FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended March 29, 2003 |
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
Commission file number: 0-26538
ENCORE MEDICAL CORPORATION
(Exact name of Registrant as specified in its charter)
| Delaware |
65-0572565 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 9800 Metric Boulevard |
78758 | |
| Austin, Texas (Address of principal executive offices) |
(Zip code) |
512-832-9500
(Registrant’s telephone number including area code)
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 by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ¨ No x
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of May 1, 2003.
| Title |
Outstanding | |
| Common Stock |
11,174,971 |
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
Encore Medical Corporation and Subsidiaries
Consolidated Balance Sheets
As of March 29, 2003 and December 31, 2002
(in thousands, except share data)
(unaudited)
| March 29, 2003 |
December 31, 2002 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
226 |
|
$ |
253 |
| ||
| Accounts receivable, net of allowance for doubtful accounts of $315 and $288, respectively |
|
15,394 |
|
|
14,635 |
| ||
| Inventories, net of allowance of $3,180 and $2,917, respectively |
|
27,626 |
|
|
27,701 |
| ||
| Deferred tax assets |
|
2,326 |
|
|
2,171 |
| ||
| Prepaid expenses and other current assets |
|
1,247 |
|
|
1,527 |
| ||
| Total current assets |
|
46,819 |
|
|
46,287 |
| ||
| Property and equipment, net |
|
10,769 |
|
|
11,179 |
| ||
| Goodwill |
|
18,146 |
|
|
18,146 |
| ||
| Intangible assets, net |
|
14,833 |
|
|
15,104 |
| ||
| Other assets |
|
2,847 |
|
|
3,039 |
| ||
| Total assets |
$ |
93,414 |
|
$ |
93,755 |
| ||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Current portion of long-term debt |
$ |
9,242 |
|
$ |
3,606 |
| ||
| Accounts payable |
|
5,011 |
|
|
4,442 |
| ||
| Accrued expenses |
|
4,976 |
|
|
5,332 |
| ||
| Total current liabilities |
|
19,229 |
|
|
13,380 |
| ||
| Long-term debt, net of current portion |
|
27,847 |
|
|
34,129 |
| ||
| Deferred tax liability |
|
4,587 |
|
|
4,531 |
| ||
| Other non current liabilities |
|
681 |
|
|
686 |
| ||
| Total liabilities |
|
52,344 |
|
|
52,726 |
| ||
| Stockholders’ equity: |
||||||||
| Series A Preferred Stock, $0.001 par value, 255,000 shares authorized; 131,603 and 132,353 shares issued and outstanding, respectively; aggregate liquidation preference of $13,424 and $13,500, respectively |
|
12,767 |
|
|
12,840 |
| ||
| Common stock, $0.001 par value, 50,000,000 shares authorized; 11,684,000 and 11,609,000 shares issued, respectively |
|
12 |
|
|
12 |
| ||
| Additional paid-in capital |
|
30,477 |
|
|
30,420 |
| ||
| Notes received for sale of common stock |
|
(1,157 |
) |
|
(1,164 |
) | ||
| Deferred compensation |
|
(6 |
) |
|
(14 |
) | ||
| Retained earnings |
|
608 |
|
|
566 |
| ||
| Less cost of repurchased stock, warrants and rights (509,000 shares) |
|
(1,631 |
) |
|
(1,631 |
) | ||
| Total stockholders’ equity |
|
41,070 |
|
|
41,029 |
| ||
| Total liabilities and stockholders’ equity |
$ |
93,414 |
|
$ |
93,755 |
| ||
See accompanying notes to unaudited consolidated financial statements.
-2-
Encore Medical Corporation and Subsidiaries
Consolidated Statements of Operations
For the three months ended March 29, 2003 and March 30, 2002
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended |
||||||||
| March 29, 2003 |
March 30, 2002 |
|||||||
| Sales |
$ |
26,392 |
|
$ |
19,308 |
| ||
| Cost of goods sold |
|
13,448 |
|
|
9,618 |
| ||
| Gross margin |
|
12,944 |
|
|
9,690 |
| ||
| Operating expenses: |
||||||||
| Research and development |
|
1,133 |
|
|
618 |
| ||
| Selling, general and administrative |
|
9,906 |
|
|
8,324 |
| ||
| Income from operations |
|
1,905 |
|
|
748 |
| ||
| Other income (expense): |
||||||||
| Interest income |
|
29 |
|
|
43 |
| ||
| Interest expense |
|
(1,908 |
) |
|
(817 |
) | ||
| Other income |
|
76 |
|
|
91 |
| ||
| Income before income taxes |
|
102 |
|
|
65 |
| ||
| Provision for income taxes |
|
60 |
|
|
30 |
| ||
| Net income |
$ |
42 |
|
$ |
35 |
| ||
| Net income per common and common equivalent share: |
||||||||
| Basic earnings per share— |
||||||||
| Basic earnings per share |
$ |
0.00 |
|
$ |
0.00 |
| ||
| Shares used in computing basic earnings per share |
|
10,668 |
|
|
10,018 |
| ||
| Diluted earnings per share— |
||||||||
| Diluted earnings per share |
$ |
0.00 |
|
$ |
0.00 |
| ||
| Shares used in computing diluted earnings per share |
|
26,663 |
|
|
25,755 |
| ||
See accompanying notes to unaudited consolidated financial statements.
-3-
Encore Medical Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the three months ended March 29, 2003 and March 30, 2002
(in thousands)
(unaudited)
| Three Months Ended |
||||||||
| March 29, 2003 |
March 30, 2002 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ |
42 |
|
$ |
35 |
| ||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation |
|
750 |
|
|
746 |
| ||
| Amortization of intangibles |
|
271 |
|
|
230 |
| ||
| Amortization of debt issuance costs |
|
697 |
|
|
354 |
| ||
| Noncash interest expense |
|
170 |
|
|
57 |
| ||
| Stock based compensation |
|
(8 |
) |
|
91 |
| ||
| (Gain) loss on disposal of assets |
|
(11 |
) |
|
7 |
| ||
| Deferred taxes |
|
(99 |
) |
|
12 |
| ||
| Changes in operating assets and liabilities: |
||||||||
| Increase in accounts receivable |
|
(759 |
) |
|
(102 |
) | ||
| Decrease in inventories |
|
75 |
|
|
1,581 |
| ||
| Decrease (increase) in prepaid expenses and other assets/liabilities |
|
100 |
|
|
(213 |
) | ||
| Increase (decrease) in accounts payable and accrued expenses |
|
213 |
|
|
(2,103 |
) | ||
| Net cash provided by operating activities |
|
1,441 |
|
|
695 |
| ||
| Cash flows from investing activities: |
||||||||
| Proceeds from sale of assets |
|
17 |
|
|
— |
| ||
| Purchases of property and equipment |
|
(347 |
) |
|
(223 |
) | ||
| Acquisition of Chattanooga Group, Inc. |
|
— |
|
|
(32,578 |
) | ||
| Net cash used in investing activities |
|
(330 |
) |
|
(32,801 |
) | ||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of stock |
|
8 |
|
|
77 |
| ||
| Proceeds from long-term debt |
|
161 |
|
|
39,662 |
| ||
| Payments on long-term debt |
|
(1,307 |
) |
|
(12,742 |
) | ||
| Net cash (used in) provided by financing activities |
|
(1,138 |
) |
|
26,997 |
| ||
| Net decrease in cash and cash equivalents |
|
(27 |
) |
|
(5,109 |
) | ||
| Cash and cash equivalents at beginning of period |
|
253 |
|
|
5,401 |
| ||