<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
---------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ---------------------
Commission file number 0-8410
---------------------------------------
WYANT CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registration as specified in its charter)
New York 11-2236837
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Readington Road Somerville, New Jersey 08876
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code 908-707-1800
NONE
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all 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 period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirement for the past 90 days.
Yes X No
------- -----------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the latest practicable date.
Class Outstanding at November 12, 1998
- -------------------------------------------------------------------------------
Common stock, $.01 par value 2,273,817
1
<PAGE> 2
WYANT CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1998
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The attached unaudited consolidated financial statements of Wyant Corporation
and Subsidiaries reflect all adjustments which are, in the opinion of
management, necessary to present a fair statement of the operating results for
the interim periods.
Consolidated balance sheet 3
Consolidated statement of operations 4
Consolidated statement of cash flows 5
Consolidated statement of stockholders' equity 6
Notes to consolidated financial statements 7-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WYANT CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
Sept. 30 December 31
1998 1997
---- ----
(Restated)
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 82,076 $ 156,131
Accounts receivable 13,870,707 12,920,004
Inventories (note 3) 10,254,347 8,245,125
Other 1,808,150 1,782,667
----------- -----------
TOTAL CURRENT ASSETS 26,015,280 23,103,927
Capital assets 18,505,615 19,318,814
Goodwill 3,625,281 261,979
Other assets 1,016,174 1,148,163
----------- -----------
TOTAL ASSETS $49,162,350 $43,832,883
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Bank indebtedness $ 3,560,183 $ 2,204,719
Committed revolving credit facility 4,425,685 5,880,748
Accounts payable and accrued expenses 11,269,042 9,667,050
Income taxes payable 456,601 1,252,988
Current portion of long-term debt (note 4) 1,467,866 789,035
Current portion of preferred stock of subsidiary 513,907 550,084
----------- -----------
TOTAL CURRENT LIABILITIES 21,693,284 20,344,624
Long-term debt (notes 4 & 6) 7,784,985 5,548,021
Preferred stock of subsidiary (notes 2 & 6) 5,432,669 4,379,527
Deferred income taxes 1,702,392 1,780,726
STOCKHOLDERS' EQUITY (note 2)
Common stock, par value $0.01 per share 36,071 36,048
Additional paid-in capital 6,812,807 6,797,856
Retained earnings 6,195,826 5,112,006
Cumulative translation adjustment (495,684) (165,925)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 12,549,020 11,779,985
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $49,162,350 $43,832,883
=========== ===========
</TABLE>
See accompanying notes
3
<PAGE> 4
WYANT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30 Nine months ended September 30
------------------------------- ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $25,487,143 $22,889,362 $73,665,934 $69,067,444
Cost of sales 17,660,401 15,711,521 50,567,585 47,789,626
----------- ----------- ----------- -----------
Gross profit 7,826,742 7,177,841 23,098,349 21,277,818
Expenses
Selling 4,028,139 3,712,049 11,623,808 11,344,283
General and administration 3,130,440 2,466,174 7,883,212 8,737,576
Amortization 151,505 146,745 411,224 397,650
----------- ----------- ---------- -----------
7,310,084 6,324,968 19,918,244 20,479,509
----------- ----------- ---------- -----------
Operating income 516,658 852,873 3,180,105 798,309
Other income (expense)
Interest expense (391,366) (273,238) (1,097,475) (744,537)
Other income 79,261 94,586 172,694 314,562
----------- ----------- ----------- -----------
(312,105) (178,652) (924,781) (429,975)
----------- ----------- ----------- -----------
Income before tax 204,553 674,221 2,255,324 368,334
Income tax expense (benefit)
Current (123,000) 236,710 647,000 222,710
Deferred 223,000 9,031 263,000 123,031
----------- ----------- ----------- -----------
100,000 245,741 910,000 345,741
----------- ----------- ----------- ----------
Net income 104,553 428,480 1,345,324 22,593
Dividends and accretion of mandatorily
redeemable preferred stock 100,318 53,364 261,504 101,301
----------- ----------- ----------- -----------
Net income (loss) attributable to
common shares $ 4,235 $ 375,116 $1,083,820 $ (78,708)
=========== =========== ========== ===========
Per share (note 5)
Basic $ - $ 0.10 $ 0.30 $ (0.02)
Diluted $ - $ 0.10 $ 0.28 $ (0.02)
</TABLE>
See accompanying notes
4
<PAGE> 5
WYANT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30
------------------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,345,324 $ 22,593
Items not affecting cash
Depreciation and amortization 1,591,031 1,336,869
Loss on disposal of capital assets 12,188 --
Deferred income taxes 263,000 108,031
Deferred pension costs (95,054) (105,882)
Changes in non-cash working capital balances
Accounts receivable 942,997 (1,277,853)
Inventories (169,252) 1,815,131
Other current assets (92,489) (716,494)
Accounts payable (206,230) (1,258,438)
Incomes taxes payable (820,114) 515,525
----------- -----------
2,771,401 439,482
INVESTING ACTIVITIES
Purchase of businesses, net of cash acquired (note 6) (5,640,479) --
Purchase of capital assets (688,623) (1,165,138)
Sale of marketable securities -- 446,812
Proceeds from sale of capital assets 10,775 37,506
Decrease (increase) in other assets 52,046 (105,357)
----------- -----------
(6,266,281) (786,177)
FINANCING ACTIVITIES
Repayment of long-term debt (2,086,071) (2,962,046)
Increase in long-term debt 3,723,111 5,248,950
Issue of preferred shares of subsidiary (note 6) 1,861,876 --
Issue of common shares 15,688 --
Redemption of preferred shares of subsidiary (550,122) --
Dividends on preferred shares of subsidiary (145,133) (69,301)
Distribution to G.H. Wood + Wyant Inc. shareholders (note 2) -- (3,667,033)
Increase in bank indebtedness 844,738 893,710
Distribution to minority shareholders -- (206,527)
Decrease (increase) in acquisition escrow fund 100,101 (2,921)
Sale of treasury stock -- 43,000
Purchase of fractional shares on stock split (714) --
----------- -----------
3,763,474 (722,168)
Effect of exchange rate changes on cash (342,649) (17,279)
----------- -----------
Net decrease in cash (74,055) (1,086,142)
Cash and cash equivalents, beginning of period 156,131 1,570,625
----------- -----------
Cash and cash equivalents, end of period $ 82,076 $ 484,483
=========== ===========
</TABLE>
See accompanying notes
5
<PAGE> 6
WYANT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30
------------------------------
1998 1997
---- ----
<S> <C> <C>
Common stock at par value
Balance at beginning of period $ 36,048 $ 36,048
Stock issued for options exercised during the period 23 --
----------- -----------
Balance at end of period 36,071 36,048
----------- -----------
Additional paid-in capital
Balance at beginning of period 6,797,856 6,780,386
Stock issued for options exercised during the period 15,665 --
Purchase of fractional shares on stock split (714) --
Sale of treasury stock -- 11,470
----------- -----------
Balance at end of period 6,812,807 6,791,856
----------- -----------
Retained earnings
Balance at beginning of period 5,112,006 4,999,823
Net income 1,345,324 22,593
Dividends declared (145,133) (69,301)
Accretion (116,371) (32,000)
Distributions to minority shareholders -- (206,527)
----------- -----------
Balance at end of period 6,195,826 4,714,588
----------- -----------
Accumulated other comprehensive income
Balance at beginning of period (165,925) 26,955
Foreign currency translation adjustments (329,759) (37,786)
----------- -----------
Balance at end of period (495,684) (10,831)
----------- -----------
Treasury stock
Balance at beginning of period -- (31,530)
Sale of treasury stock -- 31,530
----------- -----------
Balance at end of period -- --
----------- -----------
Total stockholders' equity $12,549,020 $11,531,661
=========== ===========
Comprehensive income
Net income $ 1,345,324 $ 22,593
Other - Foreign currency translation adjustments (329,759) (37,786)
----------- ------------
Comprehensive income (loss) for period $ 1,015,565 $ (15,193)
=========== ============
Number of common shares issued at beginning of period 2,271,484 2,271,484
Shares issued for options exercised during period 2,333 --
----------- -----------
Number of common shares issued at end of period 2,273,817 2,271,484
----------- -----------
Treasury stock held at beginning of period -- (14,933)
Shares sold during the period -- 14,933
----------- -----------
Treasury stock held at end of period -- --
----------- -----------
Number of common shares issued and outstanding 2,273,817 2,271,484
Common shares issuable upon conversion
of exchangeable shares (Note 2) 1,333,333 1,333,333
----------- -----------
Number of common shares issued, issuable and outstanding 3,607,150 3,604,817
=========== ===========
</TABLE>
See accompanying notes
6
<PAGE> 7
WYANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 ARE UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial statements include the
accounts of Wyant Corporation (formerly Hosposable Products, Inc.) and its
wholly-owned subsidiaries, Bridgewater Manufacturing Corp., IFC
Disposables, Inc. and Wood Wyant Inc. and its subsidiaries (note 6). They
have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying
consolidated financial statements contain all adjustments, consisting only
of normal recurring accruals considered necessary to present fairly the
financial position as of September 30, 1998, the results of operations for
the nine months and three months ended September 30, 1998 and 1997 and
cash flows and changes in stockholders' equity for the nine months ended
September 30, 1998 and 1997. For further information, refer to the
financial statements and notes thereto included in the Company's annual
report for the year ended December 31, 1997.
2. BASIS OF PRESENTATION
On March 18, 1997 the Corporation, through a wholly-owned subsidiary, Wood
Wyant Inc., purchased the Canadian operations of G.H. Wood + Wyant Inc.
for [i] cash consideration of Cdn $5,000,000 [US $3,667,033], [ii] a
promissory note ["the Note"] in the amount of Cdn $4,068,951 [US
$2,961,606] having a fair value of US $2,798,794, [iii] 3,800,000 shares
of Class B Preferred Stock of Wood Wyant Inc. having a liquidation
preference of Cdn $3,800,000 [US $2,765,849] and a fair value of US
$2,267,900, and [iv] 1,000,000 shares of Class E Preferred Stock of Wood
Wyant Inc. having a liquidation preference per share of one share of Wyant
Corporation Common Stock. The fair value of Class E Preferred shares at
March 18, 1997 was US $5,000,000. These Class E Preferred shares are
recorded at par value of $10,000 in Wyant Corporation Common Stock and
$4,990,000 in additional paid-in capital. Each Class E Preferred share is
exchangeable by the holder at any time for one share of Wyant Corporation
Common Stock.
The transaction represents a combination of entities under common control
and has been accounted for in a manner similar to a pooling of interests.
Accordingly, the comparative figures in these financial statements
retroactively reflect the financial information of the combined entities.
The excess of the fair value of the consideration paid of US $13,733,727
over the book value of the net assets acquired of US $8,638,875 [Cdn
$11,868,951] is considered a deemed dividend for accounting purposes,
which reduces the additional paid-in capital by US $5,094,852. The Note,
which yielded interest at 6% per annum, was exchanged on August 29, 1997
for shares of Class A Preferred Stock of Wood Wyant Inc. on the basis of
one share for each Cdn $1.00 of unpaid principal amount of the Note.
The Class A and B preferred shares entitle holders to fixed cumulative
preferential dividends at the rate of 4% and 3.999999%, respectively, of
their redemption price of $1.00 Cdn per share and are mandatorily
redeemable in ten consecutive annual tranches, each equal to 10% of their
combined redemption value, commencing on January 3, 1998. No Class B
Preferred shares shall be redeemed until all Class A Preferred shares have
been redeemed. The Class E Preferred shares entitle holders to receive
dividends on a pro-rata basis equivalent to dividends declared to the
Corporation's common stockholders.
7
<PAGE> 8
3. INVENTORIES
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----- ----
<S> <C> <C>
Raw materials $ 3,402,724 $3,016,029
Finished goods 6,851,623 5,229,096
----------- ----------
$10,254,347 $8,245,125
=========== ==========
</TABLE>
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Wyant Corporation
New Jersey Economic Development Authority bonds
maturing December 1, 1998 to December 1, 2013 and
bearing interest at fixed rates from 4.7% to 5.7% $ 3,929,869 $3,929,869
Other -- 20,000
----------- ----------
3,929,869 3,949,869
Wood Wyant Inc.
Term loan repayable in monthly installments of Cdn.
$20,476 plus interest at prime plus 3/4% (prime at
September 30, 1998 - 7.25%), maturing
October 1, 2001. Principal amount Cdn. $1,753,785
(December 31, 1997 - Cdn. $1,938,571) 1,145,366 1,355,170
Term loan repayable in monthly installments of Cdn.
$35,000 plus interest at prime plus 3/4%, maturing
April 30, 2003. Principal amount Cdn. $1,925,000 1,257,184 --
Term loan repayable in monthly installments of Cdn.
$49,522 plus interest at prime plus 3/4%, maturing
September 30, 2003. Principal amount Cdn. $2,822,776 1,843,506 --
Revolving credit facility (Cdn $1,492,962 -
December 31, 1997 - Cdn. $1,476,300) 975,027 1,032,017
Other 101,899 --
----------- ----------
9,252,851 6,337,056
Current portion 1,467,866 789,035
----------- ----------
$ 7,784,985 $5,548,021
=========== ==========
</TABLE>
8
<PAGE> 9
5. EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
-------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator
Net income $ 104,553 $ 428,480 $ 1,345,324 $ 22,593
Preferred stock dividends and accretion 100,318 53,364 261,504 101,301
---------- ---------- ---------- -----------
Numerator for basic and diluted earnings per share
- income available to common stockholders $ 4,235 $ 375,116 $ 1,083,820 $ (78,708)
========== ========== ========== ==========
Denominator
Denominator for basic earnings per share -
weighted-average shares issued, issuable and
outstanding 3,607,150 3,589,884 3,605,943 3,589,884
Effect of dilutive securities
Convertible securities 283,111 -- 125,395 --
Stock options 35,384 1,643 94,100 591
---------- ---------- ---------- ----------
Denominator for diluted earnings per share
- adjusted weighted-average shares 3,925,645 3,591,527 3,825,438 3,590,475
========== ========== ========== ==========
Basic earnings per share $ -- $ 0.10 $ 0.30 $ (0.02)
Diluted earnings per share $ -- $ 0.10 $ 0.28 $ (0.02)
</TABLE>
Earnings per share for both the three month and nine month periods ended
September 30, 1997 have been restated to reflect retroactively the
implementation in the fourth quarter of 1997 of FAS 128 - Earnings per
share - and the inclusion of the 1,333,333 Class E Preferred shares of
Wood Wyant Inc., which are exchangeable on a one-for-one basis for common
shares of the Corporation, in the average number of shares outstanding
used to compute both basic and diluted earnings per share.
Also, the number of shares and earnings per share for all periods reported
have been amended to reflect a four-for-three stock split effected in the
form of a stock dividend, which was announced on March 27, 1998 and paid
on May 21, 1998.
6. PURCHASE OF BUSINESSES
During the second quarter of 1998, the Company, through its wholly-owned
subsidiary, Wood Wyant Inc. acquired 100% of the outstanding shares of the
following companies:
April 30, 1998 H.A. Perigord Company Limited
June 26, 1998 Professional Sanitation Products Ltd.
June 30, 1998 Midway Supply Ltd.
Purnel Distributors Ltd.
Midway Purnel Sanitary Supply Ltd.
Fraser Valley Industrial Chemicals Inc.
9
<PAGE> 10
6. PURCHASE OF BUSINESSES (Cont'd)
Fraser Valley Industrial Chemicals Inc. is a manufacturer of sanitary
chemical products. All of the other acquired companies are distributors of
sanitation products. The acquisitions have been accounted for under the
purchase method. Financial results of the companies are included in the
Company's consolidated statement of operations from the respective dates of
acquisition.
The cost of purchase of the above companies totalled $5,640,479, including
expenses related to the transactions but excluding cash acquired. This was
financed by the issue of 283,111 Class F Preferred shares of Wood Wyant
Inc., with a fair value of $1,861,876 at the respective transaction dates,
with the balance paid in cash. The cash portion was financed by term bank
loans, from which $3,525,440 had been drawn at September 30, 1998. The
Class F Preferred shares are exchangeable at any time for common shares of
Wyant Corporation on a one-for-one basis, and in addition holders have a
one-time option in July 2000 to retract all of the Class F shares at Cdn.
$15.00 per share, payable in five equal annual tranches commencing
August 3, 2000, with dividends at 3.5% per annum payable monthly from
July 1, 2000 if the option is exercised.
The pro-forma unaudited results of operations for the nine months ended
September 30, 1998 and September 30, 1997, assuming consummation of the
transactions as of January 1, 1997, are as follows:
<TABLE>
<CAPTION>
Nine months ended September 30
-------------------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $79,933,283 $79,583,902
Net income (loss) 1,321,486 (119,313)
Net income (loss) per common share:
Basic 0.28 (0.03)
Diluted 0.25 (0.03)
</TABLE>
7. SEGMENT INFORMATION
Three Months Ended September 30
-------------------------------
<TABLE>
<CAPTION>
Sanitation Health Care Wiping
Products Products Products Total
---------- ----------- -------- -----
<S> <C> <C> <C> <C>
1998
----
Revenues from external customers $13,727,748 $ 7,882,562 $3,876,833 $25,487,143
Intersegment revenues 859,358 404,376 440,590 1,704,324
Segment income before taxes 117,042 67,008 20,503 204,553
Segment assets 26,802,189 16,910,802 5,449,359 49,162,350
1997
----
Revenues from external customers 12,088,329 7,272,409 3,528,624 22,889,362
Intersegment revenues 880,364 825,764 551,736 2,257,864
Segment income before taxes 605,914 13,252 55,055 674,221
</TABLE>
10
<PAGE> 11
7. SEGMENT INFORMATION (CONT'D)
Nine Months Ended September 30
------------------------------
<TABLE>
<CAPTION>
Sanitation Health Care Wiping
Products Products Products Total
---------- ----------- -------- -----
<S> <C> <C> <C> <C>
1998
----
Revenues from external customers $37,147,708 $25,572,556 $10,945,670 $73,665,934
Intersegment revenues 2,792,263 2,113,775 1,552,054 6,458,092
Segment income before taxes 1,472,339 647,804 135,181 2,255,324
1997
----
Revenues from external customers 37,562,815 21,370,295 10,134,334 69,067,444
Intersegment revenues 2,692,613 1,869,220 1,123,549 5,685,382
Segment income (loss) before taxes 2,079,759 (1,936,218) 224,793 368,334
</TABLE>
8. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
presentation in the current period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the accompanying
unaudited financial statements and the notes thereto included in Item I of this
quarterly report, and the financial statements and the notes thereto and
management's discussion and analysis of financial condition and results of
operations contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
The following information includes forward-looking statements (within the
meaning of Section 21E of the Securities Exchange Act of 1934) that involve a
number of risks and uncertainties that may influence the financial performance
and earnings of the Company, and may cause actual results to differ materially
from those in the forward looking statements, including, but not limited to,
factors such as the ability of the Company to successfully integrate the
business and personnel of various acquired businesses into its operations, the
ability to maintain existing customer relationships and to secure new customers
on satisfactory terms, whether by contract or otherwise, the effect of exchange
rate fluctuations and the effect of competitive and general economic conditions.
Such forward looking statements, which reflect the Company's current views with
respect to certain future events and financial performance, should be considered
in light of such factors.
11
<PAGE> 12
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THE THREE MONTHS
ENDED SEPTEMBER 30, 1997
SALES
-----
Sales for the three months ended September 30, 1998 at $25,487,143
were $2,597,781 or 11.3% higher than the total of $22,889,362 in the third
quarter of 1997, after eliminating inter-segment sales which amounted to
$1,704,324 in the current quarter, compared with $2,257,864 in the same quarter
last year. Sales of the sanitation products segment were $14,587,106, an
increase of $1,618,413 or 12.5% over the third quarter of 1997, due to the
additional sales revenues derived from the companies acquired in the second
quarter of 1998, which more than offset the negative impact of a weaker Canadian
dollar translation rate and lower selling prices for paper products. Sales of
the health care products segment at $8,286,938 were $188,765 or 2.3% higher
than in the same quarter last year. Sales of the wiping products segment at
$4,317,423 were $237,063 or 5.8% higher than in the third quarter of 1997.
COST OF SALES AND GROSS PROFIT
- ------------------------------
Gross profit of the sanitation products segment was at 39% of sales in the third
quarter of 1998, unchanged from the corresponding quarter of 1997. In the health
care products segment, gross profit was at 19% of sales compared with 18% last
year due to the higher sales volume and operating efficiencies. Gross profit of
the wiping products segment was unchanged at 17% of sales in the current
quarter.
SELLING EXPENSES
- ----------------
Selling expenses for the third quarter of 1998 at $4,028,139 were $316,090 or
8.5% higher than in the same quarter last year. In the sanitation products
segment, selling expenses amounted to $2,688,857, an increase of $294,466, as
the added expenses from the businesses acquired in the second quarter of 1998
and a 3% increase in expenses of the ongoing business more than offset the
impact of the weaker Canadian dollar translation rate. Selling expenses of the
health care products segment declined by $24,565 to $771,733 due to a reduced
level of marketing expenses. In the wiping products segment, selling expenses
for the current quarter increased by $46,189 to $567,549, due to a higher level
of spending required to support the increased sales.
GENERAL AND ADMINISTRATION EXPENSES
- -----------------------------------
General and administration expenses for the current quarter at $3,130,440 were
$664,266 higher than in the corresponding quarter of 1997. In the sanitation
products segment, expenses at $2,459,617 were $555,016 higher than in the same
quarter last year. The increase resulted from the inclusion in the current
quarter of a special charge of $464,286 related to the rationalization of Wood
Wyant Inc.'s operations following the acquisition of businesses during the
second quarter of 1998, together with the added expenses of the acquired
businesses which amounted to $546,948. These expenses more than offset savings
achieved from reduced staffing costs and lower rent charges due to the
consolidation of warehousing activities at a Company-owned facility, and the
favorable impact on expenses of the weaker Canadian dollar translation rate. In
the health care products segment, expenses at $539,031 were $95,200 higher than
in the same quarter last year, primarily due to increased professional fees and
benefit program costs. Expenses of the wiping products segment increased by
$14,050 to $131,792 in the third quarter of 1998.
12
<PAGE> 13
AMORTIZATION
- ------------
Amortization was $151,505 in the third quarter of 1998, an increase of $4,760
over 1997.
INTEREST EXPENSE
- ----------------
Interest expense increased by $118,128 to $391,366 in the current quarter due
to the interest costs associated with the financing of the acquisitions in the
second quarter and the increased level and cost of borrowing in the health care
products segment.
OTHER INCOME
- ------------
Other income at $79,261 was $15,325 lower than in the third quarter last year.
INCOME BEFORE TAX
- -----------------
Income before tax for the third quarter of 1998 was $204,553, a reduction of
$469,668 from the amount of $674,221 earned in the same quarter last year. This
resulted from reductions of $488,872 in the sanitation products segment and
$34,552 in the wiping products segment, partially offset by an improvement of
$53,756 in the health care products segment.
INCOME TAXES
- ------------
Income taxes for the third quarter were $100,000, compared with $245,741 in the
same period last year. This reflected the lower level of earnings in the
current quarter.
NET INCOME
- ----------
Net income for the third quarter of 1998 amounted to $104,553, compared with
$428,480 in the corresponding quarter of 1997. This represented a break-even in
earnings per share for the current quarter, while $0.10 per share was earned in
the third quarter of 1997. The 1997 earnings per share have been restated to
reflect the four-for-three stock split effected on May 21, 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
SALES
- -----
Sales for the nine months ended September 30, 1998 at $73,665,934 were
$4,598,490 higher than in the same period last year, after eliminating
inter-segment sales of $6,458,092 in the current period compared with
$5,685,382 in the prior period. Sales of the sanitation products segment were
$39,939,971, a reduction of $315,457 or 0.8% from the prior period level of
$40,255,428. This reduction reflected primarily the negative impact of a weaker
Canadian dollar translation rate and lower selling prices for paper products,
which more than offset the increased sales attributable to the acquisitions
during the second quarter of 1998. Sales of the health care products segment at
$27,686,331 were $4,446,816 or 19.1% higher than in the same period last year
due to the higher level of sales of Symphony (R) and private label adult
incontinent briefs, which were introduced during the first half of 1997. Sales
of the wiping products segment at $12,497,724 were $1,239,841 or 11.0% higher
than in the corresponding period in 1997 due to a significant increase in sales
of paper products and systems.
13
<PAGE> 14
COST OF SALES AND GROSS PROFIT
- ------------------------------
In the sanitation products segment, gross profit as a percentage of sales
declined from 40% to 39% in the nine months ended September 30, 1998 due to
lower selling prices for paper products. Gross profit of the health care
products segment increased to 20% of sales from 14% of sales in the first nine
months of 1997 due to manufacturing efficiencies and increased sales activity
in the current period, whereas the prior year results were adversely affected
by start-up expenses incurred in the first half of 1997 for the new adult brief
line. In the wiping products segment, gross profit declined to 17% of sales
from 18% of sales in the same period last year. This change resulted from the
increase in 1998 in sales of paper products, which generate lower margins than
the segment's other product lines.
SELLING EXPENSES
- ----------------
For the first nine months of 1998, selling expenses amounted to $11,623,808, an
increase of $279,525 over the same period last year. Expenses of the sanitation
products segment were $7,655,501, an increase of $107,612 over the
corresponding period in 1997, as the added expenses of the acquired businesses
more than offset the favorable impact of the weaker Canadian dollar translation
rate. Selling expenses of the health care products segment at $2,356,773 were
$23,124 higher than in the prior year, as an increase of $247,364 in outward
freight costs resulting from the increased level of sales was for the most part
offset by expense savings from cost reduction programs. In the wiping products
segment, selling expenses increased by $148,789 to $1,611,534 for the current
period, due primarily to an increase of $87,615 in outward freight costs
brought about by the higher level of sales and to higher printing and
advertising expenses.
GENERAL AND ADMINISTRATION EXPENSES
- -----------------------------------
General and administration expenses declined by $854,364 or 9.8% in the first
nine months of 1998 to $7,883,212. Expenses of the sanitation products segment
at $5,790,091 were $173,442 lower than in the same period last year. The
reduced costs reflected savings from lower staffing levels and the
consolidation of warehousing activities at a Company-owned facility, together
with the favorable impact of the weaker Canadian dollar translation rate, all
of which were partially offset by the added expenses of the businesses acquired
during the year and the special charge of $464,286 incurred in the current
quarter for the rationalization of Wood Wyant Inc.'s operations following the
acquisition of those businesses. In the health care products segment, expenses
at $1,729,812 were $699,308 lower than in the corresponding period last year
due to reduced staffing costs resulting from cost reduction programs
implemented in 1997 and to non-recurring charges of $427,000 for severance
costs and professional fees incurred in the first half of 1997. Expenses of
the wiping products segment increased by $18,386 to $363,309 during the current
period.
AMORTIZATION
- ------------
Amortization increased to $411,224 from the amount of $397,650 in the
corresponding period last year due to the addition of the acquired businesses.
INTEREST EXPENSE
- -----------------
Interest expense increased by $352,938 to $1,097,475 in the current period. The
increase resulted from the cost of additional borrowing required to finance the
acquisition of businesses in the second quarter of 1998 and the purchase of the
Wood Wyant Inc. assets in March 1997, together with the higher cost of
borrowing in the U.S. Operations.
OTHER INCOME
- ------------
Other income decreased by $141,868 to $172,694 in the current nine month
period due to reduced foreign exchange gains and interest income.
14
<PAGE> 15
INCOME BEFORE TAX
- -----------------
Income before tax for the nine months ended September 30, 1998 amounted to
$2,255,324, an increase of $1,886,990 over the same period last year. The
improved results in the health care products segment contributed $2,584,022,
but this was partially offset by reduced pre-tax income in the sanitation
products ($607,420) and wiping products ($89,612) segments.
INCOME TAXES
- ------------
Income tax expense amounted to $910,000 in the current period, compared with
$345,741 in the same period last year. The increase was due to the improved
earnings in the current period and to approximately $156,000 of losses in the
1997 period which could not be tax-effected at that time.
NET INCOME
- -----------
Net income amounted to $1,345,324 or $0.30 per share in the current period,
compared with net income of $22,593 in the corresponding period of 1997, which
after taking into account dividends and accretion of mandatorily redeemable
preferred shares resulted in a loss of $0.02 per share. The earnings per share
of both periods give full effect to the 1,333,333 Class E Preferred shares of
Wood Wyant Inc. which are exchangeable on a one-for-one basis for common shares
of Wyant Corporation and to the four-for-three stock split effected in the form
of a stock dividend issued on May 21, 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity and capital resources of the Company's United States operations - the
Wyant Health Care division and IFC Disposables, Inc. - are discussed together,
while the Canadian operations - Wood Wyant Inc. and its subsidiaries - are
discussed separately, as each is self-financing and has separate banking
facilities.
CANADIAN OPERATIONS
- -------------------
The Canadian operations utilized $215,951 of cash during the nine months ended
September 30, 1998. Cash from operations amounted to $1,882,295, after a net
decrease in working capital of $389,750. Accounts receivable declined by
$821,004 due to the impact of the weaker Canadian dollar translation rate and
the return of collections to normal levels following a postal strike in
late-1997, while inventories decreased by $418,249, primarily due to the impact
of the weaker Canadian dollar translation rate. Accounts payable and accrued
expenses increased by $133,322, primarily due to the recording of the special
charge of $464,286 for the rationalization of Wood Wyant's operations following
the recent acquisitions, partially offset by the effect of the weaker Canadian
dollar translation rate. Income taxes payable declined by $791,114 due primarily
to the payment of 1997 income tax liabilities and a higher level of instalment
payments in 1998. Capital expenditures amounted to $456,662 in the first nine
months of 1998. New debt raised during the period from an existing facility to
finance capital spending amounted to $197,671, while repayments of long-term
debt totalled $600,407. In addition, $550,122 of outstanding Class A Preferred
shares were redeemed in January 1998 and dividends of $145,133 have been paid on
the Class A and Class B Preferred shares.
The businesses acquired in the second quarter of 1998 for total consideration
of $5,720,029 were financed by term bank loans, under which an amount of
$3,525,440 was drawn down, and by the issue of 283,111 Class F Preferred shares
of Wood Wyant Inc. with a fair value of $1,861,876. On June 25, 1998 the
Company increased its secured revolving line of credit from Cdn. $6,000,000 to
Cdn. $7,500,000 ($4,898,119) to assist in refinancing the operating cash
requirements of the newly-acquired companies. As at September 30, 1998,
approximately $1,100,000 was available on this line of credit. An additional
amount of approximately $984,000 was available to finance future capital
expenditures under a revolving credit facility of $1,959,248 (Cdn. $3,000,000).
Management believes that future operating cash flows and the unused
availability under existing credit facilities will be sufficient to meet its
ongoing operating cash requirements, to repay the term debt as it becomes due
and to meet cash requirements for capital asset additions.
15
<PAGE> 16
U.S. OPERATIONS
- ---------------
Cash utilized in the nine months ended September 30, 1998 amounted to $702,842.
Operating activities generated $889,106 of cash, after a net increase in
working capital of $734,838. Inventories increased by $587,501, primarily in
the wiping products segment, where a short-term inventory build-up was required
to counter temporary raw material supply shortages, while receivables decreased
by $299,436 due to improved collection performance and payables were $481,920
lower. Capital expenditures in the current period totalled $231,961. An amount
of $100,101 was obtained from the acquisition escrow fund, while $1,455,061 was
repaid on the Company's revolving credit facility. As of September 30, 1998,
additional borrowing of approximately $1,852,000 was available under this
facility.
Management believes that future operating cash flows and the unused
availability under existing credit facilities will be sufficient to meet its
ongoing operating cash requirements, to repay the term debt as it becomes due
and to meet cash requirements for capital asset additions.
YEAR 2000
- ---------
The Year 2000 problem arises because many computer systems and software
products currently in use are coded to accept only two digit entries in the
date code field. Four digit entries will be required to identify 21st century
dates. Consequently, the use of software and computer systems that are not Year
2000 compliant could result in the disruption of operations. As a result, many
companies computer systems and software may need to be upgraded or replaced to
conform with Year 2000 requirements.
In order to properly address the Year 2000 issue, the Company has appointed the
Vice President, Information Technology of Wood Wyant Inc. as Year 2000 Project
Director to direct a project team which will identify Year 2000 issues and
coordinate solutions. The project team is currently being assembled. Its role
will be to conduct Year 2000 readiness assessment audits at all of the
Company's facilities, encompassing all equipment and processes deemed important
to the facility's operation. Contingency plans will also be developed.
The Company's Health Care division implemented an applications software package
which has been operating since July 1996 and for which written confirmation has
been obtained from the vendor that the software is Year 2000 compliant. Wood
Wyant Inc. is currently in the process of installing new applications software
for which it has obtained written confirmation from the vendor that it is also
Year 2000 compliant. This software is expected to be operational in the first
quarter of 1999. The software currently in use at IFC Disposables, Inc. is not
Year 2000 compliant and will be replaced by hardware and applications software
which will be Year 2000 compliant by mid-1999. As an additional precaution, the
technical infrastructure of all the Company's businesses will be audited and
tested to ensure Year 2000 compliance under normal business conditions.
The total cost of purchasing and installing the new Wood Wyant Inc. software is
estimated to be $1,708,000 (Cdn. $2,500,000), and is being financed through
lease facilities established with the Bank of Nova Scotia. The cost to replace
computer hardware and applications software at IFC has not yet been determined
but is not expected to be material.
The Company is also preparing to issue Year 2000 compliance letters requesting
confirmation of suppliers' readiness and follow-up discussions will take place
for all business-critical suppliers. Major customers will also be contacted to
confirm their Year 2000 readiness.
To-date, the Company has not incurred significant incremental costs in order to
comply with Year 2000 requirements and does not believe it will incur
significant incremental costs in the foreseeable future. However, there can be
no assurance that Year 2000 errors or defects will not be discovered in the
Company's software systems and, if errors or defects are discovered, there is
no assurance that this would not result in a material financial risk to the
Company.
16
<PAGE> 17
YEAR 2000 (Cont'd)
- ------------------
In addition, the Company purchases goods and services from third party vendors
that may not be Year 2000 compliant. While the Company intends to obtain
confirmation of vendors' state of readiness, their failure to operate properly
with regard to Year 2000 requirements could require the Company to incur
material expenses to rectify the impact on the Company of such failure. However,
all of the Company's raw materials are widely available and the Company is not
dependent on any one supplier or group of suppliers.
The Company does not know the state of preparedness for Year 2000 issues of all
of its customers. However, no single customer exceeds 7% of consolidated sales
and therefore the risk the Company faces is broad based if many customers are
unable to use information systems necessary to place orders for Company
products.
The Company plans to achieve Year 2000 compliance by mid-1999.
SIGNIFICANT FACTORS AND KNOWN TRENDS
- ------------------------------------
During the second quarter of 1998, two customers of the Wyant Health Care
Division informed the Company that they would discontinue purchasing the
Company's incontinent care products. One of the customers, which began
purchasing this line of products in January 1998, discontinued purchasing
products effective June 1, 1998 and accounted for sales in 1998 of approximately
$1.5 million. The second, a long-time private label customer, commenced
phasing-out the purchase of the company's products effective July 1, 1998 due to
a change in control. However, this customer has indicated that it will continue
to purchase products at a reduced level, at least until November 1998. Sales
during the first six months of 1998 to this customer amounted to $1.7 million.
Sales in the third quarter of 1998 were $188,000 and it is expected that sales
in the fourth quarter will amount to approximately $290,000. There is no
assurance that this customer will purchase any product from the Company beyond
these amounts.
Additionally, the medical insurance program of the State of California
(Medi-Cal) had announced that, commencing January 1, 1999, one of the Wyant
Health Care Division's incontinent care products would no longer be included as
a reimbursable product for purposes of the Medi-Cal program. Medi-Cal has
subsequently rescinded the above decision and is in the process of re-examining
future changes to the program. Until such time as a decision is made, the
existing program will continue unchanged, although management cannot predict
Medi-Cal's ultimate decision with respect to the program or the inclusion of
this product, or similar products of the Company, in the future. Management has
estimated that almost all of the approximately $2.1 million of sales of this
product in the State of California during the nine months ended September 30,
1998 resulted from its acceptance under the program.
The Company is currently negotiating a three-year supply contract for sales to
a new customer of Airlaid products. The customer has estimated its annual
requirements to be $3.6 million per year. Pending contract completion, the
Wyant Health Care Division has made sales totalling approximately $1.4 million
to this customer during the months of June to October 1998. While the contract
is in the process of being negotiated, there is no assurance that it will be
completed or, if the contract is not completed, that the customer will continue
to purchase Airlaid products from the Company consistent with current practice.
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEMS 2, 3, 4 & 5
Not applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) Not applicable
b) Reports on Form 8-K
The Company's current report on Form 8-K filed July 14, 1998, as amended by
Form 8-K/A filed September 11, 1998, disclosed the acquisition on June 30,
1998 by Wood Wyant Inc., a wholly-owned Canadian subsidiary of the
registrant, of four related businesses.
18
<PAGE> 19
WYANT CORPORATION
SIGNATURES
Pursuant to the requirement 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.
Wyant Corporation
(Registrant)
Date: November 13, 1998 SIGNATURE: /s/ Marc D'Amour
------------------- ------------------------------------
Marc D'Amour
Vice President,
Chief Financial Officer and Treasurer
(For the registrant and as Principal
Financial Officer)
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FFROM WYANT
CORPORATION FORM 10-Q RE QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q SEPTEMBER 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 82,076
<SECURITIES> 0
<RECEIVABLES> 13,870,707
<ALLOWANCES> 0
<INVENTORY> 10,254,347
<CURRENT-ASSETS> 26,015,280
<PP&E> 18,505,615
<DEPRECIATION> 0
<TOTAL-ASSETS> 49,162,350
<CURRENT-LIABILITIES> 21,693,284
<BONDS> 7,784,985
5,432,669
0
<COMMON> 36,071
<OTHER-SE> 12,512,949
<TOTAL-LIABILITY-AND-EQUITY> 49,162,350
<SALES> 25,487,143
<TOTAL-REVENUES> 25,487,143
<CGS> 17,660,401
<TOTAL-COSTS> 24,970,485
<OTHER-EXPENSES> (79,261)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 391,366
<INCOME-PRETAX> 204,553
<INCOME-TAX> 100,000
<INCOME-CONTINUING> 104,553
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104,553
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
