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 DECEMBER 31, 2001
COMMISSION FILE NUMBER 0-13251
MEDICAL ACTION INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2421849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Prime Place, Hauppauge, New York 11788
(Address of Principal Executive Offices)
Registrant's telephone number, including area code:
(631) 231-4600
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 9,462,422 shares of
common stock as of February 6, 2002.
FORM 10-Q
CONTENTS
PAGE NO.
PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements
Balance Sheets at December 31, 2001 (Unaudited) and
March 31, 2001 3-4
Statements of Earnings for the Three and Nine Months ended
December 31, 2001 and December 31, 2000 (Unaudited) 5-6
Statements of Cash Flows for the Nine Months ended
December 31, 2001 and December 31, 2000 (Unaudited) 7
Notes to Financial Statements (Unaudited) 8-12
ITEM 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 12-16
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 16-17
PART II - OTHER INFORMATION 18-19
2
MEDICAL ACTION INDUSTRIES INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
DECEMBER 31, MARCH 31,
2001 2001
------- -------
CURRENT ASSETS:
Cash $ 1,173 $ 639
Accounts receivable less allowance for doubtful accounts of
$224 at December 31, 2001 and $193 at March 31, 2001 9,006 8,606
Inventories 13,299 12,547
Prepaid expenses 460 284
Deferred income taxes 211 211
Other current assets 30 56
------- -------
TOTAL CURRENT ASSETS: 24,179 22,343
Property, plant and equipment, net 9,685 9,617
Due from officers 382 383
Goodwill 16,553 6,773
Trademarks 569 402
Other intangible assets 372 --
Other assets 210 286
------- -------
TOTAL ASSETS: $51,950 $39,804
======= =======
The accompanying notes are an integral part of these financial statements.
3
MEDICAL ACTION INDUSTRIES INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, MARCH 31,
2001 2001
------- -------
CURRENT LIABILITIES:
Accounts payable $ 1,714 $ 2,109
Accrued expenses, payroll and taxes 1,594 1,788
Accrued income taxes 142 316
Current portion of capital lease obligations 25 83
Current portion of long-term debt 2,160 1,360
------- -------
TOTAL CURRENT LIABILITIES: 5,635 5,656
Deferred income taxes 600 600
Capital lease obligations, less current portion -- 2
Long-term debt, less current portion 14,680 7,625
------- -------
TOTAL LIABILITIES: 20,915 13,883
COMMITMENTS
SHAREHOLDERS' EQUITY:
Common stock 15,000,000 shares authorized, $.001 par value; issued and
outstanding 9,320,672 shares at December 31, 2001 and 9,155,115 shares at
March 31, 2001 9 9
Additional paid in capital, net 10,017 9,436
Retained earnings 21,009 16,476
------- -------
TOTAL SHAREHOLDERS' EQUITY: 31,035 25,921
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY: $51,950 $39,804
======= =======
The accompanying notes are an integral part of these financial statements.
4
MEDICAL ACTION INDUSTRIES INC.
STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS EXCEPT EARNINGS PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
2001 2000
-------- --------
Net sales $ 20,429 $ 18,534
Cost of sales 14,232 12,910
-------- --------
Gross profit 6,197 5,624
Selling, general and administrative expenses 3,531 3,659
Interest expense
59 162
Interest income (18) (42)
-------- --------
Income before income taxes 2,625 1,845
Income tax expense 1,024 744
-------- --------
Net income $ 1,601 $ 1,101
======== ========
Net income per share basic $ .17 $ .12
======== ========
Net income per share diluted $ .16 $ .12
======== ========
The accompanying notes are an integral part of these financial statements.
5
MEDICAL ACTION INDUSTRIES INC.
STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
2001 2000
-------- --------
Net sales $ 61,373 $ 56,425
Cost of sales 42,609 40,106
-------- --------
Gross profit 18,764 16,319
Selling, general and administrative expenses 11,210 10,589
Interest expense 198 480
Interest income (57) (42)
-------- --------
Income before income taxes 7,413 5,292
Income tax expense 2,880 2,137
-------- --------
Net income $ 4,533 $ 3,155
======== ========
Net income per share basic $ .49 $ .34
======== ========
Net income per share diluted $ .45 $ .33
======== ========
The accompanying notes are an integral part of these financial statements.
6
MEDICAL ACTION INDUSTRIES INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
2001 2000
-------- --------
OPERATING ACTIVITIES
Net income $ 4,533 $ 3,155
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 761 1,048
Provision for doubtful accounts 31 27
Deferred compensation 24 36
Loss on sale of property and equipment -- 2
Changes in operating assets and liabilities net of acquisition:
Accounts receivable (431) (1,548)
Inventories (102) (424)
Prepaid expenses and other current assets (150) (183)
Other assets 12 43
Accounts payable (395) (1,010)
Income taxes payable 1,143 314
Accrued expenses, payroll and payroll taxes (194) 663
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,232 2,123
-------- --------
INVESTING ACTIVITIES
Purchase price and related acquisition costs (11,269) --
Principal payment received for loans to officers 1 --
Purchase of property, plant and equipment (465) (1,878)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (11,733) (1,878)
-------- --------
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-term borrowings 12,635 3,980
Principal payments on revolving line of credit, long-term debt and
capital lease obligations (4,840) (4,470)
Repurchases of company common stock (1,333) (153)
Proceeds from exercise of employee stock options 573 101
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,035 (542)
-------- --------
INCREASE (DECREASE) IN CASH 534 (297)
Cash at beginning of year 639 602
-------- --------
Cash at end of period $ 1,173 $ 305
======== ========
The accompanying notes are an integral part of these financial statements.
7
MEDICAL ACTION INDUSTRIES INC.AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
("US GAAP") for interim financial information and with the instructions to Form
10-Q for quarterly reports under Section 13 or 15(d) of the Securities Exchange
Act of 1934. Accordingly, they do not include all of the information and
footnotes required by US GAAP for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine month period ended December 31, 2001 are not necessarily
indicative of the results that may be expected for the year ended March 31,
2002. For further information, refer to the financial statements and footnotes
thereto included in the Company's annual report for the year ended March 31,
2001.
NOTE 2. INVENTORIES
Inventories, which are stated at the lower of cost (first-in, first-out) or
market, consist of the following:
DECEMBER 31, MARCH 31,
2001 2001
------- -------
(IN THOUSANDS OF DOLLARS)
Finished Goods $ 6,260 $ 5,671
Work in Process 100 --
Raw Materials 6,939 6,876
------- -------
Total $13,299 $12,547
======= =======
NOTE 3. NET INCOME PER SHARE
Basic earnings per share are based on the weighted average number of common
shares outstanding without consideration of potential common stock. Diluted
earnings per share is based on the weighted average number of common and
potential common shares outstanding. The calculation takes into account the
shares that may be issued upon exercise of stock options or warrants, reduced by
the shares that may be repurchased with the funds received from the exercise,
based on the average price during the period. Excluded from the calculation of
earnings per share are options and warrants to purchase 128,500 shares for the
three months ended December 31, 2000, as their inclusion would not have been
dilutive. The following table sets forth the computation of basic and diluted
earnings per share for the three and nine months ended December 31, 2001 and
December 31, 2000, respectively.
8
MEDICAL ACTION INDUSTRIES INC.AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3. (CONTINUED)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2001 2000 2001 2000
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
NUMERATOR:
Net income for basic and
dilutive earnings per share $ 1,601 $ 1,101 $ 4,533 $ 3,155
=========== =========== =========== ===========
DENOMINATOR:
Denominator for basic earnings
per share - weighted average shares 9,310,403 9,239,015 9,184,483 9,227,001
----------- ----------- ----------- -----------
Effect of dilutive securities
Employee and director stock options 934,959 264,312 885,732 322,240
Warrants 29,071 8,939 44,995 12,616
----------- ----------- ----------- -----------
Dilutive potential common shares 964,030 273,251 930,727 334,856
----------- ----------- ----------- -----------
Denominator for diluted earnings per
share - adjusted weighted average
shares 10,274,433 9,512,266 10,115,210 9,561,857
=========== =========== =========== ===========
Basic earnings per share $ .17 $ .12 $ .49 $ .34
=========== =========== =========== ===========
Diluted earnings per share $ .16 $ .12 $ .45 $ .33
=========== =========== =========== ===========
NOTE 4. STOCKHOLDERS' EQUITY
For the three and nine months ended December 31, 2001, 71,250 and 319,000 stock
options, respectively, were exercised by employees of the Company in accordance
with the Company's 1989 Non-Qualified Stock Option Plan and 1994 Stock Incentive
Plan, respectively. The exercise price of the options exercised ranged from
$1.69 per share to $3.94 per share, the net cash proceeds from these exercises
were $184,000 for the three months ended December 31, 2001 and $573,000 for the
nine months ended December 31, 2001.
On April 6, 2001, the Company made a loan to an officer, which totaled $126,000.
The loan, which involves the purchase of the Company's common stock bears
interest at 7% and is due on May 1, 2006. The loan has been deducted from
Shareholders' equity.
9
Pursuant to an Employment Agreement dated October 1997, the Board of Directors
approved the issuance of a five-year warrant to purchase 35,000 shares of the
Company's common stock to a former principal stockholder of Dayhill Corporation,
at $3.94 per share, the market value on the date of grant. In June 2001, the
warrant was exercised through the cashless exercise provision in the agreement,
pursuant to which 17,321 shares of the Company's common stock were issued.
Pursuant to an acquisition done in March 1999, the Board of Directors approved
the issuance of a ten-year warrant to purchase 50,000 shares of the Company's
common stock to Acme United Corporation, at $2.84 per share, the market value on
the date of grant. In August 2001, the warrant was exercised through the
cashless exercise provision in the agreement, pursuant to which, 38,258 shares
of the Company's common stock were issued.
In July 2000, as consideration for services received, the Board of Directors
approved the issuance of a five-year warrant to purchase 50,000 shares of the
Company's common stock, at $3.47 per share, the market value on the date of
grant. During the quarter ended September 30, 2001, 10,500 shares of the warrant
were exercised through the cashless exercise provision in the agreement,
pursuant to which, 7,364 shares of the Company's common stock were issued.
During the three months ended June 30, 2001, the Company repurchased and retired
211,300 shares of the Company's common stock at an average price of $6.31 per
share, bringing the cumulative total to 350,100 shares at an average price of
$5.39 per share. No additional shares have been repurchased and retired
subsequent to June 30, 2001.
NOTE. 5. ACCOUNTING FOR BUSINESS COMBINATIONS, INTANGIBLE ASSETS AND GOODWILL
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". The new standards require that all business combinations initiated
after June 30, 2001 must be accounted for under the purchase method. In
addition, all intangible assets acquired that are obtained through contractual
or legal right, or are capable of being separately sold, transferred, licensed,
rented or exchanged shall be recognized as an asset apart from goodwill.
Goodwill and intangibles with indefinite lives will no longer be subject to
amortization, but will be subject to at least an annual assessment for
impairment by applying a fair value based test.
The Company has adopted as of April 1, 2001, the provisions of SFAS Nos. 141 and
142. Therefore, annual and quarterly amortization of goodwill and trademarks of
$452,000 and $113,000 are no longer recognized. The Company has performed a
transitional fair value based impairment test and has determined that no
impairment of goodwill or trademarks exist as of April 1, 2001.
The following table presents a reconciliation of net income and
earnings-per-share amounts, as reported in the financial statements, to those
amounts adjusted for goodwill and intangible asset amortization determined in
accordance with the provisions of SFAS No. 142.
10
NOTE 5. (continued)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA
Reported net income $ 1,601 $ 1,101 $ 4,533 $ 3,155
Add back: goodwill amortization 0 107 0 322
Add back: trademarks amortization 0 6 0 18
Income tax effect 0 (44) 0 (132)
--------- --------- --------- ---------
Adjusted net income $ 1,601 $ 1,170 $ 4,533 $ 3,363
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Reported net income $ .17 $ .12 $ .49 $ .34
Goodwill amortization .00 .01 .00 .03
Trademarks amortization .00 .00 .00 .00
Income tax effect
.00 .00 .00 (.01)
--------- --------- --------- ---------
Adjusted net income $ .17 $ .13 $ .49 $ .36
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Reported net income $ .16 $ .12 $ .45 $ .33
Goodwill amortization .00 .01 .00 .03
Trademarks amortization .00 .00 .00 .00
Income tax effect .00 .00 .00 (.01)
--------- --------- --------- ---------
Adjusted net income $ .16 $ .12 $ .45 $ .35
========= ========= ========= =========
NOTE 6. ACQUISITION
On November 30, 2001, the Company acquired certain assets relating to the
medical products business of Medi-Flex Hospital Products, Inc., a Kansas
corporation ("Medi-Flex"). The purchase price for the assets acquired was
approximately $11,250,000, all of which was paid at closing.
The assets acquired included inventory, certain fixed assets and a trademark
used in the manufacture of: (i) sterile kits for the insertion of intravenous
catheters ("I.V. Start Kits"); and (ii) sterile procedure trays containing
components necessary for the maintenance of large catheters inserted into the
chest cavity ("Central Line Dressing Trays") (hereinafter the "Products").
The acquisition of the Medi-Flex business has been accounted for as a purchase
pursuant to Statement No. 141 as issued by the Financial Accounting Standards
Board. The operations of Medi-Flex have been included in the Company's statement
of earnings since the acquisition date.
11
Pro forma information is not presented as complete historical operating results
are not available. The following table summarizes the assets acquired from
Medi-Flex and the preliminary allocation of the purchase price:
Inventory $ 650,000
Factory and office equipment 300,000
Goodwill 9,780,000
Supply Agreement 29,000
Non-Competition Agreement 343,000
Trademark 167,000
-----------
$11,269,000
===========
The Company, prior to this acquisition, sold a substantial portion of its
products to the same customers that Medi-Flex sold its line of I.V. Start Kits
and Central Line Dressing Trays. In addition, the Company manufactured and sold
I.V. Start Kits and Central Line Dressing Trays prior to the acquisition.
Essentially, the acquisition increased the Company's market share in these
products, while gaining manufacturing efficiencies and the benefit of lower
material costs. As a result of the acquisition, the Company has projected
approximately $9.6 million of incremental sales to its existing customers of
I.V. Start Kits and Central Line Dressing Trays with limited additional selling
and general administrative expenses. The aforementioned were the primary reasons
for the acquisition and the main factors that contributed to the purchase price
and which resulted in the recognition of goodwill. For tax purposes, the
goodwill will be deductible.
Goodwill and the trademark will be tested for impairment periodically, in
accordance with Statement No. 142 as issued by the Financial Accounting
Standards Board. The Supply Agreement will be amortized over a period of two
years and the Non-Competition Agreement will be amortized over a period of seven
years.
The Company utilized the funds available under its existing Revolving Credit
Note and Loan Agreement in order to satisfy the purchase price. The funds
provided under the Loan Agreement were made in the ordinary course of business.
The purchase price allocation is subject to certain adjustments, none of which
is anticipated to be material, because the valuation of the assets and
acquisition costs have not been finalized.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FORWARD-LOOKING STATEMENT
This report on Form 10-Q contains forward-looking statements as defined by the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
include plans and objectives of management for future operations, including
plans and objectives relating to the future economic performance and financial
results of the Company. The forward-looking statements related to (i) the
expansion of the Company's market share, (ii) the Company's growth into new
markets, (iii) the development of new products and product lines to appeal to
the needs of the Company's customers,
12
(iv) the ability of the Company to find, integrate and finance suitable
acquisition candidates, and (v) the retention of the Company's earnings for use
in the operation and expansion of the Company's business.
Important factors and risks that could cause actual results to differ materially
from those referred to in the forward-looking statements include, but are not
limited to, the effect of economic and market conditions, the impact of the
consolidation throughout the healthcare supply chain, the impact of healthcare
reform, opportunities for acquisitions and the Company's ability to effectively
integrate acquired companies, the ability of the Company to maintain its gross
profit margins, the ability to obtain additional financing to expand the
Company's business, the failure of the Company to successfully compete with the
Company's competitors that have greater financial resources, the loss of key
management personnel or the inability of the Company to attract and retain
qualified personnel, the impact of current or pending legislation and
regulation, as well as the risks described from time to time in the Company's
filings with the Securities and Exchange Commission, which include this report
on Form 10-Q and the Company's annual report on Form 10-K for the year ended
March 31, 2001.
The forward-looking statements are based on current expectations and involve a
number of known and unknown risks and uncertainties that could cause the actual
results, performance and/or achievements of the Company to differ materially
from any future results, performance or achievements, express or implied, by the
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, and that in light of the significant
uncertainties inherent in forward-looking statements, the inclusion of such
statements should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved.
RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO NINE MONTHS ENDED
DECEMBER 31, 2000
Net sales for the nine months ended December 31, 2001 increased 9% to
$61,373,000 from $56,425,000 for the nine months ended December 31, 2000. The
increase in net sales was primarily attributable to a $1,259,000, or 60%
increase in net sales of the collection systems/biohazardous bags, a $2,567,000,
or 16% increase in net sales of operating room towels, and a $1,089,000, or 19%
increase in net sales of the small kits and trays. Management believes that the
increase in net sales of the collection systems/biohazardous bags and operating
room towels was primarily due to greater domestic market penetration. The
increase in net sales of the small kit and tray product line was primarily due
to net sales of small kit and tray products acquired from Medi-Flex on November
30, 2001, of approximately $819,000 and to a lesser extent, greater domestic
market penetration.
Gross profit for the nine months ended December 31, 2001 increased 15% to
$18,764,000 from $16,319,000 for the nine months ended December 31, 2000. Gross
profits as a percentage of net sales for the nine months ended December 31, 2001
increased to 31% of net sales from 29% of net sales for the nine months ended
December 31, 2000. The increase in gross profit dollars and
13
gross profit percentage was primarily attributable to the increase in net sales
and increased manufacturing efficiencies at the Company's manufacturing facility
in North Carolina.
Selling, general and administrative expenses for the nine months ended December
31, 2001 increased 6% to $11,210,000 from $10,589,000 for the nine months ended
December 31, 2000. As a percentage of net sales, selling, general and
administrative expenses decreased to 18% for the nine months ended December 31,
2001 from 19% for the nine months ended December 31, 2000. The increase in
selling, general and administrative expense dollars was primarily attributable
to increased selling expenses associated with achieving higher sales. The
increased selling expenses more that offset the $340,000 of goodwill and
trademarks amortization no longer recognized, as the Company, effective April 1,
2001, has adopted the provisions of SFAS Nos. 141 and 142. The increase in
selling expenses consisted primarily of increased commissions and salaries. The
decrease of selling, general and administrative expenses as a percentage of
sales were due to increased administrative efficiencies.
Interest expense for the nine months ended December 31, 2001 decreased 59% to
$198,000 from $480,000 for the nine months ended December 31, 2000. The decrease
in interest expense was attributable to a decrease in the average principal loan
balances during the nine months ended December 31, 2001 as compared to the nine
months ended December 31, 2000. The decrease in principal loan balances
outstanding was primarily attributable to net cash provided from operating
activities from January 1, 2001 through December 31, 2001.
Net income for the nine months ended December 31, 2001 increased to $4,533,000
from $3,155,000 for the nine months ended December 31, 2000. The increase in net
income is attributable to the aforementioned increase in net sales, gross
profit, and a decrease in interest expense, which were partially offset by an
increase in selling, general and administrative expenses.
THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 2000
Net sales for the three months ended December 31, 2001 increased 10% to
$20,429,000 from $18,534,000 for the three months ended December 31, 2000. The
increase in net sales was primarily attributable to a $1,007,000 or 56% increase
in net sales of the small kit and tray product line and a $495,000 or 63%
increase in net sales of the collection systems/biohazardous bags. Management
believes that the increase in net sales of the small kit and tray product line
was primarily due to net sales of small kit and tray products acquired from
Medi-Flex on November 30, 2001, of approximately $819,000. The increase in net
sales of collection systems/biohazardous bags was primarily due to greater
domestic market penetration.
Gross profit for the three months ended December 31, 2001 increased 10% to
$6,197,000 from $5,624,000 for the three months ended December 31, 2000. Gross
profit as a percentage of net sales remained at 30% for the three months ended
December 31, 2001 and December 31, 2000, respectively. The increase in gross
profit dollars was primarily attributable to the increase in net sales.
14
Selling, general and administrative expenses for the three months ended December
31, 2001 decreased 3% to $3,531,000 from $3,659,000 for the three months ended
December 31, 2000. As a percentage of net sales, selling, general and
administrative expenses decreased to 17% for the three months ended December 31,
2001 from 20% for the three months ended December 31, 2000. The decrease in
selling, general and administrative expense dollars was primarily attributable
to the $113,000 of goodwill and trademarks amortization no longer recognized as
the Company, effective April 1, 2001, has adopted the provisions of SFAS Nos.
141 and 142. The decrease in selling, general and administrative expenses as a
percentage of sales were due primarily to increased administrative efficiencies.
Interest expense for the three months ended December 31, 2001 decreased 64% to
$59,000 from $162,000 for the three months ended December 31, 2000. The decrease
in interest expense was attributable to a decrease in the average principal loan
balances and interest rates during the quarter ended December 31, 2001, as
compared to the quarter ended December 31, 2000. The decrease in principal loan
balances outstanding was primarily attributable to net cash provided from
operating activities from January 1, 2001 through December 31, 2001.
Net income for the three months ended December 31, 2001 increased to $1,601,000
from $1,101,000 for the three months ended December 31, 2000. The increase in
net income is attributable to the aforementioned increase in net sales and gross
profit and decrease in selling, general and administrative expenses, and
interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $18,544,000 with a current ratio of 4.3 at
December 31, 2001 as compared to working capital of $16,687,000 with a current
ratio of 4.0 at March 31, 2001. Total borrowings outstanding, including
Industrial Revenue Bonds of $4,330,000, were $16,840,000 with a debt to equity
ratio of .54 at December 31, 2001 as compared to $8,985,000 with a debt to
equity ratio of .35 at March 31, 2001. The increase in total borrowings
outstanding at December 31, 2001 was primarily attributable to the utilization
of funds under the Company's existing credit facility to purchase certain assets
relating to the medical products business of Medi-Flex on November 30, 2001.
The Company has financed its operations primarily through cash flow from
operations and borrowings from its existing credit facilities. At December 31,
2001, the Company had a cash balance of $1,173,000 compared to $639,000 at March
31, 2001.
The Company's operating activities provided cash of $5,232,000 for the nine
months ended December 31, 2001 as compared to $2,123,000 provided for the nine
months ended December 31, 2000. Net cash provided for the nine months ended
December 31, 2001 consisted primarily of net income from operations,
depreciation and amortization and increases in income taxes payable. These
sources of cash more than offset the increase in inventory and accounts
receivable associated with increased sales, and increases in accounts payable
and accrued expenses, payroll and payroll taxes.
15
Investing activities used net cash of $11,732,000 and $1,878,000 for the nine
months ended December 31, 2001 and December 31, 2000, respectively. The
principal use for the nine months ended December 31, 2001 was for the
acquisition of certain assets relating to the medical products business of
Medi-Flex on November 30, 2001. The purchase price and related acquisition costs
for the Medi-Flex business was approximately $11,269,000.
Financing activities provided cash of $7,035,000 for the nine months ended
December 31, 2001 compared to $542,000 used for the nine months ended December
31, 2000. Financing activities consisted of borrowings under the Company's
existing credit facilities of $12,635,000, principally to finance the
acquisition of certain assets relating to the medical products business of
Medi-Flex, offset by principal payments of $4,840,000. Other financing
activities include cash proceeds from the exercise of employee stock options of
$573,000 and $1,333,000 was used for the repurchase of the Company's common
stock.
At December 31, 2001, the Company had no material commitments for capital
expenditures.
The Company believes that the anticipated future cash flow from operations,
coupled with its cash on hand and available funds under its revolving credit
agreements, will be sufficient to meet working capital requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate change market risk with respect to its
credit facility with a financial institution which is priced based on the prime
rate of interest plus a spread of up to 1/4%, LIBOR rate plus a spread of up to
2 1/2%, or at 1 1/4% over the prevailing bankers' acceptance rate. The spread
over prime and LIBOR rates is determined based upon the Company's performance
with regard to agreed upon financial ratios. The Company decides at its sole
discretion as to whether borrowings will be at prime, LIBOR or bankers'
acceptance rates. At December 31, 2001, $12,510,000 was outstanding under the
credit facility. Changes in the prime rate, LIBOR rates or bankers' acceptance
rates during fiscal 2002 will have a positive or negative effect on the
Company's interest expense. Each 1% fluctuation in the interest rate will
increase or decrease interest expense for the Company by approximately $107,100
on an annualized basis.
In addition, the Company is exposed to interest rate change market risk with
respect to the proceeds received from the issuance and sale by the Buncombe
County Industrial and Pollution Control Financing Authority Industrial
Development Revenue Bonds. At December 31, 2001, $4,330,000 was outstanding for
these Bonds. The Bonds bear interest at a variable rate determined weekly.
During the nine months ended December 31, 2001, the interest rate on the Bonds
approximated 2.0%. Each 1% fluctuation in interest rates will increase or
decrease interest expense on the Bonds by approximately $41,300 on an annualized
basis.
A significant portion of the Company's raw materials is purchased from China and
to a lesser extent from England and India. All such purchases are transacted in
U.S. dollars, therefore, the Company is not required to engage in any hedging
transactions. The Company's financial results, therefore, could be impacted by
factors such as changes in foreign currency, exchange rates or weak economic
conditions in foreign countries in the procurement of such raw materials. To
date, sales of the
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Company's products outside the United States have not been
significant. The Company does not have any off-balance sheet liabilities.
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MEDICAL ACTION INDUSTRIES INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings against the Company
or in which any of its property is subject.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. (a) Exhibits
None
(b) Reports on Form 8-K
(i) Current Report on Form 8-K dated November 30, 2001
(ii) Amendment No. 1 to Current Report on Form 8-K dated
January 23, 2002
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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.
MEDICAL ACTION INDUSTRIES INC.
Dated: February 13, 2002 By: /s/ Richard G. Satin
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Richard G. Satin, Vice President
(Principal Accounting Officer)
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