SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
o QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1999
OR
o 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 registrant's Common Stock, par value $0.01, outstanding
as of October 31, 1999: 10,000
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 Operations for
the Thirteen Weeks and Thirty Nine Weeks Ended
October 2, 1999 and the Three Months and Nine
Months Ended September 30, 1998 3
Condensed Consolidated Balance Sheets at October 2,
1999 and December 31, 1998 4
Condensed Consolidated Statements of Cash Flows for
the Thirteen Weeks and Thirty Nine Weeks Ended
October 2, 1999 and the Three Months and Nine
Months Ended September 30, 1998 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2: Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II - Other Information
-----------------
Item 1: Litigation 13
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, except share and per share data)
Thirteen Three Thirty Nine Nine
Weeks Months Weeks Months
Ended Ended Ended Ended
October 2, September 30, October 2, September 30,
1999 1998 1999 1998
---- ----- ---- ----
Net sales $20,059 $20,025 $49,756 $50,744
Cost of sales 7,823 8,558 19,088 19,375
------ ------ ------- ------
Gross margin 12,236 11,467 30,668 31,369
Distribution and cash discounts 1,467 1,735 4,076 4,560
Advertising and promotion 4,074 4,675 11,203 13,405
Selling, general and administrative expenses 2,723 2,333 8,282 7,770
Depreciation and amortization 1,041 1,037 3,122 3,096
----- ----- ------ ------
Operating income 2,931 1,687 3,985 2,538
Interest expense-net 1,435 1,464 4,390 4,364
----- ----- ----- ------
Income (loss) before income taxes 1,496 223 (405) (1,826)
Income tax provision (benefit) 613 87 (166) (712)
----- ----- ------- --------
Net income (loss) $ 883 $ 136 $(239) $(1,114)
====== ======= ======= ========
Retained earnings, beginning of period $6,947 $6,238 $8,069 $7,488
Retained earnings, end of period $7,830 $6,374 $7,830 $6,374
Net income (loss) per share: Basic $88.30 $13.91 $(23.90) $(113.99)
Net income (loss) per share: Diluted $88.30 $13.61 $(23.90) $(113.99)
Average basic shares outstanding 10,000 9,993 10,000 9,773
Average diluted shares outstanding 10,000 9,996 10,000 9,919
See Notes to Condensed Consolidated Financial Statements
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J.B. Williams Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In Thousands)
At October 2, 1999 At December 31, 1998
------------------ --------------------
ASSETS
Current Assets:
Cash and cash equivalents $4,540 $6,263
Accounts receivable, net 12,959 15,187
Inventories 9,613 10,809
Other current assets 512 662
----- -------
Total Current Assets 27,624 32,921
------ ------
Property and Equipment, Net 1,897 1,350
Intangible Assets, Net 40,326 42,638
Other Assets 5,126 3,252
------ ------
TOTAL ASSETS $74,973 $80,161
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable $2,354 $3,510
Accrued expenses and other liabilities 4,381 7,963
----- -----
Total Current Liabilities 6,735 11,473
----- ------
Due To Sellers Of Acquired Businesses 463 674
--- ---
Long Term Debt 50,345 50,345
------ ------
Shareholder's Equity:
Common stock and paid-in capital 10,800 10,800
Notes receivable from stock sales (1,200) (1,200)
Retained earnings 7,830 8,069
----- -----
Total Shareholder's Equity 17,430 17,669
------ ------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $74,973 $80,161
======= =======
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)
Thirty Nine Weeks Nine Months
Ended Ended
October 2, September 30,
1999 1998
---- ----
OPERATING ACTIVITIES:
Net loss $(239) $(1,114)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Amortization of intangibles and debt issuance costs 2,685 2,733
Depreciation and amortization of property and equipment 437 363
Changes in operating assets and liabilities:
Accounts receivable 2,228 1,411
Inventories 1,196 (5,269)
Other current asset 150 (563)
Accounts payable (1,156) 1,351
Accrued expenses and other liabilities (3,582) (3,369)
Other assets (2,458) (243)
------ ------
Net Cash Used in Operating Activities (739) (4,700)
------ -------
INVESTING ACTIVITIES
Purchase of property and equipment (984) (693)
----- -----
Decrease in Cash and Cash Equivalents (1,723) (5,393)
Cash and cash equivalents, beginning of year 6,263 7,375
----- -----
Cash and Cash Equivalents, End of Period $4,540 $1,982
====== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $251 $618
Interest paid $6,041 $6,041
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 all of the issued and outstanding capital stock of the Company.
Commencing January 1, 1999, the Company changed its annual fiscal period
to a fifty two week period consisting of four thirteen weeks interim
periods with the fiscal year ending January 1, 2000. The change did not
materially impact reported results of operations through the third
interim period of fiscal 1999.
The accompanying unaudited condensed consolidated financial statements as
of October 2, 1999 and for the thirteen and thirty nine weeks ended
October 2, 1999 and the three month and six month periods ended September
30, 1998 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 thirteen week and thirty nine
week periods ended October 2, 1999 and for the three month and six month
periods ended September 30, 1998 have been reflected. All such
adjustments are of a normal recurring nature. The October 2, 1999
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year
ended December 31, 1998 included in the Company's Annual Report on Form
10-K.
The results of operations for the period ended October 2, 1999 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
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Guarantors are substantially equivalent to the assets, liabilities,
earnings and equity of the Company on a consolidated basis. There are no
restrictions on the ability of the Subsidiary Guarantors to make
distributions to the Company. In management's opinion separate financial
statements and other disclosures concerning the Subsidiary Guarantors
would not be material to investors. Accordingly, separate financial
statements and other disclosures concerning the Subsidiary Guarantors are
not included herein.
4. 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.
5. RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 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. The personal care products business includes the Aqua
Velva, Brylcreem, Williams Lectric Shave, Total Hair Fitness, Williams Mug Soap
and the San Francisco Soap Company brands. The health care products business is
comprised of the Cepacol and Viractin brands, a broad line of oral health care
products that includes mouthwash, sore throat lozenges and sprays, children's
sore throat formulas and cold sore medications.
CHANGE IN ANNUAL FISCAL YEAR
Commencing January 1, 1999, the Company changed its annual fiscal period to a
fifty two week period consisting of four thirteen weeks interim periods with the
fiscal year ending January 1, 2000. The change did not materially impact
reported results of operations through the third interim period of fiscal 1999.
RESULTS OF OPERATIONS FOR THE THIRTEEN WEEK PERIOD ENDED OCTOBER 2, 1999
The following table sets forth certain operating data for the thirteen weeks
ended October 2, 1999 and the three months ended September 30, 1998.
Periods Ended October 2, 1999 and September 30, 1998
----------------------------------------------------
(In Thousands)
Personal Care Products Health Care Products Total Company
---------------------- -------------------- -------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Net Sales $14,047 $13,966 $6,012 $6,059 $20,059 $20,025
Cost of Goods Sold 5,512 6,458 2,311 2,100 7,823 8,558
------ ------- ----- ------ ----- ------
Gross Margin 8,535 7,508 3,701 3,959 12,236 11,467
Distribution and Cash Discounts 959 1,176 508 559 1,467 1,735
Advertising and Promotion 2,694 3,683 1,380 992 4,074 4,675
----- ----- ----- ----- ------ -----
Brand Contribution $4,882 $2,649 $1,813 $2,408 6,695 5,057
====== ====== ====== ======
Selling, General and Admin. Exp. 2,723 2,333
Depreciation and Amortization 1,041 1,037
----- ------
Operating Income 2,931 1,687
Interest Expense, Net 1,435 1,464
----- -----
Income Before Income Taxes 1,496 223
Income Tax Provision 613 87
----- -----
Net Income $ 883 $ 136
===== ======
For the thirteen week period ended October 2,1999, net sales of $20,059,000 were
essentially unchanged from sales for the same period in 1998. These results are
in spite of the discontinuance of the Cepacol ColdCare business and lower sales
on the Total Hair Fitness brand, which was being
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introduced during this same period in 1998. Sales of all other businesses are
actually up 6.9% during this period in 1999 versus the same period in 1998, lead
by strong results on the Cepacol and San Francisco Soap businesses.
For the thirteen week period ended October 2,1999, cost of goods sold decreased
8.6% to $7,823,000 from $8,558,000 for the same period in 1998. This decrease
reflects significant improvements in the assembly costs related to the 1999 San
Francisco Soap Holiday gift set program and lower costs for the components
included as part of these gift items.
For the thirteen week period ended October 2,1999, distribution expenses and
cash discounts decreased 15.4% to $1,467,000 from $1,735,000 for the same period
in 1998. This decrease is related to improved systems for handling the
manufacturing and distribution of the San Francisco Soap gift items and reduced
storage costs related to lower levels of inventory.
For the thirteen week period ended October 2,1999, advertising and promotion
expenses decreased 12.9% to $4,074,000 from $4,675,000 for the same period in
1998. This decrease reflects the elimination of certain marketing support
programs associated with businesses acquired in the second half of 1997 and with
spending related to the introduction of the Total Hair Fitness brand.
For the thirteen week period ended October 2,1999, selling, general, and
administrative expenses increased 16.7% to $2,723,000 from $2,333,000 for the
same period in 1998. This increase relates to generally higher levels of
staffing levels for the San Francisco Soap business.
For the thirteen week period ended October 2,1999, depreciation and amortization
remained essentially unchanged from 1998 at $1,041,000.
For the thirteen week period ended October 2,1999, 1998, interest expense, net
of interest income, decreased 2.0% to $1,435,000 from $1,464,000 for the same
period in 1998.
For the thirteen week period ended October 2,1999, income taxes were $613,000 as
compared to $87,000 for the same period in 1998. The effective tax rate was 41%
for the 1999 interim period and 39% for the comparable interim period in 1998.
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Results of Operations for the Thirty Nine Week Period Ended October 2, 1999
The following table sets forth certain operating data for the thirty-nine weeks
ended October 2, 1999 and the nine months ended September 30, 1998.
Periods Ended October 2, 1999 and September 30, 1998
----------------------------------------------------
(In Thousands)
Personal Care Products Health Care Products Total Company
---------------------- -------------------- -------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Net Sales $33,931 $35,056 $15,825 $15,688 $49,756 $50,744
Cost of Goods Sold 12,969 13,934 6,119 5,441 19,088 19,375
------ ------ -------- -------- ------ -------
Gross Margin 20,962 21,122 9,706 10,247 30,668 31,369
Distribution and Cash Discounts 2,581 3,048 1,495 1,512 4,076 4,560
Advertising and Promotion 7,751 9,708 3,452 3,697 11,203 13,405
----- ----- ----- ------ ------ ------
Brand Contribution $10,630 $8,365 $4,759 $5,038 15,389 13,404
======= ====== ====== ======
Selling, General and Admin. Exp. 8,282 7,770
Depreciation and Amortization 3,122 3,096
----- -------
Operating Income 3,985 2,538
Interest Expense, Net 4,390 4,364
----- -------
Loss Before Income Taxes (405) (1,826)
Income Tax Benefit (166) (712)
------ -------
Net Loss $ (239) $(1,114)
======= ========
For the thirty-nine week period ended October 2,1999, net sales decreased 2.0%
to $49,756,000 from $50,744,000 for the same period in 1998. This decrease is
due to lower sales associated with the personal care business, particularly on
the Total Hair Fitness line of shampoos and conditioners. Net sales of Total
Hair Fitness during the first nine months of 1999 are down approximately
$2,600,000, reflecting lower levels of sales primarily related to the retail
inventory build realized with the launch of this business in 1998.
For the thirty-nine week period ended October 2,1999, cost of goods sold
decreased 1.5% to $19,088,000 from $19,375,000 for the same period in 1998. The
decrease in manufacturing costs is primarily related to savings associated with
improvements from new systems implemented for the assembly of the 1999 San
Francisco Soap holiday gift sets. These savings were partially offset by
one-time expenses associated with the shutdown of the gift set/special pack
assembly operation that the Company operated during 1998 and with the March 1999
re-launch of the entire San Francisco Soap product line.
For the thirty-nine week period ended October 2,1999, distribution expenses and
cash discounts decreased 10.6% to $4,076,000 from $4,560,000 for the same period
in 1998. This decrease is related to improved systems for handling the
manufacturing and distribution of the San Francisco Soap gift items and reduced
storage costs related to lower levels of inventory.
For the thirty-nine week period ended October 2,1999, advertising and promotion
expenses decreased 16.4% to $11,203,000 from $13,405,000 for the same period in
1998. During the first half of 1998, the Company spent heavily in support of the
introduction of the Total Hair Fitness business. Advertising and promotion
support in 1999 has not required the same levels of spending.
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For the thirty-nine week period ended October 2,1999, selling, general, and
administrative expenses increased by 6.6% to $8,282,000 from $7,770,000 for the
same period in 1998. This increase reflects generally higher levels of staffing
during the first nine months of 1999 versus 1998.
For the thirty-nine week period ended October 2,1999, depreciation and
amortization increased .8% to $3,122,000 from $3,096,000 for the same period in
1998.
For the thirty-nine week period ended October 2,1999, interest expense, net of
interest income, increased .6% to $4,390,000 from $4,364,000 for the same period
in 1998
For the thirty-nine week period ended October 2,1999, the Company recorded an
income tax benefit of $166,000 versus an income tax benefit of $712,000 for the
same period in 1998. The effective tax rate was 41% for the 1999 interim period
and 39% for the comparable interim period in 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 periods ended October 2,
1999 and September 30, 1998 (in thousands).
Period Ended
------------
October 2, September 30,
---------- -------------
1999 1998
---- ----
Net cash provided by (used in) operating activities $(739) $(4,700)
Net cash used in investing activities (984) (693)
-------- ---------
Decrease in cash and cash equivalents $(1,723) $(5,393)
======== ========
The principal adjustments to reconcile net loss of $239,000 for the period ended
October 2, 1999 to net cash used in operating activities of $739,000 are
depreciation and amortization of $3,122,000, offset by a net increase in working
capital requirements of $3,622,000. The working capital increase is primarily
linked to lower levels of accrued expenses and accounts payable.
Capital expenditures, which were $984,000 for the period ended October 2, 1999,
are generally not significant in the Company's business. Capital expenditures
for 1999 are primarily related to the replacement and upgrade of the Company's
financial operating system along with other amounts allocated for improved
bottle molds for certain product groups.
As a result of the Senior Notes, the Company had $50,345,000 of total debt
outstanding as of December 31, 1998 and July 3, 1999. 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
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finance its operations and debt requirements, the Company has extended its
secured line of credit with the Bank of New York through August 31, 2000 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.
YEAR 2000 READINESS DISCLOSURE
As part of a plan to improve its overall system capabilities, the Company
initiated a Year 2000 program in 1997 to upgrade its internal use software and
hardware to address possible issues that may arise from using two digits rather
than four to define the applicable year for dates. As part of this effort the
Company is reviewing the compliance of material third parties (significant
vendors and customers) on the operations of the business in order to determine
the risks to the Company for a third party's failure to re-mediate its own Year
2000 issues. While this information will be used to mitigate these risks, due to
the complexity of the problem, there can be no assurance that any third party
systems will be Year 2000 compliant on a timely basis or that non-compliance
will not have an adverse material impact on the company.
The Company believes that the planned modifications and conversions of internal
systems and hardware will allow it to meet its Year 2000 compliance schedule and
prevent any material adverse impact on its results of operations, liquidity and
financial condition. However, due to the inherent uncertainty of the Year 2000
problem, the Company cannot determine whether its overall program, including
third party compliance, or any future contingency plans will, in fact, prevent a
material adverse impact on its results of operations, liquidity and financial
condition. It is believed that the most likely worst case scenario would involve
the temporary disruption of fulfilling and billing customer orders, which would
require manual resolution. No material adverse impact on the Company's financial
condition is expected from this specific scenario.
Estimated costs for the complete system upgrade, including any specific Year
2000 requirements, are projected to be approximately $1,020,000 of which
$920,000 have been incurred through October 2, 1999. Additional expenses are not
anticipated to exceed $100,000 for the remainder of 1999. The funds for these
costs have and will continue to come from normal operating cash flows of the
business. Essentially all internal systems have been implemented and minor
conversion issues are currently in the process of being resolved.
The contingency planning process is ongoing and, as additional information
becomes available, the Company will consider the results of the systems
conversion and the status of third party Year 2000 readiness.
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Part II - Other Information
Item 1 - Litigation
On November 1, 1999, an arbitration judgment was rendered against the
Company in connection with an arbitration hearing which was held in Dallas,
Texas on September 1-3, 1999. The arbitration related to the Company's
anticipatory repudiation of an agreement to purchase certain Coldcare(TM)
products from Summa RX Laboratories, Inc. ("Summa"). The arbitrator found
the Company to be liable and ordered the Company to pay to Summa an amount
in excess of $2.4 million (including attorney's fees, interest and other
expenses). The Company intends to file a motion to vacate and/or modify
this judgment.
Item 2 - Changes in Securities
As of March 1, 1998, the Company issued 1,000 shares of common stock for an
aggregate purchase price of $1,196,233. These shares were issued to certain
employees of the Company as a result of the exercise of options issued to
the employees under the Company's 1994 Stock Option Plan, and pursuant to
the exemption from registration under the Securities Act of 1933 provided
for by Rule 701 of Regulation S-K. The shares were in each case paid for by
a recourse promissory note in favor of the Company.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
- Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
- No reports were filed in the thirteen week period ended
October 2, 1999.
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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: November 12, 1999 /s/ Kevin C. Hartnett
------------------ -------------------------------
Name: Kevin C. Hartnett
Title: Vice President and Chief
Financial Officer
Qtr999
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