ 13.63 1,054,080 $ 13.75
Granted 1,192,542 17.77 1,047,381 16.16 549,860 13.43
Exercised -- -- -- -- -- --
Forfeited -- -- -- -- (171,720) 13.75
--------- --------- ---------
Outstanding March 31 3,672,143 $ 15.70 2,479,601 $ 14.70 1,432,220 $ 13.63
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table summarizes information about stock options outstanding at
March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- -------------------------------
RANGE OF NUMBER WEIGHTED-AVG. WEIGHTED-AVG. NUMBER WEIGHTED-AVG.
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 3/31/99 LIFE PRICE AT 3/31/99 PRICE
- ------------- --------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
$12.13 to
$19.69 3,672,143 8.6 years $ 15.70 1,212,855 $ 14.20
</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.
Award transactions for the past three years were:
<TABLE>
<CAPTION>
SHARES
-------------------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Cumulative Awards--Beginning of
Year 606,689 361,168 263,520
New Awards 302,364 245,521 172,800
Forfeited Awards -- -- (75,152)
------- ------- -------
Cumulative Awards--End of Year 909,053 606,689 361,168
------- ------- -------
------- ------- -------
</TABLE>
23
<PAGE>
The financial statements reflect the transfer of the awarded shares from
treasury stock as of the date of their issuance. Outstanding awards of 891,625
shares at March 31, 1999 will 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 award was $91,000 in 1997. The cost of treasury stock
for this award was $101,000 in 1997. 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.
9. ACQUISITIONS
At the beginning of fiscal 1999, the Company acquired the Femfresh line of
feminine hygiene products in England for approximately $3,600,000.
In February, 1999, the Company acquired the Barbara Gould line of skin care
products in France for approximately $15,100,000. Sales of this product line
will commence in the fiscal year beginning April 1, 1999.
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.
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.
10. SHORT-TERM INVESTMENTS
At March 31, 1999 and 1998, short-term investments were intended to be held to
maturity and have remaining maturities of less than one year. The amortized cost
approximated fair value. The amortized cost of certificates of deposit were
$12,977,000 and $23,768,000, respectively, in 1999 and 1998. The amortized cost
of commercial paper was $13,174,000 in 1999. In addition, included in 1999 and
1998 are Canadian government securities in the amount of $5,719,000 and
$2,058,000, respectively.
11. BUSINESS SEGMENTS (DOLLARS IN THOUSANDS)
The Company has adopted Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information." Adoption
of this statement has resulted in a change to the Company's reportable business
segments. Previously, the reportable business segments were Consumer Products
and Health Care. As a result of the adoption of this new standard, the
reportable business segments are Domestic Consumer Products, Domestic Health
Care and International. Prior year segment data is presented in the new format.
Domestic Consumer Products primarily include anti-perspirants and deodorants,
condoms, at-home pregnancy and ovulation test kits, hair removal products, tooth
whitening products and various pet 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 by the
Company's consumer products divisions.
Domestic Health Care products primarily include prescription pharmaceuticals as
well as professional diagnostic products. These products are promoted 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 by the Company's
health care products divisions.
International products primarily include consumer products such as
anti-perspirants and deodorants, condoms, at-home pregnancy and ovulation test
kits, skin care and oral hygiene products, as well as health care products such
as over the counter pharmaceuticals and diagnostic products. These products are
sold throughout the world by various subsidiaries and distributors.
International products include many of the same consumer and health care
products which are sold domestically, as well as certain consumer and health
care products which are sold exclusively in international markets.
24
<PAGE>
Some of the Company's domestic divisions sell to a small number of high volume
customers, the largest of which accounted for approximately 9.6% of consolidated
net sales during fiscal 1999.
<TABLE>
<CAPTION>
MARCH 31
---------------------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
--------- -------- --------
Sales
Domestic Consumer Products $ 283,228 $276,681 $270,916
Domestic Health Care 181,157 188,961 164,574
International 204,487 196,587 213,265
--------- -------- --------
Consolidated $ 668,872 $662,229 $648,755
--------- -------- --------
--------- -------- --------
Operating Profit
Domestic Consumer Products $ 44,807 $ 33,409 $ 32,938
Domestic Health Care 40,282 49,115 40,850
International 14,969 13,664 15,093
Domestic net interest expense (2,037) (2,044) (807)
Other (expense) net of other income (12,091) (7,606) (2,633)
General Corporate expenses (39,686) (41,783) (40,092)
--------- -------- --------
Earnings before taxes on income $ 46,244 $ 44,755 $ 45,349
--------- -------- --------
--------- -------- --------
Identifiable Assets
Domestic Consumer Products $ 211,776 $210,011 $219,761
Domestic Health Care 119,783 122,784 116,979
International 177,759 154,501 158,395
Corporate Assets 212,634 206,317 190,787
--------- -------- --------
Total Assets $ 721,952 $693,613 $685,922
--------- -------- --------
--------- -------- --------
Depreciation and Amortization
Domestic Consumer Products $ 10,805 $ 10,139 $ 9,172
Domestic Health Care 6,187 6,027 5,561
International 5,339 5,195 5,389
--------- -------- --------
Total Operating Segments $ 22,331 $ 21,361 $ 20,122
--------- -------- --------
--------- -------- --------
Capital Expenditures
Domestic Consumer Products $ 12,553 $ 8,038 $ 23,334
Domestic Health Care 1,678 4,094 2,876
International 2,838 3,102 3,626
--------- -------- --------
Total Operating Segments $ 17,069 $ 15,234 $ 29,836
--------- -------- --------
--------- -------- --------
</TABLE>
Corporate assets include principally cash and cash equivalents, short-term
investments, miscellaneous receivables, deferred taxes and other miscellaneous
assets.
25
<PAGE>
12. RENTAL EXPENSE AND LEASE COMMITMENTS (DOLLARS IN THOUSANDS)
Rental expense for operating leases with a term greater than one year for 1999,
1998 and 1997 was as follows:
<TABLE>
<CAPTION>
REAL PROPERTY
RENTAL REAL SUB-RENTAL NET REAL EQUIPMENT
EXPENSE PROPERTY INCOME PROPERTY AND OTHER
- --------------- -------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
1999 $ 8,021 $ (2,702) $ 5,319 $ 6,837
1998 8,056 (2,749) 5,307 6,615
1997 6,600 (1,640) 4,960 6,260
</TABLE>
The real property rental expense for 1999, 1998 and 1997 excludes approximately
$1,000, $900 and $2,200, 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, 1999 were as follows:
<TABLE>
<CAPTION>
REAL PROPERTY
MINIMUM RENTAL REAL SUB-RENTAL NET REAL EQUIPMENT CAPITAL LEASE
COMMITMENTS PROPERTY INCOME PROPERTY AND OTHER OBLIGATIONS
- --------------- -------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
2000 $ 9,222 $ (3,071) $ 6,151 $ 578 $ 496
2001 9,783 (3,154) 6,629 271 427
2002 9,122 (3,381) 5,741 75 373
2003 8,102 (3,381) 4,721 31 211
2004 7,465 (3,381) 4,084 4 168
2005-2012 55,071 (25,609) 29,462 -- 320
-------
1,995
Less interest and executory cost (342)
-------
Present value of minimum lease payments (of which $400 is included in current
liabilities) $ 1,653
-------
-------
</TABLE>
Included in the real property rental commitments indicated above is
approximately $15,100 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.
26
<PAGE>
13. SUPPLEMENTAL FINANCIAL INFORMATION
The following is presented in support of balance sheet captions:
<TABLE>
<CAPTION>
MARCH 31
--------------------------------
1999 1998
-------- --------
(dollars in thousands)
<S> <C> <C>
Intangible Assets:
Excess of purchase price of businesses acquired over the
net assets at date of acquisition $121,339 $120,348
Trademarks 48,714 29,090
Other 32,525 33,832
-------- --------
202,578 183,270
Accumulated amortization 66,189 58,728
-------- --------
$136,389 $124,542
-------- --------
-------- --------
Accounts Payable:
Trade $ 43,388 $ 31,943
Other 696 563
-------- --------
$ 44,084 $ 32,506
-------- --------
-------- --------
Accrued Expenses:
Salaries and wages $ 32,920 $ 30,388
Advertising and promotion 21,144 19,042
One-time charges 1,476 2,592
Retirement and related plans 15,411 14,794
Other 36,316 40,035
-------- --------
$107,267 $106,851
-------- --------
-------- --------
Other Long-Term Liabilities:
Retirement plans $ 17,181 $ 14,246
One-time charges 9,867 11,036
Other 11,674 8,726
-------- --------
$ 38,722 $ 34,008
-------- --------
-------- --------
</TABLE>
Income taxes paid were $21,959,000, $6,584,000 and $10,240,000 in 1999, 1998 and
1997 respectively. Interest paid was $4,527,000, $4,047,000 and $4,498,000 in
1999, 1998 and 1997, respectively.
14. LITIGATION INCLUDING ENVIRONMENTAL MATTER
Environmental Matter
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, the United States Environmental Protection Agency
("EPA") issued special notice letters under the Comprehensive Environmental
Response, Compensation and Liability Act to Lambert Kay and about 50 other
potentially responsible parties ("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 $157,000, which includes an allowance for insolvency or nonpayment of
other PRP's shares. To date the Company has paid or received credit for about
$140,000. 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 future
work
27
<PAGE>
at Barkhamsted, including the site investigation work, is estimated to be from
$6 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
$250,000 to $1,500,000. 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 environmental matter discussed above will not have a material effect on its
financial statements.
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, were dismissed by the District Court for
failure to state a claim upon which relief can be granted. The United States
Court of Appeals for the Second Circuit affirmed the dismissal on all claims
except those based on allegedly false statements in medical journal
advertisements. The Company then moved for judgment on the pleadings with
respect to those remaining claims. This motion is currently awaiting decision.
There are three pending product liability actions against the Company alleging
various adverse reactions and other injuries suffered as a result of using
Felbatol. Damages are alleged in these actions from unspecified amounts up to
$67,000,000. The Company believes it has adequate product liability insurance
with respect to these actions. While the Company also 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 claims and demands for relief. Plaintiffs in that
action have amended their complaint to seek class certification, which has not
been granted. There has been no activity in these cases since 1996.
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
28
<PAGE>
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. On
February 4, 1999 the Company, together with a majority of the defendants,
entered into an agreement to settle the consumer class actions, and the
settlement has been approved by the Court. This settlement did not have a
material adverse effect on the Company's financial statements.
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. Defendants filed a
motion for judgement on the pleadings on the ground that Alabama antitrust law
only applies to intrastate commerce. That motion was denied by the Circuit
Court, but granted by the Alabama Supreme Court on appeal. The Alabama Supreme
Court then ordered a rehearing after one Judge recused himself. No date has yet
been set for rehearing.
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. On December 17, 1998 the court stayed
this action pending proceedings in the Alabama Supreme Court in the retailer
class action litigation described above.
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.
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 parties are presently engaged in discovery. The Company believes it has good
defenses, under the terms of the purchase agreement, to Tambrands' claim.
29
<PAGE>
15. 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
--------------------------------------------------
1999 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 TOTAL YEAR
- ---- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $169,662 $169,169 $162,241 $167,800 $668,872
Gross margin 106,247 102,402 99,517 107,259 415,425
Net earnings 9,493 5,916 7,839 4,961 28,209
Earnings per share--basic and
diluted .21 .13 .17 .11 .62
1998
- ----
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
</TABLE>
16. FELBATOL (FELBAMATE)
As previously reported, in the years ended March 31, 1995 and 1996 the Company
incurred one-time charges to pre-tax earnings totaling $45,980,000 related to
use restrictions for Felbatol. Depending on future sales levels, additional
inventory write-offs may be required. If for any reason the product at some
future date should no longer be available in the market, the Company will incur
an additional one-time charge, consisting primarily of inventory write-offs and
anticipated returns of product currently in the market, in the range of
$20,000,000 on a pre-tax basis.
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
[KPMG LOGO]
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, 1999 and 1998, and the related
consolidated statements of earnings, retained earnings and comprehensive
earnings, and cash flows, for each of the years in the three-year period ended
March 31, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1999, in conformity with generally accepted accounting
principles.
May 5, 1999
31
<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.
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.
James C. Costin, M.D.
Vice President, Medical and Scientific Affairs
Donald R. Daoust, Ph.D.
Vice President, Quality Control
Thomas G. Gerstmyer
Vice President, Pharmaceuticals, U.S.
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
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
Thomas G. Gerstmyer, President, Wallace Laboratories
Adrian J. L. Huns, President, International
Michael J. Kopec, President, Manufacturing
Thomas M. McShane, President, Lambert Kay
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)
Alan 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)
32
<PAGE>
Printed in U.S.A.
<PAGE>
CARTER-WALLACE, INC.
1345 Avenue of the Americas
New York, NY 10105
Carter-Wallace, Inc.
1996 Long-Term Incentive Plan
(As Amended Effective May 20, 1999*)
1. Purpose. The purpose of this Carter-Wallace, Inc. 1996 Long-Term
Incentive Plan (the "Plan") is to advance the interests of Carter-Wallace, Inc.
(the "Company") and its shareholders by providing corporate officers of the
Company with a larger personal and financial interest in the success of the
Company through the grant of stock-based incentive compensation.
2. Administration. The Plan shall be administered by a committee (the
"Committee") consisting of at least two members of the Board of Directors of the
Company (the "Board"). The Committee shall be constituted in such a manner as to
satisfy the requirements of applicable law, the provisions of Rule 16b-3 under
the Securities Exchange Act of 1934 (the "Exchange Act") or any successor rule,
and the provisions of Section 162(m)(4)(C)(i) of the Internal Revenue Code of
1986, as amended (the "Code"). The Committee shall be appointed, and vacancies
shall be filled, by the Board. The Committee shall have full power and authority
to (i) select the individuals to whom awards may be granted under the Plan; (ii)
determine the amount of each award and the terms and conditions, not
inconsistent with the provisions of the Plan, governing such award; (iii)
interpret the Plan and any award granted thereunder; (iv) establish such rules
and regulations as it deems appropriate for the administration of the Plan; and
(v) take such other action as it deems necessary or desirable for the
administration of the Plan. Any action of the Committee with respect to the
administration of the Plan shall be taken by majority vote. The Committee's
interpretation and construction of any provision of the Plan or the terms of any
award shall be conclusive and binding on all parties.
3. Participants. Awards may be granted under the Plan to any employee,
whether or not a director, who is a corporate officer of the Company.
4. The Shares. The shares that may be delivered or purchased under the
Plan shall not exceed an aggregate of 9,000,000 shares* (subject to adjustment
pursuant to Section 11) of common stock, par value $1 per share, of the Company
(the "Common Stock"). Such shares of Common Stock may be set aside out of the
authorized but unissued shares of Common Stock not reserved for any other
purpose or out of previously issued shares acquired by the Company and held in
its treasury. Any shares of Common Stock which, by reason of the termination,
expiration, or forfeiture of an award or otherwise, are no longer subject to an
award granted under the Plan may again be subjected to an award under the Plan.
5. Awards. Awards under the Plan shall consist of Options, Restricted
Stock, Deferred Stock or a combination of the foregoing.
* The increase in the number of shares that may be delivered under the Plan from
4,500,000 shares to 9,000,000 shares is subject to approval of stockholders at
the 1999 Annual Meeting to be held on July 20, 1999.
<PAGE>
6. Options. Options to purchase Common Stock ("Options") shall be
evidenced by option agreements which shall be subject to the terms and
conditions set forth in the Plan and such other terms and conditions not
inconsistent herewith as the Committee may approve.
(a) Types of Options. Options granted under the Plan shall, as
determined by the Committee at the time of grant, be either Options
intended to qualify as incentive stock options under Section 422 of the
Code ("Incentive Stock Options") or Options not intended to so qualify
("Nonstatutory Stock Options"). Each option agreement shall identify the
Option as an Incentive Stock Option or as a Nonstatutory Stock Option.
(b) Price. The price at which shares of Common Stock may be
purchased upon the exercise of an Option granted under the Plan shall be
the fair market value of such shares on the date of grant of such
Option; provided, however, that an Incentive Stock Option granted to an
employee who owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company shall have a
purchase price for the underlying shares equal to 110% of the fair
market value of the Common Stock on the date of grant.
For purposes of the Plan, the fair market value of a share of
Common Stock on a specified date shall be the closing price on such date
of the Common Stock on the New York Stock Exchange or, if no such sale
of Common Stock occurs on such date, the fair market value of the Common
Stock as determined by the Committee in good faith.
(c) Per-Participant Limit. No participant may be granted Options
during any consecutive 60-month period on more than 1,000,000 shares of
Common Stock (subject to adjustment pursuant to Section 11).
(d) Limitation on Incentive Stock Options. The aggregate fair
market value (determined on the date of grant) of Common Stock for which
a participant is granted Incentive Stock Options that first become
exercisable during any given calendar year shall be limited to $100,000.
To the extent such limitation is exceeded, an Option shall be treated as
a Nonstatutory Stock Option.
(e) Nontransferability. Options granted under the Plan shall not
be transferable other than by will or by the laws of descent and
distribution, and, during a participant's lifetime, shall be exercisable
only by the participant. Notwithstanding the foregoing, a participant
may transfer any Nonstatutory Option granted under the Plan to the
participant's spouse, children and/or grandchildren, or to one or more
trusts for the benefit of such family members, if the agreement
evidencing such Option so provides and the participant does not receive
any consideration for the transfer. Any Option so transferred shall
continue to be subject to the same terms and conditions that applied to
such Option immediately prior to its transfer (except that such
transferred Option shall not be further transferable by the transferee
during the transferee's lifetime).
(f) Term and Exercisability of Options. Options may be granted for
terms of not more than 10 years and shall be exercisable in accordance
with such terms and conditions as are set forth in the option agreements
evidencing the grant of such Options. In no event shall an Incentive
Stock Option granted to an employee who owns stock possessing more than
10% of the total combined voting power of all classes of stock of the
Company be exercisable after the expiration of five years from the date
such Incentive Stock Option is granted.
<PAGE>
(g) Termination of Employment. An Option may not be exercised
following a participant's termination of employment except as set forth
in this Section 6(g).
(i) Retirement, Death, or Disability. If a participant's
employment terminates by reason of retirement at any time after
first becoming eligible to elect an immediate retirement benefit
under the Company's pension plan, or by reason of death or
permanent disability (within the meaning of Section 22(e)(3) of
the Code), the participant's Options may be exercised at any time
prior to their expiration with respect to all shares of Common
Stock subject thereto (whether or not the right of exercise had
accrued at the time of termination of employment).
(ii) Termination for Cause. No Options may be exercised
following a participant's termination of employment by the Company
for Cause. For purposes of the Plan, "Cause" shall mean theft,
conviction of a felony, insubordination, breach of any
non-competition or confidentiality covenant contained in an
employment agreement between the participant and the Company,
habitual drunkenness, or excessive absenteeism not related to
illness.
(iii) Other Circumstances. If a participant's employment
terminates under circumstances not described in clause (i) or (ii)
above, such participant's Options may only be exercised within
three months following the date of such termination and with
respect only to such number of shares as to which the right of
exercise had accrued at the time of termination of employment.
Notwithstanding the foregoing, in individual instances the Board or the
Committee may, in its discretion, waive or modify the foregoing vesting
and exercisability restrictions applicable following a participant's
termination of employment.
In no event may an Option be exercised after the expiration of the term
of such Option. Except in the event of a participant's death, an
Incentive Stock Option exercised more than three months (one year if the
participant is permanently disabled) following the participant's
termination of employment will be treated as a Nonstatutory Stock
Option.
(h) Payment. Full payment of the purchase price for shares of
Common Stock purchased upon the exercise, in whole or in part, of an
Option granted under the Plan shall be made at the time of such
exercise. The purchase price may be paid in cash or in shares of Common
Stock valued at their fair market value on the date of purchase.
Alternatively, an Option may be exercised in whole or in part by
delivering a properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Company the amount
of sale or loan proceeds necessary to pay the purchase price and
applicable withholding taxes, and such other documents as the Committee
may determine.
<PAGE>
7. Restricted Stock. Restricted Stock shall be evidenced by restricted
stock agreements which shall be subject to the terms and conditions set forth in
the Plan and such other terms and conditions not inconsistent herewith as the
Committee may approve.
(a) Awards and Certificates. As a condition to receiving any
Restricted Stock award, the participant shall execute an agreement
evidencing the award and reflecting the conditions imposed upon such
award. The Company shall issue a certificate in respect of the shares of
Common Stock covered by each Restricted Stock award. Such certificate
shall be registered in the name of the Company, which shall hold it on
behalf of the participant as the beneficial owner thereof pending the
vesting or forfeiture of such Restricted Stock, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such award. Upon the vesting of the Restricted Stock
award, a new certificate for the shares of Common Stock covered by the
award shall be issued in the name of the Participant.
(b) Rights as Shareholder. Except as otherwise provided in this
Section 7, a participant shall have, with respect to shares of
Restricted Stock, all of the rights of a shareholder of the Company,
other than the right to vote shares. Cash dividends paid with respect to
shares of Restricted Stock shall be deferred and shall be paid to the
participant, without any interest thereon and less any amounts due to
the Company, upon the vesting of such Restricted Stock.
(c) Vesting of Restricted Stock. Except as otherwise provided in
this Section 7 and in Section 9, Restricted Stock shall vest only at the
end of the four-year period commencing with the date of such award, and
only if the participant shall have remained employed by the Company
throughout such period. Prior to the vesting of shares of Restricted
Stock, the participant shall not be permitted to sell, transfer, pledge,
or assign such shares of the Restricted Stock, and any attempt to so
sell, transfer, pledge, or assign such shares shall be ineffective.
(i) Retirement, Death or Disability. If a participant's
employment terminates by reason of retirement at any time after
first becoming eligible to elect an immediate retirement benefit
under the Company's pension plan, or by reason of death or
permanent disability (within the meaning of Section 22(e)(3) of
the Code), the participant's Restricted Stock shall immediately
vest.
(ii) Voluntary Termination or Termination for Cause. If a
participant not described in clause (i) voluntarily terminates
employment, or if such participant's employment is terminated
by the Company for Cause, any shares of Restricted Stock held
by the participant shall be forfeited.
(iii) Other Circumstances. If a participant's employment
terminates under circumstances not described in clause (i) or (ii)
above, any Restricted Stock award held by such participant shall
vest with respect to a number of shares determined by multiplying
the total number of shares covered by the Restricted Stock
award by a fraction, the numerator of which is equal to the
number of days from the date of the award to the date of
termination, and the denominator of which is 1,461; any
remaining shares of Restricted Stock shall be forfeited.
<PAGE>
For purposes hereof, any fraction of a share shall be disregarded and
restrictions shall lapse on Restricted Stock in accordance with the
foregoing to the nearest whole number of shares.
Notwithstanding the foregoing, in individual instances the Board or the
Committee may, in its discretion, waive or modify the foregoing vesting
restrictions applicable following a participant's termination of
employment.
8. Deferred Stock. Deferred Stock, representing the Company's
unfunded promise to transfer shares of Common Stock in the future, shall
be evidenced by deferred stock agreements which shall be subject to the
terms and conditions set forth in the Plan and such other terms and
conditions not inconsistent herewith as the Committee may approve. A
participant shall have no rights with respect to Deferred Stock that are
greater than those of a general creditor of the Company.
(a) Awards and Certificates. As a condition to receiving
any Deferred Stock award, the participant shall execute an
agreement evidencing the award and reflecting the conditions
imposed upon such award. Upon the vesting of a Deferred Stock
award, the participant shall be issued a stock certificate for a
number of shares of Common Stock equal to the number of shares of
Deferred Stock.
(b) Deferred Dividends. An amount equal to any cash
dividends paid with respect to the number of shares of Common
Stock covered by a deferred stock award shall be paid to the
participant, without any interest thereon and less any amounts due
to the Company, upon the vesting of such Deferred Stock.
(c) Vesting of Deferred Stock. Except as otherwise provided
in this Section 8 and in Section 9, Deferred Stock shall vest only
at the end of the four-year period commencing with the date of
such award and only if the participant shall have remained
employed by the Company throughout such period. Prior to the
vesting of shares of Deferred Stock, the participant shall not be
permitted to sell, transfer, pledge, or assign such Deferred
Stock, and any attempt to so sell, transfer, pledge, or assign
such Deferred Stock shall be ineffective.
(i) Retirement, Death, or Disability. If a
participant's employment terminates by reason of retirement
at any time after first becoming eligible to elect an
immediate retirement benefit under the Company's pension
plan, or by reason of death or permanent disability (within
the meaning of Section 22(e)(3) of the Code), the
participant's Deferred Stock shall immediately vest.
(ii) Voluntary Termination or Termination for Cause.
If a participant not described in clause (i) voluntarily
terminates employment, or if such participant's employment
is terminated by the Company for Cause, any Deferred Stock
held by the participant shall be forfeited.
<PAGE>
(iii) Other Circumstances. If a participant's
employment terminates under circumstances not described in
clause (i) or (ii) above, any Deferred Stock award held by
such participant shall vest with respect to a number of
shares determined by multiplying the total number of shares
covered by the Deferred Stock award by a fraction, the
numerator of which is equal to the number of days from the
date of the award to the date of termination, and the
denominator of which is 1,461; any remaining shares of
Deferred Stock shall be forfeited.
For purposes hereof, any fraction of a share shall be disregarded and
restrictions shall lapse on Deferred Stock in accordance with the
foregoing to the nearest whole number of shares.
Notwithstanding the foregoing, in individual instances the Board or the
Committee may, in its discretion, waive or modify the foregoing vesting
restrictions applicable following a participant's termination of
employment.
9. Change in Control. In the event of a Change in Control (as
defined in Section 9(c)), the provisions of this Section 9 shall apply
notwithstanding any contrary provision in the Plan.
(a) Options. Upon the occurrence of a Change in Control,
each outstanding Option shall become immediately exercisable, and
upon a participant's termination of employment following such
Change in Control any Option held by such participant shall remain
exercisable for the balance of its term. Upon the exercise of an
Option within one year after the occurrence of a Change in
Control, the participant shall be entitled to receive, in addition
to the shares of Common Stock thereby purchased, a cash payment
equal to the excess of (i) the aggregate Change in Control Price
(as defined in Section 9(d)) of the number of shares of Common
Stock purchased upon such exercise (or which would have been so
purchased but for the substitution or addition of other shares or
securities pursuant to Section 11) over (ii) the fair market value
on the date of exercise of the shares of Common Stock (or other
securities) purchased upon such exercise.
(b) Restricted Stock and Deferred Stock. Upon the
occurrence of a Change in Control, any outstanding awards of
Restricted Stock or Deferred Stock shall become fully vested.
(c) Change in Control Defined. For purposes of this Plan, a
Change in Control shall be deemed to have occurred if:
(i) any Person (other than the Company, the Hoyt
family, any trustee or other fiduciary holding securities
under any employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders
of the Company immediately prior to the occurrence with
respect to which the evaluation is being made in
substantially the same proportions as their ownership of
the common stock of the Company) becomes the Beneficial
Owner (except that a Person shall be deemed to be the
Beneficial Owner of all shares that any such Person has the
right to acquire pursuant to any agreement or arrangement
or upon exercise of conversion rights, warrants or options
or otherwise, without regard to the sixty day period
referred to in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company or any
Significant Subsidiary (as defined below), representing 25%
or more of the combined voting power of the Company's or
such Subsidiary's then outstanding securities; provided,
however, that such event shall not constitute a Change in
Control unless or until the percentage of such securities
owned beneficially, directly or indirectly, by such Person
is equal to or more than all such securities owned
beneficially, directly or indirectly, by the Hoyt Family;
<PAGE>
(ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute
the Board, and any new director (other than a director
designated by a person who has entered into an agreement
with the Company to effect a transaction described in
clause (i), (iii) or (iv) of this paragraph) whose election
by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds
of the directors then still in office who either were
directors at the beginning of the two-year period or whose
election or nomination for election was previously so
approved but excluding for this purpose any such new
director whose initial assumption of office occurs as a
result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on
behalf of an individual, corporation, partnership, group,
associate or other entity or Person other than the Board,
cease for any reason to constitute at least a majority of
the Board; provided, however, that such event shall not
constitute a Change in Control unless or until the
percentage of voting securities of the Company owned
beneficially, directly or indirectly, by the Hoyt Family is
less than 50% of all such outstanding securities;
(iii) the consummation of a merger or consolidation of
the Company or any subsidiary or subsidiaries owning
directly or indirectly all or substantially all of the
consolidated assets of the Company (individually and
collectively, a "Significant Subsidiary") with any other
entity, other than a merger or consolidation which would
result in the voting securities of the Company or a
Significant Subsidiary outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving or resulting entity) more than 50% of the
combined voting power of the surviving or resulting entity
outstanding immediately after such merger or consolidation;
(iv) the stockholders of the Company approve a plan or
agreement for the sale or disposition of all or
substantially all of the consolidated assets of the Company
(other than such a sale or disposition immediately after
which such assets will be owned directly or indirectly by
the stockholders of the Company in substantially the same
proportions as their ownership of the common stock of the
Company immediately prior to such sale or disposition), in
which case the Board shall determine the effective date of
the Change in Control resulting therefrom; or
<PAGE>
(v) any other event occurs which the Board determines,
in its discretion, would materially alter the structure of
the Company or its ownership.
For purposes of this definition:
(A) The term "Beneficial Owner" shall have the meaning
ascribed to such term in Rule 13d-3 under the Exchange Act
(including any successor to such Rule).
(B) The term "Person" shall have the meaning ascribed
to such term in Section 3(a)(9) of the Exchange Act and
used in Sections 13(d) and 14(d) thereof, including "group"
as defined in Section 13(d) thereof.
(C) The term the "Hoyt Family" shall mean the family
of Henry H. Hoyt, Sr., his descendants, and members of such
descendants' families.
(d) Change in Control Price. The "Change in Control Price"
shall mean the highest price per share paid in any transaction
reported on the New York Stock Exchange Composite Index, or paid
or offered in any bona fide transaction related directly, or in
any way indirectly, to a Change in Control, at any time during the
six-month period immediately preceding the occurrence of the
Change in Control.
10. Withholding. No later than the date as of which an amount
first becomes includible in the gross income of a participant for
Federal income tax purposes with respect to any award under the Plan,
the participant shall pay to the Company, or make arrangement
satisfactory to the Committee regarding the payment of, any Federal,
state, or local taxes required by law to be withheld with respect to
such amount. Unless otherwise determined by the Committee, withholding
obligations may be settled with Common Stock, including Common Stock
that is part of the award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company shall, to
the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind due to the participant. Any election made
by a participant subject to Section 16(b) of the Exchange Act to have
shares of Common Stock withheld in satisfaction of the withholding
requirement with respect to such participant's award shall be subject to
the approval of the Committee and shall be in accordance with the
requirements of Rule 16b-3 under such Act.
11. Changes in Capital Structure, etc. In the event of any change
in the outstanding Common Stock by reason of any stock dividend, stock
split, combination of shares, recapitalization, or other similar change
in the capital stock of the Company, or in the event of the merger or
consolidation of the Company into or with any other corporation or the
reorganization of the Company, the number of shares covered by each
outstanding award granted under the Plan, the option price per share of
each Option granted under the Plan, the total number of shares for which
awards may be granted under the Plan, and the maximum number of shares
for which Options may be granted to a single participant, shall be
appropriately adjusted by the Board to preserve the value of the award.
<PAGE>
12. Effective Date and Termination of Plan. The Plan shall become
effective on the date of its adoption by the Board, subject to the
ratification of the Plan by the affirmative vote or consent of holders
of a majority of the issued and outstanding shares of Common Stock. The
Plan shall terminate 10 years from the date of its adoption or such
earlier date as the Board may determine. Any award outstanding under the
Plan at the time of its termination shall remain in effect in accordance
with its terms and conditions and those of the Plan.
13. Amendment. The Board may amend the Plan in any respect from
time to time; provided, however, that no amendment shall become
effective unless approved by affirmative vote of the Company's
shareholders if such approval is necessary for the continued validity of
the Plan or if the failure to obtain such approval would adversely
affect the compliance of the Plan with Rule 16b-3 under the Exchange Act
or any other rule or regulation. No amendment may, without the consent
of a participant, impair such participant's rights under any award
previously granted under the Plan. The Committee may, with a
participant's consent, substitute a deferred stock award for a
previously granted restricted stock award, or a restricted stock award
for a previously granted deferred stock award, provided in either case
that both the award being substituted and the original award cover the
same number of shares of Common Stock and vest on the same date.
14. Legal and Regulatory Requirements. No Option shall be
exercisable and no shares will be delivered under the Plan except in
compliance with all applicable federal and state laws and regulations
including, without limitation, compliance with withholding tax
requirements and with the rules of all domestic stock exchanges on which
the Common Stock may be listed. Any share certificate issued to evidence
shares for which an Option is exercised may bear such legends and
statements as the Committee shall deem advisable to assure compliance
with federal and state laws and regulations. No Option shall be
exercisable, and no shares shall be delivered under the Plan, until the
Company has obtained consent or approval from regulatory bodies, federal
or state, having jurisdiction over such matters as the Committee may
deem advisable.
15. General Provisions.
(a) Nothing contained in the Plan, or in any award granted
pursuant to the Plan, shall confer upon any employee any right to the
continuation of the employee's employment or services.
(b) Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of
New York.
<PAGE>
Exhibit 10.21
September 14, 1998
Ms. T. Rosie Albright
85 Mayapple Road
Stamford, Connecticut 06903
Dear Rosie:
Carter-Wallace, Inc. (the "Company") recognizes that your contribution
to the success of the Company has been substantial and wishes to reinforce and
encourage your continued attention and dedication to your assigned duties
without distraction by entering into compensation arrangements with you that
will provide you with additional financial security to that provided in your
current employment arrangement set forth in the Executive Employment Agreement,
dated as of September 11, 1996, between the Company and you (the "Existing
Agreement") in the event of a pending or threatened Change in Control (as
defined below). In order to accomplish these objectives, the Company has entered
into this letter agreement (the "Agreement").
1. Certain Definitions.
(a) "Cause" shall mean (i) the willful and material breach of Sections
5 or 6 of this Agreement by you; (ii) your conviction of a felony; or (iii) your
engagement in conduct that constitutes willful gross neglect or willful gross
misconduct in carrying out your 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 your part
shall be considered "willful" if it was done or omitted to be done by you not in
good faith, and shall not include any act or failure to act resulting from any
incapacity of you. Notwithstanding the foregoing, a termination for "cause"
shall not take effect unless you have been given written notice by the Company
of its intention to terminate you 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. You shall have 20 days after the date that such written notice
has been given to you in which to cure such conduct, to the extent such cure is
possible. If you fail to cure such conduct, you shall then be entitled to a
hearing before the Board of Directors of the Company (the "Board") at which you
and your counsel are entitled to appear. Such hearing shall be held within 25
days of such notice to you, provided you request such hearing within 10 days of
the written notice from the Company of the intention to terminate you for
"cause". If, within five days following such hearing, you are furnished written
notice by the Board confirming that, in its judgment, grounds for "cause" on the
basis of the original notice exist, you shall thereupon be terminated for
"cause."
<PAGE>
(b) A "Change in Control" shall be deemed to have occurred if:
(i) any Person (other than the Company, the Hoyt family, any
trustee or other fiduciary holding securities under any employee
benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company immediately prior to the
occurrence with respect to which the evaluation is being made in
substantially the same proportions as their ownership of the common
stock of the Company) becomes the Beneficial Owner (except that a
Person shall be deemed to be the Beneficial Owner of all shares that
any such Person has the right to acquire pursuant to any agreement or
arrangement or upon exercise of conversion rights, warrants or options
or otherwise, without regard to the sixty day period referred to in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company or any Significant Subsidiary (as defined
below), representing 25% or more of the combined voting power of the
Company's or such Subsidiary's then outstanding securities; provided,
however, that such event shall not constitute a Change in Control
unless or until the percentage of such securities owned beneficially,
directly or indirectly, by such Person is equal to or more than all
such securities owned beneficially, directly or indirectly, by the Hoyt
Family;
(ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in
clause (i), (iii) or (iv) of this paragraph) whose election by the
Board or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still
in office who either were directors at the beginning of the two-year
period or whose election or nomination for election was previously so
approved but excluding for this purpose any such new director whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of an
individual, corporation, partnership, group, associate or other entity
or Person other than the Board, cease for any reason to constitute at
least a majority of the Board; provided, however, that such event shall
not constitute a Change in Control unless or until the percentage of
voting securities of the Company owned beneficially, directly or
indirectly, by the Hoyt Family is less than 50% of all such outstanding
securities;
(iii) the consummation of a merger or consolidation of the
Company or any subsidiary or subsidiaries owning directly or indirectly
all or substantially all of the consolidated assets of the Company
(individually and collectively, a "Significant Subsidiary") with any
other entity, other than a merger or consolidation which would result
in the voting securities of the Company or a Significant Subsidiary
outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving or resulting entity) more than 50% of the combined
voting power of the surviving or resulting entity outstanding
immediately after such merger or consolidation;
(iv) the stockholders of the Company approve a plan or
agreement for the sale or disposition of all or substantially all of
the consolidated assets of the Company (other
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than such a sale or disposition immediately after which such assets
will be owned directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of the common
stock of the Company immediately prior to such sale or disposition), in
which case the Board shall determine the effective date of the Change
in Control resulting therefrom; or
(v) any other event occurs which the Board determines, in its
discretion, would materially alter the structure of the Company or its
ownership.
For purposes of this definition:
(A) The term "Beneficial Owner" shall
have the meaning ascribed to such
term in Rule 13d-3 under the
Exchange Act (including any
successor to such Rule).
(B) The term "Exchange Act" means the
Securities Exchange Act of 1934, as
amended from time to time, or any
successor act thereto.
(C) The term "Person" shall have the
meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act
and used in Sections 13(d) and 14(d)
thereof, including "group" as
defined in Section 13(d) thereof.
(D) The term the "Hoyt Family" shall
mean the family of Henry H. Hoyt,
Sr., his descendants, and members of
such descendants' families.
(c) The "Effective Date" shall be the date on which a Change in Control
occurs; provided, however, that if your employment with the Company is
terminated prior to the date on which a Change in Control occurs and it is
reasonably demonstrated that such termination was at the request of a third
party that has taken steps reasonably calculated to effect a Change in Control
or otherwise arose in connection with or anticipation of a Change in Control,
then for all purposes of this Agreement the "Effective Date" shall be the date
immediately prior to the date of such termination.
(d) "Good Reason" shall mean (i) the assignment to you of any duties
inconsistent in any respect with your position (including status, offices,
titles and reporting relationships), authority, duties or responsibilities as
contemplated by Section 3(a) 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 you; (ii) the transfer or
attempted assignment of you without your consent to a location outside the area
described in Section 3(a)(ii) of this Agreement or the assignment to you of
duties that require that you be absent from such location on business for more
than the average number of days of business-related travel in the preceding
three fiscal years; or (iii) any failure of the Company to comply with and
satisfy Section 10(c) of this Agreement or any other material breach of this
Agreement by the Company.
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2. Employment Period. The period commencing on the Effective Date and
ending on the second anniversary of such date or on such earlier date of
termination as provided herein shall be referred to herein as the "Employment
Period". The Company hereby agrees to continue you in its employ, and you hereby
agree to remain in the employ of the Company, during the Employment Period.
3. Terms of Employment.
(a) Position and Duties. During the Employment Period, (i) your
position, status, authority, duties and responsibilities shall be at least equal
to those of the position held by you immediately prior to the Effective Date and
(ii) your services shall be performed at the location where you were employed
immediately preceding the Effective Date or any office or location less than
twenty-five (25) miles from such location. During the Employment Period, you
agree to devote your best efforts to the service of the Company and the
performance of such duties and responsibilities.
(b) Compensation.
(i) Base Salary. During the Employment Period, you shall
receive a base salary ("Base Salary") at an annual rate at least equal
to the highest annual base salary paid to you by the Company with
respect to any of the three fiscal years immediately preceding the year
in which the Effective Date occurs or, if greater, the base salary in
effect for the year in which the Effective Date occurs.
(ii) Annual Bonus. In addition to Base Salary, you shall be
awarded, for each fiscal year during the Employment Period, an annual
bonus (an "Annual Bonus") in cash at least equal to the greater of (x)
the highest bonus earned by you in any of the three fiscal years
immediately preceding the fiscal year in which the Effective Date
occurs and (y) the target bonus (based on the assumed attainment of
100% of the performance objectives) for the fiscal year in which the
Effective Date occurs.
(iii) Benefit Plans. During the Employment Period, you and
your family shall be entitled to participate in, on a basis consistent
with your position with the Company, and shall receive benefits under
plans, practices, policies and programs provided by the Company
(including, without limitation, retirement, pension, profit sharing,
stock option and long-term incentive plans, and death and life
insurance benefits and medical insurance programs) at least as
favorable as the most favorable of such plans, practices, policies and
programs in effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable, as in effect from
time to time thereafter with respect to senior executives of the
Company and their families. In the case of a retirement on or after the
Effective Date, all of your then outstanding options to purchase common
stock of the Company shall become immediately vested and exercisable
for the remaining term of the option and all of your then outstanding
restricted and deferred stock grants relating to common stock of the
Company shall become immediately vested. For purposes of this
Agreement, "retire" or "retirement" shall mean your voluntary
termination of employment with the Company after attaining age 65 or,
if earlier, the date which you are eligible to terminate employment
with the
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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.
(iv) Vacation. During the Employment Period, you shall be
entitled to paid vacation in accordance with your highest paid vacation
allowance in effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable, as in effect from
time to time thereafter with respect to other senior executives of the
Company.
4. Obligations of the Company upon Termination.
If, during the Employment Period, the Company shall terminate your
employment other than for Cause, or if you shall terminate your employment for
Good Reason:
(a) Lump-Sum Payment. The Company shall pay to you in a lump sum in
cash within 7 days after the date of termination the aggregate of the following
amounts:
(i) The full amount due to you 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 accrued vacation pay;
(ii) Two times your Final Compensation. For purposes of this
Agreement, Final Compensation means the sum of (A) your annual base
salary as in effect immediately prior to such termination and (B) the
greater of (x) the highest bonus earned by you 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 year in which the termination occurs; and
(iii) An amount equal to the increase in the lump-sum benefit
to which you would be entitled under the Carter-Wallace, Inc. Executive
Pension Benefits Plan (assuming for this purpose that you had elected a
lump-sum benefit payable upon your termination) if the calculation of
the gross benefit thereunder (but not of any offset amounts) were
modified by (A) increasing your number of years of benefit service by
three, (B) substituting your Final Compensation for your "Modified
Average Compensation" in the benefit formula and (C) treating such
gross benefit as fully vested.
Notwithstanding the foregoing, the aggregate lump-sum payment made pursuant to
clauses (ii) and (iii) above shall in no event be less than $1,000,000.
(b) Pro-Rated Bonus. As soon as practicable following the end of the
fiscal year in which the termination of your employment occurs, the Company
shall pay to you a pro-rated bonus reflecting the number of months (treating any
partial month as a full month for this purpose) in such fiscal year during which
you were employed.
(c) Welfare Benefits. For two years following the termination of your
employment, or such longer period as any plan, program, practice or policy may
provide, the Company shall continue benefits to you and/or your family at least
equal to those which would have been
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provided in accordance with the welfare benefit plans, programs, practices and
policies of the Company if your 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 Effective Date 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, you shall be considered to have remained employed until the end of the
Employment Period and to have retired on the last day of such period.
(d) Stock Options and Awards. All of your then outstanding options to
purchase common stock of the Company shall become immediately vested and
exercisable for the remaining term of the option and all of your then
outstanding restricted and deferred stock grants relating to common stock of the
Company shall become immediately vested.
(e) Outplacement. The Company agrees to provide you with reasonable
outplacement assistance through the Company's Human Resources Department. The
Company further agrees to reimburse you for reasonable job search expenses. All
job search expenses in excess of one hundred dollars ($100.00) are subject to
prior approval by the Company.
(f) Release. You agree, as a condition to receipt of the termination
payments and benefits provided for in this Section 4, that you will execute a
release agreement, in a form reasonably satisfactory to the Company and you,
releasing any and all claims arising out of your employment (other than
enforcement of this Agreement, your rights under any of the Company's incentive
compensation and employee benefit plans and programs to which you are entitled
under this Agreement or otherwise, and any claim for any tort for personal
injury not arising out of or related to your termination of employment).
5. Covenant Not to Compete; Nonsolicitation.
(a) Except with the prior written consent of the Company authorized by
a resolution adopted by the Board, while employed by the Company, you will not,
and will not permit any corporation, partnership or other business entity in
which you have 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 you 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 5.
(b) While employed by the Company and for a period of one year after
the termination of your employment for any reason, you 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 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.
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6. Secrecy; Nondisparagement.
(a) You recognize and acknowledge 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. You will not, while employed by the Company 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) You agree that you will not make any disparaging statements about
the Company or the directors, officers or employees of the Company; provided
that this Section 6(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 your truthful statements or
disclosures to officers or directors of the Company, and shall not require you
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 you; provided that this Section 6(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 you, and shall not
require false statements or disclosures to be made.
7. Excise Tax Gross-Up. If you become 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 7, 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 you at the time specified below an additional amount (the "Gross-Up
Payment") such that the net amount retained by you, 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 your 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 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 you ("Independent Advisors"), the Total Payments do
not
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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.
For purposes of determining the amount of the Gross-Up Payment, you
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 your 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 your
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 to you 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, you 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 you are a
party (a "Final Determination"), to be less than the amount taken into account
hereunder at the time the Gross-Up Payment is made, you 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 you or otherwise realized as a
benefit by you), 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
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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 you shall be entitled
to settle or contest any other issue raised by the Internal Revenue Service or
any other taxing authority. You 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.
8. Relationship to Existing Agreement. The Existing Agreement shall
remain in full force and effect unless and until the Effective Date occurs, at
which time the provisions of the Existing Agreement shall be superseded by the
provisions of this Agreement during the Employment Period. In the event you
remain in the employ of the Company at the second anniversary of the Effective
Date and such date is prior to December 3, 2000, the Existing Agreement shall be
reinstated and the provisions thereof shall be in full force and effect as
provided therein.
9. Remedies. In the event of a breach or threatened breach by you of
the provisions of Section 5 or Section 6 of this Agreement, the Company shall be
entitled to seek an injunction restraining you from violating either of said
provisions, or any other remedy, including the recovery of damages from you. If
you shall breach any of the provisions of Section 5 or Section 6 of this
Agreement, nothing herein shall be construed as preventing the Company from
withholding any payment or payments required to be made hereunder to you.
10. Assistance in Litigation. You 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.
11. Successors.
(a) This Agreement is personal to you and, without the prior written
consent of the Company, shall not be assignable by you otherwise than by will or
the laws of descent and distribution. This Agreement shall inure to the benefit
of and be enforceable by your 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
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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.
12. 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 you,
at your address set forth above, unless another address has been given to the
other party hereto in writing.
13. 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 your employment
with the Company. 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.
14. 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.
15. Other Benefits. Nothing in this Agreement shall be interpreted as
reducing or eliminating any benefits to which you or your beneficiaries are
entitled, without regard to this Agreement, under any plan or program of the
Company other than the Existing Agreement following a termination of employment
for any reason.
16. No Duty to Mitigate. In the event of any termination of employment
under Section 4 of this Agreement, you shall be under no obligation to seek
other employment, and there shall be no offset against any amounts due to you
under this Agreement on account of the remuneration attributable to any
subsequent employment that you may obtain. Any amounts due under Section 4 are
in the nature of severance payments, or liquidated damages, or both, and are not
in the nature of a penalty.
17. Fees and Expenses. The Company shall pay fees and expenses
reasonably incurred by you as a result of your seeking to obtain or enforce any
right or benefit provided by this Agreement, promptly and from time to time, at
your request as such fees and expenses are incurred unless your actions in such
regard are determined to be frivolous or in bad faith.
Very truly yours,
CARTER-WALLACE, INC.
By _______________________
Chairman of the Board
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Agreed and consented to as of
the date set forth above
- ------------------------------
T. Rosie Albright
<PAGE>
Exhibit 10.22
June 4, 1998
Stephen R. Lang, Esq.
1020 Park Avenue, Apt. 2D
New York, NY 10028
Dear Steve:
Carter-Wallace, Inc. (the "Company") recognizes that your contribution
to the success of the Company has been substantial and wishes to reinforce and
encourage your continued attention and dedication to your assigned duties
without distraction by entering into compensation arrangements with you that
will provide you with individual financial security in the event of a pending or
threatened Change in Control (as defined below). In order to accomplish these
objectives, the Company has entered into this letter agreement (the
"Agreement").
1. Certain Definitions.
(a) "Cause" shall mean (i) the willful and material breach of Sections
6 or 7 of this Agreement by you; (ii) your conviction of a felony; or (iii) your
engagement in conduct that constitutes willful gross neglect or willful gross
misconduct in carrying out your 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 your part
shall be considered "willful" if it was done or omitted to be done by you not in
good faith, and shall not include any act or failure to act resulting from any
incapacity of you. Notwithstanding the foregoing, a termination for "cause"
shall not take effect unless you have been given written notice by the Company
of its intention to terminate you 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. You shall have 20 days after the date that such written notice
has been given to you in which to cure such conduct, to the extent such cure is
possible. If you fail to cure such conduct, you shall then be entitled to a
hearing before the Board of Directors of the Company (the "Board") at which you
and your counsel are entitled to appear. Such hearing shall be held within 25
days of such notice to you, provided you request such hearing within 10 days of
the written notice from the Company of the intention to terminate you for
"cause". If, within five days following such hearing, you are furnished written
notice by the Board confirming that, in its judgment, grounds for "cause" on the
basis of the original notice exist, you shall thereupon be terminated for
"cause."
(b) A "Change in Control" shall be deemed to have occurred if:
<PAGE>
(i) any Person (other than the Company, the Hoyt family, any
trustee or other fiduciary holding securities under any employee
benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company immediately prior to the
occurrence with respect to which the evaluation is being made in
substantially the same proportions as their ownership of the common
stock of the Company) becomes the Beneficial Owner (except that a
Person shall be deemed to be the Beneficial Owner of all shares that
any such Person has the right to acquire pursuant to any agreement or
arrangement or upon exercise of conversion rights, warrants or options
or otherwise, without regard to the sixty day period referred to in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company or any Significant Subsidiary (as defined
below), representing 25% or more of the combined voting power of the
Company's or such Subsidiary's then outstanding securities; provided,
however, that such event shall not constitute a Change in Control
unless or until the percentage of such securities owned beneficially,
directly or indirectly, by such Person is equal to or more than all
such securities owned beneficially, directly or indirectly, by the Hoyt
Family;
(ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in
clause (i), (iii) or (iv) of this paragraph) whose election by the
Board or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still
in office who either were directors at the beginning of the two-year
period or whose election or nomination for election was previously so
approved but excluding for this purpose any such new director whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of an
individual, corporation, partnership, group, associate or other entity
or Person other than the Board, cease for any reason to constitute at
least a majority of the Board; provided, however, that such event shall
not constitute a Change in Control unless or until the percentage of
voting securities of the Company owned beneficially, directly or
indirectly, by the Hoyt Family is less than 50% of all such outstanding
securities;
(iii) the consummation of a merger or consolidation of the
Company or any subsidiary or subsidiaries owning directly or indirectly
all or substantially all of the consolidated assets of the Company
(individually and collectively, a "Significant Subsidiary") with any
other entity, other than a merger or consolidation which would result
in the voting securities of the Company or a Significant Subsidiary
outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving or resulting entity) more than 50% of the combined
voting power of the surviving or resulting entity outstanding
immediately after such merger or consolidation;
(iv) the stockholders of the Company approve a plan or
agreement for the sale or disposition of all or substantially all of
the consolidated assets of the Company (other than such a sale or
disposition immediately after which such assets will be owned directly
or indirectly by the stockholders of the Company in substantially the
same proportions as
2
<PAGE>
their ownership of the common stock of the Company immediately prior to
such sale or disposition), in which case the Board shall determine the
effective date of the Change in Control resulting therefrom; or
(v) any other event occurs which the Board determines, in its
discretion, would materially alter the structure of the Company or its
ownership.
For purposes of this definition:
(A) The term "Beneficial Owner" shall
have the meaning ascribed to such
term in Rule 13d-3 under the
Exchange Act (including any
successor to such Rule).
(B) The term "Exchange Act" means the
Securities Exchange Act of 1934, as
amended from time to time, or any
successor act thereto.
(C) The term "Person" shall have the
meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act
and used in Sections 13(d) and 14)d)
thereof, including "group" as
defined in Section 13(d) thereof.
(D) The term the "Hoyt Family" shall
mean the family of Henry H. Hoyt,
Sr., his descendants, and members of
such descendants' families.
(c) The "Effective Date" shall be the date on which a Change in Control
occurs; provided, however, that if your employment with the Company is
terminated prior to the date on which a Change in Control occurs and it is
reasonably demonstrated that such termination was at the request of a third
party that has taken steps reasonably calculated to effect a Change in Control
or otherwise arose in connection with or anticipation of a Change in Control,
then for all purposes of this Agreement the "Effective Date" shall be the date
immediately prior to the date of such termination.
(d) "Good Reason" shall mean (i) the assignment to you of any duties
inconsistent in any respect with your position (including status, offices,
titles and reporting relationships), authority, duties or responsibilities as
contemplated by Section 3(a) 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 you; (ii) the transfer or
attempted assignment of you without your consent to a location outside the area
described in Section 3(a)(ii) of this Agreement or the assignment to you of
duties that require that you be absent from such location on business for more
than the average number of days of business-related travel in the preceding
three fiscal years; or (iii) any failure of the Company to comply with and
satisfy Section 10(c) of this Agreement or any other material breach of this
Agreement by the Company.
3
<PAGE>
2. Employment Period. The period commencing on the Effective Date and
ending on the second anniversary of such date or on such earlier date of
termination as provided herein shall be referred to herein as the "Employment
Period". The Company hereby agrees to continue you in its employ, and you hereby
agree to remain in the employ of the Company, during the Employment Period.
3. Terms of Employment.
(a) Position and Duties. During the Employment Period, (i) your
position, status, authority, duties and responsibilities shall be at least equal
to those of the position held by you immediately prior to the Effective Date and
(ii) your services shall be performed at the location where you were employed
immediately preceding the Effective Date or any office or location less than
twenty-five (25) miles from such location. During the Employment Period, you
agree to devote your best efforts to the service of the Company and the
performance of such duties and responsibilities.
(b) Compensation.
(i) Base Salary. During the Employment Period, you shall
receive a base salary ("Base Salary") at an annual rate at least equal
to the highest annual base salary paid to you by the Company with
respect to any of the three fiscal years immediately preceding the year
in which the Effective Date occurs or, if greater, the base salary in
effect for the year in which the Effective Date occurs.
(ii) Annual Bonus. In addition to Base Salary, you shall be
awarded, for each fiscal year during the Employment Period, an annual
bonus (an "Annual Bonus") in cash at least equal to the greater of (x)
the highest bonus earned by you in any of the three fiscal years
immediately preceding the fiscal year in which the Effective Date
occurs and (y) the target bonus (based on the assumed attainment of
100% of the performance objectives) for the fiscal year in which the
Effective Date occurs.
(iii) Benefit Plans. During the Employment Period, you and
your family shall be entitled to participate in, on a basis consistent
with your position with the Company, and shall receive benefits under
plans, practices, policies and programs provided by the Company
(including, without limitation, retirement, pension, profit sharing,
stock option and long-term incentive plans, and death and life
insurance benefits and medical insurance programs) at least as
favorable as the most favorable of such plans, practices, policies and
programs in effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable, as in effect from
time to time thereafter with respect to senior executives of the
Company and their families. In the case of a retirement on or after the
Effective Date, all of your then outstanding options to purchase common
stock of the Company shall become immediately vested and exercisable
for the remaining term of the option and all of your then outstanding
restricted and deferred stock grants relating to common stock of the
Company shall become immediately vested. For purposes of this
Agreement, "retire" or "retirement" shall mean your voluntary
termination of employment with the Company after attaining age 65 or,
if earlier, the date which you are eligible to terminate employment
with the
4
<PAGE>
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.
(iv) Vacation. During the Employment Period, you shall be
entitled to paid vacation in accordance with the policies of the
Company in effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable, as in effect from
time to time thereafter with respect to other senior executives of the
Company.
4. Obligations of the Company upon Termination.
If, during the Employment Period, the Company shall terminate your
employment other than for Cause, or if you shall terminate your employment for
Good Reason:
(a) Lump-Sum Payment. The Company shall pay to you in a lump sum in
cash within 7 days after the date of termination the aggregate of the following
amounts:
(i) The full amount due to you 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 accrued vacation pay;
(ii) Two times your Final Compensation. For purposes of this
Agreement, Final Compensation means the sum of (A) your annual base
salary as in effect immediately prior to the termination and (B) the
greater of (x) the highest bonus earned by you 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 year in which the termination occurs; and
(iii) An amount equal to the increase in the lump-sum benefit
to which you would be entitled under the Carter-Wallace, Inc. Executive
Pension Benefits Plan (assuming for this purpose that you had elected a
lump-sum benefit payable upon your termination) if the calculation of
the gross benefit thereunder (but not of any offset amounts) were
modified by (A) increasing your number of years of benefit service by
three, (B) substituting your Final Compensation for your "Modified
Average Compensation" in the benefit formula and (C) treating such
gross benefit as fully vested.
Notwithstanding the foregoing, the aggregate lump-sum payment made pursuant to
clauses (ii) and (iii) above shall in no event be less than $1,000,000.
(b) Pro-Rated Bonus. As soon as practicable following the end of the
fiscal year in which the termination of your employment occurs, the Company
shall pay to you a pro-rated bonus reflecting the number of months (treating any
partial month as a full month for this purpose) in such fiscal year during which
you were employed.
(c) Welfare Benefits. For two years following the termination of your
employment, or such longer period as any plan, program, practice or policy may
provide, the Company shall continue benefits to you and/or your family at least
equal to those which would have been provided in accordance with the welfare
benefit plans, programs, practices and policies of the
5
<PAGE>
Company if your 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 Effective Date 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, you shall be
considered to have remained employed until the end of the Employment Period and
to have retired on the last day of such period.
(d) Stock Options and Awards. All of your then outstanding options to
purchase common stock of the Company shall become immediately vested and
exercisable for the remaining term of the option and all of your then
outstanding restricted and deferred stock grants relating to common stock of the
Company shall become immediately vested.
(e) Outplacement. The Company agrees to provide you with reasonable
outplacement assistance through the Company's Human Resources Department. The
Company further agrees to reimburse you for reasonable job search expenses. All
job search expenses in excess of one hundred dollars ($100.00) are subject to
prior approval by the Company.
(f) Release. You agree, as a condition to receipt of the termination
payments and benefits provided for in this Section 4, that you will execute a
release agreement, in a form reasonably satisfactory to the Company and you,
releasing any and all claims arising out of your employment (other than
enforcement of this Agreement, your rights under any of the Company's incentive
compensation and employee benefit plans and programs to which you are entitled
under this Agreement or otherwise, and any claim for any tort for personal
injury not arising out of or related to your termination of employment).
5. Covenant Not to Compete; Nonsolicitation.
(a) Except with the prior written consent of the Company authorized by
a resolution adopted by the Board, while employed by the Company, you will not,
and will not permit any corporation, partnership or other business entity in
which you have 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 you 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 5.
(b) While employed by the Company and for a period of one year after
the termination of your employment for any reason, you 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 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.
6
<PAGE>
6. Secrecy; Nondisparagement.
(a) You recognize and acknowledge 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. You will not, while employed by the Company 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) You agree that you will not make any disparaging statements about
the Company or the directors, officers or employees of the Company; provided
that this Section 6(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 your truthful statements or
disclosures to officers or directors of the Company, and shall not require you
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 you; provided that this Section 6(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 you, and shall not
require false statements or disclosures to be made.
7. Excise Tax Gross-Up. If you become 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 7, 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 you at the time specified below an additional amount (the "Gross-Up
Payment") such that the net amount retained by you, 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 your 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 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 you ("Independent Advisors"), the Total Payments do
not
7
<PAGE>
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.
For purposes of determining the amount of the Gross-Up Payment, you
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 your 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 your
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 to you 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, you 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 you are a
party (a "Final Determination"), to be less than the amount taken into account
hereunder at the time the Gross-Up Payment is made, you 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 you or otherwise realized as a
benefit by you), 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
8
<PAGE>
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 you shall be entitled
to settle or contest any other issue raised by the Internal Revenue Service or
any other taxing authority. You 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.
8. Remedies. In the event of a breach or threatened breach by you of
the provisions of Section 5 or Section 6 of this Agreement, the Company shall be
entitled to seek an injunction restraining you from violating either of said
provisions, or any other remedy, including the recovery of damages from you. If
you shall breach any of the provisions of Section 5 or Section 6 of this
Agreement, nothing herein shall be construed as preventing the Company from
withholding any payment or payments required to be made hereunder to you.
9. Assistance in Litigation. You 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.
10. Successors.
(a) This Agreement is personal to you and, without the prior written
consent of the Company, shall not be assignable by you otherwise than by will or
the laws of descent and distribution. This Agreement shall inure to the benefit
of and be enforceable by your 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.
11. 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
9
<PAGE>
York 10105, Attention: Board of Directors, and to you, at your address set forth
above, unless another address has been given to the other party hereto in
writing.
12. 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 your employment
with the Company. 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.
13. 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.
14. Other Benefits. Nothing in this Agreement shall be interpreted as
reducing or eliminating any benefits to which you or your beneficiaries are
entitled, without regard to this Agreement, under any plan or program of the
Company following a termination of employment for any reason.
15. No Duty to Mitigate. In the event of any termination of employment
under Section 4 of this Agreement, you shall be under no obligation to seek
other employment, and there shall be no offset against any amounts due to you
under this Agreement on account of the remuneration attributable to any
subsequent employment that you may obtain. Any amounts due under Section 4 are
in the nature of severance payments, or liquidated damages, or both, and are not
in the nature of a penalty.
16. Fees and Expenses. The Company shall pay fees and expenses
reasonably incurred by you as a result of your seeking to obtain or enforce any
right or benefit provided by this Agreement, promptly and from time to time,
10
<PAGE>
at your request as such fees and expenses are incurred unless your actions in
such regard are determined to be frivolous or in bad faith.
Very truly yours,
CARTER-WALLACE, INC.
By _______________________
Chairman of the Board
Agreed and consented to as of
the date set forth above
- ------------------------------
Stephen R. Lang
11
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, 1999:
Jurisdiction Percentage
of of Voting
Name of Corporation Incorporation Securities
Barbara Gould S.A. France 100%
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 5, 1999,
relating to the consolidated balance sheets of Carter-Wallace, Inc. and
subsidiaries as of March 31, 1999 and 1998, and the related consolidated
statements of earnings, retained earnings and comprehensive earnings, and cash
flows, for each of the years in the three-year period ended March 31, 1999, and
related financial statement schedule which report appears in the March 31, 1999
Annual Report on Form 10-K of Carter-Wallace, Inc.
KPMG LLP
New York, New York
June 11, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 49,382,000
<SECURITIES> 31,870,000
<RECEIVABLES> 136,775,000
<ALLOWANCES> 7,415,000
<INVENTORY> 90,608,000
<CURRENT-ASSETS> 329,590,000
<PP&E> 316,759,000
<DEPRECIATION> 166,163,000
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<BONDS> 72,995,000
0
0
<COMMON> 47,205,000
<OTHER-SE> 311,951,000
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<TOTAL-REVENUES> 684,672,000
<CGS> 253,447,000
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<OTHER-EXPENSES> 7,802,000
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<INCOME-PRETAX> 46,244,000
<INCOME-TAX> 18,035,000
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<EXTRAORDINARY> 0
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<NET-INCOME> 28,209,000
<EPS-BASIC> .62
<EPS-DILUTED> .62
</TABLE>
