UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K/A-1
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended MARCH 31, 2001
Commission File Number 1-5910
CARTER-WALLACE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-4986583
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1345 AVENUE OF THE AMERICAS, NEW YORK, NY 10105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-339-5000 Securities
registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock
Par value $1.00 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock, par value $1.00 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A-1 or any amendment to
this Form 10-K /A-1. (X)
The number of shares of the registrant's Common Stock and Class B Common Stock
outstanding at June 4, 2001 was 33,468,339 and 12,222,207 respectively.
The aggregate market value of voting stock held by non-affiliates of the
registrant as of June 4, 2001 was approximately $416,599,000.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of
Stockholders held July 17, 2001 Parts III & IV
EXPLANATORY NOTE
This Form 10-K/A-1 amends and restates in its entirety the Annual Report on Form
10-K for the year ended March 31, 2001 of Carter-Wallace, Inc. filed with the
Securities and Exchange Commission on June 27, 2001 (the "Form 10-K"). This Form
10-K/A-1 reflects the restatement of the Company's financial position as of
March 31, 2001 and 2000 and the results of operations and cash flows for each of
the years in the three-year period ended March 31, 2001 as discussed in Note 20
of the Notes to Consolidated Financial Statements included herein on page 39.
The Form 10-K as amended and restated hereby continues to speak as of the date
of the Form 10-K. No attempt has been made to update disclosures for events
subsequent to the initial filing date of June 27, 2001.
1
PART I
ITEM 1. BUSINESS
Carter-Wallace, Inc. (the "Company") is engaged in the manufacture and sale of a
diversified line of products. Additional information is presented under the
caption "Description of Business Segments" included on page 48 of this Form
10-K/A-1.
PENDING SALE OF THE COMPANY
In May 2001 the Company announced that it had entered into agreements for the
sale of the Company in a two-step transaction in which stockholders will receive
$20.30 per share, subject to certain closing adjustments. This transaction is
pending at this time and subject to approval by stockholders and other
conditions. Full details will be included in a proxy statement regarding this
transaction which will be sent to all stockholders.
In this two-step transaction, the consumer business, consisting of the Carter,
Lambert Kay and International Divisions will be sold by the Company immediately
prior to the merger of the remainder of the Company.
BUSINESS SEGMENTS AND GEOGRAPHIC DATA
Financial information about the Company's business segments and geographic areas
for the three years ended March 31, 2001 is presented in Part II, Item 7
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" included on pages 8 through 10 of this Form 10-K/A-1 and under the
caption "Description of Business Segments" included on page 48 of this form.
Additional information is presented in note 12, "Business Segments" of the Notes
to Consolidated Financial Statements included on pages 33 and 34 of this Form
10-K/A-1.
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 approximately $22,000,000 in the fiscal year ended March 31, 2001 in
comparison to the prior year. Additional information is presented in note 5
"Foreign Operations" of the Notes to Consolidated Financial Statements included
on page 27 of this Form 10-K/A-1.
COMPETITION
The three business segments in which the Company operates are extremely
competitive and include larger corporations with greater resources for research,
product development and promotion. The Company competes on the basis of price,
advertising, promotion, quality of product and other methods relevant to the
business. In fiscal 2001, the Company's Arrid line of anti-perspirants and
deodorants is believed to have accounted for an estimated 5.8% share of the
domestic anti-perspirant and deodorant market. The Company's worldwide
anti-perspirant and deodorant sales were approximately $100,400,000,
$105,900,000, and $101,600,000 in the fiscal years ended March 31, 2001, 2000
and 1999, respectively. The Trojan, Class Act and Naturalamb
2
condom brands are estimated to have accounted for over 68% of total domestic
retail condom sales. The Company's worldwide condom sales were approximately
$135,900,000, $123,600,000 and $114,100,000 in the fiscal years ended March 31,
2001, 2000 and 1999, respectively. Additional information is presented in Part
II, Item 7 "Management's Discussion and Analysis of Results of Operations and
Financial Condition" included on pages 8 and 9 of this Form 10-K/A-1.
RAW MATERIALS
The Company's major raw materials are chemicals, plastics, latex, steel cans and
packaging materials. These materials are generally available from several
sources and the Company has had no significant supply problems to date. The
Company 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 certain of its products. The expiration or any other
change in any of these patents or patent applications will not materially affect
the Company's business. Royalty income does not constitute a material portion of
total revenue.
FELBATOL (FELBAMATE)
Information regarding the effect of Felbatol matters on the Company's business
is presented in Part II, Item 7 "Management's Discussion and Analysis of Results
of Operations and Financial Condition" Felbatol (felbamate), included on page 11
of this Form 10-K/A-1 and in note 19 Felbatol (felbamate) of the Notes to
Consolidated Financial Statements, included on page 39 of this Form 10-K/A-1.
ENVIRONMENTAL MATTERS
Information regarding environmental matters is presented in note 15, "Litigation
Including Environmental Matters" of the Notes to Consolidated Financial
Statements, included on pages 36 and 37 of this Form 10-K/A-1.
RESEARCH AND DEVELOPMENT
Expenditures for research and development totaled $30,613,000 in 2001,
$28,508,000 in 2000 and $25,846,000 in 1999. Research and development expenses
increased in 2001 by $2,105,000 or 7.4% due to higher spending for taurolidine,
a compound being tested to determine if it has clinically important
antineoplastic activity. In fiscal 2000, research and development expenses
increased by $2,662,000 or 10.3% also due in part to spending for taurolidine.
Research at independent facilities determined that taurolidine induced cell
death in numerous human cancer cells in vitro. These developments prompted the
Company to initiate an R&D program directed at multiple cancer cell lines to
determine if taurolidine has clinically important antineoplastic activity. An
Investigational New Drug Application (IND) was filed with and accepted by the
FDA. Clinical trials in patients with brain, ovarian and mesothelioma cancer are
in progress.
3
Two multicenter clinical studies showed that Astelin Nasal Spray is effective
for treating vasomotor (nonallergic) rhinitis. A Supplemental New Drug
Application was approved by the FDA for use in vasomotor rhinitis in September,
2000. Astelin Nasal Spray is now indicated for both allergic and nonallergic
vasomotor rhinitis in adults and for use in children five years of age and older
for seasonal allergic rhinitis. The Astelin tablet NDA for allergic rhinitis is
pending at the FDA. The Company has not decided whether to seek final approval
for this NDA.
Approximately 120 employees are employed in research and development activities.
EMPLOYEES
The Company, together with its subsidiaries, employed approximately 3,340 people
worldwide at March 31, 2001.
ACQUISITIONS
Information regarding acquisitions is presented in note 10, "Acquisitions" of
the Notes to Consolidated Financial Statements, included on page 33 of this Form
10-K/ A-1.
ITEM 2. PROPERTIES
The executive offices of the Company are located at 1345 Avenue of the Americas,
New York, New York, in space leased until May, 2011. A portion of this space has
been subleased. The following are the other principal facilities of the Company:
AREA
LOCATION PRODUCTS MANUFACTURED (SQ. FEET)
OWNED IN FEE:
MANUFACTURING FACILITIES
AND OFFICES:
Cranbury, New Jersey Pharmaceuticals, toiletries
and pet products 734,000
Colonial Heights,
Virginia Condoms 220,000
Decatur, Illinois Pharmaceuticals and pet products 108,000
Winsted, Connecticut Pet products 45,000
Montreal, Canada OTC pharmaceuticals and toiletries 157,000
Folkestone, England Toiletries 76,000
Milan, Italy OTC pharmaceuticals and toiletries 60,000
Mexico City, Mexico Pharmaceuticals 94,400
New Plymouth, New Zealand Condom processing 31,000
4
WAREHOUSE AND OFFICES:
Toronto, Canada 52,000
LEASED:
MANUFACTURING FACILITIES AND OFFICES:
Barcelona, Spain Toiletries 58,400
Milan, Italy Diagnostics and toiletries 49,100
Folkestone, England Toiletries 21,500
WAREHOUSE AND OFFICES:
Dayton, New Jersey 200,000
Momence, Illinois 43,000
Plainsboro, New Jersey * 23,300
Mexico City, Mexico 27,500
Sydney, Australia 24,900
Folkestone, England 37,500
Levallois, France * 22,500
Revel, France 35,500
* OFFICES ONLY
The Company has agreements with several companies 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.
In June 2000, Carter-Wallace, Inc. entered into an agreement to sell two parcels
of vacant land adjacent to its Cranbury, New Jersey facility totaling
approximately 210 acres. The closings of these transactions are contingent upon
certain approvals being obtained and the satisfactory resolution of other
conditions. No assurance can be given that the closings will take place. The
total proceeds from these land sales would be approximately $22,050,000, less
commissions and other expenses. The cost basis for the land subject to sale is
approximately $1,000,000. It is anticipated that the closing of one of the two
parcels of land with a sales value of approximately $17,000,000 will occur in
August 2001.
ITEM 3. LEGAL PROCEEDINGS
Information regarding Legal Proceedings involving the Company is presented in
note 15, "Litigation Including Environmental Matters" of the Notes to
Consolidated Financial Statements included on pages 36 through 38 of this Form
10-K/A-1.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
5
EXECUTIVE OFFICERS OF THE REGISTRANT *
Executive Officers of the Registrant are as follows:
HELD PRESENT
NAME AGE OFFICE OFFICE SINCE
Ralph Levine 65 Chairman of the Board and
Chief Executive Officer 2001
Paul A. Veteri 59 President and Chief Operating
Officer 2001
Peter J. Griffin 58 Vice President, Finance and Controller
Chief Financial Officer 2001
T. Rosie Albright 54 Vice President, Consumer Products, U.S. 1995
John Bridgen, Ph.D. 54 Vice President, Diagnostics, U.S. 1984
James C. Costin, M.D. 57 Vice President, Medical and
Scientific Affairs 1999
Donald R. Daoust, Ph.D. 65 Vice President, Quality Control 1978
Thomas G. Gerstmyer 58 Vice President, Pharmaceuticals, U.S. 1999
Adrian J. L. Huns 53 Vice President, International 1996
Michael J. Kopec 61 Vice President, Manufacturing 1978
Stephen R. Lang 66 Vice President, Secretary and
General Counsel 1997
Thomas B. Moorhead 67 Vice President, Human Resources 1987
C. Richard Stafford 65 Vice President, Corporate Development 1977
James L. Wagar 66 Vice President and Treasurer 1981
Mark Wertlieb 45 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 Annual Meeting of the
Stockholders was held July 17, 2001.
6
*All executive officers have held their present office for the last five years
except those noted below:
Ralph Levine was appointed Chairman of the Board and Chief Executive Officer in
January, 2001. Mr. Levine was previously President and Chief Operating Officer
since April 1997. Prior to April 1997, Mr. Levine was Vice President, Secretary
and General Counsel since prior to 1996.
Paul A. Veteri was appointed President and Chief Operating Officer in January,
2001. Mr. Veteri was previously Executive Vice President and Chief Financial
Officer since April 1997. Prior to April 1997, Mr. Veteri was Vice President and
Chief Financial Officer since prior to 1996.
Peter J. Griffin was appointed Vice President, Finance and Controller and Chief
Financial Officer in January, 2001. Mr. Griffin was previously Vice President
and Controller since prior to 1996.
Thomas G. Gerstmyer was appointed Corporate Vice President, Pharmaceuticals,
U.S. in January, 1999. He was appointed President, Wallace Laboratories Division
in August, 1998. Mr. Gerstmyer was previously Vice President of Marketing,
Wallace Laboratories since prior to 1996.
James C. Costin, M.D., was appointed Corporate Vice President, Medical and
Scientific Affairs in January, 1999. Dr. Costin continues to be responsible for
the Wallace Laboratories' Research and Development department, where he was
previously Vice President, Research and Development, a position he held since
prior to 1996.
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 LLP
since prior to 1996.
Mark Wertlieb was appointed Corporate Vice President, Taxes in August, 1996. Mr.
Wertlieb was previously a Tax Partner at KPMG LLP since prior to 1996.
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
1996.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information required by this item is presented in the "Summary of Selected
Financial Data" included on page 47 of this Form 10-K/A-1.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is presented in the "Summary of Selected
Financial Data" included on page 47 of this Form 10-K/A-1.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
The Company's consolidated financial statements included in its originally filed
Annual Report on Form 10-K for the year ended March 31, 2001 presented the
consumer business as a discontinued operation. Subsequently, it was determined
that the pending sale of the consumer business in connection with the pending
sale of the entire Company did not meet the criteria for presentation as a
discontinued operation. As a result, the consolidated financial statements have
been restated for all periods presented to reflect the consumer business as a
component of continuing operations.
PENDING SALE OF COMPANY
In May 2001, the Company announced it had entered into agreements for the sale
of the Company in a two-step transaction in which stockholders will receive
$20.30 per share, subject to certain closing adjustments. This transaction is
pending at this time and is subject to approval by stockholders and other
conditions. Full details will be included in a proxy statement regarding this
transaction which will be sent to all stockholders.
In this two-step transaction, the consumer business, consisting of the Carter,
Lambert Kay and International divisions will be sold by the Company immediately
prior to the merger of the remainder of the Company. Each transaction is
conditioned on the other, so one will not be completed without the other.
SALES AND EARNINGS
Net earnings were $49,222,000 in the year ended March 31, 2001 compared to net
earnings of $43,332,000 in the prior year. Basic earnings per share were $1.09
per share in the current year compared to $.96 per share in the prior year, an
increase of 14%. On a diluted basis, earnings per share were $1.04 per share
compared to $.94 per share in the prior year.
Net sales in 2001 were $781,392,000 compared to prior year's sales of
$747,668,000, a gain of 5%.
8
Sales of Domestic Consumer Products increased by $22,334,000 or 7.3% due to
higher unit volume, and to a lesser extent, selling price increases. Sales of
Trojan condoms, Nair depilatories and First Response pregnancy and ovulation
test kits were all higher.
Domestic Health Care sales increased $14,864,000 or 7.2% in 2001 due to higher
selling prices as well as increased unit volume. The unit volume increase was
due largely to higher sales of Astelin Nasal Spray and cough/cold products.
Sales of most pharmaceutical products in the Domestic Health Care segment
continue to be adversely affected by generic competition.
Sales of International products decreased $3,474,000 or 1.5% in 2001 due to the
unfavorable effect of lower foreign exchange rates, reduced in part by higher
volume, and to a lesser extent, selling price increases. Lower foreign exchange
rates had the effect of decreasing sales in the current year period by
approximately $22,000,000.
Net sales in 2000 were $747,668,000 compared to prior year's sales of
$668,872,000, a gain of 12%.
Sales of Domestic Consumer Products increased by $21,025,000 or 7.4% almost
entirely due to higher unit volume. Selling price increases also had a positive
effect on sales in this segment. Domestic condom sales increased versus the
prior year by 7.4%. Domestic anti-perspirant and deodorant sales increased by
7.2% in comparison to the prior year. Domestic sales of Nair depilatory
increased significantly versus 1999.
Domestic Health Care sales increased $25,001,000 or 13.8% in 2000 due to
increased unit volume as well as higher selling prices. The unit volume increase
was due to the continued growth of Astelin Nasal Spray and the introduction of
several new cough/cold prescription products. Sales of most pharmaceutical
products in the Domestic Health Care segment continue to be adversely affected
by generic competition.
Sales of International products increased $32,770,000 or 16.0% in 2000 due to
higher unit volume and, to a lesser extent, selling price increases. A
significant portion of the unit volume increase related to the acquisition of
the Barbara Gould line of skin care products in France and product
introductions. Lower foreign exchange rates had the effect of decreasing sales
in the current year period by approximately $10,400,000.
Interest income increased in 2001 by $4,209,000 or 79% from the prior year. In
2000 interest income was higher than 1999 by $646,000. The increase in both
years was due primarily to a higher level of interest bearing investments.
Other income decreased by $2,912,000 versus 2000. In 2000 other income decreased
by $3,470,000 versus the prior year. See comments in the Astelin section below.
COSTS AND EXPENSES
Cost of goods sold as a percentage of net sales was 35.1% in 2001, 36.5% in 2000
and 37.9% in 1999. The variations from year to year were due primarily to
changes in product mix as well as selling price increases in excess of cost
increases. Throughout this period, the Company has taken steps to minimize the
effects of higher costs by selective price increases and cost control and
reduction measures.
9
Advertising, marketing and other selling expenses in 2001 increased $3,146,000
or 1.1% as a result of higher spending in the Domestic Consumer and
International segments. In 2000, advertising, marketing and other selling
expenses increased $25,805,000 or 9.9% as a result of higher spending
principally in the International and Domestic Health Care segments. Spending was
higher in the International segment due in part to promotional support for the
recently acquired Barbara Gould product line and product introductions. Spending
was higher in the Domestic Health Care segment partly as a result of costs
associated with the introduction of a reformulated version of an existing
product and product introductions.
Research and development increased in 2001 by $2,105,000 or 7.4% due to higher
spending in the Domestic Health Care segments for taurolidine, a compound being
tested to determine if it has clinically important antineoplastic activity. In
2000, research and development expenses increased by $2,662,000 or 10.3% due
mostly to increased spending in the Domestic Health Care segment, also due to
higher spending for taurolidine.
General and administrative expenses increased in 2001 by $11,220,000 or 13.4%
versus the prior year due largely to an acceleration of certain pension costs as
a result of the retirement of the Company's former Chairman of the Board and
Chief Executive Officer, and costs associated with the pending sale of the
Company. Pension costs and compensation related expense also increased. In 2000,
general and administrative expenses decreased by $1,383,000 or 1.6% due largely
to nonrecurring prior year employee termination costs related to organizational
changes.
Interest expense decreased in 2001 by $220,000 or 4.8%. In 2000 interest expense
increased by $122,000 or 2.7% over the prior year. Both of these changes are
related to fluctuations in the levels of borrowing.
Other expenses increased in 2001 by $7,607,000 or 61.4%. This increase resulted
primarily from higher costs associated with the sharing of profits on a
reformulated product and increased non-cash charges related to incentive plans.
In 2000, other expenses increased by $4,580,000 or 58.7% due to higher non-cash
charges related to incentive plans, and other miscellaneous expenses.
The consolidated income tax rate in 2001, 2000 and 1999 was 39%.
TAUROLIDINE
Research at independent facilities determined that taurolidine induced cell
death in numerous human cancer cells in vitro. These developments prompted the
Company to initiate an R&D program directed at multiple cancer cell lines to
determine if taurolidine has clinically important antineoplastic activity. An
Investigational New Drug Application (IND) was filed with and accepted by the
FDA. Clinical trials in patients with ovarian cancer is in progress. Additional
clinical trials in patients with brain, ovarian and mesothelioma cancer are in
progress.
ASTELIN
In July 1998, the Company entered into a joint venture agreement with ASTA
Medica AG with an effective date of November 1997. Under the terms of the
agreement the Company is responsible for all manufacturing, selling, marketing
and administrative activities for Astelin and Depen, another product licensed
from ASTA Medica AG, and receives compensation for these activities from the
joint venture. Included in other income
10
is $140,000 in 2001, $3,981,000 in 2000 and $6,782,000 in 1999 related to ASTA
Medica's share of joint venture operations.
FELBATOL (FELBAMATE)
As previously reported in the years ended March 31, 1995 and 1996, the Company
incurred one-time charges to pre-tax earnings totaling $45,980,000 related to
use restrictions for Felbatol. Depending on future sales levels, additional
inventory write-offs may be required. If for any reason the product at some
future date should no longer be available in the market, the Company will incur
an additional one-time charge, consisting primarily of inventory write-offs and
anticipated returns of product currently in the market, in the range of
$15,000,000 on a pre-tax basis.
LIQUIDITY AND CAPITAL RESOURCES
Funds provided from operations and the Company's short-term investments and cash
equivalents are the main source for financing working capital requirements,
additions to property, plant and equipment, the payment of dividends and the
purchase of treasury stock. External borrowings are incurred as needed to
satisfy cash requirements related to seasonal business fluctuations and to
finance major facility expansion programs and major acquisitions.
At March 31, 2001, the Company had available various bank credit lines amounting
to $125,400,000 consisting of $110,000,000 in domestic credit lines and
$15,400,000 in foreign credit lines, of which $2,740,000 of the foreign lines
were utilized at March 31, 2001. The domestic lines are made up of a
$100,000,000 revolving credit facility and $10,000,000 in an uncommitted credit
line.
In fiscal 1999, the Company borrowed approximately $15,200,000 to finance
International acquisitions.
Inventory levels increased in 2000 over the previous year due to a planned
increase in condom inventory as well as new product introductions and
acquisitions.
Under stock repurchase programs approved by the Company's Board of Directors,
the Company purchased 246,000 shares at a cost of $3,885,000 in the year ended
March 31, 1999.
In June 2000, Carter-Wallace, Inc. entered into an agreement to sell two parcels
of vacant land adjacent to its Cranbury, New Jersey facility totaling
approximately 210 acres. The closings of these transactions are contingent upon
certain approvals being obtained and the satisfactory resolution of other
conditions. No assurance can be given that the closings will take place. The
total proceeds from these land sales would be approximately $22,050,000 less
commissions and other expenses. The cost basis for the land subject to sale is
approximately $1,000,000.
Under the terms of the Asset Purchase Agreement and the Merger Agreement related
to the pending sale of the Company, the Company may be required to pay
termination fees and expenses to the buyers if these transactions are not
consummated for certain specific reasons. These termination fees and expenses
would approximate $46,000,000 at the maximum levels.
11
CAPITAL EXPENDITURES
Capital expenditures were $14,062,000 in 2001, $18,056,000 in 2000 and
$17,271,000 in 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT FINANCIAL MARKET RISK
A portion of the Company's revenues and earnings are exposed to changes in
foreign exchange rates. Where practical, the Company seeks to relate expected
local currency revenues with local currency costs and local currency assets with
local currency liabilities.
The Company's interest bearing investments and a portion of its debt are subject
to interest rate risk. Changes in interest rates could affect interest income
and expense in future periods. The Company invests on a short-term basis.
There has been no material impact on operations from financial market risk
exposure during the year ended March 31, 2001.
PART III
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is included on pages 19 through 44 of this
Form 10- K/A-1.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Company is incorporated by
reference to the Company's Proxy Statement, dated June 20, 2001, for the Annual
Meeting of Stockholders held July 17, 2001, 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/A-1.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated herein by reference to the
Company's Proxy Statement, dated June 20, 2001, for the Annual Meeting of
Stockholders held July 17, 2001, under the caption "Executive Compensation and
Other Information".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information pertaining to the security ownership of certain beneficial owners
and management is incorporated herein by reference to the Company's Proxy
Statement, dated June 20, 2001, for the Annual Meeting of Stockholders held July
17, 2001, under the captions "Voting Rights" and "Stock Ownership".
12
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 20, 2001, for the Annual Meeting of
Stockholders held July 17, 2001, under the caption "Election of Directors".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A)(1),(A)(2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The financial statements and financial statement schedule filed as part of this
report are listed in the "Index of Financial Statements, Financial Statement
Schedule and Other Financial Information" on page 18 of this Form 10-K/A-1.
(A)(3) EXHIBITS
2.1 Asset Purchase Agreement, dated as of May 7, 2001, by and between
Armkel,LLC and Carter-Wallace, Inc. (incorporated herein by
reference to Item 7 of the Company's Form 8-K dated May 7, 2001).
2.2 Agreement and Plan of Merger, dated as of May 7, 2001, among the
Company, CPI Development Corporation, MCC Acquisition Holdings
Corporation, MCC Merger Sub Corporation and MCC Acquisition Sub
Corporation (incorporated herein by reference to Item 7 of the
Company's Form 8-K dated May 7, 2001).
3.1 Certificate of Incorporation, as amended, of the Company
(incorporated herein by reference to Exhibit 3.1 of the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1992).
3.2 By-Laws of the Company, as amended through 5/15/97 (incorporated
herein by reference to Exhibit 3.2 of the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1998).
4.1 Instruments defining the rights of security holders, including
indentures -- The Company agrees to furnish to the Commission
upon request a copy of each instrument pursuant to which long-
term debt of the Company and its subsidiaries not exceeding 10%
of total assets of the Company and its consolidated subsidiaries
is authorized.
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).
(CONTINUED)
13
(A)(3) EXHIBITS (CONTINUED)
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 Description of Profit Sharing Plan (incorporated herein by
reference to Exhibit 10.4 of the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 2000).
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 held July 20, 1993, under the caption
"Executive Compensation and Other Information").
10.6 Employment Agreement, dated June 4, 1998, between the Company and
Ralph Levine (incorporated herein by reference to Exhibit 10.6 of
the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1998).
10.6(A) Amendment, dated January 27, 2000, to the Employment Agreement
dated June 4, 1998 between the Company and Ralph Levine
(incorporated herein by reference to Exhibit 10.6(a) of the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2000).
10.6(B) Amendment, dated January 25, 2001, to the Employment Agreement
dated June 4, 1998 between the Company and Ralph Levine
(incorporated herein by reference to Exhibit 10.6(b) of the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2001).
10.7 Employment Agreement, dated June 4, 1998, between the Company and
Paul A. Veteri (incorporated herein by reference to Exhibit 10.7
of the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1998).
10.7(A) Amendment, dated January 27, 2000, to the Employment Agreement
dated June 4, 1998 between the Company and Paul A. Veteri
(incorporated herein by reference to Exhibit 10.7(a) of the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2000).
10.7(B) Amendment, dated January 25, 2001, to the Employment Agreement
dated June 4, 1998 between the Company and Paul A. Veteri
(incorporated herein by reference to Exhibit 10.7(b) of the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2001).
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)
14
(A)(3) EXHIBITS (CONTINUED)
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 10.11 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 of 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, 1995).
10.18 1996 Long-Term Incentive Plan, as amended (incorporated herein by
reference to Exhibit 10.18 of the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1999)
10.19 Employment Agreement, dated October 2, 2000 between the Company
and T. Rosie Albright (incorporated herein by reference to
Exhibit 10.19 of the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 2001).
10.21 Letter Agreement, dated September 14, 1998, between the Company
and T. Rosie Albright (incorporated herein by reference to
Exhibit 10.21 of the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1999).
10.21(A)Amendment, dated January 27, 2000, to the Letter Agreement, dated
September 14, 1998, between the Company and T. Rosie Albright
(incorporated herein by reference to Exhibit 10.21(a) of the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2000).
10.22 Letter Agreement, dated June 4, 1998, between the Company and
Stephen R. Lang (incorporated herein by reference to Exhibit
10.22 of the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1999).
(CONTINUED)
15
(A)(3) EXHIBITS (CONTINUED)
10.22(A)Amendment, dated January 27, 2000, to the Letter Agreement,
dated June 4, 1998 between the Company and Stephen R. Lang.
(incorporated herein by reference to Exhibit 10.22(a) of the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2000).
10.23 Consulting Agreement dated July 21, 1999 between the Company and
Henry H. Hoyt, Jr.(incorporated herein by reference to Exhibit
10.23 of the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 2000).
10.23(A)Amendment, dated January 27, 2000, to the Consulting Agreement
dated July 21, 1999 between the Company and Henry H. Hoyt, Jr.
(incorporated herein by reference to Exhibit 10.23(a) of the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2000).
10.24 Letter Agreement, dated January 1, 1999 between the Company and
Thomas G. Gerstmyer (incorporated herein by reference to Exhibit
10.24 of the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 2000).
10.24(A)Amendment, dated January 27, 2000, to the Letter Agreement dated
January 1, 1999, between the Company and Thomas G. Gerstmyer
(incorporated herein by reference to Exhibit 10.24(a) of the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2000).
21 Subsidiaries (incorporated herein by reference to Exhibit 21 of
the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2001).
23 KPMG LLP Independent Auditors' Consent
(B) REPORTS ON FORM 8-K
On May 7, 2001, the Company filed a report on Form 8-K stating that it
had entered into definitive agreements for the sale of the Company in a
two-step transaction in which stockholders will receive $20.30 per
share on a fully diluted basis, subject to certain tax adjustments.
Pursuant to the Asset Purchase Agreement, dated as of May 7, 2001, by
and between Armkel, LLC and the Company, the Company proposes to sell
for $739 million in cash, less certain debt outstanding at closing, the
Company's domestic consumer products business and international
business.
Pursuant to the Agreement and Plan of Merger, dated as of May 7, 2001,
among the Company, CPI Development Corporation, MCC Acquisition
Holdings Corporation, MCC Merger Sub Corporation and MCC Acquisition
Sub Corporation, the Company proposes to sell for $408 million in cash
its remaining domestic healthcare business, by means of a merger.
16
Upon consummation of the merger, the aggregate consideration estimated
to be $1.121 billion, less the corporate taxes to be paid on the sale
of the consumer products business and the cash-out of options, would be
received by the holders of the Company's outstanding Common Stock and
Class B Common Stock. Each transaction is conditioned on the other, so
one transaction will not be consummated without the other.
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: August 13, 2001 BY: /s/ Paul A. Veteri
--------------------
Paul A. Veteri
President and Chief
Operating Officer
17
CARTER-WALLACE, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND
OTHER FINANCIAL INFORMATION
PAGE
The following are set forth in this Form 10-K/A-1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 19
Consolidated Statements of Earnings, Retained 21
Earnings and Comprehensive Earnings
Consolidated Statement of Cash Flows 22
Notes to Consolidated Financial Statements 23
Independent Auditors' Report 44
INDEPENDENT AUDITORS' REPORT ON FINANCIAL
STATEMENT SCHEDULE 45
SCHEDULE II - Valuation and qualifying accounts for each
of the three years ended March 31, 2001 46
SUMMARY OF SELECTED FINANCIAL DATA 47
DESCRIPTION OF BUSINESS SEGMENTS 48
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.
18
<Page>
Carter-Wallace, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 2001 AND 2000
<Table>
<Caption>
ASSETS 2001 2000
- -----------------------------------------------------------------------------------------------------------
CURRENT ASSETS (RESTATED, SEE NOTE 20)
Cash and cash equivalents $ 97,152,000 $ 62,638,000
Short-term investments 47,891,000 41,150,000
Accounts receivable-trade, less allowances of
$8,392,000 in 2001 and $8,030,000 in 2000 126,925,000 118,710,000
Other receivables 6,288,000 7,759,000
Inventories
Finished goods 59,639,000 63,684,000
Work in process 11,762,000 13,376,000
Raw materials and supplies 30,374,000 29,208,000
------------ ------------
101,775,000 106,268,000
------------ ------------
Deferred taxes 21,525,000 25,496,000
Prepaid expenses and other current assets 10,944,000 11,997,000
------------ ------------
TOTAL CURRENT ASSETS 412,500,000 374,018,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land 5,042,000 4,803,000
Buildings and improvements 114,006,000 111,616,000
Machinery, equipment and fixtures 197,992,000 184,207,000
Leasehold improvements 22,684,000 23,287,000
------------ ------------
339,724,000 323,913,000
Accumulated depreciation and amortization 192,560,000 174,503,000
------------ ------------
147,164,000 149,410,000
------------ ------------
INTANGIBLE ASSETS
Excess of purchase price of businesses acquired over the
net assets at date of acquisition, less amortization 72,241,000 77,457,000
Patents, trademarks, contracts and formulae, less
amortization 46,019,000 47,227,000
------------ ------------
118,260,000 124,684,000
------------ ------------
DEFERRED TAXES 31,837,000 32,652,000
OTHER ASSETS 75,447,000 81,472,000
------------ ------------
$785,208,000 $762,236,000
============ ============
</Table>
See accompanying notes to consolidated financial statements.
19
<Page>
<Table>
<Caption>
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000
- -----------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES (RESTATED, SEE NOTE 20)
Accounts payable $ 49,103,000 $ 46,935,000
Accrued expenses 106,399,000 104,485,000
Notes payable 6,658,000 6,711,000
Taxes on income 10,217,000 10,440,000
------------ ------------
TOTAL CURRENT LIABILITIES 172,377,000 168,571,000
------------ ------------
LONG-TERM LIABILITIES
Long-term debt 53,835,000 59,541,000
Deferred compensation 15,500,000 26,647,000
Accrued postretirement benefit obligation 71,251,000 70,308,000
Other long-term liabilities 51,708,000 46,131,000
------------ ------------
TOTAL LONG-TERM LIABILITIES 192,294,000 202,627,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, authorized 1,000,000 shares,
without par value; issued--none -- --
Common stock, authorized 80,000,000 shares,
par value $1 per share, one vote per share; issued
34,827,000 shares in 2001 and 34,776,000 shares in 2000 34,827,000 34,776,000
Class B common stock, authorized 13,056,800 shares, par
value $1 per share, ten votes per share; issued 12,378,000
shares in 2001 and 12,429,000 in 2000 12,378,000 12,429,000
Capital in excess of par value 4,536,000 4,231,000
Retained earnings 435,341,000 400,616,000
------------ ------------
487,082,000 452,052,000
Less:
Accumulated other comprehensive loss
Foreign currency translation adjustment 39,658,000 31,385,000
Treasury stock at cost--1,494,500 common and 153,600
Class B common shares in 2001 and 1,857,900 common
and 153,600 Class B common shares in 2000 26,887,000 29,629,000
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 420,537,000 391,038,000
------------ ------------
$785,208,000 $762,236,000
============ ============
</Table>
See accompanying notes to consolidated financial statements.
20
<Page>
Carter-Wallace, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF
EARNINGS, RETAINED EARNINGS AND
COMPREHENSIVE EARNINGS
THREE YEARS ENDED MARCH 31, 2001
<Table>
<Caption>
2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------
(RESTATED, SEE NOTE 20)
CONSOLIDATED STATEMENTS OF EARNINGS
Net sales $781,392,000 $747,668,000 $668,872,000
Interest income 9,537,000 5,328,000 4,682,000
Other income 4,736,000 7,648,000 11,118,000
------------ ------------ ------------
795,665,000 760,644,000 684,672,000
------------ ------------ ------------
Cost and Expenses:
Cost of goods sold 274,349,000 272,841,000 253,447,000
Advertising and promotion 150,269,000 146,998,000 131,684,000
Marketing and other selling 140,405,000 140,530,000 130,039,000
Research and development 30,613,000 28,508,000 25,846,000
General and administrative 94,955,000 83,735,000 85,118,000
Interest 4,394,000 4,614,000 4,492,000
Other 19,989,000 12,382,000 7,802,000
------------ ------------ ------------
714,974,000 689,608,000 638,428,000
------------ ------------ ------------
Earnings before taxes on income 80,691,000 71,036,000 46,244,000
Provision for taxes on income 31,469,000 27,704,000 18,035,000
------------ ------------ ------------
Net earnings $ 49,222,000 $ 43,332,000 $ 28,209,000
============ ============ ============
Earnings per share--basic $ 1.09 $ .96 $ .62
============ ============ ============
Earnings per share--diluted $ 1.04 $ .94 $ .62
============ ============ ============
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Amount at beginning of year $400,616,000 $368,093,000 $349,815,000
Net earnings 49,222,000 43,332,000 28,209,000
------------ ------------ ------------
449,838,000 411,425,000 378,024,000
Dividends--$.32 per share in 2001, $.24 per share
in 2000 and $.22 per share in 1999 (14,497,000) (10,809,000) (9,931,000)
------------ ------------ ------------
Amount at end of year $435,341,000 $400,616,000 $368,093,000
============ ============ ============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
Net earnings $ 49,222,000 $ 43,332,000 $ 28,209,000
Other comprehensive earnings (loss)
Foreign currency translation adjustment (8,273,000) (3,600,000) (2,974,000)
------------ ------------ ------------
Total comprehensive earnings $ 40,949,000 $ 39,732,000 $ 25,235,000
============ ============ ============
</Table>
See accompanying notes to consolidated financial statements.
21
<Page>
CONSOLIDATED STATEMENTS OF
CASH FLOWS
THREE YEARS ENDED MARCH 31, 2001
<Table>
<Caption>
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
(RESTATED, SEE NOTE 20)
Net earnings $ 49,222,000 $ 43,332,000 $ 28,209,000
Adjustments to reconcile net earnings to cash flows
provided by operating activities:
Depreciation and amortization 17,573,000 17,470,000 16,372,000
Amortization of patents, trademarks, contracts and
formulae 12,114,000 9,066,000 6,199,000
Amortization of excess of purchase price of
businesses
acquired over the net assets at date of
acquisition 3,713,000 4,139,000 4,178,000
Other changes in assets and liabilities:
(Increase) decrease in accounts and other
receivables (11,173,000) (2,124,000) 3,602,000
Decrease (increase) in inventories 1,968,000 (17,380,000) (10,289,000)
Decrease (increase) in prepaid expenses 749,000 (932,000) (3,647,000)
Increase in accounts payable and accrued expenses 8,014,000 4,326,000 6,477,000
(Decrease) increase in deferred compensation (11,249,000) 6,564,000 2,548,000
Decrease (increase) in deferred taxes 4,786,000 (1,654,000) 1,998,000
Other changes 3,705,000 (9,303,000) (7,263,000)
------------ ------------ ------------
Cash flows provided by operating activities 79,422,000 53,504,000 48,384,000
------------ ------------ ------------
Cash flows used in investing activities:
Additions to property, plant and equipment (14,062,000) (18,056,000) (17,271,000)
(Increase) in short-term investments (6,784,000) (9,189,000) (6,273,000)
Proceeds from sale of property, plant and equipment 1,446,000 1,042,000 371,000
Payments for international acquisitions, net of cash
received:
Barbara Gould product line in France -- -- (15,129,000)
Femfresh product line in the U.K. -- -- (3,633,000)
------------ ------------ ------------
Cash flows used in investing activities (19,400,000) (26,203,000) (41,935,000)
------------ ------------ ------------
Cash flows used in financing activities:
Dividends paid (14,497,000) (10,809,000) (9,931,000)
Increase in borrowings 2,173,000 2,781,000 17,385,000
Payments of debt (6,806,000) (5,215,000) (11,569,000)
Purchase of treasury stock (5,861,000) (492,000) (4,381,000)
Proceeds from exercise of stock options 787,000 -- --
------------ ------------ ------------
Cash flows used in financing activities (24,204,000) (13,735,000) (8,496,000)
------------ ------------ ------------
Effect of foreign exchange rate changes on cash
and cash equivalents (1,304,000) (310,000) (232,000)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents $ 34,514,000 $ 13,256,000 $ (2,279,000)
============ ============ ============
</Table>
See accompanying notes to consolidated financial statements.
22
<Page>
Carter-Wallace, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND PLANNED SALE OF COMPANY
On May 7, 2001, Carter-Wallace, Inc. (the "Company") entered into definitive
agreements for the sale of the Company in a two-step transaction. In accordance
with an Asset Purchase Agreement, the Company will first sell the net assets and
business of the Company's consumer business for $739 million, less certain debt
outstanding. Such funds will be paid directly to Carter-Wallace, Inc. Pursuant
to an Agreement and Plan of Merger, immediately following the sale of the
consumer business, the buying group will acquire the Company's outstanding
common stock and Class B common stock for $20.30 per share subject to certain
closing adjustments. CPI Development Corporation, a private holding company that
controls approximately 83% of the voting power of Carter-Wallace, Inc., has
entered into an agreement to vote in favor of the merger, subject to certain
limited exceptions, one of which is that the voting agreement will terminate if
more than 30% of the shares of the Company's common stock and Class B common
stock, taken together, outstanding immediately prior to the stockholder vote on
the merger, have properly exercised appraisal rights under Delaware law with
respect to the merger. The aggregate consideration from both transactions is
estimated to be $1.121 billion, less approximately $160 million of corporate
taxes to be paid on the sale of the consumer business. Each agreement is
conditioned on the other, so one will not be completed without the other.
The asset sale and merger have been approved by the Board of Directors of each
party to the agreements and are subject to certain conditions, including a
financing condition for each buyer, various regulatory approvals, and the
approval of Carter-Wallace, Inc. stockholders.
Under the terms of the Asset Purchase Agreement and the Merger Agreement related
to the pending sale of the Company, the Company may be required to pay
termination fees and expenses to the buyers if these transactions are not
consummated for certain specific reasons. These termination fees and expenses
would approximate $46 million at the maximum levels.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Carter-Wallace,
Inc. and all of its subsidiaries (the "Company"). All significant intercompany
transactions have been eliminated.
Revenue Recognition Policy
Revenue is recognized when products are shipped.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and use assumptions
that affect certain reported amounts and disclosures. Actual amounts may differ.
Cash Equivalents and Short-term Investments
Cash equivalents consist of short-term securities with maturities of three
months or less when purchased. Investments with a maturity of greater than three
months but less than one year are classified as short-term investments. The
carrying value of cash equivalents and short-term investments approximated fair
value at March 31, 2001 and 2000.
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.
23
<Page>
Property, Plant and Equipment
Depreciation is provided over the estimated useful lives of the assets,
principally using the straight line method. Machinery, equipment and fixtures
are depreciated over a period ranging from five to twenty years. Buildings and
improvements are depreciated over a period ranging from twenty to forty years.
Leasehold improvements are amortized on a straight line basis over the life of
the related asset or the life of the lease, whichever is shorter. Expenditures
for renewals and betterments are capitalized. Upon sale or retirement of assets,
the appropriate asset and related accumulated depreciation accounts are adjusted
and the resultant gain or loss is reflected in earnings. Maintenance and repairs
are charged to expense as incurred.
In June 2000 the Company entered into an agreement to sell two parcels of vacant
land adjacent to its Cranbury, NJ facility totalling approximately 210 acres.
The closings of these transactions are contingent upon certain approvals being
obtained and the satisfactory resolution of other conditions. No assurance can
be given that the closings will take place. The total proceeds from these land
sales will be approximately $22,050,000, less commissions and other expenses.
The cost basis for the land being sold is approximately $1,000,000.
Intangible Assets
The excess of purchase price of businesses acquired over net assets at date of
acquisition is assessed to the product or group of products which constitute the
business acquired and amortized over no longer than 40 years for amounts
relating to acquisitions subsequent to October 31, 1970. The cost of patents,
formulae and contracts is amortized on a straight line basis over their legal or
contractual lives. The cost of trademarks is being amortized over no longer than
40 years for amounts relating to acquisitions subsequent to October 31, 1970.
Amounts related to intangibles acquired prior to October 31, 1970 are not
material.
The policy of the Company in assessing the recoverability of intangible assets
is to compare the carrying value of the intangible asset with the undiscounted
cash flow generated by products related to the intangible asset. In addition,
the Company continually evaluates whether adverse developments indicate that an
intangible asset may be impaired.
Income Taxes
Deferred income taxes are determined using the liability method based on the
estimated future tax effects of differences between the financial statement and
tax bases of assets and liabilities given the provisions of enacted tax laws.
Advertising and Marketing Costs
Advertising, promotion and other marketing costs are charged to earnings in the
period in which they are incurred.
Earnings Per Common Share
Basic earnings per share is based on the average number of common and Class B
common shares outstanding during the year: 45,311,000 in 2001, 45,019,000 in
2000 and 45,180,000 in 1999. In computing diluted earnings per share,
incremental shares issuable upon the assumed exercise of stock options and the
vesting of stock awards have been added to the average shares outstanding.
Incremental shares for purposes of calculating diluted earnings per shares
amounted to 2,236,900 in 2001, 1,033,200 in 2000 and 688,500 in 1999.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries are translated at the
year-end rate of exchange, and income statement items are translated at the
average rates prevailing during the year. The resulting translation adjustment
is recorded as a component of stockholders' equity. The effects of foreign
exchange gains and losses arising from these translations of assets and
liabilities are included as a component of other comprehensive income.
24
<Page>
New Accounting Pronouncements
Emerging Issues Task Force Issue No. 00-14, "Accounting for Certain Sales
Incentives" ("EITF Issue No. 00-14") outlines required accounting treatment for
certain sales incentives, including manufacturer's coupons. It requires
companies to record coupon expense as a reduction of sales, rather than
marketing expense. The Company currently records coupon expense as a component
of marketing expense. The Company is required to implement EITF Issue No. 00-14
for the quarter beginning January 1, 2002. It will require the Company to report
coupon expense as a reduction of net sales. Coupon expense approximates
$6,000,000 per year based on historical amounts, spread relatively evenly
throughout the year.
Emerging Issues Task Force Issue No. 00-25, "Vendor Income Statement
Characterization of Consideration from a Vendor to a Retailer" ("EITF 00-25"),
outlines required accounting treatment of certain sales incentives, including
slotting or placement fees, cooperative advertising arrangements, buydowns and
other allowances. The Company currently records such costs as marketing
expenses. EITF 00-25 will require the Company to report the paid consideration
expense as a reduction of sales, rather than marketing expense. The Company is
required to implement EITF 00-25 for the quarter beginning January 1, 2002. The
Company has not yet determined the effect of implementing the guidelines of EITF
00-25, but in any case, implementation will not have an effect on net earnings.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that companies
recognize all derivatives as either assets or liabilities on the balance sheet
and measure these instruments at fair value. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of FASB Statement No. 133." This statement
deferred the effective date of SFAS No. 133 to fiscal years beginning after June
15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which made minor
amendments to SFAS No. 133. The Company will adopt SFAS No. 133, as amended,
effective April 1, 2001. The adoption of this accounting requirement is not
expected to have a material effect on the Company's consolidated financial
statements.
3. INVENTORIES
Inventories computed on the last-in, first-out (LIFO) method comprised 16% and
14% of inventories included in current assets at year end 2001 and 2000,
respectively. If these inventories had been valued on the FIFO inventory method
(which approximates current or replacement cost), total inventories would have
been approximately $9,600,000 and $9,500,000 higher than reported at March 31,
2001 and 2000, respectively. Felbatol inventories of $2,339,000 and $2,502,000
at March 31, 2001 and March 31, 2000, respectively, which are expected to be
sold in the next fiscal year, are included in inventory. Felbatol inventories of
$4,078,000 at March 31, 2001 and $6,387,000 at March 31, 2000, not expected to
be sold in the next fiscal year, are included in Other Assets.
25
<Page>
4. TAXES ON INCOME
The provision for taxes on income was as follows:
<Table>
<Caption>
2001 2000 1999
----------- ----------- -----------
Current:
Domestic $17,102,000 $21,742,000 $ 8,648,000
Foreign 10,171,000 7,673,000 7,305,000
----------- ----------- -----------
27,273,000 29,415,000 15,953,000
----------- ----------- -----------
Deferred:
Domestic 4,101,000 (1,378,000) 1,869,000
Foreign 95,000 (333,000) 213,000
----------- ----------- -----------
4,196,000 (1,711,000) 2,082,000
----------- ----------- -----------
Total $31,469,000 $27,704,000 $18,035,000
=========== =========== ===========
</Table>
The components of income before taxes were as follows:
<Table>
Domestic $58,160,000 $49,696,000 $27,478,000
Foreign 22,531,000 21,340,000 18,766,000
----------- ----------- -----------
Total $80,691,000 $71,036,000 $46,244,000
=========== =========== ===========
</Table>
Deferred income taxes are provided for temporary differences between the
financial statement and tax bases of the Company's assets and liabilities. The
temporary differences gave rise to the following deferred tax assets and
liabilities at March 31:
<Table>
<Caption>
2001 2000
----------- -----------
Postretirement benefit plans $30,657,000 $30,160,000
Employee benefit plans 3,652,000 13,588,000
Accrued liabilities 16,831,000 15,390,000
Asset valuation accounts 16,760,000 16,517,000
All other 9,051,000 8,417,000
Valuation allowances -- (3,247,000)
----------- -----------
Total deferred tax assets 76,951,000 80,825,000
----------- -----------
Depreciation 15,156,000 15,011,000
All other 8,433,000 7,666,000
----------- -----------
Total deferred tax liabilities 23,589,000 22,677,000
----------- -----------
Net deferred tax assets $53,362,000 $58,148,000
----------- -----------
</Table>
Realization of the Company's deferred tax assets is dependent on generating
sufficient taxable income in future years. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
assets will be realized. However, the deferred tax assets could be reduced if
estimates of future taxable income are lowered. A valuation allowance is
provided when it is more likely than not that some portion of the deferred tax
assets will not be realized.
Deferred taxes have not been provided on undistributed earnings of foreign
subsidiaries. It has been management's practice and intent to reinvest such
earnings in the operations of these subsidiaries.
26
<Page>
The effective tax rate of the provision for taxes on income as compared with the
U.S. Federal statutory income tax rate was as follows:
<Table>
<Caption>
2001 2000 1999
----------------------- ----------------------- ------------------------
% TO % TO % TO
TAX PRE-TAX TAX PRE-TAX TAX PRE-TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
----------- ----- ----------- ----- ------------ -----
Computed tax expense $28,242,000 35.0% $24,863,000 35.0% $ 16,185,000 35.0%
Foreign income taxed at a
different
effective rate 3,110,000 3.9 446,000 0.6 1,619,000 3.5
State income taxes, net of
federal tax benefit 2,799,000 3.5 2,443,000 3.4 1,345,000 2.9
Amortization of intangibles 534,000 0.6 534,000 0.8 534,000 1.2
Other 31,000 0.1 (582,000) (0.8) (1,648,000) (3.6)
Reversal of valuation allowance (3,247,000) (4.1) -- -- -- --
----------- ----- ----------- ----- ------------ -----
Provision for taxes on income $31,469,000 39.0% $27,704,000 39.0% $ 18,035,000 39.0%
=========== ===== =========== ===== ============ =====
</Table>
The U.S. Internal Revenue Service completed its examination of the Company's tax
returns through fiscal year 1995 resulting in no material impact on the Company.
The statute of limitations period for the examination of the Company's U.S.
Federal income tax return has expired for fiscal years 1996 and 1997.
5. FOREIGN OPERATIONS
Net current assets and net sales of the Company's foreign subsidiaries and
branches operating outside of the United States, and the Company's equity in net
assets and net earnings of such operations were:
<Table>
<Caption>
2001 2000 1999
------------ ------------ ------------
Net current assets $109,860,000 $106,331,000 $ 99,535,000
Equity in net assets 155,384,000 151,392,000 140,992,000
Net sales 232,079,000 235,549,000 202,799,000
Net earnings 12,265,000 14,000,000 11,248,000
</Table>
The equity adjustment from foreign currency translation is comprised of the
following:
<Table>
<Caption>
YEARS ENDED MARCH 31
------------------------------------
2001 2000
----------- -----------
Opening balance $31,385,000 $27,785,000
Current year 8,273,000 3,600,000
----------- -----------
Ending balance $39,658,000 $31,385,000
=========== ===========
</Table>
6. NOTES PAYABLE AND LONG-TERM DEBT
Notes Payable
Notes payable consisting of borrowings from banks under available lines of
credit were $2,740,000, $1,047,000 and $2,752,000 and the current portion of
long-term debt was $2,488,000, $4,169,000 and $3,103,000 at March 31, 2001, 2000
and 1999, respectively. In addition, other short-term notes payable in
international operations amounted to $1,430,000, $1,495,000 and $2,279,000 at
March 31, 2001, 2000 and 1999, respectively. Additional data related to the
amount of short-term borrowings is not presented since it is immaterial.
27
<Page>
The Company has available various bank credit lines amounting to $125,400,000 of
which $110,000,000 is for domestic borrowings and $15,400,000 is for
international borrowings. The availability of the lines of credit is subject to
review by the banks involved. Commitment fees are immaterial.
Long-Term Debt
Long-term debt at March 31 is summarized below:
<Table>
<Caption>
2001 2000
----------- -----------
Promissory Notes, 7.62%, payable in equal annual
installments of $7,000,000 from December 21, 2003 through
December 21, 2007 $35,000,000 $35,000,000
Unsecured Euro term loan, 4.10%, payable in installments
beginning June 1, 2002 through March 1, 2004 8,493,000 8,882,000
Unsecured French franc term loan, 4.10%, payable in
installments through
February 25, 2006 3,135,000 3,860,000
Unsecured French franc loan, 5.10%, payable February 24,
2003 2,814,000 2,944,000
Unsecured Italian lira term loan, adjustable rate, payable
in installments through
December 31, 2004 2,358,000 2,992,000
Unsecured French franc loan, adjustable rate, payable in
installments through April 1, 2006 1,809,000 2,208,000
Promissory Notes, 6.18%, payable no later than September 12,
2002 1,214,000 1,424,000
Unsecured French franc loan, adjustable rate, payable in
installments through
September 18, 2003 492,000 1,105,000
Secured Italian lira term loans, adjustable rate, payable in
installments through
July 1, 2001 490,000 1,499,000
Unsecured French franc loan, 4.50%, payable in installments
through
August 5, 2001 193,000 399,000
City of Decatur, Illinois adjustable rate Industrial Revenue
Bond, payable
December 1, 2010, repaid December 1, 2000 -0- 3,000,000
Other Long-Term Debt 325,000 397,000
----------- -----------
56,323,000 63,710,000
Less, current portion of long-term debt included in notes
payable (2,488,000) (4,169,000)
----------- -----------
$53,835,000 $59,541,000
=========== ===========
</Table>
Maturities of long-term debt for each of the four fiscal years 2003 through 2006
are $8,572,000, $13,148,000, $9,678,000 and $7,998,000, respectively.
With respect to the Italian lira loan payable through December 31, 2004,
interest on this loan is the Euro Interbank Offered Rate plus a nominal
increment.
With respect to the French franc loan payable February 24, 2003, interest is
adjustable based on the Euro Interbank Offered Rate plus a nominal increment,
adjusted quarterly and was converted to a fixed rate at the inception of the
loan.
With respect to the French franc loan payable through April 1, 2006, interest on
this loan is the Euro Interbank Offered Rate plus a nominal increment.
The Italian lira loans due July 1, 2001 are secured by irrevocable letters of
credit. Commitment fees are immaterial. Interest on these loans is the Euro
Interbank Offered Rate plus a nominal increment, adjusted quarterly.
The Company issued promissory notes, payable no later than September 12, 2002,
in connection with the acquisition of the net assets of Youngs Drug Products
Corporation and affiliates. Prepayments of all or portions of the notes are
required as certain contractual conditions are satisfied.
With respect to the French franc loan payable through September 18, 2003,
interest on this loan is the Euro Interbank Offered Rate plus a nominal
increment.
28
<Page>
Certain of the Company's long-term debt agreements contain covenants which
require the Company to maintain a minimum level of net worth and limit total
long-term liabilities to a stated percentage of total capitalization.
With respect to the $35,000,000 notes, should the Company, of which the
healthcare business and the consumer business are parts, sell a substantial
portion of its assets, the holders of the notes have the right to redeem the
notes at face value plus a premium of approximately $4,000,000.
Carter-Wallace, Inc. has guaranteed the repayment of debt in the consumer
business of Carter-Wallace, Inc. in the amount of $19,800,000. This debt may be
called by the lender if Carter-Wallace, Inc. ceases to be the majority
stockholder of the borrowing subsidiaries in the consumer business.
The fair value of long-term debt, including current maturities, was $57,156,000
on March 31, 2001 and $60,366,000 at March 31, 2000.
7. COMMON STOCK, CLASS B COMMON STOCK AND CAPITAL IN EXCESS OF PAR VALUE
The Company has two classes of common stock with a par value of $1.00 per share.
Class B common stock generally has ten votes per share on all matters and votes
as a class with common stock which has one vote per share. The transfer of Class
B common stock is restricted; however, Class B common stock is at all times
convertible into shares of common stock on a share-for-share basis. Common stock
and Class B common stock have identical rights with respect to cash dividends
and upon liquidation.
Activity for the years ended March 31, 2001, 2000 and 1999 was as follows:
<Table>
<Caption>
CLASS B CAPITAL IN
COMMON COMMON EXCESS OF
STOCK STOCK PAR VALUE
----------- ----------- ----------
Balance at March 31, 1998 $34,698,000 $12,507,000 $4,204,000
Conversion of Class B common stock to Common Stock 42,000 (42,000) --
Cost of treasury stock under market value at date of award
or issuance -- -- 279,000
----------- ----------- ----------
Balance at March 31, 1999 34,740,000 12,465,000 4,483,000
Conversion of Class B common stock to Common Stock 36,000 (36,000) --
Cost of treasury stock over market value at date of award
or issuance -- -- (252,000)
----------- ----------- ----------
Balance at March 31, 2000 34,776,000 12,429,000 4,231,000
Conversion of Class B common stock to Common Stock 51,000 (51,000) --
Cost of treasury stock under market value at date of award
or issuance -- -- 305,000
----------- ----------- ----------
Balance at March 31, 2001 $34,827,000 $12,378,000 $4,536,000
=========== =========== ==========
</Table>
The cost of treasury stock over or under the market value of the stock on the
date of the award or issuance has been applied to capital in excess of par
value, as well as any tax benefit on the appreciation of restricted stock
awards.
Shares issued from treasury stock for stock awards amounted to 546,400, 239,100
and 28,000 shares at a cost of $8,603,000, $3,703,000 and $429,000 in 2001, 2000
and 1999, respectively. Shares purchased and added to treasury stock amounted to
182,900, 27,700 and 274,400 shares at a cost of $5,861,000, $492,000 and
$4,381,000 in 2001, 2000 and 1999, respectively. In 1999, the Company exchanged
155,500 shares with a value of $2,125,000 previously issued as restricted stock
awards for an equivalent number of deferred stock awards.
8. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS (DOLLARS IN THOUSANDS)
The Company has several contributory and non-contributory pension plans in which
substantially all employees with over one year of service participate. The
Company's funding policy is to make annual contributions to these plans in
amounts equal to the minimum required by applicable regulations. The plans'
assets are invested primarily in common stocks and corporate and government
bonds.
The Company also provides certain health care and insurance benefits for retired
employees. The cost of the benefits is accrued during the years the employees
render service until they attain full eligibility for those benefits.
29
<Page>
The components of the pension and postretirement benefit expense for the years
ended March 31, 2001, 2000 and 1999 were:
<Table>
<Caption>
RETIREMENT PLANS OTHER POSTRETIREMENT BENEFITS
------------------------------ ------------------------------
2001 2000 1999 2001 2000 1999
------- ------- ------- ------- ------- -------
Service cost $ 8,833 $ 8,819 $ 8,332 $ 1,710 $ 1,946 $ 1,924
Interest cost 17,691 15,455 14,846 4,082 3,734 3,775
Expected return on assets (24,089) (22,000) (20,179) -- -- --
Amortization of prior service cost 3,817 2,358 2,270 (472) (1,037) (3,415)
Amortization of transition cost 72 (2,074) (2,065) (156) -- --
Amortization of actuarial (gain) (2,218) (23) (153) (788) (465) (328)
Settlement loss 2,634 -- -- -- -- --
------- ------- ------- ------- ------- -------
Total benefit expense $ 6,740 $ 2,535 $ 3,051 $ 4,376 $ 4,178 $ 1,956
======= ======= ======= ======= ======= =======
</Table>
The components of the changes in the benefit obligation were as follows:
<Table>
<Caption>
OTHER POSTRETIREMENT
RETIREMENT PLANS BENEFITS
------------------------- -------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Benefit obligation at beginning of year $230,740 $229,885 $ 50,632 $ 57,776
Service cost 8,833 8,819 1,710 1,946
Interest cost 17,691 15,455 4,082 3,734
Plan participants' contributions 391 367 -- --
Amendments (3,220) 20,196 -- --
Actuarial (gain)/loss 19,993 (29,207) 2,617 (9,649)
Effect of exchange rate changes (1,455) 737 (143) 54
Benefits paid (32,057) (15,512) (3,203) (3,229)
-------- -------- -------- --------
Benefit obligation at end of year $240,916 $230,740 $ 55,695 $ 50,632
======== ======== ======== ========
</Table>
The components of the changes in plan assets were as follows:
<Table>
Fair value of plan assets at beginning of year $287,191 $263,568 -- --
Actual return on plan assets (2,841) 36,754 -- --
Employer contributions 18,666 1,212 $ 3,203 $ 3,229
Plan participants' contributions 391 367 -- --
Effect of exchange rate changes (1,801) 802 -- --
Benefits paid (32,057) (15,512) (3,203) (3,229)
-------- -------- -------- --------
Fair value of plan assets at end of year $269,549 $287,191 -- --
======== ======== ======== ========
</Table>
The following is a reconciliation of the funded status of the plans to the
Company's balance sheets at March 31:
<Table>
Funded status $ 28,633 $ 56,451 )(55,695 )(50,632
Unrecognized actuarial (gain) (40,512) (87,187) (15,257) (18,905)
Unrecognized prior service cost 21,153 28,202 (299) (771)
Unrecognized transition amounts 186 265 -- --
Minimum liability adjustment (6,146) (3,206) -- --
-------- -------- -------- --------
Accrued benefit cost $ 3,314 $ (5,475) $(71,251) $(70,308)
======== ======== ======== ========
</Table>
Amounts recognized in the Company's balance sheets at March 31 were as follows:
<Table>
Other assets $ 34,208 $ 29,533 -- --
Accrued expenses (7,058) (12,582) -- --
Long-term liabilities (23,836) (22,426) $(71,251) $(70,308)
Intangible assets 6,146 3,206 -- --
-------- -------- -------- --------
Net amount recognized $ 9,460 $ (2,269) $(71,251) $(70,308)
======== ======== ======== ========
</Table>
30
<Page>
Plan amendments made in fiscal 2000 included a change related to credited
service and a federally mandated actuarial change related to mortality tables.
At March 31, the only pension plans with accumulated benefit obligations in
excess of plan assets were unfunded non-qualified plans which had no assets.
Information on these plans is as follows:
2001 2000
------- -------
Projected Benefit Obligation $43,391 $45,782
======= =======
Accumulated Benefit Obligation $27,333 $31,568
======= =======
The principal assumptions used in determining 2001, 2000 and 1999 actuarial
values were:
Discount rate 6.75 - 8%
Rate of increase in compensation levels 4 - 6%
Expected long-term rate of return on plan assets 7 -10%
Expense for the employee savings plan under which the Company matches the
contributions of participating employees up to a designated level was
$1,480,000, $1,514,000 and $1,478,000 in 2001, 2000 and 1999, respectively.
The assumed health care cost trend rate used to measure the accumulated
postretirement benefit obligation for those over age 65 is 8 percent for 2001
trending to 5 percent over a three year period. For those under age 65, the
trend rate is 6.3 percent for 2001 trending to 5 percent over a three year
period. A one percent increase or decrease in the assumed respective annual
medical cost trend rate would change the accumulated postretirement benefit
obligation by approximately $2,600,000 and the service and interest components
of net postretirement benefit expense by approximately $300,000.
9. LONG-TERM INCENTIVE PLANS
1977 Restricted Stock Award Plan
The plan as amended provides for awards of not more than 2,750,000 shares of
common stock, subject to adjustments for stock splits, stock dividends and other
changes in the Company's capitalization, to key employees, to be issued either
immediately after the award or at a future date. As a result of the
three-for-one stock split in April, 1992 and the issuance of the Class B common
stock in 1987, the 2,750,000 shares of common stock provided for in the Plan
have been adjusted to 5,593,154 shares. As provided in the Plan and subject to
restrictions, shares awarded may not be disposed of by the recipients for a
period of five years from the date of the award. Cash dividends on shares
awarded are held by the Company for the benefit of the recipients, subject to
the same restrictions as the award. Such dividends (without interest) are paid
to the recipients upon lapse of the restrictions. The cost of the awards, equal
to the fair market value at the date of award, is charged to operations in equal
annual amounts over a five year period commencing at the date of the award.
Cumulative awards as of March 31, 2001 amount to 3,466,250 shares. There were no
new awards granted in any of the past three fiscal years.
The financial statements reflect the transfer of the awarded shares from
treasury stock as of the date of their issuance. For shares that have been
issued, the market value at the date of the awards was $540,000 and $708,000 in
fiscal 2000 and 1999, respectively. The cost of treasury stock for these awards
was $428,000 and $429,000 in fiscal 2000 and 1999, respectively.
1996 Long-Term Incentive Plan
The plan as amended provides for awards of not more than 9,000,000 shares of
common stock, subject to adjustment for stock splits, stock dividends and other
changes in the Company's capitalization, to key employees, to be issued either
immediately after the award or at a future date. The awards consist of
restricted and/or deferred stock or options, or a combination thereof. At
March 31, 2001, 5,827,337 shares had been granted under the 1996 long-term
incentive plan. Outstanding awards of deferred stock become fully vested and
outstanding options become immediately exercisable upon the occurrence of a
change in control of the Company.
31
<Page>
Stock Options
Under the plan, both qualified and non-qualified options may be granted to key
executive employees at fair market value at the date of grant. The right to
exercise the options, in installments, commences one year from the date of grant
and expires ten years after that date. As permitted by Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", the Company has chosen to continue to account for options granted
under the plan using the intrinsic value method. Accordingly, no compensation
expense has been recognized for these options. Had the fair value method of
accounting, as defined in SFAS No. 123, been applied to the Company's stock
options, the Company's net income would have been reduced by approximately
$3,810,000 or $.08 per share in 2001, $4,510,000 or $.10 per share in 2000 and
$3,390,000 or $.08 per share in 1999. The weighted-average fair market value of
options granted was $7.86 and $7.71 in 2000 and 1999, respectively. No options
were granted in 2001. For purposes of fair market value disclosures, the fair
market value of an option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
Risk-Free Interest Rate -- 6.3% 4.9%
Expected Life -- 8 yrs. 8 yrs.
Volatility -- 31.7% 35.4%
Dividend Yield -- 1.2% 1.1%
</Table>
A summary of the status of stock options granted under the plan as of March 31,
2001, 2000 and 1999 and changes during the years ended on those dates is
presented below:
<Table>
<Caption>
2001 2000 1999
-------------------------- -------------------------- --------------------------
WEIGHTED-AVG. WEIGHTED-AVG. WEIGHTED-AVG.
OPTION EXERCISE OPTION EXERCISE OPTION EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ------ --------- ------ --------- ------
Outstanding April 1 4,303,629 $16.09 3,672,143 $15.70 2,479,601 $14.70
Granted -- -- 683,926 18.06 1,192,542 17.77
Exercised (57,240) 13.75 -- -- -- --
Forfeited (26,546) 15.39 (52,440) 14.38 -- --
--------- --------- ---------
Outstanding March 31 4,219,843 16.12 4,303,629 $16.09 3,672,143 $15.70
========= ========= =========
</Table>
The following table summarizes information about stock options outstanding at
March 31, 2001:
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- ---------------------------------
RANGE OF NUMBER WEIGHTED-AVG. WEIGHTED-AVG. NUMBER WEIGHTED-AVG.
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 3/31/01 LIFE PRICE AT 3/31/01 PRICE
---------- --------- --------- ------ --------- ------
$12.13 to
$19.69 4,219,843 6.9 years $16.12 3,183,010 $15.65
</Table>
For shares issued upon exercise of options, the proceeds from the exercise of
the options was $787,000 in 2001. The cost of treasury stock for the shares
issued was $886,000. The difference between the exercise price and the cost of
treasury stock was included in capital in excess of par value.
Stock Awards
Restricted and/or deferred stock awards which are awarded subject to
restrictions, may not be disposed of by the recipient for a period of four years
from the date of the award. Cash dividends on shares awarded are held by the
Company for the benefit of the recipients, subject to the same restrictions as
the award. Such dividends (without interest) are paid to the recipients upon
lapse of the restrictions. The cost of the awards, equal to the fair market
value at the date of award, is being charged to operations in equal annual
amounts over the four-year vesting period commencing at the date of the award.
Amortization related to stock awards made under the 1996 Long Term Incentive
Plan amounted to $9,115,000, $5,729,000 and $2,860,000 in 2001, 2000 and 1999,
respectively. If a recipient's employment terminates by reason of retirement,
death or permanent disability, the award would vest immediately with the
unamortized value of the award charged to operations at that time.
32
<Page>
Award transactions for the past three years were:
<Table>
<Caption>
SHARES
--------------------------------------------
2001 2000 1999
--------- --------- -------
Cumulative Awards--Beginning of Year 1,552,700 909,053 606,689
New Awards -- 648,834 302,364
Forfeited Awards (2,446) (5,187) --
--------- --------- -------
Cumulative Awards--End of Year 1,550,254 1,552,700 909,053
========= ========= =======
</Table>
The financial statements reflect the transfer of the awarded shares from
treasury stock as of the date of their issuance. Outstanding awards of 832,319
shares at March 31, 2001 will be issued at a future date no later than four
years from the date of the award. For shares that have been issued, the market
value at the date of the awards was $8,908,000 in 2001 and $2,911,000 in 2000.
The cost of treasury stock for these awards was $8,603,000 in 2001 and
$3,275,000 in 2000. 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.
10. ACQUISITIONS
At the beginning of fiscal 1999, the Company acquired the Femfresh line of
feminine hygiene products in England for approximately $3,600,000.
In February, 1999, the Company acquired the Barbara Gould line of skin care
products in France for approximately $15,100,000. Sales of this product line
commenced in the fiscal year beginning April 1, 1999.
These acquisitions are being accounted for by the purchase method and,
accordingly, their results of operations are included in the Company's results
of operations from the acquisition date. Pro forma results of operations are not
presented since the effect would not be material.
11. SHORT-TERM INVESTMENTS
At March 31, 2001 and 2000, short-term investments were intended to be held to
maturity and have remaining maturities of less than one year. The amortized cost
approximated fair value. The amortized cost of certificates of deposit were
$3,417,000 and $19,649,000 respectively, in 2001 and 2000. The amortized cost of
commercial paper was $24,321,000 and $21,501,000 in 2001 and 2000. In addition,
included in 2001 are bankers' acceptances in the amount of $20,153,000.
12. BUSINESS SEGMENTS (DOLLARS IN THOUSANDS)
The Company's reportable business segments are Domestic Consumer Products,
Domestic Health Care and International. The Accounting policies of the segments
are the same as those described in the Summary of Significant Accounting
Policies. Information on the Company's Business Segments is presented below.
Domestic Consumer Products primarily include anti-perspirants and deodorants,
condoms, at-home pregnancy and ovulation test kits, hair removal products, tooth
whitening products and various pet products. These products are promoted
directly to the consumer by television and other advertising media and are sold
to wholesalers and various retailers. They are manufactured and sold by the
Company's consumer products divisions.
Domestic Health Care products primarily include prescription pharmaceuticals as
well as professional diagnostic products. These products are promoted to
physicians, pharmacists, hospitals, laboratories and clinics by a staff of
specially trained professional sales representatives and by advertising in
professional journals. These products are manufactured and sold by the Company's
health care products divisions.
International products primarily include consumer products such as
anti-perspirants and deodorants, condoms, at-home pregnancy and ovulation test
kits, skin care and oral hygiene products, as well as health care products such
as over the counter pharmaceuticals and diagnostic products. These products are
sold throughout the world by various subsidiaries and distributors.
International products include many of the same consumer and health care
products which are sold domestically, as well as certain consumer and health
care products which are sold exclusively in international markets.
33
<Page>
The Company's worldwide anti-perspirant and deodorant sales were approximately
$100,400,000, $105,900,000 and $101,600,000 in the fiscal years ended March 31,
2001, 2000 and 1999, respectively. The Company's worldwide condom sales were
approximately $135,900,000, $123,600,000 and $114,100,000 in the fiscal years
ended March 31, 2001, 2000 and 1999, respectively.
Some of the Company's domestic divisions sell to a small number of high volume
customers, the largest of which accounted for approximately 10.6%, 9.6% and 9.6%
of consolidated net sales in 2001, 2000 and 1999, respectively.
<Table>
<Caption>
MARCH 31
---------------------------------------------------------------
2001 2000 1999
--------- -------- --------
Sales
Domestic Consumer Products $ 326,587 $304,253 $283,228
Domestic Health Care 221,022 206,158 181,157
International 233,783 237,257 204,487
--------- -------- --------
Consolidated $ 781,392 $747,668 $668,872
========= ======== ========
Operating Profit
Domestic Consumer Products $ 75,149 $ 58,585 $ 44,807
Domestic Health Care 52,552 48,729 40,282
International 19,294 17,765 14,969
Domestic net interest income (expense) 1,569 (1,481) (2,037)
Other (expense) net of other income (27,171) (15,037) (12,091)
General Corporate expenses (40,702) (37,525) (39,686)
--------- -------- --------
Earnings before taxes on income $ 80,691 $ 71,036 $ 46,244
========= ======== ========
Identifiable Assets
Domestic Consumer Products $ 269,126 $219,359 $211,776
Domestic Health Care 103,030 105,885 119,783
International 129,603 187,230 177,759
Corporate Assets 283,449 249,762 212,634
--------- -------- --------
Total Assets $ 785,208 $762,236 $721,952
========= ======== ========
Depreciation and Amortization
Domestic Consumer Products $ 11,855 $ 11,778 $ 10,805
Domestic Health Care 6,072 6,161 6,187
International 5,301 5,535 5,339
--------- -------- --------
Total Operating Segments $ 23,228 $ 23,474 $ 22,331
========= ======== ========
Capital Expenditures
Domestic Consumer Products $ 7,693 $ 7,984 $ 12,553
Domestic Health Care 1,823 1,246 1,678
International 4,387 8,331 2,838
--------- -------- --------
Total Operating Segments $ 13,903 $ 17,561 $ 17,069
========= ======== ========
</Table>
Corporate assets include principally cash and cash equivalents, short-term
investments, miscellaneous receivables, deferred taxes and other miscellaneous
assets.
34
<Page>
Segment operating income is total segment revenue reduced by direct segment
operating expenses and allocations of indirect corporate charges to that
segment. Other expense net of other income and general corporate expenses
consists primarily of general corporate administrative expenses pertaining to
the headquarters function.
13. RENTAL EXPENSE AND LEASE COMMITMENTS (DOLLARS IN THOUSANDS)
Rental expense for operating leases with a term greater than one year for 2001,
2000 and 1999 was as follows:
<Table>
<Caption>
REAL PROPERTY
RENTAL REAL SUB-RENTAL NET REAL EQUIPMENT
EXPENSE PROPERTY INCOME PROPERTY AND OTHER
------- -------- ------------- -------- ---------
2001 $ 8,880 $ (3,047) $ 5,833 $ 7,320
2000 8,285 (2,929) 5,356 6,990
1999 8,021 (2,702) 5,319 6,837
</Table>
The real property rental expense for 2001, 2000 and 1999 excludes approximately
$1,000 annually, of rental costs which have been charged to the one-time charges
for restructuring of operations and facilities.
Minimum rental commitments, under non-cancellable leases in effect at March 31,
2001 were as follows:
<Table>
<Caption>
REAL PROPERTY
MINIMUM RENTAL REAL SUB-RENTAL NET REAL EQUIPMENT CAPITAL LEASE
COMMITMENTS PROPERTY INCOME PROPERTY AND OTHER OBLIGATIONS
- -------------- -------- ------------- -------- --------- -------------
2002 9,433 (3,515) 5,918 896 275
2003 8,623 (3,515) 5,108 564 216
2004 7,742 (3,515) 4,227 249 203
2005 7,420 (3,515) 3,905 69 190
2006 8,131 (3,597) 4,534 15 127
2007 and
thereafter 41,049 (19,443) 21,606 -- --
------
1,011
Less interest and
executory cost (163)
------
Present value of minimum lease payments (of which $213 is included in
current liabilities) $ 848
======
</Table>
Included in the real property rental commitments indicated above is
approximately $13,400 of future rental costs which were included in the one-time
charges for restructuring of operations and facilities. These costs are
associated with the subleasing of office space on which the Company holds a
long-term lease.
35
<Page>
14. SUPPLEMENTAL FINANCIAL INFORMATION
The following is presented in support of balance sheet captions:
<Table>
<Caption>
MARCH 31
-----------------------------------
2001 2000
-------- --------
(dollars in thousands)
Intangible Assets:
Excess of purchase price of businesses acquired over the
net assets at date of acquisition $113,236 $114,738
Trademarks 46,715 47,889
Other 31,234 28,995
-------- --------
191,185 191,622
Accumulated amortization 72,925 66,938
-------- --------
$118,260 $124,684
======== ========
Accounts Payable:
Trade $ 46,076 $ 45,913
Other 3,027 1,022
-------- --------
$ 49,103 $ 46,935
======== ========
Accrued Expenses:
Salaries and wages $ 28,400 $ 31,376
Advertising and promotion 17,858 19,233
One-time charges 1,174 1,373
Retirement and related plans 8,234 13,383
Other 50,733 39,120
-------- --------
$106,399 $104,485
======== ========
Other Long-Term Liabilities:
Retirement plans $ 23,836 $ 22,426
One-time charges 12,104 8,700
Other 15,768 15,005
-------- --------
$ 51,708 $ 46,131
======== ========
</Table>
Income taxes paid were $26,939,000, $29,264,000 and $21,959,000 in 2001, 2000
and 1999, respectively. Interest paid was $4,173,000, $4,422,000 and $4,527,000
in 2001, 2000 and 1999, respectively.
Included in other income is $140,000 in 2001, $3,981,000 in 2000 and $6,782,000
in 1999 related to ASTA Medica's share of joint venture operations. Included in
other expense is stock award amortization of $9,115,000 in 2001, $5,729,000 in
2000 and $2,860,000 in 1999, and costs associated with the sharing of profits on
a reformulated product of $4,517,000 in 2001 and $550,000 in 2000.
15. LITIGATION INCLUDING ENVIRONMENTAL MATTERS
Environmental Matters
In 1982, the United States Environmental Protection Agency ("EPA") advised
Carter-Wallace, Inc. and over 200 other companies that they may be potentially
responsible parties ("PRPs") under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") with respect to waste deposited at the
former Lone Pine Landfill ("Lone Pine") in Freehold, New Jersey. In 1989 and
1991, respectively, the Company and approximately 122 other PRPs, without
admitting liability, entered into two consent decrees with EPA, agreeing to
conduct a cleanup of the Lone Pine, and that cleanup is in progress. The total
estimated cost of the cleanup, which will continue many years into the future,
is $104 million to $120 million in current dollars. In addition, on October 23,
1997 the Company and eight other PRPs entered into a third consent decree with
EPA, the Department of Interior, and New Jersey to resolve the government's
natural resource damage claims, which obligation
36
<Page>
could cost as much as $2 million. After factoring in past and expected
recoveries from nonsettlors, the net share of cleanup costs and natural resource
damage claims (exclusive of defense costs) to the Company is expected to be from
$8 million to $10 million, of which it has paid about $7 million through March
31, 2001.
In August 1989, the Company instituted suit in New Jersey state court against 22
of its liability insurers to recover, inter alia, the share of costs of the
Company at Lone Pine, including related legal defense costs. The Company reached
settlements in this case with 19 of the insurers. There is no remaining solvent
insurer in the case. The Company has received approximately $12.5 million in
settlement payments from its insurers. Except for a portion of its legal fees
incurred in pursuing its insurers for coverage, the Company expects to be fully
reimbursed for its share of past and currently estimated future cleanup and
natural resource damage costs at Lone Pine.
The Company and nine other settling PRPs are party to two actions in NJ state
court against a former cleanup contractor at Lone Pine concerning amounts
allegedly owed to that contractor. The first action was filed by the contractor
on July 7, 1995 against the settling PRPs (including the Company), who
subsequently filed counterclaims against the contractor. The Company and the
nine other settling PRPs brought a separate action against the contractor on
July 10, 1995. Both lawsuits were subsequently consolidated. A settlement was
reached in these cases wherein the settling PRPs paid $1,287,500 to the
contractor. The Company's share of that $1,287,500 was approximately $115,000.
These amounts are included in the cleanup cost estimate and the Company's
estimated share thereof set forth above.
The Company faces potential liability involving waste material generated by the
Lambert Kay division at its former manufacturing facility in Winsted,
Connecticut. In May 1991, the United States Environmental Protection Agency
("EPA") issued special notice letters under the Comprehensive Environmental
Response, Compensation and Liability Act to Lambert Kay and about 50 other
potentially responsible parties ("PRPs") notifying them of potential liability
with respect to waste deposited at the Barkhamsted-New Hartford landfill in
Barkhamsted, Connecticut. In September 1991 and in February 1994, the Company
and 21 other PRPs, without admitting liability, entered into consent agreements
under which the PRPs agreed to perform certain investigation and engineering
evaluation work at the site, including the remedial investigation and
feasibility study, and to reimburse EPA for certain costs. The estimated cost of
this work is about $5.4 million. The Company's share of this cost is estimated
to be $190,000, which includes an allowance for insolvency or nonpayment of
other PRPs' shares. To date the Company has paid or received credit for about
$175,000. In addition, the Company and other settling PRPs have sued certain
nonsettlors for their share of these costs and have obtained some settlement
recoveries. Based on preliminary information from the site investigation work
(which is not completed), the total cost for performing the current and future
work at Barkhamsted, including the site investigation work, is estimated to be
from $6 to $32 million. In June 1995, the Connecticut legislature authorized the
issuance of bonds to pay for approximately $8 million of the future cleanup
costs at the site. The issuance of these bonds is expected to reduce by that
amount those cleanup costs subject to PRP funding. Based on expected PRP
participation in future cleanup work and other factors, the Company anticipates
that its share of projected cleanup costs subject to PRP funding (including
costs incurred to date) will be not more than 4 to 5% of total cleanup costs,
and that the Company's total expenditure will therefore range from about
$250,000 to $1,500,000. Thus, although applicable environmental law provides for
joint and several liability for the cost of cleanup work, based on present
estimates, the Company believes that the other PRPs will pay substantially all
of their allocated percentage shares of cleanup costs.
The Company believes, based upon the information available at this time, that
the environmental matters discussed above will not have a material effect on its
financial statements.
Litigation
The Company, along with numerous other drug manufacturers, wholesalers and
suppliers, was named in a series of class action suits, the first of which was
filed in August, 1994 in the California Superior Court, San Francisco County.
These suits were brought on behalf of all California independent retail
pharmacists who had purchased any brand name prescription drugs since August,
1989. The complaint alleged that the defendants, including the Company, entered
into a conspiracy to fix prices for brand-name prescription drugs and gave lower
prices to certain favored purchasers, while the alleged favored prices were
denied to the plaintiffs. Plaintiffs are seeking injunctive relief and
unspecified trebled compensatory damages, restitution of unspecified amounts by
which defendants are alleged to be unjustly enriched and litigation costs,
interest and attorney's fees. Class certification of the price-fixing conspiracy
claims was granted by order dated June 23, 1995, establishing a class of
independent retail pharmacists and small chains with ten or fewer California
locations. An individual action brought by two mid-size chain pharmacies was
subsequently coordinated with the consolidated class action as an "add-on" case
asserting virtually identical claims and demands for relief. Plaintiffs in that
action have amended their complaint to seek class certification, which has not
37
<Page>
been granted. There has been no activity in these cases since 1996 because of
the pendency of related actions brought under the federal antitrust laws. These
cases have been settled or otherwise resolved by the Company with the exception
of one case to which a settlement in principle has been reached and should be
finally resolved shortly.
The Company is engaged in litigation with Tambrands Inc. in Supreme Court of the
State and County of New York arising out of a patent infringement and
misappropriation suit previously filed against both companies in the United
States District Court, Southern District of New York, by New Horizons
Diagnostics Corporation ("NHDC"), et al. The NHDC suit, which was settled and
discontinued in July 1996, asserted claims with respect to certain "gold sol"
technology (used in the Company's First Response and Answer home pregnancy and
ovulation predictor test kits) that the Company had acquired from Tambrands
pursuant to a written purchase agreement in March 1990. The Company paid an
immaterial amount toward that settlement. In the pending Supreme Court action,
Tambrands seeks reimbursement from the Company of an unspecified portion of the
amount paid by Tambrands in settlement of the NHDC suit, and for defense costs.
Cross-motions for summary judgement have been filed. The Company believes it has
good defenses, under the terms of the purchase agreement, to Tambrands' claim.
The Company is subject to other legal actions arising out of its operations. The
Company believes, based on the opinion of counsel, that it has good defenses to
such actions and should prevail.
16. EMPLOYMENT AGREEMENTS AND TERMINATION AND CHANGE IN CONTROL ARRANGEMENTS
Carter-Wallace, Inc. has entered into employment agreements with its present
Chairman of the Board and Chief Executive Officer and its President that provide
for payments equal to salary and bonus multiples, certain pension enhancements
and a gross-up of applicable excise taxes if the executives' employment is
terminated as specified in the agreements. Carter-Wallace, Inc. has also entered
into an employment agreement with its Vice President, Consumer Products U.S.
that provides for her employment through December 2003. The obligation with
regard to its Vice President, Consumer Products U.S. is expected to be assumed
as part of the acquisition of the consumer business. The Company has also
entered into a consulting agreement with its former Chairman of the Board and
Chief Executive Officer that provides for a specified payment if that agreement
is terminated.
Carter-Wallace, Inc. has also entered into agreements with certain executive
officers. These agreements also provide for payments equal to salary and bonus
multiples, certain pension enhancements and a gross-up of applicable excise
taxes if the executives' employment is terminated as specified in the agreements
after a change in control of the Company.
The payments required by these agreements, based on a termination under the
agreements of all of the executives, is approximately $115,000,000.
Pursuant to the long-term incentive plan, outstanding awards of restricted and
deferred stock become fully vested and outstanding options become immediately
exercisable upon the occurrence of a change in control as defined in the
agreements.
A change in control also results in the immediate vesting and payment of
benefits under the Executive Pension Benefits Plans and, in the case of certain
officers, the elimination of early retirement reductions.
The transactions disclosed in note 1 relating to the contemplated sale of the
consumer business and the Company meet the definition of a change in control as
defined in the various agreements.
17. ACCELERATION OF CERTAIN PENSION AND OTHER COSTS
Included in general and administrative expenses for the fiscal year ended March
31, 2001 is a pretax charge amounting to $6,110,000 related to the acceleration
of certain pension and other costs as a result of the retirement of Henry H.
Hoyt, Jr., the former Chairman of the Board and Chief Executive Officer of
Carter-Wallace, Inc., in December 2000.
38
<Page>
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly net sales, gross margin, net earnings and earnings per share are set
forth in the following table (dollars in thousands, except per share amounts).
<Table>
<Caption>
QUARTER ENDED
-----------------------------------------------------
2001 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 TOTAL YEAR
- ---- ------- -------- ------- -------- ----------
Net sales $224,508 $182,434 $196,250 $178,200 $781,392
Gross margin 147,024 115,592 129,849 114,578 507,043
Net earnings 22,367 8,105 12,534 6,216 49,222
Earnings per share--basic .49 .18 .28 .14 1.09
Earnings per share--diluted .48 .17 .26 .13 1.04
2000
- ----
Net sales $199,954 $185,147 $192,066 $170,501 $ 747,668
Gross margin 124,878 116,215 126,313 107,421 474,827
Net earnings 13,161 9,400 13,956 6,815 43,332
Earnings per share--basic .29 .21 .31 .15 .96
Earnings per share--diluted .29 .20 .30 .15 .94
</Table>
19. FELBATOL (FELBAMATE)
As previously reported, in the years ended March 31, 1995 and 1996 the Company
incurred one-time charges to pre-tax earnings totaling $45,980,000 related to
use restrictions for Felbatol. Depending on future sales levels, additional
inventory write-offs may be required. If for any reason the product at some
future date should no longer be available in the market, the Company will incur
an additional one-time charge, consisting primarily of inventory write-offs and
anticipated returns of product currently in the market, in the range of
$15,000,000 on a pre-tax basis.
20. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
The Company's consolidated financial statements included in its originally filed
Annual Report on Form 10-K for the year ended March 31, 2001 presented the
consumer business as a discontinued operation. Subsequently, it was determined
that the pending sale of the consumer business in connection with the pending
sale of the entire Company did not meet the criteria for presentation as a
discontinued operation. As a result, the consolidated financial statements have
been restated for all periods presented to reflect the consumer business as a
component of continuing operations as follows:
39
<Page>
Carter-Wallace, Inc. and Subsidiaries
BALANCE SHEET DATA
AT MARCH 31, 2001 AND 2000
<Table>
<Caption>
2001 2000
---------------------- ----------------------
ORIGINALLY ORIGINALLY
ASSETS PRESENTED RESTATED PRESENTED RESTATED
- ----------------------------------------------------------- ---------- -------- ---------- --------
Current Assets $314,129 $412,500 $285,032 $374,018
Property, Plant and Equipment, net 23,370 147,164 19,395 149,410
Intangible Assets, net 31,864 118,260 32,180 124,684
Deferred Taxes 35,999 31,837 36,473 32,652
Net Noncurrent Assets of Discontinued Consumer Operations
held for Sale 182,478 -- 190,987 --
Other Assets 71,823 75,447 78,036 81,472
-------- -------- -------- --------
TOTAL ASSETS $659,663 $785,208 $642,103 $762,236
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------
Current Liabilities $ 74,006 $172,377 $ 79,585 $168,571
Long-Term Liabilities 165,120 192,294 171,480 202,627
-------- -------- -------- --------
TOTAL LIABILITIES 239,126 364,671 251,065 371,198
STOCKHOLDERS' EQUITY 420,537 420,537 391,038 391,038
-------- -------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $659,663 $785,208 $642,103 $762,236
======== ======== ======== ========
</Table>
40
<Page>
Carter-Wallace, Inc. and Subsidiaries
STATEMENTS OF EARNINGS DATA
THREE YEARS ENDED MARCH 31, 2001
<Table>
<Caption>
2001 2000 1999
--------------------- --------------------- ---------------------
ORIGINALLY ORIGINALLY ORIGINALLY
PRESENTED RESTATED PRESENTED RESTATED PRESENTED RESTATED
---------- -------- ---------- -------- ---------- --------
Net sales $222,727 $781,392 $207,866 $747,668 $182,845 $668,872
Cost of goods sold 50,772 274,349 48,306 272,841 46,247 253,447
-------- -------- -------- -------- -------- --------
Gross Profit 171,955 507,043 159,560 474,827 136,598 415,425
Operating Expenses 177,046 426,352 157,247 403,791 143,621 369,181
-------- -------- -------- -------- -------- --------
Earnings (loss) from continuing
operations before provision (benefit)
for taxes on income (5,091) 80,691 2,313 71,036 (7,023) 46,244
Provision (benefit for taxes on
income) (4,757) 31,469 954 27,704 (3,890) 18,035
-------- -------- -------- -------- -------- --------
Earnings (loss) from continuing
operations (334) 49,222 1,359 43,332 (3,133) 28,209
Earnings from discontinued operations,
net of tax 49,556 -- 41,973 -- 31,342 --
-------- -------- -------- -------- -------- --------
Net Earnings $ 49,222 $ 49,222 $ 43,332 $ 43,332 $ 28,209 $ 28,209
======== ======== ======== ======== ======== ========
Earnings (loss) per share--basic:
Continuing operations $ (0.01) $ 1.09 $ 0.03 $ 0.96 $ (0.07) $ 0.62
Discontinued consumer operations 1.10 -- 0.93 -- 0.69 --
-------- -------- -------- -------- -------- --------
Earnings per share--basic $ 1.09 $ 1.09 $ 0.96 $ 0.96 $ 0.62 $ 0.62
======== ======== ======== ======== ======== ========
Earnings (loss) per share--diluted:
Continuing operations $ (0.01) $ 1.04 $ 0.03 $ 0.94 $ (0.07) $ 0.62
Discontinued consumer operations 1.05 -- 0.91 -- 0.69 --
-------- -------- -------- -------- -------- --------
Earnings per share--diluted $ 1.04 $ 1.04 $ 0.94 $ 0.94 $ 0.62 $ 0.62
======== ======== ======== ======== ======== ========
</Table>
41
<Page>
Carter-Wallace, Inc. and Subsidiaries
STATEMENTS OF CASH FLOWS DATA
THREE YEARS ENDED MARCH 31, 2001
<Table>
<Caption>
2001 2000 1999
--------------------- --------------------- ---------------------
ORIGINALLY ORIGINALLY ORIGINALLY
PRESENTED RESTATED PRESENTED RESTATED PRESENTED RESTATED
---------- -------- ---------- -------- ---------- --------
Net earnings $ 49,222 $ 49,222 $ 43,332 $ 43,332 $ 28,209 $ 28,209
Adjustments to reconcile net earnings
to
cash flow (33,978) 30,200 (20,387) 10,172 (33,376) 20,175
-------- -------- -------- -------- -------- --------
Cash flows provided by operating
activities 15,244 79,422 22,945 53,504 (5,167) 48,384
Cash flows used in investing activities (9,068) (19,400) (11,557) (26,203) (7,468) (41,935)
Cash flows used in financing activities (22,781) (24,204) (11,508) (13,735) (18,792) (8,496)
Effect of foreign exchange rate changes
on cash and cash equivalents (751) (1,304) 212 (310) 371 (232)
Net cash provided by discontinued
consumer operations 47,060 -- 17,436 -- 26,724 --
-------- -------- -------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents $ 29,704 $ 34,514 $ 17,528 $ 13,256 $ (4,332) $ (2,279)
======== ======== ======== ======== ======== ========
</Table>
42
<Page>
Carter-Wallace, Inc. and Subsidiaries
QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
QUARTER ENDED
-------------------------------------------------------------------------------------
JUNE 30 SEPT. 30 DEC. 31 MARCH 31 TOTAL YEAR
------------------- ------------------- ------------------- ------------------- -------------------
ORIGINALLY ORIGINALLY ORIGINALLY ORIGINALLY ORIGINALLY
PRESENTED RESTATED PRESENTED RESTATED PRESENTED RESTATED PRESENTED RESTATED PRESENTED RESTATED
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
2001
Net sales $66,822 $224,508 $41,270 $182,434 $70,453 $196,250 $44,182 $178,200 $222,727 $781,392
Gross Margin 53,490 147,024 30,921 115,592 54,995 129,849 32,549 114,578 171,955 507,043
Earnings (loss) from
continuing operations $ 4,040 $ 22,367 $(4,939) $ 8,105 $ 2,928 $ 12,534 $(2,363) $ 6,216 $ (334) $ 49,222
Earnings from
discontinued
operations 18,327 -- 13,044 -- 9,606 -- 8,579 -- 49,556 --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Earnings $22,367 $ 22,367 $ 8,105 $ 8,105 $12,534 $ 12,534 $ 6,216 $ 6,216 $49,222 $ 49,222
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
share from continuing
operations--basic $ 0.09 $ 0.49 $ (0.11) $ 0.18 $ 0.06 $ 0.28 $ (0.05) $ 0.14 $ (0.01) $ 1.09
Earnings per share from
discontinued
operations--basic 0.40 -- 0.29 -- 0.22 -- 0.19 -- 1.10 --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings per
share--basic $ 0.49 $ 0.49 $ 0.18 $ 0.18 $ 0.28 $ 0.28 $ 0.14 $ 0.14 $ 1.09 $ 1.09
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
share from continuing
operations--diluted $ 0.09 $ 0.48 $ (0.11) $ 0.17 $ 0.06 $ 0.26 $ (0.05) $ 0.13 $ (0.01) $ 1.04
Earnings per share from
discontinued
operations--diluted 0.39 -- 0.28 -- 0.20 -- 0.18 -- 1.05 --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings per share--
diluted $ 0.48 $ 0.48 $ 0.17 $ 0.17 $ 0.26 $ 0.26 $ 0.13 $ 0.13 $ 1.04 $ 1.04
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
2000
Net sales $49,298 $199,954 $44,765 $185,147 $67,290 $192,066 $46,513 $170,501 $207,866 $747,668
Gross Margin 36,613 124,878 34,869 116,215 54,476 126,313 33,602 107,421 159,560 474,827
Earnings (loss) from
continuing operations $(2,198) $ 13,161 $(2,435) $ 9,400 $ 6,625 $ 13,956 $ (633) $ 6,815 $ 1,359 $ 43,332
Earnings from
discontinued
operations 15,359 -- 11,835 -- 7,331 -- 7,448 -- 41,973 --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Earnings $13,161 $ 13,161 $ 9,400 $ 9,400 $13,956 $ 13,956 $ 6,815 $ 6,815 $43,332 $ 43,332
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
share from continuing
operations--basic $ (0.05) $ 0.29 $ (0.06) $ 0.21 $ 0.15 $ 0.31 $ (0.01) $ 0.15 $ 0.03 $ 0.96
Earnings per share from
discontinued
operations--basic 0.34 -- 0.27 -- 0.16 -- 0.16 -- 0.93 --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings per
share--basic $ 0.29 $ 0.29 $ 0.21 $ 0.21 $ 0.31 $ 0.31 $ 0.15 $ 0.15 $ 0.96 $ 0.96
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
share from continuing
operations--diluted $ (0.05) $ 0.29 $ (0.06) $ 0.20 $ 0.15 $ 0.30 $ (0.01) $ 0.15 $ 0.03 $ 0.94
Earnings per share from
discontinued
operations--diluted 0.34 -- 0.26 -- 0.15 -- 0.16 -- 0.91 --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings per share--
diluted $ 0.29 $ 0.29 $ 0.20 $ 0.20 $ 0.30 $ 0.30 $ 0.15 $ 0.15 $ 0.94 $ 0.94
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</Table>
43
<Page>
K P M G
345 Park Avenue
New York, NY 10154
INDEPENDENT AUDITORS' REPORT
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, 2001 and 2000, and the related
consolidated statements of earnings, retained earnings and comprehensive
earnings, and cash flows, for each of the years in the three-year period ended
March 31, 2001. 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 auditing standards generally accepted
in the United States of America. 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 20 to the consolidated financial statements, the
accompanying consolidated financial statements have been restated to present the
Company's consumer business as a component of continuing operations.
/s/ KPMG LLP
May 18, 2001, except for note 20, which is as of August 9, 2001
44
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Carter-Wallace, Inc.:
Under date of May 18, 2001, except as to Note 20, which is as of August 9, 2001,
we reported on the consolidated balance sheets of Carter-Wallace, Inc. and
subsidiaries as of March 31, 2001 and 2000, and the related consolidated
statements of earnings, retained earnings and comprehensive earnings, and cash
flows, for each of the years in the three-year period ended March 31, 2001. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement schedule as listed
in the accompanying index on page 18 of this Annual Report on Form 10-K/A-1.
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 Note 20 to the aforementioned consolidated financial statements,
the Company's consolidated financial statements have been restated to present
the Company's consumer business as a component of continuing operations.
KPMG LLP
New York, New York
May 18, 2001, except as to Note 20 to the consolidated financial statements,
which is as of August 9, 2001.
45
SCHEDULE II
CARTER-WALLACE, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Three Years Ended March 31, 2001
(in thousands of dollars)
Charged to
Balance at costs and Charged Balance
beginning expenses or to other at end
Description of period revenues accounts Deductions of period
YEAR ENDED MARCH 31, 2001
Deducted from assets
to which they apply:
Allowance for
doubtful accounts $6,672 $ 1,315 $ - $ 820(a) $ 7,167
Allowance for
cash discounts 1,358 10,818 - 10,951(b) 1,225
------ ------- ------- ------- -------
$8,030 $12,133 - $11,771 $8,392
------ ------- ------- ------- -------
YEAR ENDED MARCH 31, 2000
Deducted from assets
to which they apply:
Allowance for
doubtful accounts $5,963 $ 1,063 $ - $ 354(a) $ 6,672
Allowance for
cash discounts 1,452 9,983 - 10,077(b) 1,358
------ ------- ------- ------- -------
7,415 $11,046 $ - $10,431 $ 8,030
------ ------- ------- ------- -------
YEAR ENDED MARCH 31, 1999
Deducted from assets
to which they apply:
Allowance for
doubtful accounts $5,716 $ 752 $ - $ 505(a) $ 5,963
Allowance for
cash discounts 1,590 8,737 - 8,875(b) 1,452
------ ------- ------- ------- -------
$7,306 $ 9,489 $ - $ 9,380 $ 7,415
------ ------- ------- ------- -------
NOTES:
(A) Accounts written off net of recoveries.
(B) Net discounts allowed to customers.
46
<Page>
Carter-Wallace, Inc. and Subsidiaries
SUMMARY OF SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA, EMPLOYEE DATA
AND THE NUMBER OF STOCKHOLDERS OF RECORD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEARS ENDED MARCH 31
----------------------------------------------------------------
2001 2000 1999 1998 1997
----------------------------------------------------------------
(RESTATED, SEE NOTE 20)
OPERATIONS
Net sales $781,392 $747,668 $668,872 $662,229 $648,755
Earnings before taxes 80,691 71,036 46,244 44,755 45,349
Net earnings 49,222 43,332 28,209 27,301 26,756
Earnings per share--basic 1.09 .96 .62 .59 .58
Earnings per share--diluted 1.04 .94 .62 .59 .58
Dividends 14,497 10,809 9,931 7,392 7,423
Dividends per share .32 .24 .22 .16 .16
Average common shares outstanding 45,311 45,019 45,180 46,093 46,389
FINANCIAL POSITION
Working capital $240,123 $205,447 $159,549 $145,715 $142,972
Net property, plant and equipment 147,164 149,410 150,596 150,223 154,844
Total assets 785,208 762,236 721,952 693,613 685,922
Long-term debt 53,835 59,541 64,861 48,887 51,025
Stockholders' equity 420,537 391,038 359,156 349,650 349,154
OTHER DATA
Capital expenditures $ 14,062 $ 18,056 $ 17,271 $ 15,676 $ 31,066
Book value per share 9.23 8.65 7.98 7.70 7.53
Number of employees 3,340 3,320 3,310 3,360 3,460
Number of stockholders of record
Common 1,741 1,913 2,108 2,340 2,656
Class B Common 1,065 1,142 1,241 1,343 1,471
</Table>
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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
------------------------------------------
2001 2000
-------------------- --------------------
HIGH LOW HIGH LOW
QUARTER ENDED --------- --------- --------- ---------
June 30 $23.69 $17.38 $18.25 $17.19
September 30 28.00 19.00 18.56 17.56
December 31 34.50 23.44 18.88 17.44
March 31 33.38 22.95 19.56 17.44
A dividend of $.08 per share was declared in all four
quarters of 2001. A dividend of $.06 per share was
declared in all four quarters of 2000.
47
<Page>
DESCRIPTION OF BUSINESS SEGMENTS
- --------------------------------------------------------------------------------
The Company is engaged in the manufacture and sale of a diversified line of
products in the Domestic Consumer Products, Domestic Health Care and
International business segments described below:
DOMESTIC CONSUMER PRODUCTS
These products are promoted directly to the consumer by television and other
advertising media and are sold to wholesalers and various retailers. They are
manufactured and sold by our consumer products divisions and some are sold
throughout the rest of the world by various subsidiaries and distributors.
Principal products include:
* Arrid Extra Dry and Arrid XX anti-perspirants and deodorants
* Lady's Choice anti-perspirants and deodorants
* Answer and First Response at-home pregnancy and ovulation test kits; First
Response pregnancy planning kit and urinary tract infection kit
* Carter's laxative
* H-R lubricating jelly
* Nair depilatories, waxes and bleach
* Pearl Drops whitening toothpolish and whitening toothpaste
* Rigident denture adhesive
* Trojan, Class Act, Naturalamb and Supra condoms
* Boundary dog and cat repellants
* Fresh 'n Clean grooming products,
stain and odor remover and puppy housebreaking pads
* Lassie and Tiny Tiger pet product lines
* Linatone food supplement
* Twinco chain collars and leads, nail trimmers, slicker brushes and combs
* Mr. Spats' cat toys
DOMESTIC HEALTH CARE
Health care products are promoted primarily to physicians, pharmacists,
hospitals, laboratories and clinics by a staff of specially trained professional
sales representatives and by advertising in professional journals. These
products are manufactured and sold by our professional products divisions and
some are sold throughout the rest of the world by various subsidiaries and
distributors. Principal products include:
* Astelin Nasal Spray for the treatment of symptoms of seasonal allergic
rhinitis and vasomotor rhinitis
* Felbatol for the treatment of seizures associated with epilepsy
* Organidin NR family of expectorants/antitussives
* Ryna line of cough/cold products
* Tussi-12 cough/cold product
* Soma brand muscle relaxants
* Butisol sedative hypnotic
* Depen penicillamine for severe rheumatoid arthritis
* Doral sedative hypnotic
* Lufyllin xanthine bronchodilator
* Maltsupex laxative
* Analyst physician office chemistry system
* Clearview product line of rapid tests for the determination of pregnancy,
group A streptococcus, chlamydia and C. difficile
* Prevue and Status rapid tests to aid in the determination of pregnancy
* Wampole and other branded enzyme and fluorescent immunoassay tests to detect
a broad range of infectious and autoimmune diseases
* Isostat product line to aid in the detection of micro-organisms in blood
* MicroTrak line of immunoassay products for the detection of sexually
transmitted diseases, primarily chlamydia
* Mono-Test, Mono-Latex and Mono-plus for the detection of mononucleosis
* Stat-Crit portable instrument for use in measuring blood hematocrit levels
--------------------------
INTERNATIONAL
In addition to many of the products listed above, the Company sells the
following products exclusively in certain International markets:
CONSUMER PRODUCTS
* Anne French facial cleansing products
* Barbara Gould facial beauty and cleansing products
* Bi-Solution acne treatment products
* Cerox adhesive tapes and bandages
* Confidelle, Discover and Gravix at-home pregnancy test kits
* Cossack line of men's grooming products
* Curash line of skin care products
* Email Diamant toothpastes
* Eudermin line of skin care and toiletry products
* Femfresh line of feminine hygiene products
* GranVista non-prescription eyeglasses
* Lineance line of anti-cellulite and associated skin care products
* Odontovax line of oral hygiene products
* Orasiv denture adhesive
* Poupina line of skin care and toiletry products
* Taky depilatories and waxes
* Ultrafresh mouthwash and breath freshening products
HEALTH CARE
* Antiphlogistine Rub A-535 and Dencorub topical analgesics
* Atasol analgesic/antipyretic
* Bentasil medicated throat lozenges
* Cerulisina otic solution
* Diovol antacid products
* Gravol antinauseant
* Jordan toothbrushes
* Maltlevol and Pangavit vitamin supplements
* Ovol antiflatulent
* Sterimar nasal decongestant
* Technogenetics line of diagnostic tests for thyroid metabolism,
fertility/pregnancy conditions and other hormonal (endocrine) disorders
48
INDEX TO EXHIBITS
14 (A)(3) EXHIBITS
2.1 Asset Purchase Agreement, dated as of May 7, 2001, by and between
Armkel, LLC and Carter-Wallace, Inc.(incorporated herein by
reference to Item 7 of the Company's Form 8-K dated May 7, 2001).
2.2 Agreement and Plan of Merger, dated as of May 7, 2001, among the
Company, CPI Development Corporation, MCC Acquisition Holdings
Corporation, MCC Merger Sub Corporation and MCC Acquisition Sub
Corporation. (incorporated herein by reference to Item 7 of the
Company's Form 8-K dated May 7, 2001).
3.1 Certificate of Incorporation, as amended, of the Company
(incorporated herein by reference to Exhibit 3.1 of the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1992).
3.2 By-Laws of the Company, as amended through 5/15/97 (incorporated
herein by reference to Exhibit 3.2 of the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1998).
4.1 Instruments defining the rights of security holders, including
indentures -- The Company agrees to furnish to the Commission upon
request a copy of each instrument pursuant to which long- term debt
of the Company and its subsidiaries not exceeding 10% of total
assets of the Company and its consolidated subsidiaries is
authorized.
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 Description of Profit Sharing Plan (incorporated herein by
reference to Exhibit 10.4 of the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 2000).
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 held July 20, 1993, under the caption
"Executive Compensation and Other Information".)
10.6 Employment Agreement, dated June 4, 1998, between the Company and
Ralph Levine (incorporated herein by reference to Exhibit 10.6 of
the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998).
(CONTINUED)
49
(A)(3) EXHIBITS (CONT'D)
10.6(A)Amendment, dated January 27, 2000, to the Employment Agreement
dated June 4, 1998 between the Company and Ralph Levine
(incorporated herein by reference to Exhibit 10.6(a) of the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2000).
10.6(B)Amendment, dated January 25, 2001, to the Employment Agreement
dated June 4, 1998 between the Company and Ralph Levine
(incorporated herein by reference to Exhibit 10.6(b) of the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2001).
10.7 Employment Agreement, dated June 4, 1998, between the Company and
Paul A. Veteri (incorporated herein by reference to Exhibit 10.7 of
the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998).
10.7(A)Amendment, dated January 27, 2000, to the Employment Agreement
dated June 4, 1998 between the Company and Paul A. Veteri
(incorporated herein by reference to Exhibit 10.7(a) of the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2000).
10.7(B)Amendment, dated January 25, 2001, to the Employment Agreement
dated June 4, 1998 between the Company and Paul A. Veteri
(incorporated herein by reference to Exhibit 10.7(b) of the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2001).
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 10.11 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 of the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1993).
(CONTINUED)
50
(A)(3) EXHIBITS (CONTINUED)
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, 1995).
10.18 1996 Long-Term Incentive Plan, as amended (incorporated herein by
reference to Exhibit 10.18 of the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1999)
10.19 Employment Agreement, dated October 2, 2000 between the Company
and T. Rosie Albright (incorporated herein by reference to Exhibit
10.19 of the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 2001).
10.21 Letter Agreement, dated September 14, 1998, between the Company
and T. Rosie Albright (incorporated herein by reference to Exhibit
10.21 of the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1999).
10.21(A)Amendment, dated January 27, 2000, to the Letter Agreement, dated
September 14, 1998, between the Company and T. Rosie Albright
(incorporated herein by reference to Exhibit 10.21(a) of the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2000).
10.22 Letter Agreement, dated June 4, 1998, between the Company and
Stephen R. Lang (incorporated herein by reference to Exhibit 10.22
of the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1999).
10.22(A)Amendment, dated January 27, 2000, to the Letter Agreement,
dated June 4, 1998 between the Company and Stephen R. Lang.
(incorporated herein by reference to Exhibit 10.22(a) of the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2000).
10.23 Consulting Agreement dated July 21, 1999 between the Company and
Henry H. Hoyt, Jr.(incorporated herein by reference to Exhibit
10.23 of the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 2000).
10.23(A)Amendment, dated January 27, 2000, to the Consulting Agreement
dated July 21, 1999 between the Company and Henry H. Hoyt, Jr.
(incorporated herein by reference to Exhibit 10.23(a) of the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2000).
(CONTINUED)
51
(A)(3) EXHIBITS (CONTINUED)
10.24 Letter Agreement, dated January 1, 1999 between the Company and
Thomas G. Gerstmyer (incorporated herein by reference to Exhibit
10.24 of the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 2000).
10.24(A)Amendment, dated January 27, 2000, to the Letter Agreement dated
January 1, 1999, between the Company and Thomas G. Gerstmyer
(incorporated herein by reference to Exhibit 10.24(a) of the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2000).
21 Subsidiaries (incorporated herein by reference to Exhibit 21 of
the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2001).
23 KPMG LLP Independent Auditors' Consent
52