<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1995
-------------------------------------
Commission File Number 0-9387
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Empi, Inc.
-----------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1310335
---------------------- ----------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
5255 East River Road
Minneapolis, Minnesota 55421
---------------------------- ----------------------
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (612) 586-7300
--------------
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 / /
8,594,554 shares of Common Stock were outstanding as of August 10, 1995.
This document contains 12 pages.
The Exhibit Index is on page 4.
1
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PART I - - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
The response to Part I, Item 1 is submitted as a separate section
of this report.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Empi, Inc.'s (the "Company") total sales for the 1995 second quarter equaled
$16.3 million compared to $16.0 million for the second quarter of 1994, an
increase of 1.2 percent. Total sales for the first two quarters of 1995
equaled $32.8 million, a 7.9 percent increase versus same period sales of
$30.4 million for 1994. Sales from the Company's core rehabilitation
products of TENS (Trancutaneous Electrical Nerve Stimulation) devices, NMES
(Neuromuscular Electrical Stimulation) devices, and related accessory
products decreased 6.0 percent and increased .3 percent from 1994's second
quarter and first half results, respectively. Second quarter wholesale
business was particularly weak, reporting a decrease of 18 percent from the
prior year's second quarter level. Sales from the Company's non-core
products of Innova PFS-Registered Trademark- (Pelvic Floor Stimulator),
Dupel-Registered Trademark- non-invasive drug delivery system, Advanced
Dynamic ROM-TM- and Ultraflex-Registered Trademark- dynamic orthosis, sEMG
(surface Electromyography Biofeedback), Pronex-TM- pneumatic device to manage
cervical pain, and other miscellaneous products increased 21.8 percent and
25.3 percent from 1994's second quarter and first half, respectively.
Overall sales for the second quarter of 1995, versus the second quarter of
1994, were comprised of an increase in volume of 4.1 percent and a decrease
in pricing of 2.6 percent. International sales were 5.1 percent of total
sales for the second quarter of 1995 and 6.7 percent of total sales for the
first half of 1995, and compares to 6.3 percent and 6.5 percent of total
sales for the same periods in 1994.
Gross profit for the second quarter of 1995 was 74.2 percent of sales
compared to 76.4 percent of sales for the second quarter of 1994. The gross
profit for the first half of 1995 was 73.4 percent of sales versus 75.8
percent of sales for the same period in 1994. The primary contributors to
the lower gross profit percentages for the second quarter and first half of
1995 were higher manufacturing costs (mix and inflation), and increased
distribution costs due to the increase in volume of units shipped. The
Company anticipates gross profit, as a percentage of sales, to remain near
its current level due to price sensitivity and product mix.
Selling, general and administrative expenses for the second quarter of 1995
were $8.2 million compared to the $8.5 million recorded for the second
quarter in 1994. Stated as a percent of sales SG&A expenses for the second
quarter were 50.4 percent and 53.3 percent for 1995 and 1994, respectively.
Selling, general and administrative costs for the first half of 1995 were
$16.7 million and 50.8 percent of sales compared to $16.4 million and 54.0
percent of sales for the first half in 1994. The decrease in expenses for
the second quarter of 1995 versus expenses for the same quarter of 1994 was
due mainly to lower provisions for bad debts, lower sales commissions, and
reduced expense levels from our fourth quarter 1994 workforce reduction.
These decreases were partially offset by higher expense provisions for 1995
incentive compensation plans.
2
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FORM 10 - Q - - PART 1 - ITEM 2 (Continued)
Research and development costs were $.9 million and $1.7 million for the
second quarter and first half of 1995, respectively. That compares to
spending for the same periods in 1994 of $.9 million and $1.6 million. The
Company's R&D efforts for the second quarter and first half of 1995 have been
centered on the Advance Dynamic ROM orthosis and an expanded line of Innova
electrodes.
Interest income for the second quarter and the first half of 1995 was $179
thousand and $339 thousand, respectively. Interest income for the same
periods in 1994 was $61 thousand and $111 thousand. The increase in interest
income is attributable to the Company's improved cash position, which has
allowed the Company to increase its long and short term investments in
interest-bearing securities. Interest expense was $32 thousand and $60
thousand for the second quarter and first half of 1995, respectively.
Interest expense for the same periods in 1994 was $39 thousand and $85
thousand. The majority of interest expense for both years is due to an
interest-bearing note issued to finance the Company's acquisition of Nortech
in 1992. Also in the second quarter, the Company realized a one time gain of
$70 thousand on the sale of securities that were written down in the fourth
quarter of 1994.
Net income for the second quarter of 1995 was $1.9 million compared to $1.7
million for the second quarter in 1994. Net income for the first half of
1995 and 1994 was $3.6 million and $3.0 million, respectively. The 20
percent improvement in net income for the first half of 1995 has been driven
mainly by the following three factors; higher sales, a stronger focus on
spending controls, and higher interest income.
LIQUIDITY AND CAPITAL REQUIREMENTS
The Company ended the second quarter of 1995 with a very sound and strong
financial position. Working capital currently stands at $36.6 million
compared to $34.3 million at year end 1994, an increase of $2.3 million.
The Company has a $7.0 million line of credit, which it currently has not
borrowed against. The Company believes its cash, cash equivalents and short
term investments, together with cash flows from operations and the line of
credit, will be sufficient to meet the Company's anticipated working capital
and capital outlay requirements.
3
<PAGE>
PART II - - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on Wednesday, May 17, 1995.
Proxies for the Annual Meeting were solicited pursuant to Regulation 14 under
the Securities Exchange Act of 1934. There was no solicitation in opposition
to management's nominees as listed in the Company's Proxy Statement, and all
nominees were elected.
By a vote of 7,558,787 shares in favor, with 107,172 shares opposed and
86,703 shares abstaining, the shareholders set the number of directors to be
elected at seven (7).
The following persons were elected as Class Three Directors of the Company
with terms expiring in 1998, by the votes indicated:
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NOMINEE NUMBER OF VOTES FOR NUMBER OF VOTES WITHHELD
------------------------------------------------------------------------------
Everett F. Carter 7,616,507 136,155
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Harold G. Olson 7,620,131 132,531
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By a vote of 7,248,310 shares in favor, with 390,789 shares opposed and
85,963 shares abstaining, not including 27,600 shares represented by broker
non-votes, the shareholders approved an increase in the number of shares
reserved under the Company's 1987 Stock Option Plan from 1,900,000 to
2,200,000.
Item 5. OTHER INFORMATION
The Company announced on June 21, 1995 that it and Rehab Med Equip, Inc., of
Collegedale, TN entered into an agreement in which the Company will market
nationally their catalog line of over 200 rehabilitation products, effective
August 1, 1995. The Company anticipates a gradual roll-out of these products
during the third and fourth quarters of 1995.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description Page No.
----------- ----------- --------
(11) Statement re: computation of 12
per share earnings
(27) Financial Data Schedule
(filed only in electronic format)
(b) No report on Form 8-K has been filed during the quarter ended
June 30, 1995.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Empi, Inc.
August 10, 1995 By /s/ Joseph E. Laptewicz
---------------------------------------
Joseph E. Laptewicz
President and Chief Executive Officer
(Principal Executive Officer)
August 10, 1995 By /s/ Timothy E. Briggs
---------------------------------------
Timothy E. Briggs
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
5
<PAGE>
QUARTERLY REPORT ON FORM 10 - Q
PART I - ITEM 1
LIST OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1995
EMPI, INC.
MINNEAPOLIS, MINNESOTA
6
<PAGE>
FORM 10 - Q - - PART I - ITEM 1
EMPI, INC.
LIST OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following condensed consolidated financial statements of Empi, Inc. are
included in Part I - Item 1.
Condensed Consolidated Balance Sheets - - June 30, 1995 and
December 31, 1994,
Condensed Consolidated Statements of Operations - - Three and Six
months ended June 30, 1995 and 1994,
Condensed Consolidated Statements of Cash Flows - - Six months ended
June 30, 1995 and 1994.
Notes to Condensed Consolidated Financial Statements.
7
<PAGE>
FORM 10 - Q - - PART I - ITEM 1
EMPI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30 December 31
1995 1994
---- ----
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,957 $ 5,652
Short-term investments 5,383 5,309
Accounts and notes receivable,
less allowances 15,473 16,825
Inventories - Note B 8,646 7,487
Deferred income taxes 4,685 4,277
Other 888 702
------- -------
TOTAL CURRENT ASSETS 42,032 40,252
PROPERTY, PLANT AND EQUIPMENT - NET 5,037 5,330
OTHER ASSETS 5,288 6,025
LONG-TERM INVESTMENTS 3,500 1,101
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$55,857 $52,708
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,216 $ 2,941
Employee compensation 1,667 981
Commissions payable 655 559
Current portion of long-term debt 600 603
Income taxes 119 584
Other 207 240
------- -------
TOTAL CURRENT LIABILITIES 5,464 5,908
LONG-TERM DEBT, LESS CURRENT PORTION 1,800 1,800
SHAREHOLDERS' EQUITY:
Common Stock 24,069 24,033
Retained earnings 24,524 20,967
------- -------
TOTAL SHAREHOLDERS' EQUITY 48,593 45,000
------- -------
$55,857 $52,708
------- -------
------- -------
</TABLE>
See notes to condensed consolidated financial statements.
8
<PAGE>
FORM 10 - Q - - PART I - ITEM 1
EMPI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
---------- ----------- ---------- ----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $16,274 $16,039 $32,798 $30,406
Cost of goods sold 4,195 3,790 8,715 7,365
------- ------- -------- -------
GROSS PROFIT 12,079 12,249 24,083 23,041
Operating Expenses:
Selling, general and administrative 8,195 8,547 16,666 16,430
Research and development 899 874 1,737 1,630
------- ------- -------- -------
9,094 9,421 18,403 18,060
------- ------- -------- -------
INCOME FROM
OPERATIONS 2,985 2,828 5,680 4,981
Other income/(expense), net 192 19 298 5
------- ------- -------- -------
INCOME BEFORE INCOME
TAXES 3,177 2,847 5,978 4,986
Income tax expense 1,238 1,138 2,331 1,994
------- ------- -------- -------
NET INCOME $ 1,939 $ 1,709 $ 3,647 $ 2,992
------- ------- -------- -------
------- ------- -------- -------
NET INCOME PER COMMON
AND COMMON EQUIVALENT
SHARE $ .22 $ .20 $ .42 $ .35
------- ------- -------- -------
------- ------- -------- -------
Weighted average common and
common equivalent shares
outstanding during the period 8,752 8,609 8,715 8,609
------- ------- -------- -------
------- ------- -------- -------
</TABLE>
See notes to condensed consolidated financial statements.
9
<PAGE>
FORM 10 - Q - - PART I - ITEM 1
EMPI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended,
June 30
1995 1994
---- ----
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,647 $ 2,992
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,635 1,539
Provision for deferred income taxes (408) (462)
Gain on sale of long-term investments (70) ---
Loss on sale of equipment 5 4
Provision for loss on accounts receivable 1,269 1,524
Changes in operating assets and liabilities:
Decrease in accounts receivable 83 404
Increase in inventories (1,159) (1,298)
Increase in other assets/liabilities (253) (288)
Increase (decrease) in accounts payable
and accrued expenses 57 (542)
Increase (decrease) in income taxes payable (465) 203
------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 4,408 4,076
INVESTING ACTIVITIES
Sale of short-term investments 1,796 500
Additions to other assets --- (222)
Purchase of equipment and improvements (675) (987)
Proceeds from sale of equipment 9 ---
Purchase of short-term investments (1,870) (3,041)
Sale of long-term investments 150 ---
Purchase of long-term investments (2,479) ---
------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (3,069) (4,865)
FINANCING ACTIVITIES
Payments on long-term debt (3) (6)
Proceeds from exercise of Common Stock options 36 88
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 33 82
------- -------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 1,305 (707)
Cash and cash equivalents at beginning of year 5,652 6,231
------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 6,957 $ 5,524
------- -------
------- -------
</TABLE>
See notes to condensed consolidated financial statements.
10
<PAGE>
FORM 10 - Q - - PART I - ITEM 1
EMPI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management
of the Company, all adjustments (consisting of only normal recurring
accruals) considered necessary for a fair presentation of the results have
been included. Operating results for the three months and six months ended
June 30, 1995 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1995. For further information,
refer to the consolidated financial statements and footnotes thereto included
in Empi, Inc. and Subsidiaries' annual report on Form 10-K for the year ended
December 31, 1994.
NOTE B - INVENTORIES
(In thousands)
<TABLE>
<CAPTION>
June 30 December 31
1995 1994
---- ----
(unaudited)
<S> <C> <C>
Finished goods $ 6,050 $ 5,254
Work in process 834 794
Raw materials 1,762 1,439
------- -------
$ 8,646 $ 7,487
------- -------
------- -------
</TABLE>
EXHIBITS
Exhibit No. Description Page No.
----------- ----------- --------
(11) Statement re: computation of 12
per share earnings
(27) Filed Data Schedule ---
(filed only in electronic format)
11
<PAGE>
EXHIBIT 11 - - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended, Six Months Ended,
June 30 June 30
1995 1994 1995 1994
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Average shares outstanding 8,592 8,547 8,585 8,524
Net effect of dilutive stock
options and warrants - based on
the treasury stock method using
average market price 160 62 130 85
------- ------- ------- -------
8,752 8,609 8,715 8,609
------- ------- ------- -------
------- ------- ------- -------
Net income $ 1,939 $ 1,709 $ 3,647 $ 2,992
------- ------- ------- -------
------- ------- ------- -------
Net income per share $ .22 $ .20 $ .42 $ .35
------- ------- ------- -------
------- ------- ------- -------
FULLY-DILUTED EARNINGS PER
SHARE:
Average shares outstanding 8,592 8,547 8,585 8,524
Net effect of dilutive stock
options and warrants - based on
the treasury stock method using
closing market price 176 65 130 83
------- ------- ------- -------
8,768 8,612 8,715 8,607
------- ------- ------- -------
------- ------- ------- -------
Net income $ 1,939 $ 1,709 $ 3,647 $ 2,992
------- ------- ------- -------
------- ------- ------- -------
Net income per share $ .22 $ .20 $ .42 $ .35
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from second
quarter 1995 financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 6957
<SECURITIES> 5383
<RECEIVABLES> 22331
<ALLOWANCES> 6858
<INVENTORY> 8646
<CURRENT-ASSETS> 42032
<PP&E> 11485
<DEPRECIATION> 6448
<TOTAL-ASSETS> 55857
<CURRENT-LIABILITIES> 5464
<BONDS> 1800
<COMMON> 24069
0
0
<OTHER-SE> 24524
<TOTAL-LIABILITY-AND-EQUITY> 55857
<SALES> 32798
<TOTAL-REVENUES> 32798
<CGS> 8715
<TOTAL-COSTS> 8715
<OTHER-EXPENSES> 18403
<LOSS-PROVISION> 1465
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> 5978
<INCOME-TAX> 2331
<INCOME-CONTINUING> 3647
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3647
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
