<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended: September 27, 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: (978) 283-1800
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
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]
The aggregate market value of the registrant's voting stock held by non-
affiliates (based upon the closing price of $14.50 on January 6, 1998) was
approximately $28,900,000. As of January 6, 1998, there were 5,619,768
shares of Common Stock, par value .001 per share, outstanding.
Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy of information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held in 1998 are incorporated by reference into Part III. The Index to Exhibits
begins on Page 26.
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PART I
ITEM 1. BUSINESS
GENERAL
NutraMax Products, Inc. (the "Company") was incorporated on April 20, 1987 under
the laws of the State of Delaware and is the successor by merger in July 1990 to
Aid-Pack, Inc. ("Aid-Pack"), formally a wholly-owned subsidiary of MEDIQ
Incorporated ("MEDIQ").
The Company is a private label health and personal care products company. The
Company's strategy is to offer a line of quality products equivalent to national
brands at lower cost to consumers while providing greater profit potential to
retailers than the national brands. National brands dominate health and
personal care product categories. However, in recent years private label
products have captured increased market share by appealing to value conscious
consumers seeking lower cost products of comparable quality. The Company
received the 1993 Retail Excellence Award as the private label company of the
year, with the selection based on a survey conducted by a major trade journal.
PRODUCTS
FEMININE NEEDS - The Company manufactures disposable douches for sale under its
value brands Sweet*n Fresh(R) and Sweet Love(R) and on a private label basis.
In February 1996, the Company acquired certain assets of the Hospital Specialty
Company Division of the Tranzonic Companies related to the manufacture and sale
of feminine hygiene products. Sales of douche products in fiscal 1997 were 19%
of net sales, as compared to 23% in 1996 and 24% in 1995. The Company also
markets private label feminine yeast infection medication products containing
the active ingredient clotrimazole.
COUGH/COLD PRODUCTS - The Company is the leading manufacturer and distributor of
private label cough drops and throat lozenges, and also manufactures cough drops
on a contract basis. The Company offers an extensive line of solid dosage
cough/cold products, including cough drops, throat lozenges, sugar-free
products, vitamin C drops and liquid center items. Sales of cough/cold products
represented 34%, 31% and 34% of net sales in fiscal 1997, 1996 and 1995
respectively.
BABY CARE - The Company manufactures disposable baby bottle liners on a private
label basis and under its value brand Fresh*n Easy(R). The Company manufactures
pediatric electrolyte oral maintenance solution, a product which is used to
replace minerals lost by children who suffer from diarrhea and vomiting, for
sale under its value brand NutraMax Baby Care Pediatric Electrolyte and on a
private label basis. During fiscal years 1997, 1996 and 1995, sales of baby
care products represented 15%, 15% and 19% of net sales respectively.
OPHTHALMICS - The Company manufactures private label over-the-counter and
prescription ophthalmic products for retail and industrial customers, including
over-the-counter contact lens solutions, artificial tears and eye drops, as well
as generic prescription eye care products. Sales of ophthalmic products
represented 10%, 9% and 10% of net sales in fiscal 1997, 1996 and 1995
respectively.
ADULT NUTRITION PRODUCTS - In March 1995, the Company introduced a new line of
adult high calorie liquid nutrition products which are sold under its value
brand NutraMax Plus High Calorie Liquid Nutrition and on a private label basis.
During fiscal 1996, the Company introduced a lower calorie version of this same
product sold under its value brand name NutraMax Complete Liquid Nutrition.
These products are manufactured by a third party and marketed by the Company
through its distribution channels. During fiscal 1997, 1996 and 1995 sales of
adult liquid nutrition products represented 4%, 5% and 3% of net sales
respectively.
PERSONAL CARE - The Company manufactures ready-to-use disposable enemas for sale
under its value brand Pure & Gentle, on a private label basis and for the
institutional market. During fiscal 1997, 1996 and 1995 sales of Personal Care
products represented 5%, 5% and 6% of net sales respectively.
ORAL CARE - In October 1995, the Company acquired the assets and assumed certain
liabilities of Mi-Lor Corporation, Professional Brushes, Inc. and Codent Dental
Products, Inc., companies engaged in the manufacturing and marketing of
toothbrushes, dental floss and related products for the store brand market. The
acquisition was the Company's entry into the private label oral care segment.
These products are manufactured in an 88,000 square foot manufacturing facility
located in Florence, Massachusetts which was acquired by the Company as part of
the transaction. Oral care products are being marketed by the Company through
its existing distribution channels and represented 8% and 9% of net sales for
fiscal 1997 and 1996, respectively.
FIRST AID PRODUCTS - In September 1997 the Company acquired certain of the
assets and assumed certain liabilities of American White Cross, Inc. and Weaver
Manufacturing Corporation, companies engaged in the manufacturing and marketing
of adhesive bandages and related products for both the store brand and
institutional markets. The acquisition is the Company's entry into the private
label first aid market. These products are manufactured in a 253,000 square
foot leased facility in Houston, Texas. The first aid products are being
marketed by the Company through its existing distribution channels. Sales of
first aid products represented 2% of net sales for fiscal 1997.
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OTHER PRODUCTS - The Company's other products consist principally of a patented
line of sterile, prefilled, disposable dilution bottles used in laboratory
testing of water, waste water, foods, drug products, pharmaceuticals and
cosmetics. Sales of these other products totaled 3%, 3% and 4% of net sales in
fiscal 1997, 1996 and 1995 respectively.
NEW PRODUCT STRATEGY
The Company's growth strategy includes the acquisition and development of new
products, and the extension and modification of existing product lines to
correspond with national branded products and product variations. The Company
expects to add new product lines through internal development, acquisition and
joint venture or partnership agreements. The Company contemplates that product
line expansion will enable the Company to capitalize on its established
distribution channels and manufacturing marketing expertise. New products will
most likely focus on consumer packaged goods, including health and personal care
products. The Company has added a multi-purpose 4 in 1 soft contact lens
solution to its ophthalmic product line with sales beginning October 1996 under
the Company's value brand Optopics Multi-purpose Solution and on a private label
basis. The product is filled by a third party and then labeled and packaged at
the Company's Fairton, New Jersey facility and marketed through the Company's
distribution channels.
MARKETING AND DISTRIBUTION
The Company utilizes national brand marketing methods to meet the specific needs
of its customers. Such marketing methods include designing contemporary
packaging to improve point-of-purchase impact and increase consumer appeal. The
Company also uses price, display, packaging, bonus and multi-pack promotions to
increase sales and retailer support. Sales are made through the Company's sales
representatives and independent brokers.
CUSTOMERS
For fiscal years 1997, 1996 and 1995, Walmart Stores, Inc. accounted for 11%,
11% and 9% of net sales respectively, and American Home Products, Inc. accounted
for 10%, 11% and 14% of net sales respectively. While the Company seeks to
continually expand its distribution and customer base, the loss of one or more
of its largest customers, if not replaced with other comparable businesses,
could have a material adverse effect on the Company's results of operations.
COMPETITION
The markets in which the Company competes are dominated by nationally advertised
brand name products marketed by established consumer packaged goods companies,
most of which have greater marketing, financial and human resources than the
Company. The Company also competes with several other private label
manufacturers and marketers. Competition for consumer health and personal care
products is based primarily on product reliability, price, customer service, and
the ability to provide tamper resistant/evident packing. Growth in sales of
private label products is also dependent on increasing the amount of shelf space
available at retail stores in order to maximize brand awareness and consumer
trial. The Company experiences aggressive price competition from time to time
from branded and other private label competitors. There can be no assurance
that such price competition will not have a material adverse effect on the
Company's results of operations (see "ITEM 7. Management's Discussion and
Analysis of Financial condition and Results of Operations").
GOVERNMENTAL REGULATION AND HEALTH ISSUES
The Company is registered with the Food & Drug Administration ("FDA") as a
manufacturer for certain of its products. The primary forms of governmental
regulation are the current "good manufacturing practices" and "good laboratory
practices" guidelines administered by the FDA, which set forth the protocols to
be followed in the manufacture, storage, packaging and distribution of medical
products for human use. Certain of the Company's ophthalmic products are subject
to additional FDA regulations relating to pre-market approval of products. The
Company's operations are also subject to periodic inspections by the FDA.
Promotional claims made with respect to health and personal care products are
also subject to regulation by the FDA, and by the Federal Trade Commission.
The use of health and personal care products may result in allergic or other
adverse reactions in users. Since 1952, a number of studies have been published
in medical journals concerning the relationship of douching to the incidence of
pelvic inflammatory disease. These studies provide no conclusive results on the
issue of whether douching causes this disease. A 1990 study showed an
association between douching and the disease and concluded that further studies
were needed. A 1993 study stated that the results of the study lend support to
the hypothesis that douching can predispose a woman to pelvic inflammatory
disease. Although the Company believes its douche products are safe when used
in accordance with instructions accompanying the product package, negative
publicity resulting from such studies and any
2
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future studies may affect sales of douche products. In such event there could
be a material adverse impact on the Company's results of operations.
EMPLOYEES
The Company has approximately 1000 full-time employees engaged in quality
control, marketing and sales, general corporate and administrative positions and
manufacturing operations. The Company believes that relations with its
employees are satisfactory.
ITEM 2. PROPERTIES
The Company currently operates the following facilities (which are owned unless
otherwise indicated):
<TABLE>
<CAPTION>
Approximate Location Type of Facility Square Feet
- -------------------- ---------------- -----------
<S> <C> <C>
Gloucester, Massachusetts (1) Corporate and Administrative 131,000
Offices, Manufacturing
Facilities
Fairton, New Jersey Manufacturing 48,000
Brockton, Massachusetts Manufacturing 89,000
Florence, Massachusetts (2) Manufacturing 88,000
Houston, Texas (3) Manufacturing 253,000
- ------------------------------------------------------------------------------------
</TABLE>
(1) Consists of four facilities, of which three are leased. The Company has
entered into a lease, effective January 1, 1998, for an 80,000 square foot
distribution center which will provide consolidated warehousing of finished
goods as well as provide for the consolidated shipping of the Company.
(2) Acquired in October 1995.
(3) Leased facility effective September, 1997
The Company believes that its present facilities will be adequate for all of its
reasonably foreseeable manufacturing, warehousing and distribution requirements,
or that alternative facilities can be obtained at a reasonable cost.
ITEM 3. LEGAL PROCEEDINGS
The Company, like other companies in the store brand industry, has been the
subject of claims and litigation brought by national brand name companies based
on packaging alleged to be similar to competing brand name products. The
Company is also subject to certain claims and informal complaints relating to
its products which are incidental and routine to its business and for which the
Company maintains insurance coverage. The Company knows of no litigation,
either pending or threatened, which is likely to have a material adverse effect
on the Company's financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1997.
3
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
MARKET INFORMATION
The following table sets forth, for the periods indicated, the high and low
prices for the Company's common stock as reported by NASDAQ. The Company's
common stock is traded on the NASDAQ SmallCap Market System under the Symbol
"NMPC".
<TABLE>
<CAPTION>
FISCAL 1997 HIGH LOW
---------------- ------- -------
<S> <C> <C>
First Quarter $11.000 $ 8.500
Second Quarter 12.875 10.000
Third Quarter 14.000 11.125
Fourth Quarter 16.000 12.500
<CAPTION>
FISCAL 1996 HIGH LOW
---------------- ------- -------
<S> <C> <C>
First Quarter $10.250 $ 7.750
Second Quarter 10.250 8.500
Third Quarter 11.125 8.125
Fourth Quarter 10.000 7.500
</TABLE>
COMMON STOCK HOLDERS
The Company believes there are approximately 2,500 holders of common stock,
including shares held in street name by brokers.
DIVIDENDS
The Company has never declared or paid any cash dividends. The declaration of
dividends by the Company in the future will at all times be subject to the sole
discretion of the Company's Board of Directors, and will depend upon operating
results, capital requirements, financial position and bank covenant compliance.
The Company's Senior and Subordinated Debt agreements prohibit the payment of
dividends. See notes to the consolidated financial statements included
elsewhere herein.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below has been derived from
the audited financial statements of the Company. This data is qualified in its
entirety by reference to, and should be read in conjunction with, Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
Company's Consolidated Financial Statements included elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Year Ended
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Sept. 27, Sept. 28 Sept. 30, Oct. 1, Oct. 2,
1997 (1)(2) 1996 (3)(4) 1995 1994 (5) 1993 (6)
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(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 94,331 $ 80,479 $63,111 $ 55,958 $ 31,144
Cost of sales 71,728 57,686 45,916 38,752 19,598
-------- -------- ------- -------- --------
Gross profit 22,603 22,793 17,195 17,206 11,546
Selling, general and administrative expenses 13,947 11,662 8,694 9,281 5,928
-------- -------- ------- -------- --------
Operating income 8,656 11,131 8,501 7,925 5,618
Other income (expense):
Interest expense (5,042) (1,479) (1,427) (928) --
Other 184 (289) 316 95 251
-------- -------- ------- -------- --------
Income before income tax expense 3,798 9,363 7,390 7,092 5,869
Income tax expense 1,536 3,680 2,916 2,832 2,350
-------- -------- ------- -------- --------
Net income $ 2,262 $ 5,683 $ 4,474 $ 4,260 $ 3,519
======== ======== ======= ======== ========
Earnings per share:
Primary $.38 $.67 $.53 $.50 $.43
Fully Diluted .37 .66 52 .50 .42
======== ======== ======= ======== ========
Weighted average shares outstanding:
Primary 5,955 8,531 8,520 8,480 8,235
Fully Diluted 6,131 8,563 8,620 8,591 8,414
======== ======== ======= ======== ========
<CAPTION>
As of
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Sept. 27, Sept. 28 Sept. 30, Oct. 1, Oct. 2,
1997 (1)(2) 1996 (3)(4) 1995 1994 (5) 1993 (6)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 38,602 $ 9,491 $14,152 $ 13,172 $ 9,703
Total assets 132,759 82,878 63,074 60,450 33,207
Long-term debt, less current maturities 85,542 11,780 12,550 16,183 ----
Stockholders' equity 23,479 45,817 39,233 34,757 29,953
</TABLE>
(1) In September 1997, the Company acquired certain assets of a
manufacturer of first aid products for $37,170,000 in cash plus transaction
related expenses of approximately $700,000, $233,000 of which was paid by
fiscal year end, which was financed by additional term loan and revolving credit
facility borrowings and the private placement of 846,154 shares of the Company's
common stock. (See note B to the consolidated financial statements)
(2) In December 1996, the Company repurchased 4,037,258 shares of its
common stock from MEDIQ, Inc. for $36,335,000. The transaction was financed by a
combination of term loans and subordinated debt. (See Note M to the consolidated
financial statements).
(3) In February 1996, the Company acquired certain assets of a manufacturer
of feminine hygiene products for $2,367,000 in cash which was financed by
additional term loan borrowings.
(4) In October 1995, the Company acquired the assets of a manufacturer of
private label toothbrushes and dental floss for $1,800,000 in cash and
liabilities assumed of $363,000, and the transaction resulted in related
expenses of $681,000 which was financed from the Company's revolving credit
facility.
(5) In December 1993, the Company acquired a manufacturer and distributor
of private label cough/cold products for $13,500,000 which was financed with
proceeds from a revolving credit facility.
(6) In June 1993, the Company acquired a manufacturer of private label
over-the-counter and prescription ophthalmic products, for approximately 202,000
shares of the Company's common stock with a market value of $2,846,000.
Litigation and Contingencies - See Note O to the consolidated financial
statements.
5
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto, contained elsewhere herein.
RESULTS OF OPERATIONS
The consolidated Statements of Operations include the results of operations of
acquired companies and businesses from the dates acquired; certain assets of
American White Cross, Inc. and Weaver Manufacturing Corporation, ("American
White Cross") (September 1997); certain assets of the Hospital Specialty
Company Division of the Tranzonic Companies (February 1996); certain assets of
Mi-Lor Corporation, ("Mi-Lor"), Professional Brushes, Inc. ("Professional
Brushes") and Codent Dental Products, Inc. ("Codent") (October 1995). The
following table sets forth, for all periods indicated, the percentage
relationship that items in the Consolidated Statements of Operations bear to net
sales.
<TABLE>
<CAPTION>
Year Ended
------------------------------------
Sept. 27, Sept. 28, Sept. 30,
1997 1996 1995
------------------------------------
<S> <C> <C> <C>
Net sales 100% 100% 100%
Cost of sales 76 72 73
---- ---- ----
Gross profit 24 28 27
Selling, general and administrative expenses 15 14 14
---- ---- ----
Operating income 9 14 13
Other credits (charges) (5) (2) (1)
---- ---- ----
Income before income tax expense 4 12 12
Income tax expense 2 5 5
---- ---- ----
Net income 2% 7% 7%
==== ==== ====
</TABLE>
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Net sales for 1997 were $94,331,000, an increase of $13,852,000 or 17% over 1996
net sales of $80,479,000. The net sales increase is primarily attributable to
Cough/Cold sales volume increases resulting from increased distribution both in
the private label and contract manufacturing markets and Ophthalmics and
Pediatric Electrolyte sales volume increases as a result of increased
distribution.
Gross profit for 1997 was $22,603,000 or 24% of net sales, as compared to
22,793,000 or 28% of net sales in 1996. The decrease in gross margin is
primarily attributable to a delay in the completion of a major capital expansion
program at the Cough/Cold division. New production capacity, centered around a
new continuous cooking line used to manufacture cough drops, became operational
later than planned. This delay, coupled with increased Cough/Cold product
orders resulted in delayed shipments and underabsorbed labor and overhead.
Selling, general and administrative expense for 1997 was $13,947,000 or 15% of
net sales as compared to $11,662,000 or 14% of net sales for 1996. The dollar
increase is primarily attributed to increases in freight expense, broker
commissions, amortization of financing costs, professional services and
promotion expense related to increased sales volumes and additional debt
refinancing costs. The percentage increase is primarily related to increased
freight expense resulting from shipping inefficiencies related to the capacity
expansion delay at the Cough/Cold division.
Interest expense for 1997 was $5,042,000 as compared to $1,479,000 for 1996.
The increase is primarily attributable to the increased borrowings associated
with the MEDIQ Stock Repurchase. (see MEDIQ Stock Repurchase below)
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FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net sales for 1996 were $80,479,000, an increase of $17,368,000 or 28% over 1995
net sales of $63,111,000. The net sales increase was primarily attributable to
the addition of the Oral Care division as a result of the Mi-Lor, Professional
Brushes and Codent acquisition, Cough/Cold sales volume increases resulting from
increased distribution and a more traditional cough/cold season, a full year of
Adult Liquid Nutrition sales introduced in March 1995, increased douche sales
resulting from the acquisition of certain assets of the Hospital Specialty
Company Division of the Tranzonic Companies and Pediatric Electrolyte sales
volume increases resulting from increased distribution.
Gross profit for 1996 was $22,793,000, or 28% of net sales, as compared to
$17,195,000, or 27% of net sales in 1995. Increases in gross margin are a result
of increased production levels for Cough/Cold products and Feminine Hygiene
products, higher gross margin associated with initially high production levels
for the Oral Care Division not expected to continue in 1996 and lower raw
material costs, principally plastic resin and plastic film.
Selling, general and administrative expense for 1996 was $11,662,000 or 14% of
net sales as compared to $8,694,000 or 14% of net sales in 1995. The dollar
increase in selling, general and administrative expense is primarily
attributable to increases in bad debt expense, broker commission expense,
freight expense and promotional expense, all related to increased sales volume
and increases in incentive compensation expense.
Interest expense for 1996 was $1,479,000 as compared to $1,427,000 in 1995. The
increase is a result of higher borrowing levels.
SEASONALITY
During the last four months of the calendar year, retailers focus their
merchandising efforts on, and devote more shelf space to, seasonal and holiday
merchandise. As a result, sales of certain of the Company's products tend to be
weaker in the Company's first quarter (ending in December), and normally
strengthen in the second quarter as retailers replenish their shelves with
health and personal care products. Sales of Pediatric Electrolyte and
Cough/Cold products may help mitigate weaker sales in the Company's first
quarter, as the Company's customers purchase such products to stock inventories
in anticipation of an increase in winter sales. Consequently, the results of
any one quarter may not necessarily be indicative of results of future quarters.
LIQUIDITY AND CAPITAL RESOURCES
As of September 27, 1997, the Company's working capital increased to $38,602,000
from $9,491,000 on September 28, 1996. Net cash provided by operating
activities decreased to $3,939,000 in 1997 from $4,724,000 in 1996 which was
primarily attributable to a decrease in net income and increases in inventory
offset by increases in accounts payable, accrued expenses and deferred income
taxes as a result of increased sales volumes. The net increase in working
capital is the result of the acquisition of the assets and the assumption of
certain liabilities of American White Cross as well as increases in inventories
and the refinancing of the Company's revolving credit facility offset by a
reduction in restricted cash.
Net cash used in investing activities was $41,874,000 and consists primarily of
the acquisition of certain of the assets less the assumption of certain of the
liabilities of the first aid business of American White Cross, ($37,403,000)
capital expenditures ($9,109,000) (primarily for additional capacity), offset by
restricted cash used for equipment purchases at the Oral Care and Powers
facilities as well as a building expansion at Powers which represented the
proceeds from the variable rate Industrial Development Bonds. The Company
anticipates capital expenditures of approximately $9,500,000 in fiscal 1998 for
additional manufacturing capacity and the purchase of a currently leased
facility. These expenditures will be financed with existing working capital and
approximately a $2,000,000 mortgage loan.
Net cash provided from financing activities totaled $37,341,000 and included
borrowings of $74,615,000 related to the MEDIQ Stock Repurchase (proceeds from
the sale of approximately 846,000 shares of the Company's stock in connection
with the American White Cross acquisition) and debt refinancing, borrowings for
the American White Cross acquisition, working capital borrowings and proceeds
from the exercise of stock options offset by debt repayments, the MEDIQ Stock
Repurchase and deferred financing costs.
On December 31, 1996 pursuant to the terms of an Amended and Restated Stock
Purchase Agreement (the "Stock Purchase Agreement") dated November 20, 1996
among MEDIQ Inc., 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 657,194 were held in escrow (the "MEDIQ
Escrowed Shares") as of September 27, 1997 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 balance
of the note as of September 27, 1997 was $5,915,000. The MEDIQ Note is payable
in installments as MEDIQ Escrowed 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
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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 an amount (the "Excess Cash
Amount") equal to the product of the number of Escrowed Shares so delivered by
MEDIQ and the number which is equal to the difference between (x) $1,000 divided
by the then exchange rate of the MEDIQ Bonds provided in the indenture, 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 revolving credit facility expired on December 31, 1996 and was
refinanced in connection with the MEDIQ Stock Repurchase. In addition, the
Company had term loans with the same commercial lender which were also
refinanced.
In connection with the MEDIQ Stock Repurchase, the Company obtained senior
financing in the aggregate principal amount of $60,000,000 (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 had 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 $17,300,000 revolving credit facility (the "Revolving Credit
Facility"), and (v) a $8,100,000 letter of credit to support the Company's
Industrial Development Bonds (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 September 27, 1997,
$19,250,000 was outstanding under Term Loan A, $9,085,000 was outstanding under
Term Loan B and $12,790,000 was outstanding under the Revolving Credit Facility,
with interest rates of 8.27%, 9.5% and 9.5% ,respectively.
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
"Senior 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, 2003 and bear interest at 11.5%.
Interest on the Senior Subordinated Notes is payable quarterly in arrears,
commencing on the first calendar quarter of calendar 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 (representing
approximately 4.5% (on a fully diluted basis) of the total outstanding common
stock as of December 31, 1996) at $9.00 per share, subject to certain
adjustments to prevent dilution, exercisable for a ten year period beginning
with the date of issue.
In connection with the acquisition of certain of the assets of the first aid
business of American White Cross, the Company amended its Senior Debt agreement
to provide for an increase in the Senior Secured Credit Facility consisting of
a $30,000,000 term loan (the "Additional Term Loan A"), (ii) a $27,000,000 term
loan (the "Additional Term Loan B" and, together with Term Loan A, the
"Additional Term Loans") and (iii) a $25,000,000 revolving credit facility (the
"Additional Revolving Credit Facility").
As of September 27, 1997, $10,000,000 was outstanding under the Additional Term
Loan A, $12,000,000 under the Additional Term Loan B and $4,243,000 under the
Additional Revolving Credit Facility with interest rates of 8.75%, 10% and 9.5%,
respectively.
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 earnings before interest, taxes,
depreciation and amortization (" EBITDA"), operating cash flow, interest
coverage, capital expenditures and prevent the payment of dividends.
On May 3, 1996, the Company completed a $4,300,000 IDB financing. Proceeds from
the financing were used to reduce the outstanding balance under the Company's
revolving credit facility which was used to fund the Oral Care acquisition and
for the capital expenditures made and scheduled to be made over the next twelve
months for the Oral Care operation. As of September 28, 1996 $2,728,000 of the
proceeds of the IDB financing had been used to repay a portion of the Company's
outstanding balance under it's existing revolving credit facility and to pay for
equipment purchases. In 1997 $1,735,000 of the proceeds plus interest of the
IDB financing were used for equipment purchases. The variable interest rate on
the bond as of September 27, 1997 and September 28, 1996 was 3.65% and 3.85% ,
respectively and interest is payable monthly. Principal payments are funded
monthly and are payable annually at $400,000 per year through May 1, 2003,
$200,000 due May 1, 2004 and $100,000 per year thereafter through May 1, 2016.
The IDB is supported by a letter of credit that contains certain financial
covenants with respect to minimum quarterly net earnings, tangible net worth,
indebtedness to net worth ratios and cash flows. The IDB contains certain
restrictions including limiting capital expenditures made for the Oral Care
operation to $10,000,000 over a period of three years.
On June 7, 1996, the Company completed a second IDB financing for $3,500,000 for
the purpose of funding the expansion of the Powers Pharmaceutical manufacturing
facility and the purchase of additional manufacturing equipment at the facility.
As of September 28, 1996 $447,000 of the proceeds of the bond had been used to
pay for equipment purchases. In 1997, $3,095,000 of the proceeds plus interest
was used for equipment purposes and building expansion. The variable interest
rate on the bond as of September 27, 1997 and September 28, 1996 was 3.65% and
3.85%, and interest is payable monthly. Principal payments are funded monthly
and are payable annually beginning at $400,000 per year, through May 1, 2001 and
$100,000 per year thereafter through May 1, 2016. The IDB is supported by a
letter of credit
8
<PAGE>
with State Street Bank and Trust Company that contains certain financial
covenants with respect to minimum quarterly net earnings, tangible net worth,
indebtedness to net worth ratios and cash flows. The IDB contains certain
restrictions including limiting capital expenditures made for the Powers
Pharmaceutical operations to $10,000,000 over a three year period.
The Company has an additional mortgage which bears interest at 8.5% and is
payable in monthly installments of $7,000 including interest, with a final
payment of approximately $641,000 due December 31, 1997.
The Company believes that its existing working capital, anticipated funds to be
generated from future operations and funds available under the Senior and
Subordinated Debt Financing will be sufficient to meet all of the Company's
operating and capital needs through fiscal 1998. However, depending upon future
growth of the business, additional financing may be required.
PURCHASE OF AMERICAN WHITE CROSS, INC. AND WEAVER MANUFACTURING CORPORATION
On September 11, 1997, the Company purchased certain assets and assumed certain
liabilities related to the first aid business of American White Cross, Inc. and
Weaver Manufacturing Corporation ("American White Cross") for $37,170,000 in
cash plus transaction related expenses of approximately $700,000. The
transaction was accounted for using the purchase method of accounting and the
results of operations of the acquired entity for the period September 12, 1997
through September 27, 1997 are included in the consolidated financial statements
of the Company (see footnote B to the consolidated financial statements).
In addition to the increased Senior Debt Financing, the Company, pursuant to the
Stock Purchase Agreement by and between NutraMax Products, Inc. and Cape Ann
Investors, L.L.C., dated August 12, 1997, (the "Stock Purchase Agreement'), sold
846,154 shares of its stock at $13.00 per share yielding $11,000,000 of total
proceeds used in conjunction with the additional Senior Debt proceeds to finance
the transaction.
RECENT DEVELOPMENTS
The Company has conducted a 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. The impact of the Year 2000 on the Company's
customers and vendors is not yet known.
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 ("the Shares") 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 stockholders who wished to sell their shares as a result of
the Company's fourth quarter 1997 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 by the Company of Shares as follows: (i) to Cape Ann
Investors, L.L.C. ("Cape Ann"), the Company's largest stockholder, pursuant to
an agreement dated as of October 14, 1997, as amended on October 16, 1997 by and
between the Company and Cape Ann; (193,104 shares), (ii) to Bernard J. Korman
("Mr. Korman"), the Company's Chairman of the Board, pursuant to an agreement
dated as of October 14, 1997 by and between the Company and Mr. Korman; (50,134
shares), (iii) to Donald E. Lepone ("Mr. Lepone"), the Company's Chief Executive
Officer, pursuant to an Agreement dated as of October 14, 1997 by and between
the Company and Mr. Lepone; (5,013 shares) and (iv) to Donald M. Gleklen ("Mr.
Gleklen"), a member of the Board of Directors of the Company, pursuant to an
agreement dated as of October 16, 1997 by and between the Company and Mr.
Gleklen; (2,507 shares).
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.
Effective September 29, 1996, the Company adopted, prospectively, Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of." SFAS No. 121
requires that long-lived assets be reviewed for impairment whenever
circumstances indicate that the carrying value of an asset may not be
recoverable. The adoption of SFAS No. 121 did not have a significant effect on
the Company's consolidated financial position or results of operations for the
year ended September 27, 1997.
Effective September 29, 1996, the Company adopted SFAS No. 123, "Accounting For
Stock-Based Compensation." As permitted by SFAS No. 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. As required under SFAS No. 123, for stock option grants to non-
employees, the Company calculates compensation expense using a fair value based
method and amortizes compensation expense over the vesting period.
In March 1997, the Financial Accounting Standards Board ("FASB") released SFAS
No. 128, "Earnings per Share," which will be effective for the first quarter of
fiscal 1998. SFAS No. 128 will require the Company to restate amounts
9
<PAGE>
previously reported as earnings per share to comply with the requirements of the
new standard; while the Company is in process of evaluating the impact of SFAS
No. 128, it does not expect that adoption will have a dilutive effect on
previously reported earnings per share.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which will be effective for the Company
beginning in fiscal 1999. SFAS No. 131 redefines how operating segments are
determined and requires disclosure of certain financial and descriptive
information about a company's operating segments. The Company anticipates with
the adoption of SFAS No. 131, it will expand its segment disclosures to include
separate segments. The Company has not yet completed its analysis of which
operating segments it will report on.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Section 21E of the Exchange Act.
Although the Company believes its expectations are based upon reasonable
assumptions within the bounds of its knowledge of its business operations, there
can be no assurance that actual results will not differ materially from those
set fourth in the forward-looking statements. Certain factors that might cause
such a difference include the following: the timing of new products introduced
by the Company, the timing of orders received from customers, the gain or loss
of significant customers, changes in the products sold, competition from 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 reports filed by the Company with the
Securities and Exchange Commission.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report 12
Consolidated Statements of Operations - Three Fiscal Years Ended September 27, 1997 13
Consolidated Balance Sheets - September 27, 1997 and September 28, 1996 14
Consolidated Statements of Stockholders' Equity - Three Fiscal Years Ended September 27, 1997 15
Consolidated Statements of Cash Flows - Three Fiscal Years Ended September 27, 1997 16
Notes to Consolidated Financial Statements 17-26
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable
10
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Election of Directors" in the
Company's Proxy Statement relating to the 1997 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is incorporated by reference from the
discussion responsive thereto under the following captions in the Company's
Proxy Statement relating to the 1997 Annual Meeting of Shareholders:
"Election of Directors" and "Executive Compensation"
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this items is incorporated by reference from the
discussion responsive thereto under the caption "Principal Shareholders" in the
Company's Proxy Statement relating to the 1997 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is incorporated by reference from the
discussion responsive thereto under the caption "Certain Transactions" in the
Company's Proxy Statement relating to the 1997 Annual Meeting of Shareholders.
11
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
NutraMax Products, Inc.
Gloucester, Massachusetts
We have audited the accompanying consolidated balance sheets of NutraMax
Products, Inc. and subsidiaries (the "Company") as of September 27, 1997 and
September 28, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three fiscal years in the
period ended September 27, 1997. Our audits also included the financial
statement schedule listed in Item 14 (a) (2). These financial statements and
the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of NutraMax Products, Inc. and
subsidiaries as of September 27, 1997 and September 28, 1996, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended September 27, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note P, the Company repurchased 250,668 shares of its common
stock in a Dutch Auction self tender on November 28, 1997.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 21, 1997 (November 28, 1997 as to Note P)
12
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES . CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------
Sept. 27, Sept. 28, Sept. 30,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
(in thousands, except per share data)
Net Sales $94,331 $ 80,479 $ 63,111
Cost of Sales 71,728 57,686 45,916
----------- ----------- -----------
Gross Profit 22,603 22,793 17,195
Selling, General and
Administrative Expenses 13,947 11,662 8,694
----------- ----------- -----------
Operating Income 8,656 11,131 8,501
Other Income (expense):
Interest expense (5,042) (1,479) (1,427)
Interest income 282 95 13
Other (98) (384) 303
----------- ----------- -----------
Income Before Income Tax
Expense 3,798 9,363 7,390
Income Tax Expense 1,536 3,680 2,916
----------- ----------- -----------
Net Income $ 2,262 $ 5,683 $ 4,474
=========== =========== ===========
Earnings Per Share:
Primary $.38 $.67 $.53
Fully Diluted .37 .66 .52
=========== =========== ===========
Weighted Average Shares
Outstanding:
Primary 5,955 8,531 8,520
Fully Diluted 6,131 8,563 8,620
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES . CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 27, September 28,
1997 1996
------------- -------------
(in thousands, except share data)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 243 $ 294
Accounts receivable, less allowance for doubtful
accounts of $605 in 1997 and $709 in 1996 19,618 12,848
Inventories 36,135 18,321
Deferred income taxes 823 801
Escrow receivable (see Note B) 2,876 --
Prepaid expenses and other 655 618
-------- -------
Total Current Assets 60,350 32,882
Property, Plant and Equipment, net 44,456 29,207
Restricted Cash 316 4,742
Goodwill, net of accumulated amortization of $3,672
in 1997 and $3,172 in 1996 22,934 13,415
Other Assets 4,703 2,632
--------- --------
$132,759 $ 82,878
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 13,427 7,265
Accrued payroll and related taxes 936 666
Accrued interest expense 1,325 227
Accrued expenses - other 1,709 735
Current maturities of long-term debt 4,351 14,498
-------- --------
Total Current Liabilities 21,748 23,391
Long-Term Debt, less current maturities 85,542 11,780
Other Long-Term Liabilities 106 286
Deferred Income Taxes 1,884 1,604
Stockholders' Equity:
Common stock - $.001 par value:
Authorized - 20,000,000 shares
Issued: 6,277,000 in 1997
and 8,658,000 shares 1996 6 9
Additional paid-in capital 5,069 23,468
Retained earnings 24,602 22,340
--------- --------
Total 29,677 45,817
--------- --------
Less: Treasury stock, at cost, 657,000 shares at
September 27, 1997 (6,198) __
--------- --------
Total Stockholders' Equity 23,479 45,817
--------- --------
$132,759 $ 82,878
========= ========
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES . CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (In thousands)
<TABLE>
<CAPTION>
Common Stock
--------------- Treasury Stock
Shares Additional Retained ---------------
Outstanding Amount Paid-In Capital Earnings Shares Amount Total
----------- ------- ---------------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 1, 1994 8,520 $ 9 $22,565 $12,183 ---- $ ---- $ 34,757
Exercise of stock options (1) ---- ---- 2 ---- ---- ---- 2
Net income ---- ---- ---- 4,474 ---- ---- 4,474
------ ------ ------- -------- -------- ------- --------
BALANCE AT SEPTEMBER 30, 1995 8,520 9 22,567 16,657 ---- ---- 39,233
Exercise of stock options 150 ---- 790 ---- ---- ---- 790
Tax benefit of options exercised ---- ---- 220 ---- ---- ---- 220
Stock redeemed (12) ---- (109) ---- ---- ---- (109)
Net income ---- ---- ---- 5,683 ---- ---- 5,683
------ ------ ------- -------- -------- ------- --------
BALANCE AT SEPTEMBER 28, 1996 8,658 9 23,468 22,340 ---- ---- 45,817
Exercise of stock options 153 ---- 1,090 ---- ---- ---- 1,090
Tax benefit of options exercised ---- ---- 304 ---- ---- ---- 304
Issuance of warrants (2) ---- ---- 1,094 ---- ---- ---- 1,094
Issuance of Stock -
Acquisition (3) 846 1 10,999 ---- ---- ---- 11,000
Repurchase of stock -
MEDIQ repurchase (4) (4,037) (4) (31,886) ---- (657) (6,198) (38,088)
Net income ---- ---- ---- 2,262 ---- ---- 2,262
------ ------ ------- -------- -------- ------- --------
BALANCE AT SEPTEMBER 27, 1997 5,620 $ 6 $ 5,069 $24,602 (657) $(6,198) $ 23,479
====== ====== ======= ======== ======== ======= ========
</TABLE>
(1) 180 stock options were exercised in 1995
(2) See Note F to the consolidated financial statements
(3) See Note B to the consolidated financial statements
(4) See Note M to the consolidated financial statements
See notes to consolidated financial statements.
15
<PAGE>
NUTRAMAX PRODUCTS, INC., AND SUBSIDIARIES . CONSOLIDATED STATEMENTS OF CASH
FLOWS
<TABLE>
<CAPTION>
Year Ended
-----------------------------------
Sept. 27, Sept. 28, Sept. 30,
1997 1996 1995
----------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,262 $ 5,683 $ 4,474
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,063 4,437 3,857
Deferred taxes 258 228 732
Other 9 (132) (227)
Increase (decrease), net of effect of acquisitions:
Accounts receivable (319) (2,016) (838)
Inventories (6,529) (4,480) (1,259)
Prepaid expenses and other (37) (88) 379
Accounts payable 3,032 872 1,326
Accrued payroll and related taxes 271 169 (242)
Accrued expenses - other 1,275 35 (386)
Income taxes (803) 16 (211)
-------- -------- -------
Net cash provided by operating activities 4,482 4,724 7,605
Cash Flows from Investing Activities:
Acquisition of American White Cross, Inc. and
Weaver Manufacturing, Inc. net of cash acquired (37,403) ---- ----
Acquisition of Oral Care, net of cash acquired ---- (2,230) ----
Acquisition of feminine hygiene assets ---- (2,367) ----
Purchases of property, plant and equipment (9,109) (6,130) (3,937)
Restricted cash 4,426 (4,742) ----
Deferred packaging costs ---- (860) (527)
Other 212 20 158
-------- -------- -------
Net cash used in investing activities (41,874) (16,309) (4,306)
Cash Flows from Financing Activities:
Borrowings 74,615 13,733 ----
Sale of common stock 11,000 ---- ----
Proceeds from exercise of stock options 1,090 257 2
Debt repayments (26,428) (1,908) (3,174)
Stock repurchase (21,716) ---- ----
Deferred financing costs (958) (679) ----
Other (262) (27) ----
-------- -------- -------
Net cash provided by (used in) financing activities 37,341 11,376 (3,172)
-------- -------- -------
Net Increase (Decrease) in Cash (51) (209) 127
Cash:
Beginning of year 294 503 376
-------- -------- -------
End of year $ 243 $ 294 $ 503
======== ======== =======
Supplemental Disclosure of Cash Flow Information:
Income taxes paid $ 1,845 $ 3,487 $ 2,384
-------- -------- -------
Interest paid $ 3,807 $ 1,310 $ 1,297
-------- -------- -------
Supplemental Disclosure of Non-Cash Financing and
Investing Activities:
Issuance of note for stock repurchase $ 16,372 $ ---- $ ----
-------- -------- -------
Issuance of warrants $ 944 $ ---- $ ----
-------- -------- -------
Exercise of stock options paid for in October 1996 $ ---- $ 644 $ ----
-------- -------- -------
Redemptions in connection with exercise of stock options $ ---- $ 109 $ ----
-------- -------- -------
Equipment financed with
capital lease obligations $ ---- $ ---- $ ----
-------- -------- -------
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
NUTRAMAX PRODUCTS, INC., AND SUBSIDIARIES . NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - NutraMax Products, Inc. is a manufacturer and marketer of private
label health and personal care products.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of NutraMax Products, Inc. and its subsidiaries (the "Company"). In
consolidation, all significant intercompany transactions and balances have been
eliminated.
NEW ACCOUNTING PRONOUNCEMENTS - Effective September 29, 1996, the Company
adopted, prospectively, Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets be
reviewed for impairment whenever circumstances indicate that the carrying value
of an asset may not be recoverable. The adoption of SFAS No. 121 did not have a
significant effect on the Company's consolidated financial position or results
of operations for the year ended September 27, 1997.
Effective September 29, 1996, the Company adopted SFAS No. 123, "Accounting For
Stock-Based Compensation." As permitted by SFAS No. 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". As required under SFAS No. 123, for stock option grants to non-
employees, the Company calculates compensation expense using a fair value based
method and amortizes compensation expense over the vesting period.
In February 1997, the Financial Accounting Standards Board ("FASB") released
SFAS No. 128, "Earnings per share," which will be effective for the first
quarter of fiscal 1998. SFAS No. 128 will require the Company to restate amounts
previously reported as earnings per share to comply with the requirements of the
new standard; while the Company is in the process of evaluating the impact of
SFAS No. 128, it does not expect that adoption will have a dilutive effect on
previously reported earnings per share.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which will be effective for the Company
beginning fiscal 1999. SFAS No. 131 redefines how operating segments are
determined and requires disclosure of certain financial and descriptive
information about a company's operating segments. The Company anticipates with
the adoption of SFAS No. 131, it will expand its segment disclosures to include
separate segments. The Company has not yet completed its analysis of which
operating segments it will report on.
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out
method) or market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost. The Company's policy of providing for depreciation and amortization is as
follows:
Buildings 20 years on a straight-line basis
Liquid packaging machines 32,000 to 48,000 machine hours which
approximate a five to eight and
one-half year life
Machinery, equipment, molds 5 to 10 years on a straight-line basis
and furniture and fixtures
Leasehold improvements The terms of the related lease
on a straight-line basis
Vehicles 3 to 5 years on a straight-line basis
GOODWILL - The purchase price in excess of net assets acquired is amortized on a
straight-line basis over periods from twenty-five to forty years. The Company
evaluates the carrying value of goodwill based upon current and anticipated net
income and undiscounted cash flows, and recognizes any impairment when it is
probable that such estimated future net income and/or cash flows will be less
than the carrying value of goodwill. Measurement of the amount of impairment,
if any, is based upon the difference between carrying value and fair value.
OTHER ASSETS - Other assets include intangible and deferred financing assets
which are amortized on a straight-line basis over the estimated periods of
related benefit, ranging from three to twenty years. Accumulated amortization
was $340,000 and $398,000 as of September 27, 1997 and September 28, 1996,
respectively. Other assets also include external costs deferred in connection
with tools, dies and the design of packaging materials for the Company's
products which are amortized on a straight-line basis over four years.
INCOME TAXES - The Company and its subsidiaries file a consolidated federal
income tax return. Deferred taxes are provided for certain income and expense
items which are accounted for differently for financial reporting and income tax
purposes.
17
<PAGE>
EARNINGS PER SHARE - Primary earnings per share computations are based upon the
weighted average number of common and common equivalent shares outstanding
during the year. Fully diluted earnings per share assumes that all contingent
issuances of common stock that would individually have reduced earnings per
share had taken place at the beginning the year (or time of issuance of the
convertible security if later.).
USE OF ESTIMATES - In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amount of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS - The current values of cash, accounts receivable,
accounts payable, long-term debt and borrowings under revolving credit
facilities approximate fair value.
RECLASSIFICATION OF ACCOUNTS - Certain reclassifications have been made to
conform prior years' balances to the current year presentation.
NOTE B - ACQUISITIONS
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 ("American White Cross"). The business is
engaged in the manufacture and distribution of adhesive bandages and related
products. The acquisition was accounted for using the purchase method of
accounting. A preliminary allocation of purchase price has been made to the
assets acquired, principally inventory, accounts receivable and fixed assets,
and the liabilities assumed based on their estimated fair values at the date of
acquisition. Approximately $10,000,000 representing a preliminary allocation of
purchase price over the estimated fair value of net assets acquired has been
recorded as goodwill and will be amortized over a 25 year period. The Company
is in the process of obtaining appraisals on certain of the assets acquired.
The excess of purchase price over estimated fair value may be adjusted based on
the results of such appraisals.
The Company paid in cash at closing $37,170,000 plus $233,000 of an estimated
$700,000 of transaction related costs for the acquisition. Of this amount
$4,625,000 was placed into escrow pending the finalization of the purchase price
adjustment, the collection of a $1,125,000 escrow receivable from Megas Beauty
Care Inc. and the settlement of environmental and other matters. Subsequent to
the close the purchase price was adjusted by $1,751,000 and that amount was
released from escrow and refunded to the Company. The $1,125,000 and $1,751,000
have been recorded as escrow receivables on the consolidated balance sheet as of
September 27, 1997. The purchase was financed by additional term loan and
revolving credit facility borrowings totaling $24,419,000 as well as a private
placement sale of 846,154 shares of the Company's common stock at $13.00 per
share. At September 27, 1997, the Company had approximately $2,876,000 in escrow
receivables relating to the American White Cross Acquisition.
The results of operations of the first aid business from September 11, 1997
through September 27, 1997 are included in the 1997 consolidated financial
statements. Net sales for this period totaled $1,443,000 representing
approximately 2% of fiscal 1997 sales. The following unaudited pro forma
summary presents the consolidated results of operations as if the acquisition
had occurred at the beginning of the periods presented after giving effect to
certain adjustments, including amortization of goodwill and interest expense on
the acquisition debt. These unaudited pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had the acquisition been made as of October 1, 1995 or of results which
may occur in the future.
<TABLE>
<CAPTION>
Year Ended
------------------------
Sept. 27, Sept. 28,
1997 1996
In thousands, except per share data: (unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Net sales $ 136,000 $ 129,000
========== ==========
Net income $ 3,549 $ 7,899
========== ==========
Earnings Per Share:
Primary $ .60 $ .93
========== ==========
Fully diluted $ .58 $ .92
========== ==========
Weighted average shares outstanding:
Primary 5,955 8,531
========== ==========
Fully diluted 6,131 8,563
========== ==========
</TABLE>
On February 29, 1996, the company purchased certain of the assets, including
machinery and inventory, of the Hospital Specialty Company Division of the
Tranzonic Companies related to the manufacture and sale of feminine hygiene
products. The purchase price consisted of $2,367,000 in cash which was financed
with long term debt (see Note F).
Effective October 23, 1995, the Company acquired substantially all of the assets
and assumed certain liabilities of Mi-Lor Corporation, Professional Brushes,
Inc. and Codent Dental Products, Inc. ("Oral Care") which manufacture and market
toothbrushes, dental floss and related products for store brand markets. The
purchase price consisted of $1,800,000 in cash and liabilities assumed of
$363,000, and the transaction resulted in related expenses of approximately
$681,000. The purchase price was not material to the Company's consolidated
financial statements. The transaction was accounted for by the purchase method
of accounting.
18
<PAGE>
NOTE C - RESTRICTED CASH
In connection with the proceeds received from two Massachusetts Industrial
Finance Agency Variable Rate Industrial Development Bonds (collectively, the
"IDB") (see Note F), no unused proceeds remained as of September 27, 1997 and a
total of $4,742,000 of unused proceeds remained as invested cash as of September
28, 1996. Of this total, $1,448,000 was restricted for capital expenditures at
the Oral Care Facility in Florence, Massachusetts and $3,302,000 was restricted
for capital expenditures at the Powers Pharmaceutical facility in Brockton,
Massachusetts. The IDB's restrict the investment vehicles available for the
excess cash. As of September 28, 1996 the $4,742,000 was invested in a Treasury
Money Market at a yield of 4.8%. As of September 27, 1997 a total of $316,000
has been paid to the trustee related to monthly payments held for the annual
principal payment to bond holders. These funds are invested in the Treasury
Money Market at a current yield of 5.2%. These funds are also included in the
restricted cash balance.
<TABLE>
<CAPTION>
NOTE D - INVENTORIES Sept. 27, Sept. 28,
1997 1996
------------- -------------
<S> <C> <C>
Raw Materials $ 15,921,000 $ 8,811,000
Finished Goods 16,223,000 8,186,000
Work in process 1,953,000 292,000
Machinery parts, factory supplies 2,038,000 1,032,000
------------ ------------
Total $ 36,135,000 $ 18,321,000
============ ============
<CAPTION>
NOTE E - PROPERTY, PLANT AND EQUIPMENT
Sept. 27, Sept. 28,
1997 1996
------------ ------------
<S> <C> <C>
Machinery and equipment $ 43,322,000 $ 28,595,000
Land, buildings and improvements 11,897,000 9,258,000
Molds 3,537,000 2,807,000
Furniture and fixtures 2,751,000 2,006,000
Vehicles 182,000 60,000
------------ ------------
$ 61,689,000 $ 42,726,000
Less: Accumulated depreciation and
amortization (17,233,000) (13,519,000)
------------ ------------
$ 44,456,000 $ 29,207,000
============ ============
</TABLE>
Depreciation and amortization expense for property, plant and equipment for
1997, 1996 and 1995 was $3,714,000, $3,180,000 and, $2,725,000 respectively.
19
<PAGE>
NOTE F - LONG TERM DEBT
<TABLE>
<CAPTION>
Sept. 27, Sept. 28,
1997 1996
----------- ------------
<S> <C> <C>
Revolving credit facility $17,033,000 $ 8,784,000
Industrial Development Bonds 6,900,000 7,700,000
Term loans 50,335,000 8,218,000
Subordinated debt 9,056,000 ----
MEDIQ note (see Note M) 5,915,000 ----
Mortgages 641,000 1,554,000
Capital lease obligation 13,000 22,000
----------- ------------
$89,893,000 $ 26,278,000
Less: Current maturities of
long-term debt 4,351,000 14,498,000
----------- -----------
$85,542,000 $11,780,000
=========== ===========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Fiscal Year
1998 $ 4,351,000
1999 6,703,000
2000 7,950,000
2001 8,700,000
2002 23,233,000
Thereafter 38,956,000
-----------
$89,893,000
===========
</TABLE>
The Company's former revolving credit facility expired on December 31, 1996 and
was refinanced in connection with the MEDIQ Stock Repurchase (see Note M). In
addition, the Company had term loans with the same commercial lender which were
also refinanced.
In connection with the MEDIQ Stock Repurchase, the Company obtained senior
financing in the aggregate principal amount of $60,000,000 (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 had 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 $17,300,000 revolving credit facility (the "Revolving Credit
Facility"), and (v) a $8,100,000 letter of credit to support the Company's
Industrial Development Bonds (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 September 27, 1997,
$19,250,000 was outstanding under Term Loan A, $9,085,000 was outstanding under
Term Loan B and $12,790,000 was outstanding under the Revolving Credit Facility,
with interest rates of 8.27%, 9.5% and 9.5% ,respectively.
In connection with the acquisition of certain of the assets of the first aid
business of American White Cross, the Company amended its Senior Debt agreement
to provide for an increase in the Senior Secured Credit Facility consisting of
(i) a $30,000,000 term loan (the "Additional Term Loan A"), (ii) a $27,000,000
term loan (the "Additional Term Loan B" and, together with Term Loan A, the
"Additional Term Loans") and (iii) a $25,000,000 revolving credit facility (the
"Additional Revolving Credit Facility").
As of September 27, 1997, $10,000,000 was outstanding under the Additional Term
Loan A, $12,000,000 under the Additional Term Loan B and $4,243,000 under the
Additional Revolving Credit Facility with interest rates of 8.75%, 10% and 9.5%,
respectively.
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, 2003 and bear interest at 11.5%. Interest on the
Senior Subordinated Notes is payable quarterly in arrears, commencing on the
first calendar quarter of calendar 1997. In connection with the
20
<PAGE>
Subordinated Debt Financing, the Company issued to the Subordinated lender
warrants to purchase 273,419 shares of common stock of the Company (representing
approximately 4.5% (on a fully diluted basis) of the total outstanding common
stock as of December 31, 1996) at $9.00 per share, subject to certain
adjustments to prevent dilution exercisable at date of issue for a period of ten
years.
The Company is required to pay an agent's fee of $10,000 per annum and a
commitment fee payable quarterly at a rate of .375% per annum on the average
daily unused portion of the Revolving Credit Facility and Term Loan B during the
period for which the ratio (the "Funded Debt Ratio") of the Company's total
funded debt to earnings before interest, taxes, depreciation and amortization
("EBITDA") is less than 3.5, and at a rate of .50% per annum if the Funded Debt
Ratio is greater than or equal to 3.5.
In addition, the Company pays fees on the Letter of Credit quarterly in arrears
at a per annum rate equal to 1.75% to 2.50% (depending on the Funded Debt Ratio)
times the maximum amount to be drawn under the applicable Letter of Credit.
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, capital expenditures and prevent the payment of dividends.
On May 3, 1996, the Company completed a $4,300,000 IDB financing. Proceeds from
the financing were used to reduce the outstanding balance under the Company's
revolving credit facility which was used to fund the Oral Care acquisition and
for the capital expenditures made and scheduled to be made over the next twelve
months for the Oral Care operation. As of September 28, 1996 $2,728,000 of the
proceeds of the IDB financing had been used to repay a portion of the Company's
outstanding balance under it's existing revolving credit facility and to pay for
equipment purchases. In 1997 $1,735,000 of the proceeds plus interest of the
IDB financing were used for equipment purchases. The variable interest rate on
the bond as of September 27, 1997 and September 28, 1996 was 3.65% and 3.85% ,
respectively and interest is payable monthly. Principal payments are funded
monthly and are payable annually at $400,000 per year through May 1, 2003,
$200,000 due May 1, 2004 and $100,000 per year thereafter through May 1, 2016.
The IDB is supported by a letter of credit with BankBoston that contains certain
financial covenants with respect to minimum quarterly net earnings, tangible net
worth, indebtedness to net worth ratios and cash flows. The IDB contains
certain restrictions including limiting capital expenditures made for the Oral
Care operation to $10,000,000 over a period of three years.
On June 7, 1996, the Company completed a second IDB financing for $3,500,000 for
the purpose of funding the expansion of the Powers Pharmaceutical manufacturing
facility and the purchase of additional manufacturing equipment at the facility.
As of September 28, 1996 $447,000 of the proceeds of the bond had been used to
pay for equipment purchases. In 1997, $3,095,000 of the proceeds plus interest
was used for equipment purposes and building expansion. The variable interest
rate on the bond as of September 27, 1997 and September 28, 1996 was 3.65% and
3.85% ,and interest is payable monthly. Principal payments are funded monthly
and are payable annually beginning at $400,000 per year, through May 1, 2001 and
$100,000 per year thereafter through May 1, 2016. The IDB is supported by a
letter of credit with State Street Bank and Trust Company that contains certain
financial covenants with respect to minimum quarterly net earnings, tangible net
worth, indebtedness to net worth ratios and cash flows. The IDB contains
certain restrictions including limiting capital expenditures made for the Powers
Pharmaceutical operations to $10,000,000 over a three year period.
The Company has an additional mortgage which bears interest at 8.5% and is
payable in monthly installments of $7,000 including interest, with a final
payment of approximately $641,000 due December 31, 1997.
21
<PAGE>
NOTE G - 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. Future minimum
payments under noncancelable operating and capital leases are as follows:
<TABLE>
<CAPTION>
Operating Capital
Fiscal Year Leases Leases
--------- ---------
<S> <C> <C>
1998 $ 1,077,000 $10,000
1999 1,119,000 3,000
2000 1,162,000
2001 1,208,000 ----
2002 1,257,000
Thereafter 14,986,000
---------- -------
Total minimum lease payments $20,809,000 $13,000
==========
Amount representing interest 1,000
--------
Present value of minimum lease
payments $12,000
-------
</TABLE>
Rental expense for operating leases was $698,000, $462,000 and $387,000
for 1997, 1996 and 1995 respectively.
NOTE H - INCOME TAXES
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
Year Ended
----------------------------------
Sept. 27, Sept. 28, Sept. 30,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 629,000 $2,621,000 $1,769,000
State 324,000 507,000 415,000
---------- ---------- ----------
953,000 3,128,000 2,184,000
Deferred:
Federal 391,000 537,000 696,000
State 8,000 15,000 36,000
---------- ---------- ----------
399,000 552,000 732,000
Tax benefit from
exercise of options:
Federal 143,000 --- ---
State 41,000 --- ---
---------- ---------- ----------
184,000 --- ---
---------- ---------- ----------
$1,536,000 $3,680,000 $2,916,000
========== ========== ==========
</TABLE>
The difference between the Company's income tax and the statutory federal tax is
reconciled below:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------
Sept. 27, Sept. 28, Sept. 30,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal tax $1,291,000 $3,183,000 $2,513,000
Nondeductible goodwill amortization 69,000 189,000 189,000
State tax, net of federal benefit 219,000 345,000 298,000
Other (43,000) (37,000) (84,000)
---------- ---------- ----------
Income tax expense $1,536,000 $3,680,000 $2,916,000
========== ========== ==========
</TABLE>
As of September 27, 1997, the Company had Federal net operating loss
carryforwards of $1,052,000 which are available to offset future taxable
income. The Company also has Federal and State tax credit carryforwards of
$354,000. Utilization of the operating loss carryforwards, which expire in
fiscal years 1998 to 2007, is limited to $1,049,000 annually.
22
<PAGE>
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
Sept. 27, Sept. 28,
1997 1996
---------- ----------
<S> <C> <C>
Assets:
Net operating loss carryforwards $ 480,000 $ 590,000
Allowance for bad debts 243,000 259,000
Inventory 226,000 361,000
Investment tax credit 354,000 318,000
Benefit of stock options exercised 304,000 220,000
Other 237,000 311,000
---------- ----------
1,844,000 2,059,000
Valuation allowance ---- ----
---------- ----------
Deferred tax assets $1,844,000 $2,059,000
Liabilities:
Depreciation and amortization 2,767,000 2,797,000
Other 138,000 65,000
---------- ----------
Deferred tax liabilities 2,905,000 2,862,000
---------- ----------
Net deferred tax liability $1,061,000 $ 803,000
========== ==========
</TABLE>
NOTE I - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) savings plan, covering substantially all employees.
The plan is subject to certain minimum age and length of employment
requirements. Under the plan, the Company matches 50% of each participant's
eligible contributions for the plan year, subject to certain limitations. In
addition, the Company has a profit sharing plan; the Company's contributions to
the plan are discretionary. Contributions of $252,000, $171,000 and $145,000
were made to the plans in 1997, 1996 and 1995, respectively.
NOTE J - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for fiscal years 1997 and 1996 is as follows:
1997
- ----
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $22,035,000 $25,178,000 $23,006,000 $24,112,000
Gross Profit 6,051,000 6,537,000 6,022,000 3,993,000
Net income (loss) 1,540,000 1,003,000 763,000 (1,044,000)
Earnings (loss) per share $ .18 $ .21 $ .16 $ (.21)
Weighted average shares outstanding 8,714,000 4,845,000 4,908,000 4,914,000
</TABLE>
1996
- ----
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $18,148,000 $19,824,000 $20,071,000 $22,436,000
Gross profit 5,577,000 5,545,000 5,598,000 6,073,000
Net income 1,330,000 1,362,000 1,279,000 1,712,000
Earnings per share $ .16 $ .16 $ .15 $ .20
Weighted average shares outstanding 8,520,000 8,521,000 8,523,000 8,560,000
</TABLE>
23
<PAGE>
NOTE K - RELATED PARTY TRANSACTIONS
SERVICES AGREEMENT - Through December 31, 1995, the Company obtained certain
legal, accounting, tax, insurance and human resource services from MEDIQ
Incorporated ("MEDIQ"), the owner at that time (see Note M) of approximately 47%
of the outstanding common stock of the Company. Subsequent to December 31, 1995
the Company received only certain tax and insurance services from MEDIQ. Costs
for such services were $51,000, $85,000 and $100,000 in fiscal 1997, 1996 and
1995, respectively. The Company believes that MEDIQ's charges for such services
are on terms no less favorable to the Company than those that could be obtained
from unaffiliated third parties for comparable services. Such services ceased to
be effective on September 30, 1997.
INSURANCE - The Company obtained certain insurance coverages through programs
administered by MEDIQ. Insurance expense under these programs was $42,000 and
$409,000 for fiscal years 1996 and 1995. In 1997, the Company did not obtain
insurance coverage through MEDIQ.
NOTE L - STOCKHOLDERS' EQUITY
The Company maintains a Stock Option Plan which includes an Incentive Stock
Option Program and a Non-Qualified Stock Option Program. Incentive stock
options may be granted to key employees, including the Company's officers, at
the discretion of the Stock Option Plan Committee, until termination of the
Plan. Non-qualified stock options may be granted to employees, employee
directors, advisors and independent consultants at the discretion of the
Committee. No options may be granted under the programs for a term in excess of
five years from the date of grant.
A summary of stock option activity under the Plan is as follows:
<TABLE>
<CAPTION>
Weighted average
Number Exercise Price Exercise Price
of Shares Per Share Per Share
------------ -------------- ----------------
<S> <C> <C> <C>
Outstanding at October 1, 1994 845,000 $ 6.00-$12.25 $ 9.69
Granted 60,000 $ 9.38-$9.69 $ 9.45
Exercised(1) $ 6.00 $ 6.00
--------
Outstanding at September 30, 1995 905,000 $ 6.00-$12.25 $ 9.66
Granted 10,000 $ 9.875 $9.875
Exercised (150,000) $ 6.00 $ 6.00
Terminated (3,000) $ 7.50-$8.00 $ 8.40
--------
Outstanding at September 28, 1996 762,000 $ 6.00-$12.25 $10.39
Granted 298,000 $8.125-$9.875 $ 9.58
Exercised (153,000) $ 6.00-$12.25 $ 7.14
Terminated (3,000) $ 12.25 $12.25
-------- ------------- ------
Outstanding at September 27, 1997 904,000 $ 9.38-$12.25 $10.67
======== ============= ======
Exercisable at September 27,1997 271,000 $ 9.63-$12.25 $10.88
======== ============= ======
</TABLE>
(1) 180 stock options were exercised in 1995.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option and other employee stock
based compensation plans. Had compensation cost for the Company's stock option
plans been determined based on fair value at the grant dates for awards under
those plans which were granted on or after October 1, 1995 consistent with the
method of SFAS No. 123, the Company's net income and primary earnings per share
for 1997 and 1996 would have been reduced to $2,015,000 and $0.33, respectively,
in 1997 and $5,675,000 and $0.66, respectively in 1996. The proforma results are
not necessarily indicative of results that would have been reported if all
options had been measured under SFAS No.123.
The weighted average remaining contractual life of options outstanding at
September 27, 1997 was 3.5 years. The weighted average fair value of options
granted during 1996 and 1997 was $4.24 and $4.09 per share, respectively.
The fair value of options granted under the Company's stock option plans during
1996 and 1997 was estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions used: No dividend
yield, expected volatility of 38%, risk free interest rate of 6% expected life
of 3 years, and a forfeiture rate of 2%.
24
<PAGE>
NOTE M - THE STOCK PURCHASE AGREEMENT
On December 31, 1996 pursuant to the terms of an Amended and Restated Stock
Purchase Agreement (the "Stock Purchase Agreement") dated November 20, 1996
among MEDIQ Inc., 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 657,194 were held in escrow (the "MEDIQ
Escrowed Shares") as of September 27, 1997 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 balance
of the note as of September 27, 1997 was $5,915,000. The MEDIQ Note is payable
in installments as MEDIQ Escrowed 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 an amount
(the "Excess Cash Amount") equal to the product of the number of Escrowed Shares
so delivered by MEDIQ and the number which is equal to the difference between
(x) $1,000 divided by the then exchange rate of the MEDIQ Bonds as provided in
the indenture 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 stock repurchase was financed with $20,000,000 from the proceeds of the
Company's Additional Term Loan A, $9,085,000 of the Additional Term Loan B and
the balance utilizing the Company's revolving credit facility (see Note F).
NOTE N - MAJOR CUSTOMERS
Substantially all of the Company's customers are retailers. No base of
customers in one geographic area constitutes a significant portion of sales.
American Home Products, Inc. accounted for 10%, 11% and 14% of net sales in
1997, 1996 and 1995 respectively, and Walmart Stores, Inc. accounted for 11% ,
11% and 9% of net sales in 1997, 1996 and 1995 respectively.
NOTE O - 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 know claims would not have
a material adverse effect on the consolidated financial position or results of
operations of the Company.
The Company has conducted a 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. The impact of the Year 2000 on the Company's
customers and vendors is not yet known.
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 filed a pre-assessment conference request with the DOR on August 28,
1997. The Company has not received any further notice from the DOR regarding its
intent to assess or a conference date. The Company intends to vigorously defend
its tax position. Due to the uncertainties surrounding any assessments, no
accrual has been recorded in the accompanying consolidated financial statements.
NOTE P - SUBSEQUENT EVENT
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 ("the Shares") 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 stockholders who wished to sell their shares as a result of
the Company's fourth quarter 1997 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 by the Company of Shares as follows: (i) to Cape Ann
Investors, L.L.C. ("Cape Ann"), the Company's largest stockholder, pursuant to
an agreement dated as of October 14, 1997, as amended on October 16, 1997 by and
between the Company and Cape Ann; (193,014 shares) (ii) to Bernard J. Korman
("Mr. Korman"), the Company's Chairman of the Board, pursuant to an Agreement
dated as of October 14, 1997 by and between the Company and Mr. Korman; (50,134
shares) (iii) to Donald E. Lepone ("Mr. Lepone"), the Company's Chief Executive
Officer, pursuant to an Agreement dated as of October 14, 1997 by and between
the Company and Mr. Lepone; and (5,013 shares) (iv) to Donald M. Gleklen ("Mr.
Gleklen"), a member of the Board of Directors of the Company, pursuant to an
Agreement dated as of October 16, 1997 by and between the Company and Mr.
Gleklen (2,507 shares).
25
<PAGE>
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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The response to this portion of Item 14 is submitted as a separate
section of this report commencing on page 10.
(a) (2) FINANCIAL STATEMENT SCHEDULES
Schedule II Valuation and Qualifying Accounts and Reserves
Other schedules are omitted because of the absence of conditions under which
they are required.
(a) (3) AND (C) EXHIBITS (numbered in accordance with Item 601 of Regulation
S-K)
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Method of Filing
- -------------- ----------- -----------------
<S> <C> <C>
2(a) MEDIQ Stock Purchase Agreement (13)
3(a) Restated and Amended Certificate of
Incorporation (1)
3(b) Amendment, filed June 12, 1991, to the
Company's Certificate of Incorporation (1)
3(c) Amendment, filed March 5, 1992, to the
Company's Certificate of Incorporation (2)
3(d) By-Laws (1)
10(a) Employment Agreement between the Company
and Donald E. Lepone, dated November 28, 1993 (3)
10(b) Employment Agreement between the Company
and Richard Zakin, dated January 1, 1994 (3)
10(c) Employment Agreement between the Company
and Gary A. LeDuc, dated January 1, 1994 (4)
10(d) Asset Purchase Agreement dated as of July 21, 1997
(the "Asset Purchase Agreement") by and among NutraMax
Products, Inc., American White Cross, Inc. and Weaver
Manufacturing Corp. (11)
10(e) Amendment No. 1 to Asset Purchase Agreement dated as
of August 15, 1997, by and among NutraMax Products, Inc.
American White Cross, Inc. and Weaver Manufacturing Corp. (11)
10(f) Stock Purchase Agreement dated as of August 12, 1997
(the "Stock Purchase Agreement") by and between NutraMax
Products, Inc. and Cape Ann Investors, L.L.C. (11)
10(g) Amendment No. 1 to Stock Purchase Agreement dated as
of September 9, 1997 by and between NutraMax Products,
Inc. and Cape Ann Investors, L.L.C. (11)
10(h) 1988 Stock Option Plan (adopted
April 28, 1988) (5)
10(i) Amendment No. 1 to the 1988 Stock Option Plan (2)
10(j) Amendment No. 2 to the 1988 Stock Option Plan (2)
10(k) Amendment No. 3 to the 1988 Stock Option Plan (2)
10(l) Amendment No. 4 to the 1988 Stock Option Plan (3)
10(m) Tax Allocation/Sharing Agreement between
the Company and MEDIQ Incorporated, dated
July 25, 1990 (1)
10(n) Lease Agreement, dated January 1, 1987,
between The Aid-Pack Limited Partnership
and Aid-Pack, Inc. (6)
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description Method of Filing
- -------------- ----------- ----------------
<S> <C> <C>
10(o) Lease Extension Agreement, dated May 1, 1991,
between The Aid-Pack Limited Partnership
and the Company (6)
10(p) Registration Rights Agreement, dated July 1, 1991
between MEDIQW Incorporated and the Company (7)
10(q) Amendment to Registration Rights Agreement, dated July 1, 1991
among MEDIQ, MEDIQ Investment Services, Inc. and the Company (8)
10(r) Services Agreement, dated August 22, 1991
between MEDIQ Incorporated and the Company (7)
10(s) Revolving Credit and Security agreement between the Company
and State Street Bank and Trust Company (8)
10(t) Revolving Credit and Security Agreement between State Street Bank
and Trust Company (8)
10(u) Letter to State Street Bank and Trust dated February 29, 1996,
re: Amendment No. 2 to Revolving Credit, Term Loan and Security
Agreement and Trademark Assignment Agreement (10)
10(v) Letter to State Street Bank and Trust dated March 4, 1996,
re: Amendment No. 3 to Revolving Credit, Term Loan and Security
Agreement and Revolving Time Note (10)
10(w) Form of Secured Acquisition Promissory Note. (10)
10(x) Form of Amended and Restated Revolving Time Note (14)
10(y) Amendment No. 1 dated as of September 11, 1997 to the Revolving
Credit and Term Loan Agreement dated as of December 30, 1996
among NutraMax Products, Inc., the banks (a defined therein)
and BankBoston, N.A. as agent (11)
10(z) Agreement dated as of October 14, 1997 by and between the
Company and Cape Ann Investors, L.L.C. ("Cape Ann") (12)
10(aa) Amendment to Cape Agreement dated as of October 16, 1997
by and between the Company and Cape Ann. (12)
10(bb) Registration Rights Agreement dated as of October 16, 1997
by and between the Company and Mr. Korman (12)
11 Statement re computation of per share earnings (9)
21 Subsidiaries of the Company (9)
27 Financial Data Schedule (9)
</TABLE>
EXHIBIT INDEX
(1) Filed as an Exhibit to the Company's Registration Statement on Form S-1 on
July 5, 1991, and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-K for fiscal
year 1992, and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K for fiscal
year 1994, and incorporated herein by reference.
(4) Filed as an Exhibit to the Company's Annual Meeting on Form 10-K for
Fiscal Year 1995 and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1990, and incorporated herein by reference.
(6) Filed as an Exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 on August 15, 1991, and incorporated herein by
reference.
(7) Filed as an Exhibit to the Company's Annual Report on Form 10-K for fiscal
year 1991, and incorporated herein by reference.
(8) Filed as an Exhibit to the Company's Annual Report on Form 10-K for fiscal
1993, and incorporated herein by reference.
(9) Filed herewith.
(10) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended June 29, 1996.
(11) Filed as an exhibit to the Company's Current Report on Form 8-K dated
September 11, 1997 and incorporated herein by reference.
(12) Filed as an exhibit to the Company's Issued Tender Offer Statement on
Schedule 13E-4 dated October 29, 1997 and incorporated herein by
reference.
(13) Filed as an exhibit to the Company's Annual Report on Form 10-K for fiscal
year 1996, and incorporated herein by reference
(14) Filed as an exhibit to the Company's Annual Report on Form 10-K for fiscal
year 1996, and incorporated herein by reference
(b) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF FISCAL 1997.
Current Report on Form 8-K dated September 11, 1997
Item 2. Acquisition or Disposition of Assets. Purchase of American
White Cross, Inc. and Weaver Manufacturing Corp.
Item 7. Financial Statements and Exhibits
The following financial statements of the business acquired and
pro forma financial information are to be filed as an amendment
to the NutraMax Products, Inc. Form 8-K, dated September 11,
1997(*)
(a) Financial statements of business acquired
(1) The financial statements required pursuant to Article
3, 210.3-05 (b) for the year ended December 31, 1996,
and for the interim period ended June 30, 1997
(2) Pursuant to Rule 2-02 of Regulation S-X[17 CFR 210.2-
02] a manually signed accountants report for the audit
of the year ended December 31, 1996 financial
statements.
(b) Pro forma financial information
(1) The pro forma unaudited condensed consolidated
financial information required pursuant to Article 11,
210.11-02(b) for the year ended December 31, 1996 and
the period ended June 30, 1997
(c) The following exhibits have been filed as part of the
NutraMax Products, Inc. Form 8-K dated September 11, 1997:
Exhibit Name
------- ----
2.1 Asset Purchase Agreement dated as of July
21, 1997 (the "Asset Purchase Agreement") by
and among NutraMax Products, Inc., American
White Cross, Inc. and Weaver Manufacturing
Corporation (**)
2.2 Amendment No. 1 to Asset Purchase Agreement
dated as of August 15, 1997 by and among
NutraMax Products, Inc., American White
Cross, Inc., and Weaver Manufacturing
Corporation.
2.3 Stock Purchase Agreement dated as of August
12, 1997 (the "Stock Purchase Agreement") by
and between NutraMax Products, Inc. And Cape
Ann Investors, L.L.C. (**)
2.4 Amendment No. 1 to Stock Purchase Agreement
dated as of September 9, 1997 by and among
NutraMax Products, Inc. And Cape Ann
Investors, L.L.C.
2.5 Amendment No. 1 dated as of September 11,
1997 to the Revolving Credit and Term Loan
Agreement dated as of December 30, 1996
among NutraMax Products, Inc., the Banks (as
defined therein) and BankBoston, N.A., as
agent (**)
(*) The Registrant has not yet filed the required Form 8-KA amendment
to the Form 8-K filed on September 11, 1997. The Form 8-KA
amendment has not yet been filed due to the acquisition occurring
late in the Registrant's fourth quarter, and the Registrant
requires additional time to complete the required audited
historical financial statements and pro forma information. The
Registrant expects to file the Form 8-KA as soon as all of the
necessary information is available.
(**) Schedules are omitted. The Registrant hereby agrees to furnish
supplementally a copy of any omitted schedule to the Commission
upon request.
27
<PAGE>
SIGNATURES
Pursuant to requirements of Section 13 or 15(d) 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.
Dated: January 8, 1998 NUTRAMAX PRODUCTS, INC.
By: /s/ Donald E. Lepone
------------------------------
Donald E. Lepone, President
and Chief Executive Officer
By: /s/ Robert F. Burns
------------------------------
Robert F. Burns, Vice
President, Treasurer and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons, which include at least a
majority of the Board of Directors on behalf of the Registrant and in the
capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Bernard J. Korman Chairman of the Board January 8, 1998
- ---------------------
Bernard J. Korman
/s/ Donald E. Lepone President, Chief January 8, 1998
- -------------------- Executive Officer and
Donald E. Lepone Director
/s/ Donald M. Gleklen Director January 8, 1998
- ----------------------
Donald M. Gleklen
/s/ Dennis M. Newnham Director January 8, 1998
- ----------------------
Dennis M. Newnham
/s/ David M. Schulte Director January 8, 1998
- ----------------------
David M. Schulte
28
<PAGE>
NUTRAMAX PRODUCTS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FISCAL YEARS 1997, 1996 AND 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C - ADDITIONS COL. D COL. E
---------- ------------------ ---------- -----------
(1) (2)
Description Balance at Charges to Charged to Balance
Beginning Costs and Other at End
of Period Expenses Accounts Deductions of Period
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended September 27, 1997
Allowance for doubtful accounts $709,000 $300,000 $ -- $(404,000) $605,000
======== ======== ======== ========= ========
Year ended September 28, 1996:
Allowance for doubtful accounts $601,000 $425,000 $296,000 $(613,000) $709,000
======== ======== ======== ========= ========
Year ended September 30, 1995:
Allowance for doubtful accounts $738,000 $149,000 $ -- $(286,000) $601,000
======== ======== ======== ========= ========
</TABLE>
(1) Includes allowance from acquisition of Oral Care in 1996.
(2) Represents accounts directly written-off net of recoveries.
<PAGE>
EXHIBIT 11
----------
NUTRAMAX PRODUTS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------
Sept 27, 1997 Sept 28, 1996 Sept 30, 1995
<S> <C> <C> <C>
Primary earnings per share:
Weighted average number of shares
outstanding:
Common 5,796,493 8,530,713 8,519,830
Shares deemed outstanding from
the assumed exercise of stock
options and ING warrant 158,339 -- --
---------- ---------- ----------
Total 5,954,832 8,530,713 8,519,830
---------- ---------- ----------
Net income $2,262,000 $5,683,000 $4,474,000
---------- ---------- ----------
Primary earnings per share $ .38 $ .67 $ .53
========== ========== ==========
Fully diluted earnings per share:
Weighted average number of shares
outstanding as above 5,954,832 8,530,713 8,519,830
Additional shares deemed
outstanding from the assumed
exercise of stock options and
ING warrant 176,298 32,774 100,596
---------- ---------- ----------
Total 6,131,130 8,563,487 8,620,426
---------- ---------- ----------
Fully diluted earnings per share $ .37 $ .66 $ .52
========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Set forth below is a list of NutraMax Products, Inc.'s subsidiaries, as of
January 9, 1998, with their respective states of incorporation. All of
such subsidiaries were wholly-owned by the Company as of such date.
<TABLE>
<CAPTION>
Name State of Incorporation
<S> <C>
Optopics Laboratories Corporation DE
Fairton Realty Holdings, Inc. DE
Powers Pharmaceutical Corporation (1) DE
Certified Corp. DE
Oral Care, Inc. DE
Florence Realty, Inc. MA
First Aid Products, Inc. DE
Adhesive Coatings, Inc. NJ
Elmwood Park Realty, Inc. NJ
</TABLE>
(1) Subsidiary of Certified Corp.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-END> SEP-27-1997
<CASH> 243
<SECURITIES> 0
<RECEIVABLES> 19,618
<ALLOWANCES> 605
<INVENTORY> 36,135
<CURRENT-ASSETS> 60,350
<PP&E> 61,688
<DEPRECIATION> 17,232
<TOTAL-ASSETS> 132,759
<CURRENT-LIABILITIES> 21,748
<BONDS> 85,542
0
0
<COMMON> 6
<OTHER-SE> 23,473
<TOTAL-LIABILITY-AND-EQUITY> 132,759
<SALES> 94,331
<TOTAL-REVENUES> 94,331
<CGS> 71,728
<TOTAL-COSTS> 71,728
<OTHER-EXPENSES> 13,947
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,042
<INCOME-PRETAX> 3,798
<INCOME-TAX> 1,536
<INCOME-CONTINUING> 2,262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,262
<EPS-PRIMARY> .38
<EPS-DILUTED> .37
</TABLE>
