F O R M 10 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended December 30, 2000.
[ ] 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 33-83734
----------------------
J.B. WILLIAMS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1387159
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
65 Harristown Road
Glen Rock, New Jersey 07452
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 251-8100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
------- -------
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. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 28, 2001: $89,515.00
Number of shares of the registrant's Common Stock, par value $0.01 per share,
outstanding as of March 28, 2001: 10,000
PART I
ITEM 1. BUSINESS
J.B. Williams Holdings, Inc. (the "Company" or the "Registrant"), was
incorporated in 1993 to create a holding company for J.B. Williams Company, Inc.
("J.B. Williams"), and for its other subsidiaries (collectively, the
"Subsidiaries"). 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. and the October
1997 acquisition of the Cepacol business in Canada from Hoechst Marion Roussel
Canada, Inc.
The Company and its subsidiaries are engaged in the marketing, sales and
distribution of personal and health care products. The Company's personal care
products (constituting one of the Company's industry segments) are Aqua Velva(R)
men's grooming products, Brylcreem(R) hair care preparations, Total Hair Fitness
men's shampoos and conditioners, Lectric Shave(R) pre-shave lotions, Williams(R)
Mug Shaving Soap and San Francisco Soap Company specialty bath items. During
2000, 1999, and 1998 the personal care products represented 65%, 67% and 70% of
the consolidated revenues of the Company, respectively. The Company's health
care products (constituting the Company's other industry segment) are Cepacol(R)
mouthwash, Cepacol(R) throat liquids, Cepacol(R) throat lozenges and Cepacol(R)
Viractin(R) cold sore and fever blister medication. During 2000, 1999, and 1998
the health care products represented 35%, 33% and 30% of the consolidated
revenues of the Company, respectively. (References herein to "1999" are to the
Company's fiscal year ended January 1, 2000.) The Company's U.S. products are
distributed through a network of independent brokers, covering all fifty states.
In Canada, the Company has had an arrangement since 1993 with GlaxoSmithKline
Consumer Healthcare for the sale and distribution of all of the Company's
Canadian products. The Company's brokers and GlaxoSmithKline Consumer Healthcare
are compensated for their services by the Company on a commission basis. Either
the Company or the broker may terminate their relationship upon 30 days' notice
(6 months in the case of GlaxoSmithKline Consumer Healthcare).
The primary market for the Company's products is the general public throughout
the United States, Canada and Puerto Rico. The products are distributed through
retail accounts, with the Company's largest account, Wal*Mart, accounting for
21% of the Company's net sales in 2000. Wal*Mart makes its purchasing decisions
on a centralized basis. Although the Company believes its relationship with
Wal*Mart to be very good, should Wal*Mart significantly reduce its volume of
purchases from the Company, cash flow and net income would be adversely affected
and replacing such sales would be difficult.
The Company does not have formal arrangements for the purchase and sale of its
products with its major customers, except for pricing arrangements pursuant to
which the Company has set predetermined prices for its products. The Company's
net sales fluctuate from month to month due to the timing of purchases as well
as to price discounts offered to certain of the Company's customers. Prior to
1997, the Company's net sales had not demonstrated significant seasonal
variation; however, sales since then have been strongly impacted by shipments
during the September/December holiday period of San Francisco Soap Company gift
set products. The Company's products are sold in highly competitive markets,
with the Company's principal competitors being Procter & Gamble (personal care
products and health care products), Colgate-Palmolive Company (personal care
products and health care products),
-1-
GlaxoSmithKline Consumer Healthcare (health care products) and Warner-Lambert
Co. (health care products). Many of the Company's major competitors are
significantly larger than the Company in terms of sales force, sales volume,
product selection and product support resources. These competitors also have
significantly greater access to capital, marketing and advertising resources
than the Company. In addition, the leverage that some of these competitors
derive from the significance of their other products with key retailers may
allow their competing products to obtain shelf space at the expense of the
Company's products. Management believes that, although the industry is highly
competitive, competition among brand name products has traditionally been based
on factors other than price, such as brand recognition and loyalty, retail
distribution and product features.
All of the Company's products are manufactured by outside third parties.
Management believes that there are many third party contract manufacturers who
could readily manufacture the Company's products on comparable terms. Raw
materials used in the Company's products are readily available from a number of
sources.
The health care products business and certain elements of the personal care
products business are subject to regulation by the Federal Food and Drug
Administration, the Bureau of Alcohol, Tobacco and Firearms and the Health
Protection Branch-Canada, as are other manufacturers of similar products, as
well as regulations relating to marketing and content (including alcohol
content), labeling and packaging of consumer products.
The Company's trademarks "Aqua Velva", "Lectric Shave", "Brylcreem", "Total Hair
Fitness", "Williams Mug Shaving Soap", "Cepacol", "Viractin" and "San Francisco
Soap Company" have been registered with the United States Patent and Trademark
Office and under the Canadian Trademark Act. The Company considers these
trademarks to be the most important assets of the business.
As of December 30, 2000, the Company had 48 employees, all of which are
non-union. The Company considers its relationship with its employees to be good.
Financial information about the Company's industry segments and about geographic
areas for 2000, 1999 and 1998 is included in Note 12 to the Company's
consolidated financial statements which are filed as part of this report.
ITEM 2. PROPERTIES
The Company maintains its executive offices in Glen Rock, New Jersey, in leased
office space of approximately 15,000 square feet. The lease on the property
expires in July, 2001. The Company also uses public warehouse and distribution
facilities in Plainfield, Indiana and Sparks, Nevada.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2000.
-2-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the equity securities of the
Company. The Company's equity securities are held by twelve owners of record.
The Company has not declared any cash dividends on its common equity for the two
most recent fiscal years and does not currently intend to declare any such cash
dividends for the foreseeable future. In addition, the Indenture under which the
Company's $55,000,000 12% Senior Notes due 2004 were issued contains
restrictions on the payment of dividends.
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS)
The financial and operating data set forth on the following page as of December
30, 2000, January 1, 2000, December 31, 1998, 1997 and 1996 and for the fifty
two weeks ended December 30, 2000 and January 1, 2000 and the years ended
December 31, 1998, December 31, 1997 and December 31, 1996, are derived from,
and should be read in conjunction with the consolidated financial statements of
the Company and related notes thereto.
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 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. During 2000, additional payments of $202,000 and
$311,000 were paid relating to the Viractin and San Francisco Soap acquisitions,
respectively.) The cost of the Cepacol (Canada) business was approximately
$1,490,000, all of which was allocated to intangibles.
The acquisitions were accounted for by the purchase method. Net sales for the
year ended December 31, 1997 were approximately $650,000 for the Viractin
business, $7,900,000 for the San Francisco Soap Company business and $200,000
for the Cepacol (Canada) business. Had these acquisitions been made as of
January 1, 1997 net sales would have increased by approximately $2,300,000 due
to the Viractin business, approximately $14,900,000 due to the San Francisco
Soap Company business and approximately $1,600,000 due to the Cepacol (Canada)
business.
-3-
Selected Financial Data
(In Thousands)
J.B. Williams Holdings, Inc.
----------------------------
Fiscal Years Ended
-------------------------------------------------------------------
December 31, January 1, December 30,
------------------------------------ ---------- ------------
1996 1997 1998 2000(2) 2000
---- ---- ---- ------- ----
Income Statement Data:
- ----------------------
Net Sales ......................... $ 48,283 $ 63,868 $ 76,106 $ 72,925 $ 67,388
Cost of Goods Sold ................ 14,206 23,555(1) 31,294 28,259 24,485
-------- -------- -------- -------- --------
Gross Profit ...................... 34,077 40,313 44,812 44,666 42,903
Advertising ....................... 3,241 4,134 3,933 2,203 1,735
Promotion ......................... 7,412 10,555 13,351 12,885 11,347
Distribution and Cash Discounts ... 3,683 5,100 5,884 4,985 4,240
-------- -------- -------- -------- --------
Brand Contribution ................ 19,741 20,524 21,644 24,593 25,581
Selling, General and Administrative
Expenses ....................... 7,452 10,248 10,520 11,400 11,781
Depreciation and Amortization ..... 4,580 4,887 4,176 4,207 4,133
Other (Income)/Expense(3) ......... -- (750) -- 2,760 --
Interest Expense, Net ............. 5,231 5,200 5,957 5,827 5,115
-------- -------- -------- -------- --------
Income Before Income Taxes ........ 2,478 939 991 399 4,552
Provision for Income Taxes ........ 1,015 366 410 164 1,770
-------- -------- -------- -------- --------
Net Income ........................ $ 1,463 $ 573 $ 581 $ 235 $ 2,782
======== ======== ======== ======== ========
Balance Sheet Data:
- -------------------
Cash .............................. $21,201 $ 7,375 $ 6,263 $ 11,113 $ 12,770
Working Capital ................... 23,555 18,404 22,241 22,901 24,161
Intangible Assets, Net............. 39,222 45,692 42,638 39,744 36,896
Total Assets ...................... 76,795 81,471 80,162 79,222 77,372
Total Debt ........................ 50,345 50,345 50,345 50,345 44,856
Shareholders' Equity .............. 16,515 17,088 17,669 17,904 20,686
- --------------------------------
Notes to Selected Financial Data
(1) Includes an inventory purchase accounting adjustment associated with the
acquisitions of the Viractin and San Francisco Soap Company businesses
which increased cost of goods sold by $2.2 million for 1997.
(2) Commencing January 1, 1999, the Company changed its annual fiscal year to a
fifty-two week period consisting of four thirteen week interim periods with
the fiscal year ending on January 1, 2000. The change did not materially
impact reported results of operations through the fifty-two week period of
fiscal 1999.
(3) For the fiscal year ended January 1, 2000, the expense reflects the legal
settlement and related costs associated with an arbitration judgment
against the Company related to Cepacol ColdCare lozenges. For the fiscal
year ended December 31, 1997, the income reflects a payment the Company
received that represented a break-up fee in connection with a potential
transaction.
-4-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements included elsewhere in
this report.
General
- -------
The Company, through its subsidiaries, distributes and sells personal care and
health care products in the United States, Canada and Puerto Rico.
On March 16, 1994, the Company offered and sold $55.0 million 12% Senior Notes
due 2004 which were issued pursuant to an indenture (the "Senior Notes"). The
Company applied a portion of the net proceeds from such sale to the repayment in
full of approximately $33.0 million of indebtedness to SmithKline Beecham
Corporation ("SKB") incurred in connection with the 1993 acquisition of the mens
personal care products business. The Company also used approximately $16.3
million of such net proceeds, together with a $2.0 million cash equity
contribution by its primary shareholder, to pay the purchase price for the 1994
acquisition of the Cepacol health care products business.
Commencing January 1, 1999, the Company changed its annual fiscal year to a
fifty-two week period consisting of four thirteen week interim periods with the
fiscal year ending on January 1, 2000. The change did not materially impact
reported results of operations through the fifty-two week period of fiscal 1999.
Results of Operations
- ---------------------
The following table sets forth certain financial data for the Company for the
fifty-two week periods ended December 30, 2000 and January 1, 2000 and for the
calendar year ended December 31, 1998.
Fiscal Years Ended
----------------------------------------------------------------------
December 31, January 1, December 30,
1998 2000 2000
---- ---- ----
(Dollars in thousands)
(Percentages represent percent of net sales)
Net Sales .................................. $76,106 100% $72,925 100% $67,388 100%
Cost of Goods Sold ......................... 31,294 41 28,259 39 24,485 36
------- ------- ------- ------- ------- -------
Gross Profit ............................... 44,812 59 44,666 61 42,903 64
Advertising and Promotion ................. 17,284 23 15,088 20 13,082 20
Distribution and Cash Discounts ............ 5,884 8 4,985 7 4,240 6
------- ------- ------- ------- ------- -------
Brand Contribution ......................... 21,644 28 24,593 34 25,581 38
Selling, General and Administrative Expenses 10,520 14 11,400 15 11,781 17
Depreciation and Amortization .............. 4,176 5 4,207 5 4,133 6
Other Expense .............................. -- -- 2,760 4 -- --
Interest Expense, Net ...................... 5,957 8 5,827 8 5,115 8
Provision for Income Taxes ................. 410 1 164 2 1,770 3
------- ------- ------- ------- ------- -------
Net Income ................................. $ 581 1% $ 235 -- $ 2,782 4%
======= ======= ======= ======= ======= =======
-5-
Fiscal 2000 Compared to Fiscal 1999
- -----------------------------------
Net sales decreased 7.6% to $67.4 million in 2000 from $72.9 million in 1999.
This decrease is primarily due to lower sales of the San Francisco Soap product
line resulting from the absence of any large distribution gains, as realized
during 1999 when the entire line was being re-launched, and the Company's
decision to not offer a gift set program for the 2000 Mothers Day season and to
scale back the 2000 holiday gift program.
Cost of goods sold decreased 13.4% to $24.5 million in 2000 from $28.3 million
in 1999. This decrease is caused by a combination of the lower sales volumes and
generally lower manufacturing costs on the San Francisco Soap products. Overall
cost of goods on the San Francisco Soap business improved from 62.8% of net
sales in 1999 to 60.1% of net sales in 2000 reflecting an improved sales mix and
the elimination of certain one-time expenses associated with the March 1999
re-launch of the entire San Francisco Soap product line.
Advertising and promotion expenses decreased 13.3% to $13.1 million in 2000 from
$15.1 million in 1999. Most of this decrease is related to lower overall
marketing support behind the San Francisco Soap business. During 2000, the
entire San Francisco Soap business was evaluated and rationalized and many
previous marketing support elements were either eliminated or modified in an
attempt to improve brand profitability.
Distribution and cash discounts decreased 14.9% to $4.2 million in 2000 from
$5.0 million in 1999. This decrease is related to a combination of lower sales
volumes and to significant improvements in the operation of our distribution
network. During 2000, the Company focussed on improving our overall order fill
rate by eliminating out of stock issues. This emphasis resulted in significantly
lower freight costs, customer fines and other distribution related expenses.
Selling, general and administrative expenses increased 3.3% to $11.8 million in
2000 from $11.4 million in 1999. This increase reflects slightly higher staffing
levels and an increase in outside consulting expenses during 2000 partially
offset by lower broker commission payments resulting from the lower sales
volume.
Interest expense, net, decreased 12.2% to $5.1 million in 2000 from $5.8 million
in 1999. Generally higher levels of cash yielded a corresponding increase in
interest income and combined with lower interest expense, as a result of the
repurchase by the Company of $5.5 million in outstanding principal of its Senior
Notes, resulted in an overall net decrease in interest expense.
Provision for income taxes was $1.8 million in 2000 versus a provision of $.2
million in 1999. The effective rate was 39% for 2000 versus 41% for 1999.
Fiscal 1999 Compared to Fiscal 1998
- -----------------------------------
Net sales decreased 4.2% to $72.9 million in 1999 from $76.1 million in 1998.
This decrease is primarily due to lower sales of the Total Hair Fitness line of
shampoos and conditioners for men that were introduced during 1998. Excluding
this product line, sales of all other personal and oral care products were down
approximately .8% versus 1998, with most of this decrease related to lower sales
of San Francisco Soap gift sets. During 1999 the Company established certain
financial criteria that limited the volume potential associated with the holiday
gift set business.
-6-
Cost of goods sold decreased 9.7% to $28.3 million in 1999 from $31.3 million in
1998. This decrease in manufacturing costs is caused by a combination of the
lower sales volumes and to savings associated with improved manufacturing
systems implemented for the assembly of the 1999 San Francisco Soap holiday gift
sets. These new systems, combined with the selection of a new supplier who
specializes in the assembly of promotional items and gift sets, generated
significant savings versus the costs associated with this operation during 1998.
Advertising and promotion expenses decreased 12.7% to $15.1 million in 1999 from
$17.3 million in 1998. All of this decrease can be traced to lower overall
marketing expenses on the Total Hair Fitness line of shampoos and conditioners.
Distribution and cash discounts decreased 15.3% to $5.0 million in 1999 from
$5.9 million in 1998. This decrease is related to a combination of the lower
sales volumes, improved systems for handling the manufacturing and distribution
of the San Francisco Soap gift items and reduced storage costs related to
generally lower levels of inventory.
Selling, general and administrative expenses increased 8.4% to $11.4 million in
1999 from $10.5 million in 1998. This increase reflects generally higher levels
of staffing and related expenses, associated with the San Francisco Soap
business, during the course of 1999 versus 1998.
Depreciation and amortization remained essentially unchanged from 1998 amounts
at $4.2 million in 1999.
Other expenses of $2.8 million were realized in 1999. In November 1999 the
Company received notice that it had lost its arbitration related to a contract
dispute concerning the Cepacol ColdCare lozenges. The legal settlement and
related costs aggregated approximately $2.8 million, all of which has been paid.
Interest expense, net, decreased 2.2% to $5.8 million in 1999 from $6.0 million
in 1998.
Provision for income taxes was $.2 million in 1999 versus a provision of $.4
million in 1998. The effective rate was 41% for both 1999 and 1998.
Liquidity and Capital Resources
- -------------------------------
The following chart summarizes the net funds provided by and/or used in
operating, financing and investing activities for the fifty-two week periods
ended December 30, 2000 and January 1, 2000 (in thousands).
Fiscal Years Ended
-------------------------
January 1, December 30,
---------- ------------
2000 2000
------- -------
Net cash provided by operating activities ..... $ 6,725 $ 8,072
Net cash used in investing activities ......... (1,673) (711)
Net cash used in financing activities ......... (202) (5,704)
------- -------
Increase in cash and cash equivalents ......... $ 4,850 $ 1,657
======= =======
-7-
The principal adjustments to reconcile net income of $2.8 million for 2000 to
net cash provided by operating activities of $8.1 million are depreciation and
amortization of $4.1 million combined with a net decrease in working capital
requirements of $1.1 million.
The principal adjustments to reconcile net income of $.2 million for 1999 to net
cash provided by operating activities of $6.7 million are depreciation and
amortization of $4.2 million combined with a net decrease in working capital
requirements of $2.3 million.
Capital expenditures, which were $.4 million in 2000 and $1.3 million in 1999,
are generally not significant in the Company's business. Aside from
approximately $.5 million that the Company has budgeted for new mouthwash bottle
molds, the Company currently has no material commitments for future capital
expenditures.
Management believes that inflation does not presently have a significant impact
on the Company's results of operations.
As a result of the Senior Notes, the Company had $50.3 million of total debt
outstanding as of January 1, 2000. Pursuant to the terms of the Senior Notes, on
April 12, 2000, the Company made an offer to purchase from the holders thereof,
on a pro rata basis, an aggregate principal amount of Senior Notes equal to the
Company's Free Cash Flow (as defined in the indenture for the Senior Notes) at
the purchase price equal to 100% of the principal amount of the Senior Notes
plus accrued interest. Pursuant to this offer, on May 16, 2000, the Company
purchased Senior Notes from certain holders thereof for an aggregate of
$5,489,000 and reduced total debt outstanding to $44.9 million as of December
30, 2000. The Company is currently exploring the redemption of the Senior Notes
and may redeem the Senior Notes prior to maturity, according to the terms of the
indenture.
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. Since there can be no guarantee that the Company
will generate internal funds sufficient to finance its operations and debt
requirements, the Company has extended a secured line of credit with The Bank of
New York through August 31, 2001 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 $5.0 million, with the amount available being subject
to reduction based on certain criteria relative to the Company's accounts
receivable and inventory.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and the related Reports of
Independent Auditors appear on pages F-2 to F-16. See Index to Financial
Statements, page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-8-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following tables list the directors and executive officers of the Company
and J.B. Williams, the wholly owned subsidiary through which the Company's
operations are conducted.
J.B. Williams Holdings, Inc.
- ----------------------------
Name Age Office(s) Held
- ---- --- --------------
Hendrik J. Hartong, Jr. 61 Director, Chairman
Richard T. Niner 61 Director, Vice President
Dario U. Margve 44 Director, President and CEO
Kevin C. Hartnett 50 Vice President Finance and
Administration and Secretary
C. Alan MacDonald 68 Director
Carl G. Anderson, Jr. 56 Director
John T. Gray 65 Director
J. B. Williams Company, Inc.
- ----------------------------
Hendrik J. Hartong, Jr. 61 Director, Chairman
Richard T. Niner 61 Director
Dario U. Margve 44 President and CEO
Kevin C. Hartnett 50 Vice President Finance and
Administration and Secretary
Robert G. Sheasby 49 Vice President and President of
San Francisco Soap Company
Jeffrey L. Bower 49 Vice President Operations
D. John Dowers 41 Vice President Sales and
Marketing
All directors and executive officers of the Company and J.B. Williams are
elected annually and serve as such until their successors have been elected and
qualified.
Hendrik J. Hartong, Jr. - Mr. Hartong has been a member of the Board of
Directors of each of the Company and J.B. Williams since the organization of
these companies in December, 1993 and December, 1992, respectively. He has also
served as the Chairman of the Company since March, 1994, and
-9-
Chairman of J.B. Williams since its organization. Since 1988, Mr. Hartong has
been a General Partner of Brynwood Partners II L.P. and since mid-1996, a
General Partner of Brynwood Partners III L.P., and Brynwood Partners IV L.P.,
investment management partnerships based in Greenwich, Connecticut. Mr. Hartong
is a director of Hurco Companies, Inc. and a director of Lincoln Snacks Company.
Mr. Hartong graduated from the Harvard Graduate School of Business
Administration in 1964, and the University of Cincinnati in 1962.
Richard T. Niner - Mr. Niner has been a member of the Board of Directors of each
of the Company and J.B. Williams since their organization and has served as Vice
President of the Company since its organization. Since 1988, Mr. Niner has been
a General Partner of Brynwood Partners II L.P., an investment management firm
based in Greenwich, Connecticut, and since January 1999 Mr. Niner has been a
Partner at Wind River Associates, L.P., a private investment firm in Stamford,
Connecticut. Mr. Niner is also a director of Arrow International, Inc., Case,
Pomeroy & Company, Inc. and Hurco Companies, Inc. Mr. Niner graduated from the
Harvard Graduate School of Business Administration in 1964, and Princeton
University in 1961.
C. Alan MacDonald - Mr. MacDonald has been a member of the Company's Board of
Directors since March, 1994. Mr. MacDonald is President of The Club Management
Co., LLC, consultants in golf club mangement. Prior to assuming this position,
Mr. MacDonald was Managing Director of The Directorship Group, Inc., consultants
in corporate governance and executive search; and was General Partner of The
Marketing Partnership, Inc. He was associated with the Noel Group and Lincoln
Snacks Company. Mr. MacDonald was formerly President and CEO of Nestle Foods
Corporation in Purchase, New York, a position he held from 1983 to 1991. Prior
to that he had been President of The Stouffer Frozen Foods Co. Mr. MacDonald is
also director of Lord, Abbett & Co., a manager of mutual funds, Fountainhead
Water Company, a producer of bottled water, CARESIDE, Inc., designer,
manufacturer and marketer of diagnostic test products, and Lincoln Snacks
Company. He is a former director and past chairman of the executive committee of
American Maize Products Co. Mr. MacDonald graduated from Cornell University in
1955 with a B.S. in Hotel Administration.
Carl G. Anderson, Jr. - Mr. Anderson has been a member of the Company's Board of
Directors since March, 1994. Mr. Anderson is President and CEO of ABC School
Supply, Inc., a manufacturer and marketer of educational products based in
Atlanta, Georgia. Prior to joining ABC School Supply in May, 1997, Mr. Anderson
served as Vice President - General Manager of the Retail Consumer Products
Division of James River Corporation since August, 1994. He was a marketing
executive at Procter & Gamble from 1972 to 1984 and Vice President and General
Manager at Nestle Foods Corporation in Purchase, New York from 1984 to 1992. Mr.
Anderson is also a director of Arrow International, Inc. and ABC School Supply,
Inc. Mr. Anderson graduated from Lehigh Graduate School of Business
Administration in 1972 and Lafayette College in 1967 and served as a First
Lieutenant in the U.S. Army.
John T. Gray - Mr. Gray is a General Partner of Brynwood Partners III L.P., and
Brynwood Partners, IV, L.P., investment management partnerships based in
Greenwich, Connecticut. During the period 1984 through mid-1995, Mr. Gray served
as President and Chief Executive Officer of The Genie Company, a manufacturer of
garage door openers and wet/dry vacuum cleaners. He first became associated with
Genie as Executive Vice President in 1982. Mr. Gray joined the Norelco Division
of North American Philips Corporation in 1968 where he served in various
marketing positions and rose to become Vice President and General Manager in
1974. Mr. Gray is also director of Associated Materials Inc., a Dallas based
manufacturer of building materials and Lincoln Snacks Company, a manufacturer
and marketer of snack food products. Mr. Gray graduated from the University of
Illinois and served as a First Lieutenant in the U.S. Air Force.
-10-
Dario U. Margve - Mr. Margve has been a member of the Board of Directors of the
Company, and the President and CEO of the Company, and the President and CEO of
J.B. Williams since March 9, 1995. Mr. Margve began his employment with J.B.
Williams in May, 1993 as the Vice President Sales and served in this position
until his election as President and CEO. Prior to joining J.B. Williams, Mr.
Margve was the Vice President Division Manager of the Stouffer Foods Division of
Nestle Company, Inc., which company Mr. Margve joined in March, 1991. Mr. Margve
previously held other positions with Nestle, including Regional Manager of the
Nestle Foods Division, and was Vice President, Regional Manager of Wine World,
Inc. Mr. Margve received a B.S. in Engineering from the United States Military
Academy at West Point, New York, in 1978.
Kevin C. Hartnett - Mr. Hartnett began his employment with J.B. Williams in
March, 1993 as Vice President Finance and Administration. He has also served as
Vice President Finance and Administration of the Company and Secretary of J.B.
Williams since March, 1994 and as Secretary of the Company since December, 1994.
He is responsible for financial matters related to J.B. Williams, including its
existing operations and development. Previously, Mr. Hartnett was the Director
of Finance and Accounting for the Bottled Water Division of The Clorox Company
from September, 1989 to March, 1993. Mr. Hartnett also held various positions
with Nestle Foods Corporation from April, 1973 to September, 1989 including the
Division Controller of the Coffee/Tea Division, and the Marketing Controller of
the Beverage Division. He graduated from the University of Dayton with a B.S. in
Accounting, and from Iona College with an M.B.A. in Finance.
Jeffrey L. Bower - Mr. Bower began his employment with J.B. Williams in August,
1994. Previously, Mr. Bower was employed by Reckitt & Colman Inc., a consumer
products company, from 1987 to August, 1994 where he served as the Director of
External and Special Manufacturing and prior thereto as the Director of
Engineering, Durkee-French Foods Inc. Mr. Bower also served as a Manager of
Engineering for Pepsi-Cola USA from 1984 to 1987 and as Senior Project Engineer
for Mobil Chemical Company from 1978 to 1984. Mr. Bower was the Company
Commander, A Co. of the 9th Engr. Bn. from 1973 to 1978. He received his B.S. in
Aerospace Engineering from the University of Virginia in 1973.
Robert G. Sheasby - Mr. Sheasby began his employment with J.B. Williams in
October, 1994. Mr. Sheasby was a partner of and marketing consultant to Creative
Options, a marketing, new products and communications consultant, from 1993
until he joined J.B. Williams, and Vice President of Marketing for
Tulip/Polymerics, Inc. from 1991 to 1993. Mr. Sheasby was Vice President,
Marketing for Cheesebrough-Ponds USA from 1989 to 1991. Mr. Sheasby also held
various positions with Bristol-Myers Co. and Lever Brothers Co. He received his
B.S. in Marketing and his B.S. in Advertising from Syracuse University in 1973.
D. John Dowers - Mr. Dowers began his employment with J.B. Williams in June,
1995. Prior to joining J.B. Williams, Mr. Dowers was Vice President of Marketing
for the Nestle Ice Cream Company from August, 1993. Mr. Dowers also held other
positions within the Nestle U.S.A. organization, including Vice President of
Trade Marketing and Vice President of Sales Administration for Stouffer Foods.
He received his B.A. in Economics from Bucknell University in 1981 and an M.B.A.
in Marketing from the University of Chicago in 1987.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Because the Company's Common Stock is not registered under the Securities
Exchange Act of 1934, none of the Company's directors, officers or stockholders
is obligated to file reports of beneficial ownership of the Company's Common
Stock under such Act.
-11-
ITEM 11. EXECUTIVE COMPENSATION
Employment Contracts
- --------------------
Each of the named executive officers of J.B. Williams has an employment letter
setting forth the general terms of his respective employment. Each such
employment letter provides for employment for an initial period of one year,
with automatic renewals for additional one-year periods, and entitles each
executive officer to participation in benefit plans and perquisites available
generally to executive employees. Each employment letter specifies a base
salary, and provides for annual reviews for possible merit increases. Each
employment letter specifies that the executive may be eligible for a
discretionary bonus based partially upon attaining planned performance
objectives and partially upon subjective performance factors.
Summary Compensation Table
- --------------------------
The following table sets forth the compensation paid by J.B. Williams for the
last three fiscal years to its chief executive officer and each of the other
four most highly compensated executive officers whose total cash compensation
exceeded $100,000 for the fifty-two week period ended December 30, 2000. The
dollar value of perquisites and other personal benefits for each of the named
individuals was less than established reporting thresholds.
Shares
Underlying All Other
Annual Compensation Options Compensation(2)
------------------------------- ------- ---------------
Name and Principal Position Year Salary Bonus(1)
--------------------------- ---- ------ -----
Dario U. Margve, President and CEO .......... 2000 $241,000 $175,000 -- $ 6,520
of the Company and J.B. Williams ............ 1999 230,000 143,000 -- 6,900
1998 220,000 50,000 -- 6,600
Kevin C. Hartnett, Vice President- .......... 2000 $159,800 $112,000 -- $ 4,794
Finance and Administration of the Company ... 1999 152,900 95,000 -- 4,587
and J.B. Williams ........................... 1998 146,300 35,000 -- 4,389
Robert G. Sheasby, Vice President of J. B ... 2000 $166,100 $ 85,000 -- $ 5,063
Williams and President of San Francisco ..... 1999 166,100 85,000 -- 4,983
Soap Company ................................ 1998 158,900 30,000 -- 4,767
Jeffrey L. Bower, Vice President - Operations 2000 $130,000 $ 70,000 -- $ 3,900
of J.B. Williams ............................ 1999 120,500 65,000 -- 3,615
1998 120,500 -- -- 3,615
D. John Dowers, Vice President - Sales and .. 2000 $176,900 $124,000 -- $ 5,238
Marketing of J.B. Williams .................. 1999 169,300 95,000 -- 5,079
1998 162,000 35,000 -- 4,860
(1) Bonuses reflected for 2000 were paid in 2001.
(2) Represents contributions made by J.B. Williams pursuant to a 401(k) plan.
-12-
Stock Option Grants for Year Ended December 30, 2000
- ----------------------------------------------------
There were no option grants during the fiscal year ended December 30, 2000 to
any of the officers named in the Summary Compensation Table.
Board of Directors Interlocks and Insider Participation in Compensation
Decisions
- --------------------------------------------------------------------------------
Neither the Company nor J.B. Williams has a compensation committee. No
compensation is paid to any executive officer of the Company. Decisions with
respect to executive compensation for officers of J.B. Williams are made by the
Board of Directors of J.B. Williams. None of the members of the Board of
Directors of J.B. Williams received any compensation in 2000 or previously as an
officer or employee of J.B. Williams.
Report of Board of Directors on Executive Compensation
- ------------------------------------------------------
The Board of Directors of J.B. Williams reviews and approves the annual
compensation of J.B. Williams' executive officers, as well as J. B. Williams'
policies and practices with respect to compensation of other management
personnel.
Compensation of executive officers consists primarily of base salary and
discretionary bonus awards. The base salary of executive officers is specified
in their employment letters, summarized above. The base salary is subject to a
merit review for possible increase at the end of each fiscal year during the
executive's employment. The bonus awards are made at the sole discretion of the
Board of Directors based primarily upon attaining planned performance objectives
and partially upon subjective performance factors.
In reviewing the compensation of J.B. Williams' executive officers for possible
increases in base salary and for bonus awards, the Board of Directors considers
(i) the levels of executive compensation paid in the industry, (ii) J. B.
Williams' earnings and profit margin (operating income as a percentage of
revenues), both in absolute terms as well as in relation to budget forecasts,
and compared to results for prior years, and (iii) the extent to which J. B.
Williams has achieved or exceeded its goals for the year. No specific weight is
accorded to any single factor and the different factors may be accorded greater
or lesser weight in particular years or for particular officers.
The base compensation of J.B. Williams' chief executive officer for 2000 was
determined at the beginning of that year in light of all of the foregoing
factors as applied to the CEO's performance in 1999. His bonus for 2000 was
determined in 2001 in light of these same factors as applied to his performance
in 2000.
By the Board of Directors of J.B. Williams
Hendrik J. Hartong, Jr.
Richard T. Niner
-13-
Compensation of Directors
- -------------------------
A director who is not an employee or officer of the Company or any of its
subsidiaries is paid a fee of $2,000 per calendar quarter for serving as a
director of the Company, and $1,000 for attendance per meeting. Directors of the
Company and any of its subsidiaries are reimbursed for their out-of-pocket
expenses incurred in connection with their service as directors, including
travel expenses.
Stock Performance Graph
- -----------------------
The Company's Common Stock has never traded publicly. For this reason, a graph
indicating the relative performance of the Company's Common Stock price to other
standard measures has not been included since it would provide no meaningful
information.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 10, 2001, the beneficial security
ownership of (a) any person who is known to the registrant to be the beneficial
owner of more than five percent of the Company's voting securities, together
with any such person's address, (b) the directors of the Company, (c) each of
the executive officers named in the Summary Compensation Table, and (d) the
directors and executive officers of the Company as a group.
Amount and Nature Percent of
Title of Class Beneficial Owner of Beneficial Ownership Class(1)
- -------------- ---------------- ----------------------- --------
Common Stock Brynwood Partners II L.P.
Two Soundview Drive
Greenwich, CT 06830 9,000 shares(1) 90%
Common Stock Hendrik J. Hartong, Jr. 9,000 shares(2) 90%
Common Stock Richard T. Niner 9,000 shares(3) 90%
Common Stock Dario U. Margve 350 shares 3.50%
Common Stock Kevin C. Hartnett 175 shares 1.75%
Common Stock Robert G. Sheasby 175 shares 1.75%
Common Stock D. John Dowers 150 shares 1.50%
Common Stock Jeffrey L. Bower 100 shares 1.00%
Common Stock All directors and executive
officers as a group (10 persons) 950 shares(4) 9.50%
- -----------------------------
(1) 90% of the Company's issued and outstanding common stock is owned
beneficially and of record by Brynwood Partners II L.P. ("Brynwood").
-14-
(2) Consists of 9,000 shares owned by Brynwood. Mr. Hartong is a general
partner of Brynwood Management II L.P., which serves as general partner of
Brynwood. Together with Mr. Niner, Mr. Hartong has voting and investment
power over these shares. Mr. Hartong's address is c/o Brynwood Partners,
Two Soundview Drive, Greenwich, CT 06830.
(3) Consists of 9,000 shares owned by Brynwood. Mr. Niner is a general partner
of Brynwood Management II L.P., which serves as general partner of
Brynwood. Together with Mr. Hartong, Mr. Niner has voting and investment
power over these shares. Mr. Niner's address is c/o Brynwood Partners, Two
Soundview Drive, Greenwich, CT 06830.
(4) Does not include for Mr. Hartong or Mr. Niner the 9,000 shares owned by
Brynwood which is reflected as being beneficially owned by such directors
in the chart.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company pays a monthly fee of $25,000 to Brynwood Management II L.P. for
management and consulting services. Such payments aggregated $300,000 in 2000.
Messrs. Hartong and Niner, who are directors of the Company, are the General
Partners of Brynwood Management II L.P.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report on Form 10-K
1. Financial Statements
The financial statements and notes thereto listed on page F-1 are
filed herewith as part of this report.
2. Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not
required, are inapplicable or have been disclosed in the Notes to
Consolidated Financial Statements and therefore have been omitted.
3. Exhibits
Exhibit
Number Description
- ------ -----------
(2)(i) Agreement dated as of February 24, 1994, between SmithKline
Beecham Consumer Healthcare, L.P. and CEP Holdings, Inc.
("CEP") (incorporated by reference to Exhibit (2)(i) to the
Registration Statement on Form S-4 (No. 33-83734) of J.B.
Williams Holdings, Inc. (the "Company"), J.B. Williams
Company, Inc. ("J.B. Williams"), After Shave Products, Inc.
("ASP"), Pre-Shave Products, Inc. ("PSP"), Hair Care Products,
Inc. ("HCP") and CEP (the "Registration Statement")).
-15-
(2)(ii) Intellectual Property Agreement dated as of February 24, 1994,
between Merrell Dow Pharmaceuticals Inc. and CEP (incorporated
by reference to Exhibit (2)(ii) to the Registration
Statement).
(2)(iii) Agreement dated as of December 16, 1992, between SmithKline
Beecham Corporation, SmithKline Beecham Consumer Brands Inc.,
Beecham (NJ) Inc. and J.B. Williams (incorporated by reference
to Exhibit (2)(iii) to the Registration Statement).
(2)(iv) Asset Purchase Agreement dated as of August 6, 1997, by and
between J.B. Williams and Avalon Natural Cosmetics, Inc.
(incorporated by reference to Exhibit 2.1 to the Company's
Report on Form 8-K filed on October 31, 1997 (Commission File
No. 33-83734)).
(2)(v) Asset Purchase Agreement between CEP and Virotex Corporation
dated as of July 10, 1997 (incorporated by reference to
Exhibit 2(v) of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 (Commission File No.
33-83734)).
(2)(vi) Asset Purchase Agreement between J.B. Williams and Hoechst
Marion Roussel Canada, Inc. (incorporated by reference to
Exhibit 2(vi) of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 (Commission File No.
33-83734)).
(3)(i) Certificate of Incorporation of the Company, as amended to
March 11, 1994 (incorporated by reference to Exhibit (3)(i)(l)
to the Registration Statement).
(3)(ii) By-Laws of the Company (incorporated by reference to Exhibit
3(ii) to the Registration Statement).
(4)(i) Specimen of the Company's 12% Senior Notes due 2004
(incorporated by reference to Exhibit (4)(i)(l) to the
Registration Statement).
(4)(ii) Indenture dated as of March 16, 1994 among the Company, J.B.
Williams, ASP, PSP, HCP, CEP and The Bank of New York, as
Trustee (incorporated by reference to Exhibit (4)(iv) to the
Registration Statement).
(4)(iii) $5,000,000 Credit Facility dated as of August 29, 1997,
between the Company and The Bank of New York, including the
Master Promissory Note as of the same date (incorporated by
reference to Exhibit 4(iii) of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997
(Commission File No. 33-83734)).
(10)(i)(l) Manufacturing Agreement dated as of February 24, 1994, between
J.B. Williams and Marion Merrell Dow Inc. (incorporated by
reference to Exhibit (10)(i)(3) to the Registration
Statement).
(10)(i)(2) License Agreements between J.B. Williams and CEP dated as of
February 20, 1994 and between J.B. Williams and each of PSP,
HCP and ASP dated as of January 1, 1993 (incorporated by
reference to Exhibit (10)(i)(4) to the Registration
Statement).
-16-
(10)(i)(3) Manufacturing and Sales Agreement between J.B. Williams and
Summa Rx Laboratories, Inc. (incorporated by reference to
Exhibit (10)(ii)(D) to the Registration Statement).
(10)(ii)(D) Sublease, dated August 11, 1993, between E.I. Du Pont De
Nemours and Company and J.B. Williams (incorporated by
reference to Exhibit (10)(ii)(D) to the Registration
Statement).
(10)(iii)(A)(1) The Company's 1994 Stock Option Plan dated March 4, 1994
(incorporated by reference to Exhibit (10)(iii)(A)(l) to the
Registration Statement).
(10)(iii)(A)(2) Employment Agreement dated as of May 3, 1993 between J.B.
Williams and Dario U. Margve (incorporated by reference to
Exhibit (10)(iii)(A)(2) to the Registration Statement).
(10)(iii)(A)(3) Employment Agreement dated as of February 11, 1993 between
J.B. Williams and Kevin C. Hartnett (incorporated by reference
to Exhibit (10)(iii)(A)(2) to the Registration Statement).
(10)(iii)(A)(4) Employment Agreement dated as of August 4, 1994 between J.B.
Williams and Jeffrey L. Bower (incorporated by reference to
Exhibit (10)(iii)(A)(2) to the Registration Statement).
(10)(iii)(A)(5) Employment Agreement dated as of October 19, 1994 between J.B.
Williams and Robert G. Sheasby (incorporated by reference to
Exhibit (10)(iii)(A)(6) to the Registrant's 1994 Annual Report
on Form 10-K (Commission File No. 33-83734)).
(10)(iii)(A)(5) Employment Agreement dated as of May 12, 1995 between J. B.
Williams and D. John Dowers.
(21) Subsidiaries of the Company (incorporated by reference to
Exhibit (21) to the Registration Statement).
(24) Powers of Attorney for directors and certain officers of the
Company.
(b) Reports on Form 8-K
- None
-17-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
-------------------------------------
(Registrant)
By: /s/ DARIO U. MARGVE
-------------------------------------
Dario U. Margve, President and CEO
Date: March 28, 2001
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.
SIGNATURE TITLE
/s/ DARIO U. MARGVE President, CEO and Director March 28, 2001
- ------------------- (principal executive officer)
DARIO U. MARGVE
/s/ KEVIN C. HARTNETT Vice President, Finance and March 28, 2001
- --------------------- Administration (principal
KEVIN C. HARTNETT financial and accounting officer)
NAME TITLE
HENDRIK J. HARTONG, JR. Director : By /s/ KEVIN C. HARTNETT
----------------------
: Kevin C. Hartnett
RICHARD T. NINER Director : As Attorney-in-Fact
: Date: March 28, 2001
C. ALAN MACDONALD Director : and
CARL G. ANDERSON, JR. Director : By /s/ DARIO U. MARGVE
-------------------
: Dario U. Margve
JOHN T. GRAY Director : As Attorney-in-Fact
: Date: March 28, 2001
-18-
J.B. WILLIAMS HOLDINGS, INC.
Independent Auditors' Report
----------------------------
Consolidated Financial Statements
---------------------------------
December 30, 2000 and January 1, 2000
Fifty-Two Weeks Ended
December 30, 2000 and January 1, 2000
Year Ended December 31, 1998
J.B. WILLIAMS HOLDINGS, INC.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS AS OF DECEMBER 30, 2000 AND JANUARY 1,
2000 AND FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 30,
2000 AND JANUARY 1, 2000 AND THE YEAR ENDED DECEMBER
31, 1998:
Consolidated Balance Sheets as of December 30, 2000 and
January 1, 2000 2
Consolidated Statements of Income and Retained Earnings
for the Fifty-Two Weeks Ended December 30, 2000
and January 1, 2000 and the Year Ended December
31, 1998 3
Consolidated Statements of Cash Flows for the Fifty-Two
Weeks Ended December 30, 2000 and January 1, 2000
and the Year Ended December 31, 1998 4
Notes to Consolidated Financial Statements 5-14
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholder
J. B. Williams Holdings, Inc.
We have audited the accompanying consolidated balance sheets of J. B. Williams
Holdings, Inc. and subsidiaries (the "Company") as of December 30, 2000 and
January 1, 2000, and the related consolidated statements of income and retained
earnings and cash flows for the fifty-two weeks ended December 30, 2000 and
January 1, 2000 and the year ended December 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the 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 opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of J. B. Williams
Holdings, Inc. and subsidiaries as of December 30, 2000 and January 1, 2000, and
the consolidated results of their operations and their cash flows for the
fifty-two weeks ended December 30, 2000 and January 1, 2000 and the year ended
December 31, 1998 in conformity with accounting principles generally accepted in
the United States of America.
/s/ DELOITTE & TOUCHE LLP
February 16, 2001
J. B. WILLIAMS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 2000 AND JANUARY 1, 2000
(In Thousands)
- ---------------------------------------------------------------------------------------------------
December 30, January 1,
2000 2000
------------ ----------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 12,770 $ 11,113
Accounts receivable, net of allowance for doubtful accounts
and sales returns of $712 and $688 at December 30, 2000
and January 1, 2000, respectively ............................. 12,434 13,741
Inventories ..................................................... 8,384 6,404
Other current assets (Note 4) ................................... 2,164 2,153
-------- --------
Total ..................................................... 35,752 33,411
-------- --------
PROPERTY AND EQUIPMENT:
Machinery and equipment ......................................... 4,459 4,083
Furniture and fixtures .......................................... 385 378
Leasehold improvements .......................................... 41 41
-------- --------
Total ..................................................... 4,885 4,502
Less accumulated depreciation ................................... 3,175 2,497
-------- --------
Net ....................................................... 1,710 2,005
-------- --------
OTHER ASSETS:
Intangible assets, net of accumulated amortization of $29,089 and
$25,913 at December 30, 2000 and January 1, 2000, respectively 36,896 39,744
Other assets .................................................... 3,014 4,062
-------- --------
Total ..................................................... 39,910 43,806
-------- --------
TOTAL ASSETS ...................................................... $ 77,372 $ 79,222
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable ................................................ $ 2,367 $ 2,995
Due to sellers of acquired businesses ........................... 233 224
Accrued expenses (Note 5) ....................................... 7,608 7,230
Income taxes payable ............................................ 1,383 61
-------- --------
Total ...................................................... 11,591 10,510
-------- --------
DUE TO SELLERS OF ACQUIRED BUSINESSES (Note 10) ................... 239 463
-------- --------
SENIOR NOTES (Note 6) ............................................. 44,856 50,345
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY (Note 7):
Common stock and paid-in capital ................................ 10,805 10,804
Retained earnings ............................................... 11,086 8,304
Less notes receivable from shareholders ......................... (1,205) (1,204)
-------- --------
Total ...................................................... 20,686 17,904
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................ $ 77,372 $ 79,222
======== ========
See notes to consolidated financial statements.
-2-
J. B. WILLIAMS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FIFTY-TWO WEEKS ENDED DECEMBER 30, 2000 AND JANUARY 1, 2000
AND THE YEAR ENDED DECEMBER 31, 1998
(In Thousands Except Share Data)
- -----------------------------------------------------------------------------------------------------
2000 1999 1998
------- ------- -------
NET SALES ....................................................... $67,388 $72,925 $76,106
------- ------- -------
OPERATING COSTS AND EXPENSES:
Cost of goods sold ............................................ 24,485 28,259 31,294
Advertising ................................................... 1,735 2,203 3,933
Promotion ..................................................... 11,347 12,885 13,351
Cash discounts ................................................ 1,217 1,286 1,297
Distribution .................................................. 3,023 3,699 4,587
Selling ....................................................... 2,451 2,673 2,895
General and administrative .................................... 9,330 8,727 7,625
Depreciation and amortization ................................. 4,133 4,207 4,176
Special item - Litigation settlement and related costs (Note 3) -- 2,760 --
------- ------- -------
Total operating expenses ................................ 57,721 66,699 69,158
------- ------- -------
OPERATING PROFIT ................................................ 9,667 6,226 6,948
INTEREST EXPENSE - Net of interest income of $287,
$329 and $262 for fiscal 2000, 1999 and 1998, respectively .... 5,115 5,827 5,957
------- ------- -------
INCOME BEFORE INCOME TAXES ...................................... 4,552 399 991
PROVISION FOR INCOME TAXES (Note 8) ............................. 1,770 164 410
------- ------- -------
NET INCOME ...................................................... 2,782 235 581
RETAINED EARNINGS, BEGINNING OF YEAR ............................ 8,304 8,069 7,488
------- ------- -------
RETAINED EARNINGS, END OF YEAR .................................. $11,086 $ 8,304 $ 8,069
======= ======= =======
INCOME PER COMMON SHARE:
Basic ......................................................... $278.20 $ 23.50 $ 59.10
======= ======= =======
Diluted ....................................................... $278.20 $ 23.50 $ 58.76
======= ======= =======
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - BASIC .................................... 10,000 10,000 9,830
======= ======= =======
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - DILUTED .................................. 10,000 10,000 9,888
======= ======= =======
See notes to consolidated financial statements.
-3-
J. B. WILLIAMS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 30, 2000 AND JANUARY 1, 2000
AND THE YEAR ENDED DECEMBER 31, 1998
(In Thousands)
- -------------------------------------------------------------------------------------------------------
2000 1999 1998
-------- -------- --------
OPERATING ACTIVITIES:
Net income ................................................. $ 2,782 $ 235 $ 581
Adjustments to reconcile net income to net cash (used in)
provided by operating activities (net of acquisitions):
Amortization of intangibles ............................. 3,455 3,578 3,648
Loss on disposal and impairment of property and equipment -- -- 55
Depreciation of property and equipment .................. 678 629 528
Deferred income tax provision - net ..................... 363 59 257
Changes in operating assets and liabilities:
Accounts receivable ................................... 1,307 997 (1,503)
Inventories ........................................... (1,980) 1,996 (1,609)
Other current assets .................................. (11) (155) (153)
Other assets .......................................... 406 359 (142)
Accounts payable ...................................... (628) (299) (24)
Accrued expenses ...................................... 378 (525) (1,126)
Income taxes payable .................................. 1,322 (149) (571)
-------- -------- --------
Net cash provided by (used in) operating activities 8,072 6,725 (59)
-------- -------- --------
INVESTING ACTIVITIES:
Acquisitions ............................................... (328) (397) --
Equipment purchases and leasehold improvements ............. (383) (1,276) (884)
-------- -------- --------
Net cash used in investing activities ............. (711) (1,673) (884)
-------- -------- --------
FINANCING ACTIVITIES:
Payments to senior note holders .............................. (5,489) -- --
Payments to sellers of acquired businesses ................... (215) (202) (169)
-------- -------- --------
Net cash used in financing activities ............. (5,704) (202) (169)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ........................................... 1,657 4,850 (1,112)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR .......................................... 11,113 6,263 7,375
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR ....................... $ 12,770 $ 11,113 $ 6,263
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid .......................................... $ 85 $ 253 $ 656
======== ======== ========
Interest paid .............................................. $ 5,847 $ 6,041 $ 6,219
======== ======== ========
SUPPLEMENTAL NONCASH INVESTING ACTIVITIES:
Notes receivable from shareholders for common stock ........ $ 1,205 $ 1,204 $ 1,200
======== ======== ========
See notes to consolidated financial statements.
-4-
J. B. WILLIAMS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF ACCOUNTING AND ORGANIZATION
The consolidated financial statements include J. B. Williams Holdings, Inc.
and its subsidiaries: J.B. Williams Company, Inc., After Shave Products
Co., Pre-Shave Products Co., Hair Care Products Co. and CEP Holdings
(collectively, the "Company"). Brynwood Partners II L.P., a private
partnership formed under Delaware law, is the owner of 90% of the issued
and outstanding capital stock of the Company. Brynwood Partners II L.P.,
has invested in and manages several companies and their investors include
major insurance companies, financial institutions, corporations and pension
funds.
Commencing January 1, 1999, the Company changed its annual fiscal year to a
fifty-two week period consisting of four thirteen-week interim periods.
The Company, which was organized on December 3, 1992, made an initial
acquisition of certain assets ("Personal Care Products Acquisition") from
SmithKline Beecham Corporation, Beecham (NJ) Inc. and SmithKline Beecham
Consumer Products, Inc. (collectively, "SKB") for $45,000,000 on December
16, 1992. The Personal Care Products Acquisition was financed through the
issuance of a promissory note for $40 million to SKB and an equity
contribution of $5.6 million from Brynwood Partners II L.P. Operating
activity commenced on January 1, 1993. Additionally, the Company acquired
certain assets ("Oral Care Products Acquisition") in February 1994 from SKB
for $18,323,000. The Oral Care Products Acquisition and repayment of the
note payable to SKB relating to the Personal Care Products Acquisition were
financed through the private placement issuance of $55,000,000 of senior
notes and an equity contribution of $4 million from the Company's primary
shareholder.
The Company's products are marketed under the trademarks "Aqua Velva" after
shave, "Lectric Shave" preshave, "Brylcreem" hair care preparations,
"Williams Mug Shave Soap," "San Francisco Soap" specialty bath products,
and "Cepacol," sore throat products and mouthwash, Cepacol Viractin cold
sore and fever blister medication and Cepacol ColdCare dietary supplements.
Each of the trademarks is owned by a subsidiary of the Company and is
licensed to J. B. Williams Company, Inc. The Company generally purchases
finished goods from contract manufacturers and sells products under the
above brand names in the United States, Canada and Puerto Rico.
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. The assets purchased
consist primarily of trademarks, patents, inventories, formulas, marketing
materials and customer lists associated with each of these brands. Each of
these brands 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 brands.
The Viractin brand was acquired by the Company for approximately $4.7
million, of which $0.6 million was allocated to the fair value of the
tangible assets acquired and $4.1 million was allocated to the intangibles.
The cost of the San Francisco Soap Company brand acquired was approximately
$11.7 million, of which $7.7 million was allocated to the fair value of
tangible assets acquired and $4.0 million was allocated to intangibles. In
both of these transactions, there are additional contingent
-5-
payments associated with annual net sales during the five-year period
following each respective closing date (see Note 10). The cost of the
Cepacol Canada business was approximately $1.5 million, all of which was
allocated to intangibles.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition - Revenue is recognized upon the shipment of products
to customers.
Net Sales - Net sales include the sales price less an estimate of returns,
unsaleables and other allowances.
Advertising Costs - Such costs are comprised of various television, radio
and newspaper advertisements and are charged to expense as incurred.
Promotion Costs - Such costs are comprised of coupons, trade promotion
incentives, market research expenditures and package design costs and are
charged to expense as incurred.
Distribution Costs - Such costs are comprised of outbound freight and
warehouse administrative charges and are charged to expense as incurred.
Selling Costs - Such costs are comprised principally of incentives and
commissions to selling brokers and are charged to expense as sales are
recorded.
Cash and Cash Equivalents - Cash and cash equivalents include investments
with a one-day availability.
Inventories - Inventories consist principally of finished goods and are
stated at the lower of cost (using the first-in, first-out method) or
market value.
Property and Equipment - Leasehold improvements, furniture and fixtures and
machinery and equipment are recorded at cost. Depreciation of machinery and
equipment and furniture and fixtures is computed by the straight-line
method over the estimated useful lives which range from 3 to 7 years and 5
years, respectively. Leasehold improvements are amortized over the lives of
the related leases or the estimated useful lives of the assets, whichever
is shorter, using the straight-line method. The cost of improvements is
capitalized; expenditures for maintenance and repairs are charged to
expense.
Intangible Assets - Intangible assets arose from the SKB acquisitions in
1993 and 1994 and the San Francisco Soap, Viractin and Cepacol business in
Canada acquisitions made during 1997. The costs of the non-compete
agreements are being amortized on the straight-line method over the 5-year
terms of the agreements. Trademarks and formulas and other identified
intangibles are being amortized on the straight-line method over their
estimated remaining useful lives of 25 years and 5 years, respectively.
Goodwill represents the excess of the purchase price over the fair value of
the assets acquired and is being amortized using the straight-line method
over 25 years. The Company evaluates the recoverability of goodwill and
other intangible assets on an annual basis by assessing whether the
unamortized intangible assets can be recovered over their remaining lives
through operating results and undiscounted cash flows.
Other Assets - Other assets consist primarily of barter credits and debt
issuance costs associated with the senior notes which are being amortized
over the term of the debt.
-6-
In 1999, the Company exchanged inventory with a carrying value of
approximately $2.8 million for barter credits that will be used to purchase
advertising. The barter credits were recorded at the carrying value of the
inventory exchanged which is less than the estimated fair value of such
inventory. As of December 30, 2000, the barter credits have been reduced to
approximately $1.7 million. The barter credits expire in 2007.
Income Taxes - Deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory tax
rates to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities.
Principles of Consolidation - The consolidated financial statements include
all subsidiaries. All significant intercompany items have been eliminated.
Certain prior year amounts have been reclassified to conform with the
presentation for the current year.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Stock Options - Financial Accounting Statement No. 123, Accounting for
Stock Based Compensation, ("SFAS 123") requires expanded disclosures of
employee stock based compensation arrangements and encourages, but does not
require, employers to adopt a fair value based method of accounting for
employee stock based compensation. Under the fair value based method,
compensation cost is measured at the grant date based on the value of the
option and is recognized over the service period, which is usually the
vesting period. As provided by SFAS 123, the Company follows Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), for employee stock compensation measurement, which does not
require compensation expense recognition when the exercise price of stock
options is greater than or equal to current market value at the date of the
stock option grant.
Income per Common Share - Basic earnings per share is computed by dividing
net income by the weighted average number of common shares outstanding.
Diluted earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding and dilutive common
equivalent shares (common stock options) outstanding.
Financial Instruments - The estimated fair value of financial instruments,
which includes cash and cash equivalents, senior notes and accounts
receivable, approximates their carrying value.
Recent Accounting Pronouncements - In 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). The adoption of SFAS No.
133 will require that all derivative instruments be recorded on the balance
sheet at fair value. Changes in the fair value of derivatives will be
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge
transaction and the type of hedge transaction. The ineffective portion of
all hedges will be recognized in earnings. The Company is required to adopt
FAS 133 (as amended) effective December 31, 2000, but does not expect there
to be a significant impact, if any on its financial statements.
In November 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
Revenue Recognition. SAB 101 sets forth the SEC Staff's position regarding
the point at which it is appropriate to recognize
-7-
revenue. SAB 101 specifies that revenue is realizable and earned when all
of the following criteria are met: (1) persuasive evidence of an
arrangement exists, (2) delivery has occurred or service has been rendered,
(3) the seller's price to the buyer is fixed or determinable and (4)
collectibility is reasonably assured. The Company uses the above criteria
to determine whether revenue can be recognized, and therefore believes that
issuance of this SAB does not have a material impact on these financial
statements.
3. SPECIAL ITEM
As explained further in Note 10, in November 1999 the Company received
notice that it had lost its arbitration related to the contract dispute
related to Cepacol ColdCare lozenges. The legal settlement and related
costs aggregated $2.76 million, all of which was paid in 1999.
4. OTHER CURRENT ASSETS
Other current assets consist of the following:
December 30, January 1,
2000 2000
(In Thousands)
Deferred tax asset.......................... $ 950 $ 894
Prepaid expenses ........................... 695 831
Other ...................................... 519 428
------ ------
Total ...................................... $2,164 $2,153
====== ======
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 30, January 1,
2000 2000
(In Thousands)
Marketing.................................. $2,564 $2,400
Interest .................................. 1,794 2,014
Compensation .............................. 1,000 876
Other ..................................... 2,250 1,940
------ ------
Total ..................................... $7,608 $7,230
====== ======
6. SENIOR NOTES
The Company financed the Oral Care Products Acquisition and the payment of
the note payable to SKB from the proceeds of the private placement of
$55,000,000 of senior notes (the "Notes") and an equity contribution from
its primary shareholder.
Commencing with the year ended December 31, 1995, provided certain
conditions are met, the Company must, not later than April 15 immediately
following such year, offer to purchase from the holders of the Notes, on a
pro rata basis, an aggregate principal amount of Notes, equal to a
specified
-8-
calculation at a purchase price equal to 100% of the principal amount of
the Notes plus accrued interest. Notes outstanding at December 30, 2000 and
January 1, 2000 were $44,856,000 and $50,345,000, respectively.
Interest on the Notes is payable semiannually in cash on March 1 and
September 1 of each year at an annual interest rate of 12%. The Notes are
redeemable at the option of the Company, in whole or in part, at any time
on or after March 1, 1999, at 106% of their principal amount, plus accrued
interest, declining to 100% of their principal amount on and after March 1,
2001, plus accrued interest.
The 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 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. Accordingly, separate financial
statements and other disclosures concerning the Subsidiary Guarantors are
not included herein.
The Notes contain certain restrictive covenants. The Company is in
compliance with all covenants at December 30, 2000.
During 2000, the Company extended its $5,000,000 maximum secured line of
credit with the Bank of New York, for an additional year which now expires
on August 31, 2001. The amount available under the line of credit is
subject to reduction based on certain criteria relative to the Company's
accounts receivable and inventory. No amount was outstanding under the line
of credit as of December 30, 2000.
7. SHAREHOLDERS' EQUITY
Common stock consists of 20,000 authorized shares at $.01 par value of
which 10,000 shares were issued and outstanding at both December 30, 2000
and January 1, 2000.
During 2000, the Company repurchased 7 shares of common stock from a former
employee which were then sold to another employee. During 1999, the Company
repurchased 10 shares of common stock from a then former employee which
were then sold to another employee. During 1998, the Company issued 1,000
shares of common stock for an aggregate purchase price of approximately
$1,200,000 and repurchased 10 shares of common stock from a former
employee. 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 "Plan"). The shares were in each case
paid for by a recourse promissory note in favor of the Company.
-9-
The Plan provides for the granting of options on shares of the Company's
common stock to its directors and certain key employees. The Plan permits a
maximum of 1,000 shares of common stock to be issued at the fair value per
share at the date the option is granted. If the option is granted to a
person, who at the time of the grant owns more than 10% of the combined
voting power of all classes of stock, the purchase price shall not be less
than 110% of the fair value per share at the date the option is granted.
Stock option transactions during fiscal 1998 were as follows:
1998
Weighted
Average
Exercise
Shares Price
Outstanding, beginning of year.................. 1,000 $1,196
Exercised during the year ...................... (1,000) 1,200
------
Outstanding, end of year ....................... -- --
======
Exercisable, end of year ....................... -- --
======
The Company applies APB 25 and related interpretations in accounting for
the Plan. No compensation cost was required to be recognized. Had
compensation cost for the Plan been determined based on the fair value of
the option at date of grant consistent with the requirements of SFAS 123,
the Company's fiscal 1998 net income and income per share would have been
reduced to the pro forma amounts indicated below:
1998
(in Thousands)
Except per share
Net income As reported $ 581
Pro forma 550
Diluted income per share As reported 58.76
Pro forma 55.63
The fair value of stock options granted during 1998 was approximately
$3,000 and has been estimated at the date of grant using the Black-Scholes
option pricing model with the following assumptions:
1998
Risk free interest rate................................ 4.95 %
Expected life ......................................... 4
Expected dividend yield ............................... --
Expected volatility ................................... --
-10-
8. INCOME TAXES
The components of the income tax provision (benefit) are as follows:
2000 1999 1998
(in Thousands)
Current:
Federal.............................. $1,071 $ (14) $ (4)
State ............................... 336 119 157
------ ------ ------
1,407 105 153
------ ------ ------
Deferred
Federal ............................. 302 165 349
State ............................... 61 (106) (92)
------ ------ ------
363 59 257
------ ------ ------
Total ................................. $1,770 $ 164 $ 410
====== ====== ======
A reconciliation of the provision for income taxes based on the applicable
statutory Federal income tax rate to the income tax provision as set forth
in the consolidated statements of income is as follows:
2000 1999 1998
Amount Rate Amount Rate Amount Rate
(Dollar Amounts in Thousands)
Provision for taxes at
statutory Federal rate ... $ 1,548 34.0 % $ 136 34.0 % $ 337 34.0 %
State taxes - net of Federal
income tax benefit ....... 312 6.9 33 8.3 76 7.4
Other - net ................ (90) (2.0) (5) (1.3) (3) (0.1)
------- ------ ----- ------ ----- -----
Total ...................... $ 1,770 38.9 % $ 164 41.0 % $ 410 41.3 %
======= ====== ===== ====== ===== =====
Deferred taxes result from temporary differences in the recognition of
revenue and expense for tax and financial statement purposes. The principal
sources of the differences are the use for income tax purposes of a 15-year
amortization period for intangible assets, the use of accelerated methods
of computing depreciation and the capitalization of certain inventory
related costs.
-11-
The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities are as follows:
December 30, January 1,
2000 2000
(In Thousands)
Assets:
Inventories.................................... $ 950 $ 894
Intangible .................................... -- 366
Other ......................................... 726 468
------ ------
Gross deferred tax assets ....................... 1,676 1,728
Liabilities:
Intangibles ................................... 309 --
Other ......................................... 25 23
------ ------
Gross deferred tax liability .................... 334 23
------ ------
Net deferred tax asset .......................... $1,342 $1,705
====== ======
9. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) plan covering substantially all employees
which permits employees to defer up to 20% of their salary. Matching
contributions are at the discretion of the Company; additional
contributions of 2% of compensation are made for each employee at the end
of each pay period. Annual discretionary contributions may also be made by
the Company. The Company matches 25% of employee contributions up to the
maximum of 4% of each employee's salary. Company contributions for the
fiscal 2000, 1999 and 1998 were approximately $95,000, $98,000 and $85,000,
respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company leases equipment and its facilities under operating lease
agreements which require payment of property taxes, insurance and normal
maintenance costs. Certain leases contain renewal options. Rental expense
was approximately $270,000, $254,000 and $233,000 for fiscal 2000, 1999 and
1998, respectively.
Future minimum annual rentals under the above leases are as follows:
Fiscal Year (In Thousands)
2001 $183
2002 19
2003 11
2004 6
----
$219
====
-12-
The Company has entered into employment contracts with each of its
executive officers. Each contract provides for employment for an initial
period of one year, with automatic renewals for additional one-year
periods. Terms of the contracts include details regarding participation in
benefit plans, base salary, merit increases and discretionary bonuses.
Concurrently with the Oral Care Products Acquisition, the Company entered
into a Purchasing and Manufacturing Agreement with Hoechst Marion Roussel
("HMR") (formerly Marion Merrell Dow, Inc. ("MMD")), which was subsequently
amended, whereby the Company agreed to purchase existing oral care products
exclusively from HMR and in connection therewith pay overhead costs of
$1,525,000 and $1,482,000 as of December 30 and January 1, 2000,
respectively.
During 1997, the Company entered into a manufacturing and sales agreement
(the "agreement") to distribute a cold remedy product composed of zinc
acetate lozenges called Cepacol ColdCare. The Company agreed to acquire
certain minimum quantities of ColdCare products for five years. The related
minimum payments were $2.4 million during the first two years and $4.0
million during the third through fifth years of the agreement. If the
agreed-upon minimum quantities are not purchased, the agreement provides
for payments of up to $400,000 in the first two years and $650,000 in the
third through fifth years of the agreement. During 1998, the Company
terminated the agreement due to an investigation, by the Company, into the
validity of the patent. The Company was sued by the other party to the
agreement and in November 1999 the Company received notice that it had lost
the arbitration. The legal settlement and related costs, aggregated $2.76
million, all of which has been paid as of January 1, 2000 (Note 3).
In connection with the San Francisco Soap acquisition, the Company entered
into a consulting agreement with the former owners of San Francisco Soap
and agreed to pay $300,000 per year during the consulting period (September
1, 1997 through August 29, 2000). The $300,000 per year was paid in advance
in quarterly installments of $75,000 beginning September 1, 1997. Also, in
connection with the San Francisco Soap Company acquisition, the Company
entered into a contingent payment agreement with the sellers equal to 2.5%
of San Francisco Soap Company products net sales for a period of five years
from the acquisition date. The minimum annual payment is $250,000 and the
Company recorded a liability for the present value of the minimum annual
payments owed to the sellers as part of the cost of the acquisition. The
total amounts due related to this agreement were $311,000 and $687,000 at
December 30, 2000 and January 1, 2000, respectively. The Company will treat
additional amounts paid as part of the cost of the acquisition which will
result in additional goodwill.
In conjunction with the Viractin acquisition, the Company entered into a
contingent payment arrangement with the sellers of Viractin which provides
the sellers with additional amounts equal to the sum of 10% of net sales of
the Company's Viractin products for a period of five years from the
acquisition date. The additional consideration payments are to be made to
the seller on a quarterly basis beginning September 30, 1997. During fiscal
2000 and 1999, amounts due related to this agreement were approximately
$202,000 and $217,000, respectively. The Company will record the payments
to the sellers as part of the cost of the acquisition.
11. SIGNIFICANT CUSTOMER
One of the Company's customers accounted for approximately 21%, 18% and 15%
of net sales for fiscal 2000, 1999 and 1998, respectively.
-13-
12. SEGMENT DATA
The Company operates in two industry segments, the distribution and sale of
personal and oral care products. Data by geographic area and industry
segment is as follows:
2000 1999 1998
(In Thousands)
Personal Oral Personal Oral Personal Oral
Care Care Total Care Care Total Care Care Total
------- ------- ------- ------- ------- ------- ------- ------- -------
Net sales to unaffiliated customers:
United States (including Puerto Rico) $40,043 $20,059 $60,102 $45,164 $20,716 $65,880 $49,067 $20,341 $69,408
Canada .............................. 3,709 3,577 7,286 3,975 3,070 7,045 3,875 2,823 6,698
------- ------- ------- ------- ------- ------- ------- ------- -------
Total ................................. $43,752 $23,636 $67,388 $49,139 $23,786 $72,925 $52,942 $23,164 $76,106
======= ======= ======= ======= ======= ======= ======= ======= =======
Product contribution:
United States (including Puerto Rico) $14,688 $ 6,395 $21,083 $15,872 $ 3,883 $19,755 $ 9,904 $ 7,174 $17,078
Canada .............................. 1,258 789 2,047 1,432 733 2,165 1,272 399 1,671
------- ------- ------- ------- ------- ------- ------- ------- -------
Total ................................. $15,946 $ 7,184 23,130 $17,304 $ 4,616 21,920 $11,176 $ 7,573 18,749
======= ======= ======= ======= ======= =======
General and administrative ............ 9,330 8,727 7,625
Depreciation and amortization ......... 4,133 4,207 4,176
Special item .......................... -- 2,760 --
------- ------- -------
Operating profit ...................... $ 9,667 $ 6,226 $ 6,948
======= ======= =======
General and administrative expenses, and depreciation and amortization are
not allocated to each industry segment. Assets are primarily located in the
United States.
13. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Additions
Balance, Charged to Balance,
Beginning Profit Recoveries/ End
of Year and Loss Deductions of Year
------- -------- ---------- -------
(In Thousands)
Allowance for doubtful accounts
and sales and returns:
Fiscal 2000..................... $ 688 $ 474 $(450) $ 712
Fiscal 1999 .................... 881 606 (799) 688
Fiscal 1998 .................... 972 453 (544) 881
* * * * * *
-14-
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
(2)(i) Agreement dated as of February 24, 1994, between SmithKline
Beecham Consumer Healthcare, L.P. and CEP Holdings, Inc.
("CEP") (incorporated by reference to Exhibit (2)(i) to the
Registration Statement on Form S-4 (No. 33-83734) of J.B.
Williams Holdings, Inc. (the "Company"), J.B. Williams
Company, Inc. ("J.B. Williams"), After Shave Products, Inc.
("ASP"), Pre-Shave Products, Inc. ("PSP"), Hair Care Products,
Inc. ("HCP") and CEP (the "Registration Statement")).
(2)(ii) Intellectual Property Agreement dated as of February 24, 1994,
between Merrell Dow Pharmaceuticals Inc. and CEP (incorporated
by reference to Exhibit (2)(ii) to the Registration
Statement).
(2)(iii) Agreement dated as of December 16, 1992, between SmithKline
Beecham Corporation, SmithKline Beecham Consumer Brands Inc.,
Beecham (NJ) Inc. and J.B. Williams (incorporated by reference
to Exhibit (2)(iii) to the Registration Statement).
(2)(iv) Asset Purchase Agreement dated as of August 6, 1997, by and
between J.B. Williams and Avalon Natural Cosmetics, Inc.
(incorporated by reference to Exhibit 2.1 to the Company's
Report on Form 8-K filed on October 31, 1997 (Commission File
No. 33-83734)).
(2)(v) Asset Purchase Agreement between CEP and Virotex Corporation
dated as of July 10, 1997 (incorporated by reference to
Exhibit 2(v) of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 (Commission File No.
33-83734)).
(2)(vi) Asset Purchase Agreement between J.B. Williams and Hoechst
Marion Roussel Canada, Inc. (incorporated by reference to
Exhibit 2(vi) of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 (Commission File No.
33-83734)).
(3)(i) Certificate of Incorporation of the Company, as amended to
March 11, 1994 (incorporated by reference to Exhibit (3)(i)(l)
to the Registration Statement).
(3)(ii) By-Laws of the Company (incorporated by reference to Exhibit
3(ii) to the Registration Statement).
(4)(i) Specimen of the Company's 12% Senior Notes due 2004
(incorporated by reference to Exhibit (4)(i)(l) to the
Registration Statement).
(4)(ii) Indenture dated as of March 16, 1994 among the Company, J.B.
Williams, ASP, PSP, HCP, CEP and The Bank of New York, as
Trustee (incorporated by reference to Exhibit (4)(iv) to the
Registration Statement).
(4)(iii) $5,000,000 Credit Facility dated as of August 29, 1997,
between the Company and The Bank of New York, including the
Master Promissory Note as of the same date (incorporated by
reference to Exhibit 4(iii) of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997
(Commission File No. 33-83734)).
(10)(i)(l) Manufacturing Agreement dated as of February 24, 1994, between
J.B. Williams and Marion Merrell Dow Inc. (incorporated by
reference to Exhibit (10)(i)(3) to the Registration
Statement).
(10)(i)(2) License Agreements between J.B. Williams and CEP dated as of
February 20, 1994 and between J.B. Williams and each of PSP,
HCP and ASP dated as of January 1, 1993 (incorporated by
reference to Exhibit (10)(i)(4) to the Registration
Statement).
(10)(i)(3) Manufacturing and Sales Agreement between J.B. Williams and
Summa Rx Laboratories, Inc. (incorporated by reference to
Exhibit (10)(ii)(D) to the Registration Statement).
(10)(ii)(D) Sublease, dated August 11, 1993, between E.I. Du Pont De
Nemours and Company and J.B. Williams (incorporated by
reference to Exhibit (10)(ii)(D) to the Registration
Statement).
(10)(iii)(A)(1) The Company's 1994 Stock Option Plan dated March 4, 1994
(incorporated by reference to Exhibit (10)(iii)(A)(l) to the
Registration Statement).
(10)(iii)(A)(2) Employment Agreement dated as of May 3, 1993 between J.B.
Williams and Dario U. Margve (incorporated by reference to
Exhibit (10)(iii)(A)(2) to the Registration Statement).
(10)(iii)(A)(3) Employment Agreement dated as of February 11, 1993 between
J.B. Williams and Kevin C. Hartnett (incorporated by reference
to Exhibit (10)(iii)(A)(2) to the Registration Statement).
(10)(iii)(A)(4) Employment Agreement dated as of August 4, 1994 between J.B.
Williams and Jeffrey L. Bower (incorporated by reference to
Exhibit (10)(iii)(A)(2) to the Registration Statement).
(10)(iii)(A)(5) Employment Agreement dated as of October 19, 1994 between J.B.
Williams and Robert G. Sheasby (incorporated by reference to
Exhibit (10)(iii)(A)(6) to the Registrant's 1994 Annual Report
on Form 10-K (Commission File No. 33-83734)).
(10)(iii)(A)(5) Employment Agreement dated as of May 12, 1995 between J. B.
Williams and D. John Dowers.
(21) Subsidiaries of the Company (incorporated by reference to
Exhibit (21) to the Registration Statement).
(24) Powers of Attorney for directors and certain officers of the
Company.