-----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, h8eWNCWLaJOULu9aVpJtFh/BbXWCoZ/hkfWw/2jvNGpcVgS0GOu3qGB44Gd2fyTq BdoVPIQ9yqPYtq8YgIy3lw== 0000890163-94-000035.txt : 19940621 0000890163-94-000035.hdr.sgml : 19940621 ACCESSION NUMBER: 0000890163-94-000035 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940606 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARTER WALLACE INC /DE/ CENTRAL INDEX KEY: 0000018000 STANDARD INDUSTRIAL CLASSIFICATION: 2834 IRS NUMBER: 134986583 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05910 FILM NUMBER: 94533085 BUSINESS ADDRESS: STREET 1: 1345 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10105 BUSINESS PHONE: 2123395000 10-K 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, 1994 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. ( ) The number of shares of the registrant's Common Stock and Class B Common Stock outstanding at May 20, 1994 was 33,475,144 and 12,594,314, respectively. The aggregate market value of voting stock held by non-affiliates of the registrant as of May 20, 1994 was approximately $501,847,000. Documents Incorporated by Reference Annual Report to Stockholders for the fiscal year ended March 31, 1994 Parts I & II Proxy Statement for the Annual Meeting of Stockholders, to be held July 19, 1994 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 11 "Description of Business Segments" of the 1994 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, 1994 is presented on pages 23 and 24, note 12, "Business Segments" of the Notes to Consolidated Financial Statements of the 1994 Annual Report to Stockholders and is 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 $16,300,000 in the fiscal year ended March 31, 1994 in comparison to the prior year. Additional information is presented on page 18, note 4, "Foreign Operations" of the Notes to Consolidated Financial Statements of the 1994 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 1994, the Company's "Arrid" line of anti-perspirants and deodorants is believed to account for an estimated 8.4% share of the domestic anti-perspirant and deodorant market. The "Trojan" condom line is estimated to account for almost 60% of total domestic retail condom sales. The Company's worldwide condom sales were approximately $88,300,000, $88,600,000 and $87,400,000 in the fiscal years ended March 31, 1994, 1993 and 1992, respectively. The "Organidin" line of expectorant/mucolytics has a leading position in prescriptions written for cough/cold products. Sales of the "Organidin" product line were approximately $74,400,000, $43,400,000 and $59,900,000 in the fiscal years ended March 31, 1994, 1993 and 1992, respectively. Additional information is presented on page 8 under "Management's Discussion and Analysis of Results of Operations and Financial Condition - Net Sales and Earnings" of the 1994 Annual Report to Stockholders and is herein expressly incorporated by reference. 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. - 1 - Patents and Licenses The Company owns or is licensed under a number of patents and patent applications covering several of its products. Except for the patents related to "Felbatol" (felbamate), the expiration or any other change in any of these patents or patent applications will not materially affect the Company's business. "Felbatol" is covered by patents which expire during the period from 2006 to 2011. 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 page 9 under "Management's Discussion and Analysis of Results of Operations and Financial Condition - Licensing Arrangement" in the 1994 Annual Report to Stockholders and is herein expressly incorporated by reference. Environmental Matters Information regarding environmental matters is presented on page 5 under the caption "Litigation" and on page 25 under note 16, "Litigation and Environmental Matters" of the Notes to Consolidated Financial Statements, both included in the 1994 Annual Report to Stockholders and are herein expressly incorporated by reference. Research and Development Expenditures for research and development totaled $52,278,000 in 1994, $49,903,000 in 1993 and $51,955,000 in 1992. Research and development expenses increased 5% in 1994 and decreased 4% in 1993. 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. The decline in 1993 was due primarily to the reorganization of the Consumer Products research program as well as the completion of clinical studies necessary for the submission of the New Drug Application ("NDA") for "Felbatol". The NDA for "Felbatol", the trademark for felbamate, was approved by the Food and Drug Administration ("FDA") on July 29, 1993. Studies have been initiated in generalized epileptic seizures in adults and partial onset seizures in children to support expanded claims and an NDA for the "Felbatol" Chewable Tablet will be submitted to the FDA during spring, 1994. "Astelin" (azelastine) and "Astelin" Nasal Spray NDA's for rhinitis were submitted to the FDA in March, 1991 and an NDA for asthma was submitted in December, 1992. In the spring of 1994, the Company received "non- approvable" letters from the FDA for "Astelin" nasal spray for allergic rhinitis and "Astelin" tablets for asthma. The Company is aware that it will receive a similar letter with respect to "Astelin" tablets for rhinitis. The Company is responding to these letters in writing. A meeting has been scheduled in July with the FDA to resolve any remaining issues after the Company's written responses. The Company is confident that these issues raised by the FDA are resolvable. Until the July meeting has occurred, the Company is unable to project when approval of these NDA's will occur. During the fiscal year, development continued on taurolidine, an antitoxin for the treatment of sepsis. - 2 - D-23129 was accepted by Carter-Wallace as a development compound licensed from ASTA Pharma AG for the treatment of epilepsy. Discussions are underway for a joint development program leading to an Investigational New Drug (IND) application. Approximately 270 employees are employed in research and development activities. Employees The Company has been in existence since 1880 and together with its subsidiaries employed approximately 4,060 people worldwide at March 31, 1994. Regulatory Matters Information regarding the effect of Regulatory Matters on the Company's business is presented on page 5 under the caption "Regulatory Matters" and on page 25 in note 15, "Regulatory Matters" of the Notes to Consolidated Financial Statements, both are included in the 1994 Annual Report to Stockholders and are herein expressly incorporated by reference. Acquisition Information regarding acquisitions is presented on page 22 in note 11, "Acquisition" of the Notes to Consolidated Financial Statements, is included in the 1994 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 following are principal facilities of the Company: Area Location Products Manufactured (Sq. Feet) Owned in Fee: Manufacturing Facilities and Offices: Cranbury, New Jersey Pharmaceuticals, toiletries and pet products 734,000 Decatur, Illinois Pharmaceuticals 108,000 East Windsor, New Jersey Diagnostics 156,000 Trenton, New Jersey Condoms, pediculicide, lubricating jelly and pet products 169,500 Winsted, Connecticut Pet products 45,000 Montreal, Canada Pharmaceuticals 162,000 Humacao, Puerto Rico Pharmaceuticals 34,000 Toronto, Canada Toiletries 52,000 Folkestone, England Toiletries 55,000 Milan, Italy Pharmaceuticals and diagnostics 52,000 Pisa, Italy Toiletries, adhesive tapes and bandages 49,000 Mexico City, Mexico Pharmaceuticals and diagnostics 63,000 New Plymouth, New Zealand (1) Condom processing 31,000 (1) The land on which the building is located is leased under a long-term agreement. - 3 - Properties (Cont'd) Area Location Products Manufactured (Sq. Feet) Leased: Manufacturing Facilities and Offices: Santa Ana, California Toiletries 10,400 Rincon, Puerto Rico Toiletries and condoms 67,000 Mexico City, Mexico Toiletries 56,000 Barcelona, Spain Toiletries 58,600 Warehouse and Offices: Dayton, New Jersey 200,000 Momence, Illinois 43,000 Plainsboro, New Jersey * 45,000 Twin Rivers, New Jersey* 14,500 Sydney, Australia 19,000 Folkestone, England 40,000 Clichy, France * 11,800 * Offices only The Company has agreements with several agents throughout the world for the manufacture of certain products to its specifications. The Company has several other short-term leases for manufacturing plants, warehousing space and sales offices. With minor exceptions, all facilities are operating at normal capacity. Maintenance and Repairs were $7,950,000 in 1994, $7,550,000 in 1993 and $6,960,000 in 1992. Item 3. Legal Proceedings Information regarding Legal Proceedings involving the Company is presented on page 5 under the caption "Litigation" and on page 25 in note 16, "Litigation and Environmental Matters" of the Notes to Consolidated Financial Statements, both included in the 1994 Annual Report to Stockholders and are herein expressly incorporated by reference. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. - 4 - Executive Officers of the Registrant Executive Officers of the Registrant are as follows: Held Present Name Age Office Office Since Henry H. Hoyt, Jr. 66 Chairman of the Board and Chief Executive Officer 1974 Daniel J. Black 62 President and Chief Operating Officer 1979 John Bridgen, Ph.D. 47 Vice President, Diagnostics, U.S. 1984 Robert A. Cuthbert 67 Vice President, Pet Products, U.S. 1983 Donald R. Daoust,Ph.D. 58 Vice President, Quality Control 1978 Miguel Fernandez 63 Vice President, International 1980 Peter J. Griffin 51 Vice President and Controller 1983 John R. Hughes 56 Vice President, Consumer Products, U.S. 1991 Michael J. Kopec 54 Vice President, Manufacturing 1978 Ralph Levine 57 Vice President, Secretary and General Counsel 1976 Thomas B. Moorhead 60 Vice President, Human Resources 1987 George H. Ohye 58 Vice President, Compliance and Regulatory 1994 Herbert Sosman 61 Vice President, Pharmaceuticals, U.S. 1984 Donald J. Stack 56 Vice President, Taxes 1989 C. Richard Stafford 58 Vice President, Corporate Development 1977 Paul A. Veteri 52 Vice President, Finance and Chief Financial Officer 1983 James L. Wagar 59 Vice President and Treasurer 1981 - 5 - 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 19, 1994. 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. from April, 1990 to April, 1991 as Chief Executive Officer. He was employed as President of Mennen, USA, a division of the Mennen Company prior to August, 1989. 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 1989. 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 1994 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 1994 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, 9 and 10 of the 1994 Annual Report to Stockholders. Item 8. Financial Statements and Supplementary Data Information required by this item is incorporated herein by reference to pages 12 through 27 of the 1994 Annual Report to Stockholders. Item 9. Disagreements on Accounting and Financial Disclosure Not applicable. - 6 - 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 19, 1994, to be filed with the Securities and Exchange Commission under the captions "Election of Directors" and "Board of Directors and Committees" and Note 7 to "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 5 and 6 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 19, 1994, 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 19, 1994, 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 19, 1994, 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 12 of this Form. - 7 - (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 19, 1994, 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 19, 1994, 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) - 8 - (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 13 Annual Report to Stockholders for the fiscal year ended March 31, 1994. 21 Subsidiaries. (b) Reports on Form 8-K No reports on Form 8-K have been filed during the quarter ended March 31, 1994. - 9 - 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 6, 1994 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 6, 1994 Henry H. Hoyt, Jr. Chief Executive Officer, Director (Principal Execu- tive Officer) s/Daniel J. Black President and Chief Opera- June 6, 1994 Daniel J. Black ting Officer, Director s/David M. Baldwin Director June 6, 1994 David M. Baldwin s/Dr. Richard L. Cruess Director June 6, 1994 Dr. Richard L. Cruess s/Scott C. Hoyt Director June 6, 1994 Scott C. Hoyt s/Ralph Levine Vice President, Secretary June 6, 1994 Ralph Levine and General Counsel, Director - 10 - Signature Title Date s/Herbert M. Rinaldi Director June 6, 1994 Herbert M. Rinaldi s/Paul A. Veteri Vice President, Finance, June 6, 1994 Paul A. Veteri Director (Principal Financial Officer) s/Peter J. Griffin Vice President and June 6, 1994 Peter J. Griffin Controller (Principal Accounting Officer) - 11 - 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 dated June 6, 1994 appearing on pages 12 through 27 of the 1994 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 13 Schedule VIII - Valuation and qualifying accounts for each of the three years ended March 31, 1994 14 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. - 12 - INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Carter-Wallace, Inc.: Under date of June 6, 1994, we reported on the consolidated balance sheets of Carter-Wallace, Inc. and subsidiaries as of March 31, 1994 and 1993, 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, 1994, as contained in the 1994 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 1994. 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. The audit report on the consolidated financial statements of Carter-Wallace, Inc. and subsidiaries referred to above contains an explanatory paragraph that states that the Company received a letter from the Food and Drug Administration (FDA) requesting the discontinuance of the marketing of its Organidin products. The Company met with the FDA, has replied to the letter and is awaiting further response from the FDA. The ultimate outcome of this matter cannot presently be determined. Accordingly, no provision for any liability that may result upon the resolution has been recognized in the financial statement schedule. KPMG PEAT MARWICK New York, New York June 6, 1994 - 13 - SCHEDULE VIII CARTER-WALLACE, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Three Years Ended March 31, 1994 (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 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 (c) $ - $ 2,877 (a)(c) $3,589 Allowance for cash discounts 1,995 7,719 - 7,664 (b) 2,050 $6,855 $ 9,325 $ - $10,541 $5,639 Year ended March 31, 1992: Deducted from assets to which they apply: Allowance for doubtful accounts $4,501 $ 628 $ - $ 269 (a) $4,860 Allowance for cash discounts 2,041 7,713 - 7,759 (b) 1,995 $6,542 $ 8,341 $ - $ 8,028 $6,855 Notes: (a) Accounts written off and recovered. (b) Net discounts allowed to customers. (c) Includes $1,200 related to trade receivables from Phar-Mor, Inc., a drugstore chain which has filed for bankruptcy. - 14 - EX-13 2 EXHIBIT 13 CARTER-WALLACE [LOGO] ANNUAL REPORT FOR THE YEAR ENDED MARCH 31 1994 EXECUTIVE OFFICES 1345 Avenue of the Americas, New York, NY 10105 212-339-5000 RESEARCH LABORATORIES Cranbury, New Jersey East Windsor, New Jersey Montreal, Canada MANUFACTURING PLANTS Cranbury, New Jersey Decatur, Illinois East Windsor, New Jersey Santa Ana, California Trenton, New Jersey Winsted, Connecticut Humacao, Puerto Rico Rincon, Puerto Rico Montreal, Canada Toronto, Canada Folkestone, England Milan, Italy Pisa, Italy Mexico City, Mexico New Plymouth, New Zealand 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 CONTACT Ruder Finn, Inc. 800-984-1777 CARTER-WALLACE, INC. ANNUAL REPORT For the year ended March 31, 1994
FINANCIAL HIGHLIGHTS 1994 1993 Net sales $664,789,000 $653,511,000 Earnings before taxes 37,382,000 68,406,000(a) Net earnings before the cumulative effect of accounting changes 26,609,000 47,200,000(a) Net earnings (loss) (20,030,000) 47,200,000(a) Earnings per share before the cumulative effect of accounting changes .58 1.03(a) Earnings (loss) per share ($.44) $1.03(a) Dividends 15,292,000 15,256,000 Dividends per share $.33 $.33 Average shares outstanding 45,900,000 45,786,000 Number of stockholders of record Common 3,305 3,184 Class B common 1,919 2,046 (a) Includes income of $10,000,000 before taxes or $6,000,000 after taxes ($.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).
[LOGO] The Company markets toiletries, pharmaceuticals, diagnostic specialties, proprietary drugs and pet products CONTENTS Report to Stockholders 2 Summary of Selected Financial Data 7 Management's Discussion and Analysis of Results of Operations and Financial Condition 8 Description of Business Segments 11 Consolidated Balance Sheets 12 Consolidated Statements of Earnings and Retained Earnings 14 Consolidated Statements of Cash Flows 15 Notes to Consolidated Financial Statements 16 Independent Auditors' Report 27 Directors and Officers 28 REPORT TO STOCKHOLDERS In the fiscal year ended March 31, 1994 the Company's sales increased over the prior year. Consolidated sales for the year were $664,789,000 compared to $653,511,000 a year ago for a gain of 2%. Earnings before the cumulative effect of accounting changes decreased to $26,609,000 or $.58 a share compared with $47,200,000 or $1.03 a share in the prior year. Included in the current year are increases in advertising and marketing to support the introduction of Felbatol (felbamate), as well as to support various line extensions of Arrid anti-perspirant and deodorant products. In addition, cost of goods sold as a percentage of sales increased because of unfavorable changes in product mix. In the prior year, earnings included income of $10,000,000 before taxes or $6,000,000 after taxes ($.13 per share) related to a licensing agreement for certain international rights to Felbatol. SALES Sales in the Company's two business segments were Consumer Products $368,168,000 and Health Care Products $296,621,000. Consumer Products were 55% and Health Care Products were 45% of total sales. These sales compare to a year ago of $372,475,000 and $281,036,000, respectively. Foreign sales by subsidiaries and branches operating outside the United States were $159,454,000 compared with $169,032,000 the previous year. This represents 24% and 26%, respectively of total sales. Health Care Products accounted for 46% and Consumer Products 54% of foreign sales. Lower foreign exchange rates had the effect of decreasing foreign sales by approximately $16,300,000. DIVIDENDS Dividends of $.33 per share were paid in both the current and prior year. The Company has paid dividends for 111 consecutive years. CARTER PRODUCTS DIVISION The past year was a challenging one for the entire Health and Beauty Care industry. Several factors put pressure on our total business. These included trade and distributor inventory reduction programs, account consolidations due to mergers, an unusually harsh winter nationwide and the earthquake on the West Coast. Arrid continued as one of the leading anti-perspirant/ deodorant brands recording a factory shipment gain in a very competitive market. Arrid Teen Image, a new line of anti-perspirants and clear deodorants developed expressly to appeal to the young female user, enjoyed a successful introduction. The more recent launch of Arrid Clear Solid and Arrid Gel anti-perspirants is a major reason for the increase in Arrid sales. Trojan continues to lead the condom market with almost a 60% market share and new products were a major reason for Trojan's success. New entries were introduced into the two fastest growing segments of the condom category--Thin and Ribbed. The introduction of Trojan Very Thin was completed early in the year. Trojan Ultra Texture Ribbed condoms, introduced in January 1994, received excellent trade acceptance. Our new condom brand, Class Act, is positioned to compete in the "price value" segment and began shipping in October. This new product has also met with excellent trade and consumer acceptance. Nair remained the leading depilatory brand with over a 40% share of category sales. Our pregnancy test category continues to grow at impressive rates--up 14% in unit sales during the past year. Division brands, First Response and Answer, combined, exceeded the category growth and represent one-quarter of U.S. consumer sales for these products. The Whitening/Polish segment of the dentifrice category had several new entries and showed dynamic growth. Pearl Drops continued as the number two brand. WALLACE LABORATORIES DIVISION The NDA for Felbatol, the first major new anti- epileptic drug to be introduced in the United States in over fifteen years, was approved by the FDA in July with the national launch commencing on October 4, 1993. Felbatol's indications include monotherapy and adjunctive therapy for patients with epilepsy age 14 and over with partial seizures with and without generalization. It is also indicated for treatment of partial and generalized seizures associated with Lennox Gastaut Syndrome in children as young as two years old. 2 Major emphasis at introduction was placed on professional education ensuring comprehensive knowledge about the profile of Felbatol as well as its proper use and limitations. To date, Felbatol sales have exceeded expectations with each month posting new highs in market share. This rate of growth is expected to continue as physicians' experience with Felbatol increases and more physicians learn of its many benefits. The Division's cough and cold products group, including Organidin expectorant and mucolytic, Tussi-Organidin and Tussi-Organidin DM cough preparations, and Rynatan antihistamines containing decongestants, sustained its number one position in prescriptions written for cough/cold products. Our muscle relaxants sold under the Soma 350 brand posted a new prescribing high which greatly exceeded the overall growth of the market. WAMPOLE LABORATORIES DIVISION We continue to experience overall product acceptance and opportunities in many areas of our diagnostic business. Sales of the Isostat product line for the rapid detection of micro-organisms in the blood increased. The product line was supported throughout the year by a broad range of promotional programs directed at the laboratory professional. The Division maintained its leading position in serological testing with Streptozyme, a test for streptococcal antibodies, Rheumaton, a test to detect rheumatoid factor and Mono-Test and Mono-Latex, products for the detection of infectious mononucleosis. Sales were further enhanced by the introduction of Wampole Impact Rubella for the determination of immunity to rubella infections and of Wampole Impact RPR for the serologic detection of syphilis. Strong sales gains were recorded for key products in the Zeus Scientific line of immunofluorescent and enzyme immunoassay tests. These included products for detection of antinuclear antibodies in autoimmune disorders, for the detection of treponemal antibodies in the confirmation of syphilis and for the detection of antibodies resulting from mycoplasma infections. The Stat-Crit system for the rapid measurement of hematocrit levels in the blood continued to be a strong contributor to the Division's results despite the passage of the Clinical Laboratories Improvement Act legislation and the Act's subsequent impact on physician office testing. Sales of the Clearview line of rapid diagnostic tests for chlamydia and group A streptococcus were also slowed by the Clinical Laboratories Improvement Act. However, this legislation had little impact on the Clearview hCG test product, which is used as an aid in the determination of pregnancy and which showed significant sales growth. LAMBERT KAY DIVISION Division sales again reached record levels. Lambert Kay housebreaking pads, slicker brushes, toys, and flea and tick products all registered gains. Sales of Lambert Kay products to pet stores grew significantly with the addition of a number of new products. The award winning line of Vermont Chewman toys, introduced last year, was enhanced with new bears, dinosaurs, ducks and bunnies in assorted colors. A new Tea Tree Oil Shampoo, made from the oil of the Melaleuca plant which deodorizes, moisturizes and conditions the dog's coat, met with excellent trade and consumer acceptance. A new manufacturing facility for the production of grooming tools, choke chains and web leads was opened on April 14, 1993 in Winsted, Connecticut, a few miles from the former plant. This facility is the only plant in the United States that manufactures choke chains and grooming tools for pets. Using state-of-the-art systems, the facility is a model of environmentally sound manufacturing. The Lassie line of products, manufactured for mass merchandisers, showed impressive sales growth due to new products and expanded distribution. New products in the Lassie line included a new Citrus Essence line which includes a flea shampoo, flea dip and flea spray. These products use essence of citrus fruits as the active ingredient and are regarded as being much safer than conventional insecticide products. Other new products include economy size housebreaking pads and a repellent that is designed to keep pets away from "forbidden" areas, both inside and outside of the house. Both the Lambert Kay and Lassie lines benefited from more aggressive merchandising and promotion, including innovative point of sale displays. 3 The Division has shown consistent growth over the years, aided by the aggressive new products program. Last year, fully one third of Lambert Kay sales were in products or line extensions that were not marketed five years ago. INTERNATIONAL DIVISION The Division's sales advanced again this year when measured in local currencies but because of unfavorable fluctuations in foreign exchange rates declined when translated into U.S. dollars. Had exchange rates remained as in the prior year, international sales would have increased by 4%. Overall results were bolstered by strong gains in a number of markets including the United Kingdom, Italy and Australia, as well as Spain, where the new subsidiary operation, Icart, S.A. had its first year under Carter-Wallace management. Consumer product sales advanced further in several areas. Our Pearl Drops brand continued to be the leader in a number of European markets and showed notable growth in the United Kingdom and Germany. Our dominant share of the OTC pregnancy test market was maintained in Canada and Mexico, while sales increases for our tests were achieved in Australia, United Kingdom and Germany. Our leading share in the topical analgesic market in Canada with Antiphlogistine Rub A-535 was strengthened further with the introduction of Ice and No Odor brand extensions and in Australia with the launch of a line of therapeutic bath additives under the Dencorub name. Trojan condoms continued to maintain a leading market share in both Canada and Mexico and was also launched during the year in Australia. In Italy, GranVista, a line of nonprescription reading glasses was successfully introduced in the pharmacy trade. Nair depilatories enjoyed a strong sales presence in the Middle East, particularly Saudi Arabia, and in Spain, Icart's Taky depilatories and Eudermin hand cream showed unit growth. The health care and pharmaceutical segment of our business continues to be an important part of our business worldwide. Governmental efforts to reduce expenditures on healthcare by either limiting reimbursements or establishing ceiling prices had the effect of restricting prices and constricting demand. These governmental initiatives were reflected in somewhat lowered volumes of some of the products we offer in Canada, Mexico and France. Professional diagnostic sales continued to show growth particularly in Italy and Mexico. A new and improved Automated Immunoassay System, the Gralis AT-2000 with updated software and reagent handling capabilities, was introduced in Italy along with a new generation system, the Gralis 4000, for large volume blood testing laboratories. Italy also launched a new line of allergy tests and a microbiology test system for determination of the identification and antibiotic sensitivity of pathogenic bacteria. A new infectious disease test technology for Rubella virus antibody has received favorable acceptance in Europe and emerging countries. France has successfully introduced two new and simple slide tests to aid in the diagnosis of streptococcal and staphylococcal infections. RESEARCH AND DEVELOPMENT Expenditures for research and development totaled $52,278,000 compared to $49,903,000 a year ago. The New Drug Application ("NDA") for Felbatol, the trademark for felbamate, was approved by the FDA on July 29, 1993. Studies have been initiated in generalized epileptic seizures in adults and partial onset seizures in children to support expanded claims and an NDA for the Felbatol Chewable Tablet will be submitted to the FDA during spring, 1994. Astelin (azelastine) and Astelin Nasal Spray NDA's for rhinitis were submitted to the FDA in March, 1991 and an NDA for asthma was submitted in December, 1992. In the spring of 1994, the Company received "non-approvable" letters from the FDA for Astelin nasal spray for allergic rhinitis and Astelin tablets for asthma. The Company is aware that it will receive a similar letter with respect to Astelin tablets for rhinitis. The Company is responding to these letters in writing. A meeting has been scheduled in July with the FDA to resolve any remaining issues after the Company's written responses. The Company is confident that these issues raised by the FDA are resolvable. Until the July meeting has occurred, the Company is unable to project when approval of these NDA's will occur. During the fiscal year, development continued on taurolidine, an antitoxin for the treatment of sepsis. D-23129 was accepted by Carter-Wallace as a development compound licensed from ASTA Pharma AG for the treatment of epilepsy. Discussions are under- 4 way for a joint development program leading to an Investigational New Drug (IND) application. LICENSING Early in fiscal 1993, Carter-Wallace signed an agreement with Schering-Plough Corporation. This agreement granted Schering-Plough exclusive marketing rights to Felbatol (felbamate) in all markets except the United States and its territories and possessions, Canada and Mexico. Schering-Plough began sales of felbamate under the Taloxa brand name in Argentina earlier this year. In March, the drug was recommended for approval by a majority of the members of the European Union (EU) Committee for Proprietary Medicinal Products. While each of the twelve member countries must issue local approvals, Schering-Plough anticipates the product will be available for physician use by most of the EU countries by the end of 1994. Under the licensing agreement, Carter-Wallace received in April, 1992 an initial, non-refundable license payment of $10,000,000 and is to receive royalties, which could be significant, on net sales of its Felbatol compound in the territory covered by the license. 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. FACILITIES After several years of revising lines for new product introductions, upgrading existing facilities and consolidating selected distribution and warehouse arrangements, last year was a time of relative inactivity in major capital facilities programs. At Humacao, Puerto Rico, the 14,000 square foot addition to the Company's existing pharmaceutical plant is complete. As a result of the relocation of offices and selected activities, minor renovations to the existing plant are underway and should be complete this summer. At Trenton, New Jersey, a number of significant facilities upgrade projects are underway and are expected to continue through the coming year. REGULATORY MATTERS In connection with the Food and Drug Administration Drug Efficacy Study Implementation program, the FDA granted the Company a hearing on the FDA's order proposing to withdraw approval of the New Drug Application for Deprol. The hearing has been completed and the FDA's Administrative Law Judge ruled that the New Drug Application for Deprol should be withdrawn. The Company appealed this decision to the Commissioner of Food and Drugs. The decision was sustained by the Commissioner. Approval of the New Drug Application for Deprol was withdrawn effective April 29, 1994. The FDA has initiated review of the safety and efficacy of the Organidin 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 products' labeling be made and that doctors be appropriately notified of these labeling changes. The Company implemented these FDA Advisory Committee recommendations and is developing additional data in support of 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 its Organidin family of products. On May 13, 1993, the Company met with the FDA to discuss this matter. The Company has replied to the FDA letter and is awaiting further response from the FDA. For further information about this matter, refer to Note 15 "Regulatory Matters" of Notes to the Consolidated Financial Statements on page 25. LITIGATION The EPA advised Carter-Wallace, Inc., the Coca-Cola Company, Millipore Corporation, Minnesota Mining and Manufacturing Company, The Nestle Company, Inc. and Owens-Illinois, Inc. (The "Corporations"), as well as over 200 other companies, in 1982 that they may be responsible parties with respect to waste deposited at the Lone Pine Landfill in Freehold, N.J. Although the Corporations have conducted scientific studies which have shown that the Landfill is not a current threat to area drinking water supplies or aquatic life in the Manasquan River, the EPA continues to demand that the Corporations and other companies conduct a clean-up of the Landfill. The Company and over 115 other companies, without admitting liability, have entered into two consent decrees with EPA agreeing to conduct a clean-up of the Lone Pine Landfill and the clean-up is in progress. In August, 1989, the Company instituted suit in 5 New Jersey state court against twenty-two insurers to recover, inter alia, the Company's share of cleanup costs at Lone Pine. The Company has reached settlements in this case and has obtained a liability verdict against the only nonsettling insurer which should result in the Company being fully reimbursed for its share of the currently estimated cleanup 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 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 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. 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 $30-40 million. 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. PEOPLE We are pleased that George H. Ohye has rejoined Carter-Wallace as Corporate Vice President, Compliance and Regulatory. From 1961 to 1969, Mr. Ohye was with our Wallace Laboratories Division, holding a series of pharmaceutical research and regulatory positions, including Assistant Director, New Products Development. Since 1969, he has held a variety of progressively senior positions in regulatory affairs with Merrell National Laboratories, Bristol-Myers Squibb Co., and Johnson & Johnson. Joseph S. Harun, M.D., Vice President, Medical and Scientific Affairs, Carter-Wallace, Inc., retired in May, 1994. Dr. Harun has made significant contributions to the Company throughout his 23 years of service and we are pleased that he will continue as Chairman of our Scientific Advisory Board. George C. Finlay, President of Carter Products, Canada, retired after 28 years of service. Mr. Finlay has made numerous contributions to the growth of the Company's marketing and operations during his career with Carter-Wallace. Gregory J. Drohan was appointed President, Carter Products, Canada, succeeding George C. Finlay. Mr. Drohan was formerly Vice President, Marketing and Sales for Carter Products, Canada. We sincerely regret the passing of Dr. Sheldon M. Wolff, M.D., who had been a distinguished member of our Scientific Advisory Board for more than ten years. Dr. Wolff was the Physician-in-Chief, New England Medical Center, Endicott Professor and Chairman, Department of Medicine, Tufts University, School of Medicine. His advice and counsel will be greatly missed. , , , 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 6, 1994 6 Carter-Wallace, Inc. and Subsidiaries SUMMARY OF SELECTED FINANCIAL DATA - - --------------------------------------------------------------------------------
YEARS ENDED MARCH 31, ---------------------------------------------------------------- 1994 1993 1992 1991 1990 ---------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AND EMPLOYEE DATA) OPERATIONS Net sales $664,789 $653,511 $673,390 $634,890 $555,149 Net earnings before the cumulative effect of accounting changes 26,609 47,200(a) 45,740(b) 51,750 50,274 Net earnings (loss) (20,030) 47,200(a) 45,740(b) 51,750 50,274 Net earnings per share before the cumulative effect of accounting changes .58 1.03(a) 1.00(b) 1.12 1.10 Net earnings (loss) per average share of common stock outstanding (c) (.44) 1.03(a) 1.00(b) 1.12 1.10 Dividends per share (c) .33 .33 .33 .30 .26 Average common shares outstanding (c) 45,900 45,786 45,783 46,029 45,693 FINANCIAL POSITION Working capital(d) $185,159 $184,175 $170,279 $151,735 $184,665 Net property, plant and equipment 157,059 150,070 142,854 136,345 123,626 Total assets(d) 628,562 595,550 577,181 557,301 510,524 Long-term debt 9,309 13,184 14,927 16,576 20,788 Stockholders' equity(d) 393,508 429,161 407,261 380,630 343,522 OTHER DATA Capital expenditures $ 24,305 $ 25,500 $ 22,313 $ 18,735 $ 34,915 Book value per share (c)(d) 8.54 9.37 8.89 8.31 7.47 Number of employees 4,060 4,020 4,170 4,270 4,110 (a) 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). (b) 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. (c) Reflects a three-for-one stock split in April, 1992. (d) Prior year amounts 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 ---------------------------------------------------- 1994 1993 ---------------------- ---------------------- QUARTER ENDED HIGH LOW HIGH LOW ----------- ----------- ----------- ----------- June 30 30 3/8 23 7/8 33 1/2 22 7/8 September 30 33 3/4 26 1/4 31 1/8 24 7/8 December 31 32 7/8 20 1/8 40 3/8 22 5/8 March 31 26 3/8 19 7/8 36 5/8 22 7/8
A dividend of $.08 1/3 per share was declared in all four quarters of 1994 and 1993. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - - -------------------------------------------------------------------------------- NET SALES AND EARNINGS Net earnings before the cumulative effect of the accounting changes for the year were $26,609,000 or $.58 a share, compared to earnings of $47,200,000 or $1.03 a share last year. 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 21 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 anti-perspirant and deodorant products were $124,547,000 in 1994, or 3% lower than the $128,321,000 sales level in 1993. 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. The timing and amount of future price increases in the Health Care segment may be negatively influenced by competitive pressures and the possibility of government regulation. Unit volume declined slightly in the Health Care segment from the prior year. Included in 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 products. The unit volume gain in Organidin products was due primarily to a decline in sales of competitive products. The Company is unable to determine whether such reduced sales of competitive products will continue. A reversal of this trend, depending on its magnitude, could have a material adverse effect on results of operations. Sales of Organidin 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 products. Sales of other pharmaceutical products in the Health Care segment continue to be adversely impacted by generic erosion. Net sales in 1993 were $653,511,000, a decrease of $19,879,000 or 3% from 1992. This decline was due to lower sales in the Health Care segment partly offset by increased sales in the Consumer Products segment. Domestic sales decreased 4% and foreign sales decreased 1% from the prior year. Lower foreign exchange rates had the effect of decreasing foreign sales by approximately $3,400,000. Consumer Products sales increased 2% in 1993 due to selling price increases. Factory sales of anti-perspirant and deodorant products were $128,321,000 in 1993, or 2% lower than the $131,053,000 sales level in 1992. In 1993, Health Care sales were 9% lower than the prior year due to reduced unit volume partially offset by selling price increases. The decline in unit volume was a result of the continuing adverse effect of generic competition on pharmaceutical products. Included in earnings in 1993 is 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, a promising compound for the treatment of seizures associated with epilepsy. 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. This compares to pre-launch spending in 1992 of $4,300,000 before taxes or $2,580,000 after taxes ($.06 per share). The fourth quarter of 1993 included pre-launch costs of $9,200,000 before taxes or $5,520,000 after taxes ($.12 per share) which compares to $3,300,000 before taxes or $1,980,000 after taxes ($.04 per share) in the fourth quarter of 1992. INTEREST INCOME The average interest bearing investment, principally government securities and certificates of deposit, and average yields were:
IN THOUSANDS ------------------------------ 1994 1993 1992 -------- -------- -------- Average investment $ 41,000 $ 45,900 $ 40,900 Interest income $ 2,339 $ 2,989 $ 3,190 Yield 5.7% 6.5% 7.8%
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) - - -------------------------------------------------------------------------------- COST AND EXPENSES Cost of goods sold as a percentage of net sales was 35.0% in 1994, 34.2% in 1993, and 32.8% in 1992. The increase in 1994 and 1993 was due primarily to changes in product mix. Throughout this period, the Company has minimized the effects of higher costs by selective price increases and cost control measures. Advertising, marketing and other selling expenses increased 7% in 1994 and decreased 1% in 1993. The increase in 1994 was due to higher advertising and promotional support of products in both business segments. In 1994, Felbatol (felbamate) was supported by substantial introductory spending levels. The higher level of spending in the Consumer Products segment is primarily a result of the marketing support for line extensions of anti-perspirant and deodorant products. Research and development expenses increased 5% in 1994 and decreased 4% in 1993. 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. The decline in 1993 was due primarily to the reorganization of the Consumer Products research program as well as the completion of clinical studies necessary for the submission of the NDA for Felbatol. General and administrative expenses increased by 4% in 1994 and 6% in 1993. The increase in 1994 is primarily due to increased compensation including a higher charge for postretirement benefit expense. The increase in 1993 included a provision for loss of $1,200,000 before taxes related to trade receivables from Phar-Mor, Inc., a drugstore chain which filed for bankruptcy. Interest expense decreased in 1993 as a result of a reduced level of borrowings. 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 consolidated income tax rate was 31% in 1993 and 32% in 1992. The decline in 1993 was due to increased utilization of foreign tax credits and a change in the mix of income partially offset by lower Puerto Rico tax benefits. LICENSING ARRANGEMENT In April 1992, Carter-Wallace 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. Under the licensing agreement, Carter-Wallace received in April, 1992 an initial, non-refundable license payment of $10,000,000 and is to receive royalties, which could be significant, on net sales of its Felbatol compound in the territory covered by the license. 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. This agreement will permit Carter-Wallace to receive fees for services and additional remuneration attributable to growth in sales of such product, which, in total, may be significant to the Company. REGULATORY MATTERS The Food and Drug Administration ("FDA") has initiated review of the safety and efficacy of the Organidin brand of expectorant/mucolytic 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 products' labeling be made and that doctors be appropriately notified of these labeling changes. The Company implemented these FDA Advisory Committee recommendations and is developing additional data in support of 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 its Organidin products. On May 13, 1993, the Company met with the FDA to discuss this matter. The Company has replied to the FDA letter and is awaiting further response from the FDA. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) - - -------------------------------------------------------------------------------- If the Company and the FDA fail to reach an agreement, the Company may be required to restrict or possibly discontinue the marketing of the Organidin products. Any substantial reduction in Organidin product sales or the discontinuance of marketing of the Organidin products as a result of the FDA determination would not have a material adverse effect on the Company's financial position, but would have a material adverse effect on results of operations since, although the products approximate only 11% of consolidated sales, they represent a significantly greater portion of the Company's profits. In addition, the Company would incur at that time a material one-time charge to earnings. 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 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. 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 $30-40 million. 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 matter discussed above will not have a material effect on its financial position. 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, 1994, the Company had available various bank credit lines amounting to $149,400,000, consisting of $140,000,000 in domestic credit lines and $9,400,000 for foreign borrowings. The domestic lines are made up of a $75,000,000 revolving credit facility expiring in September, 1996 and in $65,000,000 in uncommitted credit lines from various banks. The decrease in accounts receivable in 1994 is primarily due to the timing of sales and collections. During 1993, the Company established inventory levels sufficient to support the launch in 1994 of Felbatol. The provision for the discontinuance of the Answer self-monitoring blood glucose system of $12,400,000 before taxes, included $9,460,000 which did not require a cash outlay during the year ended March 31, 1992. This amount consists principally of a write-off of loans, investments and certain other assets which did not require the future outlay of cash. CAPITAL RESOURCES During the past three years, the Company has continued to upgrade its manufacturing operations. Capital expenditures were $24,300,000 in 1994, $25,500,000 in 1993 and $22,300,000 in 1992. 10 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 * 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 brand of expectorant/mucolytics * 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 * Cerox adhesive tapes and bandages * Confidelle, Discover and Gravix at-home pregnancy test kits * Cossack line of men's grooming products * Dentovax line of oral hygiene products * Eudermin line of skin care and toiletry products * GranVista non-prescription eyeglasses * Poupina line of skin care and toiletry products * Rilacrin hair lotion * 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 11 Carter-Wallace, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS AT MARCH 31, 1994 AND 1993
ASSETS 1994 1993* - - --------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 23,311,000 $ 8,231,000 Short-term investments, principally government securities and certificates of deposit 32,883,000 28,207,000 Accounts receivable-trade, less allowances of $5,955,000 in 1994 and $5,639,000 in 1993 112,367,000 134,786,000 Other receivables 4,703,000 4,627,000 Inventories Finished goods 60,515,000 52,835,000 Work in process 22,121,000 22,520,000 Raw materials and supplies 39,553,000 39,085,000 ------------ ------------ 122,189,000 114,440,000 ------------ ------------ Prepaid expenses, deferred taxes and other current assets 19,973,000 22,507,000 ------------ ------------ TOTAL CURRENT ASSETS 315,426,000 312,798,000 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT, AT COST Land 3,544,000 3,407,000 Buildings and improvements 108,033,000 103,995,000 Machinery, equipment and fixtures 142,354,000 131,199,000 Leasehold improvements 25,109,000 24,766,000 ------------ ------------ 279,040,000 263,367,000 Accumulated depreciation and amortization 121,981,000 113,297,000 ------------ ------------ 157,059,000 150,070,000 ------------ ------------ INTANGIBLE ASSETS Excess of purchase price of businesses acquired over the net assets at date of acquisition, less amortization 68,292,000 69,842,000 Patents, trademarks, contracts and formulae, less amortization 41,921,000 47,390,000 ------------ ------------ 110,213,000 117,232,000 ------------ ------------ DEFERRED TAXES AND OTHER ASSETS 45,864,000 15,450,000 ------------ ------------ $628,562,000 $595,550,000 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. *Restated to reflect the change in accounting for income taxes. 12
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993* - - --------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Accounts payable $ 27,844,000 $ 32,866,000 Accrued expenses 72,041,000 67,285,000 Notes payable 5,709,000 1,950,000 Taxes on income 24,673,000 26,522,000 ------------ ------------ TOTAL CURRENT LIABILITIES 130,267,000 128,623,000 ------------ ------------ LONG-TERM LIABILITIES Long-term debt 9,309,000 13,184,000 Deferred compensation 7,661,000 7,751,000 Accrued postretirement benefit obligation 71,804,000 -- Other long-term liabilities 16,013,000 16,831,000 ------------ ------------ TOTAL LONG-TERM LIABILITIES 104,787,000 37,766,000 ------------ ------------ 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; issued 34,432,000 shares in 1994 and 34,373,000 shares in 1993 34,432,000 34,373,000 Class B common stock, authorized 13,056,800 shares, par value $1 per share; issued 12,773,000 shares in 1994 and 12,832,000 in 1993 12,773,000 12,832,000 Capital in excess of par value 1,972,000 637,000 Retained earnings 380,047,000 415,369,000 ------------ ------------ 429,224,000 463,211,000 Less: Equity adjustment from foreign currency translation 20,404,000 14,739,000 Treasury stock at cost--981,900 common and 153,600 Class B common shares in 1994 and 1,267,800 common and 153,600 Class B common shares in 1993 15,312,000 19,311,000 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 393,508,000 429,161,000 ------------ ------------ $628,562,000 $595,550,000 ------------ ------------ ------------ ------------
13 Carter-Wallace, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS THREE YEARS ENDED MARCH 31, 1994
1994 1993 1992 - - ----------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF EARNINGS Revenues: Net sales $664,789,000 $653,511,000 $673,390,000 Income from licensing agreement -- 10,000,000 -- Interest income 2,339,000 2,989,000 3,190,000 Royalty and other income 3,135,000 2,698,000 4,559,000 ------------ ------------ ------------ 670,263,000 669,198,000 681,139,000 ------------ ------------ ------------ Cost and Expenses: Cost of goods sold 232,560,000 223,358,000 221,206,000 Advertising and promotion 128,917,000 114,932,000 119,159,000 Marketing and other selling 133,765,000 129,763,000 127,907,000 Research and development 52,278,000 49,903,000 51,955,000 General and administrative 76,937,000 74,125,000 70,025,000 Provision for loss on discontinuance of the Answer blood glucose system -- -- 12,400,000 Interest 1,976,000 1,789,000 3,370,000 Other 6,448,000 6,922,000 7,852,000 ------------ ------------ ------------ 632,881,000 600,792,000 613,874,000 ------------ ------------ ------------ Earnings before taxes on income 37,382,000 68,406,000 67,265,000 Provision for taxes on income 10,773,000 21,206,000 21,525,000 ------------ ------------ ------------ Net earnings before cumulative effect of accounting changes 26,609,000 47,200,000 45,740,000 Cumulative effect of accounting changes, net of tax (46,639,000) -- -- ------------ ------------ ------------ Net earnings (loss) $(20,030,000) $ 47,200,000 $ 45,740,000 ------------ ------------ ------------ ------------ ------------ ------------ Net earnings per average share of common stock before cumulative effect of accounting changes $ .58 $ 1.03 $ 1.00 Cumulative effect of accounting changes (1.02) -- -- ------------ ------------ ------------ Net earnings (loss) per average share of common stock $ (.44) $ 1.03 $ 1.00 ------------ ------------ ------------ ------------ ------------ ------------ CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Amount at beginning of year* $415,369,000 $383,435,000 $372,745,000 Net earnings (loss) (20,030,000) 47,200,000 45,740,000 ------------ ------------ ------------ 395,339,000 430,635,000 418,485,000 Dividends--$.33 per share in 1994, 1993, and 1992 (15,292,000) (15,256,000) (14,956,000) Three-for-one stock split in April, 1992 -- -- (20,094,000) Cost of treasury stock (over) market value at date of award or issuance -- (10,000) -- ------------ ------------ ------------ Amount at end of year $380,047,000 $415,369,000 $383,435,000 ------------ ------------ ------------ ------------ ------------ ------------ See accompanying notes to consolidated financial statements. *Retained earnings in 1993 and 1992 were restated to reflect the change in accounting for income taxes.
14 CONSOLIDATED STATEMENTS OF CASH FLOWS THREE YEARS ENDED MARCH 31, 1994
1994 1993 1992 - - ----------------------------------------------------------------------------------------------------------- Net earnings (loss) $(20,030,000) $ 47,200,000 $ 45,740,000 Adjustments to reconcile net earnings (loss) to cash flows provided by operating activities: Cumulative effect of accounting changes 46,639,000 -- -- Depreciation and amortization 15,707,000 15,250,000 14,341,000 Amortization of patents, trademarks, contracts and formulae 9,720,000 8,623,000 8,255,000 Amortization of excess purchase price of businesses acquired over the net assets at date of acquisition 2,015,000 1,968,000 1,912,000 Provision for the loss on discontinuance of the Answer blood glucose system, net of cash payments -- -- 9,460,000 Changes in assets and liabilities: Decrease (increase) in accounts and other receivables 19,548,000 (6,883,000) (6,171,000) (Increase) in inventories (9,086,000) (16,317,000) (654,000) Decrease (increase) in prepaid expenses 1,240,000 2,062,000 (4,887,000) (Decrease) increase in accounts payable and accrued expenses (3,237,000) 61,000 4,301,000 (Decrease) increase in deferred compensation (28,000) 383,000 556,000 Increase (decrease) in deferred taxes 1,101,000 (488,000) (1,495,000) Other changes (566,000) (4,469,000) (4,286,000) ------------ ------------ ------------ Cash flows provided by operating activities 63,023,000 47,390,000 67,072,000 ------------ ------------ ------------ Cash flows used in investing activities: Additions to property, plant and equipment (24,305,000) (25,500,000) (22,313,000) Acquisition of Icart, S.A., net of cash received -- (7,432,000) -- Acquisition of the Cossack product line -- -- (4,236,000) Payments for the acquisition of other businesses and licensing agreements and loans (1,196,000) (1,783,000) (891,000) (Increase) in short-term investments (6,341,000) (6,512,000) (13,446,000) Other investing activities 1,078,000 3,994,000 (3,708,000) ------------ ------------ ------------ Cash flows used in investing activities (30,764,000) (37,233,000) (44,594,000) ------------ ------------ ------------ Cash flows used in financing activities: Dividends paid (15,292,000) (15,256,000) (14,956,000) Increase in borrowings 1,343,000 1,783,000 4,830,000 Payments of debt (1,237,000) (2,607,000) (15,821,000) Purchase of treasury stock (436,000) (834,000) -- ------------ ------------ ------------ Cash flows used in financing activities (15,622,000) (16,914,000) (25,947,000) ------------ ------------ ------------ Effect of foreign exchange rate changes on cash and cash equivalents (1,557,000) (856,000) (715,000) ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents $ 15,080,000 $ (7,613,000) $ (4,184,000) ------------ ------------ ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. 15 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, 1994 and 1993. 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 being 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. Management reviews the carrying value of intangible assets and adjusts for any diminution in value. 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. Advertising costs relating to significant national introductions of products are accrued during the introductory period as sales are recognized. 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: 45,900,000 in 1994, 45,786,000 in 1993 and 45,783,000 in 1992. The average number of shares and all per share amounts reflect the three-for-one stock split in April 1992. 2. INVENTORIES Approximately 14% of inventories are valued using the LIFO inventory method in both 1994 and 1993. If these inventories had been valued on the FIFO inventory method (which approximates current or replacement cost), total inventories would have been approximately $11,000,000 and $12,040,000 higher than reported at March 31, 1994 and 1993, respectively. 16 3. TAXES ON INCOME The provision for taxes on earnings before the cumulative effect of accounting changes was as follows:
1994 1993 1992 ----------- ----------- ----------- Current: Domestic $ 5,236,000 $15,774,000 $16,170,000 Foreign 5,414,000 5,867,000 6,785,000 ----------- ----------- ----------- 10,650,000 21,641,000 22,955,000 ----------- ----------- ----------- Deferred: Domestic 455,000 (363,000) (1,510,000) Foreign (332,000) (72,000) 80,000 ----------- ----------- ----------- 123,000 (435,000) (1,430,000) ----------- ----------- ----------- Total $10,773,000 $21,206,000 $21,525,000 ----------- ----------- ----------- ----------- ----------- ----------- The components of income before taxes and the cumulative effect of accounting changes were as follows: Domestic $24,303,000 $53,103,000 $50,612,000 Foreign 13,079,000 15,303,000 16,653,000 ----------- ----------- ----------- Total $37,382,000 $68,406,000 $67,265,000 ----------- ----------- ----------- ----------- ----------- -----------
It is anticipated that the undistributed earnings of the Company's Puerto Rican subsidiaries will be free of United States income taxes upon repatriation. Deferred income taxes are provided for temporary differences between the book and tax bases of the Company's assets and liabilities. The temporary differences which give rise to deferred tax assets and liabilities at March 31 were as follows:
1994 1993 ----------- ----------- Postretirement benefit plans $27,304,000 $ -- Employee benefit plans 11,453,000 8,237,000 Accrued liabilities 8,008,000 10,057,000 Asset valuation accounts 2,107,000 4,437,000 All other 4,388,000 801,000 ----------- ----------- Total deferred tax assets 53,260,000 23,532,000 ----------- ----------- Depreciation 12,175,000 11,693,000 All other 4,440,000 2,523,000 ----------- ----------- Total deferred tax liabilities 16,615,000 14,216,000 ----------- ----------- Net deferred tax assets $36,645,000 $ 9,316,000 ----------- -----------
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. 17 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. The effective tax rate of the provision 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:
1994 1993 1992 ---------------------- ---------------------- ---------------------- % TO % TO % TO TAX PRE-TAX TAX PRE-TAX TAX PRE-TAX AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME ----------- ------- ----------- ------- ----------- ------- Computed tax expense $13,084,000 35.0% $23,258,000 34.0% $22,870,000 34.0% Puerto Rican income (2,855,000) (7.6) (2,786,000) (4.1) (3,749,000) (5.6) Foreign income taxed at a different effective rate 315,000 .8 (1,476,000) (2.2) 783,000 1.2 State income taxes, net of federal tax benefit 878,000 2.4 2,141,000 3.1 1,790,000 2.7 Amortization of intangibles 839,000 2.2 781,000 1.2 844,000 1.2 Deferred tax adjustment due to federal tax rate change (815,000) (2.2) -- -- Other (673,000) (1.8) (712,000) (1.0) (1,013,000) (1.5) ----------- ------- ----------- ------- ----------- ----- $10,773,000 28.8% $21,206,000 31.0% $21,525,000 32.0% ----------- ------- ----------- ------- ----------- ----- ----------- ------- ----------- ------- ----------- -----
The U.S. Internal Revenue Service completed its examination of the Company's tax returns through the fiscal year 1989 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:
1994 1993 1992 ------------ ------------ ------------ Net current assets $ 89,307,000 $ 88,063,000 $ 85,982,000 Equity in net assets 97,316,000 94,984,000 95,573,000 Net sales 159,454,000 169,032,000 170,464,000 Net earnings 7,997,000 9,508,000 9,788,000
The equity adjustment from foreign currency translation is comprised of the following:
YEARS ENDED MARCH 31 ------------------------------- 1994 1993 ----------- ----------- Opening balance $14,739,000 $ 4,642,000 Current year 5,665,000 10,097,000 ----------- ----------- Ending balance $20,404,000 $14,739,000 ----------- ----------- ----------- -----------
5. NOTES PAYABLE AND LONG-TERM DEBT Notes Payable Notes payable consisting of borrowings from banks under available lines of credit were $1,834,000, $645,000 and $511,000 and the current portion of long-term debt was $3,875,000, $1,305,000 and $1,705,000 at March 31, 1994, 1993 and 1992, 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. The Company has available various bank credit lines amounting to $149,400,000 of which $140,000,000 is for domestic borrowings and $9,400,000 is for international borrowings. The availability of the lines of credit is subject to review by the banks involved. Commitment fees are immaterial. 18 Long-Term Debt Long-term debt at March 31 is summarized below:
1994 1993 ----------- ----------- Connecticut Development Authority Industrial Development Bond, 6.75% payable October 1, 1998 $ 4,300,000 $ 4,300,000 City of Decatur, Illinois adjustable rate Industrial Revenue Bond payable December 1, 2010 3,000,000 3,000,000 Promissory Notes, 9.66%, payable no later than September 13, 1994 2,940,000 3,000,000 Promissory Notes, 7.96%, repaid in March, 1994 -- 284,000 Unsecured Italian lira term loan, at a variable rate payable in semi-annual installments through July 1, 1995 1,111,000 1,963,000 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 740,000 805,000 Unsecured Italian lira term loan, 4.5%, payable in equal semi-annual installments from January 1, 1995 to July 1, 2003 682,000 610,000 Unsecured Italian lira term loan, 5.5%, payable in equal semi-annual installments through July 1, 1998 407,000 514,000 Other 4,000 13,000 ----------- ----------- 13,184,000 14,489,000 Less, current portion of long-term debt included in notes payable (3,875,000) (1,305,000) ----------- ----------- $ 9,309,000 $13,184,000 ----------- ----------- ----------- -----------
Maturities of long-term debt for each of the four fiscal years 1996 through 1999 are $607,000, $242,000, $246,000 and $4,500,000, respectively. Interest on the Decatur, Illinois Industrial Revenue Bond carries a rate of 72% of the prime rate (unless earlier converted to a fixed rate at the Company's option) through December, 1995, adjustable thereafter. 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, as defined, may not be less than $300,000,000. The fair value of long-term debt, including current maturities was $13,543,000 at March 31, 1994 and $14,865,000 at March 31, 1993. 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. All prior year per share information has been restated to reflect the stock split. 19 Activity for the years ended March 31, 1994, 1993 and 1992 was as follows:
CLASS B CAPITAL IN COMMON COMMON EXCESS OF STOCK STOCK PAR VALUE ----------- ----------- ----------- Balance at March 31, 1991 $11,325,000 $ 4,410,000 $11,328,000 Conversion of Class B common stock to Common stock 83,000 (83,000) -- Cost of treasury stock under market value at date of award or issuance -- -- 48,000 Three-for-one stock split in April, 1992 22,815,000 8,655,000 (11,376,000) ----------- ----------- ----------- 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 ----------- ----------- ----------- ----------- ----------- -----------
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 1994, 1993 and 1992 included the following components:
1994 1993 1992 ----------- ----------- ----------- Service cost-benefits earned during the period $ 7,416,000 $ 6,398,000 $ 5,610,000 Interest cost on projected benefit obligation 11,474,000 10,983,000 10,228,000 Actual return on assets (16,799,000) (15,149,000) (30,834,000) Net amortization and deferral (299,000) (1,173,000) 15,632,000 ----------- ----------- ----------- Total pension expense $ 1,792,000 $ 1,059,000 $ 636,000 ----------- ----------- ----------- ----------- ----------- -----------
The following table sets forth the funded status of the plans at March 31, 1994 and 1993:
PLANS IN WHICH ------------------------------------------------------------------ ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS BENEFITS EXCEED ASSETS ----------------------------- ---------------------------- 1994 1993 1994 1993 ------------ ------------ ------------ ----------- Actuarial present value of benefit obligations: Vested $105,300,000 $ 95,876,000 $ 31,215,000 $22,283,000 Nonvested 1,840,000 1,577,000 832,000 463,000 ------------ ------------ ------------ ----------- Accumulated benefit obligation $107,140,000 $ 97,453,000 $ 32,047,000 $22,746,000 ------------ ------------ ------------ ----------- ------------ ------------ ------------ ----------- Projected benefit obligation $127,785,000 $121,089,000 $ 45,196,000 $29,048,000 Plan assets at fair value 156,792,000 154,127,000 23,603,000 17,694,000 ------------ ------------ ------------ ----------- Plan assets in excess of (less than) projected benefit obligation 29,007,000 33,038,000 (21,593,000) (11,354,000) Unrecognized net (gain) or loss (41,000) (7,790,000) 3,854,000 1,141,000 Prior service not recognized in pension costs (6,561,000) 131,000 7,524,000 522,000 Unrecognized net transition (asset) liability (12,908,000) (15,527,000) 262,000 478,000 Minimum liability adjustment -- -- (374,000) -- ------------ ------------ ------------ ----------- Prepaid (accrued) pension costs recognized in the consolidated balance sheets $ 9,497,000 $ 9,852,000 $(10,327,000) $(9,213,000) ------------ ------------ ------------ ----------- ------------ ------------ ------------ -----------
20 The principal assumptions used in determining 1994, 1993 and 1992 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 $1,488,000, $1,340,000 and $1,384,000 in 1994, 1993 and 1992 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 year ended March 31, 1994 are: Service cost -- benefits earned during the year $ 2,416,000 Interest cost on accumulated postretirement benefit obligation 4,531,000 Net amortization and deferral (2,516,000) ----------- Net periodic postretirement benefit expense $ 4,431,000 ----------- -----------
The following table sets forth the accumulated postretirement benefit obligation of the plans at March 31, 1994: Retirees $30,425,000 Active participants eligible for retirement 13,366,000 Other active participants 18,020,000 ----------- Accumulated postretirement benefit obligation 61,811,000 Unrecognized net (loss) (7,281,000) Unrecognized prior service credit 17,274,000 ----------- Accrued postretirement benefit obligation $71,804,000 ----------- -----------
The assumed health care cost trend rate used to measure the accumulated postretirement benefit obligation is 15 percent for 1994 trending to 5 percent over a ten-year period. A one percent increase in the assumed respective annual medical cost trend rate would increase the accumulated postretirement benefit obligation by approximately $4,100,000 and the service and interest components of net postretirement benefit expense by $700,000. 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 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. 21 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 1994, 1993 and 1992 under the plan. 10. RESTRICTED STOCK AWARD PLAN The plan as amended provides for awards of not more than 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 750,000 shares of common stock provided for in the Plan has been adjusted to 3,593,154 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 --------------------------------------------- 1994 1993 1992 --------- --------- --------- Cumulative awards--beginning of year 3,384,227 3,314,685 1,091,207 Adjustment for three-for-one stock split -- -- 2,182,414 New awards 32,895 69,542 41,064 --------- --------- --------- Cumulative awards--end of year 3,417,122 3,384,227 3,314,685 --------- --------- --------- --------- --------- ---------
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 759,017 shares at March 31, 1994 are 623,198 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 $4,924,000, $250,000 and $252,000 in 1994, 1993, and 1992, respectively. The cost of treasury stock for these awards was $4,434,000, $260,000 and $204,000 in 1994, 1993 and 1992, respectively. 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. ACQUISITION 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. This acquisition is being accounted for by the purchase method and, accordingly, results of operations for Icart, S.A. 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. 22 12. BUSINESS SEGMENTS Information on the Company's Business Segments is presented below--dollars in thousands. (See "Management's Discussion and Analysis of Results of Operations and Financial Condition" on page 8 and "Description of Business Segments" on page 11). Prior year identifiable asset information has been restated to reflect the change in accounting for income taxes.
Business Segments MARCH 31 ---------------------------------------------- 1994 1993 1992 -------- -------- -------- Sales Health Care $296,621 $281,036 $307,406 Consumer Anti-Perspirants and Deodorants 124,547 128,321 131,053 Other Consumer Products 243,621 244,154 234,931 -------- -------- -------- Consolidated $664,789 $653,511 $673,390 -------- -------- -------- -------- -------- -------- Operating Profit Health Care $ 37,223 $ 46,465 $ 69,098 Consumer Anti-Perspirants and Deodorants (4,766) (1,512) 1,206 Other Consumer Products 53,473 58,292 50,587 Income from licensing agreement -- 10,000 -- Provision for loss on discontinuance of the Answer blood glucose system -- -- (12,400) Interest income net of interest (expense) 363 1,200 (180) Other (expense) net of other income (6,614) (7,039) (4,914) General corporate expenses (42,297) (39,000) (36,132) -------- -------- -------- Earnings before taxes on income $ 37,382 $ 68,406 $ 67,265 -------- -------- -------- -------- -------- -------- Identifiable Assets Health Care $219,920 $241,819 $225,760 Consumer Anti-Perspirants and Deodorants 81,347 79,597 87,640 Other Consumer Products 197,550 195,290 187,130 Corporate Assets 129,745 78,844 76,651 -------- -------- -------- Total Assets $628,562 $595,550 $577,181 -------- -------- -------- -------- -------- -------- Depreciation and Amortization and Capital Expenditures Depreciation and Amortization Health Care $ 11,314 $ 10,228 $ 9,610 Consumer Anti-Perspirants and Deodorants 3,764 3,656 3,485 Other Consumer Products 6,908 7,095 6,572 -------- -------- -------- Total Operating Segments $ 21,986 $ 20,979 $ 19,667 -------- -------- -------- -------- -------- -------- Capital Expenditures Health Care $ 5,261 $ 12,373 $ 10,031 Consumer Anti-Perspirants and Deodorants 7,400 2,652 2,595 Other Consumer Products 9,412 9,598 7,299 -------- -------- -------- Total Operating Segments $ 22,073 $ 24,623 $ 19,925 -------- -------- -------- -------- -------- -------- Geographic Areas Sales U.S.A. $505,335 $484,479 $502,926 Other North America 62,470 68,698 73,962 Other Countries 96,984 100,334 96,502 -------- -------- -------- Consolidated $664,789 $653,511 $673,390 -------- -------- -------- -------- -------- --------
23
Business Segments Continued MARCH 31 ---------------------------------------------- 1994 1993 1992 -------- -------- -------- Operating Profit U.S.A. $ 72,732 $ 87,870 $103,790 Other North America 5,564 7,461 9,884 Other Countries 7,634 7,914 7,217 Income from licensing agreement -- 10,000 -- Provision for loss on discontinuance of the Answer blood glucose system -- -- (12,400) Interest income net of interest (expense) 363 1,200 (180) Other (expense) net of other income (6,614) (7,039) (4,914) General corporate expenses (42,297) (39,000) (36,132) -------- -------- -------- Earnings before taxes on income $ 37,382 $ 68,406 $ 67,265 -------- -------- -------- -------- -------- -------- Identifiable Assets U.S.A. $384,413 $403,447 $375,945 Other North America 40,608 45,578 48,130 Other Countries 73,796 67,681 76,455 Corporate Assets 129,745 78,844 76,651 -------- -------- -------- Total Assets $628,562 $595,550 $577,181 -------- -------- -------- -------- -------- --------
Corporate assets include principally cash and cash equivalents, short-term investments, miscellaneous receivables and other miscellaneous assets. 13. RENTAL EXPENSE AND LEASE COMMITMENTS Rental expense, in thousands of dollars, for operating leases with a term greater than one year for 1994, 1993 and 1992 was as follows:
REAL PROPERTY YEAR ENDED REAL SUB-RENTAL NET REAL EQUIPMENT MARCH 31 PROPERTY INCOME PROPERTY AND OTHER - - ----------- -------- ------------- -------- --------- 1994 $8,322 $ (688) $7,634 $ 7,250 1993 8,809 (690) 8,119 7,051 1992 9,401 (376) 9,025 8,542
Minimum rental commitments, in thousands of dollars, under non-cancellable leases in effect at March 31, 1994 were as follows:
MINIMUM CAPITAL RENTAL REAL EQUIPMENT LEASE COMMITMENTS PROPERTY AND OTHER OBLIGATIONS - - ------------ -------- --------- ----------- 1995 $ 7,775 $ 1,281 $ 52 1996 7,291 703 47 1997 6,508 236 44 1998 6,665 -- 25 1999 6,665 -- 17 2000-2012 87,220 -- 58 ----------- 243 Less interest and executory cost (59) ----------- Present value of minimum lease payments (of which $34 is included in current liabilities) $ 184 ----------- -----------
24 14. SUPPLEMENTAL FINANCIAL INFORMATION The following is presented in support of balance sheet captions:
MARCH 31 -------------------------- 1994 1993 -------- -------- (dollars in thousands) Intangible Assets: Excess of purchase price of businesses acquired over the net assets at date of acquisition $ 86,572 $ 86,106 Trademarks 28,782 28,872 Other 38,342 39,171 -------- -------- 153,696 154,149 Accumulated amortization 43,483 36,917 -------- -------- $110,213 $117,232 -------- -------- -------- -------- Accounts Payable: Trade $ 26,609 $ 31,444 Other 1,235 1,422 -------- -------- $ 27,844 $ 32,866 -------- -------- -------- -------- Accrued Expenses: Salaries and wages $ 25,313 $ 23,127 Advertising and promotion 13,330 14,279 Other 33,398 29,879 -------- -------- $ 72,041 $ 67,285 -------- -------- -------- --------
Income taxes paid were $11,004,000, $24,898,000 and $22,133,000 in 1994, 1993 and 1992, respectively. Interest paid was $1,617,000, $1,639,000 and $2,966,000 in 1994, 1993 and 1992, respectively. 15. REGULATORY MATTERS Organidin The Food and Drug Administration ("FDA") has initiated review of the safety and efficacy of the Organidin brand of expectorant/mucolytic 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 products' labeling be made and that doctors be appropriately notified of these labeling changes. The Company implemented these FDA Advisory Committee recommendations and is developing additional data in support of 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 its Organidin products. On May 13, 1993, the Company met with the FDA to discuss this matter. The Company has replied to the FDA letter and is awaiting further response from the FDA. If the Company and the FDA fail to reach an agreement, the Company may be required to restrict or possibly discontinue the marketing of the Organidin products. Any substantial reduction in Organidin product sales or the discontinuance of marketing of the Organidin products as a result of the FDA determination would not have a material adverse effect on the Company's financial position, but would have a material adverse effect on results of operations since, although the products approximate only 11% of consolidated sales, they represent a significantly greater portion of the Company's profits. In addition, the Company would at that time incur a material one-time charge to earnings. Deprol In connection with the FDA Drug Efficacy Study Implementation (DESI) program the FDA granted the Company a hearing on the FDA's order proposing to withdraw approval of the New Drug Application for Deprol. The hearing has been completed and the FDA's Administrative Law Judge ruled that the New Drug Application for Deprol should be withdrawn. The Company appealed this decision to the Commissioner of Food and Drugs. On September 29, 1993, the decision was sustained by the Commissioner. The New Drug Application for Deprol was withdrawn effective April 29, 1994. Discontinuation of marketing of the product did not require material write-offs and will not have a material adverse effect on sales or earnings. 16. LITIGATION AND ENVIRONMENTAL MATTERS The Company has been named a third party defendant in the case of the State of New Jersey, Department of Environmental Protection vs. the Lone Pine Landfill, et al. The third party complaint alleges that the Company, through certain waste haulers, deposited toxic substances at the Lone Pine Landfill in Freehold, New Jersey. This action has been stayed by the court. The United States Environmental Protection Agency ("EPA") has also advised the Company that it may be a "responsible party" with respect to a release or substantial threat of release of hazardous substances at the Lone Pine Landfill. To the best of the Company's knowledge, at the time of disposal, the Company disposed of its waste in a completely lawful manner. 25 Subsequently, certain categories of waste have been legislated to be hazardous under the Comprehensive Environmental Response, Compensation and Liability Act of 1980. Although several companies have conducted scientific studies which have shown that the landfill is not a current threat to area drinking water supplies or aquatic life in the Manasquan River the EPA continues to demand a clean-up be conducted of the landfill. The Company and over 115 other companies, without admitting liability, have entered into two consent decrees with EPA agreeing to conduct a clean-up of the Lone Pine Landfill and the clean-up is in progress. 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 cleanup costs at Lone Pine. The Company has reached settlements in this case and has obtained a liability verdict against the only nonsettling insurer which should result in the Company being fully reimbursed for its share of the currently estimated cleanup 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 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 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. 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 $30-40 million. 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 position. 17. 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 ----------------------------------------------- 1994 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 TOTAL YEAR 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) 1993 Net Sales $157,184 $167,326 $159,640 $169,361 $653,511 Gross Margin 104,265 109,126 105,385 111,377 430,153 Net Earnings 16,023 9,968 13,353 7,856 47,200 Earnings per share .35 .22 .29 .17 1.03
The quarter ended June 30, 1993 includes a one-time charge 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. The quarter ended June 30, 1993 was restated to reflect the cumulative effect of the adoption of SFAS No. 112 "Employers' Accounting for Postemployment Benefits" resulting in a one-time charge to earnings of $2,820 after taxes or $.06 per share. The quarter ended June 30, 1992 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). Refer to "Management's Discussion and Analysis of Results of Operations and Financial Condition" on page 8 for comments regarding pre-launch spending for Felbatol. 26 INDEPENDENT AUDITORS' REPORT CERTIFIED PUBLIC ACCOUNTANTS KPMG Peat Marwick 345 Park Avenue New York, NY 10154 The Board of Directors and Stockholders Carter-Wallace, Inc.: We have audited the accompanying consolidated balance sheets of Carter-Wallace, Inc. and subsidiaries as of March 31, 1994 and 1993 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, 1994. 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, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 1994, 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 discussed in Note 15 to the consolidated financial statements, the Company received a letter from the Food and Drug Administration (FDA) requesting the discontinuance of the marketing of its Organidin products. The Company met with the FDA, has replied to the letter and is awaiting further response from the FDA. The ultimate outcome of this matter cannot presently be determined. Accordingly, no provision for any liability that may result upon resolution has been recognized in the accompanying consolidated financial statements. KPMG Peat Marwick June 6, 1994 27 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 Dean, Faculty of Medicine, 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 and Chairman, Department of Medicine Brown University Providence, RI Robert E. Canfield, M.D. Irving Professor of Medicine and Director, Irving Center for Clinical Research Columbia University, College of Physicians and Surgeons New York, NY Noel Rose, M.D., Ph.D. Professor and Chairman, Department of Immunology and Infectious Diseases Johns Hopkins University, School of Hygiene 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) 28 Printed in U.S.A. CARTER-WALLACE, INC. 1345 Avenue of the Americas New York, NY 10105 EX-10.14 3 EXHIBIT 10.14 CARTER-WALLACE, INC. EXECUTIVE PENSION BENEFITS PLAN (AS AMENDED EFFECTIVE APRIL 1, 1994) 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, 1994. 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. (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 -2- 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 the application of either of the foregoing Code sections, in the manner described, or the deferral of annual pay under the Executive -3- Savings Plan, would reduce the benefit payable to him under the Retirement Plan in any manner. 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. -4- (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 -5- 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) Except as otherwise provided in Section 5(d), 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, the calculations in Step 1 of Section 5(a) or of Section 5(b), whichever is applicable, shall be modified as set forth in subsections (1) and (2) 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% (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 -6- 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) 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. (d) 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 -7- 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. (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 participant's Supplemental Retirement Benefit shall commence, or shall be paid in a lump sum, on the date (the "Retirement Benefit Date") which is (a) the first business day of the month coinciding with or next following the latest of (i) the date specified in his most recent election or valid change in election pursuant to Section 7, but in no event -8- later than his Normal Retirement Date or later date of actual retirement, (ii) the date of his retirement or other separation from service, or (iii) his Annuity Starting Date, or (b) 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. 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. -9- (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 -10- 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 -11- 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. -12- EX-10.15 4 EXHIBIT 10.15 CARTER-WALLACE, INC. EXECUTIVE SAVINGS PLAN 1. Purpose of the Plan The purpose of this Carter-Wallace, Inc. Executive Savings Plan is to provide a select group of executives with an opportunity to defer a portion of their annual pay which they may be precluded from deferring under the Carter- Wallace, Inc. Supplemental Retirement and Savings Plan, and to defer some or all of their awards under the Company's profit-sharing bonus award plan. 2. Definitions 2.01 "Account" shall mean the bookkeeping account maintained for a Participant to record his Annual- Pay Deferrals, Company Matching Amounts, and Bonus Deferrals, together with earnings thereon credited pursuant to Section 5.03. 2.02 "Administrator" shall mean the Retirement Committee established to manage the Company's retirement and savings plans. 2.03 "Annual Pay" shall mean a Participant's base salary and overtime pay, including any portion thereof deferred pursuant to the Savings Plan, this Plan, or another nonqualified deferred compensation plan or arrangement. 2.04 "Annual-Pay Deferral Election" shall mean a Participant's election pursuant to Section 3.02 to defer a portion of his Annual Pay. 2.05 "Annual-Pay Deferrals" shall mean the amounts credited to a Participant's Account pursuant to Section 3.02. 2.06 "Bonus" shall mean an award under the Company's Profit Sharing Plan, including the portion of such an award deferred pursuant to this Plan or another nonqualified deferred compensation plan or arrangement. 2.07 "Bonus Deferral Election" shall mean a Participant's election pursuant to Section 3.03 to defer all or a portion of such Participant's Bonus. 2.08 "Bonus Deferrals" shall mean the amounts credited to a Participant's Account pursuant to Section 3.03. 2.10 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 2.11 "Company" shall mean Carter-Wallace, Inc. and any successor thereto. 2.12 "Company Matching Amount" shall mean the amount credited to a Participant's Account pursuant to Article 4. 2.13 "Eligible Employee" shall have the meaning ascribed thereto in Section 3.01. 2.14 "Employee" shall mean an "Employee" as defined in the Savings Plan, but shall not include any employee covered by a collective bargaining unit. 2.15 "Investment Election" shall mean a Participant's election under Article 5 of the investment fund or funds used to measure the investment performance of the Participant's Account. 2.16 "Make-Up Election" shall mean an Annual-Pay Deferral Election made pursuant to Section 3.02(a). 2.17 "Participant" shall mean an Employee who satisfies the requirements for participation in the Plan pursuant to Section 3.01 and whose Account has not been distributed. 2.18 "Plan" shall mean this Carter-Wallace, Inc. Executive Savings Plan, as amended from time to time. 2.19 "Plan Year" shall mean the calendar year. 2.20 "Projected Annual Total Compensation" for a calendar year shall mean the sum of (i) a Participant's combined Annual Pay and Bonus during the first 10 months of such year and (ii) the Participant's projected base salary for the last two months of such year (based on the salary rate in effect on November 1 of such year). 2.21 "Savings Plan" shall mean the Carter-Wallace, Inc. Supplemental Retirement and Savings Plan, as amended from time to time. 2.22 "Section 401(a)(17) Limitation" with respect to a Plan Year or calendar year shall mean the dollar limitation under Section 401(a)(17) of the Code in effect for such year. For purposes of this definition, the Section 401(a)(17) Limitation for 1993 shall be deemed to be $150,000. -2- 2.23 "Select Group" shall mean, with respect to a Plan Year, the group of Employees whose Projected Annual Total Compensation for the immediately preceding calendar year exceeds the Section 401(a)(17) Limitation for such immediately preceding year. 2.24 "Unforeseeable Emergency" shall have the meaning ascribed thereto in Section 10.03. 2.25 "Valuation Date" shall mean the last day of each calendar month. 2.26 "Whole-Year Election" shall mean an Annual-Pay Deferral Election made pursuant to Section 3.02(b). 3. Participation and Deferral Elections 3.01 Participation. Any Employee who is a member of the Select Group with respect to a Plan Year (an "Eligible Employee") shall be eligible to participate in the Plan for such Plan Year as of the latest of (i) the first day of such Plan Year, (ii) the first day on which he is eligible to participate in the Savings Plan, or (iii) April 1, 1994. To become a Participant with respect to a Plan Year, an Eligible Employee must file with the Company an Annual-Pay Deferral Election or a Bonus Deferral Election (or both) with respect to such Plan Year in accordance with Sections 3.02 or 3.03, respectively. Participation in the Plan shall terminate when all amounts credited to a Participant's Account have been distributed. 3.02 Annual-Pay Deferral Elections. An Eligible Employee may elect to defer a portion of his Annual Pay by making a written election on such form as the Administrator shall designate. Such election must be made prior to the later of April 1, 1994 or the first day of the Plan Year to which such election relates, or such earlier date as the Administrator may specify, and may not be modified or revoked after the commencement of such Plan Year except as provided in Sections 3.04 and 10.01. An Annual-Pay Deferral Election applies only to the Annual Pay for the Plan Year to which such election relates; to defer a portion of his Annual Pay in a subsequent Plan Year a Participant must make a new Annual-Pay Deferral Election. An amount deferred pursuant to an Annual-Pay Deferral election shall be credited to the Participant's Account within 30 days after the date on which such amount was otherwise payable. An Annual-Pay Deferral Election shall consist of a Make-Up Election, a Whole-Year Election, or both. (a) A Make-Up Election, which shall be for any whole percentage up to 4% of a Participant's Annual Pay, shall be effective with respect -3- to all Annual Pay for the Plan Year earned after the last day of the payroll period during which such Annual Pay attains the Section 401(a)(17) Limitation. (b) A Whole-Year Election shall be for any whole percentage up to 20% of a Participant's Annual Pay, and shall be effective for the entire Plan Year to which it relates. No Make-Up Election or Whole-Year Election shall be effective with respect to Annual Pay that is payable prior to the effective date of his participation pursuant to Section 3.01. 3.03 Bonus Deferral Elections. An Eligible Employee may elect to defer any whole percentage of his Bonus by making a written election on such form as the Administrator shall designate. Such election must be made prior to the first day of the Company's fiscal year during which the services to which the Bonus relates are rendered, or such earlier date as the Administrator may specify, and may not be modified or revoked after the commencement of such fiscal year except as specified in Sections 3.04 and 10.01. A Bonus Deferral Election applies only to the Bonus paid for the fiscal year to which such election relates; to defer all or a portion of a Bonus paid on account of a subsequent fiscal year the Participant must file a new Bonus Deferral Election. The portion of a Bonus deferred pursuant to a Bonus Deferral Election shall be credited to the Participant's Account on the Valuation Date coinciding with or next following the date on which the Bonus was otherwise payable. 3.04 Suspension of Deferrals. Notwithstanding anything to the contrary in this Article 3, in the event (i) a Participant receives a qualifying emergency withdrawal from the Savings Plan or (ii) the Administrator approves a Participant's request for a suspension of deferrals pursuant to Section 10.01 on account of an Unforeseeable Emergency, the Participant's Annual-Pay Deferral Election and Bonus Deferral Election shall be suspended with respect to any Annual Pay or Bonuses otherwise payable during the period beginning on the date of such withdrawal or effective date of such approval and ending on the last day of the next succeeding Plan Year. 4. Company Matching Amount For each Plan Year, the Company shall credit to a Participants's Account a Company Matching Amount equal to 50% of the amount of the Participant's Annual Pay deferred pursuant to his Make-Up Election; provided, however, that no matching contribution shall be made with respect to a Participant for a Plan Year unless such Participant's total elective deferrals under the Savings Plan for such Plan Year were equal to the dollar limitation under Section 402(g)(1) of the Code (or such lesser -4- limitation on elective deferrals as may apply to the Participant under the Savings Plan) for such Plan Year. Such Company Matching Amount shall be credited to the Participant's Account not later than 60 days following the end of such Plan Year. Solely for purposes of calculating the Company Matching Amount, the amount deferred by a Participant pursuant to his Make-Up Election shall be deemed to include the amount that would have been deferred had his Make-Up Election become effective at the point at which his Annual Pay attained the Section 401(a)(17) Limitation (rather than on the first day of the following payroll period). 5. Investment Performance Elections 5.01 Initial Election. Prior to the commencement of his participation in the Plan, each Participant shall file an initial Investment Election which shall designate from among the investment funds available for selection under the Plan the investment fund or funds which shall be used to measure the investment performance of the Participant's Account. 5.02 Change in Election. A Participant may change his Investment Election by a filing a written notice with the Administrator. Such change may relate to the Participant's existing Account balance, to future Annual-Pay Deferrals, Bonus Deferrals, and Company Matching Amounts, or to both, and shall be effective on the first day of the calendar quarter next following receipt of such notice by the Administrator; provided, however, that if the Administrator adopts rules permitting changes to be made more frequently than quarterly the effective date of a change in a Participant's Investment Election shall be modified accordingly. 5.03 Crediting of Investment Return. As of any Valuation Date, each Participant's Account shall, under such procedures as the Administrator shall establish, be credited with any income, and debited with any loss, that would have been realized if the amounts credited to his Account had been invested since the preceding Valuation Date in accordance with his Investment Election. References in the Plan to Investment Elections are for the sole purpose of attributing hypothetical investment performance to each Participant's Account. Nothing herein shall require the Company to invest, earmark, or set aside its general assets in any specific manner. 6. Accounts 6.01 Maintenance of Accounts. The Administrator shall maintain or cause to be maintained records showing the individual balances of each Account. At -5- least once per year each Participant shall be furnished with a statement setting forth the value of his Account. 6.02 Vesting. All amounts in a Participant's Account shall be fully vested. 7. Distribution of Benefits 7.01 Benefit Payment Election. Prior to the commencement of his participation in the Plan, each Participant shall file a benefit payment election with the Administrator on such form as the Administrator shall prescribe specifying (i) whether the Participant's benefit is to be paid in a lump sum or in substantially equal annual installments, (ii) the year in which such lump-sum payment is to be made or such installments are to commence, (iii) if installments are elected, the number of such installments. Except as provided in Section 10.02, no portion of a Participant's benefit may be distributed prior to his separation from service. Lump-sum payments may not be made later than, and installment payments may not extend beyond, the 15th anniversary of the date of the Participant's separation from service. 7.02 Change in Election. A Participant's benefit payment election may be changed from time to time, provided, however, that no such change shall be effective if the Participant's separation from service from the Company occurs less than one year after the date such change is made. In such event the Participant's benefit shall be paid in accordance with his most recent election or change in election (other than a change in election made less than one year before his separation from service). 7.03 Distribution of Benefits. Except as otherwise provided in Article 9, a Participant's Account shall be distributed in accordance with his benefit payment election made pursuant to Section 7.01 (after giving effect to any modifications to such election pursuant to Section 7.02). The payment of any installment or lump sum shall, in accordance with the Participant's election, be made either (i) within 30 days after the date of the Participant's separation from service or (ii) during the first 30 days of a calendar year commencing after the Participant separates from service. -6- 8. Death of a Participant 8.01 Except as otherwise provided in Article 9 and in Section 8.02, in the event of a Participant's death prior to the distribution of his entire Account balance, the remaining balance in his Account shall be distributed in accordance with his benefit payment election made pursuant to Section 7.01 (after giving effect to any modifications to such election pursuant to Section 7.02). Such distribution shall be made to the beneficiary designated by the Participant under the Savings Plan, unless the Participant has specifically designated a different beneficiary under this Plan in a writing filed with the Administrator. 8.02 A Participant may elect to have any amount remaining in his account upon his death paid to his beneficiary in a lump sum within 30 days after the Administrator has received notification of his death, rather than in accordance with his benefit payment election under Section 7.01. Such a lump- sum death benefit election may be made or revoked at any time, provided, however, that no such election or revocation shall be effective if made less than one year before the date of the Participant's death. 9. Change in Control 9.01 Notwithstanding any provision to the contrary herein, in the event of a Change in Control (as defined in Section 9.02) the entire balance in a Participant's Account shall be distributed in a lump sum to the Participant or his beneficiary within 30 days following such Change in Control. 9.02 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 -7- "Hoyt Family" shall mean the family of Henry H. Hoyt, Sr., his descendants, and members of such descendants' families. 10. Unforeseeable Emergencies 10.01 Suspension of Deferrals. In the event of a Participant's Unforeseeable Emergency, such Participant may request a suspension of his Annual- Pay Deferral and Bonus Deferral in accordance with Section 3.04 (if a suspension is not already in effect pursuant to such section). Any such request shall be subject to the approval of the Administrator, which approval shall not be granted unless such need cannot be relieved (i) through reimbursement or compensation by insurance or otherwise or (ii) by liquidation of the Participant's assets (to the extent the liquidation of such assets would not itself cause severe financial hardship). If the request is granted, such suspension shall be effective as of such date as the Administrator shall prescribe. 10.02 Emergency Withdrawal. In the event of a Participant's Unforeseeable Emergency, such Participant may request an emergency withdrawal from his Account. Any such request shall be subject to the approval of the Administrator, which approval (a) shall not be granted unless the Participant's Annual-Pay Deferral Election and Bonus Deferral Election have been suspended pursuant to Section 3.04, (b) shall only be granted to the extent reasonably needed to satisfy the need created by the Unforeseeable Emergency, and (c) shall not be granted to the extent that such need may be relieved (i) through reimbursement or compensation by insurance or otherwise or (ii) by liquidation of the Participant's assets (to the extent the liquidation of such assets would not itself cause severe financial hardship). 10.03 Unforeseeable Emergency. An "Unforeseeable Emergency" means severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or his dependent, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Participant's control. Examples of circumstances not qualifying as an Unforeseeable Emergency include the need to send a Participant's child to college and the desire to purchase a home. 11. Administration The Plan shall be administered by the Administrator, which shall have discretionary authority to determine eligibility for benefits and to construe the terms of the Plan. The Administrator's good-faith determination with respect to any issue relating to the interpretation of the Plan shall be conclusive and final. -8- 12. General Provisions 12.01 No Contract of Employment. 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. 12.02 Withholding. As a condition to a Participant's entitlement to benefits hereunder, the Company shall have the right to deduct 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. 12.03 Non-Assignability of Benefits. 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. 12.04 Successor Employers. The 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 12.04 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. 12.05 Governing Law. 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. 12.06 Pronouns. The masculine pronoun shall mean the feminine wherever appropriate. 13. Source of Benefits -9- 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. 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. 14. Effective Date This Plan shall be effective April 1, 1994. 15. Grandfather Provisions 15.01 In the case of a Participant who (i) was a participant in the Savings Plan during the 1993 plan year and deferred under that plan for such plan year at least 4% of his compensation (as defined in the Savings Plan), and (ii) is a Participant in this Plan as of April 1, 1994, such Participant's Account shall be credited as of April 1, 1994 with an amount equal to the excess of (a) 2% of his Annual Pay for the 1993 plan year over (b) the amount of the matching contribution allocated to his account under the Savings Plan for such plan year. Such credited amount shall be treated as a Company Matching Amount for purposes of the Plan. 15.02 In the case of any Participant who had entered into one or more agreements with the Company (other than deferral elections under the Savings Plan) (the "Agreements") providing for the deferral of all or a portion of his Bonus payable on account of any fiscal year ending before April 1, 1994, the total amount of bonuses so deferred, plus any interest credited to the Participant's account pursuant to the terms of such agreements, shall be transferred to the Participant's Account under this Plan as of April 1, 1994 (or, in the case of a bonus payable with respect to the fiscal year ending March 31, 1994, within 30 days after the date the amount of such bonus is otherwise payable). Any amount so transferred shall be treated for purposes of the Plan as a Bonus Deferral. Notwithstanding anything to the contrary herein, an individual who had entered into one or more Agreements shall be required, as a condition of eligibility to participate in the Plan, to request prior to April 1, 1994 the transfers described in this Section 15.02 and to agree that the Plan shall supersede the respective Agreements as of the effectiveness of such transfers. 16. Amendment or Termination -10- 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, 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 benefits as determined as of the date of amendment or termination. IN WITNESS OF WHICH, the Company has adopted the Plan this ____ day of ______________, 1994. CARTER-WALLACE, INC. By:_____________________ Its:____________________ -11- EX-21 5 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 19, 1994, 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, 1994:
Jurisdiction Percentage of of Voting Name of Corporation Incorporation Securities Carter Family Products, Inc. Delaware 100% Carter P.D., Inc. Delaware 100% Carter-Wallace, N.S. Inc. Delaware 100% Carter-Wallace, O.S. Inc. Delaware 100% Carter-Wallace Limited England 100% Carter-Wallace (Australia) Pty, Limited Australia 100% Carter-Wallace, S.A. Mexico 100% Carter-Wallace FSC Corp. Virgin Islands 100% Denver Chemical (Puerto Rico), Inc. Delaware 100% Denver Laboratories (Canada) Limited Canada 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% Societe Germanoise de Cosmetique France 100% S.p.A. Italiana Laboratori Bouty Italy 100%
All of the above subsidiaries are included in the consolidated financial statements of the Company. -----END PRIVACY-ENHANCED MESSAGE-----