-----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, P+2RKQjka+sA3oVlsSqtLMci3WX/RQMsE3Gqejbvi5IEBEJOcgx0O6dP/7LuxP/L zRYTouPQDGuPa0WkyPJvrQ== 0000012654-99-000010.txt : 19990816 0000012654-99-000010.hdr.sgml : 19990816 ACCESSION NUMBER: 0000012654-99-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99687388 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 6/30/99 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 June 30, 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 (I.R.S. Employer Identification No.) OF INCORPORATION OR ORGANIZATION) 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, 1999) Common Stock - Class A 14,467,258 Common Stock - Class B 8,418,808 BLOCK DRUG COMPANY, INC. INDEX TO FORM 10-Q JUNE 30, 1999 Part I. Financial Information - Unaudited Page No. Consolidated Balance Sheets - June 30, 1999 and March 31, 1999 3 Consolidated Statements of Income for the three months ended June 30, 1999 and 1998 4 Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 1999 and 1998. 5 Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 1999 and 1998 6 Notes to Consolidated Financial Statements 7-9 Management's Discussion and Analysis of Operating Results and Financial Condition 10-15 Part II. Other Information 16 BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Unaudited) ASSETS 06/30/99 03/31/99 Current Assets: Cash................................................................ $ 42,500,000 $ 48,363,000 Marketable securities, at market.................................... 16,839,000 29,994,000 Accounts receivable, less allowances of $4,736,000 (6/30/99) and $4,750,000 (3/31/99).............................................. 153,216,000 153,470,000 Inventory .......................................................... 148,346,000 135,947,000 Other current assets................................................ 48,061,000 41,867,000 ------------- ------------- Total current Assets............................................ 408,962,000 409,641,000 ------------- ------------- Property, plant and equipment, less accumulated depreciation of $138,199,000 (6/30/99) and $135,261,000 (3/31/99)........................................ 250,038,000 252,270,000 Long term securities, at market..................................... 265,138,000 257,082,000 Goodwill and other intangible assets - net of amortization.......... 218,612,000 239,818,000 Other assets........................................................ 7,142,000 7,952,000 ------------- ------------- Total Assets.................................................... $1,149,892,000 $1,166,763,000 ============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes and bonds payable............................................. 136,042,000 143,740,000 Accounts payable & accrued expenses................................. 185,534,000 185,270,000 Income taxes payable................................................ 14,965,000 13,532,000 Dividends payable................................................... 5,527,000 5,521,000 ------------- ------------- Total Current Liabilities....................................... 342,068,000 348,063,000 ------------- ------------- Notes and bonds payable............................................. 105,920,000 107,012,000 Deferred compensation and other liabilities......................... 20,355,000 19,648,000 Deferred income taxes............................................... 7,540,000 8,155,000 ------------- ------------ Total Liabilities............................................... 475,883,000 482,878,000 ------------- ------------ Shareholders' Equity: Class A common stock, non-voting, par value $.10-20,000,000 shares authorized, 14,467,000 (6/30/99) and 14,455,000 (3/31/99) shares issued and outstanding........................... 1,447,000 1,445,000 Class B common stock par value $.10- 40,000,000 shares authorized, 8,419,000 shares issued and outstanding................................... 842,000 842,000 Capital in excess of par value...................................... 304,440,000 306,433,000 Retained earnings.................................................. 395,027,000 384,952,000 Other comprehensive income.......................................... (27,747,000) (9,787,000) ------------- ------------- Total Shareholders' Equity........................................ 674,009,000 683,885,000 ------------- ------------- Total Liabilities & Shareholder's Equity.......................... $1,149,892,000 $1,166,763,000 ============== ==============
See notes to consolidated financial statements. BLOCK DRUG COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) THREE MONTHS ENDED JUNE 30 1999 1998 --------------- -------------- Revenues: Net sales.................................. $200,895,000 $189,447,000 Interest, dividends and other income....... 6,618,000 13,219,000 ------------- -------------- 207,513,000 202,666,000 Cost and Expenses: Cost of goods sold........................ 60,910,000 56,390,000 Selling, general and administrative....... 125,062,000 126,554,000 Interest expense.......................... 3,257,000 3,528,000 -------------- ------------- 189,229,000 186,472,000 Income before taxes......................... 18,284,000 16,194,000 Provision for federal, foreign and state income taxes............................. 5,137,000 4,259,000 ------------- ------------- Net Income................................. $ 13,147,000 $ 11,935,000 ============ ============== Average number of shares outstanding...... 22,881,789 22,834,763 (1) ============= ============== Net income per share......................... $ .57 $ .52 (1) ================================= Cash dividends per share of Class A Common Stock..................... $ .3175 $ .315 Cash dividends per share of Class A Common Stock...................... $ .110625 $ .11 (1) Restated to reflect 3% stock dividend declared November 1998.
See notes to consolidated financial statements. BLOCK DRUG COMPANY INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED) THREE MONTHS ENDED JUNE 30 1999 1998 -------------- ------------- Net income .................................. $ 13,147,000 $11,935,000 Other comprehensive income/(loss): Foreign currency translation adjustments *... (15,350,000) (5,679,000) Unrealized holding (loss) gain on marketable securities........................ (2,610,000) 156,000 -------------- ------------ Other comprehensive income/(loss)............... (17,960,000) (5,523,000) ------------- ------------ Comprehensive income/(loss).................... $ (4,813,000) $ 6 ,412,000 ============== ============
* 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. BLOCK DRUG COMPANY INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) THREE MONTHS ENDED JUNE 30 1999 1998 ---------- ----------- CASH FLOW FROM CONTINUING OPERATING ACTIVITIES.......$ 1,516,000 $ 9,448,000 CASH FLOW FROM INVESTING ACTIVITIES: Proceeds form Product divestiture................. 19,000,000 Additions to Property, Plant and Equipment........ (8,848,000) (11,358,000) Proceeds from Sales of Assets..................... 31,790,000 Proceeds from Sales of long-term Securities....... 6,439,000 73,918,000 Purchase of long-term Securities.................. (17,580,000) (80,543,000) Decrease in Marketable Securities................. 12,812,000 3,022,000 Payments for Product Acquired..................... (3,493,000) (7,000,000) ------------ ----------- Net Cash Used in Investing Activities............... 8,330,000 9,829,000 ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid to Shareholders.................. (5,527,000) (5,308,000) Payments of Notes Payable....................... (1,190,000) Decrease in short-term Debt..................... (7,600,000) (38,609,000) ------------ ------------ Net Cash (Used) in Provided in Financing Activities.. (14,317,000) (43,917,000) ------------ ------------ Effect of Exchange Rates on Cash..................... (1,392,000) 1,831,000 ------------ ------------ Decrease in Cash.................................... (5,863,000) (22,809,000) Cash, Beginning of Period........................... 48,363,000 37,320,000 ------------ ----------- Cash, End of Period................................ $42,500,000 $14,511,000 ============ =========== SUPPLEMENTAL CASH FLOW DATA: Cash Paid during the Year: Interest..................................... $1,783,000 $ 2,795,000 Income taxes................................. $5,723,000 $ 1,193,000
See notes to consolidated financial statements. 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. 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: June 30, 1999 March 31, 1999 ------------- -------------- Raw and packaging materials $ 47,519,000 $ 30,997,000 Finished goods 100,827,000 104,950,000 ------------ ------------- $148,346,000 $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 earnings, unrealized gain (loss) on marketable securities and currency translation gains and losses. 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. In April 1999, the Company sold the Lava hand soap brand for approximately $19 million. Management does not anticipate any material impact on its financial position, results of operations and liquidity as a result of this sale. 7. During the quarter the Company acquired the Pelo Libre line of pediculicides in Argentina. In the U.K. the Company acquired the Louis Marcel a depilatory brand. The aggregate amount spent was $3.7 million which also represents the goodwill recorded for the acquistions. 8. During the three months ended June 30, 1999, the Company reduced its net borrowings by $8.8 million mainly from lines of credit from various banks bearing interest at variable rates. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd) 9. 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 quarter,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. Three Months ended June 30, (1999) (1998) (in thousands) Net Sales Americas $102,225 $98,904 International 98,670 90,543 ---------- ---------- Total consolidated sales $200,895 $189,447 ========== ========== Operating Income: Americas $ 13,575 $ 11,810 International 9,967 9,738 ----------- ----------- 23,542 21,548 General corporate expenses (5,258) (5,354) ----------- ------------ Consolidated income before income taxes $ 18,284 $ 16,194 ============= ============= 10. 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, of which 8.9 million remains as a current liability as of June 30, 1999. The following table displays a rollforward of the liabilities for the manufacturing restructuring from inception to June 30, 1999.
(Dollars in Thousands) Amount Original Amounts Amount Amount Amount Utilized Provision Utilized Remaining Utilized Remaining Utilized Reversed Ending in First Ending * Fiscal in Fiscal Balance in Fiscal Balance in Fiscal in Fiscal Balance Quarter Balance Type Cost 1997 1997 3-31-97 1998 Other 3-31-98 1999 1999 3-31-99 Fiscal 2000 6-30-99 - --------- --------- --------- --------- ---------- -------- --------- --------- --------- -------- ----------- -------- 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-eng- ineering 7,184(c) (7,184) - - - - - - Contractual 16,834(d) (5,042) 11,792 (7,500) 11,110 15,402 (562) (5,640) $9,200 (250) 8,950 obligations and other ------- --------- ------- --------- -------- ------- -------- -------- ------ ------- ------- $72,450 ($36,694) $35,756 ($15,016) ($700) $20,040 ($3,199) ($7,641) $9,200 ( 250) $8,950 ======= ========= ======= ======== ======= ======== ======= ======= ====== ===== =======
*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. As of June 30, 1999, the Company's remaining obligation of $8.9 million consists of its contractual obligation to produce a product for another entity at a plant that is scheduled for closure. The majority of this accrual relates to management's estimate of the costs to transfer production to a continuing plant to meet the contractual obligation. Management believes that the remaining manufacturing reserves are adequate to complete its plan during fiscal 2000. 11. Subsequent to the close of the quarter,in Holland,the Company acquired Chlorhexamed(R),a medicated mouthwash for the German market.In Latin America,the Company acquired Silidron(R) and Espasmo Silidron(R),two anti-gas medicines sold in Brazil.In Korea,the Company acquired the balance of certain marketing rights to the Parodontax(R) brand toothpaste. The aggregate amount spent on these acquisitions was $51.9 million. Goodwill recorded in connection with these acquisitions amounted to $51.3 million. BLOCK DRUG COMPANY, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION Operating Results: - ------------------ Consolidated worldwide sales for the first quarter ended June 30, 1999 were $200.9 million were up by 6% compared to prior year first quarter sales of $189.4 million. During the quarter the Company sold the Lava brand hand soap, its remaining household product. During the fiscal year ended March 31, 1999 the Company sold three of its household product brands. Excluding the effects of the divestitures, consolidated sales were $200.4 million up by 10% compared to prior year first quarter sales of $182.2 million. The operations are divided into two divisions: Americas, covering the Western Hemisphere markets, and International, covering Europe, Asia/Pacific, Africa and the Middle East. Americas sales for the quarter ended June 30, 1999 were up by 5% compared to the prior year quarter. Total U.S. Division sales were up by 14%. Excluding the divestiture, sales increased 20%. The sales growth was due to strong Consumer Product Sales, plus the introduction of Polident Whitening Mouthwash. The sales of Oral Health Care products were up 31%, primarily due to newly-introduced products, e.g. Atridox, Aphthasol, Targon Fresh Mint and Sensodyne Whitening. Sensodyne sales were up 27%. Latin America sales were down 27% mainly due to a recessive economy in Brazil and a major currency devaluation. Sales in Canada were down by 24% primarily due to divestiture of Household products and timing of major promotions. Total International Division sales increased 9% primarily due to strong growth in Europe. Europe sales were up 13% primarily due to introduction of new products acquired since the close of the first quarter of fiscal 1999, e.g. Strep, Agevit, and Louis Marcel. Interest, dividends and other income of $6.6 million decreased by about 50% compared to the first quarter of the prior year income of $13.2 million. The decrease is primarily because the prior year income included a gain on the sale of Household products and a partial reversal of restructuring and re-engineering liability. The cost of goods sold percentage to sales was 30.3% and 29.8% in the first quarter of the current and prior year, respectively. The cost of goods sold for the Americas Division was 32.9% for the first quarter of the current year compared to 30.4% for the first quarter of the prior year. The cost of goods sold for International Division was 27.9% for the first quarter of the current year compared to 29.0% for the first quarter of prior year. The change in the cost of goods sold was primarily due to changes in product mix. Selling, general and administrative expenses represented 62.3% and 66.8% 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 competion and build brand equities. Selling, general and administrative expenses declined during the current quarter primarily due to exchange gains in Brazil,partially offset by increased advertising expenses. Interest expense was slightly lower in the first quarter of the current year compared to the first quarter in the prior year. A portion of the proceeds from the divestiture of the Lava brand hand soap was used to repay the debt. The decrease was partially offset by additional financing obtained for product acquisitions. BLOCK DRUG COMPANY, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION Operating Results: (Cont'd) - ---------------------------- 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 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 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 agreements. 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 liquid 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. Worldwide Earnings by Geographic Region (Dollars in Thousands): Three Months ended June 30, 1999 1998 -------- -------- Americas $13,575 $11,810 International 9,967 9,738 ----- ----- 23,542 21,548 General corporate expenses (5,258) (5,354) -------- -------- Consolidated income before income taxes $18,284 $16,194 ======== ======== BLOCK DRUG COMPANY, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION Operating Results: (Cont'd) - --------------------------- Consolidated operating income increased 9.3%. Americas income increased 14.9% and International income increased 2.4%. The increase in the Americas region was primarily due to divestiture of Household product brands, acquisition of new products and strong U.S. sales. The International area had a moderate increase due to mix of products sold, new products acquired during the quarter, partially offset by economic recession and weak currencies. Due to the above factors, income before taxes was 9.1% of sales during the three months ended June 30, 1999 as compared to 8.5% during the three months ended June 30, 1998. The effective income tax rates of 28.1% and 26.3% for the three months ended June 30, 1999 and 1998, respectively, reflect tax exempt interest from government securities and income from the lower tax areas of Puerto Rico and Ireland. Increase in the tax rate was primarily due to increased income in higher taxed jurisdictions. It is difficult to predict future exchange movement. If exchange rates continue at current levels, management does not anticipate any major material effect on the Company's future financial condition or liquidity. 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 June 30, 1999, the Company's remaining obligation of $8.9 million consists of its contractual obligation to produce a product for another entity. Management believes that the remaining manufacturing reserves are adequate to complete its plan during fiscal 2000. (See Note 10) During the quarter the Company acquired the Pelo Libre line of pediculicides in Argentina. In the U.K. the Company acquired the Louis Marcel a depilatory brand. The aggregate amount spent on these acquisitions was $3.7 million, which also represents the goodwill recorded for the acquisitions. 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 accurately process 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. This is commonly know 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. 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. The Business Systems ranked highest in priority have either been remediated, 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 wherever needed in the US as well as fixing or replacing hardware and software where warranted, with Y2K compliant solutions in our Affiliates. The Company completed all remediation and replacement of its U.S. based internal Business Systems in March 1999. The Company is at the final stage of testing and certification for Y2K readiness, and the contingency plans will be prepared by September 1999. As part of the Y2K compliance program, significant service providers, vendors, suppliers, customers and government entities that are believed to be critical to business operations after January 1, 2000, ("Key Business Partners") have been identified and contacted through questionnaires, interviews or on-site visits to ascertain their stage of Y2K readiness. 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 those outside North America, have a lower level of Y2K awareness and are less willing to provide information concerning their state of Y2K readiness. Because of the vast number of Business Systems used by the Company and its operating subsidiaries, the significant number of Key Business Partners and extent of the Company's foreign 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 or Key Business Partners not being fully Y2K compliant by January 1, 2000 include, among other things, temporary plant closings, delay in the delivery of 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 planning discussed below, should significantly reduce the adverse effect of such disruptions. Concurrently, with the 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 measures. Once developed, contingency plans and related cost estimates will be continually refined as additional information becomes available. The Company's original investment was estimated at $14 million to address its Y2K effort as well as other business information requirements. This has been revised, and it is expected that Y2K related expenses will reach a total of about $16.9 million. To date, the Company has spent approximately $15.6 million. These amounts do not include any costs 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. Therefore, the estimates of costs and completion dates for various components of the Y2K compliance program are subject to change. The Company is, however, making every effort to ensure that costs are forecasted as accurately as possible and scheduled completion dates are achieved. The estimates and conclusions herein contain forward-looking statements and are based on management's best estimates of future events. The risks to completing the plan include the availability of resources at specific facilities and the ability of suppliers to bring their systems into Year 2000 compliance. 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. We do not expect the Euro conversion to 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 decreased in the current quarter ended June 30, 1999 from the year-ended March 31, 1999 by $6 million. The decrease resulted primarily form an increase in inventories, and other current assets partially offset by 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. In the prior year first quarter ended June 30, 1998 cash decreased by $23 million. The decrease resulted primarily from a reduction of short-term debt, the payments for products acquired and an increase in other current assets partially offset by the sale of assets and a decrease in accounts receivable. Reporting on Comprehensive Income - ---------------------------------- Effective April 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income". SFAS 130 establishes standards for the reporting of comprehensive income, and requires that an enterprise classify items of other comprehensive income by their nature in a financial statement, and display the accumulated balance of other comprehensive income in the statement of financial position. Other comprehensive income consists of movements in the company's cumulative translation adjustment and unrealized holding gains and losses on marketable securities. 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. Subsequent Events - ------------------ Subsequent to the close of the quarter,in Holland,the Company acquired Chlorhexamed(R),a medicated mouthwash for German market.In Latin America, the Company acquired Silidron(R) and Espasmo Silidron(R),two anti-gas medicines sold in Brazil.In Korea,the Company acquired the balance of certain marketing rights to the Parodontax(R) brand toothpaste. The aggregate amount spent on these acquisitions was $51.9 million. Goodwill recorded in connection with these acquisitions amounted to $51.3 million. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8K (a) The exhibits filed as part of this report are listed below: Exhibit No. Description 27 Financial Data Schedule (b) Reports on Form 8K There were no reports on Form 8K for the three months ended June 30, 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) PETER ANDERSON August 11, 1999 --------------------- Peter Anderson Senior Vice President & Chief Financial Officer EX-27 2
5 1000 3-MOS MAR-31-2000 APR-01-1999 JUN-30-1999 42500 16839 157952 4736 148346 408962 388237 138199 1149892 342068 0 0 0 2289 671720 1149892 200895 207513 60910 60910 125062 0 3257 18284 5137 13147 0 0 0 13147 .57 .57
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