SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 33-83734
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J. B. WILLIAMS HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 06-1387159
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification number)
65 HARRISTOWN ROAD
GLEN ROCK, NEW JERSEY 07452
(Address of Principal Executive Offices, including Zip Code)
(201) 251-8100
(Registrant's Telephone Number, Including Area Code)
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 No X
--- ---
Number of shares of the issuer's Common Stock, par value $0.01, outstanding as
of May 1, 1998: 9,990
<PAGE>
J.B. WILLIAMS HOLDINGS, INC.
I N D E X
PAGE
PART I - FINANCIAL INFORMATION
---------------------
Item 1: Financial Statements (Unaudited):
Condensed Consolidated Statements of Operations 1
for the Three Months Ended March 31, 1998 and
March 31, 1997
Condensed Consolidated Balance Sheets at March 31, 2
1998 and December 31, 1997
Condensed Consolidated Statements of Cash Flows for 3
the Three Months Ended March 31, 1998 and March 31,
1997
Notes to Condensed Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
PART II - OTHER INFORMATION
-----------------
Item 2: Changes in Securities 9
Item 6: Exhibits and Reports on Form 8-K 9
Signature 10
<PAGE>
J.B. WILLIAMS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
-------- -------
NET SALES $15,777 $11,774
Cost of sales 5,727 3,569
----- -----
GROSS MARGIN 10,050 8,205
Distribution and cash discounts 1,355 1,033
Advertising and promotion 3,905 3,054
Selling, general and administrative expenses 2,859 2,108
Depreciation and amortization 1,027 1,120
------ -------
OPERATING INCOME 904 890
Other income ----- 750
Interest expense-net ( 1,438) ( 1,219)
-------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (534) 421
Income tax provision (benefit) (208) 164
------- ------
NET INCOME (LOSS) $(326) $257
======= =====
See Notes to Condensed Consolidated Financial Statements
-1-
<PAGE>
J.B. WILLIAMS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
(IN THOUSANDS)
AT MARCH 31, 1998 AT DECEMBER 31, 1997
----------------- --------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $6,160 $7,375
Accounts receivable, net 8,648 13,758
Inventories 11,977 9,200
Other current assets 872 636
------- --------
Total Current Assets 27,657 30,969
PROPERTY AND EQUIPMENT, NET 994 943
INTANGIBLE ASSETS, NET 44,918 45,692
OTHER ASSETS 3,795 3,867
------ ------
TOTAL ASSETS $77,364 $81,471
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $4,287 $3,318
Accrued expenses 5,098 9,848
----- -----
Total Current Liabilities 9,385 13,166
----- ------
DUE TO SELLERS OF ACQUIRED BUSINESSES 872 872
--- ---
LONG TERM DEBT 50,345 50,345
------ ------
SHAREHOLDER'S EQUITY:
Common stock and paid-in capital 10,796 9,600
Notes receivable from stock sales (1,196) ----
Retained earnings 7,162 7,488
----- -----
Total Shareholder's Equity 16,762 17,088
------ ------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $77,364 $81,471
======= =======
See Notes to Condensed Consolidated Financial Statements
-2-
<PAGE>
J.B. WILLIAMS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
----- -----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $(326) $257
Adjustments to reconcile net income (loss) to net cash used in
by operating activities:
Amortization of intangibles and debt issuance costs 910 1,022
Depreciation and amortization of property and equipment 117 98
Changes in operating assets and liabilities:
Accounts receivable 5,110 2,253
Inventories (2,777) (586)
Other current assets (236) 113
Accounts payable 969 (2,063)
Accrued expenses (4,750) (1,851)
Other assets (65) (91)
---------- ---------
NET CASH USED INOPERATING ACTIVITIES (1,048) (848)
-------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment (167) (147)
------------ ----------
NET CASH USED IN INVESTING ACTIVITIES (167) (147)
------------ ----------
DECREASE IN CASH AND CASH EQUIVALENTS (1,215) ( 995)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7.375 21,201
------ -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $6,160 $20,206
====== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $583 ----
Interest paid $3,021 $3,021
SUPPLEMENTAL NON-CASH INVESTING ACTIVITIES:
Notes receivable from stock sales $1,196 ----
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-3-
<PAGE>
J.B. WILLIAMS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF ACCOUNTING AND ORGANIZATION
The consolidated financial statements include J.B. Williams Holdings, Inc.
and its wholly-owned subsidiaries: J.B. Williams Company, Inc., After Shave
Products Inc., Pre-Shave Products Inc., Hair Care Products Inc., and CEP
Holdings Inc. (collectively the "Company"). Brynwood Partners II L.P., a private
partnership formed under Delaware law, is the owner of all of the issued and
outstanding capital stock of the Company.
The accompanying unaudited condensed consolidated financial statements as
of March 31, 1998 and for the three month periods ended March 31, 1998 and 1997
have been prepared in accordance with the instructions to Form 10-Q. All
adjustments which, in the opinion of the management of the Company, are
necessary for a fair presentation of the condensed consolidated financial
statements for the three month periods ended March 31, 1998 and 1997 have been
reflected. All such adjustments are of a normal recurring nature. The March 31,
1998 condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year ended
December 31, 1997 included in the Company's Annual Report on Form 10-K.
The results of operations for the period ended March 31, 1998 are not
necessarily indicative of the operating results for the full year.
2. LONG TERM DEBT
Long term debt consists of $50.3 million 12% Senior Notes, due 2004 (the
"Senior Notes").
3. FINANCIAL INFORMATION CONCERNING GUARANTORS
The Senior Notes are guaranteed by each of the Company's wholly-owned
subsidiaries, which constitute all of the Company's direct or indirect
subsidiaries (the "Subsidiary Guarantors"). The Subsidiary Guarantors have fully
and unconditionally guaranteed the Senior Notes on a joint and several basis;
and the aggregate assets, liabilities, earnings and equity of the Subsidiary
Guarantors are substantially equivalent to the assets, liabilities, earnings and
equity of the Company on a consolidated basis. There are no restrictions on the
ability of the Subsidiary Guarantors to make distributions to the Company. In
management's opinion separate financial statements and other disclosures
concerning the Subsidiary Guarantors would not be material to investors.
Accordingly, separate financial statements and other disclosures concerning the
Subsidiary Guarantors are not included herein.
-4-
<PAGE>
4. OTHER INCOME
The Company received a one-time payment of $750,000 in January 1997
representing a break-up fee payable to the Company pursuant to the terms of a
letter of intent entered into by the Company in connection with a potential
transaction.
5. ACQUISITIONS
In August 1997, the Company purchased certain assets associated with the
Viractin and San Francisco Soap Company brands from Virotex Corp. and Avalon
Natural Cosmetics, Inc., respectively. Additionally, in October 1997 the Company
acquired certain assets associated with the Cepacol business in Canada from
Hoechst Marion Roussel Canada, Inc. These acquisitions consisted primarily of
the trademarks, patents, inventories, formulas, marketing materials and customer
lists associated with each of these businesses. Each of these businesses did not
comprise a separate business unit of the prior owner. Accordingly, other than
net sales, there is no financial or operating data available for these
businesses. The acquisitions were accounted for using the purchase method of
accounting in accordance with Accounting Principle Board Opinion No. 16
"Business Combinations".
The cost of the Viractin business was approximately $4,692,000 of which
$550,000 was allocated to the fair value of the tangible assets acquired and
$4,142,000 was allocated to intangibles. The cost of the San Francisco Soap
Company business was approximately $11,704,000 of which $7,740,000 was allocated
to the fair value of tangible assets acquired and $3,964,000 was allocated to
intangibles. In both of these transactions there are additional contingent
payments tied to annual net sales during the five year period following each
respective closing date. The cost of the Cepacol (Canada) business was
approximately $1,490,000, all of which was allocated to intangibles.
6. CHANGES IN SECURITIES
As of March 1, 1998, the Company issued 1,000 shares of common stock for an
aggregate purchase price of $1,196,233. These shares were issued to certain
employees of the Company as a result of the exercise of options issued to the
employees under the Company's 1994 Stock Option Plan. The shares were in each
case paid for by a recourse promissory note in favor of the Company.
7. RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial statements
to conform with the current year's presentation.
-5-
<PAGE>
J. B. WILLIAMS HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
J. B. Williams Holdings, Inc. (the "Company"), through its subsidiaries,
distributes and sells personal and health care products in the United States,
Canada and Puerto Rico. During August 1997 the Company added to its personal
care products business with the acquisition of the San Francisco Soap Company
brand from Avalon Natural Cosmetics, Inc. It also added to its health care
products business with the August 1997 acquisition of the Viractin brand from
Virotex Corp., the October 1997 acquisition of the Cepacol business in Canada
from Hoechst Marion Roussel Canada, Inc. and the July 1997 agreement with Summa
Rx Laboratories, Inc. for the purchase of certain rights to sell zinc dietary
supplements under the name Cepacol ColdCare.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998
The following table sets forth certain operating data for the three months ended
March 31, 1998 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
(In Thousands)
PERSONAL CARE PRODUCTS HEALTH CARE PRODUCTS TOTAL COMPANY
---------------------- -------------------- -------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET SALES $10,529 $6,972 $5,248 $4,802 $15,777 $11,774
Cost of Goods Sold 3,971 1,884 1,756 1,685 5,727 3,569
------- ------ ----- ----- ----- -------
GROSS MARGIN 6,558 5,088 3,492 3,117 10,050 8,205
Distribution and Cash Discounts 886 522 469 511 1,355 1,033
Advertising and Promotion 2,196 1,887 1,709 1,167 3,905 3,054
-------- ------ ----- ------ ----- -----
BRAND CONTRIBUTION $3,476 $2,679 $1,314 $1,439 4,790 4,118
======== ====== ====== ======
Selling, General and Admin. Exp. 2,859 2,108
Depreciation and Amortization 1,027 1,120
----- -------
OPERATING INCOME 904 890
Other Income ---- 750
Interest Expense, Net (1,438) (1,219)
------ -------
INCOME (LOSS) BEFORE INCOME TAXES (534) 421
Income Tax Provision (Benefit) (208) 164
------ -----
NET INCOME (LOSS) $(326) $257
====== =====
</TABLE>
For the three month period ended March 31, 1998, net sales increased 34.0% to
$15,777,000 from $11,774,000 for the same period in 1997. This increase is
primarily due to sales associated with the new businesses acquired during the
second half of 1997. Excluding these items, sales of the base business products
during the first quarter of 1998 were essentially flat versus the same period in
1997.
-6-
<PAGE>
For the three month period ended March 31, 1998, cost of goods sold increased
60.5% to $5,727,000 from $3,569,000 for the same period in 1997. This increase
is directly linked to the Company's higher sales volumes combined with higher
manufacturing costs, particularly costs related to the transition of the San
Francisco Soap Company products to new contract manufaturers and costs related
to the 1998 San Francisco Soap Spring gift set program.
For the three month period ended March 31, 1998, distribution expenses and cash
discounts increased 31.2% to $1,355,000 from $1,033,000 for the same period in
1997. This increase is primarily associated with the increased sales volumes.
For the three month period ended March 31, 1998, advertising and promotion
expenses increased 27.9% to $3,905,000 from $3,054,000 for the same period in
1997. This increase is entirely due to the marketing support programs associated
with the newly acquired businesses.
For the three month period ended March 31, 1998, selling, general and
administrative expenses increased 35.6% to $2,859,000 from $2,108,000 for the
same period in 1997. This increase is related to a combination of increased
staffing levels related to the new businesses and higher broker commission
payments associated with the increase in net sales.
For the three month period ended March 31, 1998, depreciation and amortization
decreased 8.3% to $1,027,000 from $1,120,000 for the same period in 1997. This
decrease is related to lower levels of amortization as certain intangible assets
became fully amortized at the end of 1997.
During the first quarter of 1997, other income of $750,000 was received as a
result of a one-time payment that represented a break-up fee payable to the
Company pursuant to the terms of a Letter of Intent entered into by the Company
in connection with a potential transaction.
For the three month period ended March 31, 1998, interest expense, net of
interest income, increased 18.0% to $1,438,000 from $1,219,000 for the same
period in 1997. As a result of the acquisitions made during the second half of
1997, cash and cash equivalents decreased from $20,206,000 as of March 31, 1997
to $6,160,000 as of March 31, 1998. This decrease in cash has resulted in a
corresponding decrease in interest income, thereby resulting in an overall
increase in interest expense.
For the three month period ended March 31, 1998, the Company recorded an income
tax benefit of $208,000 versus an income tax expense of $164,000 for the same
period in 1997. The effective tax rate was 39% for both interim periods.
As a result of the foregoing the Company realized a net loss of $(326,000) for
the three month period ended March 31, 1998. This compares unfavorably with a
net income of $257,000 for the same three month period in 1997. Most of this
variance can be traced back to the $750,000 break-up fee paid to the Company in
1997 in connection with a potential transaction, since operating income of
$904,000 in 1998 is essentially unchanged versus $890,000 for the same period in
1997.
-7-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following chart summarizes the net funds provided and/or used in operating,
financing and investing activities for the periods ended March 31, 1998 and 1997
(in thousands).
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---- ----
Net cash used in operating activities $(1,048) $(848)
Net cash used in investing activities (167) (147)
Decrease in cash and cash equivalents $(1,215) $(995)
The principal adjustments to reconcile net loss of $(326,000) for the period
ended March 31, 1998 to net cash used in operating activities of $(1,048,000)
are depreciation and amortization of $1,027,000, offset by a net increase in
working capital requirements of $1,749,000. The working capital increase is
primarily linked to an increase in finished goods inventories of San Francisco
Soap products, as the Company is preparing for 1998's Holiday gift set
production, and a decrease in accrued expenses.
Capital expenditures, which were $167,000 for the three months ended March 31,
1998, are generally not significant in the Company's business. Aside from
approximately $.6 million that the Company has budgeted for the replacement of
its financial operating system, the Company currently has no material
commitments for future capital expenditures.
As a result of the Senior Notes, the Company had $50.3 million of total debt
outstanding of December 31, 1997. Management expects that cash on hand and
internally generated funds will provide sufficient capital resources to finance
the Company's operations and meet interest requirements on the Senior Notes,
both in respect of the short term as well as during the long term. However, as a
result of the cash expenditures made in connection with the Company's
acquisition of the San Francisco Soap, Cepacol (Canada) and Viractin businesses,
cash and cash equivalents decreased from $21,201,000 on December 31, 1996, to
$7,375,000 on December 31, 1997. Since there can be no guarantee that the
Company will generate internal funds sufficient to finance its operations and
debt requirements, the Company has arranged for a secured line of credit with
the Bank of New York through August 31, 1998 and is currently planning to extend
the line of credit to provide funds, should they be required, in order for the
Company to meet its liquidity requirements. The line of credit is in the maximum
amount of $5,000,000, with the amount available being subject to reduction based
on certain criteria relative to the Company's accounts receivable and inventory.
-8-
<PAGE>
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES
As of March 1, 1998, the Company issued 1,000 shares of common stock for an
aggregate purchase price of $1,196,233. These shares were issued to certain
employees of the Company as a result of the exercise of options issued to the
employees under the Company's 1994 Stock Option Plan, and pursuant to the
exemption from registration under the Securities Act of 1933 provided for by
Rule 701 of Regulation S-K. The shares were in each case paid for by a recourse
promissory note in favor of the Company.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
- Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
- No reports on Form 8-K were filed by the registrant during
the period covered by this report.
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
J.B. WILLIAMS HOLDINGS, INC.
Date: MAY 8, 1998 /s/ Kevin C. Hartnett
----------- -----------------------------------------
Name: Kevin C. Hartnett
Title: Vice President and Chief Financial Officer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
J. B. WILLIAMS HOLDINGS, INC. FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 6,160
<SECURITIES> 0
<RECEIVABLES> 9,198
<ALLOWANCES> 550
<INVENTORY> 11,977
<CURRENT-ASSETS> 27,657
<PP&E> 2,518
<DEPRECIATION> 1,524
<TOTAL-ASSETS> 77,364
<CURRENT-LIABILITIES> 9,385
<BONDS> 50,345
0
0
<COMMON> 10,796
<OTHER-SE> 5,966
<TOTAL-LIABILITY-AND-EQUITY> 77,364
<SALES> 15,777
<TOTAL-REVENUES> 15,777
<CGS> 5,727
<TOTAL-COSTS> 5,727
<OTHER-EXPENSES> 9,146
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,438
<INCOME-PRETAX> (534)
<INCOME-TAX> (208)
<INCOME-CONTINUING> (534)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (326)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
