SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Three Months Ended Commission File number 0-6436
June 30, 1998
BLOCK DRUG COMPANY, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1375645
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
257 Cornelison Avenue, Jersey City, N.J. 07302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 434-3000
Indicate by check mark whether the registrant (1) has filed all Commission
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods that the
registrant is required to file such reports) and (2) has been subject to such
filing requirements for the past
90 days. YES_X__ NO_____
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the close of the period covered by this report.
Class Outstanding at June 30,1998
-----
Common Stock - Class A 13,999,967
Common Stock - Class B 8,173,600
<PAGE>1
BLOCK DRUG COMPANY, INC.
INDEX TO FORM 10-Q
JUNE 30, 1998
Part I - Financial Information - Unaudited Page No.
Consolidated Balance Sheets - June 30, 1998
and March 31, 1998 3
Consolidated Statements of Income for the three
months ended June 30, 1998 and 1997 4
Condensed consolidated Statements of Comprehensive
Income for the three months ended June 30,1998 and 5
1997.
Condensed Consolidated Statements of Cash Flows
for the three months ended June 30, 1998 and 6
1997
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Operating
Results and Financial Condition 8
Part II - Other Information 9
<PAGE>2
<TABLE>
BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION> (Unaudited)
ASSETS __06/30/98__ __03/31/98__
<S> <C> <C>
Current Assets:
Cash $ 14,511,000 $ 37,320,000
Marketable securities, at market 39,045,000 24,081,000
Accounts receivable, less allowances
of $4,281,000 (6/30/98) and
$4,446,000 (3/31/98) 133,868,000 143,114,000
Inventories:
Raw & packaging materials 42,346,000 42,661,000
Finished goods 96,214,000 96,478,000
Other current assets 46,341,000 37,056,000
----------- -----------
Total current Assets 372,325,000 380,710,000
Property, plant and equipment, less
depreciation of $120,425,000
(6/30/98) and $132,292,000 (3/31/98) 237,146,000 251,737,000
Long term securities, at market 252,624,000 263,518,000
Goodwill and other intangible assets-
net of amortization 176,710,000 183,654,000
Other assets 7,072,000 7,453,000
------------- --------------
Total Assets $1,045,877,000 $1,087,072,000
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes and bonds payable $132,571,000 $171,210,000
Accounts payable & accrued expenses 167,225,000 173,226,000
Income taxes payable 13,408,000 11,128,000
Dividends payable 5,308,000 5,306,000
----------- -----------
Total Current Liabilities 318,512,000 360,870,000
Notes and bonds payable 58,348,000 58,318,000
Deferred compensation and other liabilities 18,304,000 17,606,000
Deferred income Taxes 2,016,000 3,023,000
----------- -----------
Total Liabilities 397,180,000 439,817,000
----------- -----------
Shareholders' Equity:
Class A common stock, non-voting, par
value $.10-15,000,000 shares authorized,
14,000,000 (6/30/98) and 13,991,000
(3/31/98) shares issued and outstanding 1,400,000 1,399,000
Class B common stock par value $.10-
30,000,000 shares authorized, 8,174,000
shares issued and outstanding 817,000 817,000
Capital in excess of par value 282,330,000 281,993,000
Retained earnings 384,222,000 377,595,000
Cumulative other comprehensive
income (20,072,000) (14,549,000)
------------ ------------
Total Shareholders' Equity 648,697,000 647,255,000
-------------- --------------
Total Liabilities & Shareholders' Equity $1,045,877,000 $1,087,072,000
============== ===============
</TABLE>
-3-
See notes to consolidated financial statements.
<PAGE>3
<TABLE>
BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION> THREE_MONTHS_ENDED
JUNE 30,
__1998_____________1997______
Revenues:
<S> <C> <C>
Net sales $189,447,000 $200,206,000
Interest, dividends and
other income 13,219,000 6,327,000
----------- -----------
202,666,000 206,533,000
----------- -----------
Cost and Expenses:
Cost of goods sold 56,390,000 59,449,000
Selling, general and
administrative 126,554,000 122,991,000
Interest expense 3,528,000 3,307,000
----------- -----------
186,472,000 185,747,000
----------- -----------
Income before taxes 16,194,000 20,786,000
Income taxes 4,259,000 5,405,000
----------- -----------
Net Income $11,935,000 $15,381,000
=========== ===========
Average number of shares outstanding 22,169,673 22,128,330 (1)
=========== ===========
Earnings per share $ .54 $ .70 (1)
=========== ===========
Cash dividends per share of class A
common stock $ .315 $ .31
Cash dividends per share of class B
common stock $ .11 $ .1075
</TABLE>
(1) Restated to reflect 3% stock dividend declared November 1997.
See notes to consolidated financial statements.
- 4 -
<PAGE>4
<TABLE>
BLOCK DRUG COMPANY INC.& SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<CAPTION> THREE MONTHS ENDED
JUNE 30,
-----1998---- ----1997----
<S> <C> <C>
Net income $11,935,000 $15,381,000
Other comprehensive income/(loss):
Foreign currency translation adjustments * (5,679,000) (13,195,000)
Unrealized holding gain on marketable
securities 156,000 748,000
------------ ------------
Other comprehensive income/(loss) (5,523,000) (12,447,000)
------------ ------------
Comprehensive income/(loss) $ 6,412,000 $ 2,934,000
============ ============
</TABLE>
* The Company does not provide for U.S. income taxes on foreign currency
translation adjustments because it does not provide for such taxes on
undistributed earnings of foreign subsidiaries.
See notes to consolidated financial statements.
- 5 -
<PAGE>5
<TABLE>
BLOCK DRUG COMPANY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION> THREE MONTHS ENDED
JUNE 30
_____1998_____ _____1997_____
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES $ 9,448,000 $6,498,000
-------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES
Additions to property, plant & equipment (11,358,000) ( 7,704,000)
Proceeds from sale of assets 31,790,000
Proceeds from sales of long-term securities 73,918,000 8,986,000
Purchases of long-term securities (80,543,000) ( 4,898,000)
Decrease (increase) in marketable securities 3,022,000 (18,391,000)
Payments for products acquired (7,000,000)
------------- -------------
Net cash provided by(used in)investing activities 9,829,000 (22,007,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (5,308,000) (5,054,000)
(Decrease) increase in short-term debt (38,609,000) 11,848,000
------------ -----------
Net cash (used in) provided by financing
activities (43,917,000) 6,794,000
------------ -----------
Effect of exchange rates on cash 1,831,000 746,000
------------ -----------
Decrease in cash (22,809,000) (7,969,000)
Cash, beginning of period 37,320,000 13,862,000
----------- ------------
Cash, end of period $14,511,000 $ 5,893,000
============ ============
SUPPLEMENTAL CASH FLOW DATA
Cash paid during the year:
Interest $ 2,795,400 $ 2,182,400
Income taxes $ 1,193,000 $ 4,001,000
</TABLE>
See notes to consolidated financial statements.
- 6 -
<PAGE>6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying consolidated
financial statements include all adjustments (consisting of
only normal recurring adjustments) necessary for a fair
presentation of the data for the interim periods.
2. In April 1998 the Company sold three of its domestic household
products brands, 2000 Flushes, X-14 and Carpet Fresh.
3. During the quarter, the Company acquired VAJ s.p.a of Piacenza,
Italy, a manufacturer and marketer of Strep, the leading depilatory
in Italy, and other grooming products.
4. An approval letter from the Food and Drug Administration was received
by Atrix Laboratories, Inc. for Atridox, a site-specific, anti-
microbial delivery system for use in the treatment of chronic adult
periodontitis for which the Company has acquired exclusive U.S.
and Canadian marketing rights from Atrix.
5. At June 30,1998 the Company adopted Statement of Financial Accounting
Standards No.130 "Reporting Comprehensive Income"("SFAS 130"). SFAS
130 establishes standards for reporting and display of an alternative
income measurement and its components (revenue,expenses,gains and
losses) in a full set of general purpose financial statements. Total
comprehensive income includes net earnings,net unrealized currency
gains and losses on translation and net unrealized gains and losses
on securities. Adoption of this Statement had no effect on the
Company's financial position or operating results.
6. During the three months ended June 30, 1998, the Company reduced its
net borrowings by $ 38,609,000 mainly from lines of credit from
various banks bearing interest at variable rates.
7. During the second quarter of 1998, the Financial Accounting Standards
Board issued SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" which must be adopted by the Company by April 1,
2000, with early adoption permitted. SFAS No. 133 requires that all
derivative instruments be recorded on the consolidated balance sheet
at their fair value. Changes in the fair value of derivatives will
be recorded each period in earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Gains and
losses on derivative instruments reported in other comprehensive
income will be reclassified as earnings in the periods in which
earnings are affected by the hedged item. The Company has no yet
determined the timing of adoption or the impact that adoption or
subsequent application of SFAS No. 133 will have on its earnings or
financial position.
-7-
<PAGE>7
BLOCK DRUG COMPANY, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATING RESULTS AND FINANCIAL CONDITION
Operating Results:
Consolidated world wide net sales of $ 189.4 million in the first quarter
ended June 30, 1998 were lower by 5.4% compared to prior year first quarter.
Domestic sales were lower by 9% due to the divestiture of three household
product line. Foreign sales were lower by 2.9%. Excluding the effects of a
stronger U.S. Dollar related to foreign currencies, world wide net sales from
ongoing operations increased 3.2% over the prior year.
Interest, dividends and other income increased during the quarter compared to
the prior year comparable period due primarily to a gain on sale of household
product line.
The cost of goods sold percent to sales was 29.8% and 29.7% in the first quarter
of the current and prior year,respectively. The cost of goods represents
continued improvements in our manufacturing operations and mix of products sold.
Selling, general and administrative expenses, most of which are related to
advertising and promotional activities, were 66.8% and 61.4% of sales in the
first quarter of the current year and prior year, respectively. These expenses
reflect major spending programs to meet significant compition and build brand
equities.
Interest expense percent to sales was 1.9% and 1.7% in the first quarter of the
current and the prior year respectively. The increasing trend represents the
additional borrowings to finance product acquisitions and capital additions.
Due to the above factors, income before taxes was 8.5% and 10.4% of sales in
the first quarter of the current and prior year, respectively.
The effective income tax rates of 26.3% and 26.0% in the first quarter of the
current and prior year respectively, reflect tax exempt interest from government
securities and income from the lower tax areas of Puerto Rico and Ireland.
The Company's International operations represent approximately 60% of the
Company's business. During the current quarter, the performance was impacted by
currency issues, the instability and recession in Asian and certain European
markets key to our business, as well as competitive pressures in many of its
markets around the world.
Although inflation has been moderate, the Company continues to utilize selective
price increases and budgetary monitoring of advertising, personnel and other
expenses to control its operating margins.
Financial Condition:
Cash decreased in the current quarter ended June 30,1998 from the year-ended
March 31,1998 by $23 million. The decrease resulted primarily from a reduction
of short term debt, the payments for products acquired, an increase in
marketable securities, and other current assets partially offset by the sale of
assets, and a decrease in accounts receivable.
In the prior year first quarter ended June 30,1997 cash decreased by $8 million.
The decrease resulted primarily from an increases in marketable securities,
inventories and other current assets partially offset by increases in accounts
payable, short-term debt and a decrease in accounts receivable.
- 8 -
<PAGE>8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K
(a) The exhibits filed as part of this report are listed below :
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8K
There were no reports on Form 8K for the three months
ended June 30,1998.
SIGNATURES
Pursuant to the requirements 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.
BLOCK DRUG COMPANY, INC.
(Registrant)
August 11, 1998 MELVIN KOPP
________________ ______________________________
DATE Melvin Kopp
Senior Vice President &
Chief Financial Officer
<PAGE>9
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</TABLE>
