-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, lkrN5eva5nwAaXYYF8bFZcdZF6hnncMBZX16yxkV1QKTRbDul6GZJTFqOo7foV8+ fvod+s5hXDvmyk83rDxqYg== 0000012654-95-000009.txt : 199506290000012654-95-000009.hdr.sgml : 19950629 ACCESSION NUMBER: 0000012654-95-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950628 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLOCK DRUG CO INC CENTRAL INDEX KEY: 0000012654 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 221375645 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-06436 FILM NUMBER: 95550139 BUSINESS ADDRESS: STREET 1: 257 CORNELISON AVE CITY: JERSEY CITY STATE: NJ ZIP: 07302 BUSINESS PHONE: 2014343000 MAIL ADDRESS: STREET 1: 257 CORNELISON AVENUE CITY: JERSEY CITY STATE: NJ ZIP: 07302 10-K 1 BLOCK DRUG CO. FORM 10-K, YEAR ENDED 3/31/95 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1995 Commission File No. 0-6436 BLOCK DRUG COMPANY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) New Jersey 22-1375645 (STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. Employer I.D. No.) OR ORGANIZATION) 257 Cornelison Avenue, Jersey City, New Jersey 07302-9988 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (201) 434-3000 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED None None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock - $.10 par value (TITLE OF CLASS) Indicate by check mark whether 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, 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 or any amendment to this Form 10-K. Yes - x No As of June 6, 1995, nonaffiliates held no voting shares of the Registrant; therefore, the aggregate market value of voting shares held by nonaffiliates is zero. As of June 6, 1995, there were 12,473,151 shares of Class A Common Stock and 7,704,400 shares of Class B Common Stock of Registrant outstanding. Documents Incorporated by Reference: None EXHIBIT INDEX: PAGE 55 PART I Item 1. Business REVIEW OF OPERATIONS Block Drug Company, Inc. develops, manufactures and markets three categories of products: dental products, including consumer oral hygiene and professional dental products; consumer products, including proprietary over- the-counter products and household products; and ethical pharmaceuticals. DENTAL PRODUCTS Consumer Oral Hygiene Products Denture cleansers and adhesives, specialty toothpastes and toothbrushes are the products that comprise the consumer oral hygiene product segment of our business. These over-the-counter products are marketed to the consumer through advertising and promotion programs in the United States and in many parts of the world. The POLIDENT and DENTU-CREME brand denture cleansers and their line extensions continue to generate the largest dollar volume of Company sales. An innovative new POLIDENT formula that cleans in only five minutes contributed to brand sales during the fiscal year. POLI-GRIP is the Company's leading brand name in the denture adhesive category. Brand growth during the year is traced to effective television advertising and promotion efforts as well as the introduction of the new POLI-GRIP FREE Denture Adhesive brand, a natural product free of artificial colors and flavors. A variety of other cream, powder and liquid adhesives are marketed under the national brands names SUPER POLI-GRIP, WERNET'S and SUPER WERNET'S. The SENSODYNE brand is a specialty toothpaste for the treatment of dentinal hypersensitivity. A recognized brand around the world, SENSODYNE is marketed to the consumer and the dental professional. The SENSODYNE brand with Baking Soda was marketed nationally during the fiscal year in the face of competitive pressures from other leading brand name toothpastes. The SENSODYNE brand accounts for a substantial share of the United States market for products that treat this common dental problem affecting one in four adults. Professional Dental Products The Company manufactures and markets professional dental supplies for use in chairside patient treatment and dental office infection control. Additionally, the Company markets prescription pharmaceutical products to dentists to prescribe to patients to help alleviate pain or to improve their oral health. A two-pronged approach helps the Company effectively market products to the dental profession. Dental Consultants are employed to visit dentists and hygienists to present our product lines. An extensive team of Tele-Sales Consultants services thousands of dental offices by telephone from headquarters. During the fiscal year, the Company introduced the Lodine R (etodolac)* brand to the dental professional under a co-promotion agreement with Wyeth-Ayerst, its manufacturer. Lodine is a prescription non-steroidal anti-inflammatory (NSAID) analgesic appropriate for the treatment of pain associated with dental procedures. Dental Consultants market this product to dentists throughout the United States. The Company also markets Habitrol R**, a nicotine transdermal system, to dental professionals in the continental United States and Hawaii. Habitrol is a product of Ciba Self-Medication, Inc. Dentists know smoking is associated with the development of periodontal disease and other oral health related problems. Habitrol is indicated as an aid to smoking cessation, when used as part of a comprehensive behavioral smoking cessation program. The VITAL DEFENSE line of office infection control products is marketed by the Company for sterilizing and disinfecting dental office surfaces and equipment and providing protection for the patient and the dentist. Other of the Company's professional dental products include: the MYNOL line of endodontic products for use during root canal surgery; ADAMOUNT Radiograph (X-Ray film) mounts; VISION prophylaxis paste; SENSODYNE Dentin Desensitizer for chairside treatment of sensitive teeth; and the VITAL RESPONSE Crisis Management System, an emergency kit for use by dentists to control unexpected in-office medical emergencies. CONSUMER PRODUCTS Proprietary Over-the-Counter Brands Included in the Company's personal care products line are four well-known consumer brand names: NYTOL brand Sleep-Aid Tablets, TEGRIN brand Medicated Shampoos, BC brand Headache Powder and the recently acquired GOODY's Headache Powder line. Television advertising for the NYTOL Sleep-Aid Tablets line continues to generate awareness and trial for the brand. The NYTOL brand is sold in the U.S., Canada, United Kingdom and in parts of Latin America. TEGRIN brand Medicated Shampoo continues to compete and grow within the specialty shampoo category. The BC brand Headache Powder maintained its leadership position in the Southern region powdered analgesic market. Effective marketing and a successful television/radio advertising campaign help the BC brand continue to rank high in the regional over-the-counter analgesic marketplace. * Lodine-R is a registered trademark of Wyeth-Ayerst. ** Habitrol-R is a registered trademark of Ciba Self-Medication, Inc. The Company acquired the GOODY'S Headache Powder and Pain Relief Tablets line in December 1994. The GOODY'S formula is different from BC, and has the potential for expanded distribution and increased current user usage. The Company also acquired the full line of GOODY'S over-the-counter products including ISODETTES brand Sore Throat Spray, OJ's brand Astringent Lotion, NUMZ-IT brand Baby Teething Lotion and Gel, and NUMZIDENT brand Oral Pain Reliever Gel. The BALMEX brand Diaper Rash Ointment, experienced expanded distribution and increased sales during this fiscal year with targeted consumer and professional support programs. The PHAZYME line, over-the-counter products for gas relief, experienced growth on the strength of continued enhanced distribution, the introduction of a thirty dose size for the line, and use of television advertising, consumer promotions and professional marketing programs to the physician. Household Products Household products marketed by the Company include the 2000 FLUSHES line of toilet bowl cleaners and the X-14 line of household cleaners. Despite the introduction of a number of competitive products, the 2000 FLUSHES line was again the leading brand name in the automatic toilet bowl cleaning products category. The Company's marketing and advertising programs and innovative research and development efforts help this line of products stay in the forefront of this category's development. The X-14 line of bathroom cleaning products includes X-14 Instant Mildew Stain Remover, X-14 Soap Scum Remover, and X-14 Mineral & Rust Stain Remover. The Company launched its first item in the all-purpose cleaner category with the introduction of X-14 Kitchen Cleanser during fiscal 1995. After the close of the fiscal year, the Company signed a contract to acquire the U.S. Rug and Room Deodorizer businesses of Reckitt & Colman, Inc. Pursuant to the agreement, the Company will purchase the CARPET FRESH-R and RUG FRESH-R trademarks and be granted exclusive licenses for use of the AIRWICK-R and NEUTRA AIR-R trademarks in the Rug and Room Deodorizer product category in the U.S. This transaction is subject to receipt of regulatory consents and is expected to close in the third calendar quarter of 1995. ETHICAL PHARMACEUTICAL PRODUCTS Pharmaceutical products and ethical non-prescription products are manufactured and marketed by the Reed & Carnrick Division. Reed & Carnrick markets products concentrated in the fields of gastroenterology, dermatology and cardiovascular disease. After the close of the fiscal year, the Company entered into a contract to sell selected assets of its U.S. Reed & Carnrick Pharmaceutical Division to Schwarz Pharma Kremers-Urban, a wholly-owned subsidiary of Schwarz Pharma of Monheim, Germany. The U.S. Reed & Carnrick Division's sales for the fiscal year ended March 31, 1995 were approximately $50,000,000. International pharmaceutical businesses were not included in the transaction. The sale is subject to certain conditions and government approvals and is expected to close by June 30, 1995. This divestiture renews the Company's focus on its key areas of corporate strength to help achieve its long-term growth objectives. Gastroenterology In gastroenterology, the Division markets a variety of therapeutic agents including COLYTE-flavored brand of bowel cleansing lavage, the first flavored product of its type and the leading prescription product for pre-colonoscopy preparation. The CORTIFOAM brand is the only 10% hydrocortisone rectal foam available for the treatment of ulcerative proctitis. The ETHAMOLIN brand, for the treatment of life-threatening bleeding esophageal varicies, is also marketed to the gastroenterologist. The PROCTOFOAM and PROCTOCREAM brands are the Division's widely prescribed anti-hemorrhoidal preparations, which continue to show sales increases at an impressive rate. During the fiscal year, Reed & Carnrick executed a co-promotion agreement with Eli Lilly & Company to market the Oral Vancocin-R HC Pulvules-R* brand to gastroenterologists. This medication is indicated for the treatment of pseudomembranous colitis, a serious bacterial infection of the colon often induced by antibiotic treatment. Dermatology In dermatology, the Division markets the DURASCREEN brand, a long lasting sunscreen in its second year on the market. The DURASCREEN brand is now one of the top sunscreens recommended by dermatologists. The EPIFOAM brand, a dual action topical treatment for corticosteroid responsive dermatoses, has benefited from promotion to dermatologists. The ACTINEX brand, is a treatment for actinic keratoses, or pre-cancerous lesions of the skin. Cardiology The LEVATOL brand for the treatment of hypertension and the DILATRATE-SR brand for the treatment of angina continue to post sales increases despite participation in highly competitive markets. *Vancocin-R HC Pulvules are registered trademarks of Eli Lilly & Company. Managed Care A portion of the Reed & Carnrick staff consists of Managed Care Directors whose efforts are focused on sales of our products to managed care organizations, a growing segment of the healthcare marketplace. Managed care organizations enroll 115 million Americans. The Company's Managed Care Directors market products to the formularies of these organizations so doctors in this healthcare setting can prescribe our brands to their constituents. International Operations The Company's International Operations generated 49% of total corporate sales in fiscal 1995 from its subsidiaries, branches and divisions on five continents. EUROPE Europe is the Company's largest international market. Sales and marketing organizations are well established in the United Kingdom, Germany, France, Italy, Belgium, Holland, Spain, Portugal, Scandinavia, Eastern Europe, Africa and the Middle East. A new office was established in Dubai during the fiscal year to manage sales in the Persian Gulf Region. The primary European businesses include denture cleansers, denture adhesives and specialty toothpastes. SENSODYNE brand toothpaste is the Company's leading product in Europe. Improved denture adhesive formulas, new flavor denture adhesives, improved denture cleansing tablets, new gel and baking soda formula toothpastes and children's toothpastes and toothbrushes were recently introduced into the European market. Our continued focus on over-the-counter medicines led to the successful introduction of NYTOL brand sleep aid tablets in the United Kingdom. We plan to build on this success, expanding to other European countries in the near future. LATIN AMERICA Mexico, Colombia, Brazil and Argentina are the primary markets for the Company's brands in Latin America. The Company has subsidiaries in each of these countries, and in Chile, where a new subsidiary was recently established. The Company continues to meet the challenges of doing business in Latin America following the devaluation of the Mexican peso and its effect on our sales and profits. PACIFIC RIM AND CANADA Japan, Australia, Thailand and the Philippines are the principal markets for the Company's products in the Pacific Rim. Subsidiaries also operate in Korea, New Zealand and, most recently China, where the SENSODYNE, POLIDENT and SUPER POLI-GRIP brands are now marketed in Guang Dong Province. One of the Company's leading manufacturing, distribution and marketing facilities is located at its Canadian subsidiary, which produces many products for that country and other affiliates. An International Quality Control and Regulatory Affairs group, located at corporate headquarters, supports and assists subsidiaries to expand and grow our business in the worldwide marketplace. Research and Technology, Corporate Quality and Regulatory Affairs The Company operates in competitive, highly regulated consumer and professional product categories. Strong technical support is, therefore, an essential part of its business. Research and Development, Corporate Quality and Regulatory Affairs are integrated in one division staffed by scientists from diverse academic and industrial backgrounds. This deepens the resources which the Company can apply to a technical issue anywhere in the world. Research and Development The Company's Research and Development efforts focus on technical leadership in each of the product categories in which we compete. While the Company maintains modern, well-equipped research laboratories, it has a significant investment in its technical staff. Great effort is made to recruit and retain competent scientists, and continued training is offered to them. The Company's diverse product line of prescription and non-prescription pharmaceuticals, dental products and household cleaners requires a broad mix of dosage forms, packaging and delivery systems. The products are supported by a diverse team of personnel including clinical, statistical, toxicological, analytical, packaging, medical, dental and microbiological functions. The Company also funds a new technology group which focuses on emerging technologies with prospects for improving key brands. In an effort to speed communications, manage the data generated, and maintain technical literature, investments will continue in computerization, imaging and library sciences. The Company continues to develop and refine products on a global basis. To support this global effort, clinical studies are conducted in Europe, Latin America, Asia and North America. With ongoing investments in technology, the Company continues to seek technical leadership to improve its brands, launch new products, and reduce costs. Corporate Quality The Company is proud that its Corporate Quality group is equal in technical prowess to its Research & Development group. Working in collaboration with colleagues in Operations to ensure the quality of its products, the Corporate Quality group also ensures the Company's plants are operated in compliance with all appropriate laws and regulations as well as the Company's own high quality standards. Regulatory Affairs The Company is subject to worldwide governmental regulations and controls relating to product safety, efficacy, packaging, labelling and distribution. While not all of the products which the Company plans to introduce into the market are "new drugs" or "new devices," those fitting the regulatory definitions are subject to a stringent premarket approval process in most countries. Submission of a substantial amount of preclinical and clinical information prior to market introduction significantly increases the amount of time and related costs incurred for preparing such products for market. The Company submits data to the Food and Drug Administration as necessary in response to the ongoing monograph review of the safety and efficacy of all over-the-counter drug products marketed in the U.S. As a responsible manufacturer, the Company is alert to the possibility that the final monographs to be issued in the foreseeable future may require formula modifications of certain of its products to maintain compliance with these regulations, a possibility facing competitive products as well. Manufacturing companies, especially those engaged in health care related fields, are subject to a wide range of federal, state and local laws and regulations. Concern for maintaining compliance with federal, state, local and foreign regulations on environmental protection, hazardous waste management, occupational safety and industrial hygiene has also increased substantially. The Company's policies and practices in the areas of environmental quality, product safety, loss prevention, occupational health and safety are tempered by the many laws and regulations affecting these areas. The Company cannot predict what additional legislation or governmental action, if any, will be enacted or taken with respect to the above matters and what its effect, if any, will be on the Company's consolidated financial position or results of operations. MARKETING The Company commits a substantial portion of its gross income to advertising, promotion, market research and test marketing. Its consumer, dental, personal care and household products are advertised directly to consumers on network, cable and spot television, network and spot radio, and in magazines and newspapers. The largest expenditures by the Company are for the purchase of television time. Oral hygiene, professional dental and ethical pharmaceutical products are promoted by the Company through medical and dental journals. Exhibits are presented at dental and medical conventions. Ethical pharmaceutical products are promoted to the medical profession through professional channels. A separate staff of professional sales representatives calls on physicians, pharmacies, hospitals and governmental installations to describe these products and their uses. Sales of these products are made through sales representatives, principally to wholesalers and drug chain headquarters, hospitals and governmental agencies. A team of Dental Sales Consultants sells products directly to dentists and a TeleSales group at headquarters services dental accounts by telephone. The Company sells its consumer denture, dental care, oral hygiene and personal care products through its national sales force. In-store merchandising is provided by a national food broker merchandising force. Sales are made directly to food and drug chains, wholesalers, mass merchandisers and independent food and drug stores. Food brokers are retained for sales of household products. In addition, the Company employs marketing and sales representative in foreign countries. PATENTS AND TRADEMARKS Certain of the Company's products are covered by patents owned by the Company or manufactured under license from others. While the Company believes its patents, licenses and formulae to be of material value, it does not consider its business as a whole to be dependent upon patent protection. The Company's principal trademarks are of material importance to its business. Many of the Company's principal trademarks appear in this report in capital letters. These trademarks are owned by the Company or its wholly-owned subsidiaries. COMPETITION The Company markets products in highly competitive fields. For many of its products, its competitors include significantly larger corporations with substantially greater resources. The high degree of trademark recognition and goodwill associated with many of the Company's brand names are important factors in its ability to compete effectively. While larger competitors are able to commit significantly greater revenues to national advertising, the Company believes its advertising and marketing expertise enable it to compete effectively. The primary competitive factors affecting proprietary over-the-counter brands are product formulation, reputation and advertising. In the ethical pharmaceutical market, the Company competes against significantly larger companies in selected therapeutic areas. It relies upon clinical evidence, the reputation of its brand names and its marketing force concentrating its efforts to promote to medical specialists, internists and family practitioners. In the household products segment of its business, the Company relies heavily on advertising and consumer promotion to compete. MANUFACTURING Most of the principal raw materials used by the Company in its domestic manufacturing operation are purchased domestically and are generally obtainable from a number of sources at competitive prices. Certain raw materials are available only from single sources of supply and in these cases the Company sees no likelihood of the termination of such sources of supply. The Company maintains adequate inventories of raw materials. During the course of the fiscal year ended March 31, 1995, there were no substantial raw material shortages. The Company was able to obtain at competitive prices all raw materials required for its normal operations. The Company manufactures the majority of its products. Some products are manufactured by independent third parties. In its manufacturing operations, the Company emphasizes control of the quality of its products. Procedures to assure quality and stability include rigid specifications, continuously reviewed and upgraded for ingredients and packaging materials. A staff of professional and technical employees is maintained at each manufacturing facility to assure the Company's standards are met in all phases of production. Item 2. Properties The worldwide executive and administrative offices, manufacturing, research and development, warehousing and distribution facilities of the Company and its subsidiaries use an aggregate of approximately 2,527,000 square feet. This figure does not include undeveloped land on which its facilities are located or land adjacent to certain properties. The Company or its subsidiaries own substantially all the properties. Among these properties are the following: (1) corporate headquarters, Jersey City, New Jersey; (2) Reed & Carnrick ethical pharmaceuticals, manufacturing and administrative facilities, Piscataway, New Jersey; (3) dental product manufacturing: Humacao, Puerto Rico (Dentco, Inc.); Glendale, Wisconsin (leased); Dungarvan, Ireland; and Cwmbran, Wales; (4) manufacturing plants for more than one product group: Memphis, Tennessee; Dayton (South Brunswick), New Jersey: Humacao, Puerto Rico (Reedco, Inc.); Mississauga, Canada; Plymouth, Great Britain; Oevel, Belgium; Sydney Australia; Mexico City, Mexico; Buenos Aires, Argentina; and Rio de Janeiro, Brazil. The Company owns land contiguous to the Memphis, South Brunswick, Toronto, Plymouth, Oevel and Dungarvan facilities. Additional warehouse facilities are in Memphis and in South Brunswick. Facilities in Zaragoza, Spain serve as a distribution center. The Company also has offices in buildings which it owns in Welwyn Garden City, Great Britain and Ratingen, Germany. In Puerto Rico, the Company owns land, building and equipment which it leases to an independent supplier of metal tubes for some of its products. The Company's plants and facilities, in the opinion of management, are in good condition and, together with expansions and alterations recently completed, or in the process of being completed, are regarded by management as adequate for current requirements and for those of the next several years. Item 3. Legal Proceedings The Company is involved in various routine litigation incidental to its business. While the significance of these matters cannot be fully assessed at this time, management, on advice of counsel, does not believe that any liability that may arise from these proceedings will have a material adverse impact on the Company's consolidated financial position and results of operations. Item 4. Submission of Matters to a Vote of Security Holders On June 6, 1995 by waiver and unanimous consent of the Class B shareholders of the Company, the Board of Directors, consisting of the persons named in Item 10, was elected in its entirety. Leonard N. Block, James A. Block and Thomas R. Block were reappointed Members of the Executive Committee of the Board of Directors which, upon unanimous consent of all its Members, may exercise all the authority of the Board of Directors. PART II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters STOCK PRICE AND DIVIDEND INFORMATION Market Price Range Cash Dividends of Class Declared Per A Common Stock* Share Fiscal Year Ended March 31, 1995 High Low First Quarter $32 3/4 $29 1/2 $0.26 Second Quarter 32 1/4 29 $0.26 Third Quarter 38 30 1/2 $0.27 Fourth Quarter 37 3/4 33 $0.27** Fiscal Year Ended March 31, 1994 First Quarter 53 45 $0.25 Second Quarter 46 1/2 32 $0.25 Third Quarter 37 3/4 29 3/4 $0.26 Fourth Quarter 37 1/2 31 3/4 $0.26*** * These are high and low bid quotes and reflect inter-dealer prices without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. ** In addition, a 3% stock dividend was paid on January 3, 1995 to Class A and B shareholders in Class A Common Stock. *** In addition, a 3% stock dividend was paid on January 4, 1994 to Class A and B shareholders in Class A Common Stock. The following table indicates the approximate number of shareholders of each class of the Company's equity securities as of June 6, 1995: Title of Class Number of Shareholders Common Stock, Class A (non-voting) 554 Common Stock, Class B (voting) 5 Item 6. Selected Financial Data
Fiscal Year Ended March 31 1995 1994 1993 1992 1991 Net Sales $669,854,000 $613,283,000 $624,826,000 $562,932,000 $512,884,000 Income, Dividends & Other Income 23,026,000 23,383,000 26,490,000 22,328,000 17,970,000 Income Before Income Taxes 63,649,000 57,114,000 77,713,000 68,454,000 69,062,000 Income Taxes 13,280,000 9,262,000 16,167,000 11,187,000 15,852,000 Net Income 50,369,000 47,852,000 61,546,000 57,267,000 53,210,000 Average Number of Common Shares Outstanding (1) 20,148,000 20,115,000 20,090,000 20,074,000 20,195,000 Net Income Per Share of Common Stock (1) $2.50 $2.38 $3.06 $2.85 $2.63 Cash Dividends Declared Per Share of Class A Common $1.06 $1.02 $ .95 $ .85 $ .75 Stock Dividends Declared Per Share of Class A Common 3% 3% 3% 3% 3% Stock Dividends Declared Per Share of Class B Common (2) 3% 3% 3% 3% 3% Depreciation 16,031,000 $ 13,580,000 $ 10,727,000 $ 9,059,000 $ 8,215,000 Working Capital 26,095,000 32,637,000 51,203,000 69,563,000 88,620,000 Current Ratio 1.1 1.2 1.3 1.4 1.8 Total Assets 871,320,000 $771,068,000 $726,497,000 $649,608,000 $550,735,000 Long-Term Debt and Notes Payable 15,273,000 17,880,000 19,160,000 19,435,000 19,459,000 Shareholders' Equity 562,531,000 515,121,000 485,298,000 446,550,000 398,736,000 Number of Employees 3,521 3,491 3,505 3,301 3,105
(1) Restated to reflect stock dividends declared on Class A and Class B Common Stock by the Company in 1995 and previously. (2) Payable in Class A Common Stock. Item 7. Management's Discussion and Analysis of Operating Results and Financial Condition Operating Results Consolidated worldwide net sales for the fiscal year ended March 31, 1995 were $669.9 million, an increase of 9% from the prior fiscal 1994, which recorded a decrease of 2%. Domestic and international sales increased in fiscal 1995. In fiscal 1994, both domestic and international sales decreased from the prior fiscal year. Domestic sales in fiscal 1995 increased 6%, reflecting volume growth of 4% and price increases of 2%. International sales in fiscal 1995 increased 12%. Excluding the impact of foreign currency exchange rate fluctuations, fiscal year 1995 sales would have risen 9%. Not included in the Company's sales is its 50% interest in a Japanese joint-venture company, Kobayashi-Block Company Limited, which is accounted for under the equity method. Total sales of the joint-venture for fiscal 1995 were $120.4 million, 30% higher than fiscal 1994, which had total sales of $92.4 million, 30% higher than fiscal 1993. The Company's largest business segment, dental products, increased 12% to $441 million, following a 2% decrease in the prior year. Consumer product sales increased to $149 million, a 1% increase compared to a 1% decrease in the previous year. Ethical pharmaceutical products registered sales of $80 million for an increase of 10%, compared to a decline of 4% in the prior fiscal year. Interest, dividends and other income for the current year approximated the prior year. In fiscal 1994, investment income decreased compared to fiscal 1993 principally due to lower interest rates. The cost of goods sold percentage to sales was 32.9% in fiscal 1995 compared to 33.5% in fiscal 1994 and 33.0% in fiscal 1993. These percentages were affected by improved manufacturing operations and mix of products sold, in addition to selective price increases. Selling, general and administrative expenses represented 61.0%, 61.0% and 58.8% of sales in fiscal 1995, 1994 and 1993, respectively. The major portion of such expenses are advertising and promotional expenditures essential to do business in the highly competitive environment in which the Company operates. In fiscal 1995 and 1994, these expenses were substantially increased and reflect a major program to increase advertising and promotion to meet significant competition and build brand equities. Due to the above factors, income before taxes was 9.5% of sales in fiscal 1995 as compared to 9.3% and 12.4% in fiscal 1994 and 1993, respectively. The effective income tax rates of 20.9%, 16.2% and 20.8% in fiscal 1995, 1994 and 1993, respectively reflect tax-exempt interest from government securities and income from the lower tax areas of Puerto Rico and Ireland. For additional information, see "Income Taxes" in the Notes to Consolidated Financial Statements. The Company's foreign operations measure profitability in terms of U.S. Dollars and is subject to foreign exchange rate risk. If the U.S. Dollar strengthens, the profitability of foreign operations can be affected adversely. The profitability of foreign operations will benefit, however, if the U.S. Dollar weakens. During fiscal 1995, the U.S. Dollar weakened as compared to fiscal 1994. This had a favorable impact on profits for fiscal 1995. Currently, the Company is not engaged in a hedging program for foreign currency. Although inflation has been moderate throughout fiscal 1995 and 1994, the Company has continued to utilize selective price increases and budgetary monitoring of advertising, personnel and other operating expenses to control its operating margins. Research and Development outlays have been increased in the continuing effort to develop new and improved products and line extensions. Liquidity and Capital Resources Cash increased to $13.7 million at March 31, 1995 from $8.9 million at March 31, 1994 and $6.6 million at March 31,1993. Net cash flows from operating activities were $50 million in fiscal 1995, $26 million less than the prior year. Increases in accounts receivable and inventories more than offset increases in accounts payable and other current assets. In fiscal 1994, net cash flows from operating activities were $76 million, $30 million more than the prior year. Decreases in inventories, together with increases in accounts payable, more than offset decreases in operating results and increases in accounts receivable and other current and non-current assets. Accounts receivable at year-end 1995, 1994 and 1993 represented 2.1, 1.9 and 1.8 average month of sales, respectively. Inventory levels comprised 6.2, 5.2, and 5.6 months supply at year-end 1995, 1994, and 1993 respectively. Net cash used in investing activities for fiscal 1995 was $70 million, compared to $58 million in fiscal 1994. Increases in goodwill and other intangible assets, additions to property, plant and equipment, and purchases of long-term securities more than offset proceeds from sales of securities. In fiscal 1993, the net cash outflows for investing activity was $75 million. Throughout the three-year period, the Company, consistent with its plans for growth and expansion, continued the modernization and expansion of its manufacturing, distribution and office facilities, domestically and internationally. In fiscal 1995, the Company acquired the product lines of Goody's Pharmaceuticals Inc., a manufacturer and marketer of over-the-counter health care products. After the close of the fiscal year, the Company entered into a contract to sell selected assets of its U.S. Reed & Carnrick Pharmaceutical Division to Schwarz Pharma Kremers-Urban, a wholly-owned subsidiary of Schwarz Pharma of Monheim, Germany. The U.S. Reed & Carnrick Division's sales for the fiscal year ended March 31, 1995 were approximately $50 million. International pharmaceutical businesses were not included in the transaction. The sale is subject to certain conditions and government approvals and is expected to close by June 30, 1995. This divestiture renews the Company's focus on its key areas of corporate strength to help achieve its long-term growth objectives. After the close of the fiscal year, the Company signed a contract to acquire the U.S. Rug and Room Deodorizer businesses of Reckitt & Colman, Inc. Pursuant to the agreement, the Company will purchase the CARPET FRESH-R and RUG FRESH-R trademarks and be granted exclusive licenses for use of the AIRWICK-R and NEUTRA AIR-R trademarks in the Rug and Room Deodorizer product category in the U.S. This transaction is subject to receipt of regulatory consents and is expected to close in the third calendar quarter of 1995. Net capital expenditures of $35 million in fiscal 1995 approximated fiscal 1994, compared to $46 million in fiscal 1993. Domestically, major projects over this three-year period have been the modernization and expansion of laboratories and office facilities at the Jersey City, New Jersey corporate headquarters, the purchase of a new distribution and manufacturing facility near the South Brunswick, New Jersey plant and the renovation and expansion of production and warehouse facilities at the Memphis, Tennessee and South Brunswick, New Jersey plants. The Company's foreign facilities were also expanded in fiscal 1995. Liquidity and Capital Resources (Continued) Expenditures continued to be made for renovation and expansion of production and warehousing facilities in Ireland, England, Belgium and Argentina. Expansion, both domestic and foreign is expected to continue in fiscal 1996 but to a lesser extent than in fiscal 1995. The Company anticipates future capital spending to approximate 5% of net sales, and expects to fund modernization and expansion programs through funds generated from operations and through short-term borrowings, as appropriate. Net cash provided by financing activities was $25 million in fiscal 1995, compared to net cash used of $15 million in fiscal 1994. In fiscal 1993, there was a net cash inflow of $30 million. The financing inflows in fiscal 1995 arose from the proceeds from debt issuance of $41 million to help finanace the acquisition of Goody's Pharmaceuticals, Inc. which more than offset dividends to shareholders and debt repayment. The financing outflows in fiscal 1994 arose from the payment of dividends and payment of debt with no new issuances of debt. In fiscal 1993, the proceeds from debt issuance of $45 million more than offset dividends to shareholders and debt repayment. An overall weakening of the United States Dollar in relation to foreign currencies resulted in net foreign currency translation gains of $6.7 million in fiscal 1995. In fiscal 1994, a strong United States Dollar relative to foreign currencies resulted in net foreign currency translation losses of $7.5 million. Such amounts were charged directly to shareholders' equity in the balance sheet. In fiscal 1995, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting For Certain Investments in Debt and Equity Securities" and has reclassified in the fourth quarter all long-term securities as "available for sale". These long-term securities reported at fair value resulted in unrealized holding gains of $1.8 million, which is net of $0.6 million in taxes. This was charged directly to shareholders' equity in the balance sheet. In March, 1995, the Financial Accounting Standard Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This pronouncement establishes accounting standards for when impairment losses relating to long-lived assets, identifiable intangibles, and goodwill related to those assets should be recognized and how the losses should be measured. The Company must implement SFAS No. 121 in fiscal 1996. Management anticipates that the adoption of SFAS No. 121 will not have a significant impact on the Company's consolidated financial position or results of operations. The Company anticipates that sufficient finds will be provided from operations and borrowing capabilities for capital expenditures, dividend payments and other cash needs in fiscal 1996. The Company had uncommitted lines of credit totaling $249 million and $201 million at March 31, 1995 and 1994, respectively. Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT ACCOUNTANTS We have audited the consolidated financial statements and the financial statement schedules of Block Drug Company, Inc. and Subsidiaries listed in the index on page 48 of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We did not audit the financial statements of certain foreign subsidiaries and branches, which statements reflect total assets and total revenues constituting approximately 10 percent and 26 percent, respectively, in the year ended March 31, 1995, 11 percent and 23 percent, respectively, in the year ended March 31, 1994 and 10 percent and 24 percent, respectively, in the year ended March 31, 1993 of the corresponding consolidated totals. These statements were audited by other auditors whose reports thereon were furnished to us. Our opinion expressed herein, insofar as it relates to the amounts for such subsidiaries and branches, is based solely upon such reports. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Block Drug Company, Inc. and subsidiaries as of March 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. As discussed in notes 1 and 4 to the consolidated financial statements for the year ending March 31, 1995, the Company changed its method of accounting for certain investments in debt and equity securities. COOPERS & LYBRAND L.L.P. New York, New York June 6, 1995 BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31 ASSETS 1995 1994 Current Assets: Cash $ 13,706,000 $ 8,896,000 Marketable securities, at market for 1995; at cost which approximates market for 1994 (Note 4) 24,061,000 19,338,000 Accounts receivable, less allowances of $3,222,000 (1995) and $2,709,000 (1994) 114,656,000 97,814,000 Inventories (Notes 1 and 2) 113,419,000 88,986,000 Other current assets 30,045,000 34,079,000 Total current assets 295,887,000 249,113,000 Property, plant and equipment, less accumulated depreciation (Notes 1 and 3) 229,446,000 207,474,000 Long-term securities, at market for 1995; at cost for 1994, market value $281,601,000 (1994) (Note 4). 260,076,000 275,574,000 Goodwill and other intangible assets, less accumulated amortization of $9,865,000 (1995) and $8,825,000 (1994) (Note 1) 64,040,000 21,721,000 Other assets 21,871,000 17,186,000 Total assets $871,320,000 $771,068,000 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes and bonds payable (Note 5) $155,591,000 $114,983,000 Accounts payable and accrued expenses (Note 6) 101,952,000 88,359,000 Income taxes payable (Note 7) 8,884,000 10,056,000 Dividends payable 3,365,000 3,078,000 Total current liabilities 269,792,000 216,476,000 Long-Term notes and bonds payable (Note 5) 15,273,000 17,880,000 Deferred income taxes (Note 7) 13,086,000 11,424,000 Deferred compensation and other payables (Notes 1 and 8) 10,638,000 10,167,000 Total liabilities 308,789,000 255,947,000 Shareholders' equity (Notes 1 and 9): Class A common stock, non-voting par value $.10-15,000,000 shares (1995 and 1994) authorized, 12,466,172 (1995) and 11,839,501 (1994) shares issued and outstanding 1,247,000 1,184,000 Class B common stock, par value $.10-30,000,000 shares authorized, 7,704,400 shares issued and outstanding 770,000 770,000 Capital in excess of par value 194,426,000 173,372,000 Retained earnings 367,325,000 349,500,000 Cumulative foreign currency translation adjustment (Note 1) (3,054,000) (9,705,000) Unrealized holding gain on marketable securities (Note 4) 1,817,000 - Total shareholders' equity 562,531,000 515,121,000 Total liabilities and shareholders' equity $871,320,000 $771,068,000
See notes to consolidated financial statements. BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Years Ended March 31, 1995, 1994 and 1993
1995 1994 1993 Revenues: Net sales (Note 11) $669,854,000 $613,283,000 $624,826,000 Interest, dividends and other income 23,026,000 23,383,000 26,490,000 692,880,000 636,666,000 651,316,000 Cost and Expenses: Cost of goods sold 220,522,000 205,595,000 206,453,000 Selling, general and administrative 408,709,000 373,957,000 367,150,000 629,231,000 579,552,000 573,603,000 Income before income taxes (Note 11) 63,649,000 57,114,000 77,713,000 Income Taxes (Note 7): Current 12,561,000 8,809,000 16,296,000 Deferred 719,000 453,000 (129,000) 13,280,000 9,262,000 16,167,000 Net Income 50,369,000 47,852,000 61,546,000 Retained earnings at beginning of year 349,500,000 331,633,000 306,024,000 Less: Cash dividends declared-$1.06 (1995) and $1.02 (1994) and $.95 (1993) per share of Class A common stock (12,731,000) (11,632,000) (10,286,000) Stock dividend 3% (1995, 1994 and 1993) to Class A and Class B shareholders payable in Class A common stock (Note 9) (19,813,000) (18,353,000) (25,651,000) Retained earnings at end of year $367,325,000 $349,500,000 $331,633,000 Earnings per share of common stock (Notes 1 and 9) $ 2.50 $ 2.38 $ 3.06
See notes to consolidated financial statements. BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended March 31, 1995, 1994 and 1993
1995 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 50,369,000 $ 47,852,000 $ 61,546,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,071,000 14,539,000 11,659,000 Deferred income tax provision 719,000 453,000 (129,000) Deferred compensation provision 2,700,000 1,773,000 2,492,000 Equity in net income of joint venture (2,836,000) (1,780,000) (958,000) Gain on sales of long-term securities 10,000 (42,000) (4,747,000) Other, net 1,947,000 1,283,000 915,000 Changes in assets and liabilities that provided (used) cash, net of effects from purchase of products acquired: Accounts receivable 11,311,000 (5,286,000) (13,432,000) Inventories (20,108,000) 5,224,000 (12,113,000) Accounts payable and accrued expenses 11,122,000 19,558,000 (4,000) Other current assets 5,873,000 (2,482,000) (136,000) Other assets (1,656,000) (2,523,000) (140,000) Income taxes and dividends payable (1,738,000) (1,180,000) 3,287,000 Payments of deferred compensation (2,453,000) (1,351,000) (2,366,000) Other noncurrent liabilities (100,000) (200,000) Net cash flows from operating activities 49,709,000 75,938,000 45,674,000 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (34,542,000) (35,215,000) (46,268,000) Decrease (increase) in marketable securities 3,951,000 6,945,000 (3,271,000) Proceeds from sales of long-term securities 37,807,000 23,910,000 67,227,000 Purchase of Long-Term Securities (28,686,000) (52,992,000) (86,855,000) Payment for products acquired (48,957,000) (250,000) (6,145,000) Net cash used in investing activities (70,427,000) (57,602,000) (75,312,000) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid to shareholders (12,731,000) (11,631,000) (10,396,000) Proceeds from issuance of debt 40,570,000 45,286,000 Payment of debt (2,612,000) (3,643,000) (5,172,000) Net cash provided by (used in) financing activities 25,227,000 (15,274,000) 29,718,000 Effect of exchange rates on cash 301,000 (793,000) (717,000) Increase (decrease) in cash 4,810,000 2,269,000 (637,000) Cash, beginning of year 8,896,000 6,627,000 7,264,000 Cash, end of year $13,706,000 $ 8,896,000 $ 6,627,000
See notes to consolidated financial statements. BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) For the Years Ended March 31, 1995, 1994 and 1993 SUPPLEMENTAL CASH FLOW DATA 1995 1994 1993
Cash Paid During the Year: Interest $ 7,676,000 $ 6,979,000 $ 6,927,000 Income taxes $13,646,000 $13,627,000 $14,396,000
See notes to consolidated financial statements. BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Significant Accounting Policies: Basis of consolidation: The accompanying consolidated financial statements include the accounts of the Company and its domestic and foreign subsidiaries, all of which are wholly-owned. The Company's investment in a 50% owned Joint Venture (Kobayashi-Block Company Limited) is accounted for under the equity method. With the exception of the March 31 year-end accounts of Germany, Japan and Colombia, all other accounts of foreign subsidiaries have been included on the basis of fiscal years ended December 31 in order to be available for inclusion in the consolidation. All material intercompany transactions and balances have been eliminated in consolidation. Foreign currency translation: All assets and liabilities, other than those of highly inflationary countries, are translated at year-end exchange rates. In such cases, translation gains and losses are recorded as a separate component of shareholders' equity and are not included in the determination of net income. For subsidiaries that are considered to be operating in highly inflationary countries (Brazil and Argentina), certain assets and liabilities are translated at historical exchange rates and resulting translation gains and losses are included in the determination of net income. In all cases, foreign currency transaction gains and losses are included in the determination of net income. Net foreign exchange losses of $2,951,000, $1,789,000 and $4,913,000, consisting of transaction gains and losses and translation losses relating to highly inflationary countries, were included in the determination of net income for fiscal years 1995, 1994 and 1993, respectively. 1995 1994 1993 Transactions $ 649,000 $ 383,000 $2,788,000 Translation 2,302,000 1,406,000 2,125,000 Total $2,951,000 $1,789,000 $4,913,000 CUMULATIVE TRANSLATION ADJUSTMENT RECONCILIATION 1995 1994 1993 Balance-Beginning (9,705,000) (2,225,000) 11,093,000 Translation Adjustment 6,651,000 (7,480,000) (13,318,000) Balance Ending (3,054,000) (9,705,000) (2,225,000) Inventories: Inventories are stated at the lower of cost or market. Cost is determined principally by the average cost and first-in, first-out methods. Property, plant and equipment and depreciation: Property, plant and equipment is recorded at cost. Depreciation is provided over estimated lives using the straight-line method. Average useful lives are 50 years for buildings and building additions, and 12 years for equipment. The cost of maintenance, repairs and minor renewals of property, plant and equipment are charged to operations; major renewal and betterments are capitalized. Goodwill and other intangible assets: Goodwill and other intangible assets represent the excess of cost over the fair value of net tangible assets of companies or products purchased. Goodwill acquired prior to October 31, 1970 is not being amortized since, in management's opinion, its value has not diminished. Goodwill acquired subsequent to that date is being amortized using the straight-line method over the years estimated to be benefited, but not to exceed 40 years. Other intangible assets are recorded at cost and amortized over their estimated useful lives on the straight line method. Intangible assets are periodically reviewed to determine the recoverability of unamortized balances using undiscounted cash flows. In March, 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets for Long-Lived Assets to be Disposed Of." This pronouncement establishes accounting standards for when impairment losses relating to long-lived assets, identifiable intangibles, and goodwill related to those assets should be recognized and how the losses should be measured. The Company must implement SFAS No. 121 in fiscal 1996. Management anticipates that the adoption of SFAS No. 121 will not have a significant impact on the Company's consolidated financial position or results of operations. Amortization of goodwill and other intangible assets was $1,040,000, $959,000 and $931,000 in the years ended March 31, 1995, 1994 and 1993, respectively. Marketable securities and fair value of financial instruments: Marketable securities classified as current assets include cash equivalents (i.e. interest-bearing securities with maturities of 90 days or less at time of purchase) that are recorded at cost (which approximates market) and other debt instruments with less than one year remaining until maturity that are treated as available for sale and recorded at market value. On April 1, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Current and non-current marketable securities were reclassified from held-to-maturity to available- for-sale under SFAS No. 115 as of the beginning of the fourth fiscal quarter of fiscal 1995. The fair values of such securities are determined by independent pricing services and/or securities dealers. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Retirement plans and deferred compensation agreements: Pension costs recorded as charges to operations include actuarial determined current service costs and an amount equivalent to amortization of prior service costs in accordance with the provisions set forth in Statement of Financial Accounting Standards (SFAS) No. 87, "Employer's Accounting for Pensions." It is the Company's policy to fund pension costs in accordance with the Internal Revenue Service full funding limitation. The Company has agreements with certain key executives which provide deferred compensation depending on length of service and average salary level. Benefits payable in the future to these executives under these agreements are charged to operations on an actuarial determined basis over the attribution period which equals the estimated period of active employment of such executives. Research and development expenditures: Research and development expenditures are charged to operations as incurred. The charges for years ended March 31, 1995, 1994 and 1993 were $23,465,000, $21,568,000 and $20,428,000, respectively. Net income per share of common stock: Net income per share of common stock is based on the combined weighted average number of shares of Class A and Class B Common Stock outstanding during each period, which was 20,148,000, 20,115,000 and 20,090,000 in fiscal 1995, 1994 and 1993, respectively. Note 2. Inventories: March 31 Major classes of inventories comprise: 1995 1994 Raw and packaging materials $ 41,033,000 $32,398,000 Finished goods 72,386,000 56,588,000 Total $113,419,000 $88,986,000 Note 3. Property, Plant and Equipment: March 31 Major classes of property, plant and equipment are summarized as follows: 1995 1994 Land $20,585,000 $18,925,000 Building and related improvements 147,138,000 132,460,000 Machinery and equipment 119,224,000 100,517,000 Furniture and fixtures 36,223,000 30,452,000 Construction in progress 4,825,000 7,060,000 327,995,000 289,414,000 Less: Accumulated depreciation 98,549,000 81,940,000 Total $229,446,000 $207,474,000 Depreciation expense for the years ended March 31, 1995, 1994 and 1993 was $16,031,000, $13,580,000 and $10,727,000 respectively. Certain of the above properties are pledged as collateral for the bonds (Note 5). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 4. Marketable Securities: On April 1, 1994, the Company adapted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." It classified its marketable securities as hold-to-maturity and reported at amortized cost. On January 1, 1995, the Company reclassified all of its marketable securities as available-for-sale. This reclassification is primarily a result of changing economic circumstances. As a result of this change in classification, on January 1, 1995, the Company recorded an unrealized holding loss of $4,020,000, net of a tax effect of $127,000, in a separate component of shareholders' equity. There was no effect on net income as a result of this adoption or change in portfolio classification. The marketable securities, both current and noncurrent, as of March 31, 1995 consisted of the following: Unrealized Holding Fair Value Gains Losses U.S. government and its agencies $ 73,178,000 $1,781,000 $ 922,000 Municipal and state 195,530,000 3,906,000 2,371,000 Other, principally money market 15,429,000 $284,137,000 $5,687,000 $3,293,000 The above unrealized holding gains and losses, net of income taxes of $577,000, are reflected as "unrealized holding gain on marketable securities" in shareholders' equity. The maturities of the Company's investment in debt securities, at fair value, as of March 31, 1995 were as follows: Within 1 year $ 24,061,000 After 1 year through 5 years 19,539,000 After 5 years through 10 years 154,437,000 After 10 years 86,100,000 $284,137,000 For the year ended March 31, 1995, the proceeds from the sales of available-for-sale securities were $10,161,000. Gross realized gains and gross realized losses from these transactions were $270,000 and $258,000, respectively. The cost of marketable securities sold was determined by specific identification. As of January 1, 1995, the amortized cost of securities transferred from held-to-maturity to available-for-sale was $288,214,000. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 5. Notes and Bonds Payable: Short-term notes payable consist of borrowings from various banks at interest rates ranging from 6.3% to 9.8%. At March 31, 1995, the Company maintained short term uncommitted bank lines of credit aggregating $248,810,000 and $200,668,000. Of these amounts, $93,513,000 and $86,736,000 was unused at March 31, 1995 and 1994, respectively. March 31 Long-term notes and bonds payable are comprised of the following: 1995 1994 9.1% notes due in fiscal 1995 $ - $ 1,698,000 11.75% bonds due fiscal 1995 through fiscal 2001 5,625,000 6,560,000 5.0% to 7.8% notes due in fiscal 1995 - 2,392,000 7.3% to 7.5% notes due in fiscal 1997 3,380,000 2,780,000 7% notes due fiscal 2000 1,818,000 - Variable rate bonds (currently 4.2%), due in fiscal 2010 4,450,000 4,450,000 $15,273,000 $17,880,000 Certain properties of the Company (approximate book value $10,817,000) are pledged as collateral for the bonds (Note 3). The requirements of the bond indentures include the maintenance by the Company of minimum consolidation net worth and net working capital including long-term marketable securities of $250,000,000 and $50,000,000, respectively. Interest expense on all borrowing aggregated $8,292,000 in fiscal 1995, $7,029,000 in fiscal 1994 and $6,926,000 in fiscal 1993. Long-term debt at March 31, 1995 is payable as follows: Year ended March 31 1997 $ 4,320,000 1998 935,000 1999 940,000 2000 2,753,000 2001 and later 6,325,000 $ 15,273,000 The Company has entered into interest rate cap agreements to reduce the impact of increases in interest rates on its short-term floating rate debt. They cover a $100 million notional value for the period 6/1/93 to 6/1/02 and an additional $50 million for the period of 6/1/95 to 6/1/02. The agreements, which are spread equally among six counterparties, entitle the Company to receive quarterly amounts, if any, by which interest on the notional value at the 90 day LIBOR rate exceeds 4% at quarterly reset dates during the year beginning 6/1/93, 5% during the year beginning 6/1/94, 7% during the two years beginning 6/1/95 and 9% during the five years beginning 6/1/97. The premium is paid for the term of the agreements in quarterly installments of $127,236 on the $100 million beginning 6/1/93 and $116,013 on the $50 million beginning 6/1/95. The Company received payment totaling $265,000 during the year pursuant to these agreements and recorded the payment as a reduction of interest expense. As of March 31, 1995, the fair market value of the $100 million notional amount of these agreements, net of the present value of premium installment payments due, was $585,000. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 6. Accounts Payable and Accrued Expenses: March 31 Accounts payable and accrued expenses are comprised of the following: 1995 1994 Accounts payable - trade $ 31,568,000 $ 23,928,000 Accrued salaries, wages, vacation pay and bonuses 28,114,000 23,488,000 Accrued advertising and selling expenses 26,505,000 26,868,000 Other current liabilities 15,765,000 14,075,000 $101,952,000 $ 88,359,000 Note 7. Income Taxes: The Company adopted SFAS No. 109, "Accounting for Income Taxes," in the first fiscal quarter of 1994. SFAS No. 109 requires an asset and liability approach for income tax accounting. The net impact of adoption did not have a significant effect on net income. The provision for income tax expense comprised the following: Current Deferred Total For the year ended March 31, 1995: Federal $3,326,000 $1,123,000 $4,449,000 Foreign 7,836,000 (500,000) 7,336,000 State 1,399,000 96,000 1,495,000 $12,561,000 $ 719,000 $13,280,000 For the year ended March 31, 1994: Federal $(1,096,000) $ (270,000) $(1,366,000) Foreign 9,107,000 746,000 9,853,000 State 798,000 (23,000) 775,000 $ 8,809,000 $ 453,000 $9,262,000 For the year ended March 31, 1993: Federal $ 7,443,000 $ 77,000 $7,520,000 Foreign 7,699,000 (213,000) 7,486,000 State 1,154,000 7,000 1,161,000 $16,296,000 $ (129,000) $16,167,000 Deferred income tax expenses result from temporary differences in the recognition of revenue and expense for tax and financial statement purposes. The source and the tax effect of these differences were as follows: 1995 1994 1993 For the year ended March 31: Depreciation $2,140,000 $1,786,000 1,664,000 Expenses (not) currently deductible for tax purposes (669,000) (1,437,000) (1,424,000) Other (722,000) 104,000 (369,000) $ 719,000 $ 453,000 $(129,000) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Total income tax expense for the fiscal years ended March 31, 1995, 1994 and 1993 was 20.9%, 16.2% and 20.8%, respectively, of income before income taxes as compared to the U.S. statutory income tax rate of 35.0%, 35.0% and 34.0%, respectively. The principal differences between the U.S. statutory and effective income tax rates were as follows: Percent of Income Before Income Taxes For the year ended March 31: 1995 1994 1993 U.S. statutory income tax rate 35.0% 35.0% 34.0% Tax exempt state and municipal bond income (5.5) (5.8) (3.4) Irish operating income taxed at lower rate (4.4) (8.9) (6.0) Reduction in taxes resulting from Puerto Rico source income subject to lower tax rate (3.6) (3.1) (4.4) Other, net (0.6) (1.0) .6 20.9% 16.2% 20.8% The Company's subsidiaries in Puerto Rico have agreements which commenced in fiscal 1988 and expire in 2002, which provide for a 90% exemption from income taxes on operating income. The Company's subsidiary in Ireland has a 10% tax rate on export sales. The Company has not accrued U.S. federal income taxes on cumulative undistributed earnings of foreign subsidiaries of $175,184,900 as of March 31, 1995, since the majority of such earnings are expected to be permanently reinvested abroad. Where it is the intention to remit earnings, the related U.S. income taxes on these earnings, after giving effect to available tax credits, would not be material. Deferred tax assets and liabilities consisted of the following*: March 31 1995 1994 Deferred tax assets: Coupon accrual, sales discounts, and workers compensation $3,331,000 $3,826,000 Employee benefits 4,708,000 3,945,000 Accrual on vacation 1,055,000 1,062,000 Deferred compensation 2,770,000 3,237,000 Other 2,047,000 1,580,000 $13,911,000 $13,650,000 Deferred tax liabilities: Property, plant and equipment $16,361,000 $14,516,000 Other 1,254,000 2,173,000 $17,615,000 $16,689,000 * As of March 31, 1995 and 1994, recoverable income taxes reflected in the balance sheet in "Other current assets" included current deferred tax assets of $9,382,000 and $9,065,000, respectively. In 1994, this amount was reduced by current deferred tax liabilities of $680,000. The remaining deferred tax liabilities, net of deferred tax assets, were reflected in the balance sheet as "Deferred income taxes". NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 8. Retirement and Deferred Compensation Plans: The Company and its subsidiaries have several pension plans covering substantially all domestic employees and certain employees in foreign countries. The Company makes annual contributions to the plan equal to the amounts allowable under the Internal Revenue Service maximum full funding limitation. The domestic plan benefits are primarily based upon the employee's compensation during the sixty highest consecutive months of the last 120 months of employment and the number of years of service. Net pension expense includes the following components. 1995 1994 1993 Service cost $4,822,000 $4,151,000 $4,492,000 Interest cost on projected benefit obligation 4,404,000 3,776,000 3,662,000 Actual return on plan assets (1,216,000) (5,106,000) (5,935,000) Net amortization and deferral (4,928,000) (616,000) 698,000 Net periodic pension cost $3,082,000 $2,205,000 $2,917,000 The following table sets forth the present value of benefit obligations and funded status for the Company's foreign and domestic plans: 1995 1994 Actuarial present value of benefit obligations, including vested benefits of $42,403,000 in 1995 and $33,941,000 in 1994 $41,664,000 $34,945,000 Projected benefit obligations 62,824,000 $47,733,000 Plan assets at fair value (primarily invested in stocks, $67,763,000 $67,754,000 bonds and government obligations) 2,988,000 1,686,000 Add: Unrecognized prior service cost Less: Unrecognized, net gain on assets 13,432,000 21,136,000 Unamortized transition asset established as of February 28, 1985 3,653,000 4,462,000 43,842,000 Adjustment for minimum liability 634,000 One time purchase price liability 315,000 52,717,000 Net pension liability $10,107,000 $3,891,000 The expected long-term rate of return on plan assets was 8% for 1995 and 1994. The weighted average discount rate was 8% for 1995 and 1994. The rate of increase in future compensation levels used in determining the actuarial present value of projected benefit obligations was 6.0% for 1995 and 1994. The domestic plans are fully funded. Plan assets consist primarily of government bonds, corporate bonds and common stocks. The Company's foreign subsidiaries have plans under which funds are deposited with trustees or annuities are purchased. The Company has a Special Stock Unit Plan (the "Plan") whereby selected participants receive the right to deferred compensation based on the growth in the Company's average earnings per share, as defined in the Plan, and the value of the awards is adjusted to reflect the dilutive effect of stock dividends. Charges under the Plan for the years ended March 31, 1995, 1994 and 1993 were $559,000, $718,000 and $2,478,000, respectively. The Company has employment contracts with four executives of the Company. These contracts specify the payment of benefits to the individual or beneficiary upon the termination of their employment or death. Deferred compensation payable included $2,801,000 at March 31, 1995 and $2,508,000 at March 31, 1994, respectively. Such amounts represent the actuarially determined present value of the vested benefits. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In addition to providing pension benefits, the Company provides certain retiree health care benefits for substantially all non-union employees (excluding Puerto Rico) who reach retirement age while working for the Company. Health care benefits are provided by Blue Cross Blue Shield of New Jersey and selected Health Maintenance Organizations. The Company reserves the right to change or discontinue these benefits, in whole or in part at any time. Effective April 1, 1993 the Company adopted Statement of Financial Accounting Standards No. 106 (SFAS No. 106), "Employers Accounting for Postretirement Benefits Other Than Pensions." This standard requires that the estimated cost of these benefits, which are for health care, be accrued during the employee's active working career. Prior to the adoption of SFAS 106, these costs were recognized when benefits were paid. The Company has elected to amortize the unfunded obligation existing at April 1, 1993 (transition obligation) over a period of 20 years. The postretirement benefit liability as of March 31, 1995 is as follows: 1995 Retirees $3,080,000 Fully eligible active plan participants 858,000 Other active plan participants 3,263,000 Total accumulated postretirement benefit obligation 7,201,000 Less: Plan assets at fair value and accruals - Unrecognized net loss from past experience different from that assumed and from changes in assumptions 168,000 Unrecognized transition obligation 5,052,000 Accrued postretirement benefit cost recognized in the Balance Sheet $1,981,000 The costs of providing postretirement benefits for the period April 1, 1994 to March 31, 1995 includes the following: 1995 Service cost benefits attributed to service during the period $ 273,000 Interest cost on the accumulated postretirement benefit obligation 508,000 Estimated return on plan assets - Amortization of transition obligation 281,000 Net periodic postretirement benefit cost $1,062,000 The accumulated postretirement benefit obligation was determined by application of the terms of the medical plan together with relevant actuarial assumptions and a health-care cost trend rate of 9% in 1995 decreasing gradually to 6.0% in 2001 and thereafter. These costs also reflect the implementation of a $2,000 per year cost cap and contribution schedule of 0% to 75% of cost based on years of service at retirement for new retirements after October 1, 1993. The effect of a 1% annual increase in the assumed cost trend rates would have a minimal effect due to the cost cap. The increase in the accumulated postretirement benefit obligation would be approximately $704,000 and the aggregate of the service and interest cost components of net postretirement health care cost for 1995 would be approximately $68,000. Measurement of the accumulated postretirement benefit obligation was based on an 8.0% assumed discount rate. In November, 1992, the FASB issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which requires accrual accounting for benefits provided to former or inactive employees after employment but before retirement. These benefits include salary continuation, disability benefits, severance pay and continuation of health care benefits. The Company implemented SFAS No. 112 in fiscal 1995. The adoption of SFAS 112 did not have a significant effect on the results of operations and financial position. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 9. Shareholders' Equity: The two classes of the Company's Common Stock are identical in all respects except that (a) all voting rights are held by the owners of Class B Common Stock and (b) holders of Class A Common Stock are entitled to receive dividends, when and if declared by the Board of Directors whether or not dividends are declared in respect of the Class B Common Stock, but in the event of the declaration of a dividend in respect of the Class B Common Stock, a dividend of at least the same amount must be declared in respect of the Class A Common Stock. The Company's Certificate of Incorporation provides that upon an affirmative vote of the holders of two-thirds of the outstanding Class B Common Stock, all shares of Class A Common Stock will be converted into Class B Common Stock. The conversion terms are one share of Class A Common Stock for one share of Class B Common Stock subject to certain antidilutive or other capital reorganization provisions. On October 25, 1994, the Company declared an increased cash dividend of $.27 on the Class A Common Stock and a Class A Common Stock dividend of 3% on both the Class A and Class B Common Stock, payable on January 3, 1995 to shareholders of record as of December 1, 1994. On October 26, 1993, the Company declared an increased cash dividend of $.26 on the Class A Common Stock and a Class A Common Stock dividend of 3% on both the Class A and Class B Common Stock, payable on January 4, 1994 to shareholders of record as of December 1, 1993. On October 27, 1992, the Company declared an increased cash dividend of $.25 on the Class A Common Stock and a Class A Common Stock dividend of 3% on both the Class A and Class B Common Stock, payable on January 4, 1993 to shareholders of record as of December 1, 1992. Net income per share of common stock has been restated to reflect the current and prior year's stock dividends. Changes in Class A Common Stock, Class B Common Stock and capital in excess of par value during fiscal 1995, 1994 and 1993 were as follows: CLASS A CLASS B COMMON STOCK COMMON STOCK Capital in ISSUED ISSUED Excess of Par Value Shares Amount Shares Amount Balance, March 31, 1992 10,673,255 $1,067,000 7,704,400 $770,000 $127,596,000 3% Stock Dividend 551,632 $ 55,000 $ 25,596,000 Savings Incentive Plan (1) 16,490 2,000 804,000 Balance, March 31, 1993 11,241,377 $1,124,000 7,704,400 $770,000 $153,996,000 3% Stock Dividend 569,080 $ 57,000 $ 18,296,000 Savings Incentive Plan (1) 36,844 4,000 1,344,000 Repurchase of Shares (7,800) (1,000) ( 264,000) Balance, March 31, 1994 11,839,501 $1,184,000 7,704,400 $770,000 $173,372,000 3% Stock Dividend 587,066 $ 59,000 $ 19,755,000 Savings Incentive Plan (1) 39,605 4,000 1,299,000 Balance, March 31, 1995 12,466,172 $1,247,000 7,704,400 $770,000 $194,426,000 (1) The Company has a voluntary savings incentive plan for eligible domestic employees. Company contributions to this 401(K) plan are made in the form of the Company's Class A Common Stock. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 10. Legal Matters: The Company is involved in various routine litigation incidental to its business. While the significance of these matters cannot be fully assessed at this time, management, on advice of counsel, does not believe that any liability that may arise from these proceedings will have a material adverse impact on the Company's consolidated financial position or results of operations. Note 11. Product Segments: The Company develops, manufactures and sells products classified into three segments. The dental segment includes products used for cleansing and retention of dentures, toothpastes, toothbrushes and other products for general dental care. The consumer product segment consists of a variety of over-the-counter products including medicated shampoos, headache powders, sleep-aid tablets and household cleaning products. The ethical pharmaceutical segment includes items promoted to the medical profession; gastroenterological products, digestant tablets, dermatologicals, as well as medications for the treatment of high blood pressure and angina. Note 12. Subsequent Events: The Company has signed an agreement to sell selected assets of its U.S. Reed & Carnrick Pharmaceutical Division with annual sales of approximately $50,000.000. The Company's international pharmaceutical businesses are not included in the sale and will operate as they did prior to the sale. The transaction is expected to close by the end of June, 1995, and is not expected to have an unfavorable impact on the Company operating results. After the close of the fiscal year, the Company signed a contract to acquire the U.S. Rug and Room Deodorizer businesses of Reckitt & Colman, Inc. Pursuant to the agreement, the Company will purchase the Carpet Fresh-R and Rug Fresh-R trademarks and be granted exclusive licenses for use of the Airwick-R and Neutra Air-R trademarks in the Rug and Room Deodorizer product category in the U.S. This transaction is subject to receipt of regulatory consents and is expected to close in the third calendar quarter of 1995. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents information concerning the Company's operations by product segment and geographic area for the years ended March 31, 1995, 1994 and 1993. 1995 1994 1993 (in thousands) PRODUCT SEGMENTS Net Sales: Dental $ 440,531 $393,613 $401,161 Consumer Products 149,208 147,012 148,012 Ethical Pharmaceutical 80,115 72,658 75,653 Consolidated net sales $ 669,854 $613,283 $624,826 Operating Income: Dental $ 58,742 $ 46,177 $ 54,554 Consumer Products 15,530 21,853 26,759 Ethical Products 10,178 10,156 12,464 Total operating income 84,450 78,186 93,777 General corporate expenses (20,801) (21,072) (16,064) Consolidated income before income taxes $ 63,649 $ 57,114 $ 77,713 Assets: Dental $ 333,188 $325,325 $271,819 Consumer Products 174,890 115,496 101,045 Ethical Pharmaceutical 53,145 57,166 60,200 Total identifiable assets 561,223 497,987 433,064 General corporate assets 310,097 273,081 293,433 Consolidated assets $ 871,320 $771,068 $726,497 Depreciation and Amortization: Dental $ 9,950 $ 8,554 $ 7,204 Consumer Products 4,856 3,756 2,707 Ethical Pharmaceutical 2,264 2,229 1,748 Consolidated depreciation and amortization $ 17,070 $ 14,539 $ 11,659 Capital Expenditures, Net: Dental $ 22,234 $ 18,836 $ 26,586 Consumer Products 9,899 13,251 13,754 Ethical Pharmaceutical 2,409 3,128 5,928 Consolidated capital expenditures $ 35,542 $ 35,215 $ 46,268 GEOGRAPHIC AREA Net Sales: United States $ 340,028 $318,665 $326,431 Europe 242,424 211,539 223,665 Other 87,402 83,079 74,730 Consolidated net sales $ 669,854 $613,283 $624,826 Operating Income: United States $ 41,801 $ 29,963 $ 49,830 Europe 29,932 31,068 30,555 Other 12,717 17,155 13,392 Total operating income 84,450 78,186 93,777 General corporate expenses (20,801) (21,072) (16,064) Consolidated income before income taxes $ 63,649 $ 57,114 $ 77,713 Assets: United States $ 314,149 $243,437 $232,999 Europe 212,830 203,767 164,626 Other 34,244 50,783 35,439 Total identifiable assets 561,223 497,987 433,064 General corporate assets 310,097 273,081 293,433 Consolidated assets $871,320 $771,068 $726,497 General corporate expenses consist of administrative expenses, translation losses relating to highly inflationary countries and interest less investment income. General corporate assets consist principally of marketable and long-term securities. 1994 and 1993 amounts are reclassified to conform to 1995 presentation. QUARTERLY FINANCIAL INFORMATION (Unaudited) The following is a tabulation of quarterly results of operations for the years ended March 31, 1995 and 1994 (in thousands, except per share amounts): Fiscal 1995 Quarters First Second Third Fourth Net sales $159,994 $165,894 $163,644 $180,322 Gross profit 109,140 112,216 112,664 115,312 Income before income taxes 15,565 16,290 15,213 16,581 Net income 11,923 12,382 12,220 13,844 Earnings per share of common stock (1) $ .59 $ .61 $ .61 $ .69 Fiscal 1994 Quarters First Second Third Fourth Net sales $150,480 $153,535 $155,644 $153,624 Gross profit 100,569 101,224 103,183 102,712 Income before income taxes 20,325 13,417(2) 14,405 8,967(2) Net income 15,650 10,804 10,860 10,538(3) Earnings per share of common stock (1) $ .78 $ .53 $ .54 $ .53 (1) Restated to reflect the three percent stock dividends (see Note 8). (2) Income before income tax reflects increased second and fourth quarter advertising and promotional expenses. (3) Net income reflects the effect of a reduction in the effective income tax rate from 22.5% through the third quarter to 16.2% for the year. The reduction occurred from a combination of factors including lower than expected foreign exchange losses and higher research and development tax credits. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant: (a) Directors of the Registrant The following is a list of each director of the Company, the date their present terms of office will expire and all other positions presently held with the Company: Date Term Other Positions Held Name Age Expires (or principal occupation) Leonard Block 83 6/96 Senior Chairman of the Board* James A. Block 58 6/96 Chairman of the Board* Thomas R. Block 50 6/96 President and Treasurer* ** Donald H. LeSieur 59 6/96 Executive Vice President and President, International Division Michael C. Alfano, D.M.D., Ph.D. 47 6/96 Senior Vice President, Research and Technology Alfred E. Brown, Ph.D. 78 6/96 Director of Scientific Affairs** Celanese Corporation (Retired) Peggy Danziger 55 6/96 Private Investor William T. Golden 85 6/96 Corporate Director and Trustee** Melvin Kopp 65 6/96 Senior Vice President and Chief Financial Officer John E. Peters 53 6/96 Senior Vice President, General Counsel and Secretary Peter J. Repetti 77 6/96 Member, Fulbright & Jaworski L.L.P. (Retired) Susan B. Stearns 50 6/96 Private Investor * Member of the Executive Committee ** Member of the Audit Committee PART III Item 10. Directors and Executive Officers of the Registrant: (Continued) (a) Directors of the Registrant (Continued) The following family relationships exist among the Directors of the Company: Leonard Block is the father of Thomas R. Block and Peggy Danziger, and is the uncle of James A. Block and Susan B. Stearns, who are brother and sister. Thomas R. Block and Peggy Danziger are brother and sister and are first cousins of James A. Block and Susan B. Stearns. Each director of the Company has been employed by the Company for the past five years except for (i) Susan B. Stearns who is a private investor, (ii) William T. Golden who is a director and trustee of various organizations, (iii) Alfred E. Brown, Ph.D., formerly Director, Scientific Affairs, Celanese Corporation, now retired, (iv) Peter J. Repetti who is an attorney and a retired member of the New York law firm of Fulbright & Jaworski L.L.P., and (v) Peggy Danziger who is a private investor. All Directors have served as Directors for a period in excess of five (5) years. None of the Directors serve on the Boards of Directors of any other public corporation, except for (1) William T. Golden who serves on the Boards of Directors of the following corporations: General American Investors Company, Inc. and Verde Exploration Ltd.; and (2) Peter J. Repetti who serves on the Board of Directors of Pulitzer Publishing Company. On October 31, 1977, Leonard Block and James A. Block executed a document setting forth their mutual intent concerning the representation of the Melvin Block family group and the Leonard Block family group on the Board of Directors of the Company. Melvin Block (deceased) is the father of James A. Block and brother of Leonard Block. They stated their intention as shareholders and not as directors to maintain equal representation of the Melvin Block family group and the Leonard Block family group on the Board of Directors. They further stated their awareness that the sentiments expressed in the letter did not constitute a binding agreement between them and that all actions taken in the future by them in whatever capacity to elect directors must and would be those which, in their judgment, would be in the best interest of the Company. At present, the Melvin Block family group has three (3) representatives on the Board of Directors: James A. Block, Susan B. Stearns, and Peter J. Repetti (attorney); and the Leonard Block family group has three (3) representatives on the Board of Directors: Leonard Block, Thomas Block, and Peggy Danziger. (b) Executive Officers of the Registrant The following is a list of each executive officer of the Company, the date his present term of office will expire, and all other positions presently held with the Company: PART III Item 10. Directors and Executive Officers of the Registrant: (Continued) Date of Date Term Name Age Appointment Expires Positions Leonard Block 83 10/88 6/96 Senior Chairman of the Board* James A. Block 58 10/88 6/96 Chairman of the Board* Thomas R. Block 50 10/88 6/96 President and Treasurer* Donald H. LeSieur 59 10/88 6/96 Executive Vice President and President, International Division*R Michael C. Alfano, D.M.D., Ph.D. 47 5/87 6/96 Senior Vice President, Research and Technology+R Melvin Kopp 65 10/72 6/96 Senior Vice President and Chief Financial Officer+R Peter C. Mann 53 11/79 6/96 President, U.S. Division+R John E. Peters 53 12/78 6/96 Senior Vice President, General Counsel and Secretary+R Gilbert Seymann 56 5/84 6/96 Senior Vice President, Operations+R Leonard Block is Senior Chairman of the Board of Directors, a Member of the Executive Committee and the Office of the Chief Executive. James A. Block is Chairman of the Board, a Member of the Executive Committee, the Office of the Chief Executive, and is directly responsible for U.S. marketing, sales, corporate development, research and development and corporate quality. Thomas R. Block is President and Treasurer of the Company, a Member of the Executive Committee, the Office of the Chief Executive, and is directly responsible for all operations, including manufacturing, engineering and corporate, financial and administrative functions. Donald H. LeSieur is Executive Vice President and President, International Division, a Member of the Office of the Chief Executive, and has direct responsibility for all international operations. * Member - Office of the Chief Executive + Consultant - Office of the Chief Executive R Covered under the Change in Control Agreement described in Item 13. PART III Item 10. Directors and Executive Officers of the Registrant: (Continued) Michael C. Alfano, D.M.D., Ph.D., Senior Vice President - Director Research and Technology, is responsible for all research, development and quality assurance activities of the Company. Melvin Kopp, Senior Vice President, is the Chief Financial Officer of the Company. Peter C. Mann, President, U.S. Division, is responsible for all domestic marketing, sales and corporate development. John E. Peters, Senior Vice President, General Counsel and Secretary, is the Chief Legal Officer of the Company. Gilbert Seymann, Senior Vice President - Operations, is responsible for domestic manufacturing and corporate engineering. All executive officers of the Company have been employed by the Company in the same capacities for at least the last five years. No family relationships exist between the executive officers of the Company, except as noted above between the Directors who are also executive officers. Item 11. Executive Compensation Long Term Compensation Annual Compensation Awards Payouts All Other Restricted Other Name and Annual Stock Options LTIP Compen- Principal Fiscal Salary Bonus Compen- Award(s) /SARs Payouts sation Position Year $ $ sation($) ($) ($) ($) ($) Leonard Block(1) 1995 357,469 89,500 * * * * 34,537 Senior Chairman 1994 340,832 79,000 34,504 of the Board 1993 338,127 83,900 33,589 James A. Block(2) 1995 327,948 88,900 * * * * 9,099 Chairman of the 1994 316,219 90,600 9,011 Board 1993 303,059 78,500 8,056 Thomas R. Block(3)1995 327,948 92,000 * * * * 6,641 President and 1994 316,219 93,500 5,832 Treasurer 1993 303,059 85,100 4,690 Donald H. LeSieur(4) 1995 342,288 148,100 * * * 122,031 9,981 Executive Vice 1994 329,148 110,100 151,289 9,011 President, Pres. 1993 313,339 102,300 157,825 8,056 International Division Peter C. Mann 1995 258,638 94,500 * * * 78,941 6,269 President, U.S. 1994 248,625 65,600 - 6,164 Division 1993 235,917 60,600 338,395 5,313 * None to be reported (1) On January 1, 1981, the Company entered into an Employment Agreement with Leonard Block, which runs through April 30, 1997. The agreement provides for a minimum annual base salary of $209,242.00, which will be adjusted in accordance with certain economic factors. Mr. Block may, for a period not to exceed twenty years, elect to perform his services on a reduced basis at a reduced level of compensation. The agreement provides for payment of an amount (based upon an average of Mr. Block's salary for the three years in which the highest salary was paid) to certain designated beneficiaries for a period not to exceed twenty years. Leonard Block has been employed by the Company since 1933. (2) On September 1, 1984, the Company entered into an Employment Agreement with James A. Block, which runs through April 30, 1997. The agreement provides for a minimum annual base salary of $164,792.00, which will be adjusted in accordance with certain economic factors. The terms of this employment agreement are substantially identical to the above described employment agreement with Leonard Block. James A. Block has been employed by the Company since 1959. (3) On May 1, 1987, the Company entered into an Employment Agreement with Thomas R. Block, which runs through April 30, 1997. Pursuant to the agreement, Thomas R. Block's annual base salary is to be no less than $234,451.00, which will be adjusted in accordance with certain economic factors. The terms of this employment agreement are substantially identical to the above described employment agreement with Leonard Block. Thomas R. Block has been employed by the Company since 1968. (4) On September 1, 1984, the Company entered into an Employment Agreement with Donald H. LeSieur for a one (1) year period renewable for three (3) consecutive five (5) year terms. Mr. LeSieur's annual base salary is to be no less than $164,600.00, which will be adjusted in accordance with certain economic factors. Mr. LeSieur will receive deferred compensation equal to one-third of his average annual salary for three (3) years prior to his termination, which compensation vests at the rate of one and one-quarter percent per quarter, except that such compensation will become one-hundred percent vested if termination occurs due to death or disability. Such payments shall continue for a period of 13 1/2 years. Should termination occur by Company action other than for cause, a further payment equal to one-half his annual salary as of the date of termination for a maximum of five (5) years or until his 65th birthday, whichever first occurs. Donald H. LeSieur has been employed by the Company since 1973. During calendar year 1994, the director's annual fee was $8,500 and remains unchanged for calendar year 1995. Executive officers who are directors receive no director's, audit committee or attendance fees. During calendar year 1994, four directors each received attendance fees of $750 per meeting. The fee of $750 per meeting was increased to $850 for calendar year 1995. The total includes payments of $8,500 made to each of five directors, including three payments to each of such directors of $2,125 in calendar year 1994 and one payment of $2,125 during the first quarter of calendar year 1995. This total further includes an aggregate of 9,950 paid to four directors as director's attendance fees and an aggregate of $6,500 paid to two directors as audit committee member fees. The Company maintains defined benefit pension plans under which annual costs are actuarially computed based on the overall assets in these plans and the actuary's estimates of the present value of overall benefits. The following table sets forth benefits that will be received under these plans based on the participants' final average compensation and years of service: 1995 Table of Annual Pension Benefits by Final Average Compensation and Service Classifications Final Average Years of Service at Age 65 Compensation 10 20 30 40 $ 50,000 $ 5,370.60 $10,741.20 $16,111.80 $ 21,482.40 100,000 12,840.00 25,680.00 38,520.00 51,360.00 150,000 20,340.00 40,680.00 61,020.00 81,360.00 200,000 27,840.00 55,680.00 83,520.00 111,360.00 250,000 35,340.00 70,680.00 106,020.00 120,000.00* 300,000 42,840.00 85,680.00 120,000.00* 120,000.00* 350,000 50,340.00 100,680.00 120,000.00* 120,000.00* * Maximum permissible benefit under IRC Sec. 415, effective January 1, 1995. The Company's domestic pension expense for the fiscal years ended March 31, 1995 and 1994 was $1,475,938 and $926,559, respectively. The plans are in a fully funded status, and accordingly, the Company's financial statements reflect no domestic pension funding contribution for the fiscal year ended March 31, 1995. The remuneration covered by these plans is the total regular salary excluding any bonuses, overtime or other special compensation. Benefits payable from these plans are based on the Final Average Compensation for the 60 highest consecutive months of the last 120 months of employment, the years of service as a member of these plans and the primary Federal Social Security Benefit. With respect to the figures of the table on page 37, the accrual of pension benefits is estimated using only the individual's base salary. The base salaries used for the estimation of pension benefits for the individuals listed in the table are: James A. Block ($324,675.99); Thomas R. Block ($324,675.99); Donald H. LeSieur ($337,324.40); and Peter C. Mann ($258,374.94). Leonard Block reached age 65 in December, 1976. In accordance with the terms of this plan he elected to receive a lump sum benefit. The actuarial equivalent of his pension at that time as adjusted through December 31, 1980 was segregated into a separate account. No additional benefits have accrued for Leonard Block since December 31, 1980. Upon retirement or death the balance in the segregated account will be distributed to him or his designated beneficiaries subject to limitations set forth in the provisions of Section 415 of the Internal Revenue Code. As of March 31, 1995, the above five (5) employees had the following credited years of service in these plans: Leonard Block, 46 years; James A. Block, 33 years; Thomas R. Block, 25 years; Donald H. LeSieur, 21 years; and Peter C. Mann, 22 years. Special Stock Unit Plan This plan is intended to provide greater motivation and incentive for those eligible employees of the Company and its Subsidiaries who are making and can continue to make significant contributions to the success of the business, to attract and to retain employees of outstanding caliber and competence and to enhance the identity of interests between the shareholders of the Company and the employees who are participants in this plan. The purpose of the plan is to provide supplemental income, at intervals specified in the plan, to participants during their employment and to provide deferred compensation, which is considered as qualified retirement benefits, to participants upon their retirement. Under this plan, units (the value of which is based on a formula, the key component of which is a multiple of earnings per share of Class A Common Stock) may be awarded from time to time to employees by the Committee administering this plan. The participant (or beneficiary in the case of death) will be entitled to receive, subject to certain conditions, an amount reflecting the maximum appreciation in value of such units (as determined under this plan) between the date of the award and the dates provided in this plan for valuing units. As of March 31, 1995, the units were valued at $92.20. The total number of units which may be credited to all participants in this plan at any one time, exclusive of units awarded to former employees, cannot exceed five percent of the total number of the then outstanding shares of all classes of Common Stock. As of March 31, 1995, a total of 276,089 units had been awarded having an average value of $84.72 per unit. Of those 276,089 units, 57,551 units at an average value of $91.76 per unit were awarded during the past fiscal year. During fiscal year 1995, the following units were awarded to executives: 2,242 units at $91.90 per unit and 2,745 units at $91.10 per unit to Donald H. LeSieur and 1,613 units at $93.00 per unit and 2,745 units at $91.10 per unit to Peter C. Mann. During the year ended March 31, 1995, $2,453,431 was paid in lump sum payments to the participants in the Special Stock Unit plan. Long-Term Incentive Plans - Awards In Last Fiscal Year Estimated Future Payouts Under Non-Stock Price-Based Plans Performance or No. of Shares, Other Period * ** Units or Other Until Maturity Threshold Target Maximum Name Rights or Payout ($) ($) ($) Donald H. LeSieur 2,309 5 Years 1,028 126,000 - 2,745 0 153,000 Peter C. Mann 1,661 5 Years 157 92,000 - 2,745 0 153,000 * Minimum value as of March 31, 1995 ** Projected value at maturity, based on assumed 10% annual compounded Earnings Per Share increase over the five-year period from inception of the award to maturity. Note: See accompanying description of Plan above. Item 12. Securities Ownership of Certain Beneficial Owners and Management (a) Securities ownership of certain beneficial owners: The following table sets forth, as of June 6, 1995, each person who owns of record, or is known by the Company to beneficially own more than 5% of the outstanding Class B Common Stock of the Company, which stock is the only class of voting securities of the Company. Amount and Nature Name and Address of Beneficial Percent Title of Class of Beneficial Owner Ownership of Class Class B Common Leonard Block, Representative 3,852,200(1) 50% Leonard Block Family Shareholders' Agreement dated April 18, 1991 257 Cornelison Avenue Jersey City, N.J. 07302-9988 Class B Common James A. Block, Trustee 3,852,200(2) 50% Voting Trust Agreement dated January 11, 1990 257 Cornelison Avenue Jersey City, N.J. 07302-9988 (1) Pursuant to a shareholders' agreement, dated April 18, 1991, Leonard Block has sole voting power with respect to these shares. The following shares are all subject to the shareholders' agreement beneficially owned by the Leonard Block Trust, the Thomas Block Trust and the Peggy Danziger Trust, respectively, 385,424; 1,733,388; and 1,733,388. (2) James A. Block has sole voting power with respect to these shares as a result of a voting trust agreement entered into as of January 11, 1990. The voting trust agreement grants the trustee the power to vote the shares which are subject to the agreement. The voting trust agreement is for a 21 year term. James A. Block is a co-trustee of the trusts which are parties to the voting trust agreement and pursuant to these trusts, James A. Block has sole investment power with respect to these shares. James A. Block disclaims beneficial ownership to all 1,926,100 shares held in trust for the benefit of Susan B. Stearns. (b) Securities ownership of management: The following table sets forth, as of June 6, 1995, the securities ownership of all directors, naming them, and all Directors and Officers of the Company, as a group, without naming them: Item 12. Securities Ownership of Certain Beneficial Owners and Management (Cont'd) BLOCK DRUG COMPANY, INC. SECURITIES BENEFICIALLY OWNED Class A Common Stock Beneficially Owned Class B No Shared Shared 401-K Common Stock Name of Beneficial Investment Investment Plan Percentage Beneficially Owner Power Power Holdings Owned Owned Leonard Block (1) (4) (5) 1,068,137 96,803 831 10% 3,852,200 - 50% James A. Block (2) (3) 2,249,622 - 1,470 18% 3,852,200 - 50% Thomas Block (1) (4) (5) 163,433 1,977,878 904 17% - Donald H. LeSieur - - 1,495 - - Michael C. Alfano - - 1,147 - - Alfred E. Brown (6) 1,261 - - - - Peggy Danziger (1) (4) (5) (8) 81,341 1,289,642 - 11% - William T. Golden 5,864 13,184 - - - Melvin Kopp 52 - - - - Peter C. Mann 6 - 1,283 - - John E. Peters - - 1,058 - - Peter J. Repetti (7) 250 - - - - Gilbert M. Seymann 100 - 966 - - Susan B. Stearns (2) (3) - - - - - As of June 6, 1995, all directors and officers as a group owned 56% of the Company's Class A Common Stock. The number of shareholders of Class A Common Stock is 554. Item 12. Securities Ownership of Certain Beneficial Owners and Management (Cont'd) (1) Leonard Block owns 345,346 shares (not including 401-K Plan Holdings); is deemed to be the beneficial owner of but disclaims ownership of: 718,901 shares owned by Adlen Corporation, of which Leonard Block is the sole shareholder; 96,803 shares owned by a trust for the benefit of Adele Block, his wife, of which Leonard Block is a co-trustee (with Thomas Block and Peggy Danziger, his children) and shares investment powers with respect to the shares held by such trusts; 3,890 shares owned by Adele Block, his wife. (2) James A. Block owns 110 shares (not including 401-K Plan Holdings); is deemed to be the beneficial owner of: 163,298 shares owned by a trust for the benefit of James A. Block of which he is a co-trustee (with Peter and Valerie Block, his children) and has sole investment powers with respect to the shares held by such trust; 947,249 shares owned by a trust for the benefit of James A. Block of which he is a co-trustee (with Susan B. Stearns, his sister, and Peter and Valerie Block, his children) and has sole investment powers with respect to the shares held by such trust; 1,138,965 shares owned by two trusts for the benefit of Susan B. Stearns of which James A. Block is the co-trustee (with Susan B. Stearns) and has sole investment powers with respect to the shares held by such trusts. James A. Block disclaims ownership to all 1,138,965 Class A shares and 1,926,100 Class B shares owned by the trusts for the benefit of Susan B. Stearns of which he is a trustee or co-trustee. (3) James A. Block has sole voting power with respect to the Class B shares as a result of voting trust agreement entered into as of January 11, 1990. The voting trust agreement grants the trustee the power to vote the shares which are subject to the agreement. The voting trust agreement is for a 21 year term. James A. Block is a co-trustee of the trusts which are parties to the voting trust agreement and pursuant to these trusts, James A. Block has sole investment power with respect to the Class B shares. James A. Block disclaims beneficial ownership to all 1,926,100 shares held in trust for the benefit of Susan B. Stearns. (4) Thomas Block owns 106,377 shares (not including 401-K Plan Holdings); is deemed to be the beneficial owner but disclaims ownership of: 21,544 shares owned by Marilyn Friedman, his wife; 35,512 shares held by Marilyn Friedman, as Custodian under the New York State Uniform Gifts to Minors Act for Jonathan Block and Alison Block, the children of Thomas Block; 117,414 shares owned by two trusts for the benefit of Jonathan Block and Alison Block, his children, of which Thomas Block is a co-trustee (with Marilyn Friedman, his wife) and shares investment powers with respect to the shares held by such trusts; 1,702,004 shares owned by a trust for the benefit of Thomas Block of which Thomas Block is a co-trustee (with Adele Block, his mother, and Peggy Danziger, his sister) and shares investment powers with respect to the shares held by such trust; 158,460 shares owned by three trusts of which Thomas Block is a co-trustee (with Peggy Danziger, his sister) and shares investment powers with respect to the shares held by such trusts; for the purposes of reporting shares for which a beneficial owner shares investment power in the tabular presentation on page 41, all 158,460 shares of these three trusts have been included in the total number of shares reported for Thomas Block and Peggy Danziger, and as a result have been reported twice. In computing the percentage of Class A shares owned by a beneficial owner, 79,230 shares (representing one-half of the total shares owned by the three trusts) were allocated to Thomas Block and 79,230 shares were allocated to Peggy Danziger. The impact of this treatment of these shares on the percentages reported for Thomas Block and Peggy Danziger is negligible. Item 12. Securities Ownership of Certain Beneficial Owners and Management (Cont'd) In computing the aggregate number of shares owned by directors and officers as a group, the 158,460 shares owned by these three trusts were counted only once. Thomas Block disclaims ownership of those shares in which he shares investment powers with Peggy Danziger. (5) Peggy Danziger owns 81,341 shares; 1,091,999 shares owned by a trust for the benefit of Peggy Danziger of which she is a co- trustee (with Michael Danziger, her son, and Katherine Danziger- Horowitz, her daughter) and of which she shares investment powers with respect to the shares held by such trusts; 35,238 shares owned by a trust for the benefit of another with a right of reversion to Peggy Danziger, of which she is a co-trustee and of which she shares investment powers with respect to the shares held by such trust; 158,460 shares owned by three trusts of which Peggy Danziger is a co-trustee (with Thomas Block, her brother) and shares investment powers with respect to the shares held by such trusts; for the purposes of reporting shares for which a beneficial owner shares investment power in the tabular presentation on page 41, all 158,460 shares of these three trusts have been included in the total number of shares reported for Thomas Block and Peggy Danziger, and as a result have been reported twice; and all 3,945 shares owned by two testamentary trusts of which Richard Danziger, her husband, is a co-trustee with another party having shared investment powers with respect to the shares held by such trusts. In computing the percentage of Class A shares owned by a beneficial owner, 79,230 shares (representing one-half of the total shares owned by the three trusts in which Peggy Danziger is a co-trustee with Thomas Block) were allocated to Thomas Block and 79,230 shares were allocated to Peggy Danziger. The impact of this treatment of these shares on the percentages reported for Thomas Block and Peggy Danziger is negligible. In computing the aggregate number of shares owned by directors and officers as a group, the 158,460 shares owned by these three trusts were counted only once. Peggy Danziger disclaims beneficial ownership of one-half of the shares for which she is co-trustee. (6) Alfred E. Brown disclaims beneficial ownership to all 1,261 shares owned by his wife. (7) Peter J. Repetti disclaims beneficial ownership to 250 shares owned by his wife. (8) Peggy Danziger disclaims beneficial ownership to all 3,945 shares of which Richard M. Danziger, her husband is co-trustee with a third party. Item 13. Certain Relationships and Related Transactions On March 1, 1989, Donald H. LeSieur, Executive Vice President, United States, gave a promissory note to the Company in the amount of $200,000 pursuant to an agreement under which two previous loans were consolidated into a single loan evidenced by a single promissory note. Under the terms of the consolidated loan agreement the previous loans were cancelled. On May 26, 1989, Mr. LeSieur received an additional loan in the amount of $20,000 also secured by a promissory note. These loans are collateralized by sums to which Mr. LeSieur is entitled as deferred compensation under the Company's Special Stock Unit Plan or under any other deferred compensation program in which Mr. LeSieur participates and a mortgage on certain real estate owned by Mr. LeSieur and his wife. The principal of each loan is payable on or before June 30, 2007. Interest on the unpaid principal balance accrues at the seven year Treasury Bill rate as published by The New York Times, said interest to be adjusted semi-annually on July 1 and January 1 of each year. Interest only on the unpaid principal balance is due and payable monthly. Principal of the consolidated loan is to be repaid at the rate of $12,000 per annum. Principal of the May 26, 1989 loan is to be repaid at the rate of $1,200 per annum, commencing June 1, 1991. The loan agreement provides for immediate repayment of the unpaid principal balance upon the occurrence of any one of a number of specified events. On October 27, 1992, the Company entered into a Consulting Agreement with Melvin Kopp. The term of this agreement commenced March 1, 1995 and expires on February 28, 2005. Under this agreement, after his retirement and on a part time basis, Mr. Kopp will continue to provide the Company with his services for a minimum of sixty days annually. Mr. Kopp's compensation for each day of service as a Consultant, will be equivalent to the daily cost to the Company for Mr. Kopp's service as an employee at the time of his retirement. His compensation will be adjusted annually in accordance with the Company's salary administration policy. On June 1, 1993, John E. Peters, Senior Vice President, General Counsel and Secretary, gave a Promissory Note to the Company in the amount of $100,000.00 pursuant to an agreement under which the Company loaned $100,000.00 to Mr. Peters. This loan is collateralized by sums to which Mr. Peters is entitled as deferred compensation under the Company's Special Stock Unit Plan and by a mortgage on certain real estate owned by Mr. Peters and his wife. The principal of the loan is payable on or before May 31, 1998. Interest on the unpaid principal balance accrues at the seven year Treasury Bill rate as published in The New York Times, said interest to be adjusted semi-annually on July 1 and January 1 of each year. Interest only on the unpaid principal balance is due and payable semi-monthly. Principal is to be repaid at the rate of $5,000.00 per annum, which is to be deducted from sums to which Mr. Peters is entitled under the Company's Executive Incentive Plan. The loan agreement provides for immediate repayment of the unpaid principal balance upon the occurrence of any one of a number of specified events. On January 26, 1994, the Company entered into an agreement with Peter Mann, President,U.S. Division, under which the minimum value of the 1991 special stock unit award to Mr. Mann, and only the 1991 special stock unit award, under the Company's Special Stock Unit Plan would, subject to the vesting rules under the Plan, be guaranteed to be no less than $83.30 per special stock unit. Change in Control Agreement Certain key executives have entered into a Change-In-Control Agreement (CIC) with the Company to assure continuity in management in the event the Block family divests itself of more than fifty percent (50%) of the Company's voting stock. The Agreement expires December 31, 1995, or upon the covered Executive's sixty-fifth (65) birthday, but provides for automatic extensions which effectively create a continuing rolling five year term. The Agreement also provides for an automatic three (3) year extension. The Agreement defines the formula by which a covered Executive's severance, compensation and benefits will be calculated and paid in the event Executive's employment is either: terminated within one year of the change in control; if circumstances of Executive's employment are changed within three (3) years of the change in control; or if the Executive's employment is terminated 180 days prior to the execution of an agreement which, if concluded, will activate the CIC. Compensation Committee Interlocks and Insider Participation The Company does not have a Compensation and Benefits Committee which determines the compensation of its Executive Officers. The Company utilizes the services of independent expert compensation consultants to evaluate the total compensation of the Company's Executive Officers. The consultants' recommendations are submitted to the members of Office of the Chief Executive for consideration. During fiscal year 1995, Leonard Block, James A. Block, Thomas R. Block and Donald H. LeSieur were members of the Office of the Chief Executive. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as a part of this report: 1. Financial Statements and Supplementary Data: Report of Independent Accountants Consolidated Balance Sheets - March 3l, 1995 and 1994, Consolidated Statements of Income and Retained Earnings for the Years ended March 3l, 1995, 1994 and 1993, Consolidated Statements of Cash Flows for the Years ended March 3l, 1995, 1994 and 1993, Notes to Consolidated Financial Statements Supplementary Data: Selected quarterly data for the two years ended March 3l, 1995. 2. Additional Financial Statement Data: Supplemental Auditors' Reports 3. Financial Statement Schedule: II Schedules other than those listed above are omitted because they are not required or not applicable. 4. Exhibits: The Exhibits Index is on page 55. (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the last quarter of the period covered by this report. To the Board of Directors of STAFFORD-MILLER CONTINENTAL N.V. Nijverheidsstraat 92260 OEVEL-WESTERLO Dear Sirs, We have audited the accompanying balance sheets of Stafford-Miller Continental N.V. as of December 31, 1994 and 1993, and the related statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly in all material respects the financial position of Stafford-Miller Continental N.V. at December 31, 1994 and 1993 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994 in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying additional information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such additional information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion is fairly stated in all material respect in relation to the basic financial statements taken as a whole. Ernst & Young J. Englishstraat 54 21 Borgerhout (Antwerpen) March 28, 1995 REPORT OF INDEPENDENT AUDITORS The Board of Directors Stafford-Miller Nederland B.V. We have audited the accompanying balance sheets of Stafford-Miller Nederland B.V. at December 31, 1994 and 1993, and the statements of income and retained earnings and cash flows for the years 1994, 1993 and 1992. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan a 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. The Company is a wholly-owned subsidiary of Block Drug Company, Inc. and has material transactions with affiliated companies. The terms and conditions of these transactions are reflected in the accompanying financial statements on a basis determined by the affiliated group. In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of Stafford-Miller Nederland B.V. at December 31, 1994 and 1993, and the results of its operations and its cash flow for the years 1994, 1993 and 1992 in conformity with accounting principles generally accepted in the United States of America. Our audits have been made primarily for the purpose of expressing an opinion on the basic financial statements taken as a whole. The accompanying additional information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such additional information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, and in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Moret Ernst & Young Accountants Drentestraat 20 1083 HK Amsterdam PO Box 7883 1008 AB Amsterdam February 10, 1995 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Stafford-Miller S.r.l. We have audited the accompanying balance sheets of Stafford Miller S.r.l. as of December 31, 1994 and 1993 and the related statements of income and retained earnings, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly, in all material respects, the financial position of Stafford Miller S.r.l. at December 31, 1994 and 1993 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994 in conformity with accounting principles generally accepted in the United States. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Reconta Ernst & Young Via Torino 68 20123 Milano February 9, 1995 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors and Stockholders Block Drug Co. (Philippines) Inc. We have audited the accompanying balance sheets of Block Drug Co. (Philippines) Inc. (a wholly owned subsidiary of Block Drug Company, Inc.) as at December 31, 1994 and 1993, and the related statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with United States generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Block Drug Co. (Philippines) Inc. (a wholly owned subsidiary of Block Drug Company, Inc.) as at December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with United States generally accepted accounting principles. Sycip, Gorres,Velayo & Co. PTR No. 5148781 January 19, 1994 Makati, Metro Manila January 25, 1994 REPORT OF INDEPENDENT AUDITORS The Management Block Drug Company, Inc. Ratingen Branch We have audited the accompanying balance sheets of Block Drug Company, Inc., Ratingen Branch, as of March 31, 1995 and 1994 and the related statements of income and retained earnings and cash flows for each of the three years in the period ended March 31, 1995. These financial statements are the responsibility of the Branch's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Block Drug Company, Inc., Ratingen Branch, as of March 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 1995, in conformity with accounting principles generally accepted in the United States of America. Our audits have been made primarily for the purpose of expressing an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (pages 1 to 16) is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplementary information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Ernst & Young GmbH Wirtschaftsprufungsgesellschaft Karl G. Reifert Reinhard Beyer CPA Wirtschaftsprufer Am Wehrhahn 50 40211 Dusseldorf April 18, 1995 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders of Laboratoires Stafford-Miller, S.A.R.L. We have audited the accompanying balance sheets of Laboratoires Stafford-Miller, S.A.R.L. (the Company) at December 31, 1994 and 1993 and the related statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all materials respects, the financial position of Laboratoires Stafford-Miller, S.A.R.L. at December 31, 1994 and 1993 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with accounting principles generally accepted in the United States of America. Our audits have been made primarily for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying additional information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such additional information has been subjected to the auditing procedures applied in our audits of the basic financial statements mentioned above and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. ERNST & YOUNG Entrepreneurs Departement d'HSP - CJ Paris Henry Seydoux February 7, 1995 Schedule II BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Years Ended March 31, 1995, 1994 and 1993 Additions Balance at Charge to Beginning Costs and Balance at Description of Period Expenses Deductions End of Period 1995 Allowances for discounts, doubtful accounts and returns $2,709,000 $38,826,000 $38,313,000 $3,222,000 1994 Allowances for discounts, doubtful accounts and returns $2,815,000 $31,622,000 $31,728,000 $2,709,000 1993 Allowances for discounts, doubtful accounts and returns $2,439,000 $28,158,000 $27,782,000 $2,815,000 INDEX TO EXHIBITS Exhibit No. Description 22 Subsidiaries of Registrant. EXHIBIT 22 Subsidiaries of Registrant The following list shows the Company and its subsidiaries, all of which (except as indicated) are wholly owned and included in the Consolidated Financial Statements in this report. Jurisdiction Identification of Incorporation Block Drug Company, Inc. New Jersey Stafford-Miller International, Inc. New Jersey Reedco, Inc. Delaware Dentco, Inc. Delaware Block Drug Corporation New Jersey Block Drug Company (Canada) Limited Ontario, Canada Block Drug Company (Philippines), Inc. Manila, Philippines Block Drug Company (Thailand) Limited Thailand Block Drug Company (Korea) Limited Korea The Guangzhou Representative Office of Block Drug China Company, Inc. (China) Kobayashi-Block Company, Ltd. (a) Japan Laboratoires Stafford-Miller S.A.R.L. (b) France Stafford Miller Argentina S.A. Argentina Stafford-Miller (Canada) Inc. (c) Ontario, Canada Stafford-Miller Chile Limitada Santiago, Chile Stafford-Miller Continental, NV-SA Belgium Stafford-Miller de Espana, S.A. Spain Stafford-Miller de Mexico, S.A. de C.V. Mexico Stafford-Miller Industria Ltda. Brazil Stafford-Miller Foreign Sales Corporation St. Thomas, Virgin Islands Stafford-Miller (Ireland) Limited Ireland Stafford-Miller Limited Great Britain Stafford-Miller Nederland B.V. Netherlands Stafford-Miller (N.Z.) Limited New Zealand Stafford-Miller (Portugal) Quimico-Farmaceutica, Lda. Portugal Stafford-Miller RE Limited (d) Great Britain Stafford-Miller S.r.l. Italy Stafford-Miller Sweden Aktiebolag Sweden Stafford-Miller Limited-Dubai Branch (United Arab Dubai Emirates) (a) 50% owned joint venture with Kobayashi Pharmaceutical Company, Ltd., organized under the laws of Japan, has been accounted for by the equity method. (b) Wholly-owned subsidiary of Stafford-Miller Continental, NV-SA. (c) Wholly-owned subsidiary of Stafford-Miller (Ireland) Limited. (d) Wholly-owned subsidiary of Stafford-Miller (Ireland) Limited. 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 on the 6th day of June, 1995. BLOCK DRUG COMPANY, INC. (Registrant) BY MELVIN KOPP Melvin Kopp Senior Vice President & Chief Financial Officer Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 6th day of June, 1995. Principal Executive Officer: LEONARD BLOCK Leonard Block Senior Chairman Principal Financial and Accounting Officer: MELVIN KOPP Melvin Kopp Senior Vice President & Chief Financial Officer Directors: LEONARD N. BLOCK JAMES A. BLOCK Leonard N. Block James A. Block THOMAS R. BLOCK SUSAN B. STEARNS Thomas R. Block Susan B. Stearns PEGGY DANZIGER MELVIN KOPP Peggy Danziger Melvin Kopp DONALD H. LESIEUR PETER J. REPETTI Donald H. LeSieur Peter J. Repetti ALFRED E. BROWN, PH.D. JOHN E. PETERS Alfred E. Brown, Ph.D. John E. Peters MICHAEL C. ALFANO, D.M.D., PH.D. WILLIAM T. GOLDEN Michael C. Alfano, D.M.D., Ph.D. William T. Golden EX-27 2
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