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 December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-9042
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MEDEX, INC.
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(Exact name of registrant as specified in its charter)
Ohio 31-4441680
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(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
3637 Lacon Road, Hilliard, Ohio 43026
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (614) 876-2413
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 23 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
--- ---
As of December 31, 1995, the latest practicable date, 6,171,841 shares of the
registrant's common shares were issued and outstanding.
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MEDEX, INC.
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INDEX TO FORM 10-Q
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FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1995
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PAGE NO.
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PART I. FINANCIAL INFORMATION
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ITEM 1
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Title Page
Index to Form 10-Q
Consolidated Statements of Income -
Three and Six Months Ended December 31, 1995
and 1994
Consolidated Balance Sheets -
December 31, 1995 and June 30, 1995
Consolidated Statement of Shareholders' Equity -
Six Months Ended December 31, 1995
Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1995 and 1994
Notes To Consolidated Financial Statements
ITEM 2
------
Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II OTHER INFORMATION
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EXHIBIT
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10.1 Amended Medex, Inc. Key Employee Non Statutory Stock Option Plan
10.2 Amendment to Employment Agreement with Bradley P. Gould
11. Computation of Earnings Per Share
27. Financial Data Schedule
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PART I - FINANCIAL INFORMATION
------------------------------
ITEMS 1 & 2
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MEDEX, INC.
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CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(unaudited)
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THREE MONTHS ENDED SIX MONTHS ENDED
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DECEMBER 31, DECEMBER 31,
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
NET SALES $23,533,502 $22,376,351 $47,231,113 $45,458,490
COST OF GOODS SOLD 12,151,514 12,803,854 23,790,691 25,296,274
------------- ------------- ------------- -----------
GROSS MARGIN 11,381,988 9,572,497 23,440,422 20,162,216
------------- ------------- ------------- -----------
OPERATING EXPENSES:
Sales and marketing 5,578,966 5,462,668 11,308,303 10,284,956
Research and development 734,419 766,895 1,377,367 1,501,457
Administrative 4,068,960 2,915,591 7,529,760 5,816,477
Restructuring costs 833,479 1,674,262 1,074,730 1,674,262
------------- ------------- ------------- -----------
Total 11,215,824 10,819,416 21,290,160 19,277,152
------------- ------------- ------------- -----------
OPERATING INCOME (LOSS) 166,164 (1,246,919) 2,150,262 885,064
------------- ------------- ------------- -----------
OTHER INCOME (EXPENSE):
Investment income 72,778 112,244 124,748 170,798
Interest expense (44,110) ( 97,210) ( 63,975)
Other - net 39,044 46,257 ( 49,855) 116,357
------------- ------------- ------------- -----------
Total 67,712 158,501 ( 22,317) 223,180
------------- ------------- ------------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 233,876 ( 1,088,418) 2,127,945 1,108,244
ESTIMATED INCOME TAXES (BENEFIT) 95,000 ( 440,000) 852,000 439,000
------------- ------------- ------------- -----------
NET INCOME (LOSS) $ 138,876 $ ( 648,418) $ 1,275,945 $ 669,244
============= ============= ============= ===========
NET INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) $ .02 $(.10) $.21 $.11
============= ============= ============= ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING 6,201,593 6,211,900 6,199,873 6,204,063
============= ============= ============= ===========
See Notes to Consolidated Financial Statements
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MEDEX, INC.
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CONSOLIDATED BALANCE SHEETS
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ASSETS
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(unaudited)
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DECEMBER 31, 1995 JUNE 30, 1995
----------------- -------------
CURRENT ASSETS:
Cash and equivalents $ 5,196,220 $ 4,911,074
Investments 345,000
Trade Receivables (less allowance for doubtful accounts
December 31 - $757,000; June 30 - $714,000) 18,439,865 18,506,153
Inventories:
Raw materials and supplies 11,482,230 11,495,702
Work-in-process 4,786,481 3,626,058
Finished goods 7,695,977 7,248,231
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Total inventories 23,964,688 22,369,991
Deferred income taxes 1,633,456 1,633,456
Prepaid expenses and other 1,333,141 812,925
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Total current assets 50,567,370 48,578,599
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PROPERTY, PLANT AND EQUIPMENT - At cost:
Land and land improvements 2,274,816 2,053,046
Buildings 19,695,334 19,504,336
Machinery and equipment 16,744,041 15,940,342
Dies and molds 8,760,162 8,226,919
Furniture and data processing equipment 8,949,683 8,285,376
Additions in progress 3,600,100 3,330,646
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Total 60,024,136 57,340,665
Less accumulated depreciation 24,958,477 23,028,147
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Property, plant and equipment - net 35,065,659 34,312,518
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COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED
(Net of accumulated amortization: December 31, $1,100,844
June 30 - $997,352) 4,769,489 4,872,981
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OTHER ASSETS:
Deferred income taxes 544,888 530,872
Other 2,141,783 2,206,581
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Total other assets 2,686,671 2,737,453
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TOTAL $93,089,189 $90,501,551
=========== ===========
See Notes to Consolidated Financial Statements
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MEDEX, INC
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CONSOLIDATED BALANCE SHEETS
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LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
(unaudited)
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DECEMBER 31, 1995 JUNE 30, 1995
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CURRENT LIABILITIES:
Current portion of long-term debt $ 502,537 $ 513,066
Accounts payable (principally trade) 3,196,682 3,797,582
Accrued liabilities:
Income taxes 1,706,651 602,209
Compensation and profit sharing 3,809,011 2,873,619
Restructuring costs 939,131 649,983
Other 3,157,412 2,807,811
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Total current liabilities 13,311,424 11,244,270
LONG-TERM DEBT - Less current portion 3,411,008 3,463,232
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Total liabilities 16,722,432 14,707,502
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SHAREHOLDERS' EQUITY:
Common stock - $.01 par value
Shares authorized - 20,000,000
Shares outstanding December 31 - 6,171,841
Shares outstanding June 30 - 6,159,502
(net of 150,590 treasury shares) 61,718 61,595
Additional paid-in capital 42,601,923 42,460,256
Retained earnings 33,954,922 33,172,136
Foreign currency translation adjustment (251,806) 100,062
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Total shareholders' equity 76,366,757 75,794,049
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TOTAL $93,089,189 $90,501,551
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See Notes to Consolidated Financial Statements
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MEDEX, INC.
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CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
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FOR THE SIX MONTHS ENDED DECEMBER 31, 1995
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(unaudited)
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FOREIGN
ADDITIONAL CURRENCY TOTAL
COMMON STOCK OUTSTANDING PAID-IN RETAINED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT EQUITY
--------------------------------------------------------------------------------------------------
BALANCE AT
JUNE 30, 1995 6,159,502 $ 61,595 $42,460,256 $33,172,136 $ 100,062 $ 75,794,049
Net income 1,275,945 1,275,945
Cash Dividends
($.08 per share) (493,159) (493,159)
Foreign currency
translation
adjustment (351,868) (351,868)
Issuance of stock
under stock option and
purchase plans 12,339 123 141,667 141,790
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BALANCE AT
DECEMBER 31,
1995 6,171,841 $ 61,718 $42,601,923 $33,954,922 $ (251,806) $ 76,366,757
=======================================================================================================
See Notes to Consolidated Financial Statements
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MEDEX, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(unaudited)
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SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,275,945 $ 669,244
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,100,466 2,129,463
Change in operating assets and liabilities:
Increase in trade receivables (113,746) (183,676)
(Increase) decrease in inventories (1,772,326) 2,347,882
(Increase) in prepaid expenses and other (469,210) (576,351)
Decrease in accounts payable (565,989) (115,706)
Increase in accrued restructuring costs 289,148 1,537,501
Increase (decrease) in accrued liabilities 984,075 (1,936,218)
Increase (decrease) in accrued income taxes 1,151,388 (592,523)
Other operating items - net 333,864 (58,875)
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Net cash provided by operating activities 3,213,615 3,220,741
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CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (2,895,035) (3,221,734)
Proceeds from sale of investments 345,000 5,000
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Net cash used in investing activities (2,550,035) (3,216,734)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term obligations (62,753) (169,061)
Proceeds from issuance of common shares 141,790 59,980
Cash dividends paid (493,159) (490,497)
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Net cash used by financing activities (414,122) (599,578)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 35,688 (18,121)
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NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 285,146 (613,692)
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CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 4,911,074 8,604,455
----------- ------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 5,196,220 $ 7,990,763
=========== ============
SUPPLEMENTAL DISCLOSURES:
CASH PAID DURING THE PERIOD FOR:
Interest $ 88,923 $ 51,237
=========== ============
Income taxes $ 410,000 $ 710,000
=========== ============
See Notes to Consolidated Financial Statements
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MEDEX, INC
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NOTES TO CONSOLIDATED FINANCIAL
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STATEMENTS DECEMBER 31, 1995
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(unaudited)
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1. PRESENTATION
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The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and include all of the
information and disclosures required by generally accepted accounting
principles for interim reporting, which are less than those required for annual
reporting. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (all of which are normal and recurring in
nature) necessary to present fairly the financial position of Medex, Inc. at
December 31, 1995, and the results of operations and cash flows. The notes to
the Consolidated Financial Statements which are contained in the 1995 Annual
Report to Shareholders should be read in conjunction with these Consolidated
Financial Statements. Certain reclassifications have been made to prior year's
amounts to conform with the classifications of such amounts for fiscal 1996.
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MEDEX, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
DECEMBER 31, 1995
-----------------
RESULTS OF OPERATIONS
The following table shows Medex, Inc. operating results as a percent of net sales for the periods indicated for certain
items in the consolidated statements of income. Dollar amounts in the following tables are in thousands.
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PERCENT OF NET SALES
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THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales 100.00% 100.00% 100.00% 100.00%
Cost of Goods Sold 51.63 57.22 50.37 55.65
------ ------ ------ ------
Gross Margin 48.37 42.78 49.63 44.35
Operating Expenses 47.66 48.35 45.08 42.41
------ ------ ------ ------
Operating Income (Loss) .71 (5.57) 4.55 1.95
Other Income .29 .71 (.05) .49
------ ------ ------ ------
Income (Loss) Before
Income Taxes .99 (4.87) 4.50 2.44
Estimated Income
Taxes (Benefit) .40 (1.97) 1.80 .97
------ ------ ------ ------
Net Income (Loss) .59% (2.90)% 2.70% 1.47%
====== ====== ====== ======
====================================================================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales $23,534 $22,376 $47,231 $45,458
====================================================================================================================================
<FN>
Net sales for the three months ended December 31,1995 increased $1,158,000 or five percent over the same period of the previous
year. Net sales from domestic operations increased $545,000 or four percent to $15,884,000 while sales from the Company's European
operations increased $613,000 or nine percent to $7,650,000.
9
10
The increase in domestic sales consists of increases in both critical care
accessories of $213,000 and infusion systems of $332,000. Critical care
accessories sales increased due to increased sales of fluid & drug and cath lab
products partially offset by a decrease in sales of pressure monitoring
products. Sales of infusion systems increased primarily as a result of a
$915,000 increase in syringe pump sales partially offset by a decrease in sales
of large volume pumps and related disposables.
European sales increased primarily due to increases in cath lab (procedure
pack) and ambulatory pump sales and due to $160,000 of sales from Ashfield
Medical Systems, which was acquired in the third quarter of fiscal 1995.
Increased foreign currency translation rates accounted for approximately
one-half of the overall increase in European sales.
For the six months ended December 31, 1995, net sales increased $1,773,000 or
four percent over the same period of the previous year. Domestic sales
decreased $372,000 or one percent to $31,707,000 while European sales increased
$2,145,000 or 16 percent to $15,524,000.
The decrease in domestic sales occurred in both critical care accessories, down
$191,000 and infusion systems, down $181,000. The decrease in critical care
accessories primarily occurred in the fluid and drug product line due to
bulk/OEM business lost in the previous year. Infusion systems decreased as a
result of decreases in sales of large volume pumps and related disposables.
The increase in European sales for the six months is primarily due to increased
sales of cath lab (procedure pack) and pressure monitoring products along with
the Company recording $373,000 of sales from Ashfield Medical Systems.
Increased foreign currency translation rates accounted for approximately 40
percent of the increase.
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Cost of Goods Sold $12,152 $12,804 $23,791 $25,296
- ---------------------------------------------------------------------------------------------------------------------------------
Gross Margin $11,382 $ 9,572 $23,440 $20,162
=================================================================================================================================
Gross margin as a percent of net sales for the second quarter of fiscal 1996
increased to 48.4% from the 42.8% reported in the previous year. Domestic
margins increased eight percentage points while European margins remained flat.
Domestic margins have improved due to a change in mix to include fewer large
volume pump sales, which have a lower margin, and due to lower volume related
manufacturing variances. The decrease in manufacturing variances is attributed
to increased production volumes at both the Columbus and Atlanta plants due to
the Company closing its Denver facility and moving production to these
locations.
Europe's margins have remained flat reflecting lower margins at standard due to
pricing pressures and increased costs offset by favorable volume related
manufacturing variances.
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11
On a year to date basis, the gross margin percentage increased to 49.6% from
44.4%. Domestic margins improved 7.3 percentage points while Europe's margins
improved 1.2 percentage points. These improvements were primarily caused by
the same items as noted above.
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
Operating Expenses $11,216 $10,819 $21,290 $19,277
================================================================================================================================
Operating expenses for the three months ended December 31, 1995 increased
$397,000 over the same period for the previous year. This increase consists of
a $223,000 decrease in domestic operating expenses and a $620,000 increase in
European operating expenses.
The domestic decrease consists of a $618,000 increase in selling, research and
administrative costs offset by a $841,000 decrease in restructuring expenses.
Selling, research and administrative costs have increased due to accruals for
the estimated costs associated with senior management changes announced during
the quarter.
Restructuring expenses in both the current and prior year relate to the closing
of the Denver facility announced in October, 1994. The closing of this
facility and the integration of all functions and product lines into the
Columbus and Atlanta operations was originally estimated to save the Company
approximately $2,500,000 annually, while costing approximately $3,200,000 to
implement. The integration was finalized during the quarter ended December 31,
1995 when the company incurred the final costs associated with the hiring and
relocation of personnel and when the facility lease was terminated.
The total cost to complete this plan was $3,709,000 consisting of $2,876,000
recognized through September, 1995 and $833,000 recognized this quarter. The
excess of the final cost of $3,709,000 over the original estimate of $3,200,000
is primarily due to costs to terminate the lease. The Company was previously
attempting to sublease the facility for which it was committed under a lease
through September, 1998. The Company had recorded the portion of the lease
costs which were expected to exceed the estimated sublease income as a
component of the restructuring costs recorded in the previous fiscal year.
During the quarter ended December 31, 1995, the Company was presented with an
opportunity to terminate the lease and remove itself of the uncertainty
associated with subletting the facility. While the costs exceeded original
estimates, management elected to terminate the lease to bring final closure to
the Denver restructuring.
European operating expenses increased $620,000 partially due to the effects of
increased foreign currency translation rates which caused $145,000 of the
increase. The remaining increase is due to increased sales and marketing and
administrative expenses to support the increased sales and due to the
acquisition of Ashfield Medical Systems which recorded $130,000 of expenses.
On a year to date basis, operating expenses increased $2,013,000 consisting of
a $627,000 increase in domestic expenses and a $1,386,000 increase in European
expenses. The increase for the six month period was primarily due to the same
items discussed above for the three month period.
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THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
- ---------------------------------------------------------------
Other Income $ 68 $ 159 $ (22) $ 223
_______________________________________________________________
The decrease in other income for the three months ended December 31, 1995 is
primarily due to a decrease in investment income and an increase in interest
expense. Investment income has decreased due to lower investment levels while
interest expense has increased due to a reduction in the amount of interest
capitalized on construction projects.
For the six months ended December 31, 1995, the Company recorded an expense of
$22,000 versus income of $223,000 in the prior year. This change is primarily
due to a reduction in interest income and an increase in interest expense, due
to the reasons noted above, and due to a decrease in foreign currency exchange
gains. The Company recorded an $85,000 foreign currency exchange loss for the
six months ended December 31, 1995 as compared to a gain of $95,000 for the
same period in the prior year.
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
- ---------------------------------------------------------------
Estimated Income
Taxes/(benefit) $ 95 $ (440) $ 852 $ 439
_______________________________________________________________
Income taxes for both the current and previous fiscal year are estimated to be
40 percent of pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net working capital at December 31, 1995 decreased $78,000 over the working
capital at June 30, 1995. The current ratio was 3.80 to 1.00 at December 31,
1995 as compared to 4.32 to 1.00 at June 30, 1995.
Property additions of approximately $2,895,000 primarily relate to the
acquisition of machinery and equipment and dies and molds.
Management believes that currently available cash and investments, cash
provided from future operations and debt financing options will be sufficient
to finance these and other future capital expenditures.
MANAGEMENT'S OUTLOOK
- --------------------
Management anticipates that the Company will continue to post increases in
sales and profits over fiscal 1995. However, the Company remains in a
turnaround mode and management is working to position the Company for
consistent performance.
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PART II - OTHER INFORMATION
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ITEM 1.
- -------
LEGAL PROCEEDINGS
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The Company is not presently a party to any material pending legal
proceedings.
ITEM 2.
- -------
CHANGES IN SECURITIES
- ---------------------
None
ITEM 3.
- -------
DEFAULTS UPON SENIOR SECURITIES
- -------------------------------
None
ITEM 4.
- -------
SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
- -------------------------------------------------
A. Medex, Inc.'s 1995 Annual Meeting of Shareholders was held on November
15, 1995.
B. Proxies were solicited by Medex, Inc. management pursuant to
Regulation 14 under the Securities Exchange Act of 1934. There was no
solicitation in opposition to managements' nominees as listed in the
Proxy Statement and all nominees were elected pursuant to the vote of
the Shareholders.
1. The vote to elect directors was:
Robert E. Boyd James L. Ginter John N. Holscher
-------------- --------------- ----------------
For 5,076,390 5,242,990 5,239,138
Withheld 306,139 139,539 143,391
The terms of office of Messrs. Helmrath, Joyce, Jordan,
Martino, Messinger and Waldbillig continued after the meeting.
C. Shareholders voted to approve the appointment of Deloitte & Touche LLP
as auditors for the year ending June 30, 1996.
1. The vote to approve Deloitte & Touche LLP as auditors was:
For 5,374,190
Against 4,452
Abstain 3,887
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ITEM 5.
- -------
OTHER INFORMATION
- -----------------
None
ITEM 6.
- -------
EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------
A. EXHIBITS
--------
10.1 Amended Medex, Inc. Key Employee Non Statutory Stock Option
Plan.
10.2 Amendment to Employment Agreement with Bradley P. Gould.
11. Computation of earnings per share.
B. REPORTS ON FORM 8-K
-------------------
1. A report on Form 8-K was filed on October 10, 1995 and
reported under Item 5, Other Events: that Mr. Bradley P. Gould
had been elected Chief Executive Officer of Medex, Inc.
Michael J. Barilla had been named acting Chief Financial
Officer and Kevin L. Barnett had been named Treasurer of the
Company.
2. A report on Form 8-K was filed on October 23,1995 and reported
under Items 5, Other Events; that Medex, Inc. had adopted a
Shareholder Rights Plan as described in the press release
attached as an exhibit to the Form 8-K.
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SIGNATURES
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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, thereto duly authorized.
MEDEX, INC.
Date: February 13 , 1996 By: /s/Bradley P. Gould
------------------------ Bradley P. Gould
Chief Executive Officer
And:/s/Michael J. Barilla
Michael J. Barilla
Vice President
Chief Financial Officer
And:/s/Kevin L. Barnett
Kevin L. Barnett
Vice President
Treasurer and
Corporate Controller
(Principle Accounting Officer)
15