-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KKk9SexMYF2VMCJ3i7uK0AVhbszWxFxWWcUEZK3fYvjuKjt+tO1NCXAQc/0qVaP6 IruGeUm58plR+oi71XYtXg== 0000950123-99-004701.txt : 19990517 0000950123-99-004701.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950123-99-004701 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WYANT CORP CENTRAL INDEX KEY: 0000048569 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 112236837 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-08410 FILM NUMBER: 99623015 BUSINESS ADDRESS: STREET 1: 100 READINGTON ROAD STREET 2: P O BOX 8609 CITY: SOMERVILLE STATE: NJ ZIP: 08876 BUSINESS PHONE: 9087071800 MAIL ADDRESS: STREET 1: 100 READINGTON ROAD STREET 2: P O BOX 8609 CITY: SOMERVILLE STATE: NJ ZIP: 08876 FORMER COMPANY: FORMER CONFORMED NAME: HOSPOSABLE PRODUCTS INC DATE OF NAME CHANGE: 19920703 10-Q 1 WYANT CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 ------------------------------------------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- ---------------------------- Commission file number 0-8410 ------------------------------------------------- WYANT CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New York 11-2236837 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 100 Readington Road Somerville, New Jersey 08876 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code 908-707-1800 NONE - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirement for the past 90 days. Yes X No ---------- --------- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the latest practicable date. Class Outstanding at May 12, 1999 - --------------------------------------------------------------------------- Common stock, $.01 par value 2,273,817 1 2 WYANT CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED MARCH 31, 1999 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The attached unaudited consolidated financial statements of Wyant Corporation and Subsidiaries reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the operating results for the interim periods. Consolidated balance sheet 3 Consolidated statement of operations 4 Consolidated statement of cash flows 5 Consolidated statement of stockholders' equity 6 Notes to consolidated financial statements 7-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2 3 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WYANT CORPORATION CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31 December 31 1999 1998 ---- ---- ASSETS CURRENT Cash and cash equivalents $ -- $ 59,985 Accounts receivable 11,791,279 10,215,812 Inventories (note 3) 8,519,215 8,576,960 Net assets held for divestiture (note 2) 9,462,241 9,203,356 Other 740,347 1,393,270 ----------- ----------- TOTAL CURRENT ASSETS 30,513,082 29,449,383 Property, plant and equipment, net of accumulated amortization of $11,888,229 (December 31, 1998 - $11,474,155) 10,320,143 8,593,460 Other assets 4,511,653 4,496,821 ----------- ----------- TOTAL ASSETS $45,344,878 $42,539,664 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT Revolving line of credit $ 6,261,270 $ 4,092,128 Committed revolving credit facility 3,789,294 4,238,720 Accounts payable 5,780,282 4,856,657 Accrued expenses 1,856,266 3,228,412 Income taxes payable 710,663 433,288 Current portion of long-term debt (note 4) 1,416,621 1,061,332 Current portion of preferred stock of subsidiary 524,003 513,204 ---------- ----------- TOTAL CURRENT LIABILITIES 20,338,399 18,423,741 Long-term debt (notes 4 & 6) 5,002,560 3,887,593 Preferred stock of subsidiary (note 6) 5,121,513 5,477,072 Deferred income taxes 1,705,931 2,076,416 STOCKHOLDERS' EQUITY Common stock, par value $0.01 per share 27,053 27,053 Additional paid-in capital 6,821,825 6,821,825 Retained earnings 6,721,249 6,326,679 Cumulative translation adjustment (393,652) (500,715) ----------- ---------- TOTAL STOCKHOLDERS' EQUITY 13,176,475 12,674,842 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $45,344,878 $42,539,664 =========== ===========
See accompanying notes 3 4 WYANT CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
1999 1998 ---- ---- [Restated] Net sales $18,525,359 $15,550,112 Cost of sales 12,245,520 10,166,464 ----------- ----------- Gross profit 6,279,839 5,383,648 Expenses Selling 3,589,520 3,006,940 General and administration 2,186,133 1,837,128 Amortization 143,910 91,043 Interest expense 309,885 248,614 Other income (123,440) (79,595) ----------- ----------- 6,106,008 5,104,130 ----------- ----------- Income from continuing operations before income taxes 173,831 279,518 Income tax expense Current 69,700 95,600 Deferred 21,300 124,600 ----------- ----------- 91,000 124,600 ----------- ----------- Income from continuing operations 82,831 154,918 Discontinued operations, net of income taxes of $212,300 (1998 - $194,400) (note 2) 406,700 355,056 ----------- ----------- Net income 489,531 509,974 Dividends and accretion of mandatorily redeemable preferred stock 94,961 75,446 ----------- ----------- Net income attributable to common shares $ 394,570 $ 434,528 =========== =========== Per common share (note 5) BASIC Income from continuing operations $ -- $ 0.02 Discontinued operations 0.11 0.10 Net income 0.11 0.12 DILUTED Income from continuing operations -- 0.02 Discontinued operations 0.10 0.10 Net income 0.10 0.12
See accompanying notes 4 5 WYANT CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1999 and 1998 (UNAUDITED) 1999 1998 ---- ---- [Restated] CASH FLOWS FROM OPERATING ACTIVITIES Net income from continuing operations $ 82,831 $ 154,918 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 305,168 243,034 Gain on sale of fixed assets (287) -- Deferred income tax expense 12,360 29,000 Deferred pension costs (8,748) (30,216) Changes in non-cash working capital balances Accounts receivable (1,575,467) 319,815 Inventories 57,745 307,898 Other current assets 250,793 (63,272) Accounts payable (448,521) (240,191) Income taxes payable 276,122 (300,701) Cash provided by discontinued operations 166,659 29,569 ----------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (881,345) 449,854 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (1,777,705) (200,805) Cash proceeds from sale of fixed assets 9,135 -- Decrease in other assets -- 24,691 Cash used for discontinued operations (18,844) (16,449) ----------- ---------- NET CASH USED IN INVESTING ACTIVITIES (1,787,414) (192,563) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in committed revolving credit facility (449,426) 221,043 Repayment of long-term debt (296,766) (363,129) Increase in long-term debt 1,654,205 460,241 Redemption of preferred shares (513,204) (550,122) Dividends paid by subsidiary (41,654) (49,511) Increase (decrease) in bank indebtedness 2,169,142 (231,549) Cash provided by discontinued operations -- 80,101 ----------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,522,297 (432,926) Effect of exchange rate changes on cash 86,477 19,504 ----------- --------- Net decrease in cash and cash equivalents (59,985) (156,131) Cash and cash equivalents, beginning of period 59,985 156,131 ----------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ -- =========== =========
See accompanying notes 5 6 WYANT CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 1999 and 1998 (UNAUDITED)
1999 1998 ----- ----- COMMON STOCK AT PAR VALUE $ 27,053 $ 27,037 ----------- ----------- ADDITIONAL PAID-IN CAPITAL 6,821,825 6,806,867 ----------- ----------- RETAINED EARNINGS Balance at beginning of period 6,326,679 5,112,006 Net income 489,531 509,974 Dividends declared (41,654) (49,511) Accretion on preferred shares of subsidiary (53,307) (25,935) ----------- ----------- BALANCE AT END OF PERIOD 6,721,249 5,546,534 ----------- ----------- ACCUMULATED OTHER COMPREHENSIVE INCOME Balance at beginning of period (500,715) (165,925) Foreign currency translation adjustments 107,063 23,824 ----------- ----------- BALANCE AT END OF PERIOD (393,652) (142,101) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY $13,176,475 $12,238,337 =========== =========== COMPREHENSIVE INCOME Net income $ 489,531 $ 509,974 Other - Foreign currency translation adjustments 107,063 23,824 ----------- ----------- Comprehensive income for period $ 596,594 $ 533,798 =========== =========== NUMBER OF COMMON SHARES ISSUED AND OUTSTANDING 2,273,817 2,271,484 COMMON SHARES ISSUABLE UPON CONVERSION OF EXCHANGEABLE SHARES 1,333,333 1,333,333 ----------- ----------- NUMBER OF COMMON SHARES ISSUED, ISSUABLE AND OUTSTANDING 3,607,150 3,604,817 =========== ===========
See accompanying notes 6 7 WYANT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information as at March 31, 1999 and for the three months ended March 31, 1999 and 1998 are unaudited) 1. GENERAL The accompanying unaudited consolidated financial statements include the accounts of Wyant Corporation and its wholly-owned subsidiaries, IFC Disposables, Inc. and Wood Wyant Inc. They have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying consolidated financial statements contain all adjustments, consisting only of normal recurring accruals considered necessary to present fairly the financial position as of March 31, 1999, the results of operations, cash flows and changes in stockholders' equity for the three months ended March 31, 1999 and 1998. For further information, refer to the financial statements and notes thereto included in the Company's annual report for the year ended December 31, 1998. 2. DISCONTINUED OPERATIONS On December 17, 1998, the Board of Directors authorized management to pursue the sale of the Company's Wyant Health Care Division ("Division"). On February 23, 1999 the Board approved the sale of the Division to Paper-Pak Products, Inc. ("PaperPak"), subject to completion of buyer financing, customary regulatory approvals and the approval of the Company's shareholders. Consequently, the results of the Division have been reported in these financial statements as discontinued operations. The Company will receive cash of $11,500,000 on closing and $550,000 will be held in escrow for twenty four months, subject to adjustment on closing. The operating results of the Division are as follows:
Three months ended March 31, ---------------------------- 1999 1998 ----- ----- Net sales $10,286,439 $9,787,184 Income before income taxes 619,000 549,456
The Company expects the sale of the Division to close in the second quarter of 1999. At the date of disposal, the Company expects to record a small gain. Included in the Company's estimated gain are the estimated costs to satisfy the Division's obligation with respect to a defined benefit multi-employer pension plan which covers certain of the Division's employees. 7 8 3. INVENTORIES
March 31, December 31, 1999 1998 ------ ----- Raw materials $2,321,787 $2,065,073 Finished goods 6,197,428 6,511,887 ---------- ---------- $8,519,215 $8,576,960 ========== ==========
4. LONG-TERM DEBT
March 31, December 31, 1999 1998 ---- ---- Wood Wyant Inc. Term loan repayable in monthly installments of Cdn. $20,476 plus interest at prime plus 3/4% (prime at March 31, 1999 - 6.75%), maturing October 1, 2001. Principal amount Cdn. $1,631,428 (December 31, 1998 - Cdn. $1,692,856) 1,086,387 1,104,060 Term loan repayable in monthly installments of Cdn. $35,000 plus interest at prime plus 3/4%, maturing April 30, 2003. Principal amount Cdn. $1,715,000 (December 31, 1998 - Cdn. $1,820,000) 1,142,039 1,186,982 Term loan repayable in monthly installments of Cdn. $49,523 plus interest at prime plus 3/4%, maturing June 30, 2003. Principal amount Cdn.$2,525,638 (December 31, 1998 - Cdn. $2,674,207) 1,681,853 1,744,086 Term loan repayable in monthly installments of Cdn. $41,667 plus interest at prime plus 3/4%, maturing March 15, 2004. Principal amount Cdn.$2,458,333 1,637,033 -- Revolving credit facility (Cdn. $1,309,286 - December 31, 1998 - Cdn.$1,401,125) 871,869 913,797 --------- --------- 6,419,181 4,948,925 Current portion 1,416,621 1,061,332 ---------- ---------- $5,002,560 $3,887,593 ========== ==========
8 9 5. EARNINGS PER SHARE
Three months ended March 31 --------------------------- 1999 1998 ---- ---- Numerator Income from continuing operations before extraordinary gain $ 82,831 $ 154,918 Preferred stock dividends and accretion 94,661 75,446 -------- --------- Numerator for basic earnings per share - income (loss) from continuing operations available to common stockholders (12,130) 79,472 Accretion on convertible preferred shares 28,307 -- --------- ---------- Numerator for diluted earnings per share - income from continuing operations available to common stockholders $ 16,177 $ 79,472 ========= ========== Denominator Denominator for basic earnings per share - weighted-average shares issued, issuable and outstanding 3,607,150 3,604,817 Effect of dilutive securities Convertible securities 283,111 -- Stock options 540 96,062 ---------- ---------- Denominator for diluted earnings per share - adjusted weighted-average shares 3,890,801 3,700,879 ========== ========== Basic earnings per share from continuing operations $ -- $ 0.02 Diluted earnings per share from continuing operations $ -- $ 0.02
6. PURCHASE OF BUSINESSES During the second quarter of 1998, the Company, through its wholly-owned subsidiary, Wood Wyant Inc. acquired 100% of the outstanding shares of the following companies: April 30, 1998 H.A. Perigord Company Limited June 26, 1998 Professional Sanitation Products Ltd. June 30, 1998 Midway Supply Ltd. Purnel Distributors Ltd. Midway Purnel Sanitary Supply Ltd. Fraser Valley Industrial Chemicals Inc.
9 10 6. PURCHASE OF BUSINESSES (Cont'd) Fraser Valley Industrial Chemicals Inc. is a manufacturer of sanitary chemical products. All of the other acquired companies are distributors of sanitation products. The acquisitions have been accounted for under the purchase method. Financial results of the companies are included in the Company's consolidated statement of operations from the respective dates of acquisition. The cost of purchase of the above companies totalled $5,715,895, including expenses related to the transactions but excluding cash acquired. This was financed by the issue of 283,111 Class F Preferred shares of Wood Wyant Inc., with a fair value of $1,861,876 at the respective transaction dates, with the balance paid in cash. The cash portion was financed by term bank loans, from which $3,525,440 had been drawn at March 31, 1999. The Class F Preferred shares are exchangeable at any time for common shares of Wyant Corporation on a one-for-one basis, and in addition holders have a one-time option in July 2000 to retract all of the Class F shares at Cdn. $11.250028 per share, payable in five equal annual instalments commencing August 3, 2000, with dividends at 3.5% per annum payable monthly from July 1, 2000 if the option is exercised. The pro-forma unaudited results of operations for the three months ended March 31, 1998, assuming consummation of the transactions as of January 1, 1998, are as follows:
Three months ended March 31, 1998 --------------------------------- Net sales $18,999,971 Income from continuing operations 171,750 Net income 526,806 Per common share Income from continuing operations 0.02 Net income 0.12
7. SEGMENT INFORMATION FROM CONTINUING OPERATIONS Three months ended March 31 ---------------------------
Sanitation Wiping Products Products Corporate Total ---------- -------- --------- ----- 1999 ---- Revenues from external customers $14,406,362 $4,118,997 $18,525,359 Intersegment revenues 813,455 85,138 898,593 Segment income (loss) before taxes 335,309 23,020 (184,498) 173,831 Segment assets 29,979,995 5,324,738 577,904 35,882,637 1998 ---- Revenues from external customers $11,500,782 $4,049,330 $15,550,112 Intersegment revenues 832,171 88,763 920,934 Segment income (loss) before taxes 465,529 83,989 (270,000) 279,518
10 11 8. RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform with the presentation in the current period. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the accompanying unaudited financial statements and the notes thereto included in Item I of this quarterly report, and the financial statements and the notes thereto and management's discussion and analysis of financial condition and results of operations contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. As indicated in Note 2 to the consolidated financial statements, the Company has agreed to sell its Wyant Health Care Division and substantially all of its operating assets. Accordingly, such consolidated financial statements, as well as the discussion below, reflect the consummation of this transaction by showing the health care business as "discontinued operations" for income statement purposes and as "net assets held for divestiture" for balance sheet purposes. The following information includes forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934) that involve a number of risks and uncertainties that may influence the financial performance and earnings of the Company, and may cause actual results to differ materially from those in the forward-looking statements, including, but not limited to, factors such as the ability of the Company to successfully integrate the business and personnel of various acquired businesses into its operations, the ability to implement its business strategy assuming consummation of the PaperPak transaction, the ability to adequately address Year 2000-related issues, the ability to maintain existing customer relationships and to secure new customers on satisfactory terms, whether by contract or otherwise, unforeseen price pressure on the Company's products or significant cost increases that cannot be recovered through price increases or productivity improvements, the ability to obtain any necessary financing on reasonably satisfactory terms, the effect of exchange rate fluctuations and the effect of competitive, capital market and general economic conditions. Such forward-looking statements, which reflect the Company's current views with respect to certain future events and financial performance, should be considered in light of such factors. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THE THREE MONTHS ENDED MARCH 31, 1998 SALES - ----- Sales of continuing operations for the three months ended March 31, 1999 increased by $2,975,247 or 19.1% to $18,525,359 from the total of $15,550,112 in the first quarter of 1998, after eliminating inter-segment sales of $898,593 in the current quarter and $920,934 in the same quarter last year. Sales of the sanitation products segment were $15,219,817 in the current quarter, compared with $12,332,953 in the first quarter of 1998, an increase of $2,886,864 or 23.4%. The increase resulted primarily from the sales of the businesses acquired in the second quarter of 1998 and higher direct sales of paper products from the Company's paper converting operation, which more than offset the negative impact of a weaker Canadian dollar translation rate. Sales of the wiping products segment at $4,204,135 were $66,042 or 1.6% higher than in the first quarter of 1998, primarily due to increased sales of wipers. COST OF SALES AND GROSS PROFIT - ------------------------------ Gross profit of the sanitation products segment declined to 36.4% of sales from 37.9% of sales in the first quarter of 1998, reflecting primarily lower selling prices for paper products. Gross profit of the wiping products segment improved to 17.7% of sales from 17.3% in the corresponding period last year, primarily due to improved margins on sales of paper products. 11 12 SELLING EXPENSES - ---------------- Selling expenses for the first quarter of 1999 amounted to $3,589,520, an increase of $582,580 or 19.4% over the same period last year. In the sanitation products segment, selling expenses at $3,207,020 were $708,324 higher than in the first quarter of 1998, an increase of 28.3%. The increase resulted from the added expenses of the acquired businesses and additional costs of approximately $116,000 incurred as a result of challenges associated with the implementation of new information systems during the first quarter of 1999, which more than offset the favorable impact of the weaker Canadian dollar translation rate. In the wiping products segment, selling expenses increased by $54,256 or 10.7% to $562,500, reflecting primarily higher outward freight and staffing costs. GENERAL AND ADMINISTRATION EXPENSES - ----------------------------------- General and administration expenses increased by $349,005 or 19.0% to $2,186,133 in the current quarter. Expenses of the sanitation products segment at $1,985,478 were $358,250 or 22.0% higher than in the first quarter of 1998, as the added expenses of the businesses acquired in the second quarter of 1998 and costs resulting from the new information systems implementation more than offset the favorable impact of the weaker Canadian dollar translation rate. General and administration expenses of the wiping products segment were $131,409 in the current quarter, an increase of $19,999 or 18.0% over the same quarter last year due primarily to higher staffing costs. Corporate charges in the current quarter at $69,246 were $29,754 lower than in the prior year due primarily to lower professional fees. AMORTIZATION - ------------ Amortization amounted to $143,910 in the first quarter of 1999, an increase of $52,867 over the corresponding quarter last year. The increase reflected the additional amortization from the businesses acquired in mid-1998 and from the goodwill resulting from their purchase. INTEREST EXPENSE - ---------------- Interest expense increased by $61,271 to $309,885 in the current quarter. The increase resulted from higher borrowing costs in Canada ($99,258) incurred primarily to finance the 1998 acquisitions of businesses, partially offset by a reduction of $37,987 in interest cost in the United States on the loan from Congress Financial Corporation. This loan will be repaid from the proceeds of the sale of the Wyant Health Care Division. OTHER INCOME - ------------ Other income increased to $123,440 from $79,595 in the first quarter of 1998. INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES - ----------------------------------------------------- Income from continuing operations before income taxes amounted to $173,831 for the first quarter of 1999, a reduction of $105,687 from the level of $279,518 in the same quarter last year. The sanitation products and wiping products segments decreased by $130,220 and $60,969 respectively, while corporate expenses were $85,502 lower than in the first quarter of 1998. INCOME TAXES - ------------ Income tax expense at $91,000 was $33,600 lower than in the first quarter of 1998, reflecting the lower level of pre-tax income in the current quarter. 12 13 DISCONTINUED OPERATIONS - ----------------------- The discontinued health care operations generated after-tax income from operations of $406,700 or $0.11 per common share, compared with $355,056 or $0.10 per common share in the first quarter of 1998. The improvement in 1999 results compared with the first quarter of 1998 was due to a 5.1% increase in sales revenue, primarily from higher sales of airlaid products and branded adult incontinent products, partially offset by lower sales of private label products, together with higher margins, at 21% of sales compared with 20% of sales in the first quarter last year. These were partially offset by an increase of $203,424 or 15.5% in operating expenses, which included $87,936 of higher outward freight costs to support the increased sales and $54,296 from increased marketing expenses. NET INCOME - ---------- Net income for the first quarter of 1999 amounted to $489,531, or $0.11 per common share after deducting dividends and accretion relating to the mandatorily redeemable preferred shares, compared with net income of $509,974 or $0.12 per common share in the first quarter of 1998. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Liquidity and capital resources of the Company's Canadian operations (Wood Wyant) and United States operations (IFC Disposables) are discussed separately, as each is self-financing and has separate banking facilities. CANADIAN OPERATIONS - ------------------- Cash utilized during the first quarter of 1999 amounted to $1,741,170. Operating activities utilized $1,145,214 due to an increase in working capital of $1,565,233, primarily due to higher receivables ($1,485,474) and lower payables ($578,780), partially offset by lower prepaid expenses ($247,558) and inventories ($139,313) and higher income taxes payable ($112,150). The increased receivables resulted from a higher level of sales in March 1999, together with poorer collection performance in the first quarter of 1999, due in part to problems associated with the start-up of new applications software in February 1999. The lower level of payables reflected primarily a new contract for paper purchases which provides less favorable payment terms. Capital expenditures amounted to $1,758,308 in the current quarter, comprising for the most part expenditures for the new applications software and related hardware. The Company originally had intended to lease this equipment and had entered into a lease agreement in September 1997 for this purpose. However, a decision was made in the first quarter of 1999 to cancel the lease agreement and instead to finance the purchase by a five-year term bank loan of Cdn. $2,500,000 ($1,664,780). Repayments of long-term debt during the quarter amounted to $296,766. In addition, $513,204 of outstanding Class A Preferred shares were redeemed in January 1999 and dividends of $41,654 were paid in the quarter on the Class A and Class B Preferred shares. On March 10, 1999 the Company increased its secured revolving line of credit from Cdn. $7,500,000 to Cdn. $9,500,000 ($6,326,164) to meet increased working capital requirements. At March 31, 1999, approximately $1,025,000 was available under this facility. In addition, approximately $697,000 was available to finance future capital expenditures under a revolving credit facility of $1,997,736 (Cdn. $3,000,000). All borrowings of the Canadian Operations are with the Bank of Nova Scotia. Long-term debt outstanding at March 31, 1999 amounted to $6,419,181 including $1,416,621 due within one year. All of the loans were at the commercial prime rate in Canada (6.75% at March 31, 1999) plus 0.75%. The secured revolving line of credit bears interest at the prime rate in Canada. Under the terms of the loan agreements, covenants exist which require Wood Wyant to meet certain ratios relating to debt to tangible net worth, current assets to current liabilities and cash flow to debt service, as well as maintaining a minimum level of tangible net worth. Also, borrowings under the revolving credit facility must not exceed a given proportion of accounts receivable. The Company was in compliance with all of the covenants at March 31, 1999. The Company has no commitments for material capital expenditures and has no plans for major capital expenditures for existing businesses during the next five years. Payments on long-term debt obligations existing at March 31, 1999 average less than $1,000,000 over the next five years with a maximum of $1,496,000 in 2000. 13 14 CANADIAN OPERATIONS (Cont'd) - ---------------------------- Amounts required to redeem Class A and Class B Preferred shares approximate $550,000 per annum during that period, while redemption of the Class F Preferred shares in the event that the option to redeem is exercised by the holders of those shares would require an additional annual amount of approximately $425,000 for five years commencing in 2000. Management believes that future operating cash flows and the unused balance available under existing credit facilities will be sufficient to meet its ongoing operating cash requirements, to repay the term debt and redeem the Preferred shares as they become due and to meet cash requirements for capital asset additions. U.S. OPERATIONS - --------------- Cash of $635,772 was utilized by continuing operations in the United States during the first quarter of 1999. Working capital decreased by $125,905, as increases in payables ($130,259) and income taxes payable ($163,978) were only partially offset by higher receivables ($89,993) and inventories ($81,568). Capital expenditures in the quarter amounted to $19,397. A total of $449,426 of the committed revolving credit facility with Congress Financial Corporation was repaid during the quarter. Borrowings of the U.S. Operations consist of a committed revolving credit facility of $13,000,000 with Congress Financial Corporation which bears interest at commercial prime rate plus 1% (prime at March 31, 1999 was 7.75%). Unused availability was approximately $3,773,000 at March 31, 1999. Maximum borrowing under the facility is determined by certain advance formulas applicable to the level of accounts receivable and inventories and the value of property, plant and equipment, net of guarantees. Management believes that future operating cash flows and the unused balance available under the existing credit facility will be sufficient to enable the Company to meet its ongoing operating cash requirements and to finance capital asset additions until the sale of the Wyant Health Care Division and to meet its ongoing cash requirements if the sale of the Wyant Health Care Division is not consummated. Thereafter, following the repayment of the balance outstanding under the secured line of credit with Congress Financial Corporation, management believes that future operating cash flows and excess cash on hand will be sufficient to meet operating cash requirements and to finance capital asset additions. DISCONTINUED OPERATIONS - ----------------------- On February 23, 1999, the Board of Directors approved the sale of the Company's Wyant Health Care Division, subject to completion of buyer financing, customary regulatory approvals and the approval of the Company's shareholders, for cash on closing of $11,500,000 and $550,000 which will be held in escrow for twenty-four months. These cash proceeds are subject to adjustment on closing, which is expected to occur in the second quarter of 1999. Results of operations between the measurement date of December 17, 1998 and the closing date are expected to contribute positively to the Company's overall results. Cash received on closing will be utilized to pay off the balance under the secured line of credit with Congress Financial Corporation ($3,789,294 as at March 31, 1999), and to pay the withdrawal liability and income taxes generated by the transaction. The Company is in the process of evaluating possible alternative uses of the balance of the net cash proceeds from the sale, including the acquisition of assets or businesses in North America that are consistent with its overall strategy of growing as a North American janitorial and sanitation products manufacturer and distributor. Although the Company is evaluating several opportunities, currently, there are no significant acquisitions of assets or businesses that would be considered probable. To the extent that it acquires any such assets or businesses, whether related to its overall strategy or otherwise, there can be no assurance that such acquisitions will be successfully integrated with its operations or that such acquisitions will ultimately be profitable for the Company. Pending the application of such proceeds, the Company intends to use such proceeds to repay certain short-term debt of its subsidiaries. 14 15 DISCONTINUED OPERATIONS (Cont'd) - -------------------------------- Following completion of the sale, the Company will cease the manufacture of adult incontinent products and the sale of the Division is not expected to materially affect the operations of the Company's other operating units as each is autonomous and separately managed. The Company will be precluded from re-entering the adult incontinent products business for a period of five years following the sale. The Division supplies airlaid non-woven fabric and incontinent products to IFC which will be subject to a three-year supply agreement upon completion of the sale. IFC will supply PaperPak with Quickable(TM) absorbent washcloths at an agreed upon price, which will be renegotiated every twelve months, and at a volume which will be predetermined. SIGNIFICANT FACTORS AND KNOWN TRENDS WITH REGARD TO DISCONTINUED OPERATIONS PENSION PLAN - ------------ Certain employees of the Wyant Health Care Division are members of a multi-employer defined benefit Pension Plan (the "Plan" or "Pension Plan"). The Company was informed by the Pension Plan administrators that the Plan had failed to meet minimum legal funding requirements and that the Company's pro-rata share of the minimum funding deficiency was $370,000. The Plan has applied to the IRS for a waiver from the minimum funding requirements and awaits a response. If the waiver is obtained, the employers contributing to the Plan would be required to fund and charge to earnings the funding deficiency, and corresponding interest charges, over a 15 year period. If the waiver is not obtained, an excise tax may be imposed on the Plan and such excise tax could be as much as 100% of the funding deficiency. The sale of the Wyant Health Care Division will trigger a withdrawal liability as PaperPak, the acquirer of the Division, will not assume the Company's obligation under the Plan. This withdrawal liability will be funded through the proceeds from the sale of the Division. In addition to the withdrawal liability, the Plan may also seek to collect the Division's pro-rata share of the funding deficiency discussed above. After taking into account these Pension Plan liabilities, the Company estimates that it will realize a gain on the sale of the Division. AIRLAY II MACHINE - ----------------- In 1992, the Division purchased a machine ("Airlay II") for the production of airlaid products. During 1993, the machine was redesigned for commercial use. Although Airlay II was installed in the Branchburg, New Jersey manufacturing facility in the fourth quarter of 1994, only a small quantity of commercially acceptable product has been manufactured to date. During the second quarter of 1998, a complete engineering evaluation of the machine was performed. The Division implemented the majority of the recommended changes included in the engineering evaluation. In December 1998 the Division developed a business plan that included, as an objective, full commercial operation of Airlay II by the end of 1999. Airlay II is part of the assets of the Division that Wyant has agreed to sell to PaperPak. As of March 31, 1999 the net book value of Airlay II was approximately $2.2 million. In the event that the sale of the Division is not consummated, there can be no assurance that Airlay II will achieve full commercial operation or produce saleable product for the Division. Accordingly, failure to achieve full commercial operation in the near future could result in a significant write-down of the Company's investment in Airlay II, which write-down would have a material adverse effect on the results of operations of the Company. 15 16 ENVIRONMENTAL - ------------- The Company has been participating with the New Jersey Department of Environmental Protection ("DEP") in the investigation and potential clean-up of the Company's former site of operation located at 5 and 6 Easy Street, Bridgewater, New Jersey. As a tenant, the Company is potentially responsible to the DEP for environmental contamination based solely upon it having been a tenant at the site where there is contamination. Similarly, the Company is potentially jointly and severally liable with the landlord for both the investigation and clean-up costs. To date, the investigation has established that, in addition to on-site contamination, some of the contamination on the site is or has come from off site. The Company disputes it caused any such contamination and maintains that on-site contamination was a result of prior tenants' acts. Nevertheless, the Company has fully cooperated with the DEP and has presently been directed by the DEP to delineate the ground water contaminant plume, which may result in establishing that the contamination is a regional problem rather than one specific to the former site that the Company leased. The Company has entered into a flat fee contract with its environmental consultants for $11,750 for the delineation investigation. Upon determination of the contaminant plume, the Company will petition the DEP for a classification exception area where the remedial action will be natural attenuation. After the investigation is completed, the DEP could require clean-up or remediation of the contamination on site, the cost of which could potentially be in the range of $100,000 to $150,000. However, present technology is such that no remedial action plan could bring the site in conformity with the present DEP regulations, regardless of the funds spent. The Company is unaware of any other environmental or similar matters that would have a material effect on the capital expenditures, earnings or competitive position of the Company. BACKLOG, IMPACT OF INFLATION, SEASONALITY - ----------------------------------------- The Company attempts to maintain sufficient inventory levels for all products to allow shipment against most orders for wiping products within a one week period and next day for core stocking items of the Company's sanitation products. To some extent, however, certain components must be inventoried further in advance of actual orders to ensure availability. For the most part, purchases are based upon quarterly requirements as projected after calculating sales indications from the sales and marketing departments. The Company's products are not subject to significant seasonal influences. Because its products are sold primarily to distributors throughout the United States and to distributors and end-users in Canada, the Company is affected by general economic conditions. Accordingly, any adverse change in the economic climate may have an adverse impact on the Company's sales and financial condition. YEAR 2000 - --------- The Year 2000 problem arises because many computer systems and software products currently in use are coded to accept only two digit entries in the date code field. Four digit entries will be required to identify 21st century dates. Consequently, the use of software and computer systems that are not Year 2000 compliant could result in the disruption of operations. As a result, many companies' computer systems and software may need to be upgraded or replaced to conform with Year 2000 requirements. In order to properly address the Year 2000 Issue, the Company has appointed the Vice President, Information Technology of Wood Wyant as Year 2000 Project Director to direct a project team which will coordinate the implementation of a Year 2000 Plan by identifying Year 2000 issues and coordinating solutions. The project team is currently being assembled. Its role will be to conduct Year 2000 readiness assessment audits at all of the Company's facilities, encompassing all equipment and processes deemed important to the facility's operation. 16 17 YEAR 2000 (Cont'd) - ------------------ Wood Wyant has installed new applications software for which it has obtained written confirmation from the vendor that it is Year 2000 compliant. This software has become operational in the first quarter of 1999. The software currently in use at IFC is not Year 2000 compliant and will be replaced by hardware and applications software which will be Year 2000 compliant by mid-1999. As an additional precaution, the technical infrastructure of all the Company's businesses will be audited and tested to ensure Year 2000 compliance under normal business conditions. The total cost of purchasing and installing the new Wood Wyant software is estimated to be $1,998,000 (Cdn. $3,000,000), and is being financed through a five-year term loan with the Bank of Nova Scotia. The cost to replace computer hardware and applications software at IFC has not yet been determined but is not expected to be material. The Company is also preparing to issue Year 2000 compliance letters requesting confirmation of suppliers' readiness and follow-up discussions will take place for all business-critical suppliers. Major customers will also be contacted to confirm their Year 2000 readiness. To date, the Company has not incurred significant incremental costs in order to comply with Year 2000 requirements and does not believe it will incur significant incremental costs in the foreseeable future. However, there can be no assurance that Year 2000 errors or defects will not be discovered in the Company's software systems and, if errors or defects are discovered, there is no assurance that this would not result in a material financial risk to the Company. In addition, the Company purchases goods and services from third party vendors that may not be Year 2000 compliant. While the Company intends to obtain confirmation of vendors' state of readiness during the second quarter of 1999, their failure to operate properly with regard to Year 2000 requirements could require the Company to incur material expenses to rectify the impact on the Company of such failure. However, all of the Company's raw materials are widely available and the Company is not dependent on any one supplier or group of suppliers. The Company does not know the state of preparedness for Year 2000 issues of all of its customers. However, no single customer exceeds 2% of consolidated sales and therefore the risk the Company faces is broad based if many customers are unable to use information systems necessary to place orders for Company products. The Company's Year 2000 Issue involves significant risks. There can be no assurance that the Company will succeed in implementing its Year 2000 Plan. The following describes the Company's most reasonably likely worst-case scenario, given current uncertainties. If the Company's replaced internal information technology systems fail the Company will experience significant difficulties in supplying customers and such a failure could hamper the Company's ability to manage the orderly replenishment of inventories. If the Company's vendors or suppliers of its required power, telecommunications, transportation and financial services, fail to provide the Company with products and services, it will be unable to provide services to its customers. If any of these uncertainties were to occur, the Company's business, financial condition and results of operations would be adversely affected. The Company is unable to assess the likelihood of such events occurring or the extent of the effect on the Company. Although the Company has not yet developed a comprehensive contingency plan to address situations that may result if the Company or any of the third parties upon which the Company is dependent is unable to achieve Year 2000 readiness, the Company's Year 2000 compliance program is ongoing and its ultimate scope, as well as the consideration of contingency plans, will continue to be evaluated as new information becomes available. The Company plans to achieve Year 2000 compliance by mid-1999. 17 18 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS The Company is not involved in any material legal proceedings. ITEMS 2, 3, 4 & 5 Not applicable ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K a) Not applicable b) Reports on Form 8-K A current report on Form 8-K, dated February 23, 1999, was filed on March 11, 1999, reporting information under Item 5, Other Events and Item 7, Financial Statements and Exhibits. 18 19 WYANT CORPORATION SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Wyant Corporation (Registrant) Date: May 12, 1999 SIGNATURE: /s/ Marc D'Amour --------------------------- ------------------------- Marc D'Amour Vice President, Chief Financial Officer and Treasurer (For the registrant and as Principal Financial Officer)
19 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WYANT CORPORATION FORM 10-Q RE QR ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q MARCH 31, 1999 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 0 0 11,791,279 0 8,519,215 30,513,082 10,320,143 0 45,344,878 20,338,399 5,002,560 5,121,513 0 27,053 13,149,422 45,344,878 18,525,359 18,525,359 12,245,520 18,165,083 (123,440) 0 309,885 173,831 91,000 82,831 406,700 0 0 489,531 0.11 0.10
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