-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RvImNdGJdmzVgoZ1cstoB8VPfyJb+N2xNZT4SgCWnrhY/wj3roGom9etipbEikU0 Fb+TMVAU+1ye6IiIjqIHyw== 0000012654-96-000007.txt : 19960701 0000012654-96-000007.hdr.sgml : 19960701 ACCESSION NUMBER: 0000012654-96-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960628 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: 96588189 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.INC.10-K,FOR THE YEAR ENDED 3/31/96 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, 1996 Commission File No. 0-6436 BLOCK DRUG COMPANY, INC. (Exact name of registrant as specified in its charter) New Jersey (State or other jurisdiction of incorporation or organization) 22-1375645 (I.R.S. Employer Identification No.) 257 Cornelison Avenue, Jersey City, New Jersey (Address of principal executive offices) 07302-9988 (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 None Name of each exchange on which registered 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 4, 1996, nonaffiliates held no voting shares of the Registrant; therefore, the aggregate market value of voting shares held by nonaffiliates is zero. As of June 4, 1996, there were 13,115,073 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 50 PART I Item 1. Business REVIEW OF OPERATIONS Block Drug Company, Inc. is a worldwide manufacturer and marketer of denture care products, dental products, consumer over-the-counter medicines and specialty household products. DENTURE CARE PRODUCTS Worldwide denture care products, including denture cleansers and\ adhesives, are an integral part of Block Drug Company's line of products. The Company's international brands are among the best known in the category such as Polident , Corega and Poli-Grip brands. The Polident denture cleanser brand became the number one denture cleanser in the U.S. This year, the Company renewed its strategic focus on core product lines, continuing to support these and other brands with effective advertising and promotion. Meaningful product enhancements are anticipated to help the Company maintain its leadership in the denture care products category. Several line extensions of the Polident brand have been introduced in recent years, including an improved Polident formula that works in five minutes, and Polident Overnight, a denture cleanser that works all night. The Dentu-Creme denture cleanser paste brand sold throughout the U.S. and in many countries appeals to a specific consumer segment. The Polident brand, which is sold as Corega in Europe and Latin America, is also popular in international markets. The Company's denture cleansers are the leaders in many countries including Germany, Italy, Japan and Canada. The Company's denture adhesive business is exhibiting growth, particularly the Poli-Grip line. That brand's sales are strong in Europe; and Poli-Grip is the number one denture adhesive in the U.K. and France. Last year's introduction of the Poli-Grip Free brand, an adhesive with no artificial flavors or colors, was an important addition to the Company's adhesive product line in the U.S. DENTAL PRODUCTS Global brands that meet well-defined customer needs form the core of the Company's Dental Products Group. Sensodyne , a specialty toothpaste for the treatment of dentinal hypersensitivity, is the number one desensitizing dentifrice in the U.S. and in many other countries. It is recommended by dentists more often than any other brand in its category. Meaningful line extensions and product improvements are critical to its on-going growth. The Sensodyne brand with Baking Soda was introduced throughout the U.S. last year, and is the fastest growing product in this category. This launch and other product line enhancements in the U.S. and in other countries, plus customer loyalty, have enabled the Sensodyne brand to consistently maintain market leadership. During fiscal year 1996, the Company added to its dental care line with the acquisition of the Parodontax brand toothpaste. This specialty gum care toothpaste formulated from natural ingredients is available in 30 countries. Gum care is an increasingly important part of preventive oral health care. In fiscal year 1996, the Company also acquired an exclusive license for the PerioGlas brand of bioactive glass used in the treatment of periodontal disease. This bone implant material is used by dental professionals in the U.S. and will be added to our line of products sold directly to the profession. The Company markets its professional dental products through a dedicated salesforce that calls on dentists, oral surgeons and periodontists throughout the U.S. and most major markets worldwide, as well as through an expanding group of trained telephone sales representatives. The Company's unique focus on direct sales to the professional dental market provides opportunities to promote its oral health care products and those of other companies. The professional dental products line includes Lodine *, a non-steroidal anti-inflammatory analgesic introduced during fiscal year 1995, and Habitrol **, a smoking cessation patch introduced during fiscal 1993, which the Company promotes through agreements with Wyeth-Ayerst and Ciba Self-Medication, Inc., respectively. As a result of focused marketing efforts, Lodine is now the leading analgesic (NSAID) prescribed by dentists. CONSUMER OVER-THE-COUNTER MEDICINES Around the world, important consumer health and quality of life concerns are being met by the Company's over-the-counter medicines. Phazyme brand anti-gas products, Balmex brand diaper rash ointment, Nytol brand sleep-aid, Goody's and BC brand headache powders are among the Company's brand names in this category. Last year, the Phazyme line of gas relief products became the number one anti-gas product in the U.S. Much of this growth came from increased awareness generated through effective advertising. The Company anticipates growth in sales of this brand, particularly in international markets. During the year, the Company expanded distribution of its Balmex brand diaper rash ointment which is now available throughout the U.S. and in several international markets. The Balmex brand was the fastest growing diaper rash baby ointment. The Company anticipates continued growth, both in the U.S. and in international markets. Nytol over-the-counter sleep-aid is a well known brand in North America and, while these markets are substantially smaller, Nytol became the number one over-the-counter sleep-aid in the U.K., as it is in Canada. The product's growth in these countries is testimony to the Company's ability to effectively convey product attributes to the consumer. * Lodine is a registered trademark of Wyeth-Ayerst, Inc. ** Habitrol is a registered trademark of Ciba Self-Medication, Inc. CONSUMER OVER-THE-COUNTER MEDICINES (Cont'd) The U.K. is also the home of a brand acquired this past fiscal year, Setlers antacid. Well known throughout the U.K., the Setlers brand has the potential for solid growth in other markets. The Phazyme and Setlers brands provide the Company with an important base and growing expertise in the digestive aid product category worldwide. Complementing this expertise is the Nature's Remedy brand, a natural laxative, which was also acquired in fiscal 1996. Headache powders are specialty analgesics sold in the Southern U.S. where there is a strong tradition of taking pain relief medication in powder form. The Company's Goody's brand, acquired in fiscal year 1995, and the BC brand, the Company's long-established product, lead the headache powder market and enjoy tremendous consumer loyalty. Effective advertising and promotional campaigns have helped these products maintain their positions in the over-the-counter powdered analgesic marketplace. HOUSEHOLD PRODUCTS The Company's Household Products Division continues to build its specialty brands which address specific consumer household problems and engender strong customer loyalty. These products are primarily sold throughout the U.S. and Canada, but distribution is increasing in Latin America as well. The 2000 Flushes line of automatic toilet bowl cleaners remained the number one brand in its category this year. Through strategic marketing, product innovation and line extensions, including the launch of the 2000 Flushes Blue plus Bleach brand this fiscal year, 2000 Flushes competes effectively in a challenging marketplace. In the household cleaner market, the X-14 brand has provided a solid foundation for developing a full line of hard surface cleaners under a strong brand name. The X-14 line continued to grow this year throughout the U.S. and Canada fueled, in part, by product innovations and variations. The line now includes X-14 Instant Mildew Stain Remover, X-14 Soap Scum Remover and X-14 Kitchen Cleaner. Growth prospects for this product in Latin America offer additional opportunity in the coming years. Capitalizing on the Company's expertise in the automatic toilet bowl cleaner category, X-14 Toilet Bowl Cleaner was introduced last fiscal year in the short duration category. Products in this line include X-14 Chlorine Clear and X-14 Blue plus Fragrance. These new products have exhibited growth to date and continued progress is expected. Acquisitions continue to be an important part of the Company's on-going strategy in Household Products. Two strong brands were acquired in fiscal year 1996: Lava brand soap and Carpet Fresh brand rug and room deodorizers. As a well known and respected brand name, Lava enjoys widespread consumer recognition as a soap for extra-dirty hands. The Company anticipates the Lava brand soap will become an important product to the Division. Similarly, the Carpet Fresh brand is a well known name in its product category of rug and room deodorizers. Two new fragrances were introduced this year. 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, results of operations or cash flows. 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 and professional dental products are promoted by the Company through dental journals. 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 representatives 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 medicines and household products are product formulation, reputation, advertising and consumer promotion. 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, 1996, 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. Item 2.Proprties: 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 2,427,000 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) dental product manufacturing: Humacao, Puerto Rico (Dentco, Inc.); Glendale, Wisconsin (leased); Dungarvan, Ireland; and Cwmbran, Wales; (3) 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, results of operations or cash flows. Item 4. Submission of Matters to a Vote of Security Holders On June 4, 1996 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, subject to certain statutory limitations. 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 A Common Declared Per Share Stock* Fiscal Year Ended High Low March 31, 1996 First Quarter $37 1/4 $32 1/4 $0.27 Class A Shares Second Quarter 40 33 3/4 $0.27 Class A Shares $0.10 Class B Shares Third Quarter 40 34 $0.29 Class A Shares $0.10 Class B Shares Fourth Quarter 42 3/8 33 $0.29 Class A Shares** $0.10 Class B Shares** Fiscal Year Ended March 31, 1995 First Quarter 32 3/4 29 1/2 $0.26 Class A Shares Second Quarter 32 1/4 29 $0.26 Class A Shares Third Quarter 38 30 1/2 $0.27 Class A Shares Fourth Quarter 37 3/4 33 $0.27 Class A Shares*** * 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 2, 1996 to Class A and B shareholders in Class A Common Stock. *** In addition, a 3% stock dividend was paid on January 3, 1995 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 4, 1996: Title of Class Number of Shareholders Common Stock, Class A (non-voting) 547 Common Stock, Class B (voting) 5 Item 6. Selected Financial Data Fiscal Year Ended March 31 1996 1995 1994 1993 1992 Net Sales from Continuing Operations $715,242,000 $621,139,000 $566,772,000 $577,305,000 $520,261,000 Interest, Dividends & Other Income 30,157,000 23,026,000 23,383,000 26,490,000 22,328,000 Income from Continuing Operations before Income Taxes 65,501,000 57,870,000 54,147,000 69,446,000 60,969,000 Income Taxes 11,798,000 11,944,000 8,135,000 13,026,000 8,343,000 Income from Continuing Operations 53,703,000 45,926,000 46,012,000 56,420,000 52,626,000 Average Number of Common Shares Outstanding(1) 20,796,000 20,753,000 20,718,000 20,692,000 20,676,000 Income from Continuing Operations, Per Share of Common Stock(1) $2.58 $2.21 $2.22 $2.73 $2.55 Net Income Per Share of Common Stock(1) $4.26 $2.43 $2.31 $2.97 $2.77 Cash Dividends Declared Per Share of Class A Common $1.12 $1.06 $1.02 $ .95 $ .85 Cash Dividends Declared Per Share of Class B Common $0.30 - - - - 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 $ 19,012,000 $ 16,031,000 $ 13,580,000 $ 10,727,000 $ 9,059,000 Working Capital 106,050,000 26,095,000 32,637,000 51,203,000 69,563,000 Current Ratio 1.5 1.1 1.2 1.3 1.4 Total Assets $929,117,000 $871,320,000 $771,068,000 $726,497,000 $649,608,000 Long-Term Debt and Notes Payable 56,143,000 15,273,000 17,880,000 19,160,000 19,435,000 Shareholders' Equity 641,042,000 562,531,000 515,121,000 485,298,000 446,550,000 Number of Employees 3,600 3,521 3,491 3,505 3,301 Management's Discussion and Analysis of Operating Results and Financial condition is presented on pages 8 to 12 of this report. (1) Restated to reflect stock dividends declared on Class A and Class B Common Stock by the Company in 1996 and previously. (2) Payable in Class A Common Stock. Prior years income statement numbers are restated to reflect discontinued operations Item 7. Management's Discussion and Analysis of Operating Results and Financial Condition In June of 1995, the Company sold its U.S. Reed & Carnrick Pharmaceutical Division. The discussion of Operations that follows excludes that Division, which has been treated as a discontinued operation for all periods presented. For additional information see "Discontinued Operations" in the Notes to Consolidated Financial Statements on page 26. Operating Results Consolidated worldwide net sales for the fiscal year ended March 31, 1996 were $715.2 million, an increase of 15% from the prior fiscal 1995, which recorded an increase of 10%. Domestic and international sales increased in both fiscal 1996 and 1995 over the preceding year. Domestic sales in fiscal 1996 increased 14%, reflecting volume growth of 12% and price increases of 2%. International sales in fiscal 1996 increased 16%. Excluding the impact of foreign currency exchange rate fluctuations, fiscal year 1996 international sales would have risen 10%. Not included in the Company's sales is its 50% interest in a Japanese Joint Venture company, Kobayashi-Block Company Ltd., which is accounted for under the equity method. Total sales of the Joint Venture for fiscal 1996 were $147.1 million, a 22% increase over fiscal 1995, which had total sales of $120.4 million, 30% higher than fiscal 1994. The Company's largest business segment, dental products, increased 13% to $496 million, following a 12% increase in the prior year. Consumer product sales increased to $219 million, a 22% increase compared to a 4% increase in the previous year. Interest, dividends and other income increased in the current year primarily due to increased equity income from Kobayashi-Block Joint Venture and co-promotion arrangements in the dental products segment. Investment income in fiscal 1995 approximated fiscal 1994. The cost of goods sold percentage to sales was 32.8% in fiscal 1996 compared to 33.5% in fiscal 1995 and 34.1% in fiscal 1994. These improved percentages reflect continuing cost containment efforts and mix of products sold, in addition to selective price increases. Selling, general and administrative expenses represent 62.2%, 60.9% and 60.5% of sales in fiscal 1996, 1995 and 1994 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. These expenses were increased and reflect a major effort to meet significant competition and build brand equities. Due to these factors, income before taxes was 9.2% of sales in fiscal 1996 as compared to 9.3% and 9.6% in fiscal 1995 and 1994, respectively. The effective income tax rates of 18.0%, 20.6% and 15.0% in fiscal 1996, 1995 and 1994, 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 are subject to foreign exchange 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 1996 and 1995, the U.S. Dollar generally weakened. This had a favorable impact on profits for both years. The Company is not engaged in a hedging program for foreign currency. Although inflation has been moderate throughout fiscal 1996 and 1995, 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. The Company has realigned its business strategy during the past 12 months, renewing its focus on the marketing and manufacturing of its core business segments: dental, and consumer products and other. This fundamental change in strategy led to the divestiture of the Reed & Carnrick domestic pharmaceutical division and the subsequent purchase of a number of key brands in support of core segments. In January, 1996 the Company acquired the Lava soap brand from Procter and Gamble. During the third quarter, the Nature's Remedy Laxative brand in the United States and the Setlers Antacid brand in the United Kingdom were acquired from SmithKline Beecham; and the Parodontax line of oral hygiene products was purchased from Madaus AG for European, Asian and Latin American markets. The Company signed an agreement to terminate its joint venture agreement in Japan with Kobayashi and acquired sole ownership of the Joint Venture Company in April, 1996. The Company desired more involvement in the day to day management of the business in Japan which represents a significant portion of the Company's international operations in over-the-counter oral care products. Also during the past year, the Company entered into an agreement with U.S. Biomaterials Corporation for the marketing and selling of PerioGlas brand dental implant material to dental professionals. The PerioGlas material is indicated for the treatment of intrabony defects caused by periodontal disease. This product is detailed to dentists through the Company's Dental Consultants. Detailing, advertising and telemarketing of PerioGlas commenced in the third fiscal quarter. Other product line acquisitions completed as part of the strategic realignment include the Goodys brand of headache powders from Goody's Pharmaceuticals in December 1994, and the Carpet Fresh and Neutra-Air brands of carpet fresheners from Reckitt & Colman in August 1995. Liquidity and Capital Resources Cash increased to $16.4 million at March 31, 1996 from $13.7 million at March 31, 1995 and $8.9 million at March 31, 1994. Net cash flows from operating activities were $43 million in fiscal 1996, $7 million less than the prior year. The sale of the U.S. Reed & Carnrick Division accounted for a $19 million reduction together with increases in accounts receivable and inventories more than offsetting increases in accounts payable. In fiscal 1995, net cash flows from operating activities were $50 million, $26 million less than the prior year. Increases in accounts receivable and inventories more offset an increase in accounts payable and a decrease in other current assets. Accounts receivable at year-end 1996, 1995 and 1994 represented 2.1, 2.1 and 1.9 average months of sales, respectively. Inventory levels comprised 6.4, 6.2, and 5.2 months supply at year-end 1996, 1995, and 1994 respectively. Net cash from investing activities in fiscal 1996 was $16 million, compared to net cash used in fiscal 1995 of $70 million. The sale of the U.S. Reed & Carnrick Division provided $64 million and together with net proceeds of securities more than offset payments for products acquired and additions to property, plant and equipment. In fiscal 1995, payments for products acquired, additions to property, plant and equipment, and purchase of long-term securities more than offset proceeds from sales of securities. In fiscal 1994, the net cash outflow for investing activity was $58 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. Net capital expenditures of $33 million in fiscal 1996 approximated fiscal 1995 and 1994. 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, a new distribution and manufacturing facility in Dayton, New Jersey and the renovations and expansions of production and warehouse facilities at the Memphis, Tennessee, South Brunswick, New Jersey and Puerto Rico plants. In fiscal 1996, the Company undertook an extensive reengineering project to improve internal business processes to better serve our customers. This new focus on technical efficiency and computerization will be a key to both current and future productivity. The Company's foreign facilities were also expanded in fiscal 1996. Expenditures continued to be made for renovation and expansion of production and warehousing facilities in Ireland and England. Expansion is expected to continue in fiscal 1997. The Company anticipates future capital spending to approximate 5% of net sales, and expects to fund modernization and expansion through internally generated funds and through short-term borrowings, as needed. Net cash used in financing activities was $56 million in fiscal 1996, compared to net cash provided of $25 million in fiscal 1995. In fiscal 1994, there was a net cash outflow of $15 million. The financing outflows arose from the payment of debt as well as dividends to shareholders. The financing inflows in fiscal 1995 arose from the proceeds from debt issuance to help finance the acquisition of Goody's Pharmaceuticals, Inc. which more than offset dividends to shareholders and debt repayment. An overall weakening of the U.S. dollar in relation to foreign currencies resulted in net foreign currency translation gains of $600,000 in fiscal 1996. In fiscal 1995, net foreign currency translation gains of $6.7 million were reported. These 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 classified all long-term securities as "available for sale". These long term securities reported at fair value resulted in unrealized holding gains of $6 million, net of taxes of $1.3 million as of March 31, 1996, and $1.8 million, net of taxes of $.6 million as of March 31, 1995. The Company anticipates that sufficient funds will be provided from operations and borrowing capabilities for capital expenditures, dividend payments and other cash needs in fiscal 1997. The Company had uncommitted lines of credit totaling $303 million and $249 million at March 31, 1996 and 1995, 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 51 of this Form 10-K. These financial statements and financial statements 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 11 percent and 28 percent, respectively, in the year ended March 31, 1996, 10 percent and 26 percent, respectively, in the year ended March 31, 1995 and 11 percent and 23 percent, respectively, in the year ended March 31, 1994 of the corresponding consolidated totals. These statements were audited by other auditors whose reports were furnished to us. Our opinion expressed herein, insofar as its 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, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 1996 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. COOPERS & LYBRAND L.L.P. New York, New York June 4, 1996 BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31 1996 1995 ASSETS Current Assets: Cash. . . . . . . . . . . . . . . . . . . . . . . . $ 16,388,000 $ 13,706,000 Marketable securities, at market (Note 4) . . . . . 13,433,000 24,061,000 Accounts receivable, less allowances of $4,188,000 (1996) and $3,222,000 (1995) . . . . . . . . . . . 124,816,000 114,656,000 Inventories (Note 1 and 2). . . . . . . . . . . . . 124,368,000 113,419,000 Other current assets. . . . . . . . . . . . . . . . 33,200,000 30,045,000 Total current assets. . . . . . . . . . . . . . . 312,205,000 295,887,000 Property, plant and equipment, less accumulated depreciation (Notes 1 and 3) . . . . . . . . . . . 242,552,000 229,446,000 Long-term securities, at market (Note 4). . . . . . 222,667,000 260,076,000 Goodwill and other intangible assets, less accumulated amortization of $9,627,000 (1996) and $9,865,000 (1995) (Note 1). . . . . . . . . . . . . . . . . . . . . 127,047,000 64,040,000 Other assets. . . . . . . . . . . . . . . . . . . . 24,646,000 21,871,000 Total assets. . . . . . . . . . . . . . . . . . . $929,117,000 $871,320,000 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes and bonds payable (Note 5). . . . . . . . . $ 75,559,000 $155,591,000 Accounts payable and accrued expenses (Note 6). . 118,273,000 101,952,000 Income taxes payable (Note 7) . . . . . . . . . . 7,751,000 8,884,000 Dividend payable. . . . . . . . . . . . . . . . . 4,572,000 3,365,000 Total current liabilities. . . . . . . . . . . . 206,155,000 269,792,000 Notes and bonds payable (Note 5). . . . . . . . . . 56,143,000 15,273,000 Deferred income taxes (Note 7). . . . . . . . . . . 10,413,000 13,086,000 Deferred compensation and other liabilities (Notes 1 and 8) 15,364,000 10,638,000 Total liabilities. . . . . . . . . . . . . . . . 288,075,000 308,789,000 Shareholders' equity (Notes 1 and 9): Class A common stock non-voting par value $.10-15,000,000 shares (1996 and 1995) authorized, 13,111,962 (1996) and 12,466,172 (1995) shares issued and outstanding . . 1,311,000 1,247,000 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. . . . . . . . . . . 219,207,000 194,426,000 Retained earnings . . . . . . . . . . . . . . . . . 416,200,000 367,325,000 Cumulative foreign currency translation adjustment (Note 1). . . . . . . . . . . . . . . . . . . . . (2,476,000) (3,054,000) Unrealized holding gain on marketable securities (Note 4) 6,030,000 1,817,000 Total shareholders' equity. . . . . . . . . . . . . 641,042,000 562,531,000 Total liabilities and shareholders' equity. . . . $ 929,117,000 $ 871,320,000
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, 1996, 1995 and 1994
1996 1995 1994 Revenues: Net sales . . . . . . . . . . . . . $715,242,000 $621,139,000 $566,772,000 Interest, dividends and other income. . 30,157,000 23,026,000 23,383,000 745,399,000 644,165,000 590,155,000 Cost and Expenses: Cost of goods sold. . . . . . . . . 234,782,000 207,793,000 193,315,000 Selling, general and administrative . . 445,116,000 378,502,000 342,693,000 679,898,000 586,295,000 536,008,000 Income from Continuing Operations before income taxes . . . . . . . . 65,501,000 57,870,000 54,147,000 Income Taxes (Note 7): Current . . . . . . . . . . . . . . 17,602,000 11,225,000 7,682,000 Deferred. . . . . . . . . . . . . . (5,804,000) 719,000 453,000 11,798,000 11,944,000 8,135,000 Income from Continuing Operations. . 53,703,000 45,926,000 46,012,000 Discontinued Operations (Note 11): Income from discontinued operations, net of taxes of $32,000 (1996), $1,336,000 (1995) and $1,127,000 (1994) . . . . . . . 52,000 4,443,000 1,840,000 Gain on sale of division, net of taxes of $21,406,000. . . . . . . . . . . 34,925,000 Income from discontinued operations 34,977,000 4,443,000 1,840,000 Net Income . . . . . . . . . . . . . 88,680,000 50,369,000 47,852,000 Retained earnings at beginning of year.. . 367,325,000 349,500,000 331,633,000 Less: Cash dividends declared-$1.12 (1996), $1.06 (1995) and $1.02 (1994) per share of Class A common stock (14,164,000) (12,731,000) (11,632,000) Cash dividends declared $0.30 (1996) per share of Class B common stock (2,311,000) Stock dividend 3% (1996, 1995 and 1994) to Class A and Class B shareholders payable in Class A common stock (Note 9). . . . . . . . . . . . . . (23,330,000) (19,813,000) (18,353,000) Retained earnings at end of year . . $416,200,000 $367,325,000 $349,500,000 Earnings per share of common stock (Notes 1 and 9): From Continuing Operations. . . . . $ 2.58 $ 2.21 $ 2.22 From Discontinued Operations. . . . 1.68 .22 .09 Net Earnings Per Share . . . . . . . $ 4.26 $ 2.43 $ 2.31
See notes to consolidated financial statements. BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW For the Years Ended March 31, 1996, 1995 and 1994
1996 1995 1994 CASH FLOW FROM OPERATING ACTIVITIES Net income . . . . . . . . . . . . . $88,680,000 $50,369,000 $47,852,000 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of discontinued operation. . . . . (34,925,000) Depreciation and amortization . . 21,470,000 17,071,000 14,539,000 Deferred income tax provision . . (5,804,000) 719,000 453,000 Deferred compensation provision . 1,979,000 2,700,000 1,773,000 Equity in net income of joint venture . (4,111,000) (2,836,000) (1,780,000) (Gain) loss on sales of long-term securities (919,000) 10,000 (42,000) Employee savings plan provision . 1,515,000 1,303,000 1,347,000 Other, net. . . . . . . . . . . . 986,000 644,000 (64,000) Changes in assets and liabilities that provided (used) cash, net of effects from purchase of products acquired Accounts receivable . . . . . . . (10,817,000) (11,311,000) (5,286,000) Inventories . . . . . . . . . . . (10,725,000) (20,108,000) 5,224,000 Accounts payable and accrued expenses . 16,173,000 11,122,000 19,558,000 Other current assets. . . . . . . (923,000) 5,873,000 (2,482,000) Other assets. . . . . . . . . . . 275,000 (1,656,000) (2,523,000) Income taxes and dividends payable. . 249,000 (1,738,000) (1,180,000) Payments of deferred compensation and other noncurrent liabilities. . (1,381,000) (2,453,000) (1,451,000) Changes from sale of division, net. . (19,063,000) Net cash flow from operating activities. . 42,659,000 49,709,000 75,938,000 CASH FLOW FROM INVESTING ACTIVITIES Proceeds from sales of U.S. Pharmaceutical Division, net of cash expenses. . . 64,431,000 Additions to property, plant and equipment . . . . (32,693,000) (34,542,000) (35,215,000) Decrease in marketable securities. . 4,924,000 3,951,000 6,945,000 Dispositions of long-term securities . . 74,808,000 37,807,000 23,910,000 Purchase of long-term securities . . (25,858,000) (28,686,000) (52,992,000) Payment for products acquired. . . . (69,870,000) (48,957,000) (250,000) Net cash provided by (used in) investing activities. . . . . . . . . . . . . 15,742,000 (70,427,000) (57,602,000) CASH FLOW FROM FINANCING ACTIVITIES Dividends paid to shareholders . . . (16,475,000) (12,731,000) (11,631,000) Proceeds from issuance of debt . . . 50,000,000 40,570,000 Payment of debt. . . . . . . . . . . (89,288,000) (2,612,000) (3,643,000) Net cash (used in) provided by financing activities. . . . . . . . (55,763,000) 25,227,000 (15,274,000) Effects of exchange rates on cash. . 44,000 301,000 (793,000) Increase in cash . . . . . . . . . . 2,682,000 4,810,000 2,269,000 Cash, beginning of year. . . . . . . 13,706,000 8,896,000 6,627,000 Cash, end of year. . . . . . . . . . $16,388,000 $ 13,706,000 $ 8,896,000 SUPPLEMENTAL CASH FLOW DATA Cash Paid During the Year: Interest. . . . . . . . . . . . . . . . . $ 8,850,000 $ 7,676,000 $ 6,979,000 Income Taxes. . . . . . . . . . . . . . . $39,812,000 $13,646,000 $13,627,000
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 Ltd.) is accounted for under the equity method. With the exception of the March 31 year-end accounts of Germany, Japan and Colombia branches, 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), 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 gains and (losses) of $379,000, ($2,951,000) and ($1,789,000), were included in selling, general and administrative expenses in the determination of net income for fiscal years 1996, 1995 and 1994, respectively. 1996 1995 1994 Transactions $ 826,000 ($ 649,000) ($ 383,000) Translation relating to highly inflationary countries ( 447,000) ( 2,302,000) ( 1,406,000) Total $ 379,000 ($2,951,000) ($1,789,000) CUMULATIVE TRANSLATION ADJUSTMENT RECONCILIATION 1996 1995 1994 Balance -Beginning (3,054,000) (9,705,000) (2,225,000) Translation Adjustment 578,000 6,651,000 (7,480,000) Balance-Ending (2,476,000) (3,054,000) (9,705,000) 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, 12 years for equipment and 5 years for computers. 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. Amortization of goodwill and other intangible assets was $2,458,000, $1,040,000 and $959,000 in the years ended March 31, 1996, 1995 and 1994, 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. Retirement plans and deferred compensation agreements: Pension costs recorded as charges to operations include actuarially 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. In fiscal 1994, the Company adopted Statement of Financial Accounting Standards No. 106 (SFAS 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 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 actuarially 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 the years ended March 31, 1996, 1995 and 1994 were $23,959,000, $23,465,000 and $21,568,000, 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 20,796,000, 20,753,000 and 20,718,000 in fiscal year 1996, 1995 and 1994, respectively. New accounting standards: In March, 1995, the Financial Accounting Standards 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 will implement SFAS No. 121 in fiscal 1997. The adoption of SFAS No. 121 is not expected to have a significant impact on the Company's consolidated financial position or results of operations. Risk and Uncertainties: 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 is an important factor 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 and consumer promotions. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual amounts are not expected to differ from those estimates. Reclassification: Certain prior year amounts have been reclassified to conform with current year presentation. Note 2. Inventories: Major classes of inventories comprise: March 31 1996 1995 Raw and packaging materials. . . . . . . . . $ 42,868,000 $41,033,000 Finished goods . . . . . . . . . . . . . . . 81,500,000 72,386,000 Total . . . . . . . . . . . . . . . . . . . . $124,368,000 $ 113,419,000 Note 3. Property, Plant and Equipment: Major classes of property, plant and equipment are summarized as follows: March 31 1996 1995 Land . . $ 21,066,000 $ 20,585,000 Building and related improvements. . . . . 149,274,000 147,138,000 Machinery and equipment. . . . . . . . . . 136,408,000 119,224,000 Furniture and fixtures . . . . . . . . . 44,951,000 36,223,000 Construction in progress . . . . . . . . . 5,577,000 4,825,000 357,276,000 327,995,000 Less: Accumulated depreciation 114,724,000 98,549,000 Total $242,552,000 $229,446,000 Depreciation expense for the years ended March 31, 1996, 1995 and 1994 was $19,012,000, $16,031,000 and $13,580,000, respectively. Certain of the above properties are pledged as collateral for the bonds (Note 5). Note 4. Marketable Securities: On April 1, 1994, the Company adopted 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 non current, as of March 31, 1996 consisted of the following: Unrealized Holding Fair Value Gains Losses U.S government and its agencies $ 93,280,000 $2,818,000 $1,378,000 Municipal and state 132,314,000 5,894,000 Other, principally money market 10,506,000 $236,100,000 $8,712,000 $1,378,000 The above unrealized holding gains and losses, net of income taxes of $1,304,000, are reflected as "unrealized holding gain on marketable securities" in shareholders' equity. The marketable securities, both current and non-current, 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, 1996 and 1995 were as follows: 1996 1995 Within 1 year $ 13,433,000 $ 24,061,000 After 1 year through 5 years 53,115,000 19,539,000 After 5 years through 10 years 70,099,000 154,437,000 After 10 years 99,453,000 86,100,000 $ 236,100,000 $ 284,137,000 The proceeds from the sales of available-for-sale securities (excluding normal principal payments on government agency obligations, bond redemptions and maturities) were $60,558,000 and $10,161,000 for the years ended March 31, 1996 and 1995, respectively. Gross realized gains and gross realized losses from these transactions were $1,066,000 and $89,000 for the year ended March 31, 1996 and $270,000 and $258,000 for the year ended March 31, 1995, respectively. The cost of marketable securities sold was determined by specific identification. Note 5. Notes and Bonds Payable: Short-term notes payable consist primarily of borrowings from various banks at interest rates ranging from 4.2% to 13.6%. At March 31, 1996 and 1995, the Company maintained short term uncommitted bank lines of credit aggregating $303,384,000 and $248,810,000, respectively. Of these amounts, $235,559,000 and $93,513,000 was unused at March 31, 1996 and 1995, respectively. Long-term notes and bonds payable are comprised of the following: March 31 1996 1995 11.75% Bonds due fiscal 1996 through fiscal 2001(a) $ $ 5,625,000 7.3% to 7.5% Notes due fiscal 1997 . . . . . . 3,380,000 7.0% Notes due fiscal 2000 . . . . . . . . . . 1,693,000 1,818,000 6.47% Senior note due fiscal 2007. . . . . . . 50,000,000 Variable rate bonds (currently 4.2%), due fiscal 2010 . . . . . . . . . . . . . . . . . 4,450,000 4,450,000 $56,143,000 $15,273,000 (a) called 6/1/96 Certain properties of the Company (approximate book value $10,657,000) are pledged as collateral for the bonds (Note 3). The requirements of the bond indentures include the maintenance by the Company of minimum consolidated net worth and net working capital including long-term marketable securities of $250,000,000 and $50,000,000, respectively. Interest expense on all borrowings aggregated $8,374,000 in fiscal 1996, $8,292,000 in fiscal 1995 and $7,029,000 in fiscal 1994. Long-term debt at March 31, 1996 is payable as follows: Year ended March 31 2000 . . . . . . . . . . . $ 1,693,000 2001 and later . . . . . . 54,450,000 $56,143,000 The Company 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 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 additional $50 million cap protection was discontinued in July, 1995. The Company received payments totaling $319,000 during the year pursuant to these agreements and recorded the payment as a reduction of interest expense. As of March 31, 1996, the fair market value of the $100 million notional amount of these agreements, net of the present value of premium installment payments due, was an off-balance sheet liability of $1,289,000. Note 6. Accounts Payable and Accrued Expenses: Accounts payable and accrued expenses are comprised of the following: March 31 1996 1995 Accounts payable - trade . . . . . . . . . . . . . $ 29,323,000 $ 31,568,000 Accrued salaries, wages, vacation pay and bonuses. 31,936,000 28,114,000 Accrued advertising and selling expenses . . . . . 28,071,000 26,505,000 Other current liabilities. . . . . . . . . . . . . 28,943,000 15,765,000 $118,273,000 $101,952,000 Note 7. Income Taxes: Income taxes on continuing operations consisted of: Current Deferred Total For the year ended March 31, 1996 Federal. . . . . . . . . . . .. $ 7,361,000 $(6,115,000) $ 1,246,000 Foreign . . . . . . . . . . . .. 9,466,000 835,000 10,301,000 State . . . . . . . . . . . . .. 775,000 (524,000) 251,000 $17,602,000 $(5,804,000) $11,798,000 For the year ended March 31, 1995 Federal. . . . . . . . . . . .. $ 2,095,000 $ 1,123,000 $ 3,218,000 Foreign . . . . . . . . . . . .. 7,836,000 (500,000) 7,336,000 State . . . . . . . . . . . . .. 1,294,000 96,000 1,390,000 $11,225,000 $ 719,000 $11,944,000 For the year ended March 31, 1994 Federal. . . . . . . . . . . .. $(2,134,000) $ (270,000) $(2,404,000) Foreign . . . . . . . . . . . .. 9,107,000 746,000 9,853,000 State . . . . . . . . . . . . .. 709,000 (23,000) 686,000 $ 7,682,000 $ 453,000 $ 8,135,000 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: 1996 1995 1994 For the year ended March 31: Depreciation. . . . . . . . . . .. . . . $2,025,000 $2,140,000 $1,786,000 Expenses (not) currently deductible for tax purposes. . . . . . . . . .. . . . (7,999,000) (699,000) (1,437,000) Other . . . . . . . . . . . . . .. . . . 170,000 (722,000) 104,000 . . . . . . . . . . . . .. (5,804,000) $ 719,000 $ 453,000 A reconciliation of the provision for income taxes on income from continuing operations and the amount that would be computed using statutory federal income tax rates on income before income taxes for the years ended March 31 is as follows: Percent of Income Before Income Taxes 1996 1995 1994 For the year ended March 31: U.S. statutory income tax rate . . . . . .. 35.0% 35.0% 35.0% Tax exempt state and municipal bond income. (6.0) (6.0) (6.2) Irish operating income taxed at lower rate. (5.3) (4.9) (9.4) Reduction in taxes resulting from Puerto Rico source income subject to lower tax rate . (6.8) (4.0) (3.3) Other, net. . . . .. . .. . .. . . . . . .. 1.1 0.5 (1.1) 18.0% 20.6% 15.0% 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 $194,886,400 as of March 31, 1996, 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:* Deferred tax assets: March 31, 1996 1995 Coupon accrual, sales discounts, and workers compensation. . . $3,816,000 $3,331,000 Employee benefits. . .. . .. . .. . .. . .. . 5,982,000 4,708,000 Accrual on vacation. .. . .. . .. . .. . .. . 1,489,000 1,055,000 Deferred compensation.. . .. . .. . .. . .. . 3,049,000 2,770,000 Capital gain. . .. . .. . .. . .. . .. . .. . 7,801,000 Other .. . .. . .. . .. . .. . .. . .. . .. . 894,000 2,047,000 $23,031,000 $13,911,000 Deferred tax liabilities: Property, plant and equipment. .. . .. . $17,768,000 $16,361,000 SFAS No. 115 adjustment . .. . .. . .. . .. 1,304,000 578,000 Other .. . .. . .. . .. . .. . .. . .. . .. 2,775,000 676,000 $21,847,000 $17,615,000 * As of March 31, 1996 and 1995, recoverable income taxes reflected in the balance sheet in "Other current assets" included current deferred tax assets of $11,597,000 and $9,382,000, respectively. The remaining deferred tax liabilities, net of deferred tax assets, were reflected in the balance sheet as "Deferred income taxes". 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: 1996 1995 1994 Service cost. . . .. . .. . .. . . $5,196,000 $4,822,000 $4,151,000 Interest cost on projected benefit obligation . . . . . . . . . . 5,399,000 4,404,000 3,776,000 Actual return on plan assets. . . . . (12,860,000) (1,216,000) (5,106,000) Net amortization and deferral . . . . 6,697,000 (4,928,000) (616,000) Net periodic pension cost . . . . . $ 4,432,000 $3,082,000 $2,205,000 The following table sets forth the present value of benefit obligations and funded status for the Company's foreign and domestic plans: 1996 1995 Actuarial present value of benefit obligations, including vested enefits of $51,091,000 in 1996 and $42,403,000 in 1995. . . . . . $52,304,000 $41,664,000 Projected benefit obligations. . . 72,154,000 $62,824,000 Plan assets at fair value (primarily invested in stocks, bonds and government obligations) 79,693,000 $67,763,000 Add: Unrecognized prior service cost 3,352,000 2,988,000 Less: Unrecognized, net gain on assets 19,204,000 13,432,000 Unamortized transition asset established as of February 28, 1985 3,002,000 3,653,000 Adjustment for minimum liability 399,000 634,000 One time purchase price liability - 60,440,000 315,000 52,717,000 Net pension liability. . . . . . . $11,714,000 $10,107,000 The expected long-term rate of return on plan assets was 8% for 1996 and 1995. The weighted average discount rate was 7.5% for 1996 and 8.0% in 1995. The rate of increase in future compensation levels used in determining the actuarial present value of projected benefit obligations was 5.0% for 1996 and 6.0% for 1995. 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, 1996, 1995 and 1994 were $923,000, $559,000 and $718,000, respectively. Deferred compensation payable included $3,124,000 at March 31, 1996 and $2,801,000 at March 31, 1995, respectively. Such amounts represent the actuarially determined present value of the vested benefits. 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. 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. The postretirement benefit liability as of March 31, 1996 and 1995 is as follows: 1996 1995 Retirees . . . . . . . . . . . . . . . . . $3,664,000 $3,080,000 Fully eligible active plan participants. . . . . . . 860,000 858,000 Other active plan participants . . . . . . . . . 3,661,000 3,263,000 Total accumulated postretirement benefit obligation . . . . . . 8,185,000 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 . . . . . . . . 374,000 168,000 Unrecognized transition obligation. . . . . 4,772,000 5,052,000 Accrued postretirement benefit cost recognized in the Balance Sheet .. . . . $3,039,000 $1,981,000 The cost of providing postretirement benefits for the period ending March 31, 1996 and 1995 includes the following: 1996 1995 Service cost benefits attributed to service during the period. . . . $ 288,000 $ 273,000 Interest cost on the accumulated postretirement benefit obligation . . . . . . 572,000 508,000 Estimated return on plan assets. . . . . . . . . . . - - Amortization of transition obligation. . . . . . . . 281,000 281,000 Net periodic postretirement benefit cost. . $1,141,000 $1,062,000 The accumulated postretirement benefits 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 1996 decreasing gradually to 5.5% 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 these 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 $650,000 and the aggregate of the service and interest cost components of net postretirement health care cost for 1996 would be approximately $67,000. Measurement of the accumulated postretirement benefit obligation was based on an assumed discount rate of 7.5% and 8.0% for 1996 and 1995, respectively. 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 31, 1995, the Company declared an increased cash dividend of $.29 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 2, 1996 to shareholders of record as of December 1, 1995. On August 8, 1995 the Company declared an increased cash dividend of $.10 on the Class B Common Stock. 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. Net income per share of common stock has been restated to reflect the current and prior years' stock dividends. Changes in Class A Common Stock, Class B Common Stock and capital in excess of par value during fiscal 1996, 1995 and 1994 were as follows: CLASS A CLASS B COMMON STOCK COMMON STOCK Capital in Issued Issued Excess of Shares Amount Shares Amount Par Value Balance, March 31, 1993 11,241,000 $1,124,000 7,704,400 $770,000 $153,996,000 3% Stock Dividend 569,000 $ 57,000 $ 18,296,000 Savings Incentive Plan(1) 37,000 4,000 1,344,000 Repurchase of Shares (8,000) (1,000) (264,000) Balance, March 31, 1994 11,839,000 $1,184,000 7,704,400 $770,000 $173,372,000 3% Stock Dividend 587,000 $ 59,000 $ 19,755,000 Savings Incentive Plan(1) 40,000 4,000 1,299,000 Balance, March 31, 1995 12,466,000 $1,247,000 7,704,400 $770,000 $194,426,000 3% Stock Dividend 606,000 60,000 23,269,000 Savings Incentive Plan(1) 40,000 4,000 1,512,000 Balance, March 31, 1996 13,112,000 $1,311,000 7,704,400 $770,000 $219,207,000 (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. Note 10. Legal Proceedings: The Company is involved in various routine litigation incidental to its continuing and discontinued operations. 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. Discontinued Operations: On June 30, 1995, the Company sold its U.S. Reed & Carnrick Pharmaceutical Division. In connection therewith, the Company recorded a gain on disposal of $34,925,000, net of taxes of $21,406,000 ($1.68 per share). The U.S. Reed & Carnrick Pharmaceutical business is reported as a discontinued operation for all periods presented. The statements of consolidated income and related notes to consolidated financial statements have been restated to conform to the discontinued operations presentation. The sales for the U.S. Reed & Carnrick Pharmaceutical business for the quarter ended June 30, 1995 (through the date of disposition) were $10,039,000. Sales for the fiscal years ended March 31, 1995 and 1994, were $48,715,000 and $46,511,000, respectively. Income from discontinued operations for the fiscal years ended March 31, 1996, 1995, 1994, net of taxes, was $52,000, $4,443,000 and $1,840,000, respectively. Note 12. Product Segments: The Company develops, manufactures and sells products classified into two 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 household cleaning products, over-the-counter products including anti-gas preparations, headache powders, sleep-aid tablets, digestive aids, diaper rash ointments, and medicated shampoos. The following table presents information concerning the Company's continuing operations by product segment and geographic area for the years ended March 31, 1996, 1995 and 1994. PRODUCT SEGMENTS 1996 1995 1994 (in thousands) Net Sales: Dental. . . . . . . . . . . . . . . . . $495,798 $440,531 $393,613 Consumer Products and other . . . . . . 219,444 180,608 173,159 Consolidated net sales. . . . . . . . . $715,242 $621,139 $566,772 Operating Income: Dental. . . . . . . . . . . . . . . . . $ 60,170 $ 58,742 $ 46,177 Consumer Products and other . . . . . . 31,623 19,929 29,042 Total operating income. . . . . . . . . 91,793 78,671 75,219 General corporate expenses. . . . . . . (26,292) (20,801) (21,072) Consolidated income before income taxes $ 65,501 $ 57,870 $ 54,147 Assets: Dental. . . . . . . . . . . . . . . . . . $376,988 $333,188 $325,325 Consumer Products and other . . . . . . . 302,466 228,035 172,662 Total identifiable assets . . . . . . . . 679,454 561,223 497,987 General corporate assets. . . . . . . . . 249,663 310,097 273,081 Consolidated assets . . . . . . . . . . . $929,117 $871,320 $771,068 Depreciation and Amortization: Dental. . . . . . . . . . . . . . . . . . $ 13,389 $ 9,951 $ 8,554 Consumer Products and other . . . . . . . 8,081 7,120 5,985 Consolidated depreciation and amortization $ 21,470 $ 17,071 $ 14,539 Capital Expenditures, Net: Dental. . . . . . . . . . . . . . . . . $ 23,406 $ 22,234 $ 18,836 Consumer Products and other . . . . . . 9,287 12,308 16,379 Consolidated capital expenditures . . . $ 32,693 $ 34,542 $ 35,215 GEOGRAPHIC AREA Net Sales: United States . . . . . . . . . . . . . $334,614 $291,313 $272,154 Europe. . . . . . . . . . . . . . . . . 285,245 242,424 211,539 Other . . . . . . . . . . . . . . . . . 95,383 87,402 83,079 Consolidated net sales. . . . . . . . . $715,242 $621,139 $566,772 Operating income: United States . . . . . . . . . . . . . $45,564 $ 36,022 $ 26,996 Europe. . . . . . . . . . . . . . . . . 32,834 29,932 31,068 Other . . . . . . . . . . . . . . . . . 13,395 12,717 17,155 Total operating income. . . . . . . . . 91,793 78,671 75,219 General corporate expenses. . . . . . . (26,292) (20,801) (21,072) Consolidated income before income taxes $65,501 $ 57,870 $ 54,147 Assets: United States . . . . . . . . . . . . . $361,543 $314,149 $243,437 Europe. . . . . . . . . . . . . . . . . 270,641 212,830 203,767 Other . . . . . . . . . . . . . . . . . 47,270 34,244 50,783 Total identifiable assets . . . . . . . 679,454 561,223 497,987 General corporate assets. . . . . . . . 249,663 310,097 273,081 Consolidated assets . . . . . . . . . . $929,117 $871,320 $771,068 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. 1995 and 1994 amounts are reclassified to conform to 1996 presentation. Note 13. Subsequent Event The Company signed an agreement to terminate its joint venture agreement in Japan with Kobayashi and acquired sole ownership of the Joint Venture Company in April, 1996. The Company desired more involvement in the day to day management of the business in Japan which represents a significant portion of the Company's international operations in over-the-counter oral care products. QUARTERLY FINANCIAL INFORMATION (Unaudited) The following is a tabulation of quarterly results of operations for the years ended March 31, 1996 and 1995 (in thousands, except per share amounts): Fiscal 1996 Quarters First Second Third Fourth Net sales. . . . . . . $178,810,000 $172,234,000 $174,351,000 $189,847,000 Gross profit . . . . . 123,130,000 113,573,000 116,261,000 127,496,000 Income from Continuing Operations Before Income Taxes . . . . 17,926,000 16,178,000 17,412,000 13,985,000 Income from Continuing Operations. . . . . .. 14,248,000 12,899,000 13,087,000 13,469,000 Income (Loss) from Discontinued Operations. . . . . . 43,088,000 (79,000) (1,241,000) (6,791,000) Net Income . . . . . . . 57,336,000 12,820,000 11,846,000 6,678,000 Earnings per share of Common Stock From Continuing Operations(1) . . . . $0.69 $0.62 $0.63 $0.64 Earnings per share of Common stock From Discontinued Operations(1) . . . . $2.07 $0.00 ($0.06) ($0.33) Fiscal 1995 Quarters First Second Third Fourth Net sales. . . . . . . .$146,728,000 $154,976,000 $148,676,000 $170,759,000 Gross profit . . . . . .. 99,531,000 103,654,000 102,596,000 107,565,000 Income from Continuing Operations Before Income Taxes . 13,299,000 15,393,000 13,400,000 15,778,000 Income from Continuing Operations. . . . . . 10,518,000 11,636,000 10,925,000 12,847,000 Income from Discontinued Operations. . . . . . 1,405,000 746,000 1,295,000 997,000 Net Income . . . . . . . 11,923,000 12,382,000 12,220,000 13,844,000 Earnings per share of Common Stock From Continuing Operations(1) . . . . . $0.50 $0.56 $0.53 $0.62 Earnings per share of Common stock From Discontinued Operations(1) . . . . $0.07 $0.04 $0.06 $0.05 (1) Restated to reflect the three percent stock dividends (see Note 9). 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: Name Age Date Term Other Positions Held Expires (or principal occupation) Leonard Block 84 6/96 Senior Chairman of the Board* James A. Block 59 6/96 Chairman of the Board* Thomas R. Block 51 6/96 President and Treasurer* ** Donald H. LeSieur 60 6/96 Executive Vice President and President, International Division Michael C. Alfano, D.M.D., Ph.D. 48 6/96 Senior Vice President, Research and Technology Alfred E. Brown, Ph.D. 79 6/96 Director of Scientific Affairs** Celanese Corporation (Retired) Peggy Danziger 56 6/96 Private Investor William T. Golden 86 6/96 Corporate Director and Trustee** Melvin Kopp 66 6/96 Senior Vice President and Chief Financial Officer Peter Mann 54 6/96 President, U.S. Division John E. Peters 54 6/96 Senior Vice President, General Counsel and Secretary Peter J. Repetti 78 6/96 Member, Fulbright & Jaworski L.L.P. (Retired) Susan B. Stearns 51 6/96 Private Investor Mary C. Tanner 46 6/96 Managing Director, Lehman Brothers * Member of the Executive Committee ** Member of the Audit Committee (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., (v) Peggy Danziger who is a private investor, and (vi) Mary C. Tanner, a Managing Director of Lehman Brothers. All Directors have served as Directors for a period in excess of five (5) years, except for Peter C. Mann, President of the Company's U.S. Division, and Mary C. Tanner, who were elected this year. 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 Board of Directors 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: Name Age Date of Date Term Positions Appointment Expires Leonard N. Block 84 10/88 6/96 Senior Chairman of the Board (1) James A. Block 59 10/88 6/96 Chairman of the Board (1) Thomas R. Block 51 10/88 6/96 President and Treasurer (1) Donald H. LeSieur 60 10/88 6/96 Executive Vice President and President, International Division (1)(3) Michael C. Alfano, D.M.D., Ph.D. 48 5/87 6/96 Senior Vice President, Research and Technology (2)(3) Melvin Kopp 66 10/72 6/96 Senior Vice President and Chief Financial Officer (2)(3) Peter C. Mann 54 11/79 6/96 President, U.S. Division (2)(3) John E. Peters 54 12/78 6/96 Senior Vice President, General Counsel and Secretary (2)(3) Gilbert Seymann 57 5/84 6/96 Senior Vice President, Operations (2)(3) Leonard N. 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. (1) Member - Office of the Chief Executive (2) Consultant - Office of the Chief Executive (3) Covered under the Change in Control Agreement described in Item 13. 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 or similar 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 Other Restricted Annual Stock Options LTIP All Other Name and Principal Fiscal Salary Bonus Compen- Award(s) /SARs Payouts Compensation Position Year $ $ sation ($) ($) ($) ($) ($) Leonard Block (1) 1996 362,347 136,500 * * * * 34,950 Senior Chairman 1995 357,469 89,500 34,537 of the Board 1994 340,832 79,000 34,504 James A. Block (2) 1996 336,252 119,600 * * * * 9,449 Chairman of 1995 327,948 88,900 9,099 the Board 1994 316,219 90,600 9,011 Thomas R. Block (3) 1996 336,252 125,400 * * * * 6,702 President and 1995 327,948 92,000 6,641 Treasurer 1994 316,219 93,500 5,832 Donald H. LeSieur (4) 1996 393,248 243,800 * * * - 13,074 Executive Vice 1995 342,288 148,100 122,031 9,981 Pres. International 1994 329,148 110,100 151,289 9,011 Peter C. Mann 1996 297,300 184,600 * * * 92,986 6,687 President, U.S. 1995 258,638 94,500 78,941 6,269 Division 1994 248,625 65,600 - 6,164
*None to be reported (1) On January 1, 1981, the Company entered into an Employment Agreement with Leonard N. 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 1995, the director's annual fee was $8,500 and remains unchanged for calendar year 1996. Executive officers who are directors receive no director's, attendance, audit committee or compensation committee fees. During calendar year 1995, five directors each received attendance fees of $850 per meeting. The fee of $850 per meeting was increased to $950 for calendar year 1996. During the calendar year 1995, two directors each received audit committee attendance fees of $850. The fee of $850 per meeting was increased to $900 for calendar 1996. During the calendar year 1995, two directors each received compensation committee attendance fees of $425. The fee of $425 per meeting was increased to $450 for calendar 1995. The total includes payments of $8,500 made to each of six directors, and $4,250 to one director, including three payments to each of six such directors of $2,125, and one payment of $2,125 to one such director in calendar year 1995 and one payment of $2,125 to each of seven such directors during the first quarter of calendar year 1996. This total further includes an aggregate of $15,900 paid to six directors as director's attendance fees, an aggregate of $6,900 paid to two directors as audit committee member fees, and an aggregate of $2,600 paid to two directors as compensation 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: 1996 Table of Annual Pension Benefits by Final Average Compensation and Service Classifications Years of Service at Age 65 Final Average Compensation 10 20 30 40 $ 50,000 $ 5,352.60 $10,705.20 $16,057.80 $22,842.00 100,000 12,750.00 25,500.00 38,250.00 52,500.00 150,000 20,250.00 40,500.00 60,750.00 82,500.00 200,000 27,750.00 55,500.00 83,250.00 112,500.00 250,000 35,250.00 70,500.00 105,750.00 120,000.00* 300,000 42,750.00 85,500.00 120,000.00* 120,000.00* 350,000 50,250.00 100,500.00 120,000.00* 120,000.00* * Maximum permissible benefit under IRC Sec. 415, effective January 1, 1996. The Company's domestic pension expense for the fiscal years ended March 31, 1996 and 1995 was $2,745,938 and $1,475,938, respectively. The plans are not in a fully funded status, and accordingly, the Company's financial statements reflect a domestic pension funding contribution of $851,425 for the fiscal year ended March 31, 1996. 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 32, 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 ($333,849.96); Thomas R. Block ($333,849.96); Donald H. LeSieur ($382,954.15); and Peter C. Mann ($291,561.42). 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, 1996, the five (5) employees described in Item 10 had the following credited years of service in these plans: Leonard Block, 47 years; James A. Block, 34 years; Thomas R. Block, 26 years; Donald H. LeSieur, 22 years; and Peter C. Mann, 23 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, 1996, the units were valued at $92.60. 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, 1996, a total of 282,234 units had been awarded having an average value of $87.82 per unit. Of those 282,234 units, 70,422 units at an average value of $92.57 per unit were awarded during the past fiscal year. During fiscal year 1996, the following units were awarded to executives: 4,230 units at $92.20 per unit to Donald H. LeSieur and 590 units at $93.30 per unit and 1,865 units at $93.30 per unit to Peter C. Mann. During the year ended March 31, 1996, $1,425,435 was paid in lump sum payments to the participants in the Special Stock Unit plan. Long-Term Incentive Plans - Awards In Last Fiscal Year Estimated Future Payouts Under Non-Stock Price-Based Plans Performance or No. of Shares, Other Period * ** Unit or Other Until Maturity Threshold Target Maximum Name Rights or Payout ($) ($) ($) Donald H. LeSieur 4,357 5 Years 2,018 238,000 - 0 0 0 Peter C. Mann 608 5 Years 63 34,000 - 1,921 194 106,000 * Minimum value as of March 31, 1996 ** 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 4, 1996, 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. Title of Class Name and Address Amount and Nature Percent Address of of Beneficial of Class Beneficial Owner Ownership 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 4, 1996, the securities ownership of all directors, naming them, and all Directors and Officers of the Company, as a group, without naming them: BLOCK DRUG COMPANY, INC. SECURITIES BENEFICIALLY OWNED Class A Common Stock Class B Common Stock Benefically Stock Beneficially Owned Owned Name of No Shared Shared 401-K Percentage Beneficial Investment Investment Plan Owned Owner Power Power Holdings Leonard Block 1,090,728 - 887 8% 3,852,200 - 50% (1) (4) (5) James A. Block 2,432,672 - 1,677 19% 3,852,200 - 50% (2) (3) Thomas Block 155,360 2,173,396 1,077 17% - (4) (5) Donald H. LeSieur 103 515 1,709 - - Michael C. Alfano - - 1,339 - - Alfred E. Brown 1,298 - - - - (6) Peggy Danziger 160,309 1,343,458 - 11% - (5) (8) William T. Golden 6,039 13,579 - - - Melvin Kopp 2,083 - - - - Peter C. Mann 818 103 1,484 - - John E. Peters - 2,030 1,245 - - Peter J. Repetti 257 - - - - (7) Gilbert M. Seymann 1,118 - 1,148 - - Susan B. Stearns - - - - - (2) (3) Mary C. Tanner - - - - - As of June 4, 1996, all directors and officers as a group owned 55% of the Company's Class A Common Stock. The number of shareholders of Class A Common Stock is 547. (1) Leonard Block owns 350,487 shares (not including 401-K Plan Holdings); is deemed to be the beneficial owner of but disclaims ownership of: 740,468 shares owned by Adlen Corporation, of which Leonard Block is the sole shareholder; 4,006 shares owned by Adele Block, his wife. (2) James A. Block owns 113 shares (not including 401-K Plan Holdings); is deemed to be the beneficial owner of: 168,196 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; 1,033,447 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; 1,230,916 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 1,230,916 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 95,338 shares (not including 401-K Plan Holdings); is deemed to be the beneficial owner but disclaims ownership of: 22,761 shares owned by Marilyn Friedman, his wife; 37,261 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; 120,935 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; 1,805,065 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; 247,396 shares owned by four 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 43, all 247,396 shares of these four 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, 123,698 shares (representing one-half of the total shares owned by the four trusts) were allocated to Thomas Block and 123,698 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 247,396 shares owned by these four 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 160,309 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; 247,396 shares owned by four 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 43, all 247,396 shares of these four 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 4,063 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, 123,698 shares (representing one-half of the total shares owned by the four trusts in which Peggy Danziger is a co-trustee with Thomas Block) were allocated to Thomas Block and 123,698 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 247,396 shares owned by these four 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 1,298 shares owned by his wife. (7) Peter J. Repetti disclaims beneficial ownership to 257 shares owned by his wife. (8) Peggy Danziger disclaims beneficial ownership to all 4,063 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 expired on December 31, 1995, or upon the covered executive's sixty-fifth (65) birthday, but provided 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 1996, 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, 1996 and 1995, Consolidated Statements of Income and Retained Earnings for the Years ended March 3l, 1996, 1995 and 1994, Consolidated Statements of Cash Flows for the Years ended March 3l, 1996, 1995 and 1994, Notes to Consolidated Financial Statements Supplementary Data: Selected quarterly data for the two years ended March 3l, 1996. 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 50. (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 9 2260 OEVEL-WESTERLO Dear Sirs, We have audited the accompanying balance sheets of Stafford-Miller Continental N.V. as of December 31, 1995 and 1994, and the related statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 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) April 19, 1996 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, 1995 and 1994, and the statements of income and retained earnings and cash flows for the years 1995, 1994 and 1993. 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, 1995 and 1994, and the results of its operations and its cash flow for the years 1995, 1994 and 1993 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, The Netherlands PO Box 7883 1008 AB Amsterdam February 9, 1996 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Stafford-Miller S.r.l. We have audited the accompanying balance sheets of Stafford Miller S.r.l. as of December 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 December 31, 1995. 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, 1995 and 1994 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 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 for the year ending December 31, 1995, is presented for purposes of additional analysis and is not 16 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, 1996 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Stockholders and the Board of Directors 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, 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 December 31, 1995. 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, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with United States generally accepted accounting principles. Our audits have been made primarily for the purpose of expressing an opinion on the basic financial statements taken as a whole. The supplementary information for the year ending December 31, 1995, accompanying the financial statements is not necessary for the fair presentation of the financial position, results of operations, and cash flows of Block Drug Co. (Philippines), Inc. (a wholly owned subsidiary of Block Drug Company, Inc.), in conformity with generally accepted accounting principles. The supplementary information is presented only for purposes of additional analysis. The supplementary information has been subjected to the auditing procedures applied in the examination 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. Sycip, Gorres,Velayo & Co. PTR No. 5148781 Makati, Metro Manila January 30, 1996 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, 1996 and 1995 and the related statements of income and retained earnings and cash flows for each of the three years in the period ended March 31, 1996. 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, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 1996, 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 Hans Dingler Reinhard Beyer Wirtschaftsprufer Wirtschaftsprufer Am Wehrhahn 50 40211 Dusseldorf April 19, 1996 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, 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 December 31, 1995. 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, 1995 and 1994 and the results of its operations and its cash flows for each of the three years in the period ended December 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 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 Department d'E&Y Audit RC.S. Paris B 344366315 Christian Colineau February 9, 1996 Schedule II BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Years Ended March 31, 1996, 1995 and 1994 Additions Balance at Charged to Beginning Costs and Balance at Description of Period Expenses Deductions End of Period 1996 Allowances for discounts, doubtful accounts and returns $3,222,000 $23,645,000 $22,679,000 $4,188,000 1995 Allowances for discounts, doubtful accounts and returns $2,815,000 $31,622,000 $31,728,000 $2,709,000 1994 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 (Japan), Inc. Japan Block Drug Company (Philippines), Inc. Manila, Philippines Block Drug Company (Thailand) Limited Thailand Block Drug Company (Japan), Inc. Japan Block Drug Company (Korea) Limited Korea The Guangzhou Representative Office of Block Drug China Company, Inc. (China) Kobayashi-Block Company, Ltd. Japan Laboratoires Stafford-Miller S.A.R.L. (a) France Stafford Miller Argentina S.A. Argentina Stafford-Miller (Canada) Inc. (b) 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 Limited (Greece) Greece Stafford-Miller Nederland B.V. Netherlands Stafford-Miller (N.Z.) Limited New Zealand Stafford-Miller (Portugal) Quimico- Farmaceutica, Lda. Portugal Stafford-Miller RE Limited (b) Great Britain Stafford-Miller S.r.l. Italy Stafford-Miller Scandinavia Aktiebolag Sweden Stafford-Miller Limited-Dubai Branch (United Arab Dubai Emirates) (a) Wholly-owned subsidiary of Stafford-Miller Continental, NV-SA. (b) 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 4th day of June, 1996. 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 4th day of June, 1996. Principal Executive Officer: LEONARD N. BLOCK Leonard N. 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 PETER C. MANN MARY C. TANNER Peter C. Mann Mary C. Tanner EX-27 2
5 1000 12-MOS MAR-31-1996 MAR-31-1996 16388 13433 129004 4188 124368 312205 357276 114724 929117 206155 0 0 0 2081 638961 929117 715242 745399 234782 234782 436742 0 8374 65501 11798 53703 34977 0 0 88680 4.26 4.26
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