<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: JUNE 28, 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 August 12, 1997 there were 4,763,014 shares of Common Stock, par value
$.001 per share, outstanding.
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
THIRTEEN WEEKS ENDED JUNE 28, 1997
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Condensed Consolidated Statements of Operations -
Thirteen Weeks and Thirty Nine Weeks ended June 28, 1997
and June 29, 1996 (Unaudited) 4
Condensed Consolidated Balance Sheets -
June 28, 1997 and June 29, 1996 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows -
Thirty Nine Weeks ended June 28, 1997 and
and June 29, 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. 11-16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
</TABLE>
2
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
THIRTEEN WEEKS ENDED JUNE 28, 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 Thirty-Nine Weeks Ended
-------------------------- --------------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $23,006,000 $20,071,000 $70,219,000 $58,043,000
COST OF SALES 16,984,000 14,473,000 51,609,000 41,322,000
----------- ----------- ----------- -----------
GROSS PROFIT 6,022,000 5,598,000 18,610,000 16,721,000
SELLING, GENERAL & ADMINISTRATIVE EXP 3,289,000 3,105,000 9,884,000 8,800,000
----------- ----------- ----------- -----------
OPERATING INCOME 2,733,000 2,493,000 8,726,000 7,921,000
OTHER CREDITS (CHARGES):
Interest expense (1,443,000) (380,000) (3,245,000) (1,071,000)
Interest Income 19,000 13,000 121,000 20,000
Other (13,000) ( 21,000) ( 46,000) (328,000)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 1,296,000 2,105,000 5,556,000 6,542,000
INCOME TAX EXPENSE 533,000 826,000 2,250,000 2,571,000
----------- ----------- ----------- -----------
NET INCOME $ 763,000 $ 1,279,000 $ 3,306,000 $ 3,971,000
=========== =========== =========== ===========
EARNINGS PER SHARE $.16 $.15 $.54 $.47
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,908,000 8,523,000 6,156,000 8,521,000
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 28, September 28,
1997 1996
----------- -------------
(Unaudited) (See Note)
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 92,000 $ 294,000
Accounts receivable, net 12,285,000 12,848,000
Inventories 22,386,000 18,321,000
Deferred income taxes 922,000 801,000
Prepaid expenses and other 753,000 618,000
----------- -----------
TOTAL CURRENT ASSETS 36,438,000 32,882,000
PROPERTY, PLANT AND EQUIPMENT, net 33,589,000 29,207,000
RESTRICTED CASH 815,000 4,742,000
GOODWILL, net 13,052,000 13,415,000
OTHER ASSETS 3,641,000 2,632,000
----------- -----------
$87,535,000 $82,878,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 7,035,000 $ 7,265,000
Accrued payroll and related taxes 901,000 666,000
Accrued expenses - other 989,000 962,000
Current maturities of long-term debt 2,958,000 14,498,000
----------- -----------
TOTAL CURRENT LIABILITIES 11,883,000 23,391,000
LONG-TERM DEBT, less current maturities 60,095,000 11,780,000
DEFERRED INCOME TAXES AND OTHER LIABILITIES 2,451,000 1,890,000
COMMITMENTS & CONTINGENCIES -- --
STOCKHOLDERS' EQUITY 13,106,000 45,817,000
----------- -----------
$87,535,000 $82,878,000
=========== ===========
Note: The balance sheet at September 28, 1996 has been condensed from the
audited financial statements at that date.
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
------------------------
June 28, June 29,
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,306,000 $ 3,971,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Non cash items primarily depreciation and amortization 4,131,000 3,401,000
Increase (decrease), net of effect of acquisitions:
Accounts receivable 763,000 (360,000)
Inventories (4,065,000) (3,061,000)
Accounts payable, accrued expenses and other 979,000 176,000
Federal and state taxes payable (73,000) (442,000)
------------ ------------
Net cash provided by operating activities 5,041,000 3,685,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition-Oral Care, net of cash acquired -- (2,723,000)
Acquisition-feminine hygiene assets -- (2,367,000)
Restricted Cash 3,127,000 (5,457,000)
Purchases of property and equipment (7,065,000) (3,979,000)
Deferred packaging costs (550,000) (588,000)
Other 47,000 --
------------ ------------
Net cash used in investing activities (4,441,000) (15,114,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Revolving Credit Facility and
other Long Term Debt 50,794,000 12,878,000
Stock Repurchase (21,283,000) --
Proceeds from exercise of stock options 542,000 --
Debt Repayments (29,546,000) (1,497,000)
Deferred Financing Costs (1,207,000) --
Other (102,000) (170,000)
------------ ------------
Net cash provided by (used in) financing activities (802,000) 11,211,000
------------ ------------
NET DECREASE IN CASH (202,000) (218,000)
CASH:
Beginning of period 294,000 503,000
------------ ------------
End of period $ 92,000 $ 285,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 1,838,000 $ 2,753,000
============ ============
Interest paid $ 2,331,000 $ 912,000
============ ============
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING & INVESTING ACTIVITIES:
Warrants issued in connection with debt refinancing $ 1,094,000 $ --
============
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 June 28, 1997, the condensed
consolidated statements of operations for the thirteen and thirty-nine weeks
ended June 28, 1997 and June 29, 1996, and the condensed consolidated
statements of cash flows for the thirty-nine 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 June 28, 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 June 28, 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 $816,000 including accumulated interest remains as invested
cash as of June 28, 1997. Of this total, $304,000 is restricted for capital
expenditures at the Oral Care facility in Florence, Massachusetts and
$401,000 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 June 28, 1997, $705,000 was
invested in the Treasury Money Market at a current yield of 5.0 %. The
remaining restricted cash of $111,000 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 5.0%.
NOTE C - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
June 28, September 28,
1997 1996
----------- -------------
Raw materials $10,593,000 $8,811,000
Finished goods 10,282,000 8,186,000
Work-in-process 327,000 292,000
Machine parts and factory supplies 1,184,000 1,032,000
----------- -----------
$22,386,000 $18,321,000
=========== ===========
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
$11,709,000 on June 28, 1997. The interest rate was 8.86% based on LIBOR plus
2.5% and the available balance was $1,834,000 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 June 28, 1997, $19,625,000 and $9,085,000 were
outstanding under Term Loan A and Term Loan B, respectively, with interest rates
of 8.186% and 8.64%, 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 1,161,957 MEDIQ Escrowed Shares. As a result, a portion of the
MEDIQ Note has been paid with $1,372,000 from Term Loan A and $9,085,000 from
Term Loan B. As of June 28, 1997 the balance under the MEDIQ Note supported by a
Letter of Credit was $5,915,000.
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 31, 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 and common
stock equivalents as of the closing of the sub-debt financing) 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 June 28, 1997, $3,905,000 was
expended against the Series A IDB and $3,141,000 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 June 28, 1997
was 4.15% and interest is payable monthly.
A summary of Debt outstanding as of June 28, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Revolving Credit Facility $11,709,000
Term Loan A 19,625,000
Term Loan B 9,085,000
Subordinated Debt - Net 9,154,000
Note Payable 5,915,000
Industrial Revenue Bonds 6,900,000
Mortgage 648,000
Capital Lease Obligation 17,000
-----------
$63,053,000
Less: Current maturities of long-term debt: 2,958,000
-----------
Long Term Debt $60,095,000
===========
</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
9
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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 thirty-nine weeks ended June 28,
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 Principles 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
10
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
method and amortizes compensation expense over the vesting period. During the
quarter ended, June 28, 1997, the Company did not grant any options to purchase
shares of common stock to non-employees. 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 thirty-nine weeks ended June 28, 1997.
NOTE H - SUBSEQUENT EVENT
On June 21, 1997, the Company entered into a definitive agreement with American
White Cross, Inc. to purchase substantially all of the assets, and assume
certain liabilities, of the first aid business of American White Cross.
Under the terms of the agreement, the Company will pay $40 million in cash for
the first aid business and will assume certain post petition liabilities. The
purchase price is subject to adjustment based on the value of inventory,
accounts receivable and the amount of assumed liabilities as of the closing
date. At the closing, approximately $5,000,000 will be deposited in escrow to
secure primarily the post-closing purchase price adjustments and indemnity
obligations of American White Cross. The closing of the transaction is subject
to approval by the United States Bankruptcy Court for the District of Delaware,
in which the bankruptcy case of American White Cross is currently pending. The
closing is also subject to a number of other conditions, including the
completion of due diligence. The transaction is subject to financing and is
expected to close in the fourth quarter 1997. This acquisition will be accounted
for by the purchase method of accounting.
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 June 28, 1997 and its results of operations for the thirteen and
thirty-nine 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.
11
<PAGE>
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.
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 Thirty-Nine Weeks Ended
-------------------- -----------------------
June 28, June 29, June 28, June 29,
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 16 14 15
---- ---- ---- ----
OPERATING INCOME 12 12 13 14
OTHER CREDITS (CHARGES) (6) (2) (5) (3)
---- ---- ---- ----
INCOME BEFORE INCOME TAX EXPENSE 6 10 8 11
INCOME TAX EXPENSE 3 4 3 4
---- ---- ---- ----
NET INCOME 3% 6% 5% 7%
==== ==== ==== ====
</TABLE>
THIRD QUARTER 1997 COMPARED TO THIRD QUARTER 1996
Net sales for third quarter ended June 28, 1997 were $23,006,000, an
increase of 2,935,000, or 15%, over third quarter 1996 net sales of
$20,071,000. The increase in net sales was primarily attributable to sales of
Cough/Cold products with added increases in the Ophthalmic, and Infant Care
categories.
Gross profit for third quarter 1997 was $6,022,000 or 26% of net sales, as
compared to $5,598,000 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.
12
<PAGE>
Selling, general and administrative expenses for third quarter 1997 were
$3,289,000, or 14% of net sales, as compared to $3,105,000 or 16% of net sales
for the prior year's quarter. The $184,000 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 third quarter 1997 was $1,443,000 as compared to
$380,000 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 $13,000, as compared to $21,000 in the
prior year quarter. Both quarterly amounts primarily related to research and
development costs.
The effective income tax rate for the quarter was 41% which was slightly
higher than the prior year quarter. The increase relates to the expected
increase in the proportion of income earned in higher tax jurisdictions.
THIRTY-NINE WEEKS ENDED JUNE 28, 1997 COMPARED TO THIRTY-NINE WEEKS ENDED
JUNE 29, 1996
Net Sales for 1997 were $70,219,000, an increase of $12,176,000, or 21%
over 1996 net sales of $58,043,000. The increase in net sales was primarily
attributable to sales of Cough/Cold, Ophthalmic and Infant care product
categories.
Gross profit for the thirty-nine weeks was $18,610,000 or 27% of net
sales, compared to $16,721,000 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 thirty-nine week
period were $9,884,000 or 14% of net sales, as compared to $8,800,000 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.
Interest expense for the thirty-nine week period in 1997 was $3,245,000
as compared to $1,071,000 for the prior year period. This increase was primarily
attributable to increased borrowings (see Note D).
Interest income for the thirty-nine week period consisted primarily of
interest earned on the restricted cash associated with the IDB financing
(see Note B).
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of June 28, 1997 the Company had working capital of $24,555,000 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 $5,041,000 for the thirty-
nine weeks ended June 28, 1997, as compared to $3,685,000 in the prior year
period. This increase was primarily attributable to a reduction in accounts
receivable, increased depreciation and amortization, higher accrued expenses,
offset by an increase in inventory.
Net cash used in investing activities was $4,441,000 for 1997, consisting
primarily of funds used for expenditures of capital equipment offset by
restricted proceeds used for expenditures at the Oral Care and Cough/Cold
divisions. The Company anticipates additional capital expenditures of
approximately $900,000 for the remainder of fiscal 1997, $700,000 of which will
be financed with the proceeds of the IDB (see note B). The remaining
expenditures relate primarily to additional manufacturing capacity requirements
and are expected to be financed through cash generated from operations.
Net cash used in financing activities was $802,000 for the thirty-nine
weeks ended June 28, 1997, consisting of debt repayments of $29,546,000
primarily related to the refinancing associated with the MEDIQ Stock Repurchase,
$21,283,000 for the stock repurchase and $1,207,000 in deferred financing costs
offset by borrowings of $50,794,000 resulting from the refinancing associated
with the MEDIQ 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
14
<PAGE>
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
$11,709,000 on June 28, 1997. The interest rate was 8.86% based on LIBOR plus
2.5% and the available balance was $1,834,000 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 June 28, 1997, $19,625,000 and $9,085,000 were
outstanding under Term Loan A and Term Loan B, respectively, with interest rates
of 8.186% and 8.64%, 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 1,161,957 MEDIQ Escrowed Shares. As a result, a portion of
the MEDIQ Note has been paid with $1,372,000 from Term Loan A and $9,085,000
from Term Loan B. As of June 28, 1997 the balance under the MEDIQ Note and the
Letter of Credit issued to support the MEDIQ Note totals $5,915,000.
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
15
<PAGE>
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 and common stock equivalents as of the closing of the
sub-debt financing) 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, 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 June 28, 1997, $3,905,000 was
expended against the Series A IDB and $3,141,000 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 June 28, 1997
was 4.15% and interest is payable monthly.
On June 21, 1997, the Company entered into a definitive agreement with
American White Cross, Inc. to purchase substantially all of the assets, and
assume certain liabilities, of the first aid business of American White Cross.
Under the terms of the agreement, the Company will pay $40 million in cash for
the business and will assume certain post petition liabilities. The purchase
price is subject to adjustment based on the value of inventory, accounts
receivable and the amount of assumed liabilities as of the closing date. At the
closing, approximately $5,000,000 will be deposited in escrow to secure
primarily the post-closing purchase price adjustments and indemnity obligations
of American White Cross. The transaction is subject to financing and is expected
to close in the fourth quarter 1997. (See Note H of the notes to the condensed
consolidated financial statements.)
The Company believes that its existing working capital, anticipated funds
to be generated from operations, funds available under the revolving credit
facility and added financing resulting from the pending acquisition 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.
16
<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
June 28, 1997.
17
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
THIRTEEN WEEKS ENDED JUNE 28, 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)
August 12, 1997
---------------------
(Date) /s/ Robert F. Burns
-----------------------
Robert F. Burns
Vice President and
Chief Financial Officer
18
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