<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
------------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ________________
Commission file number 0-22726
SAFESKIN CORPORATION
--------------------
(Exact name of registrant as specified in its charter)
Florida 59-2617525
------- -----------
(State or other jurisdiction (IRS Employer ID No.)
of incorporation or organization)
12671 High Bluff Drive, San Diego, California 92130
---------------------------------------------------
(Address of principal executive offices)
(619) 794-8111
--------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at October 31, 1997
----- -------------------------------
<S> <C>
Common Stock, par value $0.01 per share 26,306,008
</TABLE>
<PAGE> 2
SAFESKIN CORPORATION
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
PART I: Financial Information.................................. 1
ITEM 1. Financial Statements................................... 1
Condensed Consolidated Balance Sheets at September 30,
1997 and December 31, 1996............................. 2
Condensed Consolidated Statements of Operations for
the three months ended September 30, 1997 and 1996..... 3
Condensed Consolidated Statements of Operations for
the nine months ended September 30, 1997 and 1996...... 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1997 and 1996...... 5
Notes to Condensed Consolidated Financial Statements... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 8
PART II: Other Information...................................... 17
ITEM 6. Exhibits and Reports on Form 8-K....................... 17
Signatures.......................................................... 18
</TABLE>
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
INDEX PAGE
----- ----
<S> <C> <C>
Condensed Consolidated Balance Sheets at September 30, 1997
and December 31, 1996.........................................................2
Condensed Consolidated Statements of Operations for
the three months ended September 30, 1997 and 1996............................3
Condensed Consolidated Statements of Operations for
the nine months ended September 30, 1997 and 1996.............................4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and 1996.................................5
Notes to Condensed Consolidated Financial Statements..........................6
</TABLE>
<PAGE> 4
SAFESKIN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 20,218,051 $ 16,265,468
Accounts receivable, net ......................... 21,122,527 19,848,253
Inventory ........................................ 22,215,178 21,867,835
Other current assets ............................. 4,685,707 4,062,314
------------- -------------
Total current assets ....................... 68,241,463 62,043,870
Property, plant and equipment, net ..................... 58,263,084 53,391,423
Goodwill and other assets .............................. 9,657,214 1,313,731
------------- -------------
Total assets ............................... $ 136,161,761 $ 116,749,024
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 5,172,495 $ 5,362,273
Accrued liabilities .............................. 21,323,083 8,371,962
------------- -------------
Total current liabilities .................. 26,495,578 13,734,235
------------- -------------
Commitments and contingencies
Shareholders' equity:
Preferred stock; $.01 par value; 10,000,000 shares
authorized and no shares outstanding ........ -- --
Common stock; $.01 par value; 40,000,000 shares
authorized; 26,279,868 shares
and 25,811,048 shares outstanding .......... 262,799 258,110
Additional paid-in-capital ....................... 42,465,383 39,101,451
Foreign currency translation adjustment .......... (25,283,934) 686,544
Retained earnings ................................ 92,221,935 62,968,684
------------- -------------
Total shareholders' equity ................. 109,666,183 103,014,789
------------- -------------
Total liabilities and shareholders' equity . $ 136,161,761 $ 116,749,024
============= =============
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
-2-
<PAGE> 5
SAFESKIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net sales ......................................... $ 46,897,491 $ 37,492,495
Cost of goods sold ................................ 25,497,710 21,022,797
------------ ------------
Gross profit .......................... 21,399,781 16,469,698
------------ ------------
Operating expenses:
Selling ...................................... 5,447,621 4,999,263
Research and development ..................... 934,394 526,471
General and administrative ................... 4,077,681 2,891,152
------------ ------------
Total operating expenses .............. 10,459,696 8,416,886
------------ ------------
Income from operations ................ 10,940,085 8,052,812
Interest expense (income), net .................... (211,726) 8,744
Other expense (income), net ....................... (1,842,999) 75,785
------------ ------------
Income before income tax provision ................ 12,994,810 7,968,283
Income tax provision .............................. 1,435,168 916,354
------------ ------------
Net income ........................................ $ 11,559,642 $ 7,051,929
============ ============
Net income per share .............................. $ 0.39 $ 0.25
Weighted average number of shares of common
stock and common stock equivalents outstanding 29,538,520 28,236,268
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
-3-
<PAGE> 6
SAFESKIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Net sales ......................................... $ 133,013,441 $ 106,534,022
Cost of goods sold ................................ 71,455,376 62,576,360
------------- -------------
Gross profit .......................... 61,558,065 43,957,662
------------- -------------
Operating expenses:
Selling ...................................... 16,528,182 12,746,953
Research and development ..................... 2,519,819 1,404,302
General and administrative ................... 11,350,084 7,968,915
------------- -------------
Total operating expenses .............. 30,398,085 22,120,170
------------- -------------
Income from operations ................ 31,159,980 21,837,492
Interest expense (income), net .................... (544,901) 118,218
Other expense (income), net ....................... (1,217,468) 200,350
------------- -------------
Income before income tax provision ................ 32,922,349 21,518,924
Income tax provision .............................. 3,669,099 2,828,321
------------- -------------
Net income ........................................ $ 29,253,250 $ 18,690,603
============= =============
Net income per share .............................. $ 1.01 $ 0.68
Weighted average number of shares of common
stock and common stock equivalents outstanding 29,025,233 27,479,430
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
-4-
<PAGE> 7
SAFESKIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 29,253,250 $ 18,690,603
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization ................ 5,198,523 4,077,575
Foreign currency transaction gain - unrealized (1,726,958) --
Loss on sale/disposition of equipment ........ 39,450 24,888
Amortization of deferred compensation ........ -- 152,469
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable ..................... (619,228) 865,926
Inventory ............................... (608,819) (6,047,926)
Other assets ............................ 1,174,512 (2,456,545)
Increase in:
Accounts payable and accrued liabilities 10,789,144 2,683,067
------------ ------------
Net cash provided by operating activities .... 43,499,874 17,990,057
------------ ------------
Cash flows from investing activities:
Payments for acquisition ........................... (14,463,092) --
Purchase of property, plant and equipment .......... (25,807,033) (14,331,379)
Proceeds from sale of equipment .................... 24,654 --
------------ ------------
Net cash used by investing activities ........ (40,245,471) (14,331,379)
------------ ------------
Cash flows from financing activities:
Decrease in long-term debt ......................... -- (2,750,000)
Proceeds from issuance of common stock ............. 3,368,621 4,671,947
------------ ------------
Net cash provided by financing activities .... 3,368,621 1,921,947
------------ ------------
Effect of exchange rate changes on cash ................... (2,670,441) 602,571
------------ ------------
Net increase in cash and cash equivalents ................. 3,952,583 6,183,196
Cash and cash equivalents at beginning of period .......... 16,265,468 2,086,972
------------ ------------
Cash and cash equivalents at end of period ................ $ 20,218,051 $ 8,270,168
============ ============
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
-5-
<PAGE> 8
SAFESKIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, which consist
only of normal and recurring adjustments, necessary for a fair
presentation of results for the periods indicated. The results of any
interim period are not necessarily indicative of results for the full
year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes thereto for the year
ended December 31, 1996. The December 31, 1996 condensed consolidated
balance sheet was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles.
2. Inventories at September 30, 1997 consisted of $2,192,000, $781,000 and
$19,242,000 for raw materials, work in process and finished goods,
respectively. At December 31, 1996, inventories consisted of $1,920,000,
$114,000 and $19,834,000 for raw materials, work in process and finished
goods, respectively.
3. In November 1996, the Company authorized a two-for-one common stock split in
the form of a stock dividend distributed on January 2, 1997 to shareholders
of record at the close of business on November 29, 1996. The holders of the
Company's common stock received a stock dividend at the rate of one share of
common stock for each share of common stock owned. All share and per share
amounts have been retroactively restated to reflect the stock split.
4. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128").
The standard, which requires the presentation of basic and dilutive earnings
per share, is effective for the fourth quarter of 1997 and specifies the
computation, presentation, and disclosure requirements for earnings per
share. On a pro forma basis, had this standard been adopted, earnings per
share for the three and nine month periods ending September 30, 1997 and
1996, respectively, would be as follows:
<TABLE>
<CAPTION>
For the three months ended September 30, For the nine months ended September 30,
1996 1997 1996 1997
(unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic EPS $ .27 $ .44 $. 74 $ 1.12
Dilutive EPS $ .25 $ .39 $. 68 $ 1.01
</TABLE>
-6-
<PAGE> 9
5. The accounts of the Company's foreign subsidiaries are measured using local
currency as the functional currency. For those operations, assets and
liabilities are translated into U.S. dollars at period-end exchange rates
and income and expense accounts are translated at average exchange rates in
effect during the year. Net currency exchange gains or losses resulting from
such translation are excluded from net income and accumulated in a separate
component of shareholders' equity. Gains and losses from foreign currency
transactions are recorded as a component of earnings.
The Company is exposed to exchange rate risks when its U.S. and non-U.S.
subsidiaries enter into transactions denominated in currencies other than
their functional currency. The Company enters into foreign exchange
contracts to hedge certain portions of these risks. As exchange rates
change, gains and losses recorded on the exposed transactions are partially
offset by gains and losses on the hedging contracts. Both the exposed
transactions and the hedging contracts are translated at current spot rates
monthly with gains and losses included in earnings. At September 30, 1997,
the Company had outstanding foreign exchange contracts for Malaysian ringgit
which fixed the exchange rate on intercompany transactions, totaling
approximately $39.1 million, which have been eliminated in consolidation in
the accompanying condensed consolidated financial statements. These foreign
exchange contracts generally require the Company to exchange U.S. dollars
for foreign currencies at the maturity date. If the counterparties to the
exchange contracts (primarily AA rated international banks) do not fulfill
their obligations to deliver the contracted currencies, the Company could be
at risk for any currency related fluctuations. Management believes that the
high credit worthiness of the counterparties to the hedging contracts
minimizes non-performance risk.
-7-
<PAGE> 10
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and related notes thereto.
GENERAL
The Company's net sales have grown substantially over the past several years.
The Company attributes the growth in net sales during this period principally to
the introduction of new products, growth in markets for its products, and
increased market penetration due to the implementation of sales and marketing
programs. The Company introduced lightly powdered medical gloves, powder-free
medical gloves, HypoClean(R) powder-free gloves, powder-free latex surgical
gloves and high technology and scientific nitrile gloves in 1989, 1990, 1992,
1994 and 1995, respectively. In the fourth quarter of 1996, the Company formally
launched its Safeskin 2000 powder-free latex surgical glove, which was developed
through the use of computer-aided design (CAD) and a new rapid prototyping
technique known as "laminated object manufacturing." The Company has recently
developed a medical examination glove made of nitrile synthetic latex and began
selling the gloves in the first quarter of 1997. In the second quarter of 1997,
the Company, as a result of its acquisition of the synthetic glove business of
Tactyl Technologies, Inc., began selling Tactylon(R) synthetic examination and
surgical gloves. Although the Company has continued to develop new products and
expects to do so in the future, no assurance can be given that the new products
will be accepted in the marketplace or will have similar growth rates.
The Company's net sales are derived from the sale of finished products, net of
contractual allowable rebates provided to distributors for the resale of the
Company's products in specific volumes to specified end user customers. The
Company estimates allowable rebates on a monthly basis through the analysis of
actual sales information from customers, contractual arrangements and historical
trends related to actual rebates issued. Cost of goods sold includes all costs
to manufacture the finished product plus related costs associated with ocean
freight, customs duty and warehousing. Selling expenses include all salaries for
sales and marketing staffs together with other related expenses such as sales
commissions, and costs associated with travel, trade show participation,
advertising and product delivery. Research and development expenses include
salaries for research and development staffs as well as expenses such as
consulting, product testing and travel costs. General and administrative
expenses include salaries for administrative and information technology staffs,
together with related expenses for travel, insurance, facilities and consulting
and professional fees. The income tax provision is substantially less than
statutory rates primarily as a result of the tax free status of the Company's
foreign manufacturing operations. During June 1994, the Company's Malaysian
manufacturing operations were granted five additional years of tax free status
retroactive to October 1, 1993, the date on which the original five year grant
of tax free status expired. The Company's Thai manufacturing operations have
been granted tax free status through 2003.
-8-
<PAGE> 11
The Company's medical glove distributor customers do not bill third-party
reimbursement sources separately for purchases of the Company's gloves.
Consequently, the timing and effect of third-party payments to hospitals and
clinics do not have a material effect on the Company's operations or liquidity.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1996
Net sales for the three months ended September 30, 1997 were $46,897,000 which
represents a 25.1% increase over net sales of $37,492,000 for the same period in
1996. The predominant cause for the sales growth was an increase in unit volumes
sold during the 1997 period, which includes sales of lightly powdered gloves
associated with the Company's new contracts with group purchasing organizations
as well as increased sales of powder-free surgical and scientific glove
products.
Cost of goods sold increased 21.3% from $21,022,000 for the three months ended
September 30, 1996 to $25,497,000 for the three months ended September 30, 1997.
As a percentage of net sales, cost of goods sold decreased from 56.1% for the
three months ended September 30, 1996 to 54.4% for the same period in 1997. This
decrease in cost of goods sold as a percentage of net sales was principally
attributable to the favorable impact of greater manufacturing efficiencies, the
continued shift of production to the Company's lower-cost manufacturing facility
in Thailand, and lower latex prices. Although sales of the Company's lower
margin lightly powdered gloves increased in the 1997 period as compared to the
1996 period, the impact on the gross profit margin was offset by increased sales
of higher margin powder-free surgical and scientific glove products. As a result
of the above, gross profits increased 29.9% from $16,470,000 for the three
months ended September 30, 1996 to $21,400,000 for the three months ended
September 30, 1997.
Selling expenses increased 9.0% from $4,999,000 for the three months ended
September 30, 1996 to $5,449,000 for the three months ended September 30, 1997.
As a percentage of net sales, selling expenses decreased from 13.3% for the
three months ended September 30, 1996 to 11.6% for the same period in 1997.
During the 1996 period, the Company had accrued approximately $523,000 of
non-recurring charges related to the severance of a former executive. Excluding
such charges, selling expenses as a percentage of net sales would have been
11.8% for the 1996 period, comparable to the 11.6% for the 1997 period.
Research and development expenses increased 77.5% from $527,000 for the three
months ended September 30, 1996 to $934,000 for the three months ended September
30, 1997. As a percentage of net sales, these expenses increased from 1.4% for
the three months ended September 30, 1996 to 2.0% for the same period in 1997.
The increase in research and development expenses as a percentage of net sales
reflects an increase in the Company's research and development personnel,
related travel costs, and research and development costs related to the
Tactylon(R) product line.
-9-
<PAGE> 12
General and administrative expenses increased 41.0% from $2,891,000 for the
three months ended September 30, 1996 to $4,078,000 for the three months ended
September 30, 1997. As a percentage of net sales, general and administrative
expenses increased from 7.7% for the three months ended September 30, 1996 to
8.7% for the same period in 1997. The increase in general and administrative
expenses as a percentage of net sales was caused primarily by increased costs
associated with the acquisition of Tactyl Technologies, Inc.
Income from operations increased 35.9% from $8,053,000 for the three months
ended September 30, 1996 to $10,941,000 for the three months ended September 30,
1997. Operating margins increased from 21.5% in the 1996 period to 23.3% in the
1997 period.
Interest expense (income), net, decreased from $9,000 of interest expense for
the three months ended September 30, 1996 to $211,000 of interest income for the
three months ended September 30, 1997, and is primarily due to the fact that in
1997 the Company did not have any debt outstanding and generated investment
returns on its cash balances. The Company has been able to successfully fund its
operations, including the expansion of the Company's foreign manufacturing
operations, with internally generated cash.
Other expense (income), net, decreased from $76,000 of other expense for the
three months ended September 30, 1996 to $1,843,000 of other income for the
three months ended September 30, 1997. The decrease in other expense was due
substantially to net foreign currency transaction gains experienced in the
Company's Malaysian and Thailand subsidiaries for the three months ended
September 30, 1997. In prior periods, gains and losses from foreign currency
transactions for the Company's Malaysian and Thailand subsidiaries were recorded
as a component of cost of sales. Due to their immateriality and because
substantially all of the sales of these subsidiaries are intercompany sales, the
gains and losses related to foreign currency transactions had been recorded as a
component of cost of sales. However, due to the significant devaluation of the
Malaysian ringgit and the Thai baht since June 30, 1997, the Company has
experienced an increased amount of net foreign currency transaction gains and,
therefore, has recorded these net foreign currency transaction gains as a
component of other expense (income), net. In future periods, the Company will
record net foreign currency transaction gains and losses, regardless of
materiality, as a component of other expense (income), net.
Income taxes increased from $916,000 for the three months ended September 30,
1996 to $1,435,000 for the three months ended September 30, 1997. The income tax
provisions recorded in both 1996 and 1997 remain less than statutory rates due
to the foreign tax free status of the Company's manufacturing operations in
Malaysia and Thailand.
Net income increased 63.9% from $7,052,000 for the three months ended September
30, 1996 to $11,560,000 for the three months ended September 30, 1997 due to the
foregoing factors.
-10-
<PAGE> 13
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1996
Net sales for the nine months ended September 30, 1997 were $133,013,000 which
represents a 24.9% increase over net sales of $106,534,000 for the same period
in 1996. The predominant cause for the sales growth was an increase in unit
volumes sold during the 1997 period.
Cost of goods sold increased 14.2% from $62,576,000 for the nine months ended
September 30, 1996 to $71,455,000 for the nine months ended September 30, 1997.
As a percentage of net sales, cost of goods sold decreased from 58.7% for the
nine months ended September 30, 1996 to 53.7% for the same period in 1997. This
decrease in cost of goods sold as a percentage of net sales was principally
attributable to the favorable impact of greater manufacturing efficiencies, the
continued shift of production to the Company's lower-cost manufacturing facility
in Thailand, and lower latex prices. As a result of the above, gross profits
increased 40.0% from $43,958,000 for the nine months ended September 30, 1996 to
$61,558,000 for the nine months ended September 30, 1997.
Selling expenses increased 29.7% from $12,747,000 for the nine months ended
September 30, 1996 to $16,528,000 for the nine months ended September 30, 1997.
As a percentage of net sales, selling expenses increased from 12.0% for the nine
months ended September 30, 1996 to 12.4% for the same period in 1997. The
increase in selling expenses as a percentage of net sales can be primarily
attributed to increased selling expenses in the Company's European subsidiaries.
Research and development expenses increased 79.4% from $1,404,000 for the nine
months ended September 30, 1996 to $2,520,000 for the nine months ended
September 30, 1997. As a percentage of net sales, these expenses increased from
1.3% for the nine months ended September 30, 1996 to 1.9% for the same period in
1997. The increase in research and development expenses as a percentage of net
sales reflects an increase in the Company's product testing, research and
development personnel and research and development costs related to the
Tactylon(R) product line.
General and administrative expenses increased 42.4% from $7,969,000 for the nine
months ended September 30, 1996 to $11,350,000 for the nine months ended
September 30, 1997. As a percentage of net sales, general and administrative
expenses increased from 7.5% for the nine months ended September 30, 1996 to
8.5% for the same period in 1997. The increase in general and administrative
expenses as a percentage of net sales was caused primarily by increased costs
associated with the Company's acquisition of Tactyl Technologies, Inc.
Additional factors include increased product liability insurance costs and
increased investment in information technology and logistics, which the Company
believes will lower inventory costs and streamline distribution to customers.
Income from operations increased 42.7% from $21,838,000 for the nine months
ended September 30, 1996 to $31,160,000 for the nine months ended September 30,
1997. Operating margins increased from 20.5% in the 1996 period to 23.4% in the
1997 period.
-11-
<PAGE> 14
Interest expense (income), net, decreased from $118,000 of interest expense for
the nine months ended September 30, 1996 to $545,000 of interest income for the
nine months ended September 30, 1997, and is primarily due to the fact that the
Company did not have any debt outstanding and generated investment returns on
its cash balances in 1997.
Other expense (income), net, decreased from $201,000 of other expense for the
nine months ended September 30, 1996 to $1,217,000 of other income for the nine
months ended September 30, 1997. The decrease in other expense was due
substantially to net foreign currency transaction gains in the Company's
Malaysian and Thailand subsidiaries for the nine months ended September 30,
1997. In prior periods, gains and losses from foreign currency transactions for
the Company's Malaysian and Thailand subsidiaries were recorded as a component
of cost of sales. Due to their immateriality and because substantially all of
the sales of these subsidiaries are intercompany sales, the gains and losses
related to foreign currency transactions had been recorded as a component of
cost of sales. However, due to the significant devaluation of the Malaysian
ringgit and the Thai baht since June 30, 1997, the Company has experienced an
increased amount of net foreign currency transaction gains and, therefore, has
recorded these net foreign currency transaction gains as a component of other
expense (income), net. In future periods, the Company will record net foreign
currency transaction gains and losses, regardless of materiality, as a component
of other expense (income), net.
Income taxes increased from $2,828,000 for the nine months ended September 30,
1996 to $3,669,000 for the nine months ended September 30, 1997. The income tax
provisions recorded in both 1996 and 1997 remain less than statutory rates due
to the foreign tax free status of the Company's manufacturing operations in
Malaysia and Thailand.
Net income increased 56.5% from $18,691,000 for the nine months ended September
30, 1996 to $29,253,000 for the nine months ended September 30, 1997 due to the
foregoing factors.
-12-
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations generated approximately $43,500,000 and $17,990,000 of
cash during the nine months ended September 30, 1997 and 1996, respectively.
During the nine months ended September 30, 1997 and 1996, the Company acquired
capital assets of approximately $25,807,000 and $14,331,000, respectively,
primarily all of which were for the expansion of the Company's foreign
manufacturing operations.
The Company has completed construction on the first of its new production lines
located in its Thai facility, referred to by the Company as the "Grand Master."
This new production line is currently operational, and two additional lines are
scheduled to be operational by the end of 1997. The Company's management
believes that a single "Grand Master" production line will have the highest
capacity of any glove production line in the world, equivalent in capacity to
approximately eight of the existing production lines in this facility. The
construction of these two additional production lines is expected to be funded
with internally generated cash.
In addition, the Company is currently building a latex concentrate plant in
Thailand. The output of the plant will supply latex concentrate to the Company's
factories in Thailand and Malaysia for the manufacture of its disposable latex
gloves. The Company has begun initial production in the third quarter of 1997
and expects the final phase of construction to be completed within a year. The
Company anticipates that this construction will be funded with internally
generated cash. This plant will allow the Company to fully integrate its
manufacturing processes to gain better control over the quality, cost and
reliability of latex supplies.
In April 1997, the Company announced plans for the expansion of its Southeast
Asian manufacturing operations in order to meet the continued strong demand and
anticipated future demand for its latex and synthetic medical examination,
surgical and high-technology and scientific gloves. The Company's expansion
plans over the next two years include the construction of an additional building
and related machinery at the Company's existing Thai facility. Additionally, the
Company also plans to construct a second manufacturing facility to be located in
southern Thailand that is expected to produce surgical, high technology and
scientific and examination gloves. Construction of this site has begun in the
second half of 1997 upon approval by the Thailand Board of Investment.
Initially, two buildings are expected to be constructed on this site. One of
these buildings will house the expansion of the Company's Tactylon(R) synthetic
examination and surgical gloves and is scheduled to be completed during the
second half of fiscal 1998. This building is expected to increase by 200 percent
the production capacity of the Tactylon(R) product line in comparison to the
existing facility which is located in Vista, California. The second building
will be constructed to provide additional capacity for the Company's surgical
and clean-room glove products. Production is scheduled to begin in the fourth
quarter of 1998. In the interim, these products will continue to be manufactured
at the Company's Malaysian and Vista, California facilities. The new buildings,
machines and supporting infrastructure are expected to cost approximately $40
million in the aggregate. Due to the Company's strong cash flow, financing for
the total capital expenditures
-13-
<PAGE> 16
for the two-year period is projected to come from internally generated funds,
with any shortfalls financed through borrowings from the existing credit
facilities.
As of December 31, 1996, the Company's plan for the Malaysian operations
included transfer of production to Thailand and sale of the Malaysian facility
in 1997. At December 31, 1996, the Malaysian facility was considered held for
sale. Subsequent to December 31, 1996, the Company extended the planned use of
the Malaysian facility to 1998 due to existing production requirements and the
timing of bringing new production capacity on-line in Thailand. The Company
still intends to transfer production to Thailand and sell the Malaysian
facility. As of September 30, 1997, the Malaysian facility is still considered
held for sale and the delay in moving the examination glove production from
Malaysia to Thailand has had no impact on the Company's restructuring plan and
the write-down of fixed assets recorded in 1996.
In March 1997, the Company acquired the synthetic glove business of Tactyl
Technologies, Inc., a San Diego based developer and manufacturer of non-latex
surgical gloves for the domestic and international markets. The acquisition,
which has been accounted for under the purchase method, included an acquisition
price of approximately $14.5 million payable at the closing, plus up to an
additional $5 million payment which is contingent upon the Tactyl business
achieving certain future sales and performance targets, including the
development of the next generation of synthetic latex technology. Such
additional payment, if any, would be recorded as goodwill and amortized over its
remaining life.
The Company has an unsecured two-year credit facility for financing general
working capital needs, up to a maximum of $25,000,000. As of September 30, 1997,
there were no borrowings outstanding under this credit facility.
The Company's foreign manufacturing subsidiaries have revolving lines of credit
for financing general working capital needs up to approximately $13,700,000. As
of September 30, 1997, there were no borrowings outstanding under these credit
facilities. These borrowings are supported by a guarantee of the Company.
In July 1997, the Thai baht and Malaysian ringgit were permitted to float
against the U.S. dollar and other currencies, and as a result, the baht and
ringgit have devalued from approximately 24.7 bahts/dollar and 2.5235
ringgits/dollar, as of June 30, 1997 to approximately 35.7 bahts/dollar and 3.25
ringgits/dollar as of September 30, 1997. The significant devaluation in both
the Thailand and Malaysian currencies have resulted in an increased amount of
foreign currency transaction net gains and foreign currency translation
adjustments, which are recorded as a separate component of equity. The
devaluation of the baht and ringgit may cause the Company's competitive
environment to improve. It is not possible at this time to determine what effect
the devaluation will have upon pricing or costs, but management believes the
devaluation will not have a material adverse effect upon the Company's operating
results for 1997 and beyond.
-14-
<PAGE> 17
LEGAL PROCEEDINGS
Since May 1995, 87 product liability lawsuits seeking monetary damages have been
filed in federal and state courts in which the Company has been named a
defendant along with other manufacturers of latex gloves. In February 1997, the
Judicial Panel on Multi-District Litigation entered an order transferring the
latex allergy lawsuits brought against the Company and other latex glove
manufacturers in various federal courts to the United States District Court in
Philadelphia, consolidating pending and future federal court latex allergy
lawsuits for discovery management and other pre-trial proceedings. Management
has referred the defense of these cases to its insurance carriers. The Company
maintains levels of insurance coverage which it believes will be adequate to
cover the cost of the legal defense of these suits.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This report and the documents incorporated by reference herein contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements include, among others, statements
concerning the Company's outlook for 1997 and beyond, the effect of currency
fluctuations in Thailand and Malaysia on the operating results of the Company,
the Company's liquidity and working capital, the Company's ability to complete
construction of new facilities as scheduled, the production capacity and the
Company's ability to achieve additional efficiencies in its manufacturing
facilities and other statements of expectations, beliefs, future plans and
strategies, anticipated events or trends and similar expressions concerning
matters that are not historical facts. The forward-looking statements in this
report are subject to risks and uncertainties that could cause the assumptions
underlying such forward-looking statements and the actual results to differ
materially from those expressed in or implied by the statements.
The most important factors that could prevent the Company from achieving its
goals--and cause the assumptions underlying forward-looking statements and the
actual results of the Company to differ materially from those expressed in or
implied by those forward-looking statements--include, but are not limited to,
the following;
o the competitive nature of the industry and the ability of the
Company to continue to distinguish its products on the basis of
quality, reliability and value, possible obsolescence of the
Company's primary product due to the development by competitors of
new products, manufacturing processes or technologies including latex
alternatives; the ability of the Company to maintain strong
distributor relationships, and the ability of the Company to maintain
its selling prices and anticipated volumes;
o the ability of the Company to meet existing or future FDA regulations
regarding the manufacture and sale of the Company's gloves;
-15-
<PAGE> 18
o adverse outcomes regarding product liability lawsuits or the
inability to obtain sufficient product liability insurance coverage
at reasonable rates;
o risks associated with investments and operations in foreign
countries, particularly Thailand and Malaysia, including exchange
rate fluctuations, local economic conditions, governmental policies
regarding foreign ownership of manufacturing facilities, local
regulatory requirements, tax holidays and political factors;
o the consistent availability, at budgeted prices, of raw rubber from
independent growers and concentrate plant operators in Malaysia
and Thailand;
o delays in the completion of the Company's construction of its
additional "Grand Master" production lines and other production lines
and latex concentrate plant in Thailand or the failure of such new
lines or plant to generate anticipated productivity and efficiencies;
o economic conditions in the healthcare industry, including the
potential impact of industry consolidation and cost constraints on
the end-user;
o changes in significant government regulations affecting the
healthcare industry;
o the ability of the Company to protect its proprietary products,
know-how and manufacturing processes;
o changes in the Company's rates or basis of income taxation; and
o rapid levels of inflation, which could have a significant effect on
the Company's net sales and profitability.
These and other risks and uncertainties affecting the Company are discussed in
greater detail in this report and in other filings by the Company with the
Securities and Exchange Commission.
-16-
<PAGE> 19
PART II: OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- ------------
<S> <C>
10.41 Executive Deferred Compensation Plan of Safeskin Corporation
11 Statement re: Computation of per share earnings
</TABLE>
(b) Reports on Form 8-K
None.
-17-
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SAFESKIN CORPORATION
Date: November 14, 1997 By: /s/ David L. Morash
--------------------
David L. Morash, Executive Vice-
President, Chief Financial Officer
-18-
<PAGE> 1
EXHIBIT 10.41
EXECUTIVE DEFERRED COMPENSATION PLAN
OF SAFESKIN CORPORATION
RECITALS:
A. Safeskin Corporation (the "Company") hereby establishes the Executive
Deferred Compensation Plan of Safeskin Corporation (the "Plan") on the terms
and conditions hereinafter set forth.
B. The Plan is intended to qualify as a "top hat" plan maintained
primarily for purposes of providing benefits for a select group of management
and highly compensated employees within the meaning of Sections 201(2),
301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974,
as amended.
ARTICLE I
GENERAL
SECTION 1.1 PURPOSE OF THE PLAN. The purpose of this Plan is to reward
certain management and highly compensated employees of the Company who have
contributed to the Company's success and are expected to continue to contribute
to such success in the future. The Plan generally provides selected employees
of the Company with the opportunity to defer a portion of their regular and/or
incentive compensation on the terms and conditions set forth herein.
SECTION 1.2 EFFECTIVE DATE. The effective date of the Plan is September
15, 1997.
SECTION 1.3 GENDER AND NUMBER. For purposes of interpreting the provisions
of this Plan, the masculine gender shall be deemed to include the feminine, the
feminine gender shall be deemed to include the masculine, and the singular
shall include the plural unless otherwise clearly required by the context.
ARTICLE II
DEFINITIONS
SECTION 2.1 ACCOUNT. Account means the account maintained by the Employer
for each Executive in accordance with Section 3.2.
Section 2.2 Base Salary. Base Salary means the base salary of each
Executive as of January 1 of each Plan Year (including for this purpose salary
reduction contributions pursuant to this Plan and any Employer-sponsored plan
governed by Section 401(k) or 125 of the Internal Revenue Code of 1986, as
amended.)
<PAGE> 2
SECTION 2.3 BENEFICIARY. Beneficiary means the person or persons designated
by a Participant as his or her beneficiary hereunder in accordance with the
provisions of Article V.
SECTION 2.4 BOARD. Board means the Board of Directors of the Company.
SECTION 2.5 BONUS. Bonus means any cash bonus payable to an Executive with
respect to services performed by the Executive during a Plan Year, regardless of
whether the bonus is actually paid during such Plan Year.
SECTION 2.6 CHANGE IN CONTROL. Change in Control means the happening of any
of the following:
(A) any person or entity, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, other than the Company or a
wholly-owned subsidiary thereof or any employee benefit plan of the Company or
any of its Subsidiaries, becomes the beneficial owner of the Company's
securities having 20% or more of the combined voting power of the then
outstanding securities of the Company that may be cast for the election of
directors of the Company (other than as a result of an issuance of securities
initiated by the Company in the ordinary course of business); or
(b) as the result of, or in connection with, any cash tender or exchange
offer, merger or other business combination, sale of assets or contested
election, or any combination of the foregoing transactions less than a majority
of the combined voting power of the then outstanding securities of the Company
or any successor corporation or entity entitled to vote generally in the
election of the directors of the Company or such other corporation or entity
after such transaction are held in the aggregate by the holders of the Company's
securities entitled to vote generally in the election of directors of the
Company immediately prior to such transaction; or
(c) during any period of two consecutive years, individuals who at the
beginning of any such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Company's stockholders, of each director of the Company
first elected during such period was approved by a vote of at least two-thirds
of the directors of the Company then still in office who were directors of the
Company at the beginning of any such period.
SECTION 2.7 COMMITTEE. Committee means the Compensation Committee of the
Board.
SECTION 2.8 COMPANY. Company means Safeskin Corporation.
SECTION 2.9 DEFERRED COMPENSATION BENEFIT. Deferred Compensation Benefit
has the meaning ascribed to it in Section 3.1(b)hereof.
<PAGE> 3
SECTION 2.10 EMPLOYER. Employer means the Company and any Subsidiary
of the Company which, with the written consent of the Company, adopts the
Plan.
SECTION 2.11 EXECUTIVE DEFERRALS. Executive Deferrals has the meaning
ascribed to it in Section 3.1(a) hereof.
SECTION 2.12 EXECUTIVE. Executive means a management or highly
compensated employee of the Employer designated by the Chief Executive Officer
of the Company (subject to approval by the Committee) as eligible to
participate in the Plan. The Committee may from time to time, in its sole
discretion with or without cause, revoke an Executive's eligibility to
participate in the Plan upon ninety (90) days' written notice; provided,
however, that such revocation shall not reduce any Deferred Compensation
Benefits to which the Executive may be entitled at the time of such revocation.
SECTION 2.13 INSOLVENCY. Insolvency means, with respect to the
Employer, (a) an adjudication of bankruptcy, (b) the assignment for the benefit
of creditors of or by the Employer, (c) the subjection of any part of all of
the property of the Employer to the control and direction of a receiver, which
receivership is not dismissed within sixty (60) days of such receiver's
appointment, or (d) the filing by the Employer of a petition for relief under
any federal or other bankruptcy or other insolvency law or for an arrangement
with creditors.
SECTION 2.14 MATCHING CONTRIBUTIONS. Matching Contributions has the
meaning ascribed to it in Section 3.1(b) hereof.
SECTION 2.15 PARTICIPANT. Participant means any Executive who elects
to participate in the Plan by making Executive Deferrals hereunder.
SECTION 2.16 PAYMENT DATE(S). Payment Date(s) has the meaning
ascribed to it in Section 3.1(d) hereof.
SECTION 2.17 PLAN. Plan means the Executive Deferred Compensation
Plan of Safeskin Corporation, as amended.
SECTION 2.18 PLAN YEAR. Plan Year means the calendar year, except
that the first Plan Year shall commence September 15, 1997 and end December
31, 1997.
SECTION 2.19 SUBSIDIARY. Subsidiary means any corporation (other than
the Company) in an unbroken chain of corporations beginning with the Company if
each of the corporations (other than the last corporation in the unbroken
chain) owns stock possessing more than 50% of the total combined voting power
of all classes of stock in one of the other corporations in the chain.
SECTION 2.20 UNFORESEEABLE EMERGENCY. Unforeseeable Emergency means
an event which results (or will result) in severe financial hardship to the
Participant as a consequence of an
3
<PAGE> 4
unexpected illness or accident of the Participant or a dependent of the
Participant (as determined under Section 152(a) of the Internal Revenue Code of
1986, as amended) or loss of the Participant's property due to casualty or
other similar extraordinary or unforeseen circumstances out of the control of
the Participant. Examples of what is not considered to be an Unforeseeable
Emergency include the need to send a Participant's child to college and the
desire to purchase a home.
ARTICLE III
DEFERRED COMPENSATION BENEFITS
SECTION 3.1 DEFERRED COMPENSATION BENEFITS
(a) Executive Deferrals. From time to time but not less often than
annually, each Executive may file written election with the Committee (in
accordance with subparagraph (f) below) directing the Employer to reduce his
Base Salary and/or Bonus as described herein and to credit the amount of any
such reduction (the "Executive Deferrals") to the Account described in Section
3.2 as provided therein. Each Executive may defer up to 50% of his Base Salary
and up to 100% of his Bonuses hereunder.
(b) Employer Matching Contributions. From time to time, there shall be
credited to the Account of each Executive an amount equal to a percentage of
such Executive's Elective Deferrals, such percentage to be determined by the
Committee in its discretion (the "Matching Contributions" and collectively with
the Executive Deferrals, the "Deferred Compensation Benefits").
(c) Vesting. The Executive shall at all times be 100% vested in Executive
Deferrals credited to his Account, and termination of the Executive's employment
with the Company for any reason shall not in any way diminish the Executive's
right to such deferrals. The Executive shall become vested in Matching
Contributions credited to his Account in accordance with such terms and
conditions as the Committee may from time to time establish; provided, however,
that the Executive shall become 100% vested in the non-vested portion of such
Matching Contributions upon the occurrence of a Change in Control; except that
the Executive shall not become vested upon the occurrence of a Change in
Control to the extent such vesting would cause any portion of the Deferred
Compensation Benefits to constitute an "excess parachute payment" under
Section 280G of the Internal Revenue Code of 1986, as amended. For purposes
hereof, the Board shall determine in its sole discretion whether and to what
extent any Deferred Compensation Benefits constitute "excess parachute
payments" hereunder.
(d) Payment Dates. Each deferral election described in subparagraph (a)
above shall also contain the Executive's election regarding the time or times
of the payment of the portion of his Deferred Compensation Benefits to which
such election relates (the "Payment Date" or "Payment Date"); provided, however,
that:
4
<PAGE> 5
(i) the Executive shall not be entitled to receive distribution of
any portion of his Deferred Compensation Benefits prior to the earlier of
(A) sixty (60) days after termination of the Executive's employment by the
Employer for any reason, or (B) the Executive's attaining age fifty five
(55); and
(ii) if an Executive (as permitted by the Committee pursuant to
subparagraph (e)(ii) below) elects to receive such Deferred Compensation
Benefits in installment payments, all such installment payments must
commence on the same Payment Date and must be payable over the same number
of months.
(e) Form of Payment. Each deferral election described in subparagraph (a)
above shall also contain the Executive's election regarding the form of payment
of the portion of his Account to which such election applies. In each election
form, the Executive may elect to receive payment of the portion of his Account
to which such election applies in one or a combination of the following forms:
(i) a lump sum payment; or
(ii) to the extent permitted by the Committee in its discretion, in
equal monthly installments over a period not exceeding sixty (60) months.
(f) Deferral Elections; Modifications. Each deferral election described
in subparagraph (a) above shall be made at such time and in such manner as
determined by the Committee but in no event later than ten (10) days prior to
the beginning of the calendar year for which it is to be effective; provided,
however, that in the initial Plan Year, or the year in which an Executive first
becomes eligible to participate in the Plan, such election may be made within
thirty (30) days after the Plan becomes effective or the Executive becomes
eligible to participate, as the case may be. Except as otherwise provided in
the preceding sentence, an Executive may defer hereunder only Base Salary that
is earned, and Bonuses that are fixed and paid, on and after the date the
election is filed with the Committee. Unless otherwise provided herein or on an
election form, (i) any elections made pursuant to subparagraphs (a), (d) and
(e) above shall remain in effect until changed or terminated by the Executive
by written notice delivered to the Committee (in accordance with rules
established by the Committee), and (ii) any elections made pursuant to
subparagraphs (d) and (e) above shall be irrevocable as to any Deferred
Compensation Benefits that accrue while such elections are in effect.
Notwithstanding the foregoing:
(A) a deferral election pursuant to subparagraph (a)
above shall automatically terminate on the earliest to occur of (1) the
termination of the Executive's employment by an Employer for any reason,
(2) the Insolvency of the Executive's Employer, (3) the determination by
the Committee that the Executive is no longer eligible to participate in
the Plan, (4) the termination of the Plan, or (5) a Change in Control; and
5
<PAGE> 6
(B) if permitted by the Committee in its discretion, an
Executive may change any Payment Date(s) previously designated by the
Executive pursuant subparagraph (d) above, provided that (1) the new
Payment Date(s) must be later in time than the Payment Date(s)
previously designated, (2) the Executive files an election designating
the new Payment Date(s) not later than one year prior to the date the
Executive would otherwise begin receiving Deferred Compensation
Benefits hereunder, and (3) the new Payment Date(s) designated by the
Executive otherwise comply with the requirements of subparagraph (d)
above.
SECTION 3.2 PARTICIPANT'S ACCOUNTS. Each Employer shall establish
and maintain an Account for each Participant, which shall be credited for
Executive Deferrals and Matching Contributions and debited for any
distributions of Deferred Compensation Benefits. No Participant shall be
entitled to interest or other earnings on amounts credited to his Account.
ARTICLE IV
DISTRIBUTION OF BENEFITS TO PARTICIPANTS
SECTION 4.1 TIME AND MANNER OF PAYMENT.
(a) Timing. Except as otherwise provided or permitted by the Plan,
Deferred Compensation Benefits shall be paid (or commence to be paid) to the
Participant on the Payment Date(s) specified in the Participant's deferral
election form.
(b) Form. Except as otherwise provided or permitted by the Plan,
Deferred Compensation Benefits shall be paid to the Participant in the form
specified in the Participant's deferral election form.
(c) Unforeseeable Emergency Distributions. Notwithstanding the
foregoing, the Committee may at any time, upon written request of the
Participant, cause to be paid to such Participant an amount equal to all or any
part of such Participant's Account if the Committee determines, in its absolute
discretion based on such reasonable evidence that it shall require, that such a
payment or payments is necessary for the purpose of alleviating the
consequences of an Unforeseeable Emergency occurring with respect to the
Participant. Payments of amounts because of an Unforeseeable emergency shall be
permitted only to the extent reasonably necessary to satisfy the emergency need
and shall not be permitted to the extent such need may be relieved through
reimbursement or compensation or otherwise, by liquidation of the Participant's
assets (to the extent liquidation would not itself cause severe financial
hardship), or by the cessation of deferrals under the Plan.
(d) Small Accounts. If a Participant's Account is less than $20,000
at the time of the termination of the Participant's employment by the Employer,
such Participant's Deferred
<PAGE> 7
Compensation Benefits shall automatically be paid to him in a single lump sum
payment as soon as practicable following his termination of employment.
(e) Withholding. Because the Executive Deferrals are considered wages for
purposes of the Federal Insurance Contribution Act (FICA), the Company shall
withhold from a Participant's Base Salary or Bonus such amounts as are necessary
to satisfy its withholding obligations thereunder as to such Executive
Deferrals. In addition, the Employer shall deduct from any distributions
hereunder any taxes or other amounts required by law to be withheld therefrom.
SECTION 4.2 EXPENSES; LIABILITY FOR BENEFITS. The Company and each
Subsidiary which adopts the Plan shall be liable for the payment of the
Deferred Compensation Benefits which are payable hereunder to its employees and
for its pro rata portion of the expenses of administering the Plan, as
determined by the Committee.
ARTICLE V
BENEFICIARIES
SECTION 5.1 BENEFICIARY DESIGNATIONS. A designation of a Beneficiary
hereunder may be made only by an instrument (in form acceptable to the
Committee) signed by the Participant and filed with the Committee prior to the
Participant's death. In the absence of such a designation and at any other time
when there is no existing Beneficiary designated hereunder, the Beneficiary of
a Participant shall be his estate. A person designated by a Participant as his
Beneficiary who or which ceases to exist shall not be entitled to any part of
any payment thereafter to be made to the Participant's Beneficiary unless the
Participant's designation specifically provides to the contrary. If two or more
persons designated as a Participant's Beneficiary are in existence with respect
to a single Deferred Compensation Benefit, the amount of any payment to the
Beneficiary under this Plan shall be divided equally among such persons, unless
the Participant's designation specifically provided to the contrary.
SECTION 5.2 CHANGE IN BENEFICIARY. A Participant may, at any time and
from time to time, change a Beneficiary designation hereunder without the
consent of any existing Beneficiary or any other person. Any change in
Beneficiary shall be made by giving written notice thereof to the Committee and
any change shall be effective only if received by the Committee prior to the
death of the Participant.
SECTION 5.3 DISTRIBUTIONS TO BENEFICIARIES. The Beneficiary or
Beneficiaries of a Participant shall be entitled to receive the unpaid Deferred
Compensation Benefits to which the Participant was entitled at his death
payable in a lump sum as soon as practicable following the date of the
Participant's death.
7
<PAGE> 8
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 LIABILITY OF EMPLOYER. Nothing in this Plan shall
constitute the creation of a trust or other fiduciary relationship between an
Employer and any Participant, Beneficiary or any other person.
SECTION 6.2 OWNERSHIP OF ASSETS; RELATIONSHIP WITH COMPANY.
Notwithstanding anything herein to the contrary, Participants shall have no
right, title or interest whatsoever in or to the Accounts or the Deferred
Compensation Benefits. Nothing contained in the Plan, and no action taken
pursuant to its provisions, shall create or be construed to create a trust of
any kind or a fiduciary relationship between the Company and any Participant or
any other person. To the extent that any person acquires a right to receive
payments from the Company under this Plan, such right shall be no greater than
the right of an unsecured general creditor of the Company.
SECTION 6.3 NO GUARANTEE OF EMPLOYMENT. Nothing in this Plan shall be
construed as guaranteeing future employment to any Participant. Except as
otherwise set forth in a written agreement, an Executive who elects to become a
Participant continues to be an employee of an Employer solely at the will of
such Employer subject to discharge at any time, with or without cause.
SECTION 6.4 PAYMENT TO GUARDIAN. If a benefit payable hereunder is
payable to a minor, to a person declared incompetent or to a person incapable
of handling the disposition of his property, the Committee may direct payment
of such benefit to the guardian, legal representative or person having the care
and custody of such minor, incompetent or person. The Committee may require
such proof of incompetency, minority, incapacity or guardianship as it may deem
appropriate prior to distribution of the benefit. Such distribution shall
completely discharge the Employers from all liability with respect to such
benefit.
SECTION 6.5 ASSIGNMENT. No right or interest under this Plan of any
Participant or Beneficiary shall be assignable or transferable in any manner or
be subject to alienation, anticipation, sale, pledge, encumbrance or other
legal process or in any manner be liable for or subject to the debts or
liabilities of the Participant or Beneficiary.
SECTION 6.6 SEVERABILITY. If any provision of this Plan or the
application thereof to any circumstance(s) or person(s) is held to be invalid
by a court of competent jurisdictions, the remainder of the Plan and the
application of such provision to other circumstances or persons shall not be
affected thereby.
SECTION 6.7 TOP HAT PLAN. The Plan is intended to qualify as a "top
hat" plan maintained primarily for purposes of providing benefits for a select
group of management and highly compensated employees within the meaning of
Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.
8
<PAGE> 9
ARTICLE VII
ADMINISTRATION OF PLAN
SECTION 7.1 ADMINISTRATION.
(a) General. The Plan shall be administered by the Committee. The
Committee shall have sole and absolute discretion to interpret where necessary
all provisions of the Plan (including, without limitation, by supplying
omissions from, correcting deficiencies in, or resolving inconsistencies or
ambiguities in, the language of the Plan), to determine the rights and status
under the Plan of Participants, Executives, or other persons, to resolve
questions or disputes arising under the Plan and to make any determinations
with respect to the benefits payable under the Plan and the persons entitled
thereto as may be necessary for the purposes of the Plan. The Committee's
determination of the rights of any employee or former employee hereunder shall
be final and binding on all persons, subject only to the claims procedures
outlined in Section 7.3 hereof.
(b) Delegation of Duties. The Committee may delegate any of its
administrative duties, including, without limitation, duties with respect to
the processing, review, investigation, approval and payment of Deferred
Compensation Benefits, to a named administrator or administrators.
SECTION 7.2 REGULATIONS. The Committee may promulgate any rules and
regulations it deems necessary in order to carry out the purposes of the Plan
or to interpret the provisions of the Plan; provided, however, that no rule,
regulation or interpretation shall be contrary to the provisions of the Plan.
The rules, regulations and intepretations made by the Committee shall, subject
only to the claims procedure outlined in Section 7.3 hereof, be final and
binding on all persons.
SECTION 7.3 ERISA PROVISIONS. The Committee shall determine the rights of
any employee or former employee to any Deferred Compensation Benefits
hereunder. Any employee or former employee who believes that he has not
received the Deferred Compensation Benefits to which he is entitled under the
Plan may file a claim in writing with the Committee. The Committee shall, no
later than 90 days after the receipt of a claim (plus an additional period of
90 days if required for processing, provided that notice of the extension of
time is given to the claimant within the first 90 day period), either allow or
deny the claim in writing. If a claimant does not receive written notice of the
Committee's decision on his claim within the above-mentioned period, the claim
shall be deemed to have been denied in full.
A denial of a claim by the Committee, wholly or partially, shall be
written in a manner calculated to be understood by the claimant and
shall include:
(a) the specific reasons for the denial;
(b) specific reference to pertinent Plan provisions on which the denial
is based;
<PAGE> 10
(c) a description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why such material or
information is necessary; and
(d) an explanation of the claim review procedure.
A claimant whose claim is denied (or his duly authorized representative)
may within 60 days after receipt of denial of a claim file with the Committee a
written request for a review of such claim. If the claimant does not file a
request for review of his claim within such 60-day period, the claimant shall
be deemed to have acquiesced in the original decision of the Committee on his
claim. If such an appeal is so filed within such 60 day period, the Company (or
its delegate) shall conduct a full and fair review of such claim. During such
review, the claimant shall be given the opportunity to review documents that
are pertinent to his claim and to submit issues and comments in writing.
The Company shall mail or deliver to the claimant a written decision on
the matter based on the facts and the pertinent provisions of the Plan within
60 days after the receipt of the request for review (unless special
circumstances require an extension of up to 60 additional days, in which case
written of such extension shall be given to the claimant prior to the
commencement of such extension). Such decision shall be written in a manner
calculated to be understood by the claimant, shall state the specific reasons
for the decision and the specific Plan provisions on which the decision was
based and shall, to the extent permitted by law, be final and binding on all
interested persons. If the decision on review is not furnished to the claimant
within the above-mentioned time period, the claim shall be deemed to have been
denied on review.
SECTION 7.4 REVOCABILITY OF COMMITTEE/COMPANY ACTION. Any action taken
by the Committee or the Company with respect to the rights or benefits under
the Plan of any employee or former employee shall be revocable by the Committee
or the Company as to payments not yet made to such person, and acceptance of
any Deferred Compensation Benefits under the Plan constitutes acceptance of
and agreement to the Committee's or the Company's making any appropriate
adjustments in future payments to such person (or to recover from such person)
any excess payment or underpayment previously made to him.
SECTION 7.5 AMENDMENT. The Board may at any time (without the consent
of any Subsidiary which adopts the Plan) amend any or all of the provisions of
this Plan, except that no such amendment may (a) reduce the balance of any
Participant's Account upon a "Change in Control, without the prior written
consent of such Participant. Any amendment shall be in the form of a written
instrument executed by an officer of the Company pursuant to a resolution
adopted by the Board. Subject to the foregoing provisions of this Section 7.5,
such amendment shall become effective as of the date specified in such
instrument or, if no such date is specified, on the date of its execution.
SECTION 7.6. TERMINATION. The Board, in its discretion (without the
consent of any Subsidiary which adopts the Plan), may terminate this Plan at
any time and for any reason
11
<PAGE> 11
whatsoever, except that no such termination may (a) reduce the balance of any
Participant's Account as of the date of such termination or (b) change the
provisions of the Plan applicable to a Participant's Account upon a Change in
control, without the prior written consent of such Participant. Any such
termination shall be expressed in the form of a written instrument executed by
an officer of the Company pursuant to a resolution adopted by the Board of
Directors. Subject to the foregoing provisions of this Section 7.6, such
termination shall become effective as of the date specified in such instrument
or, if no such date is specified, on the date of its execution. Written notice
of any termination shall be given to the Participants as soon as practicable
after the instrument is executed.
Executed this 15th day of September, 1997.
SAFESKIN CORPORATION
By: /S/ David L. Morash
---------------------------------------
Title: Executive Vice President and
Chief Financial Officer
11
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, FOR NINE MONTHS ENDED SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income............ $11,559,642 $7,051,929 $29,253,250 $18,690,603
=========== ========== =========== ===========
Weighted average
number of shares of
common stock
outstanding........... 26,180,365 25,736,038 26,044,262 25,377,470
Net effect of
dilutive stock
options--based on the
treasury stock method
using average market
price................. 3,358,155 2,500,230 2,980,971 2,101,960
--------- --------- --------- ---------
Total weighted
average number of
shares of common
stock and common
stock equivalents
outstanding........... 29,538,520 28,236,268 29,025,233 27,479,430
========== ========== ========== ==========
Net income per common
share................ $0.39 $0.25 $ 1.01 $ 0.68
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 20,218,051
<SECURITIES> 0
<RECEIVABLES> 21,122,527
<ALLOWANCES> 0
<INVENTORY> 22,215,178
<CURRENT-ASSETS> 4,685,707
<PP&E> 58,263,084
<DEPRECIATION> 0
<TOTAL-ASSETS> 136,161,761
<CURRENT-LIABILITIES> 26,495,578
<BONDS> 0
0
0
<COMMON> 262,799
<OTHER-SE> 109,403,384
<TOTAL-LIABILITY-AND-EQUITY> 136,161,761
<SALES> 133,013,441
<TOTAL-REVENUES> 133,013,441
<CGS> 71,455,376
<TOTAL-COSTS> 71,455,376
<OTHER-EXPENSES> 2,519,819
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (544,901)
<INCOME-PRETAX> 32,922,349
<INCOME-TAX> 3,669,099
<INCOME-CONTINUING> 29,253,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,253,250
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
</TABLE>
