-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BPi3sN0q8v+mdbHLEEKKdhMPriVbPSWf2tg6MTxw9Vm2UiFdPpmjQqRESqCdgm+X i/y0JLH8nxTqugX5g3V6tw== 0001047469-98-020081.txt : 19980515 0001047469-98-020081.hdr.sgml : 19980515 ACCESSION NUMBER: 0001047469-98-020081 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMPI INC CENTRAL INDEX KEY: 0000317032 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 411310335 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09387 FILM NUMBER: 98619949 BUSINESS ADDRESS: STREET 1: 599 CARDIGAN ROAD CITY: ST. PAUL STATE: MN ZIP: 55126-4099 BUSINESS PHONE: (612)-415-9000 MAIL ADDRESS: STREET 1: 599 CARDIGAN ROAD STREET 2: 1275 GREY FOX ROAD CITY: ST. PAUL STATE: MN ZIP: 55126-4099 10-Q 1 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Quarter Ended MARCH 31, 1998 --------------------------------- Commission File Number 0-9387 ------------------------------ EMPI, INC. (Exact name of registrant as specified in its charter) Minnesota 41-1310335 ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 599 Cardigan Road St. Paul, Minnesota 55126-4099 ----------------------- ------------------ (Address of principal (Zip code) executive offices) Registrant's telephone number, including area code (612) 415-9000 ------------------- 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 / / 7,026,920 shares of common stock were outstanding as of May 8, 1998. EMPI, INC. INDEX PAGE Part I. FINANCIAL INFORMATION Item 1. CONSOLIDATED FINANCIAL STATEMENTS Unaudited Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 3 Unaudited Consolidated Statements of Operations for the periods ended March 31, 1998 and 1997 4 Unaudited Consolidated Statements of Cash Flows for the periods ended March 31, 1998 and 1997 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 8 Part II. OTHER INFORMATION 10 SIGNATURES 11 2 PART I - - FINANCIAL INFORMATION Item 1. CONSOLIDATED FINANCIAL STATEMENTS EMPI, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31 December 31 1998 1997 ----------- ----------- (In thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,290 $ 3,020 Short-term investments 17,364 21,480 Accounts receivable, less allowances 16,913 18,046 Inventories - Note B 8,242 8,003 Deferred income taxes 3,874 3,874 Other 1,175 1,072 -------- -------- TOTAL CURRENT ASSETS 52,858 55,495 PROPERTY, PLANT AND EQUIPMENT--NET 6,067 6,506 OTHER ASSETS 1,592 1,892 -------- -------- $ 60,517 $ 63,893 -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,956 $ 1,990 Customer advances 316 332 Employee compensation 1,287 1,655 Commissions payable 507 526 Current portion of long-term debt 269 269 Income taxes 1,402 --- Other 387 366 -------- -------- TOTAL CURRENT LIABILITIES 6,124 5,138 LONG-TERM DEBT, LESS CURRENT PORTION 66 66 SHAREHOLDERS' EQUITY: Common stock 2,944 9,847 Retained earnings 51,383 48,842 -------- -------- TOTAL SHAREHOLDERS' EQUITY 54,327 58,689 -------- -------- $ 60,517 $ 63,893 -------- -------- -------- --------
See notes to consolidated financial statements. 3 FORM 10-Q - - PART I - ITEM 1 (CONTINUED) EMPI, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31 1998 1997 --------- --------- (In thousands, except per share data) Net sales $ 16,997 $ 18,025 Cost of goods sold 4,255 4,723 --------- --------- GROSS PROFIT 12,742 13,302 Operating expenses: Selling, general and administrative 8,103 8,649 Research and development 841 968 --------- --------- Total operating expenses 8,944 9,617 --------- --------- INCOME FROM OPERATIONS 3,798 3,685 Other income, net 333 229 --------- --------- INCOME BEFORE INCOME TAXES 4,131 3,914 Income tax expense 1,590 1,507 --------- --------- NET INCOME $ 2,541 $ 2,407 --------- --------- --------- --------- DILUTED EARNINGS PER SHARE $ .32 $ .29 --------- --------- --------- --------- Diluted weighted average shares outstanding--Note C 7,927 8,369 --------- --------- --------- --------- BASIC EARNINGS PER SHARE $ .32 $ .30 --------- --------- --------- --------- Weighted average shares outstanding--Note C 7,821 8,157 --------- --------- --------- ---------
See notes to consolidated financial statements. 4 FORM 10-Q - - PART I - ITEM 1 (CONTINUED) EMPI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31 1998 1997 -------- ------- (In thousands) OPERATING ACTIVITIES Net income $ 2,541 $ 2,407 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 859 961 Provision for deferred income taxes ---- (486) Provision for loss on accounts receivable 557 511 Changes in operating assets and liabilities: Accounts receivable 576 (670) Inventories (239) (532) Accounts payable and accrued expenses (438) (933) Income taxes payable 1,402 602 Other (81) 248 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,177 2,108 INVESTING ACTIVITIES Maturities of short-term investments 5,079 2,295 Purchase of short-term investments (963) (2,351) Reductions in other assets --- 381 Purchase of equipment and improvements (120) (633) -------- -------- NET CASH PROVIDED BY(USED IN) INVESTING ACTIVITIES 3,996 (308) FINANCING ACTIVITIES Purchases and retirement of common stock (7,096) (2,955) Proceeds from exercise of common stock options 193 490 -------- -------- NET CASH USED IN FINANCING ACTIVITIES (6,903) (2,465) -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,270 (665) Cash and cash equivalents at beginning of year 3,020 2,849 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,290 $ 2,184 -------- -------- -------- --------
See notes to consolidated financial statements. 5 FORM 10-Q - - PART I - ITEM 1 (CONTINUED) EMPI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - ACCOUNTING POLICIES The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management of the Company, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the results have been included. Operating results for the three months ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in Empi, Inc. and Subsidiaries' annual report on Form 10-K for the year ended December 31, 1997. NOTE B - INVENTORIES
March 31 December 31 1998 1997 ---------- ----------- (In thousands) Finished goods $ 5,753 $ 5,515 Work in process 696 556 Raw materials 1,793 1,932 -------- -------- $ 8,242 $ 8,003 -------- -------- -------- --------
6 FORM 10-Q - - PART I - ITEM 1 (CONTINUED) NOTE C - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended March 31 1998 1997 -------- -------- (In thousands, except per share data) Net income $ 2,541 $ 2,407 Denominator for earnings per share: Weighted average shares; denominator for basic earnings per share 7,821 8,157 Effect of dilutive securities: Employee and nonemployee stock options 106 212 -------- -------- Dilutive common shares; denominator for diluted earnings per share 7,927 8,369 ------- ------- ------- ------- Basic earnings per share $ .32 $ .30 ------- ------- ------- ------- Diluted earnings per share $ .32 $ .29 ------- ------- ------- -------
7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS SALES Empi, Inc.'s ("Empi" or the "Company") net sales for the 1998 first quarter totaled $17.0 million compared to 1997 first quarter sales of $18.0 million, a decrease of 6 percent. This percentage decrease in net sales was a result of a 4 percent reduction in volume, combined with a 2 percent reduction in average selling price. Electrotherapy sales accounted for approximately 62 percent and 67 percent of total sales for the first quarters of 1998 and 1997, respectively. The electrotherapy product group experienced a 13 percent reduction in sales compared to the same period last year as the Company continues to encounter pricing pressures from third-party payors. The Company achieved sales growth of 11 percent growth within the iontophoretic drug delivery group, 4 percent growth within its orthotics product group and 13 percent growth in its incontinence product line. International sales for the first quarter, as a percentage of total sales, decreased to 2 percent compared to 5 percent for the same period last year. GROSS PROFIT Gross profit for the 1998 first quarter was $12.7 million compared to $13.3 million for the 1997 first quarter, a decrease of 4 percent. Gross profit as a percentage of sales for the first quarters of 1998 and 1997 was 75 percent and 74 percent, respectively. Continued manufacturing efficiencies combined with the decrease in international sales, which have lower gross margins, offset the reduction in average selling price. The Company anticipates that gross profit, as a percentage of sales, will remain near its current level or experience a slight decrease due to on-going price erosion and a continued increase in orthotic products in the product mix. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses for the first quarter were $8.1 million and $8.6 million in 1998 and 1997, respectively. Stated as a percentage of sales, selling, general and administrative expenses were 48 percent in both the first quarters of 1998 and 1997. Selling expenses were down 5 percent as compared to the same quarter last year, which was primarily driven by reduced commission expenses resulting from a decrease in revenues. As compared to the same quarter last year, general and administrative expenses were down 10 percent mainly due to a decrease in facility related expenses. RESEARCH AND DEVELOPMENT Research and development expenses decreased to $841,000 in the first quarter of 1998 compared to $968,000 in the first quarter of 1997, due primarily to a restructuring of the department in the last quarter of 1997. Stated as a percentage of sales, research and development costs were 5 percent for the first quarters of 1998 and 1997. Research and development spending continues to be driven by activities related to developing new products, continuation engineering and next-generation products. 8 FORM 10-Q - - PART I - ITEM 2 (Continued) OTHER INCOME AND EXPENSES Interest income for the first quarter of 1998 was $253,000 compared to $233,000 in first quarter of 1997. Interest income remained relatively constant from the first quarter of 1998 as compared to the first quarter of 1997, despite an increase in the Company's stock buy-back efforts, due to an increase in the net cash provided by operating activities. The increase in other income in the first quarter of 1998, as compared to the first quarter of 1997, was mainly attributable to an insurance settlement. NET INCOME Net income for the first quarter of 1998 was $2.5 million compared to $2.4 million for the first quarter of 1997, an increase of 6 percent. An increased gross margin percentage and an overall decrease in operating expenses of 7 percent were the primary reasons for the improvement in net income despite a 6 percent decrease in sales. The effective tax rate for each of the first quarters of 1998 and 1997 remained flat at 38.5 percent. LIQUIDITY AND CAPITAL REQUIREMENTS The Company's cash and security investments were approximately $22.7 million at March 31, 1998, which reflects a decrease of $1.8 million from year end 1997 primarily due to Empi's continued stock repurchase efforts during the first quarter of 1998. Empi purchased a total of 356,900 shares in the first quarter of 1998 at a total cost of approximately $7.1 million. In April 1998, the Board of Directors authorized the expenditure of an additional $15.0 million to continue the repurchase of the Company's shares on the open market. Empi's working capital at March 31, 1998 was $46.7 million, a decrease of approximately $3.7 million compared to December 31, 1997. The current ratio at the end of the first quarter was 8.6 to 1. The Company believes its cash and security investments, together with the cash flow from operations will be sufficient to meet its working capital requirements for the immediate and foreseeable future. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 9 PART II - - OTHER INFORMATION Item 5. OTHER INFORMATION At the Annual Meeting of Shareholders held at corporate headquarters on April 29, 1998, Harold G. Olson officially resigned from the Board of Directors. Additionally, Bradley J. Beard was appointed by the Board to serve as a Class Three director of the Company for a term of three years. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NO. DESCRIPTION PAGE NO. (27) Financial Data Schedule (filed only in electronic format) ----- (b) No report on Form 8-K has been filed during the quarter ended March 31, 1998. 10 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 thereto duly authorized. Empi, Inc. May 13, 1998 By /s/ Joseph E. Laptewicz, Jr. --------------------------------------------- Joseph E. Laptewicz, Jr. President and Chief Executive Officer (Principal Executive Officer) May 13, 1998 By /s/ Patrick D. Spangler --------------------------------------------- Patrick D. Spangler Vice President, Chief Financial Officer and Assistant Secretary (Principal Financial and Accounting Officer) 11 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST QUARTER 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 5,290 17,364 21,666 4,753 8,242 52,858 17,599 11,532 60,517 6,124 0 0 0 2,944 51,383 60,517 16,997 16,997 4,255 4,255 8,944 557 0 4,131 1,590 2,541 0 0 0 2,541 .32 .32
-----END PRIVACY-ENHANCED MESSAGE-----