<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended March 31, 1996
-----------------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _________________________ to ____________________
Commission File Number: 0-19912
--------------------------------------------------------
Health o meter Products, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3635286
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24700 Miles Road, Bedford Heights, Ohio 44146-1399
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(216) 464-4000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 April 30, 1996, the issuer had 9,071,409 shares of common stock
outstanding.
<PAGE> 2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended March 31, 1996
-----------------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________________ to ______________________
Commission File Number: 33-80000
--------------------------------------------------------
Health o meter, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3330781
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24700 Miles Road, Bedford Heights, Ohio 44146-1399
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(216) 464-4000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
----- -----
The Registrant is a wholly-owned subsidiary of Health o meter Products,
Inc. Accordingly, none of its equity securities are owned by non-affiliates.
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, October 1,
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash $ 1,109 835
Trade accounts receivable, net 47,467 54,151
Inventories 36,249 41,787
Refundable income taxes 11 207
Deferred income taxes 5,108 5,108
Other current assets 1,038 1,828
---------- ----------
Total current assets 90,982 103,916
Property, plant, and equipment, net 18,558 20,157
Other assets
Excess of cost over fair value
of net assets acquired, net 142,084 144,084
Deferred financing costs, net 5,008 5,437
Deferred income taxes 63 63
Other 1,329 1,478
---------- ----------
Total other assets 148,484 151,062
---------- ----------
Total assets $ 258,024 275,135
========== ==========
</TABLE>
(Continued)
2
<PAGE> 4
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, October 1,
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Current portion of debt $ 5,000 5,000
Accounts payable 11,537 25,803
Accrued liabilities 22,910 19,828
---------- ----------
Total current liabilities 39,447 50,631
Long-term debt
Revolving Credit Facility 34,000 39,400
Term Note 62,500 65,000
Senior Subordinated Notes 68,570 68,458
---------- ----------
Total long-term debt 165,070 172,858
Product liability - noncurrent 3,860 3,621
Other 1,643 2,008
---------- ----------
Total liabilities 210,020 229,118
Stockholders' equity
Common stock, par value $.01 per share 91 91
Paid-in capital 51,741 51,741
Warrants 1,773 1,773
Accumulated deficit (5,601) (7,588)
---------- ----------
Total stockholders' equity 48,004 46,017
---------- ----------
Total liabilities and stockholders' equity $ 258,024 275,135
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
---------------------------- ----------------------------
March 31, April 2, March 31, April 2,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 56,275 56,656 153,682 147,284
Operating costs and expenses
Cost of goods sold 38,538 39,046 105,401 102,867
Selling, general, and
administrative expenses 12,086 12,489 30,888 29,660
Amortization of intangible assets 1,000 1,002 2,000 1,981
------------ ------------ ------------ ------------
Total operating costs and expenses 51,624 52,537 138,289 134,508
------------ ------------ ------------ ------------
Operating income 4,651 4,119 15,393 12,776
Interest expense 4,717 4,820 9,814 9,667
Other income (96) (44) (166) (135)
------------ ------------ ------------ ------------
Income (loss) before income taxes 30 (657) 5,745 3,244
Income tax expense (benefit) 20 (504) 3,758 2,485
------------ ------------ ------------ ------------
Net income (loss) $ 10 (153) 1,987 759
============ ============ ============ ============
Net income (loss) per share $ -- (0.02) 0.22 0.08
============ ============ ============ ============
Number of common and common
equivalent shares used in
computing net income (loss) per share 9,071 9,071 9,071 9,071
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Twenty-six weeks ended
--------------------------------
March 31, 1996 April 2, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,987 759
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization
of plant and equipment 2,945 2,605
Loss on asset write-offs and disposals 103 --
Amortization of intangible assets 2,000 1,981
Amortization of deferred financing costs 429 410
Accretion of debt discount 112 112
Changes in
Accounts receivable 6,684 1,410
Inventories 5,538 11,730
Refundable income taxes 196 3,044
Other assets 939 478
Accounts payable (14,266) (19,137)
Accrued liabilities 3,082 1,442
Noncurrent liabilities (126) 202
-------------- --------------
Net cash provided by
operating activities 9,623 5,036
-------------- --------------
Cash flows from investing activities
Capital expenditures (1,449) (1,719)
-------------- --------------
Net cash used in investing activities (1,449) (1,719)
-------------- --------------
Cash flows from financing activities
Proceeds from revolving credit facilities 44,500 46,100
Repayments of revolving credit facilities (49,900) (47,200)
Repayment of long-term debt (2,500) (2,500)
-------------- --------------
Net cash used in
financing activities (7,900) (3,600)
-------------- --------------
Increase (decrease) in cash 274 (283)
Cash at beginning of the period 835 1,684
-------------- --------------
Cash at end of the period $ 1,109 1,401
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 9,360 9,864
Income taxes 1,177 --
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) In the opinion of management, the information furnished herein includes
all adjustments of a normal recurring nature that are necessary for a
fair presentation of results for the interim periods shown in
accordance with generally accepted accounting principles. The unaudited
interim consolidated financial statements have been prepared using the
same accounting principles that were used in preparation of the
Company's annual report on Form 10-K for the year ended October 1,
1995, and should be read in conjunction with the consolidated financial
statements and notes thereto. Because of the seasonal nature of the
small appliance and consumer scale industries, the results of
operations for the interim period are not necessarily indicative of
results for the full fiscal year.
(2) The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1996 October 1, 1995
-------------- ---------------
<S> <C> <C>
Inventories at FIFO cost
Raw materials and purchased parts $ 14,494 13,389
Finished goods 21,770 28,220
--------- ------
36,264 41,609
Excess of FIFO cost
over LIFO (15) 178
--------- ------
Total inventories $ 36,249 41,787
========= ======
</TABLE>
Work-in-process inventories are not significant and are included with
raw materials.
6
<PAGE> 8
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(3) Condensed consolidated financial information for Health o meter, Inc.
at March 31, 1996 and October 1, 1995, and for the thirteen-week and
twenty-six-week periods ended March 31, 1996 and April 2, 1995 is as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, October 1,
1996 1995
---------- ----------
<S> <C> <C>
Current assets $ 90,982 103,916
Noncurrent assets 167,042 171,219
---------- ----------
Total assets $ 258,024 275,135
========== ==========
Current liabilities $ 39,447 50,631
Noncurrent liabilities 170,573 178,487
Intercompany payables 47,627 47,627
---------- ----------
Total liabilities 257,647 276,745
Stockholder's equity
Common stock - $.01 par value;
authorized 1,000,000 shares;
issued and outstanding 1,000,000 shares 10 10
Paid-in capital 2,811 2,811
Accumulated deficit (2,444) (4,431)
---------- ----------
Total stockholder's equity 377 (1,610)
---------- ----------
Total liabilities and stockholder's equity $ 258,024 275,135
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Thirteen-week period ended Twenty-six-week period ended
--------------------------- ---------------------------
March 31, April 2, March 31, April 2,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 56,275 56,656 $ 153,682 147,284
Gross profit 17,737 17,610 48,281 44,417
Net income (loss) 10 (153) 1,987 759
</TABLE>
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Thirteen Weeks ended March 31, 1996 and April 2, 1995
Net Sales. Net sales in the second quarter of fiscal 1996 declined
approximately 0.7 percent to $56.3 million, compared with $56.7 million for the
same period in fiscal 1995. Net sales of the Consumer Products Division
increased approximately 4.7 percent to $47.6 million in the second quarter of
fiscal 1996, compared with $45.5 million for the same period last year. The
increase in net sales of the Consumer Products Division was due primarily to
sales of the recently introduced automatic hot teamaker, Mrs. Tea(TM). Consumer
Products Division sales were also favorably impacted by an increase in sales of
consumer scales attributable to improved distribution at certain mass
merchandisers. These sales increases were partially offset by a decline in
coffeemaker and iced teamaker sales reflecting an overall small appliance
industry sales decline and lower retail activity resulting from severe winter
weather conditions. Net sales of the Professional Products Division declined
approximately 22.3 percent to $8.7 million, primarily because second quarter
fiscal 1995 sales had been favorably impacted by the U.S. Postal rate increase
in January 1995, which generated incremental sales of postal scale dials,
electronic rate chips and postal scales to accommodate the new postal rates.
Gross Profit. The Company's gross profit in the second quarter of
fiscal 1996 was $17.7 million, or approximately 31.5 percent of net sales,
compared with $17.6 million, or approximately 31.1 percent of net sales in the
same period in fiscal 1995. The Consumer Products Division's gross profit
increased from approximately 28.9 percent of net sales for the second quarter of
fiscal 1995 to approximately 30.0 percent of net sales for the second quarter of
fiscal 1996. The Professional Products Division's gross profit was 39.9 percent
of net sales for both the second quarter of fiscal 1996 and fiscal 1995. The
improvement in the Consumer Products Division's gross profit percentage was
primarily due to sales of the recently introduced automatic hot teamaker, Mrs.
Tea(TM). Historically, gross margins on individual product lines have been
greatest near the point of introduction and gradually decreasing as the product
matures and becomes subject to pricing pressure. There continues to be intense
pressure on retail prices and there can be no assurance as to the Company's
ability to achieve any price increases or maintain current price levels in the
future. The Company continues its efforts to introduce new products and to
reduce the cost of existing products as a means of protecting margins.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses ("SG&A") for the second quarter of fiscal 1996 totalled
$12.1 million, or approximately 21.5 percent of net sales, compared with $12.5
million, or approximately 22.0 percent, for the second quarter of fiscal 1995.
The decrease in SG&A as a percentage of net sales is primarily attributable to
lower variable selling costs, partially offset by higher national advertising
expenditures to support the marketing of new products such as Mrs. Tea(TM).
8
<PAGE> 10
Amortization of Intangible Assets. The amortization of intangible
assets relates primarily to intangible assets associated with the acquisition of
Mr. Coffee, inc. in August 1994 (the "Acquisition").
Interest Expense. Net interest expense for the second quarter of fiscal
1996 was approximately $4.7 million, compared with $4.8 million for the same
period in the prior year. The decrease in interest expense is attributable to a
lower prime interest rate and LIBOR rate used as the basis for the rate charged
on the Company's floating rate debt.
Income Taxes. Income tax expense was $20,000 for the second quarter of
fiscal 1996.
Net Income. Based on the foregoing, the Company achieved net income of
approximately $10,000 in the second quarter of fiscal 1996, compared with a net
loss of approximately $153,000 in the same period last year.
Twenty-Six Weeks ended March 31, 1996 and April 2, 1995
Net Sales. Net sales in the first half of fiscal 1996 increased
approximately 4.3 percent to $153.7 million, compared with $147.3 million for
the same period in fiscal 1995. Net sales of the Consumer Products Division
increased approximately 6.5 percent to $135.9 million in the first half of
fiscal 1996, compared with $127.5 million for the same period last year. The
increase in net sales of the Consumer Products Division was primarily due to
sales of recently introduced products: the automatic hot teamaker, Mrs. Tea(TM),
and new model Big Foot(R) scales. Professional Products Division net sales
decreased approximately 9.7 percent to $17.8 million, compared with $19.7
million for the same period last year. Professional Products Division net sales
were favorably impacted in fiscal 1995 by the U.S. Postal rate increase in
January 1995.
Gross Profit. The Company's gross profit in the first half of fiscal
1996 was $48.3 million, or approximately 31.4 percent of net sales, compared
with $44.4 million, or approximately 30.2 percent of net sales in the same
period in fiscal 1995. The Consumer Products Division's gross profit increased
from approximately 29.0 percent of net sales for the first half of fiscal 1995
to approximately 30.7 percent of net sales for the first half of fiscal 1996.
The improvement in the Consumer Products Division's gross profit percentage was
primarily due to sales of the automatic hot teamaker, Mrs. Tea(TM), which was
introduced in fourth quarter of fiscal 1995. The Professional Products
Division's gross profit was 37.2 percent of net sales in the first half of
fiscal 1996, compared with 37.4 percent of net sales in the same period last
year.
Selling, General, and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") for the first half of fiscal 1996 totalled
$30.9 million, compared with $29.7 million for the first half of fiscal 1995.
For both periods, selling, general, and administrative expenses were 20.1
percent of net sales. The increase in the dollar amount of SG&A is primarily
attributable to higher national advertising expenditures to support the
marketing of new products such as Mrs. Tea(TM) and new Big Foot(R) scales.
9
<PAGE> 11
Amortization of Intangible Assets. The amortization of intangible
assets relates primarily to intangible assets associated with the acquisition of
Mr. Coffee, inc. in August 1994.
Interest Expense. Net interest expense for the first half of fiscal
1996 was approximately $9.8 million, which was comparable to approximately $9.7
million for the same period in the prior year.
Income Taxes. Income tax expense was $3.8 million for the first half of
fiscal 1996. The provision for income taxes is unfavorably impacted by the
non-deductibility, for tax purposes, of the amortization of intangible assets.
Net Income. Based on the foregoing, the Company achieved net income of
approximately $2.0 million in the first half of fiscal 1996, compared with
approximately $0.8 million in the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary source of liquidity is borrowings under a Credit
Agreement among HOM and a group of Banks represented by Banque Nationale de
Paris, New York Branch ("BNP") as issuer of letters of credit and as agent,
("Bank Credit Agreement") entered into in connection with the Acquisition.
Cash flow activity for the second quarters of fiscal 1996 and 1995 is
presented in the Consolidated Statements of Cash Flows. During the first half of
fiscal 1996, the Company generated approximately $9.6 million in cash flow from
its operating activities. Net income plus non-cash charges generated
approximately $7.6 million, while changes in working capital components
generated approximately $2.0 million. A decrease in accounts receivable and
inventories, which generated $6.7 million and $5.5 million, respectively, was
offset by a reduction in accounts payable, which required $14.3 million. The
decrease in accounts receivable, inventories and accounts payable is primarily
attributable to the seasonally higher sales activity which takes place during
the first quarter of the fiscal year. An increase in accrued liabilities
generated $3.1 million. Accrued liabilities increased primarily because of
increases in income taxes payable.
The Company's business is seasonal, with the majority of its sales and
earnings generated in the last half of the calendar year (the fourth and first
quarters of its fiscal year).
The Company's aggregate capital expenditures during the first half of
fiscal 1996 were approximately $1.4 million primarily for a computerized design
system to help streamline the Company's new product development cycle and for
product tooling. During fiscal 1996, the Company anticipates making capital
expenditures of approximately $5.8 million primarily for new product tooling.
Management plans to fund these capital expenditures with available cash, cash
flow from operations and, if necessary, borrowings under the revolving credit
facility provided under the Bank Credit Agreement.
10
<PAGE> 12
Indebtedness incurred in connection with the Acquisition has
significantly increased the Company's cash requirements and imposes various
restrictions on its operations. The Acquisition and related transactions were
financed with approximately $98 million in borrowings under the Bank Credit
Agreement, approximately $70 million in proceeds from a unit offering of 13%
senior subordinated notes due 2002 (the "Notes") and warrants to purchase shares
of Common Stock at a price of $6.25 per share, and approximately $17.2 million
in net proceeds received from the exercise of certain transferable rights to
purchase 3,543,433 shares of Common Stock issued to the stockholders of the
Company.
Financing provided under the Bank Credit Agreement consisted of a $75.0
million term loan facility, which was fully drawn at the closing of the
Acquisition, and a $50.0 million revolving credit facility (which also provides
for a $18.0 million letter of credit sub-facility), under which approximately
$22.5 million was drawn in connection with the Acquisition. Effective June 30,
1995, the Bank Credit Agreement was amended, increasing the revolving credit
facility to $60.0 million. Borrowings under the Term Loan and the Revolving
Credit Facility bear interest at a rate equal to BNP's Base Rate (as defined)
plus 1.0% per annum or BNP's Eurodollar Rate (as defined and adjusted for
reserves) plus 2.5% per annum, in either case as selected by HOM. HOM's
obligations under the Bank Credit Agreement are secured by substantially all of
HOM's assets and a pledge of all of its issued and outstanding common stock.
HOM's obligations under the Bank Credit Agreement are also guaranteed by the
Company.
The Term Loan is subject to amortization on a quarterly basis
commencing December 31, 1994 in aggregate 12 month amounts of $5.0 million, $5.0
million, $5.0 million, $10.0 million, $15.0 million, $15.0 million and $20
million during the first through the seventh years following the Acquisition.
HOM is required to make prepayments on the Term Loan and Revolving Credit
Facility with a percentage of Excess Cash Flow (as defined) and 100% of the
proceeds from certain asset sales, issuances of debt and equity securities and
extraordinary items outside the ordinary course of business. HOM may also make
optional prepayments, in full or in part, on the Term Loan, provided that each
partial prepayment must be in an amount equal to $500,000 or an integral
multiple of $200,000 in excess thereof.
As a partial hedge against increases in interest rates and as required
by the terms of the Bank Credit Agreement, HOM entered into an interest rate cap
agreement with The First National Bank of Chicago in September 1994. This
agreement covers a notional amount of $50 million and provides for an interest
rate cap on LIBOR of 7.5 percent. The interest cap expires August 22, 1996.
HOM is subject to certain customary affirmative and negative covenants
contained in the Bank Credit Agreement. These include, without limitation,
covenants that restrict, subject to certain exceptions, incurrence of additional
indebtedness, mergers, consolidations or asset sales, changes in the nature of
the business, granting of liens to secure any other indebtedness and
transactions with affiliates. In addition, the Bank Credit Agreement requires
that the Company maintain certain specified financial ratios, including minimum
interest and fixed charge coverage ratios, maximum leverage ratio, minimum net
worth levels and ceilings on leverage and capital expenditures. In order to
reflect the impact of the seasonality of the Company's business on its financial
condition, relevant covenants in the Bank Credit Agreement are set on a rolling
twelve month basis. Borrowing availability under the Bank Credit
11
<PAGE> 13
Agreement at March 31, 1996 was $12.2 million after considering outstanding
letters of credit of $0.4 million, actual borrowings of $34.0 million, and
sufficiency of collateral.
The Notes are general obligations of HOM and bear interest at the rate
of 13% per annum. The interest on the Notes is payable semi-annually, in
arrears, commencing on February 15, 1995. Principal of the Notes is payable on
the maturity date, August 15, 2002. HOM's payment obligations under the Notes
are unconditionally guaranteed by the Company. The Notes and the Company's
guaranty are subordinated to the prior payment of all of the Company's senior
debt (which includes amounts outstanding under the Bank Credit Agreement). The
Indenture governing the Notes contains customary provisions restricting mergers,
consolidations or sales of assets, issuances of preferred stock or the
incurrence of additional indebtedness, payment of dividends, creation of liens
and transactions with affiliates. Provided that certain financial tests are met,
the Indenture does not limit the amount of additional indebtedness that HOM and
its subsidiaries may incur.
The Notes are generally not redeemable at the option of the Company
until August 15, 1999. Subject to certain conditions, at any time within 36
months of the date of the Indenture under which the Notes were issued, up to 35%
of the initial principal amount of the Notes originally issued may be redeemed
with the net proceeds of one or more public offerings of equity securities of
the Company or HOM at a redemption price of 110% of the principal amount
thereof, together with accrued and unpaid interest. Under certain limited
circumstances, HOM may be required to use a portion of the proceeds from asset
sales to make an offer to purchase a portion of the Notes, at a price of 101% of
the principal amount thereof, together with accrued and unpaid interest. In
addition, in the event of a change in control of HOM (generally defined to mean
any transaction or series of transactions which results in persons other than
the Thomas H. Lee Company, its affiliates and certain related entities acquiring
beneficial ownership of more than 50% of the total voting power of the Company
on a fully diluted basis), each holder will have the right to require HOM to
repurchase its Notes at a price of 101% of the principal amount thereof,
together with accrued and unpaid interest thereon. Except for the foregoing
circumstances, HOM is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
The Bank Credit Agreement currently prohibits HOM from purchasing any
Notes prior to the expiration thereof and also provides that certain change in
control events with respect to HOM would constitute a default thereunder.
The Company is a holding company with no independent operations and has
no material assets other than its ownership of all of the outstanding stock of
HOM. Therefore, the Company is dependent on the receipt of dividends and other
distributions from HOM and the proceeds from the sale of its capital stock (to
the extent that such proceeds are not required to be used to prepay outstanding
indebtedness) to fund any obligations that the Company incurs. The Bank Credit
Agreement prohibits, and the Indenture restricts, the payment of dividends to
the Company by HOM.
12
<PAGE> 14
Based upon current levels of operations, anticipated sales growth and
plans for expansion, management believes that the Company's cash flow from
operations (including favorable cost savings estimated to be achieved in the
future), combined with borrowings available under the Bank Credit Agreement,
will be sufficient to enable the Company to meet all of its cash operating
requirements over both the short term and the longer term, including scheduled
interest and principal payments, capital expenditures and working capital needs.
This expectation is predicated upon continued growth in revenues in the
Company's core businesses consistent with historical experience, achievement of
operating cash flow margins consistent with historical experience, and the
absence of significant increases in interest rates.
INFLATION
Increases in interest rates, the costs of materials and labor, and
federal, state and local tax rates can significantly affect the Company's
operations. Management believes that the current practices of maintaining
adequate operating margins through a combination of new product introductions,
product differentiation, cost reduction, outsourcing, manufacturing and overhead
expense control and careful management of working capital are its most effective
tools for coping with inflation.
NEW ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board issued two
pronouncements effective for financial statements for years beginning after
December 15, 1995 that would apply to the Company The Company has considered the
requirements of Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of and has determined that it
will not require recognition of any impairment losses. The Company has also
determined to remain within the accounting prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees, and accordingly the implementation of
Statement No. 123, Accounting for Stock-Based Compensation will result in
additional disclosures without any impact on the statements of operations or
financial condition.
13
<PAGE> 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on March 7, 1996. The
following matters were voted on at the meeting.
1. Election of William P. Carmichael, Peter C. McC. Howell and Scott A.
Schoen as Directors of the Company. The nominees were elected as
Directors with the following vote:
William P. Carmichael
---------------------
For 6,657,548
Withheld 38,007
Broker non-votes -
Peter C. McC. Howell
--------------------
For 6,657,548
Withheld 38,007
Broker non-votes -
Scott A. Schoen
---------------
For 6,657,448
Withheld 38,107
Broker non-votes -
2. Approval of the ratification of the appointment of KPMG Peat Marwick
LLP as the Company's independent auditors for the fiscal year ending
September 29, 1996:
For 6,669,358
Against 20,544
Abstain 5,653
Broker non-votes -
For information on how the votes for the above matters have been tabulated, see
the Company's Definitive Proxy Statement used in connection with the Annual
Meeting of Stockholders held on March 7, 1996.
14
<PAGE> 16
Item 6. Exhibits and Reports on Form 8-K
(a) See the Exhibit Index at page E-1 of this Form 10-Q.
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
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.
HEALTH O METER PRODUCTS, INC.
HEALTH O METER, INC.
Date: May 14, 1996 /s/ Richard C. Adamany
-----------------------
Richard C. Adamany
Senior Vice President, Treasurer
and Chief Financial Officer
15
<PAGE> 17
Exhibit Index
-------------
<TABLE>
<CAPTION>
Sequential
Exhibit Number Description of Document Page
- -------------- ----------------------- ----
<C> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of the (A)
Company
3.2 Certificate of Incorporation of HOM, as amended (B)
3.3 Amended and Restated By-laws of the Company, as (A)
amended
3.4 By-laws of HOM (B)
3.5 Certificate of Amendment to Amended and Restated Certificate (J)
of Incorporation of the Company
4.1 Indenture dated August 17, 1994 pursuant to which HOM's 13% (C)
Senior Subordinated Notes due 2002 have been issued
4.2 13% Senior Subordinated Note due 2002 (C)
4.3 Warrant Agreement dated August 17, 1994 (C)
10.1 Second Amended 1992 Stock Incentive Plan of the Company* (B)
10.2 Employment Agreement among the Company, HOM and Peter C. McC. (A)
Howell*
10.3 Form of Non-Qualified Stock Option Agreement between the (A)
Company and Peter C. McC. Howell*
10.4 Amended and Restated Employment and Non-Competition Agreement (B)
among the Company, HOM and Lawrence Zalusky, dated as of June
28, 1994*
10.5 Employment Agreement between the Company and S. Donald (A)
McCullough dated April 4, 1994*
10.6 Employment Agreement between the Company and Richard C. (K)
Adamany dated March 31, 1995*
10.7 Employment Agreement between the Company and Timothy J. (K)
McGinnity dated March 31, 1995*
10.8 Employment Agreement between the Company and Thomas W. Rehmus (L)
dated July 19, 1995*
10.9 Second Amended and Restated Stockholders Agreement among the (A)
Company and certain of its stockholders
10.10 Credit Agreement dated August 17, 1994 among HOM, Banque (C)
National de Paris, New York Branch and the lenders named
therein
10.11 Amended and Restated Management Agreement among the THL Co., (A)
HOM and the Company
10.12 Letter Agreement between HOM and JLP Media, Inc. dated January (D)
31, 1992
10.13 Agreement for Purchase and Sale of Assets dated November 11, (G)
1992 among Pelouze, HOM and PSC Acquisition Co.
</TABLE>
E-1
<PAGE> 18
<TABLE>
<C> <C> <C>
10.14 Agreement and Plan of Merger dated as of May 24, 1994 among (B)
the Company, HOM, Java Acquisition Corporation and Mr. Coffee,
inc.
10.15 1994-1999 Labor Agreement between Mr. Coffee and Industrial (H)
and Allied Employees Local Union No. 73.
10.16 1995 Stock Option and Incentive Plan of the Company* (I)
21 Subsidiaries of the Company (H)
- --------------------------
<FN>
(A) Incorporated herein by reference to the appropriate exhibit to the
Company's registration statement on Form S-1 (Reg. No. 33-80124).
(B) Incorporated herein by reference to the appropriate exhibit to the
Company's and HOM's registration statement on Form S-1 (Reg. No.
33-80000).
(C) Incorporated herein by reference to the appropriate exhibit to the
Company's current report on Form 8-K dated August 17, 1994.
(D) Incorporated herein by reference to the appropriate exhibit to the
Company's registration statement on Form S-1 (Reg. No. 33-45202).
(E) Incorporated herein by reference to the appropriate exhibit to the
Company's annual report on Form 10-K for the year ended December 31,
1992.
(F) Incorporated herein by reference to the appropriate exhibit to the
Company's annual report on Form 10-K for the year ended December 31,
1993.
(G) Incorporated herein by reference to the appropriate exhibit to the
Company's current report on Form 8-K dated December 12, 1992.
(H) Incorporated herein by reference to the appropriate exhibit to the
Company's annual report on Form 10-K for the period ended October 2,
1994.
(I) Incorporated herein by reference to the appropriate exhibit to the
Company's Proxy statement in connection with the Annual Meeting of
Stockholders held on April 27, 1995.
(J) Incorporated herein by reference to the appropriate exhibit to the
Company's current report on Form 10-Q for the period ended April 2,
1995.
(K) Incorporated herein by reference to the appropriate exhibit to the
Company's current report on Form 10-Q for the period ended July 2,
1995.
(L) Incorporated herein by reference to the appropriate exhibit to the
Company's annual report on Form 10-K for the year ended October 1,
1995.
* Management contract or compensatory plan or arrangement.
</TABLE>
E-2
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000883327
<NAME> HEALTH O METER PRODUCTS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> MAR-31-1996
<CASH> 1,109
<SECURITIES> 0
<RECEIVABLES> 47,467
<ALLOWANCES> 0
<INVENTORY> 36,249
<CURRENT-ASSETS> 90,982
<PP&E> 18,558
<DEPRECIATION> 0
<TOTAL-ASSETS> 258,024
<CURRENT-LIABILITIES> 39,447
<BONDS> 165,070
<COMMON> 91
0
0
<OTHER-SE> 47,913
<TOTAL-LIABILITY-AND-EQUITY> 258,024
<SALES> 153,682
<TOTAL-REVENUES> 0
<CGS> 105,401
<TOTAL-COSTS> 138,289
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,814
<INCOME-PRETAX> 5,745
<INCOME-TAX> 3,758
<INCOME-CONTINUING> 1,987
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,987
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000925252
<NAME> HEALTH O METER INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> MAR-31-1996
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0
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<OTHER-SE> 367
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<SALES> 153,682
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,814
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<INCOME-TAX> 3,758
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<NET-INCOME> 1,987
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
