<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: JULY 4, 1998 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.)
51 BLACKBURN DRIVE, GLOUCESTER, MASSACHUSETTS 01930
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 282-1800
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 No X
----- ------
As of August 7, 1998 there were 5,715,763 shares of Common Stock, par value
$.001 per share, outstanding.
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
THIRTEEN WEEKS ENDED JULY 4, 1998
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Condensed Consolidated Statements of Operations -
Thirteen Weeks and Forty Weeks ended July 4, 1998 and
Thirteen Weeks and Thirty-Nine Weeks ended June 28, 1997 (Unaudited) 4
Condensed Consolidated Balance Sheets -
July 4, 1998 (Unaudited) and September 27, 1997 5
Condensed Consolidated Statements of Cash Flows -
Forty Weeks ended July 4, 1998 and
Thirty-Nine Weeks ended June 28, 1997 (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
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
</TABLE>
2
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
THIRTEEN WEEKS ENDED JULY 4, 1998
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks Forty Weeks Thirty-Nine Weeks
Ended Ended Ended Ended
---------------- --------------- ------------- ---------------
July 4, 1998 June 28, 1997 July 4, 1998 June 28, 1997
---------------- --------------- ------------- ---------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
NET SALES $ 27,355 $ 23,006 $ 95,774 $ 70,219
COST OF SALES 20,137 16,984 71,820 51,609
----------- ----------- ----------- -----------
GROSS PROFIT 7,218 6,022 23,954 18,610
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 4,889 3,289 14,910 9,884
----------- ----------- ----------- -----------
OPERATING INCOME 2,329 2,733 9,044 8,726
OTHER INCOME (EXPENSE):
Interest expense (1,984) (1,443) (6,408) (3,245)
Interest income 1 19 11 121
Other (17) (13) (9) (46)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 329 1,296 2,638 5,556
INCOME TAX EXPENSE 123 533 998 2,250
----------- ----------- ----------- -----------
NET INCOME $ 206 $ 763 $ 1,640 $ 3,306
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE:
Per share amount $ 0.04 $ 0.16 $ 0.29 $ 0.54
=========== =========== =========== ===========
Weighted average shares 5,672 4,712 5,646 6,091
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE:
Per share amount $ 0.04 $ 0.16 $ 0.29 $ 0.54
=========== =========== =========== ===========
Weighted average shares 5,672 4,712 5,646 6,091
Effect of dilutive securities:
Stock options 14 91 57 30
Warrants 27 65 41 31
----------- ----------- ----------- -----------
Adjusted weighted average shares 5,713 4,868 5,744 6,152
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
July 4, September 27,
1998 1997
------------- -------------
(Unaudited) (See Note)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 673 $ 243
Accounts receivable, net 16,946 19,618
Inventories 47,582 36,135
Deferred income taxes 868 823
Escrow receivable 200 2,876
Prepaid expenses and other 1,067 655
--------- ---------
TOTAL CURRENT ASSETS 67,336 60,350
PROPERTY, PLANT AND EQUIPMENT, net 49,952 44,456
RESTRICTED CASH 213 316
GOODWILL, net 22,355 22,934
OTHER ASSETS 5,372 4,703
--------- ---------
$ 145,228 $ 132,759
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 16,758 $ 13,427
Accrued payroll and related taxes 1,357 936
Accrued Interest 390 1,325
Accrued expenses - other 2,215 1,709
Current maturities of long-term debt 7,012 4,351
--------- ---------
TOTAL CURRENT LIABILITIES 27,732 21,748
Long-Term Debt, less current maturities 89,907 85,542
Deferred Income Taxes and Other Liabilities 1,884 1,884
Other Long Term Liabilities - 106
STOCKHOLDERS' EQUITY 25,705 23,479
--------- ---------
$ 145,228 $ 132,759
========= =========
</TABLE>
Note: The balance sheet at September 27, 1997 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)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Thirty-Nine Weeks
Forty Weeks Ended Ended June 28,
July 4, 1998 1997
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,640 $ 3,306
Adjustments to reconcile net income to net cash
provided by operating activities:
Non cash items primarily depreciation and amortization 5,171 4,131
Increase (decrease), net of effect of acquisitions:
Accounts receivable 2,672 763
Inventories (11,447) (4,065)
Accounts payable 3,331 (230)
Accrued expenses and other (481) 1,209
Federal and state taxes payable - (73)
--------- ---------
Net cash provided by operating activities 886 5,041
CASH FLOWS FROM INVESTING ACTIVITIES:
Escrow cash received 2,676 -
Restricted Cash 103 3,127
Purchases of property, plant and equipment (8946) (7,065)
Deferred packaging costs (738) (550)
Other (773) 47
--------- ---------
Net cash used in investing activities (7,678) (4,441)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Revolving Credit Facility and
other Long Term Debt 10,544 50,794
Stock Repurchase (126) (21,283)
Proceeds from exercise of stock options 667 542
Debt Repayments (3,639) (29,546)
Deferred Financing Costs (300) (1,207)
Other 76 (102)
--------- ---------
Net cash provided by (used in) financing activities 7,222 (802)
--------- ---------
NET INCREASE (DECREASE) IN CASH $ 430 $ (202)
CASH:
Beginning of period $ 243 $ 294
--------- ---------
End of period $ 673 $ 92
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 111 $ 1,838
--------- ---------
Interest paid $ 7,166 $ 2,331
--------- ---------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING & INVESTING ACTIVITIES:
Warrants issued in connection with debt financing $ - $ 1,094
--------- ---------
Note issued in exchange for stock repurchased $ - $ 16,372
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The condensed consolidated balance sheet of NutraMax Products, Inc. and
Subsidiaries (the "Company") as of July 4, 1998, the condensed consolidated
statements of operations for the thirteen and forty weeks ended July 4, 1998 and
the thirteen and thirty-nine weeks ended June 28, 1997, and the condensed
consolidated statements of cash flows for the forty weeks ended July 4, 1998 and
the thirty-nine weeks ended June 28, 1997 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 July 4, 1998, 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 pursuant to the rules and regulations of the
Securities and Exchange Commission. These condensed financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's September 27, 1997 Annual Report on Form 10-K, as amended. The
results of operations for the period ended July 4, 1998 are not necessarily
indicative of the operating results for the full year.
NOTE B - ACQUISITION
On September 11, 1997, the Company acquired certain assets and assumed certain
liabilities related to the first aid business of American White Cross, Inc. and
Weaver Manufacturing Corporation. As of fiscal year end 1997, the Company had
recorded an escrow receivable of $1,125,000 that was purchased as part of the
acquisition and an escrow receivable of $1,751,000 related to purchase price
adjustments. The purchase price was finalized in December 1997 and the
$1,751,000 related to the purchase price adjustments was released from escrow
and returned to the Company during the quarter ended January 3, 1998. During
the quarter ended April 4, 1998, $375,000 was released and collected by the
Company from the purchased escrow receivable associated with the acquisition.
During the quarter ended July 4, 1998, an additional $550,000 was released from
the purchased escrow receivable and collected by the Company. The Company is
still in the process of obtaining appraisals on certain assets acquired. The
excess of purchase price over estimated fair value of assets acquired may be
adjusted based on the results of such appraisals.
7
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C - INVENTORY
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
<TABLE>
<CAPTION>
September 27,
July 4, 1998 1997
------------ -------------
<S> <C> <C>
Raw materials $20,418,000 $15,921,000
Finished goods 22,138,000 16,223,000
Work-in-process 2,535,000 1,953,000
Machine parts and factory supplies 2,491,000 2,038,000
----------- -----------
$47,582,000 $36,135,000
=========== ===========
</TABLE>
NOTE D - DEBT
The Company's Revolving Credit Facility of $25,000,000 had an outstanding
balance of $24,626,000 on July 4, 1998. The interest rate was 8.7% based on
LIBOR plus 2.5% and the prime rate. The Revolving Credit Facility expires on
January 1, 2002.
A summary of Debt outstanding as of July 4, 1998 is as follows:
<TABLE>
<S> <C>
Revolving Credit Facility $ 24,626,000
Term Loans 48,160,000
Subordinated Debt 9,176,000
Industrial Development Bonds 6,100,000
MEDIQ Note 5,915,000
Mortgages 2,800,000
Capital Lease Obligation 142,000
------------
$ 96,919,000
Less: Current maturities of long-term debt 7,012,000
------------
Long Term Debt $ 89,907,000
============
</TABLE>
During the quarter ended July 4, 1998, the Company obtained a five year mortgage
of $2,800,000 for purposes of refinancing an existing mortgage as well as for
the purchase of one of its manufacturing facilities previously leased. The
interest rate was fixed upon closing at 8.1% based upon the five year U.S.
Treasury Bond rate plus 2.5%. Principal payments for the first year are $25,000
per quarter and thereafter, monthly principal payments will be based upon a
fifteen year amortization schedule. In connection with the mortgage, the Company
received from its Senior and Subordinated lenders a waiver to allow for the
additional indebtedness.
8
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D - DEBT (CONTINUED)
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 flows,
interest coverage, capital expenditures, and covenants which prevent the payment
of dividends. The Company requested waivers of the total debt to EBITDA,
operating cash flows and minimum interest coverage covenants for the period
ended July 4, 1998. As of August 18, 1998, the Company has been granted oral
waivers of all the above mentioned covenants. Based upon conversations with
senior lenders, written waivers are forthcoming and will be provided to the
Company upon execution.
NOTE E - ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Effective September 28, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share." The
Company changed the method used to compute earnings per share and restated all
prior periods in accordance with SFAS No. 128. SFAS No. 128 supersedes
Accounting Principles Board Opinion No. 15 and is intended to simplify the
computation of earnings per share and to make the U.S. computations more
comparable with international computations by requiring the presentation of
basic and fully diluted earnings per share. The Company's only dilutive common
stock equivalents are stock options and warrants.
NOTE F - INCOME TAXES
The provision for income tax expense for the forty weeks ended July 4, 1998 has
been computed using an estimated effective tax rate for the year ended October
3, 1998.
NOTE G - DUTCH AUCTION SELF TENDER
On October 29, 1997 the Company announced that it would purchase from its
stockholders in a Dutch auction self tender up to 450,000 shares of its common
stock at a purchase price not greater than $12.75 per share nor less than $11.00
per share. The purpose of the offer was to provide added market liquidity for
stock holders who wished to sell their shares as a result of the Company's 1997
fourth quarter performance.
The offer expired on November 28, 1997. A total of 250,668 shares were
purchased and retired by the Company at a price of $12.75 per share. The offer
was financed by sales of 250,668 shares by the Company to: (i) Cape Ann
Investors, L.L.C., the Company's largest stockholder; (ii) Bernard J. Korman,
the Company's Chairman of the Board; (iii) Donald E. Lepone, the Company's
Chief Executive Officer; and (iv) Donald M. Gleklen, a member of the Board of
Directors of the Company.
In connection with the Dutch auction self tender, the Company received from its
Senior and Subordinated lenders a waiver to allow for the purchase of its common
stock.
9
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE H - LITIGATION AND CONTINGENCIES
The Company has been named as a defendant in several legal proceedings which
have arisen in the normal course of business. Although the amount of litigation
that could result from any litigation cannot be predicted, in the opinion of
management, the Company's potential liability on all known claims would not have
a material adverse effect on the consolidated financial position or results of
operations of the Company.
The Company has conducted an internal review of its computer systems to identify
those areas that could be affected by Year 2000 failures. The Company believes
that its integrated manufacturing, accounting, distribution and order entry
system has built-in Year 2000 compliance. While the impact of the Year 2000 on
the Company's customers and vendors is not yet known the Company is actively
gathering further information. The Company expects to complete its Year 2000
study before the end of the calendar year.
On July 8, 1997, the Commonwealth of Massachusetts Department of Revenue ("DOR")
notified the Company of its intent to assess the Company approximately $374,000,
including interest and penalties, relating to tax audits for fiscal years ending
1992 through 1994. Tax years 1995 and 1996 remain open. The amount relates
principally to the deductibility of certain expenses related to the Company's
wholly owned subsidiary, NutraMax Holdings, Inc., a Delaware company. The
Company attended a pre-assessment conference with the DOR on March 18, 1998, at
which the Company continued to vigorously defend its tax position. The Company
has not received any further notice from the DOR regarding its intent to assess.
Due to the uncertainties surrounding any assessments, no accrual has been
recorded in the accompanying financial statements.
NOTE I - COMMITMENTS
LEASES - The Company leases certain of its administrative, manufacturing,
distribution and warehouse facilities under operating leases. The Company also
leases certain equipment under operating and capital leases. During the second
quarter of fiscal year 1998, the Company entered into new lease agreements for a
distribution facility and certain equipment which increased the Company's annual
future minimum payments under noncancelable operating and capital leases by
approximately $480,000. During the third quarter of fiscal year 1998, the
Company obtained a five year mortgage of $2,800,000 for purposes of refinancing
an existing mortgage as well as for the purchase of one of its manufacturing
facilities previously leased. The Company's annual future minimum payments with
respect to these facilities remain substantially unchanged at approximately
$375,000.
10
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE J - SUBSEQUENT EVENT
On July 28, 1998, Mediq, Inc. released and delivered 623,597 escrowed shares
pursuant to the indenture and escrow agreement relating to the Mediq Bonds. As
a result, the Mediq note was paid down by $5,612,000 using proceeds from an
increase in term notes.
On August 7, 1998, the Company entered into an amendment to the Stock Purchase
Agreement with Cape Ann Investors to permit Cape Ann and its affiliates to
purchase from time to time, in the open market or in privately negotiated
transactions, up to an additional 245,000 shares of common stock of the Company.
As of August 10, 1998, Cape Ann beneficially owned 1,008,168 shares of common
stock of the Company and held warrants to purchase 215,425 shares of common
stock of the Company.
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 July 4, 1998 and its results of operations for the thirteen and forty weeks
then ended, compared with the thirteen and thirty-nine week periods last year.
On September 11, 1997, the Company acquired certain assets and assumed certain
liabilities related to the first aid division of American White Cross, Inc. and
Weaver Manufacturing Corp. (the "First Aid Business"). The acquisition was
accounted for as a purchase and the results of operations of the First Aid
Business are included in the Company's Consolidated Operations for the thirteen
and forty weeks ended July 4, 1998. 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, as amended, for the year ended
September 27, 1997 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
operations, 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, as amended, for the year ended September 27, 1997 and other
reports filed with the Securities and Exchange Commission.
11
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship that items in the Company's Condensed Consolidated Statements of
Operations bear to net sales.
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks Forty Weeks Thirty-Nine
Ended Ended Ended Weeks Ended
-------------- -------------- ------------ -------------
July 4, 1998 June 28, 1997 July 4, 1998 June 28, 1997
-------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
NET SALES 100% 100% 100% 100%
COST OF SALES 74 74 75 73
-------------- -------------- ------------ -------------
GROSS PROFIT 26 26 25 27
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 17 14 15 14
-------------- -------------- ------------ -------------
OPERATING INCOME 9 12 10 13
OTHER EXPENSE 7 6 7 5
-------------- -------------- ------------ -------------
INCOME BEFORE INCOME TAX EXPENSE 2 6 3 8
INCOME TAX EXPENSE 1 3 1 3
-------------- -------------- ------------ -------------
NET INCOME 1% 3% 2% 5%
============== ============== ============ =============
</TABLE>
THIRD QUARTER 1998 COMPARED TO THIRD QUARTER 1997
Net sales for third quarter ended July 4, 1998 were $27,355,000, an increase
of $4,349,000, or 19%, over third quarter 1997 net sales of $23,006,000. Of the
increase in net sales, approximately $9,000,000 was attributable to sales of
First Aid products primarily offset by sales decreases in Cough/Cold
($2,300,000), Feminine hygiene ($700,000), Infant Care ($500,000), and a
combined $900,000 decrease in the Adult Liquid Nutrition and Clotrimazole based
yeast infection medication sales. The reduction in Adult Liquid Nutritionals
and Clotrimazole based yeast infection medications is the result of a decision
by the Company to withdraw from these markets and concentrate on products it
directly manufacturers. The Company expects to complete the phase out of Adult
Liquid Nutritionals and Clotrimazole by the end of this fiscal year.
Gross profit for third quarter 1998 was $7,218,000 or 26% of net sales, as
compared to $6,022,000 or 26% of net sales for the prior year's quarter.
Although gross margins are comparable to the same quarter of the prior year,
margins have improved by approximately 2% of net sales over the previous
quarter. This improvement results from operational efficiencies at the
Company's manufacturing facilities combined with sales of certain higher margins
products in 1998 from the recently acquired First Aid Business.
Selling, general and administrative expenses for third quarter 1998 were
$4,889,000, or 17% of net sales, as compared to $3,289,000 or 14% of net sales
for the prior year's quarter. The $1,600,000 increase is primarily attributable
to expenses associated with operating the newly acquired First Aid Business as
well as increased broker commissions and freight expense related to increased
sales volume. The increase, as a percentage of net sales, is primarily
attributable to increased amortization of goodwill and deferred financing costs
associated with the purchase of the First Aid Business.
Interest expense for the third quarter 1998 was $1,984,000 as compared to
$1,443,000 in the prior year's quarter. This increase is a result of the
increased debt associated with the acquisition of the First Aid Business.
12
<PAGE>
The effective income tax rate for the quarter was 37% which is 4% lower than
the prior year's quarter. The decrease relates to benefits expected to be
realized as a result of the Company's implementation of certain state tax
planning strategies.
FORTY WEEKS ENDED JULY 4, 1998 COMPARED TO THIRTY-NINE WEEKS ENDED JUNE 28, 1997
Net Sales for the forty weeks ended July 4, 1998 were $95,774,000, an increase
of $25,555,000, or 36% over the same period sales for 1997 of $70,219,000. Of
the increase in net sales approximately $26,800,000 was attributable to sales of
First Aid products with added increases in the Opthalmics and Cough/Cold
categories of $1,700,000 and $600,000, respectively, offset by decreases in the
Feminine hygiene and Adult Liquid Nutrition/Clotrimazole based yeast infection
medication sales of $900,000 and $2,700,000, respectively. The reduction in
Adult Liquid Nutritionals and Clotrimazole based yeast infection medications is
the result of a decision by the Company to withdraw from these markets and
concentrate on products it directly manufactures. The Company expects to
complete the phase out of Adult Liquid Nutritionals and Clotrimazole by the end
of this fiscal year.
Gross profit for the forty week period in 1998 was $23,954,000 or 25% of net
sales, compared to $18,610,000 or 27% of net sales for the thirty-nine week
period last year. The increase in gross profit is attributable to increased
sales. The decrease in the gross margin as a percentage of net sales is
primarily attributable to inefficiencies which occurred primarily during the
fourth fiscal quarter of 1997 and related to the delay in the completion of the
continuous cooking line which delayed production causing underabsorbed labor and
overhead which was capitalized into inventory related to Cough/Cold products
production, offset slightly by sales of certain higher margins products in 1998
from the recently acquired First Aid Business.
Selling, general and administrative expenses for the forty week period in 1998
was $14,910,000 or 15% of net sales, compared to $9,884,000 or 14% of net sales
for the thirty-nine week period last year. The $5,026,000 increase is primarily
attributable to expenses associated with operating the newly acquired First Aid
Business as well as increased broker commissions and freight expense related to
increased sales volume. The increase, as a percentage of net sales, is
primarily attributable to increased amortization of goodwill and deferred
financing costs associated with the purchase of the First Aid Business.
Interest expense for the forty week period in 1998 was $6,408,000 or 7% of net
sales, compared to $3,245,000 or 5% of net sales for the thirty-nine week period
last year. This increase is a result of the increased debt associated with the
acquisition of the First Aid Business as well as the increased debt associated
with the repurchase of the Company's shares from Mediq, Inc. in December 1996.
The effective income tax rate for the forty week period in 1998 was 38% which
is 2% lower than the comparable prior year's period. The decrease relates to
benefits expected to be realized as a result of the Company's implementation of
certain state tax planning strategies.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of July 4, 1998 the Company had working capital of $39,604,000 as compared
to working capital of $38,602,000 as of September 27, 1997. The increase in
working capital was primarily attributable to increased inventories offset by a
decrease in accounts receivable and an increase in accounts payable. The
increase in inventory is primarily attributable to an increase in cough/cold
inventory to meet current and future customer order requirements.
Net cash provided in operating activities was $886,000 for the forty weeks
ended July 4, 1998, as compared to $5,041,000 provided by operating activities
in the thirty-nine week period ended June 28, 1997. This decrease was primarily
attributable to increased inventories and interest offset by a reduction in
accounts receivable and an increase in accounts payable.
Net cash used in investing activities was $7,678,000 for the forty weeks ended
July 4, 1998, consisting primarily of $2,800,000 used to purchase one of the
Company's manufacturing facilities, as well as funds used for additions to
capital equipment offset by escrow proceeds received relating to the acquisition
of the First Aid Business. The Company anticipates additional capital
expenditures of approximately $500,000 for the remainder of fiscal 1998. The
expenditures relate primarily to additional manufacturing capacity requirements.
These expenditures are expected to be financed through cash generated from
operations.
Net cash provided by financing activities was $7,222,000 for the forty weeks
ended July 4, 1998, consisting of borrowings of $10,544,000 primarily resulting
from the funding of increases in inventories and the purchase of a manufacturing
facility offset by debt repayments of $3,639,000. During the second quarter of
fiscal 1998, the Company entered into new lease agreements for a distribution
facility and certain equipment which increased the Company's annual future
minimum payments under noncancelable operating and capital leases by
approximately $480,000.
The Company's Revolving Credit Facility of $25,000,000 had an outstanding
balance of $24,626,000 on July 4, 1998. The interest rate was 8.7% based on
LIBOR plus 2.5% and the prime rate. The Revolving Credit Facility expires on
January 1, 2002. The Company requested waivers of the total debt to EBITDA,
operating cash flows and minimum interest coverage covenants for the period
ended July 4, 1998. As of August 18, 1998, the Company has been granted oral
waivers of all the above mentioned covenants. Based upon conversations with
senior lenders, written waivers are forthcoming and will be provided to the
Company upon execution.
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 1998. However, depending upon future growth of the business,
additional financing may be required.
14
<PAGE>
SUBSEQUENT EVENT
On August 7, 1998, the Company entered into an amendment to the Stock Purchase
Agreement with Cape Ann Investors to permit Cape Ann and its affiliates to
purchase from time to time, in the open market or in privately negotiated
transactions, up to an additional 245,000 shares of common stock of the Company.
As of August 10, 1998, Cape Ann beneficially owned 1,008,168 shares of common
stock of the Company and held warrants to purchase 215,425 shares of common
stock of the Company.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been named as a defendant in several legal proceedings which
have arisen in the normal course of business. Although the amount of litigation
that could result from any legal proceedings cannot be predicted, in the opinion
of management, the Company's potential liability on all known claims would not
have a material adverse effect on the consolidated financial position or results
of operations of the Company.
On July 8, 1997, the Commonwealth of Massachusetts Department of Revenue
("DOR") notified the Company of its intent to assess the Company approximately
$374,000, including interest and penalties, relating to tax audits for fiscal
years ending 1992 through 1994. Tax years 1995 and 1996 remain open. The
amount relates principally to the deductibility of certain expenses related to
the Company's wholly owned subsidiary, NutraMax Holdings, Inc., a Delaware
company. The Company attended a pre-assessment conference with the DOR on March
18, 1998, at which the Company continued to vigorously defend its tax position.
The Company has not received any further notice from the DOR regarding its
intent to assess. Due to the uncertainties surrounding any assessments, no
accrual has been recorded in the accompanying financial statements.
ITEM 5. OTHER INFORMATION
The Securities and Exchange Commission recently adopted certain amendments to
its rules governing the submission by shareholders of proposals intended to be
presented at meetings of shareholders. These amendments, which became effective
on June 29, 1998, included granting the Company the right to exercise
discretionary voting authority with respect to certain shareholder proposals of
which the Company did not have notice within a specified time period prior to
the meeting.
15
<PAGE>
Under the amended rules, if a shareholder proposal intended to be presented at
the Company's 1999 Annual Meeting of Shareholders (other than proposals that are
included in the Company's proxy statement and form of proxy pursuant to and in
compliance with Rule 14a-8 of the Securities Exchange Act of 1934) (a "Non-Rule
14a-8 Proposal") is received by the Company after December 14, 1998 and such
proposal is submitted to a vote of the shareholders at such meeting, the Company
will have discretionary voting authority with respect to such proposal to vote
proxies solicited by the Board of Directors in the manner determined by the
Company's proxies. If a Non-Rule 14a-8 proposal is submitted to the Company on
or prior to December 14, 1998, the Company will have discretionary voting
authority with respect to such proposal under certain circumstances pursuant to
Rule 14a-4 of the Securities Exchange Act of 1934.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10 -Amendment, dated August 7, 1998, to the Stock Purchase
Agreement dated August 12, 1997 by and between NutraMax
Products, Inc. and Cape Ann Investors, L.L.C. appears on
page 18-19.
Exhibit 11 -Statement re: Computation of Per Share Earnings appears
on page 20.
Exhibit 27 -Financial Data Schedule appears on page 21.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the quarter ended July 4,1998.
16
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
THIRTEEN WEEKS ENDED JULY 4, 1998
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 18, 1998
-------------------
(Date) /s/ Robert F. Burns
------------------------------------
Robert F. Burns
Vice President and
Chief Financial Officer
17
<PAGE>
EXHIBIT 10
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
AMENDMENT, DATED AUGUST 7, 1998, TO THE STOCK PURCHASE AGREEMENT DATED
AUGUST 12, 1997 BY AND BETWEEN NUTRAMAX PRODUCTS, INC. AND CAPE ANN
INVESTORS, L.L.C.
AMENDMENT (this "Amendment"), dated as of August 7, 1998, to the Stock
---------
Purchase Agreement (the "Stock Purchase Agreement") dated as of August 12, 1997,
------------------------
as previously amended, by and between NutraMax Products, Inc., a Delaware
corporation (the "Company"), and Cape Ann Investors, L.L.C., a Delaware limited
-------
liability company (the "Purchaser"). All capitalized terms used in this
---------
Amendment and not otherwise defined herein shall have the meanings set forth in
the Stock Purchase Agreement.
1. The first sentence of Section 5.6(b) of the Stock Purchase
Agreement is hereby amended to read in its entirety as follows: "Each of the
Stockholders hereby jointly and severally covenants and agrees that from and
after the date hereof none of the Stockholders or their Affiliates will, without
the prior written consent of the Company specifically expressed in a vote
adopted after the Closing by the Board, directly or indirectly, purchase or
cause to be purchased or otherwise acquire (other than pursuant to a stock
split, stock dividend or similar transaction) or agree to acquire, or become or
agree to become the beneficial owner of, any additional Stock, except that the
Stockholders and their Affiliates may purchase shares of Common Stock (A)
pursuant to Section 2.2 of the Agreement between the Company and Purchaser,
dated as of October 14, 1997 (the "October Agreement"), (B) upon exercise of
-----------------
some or all of the warrants granted pursuant to the October Agreement (the
"Warrants"), (C) from time to time, in the open market or in privately
- ---------
negotiated transactions, up to an aggregate of 245,000 shares of Common Stock,
and (D) from time to time, in the open market or in privately negotiated
transactions, up to an aggregate number of shares of Common Stock which, when
added to the Shares of Common Stock then owned by the Stockholders and their
Affiliates, would result in the Stockholders owning no more than the highest
percentage of voting securities of the Company held by the Stockholders and
their Affiliates immediately following any purchase permitted by clauses (A),
(B) or (C) above.
2. Notwithstanding anything in the Stock Purchase Agreement to the
contrary, any member of the Advisory Board of Chilmark who acquired shares of
Common Stock from Purchaser on September 18, 1997 in accordance with the Stock
Purchase Agreement may, from time to time, in the open market or privately
negotiated transactions, purchase up to an aggregate number of shares of Common
Stock equal to 50% of the number of shares so acquired from Chilmark.
3. Except as expressly provided herein, the Stock Purchase Agreement
shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed and
delivered this Amendment as of the date first above written.
NUTRAMAX PRODUCTS, INC.
By: /s/ Donald E. Lepone
--------------------
Name: Donald E. Lepone
Title: President/CEO
CAPE ANN INVESTORS, L.L.C.
By: Chilmark Fund II, L.P., its Managing
Member
By: Chilmark II, L.L.C., its General Partner
By: /s/ David Schulte
-----------------
Name: David Schulte
Title: President
<PAGE>
EXHIBIT 11
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks Forty Weeks Thirty-Nine
Ended Ended Ended Weeks Ended
-------------- -------------- -------------- -------------
July 4, 1998 June 28, 1997 July 4, 1998 June 28, 1997
-------------- -------------- -------------- -------------
(shares data in thousands)
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income per common share $ 0.04 $ 0.16 $ 0.29 $ 0.54
========== ========= ========= =========
Weighted average number of shares outstanding 5,672 4,712 5,646 6,091
========== ========= ========= =========
DILUTED EARNINGS PER SHARE:
Net income per common share $ 0.04 $ 0.16 $ 0.29 $ 0.54
========== ========= ========= =========
Weighted average shares 5,672 4,712 5,646 6,091
Effect of dilutive securities:
Stock options 14 91 57 30
Warrants 27 65 41 31
---------- --------- --------- ---------
Adjusted weighted average number of shares
outstanding 5,713 4,868 5,744 6,152
========== ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-END> JUL-04-1998
<CASH> 673
<SECURITIES> 0
<RECEIVABLES> 17,826
<ALLOWANCES> 880
<INVENTORY> 47,582
<CURRENT-ASSETS> 67,336
<PP&E> 70,635
<DEPRECIATION> 20,683
<TOTAL-ASSETS> 145,228
<CURRENT-LIABILITIES> 27,732
<BONDS> 89,907
0
0
<COMMON> 6
<OTHER-SE> 25,699
<TOTAL-LIABILITY-AND-EQUITY> 145,228
<SALES> 95,774
<TOTAL-REVENUES> 95,774
<CGS> 71,820
<TOTAL-COSTS> 71,820
<OTHER-EXPENSES> 14,910
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,408
<INCOME-PRETAX> 2,638
<INCOME-TAX> 998
<INCOME-CONTINUING> 1,640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,640
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
