1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 31, 1997
-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: 0-19524
TECNOL MEDICAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1516861
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
7201 INDUSTRIAL PARK BLVD.
--------------------------
FORT WORTH, TEXAS 76180
------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (817) 581-6424
---------------------------
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
------- -------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
20,008,553 shares common stock, par value $.001, as of July 8, 1997
-------------------------------------------------------------------
2
TECNOL MEDICAL PRODUCTS, INC.
FORM 10-Q INDEX
PART I FINANCIAL INFORMATION ............................................. 3
Item 1 Financial Statements .............................................. 3
Condensed Consolidated Balance Sheets as of
November 30, 1996, and May 31, 1997 ............................... 3
Condensed Consolidated Statements of Income for the Quarters and
Year-to-Date Periods Ended June 1, 1996, and May 31, 1997 ......... 5
Condensed Consolidated Statements of Cash Flows for the
Year-to-Date Periods Ended June 1, 1996, and May 31, 1997 ......... 6
Notes to Condensed Consolidated Interim Financial Statements ...... 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 10
PART II OTHER INFORMATION ................................................. 14
Item 1 Legal Proceedings ................................................. 14
Item 4 Submission of Matters to Vote of Security Holders ................. 14
Item 6 Exhibits and Reports on Form 8-K .................................. 14
SIGNATURES ................................................................ 15
2
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TECNOL MEDICAL PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Nov. 30, May 31,
1996 1997
------------ ------------
ASSETS (unaudited)
------
CURRENT ASSETS:
Cash and cash equivalents $ 4,355,033 $ 10,162,990
Accounts receivable, net of allowance
for doubtful accounts of $1,497,000 in 1996
and $1,305,000 in 1997 24,858,157 24,557,559
Inventories 32,036,334 32,420,927
Prepaid expenses 620,807 621,692
Other current assets 3,497,720 3,661,267
------------ ------------
Total current assets 65,368,051 71,424,435
NET PROPERTY, PLANT, AND EQUIPMENT 48,671,113 51,373,813
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $3,609,000 in 1996 and $4,292,000 in 1997 39,618,824 39,243,577
Other purchased intangible assets, net of
accumulated amortization of $3,140,000 in
1996 and $3,388,000 in 1997 772,257 524,402
Patents and trademarks, net of accumulated
amortization of $728,000 in 1996 and $894,000
in 1997 3,358,266 3,590,284
Other 1,711,193 1,726,242
------------ ------------
Total other assets 45,460,540 45,084,505
------------ ------------
Total assets $159,499,704 $167,882,753
============ ============
See accompanying Notes to Condensed Consolidated Financial Statements
3
4
TECNOL MEDICAL PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
Nov. 30, May 31,
1996 1997
------------ ------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 7,800,378 $ 9,670,295
Accrued expenses 4,662,419 3,482,027
Income taxes payable 719,042 777,764
Current maturities of long-term debt 3,641,287 3,609,610
------------ ------------
Total current liabilities 16,823,126 17,539,696
LONG-TERM DEBT, net of current maturities 9,264,736 6,608,973
DEFERRED INCOME TAXES 6,179,599 5,969,599
------------ ------------
Total liabilities 32,267,461 30,118,268
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 1,000,000
shares authorized, no shares issued -- --
Common stock, $.001 par value, 50,000,000
shares authorized, 21,116,980 shares issued
in 1996 and 21,157,173 shares issued in 1997 21,117 21,157
Additional paid-in capital 27,886,864 28,353,460
Retained earnings 103,755,583 113,844,819
------------ ------------
131,663,564 142,219,436
Less-treasury stock, at cost:
1,159,489 shares in 1996 and 1,161,091 shares in 1997 3,529,197 3,552,827
Less-unearned employee stock ownership shares,
60,000 shares in 1996 and 1997 902,124 902,124
------------ ------------
Total stockholders' equity 127,232,243 137,764,485
------------ ------------
Total liabilities and stockholders' equity $159,499,704 $167,882,753
============ ============
See accompanying Notes to Condensed Consolidated Financial Statements
4
5
TECNOL MEDICAL PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
QUARTERS AND YEAR-TO-DATE PERIODS ENDED JUNE 1, 1996, AND MAY 31, 1997
Quarter Ended Year-To-Date
---------------------------- ----------------------------
June 1, May 31, June 1, May 31,
1996 1997 1996 1997
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
NET SALES $ 36,338,381 $ 39,884,982 $ 71,582,002 $ 77,195,489
COST OF GOODS SOLD 20,317,158 21,848,269 39,895,887 42,576,979
------------ ------------ ------------ ------------
Gross profit 16,021,223 18,036,713 31,686,115 34,618,510
SELLING EXPENSES 6,242,520 6,372,661 11,931,216 12,273,371
GENERAL AND ADMINISTRATIVE EXPENSES 1,948,599 2,584,604 4,016,858 4,924,079
RESEARCH AND DEVELOPMENT EXPENSES 403,429 489,339 861,420 899,602
------------ ------------ ------------ ------------
Income from operations 7,426,675 8,590,109 14,876,621 16,521,458
OTHER INCOME (EXPENSE):
Interest income 88,006 65,555 93,475 150,714
Interest expense (214,695) (79,495) (600,490) (188,441)
Other, net (246,467) (450,207) (703,987) (933,974)
------------ ------------ ------------ ------------
Total other income (expense) (373,156) (464,147) (1,211,002) (971,701)
------------ ------------ ------------ ------------
Income before provision
for income taxes 7,053,519 8,125,962 13,665,619 15,549,757
PROVISION FOR INCOME TAXES 2,288,170 2,960,732 4,566,144 5,460,521
------------ ------------ ------------ ------------
NET INCOME $ 4,765,349 $ 5,165,230 $ 9,099,475 $ 10,089,236
============ ============ ============ ============
Net income per common and common
equivalent share $ 0.24 $ 0.26 $ 0.45 $ 0.50
============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 20,172,505 20,206,691 20,152,694 20,143,940
============ ============ ============ ============
See accompanying Notes to Condensed Consolidated Financial Statements
5
6
TECNOL MEDICAL PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
YEAR-TO-DATE PERIODS ENDED JUNE 1, 1996, AND MAY 31, 1997
Year-to-Date
----------------------------
June 1, May 31,
1996 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,099,475 $ 10,089,236
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,222,710 2,314,969
Amortization 1,172,787 1,104,002
Decrease in deferred income taxes (400,000) (210,000)
Net change in assets and liabilities, excluding acquisitions-
Accounts receivable (2,611,264) 276,505
Inventories 5,396,025 (569,007)
Other current assets (444,183) (164,431)
Accounts payable (823,077) 1,906,916
Accrued expenses 75,674 (1,180,392)
Income taxes payable 146,583 58,722
------------ ------------
Total adjustments 4,735,255 3,537,284
------------ ------------
Net cash provided by operating activities 13,834,730 13,626,520
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment (4,282,438) (5,256,568)
Cash paid for acquisitions, net of cash acquired (5,169,463) --
Expenditures for patents and trademarks (178,696) (398,038)
Increase in other assets (68,308) (66,502)
------------ ------------
Net cash used in investing activities (9,698,905) (5,721,108)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in bank line of credit (3,530,000) --
Proceeds from bank loan 5,500,000 --
Principal payments on long-term debt (4,070,872) (2,540,461)
Net proceeds from exercise of stock options 91,100 443,006
------------ ------------
Net cash used in financing activities (2,009,772) (2,097,455)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,126,053 5,807,957
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 230,401 4,355,033
------------ ------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 2,356,454 $ 10,162,990
============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 630,324 $ 455,201
Income taxes $ 5,041,927 $ 5,611,800
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of note for acquisition of assets $ 665,000 $ --
See accompanying Notes to Condensed Consolidated Financial Statements
6
7
TECNOL MEDICAL PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the generally accepted accounting principles
for interim financial information and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the quarter and year-to-date periods ended May 31, 1997,
are not necessarily indicative of the results that may be expected for the
fiscal year ending November 29, 1997.
The Company's fiscal year is the fifty-two or fifty-three week period ending
on the Saturday nearest to November 30. The quarter and year-to-date periods
ended June 1, 1996, and May 31, 1997, each include thirteen and twenty-six
weeks, respectively. The fiscal year ending November 29, 1997, will include 52
weeks.
NOTE 2 -- NET INCOME PER SHARE
The following table reconciles the number of common shares shown as
outstanding on the consolidated balance sheet with the number of common and
common equivalent shares used in computing primary net income per share:
Quarter Year-to-Date
-------------------------- --------------------------
June 1, May 31, June 1, May 31,
1996 1997 1996 1997
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Common shares outstanding 19,956,436 19,996,082 19,956,436 19,996,082
Effect of using weighted average common
and common equivalent shares
outstanding during the period (15,935) (16,030) (16,229) (17,538)
Effect of using weighted average
unearned ESOP shares (78,750) (48,750) (82,500) (52,500)
Effect of assuming exercise of
outstanding stock options based on the
treasury stock method 310,754 275,389 294,987 217,896
----------- ----------- ----------- -----------
Shares used in computing primary net
income per share 20,172,505 20,206,691 20,152,694 20,143,940
=========== =========== =========== ===========
Primary and fully diluted net income per share are not materially different.
7
8
TECNOL MEDICAL PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
Net income per common and common equivalent share was computed by dividing
net income by the weighted average number of shares of common stock and common
stock equivalents outstanding during the periods. Stock options are the only
common stock equivalents.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Standards No. 128 (SFAS 128), "Earnings per Share." This
Statement establishes and simplifies standards for computing and presenting
earnings per share. The Company will be required to adopt SFAS No. 128 the
first quarter of fiscal year 1998. SFAS 128 replaces primary and fully diluted
earnings per share with basic and diluted earnings per share. The Company does
not expect the adoption of SFAS No. 128 to have a material impact on earnings
per share.
NOTE 3 -- LONG-TERM DEBT
Long-term debt at November 30, 1996, and May 31, 1997, consists of the
following:
Nov. 30, May 31,
1996 1997
------------ ------------
Industrial Revenue Bonds $ 3,600,000 $ 3,400,000
Bank term loans 8,187,500 6,512,500
Other installment obligations 1,118,523 306,083
------------ ------------
12,906,023 10,218,583
Less-current maturities (3,641,287) (3,609,610)
------------ ------------
$ 9,264,736 $ 6,608,973
============ ============
NOTE 4 -- INVENTORIES
Inventories at November 30, 1996, and May 31, 1997, consist of the
following:
Nov. 30, May 31,
1996 1997
----------- -----------
Raw materials $15,212,956 $14,472,382
Work-in-process 1,983,973 2,356,212
Finished goods 14,839,405 15,592,333
----------- -----------
$32,036,334 $32,420,927
=========== ===========
8
9
NOTE 5 -- PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at November 30, 1996, and May 31, 1997,
consists of the following:
Nov. 30, May 31,
1996 1997
------------ ------------
Land $ 6,247,752 $ 6,591,555
Buildings and improvements 14,563,836 14,884,073
Automotive equipment 2,913,496 2,971,097
Manufacturing equipment 36,510,853 38,503,824
Office furniture and equipment 9,267,496 9,986,596
Construction-in-progress 4,446,416 5,542,802
------------ ------------
73,949,849 78,479,947
Less accumulated depreciation (25,278,736) (27,106,134)
------------ ------------
$ 48,671,113 $ 51,373,813
============ ============
9
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This analysis of the Company's operations encompassing the quarter and year-
to-date periods ended June 1, 1996, and May 31, 1997, should be considered in
conjunction with the condensed consolidated balance sheets, statements of
income and statements of cash flows.
Results of Operations
Net sales increased 9.8% from $36.3 million in the second quarter of fiscal
1996 to $39.9 million in the second quarter of fiscal 1997. For the six month
period, net sales increased 7.8% from $71.6 million in fiscal 1996 to $77.2
million in fiscal 1997. The growth in net sales was principally the result of
increases in unit sales of existing products, new product introductions, and
increased sales from contract manufacturing. The International division
experienced a sales increase of approximately 9.4% for the second quarter of
fiscal 1997 compared to the second quarter of fiscal 1996 and an increase of
14.0% for the six month period of 1996 compared to the six month period of
1997. Sales of the U.S. Hospital division increased 11.5% for the second
quarter of fiscal 1997 as compared to the second quarter of fiscal 1996 and
increased 5.5% for the six month period in fiscal 1997 as compared to fiscal
1996. Sales of the Specialty Markets division increased 13.1% for the second
quarter of fiscal 1997 as compared to the second quarter of fiscal 1996 and
increased 5.3% for the six month period in fiscal 1997 as compared to fiscal
1996. The Orthopedic division experienced a sales increase of 7.5% for the
second quarter of fiscal 1997 as compared to the second quarter of fiscal 1996
and a sales increase of 2.2% for the six month period in fiscal 1997 as
compared to fiscal 1996. Sales of the Industrial Products division decreased
5.5% for the second quarter of fiscal 1997 as compared to the second quarter of
fiscal 1996 and decreased 3.2% for the six month period in fiscal 1997 as
compared to fiscal 1996, due primarily to strong price competition in lower
margin product lines. Contract manufacturing generated sales of approximately
$3.3 million in the second quarter of fiscal 1997 compared to approximately
$2.9 million for the second quarter of fiscal 1996. For the six month period,
contract manufacturing sales increased 39.7% from $4.2 million in fiscal 1996
to $5.9 million in fiscal 1997.
The gross profit margin increased from 44.1% in the second quarter of fiscal
1996 to 45.2% in the second quarter of fiscal 1997. For the six month period,
the gross profit margin increased from 44.3% in fiscal 1996 to 44.8% in fiscal
1997. Gross profit margin was positively impacted by a decrease in
manufacturing employee turnover, reduction of overtime hours worked, and an
improvement in manufacturing quality leading to a lower rate of rejections due
to quality. This positive impact was partially offset by an increase in
contract manufacturing, which provides a lower gross profit margin than sales
to distributors. Operating margin from contract manufacturing is consistent
with the corporate average, as minimal selling expenses are incurred.
Selling expenses increased 2.1% from $6.2 million in the second quarter of
fiscal 1996 to $6.4 million in the second quarter of fiscal 1997. For the six
month period, selling expenses increased 2.9% from $11.9 million in fiscal 1996
to $12.3 million in fiscal 1997. As a percentage of net sales, selling expenses
decreased from 17.2% of net sales in the second quarter of fiscal 1996 to 16.0%
of net sales in the second quarter of fiscal 1997 and decreased from 16.7% in
the first six months of fiscal 1996 to 15.9% in the first six months of 1997.
The Company did not increase the number of
10
11
sales territories or sales professionals as total sales increased.
Additionally, the increase in contract manufacturing has been accomplished with
minimal sales support.
General and administrative expenses increased 32.6% from $1.9 million in the
second quarter of fiscal 1996 to $2.6 million in the second quarter of fiscal
1997. For the six month period, general and administrative expenses have
increased 22.6% from $4.0 million in fiscal 1996 to $4.9 million in fiscal
1997. As a percentage of net sales, general and administrative expenses were
5.4% in the second quarter of fiscal 1996 (5.6% in the first six months of
1996) compared to 6.5% in the second quarter of fiscal 1997 (6.4% in the first
six months of 1997). This increase is due primarily to an increase in salary
expense. Research and development expenses increased by 21.3% from
approximately $403,000 in the second quarter of fiscal 1996 to approximately
$489,000 in the second quarter of fiscal 1997. For the six month period,
research and development expenses increased 4.4% from approximately $861,000 in
fiscal 1996 to approximately $900,000 in fiscal 1997.
Income from operations increased 15.7% from $7.4 million in the second
quarter of fiscal 1996 to $8.6 million in the second quarter of fiscal 1997.
For the six month period, income from operations increased 11.1% from $14.9
million in fiscal 1996 to $16.5 million in fiscal 1997. Operating margin
increased from 20.4% in the second quarter of fiscal 1996 to 21.5% in the
second quarter of fiscal 1997. For the six month period, operating margin
increased from 20.8% in fiscal 1996 to 21.4% in fiscal 1997.
Other income (expense) represented expense of approximately $464,000 in the
second quarter of fiscal 1997, compared to expense of approximately $373,000 in
the second quarter of fiscal 1996. For the six month period, other expense
totaled approximately $1.2 million in fiscal 1996, compared to approximately
$972,000 in fiscal 1997. The Company has incurred lower interest expense, as
certain long-term debt has been repaid. Interest income has increased as the
Company's cash balance has increased. Amortization expense included in other
income (expense) was approximately $504,000 in the second quarter of fiscal
1996, compared to approximately $449,000 in the second quarter of fiscal 1997.
For the six month period, this amortization expense was approximately $993,000
in 1996, compared to approximately $931,000 in 1997.
Tecnol's effective income tax rate increased from 32.4% in the second
quarter of fiscal 1996 to 36.4% in the second quarter of fiscal 1997. The
effective tax rate for the second quarter of fiscal 1996 is lower than the
statutory rate due to revisions in estimated reserves required for federal
income taxes. The Company expects the effective tax rate to be approximately
36.5% for the remainder of 1997.
Net income increased 8.4% from $4.8 million in the second quarter of 1996 to
$5.2 million in the second quarter of 1997 as a result of the foregoing
factors. For the six month period, net income increased 10.9% from $9.1
million in fiscal 1996 to $10.1 million in fiscal 1997. Net income per share
increased 8.3% from $0.24 in the second quarter of fiscal 1996 to $0.26 in the
second quarter of fiscal 1997. For the six month period, net income per share
increased 11.1% from $0.45 in fiscal 1996 to $0.50 in fiscal 1997.
Over the past few years, legislation designed to significantly reform the
way health care services are provided in the United States has been proposed.
The Company cannot predict whether any significant legislation will be enacted
into law or, if enacted, what effect the legislation will have on
11
12
its business. There are also changes in the structure and business methods
within the health care industry initiated by the private sector through
hospital group purchasing organizations, managed care, and other strategies.
The objective of some of these changes is to reduce costs of health care,
including the hospital cost of medical devices. These changes include changes
in the methods and strategies used in the sales, marketing, distribution, and
purchasing of medical devices. The Company cannot quantify what effect, if
any, these changes will have on its business.
Liquidity and Capital Resources
The Company believes that cash flow from operations, existing cash, and
periodic utilization of its line of credit will be sufficient to meet working
capital requirements and normal capital expenditures for at least the next
twelve months.
Tecnol owns 25 acres of land in Fort Worth, Texas on which the Company has
begun construction of a central distribution facility for finished goods, with
completion expected in fiscal 1998 at an estimated cost of $10 million. The
Company owns approximately 10 acres of land in Acuna, Mexico, on which the
Company has begun construction of a 91,000 square foot facility to be used for
office space, manufacturing, and warehousing. The cost of the land and this
facility is expected to be approximately $3.5 million. Completion is expected
by the end of fiscal 1997. The Company is also planning to begin construction
soon to add approximately 56,000 square feet to its headquarters building in
order to add engineering, product development, manufacturing, and office space
at an estimated cost of $5 million, with completion expected in early 1998.
Additionally during 1997, the Company will begin to remodel existing space and
add approximately 75,000 square feet to the facility located less than one mile
from Tecnol's corporate headquarters at an estimated cost of $2 million. This
project is expected to be completed in early fiscal 1998. The Company may use
long-term financing for these facilities projects and any acquisition
opportunities that may arise.
The Company's working capital increased from $48.5 million at the end of
fiscal 1996 to $53.9 million at May 31, 1997. Net cash generated by operating
activities for the six months ended May 31, 1997, totaled $13.6 million. For
the six month period of fiscal 1997, cash generated by operating activities was
used to repay approximately $2.5 million of long-term debt and to purchase
approximately $5.3 million of property, plant, and equipment. Net cash and
cash equivalents at May 31, 1997, totaled approximately $10.2 million.
On May 31, 1997, the Company had no amount outstanding and $12,500,000
available under its bank line of credit. The line of credit expires March 14,
1998. On May 31, 1997, the Company also had $4,125,000 available under a
reducing revolving bank line of credit.
New Accounting Standard
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Standards No. 128 (SFAS 128), "Earnings per Share." This
Statement establishes and simplifies standards for computing and presenting
earnings per share. The Company will be required to adopt SFAS No. 128 the
first quarter of fiscal year 1998. SFAS 128 replaces primary and fully diluted
earnings per share with basic and diluted earnings per share. The Company does
not expect the adoption of SFAS No. 128 to have a material impact on earnings
per share.
12
13
Cautionary Information Regarding Forward-Looking Statements
Statements, either written or oral, which express the Company's expectation
for the future with respect to financial performance or operating strategies
can be identified as forward-looking statements. These statements are made to
provide the public with management's assessment of the Company's business.
Caution must be taken to consider these statements in the context in which
they are made, including assumptions which are explicitly or implicitly
included in the statements, and in light of the following factors and
assumptions: current and contemplated cost-containment measures will be
successfully implemented; products in development will be introduced
successfully and on schedule; the Company will make acquisitions which
contribute to profitability; key distributors will make purchases at the same
level as their sales; demand for the Company's products will follow recent
growth trends; the Company will continue to expand into markets other than U.S.
hospitals; competitors will not introduce new products which will substantially
reduce Tecnol's market share or pricing in its significant product lines;
conversion from standard face masks to specialty face masks will continue in
the markets Tecnol serves; and the Company will continue to manufacture high
quality products at competitive costs and maintain or increase product pricing.
In the event any of the above factors do not occur as management
anticipates, actual results could differ materially from the expectations
expressed in the forward-looking statements. The Company may or may not update
information contained in previously released forward-looking statements and
does not assume the duty to do so.
13
14
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
On August 21, 1995, a class action lawsuit styled Bryan Freeman vs.
Vance M. Hubbard, Kirk Brunson, Valerie A. Hubbard, David Radunsky, Paul M.
Brost, Douglas J. Inman, James H. Weaver, and Tecnol Medical Products, Inc.,
Case No. 4-95 CV-617-Y, was filed in the United States District Court for the
Northern District of Texas, Fort Worth Division. Paul M. Brost, Douglas J.
Inman, and James H. Weaver were subsequently dismissed as defendants from the
suit. The remaining individual defendants are executive officers and directors
of the Company. The suit was brought on behalf of purchasers of Company stock
between January 10, 1995, and July 17, 1995, and sought an unspecified amount
of damages, claiming that the defendants disseminated false and misleading
statements to the investing public with respect to a 1995 inventory reduction
in the Company's products taken by the Company's largest distributor, resulting
in an artificially high price for Company stock. On March 7, 1997, the lawsuit
was dismissed with prejudice in accordance with a settlement agreement approved
by the court. Pursuant to the settlement agreement, the Company and the
individual defendants paid the plaintiff class $2.2 million, approximately
$550,000 of which was charged to fiscal 1996 operations and paid by the Company
subsequent to year end and the balance of which was paid by the Company's
insurance carrier.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
The Company held its annual stockholders meeting on April 17, 1997. At
the annual meeting, Van Hubbard and Kirk Brunson were re-elected as Class III
directors. The number of votes cast for, withheld from, cast against and the
number of broker nonvotes with respect to Mr. Hubbard was 14,694,553; 206,784;
0 and 0, respectively. The number of votes cast for, withheld from, cast
against and the number of broker nonvotes with respect to Mr. Brunson was
14,697,738; 203,599; 0 and 0, respectively. The terms of office of the Class I
directors, James Kenney and David Radunsky, continue until 1998. The terms of
office of the Class II directors, Valerie Hubbard and Jack Johnson, continue
until 1999.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - The following exhibits are filed as part of this report:
10(b)(15) $12,500,000 Promissory Note (Revolving Line of Credit) of
Tecnol Medical Products, Inc. dated March 12, 1997,
payable to NationsBank of Texas, N.A.
10(b)(22) First 1997 Modification Agreement dated effective March
12, 1997, by and among Tecnol Medical Products, Inc.,
NationsBank Texas, N.A., Tecnol, Inc., TCNL Technologies,
Inc., Tecnol International (V.I.), Inc., La Ada de Acuna,
S.A., Tecnol Consumer Products, Inc., Tecnadyne Scientific
Incorporated, Tecnol New Jersey Wound Care, Inc., and La
Compania Que Innova, S.A. de C.V., modifying, extending,
and increasing the Third Amended and Restated Loan
Agreement
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended May 31, 1997.
14
15
SIGNATURES
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.
TECNOL MEDICAL PRODUCTS, INC.
-----------------------------
(Registrant)
Date: July 14, 1997 /s/David Radunsky
---------------- ----------------------------------
DAVID RADUNSKY, Chief Operating
Officer
Date: July 14, 1997 /s/Jeffrey A. Nick
---------------- ----------------------------------
JEFFREY A. NICK, Vice President
Finance and Accounting
15
16
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10(b)(22) First 1997 Modification Agreement
10(b)(15) Promissory Note
27 Financial Data Schedule