##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 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 September 30, 2009
 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: 001-33027
 HOME DIAGNOSTICS, INC.
  DELAWARE
    
    22-2594392(State or other jurisdiction 
of incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 2400 NW 55th CourtFort Lauderdale, Florida
    
    33309(Address of principal executive offices)
    
    (Zip Code)
 954-677-9201
 x o
 o o
  Large accelerated filer o
    
    Accelerated filer xNon-accelerated filer o
    
    Smaller reporting company o(Do not check if smaller reporting company)
 o x




---



##### 



HOME DIAGNOSTICS, INC.
INDEX
 PageForward-Looking Statements
    
    
    3Part I FINANCIAL INFORMATION
    
    
    4Item 1.
    
    Financial Statements
    
    
    4Consolidated Balance Sheets as of December 31, 2008 and September 30, 2009 (Unaudited)
    
    
    4Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2009 (Unaudited)
    
    
    5Consolidated Statement of Changes in Stockholders Equity for the Nine Months Ended September 30, 2009 (Unaudited)
    
    
    6Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2009 (Unaudited)
    
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4.
    
    Controls and Procedures
    
    
    21Part II OTHER INFORMATION
    
    
    22Item 1.
    
    Legal Proceedings
    
    
    22Item 1A.
    
    Risk Factors
    
    
    22Item 6.
    
    Exhibits
    
    
    23SIGNATURES
    
    
    24EXHIBIT INDEX
    
    
    25CERTIFICATIONSEX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



Caution Concerning Forward-Looking Statements
 Form 10-Q.
 3




---



##### Table of Contents



Part I  FINANCIAL INFORMATION
 
 Item 1  Financial Statements
 
 HOME DIAGNOSTICS, INC. AND SUBSIDIARIES
 December 31,
    
    
    September 30,2008
    
    
    2009(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    30,367
    
    
    $
    22,091Accounts receivable, net
    
    
    17,938
    
    
    
    22,326Inventories, net
    
    
    17,131
    
    
    
    18,578Prepaid expenses and other current assets
    
    
    1,684
    
    
    
    1,604Income taxes receivable
    
    
    1,082
    
    
    
    1,783Deferred tax assets
    
    
    4,317
    
    
    
    4,852Total current assets
    
    
    72,519
    
    
    
    71,234Property and equipment, net
    
    
    31,548
    
    
    
    36,711Goodwill
    
    
    35,574
    
    
    
    35,574Other intangible assets, net
    
    
    363
    
    
    
    219Deferred tax assets
    
    
    440
    
    
    
    459Other assets, net
    
    
    136
    
    
    
    136Total assets
    
    $
    140,580
    
    
    $
    144,333Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    7,746
    
    
    $
    8,725Accrued liabilities
    
    
    20,768
    
    
    
    21,088Total current liabilities
    
    
    28,514
    
    
    
    29,813Deferred tax liabilities
    
    
    
    
    
    
    1,886Commitments and contingenciesStockholders equity:Common stock, $.01 par value; 60.0 million
shares authorized; 17.5 million and 16.9
million shares issued and outstanding at
December 31, 2008 and September 30, 2009,
respectively
    
    
    175
    
    
    
    169Additional paid-in capital
    
    
    94,033
    
    
    
    91,829Retained earnings
    
    
    18,569
    
    
    
    21,110Accumulated other comprehensive loss
    
    
    (711
    )
    
    
    (474
    )Total stockholders equity
    
    
    112,066
    
    
    
    112,634Total liabilities and stockholders equity
    
    $
    140,580
    
    
    $
    144,333
 The accompanying notes are an integral part of these consolidated financial statements.
 4




---



##### Table of Contents



HOME DIAGNOSTICS, INC. AND SUBSIDIARIES
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Net sales
    
    $
    35,565
    
    
    $
    34,500
    
    
    $
    94,041
    
    
    $
    91,755Cost of sales
    
    
    13,936
    
    
    
    16,616
    
    
    
    37,937
    
    
    
    44,973Gross profit
    
    
    21,629
    
    
    
    17,884
    
    
    
    56,104
    
    
    
    46,782Operating expensesSelling, general and administrative
(including stock-based compensation expense
of $665 and $522 and $1,409 and $1,268 for
the three and nine months ended September
30, 2008 and 2009, respectively)
    
    
    13,400
    
    
    
    11,594
    
    
    
    38,969
    
    
    
    36,277Research and development
    
    
    2,035
    
    
    
    2,051
    
    
    
    6,819
    
    
    
    5,905Total operating expenses
    
    
    15,435
    
    
    
    13,645
    
    
    
    45,788
    
    
    
    42,182Income from operations
    
    
    6,194
    
    
    
    4,239
    
    
    
    10,316
    
    
    
    4,600Other income (expense)Interest income (expense), net
    
    
    231
    
    
    
    10
    
    
    
    773
    
    
    
    75Other income (expense), net
    
    
    (82
    )
    
    
    (31
    )
    
    
    (503
    )
    
    
    107Total other income (expense)
    
    
    149
    
    
    
    (21
    )
    
    
    270
    
    
    
    182Income before provision for income taxes
    
    
    6,343
    
    
    
    4,218
    
    
    
    10,586
    
    
    
    4,782Provision for income taxes
    
    
    1,808
    
    
    
    1,302
    
    
    
    2,646
    
    
    
    1,669Net income
    
    $
    4,535
    
    
    $
    2,916
    
    
    $
    7,940
    
    
    $
    3,113Earnings per common share:Basic
    
    $
    .26
    
    
    $
    .17
    
    
    $
    .45
    
    
    $
    .18Diluted
    
    $
    .24
    
    
    $
    .17
    
    
    $
    .42
    
    
    $
    .18Weighted average shares used in computing
earnings per common share:Basic
    
    
    17,610
    
    
    
    16,894
    
    
    
    17,783
    
    
    
    17,031Diluted
    
    
    18,792
    
    
    
    17,616
    
    
    
    18,902
    
    
    
    17,769
 The accompanying notes are an integral part of these consolidated financial statements.
 5




---



##### Table of Contents



HOME DIAGNOSTICS, INC. AND SUBSIDIARIES
 AccumulatedCommon Stock
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    TotalNumber of
    
    
    
    
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    EquityBalance at
December 31, 2008
    
    
    17,482
    
    
    $
    175
    
    
    $
    94,033
    
    
    $
    18,569
    
    
    $
    (711
    )
    
    $
    112,066Stock-based
compensation expense
    
    
    
    
    
    
    
    
    
    
    1,268
    
    
    
    
    
    
    
    
    
    
    
    1,268Stock options
exercised, including
tax benefit of $79
    
    
    257
    
    
    
    2
    
    
    
    948
    
    
    
    
    
    
    
    
    
    
    
    950Repurchases of
common stock
    
    
    (815
    )
    
    
    (8
    )
    
    
    (4,420
    )
    
    
    (572
    )
    
    
    
    
    
    
    (5,000
    )Comprehensive income:Foreign currency
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    237
    
    
    
    237Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,113
    
    
    
    
    
    
    
    3,113Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,350Balance at
September 30, 2009
    
    
    16,924
    
    
    $
    169
    
    
    $
    91,829
    
    
    $
    21,110
    
    
    $
    (474
    )
    
    $
    112,634
 The accompanying notes are an integral part of these consolidated financial statements.
 6




---



##### Table of Contents



HOME DIAGNOSTICS, INC. AND SUBSIDIARIES
 Nine Months EndedSeptember 30,2008
    
    
    2009Cash flows from operating activities:Net income
    
    $
    7,940
    
    
    $
    3,113Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    2,917
    
    
    
    5,104Loss on asset disposals
    
    
    110
    
    
    
    Bad debt expense
    
    
    30
    
    
    
    210Deferred income taxes
    
    
    100
    
    
    
    1,333Stock-based compensation expense
    
    
    1,409
    
    
    
    1,268Changes in assets and liabilities:Accounts receivable
    
    
    (7,550
    )
    
    
    (4,597
    )Inventories
    
    
    (3,777
    )
    
    
    (1,417
    )Prepaid expenses and other current and non-current assets
    
    
    (708
    )
    
    
    70Income taxes receivable and income taxes payable
    
    
    2,706
    
    
    
    (402
    )Accounts payable
    
    
    2,849
    
    
    
    978Accrued liabilities
    
    
    3,362
    
    
    
    23Net cash provided by operating activities
    
    
    9,388
    
    
    
    5,683Cash flows from investing activities:Capital expenditures
    
    
    (3,925
    )
    
    
    (10,110
    )Net cash used in investing activities
    
    
    (3,925
    )
    
    
    (10,110
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    983
    
    
    
    871Excess tax benefits from stock-based compensation expense
    
    
    274
    
    
    
    79Repurchases of common stock
    
    
    (5,130
    )
    
    
    (5,000
    )Net cash used in financing activities
    
    
    (3,873
    )
    
    
    (4,050
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (106
    )
    
    
    201Net increase (decrease) in cash and cash equivalents
    
    
    1,484
    
    
    
    (8,276
    )Cash and cash equivalents:Beginning of period
    
    
    32,696
    
    
    
    30,367End of period
    
    $
    34,180
    
    
    $
    22,091Supplemental cash flow disclosures:Cash paid during the period for -Income taxes
    
    $
    2,005
    
    
    $
    394
 The accompanying notes are an integral part of these consolidated financial statements.
 7




---



##### Table of Contents



HOME DIAGNOSTICS, INC. AND SUBSIDIARIES
 1. BASIS OF PRESENTATION
     Reclassifications
  Use of Estimates
  Recent Accounting Pronouncements
 Business Combinations
  8




---



##### Table of Contents



Fair Value Measurements
  Non-Controlling Interests
  Disclosures about Derivative Instruments and Hedging Activities
  Subsequent Events
  FASB Accounting Standards Codification
  9




---



##### Table of Contents



2. STOCK-BASED COMPENSATION
  Weighted-Range of
    
    
    AverageStock Options
    
    
    Exercise
    
    
    Exerciseand SARS
    
    
    Prices
    
    
    Prices(In thousands)Outstanding at December 31, 2008
    
    
    3,146
    
    
    $
    2.99  12.00
    
    
    $
    5.93Granted
    
    
    899
    
    
    
    5.73    6.61
    
    
    
    6.17Exercised
    
    
    (257
    )
    
    
    2.99    4.49
    
    
    
    3.39Forfeited or cancelled
    
    
    (144
    )
    
    
    3.63  12.00
    
    
    
    9.19Outstanding at September 30, 2009
    
    
    3,644
    
    
    
    2.99  12.00
    
    
    
    4.27Exercisable at September 30, 2009
    
    
    2,439
    
    
    
    2.99  12.00
    
    
    
    4.27
   Nine Months Ended September 30,2008
    
    2009Weighted-average expected term of options (in years, using
the simplified method)
    
    
    4.4
    
    
    
    4.7Expected volatility factor (based on peer group volatility)
    
    
    36
    %
    
    
    40
    %Expected dividend yield
    
    none
    
    noneWeighted average risk-free interest rate (based on
applicable U.S. Treasury rates)
    
    
    3.2
    %
    
    
    1.8
    %
     10




---



##### Table of Contents



3. INVENTORIES, NET
  December 31,
    
    
    September 30,2008
    
    
    2009Raw materials
    
    $
    10,059
    
    
    $
    8,058Work-in-process
    
    
    4,869
    
    
    
    7,374Finished goods
    
    
    2,203
    
    
    
    3,146$
    17,131
    
    
    $
    18,578
 4. PROPERTY AND EQUIPMENT, NET
  December 31,
    
    
    September 30,2008
    
    
    2009Machinery and equipment
    
    $
    32,119
    
    
    $
    35,685Leasehold improvements
    
    
    4,998
    
    
    
    5,200Furniture, fixtures and office equipment
    
    
    4,333
    
    
    
    4,288Computer software
    
    
    2,102
    
    
    
    2,183Equipment not yet placed in service
    
    
    9,340
    
    
    
    15,33452,892
    
    
    
    62,690Less: Accumulated depreciation and amortization
    
    
    (21,344
    )
    
    
    (25,979
    )$
    31,548
    
    
    $
    36,711
    11




---



##### Table of Contents



5. ACCRUED LIABILITIES
  December 31,
    
    
    September 30,2008
    
    
    2009Accrued salaries and benefits
    
    $
    4,758
    
    
    $
    4,877Sales returns reserve
    
    
    4,629
    
    
    
    3,827Accrued customer liabilities
    
    
    7,022
    
    
    
    6,305Managed care rebates
    
    
    2,732
    
    
    
    3,647Other accrued liabilities
    
    
    1,627
    
    
    
    2,432$
    20,768
    
    
    $
    21,088
 6. CREDIT FACILITY AND LONG-TERM DEBT
  7. INCOME TAXES
   8. EARNINGS PER COMMON SHARE
  12




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Weighted average number of common shares outstanding
for basic earnings per share
    
    
    17,610
    
    
    
    16,894
    
    
    
    17,783
    
    
    
    17,031Effect of dilutive securities: Stock options and SARs
    
    
    1,182
    
    
    
    722
    
    
    
    1,119
    
    
    
    738Weighted average number of common and common
equivalent shares outstanding
    
    
    18,792
    
    
    
    17,616
    
    
    
    18,902
    
    
    
    17,769Antidilutive securities not included in the diluted
earnings per share calculations:Stock options and SARs
    
    
    757
    
    
    
    1,940
    
    
    
    919
    
    
    
    2,548
 9. COMMON STOCK REPURCHASE PROGRAM
  10. FAIR VALUE MEASUREMENTS
   11. CONTINGENCIES
 Litigation
  13




---



##### Table of Contents



FDA Matter
  12. SIGNIFICANT CONCENTRATIONS OF BUSINESS AND CREDIT RISK
  14




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Company Overview
     
    
    Retail The retail channel generates the majority of the industrys
sales of blood glucose monitoring products in the United States and
includes chain drug stores, food stores and mass merchandisers. We
sell our products into the retail channel on a direct basis or through
domestic distributors. Our retail net sales include products we sell
directly into the retail channel for the larger food and drug
retailers.
    
    Domestic Distribution The domestic distribution channel includes
sales to domestic wholesalers, including AmerisourceBergen, Cardinal
Health, McKesson and Invacare, who sell products to independent and
chain food and drug retailers, primary and long-term care providers,
durable medical equipment suppliers and mail service providers.
    
    Mail Service The mail service channel includes sales to leading
mail service providers who market their products primarily to Medicare
recipients.
    
    International The international channel consists of sales on a
direct basis in the United Kingdom and Canada and through distributors
in Latin America, Europe, Australia and China.
 15




---



##### Table of Contents



Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2009
    
    2008
    
    2009Domestic:Retail
    
    $
    7,981
    
    
    
    22.4
    %
    
    $
    8,645
    
    
    
    25.0
    %
    
    $
    20,536
    
    
    
    21.8
    %
    
    $
    25,585
    
    
    
    27.9
    %Distribution
    
    
    18,802
    
    
    
    52.9
    
    
    
    15,620
    
    
    
    45.3
    
    
    
    48,010
    
    
    
    51.1
    
    
    
    39,646
    
    
    
    43.2Mail service
    
    
    5,307
    
    
    
    14.9
    
    
    
    6,071
    
    
    
    17.6
    
    
    
    14,897
    
    
    
    15.8
    
    
    
    17,116
    
    
    
    18.6Total Domestic
    
    
    32,090
    
    
    
    90.2
    
    
    
    30,336
    
    
    
    87.9
    
    
    
    83,443
    
    
    
    88.7
    
    
    
    82,347
    
    
    
    89.7International
    
    
    3,475
    
    
    
    9.8
    
    
    
    4,164
    
    
    
    12.1
    
    
    
    10,598
    
    
    
    11.3
    
    
    
    9,408
    
    
    
    10.3Total
    
    $
    35,565
    
    
    
    100.0
    %
    
    $
    34,500
    
    
    
    100.0
    %
    
    $
    94,041
    
    
    
    100.0
    %
    
    $
    91,755
    
    
    
    100.0
    %
     16




---



##### Table of Contents



Results of Operations
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2009
    
    2008
    
    2009Net sales
    
    $
    35,565
    
    
    
    100.0
    %
    
    $
    34,500
    
    
    
    100.0
    %
    
    $
    94,041
    
    
    
    100.0
    %
    
    $
    91,755
    
    
    
    100.0
    %Cost of sales
    
    
    13,936
    
    
    
    39.2
    
    
    
    16,616
    
    
    
    48.2
    
    
    
    37,937
    
    
    
    40.3
    
    
    
    44,973
    
    
    
    49.0Gross profit
    
    
    21,629
    
    
    
    60.8
    
    
    
    17,884
    
    
    
    51.8
    
    
    
    56,104
    
    
    
    59.7
    
    
    
    46,782
    
    
    
    51.0Operating expenses:Selling, general and administrative
    
    
    13,400
    
    
    
    37.7
    
    
    
    11,594
    
    
    
    33.6
    
    
    
    38,969
    
    
    
    41.4
    
    
    
    36,277
    
    
    
    39.6Research and development
    
    
    2,035
    
    
    
    5.7
    
    
    
    2,051
    
    
    
    5.9
    
    
    
    6,819
    
    
    
    7.3
    
    
    
    5,905
    
    
    
    6.4Total operating expenses
    
    
    15,435
    
    
    
    43.4
    
    
    
    13,645
    
    
    
    39.5
    
    
    
    45,788
    
    
    
    48.7
    
    
    
    42,182
    
    
    
    46.0Income from operations
    
    
    6,194
    
    
    
    17.4
    
    
    
    4,239
    
    
    
    12.3
    
    
    
    10,316
    
    
    
    11.0
    
    
    
    4,600
    
    
    
    5.0Other income (expense):Interest income (expense), net
    
    
    231
    
    
    
    .7
    
    
    
    10
    
    
    
    
    
    
    
    773
    
    
    
    .8
    
    
    
    75
    
    
    
    .1Other income (expense), net
    
    
    (82
    )
    
    
    (.2
    )
    
    
    (31
    )
    
    
    (.1
    )
    
    
    (503
    )
    
    
    (.6
    )
    
    
    107
    
    
    
    .1Total other income (expense)
    
    
    149
    
    
    
    .5
    
    
    
    (21
    )
    
    
    (.1
    )
    
    
    270
    
    
    
    .2
    
    
    
    182
    
    
    
    .2Income before income taxes
    
    
    6,343
    
    
    
    17.9
    
    
    
    4,218
    
    
    
    12.2
    
    
    
    10,586
    
    
    
    11.2
    
    
    
    4,782
    
    
    
    5.2Provision for income taxes
    
    
    1,808
    
    
    
    5.1
    
    
    
    1,302
    
    
    
    3.8
    
    
    
    2,646
    
    
    
    2.8
    
    
    
    1,669
    
    
    
    1.8Net income
    
    $
    4,535
    
    
    
    12.8
    %
    
    $
    2,916
    
    
    
    8.4
    %
    
    $
    7,940
    
    
    
    8.4
    %
    
    $
    3,113
    
    
    
    3.4
    %
 Three Months Ended September 30, 2008 as Compared to Three Months Ended September 30, 2009
    17




---



##### Table of Contents



Nine Months Ended September 30, 2008 as Compared to Nine Months Ended September 30, 2009
   18




---



##### Table of Contents



Liquidity and Capital Resources
   19




---



##### Table of Contents



Recent Accounting Pronouncements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   20




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  21




---



##### Table of Contents



Part II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Litigation
  
 Item 1A. Risk Factors
  The United States Food and Drug Administration has expressed concern over the use of blood glucose
monitoring systems that use test strips with the GDH-PQQ enzyme. Failure to resolve FDAs concerns
could materially harm our business.
  Competitive bidding for durable medical equipment suppliers could negatively affect our business.
   22




---



##### Table of Contents



Failure to secure or retain third-party coverage or reduced reimbursement for our products by
third-party payors could adversely affect our business and operating results.
     
 ITEM 6. EXHIBITS
 See Exhibit Index.
 23




---



##### Table of Contents



SIGNATURES
  HOME DIAGNOSTICS, INC.Date: November 6, 2009
    By:
    /s/ JOSEPH H. CAPPERName:
    Joseph H. CapperTitle:
    President and Chief Executive Officer
(principal executive officer) Date: November 6, 2009
    By:
    /s/ RONALD L. RUBINName:
    Ronald L. RubinTitle:
    Senior Vice President and Chief Financial Officer
(principal financial and accounting officer) 24




---



##### Table of Contents



Exhibit Index
 ExhibitNumber
    
    Description31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934.31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934.32.1
    
    
    Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350.32.2
    
    
    Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.
 25