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 December 28, 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 000-49702
MedSource Technologies, Inc.
(Exact name of registrant as specified in its charter)
| State of incorporation: Delaware | IRS Employer Identification No: 52-2094496 |
110 Cheshire Lane, Suite 100, Minneapolis, MN 55305
(Address and zip code of principal executive office)
(952) 807-1234
(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 Rule 12b-2 of the Exchange Act). Yes: x No: ¨
The number of shares of the registrant’s Common Stock, par value $0.01 per share, outstanding as of February 3, 2004 was 28,970,162.
| Item 1. |
3 | |||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
9 | ||
| Item 3. |
Quantitative and Qualitative Disclosures About Financial Market Risk |
15 | ||
| Item 4. |
15 | |||
| Item 1. |
17 | |||
| Item 2. |
17 | |||
| Item 3. |
17 | |||
| Item 4. |
17 | |||
| Item 5. |
17 | |||
| Item 6. |
18 | |||
| 19 | ||||
See Notes to Consolidated Financial Statements
-2-
MedSource Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
| December 28, 2003 |
June 30, 2003 |
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| (Unaudited) | ||||||||
| Assets |
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| Current assets: |
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| Cash and cash equivalents |
$ | 13,644 | $ | 10,781 | ||||
| Accounts receivable, net |
22,775 | 23,710 | ||||||
| Inventories |
22,929 | 25,617 | ||||||
| Prepaid expenses and other current assets |
4,716 | 4,318 | ||||||
| Total current assets |
64,064 | 64,426 | ||||||
| Property, plant, and equipment, net |
51,013 | 52,752 | ||||||
| Goodwill |
96,637 | 96,582 | ||||||
| Other identifiable intangible assets, net |
1,357 | 1,432 | ||||||
| Deferred financing costs |
1,477 | 1,682 | ||||||
| Other assets |
1,336 | 1,343 | ||||||
| Total assets |
$ | 215,884 | $ | 218,217 | ||||
| Liabilities & Stockholders’ Equity |
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| Current liabilities: |
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| Accounts payable |
$ | 9,538 | $ | 10,868 | ||||
| Accrued compensation and benefits |
4,626 | 5,498 | ||||||
| Other accrued expenses |
3,110 | 2,293 | ||||||
| Reserve for restructuring |
219 | 958 | ||||||
| Current portion of obligations under capital lease |
1,307 | 1,326 | ||||||
| Current portion of long-term debt |
7,518 | 6,427 | ||||||
| Total current liabilities |
26,318 | 27,370 | ||||||
| Obligations under capital leases, less current portion |
3,319 | 3,962 | ||||||
| Long-term debt, less current portion |
27,975 | 30,073 | ||||||
| Other long-term liabilities |
623 | 731 | ||||||
| Stockholders’ equity: |
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| Common stock |
289 | 289 | ||||||
| Additional paid-in capital |
277,880 | 277,791 | ||||||
| Treasury stock |
(1,495 | ) | (1,463 | ) | ||||
| Accumulated other comprehensive loss |
(207 | ) | (288 | ) | ||||
| Accumulated deficit |
(117,150 | ) | (118,326 | ) | ||||
| Unearned compensation |
(1,668 | ) | (1,922 | ) | ||||
| Total stockholders’ equity |
157,649 | 156,081 | ||||||
| Liabilities & stockholders’ equity |
$ | 215,884 | $ | 218,217 | ||||
See Notes to Consolidated Financial Statements
-3-
MedSource Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
(In Thousands Except Share and Per Share Amounts)
| Three Months Ended |
Six Months Ended |
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| December 28, 2003 |
December 29, 2002 |
December 28, 2003 |
December 29, 2002 |
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| Revenues |
$ | 46,023 | $ | 44,621 | $ | 90,231 | $ | 85,624 | ||||||||
| Costs and expenses: |
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| Cost of product sold |
35,062 | 33,170 | 69,070 | 63,982 | ||||||||||||
| Selling, general and administrative expense |
7,795 | 8,108 | 15,532 | 16,096 | ||||||||||||
| Restructuring charges |
1,493 | — | 2,889 | — | ||||||||||||
| Operating income |
1,673 | 3,343 | 2,740 | 5,546 | ||||||||||||
| Interest expense, net |
(675 | ) | (636 | ) | (1,359 | ) | (1,158 | ) | ||||||||
| Income before income taxes |
998 | 2,707 | 1,381 | 4,388 | ||||||||||||
| Income tax expense |
(144 | ) | (13 | ) | (205 | ) | (15 | ) | ||||||||
| Net income |
$ | 854 | $ | 2,694 | $ | 1,176 | $ | 4,373 | ||||||||
| Net income per (basic and diluted) |
$ | 0.03 | $ | 0.10 | $ | 0.04 | $ | 0.16 | ||||||||
| Weighted average common shares outstanding |
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| Basic |
28,039,843 | 27,652,413 | 28,003,868 | 27,398,219 | ||||||||||||
| Diluted |
28,647,397 | 27,862,127 | 28,564,017 | 27,622,816 | ||||||||||||
See Notes to Consolidated Financial Statements
-4-
MedSource Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (In thousands)
(Unaudited)
| For the Six Months Ended |
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| December 28, 2003 |
December 29, 2002 |
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| Cash flows from operating activities: |
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| Net income |
$ | 1,176 | $ | 4,373 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
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| Depreciation |
4,735 | 3,941 | ||||||
| Non-cash stock compensation |
311 | 71 | ||||||
| Amortization of other intangibles |
60 | 168 | ||||||
| Amortization of deferred financing costs and discount on long-term debt |
205 | 206 | ||||||
| Loss on retirement of equipment |
561 | 49 | ||||||
| Changes in operating assets and liabilities, net of effect of business acquired: |
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| Accounts receivable |
935 | (156 | ) | |||||
| Inventories |
2,688 | (1,668 | ) | |||||
| Prepaid expenses and other current assets |
(398 | ) | (813 | ) | ||||
| Accounts payable, accrued compensation and benefits, accrued expenses and other |
(2,043 | ) | (4,688 | ) | ||||
| Other |
(69 | ) | (821 | ) | ||||
| Net cash provided by operating activities |
8,161 | 662 | ||||||
| Cash flows from investing activities: |
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| Acquisition of businesses, net of cash acquired |
— | (18,359 | ) | |||||
| Investment in other assets |
— | (3,751 | ) | |||||
| Proceeds from sale of equipment |
12 | — | ||||||
| Additions to plant and equipment, net |
(3,651 | ) | (6,500 | ) | ||||
| Net cash used in investing activities |
(3,639 | ) | (28,610 | ) | ||||
| Cash flows from financing activities: |
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| Payments of long-term debt |
(1,690 | ) | (1,550 | ) | ||||
| Proceeds of long-term debt |
— | 8,000 | ||||||
| Redemption of Series E preferred stock |
— | (2,010 | ) | |||||
| Proceeds from sale of common stock, net of costs |
31 | 640 | ||||||
| Net cash (used) provided by financing activities |
(1,659 | ) | 5,080 | |||||
| Increase (decrease) in cash and cash equivalents |
2,863 | (22,868 | ) | |||||
| Cash and cash equivalents at beginning of period |
10,781 | 38,268 | ||||||
| Cash and cash equivalents at end of period |
$ | 13,644 | $ | 15,400 | ||||
See Notes To Consolidated Financial Statements
-5-
MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim financial statements
MedSource Technologies, Inc. (“we” or the “Company”) has prepared the unaudited interim consolidated financial statements presented herein in accordance with accounting principles generally accepted in the United States for interim financial statements and in accordance with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The consolidated financial statements are unaudited but, reflect all adjustments, consisting of normal recurring adjustments and accruals which, in the opinion of management, are considered necessary for a fair presentation of our financial position and results of operations and cash flows for the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results that may be expected for the full fiscal year.
The consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to consolidated financial statements included in the Company’s annual report for its fiscal year ended June 30, 2003.
Preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United Sates requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.
Stock Based Compensation
The Company accounts for its stock-based employee compensation plans under the intrinsic value method in accordance with Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Stock compensation is awarded to key employees in the form of stock options and restricted stock. All stock options are issued with exercise prices equal to the fair market value of the related shares on the date of issuance. Accordingly, as provided by APB No. 25, we did not recognize any stock compensation expense for stock options granted during the periods presented. The following table summarizes what our operating results would have been if the company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 148, “Accounting for Stock-Based Compensation,” to its stock based employee compensation (in thousands except share and per share amounts):
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| For The Three Months Ended |
For the Six Months Ended |
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| December 28, 2003 |
December 29, 2002 |
December 28, 2003 |
December 29, 2002 |
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| Net income as reported |
$ | 854 | $ | 2,694 | $ | 1,176 | $ | 4,373 | ||||||||
| Stock compensation expense – fair value based method |
(213 | ) | (386 | ) | (669 | ) | (877 | ) | ||||||||
| Pro forma net income |
$ | 641 | $ | 2,308 | $ | 507 | $ | 3,496 | ||||||||
| Net income per share as reported (basic and diluted) |
$ | 0.03 | $ | 0.10 | $ | 0.04 | $ | 0.16 | ||||||||
| Pro forma net income per share (basic and diluted) |
$ | 0.02 | $ | 0.08 | $ | 0.02 | $ | 0.13 | ||||||||
| Weighted average shares outstanding - basic |
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