UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2004
| ¨ | 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 0-28240
EXACTECH, INC.
(Exact name of registrant as specified in its charter)
| FLORIDA | 59-2603930 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
2320 NW 66TH COURT
GAINESVILLE, FL 32653
(Address of principal executive offices)
(352) 377-1140
(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 ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class |
Outstanding at July 23, 2004 | |
| Common Stock, $.01 par value |
11,117,228 |
EXACTECH, INC.
INDEX
| Page Number | ||||
| PART 1. FINANCIAL INFORMATION |
||||
| Item 1. Financial Statements (Unaudited) |
||||
| Condensed Balance Sheets as of June 30, 2004 and December 31, 2003 |
2 | |||
| 3 | ||||
| Condensed Statement of Changes in Shareholders’ Equity for the Six Month Period Ended June 30, 2004 |
4 | |||
| Condensed Statements of Cash Flows for the Six Month Periods Ended June 30, 2004 and June 30, 2003 |
5 | |||
| 6 | ||||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | |||
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
18 | |||
| 19 | ||||
| PART II. OTHER INFORMATION |
||||
| 20 | ||||
| Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
20 | |||
| 20 | ||||
| 20 | ||||
| 21 | ||||
| 21 | ||||
| 22 | ||||
1
| Item 1. | Financial Statements |
EXACTECH, INC.
CONDENSED BALANCE SHEETS
(in thousands)
(Unaudited)
| June 30, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 2,679 | $ | 3,506 | ||||
| Trade receivables, net of allowance of $570 and $782 |
16,280 | 13,577 | ||||||
| Income taxes receivable |
— | 40 | ||||||
| Prepaid expenses and other assets, net |
1,521 | 938 | ||||||
| Inventories |
26,452 | 24,824 | ||||||
| Deferred tax assets |
512 | 479 | ||||||
| Total current assets |
47,444 | 43,364 | ||||||
| PROPERTY AND EQUIPMENT: |
||||||||
| Land |
865 | 865 | ||||||
| Machinery and equipment |
10,158 | 8,720 | ||||||
| Surgical instruments |
14,984 | 14,330 | ||||||
| Furniture and fixtures |
1,705 | 1,635 | ||||||
| Facilities |
7,993 | 7,968 | ||||||
| Total property and equipment |
35,705 | 33,518 | ||||||
| Accumulated depreciation |
(12,779 | ) | (11,117 | ) | ||||
| Net property and equipment |
22,926 | 22,401 | ||||||
| OTHER ASSETS: |
||||||||
| Product licenses and designs, net |
529 | 309 | ||||||
| Deferred financing costs, net |
143 | 138 | ||||||
| Other investments |
937 | 1,062 | ||||||
| Advances and deposits |
228 | 428 | ||||||
| Patents and trademarks, net |
4,050 | 2,636 | ||||||
| Total other assets |
5,887 | 4,573 | ||||||
| TOTAL ASSETS |
$ | 76,257 | $ | 70,338 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ | 4,700 | $ | 5,272 | ||||
| Income taxes payable |
297 | — | ||||||
| Current portion of long-term debt |
815 | 590 | ||||||
| Commissions payable |
1,511 | 1,540 | ||||||
| Royalties payable |
617 | 526 | ||||||
| Other liabilities |
2,211 | 1,814 | ||||||
| Total current liabilities |
10,151 | 9,742 | ||||||
| LONG-TERM LIABILITIES: |
||||||||
| Deferred tax liabilities |
3,039 | 2,790 | ||||||
| Long-term debt, net of current portion |
7,189 | 6,499 | ||||||
| Total long-term liabilities |
10,228 | 9,289 | ||||||
| Total liabilities |
20,379 | 19,031 | ||||||
| SHAREHOLDERS’ EQUITY: |
||||||||
| Common stock |
111 | 110 | ||||||
| Additional paid-in capital |
21,948 | 21,149 | ||||||
| Retained earnings |
33,819 | 30,048 | ||||||
| Total shareholders’ equity |
55,878 | 51,307 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 76,257 | $ | 70,338 | ||||
See notes to condensed financial statements
2
EXACTECH, INC.
CONDENSED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
| Three Month Periods Ended June 30, |
Six Month Periods Ended June 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| NET SALES |
$ | 20,398 | $ | 17,761 | $ | 41,375 | $ | 35,768 | ||||||||
| COST OF GOODS SOLD |
6,871 | 6,005 | 13,823 | 11,845 | ||||||||||||
| Gross profit |
13,527 | 11,756 | 27,552 | 23,923 | ||||||||||||
| OPERATING EXPENSES: |
||||||||||||||||
| Sales and marketing |
5,607 | 5,222 | 11,695 | 10,660 | ||||||||||||
| General and administrative |
1,930 | 1,802 | 4,215 | 3,854 | ||||||||||||
| Research and development |
1,257 | 887 | 2,318 | 1,912 | ||||||||||||
| Depreciation and amortization |
996 | 847 | 1,945 | 1,634 | ||||||||||||
| Royalties |
603 | 624 | 1,223 | 1,264 | ||||||||||||
| Total operating expenses |
10,393 | 9,382 | 21,396 | 19,324 | ||||||||||||
| INCOME FROM OPERATIONS |
3,134 | 2,374 | 6,156 | 4,599 | ||||||||||||
| OTHER INCOME (EXPENSE): |
||||||||||||||||
| Interest income |
4 | 9 | 10 | 20 | ||||||||||||
| Litigation settlement, net of costs |
— | 250 | — | 500 | ||||||||||||
| Interest expense |
(69 | ) | (40 | ) | (126 | ) | (80 | ) | ||||||||
| Foreign currency exchange gain (loss) |
26 | (30 | ) | 66 | (24 | ) | ||||||||||
| Equity in net loss of other investments |
(90 | ) | (6 | ) | (192 | ) | (16 | ) | ||||||||
| INCOME BEFORE INCOME TAXES |
3,005 | 2,557 | 5,914 | 4,999 | ||||||||||||
| PROVISION FOR INCOME TAXES |
1,125 | 924 | 2,143 | 1,788 | ||||||||||||
| NET INCOME |
$ | 1,880 | $ | 1,633 | $ | 3,771 | $ | 3,211 | ||||||||
| BASIC EARNINGS PER SHARE |
$ | 0.17 | $ | 0.15 | $ | 0.34 | $ | 0.29 | ||||||||
| DILUTED EARNINGS PER SHARE |
$ | 0.16 | $ | 0.14 | $ | 0.32 | $ | 0.28 | ||||||||
See notes to condensed financial statements
3
EXACTECH, INC.
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands)
(Unaudited)
| Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Total Shareholders’ Equity | |||||||||||
| Shares |
Amount |
|||||||||||||
| Balance, December 31, 2003 |
11,019 | $ | 110 | $ | 21,149 | $ | 30,048 | $ | 51,307 | |||||
| Exercise of stock options |
88 | 1 | 507 | 508 | ||||||||||
| Issuance of common stock under the Company’s Employee Stock Purchase Plan |
9 | 114 | 114 | |||||||||||
| Compensation benefit of non-qualified stock options |
178 | 178 | ||||||||||||
| Net income |
3,771 | 3,771 | ||||||||||||
| Balance, June 30, 2004 |
11,116 | $ | 111 | $ | 21,948 | $ | 33,819 | $ | 55,878 | |||||
See notes to condensed financial statements
4
EXACTECH, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Six Month Periods Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 3,771 | $ | 3,211 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
2,180 | 1,762 | ||||||
| Compensation benefit on non-qualified stock options |
178 | 98 | ||||||
| Loss on disposal of equipment |
100 | 64 | ||||||
| Foreign currency exchange (gain) loss |
(66 | ) | 24 | |||||
| Equity in net loss of other investments |
192 | 16 | ||||||
| Deferred income taxes |
216 | 364 | ||||||
| Increase in trade receivables |
(2,703 | ) | (1,961 | ) | ||||
| Increase in prepaids and other assets |
(388 | ) | (829 | ) | ||||
| Increase in inventories |
||||||||