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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year 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 No. 0-19842
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POLYMEDICA CORPORATION
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3033368
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11 State Street, Woburn, Massachusetts 01801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 933-2020
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
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(Title of class)
PREFERRED STOCK PURCHASE RIGHTS
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(Title of class)
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K.
The aggregate market value of voting Common Stock held by
nonaffiliates of the registrant was $653,710,000 based on the closing price of
the Common Stock as reported by The Nasdaq Stock Market(R) on June 27, 2000.
The number of shares issued of the registrant's class of Common Stock
as of June 27, 2000 was 13,184,748 which includes 2,203 shares held in treasury.
Documents incorporated by reference: The Registrant intends to file a
definitive proxy statement pursuant to Regulation 14A, promulgated under the
Securities Exchange Act of 1924, as amended, to be used in connection with the
Registrant's Annual Meeting of Stockholders to be held on September 14, 2000.
The information required in response to Items 10 - 13 of Part III of this Form
10-K is hereby incorporated by reference to such proxy statement.
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PART I
ITEM 1. BUSINESS
THE COMPANY
General
PolyMedica Corporation is a leading provider of direct-to-consumer
specialty medical products and services, conducting business in the Chronic
Care, Professional Products and Consumer Healthcare markets. We sell diabetes
supplies and adult nutrition supplies through our Chronic Care segment. Our AZO
brand holds a leading position in the over-the-counter urinary health market and
we distribute a broad range of other medical products, including digital
thermometers and compliance products, primarily to food and drug retailers and
mass merchandisers nationwide, through our Consumer Healthcare segment. We also
market, manufacture and distribute a line of prescription urological and
suppository products and provide direct-to-consumer prescription respiratory
supplies and services to Medicare-eligible seniors suffering from chronic
obstructive pulmonary disease ("COPD") through our Professional Products
segment.
Chronic Care
We are a national direct-mail provider of diabetes and adult nutrition
supplies through our Chronic Care segment. We have a database of over 265,000
active Medicare-eligible diabetes customers, many of whom suffer from other
chronic care diseases, to whom we sell name-brand products. We deliver products
to customers' homes and bill Medicare and private insurance directly for those
supplies that are reimbursable. We meet the needs of seniors suffering from
these diseases by:
- providing mail order delivery of supplies direct to our
customers' homes;
- billing Medicare or private insurance directly;
- providing 24-hour telephone support to customers; and
- using sophisticated software and advanced order fulfillment
systems to provide products and support quickly and
efficiently.
In the United States, there are approximately 6.3 million seniors who
have diabetes. With our database of over 265,000 active Medicare-eligible
diabetes customers, we serve approximately 4.2% of the diabetes marketplace.
While many of the 6.3 million seniors with diabetes are covered by managed care
or reside in extended care facilities, we believe that the balance are potential
customers of ours.
In the quarter ended March 31, 2000, we entered the adult nutrition
market, with our primary focus on supplying enteral feeding supplies to seniors
covered by Medicare. Many of our adult nutrition patients suffer from cancer and
receive chemotherapy and therefore require enteral (tube) feeding. We believe
that our expertise in selling diabetes testing supplies will be a significant
advantage to us in marketing these products, and we have begun market testing,
including television advertisements, to add customers for this market.
Professional Products
We are a national direct-mail provider of prescription respiratory
supplies and also market, manufacture and distribute a line of prescription
urological and suppository products under our own brands though our Professional
Products segment. Our broad line of prescription urology products includes
urinary analgesics, antispasmodics, local anesthetics and analgesic
suppositories, excluding anti-infectives. Our primary customers for these
urology products are large drug wholesalers in the United States.
Similar to the service we provide in our Chronic Care segment, we
deliver products to customers' homes and bill Medicare and private insurance
directly for those prescription respiratory supplies that are reimbursable. As a
participating Medicare provider and third-party insurance biller, we provide a
simple, reliable way for seniors to obtain their supplies for respiratory
disease treatment.
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In 1998, Medicare expenditures for two key drugs for the treatment of
respiratory disease, albuterol and ipratropium, were in excess of $400 million.
We estimate that 10% of our customers for diabetes supplies also suffer from
respiratory disease. As of March 31, 2000, we had over 13,000 active customers
for our respiratory disease supplies.
Consumer Healthcare
Our Consumer Healthcare division primarily sells over-the-counter
female urinary discomfort products and fever thermometers. We sell our urinary
discomfort products for women under the AZO brand name and hold the number one
position in this market for these types of products. Our thermometers include
digital flexible tip, digital and glass thermometers. We sell our Consumer
Healthcare products through an extensive network to large drug store chains,
major supermarkets, mass merchandisers and drug wholesalers in the United
States.
Sale of Wound Care Business
In July 1997, we sold certain assets of our U.S. and U.K. wound care
operations. Under the terms of the sale, the purchaser, Innovative Technologies
Group Plc ("IT"), paid us $9.00 million in cash and issued us an unsecured
promissory note in the face amount of $4.00 million. In July 1998, we accepted
$1.60 million as final settlement of this note in consideration of the financial
position of the borrower and the unsecured nature of the note. Our fiscal years
ended March 31, 1999 and 1998 statements of operations, include $1.60 million
and $4.13 million, respectively, of pretax gains on the sale of the wound care
business as other income.
Business Strategies
Our principal strategy is to leverage our technology-based operating
platform and compliance management protocol to expand our business. This
strategy includes the following elements:
Continue growth in our Chronic Care and Professional Products
businesses by expanding our customer base. Since the August 1996 acquisition of
Liberty Medical Supply, Inc. ("Liberty"), we have invested in an ongoing
program of television advertising to reach a much larger portion of the
Medicare-eligible patient market. This campaign has resulted in a significant
increase in sales as we have increased our active diabetes customers from
approximately 17,000 to more than 265,000 customers and have over 13,000 active
customers for our respiratory disease supplies. We continue to seek
opportunities to deliver new products to a broader customer base by leveraging
our efficient mail-order distribution system and software for billing and
customer monitoring. To manage our growth effectively, we are expanding,
upgrading and developing our operations and information systems to continue our
high level of customer service.
Add complementary products and businesses. In order to take advantage
of economies of scale in production and marketing, we continue to evaluate
opportunities for the acquisition of businesses and products which complement
our existing product lines. In selecting and evaluating acquisition candidates,
we examine the potential market opportunities for products that can be
distributed through our existing marketing infrastructure by utilizing its
strengths in sales, marketing and distribution. We will consider adding
businesses, manufacturing capabilities and new products that capitalize upon our
established brand franchises.
Begin e-commerce marketing. We are developing a new web site to extend
our product offerings into the e-commerce market. Seniors are one of the fastest
growing segments of computer and Internet users.
Major Customers
For the fiscal years ended March 31, 2000, 1999, and 1998, no customer
represented more than 10% of our consolidated revenues.
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Patents and Trade Secrets
We have proprietary manufacturing processes and trade secrets related
to our in-house pharmaceutical production. We own one patent for the Flexible
Tip Digital Thermometer with Fever Alarm (TM).
Manufacturing
We manufacture in-house several established products, including AZO
CRANBERRY(R), AQUACHLORAL(R), B&O(R) and URISED(R). Our state-of-the-art
automated suppository machine forms, fills and seals automatically and the
computer-controlled, hands-off equipment provides improved manufacturing
efficiency. We purchase certain of our Consumer Healthcare products from other
manufacturers.
Government Regulation
Medicare
Medicare is a federally funded program that provides health insurance
coverage for persons age 65 or older and for some disabled persons. Medicare
provides reimbursement for some of the products that we sell. This portion of
our business is therefore subject to extensive regulation. Medicare
reimbursement payments are often lower than reimbursement payments of other
third-party payers, such as traditional indemnity insurance companies. Effective
July 1, 1998, testing supplies for Type II diabetics became reimbursable. In
addition, on October 1, 1998, new Medicare reimbursement guidelines provided
that quarterly orders of diabetes supplies to existing customers be
administratively verified before shipment and that all doctor's orders for
supplies are valid for a reduced period of six months. In addition, the new
regulations require that individuals with Type I diabetes who test more
frequently than three times per day and individuals with Type II diabetes who
test more frequently than one time per day, visit their physician every six
months and maintain a 30-day log book to verify frequency of testing.
We accept assignment of Medicare claims, as well as claims with respect
to other third-party payers, on behalf of our customers. We process claims,
accept payments and assume the risks of delay or nonpayment. We also employ the
administrative personnel necessary to transmit claims for product reimbursement
directly to Medicare and private health insurance carriers. Medicare reimburses
at 80% of the Medicare fee schedule for approved diabetes testing, adult
nutrition and respiratory supplies, and we bill the remaining 20% of the
Medicare fee schedule to either third-party payers or directly to customers. In
the event that customers do not provide to us the documents required to bill
Medicare, our customers are responsible for the full amounts due. In the year
ended March 31, 2000, we provided 7.2% of net revenues, as an allowance for
doubtful accounts. We exclude from revenue all amounts in excess of the Medicare
fee schedule.
The processing of third-party reimbursements is a labor-intensive
effort, and delays in processing claims for reimbursement may increase working
capital requirements. In addition, final determination of the reimbursements
that Medicare pays to us are subject to review. Routine Medicare document
requests to date have not resulted in any audits or significant adjustments.
Pharmacy Licensing
In general, our pharmacy operations are regulated by the State of
Florida Board of Pharmacy and the statutes of the State of Florida where we are
licensed to do business as a pharmacy. Many of the states into which we deliver
pharmaceuticals have laws and regulations governing our activities, although
they generally permit our pharmaceutical activities so long as they are
permitted under the laws and regulations of Florida. Nevertheless, we have
applied for pharmacy licenses in 40 states, have been granted pharmacy licenses
in 35 of them as of June 19, 2000, and are awaiting decision in the remaining 5
states. An additional 10 states do not require non-resident pharmacy licenses.
We believe that we are in compliance with the laws and regulations governing
pharmaceutical activities in every state in which we deliver pharmaceuticals.
General
Numerous federal, state and local laws relating to controlled drug
substances, safe working conditions, manufacturing practices, environmental
protection, fire hazard control and disposal of hazardous or potentially
hazardous substances apply to portions of our operations. For example, the Drug
Enforcement Administration ("DEA") regulates controlled drug substances, such as
narcotics, under the Controlled Substances Act and the Controlled Substances
Import and Export Act. Manufacturers, distributors and dispensers of controlled
substances must be registered and inspected by the DEA, and are subject to
inspection, labeling and
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packaging, export, import, security, production quota, record keeping and
reporting requirements. In addition, labeling and promotional activities
relating to medical devices and drugs are, in certain instances, subject to
regulation by the Federal Trade Commission. To the extent we engage in new
activities or expand current activities into new states, the cost of compliance
with applicable regulations and licensing requirements could be significant. In
addition, our manufacturing facility is subject to the Good Manufacturing
Practices regulations of the United States Food and Drug Administration ("FDA").
The FDA enforces these regulations through its plant inspection program. In
addition, our drug products are subject to the requirements of the Food, Drug
and Cosmetics Act and related regulations.
Competition
We compete in highly competitive markets. Many of our competitors and
potential competitors have substantially greater capital resources, purchasing
power and advertising budgets, as well as more experience in marketing and
distributing products. These competitors include:
- retail pharmacies;
- healthcare product distributors;
- disease management companies; and
- pharmacy benefit management companies.
In the urinary discomfort category, our AZO STANDARD(R) urinary
analgesic is the category leader. Competitors include a number of major
pharmaceutical companies. In the thermometry market, one very large medical
device company has the dominant market share. In the professional products
market, numerous pharmaceutical companies develop and market prescription
products that compete with our products on a branded and generic basis.
We believe that the principal competitive factors in the Chronic Care,
Professional Products and Consumer Healthcare markets include attracting new
customers, identifying and responding to customer needs, the quality and breadth
of service and product offerings, and expertise with respect to the
reimbursement process. We believe that we compete effectively in all of these
areas because of:
- Liberty's brand recognition supported by a national television
advertising campaign;
- Our expertise in the Medicare reimbursement and compliance
process; and
- Our significant investment in employee training, computer
systems and order processing systems to assure high quality
customer service and cost-effective order processing.
Employees
As of March 31, 2000, we had 794 full-time employees. We expect to
employ additional personnel as we expand our operations. We believe that
employee relations are good.
ITEM 2. PROPERTIES
Our facilities are located in Woburn, Massachusetts; Port St. Lucie,
Palm City and Stuart, Florida; and Golden, Colorado. Our corporate headquarters
are located in Woburn in a 60,000 square foot facility which we own. We also own
a 72,000 square foot facility in St. Lucie County, Florida, which was purchased
in May 1999 and became occupied in April 2000, and currently lease space in Palm
City and Stuart, Florida, as well as approximately 12,000 square feet in Golden,
Colorado.
We believe that our current and new facilities will be adequate for our
current and anticipated needs.
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ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the
last quarter of the fiscal year ended March 31, 2000.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Our current executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Steven J. Lee.................................... 53 Chairman and Chief Executive Officer
Arthur A. Siciliano, Ph.D........................ 57 President; President,PolyMedica Pharmaceuticals
(U.S.A.), Inc.
Eric G. Walters.................................. 48 Chief Financial Officer and Clerk
W. Keith Trowbridge.............................. 48 Vice President; President, Liberty Medical Supply, Inc.
</TABLE>
Mr. Lee has been Chairman of the Company since June 1996 and Chief
Executive Officer and a director of the Company since May 1990. Mr. Lee served
as President of the Company from May 1990 through June 1996. From March 1990 to
May 1990, Mr. Lee was a Manager in the Mergers and Acquisitions practice at
Coopers & Lybrand. From November 1987 to March 1990, Mr. Lee was President and a
director of Shawmut National Ventures, the venture capital division of Shawmut
Bank, N.A. From 1984 to 1986, he was President, Chief Executive Officer and a
director of RepliGen Corporation, a biotechnology company. Mr. Lee also spent
eleven years in venture capital as President of Venture Management Advisors and
at Bankers Trust Company. Mr. Lee currently serves as a director of Commonwealth
BioVentures, Inc. and Fibersense Technology Corporation.
Dr. Siciliano has been President of the Company since June 1996,
Executive Vice President since July 1994, Senior Vice President since January
1993, Vice President, Pharmaceuticals since July 1991 and served as Vice
President, Manufacturing from June 1990 to July 1991. From the Company's
inception until June 1990, he served as Chief Operating Officer. From 1984 to
1986, Dr. Siciliano served as President of Microfluidics Corporation, a high
technology equipment manufacturer and a subsidiary of the Biotechnology
Development Corporation and then helped found a subsidiary, MediControl
Corporation, and served as its President from 1986 to 1989. He served as
President of the Heico Chemicals Division of the Whittaker Corporation from 1982
to 1984, as General Manager of Reheis Chemicals (Ireland), Ltd. during 1981 and
as Technical Director for Reheis Chemical Co., a division of Revlon Inc., from
1975 to 1982. Dr. Siciliano also served as Director of Corporate Research for
Kolmar Laboratories, Inc. from 1973 to 1975 and as Senior Scientist for The
Gillette Company from 1969 to 1973.
Mr. Walters joined the Company in August 1990 as Chief Financial
Officer and Treasurer. From 1987 to 1990, Mr. Walters served in various
positions at John Hancock Capital Growth Management, Inc., most recently as
Assistant Treasurer. From 1983 to 1987, Mr. Walters served as Controller of
Venture Founders Corporation and from 1979 to 1983, he was employed at Coopers &
Lybrand, most recently as an Audit Supervisor. Mr. Walters is a Certified Public
Accountant.
Mr. Trowbridge joined the Company in February 1999 as Chief Operating
Officer of Liberty Medical Supply, Inc. ("Liberty"). On May 1, 1999, he was
appointed President of Liberty and was also elected Vice President of PolyMedica
Corporation. From December 1997 to February 1999, he served as President; and
from November 1994 to December 1997 he served as Executive Vice President of U.
S. Operations for Transworld Healthcare, Inc., a $300 million international
company, where he was responsible for three domestic operating units including
MK Diabetes Support Services. From August 1991 to October 1994, Mr. Trowbridge
served as Chairman and CEO of Medical Associates of America, a national
integrated network of physician owned pharmacies. Mr. Trowbridge also served as
Executive Vice President of T2 Medical from January 1988 to August 1991.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
At March 31, 2000, our Common Stock was held by 426 holders of record.
We believe that the actual number of beneficial owners of our Common Stock is
substantially greater than the stated number of holders of record because a
substantial portion of the Common Stock outstanding is held in "street name".
On January 11, 1999, our Common Stock began trading on the Nasdaq
National Market under the symbol "PLMD" and trading of our Common Stock was
discontinued on the American Stock Exchange. Our symbol on that exchange was
"PM".
The following table sets forth the high and low sales price per share
of Common Stock on the American Stock Exchange and the Nasdaq National Market:
FISCAL YEAR 2000
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HIGH LOW
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1st Quarter 11 1/8 7 1/2
2nd Quarter 30 15/16 9 11/16
3rd Quarter 24 7/8 14 11/16
4th Quarter 59 19 1/2
FISCAL YEAR 1999
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HIGH LOW
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1st Quarter 12 3/8 8 1/2
2nd Quarter 11 1/4 7 1/4
3rd Quarter 11 1/2 7 5/8
4th Quarter 11 3/16 5
We have never declared or paid any cash dividends on our common stock.
For the foreseeable future, we expect to retain our earnings to finance the
growth of our business.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 2000 1999 1998 1997 1996
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<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Total revenues $156,920 $104,825 $ 73,825 $ 30,453 $ 24,763
Income from continuing operations 16,455 7,644 7,619 2,322 3,075
Net income 15,119 7,644 7,619 2,322 274
Net income per common share, diluted 1.27 .78 .79 .27 .04
Weighted average shares, diluted 11,876 9,786 9,691 8,618 7,492
Balance Sheet Data
Cash and cash equivalents $ 40,687 $ 10,191 $ 6,440 $ 11,028 $ 23,302
Total assets 175,596 112,939 92,401 75,233 72,573
Total liabilities 39,446 49,894 39,473 31,861 29,293
Total debt 3,332 24,666 22,906 25,476 24,400
Shareholders' equity 136,150 63,045 52,928 43,372 43,280
</TABLE>
During the fiscal year ended March 31, 1997, we determined that it is
more likely than not that certain deferred tax assets will be realized and
accordingly eliminated the related valuation allowance. Realization of the net
deferred tax assets is dependent
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on generating sufficient taxable income prior to the expiration of loss
carryforwards. Although realization is not assured, management believes that it
is more likely than not that such net deferred tax assets will be realized. As a
result, we recorded a tax benefit of $367,000 in 1997.
During the fiscal year ended March 31, 1998, net income included $2.74
million, net of related taxes, or $0.29 per common share, diluted, related to
the gain on the July 1997 sale of our wound care business. In 1999, net income
included $976,000, net of related taxes, or $0.10 per common share, diluted,
related to this sale.
During the fiscal year ended March 31, 2000, net income included a
$1.34 million loss, net of related taxes, or $0.12 per common share, diluted,
related to the extraordinary loss on retirement of debt.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FUTURE OPERATING RESULTS
This Annual Report contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes", "anticipates", "plans", "expects", and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause our actual results to differ
materially from those indicated or suggested by such forward-looking statements.
These factors include, without limitation, those set forth below in the section
titled "Factors Affecting Future Operating Results" in this Annual Report.
OVERVIEW
Business
PolyMedica Corporation is a leading provider of direct-to-consumer
specialty medical products and services, conducting business in the Chronic
Care, Professional Products and Consumer Healthcare markets. We sell diabetes
supplies and adult nutrition supplies through our Chronic Care segment. Our AZO
brand holds a leading position in the over-the-counter urinary health market and
we distribute a broad range of other medical products, including digital
thermometers and compliance products, primarily to food and drug retailers and
mass merchandisers nationwide, through our Consumer Healthcare segment. We also
market, manufacture and distribute a broad line of prescription urological and
suppository products and provide direct-to-consumer prescription respiratory
supplies and services to Medicare-eligible seniors suffering from chronic
obstructive pulmonary disease ("COPD") through our Professional Products
segment.
We recognize revenues upon shipment of our products. Expense items
include cost of sales and selling, general and administrative expenses.
- Cost of sales consists primarily of purchased finished goods
for sale in our markets and, to a lesser extent, materials and
overhead costs for products that we manufacture in our
facility; and
- Selling, general and administrative expenses consist primarily
of expenditures for personnel and benefits, as well as
allowances for bad debts, rent, amortization of capitalized
direct-response advertising costs and other amortization and
depreciation.
Chronic Care
We are a national direct-mail provider of diabetes and adult nutrition
supplies through our Chronic Care segment. Since acquiring Liberty in August
1996, we have devoted a large part of our resources to the growth of our Chronic
Care segment, resulting in substantial increases in revenues and earnings
generated from the segment in each of the 2000, 1999, 1998 and 1997 fiscal
years. We intend to continue this emphasis in the future.
We have a database of over 265,000 active Medicare-eligible diabetes
customers, many of whom suffer from other chronic diseases, to whom we sell
name-brand products. We deliver products to customers' homes and bill Medicare
and private insurance directly for those supplies that are reimbursable. We meet
the needs of seniors suffering from these diseases by:
* providing mail order delivery of supplies direct to our
customers' homes;
* billing Medicare and/or private insurance directly;
* providing 24-hour telephone support to customers; and
* using sophisticated software and advanced order fulfillment
systems to provide products and support quickly and
efficiently
In the United States, there are approximately 6.3 million seniors who
have diabetes. With our database of over 265,000 active Medicare-eligible
diabetes customers, we serve approximately 4.2% of the diabetes marketplace.
While many of the 6.3 million
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seniors with diabetes are covered by managed care or reside in extended care
facilities, we believe that the balance are potential customers of ours.
In the quarter ended March 31, 2000, we entered the adult nutrition
market, with our primary focus on supplying enteral feeding supplies to seniors
covered by Medicare. Many of our adult nutrition patients suffer from cancer and
receive chemotherapy and therefore require enteral (tube) feeding. We believe
that our expertise in selling diabetes testing supplies will be a significant
advantage to us in marketing these products, and we have begun market testing,
including television advertisements, to add customers for them.
Professional Products
We are a national direct-mail provider of prescription respiratory
supplies and also market, manufacture and distribute a broad line of
prescription urological and suppository products through our Professional
Products segment. We own one of the broadest lines of branded prescription
urology products (excluding anti-infectives). Our urology products include
urinary analgesics, anti-spasmodics, local anesthetics and suppositories.
URISED, CYSTOSPAZ(R) and CYSTOSPAZ-M(R) analgesics and anti-spasmodics provide
effective symptomatic relief for urinary pain, burning and spasms. Many urology
offices, as well as hospitals, purchase the local anesthetic ANESTACON(R) for
use in diagnostic procedures and the catheterization process. B&O and
AQUACHLORAL suppositories are used by patients unable to tolerate oral dosages
of systemic analgesics and sedatives. Our primary customers for these urology
products are large drug wholesalers in the United States.
Similar to the service we provide in our Chronic Care segment, we
deliver products to customers' homes and bill Medicare and private insurance
directly for those prescription respiratory supplies that are reimbursable. As a
participating Medicare provider and third-party insurance biller, we provide a
simple, reliable way for seniors to obtain their supplies for respiratory
disease treatment.
In 1998, Medicare expenditures for two key drugs for the treatment of
respiratory disease, albuterol and ipratropium, were in excess of $400 million.
We estimate that 10% of our customers for diabetes supplies also suffer from
respiratory disease. As of March 31, 2000, we had over 13,000 active customers
for our respiratory disease supplies.
Consumer Healthcare
Our Consumer Healthcare products are focused on three areas: female
urinary tract discomfort, digital thermometers and medication compliance
products. In the urinary tract discomfort area, three of our products include
AZO-STANDARD, which provides relief from urinary tract discomfort,
AZO-CRANBERRY, a dietary supplement which helps maintain a healthy urinary tract
and AZO TEST STRIPS(TM), an in-home urinary tract infection testing kit which
allows patients to call their doctors with testing results. In April 1999, we
began shipping two new homeopathic botanical products, AZO MENOPAUSE and AZO
CONFIDENCE. AZO MENOPAUSE offers relief from hot flashes and related symptoms.
AZO CONFIDENCE is used for the relief of symptoms of incontinence. An additional
two products, AZO YEAST and AZO PMS were introduced in the year ended March 31,
2000, which serve to provide relief from yeast infections and pre-menstrual
syndrome, respectively.
Our Consumer Healthcare products also include digital, digital flexible
tip, basal and glass thermometers, as well as approximately 40 other home-use
diagnostic and compliance products. We have patented and introduced a flexible
tip thermometer. We sell our Consumer Healthcare products through an extensive
network to large drug store chains, major supermarkets, mass merchandisers and
drug wholesalers in the United States.
Growth Strategy
Our growth strategy includes the following elements:
- continue growth in our Chronic Care segment by expanding our
customer base;
- begin e-commerce marketing; and
- add complementary products and businesses.
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Recent Transactions
In October 1999, PolyMedica and selling shareholders issued to the
public 2,629,599 and 700,401 shares of common stock, respectively, for cash of
$21.25 per share. In connection with our sale of shares in the offering we paid
underwriters a fee of $1.17 per share of $3.1 million and incurred approximately
$600,000 in legal, accounting, and other expenses. Our net proceeds from this
offering, after deducting underwriting fees and expenses, were $52.2 million,
which was recorded as additional paid-in capital. We used $21.8 million of the
proceeds to retire $20.0 million of long-term debt and to pay an early payment
premium of approximately $1.8 million. The balance of the proceeds from this
offering will be used for working capital and general corporate purposes.
Other
Although the use of certain of our products is somewhat seasonal in
nature, we do not believe our net product sales, in the aggregate, are generally
subject to material seasonal fluctuations.
In accordance with Statement of Position 93-7, direct-response
advertising and associated costs related to our diabetes customers, included in
our Chronic Care segment, for all periods presented are capitalized and
amortized to selling, general and administrative expenses on an accelerated
basis during the first two years of a four-year period. The amortization rate is
such that 55% of such costs are expensed after two years from the date they are
incurred, and the remaining 45% is expensed on a straight line basis over the
next two years. Revenues generated from new diabetes customers as a result of
direct-response advertising have historically resulted in a revenue stream
lasting at least seven years. Management has selected a more conservative
amortization period of four years for diabetes supplies, respectively, in
consideration of the "Factors Affecting Future Operating Results" described
herein. Management assesses the realizability of the amounts of direct-response
advertising costs reported as assets at each balance sheet date by comparing the
carrying amounts of such assets to the probable remaining future net benefits
expected to result directly from such advertising.
Direct-response advertising and associated costs related to our
Professional Products segment for all periods presented are capitalized and
amortized to selling, general and administrative expenses on a straight-line
basis over a two year period. Historical evidence suggests that revenues
generated by new respiratory customers, as a result of direct-response
advertising, last on average three years. Management has selected a more
conservative amortization period of two years in consideration of the "Factors
Affecting Future Operating Results" described herein.
Other advertising, promotional, and marketing costs are charged to
earnings in the period in which they are incurred. Promotional and sample costs
whose benefit is expected to assist future sales are expensed as the related
materials are used.
We operate from manufacturing, distribution and research and
development facilities located in Massachusetts, Florida and Colorado. Virtually
all of our product sales are denominated in U.S. dollars
Period to period comparisons of changes in net revenues are not
necessarily indicative of results to be expected for any future period.
RESULTS OF OPERATIONS
Year Ended March 31, 2000 Compared to Year Ended March 31, 1999
Total net revenues increased by 49.7% to $156.92 million in the fiscal
year ended March 31, 2000 as compared with $104.83 million in the fiscal year
ended March 31, 1999. This increase is primarily the result of the growth in
revenues from our Chronic Care and Professional Products segments which
increased 56.3% and 65.8%, respectively, in the fiscal year ended March 31, 2000
as compared with the fiscal year ended March 31, 1999. See Note S for segment
information.
Pretax income from recurring operations was $26.67 million in the
fiscal year ended March 31, 2000, which excludes the $2.17 million extraordinary
loss on retirement of debt related to our early retirement of $20.0 million in
outstanding Hancock Notes plus an early payment penalty fee of $1.8 million, a
144.4% increase as compared with $10.91 million in the fiscal year ended March
31, 1999. This increase is primarily the result of improved gross margins (see
below) offset by increased selling, general and administrative expenses incurred
to further our expansion efforts.
Our net income was $15.12 million, or $1.27 per diluted common share,
as compared with $7.64 million, or $0.78 per diluted common share, in the fiscal
year ended March 31, 1999. Net income, excluding the $1.34 million extraordinary
loss on debt extinguishment, net of related taxes, was $16.46 million, or $1.39
per diluted common share, for the fiscal year ended March 31, 2000
11
<PAGE> 13
as compared with net income, excluding the $976,000 after tax gain from the sale
of the wound care business, of $6.67 million, or $0.68 per diluted common share,
for the fiscal year ended March 31, 1999.
Net revenues in the Chronic Care segment increased by 56.3% to
$126.00 million in the fiscal year ended March 31, 2000 as compared with $80.60
million in the fiscal year ended March 31, 1999. This growth is due to new
customer sales as a result of our direct-response advertising spending, as well
as recurring shipments to existing customers. In addition in the fiscal year
ended March 31, 2000, we experienced a full year of shipping to non-insulin
dependent diabetics, a practice Medicare ruled allowable for reimbursement
effective July 1, 1998. We currently expect our promotional and direct-response
advertising spending to continue in order to further the expansion of our
Chronic Care segment.
Net revenues from Consumer Healthcare products remained consistent,
increasing by 1.0% to $14.42 million in the fiscal year ended March 31, 2000 as
compared with $14.28 million in the fiscal year ended March 31, 1999.
Net revenues from Professional Products increased 65.8% to $16.50
million in the fiscal year ended March 31, 2000 as compared with $9.95 million
in the fiscal year ended March 31, 1999. This increase is mainly attributable to
shipments of respiratory products for the fiscal year ended March 31, 2000, due
to new customer sales as a result of our direct-response advertising spending.
As with our Chronic Care segment, we currently expect our promotional and
direct-response advertising spending to continue in order to further the
expansion of our Professional Products segment.
As a percentage of total net revenues, overall gross margins were 58.9%
in the fiscal year ended March 31, 2000 and 52.7% in the fiscal year ended March
31, 1999. Gross margins in the fiscal year ended March 31, 2000 increased due to
improved gross margins in the Chronic Care segment, resulting from favorable
product mix and higher volume discounts from suppliers, as well as improving
margins in the Professional Products segment.
As a percentage of total net revenues, selling, general and
administrative expenses were 41.8% for the fiscal year ended March 31, 2000 as
compared with 40.2% for the fiscal year ended March 31, 1999. Selling, general
and administrative expenses increased by 55.4% in the fiscal year ended March
31, 2000 to $65.56 million as compared with $42.19 million in the fiscal year
ended March 31, 1999. This increase is primarily attributable to general and
administrative expenses related to our expansion efforts.
Investment income increased by 210.2% to $1.35 million in the fiscal
year ended March 31, 2000 as compared with $434,000 in the fiscal year ended
March 31, 1999 as we earned interest on higher average cash balances primarily
as a result of proceeds from our October 1999 secondary public offering.
Interest expense decreased by 44.8% to $1.41 million in the fiscal year ended
March 31, 2000 as compared with $2.56 million in the fiscal year ended March 31,
1999, due to the October 1999 retirement of the Guaranteed Senior Secured Notes
due January 31, 2003 (the "Hancock Notes") to the John Hancock Mutual Life
Insurance Company ("Hancock").
Year Ended March 31, 1999 Compared to Year Ended March 31, 1998
Total net revenues increased by 42.0% to $104.83 million in the fiscal
year ended March 31, 1999 as compared with $73.83 million in the fiscal year
ended March 31, 1998. This increase is primarily the result of the growth in net
revenues from our Chronic Care segment, which increased 65.5% in the fiscal year
ended March 31, 1999 as compared with the fiscal year ended March 31, 1998. See
Note S for segment information.
Pretax income was $12.51 million in the fiscal year ended March 31,
1999. Excluding the $1.60 million pretax gain related to the sale of the wound
care business, pretax income from recurring operations was $10.91 million, a
48.2% increase as compared with $7.36 million in the fiscal year ended March 31,
1998. Our net income was $7.64 million, or $0.78 per diluted common share, in
the fiscal year ended March 31, 1999. Net income, excluding the $976,000 after
tax gain from the sale of the wound care business, or $0.10 per diluted common
share, was $6.67 million, or $0.68 per diluted common share. This performance
compares to net income, excluding the gain on the sale of our wound care
business, of $4.88 million, or $0.50 per diluted common share, in the fiscal
year ended March 31, 1998.
Net revenues in the Chronic Care segment increased by 65.5% to $80.60
million in the fiscal year ended March 31, 1999 as compared with $48.71 million
in the fiscal year ended March 31, 1998. This growth is largely a result of our
direct-response advertising spending, as well as recurring shipments to existing
customers. In addition, we shipped product to non-insulin dependent diabetics
for the first time beginning on July 1, 1998. We currently expect our
promotional and direct-response advertising spending to continue in order to
further the expansion of our Chronic Care segment.
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<PAGE> 14
Net revenues of Consumer Healthcare products increased by 28.1% to
$14.28 million in the fiscal year ended March 31, 1999 as compared with $11.15
million in the fiscal year ended March 31, 1998. Sales of both advanced
thermometry and the AZO line of products increased during the fiscal year ended
March 31, 1999. We added to the product line by introducing our Flexible-Tip
Digital Thermometer with Fever Alarm(TM) which began shipping in August 1997. In
addition, we introduced AZO TEST STRIPS, an in-home urinary tract infection
testing kit which allows patients to call their doctors with testing results.
Shipments of AZO TEST STRIPS began during the three months ended March 31, 1998.
In our Professional Products segment, there were $1.02 million of
nonrecurring net revenues generated from our institutional wound care products
in the fiscal year ended March 31, 1998. Excluding these wound care product
revenues, recurring net revenues decreased by 23.1% to $9.95 million in the
fiscal year ended March 31, 1999 as compared with $12.95 million in the fiscal
year ended March 31, 1998. Professional Products net revenues returned to more
normalized levels in the fiscal year ended March 31, 1999, as a result of the
re-entry into the marketplace of a generic competitor.
As a percentage of net revenues, overall gross margins were 52.7% in
the fiscal year ended March 31, 1999 and 51.8% in the fiscal year ended March
31, 1998. Gross margins in the fiscal year ended March 31, 1999 increased due to
improved gross margins of diabetes supplies, resulting from product mix and
higher volume purchasing from suppliers, as well as improving margins of
Professional Products.
As a percentage of total net revenues, selling, general and
administrative expenses were 40.2% for the fiscal year ended March 31, 1999 as
compared with 39.0% for the fiscal year ended March 31, 1998. Selling, general
and administrative expenses increased by 46.3% in the fiscal year ended March
31, 1999 to $42.19 million as compared with $28.83 million in the fiscal year
ended March 31, 1998. This increase is primarily attributable to general and
administrative expenses related to the expansion of our Chronic Care segment.
Investment income decreased by 31.0% to $434,000 in the fiscal year
ended March 31, 1999 as compared with $629,000 in the fiscal year ended March
31, 1998 as we earned interest on lower average cash balances in the fiscal year
ended March 31, 1999. Interest expense was $2.56 million in the fiscal year
ended March 31, 1999 as compared with $2.69 million in the fiscal year ended
March 31, 1998, as we accrued interest expense in both periods on the Hancock
Notes.
During the fiscal year ended March 31, 1998, we sold the assets which
constituted the wound care business. As a result, we ceased operations in the
U.K. on the day of the sale, and according released the valuation allowance to
foreign net operating losses. The release of this allowance increased earnings
during the fiscal year ended March 31, 1998 by $643,000, or $0.07 per diluted
common share. As of March 31, 1999 and 1998, we had no deferred tax
valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have raised $109.34 million in gross equity
capital, of which $7.16 million was from venture capital financings before our
initial public offering, $39.00 million from our March 1992 initial public
offering, $4.55 million from a November 1995 public offering of common stock,
$2.75 million from the March 1996 sale of 431,937 shares of our common stock
pursuant to Regulation S promulgated under the Securities Act of 1933, and
$55.88 million from the October 1999 sale of 2,629,599 shares of common stock.
During the three months ended December 31, 1999, PolyMedica and selling
shareholders issued to the public 2,629,599 and 700,401 shares of common stock,
respectively, for cash of $21.25 per share. In connection with this offering, we
paid underwriters a fee of $1.17 per share and incurred approximately $600,000
in legal, accounting, and other expenses. Our net proceeds from this offering,
after deducting underwriting fees and expenses, were $52.2 million.
As of March 31, 2000, we had working capital of $71.96 million,
including cash and cash equivalents of $40.69 million, which compares with
working capital of $32.39 million, including cash and cash equivalents of $10.19
million, as of March 31, 1999. The primary reason for the increase in working
capital as of March 31, 2000, when compared to March 31, 1999, was the increase
in cash and cash equivalents as a result of proceeds of $52.2 million raised in
our October 1999 secondary public offering.
Net accounts receivable were $39.76 million and $32.25 million as of
March 31, 2000 and 1999, respectively. As of March 31, 2000, gross unbilled
receivables included in overall gross accounts receivable of $50.51 million,
were $20.16 million as compared with $15.35 million as of March 31, 1999. The
increase is primarily the result of record shipments in our Chronic Care
segment.
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<PAGE> 15
We incurred and capitalized direct-response advertising of $21.44
million, $10.16 million and $11.70 million in 2000, 1999 and 1998, respectively.
As of March 31, 2000 and 1999, accumulated amortization was $16.96 million and
$7.92 million, which resulted in a net capitalized direct-response advertising
asset of $28.08 million and $15.68 million, respectively. A total of $9.04
million, $5.38 million and $2.42 million in direct-response advertising was
amortized and charged to selling, general and administrative expenses in 2000,
1999 and 1998, respectively.
In May 1999, the Health Care Financing Administration revised the
document requirements for claims to allow for faxed doctor's order
authorizations for diabetes supplies which relieves us of the expensive
responsibility of obtaining a mailed, original written doctor's order. (See
"Factors Affecting Future Operating Results").
In June 2000, our board of directors approved a 1,000,000 share
repurchase program which allows us to repurchase shares in the open market. As
of June 28, 2000, no shares have been repurchased under this program.
During May 2000, we filed a preliminary registration statement on Form
S-3 to begin the registration process with the Securities and Exchange
Commission for the possible future issuance of $100.00 million of debt and
equity securities. This filing is not yet effective.
We expect that our current working capital, revolving credit facility
and funds generated from future operations will be adequate to meet our
liquidity and capital requirements for current operations. In the event that we
undertake to make acquisitions of complementary businesses, products or
technologies, we may require substantial additional funding beyond currently
available working capital and funds generated from operations. We are conducting
an active search for the strategic acquisition of complementary businesses,
products or technologies which leverage our marketing, sales and distribution
infrastructure. We currently have no commitments or agreements with respect to
any such acquisition.
YEAR 2000 COMPLIANCE
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean the
year 1900 instead. If not corrected, those programs could cause date-related
transaction failures. We implemented a program to address this problem prior to
2000 and have not experienced any problems to date since January 1, 2000.
External and internal costs specifically associated with modifying
internal use software for Year 2000 compliance were expensed as incurred. To
date, expenditures related to the Year 2000 problem have been less than
$200,000. Such costs do not include normal system upgrades and replacements.
Although we have not experienced any problems since the beginning of
the Year 2000, such problems may still arise. If they do arise, these problems
could have a material adverse effect on our business.
All Year 2000 statements contained herein are designated as "Year 2000
Readiness Disclosures" pursuant to the Year 2000 Information and Readiness
Disclosures Act (P.L. 105-271).
ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. We will adopt SFAS No.
133 as required by SFAS No. 137, "Deferral of the Effective Date of SFAS No.
133", in 2001. The adoption of SFAS No. 133 is not expected to have material
impact on our financial position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101), subsequently updated by SAB 101B. SAB 101 and SAB 101B summarize
certain of the Staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. We are required to
adopt SAB 101 no later than the fourth quarter of fiscal year 2001. The effects
of applying this guidance, if any, will be reported as a cumulative effect
adjustment resulting from a change in accounting principle. The adoption of SAB
101 is not expected to have a material impact on our financial position or
results of operations.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues
clarifies the following: the definition of an employee for purposes of applying
APB Opinion No. 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of previously fixed stock options or awards, and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. We are
currently evaluating the impact of FIN 44 on our financial position and results
of operations.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The statements contained in this Report that are not purely historical
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including, but not limited to, statements regarding our expectations, hopes,
intentions or strategies regarding the future. Forward-looking statements
include, among others: statements regarding future benefits from our advertising
and promotional expenditures; statements regarding future net revenue levels;
statements regarding product development, introduction and marketing; statements
regarding future acquisitions; and statements regarding Year 2000 compliance.
All forward-looking statements included in this Report are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements. It is important to note that our actual results
could differ materially from those in such forward-looking statements.
Our future operating results remain difficult to predict. We continue
to face many risks and uncertainties which could affect our operating results,
including without limitation, those described below.
We could experience significantly reduced profits if Medicare changes, delays or
denies reimbursement
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<PAGE> 16
Sales of a significant portion of our Chronic Care and Professional
Products supplies will depend on the continued availability of reimbursement of
our customers by government and private insurance plans. Any reduction in
Medicare reimbursement currently available for our products would reduce our
revenues. Without a corresponding reduction in the cost of such products, the
result would be a reduction in our overall profit margin. Similarly, any
increase in the cost of such products would reduce our overall profit margin
unless there was a corresponding increase in Medicare reimbursement. Our
profits could also be affected by the imposition of more stringent regulatory
requirements for Medicare reimbursement. Any failure to comply with required
Medicare reimbursement procedures could result in delays or loss of
reimbursement and other sanctions, including fines and loss of Medicare provider
status.
We plan to continue our rapid expansion; if we do not manage our growth
successfully; our growth and profitability may slow or stop
We have expanded our operations rapidly and plan to continue to expand.
This expansion has created significant demand on our administrative, operational
and financial personnel and other resources. Additional expansion in existing or
new markets could strain these resources and increase our need for capital. Our
personnel, systems, procedures, controls and existing space may not be adequate
to support further expansion.
The profitability of our Chronic Care and Professional Products segments will
decrease if we do not receive recurring orders from customers
We generally incur losses and negative cash flow with respect to the
first order for Chronic Care and respiratory products, included in our
Professional Products segment, from a customer, due primarily to the marketing
and regulatory compliance costs associated with initial customer qualification.
Accordingly, the profitability of these segments depends in large part, on
recurring and sustained reorders. Reorder rates are inherently uncertain due to
several factors, many of which are outside our control, including changing
customer preferences, competitive price pressures, customer transition to
extended care facilities, customer mortality and general economic conditions.
We could experience significantly reduced profits from our Chronic Care segment
if improved technologies that eliminate the need for consumable testing supplies
are developed for glucose monitoring
The majority of our Chronic Care net revenues are from consumable
testing supplies, used to draw and test small quantities of blood for the
purpose of measuring and monitoring glucose levels. Numerous research efforts
are underway to develop more convenient and less intrusive glucose measurement
techniques. The commercialization and widespread acceptance of new technologies
that eliminate or reduce the need for consumable testing supplies could
negatively affect our Chronic Care business.
We could be liable for harm caused by products that we sell
The sale of medical products entails the risk that users will make
product liability claims. A product liability claim could be expensive. Our
insurance may not provide adequate coverage against these claims.
We could lose customers and revenues to new or existing competitors who have
greater financial or operating resources
Competition from other sellers of products offered through our Chronic
Care, Professional Products and Consumer Healthcare segments, manufacturers of
healthcare products, pharmaceutical companies and other competitors is intense
and expected to increase. Many of our competitors and potential competitors are
large companies with well-known names and substantial resources. These companies
may develop products and services that are more effective or less expensive than
any that we are developing or selling. They may also promote and market these
products more successfully than we promote and market our products.
Loss of use of manufacturing or data storage facilities would significantly
reduce revenues and profits from our Consumer Healthcare and Professional
Products businesses
We manufacture substantially all of our Professional Products and many
of our AZO products at our facility in Woburn, Massachusetts. We also have most
of our thermometers manufactured at one facility in China. In addition, we
process and store most of our customer data in our facility in Port St. Lucie,
Florida. If we cannot use any of these facilities as a result of the FDA,
Occupational Safety and Health Administration or other regulatory action, fire,
natural disaster or other event, our revenues and
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<PAGE> 17
profits will decrease significantly. We might also incur significant expense in
remedying the problem or securing an alternative manufacturing or data storage
source.
If we or our suppliers do not comply with applicable government regulations, we
may be prohibited from selling our products
Many of the products that we sell are regulated by the FDA and other
regulatory agencies. If any of these agencies mandate a suspension of production
or sales of our products or mandate a recall, we may lose sales and incur
expense until we are in compliance with the regulations or change to another
acceptable supplier.
We could have difficulty selling our Consumer Healthcare and Professional
Products if we cannot maintain and expand our sales to distributors
We rely on third party distributors to market and sell our Consumer
Healthcare and Professional Products. Our sales of Consumer Healthcare and
Professional Products will therefore depend in part on our maintaining and
expanding marketing and distribution relationships with pharmaceutical, medical
device, personal care and other distributors and on the success of those
distributors in marketing and selling our products.
Shortening or eliminating amortization of our direct-response advertising costs
could adversely affect our operating results
Any accounting or business change that shortens or eliminates the
amortization period of our direct-response advertising costs, four years for our
diabetes products and two years for our respiratory products, could result in
accelerated charges against our earnings.
Our quarterly revenues or operating results could vary, which may cause the
market price of our securities to decline
We have experienced fluctuations in our quarterly operating results and
anticipate that such fluctuations could continue. Results may vary significantly
depending on a number of factors, including:
* changes in reimbursement guidelines and amounts;
* changes in regulations affecting the healthcare industry;
* changes in the mix or cost of our products;
* the timing of customer orders;
* the timing and cost of our advertising campaigns; and
* the timing of the introduction or acceptance of new products
and services offered by us or our competitors.
We may make acquisitions that will strain our financial and operational
resources
We regularly review potential acquisitions of businesses and products.
Acquisitions involve a number of risks that might adversely affect our financial
and operational resources, including:
* diversion of the attention of senior management from important
business matters;
* amortization of substantial goodwill;
* difficulty in retaining key personnel of an acquired business;
* failure to assimilate operations of an acquired business;
* failure to retain the customers of an acquired business;
* possible operating losses and expenses of an acquired
business;
* exposure to legal claims for activities of an acquired
business prior to acquisition; and
* incurrence of debt and related interest expense.
We may fail to locate alternative suppliers for our thermometers if our sole
supplier in China cannot meet our demands
We purchase most of our thermometers from a sole supplier based in
China. The delivery of products from this supplier is subject to changing risks
associated with political developments and restrictions on trade. In the event
that this supplier does not meet our demands, we cannot be certain that we could
acquire products from other sources on a timely or cost effective basis.
Our stock price could be volatile, which could result in substantial losses for
investors
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<PAGE> 18
The trading price of our common stock has been volatile and is likely
to continue to be volatile. The stock market in general, and the market for
healthcare-related companies in particular, has experienced extreme volatility.
This volatility has often been unrelated to the operating performance of
particular companies. Investors may not be able to sell their common stock at or
above the price at which they purchased the stock. Prices for the common stock
will be determined in the marketplace and may be influenced by many factors,
including variations in our financial results, changes in earnings estimates by
industry research analysts, investors' perceptions of us and general economic,
industry and market conditions.
We may issue preferred stock with rights senior to the common stock
Our articles of organization authorize the issuance of up to 2,000,000
shares of preferred stock without stockholder approval. The shares may have
dividend, voting, liquidation and other rights and preferences that are senior
to the rights of the common stock. The rights and preferences of any such class
or series of preferred stock would be established by our Board of Directors in
its sole discretion.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not believe that we have any material market risk exposure with
respect to derivative or other financial instruments that would require
disclosure under this item.
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<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The following documents are filed as part of this Annual
Report on Form 10-K.
<TABLE>
<S> <C>
1. INDEX TO FINANCIAL STATEMENTS PAGE
Report of Independent Accountants 19
Consolidated Balance Sheets as of March 31, 2000 and 1999 20
Consolidated Statements of Operations for the years ended
March 31, 2000, 1999, and 1998 21
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 2000, 1999, and 1998 22
Consolidated Statements of Cash Flows for the years ended
March 31, 2000, 1999, and 1998 23
Notes to Consolidated Financial Statements 24
2. All schedules are omitted because the required information is either
inapplicable or is presented in the consolidated financial statements
or related notes thereto.
3. The Exhibit Index immediately preceding the Exhibits filed as part
of this Annual Report on Form 10-K is incorporated herein by reference.
</TABLE>
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<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF POLYMEDICA CORPORATION:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of PolyMedica
Corporation and its subsidiaries ("the Company") at March 31, 2000 and March 31,
1999, and the results of their operations and their cash flows for each of the
three years in the period ended March 31, 2000, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
May 5, 2000, except for Note V
which is dated June 8, 2000
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<PAGE> 21
POLYMEDICA CORPORATION
(In thousands, except share and per share amounts)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 40,687 $ 10,191
Accounts receivable (net of allowances
of $10,745 and $7,330 in 2000 and 1999, respectively) 39,763 32,251
Inventories 8,979 6,909
Deferred tax asset 4,389 2,708
Prepaid expenses and other current assets 905 721
--------- ---------
Total current assets 94,723 52,780
Property, plant, and equipment, net 16,557 6,856
Intangible assets, net 35,000 37,278
Direct response advertising, net 28,078 15,678
Other assets, net 1,238 347
--------- ---------
Total assets $ 175,596 $ 112,939
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,082 $ 12,527
Accrued expenses 8,118 4,781
Current portion, long-term debt, capital lease obligations and notes payable 564 3,083
--------- ---------
Total current liabilities 22,764 20,391
Long-term debt, capital lease obligations and notes payable, net 2,768 21,583
Deferred income taxes 13,914 7,920
--------- ---------
Total liabilities 39,446 49,894
--------- ---------
Commitments (Note K)
Shareholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized, none issued or outstanding -- --
Common stock, $.01 par value; 20,000,000 shares
authorized; 13,108,667 and 9,197,075 shares
issued in 2000 and 1999, respectively 131 92
Treasury stock, at cost (2,203 and 78,003 shares
in 2000 and 1999, respectively) (68) (458)
Additional paid-in capital 113,488 56,557
Retained earnings 22,599 7,480
Notes receivable from officers -- (626)
--------- ---------
Total shareholders' equity 136,150 63,045
--------- ---------
Total liabilities and shareholders' equity $ 175,596 $ 112,939
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE> 22
POLYMEDICA CORPORATION
(In thousands, except per share amounts)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 2000 1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 156,920 $ 104,825 $ 73,825
Cost of product sales 64,487 49,605 35,575
--------- --------- ---------
Gross margin 92,433 55,220 38,250
Selling, general and administrative expenses 65,557 42,185 28,826
--------- --------- ---------
Income from operations 26,876 13,035 9,424
Other income and expense:
Gain on sale of wound care business -- 1,597 4,126
Investment income 1,346 434 629
Interest expense (1,411) (2,555) (2,688)
Other (141) -- --
--------- --------- ---------
(206) (524) 2,067
Income before income taxes 26,670 12,511 11,491
Income tax provision 10,215 4,867 3,872
--------- --------- ---------
Income before extraordinary loss 16,455 7,644 7,619
Extraordinary loss on retirement of debt, net of taxes (1,336) -- --
--------- --------- ---------
Net income $ 15,119 $ 7,644 $ 7,619
========= ========= =========
Net income per weighted average share, basic $ 1.37 $ .86 $ .88
========= ========= =========
Net income per weighted average share, diluted $ 1.27 $ .78 $ .79
========= ========= =========
Weighted average shares, basic 11,049 8,898 8,652
Weighted average shares, diluted 11,876 9,786 9,691
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE> 23
POLYMEDICA CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For The Years Ended March 31, 1998, 1999, And 2000
(Dollars In Thousands)
<TABLE>
<CAPTION>
(Accumulated Notes
Common Stock Treasury Stock Additional Deficit)/ Receivable
Number Of Number Of Paid-In Retained From
Shares Amount Shares Amount Capital Earnings Officers
--------- ------ --------- -------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 8,583,001 $86 (172,559) $(1,115) $53,338 $(7,783) $(929)
Exercise of stock options and warrants 326,717 3 11,471 125 1,325
Payment of officer notes receivable (3,282) (30) 140
Issuance of treasury stock under the
1992 employee stock purchase plan 34,810 314 (165)
Currency translation adjustment,
(net of taxes of $114)
Net income 7,619
---------- ---- -------- ---- -------- -------- ----
Balance at March 31, 1998 8,909,718 89 (129,560) (706) 54,498 (164) (789)
Exercise of stock options and warrants 287,357 3 34,608 134 987
Payment of officer notes receivable 163
Tax benefit from stock options exercised 1,046
Issuance of treasury stock under the
1992 employee stock purchase plan 16,949 114 26
Net income 7,644
---------- ---- -------- ---- -------- -------- ----
Balance at March 31, 1999 9,197,075 92 (78,003) (458) 56,557 7,480 (626)
Exercise of stock options and warrants 615,718 6 3,002
Receipt of treasury stock in connection
stock option and warrant exercises 822,882 8 (80,725) (1,780) 1,772
Payments of officer notes receivable (19,400) (560) 626
Tax benefit from stock options exercised 2,571
Issuance of treasury stock under the
1992 employee stock purchase plan 12,684 6,634 27 109
Issuance of common and treasury stock
in the October 1999 secondary offering 2,460,308 25 169,291 2,703 50,077
Offering expenses (600)
Net income 15,119
---------- ---- -------- ---- -------- -------- ----
Balance at March 31, 2000 13,108,667 $131 (2,203) $(68) $113,488 $ 22,599 $ 0
========== ==== ======== ==== ======== ======== ====
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Comprehensive Shareholders'
Income Equity
------------- -------------
<S> <C> <C>
Balance at March 31, 1997 $(225) $43,372
Exercise of stock options and warrants 1,453
Payment of officer notes receivable 110
Issuance of treasury stock under the
1992 employee stock purchase plan 149
Currency translation adjustment, 225 225
(net of taxes of $114)
Net income 7,619
---- --------
Balance at March 31, 1998 0 52,928
Exercise of stock options and warrants 1,124
Payment of officer notes receivable 163
Tax benefit from stock options exercised 1,046
Issuance of treasury stock under the
1992 employee stock purchase plan 140
Net income 7,644
---- --------
Balance at March 31, 1999 0 63,045
Exercise of stock options and warrants 3,008
Receipt of treasury stock in connection
stock option and warrant exercises --
Payments of officer notes receivable 66
Tax benefit from stock options exercised 2,571
Issuance of treasury stock under the
1992 employee stock purchase plan 136
Issuance of common and treasury stock
in the October 1999 secondary offering 52,805
Offering expenses (600)
Net income 15,119
---- --------
Balance at March 31, 2000 $0 $136,150
==== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE> 24
POLYMEDICA CORPORATION
(In thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31, 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 15,119 $ 7,644 $ 7,619
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization 4,004 3,290 3,243
Amortization of direct-response advertising 9,036 5,383 2,423
Direct-response advertising (21,436) (10,162) (11,702)
Deferred income taxes 4,314 2,746 3,604
Tax benefit from stock options exercised 2,571 1,046 --
Loss on disposal of fixed assets (2) -- (60)
Provision for bad debts 11,292 7,119 3,138
Provision for sales allowances 9,822 3,702 4,846
Provision for inventory obsolescence 253 10 12
Extraordinary loss on debt extinguishment 2,165 -- --
Gain on sale of wound care business -- (1,597) (4,126)
Other 363 -- --
Changes in assets and liabilities:
Accounts receivable (28,626) (21,866) (22,988)
Inventories (2,323) (2,062) (1,390)
Prepaid expenses and other assets (998) 3 141
Accounts payable -- trade 1,555 4,306 5,240
Accrued expenses 2,970 977 125
-------- -------- --------
Total adjustments (5,040) (7,105) (17,494)
-------- -------- --------
Net cash flows from operating activities 10,079 539 (9,875)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of wound care business -- 1,597 8,428
Investment in other assets (157) -- --
Purchase of property, plant, and equipment (9,077) (1,474) (2,303)
Proceeds from sale of equipment 8 -- 100
-------- -------- --------
Net cash flows from investing activities (9,226) 123 6,225
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common and treasury stock 3,145 1,262 1,606
Net proceeds from secondary offering 52,205 -- --
Reduction of obligations under capital leases (350) -- --
Proceeds from/(repayment of) line of credit (4,000) 4,000 --
Repayment of officer notes receivable 66 163 110
Premium paid on debt extinguishment (1,806) -- --
Proceeds from/(repayment of) senior debt and notes payable (19,617) (2,329) (2,658)
-------- -------- --------
Net cash flows from financing activities 29,643 3,096 (942)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 30,496 3,758 (4,592)
Effect of exchange rate changes on cash -- (7) 4
Cash and cash equivalents at beginning of period 10,191 6,440 11,028
-------- -------- --------
Cash and cash equivalents at end of period $ 40,687 $ 10,191 $ 6,440
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,889 $ 2,554 $ 2,728
Income taxes paid 2,725 1,086 25
Assets purchased under capital lease 2,302 -- --
Disposition of fully depreciated fixed assets 236 -- --
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
23
<PAGE> 25
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF BUSINESS:
PolyMedica Corporation (the "Company") was incorporated as Emerging
Sciences, Inc. in Massachusetts on November 16, 1988, and commenced commercial
operations in October 1989. In July 1990, the Company changed its name to
PolyMedica Industries, Inc. In June 1996, the Company distributed to its
shareholders all of its shares of CardioTech International, Inc. ("CardioTech")
in a transaction that qualified as a tax-free spinoff. In August 1996, the
Company purchased Liberty Medical Supply, Inc. ("Liberty"), a diabetes
supply company. In July 1997, the Company sold certain assets of its U.S. and
U.K. professional wound care operations. In September 1997, the Company changed
its name to PolyMedica Corporation. The Company and its subsidiaries operate
from manufacturing, distribution, and laboratory facilities located in
Massachusetts, Florida, and Colorado.
The Company generates sales from Chronic Care, which includes diabetes
and adult nutrition supplies; Professional Products, which includes prescription
urologicals and respiratory products; and Consumer Healthcare, which includes
OTC urinary discomfort products and fever thermometers.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-and majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from those estimates.
EARNINGS PER COMMON SHARE
Basic EPS is calculated by dividing net income by the weighted average
number of shares outstanding during the period. Diluted EPS is calculated by
dividing net income by the weighted average number of shares outstanding plus
the dilutive effect of outstanding stock options using the "treasury stock"
method. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
UNCERTAINTIES
The Company is subject to risks common to companies in the healthcare
industry, including but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology, receipt of third party healthcare
reimbursement, and compliance with FDA government regulations.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments
purchased with an initial maturity of three months or less to be cash
equivalents. The Company places its cash and cash equivalents with high credit
quality financial institutions.
INVESTMENTS
In 2000 and 1999, the Company invested primarily in commercial paper
with initial maturities of 90 days or less and classifies all investments as
held-to-maturity. All investments held as of March 31, 2000 and 1999 have been
classified as cash equivalents and are carried at amortized cost which
approximates market value.
FINANCIAL INSTRUMENTS
The Company entered into an interest rate swap agreement with a
credit-worthy financial institution primarily to reduce the impact of changes in
interest rates on the mortgage. Settlement accounting is used to account for
this interest rate swap.
24
<PAGE> 26
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out
method) or market.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
INTANGIBLE ASSETS
The Company capitalizes and includes in intangible assets the costs of
acquiring patents on its products, a customer list, a covenant-not-to-compete,
and goodwill, which is the cost in excess of the fair value of the net assets of
acquired companies and product lines. All amortization is computed on a
straight-line basis over the shorter of the economic life of the asset or the
term of the underlying agreement. A customer list, a covenant-not-to-compete,
and goodwill are amortized over seven, ten, and seven to thirty years,
respectively.
LONG-LIVED ASSETS
Management's policy is to evaluate the recoverability of its long-lived
assets when the facts and circumstances suggest that these assets may be
impaired. The test of such recoverability is a comparison of the book value of
the asset to expected cumulative (undiscounted) operating cash flows resulting
from the underlying asset over its remaining life. If the book value of the
long-lived asset exceeds undiscounted cumulative operating cash flows, the
write-down is computed as the excess of the asset over the present value of the
operating cash flow discounted at the Company's weighted average cost of capital
over the remaining amortization period.
MARKETING AND PROMOTIONAL COSTS
Advertising (other than direct-response), promotional, and other
marketing costs are charged to earnings in the period in which they are
incurred. Promotional and sample costs whose benefit is expected to assist
future sales are expensed as the related materials are used.
DIRECT-RESPONSE ADVERTISING
In accordance with Statement of Position 93-7, direct-response
advertising and related costs for the Company's diabetes supplies, included in
the Chronic Care segment, for all periods presented are capitalized and
amortized to selling, general and administrative expenses on an accelerated
basis during the first two years of a four-year period. The amortization rate is
such that 55% of such costs are expensed after two years from the date they are
incurred, and the remaining 45% is expensed on a straight-line basis over the
next two years. Revenues generated from new diabetes customers as a result of
direct-response advertising have historically resulted in a revenue stream
lasting at least seven years. Management has selected a more conservative
amortization period of four years for diabetes supplies, respectively, in
consideration of the "Factors Affecting Future Operating Results" described
herein. Management assesses the realizability of the amounts of direct-response
advertising costs reported as assets at each balance sheet date by comparing the
carrying amounts of such assets to the probable remaining future net benefits
expected to result directly from such advertising.
Direct-response advertising and related costs for the Company's
respiratory products, included in the Professional Products segment, for all
periods presented are capitalized and amortized to selling, general and
administrative expenses on a straight-line basis over a two year period.
Historical evidence suggests that revenues generated by new respiratory
customers, as a result of direct-response advertising, last on average three
years. Management has selected a more conservative amortization period of two
years in consideration of the "Factors Affecting Future Operating Results"
described herein.
The Company incurred and capitalized direct-response advertising of
$21.44 million, $10.16 million and $11.70 million in 2000, 1999 and 1998,
respectively. As of March 31, 2000 and 1999, accumulated amortization was $16.96
million and $7.92 million, which resulted in a net capitalized direct-response
advertising asset of $28.08 million and $15.68 million, respectively. A total of
$9.04 million, $5.38 million and $2.42 million in direct-response advertising
was amortized and charged to selling, general and administrative expenses in
2000, 1999 and 1998, respectively.
25
<PAGE> 27
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OTHER ASSETS
Other assets consist principally of deposits for equipment and building
yet to be placed in service. Senior debt issuance costs are amortized over ten
years.
FOREIGN CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation", assets and liabilities of the Company's foreign
subsidiaries are translated into U.S. dollars using current exchange rates at
the balance sheet date, and revenues and expenses are translated at average
exchange rates prevailing during the period. The resulting translation
adjustments are recorded in a separate component of Shareholders' Equity.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Depreciation is
computed using the straight-line method based on the estimated useful lives of
the various assets which is 30 years for building and ranges from five to twelve
years for office equipment, furniture and fixtures, laboratory equipment, and
manufacturing equipment. Amortization of leasehold improvements is computed
using the straight-line method based on estimated useful lives or terms of the
lease, whichever is shorter. Upon retirement or disposal of fixed assets, the
costs and accumulated depreciation are removed from the accounts, and any gain
or loss is reflected in income. Expenditures for repairs and maintenance are
charged to expense as incurred. Construction in progress is not depreciated
until placed in service.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities based on
temporary differences between the financial statements and tax basis of assets
and liabilities using enacted tax rates expected to be in effect when they are
realized.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment and records revenue at
amounts expected to be collected from Medicare, other third-party payers, and
directly from customers. For shipments of diabetes, respiratory and enteral
feeding supplies to seniors covered by Medicare, PolyMedica ships products after
receiving authorization from the customer and doctor. The majority of
PolyMedica's revenue is collected from Medicare and other third-party payers who
have procedures relating to invoicing and reimbursement for covered items which,
administratively, cannot always be satisfied prior to the time when patients
require supplies. As a result, it may be a day to as long as several months
before the appropriate paperwork is received for billing, resulting in unbilled
receivables. Included as reductions to gross accounts receivable are a sales
allowance for returned goods and an allowance for bad debts.
Sales allowances are recorded for estimated product returns using
historical write-off data and are recorded as a reduction of revenue. These
allowances are adjusted monthly to reflect actual returns and collection
history. During the years ended March 31, 2000 and 1999, the Company provided
for sales allowances at a rate of approximately 5.9% and 3.4% of gross sales,
respectively. The Company analyzes sales allowances using historical data
adjusted for significant changes in volume, customer demographics, and business
conditions. At the time of shipment, PolyMedica determines the Medicare Fee
Schedule and excludes from revenue all amounts billed in excess of the Medicare
Fee Schedule; As a result, the Company's contractual allowances and adjustments
are immaterial. Medicare reimburses at 80% of the Medicare Fee Schedule for
diabetes testing supplies and the Company bills the unpaid balance to either
third-party payers or directly to customers.
Approximately $99.77 million, $64.50 million and $39.00 million of
revenues for the fiscal years ended March 31, 2000, 1999, and 1998,
respectively, were billed to Medicare on behalf of the Company's customers for
products and services provided to Medicare beneficiaries.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other
26
<PAGE> 28
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
contracts and for hedging activities. The Company will adopt SFAS No. 133 as
required by SFAS No. 137, "Deferral of the Effective Date of SFAS No. 133", in
2001. The adoption of SFAS No. 133 is not expected to have a material impact on
the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101), subsequently updated by SAB 101B. SAB 101 and SAB 101B summarize
certain of the Staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company is
required to adopt SAB 101 no later than the fourth quarter of fiscal year 2001.
The effects of applying this guidance, if any, will be reported as a cumulative
effect adjustment resulting from a change in accounting principle. The adoption
of SAB 101 is not expected to have a material impact on its financial position
or results of operations.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of previously fixed stock options or awards, and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company is
currently evaluating the impact of FIN 44 on its finanical position and results
of operations.
RECLASSIFICATIONS
Certain amounts in the prior financial statements have been
reclassified to conform with the current year presentation.
C. SALE OF WOUND CARE BUSINESS:
In July 1997, the Company sold certain assets of its U.S. and U.K.
wound care operations. Under the terms of the sale, the purchaser, Innovative
Technologies Group PLC ("IT"), paid the Company $9.0 million in cash and issued
to the Company an unsecured promissory note in the face amount of $4.0 million.
In July 1998, the Company accepted $1.6 million as final settlement of this note
in consideration of the financial position of the borrower and the unsecured
nature of the note. The net book value of assets sold and pretax gain as a
result of this transaction were $4.9 million and $5.7 million, respectively.
Gains on the sale for the years ended March 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Gain on sale of wound care business $ 1,597 $ 4,126
Provision for income taxes related to gain 621 1,390
--------- ---------
Gain on sale, net of income taxes $ 976 $ 2,736
========= =========
Net income per common share before gain, diluted $ .68 $ .50
Net income per common share, diluted, related to gain $ .10 $ .29
--------- ---------
Net income per common share, diluted $ .78 $ .79
========= =========
</TABLE>
D. EXTRAORDINARY LOSS ON RETIREMENT OF DEBT
In October 1999, the Company repaid all amounts due to the John Hancock
Mutual Life Insurance Company ("Hancock"). See Note J. In connection with this
repayment, an extraordinary loss on retirement of debt of $2.17 million, was
recognized, consisting of an early payment penalty fee, unamortized debt
issuance costs and the unamortized Hancock warrant valuation. The extraordinary
loss for the fiscal year ended March 31, 2000 was as follows:
Extraordinary loss on retirement of debt $ 2,165
Provision for income taxes related to loss 829
---------
Extraordinary loss, net of income taxes $ 1,336
=========
Net income per common share before loss, diluted $ 1.39
Net income per common share, diluted, related to loss $ .12
---------
Net income per common share, diluted $ 1.27
=========
27
<PAGE> 29
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
E. ACCOUNTS RECEIVABLE:
As of March 31, 2000, the Company's gross unbilled receivables included
in gross accounts receivable of $50.51 million were $20.16 million as compared
with $15.35 million as of March 31, 1999. Approximately $15.62 million and
$12.05 million of the total unbilled receivable balances as of March 31, 2000
and 1999, respectively, represent Medicare receivables. The Company recorded
sales returns write-offs of $8.31 million and $3.95 million and bad debt
write-offs of $9.39 million and $3.45 million in the fiscal years ended March
31, 2000 and 1999, respectively.
F. INVENTORIES:
(In thousands)
Inventories consist of the following:
March 31, March 31,
2000 1999
-------- ---------
Raw materials $ 848 $ 739
Work in process 505 594
Finished goods 7,626 5,576
------ ------
$8,979 $6,909
====== ======
G. PROPERTY, PLANT, AND EQUIPMENT:
(In thousands)
Property, plant, and equipment consist of the following:
March 31, March 31,
2000 1999
-------- --------
Manufacturing equipment $ 1,996 $ 1,937
Laboratory equipment 222 222
Land 2,263 663
Building 2,491 2,364
Leasehold improvements 755 343
Furniture, fixtures, and office
equipment 8,004 3,485
Construction in progress 4,829 403
-------- --------
20,560 9,417
Less accumulated depreciation and
amortization (4,003) (2,561)
-------- --------
$ 16,557 $ 6,856
======== ========
28
<PAGE> 30
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation and amortization expense for property, plant, and
equipment for the years ended March 31, 2000, 1999, and 1998, was approximately
$1.67 million, $903,000, and $838,000, respectively. In May 1999, the Company
purchased a 72,000 square foot building in Port St. Lucie, Florida to support
the Company's growth. The building was placed into service and depreciation
commenced in April 2000. For the fiscal year ended March 31, 2000, interest
expense of $96,000 related to the mortgage on the Port St. Lucie building under
construction, was capitalized. In the fiscal year ended March 31, 2000, $2.30
million of assets classified in furniture, fixtures and office equipment as of
March 31, 2000, were purchased though capital lease obligations, lives ranging
from four to six years.
H. INTANGIBLE ASSETS:
(In thousands)
Intangible assets consist of the following:
March 31, March 31,
2000 1999
-------- --------
Goodwill $ 42,816 $ 42,816
Covenant-not-to-Compete 6,800 6,800
Customer list 1,816 1,816
-------- --------
51,432 51,432
Less accumulated amortization (16,432) (14,154)
-------- --------
$ 35,000 $ 37,278
======== ========
Amortization expense associated with intangible assets for the years
ended March 31, 2000, 1999, and 1998, was $2,278,000, $2,277,000, and
$2,279,000, respectively.
I. ACCRUED EXPENSES
Accrued expenses consist of:
March 31, March 31,
2000 1999
-------- ---------
Salaries and benefits $3,799 $1,644
Other 4,319 3,137
------ ------
$8,118 $4,781
====== ======
J. LONG-TERM DEBT AND NOTES PAYABLE:
Senior Debt
In connection with the purchase of the WEBCON product line, in January
1993, the Company and its wholly-owned subsidiary, PolyMedica Pharmaceuticals
(U.S.A.), Inc. ("PMP USA") sold to Hancock, $25 million 10.65% Guaranteed Senior
Secured Notes due January 31, 2003, and a warrant for the purchase of up to
500,000 shares of common stock of the Company at $13.50 each (the "Hancock
Notes"). The effective interest rate of the Hancock
29
<PAGE> 31
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes was 10.97%. Interest was payable semi-annually. At that time, the warrant
was valued at $725,000 and was recorded as a discount to the Hancock Notes, to
be amortized to expense over the life of the Hancock Notes. The warrant, first
exercisable in January 1994, was exercised in October 1999. The Company recorded
$44,500 of amortization expense for the year ended March 31, 2000 and $89,000
each for the years ended March 31, 1999 and 1998. As of March 31, 2000 and 1999,
the balance due to Hancock was $0 and $21.0 million, respectively. As of March
31, 2000 and 1999, there was $0 and $334,000, respectively, of unamortized
discount, netted against senior debt. Upon exercise of the warrant in October
1999, the unamortized discount of $289,000 was included in the extraordinary
loss on debt extinguishment total, net of related taxes, of $1.3 million,
reported in the Company's results for the three months ended December 31, 1999.
Hancock received 410,987 shares of common stock, par value $0.01 per share, in a
cashless exercise. As a result of a private placement of the Company's common
stock in March 1996 and the acquisition of Liberty in August 1996, the exercise
price of the Hancock warrant was adjusted to $5.18 per share of common stock for
a total of 543,464 shares exercisable under the warrant.
In October 1999, the Company repaid all amounts due to Hancock under
the Hancock Notes. The outstanding balance of $21.0 million as of March 31,
1999, was decreased to $20.0 million as of August 1, 1999 with a July 31, 1999
principal payment of $1.0 million. The Company used $21.8 million of the total
$52.2 million of proceeds raised in the Company's October 1999 secondary public
offering to retire the $20.0 million of debt outstanding at that time and to pay
an early payment premium of approximately $1.8 million. See Note D.
Interest expense recorded for the Hancock Notes was $1,217,000,
$2,416,000, and $2,634,000, in the years ended March 31, 2000, 1999, and 1998,
respectively.
Revolving Credit Facility
In March 1999, the Company increased its existing revolving credit
facility from $7.5 million to $10 million. As of March 31, 2000 and 1999, the
Company had no outstanding balance and $4 million, respectively. Under the terms
of this facility, the Company is required to repay all principal balances on
March 31, 2001. The facility is collateralized by certain assets of the Company.
Under this facility, the Company is required to maintain certain financial
covenants. The interest rate is tied to the Company's funded debt to EBITDA
ratio and was 9.00% as of March 31, 2000.
Mortgage
To support Liberty's growth, in May 1999 the Company purchased a 72,000
square foot building in Port St. Lucie, Florida for $2.0 million, financed by a
$1.4 million mortgage. Under the terms of this mortgage, the Company is required
to repay all principal balances by May 2006 using a 15-year amortization period.
The mortgage is collateralized by the land, building, future improvements and
permanent fixtures. Under this mortgage, the Company is required to be and was
in compliance with certain financial covenants. The interest rate is 7.94% per
annum. The future annual minimum payments under the mortgage are $55,000,
$59,000, $64,000, $70,000 and $1.13 million for the fiscal years ended March
31, 2001, 2002, 2003, 2004 and 2005 and thereafter, respectively.
K. COMMITMENTS:
Operating leases:
The Company leases its facilities and certain equipment under operating
leases expiring through fiscal year 2005. Rental expense under these leases
amounted to approximately $1,082,000, $500,000, and $418,000, for the years
ended March 31, 2000, 1999, and 1998, respectively.
Capital leases:
The Company has various capital lease agreements for office equipment.
These obligations extend through fiscal year 2005. Most leases contain renewal
options and two contain bargain purchase options. No leases contain restrictions
on the Company's activities concerning dividends, additional debt or further
leasing. Property, plant, and equipment as included in the consolidated balance
sheets include the following amounts for capitalized leases:
30
<PAGE> 32
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands) March 31,
2000
--------
Furniture, fixtures and office equipment $ 2,302
Building --
-------
Total assets 2,302
Less accumulated depreciation (326)
-------
Net assets $ 1,976
=======
The Company had no capital lease agreements as of March 31, 1999.
Future annual minimum lease and rental commitments as of March 31,
2000, under all of the Company's leases, capital and operating, are:
Capital Operating
(In thousands) Leases Leases
------- ---------
2001 $ 687 $ 863
2002 687 567
2003 687 475
2004 247 277
2005 and thereafter 9 173
------ ------
Total minimum payments 2,317 2,355
Less amounts representing interest 367 --
------ ------
Present value of net payments $1,950 $2,355
====== ======
L. EARNINGS PER SHARE:
Calculation of per share earnings is as follows:
<TABLE>
<CAPTION>
(In thousands except per share data) Fiscal Year Ended March 31,
-----------------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Net income $15,119 $ 7,644 $ 7,619
BASIC:
Weighted average common stock outstanding, net of treasury
stock, end of period 11,049 8,898 8,652
Net income per common share, basic $ 1.37 $ 0.86 $ 0.88
======= ======= =======
DILUTED:
Weighted average common stock outstanding, net of treasury
stock, end of period 11,049 8,898 8,652
Weighted average common stock equivalents 827 888 1,039
Weighted average common stock outstanding, net of treasury
stock, end of period 11,876 9,786 9,691
Net income per common share, diluted $ 1.27 $ 0.78 $ 0.79
======= ======= =======
</TABLE>
Options to purchase 90,001 and 215,369 shares of common stock were
outstanding as of March 31, 2000 and 1999, respectively, but were not included
in the computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares.
31
<PAGE> 33
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
M. FINANCIAL INSTRUMENTS
At March 31, 2000, the Company had an outstanding interest rate swap
agreement, which minimized or eliminated risk associated with interest rate
changes. This financial instrument is related to the $1.4 million mortgage on
the building in Port St. Lucie, Florida. See Note J. This instrument was
executed with a credit-worthy institution.
The interest rate swap agreement was $1.38 million and zero as of
March 31, 2000 and 1999, respectively. The agreement outstanding as of March 31,
2000 matures during 2006 and essentially fixes the interest rate on a portion of
variable rate debt. Under this agreement, the Company will pay the
counterparties interest at a fixed rate of 6.07%, and the counterparties will
pay the Company at a variable rate primarily equal to the 30-day LIBOR.
N. SHAREHOLDERS' EQUITY:
Each holder of outstanding common stock has a preferred stock purchase
right (a "Right") for each share of common stock. Each Right entitles the holder
to purchase from the Company one one-hundredth of a share of Series A junior
participating preferred stock at a cash exercise price to be determined by the
board of directors. Initially, the Rights will be attached to all common stock
certificates and will not be exercisable. The Rights will become exercisable
upon the earlier of certain events, including an acquisition by a person or
group of 15% or more of the outstanding common stock (an "Acquiring Person"), or
the commencement of a tender offer or exchange offer that would result in an
Acquiring Person beneficially owning 15% or more of the outstanding common
stock.
The Company will generally be entitled to redeem the Rights at $.01 per
share at any time until the tenth day following public announcement that a 15%
stock position has been acquired. The Rights will expire on January 23, 2002,
unless earlier redeemed or exchanged.
Between June 1992 and May 1994, the Company's board of directors
authorized the future purchase of up to an aggregate of 1,750,000 shares of the
Company's common stock on the open market, with any shares to be held in
treasury. As of March 31, 2000, cumulative purchases of common stock totaled
339,318 for an aggregate of $3.96 million. The purpose of this purchase program
is, in part, to provide shares of common stock for issuance pursuant to the 1992
Employee Stock Purchase Plan.
O. INCOME TAXES:
Income (loss) before income taxes including the extraordinary loss, was
generated as follows in the years ended March 31:
(In thousands) 2000 1999 1998
-------- -------- --------
United States $ 24,512 $ 12,463 $ 10,291
Foreign (7) 48 1,200
-------- -------- --------
$ 24,505 $ 12,511 $ 11,491
The provision (benefit) for income taxes before extraordinary loss,
consists of the following for the years ended March 31:
(In thousands) 2000 1999 1998
------- ------- -------
Federal - current $ 4,447 $ 1,381 $ 216
- deferred 3,584 2,749 2,495
------- ------- -------
8,031 4,130 2,711
State - current 625 740 52
- deferred 730 (3) 1,109
------- ------- -------
1,355 737 1,161
------- ------- -------
Total Federal and State $ 9,386 $ 4,867 $ 3,872
======= ======= =======
32
<PAGE> 34
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between the Company's effective tax rate for operations and the
U.S. statutory rate is as follows:
2000 1999 1998
---- ---- ----
U. S. statutory rate 34.0% 34.0% 34.0%
Change in valuation allowance -- -- (5.5%)
State income taxes, net of U. S
Federal Income Tax effect 3.7% 4.7% 6.6%
Other .6% .2% (1.9%)
---- ---- ----
Effective tax rate 38.3% 38.9% 33.2%
==== ==== ====
During the fiscal year ended March 31, 1998, the Company sold the
assets which constituted the wound care business. As a result, it ceased
operations in the U.K. on the day of the sale, and according released the
valuation allowance to foreign net operating losses. The release of this
allowance increased earnings during the fiscal year ended March 31, 1998 by
$643,000, or $0.07 per diluted common share. As of March 31, 2000, 1999 and
1998, the Company had no deferred tax valuation allowance.
Realization of the net deferred tax assets is dependent on generating
sufficient taxable income. Although realization is not assured, management
believes that it is more likely than not that such net deferred tax assets will
be realized. The following is a summary of the significant components of the
Company's deferred tax assets and liabilities as of March 31, 2000 and 1999:
(In thousands) 2000 1999
-------- --------
Deferred tax assets (liabilities) - current:
Reserves $ 4,389 $ 2,708
======== ========
Deferred tax assets (liabilities) - long term:
Intangible assets (2,011) (1,579)
Property, plant and equipment (614) (520)
Direct-response advertising (11,289) (5,821)
-------- --------
Net deferred tax liability - long term $(13,914) $ (7,920)
======== ========
P. MAJOR CUSTOMERS:
For the fiscal years ended March 31, 2000, 1999 and 1998, no customer
represented more than 10% of the Company's consolidated net revenues. As of
March 31, 2000 and 1999, the amounts due from Health Care Financing
Administration of the United States government related to Chronic Care and
Professional Products Segment revenues was $27.88 million and $8.77 million,
respectively.
Q. STOCK OPTIONS:
Effective September 1998, the Company's shareholders approved the 1998
Stock Incentive Plan (the "1998 Plan"), which replaced the 1990 Stock Option
Plan (the "1990 Plan") and the 1992 Directors Stock Option Plan (the "1992
Plan") (collectively, the "Plans"). The 1998 Plan provided for the grant to
certain individuals of stock options to purchase up to 315,000 shares of the
Company's common stock. On September 9, 1999, stockholders, at the 1999 Annual
Meeting of Stockholders, approved an amendment increasing the number of shares
available for issuance under the 1998 Plan, to 515,000.
33
<PAGE> 35
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Generally, when shares acquired pursuant to the exercise of incentive
stock options are sold within one year of exercise or within two years from the
date of grant, the Company derives a tax deduction measured by the amount that
the fair market value exceeds the option price at the date the options are
exercised. When non-qualified stock options are exercised, the Company derives a
tax deduction measured by the amount that the fair market value exceeds the
option price at the date the options are exercised. The tax benefit from these
deductions are recognized as additional paid-in capital.
Option activity under the Plans is as follows:
<TABLE>
<CAPTION>
OPTION SHARES OPTION PRICES
------------- ------------------------------------
<S> <C> <C> <C>
Outstanding, March 31, 1997 1,976,608 $ .71 - $ 6.38
---------
Granted 271,360 4.87 - 13.75
Exercised (326,717) .71 - 5.38
Cancelled (46,736) 4.31 - 5.38
---------
Outstanding, March 31, 1998 1,874,515 $ .71 - $ 13.75
---------
Granted 267,250 7.56 - 11.44
Exercised (287,357) .71 - 7.75
Cancelled (97,645) 4.31 - 13.75
---------
Outstanding, March 31, 1999 1,756,763 $ 2.14 - $ 13.75
---------
Granted 250,000 17.75 - 27.06
Exercised (1,027,613) 3.88 - 26.94
Cancelled (30,699) 4.31 - 13.75
---------
Outstanding, March 31, 2000 948,451 $ 2.14 - $ 27.06
=========
</TABLE>
At March 31, 2000, 673,359 shares were exercisable and 275,092 will
vest principally over three years under the Plans. There were 23,000 shares
remaining that are authorized for future option grants under the 1998 Plan. The
weighted average exercise price of shares exercisable as of March 31, 2000 was
$9.43.
Employee Stock Purchase Plan
Under the Company's 1992 Employee Stock Purchase Plan (the "plan"), an
aggregate of 261,972 shares of common stock were made available for purchase by
employees upon exercise of options granted semi-annually. Those who have been
employed by the Company for six months prior to the beginning of an option
period are eligible to enroll in the plan. The options are exercisable six
months after grant, at the lower of 85% of the fair market value of the common
stock at the beginning or the end of the six-month period. Amounts are
accumulated through payroll deductions ranging from 1% to 10% of each
participating employee's compensation, as defined, but in no event more than
$12,500 during any six-month option period.
Supplemental Disclosures for Stock-Based Compensation
The Company applies APB Opinion No. 25 ("APB 25") in accounting for the
Plans. Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("SFAS 123") issued in 1995, defined a fair value
method of accounting for stock options and other equity instruments. Under the
fair value method, compensation cost is measured at the grant date based on the
fair value of the award and is recognized over the service period, which is
usually the vesting period. The Company adopted the disclosure only provisions
of SFAS 123, accordingly no compensation expense is recognized from the stock
options plans. The required disclosures under SFAS 123 are as follows:
34
<PAGE> 36
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized information about stock options outstanding as of March 31, 2000, is
as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVG. NUMBER OF OPTIONS WEIGHTED AVG.
RANGE OF EXERCISE OPTIONS REMAINING WEIGHTED AVG. OUTSTANDING - EXERCISE - PRICE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISABLE
----------------- ----------- ---------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$2.14 - 2.14 1,050 6.51 $ 2.14 1,050 $ 2.14
$3.30 - 4.64 81,633 6.56 $ 4.21 81,633 $ 4.21
$5.38 - 7.75 439,290 7.36 $ 6.30 357,783 $ 5.99
$8.63 - 11.88 152,710 7.82 $10.98 111,796 $11.48
$13.50 - 13.50 30,000 7.50 $13.50 30,000 $13.50
$17.75 - 21.44 168,767 9.57 $20.71 46,098 $20.88
$26.94 - 27.06 75,001 9.43 $26.98 44,999 $26.95
</TABLE>
The fair value of each option granted during 2000 and 1999 is estimated
on the date of grant using the Black-Scholes option pricing model with the
following assumptions:
2000 1999
---- ----
Dividend yield......................... none none
Expected volatility.................... 65.0% 55.0%
Risk-free interest rate................ 6.05% 4.89%
Expected life.......................... 4 4
Weighted average fair value of options granted at fair value during:
2000 $12.31
1999 $ 3.79
Employee Stock Purchase Plan weighted-average fair value of options:
2000 $ 2.63
1999 $ 2.82
Had compensation cost for the Company's 2000 and 1999 stock option
grants been determined consistent with SFAS 123, the Company's net income and
net income per share would approximate the pro forma amounts below:
NET INCOME PER
NET INCOME FULLY DILUTED SHARE
----------- -------------------
As reported:
2000 $15,119,000 $1.27
1999 $ 7,644,000 $ .78
Pro forma:
2000 $14,083,000 $1.19
1999 $ 7,035,000 $ .72
35
<PAGE> 37
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The effect of applying SFAS 123 in this pro forma disclosure is not
indicative of future amounts. SFAS 123 does not apply to awards made prior to
1995. Additional awards in future years are anticipated.
R. 401(K) PLAN:
The PolyMedica Corporation 401(k) Plan and Trust (the "401(k) Plan") is
a voluntary savings plan for all eligible employees which is intended to qualify
under Section 401(k) of the Internal Revenue Code. Each eligible employee may
elect to contribute to the 401(k) Plan, through payroll deductions, up to 15% of
his or her salary, subject to statutory limitations. The Company may make
matching contributions on behalf of participating employees of half of the
dollar amount of each participating employee's contribution, up to a maximum of
3% of an employee's total cash compensation, subject to certain limitations.
For the years ended March 31, 2000, 1999, and 1998, the Company paid
and accrued matching contributions of $232,000, $190,000, and $108,000,
respectively, for the 401(k) Plan participants.
S. SEGMENT INFORMATION:
The Company adopted Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information ("SFAS
No. 131") during the year ended March 31, 1999. SFAS No. 131 established
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments. It also
establishes standards for related disclosures about products, services and
geographic areas. The Company's reportable segments are strategic business units
or divisions that offer different products or services. These units have
separate financial information that is evaluated by senior management. The
Company has three reportable segments:
Chronic Care - The Company sells diabetes supplies and adult nutrition
supplies through its Chronic Care segment. It offers a wide array of diabetes
products from a full range of name-brand manufacturers, contacts the patient's
doctor to obtain the required prescription information and written
documentation, files the appropriate insurance forms and bills Medicare and
private insurers directly. This service frees the patient from paying for his or
her chronic disease-related upfront expenses and offers the convenience of free
home delivery of supplies.
Professional Products - The Company develops, manufactures, and
distributes prescription urology products and sells respiratory products to
Medicare-eligible seniors.
Consumer Healthcare - The Company offers the AZO line of products which
includes OTC ("over-the-counter") female urinary tract discomfort products and
home medical diagnostic kits; and is a distributor of private-label and branded
digital thermometers.
Depreciation and amortization expense attributable to the Company's
corporate headquarters are allocated to the operating segments according to the
segments' relative percentage of total revenue. However, segment assets
belonging to the Company's corporate headquarters are not allocated, as they are
considered separately for management evaluation purposes. As a result of these
allocations, the segment information may not be indicative of the financial
position or results of operations that would have been achieved had these
segments operated as unaffiliated entities. The Company does not organize its
units geographically, as its products and services are sold throughout the
United States only. The following segment information has been prepared in
accordance with the internal accounting policies of the Company, as described
above. There are no intersegment sales for the periods presented. Information
concerning the operations in these reportable segments is as follows:
36
<PAGE> 38
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended March 31,
--------------------------------------------
(In thousands) 2000 1999 1998
-------- -------- --------
REVENUES:
Chronic Care $125,999 $ 80,597 $ 48,708
Professional Products 16,501 9,953 13,968
Consumer Healthcare 14,420 14,275 11,149
-------- -------- --------
Total $156,920 $104,825 $ 73,825
======== ======== ========
DEPRECIATION AND AMORTIZATION EXPENSE:
Chronic Care $10,042 $ 6,548 $ 3,367
Professional Products 2,931 2,053 2,228
Consumer Healthcare 67 72 71
------- ------- --------
Total $13,040 $ 8,673 $ 5,666
======= ======= ========
INCOME BEFORE INCOME TAXES:
Chronic Care 19,631 5,300 1,140
Professional Products 2,126* 2,746 4,972
Consumer Healthcare 2,748 2,868 1,253
Gain on Sale of Wound Care -- 1,597 4,126
------- ------- --------
Total $24,505 $12,511 $ 11,491
======= ======= ========
March 31, March 31, March 31,
(In thousands) 2000 1999 1998
-------- -------- --------
SEGMENT ASSETS:
Chronic Care 81,513 62,922 40,795
Professional Products 44,384 39,337 43,540
Consumer Healthcare 6,504 6,263 5,217
Corporate Headquarters 43,195 4,417 2,849
-------- -------- --------
Total $175,596 $112,939 $ 92,401
======== ======== ========
* Includes pretax extraordinary loss on retirement of debt of $2.17 million.
See Note D.
T. INTERIM INFORMATION (UNAUDITED):
The following consolidated interim financial information is unaudited.
Such information reflects all adjustments, consisting solely of normal recurring
adjustments, which are in the opinion of management necessary for a fair
presentation.
37
<PAGE> 39
POLYMEDICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(In thousands, except per share data) YEAR ENDED MARCH 31, 2000
-------------------------
QTR. 1 QTR. 2 QTR. 3** QTR. 4
------- ------- -------- -------
<S> <C> <C> <C> <C>
Total revenues $31,580 $35,919 $42,437 $46,984
Gross margin 17,865 20,782 24,868 28,919
Net income 2,454 3,127 3,558 5,980
Net income per weighted average share, basic $ 0.27 $ 0.33 $ 0.28 $ 0.46
Net income per weighted average share, diluted $ 0.25 $ 0.30 $ 0.27 $ 0.44
</TABLE>
** Includes $1,336,000 after tax extraordinary loss on retirement of debt or
$0.12 per diluted share.
<TABLE>
<CAPTION>
(In thousands, except per share data) YEAR ENDED MARCH 31, 1999
-------------------------
QTR. 1 QTR. 2* QTR. 3 QTR. 4
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues $20,661 $24,823 $28,791 $30,550
Gross margin 10,740 12,945 14,826 16,709
Net income 1,293 2,484 1,746 2,121
Net income per weighted average share, basic $ 0.15 $ 0.28 $ 0.20 $ 0.23
Net income per weighted average share, diluted $ 0.13 $ 0.26 $ 0.18 $ 0.22
</TABLE>
* Includes the after tax gain of $976,000 or $0.10 per diluted share related to
the sale of the Company's wound care business.
U. RELATED PARTY TRANSACTIONS:
In December 1994 and January 1997, certain executive officers of the
Company purchased in the aggregate 100,000 and 100,000 shares, respectively, of
the Company's common stock on the open market. The purchases, valued at $415,000
and $607,000, respectively, were funded by a note issued by the Company to each
officer. The terms of the notes provide for each executive to repay the Company
with Company shares within five years from the date of the note at a market
value equal to the original principal of the note. The principal balance due is
shown as notes receivable from officers in Shareholders' Equity on the
Consolidated Balance Sheet. As of March 31, 2000 there is no remaining balance
of notes receivable.
V. SUBSEQUENT EVENTS:
Effective July 1, 2000, each eligible employee may elect to contribute
to the 401(k) Plan, through payroll deductions, up to 20% of his or her salary
vs. 15% as of March 31, 1999, subject to statutory limitations.
In June 2000, the Company's board of directors authorized an additional
1,000,000 share repurchase program which allows the Company to repurchase shares
of its common stock on the open market, with any shares to be held in treasury.
As of June 28, 2000, no shares have been repurchased under this program.
(b) There were no Current Reports on Form 8-K filed by the Company during the
last quarter of the period covered by this report.
38
<PAGE> 40
Exhibit DESCRIPTION
NUMBER
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements on accounting and financial disclosure
matters.
39
<PAGE> 41
Exhibit DESCRIPTION
NUMBER
PART III
ITEMS 10-13.
The information required for Part III in the Annual Report on Form 10-K
is incorporated by reference from the Company's definitive proxy statement for
the Company's 2000 Annual Meeting of Shareholders. Such information will be
contained in the sections of such proxy statement captioned "Election of
Directors," "Board and Committee Meetings," "Compensation of Executive
Officers," "Directors' Compensation," "Report of the Compensation Committee,"
"Compensation Committee Interlocks and Insider Participation," "Comparative
Stock Performance," "SEC Reporting," "Security Ownership of Certain Beneficial
Owners and Management," and "Certain Transactions." Information regarding
executive officers of the Company is also furnished in Part I of this Annual
Report on Form 10-K under the heading "Executive Officers of the Registrant."
The following trademarks are used in this Annual Report on Form 10-K:
URISED, CYSTOSPAZ, ANESTACON, CYSTOSPAZ-M, AZO STANDARD, AZO CRANBERRY, B&O
SUPPRETTES, and AQUACHLORAL are registered trademarks of PolyMedica Corporation.
AZO CONFIDENCE, AZO MENOPAUSE, AZO TEST STRIPS, AZO YEAST, AZO PMS, and Fever
Alarm are trademarks of PolyMedica Corporation.
40
<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a)
1. Financial Statements
The financial statements listed in the Index to Consolidated Financial
Statements and the Schedule on page 18 is filed as part of this report
2. Exhibits
See Index to Exhibits on page 43 of this report.
The exhibits are filed with or incorporated by reference in this
report.
(b) Reports on Form 8-K.
41
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: June 28, 2000 PolyMedica Corporation
By: /s/ Steven J. Lee
----------------------------------------
Steven J. Lee
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: June 28, 2000 /s/ Steven J. Lee
-----------------------------------------------
Steven J. Lee
Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
Dated: June 28, 2000 /s/ Eric G. Walters
-----------------------------------------------
Eric G. Walters
Chief Financial Officer and Clerk
(Principal Financial and Accounting Officer)
Dated: June 28, 2000 /s/ Frank W. Logerfo
-----------------------------------------------
Frank W. LoGerfo
Director
Dated: June 28, 2000 /s/ Daniel S. Bernstein
-----------------------------------------------
Daniel S. Bernstein
Director
Dated: June 28, 2000 /s/ Marcia J. Hooper
-----------------------------------------------
Marcia J. Hooper
Director
Dated: June 28, 2000 /s/ Thomas S. Soltys
-----------------------------------------------
Thomas S. Soltys
Director
Dated: June 28, 2000 /s/ Peter K. Hoffman
-----------------------------------------------
Peter K. Hoffman
Director
42
<PAGE> 44
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER
<S> <C>
2.1 - Stock Purchase Agreement, dated as of August 30, 1996, among the Registrant,
Liberty Medical Supply, Inc., and the Shareholders of Liberty Medical Supply,
Inc. (19)
2.2 - Amendments dated March 26, 1997, to the Stock Purchase Agreement dated as of
August 30, 1996, among the Registrant, Liberty Medical Supply, Inc. and the
Shareholders' of Liberty Medical Supply, Inc. (22)
2.3 - Asset Purchase Agreement dated as of June 23, 1997 by and among the
Registrant, PolyMedica Industries UK, Ltd., Innovative Technologies Limited,
Innovative Technologies (US) Inc., and Innovative Technologies Group Plc. (22)
3.1 - Restated Articles of Organization of the Company. (1)
3.2 - Amended and Restated By-Laws of the Company. (14)
4.1 - Specimen certificate for shares of Common Stock, $.01 par value, of the
Company. (1)
4.2 - Note and Warrant Agreement dated January 26, 1993 and $25,000,000 10.65%
Guaranteed Senior Secured Notes due January 31, 2003 of PolyMedica
Pharmaceuticals (U.S.A.), Inc. and PolyMedica Pharmaceuticals (Puerto Rico),
Inc. and Warrant for 500,000 (subject to adjustment) shares of Common Stock,
$0.01 per value, of the Registrant. (6)
4.3 - Letter Agreement, Note Guarantee and Security Agreement, all dated April 27,
1993, by and among the Registrant, PolyMedica Pharmaceuticals (U.S.A.), Inc.,
PolyMedica Pharmaceuticals (Puerto Rico), Inc., PolyMedica Securities, Inc.,
PolyMedica Pharmaceuticals Securities, Inc. and the John Hancock Mutual Life
Insurance Company. (9)
4.4 - Letter Agreement amending the Note and Warrant Agreement, dated June 15, 1993.
(9)
4.5 - Letter Agreement amending the Note and Warrant Agreement dated March 29, 1994.
(10)
4.6 - Letter Agreement amending the Note and Warrant Agreement dated June 17, 1994.
(10)
4.7 - Letter Agreement amending the Note and Warrant Agreement dated June 30, 1994.
(11)
4.8 - Letter Agreement amending the Note and Warrant Agreement dated October 27,
1994. (12)
4.9 - Letter Agreement amending the Note and Warrant Agreement dated June 27, 1995.
(14)
4.10 - Letter Agreement amending the Note and Warrant Agreement dated October 18,
1995 (15)
4.11 - Letter Agreement amending the Note and Warrant Agreement dated June 19, 1996.
(18)
4.12 - Letter Agreement amending the Note and Warrant Agreement dated August 2, 1996.
(20)
4.13 - Letter Agreement amending the Note and Warrant Agreement dated October 30,
1996 (20)
4.14 - Letter Agreement amending the Note and Warrant Agreement dated January 23,
1997 (21)
10.01 - 1990 Stock Option Plan, as amended. (14)
10.02 - 1992 Employee Stock Purchase Plan, as amended. (14)
10.03 - 1992 Directors' Stock Option Plan, as amended. (10)
10.04 - Rights Agreement dated as of January 23, 1992 by and between the Company and
the First National Bank of Boston. (3)
10.05 - Employment Agreement by and between the Registrant and Steven J. Lee dated
May 16, 1990, as amended by letter agreements dated June 1, 1991 and
December 5, 1991. (1)(30)
10.06 - Letter Agreement amendment by and between the Registrant and Steven J. Lee
dated April 3, 1996. (17)(30)
10.07 - Employment Agreement by and between the Registrant and Dr. Arthur A. Siciliano
dated September 1, 1990, as amended by letter agreements dated June 1, 1991
and December 5, 1991. (1)(30)
10.08 - Employee Stock Purchase Agreement by and between the Registrant and Steven J.
Lee dated May 16, 1990, as amended. (1)(30)
10.09 - Letter Agreement amendment by and between the Registrant and Dr. Arthur A.
Siciliano dated April 3, 1996. (17)(30)
10.10 - Stock Restriction Agreement by and between the Registrant and Dr. Arthur A.
Siciliano dated September 1, 1990, as amended. (1)
10.11 - Sublease dated February 10, 1992 by and between Ampex Corporation and the
Registrant.(1)
10.12 - Supply Agreement, dated as of May 27, 1992, by and between Medtronic, Inc. and
the Company. (2)(22)
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER
<S> <C>
10.13 - Employment Agreement by and between the Registrant and Eric G. Walters dated
June 1, 1991 as amended by letter agreement dated December 5, 1991. (9)(30)
10.14 - Letter Agreement amendment by and between the Registrant and Steven J. Lee
dated March 18, 1993. (9)(30)
10.15 - Letter Agreement amendment by and between the Registrant and Eric G. Walters
dated April 3, 1996. (17)(30)
10.16 - Letter Agreement amendment by and between the Registrant and Dr. Arthur A.
Siciliano dated March 18, 1993. (9)(30)
10.17 - Letter Agreement amendment by and between the Registrant and Eric G. Walters
dated March 18, 1993. (9)(30)
10.18 - Letter Agreement dated July 15, 1993 between Alcon Laboratories Inc. and the
Registrant. (7)
10.19 - Purchase and Sale Agreement between Allstate Life Insurance Company as Seller
and PolyMedica Corporation as Buyer as of August 13, 1993. (8)
10.20 - Letter Agreement amendment by and between the Registrant and Steven J. Lee
dated March 31, 1994. (10)(30)
10.21 - Letter Agreement amendment by and between the Registrant and Dr. Arthur A.
Siciliano dated March 31, 1994.(10)(30)
10.22 - Letter Agreement amendment by and between the Registrant and Eric G. Walters
dated March 31, 1994. (10)(30)
10.23 - Mortgage, Assignment of Leases and Rents and Security Agreement between
PolyMedica Pharmaceuticals (U.S.A.), Inc. and John Hancock Mutual Life
Insurance Company dated May 31, 1994. (10)
10.24 - Processing Agreement dated December 11, 1992, by and between the Registrant
and Alcon (Puerto Rico) Inc. (10)(22)
10.25 - Processing Agreement dated December 11, 1992, by and between the Registrant
and Alcon Laboratories, Inc. (10)(22)
10.26 - Letter Agreement dated March 25, 1994 between Alcon (Puerto Rico) Inc. and the
Registrant. (10)
10.27 - Letter Agreement amendment by and between the Registrant and Steven J. Lee
dated April 11, 1995. (14) (30)
10.28 - Amended and Restated License Agreement between the Registrant and CardioTech
dated May 13, 1996. (17)
10.29 - Letter Agreement amendment by and between the Registrant and Dr. Arthur A.
Siciliano dated April 11, 1995. (14) (30)
10.30 - Letter Agreement amendment by and between the Registrant and Eric G. Walters
dated April 11, 1995. (14) (30)
10.31 - Letter Agreement to the Lease Agreement, dated February 16, 1995, by and
between Robert W. Murray, Trustee of Constitution Park Trust Three and the
Registrant for offices and laboratory space in Woburn, Massachusetts. (14)
10.32 - Letter Agreement dated February 2, 1995, amending the Processing Agreement
dated December 11, 1992, by and between the Registrant and Alcon (Puerto
Rico), Inc. (14) (22)
10.33 - Letter Agreement dated May 3, 1995, amending the Processing Agreement dated
December 11, 1992, by and between the Registrant and Alcon (Puerto Rico), Inc.
(14) (22)
10.34 - Letter Agreement, dated March 20, 1995, by and between the Registrant and
Alcon Laboratories, Inc. (15)
10.35 - Form of Warrant issued by the Registrant to the John Hancock Mutual Life
Insurance Company (17)
10.36 - Form of Promissory Note, dated December 13, 1994, executed by certain officers
and delivered to the Registrant (15)
10.37 - Form of Jefferies & Company, Inc. and Rodman & Renshaw, Inc. Warrant (15)
10.38 - Form of Promissory Note made in favor of the Company by certain officers of
the Company (21)
10.39 - 1998 Executive Incentive Compensation Plan (23)(29)(30)
</TABLE>
44
<PAGE> 46
<TABLE>
<S> <C>
10.40 - Letter Agreement amendment by and between the Registrant and Steven J. Lee dated July 1,
1997. (23)(30)
10.41 - Letter Agreement amendment by and between the Registrant and Dr. Arthur A. Siciliano dated
July 1, 1997. (23)(30)
10.42 - Letter Agreement amendment by and between the Registrant and Eric G. Walters dated July 1,
1997. (23)(30)
10.43 - Agented Loan and Security Agreement dated April 30, 1998 by and between the Registrant and
BankBoston, N.A.(25)
10.44 - Master Note dated April 30, 1998 by and between the Registrant and BankBoston, N.A.(25)
10.45 - Letter Agreement amendment to Employment Agreement by and between the Registrant and Steven
J. Lee dated July 1, 1998.(26)(30)
10.46 - Letter Agreement amendment to Employment Agreement by and between the Registrant and Dr.
Arthur A. Siciliano dated July 1, 1998.(26)(30)
10.47 - Letter Agreement amendment to Employment Agreement by and between the Registrant and Eric
G. Walters dated July 1, 1998.(26)(30)
10.48 - Prepayment Agreement between Innovative Technologies Group plc and the Registrant dated
June 30, 1998.(26)
10.49 - Letter Agreement amendment to Employment Agreement by and between the Registrant and Steven
J. Lee dated September 22, 1998.(27)(30)
10.50 - Letter Agreement amendment to Employment Agreement by and between the Registrant and Dr.
Arthur A. Siciliano dated September 22, 1998.(27)(30)
10.51 - Letter Agreement amendment to Employment Agreement by and between the Registrant and Eric
G. Walters dated September 22, 1998.(27)(30)
10.52 - Letter Agreement dated November 2, 1998 between the Registrant and John Hancock Mutual Life
Insurance Company.(28)
10.53 - Second Amendment to Agented Loan and Security Agreement between the Registrant and
BankBoston, N.A. dated March 12, 1999.(30)
10.54 - Amendment to the Master Note between the Registrant and BankBoston, N.A. dated March 12,
1999.(30)
10.55 - Consent and Waiver Agreement between the Registrant and BankBoston, N.A. dated May 7, 1999.(30)
10.56 - Letter Agreement amendment to the Form of Promissory Note, dated March 30, 1999 executed by
certain officers and delivered to the Registrant.(30)
10.57 - Letter Agreement amendment to Employment Agreement by and between the Registrant and Steven
J. Lee dated June 14, 1999.(30)(31)
10.58 - Letter Agreement amendment to Employment Agreement by and between the Registrant and Dr.
Arthur A. Siciliano dated June 14, 1999.(30)(31)
10.59 - Letter Agreement amendment to Employment Agreement by and between the Registrant and Eric
G. Walters dated June 14, 1999.(30)(31)
10.60 - Bonus Pool and Criteria for Senior Management for the fiscal year ending March 31, 2000.
(29)(30)
10.61 - Third Amendment to Agented Loan and Security Agreement between the Registrant and
BankBoston, N.A., dated June 29, 1999.(32)
10.62 - Amendment No. 1 dated December 9, 1999, amending the Rights Agreement dated as of January
23, 1992 between the Registrant and BankBoston, N.A.(33)
10.63 - Letter Agreement amendment to Employment Agreement by and between the Registrant and Steven
J. Lee dated March 9, 2000.(31)
10.64 - Letter Agreement amendment to Employment Agreement by and between the Registrant and Dr.
Arthur A. Siciliano dated March 9, 2000.(31)
10.65 - Letter Agreement amendment to Employment Agreement by and between the Registrant and Eric
G. Walters dated March 9, 2000.(31)
21 - Subsidiaries of the Registrant
23.1 - Consent of PricewaterhouseCoopers LLP
27.1 - Financial Data Schedule - Fiscal Year Ended March 31, 2000
</TABLE>
45
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<TABLE>
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1 Incorporated herein by reference to the Company's Registration Statement on Form S-1 (File No.
33-45425).
2 Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended March
31, 1992 filed June 26, 1992.
3 Incorporated herein by reference to the Company's Current Report on Form 8-K filed March 13, 1992.
4 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992 filed August 13, 1992
5 Incorporated herein by reference to the Company's Current Report on Form 8-K filed December 26, 1992,
as amended by Amendment No. 1 on Form 8 filed February 24, 1993.
6 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1992 filed February 13, 1993.
7 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, filed August 13, 1993.
8 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, filed November 9, 1993
9 Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended March
31, 1993, filed June 25, 1993.
10 Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended March
31, 1994, filed June, 29, 1994.
11 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994, filed August 12, 1994.
12 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, filed October 31, 1994.
13 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994, filed February 2, 1995.
14 Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1995, filed June 29, 1995.
15 Incorporated herein by reference to the Company's Registration Statement on Form S-1 (File No.
33-97872).
16 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995, filed February 9, 1996.
17 Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996, filed June 26, 1996.
18 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, filed August 14, 1996.
19 Incorporated herein by reference to the Company's Current Report on Form 8-K filed September 13, 1996.
</TABLE>
46
<PAGE> 48
<TABLE>
<S> <C>
20 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, filed November 13, 1996.
21 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996, filed February 13, 1997.
22 Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1997, filed June 26, 1997.
23 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, filed July 31, 1997.
24 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, filed October 31, 1997.
25 Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1998, filed June 29, 1998.
26 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998, filed July 20, 1998.
27 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, filed October 31, 1997.
28 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1998, filed January 29, 1998.
29 Confidential treatment granted as to certain portions.
30 Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1999, filed June 28, 1999.
31 Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant
to Item 14(c) of Form 10-K.
32 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999, filed August 13, 1999.
33 Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1999, filed February 14, 2000.
</TABLE>
47
