Medical Action Industries first-quarter fiscal 2011 net sales decrease 5.5%

Medical Action Industries Inc. (NASDAQ/MDCI), a leading supplier of medical and surgical disposable products, today reported fiscal results for the first quarter ended June 30, 2010.

“We believe we are on the right track and are pursuing the correct solutions for ultimately taking Medical Action to new levels of growth.”

Citing previously disclosed business challenges -- including a comprehensive realignment of the Company's sales operations to drive future revenue growth, rising costs for raw materials and an industry trend of softer product demand resulting from lower healthcare utilization, as well as fluctuations in ordering patterns by two major customers, Medical Action reported net sales of $66,796,000, a decrease of $3,891,000, or 5.5%, versus the $70,687,000 reported for the 2010 first quarter ended June 30, 2009.

Net income for the first quarter of 2011 was $496,000, or $0.03 per basic and diluted share, versus the $3,650,000, or $0.23 per basic and diluted share, reported for the prior year period. The latest results include an extraordinary loss of $1,455,000, or $0.06 per basic and $0.05 per diluted share (net of applicable tax benefit), due to weather-related water damage at an off-site warehouse used to store finished goods inventory near Medical Action's Tennessee production facility. The loss has not effected production capacity or sales. The Company has filed an insurance claim with our insurer for this loss which was subsequently denied. We have since filed an appeal with our insurer and our insurance broker has submitted a claim on our behalf under their errors and omissions policies. Final resolution on this issue, subject to a $500,000 deductible, is anticipated within the next six months.

During the quarter, Medical Action used cash on-hand and cash generated from operating activities to reduce debt. Total debt at the end of the 2011 first quarter was $15,010,000, versus $18,235,000 in the prior quarter and $42,842,000 at the end of the 2010 first quarter.

"Our first quarter results demonstrate that Medical Action's competitive transformation is still very much a work in progress," said Chief Executive Officer and President Paul D. Meringolo. "The issues affecting performance are not new, and have been discussed previously with our key audiences. We believe these challenges will be overcome and/or managed more effectively because our balance sheet, core values and ability to effectively provide value added products and services to our customers remain strong, as does our optimism about Medical Action's future growth prospects."

"To address these issues," Meringolo said, "we are continuing our work on the revitalization of Medical Action's sales force in terms of people, processes and logistics. We continue to manage the effect of inflationary pressure on raw material costs, principally China sourced products, and identify methods to manage resin costs in a volatile marketplace. We continue to seek clarity of ongoing shifts in demand for product that are impacting our markets as we help our customers to control costs and build even stronger relationships with them." He noted that, among highlights of the quarter, Medical Action announced June 8 that it had renewed a three-year, sole source national contract with Novation LLC, one of America's leading healthcare supply contracting companies, to provide patient bedside plastics and stainless steel products to the members of VHA Inc., the University HealthSystem Consortium (UHC) and Provista, LLC.

"We anticipate some adverse effect on gross margin and other measures as we work through this transition period and reluctantly choose not to pass along our higher costs to customers in a tough competitive environment," Meringolo added. "We believe we are on the right track and are pursuing the correct solutions for ultimately taking Medical Action to new levels of growth."