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 1997 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, 1997 is presented on page 8 under the caption "Net Sales and Earnings" and also on pages 25 and 26, note 14, "Business Segments" of the Notes to Consolidated Financial Statements, both included in the 1997 Annual Report to Stockholders and herein expressly incorporated by reference.
FOREIGN OPERATIONS
Foreign operations are generally subject to certain political and economic risks that are not present in domestic operations. Such risks may include expropriation of assets, restrictions on earnings remittances and fluctuating exchange rates. Changes in foreign exchange rates had the effect of decreasing sales by $1,900,000 in the fiscal year ended March 31, 1997 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 1997 Annual Report to Stockholders and is herein expressly incorporated by reference.
COMPETITION
Both business segments in which the Company operates are extremely competitive and include larger corporations with greater resources for research, product development and promotion. The Company competes on the basis of price, advertising, promotion, quality of product and other methods relevant to the business. In fiscal 1997, the Company's "Arrid" line of anti-perspirants and deodorants is believed to have accounted for an estimated 7.2% share of the domestic anti-perspirant and deodorant market. The "Trojan", "Class Act" and "Naturalamb" condom brands are estimated to have accounted for well over 60% of total domestic retail condom sales. The Company's worldwide condom sales were approximately $95,400,000, $98,700,000 and $91,900,000 in the fiscal years ended March 31, 1997, 1996 and 1995, respectively. Additional information is presented on page 8 under the caption "Net Sales and Earnings" in the 1997 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 generally has two or more approved suppliers for production materials and issues purchase commitments to provide its suppliers with adequate lead time.
PATENTS AND LICENSES
The Company owns or is licensed under a number of patents and patent applications covering several of its products. The expiration or any other change in any of these patents or patent applications will not materially affect the Company's business. Royalty income does not constitute a material portion of total revenue.
RESTRUCTURING OF OPERATIONS AND FACILITIES
Information regarding the Company's restructuring of operations and facilities is presented on page 9 under the caption "Restructuring of Operations and Facilities" and on page 24 in note 13, "Restructuring of Operations and Facilities" of the Notes to Consolidated Financial Statements, both included in the 1997 Annual Report to Stockholders and herein expressly incorporated by reference.
FELBATOL (FELBAMATE)
Information regarding the effect of "Felbatol" matters on the Company's business is presented on page 9 under the caption "Felbatol (Felbamate)" and on page 28 in note 17, "Felbatol (Felbamate)" of the Notes to Consolidated Financial Statements, both included in the 1997 Annual Report to Stockholders and herein expressly incorporated by reference.
ENVIRONMENTAL MATTERS
Information regarding environmental matters is presented on pages 28 and 29 in note 19, "Litigation Including Environmental Matters" of the Notes to Consolidated Financial Statements, included in the 1997 Annual Report to Stockholders and herein expressly incorporated by reference.
RESEARCH AND DEVELOPMENT
Expenditures for research and development totaled $27,284,000 in 1997, $26,494,000 in 1996 and $41,315,000 in 1995. Research and development expenses in 1997 increased $790,000 or 3.0% as a result of higher spending in the Consumer Products segment. Research and development expense in the Health Care segment was lower than the prior year. In 1996 research and development expenses decreased by $14,821,000 or 36% from the prior year primarily due to lower spending for "Felbatol" (felbamate) as well as the completion of the "Astelin" (azelastine) clinical trials.
Since October 1994, research and development of "Astelin" Nasal Spray for rhinitis and "Taurolin" (taurolidine), an antitoxin for the treatment of sepsis has continued through independent research facilities managed by internal supervisory personnel. Research is also continuing on "Felbatol" (felbamate).
The "Astelin" Nasal Spray New Drug Application ("NDA") was approved on November 4, 1996 and launched on March 10, 1997. The "Astelin" (azelastine) tablet NDA for rhinitis is pending at the FDA. The Company has not yet decided whether to seek final approval for this NDA. The "Astelin" (azelastine) tablet NDA for asthma will be withdrawn as soon as it is no longer needed to support the other two NDAs.
A large scale, multi-centered clinical efficacy trial for "Taurolin" (taurolidine) is ongoing.
Approximately 160 employees are employed in research and development activities.
EMPLOYEES
The Company, together with its subsidiaries, employed approximately 3,460 people worldwide at March 31, 1997.
DISCONTINUATION OF THE ORGANIDIN (IODINATED GLYCEROL) PRODUCT LINE
Information regarding the effect of discontinuing the "Organidin" (iodinated glycerol) product line is presented on pages 9 and 10 under the caption "Discontinuance of the Organidin (Iodinated Glycerol) Product Line" and on page 28 in note 18, "Discontinuance of the Organidin (Iodinated Glycerol) Product Line" of the Notes to Consolidated Financial Statements, both included in the 1997 Annual Report to Stockholders and herein expressly incorporated by reference.
ACQUISITIONS
Information regarding acquisitions is presented on page 24 in note 10, "Acquisitions" of the Notes to Consolidated Financial Statements, included in the 1997 Annual Report to Stockholders and is herein expressly incorporated by reference.
ITEM 2.
ITEM 2. PROPERTIES
The executive offices of the Company are located at 1345 Avenue of the Americas, New York, New York, in space leased until May, 2011. A portion of this space has been subleased. The following are the other principal facilities of the Company:
AREA LOCATION PRODUCTS MANUFACTURED (SQ. FEET)
OWNED IN FEE:
MANUFACTURING FACILITIES AND OFFICES:
Cranbury, New Jersey Pharmaceuticals, toiletries and pet products 734,000 Colonial Heights, Virginia Condoms 200,000 Decatur, Illinois Pharmaceuticals 108,000 Winsted, Connecticut Pet products 45,000 Montreal, Canada Pharmaceuticals 162,000 Folkestone, England Toiletries 76,000 Milan, Italy Pharmaceuticals and diagnostics 52,000 Pisa, Italy Toiletries, adhesive tapes and bandages 49,000 Mexico City, Mexico Pharmaceuticals and diagnostics 63,000 New Plymouth, New Zealand Condom processing 31,000
WAREHOUSE AND OFFICES:
Toronto, Canada 52,000
LEASED:
MANUFACTURING FACILITIES AND OFFICES:
Santa Ana, California Toiletries 10,400 Mexico City, Mexico Toiletries 56,000 Barcelona, Spain Toiletries 58,600 Milan, Italy Diagnostics 21,000
WAREHOUSE AND OFFICES:
Dayton, New Jersey 200,000 Momence, Illinois 43,000 Plainsboro, New Jersey * 23,300 Sydney, Australia 19,000 Folkestone, England 40,000 Clichy, France * 11,800 Revel, France 36,000
* 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. In April, 1997, the Company reopened its New Plymouth, New Zealand facility. In addition, the Company consolidated its two Canadian operations and has discontinued manufacturing operations at its Toronto, Canada facility. With minor exceptions, all other facilities are operating at normal capacity. Maintenance and Repairs were $6,061,000 in 1997, $6,189,000 in 1996 and $6,950,000 in 1995.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Information regarding Legal Proceedings involving the Company is presented on pages 28 through 31 in note 19, "Litigation Including Environmental Matters" of the Notes to Consolidated Financial Statements, included in the 1997 Annual Report to Stockholders and herein expressly incorporated by reference.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT *
Executive Officers of the Registrant are as follows:
HELD PRESENT NAME AGE OFFICE OFFICE SINCE
Henry H. Hoyt, Jr. 69 Chairman of the Board and Chief Executive Officer 1974
Ralph Levine 61 President and Chief Operating Officer 1997
Paul A. Veteri 55 Executive Vice President, Finance and Chief Financial Officer 1997
T. Rosie Albright 50 Vice President, Consumer Products, U.S. 1995
John Bridgen, Ph.D. 50 Vice President, Diagnostics, U.S. 1984
Robert A. Cuthbert 70 Vice President, Pet Products, U.S. 1983
Donald R. Daoust,Ph.D. 61 Vice President, Quality Control 1978
Peter J. Griffin 54 Vice President and Controller 1983
Adrian J. L. Huns 49 Vice President, International 1996
Michael J. Kopec 57 Vice President, Manufacturing 1978
Stephen R. Lang 62 Vice President, Secretary and General Counsel 1997
Thomas B. Moorhead 63 Vice President, Human Resources 1987
George H. Ohye 61 Vice President, Compliance and Regulatory 1994
Herbert Sosman 64 Vice President, Pharmaceuticals, U.S. 1984
C. Richard Stafford 61 Vice President, Corporate Development 1977
James L. Wagar 62 Vice President and Treasurer 1981
Mark Wertlieb 41 Vice President, Taxes 1996
Each officer holds office until the first meeting of the Board of Directors following each Annual Meeting of the Stockholders and until his successor has been duly elected and qualified (except that the Board of Directors may at any meeting elect additional officers), unless his term is earlier terminated through death, resignation, removal or otherwise. The next Annual Meeting of the Stockholders is scheduled to be held July 15, 1997.
* All executive officers have held their present office for the last five years except those noted on the following page.
EXECUTIVE OFFICERS OF THE REGISTRANT (CONT'D)
Ralph Levine was appointed President and Chief Operating Officer in April, 1997. Mr. Levine was previously Vice President, Secretary and General Counsel since prior to 1992 until April, 1997.
Paul A. Veteri was appointed Executive Vice President and Chief Financial Officer, in April, 1997. Mr. Veteri was previously Vice President and Chief Financial Officer since prior to 1992 until April, 1997.
Stephen R. Lang was appointed Corporate Vice President in March, 1997 and Secretary and General Counsel in April, 1997. Mr. Lang was previously a Partner and Chairman of the Litigation Department of Whitman, Breed, Abbott & Morgan since prior to 1992 until March, 1997.
Mark Wertlieb was appointed Corporate Vice President, Taxes in August, 1996. Mr. Wertlieb was previously a Tax Partner at KPMG Peat Marwick LLP since prior to 1992 until August, 1996.
T. Rosie Albright was appointed Corporate Vice President, Consumer Products, U.S. and President, Carter Products Division, in December, 1995. Ms. Albright was previously General Manager and Executive Vice President, Beauty Care with Revlon, Inc. since 1993. She was Executive Vice President of the Carter Products Division of Carter-Wallace, Inc. from 1992 to 1993.
Adrian J. L. Huns was appointed Corporate Vice President, International and President, International Division in May, 1996. Mr. Huns was Managing Director of Carter-Wallace Ltd., a subsidiary of Carter-Wallace, Inc., since prior to 1992 until May, 1996.
George H. Ohye was appointed Vice President, Compliance and Regulatory in April, 1994. Mr. Ohye was previously Senior Vice President, Regulatory Affairs with Johnson & Johnson's R.W. Johnson Pharmaceutical Research Institute since prior to 1992 until April, 1994. He held the concomitant position of Member, Board of Directors of the Ortho-McNeil Pharmaceutical Division of Johnson & Johnson.
PART II
ITEM 5.
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 1997 Annual Report to Stockholders and is herein expressly incorporated by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is incorporated herein by reference to page 7 of the 1997 Annual Report to Stockholders.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Information required by this item is incorporated herein by reference to pages 8 through 10 of the 1997 Annual Report to Stockholders.
PART III
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is incorporated herein by reference to pages 12 through 32 of the 1997 Annual Report to Stockholders.
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Company is incorporated by reference to the Company's Proxy Statement, dated June 16, 1997, for the Annual Meeting of Stockholders to be held July 15, 1997, under the captions "Stock Ownership", "Election of Directors" and "Board of Directors and Committees".
Information with respect to Executive Officers of the Registrant is set forth under the heading "Executive Officers of the Registrant" in Part I on pages 6 and 7 of this Form 10-K.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated herein by reference to the Company's Proxy Statement, dated June 16, 1997, for the Annual Meeting of Stockholders to be held July 15, 1997, under the caption "Executive Compensation and Other Information".
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information pertaining to the security ownership of certain beneficial owners and management is incorporated herein by reference to the Company's Proxy Statement, dated June 16, 1997, for the Annual Meeting of Stockholders to be held July 15, 1997, under the captions "Voting Rights" and "Stock Ownership".
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated herein by reference to the Company's Proxy Statement, dated June 16, 1997, for the Annual Meeting of Stockholders to be held July 15, 1997, under the caption "Election of Directors".
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A)(1),(A)(2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The financial statements and financial statement schedule filed as part of this report are listed or incorporated by reference in the "Index of Financial Statements and Financial Statement Schedule" on page 14 of this Form.
(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 dated June 18, 1993, for the Annual Meeting of Stockholders to be held July 20, 1993, under the caption "Executive Compensation and Other Information").
10.5 Executives' Additional Compensation Plan (incorporated herein by reference to the description of such plan set forth in the Company's Proxy Statement dated June 18, 1993, for the Annual Meeting of Stockholders to be held July 20, 1993, under the caption "Executive Compensation and Other Information").
10.6 Employment Agreement, dated April 1, 1997, between the Company and Ralph Levine.
10.7 Employment Agreement, dated April 1, 1997, between the Company and Paul A. Veteri.
10.8 Employment Agreement, dated April 15, 1997 and effective October 31, 1997, between the Company and Herbert Sosman.
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).
(CONTINUED)
(A) (3) EXHIBITS (CONT'D)
10.11 Lease Agreement, dated December 2, 1988, between the Company and Fisher - Sixth Avenue Company and Hawaiian Sixth Avenue Corporation (incorporated herein by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1989).
10.12 Corporate Officer Medical Expense Reimbursement Plan (incorporated herein by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993).
10.13 Executive Medical Expense Reimbursement Plan, as amended (incorporated herein by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993).
10.14 Executive Pension Benefits Plan, as amended (incorporated herein by reference to Exhibit 10.14 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995).
10.15 Executive Savings Plan (incorporated herein by reference to Exhibit 10.15 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994).
10.16 Amendment to Revolving Credit Agreement, dated as of October 1, 1995 (incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995).
10.17 Note Agreement, dated as of December 1, 1995 (incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995).
10.18 1996 Long-Term Incentive Plan (incorporated herein by reference to the description of such plan set forth in the Company's Consent Solicitation Statement, furnished to its Stockholders on January 22, 1996, under the caption "Carter- Wallace, Inc. 1996 Long-Term Incentive Plan").
10.19 Employment Agreement, dated September 11, 1996, between the Company and T. Rosie Albright.
10.20 Consulting Agreement, dated July 15,1996, between the Company and Daniel J. Black.
13 Annual Report to Stockholders for the fiscal year ended March 31, 1997.
EXHIBITS (CONT'D)
21 Subsidiaries.
23 KPMG Peat Marwick LLP Accountants' Consent
27 Financial Data Schedule (EDGAR filing only)
(B) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter ended March 31, 1997.
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 16, 1997 BY: /s/Ralph Levine ------------- --------------- Ralph Levine President and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the respective dates indicated:
SIGNATURE TITLE DATE
/s/Henry H. Hoyt, Jr. Chairman of the Board and June 16, 1997 - -------------------------- Henry H. Hoyt, Jr. Chief Executive Officer, Director (Principal Execu- tive Officer)
/s/Daniel J. Black Director June 16, 1997 - -------------------------- Daniel J. Black
/s/David M. Baldwin Director June 16, 1997 - -------------------------- David M. Baldwin
/s/Dr. Richard L. Cruess Director June 16, 1997 - -------------------------- Dr. Richard L. Cruess
/s/Suzanne H. Garcia Director June 16, 1997 - -------------------------- Suzanne H. Garcia
SIGNATURE TITLE DATE
/s/Scott C. Hoyt Director June 16, 1997 - -------------------------- Scott C. Hoyt
/s/Ralph Levine President and Chief June 16, 1997 - -------------------------- Ralph Levine Operating Officer, Director
/s/Herbert M. Rinaldi Director June 16, 1997 - -------------------------- Herbert M. Rinaldi
/s/Paul A. Veteri Executive Vice President, June 16, 1997 - -------------------------- Paul A. Veteri Finance, Director (Principal Financial Officer)
/s/Peter J. Griffin Vice President and June 16, 1997 - -------------------------- Peter J. Griffin Controller (Principal Accounting Officer)
CARTER-WALLACE, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The consolidated financial statements and the related report of KPMG Peat Marwick LLP dated May 27, 1997 appearing on pages 12 through 32 of the 1997 Annual Report to Stockholders are incorporated herein by reference in this Form 10-K Annual Report.
The following are set forth in this Annual Report on Form 10-K:
PAGE
INDEPENDENT AUDITORS' REPORT ON SUPPORTING FINANCIAL STATEMENT SCHEDULE 15
SCHEDULE II - Valuation and qualifying accounts for each of the three years ended March 31, 1997 16
All other financial statement schedules are omitted because they are not applicable or not required or because the information is included in the consolidated financial statements or related notes.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Carter-Wallace, Inc.:
Under date of May 27, 1997, we reported on the consolidated balance sheets of Carter-Wallace, Inc. and subsidiaries as of March 31, 1997 and 1996, 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, 1997, as contained in the 1997 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 1997. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
New York, New York May 27, 1997
SCHEDULE II CARTER-WALLACE, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts Three Years Ended March 31, 1997 (in thousands of dollars)