<PAGE>
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, 1998
COMMISSION FILE NO. 0-10552
----------------------------
SCHERER HEALTHCARE, INC.
(Exact name of registrant as specified in its Charter)
DELAWARE 59-0688813
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 INTERSTATE NORTH PARKWAY, S.E., SUITE 305, ATLANTA,
GEORGIA 30339 (Address of principal executive
offices, including Zip Code)
(770) 933-1800
(Registrant's telephone number, including area code)
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 (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
---
Indicate the number of shares of each of the issuer's classes of Common Stock,
as of the latest practicable date:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AS OF FEBRUARY 10, 1999
----- -----------------------------------
<S> <C>
Common Stock, $0.01 par value 4,334,049
</TABLE>
<PAGE>
SCHERER HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER PART I. FINANCIAL INFORMATION NUMBER
- ------ ------------------------------ ------
<S> <C> <C>
1 Financial Statements:
Condensed Consolidated Balance
Sheets as of December 31, 1998 and
March 31, 1998 ........................................... 3
Condensed Consolidated Statements
of Operations for the Three and Nine Months
Ended December 31, 1998 and 1997 ......................... 5
Condensed Consolidated Statements
of Cash Flows for the Nine Months
Ended December 31, 1998 and 1997 ......................... 6
Notes to Condensed Consolidated
Financial Statements...................................... 7
2 Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................. 8
PART II. OTHER INFORMATION
1 Legal Proceedings ........................................ 12
6 Exhibits and Reports on Form 8-K ......................... 12
SIGNATURES ............................................... 13
Index to Exhibits......................................... 14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
----------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,861,000 $ 6,868,000
Accounts receivable, less allowance for doubtful
accounts of $206,000 and $189,000, respectively 3,477,000 2,796,000
Current maturities of notes receivable 205,000 191,000
Inventory 258,000 174,000
Prepaid and other 203,000 212,000
------------ ------------
Total current assets 12,004,000 10,241,000
------------ ------------
PROPERTY AND EQUIPMENT 7,912,000 7,157,000
Less accumulated depreciation (3,835,000) (3,099,000)
------------ ------------
Net property and equipment 4,077,000 4,058,000
------------ ------------
OTHER ASSETS
Cost in excess of net assets acquired, net 2,248,000 2,328,000
Investments, at market value 6,360,000 6,251,000
Other investments, at cost 650,000 650,000
Notes receivable, less current portion 18,000 174,000
Intangibles, net 1,449,000 1,410,000
Deferred income taxes 329,000 329,000
Other 201,000 163,000
Net assets of discontinued operations 298,000 188,000
------------ ------------
Total other assets 11,553,000 11,493,000
------------ ------------
TOTAL ASSETS $ 27,634,000 $ 25,792,000
------------ ------------
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
----------------- ---------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 950,000 $ 809,000
Accrued expenses 1,538,000 1,594,000
Current maturities of debt obligations 242,000 269,000
Income taxes payable 88,000 115,000
Other 78,000 78,000
------------ ------------
Total current liabilities 2,896,000 2,865,000
------------ ------------
LONG-TERM DEBT, net of current maturities 367,000 504,000
OTHER LIABILITIES 411,000 507,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Convertible preferred stock - $.01 par value,
2,000,000 shares authorized;
23,036 shares issued and outstanding at December 31, 1998 -- --
(23,152 at March 31, 1998)
Common stock - $.01 par value,
12,000,000 shares authorized;
4,712,486 shares issued at December 31, 1998
(4,695,121 at March 31, 1998);
4,333,124 shares outstanding at December 31, 1998
(4,315,759 at March 31, 1998) 47,000 47,000
Capital in excess of par value 22,394,000 22,366,000
Unrealized gain (loss) on investments 69,000 (48,000)
Retained earnings 4,483,000 2,584,000
Less treasury stock, at cost (3,033,000) (3,033,000)
------------ ------------
Total stockholders' equity 23,960,000 21,916,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,634,000 $ 25,792,000
------------ ------------
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 3,719,000 $ 3,398,000 $ 11,150,000 $ 10,314,000
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of goods sold 2,233,000 2,010,000 6,439,000 5,981,000
Selling, general, and administrative 1,150,000 1,140,000 3,339,000 3,533,000
------------ ------------ ------------ ------------
Total costs and expenses 3,383,000 3,150,000 9,778,000 9,514,000
------------ ------------ ------------ ------------
OPERATING INCOME 336,000 248,000 1,372,000 800,000
OTHER INCOME (EXPENSE)
Interest income 174,000 174,000 524,000 354,000
Interest expense -- (7,000) -- (74,000)
Other, net 18,000 20,000 65,000 33,000
------------ ------------ ------------ ------------
Total other income (expense) 192,000 187,000 589,000 313,000
------------ ------------ ------------ ------------
Income from continuing operations
before income taxes 528,000 435,000 1,961,000 1,113,000
Provision (benefit) for income taxes 23,000 1,000 62,000 (4,000)
------------ ------------ ------------ ------------
Income from continuing operations 505,000 434,000 1,899,000 1,117,000
Income from discontinued operations, net of
income taxes of $137,000 -- -- -- 4,572,000
------------ ------------ ------------ ------------
NET INCOME $ 505,000 $ 434,000 $ 1,899,000 $ 5,689,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
BASIC INCOME PER COMMON SHARE
Income from continuing operations $ 0.12 $ 0.10 $ 0.44 $ 0.26
Income from discontinued operations -- -- -- 1.06
------------ ------------ ------------ ------------
Net Income $ 0.12 $ 0.10 $ 0.44 $ 1.32
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING - BASIC 4,333,117 4,314,239 4,328,071 4,314,228
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
DILUTED INCOME PER COMMON
SHARE
Income from continuing operations $ 0.11 $ 0.09 $ 0.42 $ 0.25
Income from discontinued operations -- -- -- 1.01
------------ ------------ ------------ ------------
Net Income $ 0.11 $ 0.09 $ 0.42 $ 1.26
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING - DILUTED 4,558,725 4,570,673 4,561,828 4,512,267
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
December 31,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,899,000 $ 5,689,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 950,000 539,000
Income from discontinued operations - (4,572,000)
Other noncash charges and credits, net 16,000 10,000
Changes in operating assets and liabilities:
Accounts receivable (697,000) (603,000)
Inventories (84,000) (5,000)
Prepaid and other 9,000 (15,000)
Income taxes, net (28,000) 18,000
Accounts payable and accrued expenses 86,000 (338,000)
Other liabilities (97,000) 186,000
------------ ------------
Net cash provided by operating activities of continuing operations 2,054,000 909,000
Net operating activities of discontinued operations (110,000) 1,104,000
------------ ------------
Net cash provided by operating activities 1,944,000 2,013,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (791,000) (827,000)
Net proceeds from disposal of segment, net of transaction costs - 10,273,000
Purchase of long-term investments - (6,303,000)
Decrease in notes receivable 142,000 135,000
Purchase of minority partnership interest - (1,214,000)
Other investing activities, net (166,000) 11,000
Net investing activities of discontinued operations - 52,000
------------ ------------
Net cash (used for) provided by investing activities (815,000) 2,127,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayment of borrowings (164,000) (1,806,000)
Exercise of stock options 28,000 -
Net financing activities of discontinued operations - (96,000)
------------ ------------
Net cash used for financing activities (136,000) (1,902,000)
------------ ------------
CHANGE IN CASH AND CASH EQUIVALENTS 993,000 2,238,000
CASH AND CASH EQUIVALENTS, beginning of period 6,868,000 3,237,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 7,861,000 $ 5,475,000
------------ ------------
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
The accompanying unaudited condensed consolidated financial statements of
Scherer Healthcare, Inc. and its subsidiaries (the "Company") include all
adjustments that, in the opinion of management, are necessary for a fair
presentation of the results for the period indicated. Quarterly results of
operations are not necessarily indicative of annual results. These statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998.
Certain fiscal 1998 amounts have been reclassified to conform with the fiscal
1999 presentation.
NOTE 2.
The components of inventory at December 31, 1998 and March 31, 1998 consisted of
the following:
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
----------------- --------------
<S> <C> <C>
Finished products $ 62,000 $ 41,000
Containers, packaging, and raw materials 242,000 179,000
LIFO reserve (46,000) (46,000)
---------- ----------
Total $ 258,000 $ 174,000
---------- ----------
---------- ----------
</TABLE>
Inventories are stated at the lower of net realizable value or cost using the
last-in, first-out ("LIFO") method.
NOTE 3.
Borrowings at December 31, 1998 and March 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
----------------- --------------
<S> <C> <C>
Obligations under capital leases, due in varying
installments through fiscal 2003 $ 609,000 $ 773,000
Less current maturities (242,000) (269,000)
---------- ----------
Long-term debt $ 367,000 $ 504,000
---------- ----------
---------- ----------
</TABLE>
NOTE 4.
The Company has investments in high-grade marketable securities composed
primarily of government and corporate fixed income securities. These marketable
securities are classified as available-for-sale and are being carried at fair
market value, based on quoted market prices. The net unrealized gains or losses
on these investments are reported as a separate component of shareholders'
equity.
The amortized cost and fair market value of the Company's marketable securities
are as follows:
<TABLE>
<CAPTION>
Net
Amortized unrealized Fair market
Cost gain (loss) value
------------ ------------- ------------
<S> <C> <C> <C>
DECEMBER 31, 1998
Municipal bonds $ 4,775,000 $ 82,000 $ 4,857,000
Corporate bonds 1,218,000 22,000 1,240,000
Preferred stocks 298,000 (35,000) 263,000
------------ ------------- ------------
Total $ 6,291,000 $ 69,000 $ 6,360,000
------------ ------------- ------------
------------ ------------- ------------
MARCH 31,1998
Municipal bonds $ 4,782,000 $ (20,000) $ 4,762,000
Corporate bonds 1,219,000 (22,000) 1,197,000
Preferred stocks 298,000 (6,000) 292,000
------------ ------------- ------------
Total $ 6,299,000 $ (48,000) $ 6,251,000
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
The municipal bonds mature ranging from 3 years to 27 years and the corporate
bonds mature ranging from 11 years to 27 years.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q or documents incorporated by reference, contains, in addition to
historical information, "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 20A of the
Securities Exchange Act of 1934, as amended, which represent the Company's
expectations or beliefs, including, but not limited to, statements concerning
sales of the Company's products or services and operating income. The Company
cautions that various factors, including, without limitation, the factors
discussed below and in the Company's Annual Report on Form 10-K for the year
ended March 31, 1998 as well as general economic conditions and industry trends,
a dependence upon and/or loss of key vendors or customers, the loss of strategic
product shipping relationships, customer demand, product availability,
competition (including pricing and availability), concentrations of credit
risks, distribution efficiencies, capacity constraints and technological
difficulties could cause actual results or outcomes to differ materially from
those expressed in any forward-looking statements. New factors emerge from time
to time, and it is not possible for management to predict all of such factors.
RESULTS OF OPERATIONS
NET SALES AND OPERATING INCOME (LOSS).
The following table sets forth, for the periods indicated, the net sales and
operating income (loss) for each segment of the business of the Company and its
subsidiaries:
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
---------------------------------- ----------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES:
Waste Management Services Segment $ 3,556,000 $ 3,139,000 $ 10,468,000 $ 9,300,000
Consumer Healthcare Products Segment 163,000 259,000 682,000 1,014,000
------------- ------------- ------------- -------------
Company Totals $ 3,719,000 $ 3,398,000 $ 11,150,000 $ 10,314,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS):
Waste Management Services Segment $ 453,000 $ 371,000 $ 1,592,000 $ 1,179,000
Consumer Healthcare Products Segment 21,000 87,000 177,000 425,000
Corporate (138,000) (210,000) (397,000) (804,000)
------------- ------------- ------------- -------------
Company Totals $ 336,000 $ 248,000 $ 1,372,000 $ 800,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The Company's net sales increased 9% to $3,719,000 for the third quarter of
fiscal 1999 from $3,398,000 for the third quarter of fiscal 1998. The Company's
operating income improved to $336,000 for the third quarter of fiscal 1999 from
$248,000 for the third quarter of fiscal 1998. The Company's cost of goods sold
increased to 60% of net sales for the quarter ended December 31, 1998 from 59%
of net sales for the quarter ended December 31, 1997. Selling, general and
administrative expenses decreased to 31% of net sales for the third quarter of
fiscal 1999 from 34% for the third quarter of fiscal 1998.
The Company's net sales increased approximately 8% to $11,150,000 for the nine
months ended December 31, 1998 from $10,314,000 for the nine months ended
December 31, 1997. The Company's operating income increased 72% to $1,372,000
for the first nine months of fiscal 1999 from $800,000 for the first nine months
of fiscal 1998. Cost of goods sold were 58% of net sales for the nine months
ended December 31, 1998, which was unchanged as compared to the nine months
ended December 31, 1997. Selling, general and administrative expenses decreased
to 30% of net sales for the nine months ended December 31, 1998 from 34% of net
sales for the nine months ended December 31, 1997. The primary reasons for these
changes are discussed below.
The results of operations of the Company are dependent upon the results of
operations of each of its subsidiaries operating in the Company's individual
business segments. Set forth below is a discussion of the results of operations
of each of these segments.
8
<PAGE>
WASTE MANAGEMENT SERVICES SEGMENT
Net sales in the Company's Waste Management Services Segment, which operates
through Bio Systems Partners, Bio Waste Systems, Inc., and Medical Waste
Systems, Inc. (collectively, "Bio Systems"), increased 13% to $3,556,000 for the
third quarter of fiscal 1999 from $3,139,000 for the third quarter of fiscal
1998. Bio Systems' net sales increased 13% to $10,468,000 for the nine months
ended December 31, 1998 from $9,300,000 during the same period in fiscal 1998.
As in the past few years, the sales growth is primarily due to securing new
hospital contracts for Bio Systems' core business of providing "sharps"
(including sharp-edged medical waste such as scalpels, syringes, and needles)
disposal services which utilize cost effective reusable containers. Due to cost
pressures, hospitals continue to be receptive to out-sourcing certain services
such as sharps management. Additionally, the recent industry trend toward the
formation of hospital networks has enhanced Bio Systems' sales and market share
growth. Market forces and competitive pricing pressures have affected Bio
Systems' ability to increase prices with existing hospital and physician
customers. These factors also impact the prices Bio Systems is able to charge
new and potential customers.
Bio Systems increased its operating income approximately 22% to $453,000 for the
quarter ended December 31, 1998 from $371,000 for the quarter ended December 31,
1997. Bio Systems' cost of goods sold were 61% of net sales for the third
quarter of fiscal 1999, which was unchanged as compared to the third quarter of
fiscal 1998. Selling, general, and administrative expenses decreased slightly to
26% of net sales for the quarter ended December 31, 1998 from 27% of net sales
during the same period in fiscal 1998. Starting in early fiscal 1998 and
continuing through the current period, Bio Systems has had substantial new
hospital account activity. Preparing new accounts for service requires, among
other things, installation of Bio Systems' reusable containers and sometimes
considerable operational follow-up which causes temporary increases in certain
costs and expenses. Primarily as a result of the increase in net sales, Bio
Systems has had better absorption of the costs and expenses associated with the
new account installations in fiscal 1999 as compared to prior periods.
Additionally, while increasing its sales revenue, Bio Systems has been
successful in controlling administrative costs such as legal fees and business
liability insurance.
Primarily due to the reasons discussed above, Bio Systems' operating income
increased 35% to $1,592,000 for the nine months ended December 31, 1998 from
$1,179,000 for the nine months ended December 31, 1997. Cost of goods sold
decreased to 59% of net sales for the nine months ended December 31, 1998 from
61% for the same period in fiscal 1998 and selling, general and administrative
expenses decreased to 26% of net sales for the first nine months of fiscal 1999
from 27% for the first nine months of fiscal 1998.
CONSUMER HEALTHCARE PRODUCTS SEGMENT
Net sales for the Consumer Healthcare Products Segment, which operates through
Scherer Laboratories, Inc. ("Scherer Labs"), decreased approximately 37% to
$163,000 for the third quarter of fiscal 1999 from $259,000 during the same
period in fiscal 1998. Scherer Labs' net sales decreased 33% to $682,000 for the
nine months ended December 31, 1998 from $1,014,000 for the nine months ended
December 31, 1997. The decrease in Scherer Labs' net sales is due primarily to
the following factors: (i) during the first quarter of fiscal 1999, Scherer
Labs' largest customer reduced its buying volume for Scherer Labs' two core
products which resulted in a significant decrease in sales orders for these
products that has continued throughout the nine month period; (ii) increased
competition for Scherer Labs' largest volume product; and (iii) as a result of
industry consolidation, some of Scherer Labs' other customers have either
significantly decreased or discontinued their sales orders for Scherer Labs'
products. Although Scherer Labs has taken action to regain the lost sales, there
can be no assurance that Scherer Labs will be able to return its sales volume to
prior levels.
As a result of the decrease in net sales, Scherer Labs' operating income
decreased 76% to $21,000 for the third quarter of fiscal 1999 from $87,000 for
the third quarter of fiscal 1998 and decreased 58% to $177,000 for the nine
months ended December 31, 1998 from $425,000 for the nine months ended December
31, 1997.
9
<PAGE>
CORPORATE
The Company's operating expenses at the Corporate level decreased to $138,000
for the quarter ended December 31, 1998 from $210,000 for the quarter ended
December 31, 1997. For the nine months ended December 31, 1998, operating
expenses at the Corporate level decreased to $397,000 from $804,000 for the same
period in fiscal 1998. Certain administrative, accounting, management oversight
and payroll services are performed by the Company's Corporate office. The
Corporate operating expenses include the salaries and wages of the personnel who
perform these functions, including the Company's executive officers, rent
expense, and professional accounting and legal fees. In February 1998, the
Company relocated its Corporate headquarters to another location in Atlanta,
Georgia and as a result reduced its rent expense by $69,000 and $202,000 for the
quarter and nine months ended December 31, 1998, respectively, as compared to
the same periods in fiscal 1998. The Company reduced its legal fees at the
Corporate level by $135,000 for the nine months ended December 31, 1998, as
compared to the nine months ended December 31, 1997. In fiscal 1998 the Company
incurred legal fees associated with certain litigation that was settled in the
second quarter of fiscal 1998. Additionally, through a reduction in personnel at
the Company's Corporate office, the salaries and wages at the Corporate level
have decreased in fiscal 1999, as compared to fiscal 1998. It is anticipated
that these reductions will be offset in future periods in light of the Company's
plans to begin paying a salary to Robert P. Scherer, Jr., the Company's Chairman
of the Board, President and Chief Executive Officer. Currently, the Company does
not pay Mr. Scherer any salary or other compensation for his services. The
functions and responsibilities of the personnel that left the Corporate office
have either been absorbed by the remaining Corporate office staff or have been
out-sourced. The expenses associated with the out-sourcing of certain
professional functions has partially offset the savings from the reduction of
the Corporate office staff. The Company does not allocate any revenues to the
Corporate level.
OTHER INCOME (EXPENSE).
The Company recorded interest income of $174,000 in both the third quarter of
fiscal 1999 and the third quarter of fiscal 1998. Interest income increased to
$524,000 for the nine months ended December 31, 1998 from $354,000 for the nine
months ended December 31, 1997. The increase is a result of the Company's
investment, principally in marketable securities of the net proceeds received by
the Company from the sale of Marquest Medical Products, Inc. ("Marquest") to
Vital Signs, Inc. in July 1997. See Note 4 to the accompanying Notes to
Condensed Consolidated Financial Statements included elsewhere herein.
The Company recorded interest expense of $7,000 during the third quarter of
fiscal 1998 and had no interest expense during the third quarter of fiscal 1999
and recorded interest expense of $74,000 for the nine months ended December 31,
1997 with no interest expense for the same period in fiscal 1999. In July 1997,
the Company used a portion of the proceeds from the sale of Marquest to repay in
full the outstanding principal balance on a note payable to the adult children
of an affiliate of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents totaled $7,861,000 at December 31, 1998,
an increase of $993,000 from March 31, 1998. Working capital increased to
$9,108,000 at December 31, 1998 from $7,376,000 at March 31, 1998. The Company's
long-term debt decreased to $367,000 at December 31, 1998 from $504,000 at March
31, 1998. The primary reasons for these changes are discussed below.
CASH FLOW FROM OPERATING ACTIVITIES.
The Company's cash provided by operating activities from continuing operations
totaled $2,054,000 for the first nine months of fiscal 1999, as compared to
$909,000 for the first nine months of fiscal 1998. Bio Systems' operations
provided cash of $1,186,000 for the first nine months of fiscal 1999, up from
$697,000 for the first nine months of fiscal 1998 primarily due to the
improvement in Bio Systems' operating results. As a result of the decrease in
its net sales, Scherer Labs' cash provided from operating activities decreased
to $151,000 for the nine months ended December 31, 1998 from $334,000 for the
nine months ended December 31, 1997. Primarily due to the reduction in corporate
operating expenses and timing of working capital items, the cash provided by
operations at the Corporate level was $717,000 for the nine months ended
December 31, 1998 as compared to cash used by operations at the Corporate level
of $122,000 for the same period in fiscal 1998.
10
<PAGE>
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES.
The Company's investing activities used cash of $815,000 for the nine months
ended December 31, 1998, as compared to the nine months ended December 31, 1997
where the Company's investing activities provided cash of $2,127,000. The nine
months ended December 31, 1997 include the net proceeds received by the Company
from the sale of Marquest to Vital Signs, Inc. in July 1997. The aggregate
proceeds received by the Company from the transaction, net of costs, was
$11,296,000 and the cash held by Marquest at the time of the transaction was
$1,023,000. During the third quarter of fiscal 1998, the Company invested
approximately $6,300,000 of the proceeds received from the sale of Marquest in
long-term high-grade marketable securities. These marketable securities, which
consist of municipal bonds, corporate bonds, and preferred stocks, mature over
periods ranging from 3 years to 27 years. See Note 4 to the accompanying Notes
to Condensed Consolidated Financial Statements included elsewhere herein.
The Company, through a wholly-owned subsidiary, owned a 60% partnership interest
in Bio Systems Partners ("BSP") which operates in the Company's Waste Management
Services Segment. Pursuant to a summary judgment, the Company's subsidiary was
required to purchase the minority partner's 40% partnership interest in BSP
valued as of November 30, 1993. In early October 1997, the Company and the
minority partner were informed by an independent appraiser that the fair market
value of the 40% minority interest in BSP was $1,100,000 as of November 30,
1993. Effective October 28, 1997, the Company's subsidiary purchased, using cash
on hand, the minority partner's 40% partnership interest in BSP for a purchase
price of $1,100,000 and as a result, the Company, through its subsidiary, now
owns 100% of BSP.
As a result of the growth in business, Bio Systems made capital expenditures for
equipment and containers of $776,000 and $808,000 during the nine months ended
December 31, 1998 and 1997, respectively.
Cash used for financing activities decreased to $136,000 for the nine months
ended December 31, 1998 from $1,902,000 for the nine months ended December 31,
1997. In July 1997, the Company used a portion of the proceeds from the sale of
Marquest to repay in full the principal balance of $1,867,000 on a note payable
to the adult children of an affiliate of the Company.
Management of the Company believes that its current cash on hand and its current
cash flow is sufficient to maintain its current operations. The Company
continues to evaluate its long-term options with regard to the use of its
remaining cash on hand.
YEAR 2000 ISSUES.
Like many other companies, the year 2000 computer issue creates risks for the
Company. If internal systems do not correctly recognize and process date
information beyond the year 1999, there could be an adverse impact on the
Company's operations. There are two other related issues which could also lead
to incorrect calculations or failures: (i) some systems' programming assigns
special meaning to certain dates, such as 9/9/99, and (ii) the fact that the
year 2000 is a leap year. The Company has developed a plan to modify its
information technology for the year 2000 and during the quarter ended December
31, 1998 began replacing critical data processing systems at its corporate
headquarters as well as at Bio Systems. The Company currently is converting its
systems to the new equipment and software and expects to complete the conversion
in the quarter ended March 31, 1999. The third party vendors that supplied the
new hardware and software have informed the Company that the new systems and
software are year 2000 compliant. The Company currently expects that its review
of other systems will be substantially completed by March 31, 1999 at a cost not
material to the Company's business, financial condition or results of
operations. As of December 31, 1998, the Company incurred approximately $50,000
in replacing and converting the Company's data processing systems and it
anticipates it will incur less than $25,000 in future periods to complete the
replacement and conversion process.
11
<PAGE>
The Company believes that its most reasonably likely worst case year 2000
scenarios would relate to problems with the systems of third parties rather than
with the Company's internal systems or its products. It is clear that the
Company has the least ability to assess and remediate the year 2000 problems of
third parties and the Company believes the risks are greatest with
infrastructure (e.g. electricity supply, water and sewer service),
telecommunications, transportation supply chains and suppliers of materials.
Similarly, the failure of the Company's hospital and other healthcare provider
customers to be year 2000 compliant could have an adverse impact on the Company.
While the Company is taking steps that it believes to be reasonable and prudent
to assess the year 2000 readiness of third parties with whom the Company does
business, the failure of any of these third parties to correct a material year
2000 problem could result in an interruption in, or a failure of, certain normal
business activities or operations. Due to the general uncertainty inherent in
the year 2000 problem, resulting in part from the uncertainty of the year 2000
readiness of third party suppliers and customers, the Company is unable to
determine at this time whether the consequences of year 2000 failures will have
a material impact on the Company's results of operations, liquidity, or
financial condition. Readers are cautioned that forward-looking statements
contained in this year 2000 update should be read in conjunction with the
Company's disclosures regarding forward looking statements.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On August 28, 1998, Amy M. Murphy, the former President of the
Company, filed a sex discrimination and retaliation charge against the
Company alleging a violation of Title VII of the Civil Rights Act of
1964, as amended. Ms. Murphy filed the charge with the Atlanta,
Georgia office of the Equal Employment Opportunity Commission (the
"EEOC"). On September 9, 1998, Ms. Murphy amended this charge to
identify the Company and Robert P. Scherer, Jr., Chairman, President
and Chief Executive Officer of the Company, as her employers. On
December 22, 1998, the EEOC notified the Company that it has
terminated its investigation of Ms. Murphy's charge. As a result, Ms.
Murphy has 90 days from that date of her receipt of the EEOC's
notification within which to file a lawsuit against the Company. To
the knowledge of the Company, Ms. Murphy has not yet filed such a
lawsuit. The Company has conducted an internal investigation of Ms.
Murphy's charge and has concluded that there has been no Title VII
violation. Accordingly, the Company intends to vigorously defend all
claims brought by Ms. Murphy.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
---------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
12
<PAGE>
SIGNATURES
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.
SCHERER HEALTHCARE, INC.
(Registrant)
Date: February 11, 1999 /s/ Robert P. Scherer, Jr.
--------------------------
Robert P. Scherer, Jr.
Chairman, Chief Executive Officer and President
Date: February 11, 1999 /s/ Gary W. Ruffcorn
--------------------
Gary W. Ruffcorn
Vice President and Chief Financial Officer
13
<PAGE>
SCHERER HEALTHCARE, INC.
INDEX OF EXHIBITS
The following exhibit is being filed with this report.
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------- ----------- ------
<S> <C> <C>
27 Financial Data Schedule 15
(included only in EDGAR filing)
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,861
<SECURITIES> 0
<RECEIVABLES> 3,683
<ALLOWANCES> (206)
<INVENTORY> 258
<CURRENT-ASSETS> 12,004
<PP&E> 7,912
<DEPRECIATION> (3,835)
<TOTAL-ASSETS> 27,634
<CURRENT-LIABILITIES> 2,896
<BONDS> 367
0
0
<COMMON> 47
<OTHER-SE> 23,913
<TOTAL-LIABILITY-AND-EQUITY> 27,634
<SALES> 11,150
<TOTAL-REVENUES> 11,150
<CGS> 6,439
<TOTAL-COSTS> 9,778
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,961
<INCOME-TAX> 62
<INCOME-CONTINUING> 1,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,899
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.42
</TABLE>
