SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009
OR
|
|
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE TRANSITION PERIOD FROM
to
Commission File Number: 0-18933
ROCHESTER MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
|
|
|
MINNESOTA
State or other jurisdiction of
incorporation or organization)
|
|
41-1613227
(I.R.S. Employer
Identification No.)
|
|
|
|
ONE ROCHESTER MEDICAL DRIVE,
STEWARTVILLE, MN
(Address of principal executive offices)
|
|
55976
(Zip Code)
|
(507) 533-9600
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
o
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer
o
|
Accelerated filer
þ
|
Non-accelerated filer
o
(Do not check if a smaller reporting company)
|
Smaller reporting company
o
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o
Yes
þ
No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
12,075,367 Common Shares as of August 7, 2009
Table of Contents
ROCHESTER MEDICAL CORPORATION
Report on Form 10-Q
for quarter ended
June 30, 2009
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ROCHESTER MEDICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,342,272
|
|
|
$
|
8,508,000
|
|
Marketable securities
|
|
|
29,660,699
|
|
|
|
28,493,648
|
|
Accounts receivable, net
|
|
|
6,000,332
|
|
|
|
6,009,023
|
|
Inventories, net
|
|
|
9,696,882
|
|
|
|
8,745,873
|
|
Prepaid expenses and other assets
|
|
|
892,629
|
|
|
|
1,110,291
|
|
Deferred income tax asset
|
|
|
1,561,510
|
|
|
|
1,143,931
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
53,154,324
|
|
|
|
54,010,766
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Land and buildings
|
|
|
7,838,840
|
|
|
|
7,696,076
|
|
Equipment and fixtures
|
|
|
16,738,720
|
|
|
|
16,086,643
|
|
|
|
|
|
|
|
|
|
|
|
24,577,560
|
|
|
|
23,782,719
|
|
Less accumulated depreciation
|
|
|
(14,836,488
|
)
|
|
|
(13,899,390
|
)
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
9,741,072
|
|
|
|
9,883,329
|
|
Deferred income tax asset
|
|
|
955,769
|
|
|
|
831,299
|
|
Goodwill
|
|
|
4,779,846
|
|
|
|
5,169,661
|
|
Finite life intangibles, net
|
|
|
6,438,701
|
|
|
|
7,087,571
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
75,069,712
|
|
|
$
|
76,982,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity:
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,605,780
|
|
|
$
|
2,127,470
|
|
Accrued compensation
|
|
|
1,078,311
|
|
|
|
915,661
|
|
Accrued expenses
|
|
|
257,141
|
|
|
|
254,993
|
|
Current maturities of long-term debt
|
|
|
2,925,566
|
|
|
|
1,940,292
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
5,866,798
|
|
|
|
5,238,416
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
288,435
|
|
|
|
239,496
|
|
Long-term debt, less current maturities
|
|
|
1,002,344
|
|
|
|
3,806,185
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
1,290,779
|
|
|
|
4,045,681
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Common shares, no par value:
|
|
|
|
|
|
|
|
|
Authorized 40,000,000
|
|
|
|
|
|
|
|
|
Issued and outstanding shares (12,045,367 June 30, 2009;
11,936,586 September 30, 2008)
|
|
|
55,623,287
|
|
|
|
54,223,669
|
|
Retained earnings
|
|
|
15,061,468
|
|
|
|
14,723,541
|
|
Accumulated other comprehensive loss
|
|
|
(2,772,620
|
)
|
|
|
(1,248,681
|
)
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
67,912,135
|
|
|
|
67,698,529
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
75,069,712
|
|
|
$
|
76,982,626
|
|
|
|
|
|
|
|
|
Note The Balance Sheet at September 30, 2008 was derived from the audited financial
statements at that date, but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
ROCHESTER MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
8,908,416
|
|
|
$
|
8,241,232
|
|
|
$
|
25,789,530
|
|
|
$
|
25,679,758
|
|
Cost of sales
|
|
|
4,724,893
|
|
|
|
4,568,736
|
|
|
|
13,266,735
|
|
|
|
13,594,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
4,183,523
|
|
|
|
3,672,496
|
|
|
|
12,522,795
|
|
|
|
12,085,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and selling
|
|
|
2,541,552
|
|
|
|
2,349,911
|
|
|
|
7,555,936
|
|
|
|
6,954,582
|
|
Research and development
|
|
|
352,248
|
|
|
|
202,092
|
|
|
|
969,011
|
|
|
|
735,292
|
|
General and administrative
|
|
|
1,451,041
|
|
|
|
1,578,410
|
|
|
|
4,574,296
|
|
|
|
5,210,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,344,841
|
|
|
|
4,130,413
|
|
|
|
13,099,243
|
|
|
|
12,900,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(161,318
|
)
|
|
|
(457,917
|
)
|
|
|
(576,448
|
)
|
|
|
(814,607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
39,964
|
|
|
|
232,705
|
|
|
|
241,490
|
|
|
|
1,041,692
|
|
Interest expense
|
|
|
(54,586
|
)
|
|
|
(116,563
|
)
|
|
|
(218,714
|
)
|
|
|
(394,887
|
)
|
Other income
|
|
|
|
|
|
|
|
|
|
|
1,200,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income taxes
|
|
|
(175,940
|
)
|
|
|
(341,775
|
)
|
|
|
646,770
|
|
|
|
(167,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
(99,040
|
)
|
|
|
(654,023
|
)
|
|
|
308,843
|
|
|
|
(584,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(76,900
|
)
|
|
$
|
312,248
|
|
|
$
|
337,927
|
|
|
$
|
416,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
Net income (loss) per share diluted
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
basic
|
|
|
12,025,966
|
|
|
|
11,832,240
|
|
|
|
12,029,629
|
|
|
|
11,794,733
|
|
Weighted average number of common shares outstanding
diluted
|
|
|
12,025,966
|
|
|
|
12,550,317
|
|
|
|
12,637,414
|
|
|
|
12,561,535
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements
2
ROCHESTER MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
337,927
|
|
|
$
|
416,944
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
944,464
|
|
|
|
884,333
|
|
Amortization
|
|
|
516,750
|
|
|
|
541,108
|
|
Stock based compensation
|
|
|
1,035,277
|
|
|
|
1,081,062
|
|
Deferred income tax
|
|
|
(291,616
|
)
|
|
|
(442,238
|
)
|
Federal tax benefit of stock options exercised
|
|
|
|
|
|
|
212,812
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(184,327
|
)
|
|
|
187,208
|
|
Inventories
|
|
|
(956,548
|
)
|
|
|
(198,275
|
)
|
Other current assets
|
|
|
209,291
|
|
|
|
(604,229
|
)
|
Accounts payable
|
|
|
(488,633
|
)
|
|
|
1,120,060
|
|
Income tax payable
|
|
|
76,513
|
|
|
|
(2,405,683
|
)
|
Other current liabilities
|
|
|
206,304
|
|
|
|
(172,109
|
)
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,405,402
|
|
|
|
620,993
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(904,101
|
)
|
|
|
(1,112,494
|
)
|
Patents
|
|
|
(28,321
|
)
|
|
|
(15,566
|
)
|
Purchases of marketable securities
|
|
|
(55,249,800
|
)
|
|
|
(51,025,697
|
)
|
Sales and maturities of marketable securities
|
|
|
53,975,820
|
|
|
|
52,516,875
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(2,206,402
|
)
|
|
|
363,118
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Increase in short-term debt
|
|
|
2,000,000
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(3,818,567
|
)
|
|
|
(1,677,978
|
)
|
Repurchase of common stock
|
|
|
(1,058,041
|
)
|
|
|
|
|
Excess tax benefit from exercises of stock options
|
|
|
528,928
|
|
|
|
959,523
|
|
Proceeds from issuance of common stock
|
|
|
893,464
|
|
|
|
861,533
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(1,454,216
|
)
|
|
|
143,078
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash
|
|
|
(910,512
|
)
|
|
|
(74,851
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(3,165,728
|
)
|
|
|
1,052,338
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
8,508,000
|
|
|
|
6,671,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
5,342,272
|
|
|
$
|
7,723,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
254,191
|
|
|
$
|
138,586
|
|
Taxes paid
|
|
$
|
313,640
|
|
|
$
|
1,155,209
|
|
The accompanying notes are an integral part of these condensed consolidated
financial statements
3
ROCHESTER MEDICAL CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2009
Note A Basis of Presentation
The accompanying unaudited condensed consolidated financial statements which have been derived
from the Companys audited financial statements as of September 30, 2008 and the unaudited June 30,
2009 and 2008 condensed consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for interim financial information and
pursuant to the rules and regulations of the Securities and Exchange Commission which include the
instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial statements. These
financial statements should be read in conjunction with the financial statements and related notes
included in the Companys Form 10-K for the year ended September 30, 2008. In the opinion of
management, the unaudited condensed consolidated financial statements contain all recurring
adjustments considered necessary for a fair presentation of the financial position and results of
operations and cash flows for the interim periods presented. The Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements. Operating results for the nine-month
period ended June 30, 2009 are not necessarily indicative of the results that may be expected for
the year ending September 30, 2009.
Note B Net Income (Loss) Per Share
Net income (loss) per share is calculated in accordance with Financial Accounting Standards
Board (FASB) Statement No. 128,
Earnings Per Share.
The Companys basic net income (loss)
per
share is computed by dividing net income (loss) by the weighted average number of common shares
outstanding during the period. Diluted net income per share is
computed by dividing net income by the
weighted average number of common shares outstanding during the period, increased to include
dilutive potential common shares issuable upon the exercise of stock options that were outstanding
during the period. Diluted net loss per share is computed without consideration for any dilutive
securities. A reconciliation of the numerator and denominator in the basic and diluted net income
(loss) per share calculation is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(76,900
|
)
|
|
$
|
312,248
|
|
|
$
|
337,927
|
|
|
$
|
416,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share-weighted average shares outstanding
|
|
|
12,025,966
|
|
|
|
11,832,240
|
|
|
|
12,029,629
|
|
|
|
11,794,733
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
718,077
|
|
|
|
607,785
|
|
|
|
766,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share-weighted average shares outstanding
|
|
|
12,025,966
|
|
|
|
12,550,317
|
|
|
|
12,637,414
|
|
|
|
12,561,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options of 270,000 and 291,250 for the third quarter of fiscal years 2009 and
2008 and 270,000 and 11,250 for the nine months ended June 30, 2009 and 2008 respectively, have
been excluded from the diluted net income (loss) per share calculation because their exercise
prices were greater than the average market price of the
Companys common shares and their effect
would have been antidilutive. Due to the net loss in the third quarter ended June 30, 2009,
diluted shares were the same as basic shares since the effect of the options would have been
anti-dilutive.
4
Note C Stock Based Compensation
The Company has three stock option plans under which options have been granted to employees,
including officers and directors of the Company, at a price not less than the fair market value of
the Companys common shares at the date the options were granted. Options under the 1991 Stock
Option Plan are no longer granted because the 10-year granting period has expired. The granting
period for the 2001 Stock Incentive Plan expires in 2011. Under the 1995 Non-Statutory Stock
Option Plan, options also may be granted to certain non-employees at a price not less than the fair
market value of the Companys common shares at the date the options are granted. Options generally
expire ten years from the date of grant or at an earlier date as determined by the committee of the
Board of Directors of the Company that administers the plans. Options granted under the 1991, 1995
and 2001 Plans generally vest over four years from the date of grant.
The Company accounts for share-based compensation in accordance with Statement of Financial
Accounting Standards (SFAS) No. 123 (Revised 2004),
Share-Based Payment
(SFAS 123(R)) which
requires all share-based payments, including grants of stock options, to be recognized in the
statement of operations as an operating expense based on their fair values over the requisite
service period. The Company elected to utilize the modified-prospective transition method as
permitted by SFAS 123(R). The Company recorded approximately $293,000 ($193,000 net of tax) and
$1,035,000 ($683,000 net of tax) of related stock-based compensation expense for the quarter and
nine months ended June 30, 2009, and approximately $295,000 ($195,000 net of tax) and $1,081,000
($713,000 net of tax) of related stock-based compensation expense for the quarter and nine months
ended June 30, 2008. This stock-based compensation expense reduced both basic and diluted earnings
per share by $0.02 and $0.02 for the three months ended June 30, 2009 and 2008, respectively, and
$0.06 and $0.06 for the nine months ended June 30, 2009 and 2008, respectively.
As of June 30, 2009, the Company has $1,597,483 of unrecognized compensation costs related to
non-vested awards that is expected to be recognized over a weighted average period of approximately
fourteen months.
Stock Options
No
stock options were granted in the third quarter of fiscal 2009 or 2008.
The following table represents stock option activity for the three months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
Shares
|
|
|
Price
|
|
|
Contract Life
|
|
Outstanding options at beginning of period
|
|
|
1,702,450
|
|
|
$
|
7.14
|
|
|
5.83 Yrs
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(39,500
|
)
|
|
|
5.23
|
|
|
|
|
|
Canceled
|
|
|
(11,250
|
)
|
|
|
12.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options at end of period
|
|
|
1,651,700
|
|
|
$
|
7.15
|
|
|
5.75 Yrs.
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options exercisable at end of period
|
|
|
1,219,075
|
|
|
$
|
6.11
|
|
|
4.75 Yrs.
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares available for future stock option grants to employees and directors under existing
plans were 134,500 at June 30, 2009. At June 30, 2009, the aggregate intrinsic value of options
outstanding was $10,348,489, and the aggregate intrinsic value of options exercisable was
$8,892,756. Total intrinsic value of options exercised was $301,898 for the three months ended
June 30, 2009.
Note D Marketable Securities
As of June 30, 2009, the Company had $29.7 million invested in marketable securities. The
marketable securities primarily consist of $27.1 million invested in U.S. treasury bills and $2.6
million invested in a mutual fund. The Company is currently reporting an unrealized loss of
$743,647 related to the mutual fund as a result of the recent fluctuations in the credit markets
impacting the current market value. The Company considers the current impairment in value to be
temporary as it has the intent and ability to hold this investment long enough to avoid realizing
any significant losses.
5
Marketable securities are classified as available for sale and are carried at fair value, with
unrealized gains or losses included as a separate component of shareholders equity. The cost and
fair value of available-for-sale securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
Cost
|
|
Loss
|
|
Fair Value
|
June 30, 2009
|
|
$
|
30,404,346
|
|
|
$
|
(743,647
|
)
|
|
$
|
29,660,699
|
|
September 30, 2008
|
|
$
|
28,915,366
|
|
|
$
|
(421,718
|
)
|
|
$
|
28,493,648
|
|
Losses recognized are recorded in
interest expense
, in the consolidated statements of
operations. Gains and losses from the sale of investments are calculated based on the specific
identification method.
Effective October 1, 2008, the Company adopted SFAS No. 157,
Fair Value Measurements
(SFAS
157), for financial assets and liabilities that are re-measured and reported at fair value at each
reporting period. SFAS 157 requires that fair value measurements be classified and disclosed in one
of the following three categories:
Level 1. Quoted prices in active markets for identical assets or liabilities.
Level 2. Inputs other than Level 1 that are observable, either directly or indirectly, such as
quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
Level 3. Inputs that are unobservable for the asset or liability and that are significant to
the fair value of the assets or liabilities.
The adoption of SFAS 157 did not have a material impact on the Companys consolidated
financial statements. The Company has determined that the values
given to its marketable securities and the values used in its
goodwill impairment testing are appropriate and are based on using level 1 inputs.
Note E Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Raw materials
|
|
$
|
2,117,951
|
|
|
$
|
2,274,199
|
|
Work-in-process
|
|
|
3,626,561
|
|
|
|
3,375,796
|
|
Finished goods
|
|
|
4,069,989
|
|
|
|
3,217,830
|
|
Reserve for inventory obsolescence
|
|
|
(117,619
|
)
|
|
|
(121,952
|
)
|
|
|
|
|
|
|
|
|
|
$
|
9,696,882
|
|
|
$
|
8,745,873
|
|
|
|
|
|
|
|
|
Note F Income Taxes
On a quarterly basis, the Company evaluates the realizability of its deferred tax assets and
assesses the requirements for a valuation allowance. No valuation allowance has been recorded
against the net deferred tax assets in 2009 or 2008 because there is sufficient future projected
income as well as excess income from 2007 and 2008 to maintain that the deferred tax assets will
more likely than not be able to be utilized. For the quarter ended June 30, 2009, the Company had
an effective income tax rate of 47.74%. The tax rate is in line with the Companys expectation due
to the increased volume of incentive stock option activity, of which the book expense is a
permanent add-back item for tax purposes. In future periods, absent of true-up entries, the
Company expects the effective tax rate on U.S. income to be in the range of 40-42%, and the
effective tax rate on worldwide income may fluctuate depending upon inter-company eliminations and
UK operation profitability.
6
The Company adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty
in Income Taxes, an Interpretation of SFAS No. 109
(FIN 48) on October 1, 2007. FIN 48 creates a
single model to address uncertainty in tax positions and clarifies the accounting for income taxes
by prescribing the minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim periods, disclosure and
transition. At the adoption date, October 1, 2007, the Company did not have a material liability
under FIN 48 for unrecognized tax benefits. Since adoption, the Company has recognized an
approximately $288,000 increase in liability for unrecognized tax benefits.
It is the Companys practice to recognize penalties and/or interest to income tax matters in
income tax expense. As of June 30, 2009, the Company did not have a material amount of accrued
interest or penalties related to unrecognized tax benefits.
The Company is subject to income tax examinations from time to time in the U.S. Federal
jurisdiction, as well as in the United Kingdom and various state jurisdictions. The Internal
Revenue Service is examining the Companys income tax return for the fiscal year ended September
30, 2007. It is possible that this examination may be resolved within the next twelve months. Due
to the potential for resolution of the Federal examination and the expiration of various statutes
of limitations, it is reasonably possible that the Companys gross unrecognized tax benefit may
change. Although the outcome of this matter cannot currently be determined, the Company believes
adequate provision has been made for any potential unfavorable financial statement impact.
Note G Goodwill and Other Intangible Assets
The Company records as goodwill the excess of purchase price over the fair value of the
identifiable net assets acquired as prescribed by SFAS No. 142,
Goodwill and Other Intangible
Assets
(SFAS 142). Under this standard, goodwill and intangibles with indefinite useful lives
are not amortized. SFAS 142 also requires, at a minimum, an annual assessment of the carrying
value of goodwill and other intangibles with indefinite useful lives. If the carrying value of
goodwill or an intangible asset exceeds its fair value, an impairment loss shall be recognized.
The Company tests annually for impairment on June 30th of each fiscal year or more frequently if
events and circumstances indicate that the asset might be impaired. The recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to the estimated
undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated undiscounted future cash flows, an impairment charge would be
recognized by the amount that the carrying amount of the asset exceeds the fair value of the asset.
The Company performed annual goodwill impairment testing by comparing the market value of the
Companys assets at June 30, 2009 to the net book value of our equity, and concluded that the goodwill was
not impaired. The decrease in value of goodwill as of June 30, 2009 is strictly related to the
change in foreign currency exchange rates in the United Kingdom.
Note H Comprehensive Income (Loss)
Comprehensive income (loss) includes net income and all other nonowner changes in
shareholders equity during a period. The comprehensive income (loss) for the three and nine months
ended June 30, 2009 and 2008 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net income (loss)
|
|
$
|
(76,900
|
)
|
|
$
|
312,248
|
|
|
$
|
337,927
|
|
|
$
|
416,944
|
|
Foreign currency adjustment
|
|
|
2,175,107
|
|
|
|
(217,624
|
)
|
|
|
(1,417,011
|
)
|
|
|
(135,806
|
)
|
Unrealized (loss) gain on securities held
|
|
|
280,852
|
|
|
|
153,452
|
|
|
|
(106,928
|
)
|
|
|
(230,493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
2,379,059
|
|
|
$
|
248,076
|
|
|
$
|
(1,186,012
|
)
|
|
$
|
50,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
Note I Line of Credit and Long-Term Debt
In June 2006, in conjunction with an asset purchase agreement with Coloplast A/S, the Company
entered into an unsecured loan note deed with Coloplast with an outstanding principal amount of
$5,340,000. The promissory note is non-interest bearing and payable in five equal annual
installments of $1,068,000 payable annually on June 2. The Company discounted the note at 6.90%
which reflected the Companys cost of borrowing at the date of the purchase agreement and the
discount is being amortized over the life of the note. The discounted liability balance was $1,927,910 at
June 30, 2009.
In June 2006, the Company entered into a $7,000,000 credit facility with U.S. Bank National
Association. The credit facility consisted of a $5,000,000 term loan payable in five years and
accruing interest at a rate equal to 4.77%, and a revolving line of credit of up to $2,000,000,
maturing annually on March 31, with interest payable monthly at a floating rate based on the quoted
one-month LIBOR rate plus 1.60%. In March 2009, the Company paid off the entire term loan and
terminated the revolving line of credit.
In February 2009, the Company entered into a $14,000,000 credit facility with UBS Financial.
The credit facility consists of a revolving line of credit of up to $14,000,000 with interest
accruing monthly at a floating rate based on the quoted one-month LIBOR rate plus 0.50%. As of
June 30, 2009, the Company had an outstanding balance of $2,000,000 under the revolving line of
credit. The Companys obligations under the credit facility are payable on demand and are secured
by its investments in marketable securities held at UBS.
Note J Litigation Settlements
The Company was a plaintiff in a lawsuit titled Rochester Medical Corporation vs. C.R. Bard,
Inc.; Tyco International (US), Inc.; Tyco Health Care Group, L.P.; Novation LLC; VHA, Inc.;
Premier, Inc.; and Premier Purchasing Partners, in the United States District Court for the Eastern
District of Texas, Civil Action No. 504-CV-060. This suit alleged anti-competitive conduct against
the defendants in the markets for standard and anti-infection Foley catheters as well as urethral
catheters, and seeks an unspecified amount of damages and injunctive and other relief.
On November 20, 2006, the Company announced that it had reached a settlement with Premier,
Inc. and Premier Purchasing Partners, L.P. with respect to the lawsuit. Under the settlement
agreement, Premier paid the Company $8,825,000 (net $5,155,000 after payment of attorneys fees and
expenses) and was dismissed from the lawsuit.
On December 14, 2006, the Company announced it had reached a settlement with C.R. Bard, Inc.,
whereby C.R. Bard, Inc. paid the Company $49,000,000 (net $33,450,000 after payment of attorneys
fees and expenses) and was dismissed from the lawsuit.
On August 6, 2007, the Company announced that it had reached a settlement with Novation LLC
with respect to the lawsuit. Under the settlement agreement, Novation awarded the Company an
Innovative Technology Contract for its urological catheter products and related accessories,
including the Companys advanced Infection Control catheters, and was dismissed from the lawsuit.
The Innovation Technology Contract has a three-year term from the effective date of September 1,
2007.
On January 15, 2009, the Company announced that it had reached a settlement with Covidien
Ltd., Tyco International (US), Inc. and Tyco Health Care Group, L.P., whereby Covidien Ltd. paid
the Company $3,500,000 (net $1,000,000 after payment of attorneys fees and expenses) and was
dismissed from the lawsuit. No further action is expected with respect to this lawsuit.
Note K Share Repurchase Program
On March 3, 2009, the Company announced its intention to repurchase some of its outstanding
common shares pursuant to its previously authorized share repurchase program. Up to 2,000,000
shares may be repurchased from time to time on the open market, or pursuant to negotiated or block
transactions, in accordance with applicable Securities and Exchange Commission regulations. During
the three months ended June 30, 2009, no shares were repurchased. As of June 30, 2009, there
remained 1,847,347 shares that may be purchased under the program.
8
Note L Recently Issued Accounting Standards
In December 2007, the FASB issued SFAS No.141 (revised 2007),
Business Combinations
(SFAS
141(R)). SFAS 141(R), among other things, establishes principles and requirements for how the
acquirer in a business combination (i) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquired business, (ii) recognizes and measures the goodwill acquired in the business combination
or a gain from a bargain purchase, and (iii) determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects of the business
combination. SFAS 141(R) is effective for fiscal years beginning on or after December 15, 2008,
with early adoption prohibited. The Company is required to adopt SFAS 141(R) for all business
combinations for which the acquisition date is on or after October 1, 2009. This standard will
change the Companys accounting treatment for business combinations on a prospective basis.
In December 2007, the FASB issued SFAS No.160,
Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB No. 51
(SFAS 160). SFAS 160 establishes accounting and
reporting standards for noncontrolling interests in a subsidiary and for the deconsolidation of a
subsidiary. Minority interests will be recharacterized as noncontrolling interests and classified
as a component of equity. It also establishes a single method of accounting for changes in a
parents ownership interest in a subsidiary and requires expanded disclosures. SFAS 160 is
effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited.
The Company does not expect the adoption of SFAS 160 will have a material impact on its financial
position or results of operations.
In February 2008, the FASB issued FASB Staff Position FAS 157-2,
Effective Date of FASB
Statement No. 157
(FSP FAS 157-2). FSP FAS 157-2 defers the implementation of SFAS No. 157 for
certain nonfinancial assets and nonfinancial liabilities. The portion of SFAS No. 157 that has been
deferred by FSP FAS 157-2 became effective for the Company in the second fiscal quarter of fiscal
year 2009. The adoption of FSP FAS 157-2 did not have a material impact on the Companys
consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures About Derivative Instruments and
Hedging Activities, an amendment of SFAS No. 133
, which changes the disclosure requirements for
derivative instruments and hedging activities. Entities will be required to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS No. 133 and its related
interpretations, and (c) how derivative instruments and related hedged items affect an entitys
financial position, financial performance and cash flows. This statement is effective for financial
statements issued for fiscal years beginning after November 15, 2008. The Company is currently
evaluating the impact of this statement.
In April 2008, the FASB issued FSP FAS 142-3,
Determination of the Useful Life of Intangible
Assets
(FSP FAS 142-3), which amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized intangible asset under
FASB Statement No. 142,
Goodwill and Other Intangible Assets
. FSP FAS 142-3 is effective for fiscal
years beginning on or after December 15, 2008, which for the Company is the first quarter of fiscal
year 2010. The Company is currently evaluating the impact the adoption of FSP FAS 142-3 will have
on its consolidated financial statements.
In April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board (APB) 28-1,
Interim Disclosures about Fair Value of Financial Instruments
. The FSP amends SFAS No. 107,
Disclosures about Fair Value of Financial Instruments
to require an entity to provide disclosures
about fair value of financial instruments in interim financial information and annual reporting
periods. This FSP is to be applied prospectively and is effective for interim and annual periods
ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.
The Company has included the required disclosures in its interim financial statements for the
quarter ending June 30, 2009.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary Impairments.
The guidance applies to investments in debt securities for which
other-than-temporary impairments may be recorded. If an entitys management asserts that it does
not have the intent to sell a debt security and it is more likely than not that it will not have to
sell the security before recovery of its cost basis, then an entity may separate
other-than-temporary impairments into two components: 1) the amount related to credit losses
(recorded in
9
earnings), and 2) all other amounts (recorded in other comprehensive income). This FSP is to be
applied prospectively and is effective for interim and annual periods ending after June 15, 2009,
with early adoption permitted for periods ending after March 15, 2009. The Company adopted this FSP
for its quarter ending June 30, 2009, with no material impact on the consolidated financial
statements.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events
(SFAS 165), which provides
guidance on managements assessment of subsequent events. The new standard clarifies that
management must evaluate, as of each reporting period, events or transactions that occur after the
balance sheet date through the date that the financial statements are issued or are available to be
issued. SFAS 165 is not expected to significantly change practice because its guidance is similar
to that in U.S. auditing literature, which the Company relied on previously for guidance on
assessing and disclosing subsequent events. SFAS 165 is effective for the Company for interim
periods and fiscal years beginning June 30, 2009. The Company evaluated its June 30, 2009
financial statements for subsequent events through August 8, 2009, the date the financial
statements were available to be issued. The Company is not aware of any subsequent events which
would require recognition or disclosure in the financial statements.
In June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards Codification
(SFAS
168)
,
which establishes the FASBs Accounting Standards Codification as the exclusive
authoritative reference for nongovernmental U.S. GAAP for use in financial statements issued for
interim and annual periods ending after September 15, 2009, except for SEC rules and interpretative
releases, which are also authoritative for SEC registrants. As a result, SFAS 168 replaces SFAS
162 to make all of the Codification content carry the same level of authority. The Company is
currently evaluating the impact of SFAS 168, but does not expect it to have a material impact
on its consolidated financial statements.
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We develop, manufacture and market a broad line of innovative, technologically enhanced
PVC-free and latex-free urinary continence and urine drainage care products for the extended care
and acute care markets. Our products are comprised of our base products, which include our male
external catheters and standard silicone Foley catheters, and our advanced products, which include
our intermittent catheters, our anti-infection Foley catheters and our FemSoft Insert. We market
our products under our Rochester Medical brand, which are referred to as branded sales, and also
supply our products to several large medical product companies for sale under brands owned by these
companies, which are referred to as private label sales. The primary markets for our products are
distributors, extended care facilities and individual hospitals and healthcare institutions. We
sell our products both in the domestic market and internationally.
For fiscal 2009, we increased our investment in our sales and marketing programs, primarily
through cash generated from current operations, to support branded sales growth in the U.S. and
Europe. Our advanced products will eventually contribute a higher profit margin than our base
products, and our Rochester Medical branded products contribute a higher profit margin than private
label sales, particularly branded sales in the United Kingdom and elsewhere in Europe. Increasing
our percentage of sales of branded products versus private label sales over time will have a
positive impact on our gross margin. Branded sales accounted for 65% of total sales for the
quarter ended June 30, 2009, and 65% of total sales year to date, compared to 73% for the quarter
ended June 30, 2008 and 68% for the same period last year. Advanced products accounted for 14% of
total sales for the quarter ended June 30, 2009, and 14% of total sales year to date, compared to
13% for the quarter ended June 30, 2008 and 12% for the same period last year.
The following discussion pertains to our results of operations and financial position for the
quarters and nine month periods ended June 30, 2009 and 2008. Results of the periods are not
necessarily indicative of the results to be expected for the complete year. For the third quarter
ended June 30, 2009, we reported a net loss of $0.01 per diluted share, compared to a net income of
$0.02 per diluted share for the same period last year. Loss from operations was $161,000 for the
quarter ended June 30, 2009 compared to a loss of $458,000 for the quarter ended June 30, 2008,
with a net loss of $77,000 for the quarter ended June 30, 2009 compared to net income of $312,000
for the same period last year.
As of June 30, 2009, we had $5.3 million in cash and cash equivalents, and $29.7 million
invested in marketable securities. The marketable securities primarily consist of $27.1 million
invested in U.S. treasury bills and $2.6 million invested in a mutual fund. Our investments in
marketable securities are subject to interest rate risk and the value thereof
10
could be adversely affected due to movements in interest rates. Our investment choices, however,
are conservative and are intended to reduce the risk of loss or any material impact on our
financial condition. We are currently reporting an unrealized loss $743,647 related to the mutual
fund as a result of the recent fluctuations in the credit markets impacting the current market
value. We consider this unrealized loss temporary as we have the intent and ability to hold this
investment long enough to avoid realizing any significant losses.
Results of Operations
The following table sets forth, for the fiscal periods indicated, certain items from our
statements of operations expressed as a percentage of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Net Sales
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost of Sales
|
|
|
53
|
%
|
|
|
55
|
%
|
|
|
51
|
%
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
47
|
%
|
|
|
45
|
%
|
|
|
49
|
%
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and Selling
|
|
|
29
|
%
|
|
|
29
|
%
|
|
|
29
|
%
|
|
|
27
|
%
|
Research and Development
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
4
|
%
|
|
|
3
|
%
|
General and Administrative
|
|
|
16
|
%
|
|
|
19
|
%
|
|
|
18
|
%
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
49
|
%
|
|
|
50
|
%
|
|
|
51
|
%
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(2
|
)%
|
|
|
(6
|
)%
|
|
|
(2
|
)%
|
|
|
(3
|
)%
|
Interest Income (Expense), Net
|
|
|
0
|
%
|
|
|
2
|
%
|
|
|
0
|
%
|
|
|
2
|
%
|
Other Income, Net
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
5
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) before Taxes
|
|
|
(2
|
)%
|
|
|
(4
|
)%
|
|
|
3
|
%
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax (Expense) Benefit
|
|
|
0
|
%
|
|
|
(8
|
)%
|
|
|
(1
|
)%
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) after Taxes
|
|
|
(1
|
)%
|
|
|
4
|
%
|
|
|
1
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth, for the periods indicated, net sales information by product
category (base products and advanced products), marketing method (private label and
Rochester
Medical
®
branded sales) and distribution channel (domestic and international markets) (all dollar
amounts below are in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Private label sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base products
|
|
$
|
2,075
|
|
|
$
|
1,034
|
|
|
$
|
3,109
|
|
|
$
|
1,605
|
|
|
$
|
474
|
|
|
$
|
2,079
|
|
Advanced products
|
|
|
44
|
|
|
|
|
|
|
|
44
|
|
|
|
144
|
|
|
|
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total private label sales
|
|
|
2,119
|
|
|
|
1,034
|
|
|
|
3,153
|
|
|
|
1,749
|
|
|
|
474
|
|
|
|
2,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branded sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base products
|
|
|
1,036
|
|
|
|
3,544
|
|
|
|
4,580
|
|
|
|
930
|
|
|
|
4,148
|
|
|
|
5,078
|
|
Advanced products
|
|
|
772
|
|
|
|
403
|
|
|
|
1,175
|
|
|
|
677
|
|
|
|
263
|
|
|
|
940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total branded sales
|
|
|
1,808
|
|
|
|
3,947
|
|
|
|
5,755
|
|
|
|
1,607
|
|
|
|
4,411
|
|
|
|
6,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales:
|
|
$
|
3,927
|
|
|
$
|
4,981
|
|
|
$
|
8,908
|
|
|
$
|
3,356
|
|
|
$
|
4,885
|
|
|
$
|
8,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year to Date Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Private label sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base products
|
|
$
|
5,280
|
|
|
$
|
3,282
|
|
|
$
|
8,562
|
|
|
$
|
5,028
|
|
|
$
|
2,358
|
|
|
$
|
7,386
|
|
Advanced products
|
|
|
399
|
|
|
|
|
|
|
|
399
|
|
|
|
749
|
|
|
|
|
|
|
|
749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total private label sales
|
|
|
5,679
|
|
|
|
3,282
|
|
|
|
8,961
|
|
|
|
5,777
|
|
|
|
2,358
|
|
|
|
8,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branded sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base products
|
|
|
2,963
|
|
|
|
10,665
|
|
|
|
13,628
|
|
|
|
2,927
|
|
|
|
12,207
|
|
|
|
15,134
|
|
Advanced products
|
|
|
2,114
|
|
|
|
1,086
|
|
|
|
3,200
|
|
|
|
1,880
|
|
|
|
531
|
|
|
|
2,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total branded sales
|
|
|
5,077
|
|
|
|
11,751
|
|
|
|
16,828
|
|
|
|
4,807
|
|
|
|
12,738
|
|
|
|
17,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales:
|
|
$
|
10,756
|
|
|
$
|
15,033
|
|
|
$
|
25,789
|
|
|
$
|
10,584
|
|
|
$
|
15,096
|
|
|
$
|
25,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Month and Nine Month Periods Ended June 30, 2009 and June 30, 2008
Net Sales.
Net sales for the third quarter of fiscal 2009 increased 8% to $8,908,000 from
$8,241,000 for the comparable quarter of last fiscal year. The sales increase primarily resulted
from an increase in sales of private label products, higher sales of branded products domestically
and increased branded sales internationally outside of the U.K. offset by a decrease in branded
sales in the U.K. Domestic sales of branded products increased by 12.5% for the quarter compared
to the same period last year. Our international branded sales decreased 10.5% compared to the same
period last year, primarily as a result of the change in foreign currency exchange rates in the
United Kingdom as the U.S. dollar was significantly stronger versus the pound sterling, thereby
affecting total branded sales given the significant volume of our branded product sales in the
United Kingdom. Private label sales were up 42% from last year, which
management believes is the result of the timing of orders from large
private label customers. Private label sales accounted for
approximately 35% of total sales. Management continues to focus on growth in branded sales, and
total branded sales volumes of intermittent catheters and Foley catheters increased for the third
quarter compared to last fiscal year. In line with our strategic decision to increase investments
in sales and marketing to drive growth in branded sales, we have initiated direct sales efforts
into Japan and mainland Europe.
Net sales for the nine months ended June 30, 2009 increased slightly to $25,789,000 from
$25,680,000 for the comparable nine-month period of last fiscal year. The increase in sales
primarily resulted from an increase in domestic private label sales
and increased sales of private label
products internationally and branded sales internationally outside of the U.K., offset by a decrease in branded sales
in the U.K. as a result of the change in the foreign currency exchange rate in the United Kingdom
of the pound sterling to the U.S. dollar from last year. Sales of branded
products domestically increased 5.6% compared to the same period last year.
Gross Margin
. Our gross margin as a percentage of net sales for the third quarter of fiscal
2009 was 47% compared to 45% for the comparable quarter of last fiscal year. The increase in gross
margin this quarter was primarily due to increased sales of higher margin product, including male
external catheters and script easy in the U.K. and other international markets, and favorable
manufacturing variances and efficiencies, partially offset by the change in the foreign currency
exchange rate in the United Kingdom of the pound sterling to the U.S. dollar and increased medical
claim costs. Gross margin for the nine months ended June 30, 2009 increased slightly to 49% from
47%. Factors affecting the comparative nine month gross margin are generally consistent with those
discussed above for the current quarter.
Marketing and Selling.
Marketing and selling expense primarily includes costs associated with
base salary paid to sales and marketing personnel, sales commissions, and travel and advertising
expense. Marketing and selling expense for the third quarter of fiscal 2009 increased 8% to
$2,542,000 from $2,350,000 for the comparable quarter of last fiscal year. The increase in
marketing and selling expense is primarily due to increased sales personnel and related expenses
incurred through the addition of sales and marketing staff in both our U.S. and U.K. operations,
and increased advertising expense related to marketing in the U.K. and the U.S. of our Magic 3
intermittent catheter and preparation for our advanced Strata Foley catheter launch, partially
offset by the change in the foreign currency exchange rate in the United Kingdom of the pound
sterling to the U.S. dollar from last year. Marketing and selling expense as a percentage of net
sales for the fiscal quarters ended June 30, 2009 and 2008 was 29% and 29%, respectively.
12
Marketing and selling expense for the nine months ended June 30, 2009 increased 9% to
$7,556,000 from $6,955,000 for the comparable nine-month period of last fiscal year. Factors
affecting the comparative nine-month expense levels are generally consistent with those discussed
above for the current quarter.
Research and Development.
Research and development expense primarily includes internal labor
costs, as well as expense associated with third-party vendors performing validation and
investigative research regarding our products and development activities. Research and development
expense for the third quarter of fiscal 2009 increased 74% to $352,000 from $202,000 for the
comparable quarter of last fiscal year. The increase in research and development expense relates
primarily to increased expenses related to testing and development of new and enhanced products as
we developed both our Magic3 intermittent technology and our Strata foley technology this year.
Research and development expense as a percentage of net sales for the fiscal quarters ended June
30, 2009 and 2008 was 4% and 2%, respectively.
Research and development expense for the nine months ended June 30, 2009 increased 32% to
$969,000 from $735,000 for the comparable nine-month period of last fiscal year. Factors affecting
the comparative nine-month expense levels are generally consistent with those discussed above for
the current quarter.
General and Administrative.
General and administrative expense primarily includes payroll
expense relating to our management and accounting, information technology and human resources
staff, as well as fees and expenses of outside legal counsel and accounting advisors. General and
administrative expense for the third quarter of fiscal 2009 decreased 8% to $1,451,000 from
$1,578,000 for the comparable quarter of last fiscal year. The decrease in general and
administrative expense is primarily related to decreased legal fees, audit related expenses and
the change in the foreign currency exchange rate in the United Kingdom of the pound sterling to the
U.S. dollar from last year. General and administrative expense as a percentage of net sales for
the fiscal quarters ended June 30, 2009 and 2008 was 16% and 19%, respectively.
General and administrative expense for the nine months ended June 30, 2009 decreased 12% to
$4,574,000 from $5,210,000 for the comparable nine-month period of last fiscal year. The decrease
in general and administrative expenses for the nine month period primarily reflects a decrease in
legal and audit fees from the prior year.
Interest Income.
Interest income for the third quarter of fiscal 2009 decreased 83% to
$40,000 from $233,000 for the comparable quarter of last fiscal year. The decrease in interest
income reflects significantly lower interest rates on investments.
Interest income for the nine months ended June 30, 2009 decreased 77% to $241,000 from
$1,042,000 for the comparable nine-month period of last fiscal year. Factors affecting the
comparative nine-month interest income are generally consistent with those discussed above for the
current quarter.
Interest Expense
. Interest expense for the third quarter of fiscal 2009 decreased $62,000 to
$55,000 from the comparable quarter of last fiscal year. The decrease in interest expense reflects
lower amounts of debt as a result of quarterly debt payments and a lower effective interest rate on
our debt.
Interest expense for the nine months ended June 30, 2009 decreased $176,000 to $219,000 from
$395,000 for the comparable nine-month period of last fiscal year. The decrease in interest
expenses for the nine month period are generally consistent with those discussed above for the
current quarter.
Income Taxes
. For the quarter ended June 30, 2009, we had an effective income tax rate of
approximately 47.7%. The tax rate is in line with our expectation due to the volume of incentive
stock option activity, of which the book expense is a permanent add-back item for tax purposes and
increased our effective tax rate by 15% for the quarter. In future periods of taxable earnings, we
expect to report an income tax provision using an effective tax rate in the range of 40 42% for
U.S. income. The effective tax rate on worldwide income may fluctuate depending upon inter-company
eliminations and U.K. operation profitability.
13
Liquidity and Capital Resources
Our cash, cash equivalents and marketable securities were $35 million at June 30, 2009
compared to $37 million at September 30, 2008. The decrease in cash primarily resulted from
capital expenditures, repayment of long-term debt and the repurchase of common shares offset by
cash provided from operations, borrowing on our new credit facility and the sale of common shares
upon exercise of options. As of June 30, 2009, we had $29.7 million invested in marketable
securities as a result of the cash settlements received from lawsuits. The marketable securities
primarily consist of $27.1 million invested in U.S. treasury bills and $2.6 million invested in a
mutual fund. We are currently reporting an unrealized loss $743,647 related to the mutual fund as
a result of the recent fluctuations in the credit markets impacting the current market value. We
consider this unrealized loss temporary as we have the intent and ability to hold this investment
long enough to avoid realizing any significant losses.
During
the nine-month period ended June 30, 2009, we generated
$1,405,000 of cash from
operating activities compared to $621,000 of cash provided by operations during the comparable
period of the prior fiscal year. Increased net cash from operating activities in the first nine
months of fiscal 2009 primarily reflects net income before depreciation and decreases in other
current assets and increases in other current liabilities, offset by increases in inventories and
decreases in accounts payable. Accounts receivable balances during this period decreased 3% or
$184,000, primarily due to increased collections. Inventories
increased 11% or $957,000, as we built up inventories in anticipation
of our launch of our Magic 3 intermittent catheter and our advanced
Strata Foley catheter. Accounts
payable decreased 23% or $489,000, primarily reflecting timing of expenses. Other current
liabilities increased 18% or $206,000, primarily reflecting payments of annual executive bonuses
offset by timing of normal operating accruals. In addition, capital expenditures during this
period were $904,000 compared to $1,112,000 for the comparable period last year.
In June 2006, we entered into a $7,000,000 credit facility with U.S. Bank National
Association. The credit facility consisted of a $5,000,000 term loan payable in five years and
accruing interest at a rate equal to 4.77%, and a revolving line of credit of up to $2,000,000,
maturing annually on March 31, with interest payable monthly at a floating rate based on the quoted
one-month LIBOR rate plus 1.60%. In March 2009, we paid off the entire term loan and terminated
the revolving line of credit.
In February 2009, we entered into a $14,000,000 credit facility with UBS Financial. The
credit facility consists of a revolving line of credit of up to $14,000,000 with interest accruing
monthly at a floating rate based on the quoted one-month LIBOR rate plus 0.50%. As of June 30,
2009, we had an outstanding balance of $2,000,000 under the revolving line of credit. Our
obligations under the credit facility are payable on demand and are secured by our investments in
marketable securities held at UBS.
We believe that our capital resources on hand at June 30, 2009, together with cash generated
from sales, will be sufficient to satisfy our working capital requirements for the foreseeable
future as described in the Liquidity and Capital Resources portion of Managements Discussion and
Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the
fiscal year ended September 30, 2008. In the event that additional financing is needed, we may
seek to raise additional funds through public or private financing. Any additional equity
financing may be dilutive to shareholders, and debt financing, if available, may involve
significant restrictive covenants. Failure to raise capital when needed could have a material
adverse effect on our business, financial condition and results of operations. There can be no
assurance that such financing, if required, will be available on terms satisfactory to us, if at
all.
Cautionary Statement Regarding Forward Looking Information
Statements other than historical information contained herein constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements may be identified by the use of terminology such as believe, may,
will, expect, anticipate, predict, intend, designed, estimate, should or continue
or the negatives thereof or other variations thereon or comparable terminology. Such
forward-looking statements involve known or unknown risks, uncertainties and other factors which
may cause our actual results, performance or achievements, or industry results, to be materially
different from any future results,
performance or achievements expressed or implied by such forward-looking statements. Such factors
include, among other things, the following:
14
|
|
|
the uncertainty of current domestic and international economic conditions that could
adversely affect the level of demand for our products and increased volatility in foreign
exchange rates;
|
|
|
|
|
the uncertainty of market acceptance of new product introductions;
|
|
|
|
|
the uncertainty of gaining new strategic relationships;
|
|
|
|
|
the uncertainty of timing of revenues from private label sales (particularly with
respect to international customers);
|
|
|
|
|
the uncertainty of successfully growing our U.K. operations and the risks associated
with operating an international business;
|
|
|
|
|
FDA and other regulatory review and response times;
|
|
|
|
|
the securing of Group Purchasing Organization contract participation;
|
|
|
|
|
the uncertainty of gaining significant sales from secured GPO contracts;
|
and other risk factors listed from time to time in our SEC reports, including, without limitation,
the section entitled Risk Factors in our Annual Report on Form 10-K for the year ended September
30, 2008.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our primary financial instrument market risk results from fluctuations in interest rates. Our
cash is invested in bank deposits and money market funds denominated in United States dollars and
pound sterling. The carrying value of these cash equivalents approximates fair market value. Our
investments in marketable securities are subject to interest rate risk and the value thereof could
be adversely affected due to movements in interest rates. Our investment choices, however, are
conservative in light of current economic conditions, and include primarily U.S. treasury bills to
reduce the risk of loss or any material impact on our financial condition. Our revolving line of
credit bears interest at a floating rate based on the quoted one-month LIBOR rate plus 0.50%. As of
June 30, 2009, our revolving line of credit had a balance of $2,000,000.
In future periods, we believe a greater portion of our revenues could be denominated in
currencies other than the U.S. dollar, thereby increasing our exposure to exchange rate gains and
losses on non-United States currency transactions. Sales through our subsidiary, Rochester Medical,
Ltd., are denominated in pound sterling, and fluctuations in the rate of exchange between the U.S.
dollar and the pound sterling could adversely affect our financial results.
Otherwise, we do not believe our operations are currently subject to significant market risks
for interest rates, foreign currency exchange rates, commodity prices or other relevant market
price risks of a material nature. We do not currently use derivative financial instruments to
manage interest rate risk or enter into forward exchange contracts to hedge exposure to foreign
currencies, or any other derivative financial instruments for trading or speculative purposes. In
the future, if we believe an increase in our currency exposure merits further review, we may
consider entering into transactions to mitigate that risk.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
. As of the end of the period covered by this
report (the Evaluation Date) we carried out an evaluation, under the supervision and with the
participation of management, including our Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and procedures (as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934 as amended (the Exchange Act)). Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of
the Evaluation Date, our disclosure controls and procedures were effective to ensure that
information required to be disclosed in the reports that we file or submit under the Exchange Act
is (i) recorded, processed, summarized and reported within the time periods specified in the
Commissions rules and forms, and (ii) accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure.
Changes in Internal Controls
. During our third fiscal quarter, there has been no change in
our internal control over financial reporting (as defined in Rule 13(a)-15(f) under the Exchange
Act) that materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
15
PART II. OTHER INFORMATION
Item 6. Exhibits
|
|
|
3.1
|
|
Amended and Restated Bylaws of Rochester Medical Corporation, as amended through
June 9, 2009 (incorporated by reference to Exhibit 3.1 to the registrants Current
Report on form 8-K filed June 12, 2009).
|
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
|
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
|
|
|
|
32.1
|
|
Section 1350 Certification of Chief Executive Officer.
|
|
|
|
32.2
|
|
Section 1350 Certification of Chief Financial Officer.
|
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
ROCHESTER MEDICAL CORPORATION
|
|
Date: August 10, 2009
|
By:
|
/s/ Anthony J. Conway
|
|
|
|
Anthony J. Conway
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
Date: August 10, 2009
|
By:
|
/s/ David A. Jonas
|
|
|
|
David A. Jonas
|
|
|
|
Chief Financial Officer and Treasurer
|
|
17
INDEX TO EXHIBITS
Exhibit
|
|
|
3.1
|
|
Amended and Restated Bylaws of Rochester Medical Corporation, as amended through
June 9, 2009 (incorporated by reference to Exhibit 3.1 to the registrants Current
Report on form 8-K filed June 12, 2009).
|
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
|
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
|
|
|
|
32.1
|
|
Section 1350 Certification of Chief Executive Officer.
|
|
|
|
32.2
|
|
Section 1350 Certification of Chief Financial Officer.
|
18
Rochester Medical Corp. (MM) (NASDAQ:ROCM)
Historical Stock Chart
From Jun 2024 to Jul 2024
Rochester Medical Corp. (MM) (NASDAQ:ROCM)
Historical Stock Chart
From Jul 2023 to Jul 2024