INTERPORE INTERNATIONAL INC /DE/ - 10-Q Quarterly Report

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, 2003

	or

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _________ to _________

Commission File No. 0-22958

INTERPORE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

Delaware		95-3043318
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

181 Technology Drive, Irvine, California		92618-2402
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (949) 453-3200

Not applicable

(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 proceeding 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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x

No o

As of May 9, 2003, there were 17,396,326 shares of the registrant’s common stock issued and outstanding.

Interpore International, Inc.

Index

		Page(s)

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of December 31, 2002 and March 31, 2003 (unaudited)	3

	Condensed Consolidated Statements of Income (unaudited) for the three month periods ended March 31, 2002 and March 31, 2003	4

	Condensed Consolidated Statements of Cash Flows (unaudited) for the three month periods ended March 31, 2002 and March 31, 2003	5

	Notes to Condensed Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18

Item 4.	Controls and Procedures	18

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	19

Item 6.	Exhibits and Reports on Form 8-K	20

Signatures		21

Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		22

Interpore International, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)

	December 31, 2002			March 31, 2003

				(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	1,810		$	9,407
Short-term investments		—			2,495
Accounts receivable, less allowance for doubtful accounts of $797 and $745 in 2002 and 2003, respectively		12,632			11,745
Inventories		31,995			32,654
Prepaid expenses		1,484			1,190
Deferred income taxes		2,154			2,154

Total current assets		50,075			59,645
Property, plant and equipment, net		3,410			3,376
Deferred income taxes		799			799
Goodwill		20,201			20,239
Other intangible assets, net		2,548			2,536
Other assets		209			174

Total assets	$	77,242		$	86,769

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,932		$	1,834
Accrued compensation and related expenses		1,803			1,801
Accrued royalties		530			459
Income taxes payable		—			6,350
Other accrued liabilities		943			884

Total current liabilities		6,208			11,328

Long-term debt		5,818			—
Commitments and contingencies
Stockholders’ equity:
Series E convertible preferred stock, voting, par value $.01 per share: Authorized shares - 594,000; issued and outstanding shares – none		—			—
Preferred stock, par value $.01 per share: Authorized shares - 4,406,000; issued and outstanding shares – none		—			—
Common stock, par value $.01 per share: Authorized shares - 50,000,000; issued and outstanding shares – 17,932,464 at December 31, 2002 and 17,952,339 at March 31, 2003		179			180
Additional paid-in-capital		64,855			65,056
Retained earnings		3,291			13,314

		68,325			78,550
Less treasury stock, at cost - 605,000 shares at December 31, 2002 and March 31, 2003		(3,109	)		(3,109	)

Total stockholders’ equity		65,216			75,441

Total liabilities and stockholders’ equity	$	77,242		$	86,769

See accompanying notes.

Interpore International, Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)

	Three months ended March 31,

	2002		2003

Net sales	$	13,786	$	15,807
Cost of goods sold		3,712		4,476

Gross profit		10,074		11,331

Operating expenses:
Research and development		1,913		2,044
Selling and marketing		5,353		6,068
General and administrative		1,919		1,765

Total operating expenses		9,185		9,877

Income from operations		889		1,454

Interest income		24		28
Interest expense		—		(9	)
Legal settlement		—		15,000
Other income		135		233

Total interest and other income, net		159		15,252

Income before taxes		1,048		16,706
Income tax provision		403		6,683

Net income	$	645	$	10,023

Net income per share:
Basic	$	.04	$	.58
Diluted	$	.04	$	.56
Weighted average shares:
Basic		17,128		17,336
Diluted		18,300		17,774

See accompanying notes.

Interpore International, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

	Three months ended March 31,

	2002			2003

Cash flows from operating activities
Net income	$	645		$	10,023
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		268			324
Amortization		73			79
Stock-based compensation expense		99			98
Changes in operating assets and liabilities:
Accounts receivable		(556	)		887
Inventories		(3,060	)		(659	)
Prepaid expenses		(434	)		294
Other assets		—			35
Accounts payable and accrued liabilities		297			5,243

Net cash provided by operating activities		(2,668	)		16,324

Cash flows from investing activities
Net cash paid for American OsteoMedix Corporation		(57	)		(161	)
Capital expenditures		(500	)		(290	)
Expenditures for patent rights		(359	)		(67	)
Purchase of short-term investments		—			(2,495	)

Net cash used in investing activities		(916	)		(3,013	)

Cash flows from financing activities
Repayment of long-term debt and capital lease obligations		—			(5,818	)
Proceeds from exercise of stock options		737			104

Net cash used in financing activities		737			(5,714	)

Net increase in cash and cash equivalents		(2,847	)		7,597
Cash and cash equivalents at beginning of period		6,538			1,810

Cash and cash equivalents at end of period	$	3,691		$	9,407

See accompanying notes.

Interpore International, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(unaudited)

1. Organization and Description of Business

Interpore International, Inc. (“Interpore”), together with its subsidiaries unless the context implies otherwise, operates in one business segment: the design, manufacture and marketing of medical devices for the orthopedic marketplace. Interpore’s products are distributed in the United States and internationally.

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to Securities and Exchange Commission regulations. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position at March 31, 2003 and the consolidated results of operations and cash flows for the three month periods ended March 31, 2002 and 2003.

The accompanying condensed consolidated financial statements include the accounts of Interpore and its subsidiaries after elimination of all significant intercompany transactions.