<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 September 30, 1995
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Commission File Number 0-9387
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Empi, Inc.
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(Exact name of registrant as specified in its charter)
Minnesota 41-1310335
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
5255 East River Road
Minneapolis, Minnesota 55421
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(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 / /
8,600,946 shares of Common Stock were outstanding as of November 1, 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 third quarter equaled
$17.3 million compared to $14.5 million for the third quarter of 1994, an
increase of 19.3 percent. Total sales for the first nine months of 1995
equaled $50.1 million, an 11.6 percent increase over the same period sales of
$44.9 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 were up 9.2 percent and 3.1 percent from 1994's third quarter and
first nine months, respectively. 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 were up 46.6 percent
and 36.0 percent from 1994's third quarter and first nine months,
respectively. International sales were 4.9 percent of total sales for the
third quarter of 1995 and 6.1 percent of total sales for the first nine
months of 1995, and compares to 5.9 percent and 6.3 percent of total sales
for the same periods in 1994.
Gross profit for the third quarter of 1995 was 73.1 percent of sales compared
to 73.3 percent of sales for the third quarter of 1994. The gross profit for
the first nine months of 1995 was 73.3 percent of sales versus 75.0 percent
of sales for the same period in 1994. The lower gross profit percentages for
the first nine months of 1995 were due primarily, to higher manufacturing
costs (mix and inflation), and higher distribution costs due to the increase
in volume of product shipped. The Company anticipates gross profit, as a
percent of sales, to continue at the current level for the remainder of 1995.
Selling, general and administrative expenses for the third quarter of 1995
and 1994 were $8.5 million, respectively. Stated as a percent of sales, SG&A
expenses for the third quarter were 49.1 percent and 58.6 percent for 1995
and 1994, respectively. Selling, general and administrative costs for the
first nine months of 1995 were $25.2 million and 50.3 percent of sales
compared to SG&A costs for the first nine months in 1994 of $24.9 million and
55.5 percent of sales. There continues to be offsetting factors reflected in
the results for the third quarter and the first nine months of 1995, when
compared to the same periods in 1994. The major factors are higher payroll
and incentive compensation expenses, which are offset by lower costs due to
the closing of two office locations and lower provisions for bad debts.
Research and development costs were $.8 million and $2.6 million for the
third quarter and first nine months of 1995, respectively. That compares to
R & D spending for the same periods in 1994 of $.9 million and $2.5 million.
The Company's research and development spending in 1995 has been spread
evenly within the TENS/NMES, Orthosis, and Iontophoresis product groups, with
slightly higher spending on Incontinence and other new product research and
development, and lower spending on the sEMG product group.
2
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FORM 10-Q - - PART 1 - ITEM 2 (Continued)
Interest income for the third quarter and the first nine months of 1995 was
$211 thousand and $550 thousand, respectively. Interest income for the same
periods in 1994 was $84 thousand and $195 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 $27 thousand and $87
thousand for the third quarter and first nine months of 1995, respectively.
Interest expense for the same periods in 1994 was $40 thousand and $125
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 third quarter of 1995, the Company had a one time gain
of $42 thousand on the sale of its Urofitness Center to Continence Clinics,
Inc. (CCI) of Minneapolis, Minnesota.
Net income for the third quarter of 1995 was $2.1 million compared to $.8
million for the third quarter in 1994. Net income for the first nine months
of 1995 and 1994 was $5.8 million and $3.7 million, respectively. The 54
percent improvement in net income for the first nine months of 1995 has been
driven mainly by the following three factors; higher sales, stronger spending
controls, and higher interest income.
LIQUIDITY AND CAPITAL REQUIREMENTS
The Company ended the third quarter of 1995 with a very sound and strong
financial position. Working capital at quarter end stood at $39.7 million
compared to $34.3 million at year end 1994, an increase of $5.4 million. The
Company's cash position (including short and long terms investments)
increased from $12.1 million at December 31, 1994 to $19.3 million at
September 30, 1995.
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
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PART II - - OTHER INFORMATION
Item 5. OTHER INFORMATION
On September 8, 1995, the Company filed an action in the United States
District Court for the District of Minnesota Third Division against Iomed,
Inc. for trademark infringement, unfair competition and deceptive trade
practices, requesting damages in an amount yet to be determined. On October
16, 1995, Iomed, Inc. filed an answer denying all of the Company's claims and
in addition filed counterclaims alleging various deceptive and unlawful trade
practices, breach of contract and other claims and seeks various preliminary
injunctions, orders and damages to be determined at trial.
The Company has denied all of Iomed, Inc.'s counterclaims and believes such
counterclaims are without merit and will have no material effect on the
Company's financial statements.
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
September 30, 1995.
4
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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.
November 3, 1995 By /s/ Joseph E. Laptewicz
--------------------------------------------
Joseph E. Laptewicz
President and Chief Executive Officer
(Principal Executive Officer)
November 3, 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 NINE MONTHS ENDED SEPTEMBER 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 - - September 30, 1995 and
December 31, 1994,
Condensed Consolidated Statements of Operations - - Three and Nine
months ended September 30, 1995 and 1994,
Condensed Consolidated Statements of Cash Flows - - Nine months ended
September 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>
September 30 December 31
1995 1994
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $10,550 $ 5,652
Short-term investments 5,778 5,309
Accounts and notes receivable, less
allowances 15,567 16,825
Inventories - Note B 8,412 7,487
Deferred income taxes 4,649 4,277
Other 619 702
------- -------
TOTAL CURRENT ASSETS 45,575 40,252
PROPERTY, PLANT AND EQUIPMENT - NET 4,989 5,330
OTHER ASSETS 4,907 6,025
LONG-TERM INVESTMENTS 3,000 1,101
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$58,471 $52,708
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,955 $ 2,941
Employee compensation 2,030 981
Commissions payable 776 559
Current portion of long-term debt 600 603
Income taxes 203 584
Other 282 240
------- -------
TOTAL CURRENT LIABILITIES 5,846 5,908
LONG-TERM DEBT, LESS CURRENT PORTION 1,800 1,800
SHAREHOLDERS' EQUITY:
Common Stock 24,108 24,033
Retained earnings 26,717 20,967
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TOTAL SHAREHOLDERS' EQUITY 50,825 45,000
------- -------
$58,471 $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 Nine Months Ended
September 30 September 30
1995 1994 1995 1994
----------- ---------- ---------- ----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $17,273 $14,468 $50,071 $44,874
Cost of goods sold 4,639 3,862 13,354 11,227
------- ------- ------- -------
GROSS PROFIT 12,634 10,606 36,717 33,647
Operating Expenses:
Selling, general and administrative 8,536 8,508 25,202 24,938
Research and development 832 899 2,569 2,529
------- ------- ------- -------
9,368 9,407 27,771 27,467
------- ------- ------- -------
INCOME FROM OPERATIONS 3,266 1,199 8,946 6,180
Other income/(expense), net 217 63 515 68
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 3,483 1,262 9,461 6,248
Income tax expense 1,359 506 3,690 2,500
------- ------- ------- -------
NET INCOME $ 2,124 $ 756 $ 5,771 $ 3,748
------- ------- ------- -------
------- ------- ------- -------
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ .24 $ .09 $ .66 $ .44
------- ------- ------- -------
------- ------- ------- -------
Weighted average common and common
equivalent shares outstanding
during the period 8,859 8,603 8,771 8,604
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See notes to condensed consolidated financial statements.
9
<PAGE>
FORM 10-Q A - - PART I - ITEM 1
EMPI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended,
September 30
1995 1994
---------- ----------
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,771 $ 3,748
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,587 2,384
Provision for deferred income taxes (372) (546)
Gain on sale of long-term investments (70) --
Loss on sale of equipment 52 5
Provision for loss on accounts receivable 1,956 2,460
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (698) 1,327
Increase in inventories (925) (1,181)
Increase (decrease) in other assets/liabilities 97 (392)
Increase (decrease) in accounts payable and
accrued expenses 281 (1,101)
Decrease in income taxes payable (381) (874)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 8,298 5,830
INVESTING ACTIVITIES
Sale of short-term investments 1,800 1,500
Additions to other assets (28) (418)
Acquisition of Nortech -- (1,115)
Purchase of equipment and improvements (1,196) (1,489)
Proceeds from sale of equipment 50 1
Purchase of short-term investments (2,269) (2,006)
Sale of long-term investments 1,080 --
Purchase of long-term investments (2,909) (1,021)
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (3,472) (4,548)
FINANCING ACTIVITIES
Payments on long-term debt (3) (9)
Proceeds from exercise of Common Stock options 75 91
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NET CASH PROVIDED BY FINANCING ACTIVITIES 72 82
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NET INCREASE IN CASH AND CASH EQUIVALENTS 4,898 1,364
Cash and cash equivalents at beginning of year 5,652 6,231
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $10,550 $ 7,595
------- -------
------- -------
</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 nine months ended
September 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>
September 30 December 31
1995 1994
----------- -----------
(unaudited)
<S> <C> <C>
Finished goods $5,840 $5,254
Work in process 755 794
Raw materials 1,817 1,439
------ ------
$8,412 $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, Nine Months Ended,
September 30 September 30
1995 1994 1995 1994
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Average shares outstanding 8,598 8,548 8,589 8,532
Net effect of dilutive stock
options and warrants - based on
the treasury stock method using
average market price 261 55 182 72
------ ------ ------ ------
8,859 8,603 8,771 8,604
------ ------ ------ ------
------ ------ ------ ------
Net income $2,124 $ 756 $5,771 $3,748
------ ------ ------ ------
------ ------ ------ ------
Net income per share $ .24 $ .09 $ .66 $ .44
------ ------ ------ ------
------ ------ ------ ------
FULLY-DILUTED EARNINGS PER SHARE:
Average shares outstanding 8,598 8,548 8,589 8,532
Net effect of dilutive stock
options and warrants - based on
the treasury stock method using
closing market price 315 53 377 66
------ ------ ------ ------
8,913 8,601 8,966 8,598
------ ------ ------ ------
------ ------ ------ ------
Net income $2,124 $ 756 $5,771 $3,748
------ ------ ------ ------
------ ------ ------ ------
Net income per share $ .24 $ .09 $ .64 $ .44
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIRD
QUARTER 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 10,550
<SECURITIES> 5,778
<RECEIVABLES> 21,389
<ALLOWANCES> 5,822
<INVENTORY> 8,412
<CURRENT-ASSETS> 45,575
<PP&E> 11,869
<DEPRECIATION> 6,880
<TOTAL-ASSETS> 58,471
<CURRENT-LIABILITIES> 5,846
<BONDS> 1,800
<COMMON> 24,108
0
0
<OTHER-SE> 26,717
<TOTAL-LIABILITY-AND-EQUITY> 58,471
<SALES> 50,071
<TOTAL-REVENUES> 50,071
<CGS> 13,354
<TOTAL-COSTS> 13,354
<OTHER-EXPENSES> 27,771
<LOSS-PROVISION> 1,956
<INTEREST-EXPENSE> 87
<INCOME-PRETAX> 9,461
<INCOME-TAX> 3,690
<INCOME-CONTINUING> 5,771
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,771
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
</TABLE>
