<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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
-------------------
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 0-22726
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SAFESKIN CORPORATION
--------------------
(Exact name of registrant as specified in its charter)
Florida 59-2617525
--------------------------- ---------------------
(State or other jurisdiction (IRS Employer ID No.)
of incorporation of organization)
12671 High Bluff Drive, San Diego, California 92130
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(Address of principal executive offices)
(619) 794-8111
--------------
(Registrant's telephone number, including area code)
6815 Flanders Drive, Suite 150, San Diego, California 92121
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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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 30, 1996
----- -----------------------------
Common Stock, par value $0.01 per share 12,521,431
<PAGE> 2
SAFESKIN CORPORATION
INDEX
<TABLE>
<CAPTION>
Page Number
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<S> <C>
PART I: Financial Information........................................ 1
ITEM 1. Financial Statements......................................... 1
Condensed Consolidated Balance Sheets
at March 31, 1996 and December 31, 1995...................... 2
Condensed Consolidated Statements of
Operations for the three months ended
March 31, 1996 and 1995 ..................................... 3
Condensed Consolidated Statements of
Cash Flows for the three months ended
March 31, 1996 and 1995...................................... 4
Notes to Condensed Consolidated Financial
Statements................................................... 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 6
PART II: Other Information............................................ 10
ITEM 6. Exhibits and Reports on Form 8-K............................. 10
SIGNATURES....................................................... 11
</TABLE>
-i-
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
--------------------
<TABLE>
<CAPTION>
INDEX PAGE
----- ----
<S> <C>
Condensed Consolidated Balance Sheets at March 31, 1996
and December 31, 1995 ........................................... 2
Condensed Consolidated Statements of Operations for
the three months ended March 31, 1996 and 1995 ................. 3
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1995 ...................... 4
Notes to Condensed Consolidated Financial Statements............. 5
</TABLE>
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<PAGE> 4
SAFESKIN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited)
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 3,754,646 $ 2,086,972
Accounts receivable, net.............................. 18,886,287 17,521,996
Inventory............................................. 21,679,266 18,021,414
Other current assets.................................. 2,736,814 2,488,855
------------ ------------
Total current assets............................... 47,057,013 40,119,237
Property, plant and equipment, net....................... 45,581,765 42,737,526
Deferred taxes and other assets.......................... 1,462,101 1,818,030
------------ ------------
Total assets....................................... $ 94,100,879 $ 84,674,793
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 5,408,665 $ 6,318,089
Accrued liabilities................................... 6,743,732 5,745,663
------------ ------------
Total current liabilities.......................... 12,152,397 12,063,752
------------ ------------
Long-term debt........................................... 6,060,000 2,750,000
------------ ------------
Total liabilities.................................. 18,212,397 14,813,752
Commitments and contingencies
Shareholders' equity:
Preferred stock; $.01 par value; 10,000,000 shares
authorized and no shares outstanding................ - -
Common stock; $.01 par value; 40,000,000 shares
authorized; 12,488,831 shares
and 12,480,531 shares outstanding................... 124,888 124,805
Additional paid-in-capital............................. 31,126,699 31,013,995
Deferred compensation.................................. (899,158) (1,012,895)
Foreign currency translation adjustment................ 699,384 348,851
Retained earnings...................................... 44,836,669 39,386,285
------------ ------------
Total shareholders' equity.......................... 75,888,482 69,861,041
------------ ------------
Total liabilities and shareholders' equity.......... $ 94,100,879 $ 84,674,793
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
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<PAGE> 5
SAFESKIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Net sales.......................................... $33,054,918 $22,592,940
Cost of goods sold................................. 19,786,226 14,462,402
----------- -----------
Gross profit........................... 13,268,692 8,130,538
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Operating expenses:
Selling....................................... 3,863,688 3,406,989
Research and development...................... 452,362 256,154
General and administrative.................... 2,396,801 1,121,726
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Total operating expenses............... 6,712,851 4,784,869
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Income from operations................. 6,555,841 3,345,669
Interest expense................................... 64,445 8,590
Other expense (income), net........................ 95,186 (81,390)
----------- -----------
Income before income tax provision................. 6,396,210 3,418,469
Income tax provision............................... 945,826 321,500
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Net income......................................... $ 5,450,384 $ 3,096,969
=========== ===========
Per share amounts:
Earnings per share of common stock
and common stock equivalents:
Primary........................... $ 0.41 $ 0.25
Fully diluted..................... 0.40 0.25
Weighted average number of shares of common
stock and common stock equivalents outstanding:
Primary........................... 13,172,593 12,603,630
Fully diluted..................... 13,733,327 12,603,630
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
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<PAGE> 6
SAFESKIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 5,450,384 $ 3,096,969
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization......................... 1,289,166 757,068
Loss (gain) on sale of property, plant and equipment 27,273 (6,501)
Amortization of deferred compensation 113,737 -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable.............................. (1,379,123) (655,515)
Inventory........................................ (3,691,148) (2,115,977)
Other assets..................................... 103,473 109,721
Increase in:
Accounts payable and accrued liabilities......... 92,453 1,302,533
------------ ------------
Net cash provided by operating activities............. 2,006,215 2,488,298
Cash flows from investing activities:
Purchase of property, plant and equipment................ (4,186,779) (2,907,137)
Proceeds from sale of equipment.......................... - 7,734
------------ ------------
Net cash used by investing activities................. (4,186,779) (2,899,403)
------------ ------------
Cash flows from financing activities:
Increase in long-term debt............................... 3,310,000 -
Proceeds from issuance of common stock................... 112,787 48,000
------------ ------------
Net cash provided by financing activities............. 3,422,787 48,000
------------ ------------
Effect of exchange rate changes on cash..................... 425,451 (173,461)
------------ ------------
Net increase (decrease) in cash and cash equivalents........ 1,667,674 (536,566)
Cash and cash equivalents at beginning of period............ 2,086,972 4,581,417
------------ ------------
Cash and cash equivalents at end of period.................. $ 3,754,646 $ 4,044,851
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
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<PAGE> 7
SAFESKIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, which consist
of normal and recurring adjustments necessary for a fair presentation of
results for the periods indicated. The results of any interim period are
not necessarily indicative of results for the full year. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the related notes thereto for the year ended
December 31, 1995. The December 31, 1995 condensed consolidated balance
sheet was derived from audited financial statements, but does not include
all disclosures required by generally accepted accounting principles.
2. Inventory at March 31, 1996 consisted of $1,497,000, $158,000 and
$20,024,000 for raw materials, work in process and finished goods,
respectively. At December 31, 1995, inventories consisted of $2,005,000,
$132,000 and $15,884,000 for raw materials, work in process and finished
goods, respectively.
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<PAGE> 8
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and related notes thereto.
GENERAL
The Company's net sales have grown substantially over the past several years.
The Company attributes the growth in net sales during this period principally
to growth in markets for its products, the introduction of new products and
increased market penetration due to the development of sales and marketing
programs. The Company introduced lightly powdered hypoallergenic medical
gloves, powder-free hypoallergenic medical gloves, HypoClean(R) powder-free
hypoallergenic gloves, powder-free hypoallergenic latex surgical gloves and
Scientific/Industrial Nitrile gloves in 1989, 1990, 1992, 1994 and 1995,
respectively. Although the Company has continued to develop new products and
expects to do so in the future, no assurance can be given that the new products
will be accepted in the marketplace with similar growth rates.
The Company's net sales are derived from the sale of finished products net of
allowable rebates to distributors for their sales of the Company's products in
specific volumes to specified end users. Cost of goods sold includes all costs
to manufacture the finished product plus related costs associated with ocean
freight, customs duty and warehousing. Selling expenses include all salaries
for sales and marketing staffs together with other related expenses such as
sales commissions, travel costs, trade shows, advertising and delivery expenses.
Research and development expenses include salaries for research and development
staffs as well as expenses such as consulting, product testing and travel
costs. General and administrative expenses include salaries for executives and
administrative staffs, together with related expenses such as travel costs,
insurance and professional fees. Income tax expenses are substantially less
than statutory rates as a result of the tax free status of the Company's
foreign manufacturing operations.
The Company's medical glove distributors do not bill third-party reimbursement
sources separately for purchases of the Company's gloves. Consequently, the
timing and effect of third-party payments to hospitals and clinics does not
have a material direct effect on the Company's operations and liquidity.
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<PAGE> 9
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1995
Net sales for the three months ended March 31, 1996 were $33,055,000 which
represents a 46.3% increase over net sales of $22,593,000 for the same three
month period in 1995. The predominant causes for the sales growth were an
increase in unit volumes sold and the shift in product mix to higher priced
powder-free gloves in the 1996 period as compared to the 1995 period.
Cost of goods sold increased 36.8% from $14,462,000 for the three months ended
March 31, 1995 to $19,786,000 for the three months ended March 31, 1996. As a
percentage of net sales, cost of goods sold decreased from 64.0% for the three
months ended March 31, 1995 to 59.9% for the same period in 1996. This
decrease in cost of goods sold as a percentage of net sales was principally
attributable to improved operating efficiencies in the Thailand facility during
the 1996 period. The Company anticipates that these operating efficiencies
will continue in 1996 as the Thailand facility's production capacity increases.
As a result of the above, gross profit increased 63.2%, from $8,131,000 for
the three months ended March 31, 1995, to $13,269,000 for the three months
ended March 31, 1996.
Selling expenses increased 13.4%, from $3,407,000 for the three months ended
March 31, 1995, to $3,864,000 for the three months ended March 31, 1996. As a
percentage of net sales, selling expenses decreased from 15.1% for the three
months ended March 31, 1995 to 11.7% for the same period in 1996. The decrease
in selling expenses as a percentage of net sales pertains primarily to overall
selling expenses such as salaries, travel costs and delivery expenses remaining
comparable to the prior year while sales levels have significantly increased
over the prior year.
Research and development expenses increased 76.6% from $256,000 for the three
months ended March 31, 1995 to $452,000 for the three months ended March 31,
1996. As a percentage of net sales, these expenses increased from 1.1% for the
three months ended March 31, 1995 to 1.4% for the three months ended March 31,
1996.
General and administrative expenses increased 113.7% from $1,122,000 for the
three months ended March 31, 1995 to $2,397,000 for the three months ended
March 31, 1996. As a percentage of net sales, these expenses increased from
5.0% for the 1995 period to 7.3% for the 1996 period. The increase in general
and administrative expenses as a percentage of net sales pertains primarily to
increased costs associated with the Information Technology Department (which
was established in the second quarter of fiscal year 1995) to support the
continued growth of the Company. Additional factors include compensation
increases for existing employees and increased depreciation expense in fiscal
1996.
Income from operations increased 96.0% from $3,346,000 for the three months
ended March 31, 1995 to $6,556,000 for the three months ended March 31, 1996,
and operating margins increased from 14.8% in the 1995 period to 19.8% in the
1996 period.
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<PAGE> 10
Interest expense increased from $9,000 for the three months ended March 31,
1995 to $64,000 for the three months ended March 31, 1996. The increase
resulted from the additional debt incurred in 1996 to facilitate the growth of
the Company.
Other expense (income), net, decreased from $81,000 of other income for the
three months ended March 31, 1995 to $95,000 of other expense for the three
months ended March 31, 1996. The decrease in other income was primarily due to
the reclassification of scrap sale proceeds totaling approximately $109,000 as
a reduction of cost of goods sold which occurred in the second quarter of
fiscal 1995.
Income taxes increased from $322,000 for the three months ended March 31, 1995
to $946,000 for the three months ended March 31, 1996. During June 1994, the
Company's Malaysian manufacturing operations were granted five additional years
of tax free status retroactive to October 1, 1993. The income tax provisions
recorded in both 1995 and 1996 remain less than statutory rates due to the
foreign tax free status.
Net income increased 76.0% from $3,097,000 for the three months ended March 31,
1995 to $5,450,000 for the three months ended March 31, 1996 due to the
foregoing factors.
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<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations generated approximately $2,006,000 and $2,488,000 of
cash during the three months ended March 31, 1996 and 1995, respectively.
Further, during the three months ended March 31, 1996 and 1995, the Company
acquired capital assets of approximately $4,187,000 and $2,907,000,
respectively, substantially all of which were for the expansion of the
Company's foreign manufacturing operations.
The Company has a domestic line of credit for financing general working capital
needs, up to a maximum of $15,000,000 in borrowings. As of March 31, 1996,
there was $6,060,000 outstanding under this credit facility.
The Company's foreign manufacturing subsidiaries have revolving lines of credit
for financing general working capital needs up to approximately $13,700,000; of
which there were no outstanding balances as of March 31, 1996. These
borrowings are collateralized by all assets of the subsidiaries and are further
supported by the guarantee of the Company.
The Company does not believe that the relatively moderate levels of inflation
which have been experienced in the United States in recent years have had a
significant effect on its net sales or its profitability.
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<PAGE> 12
PART II: OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<Caption
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
11 Statement re: Computation of per share earnings
27 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K
None.
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<PAGE> 13
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.
SAFESKIN CORPORATION
Date: May 10, 1996 By: /s/ David L. Morash
--------------------------
David L. Morash, Executive
Vice-President, Chief
Financial Officer
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<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-------------------------------------
1996 1995
---- ----
<S> <C> <C>
Primary:
Net Income................................. $ 5,450,384 $ 3,096,969
=========== ===========
Weighted average number of shares of
common stock outstanding................... 12,483,631 12,268,677
Net effect of dilutive stock
options--based on the treasury stock
method using average market price.......... 688,962 334,953
----------- -----------
Total weighted average number of
shares of common stock and common
stock equivalents outstanding.............. 13,172,593 12,603,630
=========== ===========
Net income per common share................ $ 0.41 $ 0.25
Fully diluted:
Net Income................................. $ 5,450,384 $ 3,096,969
=========== ===========
Weighted average number of shares of
common stock outstanding................... 12,483,631 12,268,677
Net effect of dilutive
stock options--based on
the treasury stock method
using the greater of the
average or quarter-end
market price............................... 1,249,696 334,953
----------- -----------
Total weighted average
number of shares of common
stock and common stock
equivalents outstanding.................... 13,733,327 12,603,630
=========== ===========
Net income per common share................ $ 0.40 $ 0.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,754,646
<SECURITIES> 0
<RECEIVABLES> 18,886,287
<ALLOWANCES> 0
<INVENTORY> 21,679,266
<CURRENT-ASSETS> 47,057,013
<PP&E> 45,581,765
<DEPRECIATION> 0
<TOTAL-ASSETS> 94,100,879
<CURRENT-LIABILITIES> 12,152,397
<BONDS> 6,060,000
0
0
<COMMON> 124,888
<OTHER-SE> 75,763,594
<TOTAL-LIABILITY-AND-EQUITY> 94,100,879
<SALES> 33,054,918
<TOTAL-REVENUES> 33,054,918
<CGS> 19,786,226
<TOTAL-COSTS> 19,786,226
<OTHER-EXPENSES> 452,362
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,445
<INCOME-PRETAX> 6,396,210
<INCOME-TAX> 945,826
<INCOME-CONTINUING> 5,450,384
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,450,384
<EPS-PRIMARY> .41
<EPS-DILUTED> .40
</TABLE>
