<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-22144
INBRAND CORPORATION
Georgia 58-1113677
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1169 Canton Road, Marietta, Georgia 30066
- ---------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
(770) 422-3036
----------------------------------------------------
(Registrant's telephone number, including area code)
Title of each class Name of each exchange on which registered
- ----------------------- -----------------------------------------
Common stock, par value Nasdaq National Market
$.10 per share
Securities registered pursuant to Section 12(g) of the Act: None
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
--- ---
Indicate by check mark if disclosure of delinquent filers 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 or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.[ X ]
As of September 25, 1996, there were 7,840,097 shares of the Registrant's
Common Stock outstanding and the aggregate market value of such stock held by
non-affiliates of the Registrant was $231,282,861 (based upon the $29.50 per
share closing price on that date as reported by the Nasdaq National Market).
<PAGE> 2
INBRAND Corporation's 1996 Annual Report to Shareholders, Notice of Annual
Meeting, and 1996 Proxy Statement dated September 25, 1996, contain much of the
information required to be in this Form 10-K, and portions of those documents
are incorporated by reference from the applicable sections of those documents.
The following chart identifies the sections of the Corporation's 1996 Annual
Report on Form 10-K which incorporate by reference portions of the Corporation's
1996 Annual Report to Shareholders and portions of the 1996 Proxy Statement. The
Items of this Form 10-K, where applicable, specify which portions of such
documents are incorporated by reference. The portions of such documents that
are not incorporated by reference herein shall not be deemed to be filed with
the Commission as part of this Form 10-K.
<TABLE>
<CAPTION>
Document of Which Portions Parts of this Form 10-K
are Incorporated by Reference in Which Incorporated
----------------------------- -----------------------
<S> <C> <C> <C>
1996 Annual Report to Shareholders
(Year ended June 29, 1996) Part II Item 5. Market for the Registrant's Common Stock
and Related Shareholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operation
Item 8. Consolidated Financial Statements and
Supplementary Data
Item 14. Exhibits, Financial Statement, Schedules
and Reports on Form 8-K
1996 Proxy Statement Part III Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
Owners and Management
</TABLE>
<PAGE> 3
INBRAND CORPORATION
Table of Contents to Annual Report on Form 10-K
PART I
<TABLE>
<S> <C>
Item 1: BUSINESS
Item 2: PROPERTIES
Item 3: LEGAL PROCEEDINGS
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
Item 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
Item 6: SELECTED FINANCIAL DATA
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Item 8: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 11: EXECUTIVE COMPENSATION
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
Item 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-----
SIGNATURES
</TABLE>
<PAGE> 4
PART I
Item 1: BUSINESS.
General
The Company designs, manufactures and markets a broad line of
disposable personal absorbent products which include incontinence products for
adults who are temporarily or permanently incontinent, as well as feminine
hygiene products and disposable baby diapers.
The Company serves two principal markets within North America
and Europe, namely clinical and retail. Customers in the clinical markets
consist primarily of long-term care facilities, hospitals and home healthcare
providers. The Company services the clinical market principally through
medical/surgical distributors supported in the U.S. by the Company's field sales
force which develops relationships directly with many of these customers. The
Company addresses the retail market through the development of private label
programs from major retailers such as grocery and drug chains and
mass-merchants, as well as from many food and drug wholesalers.
In July of 1995, the Company acquired Hygieia Healthcare
Holdings Limited ("Hygieia"). Hygieia, which has operations in New Castle,
England and Montreal, Canada, designs, manufactures and markets feminine
hygiene products through private label programs in the United Kingdom, Canada
and Europe. Hygieia's product line includes maxipads, liners, ultrathin winged
products and tampons.
In a continuing effort to broaden its product offerings to the
retail market and to penetrate further the European marketplace, the Company
acquired through its subsidiary, INBRAND France, S.A. ("INBRAND France")
substantially all of the assets of Celatose, S.A. and certain of its
subsidiaries ("Celatose"). The acquisition was completed in February, 1996.
INBRAND France manufactures and distributes adult incontinence products and
disposable baby diapers which are marketed primarily in Europe. The
manufacturing and distribution operations of INBRAND France are based in Lille,
France, as well as a small presence in Montpelier, France. To complement the
acquisition of the Celatose assets, the Company also acquired Julian T. Holding,
B.V. ("JTH") through its INBRAND Europe, B.V. subsidiary. This acquisition was
completed in July, 1996, subsequent to the Company's fiscal year end. JTH,
based in Goirle, The Netherlands, also manufactures adult incontinence products
and distributes these products, together with disposable baby diapers, through
its distribution operations in the Benelux countries and the United Kingdom.
JTH's manufacturing operations are based in the United Kingdom.
Together the Hygieia, Celatose and JTH acquisitions provide
the Company with a significant geographic expansion of its customer base, as
well as an expansion of its product line to include feminine hygiene products
and disposable baby diapers.
Products and Markets
The Company offers a broad range of high-quality, disposable
personal absorbent products, including adult incontinence products, feminine
hygiene products and disposable baby diapers. The Company's incontinence
products accommodate the varied levels and types of incontinence and the
different lifestyles of incontinent adults. The feminine hygiene products are
designed to provide comfort, security and ease of use. Finally, like the body
worn adult incontinence product, the disposable baby diaper is designed to
protect against leakage and skin irritation. The Company manufactures
substantially all of the products it sells.
Products. The Company produces three categories of disposable
personal absorbent products: adult incontinence products, feminine hygiene
products and disposable baby diapers. These products generally share basic
design and product functionality criteria, as well as manufacturing
characteristics. The absorbency capabilities are achieved by placing an
absorbent core between two layers of material. The layer which is placed next
to the skin is a soft, non-woven fabric which allows fluids to pass through it
into the absorbent inner core which traps and contains the fluid. This
absorbent core is generally made of fluff pulp and is frequently combined with
super-absorbent polymers to
<PAGE> 5
improve absorbency. A soft film backing covers the underside of the core and
provides a moisture barrier. The raw materials, although differing
dimensionally from product to product, are similar across all product
categories. This similarity in design and in the raw materials used in each
product permits the Company to use manufacturing equipment which is similar in
its basic design and operating techniques.
The Company's adult incontinence product category includes
products which can be classified as either body worn or underpads. Body worn
products, while differing in their specific design characteristics, are
generally worn directly against the body of an ambulatory person. They may be
self contained in that they have integrated fastening systems allowing them to
be worn with no additional support requirements or they may be designed as an
absorbent pad to be worn fastened to the inside of the wearer's underwear. These
products are produced with a variety of features and multiple sizes which
determine their performance characteristics as well as their selling price.
Underpads are larger, rectangular pads which cover bedding or furniture and are
also produced in varying sizes and weights to fit differing needs of the user.
The Company's feminine hygiene product category includes
products which can be classified as either sanitary pads, panty-liners or
tampons. Sanitary pads are smaller in size and are designed to be worn inside
underpants for external control of menstrual flows. Panty-liners are also
designed to be worn inside underpants but have lighter absorbency
characteristics and are generally used for additional protection. Tampons are
designed for internal use in absorbing menstrual flow and are generally used as
an alternative to sanitary pads.
The Company's disposable baby diaper category includes products
which are all body worn and, although substantially smaller in size, are very
similar to the Company's body-worn adult incontinence products. They are
designed with integrated fastening systems, generally consisting of refastenable
tape tabs and, as with adult incontinence products, can be produced with a
variety of additional features and in multiple sizes which determine their
performance characteristics as well as their selling price.
Markets. In both North America and Europe, the Company divides
the market for incontinence products into two categories, clinical and retail,
while the market for feminine hygiene and disposable baby diaper products is
almost exclusively retail. The clinical market includes long-term care
facilities, hospitals and home healthcare providers. The retail market includes
grocery and drug chains and mass-merchants who sell national brands, private
labels and control labels. Each of the North American and European markets, as
well as the clinical and retail markets contained within them, has a different
profile, may require a different product mix and has different growth potential
and characteristics.
Patients within the clinical market are typically elderly and a
significant number of them are affected by some degree by incontinence. Because
of the increase in the elderly population in North America and Europe and the
increase in average life span, there is a growing number of incontinent
patients. While many nursing homes continue to use reusable products for
incontinent patients, the Company believes that enhanced skin care, comfort and
ease of use afforded by disposable products create significant opportunities to
further penetrate this market.
Particularly in North America, the retail consumer has become
more aware of the existence and availability of incontinence products through
the extensive advertising of successful national product brands. Current
incontinence products are designed to restore dignity, permit a more active
lifestyle and facilitate care of home-bound patients. Both in North America and
Europe, the retail consumer of feminine hygiene and disposable baby diaper
products, who is fully aware of the existence and availability of these
products, is increasingly willing to purchase private label product offerings in
these categories. Disposable personal absorbent products have become
increasingly important to grocery and drug store chains, as well as
mass-merchants who see an opportunity to introduce these products as part of
their private label programs. In North America, the Company offers to its
customers private label adult incontinence and feminine hygiene product
programs, while in Europe, these same product offerings are coupled with the
disposable baby diaper product. The Company does not currently offer its baby
diaper products in North America.
2
<PAGE> 6
Marketing and Distribution
Following is a description of the Company's principal
marketing and distribution channels.
North America.
Clinical. In the clinical market, adult incontinence products
are supplied to institutions such as long-term care facilities and hospitals
through national, multibranch medical/surgical distributors, as well as regional
and independent distributors. In addition, the Company conducts extensive
national account sales activity with hospital and nursing home groups and other
national purchasing groups. Feminine hygiene and disposable baby diaper
products are not sold in any material quantities to the clinical market.
Retail. The emerging trend in adult incontinence product
purchasing is through retail channels. National brands have been advertised
heavily and sold in grocery and drug chains, independent drug stores and mass-
merchants. This effort has increased the public's awareness of incontinence
products resulting in increased demand from consumers. This demand has caused
retailers to examine private label programs for these products. With respect to
feminine hygiene and disposable baby diaper products, which are relatively
mature product categories, the retail consumer is showing a willingness to
consider the Company's private label product offerings. The Company, as well
as retailers, see distribution and sales synergies in combining feminine hygiene
and adult incontinence product offerings to consumers through these private
label programs. The Company does not market baby diapers through this channel
of distribution.
Europe.
Clinical. The Company markets its adult incontinence products
through clinical channels for use in long-term care facilities and hospitals as
well as through home-care channels. Depending upon the geographic area, the
Company markets its products in a variety of different ways. The majority of
its products are marketed through distributors who in turn supply institutional
users. In these situations, the Company's sales activities are primarily
confined to distributor contacts. The other major marketing channel is through
direct placement to government health-care agencies, frequently on a bid
basis. Feminine hygiene and disposable baby diaper products are not sold in
any material quantities through the clinical channels.
Retail. The Company markets disposable baby diapers, feminine
hygiene products and, to a lesser extent, adult incontinence products through
retail channels. These products are generally marketed throughout Europe,
directly to retailers under their own private labels. Both the disposable baby
diaper and feminine hygiene product categories are relatively mature. Because
many of the European countries consider incontinence products as a reimbursable
medical expense within their national health insurance programs, sales of these
products through the retail market channel are limited. Currently, much of the
Company's adult incontinence product line which is sold at retail is placed
through what has historically been the clinical distribution channel.
Customers
The Company's largest customer, General Medical, is a
medical/surgical distributor composed of numerous branches which buy directly
from the Company. In the aggregate, General Medical accounted for
approximately 14.2% of the Company's net sales for fiscal 1996. The Company has
no other customers which accounted for more than 10% of net sales for fiscal
1996. The Company believes that its broad customer base reduces its dependence
on the continued success of any single distributor or retailer. The Company
has contracts with certain of its customers which provide a fixed price for
Company products but do not require specific volume purchases by the customer.
3
<PAGE> 7
Raw Materials
The components and materials used in the Company's products
include fluff pulp, non-woven fabric, tissue, super-absorbent polymer ("SAP"),
elastic, adhesives, polyethylene and polypropolyene films and various packaging
materials. All of these components and materials are available from several
sources. The Company does not anticipate any difficulty in obtaining adequate
quantities of raw materials and has entered into supply contracts with certain
raw materials suppliers in an effort to achieve more consistent raw materials
pricing. This will effectively fix the Company's acquisition costs for a
substantial portion of its major raw material through 2003 as well as
guaranteeing availability of worldwide supply for the balance of the Company's
raw material requirements at competitive prices.
Competition
The disposable personal absorbent products industry is
characterized by both global and local competition among several large and
medium-sized manufacturers, as well as numerous smaller manufacturers.
Globally, in the clinical and retail markets, the Company
faces competition from large, well-established competitors. These companies,
including Procter & Gamble, Kimberly-Clark, Johnson & Johnson and Molnlycke,
produce the major branded incontinence, feminine hygiene and disposable baby
diaper products and have a significant presence in all or part of the North
American and European territories in which the Company markets its products. The
Company also faces significant retail competition in North America from Confab,
a major private label manufacturer. The Company believes that its expertise in
adult incontinence products, its broad product lines, its close working
relationships with its distributors, synergies from its major product categories
and its sales force results in a significant competitive advantage.
Government Regulation
Neither the Company nor its adult incontinence products are
currently regulated by the Food and Drug Administration ("FDA") and comparable
health authorities. However, the tampon products are regulated by the FDA and
are subject to clinical testing and approval. Changes in federal or state
health, environmental or safety regulations or their applications to the
Company could adversely affect the Company's business. The Company does not
now use materials which constitute hazardous substances and does not generate
or discharge any hazardous waste in the course of its manufacturing processes.
Although the Company has not to date incurred any material liabilities under
environmental laws and regulations and although the Company believes it is in
substantial compliance with applicable laws and regulations, environmental
liabilities could arise in the future which may adversely affect the Company's
business.
Some jurisdictions have passed legislation intended to
discourage the use of disposable products, including disposable adult
incontinence products, or to encourage the use of non-disposable or recyclable
products. The Company cannot predict whether any future legislation of this
type will be adopted, the ultimate terms thereof or the effect of such
legislation on the Company.
Intellectual Property
The Company utilizes a number of trademarks and logos in
connection with the sale and advertising of its products. The Company believes
that its trademarks and logos are of considerable value to its business and
intends to continue to protect them to the fullest extent practicable. The
Company takes all reasonable measures to assure that any product bearing a
Company trademark reflects the consistency and quality associated with the
Company's products. As of June 29, 1996, the Company had 16 United States
registered trademarks. Significant trademarks of the Company include Medical
Disposables(R), MaxiCare(R), SureCare(R), PrimeTime,(R) Simplicity (R) and
Presence (R). In Europe and Canada, the Company uses several trademarks,
including "Celastique", "Celanorm", "Celanet", "Celapropnos" and "Comforta".
4
<PAGE> 8
Employees
As of June 29, 1996, the Company employed 810 persons on a
full-time basis, of which 411 are in the U.S., 8 are in Canada, 276 are in
France and 115 are in the United Kingdom. Subsequent to June 29, 1996, the
Company added 103 employees who are located in The Netherlands and the United
Kingdom as part of the INBRAND Europe operations which include JTH. The
Company does not have a collective bargaining agreement with any of its
employees; however, the Company's French labor force is represented by four
separate state-sponsored unions. The Company considers its employee relations
to be good.
Item 2: PROPERTIES.
The Company's principal executive offices, its sole U.S.
manufacturing facility and its distribution center are owned by the Company and
are located in Marietta, Georgia which is considered part of metropolitan
Atlanta. The Company maintains the following locations for its manufacturing
and distribution operations:
<TABLE>
<CAPTION>
Square
Facility Location Feet Own/Lease
-------- -------- ------ ---------
<S> <C> <C> <C>
Marietta Facility - Plant Marietta, Georgia 210,000 Own
Marietta Facility - Office and Warehouse Marietta, Georgia 267,000 Own
Canadian Distribution Center Montreal, Canada 28,000 Lease
INBRAND France - Plant, Warehouse and Lille, France 154,000 Lease
Office
INBRAND France - Plant Montpelier, France 42,000 Lease
INBRAND Benelux - Office and Warehouse Goirle, The Netherlands 23,000 Own
INBRAND Europe - Holding Co. Goirle, The Netherlands 2,000 Own
Comforta Healthcare - Plant, Warehouse and Worscester, UK 48,000 Lease
Office
Hygieia Newcastle, UK 75,000 Lease
</TABLE>
Item 3: LEGAL PROCEEDINGS.
The Company is subject to various claims and legal actions
which arise in the ordinary course of business. The Company believes such
claims and legal actions, individually and in the aggregate, will not have a
material adverse effect on the business or financial condition of the Company.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the year ended June 29, 1996, no
matters were submitted to a vote of security holders.
5
<PAGE> 9
PART II
Item 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
The information required by Item 5 which is included in the
sections titled "Nasdaq Symbol" and "Market Prices and Dividend Information" on
the inside back cover of the Company's 1996 Annual Report to Shareholders is
incorporated herein by reference.
Item 6: SELECTED CONSOLIDATED FINANCIAL DATA.
Selected consolidated financial data including net sales,
operating income, net income per common share, total assets, and total debt,
are reported in the section titled "Selected Consolidated Financial Data" on
page 4 of the Company's 1996 Annual Report to Shareholders and are incorporated
herein by reference.
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's discussion and analysis of financial condition
and results of operations which is included in the section titled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 5 through 7 of the Company's 1996 Annual Report to Shareholders is
incorporated herein by reference.
Item 8: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and supplementary data
included on pages 8 through 23 of the Company's 1996 Annual Report to
Shareholders, are incorporated herein by reference.
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
6
<PAGE> 10
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Garnett A. Smith 49 Chairman of the Board and Chief
Executive Officer; Director
H. Scott Sigler 47 President and Chief Operating
Officer; Director
James R. Johnson 49 Senior Vice President-Finance,
Chief Financial Officer and
Secretary
William B. Kellett 57 Senior Vice President -
Manufacturing
Mary N. Moore 46 Director
Joseph H. Davenport, III 49 Director
Tommy D. Greer 64 Director
W. Thorpe McKenzie 48 Director
John C. Thornton 42 Director
</TABLE>
Garnett A. Smith has served as Chairman of the Board and Chief
Executive Officer since 1994 and as a Director since 1984. From 1986 to 1994,
Mr. Smith served as President and Chief Executive Officer of the Company.
H. Scott Sigler has served as President and Chief Operating
Officer since 1994 and as a Director since 1989. From 1985 to 1994, Mr. Sigler
served as Executive Vice President of the Company.
James R. Johnson has served as Chief Financial Officer and
Secretary since 1987 and as Vice President since 1993. Mr. Johnson was named
Senior Vice President-Finance in June, 1996.
William B. Kellett has served as Vice President - Manufacturing
since 1985. Mr. Kellett was named Senior Vice President-Manufacturing in June,
1996.
Mary N. Moore has served as a Director of the Company since
1984. Ms. Moore is general partner and chief executive director of The Navarre
Company, a family investment partnership, and has held such positions since
1984. Ms. Moore is also a director of NationsBank of Chattanooga, Tennessee.
Joseph H. Davenport, III has served as a Director of the
Company since 1984. Mr. Davenport is currently president of Howard Holdings,
Inc., a family investment company and since 1990 has been a managing director
of Pointer Management Company, an investment management firm. Mr. Davenport is
a director of SunTrust Bank, Chattanooga, N.A.
Tommy D. Greer has served as a Director since 1994. Mr. Greer
is currently the Chairman of Catalina Marketing Corporation, which develops
electronic marketing systems for packaged goods manufacturers and retailers,
having held this position since 1992. From 1989 to 1992, Mr. Greer was
President and Chief Operating Officer of Catalina and was its Chief Executive
Officer from 1992 until 1994.
7
<PAGE> 11
W. Thorpe McKenzie has served as a Director of the Company
since 1984. Mr. McKenzie is a private investor and, since 1990, has been a
managing director of Pointer Management Company, an investment management firm.
John C. Thornton has served as a Director since 1995. Mr.
Thornton currently serves as Chairman of Thunder Enterprises, an investment and
real estate development firm, a position he has held since 1993. From May,
1993 until June, 1994, Mr. Thornton served as President of American Rug
Craftsman, Inc. Previously, beginning in 1984 and until May, 1993, Mr.
Thornton served as President, Chief Executive Officer and Chairman of the Board
of American Rug Craftsmen, Inc..
Item 11: EXECUTIVE COMPENSATION.
The information contained under the sections titled "Executive
Compensation and Other Information", "Report of the Compensation Committee of
the Board of Directors" and "Company Performance" on pages 6 through 12 of the
Company's Proxy Statement dated September 25, 1996, is incorporated herein by
reference.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the section "Voting Securities
and the Principal Holders Thereof" on page 2 of the Company's Proxy Statement
dated September 25, 1996, is incorporated herein by reference.
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
8
<PAGE> 12
PART IV
Item 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) The following financial statements of the Registrant
included in the Company's 1996 Annual Report to
Shareholders are incorporated herein by reference in
Item 8:
Report of Independent Accountants Consolidated Balance
Sheets - July 1, 1995 and June 29, 1996
Consolidated Statements of Income - Years ended
July 2, 1994, July 1, 1995, and June 29, 1996
Consolidated Statement of Shareholders' Equity - Years
ended July 2, 1994, July 1, 1995, and June 29, 1996
Consolidated Statements of Cash Flows - Years ended
July 2, 1994, July 1, 1995, and June 29, 1996
Notes to Consolidated Financial Statements
(2) The following financial statement schedules for the
years 1996, 1995 and 1994 are submitted herewith and
should be read in conjunction with the financial
statements in the 1996 Annual Report to Shareholders:
Report of Independent Accountants on Financial
Statement Schedules
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and therefore
have been omitted.
9
<PAGE> 13
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
INBRAND Corporation
Marietta, Georgia
We have audited the consolidated financial statements of INBRAND Corporation
and subsidiaries as of July 1, 1995 and June 29, 1996, and for each of the
three years in the period ended June 29, 1996, and have issued our report
thereon dated August 14, 1996. Such consolidated financial statements and
report are included elsewhere in this annual report. Our audits also included
the financial statement schedules of INBRAND Corporation and subsidiaries
listed in Item 14(a)(2). These financial statement schedules are the
responsibility of the company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
JOSEPH DECOSIMO AND COMPANY
A Tennessee Registered Limited Liability Partnership
Chattanooga, Tennessee
August 14, 1996
10
<PAGE> 14
INBRAND Corporation and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charged to Deductions Balance at End
Beginning of Costs and Other of Period
Period Expenses Accounts
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year Ended July 2, 1994 $140,000 $ 51,000 $ - $ 66,000 (a) $125,000
Year Ended July 1, 1995 $125,000 $121,000 $ - $ (4,000)(a) $250,000
Year Ended June 29, 1996 $250,000 $419,000 $ 31,000 (c) $ 19,000 (a) $681,000
Inventory Valuation Reserve
Year Ended July 2, 1994 $ - $493,000 $ - $ - $493,000
Year Ended July 1, 1995 $493,000 $ 52,000 $ - $255,000 (b) $320,000
Year Ended June 29, 1996 $320,000 $169,000 $518,000 (c) $209,000 (b) $798,000
</TABLE>
(a) Uncollected receivables written off, net of recoveries.
(b) Inventory written off.
(c) Valuation and qualifying accounts from acquired businesses.
11
<PAGE> 15
(b) Reports on Form 8-K:
(1) Form 8-K dated July 26, 1995, as amended on
Form 8-K/A filed September 26, 1995, announcing the acquisition by the Company
of Hygieia Healthcare Holdings Limited.
(2) Form 8-K dated February 9, 1996, as amended
on Forms 8-K/A filed April 23, 1996 and September 19, 1996 announcing the
acquisition of certain assets of Celatose, S.A.
(3) Form 8-K dated July 31, 1996 announcing the
acquisition of the capital stock of Julian T. Holding, B.V.
(c) Exhibits.
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
* 3.1 Amended and Restated Articles of Incorporation of the
Company
** 3.2 Amendment to Amended and Restated Articles of
Incorporation of the Company dated October 25, 1994
* 3.3 Amended and Restated By-Laws of the Company
***10.1 Sale and Purchase Agreement among the Company and the
selling stockholders of Hygieia Healthcare Holdings
Limited, dated July 26, 1995
****10.2(a) Bid of INBRAND Corporation for acquisition of certain
assets of Celatose, S.A.
****10.2(b) Notice of approval from the Administrateur Judiciare
regarding Celatose, S.A.
****10.2(c) Court Order granting INBRAND Corporation bid for certain
assets of Celatose, S.A.
****10.3 Master Agreement among the Company, Jan A.C.W.M. Van
Grinsven, Julian T. Holding, B.V., Joost Mourus and Frits
Kuijzer dated February 20, 1996
**10.4 Loan Agreement dated December 21, 1993, as amended,
between the Company and SouthTrust Bank of Georgia, N.A.
*10.5 Stock Incentive Plan of the Company
*10.6 Employee Stock Purchase Plan of the Company
*10.7 INBRAND Corporation Employee Profit Sharing Plan and
401(k) Plan and Trust
10.8 Management Bonus Plan
10.9 Pursuant to an oral agreement, the Company pays $30,000
each year for consulting services to Howard Holdings,
Inc., a corporation of which Joseph H. Davenport, III, a
Director of the Company, is the principal stockholder.
Howard Holdings, Inc. is also a stockholder of the
Company. (No exhibit included.)
</TABLE>
12
<PAGE> 16
<TABLE>
<S> <C>
10.10 Wood Pulp Supply Agreement between the Company and
Georgia-Pacific Corporation dated May 1, 1996. (Portions
of the agreement have been omitted and marked
[confidential] and filed separately with the Commission)
13 Relevant Sections of 1996 Annual Report of Shareholders
incorporated herein by reference
21 List of Subsidiaries
23 Consent of Joseph Decosimo and Company, independent
certified public accountants.
27 Financial Data Schedule (for SEC use only)
- ---------------
</TABLE>
* Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended July 2, 1994.
** Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended July 1, 1995.
*** Incorporated by reference to the Company's filing on Form 8-K dated
July 26, 1995, as amended on Form 8-K/A filed September 26, 1995.
**** Incorporated by reference to the Company's filing on Form 8-K dated
February 9, 1996, as amended on Forms 8-K/A filed April 23, 1996, and
September 19, 1996.
13
<PAGE> 17
SIGNATURES
Pursuant to the 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 on this
26th day of September, 1996.
INBRAND CORPORATION
By: /s/ Garnett A. Smith
-------------------------
Garnett A. Smith, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the date indicated:*
<TABLE>
<S> <C> <C>
/s/ Garnett A. Smith Date: September 26, 1996
- ----------------------------------------
Garnett A. Smith, Chairman and
Chief Executive Officer
/s/ H. Scott Sigler Date: September 26, 1996
- ----------------------------------------
H. Scott Sigler, President and
Chief Operating Officer
/s/ James R. Johnson Date: September 26, 1996
- ----------------------------------------
James R. Johnson, Senior Vice-President -
Finance, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting
Officer)
/s/ Joseph H. Davenport, III Date: September 26, 1996
- ----------------------------------------
Joseph H. Davenport, III, Director
/s/ Mary N. Moore, Director Date: September 26, 1996
- ----------------------------------------
Mary N. Moore, Director
/s/ W. Thorpe McKenzie Date: September 26, 1996
- ----------------------------------------
W. Thorpe McKenzie, Director
/s/ Tommy D. Greer Date: September 26, 1996
- ----------------------------------------
Tommy D. Greer, Director
/s/ John C. Thornton Date: September 26, 1996
- ----------------------------------------
John C. Thornton, Director
</TABLE>
*This report has been signed by a majority of the Board of Directors of the
registrant.
14
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit # Description
--------- -----------
<S> <C>
10.8 Management Bonus Plan
10.10 Wood Pulp Supply Agreement between the Company and
Georgia-Pacific Corporation dated May 1, 1996. (Portions
of the agreement have been omitted and marked
[confidential] and filed separately with the Commission)
13 Relevant Sections of 1996 Annual Report to Shareholders
incorporated herein by reference
21 List of Subsidiaries
23 Consent of Joseph Decosimo and Company, independent
certified public accountants
27 Financial Data Schedule (for SEC use only)
</TABLE>
- ----------
Exhibit 10.8 constitutes a compensation plan or arrangement covering certain
directors and officers of the Company.
<PAGE> 1
EXHIBIT 10.8
MANAGEMENT BONUS PLAN
The Company desires to compensate its senior executive officers
at a level equal to the top quartile of the comparison companies reviewed by the
Compensation Committee. It is the belief of the Compensation Committee that it
is necessary to so compensate such senior executives in order to reward them for
exceptional performance in the past and in order to encourage them to continue
such performance in the future and to discourage them from leaving the Company
for higher compensation elsewhere.
Based upon the a consultant's study prepared at the request of
the Compensation Committee and the desire of the Committee to compensate the
Company's senior executive officers in keeping with the foregoing goals, the
Committee and the Board of Directors of the Company has established the
following Company performance levels for purposes of determining annual bonus
payments for fiscal year 1997. The Committee unanimously approved the
establishment of four levels of Company performance based on percentage
increases in net income over fiscal year 1996 results, as follows:
<TABLE>
<S> <C>
Level I 8% increase over 1996 net income
Level II 14% increase over 1996 net income
Level III 18% increase over 1996 net income
Level IV 24% increase over 1996 net income
</TABLE>
The Committee and the Board of Directors has established for
fiscal year 1997 the following bonus amounts (computed as a percentage of base
salary):
<TABLE>
<S> <C> <C> <C>
Mr. Smith Level I - 22.5%
Level II - 45%
Level III - 67.5%
Level IV - 90%
Mr. Sigler Level I - 20%
Level II - 40%
Level III - 60%
Level IV - 80%
Messrs. Johnson and Kellett Level I - 17.5%
Level II - 35%
Level III - 52.5%
Level IV - 70%
</TABLE>
<PAGE> 1
EXHIBIT 10.10
CONFIDENTIAL
WOOD PULP SUPPLY AGREEMENT
May 1, 1996
The parties to this Wood Pulp Supply Agreement (the
"Agreement") are GEORGIA-PACIFIC CORPORATION, a Georgia corporation ("Seller"),
with a principal address of 133 Peachtree Street, N.E., Atlanta, Georgia 30303,
and INBRAND CORPORATION, a Georgia corporation ("Buyer"), with a principal
address of 1169 Canton Road, Marietta, Georgia 30066.
Seller desires to sell to Buyer and Buyer desires to purchase
from Seller fluff pulp ("Pulp") for Buyer's business upon the terms and
conditions hereinafter set forth. The parties intend to enter into a long-term
agreement for the sale and purchase of Pulp, on a firm "take or pay" basis,
with dependable pricing.
Now, therefore, for and in consideration of $10.00 and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Buyer and Seller hereby agree as follows:
1. Term
a. The term of this Agreement shall be from May
1, 1996 to and including January 31, 2003; provided, however, that this
Agreement shall be extended in accordance with and to the extent provided in
Exhibit A hereto with regard to Option Tonnage, if Option 2 thereof is elected
by Buyer. Except where otherwise provided, the monthly and quarterly periods
applicable to this Agreement shall be in accordance with Seller's fiscal
periods.
b. For purposes of this Agreement, the "year of
the Agreement" shall mean the period of May 1, 1996 to January 31, 1997 (also
referred to as "first year of the Agreement"), and each subsequent February 1
to January 31 period, the last of such periods being the period of February 1,
2002 to January 31, 2003.
2. Purchase and Sale Commitment
Subject to the terms and conditions stated herein, Buyer shall
take or pay for [confidential] Air Dried Metric Tons (each such Ton, an "ADMT")
of Pulp per month ("Basic Tonnage") at the
<PAGE> 2
CONFIDENTIAL
price specified in Section 4 of this Agreement ("Base Price") and as adjusted
in accordance with Section 5. Buyer shall also purchase additional Pulp under
the terms and conditions in Exhibit A, which is incorporated herein by this
reference ("Additional Tonnage"), and Option Tonnage on the terms set forth
therein.
3. Specifications
The Pulp to be sold and purchased hereunder shall be of prime
quality and shall conform to the typical specifications as and to the extent
set out in Exhibit B attached hereto and made a part of this Agreement. SELLER
MAKES NO FURTHER WARRANTY OF ANY KIND, EXPRESS OR IMPLIED. SPECIFICALLY
EXCLUDED ARE THE IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE AND THE
IMPLIED WARRANTY OF MERCHANTABILITY.
4. Base Price
[Confidential]
5. Price Adjustments
a. The Base Price established in paragraph 4
above, shall be subject to an annual adjustment beginning [confidential]
6. Payment Terms
a. The terms of payment are [confidential].
These credit terms shall apply during the term of the Agreement; however,
Seller retains the right to cancel these terms and demand terms less favorable
to the Buyer, including but no less favorable than "cash in advance," if at any
time during the term of this Agreement Seller determines that a material
adverse change in Buyer's financial position has occurred. Seller shall have
the right to continue demanding such less favorable terms until Buyer posts an
acceptable bond securing full payment in favor of Seller, or until the material
adverse change condition has been eliminated for a period of two consecutive
fiscal quarters of Buyer. In addition, all past due payments must be corrected
by Buyer within thirty (30) days of written notification from Seller, and if at
any time during the term of this Agreement Buyer fails to make the required
correction Seller may require Buyer to pay cash in advance for all future
shipments until all past due balances are eliminated. Seller
2
<PAGE> 3
CONFIDENTIAL
may declare the Buyer to be in breach of this Agreement if Buyer rejects any
such revised payment terms advised to Buyer by Seller as a result of the
material adverse change or if Buyer fails to correct a past due payment within
the time period set forth in this Section 6.a.
b. "A material adverse change," for purposes of
this provision, shall be deemed to have occurred if one or more of the
following events occur and continue for a period of two consecutive fiscal
quarters of Buyer:
i. Buyer's cash flow before working
capital changes annualized over the most recent four fiscal quarters
of Buyer is less than current portion of long term debt;
ii. Buyer's cash flow from operations
annualized over the most recent four fiscal quarters of Buyer is
negative;
iii. Times interest earned is less than
1.5. "Times interest earned" is defined for purposes of this provision
as net income before extraordinary items, interest and taxes divided
by interest charge annualized over the most recent four fiscal
quarters of Buyer.
c. Buyer shall provide to Seller current
financial information on an ongoing basis in order to provide Seller with
access to the information necessary to make the determination of material
adverse change, if any, for purposes of this Section. Buyer agrees to provide
to Seller 10-Q and 10-K forms upon 14-day prior written notice to Buyer.
7. Confidentiality
a. Each party shall consider all information
furnished by the other party hereto which is designated as "confidential" to be
confidential and shall not disclose any such information to any other person,
unless required by law or to its professional advisors bound by a duty of
confidentiality, or use such information itself for any purpose other than
performance of this Agreement, unless it first obtains written permission from
the party whose confidential information is to be disclosed. Neither party
shall advertise or publicize any information relating to the Agreement, unless
required by law, without the other party's prior
3
<PAGE> 4
CONFIDENTIAL
written consent. Seller and Buyer agree that the existence of the Agreement
itself and all terms thereof are confidential, and that they shall not be
disclosed to third parties, except to professional advisors, who are bound by a
duty of confidentiality, or where limited disclosure is dictated by normal
business needs; provided, however, that Seller and Buyer agree that the prices,
price adjustment formulae, terms of sale and Seller's costs stated in this
Agreement as well as any confidential information provided by Seller to Buyer
in the course of negotiation and implementation of this Agreement (including,
but not limited to, Seller's P&Ls) are per se "confidential information" within
the purview of paragraph 7 of this Agreement and that their disclosure by the
disclosing party requires written consent of the other party under all
circumstances. A party may disclose confidential information of the other party
to a third party only after such third party entered into a confidential
disclosure agreement that was reviewed and approved by the party whose
confidential information is to be disclosed.
b. The restrictions and obligations of
nondisclosure and non-use shall apply to confidential information in accordance
with this Section 7 except as to confidential information which (i) is in the
public domain at the time of disclosure by the disclosing party hereunder or
which later enters the public domain through no fault of the party receiving
the information; (ii) is in the possession of the recipient at the time of
disclosure other than by virtue of a breach of any person's confidentiality
obligations; (iii) becomes available to the recipient from a third party who is
under no obligation to the party disclosing the information; (iv) is
independently developed by representatives of recipient who did not have access
to confidential information provided pursuant to this Agreement; (v) a party is
obligated to produce under order of a court of competent jurisdiction, in which
case the party under such order shall give written notice of the same to the
other party at least fifteen (15) days prior to the date of compliance with
such order (unless that party has less than fifteen (15) days notice itself, in
which case said party shall give the other party as much notice as is
practicable under the circumstances); provided, however, that when a party has
notice of the pendency of any action which may result in a court order to
produce such Confidential Information, said party agrees to notify the other
party of the facts pertaining to any such action as soon as practicable under
the circumstances in order to give the other party an opportunity to protect
its
4
<PAGE> 5
CONFIDENTIAL
interests; or (vi) a party is obligated to disclose or report to the U.S.
Securities Exchange Commission or any other U.S. or foreign government agency
acting in its regulatory capacity; provided that the party disclosing
confidential information will use its best endeavors to obtain assurances from
the relevant agency that the agency will, except to the extent required by law,
maintain absolute secrecy and confidentiality of any confidential information
disclosed in accordance with this Section 7 and that the party disclosing
confidential information will provide the other party with an opportunity to
review and comment on the manner in which the confidential information shall be
redacted for purposes of placement on public file of the agency in question for
purposes of non-confidential disclosure to third parties that are not entitled
to the access to the confidential information under the rules of the government
agency pertaining to handling of confidential information submitted to such an
agency.
c. The obligations of confidentiality set forth
in this Section 7 shall continue (a) for trade secrets of Seller, as defined by
the Georgia Trade Secrets Act of 1990, as it may be amended from time to time,
for so long as such confidential information remains trade secrets of Seller,
and (b) for other confidential information, for five (5) years after the
expiration of this Agreement or any renewal hereof or the expiration of any
agreement to which the parties agree in writing and which replaces this
Agreement.
8. Assignments
a. Neither party may assign this Agreement
without the written consent of the other party; provided, however, that such
consent shall not be unreasonably withheld; provided further, that either party
may grant a security interest in or assign as security its rights under this
Agreement to any lender to such party. Subject to the foregoing, this Agreement
shall inure to the benefit of the parties and their permitted successors and
assigns hereunder.
b. Each party agrees that, in the event of any
merger, consolidation, any sale of its shares, any sale of all or substantially
all of its assets, or any lease or other transaction having an effect similar
to any of the foregoing involving such party (the "Affected Party"), (i) the
Affected Party shall ensure that the successor entity, purchaser, lessee or
other such
5
<PAGE> 6
CONFIDENTIAL
acquiring entity, as the case may be (the "Successor Entity") shall assume this
Agreement in the place of the Affected Party; (ii) the obligations of such
Affected Party under this Agreement shall be assumed and performed by such
Successor Entity in accordance with the terms hereof; and (iii) the Affected
Entity and the Successor Entity shall (and the Affected Entity shall ensure
that the Successor Entity shall) execute and deliver such agreements and
documentation as may be reasonably requested by the other party hereto to
effectuate the terms of this Section, 8(b), including without limitation any
amendment or supplement to this Agreement.
c. Without prejudice to any other rights of
termination provided hereunder or by law, either party may terminate this
Agreement if the other party hereto breaches any of its obligations under this
Section 8. In such event, the non-breaching party shall have available to it
all rights and remedies available under this Agreement and applicable law,
including without limitation the right to obtain damages from the breaching
party in accordance with Section 9 hereof.
9. Liquidated Damages
a. It is expressly agreed that if either of the
parties to this Agreement fails to comply with any of its obligations under
Sections 2, 3, 4, 5 or 6 or under Exhibit A of this Agreement for any month
during the term of this Agreement, except as permitted in Sections 10 and 11),
that party shall be in material breach of this whole Agreement. In that event,
the parties further agree (i) that the injury caused by this material breach
will be difficult or impossible to estimate accurately, (ii) that the breaching
party will therefore be liable to the non-breaching party for liquidated
damages under the formulae and principles set forth below this Section 9, (iii)
that this Section 9 is intended to provide solely for liquidated damages and
not a penalty, and (iv) that these agreed to liquidated damages constitute a
reasonable pre-estimate of the probable loss to the nonbreaching party for any
such material breach of the Agreement.
b. It is expressly agreed that if either of the
parties to this Agreement fails to comply with any of its obligations under
Sections 2, 3, 4, 5 or 6 or under Exhibit A of this Agreement the following
provisions shall be employed to calculate the damages payable to the other
party as liquidated damages for the remainder of the term of this Agreement and
that
6
<PAGE> 7
CONFIDENTIAL
such liquidated damages shall be calculated for every remaining quarter of this
Agreement and payment of such liquidated damages made within twenty-one (21)
days from the last day of each quarter, with no offset to Seller's payment for
any previous quarter in which the residual value was negative if Seller is the
breaching party and with no offset to Buyer's payment for any previous quarter
in which the residual value was positive if Buyer is the breaching party:
Option I. The residual quarterly contract basis as defined
below shall be calculated at the end of each quarter of the
remaining term of the Agreement. If the residual quarterly
contract basis is positive, then, if Seller is the breaching
party, Seller shall pay Buyer the residual quarterly contract
basis. If the residual quarterly contract basis is negative,
then, if Buyer is the breaching party, Buyer shall pay Seller
the residual quarterly contract basis.
The residual quarterly contract basis is determined by
subtracting the then prevailing Base Price from the average of
the published RISI and Pulp & Paper Week Fluff Pulp price for
the quarter, multiplied by the quarterly contract tonnage.
The residual quarterly contract basis shall be calculated and
paid by the breaching party for each successive quarter during
the remaining term of the Agreement.
Option II. Upon mutual agreement of the parties, the Agreement
may be terminated at any time after an initial breach or
default occurs, on and subject to payment of a settlement
amount under the Agreement, which shall be a single lump sum
payment mutually agreed to by the parties. If a mutual
settlement agreement is not reached within 30 days of the
notice of breach from one party to the other, then the amount
calculated under
7
<PAGE> 8
CONFIDENTIAL
Option I shall be paid by the party obligated to pay under
Option I.
c. Attached hereto and incorporated herein is
Exhibit D that illustrates the operation of the liquidated damages scheme.
Exhibit D is incorporated for purposes of reference and illustration only. In
the event of any conflict between Exhibit D and the other terms of this
Agreement, the terms of this Agreement shall control.
d. Liquidated damages shall only apply to, and
shall be calculated only on the basis of, the Basic Tonnage and the Option
Tonnage, if the latter is exercised.
e. The breaching party shall not be entitled to
receive liquidated damages.
10. Reliefs (Force Majeure; Governmental or Judicial
Action)
a. The following shall be considered as cases of
relief, granting the Buyer or the Seller (i) the right to terminate the
contract without liability if they intervene after the effective date of the
Agreement (or when they have occurred before the effective date, if their
effects were not clearly foreseeable before that date) and they permanently
prevent, hinder or delay the Buyer's acceptance of the Pulp or its production
of the goods for which the Pulp is destined or the Seller's sale, production or
delivery by agreed means of goods (ii) or the right to suspend performance
under the Agreement without liability in accordance with Sections 10(d) and
10(e) thereunder if the said prevention, hindrance or delay is temporary -
viz.: war; war risk; insurrection; blockade; requisition; embargo; calling up
of personnel for military service; export or import prohibitions or
restrictions; restrictions in the use of power; labor conflicts; water
shortage; fire; flood; storm; obstruction of railways; obstruction of
navigation by ice at port of shipment; loss or detention at sea; non delivery,
fault or delayed delivery by the Seller's suppliers of raw material and other
commodities for the production; any event of force majeure howsoever defined in
any supply contract with respect to any direct or indirect inputs for
production of Pulp under which Seller is a buyer; and any other circumstances
beyond the control of parties.
8
<PAGE> 9
CONFIDENTIAL
b. The following shall also be considered as
cases of relief with the consequences provided in this Section 10 if they arise
and have the effect specified in Sections 10(a)(i) or (ii) above after the
effective date of the Agreement: regulation, ruling, judgment, order,
injunction, decree (including a consent decree), failure to grant a permit or
withdrawal of a permit, or any other action by a federal, national, state,
provincial, or local government or court, in or outside the United States, that
renders for Buyer production or sales of personal absorbent products, or for
Seller's production or sales of Pulp in or from the Brunswick (Georgia)
facility, uneconomical and/or impracticable. For purposes of this Agreement,
"personal absorbent products" shall mean infant diapers, feminine hygiene
products and adult incontinence products.
c. The Buyer or the Seller, as the case may be,
may terminate, or suspend performance under, this Agreement on the grounds of
relief upon written notice to the other such party, stating the reasons
therefor, as provided in Section 10(e) below, neither party being responsible
to the other party for any damages resulting from such termination or
suspension.
d. In the event of suspension of performance
under this Section 10, shipment shall be resumed as soon as practicable for the
full quantity called for under the Agreement. The shipments omitted during the
period of suspension may be canceled without liability by either party, and
subsequent shipments shall be resumed thereafter according to the Agreement.
During the period of suspension, Buyer may purchase replacement Pulp from other
suppliers, and Seller may sell Pulp designated for shipment to Buyer to other
customers, without liability until the condition preventing performance is
removed.
e. The party wishing to claim relief by reason
of any of the said circumstances shall notify the other party in writing, by
facsimile without delay on the occurrence of the intervention and on the
cessation thereof and, as soon as practicable, notify the other party to what
extent the claim will necessitate a suspension.
11. Reliefs (Technical Obsolescence)
Buyer shall have the option to terminate the Agreement - and
in the case of such election the parties will be excused from
9
<PAGE> 10
CONFIDENTIAL
performance under the terms of the Agreement without liability - if one or more
major competitors of the Buyer implement a product design change (and market
products incorporating such a change) that will render use of fluff pulp as a
major component of Buyer's product non-economic and/or impracticable from
performance or cost standpoint. This provision shall not apply in the event of
Buyer's own election to make a design change resulting in the elimination or
reduction of use of fluff pulp in Buyer's products which results in
non-performance under the Agreement and which is not directly linked to a
threat from competitors that have implemented such a design change.
Furthermore, Buyer shall be relieved of the obligation to purchase the full
amount of Basic (and Optional, if any) Tonnage if a third, unrelated party
offers to sell to Buyer, and Buyer purchases (or obtains a license to use or
otherwise acquires the right to use) from that third party, on an exclusive
basis within the personal absorbent products industry, a technology that
renders Buyer's full use of Basic (and Optional, if any) Tonnage uneconomical
and/or impracticable; provided, however, that Buyer's obligation to purchase
Pulp under this Agreement shall continue to the extent Buyer has continuing
requirements to purchase Pulp.
12. Verification of Reliefs
The party claiming relief under Section 10 or Section 11 shall
provide to the other party ail information reasonably requested by the other
party to verify assertions of the case or cases of relief within a reasonable
time of such request.
13. [Confidential]
14. Seller's Representations and Warranties
Seller represents and warrants that:
a. It is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Georgia. Seller
has all requisite corporate power and authority to enter into and perform this
Agreement.
b. This Agreement and the transaction
contemplated hereby have been authorized by Seller; and this Agreement has been
duly executed and delivered by Seller and constitutes legal, valid and binding
obligations of Seller, enforceable against Seller in
10
<PAGE> 11
CONFIDENTIAL
accordance with its terms, subject, however, to applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting creditors'
rights generally and except as the enforceability thereof may be limited by
general principles of equity (regardless whether considered in a proceeding in
equity or at law).
c. The execution, delivery, and performance by
Seller of this Agreement and the transactions contemplated hereby do not (i)
violate or conflict with any provision of Seller's certificate of incorporation
or bylaws, (ii) violate or constitute a default under any agreement or
instrument to which Seller is a Party or by which Seller is bound, which
violation will have a material and adverse effect on Seller's ability to
perform it obligations hereunder, (iii) violate any existing statute or law or
any judgment, decree, order, regulation or rule of any court or governmental
authority applicable to Seller, which violation will have a material and
adverse effect on Seller's ability to perform its obligations hereunder.
d. There are no judicial or administrative
actions, proceedings or investigations (including, without limitation,
bankruptcy, reorganization or insolvency actions, proceedings or
investigations) pending or, to Seller's knowledge, threatened, that (i)
challenge the validity of this Agreement or the transactions contemplated
hereby, (ii) seek to restrain or prevent any action taken or to be taken by
Seller in connection with this Agreement, or (iii) if adversely determined,
would have a material and adverse effect upon Seller's ability to perform its
obligations hereunder.
e. Seller is not in, and has not received notice
of the existence of, any default under any transportation, purchase or other
agreement material to Seller's performance under this Agreement, nor is there
existing any event or circumstance that, to Seller's knowledge, with notice or
lapse of time or both would give rise to a default on the part of Seller
thereunder.
15. Buyer's Representations and Warranties
Buyer represents and warrants that:
a. It is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
11
<PAGE> 12
CONFIDENTIAL
Georgia. Buyer has all requisite corporate power and authority to enter into
and perform this Agreement.
b. This Agreement and the transaction
contemplated hereby have been authorized by Buyer; and this Agreement has been
duly executed and delivered by Buyer and constitutes legal, valid and binding
obligations of Buyer, enforceable against Buyer in accordance with its terms,
subject, however, to applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws affecting creditors' rights generally and except as
the enforceability thereof may be limited by general principles of equity
(regardless whether considered in a proceeding in equity or at law).
c. The execution, delivery, and performance by
Buyer of this Agreement and the transactions contemplated hereby do not (i)
violate or conflict with any provision of Buyer's certificate of incorporation
or bylaws, (ii) violate or constitute a default under any agreement or
instrument to which Buyer is a Party or by which Buyer is bound, which
violation will have a material and adverse effect on Buyer's ability to perform
it obligations hereunder, (iii) violate any existing statute or law or any
judgment, decree, order, regulation or rule of any court or governmental
authority applicable to Buyer, which violation will have a material and adverse
effect on Buyer's ability to perform its obligations hereunder.
d. There are no judicial or administrative
actions, proceedings or investigations (including, without limitation,
bankruptcy, reorganization or insolvency actions, proceedings or
investigations) pending or, to Buyer's knowledge, threatened, that (i)
challenge the validity of this Agreement or the transactions contemplated
hereby, (ii) seek to restrain or prevent any action taken or to be taken by
Buyer in connection with this Agreement, or (iii) if adversely determined,
would have a material and adverse effect upon Buyer's ability to perform its
obligations hereunder.
e. Buyer is not in, and has not received notice
of the existence of, any default under any transportation, purchase or other
agreement material to Buyer's performance under this Agreement, nor is there
existing any event or circumstance that, to Buyer's knowledge, with notice or
lapse of time or both would give rise to a default on the part of Buyer
thereunder.
12
<PAGE> 13
CONFIDENTIAL
16. Indemnification
a. By Seller: Seller shall defend, indemnify and
hold Buyer harmless from and against (i) any and all claims, liabilities, costs
or damages (including reasonable attorneys' fees), other than consequential or
similar damages, arising out of any claims, demands or judgments for personal
injury or death or property damage arising out of or resulting from the
performance or non-performance by Seller of Seller's delivery obligation this
Agreement, except to the extent that such claims, liabilities, costs or damages
are caused by the negligence (sole or concurrent) of Buyer, its agents and
employees, and (ii) any and all claims, liabilities, costs or damages
(including reasonable attorneys' fees), other than consequential or similar
damages, arising out of any claims, demands or judgments for personal injury or
death or property damage arising out of material non-conformance of Pulp with
the typical specifications set forth in Exhibit B.
b. By Buyer: Buyer shall defend, indemnify and
hold Seller harmless from and against any and all claims, liabilities, costs or
damages (including reasonable attorney's fees), other than consequential or
similar damages, arising out of any claims, demands or judgments for personal
injury or death or property damage arising out of or resulting from the
performance or non-performance of this Agreement or caused by Buyer's products
which incorporate the Pulp, except to the extent that such claims, liabilities,
costs or damages are caused by negligence (sole or concurrent) of Seller, its
agents or employees. As to any claim made by Seller hereunder, Buyer expressly
waives any defenses, reduction in or release of or from liability or immunity
from suit with respect to injuries to Buyer's employees which may be extended
to Seller as a result of any payments made by Buyer to such employees or under
any applicable workers' compensation statute or similar law or judicial
decision.
17. Termination
Either party may terminate this Agreement without penalty or
other expense upon the occurrence of any of the following events:
a. The filing of a bankruptcy petition against
or by the other party, which is not dismissed within 60 days of
13
<PAGE> 14
CONFIDENTIAL
filing, for relief under any state insolvency law or under the U.S. Federal
Bankruptcy Code;
b. The appointment of a receiver, trustee or
liquidator for all or substantially all of the other party's assets; or
c. An assignment by the other party for the
benefit of its creditors.
In such event, the party entitled to terminate the Agreement
under this Section 17 may do so upon five (5) business days' written notice,
and the other party will be liable for the liquidated damages under Section 9
of this Agreement as of the effective date of such termination.
18. Termination (Other)
a. In the event that at any time during the Term
of this Agreement, Seller or Buyer or both parties make application to any
relevant regulatory body for any clearance, exclusion or exemption from any
competition or similar law and such application is denied or issued with
conditions deemed by either party to be materially commercially burdensome,
either party may terminate this Agreement with five business days written
notice to the other party without penalty or expense. In the event any such
application is made, Seller and Buyer will cooperate to the extent permitted by
law to obtain such clearance, exclusion or exemption as quickly as possible.
b. This Section 18 shall terminate and be of no
further force and effect
i. if such clearance, exclusion or
exemption is granted without condition, on the date of issuance
thereof; or
ii. if such clearance, exclusion or
exemption is granted with conditions, on the date which is thirty (30)
days after the date of issuance thereof if this Agreement has not been
terminated by either party prior to such date;
provided that, if such conditions or clearance, exclusion or exemption requires
subsequent application therefor to be made, or
14
<PAGE> 15
CONFIDENTIAL
either party, in its reasonable judgment, due to such conditions, deems a
subsequent application advisable (either such case, a "Refiling Condition") (A)
neither party may terminate this Agreement pursuant to this subsection (ii) on
the basis of such Refiling Condition and (B) the terms of this Section 18 shall
apply in respect of each such subsequent application.
19. Dispute Resolution
a. Each party will advise the other party hereto
in writing of any dispute controversy or claim ("Claim") hereunder promptly
upon the occurrence thereof ("Claim Notice"). The parties will attempt in good
faith to resolve any Claim arising out of or relating to this Agreement
promptly by negotiations between representatives and senior executives of the
parties who have authority to settle the Claim. If a Claim should arise, Vice
President of Seller or Director of Fluff Pulp Sales in the Pulp, Bleached Board
& Logistics Division of Seller, and Vice President of Buyer, or their
respective successors in the positions they now hold (herein called the
"Project Managers"), will meet at least once and will attempt to resolve the
Claim within fourteen days of the date of any such Claim Notice. Either Project
Manager may request the other to so meet within fourteen days, at a mutually
agreed time and place.
b. If the Claim has not been resolved within
twenty days of their first meeting, or if either Project Manager will not meet
within the fourteen-day period referred to above, the Project Managers shall
refer the Claim to senior executives, who do not have direct responsibility for
administration of this Agreement (herein called "the Senior Executives").
Thereupon, the Project Managers shall promptly prepare and exchange memoranda
stating (a) the issues in dispute and their respective position, summarizing
the evidence and arguments supporting their position, and the negotiations
which have taken place, and attaching relevant documents, and (b) the name and
title of the Senior Executive who will represent that party. The Senior
Executives shall meet for negotiations at a mutually agreed time and place
within fourteen days of the end of the twenty-day period referred to above, and
thereafter as often as they reasonably deem necessary to exchange relevant
information and to attempt to resolve the Claim.
c. If the Claim has not been resolved within
thirty days of the meeting of the Senior Executives, or if either
15
<PAGE> 16
CONFIDENTIAL
party will not meet within thirty days of the end of the twenty-day period
referred to in the preceding paragraph, the parties will attempt in good faith
to resolve the Claim by mediation in accordance with the American Arbitration
Association Commercial Mediation Rules as in effect from January 1992 (the
"Rules"). There shall be one mediator chosen by the parties. If the parties are
not able to agree upon a mediator within ten (10) days, the sole mediator shall
be selected by the American Arbitration Association in accordance with the
Rules. The place of mediation shall be Atlanta, Georgia. Each party shall bear
its own legal and other costs incurred by it, but the cost of mediation, to be
specified in accordance with the Rules shall be allocated to by the mediator.
The mediator shall not have authority to apportion (equally or otherwise) the
legal or other costs, including attorneys fees, incurred by the parties
themselves. The Claim which is the subject of the mediation shall be resolved
in accordance with and on the basis of the substantive laws (not including the
conflicts of laws rules) of the State of Georgia. If the mediation is
successfully concluded, the parties shall enter into a settlement agreement
setting forth the terms thereof and the settlement of the Claim. Such
settlement agreement shall be final and binding on the parties, each of which
agrees to waive any right of appeal thereon. Judgment may be entered in
relation to the settlement agreement in any court of competent jurisdiction.
d. If the Claim has not been resolved pursuant
to the aforesaid mediation procedure within 60 days of the commencement of such
procedure, or if either party will not participate in a mediation, either party
may initiate litigation regarding such Claim upon a 30-day written notice to
the other party.
e. Any deadline specified in this Section may be
extended by mutual agreement.
f. The procedures specified in this Section
shall be the sole and exclusive procedures for the resolution of any Claim
between the parties arising out of or relating to this Agreement; provided,
however, that a party may seek a preliminary injunction or other preliminary
judicial relief if in its judgment such action is necessary to avoid
irreparable damage. Despite such action the parties will continue to
participate in good faith in the procedures specified in
16
<PAGE> 17
CONFIDENTIAL
this Section. All applicable statutes of limitation shall be tolled while the
procedures specified in this Section are pending. The parties will take such
action, if any, required to effectuate such tolling.
20. Notices
All notices or other communications required under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand, transmitted by facsimile (effective upon receipt of a
confirmation showing transmission to the correct facsimile number), or by
overnight courier (effective upon delivery when sent to the correct address),
or by prepaid mail (effective three [3] days following mailing to the correct
address) addressed to:
Seller:
Georgia-Pacific Corporation
55 Park Place
Atlanta, Georgia 30303
Fax: 404-230-7778
Attention: Director, Fluff Pulp Sales
Buyer:
INBRAND Corporation
1169 Canton Road
Marietta, Georgia 30066
Fax: 770-419-1191
Attention: Chief Executive Officer
Either party may change its address by notice to the other
party.
21. Waiver
Failure by either party to enforce, at any time, any term or
condition of this Agreement will not constitute, nor will it be construed as, a
waiver of that party's right thereafter to enforce each and every term of the
Agreement.
22. Severability
If for any reason any provision of this Agreement is invalid,
illegal or unenforceable, such provisions shall be deemed
17
<PAGE> 18
CONFIDENTIAL
severed from the other provisions of this Agreement and all remaining
provisions shall nevertheless remain in full force and effect.
23. Choice of Laws
This Agreement shall be construed and interpreted under, and
the respective rights and duties of the parties shall be governed by the laws
of the State of Georgia (excluding any conflicts of laws rules, if any, which
would mandate the application of laws other than the laws of State of Georgia).
Any legal action or proceeding arising out of this Agreement or any Claim shall
be brought in the federal or state courts of Georgia and each party hereby
consents, for itself and in respect of its property, to the jurisdiction of
such courts.
24. Entire Agreement
This Agreement and the attached Exhibits constitute the entire
agreement between the parties with respect to the sale and purchase of Pulp.
This Agreement supersedes any and all previous agreements, negotiations or
other understandings of the parties with respect to sales and purchases for
which orders are placed on and after May 1, 1996. This Agreement may be
modified or amended only by a written agreement signed by each of the parties.
25. Construction
This Agreement has been negotiated and jointly drafted by the
parties. It shall therefore be interpreted in accordance with the plain meaning
of its terms and not construed for or against either of the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement,
as of the date first written above.
GEORGIA PACIFIC CORPORATION INBRAND CORPORATION
By:_________________________ By:____________________
Senior Vice President Chairman & CEO
18
<PAGE> 19
CONFIDENTIAL
EXHIBIT A
1. Additional Tonnage
[Confidential]
2. Option Tonnage - [Confidential]
1
<PAGE> 20
CONFIDENTIAL
EXHIBIT B
PRODUCT SPECIFICATIONS
[Confidential]
2
<PAGE> 21
Exhibit C
THEORETICAL PRICE ADJUSTMENTS
[Confidential]
<PAGE> 22
Exhibit D
Liquidated Damages Theoretical Calculations
[Confidential]
<PAGE> 1
EXHIBIT 13
Selected Consolidated Financial Data
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------------------
Statement of Operations Data: June 27, July 3, July 2, July 1, June 29,
1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $ 47,359 $ 58,381 $ 69,596 $ 85,044 $ 141,951
Cost of sales 33,091 40,577 45,844 56,527 101,774
----------------------------------------------------------------
Gross profit 14,268 17,804 23,752 28,517 40,177
Operating expenses:
Sales, marketing and distribution 6,223 7,541 8,936 11,288 17,578
General and administrative 2,855 3,511 4,090 4,557 8,742
Compensation expense under
SAR Plan 522 7,753 - - -
Restructuring Expenses - - - - 1,642
----------------------------------------------------------------
Total operating expenses 9,600 18,805 13,046 15,845 27,962
----------------------------------------------------------------
Operating income (loss) 4,668 (1,001) 10,706 12,672 12,215
Interest expense 1,093 605 204 22 1,722
----------------------------------------------------------------
Income (loss) before income tax
provision and cumulative
effect of change in accounting 3,575 (1,606) 10,502 12,650 10,493
Income tax provision (benefit) 1,500 (500) 4,220 5,060 5,025
----------------------------------------------------------------
Income (loss) before cumulative
effect of change in accounting 2,075 (1,106) 6,282 7,590 5,468
Cumulative effect of change
in accounting for income taxes - (84) - - -
----------------------------------------------------------------
Net income(loss) $ 2,075 $ (1,022) $ 6,282 $ 7,590 $ 5,468
================================================================
Per Share Data:
Income (loss) before cumulative
effect of change in accounting $ 0.35 $ (0.18) $ 0.81 $ 0.96 $ 0.70
Net income (loss) $ 0.35 $ (0.17) $ 0.81 $ 0.96 $ 0.70
Weighted average number of
common shares outstanding 6,000 6,071 7,755 7,908 7,837
================================================================
Balance Sheet Data (at end of period):
Working capital $ 1,494 $ 4,633 $ 11,015 $ 7,358 $ 18,357
Total assets 21,729 25,364 36,870 48,358 105,620
Total debt (including capital leases) 7,493 6,161 - 4,062 33,448
Shareholders' equity 6,627 10,383 28,544 33,960 40,000
================================================================
</TABLE>
<PAGE> 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
RESULTS OF OPERATIONS
The following table sets forth for the period indicated certain items from
the Selected Financial Data expressed as a percentage of net sales and the
percentage change in the dollar amount of such items compared to the prior
period.
<TABLE>
<CAPTION>
Percentage of Net Sales Percentage Increase
Fiscal Year Ended (Decrease)
----------------------------------------------------
July 2, July 1, June 29, over over
1994 1995 1996 Fiscal `94 Fiscal `95
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 22.2% 66.9%
Cost of sales 65.9 66.5 71.7 23.3 80.0
-----------------------
Gross profit 34.1 33.5 28.3 20.1 40.9
Operating expense:
Sales, marketing and distribution 12.9 13.3 12.4 26.0 55.7
General and administrative 5.8 5.3 6.1 11.4 91.8
Restructuring expenses -- -- 1.2 -- *
-----------------------
Total operating expenses 18.7 18.6 19.7 21.5 76.5
Operating income 15.4 14.9 8.6 18.4 (3.6)
Interest expense .3 -- 1.2 * *
-----------------------
Income before income tax provision 15.1 14.9 7.4 20.5 (17.0)
Income taxes 6.1 6.0 3.5 19.9 (0.7)
-----------------------
Net income 9.0% 8.9% 3.9% 20.8 (28.0)
=======================
</TABLE>
* Not meaningful
Comparison of Fiscal 1996 to 1995
During the year the Company completed two significant acquisitions which
expanded both the Company's geographic reach and its product offerings. As a
result, the Company now operates in several countries within Europe, as well as
Canada.
Net sales in fiscal 1996 increased 66.9% to $142.0 million compared with
fiscal 1995 sales of $85.0 million. Approximately $43.0 million of this gain
reflected the results of acquisitions, principally in Europe, of feminine
hygiene, disposable baby diaper and adult incontinence operations during the
fiscal year. It also reflected increases in unit volume in both the Company's
Clinical and Retail sales divisions in North America due to continued
penetration and industry growth.
Although gross profit for fiscal 1996 increased 40.9% to $40.2 million, it
decreased as a percentage of net sales to 28.3% compared to 33.5% in fiscal
1995. The lower gross profit margin was as a result of lower relative
contributions from the acquired business as well as overall higher costs of raw
materials in all areas of the Company's operations. The trends of rising raw
material costs were particularly evident during the first half of the fiscal
year, reflecting a continuation of the previous year's experience. During the
second half these costs declined somewhat and the Company is now experiencing a
more stable raw material pricing environment. To further stabilize these costs
in the future, the Company has entered into long term supply agreements for
certain raw materials. Gross margins in the acquired operations are somewhat
lower than the Company has experienced in North America, due principally to
competitive and product differences in the marketplace. The Company expects
these lower overall margins in its European operations to continue for the
foreseeable future.
As a percentage of sales, operating expenses for fiscal 1996 increased to
19.7% compared with 18.6% for the prior year. This increase was primarily due
to approximately $1.6 million of restructuring expenses for which the Company
accrued relating to planned consolidation of some of its acquired manufacturing
facilities. The Company expects these consolidations to be completed by the
spring of 1997.
5
<PAGE> 3
Net income for fiscal 1996 decreased to $5.5 million compared to $7.6
million in fiscal 1995. In addition to operational factors discussed above,
this decrease was caused by a significant increase in the Company's interest
expense due to increased levels of borrowings during the year. These increased
borrowings were the result of the Company's acquisitions during the year as
well as continued investments in manufacturing equipment which will add to
capacity as well as increase overall manufacturing efficiencies. Additionally,
the effective rate of income tax expense increased primarily due to foreign
operating losses, largely a result of restructuring charges, with no associated
income tax benefit, which were only partially offset by a foreign tax holiday.
Comparison of Fiscal 1995 to 1994
Net sales of $85.0 million for fiscal 1995 increased 22.2% compared with
fiscal 1994 sales of $69.6 million. This gain reflected increases in unit
volume in both the clinical and retail markets due to expansion of the
Company's sales force and enhanced marketing programs designed to capitalize on
favorable industry conditions.
Although gross profit for fiscal 1995 increased 20.1% to $28.5 million, it
decreased as a percentage of net sales from 34.1% in fiscal 1994 to 33.5%. The
lower gross profit margin was a result of sharply increased raw material costs.
Much of the impact of these higher costs was offset by a continuing enhancement
of manufacturing processes and efficiencies and, to a lesser degree, by small
price increases in the clinical market. The trend of rising raw material costs,
which began in the first quarter of 1995, persisted throughout the year and
extended into 1996. The Company also experienced some start-up costs and delays
relating to new manufacturing equipment which had not yet reached planned
efficiency. Because of these factors, as well as the effect of the Hygieia
acquisition, the Company expected some further decline in the gross profit
margins during 1996.
As a percentage of net sales, operating expenses of 18.6% in 1995 were
relatively unchanged compared with 18.7% in fiscal 1994. Increased operating
expenses from an expansion of the Company's sales activities were largely
mitigated by continued proportionate overhead reductions resulting from
efficiencies generated by the Company's new distribution center and by the
realization of higher overall economies of scale.
Net income of $7.6 million for fiscal 1995 increased 20.8% compared with
$6.3 million for fiscal 1994. As a percentage of sales, net income of 8.9% in
fiscal 1995 was relatively unchanged compared with 9.0% in fiscal 1994.
Quarterly Results
The Company does not experience significant fluctuations in sales as the
result of seasonal factors. The following table reflects certain unaudited
quarterly operating results for each quarter of fiscal 1995 and fiscal 1996. In
the opinion of management, such information includes all adjustments,
consisting only of normal recurring items, necessary to present fairly the
information set forth below. The operating results of any quarter are not
necessarily indicative of any results of any future period.
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------------
Oct. 1, Dec. 31, April 1, July 1, Sept. 30, Dec. 30, March 30, June 29,
1994 1994 1995 1995 1995 1995 1996 1996
- ---------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $19,109 $20,391 $23,047 $22,497 $25,952 $27,032 $40,490 $48,477
Gross profit 6,546 6,792 7,590 7,589 7,105 7,637 11,227 14,208
Operating income 2,975 2,917 3,527 3,253 2,519 2,773 3,927 2,996
Net income 1,804 1,752 2,092 1,942 1,314 1,321 1,977 856
Net income
per share $ 0.23 $ 0.22 $ 0.26 $ 0.25 $ 0.17 $ 0.17 $ 0.25 $ 0.11
</TABLE>
6
<PAGE> 4
Liquidity and Capital Resources
During fiscal 1996, the Company generated approximately $2.1 million in
cash flow from operations compared to $8.1 million in fiscal 1995. This
decrease was caused by increases in the requirements for working capital,
primarily as a result of the Company's acquisitions during the period. One of
the Company's acquisitions, Celatose SA, was purchased from the French
Bankruptcy Court under terms which necessitated investments in working capital
for that subsidiary. The company also experienced requirements for increased
working capital in its North American operations, principally due to increases
in the level of its business.
The Company has a $35 million unsecured, revolving credit facility with
interest charged on a formula based on LIBOR. At the end of fiscal 1996, $24.4
million was outstanding against this credit line. Additional debt, related to
various long term borrowings in the Company's acquired operations, totaled $6.0
million. The Company is currently in the process of negotiating additional
credit lines which will include a foreign currency line for the financing of
its European subsidiaries.
The Company has invested approximately $37 million in the past three years
in plant and equipment to expand and modernize its manufacturing capabilities
as well as to extend and enhance its warehouse and distribution operation.
Additionally, the Company spent approximately $7 million related to
acquisitions during the year as well as making an initial investment in its
French subsidiary of approximately $3 million, which does not include
approximately $4.7 million of assets purchased under installment sales
agreements.
The Company expects that funds generated from operations and available
borrowings under its credit facility will be sufficient to fund its existing
operations and commitments, as well as for future expansion of its operations.
Subsequent Event
On July 31, 1996 the Company completed its previously announced
acquisition of Julian T. Holdings, B.V. a Netherlands-based manufacturing,
sales and distribution company through the Company's INBRAND Europe, B.V.
subsidiary.
Statement for Purposes of the Safe Harbor Provisions
of the Private Securities Litigation Reform Act of 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") contains
amendments to the Securities Act of 1933 and the Securities Exchange Act of
1934 which provide protection from liability in private lawsuits for
"forward-looking" statements made by persons specified in the Act. The Company
desires to take advantage of the "safe harbor" provisions of the Act.
The Company wishes to caution readers that with the exception of
historical matters, the matters discussed in this Annual Report are
forward-looking statements that involve risks and uncertainties, including but
not limited to factors related to the competitive nature of the disposable
personal absorbent products industry, the Company's expansion effort and
ability to integrate recently acquired foreign operations and other factors
discussed in the Company's filings with the Securities and Exchange Commission.
Such factors could affect the Company's actual results and could cause the
Company's actual results during 1996 and beyond to differ materially from those
expressed in any forward-looking statement made by or on behalf of the Company.
7
<PAGE> 5
<TABLE>
<CAPTION>
Consolidated Balance Sheets
July 1, June 29,
1995 1996
- ---------------------------------------------------------------------------------------
Assets (in thousands)
<S> <C> <C>
Current Assets
Cash and Cash Equivalents $ -- $ 1,554
Receivables 8,862 27,082
Inventories 6,109 18,203
Income Taxes Receivable 152 67
Deferred Income Taxes 616 792
Other 65 869
---------------------
Total Current Assets 15,804 48,567
---------------------
Property and Equipment, net 28,755 46,457
---------------------
Intangible Assets, net 3,799 9,716
---------------------
Other Assets -- 880
---------------------
Total Assets $ 48,358 $ 105,620
=====================
Liabilities and Shareholders' Equity
Current Liabilities
Bank Overdraft $ 386 $ 554
Current Portion of Long-Term Debt -- 1,515
Current Portion of Obligations Under Capital Leases -- 638
Accounts Payable 4,043 17,445
Accrued Expenses 4,017 10,058
---------------------
Total Current Liabilities 8,446 30,210
---------------------
Long-Term Liabilities
Long-Term Debt 4,062 28,866
Obligations Under Capital Leases -- 2,429
Deferred Income Taxes 1,890 3,054
Other -- 1,061
---------------------
Total Long-Term Liabilities 5,952 35,410
---------------------
Commitments and Contingencies
Shareholders' Equity
Preferred Stock - 1,000 shares authorized; none issued -
Common Stock - $.10 par value - 49,000 shares authorized;
7,799 shares issued 1995 and 7,840 shares issued 1996 780 784
Paid-In Capital 16,394 17,137
Retained Earnings 16,786 22,254
Translation Adjustment -- (175)
---------------------
Total Shareholders' Equity 33,960 40,000
---------------------
Total Liabilities and Shareholders' Equity $ 48,358 $ 105,620
=====================
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 6
<TABLE>
<CAPTION>
Consolidated Statements of Income
Year Ended
July 2, July 1, June 29,
1994 1995 1996
- ----------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net Sales $ 69,596 $ 85,044 $141,951
Cost of Sales 45,844 56,527 101,774
-------------------------------
Gross Profit 23,752 28,517 40,177
-------------------------------
Operating Expenses
Sales, Marketing and Distribution 8,956 11,288 17,578
General and Administrative 4,090 4,557 8,742
Restructuring Expenses -- -- 1,642
-------------------------------
13,046 15,845 27,962
-------------------------------
Operating Income 10,706 12,672 12,215
Interest Expense 204 22 1,722
-------------------------------
Income Before Income Tax Provision 10,502 12,650 10,493
Income Tax Provision 4,220 5,060 5,025
-------------------------------
Net Income $ 6,282 $ 7,590 $ 5,468
===============================
Earnings Per Share $ .81 $ .96 $ .70
===============================
Weighted Average Common Shares 7,755 7,908 7,837
===============================
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE> 7
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Paid-In Retained Translation
Shares Amount Capital Earnings Adjustment
- ---------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance - July 3, 1993 6,571 $ 657 $ 6,812 $ 2,914 $ --
------------------------------------------------------
Issuance of Common Stock 1,415 141 12,137
Syndication Costs (399)
Net Income 6,282
------------------------------------------------------
Balance - July 2, 1994 7,986 798 18,550 9,196 --
------------------------------------------------------
Purchase of Common Stock (187) (18) (2,156)
Net Income 7,590
------------------------------------------------------
Balance - July 1, 1995 7,799 780 16,394 16,786 --
------------------------------------------------------
Issuance of Common Stock 41 4 743
Net Income 5,468
Translation Adjustment (175)
------------------------------------------------------
Balance - June 29, 1996 7,840 $ 784 $ 17,137 $ 22,254 $ (175)
------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE> 8
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended
July 2, July 1, June 29,
1994 1995 1996
- ------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 6,282 $ 7,590 $ 5,468
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Depreciation 1,435 1,851 4,167
Amortization 145 129 488
Deferred Income Taxes 250 490 937
Bad Debt Expense 51 121 419
Restructuring Expenses -- -- 1,642
Inventory Valuation Reserve 493 52 169
Loss on Sale of Equipment 5 30 --
Interest Capitalized in Obligations
Under Capital Leases 10 -- --
Changes in Operating Assets and Liabilities,
Net of Effects of Acquisitions of Businesses -
Decrease (Increase) in -
Receivables (913) (2,045) (15,461)
Inventories (859) (691) (5,301)
Income Taxes Receivable 1,921 (152) 85
Other 97 (13) 66
Increase (Decrease) in -
Accounts Payable and Accrued Expenses 12 1,292 9,425
Income Taxes Payable 524 (524) --
--------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,453 8,130 2,104
================================
CASH FLOWS FROM INVESTING ACTIVITIES
Payments to Acquire Property and Equipment (10,323) (15,511) (10,951)
Payments for Acquisition of Businesses,
net of cash acquired -- -- (7,082)
Payments to Acquire Intangible Assets -- (22) (276)
Cash Paid for Other Assets -- -- (880)
Proceeds from Sale of Equipment 7 2 --
--------------------------------
NET CASH USED BY INVESTING ACTIVITIES (10,316) (15,531) (19,189)
--------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE> 9
Consolidated Statements of Cash Flows - Continued
<TABLE>
<CAPTION>
Year Ended
July 2, July 1, June 29,
1994 1995 1996
- -------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Bank Overdraft $ (1,668) $ 386 $ (161)
Proceeds from Borrowings Under Long-Term Debt -- 4,094 23,727
Principal Payments on Long-Term Debt (4,196) (32) (4,559)
Proceeds from Issuance of Common Stock 12,278 -- --
Payment of Syndication Costs (399) -- --
Purchase of Common Stock -- (2,174) --
Principal Payments Under
Capital Lease Obligations (13) -- (371)
Loan Costs Paid (12) -- --
---------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,990 2,274 18,636
---------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- -- 3
---------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,127 (5,127) 1,554
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR -- 5,127 --
---------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 5,127 $ -- $ 1,554
=================================
NONCASH INVESTING AND FINANCING ACTIVITIES
Additions to Property and Equipment
Included in Accounts Payable $ 98 $ 216 $ 660
Equipment Acquired through Capital Lease $ -- $ -- $ 133
Liabilities Assumed in Acquisition of Businesses $ -- $ -- $ 19,636
Issuance of Common Stock in Acquisition
of Business $ -- $ -- $ 747
Intangible Assets Included in Accrued Expenses $ -- $ 116 $ 184
Capital Lease Obligation Offset Against
Purchase Cost of Buildings $ 1,963 $ -- $ --
SUPPLEMENTAL SCHEDULE OF CASH FLOWS
Cash Paid for Interest, net of amounts capitalized $ 159 $ 86 $ 1,723
Cash Paid for Income Taxes $ 3,553 $ 5,247 $ 4,018
Income Taxes Refunded $ 2,028 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE> 10
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the company
are as follows:
DESCRIPTION OF BUSINESS - The multinational company operates in a single
business segment in which it designs, manufactures and markets a broad line of
absorbent disposable products including adult incontinence products, baby
diapers and feminine hygiene products. The company distributes its products to
hospitals, nursing homes, home health care retailers, drug and grocery chains
and mass merchants under its own brand name and private labels primarily in the
United States, Europe and Canada.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the company and its wholly-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated in consolidation.
YEAR END - The company's year ends on the Saturday closest to June 30. The
years ended July 2, 1994, July 1, 1995 and June 29, 1996 each comprised 52
weeks.
CASH AND CASH EQUIVALENTS - The company considers all money market accounts and
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. The company maintains at various
financial institutions cash and cash equivalent accounts which may exceed
federally insured amounts at times and which may at times significantly exceed
balance sheet amounts due to outstanding checks.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis. Elements of cost include materials,
labor and manufacturing overhead.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Expenditures for repairs and maintenance are charged to expense as incurred and
additions and improvements that significantly extend the lives of assets are
capitalized. Upon sale or other retirement of depreciable property, the cost
and accumulated depreciation are removed from the related accounts and any gain
or loss is reflected in operations.
Depreciation is provided on the straight-line method based on the
estimated useful lives of the depreciable assets ranging from three to ten
years for equipment and 20 to 31 years for buildings.
INTANGIBLE ASSETS - Intangible assets are stated at unamortized cost and are
amortized using the straight-line method by systematic charges to operations
over the following periods:
<TABLE>
<CAPTION>
Years
<S> <C>
Goodwill 20 - 40
Organization Costs 5
Patent Rights 17
Loan Costs 3
</TABLE>
At each balance sheet date, the company evaluates recorded goodwill
against an estimate of anticipated undiscounted net income over the remaining
life of the goodwill. Adjustments are made whenever this evaluation indicates
that the recorded amount exceeds expected future benefits or whenever events
and circumstances warrant a revised estimate of the useful life of recorded
goodwill.
REVENUE RECOGNITION - Sales and related cost of sales are recognized at the
time of shipment to the customer.
ADVERTISING - Advertising costs are expensed as incurred. The company incurred
$856,000, $829,000 and $1,801,000 in advertising costs during 1994, 1995 and
1996, respectively.
FOREIGN CURRENCY TRANSLATION - The financial statements of foreign subsidiaries
have been translated into U.S. dollars. All balance sheet accounts have been
translated using the exchange rates in effect at the balance sheet date. Income
statement amounts have been translated using the average exchange rate for the
year. The gains and losses resulting from the changes in exchange rates from
year to year have been reported separately as a component of shareholders'
equity. Foreign currency gains and losses resulting from transactions are
included in results of operations.
13
<PAGE> 11
Notes to Consolidated Financial Statements - continued
INCOME TAXES - Income taxes are computed based on the provisions of SFAS 109,
"Accounting for Income Taxes." Deferred tax assets and liabilities are
recognized for the estimated future tax effects attributed to temporary
differences between book and tax bases of assets and liabilities and for
carryforward items. The measurement of current and deferred tax assets and
liabilities is based on enacted tax law. Deferred tax assets are reduced, if
necessary, by a valuation allowance for the amount of tax benefits that may not
be realized.
EARNINGS PER SHARE - Earnings per share is computed based on the weighted
average number of shares outstanding during each period. No material dilution
results from the outstanding stock options, the only common stock equivalent.
By written consent dated June 1, 1994, the company's Board of Directors
declared a three-for-two stock split in the form of a dividend to shareholders
of record on June 15, 1994, effective June 29, 1994. All share and per share
amounts have been retroactively adjusted to reflect the stock split.
ESTIMATES AND UNCERTAINTIES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - In March, 1995, the Financial
Accounting Standards Board issued 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," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
company will adopt SFAS 121 in fiscal year 1997 and does not believe the effect
of adoption will be material.
In October, 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS 123 establishes a method of accounting for
stock compensation plans based on fair value, but also permits companies to
continue to account for stock options under the intrinsic value method
established by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." The company plans to continue to account for
stock-based compensation following the intrinsic value method. Beginning in
fiscal 1997, SFAS No. 123 requires disclosure in the notes to financial
statements of pro forma net income and earnings per share as if the alternative
method established in SFAS No. 123 had been used to measure compensation cost.
NOTE 2 - ACQUISITIONS
During the fiscal year ended June 29, 1996, the company completed two
acquisitions, both of which were accounted for under the purchase method of
accounting. Accordingly, the operations of these acquired businesses are
included in the consolidated statements of income commencing from the date of
acquisition.
On July 26, 1995, the company acquired all of the capital stock of Hygieia
Healthcare Holdings Limited, a company formed under the laws of the United
Kingdom, and its subsidiaries (Hygieia) for approximately $6.7 million in cash,
41,442 shares of its common stock valued at $18 per share or $747,000 and the
assumption of approximately $9.2 million of liabilities. Additional purchase
consideration may be paid to the former Hygieia shareholders up to a maximum of
approximately $3 million over the next three years contingent upon Hygieia's
future earnings as a subsidiary of the company. Through June 29, 1996, no
contingent payments have been earned by the former Hygieia shareholders. The
excess cost over fair value of the net assets acquired is recorded as goodwill
and is being amortized on a straight line basis over a twenty year period.
Hygieia manufactures and markets feminine hygiene products at its operating
units located in the United Kingdom and Canada. In connection with the
acquisition, the company discontinued the manufacturing operations located in
Canada and transferred the equipment to its U.S. operations. Total costs of
$425,000 incurred to close the Canadian manufacturing facility were recorded as
additional purchase price. Certain nonrecurring costs related to the closing of
the Canadian facility of $600,000 were incurred subsequent to the acquisition
date and are included in general and administrative expenses.
14
<PAGE> 12
Notes to Consolidated Financial Statements - continued
During the fourth quarter of fiscal 1996, the company recorded
nonrecurring restructuring expenses of $1,642,000 for the estimated costs of
the planned closing of a European manufacturing facility. The restructuring
expenses consist of costs of terminating leases and reimbursement of
governmental grants. The manufacturing equipment will be transferred to another
facility located in Europe which was purchased in the acquisition of Julian T.
Holding B.V., as discussed below.
On February 9, 1996, the company, through a new subsidiary, INBRAND
France, S.A. (INBRAND France), acquired certain of the assets of Celatose, S.A.
and its affiliates from the bankruptcy courts of France for approximately $4.7
million payable in three installments commencing May, 1996 through May, 1998.
In addition, the company assumed certain liabilities totaling approximately $6
million. The acquired companies manufacture and market disposable adult
incontinence products and baby diapers at their operating units located in
France. In connection with the acquisition, the company plans to dispose of
certain assets. The estimated cost of disposing of these assets of $606,000, as
well as direct acquisition costs of $400,000, were recorded as additional
purchase price.
The following unaudited pro forma information presents the company's
consolidated results of operations as though the acquisitions had occurred at
the beginning of fiscal year 1995. These pro forma results do not purport to be
indicative of the results which would have been achieved had the acquisitions
been made on that date, or of future results of operations. The pro forma
results exclude presentation of an extraordinary item, forgiveness of debt,
recognized in the historical statement of operations of Celatose, S.A.
(totaling $11,398,000 for 1995 and $3,496,000 for 1996).
<TABLE>
<CAPTION>
Year Ended
1995 1996
- ------------------------------------------------------
(in thousands)
<S> <C> <C>
Net Sales $ 204,672 $ 191,245
Net Loss $ (27,318) $ (36,389)
Losses Per Share $ (3.45) $ (4.64)
</TABLE>
Results of operations after the respective acquisition dates are included
in the consolidated statements of income. For the year ended June 29, 1996, net
sales from the acquired businesses were approximately $43 million and net
losses were approximately $1,380,000.
On July 31, 1996, the company, through a new subsidiary, INBRAND Europe
B.V. (INBRAND Europe), acquired Julian T. Holding B.V., a Dutch company (JTH),
upon execution of a definitive contribution agreement. Under the terms of the
agreement, in exchange for all of the outstanding shares of JTH, the sole
shareholder of JTH became a 4.95% shareholder of INBRAND Europe in a business
transaction valued at approximately $245,000 accounted for as a purchase. Prior
to this transaction, the management of JTH had assumed management positions
with INBRAND France, also a subsidiary of INBRAND Europe, as part of INBRAND's
plan to restructure the former Celatose operations acquired by INBRAND France.
NOTE 3 - RECEIVABLES
Receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
July 1, June 29,
1995 1996
- -----------------------------------------------------------
<S> <C> <C>
Trade Receivables $ 8,814 $ 27,355
Allowance for Doubtful Accounts (250) (681)
------------------------
8,564 26,674
Related Company 298 408
------------------------
$ 8,862 $ 27,082
========================
</TABLE>
The company, through one of its foreign subsidiaries, has an agreement to
factor its receivables. Under this agreement, the subsidiary has agreed to sell
and the factoring company agreed to purchase, with limited recourse, all
rights, title and interest in selected invoices. The invoices transferred to
the factor are guaranteed
15
<PAGE> 13
Notes to Consolidated Financial Statements - continued
under an insurance agreement which also establishes limits for acceptability.
In connection with the factoring arrangement, the subsidiary has $821,000 on
deposit with the factoring company to secure certain limited recourse
provisions of the agreement. This amount is included in Other Assets on the
Consolidated Balance Sheet. During the period ended June 29, 1996, net
receivables of approximately $2,011,000 were transferred to the factoring
company with available proceeds partially drawn by the subsidiary of
approximately $1,495,000. As a result, the net receivable from the factoring
company was approximately $516,000 as of June 29, 1996.
The company performs ongoing credit evaluations of its customers'
financial condition and requires no collateral from its customers.
NOTE 4 - INVENTORIES
Inventories consist of the following components (in thousands):
<TABLE>
<CAPTION>
July 1, June 29,
1995 1996
- ---------------------------------------------------
<S> <C> <C>
Raw Materials $ 3,243 $ 7,850
Finished Goods 2,866 10,353
-----------------
$ 6,109 $18,203
=================
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following major classifications (in
thousands):
<TABLE>
<CAPTION>
July 1, June 29,
1995 1996
- ---------------------------------------------------
<S> <C> <C>
Land $ 2,177 $ 2,177
Buildings and Improvements 10,234 11,168
Buildings Under Capital Leases -- 953
Plant and Shop Equipment 21,117 38,266
Equipment Under Capital Leases -- 2,763
Capital Projects in Process 4,442 3,908
Office Furniture and Equipment 1,739 2,380
-----------------
39,709 61,615
Accumulated Depreciation (10,954) (15,158)
-----------------
$28,755 $46,457
=================
</TABLE>
Buildings and equipment under capital leases are amortized on a
straight-line basis over the lease term and amortization is included in
depreciation expense.
NOTE 6 - INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
July 1, June 29,
1995 1996
- ---------------------------------------------------
Goodwill $ 5,096 $11,326
Organization Costs -- 236
Preacquisition Costs 106 --
Patent Rights 32 50
Loan Costs 12 14
-----------------
5,246 11,626
Accumulated Amortization (1,447) (1,910)
-----------------
$ 3,799 $ 9,716
=================
The increase in goodwill relates to the acquisition of Hygieia (see Note 2).
16
<PAGE> 14
Notes to Consolidated Financial Statements - continued
NOTE 7 - ACCRUED EXPENSES
Accrued expenses consist of the following major classifications (in
thousands):
<TABLE>
<CAPTION>
July 1, June 29,
1995 1996
- ---------------------------------------------------
<S> <C> <C>
Accrued Rebates $ 795 $ 1,264
Accrued Restructuring Expenses -- 1,642
Other Accrued Expenses 3,222 7,152
-----------------
$ 4,017 $10,058
=================
</TABLE>
The accrued restructuring expenses represent the estimated costs of the
planned closing of a European manufacturing facility (see Note 2). Management
has made this estimate based on all available information and expects the
restructuring to be substantially completed within one year. The ultimate costs
incurred, however, may differ from this estimate based on the inherent
uncertainties involved in the estimating process and the difference may be
material.
NOTE 8 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
July 1, June 29,
1995 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolver Loans Due December 31, 1997 - interest at bank's base rate or LIBOR
plus applicable margin is payable monthly on the unpaid principal balance.
At June 29, 1996, the interest rate was 7.69% $ 4,062 24,362
6.25% French Franc Note - principal payable in equal annual
installments of $582 commencing in 1998 through 2002 - 2,911
Acquisition French Franc Note - interest imputed at 7.75%
(unamortized discount of $232); principal payable in annual
installments through 1998 - 1,547
4.70% to 10% British Pound Notes - principal and interest due
in installments from 1996 through 2002; secured by certain
property and equipment - 1,293
Other - 268
-------------------------
4,062 30,381
Less Current Portion - 1,515
-------------------------
$ 4,062 $ 28,866
=========================
</TABLE>
At June 29, 1996, the company has an unsecured revolving credit facility
totaling $35 million with its primary lender, with $10 million of the facility
expiring during August, 1996. The revolving credit facility provides for an
unused line commitment fee of .125% per annum on the unused facility when the
average monthly loan balance falls below $4 million. The unsecured revolving
credit facility and other loans place certain restrictions on additional
indebtedness, asset acquisitions and dispositions, investments and lease
commitments in addition to other restrictive covenants. The company is also
required to comply with financial covenants which limit total debt to net worth
and specify minimum amounts of earnings to fixed charges, working capital, net
income and net worth. The revolving credit facility also places restrictions on
the amounts the company may expend on acquisitions, purchases of treasury stock
and letter of credit obligations. At June 29, 1996, the company was not in
compliance with the asset acquisitions, total debt to net worth and net income
covenants of its revolving credit facility. The company has obtained a waiver
from its primary lender for the debt covenant violations. The waiver is for the
year ended June 29, 1996, and does not extend to future periods.
17
<PAGE> 15
Notes to Consolidated Financial Statements - continued
At June 29, 1996, the company has outstanding letters of credit totaling
$2,516,000. Scheduled maturities of long-term debt in each of the next five
fiscal years are $1,515,000 in 1997, $26,058,000 in 1998, $864,000 in 1999,
$661,000 in 2000 and $661,000 in 2001.
Interest expense on long-term debt, excluding capital lease obligations,
totaled $66,000 for 1994, $22,000 for 1995 and $1,602,000 for 1996. The company
follows the policy of capitalizing interest as a component of the cost of
property and equipment constructed for its own use. Total interest incurred
during 1995 was $67,000 of which $45,000 was capitalized and $1,886,000 during
1996 of which $284,000 was capitalized.
The fair value at June 29, 1996, of the company's long-term obligations,
which amount has been estimated by discounting the projected cash flows using
rates currently available to the company for loans with similar terms and
maturities, approximates their carrying value.
NOTE 9 - AUTHORIZED CAPITAL STOCK
On July 29, 1994, the Board of Directors resolved that, subject to
shareholder approval, the company's articles of incorporation be amended to
increase the total number of authorized shares of common stock from 10,000,000
shares to 49,000,000 shares. There was no change to the number of authorized
shares of preferred stock.
NOTE 10 - INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended
July 2, July 1, June 29,
1994 1995 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Current Provision
Federal Income Tax $3,510 $4,120 $3,688
State Income Tax 460 450 400
-------------------------
3,970 4,570 4,088
Deferred Provision 250 490 937
-------------------------
$4,220 $5,060 $5,025
=========================
</TABLE>
The company acquired a business in 1996 in a foreign jurisdiction which
granted a tax holiday from income taxes for a two-year period expiring in 1998.
The income tax benefit for 1996 as a result of this holiday totaled $728,000 or
$.09 per share.
Reconciliation of the provision for income taxes to statutory rates is as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
July 2, July 1, June 29,
1994 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Income Tax at Statutory Rate $ 3,571 $ 4,341 $ 3,568
State Income Tax - Net of Federal Income Tax 304 296 264
Nontaxable Foreign Income -- -- (660)
Nondeductible Depreciation and Amortization 109 50 139
Nondeductible Expenses 32 52 38
Operating Losses for Which No Tax
Benefit was Recognized -- -- 1,442
Effect of New Basis Resulting from
Purchase of Property Under
Capitalized Lease 432 -- --
Other (228) 321 234
----------------------------
$ 4,220 $ 5,060 $ 5,025
============================
</TABLE>
18
<PAGE> 16
Notes to Consolidated Financial Statements - continued
The tax effect of components of net deferred tax assets and liabilities is
as follows (in thousands):
<TABLE>
<CAPTION>
July 1, June 29,
1995 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets
Operating Loss Carryforwards $ -- $ 2,496
Accrued Expenses and Reserves 600 771
Receivables and Inventory 146 21
Amortization -- 481
Other -- 78
Valuation Allowance -- (2,691)
-------------------
746 1,156
-------------------
Deferred Tax Liabilities
Depreciation and Amortization 1,730 3,258
Inventory 130 --
Other 160 160
-------------------
2,020 3,418
-------------------
Net Deferred Tax Liability $ 1,274 $ 2,262
===================
</TABLE>
At June 29, 1996, the company had net operating loss carryforwards of
approximately $8,500,000 for foreign income tax purposes. Approximately
$2,800,000 of the net operating loss carryforwards expire in years 2000 through
2003, with the remaining carryforwards available indefinitely. The net
operating loss carryforwards resulted from the company's acquisition of Hygieia
(see Note 2) and current year losses from that subsidiary. The use of the loss
carryforwards is limited to future taxable income of the foreign subsidiary. A
valuation allowance has been recognized to offset the deferred tax asset
related to this carryforward. If realized, the tax benefit of the acquired loss
carryforwards will be applied to reduce goodwill related to the acquisition of
Hygieia.
Note 11 - Commitments and Contingencies
On April 14, 1995, the company purchased the rights to a patent
application for production of a new product. The company is committed to make
quarterly royalty payments in the amount of 2% of new product sales through
December, 1999. On January 1, 2000, additional consideration is payable in
stock and cash equal to ten percent of the contribution of new product to the
company's market capitalization (the Value as defined in the patent assignment
agreement). If the Value plus the royalty payments are less than a specified
amount, the company shall pay a fee of 1% of new product sales for a five-year
period commencing after January 1, 2000. The assignor may accelerate payment of
the additional consideration to January 1, 1998 or 1999, upon six months
notice, with the payment made in ratable annual installments. Through June 29,
1996, no royalty obligations under the patent assignment agreement have been
incurred.
In order to assure stable prices and an adequate supply of certain raw
materials, the company has committed to purchase minimum monthly quantities of
the materials for 81 months from May 1, 1996. Minimum purchase commitments at
current prices are a maximum of approximately $15,840,000, plus appropriate
distribution cost adjustments, for the twelve months ending April 30, 1997, of
which the company has purchased $3,881,000 as of June 29, 1996. However,
incentives available to the company under the contract may provide significant
cost reductions per unit purchased. The base price per unit will be adjusted
annually each February 1, based on actual material costs incurred by the
supplier and changes in the producer price index. Additionally, the supplier
has the option to supply the company all such raw materials consumed by the
company over the minimum purchase commitment at prices that are equal to or
below all other customers in the company's industry, and the company has the
option to call additional units at the original contract price per unit.
Management does not believe that there is a reasonable possibility of
sustaining losses under the contract due to changes in production levels or
commodity prices during the first year of the contract.
19
<PAGE> 17
Notes to Consolidated Financial Statements - continued
The company has made commitments for machinery and equipment to be
delivered in fiscal 1997. As of June 29, 1996, the company had made down
payments of approximately $2,988,000, with installments of approximately
$2,024,000 remaining.
The company is subject to commitments, legal proceedings and claims which
arise in the ordinary course of business. In management's opinion, the amount
of any ultimate liability will not materially affect the financial position or
results of operations of the company.
NOTE 12 - LEASE COMMITMENTS
The company leases certain buildings and equipment under capital leases
and under noncancelable operating leases.
Minimum rental commitments under existing capital leases and noncancelable
operating leases with initial or remaining noncancelable lease terms in excess
of one year as of June 29, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Year
1997 $ 863 $ 1,504 $ 2,367
1998 838 1,311 2,149
1999 837 1,210 2,047
2000 797 440 1,237
2001 259 440 699
Later Years - 7,276 7,276
-----------------------------------
Total Minimum Lease Payments 3,594 $ 12,181 $ 15,775
=======================
Less Amounts Representing Interest 527
--------
Present Value of Net Minimum Lease Payments 3,067
Less Current Portion 638
--------
$ 2,429
========
</TABLE>
The interest rates used to determine the present value of minimum lease
payments at inception range from 6% to 22%.
Interest expense on capital leases totaled $73,000 for 1994 and $120,000
for 1996. There were no capital lease obligations for 1995.
Rental expense for operating leases totaled approximately $268,000 for
1994, $249,000 for 1995 and $1,187,000 for 1996.
Note 13 - Stock Incentive Plan
During 1993, the Board of Directors adopted The INBRAND Corporation Stock
Incentive Plan (the Incentive Plan). Awards under the Incentive Plan may be in
the form of qualified and non-qualified stock options and/or stock appreciation
rights (SAR's). Grants under the Incentive Plan may be made to any employee of
the company, any Director of the company, or any other person to whom the
Compensation Committee determines that making such a grant is in the best
interests of the company. The Incentive Plan provides for a performance-based
stock option format which governs the vesting of option awards. The number of
shares reserved for issuance under the Incentive Plan is 1,750,000 shares.
The Incentive Plan provides that the exercise price shall not be less than
the fair market value of the common stock as of the determination or grant
date. Each option granted will be exercisable only during the term fixed by the
Compensation Committee, with such term ending from five to ten years after the
grant date. If an option holder is still employed by the company thirty days
prior to the option's expiration date, the options will fully vest. The
Incentive Plan contains provisions that restrict the transferability of grants
and limit their exercise in the event of termination of employment or the
disability or death of the grantee. The options outstanding at June 29, 1996,
expire during 2004.
20
<PAGE> 18
Notes to Consolidated Financial Statements - continued
Activity with respect to the stock option plan is summarized below:
<TABLE>
<CAPTION>
Year Ended
------------------------------------
July 2, July 1, June 29, Price
1994 1995 1996 Range
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding - Beginning of Year - 657,156 666,756 $13.33 - $17.00
Granted 657,156 9,600 75,600 $13.33 - $17.00
Canceled - - (48,914) $13.33 - $17.00
------------------------------------
Outstanding - End of Year 657,156 666,756 693,442 $13.33 - $17.00
====================================
Exercisable - End of Year - 131,431 248,757 $13.33 - $17.00
====================================
</TABLE>
NOTE 14 - EMPLOYEE BENEFIT AND RETIREMENT PLANS
In October, 1993, the Board of Directors adopted The INBRAND Corporation
Employee Stock Purchase Plan (the Stock Purchase Plan). The Stock Purchase Plan
allows eligible employees of the company to purchase shares of common stock at
a discount through voluntary after-tax payroll deductions and supplemental
lump-sum contributions. The purchase price discount will be determined by the
Board of Directors on an annual basis, but the price paid cannot be less than
eighty-five percent of the fair market value of the shares on the purchase
date. Under the Stock Purchase Plan, approximately 2,700, 5,893 and 4,322
shares were purchased at an average discounted price of $13.92, $13.00 and
$16.47 per share during 1994, 1995 and 1996, respectively.
The company maintains a profit sharing and 401(k) plan covering
substantially all domestic employees. The company is required to match employee
voluntary contributions subject to certain limitations at a rate of
seventy-five percent. The company made matching contributions of $207,000 for
1994, $270,000 for 1995 and $280,000 for 1996. Profit sharing contributions are
made at the discretion of the Board of Directors and no minimum contribution is
required. The company contributed $300,000 for 1994, $375,000 for 1995 and
$400,000 for 1996. The profit sharing and 401(k) plan provides for
participant-directed investments in shares of the company's stock.
Approximately 6,070, 15,890 and 5,350 shares were purchased at an average
purchase price of $15.34, $13.28 and $17.93 per share during 1994, 1995 and
1996, respectively.
During 1993, the company entered into salary continuation agreements with
certain officers. The agreements provide for a lump-sum payment to the
officer's beneficiary in the event of the officer's death while still actively
employed by the company. The company has entered into reverse split dollar
insurance agreements with the officers allowing the company to recover the cost
of providing the salary continuation payments. The company recognized
compensation expense totaling $67,000 for 1994, $75,000 for 1995 and $76,000
for 1996 related to the insurance agreements.
The company's subsidiary located in France provides for a lump-sum payment
due to employees upon retirement. The retirement obligation is calculated based
on an evaluation giving consideration to estimated final salary and age at
retirement. A provision of $241,000 has been recorded based on an actuarially
determined obligation. The retirement obligation is calculated utilizing a
discount rate of 6.5% and an annual wage increase of 3.5%.
The company's subsidiary located in England has a defined contribution
retirement plan for the subsidiary's senior management. The retirement plan
provides for contributions by both the company and employees of 5% to 8% of the
employee's salary. The company contributed $54,000 to the retirement plan
during 1996.
21
<PAGE> 19
NOTE 15 - MAJOR CUSTOMERS
Sales to major customers are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
July 2, July 1, June 29,
1994 1995 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Sales to Major Customers $ 13,837 $ 16,777 $ 20,109
Percent of Net Sales 19.9% 19.7% 14.2%
Number of Customers 1 1 1
</TABLE>
Accounts receivable from major customers totaled $1,836,000 or 21.4% of
outstanding net trade receivables as of July 1, 1995, and $1,741,000 or 6.5% of
outstanding net trade receivables as of June 29, 1996.
NOTE 16 - RELATED PARTY TRANSACTIONS
Transactions and outstanding balances with related parties are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
July 2, July 1, June 29,
1994 1995 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Related Companies
Sales $ 253 $ 1,042 $ 1,640
Accounts Receivable $ 253 $ 298 $ 408
</TABLE>
Sales and accounts receivable balances represent transactions pursuant to
a distributorship agreement between the company and an otherwise insignificant
equity affiliate.
NOTE 17 - FOREIGN AND DOMESTIC OPERATIONS
During the year ended June 29, 1996, the company acquired two businesses
(see Note 2) with foreign operations. As a result of these acquisitions, the
company has manufacturing operations in Europe and a distribution facility in
Canada. Prior to fiscal 1996, the company did not have any significant foreign
operations. The foreign and domestic operations by geographic area for the year
ended June 29, 1996, are presented in the following table (in thousands).
<TABLE>
<CAPTION>
United
States Europe Other Eliminations Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to Unaffiliated Customers $ 98,953 $ 38,934 $ 4,064 $ - $ 141,951
Operating Income or Loss $ 13,054 $ (183) $ (527) $ (129) $ 12,215
Identifiable Assets $ 63,428 $ 41,628 $ 564 $ - $ 105,620
Export Sales $ 4,139
</TABLE>
22
<PAGE> 20
Report of Independent Accountants
Board of Directors and Shareholders
INBRAND Corporation
Marietta, Georgia
We have audited the accompanying consolidated balance sheets of INBRAND
Corporation and subsidiaries as of July 1, 1995 and June 29, 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended June 29, 1996. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements 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 misstatement. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of INBRAND
Corporation and subsidiaries as of July 1, 1995 and June 29, 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended June 29, 1996, in conformity with generally accepted
accounting principles.
Joseph Decosimo and Company
A Tennessee Registered Limited Liability Partnership
Chattanooga, Tennessee
August 14, 1996
<PAGE> 21
CORPORATE INFORMATION
<TABLE>
<S> <C>
Corporate Address Market Prices and Dividend Information
INBRAND Corporation The prices in the table below represent the high
1169 Canton Road and low sales prices for INBRAND Corporation's
Marietta, GA 30066 common stock as reported by the Nasdaq National
(770) 422-3036 Market. No cash dividends have been declared.
As of June 18, 1996, (the last trading date prior to
Registrar and Transfer Agent year end) INBRAND had approximately 2,100
First Union National Bank shareholders based on the number of holders of
Corporate Financial Services record and an estimate of the number of
Two First Union Center individual participants represented by security
Charlotte, NC 28288 position listings.
(800) 289-8432
1996
Inquiries regarding stock transfers, -----------------------
lost certificates or address changes High Low
should be directed to First Union --------------------------------------------
National Bank at the above address. First Quarter $18 3/4 $14
Second Quarter 18 13
Auditors Third Quarter 25 16 3/4
Joseph Decosimo and Company, LLP Fourth Quarter 29 1/2 22 1/2
Chattanooga, Tennessee For the Year $29 1/2 $13
General Counsel 1995
Miller & Martin -----------------------
Chattanooga, Tennessee High Low
--------------------------------------------
Form 10-K/Investor Contact First Quarter $20 3/4 $13 3/4
The Form 10-K Annual Report of INBRAND Second Quarter 15 10 1/4
Corporation to the Securities and Exchange Third Quarter 14 1/2 10
Commission is available without charge to Fourth Quarter 17 10 7/8
shareholders upon written request. These requests For the Year $20 3/4 $10
and other investor contacts should be directed to
James R. Johnson, Senior Vice President and Chief The closing price on June 28, 1996 was $28
Financial Officer, at the corporate address.
Trade and Service Marks
Medical Disposables(R), MaxiCare(R), SureCare(R),
PrimeTime(R), Simplicity(R), Presence and Slip-On
and trade and service marks owned by INBRAND
Corporation. For ease of reading, designations of
trademarks and registered marks have been
omitted from the text of this report.
NASDAQ Symbol
The Company's common stock is traded on The
Nasdaq Stock Market (National Market) under
the symbol INBR.
</TABLE>
<PAGE> 1
EXHIBIT 21
List of Subsidiaries
Hygieia Healthcare Holdings Limited
Hygieia Healthcare Limited
Advanced Absorbent Products Holdings Limited
Advanced Absorbent Products Limited
INBRAND Corporation (Canada), Inc.
Hygieia Holdings (Canada) Inc.
INBRAND France, S.A.
Laboratories Alaune, S.A.R.L.
INBRAND Europe, B.V.
Thuiszorg (Home Healthcare Direct), B.V.
INBRAND Benelux, B.V.
Comforta Healthcare, Ltd.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference of our report dated August
14, 1996, on the consolidated financial statements of INBRAND Corporation and
subsidiaries (the Company) appearing in the Company's 1996 Annual Report to
Shareholders which is incorporated by reference in this annual report on Form
10-K for the year ended June 29, 1996.
JOSEPH DECOSIMO AND COMPANY
a Tennessee Registered Limited Liability Partnership
Chattanooga, Tennessee
September 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> JUN-29-1996
<EXCHANGE-RATE> 1
<CASH> 1,554
<SECURITIES> 0
<RECEIVABLES> 27,763
<ALLOWANCES> 681
<INVENTORY> 18,203
<CURRENT-ASSETS> 48,567
<PP&E> 61,615
<DEPRECIATION> 15,158
<TOTAL-ASSETS> 105,620
<CURRENT-LIABILITIES> 30,210
<BONDS> 0
0
0
<COMMON> 784
<OTHER-SE> 39,216
<TOTAL-LIABILITY-AND-EQUITY> 105,620
<SALES> 141,951
<TOTAL-REVENUES> 141,951
<CGS> 101,774
<TOTAL-COSTS> 101,774
<OTHER-EXPENSES> 27,962
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,722
<INCOME-PRETAX> 10,493
<INCOME-TAX> 5,025
<INCOME-CONTINUING> 5,468
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,468
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
</TABLE>
