FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Period Ended September 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From to
-------------------- ---------------------
Commission file number 0-10881 NY
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GRAHAM-FIELD HEALTH PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2578230
- ---------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Rabro Drive East, Hauppauge, New York 11788
- ----------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
(516) 582-5900
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(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
--- ---
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by the court. Yes No
----- -----
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.025 Par Value--- 14,082,130 shares as of November 10, 1995
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
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I N D E X
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Part I. Financial Information: Page
----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
September 30, 1995 (Unaudited) and December
31, 1994 (Audited) 3
Condensed Consolidated Statements of Operations -
three and nine months ended September 30, 1995
and 1994 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1995
and 1994 (Unaudited) 5/6
Notes to Condensed Consolidated Financial
Statements 7/8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9/10/11
Part II. Other Information:
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------------
September 30, December 31,
ASSETS 1995 1994
------ ------------ ------------
(unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,074,000 $ 121,000
Short term investments 1,995,000 -
Accounts receivable - net 19,941,000 19,173,000
Inventories 25,590,000 30,410,000
Other current assets 1,936,000 1,135,000
Recoverable and prepaid income taxes 236,000 239,000
----------- ------------
TOTAL CURRENT ASSETS 50,772,000 51,078,000
PROPERTY, PLANT AND EQUIPMENT - net 8,416,000 9,245,000
EXCESS OF COST OVER NET ASSETS ACQUIRED - net 29,522,000 29,531,000
INVESTMENT IN LEVERAGED LEASE 487,000 488,000
OTHER ASSETS 5,165,000 5,659,000
DEFERRED TAX ASSET 3,235,000 3,493,000
------------ -------------
TOTAL ASSETS $97,597,000 $99,494,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Note payable to bank $ - $ 673,000
Current maturities of long-term debt and
guaranteed senior notes 1,639,000 615,000
Accounts payable 6,668,000 7,901,000
Acceptances payable 7,100,000 10,350,000
Accrued expenses 2,815,000 3,257,000
----------- -----------
TOTAL CURRENT LIABILITIES 18,222,000 22,796,000
LONG-TERM DEBT 1,148,000 1,596,000
GUARANTEED SENIOR NOTES 19,000,000 20,000,000
----------- -----------
TOTAL LIABILITIES 38,370,000 44,392,000
STOCKHOLDERS' EQUITY:
Preferred Stock -- --
Common Stock 352,000 323,000
Additional paid-in capital 66,862,000 63,145,000
Accumulated Deficit (7,987,000) (8,366,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 59,227,000 55,102,000
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND STOCKHOLDERS'
----------- -----------
EQUITY $97,597,000 $99,494,000
=========== ===========
See notes to condensed consolidated financial statements.
Page 3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------------
(Unaudited)
<TABLE><CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------- ----------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Operations $ 25,642,000 $24,100,000 $74,460,000 $70,613,000
Interest and other income 37,000 51,000 53,000 119,000
----------- ------------ ----------- ----------
25,679,000 24,151,000 74,513,000 70,732,000
COST AND EXPENSES:
Cost of revenues 17,661,000 16,497,000 51,196,000 48,445,000
Selling, general and
administrative 6,926,000 7,171,000 20,616,000 21,058,000
Interest expense 629,000 659,000 2,064,000 1,931,000
----------- ----------- ----------- -----------
25,216,000 24,327,000 73,876,000 71,434,000
------------ ----------- ------------ -----------
INCOME (LOSS) BEFORE INCOME
TAXES (BENEFIT) 463,000 (176,000) 637,000 (702,000)
INCOME TAXES (BENEFIT) 189,000 (52,000) 258,000 (217,000)
------------ ----------- ------------ -----------
NET INCOME (LOSS) $ 274,000 $(124,000) $ 379,000 $ (485,000)
============ ========== =========== ============
PER SHARE DATA:
NET INCOME (LOSS) PER SHARE $ .02 $ (.01) $ .03 $ (.04)
============ ============ =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 13,145,000 12,919,000 13,052,000 12,862,000
============ =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
Page 4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------------
(Unaudited)
Nine Months Ended
September 30,
-----------------
1995 1994
---------- -----------
OPERATING ACTIVITIES
Net income (loss) $ 379,000 $ (485,000)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,533,000 2,478,000
Provision for losses on accounts
receivable 321,000 336,000
Deferred income taxes 258,000 (217,000)
Deferred compensation -- 6,000
Other 1,000 --
Changes in operating assets and
liabilities, net of effects of acquisition
Accounts receivable (1,270,000) (2,725,000)
Inventories and other current assets 4,109,000 (955,000)
Recoverable and prepaid income taxes 3,000 6,000
Accounts and acceptances payable
and accrued expenses (5,154,000) 1,370,000
------------ -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,180,000 (186,000)
----------- ----------
INVESTING ACTIVITIES
Purchase of short term investments (1,995,000) --
Purchases of property, plant and equipment (475,000) (898,000)
Acquisition of subsidiary, net of cash acquired (637,000) --
Decrease of other assets 250,000 (192,000)
----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES $(2,857,000) $(1,090,000)
----------- -----------
Page 5
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------------
(Unaudited)
<TABLE><CAPTION>
Nine Months Ended
September 30,
-----------------
1995 1994
----------- -----------
FINANCING ACTIVITIES
<S> <C> <C>
Proceeds from note payable with bank $ 1,000,000 $ 1,000,000
Payments on note payable with bank (1,673,000) --
Principal payments on long-term debt (443,000) (362,000)
Proceeds on exercise of stock options 172,000 158,000
Issuance of common stock,
net of expenses 3,574,000 --
---------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,630,000 796,000
---------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 953,000 (480,000)
Cash and cash equivalents at beginning of year 121,000 565,000
----------- ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,074,000 $ 85,000
=========== ============
</TABLE>
See notes to condensed consolidated financial statements.
Page 6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------------
(Unaudited)
1. GENERAL
-------
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
as of September 30, 1995 (unaudited) and December 31, 1994 (audited), the
results of operations for the three and nine months ended September 30, 1995 and
1994 (unaudited) and the statements of cash flows for the nine months ended
September 30, 1995 and 1994 (unaudited).
Additionally, it should be noted that the accompanying financial statements
and notes thereto do not purport to be complete disclosures in conformity with
generally accepted accounting principles.
While the Company believes that the disclosures presented are adequate to
make the information contained herein not misleading, it is suggested that these
financial statements be read in conjunction with the financial statements and
the notes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
Inventories at September 30, 1995 have been valued at average cost based on
perpetual records or gross profit method.
The results of operations for the three and nine months ended September 30,
1995 and 1994 are not necessarily indicative of results for the full year.
Certain 1994 amounts have been reclassified to conform with 1995
classifications.
2. NET INCOME (LOSS) PER SHARE
---------------------------
Net income per common share for 1995 was computed using the weighted
average number of common shares and dilutive common equivalent shares
outstanding during the period. Net loss per share for 1994 was computed using
the weighted average number of common shares outstanding during the period.
3. BUSINESS ACQUISITION
--------------------
The Company acquired for cash certain assets and liabilities of National
Medical Excess Corp. ("NME") effective July 1, 1995. NME markets and
distributes a broad range of new and used respiratory and other medical
products. The NME acquisition was accounted for as a purchase and accordingly,
assets and liabilities were fair-valued at the date of acquisition and the
results of its operations are included in the condensed consolidated financial
statements of the Company subsequent to that date. The excess of cost over the
net assets acquired amounted to approximately $677,000.
4. INVENTORIES
-----------
Inventories consist of the following:
September 30, December 31,
1995 1994
-------------- ------------
Raw materials $ 2,730,000 $ 3,112,000
Work-in-process 1,311,000 1,183,000
Finished goods 21,549,000 26,115,000
------------- ------------
$ 25,590,000 $ 30,410,000
============= ============
Page 7
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------------
(Unaudited)
5. INCOME TAXES
------------
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement No.
109"). Under Statement No. 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. As of
September 30, 1995, the Company has recorded net deferred tax assets of
$3,235,000. These assets are primarily comprised of net operating loss
carryforwards and investment, research and development, jobs tax and alternative
minimum tax credits. Based upon the Company's expectation that future taxable
income will exceed $8,745,000 prior to December 31, 2009, the Company has not
recorded a valuation allowance on these tax assets, except for an allowance of
$55,000 related to tax assets recorded for acquired carryforwards. Future
taxable income is expected to be derived from the Company's existing operations
and a tax planning strategy which anticipates the recognition of a taxable gain
on the sale of appreciated assets.
6. OTHER MATTERS
-------------
On October 2, 1995, the Company announced that it entered into an agreement
in principle to sell its consumer business of HealthTeam, Inc. (the "Consumer
Business") to Health Line Industries, Inc., and terminated its discussions to
sell the consumer business to The Lumiscope Company, Inc. On October 26, 1995,
the Company announced that negotiations were terminated to sell its Consumer
Business to Health Line Industries, Inc. The Company is currently pursuing the
sale of its Consumer Business with other potential purchasers, and anticipates
completion of the sale by the end of the year. The Consumer Business is a
fundamentally different business than the Company's core business, and the
Company believes that the sale of the Consumer Business will enable the Company
to concentrate and focus its strategies on its traditional home/healthcare and
medical/surgical markets.
In Septmber 1995, the Company completed an offshore private placement of
1,071,655 shares of its common stock with various European institutional
investors. The net proceeds of the offering were $3,574,000. The Company
expects to use the proceeds for general corporate purposes, including possible
future acquisitions of other businesses.
7. LEGAL PROCEEDINGS
-----------------
SEE PART II, ITEM 1 ON PAGE 11
Page 8
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Operating Revenues
- ------------------
Operating revenues for the three months ended September 30, 1995 increased
approximately $1,542,000 or 6% as compared to the same period last year.
Operating revenues for the nine months ended September 30, 1995 increased
approximately $3,847,000 or 5% as compared to the same period last year. The
increase in operating revenues for the three and nine month periods of 1995 was
primarily attributable to improved customer service levels, improvements in the
Company's distribution network, the development of new sales and marketing
programs and the continued expansion of the Company's product lines. In
addition, revenues also include approximately $465,000, net of elimination of
intercompany sales, attributable to the acquisition of NME, effective as of
July 1, 1995.
The revenue increase was achieved despite the decline in sales to Apria
Healthcare Group, Inc. (formerly Abbey Home Healthcare, which merged with
Homedco in June 1995) of 28% and 11%, respectively, for the three and nine
months ended September 30, 1995. On September 1, 1995, the Company announced
that its current supply agreement with Apria would not be renewed in 1996, and
will expire by its terms on December 31, 1995. During fiscal year
1994, the nine months ended September 30, 1995 and 1994, the Company's product
sales to Apria were approximately $10.3 million, $6.7 million and $7.5 million,
respectively, which sales represent approximately 11%, 9% and 11% of the
Company's product sales. The Company's sales to Apria generate gross profit
margins of approximately 20% , which is significantly lower than the Company's
sales to its other customers which generate gross profit margins of
approximately 33%. Management believes that the Company has implemented steps
which could positively impact revenues and profits for fiscal year 1996,
including improved customer service and efficiency levels, the introduction of
new product lines and the further promotion of its Consolidation Advantage
Program (C.A.P.). However, no assurances can be given that such steps will
produce sufficient revenues in 1996 to cover the decrease in revenues to Apria.
Interest and Other Income
- -------------------------
Interest and other income for the three and nine month periods ended September
30, 1995 decreased $14,000 and $66,000, respectively, as compared to the same
periods last year. The decrease for both periods, reflects lower cash balances
on hand during these periods.
Cost of Revenues
- ----------------
Cost of revenues as a percentage of operating revenues increased for the three
and nine months ended September 30, 1995 to 68.9% and 68.8%, respectively, as
compared to 68.5% and 68.6% for the same periods last year. The increase in
cost of revenues in both the three and nine month period is primarily the result
of increased sales in the home health care marketplace which traditionally has
lower margins. The nine month period was also affected by unfavorable exchange
rates experienced with foreign suppliers.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses as a percentage of operating
revenues for the three months ended September 30, 1995 was 27% as compared to
30% in the same period last year. Selling, general and administrative expenses
as a percentage of operating revenues for the nine months ended September 30,
1995 was 28% as compared to 30% in the same period last year. The decrease in
both fiscal periods is primarily due to cost reduction programs and the
continued efficiencies generated by the Company's distribution network and
investment in new business systems.
Page 9
<PAGE>
Interest Expense
- ----------------
Interest expense for the three months ended September 30, 1995 decreased $30,000
or 5% as compared to the same period last year. For the nine months ended
September 30, 1995, interest expense increased $133,000 or 7% as compared to
the same period last year. The decrease in interest expense for the three
months ended September 30, 1995, is due to a decrease in borrowings during the
period. The increase for the nine months ended September 30, 1995, is due to an
increase in interest rates from the prior period.
Net Income
- ----------
Income before income taxes for the three and nine months ended September 30,
1995, was $463,000 and $637,000, respectively, as compared to a loss before
income taxes of $176,000 and $702,000 for the same periods last year. The
increase in income before income taxes is primarily due to the increase in
revenues as a result of improved customer service and efficiency levels, the
decrease in selling, general and administrative expenses, and the decrease in
interest expense.
Net income for the three and nine months ended September 30, 1995 was $274,000
and $379,000, respectively as compared to a net loss of $124,000 and $485,000,
for the same periods last year. The Company recorded income tax expense of
$258,000 for the nine months ended September 30, 1995, as compared to an income
tax benefit of $217,000 for the nine months ended September 30, 1994. As of
September 30, 1995, the Company has recorded a deferred tax asset of $3,235,000
primarily comprised of net operating loss carryforwards and investment, research
and development, jobs tax and alternative minimum tax credits. Based upon the
Company's expectation that future taxable income will exceed $8,745,000 prior to
December 31, 2009, the Company has not recorded a valuation allowance on these
deferred tax assets, except for an allowance of $55,000 related to tax assets
recorded for acquired carryforwards. Future taxable income is expected to be
derived from the Company's existing operations and a tax planning strategy
which anticipates the recognition of a taxable gain on the sale of appreciated
assets. The total deferred tax asset will continue to be evaluated by
management as to its realizability on a quarterly basis. Uncertainties which may
impact the future realizability but are not expected to occur, include the
inability to implement the Company's tax planning strategy and a decline in
sales and margins resulting from a possible loss of market share and increased
competition.
The Company's business has not been materially affected by inflation.
Liquidity and Capital Resources
- -------------------------------
The Company had working capital of $32,550,000 at September 30, 1995, as
compared to $28,282,000 at December 31, 1994. The increase in working capital is
primarily attributable to the cash provided by the Company's net income of
$379,000, which reflects $2,533,000 of depreciation and amortization expense.
In addition, the Company raised $3,574,000 of additional capital, net of
expenses, through an offshore private placement of 1,071,655 shares of its
common stock with various European institutional investors which was
completed in September 1995.
Cash provided by operations for the nine months ended September 30, 1995 was
$1,180,000 as compared to cash used by operations of $186,000 in the same period
last year. The principal reason for the increase in cash provided by operations
was the reduction in inventory, as a result of the Company's improved purchasing
activities, and the Company's net income.
The Company anticipates that its current cash balance together with expected
cash flow from operations and its bank line of credit will be sufficient to meet
its working capital requirements.
Page 10
<PAGE>
Financing
- ---------
At September 30, 1995, the Company had a $15,000,000 unsecured line-of-credit
with a bank. The line is available for direct borrowings in the amount of up to
$5,000,000, and provides for commercial letters of credit and bankers'
acceptances. Credit availability under this line is subject to the bank's
continuing satisfaction with current financial information. The line is
guaranteed by each of the Company's wholly-owned subsidiaries. In June 1995,
the line was renewed by the bank for one year. Interest on direct borrowings
is payable at 1% above the bank's prime rate, acceptances are created for a fee
of 2-1/2% above the bank's acceptance rate, and the commercial letters of credit
commission rate is 3/8% per drawing.
At September 30, 1995, $7,100,000 had been utilized under the line for
acceptances payable. Open letters of credit relating to supplier purchases
approximated $2,687,000 at September 30, 1995.
Part II. Other Information
-----------------
Item 1. Legal Proceedings
There is no action, proceeding or investigation pending or threatened which has
or may have a material affect on the condition (financial or otherwise),
business, operations or properties of the Company.
Item 6. Exhibits and Reports on Form 8-K
None.
Page 11
<PAGE>
S I G N A T U R E S
-------------------
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.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
(Registrant)
Date: November 13, 1995 /s/Irwin Selinger
--------------------------------------
Irwin Selinger
Chairman of the Board,
and Chief Executive Officer
Date: November 13, 1995
/s/Gary M. Jacobs
--------------------------------------
Gary M. Jacobs
Vice President - Finance
Chief Financial and Accounting Officer
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1995 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AS INCLUDED IN THE FORM 10Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,074
<SECURITIES> 1,995
<RECEIVABLES> 19,941
<ALLOWANCES> 0
<INVENTORY> 25,590
<CURRENT-ASSETS> 50,772
<PP&E> 8,416
<DEPRECIATION> 0
<TOTAL-ASSETS> 97,597
<CURRENT-LIABILITIES> 18,222
<BONDS> 0
<COMMON> 352
0
0
<OTHER-SE> 58,875
<TOTAL-LIABILITY-AND-EQUITY> 97,597
<SALES> 74,460
<TOTAL-REVENUES> 74,513
<CGS> 51,196
<TOTAL-COSTS> 51,196
<OTHER-EXPENSES> 20,616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,064
<INCOME-PRETAX> 637
<INCOME-TAX> 258
<INCOME-CONTINUING> 379
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 379
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
