<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 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
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)
1170 U.S. Highway 22 East, Suite 203, Bridgewater, New Jersey 08807
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 514-636-9926
------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Title of Each Class
- -----------------------------------------------------
Common Stock, par value $.01 per share
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
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of March 27, 2000, was $1,885,538.
As of March 27, 2000, there were 2,270,617 shares of common stock of the
registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. The Exhibits identified in Item 14 (a) 3.
2. The 1999 Proxy Statement identified in Items 10, 11, 12 and 13
ii
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C> <C>
PART I.
1. Business........................................................................ 1
2. Properties...................................................................... 5
3. Legal Proceedings............................................................... 6
4. Submission of Matters to a Vote of Security Holders............................. 6
PART II.
5. Market for Registrant's Common Equity and Related Stockholder Matters........... 7
6. Selected Financial Data......................................................... 8
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 9
7A. Quantitative and Qualitative Disclosures about Market Risk...................... 18
8. Financial Statements and Supplementary Data..................................... 18
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................................ 18
PART III.
10. Directors and Executive Officers of the Registrant............................. 19
11. Executive Compensation......................................................... 19
12. Security Ownership of Certain Beneficial Owners and Wyant Management........... 19
13. Certain Relationships and Related Transactions................................. 19
PART IV.
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................ 19
</TABLE>
iii
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PART 1
ITEM 1. BUSINESS
A. GENERAL
Wyant Corporation, a New York corporation incorporated in 1971
(hereinafter "Wyant"), has two wholly-owned subsidiaries, Wood Wyant Inc.
(formerly 3290441 Canada Inc.), a Canadian corporation ("Wood Wyant") and IFC
Disposables, Inc., a Tennessee corporation ("IFC"). IFC manufactures and
distributes disposable wipers and sanitary paper products and systems. Wood
Wyant manufactures and distributes sanitation products and systems to commercial
and institutional markets in Canada. (The "Company" is used herein to make
general references, without distinction among Wyant, IFC and Wood Wyant).
WOOD WYANT
Wood Wyant is a manufacturer and national distributor, in Canada, of a
broad range of industrial and institutional sanitation products, including paper
hand towels, bathroom tissue, related sanitary paper products, janitorial
chemicals, waste receptacles and cleaning equipment and systems. Wood Wyant is
one of two national distributors of a full line of sanitary paper products,
janitorial chemicals and equipment, and sanitation supplies to institutional
markets in Canada and is the only distributor focused solely on janitorial and
sanitation supply products. Wood Wyant, headquartered in Montreal, employs
approximately 410 people and operates a paper converting plant and a chemical
manufacturing facility in Ontario. Wood Wyant services some 20,000 customers
through a direct sales organization supported by customer service centers
located across Canada.
Wood Wyant's manufacturing operations include the conversion of base
paper and the manufacture of janitorial chemicals. Base paper is converted into
paper hand towels and bathroom tissue at a plant owned by Wood Wyant in
Pickering (Toronto), Ontario. Specialized machinery in this plant cuts, folds or
winds the paper into finished products that are packaged and placed in shipping
containers.
Wood Wyant develops and manufactures janitorial chemicals from raw
materials produced by major base chemical suppliers. The chemicals are blended
in large tanks and packed into shipping containers for sale by Wood Wyant's
distribution network.
Wood Wyant's distribution operations are conducted primarily from
leased facilities throughout Canada, thereby providing flexibility in meeting
market requirements and eliminating the need to make capital expenditures for
real estate.
In 1998, the Company, through Wood Wyant, acquired several businesses
engaged in the distribution of sanitation products and manufacture of janitorial
chemicals. On April 30, 1998, Wood Wyant acquired all of the issued and
outstanding shares of H.A. Perigord Company Limited, a distributor of sanitation
products. On June 26, 1998, Wood Wyant acquired all of the issued and
outstanding shares of Professional Sanitation Products Ltd., a distributor of
sanitation products. The total consideration for these acquisitions amounted to
$3,070,806, which was comprised of cash of $2,107,645 and 146,666 Class F
Preferred shares of Wood Wyant.
On June 30, 1998, Wood Wyant acquired all of the issued and
outstanding shares of four related businesses based in British Columbia for
$2,644,228, comprised of cash of $1,760,696 and 136,445 Class F Preferred shares
of Wood Wyant. The companies acquired are Midway Supply Ltd., Purnel
Distributors Ltd. and Midway Purnel Sanitary Supply Ltd., all of which are
distributors of sanitation products, and Fraser Valley Industrial Chemicals
Inc., a manufacturer of janitorial chemicals. For further information with
respect to these acquisitions, please see Note 3 to the Company's consolidated
financial statements.
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IFC
IFC's operations are conducted at a newly established location in
Brownsville, Tennessee. IFC's manufacturing operations include the conversion of
various materials into wiping products. Specialized machinery cuts, folds or
winds various materials into finished products which are packaged and placed
into shipping containers. IFC's products are sold to some 575 distributors and
brokers located in 48 states by a direct sales organization and independent
brokers supported by customer service located at the Brownsville facility.
B. INDUSTRY SEGMENTS
The Company operates in two industry segments. The assets, revenues
and income before taxes of the two continuing segments are shown in the "Notes
to Consolidated Financial Statements" (Part IV, Item 14).
C. SUPPLY OF RAW MATERIALS
The Company purchases raw materials necessary for the manufacture of
its products from several unaffiliated suppliers. These raw materials are
readily available from numerous sources. The Company is not dependent upon any
one major source of supply, and is not limited by any supply contracts.
As of January 1, 1999, the Company signed a five-year supply agreement
to purchase a minimum of 16,200 short tons of paper towelling and tissue
annually at market prices. This supplier provides 100% of the Company's
requirements for these products.
D. MARKETING AND SALES
WOOD WYANT
Wood Wyant's products are sold by a field sales organization of
approximately 110. Sales (other than inter-company transactions with IFC) are
made primarily to end users, with a minor percentage made to distributors.
STRATEGY AND MARKETING
Wood Wyant's marketing strategy was established in the fall of 1994
following an extensive study of its sales organization by Wood Wyant and Tandem
Consulting Group, Canada's leading sales and marketing consulting group. This
study, which was undertaken over a period of several months, led to the
corporate strategy of building a business with superior return based upon a
consultative approach of developing comprehensive cost effective solutions to
customers' sanitation needs. In pursuing this strategy, Wood Wyant's primary
focus was on washroom and floor care programs within the health care, education,
industrial and office channels of distribution. This strategy has required
increased investment in sales training activities to increase product knowledge
and improve sales and account management capabilities. In addition, a broad
cross-section of managers participated under the direction of a task force in
the development of a strategic sales plan designed to ensure growth consistent
with Wood Wyant's objective.
Wood Wyant's direction in marketing calls for profitable growth based
upon a consultative selling approach where skilled and highly trained account
managers provide customers with cost effective solutions to sanitation problems.
Wood Wyant's marketing activities are consolidated in Montreal and have been
strengthened by the appointment of a Director of Marketing reporting to the Vice
President, Sales and Marketing and by the appointment of Product Line Managers
responsible for the planning and profitability of Wood Wyant's product lines.
The marketing group of Wood Wyant is responsible for the strategic direction and
growth and development of Wyant's various product lines.
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SERVICE AND LOGISTICS
Wood Wyant operates thirteen full service customer service centers
located strategically across Canada in Dartmouth (Halifax), Lachine (Montreal),
Hull (Ottawa), Pickering (Toronto), Sudbury, Sault Ste-Marie, Thunder Bay,
Winnipeg, Edmonton, Castlegar, Kelowna and Vancouver (2). Responsibility for
logistics is centralized to provide greater control over essential operations of
the business in the areas of forecasting, production planning, inventory control
and management and purchasing. Service level standards are established and
performance is monitored on a continuous basis. Wood Wyant maintains a policy of
next day delivery of all core stocking products from its major service centers.
Such deliveries are made via courier companies, transportation companies, local
cartage or company - operated vehicles in selected locations. As a result of
these service levels and short lead times for replenishment, there are no
material backlogs.
Wood Wyant's principal customer channels are in the health care and
education (including schools, universities and colleges) segments, but also
include industrial entities and distributors. Most of its customers are located
in Canada, with customers in the United States accounting for less than 8% of
sales, including sales to IFC. Wood Wyant has no single customer that accounts
for more than 3% of its sales, except for IFC, which accounts for 6.3% of its
sales.
IFC
IFC's products are sold by 7 salaried sales personnel and by several
independent sales organizations that are paid on a commission basis.
IFC sales are comprised of wiping products (70%) and sanitary paper
products (30%). All wiper products sold by IFC are manufactured in its
Brownsville, Tennessee facility. All of IFC's sanitary paper products and
systems are supplied by Wood Wyant with IFC acting as Wood Wyant's master
distributor in the continental United States market.
IFC's sales are made primarily to distributors that resell IFC's
products to institutional users such as manufacturers, utilities, nursing homes
and restaurants.
E. COMPETITION
WOOD WYANT
Wood Wyant competes in the sanitary paper and janitorial product
markets across Canada. The Canadian market for sanitary paper and sanitation
products is fragmented and is served by over 200 distribution companies that
compete directly with Wood Wyant on a regional basis and that tend to be small
to medium sized. Only two companies compete on a national basis, with Wood Wyant
being the only national full line distributor focused solely on the
institutional sanitation market. Recently, the North American sanitation
distribution industry has been experiencing a period of consolidation. Wood
Wyant participated in this consolidation process through the acquisition of four
distributors in Canada during the second quarter of 1998. Wood Wyant will
continue to seek out acquisition opportunities which meet its investment
criteria.
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Wood Wyant's distribution capabilities are enhanced by its vertical
integration as a converter of paper products and a manufacturer of a complete
line of sanitation chemicals. Wood Wyant's size also permits it to take full
advantage of the benefits of bulk pricing and volume discounts offered by its
suppliers. However, Wood Wyant's ability to compete successfully is dependent
upon its ability to make timely delivery of quality products at competitive
prices. With respect to sanitary paper products, Wood Wyant is not fully
integrated and competes with fully integrated sanitary paper producers that have
substantial financial resources and significant market share relative to Wood
Wyant; therefore, Wood Wyant's results of operations could be adversely affected
if such fully integrated producers attempt to significantly increase market
share.
IFC
IFC competes with major paper mills and smaller converters of towel,
tissue and disposable wiping products. The major mill category of competition
includes such companies as Kimberly Clark, Fort James and Georgia Pacific. The
smaller converters are multiple in number and are more regional in their market
approach.
In order to compete successfully, IFC must supply its customers with
quality products at competitive prices. Customer service and sales support
programs are necessary to insure that IFC is regarded as a valuable partner by
its customers.
F. EMPLOYEES/UNION CONTRACTS
WOOD WYANT
Wood Wyant currently has approximately 410 employees, including
approximately 300 salaried employees and 110 hourly employees. Wood Wyant's
hourly workers are covered under four separate collective bargaining agreements,
the largest of which covers approximately 80 workers at Wood Wyant's Pickering
plant. On January 30, 2000, Wood Wyant reached agreement with the Pickering
plant unionized employees for a new collective bargaining agreement which
expires on October 25, 2002. Wood Wyant has never had a work stoppage in its
history, nor has it had any other material labor problems.
IFC
IFC employs 65 personnel at its facility in Brownsville, Tennessee.
Employees are not unionized.
G. PATENTS AND TRADEMARKS
The Company is the owner of 35 patents and 152 trademarks.
All of the patents apply to the Sanitation Products segment and relate
to dispensers used with the Company's paper and chemicals products. The Company
is not able to assess any economic advantage particularly attributable to any of
the above patents.
The trademarks relate primarily to the Sanitation Products segment
(131) while the remainder (21) apply to the Wiping Products segment. These
trademarks are used to protect the identification of individual products, but
the Company is unable to assess any economic advantage particularly attributable
to any of them. Moreover, there is no assurance that trademark rights are
enforceable as a mere consequence of trademark registration.
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H. 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.
Upon final 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
reach $200,000. 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.
ITEM 2. PROPERTIES
WOOD WYANT
Wood Wyant's manufacturing operations include the conversion of base
paper and the manufacturing of janitorial chemicals. Base paper is converted
into paper hand towels and bathroom tissue at a plant owned by Wood Wyant in
Pickering (Toronto), Ontario. Specialized machinery in this plant cuts, folds or
winds the paper into finished products that are packaged and placed in shipping
containers. The Pickering plant occupies approximately 149,500 square feet. For
the year ended December 31, 1999, production at Pickering totalled approximately
2,190,000 cases, which represents approximately 80% of capacity.
Wood Wyant develops and blends janitorial chemicals from raw materials
produced by major base chemical suppliers. The chemicals are blended in large
tanks and packed into shipping containers for sale by the Wood Wyant
distribution network. Wood Wyant operates a chemical plant which is located in
rented facilities in Scarborough (Toronto), Ontario. For the year ended December
31, 1999, total production at this plant reached approximately 2,762,000 liters
(approximately 50% of capacity).
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Wood Wyant's distribution operations are conducted primarily through
leased facilities throughout Canada, thereby providing flexibility in meeting
market requirements and eliminating the need to make capital expenditures for
real estate. The location of the leased facilities, including square footage and
lease expiration dates, are as follows:
<TABLE>
<CAPTION>
AREA IN YEAR OF
SQUARE FEET EXPIRATION
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<S> <C> <C>
MANUFACTURING
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Pickering (Toronto), Ontario (1)............................... 78,200 --
Scarborough (Toronto), Ontario................................. 22,700 2001
DISTRIBUTION
- ------------
Dartmouth (Halifax), Nova Scotia............................... 14,600 2003
Lachine (Montreal), Quebec..................................... 29,300 2004
Pickering (Toronto), Ontario (1)............................... 71,300 --
Sudbury, Ontario............................................... 12,000 2003
Sault Ste-Marie, Ontario....................................... 8,100 2003
Thunder Bay, Ontario........................................... 4,200 2003
Winnipeg, Manitoba............................................. 12,000 2001
Edmonton, Alberta.............................................. 14,000 2000
Coquitlam (Vancouver), B.C..................................... 25,000 2000
Vancouver, B.C................................................. 8,000 2000
</TABLE>
(1) Wood Wyant owns this 149,500 sq. ft. facility.
IFC
During November 1997, IFC relocated its manufacturing operations from
leased premises in Jackson, Tennessee to a leased facility in Brownsville,
Tennessee. The lease for this 100,000 square foot facility will expire on
December 31, 2004. IFC has the option to extend the term by three years to
December 31, 2007.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company may be a party to legal proceedings
incidental to its business. At present, there are no legal proceedings that are
material to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No event that would be described in response to this item has
occurred.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on The Nasdaq SmallCap Market under the
symbol "WYNT".
On May 21, 1998, the Company effected a four-for-three stock split of
the Common Stock (the "Stock Split") in the form of a stock dividend to holders
of record on April 28, 1998. The following table sets forth the quarterly high
and low prices per share for the Common Stock for the periods indicated, as
reported by the Nasdaq SmallCap Market System or by the Nasdaq National Market
System. The prices for the period prior to May 21, 1998 have been retroactively
adjusted to reflect the Stock Split. These prices represent prices by dealers,
do not include retail markups, markdowns or commissions and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
1998
1st Quarter 7.406 4.594
2nd Quarter 6.750 5.188
3rd Quarter 5.750 3.250
4th Quarter 4.500 3.250
1999
1st Quarter 4.313 2.250
2nd Quarter 3.250 2.375
3rd Quarter 3.625 1.750
4th Quarter 2.625 1.000
</TABLE>
As of March 24, 2000, there were 2,270,617 shares of Common Stock
outstanding and approximately 700 record holders of Common Stock.
Wyant has never paid a cash dividend on the Common Stock and does not
anticipate paying any cash dividends in the foreseeable future. Wyant's ability
to pay dividends is subject to Wyant's income, receipt of cash flow from
subsidiaries in the form of dividends or similar distributions, financial
condition, capital needs and restrictions contained in various credit
agreements.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
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1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Sales....................................... $78,851 $67,124 $63,560 $62,591 $60,539
Cost of sales............................... 51,862 43,218 39,691 38,152 37,035
------- ------- ------- ------- -------
Gross profit................................ 26,989 23,906 23,869 24,439 23,504
Selling, general and administration
expenses.................................. 25,106 21,358 21,125 21,325 20,814
Amortization................................ 754 508 429 505 584
Non-recurring items......................... -- -- -- 550 1,808
Interest expense............................ 1,040 1,158 745 511 742
Other (income) expense...................... (264) (244) (230) (185) 191
Restructuring expense....................... 1,085 -- -- -- --
------- ------- ------- ------- -------
27,721 22,780 22,069 22,706 24,139
Income (loss) from continuing
operations before income taxes
and extraordinary gain.................... (732) 1,126 1,800 1,733 (635)
Income tax expense (benefit)................ (189) 572 801 796 (460)
------- ------- ------- ------- -------
Income (loss) from continuing operations
before extraordinary gain................. (543) 554 999 937 (175)
Income (loss) from discontinued
operations, net of income taxes........... -- 1,021 (581) (793) 269
Gain on disposal of Wyant Health Care
(net of tax).............................. 722 -- -- -- --
------- ------- ------- ------- -------
Income before extraordinary gain............ 179 1,575 418 144 94
Extraordinary gain, net of income taxes..... -- -- 92 -- --
------- ------- -------- ------- -------
Net income.................................. 179 1,575 510 144 94
Dividends and accretion of mandatorily
redeemable preferred shares.............. 373 360 191 -- --
------- ------- -------- ------- -------
Net income (loss) attributable to
common shares............................. $(194) $1,215 $ 319 $ 144 $ 94
======= ======= ======= ======= ========
Per common share
Basic
Income (loss) from continuing operations
before extraordinary gain............... $ (0.25) $ 0.06 $ 0.22 $ 0.26 $ (0.05)
Discontinued operations................... $ 0.20 $ 0.28 $ (0.16) $ (0.22) $ 0.08
Net income (loss)......................... $ (0.05) $ 0.34 $ 0.09 $ 0.04 $ 0.03
Diluted
Income (loss) from continuing operations
before extraordinary gain............... $ (0.25) $ 0.06 $ 0.22 $ 0.26 $ (0.05)
Discontinued operations................... $ 0.20 $ 0.27 $ (0.16) $ (0.22) $ 0.08
Net income (loss)......................... $ (0.05) $ 0.33 $ 0.09 $ 0.04 $ 0.03
Weighted average number of common
shares outstanding..................... 3,606,326 3,606,247 3,597,125 3,589,884 3,589,884
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31
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1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Unaudited
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital of continuing operations.... $7,553 $1,822 $ 82 $3,217 $8,410
Total assets................................ 41,248 42,540 37,156 37,593 38,441
Long-term obligations (excluding
current maturities)....................... 2,391 3,888 1,998 6,259 5,945
Redeemable preferred shares................. 6,028 5,990 4,930 2,268 2,268
Cash Dividends declared per common share.... -- -- -- -- --
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis of financial condition and
results of operations should be read in conjunction with the Company's
consolidated financial statements and accompanying notes. (See Item 14).
The following information and the information included under
"Business" 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 following consummation of the sale of the Wyant Health Care
Division, 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 FOR YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED
DECEMBER 31, 1998
SALES: Sales of continuing operations for the year ended December 31,
1999 increased by $11,726,953 or 17.5% to $78,851,090 from the total of
$67,124,137 in the year ended December 31, 1998, after eliminating inter-segment
sales of $4,408,631 in 1999 and $4,083,590 in 1998.
Sales of the sanitation products segment were $64,032,382 in 1999, an
increase of $9,541,482 or 17.5% over the 1998 sales of $54,490,900. This
increase resulted primarily from the full year impact of sales generated from
the businesses acquired in the second quarter of 1998, from sales of a business
acquired in mid-1999 and from an increase of $3,931,537 in direct sales of paper
products from the Company's paper converting operation.
Sales of the wiping products segment increased by $2,510,512 or 15.0%
to $19,227,339 in 1999, from $16,716,827 in 1998. The increase resulted
primarily from higher sales of wipers.
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COST OF SALES AND GROSS PROFIT: Gross profit of the sanitation
products segment for 1999 was $23,670,390 or 37.0% of sales, compared with
$21,041,150 or 38.6% of sales in 1998. The lower margin primarily resulted from
continued heavy competition in the tissue paper market and the increase in
direct sales of paper products from the Company's paper converting operation,
which generate relatively lower margins.
Gross profit of the wiping products segment for 1999 amounted to
$3,318,625 or 17.3% of sales, compared with $2,864,521 or 17.1% of sales in
1998. This increase was primarily due to improved margins for paper products.
SELLING EXPENSES: Selling expenses for 1999 at $15,658,221 reflected
an increase of $2,999,383 or 23.7% over the 1998 selling expenses of
$12,658,838. In the sanitation products segment, expenses in 1999 at $13,129,929
were $2,690,983 or 25.8% higher than the 1998 expenses of $10,438,946. The
increased expenses resulted primarily from the added expenses of the businesses
acquired in the second quarter of 1998 and 1999, together with a higher level of
outward freight costs resulting from the increased sales volume and to
challenges associated with the implementation of new information systems. In the
wiping products segment, selling expenses amounted to $2,528,292 in 1999, an
increase of $308,400 or 13.9% over the 1998 total of $2,219,892. The increase in
sales volumes resulted in higher outward freight costs, which increased by
$252,560 or 25.5% to $1,243,161, and sales commissions paid to brokers, which
increased by $50,599 or 27.5%.
GENERAL AND ADMINISTRATION EXPENSES: General and administration
expenses for 1999 were $9,448,267, an increase of $748,732 or 8.6% over the 1998
amount of $8,699,535. Expenses of the sanitation products segment for 1999 were
$8,550,263, an increase of $738,664 or 9.6% over the 1998 level of $7,811,599.
The increase was due primarily to the full year impact of the businesses
acquired in the second quarter of 1998. Expenses of the wiping products segment
at $480,219 were $92,717 or 16.2% lower than the 1998 level of $572,936. The
reduction was primarily due to improved accounts receivable collection in 1999
compared to 1998, when a $50,000 increase to the allowance for doubtful accounts
was required due to slower collection experience.
Corporate charges in 1999 were $417,785, an increase of $102,785 over
the 1998 amount of $315,000. The increase was primarily due to higher
professional fees.
AMORTIZATION: Amortization amounted to $754,082 in 1999, an increase
of $246,542 over the 1998 level of $507,540, due primarily to the amortization
of Wood Wyant's new information systems software and hardware ($118,964) and the
full-year impact of amortization from the businesses acquired in 1998 and from
goodwill resulting from the purchase of those businesses.
RESTRUCTURING CHARGE: A charge of $1,085,036 was incurred in 1999
relating to the restructuring of Wood Wyant's operations. The amount was
composed entirely of severance costs related to 38 terminated employees and
arose primarily as a result of the integration of businesses acquired in 1998.
Of the total charge, $975,521 was unpaid at December 31, 1999. This amount will
be paid in 2000 from operating cash flows or existing credit facilities. It is
estimated that this restructuring will yield selling, general and administration
expense reductions in the year 2000 of $1,066,000.
INTEREST EXPENSE: Interest expense in 1999 totalled $1,039,643, a
reduction of $118,606 from the 1998 level of $1,158,249. The reduction resulted
from lower interest costs in the United States ($345,100), due to the repayment
of the loan from Congress Financial Corporation from the proceeds of the sale of
the Company's health care operations on July 21, 1999. This was partially offset
by an increase of $226,494 in interest expense in Canada resulting from the
borrowings required to finance the businesses acquired in 1998 and 1999.
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<PAGE> 14
OTHER INCOME: Other income amounted to $263,842 in 1999, compared
with $244,067 in 1998.
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
EXTRAORDINARY GAIN: A loss from continuing operations before income taxes and
extraordinary gain of $732,392 was incurred in 1999, compared with income of
$1,125,576 in 1998. The sanitation products segment was $2,396,134 lower than in
1998, while the wiping products segment improved by $219,130. Corporate expenses
were $319,036 lower than in 1998. Results of the sanitation products segment for
1999 include the restructuring charge of $1,085,036.
INCOME TAXES: Income taxes in 1999 on continuing operations provided
a tax recovery of $189,455, compared with tax expense of $572,000 in 1998,
reflecting the pre-tax loss incurred in 1999.
DISCONTINUED OPERATIONS: An after-tax gain of $722,106 or $0.20 per
common share was realized from the sale of the Company's health care operations
on July 21, 1999. The gain included after-tax income from operations of
$1,155,321 from January 1, 1999 to the date of sale, together with an after-tax
loss on the sale of $433,215. The income from operations was included in
determining the gain on sale, since it was earned subsequent to the measurement
date of December 17, 1998. The loss on the sale was after providing for a
pension withdrawal liability of $1,628,620 arising on the sale of the business,
since under the terms of the transaction the purchaser did not assume this
liability. In 1998, the operations generated after-tax income of $1,021,602 or
$0.28 per common share.
NET INCOME: Net income for 1999 amounted to $179,169, a reduction of
$1,396,009 from the 1998 net income of $1,575,178. After deducting dividends and
accretion relating to the mandatorily redeemable preferred shares, a net loss of
$0.05 per common share was incurred in 1999, compared with earnings of $0.34 per
common share in 1998.
RESULTS OF OPERATIONS FOR YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED
DECEMBER 31, 1997
SALES: Sales of continuing operations for the year ended December 31,
1998 increased by $3,564,434 or 5.6% to $67,124,137 from the total of
$63,559,703 in the year ended December 31, 1997, after eliminating inter-segment
sales of $4,083,590 in 1998 and of $4,074,080 in 1997.
Sales of the sanitation products segment were $54,490,900 in 1998, up
by $1,956,172 or 3.7% over the 1997 sales of $52,534,728. This increase resulted
from additional sales from the businesses acquired in the second quarter of
1998, which more than offset a reduction in selling prices of paper products and
the adverse effect of a weaker Canadian dollar translation rate.
Sales of the wiping products segment increased by $1,617,772 or 10.7%
to $16,716,827 in 1998, from $15,099,055 in 1997. The increase resulted
primarily from higher sales of paper products and systems.
COST OF SALES AND GROSS PROFIT: Gross profit of the sanitation
products segment for 1998 was $21,041,150 or 38.6% of sales, compared with
$21,169,065 or 40.3% of sales in 1997. The lower margin primarily reflected the
continuing competitive pricing environment for paper products, together with
slightly reduced margins for chemicals and sanitation products.
Gross profit of the wiping products segment in 1998 amounted to
$2,864,521 or 17.1% of sales, compared with $2,699,437 or 17.9% of sales in
1997. The reduced margin resulted from increased sales of paper products, which
generate relatively lower margins than most of the segment's other product
lines.
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<PAGE> 15
SELLING EXPENSES: Selling expenses for 1998 amounted to $12,658,838,
an increase of $727,358 or 6.1% over the 1997 level of $11,931,480. Expenses of
the sanitation products segment in 1998 at $10,438,946 were $573,953 or 5.8%
higher than the 1997 amount of $9,864,993. The increase resulted primarily from
the added expenses of the acquired businesses, which more than offset the
favorable impact of the weaker Canadian dollar translation rate. In the wiping
products segment, selling expenses in 1998 were $2,219,892, an increase of
$153,405 or 7.4% over the 1997 total of $2,066,487, due principally to higher
outward freight costs resulting from the higher level of sales ($119,934).
GENERAL AND ADMINISTRATION EXPENSES: General and administration
expenses for 1998 were $8,699,535, a reduction of $494,408 or 5.4% compared with
the 1997 expenses of $9,193,943. Expenses of the sanitation products segment for
1998 were $7,811,599, compared with $8,288,049 in 1997. The decrease of $476,450
or 5.7% from 1997 resulted from savings derived primarily from lower staffing
levels and the consolidation of warehousing activities at a Company-owned
facility which, together with the favorable impact of the weaker Canadian dollar
translation rate, more than offset the expenses added from the businesses
acquired during the second quarter of 1998 and the special charge of $464,286
incurred in the third quarter of the year for the rationalization of Wood
Wyant's operations following the acquisition of those businesses.
Expenses of the wiping products segment for 1998 were $572,936, an
increase of $114,542 or 25.0% over the 1997 level of $458,394. This resulted
primarily from a $50,000 increase to the allowance for doubtful accounts which
was required due to slower collection of accounts receivable, together with
higher staffing costs. Corporate charges in 1998 were $315,000, a decrease of
$132,500 compared with the total of $447,500 in 1997, which included $206,500 of
professional fees associated with the purchase of the Canadian sanitation
products business in March 1997.
AMORTIZATION: Amortization amounted to $507,540 in 1998, an increase
of $78,729 over the 1997 level of $428,811, due to the additional amortization
from the acquired businesses and from the goodwill resulting from their
purchase.
INTEREST EXPENSE: Interest expense amounted to $1,158,249 in 1998, an
increase of $413,160 over the 1997 expense of $745,089. The increase resulted
from higher borrowing costs in the United States ($290,450), together with an
increase in Canada of $122,710 which resulted from the financing of the
businesses acquired during 1998. Interest expense in the United States for 1998
includes approximately $632,000 of interest on the loan from Congress Financial
Corporation. This loan will be repaid from the proceeds from the sale of the
discontinued health care operations and consequently the interest expense will
be reduced accordingly from the time of the transaction.
OTHER INCOME: Other income amounted to $244,067 in 1998, up from
$230,790 in 1997.
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
EXTRAORDINARY GAIN: Income from continuing operations before income taxes and
extraordinary gain amounted to $1,125,576 in 1998, a reduction of $674,393 from
the 1997 level of $1,799,969. The sanitation products and wiping products
segments decreased by $414,468 and $149,059 respectively, while corporate
expenses were $110,866 higher in 1998. The results for 1998 include the special
charge of $464,286 incurred in the third quarter for the rationalization of Wood
Wyant's operations following the acquisitions in the second quarter of the year.
INCOME TAXES: Income tax expense at $572,000 was $228,597 lower in
1998 than the expense of $800,597 in 1997, reflecting the reduced level of
pre-tax income in 1998.
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<PAGE> 16
DISCONTINUED OPERATIONS: The discontinued health care operations
generated after-tax income from operations of $1,021,602 or $0.28 per common
share in 1998, compared with an after-tax loss of $580,874 or ($0.16) per common
share in 1997. The improvement in 1998 was primarily a result of a 16.4%
increase in sales, due to the higher sales of Symphony(R) and private label
adult incontinent briefs, which were introduced during the first half of 1997
and of higher margins, at 20% of sales compared with 16% of sales in 1997, due
to manufacturing efficiencies and increased sales activity. In addition, general
and administration expenses were lower than in 1997, when a non-recurring charge
of $427,000 for severance costs and professional fees was incurred.
EXTRAORDINARY GAIN: An extraordinary gain of $91,958 or $0.03 per
common share, net of tax of $47,372, was realized in 1997 on the refinancing of
certain term debt.
NET INCOME: Net income for 1998 amounted to $1,575,178, an
improvement of $1,064,722 over the 1997 income of $510,456. After deducting
dividends and accretion relating to the mandatorily redeemable preferred shares,
the earnings amounted to $0.34 per common share in 1998, compared with $0.09 per
common share in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and capital resources of the Company's United States
operations (IFC Disposables) and Canadian operations (Wood Wyant) are discussed
separately, as each is self-financing and has separate banking facilities.
CANADIAN OPERATIONS
Cash generated during 1999 amounted to $1,578,137. Cash generated from
operating activities amounted to $712,220, net of a working capital increase of
$274,078. The higher working capital resulted from an increase in accounts
receivable ($816,548) and a decrease in income taxes payable ($560,950),
partially offset by decreases in inventories ($463,882) and prepaid expenses
($102,769), together with an increase in accounts payable of $445,740. The
higher receivables and payables reflected primarily the increased business
activity, while the reduced income taxes payable resulted from the lower level
of earnings. The lower level of inventories was due to centralization of
inventories from a national distribution center in Toronto and rationalization
of product lines. Capital expenditures in 1999 totalled $2,823,593 and were
primarily for the purchase of new business applications software and related
hardware ($2,309,029). This purchase was financed for the most part by a
five-year term bank loan of Cdn $2,500,000 ($1,654,205). On June 30, 1999 an
amount of $1,146,684 was utilized for the purchase of a sanitation products
distribution business. Repayments of long-term debt during 1999 totalled
$1,375,789, while $513,204 of the outstanding Class A Preferred shares were
redeemed in January 1999 and dividends totalling $169,486 were paid during the
year on the Class A and Class B Preferred shares. During 1999, Wyant Corporation
invested $4,500,000 in additional common shares of Wood Wyant Inc. These funds
were utilized to finance the purchase of the business referred to above and to
reduce the outstanding balance of the Company's collateralized revolving line of
credit.
On March 10, 1999 the collateralized revolving line of credit was
increased from Cdn $7,500,000 to Cdn $9,500,000 ($6,582,138) and on June 29,
1999 it was temporarily increased to Cdn $10,500,000 ($7,274,995) until July 31,
1999, when it reverted to the Cdn $7,500,000 ($5,196,425) level. These increases
were required to meet increased working capital requirements, including those of
the newly- acquired business. A bridge loan of Cdn $850,000 ($588,928) was also
obtained on June 29, 1999 to assist in financing the purchase of the sanitation
products distribution business. This loan was repaid in full on July 29, 1999.
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<PAGE> 17
On February 22, 2000, the Company restructured its financing by
increasing the collateralized revolving line of credit by Cdn $2,500,000 to Cdn
$10,000,000 ($6,928,566) and utilizing this line of credit to repay, on March 8,
2000, the outstanding balance of Cdn $3,321,211 ($2,301,123) on two term loans
which had been obtained in the second quarter of 1998 to finance business
acquisitions.
Consequently, the outstanding balance at December 31, 1999 of
$2,411,093 on these loans has been classified on the balance sheet as a current
liability. The unused availability at December 31, 1999 from the collateralized
revolving line of credit was approximately $1,197,000. In addition,
approximately $604,000 was available to finance future capital expenditures
under a revolving credit facility of $2,078,570 (Cdn $3,000,000). The terms of
this facility were also renegotiated on February 22, 2000, with the maturity
date changing from September 30, 2000 to September 30, 2001 and the maximum
availability changing to Cdn $2,000,000 ($1,385,713). The determination of the
current portion of long-term debt on the balance sheet at December 31, 1999
reflects this change.
All borrowings of the Canadian Operations are with the Bank of Nova
Scotia. Long-term debt outstanding at December 31, 1999 amounted to $5,573,461,
including $3,182,286 due within one year. All of the loans were at the
commercial prime rate in Canada (6.25% at December 31, 1999) plus 0.75%. The
collateralized 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 December
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 December 31,
1999 average less than $1,100,000 over the next five years with a maximum of
$3,182,286 in 2000, due primarily to the repayment in March 2000 of the two term
loans with balances totalling $2,411,093 at December 31, 1999. Amounts required
to redeem Class A and Class B Preferred shares approximate $550,000 per annum
during that period. Holders of the Class F Preferred shares have an option to
redeem those shares which may be exercised between July 1 and July 31, 2000.
Exercise of the option would require an additional annual amount of
approximately $440,000 for five years commencing in 2000.
Management believes that operating cash flows from the continuing
business and amounts available under existing credit facilities will be
sufficient to meet ongoing operating cash requirements and amounts required for
capital asset additions, as well as meet the cash requirements for debt and
Preferred shares redemptions discussed above.
U.S. OPERATIONS
Cash of $1,398,026 was utilized by continuing operations in the United
States during 1999. Working capital generated $333,294 of cash, primarily due to
increases in income taxes payable ($1,590,468) and accounts payable ($556,037),
which were largely offset by increased accounts receivable ($1,210,226) and
inventories ($709,204). The higher income tax liability was due primarily to the
deferred deductibility for tax purposes of the pension withdrawal liability of
$1,628,620 incurred as a result of the sale of the Company's health care
operations. The higher level of inventories occurred at IFC, while the increased
receivables were in part the result of increased business activity at IFC, as
well as corporate receivables. Capital expenditures of continuing operations
amounted to $459,600 in 1999.
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<PAGE> 18
The balance of the committed revolving credit facility with Congress
Financial Corporation amounting to $6,033,789 was repaid on July 21, 1999 from
the proceeds of sale of the health care operations. In addition, $4,500,000 was
utilized to increase the Company's investment in its Canadian subsidiary, Wood
Wyant Inc. during 1999.
On July 16, 1999 IFC Disposables, Inc. obtained a secured revolving
line of credit of $1,000,000 with Union Planters Bank, National Association
bearing interest at bank prime plus 1% (prime at December 31, 1999 was 8.25%).
The line of credit, which is guaranteed by Wyant Corporation expires on July 16,
2002 and is available to finance working capital. Unused availability at
December 31, 1999 amounted to $1,000,000. Maximum borrowing under the facility
is determined by advance formulas applicable to the book value of accounts
receivable and inventories of IFC.
Management believes that future operating cash flows, cash on hand and
the unused balance available under the credit facility will be sufficient to
enable the Company to meet its ongoing operating cash flow requirements and to
finance capital asset additions.
DISCONTINUED OPERATIONS
On July 21, 1999 the Company completed the sale of its Wyant Health
Care Division for total cash proceeds after adjustments of $12,193,000,
including $581,000 which is to be held in escrow for 24 months from the date of
sale. The balance of $6,033,789 outstanding on that date under the secured line
of credit with Congress Financial Corporation was repaid from the proceeds.
A part of the proceeds will be utilized to pay income taxes generated by the
transaction. The pension withdrawal liability of $1,628,620 arising on the sale
is being paid by quarterly instalments including interest of $62,687, commencing
January 1, 2000 and terminating with a final payment of $55,983 on July 1, 2008.
The Company invested $4,500,000 into Wood Wyant which was utilized to
temporarily reduce the level of short-term debt in Canada and to assist in
financing the acquisition of a business in mid-1999. The Company continues to
evaluate possible acquisitions 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. 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.
Following completion of the sale, the Company ceased the manufacture
of adult incontinent products. The sale of the Division has not materially
affected the operations of the Company's other operating units as each is
autonomous and separately managed. The Company is 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 under a three-year supply agreement. IFC is supplying 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.
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<PAGE> 19
GOODWILL
Goodwill amounted to $4,364,621 at December 31, 1999 and is comprised
entirely of goodwill arising on the purchase of businesses between April 30,
1998 and June 30, 1999.
The goodwill is being amortized over a 40-year life, subject to
periodic tests for impairment. This amortization period reflects the period in
which benefits are expected to be derived from the acquired businesses. Each of
the acquired businesses operates in Wood Wyant's core sanitation products
business, in which Wood Wyant and its predecessor companies have operated
successfully since 1923. The sanitation products industry is well established,
substantial in size and growing moderately. Furthermore, there are significant
barriers to entry into the industry, which has strong supplier-customer
relationships that in many cases have been developed over a period of years.
The acquired businesses are themselves long-established, strong
regional businesses operating in market areas where, in some cases, Wood Wyant
did not have a major presence and which therefore complemented its existing
customer base. Although the industry is accessible from a small business
start-up standpoint, it is nevertheless one in which rapid growth is very
difficult for the larger participants, as customers are for the most part
relatively small in terms of purchases and spread out geographically, making the
acquisition of new customers a slow and potentially expensive process.
Consequently, the purchase of existing businesses has been the preferred method
of achieving long-term growth.
Furthermore, the type of products sold are unlikely to experience
rapid technological change, making the resulting business risk small.
In addition to adding approximately 30% to Wood Wyant's prior level
of sales, the acquired businesses also provide new markets for Wood Wyant's
manufactured paper and chemicals products and other potential synergies.
All of the above factors indicate that the benefits to be derived
from the acquisitions will be long-term or permanent in nature, making the use
of a 40-year life for amortization of the goodwill reasonable.
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.
16
<PAGE> 20
As a result, Wood Wyant installed new applications software which is
Year 2000 compliant. This software became operational during the first quarter
of 1999. During the fourth quarter of 1999, IFC installed new hardware and
applications software which are Year 2000 compliant.
The total cost of purchasing and installing the new applications
softwares at Wood Wyant and IFC was $2,382,600, and was financed through
existing credit facilities and cash flow from operations.
During the rollover to 2000, neither we, nor any of our major
customers or suppliers experienced service interruptions due to computer
hardware, software or embedded chips that adversely affected our business. The
Company will continue to monitor its mission critical computer applications and
those of its suppliers and vendors throughout the year 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly. 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.
SIGNIFICANT FACTORS AND KNOWN TRENDS
PENSION PLAN
Certain employees of the Wyant Health Care Division were 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.
As a result of the sale of the Division, the Company incurred a
withdrawal liability and has recorded a provision in the amount of $1,996,620
for all known and quantifiable liabilities arising at the time of the sale of
the Division.
If the remaining members were to withdraw from the Plan, a mass
withdrawal liability could be triggered which could result in an additional
liability to the Company in excess of $700,000 if such a mass withdrawal were to
occur within three years of the Company withdrawing from the Pension Plan. The
actual amount of any such withdrawal liability can only be determined at the
time of any such mass withdrawal.
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.
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<PAGE> 21
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.
Upon final 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
reach $200,000. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk principally in two areas,
interest rate risk and foreign currency exchange rate risk.
INTEREST RATE RISK
The Company's lines of credit and long-term debt are all at rates
of interest which fluctuate with changes to bank prime rates in either the
United States or Canada. Consequently, increases in interest rates could
have an adverse effect on the Company's future results.
FOREIGN CURRENCY EXCHANGE RATE RISK
The Company's results of operations are significantly dependent
on, and materially affected by, the results of operations of Wood Wyant and
the attendant business risks that are associated with the operation of Wood
Wyant as a going concern. These material risks include the following:
- - A significant portion of the Company's earnings, on a consolidated
basis, will come from Wood Wyant, a Canadian corporation. As a result,
the Company's results of operations and earnings may be adversely
affected by the fluctuation in the currency exchange rate between US
and Canadian dollars.
- - Since Wood Wyant conducts its business using Canadian dollars as
its operational currency, to the extent the Canadian dollar
strengthens against the US dollar, United States competitors in the
institutional sanitation business may become more active in the
Canadian market. As a result, the Company's results of operations and
earnings may be adversely affected in light of potential greater
competition in times of a stronger Canadian dollar.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information as required for this Item 10 is incorporated by reference
to the Company's definitive proxy statement for its Annual Meeting of
Shareholders (the "1999 Proxy Statement"), to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
Information as required in respect of this Item 11 is incorporated by
reference to the 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND WYANT MANAGEMENT
Information as required in respect of this Item 12 is incorporated by
reference to the 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information as required in respect of this Item 13 is incorporated by
reference to the 1999 Proxy Statement.
<TABLE>
<CAPTION>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<S> <C> <C>
(a) 1. The following Financial Statements are included in Item 8.
Reports of Independent Auditors F-1
Consolidated Balance Sheet as at December 31, 1999 and 1998 F-2
Consolidated Statement of Operations for the years ended December 31, 1999,
1998 and 1997 F-3
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statement of Cash Flows for the years ended December 31, 1999,
1998 and 1997 F-6
Notes to Consolidated Financial Statements F-8
2. Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts. F-31
</TABLE>
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<TABLE>
<S> <C>
All other schedules are omitted because they are not applicable or not
required, or the applicable information is shown in the Consolidated
Financial Statements or in notes thereto.
3. Exhibits
The following exhibits have been previously filed or incorporated by
reference as indicated. Exhibit numbers refer to Item 601 of
Regulation S-K.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
3.1 Certificate of Incorporation and Amendments thereof (with the exception of Exhibits 3.2
and 3.3 below) and By-Laws are incorporated by reference. They were filed as exhibits
with the Company's February 2, 1984 and January 7, 1987 Registration Statements and the
Registrant's Proxy Statement filed May 30, 1990.
3.2 Certificate of Amendment of the Certificate of Incorporation dated March 18, 1997
(incorporated by reference from the Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
3.3 Certificate of Amendment of the Certificate of Incorporation dated June 3, 1998
(incorporated by reference from the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
9.1 Voting Trust Agreement dated March 14, 1997 among McCarthy Tetrault, as depository,
James A. Wyant, as voting trustee, and 3323986 Canada Inc. (incorporated by reference to
Exhibit D of Amendment No. 13 to Schedule 13D filed March 18, 1997).
9.2 Voting Trust Agreement dated March 18, 1997 among Wyant & Company Inc., McCarthy
Tetrault, as depository, James A. Wyant, as voting trustee, 3287858 Canada Inc., and Derek
Wyant Holdings Inc. (f/k/a 1186020 Ontario Limited) (incorporated by reference to
Exhibit C of Amendment No. 12 to Schedule 13D dated December 3, 1996 and filed on
December 13, 1996).
10.1 The 1991 Stock Option Plan filed with the Company's 1994 Proxy Statement is
incorporated by reference thereto.
10.2 The 1997 Stock Incentive Plan filed with the Company's Form S-8 on March 19, 1997 is
incorporated by reference thereto.
10.3 Loan and Security Agreement between Congress Financial Corporation and Wyant
Corporation, IFC Disposables, Inc. and Bridgewater Manufacturing Corp. dated November 18,
1997 (incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.4 Credit facilities agreement between the Bank of Nova Scotia and Wood Wyant Inc. dated
June 22, 1998, together with amendments thereto dated February 19, 1999 and
March 10, 1999 (previously filed).
10.5 Employment Agreement dated November 11, 1996 between James A. Wyant and Wood
Wyant Inc. (successor to G.H. Wood + Wyant Inc.), as amended (incorporated by reference
from the Company's Annual Report on Form 10-K for the year ended December 31, 1997).
10.6 Addendum dated March 10, 1998 to the Employment Agreement dated November 11, 1996,
as amended, between James A. Wyant and Wood Wyant Inc. (previously filed).
</TABLE>
20
<PAGE> 24
<TABLE>
<S> <C>
10.7 Retirement Arrangement Agreement dated June 27, 1994 between Wood Wyant Inc.
(successor to G.H. Wood + Wyant Inc.) and Donald C. MacMartin (incorporated by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.8 Employment Agreement dated January 1, 1999 between Donald C. MacMartin and
Wood Wyant Inc. (previously filed).
10.9 Employment Agreement dated January 1, 1999 between Marc D'Amour
and Wood Wyant Inc. (previously filed).
10.10 Letter of Agreement dated August 14, 1997 between
Wyant Corporation and Robert E. Briggs (previously filed).
10.11 Indemnification Agreement dated March 11, 1999 between
Wyant Corporation and James A. Wyant (previously filed).
21.1 Subsidiaries (previously filed).
(b) Reports on Form 8-K
No current reports on Form 8-K have been filed during the quarter
ended December 31, 1999.
Shareholders may obtain a copy of any exhibit not filed herewith by
writing to Wyant Corporation, 1170 U.S. Highway 22 East, Suite 203, Bridgewater,
New Jersey, 08807.
</TABLE>
21
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
WYANT CORPORATION
By: /s/ D.C. MacMartin
--------------------------------------
D.C. MacMartin
Chairman of the Board,
President and Chief Executive Officer,
(Principal Executive Officer)
Date: March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ D.C. MacMartin Chairman of the Board, March 28, 2000
- ---------------------------------- President and Chief Executive Officer
D.C. MacMartin (Principal Executive Officer)
/s/ J.A. Wyant Vice-Chairman of the Board and March 28, 2000
- --------------------------------------------- Corporate Secretary
J.A. Wyant
/s/ M. A. D'Amour Vice President, March 28, 2000
- --------------------------------------------- Chief Financial Officer and Treasurer
M.A. D'Amour (Principal Financial Officer and
Principal Accounting Officer)
/s/ R.E. Briggs Director March 28, 2000
- ---------------------------------------------
R.E. Briggs
/s/ R. J. Charles Director March 28, 2000
- ---------------------------------------------
R. J. Charles
/s/ T.R.M. Davis Director March 28, 2000
- ---------------------------------------------
T.R.M. Davis
/s/ N.A. Gallopo Director March 28, 2000
- ---------------------------------------------
N.A. Gallopo
/s/ J.B. Wight Director March 28, 2000
- ---------------------------------------------
J.B. Wight
</TABLE>
<PAGE> 26
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Wyant Corporation
We have audited the accompanying consolidated balance sheets of Wyant
Corporation as at December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. Our audit also included the
financial statement schedule listed in the Index at 14(a). These financial
statements and the schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinions.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Wyant Corporation
at December 31, 1999 and 1998, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with generally accepted accounting principles in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Montreal, Canada /s/ Ernst & Young LLP
March 20, 2000
F-1
<PAGE> 27
WYANT CORPORATION
CONSOLIDATED BALANCE SHEET
As at December 31
<TABLE>
<CAPTION>
1999 1998
$ $
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 1,203,787 59,985
Receivables [note 4] 12,685,337 10,215,812
Inventories [note 5] 8,886,584 8,576,960
Net assets held for divestiture [note 2] -- 9,203,356
Deferred income taxes 1,419,000 602,383
Other 372,778 790,887
---------- ----------
TOTAL CURRENT ASSETS 24,567,486 29,449,383
---------- ----------
Property, plant and equipment, net of accumulated
depreciation and amortization of $13,020,405
[1998 - $11,474,155] [notes 6 and 8] 11,014,337 8,593,460
Goodwill, net of accumulated amortization of $159,297
[1998 - $785,168] 4,364,621 3,696,593
Other assets [note 7] 1,301,066 800,228
---------- ----------
TOTAL ASSETS 41,247,510 42,539,664
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line of credit [note 8] 2,078,353 4,092,128
Committed revolving credit facility [note 8] -- 4,238,720
Accounts payable 4,855,104 4,856,657
Accrued expenses 4,093,163 3,228,412
Accrued restructuring expenses 975,521 --
Income taxes payable 1,284,435 433,288
Current portion of long-term debt [note 8] 3,182,286 1,061,332
Current portion of preferred stock of subsidiary [note 3] 545,205 513,204
---------- ----------
TOTAL CURRENT LIABILITIES 17,014,067 18,423,741
---------- ----------
Long-term debt, excluding current portion [note 8] 2,391,175 3,887,593
Other long-term liabilities 1,513,683 --
Preferred stock of subsidiary [note 3] 5,482,791 5,477,072
Deferred income taxes [note 9] 1,917,934 2,076,416
Commitments and contingencies [note 14]
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share, authorized 6,000,000
shares; issued and issuable 3,603,950 [3,607,150 in 1998] 27,021 27,053
Additional paid-in capital 6,812,993 6,821,825
Retained earnings 6,132,944 6,326,679
Cumulative translation adjustment (45,098) (500,715)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 12,927,860 12,674,842
---------- ----------
Total liabilities and stockholders' equity 41,247,510 42,539,664
========== ==========
</TABLE>
See accompanying notes
F-2
<PAGE> 28
WYANT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended December 31
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES 78,851,090 67,124,137 63,559,703
COST OF SALES 51,862,075 43,218,466 39,691,201
---------- ---------- ----------
GROSS PROFIT 26,989,015 23,905,671 23,868,502
---------- ---------- ----------
EXPENSES
Selling 15,658,221 12,658,838 11,931,480
General and administration 9,448,267 8,699,535 9,193,943
Amortization 754,082 507,540 428,811
Interest expense 1,039,643 1,158,249 745,089
Other income [note 11] (263,842) (244,067) (230,790)
Restructuring charge [note 12] 1,085,036 -- --
---------- ---------- ----------
27,721,407 22,780,095 22,068,533
---------- ---------- ----------
Income (loss) from continuing operations before
income taxes and extraordinary gain (732,392) 1,125,576 1,799,969
Income tax (recovery) expense [note 9] (189,455) 572,000 800,597
---------- ---------- ----------
Income (loss) from continuing operations before
extraordinary gain (542,937) 553,576 999,372
Discontinued operations [note 2] -
Income (loss) from operations (net of income taxes
(recoveries) of $ -- , $545,000 and ($289,610),
respectively) -- 1,021,602 (580,874)
Gain on disposal of Wyant Health Care Division
(net of income tax of $425,500) 722,106 -- --
---------- ---------- ----------
Income before extraordinary gain 179,169 1,575,178 418,498
Extraordinary gain, net of income taxes [note 13] -- -- 91,958
---------- ---------- ----------
NET INCOME 179,169 1,575,178 510,456
Dividends and accretion of mandatorily
redeemable preferred stock 372,904 360,505 191,746
---------- ---------- ----------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHARES (193,735) 1,214,673 318,710
========== ========== ==========
Per common share [note 15]
BASIC
Income (loss) from continuing operations before
extraordinary gain (0.25) 0.06 0.22
Discontinued operations 0.20 0.28 (0.16)
Extraordinary gain -- -- 0.03
Net income (loss) (0.05) 0.34 0.09
DILUTED
Income (loss) from continuing operations before
extraordinary gain (0.25) 0.06 0.22
Discontinued operations 0.20 0.27 (0.16)
Extraordinary gain -- -- 0.03
Net income (loss) (0.05) 0.33 0.09
</TABLE>
See accompanying notes
F-3
<PAGE> 29
WYANT CORPORATION
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY
Year ended December 31
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
---------- ---------- ---------
<S> <C> <C> <C>
COMMON STOCK AT PAR VALUE
Balance at beginning of year 27,053 27,037 27,037
Stock issued for options exercised -- 16 --
Stock purchased for cancellation (32) -- --
---------- ---------- ---------
BALANCE AT END OF YEAR 27,021 27,053 27,037
---------- ---------- ---------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year 6,821,825 6,806,867 6,789,397
Stock issued for options exercised -- 14,958 --
Stock purchased for cancellation (8,832) -- --
Gain on sale of treasury stock -- -- 17,470
---------- ---------- ---------
BALANCE AT END OF YEAR 6,812,993 6,821,825 6,806,867
---------- ---------- ---------
RETAINED EARNINGS
Balance at beginning of year 6,326,679 5,112,006 4,999,823
Net income 179,169 1,575,178 510,456
Dividends declared by subsidiary (169,486) (190,955) (125,746)
Accretion on preferred shares of subsidiary (203,418) (169,550) (66,000)
Distribution to minority shareholders -- -- (206,527)
---------- ---------- ---------
BALANCE AT END OF YEAR 6,132,944 6,326,679 5,112,006
---------- ---------- ---------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of year (500,715) (165,925) 26,955
Foreign currency translation adjustments 455,617 (334,790) (192,880)
---------- ---------- ---------
BALANCE AT END OF YEAR (45,098) (500,715) (165,925)
---------- ---------- ---------
TREASURY STOCK
Balance at beginning of year -- -- (31,530)
Treasury stock sold, at cost -- -- 31,530
---------- ---------- ---------
BALANCE AT END OF YEAR -- -- --
---------- ---------- ---------
TOTAL STOCKHOLDERS' EQUITY 12,927,860 12,674,842 11,779,985
========== ========== ==========
COMPREHENSIVE INCOME
Net income 179,169 1,575,178 510,456
Other - foreign currency translation adjustments 455,617 (334,790) (192,880)
---------- ---------- ---------
COMPREHENSIVE INCOME FOR YEAR 634,786 1,240,388 317,576
---------- ---------- ---------
</TABLE>
F-4
<PAGE> 30
WYANT CORPORATION
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY [CONT'D]
Year ended December 31
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
COMMON SHARES
Number issued at beginning of year 2,273,817 2,271,484 2,271,484
Shares issued for options exercised -- 2,333 --
Shares purchased for cancellation 3,200 -- --
--------- --------- ---------
NUMBER ISSUED AT END OF YEAR 2,270,617 2,273,817 2,271,484
--------- --------- ---------
TREASURY STOCK
Held at beginning of year -- -- (14,933)
Sold during the year -- -- 14,933
--------- --------- ---------
HELD AT END OF YEAR -- -- --
--------- --------- ---------
COMMON SHARES ISSUED AND OUTSTANDING 2,270,617 2,273,817 2,271,484
COMMON SHARES ISSUABLE UPON CONVERSION OF
EXCHANGEABLE SHARES [note 3] 1,333,333 1,333,333 1,333,333
--------- --------- ---------
COMMON SHARES ISSUED, ISSUABLE AND OUTSTANDING 3,603,950 3,607,150 3,604,817
========= ========= =========
</TABLE>
See accompanying notes
F-5
<PAGE> 31
WYANT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
---------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations (542,937) 553,576 1,091,330
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,358,137 1,137,698 990,013
Loss (gain) on sale of fixed assets (6,142) 11,792 (28,470)
Deferred income tax expense (benefit) 233,545 72,000 (25,823)
Deferred pension costs (67,836) (107,014) (92,177)
Increase in deferred charges -- (49,480) (320,234)
Decrease (increase) in working capital 138,894 (511,879) 752,956
Cash provided by (used for) discontinued operations (259,845) 2,727,120 (1,994,643)
---------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES 853,816 3,833,813 372,952
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of businesses, net of cash
acquired [note 3] (1,146,684) (3,853,158) --
Capital expenditures (2,968,193) (853,692) (1,313,246)
Cash proceeds from sale of fixed assets 41,332 15,850 35,628
Sale of marketable securities -- -- 446,812
Decrease (increase) in other assets (52,375) 83,278 --
Cash used for discontinued operations (49,377) (234,590) (564,933)
Proceeds of sale of discontinued operations, net of
$581,000 held in escrow and expenses of $862,228 10,749,772 -- --
---------- --------- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES 6,574,475 (4,842,312) (1,395,739)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in committed revolving
credit facility (4,238,720) (1,642,028) 5,880,748
Repayment of long-term debt (1,375,789) (1,001,944) (7,820,959)
Increase in long-term debt 1,654,205 3,723,111 5,122,507
Distribution to minority shareholders -- -- (206,527)
Issue of common shares -- 14,974 --
Purchase of common shares for cancellation (8,864) -- --
Redemption of preferred shares (513,204) (550,122) --
Sale of treasury stock -- -- 49,000
Dividends paid by subsidiary (169,486) (190,955) (125,746)
Increase (decrease) in bank indebtedness (2,013,775) 1,376,683 911,368
Distribution to G.H. Wood + Wyant Inc.
shareholders [note 3] -- -- (3,667,033)
Cash used for discontinued operations -- (500,101) (349,428)
---------- --------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES (6,665,633) 1,229,618 (206,070)
---------- --------- ---------
Effect of exchange rate changes on cash 381,144 (317,265) (185,637)
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents 1,143,802 (96,146) (1,414,494)
Cash and cash equivalents, beginning of year 59,985 156,131 1,570,625
---------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR 1,203,787 59,985 156,131
========== ========= =========
</TABLE>
F-6
<PAGE> 32
WYANT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS [CONT'D]
Year ended December 31
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
----------- ----------- -----------
<S> <C> <C> <C>
DECREASE (INCREASE) IN WORKING CAPITAL
Decrease (increase) in accounts receivable (2,090,787) 976,667 338,451
Decrease (increase) in inventories (193,358) (575,736) 852,005
Decrease in other current assets 418,109 593,683 29,537
Increase (decrease) in accounts payable and accrued liabilities 1,153,783 (663,066) (1,439,298)
Increase (decrease) in income taxes payable 851,147 (843,427) 972,261
----------- ----------- -----------
138,894 (511,879) 752,956
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) during the year for
Interest 953,458 1,002,946 530,153
Income taxes 52,680 1,061,716 (216,376)
----------- ----------- -----------
</TABLE>
See accompanying notes
F-7
<PAGE> 33
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Wyant Corporation, a New York corporation incorporated in 1971 [the
"Corporation"], operates the following wholly-owned subsidiaries: IFC
Disposables, Inc., a Tennessee corporation ["IFC"] and Wood Wyant Inc., a
Canadian corporation ["Wood Wyant"]. IFC manufactures and distributes disposable
wipers and sanitary paper products and systems which are sold primarily in
domestic markets. Wood Wyant manufactures and distributes sanitation products
and systems to commercial and institutional markets in Canada.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Corporation
and its wholly-owned subsidiaries, IFC and Wood Wyant [collectively, the
"Company"]. All significant intercompany balances and transactions have been
eliminated in consolidation.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
UTILIZATION OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
Revenue is recognized at the time goods are shipped.
EARNINGS PER SHARE
Basic earnings per share are calculated using the weighted average number of
shares outstanding during the period. Contingently issuable shares are
considered outstanding common shares and included in the calculation of basic
earnings per share only when there is no circumstance under which these shares
would not be issued.
Diluted earnings per share are calculated taking into consideration the effect
of the potential exercise of stock options and of the exchangeable Class F
preferred shares of Wood Wyant.
F-8
<PAGE> 34
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
INVENTORIES
Raw materials are valued at the lower of cost and replacement cost. Finished
goods inventories are stated at the lower of cost and net realizable value. Cost
is determined on a first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization of property, plant and equipment in the Wiping Products segment is
provided utilizing the straight-line method over the estimated useful lives of
the respective assets ranging from 5 to 30 years; in the Sanitation Products
segment, the declining balance method is used, with rates ranging from 5% to 20%
per year. Leasehold improvements are amortized on a straight-line basis over the
term of the related leases or the estimated useful life, whichever is shorter.
Patents and trademarks are amortized on a straight-line basis over periods from
5 to 17 years.
GOODWILL
Goodwill is amortized on a straight-line basis over periods not exceeding 40
years. The Company periodically reviews goodwill for possible impairment, which
would be recognized if a permanent decline in value has occurred.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ["SFAS"] No.123, "Accounting for
Stock-Based Compensation," encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation awards to
employees and directors using the intrinsic value method prescribed in
Accounting Principles Board Opinion ["APB"] No.25, "Accounting for Stock Issued
to Employees," and related Interpretations. Accordingly, compensation cost for
stock options awarded to employees and directors is measured as the excess, if
any, of the quoted market price of the Corporation's stock at the date of grant
over the amount an employee or director must pay to acquire the stock. This cost
would be recognized over the vesting period.
As required, the Company has adopted SFAS No.123 to account for stock-based
compensation awards to outside consultants and affiliates. Accordingly,
compensation costs for stock option awards to outside consultants and affiliates
are measured at the date of grant based on the fair value of the award using the
Black-Scholes option pricing model.
INCOME TAXES
The Company files a consolidated federal income tax return for its United States
companies. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the year in which those temporary
differences are expected to reverse. Deferred income taxes result primarily from
differences between accounting and tax reporting of depreciation.
F-9
<PAGE> 35
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONT'D]
FOREIGN CURRENCY TRANSLATION
The Corporation translates the accounts of its foreign subsidiary, Wood Wyant,
such that the assets and liabilities of the subsidiary are translated into U.S.
dollars at rates of exchange prevailing at the year-end. Exchange gains and
losses arising from these translations are deferred and included as a separate
component of stockholders' equity on the consolidated balance sheet ["Cumulative
Translation Adjustment"]. Revenue and expense items are translated at average
rates of exchange prevailing during the year.
ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
requires all derivatives to be recorded on the balance sheet at fair value and
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. The Company is studying the
application of this new standard but has not yet determined its impact. As
required, the Company will adopt this statement upon its applicable effective
date in fiscal 2001.
2. DISCONTINUED OPERATIONS
The sale of the Company's Wyant Health Care Division ("Division") was completed
on July 21, 1999 for cash proceeds of $12,193,000, of which an amount of
$581,000 is to be held in escrow for a period of 24 months from the date of
sale. On December 17, 1998, the Board of Directors authorized management to
pursue the sale of the Division and on February 23, 1999 the Board approved the
sale of the Division to Paper-Pak Products, Inc., 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 operating results of the Division were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
---------- ---------- ----------
<S> <C> <C> <C>
Net sales 22,746,885 36,462,815 31,324,702
Income (loss) before income taxes 1,834,821 1,566,602 (870,484)
---------- ---------- ----------
</TABLE>
F-10
<PAGE> 36
2. DISCONTINUED OPERATIONS [CONT'D]
The net assets of the Division at December 31, 1998 were:
<TABLE>
<CAPTION>
$
---------
<S> <C>
Current assets 5,785,245
Property, plant and equipment 9,787,618
Other assets 215,928
Current liabilities (3,428,034)
Long-term liabilities (3,157,401)
---------
Net assets of discontinued operations 9,203,356
=========
</TABLE>
3. ACQUISITIONS
[a] On June 30, 1999, the Company, through its wholly-owned Canadian subsidiary,
Wood Wyant Inc., acquired certain assets and the operating business of the
Atlantic Sanitation Division of Cassidy's Ltd., based in Nova Scotia, for cash
consideration of $1,146,684. The excess purchase price over the fair values of
the net assets acquired was $652,453 and has been recorded as goodwill, which is
being amortized on a straight line basis over 40 years.
[b] On April 30, 1998, the Company, through its wholly-owned subsidiary, Wood
Wyant Inc., acquired all of the issued and outstanding shares of H.A. Perigord
Company Limited, a distributor of sanitation products. On June 26, 1998, Wood
Wyant Inc. acquired all of the issued and outstanding shares of Professional
Sanitation Products Ltd., a distributor of sanitation products. The total
consideration for these acquisitions amounted to $3,070,806, which was comprised
of cash of $2,107,645 and 146,666 Class F Preferred shares of Wood Wyant Inc.
On June 30, 1998, Wood Wyant Inc. acquired all of the issued and outstanding
shares of four related businesses based in British Columbia for $2,644,228,
comprised of cash of $1,760,696 and 136,445 Class F Preferred shares of Wood
Wyant Inc. The companies acquired are Midway Supply Ltd., Purnel Distributors
Ltd. and Midway Purnel Sanitary Supply Ltd., all of which are distributors of
sanitation products, and Fraser Valley Industrial Chemicals Inc., a manufacturer
of janitorial chemicals.
The significant conditions of the Class F Preferred shares of Wood Wyant Inc.
are:
Prior to July 1, 2000 and subject to the priorities of the other classes of
preferred stock of Wood Wyant Inc., the shares:
1) are exchangeable for Wyant Corporation common stock on a share for
share basis and are entitled to dividends equivalent on a per share
basis, to any dividends paid on Wyant Corporation common stock; and
2) have a liquidation preference per share of one share of Wyant
Corporation common stock.
F-11
<PAGE> 37
3. ACQUISITIONS [CONT'D]
Holders of the shares have an option, which may be exercised between July 1,
2000 and July 31, 2000, to cause Wood Wyant Inc. to redeem the shares in five
equal annual instalments at a price of Cdn $11.250028 (U.S. $7.79) per share
plus any accrued and unpaid dividends. If the redemption option is exercised,
dividends of 3.5% per annum will be payable commencing July 1, 2000.
Each of the above acquisitions has been accounted for under the purchase method
and the results of operations accordingly are included in the consolidated
statement of operations from the respective dates of acquisition. The purchase
prices have been allocated to assets acquired and liabilities assumed based on
fair market value at the dates of acquisitions, as follows:
<TABLE>
<S> <C>
Working capital, other than cash $1,618,307
Property, plant and equipment 386,518
Other assets 60,975
Goodwill 3,831,153
Long-term liabilities (177,491)
Deferred income taxes (4,428)
</TABLE>
The excess of purchase price over the fair values of the net assets acquired was
$3,831,153 and has been recorded as goodwill, which is being amortized on a
straight-line basis over 40 years.
The following unaudited pro forma information gives effect to the transactions
as if they had occurred at January 1, 1998. This pro forma information does not
necessarily reflect the results of operations that would have been achieved if
the acquisitions had been consummated as of that time.
<TABLE>
<CAPTION>
1998
$
----------
<S> <C>
Net sales 73,391,486
Income from continuing operations 529,740
Net income 1,551,342
Per common share
Income from continuing operations 0.03
Net income 0.31
</TABLE>
F-12
<PAGE> 38
3. ACQUISITIONS [CONT'D]
[c] 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] 1,333,333 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. Other than
having a liquidation preference to obtain payment of any accrued but unpaid
dividends in cash, the liquidation preference of each Class E Preferred share is
equal to that of a 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 have been
restated to 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.
Included in the consolidated statement of operations for the three years ended
December 31, 1999 are the following results of the previously separate companies
for periods prior to the transaction date.
F-13
<PAGE> 39
3. ACQUISITIONS [CONT'D]
<TABLE>
<CAPTION>
CANADIAN HOSPOSABLE
OPERATIONS OF PRODUCTS, INC. CONSOLIDATED
G.H. WOOD + [NOW WYANT
WYANT INC. CORPORATION]
$ $ $
------------- ------------ ------------
UNAUDITED
1997
<S> <C> <C> <C>
Revenue from external customers 12,287,019 9,842,579 22,129,598
Inter Company revenues 726,293 116,675 842,968
Net income (loss) 474,869 (651,354) (176,485)
------------ ------------ ----------
</TABLE>
4. RECEIVABLES
<TABLE>
<CAPTION>
1999 1998
$ $
------------ ----------
<S> <C> <C>
Trade 11,776,103 9,882,672
Less: allowance for doubtful account 486,064 405,424
------------ ----------
11,290,039 9,477,248
Other 1,395,298 738,564
------------ ----------
12,685,337 10,215,812
============ ==========
</TABLE>
5. INVENTORIES
<TABLE>
<CAPTION>
1999 1998
$ $
------------ ----------
<S> <C> <C>
Raw materials 2,779,673 2,065,073
Finished goods 6,106,911 6,511,887
------------ ----------
8,886,584 8,576,960
============ ==========
</TABLE>
F-14
<PAGE> 40
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
Accumulated
depreciation Net book
Cost and amortization value
$ $ $
---------- ---------------- ----------
<S> <C> <C> <C>
1999
Land 620,852 -- 620,852
Buildings and improvements 3,430,838 1,429,937 2,000,901
Machinery and equipment 9,979,083 5,949,873 4,029,210
Computer equipment 4,780,175 2,050,860 2,729,315
Furniture, fixtures and equipment 3,006,268 2,527,271 478,997
Leasehold improvements 1,058,593 634,225 424,368
Patents and trademarks 1,158,933 428,239 730,694
---------- ---------- ----------
24,034,742 13,020,405 11,014,337
========== ========== ==========
1998
Land 584,410 -- 584,410
Buildings and improvements 3,232,031 1,248,044 1,983,987
Machinery and equipment 9,522,060 5,421,294 4,100,766
Computer equipment 1,901,811 1,651,201 250,610
Furniture, fixtures and equipment 2,896,169 2,323,532 572,637
Leasehold improvements 876,931 493,494 383,437
Patents and trademarks 1,054,203 336,590 717,613
---------- ---------- ----------
20,067,615 11,474,155 8,593,460
========== ========== ==========
</TABLE>
Depreciation and amortization expense amounted to $1,308,706, $851,873 and
$785,093 in 1999, 1998 and 1997, respectively.
Amortization expense related to goodwill amounted to $227,419, $179,978 and
$135,351 in 1999, 1998 and 1997, respectively.
7. OTHER ASSETS
<TABLE>
<CAPTION>
1999 1998
$ $
--------- -------
<S> <C> <C>
Deferred pension costs 665,557 551,882
Deferred financing charges -- 248,346
Funds held in escrow 590,684 --
Other 44,825 --
--------- -------
1,301,066 800,228
========= =======
</TABLE>
F-15
<PAGE> 41
8. LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
$ $
--------- ---------
<S> <C> <C>
WOOD WYANT INC.
Term loan repayable in monthly instalments of
Cdn $20,476 plus interest at the prime rate in
Canada plus 0.75% [prime at December 31, 1999
- 6.25%] maturing October 1, 2001.
Principal amount Cdn $1,447,142
[December 31, 1998 - Cdn. $1,692,856] 1,002,662 1,104,060
Term loan repayable in monthly instalments of
Cdn $35,000 plus interest at the prime rate in
Canada plus 0.75%, maturing April 30, 2003.
Principal amount Cdn. $1,400,000
[December 31, 1998 - Cdn. $1,820,000] (1) 969,999 1,186,982
Term loan repayable in monthly instalments of
Cdn $49,523 plus interest at the prime rate in
Canada plus 0.75%, maturing June 30, 2003.
Principal amount Cdn $2,079,931
[December 31, 1998 - Cdn. $2,674,207] (1) 1,441,094 1,744,086
Term loan repayable in monthly instalments of
Cdn. $41,667 plus interest at the prime rate in
Canada plus 0.75%,maturing March 15, 2004.
Principal amount Cdn. $2,083,330 1,443,449 --
Revolving credit facility - Cdn. $1,033,774
[December 31, 1998 - Cdn $1,401,125] 716,257 913,797
--------- ---------
5,573,461 4,948,925
Current portion 3,182,286 1,061,332
--------- ---------
2,391,175 3,887,593
========= =========
</TABLE>
[FN]
(1) These loans were repaid in full on March 8, 2000 from advances under Wood
Wyant's collateralized line of credit described below. Consequently, they
have been included in the current portion of the long-term debt.
</FN>
F-16
<PAGE> 42
8. LONG-TERM DEBT [CONT'D]
The exchange rate used at December 31, 1999 to translate the long-term debt
denominated in Canadian dollars was Cdn $1.4433 = US $1.00 [December 31, 1998 -
Cdn $1.5333 = US $1.00].
Principal payments of long-term debt over the next five years are as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
2000 3,182,286
2001 978,416
2002 516,676
2003 516,676
2004 227,969
---------
</TABLE>
In September 1997, Wood Wyant obtained a collateralized revolving credit
facility in the amount of Cdn $3,000,000 (U.S. $2,078,600) with the Bank of Nova
Scotia which expires on September 30, 2000 and bears interest at prime plus
0.75%. This facility was utilized on September 30, 1997 to repay two existing
term loans totalling Cdn $1,554,000 and in March 1998 to finance equipment
purchases of Cdn $282,749. These amounts are being repaid by monthly instalments
of Cdn $30,612. The balance is available to finance future equipment purchases.
Maximum availability under the facility reduces monthly by Cdn $50,000. Unused
availability at December 31, 1999 was Cdn $872,436 (U.S. $604,500).
On February 22, 2000, the maturity date of this facility was renegotiated to
September 30, 2001 from September 30, 2000 and the maximum availability was
reduced to Cdn $2,000,000 (U.S. $1,385,700). Consequently, the determination of
the current portion of the long-term debt has been amended to reflect this
change.
LINES OF CREDIT
Wood Wyant has available a collateralized revolving line of credit in Canada in
the amount of Cdn $7,500,000 (U.S. $5,196,425) with the Bank of Nova Scotia
which is subject to periodic review and which bears interest at the prime rate
[6.25% at December 31, 1999]. This line of credit and the term loans of Wood
Wyant are collateralized by a general assignment of book debts of Wood Wyant, a
pledge of inventory under Section 427 of the Bank Act, a hypothec in the amount
of Cdn $30,000,000 on all movable property and a general security agreement. On
February 22, 2000, the maximum amount available under this facility was
increased to $10,000,000 (U.S. $6,928,500).
On July 16, 1999, IFC Disposables, Inc. obtained a secured revolving line of
credit of $1,000,000 with Union Planters Bank, National Association which is
available to finance working capital. The facility expires on July 16, 2002 and
bears interest at prime plus 1% (prime rate at December 31, 1999 - 8.25%). The
maximum amount that may be borrowed at any time is determined by the sum of
amounts based on advance formulas applicable to the book value of accounts
receivable and inventories of IFC. The facility is guaranteed by Wyant
Corporation and is collateralized by the accounts receivable, inventories and
intangible assets of IFC with a carrying value of $5,269,000. The unused
availability at December 31, 1999 was $1,000,000.
F-17
<PAGE> 43
9. INCOME TAXES
Details of the income tax provision relating to continuing operations are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
-------- -------- --------
<S> <C> <C> <C>
CURRENT
Federal (160,811) (324,132) (210,559)
State (14,189) 46,132 10,291
Foreign (248,000) 778,000 945,482
-------- ------- -------
(423,000) 500,000 745,214
======== ======== ========
DEFERRED
Federal 7,852 (45,000) (26,413)
State 693 -- --
Foreign 225,000 117,000 81,796
-------- -------- --------
233,545 72,000 55,383
======== ======== ========
INCOME TAX PROVISION (189,455) 572,000 800,597
======== ======== ========
The reported income tax provision differs from the amount computed by applying the Federal tax rate
to income before income taxes. The reasons for this difference and the related tax effects are
as follows:
1999 1998 1997
$ $ $
-------- -------- --------
Expected Federal tax rate 34.0% 34.0% 34.0%
Expected tax provision (249,013) 382,696 611,990
State income tax (12,374) 46,132 18,219
Foreign tax rate differences 31,936 146,403 66,408
Non-deductible expenses 45,169 65,000 25,377
Other (5,173) (68,231) 78,603
-------- -------- --------
REPORTED INCOME TAX PROVISION (189,455) 572,000 800,597
======== ======== ========
Deferred income taxes result principally from temporary differences in the recognition of certain
revenue and expense items for financial and tax reporting purposes. Significant components of the
Company's deferred tax assets and liabilities as at December 31, 1999 and December 31, 1998
are as follows:
1999 1998
$ $
--------- ---------
Deferred tax assets
Reserves and allowances 932,000 272,760
Goodwill 185,000 151,784
Other 302,000 177,839
--------- ---------
TOTAL DEFERRED TAX ASSETS 1,419,000 602,383
Deferred tax liabilities
Book and tax differences on property, plant and equipment 1,342,700 1,855,109
Pension 270,213 221,307
Other 305,021 --
--------- ---------
TOTAL DEFERRED TAX LIABILITIES 1,917,934 2,076,416
--------- ---------
NET DEFERRED INCOME TAX LIABILITY 498,934 1,474,033
========= =========
</TABLE>
F-18
<PAGE> 44
9. INCOME TAXES [CONT'D]
Income (loss) before taxes attributable to all foreign operations was
$(183,881), $2,066,867 and $2,481,335 in each of fiscal 1999, 1998 and 1997,
respectively.
10. STOCK-BASED COMPENSATION PLANS
The Corporation has two stock option plans, the 1997 Stock Incentive Plan [the
"1997 Plan"] and the 1991 Stock Option Plan [the "1991 Plan"]. The Company
accounts for options granted to employees and directors under these plans using
APB No.25 and interpretations, under which no compensation cost has been
recognized for stock options granted. Had compensation cost for these stock
options been determined in accordance with SFAS No.123, the Company's pro forma
earnings per share would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
-------- ---------- --------
<S> <C> <C> <C>
Net income (loss) available
to common stockholders
As reported (193,735) 1,214,673 318,710
Pro forma (263,388) 745,270 (248,852)
Earnings (loss) per share
Basic
As reported (0.05) 0.34 0.09
Pro forma (0.07) 0.21 (0.07)
Diluted
As reported (0.05) 0.33 0.09
Pro forma (0.07) 0.21 (0.07)
-------- --------- --------
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. Additional awards in future years are anticipated.
During 1997 and 1991, the stockholders of the Company approved the adoption of
the 1997 Plan and the 1991 Plan, respectively. Each plan authorizes the granting
of stock options [either non-qualified stock options or incentive stock
options], the exercise of which would allow up to an aggregate of 400,000 shares
of the Company's common stock under the 1997 Plan and 333,333 shares under the
1991 Plan, to be acquired by the holders of the stock options. The 1997 Plan
also permits the granting of other types of stock-based awards.
Under the 1997 and 1991 Plans, non-qualified stock options have been granted to
directors, employees and consultants for terms of up to ten years at exercise
prices of not less than 100% of the fair market value of the shares at the date
of grant, exercisable in whole or in part at stated times from the date of
grant. At December 31, 1999, options to purchase 360,366 shares and 165,340
shares of common stock were exercisable with respect to the 1997 Plan and the
1991 Plan, respectively. Option activity during 1999, 1998 and 1997 is
summarized as follows:
F-19
<PAGE> 45
10. STOCK-BASED COMPENSATION PLANS [CONT'D]
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
PRICE
SHARES $
-------- ---------
<S> <C> <C>
1999
OUTSTANDING, BEGINNING OF YEAR 537,376 4.55
Granted 10,002 3.14
Exercised -- --
Expired -- --
Canceled / surrendered (13,339) 4.20
------- ----
OUTSTANDING, END OF YEAR 534,039 4.53
------- ----
EXERCISABLE, END OF YEAR 525,706 4.53
======= ====
Weighted average fair value of options granted 1.28
1998
OUTSTANDING, BEGINNING OF YEAR 592,048 4.53
Granted 25,335 5.29
Exercised (2,333) 4.19
Expired (33,334) 4.50
Canceled / surrendered (44,340) 4.79
------- ----
OUTSTANDING, END OF YEAR 537,376 4.55
------- ----
EXERCISABLE, END OF YEAR 484,691 4.57
======= ====
Weighted average fair value of options granted 2.34
1997
OUTSTANDING, BEGINNING OF YEAR 332,048 5.41
Granted 416,000 4.01
Canceled / surrendered (156,000) 5.00
------- ----
OUTSTANDING, END OF YEAR 592,048 4.53
------- ----
EXERCISABLE, END OF YEAR 342,667 4.66
======= ====
Weighted average fair value of options granted 1.69
</TABLE>
F-20
<PAGE> 46
10. STOCK-BASED COMPENSATION PLANS [CONT'D]
The fair value of options at date of grant was estimated using the
Black-Scholes pricing model with the following weighted average assumptions.
<TABLE>
<CAPTION>
1999 1998
% %
----- -----
<S> <C> <C>
Expected life [years] 5.00 5.00
Risk-free interest rates 5.00 5.15
Volatility 37.30 41.20
Dividend yield 0.00 0.00
----- -----
</TABLE>
The following table summarizes information with respect to stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------- ------------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AT AVERAGE WEIGHTED EXERCISABLE AT WEIGHTED
RANGE OF DECEMBER 31, REMAINING AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 1999 CONTRACTUAL LIFE EXERCISE PRICE 1999 EXERCISE PRICE
- ----------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$2.87 - $4.30 210,017 6.04 years $3.77 207,017 $3.77
$4.31 - $5.81 324,022 5.38 years $5.02 318,689 $5.02
- ----------------- -------------- ---------------- -------------- -------------- --------------
</TABLE>
11. OTHER INCOME
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
------- ------- -------
<S> <C> <C> <C>
Interest income 59,940 2,492 7,323
Gain (loss) on disposal of assets (1,721) -- 28,470
Cash discounts and other 205,623 241,575 194,997
------- ------- -------
263,842 244,067 230,790
======= ======= =======
</TABLE>
12. RESTRUCTURING CHARGE
During the fourth quarter of 1999 Wood Wyant incurred a special charge of
$1,085,036. This charge is composed entirely of severance costs related to 38
employee terminations. As at December 31, 1999, $975,521 remained unpaid.
13. EXTRAORDINARY GAIN
In 1997, the Company realized a net gain of $139,330 [$91,958 net of income
tax] as a result of the refinancing of certain term debt.
F-21
<PAGE> 47
14. COMMITMENTS & CONTINGENCIES
COMMITMENTS
The Company occupies manufacturing, warehousing and office facilities under
operating leases which expire at various dates to December 31, 2004. Future
minimum rental commitments relating to continuing operations are as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
2000 1,202,264
2001 784,190
2002 679,680
2003 611,141
2004 213,348
---------
3,490,623
Sublease income 2000 to 2004 1,575,213
---------
1,915,410
=========
</TABLE>
Aggregate rental expense of continuing operations amounted to $902,207 [net of
sublease income of $153,549], $1,078,283 [net of sublease income of $177,821]
and $1,480,409 [net of sublease income of $124,893] for the years ended December
31, 1999, 1998 and 1997, respectively.
As of January 1, 1999, the Company signed a five-year supply agreement to
purchase a minimum of 16,200 short tons of paper towelling and tissue annually
at market prices. This supplier provides 100% of the Company's requirements for
these products.
A financial institution has registered a second-ranking lien in the amount of
$650,000 on the Company's book debts as collateral for letters of guarantee that
it may issue from time to time in favour of customers to guarantee the Company's
performance under certain contracts. As at December 31, 1999 there were no
letters of guarantee outstanding.
CONTINGENCIES
PENSION PLAN
Certain employees of the Wyant Health Care Division were 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.
As a result of the sale of the Division, the Company incurred a
withdrawal liability and has recorded a provision in the amount of $1,996,620
for all known and quantifiable liabilities arising at the time of the sale of
the Division.
F-22
<PAGE> 48
14. COMMITMENTS & CONTINGENCIES [CONT'D]
If the remaining members were to withdraw from the Plan, a mass
withdrawal liability could be triggered which could result in an additional
liability to the Company in excess of $700,000 if such a mass withdrawal were to
occur within three years of the Company withdrawing from the Pension Plan. The
actual amount of any such withdrawal liability can only be determined at the
time of any such mass withdrawal.
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.
Upon final 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
reach $200,000. 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. A provision of $200,000 has been recorded in accrued
expenses to cover this potential cost.
F-23
<PAGE> 49
15. EARNINGS PER SHARE
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
--------- --------- ---------
<S> <C> <C> <C>
Numerator
Income (loss) from continuing
operations before extraordinary gain (542,937) 553,576 999,372
Less : Preferred stock dividends and
accretion 372,904 360,505 191,746
--------- --------- ---------
Numerator for basic earnings (loss)
per share - income from continuing
operations available to common
stockholders before extraordinary
gain (915,841) 193,071 807,626
Add : Accretion on convertible
preferred shares 115,179 61,542 --
--------- --------- ---------
Numerator for diluted earnings (loss)
per share - income from continuing
operations available to common
stockholders before extraordinary
gain (800,662) 254,613 807,626
--------- --------- ---------
Denominator
Denominator for basic earnings per
share - weighted-average shares
issued, issuable and outstanding 3,606,326 3,606,247 3,597,125
Effect of dilutive securities
Convertible preferred shares 283,111 165,147 --
Stock options -- 62,867 6,668
--------- --------- ---------
Denominator for diluted earnings per
share - adjusted weighted-average
shares 3,889,437 3,834,261 3,603,793
========= ========= =========
Basic earnings (loss) per share from
continuing operations before
extraordinary gain (0.25) 0.06 0.22
========= ========= =========
Diluted earnings (loss) per share from
continuing operations before
extraordinary gain (0.25)(1) 0.06(1) 0.22
========= ========= =========
</TABLE>
[FN]
(1) For purposes of calculating diluted earnings per share from continuing
operations before extraordinary gain for 1998 and 1999, the effect of the
convertible preferred shares has not been considered, as its effect is
anti-dilutive.
</FN>
Options to purchase 539,278 shares of common stock at exercise prices ranging
from $2.87 to $5.81 per share were outstanding during 1999 but were not included
in the computation of diluted earnings per share because the options' exercise
prices were greater than the average market price of the common stock and,
therefore, the effect would be anti-dilutive.
F-24
<PAGE> 50
16. PENSION PLANS
The Company maintains a defined benefit final average pension plan which covers
certain of its Canadian employees. The periodic cost of pension benefits is
determined using the projected benefit method prorated on service. The pension
plan is administered by a major Canadian financial institution. At December 31,
1999, the Company had made or accrued for all required contributions.
Net periodic pension expense (income) in 1999, 1998 and 1997 included the
following components:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
-------- -------- --------
<S> <C> <C> <C>
Current service cost 171,569 170,745 161,731
Interest cost on projected benefit obligations 284,580 270,711 272,176
Expected return on plan assets (460,322) (457,566) (442,936)
Net amortization and deferral (72,828) (87,024) (84,875)
-------- -------- --------
Net periodic pension expense (income) (77,001) (103,134) (93,904)
======== ======== ========
The assumptions used in the Company's plan at December 31, 1999, 1998 and 1997
are as follows:
1999 1998 1997
% % %
-------- -------- --------
Weighted average discount rate 7.5 7.5 7.5
Expected long-term rate of return on assets 7.5 7.5 7.5
Weighted average rate of compensation increase 5.0 5.0 5.0
-------- -------- --------
</TABLE>
F-25
<PAGE> 51
16. PENSION PLANS [CONT'D]
The changes to the projected benefit obligation and the amount of pension assets
were as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
--------- ---------
<S> <C> <C>
BENEFIT OBLIGATION
Balance at January 1 3,587,100 3,649,283
Increase due to plan
amendment adopted during 1999 188,935 --
Current service cost 261,426 262,959
Interest cost 284,580 270,711
Benefit payments (716,026) (345,062)
Foreign currency exchange rate component 224,235 (250,791)
--------- ---------
BALANCE AT DECEMBER 31 3,830,250 3,587,100
========= =========
PENSION PLAN ASSETS
Balance at January 1 6,250,832 6,417,616
Contributions 89,857 92,214
Return on pension plan assets 710,978 525,177
Benefit payments (716,026) (345,062)
Foreign currency exchange rate component 392,274 (439,113)
--------- ---------
BALANCE AT DECEMBER 31 6,727,915 6,250,832
========= =========
</TABLE>
The following table sets forth the funded status of the Company's defined
benefit plan at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
$ $
---------- ---------
<S> <C> <C>
Actuarial present value of
Vested benefit obligation 2,594,887 2,626,296
Non-vested benefit obligation -- --
---------- ---------
Accumulated benefit obligation 2,594,887 2,626,296
Additional benefits based on salary projection 1,235,363 960,804
---------- ---------
Projected benefit obligation 3,830,250 3,587,100
Plan assets at fair market value
[primarily listed stocks and bonds] 6,727,915 6,250,832
---------- ---------
Plan assets in excess of projected benefit obligation 2,897,665 2,663,732
Unrecognized net asset at transition (37,276) (39,457)
Unrecognized net gain (2,734,844) (2,431,814)
Unrecognized prior service cost 540,012 359,421
---------- ---------
PENSION ASSET INCLUDED IN THE CONSOLIDATED
BALANCE SHEET 665,557 551,882
========== =========
</TABLE>
F-26
<PAGE> 52
16. PENSION PLANS [CONT'D]
The Company has a pension plan under Section 401(k) of the INTERNAL REVENUE CODE
for certain of its US employees. Under the terms of the 401(k) plan, the Company
makes a matching contribution of up to 6% of each eligible employee's earned
wages, to a maximum of $1,000 per employee per year. Under this plan employees
may also contribute up to 15% of their earned wages. The Company makes monthly
contributions to the plan whereby $18,507 was paid in 1999, $18,998 in 1998 and
$25,139 in 1997.
The Company has a non-contributory defined contribution pension plan for certain
of its Canadian employees. Under the terms of the plan, the Company contributed
3% of each eligible employee's earned wages. The Company made monthly
contributions to the plan totalling $15,061 in 1997. In March 1997, the Company
ceased to contribute to this plan and instead contributed the 3% of each
eligible employee's earned wages to a group retirement savings plan. The monthly
contributions made to this plan amounted to $73,354 in 1999, $66,851 in 1998 and
$54,993 in 1997.
17. FINANCIAL INSTRUMENTS
OFF-BALANCE-SHEET RISK
The Company's policy with respect to foreign currency exposure is to manage its
financial exposure to certain foreign exchange fluctuations with the objective
of neutralizing some of the impact of foreign currency exchange movements. To
achieve this objective, the Company enters into foreign exchange forward
contracts to hedge certain non-local-currency payables. The Company enters into
foreign exchange forward contracts with a major Canadian chartered bank, and
therefore does not anticipate non-performance by its counterparty. The amount of
the exposure on account of any non-performance is restricted to the unrealized
gains in such contracts. As at December 31, 1999, the Company had no significant
foreign exchange forward contracts outstanding.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments, including cash and cash
equivalents, short-term investments, accounts receivable and accounts payable,
the carrying amounts approximate the fair value due to their short maturities.
The carrying value of long-term debt, other long-term liabilities and preferred
stock approximates the fair value.
F-27
<PAGE> 53
18. SEGMENT INFORMATION FROM CONTINUING OPERATIONS
The Company's reportable segments are strategic business units that offer
different products. They are managed separately because each business requires
different technology and marketing services and has a different customer base.
The Company conducts business in two operating segments: Sanitation Products and
Wiping Products. The Sanitation Products segment manufactures and distributes
sanitary paper products, cleaning and maintenance chemicals, sanitation
products, electro-mechanical and maintenance systems. The Wiping Products
segment manufactures and distributes disposable wiping products and sanitary
paper products and systems.
The Company evaluates performance based on profit or loss from operations before
income taxes not including non-recurring gains and losses.
The Company accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current market prices.
<TABLE>
<CAPTION>
SANITATION WIPING
PRODUCTS PRODUCTS CORPORATE TOTAL
SEGMENT INFORMATION $ $ $ $
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
1999
Revenues from external customers 60,021,357 18,829,733 -- 78,851,090
Intersegment revenues 4,011,025 397,606 -- 4,408,631
Interest revenue 5,568 -- 54,372 59,940
Interest expense 705,293 69,433 264,917 1,039,643
Depreciation and amortization of
property, plant and equipment and
goodwill 1,310,442 225,683 -- 1,536,125
Segment income (loss) before taxes (329,267) 225,205 (628,330) (732,392)
Segment assets [1] 32,183,560 6,807,650 7,319,389 41,247,510
Expenditures for segment property,
plant and equipment and goodwill 3,476,050 191,596 -- 3,667,646
---------- ---------- --------- ----------
1998
Revenues from external customers 50,787,121 16,337,016 -- 67,124,137
Intersegment revenues 3,703,779 379,811 -- 4,083,590
Interest revenue 2,343 149 -- 2,492
Interest expense 478,799 47,084 632,366 1,158,249
Depreciation and amortization of
property, plant and equipment and
goodwill 833,287 196,984 -- 1,030,271
Segment income (loss) before taxes 2,066,867 6,075 (947,366) 1,125,576
Segment assets [1] 28,239,472 6,948,348 1,906,218 33,336,308
Expenditures for segment property,
plant and equipment and goodwill 4,510,484 127,361 -- 4,637,845
---------- ---------- --------- ----------
</TABLE>
F-28
<PAGE> 54
18. SEGMENT INFORMATION FROM CONTINUING OPERATIONS [CONT'D]
<TABLE>
<CAPTION>
SANITATION WIPING
PRODUCTS PRODUCTS CORPORATE TOTAL
SEGMENT INFORMATION $ $ $ $
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
1997
Revenues from external customers 48,847,534 14,712,169 -- 63,559,703
Intersegment revenues 3,687,194 386,886 -- 4,074,080
Interest revenue -- 7,323 -- 7,323
Interest expense 356,089 -- 389,000 745,089
Depreciation and amortization of
property, plant and equipment and
goodwill 748,985 190,876 -- 939,861
Segment income (loss) before taxes 2,481,335 155,134 (836,500) 1,799,969
Segment assets [1] 21,884,327 6,289,975 2,009,049 27,174,694
Expenditures for segment property,
plant and equipment and goodwill 991,126 273,834 -- 1,264,960
---------- ---------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
PROPERTY, PLANT
AND EQUIPMENT
GEOGRAPHIC INFORMATION REVENUES[2] AND GOODWILL
- ---------------------- -------------------- ---------------
$ % $
<S> <C> <C> <C>
1999
United States 19,877,483 25.2 1,207,139
Canada 57,938,469 73.5 14,181,519
Other foreign countries 1,035,138 1.3 --
---------- ----- ----------
78,851,090 100.0 15,388,658
========== ===== ==========
1998
United States 16,397,707 24.4 1,017,172
Canada 50,092,840 74.6 11,272,881
Other foreign countries 633,590 1.0 --
---------- ----- ----------
67,124,137 100.0 12,290,053
========== ===== ==========
1997
United States 14,598,461 23.0 1,039,795
Canada 48,521,689 76.3 8,020,388
Other foreign countries 439,553 0.7 --
---------- ----- ----------
63,559,703 100.0 9,060,183
========== ===== ==========
</TABLE>
Notes
[1] Intersegment eliminations at December 31 were $5,063,089, $3,757,730 and
$3,008,657 in 1999, 1998 and 1997 respectively.
[2] Revenues are attributed to countries based on location of customers.
F-29
<PAGE> 55
19. RESTATED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------
MARCH 31, 1999 JUNE 30, 1999
(AS RESTATED) (AS RESTATED)
$ $
--------------- ---------------
<S> <C> <C>
Gross profit 6,157,414 6,990,586
Income from continuing operations 12,006 80,297
Net income 418,706 647,650
Basic earnings (loss) per share
Continuing operations (0.02) --
Net income 0.09 0.15
--------------- ---------------
</TABLE>
Income from continuing operations and net income have been reduced by $70,825
and basic earnings per share by $0.02 for the three months ended March 31, 1999
and by $102,550 and $0.03, respectively, for the three months ended June 30,
1999. These reductions relate primarily to accounting adjustments made during
the year-end financial close within one of Wood Wyant's newly-acquired
businesses.
F-30
<PAGE> 56
WYANT CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND COMPANIES END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS (1) ACQUIRED OF YEAR
----------- ------- ---------- -------------- -------- -------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR
DOUBTFUL ACCOUNTS:
Year ended December 31 -
1999 $405,424 $179,730 $99,090 -- $486,064
1998 $323,759 $119,788 $64,335 $26,212 $405,424
1997 $325,276 $116,923 $118,440 -- $323,759
</TABLE>
- --------------------------------------------------------------
(1) Represents amounts written off, net of recoveries
F-31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANNUAL
REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER
31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,203,787
<SECURITIES> 0
<RECEIVABLES> 12,685,337
<ALLOWANCES> 0
<INVENTORY> 8,886,584
<CURRENT-ASSETS> 24,567,486
<PP&E> 11,014,337
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,247,510
<CURRENT-LIABILITIES> 17,014,067
<BONDS> 2,391,175
5,482,791
0
<COMMON> 27,021
<OTHER-SE> 12,900,839
<TOTAL-LIABILITY-AND-EQUITY> 41,247,510
<SALES> 78,851,090
<TOTAL-REVENUES> 78,851,090
<CGS> 51,862,075
<TOTAL-COSTS> 77,722,645
<OTHER-EXPENSES> 821,194
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,039,643
<INCOME-PRETAX> (732,392)
<INCOME-TAX> (189,455)
<INCOME-CONTINUING> (542,937)
<DISCONTINUED> 722,106
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179,169
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
