-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AzJ/e/jvgtLvj8LosK3qXzFIk2BAO8P27cY0OG24546M0k2LdGIH4y/H5cOA2r67 nFvXDWjTldSBJruRqfhnCw== 0000012654-00-000002.txt : 20000215 0000012654-00-000002.hdr.sgml : 20000215 ACCESSION NUMBER: 0000012654-00-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLOCK DRUG CO INC CENTRAL INDEX KEY: 0000012654 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 221375645 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-06436 FILM NUMBER: 542197 BUSINESS ADDRESS: STREET 1: 257 CORNELISON AVE CITY: JERSEY CITY STATE: NJ ZIP: 07302 BUSINESS PHONE: 2014343000 MAIL ADDRESS: STREET 1: 257 CORNELISON AVENUE CITY: JERSEY CITY STATE: NJ ZIP: 07302 10-Q 1 BLOCK DRUG CO INC,10-Q, 3 MONTHS ENDED 12/31/99 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 December 31, 1999 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. 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 DECEMBER 31, 1999) Common Stock - Class A 14,356,000 Common Stock - Class B 8,419,000 1 BLOCK DRUG COMPANY, INC. INDEX TO FORM 10-Q DECEMBER 31, 1999 Part I. Financial Information - Unaudited Page No. Consolidated Balance Sheets - December 31, 1999 and 3 March 31, 1999 Consolidated Statements of Income for the three and nine 4 months ended December 31, 1999 and 1998 Consolidated Statements of Comprehensive 5 Income for the three and nine months ended December 31, 1999 and 1998. Condensed Consolidated Statements of Cash Flows 6 for the nine months ended December 31, 1999 and 1998 Notes to Unaudited Consolidated Financial Statements 7-11 Management's Discussion and Analysis of 12-17 Operating Results and Financial Condition Part II.Other Information 18 2 BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Unaudited) ASSETS 12/31/99 03/31/99 Current Assets: Cash and cash equivalents........................................... $ 54,213,000 $ 48,363,000 Marketable securities, at market.................................... 24,401,000 29,994,000 Accounts receivable, less allowances of $4,509,000 (12/31/99) and $4,750,000 (3/31/99).............................................. 149,477,000 153,470,000 Inventory .......................................................... 146,517,000 135,947,000 Other current assets................................................ 51,980,000 41,867,000 ------------- ------------ Total current Assets............................................ 426,588,000 409,641,000 ------------- ------------ Property, plant and equipment, less accumulated depreciation of $140,956,000 (12/31/99) and $135,261,000 (3/31/99)........................................ 237,999,000 252,270,000 Long-term securities, at market..................................... 258,566,000 257,082,000 Goodwill and other intangible assets - net of amortization.......... 266,604,000 239,818,000 Other assets........................................................ 10,098,000 7,952,000 ------------- ------------- Total Assets.................................................... $1,199,855,000 $ 1,166,763,000 ============== ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes and bonds payable............................................. $ 174,107,000 $ 143,740,000 Accounts payable & accrued expenses................................. 184,090,000 185,270,000 Income taxes payable................................................ 13,324,000 13,532,000 Dividends payable................................................... 5,563,000 5,521,000 ------------- ------------ Total Current Liabilities....................................... 377,084,000 348,063,000 ------------- ------------ Notes and bonds payable............................................. 100,000,000 107,012,000 Deferred compensation and other liabilities......................... 21,333,000 19,648,000 Deferred income taxes............................................... 14,850,000 8,155,000 ------------- ------------- Total Liabilities............................................... 513,267,000 482,878,000 ------------- ------------- Shareholders' Equity: Class A common stock, non-voting, par value $.10-20,000,000 shares authorized, 14,356,000 (12/31/99) and 14,456,000 (3/31/99) shares issued and outstanding........................... 1,436,000 1,445,000 Class A common stock dividend distributable......................... 43,000 Class B common stock par value $.10- 40,000,000 shares authorized, 8,419,000 shares issued and outstanding................................... 842,000 842,000 Class B common stock dividend distributable......................... 25,000 Capital in excess of par value...................................... 327,253,000 306,433,000 Retained earnings................................................... 385,556,000 384,952,000 Cumulative other comprehensive loss................................. (28,567,000) (9,787,000) ------------- -------------- Total Shareholders' Equity........................................ 686,588,000 683,885,000 ------------- -------------- Total Liabilities & Shareholder's Equity.......................... $1,199,855,000 $1,166,763,000 ============== ==============
See notes to consolidated financial statements. 3 BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31 DECEMBER 31, 1999 1998 1999 1998 ------------ ------------- -------------- ------------- Revenues: Net sales................... $209,461,000 $194,485,000 $625,224,000 $587,995,000 Interest, dividends and other income......... 8,596,000 9,857,000 22,291,000 24,274,000 ------------ ------------ ------------ ------------ 218,057,000 204,342,000 647,515,000 612,269,000 ------------ ============ ============ ============ Cost and expenses: Cost of goods sold.......... 68,921,000 69,796,000 196,797,000 189,284,000 Selling, general and administrative........... 134,981,000 113,121,000 393,102,000 365,599,000 Interest expense............ 3,680,000 3,786,000 10,522,000 10,610,000 Manufacturing restructuring and re-engineering credits (8,577,000) - (8,577,000) (3,967,000) ------------ ------------- ------------ ------------ 199,005,000 186,703,000 591,844,000 561,526,000 ============ ============= ============ ============ Income before income taxes.. 19,052,000 17,639,000 55,671,000 50,743,000 Income taxes................ 5,437,000 5,326,000 15,031,000 13,701,000 ------------ ------------- ------------ ------------ Net income.................. $13,615,000 $12,313,000 $40,640,000 $37,042,000 ============ ============ ============ ============ Average number of common shares outstanding....... 23,539,080(1) 23,545,064(1) 23,561,943(1) 23,532,223(1) ============ ============ ============ ============ Net income per share basic & diluted.......... $ 0.57(1) $ 0.52(1) $ 1.72(1) $ 1.57(1) Cash dividends per share Class A common stock..... $ 0.32 $ 0 .3175 $ 0.9550 $ 0.9475 Class B common stock..... $ 0.11125 $ 0 .110625 $ 0.3325 $ 0.330625
(1) Restated to reflect a 3% stock dividend declared in October 1999. See notes to consolidated financial statements. 4 BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1999 1998 1999 1998 --------------- --------------- --------------- --------------- Net income.................. $13,615,000 $12,313,000 $40,640,000 $37,042,000 ----------- ----------- ----------- ----------- Other comprehensive income (loss): Foreign currency translation adjustment *. 6,638,000 8,835,000 (12,912,000) 4,385,000 Unrealized holding (losses) gains on marketable securities, net of taxes. (2,207,000) 12,000 (5,868,000) 2,330,000 -------------- ------------- -------------- ------------- Other comprehensive income (loss)............ 4,431,000 8,847,000 (18,780,000) 6,715,000 -------------- ------------- -------------- ------------- Comprehensive income........ $18,046,000 $21,160,000 $ 21,860,000 $43,757,000 ============== ============= ============== =============
* 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 BLOCK DRUG COMPANY INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) NINE MONTHS ENDED DECEMBER 31, 1999 1998 ------------ ------------ CASH FLOW FROM CONTINUING OPERATING ACTIVITIES......................... $ 54,834,000 $ 60,894,000 CASH FLOW FROM INVESTING ACTIVITIES: Proceeds from Product divestiture................................... 19,000,000 - Additions to Property, Plant and Equipment.......................... (23,202,000) (27,179,000) Proceeds from Sales of Assets....................................... 10,964,000 31,790,000 Proceeds from Sales of Securities................................... 25,827,000 101,963,000 Purchase of Securities.............................................. (46,679,000) (106,132,000) Decrease (Increase) in Marketable Securities....................... 17,979,000 (59,000) Payments for Products Acquired...................................... (54,511,000) (26,428,000) ------------- -------------- Net Cash Used in Investing Activities.................................. (50,622,000) (26,045,000) ------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Issuance of notes payable............................. - 50,000,000 Dividends paid to Shareholders...................................... (16,617,000) (15,972,000) Payments of Notes Payable........................................... (7,110,000) (2,370,000) Common Shares Repurchased........................................... (3,142,000) - Increase (decrease) in short-term debt.............................. 30,465,000 (72,634,000) ------------- ------------- Net Cash Provided by (Used in ) Financing Activities................... 3,596,000 (40,976,000) -------------- ------------- Effect of Exchange Rate changes on Cash and Cash equivalents........... (1,958,000) (776,000) -------------- ------------- Increase (decrease) in Cash and Cash equivalents....................... 5,850,000 (6,903,000) Cash and Cash equivalents Beginning of Period.......................... 48,363,000 37,320,000 ------------ ------------- Cash and Cash equivalents End of Period................................ $54,213,000 $30,417,000 ============ =========== SUPPLEMENTAL CASH FLOW DATA: Cash paid during the period: Interest.......................................................... $15,752,000 $ 9,962,000 Income taxes...................................................... $ 8,766,000 $ 9,179,000 SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES 3% Stock Dividend................................................... $23,419,000 $25,222,000
See notes to consolidated financial statements. 6 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements reflect all normal recurring adjustments, except for the manufacturing restructuring and re-engineering credit, 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 1999 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 the passage of time or with estimated annual sales or annual tax rates. 3. Inventories by major classes were as follows: December 31, 1999 March 31, 1999 ----------------- -------------- (Unaudited) Raw and packaging materials $ 42,875,000 $ 30,997,000 Finished goods 103,642,000 104,950,000 ------------- ------------- $146,517,000 $135,947,000 ============ ============ 4. Under the provisions of SFAS No. 130 "Reporting Comprehensive Income", the Company has included a statement of Comprehensive Income in the accompanying financial statements. Comprehensive income is comprised primarily of net income, unrealized gain (loss) on marketable securities and foreign currency translation adjustments. 5. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. In June 1999, the FASB issued SFAS No. 137, "Accounting For Derivatives and Hedging Activities - Deferral of the Effective Date of SFAS No. 133," which makes SFAS No. 133 effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company is currently evaluating the impact of the new statement on its financial position, results of operations and disclosures for fiscal 2002. 6. During the nine month period ending December 31, 1999 the Company acquired Chlorhexamed, a medicated mouth wash in Holland. In Latin America, the Company acquired Silidron and Espasmo Silidron, two anti-gas medicines sold in Brazil and Pelo Libre line of pediculicides in Argentina. In the UK, the Company acquired the Louis Marcel, a deplitory brand, and Interdens, a professional dental product. In Spain, the Company acquired Marie Yvonne, a depilatory brand. The aggregate amount spent on these acquisitions was $54.5 million. Goodwill recorded in connection with these product acquisitions amounted to $53.9 million. 7 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd) 7. During the nine month period ended December 31, 1999, the Company increased its net borrowings by $23.4 million primarily from lines of credit from various banks bearing interest at variable rates. 8. During fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS 131 establishes standards for the way public business enterprises report information about operating segments in reports to shareholders. The adoption of SFAS 131 did not affect results of operations or financial position but did affect the disclosure of segment information. At the end of fiscal 1999 the segments were divided into three geographic areas: United States; Europe, Africa, Middle East, and Latin America, Canada, Asia/Pacific. During the current period, the operations are divided into two geographic areas: Americas, covering USA, Canada and Latin America, and International, covering Europe, Asia/Pacific, Africa and Middle East. Prior year data has been restated for comparability purposes. Nine Months ended December 31, 1999 1998 ---- ---- (in thousands) -------------- Net Sales Americas $304,354 $304,038 International 320,870 283,957 -------- -------- Total consolidated sales $625,224 $587,995 ======== ======== Operating Income: Americas $ 45,795 $ 49,948 International 39,490 26,577 --------- ---------- 85,285 76,525 General corporate expenses (29,614) (25,782) ------------ ------------ Consolidated income before income taxes $ 55,671 $ 50,743 ======== ======== 8 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd) 9. 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. The program was completed during the quarter resulting in an excess amount of $8.6 million due to early termination of the contractual obligations to produce a product for another entity as a result of the sale of production facility. Accordingly, the Company recorded a restructuring credit of $8.6 million in its statement of income for the quarter ended December 31, 1999. As of December 31, 1998, the Company identified an excess amount of approximately $4 million due to favorable experiences in calculating final severance payments and settlement of post-closing adjustments in connection with the sale of one its production facilities. Consequently, the Company recorded a restructuring credit of approximately $4 million in its income statement for the period ended December 31, 1998. The following table displays a roll forward of the liabilities for the manufacturing restructuring from inception to December 31, 1999.
(Dollars in Thousands) Original Amount Amount Provision Utilized Remaining Utilized Remaining Fiscal in Fiscal Balance in Fiscal Balance Type Cost 1997 1997 3-31-97 1998 Other 3-31-98 - --------- --------- --------- --------- -------- ----- ---------- Employee $15,454(a) - $15,454 ($7,516) ($3,300) $ 4,638 severance and related costs Plant 32,978(b) ($24,468) 8,510 - (8,510) - closing and related asset write-offs Re-engineering 7,184(c) (7,184) - - - - Contractual obligations and other 16,834(d) (5,042) 11,792 (7,500) 11,110 15,402 -------- -------- -------- --------- ------ -------- $72,450 ($36,694) $35,756 ($15,016) ($700) $20,040 ======= ======== ======= ======== ====== =======
9 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in Thousands) Amount Amount Amount Utilized Amount Utilized Reversed Ending for Nine Reversed Remaining in Fiscal in Fiscal Balance Months in Fiscal Balance Type Cost 1999 1999 3-31-99 Fiscal 2000 2000 12-31-99 - --------- --------- --------- --------- ------------ ---------- --------- Employee ($ 2,637) ($2,001) - - - - severance and related costs Plant - - - - - - closing and related asset write-offs Re-engineering - - - - - - Contractual obligations and other (562) (5,640) $9,200 ($623) ($8,577) 0 ------- ------- ------ ------ ------- - ($3,199) ($7,641) $9,200 ($623) ($8,577) 0 ======= ======= ====== ====== ======= =
(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. As of December 31, 1999 the Company has completed the manufacturing restructuring and re-engineering program including the termination of contractual obligations to produce a product for another entity. During the third quarter, the Company sold the remaining manufacturing facility at a price that is approximately equal to the net book value of the property and incurred training costs and other expenses to move production equipment to an unrelated party's facility. 10 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd) 10. Stockholder's Equity: On December 7, 1999, the Company announced that it may repurchase up to 500,000 shares of its Class A common stock on the open market or in privately negotiated transactions depending on market conditions and other factors. As of December 31, 1999 the Company has repurchased and retired 118,363 Class A shares which represent 0.8% of total outstanding Class A shares. To date, the Company has repurchased 370,276 Class A shares at an average price of $28.02. 11. 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. The difference 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 26,411 and 261,021 shares were not included in the computation of diluted earnings per share for the quarter and nine months ended December 31, 1999, respectively, because the exercise prices were greater than the average market price of the common stock. 12. 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 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. 11 BLOCK DRUG COMPANY, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION Operating Results: Consolidated worldwide sales were $209.5 million in the third quarter and $625.2 million for the nine months ended December 31, 1999, increases of 7.7% and 6.3% respectively over the comparable prior year periods. In the first quarter the company sold the Lava brand hand soap and during the fiscal year ended March 31, 1999 the company had sold three of its household products brands. Excluding the effects of these divestitures and the stronger US dollar, consolidated sales were $214.0 million in the third quarter and $637.8 million for the nine months of the year, increases of 11.1% and 11.3%, respectively over the prior year periods. Our operations are divided into two divisions: the Americas Division covering markets in North and South America and the International Division, covering Europe, Asia/Pacific, Africa and the Middle East. The Americas Division reported third quarter sales of $98.4 million, 3 % lower than the prior year's results of $101.5 million. Sales for the nine month period were flat vs. the prior year. Total US Division sales were $75.4 million for the third quarter, 5.6 % lower than the prior year comparable period. Sales in the US of $ 243.1 million for the nine months were 2.4 % higher than the prior year comparable period. Excluding the household products divestitures, growth in the US would have been 6.1 % higher for the nine month period. In the third quarter, despite the fact that the U.S. sales were lower, the brands with the positive sales growth were Sensodyne toothpaste, analgesic brand, Balmex diaper rash ointment and Atridox periodontal disease treatment. Latin America third quarter sales of $13.0 million were flat compared to the prior year, despite the negative impact of currency weakness in Brazil and economic softness in Argentina. Sales in Canada grew 16.1 % in the third quarter, primarily due to increased sales of pediculicides, denture cleansers and adhesives. For the nine month period, Latin America sales were lower by 12.5% primarily due to currency devaluation in Brazil and weak economy in Argentina, partially offset by strong sales growth of 42% in Mexico. Excluding the effects of the divestitures and the stronger US Dollar, total Latin America sales would have shown a year-to-date increase of 27.7 %. 12 BLOCK DRUG COMPANY, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION Operating Results: (Cont'd) Total International Division sales of $111.1 million for the third quarter increased 19.4 % over last year. Both Asia and Europe were contributors to this growth. Sales of $27.0 million and $84.1 million for the third quarter for the Asia and Europe Groups respectively, increased 77 % and 8%, over the prior year. Asia/Pacific sales growth was primarily due to the introduction of Parodontax toothpaste in Korea, strong sales of Polident denture cleanser in Japan, a stronger Japanese yen during the year and Sensodyne sales in Australia. The leading contributors to sales growth in Europe were denture cleansers in Germany, Sensodyne toothpaste in France and Parodontax toothpaste in Holland. Interest, dividends and other income of $ 22.3 million decreased by 8.2% compared to nine months of the prior year income of $24.3 million. The decrease was primarily due to prior year income which included a gain on the sale of Household products during the first quarter ended June 30, 1998. The cost of goods sold percentage to sales was 31.5% and 32.2% in the nine months of the current and prior year, respectively. The cost of goods sold for the Americas Division was 33.8% for the nine months of the current year compared to 32.7 % for the prior year period. The cost of goods sold for International Division was 29.3% for the nine months of the current year compared to 31.7% for the prior year period. The change in the cost of goods sold was primarily due to changes in product mix. Selling, general and administrative expenses represented 62.9% and 62.2% of sales for the nine months of current year and prior year, respectively. The major portion is related to advertising and promotional activities. These expenses consist of major spending programs to meet significant competition and build brand equities. The Company's foreign exchange exposures derive primarily from the activities of its foreign subsidiaries and affiliates which sell products to customers generating accounts receivable both in their own local currency and in 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 risks 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. 13 BLOCK DRUG COMPANY, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION Operating Results: (Cont'd) Interest rate cap 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 terms of the respective agreements. Subsequent to the end of the quarter, the Company entered into currency option contracts that will protect against the average exchange rate of certain currencies declining against the dollar during fiscal 2001 below budgeted exchange rates. The Company also entered into contracts that protect against significant declines in the average exchange rates of selected currencies against the dollar in fiscal 2002 vs. fiscal 2001. All of these contracts take the form of "zero cost" collars. The Company purchased additional interest rate caps in the second quarter to protect against increases in the cost of servicing Euros 100 Million of Euro denominated variable rate debt. These agreements cover a period of five years, protecting against the 90 day Euribor rate exceeding 4.5% during the first two years and 5.5% during the next three years. The cost of the agreements is being paid in quarterly installments over their term and these costs are expensed as incurred. 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 for the prior year. Currencies that are highly correlated to the U.S. dollar and those that are illiquid or have high interest rates (and therefore hedging cost) are not hedged. However, certain affiliates in high interest rate environments maintain cash balances in U.S. Dollars. If the affiliate's functional currency declines against the dollar, such balances would produce incremental income, thereby offsetting the declining dollar value of the affiliate's results included in the Company's net income. The cost of foreign currency options are expensed over the period to which they relate and any benefits, to the extent of options deemed effective hedges, are treated as an adjustment to the related costs of inventory when purchased. It is difficult to predict future exchange rate movement. If exchange rates would continue at current levels, management does not anticipate any material effects on the Company's future financial condition, operating results or liquidity. Consolidated operating income increased 11.4% for the nine months ended December 31, 1999. Americas operating income decreased 8.3% and International operating income increased 48.6 %. The decrease in the Americas Division was primarily due to divestiture of Household product brands. The growth in the International division was primarily due to improved gross margins along with a reduction in S,G&A as a percentage of sales. Due to the above factors, income before taxes was 8.9 % of sales during the nine months period ended December 31, 1999 as compared to 8.6 % during the prior year. 14 BLOCK DRUG COMPANY, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION Operating Results: (Cont'd) The effective income tax rate of 27.0% for the nine months ended December 31, 1999 and 1998 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. During the quarter, the Company sold the remaining plants and was released from the contractual agreement to manufacture a product for another Company. The program was completed during the quarter resulting in an excess amount of $8.6 million due to early termination of its contractual obligations to produce a product for another entity. Therefore, the Company recorded a restructuring credit of $8.6 million in its statement of income for the quarter ended December 31, 1999. As of December 31, 1998, the Company identified an excess amount of approximately $4 million due to favorable experiences in calculating final severance payments and settlement of post-closing adjustments in connection with the sale of one its production facilities.Consequently, the Company recorded a restructuring credit of approximately $4 million in its income statement for the period ended December 31, 1998. (See Note 9). During the nine month period ending December 31, 1999 the Company acquired Chlorhexamed, a medicated mouth wash in Holland. In Latin America, the Company acquired Silidron and Espasmo Silidron, two anti-gas medicines sold in Brazil and Pelo Libre line of pediculicides in Argentina. In the UK, the Company acquired the Louis Marcel, a deplitory brand, and Interdens, a professional dental product. In Spain, the Company acquired Marie Yvonne, a depilatory brand. The aggregate amount spent on these acquisitions was $54.5 million. Goodwill recorded in connection with these product acquisitions amounted to $53.9 million. YEAR 2000 The Company and each of its operating subsidiaries have concluded their 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. Since transitioning into the year 2000, the Company has not experienced any major disruptions to its business nor has it experienced any Y2K related disruptions impacting its customers and suppliers. Furthermore, the Company did not experience any material impact on inventories at calendar year end. The Company will continue monitoring its critical systems but does not anticipate any significant impact due to Y2K exposure. The Company estimated that costs would reach a total of about $17.5 million to address its Y2K effort as well as other business information requirements. The Company accomplished its goals within the estimated $17.5 million. 15 BLOCK DRUG COMPANY, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION Operating Results: (Cont'd) Euro Currency Adoption As 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. Euro conversion did not have a material negative impact on operations in fiscal 2000. All affiliates can operate within the Euro market. We are currently upgrading our computer systems so that we can operate more efficiently within the Euro market in fiscal 2000. Financial Condition Cash increased for the nine month period ended December 31, 1999 to $54.2 million from $48.4 million at year-end March 31, 1999. The increase resulted primarily from an increase in short-term debt and proceeds from the divestiture of Lava soap and the sale of properties taken out of service as a result of the Company's recently completed Production Optimization Project. The increase was mostly offset by additions to Property, Plant and Equipment and Payments for Products acquired and an increase in inventories. In the prior year nine months cash decreased to $30.4 million from $37.3 million at year-end March 31, 1998. The decrease resulted primarily from a decrease in short-term debt, and additions to Property Plant and Equipment and Payments for products acquired partially offset by the issuance of long-term debt and proceeds from the sale of assets. 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 1999 Annual Report and Form 10-K. New Accounting Standards In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. In June 1999, the FASB issued SFAS No. 137, "Accounting For Derivatives and Hedging Activities - Deferral of the Effective Date of SFAS No. 133," which makes SFAS No. 133 effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company is currently evaluating the impact of the new statement on its financial position, results of operations and disclosures for fiscal 2002. 16 BLOCK DRUG COMPANY, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION Operating Results: (Cont'd) 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 and 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; impact of Year 2000 issues; 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. 17 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 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 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 December 31, 1999. 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) February 14, 2000 PETER ANDERSON DATE Peter Anderson Senior Vice President & Chief Financial Officer 18 EX-27 2
5 1000 9-MOS MAR-31-2000 APR-01-1999 DEC-31-1999 54213 24401 153986 4509 146517 426588 378955 140956 1199855 377084 0 0 0 2278 684310 1199855 625224 647515 196797 196797 393102 0 10522 55671 15031 40640 0 0 0 40640 1.72 1.72
-----END PRIVACY-ENHANCED MESSAGE-----