<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: Commission File Number:
January 2, 1999 0-18671
NUTRAMAX PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 061200464
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
51 Blackburn Drive, Gloucester, Massachusetts 01930
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 282-1800
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
As of January 25, 1999 there were 7,114,361 shares of Common Stock, par value
$.001 per share, outstanding.
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
Thirteen Weeks Ended January 2, 1999
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Thirteen Weeks ended January 2, 1999 and
Fourteen Weeks ended January 3, 1998 (Unaudited) 4
Condensed Consolidated Balance Sheets -
January 2, 1999 (Unaudited) and October 3, 1998 5
Condensed Consolidated Statements of Cash Flows -
Thirteen Weeks ended January 2, 1999 and
Fourteen Weeks ended January 3, 1998 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
Thirteen Weeks Ended January 2, 1999
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
3
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Fourteen Weeks Ended
-------------------- --------------------
January 2, 1999 January 3, 1998
-------------------- --------------------
(in thousands, except per share data)
<S> <C> <C>
NET SALES $ 33,588 $ 34,463
COST OF SALES 25,409 25,874
------------------- ------------------
GROSS PROFIT 8,179 8,589
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 4,990 4,906
------------------- ------------------
OPERATING INCOME 3,189 3,683
OTHER INCOME (EXPENSE):
Interest expense (1,960) (2,343)
Interest income 20 5
Other 46 3
------------------- ------------------
INCOME BEFORE INCOME TAX EXPENSE 1,295 1,348
INCOME TAX EXPENSE 492 538
------------------- ------------------
NET INCOME $ 803 $ 810
=================== ==================
BASIC EARNINGS PER SHARE:
Per share amount $ 0.14 $ 0.14
=================== ==================
Weighted average shares 5,672 5,624
=================== ==================
DILUTED EARNINGS PER SHARE:
Per share amount $ 0.14 $ 0.14
=================== ==================
Weighted average shares 5,672 5,624
Effect of dilutive securities:
Stock options - 75
Warrants 37 46
------------------- ------------------
Adjusted weighted average shares 5,709 5,745
=================== ==================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
January 2, October 3,
1999 1998
------------------ -------------------
(Unaudited) (See Note)
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 388 $ 761
Accounts receivable, net 16,575 17,286
Inventories 34,764 36,879
Deferred income taxes 1,263 1,263
Escrow receivable 200 200
Refundable income taxes 2,800 2,800
Prepaid expenses and other 2,823 2,990
------------------ -------------------
TOTAL CURRENT ASSETS 58,813 62,179
PROPERTY, PLANT AND EQUIPMENT, net 45,351 45,903
RESTRICTED CASH 566 413
GOODWILL, net 24,822 25,075
OTHER ASSETS 5,645 5,181
------------------ -------------------
$ 135,197 $ 138,751
================== ===================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 12,034 $ 13,758
Accrued payroll and related taxes 1,551 1,256
Accrued Interest 545 656
Accrued expenses - other 1,844 1,690
Current maturities of long-term debt 14,195 14,920
------------------ -------------------
TOTAL CURRENT LIABILITIES 30,169 32,280
Long-Term Debt, less current maturities 79,379 81,625
Deferred Income Taxes and Other Liabilities 3,652 3,652
STOCKHOLDERS' EQUITY 21,997 21,194
------------------ -------------------
$ 135,197 $ 138,751
================== ===================
</TABLE>
Note: The balance sheet at October 3, 1998 has been condensed from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
5
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Fourteen Weeks
Ended January 2, Ended January 3,
1999 1998
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 803 $ 810
Adjustments to reconcile net income to net cash
provided by operating activities:
Non cash items primarily depreciation and amortization 1,864 1,827
Increase (decrease), net of effect of acquisitions:
Accounts receivable 711 473
Inventories 2,115 (2,774)
Accounts payable, accrued expenses and other (1,219) (3,055)
Federal and state taxes payable - 529
---------------- ----------------
Net cash (used in) provided by operating activities 4,274 (2,190)
CASH FLOWS FROM INVESTING ACTIVITIES:
Escrow received - 1,751
Restricted Cash (153) (204)
Purchases of property and equipment (708) (1,976)
Deferred packaging costs (157) (287)
Other 3 (150)
---------------- ----------------
Net cash used in investing activities (1,015) (866)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Revolving Credit Facility and
other Long Term Debt - 4,034
Proceeds from exercise of stock options - -
Debt Repayments (3,010) (734)
Deferred Financing Costs (661) (138)
Other 39 (12)
---------------- ----------------
Net cash used in financing activities (3,632) 3,150
---------------- ----------------
NET INCREASE (DECREASE) IN CASH $ (373) $ 94
CASH:
Beginning of period $ 761 $ 243
---------------- ----------------
End of period $ 388 $ 337
---------------- ----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 4 $ 99
---------------- ---------------
Interest paid $ 2,037 $ 3,087
---------------- ---------------
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The condensed consolidated balance sheet of NutraMax Products, Inc. and
Subsidiaries (the "Company") as of January 2, 1999, the condensed consolidated
statements of operations for the thirteen weeks ended January 2, 1999 and the
fourteen weeks ended January 3, 1998, and the condensed consolidated statements
of cash flows for the thirteen weeks ended January 2, 1999 and the fourteen
weeks ended January 3, 1998 have been prepared by the Company without audit. In
the opinion of the Company, all adjustments (consisting only of normal,
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows at January 2, 1999, and for all periods
presented, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. These condensed financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's October 3, 1998 Annual Report on Form 10-K. The results of
operations for the period ended January 2, 1999 are not necessarily indicative
of the operating results for the full year.
Note B - Inventory
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
January 2, 1999 October 3, 1998
--------------- ---------------
Raw materials $14,739,000 $15,934,000
Finished goods 16,879,000 17,375,000
Work-in-process 1,043,000 1,467,000
Machine parts and factory supplies 2,103,000 2,103,000
---------------- ----------------
$34,764,000 $36,879,000
================ ================
Note C - Debt
The Company's Revolving Credit Facility of $25,000,000 had an outstanding
balance of $21,770,000 on January 2, 1999. For the first quarter of fiscal
1999, the interest rate was 7.8% based on LIBOR plus 2.5% and a floating base
rate based on the Prime Rate. The Revolving Credit Facility expires on January
1, 2002.
A summary of Debt outstanding as of January 2, 1999 is as follows:
Revolving Credit Facility $21,770,000
Term Loans 53,048,000
Subordinated Debt 9,254,000
Industrial Development Bonds 6,100,000
MEDIQ Note 302,000
Mortgages 2,800,000
Capital Lease Obligation 300,000
----------------
$93,574,000
Less: Current maturities of long-term debt 14,195,000
----------------
Long Term Debt $79,379,000
================
7
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note C - Debt (continued)
The agreements evidencing the Senior Debt and the Senior Subordinated Debt
contain certain restrictive covenants including, among others, covenants with
respect to the ratio of total debt to EBITDA, operating cash flows, interest
coverage, capital expenditures, and covenants which prevent the payment of
dividends. On December 29, 1998, the Company executed amendments to its
existing senior and subordinated credit agreements (the "Credit Facility
Amendments"), including amendments to the financial covenants for total debt to
EBITDA, operating cash flows, minimum interest coverage and minimum net worth.
The Company entered into the Credit Facility Amendments in order to permit the
Company to operate without likelihood of default in the foreseeable future.
Note D - Adoption of New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
This statement, which establishes standards for reporting and disclosure of
comprehensive income, is effective for annual periods beginning after December
15, 1997, although earlier adoption is permitted. Reclassification of financial
information for earlier periods presented for comparative purposes is required
under SFAS No. 130. As this statement only requires additional disclosure in
the Company's consolidated financial statements, its adoption will not have any
impact on the Company's consolidated financial position or results of
operations. The Company adopted SFAS No. 130 effective October 4, 1998. There
were no components of comprehensive income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". This statement, which establishes
standards for the reporting of information about operating segments and requires
the reporting of selected information about operating segments in interim
financial statements, is effective for fiscal years beginning after December 15,
1997, although earlier application is permitted. Reclassification of segment
information for earlier periods presented for comparative purposes is required
under SFAS No. 131. The Company has not yet completed its analysis of the
operating segments it will report on. The Company adopted SFAS No. 131
effective October 4, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999. The new standard requires that all
companies record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. Management is currently
assessing the impact of SFAS No. 133 on the consolidated financial statements of
the Company. The Company expects to adopt this accounting standard in its first
quarter of its fiscal year ending in September 2000.
Note E - Income Taxes
The provision for income tax expense for the thirteen weeks ended January 2,
1999 has been computed using an estimated effective tax rate for the year ended
October 2, 1999.
8
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note F - 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 damages
that could result from any litigation cannot be predicted, in the opinion of
management, the Company's potential liability on all known claims would not have
a material adverse effect on the consolidated financial position or results of
operations of the Company.
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 corporation. The
Company attended a pre-assessment conference with the DOR on March 18, 1998, at
which the Company continued to vigorously defend its tax position. On December
28, 1998, the Company received a notice from the Appeal and Review Bureau of the
DOR which stated the matter is being returned to the Audit division for
assessment. The Company has not received any assessment from the DOR.
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. The Company's
annual future minimum payments with respect to operating and capital leases are
approximately $1,400,000 and $104,000, respectively.
Note H - Subsequent Event
On January 13, 1999, the Company completed a private placement transaction with
Cape Ann Investors, L.L.C., the Company's largest stockholder, Donald E. Lepone,
the Chief Executive Officer, President and a Director of the Company, and
Bernard J. Korman, the Chairman of the Board of the Company. Pursuant to the
private placement, which was approved by the Company's shareholders at the
annual meeting held on January 12, 1999, the Company issued and sold an
aggregate of 1,441,860 shares of the Company's common stock at a price per share
of $4.30, for an aggregate purchase price of $6,200,000. The purchase price of
$4.30 per share represented a premium of 11% to the closing price per share on
October 21, 1998, the date on which the Board of Directors of the Company agreed
in principle to the terms of the private placement. The proceeds of the private
placement were used to pay $4,500,000 of indebtedness outstanding under its
senior credit facilities and $1,039,000 of trade payables as required by the
Credit Facility Amendments.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
The following discussion addresses the financial condition of the Company as of
January 2, 1999 and its results of operations for the thirteen weeks then ended,
compared with the respective fourteen week period of last year. This discussion
should be read in conjunction with the Management's Discussion and Analysis
section included in the Company's Annual Report on Form 10-K, for the year ended
October 3, 1998 to which the reader is directed for additional information.
Some of the information presented in this report contains forward looking
statements within the meaning of Section 27A of the Securities Section 21E of
the Exchange Act. Although the Company believes that its expectations are based
on reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results will not differ
materially from 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 brand name and other private label manufacturers,
seasonal changes in the demand for the Company's products, increases in the cost
of raw materials, changes in the retail market for health and beauty aids in
general, expenses or delays incurred in connection with the identification and
upgrade or replacement by the Company of its non-year 2000 compliance systems,
including embedded technology, and the year 2000 compliance of material third
parties. For additional information concerning these and other important
factors which may cause the Company's actual results to differ materially from
expectations and underlying assumptions, please refer to the Company's Annual
Report on Form 10-K for the year ended October 3, 1998 and other reports filed
with the Securities and Exchange Commission.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship that items in the Company's Condensed Consolidated Statements of
Operations bear to net sales.
<TABLE>
<CAPTION>
Thirteen Fourteen
Weeks Ended Weeks Ended
----------------- -----------------
January 2, 1999 January 3, 1998
----------------- -----------------
<S> <C> <C>
NET SALES 100% 100%
COST OF SALES 75 75
----------------- -----------------
GROSS PROFIT 25 25
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 15 14
----------------- -----------------
OPERATING INCOME 10 11
OTHER EXPENSE 6 7
----------------- -----------------
INCOME BEFORE INCOME TAX EXPENSE 4 4
INCOME TAX EXPENSE 2 2
----------------- -----------------
NET INCOME 2% 2%
================= =================
</TABLE>
First Quarter 1998 Compared to First Quarter 1997
Net sales for first quarter ended January 2, 1999 were $33,588,000, a decrease
of $875,000, or 2.5%, from first quarter 1998 net sales of $34,463,000.
Although net sales for the first quarter of fiscal 1999 represented a slight
decline, net sales on a thirteen week comparative basis increased approximately
6.8% after taking into account reduced sales of nearly $600,000 for product
lines discontinued in fiscal 1998.
10
<PAGE>
Gross profit for the first quarter of 1999 was $8,179,000 or 25% of net sales,
as compared to $8,589,000 or 25% of net sales for the prior year's quarter.
Gross margins are comparable to the same quarter of the prior year.
Selling, general and administrative expenses for first quarter of 1999 were
$4,990,000, or 15% of net sales, as compared to $4,906,000 or 14% of net sales
for the prior year's first quarter. The slight increase is primarily
attributable to increased goodwill amortization associated with the first aid
products business of American White Cross acquired by the Company on September
11, 1997.
Interest expense for the first quarter of 1999 was $1,960,000 as compared to
$2,343,000 in the prior year's first quarter. This decrease is a result of the
decrease in debt outstanding combined with a reduction in interest rates.
The effective income tax rate for the first quarter of fiscal 1999 was 38% which
is 2% lower than the prior year's first quarter. The decrease is a result of
the Company's implementation of certain state tax planning strategies in 1998.
Liquidity and Capital Resources
As of January 2, 1999, the Company had working capital of $28,644,000 as
compared to working capital of $29,899,000 as of October 3, 1998. The decrease
in working capital was primarily attributable to decreased inventories and
receivables partially offset by decreases in accounts payable and current
maturities of long-term debt. The decrease in inventories is primarily
attributable to implementation of the Company's overall inventory reduction
plans.
Net cash provided by operating activities was $4,274,000 for the thirteen weeks
ended January 2, 1999, as compared to $2,190,000 used in operating activities
for the fourteen week's ended January 3, 1998. This increase was primarily
attributable to the reduction in inventories, decrease in receivables and
increase in depreciation and amortization offset slightly by a reduction in
accounts payable.
Net cash used in investing activities was $1,015,000 for the thirteen weeks
ended January 2, 1999, consisting primarily of funds used for purchases of
capital equipment. The Company anticipates incurring additional capital
expenditures of approximately $1,300,000 for the remainder of fiscal 1999.
These expenditures relate primarily to maintenance of the Company's current
manufacturing capacity. These expenditures are expected to be financed through
cash generated from operations.
Net cash used in financing activities was $3,632,000 for the thirteen weeks
ended January 2, 1999, consisting of debt repayments of $3,010,000 and $661,000
of fees incurred in connection with the amendments to the Company's existing
senior and subordinated debt agreements. See Note F to the Company's
consolidated financial statements contained in the Company's Annual Report on
Form 10-K for the fiscal year ended October 3, 1998 for further information.
The Company's Revolving Credit Facility of $25,000,000 had an outstanding
balance of $21,770,000 on January 2, 1999. For the first quarter of fiscal
1999, the interest rate was 7.8% based on LIBOR plus 2.5% and a floating base
rate based on the Prime Rate. The Revolving Credit Facility expires on January
1, 2002.
The Company believes that its existing working capital, anticipated funds to be
generated from operations, and funds available under the Revolving Credit
Facility will be sufficient to meet the Company's operating and capital needs
during fiscal 1999. However, depending upon future growth of the Company's
business, additional financing may be required.
11
<PAGE>
Subsequent Event
On January 13, 1999, the Company completed a private placement transaction with
Cape Ann Investors, L.L.C., the Company's largest stockholder, Donald E. Lepone,
the Chief Executive Officer, President and a Director of the Company, and
Bernard J. Korman, the Chairman of the Board of the Company. Pursuant to the
private placement, which was approved by the Company's shareholders at the
annual meeting held on January 12, 1999, the Company issued and sold an
aggregate of 1,441,860 shares of the Company's common stock at a price per share
of $4.30, for an aggregate purchase price of $6,200,000. The purchase price of
$4.30 per share represented a premium of 11% to the closing price per share on
October 21, 1998, the date on which the Board of Directors of the Company agreed
in principle to the terms of the private placement. The proceeds of the private
placement were used to pay $4,500,000 of indebtedness outstanding under its
senior credit facilities and $1,039,000 of trade payables as required by the
Credit Facility Amendments (see Note C).
Year 2000 Compliance
The statements in the following section include "Year 2000 Readiness Disclosure"
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
The Company's State of Readiness - The Company has undertaken an assessment of
the ability of its mission critical information and non-information systems to
function properly with respect to dates in the Year 2000 and thereafter.
Mission critical systems are those systems the failure of which pose a risk of
disruption to the Company's ability to manufacture and ship product, collect
revenue, meet safety standards and comply with legal requirements. The
Company's mission critical information systems include its integrated
manufacturing, accounting, order entry and distribution systems. The Company's
mission critical non-information systems include the machinery and equipment
used to manufacture and distribute its products, its telephone systems and its
alarm and sprinkler systems. The assessment is based upon communication with
software vendors, literature supplied with software, literature received in
connection with maintenance contracts and test evaluations of the Company's
systems. The Company has substantially completed its Year 2000 assessment with
respect to its mission critical information systems and anticipates completion
of its assessment with respect to its mission critical non-information systems
by March 1, 1999. The Company is also currently assessing the Year 2000 risks
of its material third parties as discussed below.
The Company identified potential problems in its electronic data interface order
entry system. The Company has replaced this software system and has completed
testing of the new system both individually and on an integrated basis in order
to ensure the remediation of all Year 2000 risks. In all other mission critical
information systems, the Company believes that Year 2000 compliance has been
achieved with the existing systems, replacement components or upgrades of
software or embedded technology. As noted above, the Company has not yet
completed assessment of its mission critical non-information systems; however,
to date the Company has not identified any Year 2000 complications with respect
to such systems.
Costs to Remedy the Company's Year 2000 Issues - The Company anticipates that
the total costs to remedy Year 2000 issues with respect to its information
systems will be approximately $100,000, which includes approximately $20,000 in
accelerated replacement costs for technology which the Company would have
otherwise replaced within three years after the Year 2000. The Company is
currently not able to ascertain its potential remediation costs with respect to
its mission critical non-information systems.
To date the Company has incurred $65,000 in total remediation costs. Such costs
are primarily related to the replacement or upgrade of components, systems and
software and the payroll of employees of the Company's information technology
department. The Company does not separately track the internal costs of its
Year 2000
12
<PAGE>
compliance program. The Company's Year 2000 remediation costs are expensed as
incurred.
Year 2000 Risks of Material Third Parties - The Company is also in the process
of assessing the Year 2000 risks of third parties with whom the Company has a
material relationship. These material third parties include vendors, major
customers, service suppliers, communications providers and banks. The Company
is in the process of circulating Year 2000 questionnaires of each of these
parties in order to verify their Year 2000 readiness. In addition, the Company
is testing interaction of the Company's systems with such third parties' systems
where appropriate. The assessment is expected to be completed by March 31, 1999
utilizing the Company's existing resources.
Year 2000 Risks: Contingency Plan - It is the Company's belief that the results
of the assessment to date indicate that all of the Company's mission critical
information systems, including its integrated manufacturing, accounting,
distribution and order entry systems, are Year 2000 compliant, and that the Year
2000 issue is not likely to have a material impact on the Company's operations.
However, there can be no assurances that the systems or software of third
parties on which the Company relies will be timely converted or that the Company
will not be adversely affected by the failure of such systems and software to be
made Year 2000 compliant.
The Company believes that its most reasonably likely worst case scenario is the
potential inability of material third parties to obtain Year 2000 complaint
components and software or take other remediatory measures which may inhibit the
Company's ability to maintain its manufacturing processes or a reliable means of
invoicing customers, transporting products and collecting payments. In the
event major customers experience Year 2000 complications, such customers may
become unable to process orders or receive shipments. As a result, the Company
could experience a backlog of inventory and lost revenue. In the event vendors,
service suppliers, communication providers and banks experience Year 2000
difficulties, the Company's ability to manufacture, process and ship product
maybe impeded and the Company may experience lost revenues and increased
expenses. The Company is not currently able to quantify the potential loses
upon the failure of material third parties to be Year 2000 compliant; however,
the Company believes that any such failure could have a material adverse effect
on the business, operations and financial performance of the Company.
The Company is in the process of developing a contingency plan in the event that
its Year 2000 conversion is unsuccessful or untimely. Currently, the Company's
contingency plan includes the manual performance of certain tasks which would
otherwise be automated, additional staffing of such tasks and increased product
inventories. The Company anticipates completion of its contingency plan by
March 31, 1999. The company is currently unable to ascertain the additional
costs it will incur if it is required to implement its contingency plan. There
can be no assurance that the Company's contingency plan will successfully avoid
disruption of the Company's business and operations or that such disruption
would not have a material adverse effect on the financial performance of the
Company.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named as a defendant in several legal proceedings which
have arisen in the normal course of business. Although the amount of damages
that could result from any legal proceedings cannot be predicted, in the opinion
of management, the Company's potential liability on all known claims would not
have a material adverse effect on the consolidated financial position or results
of operations of the Company.
On July 8, 1997, the Commonwealth of Massachusetts Department of Revenue ("DOR")
notified the Company of its intent to assess the Company approximately $374,000,
including interest and penalties, relating to tax audits for
13
<PAGE>
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
corporation. The Company attended a pre-assessment conference with the DOR on
March 18, 1998, at which the Company continued to vigorously defend its tax
position. On December 28, 1998, the Company received a notice from the Appeal
and Review Bureau of the DOR which stated the matter is being returned to the
Audit division for assessment. The Company has not received any assessment from
the DOR.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 -Financial Data Schedule appears on page 16.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the quarter ended January 2,
1999.
14
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
Thirteen Weeks Ended January 2, 1999
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NutraMax Products, Inc.
--------------------------------
(Registrant)
February 11, 1999
---------------------
(Date) /s/ Robert F. Burns
--------------------------------
Robert F. Burns
Vice President and
Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
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