<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
__________________
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 0-23125
____________________________________
OSI SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
California 33-0238801
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
12525 Chadron Avenue
Hawthorne, California 90250
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 978-0516
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 as the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
YES X N0
-- --
As of May 10, 2000 there were 9,342,998 shares of common stock outstanding.
<PAGE>
OSI SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NUMBER
<S> <C>
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 2000 3
and June 30, 1999 (Unaudited)
Consolidated Statements of Operations for the three and nine months 4
ended March 31, 2000 and March 31, 1999 (Unaudited)
Consolidated Statements of Cash Flows for the nine months 5
ended March 31, 2000 and March 31, 1999 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2 - Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 15
</TABLE>
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
------- -------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,741 $ 7,241
Marketable securities available for sale 1,708
Accounts receivable, net of allowance for doubtful accounts of $1,103 and $860
at March 31, 2000 and June 30, 1999, respectively 35,525 29,330
Other receivables 1,983 1,862
Inventory 28,473 24,481
Prepaid expenses 1,451 1,018
Deferred income taxes 1,177 1,108
Income taxes receivable 1,797 1,853
-------- -------
Total current assets 77,147 68,601
Property and Equipment, Net 14,626 14,486
Intangible and Other Assets, Net 10,035 8,581
Deferred income taxes 1,703 1,703
-------- -------
Total $103,511 $93,371
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank lines of credit $ 4,094 8,678
Current portion of long-term debt 2,768 292
Accounts payable 13,108 9,145
Accrued payroll and related expenses 2,601 2,399
Income taxes payable 1,607 717
Advances from customers 827 996
Accrued warranties 1,872 1,984
Other accrued expenses and current liabilities 4,028 2,922
-------- -------
Total current liabilities 30,905 27,133
Long-Term Debt 8,347 117
Deferred Income Taxes 311 339
Minority interest 307
-------- -------
Total liabilities 39,870 27,589
Shareholders' Equity
Preferred stock, no par value; authorized, 10,000,000 shares; none issued and
outstanding at March 31, 2000 and June 30, 1999, respectively
Common stock, no par value; authorized, 40,000,000 shares; issued and outstanding
9,831,998 and 9,732,415 shares at March 31, 2000 and June 30, 1999, respectively 49,572 49,230
Treasury stock, at cost (2,258) (438)
Retained earnings 17,775 18,160
Accumulated other comprehensive loss (1,448) (1,170)
-------- -------
Total shareholders' equity 63,641 65,782
-------- -------
Total $103,511 $93,371
======== =======
</TABLE>
See accompanying notes to consolidated financial statements
-3-
<PAGE>
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three months ended March 31, Nine months ended March 31,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 31,776 $ 24,606 $ 83,238 $ 70,857
Cost of goods sold 23,427 17,099 60,627 49,511
---------- ---------- ---------- ----------
Gross profit 8,349 7,507 22,611 21,346
Operating expenses:
Selling, general and administrative 4,928 5,104 15,166 11,853
Research and development 2,091 1,537 5,600 4,120
Goodwill amortization 134 203 398 391
Restrcuturing costs 458 1,898 458
In process research and development 2,579
---------- ---------- ---------- ----------
Total operating expenses 7,153 7,302 23,062 19,401
---------- ---------- ---------- ----------
Income (loss) from operations 1,196 205 (451) 1,945
Interest expense (income), net 201 125 500 (125)
Gain on sale of marketable securities (309)
---------- ---------- ---------- ----------
Income (loss) before provision for income taxes
and minority interest 995 80 (642) 2,070
Provision (benefit) for income taxes 284 (300) (29) 633
---------- ---------- ---------- ----------
Income (loss) before minority interest in net
loss of subsidiary 711 380 (613) 1,437
Minority interest in net loss of subsidiary 130 228
---------- ---------- ---------- ----------
Net income (loss) $ 841 $ 380 ($385) $ 1,437
========== ========== ========== ==========
Earnings (loss) per common share $0.09 $0.04 ($0.04) $0.15
========== ========== ========== ==========
Earnings (loss) per common share,assuming
dilution $0.09 $0.04 ($0.04) $0.15
========== ========== ========== ==========
Weighted average shares outstanding, assuming
dilution 9,614,631 9,844,207 9,384,155 9,850,376
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
-4-
<PAGE>
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine months ended March 31,
----------------------------------
2000 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (385) $ 1,437
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Provision for losses on accounts receivable 73
Depreciation and amortization 3,110 2,533
Charge for in-process research and development 2,579
Loss on sale of property and equipment 15
Deferred income taxes (17)
Gain on sale of marketable securities available for sale (309)
Changes in operating assets and liabilities:
Accounts receivable (6,862) (73)
Other receivables 174 (764)
Inventory (4,688) (2,413)
Prepaid expenses (467) (713)
Accounts payable 4,152 (205)
Accrued payroll and related expenses 327 (1,023)
Income taxes payable 926 (1,042)
Increase in prepaid income taxes receivable 125
Advances from customers (166) (401)
Accrued warranty (108) (375)
Other accrued expenses and current liabilities 1,019 (50)
---------- ---------
Net cash used in operating activities (3,154) (437)
---------- ---------
Cash flows from investing activities:
Additions to property and equipment (2,350) (3,676)
Proceeds from sale of property and equipment 6
Proceeds from sale of (addition to) marketable securities available for sale 2,505 (2,193)
Decrease in equity investments 93
Cash paid for business acquisitions, net of cash acquired (1,325) (17,397)
Other assets (28) (513)
---------- ---------
Net cash used in investing activities (1,099) (23,779)
---------- ---------
Cash flows from financing activities:
Increase in minority interest (228)
Net (payment to) proceeds from bank of lines of credit (4,567) 8,661
Net proceeds (payments) on long-term debt 10,015 (660)
Proceeds from exercise of stock options and warrants 342 78
Treasury stock (1,820)
---------- ---------
Net cash provided by financing activities 3,742 8,079
---------- ---------
Effect of exchange rate changes on cash 11 305
---------- ---------
Net decrease in cash and cash equivalents (500) (15,832)
Cash and cash equivalents, beginning of period 7,241 22,447
---------- ---------
Cash and cash equivalents, end of period $ 6,741 $ 6,615
========== =========
Supplemental disclosures of cash flow information -
Cash paid/(received) during the period for:
Interest $ 467 $ (90)
Income taxes $ (943) $ 1,674
</TABLE>
See accompanying notes to consolidated financial statements
-5-
<PAGE>
OSI SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General. OSI Systems, Inc. and its subsidiaries (collectively, the "Company") is
a vertically integrated worldwide provider of devices, subsystems and end-
products based on optoelectronic and silicon pressure-sensor micro-structure
technology. The Company designs and manufactures optoelectronic and silicon
pressure-sensor devices and value-added subsystems for original equipment
manufacturers in a broad range of applications, including security, medical
diagnostics, telecommunications gigabit ethernet and fibre channel systems,
gaming, office automation, aerospace, computer peripherals and industrial
automation. In addition, the Company utilizes its optoelectronic technology and
design capabilities to manufacture security and inspection products that it
markets worldwide to end users under the "Rapiscan", "Secure" and "Metor" brand
names. These products are used to inspect people, baggage, cargo and other
objects for weapons, explosives, drugs and other contraband. The Company also
manufactures and sells bone densitometers, which are used to provide bone loss
measurements in the treatment and diagnosis of osteoporosis.
Consolidation. The consolidated financial statements include the accounts of OSI
Systems, Inc. and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
consolidated balance sheet as of March 31, 2000, the consolidated statements of
operations for the three-month and nine-month periods ended March 31, 2000 and
1999 and the consolidated statements of cash flows for the nine month periods
ended March 31, 2000 and 1999 have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "Commission"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, in the opinion of management all adjustments, consisting
of only normal and recurring adjustments, necessary for a fair presentation of
the financial position and the results of operations for the periods presented
have been included. These consolidated financial statements and the accompanying
notes should be read in conjunction with the audited consolidated financial
statements and accompanying notes for the fiscal year ended June 30, 1999
included in the Company's Annual Report on Form 10K as filed with the Commission
on September 28, 1999. The results of operations for the nine months ended March
31, 2000 are not necessarily indicative of the results to be expected for the
fiscal year ending June 30, 2000.
-6-
<PAGE>
Recent Developments. Pursuant to an agreement entered into as of October 4,
1999, (the "TFT Agreement") the Company acquired an additional equity interest,
representing approximately 15.3% of the stock ownership of TFT Medical, Inc.
("TFT") for $1.2 million, including professional fees associated with the
acquisition. With this additional equity investment, the Company has increased
its equity share in TFT to approximately 55.6% and changed the accounting from
the equity method to the purchase method of accounting. The excess of the
purchase price over the fair value of the net assets acquired is being amortized
over a period of twenty years.
On April 12, 2000, also pursuant to the TFT Agreement and in connection with
certain amounts loaned or to be loaned by the Company to TFT thereunder, the
Company also acquired five-year warrants (subject to earlier termination upon
the occurrence of certain events) to acquire up to 1,110,000 additional TFT
shares at a purchase price of $1.35 per share. The warrants are first
exercisable commencing on April 12, 2001; and, if fully exercised, would result
in the Company's share in TFT being increased to approximately 62.9%.
In July 1999, the Company paid 4.4 million Finnish markka (approximately
$767,000 on July 31, 1999), in lieu of a contingent payment, based on future
sales of up to $1.5 million for the acquisition of Metorex Security. The payment
was recorded as goodwill.
Foreign Exchange Investments. The Company's use of derivatives is limited to the
purchase of foreign exchange contracts in order to minimize foreign exchange
transaction gains and losses. The Company purchases forward contracts to hedge
commitments to acquire inventory for sale and does not use the contracts for
trading purposes. Realized gains and losses on these contracts are recognized in
the same period as the hedged transactions. The forward exchange contracts
related to inventory purchases are recognized as adjustments to the basis of the
underlying assets. As of March 31, 2000 and June 30, 1999, there was
approximately $1.7 million and $200,000, respectively, in outstanding foreign
exchange contracts. At March 31, 2000 and June 30, 1999, there were no carrying
amounts related to foreign currency contracts on the consolidated balance
sheets. The fair values of foreign exchange contracts are estimated by obtaining
quotes from brokers. At March 31, 2000 and June 30, 1999, the carrying amount
and fair value of these contracts were not material to the consolidated
financial statements.
Inventory. Inventory is stated at the lower of cost or market; cost is
determined on the first-in, first-out method. Inventory at March 31, 2000 and
June 30, 1999 consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
<S> <C> <C>
Raw Materials............................. $15,574 $11,963
Work-in-process........................... 6,962 8,000
Finished goods............................ 5,937 4,518
------- -------
Total............................... $28,473 $24,481
======= =======
</TABLE>
-7-
<PAGE>
Earnings Per Share. Earnings per common share is computed using the weighted
average number of shares outstanding during the period. Earnings per common
share-assuming dilution, is computed using the weighted average number of shares
outstanding during the period and dilutive common stock equivalents from the
Company's stock option plans.
The following table reconciles the numerator and denominator used in calculating
earnings per common share and earnings per common share-assuming dilution.
<TABLE>
<CAPTION>
For the quarter ended March 31,
---------------------------------------------------------------------------------------------
2000 1999
------------------------------------------- -------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Earnings per common share
Income available to common
stockholders $841,000 9,310,074 $0.09 $380,000 9,718,125 $0.04
===== =====
Effect of Dilutive Securities
Options, treasury stock method 304,557 126,082
------------------------ ----------------------------
Earnings per common share assuming
dilution
Income available to common
stockholder, assuming dilution $841,000 9,614,631 $0.09 $380,000 $9,844,207 $0.04
==========================================================================================
<CAPTION>
For the nine months ended March 31,
---------------------------------------------------------------------------------------------
2000 1999
------------------------------------------- -------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Earnings per common share
Income available to common
stockholders ($385,000) 9,384,155 ($0.04) $1,437,000 9,707,943 $0.15
====== =====
Effect of Dilutive Securities
Options, treasury stock method 142,433
------------------------ ----------------------------
Earnings per common share assuming
dilution
Income available to common
stockholder, assuming dilution ($385,000) 9,384,155 ($0.04) $1,437,000 9,850,376 $0.15
==========================================================================================
</TABLE>
Comprehensive Income - In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 130 "Reporting for
Comprehensive Income" (SFAS No. 130), which the Company adopted in the first
quarter of fiscal 1999. SFAS No.130 establishes standards for reporting and
displaying comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income is computed as follows (in
thousands):
<TABLE>
<CAPTION>
For the quarter For the nine months
ended March 31, ended March 31,
2000 1999 2000 1999
---------------- -----------------
<S> <C> <C> <C> <C>
Net income $ 841 $ 380 ($385) $1,437
---------------- -----------------
Other comprehensive income, net of taxes:
Foreign currency translation adjustments (827) (166) (764) 247
Unrealized gains on marketable securities
available for sale (196) 486 (196)
---------------- -----------------
Other comprehensive income (827) (362) (278) 51
---------------- -----------------
Comprehensive income $ 14 $ 18 ($663) $1,488
================ =================
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Segment Information. The company's operating locations include North America
(United States and Canada), Europe (United Kingdom, Denmark, Finland and Norway)
and Asia (Singapore and Malaysia). The company's operations by geographical
areas are as follows (in thousands):
Three months ended March, 2000
-----------------------------------------------------------------------------------------
North
America Europe Asia Eliminations Consolidated
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $16,224 $12,934 $ 2,618 $31,776
Transfer between geographical areas $ 1,600 $ 1,511 $ 5,972 $ (9,083)
-----------------------------------------------------------------------------------------
Net revenues $17,824 $14,445 $ 8,590 $ (9,083) $31,776
=========================================================================================
Operating income (loss) $ (381) $ (513) $ 2,158 $ (68) $ 1,196
=========================================================================================
Nine months ended March, 2000
-----------------------------------------------------------------------------------------
North
America Europe Asia Eliminations Consolidated
-----------------------------------------------------------------------------------------
Revenues $46,506 $30,167 $ 6,565 $83,238
Transfer between geographical areas $ 5,803 $ 3,680 $16,618 $(26,101)
-----------------------------------------------------------------------------------------
Net revenues $52,309 $33,847 $23,183 $(26,101) $83,238
=========================================================================================
Operating income (loss) $(2,523) $(1,944) $ 4,866 $ (850) $ (451)
=========================================================================================
Three months ended March, 1999
-----------------------------------------------------------------------------------------
North
America Europe Asia Eliminations Consolidated
-----------------------------------------------------------------------------------------
Revenues $14,655 $ 8,787 $ 1,164 $24,606
Transfer between geographical areas $ 3,888 $ 438 $ 3,342 $ (7,668)
-----------------------------------------------------------------------------------------
Net revenues $18,543 $ 9,225 $ 4,506 $ (7,668) $24,606
=========================================================================================
Operating income (loss) $ 352 $ (153) $ 882 $ (876) $ 205
=========================================================================================
Nine months ended March, 1999
-----------------------------------------------------------------------------------------
North
America Europe Asia Eliminations Consolidated
-----------------------------------------------------------------------------------------
Revenues $44,051 $23,153 $ 3,653 $70,857
Transfer between geographical areas $ 6,279 $ 1,980 $ 8,953 $(17,212)
-----------------------------------------------------------------------------------------
Net revenues $50,330 $25,133 $12,606 $(17,212) $70,857
=========================================================================================
Operating income (loss) $ 2,835 $(2,585) $ 2,682 $ (987) $ 1,945
=========================================================================================
</TABLE>
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Statements in this report that are forward-looking are based on current
expectations, and actual results may differ materially. Forward-looking
statements involve numerous risks and uncertainties that could cause actual
results to differ materially, including, but not limited to, the possibilities
that the demand for the Company's products may decline as a result of possible
changes in general and industry specific economic conditions and the effects of
competitive pricing and such other risks and uncertainties as are described in
this report on Form 10-Q and other documents previously filed or hereafter filed
by the Company from time to time with the Securities and Exchange Commission.
Results of Operations
Revenues. Revenues consist of sales of optoelectronic and pressure sensor
devices, medical imaging systems and security and inspection products. Revenues
are recorded net of all inter-company transactions. Revenues increased by 29.1%
to $31.8 million for the three months ended March 31, 2000, compared to $24.6
million for the comparable prior year period. For the nine months ended March
31, 2000, revenues increased by 17.5% to $83.2 million from $70.6 million in the
comparable prior year period. Revenues for the three months ended March 31, 2000
from optoelectronic devices, subsystems and medical imaging systems were $17.9
million, or approximately 56.4% of the Company's revenues, and revenues from
security and inspection products were $13.9 million, or approximately 43.6% of
the Company's revenues. Revenues for the nine months ended March 31, 2000 from
optoelectronic devices, subsystems and medical imaging systems were $46.7
million, or approximately 56.1% of the Company's revenues, and revenues from
security and inspection products were $36.5 million, or approximately 43.9% of
the Company's revenues. The increase in revenues from sales of optoelectronic
devices, subsystems and medical imaging systems for the quarter and nine months
ended March 31, 2000 was primarily due to increased sales of silicon pressure
sensors through the recent acquisition of Silicon Microstructures, Inc ("SMI")
and sales through the introduction of new product for the data/video projection
market and was partially offset by a decrease in sales to the oil exploration
industry. The increase in revenues from the sales of security and inspection
products for the quarter and nine months ended March 31, 2000 was primarily due
to increased sales of people scanners and increased international sales of X-ray
machines. In addition, the increase in sales of security and inspection products
for the nine months ended March 31, 2000, was due to sales of walk-through metal
detection systems through the recent acquisition of the security product
business of Metorex International Oy ("Metorex Security").
Gross Profit. Cost of goods sold consists of material, labor and manufacturing
overhead. Gross profit increased by 11.2% to $8.3 million for the three months
ended March 31, 2000, compared to $7.5 million for the comparable prior year
period. For the nine months ended March 31, 2000, gross profit increased by 5.9%
to $22.6 million, compared to
-10-
<PAGE>
$21.3 million for the comparable prior year period. As a percentage of revenues,
gross profit decreased in the quarter and nine months to 26.3% and 27.2% this
year, from 30.5% and 30.1% last year, respectively. The decrease in gross profit
was due to product mix, manufacturing inefficiencies due to acquisitions and
introduction of a new product line for the sale of data/video projectors, which
has a lower gross margin notwithstanding insignificant selling, general and
administrative expenses and research and development expenses associated with
it.
Selling, General and Administrative. Selling, general and administrative
expenses consisted primarily of compensation paid to sales, marketing and
administrative personnel, and professional service fees and marketing expenses.
For the three months ended March 31, 2000, such expenses decreased 3.4% to $4.9
million, compared to $5.1 million for the comparable prior year period. For the
nine months ended March 31, 2000, such expenses increased by 28.0% to $15.2
million, compared to $11.9 million for the comparable prior year period. As a
percentage of revenues, selling, general and administrative expenses decreased
in the quarter to 15.5% this year, from 20.7% last year and increased in the
nine months to 18.2% this year, from 16.7% last year. The decrease in expenses
for the three months ended March 31, 2000 was due to the closure of the
Company's Denmark facility and proceeds from the settlement of certain
litigation and was offset in part by increased administrative expenses and
increased marketing expenses for the sales of medical products. The increase in
expenses for the nine months ended March 31, 2000 was due to the increase in
provision for doubtful receivables, increased administrative expenses, increased
marketing expenses for the sales of medical products and inclusion of entire
nine months selling, general and administrative expenses of recent acquisitions.
Selling, general and administrative expenses for the nine months ended March 31,
1999 was offset in part by pay cuts taken by senior management.
Research and Development. Research and development expenses include research
related to new product development and product enhancement expenditures. For the
three months ended March 31, 2000, such expenses increased 36.0% to $2.1
million, compared to $1.5 million for the comparable prior year period. For the
nine months ended March 31, 2000, such expenses increased 35.9% to $5.6 million,
compared to $4.1 million for the comparable prior year period. As a percentage
of revenues, research and development expenses increased in the three month and
six month periods to 6.6% and 6.7% this year from 6.2% and 5.8% last year,
respectively. The increase in expenses for the quarter and nine months was due
primarily to the increase in personnel costs resulting from the Company's
recently acquired subsidiaries, and continued enhancement of Rapiscan x-ray
systems. For the three and nine months ended March 31, 2000, the Company's
majority owned subsidiary, TFT, incurred $201,000 and $373,000, respectively,
for the development of medical products and had no revenues in either period. In
addition, the entire nine month's research and development costs of acquired
companies were included in the nine months ended March 31, 2000.
-11-
<PAGE>
Goodwill Amortization. Amortization of goodwill decreased to $134,000 for the
three months ended March 31, 2000 from $203,000 for the three months ended March
31, 1999. Amortization of goodwill increased to $398,000 in the nine months
ended March 31, 2000 from $391,000 in the nine months ended March 31, 1999. The
decrease in amortization of goodwill in the three months ended March 31, 2000
was the net result of a one time write-off of goodwill due to the closure of the
Company's Denmark facility and partially offset by the inclusion of goodwill
associated with the acquisition of TFT and an additional payment associated with
the acquisition of Metorex Security. The increase in amortization of goodwill
for the nine month's ended March 31, 2000 was due to amortization of goodwill
associated with the Company's recently acquired subsidiaries.
Restructuring Costs. In August 1999, the Company decided to close the
operations of Osteometer in Denmark, and relocate certain of these operations to
the Company's U.S. facilities. In the quarter ended September 30, 1999, the
Company recorded estimated restructuring costs of $1.9 million related to the
closure of the Osteometer facility in Denmark. These costs were associated
primarily with the termination of certain employees, commitments and other
facility closure costs. During the quarter ended March 31, 2000, the Company
completed the closure of the Osteometer facility in Denmark. Of that amount,
$1.8 million was paid during the nine months ended March 31, 2000 and $63,000
was included in the other accrued expenses and current liabilities at March 31,
2000. Based on current estimates, the Company anticipates that the current
restructuring accruals are sufficient. During the quarter ended March 31, 1999,
the Company incurred non-recurring restructuring costs of $458,000 to
consolidate certain subsidiaries.
Income (Loss) from Operations. For the three months ended March 31, 2000, the
Company had income from operations of $1.2 million compared to $205,000 for the
three months ended March 31, 1999. Loss from operations for the nine months
ended March 31, 2000 was $451,000, compared to income from operations of $1.9
million for the comparable prior year period. Excluding the non-recurring
restructuring costs of $1.9 million in the quarter ended September 30, 1999 and
$458,000 in the quarter ended March 31, 1999 and a non-recurring in-process
research and development charge of $2.6 million in the quarter ended December
31, 1998, income from operations for three months ended March 31, 2000
increased to $1.2 million compared to $663,000 for the comparable prior year
period and for the nine months ended March 31, 2000 decreased to $1.4 million
compared to $5.0 million for the comparable prior year period. As a percentage
of revenues, income from operations for the three months increased in the three
months to 3.8% this year, from 2.7% last year and for the nine months decreased
to 1.7% this year, from 7.0% last year. Income from operations for the quarter
increased due to increased sales and decreased selling, general and
administrative expenses and was offset in part by product mix and increased
research and development expenses. Income from operations for the nine months
decreased due to product mix, increased selling, general and administrative
expenses and increased research and development expenses and was offset in part
by increased sales.
-12-
<PAGE>
Interest Expense (Income). For the three months ended March 31, 2000, the
Company incurred net interest expense of $201,000, compared to $125,000 for the
three months ended March 31, 1999. For the nine months ended March 31, 2000, the
Company incurred net interest expense of $500,000, compared to net interest
income of $125,000 for the nine months ended March 31, 1999. The net interest
expense for the three and nine months ended March 31, 2000 was due to increased
borrowing on the Company's lines of credit and a reduction in short term
investments used for working capital and acquisitions.
Gain on Marketable Securities. Gain on marketable securities for the nine
months ended March 31, 2000, consisted of realized gain on the sale of
marketable securities available for sale.
Provision (Benefit) for Income Taxes. For the three months ended March 31,
2000, the Company had a provision for income taxes of $284,000 compared to an
income tax benefit of $300,000 for the three months ended March 31, 1999. For
the nine months ended March 31, 2000, the Company had an income tax benefit of
$29,000 compared to a provision for income taxes of $633,000 for the nine months
ended March 31, 1999. Excluding a majority owned subsidiary loss of $294,000 and
$514,000 for the three and nine months ended March 31, 2000, respectively, as a
percentage of income before provision for income taxes, provision for income
taxes was 22.0% for the three months ended March 31, 2000 as a percentage of
loss before benefit for income taxes, and the benefit for income taxes was 22.7%
for the nine months ended March 31, 2000. Excluding the non-recurring,
restructuring costs and in-process research and development charges, as a
percentage of income before provision of income taxes, provision for income
taxes was 12.4% and 26.6% for the three and nine months ended March 31, 1999,
respectively. The change in the Company's effective tax rate was due to a mix in
income from U.S. and foreign operations.
Net Income (Loss). For the reasons outlined above, the Company had a net income
of $841,000 and net loss of $385,000 for the three and nine months ended March
31, 2000, compared to a net income of $380,000 and $1.4 million for the three
and nine months ended March 31, 1999, respectively. The nine months ended March
31, 2000 included non-recurring restructuring costs of $1.9 million ($1.5
million net of income taxes), the three and nine months ended March 31, 1999
included non-recurring restructuring costs of $458,000 ($391,000 net of taxes)
and the nine months ended March 31, 1999 included a non-recurring in process
research and development charges of $2.6 million.
Liquidity and Capital Resources
The Company's operations used net cash of $3.2 million during the nine months
ended March 31, 2000. The amount of net cash used by operations reflects
increases in accounts receivable, inventory, prepaid expenses, and reductions in
advances from customers and accrued warranty. Net cash used in operations was
offset in part by an increase in accounts payable, accrued payroll and related
expenses, income taxes payable, and other
-13-
<PAGE>
accrued expenses and current liabilities. The increase in accounts receivable is
mainly due to the increased sales, timing of shipments of certain large
contracts and increase in inventory is due to increase in shipments and product
mix.
Net cash used in investing activities was $1.1 million and $23.8 million for the
nine months ended March 31, 2000 and 1999, respectively. In the nine month
period ended March 31, 2000, net cash used in investing activities reflects
primarily cash used in business acquisitions and the purchase of property and
equipment and was offset in part by the sale of marketable securities. In the
nine months ended March 31, 1999, the net cash used in investing activities
reflects primarily cash used in business acquisitions, the purchase of property
and equipment and purchase of marketable securities.
Net cash provided by financing activities was $3.7 million and $8.1 million for
the nine months ended March 31, 2000 and 1999, respectively. During the nine
months ended March 31, 2000, net cash provided by financing activities resulted
primarily from borrowings under the Company's term loan and working capital
lines of credit and was offset in part by the purchase of treasury stock.
In October 1999, the Company borrowed $3.0 million from its term loan facility
with Sanwa Bank. The term loan amortizes over seven years and is payable monthly
over five years. The balance is due in one balloon payment after five years. In
November 1999, the Company converted $8.5 million of borrowings from its
acquisition line of credit to a term loan, for a period of 48 months. For the
nine months ended March 31, 1999, net cash provided by financing activities
resulted primarily from the Company's acquisition and working capital lines of
credit.
The March 1999, the Company announced a stock repurchase program of up to
2,000,000 shares of its common stock. Through May 10, 2000, the Company
repurchased 490,500 shares at an average price $4.60 per share. The stock
repurchase program did not have a material effect on the Company's liquidity and
is not expected to have a material effect on liquidity in subsequent quarters.
The Company anticipates that current cash balances, anticipated cash flows from
operations and current borrowing arrangements will be sufficient to meet its
working capital and capital expenditure needs for the foreseeable future.
Foreign Currency Translation. The accounts of the Company's operations in
Singapore, Malaysia, England, Norway, Denmark, Finland and Canada are maintained
in Singapore dollars, Malaysian ringgits, U.K. pounds sterling, Norwegian
kroner, Danish kroner, Finnish markka and Canadian dollars, respectively.
Foreign currency financial statements are translated into U.S. dollars at
current rates, with the exception of revenues, costs and expenses, which are
translated at average rates during the reporting period. Gains and losses
resulting from foreign currency transactions are included in income, while those
resulting from translation of financial statements are excluded from income and
-14-
<PAGE>
accumulated as a component of accumulated other comprehensive income. Net
transaction loss of approximately $131,000 and $464,000 were included in income
for the nine months ended March 31, 2000 and 1999, respectively.
Inflation. The Company does not believe that inflation has had a material impact
on its results of operations for the nine months ended March 31, 2000.
Year 2000 Compliance
The Company experienced no material business operation interruptions due to
computer or related system failures during the roll-over period from the year
1999 to the year 2000. The Company has to date experienced no material delay in
payments, receipt of materials or interruption of services due to Year 2000
difficulties experienced by its customers, trading partners and vendors.
Item 6. Exhibits and Reports of Form 8-K
a. Exhibits
27. Financial Data Schedule
b. Reports on Form 8-K
None
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, in the City of Hawthorne, State of
California on the 12th day of May 2000.
OSI Systems, Inc.
-----------------
By: /s/ Deepak Chopra
----------------------------
Deepak Chopra
President and
Chief Executive Officer
By: /s/ Ajay Mehra
----------------------------
Ajay Mehra
Vice President and
Chief Financial Officer
-15-
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<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
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