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, 1996
[ ] 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 33-69874
GENERAL MEDICAL CORPORATION
VIRGINIA 94-2640465
(State of incorporation) (I.R.S. Employer
Identification No.)
8741 Landmark Road (804) 264-7500
Richmond, Virginia 23228 (Telephone Number)
(Address of principal
executive offices)
Indicate by check (x) 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
As of May 10, 1996, 1,000 shares of the registrant's Common Stock were
outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL MEDICAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,797 $ 3,637
Trade accounts receivable, net
of reserves of $5,693 and $5,089,
respectively 199,329 202,528
Inventories - merchandise 170,480 163,558
Prepaid expenses 1,626 1,453
Total current assets 377,232 371,176
Property, plant and equipment 43,182 41,152
Accumulated depreciation (13,137) (12,136)
Net property, plant and equipment 30,045 29,016
Excess of purchase price over net
assets acquired, net 253,726 255,407
Other assets 19,066 20,201
TOTAL ASSETS $ 680,069 $ 675,800
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 160,716 $ 149,439
Accrued liabilities 21,187 26,169
Accrued compensation 11,811 8,435
Accrued consolidation costs 7,095 7,839
Current maturities of long-term debt 900 905
Total current liabilities 201,709 192,787
Senior credit agreement 200,000 207,812
Senior subordinated notes 105,000 105,000
Subordinated pay-in-kind debentures 66,744 62,939
Deferred taxes 599 596
Other long-term liabilities 901 1,022
Commitments and contingencies
Stockholder's equity:
Preferred stock, no par value-authorized
100,000 shares; none issued -- --
Common stock, $1 par value-authorized
30,000,000 shares; 1,000 shares issued 1 1
Additional paid-in capital 149,077 149,076
Predecessor basis in accounting (20,814) (20,814)
Retained deficit (23,148) (22,619)
Total stockholder's equity 105,116 105,644
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY $ 680,069 $ 675,800
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GENERAL MEDICAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Operations
Three Months ended March 31,
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues:
Sales $ 418,223 $ 356,778
Other income 679 293
418,902 357,071
Cost of sales 342,417 288,335
Selling, general and
administrative expenses 63,497 55,961
Consolidation costs 401 870
Amortization of excess of purchase price
over net assets acquired and other
intangibles 1,901 2,919
Interest expense 9,985 9,289
Income(loss) before income taxes 701 (303)
Income tax provision 929 856
Net income(loss) $ (228) $ (1,159)
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GENERAL MEDICAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
Three Months ended March 31,
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations $ (228) $ (1,159)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,198 987
Amortization of deferred interest 776 723
Amortization of deferred debenture interest 1,965 1,748
Amortization of excess of purchase
price over net assets acquired
and other intangibles 1,901 2,919
Deferred income taxes 3 (486)
Loss(gain) on sale of assets (120) 37
Changes in assets and liabilities:
Accounts receivable 3,185 657
Inventories (7,026) (4,586)
Accounts payable and accrued expenses 11,305 375
Income taxes payable 2,622 (1,448)
Accrued interest (2,875) (2,285)
Other assets and liabilities, net (225) (329)
Net cash provided by(used in) operating activities 12,481 (2,847)
Cash flows from investing activities:
Receipts on(issuance of) notes receivable 24 (49)
Proceeds from sale of assets 138 380
Proceeds from sale of manufacturing
assets -- 3,119
Purchase of business, net of cash
acquired -- (25,507)
Capital expenditures (2,126) (1,243)
Net cash used in investing activities (1,964) (23,300)
Cash flows from financing activities:
Proceeds from borrowings under
credit facilities 430,750 407,522
Payments on borrowings under
credit facilities (438,562) (382,876)
Payment of acquisition and
financing fees (102) (592)
Other long term debt (143) (166)
Payment of dividend (301) --
Contribution to capital 1 --
Net cash provided by(used in) financing activities (8,357) 23,888
Net increase(decrease) in cash and
cash equivalents 2,160 (2,259)
Cash and cash equivalents,
beginning of period 3,637 5,772
Cash and cash equivalents,
end of period $ 5,797 $ 3,513
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GENERAL MEDICAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Interim Financial Statements for the Periods
Ended March 31, 1996 and 1995 (Unaudited)
(Dollars in thousands, except as otherwise noted)
1. FINANCIAL PERIODS
The fiscal quarter ends on the Sunday nearest March 31. The periods ending
March 31, 1996 and 1995 ended on March 31, 1996 and April 2, 1995,
respectively.
2. BASIS OF PRESENTATION
The unaudited condensed consolidated interim financial statements include
the accounts of General Medical Corporation (the "Company") for the three
month periods ended March 31, 1996 and 1995.
In the opinion of management, the unaudited condensed consolidated interim
financial statements of the Company have been prepared on the basis of
generally accepted accounting principles and contain all normal and recurring
accruals necessary to present fairly the financial position as of March 31,
1996 and December 31, 1995, and the results of operations and cash flows for
the three months ended March 31, 1996 and 1995.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for the full year. These financial
statements should be read in conjunction with the consolidated financial
statements, including notes thereto, of the Company for the year ended
December 31, 1995 contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
3. CONSOLIDATION CHARGES
During 1995, the Company entered into an aggressive plan to redeploy its
distribution resources in order to better service its customers and facilitate
the integration of the acquired companies. The consolidation plan includes
charges for employee termination and relocation, facility shutdown costs and
losses expected from the sale and abandonment of property. The Company
recorded a one time charge of $8.6 million in September 1995 consisting of
severance ($3.7 million), net facility lease cancellation costs ($4.5 million)
and a loss from a plan to dispose of long-lived assets ($0.4 million) related
to facility shutdowns reasonably expected to occur within one year. For the
three months ended March 31, 1996, total plan charges amounted to $0.4
million. The remaining estimated charges of approximately $4.4 million will
be recorded as incurred to reflect the cost of the physical relocation of
inventory and employees related to this plan.
4. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash Paid for Interest and Income Taxes:
Interest $ 10,127 $ 9,102
Income Taxes $ 82 $ 2,328
Details of Business Acquired:
Fair value of assets acquired $ 34,716
Cash paid at acquisition, net of
cash acquired (25,507)
Liabilities assumed $ 9,209
Interest accretion:
Subordinated Pay-In-Kind Debentures $ 3,805 $ 3,383
Capital contribution $ 5,000
</TABLE>
<PAGE>
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to Three Months Ended
March 31, 1995
Revenues increased $61.8 million (17.3%) to $418.9 million for 1996 as
compared to $357.1 million for 1995. On a per day basis, revenues increased
$0.9 million per day to $6.5 million per day for 1996 as compared to $5.6
million per day for 1995. Gross profit increased by $7.7 million (11.3%) to
$76.4 million for 1996 as compared to $68.7 million for 1995.
The increase in sales and gross profit is primarily the result of
internally generated sales and gross profit increases in all markets as a
result of deepening penetration in existing accounts, the addition of new
customers and the introduction of products new to the distribution supply
chain.
As a percentage of sales, gross profit decreased to 18.3% in 1996 as
compared to 19.3% in 1995. This is primarily a result of strong growth in
sales to the lower margin acute care business which grew 23.2% over first
quarter 1995 while the gross profit percentage declined 0.4% in comparison
with the alternate care markets which grew at 8.1% with a consistent gross
profit margin. Overall the decline in the acute care gross profit rate
contributed 0.3% to the decline, the shift in acute care sales concentration
contributed 0.4% to the gross profit reduction and an increase in various
miscellaneous costs of sales contributed 0.3%. The Company has taken steps in
the first quarter to counteract the decline in the acute care gross profit
percentage by increasing pricing levels where necessary. Customer reaction to
this has been positive overall.
Selling, general and administrative expenses increased $7.5 million (13.5%)
to $63.5 million for 1996 as compared to $56.0 million for 1995. As a
percentage of revenues, selling, general and administrative expenses decreased
to 15.2% as compared to 15.7%. This percentage decrease relates to the
consolidation plan's reduction in staffing and distribution facilities as well
as the Company's sales growth in the acute care market where the cost to
deliver product is generally lower as a percentage of sales.
Amortization of intangibles decreased $1.0 million in 1996 as compared to
1995. A $1.2 million decrease was due to several short lived intangibles
reaching full amortization in addition to the write-off of certain trademarks
associated with the manufacturing business that was sold in 1995. This was
partially offset by a $0.2 million increase due to the amortization of
additional intangibles associated with the acquisitions completed in 1995.
Interest expense increased $0.7 million in 1996 as compared to 1995. This
increase is the result of an increase in borrowings during the quarter to
support the initial sales growth.
Liquidity and Capital Resources
At March 31, 1996, the outstanding amount of the Company's indebtedness
(other than trade payables) was $373.4 million, including approximately $200.0
million of secured debt.
The Company's primary source of liquidity is cash flow generated from
operations and funds available to it under the Credit Agreement. For the
three months ended March 31, 1996, continuing operating activities provided
net cash of $12.5 million as compared to using $2.8 million for the three
months ended March 31, 1995. This increase in cash provided by operations
resulted from improved collections of accounts receivable and an increase in
sales. In addition, trade payables increased which is partially offset by an
increase in inventories. As of May 1, 1996, the Company had borrowings of
approximately $198.9 million outstanding under the Credit Agreement and had
unused availability under the Credit Agreement of approximately $33.6 million.
Future availability under the Credit Agreement will be determined by
prevailing levels of the Company's eligible accounts receivable and inventory.
The Credit Agreement terminates in August 1998 and, accordingly, the Company
expects that it will be necessary to refinance, or obtain an extension to the
Credit Agreement at that time.
The Company's most significant use of working capital is for accounts
receivable and inventories, which represented 47% and 40% of total tangible
assets at March 31, 1996, respectively. Due to the magnitude of its accounts
receivable and inventories, the Company's management places significant
emphasis on managing trade receivables including the related credit and
collection processes and inventory levels and turnover.
Days sales of accounts receivable outstanding and days sales of inventory,
for the continuing operations only, were as follows:
March 31 Trade Receivable Days Inventory Days
1996 43.6 43.5
1995 43.3 42.8
The increase in inventory days is due to a push to increase service to our
customers and meet the diverse product needs of new customers. It is
anticipated that in the long term this increase will be reversed as new
customer demand matures.
The foregoing table does not reflect inventory purchases by the Company in
contemplation of price increases or otherwise to take advantage of available
price discounts. Typically, these purchases involve comparable increases in
accounts payable.
The Company continually monitors conditions that may affect the carrying
value of its tangible and intangible long lived assets, including goodwill.
When conditions indicate potential impairment of such assets, the Company
reevaluates projected future earnings associated with these assets. When it
is determined that projected earnings are less than the carrying amount of the
asset, the impaired asset is written down to net realizable value. The
Company is in the process of implementing strategies to increase profitability
at certain of its acquired distribution centers which are currently performing
below expectations. The results of the actions will continue to be closely
monitored to determine if the related goodwill might be impaired.
<PAGE>
PART II.OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
<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.
GENERAL MEDICAL CORPORATION
By /s/ Donald B. Garber
Donald B. Garber
Senior Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
Date: May 13, 1996
<PAGE>
Exhibit Index
Exhibit # Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000880123
<NAME> GENERAL MEDICAL CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5797
<SECURITIES> 0
<RECEIVABLES> 199329
<ALLOWANCES> 5693
<INVENTORY> 170480
<CURRENT-ASSETS> 377232
<PP&E> 43182
<DEPRECIATION> 13187
<TOTAL-ASSETS> 680069
<CURRENT-LIABILITIES> 201709
<BONDS> 171744
0
0
<COMMON> 1
<OTHER-SE> 105115
<TOTAL-LIABILITY-AND-EQUITY> 680069
<SALES> 418223
<TOTAL-REVENUES> 418902
<CGS> 342417
<TOTAL-COSTS> 406985
<OTHER-EXPENSES> 401
<LOSS-PROVISION> 830
<INTEREST-EXPENSE> 9985
<INCOME-PRETAX> 701
<INCOME-TAX> 929
<INCOME-CONTINUING> (228)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (228)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
