<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: MARCH 29, 1997 Commission File Number:0-18671
NUTRAMAX PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 061200464
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 BLACKBURN DRIVE, GLOUCESTER, MASSACHUSETTS 01930
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 283-1800
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 X No
----- -----
As of May 12, 1997 there were 4,712,014 shares of Common Stock, par value $.001
per share, outstanding.
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
THIRTEEN WEEKS ENDED MARCH 29, 1997
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Condensed Consolidated Statements of Operations -
Thirteen Weeks and Twenty Six Weeks ended March 29, 1997
and March 30, 1996 (Unaudited) 4
Condensed Consolidated Balance Sheets -
March 29, 1997 (Unaudited) and September 28, 1996 5
Condensed Consolidated Statements of Cash Flows -
Twenty Six Weeks ended March 29, 1997 and
and March 30, 1996 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 11-15
</TABLE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
2
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
THIRTEEN WEEKS ENDED MARCH 29, 1997
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
--------------------------- --------------------------
March 29, March 30, March 29, March 30,
1997 1996 1997 1996
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $25,178,000 $19,824,000 $47,213,000 $37,972,000
COST OF SALES 18,641,000 14,279,000 34,625,000 26,849,000
----------- ----------- ----------- -----------
GROSS PROFIT 6,537,000 5,545,000 12,588,000 11,123,000
SELLING, GENERAL & ADMINISTRATIVE EXP 3,521,000 2,888,000 6,595,000 5,695,000
----------- ----------- ----------- -----------
OPERATING INCOME 3,016,000 2,657,000 5,993,000 5,428,000
OTHER CREDITS (CHARGES):
Interest expense (1,382,000) (361,000) (1,802,000) (691,000)
Interest Income 45,000 3,000 102,000 7,000
Other ( 6,000) ( 79,000) ( 33,000) (307,000)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 1,673,000 2,220,000 4,260,000 4,437,000
INCOME TAX EXPENSE 670,000 858,000 1,717,000 1,745,000
----------- ----------- ----------- -----------
NET INCOME $ 1,003,000 $ 1,362,000 $ 2,543,000 $ 2,692,000
=========== =========== =========== ===========
EARNINGS PER SHARE $.21 $.16 $.38 $.32
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,845,000 8,520,000 6,780,000 8,520,000
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 29, September 29,
1997 1996
----------- ------------
(Unaudited) (See Note)
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 464,000 $ 294,000
Accounts receivable, net 11,887,000 12,848,000
Inventories 21,009,000 18,321,000
Deferred income taxes 954,000 801,000
Prepaid expenses and other 701,000 618,000
----------- -----------
TOTAL CURRENT ASSETS 35,015,000 32,882,000
PROPERTY, PLANT AND EQUIPMENT, net 32,698,000 29,207,000
RESTRICTED CASH 2,767,000 4,742,000
GOODWILL, net 13,173,000 13,415,000
OTHER ASSETS 3,660,000 2,632,000
----------- -----------
$87,313,000 $82,878,000
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 6,318,000 $ 7,265,000
Accrued payroll and related taxes 696,000 666,000
Accrued expenses - other 1,064,000 962,000
Current maturities of long-term debt 2,966,000 14,498,000
----------- -----------
TOTAL CURRENT LIABILITIES 11,044,000 23,391,000
LONG-TERM DEBT, less current maturities 61,493,000 11,780,000
DEFERRED INCOME TAXES AND OTHER LIABILITIES 2,324,000 1,890,000
COMMITMENTS & CONTINGENCIES -- --
STOCKHOLDERS' EQUITY 12,452,000 45,817,000
----------- -----------
$87,313,000 $82,878,000
=========== ===========
</TABLE>
Note: The balance sheet at September 28, 1996 has been condensed from the
audited financial statements at that date.
See notes to condensed consolidated financial statements.
5
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty Six Weeks Ended
-----------------------
March 29, March 30,
1997 1996
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,543,000 $ 2,692,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Non cash items primarily depreciation and amortization 2,613,000 2,198,000
Increase (decrease), net of effect of acquisitions:
Accounts receivable 1,152,000 425,000
Inventories (2,688,000) (2,688,000)
Accounts payable, accrued expenses and other (256,000) (1,221,000)
Federal and state taxes payable (432,000) (385,000)
------------ -----------
Net cash provided by operating activities 2,932,000 1,021,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition-Oral Care, net of cash acquired -- (2,538,000)
Acquisition-feminine hygiene assets -- (2,367,000)
Restricted Cash 1,975,000 --
Purchases of property and equipment (5,273,000) (2,490,000)
Deferred packaging costs (391,000) (395,000)
Other (21,000) --
------------ -----------
Net cash used in investing activities (3,710,000) (7,790,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Revolving Credit Facility and
other Long Term Debt 47,700,000 7,220,000
Stock Repurchase (21,174,000) --
Proceeds from exercise of stock options 542,000 --
Debt Repayments (25,005,000) (954,000)
Deferred Financing Costs (1,026,000) --
Other (89,000) --
------------ -----------
Net cash provided by (used in) financing activities 948,000 6,266,000
------------ -----------
NET INCREASE (DECREASE) IN CASH 170,000 (503,000)
CASH:
Beginning of period 294,000 503,000
------------ -----------
End of period $ 464,000 $ --
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 1,823,000 $ 1,932,000
============ ===========
Interest paid $ 867,000 $ 583,000
============ ===========
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING & INVESTING ACTIVITIES:
Warrants issued in connection with debt refinancing $ 888,000 $ --
============ ===========
Note issued in exchange for stock repurchased $ 16,372,000 $ --
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of March 29, 1997, the condensed
consolidated statements of operations for the thirteen and twenty-six weeks
ended March 29, 1997 and March 30, 1996, and the condensed consolidated
statements of cash flows for the twenty-six weeks then ended have been
prepared by the Company without audit. In the opinion of the Company, all
adjustments (consisting only of normal, recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows
at March 29, 1997, and for all periods presented, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's September 28, 1996 Annual Report on
Form 10-K. The results of operations for the period ended March 29, 1997 are
not necessarily indicative of the operating results for the full year.
NOTE B - RESTRICTED CASH
In connection with the $7,700,000 received from two Massachusetts Industrial
Finance Agency Variable Rate Industrial Development Bonds (collectively, the
"IDB") a total of $2,767,000 including accumulated interest remains as
invested cash as of March 29, 1997. Of this total, $534,000 is restricted for
capital expenditures at the Oral Care facility in Florence, Massachusetts and
$1,552,000 is restricted for capital expenditures at the Powers
Pharmaceutical facility in Brockton, Massachusetts. The IDB restricts the
investment vehicles available for the excess cash. As of March 29, 1997,
$2,086,000 was invested in the Treasury Money Market at a current yield of
5.1 %. The remaining restricted cash of $681,000 represents the amounts which
have been paid to the bond trustee to fund the annual principal payment due
to the bondholders. These funds are also invested in the Treasury Money
Market at a current yield of 5.1%.
NOTE C - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
<TABLE>
<CAPTION>
March 29, September 28,
1997 1996
----------- -------------
<S> <C> <C>
Raw materials $ 9,805,000 $8,811,000
Finished goods 9,776,000 8,186,000
Work-in-process 330,000 292,000
Machine parts and factory supplies 1,098,000 1,032,000
----------- ----------
$21,009,000 $18,321,000
=========== ===========
</TABLE>
7
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D - DEBT
The Company's previous revolving credit facility expired December 31, 1996
and was refinanced in connection with the MEDIQ Stock Repurchase (see Note
E). The new Revolving Credit Facility of $16,900,000 had an outstanding
balance of $11,972,000 on March 29, 1997. The interest rate was 8.65% based
on LIBOR plus 2.5% and the available balance was $890,000 based on eligible
accounts receivable and inventory balances. The Revolving Credit Facility
expires on January 1, 2002. In connection with the MEDIQ Stock Repurchase,
the Company obtained senior financing in the aggregate principal amount of
$60,000,000, including the new credit facility, (the "Senior Debt Financing")
and senior subordinated financing in the aggregate principal amount of
$10,000,000 (the "Subordinated Debt Financing").
Pursuant to the Senior Debt Financing, the Company has senior secured credit
facilities in the aggregate principal amount of $60,000,000 (the "Senior
Debt"), consisting of (i) a $20,000,000 term loan (the "Term Loan A"), (ii) a
$15,000,000 term loan (the "Term Loan B" and, together with the Term Loan A,
the "Term Loans"), (iii) a $20,000,000 letter of credit to support the MEDIQ
Note relating to the MEDIQ Stock Repurchase (the "Stock Repurchase Letter of
Credit"), (iv) a $16,900,000 revolving credit facility (the "Revolving Credit
Facility"), and (v) an $8,100,000 letter of credit to support the Company's
IDB (the "IDB Letter of Credit" and, together with the Stock Repurchase
Letter of Credit, the "Letters of Credit"). The purpose of obtaining the
Senior Debt Financing was to permit the Company to finance the MEDIQ Stock
Repurchase, to refinance the Company's existing indebtedness and to satisfy
the Company's working capital requirements. At the Closing of the Senior
Debt Financing on December 31, 1996 (the "Senior Debt Closing"), $18,628,000
of the Term Loan A was drawn by the Company and the Stock Repurchase Letter
of Credit was issued by the senior lender. As of March 29, 1997, $20,000,000
and $5,728,000 were outstanding under Term Loan A and Term Loan B,
respectively, with interest rates of 8.058% and 8.4375%, respectively. The
balance of Term Loan B will be advanced only to fund drawings under the Stock
Repurchase Letter of Credit. The subsidiaries of the Company guaranteed the
obligations of the Company under the Senior Debt Financing. Term Loan A
expires on January 1, 2002 and Term Loan B expires on January 1, 2004.
Subsequent to the closing of the MEDIQ stock repurchase (see Note E), the
Company received 788,887 MEDIQ Escrowed Shares. As a result, a portion of the
MEDIQ Note has been paid with $1,372,000 from Term Loan A and $5,728,000 from
Term Loan B. As of March 29, 1997 the balance under the MEDIQ Note and the
Letter of Credit issued to support the MEDIQ Note totals $9,272,000.
Pursuant to the Subordinated Debt Financing, the Company's subordinated
lender has provided the Company with an aggregate principal amount of
$10,000,000 (the "Subordinated Debt") in the form of senior subordinated
notes (the "Senior Subordinated Notes") issued to the subordinated lender.
The Senior Subordinated Notes mature on December 30, 2004 and bear interest
at 11 1/2 %.
8
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Interest on the Senior Subordinated Notes is payable quarterly in arrears,
commencing on April 15, 1997. In connection with the Subordinated Debt
Financing, the Company issued to the subordinated lender warrants to purchase
273,419 shares of common stock of the Company (which represents approximately
4.5% (on a fully-diluted basis) of the total outstanding common stock as of
March 29, 1997) at $9.00 per share, subject to certain adjustments to prevent
dilution.
The agreements evidencing the Senior Debt and the Senior Subordinated Debt
contain certain restrictive covenants including, without limitation,
covenants with respect to the ratio of total debt to EBITDA, operating cash
flow, interest coverage and capital expenditures.
The Company currently has two Massachusetts Industrial Development Revenue
Bonds totaling $7,700,000. The Series A IDB financing provided the Company
with $4,200,000 for capital expenditures made through April 1997 and to
partially finance the acquisition of the Oral Care division. The Series B
IDB financing provided the Company with $3,500,000 for the expansion of the
Powers Pharmaceutical manufacturing facility. Through March 29, 1997,
$3,669,000 was expended against the Series A IDB and $1,980,000 was expended
against the Series B IDB. Principal payments are funded monthly and total
$800,000 per year through May 1, 2001, $300,000 through May 1, 2004 and
$200,000 per year thereafter through May 1, 2016. The variable interest rate
on the bonds as of March 29, 1997 was 3.4% and interest is payable monthly.
A summary of Debt outstanding as of March 29, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Revolving Credit Facility $11,972,000
Term Loan A 20,000,000
Term Loan B 5,728,000
Subordinated Debt - Net 9,112,000
Note Payable 9,272,000
Industrial Revenue Bonds 7,700,000
Mortgage 657,000
Capital Lease Obligation 18,000
-----------
$64,459,000
Less: Current maturities of long-term debt: 2,966,000
-----------
Long Term Debt $61,493,000
===========
</TABLE>
NOTE E - MEDIQ STOCK REPURCHASE
On December 20, 1996, a majority of the Company's stockholders, other than
MEDIQ, approved the MEDIQ Stock repurchase. On December 31, 1996, pursuant
to the terms of an Amended and Restated Stock Purchase Agreement dated
November 20, 1996 among MEDIQ, MEDIQ Investment Services, Inc. and the
Company, the Company purchased from MEDIQ all 4,037,258 shares of the
Company's common stock owned by MEDIQ (the "MEDIQ Shares"), of which
1,819,000 were held in escrow (the MEDIQ Escrowed Shares) as of December 31,
1996 in
9
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
support of MEDIQ's 7.5% Subordinated Debentures due 2003 (the "MEDIQ Bonds").
The aggregate purchase price of the MEDIQ Shares was $36,335,000 representing
a purchase price of $9.00 per share (the "Purchase Price"). The Company paid
MEDIQ $19,963,000 of the $36,335,000 purchase price in cash and delivered to
MEDIQ a promissory note (the "MEDIQ Note") for the remaining $16,372,000 of
the purchase price. The MEDIQ Note is payable in installments as MEDIQ
Ecsrowed Shares are released from escrow, pursuant to the indenture ( the
"MEDIQ Indenture") and escrow agreement relating to the MEDIQ Bonds, together
with interest at the annual rate of 7.5%, reduced, however, to 5%, 4%,and 3%
if the note remains outstanding longer than 18, 30 and 42 months,
respectively.
Pursuant to the Stock Purchase Agreement, to the extent that any holder of a
MEDIQ Bond (other than MEDIQ) presents such MEDIQ Bond for exchange for MEDIQ
Escrowed Shares in accordance with the terms of the MEDIQ Indenture and MEDIQ
delivers MEDIQ Escrowed Shares to such holder, (i) the principal amount of
the MEDIQ Note shall be reduced by an amount equal to the product of the
number of MEDIQ Escrowed Shares so delivered by MEDIQ to such holder and
$9.00, and (ii) the principal amount of the MEDIQ Note shall further be
reduced by the difference (the "Excess Cash Amount") between (x) $1,000
divided by the then exchange rate of the MEDIQ Bonds (currently 65.3595) and
(y) $9.00; provided, however, that in lieu of such further reduction in the
principal amount of the MEDIQ Note under the foregoing clause (ii), the
Company may elect to receive an amount in cash from MEDIQ equal to the Excess
Cash Amount.
In connection with the MEDIQ Stock Repurchase, the Company refinanced certain
term loans. The stock repurchase was financed with the proceeds from the
Term Loans and the revolving credit facility (see Note D).
NOTE F - INCOME TAXES
The provision for income tax expense for the twenty six weeks ended March 29,
1997 has been computed using an estimated effective tax rate for the year
ended September 27, 1997.
NOTE G - ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Effective September 29, 1996, the Company adopted Statement of Accounting
Standards No. 123, "Accounting For Stock Based Compensation" ("Statement
123"). The Company has continued to account for its stock-based transactions
to employees in accordance with Accounting Principals Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and will include the pro forma
disclosures required by Statement 123, if material, in its annual financial
statements for 1997. For stock option grants to non-employees, the Company
follows the provisions of Statement 123, calculates compensation expense
using a fair value-based method and amortizes compensation expense over the
vesting period. During the quarter ended, March 29, 1997, the Company did
not grant any options to purchase shares of common stock to non-employees.
10
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Also, effective September 29, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("Statement
121"). Statement 121 requires that long-lived assets held and used by an
entity be reviewed for impairment whenever circumstances indicate that the
carrying amount of an asset may not be recoverable. It also requires that
long-lived assets to be disposed of be reported at the lower of the carrying
amount or fair value less the cost to sell. The adoption of Statement 121
did not have a material effect on the Company's financial position or results
of operations for the twenty six weeks ended March 29, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The following discussion addresses the financial condition of the
Company as of March 29, 1997 and its results of operations for the thirteen
and twenty-six weeks then ended, compared with the same period last year.
This discussion should be read in conjunction with the Management's
Discussion and Analysis section included in the Company's Annual Report on
Form 10-K for the year ended September 28, 1996 (pages 6-14) to which the
reader is directed for additional information.
Some of the information presented in this report constitutes forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Although the Company believes that its expectations are
based on reasonable assumptions within the bounds of its knowledge of its
business and operation, there can be no assurance that actual results will
not differ materially from its expectations. Factors which could cause
actual results to differ from expectations include the timing and amount of
new product introductions by the Company, the timing of orders received from
customers, the gain or loss of significant customers, changes in the mix of
products sold, competition from brand name and other private label
manufacturers, seasonal changes in the demand for the Company's products,
increases in the cost of raw materials and changes in the retail market for
health and beauty aids in general. For additional information concerning
these and other important factors which may cause the Company's actual
results to differ materially from expectations and underlying assumptions,
please refer to the Company's Annual Report on Form 10-K for the year ended
September 28, 1996 and other reports filed with the Securities and Exchange
Commission.
11
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for all periods indicated, the
percentage relationship that items in the Company's Condensed Consolidated
Statements of Operations bear to net sales.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
March 29, March 30, March 29, March 30,
1997 1996 1997 1996
----------- --------- ----------- --------
<S> <C> <C> <C> <C>
NET SALES 100% 100% 100% 100%
COST OF SALES 74 72 73 71
---- ---- ---- ----
GROSS PROFIT 26 28 27 29
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 14 15 14 15
---- ---- ---- ----
OPERATING INCOME 12 13 13 14
OTHER CREDITS (CHARGES) (5) (2) (4) (2)
---- ---- ---- ----
INCOME BEFORE INCOME TAX EXPENSE 7 11 9 12
INCOME TAX EXPENSE 3 4 4 5
---- ---- ---- ----
NET INCOME 4% 7% 5% 7%
==== ==== ==== ====
</TABLE>
SECOND QUARTER 1997 COMPARED TO SECOND QUARTER 1996
Net sales for second quarter ended March 29, 1997 were $25,178,000, an
increase of $5,354,000, or 27%, over second quarter 1996 net sales of
$19,824,000. The increase in net sales was primarily attributable to sales
of Cough/Cold products with added increases in the Ophthalmic, Infant Care,
and Adult Nutritional product categories.
Gross profit for second quarter 1997 was $6,537,000 or 26% of net sales,
as compared to $5,545,000 or 28% of net sales for the prior year's quarter.
The increase in gross margin dollars is attributable to increased sales. The
decrease in the gross margin percentage is a result of a higher proportion of
contract sales of Cough/Cold products, which traditionally produce lower
margins than private label Cough/Cold product sales. Additionally, increases
in certain material costs, specifically menthol used in cough/cold products
and plastic used in the infant care products, contributed to the decrease in
the gross margin percentage.
Selling, general and administrative expenses for second quarter 1997
were $3,521,000, or 14% of net sales, as compared to $2,888,000 or 15% of net
sales for the prior year's quarter. The $633,000 increase was primarily
attributable to commission and freight increases associated with increased
sales. The percentage decrease resulted from certain fixed costs being
allocated over a higher net sales base.
Interest expense for the second quarter 1997 was $1,382,000 as compared
to $361,000 in the prior year quarter. This increase was primarily
attributable to increased borrowings (see Note D).
Interest income for the quarter consisted primarily of interest earned
on the restricted cash associated with the IDB financing (see Note B).
Other expense for the quarter was $6,000, as compared to $79,000 in the
prior year quarter. The prior year quarter amount related primarily to
research and development costs.
The effective income tax rate for the quarter was 40% which was slightly
higher than the
12
<PAGE>
prior year quarter. The increase relates to the expected increase in the
proportion of income earned in higher tax jurisdictions.
TWENTY-SIX WEEKS ENDED MARCH 29, 1997 COMPARED TO TWENTY-SIX WEEKS ENDED
MARCH 30, 1996
Net Sales for 1997 were $47,213,000, an increase of $9,241,000, or 24%
over 1996 net sales of $37,972,000. The increase in net sales were primarily
attributable to sales of Cough/Cold, Ophthalmic and Infant care product
categories.
Gross profit for the twenty-six weeks was $12,588,000 or 27% of net
sales, compared to $11,123,000 or 29% of net sales for the comparable period
last year. The increase in gross margin dollars is attributable to increased
sales. The decrease in the gross margin percentage is a result of a higher
portion of contract sales of Cough/Cold products, which traditionally produce
lower margins than private label Cough/Cold product sales. Additionally,
increases in certain material costs, specifically menthol used in cough/cold
products and plastic for the infant care products contributed to the decrease
in gross margin percentage.
Selling, general and administrative expenses for the twenty-six week
period were $6,595,000 or 14% of net sales, as compared to $5,695,000 or 15%
of net sales for the prior year period. The dollar increase is primarily
attributable to broker commissions and freight expense related to increased
sales volume. The decrease, as a percentage of net sales, is a result of
certain fixed costs being allocated over higher net sales.
Interest expense for the twenty-six week period in 1997 was $1,802,000
as compared to $691,000 for the prior year period. This increase was
primarily attributable to increased borrowings (see Note D).
Interest income for the twenty-six week period consisted primarily of
interest earned on the restricted cash associated with the IDB financing
(see Note B).
LIQUIDITY AND CAPITAL RESOURCES
As of March 29, 1997 the Company had working capital of $23,971,000 as
compared to working capital of $9,491,000 as of September 28, 1996. The
increase in working capital was primarily attributable to increased
inventories to support the increased sales and a decrease in the short term
portion of long term debt as a result of the refinancing (see Note D) in
connection with the MEDIQ stock repurchase (see Note E).
Net cash provided by operating activities was $2,932,000 for the twenty-
six weeks ended March 29, 1997, as compared to $1,021,000 in the prior year
period. This increase was primarily attributable to a reduction in accounts
receivable, increased depreciation and amortization and higher accounts
payable and accrued expenses.
Net cash used in investing activities was $3,710,000 for 1997,
consisting primarily of funds used for expenditures for capital equipment
offset by restricted proceeds for expenditures at the Oral Care and
Cough/Cold divisions. The Company anticipates additional capital expenditures
of approximately $4,000,000 for the remainder of fiscal 1997, $1,775,000 of
which will be
13
<PAGE>
financed with the proceeds of the IDB (see note B). The remaining
expenditures relate primarily to additional manufacturing capacity
requirements and the purchase of the Company's leased manufacturing facility
in Gloucester are expected to be financed through cash generated from
operations and a mortgage with respect to the purchase of a building at the
Gloucester facility.
Net cash provided by financing activities was $948,000 for the twenty-
six weeks ended March 29, 1997, primarily consisting of borrowings of
$47,700,000 resulting from the refinancing and deferred financing costs both
associated with the MEDIQ Stock Repurchase offset by debt repayments of
$25,005,000 primarily related to the refinancing associated with the MEDIQ
Stock Repurchase and $21,174,000 for the stock repurchase.
On December 31, 1996, the Company completed the repurchase of 4,037,258
shares of its common stock from MEDIQ at a per share price of $9.00 pursuant
to the terms of an Amended and Restated Stock Purchase Agreement dated
November 20, 1996 (the "Stock Purchase Agreement"). In connection with the
repurchase, the Company paid MEDIQ $19,963,000 of the $36,335,000 purchase
price in cash and delivered to MEDIQ a promissory note for the remaining
$16,372,000 of the purchase price. Amounts under the note are payable by the
Company as shares of the Company's common stock are delivered by MEDIQ to the
Company following their release from escrow pursuant to the indenture (the
"MEDIQ Indenture") and escrow agreement relating to the MEDIQ Bonds. The
annual interest rate is 7.5%, reduced, however, to 5%, 4%, and 3% if the note
remains outstanding longer than 18, 30 and 42 months, respectively. The MEDIQ
Stock Repurchase was approved by a majority of the Company stockholders other
than MEDIQ at the Company's annual meeting of stockholders held on December
20, 1996.
Pursuant to the Stock Purchase Agreement, to the extent that any holder
of a MEDIQ Bond (other than MEDIQ) presents such MEDIQ Bond for exchange for
MEDIQ Escrowed Shares in accordance with the terms of the MEDIQ Indenture and
MEDIQ delivers MEDIQ Escrowed Shares to such holder, (i) the principal
amount of the MEDIQ Note shall be reduced by an amount equal to the product
of the number of MEDIQ Escrowed Shares so delivered by MEDIQ to such holder
and $9.00, and (ii) the principal amount of the MEDIQ Note shall further be
reduced by the difference (the "Excess Cash Amount") between (x) $1,000
divided by the then exchange rate of the MEDIQ Bonds (currently 65.3595) and
(y) $9.00; provided, however, that in lieu of such further reduction in the
principal amount of the MEDIQ Note under the foregoing clause (ii), the
Company may elect to receive an amount in cash from MEDIQ equal to the Excess
Cash Amount.
The Company's previous revolving credit facility expired December 31,
1996 and was refinanced in connection with the MEDIQ Stock Repurchase (see
Note E). The new Revolving Credit Facility of $16,900,000 had an outstanding
balance of $11,972,000 on March 29, 1997. The interest rate was 8.65% based
on LIBOR plus 2.5% and the available balance was $890,000 based on eligible
accounts receivable and inventory balances. The Revolving Credit Facility
expires on January 1, 2002. In connection with the MEDIQ Stock Repurchase,
the Company obtained senior financing in the aggregate principal amount of
$60,000,000, including the new credit facility, (the "Senior Debt Financing")
and senior subordinated financing in the aggregate principal amount of
$10,000,000 (the "Subordinated Debt Financing").
Pursuant to the Senior Debt Financing, the Company has senior secured
credit facilities in the aggregate principal amount of $60,000,000 (the
"Senior Debt"), consisting of (i) a $20,000,000 term loan (the "Term Loan
A"), (ii) a $15,000,000 term loan (the "Term Loan B" and, together with the
Term Loan A, the "Term Loans"), (iii) a $20,000,000 letter of credit to
support the MEDIQ Note relating to the MEDIQ Stock Repurchase (the "Stock
Repurchase Letter of Credit"), (iv) a $16,900,000 revolving credit facility
(the "Revolving Credit Facility"), and (v) an $8,100,000 letter of credit to
support the Company's IDB (the "IDB Letter of Credit" and, together with the
Stock Repurchase Letter of Credit, the "Letters of Credit"). The purpose of
obtaining the Senior Debt Financing was to permit the Company to finance the
MEDIQ Stock Repurchase, to refinance the Company's existing indebtedness and
to satisfy the Company's
14
<PAGE>
working capital requirements. At the Closing of the Senior Debt Financing on
December 31, 1996 (the "Senior Debt Closing"), $18,628,000 of the Term Loan A
was drawn by the Company and the Stock Repurchase Letter of Credit was issued
by the senior lender. As of March 29, 1997, $20,000,000 and $5,728,000 were
outstanding under Term Loan A and Term Loan B, respectively, with interest
rates of 8.058% and 8.4375%, respectively. The balance of Term Loan B will be
advanced only to fund drawings under the Stock Repurchase Letter of Credit.
The subsidiaries of the Company guaranteed the obligations of the Company
under the Senior Debt Financing. Term Loan A expires on January 1, 2002 and
Term Loan B expires on January 1, 2004.
Subsequent to the closing of the MEDIQ stock repurchase (see Note E),
the Company received 788,887 MEDIQ Escrowed Shares. As a result, a portion of
the MEDIQ Note has been paid with $1,372,000 from Term Loan A and $5,728,000
from Term Loan B. As of March 29, 1997 the balance under the MEDIQ Note and
the Letter of Credit issued to support the MEDIQ Note totals $9,272,000.
Pursuant to the Subordinated Debt Financing, the Company's subordinated
lender has provided the Company with an aggregate principal amount of
$10,000,000 (the "Subordinated Debt") in the form of senior subordinated
notes (the "Senior Subordinated Notes") issued to the subordinated lender.
The Senior Subordinated Notes mature on December 30, 2004 and bear interest
at 11 1/2 %. Interest on the Senior Subordinated Notes is payable quarterly
in arrears, commencing on April 15, 1997. In connection with the
Subordinated Debt Financing, the Company issued to the subordinated lender
warrants to purchase 273,419 shares of common stock of the Company (which
represents approximately 4.5% (on a fully-diluted basis) of the total
outstanding common stock as of March 29, 1997) at $9.00 per share, subject to
certain adjustments to prevent dilution.
The agreements evidencing the Senior Debt and the Senior Subordinated
Debt contain certain restrictive covenants including, without limitation,
covenants with respect to the ratio of total debt to EBITDA, operating cash
flow, interest coverage and capital expenditures.
The Company currently has two Massachusetts Industrial Development
Revenue Bonds totaling $7,700,000. The Series A IDB financing provided the
Company with $4,200,000 for capital expenditures made through April 1997 and
to partially finance the acquisition of the Oral Care division. The Series B
IDB financing provided the Company with $3,500,000 for the expansion of the
Powers Pharmaceutical manufacturing facility. Through March 29, 1997,
$3,669,000 was expended against the Series A IDB and $1,980,000 was expended
against the Series B IDB. Principal payments are funded monthly and total
$800,000 per year through May 1, 2001, $300,000 through May 1, 2004 and
$200,000 per year thereafter through May 1, 2016. The variable interest rate
on the bonds as of March 29, 1997 was 3.4% and interest is payable monthly.
The Company believes that its existing working capital, anticipated
funds to be generated from operations and funds available under the revolving
credit facility will be sufficient to meet the Company's operating and
capital needs during fiscal 1997. However, depending upon future growth of
the business, additional financing may be required.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 -Financial Data Schedule appears on page 18.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the quarter ended March 29,
1997.
16
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
THIRTEEN WEEKS ENDED MARCH 29, 1997
SIGNATURE
---------
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.
NutraMax Products, Inc.
--------------------------------
(Registrant)
May 12, 1997
------------------
(Date) /s/ Robert F. Burns
------------------------------------
Robert F. Burns
Vice President and
Chief Financial Officer
17
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