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, 2004
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 No. 0-22958
INTERPORE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
95-3043318 (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 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 ¨
As of April 30, 2004, there were 18,010,587 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, 2003 and March 31, 2004 (unaudited) |
3 | |||
| 4 | ||||
| 5 | ||||
| Notes to Condensed Consolidated Financial Statements (unaudited) |
6 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 21 | ||
| Item 4. | Controls and Procedures | 21 | ||
| PART II. | OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 22 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 24 | ||
| Signatures | 25 | |||
2
PART I—FINANCIAL INFORMATION
| Item 1. | Financial Statements |
Interpore International, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
| December 31, 2003 |
March 31, 2004 |
|||||||
| Assets | (unaudited) | |||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 5,837 | $ | 4,842 | ||||
| Short-term investments |
7,651 | 7,624 | ||||||
| Accounts receivable, less allowance for doubtful accounts of $411 and $459 in 2003 and 2004, respectively |
13,213 | 14,787 | ||||||
| Inventories |
32,982 | 32,011 | ||||||
| Income taxes receivable |
1,189 | 1,326 | ||||||
| Prepaid expenses |
2,388 | 1,514 | ||||||
| Deferred income taxes |
2,169 | 2,169 | ||||||
| Total current assets |
65,429 | 64,273 | ||||||
| Property, plant and equipment, net |
2,847 | 2,677 | ||||||
| Goodwill |
19,883 | 19,930 | ||||||
| Other intangible assets, net |
2,572 | 4,992 | ||||||
| Other assets |
87 | 84 | ||||||
| Total assets |
$ | 90,818 | $ | 91,956 | ||||
| Liabilities and stockholders’ equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 1,925 | $ | 2,137 | ||||
| Accrued compensation and related expenses |
2,114 | 1,954 | ||||||
| Accrued royalties |
512 | 336 | ||||||
| Other accrued liabilities |
1,423 | 2,417 | ||||||
| Total current liabilities |
5,974 | 6,844 | ||||||
| Deferred income taxes |
427 | 427 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, par value $.01 per share: Authorized shares—5,000,000; issued and outstanding shares—none |
— | — | ||||||
| Common stock, par value $.01 per share: Authorized shares—50,000,000; issued and outstanding shares—18,541,462 at December 31, 2003 and 18,611,837 at March 31, 2004 |
186 | 186 | ||||||
| Additional paid-in-capital |
69,940 | 70,410 | ||||||
| Deferred compensation |
(825 | ) | (765 | ) | ||||
| Retained earnings |
18,225 | 17,963 | ||||||
| 87,526 | 87,794 | |||||||
| Less treasury stock, at cost—605,000 shares at December 31, 2003 and March 31, 2004 |
(3,109 | ) | (3,109 | ) | ||||
| Total stockholders’ equity |
84,417 | 84,685 | ||||||
| Total liabilities and stockholders’ equity |
$ | 90,818 | $ | 91,956 | ||||
See accompanying notes.
3
Interpore International, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
| Three months ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Net product sales |
$ | 15,807 | $ | 17,785 | ||||
| Royalty and related income |
— | 1,043 | ||||||
| Net revenues |
15,807 | 18,828 | ||||||
| Cost of goods sold |
4,476 | 5,632 | ||||||
| Gross profit |
11,331 | 13,196 | ||||||
| Operating expenses: |
||||||||
| Research and development |
2,044 | 2,215 | ||||||
| Selling and marketing |
6,068 | 8,053 | ||||||
| General and administrative |
1,765 | 3,690 | ||||||
| Total operating expenses |
9,877 | 13,958 | ||||||
| Income (loss) from operations |
1,454 | (762 | ) | |||||
| Interest income |
28 | 46 | ||||||
| Interest expense |
(9 | ) | — | |||||
| Legal settlement |
15,000 | — | ||||||
| Other income |
233 | 280 | ||||||
| Total interest and other income, net |
15,252 | 326 | ||||||
| Income (loss) before taxes |
16,706 | (436 | ) | |||||
| Income tax provision (benefit) |
6,683 | (174 | ) | |||||
| Net income (loss) |
$ | 10,023 | $ | (262 | ) | |||
| Net income (loss) per share: |
||||||||
| Basic |
$ | .58 | $ | (.01 | ) | |||
| Diluted |
$ | .56 | $ | (.01 | ) | |||
| Weighted average shares: |
||||||||
| Basic |
17,336 | 17,979 | ||||||
| Diluted |
17,774 | 17,979 | ||||||
See accompanying notes.
4
Interpore International, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Three months ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Cash flows from operating activities |
||||||||
| Net income (loss) |
$ | 10,023 | $ | (262 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation |
324 | 321 | ||||||
| Amortization |
79 | 99 | ||||||
| Provision for doubtful accounts |
52 | 48 | ||||||
| Provision for excess and obsolete inventory |
437 | 73 | ||||||
| Stock-based compensation expense |
98 | 139 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
323 | (1,622 | ) | |||||
| Inventories |
(1,096 | ) | 898 | |||||
| Prepaid expenses |
294 | 874 | ||||||
| Other assets |
35 | 3 | ||||||
| Income taxes receivable / payable |
6,862 | (137 | ) | |||||
| Accounts payable and accrued liabilities |
(1,107 | ) | 994 | |||||
| Net cash provided by operating activities |
16,324 | 1,428 | ||||||
| Cash flows from investing activities |
||||||||
| Net cash paid for American OsteoMedix Corporation |
(161 | ) | (171 | ) | ||||
| Capital expenditures |
(290 | ) | (151 | ) | ||||
| Expenditures for patent and license rights |
(67 | ) | (2,519 | ) | ||||
| Maturities of short-term investments |
— | 27 | ||||||
| Purchase of short-term investments |
(2,495 | ) | — | |||||
| Net cash used in investing activities |
(3,013 | ) | (2,814 | ) | ||||
| Cash flows from financing activities |
||||||||
| Repayment of long-term debt |
(5,818 | ) | — | |||||
| Proceeds from exercise of stock options |
104 | 391 | ||||||
| Net cash provided by (used in) financing activities |
(5,714 | ) | 391 | |||||
| Net increase (decrease) in cash and cash equivalents |
7,597 | (995 | ) | |||||
| Cash and cash equivalents at beginning of period |
1,810 | 5,837 | ||||||
| Cash and cash equivalents at end of period |
$ | 9,407 | $ | 4,842 | ||||
See accompanying notes.
5
Interpore International, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2004
(unaudited)
| 1. | Organization and Description of Business |
Interpore International, Inc. (“Interpore”) 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, 2004 and the consolidated results of operations and cash flows for the three month periods ended March 31, 2003 and 2004.
The accompanying condensed consolidated financial statements include the accounts of Interpore and its subsidiaries after elimination of all significant intercompany transactions.
The results of operations and cash flows for the three months ended March 31, 2004 are not necessarily indicative of results to be expected for future quarters or the full year.
These consolidated financial statements should be read in conjunction with the financial statements included in Interpore’s Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission.
| 3. | Per Share Information |
Basic earnings (loss) per share (EPS) is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the assumed conversion of all dilutive securities, consisting of employee stock options and warrants. The following table presents the computation of net income (loss) per share (in thousands, except per share data):
| Three months ended March 31, |
|||||||
| 2003 |
2004 |
||||||
| Net income (loss) |
$ | 10,023 | $ | (262 | ) | ||
| Shares used in computing net income (loss) per share—basic: |
|||||||
| Weighted average common shares outstanding |
17,336 | 17,979 | |||||
| Effect of dilutive securities: |
|||||||
| Common share equivalents outstanding |
438 | — | |||||
| Shares used in computing net income (loss) per share—diluted |
17,774 | 17,979 | |||||
| Basic earnings (loss) per share |
$ | .58 | $ | (.01 | ) | ||
| Diluted earnings (loss) per share |
$ | .56 | $ | (.01 | ) | ||
| Stock option shares excluded from the diluted earnings (loss) per share calculation because their assumed conversion would have been anti-dilutive |
1,195 | 1,225 | |||||
6
| 4. | Inventories |
Inventories are stated at the lower of first-in, first-out average cost or market. Inventories are comprised of the following (in thousands):
| December 31, 2003 |
March 31, 2004 | |||||
| Raw materials |
$ | 3,878 | $ | 3,724 | ||
| Work-in-process |
970 | 1,024 | ||||
| Finished goods |
28,134 | |||||