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Medical Action Industries Reports Third Quarter Fiscal 2013 Results



Medical Action Industries Reports Third Quarter Fiscal 2013 Results

BRENTWOOD, N.Y., Feb. 11, 2013 (GLOBE NEWSWIRE) -- Medical Action Industries
Inc. (Nasdaq:MDCI), a leading supplier of medical and surgical disposable
products, today reported financial results for the third quarter ended
December 31, 2012, including quarterly net sales of $109.4 million and gross
profit of $19.1 million (the highest in Company history) or 17.5% of net
sales. The Company generated non-GAAP net income (before a goodwill impairment
charge and certain professional fees) of $1.6 million^(1)or $0.10^(1) per
diluted share and EBITDA, as adjusted, of $6.1 million^(2). These gross
profit, non-GAAP net income and EBITDA, as adjusted results represent
significant increases versus the comparable non-GAAP results for the same
period of fiscal 2012. On a GAAP basis, the Company reported a net loss of
$55.5 million or $3.39 per diluted share, principally related to the
impairment of goodwill of $56.8 million, net of income tax benefit, determined
in connection with the Company's annual goodwill impairment test as of
December 31, 2012.

For the nine months ended December 31, 2012, the Company reported net sales of
$333.7 million, gross profit of $53.5 million or 16.0% of net sales, non-GAAP
net income of $2.0 million^(1) or $0.12^(1) per diluted share and EBITDA, as
adjusted, of $14.1 million^(2), all of which exceeded the comparable non-GAAP
results for the first nine months of fiscal 2012. On a GAAP basis, the Company
reported a net loss of $55.6 million or $3.39 per diluted share. Additionally,
since March 31, 2012, the Company has reduced the balance outstanding under
its debt facilities by $21.3 million.

Paul D. Meringolo, Chief Executive Officer and President said, "We have made
significant improvements in our gross profit culminating with the $19.1
million reported during the third quarter, which is the highest quarterly
amount in the Company's thirty-six year history. This improvement in gross
profit is the result of management's cost savings initiatives, elimination of
unprofitable sales, as well as a reduction in raw material costs. Since June
2012, when the Company was realigned into strategic business units,
management's focus on targeted markets has improved considerably and the
action plans centered on improving profit and containing costs have yielded
the year over year and sequential gross profit improvements we are reporting
today. We have been able to make these impressive strides by improving upon
our internal operations and management effectiveness without compromising our
focus on delivering exceptional service and value to our customers. We still
have challenges and opportunities ahead of us and I am extremely pleased at
the success we have had in the last several months as we have refocused the
Company. Finally, I am excited about the opportunity to work with our interim
Chief Operating Officer, Paul Chapman, on continuing to drive improvements in
profit and cost containment."

Quarter Results

Net sales for the third quarter were $109.4 million, down $3.6 million or 3.2%
from net sales of $113.0 million for the third quarter of last year. This
modest decrease results in part from management's efforts to focus on
profitable business and to decrease or eliminate unprofitable or non-core
sales. The reported gross profit of $19.1 million, or 17.5% of net sales,
represents a record result for the Company while the gross margin percentage
is the highest in two years. By comparison, gross profit in the prior year
period amounted to $17.1 million or 15.2% of net sales. This improvement in
gross profit is the result of management's cost savings initiatives,
elimination of unprofitable sales, as well as a reduction in raw material
costs. 

On a GAAP basis, the Company reported a net loss of $55.5 million or $3.39 per
diluted share, compared to reported net income of $1.8 million or $0.11 per
diluted share for the same period of fiscal 2012. The results for the third
quarter were impacted by a non-recurring, non-cash goodwill impairment charge
of $78.6 million and $0.5 million of professional fees related to our
renegotiated credit agreement. The after-tax impact of the goodwill impairment
charge was $56.8 million and $0.3 million for the professional fees. The
goodwill impairment was determined as part of the Company's regular annual
impairment test and had no effect on the Company's cash position. The results
for the same period of fiscal 2012 benefitted from a bonus accrual reversal of
$1.8 million, net of applicable taxes, related to a reduction in the Company's
bonus accrual which was precipitated by the failure to meet certain
operational performance objectives.

On a non-GAAP basis, the Company generated non-GAAP net income (before a
goodwill impairment charge and certain professional fees) of $1.6
million^(1)or $0.10^(1) per diluted share for the third quarter compared to a
non-GAAP net income (before bonus accrual reversal) of less than $0.1
million^(1) or $0.00^(1) per diluted share for the same period of fiscal
2012. EBITDA, as adjusted, for the third quarter was $6.1 million^(2) compared
to $3.8 million^(2) for the same period of fiscal 2012.

Year-to-Date Results

Net sales for the nine months ended December 31, 2012 were $333.7 million, an
increase of $4.6 million or 1.4% from net sales of $329.1 million for the
first nine months of fiscal 2012. Our gross profit of $53.5 million or 16.0%
of net sales has improved compared to the gross profit of $50.8 million or
15.4% for the first nine months of fiscal 2012. This improvement in gross
profit is the result of management's cost savings initiatives, elimination of
unprofitable sales, as well as a reduction in raw material costs. 

On a GAAP basis, the Company reported a net loss of $55.6 million or $3.39 per
diluted share, compared to reported net income of $2.6 million or $0.16 per
diluted share for the same period of fiscal 2012. The results for the nine
months ended December 31, 2012 were impacted by the previously described
goodwill impairment charge of $78.6 million ($56.8 million after income tax
benefit) and $1.1 million of professional fees ($0.7 million after income tax
benefit) related to our renegotiated credit agreement. The results for the
same period of fiscal 2012 benefitted from the aforementioned bonus accrual
reduction of $1.8 million, net of applicable taxes, and an extraordinary gain
of $0.4 million, net of applicable taxes, resulting from an insurance
settlement associated with damaged inventories.

On a non-GAAP basis, the Company generated non-GAAP net income (before a
goodwill impairment charge and certain professional fees) of $2.0
million^(1)or $0.12^(1) per diluted share for the nine months ended December
31, 2012 compared to non-GAAP net income (before bonus accrual reversal and
extraordinary gain) of $0.4 million^(1) or $0.03^(1) per diluted share for the
first nine months of fiscal 2012.  EBITDA, as adjusted, for the nine months
ended December 31, 2012 was $14.1 million^(2) compared to $12.2 million^(2)
for the first nine months of fiscal 2012.

Liquidity and Capital Resources

The balance of cash and cash equivalents was $0.2 million at December 31,
2012, down $5.2 million from March 31, 2012. For the nine months ended
December 31, 2012, the Company reported cash generated by operating activities
of $17.5 million compared to cash generated by operating activities of $3.6
million for the first nine months of fiscal 2012. The Company manages cash and
cash equivalent balances to minimize the amounts outstanding under its
revolving credit facility in an effort to reduce borrowing costs. As of
December 31, 2012, the Company had $10.7 million available for additional
borrowing under its revolving credit facility.

The Company's outstanding debt on its credit facility was $54.4 million at
December 31, 2012, down $21.3 million from March 31, 2012. The credit facility
consists of; (i) a term loan with $49.0 million outstanding at December 31,
2012 and (ii) a revolving credit facility with $5.3 million outstanding at
December 31, 2012. As of December 31, 2012, the Company is in compliance with
all covenants and financial ratios applicable under our credit
facility. Furthermore, we believe that the anticipated future cash flow from
operations, coupled with our cash on hand and available funds under our
revolving credit facility will be sufficient to meet working capital
requirements.

Investors Conference Call

Medical Action invites its stockholders and other interested parties to attend
its conference call at 10:00 a.m. (ET) on February 11, 2013. You may listen to
the conference call by calling (888) 868-9080 (domestic) or (973) 935-8511
(international); conference ID #97614083. The conference call will be
simultaneously web cast on our website: www.medical-action.com. The complete
call and discussion will be available for replay on our website beginning at
1:00 p.m. (ET) on February 11, 2013.

About Medical Action Industries Inc.

Medical Action Industries Inc. (Nasdaq:MDCI), is a diversified manufacturer
and distributor of disposable medical devices and a leader in many of the
markets where it competes. Its products are marketed primarily to acute care
facilities in domestic and certain international markets. The Company has
expanded its target market to include physician, dental and veterinary
offices, out-patient surgery centers, long-term care facilities and
laboratories. Medical Action's products are marketed nationally by its direct
sales personnel and extensive network of healthcare distributors. The Company
has preferred vendor agreements with national and regional distributors, as
well as sole and multi-source agreements with group purchasing organizations.
Medical Action's common stock trades on the NASDAQ Global Select Market under
the symbol MDCI and is included in the Russell Microcap^® Index.

This news release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact are forward-looking statements for purposes of
these provisions, including any projections of earnings, revenues or other
financial items, any statements of the plans and objectives for management for
future operations, any statements concerning proposed new products or
services, any statements regarding future economic conditions or performance,
and any statements of assumptions underlying any of the foregoing. All
forward-looking statements included in this news release are made as of the
date hereof and are based on information available to us as of such date. The
Company assumes no obligation to update any forward-looking statement. In some
cases, forward-looking statements can be identified by the use of terminology
such as "may," "will," "expects," "plans," "anticipates," "intends,"
"believes," "estimates," "potential," or "continue," or the negative thereof
or other comparable terminology. Although the Company believes that the
expectations reflected in the forward-looking statements contained herein are
reasonable, there can be no assurance that such expectations or any of the
forward-looking statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the forward-looking
statements. Future financial condition and results of operations, as well as
any forward-looking statements, are subject to inherent risks and
uncertainties, including manufacturing inefficiencies, termination or
interruption of relationships with our suppliers, potential delays in
obtaining regulatory approvals, product recalls, product liability claims, our
inability to successfully manage growth through acquisitions, our failure to
comply with governing regulations, risks of international procurement of raw
materials and finished goods, market acceptance of our products, market price
of our Common Stock, foreign currency fluctuations, resin volatility and other
factors referred to in our press releases and reports filed with the
Securities and Exchange Commission (the "SEC"). Please see the Company's
filings with the SEC, including, without limitation, the Company's Annual
Report on Form 10-K and Quarterly Reports on Form 10-Qs, which identify
specific factors that would cause actual results or events to differ
materially from those described in the forward-looking statements.

MEDICAL ACTION INDUSTRIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions, except per share data)
 
                                                      December 31,  March 31, 
                                                      2012          2012
                                                      (Unaudited)    
 ASSETS                                                              
Current Assets                                                       
Cash and cash equivalents                              $ 0.2         $ 5.4
Accounts receivable, less allowance for doubtful
accounts of $0.8 at December 31, 2012 and $0.8 at      28.7          30.8
March 31, 2012
Inventories, net                                       54.4          53.8
Prepaid expenses                                       2.1           1.8
Deferred income taxes                                  3.4           3.1
Prepaid income taxes                                   0.5           1.3
Other current assets                                   2.0           1.9
Total current assets                                   91.2          98.2
                                                                     
Property, plant and equipment, net of accumulated
depreciation of $36.9 million at December 31, 2012     46.5          49.1
and $35.3 million at March 31, 2012
Goodwill                                               29.2          107.8
Other intangible assets, net                           37.2          39.2
Other assets, net                                      2.4           2.9
Total assets                                           $ 206.6       $ 297.1
                                                                     
 LIABILITIES AND STOCKHOLDERS' EQUITY                                
Current Liabilities                                                  
Accounts payable                                       $ 14.4        $ 11.3
Accrued expenses                                       22.5          18.1
Current portion of capital lease obligation            0.2           0.1
Current portion of long-term debt                      7.3           8.0
Total current liabilities                              44.4          37.6
                                                                     
Deferred income taxes                                  7.7           29.5
Capital lease obligation, less current portion         13.5          13.7
Long-term debt, less current portion                   47.1          67.7
Total liabilities                                      112.6         148.3
                                                                     
Stockholders' equity:                                                
Common stock 40.0 shares authorized, $.001 par value;
issued and outstanding 16.4 shares at December 31,     0.0           0.0
2012 and March 31, 2012
Additional paid-in capital                             35.3          34.5
Accumulated other comprehensive loss                   (0.7)         (0.7)
Retained earnings                                      59.5          115.0
Total stockholders' equity                             94.0          148.8
Total liabilities and stockholders' equity             $ 206.6       $ 297.1

 
MEDICAL ACTION INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except per share data)
 
                                         Three Months Ended Nine Months Ended
                                         December 31,       December 31, 
                                         2012      2011     2012      2011
                                         (Unaudited)        (Unaudited)
                                                                       
Net sales                                 $ 109.4   $ 113.0  $ 333.7   $ 329.1
Cost of sales                             90.3      95.8     280.2     278.3
Gross profit                              19.1      17.1     53.5      50.8
                                                                       
Selling, general and administrative       15.9      13.3     48.0      44.1
expenses
Goodwill impairment charge                78.6      --       78.6      -- 
Operating income (loss)                   (75.4)    3.8      (73.1)    6.7
                                                                       
Interest expense, net                     1.1       1.2      3.6       3.4
                                                                       
Income (loss) before income taxes and     (76.6)    2.6      (76.7)    3.3
extraordinary item
Income tax expense (benefit)              (21.1)    0.8      (21.1)    1.1
Extraordinary gain, net of tax expense    --        --       --        0.4
                                                                       
Net income (loss)                         $ (55.5)  $ 1.8    $ (55.6)  $ 2.6
                                                                       
Per share basis:                                                       
Basic                                                                  
Income (loss) before extraordinary item   $ (3.39)  $ 0.11   $ (3.39)  $ 0.13
Extraordinary gain, net of tax expense    --        --       --        0.03
Net income (loss)                         $ (3.39)  $ 0.11   $ (3.39)  $ 0.16
Weighted-average common                  16.4      16.4     16.4      16.4
shares outstanding (basic)
                                                                       
Diluted                                                                
Income (loss) before extraordinary item   $ (3.39)  $ 0.11   $ (3.39)  $ 0.13
Extraordinary gain, net of tax expense    --        --       --        0.03
Net income (loss)                         $ (3.39)  $ 0.11   $ (3.39)  $ 0.16
Weighted-average common shares           16.4      16.4     16.4      16.4
outstanding (diluted)

Footnotes

The press release includes the use of non-GAAP financial measures that are not
prepared in accordance with U.S. generally accepted accounting principles and
that exclude the effects of a goodwill impairment charge recognized during the
three months ended December 31, 2012 and professional fees related to our
renegotiated credit agreement incurred during the three and nine months ended
December 31, 2012 as well as a bonus accrual reversal and extraordinary gain
reported during the comparable prior periods of fiscal 2012. These non-GAAP
financial measures should not be considered a substitute for measures of
financial performance prepared in accordance with GAAP. These non-GAAP
financial measures have been used in this press release because management
believes they are useful to investors by providing greater transparency to
Medical Action's operating performance.

(1)   Reconciliation of net income (loss) to non-GAAP net income and non-GAAP
earnings per share

(dollars in millions, except per share   Three Months Ended Nine Months Ended 
data)                                     December 31,      December 31,
                                         2012       2011    2012       2011
                                         (Unaudited)        (Unaudited)
                                                                        
Net income (loss)                         $ (55.5)   $ 1.8   $ (55.6)   $ 2.6
                                                                        
Adjustments, net of applicable taxes;                                   
Goodwill impairment charge                56.8       --      56.8       -- 
Professional fees associated with credit  0.3        --      0.7        -- 
agreement
Bonus accrual reversal                    --         (1.8)   --         (1.8)
Extraordinary gain                        --         --      --         (0.4)
Non-GAAP net income                       $ 1.6      $ 0.0   $ 2.0      $ 0.4
                                                                        
Non-GAAP diluted income per common share  $ 0.10     $ 0.00  $ 0.12     $ 0.03
                                                                        
Weighted average number of common shares  16.4       16.4    16.4       16.4
outstanding - diluted
                                                                        

(2)   Reconciliation of net income (loss) to EBITDA and EBITDA, as adjusted

(dollars in millions)                   Three Months Ended  Nine Months Ended 
                                        December 31,        December 31,
                                        2012        2011    2012       2011
                                        (Unaudited)         (Unaudited)
                                                                        
Net income (loss)                        $ (55.5)    $ 1.8   $ (55.6)   $ 2.6
Interest expense                         1.1         1.2     3.6        3.4
Income tax expense (benefit)             (21.1)      0.8     (21.1)     1.3
Depreciation                             1.2         1.4     3.8        4.4
Amortization                             0.9         1.1     2.9        3.3
EBITDA                                   $ (73.2)    $ 6.3   $ (66.4)   $ 15.1
                                                                        
Stock-based compensation                 $ 0.3       $ 0.1   $ 0.8      $ 0.5
Bonus accrual reversal                   --          (2.6)   --         (2.6)
Extraordinary gain                       --          --      --         (0.4)
Goodwill impairment charge               78.6        --      78.6       -- 
Professional fees related to credit      0.5         --      1.1        -- 
agreement
EBITDA, as adjusted                      $ 6.1       $ 3.8   $ 14.1     $ 12.5

EBITDA is defined as earnings (loss) before interest, income taxes,
depreciation and amortization.  EBITDA is a non-GAAP financial measure.

EBITDA, as adjusted represents EBITDA as defined above adjusted for a goodwill
impairment charge recognized during the three months ended December 31, 2012,
professional fees related to our renegotiated credit agreement recognized
during the three and nine months ended December 31, 2012, a bonus accrual
reversal and extraordinary gain recognized during the three and nine months
ended December 31, 2011 and stock-based compensation.  Stock-based
compensation represents compensation expenses associated with stock options
and restricted stock.

Management believes EBITDA and EBITDA, as adjusted, to be meaningful
indicators of our performance that provides useful information to investors
regarding our financial condition and results of operations. Presentations of
EBITDA and EBITDA, as adjusted, are non-GAAP financial measures commonly used
by financial analysts and our lenders to measure operating performance.  While
management considers EBITDA and EBITDA, as adjusted, to be important measures
of comparative operating performance, they should be considered in addition
to, but not as a substitute for, net income and other measures of financial
performance reported in accordance with GAAP.  EBITDA and EBITDA, as adjusted
do not reflect cash available to fund cash requirements.  Not all companies
calculate EBITDA or EBITDA, as adjusted in the same manner and the measure as
presented may not be comparable to similarly-titled measures presented by
other companies.

CONTACT: John Sheffield
         Executive Vice President and Chief Financial Officer
         MEDICAL ACTION INDUSTRIES INC.
         (631) 231-4600

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