-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OB8euyE+VqLsuO1NbDR/8F1l8k88EA+yRhX678fFU/EqX9kB+1w/N7mSmy/A8+6G eaIpXf23JgUc7ET/SM7Z9Q== 0000927016-98-003165.txt : 19980819 0000927016-98-003165.hdr.sgml : 19980819 ACCESSION NUMBER: 0000927016-98-003165 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980704 FILED AS OF DATE: 19980818 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUTRAMAX PRODUCTS INC /DE/ CENTRAL INDEX KEY: 0000818467 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 061200464 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18671 FILM NUMBER: 98693679 BUSINESS ADDRESS: STREET 1: 9 BLACKBURN DRIVE CITY: GLOUCESTER STATE: MA ZIP: 01930 BUSINESS PHONE: 5082831800 MAIL ADDRESS: STREET 1: 9 BLACKBURN DRIVE CITY: GLOUCESTER STATE: MA ZIP: 01930 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: JULY 4, 1998 Commission File Number: 0-18671 NUTRAMAX PRODUCTS, INC. (Exact name of registrant as specified in its charter) DELAWARE 061200464 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 51 BLACKBURN DRIVE, GLOUCESTER, MASSACHUSETTS 01930 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (978) 282-1800 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X ----- ------ As of August 7, 1998 there were 5,715,763 shares of Common Stock, par value $.001 per share, outstanding. NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES THIRTEEN WEEKS ENDED JULY 4, 1998 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Statements of Operations - Thirteen Weeks and Forty Weeks ended July 4, 1998 and Thirteen Weeks and Thirty-Nine Weeks ended June 28, 1997 (Unaudited) 4 Condensed Consolidated Balance Sheets - July 4, 1998 (Unaudited) and September 27, 1997 5 Condensed Consolidated Statements of Cash Flows - Forty Weeks ended July 4, 1998 and Thirty-Nine Weeks ended June 28, 1997 (Unaudited) 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7-11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11-15 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 15 ITEM 5. OTHER INFORMATION 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16 SIGNATURES 17
2 NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES THIRTEEN WEEKS ENDED JULY 4, 1998 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Thirteen Weeks Thirteen Weeks Forty Weeks Thirty-Nine Weeks Ended Ended Ended Ended ---------------- --------------- ------------- --------------- July 4, 1998 June 28, 1997 July 4, 1998 June 28, 1997 ---------------- --------------- ------------- --------------- (in thousands, except per share data) NET SALES $ 27,355 $ 23,006 $ 95,774 $ 70,219 COST OF SALES 20,137 16,984 71,820 51,609 ----------- ----------- ----------- ----------- GROSS PROFIT 7,218 6,022 23,954 18,610 SELLING, GENERAL & ADMINISTRATIVE EXPENSES 4,889 3,289 14,910 9,884 ----------- ----------- ----------- ----------- OPERATING INCOME 2,329 2,733 9,044 8,726 OTHER INCOME (EXPENSE): Interest expense (1,984) (1,443) (6,408) (3,245) Interest income 1 19 11 121 Other (17) (13) (9) (46) ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAX EXPENSE 329 1,296 2,638 5,556 INCOME TAX EXPENSE 123 533 998 2,250 ----------- ----------- ----------- ----------- NET INCOME $ 206 $ 763 $ 1,640 $ 3,306 =========== =========== =========== =========== BASIC EARNINGS PER SHARE: Per share amount $ 0.04 $ 0.16 $ 0.29 $ 0.54 =========== =========== =========== =========== Weighted average shares 5,672 4,712 5,646 6,091 =========== =========== =========== =========== DILUTED EARNINGS PER SHARE: Per share amount $ 0.04 $ 0.16 $ 0.29 $ 0.54 =========== =========== =========== =========== Weighted average shares 5,672 4,712 5,646 6,091 Effect of dilutive securities: Stock options 14 91 57 30 Warrants 27 65 41 31 ----------- ----------- ----------- ----------- Adjusted weighted average shares 5,713 4,868 5,744 6,152 =========== =========== =========== ===========
See notes to condensed consolidated financial statements. 4 NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
July 4, September 27, 1998 1997 ------------- ------------- (Unaudited) (See Note) ASSETS ------ CURRENT ASSETS: Cash $ 673 $ 243 Accounts receivable, net 16,946 19,618 Inventories 47,582 36,135 Deferred income taxes 868 823 Escrow receivable 200 2,876 Prepaid expenses and other 1,067 655 --------- --------- TOTAL CURRENT ASSETS 67,336 60,350 PROPERTY, PLANT AND EQUIPMENT, net 49,952 44,456 RESTRICTED CASH 213 316 GOODWILL, net 22,355 22,934 OTHER ASSETS 5,372 4,703 --------- --------- $ 145,228 $ 132,759 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 16,758 $ 13,427 Accrued payroll and related taxes 1,357 936 Accrued Interest 390 1,325 Accrued expenses - other 2,215 1,709 Current maturities of long-term debt 7,012 4,351 --------- --------- TOTAL CURRENT LIABILITIES 27,732 21,748 Long-Term Debt, less current maturities 89,907 85,542 Deferred Income Taxes and Other Liabilities 1,884 1,884 Other Long Term Liabilities - 106 STOCKHOLDERS' EQUITY 25,705 23,479 --------- --------- $ 145,228 $ 132,759 ========= =========
Note: The balance sheet at September 27, 1997 has been condensed from the audited financial statements at that date. See notes to condensed consolidated financial statements. 5 NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Thirty-Nine Weeks Forty Weeks Ended Ended June 28, July 4, 1998 1997 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,640 $ 3,306 Adjustments to reconcile net income to net cash provided by operating activities: Non cash items primarily depreciation and amortization 5,171 4,131 Increase (decrease), net of effect of acquisitions: Accounts receivable 2,672 763 Inventories (11,447) (4,065) Accounts payable 3,331 (230) Accrued expenses and other (481) 1,209 Federal and state taxes payable - (73) --------- --------- Net cash provided by operating activities 886 5,041 CASH FLOWS FROM INVESTING ACTIVITIES: Escrow cash received 2,676 - Restricted Cash 103 3,127 Purchases of property, plant and equipment (8946) (7,065) Deferred packaging costs (738) (550) Other (773) 47 --------- --------- Net cash used in investing activities (7,678) (4,441) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under Revolving Credit Facility and other Long Term Debt 10,544 50,794 Stock Repurchase (126) (21,283) Proceeds from exercise of stock options 667 542 Debt Repayments (3,639) (29,546) Deferred Financing Costs (300) (1,207) Other 76 (102) --------- --------- Net cash provided by (used in) financing activities 7,222 (802) --------- --------- NET INCREASE (DECREASE) IN CASH $ 430 $ (202) CASH: Beginning of period $ 243 $ 294 --------- --------- End of period $ 673 $ 92 --------- --------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Income taxes paid $ 111 $ 1,838 --------- --------- Interest paid $ 7,166 $ 2,331 --------- --------- SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING & INVESTING ACTIVITIES: Warrants issued in connection with debt financing $ - $ 1,094 --------- --------- Note issued in exchange for stock repurchased $ - $ 16,372 --------- ---------
See notes to condensed consolidated financial statements. 6 NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The condensed consolidated balance sheet of NutraMax Products, Inc. and Subsidiaries (the "Company") as of July 4, 1998, the condensed consolidated statements of operations for the thirteen and forty weeks ended July 4, 1998 and the thirteen and thirty-nine weeks ended June 28, 1997, and the condensed consolidated statements of cash flows for the forty weeks ended July 4, 1998 and the thirty-nine weeks ended June 28, 1997 have been prepared by the Company without audit. In the opinion of the Company, all adjustments (consisting only of normal, recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at July 4, 1998, and for all periods presented, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's September 27, 1997 Annual Report on Form 10-K, as amended. The results of operations for the period ended July 4, 1998 are not necessarily indicative of the operating results for the full year. NOTE B - ACQUISITION On September 11, 1997, the Company acquired certain assets and assumed certain liabilities related to the first aid business of American White Cross, Inc. and Weaver Manufacturing Corporation. As of fiscal year end 1997, the Company had recorded an escrow receivable of $1,125,000 that was purchased as part of the acquisition and an escrow receivable of $1,751,000 related to purchase price adjustments. The purchase price was finalized in December 1997 and the $1,751,000 related to the purchase price adjustments was released from escrow and returned to the Company during the quarter ended January 3, 1998. During the quarter ended April 4, 1998, $375,000 was released and collected by the Company from the purchased escrow receivable associated with the acquisition. During the quarter ended July 4, 1998, an additional $550,000 was released from the purchased escrow receivable and collected by the Company. The Company is still in the process of obtaining appraisals on certain assets acquired. The excess of purchase price over estimated fair value of assets acquired may be adjusted based on the results of such appraisals. 7 NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE C - INVENTORY Inventories are stated at the lower of cost (first-in, first-out method) or market.
September 27, July 4, 1998 1997 ------------ ------------- Raw materials $20,418,000 $15,921,000 Finished goods 22,138,000 16,223,000 Work-in-process 2,535,000 1,953,000 Machine parts and factory supplies 2,491,000 2,038,000 ----------- ----------- $47,582,000 $36,135,000 =========== ===========
NOTE D - DEBT The Company's Revolving Credit Facility of $25,000,000 had an outstanding balance of $24,626,000 on July 4, 1998. The interest rate was 8.7% based on LIBOR plus 2.5% and the prime rate. The Revolving Credit Facility expires on January 1, 2002. A summary of Debt outstanding as of July 4, 1998 is as follows: Revolving Credit Facility $ 24,626,000 Term Loans 48,160,000 Subordinated Debt 9,176,000 Industrial Development Bonds 6,100,000 MEDIQ Note 5,915,000 Mortgages 2,800,000 Capital Lease Obligation 142,000 ------------ $ 96,919,000 Less: Current maturities of long-term debt 7,012,000 ------------ Long Term Debt $ 89,907,000 ============
During the quarter ended July 4, 1998, the Company obtained a five year mortgage of $2,800,000 for purposes of refinancing an existing mortgage as well as for the purchase of one of its manufacturing facilities previously leased. The interest rate was fixed upon closing at 8.1% based upon the five year U.S. Treasury Bond rate plus 2.5%. Principal payments for the first year are $25,000 per quarter and thereafter, monthly principal payments will be based upon a fifteen year amortization schedule. In connection with the mortgage, the Company received from its Senior and Subordinated lenders a waiver to allow for the additional indebtedness. 8 NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE D - DEBT (CONTINUED) The agreements evidencing the Senior Debt and the Senior Subordinated Debt contain certain restrictive covenants including, without limitation, covenants with respect to the ratio of total debt to EBITDA, operating cash flows, interest coverage, capital expenditures, and covenants which prevent the payment of dividends. The Company requested waivers of the total debt to EBITDA, operating cash flows and minimum interest coverage covenants for the period ended July 4, 1998. As of August 18, 1998, the Company has been granted oral waivers of all the above mentioned covenants. Based upon conversations with senior lenders, written waivers are forthcoming and will be provided to the Company upon execution. NOTE E - ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS Effective September 28, 1997, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share." The Company changed the method used to compute earnings per share and restated all prior periods in accordance with SFAS No. 128. SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15 and is intended to simplify the computation of earnings per share and to make the U.S. computations more comparable with international computations by requiring the presentation of basic and fully diluted earnings per share. The Company's only dilutive common stock equivalents are stock options and warrants. NOTE F - INCOME TAXES The provision for income tax expense for the forty weeks ended July 4, 1998 has been computed using an estimated effective tax rate for the year ended October 3, 1998. NOTE G - DUTCH AUCTION SELF TENDER On October 29, 1997 the Company announced that it would purchase from its stockholders in a Dutch auction self tender up to 450,000 shares of its common stock at a purchase price not greater than $12.75 per share nor less than $11.00 per share. The purpose of the offer was to provide added market liquidity for stock holders who wished to sell their shares as a result of the Company's 1997 fourth quarter performance. The offer expired on November 28, 1997. A total of 250,668 shares were purchased and retired by the Company at a price of $12.75 per share. The offer was financed by sales of 250,668 shares by the Company to: (i) Cape Ann Investors, L.L.C., the Company's largest stockholder; (ii) Bernard J. Korman, the Company's Chairman of the Board; (iii) Donald E. Lepone, the Company's Chief Executive Officer; and (iv) Donald M. Gleklen, a member of the Board of Directors of the Company. In connection with the Dutch auction self tender, the Company received from its Senior and Subordinated lenders a waiver to allow for the purchase of its common stock. 9 NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE H - LITIGATION AND CONTINGENCIES The Company has been named as a defendant in several legal proceedings which have arisen in the normal course of business. Although the amount of litigation that could result from any litigation cannot be predicted, in the opinion of management, the Company's potential liability on all known claims would not have a material adverse effect on the consolidated financial position or results of operations of the Company. The Company has conducted an internal review of its computer systems to identify those areas that could be affected by Year 2000 failures. The Company believes that its integrated manufacturing, accounting, distribution and order entry system has built-in Year 2000 compliance. While the impact of the Year 2000 on the Company's customers and vendors is not yet known the Company is actively gathering further information. The Company expects to complete its Year 2000 study before the end of the calendar year. On July 8, 1997, the Commonwealth of Massachusetts Department of Revenue ("DOR") notified the Company of its intent to assess the Company approximately $374,000, including interest and penalties, relating to tax audits for fiscal years ending 1992 through 1994. Tax years 1995 and 1996 remain open. The amount relates principally to the deductibility of certain expenses related to the Company's wholly owned subsidiary, NutraMax Holdings, Inc., a Delaware company. The Company attended a pre-assessment conference with the DOR on March 18, 1998, at which the Company continued to vigorously defend its tax position. The Company has not received any further notice from the DOR regarding its intent to assess. Due to the uncertainties surrounding any assessments, no accrual has been recorded in the accompanying financial statements. NOTE I - COMMITMENTS LEASES - The Company leases certain of its administrative, manufacturing, distribution and warehouse facilities under operating leases. The Company also leases certain equipment under operating and capital leases. During the second quarter of fiscal year 1998, the Company entered into new lease agreements for a distribution facility and certain equipment which increased the Company's annual future minimum payments under noncancelable operating and capital leases by approximately $480,000. During the third quarter of fiscal year 1998, the Company obtained a five year mortgage of $2,800,000 for purposes of refinancing an existing mortgage as well as for the purchase of one of its manufacturing facilities previously leased. The Company's annual future minimum payments with respect to these facilities remain substantially unchanged at approximately $375,000. 10 NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE J - SUBSEQUENT EVENT On July 28, 1998, Mediq, Inc. released and delivered 623,597 escrowed shares pursuant to the indenture and escrow agreement relating to the Mediq Bonds. As a result, the Mediq note was paid down by $5,612,000 using proceeds from an increase in term notes. On August 7, 1998, the Company entered into an amendment to the Stock Purchase Agreement with Cape Ann Investors to permit Cape Ann and its affiliates to purchase from time to time, in the open market or in privately negotiated transactions, up to an additional 245,000 shares of common stock of the Company. As of August 10, 1998, Cape Ann beneficially owned 1,008,168 shares of common stock of the Company and held warrants to purchase 215,425 shares of common stock of the Company. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The following discussion addresses the financial condition of the Company as of July 4, 1998 and its results of operations for the thirteen and forty weeks then ended, compared with the thirteen and thirty-nine week periods last year. On September 11, 1997, the Company acquired certain assets and assumed certain liabilities related to the first aid division of American White Cross, Inc. and Weaver Manufacturing Corp. (the "First Aid Business"). The acquisition was accounted for as a purchase and the results of operations of the First Aid Business are included in the Company's Consolidated Operations for the thirteen and forty weeks ended July 4, 1998. This discussion should be read in conjunction with the Management's Discussion and Analysis section included in the Company's Annual Report on Form 10-K, as amended, for the year ended September 27, 1997 to which the reader is directed for additional information. Some of the information presented in this report constitutes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors which could cause actual results to differ from expectations include the timing and amount of new product introductions by the Company, the timing of orders received from customers, the gain or loss of significant customers, changes in the mix of products sold, competition from brand name and other private label manufacturers, seasonal changes in the demand for the Company's products, increases in the cost of raw materials and changes in the retail market for health and beauty aids in general. For additional information concerning these and other important factors which may cause the Company's actual results to differ materially from expectations and underlying assumptions, please refer to the Company's Annual Report on Form 10-K, as amended, for the year ended September 27, 1997 and other reports filed with the Securities and Exchange Commission. 11 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship that items in the Company's Condensed Consolidated Statements of Operations bear to net sales.
Thirteen Weeks Thirteen Weeks Forty Weeks Thirty-Nine Ended Ended Ended Weeks Ended -------------- -------------- ------------ ------------- July 4, 1998 June 28, 1997 July 4, 1998 June 28, 1997 -------------- -------------- ------------ ------------- NET SALES 100% 100% 100% 100% COST OF SALES 74 74 75 73 -------------- -------------- ------------ ------------- GROSS PROFIT 26 26 25 27 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 17 14 15 14 -------------- -------------- ------------ ------------- OPERATING INCOME 9 12 10 13 OTHER EXPENSE 7 6 7 5 -------------- -------------- ------------ ------------- INCOME BEFORE INCOME TAX EXPENSE 2 6 3 8 INCOME TAX EXPENSE 1 3 1 3 -------------- -------------- ------------ ------------- NET INCOME 1% 3% 2% 5% ============== ============== ============ =============
THIRD QUARTER 1998 COMPARED TO THIRD QUARTER 1997 Net sales for third quarter ended July 4, 1998 were $27,355,000, an increase of $4,349,000, or 19%, over third quarter 1997 net sales of $23,006,000. Of the increase in net sales, approximately $9,000,000 was attributable to sales of First Aid products primarily offset by sales decreases in Cough/Cold ($2,300,000), Feminine hygiene ($700,000), Infant Care ($500,000), and a combined $900,000 decrease in the Adult Liquid Nutrition and Clotrimazole based yeast infection medication sales. The reduction in Adult Liquid Nutritionals and Clotrimazole based yeast infection medications is the result of a decision by the Company to withdraw from these markets and concentrate on products it directly manufacturers. The Company expects to complete the phase out of Adult Liquid Nutritionals and Clotrimazole by the end of this fiscal year. Gross profit for third quarter 1998 was $7,218,000 or 26% of net sales, as compared to $6,022,000 or 26% of net sales for the prior year's quarter. Although gross margins are comparable to the same quarter of the prior year, margins have improved by approximately 2% of net sales over the previous quarter. This improvement results from operational efficiencies at the Company's manufacturing facilities combined with sales of certain higher margins products in 1998 from the recently acquired First Aid Business. Selling, general and administrative expenses for third quarter 1998 were $4,889,000, or 17% of net sales, as compared to $3,289,000 or 14% of net sales for the prior year's quarter. The $1,600,000 increase is primarily attributable to expenses associated with operating the newly acquired First Aid Business as well as increased broker commissions and freight expense related to increased sales volume. The increase, as a percentage of net sales, is primarily attributable to increased amortization of goodwill and deferred financing costs associated with the purchase of the First Aid Business. Interest expense for the third quarter 1998 was $1,984,000 as compared to $1,443,000 in the prior year's quarter. This increase is a result of the increased debt associated with the acquisition of the First Aid Business. 12 The effective income tax rate for the quarter was 37% which is 4% lower than the prior year's quarter. The decrease relates to benefits expected to be realized as a result of the Company's implementation of certain state tax planning strategies. FORTY WEEKS ENDED JULY 4, 1998 COMPARED TO THIRTY-NINE WEEKS ENDED JUNE 28, 1997 Net Sales for the forty weeks ended July 4, 1998 were $95,774,000, an increase of $25,555,000, or 36% over the same period sales for 1997 of $70,219,000. Of the increase in net sales approximately $26,800,000 was attributable to sales of First Aid products with added increases in the Opthalmics and Cough/Cold categories of $1,700,000 and $600,000, respectively, offset by decreases in the Feminine hygiene and Adult Liquid Nutrition/Clotrimazole based yeast infection medication sales of $900,000 and $2,700,000, respectively. The reduction in Adult Liquid Nutritionals and Clotrimazole based yeast infection medications is the result of a decision by the Company to withdraw from these markets and concentrate on products it directly manufactures. The Company expects to complete the phase out of Adult Liquid Nutritionals and Clotrimazole by the end of this fiscal year. Gross profit for the forty week period in 1998 was $23,954,000 or 25% of net sales, compared to $18,610,000 or 27% of net sales for the thirty-nine week period last year. The increase in gross profit is attributable to increased sales. The decrease in the gross margin as a percentage of net sales is primarily attributable to inefficiencies which occurred primarily during the fourth fiscal quarter of 1997 and related to the delay in the completion of the continuous cooking line which delayed production causing underabsorbed labor and overhead which was capitalized into inventory related to Cough/Cold products production, offset slightly by sales of certain higher margins products in 1998 from the recently acquired First Aid Business. Selling, general and administrative expenses for the forty week period in 1998 was $14,910,000 or 15% of net sales, compared to $9,884,000 or 14% of net sales for the thirty-nine week period last year. The $5,026,000 increase is primarily attributable to expenses associated with operating the newly acquired First Aid Business as well as increased broker commissions and freight expense related to increased sales volume. The increase, as a percentage of net sales, is primarily attributable to increased amortization of goodwill and deferred financing costs associated with the purchase of the First Aid Business. Interest expense for the forty week period in 1998 was $6,408,000 or 7% of net sales, compared to $3,245,000 or 5% of net sales for the thirty-nine week period last year. This increase is a result of the increased debt associated with the acquisition of the First Aid Business as well as the increased debt associated with the repurchase of the Company's shares from Mediq, Inc. in December 1996. The effective income tax rate for the forty week period in 1998 was 38% which is 2% lower than the comparable prior year's period. The decrease relates to benefits expected to be realized as a result of the Company's implementation of certain state tax planning strategies. 13 LIQUIDITY AND CAPITAL RESOURCES As of July 4, 1998 the Company had working capital of $39,604,000 as compared to working capital of $38,602,000 as of September 27, 1997. The increase in working capital was primarily attributable to increased inventories offset by a decrease in accounts receivable and an increase in accounts payable. The increase in inventory is primarily attributable to an increase in cough/cold inventory to meet current and future customer order requirements. Net cash provided in operating activities was $886,000 for the forty weeks ended July 4, 1998, as compared to $5,041,000 provided by operating activities in the thirty-nine week period ended June 28, 1997. This decrease was primarily attributable to increased inventories and interest offset by a reduction in accounts receivable and an increase in accounts payable. Net cash used in investing activities was $7,678,000 for the forty weeks ended July 4, 1998, consisting primarily of $2,800,000 used to purchase one of the Company's manufacturing facilities, as well as funds used for additions to capital equipment offset by escrow proceeds received relating to the acquisition of the First Aid Business. The Company anticipates additional capital expenditures of approximately $500,000 for the remainder of fiscal 1998. The expenditures relate primarily to additional manufacturing capacity requirements. These expenditures are expected to be financed through cash generated from operations. Net cash provided by financing activities was $7,222,000 for the forty weeks ended July 4, 1998, consisting of borrowings of $10,544,000 primarily resulting from the funding of increases in inventories and the purchase of a manufacturing facility offset by debt repayments of $3,639,000. During the second quarter of fiscal 1998, the Company entered into new lease agreements for a distribution facility and certain equipment which increased the Company's annual future minimum payments under noncancelable operating and capital leases by approximately $480,000. The Company's Revolving Credit Facility of $25,000,000 had an outstanding balance of $24,626,000 on July 4, 1998. The interest rate was 8.7% based on LIBOR plus 2.5% and the prime rate. The Revolving Credit Facility expires on January 1, 2002. The Company requested waivers of the total debt to EBITDA, operating cash flows and minimum interest coverage covenants for the period ended July 4, 1998. As of August 18, 1998, the Company has been granted oral waivers of all the above mentioned covenants. Based upon conversations with senior lenders, written waivers are forthcoming and will be provided to the Company upon execution. The Company believes that its existing working capital, anticipated funds to be generated from operations, and funds available under the Revolving Credit Facility will be sufficient to meet the Company's operating and capital needs during fiscal 1998. However, depending upon future growth of the business, additional financing may be required. 14 SUBSEQUENT EVENT On August 7, 1998, the Company entered into an amendment to the Stock Purchase Agreement with Cape Ann Investors to permit Cape Ann and its affiliates to purchase from time to time, in the open market or in privately negotiated transactions, up to an additional 245,000 shares of common stock of the Company. As of August 10, 1998, Cape Ann beneficially owned 1,008,168 shares of common stock of the Company and held warrants to purchase 215,425 shares of common stock of the Company. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company has been named as a defendant in several legal proceedings which have arisen in the normal course of business. Although the amount of litigation that could result from any legal proceedings cannot be predicted, in the opinion of management, the Company's potential liability on all known claims would not have a material adverse effect on the consolidated financial position or results of operations of the Company. On July 8, 1997, the Commonwealth of Massachusetts Department of Revenue ("DOR") notified the Company of its intent to assess the Company approximately $374,000, including interest and penalties, relating to tax audits for fiscal years ending 1992 through 1994. Tax years 1995 and 1996 remain open. The amount relates principally to the deductibility of certain expenses related to the Company's wholly owned subsidiary, NutraMax Holdings, Inc., a Delaware company. The Company attended a pre-assessment conference with the DOR on March 18, 1998, at which the Company continued to vigorously defend its tax position. The Company has not received any further notice from the DOR regarding its intent to assess. Due to the uncertainties surrounding any assessments, no accrual has been recorded in the accompanying financial statements. ITEM 5. OTHER INFORMATION The Securities and Exchange Commission recently adopted certain amendments to its rules governing the submission by shareholders of proposals intended to be presented at meetings of shareholders. These amendments, which became effective on June 29, 1998, included granting the Company the right to exercise discretionary voting authority with respect to certain shareholder proposals of which the Company did not have notice within a specified time period prior to the meeting. 15 Under the amended rules, if a shareholder proposal intended to be presented at the Company's 1999 Annual Meeting of Shareholders (other than proposals that are included in the Company's proxy statement and form of proxy pursuant to and in compliance with Rule 14a-8 of the Securities Exchange Act of 1934) (a "Non-Rule 14a-8 Proposal") is received by the Company after December 14, 1998 and such proposal is submitted to a vote of the shareholders at such meeting, the Company will have discretionary voting authority with respect to such proposal to vote proxies solicited by the Board of Directors in the manner determined by the Company's proxies. If a Non-Rule 14a-8 proposal is submitted to the Company on or prior to December 14, 1998, the Company will have discretionary voting authority with respect to such proposal under certain circumstances pursuant to Rule 14a-4 of the Securities Exchange Act of 1934. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 10 -Amendment, dated August 7, 1998, to the Stock Purchase Agreement dated August 12, 1997 by and between NutraMax Products, Inc. and Cape Ann Investors, L.L.C. appears on page 18-19. Exhibit 11 -Statement re: Computation of Per Share Earnings appears on page 20. Exhibit 27 -Financial Data Schedule appears on page 21. (b) Reports on Form 8-K. No reports on Form 8-K were filed in the quarter ended July 4,1998. 16 NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES THIRTEEN WEEKS ENDED JULY 4, 1998 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NutraMax Products, Inc. -------------------------------- (Registrant) August 18, 1998 ------------------- (Date) /s/ Robert F. Burns ------------------------------------ Robert F. Burns Vice President and Chief Financial Officer 17 EX-10 2 NUTRAMAX PRODUCTS AND SUBSIDIARIES EXHIBIT 10 NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES AMENDMENT, DATED AUGUST 7, 1998, TO THE STOCK PURCHASE AGREEMENT DATED AUGUST 12, 1997 BY AND BETWEEN NUTRAMAX PRODUCTS, INC. AND CAPE ANN INVESTORS, L.L.C. AMENDMENT (this "Amendment"), dated as of August 7, 1998, to the Stock --------- Purchase Agreement (the "Stock Purchase Agreement") dated as of August 12, 1997, ------------------------ as previously amended, by and between NutraMax Products, Inc., a Delaware corporation (the "Company"), and Cape Ann Investors, L.L.C., a Delaware limited ------- liability company (the "Purchaser"). All capitalized terms used in this --------- Amendment and not otherwise defined herein shall have the meanings set forth in the Stock Purchase Agreement. 1. The first sentence of Section 5.6(b) of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "Each of the Stockholders hereby jointly and severally covenants and agrees that from and after the date hereof none of the Stockholders or their Affiliates will, without the prior written consent of the Company specifically expressed in a vote adopted after the Closing by the Board, directly or indirectly, purchase or cause to be purchased or otherwise acquire (other than pursuant to a stock split, stock dividend or similar transaction) or agree to acquire, or become or agree to become the beneficial owner of, any additional Stock, except that the Stockholders and their Affiliates may purchase shares of Common Stock (A) pursuant to Section 2.2 of the Agreement between the Company and Purchaser, dated as of October 14, 1997 (the "October Agreement"), (B) upon exercise of ----------------- some or all of the warrants granted pursuant to the October Agreement (the "Warrants"), (C) from time to time, in the open market or in privately - --------- negotiated transactions, up to an aggregate of 245,000 shares of Common Stock, and (D) from time to time, in the open market or in privately negotiated transactions, up to an aggregate number of shares of Common Stock which, when added to the Shares of Common Stock then owned by the Stockholders and their Affiliates, would result in the Stockholders owning no more than the highest percentage of voting securities of the Company held by the Stockholders and their Affiliates immediately following any purchase permitted by clauses (A), (B) or (C) above. 2. Notwithstanding anything in the Stock Purchase Agreement to the contrary, any member of the Advisory Board of Chilmark who acquired shares of Common Stock from Purchaser on September 18, 1997 in accordance with the Stock Purchase Agreement may, from time to time, in the open market or privately negotiated transactions, purchase up to an aggregate number of shares of Common Stock equal to 50% of the number of shares so acquired from Chilmark. 3. Except as expressly provided herein, the Stock Purchase Agreement shall remain in full force and effect. IN WITNESS WHEREOF, each of the parties hereto has duly executed and delivered this Amendment as of the date first above written. NUTRAMAX PRODUCTS, INC. By: /s/ Donald E. Lepone -------------------- Name: Donald E. Lepone Title: President/CEO CAPE ANN INVESTORS, L.L.C. By: Chilmark Fund II, L.P., its Managing Member By: Chilmark II, L.L.C., its General Partner By: /s/ David Schulte ----------------- Name: David Schulte Title: President EX-11 3 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
Thirteen Weeks Thirteen Weeks Forty Weeks Thirty-Nine Ended Ended Ended Weeks Ended -------------- -------------- -------------- ------------- July 4, 1998 June 28, 1997 July 4, 1998 June 28, 1997 -------------- -------------- -------------- ------------- (shares data in thousands) BASIC EARNINGS PER SHARE: Net income per common share $ 0.04 $ 0.16 $ 0.29 $ 0.54 ========== ========= ========= ========= Weighted average number of shares outstanding 5,672 4,712 5,646 6,091 ========== ========= ========= ========= DILUTED EARNINGS PER SHARE: Net income per common share $ 0.04 $ 0.16 $ 0.29 $ 0.54 ========== ========= ========= ========= Weighted average shares 5,672 4,712 5,646 6,091 Effect of dilutive securities: Stock options 14 91 57 30 Warrants 27 65 41 31 ---------- --------- --------- --------- Adjusted weighted average number of shares outstanding 5,713 4,868 5,744 6,152 ========== ========= ========= =========
EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS OCT-03-1998 JUL-04-1998 673 0 17,826 880 47,582 67,336 70,635 20,683 145,228 27,732 89,907 0 0 6 25,699 145,228 95,774 95,774 71,820 71,820 14,910 0 6,408 2,638 998 1,640 0 0 0 1,640 .29 .29
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