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 MARCH 31, 2000
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: 0-18933
ROCHESTER MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1613227
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE ROCHESTER MEDICAL DRIVE,
STEWARTVILLE, MN 55976
(Address of principal executive offices) (Zip Code)
(507) 533-9600
(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 Exchange Act during the past 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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
5,338,900 Common Shares as of May 10, 2000.
<PAGE>
TABLE OF CONTENTS
ROCHESTER MEDICAL CORPORATION
REPORT ON FORM 10-Q
FOR QUARTER ENDED
MARCH 31, 2000
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets -- March 31, 2000 and September 30, 1999 ...............3
Statements of Operations -- Three months ended March 31, 2000 and
1999; Six months ended March 31, 2000 and 1999 ..................4
Statements of Cash Flows -- Six months ended March 31, 2000 and
1999 ............................................................5
Notes to Financial Statements .........................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................7
Item 3. Quantitative and Qualitative Disclosures about Market Risk .....11
PART II. OTHER INFORMATION ...................................................12
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ROCHESTER MEDICAL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents ...................................... $ 7,329,742 $ 4,216,814
Marketable Securities .......................................... 3,008,752 9,029,296
Accounts Receivable ............................................ 1,616,527 1,369,662
Inventories .................................................... 1,922,349 2,047,820
Prepaid Expenses and Other Assets .............................. 270,835 347,860
------------- -------------
TOTAL CURRENT ASSETS .................................. 14,148,205 17,011,452
PROPERTY AND EQUIPMENT
Land and Buildings ............................................. 5,416,768 5,390,785
Equipment and Fixtures ......................................... 9,843,364 9,338,173
------------- -------------
15,260,132 14,728,958
Less: Accumulated Depreciation ................................. (3,791,962) (3,257,233)
------------- -------------
TOTAL PROPERTY AND EQUIPMENT ......................... 11,468,170 11,471,725
INTANGIBLE ASSETS
Patents, Less Accumulated Amortization ......................... 205,994 219,218
------------- -------------
TOTAL ASSETS ...................................................... $ 25,822,369 28,702,395
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable ............................................... $ 741,442 689,475
Accrued Expenses ............................................... 576,840 835,914
------------- -------------
TOTAL CURRENT LIABILITIES ......................... 1,318,282 1,525,389
SHAREHOLDERS' EQUITY
Common Stock, no par value:
Authorized -- 20,000,000
Issued and Outstanding Shares -- 5,338,900
-- March, 2000 and 5,349,500 -- Sept., 1999 ........ 41,279,359 41,352,202
Accumulated Deficit ............................................ (16,775,272) (14,175,196)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY ........................ 24,504,087 27,177,006
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY .......................... $ 25,822,369 28,702,395
============= =============
</TABLE>
Note -- The Balance Sheet at September 30, 1999 was derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Notes to Financial Statements
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<PAGE>
ROCHESTER MEDICAL CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES ................................... $ 2,046,551 $ 1,381,318 $ 4,054,334 $ 3,727,312
COST OF SALES ............................... 1,600,208 1,083,775 3,125,308 2,839,734
------------ ------------ ------------ ------------
GROSS PROFIT ................................ 446,343 297,543 929,026 887,578
COSTS AND EXPENSES:
Marketing and Selling .................... 1,134,208 724,672 2,432,926 1,554,996
Research and Development ................. 200,719 288,475 423,895 509,117
General and Administrative ............... 524,309 465,713 984,249 910,663
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES ........... 1,859,236 1,478,860 3,841,070 2,974,776
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS ........................ (1,412,893) (1,181,317) (2,912,044) (2,087,198)
OTHER INCOME (EXPENSE):
Interest Income .......................... 146,847 181,884 311,968 357,786
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXP) ................. 146,847 181,884 311,968 357,786
NET LOSS .................................... $ (1,266,046) $ (999,433) $ (2,600,076) $ (1,729,412)
============ ============ ============ ============
NET LOSS PER COMMON SHARE
(Basic and Diluted) ......................... $ (0.24) $ (0.19) $ (0.49) $ (0.33)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING ................... 5,338,900 5,344,556 5,343,586 5,316,146
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
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<PAGE>
ROCHESTER MEDICAL CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss .................................................. $ (2,600,076) $ (1,729,412)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ............................. 568,024 551,277
Changes in assets and liabilities:
Accounts Receivable ....................................... (246,864) 1,046,916
Inventories ............................................... 125,471 (462,429)
Other Current Assets ...................................... 77,026 (41,557)
Accounts Payable .......................................... 51,968 (275,822)
Accrued Expenses .......................................... (259,075) (428,963)
------------ ------------
NET CASH (USED IN) OPERATING ACTIVITIES ............. (2,283,526) (1,339,990)
INVESTING ACTIVITY
Capital Expenditures ...................................... (531,175) (461,607)
Patents ................................................... (20,073) (38,791)
Maturities (Purchases) of Marketable Securities, Net ...... 6,020,545 4,494,390
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES ................. 5,469,297 3,993,992
------------ ------------
FINANCING ACTIVITIES
Sales (Purchases) of Common Stock ......................... (72,843) 660,000
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................. (72,843) 660,000
(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS ..................................... 3,112,928 3,314,002
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ...................................... 4,216,814 2,864,922
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................... $ 7,329,742 $ 6,178,924
============ ============
</TABLE>
See Notes to Financial Statements
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<PAGE>
ROCHESTER MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. These financial statements should
be read in conjunction with the financial statements and related notes included
in the Company's 1999 Form 10-K. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ending September 30, 2000.
NOTE B -- EARNINGS (LOSS) PER SHARE
The Company follows Financial Accounting Standards Board Statement No. 128,
"Earnings Per Share." For the three-month periods ended March 31, 2000 and 1999,
there is no difference between basic and diluted net loss per share. Common
equivalent shares from stock options are excluded as their effects are
antidilutive.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENT
On April 11, 2000, the Company announced that it had executed a Letter of
Intent to sell its standard silicone Foley catheter manufacturing operations and
standard Foley catheter private label business to Maersk Medical. The Company
continues to have discussions regarding a proposed transaction with Maersk
Medical involving the sale of the Company's standard silicone Foley catheter
private label business.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal periods indicated, certain
items from the statements of operations of the Company expressed as a percentage
of net sales.
Three Months Six Months
Ended Ended
March 31, March 31,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
Total Net Sales ...................... 100% 100% 100% 100%
Cost of Sales ........................ 78% 78% 77% 76%
---- ---- ---- ----
Gross Margin ................ 22% 22% 23% 24%
Operating Expenses
Marketing and Selling ....... 55% 52% 60% 42%
Research and Development .... 10% 21% 11% 14%
General and Administrative .. 26% 34% 24% 24%
---- ---- ---- ----
Total Operating Expenses ............. 91% 107% 95% 80%
Loss From Operations ................. (69%) (85%) (72%) (56%)
Interest Income (Expense) Net ........ 7% 13% 8% 10%
---- ---- ---- ----
Net Loss ............................. (62%) (72%) (64%) (46%)
==== ==== ==== ====
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<PAGE>
THREE MONTH AND SIX MONTH PERIODS ENDED MARCH 31, 2000 AND MARCH 31, 1999
NET SALES. Net sales for the second quarter of fiscal 2000 increased 48% to
$2,047,000 from $1,381,000 for the comparable quarter of last fiscal year. The
sales increase primarily resulted from increased order volumes for domestic
private label products and increases in international sales, primarily in
Europe.
Net sales for the six months ended March 31, 2000 increased 9% to $4,054,000
from $3,727,000 for the comparable six-month period of last fiscal year. Factors
leading to the increase in six-month sales results primarily include an increase
in international branded and private label sales, as well as an increase in
domestic branded sales, offset by previously disclosed lower domestic private
label sales.
GROSS MARGIN. The Company's gross margin as a percentage of net sales for
the second quarter of fiscal 2000 was 22% compared to 22% for the comparable
quarter of last fiscal year. The current quarter's margin reflects costs
associated with underutilized production capacity. Costs associated with
increased capacity are anticipated to continue until the Company achieves
sufficient sales to absorb the additional capacity.
The Company's gross margin as a percentage of net sales for the six months
ended March 31, 2000 was 23% compared to 24% for the comparable six-month period
of last fiscal year. Factors related to the six-month margin are generally
consistent with those discussed above for the current quarter.
The local labor market continues to experience high demand. During the
second quarter of fiscal 2000, the Company implemented a benefits program,
including wage increases, designed to address these competitive conditions and
the Company's need for workers. The Company continues to work to address these
competitive conditions in the local labor market. The recent implementation of
the benefits program could impact gross margins in future periods. In addition,
production manpower expenses incurred in connection with the pending transaction
with Maersk Medical also could impact gross margins in future periods until the
transaction is completed.
MARKETING AND SELLING. Marketing and selling expense for the second quarter
of fiscal 2000 increased 57% to $1,134,000 from $725,000 for the comparable
quarter of last fiscal year. The increase in marketing and selling expense is
primarily due to promotional activities as part of the Company's phased rollout
of the FEMSOFT(R) INSERT. The Company anticipates that marketing and selling
expenses will increase in future periods as the Company expands its promotional
and market development activities related to ROCHESTER MEDICAL brand products,
particularly the FEMSOFT INSERT.
-8-
<PAGE>
Marketing and selling expense for the six months ended March 31, 2000
increased 56% to $2,433,000 from $1,555,000 for the comparable six-month period
of last fiscal year. Factors affecting the comparative six-month expense levels
are generally consistent with those discussed above for the current quarter.
RESEARCH AND DEVELOPMENT. Research and development expense for the second
quarter of fiscal 2000 decreased 30% to $201,000 from $288,000 for the
comparable quarter of last fiscal year. The decrease in research and development
expense primarily reflects a decrease in FEMSOFT INSERT clinical testing costs
offset by an increase in new product development expenses.
Research and development expense for the six months ended March 31, 2000
decreased 17% to $424,000 from $509,000 for the comparable six-month period of
last fiscal year. Factors affecting the comparative six-month expense levels are
generally consistent with those discussed above for the current quarter.
GENERAL AND ADMINISTRATIVE. General and administrative expense for the
second quarter of fiscal 2000 increased 13% to $524,000 from $466,000 for the
comparable quarter of last fiscal year. The increase in general and
administrative expense is primarily related to increases in personnel costs and
other miscellaneous support costs.
General and administrative expense for the six months ended March 31, 2000
increased 8% to $984,000 from $911,000 for the comparable six-month period of
last fiscal year. Factors affecting the comparative six-month expense levels are
generally consistent with those discussed above for the current quarter.
INTEREST INCOME. Interest income for the second quarter of fiscal 2000
decreased 19% to $147,000 from $182,000 for the comparable quarter of last
fiscal year. The decrease in interest income reflects the comparatively lower
average level of invested cash balances in the current quarter due to the
utilization of cash for operations and capital expenditures.
Interest income for the six months ended March 31, 2000 decreased 13% to
$312,000 from $358,000 for the comparable six-month period of last fiscal year.
The decrease reflects a comparatively lower average level of invested cash
balances for the current quarter as discussed above.
-9-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities were
$10,338,000 at March 31, 2000 compared with $13,246,000 at September 30, 1999.
The Company used a net $2,032,000 of cash from operating activities during the
six months ended March 31, 2000, primarily reflecting the net loss before
non-cash depreciation.
During the six-month period ended March 31, 2000, the Company's working
capital position, excluding cash and marketable securities, decreased by a net
$252,000. Accounts receivable balances increased 18% or $247,000 as a result of
increased sales and the timing of customer orders. Inventories decreased 6% or
$125,000 as a result of the utilization of raw materials purchased in connection
with Year 2000 preparations. Other current assets decreased 22% or $77,000
during the recent six-month period as a result of the timing of receipt of
interest earnings on investments. Current liabilities decreased 14% or $207,000
during the recent six-month period, reflecting a temporary increase in raw
material purchase volumes related to Year 2000 preparations, offset by a
reduction in accrued expenses from payment of clinical trial and accrued
compensation obligations. Changes in other asset and liability balances during
the recent six-month period related to timing of expense recognition.
In December 1999, the Board of Directors authorized a stock repurchase
program. Up to one million shares of the Company's outstanding common stock may
be repurchased under the program. Purchases may be made from time to time at
prevailing prices in the open market and through other customary means. No time
limit has been placed on the duration of the stock repurchase program and it may
be conducted over an extended period of time as business and market conditions
warrant. The Company also may discontinue the stock repurchase program at any
time. The repurchased shares are available for reissuance pursuant to employee
stock option plans and for other corporate purposes. The Company intends to fund
such repurchases with currently available funds. To date, the Company has
repurchased 10,600 shares of common stock for $73,000.
The Company believes that its capital resources on hand at March 31, 2000,
together with revenues from sales, will be sufficient to satisfy its working
capital requirements for the foreseeable future as described in the Liquidity
and Capital Resources portion of Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Company's Annual Report on
Form 10-K (Part II, Item 6) for the fiscal year ended September 30, 1999.
FORWARD-LOOKING STATEMENTS
Statements other than historical information contained herein constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements may be identified
by the use of terminology such as "may," "will,"
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<PAGE>
"expect," "anticipate," "predict," "intend," "designed," "estimate," "should" or
"continue" or the negatives thereof or other variations thereon or comparable
terminology. Such forward-looking statements involve known or unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: the uncertainty of market acceptance of the RELEASE NF catheter and
the FEMSOFT INSERT; the risks associated with the Company's expanded reliance on
sales of ROCHESTER MEDICAL brand products; the uncertainty that the Company will
reach a definitive agreement with Maersk Medical regarding the sale of the
Company's standard silicone Foley catheter private label business; the risk that
the transaction and severance costs related to such sale will be greater than
expected; the uncertainty that the Company will realize the anticipated
strategic benefits from such sale; the uncertainty that the Company will enter
into an international distribution relationship with Maersk Medical; and other
risk factors listed from time to time in the Company's SEC reports, including,
without limitation, the section entitled "Risk Factors" in the Company's Annual
Report on Form 10-K (Part II, Item 6) for the year ended September 30, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
The Company does not believe that there is any material market risk
exposure with respect to derivative or other financial instruments which would
require disclosure under this item.
-11-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2000 Annual Meeting of Shareholders of Rochester Medical
Corporation was held on Wednesday, February 2, 2000, at the Minneapolis Hilton
and Towers Hotel in Minneapolis, Minnesota.
The holders of 5,037,543 shares of common stock, representing 94.17% of
the 5,349,500 outstanding shares entitled to vote as of the record date, were
represented at the meeting in person or by proxy. Management's entire slate of
seven directors listed in the proxy statement was elected to serve until the
next Annual Meeting of Shareholders by the following vote tallies:
For Authority Withheld
--- ------------------
Darnell L. Boehm 4,763,543 274,000
Anthony J. Conway 4,762,890 274,653
Peter R. Conway 4,762,890 274,653
Philip J. Conway 4,762,890 274,653
Richard D. Fryar 4,762,890 274,653
Roger W. Schnobrich 4,763,543 274,000
Brian J. Wierzbinski 4,763,543 274,000
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<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
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<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 thereunto duly authorized.
ROCHESTER MEDICAL CORPORATION
Date: May 15, 2000 By: /s/ Anthony J. Conway
-----------------------------
Anthony J. Conway
CHIEF EXECUTIVE OFFICER
Date: May 15, 2000 By: /s/ Brian J. Wierzbinski
-----------------------------
Brian J. Wierzbinski
CHIEF FINANCIAL OFFICER
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<PAGE>
EXHIBIT INDEX
Page
----
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,329,742
<SECURITIES> 3,008,752
<RECEIVABLES> 1,682,515
<ALLOWANCES> 65,988
<INVENTORY> 1,922,349
<CURRENT-ASSETS> 14,148,205
<PP&E> 15,260,132
<DEPRECIATION> 3,791,962
<TOTAL-ASSETS> 25,822,369
<CURRENT-LIABILITIES> 1,318,282
<BONDS> 0
0
0
<COMMON> 41,279,359
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 25,822,369
<SALES> 4,054,334
<TOTAL-REVENUES> 4,054,334
<CGS> 3,125,308
<TOTAL-COSTS> 6,966,378
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (2,912,044)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,600,076)
<EPS-BASIC> (0.49)
<EPS-DILUTED> (0.49)
</TABLE>
