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 Quarterly Period Ended March 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From to
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Commission file number 0-10881 NY
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GRAHAM-FIELD HEALTH PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 11-2578230
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(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
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(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
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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
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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--- 13,002,000 shares as of May 11, 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 -
March 31, 1995 (Unaudited) and December 31, 1994
(Audited) 3
Condensed Consolidated Statements of Operations for
the three months ended March 31, 1995 and 1994
(Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 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
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March 31, December 31,
ASSETS 1995 1994
------ ------------ ------------
(unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,426,000 $ 121,000
Accounts receivable - net 18,780,000 19,173,000
Inventories 26,802,000 30,410,000
Other current assets 1,101,000 1,135,000
Recoverable and prepaid income taxes
237,000 239,000
------------ ------------
TOTAL CURRENT ASSETS 48,346,000 51,078,000
PROPERTY, PLANT AND EQUIPMENT - net 8,977,000 9,245,000
EXCESS OF COST OVER NET ASSETS ACQUIRED
- net 29,303,000 29,531,000
INVESTMENT IN LEVERAGED LEASE 488,000 488,000
OTHER ASSETS 5,461,000 5,659,000
DEFERRED TAX ASSET 3,449,000 3,493,000
------------ ------------
TOTAL ASSETS $96,024,000 $99,494,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Note payable to bank $ - $ 673,000
Current maturities of long-term debt 622,000 615,000
Accounts payable 5,333,000 7,901,000
Acceptances payable 10,350,000 10,350,000
Accrued expenses 2,929,000 3,257,000
----------- -----------
TOTAL CURRENT LIABILITIES 19,234,000 22,796,000
LONG-TERM DEBT 1,450,000 1,596,000
GUARANTEED SENIOR NOTES 20,000,000 20,000,000
----------- -----------
TOTAL LIABILITIES 40,684,000 44,392,000
STOCKHOLDERS' EQUITY:
Preferred Stock -- --
Common Stock 325,000 323,000
Additional paid-in capital 63,315,000 63,145,000
(Deficit) (8,300,000) (8,366,000)
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TOTAL STOCKHOLDERS' EQUITY 55,340,000 55,102,000
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND STOCKHOLDERS'
----------- -----------
EQUITY $96,024,000 $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
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(Unaudited)
Three Months Ended
March 31
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1995 1994
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REVENUES:
Operations $24,491,000 $22,437,000
Interest and other income 8,000 19,000
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24,499,000 22,456,000
COST AND EXPENSES:
Cost of revenues 16,772,000 15,444,000
Selling, general and administrative 6,872,000 6,936,000
Interest expense 745,000 624,000
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24,389,000 23,004,000
INCOME (LOSS) BEFORE INCOME TAXES
(BENEFIT) 110,000 (548,000)
INCOME TAXES (BENEFIT) 44,000 (176,000)
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NET INCOME (LOSS) $ 66,000 $ (372,000)
=========== ===========
PER SHARE DATA:
NET INCOME (LOSS) PER SHARE $ .01 $ (.03)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 12,950,000 12,821,000
=========== ===========
See notes to condensed consolidated financial statements.
Page 4
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
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(Unaudited)
Three Months Ended
March 31
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1995 1994
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OPERATING ACTIVITIES
Net income (loss) $ 66,000 $ (372,000)
Adjustments to reconcile net
income (loss) to net cash provided by
operating activities:
Depreciation and amortization 841,000 813,000
Provision for losses on accounts
receivable 73,000 90,000
Deferred income taxes 44,000 (176,000)
Other - 2,000
Changes in operating assets and
liabilities:
Accounts receivable 320,000 378,000
Inventories, other current assets and
recoverable and prepaid income taxes 3,644,000 761,000
Accounts and acceptances payable
and accrued expenses (2,896,000) 227,000
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,092,000 1,723,000
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INVESTING ACTIVITIES
Purchases of property, plant and equipment
(168,000) (215,000)
Decrease of other assets 21,000 32,000
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NET CASH (USED IN) INVESTING
ACTIVITIES $ (147,000) $ (183,000)
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Page 5
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------------
(Unaudited)
Three Months Ended
March 31
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1995 1994
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FINANCING ACTIVITIES
Proceeds from note payable to bank $ 1,000,000 $ --
Payments on note payable to bank (1,673,000)
Principal payments on long term debt (139,000) (97,000)
Proceeds on exercise of stock options 172,000 20,000
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NET CASH (USED IN) FINANCING ACTIVITIES
(640,000) (77,000)
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INCREASE IN CASH AND CASH EQUIVALENTS
1,305,000 1,463,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 121,000 565,000
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,426,000 $ 2,028,000
=========== ===========
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 March
31, 1995 (unaudited) and December 31, 1994 (audited), the results
of operations for the three months ended March 31, 1995 and 1994
(unaudited) and the statements of cash flows for the three months
ended March 31, 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 March 31, 1995 have been valued at average
cost based on perpetual records or the gross profit method.
The results of operations for the three months ended March
31, 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
common share for 1994 was computed using the weighted average
number of common shares outstanding during the period.
3. INVENTORIES
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Inventories consist of the following:
March 31 December 31
1995 1994
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Raw materials $ 2,866,000 $ 3,112,000
Work-in-process 1,482,000 1,183,000
Finished goods 22,454,000 26,115,000
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$26,802,000 $30,410,000
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Page 7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------------
(Unaudited)
4. 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 March 31, 1995, the Company has
recorded net deferred tax assets of $3,449,000. These tax assets
are primarily composed 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 $9,322,000 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.
5. OTHER MATTERS
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On March 23, 1995, the Company entered into a letter of
intent to sell the Consumer Business of its HealthTeam subsidiary
to the Lumiscope Company, in exchange for the acquisition of the
Medical Products Division of Lumiscope, a privately owned
company. The Medical Products Division of Lumiscope currently
markets and distributes Tens Units, sphygmomanometers,
stethoscopes, patient aids and other medical products to the home
healthcare and medical/surgical markets. The consumer business
of the Company's HealthTeam subsidiary markets and distributes
diagnostic products, breast pumps and related accessories,
infrared heat lamps, massagers, and a variety of consumer health
products to the consumer/retail market. The transaction, which
is currently expected to be completed in May 1995, is subject to
certain conditions, and there is no assurance that the
transaction will be completed.
6. 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
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Operating revenues for the three months ended March 31, 1995
increased approximately $2,054,000 or 9% as compared to the same
period last year. The increase in operating revenues was
primarily due to the Company's improved customer service and
efficiency levels, which reflects the continued recovery of
certain revenues affected by past service and efficiency
problems. In addition, the increase is also attributable to the
Company's continued expansion of its product line resulting from
new and expanded distribution agreements with vendors.
Interest and Other Income
- -------------------------
Interest and other income for the three months ended March 31,
1995 decreased $11,000, or 58% as compared to the same period
last year. The decrease in interest income reflects lower cash
balances on hand during the three month period ended March 31,
1995.
Cost of Revenues
- ----------------
Cost of revenues as a percentage of operating revenues for the
three months ended March 31, 1995 decreased to 68% from 69% in
the same period last year. The decrease in cost of revenues is
primarily the result of improved purchasing activities and the
implementation of new inventory control procedures.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses as a percentage of
operating revenues for the three months ended March 31, 1995 was
28% as compared to 31% in the same period last year. The
decrease is primarily due to the efficiencies generated by the
investment in new business process systems and the reorganization
of the Company's distribution network which has resulted in
reduced shipping, freight and warehousing expenses.
Interest Expense
- ----------------
Interest expense for the three months ended March 31, 1995
increased $121,000 or 19% as compared to the same period last
year. The increase is primarily due to an increase in interest
rates from the prior period and an increase in bankers'
acceptances and borrowings outstanding used to finance the
Company's investment in warehousing equipment and new systems.
Net Income
- ----------
Income before income taxes for the three months ended March 31,
1995 was $110,000 as compared to a loss before income taxes of
$548,000 for the same period 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,
which reflects the continued recovery of certain revenue affected
by past service efficiency problems, the improvement in the
Company's gross profit margin and the decrease in selling,
general and administrative expenses.
Page 9
<PAGE>
Net income for the three months ended March 31, 1995 was $66,000
as compared to a net loss of $372,000 for the same period last
year. The Company recorded income tax expense of $44,000 during
the three month period ended March 31, 1995, as compared to a
income tax benefit of $176,000 recorded during the 1994 period.
As of March 31, 1995, the Company has recorded net deferred tax
assets of $3,449,000, 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 $9,322,000
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 could
impact the future realizability , but are not expected to occur
include the inability to implement the Company's tax planning
strategy, and declines 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 $29,112,000 at March 31, 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 operating profit of $66,000, which included
$841,000 of amortization and depreciation expense.
Cash provided by operations for the three months ended March 31,
1995 was $2,092,000, as compared to $1,723,000 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, the improved
collection of accounts receivable and the Company's operating
profit.
The Company anticipates that its current cash balance together
with expected cash flow from operations and the anticipated
renewal of its bank line of credit will be sufficient to meet its
working capital requirements.
Financing
- ---------
At March 31, 1995, the Company had an unsecured line-of-credit
with a bank available for letters of credit, acceptances and
short-term borrowings. The total amount available under the
line-of-credit is $20,000,000. The line is available for the
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.
Although the line-of-credit by its terms expires on June 30,
1995, the Company anticipates that the line-of-credit will be
renewed.
Interest on short-term borrowings is payable at the bank's prime
rate plus 1%, acceptances are created for a fee of 2-1/2% above
the bank's acceptance rate, and commercial letters of credit have
a commission rate of 3/8% per drawing. At March 31, 1995, there
were no direct borrowings under the line. At March 31, 1995,
$10,350,000 had been utilized under acceptances payable. Open
letters of credit at March 31, 1995 relating to vendor purchases
were $1,585,000.
Page 10
<PAGE>
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: May 15, 1995 /s/ Irwin Selinger
--- -------------------------
Irwin Selinger
Chairman of the Board and
Chief Executive Officer
Date: May 15, 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 MARCH 31, 1995 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1995
AS INCLUDED IN THE FORM 10Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,426
<SECURITIES> 0
<RECEIVABLES> 18,780
<ALLOWANCES> 0
<INVENTORY> 26,802
<CURRENT-ASSETS> 48,346
<PP&E> 8,977
<DEPRECIATION> 0
<TOTAL-ASSETS> 96,024
<CURRENT-LIABILITIES> 19,234
<BONDS> 21,450
<COMMON> 325
0
0
<OTHER-SE> 55,015
<TOTAL-LIABILITY-AND-EQUITY> 96,024
<SALES> 24,491
<TOTAL-REVENUES> 24,499
<CGS> 16,772
<TOTAL-COSTS> 16,772
<OTHER-EXPENSES> 6,872
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 745
<INCOME-PRETAX> 110
<INCOME-TAX> 44
<INCOME-CONTINUING> 66
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
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