BLOCK DRUG CO INC, 10-K, 1997-06-30

BLOCK DRUG CO INC
10-K, 1997-06-30
PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS

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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, 1997 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 3, 1997, nonaffiliates held no voting shares of the Registrant;
therefore, the aggregate market value of voting shares held by nonaffiliates
is zero.

As of June 3, 1997, there were 13,547,894 shares of Class A Common Stock and
7,935,532 shares of Class B Common Stock of Registrant outstanding.

Documents Incorporated by Reference: None

Exhibit Index: Page 53
<PAGE>1

PART I

Item 1. Business

REVIEW OF OPERATIONS

Block Drug Company, Inc. is a worldwide manufacturer and marketer of denture
care products, oral health care products, consumer over-the-counter medicines
and specialty household products.

DENTURE CARE PRODUCTS

Denture care products are a foundation for Block Drug Company's worldwide
success and an important part of the Company's tradition. Our denture care
products continue to be category leaders and recognized names throughout the
world.

In fiscal 1997, Polident brand strengthened its position as the number one
denture cleanser in the U.S., widening its lead over its nearest competitor.
Line extensions most notably Polident Overnight have contributed to the line's
ongoing success.

In other parts of the world, our denture cleansers Polident, Corega and
Dentu-Creme are leaders in many markets and are key products for each of their
international subsidiaries. In Japan, for example, Polident, Nisohdent and
Smoker's Polident lead the denture cleanser category.

The Company's denture adhesive brand Poli-Grip continued to gain market share.
Poli-Grip Free, an adhesive with no artificial flavors or colors, continued its
impressive growth in the U.S. Poli-Grip and Corega are number one denture
adhesive brands in a number of countries including Japan, the U.K. and France.

ORAL HEALTH CARE PRODUCTS

The Company's top-selling worldwide brand, Sensodyne toothpaste for sensitive
teeth, is the number one desensitizing dentifrice in the U.S. and in virtually
every country in which it is marketed. Sensodyne is recommended by dentists
more often than any other brand for the treatment of dentinal hypersensitivity.
Line extensions continue to contribute to this brand's market dominance. For
example, Sensodyne Tartar Control, the newest line extension, increased overall
brand sales since its introduction in fiscal 1997.

Parodontax brand toothpaste, acquired in fiscal 1996, is an important addition
to the Company's dental care line outside the U.S. This specialty gum care
toothpaste formulated from natural ingredients, is sold in thirty countries.

Targon Smoker's Mouthwash, a specialty mouthrinse targeted to smokers, is a
new product for the Company, the exclusive rights to which were acquired this
fiscal year. Targon will reach retail stores this summer.

The Company's Serious Dental Medicines marketed to the dental professional
include the PerioGlas brand, a bioactive glass used in the treatment of
periodontal disease, for which the Company holds an exclusive license, and
Lodine *, the leading analgesic (NSAID) prescribed by dentists, co-promoted
through an agreement with Wyeth-Ayerst, Inc.
<PAGE>2

New, advanced dental products marketed through the Professional Dental Sales
Force include Atrisorb barrier for guided tissue regeneration, Atridox *1 is
a subgingival anti-infective treatment in the latter stages of development.
Both are used in the treatment of periodontal disease. The Company has an
exclusive agreement with Atrix Laboratories, Inc. for the marketing of these
innovative dental treatments. These products are based on Atrix's proprietary
Atrigel *1 biodegradable polymeric drug delivery system. While this technology
is new to the market, initial reaction among dental professionals has been
favorable.

In December, 1996, the Company received Food and Drug Administration (FDA)
approval for Aphthasol, a new chemical entity for the treatment of aphthous
ulcers, commonly known as canker sores. Developed in conjunction with the
Company's Research and Technology team, this new chemical compound treats a
common condition for which no other prescription medication exists.

Marketing of this line of oral health care products to the profession is
accomplished by the Company's trained force of consultants who call on dentists,
oral surgeons and periodontists throughout the U.S. The Company maintains a
similar force in most major markets worldwide. Trained telephone sales
representatives supplement this effort in the U.S.

CONSUMER OVER-THE-COUNTER PRODUCTS

Well- known brands that meet defined consumer needs form the core of the
Company's Consumer Products Division. The unique style of meaningful product
differentiation supported by effective advertising engenders customer
satisfaction and strong loyalty to these brands. During fiscal 1997, this
Division contributed significantly to corporate sales and earnings.

Certain brands acquired or licensed recently experienced impressive growth
this year. Notable among these was Balmex brand diaper rash ointment in the
U.S. Now available nationwide and in several international markets, the Balmex
brand was the fastest growing diaper rash baby ointment in 1996, and the fastest
growing product in the Division. The Baby's Own line of baby care products,
sold throughout Canada, was acquired in fiscal 1997 and recently introduced
into the U.S. market. In the U.K., the Company acquired Piriton allergy relief
brand during fiscal 1997, and has grown this leading brand's market share in a
short period of time.

Setler's Antacid, sold throughout the U.K., benefited from the addition of
fruit flavor varieties and new Setler's Wind-Ease gas relief formula is expected
to contribute to brand growth.

*Lodine is a registered trademark of Wyeth-Ayerst, Inc.
*1Atridox and Atrigel are registered trademarks of Atrix Laboratories, Inc.

The Company introduced new Nytol Natural, the first and only homeopathic
sleep-aid with an established brand name, buttressing the Company's product
line in the over-the-counter sleep aid category. The U.K., Nytol Herbal joined
our market-leading sleep-aid line this year. In the digestive aid category is
Nature's Remedy, a natural laxative brand.
<PAGE>3

Headache powders are specialty analgesics sold by the Company throughout the
Southern U.S. where there is a strong tradition of taking pain relief medication
in powder form. Goody's and BC brands lead the powdered analgesic market.
Despite competitive pressures due to the introduction of a variety of new
analgesic products and formulations in the over-the-counter pain reliever
market, our brands built share. A new nighttime analgesic and sleep-aid
introduced this fiscal year is Goody's PM, a line extension which will help
broaden the appeal of this brand name.

SPECIALTY HOUSEHOLD PRODUCTS

Fiscal 1997 was a year in which the Company's Household Products Division
absorbed and relaunched two major brands acquired in the prior fiscal year
Lava brand hand soap and Carpet Fresh brand rug and room deodorizers.

As a well-known and respected brand name for over 100 years, Lava has enjoyed
widespread consumer recognition as a soap for getting extra-dirty hands really
clean. Sales were strong thanks in part to a successful new advertising effort.
Lava Liquid, a new line extension formulated by the Company's Research and
Technology team, was introduced at the end of fiscal 1997.

The Carpet Fresh brand was restaged during fiscal 1997 with new packaging and
additional fragrances introduced. Sales of Carpet Fresh were in line with the
Company's expectations. Marketing support should help propel this brand
throughout the coming years.

One of the Company's first household products, the 2000 Flushes line of
automatic toilet bowl cleaners, remains an important brand in the Household
Products Division. In the household cleaner market, the X-14 brand is a strong
name for a full line of hard surface cleaners.

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.
<PAGE>4

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. 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
international markets.

PATENT 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.
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 revenue 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, consumer oral care products and household products are product
formulation, reputation, advertising and consumer promotion.

MANUFACTURING
Most of the principal raw materials used by the Company in its domestic
manufacturing operations 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.
<PAGE>5

During the course of the fiscal year ended March 31, 1997, 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. Properties

The worldwide executive and administrative offices, manufacturing, research and
development, warehousing and distribution facilities of the Company and its
subsidiaries use an aggregate of approximately 2,510,000 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; South Brunswick, New Jersey: Humacao, Puerto Rico (Reedco, Inc.);
Mississauga, Canada; Plymouth, Great Britain; Oevel, Belgium; Sydney, Australia;
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 and distribution
facilities are in Memphis, Tennessee, Dayton, New Jersey, Plymouth, England,
Zaragoza, Spain and Mexico City, Mexico.

The Company also has offices in buildings which it owns in Welwyn Garden City,
Great Britain and Ratingen, Germany.

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 as part of the manufacturing restructuring and
reengineering program, 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 May 20, 1997 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.
<PAGE>6

PART II

Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters

STOCK PRICE AND DIVIDEND INFORMATION

Market Price Cash Dividends
Range of Class A Declared Per
Common Stock* Share

Fiscal Year Ended March 31, 1997 High Low

First Quarter $45 3/4 $36 1/2 $0.29 Class A Shares
$0.10 Class B Shares

Second Quarter 46 3/4 40 1/2 $0.29 Class A Shares
$0.10 Class B Shares

Third Quarter 48 44 1/8 $0.31 Class A Shares
$0.1075 Class B Shares

Fourth Quarter 48 1/4 42 $0.31 Class A Shares**
$0.1075 Class B Shares**

Fiscal Year Ended March 31, 1996 High Low

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***

* 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, 1997 to Class A and
B shareholders in Class A and B Common Stock, respectively.

*** In addition, a 3% stock dividend was paid on January 2, 1996 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 3, 1997:

Title of Class Number of Shareholders

Common Stock, Class A (non-voting) 507

Common Stock, Class B (voting) 5

<PAGE>7
<TABLE>
Item 6. Selected Financial Data
<CAPTION>
Fiscal Year Ended March 31

1997(2) 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Sales from Continuing Operations $862,471,000 $715,242,000 $621,139,000 $566,772,000 $577,305,000

Interest, Dividends & Other Income 28,335,000 30,157,000 23,026,000 23,383,000 26,490,000

Income from Continuing Operations
before Income Taxes 10,817,000 65,501,000 57,870,000 54,147,000 69,446,000

Income Taxes 2,210,000 11,798,000 11,944,000 8,135,000 13,026,000

Income from Continuing Operations 8,607,000 53,703,000 45,926,000 46,012,000 56,420,000

Average Number of Common Shares
Outstanding(1) 21,459,000 21,420,000 21,375,000 21,340,000 21,313,000

Income from Continuing Operations,
Per Share of Common Stock(1) $0.40 $2.51 $2.15 $2.16 $2.65

Net Income Per Share of
Common Stock(1) $0.40 $4.14 $2.36 $2.24 $2.89

Cash Dividends Declared Per
Share of Class A Common $1.20 $1.12 $1.06 $1.02 $ .95

Cash Dividends Declared Per
Share of Class B Common $0.415 $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 3% 3% 3% 3% 3%

Depreciation $20,210,000 $ 19,012,000 $ 16,031,000 $ 13,580,000 $ 10,727,000

Working Capital $90,172,000 $106,050,000 $ 26,095,000 $ 32,637,000 $ 51,203,000

Current Ratio 1.3 1.5 1.1 1.2 1.3

Total Assets $1,014,923,000 $929,117,000 $871,320,000 $771,068,000 $726,497,000

Long-Term Debt and Notes Payable $ 55,943,000 $ 56,143,000 $ 15,273,000 $ 17,880,000 $ 19,160,000

Shareholders' Equity $631,320,000 $641,042,000 $562,531,000 $515,121,000 $485,298,000

Number of Employees 3,703 3,600 3,521 3,491 3,505
</TABLE>

Management's Discussion and Analysis of Operating Results and Financial
Condition is presented on pages 9 to 12 of this report.

(1) Restated to reflect stock dividends declared on Class A and Class B Common
Stock by the Company in 1997 and previously.
<PAGE>8

(2) Fiscal 1997 income statement numbers reflect a pre-tax provision of
$72,450,000 for manufacturing restructuring and re-engineering.
Additionally, these amounts reflect the consolidation of the Block Drug
Company (Japan) Inc. subsidiary, which had been previously accounted for as
a 50%-owned equity joint venture. The Company acquired the remaining 50%
share in fiscal year 1997.

Item 7. Management's Discussion and Analysis of Operating Results and Financial
Condition

Operating Results:

Consolidated worldwide net sales for the fiscal year ended March 31, 1997
were $862.5 million, an increase of 21% from the prior fiscal year 1996 which
recorded an increase of 15%. Domestic and international sales increased in
both fiscal 1997 and 1996 over the preceding year. International sales in
fiscal 1997 increased 35% due to new products and the inclusion of Japanese
operations as a wholly-owned subsidiary. Excluding the impact of foreign
currency exchange rate fluctuations, fiscal year 1997 international sales would
have risen 41%. Domestic sales in fiscal 1997 increased 4%, reflecting a volume
growth of 2%.

The Company's largest business segments, dental products, increased 25% to
$621 million, following a 13% increase in the prior year. Consumer products
sales increased to $241 million, a 10% increase, compared to a 22% increase in
the previous year.

Interest, dividends and other income decreased in the current year
predominantly due to the termination of the Company's joint venture in Japan
which is now a wholly-owned subsidiary.

The cost of goods sold percentage to sales was 32.4% in fiscal 1997 compared
to 32.8% in fiscal 1996 and 33.5% in fiscal 1995. These improved percentages
reflect improved manufacturing operations and mix of products sold, in addition
to selective price increases.

Selling, general and administrative expenses represent 61.2%, 62.2% and 60.9%
of sales in fiscal 1997, 1996, and 1995 respectively. The major portion is
related to advertising and promotional activities. These expenses reflect a
major spending program to meet significant competition and build brand equities.

In February 1997, the Company announced it will consolidate its manufacturing
operations by closing six of its twelve production facilities in various parts
of the world over the next two years. As a result, there will be a reduction of
over 400 employees at the Company's manufacturing facilities, representing
approximately 12% of its worldwide workforce. This action is expected to
generate approximately $25 million in additional annual cost savings which will
be reinvested to support the Company's brands, recent acquisitions and new
products, and strengthen the Company's presence in major markets and to enable
us to penetrate new geographic areas worldwide. The worldwide manufacturing
restructuring and re-engineering program resulted in a fourth quarter pre-tax
charge of $72.5 million ($55.7 million net of tax) or $2.60 per share after
taxes for the year, of which $35.7 million remains as liability as of
March 31, 1997.
<PAGE>9

Due to the above factors, income before taxes (excluding restructuring) was
9.7% of sales in fiscal 1997 as compared to 9.2% and 9.3% in fiscal 1996 and
1995, respectively.

The effective income tax rates of 20.4%, 18.0% and 20.6% in fiscal 1997, 1996
and 1995, 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.

Item 7. Management's Discussion and Analysis of Operating Results and Financial
Condition

Operating Results: (Cont'd)

The Company's international operations, which represent approximately 60% of
the Company's business, measure profitability in terms of U.S. dollars and are
subject to foreign exchange risk. If the U.S. dollar strengthens, the
profitability of operations can be affected adversely. The profitably of
foreign operations will benefit, however, if the U.S. dollar weakens. During
fiscal 1997, the U.S. dollar generally strengthened compared to fiscal 1996.
This had an unfavorable impact on profits for fiscal 1997 compared to a
favorable impact for fiscal 1996.

Although inflation has been moderate throughout fiscal 1997 and 1996, the
Company continues 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.

During fiscal 1997, the Company acquired or licensed a number of products
including the Baby's Own line of baby care products for the Canadian market.
This further extends our commitment to providing quality baby care products.
This line joins our other baby care brands including Balmex brand Diaper Rash
Ointment and Phazyme brand Infant Drops.

Piriton allergy relief brand was acquired during the fiscal year and is
marketed through the Company's UK subsidiary.

Atrisorb , a guided tissue regeneration product for the treatment of
periodontal disease, was acquired during fiscal 1997, which furthers our
long-term commitment to serious dental medicines. The Company also acquired
exclusive rights for the worldwide license of Targon Smoker's Mouthwash.

Liquidity and Capital Resources:

Cash decreased to $13.9 million at March 31, 1997 from $16.4 million at
March 31, 1996 which had increased from $13.7 million at March 31, 1995.

Net cash flow from operating activities was $58 million in fiscal 1997, $16
million more than the prior year. Earnings net of non-cash expenses more than
offset increases in accounts receivable and inventories. These increases were
mostly caused by the consolidation of the Company's business in Japan. In
fiscal 1996, net cash flows from operating activities were $43 million, $7
million less than the prior year. The sale of the U.S. Reed & Carnrick Division
accounted for a $19 million reduction, which together with increases in accounts
receivable and inventories, more than offset increases in accounts payable.
Accounts receivable at fiscal year-end 1997, 1996 and 1995 represent 2.3, 2.1
and 2.1 average months of sales, respectively. Inventory levels comprised 6.0,
6.4 and 6.2 months supply at year-end 1997, 1996 and 1995 respectively.
<PAGE>10

Net cash used in investing activities in fiscal 1997 was $84 million,
compared to net cash provided of $16 million in fiscal 1996. In fiscal 1997,
additions to property, plant and equipment, payment for products acquired and
purchases of marketable securities more than offset the proceeds from the sale
of securities and property, plant and equipment. In fiscal 1996, the sale of
the U.S. Reed and Carnrick Division provided $64 million and together with net
proceeds from securities more than offset payments for products acquired and
additions to property, plant and equipment. In fiscal 1995, the net cash
outflow for investing activity was $70 million. The Company is implementing a
Production Optimization Program which will consolidate manufacturing facilities,
closing six locations while expanding and upgrading others.

Net capital expenditures of $38 million in fiscal 1997 are approximately $5
million higher than in fiscal 1996 and $3 million higher than fiscal 1995.

Domestically, major projects over the three year period have been the
modernization and expansion of laboratories and office facilities at the Jersey
City, New Jersey corporate headquarters. The Company has made a substantial
investment in computer modernization and business process reengineering. The
production and warehouse facilities in Memphis, Tennessee and in Puerto Rico
have undergone expansion and modernization projects that will continue as a
result of the Company's manufacturing restructuring and re-engineering.

The Company's international facilities were also expanded in fiscal 1997 to
accomodate manufacturing for the Company's wholly-owned subsidiary in Japan and
the continued expansion and modernization of the production facility in
Dungarvan, Ireland. The Dungarvan facility will continue to undergo expansion
as a result of the Company's manufacturing restructuring and re-engineering
program. 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 appropriate.

Net cash provided by financing activities was $23 million in fiscal 1997,
compared to net cash used of $56 million in fiscal 1996. In fiscal 1995, there
was a net cash inflow of $25 million. The financial inflows in fiscal 1997
arose from the proceeds from debt issuance of $51 million which more than offset
dividends paid to shareholders and debt repayment. The financial outflows in
fiscal 1996 were the result of debt repayment funded mostly with the proceeds
from the sale of the domestic Reed & Carnrick Division. The financial 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 strengthening of the U.S. dollar in relation to foreign currencies
resulted in net foreign currency translation gains of $4.5 million in fiscal
1997. In fiscal 1996, net foreign currency translation gains were $578,000.
These amounts were charged directly to Shareholders' Equity in the balance
sheet.

The Company uses financial instruments to manage interest rate and foreign
exchange exposures. It does not take speculative positions. The cost of these
transactions is amortized over the respective periods covered and is limited to
fixed amounts determined at the dates of execution. See Note 5 for additional
information.

The Company has classified all long-term securities as "available for sale."
These long-term securities are reported at fair market value resulting in
unrealized holding gains of $551,000 net of taxes of $254,000 as of March 31,
1997 and $6 million, net of taxes of $1.3 million as of March 31, 1996.
<PAGE>11

The Company anticipates that sufficient funds will be provided from operating
and borrowing capabilities for capital expenditures, dividend payments and other
cash needs in fiscal 1998. The Company has uncommitted lines of credit totaling
$240 million and $303 million at March 31, 1997 and 1996, respectively.

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". The
statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to these assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. It requires assets to be held and used by an
entity to be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable, and assets
to be disposed of to be reported at the lower of carrying amount or fair value
less cost to sell. During fiscal year 1997, the Company adopted this statement
and determined that no impairment loss need be recognized for applicable assets
of continuing operations.

In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("SFAS No. 128"), which simplifies existing
computational guidelines, revises disclosure requirements and increases the
comparability of earnings per share data on an international basis. SFAS No.
128 is effective for financial statements for periods ending after December 15,
1997 and requires restatement of all prior period earnings per share data
presented. The Company is currently evaluating the new statement; however, the
impact of adoption of SFAS No. 128 on the Company's financial statements is not
expected to be significant.
Information Concerning Forward-Looking Statements:

This annual report contains forward-looking statements and statements of
historical fact. These forward-looking statements are based on management's
current expectations and assessments of risks and uncertainties. Actual results
could differ from those anticipated by the forward-looking statements.

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT ACCOUNTANTS

We have audited the accompanying consolidated financial statements and the
financial statement schedules of Block Drug Company, Inc. and subsidiaries
listed in the index on page 53 of this Form 10-K. 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 did
not audit the financial statements of certain foreign subsidiaries and branches,
which statements reflect total assets and total revenues constituting
approximately 15 percent and 37 percent, respectively, in the year ended March
31, 1997, 11 percent and 28 percent, respectively, in the year ended March 31,
1996 and 10 percent and 26 percent, respectively, in the year ended March 31,
1995 of the corresponding consolidated totals. These statements were audited
by other auditors whose reports thereon were furnished to us. Our opinion
expressed herein, insofar as it relates to the amounts for such subsidiaries and
branches, is based solely upon such reports.
<PAGE>12

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, 1997 and 1996, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended March 31,
1997 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 3, 1997.
<PAGE>13
<TABLE>
BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
MARCH 31
1997 1996
ASSETS
<S> <C> <C>
Current Assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . $ 13,862,000 $ 16,388,000
Marketable securities, at market (Note 4) . . . . 24,923,000 13,433,000
Accounts receivable, less allowances of $4,504,000
(1997) and $4,188,000 (1996) . . . .. . . . . . . 164,104,000 124,816,000
Inventories (Note 1 and 2). . . . . . . . . . . . 138,679,000 124,368,000
Other current assets. . . . . . . . . . . . . . . 51,508,000 33,200,000

Total current assets. . . . . . . . . . . . . . 393,076,000 312,205,000

Property, plant and equipment, less accumulated
depreciation (Notes 1 and 3) . . . .. . . . . . 235,486,000 242,552,000
Long-term securities, at market (Note 4). . . . . 225,999,000 222,667,000
Goodwill and other intangible assets, less accumulated
amortization of $14,046,000 (1997)
and $9,627,000 (1996) (Note 1). . . . . . . . . 153,425,000 127,047,000
Other assets. . . . . . . . . . . . . . . . . . . 6,937,000 24,646,000

Total assets. . . . . . . . . . . . . . . . . . $1,014,923,000 $929,117,000

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Notes and bonds payable (Note 6). . . . . . . . $ 118,522,000 $ 75,559,000
Accounts payable and accrued expenses (Note 7). 167,744,000 118,273,000
Income taxes payable (Note 8) . . . . . . . . . 11,612,000 7,751,000
Dividend payable. . . . . . . . . . . . . . . . 5,026,000 4,572,000

Total current liabilities. . . . . . . . . . . 302,904,000 206,155,000

Notes and bonds payable (Note 6). . . . . . . . . 55,943,000 56,143,000
Deferred income taxes (Note 8). . . . . . . . . . 8,744,000 10,413,000
Deferred compensation and other liabilities
(Notes 1 and 9) 16,012,000 15,364,000

Total liabilities. . . . . . . . . . . . . . . 383,603,000 288,075,000

Shareholders' equity (Notes 1 and 10):
Class A common stock non-voting par
value $.10-15,000,000 shares (1997 and 1996)
authorized, 13,544,460 (1997) and 13,111,962 (1996)
shares issued and outstanding . . 1,354,000 1,311,000
Class B common stock, par value $.10-30,000,000 shares
authorized, 7,935,532 (1997) and
7,704,400 (1996) shares issued and outstanding. . 794,000 770,000
Capital in excess of par value. . . . . . . . . . . 249,375,000 219,207,000
Retained earnings . . . . . . . . . . . . . . . . . 377,202,000 416,200,000
Cumulative foreign currency translation adjustment
(Note 1). . . . . . . . . . . . . . . . . . . . 2,044,000 (2,476,000)
Unrealized holding gain on marketable securities
(Note 4) . . . . . 551,000 6,030,000
Total shareholders' equity. . . . . . . . . . . . 631,320,000 641,042,000

Total liabilities and shareholders' equity. . . $1,014,923,000 $929,117,000
</TABLE>

See notes to consolidated financial statements.
<PAGE>14
<TABLE>
BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
INCOME AND RETAINED EARNINGS

For the Years Ended March 31, 1997, 1996 and 1995
<CAPTION>

1997 1996 1995
<S> <C> <C> <C>
Revenues:
Net sales . . . . . . . . . . . . . $862,471,000 $715,242,000 $621,139,000
Interest, dividends and other income. . 28,335,000 30,157,000 23,026,000
890,806,000 745,399,000 644,165,000

Cost and Expenses:
Cost of goods sold. . . . . . . . . 279,334,000 234,782,000 207,793,000
Selling, general and administrative . . 528,205,000 445,116,000 378,502,000
Manufacturing restructuring and
re-engineering costs.. . . . . . . 72,450,000 - -
879,989,000 679,898,000 586,295,000

Income from Continuing Operations
before income taxes . . . . . . . . 10,817,000 65,501,000 57,870,000

Income Taxes (Note 8):
Current . . . . . . . . . . . . . . 14,112,000 17,602,000 11,225,000
Deferred. . . . . . . . . . . . . . (11,902,000) (5,804,000) 719,000
2,210,000 11,798,000 11,944,000

Income from Continuing Operations. . 8,607,000 53,703,000 45,926,000

Discontinued Operations (Note 12):
Income from discontinued operations, net
of taxes of $0 (1997), $32,000 (1996)
and $1,336,000 (1995) . . . . . . . 52,000 4,443,000

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

Net Income . . . . . . . . . . . . . 8,607,000 88,680,000 50,369,000

Retained earnings at beginning of year.. 416,200,000 367,325,000 349,500,000
Less: Cash dividends declared-$1.20
(1997), $1.12 (1996) and $1.06 (1995)
per share of Class A common stock (15,881,000) (14,164,000) (12,731,000)
Cash dividends $.415 (1997) and
$0.30 (1996) per share of Class B common
stock . . . . . . . . . . . . . . . (3,197,000) (2,311,000)
Stock dividends 3% (1997, 1996 and 1995)
to Class A shareholders
payable in Class A common stock . . (17,982,000) (14,431,000) (12,012,000)
Stock dividends 3% to Class B
shareholders payable in Class B
common stock (1997) and in
Class A common stock (1996 and 1995). . (10,545,000) (8,899,000) (7,801,000)

Retained earnings at end of year . . $377,202,000 $416,200,000 $367,325,000

Earnings per share of common stock
(Notes 1 and 10):
From Continuing Operations. . . . . $ 0.40 $ 2.51 $ 2.15
From Discontinued Operations. . . . 1.63 .21

Net Earnings Per Share . . . . . . . $ 0.40 $ 4.14 $ 2.36
</TABLE>

See notes to consolidated financial statements.
<PAGE>15
<TABLE>

BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW

For the Years Ended March 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . $ 8,607,000 $88,680,000 $50,369,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of discontinued operation. . (34,925,000)
Depreciation and amortization . . . . . 24,629,000 21,470,000 17,071,000
Deferred income tax provision . . . . . (11,902,000) (5,804,000) 719,000
Deferred compensation provision . . . . 2,110,000 1,979,000 2,700,000
Equity in net income of joint venture . (4,111,000) (2,836,000)
(Gain) loss on sales of long-term securities (3,136,000) (919,000) 10,000
Restructuring and re-engineering charges. . . 67,415,000
Employee savings plan provision . . . . 1,707,000 1,515,000 1,303,000
Other, net. . . . . . . . . . . . . . . 963,000 986,000 644,000

Changes in assets and liabilities that
provided (used) cash, net of effects from
purchase of products acquired

Accounts receivable . . . . . . . . . . (38,291,000) (10,817,000) (11,311,000)
Inventories . . . . . . . . . . . . . . (17,705,000) (10,725,000) (20,108,000)
Accounts payable and accrued expenses . 12,682,000 16,173,000 11,122,000
Other current assets. . . . . . . . . . (8,441,000) (923,000) 5,873,000
Other assets. . . . . . . . . . . . . . 15,950,000 275,000 (1,656,000)
Income taxes and dividends payable. . . 4,946,000 249,000 (1,738,000)
Payments of deferred compensation and
other noncurrent liabilities. . . . . (1,210,000) (1,381,000) (2,453,000)
Changes from sale of division, net. . . (19,063,000)

Net cash flow from operating activities. . 58,324,000 42,659,000 49,709,000

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 . (45,418,000) (32,693,000) (34,542,000)
Proceeds from sale of property, plant
and equipment . . . . . . . . . . . . . . 7,555,000
(Increase) decrease in marketable
securities, net . . . . . . . . . . . . . (11,537,000) 4,924,000 3,951,000
Dispositions of long-term securities . . . 49,039,000 74,808,000 37,807,000
Purchase of long-term securities . . . . . (55,771,000) (25,858,000) (28,686,000)
Payment for products acquired. . . . . . . (28,171,000) (69,870,000) (48,957,000)

Net cash (used in) provided by investing
activities. . . . . . . . . . . . . . . . (84,303,000) 15,742,000 (70,427,000)

CASH FLOW FROM FINANCING ACTIVITIES

Dividends paid to shareholders . . . . . . (19,078,000) (16,475,000) (12,731,000)
Proceeds from issuance of debt . . . . . . 51,190,000 50,000,000 40,570,000
Payment of debt. . . . . . . . . . . . . . (9,005,000) (89,288,000) (2,612,000)

Net cash provided by (used in)
financing activities. . . . . . . . . . . 23,107,000 (55,763,000) 25,227,000

Effects of exchange rates on cash. . . . . 346,000 44,000 301,000

(Decrease) increase in cash. . . . . . . . (2,526,000) 2,682,000 4,810,000

Cash, beginning of year. . . . . . . . . . 16,388,000 13,706,000 8,896,000

Cash, end of year. . . . . . . . . . . . . $ 13,862,000 $16,388,000 $ 13,706,000
</TABLE>

See notes to consolidated financial statements.
<PAGE>16
<TABLE>

BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)

For the Years Ended March 31, 1997, 1996 and 1995
<CAPTION>

1997 1996 1995
SUPPLEMENTAL CASH FLOW DATA

Cash Paid During the Year:
<S> <C> <C> <C>
Interest. . . . . . . . . . . . . . . . . $10,381,000 $ 8,850,000 $ 7,676,000
Income Taxes. . . . . . . . . . . . . . . $ 9,560,000 $39,812,000 $13,646,000

</TABLE>
See notes to consolidated financial statements.
<PAGE>17

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
With the exception of the March 31 year-end accounts of Germany 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.

Revenue Recognition

The Company recognizes revenue from product sales when the goods are shipped to
the customer.

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 ($3,940,000), $379,000 and
($2,951,000), were included in selling, general and administrative expenses
in the determination of net income for fiscal years 1997, 1996 and 1995,
respectively.

1997 1996 1995
Transactions $(3,805,000) $ 826,000 ($ 649,000)

Translation relating to highly
inflationary countries (135,000)( 447,000) ( 2,302,000)

Total $(3,940,000) $ 379,000 ($2,951,000)

CUMULATIVE TRANSLATION
ADJUSTMENT RECONCILIATION 1997 1996 1995
Balance -Beginning $(2,476,000)$(3,054,000) $(9,705,000)

Translation Adjustment 4,520,000 578,000 6,651,000

Balance-Ending $ 2,044,000 $(2,476,000) $(3,054,000)

<PAGE>18

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 $4,419,000,
$2,458,000 and $1,040,000 in the years ended March 31, 1997, 1996 and 1995,
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. Long-term
securities are also treated as available for sale and are recorded at market
value. Unrealized holding gains and losses on securities classified as
available for sale are recorded in a separate component of shareholders equity.
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.
<PAGE>19

The Company accounts for postretirement benefits other than pensions in
accordance with Statement of Financial Accounting Standards No. 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions." The Company
accounts for the cost of these benefits, which are for health care, by accruing
them during the employee's active working career. 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.

Concentration of Credit Risk
The Company sells a broad range of products in many countries of the world.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base.
Ongoing credit evaluations of customer's financial condition are performed and,
generally, no collateral is required. The Company maintains reserves for
potential credit losses and such losses, in the aggregate, have not exceeded
management's expectations.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

Research and development expenditures:
Research and development expenditures are charged to operations as incurred.
The charges for the years ended March 31, 1997, 1996 and 1995 were $28,180,000,
$23,959,000 and $23,465,000, 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 21,459,000, 21,420,000 and 21,375,000 in fiscal year 1997,
1996 and 1995, respectively.

New accounting standards:

In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No. 128"), which
simplifies existing computational guidelines, revises disclosure
requirements and increases the comparability of earnings-per-share-data
on an international basis. SFAS No. 128 is effective for financial
statements for periods ending after December 15, 1997 and requires
restatement of all prior-period earnings-per-share data presented.
The Company is currently evaluating the new statement; however, the
impact of adoption of SFAS No 128 on the Company's financial statements
is not expected to be significant.
<PAGE>20

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
1997 1996

Raw and packaging materials. . . . . . . . . . $44,334,000 $ 42,868,000
Finished goods . . . . . . . . . . . . . . . . 94,345,000 81,500,000

Total . . . . . . . . . . . . . . . . . . . . $138,679,000 $124,368,000

Note 3. Property, Plant and Equipment:
Major classes of property, plant and equipment
are summarized as follows: March 31
1997 1996

Land . $22,182,000 $ 21,066,000
Building and related improvements. . . . . . . 138,546,000 149,274,000
Machinery and equipment. . . . . . . . . . . . 141,442,000 136,408,000
Furniture and fixtures . . . . . . . . . . . 45,550,000 44,951,000
Construction in progress . . . . . . . . . . . 9,861,000 5,577,000
357,581,000 357,276,000

Less: Accumulated depreciation 122,095,000 114,724,000

Total $235,486,000 $242,552,000

<PAGE>21

Depreciation expense for the years ended March 31, 1997, 1996 and 1995 was
$20,210,000 , $19,012,000 and $16,031,000, respectively. Certain of the above
properties are pledged as collateral for the bonds (Note 6).

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

Note 4. Marketable Securities:

The Company accounts for marketable securities in accordance with SFAS No. 115.
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS No.
115). Prior to January 1, 1995, it classified its marketable securities as
hold-to-maturity and reported at amortized cost. On January 1, 1995, the
Company reclassified all of its marketable securities as available-for-sale.
This reclassification is primarily a result of changing economic circumstances.
As a result of this change in classification, on January 1, 1995, the Company
recorded an unrealized holding loss of $4,020,000, net of a tax effect of
$127,000, in a separate component of shareholders' equity. There was no effect
on net income as a result of this adoption or change in portfolio classification

The marketable securities, both current and noncurrent, as of March 31, 1997
consisted of the following:

Unrealized Holding
Fair Value Gains Losses
U.S government and its agencies $127,606,000 $1,275,000 $3,048,000

Municipal and state 98,393,000 2,581,000 3,000

Other, principally money market 24,923,000

$250,922,000 $3,856,000 $3,051,000

The above unrealized holding gains and losses, net of income taxes of $254,000,
are reflected as "unrealized holding gain on marketable securities" in
shareholders' equity.

The marketable securities, both current and noncurrent, 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.
<PAGE>22

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

The maturities of the Company's investment in debt securities, at fair value,
as of March 31, 1997 and 1996 were as follows:

1997 1996

Within 1 year $ 24,923,000 $ 13,433,000
After 1 year through 5 years 57,063,000 53,115,000
After 5 years through 10 years 38,258,000 70,099,000
After 10 years 130,678,000 99,453,000
$250,922,000 $236,100,000

The proceeds from the sales of available-for-sale securities (excluding normal
principal payments on government agency obligations, bond redemptions and
maturities) were $41,028,000 and $60,558,000 for the years ended March 31, 1997
and 1996, respectively. Gross realized gains and gross realized losses from
these transactions were $3,110,000 and $0 for the year ended March 31, 1997
and $1,066,000 and $89,000 for the year ended March 31, 1996, respectively.
The cost of marketable securities sold was determined by specific
identification.

Note 5. Financial Instruments

The Company uses financial instruments to reduce exposures to market risks
resulting from fluctuations in interest rates and foreign exchange. The
Company does not enter into financial instruments for trading or speculative
purposes.

In November 1996, the Company entered into two series of Japanese Yen put
options to establish a minimize exchange rate conversion between the Japanese
Yen, U.S. Dollar and Irish Punt on anticipated intercompany sales during
calendar year 1997. One series gives the Company the right to sell 200
million yen monthly in 1997 for U.S. dollars at a rate of 115 yen per US
dollar. The other series gives the Company the right to sell 100 million yen
monthly in 1997 for punt at the rate of 188 yen per punt. The cost of the
options are amortized during the period in which the option are exercisable.
Gain on the contract will be recognized in the month of settlement. As of the
year end, the combined fair market value of these option contract were
$734,000.

The Company has 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.
As of March 31, 1997, 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 $1,236,000.
<PAGE>23

Note 6. 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, 1997 and 1996,
the Company maintained short term uncommitted bank lines of credit aggregating
$240,000,000 and $303,384,000, respectively. Of these amounts, $166,825,000
and $235,559,000 was unused at March 31, 1997 and 1996, respectively. The
fair value of the short-term notes payable approximates book value.

Long-term notes and bonds payable are comprised of the following:

March 31
1997 1996

7.0% Notes due fiscal 2000 $ 1,493,000 1,693,000
6.47% Senior note due fiscal 2006 50,000,000 50,000,000
Variable rate bonds (currently 4.2%), due
fiscal 2010 4,450,000 4,450,000
$55,943,000 $56,143,000

Certain properties of the Company (approximate book value $4,962,000) 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 $10,146,000 in fiscal 1997,
$8,374,000 in fiscal 1996 and $8,292,000 in fiscal 1995.

Long-term debt at March 31, 1997 is payable as follows:

Year ended March 31

2000 $ 1,493,000
2001 and later 54,450,000
$55,943,000

The fair value of the long-term debt was $3,745,000 less than the book value
as of March 31, 1997.

Note 7. Accounts Payable and Accrued Expenses:

Accounts payable and accrued expenses are comprised of the following:

March 31
1997 1996

Accounts payable - trade $ 38,013,000 $ 29,323,000
Accrued salaries, wages, vacation pay and bonuses 35,483,000 31,936,000
Accrued advertising and selling expenses 23,656,000 28,071,000
Restructuring and re-engineering 35,756,000
Other current liabilities 34,836,000 28,943,000
$167,744,000 $118,273,000

<PAGE>24

Note 8. Income Taxes:

Income taxes on continuing operations consisted of:

Current Deferred Total

For the year ended March 31, 1997
Federal $11,164,000 $(12,397,000) $(1,233,000)
Foreign 2,033,000 1,558,000 3,591,000
State 915,000 (1,063,000) (148,000)
$14,112,000 $(11,902,000) $ 2,210,000

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

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:

1997 1996 1995

For the year ended March 31:
Depreciation $ 651,000 $2,025,000 $2,140,000
Expenses (not) currently deductible
for tax purposes (14,111,000) (7,999,000) (699,000)
Other 1,558,000 170,000 (722,000)
($11,902,000) ($5,804,000) $719,000

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:

(In millions)

1997 1996 1995
For the year ended March 31:
Tax at U.S. Federal statutory rate of 35% $ 3.8 $ 22.9 $ 20.3
Tax exempt state and municipal bond income (3.2) (3.9) (3.5)
Irish operating income taxed at lower rate (4.8) (3.5) (2.8)
Reduction in taxes resulting from Puerto Rico
source income subject to lower tax rate (2.9) (4.5) (2.3)
Foreign Tax Rate Differential 3.4 2.0 1.4
Foreign Tax Credit (2.9)
Non-Deductible Restructuring Charges 9.2 - -
Other, net (.4) (1.2) (1.2)
Total $ 2.2 $11.8 $11.9

<PAGE>25

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 $244,837,000
as of March 31, 1997, 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,
1997 1996

Coupon accrual, sales discounts, and
workers compensation $2,763,000 $3,816,000
Employee benefits 7,284,000 5,982,000
Accrual on vacation 1,531,000 1,489,000
Deferred compensation 3,993,000 3,049,000
Capital gain 4,660,000 7,801,000
Accrued restructuring 16,763,000 -
Other 1,633,000 894,000
$38,627,000 $23,031,000

Deferred tax liabilities:
Property, plant and equipment $17,986,000 $17,768,000
SFAS No. 115 adjustment 231,000 1,304,000
Other 7,324,000 2,775,000

$25,541,000 $21,847,000

* As of March 31, 1997 and 1996, recoverable income taxes reflected in the
balance sheet in "Other current assets" included current deferred tax
assets of $21,830,000 and $11,597,000, respectively. The remaining
deferred tax liabilities, net of deferred tax assets, were reflected in
the balance sheet as "Deferred income taxes".

Note 9. 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:

1997 1996 1995

Service cost $ 5,473,000 $ 5,196,000 $4,822,000
Interest cost on projected benefit
obligation 5,618,000 5,399,000 4,404,000
Actual return on plan assets (9,297,000) (12,860,000) (1,216,000)
Net amortization and deferral 2,717,000 6,697,000) (4,928,000)
Net periodic pension cost $ 4,511,000 $4,432,000 $3,082,000

<PAGE>26

The following table sets forth the present value of benefit obligations and
funded status for the Company's foreign and domestic plans:

1997 1996

Actuarial present value of benefit
obligations, including vested benefits of
$56,065,000 in 1997 and $51,091,000 in 1996 $57,215,000 $52,304,000

Projected benefit obligations $77,229,000 $72,154,000

Plan assets at fair value (primarily
invested in stocks, bonds and government
obligations) $89,416,000 $79,693,000
Add: Unrecognized prior service cost 5,526,000 3,352,000

Less: Unrecognized, net gain on assets 29,037,000 19,204,000
Unamortized transition asset
established as of February 28, 1985 2,295,000 3,002,000
Adjustment for minimum liability 581,000 399,000
63,029,000 60,440,000
Net pension liability $14,200,000 $11,714,000

The expected long-term rate of return on plan assets was 8% for 1997 and 1996.
The weighted average discount rate was 8% for 1997 and 7.5% in 1996. The rate
of increase in future compensation levels used in determining the actuarial
present value of projected benefit obligations was 5.0% for 1997 and 1996.

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, 1997, 1996
and 1995 were $3,289,000, $923,000 and $559,000, respectively. Deferred
compensation payable included $3,482,000 at March 31, 1997 and $3,124,000 at
March 31, 1996, 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.

<PAGE>27

The postretirement benefit liability as of March 31, 1997 and 1996
is as follows:

1997 1996

Retirees $4,080,000 $3,664,000
Fully eligible active plan participants 819,000 860,000
Other active plan participants 3,394,000 3,661,000

Total accumulated postretirement benefit
obligation 8,293,000 8,185,000

Less: Plan assets at fair value and accruals - -
Unrecognized net (gain) loss from past
experience different from that
assumed and from changes in assumptions (278,000) 374,000
Unrecognized transition obligation 4,491,000 4,772,000

Accrued postretirement benefit cost
recognized in the Balance Sheet $4,080,000 $3,039,000

The cost of providing postretirement benefits
for the period ending March 31, 1997 and March 31, 1996
includes the following:
1997 1996

Service cost benefits attributed to service
during the period $ 296,000 $ 288,000
Interest cost on the accumulated postretirement
benefit obligation 587,000 572,000
Estimated return on plan assets - -
Amortization of transition obligation 281,000 281,000

Net periodic postretirement benefit cost $1,164,000 $1,141,000

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 8% 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 $500,000 and the aggregate of the service and interest cost
components of net postretirement health care cost for 1997 would be
approximately $30,000.

Measurement of the accumulated postretirement benefit obligation was based on
an assumed discount rate of 8.0% for 1997 and 7.5% for 1996.

<PAGE>28

Note 10. 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 November 5, 1996, the Company declared an increased cash dividend of $.31
on the Class A Common Stock and an extra Common Stock dividend of 3% on both
the Class A and Class B Common Stock, and an increased cash dividend of $.10 3/4
per share on the Class B Common Stock, payable on January 2, 1997 to
shareholders of record as of December 2, 1996.

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.

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 1997, 1996 and 1995 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, 1994 11,839,000 $1,184,000 7,704,000 $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
Repurchase of Shares

Balance, March 31, 1995 12,466,000 $1,247,000 7,704,000 $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 7,704,000 $770,000 $219,207,000

3% Stock Dividend 394,000 39,000 232,000 24,000 28,465,000
Savings Incentive Plan(1) 38,000 4,000 1,703,000

Balance, March 31, 1997 13,544,000 $1,354,000 7,936,000 $794,000 $249,375,000

<PAGE>29

(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 11. 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 12. 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 ($1.63 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, 1997, 1996, 1995, net of taxes, was $0, $52,000 and
$4,443,000, respectively.

Note 13. Restructured Operations:

In February 1997, the Company announced it will consolidate its manufacturing
operations by closing six of its twelve production facilities in various parts
of the world. The manufacturing restructuring and re-engineering is designed
to further enhance profitable growth over several years by generating
significant efficiencies and improving competitiveness. This will result in a
reduction of over 400 employees at the Company's manufacturing facilities,
representing approximately 12% of its worldwide work force.

The manufacturing restructuring and re-engineering program resulted in a
pre-tax charge of $72,450,000 ($55,687,000 net of tax) or $2.60 per share
after taxes for the year.
<PAGE>30

Below is a summary of the manufacturing restructuring and
re-engineering reserve:

Amounts Utilized Remaining Balance
Provision In Fiscal 1997 at March 31, 1997

Employee severance &
related costs $15,454,000 - $15,454,000

Plant Closings & related
asset write-offs 32,978,000 24,468,000 8,510,000

Re-engineering
7,184,000 7,184,000 -

Contractual Obligations
and other 16,834,000 5,042,000 11,792,000

$72,450,000 $36,694,000 $35,756,000

Balance at the end of the year is classified as a current liability.

Note 14. Acquisition of Joint Venture:

In fiscal year 1997, the Company acquired the remaining 50% share of the
Kobayashi-Block Company Ltd. joint venture. Previously, the Company's
investment in the joint venture was accounted for under the equity method,
with the investment classified as an other asset in the balance sheet. For
the year ended March 31, 1997 sales for the wholly-owned subsidary were
$99,277,000. In fiscal year 1996, the equity in the net income of the joint
venture, which was recorded in interest, dividends and other income, was
$4,111,000.

Note 15. 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.
<PAGE>31

<TABLE>
The following table presents information concerning the Company's
continuing operations by product segment and geographic area for the years
ended March 31, 1997, 1996 and 1995.
<CAPTION>
PRODUCT SEGMENTS 1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Net Sales:
Dental $ 621,103 $495,798 $440,531
Consumer Products and other 241,368 219,444 180,608
Consolidated net sales $ 862,471 $715,242 $621,139

Operating Income:
Dental $ 28,987 $ 60,170 $ 58,742
Consumer Products and other 18,286 31,623 19,929

Total operating income 47,273 91,793 78,671
General corporate expenses (36,456) (26,292) (20,801)
Consolidated income before
income taxes $ 10,817 $ 65,501 $ 57,870

Assets:
Dental $ 475,176 $376,988 $333,188
Consumer Products and other 286,252 302,466 228,035

Total identifiable assets 761,428 679,454 561,223
General corporate assets 253,495 249,663 310,097
Consolidated assets $1,014,923 $929,117 $871,320

Depreciation and Amortization:
Dental $ 13,647 $ 13,389 $ 9,951
Consumer Products and other 10,982 8,081 7,120
Consolidated depreciation and
amortization $ 24,629 $ 21,470 $ 17,071

Capital Expenditures:
Dental $ 33,565 $ 23,406 $ 22,234
Consumer Products and other 11,853 9,287 12,308
Consolidated capital expenditures $ 45,418 $ 32,693 $ 34,542

GEOGRAPHIC AREA
Net Sales:
United States $ 347,523 $334,614 $291,313
Europe 295,774 285,245 242,424
Asia/Pacific 121,931 19,784 16,763
Other 97,243 75,599 70,639
Consolidated net sales $ 862,471 $715,242 $621,139

Operating income:
United States $ 31,317 $ 45,564 $ 36,022
Europe 24,173 32,834 29,932
Asia/Pacific 7,235 (1,044) (181)
Other (15,452) 14,439 12,898
Total operating income 47,273 91,793 78,671
General corporate expenses (36,456) $(26,292) (20,801)
Consolidated income before
income taxes $ 10,817 $ 65,501 $ 57,870

Assets:
United States $ 377,667 $361,543 $314,149
Europe 307,113 270,641 212,830
Asia/Pacific 43,231 9,191 8,892
Other 33,417 38,079 25,352
Total identifiable assets 761,428 679,454 561,223
General corporate assets 253,495 249,663 310,097
Consolidated assets $1,014,923 $929,117 $871,320
</TABLE>
<PAGE>32

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. 1996 and 1995 amounts are reclassified to conform to
1997 presentation.

QUARTERLY FINANCIAL INFORMATION
(Unaudited)

The following is a tabulation of quarterly results of operations for the
years ended March 31, 1997 and 1996 (in thousands, except per share amounts):

Fiscal 1997 Quarters
First Second Third Fourth

Net sales $205,507,000 $203,523,000 $216,409,000 $237,032,000
Gross profit 140,999,000 139,996,000 145,074,000 157,068,000
Income (Loss)
from Continuing
Operations Before
Income Taxes 21,990,000 21,401,000 19,152,000 (51,726,000)(2)
Net Income (Loss) 15,415,000 15,262,000 16,230,000 (38,300,000)(2)
Earnings per share of
Common Stock
From Continuing
Operations(1) $0.72 $0.71 $0.76 ($1.79)(2)

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)

<PAGE>33

(1) Restated to reflect the three percent stock dividends (see Note 10).

(2) The fourth quarter of fiscal 1997 includes a provision for manufacturing
restructuring and re-engineering costs of $72,450,000 ($55,687,000 or
$2.60 per share, after tax).

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 Expires Other Positions Held
(or principal occupation)

Leonard Block 85 6/98 Senior Chairman of the Board*

James A. Block 60 6/98 Chairman of the Board*

Thomas R. Block 52 6/98 President and Treasurer* **

Donald H. LeSieur 61 6/98 Executive Vice President and
President, International Division
Michael C. Alfano,
D.M.D., Ph.D. 49 6/98 Senior Vice President, Research
and Technology

Peter M. Block 30 6/98 President, European Division

Alfred E. Brown,
Ph.D. 80 6/98 Director of Scientific
Affairs** Celanese
Corporation (Retired)

Peggy Danziger 57 6/98 Private Investor

William T. Golden 87 6/98 Corporate Director and
Trustee**

Melvin Kopp 67 6/98 Senior Vice President and
Chief Financial Officer

Peter Mann 55 6/98 President, U.S. Division

John E. Peters 55 6/98 Senior Vice President, General
Counsel and Secretary

Peter J. Repetti 79 6/98 Member, Fulbright & Jaworski
L.L.P. (Retired)

Susan B. Stearns 52 6/97 Private Investor

Mary C. Tanner 47 6/98 Managing Director, Lehman
Brothers
<PAGE>34

* Member of the Executive Committee
** Member of the Audit Committee

The following family relationships exist among the Directors of the
Company: Leonard Block is the father of Thomas R. Block and Peggy Danziger,
the uncle of James A. Block and great uncle of Peter M. Block. James A. Block
is the father of Peter M. Block. Thomas R. Block and Peggy Danziger are
brother and sister and are first cousins of James A. Block and second cousins
of Peter M. Block.

Each director of the Company has been employed by the Company for the
past five years except for (i) William T. Golden who is a director and trustee
of Verde Exploration Ltd, (ii) Alfred E. Brown, Ph.D., formerly Director,
Scientific Affairs, Celanese Corporation, now retired, (iii) Peter J. Repetti
who is an attorney and a retired member of the New York law firm of Fulbright
& Jaworski L.L.P., (iv) Peggy Danziger who is a private investor, and
(v) 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 in fiscal 1996, and Peter M. Block, who
was elected in fiscal 1998.

None of the Directors serve on the Boards of Directors of any other
public corporation, except for William T. Golden who serves on the Board of
Directors of Verde Exploration Ltd.

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, Peter M. Block,
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:
<PAGE>35

Name Age Date of Date Term Positions
Appointment Expires

Leonard N. Block 85 10/88 6/98 Senior Chairman of
the Board*

James A. Block 60 10/88 6/98 Chairman of the Board*

Thomas R. Block 52 10/88 6/98 President and Treasurer*

Donald H. LeSieur 61 10/88 6/98 Executive Vice President
and President,
International Division*(2)

Michael C. Alfano,
D.M.D., Ph.D. 49 5/87 6/98 Senior Vice President,
Research and Technology (1)(2)

Peter M. Block 30 5/97 6/98 President, European
Division

Melvin Kopp 67 10/72 6/98 Senior Vice President
and Chief Financial
Officer (1)(2)

Peter C. Mann 55 11/79 6/98 President, U.S. Division (1)(2)

John E. Peters 55 12/78 6/98 Senior Vice President,
General Counsel and
Secretary (1)(2)

Gilbert Seymann 58 5/84 6/98 Senior Vice President,
Operations (1)(2)

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.

* Member - Office of the Chief Executive
(1) Consultant - Office of the Chief Executive
(2) Covered under the Change in Control Agreement described in Item 13.

<PAGE>36

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.

Peter M, Block is President, European Division, a Consultant to the
Office of the Chief Executive, and is responsible for supervision of the
Managing Directors of the Company's European businesses.

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 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.
<TABLE>
Item 11. Executive Compensation
<CAPTION>
Long Term Compensation

Annual Compensation Awards Payouts

Other Restricted All
Annual Stock Options LTIP Other
Name and Principal Fiscal Salary Bonus Compen Award(s) /SARs Payouts Compensation
Position Year $ $ sation ($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Leonard Block (1) 1997 375,768 165,000 * * * * 35,144
Senior Chairman of 1996 362,347 136,500 34,950
the Board 1995 357,469 89,500 34,537

James A. Block (2) 1997 346,345 167,500 * * * * 10,500
Chairman of the 1996 336,252 119,600 9,449
Board 1995 327,948 88,900 9,099

Thomas R. Block (2) 1997 346,345 168,400 * * * * 7,181
President and 1996 336,252 125,400 6,702
Treasurer 1995 327,948 92,000 6,641

Donald H. LeSieur (4) 1997 402,369 405,400 * * * _ 13,560
Executive 1996 393,248 243,800 13,074
Vice President, 1995 342,288 148,100 122,031 9,981
Pres. International
Division

Peter C. Mann 1997 309,992 175,700 * * * 14,905 7,549
President, U.S. 1996 297,300 184,600 92,986 6,687
Division 1995 258,638 94,500 78,941 6,269
</TABLE>

*None to be reported
<PAGE>37

(1) On January 1, 1981, the Company entered into an Employment Agreement with
Leonard N. Block, which was amended to run through April 30, 2007. 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 was amended to run through April 30, 2007. 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 was amended to run through April 30, 2007. 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) The Company entered into an Employment Agreement, effective July 1, 1997,
with Donald H. LeSieur for a minimum of one and a maximum of three and
one-half years whereby Mr. LeSieur will reduce his time commitment to the
Company but will work for the Company for a minimum of 125 days in each
calendar year. Mr. LeSieur's compensation for each day of service will be
equivalent to the daily cost to the Company if he continued as a full-time
employee. His compensation will be adjusted annually in accordance with the
Company's salary administration policy. Mr. LeSieur's deferred compensation,
pension, and other benefits will be calculated as though he was a full-time
employee earning his gross salary ($430,718) as of June 30, 1997, as adjusted
("Adjusted Salary"). Mr. LeSieur will receive deferred compensation equal to
one-third of his average annual Adjusted Salary for three years prior to his
termination, which compensation vests at the rate of 1 1/4% per quarter,
except that such compensation will become 100% vested if termination occurs
due to death or disability. Such payment shall continue for a maximum of
13 1/2 years. Should termination occur by Company action other than for cause,
a further payment equal to one-half his annual Adjusted Salary, as of the date
of termination, shall be paid for a maximum of five years or until his 65th
birthday, whichever first occurs. Donald H. LeSieur has been employed by the
Company since 1973.
<PAGE>38

During calendar year 1996, the director's annual fee was $8,500 and
remains unchanged for calendar year 1997. Executive officers who are directors
receive no director's, attendance, audit committee or compensation committee
fees. During calendar year 1996, six directors each received attendance fees
of $950 per meeting. The fee of $950 per meeting was increased to $1,050 for
calendar year 1997. During the calendar year 1996, two directors each received
audit committee attendance fees of $900. The fee of $900 per meeting remains
unchanged for calendar 1997. During the calendar year 1996, two directors each
received compensation committee attendance fees of $450. The fee of $450 per
meeting remains unchanged for calendar 1997. The total includes payments of
$8,500 made to each of seven directors, including three payments to each of
seven such directors of $2,125, in calendar year 1996 and one payment of $2,125
to each of seven such directors during the first quarter of calendar year 1997.
This total further includes an aggregate of $20,450 paid to six directors as
director's attendance fees, an aggregate of $7,200 paid to two directors as
audit committee member fees, and an aggregate of $3,600 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:

1997 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 $ 5,251.80 $10,503.60 $15,755.40 $22,506.00
100,000 12,600.00 25,200.00 37,800.00 52,000.00
150,000 20,100.00 40,200.00 60,300.00 82,000.00
200,000 27,600.00 55,200.00 82,800.00 112,000.00
250,000 35,100.00 70,200.00 105,300.00 125,000.00*
300,000 42,600.00 85,200.00 125,000.00* 125,000.00*
350,000 50,100.00 100,200.00 125,000.00* 125,000.00*

* Maximum permissible benefit under IRC Sec. 415, effective January 1, 1997.

The Company's domestic pension expense for the fiscal years ended March
31, 1997 and 1996 was $2,565,431 and $2,745,938, respectively. The plans are
in a fully funded status, and accordingly, the Company's financial statements
do not reflect a domestic pension funding contribution for the fiscal year
ended March 31, 1997.

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.
<PAGE>39

With respect to the figures of the table on page 34, 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 ($343,702.23); Thomas R. Block
($343,702.23); Donald H. LeSieur ($399,539.41); and Peter C. Mann
($306,530.74). 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, 1997, the five (5) employees described in Item 10 had the
following credited years of service in these plans: Leonard Block, 48 years;
James A. Block, 35 years; Thomas R. Block, 27 years; Donald H. LeSieur,
23 years; and Peter C. Mann, 24 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, 1997, the units were valued at $99.80.

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, 1997, a total of 320,282 units had been awarded having an
average value of $90.13 per unit. Of those 320,282 units, 75,834 units at an
average value of $95.37 per unit were awarded during the past fiscal year.
During fiscal year 1997, the following units were awarded to executives:
3,189 units at $96.90 per unit and 436 units at $96.50 per unit to
Peter C. Mann.

During the year ended March 31, 1997, $1,108,543 was paid in lump sum
payments to the participants in the Special Stock Unit plan.

<PAGE>40

Long-Term Incentive Plans - Awards In Last Fiscal Year

Estimated Future Payouts Under Non-Stock
Price-Based Plans
Performance or
Name No. of Shares, Other Period * **
Units or Other Until Maturity Threshold Target Maximum
Rights or Payout ($) ($) ($)

Peter C. Mann 3,285 5 Years 941 189,000 -
436 72 26,000

* Minimum value as of March 31, 1997
** 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 3, 1997, 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.

Name and Address Amount and Nature
Title of Class of Beneficial Owner of Beneficial Percent
Ownership of Class

Class B Common Leonard Block, Representative 3,967,766 (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 3,967,766(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, 396,986; 1,785,390; and
1,785,390.

(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 1,983,883 shares held
in trust for the benefit of Susan B. Stearns.
<PAGE>41

(b) Securities ownership of management:

The following table sets forth, as of June 3, 1997, the securities
ownership of all directors, naming them, and all Directors and Officers of
the Company, as a group, without naming them:

<TABLE>
BLOCK DRUG COMPANY, INC.
SECURITIES BENEFICIALLY OWNED

Class A Common Stock Benefically Owned Class B Common
<CAPTION> Stock Benefically
Owned
Name of Beneficial No Shared Shared
Owner Investment Investment 401-K Percentage
Power Power Plan Owned
Holdings
<S> <C> <C> <C> <C> <C>
Leonard Block 1,110,531 - 932 9% 3,967,766 - 50%
(1) (4) (5)

James A. Block 2,505,649 - 1,878 14% 3,967,766 - 50%
(2) (3)

Thomas Block 143,105 2,238,552 1,242 17% -

Donald H. LeSieur 106 530 1,912 - -

Michael C. Alfano - - 1,521 - -

Peter M. Block (2) 1,237,762 - 274 5% -

Alfred E. Brown (6) 1,336 - - - -

Peggy Danziger 194,184 1,298,956 - 10% -
(5) (8)

William T. Golden 6,220 13,986 - - -

Melvin Kopp 2,145 - - - -

Peter C. Mann 842 106 1,674 - -

John E. Peters - 2,090 1,421 - -

Peter J. Repetti (7) 264 - - - -

Gilbert M. Seymann 1,151 - 1,318 - -

Susan B. Stearns - - - - -
(2) (3)

Mary C. Tanner - - - - -
</TABLE>
<PAGE>42

As of June 3, 1997, all directors and officers as a group owned 54% of the
Company's Class A Common Stock. The number of shareholders of Class A Common
Stock is 507.

(1) Leonard Block owns 343,723 shares (not including 401-K Plan Holdings);
is deemed to be the beneficial owner of but disclaims ownership of:
762,682 shares owned by Adlen Corporation, of which Leonard Block is
the sole shareholder; 4,126 shares owned by Adele Block, his wife.

(2) James A. Block owns 116 shares (not including 401-K Plan Holdings); is
deemed to be the beneficial owner of: 173,241 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; 1,064,449 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). James A. Block has sole investment powers with respect to
the shares held by such trust. For the purpose of reporting shares for
which a beneficial owner has no shared investment power in the tabular
presentation on page 40, all 1,237,690 shares of these two trust have
been included in the total number of shares reported for both James A.
Block and Peter Block, and as a result such shares have been reported
twice; and 1,267,843 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
1,267,843 Class A shares and 1,983,883 Class B shares owned by the
trusts for the benefit of Susan B. Stearns of which he is a trustee or
co-trustee. In computing the percentage of Class A shares owned by a
beneficial owner, 618,845 shares (representing one-half of the total
shares owned by the two trusts in which Peter Block is a co-trustee
with James A. Block) were allocated to James A. Block and 618,845
shares were allocated to Peter Block. The impact of this treatment of
these shares on the percentage reported for James A. Block and Peter
Block is negligible. In computing the aggregate number of shares owned
by directors and officers as a group, the 1,237,690 shares owned by
these two trusts were counted only once.

(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 1,983,883 shares held in trust for the benefit of Susan B. Stearns.

(4) Thomas Block owns 80,345 shares (not including 401-K Plan Holdings); is
deemed to be the beneficial owner but disclaims ownership of: 23,870
shares owned by Marilyn Friedman, his wife; 38,890 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; 124,562 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; 1,859,216 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; 254,774 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 38, all 254,774 shares of
these four trusts have been included in the total number of shares
reported for Thomas Block and Peggy Danziger,

<PAGE>43

Item 12. Securities Ownership of Certain Beneficial Owners and Management
(Cont'd)
and as a result have been reported twice. In computing the percentage
of Class A shares owned by a beneficial owner, 127,387 shares
(representing one-half of the total shares owned by the four trusts)
were allocated to Thomas Block and 127,387 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 254,774 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 194,184 shares; 1,039,998 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; 254,774 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 38, all 254,774 shares of these
four trusts have been included in the total number of shares reported
for both such shares Thomas Block and Peggy Danziger, and as a result
such shares have been reported twice; and all 4,184 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, 127,387 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 127,387 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 254,774 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 1,336 shares owned
by his wife.

(7) Peter J. Repetti disclaims beneficial ownership to 264 shares owned by
his wife.

(8) Peggy Danziger disclaims beneficial ownership to all 4,184 shares of
which Richard M. Danziger, her husband is co-trustee with a third party.
<PAGE>44

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.

Effective May 1, 1997, the Company entered into the following agreements with
Melvin Kopp, (i) a revised Consulting Agreement which expires on
February 28, 2005. Under this agreement, Mr. Kopp, now retired, will continue
to provide the Company with his services for a minimum of one hundred days
annually. Mr. Kopp's compensation for each day of service as a Consultant will
be equivalent to the daily cost to the Company if he continued as an employee
after his retirement in 1995. His compensation will be adjusted annually in
accordance with the Company's salary administration policy, (ii) a Change in
Control Agreement (CIC) which mirrors the provisions of the CICs entered into
with key executives of the Company, and (iii) a Deferred Compensation Agreement,
the provisions of which mirror the terms of the Company's Special Stock Unit
Plan.

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.

<PAGE>45

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 1997, 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, 1997 and 1996,

Consolidated Statements of Income and Retained Earnings for the
Years ended March 3l, 1997, 1996 and 1995,

Consolidated Statements of Cash Flows for the Years ended
March 3l, 1997, 1996 and 1995,

Notes to Consolidated Financial Statements

Supplementary Data:

Selected quarterly data for the two years ended March 3l, 1997.

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 53.

<PAGE>46

(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, 1996 and 1995, and the related statements of income,
retained earnings and cash flows for each of the three years in the period
ended December 31, 1996. 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, 1996 and 1995 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with accounting principles generally accepted in the United States
of America.

Ernst & Young

J. Englishstraat 54
2140 Borgerhout (Antwerpen)

April 9, 1997

<PAGE>47

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, 1996 and 1995, and the statements of income and retained
earnings and cash flows for the years 1996, 1995 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statements 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 Nederland
B.V. at December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years 1996, 1995 and 1994 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 12, 1997

<PAGE>48

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, 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
December 31, 1996. 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, 1996 and 1995 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 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, 1996, is presented for the
purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to auditing
procedures applied in our audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.

Reconta Ernst & Young
Via Torino 68
20123 Milano

February 12, 1997

<PAGE>49

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 of
December 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
December 31,1996.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 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. as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,1996,
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 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., 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 audit of the basic
financial statments 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. 8886537

Makati City

Makati City
January 31, 1997

<PAGE>50

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, 1997 and 1996 and the related statements of
income and retained earnings and cash flows for each of the three years in the
period ended March 31, 1997. 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 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 Block Drug Company, Inc.,
Ratingen Branch, as of March 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1997, 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
(Independent Public (Independent Public
Accountant) Accountant)

Dusseldorf,
April 23, 1997

<PAGE>51

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, 1996 and 1995, and the related statements
of income and retained earnings and cash flows for the three years in the period
ended December 31, 1996. 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, 1996 and 1995 and the results of its operations and its
cash flows for each of the three years in the period ended December 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 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

Christian Colineau

February 10, 1997

<PAGE>52

REPORT OF INDEPENDENT ACCOUNTANTS

Buenos Aires, February 7, 1997

The Board of Directors of
Stafford Miller Argentina S.A.

In our opinion, the accompanying balance sheets of Stafford Miller Argentina
S.A. at December 31, 1996 and 1995 and the related statements of income and
retained earnings and of cash flows for those years, expressed in historical
pesos, are presented fairly, in all material respects, for purposes of
consolidation on the bases described in Note 1. Our audits of the financial
statements expressed in historical pesos were made in conjunction with our
audits of the restated local currency statutory financial statements.

These financial statements are the responsibility of Stafford Miller Argentina
S.A. management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

We have also audited the restated local currency financial statements of
Stafford Miller Argentina S.A. for the years ended December 31, 1996 and 1995,
not submitted herewith, prepared on the basis of accounting principles generally
accepted in Argentina. An unqualified report will be issued once the financial
statements at December 31, 1996 are approved by the Company's Board of
Directors. On April 30, 1996 we issued our unqualified report on the financial
statements at December 31, 1995.

The financial statements of Stafford Miller Argentina S.A. for the year ended
December 31, 1994, submitted herewith, were audited by other independent
accountants whose report dated February 6, 1995 expressed an unqualified
opinion on those statements.

Because of the limited purpose of the financial statements expressed in
historical pesos, this report is intended solely for the use of management
of Stafford Miller Argentina S.A. and Block Drug Company, Inc.

PRICE WATERHOUSE & CO.

by (Partner)
Dr. Osyaldo H. Bort

<PAGE>53

Schedule II

BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES

Valuation and Qualifying Accounts

Years Ended March 31, 1997, 1996 and 1995

Additions
Balance at Charged to
Beginning Costs and Balance at
Description of Period Expenses Deductions End of Period

1997

Allowances for discounts,
doubtful accounts and
returns $4,188,000 $27,867,000 $27,551,000 $4,504,000

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 $2,709,000 $38,826,000 $38,313,000 $3,222,000

INDEX TO EXHIBITS

Exhibit No. Description

22 Subsidiaries of Registrant.

<PAGE>54

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 Austria Gmbh Austria
Block Uruguay, S.A. Uruguay
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 (Korea) Limited Korea
The Guangzhou Representative Office of China
Block Drug Company, Inc. (China)
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 (Japan) Limited Japan
Stafford-Miller Limited Great Britain
Stafford-Miller Nederland B.V. Netherlands
Stafford-Miller (N.Z.) Limited New Zealand
Stafford-Miller (Portugal) Portugal
Quimico-Farmaceutica, Lda.
Stafford-Miller RE Limited (b) Great Britain
Stafford-Miller S.r.l. Italy
Stafford-Miller Scandinavia Aktiebolag Sweden

(a) Wholly-owned subsidiary of Stafford-Miller Continental, NV-SA.

(b) Wholly-owned subsidiary of Stafford-Miller (Ireland) Limited.

<PAGE>55

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 3rd day of
June, 1997.

BLOCK DRUG COMPANY, INC.
(Registrant)
MELVIN KOPP
BY 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 3rd day of June, 1997.

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 PETER M. BLOCK
Thomas R. Block Peter M. Block

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

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