-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, mMBdh+4Op0Bt5StnBNOF5CnEBj2vzUDY0T8AvCOSA7AR05W9vIkBfgTK24B1g5dr NneK00cbYObNoKbscT/yAw== 0000890163-95-000009.txt : 19950622 0000890163-95-000009.hdr.sgml : 19950622 ACCESSION NUMBER: 0000890163-95-000009 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950621 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARTER WALLACE INC /DE/ CENTRAL INDEX KEY: 0000018000 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 134986583 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-05910 FILM NUMBER: 95548331 BUSINESS ADDRESS: STREET 1: 1345 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10105 BUSINESS PHONE: 2123395000 10-K405 1 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, 1995 Commission File Number 1-5910 CARTER-WALLACE, INC. (Exact name of registrant as specified in its charter) Delaware 13-4986583 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 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 1, 1995 was 33,600,414 and 12,512,858, respectively. The aggregate market value of voting stock held by non-affiliates of the registrant as of June 1, 1995 was approximately $257,205,000. DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Stockholders for the fiscal year ended March 31, 1995 Parts I & II Proxy Statement for the Annual Meeting of Stockholders, to be held July 18, 1995 Parts III & IV Part I ITEM 1. BUSINESS Carter-Wallace, Inc. (the "Company") is engaged in the manufacture and sale of a diversified line of products in the Consumer Products and Health Care segments. Additional information is presented on page 13 "Description of Business Segments" of the 1995 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, 1995 is presented on pages 8 and 9 under the caption "Net Sales and Earnings" and also on pages 26 and 27, note 14, "Business Segments" of the Notes to Consolidated Financial Statements, both included in the 1995 Annual Report to Stockholders and are herein expressly incorporated by reference. FOREIGN OPERATIONS Foreign operations are generally subject to certain political and economic risks that are not present in domestic operations. Such risks may include expropriation of assets, restrictions on earnings remittances and fluctuating exchange rates. Changes in foreign exchange rates had the effect of decreasing sales by $1,300,000 in the fiscal year ended March 31, 1995 in comparison to the prior year. Additional information is presented on page 20, note 4, "Foreign Operations" of the Notes to Consolidated Financial Statements of the 1995 Annual Report to Stockholders and is herein expressly incorporated by reference. COMPETITION Both business segments in which the Company operates are extremely competitive and include larger corporations with greater resources for research, product development and promotion. The Company competes on the basis of price, advertising, promotion, quality of product and other methods relevant to the business. In 1995, the Company's "Arrid" line of anti-perspirants and deodorants is believed to account for an estimated 8.3% share of the domestic anti-perspirant and deodorant market. The "Trojan" condom line is estimated to account for over 60% of total domestic retail condom sales. The Company's worldwide condom sales were approximately $91,900,000, $88,300,000 and $88,600,000 in the fiscal years ended March 31, 1995, 1994 and 1993, respectively. In June, 1994 the Company and the Food and Drug Administration (FDA) reached an agreement to discontinue the manufacture and shipment of its "Organidin" (iodinated glycerol) line of products. The Company has introduced a reformulated line of "Organidin" products, marketed as "Organidin NR". Sales of the "Organidin" product line including both iodinated glycerol and NR, were approximately $32,800,000, $74,400,000 and $43,400,000 in the fiscal years ended March 31, 1995, 1994 and 1993, respectively. Additional information is presented on pages 8 and 9 under the caption "Net Sales and Earnings" in the 1995 Annual Report to Stockholders and is herein expressly incorporated by reference. 1 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 has two or more approved suppliers for production materials and issues purchase commitments to provide its suppliers with adequate lead time. PATENTS AND LICENSES The Company owns or is licensed under a number of patents and patent applications covering several of its products. The expiration or any other change in any of these patents or patent applications will not materially affect the Company's business. Royalty income does not constitute a material portion of total revenue. In April, 1992, Carter-Wallace entered into a licensing agreement with Schering-Plough Corporation. Additional information is presented on pages 8 and 11 under the captions "Net Sales and Earnings" and "Felbatol (felbamate)" both included in the 1995 Annual Report to Stockholders and are herein expressly incorporated by reference. RESTRUCTURING OF OPERATIONS AND FACILITIES Information regarding the Company's restructuring of operations and facilities is presented on page 10 under the caption "Restructuring of Operations and Facilities" and on pages 25 and 26 in note 13, "Restructuring of Operations and Facilities" of the Notes to Consolidated Financial Statements, both included in the 1995 Annual Report to Stockholders and are herein expressly incorporated by reference. FELBATOL (FELBAMATE) Information regarding the effect of "Felbatol" matters on the Company's business is presented on pages 10 and 11 under the caption "Felbatol (felbamate)" and on page 29 in note 17, "Felbatol (felbamate)" of the Notes to Consolidated Financial Statements, both included in the 1995 Annual Report to Stockholders and are herein expressly incorporated by reference. ENVIRONMENTAL MATTERS Information regarding environmental matters is presented on pages 11 and 12 under the caption "Environmental Matter" and on page 30 in note 19, "Litigation including Environmental Matters" of the Notes to Consolidated Financial Statements, both included in the 1995 Annual Report to Stockholders and are herein expressly incorporated by reference. 2 RESEARCH AND DEVELOPMENT Expenditures for research and development totaled $41,315,000 in 1995, $52,278,000 in 1994 and $49,903,000 in 1993. Research and development expenses decreased 21% in 1995 and increased 5% in 1994. The decline in 1995 was due to the significant reduction of felbamate clinical studies and the termination of "Organidin" (iodinated glycerol) clinical studies. The increase in 1994 was primarily related to "Felbatol" for the treatment of seizures associated with epilepsy and "Astelin" (azelastine) for rhinitis and asthma. The three "Astelin" (azelastine) New Drug Applications ("NDA") are pending at the FDA. Answers to all outstanding questions for the "Astelin" Nasal Spray non-approvable letter will be submitted to the FDA in June, 1995 and remaining chemistry work is expected to be completed by September, 1995. The FDA has suggested that a fall, 1995 Advisory Committee meeting for the "Astelin" Nasal Spray NDA might be possible pending satisfactory review of our June responses. Additional formulation work will be required to satisfactorily complete work on the "Astelin" tablet for rhinitis NDA which will remain pending during fiscal year 1996. The "Astelin" tablet for asthma NDA will be withdrawn following the recently completed analysis of two steroid sparing trials which did not support the product's efficacy in treating asthma. A large scale, multi-center clinical efficacy trial was initiated for taurolidine, an antitoxin for the treatment of sepsis, in October, 1994. D-23129, a new chemical entity with anticonvulsant activity in preclinical testing, was accepted by Carter-Wallace as a development compound from ASTA Medica AG during fiscal year 1994. ASTA Medica will begin Phase I clinical trials in Germany during 1995. Discussions are underway with ASTA regarding what role, if any, Carter-Wallace will play in the future development of this product in the United States. Approximately 160 employees are employed in research and development activities. Additional information regarding the Company's research and development capability is presented on page 10 under the caption "Restructuring of Operations and Facilities" included in the 1995 Annual Report to Stockholders and is herein expressly incorporated by reference. EMPLOYEES The Company has been in existence since 1880 and together with its subsidiaries employed approximately 3,670 people worldwide at March 31, 1995. REGULATORY MATTERS Information regarding the effect of Regulatory Matters on the Company's business is presented on page 11 under the caption "Regulatory Matters" and on pages 29 and 30 in note 18, "Regulatory Matters" of the Notes to Consolidated Financial Statements, both included in the 1995 Annual Report to Stockholders and are herein expressly incorporated by reference. 3 ACQUISITIONS Information regarding acquisitions is presented on page 25 in note 11, "Acquisitions" of the Notes to Consolidated Financial Statements, included in the 1995 Annual Report to Stockholders and is herein expressly incorporated by reference. ITEM 2. PROPERTIES The executive offices of the Company and a divisional headquarters are located at 1345 Avenue of the Americas, New York, New York, in space leased until May, 2011. The Company is in the process of relocating the divisional headquarters to its Cranbury, New Jersey facility. The following are principal facilities of the Company: AREA LOCATION PRODUCTS MANUFACTURED (SQ. FEET) - -------- --------------------- ---------- OWNED IN FEE: - ------------- MANUFACTURING FACILITIES AND OFFICES: Colonial Heights, Virginia (1) Condoms 68,000 Cranbury, New Jersey Pharmaceuticals, toiletries and pet products 734,000 Decatur, Illinois Pharmaceuticals 108,000 Trenton, New Jersey Condoms, pediculicide, lubricating jelly and pet products 169,500 Winsted, Connecticut Pet products 45,000 Montreal, Canada Pharmaceuticals 162,000 Toronto, Canada Toiletries 52,000 Folkestone, England Toiletries 75,000 Milan, Italy Pharmaceuticals and diagnostics 52,000 Pisa, Italy Toiletries, adhesive tapes and bandages 49,000 Mexico City, Mexico Pharmaceuticals and diagnostics 63,000 (1) Purchased in April, 1995 LEASED: - ------- MANUFACTURING FACILITIES AND OFFICES: Santa Ana, California Toiletries 10,400 Mexico City, Mexico Toiletries 56,000 Barcelona, Spain Toiletries 58,600 Milan, Italy Diagnostics 21,000 WAREHOUSE AND OFFICES: Dayton, New Jersey 200,000 Momence, Illinois 43,000 Plainsboro, New Jersey * 45,000 Sydney, Australia 19,000 Folkestone, England 40,000 Clichy, France * 11,800 Revel, France 36,000 * OFFICES ONLY 4 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. The Company has announced the planned closure of its East Windsor and Trenton, New Jersey facilities. The East Windsor facility (156,000 sq. ft.) is scheduled to be closed by October, 1995. The closure of the Trenton facility is scheduled over a projected period of eighteen to twenty-four months. With minor exceptions, all other facilities are operating at normal capacity. Maintenance and Repairs were $6,950,000 in 1995, $7,950,000 in 1994 and $7,550,000 in 1993. ITEM 3. LEGAL PROCEEDINGS Information regarding Legal Proceedings involving the Company is presented on page 6 under the caption "Litigation" and on pages 30 through 32 in note 19, "Litigation including Environmental Matters" of the Notes to Consolidated Financial Statements, both included in the 1995 Annual Report to Stockholders and are herein expressly incorporated by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 5 EXECUTIVE OFFICERS OF THE REGISTRANT Executive Officers of the Registrant are as follows: HELD PRESENT NAME AGE OFFICE OFFICE SINCE - ------- --- ------ ------------ Henry H. Hoyt, Jr. 67 Chairman of the Board and Chief Executive Officer 1974 Daniel J. Black 63 President and Chief Operating Officer 1979 John Bridgen, Ph.D. 48 Vice President, Diagnostics, U.S. 1984 Robert A. Cuthbert 68 Vice President, Pet Products, U.S. 1983 Donald R. Daoust,Ph.D. 59 Vice President, Quality Control 1978 Miguel Fernandez 64 Vice President, International 1980 Peter J. Griffin 52 Vice President and Controller 1983 John R. Hughes 57 Vice President, Consumer Products, U.S. 1991 Michael J. Kopec 55 Vice President, Manufacturing 1978 Ralph Levine 58 Vice President, Secretary and General Counsel 1976 Thomas B. Moorhead 61 Vice President, Human Resources 1987 George H. Ohye 59 Vice President, Compliance and Regulatory 1994 Herbert Sosman 62 Vice President, Pharmaceuticals, U.S. 1984 Donald J. Stack 57 Vice President, Taxes 1989 C. Richard Stafford 59 Vice President, Corporate Development 1977 Paul A. Veteri 53 Vice President, Finance and Chief Financial Officer 1983 James L. Wagar 60 Vice President and Treasurer 1981 6 EXECUTIVE OFFICERS OF THE REGISTRANT (CONT'D) 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 18, 1995. Mr. John R. Hughes was appointed Vice President, Consumer Products, U.S., in June, 1991 and President, Carter Products Division in April, 1991. He was employed by Vermont Castings, Inc. since prior to June, 1990. Mr. George H. Ohye was appointed Vice President, Compliance and Regulatory in April, 1994. Mr. Ohye was previously Senior Vice President, Regulatory Affairs with Johnson & Johnson's R.W. Johnson Pharmaceutical Research Institute since prior to 1990. He held the concomitant position of Member, Board of Directors of the Ortho-McNeil Pharmaceutical Division of Johnson & Johnson. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK- HOLDER MATTERS Information required by this item is presented on pages 1 and 7 of the 1995 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 1995 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 12 of the 1995 Annual Report to Stockholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this item is incorporated herein by reference to pages 14 through 35 of the 1995 Annual Report to Stockholders. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 7 PART III 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 for the Annual Meeting of Stockholders to be held July 18, 1995, to be filed with the Securities and Exchange Commission under the captions "Election of Directors" and "Board of Directors and Committees" and "Principal Stockholders". Information with respect to Executive Officers of the Registrant is set forth under the heading "Executive Officers of the Registrant" in Part I on pages 6 and 7 of this Form. ITEM 11. EXECUTIVE COMPENSATION Information required by this item is incorporated herein by reference to the Company's Proxy Statement for the Annual Meeting of Stockholders to be held July 18, 1995, to be filed with the Securities and Exchange Commission 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 for the Annual Meeting of Stockholders to be held July 18, 1995, to be filed with the Securities and Exchange Commission under the captions "Voting Rights", "Principal Stockholders" and "Election of Directors". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item is incorporated herein by reference to the Company's Proxy Statement for the Annual Meeting of Stockholders to be held July 18, 1995, to be filed with the Securities and Exchange Commission under the captions "Principal Stockholders" and "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. 8 (A) (3) EXHIBITS 3.1 Certificate of Incorporation, as amended, of the Company (incorporated herein by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1992). 3.2 By-Laws of the Company, as amended (incorporated herein by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993). 10.2 1977 Restricted Stock Award Plan, as amended (incorporated herein by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1990). 10.3 Employees' Retirement Plan, as amended (incorporated herein by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993). 10.4 Profit Sharing Plan (incorporated herein by reference to the description of such plan set forth in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held July 18, 1995, to be filed with the Securities and Exchange Commission 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 for the Annual Meeting of Stockholders to be held July 18, 1995, to be filed with the Securities and Exchange Commission under the caption "Executive Compensation and Other Information"). 10.6 Employment Agreement dated April 24, 1992, as amended, between the Company and Daniel J. Black (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, 1992). 10.7 Employment Agreement dated April 10, 1992 between the Company and Ralph Levine (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, 1992). 10.8 Employment Agreement dated April 10, 1992 between the Company and Paul A. Veteri (incorporated herein by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1992). (Continued) 9 (A) (3) EXHIBITS (CONT'D) 10.9 Employment Agreement dated November 14, 1991 between the Company and Herbert Sosman (incorporated herein by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1992). 10.10 Supplemental Death Benefit Agreement, as amended (incorporated herein by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993). 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. 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). 13 Annual Report to Stockholders for the fiscal year ended March 31, 1995. 21 Subsidiaries. 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, 1995. 10 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 21, 1995 BY: s/Daniel J. Black Daniel J. Black 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 21, 1995 - -------------------- Chief Executive Officer, Henry H. Hoyt, Jr. Director (Principal Execu- tive Officer) s/Daniel J. Black President and Chief Opera- June 21, 1995 - ------------------- ting Officer, Director Daniel J. Black s/David M. Baldwin Director June 21, 1995 - -------------------- David M. Baldwin s/Dr. Richard L. Cruess Director June 21, 1995 - -------------------- Dr. Richard L. Cruess s/Scott C. Hoyt Director June 21, 1995 - -------------------- Scott C. Hoyt s/Ralph Levine Vice President, Secretary June 21, 1995 - -------------------- and General Counsel, Ralph Levine Director 11 SIGNATURE TITLE DATE - --------- ----- ---- s/Herbert M. Rinaldi Director June 21, 1995 - -------------------- Herbert M. Rinaldi s/Paul A. Veteri Vice President, Finance, June 21, 1995 - -------------------- Director (Principal Paul A. Veteri Financial Officer) s/Peter J. Griffin Vice President and June 21, 1995 - -------------------- Controller (Principal Peter J. Griffin Accounting Officer) 12 CARTER-WALLACE, INC. AND SUBSIDIARIES INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE The consolidated financial statements and the related report of KPMG Peat Marwick LLP dated May 3, 1995 appearing on pages 14 through 35 of the 1995 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, 1995 16 All other financial statement schedules are omitted because they are not applicable or not required or because the information is included in the consolidated financial statements or related notes. 13 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Carter-Wallace, Inc.: Under date of May 3, 1995, we reported on the consolidated balance sheets of Carter-Wallace, Inc. and subsidiaries as of March 31, 1995 and 1994, and the related consolidated statements of earnings and retained earnings and cash flows for each of the years in the three-year period ended March 31, 1995, as contained in the 1995 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 1995. 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. As discussed in Notes 3 and 8 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statements No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions", No. 109 "Accounting for Income Taxes" and No. 112 "Employers' Accounting for Postemployment Benefits" in 1994. As a result of the Felbatol matters discussed in Note 17 to the consolidated financial statements, the Company incurred in the year ended March 31, 1995 a one-time charge to pre-tax earnings of $37,780,000. As further discussed, depending on future sales levels, additional inventory write-offs may be required. At the present time Felbatol continues to be available on the market. If for any reason the product at some future date is no longer available in the market, the Company will incur an additional one-time charge that would have a material adverse effect of the Company's results of operations and possibly on its financial condition. Should the product no longer be available, the Company currently estimates that the additional one-time charge, consisting primarily of inventory write-offs and anticipated returns of product currently in the market, will be in the range of $30,000,000 to $35,000,000 on a pre-tax basis. (CONTINUED) 14 INDEPENDENT AUDITORS' REPORT (CONTINUED) As discussed in Note 19 to the consolidated financial statements, the Company is a defendant in several lawsuits including two product liability class action suits, two federal securities class action suits, one state court action suit and seven individual product liability suits related to Felbatol, three class action suits involving alleged price fixing within the pharmaceutical industry and a patents infringement suit involving the Company's diagnostic products. In addition, an alleged shareholder of the Company instituted an action which purports to be brought derivatively on behalf and for the benefit of the Company against the directors of the Company for breach of fiduciary duty, gross mismanagement and waste of corporate assets in connection with the development and marketing of Felbatol. The Company believes, based on opinion of counsel, it has good defenses to each of the above-described legal actions and should prevail. In addition, product liability claims related to Felbatol use have been threatened against the Company. At this point, the Company cannot evaluate the merits of such claims and does not know whether or to what extent legal actions will arise from such claims, and therefore, is unable to predict the financial impact they may have. The ultimate outcome of all of these matters cannot presently be determined. Accordingly, no provision for any liability has been recognized in the accompanying financial statements. KPMG PEAT MARWICK LLP New York, New York June 21, 1995 15 SCHEDULE II CARTER-WALLACE, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Three Years Ended March 31, 1995 (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, 1995: Deducted from assets to which they apply: Allowance for doubtful accounts $4,284 $ 2,043 (c) $ - $1,500 (a)(c) $ 4,827 Allowance for cash discounts 1,671 8,127 - 8,281 (b) 1,517 ------ ------- ------ ------ ------- $5,955 $10,170 $ - $9,781 $ 6,344 ------ ------- ------ ------ ------- Reserve for Property Plant and Equipment $ - $18,028 $ - $3,720 $14,308 ------ ------- ------ ------ ------- YEAR ENDED MARCH 31, 1994: Deducted from assets to which they apply: Allowance for doubtful accounts $3,589 $ 1,121 $ - $ 426 (a) $ 4,284 Allowance for cash discounts 2,050 8,200 - 8,579 (b) 1,671 ------ ------- ------ ------ ------- $5,639 $ 9,321 $ - $ 9,005 $ 5,955 ------ ------- ------ ------ ------- YEAR ENDED MARCH 31, 1993: Deducted from assets to which they apply: Allowance for doubtful accounts $4,860 $ 1,606 (d) $ - $ 2,877 (a)(d) $ 3,589 Allowance for cash discounts 1,995 7,719 - 7,664 (b) 2,050 ------ ------- ------ ------ ------- $6,855 $ 9,325 $ - $10,541 $ 5,639 ------ ------- ------ ------ ------- NOTES: (a) Accounts written off and recovered. (b) Net discounts allowed to customers. (c) Includes $529 related to trade receivables from a drug wholesaler who filed for bankruptcy. (d) Includes $1,200 related to trade receivables from Phar-Mor, Inc., a drugstore chain which has filed for bankruptcy. EX-10.14 2 EXHIBIT 10.14 CARTER-WALLACE, INC. Executive Pension Benefits Plan (As Amended Effective April 1, 1995) 1. Purpose of the Plan This Carter-Wallace, Inc. Executive Pension Benefits Plan, as amended and restated (the "Plan"), is effective with respect to eligible employees who retire or otherwise terminate employment after having been actively employed on at least one day on or after April 1, 1995. The Plan is intended to replace the benefits that certain employees would be entitled to receive under the Employees' Retirement Plan of Carter-Wallace, Inc. (the "Retirement Plan"), but which cannot be paid to such employees as a result of the restrictions imposed by Sections 401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended, which limit the amount of individual compensation that can be recognized and the benefits that can be provided under the Retirement Plan, or because of the exclusion from the Retirement Plan compensation base of annual pay deferred under the Carter-Wallace, Inc. Executive Savings Plan. The Plan is intended to remedy the inequities created by these limitations, as well as to provide enhanced benefits to certain executives upon their retirement or death while in active service. An additional purpose of the Plan is to mitigate the reduction in retirement benefits of certain key executives who elect early retirement. The Plan is also intended to protect the retirement benefit expectations of senior executives against the effects of a Change in Control and as a result of such protection to obtain the continued availability of such executives' services. 2. Definitions (a) "Annuity Starting Date" shall mean the later of (i) the date as of which a participant commences to receive, or receives in a lump sum, his vested accrued benefit under the Retirement Plan or (ii) the first business day of the month coinciding with or next following the participant's retirement or other termination of employment. (b) "Applicable Interest Rate" shall mean the interest rate used under the Retirement Plan as of the Annuity Starting Date, or, if earlier, the Retirement Benefit Date, for purposes of determining lump-sum benefits. (c) "Cause" shall mean the conviction of a felony involving injury to the Company's business or assets. (d) "Change in Control" shall have the meaning ascribed thereto in Section 10. (e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (f) "Company" shall mean Carter-Wallace, Inc. and any successor thereto. (g) "Corporate Officer" shall mean an elected corporate officer of the Company, or an employee or former employee who was an elected corporate officer of the Company at any time after first becoming eligible to elect an immediate retirement benefit under the Retirement Plan. (h) "Death Benefit Date" shall mean the date following a participant's death and preceding his Annuity Starting Date that is (i) the earliest date as of which a participant's spouse is eligible to begin receiving a 50 percent preretirement survivor annuity under the Retirement Plan, or (ii) if earlier, 30 days after the occurrence of a Change in Control; provided, however, that in the case of a participant to whom Section 6(c) applies, the Death Benefit Date shall mean the date 30 days after the administrator receives notification of the participant's death. (i) "Earliest Retirement Date" shall mean the earliest date as of which a participant could elect to retire and begin receiving his benefit under the Retirement Plan, based on the participant's service rendered through the date on which the Earliest Retirement Date is being determined. (j) "Executive Savings Plan" shall mean the Carter-Wallace, Inc. Executive Savings Plan, as amended from time to time. (k) "Immediate Annuity" as of a reference date shall mean a single life annuity commencing on such date. (l) "Includible Compensation" shall mean compensation as defined for benefit calculation purposes under the Retirement Plan, but calculated without regard to the limitation imposed by Section 401(a)(17) of the Code and without excluding amounts that would have constituted includible compensation for benefit calculation purposes under the Retirement Plan had the participant not elected to defer such amounts under the Executive Savings Plan. In addition, in the case of a participant who was a Corporate Officer on the date of his retirement or other termination of employment, or at any time during the six-month period ending on such date, such participant's Includible Compensation during any period relevant to the calculation of his benefit under the Plan shall include any bonuses accrued by such participant during such period under the Company's profit-sharing plan (whether or not the payment of such bonuses is deferred). For purposes of the preceding sentence, a bonus shall be deemed to "accrue" only if it is ultimately awarded, and then shall be deemed to have accrued ratably over the 12 months of the Company's fiscal year to which the bonus relates (or, in the case of a prorated bonus awarded to a participant who retires or otherwise separates from service before the end of the fiscal year, over the months of service during such fiscal year on account of which the bonus is awarded). (m) "Modified Average Compensation" shall mean 12 times the average monthly Includible Compensation of a participant during the 60 months (not necessarily consecutive) out of the participant's last 120 months of continuous service (as defined in the Retirement Plan) affording the highest such average (or during all months of continuous service if less than 60 months). (n) "Normal Retirement Date" shall mean the participant's normal retirement date under the Retirement Plan. (o) "Plan" shall mean this Carter-Wallace, Inc. Executive Pension Benefits Plan, as amended from time to time. (p) "Retirement Benefit Date" shall have the meaning ascribed thereto in Section 8. (q) "Retirement Plan" shall mean the Employees' Retirement Plan of Carter-Wallace, Inc., as amended from time to time. (r) "Savings Plan" shall mean the Carter-Wallace, Inc. Supplemental Retirement and Savings Plan, as amended from time to time. (s) "Supplemental Preretirement Death Benefit" shall mean the benefit payable under the Plan pursuant to Section 6. (t) "Supplemental Retirement Benefit" shall mean the benefit payable under the Plan pursuant to Section 5. 3. Participation Participation in this Plan shall be limited to (i) those employees of the Company whose benefits under the Retirement Plan would be adversely affected by the limitations imposed by Sections 401(a)(17) or 415 of the Code or by the deferral of annual pay under the Executive Savings Plan, and (ii) Corporate Officers. In determining whether an employee's benefit under the Retirement Plan has been adversely affected by Section 415 of the Code, any contributions made to the Savings Plan by the employee which are not matched by the Company, i.e., which exceeded 4% of his compensation as defined in the Savings Plan, shall not be taken into account. Each affected employee shall automatically become a participant in the Plan whenever (i) the application of either of the foregoing Code sections, in the manner described, or the deferral of annual pay under the Executive Savings Plan, would reduce the benefit payable to him under the Retirement Plan in any manner, or (ii) he becomes a Corporate Officer. 4. Vesting A benefit shall be payable under this Plan only to the extent that it is vested. A participant's benefits hereunder shall vest in accordance with the vesting provisions of the Retirement Plan (i.e., at the same time and to the same extent that his benefit under such plan vests); provided, however, that a participant's benefits under the Retirement Plan following a Change in Control shall be deemed to be fully vested for purposes of determining his benefits under this Plan if the participant was actively employed by the Company immediately before such Change in Control, or if his employment with the Company was involuntarily terminated (other than for Cause) by the Company within six months prior to such Change in Control. 5. Supplemental Retirement Benefit (a) Each participant shall be entitled under this Plan to a benefit (the "Supplemental Retirement Benefit") commencing on his Retirement Benefit Date, provided that no benefit shall be payable pursuant to this Section 5 after the death of a participant occurring before his Annuity Starting Date. The amount of such benefit shall be determined by applying the following steps (or, if applicable, the steps described in Section 5(b)), modified, to the extent applicable, by Sections 5(c) through 5(e): (1) Determine the participant's accrued benefit (expressed as an Immediate Annuity as of the Annuity Starting Date) under the applicable provisions of the Retirement Plan, calculated (i) by substituting Modified Average Compensation for the Retirement Plan's definition of final average compensation, and (ii) without regard to any benefit limitation pursuant to Section 415 of the Code. Such Immediate Annuity value shall be determined using the early retirement reduction factors and actuarial assumptions applicable under the Retirement Plan as of the Annuity Starting Date. (2) Determine the greater of (a) the participant's actual accrued benefit under the Retirement Plan or (b) the participant's accrued benefit that would have resulted under the Retirement Plan if his Participant Contributions to the Savings Plan had never exceeded 4% of his compensation as defined in the Savings Plan, such accrued benefit being expressed in either case as an Immediate Annuity as of the Annuity Starting Date using the early retirement reduction factors and actuarial assumptions applicable under the Retirement Plan as of the Annuity Starting Date. (3) Subtract the benefit determined in Step 2 from the benefit determined in Step 1. (4) Convert the net benefit determined in Step 3 to an equivalent benefit payable as of the Retirement Benefit Date in the form in which the participant's Supplemental Retirement Benefit under the Plan is payable, using whichever of the following procedures is applicable: (A) If the participant's benefit is payable in the form of annuity, determine such equivalent benefit using the early retirement and actuarial assumptions employed in Step 1. (B) If the participant's benefit is payable in a lump sum, convert the net benefit determined in Step 3 to an equivalent lump-sum payment as of the Annuity Starting Date using the actuarial assumptions applicable under the Retirement Plan as of such date. If the Retirement Benefit Date is later than the Annuity Starting Date, the amount calculated pursuant to the preceding sentence shall then be credited with interest at the Applicable Interest Rate, compounded annually, for the period between the Annuity Starting Date and the Retirement Benefit Date. (b) If, as a result of a Change in Control, a participant's Retirement Benefit Date precedes his Annuity Starting Date, the Supplemental Retirement Benefit payable in a lump sum on such Retirement Benefit Date shall be calculated in the manner set forth in this Section 5(b) rather than as set forth in Section 5(a): (1) Determine the lump-sum value as of the participant's Earliest Retirement Date of his accrued benefit under the applicable provisions of the Retirement Plan, calculated (i) by substituting for benefit calculation purposes Modified Average Compensation for the Retirement Plan's definition of final average compensation, and (ii) without regard to any benefit limitation pursuant to Section 415 of the Code. Such lump-sum value shall be determined using the early retirement reduction factors and actuarial assumptions applicable under the Retirement Plan as of the Retirement Benefit Date. (2) Determine the greater of (a) the lump-sum amount that would be payable to the participant under the Retirement Plan on the Earliest Retirement Date and (b) the lump-sum amount that would be payable to the participant under the Retirement Plan on the Earliest Retirement Date if his Participant Contributions to the Savings Plan had never exceeded 4% of his compensation as defined in the Savings Plan. Such lump-sum amounts shall be determined by (i) using the early retirement reduction factors and actuarial assumptions applicable under the Retirement Plan as of the Retirement Benefit Date and (ii) projecting future increases in the limitations under Section 415 of the Code in such manner as the enrolled actuary for the Retirement Plan shall determine. (3) Subtract the amount obtained in Step 2 from the amount obtained in Step 1 and, if the Retirement Benefit Date is earlier than the Earliest Retirement Date, discount the difference to its present value as of the Retirement Benefit Date using the Applicable Interest Rate. The result is the participant's Supplemental Retirement Benefit. (c) In the case of a participant who was a Corporate Officer on the date of his retirement or other termination of employment, or at any time during the six-month period ending on such date, (i) the calculations in Step 1 of Section 5(a) or of Section 5(b), whichever is applicable, shall be modified as set forth in subsection (1) and (except as otherwise provided in Section 5(d)) subsection (2) below, and (ii) the calculations in Step 4 of Section 5(a) and Step 1 of Section 5(b) shall be modified as set forth in subsection (3) below: (1) In determining credited service for benefit calculation purposes, the participant shall be deemed to have become a participant in the Retirement Plan on the date his participation would have commenced if the eligibility requirements of the Retirement Plan as in effect on April 1, 1994 had been in effect under such plan on and after the date the participant became an employee. (2) There shall be substituted for the early retirement reduction factors under the Retirement Plan the following factors: Age Reduction Factor 62-65 0% 61 3% 60 6% 59 12% 58 18% 57 24% 56 30% 55 36% (3) The interest rate used in calculating the lump-sum equivalent of an annuity under Section 5(a)(4)(B) or 5(b)(1) shall be the lesser of (i) 5 percent or (ii) the interest rate determined under such respective sections without regard to this Section 5(c)(3). (d) In the case of a participant who (a) is employed by the Company immediately prior to a Change in Control, or whose employment with the Company is involuntarily terminated (other than for Cause) by the Company within six months prior to a Change in Control and (b) was a Corporate Officer at any time during the six-month period ending on the date of such Change in Control, (i) the calculations in Step 1 of Section 5(a) or Step 1 of Section 5(b), whichever is applicable, shall be modified by eliminating any early retirement reduction factors, and (ii) the calculation in Step 3 of Section 5(b), if applicable, shall be modified by applying a zero percent discount rate in lieu of the Applicable Interest Rate. (e) If a participant's employment continues past his original Retirement Benefit Date occurring by reason of a Change in Control, he shall continue to accrue benefits under the Plan and shall become entitled to a second benefit as of his subsequent Retirement Benefit Date (as determined under Section 8 without regard to the occurrence of such Change in Control). The amount of such benefit shall be (x) the benefit to which he would otherwise be entitled under the terms of the Plan, offset by (y) the lump-sum amount paid to him on the original Retirement Benefit Date plus interest, compounded annually, at the Applicable Interest Rate in effect on such original Retirement Benefit Date, credited from the original Retirement Benefit Date to such subsequent Retirement Benefit Date. If such second benefit is payable in a form other than a lump sum, the offset amount calculated in clause (y) of the preceding sentence shall be converted to an equivalent benefit in the form in which the participant's benefit is payable, using the early retirement reduction factors and actuarial assumptions applicable under the Retirement Plan as of such subsequent Retirement Benefit Date. 6. Supplemental Preretirement Death Benefit (a) In the case of a participant who dies before receiving a benefit under this Plan and before his Annuity Starting Date and whose spouse is entitled to a 50 percent preretirement survivor annuity under the Retirement Plan, a Supplemental Preretirement Death Benefit shall be payable to the participant's spouse commencing on the Death Benefit Date pursuant to this Section 6. (b) A participant's Supplemental Preretirement Death Benefit shall be paid in the form of an annuity over the lifetime of the participant's spouse unless the participant shall have filed with the plan administrator a valid election to have such benefit paid in a lump sum. Such an election may be made or revoked at any time, provided, however, that no such election or revocation shall be valid in the event of the participant's death within one year after such election or revocation is made. (c) Notwithstanding the provisions of subsection (b), if, at the time of the death of a participant to whom subsection (a) applies, the lump-sum value of his Supplemental Preretirement Death Benefit does not exceed $10,000, his Death Benefit Date shall be the date 30 days after the administrator receives notification of such death, and his Supplemental Preretirement Death Benefit shall be paid in a lump sum on such date. (d) The Supplemental Preretirement Death Benefit shall be calculated using the procedures set forth in Section 5, modified by substituting the Death Benefit Date for the Retirement Benefit Date and applying such procedures to the 50 percent preretirement survivor annuity under the Retirement Plan rather than the participant's accrued benefit under such plan. (e) In the event of a participant' s death following his original Retirement Benefit Date occurring by reason of a Change in Control, but before receiving the portion of his benefit attributable to service rendered after such original Retirement Benefit Date, his Supplemental Preretirement Death Benefit, as calculated pursuant to the preceding paragraph, shall be offset by the lump-sum payment previously distributed to him on his original Retirement Benefit Date plus interest, compounded annually, at the Applicable Interest Rate in effect on his original Retirement Benefit Date. 7. Elections (a) As soon as practicable following his commencement of participation in the Plan, each participant shall file an election with the plan administrator, on such form as the administrator shall prescribe, specifying (i) the form in which his Supplemental Retirement Benefit is to be paid and (ii) the time at which such benefit is to commence or is to be paid in a lump sum. For purposes of this subsection: (1) In the event a participant fails to make an initial election within 90 days after the commencement of his participation in the Plan, he shall be deemed to have made an initial election to receive his benefit in a lump sum on his Annuity Starting Date. (2) A participant whose initial election of the timing of his benefit was made before the Plan was amended to permit annuity forms of payment shall be deemed to have elected to receive a lump-sum payment. (b) An election pursuant to Section 7(a) may be changed from time to time, provided, however, that no such change shall be valid if the participant's separation from service from the Company occurs less than one year after the date on which such change is made. Notwithstanding the preceding sentence, if a participant whose most recent valid election is for an annuity form of benefit demonstrates to the satisfaction of the administrator that a relevant change in family circumstances has occurred since the filing of such election, such participant may change his election to a different form of annuity (but not to a lump sum) commencing on the same date as that specified on such prior election, or may designate a new contingent beneficiary, without regard to such one-year requirement. (c) The forms of benefit that a participant may elect under the Plan are (i) a lump sum and (ii) any form of annuity available (as determined without regard to spousal consent rules) under the Retirement Plan. (d) A participant who elects a joint and survivor form of benefit shall designate his contingent beneficiary in conjunction with such election. In the event of such contingent beneficiary's death before the Retirement Benefit Date, the participant's Supplemental Retirement Benefit shall be paid in the form of a single life annuity unless he has filed a valid change in election form pursuant to Section 7(b). (e) In the event of a participant's death following his Annuity Starting Date but before his Retirement Benefit Date, notwithstanding any contrary provision herein his Supplemental Retirement Benefit shall be paid in a lump sum within 30 days after the administrator receives notification of such death. 8. Payment of Supplemental Retirement Benefit (a) A participant's Supplemental Retirement Benefit shall commence, or shall be paid in a lump sum, on the date (the "Retirement Benefit Date") which is (x) the first business day of the month coinciding with or next following the later of (i) the date specified in his most recent election or valid change in election pursuant to Section 7, but in no event later than his Normal Retirement Date or later date of actual retirement, or (ii) his Annuity Starting Date, or (y) if earlier, 30 days following the occurrence of a Change in Control. Such benefit shall be paid in the form elected in the most recent valid election filed by the participant pursuant to Section 7 except in the event of a Change in Control, in which event such benefit shall be paid in a lump sum irrespective of the form of benefit elected by the participant. (b) Notwithstanding the provisions of subsection (a), if, at the time a participant retires or otherwise separates from service, the lump-sum value of his Supplemental Retirement Benefit (determined using the principles of Section 5) does not exceed $10,000, his Retirement Benefit Date shall be the date 30 days following such separation from service, and his Supplemental Retirement Benefit shall be paid on such date in a single payment equal in amount to such lump-sum value. This subsection (b) shall not apply to the lump-sum Supplemental Retirement Benefit that becomes payable to a participant by reason of a Change in Control pursuant to the last sentence of subsection (a). 9. Other Plans If an employee is entitled to a benefit under a defined benefit plan maintained by the Company other than the Retirement Plan, and if such benefit is required to be taken into account for purposes of Section 415 of the Code, such benefits shall be added to the benefits accrued under the Retirement Plan for purposes of determining whether the employee is entitled to participate in the Plan and the amount of any benefit payable hereunder. 10. Change in Control (a) For purposes of this Plan, a Change in Control shall mean the acquisition by any person (including an individual, a corporation, a partnership, an association, a joint-stock company, a trust, or any unincorporated organization, but excluding a member of the Hoyt Family, a trust primarily for the benefit of members of the Hoyt Family or parties controlled by members of the Hoyt Family) in one or in a series of transactions of (i) shares of stock which would, alone or aggregated with shares of stock already owned by such person, result in such person owning more than 50 percent of the voting power of the securities of the Company possessing the right to vote on the election of directors and all other matters which require the approval of shareholders generally; (ii) all or substantially all of the properties and assets of the Company; or (iii) the power, whether direct or indirect, whether exercised or not, to direct or cause the direction of the management or policies of the Company, whether through record or beneficial ownership of voting securities or other equity or debt interests, by contract, by proxy or otherwise. For purposes of this definition, the "Hoyt Family" shall mean the family of Henry H. Hoyt, Sr., his descendants, and members of such descendants' families. (b) In the case of any participant for whom the payment in the form of an annuity of a Supplemental Retirement Benefit or Supplemental Preretirement Death Benefit has commenced as of the time of the Change in Control, the payment of such annuity shall be discontinued and in lieu thereof the actuarial present value (as determined by applying the principles of Section 5) of future payments under such annuity shall be paid in a lump sum within 30 days following such Change in Control. (c) If a participant becomes subject to an excise tax under Section 4999 of the Code upon the occurrence of a Change in Control, the amount of any benefit payable under the Plan with respect to such participant shall be increased by the amount necessary to make him whole, on an after-tax basis (based on applicable federal, state, and local income tax rates and after giving effect to the federal deduction arising from such state or local income taxes), for the amount of increase in such excise tax arising as a result of the payment of such benefit. 11. Administration This Plan shall be administered by the Retirement Committee established to manage the Retirement and Savings Plans. The Retirement Committee shall have discretionary authority to interpret the Plan, and the Retirement Committee's good-faith determination with respect to any issue relating to the interpretation of the Plan shall be conclusive and final. 12. General Provisions (a) The establishment of the Plan shall not be construed as conferring any legal rights upon any participant for a continuation of employment, nor shall it interfere with the rights of the Company to discharge a participant and to treat him without regard to the effect which such treatment might have upon him as a participant in the Plan. (b) As a condition to a participant's entitlement to benefits hereunder, the Company shall have the right to deduct (or cause to be deducted) from any amounts otherwise payable to a participant, whether pursuant to the Plan or otherwise, or otherwise to collect from the participant, any required withholding taxes with respect to benefits under the Plan. (c) Notwithstanding any provision herein to the contrary, nothing in this Plan shall require the duplication of any benefit previously paid to a participant under the Plan. (d) Subject to any applicable law, no benefit under the Plan shall be subject in any manner to, nor shall the Company be obligated to recognize, any purported anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to do so shall be void. No such benefit shall in any manner be liable for or subject to garnishment, attachment, execution, or a levy, or liable for or subject to the debts, contracts, liabilities, engagements, or torts of the participant. (e) The Plan shall not be construed as conferring on a participant any right, title, interest, or claim in or to any specific asset, reserve, account, or property of any kind possessed by the Company. To the extent that a participant or any other person acquires a right to receive payments from the Company, such rights shall be no greater than the rights of an unsecured general creditor. (f) This plan shall be binding upon the successors and assigns of the Company. The Company shall require any successor (whether direct or indirect, and whether by purchase, merger, consolidation, or otherwise) to all or substantially all of the business or assets of the Company, by written agreement to expressly assume and agree to perform the Company's obligations under the Plan in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place. The provisions of this Section 12(f) shall continue to apply to each subsequent employer of the participant hereunder in the event of any subsequent merger, consolidation, or transfer of assets of such subsequent employer. (g) The laws of the State of New York shall govern the construction of this Plan and the rights and the liabilities hereunder of the parties hereto. (h) The masculine pronoun shall mean the feminine wherever appropriate. 13. Plan Year The plan year shall be the calendar year. 14. Recalculation of Benefits In the case of a participant whose Includible Compensation includes his accrued bonus under the Company's profit-sharing plan, the participant's entitlement to, and amount of, any such accrued bonus for the fiscal year in which, or immediately following which, he retires or otherwise separates from service may not be determinable at the time the participant's benefit commences or is paid in a lump sum. In such event, the participant's benefit payment or payments shall initially be based on the assumption that his accrued bonus for such fiscal year is zero. In the event the participant is subsequently awarded a bonus on account of such fiscal year, his benefit under the Plan shall be recalculated. If such recalculation results in an increased benefit, the Company shall, within 30 days after the date the amount of such bonus award is determined, pay the participant (or, in the case of a supplemental preretirement death benefit, his spouse) a single-sum adjustment equal to the aggregate amount by which the benefit payment or payments previously made with respect to the participant would have been increased if such recalculation had been given effect. The recalculation shall also be taken into account for purposes of determining the amount of any subsequent benefit payments under the Plan. 15. Source of Benefits The Plan is an unfunded plan maintained by the Company for the purpose of providing deferred compensation for a select group of management or highly compensated employees. Benefits under the Plan shall be payable from the general assets of the Company except to the extent paid from the Carter-Wallace, Inc. Executive Plan Trust, and any payment made from such trust on account of a participant shall reduce the Company's obligation hereunder with respect to such participant. The Plan shall not be construed as conferring on a participant any right, title, interest, or claim in or to any specific asset, reserve, account, or property of any kind possessed by the Company. To the extent that a participant or any other person acquires a right to receive payments from the Company, such right shall be no greater than the right of an unsecured general creditor. 16. Effective Date This Plan shall be effective upon adoption by the Board of Directors of the Company. 17. Amendment or Termination The Board of Directors of the Company reserves the right to amend or terminate this Plan at any time; provided, however, that without such participant's written consent, (i) no amendment or termination of the Plan shall adversely affect the right of any participant to receive, or otherwise result in a material adverse effect on such participant's rights under the Plan with respect to, his accrued vested benefits (including contingent rights conditioned upon a subsequent Change in Control), as determined as of the date of amendment or termination, and (ii) no amendment (other than one which has no material adverse effect on such participant) or termination of the Plan shall be effective with respect to such participant if he was a Corporate Officer immediately prior to such amendment or termination. EX-13 3 EXHIBIT 13 CARTER-WALLACE ANNUAL REPORT FOR THE YEAR ENDED MARCH 31 1995 CARTER-WALLACE, INC. ANNUAL REPORT For the year ended March 31, 1995
FINANCIAL HIGHLIGHTS 1995 1994 Net sales $663,642,000 $664,789,000 Earnings before one-time charges in 1995, taxes and the cumulative effect of accounting changes in 1994 42,310,000 37,382,000 Earnings (loss) before taxes (87,030,000) 37,382,000 Net earnings (loss) before the cumulative effect of accounting changes (56,268,000) 26,609,000 Net earnings (loss) (56,268,000) (20,030,000) Earnings per share before one-time charges in 1995 and the cumulative effect of accounting changes in 1994 $ .53 $ .58 Loss per share $(1.22) $ (.44) Dividends 13,372,000 15,292,000 Dividends per share $ .29 $ .33 Average shares outstanding 46,108,000 45,900,000 Number of stockholders of record Common 3,247 3,305 Class B common 1,797 1,919
[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 13 Consolidated Balance Sheets 14 Consolidated Statements of Earnings and Retained Earnings 16 Consolidated Statements of Cash Flows 17 Notes to Consolidated Financial Statements 18 Independent Auditors' Report 34 Directors and Officers 36 REPORT TO STOCKHOLDERS In the fiscal year ended March 31, 1995 the Company's consolidated sales were $663,642,000 compared to the prior year's sales of $664,789,000. The Company incurred a loss of $1.22 a share this year as a result of one-time charges related to the Felbatol (felbamate) and Organidin (iodinated glycerol) products as well as charges for restructuring of operations and facilities. Excluding these one-time charges in the current year and the accounting changes in the prior year, earnings were $.53 a share in the current year compared with $.58 a share a year earlier. SALES Sales in the Company's two business segments were Consumer Products $400,857,000 and Health Care Products $262,785,000. Consumer Products were 60% and Health Care Products were 40% of total sales. These sales compare to a year ago of $368,168,000 and $296,621,000, respectively. Foreign sales by subsidiaries and branches operating outside the United States were $182,190,000 compared with $159,454,000 the previous year. This represents 27% and 24%, respectively of total sales. Health Care Products accounted for 43% and Consumer Products 57% of foreign sales. Lower foreign exchange rates had the effect of decreasing foreign sales by approximately $1,300,000. DIVIDENDS Dividends of $.29 per share were paid in the current year compared to $.33 last year. The Company has paid dividends for 112 consecutive years. CARTER PRODUCTS DIVISION The business environment this year was punctuated by the increasing demands of the retail trade, the consolidation of brands at the manufacturer's level and the price competition of private label brands in the Division's key categories. In spite of these pressures, the Division was able to maintain or increase the market share of most of its major brands. The Arrid line performed well in the highly competitive anti-perspirant/deodorant market. The teen subsegment of the market proved to be smaller than anticipated and the Teen Image brand line suffered some volume declines. The Arrid XX business, however, exhibited strong gains and was a major factor in overall increased volume and market share for the core Arrid franchise over last year. The Trojan line continues to lead the condom market with over a 60% market share. Trojan Ultra Texture Ribbed condoms, launched late last year, helped the brand maintain its leadership position in the market. Class Act, the Division's "price value" brand exceeded expectations. The addition of Class Act Ribbed Lubricated and Spermicidal condoms will broaden the appeal of the product line next year. The Nair line increased its leadership position in the depilatory market with a share in excess of 45%. Women continue to buy Nair at a rate of over two to one over the next leading brand. The First Response and Answer lines combined to give the Division approximately a 25% share of the pregnancy test kit market in the U.S. The Pearl Drops line was able to maintain its number two position in the Whitening/Polish segment of the dentifrice market in spite of a number of new entries into the segment by major toothpaste brands. A decision was made to relocate all Carter Products Division functions from the New York office to the Cranbury, New Jersey facility. This move will result in greater operational efficiencies in that all Carter Products Division disciplines will be located within the same facility. WALLACE LABORATORIES DIVISION The past year posed many challenges for the Wallace Division. In June Carter-Wallace entered into a consent decree with the Food and Drug Administration to discontinue sales of the Organidin family of products containing iodinated glycerol. The Division is currently selling a reformulated version 2 of Organidin containing guaifenesin. This product line is being marketed as Organidin NR. In August, Wallace Laboratories, in conjunction with the FDA, because of reports of aplastic anemia associated with its use, recommended that physicians remove patients from the antiepileptic drug Felbatol (felbamate) unless in the physician's judgment, an abrupt withdrawal would be deemed to pose a more serious risk to the patient. No cases of aplastic anemia were observed during premarketing, clinical testing and development. In September, after discussions with the FDA, the Company mailed a letter alerting physicians to the risk of acute liver failure in association with the use of Felbatol and the need to monitor liver function in all patients who are still taking the drug. An FDA advisory committee then reviewed the safety experience with Felbatol. The committee recommended continued marketing of Felbatol with appropriate labeling changes. As a result, Felbatol remains available for those patients whose epilepsy is not controlled by other medications and where the risk of its use is deemed acceptable in light of the benefits it confers. The discontinuation of the Division's iodinated glycerol formulation of Organidin products and the significant adverse effect on existing and potential sales of Felbatol due to use restrictions has led to a substantial reduction of the Division's pharmaceutical sales force and marketing support staff and virtual elimination of its internal R&D capability. The Division will, however, continue its research and development of Astelin (azelastine) nasal spray for rhinitis, and taurolidine, an antitoxin for the treatment of sepsis. Following the restructuring, the Division has refocused its marketing emphasis on those products that have demonstrated promotional responsiveness such as the Soma line of muscle relaxants and Rynatan antihistamines with decongestants. The Division is actively pursuing pharmaceutical product or company acquisitions and co-promotional arrangements. WAMPOLE LABORATORIES Although the past year proved to be another challenging year for the entire health care industry, the Division was able to either maintain or strengthen its position in most of its market areas. Sales of serological test products were unusually strong. The Division maintained its market leadership position with Streptozyme, a test for streptococcal antibodies, Rheumaton, a test to detect rheumatoid factor and in mononucleosis testing where sales increased 25% over last year. Mono Plus, a rapid assay for infectious mononucleosis which was introduced in June, 1994, contributed significantly to the gain. In addition, Wampole Impact Rubella, for the determination of immunity to rubella infections and Wampole Impact RPR for the serologic detection of syphilis, both more than doubled prior year sales levels. The Division was further strengthened by the mid-year implementation of a marketing agreement with Baxter Healthcare, the nation's largest distributor of health care products. This partnership expands Wampole's distribution network. The Zeus Scientific line of immunoassay tests also showed good growth. Particularly strong gains were recorded in the enzyme immunoassay area with sales up by almost 60% over prior year. A range of products for the differential diagnosis of various autoimmune diseases was introduced in the second half of the year and these are expected to contribute substantially to future growth of the Zeus line. The Isostat product line for the rapid detection of micro-organisms in the blood and the Stat-Crit system for the measurement of hematocrit levels continued to be strong contributors to the Division's results. The Stat-Crit system, along with the Clearview products for chlamydia and pregnancy testing, continued to be impacted by the effects of the Clinical Laboratories Improvement Act, although sales of the Clearview group A streptococcus test grew substantially. 3 LAMBERT KAY Double-digit gains pushed the Division's sales to record levels this year with virtually all product categories exceeding year ago levels. The gains were fueled primarily by successful new product introductions, with 25 new products and sizes introduced into pet stores this year, focusing primarily on flea and tick control. One new product was the Pet Fone flea and tick collar which is imprinted with a serial number that enables lost pets to be reunited with their owners. The Fresh 'n Clean scented shampoo line was expanded with the addition of a flea and tick shampoo. The Shield line of longer-lasting flea killers was enhanced with a cream rinse -- the only such product available to pet stores. The innovative X-O-TROL line of flea and tick products was broadened with the addition of a unique inverted spray for households, a cat spray, yard spray, and repellents for dogs and cats. The toy line was expanded with the introduction of Ghosts, Twinco Heart Man, and Lambert Kay Lions, plus an award winning prepacked display of a variety of animal faces. The Lassie and Tiny Tiger line of products, designed for mass merchandisers, had major sales gains due to expanded distribution and new product introductions. Virtually all discount chains, as well as many food and drug stores, now sell the Lassie and Tiny Tiger brands. Other new products introduced included a complete line of puppy, kitten and orphaned wild animals line of milk replacers (formulas), new plastic backed "mini" flea combs and insect growth regulator products. INTERNATIONAL DIVISION The Division's sales showed substantial growth and advanced to a record level. The strong performance is primarily the result of the acquisition of new product lines in France, Australia and Italy, as well as the expansion of our business in Latin America. Sales of existing products were steady with some growth due to selective selling price increases. Consumer product sales continued to advance in several areas. The Arrid product line showed exceptional growth in the United Kingdom and Arrid Clear in solid and gel formats was successfully launched in Canada. In spite of a number of new competitive entries, Pearl Drops was able to achieve growth in Canada, Italy, and Germany, as well as a number of other European countries. The Company's dominant position in the OTC pregnancy test market was maintained in Canada, Mexico and Australia where our products remain leading brands. Market strength in topical analgesics was maintained in Canada with Antiphlogistine Rub A-535 and in Australia with Dencorub. The Trojan line of condoms also showed significant gains in Canada, retaining its leading market position. In Spain, Eudermin hand cream showed renewed growth following a restage of the line, while Taky depilatories maintained their strong position in the market. The acquisition of Sante Beaute in France substantially enhanced our consumer product business. The major products offered by Sante Beaute are Email Diamant, a toothpolish, and Lineance, a line of cosmetic creams and lotions. The acquisition of Curash, a line of baby and adult powders in Australia, complements our existing range of personal care items. The Division's line of healthcare products sustained a strong position in several foreign markets. In Canada, higher sales were achieved for Gravol anti- nauseant and Ovol antiflatulent. Sales of our ethical products increased in Italy. We have also maintained our significant market share for Sterimar nasal decongestant in France. Professional diagnostic sales showed substantial growth in Italy as a result of the acquisition of Technogenetics. The products manufactured and sold by Technogenetics consist of diagnostic kits which are used by hospitals and clinical laboratories for testing body fluids to detect and characterize certain human diseases and conditions. Sales of Isolator, a microbiological test used for the isolation of bacteria in patients with suspected sepsis, increased worldwide. 4 RESEARCH AND DEVELOPMENT Expenses for research and development totaled $41,315,000 compared to $52,278,000 a year ago. This decline was due to the significant reduction of felbamate clinical studies and the termination of Organidin (iodinated glycerol) clinical studies. The three Astelin (azelastine) New Drug Applications ("NDA") are pending at the FDA. Answers to all outstanding questions for the Astelin Nasal Spray non-approvable letter will be submitted to the FDA in June, 1995 and remaining chemistry work is expected to be completed by September 1995. The FDA has suggested that a fall, 1995 Advisory Committee meeting for the Astelin Nasal Spray NDA might be possible pending satisfactory review of our June responses. Additional formulation work will be required to satisfactorily complete work on the Astelin tablet for rhinitis NDA which will remain pending during fiscal year 1996. The Astelin tablet for asthma NDA will be withdrawn following the recently completed analysis of two steroid sparing trials which did not support the product's efficacy in treating asthma. A large scale, multi-center clinical efficacy trial was initiated for taurolidine, an antitoxin for the treatment of sepsis, in October, 1994. D-23129, a new chemical entity with anticonvulsant activity in preclinical testing, was accepted by Carter-Wallace as a development compound from ASTA Medica AG during fiscal year 1994. ASTA Medica will begin Phase I clinical trials in Germany during 1995. Discussions are underway with ASTA regarding what role, if any, Carter-Wallace will play in the future development of this product in the United States. FACILITIES The Company's manufacturing facilities were profoundly affected by the restructuring the Company began this year. A review of the Company's existing facilities and future strategy resulted in a series of plant closings, shifts in manufacturing operations and relocation of personnel. Due to the phasing-out of the iodinated glycerol Organidin formulation, our Humacao, Puerto Rico plant was closed at the end of December and subsequently sold. The new Organidin NR formulations are now being produced at the Decatur, Illinois plant where we are also planning to produce the VoSoL line of otic solution products that had been produced at Humacao. Operations of our Carter P.D. affiliate at Rincon, Puerto Rico were ceased in March, 1995. The Pearl Drops and Arrid Cream products produced there will be sourced from our United Kingdom operation in Folkestone, England and Arrid Roll-On will be sourced from a U.S.-based contract manufacturer. We have also ceased testing and packaging operations for our Trojan brand condoms at this site. The lease of this facility will be ended shortly. In April, 1995, the Company purchased the former Safetex condom manufacturing plant in Colonial Heights, Virginia from Aladan, a glove and condom manufacturer based in Alabama. Apart from acquiring a modern facility that continues in operation, the Company secured new state-of-the-art equipment. Some of the equipment from Rincon will be employed in Colonial Heights to supplement what is already in place in order to provide additional capacity for production of the Company's Trojan brand condoms. The Company decided in mid-May, 1995 to close its condom manufacturing plant in Trenton, New Jersey over a projected period of eighteen to twenty-four months. The condom production currently performed at Trenton will be transferred to the Company's facility in Colonial Heights, Va. In October, 1994 the Company announced the planned closing of its East Windsor, New Jersey facility. This facility produces much of the production of the Company's diagnostic products and is used for the distribution of certain product lines. It also provides office and laboratory space for support staffs. The facility, which is listed for sale, is scheduled to close during the fall of 1995. The transfer of the products to contract manufacturers is underway and the non-production operations that remain will 5 be consolidated within existing Company facilities in Cranbury and Dayton, New Jersey. At Cranbury, New Jersey, renovations are underway within office areas in the main manufacturing building and the Wallace Research building. These changes are being made to accommodate various groups currently located at our East Windsor, New Jersey facility which is being closed, as well as the Carter Products personnel who are moving from our New York headquarters location in July. LITIGATION The Company is a defendant in certain Felbatol related actions which are discussed in the "Other Litigation" section of Note 19 to the Consolidated Financial Statements (pages 31 to 32). In October, 1992, a suit was filed by Unilever against the Company's subsidiary in the United Kingdom alleging patent infringement by certain of the Company's diagnostic products. The complaint seeks injunctive relief and unspecified compensatory damages. The Company along with numerous other drug manufacturers, wholesalers and suppliers is a defendant in three anti-trust cases. The Company believes, based on opinion of counsel, it has good defenses to each of the above-described legal actions and should prevail. In June, 1993, a suit was filed by Becton Dickinson & Co., in the United States District Court, Eastern District of North Carolina, against several companies, including the Company, alleging patent infringement by certain of the Company's diagnostic products. The Company has settled this litigation by paying $2,000,000 for alleged prior infringements and will pay on-going royalties on future sales of the covered products. The Company along with several other companies is also a defendant in two environmental cases. PEOPLE Barton F. Haynes, M.D. has been appointed to the Scientific Advisory Board. Dr. Haynes is Chairman, Department of Medicine, Duke University Medical Center. * * * This past year was an unusual and challenging one for our Company. The speed, dedication and thoroughness with which each and every employee attacked the tasks before them were most rewarding and demonstrate the skills and quality we are fortunate to find so prevalent within our organization. We are grateful for the ongoing trust and confidence of the consumers and professionals who use our products and for the continued strong support of our shareholders and our suppliers. We thank them for their interest and confidence in Carter-Wallace. Henry H. Hoyt, Jr., Chairman of the Board and Chief Executive Officer Daniel J. Black, President and Chief Operating Officer June 15, 1995 6 Carter-Wallace, Inc. and Subsidiaries SUMMARY OF SELECTED FINANCIAL DATA - --------------------------------------------------------------------------------
YEARS ENDED MARCH 31 ---------------------------------------------------------------- 1995 1994 1993 1992 1991 ---------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AND EMPLOYEE DATA) OPERATIONS Net sales $663,642 $664,789 $653,511 $673,390 $634,890 Earnings before one-time charges in 1995, taxes and the cumulative effect of accounting changes in 1994 42,310 37,382 68,406 67,265 76,103 Net earnings (loss) before the cumulative effect of accounting changes (56,268)(a) 26,609 47,200(b) 45,740(c) 51,750 Net earnings (loss) (56,268)(a) (20,030) 47,200(b) 45,740(c) 51,750 Net earnings (loss) per share before the cumulative effect of accounting changes in 1994 (d) (1.22)(a) .58 1.03(b) 1.00(c) 1.12 Net earnings (loss) per average share of common stock outstanding (d) (1.22)(a) (.44) 1.03(b) 1.00(c) 1.12 Dividends per share (d) .29 .33 .33 .33 .30 Average common shares outstanding (d) 46,108 45,900 45,786 45,783 46,029 FINANCIAL POSITION Working capital(e) $100,596 $185,159 $184,175 $170,279 $151,735 Net property, plant and equipment 137,608 157,059 150,070 142,854 136,345 Total assets(e) 680,224 628,562 595,550 577,181 557,301 Long-term debt 23,115 9,309 13,184 14,927 16,576 Stockholders' equity(e) 327,139 393,508 429,161 407,261 380,630 OTHER DATA Capital expenditures $ 18,853 $ 24,305 $ 25,500 $ 22,313 $ 18,735 Book value per share (d)(e) 7.08 8.54 9.37 8.89 8.31 Number of employees 3,670 4,060 4,020 4,170 4,270 (a) Includes 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. (b) Includes income of $10,000 before taxes, or $6,000 after taxes ($.13 per share) related to a licensing agreement with Schering-Plough Corporation granting exclusive marketing rights in all markets except the United States and its territories and possessions, Canada and Mexico, to Felbatol (felbamate). (c) Includes a one-time charge against earnings of $12,400 before taxes, or $8,400 after taxes ($.18 per share) related to the discontinuance of the Answer self-monitoring blood glucose system. (d) Reflects a three-for-one stock split in April, 1992. (e) Fiscal years 1993, 1992 and 1991 were restated to reflect the change in accounting for income taxes.
------------------------------------------------------ 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 ---------------------------------------------------- 1995 1994 ---------------------- ---------------------- QUARTER ENDED HIGH LOW HIGH LOW ----------- ----------- ----------- ----------- June 30 25 5/8 16 1/4 30 3/8 23 7/8 September 30 18 7/8 9 7/8 33 3/4 26 1/4 December 31 15 3/8 12 1/8 32 7/8 20 1/8 March 31 13 7/8 10 1/2 26 3/8 19 7/8
A dividend of $.08 1/3 per share was declared in each of the first three quarters of 1995 and a dividend of $.04 per share was declared in the fourth quarter. A dividend of $.08 1/3 per share was declared in all four quarters of 1994. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - -------------------------------------------------------------------------------- NET SALES AND EARNINGS The Company incurred a loss of $56,268,000 or $1.22 a share in the year ended March 31, 1995 as a result of one-time charges related to the Felbatol and Organidin Iodinated Glycerol (I.G.) products as well as charges for restructuring of operations and facilities. This compares to a loss of $20,030,000 or $.44 a share in the prior year. Excluding the one-time charges in the current year and the accounting changes in the prior year, earnings were $.53 a share in the current year compared with $.58 a share a year earlier. Net sales in 1995 were $663,642,000 compared to the prior year's sales of $664,789,000. Domestic sales decreased 5% and foreign sales increased 14% from the prior year. Lower foreign exchange rates had the effect of decreasing foreign sales by approximately $1,300,000. Sales of Consumer Products increased 9% in 1995 due to higher volume in both domestic and international operations. The increase in domestic Consumer Products sales resulted from selling price increases and unit volume gains. Recent acquisitions contributed a substantial portion of the international sales growth of Consumer Products. Factory sales of worldwide antiperspirant and deodorant products were $123,146,000 in 1995 or 1% lower than the $124,547,000 sales level in 1994. Health Care sales were 11% lower than the prior year resulting from reduced sales of Organidin I.G. offset in part by selling price increases. In June, 1994 the Company and the Food and Drug Administration (FDA) reached an agreement to discontinue the manufacture and shipment of this product. The Company has introduced a reformulated line of Organidin products, marketed as Organidin NR. Because the Company believes that initial ordering of this reformulated line resulted in overstocked trade inventory levels, a provision in the amount of $8,000,000 for possible returns of this reformulated product has been established at March 31, 1995. The Company will continue to evaluate the adequacy of this reserve. Sales of the Company's pharmaceutical products continue to be adversely affected by generic erosion. In 1994 net earnings before the cumulative effect of the accounting changes were $26,609,000 or $.58 a share compared to earnings of $47,200,000 or $1.03 a share a year earlier. Consolidated net loss after the cumulative effect of the accounting changes in 1994 was $20,030,000 or $.44 a share. See Note 8 "Postretirement Benefits Other Than Pensions and Postemployment Benefits" of Notes to the Consolidated Financial Statements on page 23 for discussion of the accounting changes. Net sales in 1994 were $664,789,000 an increase of $11,278,000 or 2% from 1993. This increase was due to higher sales in the Health Care segment. Domestic sales increased 4% and foreign sales decreased 6% from the prior year. Lower foreign exchange rates had the effect of decreasing foreign sales by approximately $16,300,000. Without the negative foreign exchange effect, foreign sales would have increased by 4%. Consumer Products sales decreased 1% in 1994 due to the negative effect of foreign exchange rates. Without the effect of foreign exchange rates, Consumer Products sales would have increased 1%. Factory sales of worldwide antiperspirant and deodorant products were $124,547,000 in 1994, or 3% lower than the $128,321,000 sales level in 1993. In 1994, Health Care sales were 6% higher than the prior year due to selling price increases in the Health Care segment which were implemented in the prior year. Unit volume declined slightly in the Health Care segment from the prior year. Included in the Health Care unit volume were greater than planned introductory sales of Felbatol (felbamate) which the Company began marketing in August, 1993 and higher sales of Organidin I.G. products. The unit volume gain in Organidin I.G. products was due primarily to a decline in sales of competitive products. Sales of Organidin I.G. products represented approximately 11% of consolidated sales in the fiscal 1994 period compared to 7% in the fiscal 1993 period. The Company's 1994 net earnings were substantially favorably impacted by the increase in sales of Organidin I.G. products. Sales of other pharmaceutical products in the Health Care segment continue to be adversely impacted by generic erosion. Included in earnings in 1993 was an initial, non-refundable payment of $10,000,000 before taxes or $6,000,000 after taxes ($.13 per share) related to a licensing agreement with Schering-Plough Corporation. This agreement grants Schering-Plough exclusive marketing rights in all markets except the United States and its territories and possessions, Canada and Mexico, to Felbatol. See discussion of Felbatol (felbamate) on pages 10 and 11. Interest income increased in 1995 compared to the previous two years due to a higher level of interest bearing investments. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) - -------------------------------------------------------------------------------- Operating profits in Other North American countries increased by 6% in 1995 while sales declined by 3%. The profit improvement was due to increased Canadian profits. The sales decline was due entirely to lower foreign exchange rates in Mexico and Canada. During 1993, the Company incurred costs of $14,800,000 before taxes or $8,880,000 after taxes ($.19 per share) related to pre-launch activity, exclusive of research and development, for Felbatol. COST AND EXPENSES Cost of goods sold as a percentage of net sales was 36.2% in 1995, 35.0% in 1994, and 34.2% in 1993. The increases in the cost of goods sold percentage were due primarily to changes in product mix, including in 1995 reduced sales of Organidin I.G., whose cost of goods sold was lower than the Company's overall cost of goods sold percentage. Throughout this period, the Company has attempted to minimize the effects of higher costs by selective price increases and cost control measures. Advertising, marketing and other selling expenses decreased 4% in 1995 and increased 7% in 1994. The decrease in 1995 relates to lower expense in the Health Care segment. Advertising, marketing and other selling expense in the Consumer Products segment increased in 1995 over the prior year. The increase in 1994 was due to higher advertising and promotional support of products in both business segments. Also, in 1994, Felbatol (felbamate) was supported by substantial introductory spending levels. The higher level of spending in the Consumer Products segment in 1994 is primarily a result of the marketing support for line extensions of anti-perspirant and deodorant products. Research and development expenses decreased 21% in 1995 compared with the prior year. This decline was due to the significant reduction of felbamate clinical studies and the termination of Organidin I.G. clinical studies. The Company announced that in October, 1994 it virtually eliminated its Wallace Laboratories Division internal research and development capability. However, the Company will continue its research and development of Astelin (azelastine) for rhinitis, and taurolidine, an antitoxin for the treatment of sepsis, and to the extent such work exceeds the Company's remaining internal research and development resources, such work will be done through independent research facilities. In 1994 research and development expenses increased 5% compared with the prior year. Research spending, most of which was in the Health Care segment, was principally related to Felbatol for the treatment of seizures associated with epilepsy and Astelin (azelastine) for rhinitis and asthma. General and administrative expenses increased 6% in 1995 and 4% in 1994. The increase in 1995 was primarily due to higher employee benefits costs, legal fees and provisions for write-offs of trade receivables. The increase in 1994 was principally due to increased compensation including a higher charge for postretirement benefit expense. The increase in other expenses in 1995 was principally due to provisions for settlements of disputed patent claims, including $2,000,000 related to the Becton Dickinson litigation. Interest expense increased in 1995 over the prior year as a result of financing related to international acquisitions. In 1995, the Company had a 35.3% tax benefit on its reported consolidated loss. The tax benefit of 35.3% is higher than the prior year's tax provision on operations of 31% because most of the one-time charges in 1995 are U.S. related and will be deductible for federal and state income tax purposes. Tax rates in 1995 and future years are and will be adversely affected by the cessation of Puerto Rico operations and the absence of research and development tax credits. In 1994, the Company adjusted its net deferred tax asset to reflect the recently enacted change in federal corporate income tax rates. As a result, the provision for income taxes in the fiscal 1994 period includes a one-time credit of $815,000 or $.02 per share as required by Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". The effect of the tax law change on the current provision for income taxes was not significant. Excluding the effect of this one-time adjustment of deferred taxes, the estimated annual effective consolidated income tax rate on operations in the fiscal 1994 period was 31%, the same as the fiscal 1993 consolidated income tax rate. The Financial Accounting Standards Board has recently issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ". The Company is required to adopt this Statement no later than fiscal year ending March 31, 1997. The American Institute of Certified Public Accountants has recently issued Statement of Position 93-7 "Reporting on Advertising Costs". The Company is required to adopt this statement no later 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) - -------------------------------------------------------------------------------- than fiscal year ending March 31, 1996. Adoption of these statements is not expected to have a material impact on the Company's financial statements. RESTRUCTURING OF OPERATIONS AND FACILITIES Prompted by the discontinuance of its line of iodinated glycerol formulation of Organidin products and by the significant adverse effect on existing and potential sales of Felbatol (felbamate) due to use restrictions, the Company is engaged in a restructuring program which is intended to reduce costs and increase efficiencies. As part of the restructuring program, the Company has substantially reduced its pharmaceutical sales force and marketing support staff and virtually eliminated its Wallace Laboratories Division internal research and development capability. However, the Company will continue its research and development of Astelin (azelastine) for rhinitis, and taurolidine, an antitoxin for the treatment of sepsis, and to the extent such work exceeds the Company's remaining internal research and development resources, such work will be done through independent research facilities. The consolidation of its manufacturing operations resulted in the closure of the Company's plants in Humacao and Rincon, Puerto Rico and the planned closure of its East Winsor, New Jersey facility. In addition, the Company is in the process of relocating one of its divisions to its Cranbury, New Jersey facility. In connection with the restructuring described above, the Company incurred one-time pre-tax charges in the year ended March 31, 1995 of $74,060,000 consisting primarily of employee termination costs ($28,000,000), plant closing costs including equipment write-offs ($23,000,000) and costs associated with the planned subleasing of office space on which the Company holds a long-term lease ($19,400,000). A $1,800,000 charge related to the office relocation is expected to be incurred in the fiscal year ending March 31, 1996. The Company has closed and disposed of its Humacao and Rincon, Puerto Rico facilities. The East Windsor, New Jersey plant is scheduled to be closed by October, 1995. Net plant closing costs of $5,000,000 have been charged against the restructuring liability through March 31, 1995. The total anticipated reduction in the number of employees will be approximately 910 including 95 vacancies that will not be filled and represents 31% of the Company's total domestic workforce, including 41% of its pharmaceutical sales force. Of the total planned staff reductions, 417 employees have been terminated through March 31, 1995 with employee termination costs of $8,600,000 charged against the restructuring liability. In addition, approximately 40 positions have been eliminated as a result of voluntary resignations. The Company is continuing to review its operations and may take other steps to reduce costs and increase efficiencies in the future which may result in additional one-time charges. FELBATOL (FELBAMATE) On August 1, 1994, the Company disclosed that it had sent a letter to approximately 240,000 physicians recommending, in conjunction with the FDA, the immediate withdrawal of patients from treatment with Felbatol (felbamate), unless, in the physician's judgment, an abrupt withdrawal would be deemed to pose a more serious risk to the patient. Carter-Wallace's recommendation was prompted by reports of ten cases of aplastic anemia in association with the use of Felbatol. No such cases were observed during the premarketing, clinical testing and development of Felbatol. On September 21, 1994, after discussions with the FDA, the Company mailed a letter alerting physicians to the risk of acute liver failure in association with the use of Felbatol and the need to monitor liver function in all patients who are still taking the drug. On September 27, 1994, the FDA's Peripheral and Central Nervous System Drugs Advisory Committee met to discuss the continued availability of Felbatol. The Committee recommended that the drug remain available only for patients with severe epilepsy for whom the benefits outweigh the risks, and that changes be made to the product's labeling to reflect the risk of acute liver failure. Carter-Wallace introduced Felbatol in September, 1993 for the treatment of partial seizures with and without secondary generalization in adults and for Lennox-Gastaut Syndrome, a serious form of childhood epilepsy. Due to substantial introductory spending levels and continued research and development, the Company incurred losses with respect to Felbatol since introduction and for the fiscal 1995 period. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) - -------------------------------------------------------------------------------- As a result of the Felbatol matters discussed above, the Company incurred in the year ended March 31, 1995 a one-time charge to pre-tax earnings of $37,780,000, primarily related to inventory write-offs ($15,400,000) in excess of sales projections, purchase and other commitments ($9,900,000) and anticipated product returns including trade announcements ($4,500,000). Depending on future sales levels, additional inventory write-offs may be required. At the present time Felbatol continues to be available on the market. If for any reason the product at some future date is no longer available in the market, the Company will incur an additional one-time charge that would have a material adverse effect on the Company's results of operations and possibly on its financial condition. Should the product no longer be available, the Company currently estimates that the additional one-time charge, consisting primarily of inventory write-offs and anticipated returns of product currently in the market, will be in the range of $30,000,000 to $35,000,000 on a pre-tax basis. As previously reported, the Company entered into a licensing agreement with Schering-Plough Corporation granting Schering-Plough exclusive marketing rights in all markets except the United States and its territories and possessions, Canada and Mexico, to Felbatol. Separately, Schering-Plough and Carter-Wallace agreed that, under certain circumstances, they will put into effect a co-promotional arrangement with respect to a Schering-Plough pharmaceutical product to be determined in the future. The matters discussed above will likely result in a significant adverse effect on the amount of royalties and fees, if any, to be received from Schering-Plough in the future under these agreements. REGULATORY MATTERS In connection with the Food and Drug Administration Drug Efficacy Study implementation program, the FDA initiated a review of the safety and efficacy of the Organidin (iodinated glycerol) products. An FDA Advisory Committee recommended on March 23, 1992 that the products remain on the market pending further FDA review, that certain changes in the product's labeling be made and that doctors be appropriately notified of these labeling changes. The Company implemented these FDA Advisory Committee recommendations and initiated development of additional data to support the safety and efficacy of the products. On April 22, 1993, the Company received a letter from the FDA requesting that the Company discontinue the marketing of the Organidin (iodinated glycerol) products. Subsequent meetings between the Company and the FDA resulted in an agreement reached in June, 1994, under which the Company discontinued the manufacture and shipment of the Organidin (iodinated glycerol) products. The agreement permitted the continued shipping, prescribing and dispensing of existing stocks of Organidin (iodinated glycerol) product then currently in channels of distribution. As noted, the Company has introduced a reformulation of the Organidin expectorant/antitussive products. As a result of the agreement noted above, the Company incurred in the year ended March 31, 1995 a one-time charge to pre-tax earnings of $17,500,000 primarily related to a provision for any product returns ($8,500,000) and for inventory write-offs ($3,600,000). Sales and pre-tax operating profits of the Organidin (iodinated glycerol) line included in the year ended March 31, 1995 were $20,800,000 and $11,400,000, respectively, compared to sales and pre-tax operating profits included in the year ended March 31, 1994 of $74,400,000 and $31,600,000, respectively. Sales and pre-tax operating profits for the fiscal year ended March 31, 1993 were $43,400,000 and $7,600,000, respectively. Organidin operating profits were computed on a basis consistent with that used to report operating profits for the Health Care business segment in the Company's Annual Report. 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, 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 million. The Company's share of this cost is estimated to be $114,500 to $129,400, of which the Company has paid about $99,000. In addition, the Company and other settling PRPs have sued certain nonsettlors 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) - -------------------------------------------------------------------------------- for their share of these costs and have obtained some settlement recoveries. Based on preliminary information from the investigation work (which is not completed) the total cost for performing the current and future cleanup work at Barkhamsted, including the investigation work, is estimated to be $13.3 to $41.3 million. Based on expected PRP participation in future cleanup work and other factors, the Company anticipates that its share of all cleanup costs (including costs incurred to date) will be not more than 4 to 5% or about $532,000 to $2,065,000. Thus, although applicable environmental law generally provides for joint and several liability for the cost of cleanup work, the Company believes, based on present estimates, that substantially all of the cleanup costs will be paid by other PRPs. The Company believes, based upon the information available at this time, that the matter discussed above will not have a material effect on its financial statements. LIQUIDITY Funds provided from operations and the Company's short-term investments and cash equivalents are the main source for financing working capital requirements, additions to property, plant and equipment, the payment of dividends and the purchases of treasury stock. External borrowings are incurred as needed to satisfy cash requirements relating to seasonal business fluctuations and to finance major facility expansion programs and major acquisitions. At March 31, 1995, the Company had available various bank credit lines amounting to $185,500,000, consisting of $160,000,000 in domestic credit lines and $25,500,000 in foreign credit lines, of which $4,100,000 of the foreign lines were utilized at March 31, 1995. There were no domestic borrowings under credit lines at March 31, 1995. The domestic lines are made up of a $75,000,000 revolving credit facility expiring in September, 1996 and $85,000,000 in uncommitted credit lines from various banks. The pre-tax one-time charges of $129,340,000 recorded through March 31, 1995, consist of net cash requirements of $86,700,000 and non-cash write-offs of $42,640,000. Approximately $28,800,000 of the total cash requirements of $86,700,000 was paid in 1995 and $32,600,000 is expected to be paid in the fiscal year ended March 31, 1996. The anticipated cash benefit from income taxes related to these one-time charges is estimated to be $48,800,000 which will be received over a period of years. The net cash outlay for the one-time charges after consideration of the tax benefits is approximately $37,900,000. The decrease in inventories in 1995 is primarily due to the reclassification of $20,800,000 of Felbatol inventories, not expected to be sold in the next fiscal year, to Other Assets. The decrease in accounts receivable in 1994 is primarily due to the timing of sales and collections. CAPITAL RESOURCES Capital expenditures were $18,850,000 in 1995, $24,300,000 in 1994 and $25,500,000 in 1993. In April, 1995 the Company purchased a condom manufacturing facility in Colonial Heights, VA. Expansion of this facility will require significant capital resources that are expected to be financed through long-term borrowing. The Company decided in mid-May, 1995 to close its condom manufacturing plant in Trenton, New Jersey over a projected period of eighteen to twenty-four months. The condom production currently performed at Trenton will be transferred to the Company's facility in Colonial Heights, VA. The Company expects that the decision to close the Trenton plant will result in future pre-tax one-time charges to earnings of approximately $22,000,000. Most of these charges will be incurred in fiscal year ending March 31, 1996. 12 DESCRIPTION OF BUSINESS SEGMENTS - -------------------------------------------------------------------------------- The Company is engaged in the manufacture and sale of a diversified line of products in the Consumer Products and Health Care business segments described below: CONSUMER PRODUCTS These products are promoted directly to the consumer by television and other advertising media and are sold to wholesalers and various retailers. They are manufactured and sold domestically by our consumer products divisions and some are sold throughout the rest of the world by various subsidiaries and distributors. Principal products include: ANTI-PERSPIRANTS AND DEODORANTS * Arrid Extra Dry and Arrid XX * Lady's Choice OTHER CONSUMER PRODUCTS * Answer and First Response at-home pregnancy and ovulation test kits * Carter's laxative * H-R lubricating jelly * Nair depilatories and waxes * Pearl Drops whitening toothpolish and whitening toothpaste * Rigident denture adhesive * Trojan, Class Act, Mentor and Naturalamb condoms * Color Guard flea and tick collars * 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 Chewman pet chew toys * X-O-Trol flea and tick household and dog sprays and household foggers HEALTH CARE Health care products are promoted primarily to physicians, pharmacists, hospitals, laboratories and clinics by a staff of specially trained professional sales representatives and by advertising in professional journals. These products are manufactured and sold domestically by our professional products divisions and some are sold throughout the rest of the world by various subsidiaries and distributors. Principal products include: * Felbatol for the treatment of seizures associated with epilepsy * Organidin NR family of expectorants/antitussives * Ryna line of cough/cold products * Soma brand muscle relaxants * Butisol sedative hypnotic * Depen penicillamine for severe rheumatoid arthritis * Doral sedative hypnotic * Lufyllin xanthine bronchodilator * Maltsupex laxative * VoSoL topical antibacterial and anti-fungal agent * Clearview product line of rapid tests for the determination of pregnancy, group A streptococcus and chlamydia * Isostat product line to aid in the detection of micro-organisms in blood * Mono-Test and Mono-Latex for the detection of mononucleosis * Rheumaton and Rheumatex for the detection of rheumatoid factor * Stat-Crit, a portable instrument for use in measuring blood hematocrit levels * Streptozyme for the detection of streptococcal antibodies * Zeus Scientific line of immunofluorescent and ELISA test systems for the detection of autoimmune, viral and bacterial diseases including Lyme disease -------------------------- INTERNATIONAL PRODUCT LINES In addition to many of the products listed above, the Company sells the following products exclusively in certain International markets: CONSUMER PRODUCTS * Bi-Solution acne treatment products * Cerox adhesive tapes and bandages * Confidelle, Discover and Gravix at-home pregnancy test kits * Cossack line of men's grooming products * Curash line of skin care products * Dentovax line of oral hygiene products * Email Diamant toothpastes * Eudermin line of skin care and toiletry products * GranVista non-prescription eyeglasses * Lineance line of anti-cellulite and associated skin care products * Poupina line of skin care and toiletry products * Taky depilatories and waxes HEALTH CARE * Antiphlogistine Rub A-535 and Dencorub topical analgesics * Atasol analgesic/antipyretic * Bentasil medicated throat lozenges * Cerulisina otic solution * Colfur antidiarrheal * 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 13 Carter-Wallace, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS AT MARCH 31, 1995 AND 1994
ASSETS 1995 1994 - --------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 40,098,000 $ 23,311,000 Short-term investments, principally government securities and certificates of deposit 18,188,000 32,883,000 Accounts receivable-trade, less allowances of $6,344,000 in 1995 and $5,955,000 in 1994 119,077,000 112,367,000 Other receivables 4,728,000 4,703,000 Inventories Finished goods 55,499,000 60,515,000 Work in process 12,359,000 22,121,000 Raw materials and supplies 21,359,000 39,553,000 ------------ ------------ 89,217,000 122,189,000 ------------ ------------ Deferred taxes 24,832,000 10,051,000 Prepaid expenses and other current assets 7,177,000 9,922,000 ------------ ------------ TOTAL CURRENT ASSETS 303,317,000 315,426,000 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT, AT COST Land 2,519,000 3,544,000 Buildings and improvements 99,128,000 108,033,000 Machinery, equipment and fixtures 126,887,000 142,354,000 Leasehold improvements 23,692,000 25,109,000 ------------ ------------ 252,226,000 279,040,000 Accumulated depreciation and amortization 114,618,000 121,981,000 ------------ ------------ 137,608,000 157,059,000 ------------ ------------ INTANGIBLE ASSETS Excess of purchase price of businesses acquired over the net assets at date of acquisition, less amortization 90,352,000 68,292,000 Patents, trademarks, contracts and formulae, less amortization 39,500,000 41,921,000 ------------ ------------ 129,852,000 110,213,000 ------------ ------------ DEFERRED TAXES 57,752,000 26,594,000 OTHER ASSETS 51,695,000 19,270,000 ------------ ------------ $680,224,000 $628,562,000 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. 14
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 - --------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Accounts payable $ 31,318,000 $ 27,844,000 Accrued expenses 134,425,000 72,041,000 Notes payable 5,416,000 5,709,000 Taxes on income 31,562,000 24,673,000 ------------ ------------ TOTAL CURRENT LIABILITIES 202,721,000 130,267,000 ------------ ------------ LONG-TERM LIABILITIES Long-term debt 23,115,000 9,309,000 Deferred compensation 10,216,000 7,661,000 Accrued postretirement benefit obligation 68,969,000 71,804,000 Other long-term liabilities 48,064,000 16,013,000 ------------ ------------ TOTAL LONG-TERM LIABILITIES 150,364,000 104,787,000 ------------ ------------ 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 34,528,000 shares in 1995 and 34,432,000 shares in 1994 34,528,000 34,432,000 Class B common stock, authorized 13,056,800 shares, par value $1 per share, ten votes per share; issued 12,677,000 shares in 1995 and 12,773,000 in 1994 12,677,000 12,773,000 Capital in excess of par value 2,184,000 1,972,000 Retained earnings 310,407,000 380,047,000 ------------ ------------ 359,796,000 429,224,000 Less: Foreign currency translation adjustment 18,949,000 20,404,000 Treasury stock at cost--872,500 common and 153,600 Class B common shares in 1995 and 981,900 common and 153,600 Class B common shares in 1994 13,708,000 15,312,000 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 327,139,000 393,508,000 ------------ ------------ $680,224,000 $628,562,000 ------------ ------------ ------------ ------------
15 Carter-Wallace, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS THREE YEARS ENDED MARCH 31, 1995
1995 1994 1993 - ----------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF EARNINGS Revenues: Net sales $663,642,000 $664,789,000 $653,511,000 Interest income 3,574,000 2,339,000 2,989,000 Royalty and other income 2,762,000 3,135,000 2,698,000 Income from licensing agreement -- -- 10,000,000 ------------ ------------ ------------ 669,978,000 670,263,000 669,198,000 ------------ ------------ ------------ Cost and Expenses: Cost of goods sold 240,318,000 232,560,000 223,358,000 Advertising and promotion 125,450,000 128,917,000 114,932,000 Marketing and other selling 127,152,000 133,765,000 129,763,000 Research and development 41,315,000 52,278,000 49,903,000 General and administrative 81,321,000 76,937,000 74,125,000 Provision for restructuring of operations and facilities 74,060,000 -- -- Provision for loss on Felbatol 37,780,000 -- -- Provision for loss on discontinuance of the Organidin (iodinated glycerol) product line 17,500,000 -- -- Interest 2,512,000 1,976,000 1,789,000 Other 9,600,000 6,448,000 6,922,000 ------------ ------------ ------------ 757,008,000 632,881,000 600,792,000 ------------ ------------ ------------ Earnings (loss) before taxes on income and cumulative effect of accounting changes (87,030,000) 37,382,000 68,406,000 Provision (benefit) for taxes on income (30,762,000) 10,773,000 21,206,000 ------------ ------------ ------------ Net earnings (loss) before cumulative effect of accounting changes (56,268,000) 26,609,000 47,200,000 Cumulative effect of accounting changes, net of tax -- (46,639,000) -- ------------ ------------ ------------ Net earnings (loss) $(56,268,000) $(20,030,000) $ 47,200,000 ------------ ------------ ------------ ------------ ------------ ------------ Net earnings (loss) per average share of common stock before cumulative effect of accounting changes $ (1.22) $ .58 $ 1.03 Cumulative effect of accounting changes -- (1.02) -- ------------ ------------ ------------ Net earnings (loss) per average share of common stock $ (1.22) $ (.44) $ 1.03 ------------ ------------ ------------ ------------ ------------ ------------ CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Amount at beginning of year* $380,047,000 $415,369,000 $383,435,000 Net earnings (loss) (56,268,000) (20,030,000) 47,200,000 ------------ ------------ ------------ 323,779,000 395,339,000 430,635,000 Dividends--$.29 per share in 1995 and $.33 per share in 1994 and 1993 (13,372,000) (15,292,000) (15,256,000) Cost of treasury stock (over) market value at date of award or issuance -- -- (10,000) ------------ ------------ ------------ Amount at end of year $310,407,000 $380,047,000 $415,369,000 ------------ ------------ ------------ ------------ ------------ ------------ See accompanying notes to consolidated financial statements. *Retained earnings in 1993 were restated to reflect the change in accounting for income taxes.
16 CONSOLIDATED STATEMENTS OF CASH FLOWS THREE YEARS ENDED MARCH 31, 1995
1995 1994 1993 - ----------------------------------------------------------------------------------------------------------- Net earnings (loss) $(56,268,000) $(20,030,000) $ 47,200,000 Adjustments to reconcile net earnings (loss) to cash flows provided by operating activities: One-time charges of $129,340,000, net of cash outlays to date of $28,819,000 100,521,000 -- -- Cumulative effect of accounting changes -- 46,639,000 -- Depreciation and amortization 16,359,000 15,707,000 15,250,000 Amortization of patents, trademarks, contracts and formulae 8,723,000 9,720,000 8,623,000 Amortization of excess of purchase price of businesses acquired over the net assets at date of acquisition 2,760,000 2,015,000 1,968,000 Other changes in assets and liabilities: Decrease (increase) in accounts and other receivables 13,845,000 19,548,000 (6,883,000) Decrease (increase) in inventories 1,058,000 (9,086,000) (16,317,000) Decrease in prepaid expenses 1,301,000 1,240,000 2,062,000 Increase (decrease) in accounts payable and accrued expenses 28,498,000 (3,237,000) 61,000 Increase (decrease) in deferred compensation 2,493,000 (28,000) 383,000 (Increase) decrease in deferred taxes (45,939,000) 1,101,000 (488,000) Other changes (11,796,000) (566,000) (4,469,000) ------------ ------------ ------------ Cash flows provided by operating activities 61,555,000 63,023,000 47,390,000 ------------ ------------ ------------ Cash flows used in investing activities: Additions to property, plant and equipment (18,853,000) (24,305,000) (25,500,000) Payments for international acquisitions, net of cash received: The Sante Beaute line in France (19,670,000) -- -- Technogenetics in Italy (4,928,000) -- -- The Curash line in Australia (3,660,000) -- -- Icart, S.A. in Spain -- -- (7,432,000) Payments for the acquisition of other businesses and licensing agreements (1,000,000) (1,196,000) (1,783,000) Decrease (increase) in short-term investments 14,081,000 (6,341,000) (6,512,000) Other investing activities 856,000 1,078,000 3,994,000 ------------ ------------ ------------ Cash flows used in investing activities (33,174,000) (30,764,000) (37,233,000) ------------ ------------ ------------ Cash flows used in financing activities: Dividends paid (13,372,000) (15,292,000) (15,256,000) Increase in borrowings 6,801,000 1,343,000 1,783,000 Payments of debt (4,348,000) (1,237,000) (2,607,000) Purchase of treasury stock (838,000) (436,000) (834,000) ------------ ------------ ------------ Cash flows used in financing activities (11,757,000) (15,622,000) (16,914,000) ------------ ------------ ------------ Effect of foreign exchange rate changes on cash and cash equivalents 163,000 (1,557,000) (856,000) ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents $ 16,787,000 $ 15,080,000 $ (7,613,000) ------------ ------------ ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. 17 Carter-Wallace, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SUMMARY OF ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Carter-Wallace, Inc. and all of its subsidiaries (the "Company"). All significant intercompany transactions have been eliminated. Cash Equivalents and Short-term Investments Cash equivalents consist of certificates of deposit and other short-term securities with maturities of three months or less when purchased. Investments with a maturity of greater than three months but less than one year are classified as short-term investments. The carrying value of cash equivalents and short-term investments approximated fair value at March 31, 1995 and 1994. Inventories Inventories are valued at the lower of cost or market on the first-in, first-out (FIFO) method, except for certain domestic inventories which are stated at cost on the last-in, first-out (LIFO) method. Property, Plant and Equipment Depreciation is provided over the estimated useful lives of the assets, principally using the straight line method. Leasehold improvements are amortized on a straight line basis over the life of the related asset or the life of the lease, whichever is shorter. Expenditures for renewals and betterments are capitalized. Upon sale or retirement of assets, the appropriate asset and related accumulated depreciation accounts are adjusted and the resultant gain or loss is reflected in earnings. Maintenance and repairs are charged to expense as incurred. Intangible Assets The excess of purchase price of businesses acquired over net assets at date of acquisition is assessed to the product or group of products which constitute the business acquired and amortized over 40 years for amounts relating to acquisitions subsequent to October 31, 1970. The excess purchase price, $6,459,000 related to companies acquired prior to that date, is not being amortized. 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. Trademarks of $2,756,000 related to products acquired prior to that date are not being amortized. The Company's policy in assessing the recoverability of intangible assets is to compare the carrying value of the intangible assets with profit and cash flow generated by products which comprise the intangible assets. In addition, the Company continually evaluates whether adverse developments indicate that an intangible asset may be impaired. Income Taxes Deferred income taxes are determined using the liability method based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws. Advertising and Marketing Costs Advertising, promotion and other marketing costs are charged to earnings in the period in which they are incurred. Earnings per Common Share Net earnings (loss) per share of common stock is based on the average number of common and Class B common shares outstanding during the year: 46,108,000 in 1995, 45,900,000 in 1994 and 45,786,000 in 1993. The average number of shares and all per share amounts reflect the three-for-one stock split in April 1992. 2. INVENTORIES Inventories computed on the last-in, first-out (LIFO) method comprised 13% and 14% of inventories included in current assets at year end 1995 and 1994, respectively. If these inventories had been valued on the FIFO inventory method (which approximates current or replacement cost), total inventories would have been approximately $10,900,000 and $11,000,000 higher than reported at March 31, 1995 and 1994, respectively. Felbatol inventories of $20,800,000 not expected to be sold in the next fiscal year have been reclassified to Other Assets. 18 3. TAXES ON INCOME The provision (benefit) for taxes on earnings before the cumulative effect of accounting changes was as follows:
1995 1994 1993 ------------- ----------- ----------- Current: Domestic $ 8,361,000 $ 5,236,000 $15,774,000 Foreign 6,356,000 5,414,000 5,867,000 ------------- ----------- ----------- 14,717,000 10,650,000 21,641,000 ------------- ----------- ----------- Deferred: Domestic (45,791,000) 455,000 (363,000) Foreign 312,000 (332,000) (72,000) ------------- ----------- ----------- (45,479,000) 123,000 (435,000) ------------- ----------- ----------- Total $ (30,762,000) $10,773,000 $21,206,000 ------------- ----------- ----------- ------------- ----------- ----------- The components of income (loss) before taxes and the cumulative effect of accounting changes were as follows: Domestic $(102,936,000) $24,303,000 $53,103,000 Foreign 15,906,000 13,079,000 15,303,000 ------------- ----------- ----------- Total $ (87,030,000) $37,382,000 $68,406,000 ------------- ----------- ----------- ------------- ----------- -----------
The Company's Puerto Rican subsidiaries were liquidated as part of the Company's restructuring program during fiscal 1995 and the early part of fiscal 1996. The undistributed earnings of these subsidiaries were repatriated free of United States income taxes upon liquidation. Deferred income taxes are provided for temporary differences between the book 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:
1995 1994 ----------- ----------- Postretirement benefit plans $27,621,000 $27,304,000 Employee benefit plans 13,137,000 11,453,000 Accrued liabilities 35,855,000 8,008,000 Asset valuation accounts 15,191,000 2,107,000 All other 11,871,000 4,388,000 Valuation allowance (2,298,000) -- ----------- ----------- Total deferred tax assets 101,377,000 53,260,000 ----------- ----------- Depreciation 13,218,000 12,175,000 All other 5,575,000 4,440,000 ----------- ----------- Total deferred tax liabilities 18,793,000 16,615,000 ----------- ----------- Net deferred tax assets $82,584,000 $36,645,000 ----------- -----------
Effective April 1, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". This statement requires a change in the method of accounting for income taxes from the deferred method to the liability method. The effect of adopting this statement was a one-time non-cash charge of $1,970,000 which was recognized on a restated basis in the year ended March 31, 1989. Accordingly, retained earnings as of March 31, 1989 through 1993 have been restated to reflect the adoption. In addition, as a result of the restatement of acquisitions made subsequent to March 31, 1989, intangible assets have been restated and reduced by $800,000. During 1994, the enacted federal statutory tax rate increased from 34% to 35%. In accordance with SFAS No. 109, deferred income taxes were adjusted to reflect this change which resulted in a credit to the income tax provision of $815,000. The effect of the tax law change on the current provision was not significant. 19 A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. Management believes, based on the Company's history of prior and current operating earnings, that the Company will realize the benefits of the existing deferred tax assets except for the valuation allowance amount. The effective tax rate of the provision (benefit) for taxes on earnings before the cumulative effect of accounting changes as compared with the U.S. Federal statutory income tax rate was as follows:
1995 1994 1993 ----------------------- ---------------------- ---------------------- % TO % TO % TO TAX PRE-TAX TAX PRE-TAX TAX PRE-TAX AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME ------------ ------- ----------- ------- ----------- ------- Computed tax expense (benefit) $(30,461,000) (35.0%) $13,084,000 35.0% $23,258,000 34.0% Puerto Rican income (910,000) (1.0) (2,855,000) (7.6) (2,786,000) (4.1) Foreign income taxed at a different effective rate 1,438,000 1.7 315,000 .8 (1,476,000) (2.2) State income taxes, net of federal tax benefit (4,989,000) (5.7) 878,000 2.4 2,141,000 3.1 Amortization of intangibles 829,000 .9 839,000 2.2 781,000 1.2 Valuation allowance 2,298,000 2.6 -- -- -- -- Deferred tax adjustment due to federal tax rate change -- (815,000) (2.2) -- -- Other 1,033,000 1.2 (673,000) (1.8) (712,000) (1.0) ------------ ----------- ----------- $30,762,000) (35.3%) $10,773,000 28.8% $21,206,000 31.0% ------------ ----- ----------- ----- ----------- ----- ------------ ----- ----------- ----- ----------- -----
The U.S. Internal Revenue Service completed its examination of the Company's tax returns through the fiscal year 1989 and for fiscal year 1991 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:
1995 1994 1993 ------------ ------------ ------------ Net current assets $ 80,147,000 $ 89,307,000 $ 88,063,000 Equity in net assets 108,009,000 97,316,000 94,984,000 Net sales 182,190,000 159,454,000 169,032,000 Net earnings 9,238,000 7,997,000 9,508,000
The equity adjustment from foreign currency translation is comprised of the following:
YEARS ENDED MARCH 31 ------------------------------- 1995 1994 ----------- ----------- Opening balance $20,404,000 $14,739,000 Current year (1,455,000) 5,665,000 ----------- ----------- Ending balance $18,949,000 $20,404,000 ----------- ----------- ----------- -----------
The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 119 "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments." At March 31, 1995, the Company has entered into forward foreign exchange contracts in the amount of $13,700,000 related to intercompany loans between certain of its subsidiaries. The forward exchange contracts are intended to reduce the risk of fluctuating exchange rates on intercompany loan arrangements. In April, 1995, $7,000,000 of forward foreign exchange contracts matured. The remaining contracts totaling $6,700,000 mature in March, 1996. 5. NOTES PAYABLE AND LONG-TERM DEBT Notes Payable Notes payable consisting of borrowings from banks under available lines of credit were $4,096,000, $1,834,000 and $645,000 and the current portion of long-term debt was $1,320,000, $3,875,000 and $1,305,000 at March 31, 1995, 1994 and 1993, respectively. Data related to the amount of short-term borrowings outstanding during the year and related interest rates are not presented since they are immaterial. 20 The Company has available various bank credit lines amounting to $185,500,000 of which $160,000,000 is for domestic borrowings and $25,500,000 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:
1995 1994 ----------- ----------- Connecticut Development Authority Industrial Development Bond, 6.75% payable October 1, 1998 $ 4,300,000 $ 4,300,000 Secured Italian lira term loan, adjustable rate payable in quarterly installments from April 1, 1996 to July 1, 2001 3,010,000 -- Secured Italian lira term loan, adjustable rate payable in quarterly installments from March 31, 1996 to June 30, 2001 3,010,000 -- City of Decatur, Illinois adjustable rate Industrial Revenue Bond payable December 1, 2010 3,000,000 3,000,000 Promissory Notes, 5.86%, payable no later than September 12, 1996 2,633,000 2,940,000 Unsecured French franc term loan, 7.59%, payable August 6, 2001 2,434,000 -- Unsecured French franc term loan, 7.75%, payable August 6, 2001 2,434,000 -- Unsecured Australian dollar term loan, 9.64%, payable in equal annual installments from July 28, 1995 to July 28, 1998 1,479,000 -- Unsecured Italian lira loans, rates of 4.5%-10.8%, payable in semi-annual installments through July 2002 1,460,000 2,200,000 New Jersey Economic Development Authority Bonds, 7 3/8%, payable in annual installments of $65,000 through 1999, and $70,000 through September 1, 2004 675,000 740,000 Other -- 4,000 ----------- ----------- 24,435,000 13,184,000 Less, current portion of long-term debt included in notes payable (1,320,000) (3,875,000) ----------- ----------- $23,115,000 $ 9,309,000 ----------- ----------- ----------- -----------
Maturities of long-term debt for each of the four fiscal years 1997 through 2000 are $2,917,000, $4,927,000, $584,000 and $169,000, respectively. Interest on the Decatur, Illinois Industrial Revenue Bond is 72% of the prime rate (unless earlier converted to a fixed rate at the Company's option) through December, 1995, adjustable thereafter. The secured Italian lira loans are secured by irrevocable Letters of Credit and expire 30 days after the loan maturity. 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 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. The Company's revolving credit facility and the Connecticut Development Authority Industrial Development Bond contain covenants which require that total long-term liabilities will not exceed 40% of total capitalization and that net worth, defined as total stockholders' equity, exclusive of foreign currency translation adjustment and treasury stock, may not be less than $300,000,000. The fair value of long-term debt, including current maturities was $24,633,000 at March 31, 1995 and $13,543,000 at March 31, 1994. 21 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. Effective April 27, 1992, the Company's stockholders approved an amendment to the Certificate of Incorporation increasing the authorized common shares to 80,000,000 and Class B common shares to 13,056,800. The Company subsequently issued 22,815,000 shares of common stock and 8,655,000 shares of Class B common stock including 940,400 shares added to treasury stock in connection with a three-for-one stock split. At March 31, 1992, stockholders' equity reflects the three-for-one stock split effective April 27, 1992. Activity for the years ended March 31, 1995, 1994 and 1993 was as follows:
CLASS B CAPITAL IN COMMON COMMON EXCESS OF STOCK STOCK PAR VALUE ----------- ----------- ----------- Balance at March 31, 1992 $34,223,000 $12,982,000 $ -- Conversion of Class B common stock to Common Stock 150,000 (150,000) -- Tax benefit on appreciation of restricted stock awards -- -- 637,000 ----------- ----------- ----------- Balance at March 31, 1993 34,373,000 12,832,000 637,000 Conversion of Class B common stock to Common Stock 59,000 (59,000) -- Tax benefit on appreciation of restricted stock awards -- -- 845,000 Cost of treasury stock under market value at date of award or issuance -- -- 490,000 ----------- ----------- ----------- Balance at March 31, 1994 34,432,000 12,773,000 1,972,000 Conversion of Class B common stock to Common Stock 96,000 (96,000) -- Cost of treasury stock under market value at date of award or issuance -- -- 212,000 ----------- ----------- ----------- Balance at March 31, 1995 $34,528,000 $12,677,000 $ 2,184,000 ----------- ----------- ----------- ----------- ----------- -----------
The tax benefit on the appreciation of restricted stock awards and the cost of treasury stock over or under the market value of the stock on the date of the award or issuance have been applied to capital in excess of par value. To the extent that charges from the cost of treasury stock over the market value at the date of the award exceed accumulated credits to capital in excess of par value in the prior years, the excess is charged to retained earnings. 7. RETIREMENT PLANS The Company has several contributory and non-contributory pension plans in which substantially all employees with over one year of service participate. The Company's funding policy is to make annual contributions to these plans in amounts equal to the minimum required by applicable regulations. The plans' assets are invested primarily in common stocks and corporate and government bonds. The pension expense for the years ended 1995, 1994 and 1993 included the following components:
1995 1994 1993 ----------- ----------- ----------- Service cost-benefits earned during the period $ 8,019,000 $ 7,416,000 $ 6,398,000 Interest cost on projected benefit obligation 13,689,000 11,474,000 10,983,000 Actual return on assets (1,449,000) (16,799,000) (15,149,000) Net amortization and deferral (15,441,000) (299,000) (1,173,000) Curtailment gain (549,000) -- -- ----------- ----------- ----------- Total pension expense $ 4,269,000 $ 1,792,000 $ 1,059,000 ----------- ----------- ----------- ----------- ----------- -----------
During the year ended March 31, 1995 the Company recognized a curtailment gain of $549,000 in conjunction with the restructuring program. This gain was included as a credit to the one-time charges for restructuring of operations and facilities. 22 The following table sets forth the funded status of the plans at March 31, 1995 and 1994:
PLANS IN WHICH ------------------------------------------------------------------- ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS BENEFITS EXCEED ASSETS ----------------------------- ----------------------------- 1995 1994 1995 1994 ------------ ------------ ------------ ------------ Actuarial present value of benefit obligations: Vested $ 91,567,000 $105,300,000 $ 34,468,000 $ 31,215,000 Nonvested 1,992,000 1,840,000 1,573,000 832,000 ------------ ------------ ------------ ------------ Accumulated benefit obligation $ 93,559,000 $107,140,000 $ 36,041,000 $ 32,047,000 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Projected benefit obligation $114,112,000 $127,785,000 $ 49,912,000 $ 45,196,000 Plan assets at fair value 149,507,000 156,792,000 20,274,000 23,603,000 ------------ ------------ ------------ ------------ Plan assets in excess of (less than) projected benefit obligation 35,395,000 29,007,000 (29,638,000) (21,593,000) Unrecognized net (gain) or loss (8,554,000) (41,000) (2,613,000) 3,854,000 Prior service not recognized in pension costs (1,156,000) (6,561,000) 13,619,000 7,524,000 Unrecognized net transition (asset) liability (10,880,000) (12,908,000) 384,000 262,000 Minimum liability adjustment -- -- (444,000) (374,000) ------------ ------------ ------------ ------------ Prepaid (accrued) pension costs recognized in the consolidated balance sheets $ 14,805,000 $ 9,497,000 $(18,692,000) $(10,327,000) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
The principal assumptions used in determining 1995, 1994 and 1993 actuarial values were: Discount rate 7 - 9% Rate of increase in compensation levels 4 - 6% Expected long-term rate of return on plan assets. 8 -10% Expense for the employee savings plan under which the Company matches the contributions of participating employees up to a designated level was $1,597,000, $1,488,000 and $1,340,000 in 1995, 1994 and 1993 respectively. 8. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND POSTEMPLOYMENT BENEFITS The Company provides certain health care and life insurance benefits for retired employees. Effective April 1, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". SFAS No. 106 requires companies to accrue postretirement benefits during the years the employees render service until they attain full eligibility for those benefits. Previously, these costs were recognized as expense as the premiums were paid. The cumulative effect of adopting SFAS No. 106 as of April 1, 1993, resulted in a pre-tax charge of $69,554,000 or $43,819,000 after taxes ($.96 per share). This non-cash charge represents the accumulated benefit obligation which the Company has elected to recognize immediately. The initial postretirement benefit obligation was subsequently reduced as a result of plan modifications made effective July 1, 1993. In accordance with SFAS No. 106, this reduction in the obligation is being amortized as a component of the net periodic postretirement benefit expense in current and future years. The effect of adopting SFAS No. 106 and the subsequent amendment of the plan increased 1994 postretirement benefit expense by approximately $2,500,000 before taxes or $1,700,000 after taxes ($.04 per share). The components of the postretirement benefit expense for the years ended March 31, 1995 and 1994 are:
1995 1994 ----------- ----------- Service cost -- benefits earned during the year $ 2,068,000 $ 2,416,000 Interest cost on accumulated postretirement benefit obligation 3,770,000 4,531,000 Net amortization and deferral (3,198,000) (2,516,000) Curtailment gain (3,357,000) -- ----------- ----------- Net periodic postretirement benefit expense (income) $ (717,000) $ 4,431,000 ----------- ----------- ----------- -----------
During the year ended March 31, 1995 the Company recognized a curtailment gain of $3,357,000 in conjunction with the restructuring program. This gain was included as a credit to the one-time charges for restructuring of operations and facilities. 23 The following table sets forth the accumulated postretirement benefit obligation of the plans at March 31, 1995 and 1994:
1995 1994 ----------- ----------- Retirees $24,584,000 $30,425,000 Active participants eligible for retirement 10,322,000 13,366,000 Other active participants 12,673,000 18,020,000 ----------- ----------- Accumulated postretirement benefit obligation 47,579,000 61,811,000 Unrecognized net gain (loss) 9,826,000 (7,281,000) Unrecognized prior service credit 11,564,000 17,274,000 ----------- ----------- Accrued postretirement benefit obligation $68,969,000 $71,804,000 ----------- ----------- ----------- -----------
The assumed health care cost trend rate used to measure the accumulated postretirement benefit obligation is 14 percent for 1995 trending to 5 percent over a nine-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 $400,000. Other principal actuarial assumptions used in determining the accumulated postretirement benefit obligation were: Discount rate 7-9% Rate of increase in compensation levels 4-6%
Effective April 1, 1993, the Company also adopted SFAS No. 112 "Employers' Accounting for Postemployment Benefits". SFAS No. 112 requires accrual accounting for benefits provided to former or inactive employees after employment but before retirement. The cumulative effect of adopting SFAS No. 112 resulted in a pre-tax charge of $4,700,000 or $2,820,000 after taxes ($.06 per share). Annual ongoing costs for these benefits related to the adoption of this statement are not material. 9. DEFERRED COMPENSATION Under provisions of a deferred compensation plan, the Company may, at the discretion of the Board of Directors, award additional compensation to officers and employees whose regular compensation is $10,000 or more per year. The aggregate of such awards in any year may not exceed 7 1/2% of the bonus net income of the Company before any income taxes as determined by the Board of Directors, less 10% of capital employed in the business, as defined in the plan. As to participants awarded more than $7,500, partial payment is made in the year of the grant, and the balance is payable with interest in ten annual installments starting after death, disability, retirement or discharge, or in reduced amounts after voluntary resignation. There were no awards made in 1995, 1994 and 1993 under the plan. 10. RESTRICTED STOCK AWARD PLAN The plan as amended provides for awards of not more than 2,750,000 shares of common stock, subject to adjustments for stock splits, stock dividends and other changes in the Company's capitalization to key employees, to be issued either immediately after the award or at a future date. As a result of the three-for-one stock split in April 1992 and the issuance of the Class B common stock in 1987, the 2,750,000 shares of common stock provided for in the Plan has been adjusted to 5,593,154 shares. As provided in the Plan and subject to restrictions, shares awarded may not be disposed of by the recipients for a period of five years from the date of the award. Cash dividends on shares awarded are held by the Company for the benefit of the recipients, subject to the same restrictions as the award. Such dividends (without interest) are paid to the recipients upon lapse of the restrictions. The cost of the awards, equal to the fair market value at the date of award, is being charged to operations in equal annual amounts over a five year period commencing at the date of the award. Award transactions for the past three years were:
SHARES --------------------------------------------- 1995 1994 1993 --------- --------- --------- Cumulative awards--beginning of year 3,417,122 3,384,227 3,314,685 New awards 49,128 32,895 69,542 --------- --------- --------- Cumulative awards--end of year 3,466,250 3,417,122 3,384,227 --------- --------- --------- --------- --------- ---------
24 The financial statements reflect the transfer of the awarded shares from treasury stock as of the date of their issuance. Included in total outstanding awards of 672,326 shares at March 31, 1995 are 505,760 shares to 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 $2,672,000, $4,924,000 and $250,000 in 1995, 1994, and 1993, respectively. The cost of treasury stock for these awards was $2,463,000, $4,434,000 and $260,000 in 1995, 1994 and 1993, respectively. Awards forfeited during the year and returned to treasury stock consisted of 1,453 shares valued at $21,300. 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. 11. ACQUISITIONS In August, 1994, the Company acquired the Sante Beaute line of products in France for approximately $21,000,000. This business consists of the Email Diamant oral hygiene products, Lineance body care products and other skin and bath products. In August, 1994, the Company acquired Technogenetics S.r.l., a subsidiary of Recordati S.p.A. for approximately $5,900,000 in Italy. Technogenetics manufactures and sells diagnostic test kits used by clinical laboratories for the diagnosis of human diseases. In July, 1994, the Company acquired for approximately $3,700,000 the Curash line of baby care and other consumer products in Australia. In March, 1993, the Company acquired Icart, S.A. for approximately $8,300,000. Icart, S.A. manufactures and markets a line of depilatory products, hand and body creams and lotions, footcare products and other toiletries in Spain. 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. 12. SHORT-TERM INVESTMENTS The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities". At March 31, 1995, all such investments were intended to be held to maturity as defined in SFAS No. 115 and have contractual maturities of less than one year. The amortized cost approximated fair value. The amortized cost of certificates of deposit and securities issued by the Canadian government were $9,286,000 and $8,902,000, respectively, and are classified in "Short-Term Investments". 13. RESTRUCTURING OF OPERATIONS AND FACILITIES Prompted by the discontinuance of its line of iodinated glycerol formulation of Organidin products and by the significant adverse effect on existing and potential sales of Felbatol (felbamate) due to use restrictions, the Company is engaged in a restructuring program which is intended to reduce costs and increase efficiencies. As part of the restructuring program, the Company has substantially reduced its pharmaceutical sales force and marketing support staff and virtually eliminated its Wallace Laboratories Division internal research and development capability. However, the Company will continue its research and development of Astelin (azelastine) for rhinitis, and taurolidine, an antitoxin for the treatment of sepsis, and to the extent such work exceeds the Company's remaining internal research and development resources, such work will be done through independent research facilities. The consolidation of its manufacturing operations resulted in the closure of the Company's plants in Humacao and Rincon, Puerto Rico and the planned closure of its East Windsor, New Jersey facility. In addition, the Company is in the process of relocating one of its divisions to its Cranbury, New Jersey facility. In connection with the restructuring described above, the Company incurred one-time pre-tax charges in the year ended March 31, 1995 of $74,060,000 consisting primarily of employee termination costs ($28,000,000), plant closing costs including equipment write-offs ($23,000,000) and costs associated with the planned subleasing of office space on which the Company holds a long-term lease ($19,400,000). A $1,800,000 charge related to the office relocation is expected to be incurred in the fiscal year ending March 31, 1996. 25 The Company has closed and disposed of its Humacao and Rincon, Puerto Rico facilities. The East Windsor, New Jersey plant is scheduled to be closed by October, 1995. Net plant closing costs of $5,000,000 have been charged against the restructuring liability through March 31, 1995. The total anticipated reduction in the number of employees will be approximately 910 including 95 vacancies that will not be filled and represents 31% of the Company's total domestic workforce, including 41% of its pharmaceutical sales force. Of the total planned staff reductions, 417 employees have been terminated through March 31, 1995 with employee termination costs of $8,600,000 charged against the restructuring liability. In addition, approximately 40 positions have been eliminated as a result of voluntary resignations. Approximately $61,600,000 of the $74,060,000 in restructuring charges remain to be utilized in future periods. The Company is continuing to review its operations and may take other steps to reduce costs and increase efficiencies in the future which may result in additional one-time charges. 14. BUSINESS SEGMENTS Information on the Company's Business Segments is presented below--dollars in thousands. (See also "Management's Discussion and Analysis of Results of Operations and Financial Condition" on page 8 and "Description of Business Segments" on page 13). Fiscal year 1993 identifiable asset information has been restated to reflect the change in accounting for income taxes.
Business Segments MARCH 31 ----------------------------------------------- 1995 1994 1993 --------- -------- -------- Sales Health Care $ 262,785 $296,621 $281,036 Consumer Anti-Perspirants and Deodorants 123,146 124,547 128,321 Other Consumer Products 277,711 243,621 244,154 --------- -------- -------- Consolidated $ 663,642 $664,789 $653,511 --------- -------- -------- --------- -------- -------- Operating Profit Health Care $ (51,222)(a) $ 37,223 $ 56,465(e) Consumer Anti-Perspirants and Deodorants (10,758)(b) (4,766) (1,512) Other Consumer Products 31,547 (c) 53,473 58,292 Interest income net of interest (expense) 1,062 363 1,200 Other (expense) net of other income (1,765) (6,614) (7,039) General corporate expenses (55,894)(d) (42,297) (39,000) --------- -------- -------- Earnings before taxes on income $ (87,030) $ 37,382 $ 68,406 --------- -------- -------- --------- -------- -------- Identifiable Assets Health Care $ 188,316 $219,920 $241,819 Consumer Anti-Perspirants and Deodorants 72,620 81,347 79,597 Other Consumer Products 231,525 197,550 195,290 Corporate Assets 187,763 129,745 78,844 --------- -------- -------- Total Assets $ 680,224 $628,562 $595,550 --------- -------- -------- --------- -------- -------- (a) Includes one-time pre-tax charges of $17,500 related to the discontinuance of the Organidin (iodinated glycerol) line, $37,780 related to the provision for loss on Felbatol and $37,697 related to restructuring. (b) Includes one-time pre-tax charge of $5,503 related to restructuring. (c) Includes one-time pre-tax charge of $18,685 related to restructuring. (d) Includes one-time pre-tax charge of $12,175 related to restructuring. (e) Includes non-recurring income of $10,000 related to a licensing agreement.
26
Business Segments Continued MARCH 31 ----------------------------------------------- 1995 1994 1993 --------- -------- -------- Depreciation and Amortization and Capital Expenditures Depreciation and Amortization Health Care $ 11,521 $ 11,314 $ 10,228 Consumer Anti-Perspirants and Deodorants 3,808 3,764 3,656 Other Consumer Products 8,002 6,908 7,095 --------- -------- -------- Total Operating Segments $ 23,331 $ 21,986 $ 20,979 --------- -------- -------- --------- -------- -------- Capital Expenditures Health Care $ 4,640 $ 5,261 $ 12,373 Consumer Anti-Perspirants and Deodorants 1,877 7,400 2,652 Other Consumer Products 11,631 9,412 9,598 --------- -------- -------- Total Operating Segments $ 18,148 $ 22,073 $ 24,623 --------- -------- -------- --------- -------- -------- Geographic Areas Sales U.S.A. $ 481,452 $505,335 $484,479 Other North America 60,841 62,470 68,698 Other Countries 121,349 96,984 100,334 --------- -------- -------- Consolidated $ 663,642 $664,789 $653,511 --------- -------- -------- --------- -------- -------- Operating Profit U.S.A. $ (43,765)(a) $ 72,732 $ 97,870(e) Other North America 5,887 (b) 5,564 7,461 Other Countries 7,445 (c) 7,634 7,914 Interest income net of interest (expense) 1,062 363 1,200 Other (expense) net of other income (1,765) (6,614) (7,039) General corporate expenses (55,894)(d) (42,297) (39,000) --------- -------- -------- Earnings (loss) before taxes on income $ (87,030) $ 37,382 $ 68,406 --------- -------- -------- --------- -------- -------- Identifiable Assets U.S.A. $ 330,493 $384,413 $403,447 Other North America 37,474 40,608 45,578 Other Countries 124,494 73,796 67,681 Corporate Assets 187,763 129,745 78,844 --------- -------- -------- Total Assets $ 680,224 $628,562 $595,550 --------- -------- -------- --------- -------- -------- Corporate assets include principally cash and cash equivalents, short-term investments, miscellaneous receivables, deferred taxes and other miscellaneous assets. (a) Includes one-time pre-tax charges of $17,500 related to the discontinuance of the Organidin (iodinated glycerol) line, $36,830 related to the provision for loss on Felbatol and $60,985 related to restructuring. (b) Includes a one-time pre-tax charge of $950 related to the provision for loss on Felbatol. (c) Includes a one-time pre-tax charge of $900 related to restructuring. (d) Includes a one-time pre-tax charge of $12,175 related to restructuring. (e) Includes non-recurring income of $10,000 related to a licensing agreement.
27 15. RENTAL EXPENSE AND LEASE COMMITMENTS Rental expense, in thousands of dollars, for operating leases with a term greater than one year for 1995, 1994 and 1993 was as follows:
REAL PROPERTY YEAR ENDED REAL SUB-RENTAL NET REAL EQUIPMENT MARCH 31 PROPERTY INCOME PROPERTY AND OTHER - ----------- -------- ------------- -------- --------- 1995 $8,320 $(688) $7,632 $ 6,389 1994 8,322 (688) 7,634 7,250 1993 8,809 (690) 8,119 7,051
Minimum rental commitments, in thousands of dollars, under non-cancellable leases in effect at March 31, 1995 were as follows:
MINIMUM RENTAL REAL EQUIPMENT CAPITAL LEASE COMMITMENTS PROPERTY AND OTHER OBLIGATIONS - --------------- -------- --------- ------------- 1996 $ 8,183 $ 319 $ 52 1997 7,457 182 49 1998 7,270 68 28 1999 7,089 11 24 2000 6,776 -- 21 2001-2012 80,916 -- 38 ------------- 212 Less interest and executory cost (44) ------------- Present value of minimum lease payments (of which $37 is included in current liabilities) $ 168 ------------- -------------
The one-time charges for restructuring of operations and facilities recorded in the year ended March 31, 1995 include approximately $15,900,000 of rental costs associated with subleasing office space on which the Company holds a long-term lease. This amount is included in the real property rental commitments indicated above. 16. SUPPLEMENTAL FINANCIAL INFORMATION The following is presented in support of balance sheet captions:
MARCH 31 -------------------------- 1995 1994 -------- -------- Intangible Assets: (dollars in thousands) Excess of purchase price of businesses acquired over the net assets at date of acquisition $111,145 $ 86,572 Trademarks 30,159 28,782 Other 35,231 38,342 -------- -------- 176,535 153,696 Accumulated amortization 46,683 43,483 -------- -------- $129,852 $110,213 -------- -------- -------- -------- Accounts Payable: Trade $ 28,596 $ 26,609 Other 2,722 1,235 -------- -------- $ 31,318 $ 27,844 -------- -------- -------- -------- Accrued Expenses: Salaries and wages $ 23,390 $ 25,313 Advertising and promotion 20,678 13,330 One-time charges 32,617 -- Retirement plans 17,063 8,578 Other 40,677 24,820 -------- -------- $134,425 $ 72,041 -------- -------- -------- -------- Other Long-Term Liabilities: One-time charges $ 31,438 $ -- Other 16,626 16,013 -------- -------- $ 48,064 $ 16,013 -------- -------- -------- --------
28 17. FELBATOL (FELBAMATE) On August, 1, 1994, the Company disclosed that it had sent a letter to approximately 240,000 physicians recommending, in conjunction with the FDA, the immediate withdrawal of patients from treatment with Felbatol (felbamate), unless, in the physician's judgment, an abrupt withdrawal would be deemed to pose a more serious risk to the patient. Carter-Wallace's recommendation was prompted by reports of ten cases of aplastic anemia in association with the use of Felbatol. No such cases were observed during the premarketing, clinical testing and development of Felbatol. On September 21, 1994, after discussions with the FDA, the Company mailed a letter alerting physicians to the risk of acute liver failure in association with the use of Felbatol and the need to monitor liver function in all patients who are still taking the drug. On September 27, 1994, the FDA's Peripheral and Central Nervous System Drugs Advisory Committee met to discuss the continued availability of Felbatol. The Committee recommended that the drug remain available only for patients with severe epilepsy for whom the benefits outweigh the risks, and that changes be made to the product's labeling to reflect the risk of acute liver failure. Carter-Wallace introduced Felbatol in September, 1993 for the treatment of partial seizures with and without secondary generalization in adults and for Lennox-Gastaut Syndrome, a serious form of childhood epilepsy. Due to substantial introductory spending levels and continued research and development, the Company incurred losses with respect to Felbatol since introduction and for the fiscal 1995 period. As a result of the Felbatol matters discussed above, the Company incurred in the year ended March 31, 1995 a one-time charge to pre-tax earnings of $37,780,000, primarily related to inventory write-offs ($15,400,000) in excess of sales projections, purchase and other commitments ($9,900,000) and anticipated product returns including trade announcements ($4,500,000). Depending on future sales levels, additional inventory write-offs may be required. At the present time Felbatol continues to be available on the market. If for any reason the product at some future date is no longer available in the market, the Company will incur an additional one-time charge that would have a material adverse effect on the Company's results of operations and possibly on its financial condition. Should the product no longer be available, the Company currently estimates that the additional one-time charge, consisting primarily of inventory write-offs and anticipated returns of product currently in the market, will be in the range of $30,000,000 to $35,000,000 on a pre-tax basis. As previously reported, the Company entered into a licensing agreement with Schering-Plough Corporation, granting Schering-Plough exclusive marketing rights in all markets except the United States and its territories and possessions, Canada and Mexico, to Felbatol. Separately, Schering-Plough and Carter-Wallace agreed that, under certain circumstances, they will put into effect a co-promotional arrangement with respect to a Schering-Plough pharmaceutical product to be determined in the future. The matters discussed above will likely result in a significant adverse effect on the amount of royalties and fees, if any, to be received from Schering-Plough in the future under these agreements. 18. REGULATORY MATTERS In connection with the Food and Drug Administration Drug Efficacy Study implementation program, the FDA initiated a review of the safety and efficacy of the Organidin (iodinated glycerol) products. An FDA Advisory Committee recommended on March 23, 1992 that the products remain on the market pending further FDA review, that certain changes in the product's labeling be made and that doctors be appropriately notified of these labeling changes. The Company implemented these FDA Advisory Committee recommendations and initiated development of additional data to support the safety and efficacy of the products. On April 22, 1993, the Company received a letter from the FDA requesting that the Company discontinue the marketing of the Organidin (iodinated glycerol) products. Subsequent meetings between the Company and the FDA resulted in an agreement 29 reached in June, 1994, under which the Company discontinued the manufacture and shipment of the Organidin (iodinated glycerol) products. The agreement permitted the continued shipping, prescribing and dispensing of existing stocks of Organidin (iodinated glycerol) product then currently in channels of distribution. As noted, the Company has introduced a reformulation of the Organidin expectorant/ antitussive products. As a result of the agreement noted above, the Company incurred in the year ended March 31, 1995 a one-time charge to pre-tax earnings of $17,500,000 primarily related to a provision for any product returns ($8,500,000) and for inventory write-offs ($3,600,000). Sales and pre-tax operating profits of the Organidin (iodinated glycerol) line included in the year ended March 31, 1995 were $20,800,000 and $11,400,000, respectively, compared to sales and pre-tax operating profits included in the year ended March 31, 1994 of $74,400,000 and $31,600,000, respectively. Sales and pre-tax operating profits for the fiscal year ended March 31, 1993 were $43,400,000 and $7,600,000, respectively. Organidin operating profits were computed on a basis consistent with that used to report operating profits for the Health Care business segment in the Company's Annual Report. 19. LITIGATION INCLUDING ENVIRONMENTAL MATTERS Environmental Matters The United States Environmental Protection Agency ("EPA") advised Carter-Wallace Inc. and over 200 other companies in 1982 that they may be potentially responsible parties ("PRPs") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") with respect to waste deposited at the Lone Pine Landfill in Freehold, N.J. The Company and over 115 other companies without admitting liability, have entered into two consent decrees with EPA agreeing to conduct a cleanup of the Lone Pine Landfill and the cleanup is in progress. The total estimated cost of the cleanup is $103 to $124 million in current dollars. Carter-Wallace's share of the cleanup is estimated to be $8.4 to $10.2 million, of which it has paid about $6.9 million to date. In August, 1989, the Company instituted suit in New Jersey state court against twenty-two insurers to recover, inter alia, the Company's share of costs at Lone Pine. The Company has reached settlements in this case with 18 of the insurers. To date, the Company has received approximately $10.4 million in settlement payments, including reimbursement of certain legal fees, and is scheduled to receive additional amounts over the next two years. Thus, the Company expects to be fully reimbursed for its share of the currently estimated costs at Lone Pine. The Company faces potential liability involving waste material generated by the Lambert Kay division at its former manufacturing facility in Winsted, Connecticut. In May, 1991, EPA issued special notice letters under CERCLA to Lambert Kay and about 50 other PRPs notifying them of potential liability with respect to waste deposited at the Barkhamsted-New Hartford landfill in Barkhamsted, Connecticut. In September, 1991 and in February, 1994, the Company and 21 other PRPs, without admitting liability, entered into consent agreements under which the PRPs agreed to perform certain investigation and engineering evaluation work at the site including the remedial investigation and feasability study and to reimburse EPA for certain costs. The estimated cost of this work is about $4 million. The Company's share of this cost is estimated to be $114,500 to $129,400, of which the company has paid about $99,000. 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 investigation work (which is not completed), the total cost for performing the current and future work at Barkhamsted, including the investigation work, is estimated to be $13.3 to $41.3 million. Based on expected PRP participation in future cleanup work and other factors, the Company anticipates that its share of all cleanup costs (including costs incurred to date) will be not more than 4 to 5% or about $532,000 to $2,065,000. Thus, although applicable environmental law provides for joint and several liability for the cost of cleanup work, the Company believes, based on present estimates, that substantially all of the cleanup costs will be paid by other PRPs. The Company believes, based upon the information available at this time, that the matters discussed above will not have a material effect on its financial statements. 30 Other Litigation Two federal securities class action suits filed in 1994 by stockholders against the Company and certain of its present and former officers in the United States District Court, Southern District of New York have been consolidated for all purposes and the plaintiffs have filed a Consolidated Amended Complaint. The consolidated action purports to be on behalf of all persons who purchased the Company stock in the period from January 20, 1994 through July 31, 1994. The complaint alleges that certain statements made by the Company with respect to future sales and marketing prospects for Felbatol were false and fraudulent, and that the Company omitted to state material facts necessary to make the statements made not misleading. The complaint seeks damages in an unspecified amount. In December, 1994, an alleged shareholder of the Company instituted an action in the Supreme Court of the State and County of New York which purports to be brought derivatively on behalf and for the benefit of the Company against the directors of the Company for breach of fiduciary duty, gross mismanagement and waste of corporate assets in connection with the development and marketing of Felbatol. The complaint seeks unspecified compensatory and punitive damages. A product liability class action was filed against the Company in August, 1994, in the United States District Court, Northern District of California. The complaint which was amended in early 1995, purports to be on behalf of all persons who suffered or may suffer an injury as a result of using Felbatol. The complaint alleges that the Company is liable for strict product liability, negligence, breach of express and implied warranty and negligent misrepresentation related to side effects of Felbatol. The complaint seeks unspecified compensatory and punitive damages and injunctive relief. The District Court order certifying the case as a class action is on appeal to the U.S. Court of Appeals for the Ninth Circuit. A product liability class action against the Company in the United States District Court for the Eastern District of Pennsylvania for injury allegedly suffered as a result of using Felbatol has been consolidated with the action in the Northern District of California. In addition to the above, one state court class action and seven individual product liability actions related to Felbatol have been filed against the Company. The complaints in certain of the actions seek compensatory and punitive damages ranging from $10,000 to $56,000,000 and in the aggregate $10,400,000 in compensatory damages and $52,100,000 in punitive damages and the remainder of the cases seek unspecified damages. The Company has product liability insurance in the amount of $88,000,000 applicable to these actions. The Company along with numerous other drug manufacturers, wholesalers and suppliers, was named in a consolidated and amended class action suit filed in August, 1994 in the California Superior Court, San Francisco County, brought on behalf of all California community retail pharmacists who have purchased any brand name prescription drugs since August, 1989. The complaint alleged that the defendants, including the Company, entered into a conspiracy to fix prices for brand-name prescription drugs and gave lower prices to certain favored purchasers while the alleged favored prices were denied to the plaintiffs. Upon defendants' motion, the plaintiffs' class claims of price discrimination were stricken from the complaint and a Second Consolidated and Amended Complaint ("Second Amended Complaint") filed in December, 1994 repeating these price discrimination counts as individual claims. The second Amended Complaint contains the same substantive class price fixing claims and, like its predecessor, seeks injunctive relief and unspecified trebled compensatory damages, restitution of amounts by which defendants were unjustly enriched and litigation costs. The Company along with numerous other drug manufacturers has been named in a class action suit filed July, 1994 in California Superior Court, County of San Francisco, brought on behalf of a class of California consumers who purchased drugs from independent retail pharmacies alleging that certain drug manufacturers and wholesalers and suppliers, including the Company, conspired to fix prices for brand-name prescription drugs that were sold to California independent retail pharmacists. The complaint seeks unspecified trebled compensatory damages relating to overcharges, restitution of amounts by which defendants were unjustly enriched and litigation costs. 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 May, 1994 in the Alabama Circuit Court, Greene County, brought on behalf of a class of independent drug stores and pharmacies and alleging that the named, and certain unnamed, defendants 31 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, restated each of the aforementioned allegations as individual claims against each of the previously-named defendants, and added the following two additional state common-law counts: (i) fraudulent suppression (alleging that the defendants had fraudulently suppressed the fact that they had charged less to mail-order pharmacies, wholesale distributors and/or large health care providers); and (ii) civil conspiracy (claiming that the defendants had conspired to restrain or monopolize trade and essentially repeating the state statutory conspiracy claim). The First Amended Complaint, like its predecessor, seeks unspecified compensatory and punitive damages and litigation costs, as well as injunctive and declaratory relief. In October, 1992, a suit was filed by Unilever against the Company's subsidiary in the United Kingdom alleging patent infringement by certain of the Company's diagnostic products. The complaint seeks injunctive relief and unspecified compensatory damages. The Company believes, based on opinion of counsel, it has good defenses to each of the above-described legal actions and should prevail. In June, 1993, a suit was filed by Becton Dickinson & Co., in the United States District Court, Eastern District of North Carolina, against several companies, including the Company, alleging patent infringement by certain of the Company's diagnostic products. The Company has settled this litigation by paying $2,000,000 for alleged prior infringements and will pay on-going royalties on future sales of the covered products. Additional product liability claims related to Felbatol use have been threatened against the Company. At this point, the Company cannot evaluate the merits of such claims and does not know whether or to what extent legal actions will arise from such claims and, therefore, is unable to predict the financial impact they may have. 20. QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly net sales, gross margin, net earnings (loss) and earnings (loss) per share are set forth in the following table (dollars in thousands, except per share amounts).
QUARTER ENDED ----------------------------------------------- 1995 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 TOTAL YEAR - ---- ------- -------- ------- -------- ---------- Net sales $183,304 $168,111 $156,680 $155,547 $663,642 Gross margin 121,021 104,401 102,642 95,260 423,324 Net earnings (loss) 441 (47,242) (4,662) (4,805 ) (56,268) Earnings (loss) per share .01 (1.03) (.10) (.10 ) (1.22) 1994 - ---- Net sales $162,750 $150,266 $176,459 $175,314 $664,789 Gross margin 106,396 95,698 119,361 110,774 432,229 Net earnings before cumulative effect of accounting changes 5,835 1,379 12,889 6,506 26,609 Cumulative effect of accounting changes (46,639) -- -- -- (46,639) Net earnings (loss) (40,804) 1,379 12,889 6,506 (20,030) Earnings per share before cumulative effect of accounting changes .13 .03 .28 .14 .58 Cumulative effect of accounting changes (1.02) -- -- -- (1.02) Earnings (loss) per share (.89) .03 .28 .14 (.44)
32 The quarter ended June 30, 1994 includes one-time charges to pre-tax earnings of $17,500 related to the discontinuance of the Organidin (iodinated glycerol) product line. The quarter ended September 30, 1994 includes one-time charges to pre-tax earnings of $85,640 consisting of $49,000 for restructuring and $36,640 related to the provision for loss on Felbatol. The quarter ended December 31, 1994 includes a one-time charge to pre-tax earnings of $20,500 as part of a restructuring program. The quarter ended March 31, 1995 includes one-time charges to pre-tax earnings of $5,700 consisting of restructuring charges of $9,560 and an addition to the provision for loss on Felbatol of $1,140 reduced in part by a $5,000 reduction to the previously announced restructuring charges, largely the result of a smaller than anticipated loss on the sale of one of the Company's manufacturing facilities. Also included is a $2,000 charge related to settlement of the Becton Dickinson litigation. The effective tax rate benefit for the twelve months ended March 31, 1995 was lower than that reported for the nine months ended December 31, 1994 reflecting finalization of the full year results. This year-end determination resulted in an increase in the provision for income taxes in the quarter ended March 31, 1995. The quarter ended June 30, 1993 includes one-time charges to earnings reflecting the adoption of SFAS No. 106 "Employers' Accounting for Postretirement Benefits other than Pensions" of $43,819 after taxes or $.96 per share and SFAS No. 112 "Employers' Accounting for Postemployment Benefits" of $2,820 after taxes or $.06 per share. 21. SUBSEQUENT EVENT (UNAUDITED) In April, 1995 the Company purchased a condom manufacturing facility in Colonial Heights, VA. Expansion of this facility will require significant capital resources that are expected to be financed through long-term borrowing. The Company decided in mid-May, 1995 to close its condom manufacturing plant in Trenton, New Jersey over a projected period of eighteen to twenty-four months. The condom production currently performed at Trenton will be transferred to the Company's facility in Colonial Heights, VA. The Company expects that the decision to close the Trenton plant will result in future pre-tax one-time charges to earnings of approximately $22,000,000. Most of these charges will be incurred in fiscal year ending March 31, 1996. ------------------------ 33 INDEPENDENT AUDITORS' REPORT CERTIFIED PUBLIC ACCOUNTANTS 345 Park Avenue KPMG PEAT MARWICK LLP 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, 1995 and 1994 and the related consolidated statements of earnings and retained earnings and cash flows for each of the years in the three-year period ended March 31, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 1995, in conformity with generally accepted accounting principles. As discussed in Notes 3 and 8 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statements No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions", No. 109 "Accounting for Income Taxes" and No. 112 "Employers' Accounting for Postemployment Benefits" in 1994. As a result of the Felbatol matters discussed in Note 17 to the consolidated financial statements, the Company incurred in the year ended March 31, 1995 a one-time charge to pre-tax earnings of $37,780,000. As further discussed, depending on future sales levels, additional inventory write-offs may be required. At the present time Felbatol continues to be available on the market. If for any reason the product at some future date is no longer available in the market, the Company will incur an additional one-time charge that would have a material adverse effect on the Company's results of operations and possibly on its financial condition. Should the product no longer be available, the Company currently estimates that the additional one-time charge, consisting primarily of inventory write-offs and anticipated returns of product currently in the market, will be in the range of $30,000,000 to $35,000,000 on a pre-tax basis. 34 As discussed in Note 19 to the consolidated financial statements, the Company is a defendant in several lawsuits including two product liability class action suits, two federal securities class action suits, one state court class action suit and seven individual product liability suits related to Felbatol, three class action suits involving alleged price fixing within the pharmaceutical industry and a patent infringement suit involving the Company's diagnostic products. In addition, an alleged shareholder of the Company instituted an action which purports to be brought derivatively on behalf and for the benefit of the Company against the directors of the Company for breach of fiduciary duty, gross mismanagement and waste of corporate assets in connection with the development and marketing of Felbatol. The Company believes, based on opinion of counsel, it has good defenses to each of the above-described legal actions and should prevail. In addition, product liability claims related to Felbatol use have been threatened against the Company. At this point, the Company cannot evaluate the merits of such claims and does not know whether or to what extent legal actions will arise from such claims, and therefore, is unable to predict the financial impact they may have. The ultimate outcome of all of these matters cannot presently be determined. Accordingly, no provision for any liability has been recognized in the accompanying financial statements. May 3, 1995 35 Carter-Wallace, Inc. and Subsidiaries BOARD OF DIRECTORS Henry H. Hoyt, Jr. Chairman and Chief Executive Officer Daniel J. Black President and Chief Operating 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 Scott C. Hoyt Vice President, New Products Carter Products Division of the Company Ralph Levine Vice President, Secretary and General Counsel Herbert M. Rinaldi Partner Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein Paul A. Veteri Vice President, Finance and Chief Financial Officer SCIENTIFIC ADVISORY BOARD Joseph S. Harun, M.D., Chairman Former Vice President, Medical and Scientific Affairs Carter-Wallace, Inc. Paul Calabresi, M.D. Professor of Medicine and Chairman Emeritus, Department of Medicine Brown University Providence, RI Robert E. Canfield, M.D. Irving Professor of Medicine Columbia University, College of Physicians and Surgeons New York, NY Barton F. Haynes, M.D. Chairman, Department of Medicine Duke University Medical Center Durham, NC Noel Rose, M.D., Ph.D. Professor of Pathology, Molecular Microbiology and Immunology Director of Immunology Johns Hopkins University, Schools of Medicine and Public Health Baltimore, MD Morton K. Schwartz, Ph.D. Chairman, Department of Clinical Chemistry Memorial Sloan Kettering Cancer Center New York, NY EXECUTIVE OFFICERS Henry H. Hoyt, Jr. Chairman of the Board and Chief Executive Officer Daniel J. Black President and Chief Operating Officer John Bridgen, Ph.D. Vice President, Diagnostics, U.S. Robert A. Cuthbert Vice President, Pet Products, U.S. Donald R. Daoust, Ph.D. Vice President, Quality Control Miguel Fernandez Vice President, International Peter J. Griffin Vice President and Controller John R. Hughes Vice President, Consumer Products, U.S. Michael J. Kopec Vice President, Manufacturing Ralph Levine Vice President, Secretary and General Counsel Thomas B. Moorhead Vice President, Human Resources George H. Ohye Vice President, Compliance and Regulatory Herbert Sosman Vice President, Pharmaceuticals, U.S. Donald J. Stack Vice President, Taxes C. Richard Stafford Vice President, Corporate Development Paul A. Veteri Vice President, Finance and Chief Financial Officer James L. Wagar Vice President and Treasurer DIVISIONAL MANAGEMENT John Bridgen, Ph.D., President, Wampole Laboratories Robert A. Cuthbert, President, Lambert Kay Miguel Fernandez, President, International John R. Hughes, President, Carter Products Michael J. Kopec, President, Manufacturing Herbert Sosman, President, Wallace Laboratories PRINCIPAL SUBSIDIARIES Francois Depoil, President, Laboratoires Fumouze, S. A. (France) Gregory J. Drohan, President, Carter Products, Canada J. Robert Fraser, President, Frank W. Horner, Inc. (Canada) Adrian J.L. Huns, Managing Director, Carter-Wallace, Limited (United Kingdom) Jose Maria Icart, Managing Director, Icart, S.A. (Spain) Alan W. Nash, Managing Director, Carter-Wallace (Australia) Pty. Limited Lino Santambrogio, Managing Director, S.p.A. Italiana Laboratori Bouty (Italy) Francis Santiago, President, Carter-Wallace, S. A. (Mexico) 36 EXECUTIVE OFFICES 1345 Avenue of the Americas, New York, N.Y. 10105 212-339-5000 RESEARCH LABORATORIES Cranbury, New Jersey Montreal, Canada MANUFACTURING PLANTS Colonial Heights, Virginia Cranbury, New Jersey Decatur, Illinois Santa Ana, California Trenton, New Jersey Winsted, Connecticut Montreal, Canada Toronto, Canada Folkestone, England Milan, Italy Pisa, Italy Mexico City, Mexico Barcelona, Spain TRANSFER AND DISBURSING AGENTS The Bank of New York 101 Barclay Street New York, N.Y. 10286 800-524-4458 Midlantic National Bank 499 Thornall Street Edison, N.J. 08818 908-321-8000 REGISTRAR OF STOCK The Bank of New York 101 Barclay Street New York, N.Y. 10286 SHAREHOLDER RELATIONS Ruder Finn, Inc. 800-984-1777 CARTER-WALLACE, INC. 1345 Avenue of the Americas New York, NY 10105 EX-21 4 EXHIBIT 21 Exhibit 21 PARENT AND SUBSIDIARIES PRINCIPAL OWNERS OF THE COMPANY'S STOCK Information pertaining to the percentages of the Company's outstanding common stock, par value $1 per share and Class B common stock, par value $1 per share, held by certain principal stockholders of the Company is incorporated herein by reference to the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on July 18, 1995, to be filed with the Securities and Exchange Commission under the caption "Principal Stockholders". 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, 1995: JURISDICTION PERCENTAGE OF OF VOTING NAME OF CORPORATION INCORPORATION SECURITIES - ------------------- ------------- ----------- Carter-Wallace, N.S. Inc. Delaware 100% Carter-Wallace, O.S. Inc. Delaware 100% Carter-Wallace Limited England 100% Carter-Wallace (Australia) Pty, Limited Australia 100% Carter-Wallace, S.A. Mexico 100% Carter-Wallace FSC Corp. Virgin Islands 100% Denver Laboratories (Canada) Limited Canada 100% Dermalogos S.A. France 100% Email Diamant S.A. France 100% Frank W. Horner Inc. Canada 100% Icart, S.A. Spain 100% International Biological Laboratories, Inc. Maryland 95% Laboratoires Ethical S.A.R.L. France 100% Laboratoires Fumouze, S.A. France 100% Sante Beaute S.A. France 100% Societe Germanoise de Cosmetique France 100% Sofibel S.A.R.L. France 100% S.p.A. Italiana Laboratori Bouty Italy 100% Technogenetics S.r.l. Italy 100% All of the above subsidiaries are included in the consolidated financial statements of the Company. EX-27 5 FINANCIAL DATA SCHEDULE
5 YEAR MAR-31-1995 MAR-31-1995 10,098,000 18,188,000 130,149,000 6,344,000 89,217,000 303,317,000 252,226,000 114,618,000 680,224,000 202,721,000 28,531,000 47,205,000 0 0 279,934,000 680,224,000 663,642,000 669,978,000 240,318,000 757,008,000 9,600,000 0 2,512,000 (87,030,000) (30,762,000) (56,268,000) 0 0 0 (56,268,000) (1.22) 0
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