<PAGE> 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 March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-24025
HORIZON MEDICAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Georgia 58-1882343
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Horizon Way
P.O. Box 627
Manchester, Georgia 31816
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: 706-846-3126
Indicate by check mark whether the registrant: (1) has filed all reports 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
--- ---
The number of shares outstanding of the Registrant's Common Stock, $.001 par
value, as of May 14, 1999, was 13,366,278.
<PAGE> 2
HORIZON MEDICAL PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 3,520,135 $ 6,232,215
Account receivable - trade, net ........................................ 18,510,640 16,925,487
Inventories ............................................................ 22,646,772 19,358,423
Prepaid expenses and other current assets .............................. 1,940,468 1,636,779
Deferred taxes ......................................................... 582,346 582,346
----------- ------------
Total current assets ................................................ 47,200,361 44,735,250
Property and equipment, net ................................................ 3,984,474 4,043,200
Intangible assets, net ..................................................... 54,844,801 55,494,414
Deferred taxes ............................................................. 116,970 116,970
Other assets ............................................................... 236,283 247,279
------------ ------------
Total assets ........................................................ $106,382,889 $104,637,113
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade ............................................... $ 11,879,139 $ 9,775,420
Accrued salaries and commissions ....................................... 216,772 257,341
Accrued royalties ...................................................... 160,557 127,375
Accrued interest ....................................................... 332,814 318,476
Accrued acquisition liabilities ........................................ 98,330 165,058
Other accrued expenses ................................................. 775,758 1,248,158
Income taxes payable ................................................... 559,869 1,343,473
Current portion of long-term debt ...................................... 2,758,993 2,733,138
------------ ------------
Total current liabilities ........................................... 16,782,232 15,968,439
Long-term debt, net of current portion ..................................... 47,062,039 47,073,716
Other liabilities .......................................................... 168,519 164,152
----------- ------------
Total liabilities ................................................... 64,012,790 63,206,307
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value per share; 5,000,000 shares authorized,
none issued and outstanding ......................................... -- --
Common stock, $.001 par value per share; 50,000,000 shares authorized,
13,366,278 shares issued and outstanding in 1999 and 1998 ........... 13,366 13,366
Additional paid-in capital ............................................. 51,826,125 51,826,125
Shareholders' notes receivable ......................................... (425,553) (425,553)
Accumulated deficit .................................................... (9,043,839) (9,983,132)
------------ ------------
Total shareholders' equity .......................................... 42,370,099 41,430,806
------------ ------------
Total liabilities and shareholders' equity .......................... $106,382,889 $104,637,113
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-2-
<PAGE> 3
HORIZON MEDICAL PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales ............................................................... $19,441,341 $ 6,708,869
Cost of goods sold ...................................................... 12,055,895 2,533,556
----------- -----------
Gross profit ............................................................ 7,385,446 4,175,313
Selling, general and administrative expenses ............................ 4,842,554 2,962,875
----------- -----------
Operating income ........................................................ 2,542,892 1,212,438
----------- -----------
Other income (expense):
Interest expense .................................................... (912,210) (1,942,072)
Other income ........................................................ 11,473 11,138
----------- -----------
(900,737) (1,930,934)
----------- -----------
Income (loss) before income taxes and extraordinary item ............ 1,642,155 (718,496)
Income tax expense ...................................................... (702,862) (209,354)
----------- -----------
Income (loss) before extraordinary item ............................. 939,293 (927,850)
Extraordinary gain on early extinguishment of put feature ............... -- 1,100,000
----------- -----------
Net income .......................................................... $ 939,293 $ 172,150
=========== ===========
Net income (loss) per share before extraordinary item - basic and diluted $ .07 $ (.10)
=========== ===========
Net income per share - basic and diluted ................................ $ .07 $ .02
=========== ===========
Weighted average common shares outstanding - basic ...................... 13,366,278 9,424,990
=========== ===========
Weighted average common shares outstanding - diluted .................... 13,369,015 10,205,002
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-3-
<PAGE> 4
HORIZON MEDICAL PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................... $ 939,293 $ 172,150
----------- -----------
Adjustments to reconcile net income to net cash used in operating activities:
Extraordinary gain on early extinguishment of put feature.......... -- (1,100,000)
Depreciation ...................................................... 182,099 92,901
Amortization ...................................................... 669,327 453,920
Amortization of discount .......................................... -- 1,081,732
Non-cash officer compensation ..................................... -- 91,250
Non-cash consulting expense ....................................... -- 657,256
(Increase) decrease in operating assets:
Accounts receivable .......................................... (1,585,153) (955,878)
Inventories .................................................. (3,288,349) 92,597
Prepaid expenses and other assets ............................ (177,201) (362,354)
Increase (decrease) in operating liabilities:
Accounts payable - trade ..................................... 2,103,719 (301,322)
Accounts payable - affiliate ................................. -- (4,212)
Income taxes payable ......................................... (783,604) (301,581)
Accrued expenses and other liabilities ....................... (527,810) (297,921)
----------- -----------
Net cash used in operating activities ............................. (2,467,679) (681,462)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ......................................................... (123,373) (248,005)
Change in non-operating assets ............................................... (19,714) (11,582)
----------- -----------
Net cash used in investing activities ............................. (143,087) (259,587)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt ......................................... (101,314) (194,510)
----------- -----------
Net cash used in financing activities ................................. (101,314) (194,510)
----------- -----------
Net decrease in cash and cash equivalents ............................. (2,712,080) (1,135,559)
Cash and cash equivalents, beginning of period ............................... 6,232,215 2,893,924
----------- -----------
Cash and cash equivalents, end of period ..................................... $ 3,520,135 $ 1,758,365
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-4-
<PAGE> 5
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated balance sheet of Horizon Medical Products,
Inc. (the "Company") at December 31, 1998 has been derived from the
Company's audited consolidated financial statements at such date. Certain
information and footnote disclosures normally included in complete
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC")
and instructions to Form 10-Q. The condensed consolidated financial
statements at March 31, 1999, and for the three months ended March 31,
1999 and 1998 are unaudited; however, these statements reflect all
adjustments and disclosures which are, in the opinion of management,
necessary for a fair presentation. All such adjustments are of a normal
recurring nature unless noted otherwise. The results of operations for
the interim periods are not necessarily indicative of the results of the
full year. These financial statements should be read in conjunction with
the Company's Registration Statement on SEC Form S-1 and the Company's
Form 10-K for the year ended December 31, 1998, including, without
limitation, the summary of accounting policies and notes and consolidated
financial statements included therein.
2. INVENTORIES
A summary of inventories is as follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Raw materials ......... $ 7,002,162 $ 5,336,210
Work in process ....... 2,791,969 1,984,133
Finished goods ........ 13,612,459 12,797,898
----------- -----------
23,406,590 20,118,241
Less inventory reserves 759,818 759,818
----------- -----------
$22,646,772 $19,358,423
=========== ===========
</TABLE>
3. INITIAL PUBLIC OFFERING
On April 20, 1998, the Company completed an initial public offering (the
"Offering") of 3,473,000 shares of common stock at $14.50 per share. The
Offering included 3,120,950 shares of common stock issued by the Company
and 873,000 shares sold by a group of selling shareholders. Subsequently
the underwriters of the Offering exercised their option to purchase
3,120,950 shares of common stock at $14.50 per share to cover
over-allotments. Total proceeds to the Company after underwriters'
discounts and commissions and other offering costs were $39,910,712.
-5-
<PAGE> 6
4. EARNINGS PER SHARE
A summary of the calculation of basic and diluted earnings per share
("EPS") is as follows:
For the Quarter Ended March 31, 1999
<TABLE>
<CAPTION>
Income Shares Per-share
Numerator Denominator Amount
<S> <C> <C> <C>
Basic EPS ................... $939,293 $13,366,278 $0.07
Effect of Dilutive Securities -- 2,737 --
-------- ----------- -----
Diluted EPS ................. $939,293 $13,369,015 $0.07
======== =========== =====
</TABLE>
For the Quarter Ended March 31, 1998
<TABLE>
<CAPTION>
Income Shares Per-share
Numerator Denominator Amount
<S> <C> <C> <C>
Basic EPS ................... $172,150 $ 9,424,990 $0.02
Effect of Dilutive Securities -- 780,012 --
-------- ----------- -----
Diluted EPS ................. $172,150 $10,205,002 $0.02
======== =========== =====
</TABLE>
The number of stock options assumed to have been bought back by the
Company for computational purposes has been calculated by dividing gross
proceeds from all weighted average stock options outstanding during the
period, as if exercised, by the average common share market price during
the period. The average common share market price used in the above
calculation was $ 5.94 for the quarter ended March 31, 1999.
Stock options to purchase shares of common stock at prices greater than
the average market price of the common shares during that period are
considered antidilutive. There were approximately 220,694 options that
expire in 2008, with exercise prices ranging from $ 6.25 to $ 15.50, that
were outstanding during the quarter ended March 31, 1999, but were not
included in the computation of diluted EPS because the exercise price of
the options was greater than the average market price of the common
shares in 1999. There were no options outstanding for the quarter ended
March 31, 1998.
5. EXTRAORDINARY ITEM
Effective January 29, 1998, NationsCredit, the Company's lender, agreed
to the extinguishment of the put feature related to the warrants issued
by the Company to NationsCredit in July 1997. As a result of this
extinguishment in the first quarter of 1998, the Company recorded an
extraordinary gain of $1.1 million and the net recorded value of the
warrant of approximately $9.9 million was reclassified to additional
paid-in capital.
-6-
<PAGE> 7
6. CONTINGENCIES
On October 30, 1998 and December 7, 1998, shareholder suits were filed
against the Company, certain officers and directors of the Company, one
former officer, and one former officer and director of the Company. An
amended consolidated complaint, filed on March 8, 1999, added as a
defendant one of the Company's institutional investors. The amended
consolidated complaint, which is pending in the U.S. District Court for
the Northern District of Georgia (Atlanta Division), seeks class
certification and rescissory and/or compensatory damages as well as
expenses of litigation. The complaint alleges that the prospectus and
registration statement used by the Company in connection with the April
1998 initial public offering of the Company's common stock contained
material omissions and misstatements. The defendants filed a motion to
dismiss on April 7, 1999. The plaintiffs filed their opposition on May 7,
1999. The defendants have until May 21, 1999 to reply to the plaintiffs'
opposition. Although the Company believes the suit is without merit, the
outcome cannot be predicted at this time. If the ultimate disposition of
this matter is determined adversely to the Company, it could have a
material adverse effect on the Company's business, financial condition
and results of operations.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130,
Reporting Comprehensive Income, which requires the reporting and display
of comprehensive income and its components in an entity's financial
statements. The Company adopted SFAS No. 130 in 1998, and for the three
months ended March 31, 1999 and 1998, there were no differences between
net income and comprehensive income.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires all derivatives
to be measured at fair value and recognized as either assets or
liabilities on the balance sheet. Changes in such fair value are required
to be recognized immediately in net income (loss) to the extent the
derivatives are not effective as hedges. SFAS No. 133 is effective for
fiscal years beginning after June 15, 1999 and is effective for interim
periods in the initial year of adoption. The Company does not expect the
adoption of SFAS No. 133 to have a material impact.
8. SEGMENT INFORMATION
Since the acquisitions of Columbia Vital Systems, Inc. (CVS) and Stepic
Corporation (Stepic) in 1998, the Company operates two reportable
segments - (1) Manufacturing and (2) Distribution. The manufacturing
segment includes products manufactured by the
-7-
<PAGE> 8
Company as well as products manufactured by third parties on behalf of
the Company through manufacturing and supply agreements. Prior to the CVS
and Stepic acquisitions, the Company operated as one segment,
manufacturing. Thus, segment information for March 31, 1998 will not be
included in the tables below.
The Company evaluates the performance of its segments based on gross
profit; therefore, selling, general, and administrative costs, as well as
research and development, interest income/expense, and provision for
income taxes, are reported on an entity wide basis only.
The table below presents information about the reported sales (which
include intersegment revenues), gross profit and identifiable assets of
the Company's segments as of and for the quarter ended March 31, 1999.
<TABLE>
<CAPTION>
1999
-----------------------------------------------
Identifiable
Sales Gross Profit Assets
----------- ------------ ------------
<S> <C> <C> <C>
Manufacturing ............. $ 8,366,552 $ 4,966,185 $ 67,081,979
Distribution .............. 11,876,437 2,689,474 40,123,109
----------- ------------ ------------
$20,242,989 $ 7,655,659 $107,205,088
=========== ============ ============
</TABLE>
A reconciliation of total segment sales to total consolidated sales of
the Company for the quarter ended March 31, 1999 is as follows:
<TABLE>
<S> <C>
Total segment sales ......................................... $20,242,989
Elimination of intersegment sales............................ (801,648)
-----------
Consolidated sales........................................... $19,441,341
===========
</TABLE>
A reconciliation of total segment assets to total consolidated assets of
the Company as of March 31, 1999 is as follows:
<TABLE>
<S> <C>
Total segment assets ........................................ $107,205,088
Elimination of intersegment receivables...................... (1,521,515)
Assets not allocated to segments ............................ 699,316
------------
Consolidated assets ......................................... $106,382,889
============
</TABLE>
The Company's operations are located in the United States. Thus, all of
the Company's assets are located domestically. Sales information by
geographic area for the quarters ended March 31, 1999 and 1998 are as
follows:
<TABLE>
Quarter Ended March:
--------------------
1999 1998
---------- ----------
<S> <C> <C>
United States ....................................... $18,155,096 $5,562,183
Foreign ............................................. 1,286,245 1,146,686
----------- ----------
$19,441,341 $6,708,869
=========== ==========
</TABLE>
-8-
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Net Sales. Net sales increased 190% to $19.4 million for the first quarter of
1999 from $6.7 million for the first quarter of 1998. This increase is primarily
attributable to sales resulting from the 1998 acquisitions of Norfolk, IFM, CVS
and Stepic, which represented approximately $14.8 million of total sales for the
quarter. The allocation of 1999 net sales on a segment basis resulted in net
sales of $8.3 million from the manufacturing segment and $11.9 million from the
distribution segment. There were no distribution segment sales for the first
quarter of 1998.
Gross Profit. Gross profit increased 76.9% to $7.4 million for the first quarter
of 1999 from $4.2 million for the first quarter of 1998. Gross margin decreased
to 38.4% in 1999 from 62.2% in 1998. The decrease in gross margin is primarily
the result of the acquisitions of CVS and Stepic, the distribution segment of
the business, which operate at significantly lower profit margins. The breakout
of 1999 gross margins on a segment basis resulted in gross profit of $4.9
million or 58.5% from the manufacturing segment and $2.7 million or 22.6% from
the distribution segment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) increased $1.9 million or 63.4% to approximately
$4.9 million for the first quarter of 1999 from approximately $3.0 million for
the same quarter of 1998. This increase is due to the expenses incurred in
operating the businesses acquired in 1998. SG&A expenses decreased as a
percentage of net sales to 24.9% for the first quarter of 1999 from 44.2% for
the first quarter of 1998. This decrease is due to substantial revenue growth in
1999 resulting from 1998 acquisitions and due to the $657 thousand consultant
fee paid in the first quarter of 1998 for entering into a group purchasing
contract with Premier Purchasing Partners L.P.
Interest Expense. Net interest expense decreased to approximately $912 thousand
in the first quarter of 1999 compared to approximately $1.9 million for the
first quarter of 1998. Exclusive of the 1998 effects of the accelerated
amortization of debt issuance costs and debt discount related to the
NationsCredit debt and warrants, interest expense increased approximately $195
thousand in 1999 from 1998. This increase is due to higher outstanding debt in
the first quarter of 1999 as compared to the first quarter of 1998.
Extraordinary Item. During the first quarter of 1998, the Company recorded an
extraordinary gain of $1.1 million due to the recission of a put feature
associated with the NationsCredit Warrant that was issued in 1997. This
transaction is more fully described in Note 9 of the Company's Form 10-K for
the year ended December 31, 1998.
-9-
<PAGE> 10
Income Tax Expense. Income taxes increased approximately $494 thousand or 235.7%
in the first quarter of 1999 to $702,862 from $209,354 in the first quarter of
1998. This increase is fully attributable to the Company generating higher
taxable income in 1999 as compared to 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $2,467,679 for the three months ended
March 31, 1999 compared with $681,462 for the three months ended March 31, 1998.
The increase in cash used in operations during 1999 was attributable to higher
accounts receivable and inventory balances in 1999, as well as the reduction of
income taxes payable and certain liabilities related to acquisition expenses,
offset by an increase in trade accounts payable.
Net cash used in investing activities was $143,087 in 1999 compared to $259,590
in 1998. Substantially all of the investing activities were for capital
expenditures for the Company's facilities.
Net cash used in financing activities was $101,314 in 1999 compared to $194,510
in 1998. Financing activities in both 1999 and 1998 were principal payments on
outstanding debt.
As discussed more fully in Note 6 of the consolidated financial statements of
the Company included in the Company's Form 10-K for the year ended December 31,
1998, the Company entered into a $50 million amended and restated credit
facility with NationsCredit to be used for working capital purposes and to fund
future acquisitions. The Company is currently negotiating with its lenders for
an increase in its credit facility which, together with its cash flows from
operations, the Company believes will be sufficient to satisfy its future
working capital and capital expenditure requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Like other companies, the Company is exposed to market risks relating to
fluctuations in interest rates. The Company's objective of financial risk
management is to minimize the negative impact of interest rate fluctuations on
the Company's earnings and cash flows.
To manage this risk, the Company has entered into an interest rate cap agreement
("the Cap Agreement") with NationsBank, a major financial institution, to
minimize the risk of credit loss. The Company uses this Cap Agreement to reduce
risk by essentially creating offsetting market exposures. The Cap Agreement is
not held for trading purposes.
At December 31, 1998, and March 31, 1999, the Company had approximately $42
million outstanding under its New Credit Facility, which expires in July 2004.
Amounts outstanding under the New Credit Facility of approximately $13.3 million
at December 31, 1998, and $12.75 million at March 31, 1999, were subject to the
Cap Agreement, which expires in October 2002. The Cap Agreement settles
quarterly and the cap rate is 8.8%.
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<PAGE> 11
For more information on the Cap Agreement, see Notes 1 and 6 to the Company's
consolidated financial statements included in the Company's Form 10-K for
the year ended December 31, 1998.
YEAR 2000 READINESS DISCLOSURE
Some computer systems use only two digits to represent the year and they may be
unable to process accurately certain data before, during or after the year 2000.
This is commonly known as the Year 2000 ("Y2K") issue. The Y2K issue can arise
at any point in the Company's supply, manufacturing or distribution network.
Based on the Company's review of its business and operating systems, the Company
does not expect to incur material cost with respect to assessing and remediating
Y2K problems; however, there can be no assurance that such problems will not be
encountered or that the costs incurred to resolve such problems will not be
material.
The Company is in the process of implementing a Y2K program with the objective
of having all significant systems Y2K compliant by the third quarter of 1999.
The Company is currently in the process of implementing new Manufacturing
Materials Requirement Planning ("MRP") and Accounting computer systems. Both of
these systems are Y2K compliant. Part of the Y2K program includes identifying
and prioritizing significant vendors and suppliers and attempting to reasonably
ascertain their stage of Y2K readiness. The Company is in the process of
surveying its vendors and significant customers as to their state of Y2K
readiness. The Company believes its manufacturing equipment is Y2K compliant.
The implementation of the new computer systems described above were planned and
are considered part of the Company's normal business.
The Company's embedded systems (primarily consisting of telephone and voice mail
systems) at its Manchester facility are substantially Y2K compliant. However,
those systems at its Atlanta office are not Y2K compliant and must be replaced
or upgraded.
The Company's Medical Device Reporting software will be upgraded to comply with
FDA Y2K requirements. The upgrade will also comply with International Regulatory
Affairs Y2K requirements.
The Company's primary computer system utilized in its New York distribution
business is currently in the final modification phase for Y2K compliance, and
the modifications are expected to be completed by June 30, 1999.
The Company currently does not have a contingency plan for Y2K problems. The
Company intends to develop a contingency plan by the end of the third quarter of
1999. The manager responsible for overseeing the Company's Y2K program left the
Company in March 1999. The responsibility for overseeing the Y2K program has
been reassigned to another manager.
-11-
<PAGE> 12
According to recent reports, the healthcare industry lags behind other
industries in Y2K preparedness. The reports indicated that the progress of
health claim billing systems of third party payors is progressing slowly. To the
extent the Company's customers experience problems with their payment
collections, the Company's ability to collect payments from its customers could
be adversely affected and could have a material adverse affect on the Company's
business, liquidity, financial condition and results of operations.
The Company relies on third party vendors and suppliers for raw materials,
utilities, transportation and other key services. Interruption of vendor or
supplier operations could materially adversely affect Company operations. The
Company's manufacturing and distribution operations rely in part on computerized
systems. Failure to identify and correct any Y2K sensitive systems could
adversely affect the Company's business, financial condition and results of
operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 7 of the condensed consolidated financial statements contained
elsewhere in this Form 10-Q.
FORWARD-LOOKING STATEMENTS
Certain statements and information included herein may constitute
"forward-looking statements" within the meaning of the Securities Act of 1933,
as amended, and the Securities Act of 1934, as amended by the Federal Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
not guarantees of future performance and involve known and unknown risks,
uncertainties and other factors which may cause the actual results of the
Company to be materially different from any future results expressed, implied or
contemplated by such forward-looking statements. Such factors include, among
other things, the timing of future acquisitions; the ability to integrate
acquired businesses; the ability to obtain financing on acceptable terms to
finance the Company's growth strategy; the ability to develop and implement
operational and financial systems to manage rapidly growing operations; general
domestic and international economic and business conditions; changes in federal
and state regulations applying to the Company and its operations; competition in
the Company's market; the Company's dependence on key personnel; and other
factors referenced in the Company's Registration Statement on Form S-1 and the
Company's Form 10-K for the year ended December 31, 1998. The Company undertakes
no obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to future
operating results over time.
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<PAGE> 13
HORIZON MEDICAL PRODUCTS, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On October 30, 1998 and December 7, 1998, shareholder suits were filed
against the Company, Marshall B. Hunt, William E. Peterson, Jr., Roy C. Mallady,
Charles E. Adair, and Mark A. Jewett. An amended consolidated complaint, filed
on March 8, 1999, added as a defendant Cordova Capital Partners LP - Enhanced
Appreciation, one of the Company's institutional investors. The two lead
plaintiffs are Daniel E. Herlihy and Thomas L. O'Hara, Jr., and the other
named plaintiff is Jack Edery. The amended consolidated complaint, which is
pending in the U.S. District Court for the Northern District of Georgia
(Atlanta Division), seeks class certification and rescissory and/or
compensatory damages as well as expenses of litigation. The complaint alleges
that the prospectus and registration statement used by the Company in
connection with the April 1998 initial public offering of the Company's common
stock contained material omissions and misstatements. The defendants filed a
motion to dismiss on April 7, 1999. The plaintiffs filed their opposition on
May 7, 1999. The defendants have until May 21, 1999 to reply to the
plaintiffs' opposition. Although the Company believes the suit is without
merit, the outcome cannot be predicted at this time. If the ultimate
disposition of this matter is determined adversely to the Company, it could
have a material adverse effect on the Company's business, financial condition
and results of operations.
ITEM 2. CHANGES IN SECURITIES.
(a) On March 31, 1999, the Company entered into the Second Amendment to
Amended and Restated Credit Agreement and Waiver among the Company, the
Lenders referred to therein and NationsCredit Commercial Corporation,
as Agent. The Amended and Restated Credit Agreement and Waiver, as
amended, currently prohibits the payment of dividends on the Company's
capital stock and also restricts the Company's capital expenditures.
-13-
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit Number Description
10.1 Second Amendment to Amended and Restated Credit
Agreement and Waiver dated as of March 31, 1999 among
the Company, the Lenders referred to therein and
NationsCredit Commercial Corporation, as Agent.
27.1 Financial Data Schedule (for SEC filing purposes
only)
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 1999.
-14-
<PAGE> 15
HORIZON MEDICAL PRODUCTS, INC.
SIGNATURE
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.
HORIZON MEDICAL PRODUCTS, INC.
(Registrant)
May 14, 1999 /s/ William E. Peterson, Jr.
- ------------ ------------------------------------
William E. Peterson, Jr.
President
(Principal Accounting Officer and
Duly Authorized Officer)
-15-
<PAGE> 1
EXHIBIT 10.1
SECOND AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT AND WAIVER
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND
WAIVER (this "AMENDMENT") made and entered into as of March 31, 1999 (the
"EFFECTIVE DATE"), by and among HORIZON MEDICAL PRODUCTS, INC., a Georgia
corporation (the "COMPANY"), the Lenders signatory to the Credit Agreement
referred to below (the "LENDERS"), and NATIONSCREDIT COMMERCIAL CORPORATION, as
Agent for the Lenders (the "AGENT").
W I T N E S S E T H:
WHEREAS, the Company, the Lenders and the Agent are parties to that
certain Amended and Restated Credit Agreement, dated as of May 26, 1998 (as
heretofore amended, the "CREDIT AGREEMENT"; capitalized terms used herein and
not otherwise defined herein shall have the meanings given such terms in the
Credit Agreement as amended by this Amendment), whereby the Lenders have agreed
to make certain loans and other financial accommodations to the Company, subject
to the terms, covenants and conditions contained in the Credit Agreement; and
WHEREAS, the Company has requested that the Agent and the Lenders agree
to modify certain terms of the Credit Agreement and that the Agent and the
Lenders grant certain waivers relating to the Credit Agreement, and the Agent
and the Lenders are willing to agree to such modifications and to grant certain
waivers, subject to the terms and conditions of this Amendment.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. WAIVER OF CERTAIN DEFAULTS OF EVENTS OF DEFAULT. (a) Subject
to the terms and conditions of this Amendment, the Agent and the Lenders hereby
waive:
(1) any Default or Event of Default which has
occurred solely as a result of the Company's failure to comply with the
financial covenant in Section 6.18 of the Credit Agreement for the
fiscal quarter ended June 30, 1998;
(2) any Default or Event of Default which has
occurred or may arise under Section 5.01 of the Credit Agreement solely
as a result of the Company's failure to deliver the financial
statements and other financial reports required to be delivered under
Section 5.01 of the Credit Agreement on or before March 31, 1999; and
<PAGE> 2
(3) any Default or Event of Default which has
occurred under Section 5.02 solely as a result of the Company's failure
to pay the Internal Revenue Service the $750,000 tax payment due on
March 15, 1999, provided such tax payment is paid in full on or before
April 15, 1999. Failure of the Company to pay in full such tax payment
on or before April 15, 1999 will constitute an Event of Default under
the Credit Agreement.
(b) Subject to the terms and conditions of this Amendment, the
Agent and the Lenders hereby agree to extend the date for delivery of the
financial statements required to be delivered pursuant to Section 5.01(a) for
the month ending March 31, 1999 to May 15, 1999.
(c) The aforesaid waivers relate solely to the aforesaid
Defaults or Events of Default and nothing in this Amendment is intended or shall
be construed to be a waiver by the Agent or the Lenders of any other Default of
Event of Default which may now or hereafter exist under the Credit Agreement or
any other Financing Document.
2. AMENDMENT TO CREDIT AGREEMENT.
(a) Subject to the terms and conditions of this Amendment,
Section 1.01 of the Credit Agreement will be amended by adding thereto each of
the following definitions:
"INDEX RATE APPLICABLE MARGIN" means (i) 4.00% per
annum from and including April 1, 1999 to but excluding July
1, 1999 (the "Initial Adjustment Date"), and (ii) commencing
on the Initial Adjustment Date and on the first Business Day
of each calendar quarter thereafter, provided that the Company
shall have timely delivered to the Agent the financial
statements required to be delivered pursuant to Section
5.01(a) for the second month in the preceding calendar quarter
(each an "Adjustment Date"), the per annum interest rate
margin shall be that set forth below opposite the Leverage
Ratio determined from such financial statements:
<TABLE>
<CAPTION>
LEVERAGE RATIO APPLICABLE MARGIN
<S> <C>
> 3.50x 4.00%
<= 3.50 but 3.75%
>= 3.25x
< 3.25x 3.50%
</TABLE>
Notwithstanding the foregoing, so long as a Default shall have
occurred and be continuing, the Index Rate Applicable Margin
shall be the highest rate specified in the table above.
"LIBOR APPLICABLE MARGIN" means (i) 4.00% per annum
from and including April 1, 1999 to but excluding July 1, 1999
(the "Initial
<PAGE> 3
Adjustment Date"), and (ii) commencing on the Initial
Adjustment Date and on the first Business Day of each calendar
quarter thereafter, provided that the Company shall have
timely delivered to the Agent the financial statements
required to be delivered pursuant to Section 5.01(a) for the
second month of the preceding calendar quarter (each an
"Adjustment Date"), the per annum interest rate margin shall
be that set forth below opposite the Leverage Ratio determined
from such financial statements:
<TABLE>
<CAPTION>
LEVERAGE RATIO APPLICABLE MARGIN
<S> <C>
> 3.50x 4.00%
<= 3.50 but 3.75%
>= 3.25x
< 3.25x 3.50%
</TABLE>
Notwithstanding the foregoing, so long as a Default shall have
occurred and be continuing, the LIBOR Applicable Margin shall
be the highest rate specified in the table above.
"PRIME RATE APPLICABLE MARGIN" means (i) 1.25% per
annum from and including April 1, 1999 to but excluding July
1, 1999 (the "Initial Adjustment Date"), and (ii) commencing
on the Initial Adjustment Date and on the first Business Day
of each calendar quarter thereafter, provided that the Company
shall have timely delivered to the Agent the financial
statements required to be delivered pursuant to Section
5.01(a) for the second month of the preceding calendar quarter
(each an "Adjustment Date"), the per annum interest rate
margin shall be that set forth below opposite the Leverage
Ratio determined from such financial statements:
<TABLE>
<CAPTION>
LEVERAGE RATIO APPLICABLE MARGIN
<S> <C>
> 3.50x 1.25%
<= 3.50 but 1.00%
>= 3.25x
< 3.25x 0.75%
</TABLE>
Notwithstanding the foregoing, so long as a Default shall have
occurred and be continuing, the Prime Rate Applicable Margin
shall be the highest rate specified in the table above.
(b) Subject to the terms and conditions of this Amendment,
Section 2.03(b)(i) is
<PAGE> 4
amended to read as follows:
(b)(i) The Company shall be obligated to pay interest
to the Lenders on the outstanding principal balance of each
Revolving Credit Loan from the date such Revolving Credit Loan
is made until such Revolving Credit Loan is repaid in full.
Except as provided in paragraph (d) below, interest on the
principal balance of all Revolving Credit Loans outstanding
from the Closing Date through April 1, 1999 shall accrue at a
floating rate per annum equal, at the Company's option, to one
of: (i) the Index Rate plus three and one-quarter percentage
points (3.25%), (ii) Adjusted LIBOR plus three and one-quarter
percentage points (3.25%), or (iii) the Prime Rate plus
one-half of one percentage point (.50%), and interest on the
principal balance of all Revolving Credit Loans outstanding on
or after April 1, 1999 shall accrue at a floating rate per
annum equal, at the Company's option, to one of: (i) the Index
Rate plus the Index Rate Applicable Margin, (ii) Adjusted
LIBOR plus the LIBOR Applicable Margin, or (iii) the Prime
Rate plus the Prime Rate Applicable Margin.
(c) Subject to the terms and conditions of this Amendment,
Section 6.14 of the Credit Agreement is amended to read as follows:
SECTION 6.14. CAPITAL EXPENDITURES. The aggregate
amount of Capital Expenditures for any Fiscal Year (other than
the Fiscal Year ending December 31, 1999) shall not exceed 4%
of Consolidated Revenue for such year, and the aggregate
amount of Capital Expenditures for the Fiscal Year ending
December 31, 1999 shall not exceed $2,000,000; provided that
the purchase price for the additional office condominium
purchased by the Company in the 1998 Fiscal Year located at
4200 Northside Parkway, Atlanta, Georgia, in the amount of
$472,000, shall be excluded for purposes of this Section 6.14.
(d) Subject to the terms and conditions of this Amendment,
Section 6.16 of the Credit Agreement is amended to read as follows:
SECTION 6.16. LEVERAGE. At no time shall the ratio of
(i) Consolidated Total Debt at such time to (ii) Adjusted
EBITDA for the four consecutive fiscal quarters then most
recently ended (considered as a single accounting period;
provided that for the purposes of compliance on any date prior
to the date that four complete fiscal quarters have elapsed
since the Initial Closing Date, Adjusted EBITDA for the
relevant period shall equal the sum of Adjusted EBITDA for
each fiscal quarter completed since the Initial Closing Date,
annualized), exceed 3.50 to 1.0; provided further that during
the Fiscal Year ending December 31, 1999, the ratio of (i)
Consolidated Total Debt at such time to (ii) EBITDA for the
four fiscal quarters then most recently ended shall not exceed
the ratio set forth below for the periods occurring during
such Fiscal Year:
<PAGE> 5
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
January 1, 1999 through 4.00:1.00
June 30, 1999
July 1, 1999 through 3.75:1.00
December 31, 1999
</TABLE>
(e) Subject to the terms and conditions of this Amendment,
Section 6.17 of the Credit Agreement is amended to read as follows:
SECTION 6.17. MINIMUM EBITDA. At no time during any
period specified below arising after the Closing Date, shall
EBITDA for the four consecutive fiscal quarters then most
recently ended (or, in the case of any fiscal quarter ending
prior to the first anniversary of the Initial Closing Date,
for the period commencing on the Initial Closing Date and
ending on the last day of such fiscal quarter), considered as
a single accounting period, be less than the corresponding
amount set forth below:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Amount
--------------------- ------
<S> <C>
3/31/98 $ 5,500,000
6/30/98 7,000,000
9/30/98 8,000,000
12/31/98 9,000,000
3/31/99 13,000,000
6/30/99 13,000,000
9/30/99 13,000,000
All times thereafter 15,500,000
</TABLE>
(f) Subject to the terms and conditions of this Amendment,
Section 6.18 of the Credit Agreement is amended to read as follows:
SECTION 6.18. INTEREST COVERAGE. The Company shall
not permit the ratio, calculated on the last day of any fiscal
quarter for the number of consecutive fiscal quarters then
most recently ended since the Initial Closing Date (considered
as a single accounting period, but not to exceed four
quarters), of (i) Consolidated Free Cash Flow to (ii) the
aggregate interest charges incurred by the Company and its
Consolidated Subsidiaries for such period, whether expensed or
capitalized, including the portion of any obligation under
Capital Leases allocable to interest expenses in accordance
with GAAP and the portion of any debt discount or premium (but
not expenses of issuance) that shall be amortized in such
period, to be less than the ratio set forth below for the
period in which the last day of such fiscal
<PAGE> 6
quarter shall occur:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date through 3.00:1.00
March 31, 1999
April 1, 1999 through 2.40:1.00
June 30, 1999
July 1, 1999 through 2.00:1.00
September 30, 1999
October 1, 1999 through 2:30.1:00
December 31, 1999
January 1, 2000 and thereafter 3.00:1.00
</TABLE>
3. NO OTHER WAIVERS OR AMENDMENTS. Except for the waivers and
amendments expressly set forth and referred to in Section 1 and Section 2 above,
respectively, the Credit Agreement shall remain unchanged and in full force and
effect. Nothing in this Amendment is intended, or shall be construed, to
constitute a novation or an accord and satisfaction of any of the Company's
Obligations under or in connection with the Credit Agreement or to modify,
affect or impair the perfection or continuity of Agent's security interests in,
security titles to or other liens on any Collateral for the Obligations.
4. REPRESENTATIONS AND WARRANTIES. The Company hereby represents
and warrants to the Agent and the Lenders that (a) this Amendment has been duly
authorized, executed and delivered by the Company, (b) no Default or Event of
Default has occurred and is continuing as of this date, other than the Defaults
or Events of Default waived in this Amendment, and (c) except to the extent
disclosed to NationsCredit in writing on or prior to the date hereof, all of the
representations and warranties made by the Company in the Credit Agreement are
true and correct in all material respects on and as of the date of this
Amendment (except to the extent that any such representations or warranties
expressly referred to a specific prior date). Any breach by the Company of its
representations and warranties contained in this Section 4 shall be an Event of
Default for all purposes of the Credit Agreement.
5. RATIFICATION. The Company hereby ratifies and reaffirms each
and every term, covenant and condition set forth in the Credit Agreement and all
other documents delivered by the Company in connection therewith (including
without limitation the other Financing Documents to which the Company is a
party), effective as of the date hereof.
6. ESTOPPEL. To induce the Agent and the Lenders to enter into
this Amendment, the Company hereby acknowledges and agrees that, as of the date
hereof, there exists no right of offset, defense or counterclaim in favor of the
Company as against the Agent or any Lender with respect to the obligations of
the Company to any of such parties under the Credit Agreement or the other
Financing Documents, either with or without giving effect to this Amendment.
7. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective upon the
<PAGE> 7
Effective Date, subject to the satisfaction of the following conditions:
(a) the receipt by the Agent on or prior to the Effective Date
of this Amendment, duly executed, completed and delivered by the Agent,
the Lenders and the Company; and
(b) the receipt on or prior to the Effective Date by the Agent
of such other documents, certificates, lien searches, instruments and
opinions of counsel as the Agent may reasonably request.
8. REIMBURSEMENT OF EXPENSES. The Company hereby agrees that it
shall reimburse the Agent and the Lenders on demand for all costs and expenses
(including without limitation attorney's fees) incurred by such parties in
connection with the negotiation, documentation and consummation of this
Amendment and the other documents executed in connection herewith and therewith
and the transactions contemplated hereby and thereby.
9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA FOR CONTRACTS TO
BE PERFORMED ENTIRELY WITHIN SAID STATE.
10. SEVERABILITY OF PROVISIONS. Any provision of this Amendment
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability of such provision in any other jurisdiction. To the extent
permitted by Applicable Law, the Company hereby waives any provision of law that
renders any provision hereof prohibited or unenforceable in any respect.
11. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, all of which shall be deemed to constitute but one original and
shall be binding upon all parties, their successors and permitted assigns.
12. ENTIRE AGREEMENT. The Credit Agreement as amended by this
Amendment embodies the entire agreement between the parties hereto relating to
the subject matter hereof and supersedes all prior agreements, representations
and understandings, if any, relating to the subject matter hereof.
<PAGE> 8
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed by their respective officers thereunto duly authorized, as of the date
first above written.
HORIZON MEDICAL PRODUCTS, INC.
By:
---------------------------
Name:
----------------------
Title:
---------------------
LENDER AND AGENT:
NATIONSCREDIT COMMERCIAL
CORPORATION
By:
---------------------------
Name:
----------------------
Title:
---------------------
<PAGE> 9
ACKNOWLEDGMENT
The undersigned Credit Parties hereby acknowledge and consent to, and
agree to the terms of, the foregoing Second Amendment to Amended and Restated
Credit Agreement and Waiver, and ratify and confirm their respective obligations
under the Financing Documents.
This 31st day of March, 1999.
HORIZON ACQUISITION CORP.
By:
---------------------------
Name:
----------------------
Title:
---------------------
STRATO/INFUSAID, INC.
By:
---------------------------
Name:
----------------------
Title:
---------------------
STEPIC CORPORATION
By:
---------------------------
Name:
----------------------
Title:
---------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.1
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HORIZON MEDICAL PRODUCTS, INC. FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,520,135
<SECURITIES> 0
<RECEIVABLES> 19,119,355
<ALLOWANCES> 608,715
<INVENTORY> 22,646,772
<CURRENT-ASSETS> 47,200,361
<PP&E> 5,037,697
<DEPRECIATION> 1,053,223
<TOTAL-ASSETS> 106,382,889
<CURRENT-LIABILITIES> 16,782,232
<BONDS> 47,062,039
0
0
<COMMON> 13,366
<OTHER-SE> 42,356,733
<TOTAL-LIABILITY-AND-EQUITY> 42,370,099
<SALES> 19,441,341
<TOTAL-REVENUES> 19,441,341
<CGS> 12,055,895
<TOTAL-COSTS> 12,055,895
<OTHER-EXPENSES> 4,842,554
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 912,210
<INCOME-PRETAX> 1,642,155
<INCOME-TAX> 702,862
<INCOME-CONTINUING> 939,293
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 939,293
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
