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 June 30, 2000 Commission File No. 0-6436
BLOCK DRUG COMPANY, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1375645
(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
257 Cornelison Avenue, Jersey City, New Jersey 07302-9988
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 434-3000
Indicate by check mark whether 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, 2000)
Common Stock - Class A 14,538,000
Common Stock - Class B 8,671,000
<PAGE>
BLOCK DRUG COMPANY, INC.
INDEX TO FORM 10-Q
JUNE 30, 2000
Part I. Financial Information - Unaudited Page No.
Consolidated Balance Sheets - June 30, 2000 and
March 31, 2000 3
Consolidated Statements of Income for the three
months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Comprehensive
Income for the three months ended June 30, 2000 and 1999. 5
Condensed Consolidated Statements of Cash Flows
for the three months ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7-10
Management's Discussion and Analysis of
Operating Results and Financial Condition 10-15
Part II. Other Information 16
<PAGE>
<TABLE>
ITEM 1: FINANCIAL STATEMENTS
BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(UNAUDITED)
ASSETS JUNE 30, MARCH 31,
2000 2000
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents........................................... $ 46,610,000 $ 41,645,000
Marketable securities............................................... 20,460,000 23,557,000
Accounts receivable, less allowance of $9,494,000 at (6/30/00) and
(3/31/00)......................................................... 162,114,000 162,173,000
Inventories ........................................................ 148,201,000 144,740,000
Other current assets................................................ 52,293,000 44,213,000
---------- ----------
Total Current Assets............................................ 429,678,000 416,328,000
Property, plant and equipment, less accumulated
depreciation of $139,098,000 (6/30/00)
and $134,469,000 (3/31/00)........................................ 225,113,000 229,156,000
Long term securities................................................ 277,059,000 259,705,000
Goodwill and other intangible assets - net of amortization.......... 254,505,000 260,424,000
Other assets........................................................ 10,490,000 11,318,000
---------- ----------
Total Assets.................................................... $1,196,845,000 $1,176,931,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes and bonds payable............................................. $ 152,130,000 $ 155,157,000
Accounts payable & accrued expenses................................. 165,941,000 154,717,000
Income taxes payable................................................ 20,597,000 17,241,000
Dividends payable................................................... 5,617,000 5,618,000
--------- ---------
Total Current Liabilities....................................... 344,285,000 332,733,000
Notes and bonds payable............................................. 105,143,000 105,308,000
Deferred income taxes............................................... 16,813,000 13,733,000
Deferred compensation and other liabilities......................... 44,438,000 42,784,000
---------- ----------
Total Liabilities............................................... 510,679,000 494,558,000
----------- -----------
Contingencies
Shareholders' Equity:
Class A common stock, non-voting, par
value $.10-20,000,000 shares authorized,
14,538,000 shares issued and outstanding.......................... 1,454,000 1,454,000
Class B common stock par value $.10-
40,000,000 shares authorized, 8,671,000
shares issued and outstanding................................... 867,000 867,000
Capital in excess of par value...................................... 319,693,000 319,693,000
Retained earnings................................................... 405,366,000 396,381,000
Accumulated other comprehensive loss................................ (41,214,000) (36,022,000)
----------- -----------
Total Shareholders' Equity........................................ 686,166,000 682,373,000
----------- -----------
Total Liabilities & Shareholder's Equity.......................... $1,196,845,000 $1,176,931,000
============== ==============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
<TABLE>
BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30
-------
2000 1999
---- ----
<S> <C> <C>
Revenues:
Net sales........................................................... $208,577,000 $193,955,000
Interest, dividends and other income................................ 6,677,000 11,651,000
--------- ----------
215,254,000 205,606,000
----------- -----------
Cost and Expenses:
Cost of goods sold.................................................. 69,559,000 67,367,000
Selling, general and administrative................................. 122,331,000 116,698,000
Interest expense.................................................... 3,364,000 3,257,000
--------- ---------
195,254,000 187,322,000
----------- -----------
Income before taxes.................................................... 20,000,000 18,284,000
Provision for federal, foreign and state income taxes............... 5,400,000 5,137,000
--------- ---------
Net Income............................................................. $ 14,600,000 $ 13,147,000
============ ============
Average number of shares outstanding................................... 23,209,442 23,568,243 (1)
========== ==========
Earnings per common share - basic and diluted.......................... $ .63 $ .56 (1)
============ ============
Cash dividends per share of Class A Common Stock........................... $ .32 $ .3175
Cash dividends per share of Class B Common Stock........................... $ .11125 $ .110625
</TABLE>
(1) Restated to reflect 3% stock dividend declared October 1999.
See notes to consolidated financial statements.
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<PAGE>
<TABLE>
BLOCK DRUG COMPANY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30
-------
2000 1999
---- ----
<S> <C> <C>
Net income ......................................................... $ 14,600,000 $ 13,147,000
Other comprehensive loss:
Foreign currency translation adjustments *.......................... (4,967,000) (15,350,000)
Unrealized holding loss on marketable securities.................... (225,000) (2,610,000)
-------- ----------
Other comprehensive loss............................................... (5,192,000) (17,960,000)
---------- -----------
Comprehensive income/(loss)............................................ $ 9,408,000 $(4,813,000)
============= ===========
</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>
<TABLE>
BLOCK DRUG COMPANY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30
-------
2000 1999
---- ----
<S> <C> <C>
CASH FLOW FROM CONTINUING OPERATING ACTIVITIES......................... $ 29,509,000 $ 1,516,000
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds form Product divestiture................................... - 19,000,000
Additions to Property, Plant and Equipment.......................... (4,672,000) (8,848,000)
Proceeds from Sales of long-term Securities......................... 6,704,000 6,439,000
Purchase of long-term Securities.................................... (21,224,000) (17,580,000)
Decrease in Marketable Securities................................... - 12,812,000
Payments for Products Acquired...................................... (131,000) (3,493,000)
-------- ----------
Net Cash (Used in) Provided by Investing Activities.................... ( 19,323,000) 8,330,000
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to Shareholders...................................... (5,615,000) (5,527,000)
Payments of Notes Payable........................................... - (1,190,000)
Increase (decrease) in short-term Debt.............................. 1,264,000 (7,600,000)
--------- ----------
Net Cash Used in Financing Activities.................................. (4,351,000) (14,317,000)
---------- -----------
Effect of Exchange Rates on Cash....................................... (870,000) (1,392,000)
-------- ----------
Increase (decrease) in Cash............................................ 4,965,000 (5,863,000)
Cash, Beginning of Period.............................................. 41,645,000 48,363,000
---------- ----------
Cash, End of Period.................................................... $ 46,610,000 $ 42,500,000
============= ============
SUPPLEMENTAL CASH FLOW DATA:
Cash Paid during the Period:
Interest.......................................................... $ 2,074,300 $1,783,000
Income taxes...................................................... $ 5,666,000 $5,723,000
</TABLE>
See notes to consolidated financial statements.
- 6 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements reflect all normal recurring
adjustments, which, in management's opinion, are necessary for a fair
presentation of the results for interim periods. Certain prior year amounts
have been reclassified to conform with the current year presentation.
The accompanying consolidated financial statements should be read in
conjunction with the financial statement disclosures contained in the
Company's 2000 Form 10-K.
2. Provision for certain expenses, including income taxes, media advertising,
and consumer promotions, are based on full year assumptions. Such expenses
are charged to operations in the year incurred and are included in the
accompanying consolidated financial statements in proportion with estimated
annual sales or annual tax rates or with the passage of time.
3. Inventories by major classes were as follows:
June 30, 2000 March 31, 2000
------------- --------------
Raw and packaging materials $ 41,902,000 $ 41,845,000
Finished goods 106,299,000 102,895,000
----------- -----------
$148,201,000 $144,740,000
============ ============
4. During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities" and in 2000 it issued
SFAS No. 138, "Accounting for Certain Derivative Instruments and Hedging
Activities - an amendment of FASB Statement No. 133". These standards must
be adopted by the Company by April 1, 2001. They require that all
derivative financial instruments be recorded on consolidated balance sheets
at 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 transactions and the extent to which the hedge is
effective in mitigating the exposure. 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 is evaluating the impact, if any, of those statements on its
fiscal 2002 financial position, results of operations and disclosures.
5. In April 2000, the Company acquired the Spectro TM line of over-the counter
dermatology products for its Canadian subsidiary. The line includes
soapless hand and face cleansers, an antifungal antiseptic cleanser and a
skin barrier cream. The acquisition price was $8.8 million. Goodwill
recorded in connection with this product acquisition amounted to $8.4
million. The financial effects of this acquisition will be reported in the
Company's second fiscal quarter, consistent with the manner of reporting
the Canadian subsidiary's result.
- 7 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
6. The Company's operations are managed as two divisions. The Americas
Division includes markets in North and South America; the International
Division includes Europe, Asia/Pacific, Africa and the Middle East.
Three Months ended June 30,
---------------------------
(2000) (1999)
------ ------
(in thousands)
--------------
Net Sales
Americas $ 97,971 $ 97,774
International 110,606 96,181
------- ------
Total consolidated sales $208,577 $193,955
======== ========
Operating Income:
Americas $ 9,951 $ 10,968
International 18,701 14,624
------ ------
28,652 25,592
General corporate expenses (8,652) (7,308)
------ ------
Consolidated income before
income taxes $ 20,000 $ 18,284
========== =========
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<PAGE>
7. In the fourth quarter of fiscal 1997, the Company approved a program (the
"Program") to consolidate its manufacturing operations by closing six of
its twelve production facilities in various parts of the world. The
facilities to be exited were located in Belgium, the United Kingdom,
Australia, Canada, the U.S. and Argentina. Significant components of the
Program involved the termination of approximately 450 manufacturing
employees (23% of its manufacturing workforce), the cleanup, closing and
sale of plants, and the physical disposition of inventory and equipment.
During fiscal 2000, the Company completed the program. (See Note 13 to the
March 31, 2000 consolidated financial statements.)
The following table displays a rollforward of the liabilities for the
manufacturing restructuring from inception to March 31, 2000:
<TABLE>
<CAPTION>
Original Amounts Amount Amount Amount Amount
Provision Utilized Remaining Utilized Remaining Utilized Reversed Ending Amount Reversed Remaining
Fiscal in Fiscal Balance in Fiscal Balance in Fiscal in Fiscal Balance Utilized in Fiscal Balance
Type Cost 1997 1997 3-31-97 1998 Other 3-31-98 1999 1999 3-31-99* Fiscal 2000 2000 3-31-00 -
-------- --------- --------- --------- --------- ----- --------- --------- --------- -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Employee $15,454(a) - $15,454 ($7,516) ($3,300) $4,638 ($2,637) ($2,001) - - - -
severance
and
related
costs
Plant 32,978(b)($24,468) 8,510 - (8,510) - - - - - - -
closing
and
related
asset
write-offs
Re-engineer 7,184(c) (7,184) - - - - - - - - - -
Contractual 16,834(d) (5,042) 11,792 (7,500) 11,110 15,402 (562) (5,640) 9,200 (623) (8,577) -
obligations ------ ------ ------ ------ ------ ------ ---- ------ ----- ---- ------ ------
and other
$72,450 ($36,694) $35,756 ($15,016) ($700) $20,040 ($3,199) ($7,641) $9,200 ($623) ($8,577) -
======= ======== ======= ======== ===== ======= ======= ======= ====== ===== ======= ======
</TABLE>
*The balance at the end of the quarter is classified as a current liability.
(a) Represents severance costs for approximately 450 production employees
at six facilities. Estimates were based on calculations derived by attorneys who
considered the local labor laws at each location.
(b) Represents estimated impairment losses on land and buildings to be sold
($15 million) and machinery and equipment to be disposed ($14 million). Also
included is the estimate of site cleanup costs ($4 million). Estimates were
based principally on appraisals from third-party appraisers.
(c) Principally represents consulting costs, as well as limited training
and maintenance costs, which were expensed during 1997.
(d) Represents consulting and legal fees and other costs.
8. Earning Per Share:
Basic earnings per share is computed by dividing net income for the period
by the weighted average number of common shares outstanding. Diluted earnings
per share is computed by dividing net income for the period by the weighted
average number of common shares outstanding and dilutive common stock
equivalents of 104,821. The difference,if any,between the number of shares used
in the basic earnings per share calculation compared to the diluted earnings
per share calculation is due primarily to the dilutive effect of
outstanding stock options. Stock options for 234,229 shares were not included
in the computation of diluted earnings per share for the quarter ended
June 30, 2000 because the exercise prices were greater than the average market
price of the common stock.
- 9 -
<PAGE>
9. 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, results of operations or liquidity.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATING RESULTS AND FINANCIAL CONDITION
Operating Results
Consolidated Sales:
Consolidated worldwide sales for the first quarter ended June 30, 2000 were
$208.6 million, 7.5% higher compared to prior year first quarter sales of $194
million. Excluding the effects of the stronger US dollar, consolidated sales
were $214 million, up by 10.3% compared to prior year first quarter sales of
$194 million. (Coupon expense, rebates and discounts have been reclassified from
Selling, General and Administrative and netted against sales in accordance with
EITF00-14, "Accounting for Coupons, Rebates and Discounts.") The Company's
operations are divided into two divisions: the Americas Division includes
markets in North and South America; the International Division includes Europe,
Asia/Pacific, Africa and the Middle East.
Sales by Division:
Three Months ended June 30,
---------------------------
2000 1999 Percent Change
---- ---- --------------
Americas Division $ 97,971 $ 97,774 0.2%
International Division 110,606 96,181 15.0%
------- ------
$208,577 $193,955 7.5%
======== ========
Americas Division:
Americas Division sales of $98 million for the first quarter ended June 30, 2000
were even compared to prior year first quarter sales. US sales were lower by
3.3% primarily due to reduced sales of Denture Cleansers and BC and Goody's,
Headache Powders. Partially offsetting these sales declines, Sensodyne reported
strong sales growth of 8.7% in the first quarter primarily due to the restage of
its Tartar Control brand to include Whitening.
- 10 -
<PAGE>
Americas Division: (Cont'd)
Canadian sales for the first quarter were even compared to prior year first
quarter sales. Sensodyne toothpaste and denture care products reported strong
sales for the first quarter, while R&C Shampoo and Kwellada, pediculicides, and
Beano and Phazyme, the anti-flatulent products, reported lower sales.
In Brazil, business was up 59% for the quarter primarily due to strong
performance of Sensodyne, Corega and Parodontax. In Mexico, sales were up 29%
due to strong marketing support behind key brands. In Argentina, and Colombia
sales were negatively impacted by the economic recession and currency weakness,
respectively.
International Division:
Total International sales increased 15% for the first quarter ended June 30,
2000. Excluding the effects of a stronger US dollar sales increased 21.6%.
European sales were up 10% and the Asia/Pacific Group reported strong sales
growth of 38%.
The European sales increase was due to the following:
In Germany, sales increased 35% primarily due to strong performance by core
denture and oral care products. The recent depilatory and mouthwash acquisitions
also contributed to the sales growth. In Austria, sales growth was lead by
Sensodyne Whitening and the successful line extension of Corega Dental White
cleanser.
A stronger US dollar was the main factor for 1% sales growth in France. In local
currency sales were up 16% primarily due to the Sensodyne and Polident brands.
In Italy, sales were down reflecting soft sales in the pharmacy channel.
Toothpaste sales were up due to the launch of Sensodyne Vitamin Complex and the
excellent performance of Sensodyne Whitening.
UK sales were up 10% primarily due to strong performance of Sensodyne,
Poli-Grip, Nytol and Piriton brands. Sales in Spain grew 12% partially due to
the positive sales of Marie Yvonne depilatory.
Total Asia/Pacific Group reported sales increases of 38% for the first quarter,
reflecting positive performance in Japan and Australia Export markets. In Japan,
sales grew 35% primarily due to a stronger Yen.
Other Income and Operating Expenses:
Interest, dividends and other income of $6.7 million decreased by about 43%
compared to the first quarter of the prior year income of $11.7 million. The
decrease is primarily because the prior year income included a foreign
currency swap gain of $5 million in Brazil.
- 11 -
<PAGE>
Other Income and Operating Expenses: (Cont'd)
The cost of goods sold percentage to sales was 33.3 % and 34.7 % for the first
quarter of the current and prior year, respectively. The cost of goods sold for
the Americas Division was 35.7 % for the first quarter ended June 30, 2000
compared to 37.6 % for the prior year period. The cost of goods sold for the
International Division was 31.3 % for the first quarter ended June 30, 2000
compared to 31.8 % for the prior year period. These improved percentages reflect
improved manufacturing operations and mix of products sold, in addition to
selective price increases. (Freight and shipping costs have been reclassified
from Selling, General and Administrative to Cost of Goods in accordance with
EITF 00-10, "Accounting for Shipping and Handling Fees and Costs ").
Selling, general and administrative expenses represented 58.7 % and 60.2 % of
sales for the first quarter of current year and prior year, respectively. The
major portion is related to advertising and promotional activities. These
expenses reflect major spending programs to meet significant competition and to
build brand equities.The reduction as a percentage of sales in the first quarter
of fiscal 2001 is due to lower General and Administrative spending as a
percentage of sales versus prior year period.
Interest expense of $3.4 million for the first quarter of the current year was
flat compared to $3.3 million for the prior year period.
The Company's interest rate exposures result from financing activity in the form
of short and long-term variable rate debt and from investments in long-term
fixed rate securities. The Company uses interest rate cap and swap agreements to
manage the exposures resulting from variable rate debt. The notional amount of
such agreements at June 30, 2000 was $100,000,000 and Euro 100,000,000
(equivalent to $95,600,000). Investments in long-term fixed income securities
are typically held to maturity, and fluctuations in their market value, which
are included in Other Comprehensive Income, are not hedged.
The Company's foreign exchange exposures derive primarily from the activities of
its foreign subsidiaries and affiliates which sell products to customers
generating receivable balances both in their own and other currencies. Certain
subsidiaries, principally manufacturing locations in the United Kingdom, Ireland
and Brazil, also incur significant costs denominated in currencies other than
their functional currency. Additionally, the Company is exposed to the risk that
the results of operations of its foreign affiliates may translate to lower than
expected net income for inclusion in the Company's consolidated results.
Interest rate cap and swap agreements and foreign currency options are the only
types of derivatives used by the Company for risk management. The costs and
benefits derived from the interest rate caps are taken into income over the term
of the agreements, to the extent the notional value of such agreements
corresponds to variable rate loan balances. Costs associated with notional
amounts in excess of loan balances are expensed in the period during which the
excess occurs and contracts are marked to market and the change in market value
is included in period results. No benefits were derived from interest rate
cap agreements during fiscal 2000 or 2001 but the Euro caps were
slightly in-the-money at the latest reset date and will produce some benefits
during fiscal 2001. The Company's Canadian subsidiary completed 7 year variable
rate acquisition financing in the amount of CAD 12,500,000 during the quarter.
This loan, which requires equal quarterly principal amortization payments,
was swapped to a fixed rate of 6.25%.
- 12 -
<PAGE>
Other Income and Operating Expenses: (Cont'd)
The Company manages its most significant foreign currency exposures, principally
inventory purchases, by purchasing average rate currency options that protect
against the fiscal year average value of each currency declining more than an
acceptable amount from the average from the prior year. Put options acquired
during fiscal 2001 were combined in zero cost collar structures such that they
were paid for with the proceeds of sale of call options that obligate the
Company to pay counter parties in the event that the foreign currency
strengthens against the U.S. dollar by more than a pre-determined amount.
Currencies that are highly correlated to the U.S. dollar and those to which the
Company has a modest exposure are not hedged. Affiliates whose functional
currencies are illiquid or have high interest rates (and therefore high hedging
cost) do not hedge with options, but may instead maintain significant cash
balances in U.S. dollars. Thus, if the affiliate's functional currency declines
in value against the U.S. dollar, the value (in the unit's functional currency)
of this U.S. dollar cash balance increases producing incremental income and
thereby offsetting the declining value of the affiliate's results included in
the Company's consolidated net income.
The cost of foreign currency options whose notional amount corresponds to
trading activity of the subsidiary owning the options is expensed over the
period to which they relate. Costs relating to additional notional amounts are
expensed during the period in which the options are acquired. Any benefits, to
the extent the options are deemed effective hedges, are treated as an adjustment
to the related costs of inventory purchased.
Consolidated operating income increased 12 % for the first quarter ended June
30, 2000. Americas Division operating income decreased 9.3 % and International
Division operating income increased 27.9 %. The decrease in the Americas
Division was due to flat sales and increased advertising and promotional
expenses to meet significant competition in the US. It was partially offset by a
strong sales growth in Latin America. The growth in the International Division
was primarily due to strong sales growth supported by newly acquired products,
stronger Yen , improving economic conditions and improved gross margins along
with a reduction in S,G&A.
Due to the above factors, income before income taxes was 9.6 % of sales during
the first quarter ended June 30, 2000 as compared to 9.4 % during the prior year
period.
The effective income tax rate of 27 % for the first quarter ended June 30, 2000
compared to 28 % for the prior year period reflect tax exempt interest from
government securities and income from the lower tax areas of Puerto Rico and
Ireland.
In February 1997, the Company announced the consolidation of its manufacturing
operations by planning to close six of its twelve production facilities in
various parts of the world over a two year period. The worldwide manufacturing
restructuring and re-engineering program resulted in a pre-tax charge of $72.5
million ( $55.7 million net of tax), or $2.60 per share after taxes in fiscal
1997. As of March 31, 2000, the Company has completed the program. (See Note 7).
On June 6th, 2000 Block announced that it had hired Goldman Sachs to assist the
Company in a review of its strategic options. That review is still ongoing and,
as was disclosed at the time of the original announcement, is expected to take
several months to complete.
- 13 -
<PAGE>
Subsequent Event:
In April 2000, the Company acquired the Spectro line of over-the counter
dermatology products for its Canadian subsidiary. The line includes soapless
hand and face cleansers, an antifungal antiseptic cleanser and a skin barrier
cream. The financial effects of this acquisition will be reported in the
Company's second financial quarter, consistent with the manner of reporting the
Canadian subsidiary's results.
Euro Currency Adoption:
As a result of the European Economic and Monetary Union, a single currency (the
"Euro"), will replace the national currencies of many of the European countries
in which the Company conducts business. The conversion rates between the Euro
and the participating nations' currencies were fixed as of January 1, 1999 with
the participating national currencies scheduled to be removed from circulation
between January 1, and June 30, 2002, and replaced by Euro notes and coinage.
During the transition period from January 1, 1999, through December 31, 2001,
public and private entities as well as individuals may pay for goods and
services using either checks, drafts or wire transfers denominated in Euros or
the participating country's national currency. We do not expect the Euro
conversion to have a material negative impact on operations in fiscal 2001. All
affiliates can operate within the Euro market. We are continuing to upgrade our
computer systems to operate more efficiently within the Euro market in fiscal
2001.
Financial Condition:
Cash increased in the current quarter ended June 30, 2000 from the year-ended
March 31, 2000 by $5 million. The increase resulted primarily from increases in
accounts payable and taxes payable, partially offset by increases in other
current assets and inventories. The increased operating cash flows were utilized
to fund the purchase of marketable securities, purchases of manufacturing
equipment and computers and the payment of dividends to shareholders.
In the prior year first quarter ended June 30, 1999 cash decreased by $6
million. The decrease resulted primarily from an increase in inventories, and
other current assets, partially offset by the proceeds from the divestiture of
Lava soap. The proceeds from the divestiture were utilized primarily to reduce
short-term debt, to fund acquisitions and purchases of manufacturing equipment
and computers.
New Accounting Standards:
During 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and in 2000 it issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Hedging Activities - an
amendment of FASB Statement No. 133", These standards must be adopted by the
Company by April 1, 2001. They require that all derivative financial instruments
be recorded on consolidated balance sheets at 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 transactions and the extent
to which the hedge is effective in mitigating the exposure. 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 is evaluating the impact, if any, of those statements
on its fiscal 2002 financial position, results of operations and disclosures.
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Forward Looking Statements
Certain statements in this document and elsewhere by management of the Company
that are neither reported financial results nor other historical information are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such information includes, without limitation,
the business outlook, assessment of market conditions, anticipated financial
operating results, strategies, future plans, contingencies and contemplated
transactions of the Company. Such forward- looking statements are not guarantees
of future performance and are subject to known and unknown risks, uncertainties
and other factors which may cause or contribute to actual results of Company
operations, or the performance or achievement of the Company, or industry
results, to differ materially from those expressed in or implied by the
forward-looking statements. In addition, to any such risks, uncertainties and
other factors discussed elsewhere herein, risks, uncertainties and other factors
that could cause or contribute to actual results differing materially from those
expressed in or implied by the forward-looking statements include, but are not
limited to, competitive pricing for the Company's products; the success of new
initiatives, acquisitions and ongoing cost reduction efforts; changes in raw
materials, energy and other costs; unanticipated manufacturing disruptions;
fluctuations in demand and changes in production capacities; changes to economic
growth in the U.S. and international economies, especially in Asia and Brazil;
stability of financial markets; governmental policies and regulations, including
but not limited to those affecting the environment and the tobacco industry;
restrictions on trade; interest rates and currency movements.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK:
Refer to the market risk and sensitivity analysis in the Management's Discussion
and Analysis section of the Company's 2000 Annual Report and Form 10-K.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
The Company is involved in various routine ligation incidental to its
continuing and discontinued operations. While the significance of
these matters cannot be fully assessed at this time, management, on
advise of counsel, does not believe than any liability that may arise
from these proceedings will have a material adverse impact on the
Company's consolidated financial position, results of operations of
liquidity.
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, 2000.
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 14, 2000 PETER ANDERSON
--------------- ---------------------------------
DATE Peter Anderson
Senior Vice President &
Chief Financial Officer
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