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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended June 30, 1996
-----------------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------------- --------------------------
Commission File Number: 0-19912
--------------------------------------------------------
Health o meter Products, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3635286
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24700 Miles Road, Bedford Heights, Ohio 44146-1399
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(216) 464-4000
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of July 30, 1996, the issuer had 9,071,784 shares of common stock
outstanding.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended June 30, 1996
-----------------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
---------------------- -------------------------
Commission File Number: 33-80000
--------------------------------------------------------
Health o meter, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3330781
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24700 Miles Road, Bedford Heights, Ohio 44146-1399
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(216) 464-4000
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ----
The Registrant is a wholly-owned subsidiary of Health o meter Products,
Inc. Accordingly, none of its equity securities are owned by non-affiliates.
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
June 30, October 1,
1996 1995
-------- ----------
(Unaudited)
ASSETS
Current assets
Cash $ 1,149 835
Trade accounts receivable, net 45,621 54,151
Inventories 34,655 41,787
Refundable income taxes - 207
Deferred income taxes 5,108 5,108
Other current assets 978 1,828
-------- -------
Total current assets 87,511 103,916
Property, plant, and equipment, net 18,543 20,157
Other assets
Excess of cost over fair value
of net assets acquired, net 141,084 144,084
Deferred financing costs, net 4,794 5,437
Deferred income taxes 63 63
Other 1,485 1,478
-------- -------
Total other assets 147,426 151,062
-------- -------
Total assets $253,480 275,135
======== =======
(Continued)
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HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
June 30, October 1,
1996 1995
------------ ----------
(Unaudited)
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Current portion of debt $ 5,000 5,000
Accounts payable 14,239 25,803
Accrued liabilities 21,933 19,828
--------- --------
Total current liabilities 41,172 50,631
Long-term debt
Revolving Credit Facility 29,600 39,400
Term Note 61,250 65,000
Senior Subordinated Notes 68,626 68,458
--------- --------
Total long-term debt 159,476 172,858
Product liability - noncurrent 3,698 3,621
Other 1,348 2,008
--------- --------
Total liabilities 205,694 229,118
Stockholders' equity
Common stock, par value $.01 per share 91 91
Paid-in capital 51,741 51,741
Warrants 1,773 1,773
Accumulated deficit (5,819) (7,588)
--------- --------
Total stockholders' equity 47,786 46,017
--------- --------
Total liabilities and stockholders' equity $ 253,480 275,135
========= ========
See accompanying notes to consolidated financial statements.
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HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Thirteen weeks ended Thirty-nine weeks ended
-------------------- -----------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
-------- -------- --------- ---------
Net sales $ 59,339 54,939 213,021 202,223
Operating costs and expenses
Cost of goods sold 40,328 38,652 145,729 141,519
Selling, general, and
administrative expenses 14,041 13,109 44,929 42,769
Amortization of intangible assets 1,000 1,002 3,000 2,983
-------- ------- -------- --------
Total operating costs and expenses 55,369 52,763 193,658 187,271
-------- ------- -------- --------
Operating income 3,970 2,176 19,363 14,952
Interest expense 4,637 4,772 14,451 14,439
Other income (94) (43) (260) (178)
-------- ------- -------- --------
Income (loss) before income taxes (573) (2,553) 5,172 691
Income tax expense (benefit) (355) (1,829) 3,403 656
-------- ------- -------- --------
Net income (loss) $ (218) (724) 1,769 35
======== ======= ======== ========
Net income (loss) per share $ (0.02) (0.08) 0.20 --
======== ======= ======== ========
Number of common and common
equivalent shares used in
computing net income (loss) per share 9,071 9,071 9,071 9,071
See accompanying notes to consolidated financial statements.
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HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Thirty-nine weeks ended
-------------------------------
June 30, 1996 July 2, 1995
--------------- --------------
Cash flows from operating activities
Net income $ 1,769 35
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization
of plant and equipment 4,418 3,911
Loss on asset write-offs and disposals 106 --
Amortization of intangible assets 3,000 2,983
Amortization of deferred financing costs 643 614
Accretion of debt discount 168 168
Changes in
Accounts receivable 8,530 1,653
Inventories 7,132 12,553
Refundable income taxes 207 3,044
Other assets 843 463
Accounts payable (11,564) (17,882)
Accrued liabilities 2,105 2,572
Noncurrent liabilities (583) 401
-------- -------
Net cash provided by
operating activities 16,774 10,515
-------- -------
Cash flows from investing activities
Capital expenditures (2,910) (2,749)
-------- -------
Net cash used in investing activities (2,910) (2,749)
-------- -------
Cash flows from financing activities
Proceeds from revolving credit facilities 52,800 57,400
Repayments of revolving credit facilities (62,600) (62,300)
Repayment of long-term debt (3,750) (3,750)
Payment of financing fees -- (302)
-------- -------
Net cash used in
financing activities (13,550) (8,952)
-------- -------
Increase (decrease) in cash 314 (1,186)
Cash at beginning of the period 835 1,684
-------- -------
Cash at end of the period $ 1,149 498
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 11,453 12,125
Income taxes 3,454 --
See accompanying notes to consolidated financial statements.
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HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) In the opinion of management, the information furnished herein includes all
adjustments of a normal recurring nature that are necessary for a fair
presentation of results for the interim periods shown in accordance with
generally accepted accounting principles. The unaudited interim
consolidated financial statements have been prepared using the same
accounting principles that were used in preparation of the Company's annual
report on Form 10-K for the year ended October 1, 1995, and should be read
in conjunction with the consolidated financial statements and notes
thereto. Because of the seasonal nature of the small appliance and consumer
scale industries, the results of operations for the interim period are not
necessarily indicative of results for the full fiscal year.
(2) The components of inventories are as follows (in thousands):
June 30, 1996 October 1, 1995
------------- ---------------
Inventories at FIFO cost
Raw materials and purchased parts $ 12,501 13,389
Finished goods 22,265 28,220
-------- ------
34,766 41,609
Excess of FIFO cost
over LIFO (111) 178
-------- ------
Total inventories $ 34,655 41,787
======== ======
Work-in-process inventories are not significant and are included with raw
materials.
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HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(3) Condensed consolidated financial information for Health o meter, Inc. at
June 30, 1996 and October 1, 1995, and for the thirteen-week and
thirty-nine-week periods ended June 30, 1996 and July 2, 1995 is as follows
(in thousands):
June 30, October 1,
1996 1995
--------- ---------
Current assets $ 87,511 103,916
Noncurrent assets 165,969 171,219
--------- --------
Total assets $ 253,480 275,135
========= ========
Current liabilities $ 41,172 50,631
Noncurrent liabilities 164,522 178,487
Intercompany payables 47,627 47,627
--------- --------
Total liabilities 253,321 276,745
Stockholder's equity
Common stock - $.01 par value;
authorized 1,000,000 shares;
issued and outstanding
1,000,000 shares 10 10
Paid-in capital 2,811 2,811
Accumulated deficit (2,662) (4,431)
--------- --------
Total stockholder's equity 159 (1,610)
--------- --------
Total liabilities and stockholder's equity $ 253,480 275,135
========= ========
Thirteen-week period ended Thirty-nine-week period ended
-------------------------- -----------------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
------- ------- -------- ------
Net sales $ 59,339 54,939 213,021 202,223
Gross profit 19,011 16,287 67,292 60,704
Net income (loss) (218) (724) 1,769 35
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
THIRTEEN WEEKS ENDED JUNE 30, 1996 AND JULY 2, 1995
Net Sales. Net sales in the third quarter of fiscal 1996
increased approximately 8.0 percent to $59.3 million, compared with $54.9
million for the same period in fiscal 1995. Net sales of the Consumer Products
Division increased approximately 10.1 percent to $50.3 million in the third
quarter of fiscal 1996, compared with $45.7 million for the same period last
year.
The increase in net sales of the Consumer Products Division was due primarily to
sales of the recently introduced automatic hot teamaker, Mrs. Tea(TM). Consumer
Products Division sales were also favorably impacted by higher sales of consumer
scales attributable to increased distribution of higher priced, higher margin
analog scales at certain wholesale clubs, as well as improved distribution of
electronic strain gauge scales at certain mass merchandisers. Increased
distribution of iced teamakers at warehouse clubs, along with new distribution
of filters, also favorably impacted third quarter 1996 sales.
Net sales of the Professional Products Division declined approximately 2.3
percent to $9.0 million, primarily because third quarter fiscal 1995 sales had
been favorably impacted by the U.S. Postal rate increase in January 1995, which
generated incremental sales of postal scale dials, electronic rate chips and
postal scales to accommodate the new rates. The Professional Products sales
decline was partially offset in the third quarter of 1996 by improved sales of
certain commercial coffeemaker models.
Gross Profit. The Company's gross profit in the third quarter
of fiscal 1996 was $19.0 million, or approximately 32.0 percent of net sales,
compared with $16.3 million, or approximately 29.6 percent of net sales in the
same period in fiscal 1995. The addition of new higher margin products to the
sales mix, as well as improvements in operating efficiency during the third
quarter of fiscal 1996 contributed to the overall gross profit improvement. A
reduction of product liability of $0.6 as a result of favorable experience also
contributed to the overall gross profit in the third quarter.
The Consumer Products Division's gross profit increased from approximately 28.6
percent of net sales for the third quarter of fiscal 1995 to approximately 31.8
percent of net sales for the third quarter of fiscal 1996. The Consumer Products
Division's gross profit percentage reflects the favorable impact from sales of
the recently introduced automatic hot teamaker, Mrs. Tea(TM). Historically,
gross margins on individual product lines have been greatest near the point of
introduction and gradually decreasing as the product matures and becomes subject
to pricing pressure. There continues to be intense pressure on retail prices and
there can be no assurance as to the Company's ability to achieve any price
increases or maintain current price levels in the
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future. The Company continues its efforts to introduce new products and to
reduce the cost of existing products as a means of protecting margins.
The Professional Products Division's gross profit declined slightly from 34.8
percent of net sales for the third quarter of fiscal 1995 to 33.6 percent for
the third quarter of fiscal 1996. Gross profit of the Professional Products
Division had been favorably impacted during the third quarter of fiscal 1995 by
the U.S. Postal rate increase in January 1995.
Selling, General, and Administrative Expenses. Selling,
general, and administrative expenses ("SG&A") for the third quarter of fiscal
1996 totalled $14.0 million, or approximately 23.7 percent of net sales,
compared with $13.1 million, or approximately 23.9 percent, for the third
quarter of fiscal 1995. The decrease in SG&A as a percentage of net sales is
primarily attributable to lower variable selling costs, partially offset by
higher national advertising expenditures to support the marketing of new
products such as Mrs. Tea(TM).
Amortization of Intangible Assets. The amortization of
intangible assets relates primarily to intangible assets associated with the
acquisition of Mr. Coffee, inc. in August 1994 (the "Acquisition").
Interest Expense. Net interest expense for the third quarter
of fiscal 1996 was approximately $4.6 million, compared with $4.8 million for
the same period in the prior year. The decrease in interest expense is
attributable to lower interest rates compared with the same quarter in 1995.
Income Taxes. Due to the pre-tax loss in the third quarter of
fiscal 1996 and because the Company expects to be profitable in fiscal 1996, a
tax benefit of $0.4 million was recognized in the third quarter of fiscal 1996.
Net Income. Based on the foregoing, the Company recorded a net
loss of approximately $0.2 million in the third quarter of fiscal 1996, compared
with a net loss of approximately $0.7 million in the same period last year.
THIRTY-NINE WEEKS ENDED JUNE 30, 1996 AND JULY 2, 1995
Net Sales. Net sales in the first three quarters of fiscal
1996 increased approximately 5.3 percent to $213.0 million, compared with $202.2
million for the same period in fiscal 1995. Net sales of the Consumer Products
Division increased approximately 7.5 percent to $186.2 million in the first
three quarters of fiscal 1996, compared with $173.3 million for the same period
last year. The increase in net sales of the Consumer Products Division was
primarily due to sales of recently introduced automatic hot teamaker, Mrs.
Tea(TM), and improved distribution of consumer scales along with sales of new
model Big Foot(R) scales.
Professional Products Division net sales decreased approximately 7.3 percent to
$26.8 million, compared with $28.9 million for the same period last year.
Professional Products Division net sales were favorably impacted in fiscal 1995
by the U.S. Postal rate increase in January 1995.
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Gross Profit. The Company's gross profit in the first three
quarters of fiscal 1996 was $67.3 million, or approximately 31.6 percent of net
sales, compared with $60.7 million, or approximately 30.0 percent of net sales
in the same period in fiscal 1995. The Consumer Products Division's gross profit
increased from approximately 28.9 percent of net sales for the first three
quarters of fiscal 1995 to approximately 31.0 percent of net sales for the first
three quarters of fiscal 1996. The improvement in the Consumer Products
Division's gross profit percentage was primarily due to sales of the automatic
hot teamaker, Mrs. Tea(TM), which was introduced in fourth quarter of fiscal
1995.
The Professional Products Division's gross profit was 36.0 percent of net sales
in the first three quarters of fiscal 1996, compared with 36.6 percent of net
sales in the same period last year.
Selling, General, and Administrative Expenses. Selling,
general and administrative expenses ("SG&A") for the first three quarters of
fiscal 1996 totalled $44.9 million, compared with $42.8 million for the first
three quarters of fiscal 1995. For both periods, selling, general, and
administrative expenses were 21.1 percent of net sales. The increase in the
dollar amount of SG&A is primarily attributable to higher national advertising
expenditures to support the marketing of new products such as Mrs. Tea(TM) and
new Big Foot(R) scales.
Amortization of Intangible Assets. The amortization of
intangible assets relates primarily to intangible assets associated with the
acquisition of Mr. Coffee, inc. in August 1994.
Interest Expense. Net interest expense for the first three
quarters of fiscal 1996 was approximately $14.5 million, which was comparable to
approximately $14.4 million for the same period in the prior year.
Income Taxes. Income tax expense was $3.4 million for the
first three quarters of fiscal 1996. The provision for income taxes is
unfavorably impacted by the non-deductibility, for tax purposes, of the
amortization of intangible assets.
Net Income. Based on the foregoing, the Company achieved net
income of approximately $1.8 million in the first three quarters of fiscal 1996,
compared with approximately $35,000 in the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary source of liquidity is borrowings under
a Credit Agreement between HOM and a group of Banks represented by Banque
Nationale de Paris, New York Branch ("BNP") as issuer of letters of credit and
as agent ("Bank Credit Agreement"), entered into in connection with the
Acquisition.
Cash flow activity for the third quarters of fiscal 1996 and
1995 is presented in the Consolidated Statements of Cash Flows. During the first
three quarters of fiscal 1996, the Company generated approximately $16.8 million
in cash flow from its operating activities. Net income plus non-cash charges
generated approximately $10.1 million, while changes in working capital
components generated approximately $6.7 million. A decrease in accounts
receivable and
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inventories, which generated $8.5 million and $7.1 million, respectively, was
offset by a reduction in accounts payable, which required $11.6 million. The
decrease in accounts receivable, inventories and accounts payable is primarily
attributable to the seasonally higher sales activity which takes place during
the first quarter of the fiscal year. An increase in accrued liabilities, which
is primarily attributable to accrued interest under the Company's senior
subordinated notes, generated $2.1 million.
The Company's business is seasonal, with the majority of its
sales and earnings generated in the last half of the calendar year (the fourth
and first quarters of its fiscal year).
The Company's aggregate capital expenditures during the first
three quarters of fiscal 1996 were approximately $2.9 million primarily for a
computerized design system to streamline the Company's new product development
cycle and for new product tooling. During fiscal 1996, the Company anticipates
making capital expenditures of approximately $4.8 million primarily for new
product tooling. Management plans to fund these capital expenditures with
available cash, cash flow from operations and, if necessary, borrowings under
the revolving credit facility provided under the Bank Credit Agreement.
Indebtedness incurred in connection with the Acquisition has
significantly increased the Company's cash requirements and imposes various
restrictions on its operations. The Acquisition and related transactions were
financed with approximately $98 million in borrowings under the Bank Credit
Agreement, approximately $70 million in proceeds from a unit offering of 13%
senior subordinated notes due 2002 (the "Notes") and warrants to purchase shares
of Common Stock at a price of $6.25 per share, and approximately $17.2 million
in net proceeds received from the exercise of certain transferable rights to
purchase 3,543,433 shares of Common Stock issued to the stockholders of the
Company.
Financing provided under the Bank Credit Agreement consisted
of a $75.0 million term loan facility, which was fully drawn at the closing of
the Acquisition, and a $50.0 million revolving credit facility (which also
provides for a $18.0 million letter of credit sub-facility), under which
approximately $22.5 million was drawn in connection with the Acquisition.
Effective June 30, 1995, the Bank Credit Agreement was amended, increasing the
revolving credit facility to $60.0 million. Borrowings under the Term Loan and
the Revolving Credit Facility bear interest at a rate equal to BNP's Base Rate
(as defined) plus 1.0% per annum or BNP's Eurodollar Rate (as defined and
adjusted for reserves) plus 2.5% per annum, in either case as selected by HOM.
HOM's obligations under the Bank Credit Agreement are secured by substantially
all of HOM's assets and a pledge of all of its issued and outstanding common
stock. HOM's obligations under the Bank Credit Agreement are also guaranteed by
the Company.
The Term Loan is subject to amortization on a quarterly basis
commencing December 31, 1994 in aggregate 12 month amounts of $5.0 million, $5.0
million, $5.0 million, $10.0 million, $15.0 million, $15.0 million and $20
million during the first through the seventh years following the Acquisition.
HOM is required to make prepayments on the Term Loan and Revolving Credit
Facility with a percentage of Excess Cash Flow (as defined) and 100% of the
proceeds from certain asset sales, issuances of debt and equity securities and
extraordinary items outside the ordinary course of business. HOM may also make
optional prepayments, in full or in
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part, on the Term Loan, provided that each partial prepayment must be in an
amount equal to $500,000 or an integral multiple of $200,000 in excess thereof.
As a partial hedge against increases in interest rates and as
required by the terms of the Bank Credit Agreement, HOM entered into an interest
rate cap agreement with The First National Bank of Chicago in September 1994.
This agreement covers a notional amount of $50 million and provides for an
interest rate cap on LIBOR of 7.5 percent. The interest cap expires August 22,
1996. The Company is currently evaluating whether to renew or replace its
existing interest rate cap arrangement or enter into a similar hedging
arrangement subsequent to the expiration of its existing interest rate cap
agreement. Costs associated with any such interest rate protection arrangement
will be amortized over the term thereof.
HOM is subject to certain customary affirmative and negative
covenants contained in the Bank Credit Agreement. These include, without
limitation, covenants that restrict, subject to certain exceptions, incurrence
of additional indebtedness, mergers, consolidations or asset sales, changes in
the nature of the business, granting of liens to secure any other indebtedness
and transactions with affiliates. In addition, the Bank Credit Agreement
requires that the Company maintain certain specified financial ratios, including
minimum interest and fixed charge coverage ratios, maximum leverage ratio,
minimum net worth levels and ceilings on leverage and capital expenditures. In
order to reflect the impact of the seasonality of the Company's business on its
financial condition, relevant covenants in the Bank Credit Agreement are set on
a rolling twelve month basis. Borrowing availability under the Bank Credit
Agreement at June 30, 1996 was $13.4 million after considering outstanding
letters of credit of $1.2 million, actual borrowings of $29.6 million, and
sufficiency of collateral.
The Notes are general obligations of HOM and bear interest at
the rate of 13% per annum. The interest on the Notes is payable semi-annually,
in arrears, commencing on February 15, 1995. Principal of the Notes is payable
on the maturity date, August 15, 2002. HOM's payment obligations under the Notes
are unconditionally guaranteed by the Company. The Notes and the Company's
guaranty are subordinated to the prior payment of all of the Company's senior
debt (which includes amounts outstanding under the Bank Credit Agreement). The
Indenture governing the Notes contains customary provisions restricting mergers,
consolidations or sales of assets, issuances of preferred stock or the
incurrence of additional indebtedness, payment of dividends, creation of liens
and transactions with affiliates. Provided that certain financial tests are met,
the Indenture does not limit the amount of additional indebtedness that HOM and
its subsidiaries may incur.
The Notes are generally not redeemable at the option of the
Company until August 15, 1999. Subject to certain conditions, at any time within
36 months of the date of the Indenture under which the Notes were issued, up to
35% of the initial principal amount of the Notes originally issued may be
redeemed with the net proceeds of one or more public offerings of equity
securities of the Company or HOM at a redemption price of 110% of the principal
amount thereof, together with accrued and unpaid interest. Under certain limited
circumstances, HOM may be required to use a portion of the proceeds from asset
sales to make an offer to purchase a portion of the Notes, at a price of 101% of
the principal amount thereof, together with accrued and unpaid interest. In
addition, in the event of a change in control of HOM (generally defined to
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mean any transaction or series of transactions which results in persons other
than the Thomas H. Lee Company, its affiliates and certain related entities
acquiring beneficial ownership of more than 50% of the total voting power of the
Company on a fully diluted basis), each holder will have the right to require
HOM to repurchase its Notes at a price of 101% of the principal amount thereof,
together with accrued and unpaid interest thereon. Except for the foregoing
circumstances, HOM is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
The Bank Credit Agreement currently prohibits HOM from
purchasing any Notes prior to the expiration thereof and also provides that
certain change in control events with respect to HOM would constitute a default
thereunder.
The Company is a holding company with no independent
operations and has no material assets other than its ownership of all of the
outstanding stock of HOM. Therefore, the Company is dependent on the receipt of
dividends and other distributions from HOM and the proceeds from the sale of its
capital stock (to the extent that such proceeds are not required to be used to
prepay outstanding indebtedness) to fund any obligations that the Company
incurs. The Bank Credit Agreement prohibits, and the Indenture restricts, the
payment of dividends to the Company by HOM.
Based upon current levels of operations, anticipated sales
growth and plans for expansion, management believes that the Company's cash flow
from operations (including favorable cost savings estimated to be achieved in
the future), combined with borrowings available under the Bank Credit Agreement,
will be sufficient to enable the Company to meet all of its cash operating
requirements over both the short term and the longer term, including scheduled
interest and principal payments, capital expenditures and working capital needs.
This expectation is predicated upon continued growth in revenues in the
Company's core businesses consistent with historical experience, achievement of
operating cash flow margins consistent with historical experience, and the
absence of significant increases in interest rates.
INFLATION
Increases in interest rates, the costs of materials and labor,
and federal, state and local tax rates can significantly affect the Company's
operations. Management believes that the current practices of maintaining
adequate operating margins through a combination of new product introductions,
product differentiation, cost reduction, outsourcing, manufacturing and overhead
expense control and careful management of working capital are its most effective
tools for coping with inflation.
NEW ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board issued
two pronouncements effective for financial statements for years beginning after
December 15, 1995 that will apply to the Company in future periods. Statement
No. 121, Accounting for the Impairment of Long Lived Assets and for Long Lived
Assets to be Disposed Of, will require the Company to review long-lived assets,
certain identifiable intangibles, and goodwill related to those
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assets for impairment whenever events or changes in circumstances indicate that
the carrying values of those assets may not be recoverable. In the event that
the Company determines that the carrying value of such intangible assets is
impaired, it would be required to write-down such carrying value, which would
result in a charge to earnings. Based on its review of Statement No. 121, the
Company does not anticipate, under current circumstances, that adjustment to the
carrying values of its long-lived assets will be necessary as a result of its
implementation. The Company has also determined to remain within the accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees, and
accordingly the implementation of Statement. No. 123, Accounting for Stock-Based
Compensation will result in additional disclosures without any impact on the
statements of operations or financial condition.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) See the Exhibit Index at page E-1 of this Form 10-Q.
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTH O METER PRODUCTS, INC.
HEALTH O METER, INC.
Date: August 12, 1996 /s/ Steven M. Billick
--------------------------------
Steven M. Billick
Senior Vice President, Treasurer
and Chief Financial Officer
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Exhibit Index
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Sequential
Exhibit Number Description of Document Page
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3.1 Amended and Restated Certificate of Incorporation of the (A)
Company )
3.2 Certificate of Incorporation of HOM, as amended (B)
3.3 Amended and Restated By-laws of the Company, as amended (A)
3.4 By-laws of HOM (B)
3.5 Certificate of Amendment to Amended and Restated Certificate of (J)
Incorporation of the Company
4.1 Indenture dated August 17, 1994 pursuant to which HOM's 13% (C)
Senior Subordinated Notes due 2002 have been issued
4.2 13% Senior Subordinated Note due 2002 (C)
4.3 Warrant Agreement dated August 17, 1994 (C)
10.1 Second Amended 1992 Stock Incentive Plan of the Company* (B)
10.2 Employment Agreement among the Company, HOM and Peter C. (A)
McC. Howell*
10.3 Form of Non-Qualified Stock Option Agreement between the (A)
Company and Peter C. McC. Howell*
10.4 Amended and Restated Employment and Non-Competition (B)
Agreement among the Company, HOM and Lawrence Zalusky, dated as
of June 28, 1994*
10.5 Employment Agreement between the Company and S. Donald (A)
McCullough dated April 4, 1994*
10.6 Employment Agreement between the Company and Richard C. Adamany (K)
dated March 31, 1995*
10.7 Employment Agreement between the Company and Timothy J. (K)
McGinnity dated March 31, 1995*
10.8 Employment Agreement between the Company and Thomas W. Rehmus (L)
dated July 19, 1995*
10.9 Employment Agreement between the Company and John D. Lange
dated March 20, 1995*
10.10 Second Amended and Restated Stockholders Agreement among the (A)
Company and certain of its stockholders
10.11 Credit Agreement dated August 17, 1994 among HOM, Banque (C)
National de Paris, New York Branch and the lenders named
therein
10.12 Amended and Restated Management Agreement among the THL Co., (A)
HOM and the Company
10.13 Letter Agreement between HOM and JLP Media, Inc. dated (D)
January 31, 1992
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17
10.14 Agreement for Purchase and Sale of Assets dated November 11, (G)
1992 among Pelouze, HOM and PSC Acquisition Co.
10.15 Agreement and Plan of Merger dated as of May 24, 1994 among (B)
the Company, HOM, Java Acquisition Corporation and Mr. Coffee,
inc.
10.16 1994-1999 Labor Agreement between Mr. Coffee and Industrial and (H)
Allied Employees Local Union No. 73.
10.17 1995 Stock Option and Incentive Plan of the Company* (I)
21 Subsidiaries of the Company (H)
27 Financial Data Schedule
<FN>
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(A) Incorporated herein by reference to the appropriate exhibit to the Company's
registration statement on Form S-1 (Reg. No. 33-80124).
(B) Incorporated herein by reference to the appropriate exhibit to the Company's and
HOM's registration statement on Form S-1 (Reg. No. 33-80000).
(C) Incorporated herein by reference to the appropriate exhibit to the Company's current
report on Form 8-K dated August 17, 1994.
(D) Incorporated herein by reference to the appropriate exhibit to the Company's
registration statement on Form S-1 (Reg. No. 33-45202).
(E) Incorporated herein by reference to the appropriate exhibit to the Company's annual
report on Form 10-K for the year ended December 31, 1992.
(F) Incorporated herein by reference to the appropriate exhibit to the Company's annual
report on Form 10-K for the year ended December 31, 1993.
(G) Incorporated herein by reference to the appropriate exhibit to the Company's current
report on Form 8-K dated December 12, 1992.
(H) Incorporated herein by reference to the appropriate exhibit to the Company's annual
report on Form 10-K for the period ended October 2, 1994.
(I) Incorporated herein by reference to the appropriate exhibit to the Company's Proxy
statement in connection with the Annual Meeting of Stockholders held on April 27,
1995.
(J) Incorporated herein by reference to the appropriate exhibit to the Company's current
report on Form 10-Q for the period ended April 2, 1995.
(K) Incorporated herein by reference to the appropriate exhibit to the Company's current
report on Form 10-Q for the period ended July 2, 1995.
(L) Incorporated herein by reference to the appropriate exhibit to the Company's annual
report on Form 10-K for the year ended October 1, 1995.
* Management contract or compensatory plan or arrangement.
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