SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 33-83734
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J. B. WILLIAMS HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 06-1387159
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification
number)
65 Harristown Road
Glen Rock, New Jersey 07452
(Address of Principal Executive Offices, including Zip Code)
(201) 251-8100
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No x
----- -----
Number of shares of the issuer's Common Stock, par value $0.01, outstanding as
of July 31, 1998: 9,990
J.B. Williams Holdings, Inc.
I N D E X
Page
Part I - Financial Information
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Item 1: Financial Statements (Unaudited):
Condensed Consolidated Statements of 3
Operations for the Three Months and Six
Months Ended June 30, 1998 and June 30, 1997
Condensed Consolidated Balance Sheets at June 4
30, 1998 and December 31, 1997
Condensed Consolidated Statements of Cash 5
Flows for the Six Months Ended June 30, 1998
and June 30, 1997
Notes to Condensed Consolidated Financial 6
Statements
Item 2: Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II - Other Information
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Item 2: Changes in Securities 13
Item 6: Exhibits and Reports on Form 8-K 13
Signature 14
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J.B. Williams Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In Thousands)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
Net sales $ 14,942 $ 11,739 $ 30,719 $ 23,513
Cost of sales 5,090 3,467 10,817 7,036
--------- --------- --------- --------
Gross margin 9,852 8,272 19,902 16,477
Distribution and cash discounts 1,470 973 2,825 2,006
Advertising and promotion 4,825 2,633 8,730 5,687
Selling, general and administrative expenses 2,578 2,047 5,437 4,155
Depreciation and amortization 1,032 1,061 2,059 2,181
--------- --------- --------- --------
Operating income (loss) (53) 1,558 851 2,448
Other income -- -- -- 750
Interest expense-net (1,462) (1,216) (2,900) (2,435)
--------- --------- -------- --------
Income (loss) before income taxes (1,515) 342 (2,049) 763
Income tax provision (benefit) (591) 134 (799) 298
--------- --------- -------- --------
Net income (loss) $ (924) $ 208 $ (1,250) $ 465
========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements
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J.B. Williams Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In Thousands)
At June 30, At December 31,
1998 1997
----------- ---------------
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 4,413 $ 7,375
Accounts receivable, net 7,824 13,758
Inventories 14,552 9,200
Other current assets 509 636
-------- --------
Total Current Assets 27,298 30,969
-------- --------
Property and Equipment, Net 1,080 943
Intangible Assets, Net 44,119 45,692
Other Assets 3,720 3,867
-------- --------
TOTAL ASSETS $ 76,217 $ 81,471
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 2,071 $ 3,318
Accrued expenses and other liabilities 7,091 9,848
-------- --------
Total Current Liabilities 9,162 13,166
-------- --------
Due To Sellers Of Acquired Businesses 872 872
-------- --------
Long Term Debt 50,345 50,345
-------- --------
Shareholder's Equity:
Common stock and paid-in capital 10,796 9,600
Notes receivable from stock sales (1,196) --
Retained earnings 6,238 7,488
-------- --------
Total Shareholder's Equity 15,838 17,088
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 76,217 $ 81,471
======== ========
See Notes to Condensed Consolidated Financial Statements
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J.B. Williams Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In Thousands)
Six Months Ended June 30,
-------------------------
1998 1997
---- ----
OPERATING ACTIVITIES:
Net income (loss) $ (1,250) $ 465
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Amortization of intangibles and debt issuance costs 1,822 1,983
Depreciation and amortization of property and equipment 237 198
Changes in operating assets and liabilities:
Accounts receivable 5,934 2,493
Inventories (5,352) (1,385)
Other current assets 127 (345)
Accounts payable (1,247) (1,283)
Accrued expenses and other liabilities (2,757) (1,049)
Other assets (102) (68)
--------- ---------
Net Cash Provided By (Used in) Operating Activities (2,588) 1,009
--------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment (374) (156)
--------- ---------
Net Cash Used in Investing Activities (374) (156)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,962) 853
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,375 21,201
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,413 $ 22,054
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 604 $ 424
Interest paid $ 3,021 $ 3,021
See Notes to Condensed Consolidated Financial Statements
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J.B. Williams Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Accounting and Organization
The consolidated financial statements include J.B. Williams Holdings, Inc.
and its wholly-owned subsidiaries: J.B. Williams Company, Inc., After Shave
Products Inc., Pre-Shave Products Inc., Hair Care Products Inc., and CEP
Holdings Inc. (collectively the "Company"). Brynwood Partners II L.P., a
private partnership formed under Delaware law, is the owner of 90% of the
issued and outstanding capital stock of the Company with the balance being
owned by certain employees of the Company.
The accompanying unaudited condensed consolidated financial statements as
of June 30, 1998 and for the three month and six month periods ended June
30, 1998 and 1997 have been prepared in accordance with the instructions to
Form 10-Q. All adjustments which, in the opinion of the management of the
Company, are necessary for a fair presentation of the condensed
consolidated financial statements for the three month and six month periods
ended June 30, 1998 and 1997 have been reflected. All such adjustments are
of a normal recurring nature. The June 30, 1998 condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 31, 1997
included in the Company's Annual Report on Form 10-K.
The results of operations for the period ended June 30, 1998 are not
necessarily indicative of the operating results for the full year.
2. Long Term Debt
Long term debt consists of $50.3 million 12% Senior Notes, due 2004 (the
"Senior Notes").
3. Financial Information Concerning Guarantors
The Senior Notes are guaranteed by each of the Company's wholly-owned
subsidiaries, which constitute all of the Company's direct or indirect
subsidiaries (the "Subsidiary Guarantors"). The Subsidiary Guarantors have
fully and unconditionally guaranteed the Senior Notes on a joint and
several basis; and the aggregate assets, liabilities, earnings and equity
of the Subsidiary Guarantors are substantially equivalent to the assets,
liabilities, earnings and equity of the Company on a consolidated basis.
There are no restrictions on the ability of the Subsidiary Guarantors to
make distributions to the Company. In management's opinion separate
financial statements and other disclosures concerning the Subsidiary
Guarantors would not be material to investors. Accordingly, separate
financial statements and other disclosures concerning the Subsidiary
Guarantors are not included herein.
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4. Other Income
The Company received a one-time payment of $750,000, in January 1997,
representing a break-up fee payable to the Company pursuant to the terms of
a letter of intent entered into by the Company in connection with a
potential transaction.
5. Acquisitions
In August 1997, the Company purchased certain assets associated with the
Viractin and San Francisco Soap Company brands from Virotex Corp. and
Avalon Natural Cosmetics, Inc., respectively. Additionally, in October 1997
the Company acquired certain assets associated with the Cepacol business in
Canada from Hoechst Marion Roussel Canada, Inc. These acquisitions
consisted primarily of the trademarks, patents, inventories, formulas,
marketing materials and customer lists associated with each of these
businesses. Each of these businesses did not comprise a separate business
unit of the prior owner. Accordingly, other than net sales, there is no
financial or operating data available for these businesses. The
acquisitions were accounted for using the purchase method of accounting in
accordance with Accounting Principle Board Opinion No. 16 "Business
Combinations".
The cost of the Viractin business was approximately $4,692,000 of which
$550,000 was allocated to the fair value of the tangible assets acquired
and $4,142,000 was allocated to intangibles. The cost of the San Francisco
Soap Company business was approximately $11,704,000 of which $7,740,000 was
allocated to the fair value of tangible assets acquired and $3,964,000 was
allocated to intangibles. In both of these transactions there are
additional contingent payments tied to annual net sales during the five
year period following each respective closing date. The cost of the Cepacol
(Canada) business was approximately $1,490,000, all of which was allocated
to intangibles.
6. Changes in Securities
As of March 1, 1998, the Company issued 1,000 shares of common stock for an
aggregate purchase price of $1,196,233. These shares were issued to certain
employees of the Company as a result of the exercise of options issued to
the employees under the Company=s 1994 Stock Option Plan. The shares were
in each case paid for by a recourse promissory note in favor of the
Company.
7. Reclassifications
Certain reclassifications have been made to the 1997 financial statements
to conform with the current year's presentation.
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J. B. Williams Holdings, Inc.
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations
General
J. B. Williams Holdings, Inc. (the "Company"), through its subsidiaries,
distributes and sells personal and health care products in the United States,
Canada and Puerto Rico. During August 1997 the Company added to its personal
care products business with the acquisition of the San Francisco Soap Company
brand from Avalon Natural Cosmetics, Inc. It also added to its health care
products business with the August 1997 acquisition of the Viractin brand from
Virotex Corp., the October 1997 acquisition of the Cepacol business in Canada
from Hoechst Marion Roussel Canada, Inc. and the July 1997 agreement with Summa
Rx Laboratories, Inc. for the purchase of certain rights to sell zinc dietary
supplements under the name Cepacol ColdCare.
Results of Operations for the Three Month Period Ended June 30, 1998
The following table sets forth certain operating data for the three months ended
June 30, 1998 and 1997.
Three Months Ended June 30,
---------------------------
(In Thousands)
Personal Care Products Health Care Products Total Company
---------------------- -------------------- -------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
Net Sales $ 10,561 $ 8,092 $ 4,381 $ 3,647 $ 14,942 $ 11,739
Cost of Goods Sold 3,505 2,077 1,585 1,390 5,090 3,467
-------- -------- -------- -------- -------- --------
Gross Margin 7,056 6,015 2,796 2,257 9,852 8,272
Distribution and Cash Discounts 986 540 484 433 1,470 973
Advertising and Promotion 3,829 2,146 996 487 4,825 2,633
-------- -------- -------- -------- -------- --------
Brand Contribution $ 2,241 $ 3,329 $ 1,316 $ 1,337 3,557 4,666
======== ======== ======== ========
Selling, General and Admin. Exp 2,578 2,047
Depreciation and Amortization 1,032 1,061
-------- -------
Operating Income (Loss) (53) 1,558
Interest Expense, Net 1,462 1,216
-------- -------
Income (Loss) Before Income Taxes (1,515) 342
Income Tax Provision (Benefit) (591) 134
-------- -------
Net Income (Loss) $ (924) $ 208
======== =======
For the three month period ended June 30,1998, net sales increased 27.3% to
$14,942,000 from $11,739,000 for the same period in 1997. This increase is
entirely related to the new businesses either acquired or introduced in 1997.
Excluding these new products, sales of the base products would have been down 8%
versus sales during the same period in 1997. This decrease in sales of the base
business products is primarily related to a weak cough/cold season and inventory
reduction programs initiated by our trade customers. In spite of these factors,
brand shares for all products, except Cepacol mouthwash, continue to show
improvement versus the same period in 1997.
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For the three month period ended June 30, 1998, cost of goods sold increased
46.8% to $5,090,000 from $3,467,000 for the same period in 1997. This increase
is primarily related to the higher sales volumes and to higher manufacturing
costs, particularly costs related to the transition of the San Francisco Soap
Company products to new contract manufacturers and costs related to the 1998 San
Francisco Soap Spring and Holiday gift set programs.
For the three month period ended June 30,1998, distribution expenses and cash
discounts increased 51.1% to $1,470,000 from $973,000 for the same period in
1997. This increase is due to the increased sales volumes, the costs related to
relocating the San Francisco Soap distribution operation and storage costs
related to generally higher levels of inventory.
For the three month period ended June 30, 1998, advertising and promotion
expenses increased 83.3% to $4,825,000 from $2,633,000 for the same period in
1997. This increase is entirely related to marketing support programs associated
with the newly acquired businesses.
For the three month period ended June 30, 1998, selling, general, and
administrative expenses increased 25.9% to $2,578,000 from $2,047,000 for the
same period in 1997. This increase is related to a combination of increased
staffing levels related to the new businesses and higher broker commission
payments associated with the increase in net sales.
For the three month period ended June 30, 1998, depreciation and amortization of
$1,032,000 decreased from $1,061,000 for the same period in 1997.
For the three month period ended June 30, 1998, interest expense, net of
interest income, increased 20.2% to $1,462,000 from $1,216,000 for the same
period in 1997. As a result of the acquisitions made during the second half of
1997, cash and cash equivalents decreased from $22,054,000 as of June 30, 1997
to $4,413,000 as of June 30, 1998. This decrease in cash has resulted in a
corresponding decrease in interest income, thereby resulting in an overall
increase in net interest expense.
For the three month period ended June 30, 1998, the Company recorded an income
tax benefit of $591,000 versus an income tax expense of $134,000 for the same
period in 1997. The effective tax rate was 39% for both interim periods.
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Results of Operations for the Six Month Period Ended June 30, 1998
The following table sets forth certain operating data for the six months ended
June 30, 1998 and 1997.
Three Months Ended June 30,
---------------------------
(In Thousands)
Personal Care Products Health Care Products Total Company
---------------------- -------------------- -------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
Net Sales $ 21,090 $ 15,064 $ 9,629 $ 8,449 $ 30,719 $ 23,513
Cost of Goods Sold 7,476 3,961 3,341 3,075 10,817 7,036
-------- -------- -------- -------- -------- --------
Gross Margin 13,614 11,103 6,288 5,374 19,902 16,477
Distribution and Cash Discounts 1,872 1,062 953 944 2,825 2,006
Advertising and Promotion 6,025 4,033 2,705 1,654 8,730 5,687
-------- -------- -------- -------- -------- --------
Brand Contribution $ 5,717 $ 6,008 $ 2,630 $ 2,776 8,347 8,784
======== ======== ======== ========
Selling, General and Admin. Exp 5,437 4,155
Depreciation and Amortization 2,059 2,181
-------- --------
Operating Income 851 2,448
Other Income -- 750
Interest Expense, Net (2,900) (2,435)
-------- --------
Income (Loss) Before Income Taxes (2,049) 763
Income Tax Provision (Benefit) (799) 298
-------- --------
Net Income (Loss) $ (1,250) $ 465
======== ========
For the six month period ended June 30,1998, net sales increased 30.6% to
$30,719,000 from $23,513,000 for the same period in 1997. This increase is
entirely related to the new businesses either acquired or introduced in 1997.
Excluding these new products, sales of the base products would have been down 9%
versus sales during the same period in 1997. This decrease in sales of the base
business products is primarily related to a weak cough/cold season and inventory
reduction programs initiated by our trade customers. In spite of these factors,
brand shares for all products, except Cepacol mouthwash, continue to show
improvement versus the same period in 1997.
For the six month period ended June 30, 1998, cost of goods sold increased 53.7%
to $10,817,000 from $7,036,000 for the same period in 1997. This increase is
primarily related to the higher sales volumes and to higher manufacturing costs,
particularly costs related to the transition of the San Francisco Soap Company
products to new contract manufacturers and costs related to the 1998 San
Francisco Soap Spring and Holiday gift set programs.
For the six month period ended June 30,1998, distribution expenses and cash
discounts increased 40.8% to $2,825,000 from $2,006,000 for the same period in
1997. This increase is due to the increased sales volumes, the costs related to
relocating the San Francisco Soap distribution operation and storage costs
related to generally higher levels of inventory.
-10-
For the six month period ended June 30, 1998, advertising and promotion expenses
increased 53.5% to $8,730,000 from $5,687,000 for the same period in 1997. This
increase is entirely related to marketing support programs associated with the
newly acquired businesses.
For the six month period ended June 30, 1998, selling, general, and
administrative expenses increased by 30.9% to $5,437,000 from $4,155,000 for the
same period in 1997. This increase is related to a combination of increased
staffing and higher broker commission payments related to the increase in net
sales.
For the six month period ended June 30, 1998, depreciation and amortization of
$2,059,000 decreased from $2,181,000 for the same period in 1997.
For the six month period ended June 30, 1997, other income of $750,000 was
received as a result of a one-time payment that represented a break-up fee
payable to the Company pursuant to the terms of a Letter of Intent entered into
by the Company in connection with a potential transaction.
For the six month period ended June 30, 1998, interest expense, net of interest
income, increased 19.1% to $2,900,000 from $2,435,000 for the same period in
1997. As a result of the acquisitions made during the second half of 1997, cash
and cash equivalents decreased from $22,054,000 as of June 30, 1997 to
$4,413,000 as of June 30, 1998. This decrease in cash has resulted in a
corresponding decrease in interest income, thereby resulting in an overall
increase in net interest expense.
For the six month period ended June 30, 1998, the Company recorded an income tax
benefit of $799,000 versus an income tax expense of $298,000 for the same period
in 1997. The effective tax rate was 39% for both interim periods.
Liquidity and Capital Resources
The following chart summarizes the net funds provided by and/or used in
operating, financing and investing activities for the periods ended June 30,
1998 and 1997 (in thousands).
Six Months Ended June 30,
-------------------------
1998 1997
---- ----
Net cash provided by (used in)operating activities $(2,588) $1,009
Net cash used in investing activities (374) (156)
Increase (decrease) in cash and cash equivalents $(2,962) $853
-11-
The principal adjustments to reconcile net loss of $1,250,000 for the period
ended June 30, 1998 to net cash used in operating activities of $2,588,000 are
depreciation and amortization of $2,059,000, offset by a net increase in working
capital requirements of $3,397,000. The working capital increase is primarily
linked to higher inventories, associated with the San Francisco Soap Holiday
gift set program, and generally lower levels of payables and accrued expenses.
Capital expenditures, which were $374,000 for the six months ended June 30,
1998, are generally not significant in the Company's business. Except for
approximately $600,000 that the Company has budgeted for the replacement and
upgrade of its financial operating system which should also address Year 2000
compliance requirements, the Company currently has no material commitments for
future capital expenditures.
As a result of the Senior Notes, the Company had $50.3 million of total debt
outstanding of December 31, 1997. Management expects that cash on hand and
internally generated funds will provide sufficient capital resources to finance
the Company=s operations and meet interest requirements on the Senior Notes,
both in respect of the short term as well as during the long term. However, as a
result of the cash expenditures made in connection with the Company=s
acquisition of the San Francisco Soap, Cepacol (Canada) and Viractin businesses,
cash and cash equivalents decreased from $21,201,000 on December 31, 1996, to
$7,375,000 on December 31, 1997. Since there can be no guarantee that the
Company will generate internal funds sufficient to finance its operations and
debt requirements, the Company has arranged for a secured line of credit with
the Bank of New York through August 31, 1999 to provide funds, should they be
required, in order for the Company to meet its liquidity requirements. The line
of credit is in the maximum amount of $5,000,000, with the amount available
being subject to reduction based on certain criteria relative to the Company=s
accounts receivable and inventory.
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Part II - Other Information
Item 2 - Changes in Securities
As of March 1, 1998, the Company issued 1,000 shares of common stock for an
aggregate purchase price of $1,196,233. These shares were issued to certain
employees of the Company as a result of the exercise of options issued to the
employees under the Company=s 1994 Stock OptionPlan, and pursuant to the
exemption from registration under the Securities Act of 1933 provided for by
Rule 701 of Regulation S-K. The shares were in each case paid for by a recourse
promissory note in favor of the Company.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
- Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
- No reports on Form 8-K were filed by the registrant during the
period covered by this report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
J.B. WILLIAMS HOLDINGS, INC.
Date: August 12, 1998 /s/ Kevin C. Hartnett
---------------- ---------------------------------
Name: Kevin C. Hartnett
Title: Vice President and
Chief Financial Officer
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