<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 March 31, 1999
-------------------------------------------------
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
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WYANT CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant 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 May 12, 1999
- ---------------------------------------------------------------------------
Common stock, $.01 par value 2,273,817
1
<PAGE> 2
WYANT CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
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.
<TABLE>
<S> <C>
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
</TABLE>
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>
March 31 December 31
1999 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ -- $ 59,985
Accounts receivable 11,791,279 10,215,812
Inventories (note 3) 8,519,215 8,576,960
Net assets held for divestiture (note 2) 9,462,241 9,203,356
Other 740,347 1,393,270
----------- -----------
TOTAL CURRENT ASSETS 30,513,082 29,449,383
Property, plant and equipment, net of
accumulated amortization of $11,888,229
(December 31, 1998 - $11,474,155) 10,320,143 8,593,460
Other assets 4,511,653 4,496,821
----------- -----------
TOTAL ASSETS $45,344,878 $42,539,664
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Revolving line of credit $ 6,261,270 $ 4,092,128
Committed revolving credit facility 3,789,294 4,238,720
Accounts payable 5,780,282 4,856,657
Accrued expenses 1,856,266 3,228,412
Income taxes payable 710,663 433,288
Current portion of long-term debt (note 4) 1,416,621 1,061,332
Current portion of preferred stock of subsidiary 524,003 513,204
---------- -----------
TOTAL CURRENT LIABILITIES 20,338,399 18,423,741
Long-term debt (notes 4 & 6) 5,002,560 3,887,593
Preferred stock of subsidiary (note 6) 5,121,513 5,477,072
Deferred income taxes 1,705,931 2,076,416
STOCKHOLDERS' EQUITY
Common stock, par value $0.01 per share 27,053 27,053
Additional paid-in capital 6,821,825 6,821,825
Retained earnings 6,721,249 6,326,679
Cumulative translation adjustment (393,652) (500,715)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 13,176,475 12,674,842
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $45,344,878 $42,539,664
=========== ===========
</TABLE>
See accompanying notes
3
<PAGE> 4
WYANT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
[Restated]
<S> <C> <C>
Net sales $18,525,359 $15,550,112
Cost of sales 12,245,520 10,166,464
----------- -----------
Gross profit 6,279,839 5,383,648
Expenses
Selling 3,589,520 3,006,940
General and administration 2,186,133 1,837,128
Amortization 143,910 91,043
Interest expense 309,885 248,614
Other income (123,440) (79,595)
----------- -----------
6,106,008 5,104,130
----------- -----------
Income from continuing operations
before income taxes 173,831 279,518
Income tax expense
Current 69,700 95,600
Deferred 21,300 124,600
----------- -----------
91,000 124,600
----------- -----------
Income from continuing operations 82,831 154,918
Discontinued operations, net of income taxes
of $212,300 (1998 - $194,400) (note 2) 406,700 355,056
----------- -----------
Net income 489,531 509,974
Dividends and accretion of mandatorily
redeemable preferred stock 94,961 75,446
----------- -----------
Net income attributable to common shares $ 394,570 $ 434,528
=========== ===========
Per common share (note 5)
BASIC
Income from continuing operations $ -- $ 0.02
Discontinued operations 0.11 0.10
Net income 0.11 0.12
DILUTED
Income from continuing operations -- 0.02
Discontinued operations 0.10 0.10
Net income 0.10 0.12
</TABLE>
See accompanying notes
4
<PAGE> 5
WYANT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 and 1998
(UNAUDITED)
<TABLE>
1999 1998
---- ----
[Restated]
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from continuing operations $ 82,831 $ 154,918
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 305,168 243,034
Gain on sale of fixed assets (287) --
Deferred income tax expense 12,360 29,000
Deferred pension costs (8,748) (30,216)
Changes in non-cash working capital balances
Accounts receivable (1,575,467) 319,815
Inventories 57,745 307,898
Other current assets 250,793 (63,272)
Accounts payable (448,521) (240,191)
Income taxes payable 276,122 (300,701)
Cash provided by discontinued operations 166,659 29,569
----------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (881,345) 449,854
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,777,705) (200,805)
Cash proceeds from sale of fixed assets 9,135 --
Decrease in other assets -- 24,691
Cash used for discontinued operations (18,844) (16,449)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (1,787,414) (192,563)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in committed revolving
credit facility (449,426) 221,043
Repayment of long-term debt (296,766) (363,129)
Increase in long-term debt 1,654,205 460,241
Redemption of preferred shares (513,204) (550,122)
Dividends paid by subsidiary (41,654) (49,511)
Increase (decrease) in bank indebtedness 2,169,142 (231,549)
Cash provided by discontinued operations -- 80,101
----------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,522,297 (432,926)
Effect of exchange rate changes on cash 86,477 19,504
----------- ---------
Net decrease in cash and cash equivalents (59,985) (156,131)
Cash and cash equivalents, beginning of period 59,985 156,131
----------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ --
=========== =========
</TABLE>
See accompanying notes
5
<PAGE> 6
WYANT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
COMMON STOCK AT PAR VALUE $ 27,053 $ 27,037
----------- -----------
ADDITIONAL PAID-IN CAPITAL 6,821,825 6,806,867
----------- -----------
RETAINED EARNINGS
Balance at beginning of period 6,326,679 5,112,006
Net income 489,531 509,974
Dividends declared (41,654) (49,511)
Accretion on preferred shares
of subsidiary (53,307) (25,935)
----------- -----------
BALANCE AT END OF PERIOD 6,721,249 5,546,534
----------- -----------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of period (500,715) (165,925)
Foreign currency translation adjustments 107,063 23,824
----------- -----------
BALANCE AT END OF PERIOD (393,652) (142,101)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY $13,176,475 $12,238,337
=========== ===========
COMPREHENSIVE INCOME
Net income $ 489,531 $ 509,974
Other - Foreign currency translation
adjustments 107,063 23,824
----------- -----------
Comprehensive income for period $ 596,594 $ 533,798
=========== ===========
NUMBER OF COMMON SHARES ISSUED
AND OUTSTANDING 2,273,817 2,271,484
COMMON SHARES ISSUABLE UPON CONVERSION
OF EXCHANGEABLE SHARES 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 March 31, 1999 and for the three months
ended March 31, 1999 and 1998 are unaudited)
1. GENERAL
The accompanying unaudited consolidated financial statements include the
accounts of Wyant Corporation and its wholly-owned subsidiaries, IFC
Disposables, Inc. and Wood Wyant Inc. 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 March 31, 1999,
the results of operations, cash flows and changes in stockholders' equity
for the three months ended March 31, 1999 and 1998. For further
information, refer to the financial statements and notes thereto included
in the Company's annual report for the year ended December 31, 1998.
2. DISCONTINUED OPERATIONS
On December 17, 1998, the Board of Directors authorized management to
pursue the sale of the Company's Wyant Health Care Division ("Division").
On February 23, 1999 the Board approved the sale of the Division to
Paper-Pak Products, Inc. ("PaperPak"), subject to completion of buyer
financing, customary regulatory approvals and the approval of the Company's
shareholders. Consequently, the results of the Division have been reported
in these financial statements as discontinued operations.
The Company will receive cash of $11,500,000 on closing and $550,000 will
be held in escrow for twenty four months, subject to adjustment on closing.
The operating results of the Division are as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
----- -----
<S> <C> <C>
Net sales $10,286,439 $9,787,184
Income before income taxes 619,000 549,456
</TABLE>
The Company expects the sale of the Division to close in the second quarter
of 1999. At the date of disposal, the Company expects to record a small
gain. Included in the Company's estimated gain are the estimated costs to
satisfy the Division's obligation with respect to a defined benefit
multi-employer pension plan which covers certain of the Division's
employees.
7
<PAGE> 8
3. INVENTORIES
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------ -----
<S> <C> <C>
Raw materials $2,321,787 $2,065,073
Finished goods 6,197,428 6,511,887
---------- ----------
$8,519,215 $8,576,960
========== ==========
</TABLE>
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Wood Wyant Inc.
Term loan repayable in monthly installments
of Cdn. $20,476 plus interest at prime plus
3/4% (prime at March 31, 1999 - 6.75%),
maturing October 1, 2001. Principal amount
Cdn. $1,631,428 (December 31, 1998 - Cdn.
$1,692,856) 1,086,387 1,104,060
Term loan repayable in monthly installments
of Cdn. $35,000 plus interest at prime plus
3/4%, maturing April 30, 2003. Principal
amount Cdn. $1,715,000 (December 31, 1998 -
Cdn. $1,820,000) 1,142,039 1,186,982
Term loan repayable in monthly installments
of Cdn. $49,523 plus interest
at prime plus 3/4%, maturing June 30, 2003.
Principal amount Cdn.$2,525,638 (December 31,
1998 - Cdn. $2,674,207) 1,681,853 1,744,086
Term loan repayable in monthly installments
of Cdn. $41,667 plus interest at prime plus
3/4%, maturing March 15, 2004.
Principal amount Cdn.$2,458,333 1,637,033 --
Revolving credit facility (Cdn. $1,309,286 -
December 31, 1998 - Cdn.$1,401,125) 871,869 913,797
--------- ---------
6,419,181 4,948,925
Current portion 1,416,621 1,061,332
---------- ----------
$5,002,560 $3,887,593
========== ==========
</TABLE>
8
<PAGE> 9
5. EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended March 31
---------------------------
1999 1998
---- ----
<S> <C> <C>
Numerator
Income from continuing operations before
extraordinary gain $ 82,831 $ 154,918
Preferred stock dividends and accretion 94,661 75,446
-------- ---------
Numerator for basic earnings per share -
income (loss) from continuing operations available
to common stockholders (12,130) 79,472
Accretion on convertible preferred shares 28,307 --
--------- ----------
Numerator for diluted earnings per share -
income from continuing operations available
to common stockholders $ 16,177 $ 79,472
========= ==========
Denominator
Denominator for basic earnings per share -
weighted-average shares issued, issuable and
outstanding 3,607,150 3,604,817
Effect of dilutive securities
Convertible securities 283,111 --
Stock options 540 96,062
---------- ----------
Denominator for diluted earnings per share -
adjusted weighted-average shares 3,890,801 3,700,879
========== ==========
Basic earnings per share from continuing operations $ -- $ 0.02
Diluted earnings per share from continuing operations $ -- $ 0.02
</TABLE>
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:
<TABLE>
<S> <C>
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.
</TABLE>
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 $5,715,895, 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 March 31, 1999. 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. $11.250028
per share, payable in five equal annual instalments 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 three months ended
March 31, 1998, assuming consummation of the transactions as of January 1,
1998, are as follows:
<TABLE>
<CAPTION>
Three months ended March 31, 1998
---------------------------------
<S> <C>
Net sales $18,999,971
Income from continuing operations 171,750
Net income 526,806
Per common share
Income from continuing operations 0.02
Net income 0.12
</TABLE>
7. SEGMENT INFORMATION FROM CONTINUING OPERATIONS
Three months ended March 31
---------------------------
<TABLE>
<CAPTION>
Sanitation Wiping
Products Products Corporate Total
---------- -------- --------- -----
<S> <C> <C> <C> <C>
1999
----
Revenues from external customers $14,406,362 $4,118,997 $18,525,359
Intersegment revenues 813,455 85,138 898,593
Segment income (loss) before taxes 335,309 23,020 (184,498) 173,831
Segment assets 29,979,995 5,324,738 577,904 35,882,637
1998
----
Revenues from external customers $11,500,782 $4,049,330 $15,550,112
Intersegment revenues 832,171 88,763 920,934
Segment income (loss) before taxes 465,529 83,989 (270,000) 279,518
</TABLE>
10
<PAGE> 11
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, 1998. As indicated in Note 2 to the consolidated financial
statements, the Company has agreed to sell its Wyant Health Care Division and
substantially all of its operating assets. Accordingly, such consolidated
financial statements, as well as the discussion below, reflect the consummation
of this transaction by showing the health care business as "discontinued
operations" for income statement purposes and as "net assets held for
divestiture" for balance sheet purposes.
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 implement its business strategy assuming consummation of the PaperPak
transaction, the ability to adequately address Year 2000-related issues, the
ability to maintain existing customer relationships and to secure new customers
on satisfactory terms, whether by contract or otherwise, unforeseen price
pressure on the Company's products or significant cost increases that cannot be
recovered through price increases or productivity improvements, the ability to
obtain any necessary financing on reasonably satisfactory terms, the effect of
exchange rate fluctuations and the effect of competitive, capital market 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THE THREE MONTHS ENDED
MARCH 31, 1998
SALES
- -----
Sales of continuing operations for the three months ended March 31, 1999
increased by $2,975,247 or 19.1% to $18,525,359 from the total of $15,550,112
in the first quarter of 1998, after eliminating inter-segment sales of $898,593
in the current quarter and $920,934 in the same quarter last year. Sales of
the sanitation products segment were $15,219,817 in the current quarter,
compared with $12,332,953 in the first quarter of 1998, an increase of
$2,886,864 or 23.4%. The increase resulted primarily from the sales of the
businesses acquired in the second quarter of 1998 and higher direct sales of
paper products from the Company's paper converting operation, which more than
offset the negative impact of a weaker Canadian dollar translation rate. Sales
of the wiping products segment at $4,204,135 were $66,042 or 1.6% higher than
in the first quarter of 1998, primarily due to increased sales of wipers.
COST OF SALES AND GROSS PROFIT
- ------------------------------
Gross profit of the sanitation products segment declined to 36.4% of sales from
37.9% of sales in the first quarter of 1998, reflecting primarily lower selling
prices for paper products. Gross profit of the wiping products segment
improved to 17.7% of sales from 17.3% in the corresponding period last year,
primarily due to improved margins on sales of paper products.
11
<PAGE> 12
SELLING EXPENSES
- ----------------
Selling expenses for the first quarter of 1999 amounted to $3,589,520, an
increase of $582,580 or 19.4% over the same period last year. In the
sanitation products segment, selling expenses at $3,207,020 were $708,324
higher than in the first quarter of 1998, an increase of 28.3%. The increase
resulted from the added expenses of the acquired businesses and additional
costs of approximately $116,000 incurred as a result of challenges associated
with the implementation of new information systems during the first quarter of
1999, which more than offset the favorable impact of the weaker Canadian dollar
translation rate. In the wiping products segment, selling expenses increased
by $54,256 or 10.7% to $562,500, reflecting primarily higher outward freight
and staffing costs.
GENERAL AND ADMINISTRATION EXPENSES
- -----------------------------------
General and administration expenses increased by $349,005 or 19.0% to
$2,186,133 in the current quarter. Expenses of the sanitation products segment
at $1,985,478 were $358,250 or 22.0% higher than in the first quarter of 1998,
as the added expenses of the businesses acquired in the second quarter of 1998
and costs resulting from the new information systems implementation more than
offset the favorable impact of the weaker Canadian dollar translation rate.
General and administration expenses of the wiping products segment were
$131,409 in the current quarter, an increase of $19,999 or 18.0% over the same
quarter last year due primarily to higher staffing costs. Corporate charges in
the current quarter at $69,246 were $29,754 lower than in the prior year due
primarily to lower professional fees.
AMORTIZATION
- ------------
Amortization amounted to $143,910 in the first quarter of 1999, an increase of
$52,867 over the corresponding quarter last year. The increase reflected the
additional amortization from the businesses acquired in mid-1998 and from the
goodwill resulting from their purchase.
INTEREST EXPENSE
- ----------------
Interest expense increased by $61,271 to $309,885 in the current quarter. The
increase resulted from higher borrowing costs in Canada ($99,258) incurred
primarily to finance the 1998 acquisitions of businesses, partially offset by a
reduction of $37,987 in interest cost in the United States on the loan from
Congress Financial Corporation. This loan will be repaid from the proceeds of
the sale of the Wyant Health Care Division.
OTHER INCOME
- ------------
Other income increased to $123,440 from $79,595 in the first quarter of 1998.
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
- -----------------------------------------------------
Income from continuing operations before income taxes amounted to $173,831 for
the first quarter of 1999, a reduction of $105,687 from the level of $279,518
in the same quarter last year. The sanitation products and wiping products
segments decreased by $130,220 and $60,969 respectively, while corporate
expenses were $85,502 lower than in the first quarter of 1998.
INCOME TAXES
- ------------
Income tax expense at $91,000 was $33,600 lower than in the first quarter of
1998, reflecting the lower level of pre-tax income in the current quarter.
12
<PAGE> 13
DISCONTINUED OPERATIONS
- -----------------------
The discontinued health care operations generated after-tax income from
operations of $406,700 or $0.11 per common share, compared with $355,056 or
$0.10 per common share in the first quarter of 1998. The improvement in 1999
results compared with the first quarter of 1998 was due to a 5.1% increase in
sales revenue, primarily from higher sales of airlaid products and branded adult
incontinent products, partially offset by lower sales of private label products,
together with higher margins, at 21% of sales compared with 20% of sales in the
first quarter last year. These were partially offset by an increase of $203,424
or 15.5% in operating expenses, which included $87,936 of higher outward freight
costs to support the increased sales and $54,296 from increased marketing
expenses.
NET INCOME
- ----------
Net income for the first quarter of 1999 amounted to $489,531, or $0.11 per
common share after deducting dividends and accretion relating to the mandatorily
redeemable preferred shares, compared with net income of $509,974 or $0.12 per
common share in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity and capital resources of the Company's Canadian operations (Wood
Wyant) and United States operations (IFC Disposables) are discussed separately,
as each is self-financing and has separate banking facilities.
CANADIAN OPERATIONS
- -------------------
Cash utilized during the first quarter of 1999 amounted to $1,741,170. Operating
activities utilized $1,145,214 due to an increase in working capital of
$1,565,233, primarily due to higher receivables ($1,485,474) and lower payables
($578,780), partially offset by lower prepaid expenses ($247,558) and
inventories ($139,313) and higher income taxes payable ($112,150). The increased
receivables resulted from a higher level of sales in March 1999, together with
poorer collection performance in the first quarter of 1999, due in part to
problems associated with the start-up of new applications software in February
1999. The lower level of payables reflected primarily a new contract for paper
purchases which provides less favorable payment terms. Capital expenditures
amounted to $1,758,308 in the current quarter, comprising for the most part
expenditures for the new applications software and related hardware. The Company
originally had intended to lease this equipment and had entered into a lease
agreement in September 1997 for this purpose. However, a decision was made in
the first quarter of 1999 to cancel the lease agreement and instead to finance
the purchase by a five-year term bank loan of Cdn. $2,500,000 ($1,664,780).
Repayments of long-term debt during the quarter amounted to $296,766. In
addition, $513,204 of outstanding Class A Preferred shares were redeemed in
January 1999 and dividends of $41,654 were paid in the quarter on the Class A
and Class B Preferred shares.
On March 10, 1999 the Company increased its secured revolving line of credit
from Cdn. $7,500,000 to Cdn. $9,500,000 ($6,326,164) to meet increased working
capital requirements. At March 31, 1999, approximately $1,025,000 was available
under this facility. In addition, approximately $697,000 was available to
finance future capital expenditures under a revolving credit facility of
$1,997,736 (Cdn. $3,000,000).
All borrowings of the Canadian Operations are with the Bank of Nova Scotia.
Long-term debt outstanding at March 31, 1999 amounted to $6,419,181 including
$1,416,621 due within one year. All of the loans were at the commercial prime
rate in Canada (6.75% at March 31, 1999) plus 0.75%. The secured revolving line
of credit bears interest at the prime rate in Canada. Under the terms of the
loan agreements, covenants exist which require Wood Wyant to meet certain ratios
relating to debt to tangible net worth, current assets to current liabilities
and cash flow to debt service, as well as maintaining a minimum level of
tangible net worth. Also, borrowings under the revolving credit facility must
not exceed a given proportion of accounts receivable. The Company was in
compliance with all of the covenants at March 31, 1999.
The Company has no commitments for material capital expenditures and has no
plans for major capital expenditures for existing businesses during the next
five years. Payments on long-term debt obligations existing at March 31, 1999
average less than $1,000,000 over the next five years with a maximum of
$1,496,000 in 2000.
13
<PAGE> 14
CANADIAN OPERATIONS (Cont'd)
- ----------------------------
Amounts required to redeem Class A and Class B Preferred shares approximate
$550,000 per annum during that period, while redemption of the Class F
Preferred shares in the event that the option to redeem is exercised by the
holders of those shares would require an additional annual amount of
approximately $425,000 for five years commencing in 2000.
Management believes that future operating cash flows and the unused balance
available under existing credit facilities will be sufficient to meet its
ongoing operating cash requirements, to repay the term debt and redeem the
Preferred shares as they become due and to meet cash requirements for capital
asset additions.
U.S. OPERATIONS
- ---------------
Cash of $635,772 was utilized by continuing operations in the United States
during the first quarter of 1999. Working capital decreased by $125,905, as
increases in payables ($130,259) and income taxes payable ($163,978) were only
partially offset by higher receivables ($89,993) and inventories ($81,568).
Capital expenditures in the quarter amounted to $19,397. A total of $449,426
of the committed revolving credit facility with Congress Financial Corporation
was repaid during the quarter.
Borrowings of the U.S. Operations consist of a committed revolving credit
facility of $13,000,000 with Congress Financial Corporation which bears
interest at commercial prime rate plus 1% (prime at March 31, 1999 was 7.75%).
Unused availability was approximately $3,773,000 at March 31, 1999. Maximum
borrowing under the facility is determined by certain advance formulas
applicable to the level of accounts receivable and inventories and the value of
property, plant and equipment, net of guarantees.
Management believes that future operating cash flows and the unused balance
available under the existing credit facility will be sufficient to enable the
Company to meet its ongoing operating cash requirements and to finance capital
asset additions until the sale of the Wyant Health Care Division and to meet
its ongoing cash requirements if the sale of the Wyant Health Care Division is
not consummated. Thereafter, following the repayment of the balance
outstanding under the secured line of credit with Congress Financial
Corporation, management believes that future operating cash flows and excess
cash on hand will be sufficient to meet operating cash requirements and to
finance capital asset additions.
DISCONTINUED OPERATIONS
- -----------------------
On February 23, 1999, the Board of Directors approved the sale of the Company's
Wyant Health Care Division, subject to completion of buyer financing, customary
regulatory approvals and the approval of the Company's shareholders, for cash
on closing of $11,500,000 and $550,000 which will be held in escrow for
twenty-four months. These cash proceeds are subject to adjustment on closing,
which is expected to occur in the second quarter of 1999. Results of
operations between the measurement date of December 17, 1998 and the closing
date are expected to contribute positively to the Company's overall results.
Cash received on closing will be utilized to pay off the balance under the
secured line of credit with Congress Financial Corporation ($3,789,294 as at
March 31, 1999), and to pay the withdrawal liability and income taxes generated
by the transaction. The Company is in the process of evaluating possible
alternative uses of the balance of the net cash proceeds from the sale,
including the acquisition of assets or businesses in North America that are
consistent with its overall strategy of growing as a North American janitorial
and sanitation products manufacturer and distributor. Although the Company is
evaluating several opportunities, currently, there are no significant
acquisitions of assets or businesses that would be considered probable. To the
extent that it acquires any such assets or businesses, whether related to its
overall strategy or otherwise, there can be no assurance that such acquisitions
will be successfully integrated with its operations or that such acquisitions
will ultimately be profitable for the Company. Pending the application of such
proceeds, the Company intends to use such proceeds to repay certain short-term
debt of its subsidiaries.
14
<PAGE> 15
DISCONTINUED OPERATIONS (Cont'd)
- --------------------------------
Following completion of the sale, the Company will cease the manufacture of
adult incontinent products and the sale of the Division is not expected to
materially affect the operations of the Company's other operating units as each
is autonomous and separately managed. The Company will be precluded from
re-entering the adult incontinent products business for a period of five years
following the sale.
The Division supplies airlaid non-woven fabric and incontinent products to IFC
which will be subject to a three-year supply agreement upon completion of the
sale. IFC will supply PaperPak with Quickable(TM) absorbent washcloths at an
agreed upon price, which will be renegotiated every twelve months, and at
a volume which will be predetermined.
SIGNIFICANT FACTORS AND KNOWN TRENDS WITH REGARD TO DISCONTINUED OPERATIONS
PENSION PLAN
- ------------
Certain employees of the Wyant Health Care Division are members of a
multi-employer defined benefit Pension Plan (the "Plan" or "Pension Plan"). The
Company was informed by the Pension Plan administrators that the Plan had failed
to meet minimum legal funding requirements and that the Company's pro-rata share
of the minimum funding deficiency was $370,000. The Plan has applied to the IRS
for a waiver from the minimum funding requirements and awaits a response. If
the waiver is obtained, the employers contributing to the Plan would be required
to fund and charge to earnings the funding deficiency, and corresponding
interest charges, over a 15 year period. If the waiver is not obtained, an
excise tax may be imposed on the Plan and such excise tax could be as much as
100% of the funding deficiency.
The sale of the Wyant Health Care Division will trigger a withdrawal liability
as PaperPak, the acquirer of the Division, will not assume the Company's
obligation under the Plan. This withdrawal liability will be funded through the
proceeds from the sale of the Division. In addition to the withdrawal
liability, the Plan may also seek to collect the Division's pro-rata share of
the funding deficiency discussed above. After taking into account these Pension
Plan liabilities, the Company estimates that it will realize a gain on the sale
of the Division.
AIRLAY II MACHINE
- -----------------
In 1992, the Division purchased a machine ("Airlay II") for the production of
airlaid products. During 1993, the machine was redesigned for commercial use.
Although Airlay II was installed in the Branchburg, New Jersey manufacturing
facility in the fourth quarter of 1994, only a small quantity of commercially
acceptable product has been manufactured to date. During the second quarter of
1998, a complete engineering evaluation of the machine was performed.
The Division implemented the majority of the recommended changes included in the
engineering evaluation. In December 1998 the Division developed a business plan
that included, as an objective, full commercial operation of Airlay II by the
end of 1999.
Airlay II is part of the assets of the Division that Wyant has agreed to sell to
PaperPak. As of March 31, 1999 the net book value of Airlay II was
approximately $2.2 million. In the event that the sale of the Division is not
consummated, there can be no assurance that Airlay II will achieve full
commercial operation or produce saleable product for the Division. Accordingly,
failure to achieve full commercial operation in the near future could result in
a significant write-down of the Company's investment in Airlay II, which
write-down would have a material adverse effect on the results of operations of
the Company.
15
<PAGE> 16
ENVIRONMENTAL
- -------------
The Company has been participating with the New Jersey Department of
Environmental Protection ("DEP") in the investigation and potential clean-up of
the Company's former site of operation located at 5 and 6 Easy Street,
Bridgewater, New Jersey. As a tenant, the Company is potentially responsible to
the DEP for environmental contamination based solely upon it having been a
tenant at the site where there is contamination. Similarly, the Company is
potentially jointly and severally liable with the landlord for both the
investigation and clean-up costs. To date, the investigation has established
that, in addition to on-site contamination, some of the contamination on the
site is or has come from off site. The Company disputes it caused any such
contamination and maintains that on-site contamination was a result of prior
tenants' acts.
Nevertheless, the Company has fully cooperated with the DEP and has presently
been directed by the DEP to delineate the ground water contaminant plume, which
may result in establishing that the contamination is a regional problem rather
than one specific to the former site that the Company leased. The Company has
entered into a flat fee contract with its environmental consultants for $11,750
for the delineation investigation. Upon determination of the contaminant plume,
the Company will petition the DEP for a classification exception area where the
remedial action will be natural attenuation.
After the investigation is completed, the DEP could require clean-up or
remediation of the contamination on site, the cost of which could potentially be
in the range of $100,000 to $150,000. However, present technology is such that
no remedial action plan could bring the site in conformity with the present DEP
regulations, regardless of the funds spent.
The Company is unaware of any other environmental or similar matters that would
have a material effect on the capital expenditures, earnings or competitive
position of the Company.
BACKLOG, IMPACT OF INFLATION, SEASONALITY
- -----------------------------------------
The Company attempts to maintain sufficient inventory levels for all products to
allow shipment against most orders for wiping products within a one week period
and next day for core stocking items of the Company's sanitation products. To
some extent, however, certain components must be inventoried further in advance
of actual orders to ensure availability. For the most part, purchases are based
upon quarterly requirements as projected after calculating sales indications
from the sales and marketing departments.
The Company's products are not subject to significant seasonal influences.
Because its products are sold primarily to distributors throughout the United
States and to distributors and end-users in Canada, the Company is affected by
general economic conditions. Accordingly, any adverse change in the economic
climate may have an adverse impact on the Company's sales and financial
condition.
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 as Year 2000 Project
Director to direct a project team which will coordinate the implementation of a
Year 2000 Plan by identifying Year 2000 issues and coordinating 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.
16
<PAGE> 17
YEAR 2000 (Cont'd)
- ------------------
Wood Wyant has installed new applications software for which it has obtained
written confirmation from the vendor that it is Year 2000 compliant. This
software has become operational in the first quarter of 1999. The software
currently in use at IFC 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 software is
estimated to be $1,998,000 (Cdn. $3,000,000), and is being financed through a
five-year term loan 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.
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 during the second quarter of 1999,
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 2% 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's Year 2000 Issue involves significant risks. There can be no
assurance that the Company will succeed in implementing its Year 2000 Plan. The
following describes the Company's most reasonably likely worst-case scenario,
given current uncertainties.
If the Company's replaced internal information technology systems fail the
Company will experience significant difficulties in supplying customers and such
a failure could hamper the Company's ability to manage the orderly replenishment
of inventories.
If the Company's vendors or suppliers of its required power, telecommunications,
transportation and financial services, fail to provide the Company with products
and services, it will be unable to provide services to its customers.
If any of these uncertainties were to occur, the Company's business, financial
condition and results of operations would be adversely affected. The Company is
unable to assess the likelihood of such events occurring or the extent of the
effect on the Company.
Although the Company has not yet developed a comprehensive contingency plan to
address situations that may result if the Company or any of the third parties
upon which the Company is dependent is unable to achieve Year 2000 readiness,
the Company's Year 2000 compliance program is ongoing and its ultimate scope, as
well as the consideration of contingency plans, will continue to be evaluated as
new information becomes available.
The Company plans to achieve Year 2000 compliance by mid-1999.
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
A current report on Form 8-K, dated February 23, 1999, was filed on
March 11, 1999, reporting information under Item 5, Other Events and
Item 7, Financial Statements and Exhibits.
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)
<TABLE>
<S> <C> <C>
Date: May 12, 1999 SIGNATURE: /s/ Marc D'Amour
--------------------------- -------------------------
Marc D'Amour
Vice President,
Chief Financial Officer
and Treasurer
(For the registrant and as
Principal Financial Officer)
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WYANT
CORPORATION FORM 10-Q RE QR ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q MARCH 31, 1999
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 11,791,279
<ALLOWANCES> 0
<INVENTORY> 8,519,215
<CURRENT-ASSETS> 30,513,082
<PP&E> 10,320,143
<DEPRECIATION> 0
<TOTAL-ASSETS> 45,344,878
<CURRENT-LIABILITIES> 20,338,399
<BONDS> 5,002,560
5,121,513
0
<COMMON> 27,053
<OTHER-SE> 13,149,422
<TOTAL-LIABILITY-AND-EQUITY> 45,344,878
<SALES> 18,525,359
<TOTAL-REVENUES> 18,525,359
<CGS> 12,245,520
<TOTAL-COSTS> 18,165,083
<OTHER-EXPENSES> (123,440)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 309,885
<INCOME-PRETAX> 173,831
<INCOME-TAX> 91,000
<INCOME-CONTINUING> 82,831
<DISCONTINUED> 406,700
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 489,531
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.10
</TABLE>
