Medical Action Industries Reports Fourth Quarter And Fiscal 2012 Results

Medical Action Industries Inc. (the “Company” or “Medical Action”) (NASDAQ/MDCI), a leading supplier of medical and surgical disposable products, today reported results for the fourth quarter and fiscal year ended March 31, 2012.

Net sales for the fourth quarter of fiscal 2012 were $108.2 million, an increase of $3.0 million or 3%, compared to $105.3 million in net sales reported for the comparable prior year period. The Company incurred a net loss for the fourth quarter of fiscal 2012 of $2.5 million or $0.15 per basic and diluted share, compared to net income of $1.1 million or $0.07 per basic and diluted share, reported for the comparable prior year period. When compared to the comparable prior year period, the results for the fourth quarter of fiscal 2012 were negatively impacted by $1.2 million in higher resin costs, $0.8 million relating to a one-time tax valuation allowance against certain state net operating loss carry forwards and $0.4 million in higher costs of products procured from China-based vendors.

Net sales for fiscal 2012 were $437.3 million, an increase of $74.8 million or 21% from the $362.5 million in net sales reported for fiscal 2011. In fiscal 2011 (August 2010), the Company acquired AVID Medical, Inc. (“AVID”); therefore fiscal 2011 reported results included approximately seven months of AVID results. Excluding AVID, Medical Action’s net sales for fiscal 2012 were $298.9 million, representing a comparable increase of $17.8 million or 6% from fiscal 2011. During fiscal 2012, AVID generated net sales of $138.5 million, an increase of approximately 1% over the twelve months ended March 31, 2011 of $137.2 million, of which $81.5 million were included in Medical Action’s fiscal 2011 results.

The increase in net sales, excluding AVID, was comprised of $17.0 million in higher volumes and $0.8 million in higher average selling prices. The increase in volumes was predominantly attributable to higher domestic market penetration in our Patient Care market of $10.5 million and our Clinical Care market of $6.5 million. The increase in average selling prices resulted principally from net price increases of $1.4 million on certain products associated with our Clinical Care market. These were partially offset by a $0.6 decrease in the aggregate average selling price of our Patient Care market. These pricing fluctuations are significantly influenced by competitive pressures, the renewal of certain Group Purchasing Organization supply agreements and a change in the mix of products purchased by our customers.

Net income for fiscal 2012 was $0.2 million or $0.01 per basic and diluted share, versus the $4.4 million or $0.27 per basic and diluted share reported for fiscal 2011. Included in net income for fiscal 2012 was an extraordinary pre-tax gain of $0.7 million or $0.03 per basic and diluted share (net of applicable tax expense) due to an insurance settlement related to inventories damaged in fiscal 2011 as a result of weather-related flooding. Net income for fiscal 2011 included an extraordinary pre-tax loss of $1.5 million or $0.05 per basic and diluted share (net of applicable tax benefit) due to inventories damaged as a result of weather-related flooding and one-time pre-tax transaction costs of $1.3 million related to the acquisition of AVID.

As of March 31, 2012, the Company’s cash on hand was $5.3 million and working capital was $60.6 million. Additionally, the Company generated operating cash flow of $4.0 million during the twelve months ended March 31, 2012.

On June 7, 2012, the Company entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”), which governs our borrowings. As of June 14, 2012, the Company had $70.7 million in borrowings outstanding under the Credit Agreement and $5.3 million available for borrowing under the Credit Agreement. The Company believes that the anticipated future operating cash flow, coupled with cash on hand and available funds under the Credit Agreement, should enable us to allocate funds for purposes such as capital expenditures, marketing, product development and other general corporate purposes.

“We continue to focus on organic growth and improving profitability, as well as delivering exceptional service to our customers,” said Chief Executive Officer and President, Paul D. Meringolo. “Net sales have increased from the comparable prior year period however profitability was down. Competitive pricing pressures and persistent volatility in raw material costs, particularly resin and cotton, continue to influence our gross profits. As announced in April, we are realigning our business into strategic business units in order to increase focus on targeted market segments. Finally, we are pleased to have renegotiated a credit agreement with our lenders which provides the Company with greater flexibility to focus on the business and our operating plans.”

Medical Action invites its stockholders and other interested parties to attend its conference call at 10:00 a.m. (ET) on June 14, 2012. You may participate in the conference call by calling (877) 637-9564 (domestic) or (973) 935-8511 (international); conference ID #89890094. The conference call will be simultaneously web cast on our website: www.medical-action.com. The complete call and discussion will be available for replay on our website beginning at 1:00 p.m. (ET) on June 14, 2012.

Medical Action is a diversified manufacturer and distributor of disposable medical devices and a leader in many of the markets where it competes. Its products are marketed primarily to acute care facilities in domestic and certain international markets. The Company has expanded its target market to include physician, dental and veterinary offices, out-patient surgery centers, long-term care facilities and laboratories. Medical Action’s products are marketed nationally by its direct sales personnel and extensive network of healthcare distributors. The Company has preferred vendor agreements with national and regional distributors, as well as sole and multi-source agreements with group purchasing organizations. Medical Action’s common stock trades on the NASDAQ Global Select Market under the symbol MDCI and is included in the Russell 2000 Index.

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives for management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this news release are made as of the date hereof and are based on information available to us as of such date. The Company assumes no obligation to update any forward-looking statement. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology. Although the Company believes that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including manufacturing inefficiencies, termination or interruption of relationships with our suppliers, potential delays in obtaining regulatory approvals, product recalls, product liability claims, our inability to successfully manage growth through acquisitions, our failure to comply with governing regulations, risks of international procurement of raw materials and finished goods, market acceptance of our products, market price of our Common Stock, foreign currency fluctuations, resin volatility and other factors referred to in our press releases and reports filed with the Securities and Exchange Commission (the “SEC”). Please see the Company’s filings with the SEC, including, without limitation, the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Qs, which identify specific factors that would cause actual results or events to differ materially from those described in the forward-looking statements.
 
Medical Action Industries Inc.Consolidated Balance Sheets(In thousands, except share and per share data)
                       
March 31,2012 March 31,2011
Current Assets
Cash and cash equivalents $ 5,384 $ 1,691

Accounts receivable, less allowance for

doubtful accounts of $781 at March 31, 2012 and $804 at

March 31, 2011
30,845 32,330
Inventories, net 53,825 54,674
Prepaid expenses 1,831 1,702
Deferred income taxes 3,139 2,801
Prepaid income taxes 1,279 1,938
Other current assets   1,880   1,637
Total Current Assets 98,183 96,773
 
Property, plant and equipment, net 49,085 53,901
Goodwill 107,801 107,689
Other intangible assets, net 39,223 41,860
Other assets, net   2,852   3,319
 
Total Assets $ 297,144 $ 303,542
 
Current Liabilities
Accounts payable $ 11,295 $ 17,069
Accrued expenses 18,135 22,235
Current portion of capital lease obligation 132 92
Current portion of long-term debt   8,000   16,360
Total Current Liabilities 37,562 55,756
 
Deferred income taxes 29,450 26,993
Capital lease obligation, less current portion 13,655 13,790
Long-term debt, less current portion   67,670   58,776
 
Total Liabilities 148,337 155,315
 
Stockholders’ Equity
 

Common stock 40,000,000

shares authorized, $.001 par

value; issued and

outstanding 16,390,628

shares at March 31, 2012 and

16,383,128 shares at March

31, 2011
16 16
Additional paid-in capital 34,478 33,799
Accumulated other comprehensive loss (717) (437)
Retained earnings   115,030   114,849
 
Total Stockholders’ Equity   148,807   148,227
 
Total Liabilities and Stockholders’ Equity $ 297,144 $ 303,542
 
 
Medical Action Industries Inc.Consolidated Statements of Operations(In thousands, except per share data)
 
            Fiscal Year Ended March 31,
2012         2011         2010
Net sales $ 437,321 $ 362,494 $ 290,146
Cost of sales   372,380   298,615   221,242
 
Gross profit 64,941 63,879 68,904
 
Selling, general and administrative expenses   59,372   51,978   40,198
Operating income 5,569 11,901 28,706
 
Interest expense 4,571 2,889 1,352
Interest income   -   (1)   (4)
 
Income before income taxes and extraordinary item 998 9,013 27,358
Income tax expense   1,272   3,821   10,517
 
Income (loss) before extraordinary item (274) 5,192 16,841
Extraordinary gain (loss), net of applicable taxes   455   (838)   -
 
Net income $ 181 $ 4,354 $ 16,841
 
Per share basis:
Basic
Income (loss) before extraordinary item $ (0.02) $ 0.32 $ 1.04
Extraordinary gain (loss), net of applicable taxes   0.03   (0.05)   -
Net income $ 0.01 $ 0.27 $ 1.04
 
Diluted
Income (loss) before extraordinary item $ (0.02) $ 0.32 $ 1.03
Extraordinary gain (loss), net of applicable taxes   0.03   (0.05)   -
Net income $ 0.01 $ 0.27 $ 1.03
 
Medical Action Industries Inc.Consolidated Statements of Stockholders' Equity(In thousands, except share data)
                   
  Shares     Amount    

Additional Paid-InCapital
   

AccumulatedOtherComprehensiveLoss
   

RetainedEarnings
   

TotalStockholders’Equity
Balance at March 31, 2009 16,028,161     $ 16     $ 28,602     ($267)     $ 93,654     $ 122,005
 
Net income - - - 16,841 16,841
Other comprehensive loss:

Pension liability adjustment, net of tax

effect of ($67)
- - (107) -   (107)
Comprehensive income   16,734
Exercise of stock options, net 316,250 - 2,849 - - 2,849
Amortization of deferred compensation - 111 - - 111

Tax effect from vesting/cancellation of stock under

restricted management stock bonus plan and

the exercise of options
- (358) - - (358)
Stock-based compensation         -       1,381     -       -       1,381
Balance at March 31, 2010 16,344,411

 
  $ 16     $ 32,585     ($374)     $ 110,495     $ 142,722
 
Net income - - - 4,354 4,354
Other comprehensive loss:
Pension liability adjustment, net of tax effect of ($46) - - (63) -   (63)
Comprehensive income   4,291
Exercise of stock options, net 45,750 - 173 - - 173

Issuance of common stock pursuant to

restricted management stock bonus plan
7,500 -
Retirement of unvested restricted stock awards (14,533) -
Amortization of deferred compensation - 43 - - 43

Tax effect from vesting/cancellation of stock under

restricted management stock bonus plan and

the exercise of options
- 279 - - 279
Stock-based compensation         -       719     -       -       719
Balance at March 31, 2011 16,383,128     $ 16     $ 33,799     ($437)     $ 114,849     $ 148,227
 
 
Net income 181 181
Other comprehensive loss:
Pension liability adjustment, net of tax effect of ($125) (280)   (280)
Comprehensive loss   (99)
Exercise of stock options, net 7,500 - 20 20
Amortization of deferred compensation 20 20

Tax effect from vesting/cancellation of stock under

restricted management stock bonus plan and

the exercise of options
-
51 51
Stock-based compensation               588                   588
Balance at March 31, 2012 16,390,628     $ 16     $ 34,478     ($717)     $ 115,030     $ 148,807
 
Medical Action Industries Inc.Consolidated Statements of Cash Flows(In thousands)
    Fiscal Year Ended March 31,
2012       2011       2010
 

Cash flows from operating activities:

Net income
$ 181 $ 4,354 $ 16,841

Adjustments to reconcile net income to net cash provided by operating activities:
Extraordinary loss (gain) (700) 1,455 -

Depreciation
5,720 5,553 4,563
Amortization 4,289 3,328 2,169

Provision for doubtful accounts
72 12 72
Deferred income taxes 2,419 746 1,584
Stock-based compensation 608 762 1,492
Excess tax liability from stock-based compensation (300) 140 151
Loss (gain) on sale of property and equipment - 19 (422)
Tax benefit (expense) from exercise of warrants and options 51 279 (358)
Changes in operating assets and liabilities:
Accounts receivable 1,198 (3,632) 3,093
Inventories 827 (11,787) 8,361
Prepaid expenses and other current assets 328 462 (133)
Prepaid income taxes 659 158 1,799
Other assets (1,185) (2,098) (911)
Accounts payable (5,774) 2,004 3,501
Accrued expenses, payroll, payroll taxes and other (4,380) 3,419 1,466
     

Net cash provided by operating activities
  4,013   5,174   43,268
 

Cash flows from investing activities:

Purchase price and related acquisition costs
125 (62,525) -
Purchases of property, plant and equipment (907) (3,642) (4,202)
Proceeds from sale of property and equipment 3 4 2,078
     

Net cash used in investing activities
  (779)   (66,163)   (2,124)
 

Cash flows from financing activities:
Proceeds from revolving line of credit and long-term borrowings 105,867 184,823 12,850
Principal payments on revolving line of credit and long-term borrowings (105,333) (127,922) (54,622)
Principal payments on capital lease obligations (95) (35) (39)
Proceeds from exercise of employee stock options 20 173 2,849
     
Net cash provided by (used in) financing activities   459   57,039   (38,962)
 
Net increase (decrease) in cash and cash equivalents 3,693 (3,950) 2,182
Cash and cash equivalents at beginning of year   1,691   5,641   3,459
Cash and cash equivalents at end of year $ 5,384 $ 1,691 $ 5,641
 
Supplemental disclosures:
Interest paid 4,505 1,989 1,358
Income taxes paid (refunded) (1,304) 2,063 7,341
 

Copyright Business Wire 2010

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