MEDICAL ACTION INDUSTRIES INC - 10-Q Quarterly Report

Back to GetFilings.com

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, 2004

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

incorporation or organization)

(I.R.S. Employer

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 126-b of the Exchange Act). 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. 10,259,586 shares of common stock as of February 4, 2005.

Form 10-Q

CONTENTS


		Page No.
PART I -	FINANCIAL INFORMATION

Item 1.	Condensed Financial Statements

	Balance Sheets at December 31, 2004 (Unaudited) and March 31, 2004	3-4

	Statements of Earnings for the Three Months ended December 31, 2004 and 2003 (Unaudited)	5

	Statements of Earnings for the Nine Months ended December 31, 2004 and 2003 (Unaudited)	6

	Statements of Cash Flows for the Nine Months ended December 31, 2004 and 2003 (Unaudited)	7

	Notes to Financial Statements (Unaudited)	8-12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21

Item 4.	Procedures and Controls	22

PART II -	OTHER INFORMATION

Item 1.

MEDICAL ACTION INDUSTRIES INC.

Balance Sheets

(dollars in thousands)

ASSETS


	December 31, 2004		March 31, 2004
	(Unaudited)
CURRENT ASSETS:

Cash	$	574	$	545
Accounts receivable, less allowance for doubtful accounts of $367 at December 31, 2004 and $295 at March 31, 2004		10,557		10,670
Inventories, net		19,117		18,616
Prepaid expenses		689		551
Deferred income taxes		308		308
Prepaid income taxes		—		234
Other current assets		231		142

TOTAL CURRENT ASSETS:		31,476		31,066

Property, plant and equipment, net		12,749		13,654
Due from officers		—		92
Goodwill		37,085		37,085
Trademarks		666		666
Other intangible assets, net		2,012		2,213
Other assets		360		521

TOTAL ASSETS:	$	84,348	$	85,297

The accompanying notes are an integral part of these financial statements.

Item 1.

MEDICAL ACTION INDUSTRIES INC.

Balance Sheets

(dollars in thousands)

LIABILITIES AND SHAREHOLDERS’ EQUITY


	December 31, 2004		March 31, 2004
	(Unaudited)
CURRENT LIABILITIES:

Accounts payable	$	5,698	$	5,828
Accrued expenses, payroll and payroll taxes		2,881		2,445
Accrued income taxes		718		—
Current portion of long-term debt		1,610		5,360

TOTAL CURRENT LIABILITIES:		10,907		13,633

Deferred income taxes		3,137		3,137
Long-term debt, less current portion		4,365		11,720

TOTAL LIABILITIES:		18,409		28,490

COMMITMENTS

SHAREHOLDERS’ EQUITY:

Common stock 15,000,000 shares authorized, $.001 par value; issued and outstanding 10,256,586 shares at December 31, 2004 and 10,194,036 shares at March 31, 2004		10		10
Additional paid-in capital, net		17,570		16,415
Retained earnings		48,359		40,382

TOTAL SHAREHOLDERS’ EQUITY:		65,939		56,807

TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY:	$	84,348	$	85,297

The accompanying notes are an integral part of these financial statements.

Item 1.

MEDICAL ACTION INDUSTRIES INC.

Statements of Earnings

(dollars in thousands except per share data)

(Unaudited)


	Three Months Ended December 31,
	2004			2003
Net sales	$	36,222		$	33,014

Cost of sales		26,825			24,201

Gross profit		9,397			8,813

Selling, general and administrative expenses		4,832			4,716
Interest expense		61			208
Interest income		(2	)		(18	)

Income before income taxes		4,506			3,907
Income tax expense		1,659			1,483

Net income	$	2,847		$	2,424

Net income per share basic	$	.28		$	.24

Net income per share diluted	$	.27		$	.24

The accompanying notes are an integral part of these financial statements.

Item 1.

MEDICAL ACTION INDUSTRIES INC.

Statements of Earnings

(dollars in thousands except per share data)

(Unaudited)


	Nine Months Ended December 31,
	2004			2003
Net sales	$	104,689		$	95,991

Cost of sales		77,482			70,552

Gross profit		27,207			25,439

Selling, general and administrative expenses		14,272			13,481
Interest expense		254			782
Interest income		(10	)		(53	)

Income before income taxes		12,691			11,229
Income tax expense		4,714			4,245

Net income	$	7,977		$	6,984

Net income per share basic	$	.78		$	.70

Net income per share diluted	$	.76		$	.68

The accompanying notes are an integral part of these financial statements.

Item 1.

MEDICAL ACTION INDUSTRIES INC.

Statements of Cash Flows

(dollars in thousands)

(Unaudited)


	Nine Months Ended December 31,
	2004			2003
OPERATING ACTIVITIES
Net income	$	7,977		$	6,984
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,723			1,683
Provision for doubtful accounts		72			63
Provision for impairment of property, plant and equipment		19			—
Loss on sale of property and equipment		77			63
Tax benefit from exercise of options		211			984
Changes in operating assets and liabilities:
Accounts receivable		41			(1,333	)
Inventories		(501	)		(1,239	)
Prepaid expense and other current assets		(227	)		(217	)
Other assets		(150	)		(98	)
Accounts payable		(130	)		(84	)
Income taxes payable		952			1,539
Accrued expenses, payroll and payroll taxes		436			866

NET CASH PROVIDED BY OPERATING ACTIVITIES		10,500			9,211

INVESTING ACTIVITIES
Purchase of property, plant and equipment		(430	)		(373	)
Proceeds from sale of property and equipment		28			98
Repayment of loans to officers		428			—

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		26			(275	)

FINANCING ACTIVITIES
Proceeds from revolving line of credit and long term borrowings		26,950			20,630
Principal payments on revolving line of credit and long term debt		(38,055	)		(29,005	)
Proceeds from exercise of employee stock options		1,025			1,063
Payment of employee taxes in connection with exercise of stock options		(417	)		(272	)

NET CASH USED IN FINANCING ACTIVITIES		(10,497	)		(7,584	)

Increase in cash		29			1,352
Cash at beginning of year		545			892

Cash at end of period	$	574		$	2,244

Supplemental disclosures:
Interest paid	$	297		$	815
Income taxes paid	$	3,561		$	1,725

The accompanying notes are an integral part of these financial statements

Item 1.

MEDICAL ACTION INDUSTRIES INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1. SIGNIFICANT ACCOUNTING POLICIES

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 (9) month period ended December 31, 2004 are not necessarily indicative of the results that may be expected for the year ended March 31, 2005. For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report for the year ended March 31, 2004.

STOCK COMPENSATION

In accordance with the provisions of SFAS No. 123, the Company has elected to apply APB 25 and related interpretations in accounting for its employee and director stock-based awards. All employee and director stock-based awards were granted with an exercise price equal to the fair market value of the Company’s common stock on their date of grant.

Therefore, under the provisions of APB 25, no compensation expense has been recognized with respect to such awards. If the Company had elected to recognize compensation expense based on the fair value of the employee and director stock-based awards granted at grant date as prescribed by SFAS No. 123, net income and earnings per share would have been reduced to the pro forma amounts indicated in the table below:

Item 1.

Note 1. (continued)


	Three Months Ended December 31,				Nine Months Ended December 31,
	2004		2003		2004		2003
	(dollars in thousands except per share data)
Net income – as reported	$	2,847	$	2,424	$	7,977	$	6,984
Deduct: Total stock-based employee compensation expense determined under fair value based method from all awards, net of related tax effects		109		300		598		865

Net income – pro forma	$	2,738	$	2,124	$	7,379	$	6,119

Earnings per share – as reported:
Basic	$	.28	$	.24	$	.78	$	.70
Diluted	$	.27	$	.24	$	.76	$	.68
Earnings per share – pro forma
Basic	$	.27	$	.21	$	.72	$	.62
Diluted	$	.26	$	.21	$	.71	$	.60

Note 2. INVENTORIES

Inventories, which are stated at the lower of cost (first-in, first-out) or market, consist of the following:


	December 31, 2004		March 31, 2004
	(in thousands of dollars)
Finished Goods	$	10,365	$	9,753
Work in Process		174		—
Raw Materials		8,578		8,863

Total	$	19,117	$	18,616

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents