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
September 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_September 30,_1998
Common Stock - Class A 14,011,333
Common Stock - Class B 8,173,600
<PAGE>1
BLOCK DRUG COMPANY, INC.
INDEX TO FORM 10-Q
SEPTEMBER 30, 1998
____________________________
Part I - Financial Information - Unaudited Page No.
Consolidated Balance Sheets - September 30, 1998
and March 31, 1998 3
Consolidated Statements of Income for the three
and six months ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Comprehensive
Income for the three and six months ended September
30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows
for the six months ended September 30, 1998 and 6
and 1997.
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Operating
Results and Financial Condition 8-10
Part II - Other Information 11
<PAGE>2
<TABLE>
BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
ASSETS __09/30/98__ __03/31/98__
<S> <C> <C>
Current Assets:
Cash $ 28,117,000 $ 37,320,000
Marketable securities,at market 42,778,000 24,081,000
Accounts receivable, less allowances
of $4,371,000 (9/30/98) and
$4,446,000 (3/31/98) 138,717,000 143,114,000
Inventories:
Raw & packaging materials 41,811,000 42,661,000
Finished goods 92,798,000 96,478,000
Other current assets 40,059,000 37,056,000
----------- -----------
Total current assets 384,280,000 380,710,000
----------- -----------
Property,plant and equipment, less
accumulated depreciation of $125,354,000
(9/30/98) and $132,292,000 (3/31/98) 240,504,000 251,737,000
Long term securities at market 243,575,000 263,518,000
Goodwill and other intangible assets-
net of amortization 194,273,000 183,654,000
Other assets 7,863,000 7,453,000
-------------- -------------
Total assets $1,070,495,000 $1,087,072,000
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes and bonds payable $104,503,000 $171,210,000
Accounts payable & accrued expenses 158,540,000 173,226,000
Income taxes payable 12,758,000 11,128,000
Dividends payable 5,313,000 5,306,000
----------- -----------
Total current liabilities 281,114,000 360,870,000
----------- -----------
Notes and bonds payable 107,235,000 58,318,000
Deferred compensation and other payables 18,925,000 17,606,000
Deferred income taxes 3,112,000 3,023,000
----------- -----------
Total liabilities 410,386,000 439,817,000
----------- -----------
Shareholders' Equity:
Class A common stock, non-voting, par
value $.10-15,000,000 shares authorized,
14,011,000 (9/30/98) and 13,991,000
(3/31/98) shares issued and outstanding 1,401,000 1,399,000
Class B common stock par value $.10-
30,000,000 shares authorized, 8,174,000
(1998 & 1997) shares issued and
outstanding 817,000 817,000
Capital in excess of par value 282,868,000 281,993,000
Retained earnings 391,704,000 377,595,000
Cumulative other comprehensive
income(loss) (16,681,000) (14,549,000)
-------------- -----------
Total shareholders' equity 660,109,000 647,255,000
-------------- -------------
Total liabilities & shareholders' equity $1,070,495,000 $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)
THREE_MONTHS_ENDED SIX_MONTHS_ENDED
SEPTEMBER_30, SEPTEMBER_30,
_1998_____________1997____ _______1998________1997___
<CAPTION>
Revenues:
<S> <C> <C> <C> <C>
Net sales $204,063,000 $221,878,000 $393,510,000 $422,084,000
Interest, dividends
and other income 5,165,000 6,790,000 18,384,000 13,117,000
----------- ----------- ----------- -----------
209,228,000 228,668,000 411,894,000 435,201,000
Cost and expenses: ----------- ----------- ----------- -----------
Cost of goods sold 63,098,000 77,628,000 119,488,000 137,077,000
Selling, general and
administrative 125,924,000 126,785,000 252,478,000 249,776,000
Interest expense 3,296,000 3,044,000 6,824,000 6,351,000
----------- ----------- ----------- -----------
192,318,000 207,457,000 378,790,000 393,204,000
----------- ----------- ----------- -----------
Income before taxes 16,910,000 21,211,000 33,104,000 41,997,000
Income taxes 4,116,000 5,934,000 8,375,000 11,339,000
----------- ----------- ----------- ----------
Net income $12,794,000 $15,277,000 $24,729,000 $30,658,000
============ =========== ========== ===========
Average number of
shares outstanding 22,180,977 22,137,845(1) 22,175,325 22,133,087(1)
=========== =========== ========== ===========
Net earnings per share $ 0.58 $ 0.69(1) $ 1.12 $ 1.39 (1)
(basic) =========== =========== ========== ===========
Cash dividends per share
Class A common stock $ .315 $ .31 $ 0.63 $ 0.62
Class B common stock $ .11 $ .1075 $ 0.22 $ 0.215
</TABLE>
(1) Restated to reflect 3% stock dividend declared November 1997.
-4-
See notes to consolidated financial statements
<PAGE>4
<TABLE>
BLOCK DRUG COMPANY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<CAPTION> THREE_MONTHS_ENDED SIX_MONTHS_ENDED
SEPTEMBER_30, SEPTEMBER_30,
_1998_____________1997____ _______1998________1997___
<S> <C> <C> <C> <C>
Net income $12,794,000 $15,277,000 $24,729,000 $30,658,000
Other comprehensive
income/(loss)
Foreign currency
translation adjust-
-ment * 1,229,000 2,387,000 (4,450,000) (11,825,000)
Unrealized holding
gain on marketable
securities 2,162,000 1,131,000 2,318,000 1,879,000
------------ ---------- ----------- -----------
Other comprehensive
income/(loss) 3,391,000 3,518,000 (2,132,000) (9,946,000)
------------ ---------- ----------- -----------
Comprehensive income
/(loss) $16,185,000 $18,795,000 $22,597,000 $20,712,000
============ =========== =========== ============
</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.AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION> SIX MONTHS ENDED
SEPTEMBER 30
_____1998_________1997____
<S> <C> <C>
CASH_FLOW_FROM_OPERATING_ACTIVITIES $ 25,425,000 $ 30,869,000
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Additions to property, plant & equipment (18,543,000) (16,351,000)
Proceeds from sale of assets 31,790,000
Proceeds from sales of long-term securities 94,940,000 39,062,000
Purchases of long-term securities (95,805,000) (49,637,000)
Decrease(increase)in marketable securities 5,148,000 (7,312,000)
Payment for products acquired (24,915,000) (39,008,000)
------------- ------------
Net cash used in investing
activities (7,385,000) (73,246,000)
------------- ------------
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid to shareholders (10,620,000) (10,136,000)
Proceeds from issuance of notes payable 50,000,000
Decrease in long-term debt (73,000)
(Decrease)increase in short-term debt (67,790,000) 67,946,000
----------- ------------
Net cash (used in)provided by financing
activities (28,410,000) 57,737,000
------------ -----------
Effect of exchange rates on cash 1,167,000 1,403,000
------------ -----------
(Decrease)increase in Cash (9,203,000) 16,763,000
Cash, beginning of period 37,320,000 13,862,000
------------ ------------
Cash, end of period $ 28,117,000 $ 30,625,000
============ ============
SUPPLEMENTAL CASH FLOW DATA
Cash paid during the year:
Interest $ 7,119,300 $ 6,369,200
Income taxes $ 2,882,355 $ 8,325,300
</TABLE>
-6-
See notes to consolidated financial statements.
<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. During the quarter ended September 30,1998,the Company converted
short-term variable bank debt to fixed rate by issuing $50,000,000 of
10 year notes maturing July 1,2008 at 6.46%.
During the six months ended September 30,1998, the Company reduced
its net borrowings by $ 17,790,000 mainly from lines of credit from
various banks bearing interest at variable rates.
3. 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.
4. 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 not 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 worldwide net sales of $ 204.1 million in the second quarter and
$393.5 million in the first half year ended September 30,1998 were lower by 8.0%
and 6.8%,respectively,compared to prior year periods.Domestic sales for the
first half of the year were lower by 10.2% due to the divestiture of three
household product lines. Foreign sales for the first half of the year were
lower by 4.3%. Excluding the effects of a stronger U.S. Dollar related to
foreign currencies, world wide net sales from ongoing operations increased 2.6%
over the prior year.
Interest, dividends and other income increased during the first half of the year
compared to the prior year comparable period due primarily to a gain on sale of
the household product lines.
The cost of goods sold percent to sales was 30.4% and 32.5% for the first six
months 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 64.2% and 59.2% for the first six
months of the current and prior year periods,respectively. These expenses
reflect major spending programs to meet significant competition and build brand
equities.
Interest expense percent to sales was 1.7% and 1.5% for the first six months of
the current and the prior year,respectively. The increasing trend represents
the additional borrowings by foreign subsidiaries to finance product
acquisitions and conversion of short-term debt to long-term debt at a slightly
higher interest rate.
Due to the above factors, income before taxes was 8.4% and 9.9% of sales for
the first half of the current and prior year, respectively.
The effective income tax rates of 25.3% and 27.0% for the first half 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.
Year 2000:
- ----------
As many computer systems and other equipment or processors with embedded chips
(collectively, "Business Systems") use only two digits to represent the year,
they may be unable to process accurately certain data before during or after the
year 2000. As a result, business and government entities are at risk for
possible miscalculations or systems failures causing disruption in their
business operations.
- 8 -
<PAGE>8
This is commonly known as the year 2000 (Y2K Millennium Bug or Y2K) problem.
The Y2K problem can arise at any point in the Company's supply, manufacturing,
processing, distribution and financial chains.
The Block Drug Company and each of its operating subsidiaries are in the process
of implementing a Y2K compliance readiness program with the objective of having
all of their significant Business Systems, including those that affect
facilities and manufacturing activities, functioning properly with respect to
the Y2K problem before January 1, 2000. All operating subsidiaries are in the
remediation stage of Y2K readiness.
The first component of the Y2K compliance program is to identify the internal
Business Systems of the Company and its operating subsidiaries that are
susceptible to system failures or processing errors as a result of the Y2K
problem. This effort is substantially complete with all operating subsidiaries
having identified the Business Systems that may require remediation or
replacement and established priorities for repair or replacement. Those
Business Systems considered most critical to continuing operations are being
given the highest priority.
The second component of the Y2K compliance program involves the actual
remediation and replacement of Business Systems. The Company and its operating
subsidiaries are using both internal and external resources to complete this
process. Business Systems ranked highest in priority have either been
remediated or replaced or scheduled for remediation or replacement. Business
Systems previously earmarked for retirement and replacement without regard to
the Y2K problem have been evaluated for early replacement with Y2K compliant
systems or programs or, in the alternative, remediation. The Company is in the
process of implementing Y2K compliant software/hardware whereever needed in the
US as well as fixing or replacing hardware and software where warranted,with Y2K
compliant solutions in our affiliates.The Company's objective is to complete
substantially all remediation and replacement of internal Business Systems by
March, 1999 to complete final testing and certification for Y2K readiness by
July, 1999 and all contingency plans prepared by September, 1999.
As part of the Y2K compliance program, significant service providers, vendors,
suppliers, customers and government entities ("Key Business Partners") that are
believed to be critical to business operations after January 1, 2000 have been
identified and steps are being undertaken in an attempt to reasonably ascertain
their stage of Y2K readiness through questionnaires, interviews, on-site visits
and other available means. Wherever we have electronic or computer to computer
communications with Key Partners, we plan to jointly test these interfaces. In
conjunction with this effort, key government agencies and utilities upon which
the Company and its subsidiaries rely are being approached on a worldwide basis
to identify their level of Y2K preparedness. In many cases these entities,
particularly outside North America, have a lower level of Y2K awareness and are
less willing to provide information concerning their state of Y2K readiness.
- 9 -
<PAGE>9
Because of the vast number of Business Systems used by the Company and its
operating subsidiaries, the significant number of Key Business Partners and the
extent of the Company's international
operations, the Company presently believes that it may experience some
disruption in its business due to the Y2K problem. More specifically, because
of the interdependent nature of Business Systems, the Company and its operating
subsidiaries could be materially adversely affected if utilities and government
entities with which they do business or that provide essential services are not
Y2K ready. The Company currently believes that the greatest risk of disruption
in its businesses exists in certain international markets. The possible
consequences of the Company of Key Business Partners not being fully Y2K
compliant by January 1, 2000 include among other things, temporary plant
closings, delays in the delivery products, delay in receipt of supplies, invoice
and collection errors, and inventory and supply obsolescence. Concurrently, the
business and results of operations of the Company could be materially adversely
affected by a temporary inability of the Company and its operating subsidiaries
to conduct their businesses in the ordinary course for a period of time after
January 1, 2000. However, the Company believes that its Y2K readiness program,
including the contingency plannning discussed below, should significantly reduce
the adverse effect any such disruptions may have.
Concurrently, with Y2K readiness measures described above, The Company and its
operating subsidiaries are developing contingency plans intended to mitigate the
disruption in business operations that may result from Y2K problems, and are
developing cost estimates for such plans. Contingency plans may include
stockpiling raw and packaging materials, increasing inventory levels, securing
alternate sources of supply, adjusting facility shut-down and start-up schedules
and other appropriate measure. Once developed, contingency plans and related
cost estimates will be continually refined as additional information becomes
available.
The Company is investing an estimated $14 million to address it's Y2K effort as
well as other business information requirements.To date approximately $9 million
has been spent.These amounts do not include any cost associated with the
implementation of contingency plans, which are in the process of being
developed.
The Company's Y2K compliance program is an ongoing process and the estimates of
costs and completion dates for various components of the Y2K compliance program
described above are subject to change, but the Company is making every effort to
ensure scheduled completion dates are not missed.
Financial Condition:
Cash decreased for the six month period ended September 30,1998 to $28.1
million from $37.3 million at year-end March 31,1998. The decrease resulted
primarily from decreases in accounts payable and short-term debt partially
offset by the issuance of long-term debt and proceeds from sale of assets.
In the prior year six months cash increased to $30.6 million from $13.9 million
at year-end March 31,1997. The increase resulted primarily from a decrease in
accounts receivable and an increase in short-term debt partially offset by an
increase in other current assets and payments for products acquired.
- 10 -
<PAGE>10
PART II. OTHER INFORMATION
Item 6.__________Exhibits and Reports on Form 8K___________
(b) Reports on Form 8K - there were no reports on
Form 8K for the three months ended September 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)
11-12-98 MELVIN KOPP
________________ ______________________________
DATE Melvin Kopp
Senior Vice President &
Chief Financial Officer
-11-
<PAGE>11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 28117
<SECURITIES> 42778
<RECEIVABLES> 143088
<ALLOWANCES> 4371
<INVENTORY> 134609
<CURRENT-ASSETS> 384280
<PP&E> 365858
<DEPRECIATION> 125354
<TOTAL-ASSETS> 1070495
<CURRENT-LIABILITIES> 281114
<BONDS> 0
0
0
<COMMON> 2218
<OTHER-SE> 657891
<TOTAL-LIABILITY-AND-EQUITY> 1070495
<SALES> 393510
<TOTAL-REVENUES> 411894
<CGS> 119488
<TOTAL-COSTS> 119488
<OTHER-EXPENSES> 252478
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6824
<INCOME-PRETAX> 33104
<INCOME-TAX> 8375
<INCOME-CONTINUING> 24729
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24729
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
