<PAGE> 1
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
-----------------------
Date of Report: July 23, 1999
PLEXUS CORP.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 000-14824 39-1344447
--------- --------- ----------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number Identification No.)
55 Jewelers Park Drive, Neenah, Wisconsin 54957-0156
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(920) 722-3451
--------------
<PAGE> 2
Item 2. Acquisition or Disposition of Assets
On July 23, 1999, Plexus Corp. completed its previously announced
acquisition of SeaMED Corporation pursuant to an Agreement and Plan of Merger
dated as of March 16, 1999. Under the merger agreement, SeaMED was merged with a
wholly-owned subsidiary of Plexus and became a wholly-owned subsidiary of
Plexus. In the merger, Plexus issued an aggregate of approximately 2,265,822
shares of Plexus common stock, which reflects a 0.4-for-1 share exchange rate
ratio determined under the merger agreement. (The precise number of shares is
subject to small adjustments due to fractional share interests.) Plexus also
assumed options for the purchase of SeaMED shares, which were converted at the
same exchange rate into options to purchase approximately 171,804 shares of
Plexus common stock.
The merger agreement was negotiated at arm's length between the
respective officers of Plexus and SeaMED. None of such officers were affiliated
with the other party, its affiliates, its directors and officers and their
associates. Both parties were also assisted in the negotiations by their
investment advisors and counsel, neither of which is affiliated with the other
party.
Plexus is accounting for the SeaMED merger using the pooling of
interests method of accounting, and Plexus' prior period financial statements
will be restated.
SeaMED designs and manufactures advanced durable electronic medical
instruments for both established and emerging medical technology companies. With
its combination of engineering, manufacturing and regulatory expertise, SeaMED
provides integrated solutions to the challenges of developing and
commercializing advanced medical instruments. From time to time SeaMED
selectively designs and manufactures non-medical commercial products that
benefit from SeaMED's engineering and manufacturing capabilities.
-2-
<PAGE> 3
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
See "Index to Financial Statements--SeaMED Corporation" on the
following page and the SeaMED financial statements at pages F-1 through F-21 of
the proxy statement/prospectus dated June 10, 1999, forming part of the
Registration Statement on Form S-4 (No. 333-80287) of Plexus (the "Prospectus")
which are incorporated herein by reference.
(b) Pro Forma Financial Information
See "Index to Financial Statements--Plexus Corp." on the
following page, and the Plexus unaudited pro forma condensed combined financial
statements at pages 76 through 81 of the Prospectus, which are incorporated
herein by reference.
Because of the differing fiscal year ends of Plexus and
SeaMED, Plexus is in the process of confirming how fiscal 1999 quarterly periods
will be combined when it restates its financial statements to reflect the SeaMED
acquisition. In the event that the quarterly periods will be combined in a
different manner than is reflected in the incorporated pro forma financial
statements, Plexus will amend this report within 60 days to include supplemental
interim period fiscal 1999 pro forma statements of income. Plexus does
not believe that this review will affect the pro forma March 31, 1999 balance
sheet or the pro forma statements of income for full fiscal year periods.
(c) Exhibits
See the Exhibit Index, following the signatures to this
Report, which Exhibit Index is incorporated herein by reference.
-3-
<PAGE> 4
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
in Prospectus
-------------
SEAMED CORPORATION
<S> <C>
Audited Financial Statements:
Report of Independent Auditors........................................ F-1
Balance Sheets at June 30, 1998 and 1997.............................. F-2
Statements of Income for the fiscal years ended
June 30, 1998, 1997 and 1996................................. F-3
Statements of Shareholders' Equity for the fiscal
years ended June 30, 1998, 1997 and 1996..................... F-4
Statements of Cash Flows for the fiscal years ended
June 30, 1998, 1997 and 1996................................. F-5
Notes to Financial Statements......................................... F-6
Unaudited Interim Financial Statements:
Balance Sheets at March 31, 1999 and June 30, 1998.................... F-16
Statements of Income for the quarters and the nine months
ended March 31, 1999 and 1998................................ F-17
Statements of Cash Flows for the nine months ended
March 31, 1999 and 1998...................................... F-18
Notes to Unaudited Interim Financial Statements....................... F-19
PLEXUS CORP.
Unaudited Pro Forma Condensed Combined Financial Information
Unaudited Pro Forma Condensed Combined Balance
Sheet at March 31, 1999...................................... 76
Unaudited Pro Forma Condensed Combined Statements
of Income for the six months ended March 31, 1999
and 1998, and for the fiscal years ended September 30,
1998, 1997, and 1996......................................... 77
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements......................................... 80
</TABLE>
-4-
<PAGE> 5
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 hereunto duly authorized.
Date: August 4, 1999 /s/ John L. Nussbaum
---------------------------
John L. Nussbaum
President and Chief Operating
Officer
S-1
<PAGE> 6
PLEXUS CORP.
EXHIBIT INDEX
to
FORM 8-K CURRENT REPORT
Dated as of July 23, 1999
<TABLE>
<CAPTION>
Incorporate by
Exhibit Reference to/
Number Description Filed Herewith
------ ----------- --------------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as Exhibit 2.1 to Plexus' Report on
of March 16, 1999 by and among Form 10-Q for the quarter ended
Plexus, SeaMED and PS Acquisition Corp. March 31, 1999
23.1 Consent of Ernst & Young LLP Filed Herewith
99.1 Pages 76 to 81, and F-1 to F-21, of the Filed Herewith
Prospectus
</TABLE>
EI-1
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the: (a) Registration Statement
(Form S-8 No 33-23490) pertaining to the Plexus Corp. Employee Stock Savings
Plan, (b) Registration Statement (Form S-8 No. 33-28309), pertaining to the
Plexus Corp. 1988 Stock Option Plan, (c) Registration Statement (Form S-8 No.
33-56932) pertaining to the Plexus Corp. 1988 Stock Option Plan, (d)
Registration Statement (Form S-8 No. 33-89862) pertaining to the Plexus Corp.
1995 Directors Stock Option Plan, (e) Registration Statement (Form S-8 No.
33-89864) pertaining to the Plexus Corp. 1995 Executive Stock Option Plan, (f)
Registration Statement (Form S-8 No. 333-06469) pertaining to the Plexus Corp.
Employee Stock Savings Plan, and (g) Registration Statement (Form S-8 No.
333-76245) pertaining to the Plexus Corp. 1998 Stock Option Plan of our report
dated August 14, 1998 with respect to the financial statements of SeaMED
Corporation included in the Registration Statement on Form S-4 and incorporated
by reference in this Current Report (Form 8-K) of Plexus Corp. dated July 23,
1999.
/s/ Ernst & Young LLP
Seattle, Washington
July 30, 1999
<PAGE> 1
EXHIBIT 99.1
UNAUDITED PRO FORMA CONDENSED
COMBINED PLEXUS FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited pro forma condensed combined balance sheet combines
the historical consolidated balance sheets of Plexus and SeaMED, giving effect
to the merger as if it had been effective on March 31, 1999. This information
should be read together with the historical consolidated financial statements
and notes of Plexus and SeaMED. The pro forma financial data presented below
does not necessarily indicate the actual financial position that would have
occurred if the merger had been completed on March 31, 1999, or that may result
in the future.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PLEXUS SEAMED ADJUSTMENTS COMBINED
------ ------ ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 33,181 $10,709 -- $ 43,890
Accounts receivable............................. 51,393 12,746 -- 64,139
Inventories..................................... 41,700 10,354 $(1,286)(A) 50,768
Other........................................... 9,136 2,264 -- 11,400
-------- ------- ------- --------
Total current assets.............................. 135,410 36,073 (1,286) 170,197
Property, plant and equipment, net................ 23,252 5,649 28,901
Other............................................. 1,173 250 1,423
-------- ------- ------- --------
Total assets...................................... $159,835 $41,972 $(1,286) $200,521
======== ======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............... $ 10 $ 994 $ 1,004
Accounts payable................................ 36,705 1,755 $ 4,000(B) 42,460
Other........................................... 15,099 5,676 (450)(C) 20,325
-------- ------- ------- --------
Total current liabilities......................... 51,814 8,425 3,550 63,789
Long-term debt.................................... 147 3,025 -- 3,172
Other............................................. 1,596 -- -- 1,596
Shareholders' equity:
Common stock and additional paid-in capital..... 27,026 21,289 -- 48,315
Note receivable from officer.................... -- (75) -- (75)
Retained earnings............................... 79,252 9,308 (4,836) 83,724
-------- ------- ------- --------
Total shareholders' equity........................ 106,278 30,522 (4,836) 131,964
-------- ------- ------- --------
Total liabilities and shareholders' equity........ $159,835 $41,972 $(1,286) $200,521
======== ======= ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
76
<PAGE> 2
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
The following unaudited pro forma condensed combined statements of income
combine the historical consolidated statements of income of Plexus and SeaMED
giving effect to the merger, as if it had been effective as of the beginning of
the periods indicated. This information should be read in conjunction with the
historical consolidated financial statements, and notes, of both Plexus and
SeaMED. The pro forma financial data presented below does not necessarily
indicate the actual financial results which would have occurred if the merger
had been completed on the dates indicated, or that may result in the future.
SIX MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
Plexus SEAMED ADJUSTMENTS COMBINED
------ ------ ----------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................................ $205,117 $38,262 $243,379
Cost of sales.................................... 175,623 32,803 $ (385)(A) 208,102
61(D)
-------- ------- ------ --------
Gross profit..................................... 29,494 5,459 324 35,277
Selling and administrative expenses.............. 10,499 2,410 (61)(D) 12,848
-------- ------- ------ --------
Operating income................................. 18,995 3,049 385 22,429
Other, net....................................... 848 10 858
-------- ------- ------ --------
Income before income taxes....................... 19,843 3,059 385 23,287
Income taxes..................................... 7,938 1,040 135(E) 9,113
-------- ------- ------ --------
Net income....................................... $ 11,905 $ 2,019 $ 250 $ 14,174
======== ======= ====== ========
Basic earnings per share......................... $ 0.79 $ 0.37 $ 0.83
Diluted earnings per share....................... $ 0.73 $ 0.36 $ 0.77
Weighted average shares outstanding:
Basic.......................................... 14,984 5,479 (3,287)(F) 17,176
Diluted........................................ 16,200 5,662 (3,397)(F) 18,465
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
77
<PAGE> 3
SIX MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
Plexus SEAMED ADJUSTMENTS COMBINED
------ ------ ----------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................. $193,594 $32,289 $225,883
Cost of sales............................. 171,458 26,787 $ 534(A) 199,261
482(D)
-------- ------- ------- --------
Gross profit.............................. 22,136 5,502 (1,016) 26,622
Selling and administrative expenses....... 9,064 2,750 (482)(D) 11,332
-------- ------- ------- --------
Operating income.......................... 13,072 2,752 (534) 15,290
Other, net................................ 304 56 360
-------- ------- ------- --------
Income before income taxes................ 13,376 2,808 (534) 15,650
Income taxes.............................. 5,293 955 (187)(E) 6,061
-------- ------- ------- --------
Net income................................ $ 8,083 $ 1,853 $ (347) $ 9,589
======== ======= ======= ========
Basic earnings per share.................. $ 0.55 $ 0.35 $ 0.57
Diluted earnings per share................ $ 0.51 $ 0.33 $ 0.53
Weighted average shares outstanding:
Basic................................... 14,769 5,276 (3,166)(F) 16,879
Diluted................................. 15,967 5,626 (3,376)(F) 18,217
</TABLE>
YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
Plexus SEAMED ADJUSTMENTS COMBINED
------ ------ ----------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................. $396,815 $69,981 $466,796
Cost of sales............................. 346,869 58,285 $ 673(A) 406,525
698(D)
-------- ------- ------- --------
Gross profit.............................. 49,946 11,696 (1,371) 60,271
Selling and administrative expenses....... 19,024 5,525 (698)(D) 23,851
-------- ------- ------- --------
Operating income.......................... 30,922 6,171 (673) 36,420
Other, net................................ 762 100 862
-------- ------- ------- --------
Income before income taxes................ 31,684 6,271 (673) 37,282
Income taxes.............................. 12,449 2,132 (235)(E) 14,346
-------- ------- ------- --------
Net income................................ $ 19,235 $ 4,139 $ (438) $ 22,936
======== ======= ======= ========
Basic earnings per share.................. $ 1.31 $ 0.78 $ 1.36
Diluted earnings per share................ $ 1.21 $ 0.73 $ 1.27
Weighted average shares outstanding:
Basic................................... 14,712 5,330 (3,198)(F) 16,844
Diluted................................. 15,841 5,642 (3,385)(F) 18,098
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
78
<PAGE> 4
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
Plexus SEAMED ADJUSTMENTS COMBINED
------ ------ ----------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales......................................... $386,431 $52,134 $438,565
Cost of sales..................................... 342,415 43,132 $ 359(A) 387,047
1,141(D)
-------- ------- ------- --------
Gross profit...................................... 44,016 9,002 (1,500) 51,518
Selling and administrative expenses............... 17,007 4,849 (1,141)(D) 20,715
-------- ------- ------- --------
Operating income.................................. 27,009 4,153 (359) 30,803
Other, net........................................ 71 41 112
-------- ------- ------- --------
Income before income taxes........................ 27,080 4,194 (359) 30,915
Income taxes...................................... 10,680 1,468 (126)(E) 12,022
-------- ------- ------- --------
Net income........................................ $ 16,400 $ 2,726 $ (233) $ 18,893
======== ======= ======= ========
Basic earnings per share.......................... $ 1.16 $ 0.76 $ 1.21
Diluted earnings per share........................ $ 1.05 $ 0.55 $ 1.08
Weighted average shares outstanding:
Basic........................................... 13,988 3,446 (2,068)(F) 15,366
Diluted......................................... 15,578 4,944 (2,966)(F) 17,556
</TABLE>
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
Plexus SEAMED ADJUSTMENTS COMBINED
------ ------ ----------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales......................................... $316,124 $26,130 $342,254
Cost of sales..................................... 288,791 21,093 $ 494(A) 310,960
582(D)
-------- ------- ------- --------
Gross profit...................................... 27,333 5,037 (1,076) 31,294
Selling and administrative expenses............... 13,317 2,937 (582)(D) 15,672
-------- ------- ------- --------
Operating income.................................. 14,016 2,100 (494) 15,622
Other, net........................................ (1,639) (192) (1,831)
-------- ------- ------- --------
Income before income taxes........................ 12,377 1,908 (494) 13,791
Income taxes...................................... 4,946 668 (173)(E) 5,441
-------- ------- ------- --------
Net income........................................ $ 7,431 $ 1,240 $ (321) $ 8,350
======== ======= ======= ========
Basic earnings per share.......................... $ 0.53 $ 1.61 $ 0.57
Diluted earnings per share........................ $ 0.52 $ 0.33 $ 0.52
Weighted average shares outstanding:
Basic........................................... 12,994 606 (364)(F) 13,236
Diluted......................................... 14,409 3,795 (2,277)(F) 15,927
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
79
<PAGE> 5
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. PENDING MERGER WITH SeaMED.
On March 16, 1999, Plexus entered into the merger agreement providing for
the acquisition of SeaMED in a merger transaction, based upon an exchange
formula set forth in the merger agreement. See "The Merger and the Merger
Agreement -- Exchange Rate."
The unaudited pro forma condensed combined statements of income for all
periods presented give effect to the merger as if it had occurred on October 1,
1995. SeaMED has a fiscal year that ends on the Thursday closest to June 30 of
each year (those fiscal years are referred to in this proxy statement/prospectus
as of, and for the year ended, June 30). For purposes of the unaudited pro forma
condensed combined statements of income, SeaMED's statements of income for each
of the three fiscal years ended June 30, 1998, 1997 and 1996 and for the six
months ended December 31, 1998 and 1997 have been combined with Plexus'
consolidated statements of income for each of the three fiscal years ended
September 30, 1998, 1997 and 1996 and for the six months ended March 31, 1999
and 1998. This presentation has the effect of excluding SeaMED's results of
operations for the three months ended March 31, 1999 in the unaudited pro forma
condensed combined statements of income. Unaudited net sales and net income for
SeaMED were $15,831,000 and $5,000, respectively, for the three months ended
March 31, 1999. SeaMED's results of operations for this period are reflected in
shareholders' equity in the unaudited pro forma condensed combined balance sheet
at March 31, 1999.
2. ACCOUNTING TREATMENT.
The pro forma condensed combined financial statements have been prepared
using the pooling of interests method of accounting to give effect to the
merger. As a result of the use of the pooling of interests method of accounting
for the acquisition, past consolidated financial statements of Plexus are being
restated, and therefore the pro forma condensed combined financial statements
have been restated to reflect the acquisition as if it had occurred prior to the
dates of the statements. The computations of weighted average shares outstanding
include the conversion of shares of SeaMED common stock into shares of Plexus
common stock and the conversion of options to purchase SeaMED common stock into
options to purchase Plexus common stock.
3. EXPLANATION OF PRO FORMA ADJUSTMENTS.
The pro forma adjustments are as follows:
(A) Adjustment to conform inventory valuation accounting principle used by
SeaMED to the inventory valuation accounting principle utilized by
Plexus. SeaMED inventories include burden applied to raw materials when
such materials are purchased. Plexus records similar costs as period
costs. The effect of the adjustment is to remove these costs from
SeaMED's total inventory value.
(B) Adjustment to record estimated costs of the merger. These costs include
investment banker fees for both Plexus and SeaMED, estimated at three
million dollars, and other professional fees, estimated at one million
dollars. The estimated costs of the merger, or costs or benefits of
combining operations, are not included in the unaudited pro forma
condensed combined statements of income.
(C) Adjustment to record effect on income taxes payable (current or
deferred) of Adjustment (A) above.
(D) Adjustment to reclassify certain salaries and wages of SeaMED to the
classification of similar costs utilized by Plexus. SeaMED's accounting
policy for recording all bonuses
80
<PAGE> 6
classifies the amount as selling and administrative expense. Plexus'
accounting policy for recording bonuses classifies the amount based on
the classification of the salaries and wages of these employees
receiving the bonus. As a result, a portion of Plexus' bonus is
classified as costs of goods sold. Therefore, for conformance purposes,
this adjustment reclassifies certain SeaMED bonuses to costs of goods
sold.
(E) Adjustment to record the effect on income taxes of adjustment (A)
above.
(F) Adjustment to reflect an assumed rate of 0.4 shares of Plexus common
stock to be issued for each share of SeaMED common stock.
81
<PAGE> 7
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
SeaMED Corporation
We have audited the accompanying balance sheets of SeaMED Corporation as of
June 30, 1998 and 1997, and the related statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended June 30,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SeaMED Corporation as of
June 30, 1998 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
August 14, 1998
F-1
<PAGE> 8
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................. $ 6,428,718 $ 9,092
Investments............................................... -- 6,231,369
Accounts receivable, net of allowance of $505,865
($377,890 in 1997)..................................... 13,189,092 8,794,968
Inventories............................................... 15,185,517 11,198,563
Deferred tax benefit...................................... 1,733,348 1,193,311
Prepaid expenses.......................................... 223,370 169,553
----------- -----------
Total current assets........................................ 36,760,045 27,596,856
Property and equipment...................................... 5,162,172 4,331,814
Deposits and other assets................................... 934,337 202,845
----------- -----------
Total assets...................................... $42,856,554 $32,131,515
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable.......................................... $ 4,323,740 $ 2,482,551
Accrued expenses and reserves............................. 5,029,410 5,041,086
Customer deposits......................................... 2,576,916 746,629
Borrowings under bank line of credit...................... -- 1,068,240
Current portion of long-term debt......................... 558,144 --
----------- -----------
Total current liabilities................................... 12,488,210 9,338,506
Long-term debt, less current portion........................ 2,435,021 --
Shareholders' equity:
Preferred stock, $0.01 par value:
Authorized shares -- 5,000,000 undesignated............ -- --
Common stock, no par value:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 5,463,298 (5,263,827
in 1997).............................................. 20,723,960 19,722,865
Note receivable from officer.............................. (75,000) (75,000)
Retained earnings......................................... 7,284,363 3,145,144
----------- -----------
Total shareholders' equity............................. 27,933,323 22,793,009
----------- -----------
Total liabilities and shareholders' equity........ $42,856,554 $32,131,515
=========== ===========
</TABLE>
See accompanying notes.
F-2
<PAGE> 9
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Manufacturing..................................... $44,388,608 $32,983,491 $17,724,883
Engineering....................................... 25,592,644 19,150,019 8,405,352
----------- ----------- -----------
69,981,252 52,133,510 26,130,235
Cost of revenues:
Manufacturing..................................... 36,157,294 26,368,242 13,541,280
Engineering....................................... 22,127,908 16,763,316 7,551,399
----------- ----------- -----------
58,285,202 43,131,558 21,092,679
----------- ----------- -----------
Total gross margin.................................. 11,696,050 9,001,952 5,037,556
Marketing, general, and administrative expenses..... 5,524,535 4,849,413 2,937,556
----------- ----------- -----------
Operating income.................................... 6,171,515 4,152,539 2,100,000
Other income (expense):
Interest expense.................................. (73,788) (190,989) (198,274)
Interest and other income, net.................... 173,817 232,522 6,665
----------- ----------- -----------
100,029 41,533 (191,609)
----------- ----------- -----------
Income before income taxes.......................... 6,271,544 4,194,072 1,908,391
Income tax provision................................ (2,132,325) (1,467,925) (667,937)
----------- ----------- -----------
Net income.......................................... $ 4,139,219 $ 2,726,147 $ 1,240,454
=========== =========== ===========
Net income per share data:
Basic............................................. $ 0.78 $ 0.76 $ 1.61
=========== =========== ===========
Diluted........................................... $ 0.73 $ 0.55 $ 0.33
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 10
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK NOTE RETAINED TOTAL
------------ RECEIVABLE EARNINGS SHAREHOLDERS'
SHARES AMOUNT FROM OFFICER (DEFICIT) EQUITY
------ ------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1995........... 548,964 $ 783,560 $ -- $ (821,457) $ (37,897)
Stock options exercised....... 89,735 28,268 -- -- 28,268
Common stock issued in
exchange for note
receivable................. 30,000 75,000 (75,000) -- --
Fractional shares issued due
to reverse stock split..... 8 -- -- -- --
Net income.................... -- -- -- 1,240,454 1,240,454
--------- ----------- -------- ---------- -----------
Balance, June 30, 1996.......... 668,707 886,828 (75,000) 418,997 1,230,825
Common stock sold in initial
public offering (net of
offering cost)............. 1,529,720 14,822,755 -- -- 14,822,755
Issuance of common stock for
conversion of redeemable
preferred stock............ 2,934,029 5,279,514 -- -- 5,279,514
Preferred stock dividends..... -- (1,765,100) -- -- (1,765,100)
Common stock sold under
employee stock purchase
plan....................... 41,515 389,141 -- -- 389,141
Stock options exercised....... 89,856 50,672 -- -- 50,672
Tax benefit from stock options
and stock purchase plan.... -- 59,055 -- -- 59,055
Net income.................... -- -- -- 2,726,147 2,726,147
--------- ----------- -------- ---------- -----------
Balance, June 30, 1997.......... 5,263,827 19,722,865 (75,000) 3,145,144 22,793,009
Common stock sold under
employee stock purchase
plan....................... 44,602 671,372 -- -- 671,372
Stock options exercised....... 126,974 114,522 -- -- 114,522
Tax benefit from stock options
and stock purchase plan.... -- 215,201 -- -- 215,201
Common stock warrants
exercised.................. 27,895 -- -- -- --
Net income.................... -- -- -- 4,139,219 4,139,219
--------- ----------- -------- ---------- -----------
Balance, June 30, 1998.......... 5,463,298 $20,723,960 $(75,000) $7,284,363 $27,933,323
========= =========== ======== ========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 11
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
NET INCOME.......................................... $ 4,139,219 $ 2,726,147 $ 1,240,454
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation...................................... 1,790,378 1,073,885 693,752
Provision for bad debt............................ 127,975 125,664 47,743
Deferred tax benefit.............................. (540,037) (568,090) (95,539)
Changes in operating assets and liabilities:
Increase in accounts receivable................ (4,522,098) (3,044,699) (2,569,134)
Increase in inventories........................ (3,986,954) (4,501,315) (2,977,592)
Increase in other assets and prepaid
expenses..................................... (785,309) (164,642) (38,644)
Increase in accounts payable, accrued expenses,
and deferred revenue......................... 3,875,000 2,340,097 3,402,643
----------- ----------- -----------
Net cash provided by (used in) operating
activities........................................ 98,174 (2,012,953) (296,317)
INVESTING ACTIVITIES
Purchases of equipment.............................. (2,620,736) (2,750,434) (1,492,021)
Maturity of short-term investments.................. 6,231,369 1,756,074 200,000
Purchase of investments............................. -- (7,987,443) --
----------- ----------- -----------
Net cash provided by (used in) investing
activities........................................ 3,610,633 (8,981,803) (1,292,021)
FINANCING ACTIVITIES
Net proceeds from sale of common stock.............. -- 14,822,755 --
Proceeds from sale of common stock under employee
stock option plan................................. 671,372 389,141 --
Preferred stock dividend............................ -- (1,765,100) --
Proceeds from stock options exercised............... 114,522 50,672 28,268
Net (payments of) borrowings under credit line...... (1,068,240) (748,760) 1,261,999
Proceeds from notes payable......................... 3,125,000 -- 600,000
Principal payments on notes payable................. (131,835) (1,747,772) (369,400)
----------- ----------- -----------
Net cash provided by financing activities........... 2,710,819 11,000,936 1,520,867
----------- ----------- -----------
Net increase (decrease) in cash..................... 6,419,626 6,180 (67,471)
Cash and cash equivalents at beginning of year...... 9,092 2,912 70,383
----------- ----------- -----------
Cash and cash equivalents at end of year............ $ 6,428,718 $ 9,092 $ 2,912
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Taxes paid.......................................... $ 2,403,000 $ 2,390,000 $ 330,000
Interest paid....................................... $ 73,788 $ 190,989 $ 198,274
</TABLE>
See accompanying notes.
F-5
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
SeaMED Corporation (the "Company") manufactures advanced durable electronic
medical instruments for medical technology companies, often as part of systems
that also include single-use components. To assist its customers in developing
and commercializing their instruments for manufacture by the Company, the
Company provides a wide range of engineering services and regulatory expertise.
ACCOUNTING PERIOD
The Company's fiscal year consists of a 52/53-week fiscal year that ends on
the Thursday nearest to June 30. For convenience of presentation, all fiscal
periods in these financial statements are shown as ending on a calendar
month-end.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly-liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
CREDIT POLICIES
The Company extends credit to various customers, which are primarily in the
medical device industry and generally does not require collateral. The Company
maintains reserves for potential credit losses.
INVESTMENTS
Investments are classified as held-to-maturity. Investments consist of U.S.
treasury bills, which mature within one year, and are reported at cost net of
unamortized premium or discount, which approximates market.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
DEPRECIATION
The Company provides for depreciation of furniture, fixtures, equipment,
and manufacturing molds over their estimated useful lives of three to eight
years using the straight-line method.
REVENUE RECOGNITION
The Company recognizes revenues from contracts to perform engineering
design and product development as the related engineering service is performed.
When estimates indicate a probable loss
F-6
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
on a contract, the full amount of such loss is accrued at that time. The Company
generally recognizes revenue from manufacturing services when the related
products are shipped.
WARRANTY COSTS
Warranty reserves are recorded based on historical experience and estimates
of current warranty activity.
INCOME TAXES
The Company provides for income taxes based on the liability method, which
requires the recognition of deferred tax assets and liabilities based on
differences between financial reporting and tax bases of assets and liabilities
measured using enacted tax rates and laws that are expected to be in effect when
the differences are expected to reverse.
STOCK COMPENSATION
The Company has elected to apply the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." Accordingly, the Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Compensation cost for stock options is measured as the
excess, if any, of the fair value of the Company's common stock at the date of
grant over the stock option exercise price.
CONCENTRATIONS OF CREDIT RISK
The Company is subject to concentrations of credit risk from its holdings
of cash, cash equivalents, and securities. The Company's credit risk is managed
by investing its cash in high-quality money market instruments, securities of
the U.S. Government and its agencies, and high-quality corporate issues.
NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. Basic earnings per
share is computed using the weighted average number of common shares outstanding
during the period. Diluted earnings per share is computed using the weighted
average number of common and common stock equivalent shares outstanding during
the period. Common equivalent shares are excluded from the computation if their
effect is antidilutive. Net income is adjusted for the accretion of cumulative
preferred stock dividends for Class A and D convertible redeemable preferred
stock in the calculation of basic earnings per share amounts in 1997 and 1996.
Net income per share amounts for all periods, where necessary, have been
restated to conform to SFAS No. 128 requirements.
In 1998, the SEC issued Staff Accounting Bulletin (SAB) No. 98 which
superceded SAB No. 83 requirements to reflect common and common stock equivalent
shares issued during the 12-month period prior to the filing of an initial
public offering to be included in earnings per share if they were outstanding
for all periods presented using the treasury stock method assuming the initial
F-7
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
public offering price. Net income per share amounts for all periods, where
necessary, have been restated to conform to these SEC requirements.
The Company's previously reported primary and fully diluted net income per
share were $0.60 and $0.55 and $0.42 and $0.32 for the years ended June 30, 1997
and 1996, respectively.
INTEREST RATE CONTRACT
Net amounts paid or received under its interest rate contract are reflected
as adjustments to interest expense. The Company accounts for its contract at
cost. The fair market value of the contract was not material at June 30, 1998.
It is the Company's intent to hold the contract to maturity.
RECLASSIFICATION
Certain prior year items have been reclassed to conform to the current year
presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
The Company will adopt SFAS No. 130 in the first quarter of 1999. Comprehensive
and net income have been the same in the past and the Company does not expect
the impact of SFAS No. 130 to be material.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosure about Segments of an
Enterprise and Related Information." The Company will adopt SFAS No. 131 for
fiscal year end June 30, 1999. The Company has not yet determined the impact of
SFAS No. 131.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Due to its minimal use of derivatives, the
Company does not expect the impact of SFAS No. 133 to be material.
NOTE 2. INITIAL PUBLIC OFFERING
In November 1996, the Company completed an initial public offering of
securities, selling 1,529,720 shares of common stock at $11 per share, resulting
in proceeds to the Company of $14,822,755, net of offering costs and
underwriters discount of $2,004,165. Of the net proceeds, the Company used
$1,765,100 to pay a cumulative preferred dividend on its convertible redeemable
preferred stock, $1,831,000 to pay down its line of credit with a bank to zero,
and $1,296,000 to pay off in full three notes payable to the bank. In
conjunction with the offering, all of the Company's convertible redeemable
preferred stock outstanding immediately prior to the offering was converted into
2,934,029 shares of common stock.
F-8
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Work in process............................................. $ 3,685,594 $ 3,294,857
Purchased and manufactured parts............................ 12,366,257 8,608,455
----------- -----------
16,051,851 11,903,312
Less inventory reserve...................................... 866,334 704,749
----------- -----------
$15,185,517 $11,198,563
=========== ===========
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Furniture and fixtures...................................... $ 1,122,538 $ 959,033
Equipment................................................... 7,744,716 5,815,854
Manufacturing molds......................................... 527,172 524,110
Leasehold improvements...................................... 1,227,856 702,549
----------- ----------
10,622,282 8,001,546
Less accumulated depreciation and amortization.............. 5,460,110 3,669,732
----------- ----------
$ 5,162,172 $4,331,814
=========== ==========
</TABLE>
NOTE 5. ACCRUED EXPENSES AND RESERVES
Accrued expenses and reserves consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Taxes payable............................................... $ 246,157 $ 216,996
Accrued compensation........................................ 2,622,059 2,501,732
Deferred revenue............................................ 789,414 423,128
Other accrued expenses...................................... 787,670 1,522,794
Warranty reserve............................................ 584,110 376,436
----------- ----------
$ 5,029,410 $5,041,086
=========== ==========
</TABLE>
NOTE 6. NOTES PAYABLE
VARIABLE RATE NOTE PAYABLE
During fiscal year 1998, the Company borrowed $2.5 million against an
existing equipment credit facility. In addition, the Company has committed to
borrow the remaining $1.5 million by September 30, 1998. Borrowings under this
agreement bear interest at LIBOR plus 1.4% (7.02% at June 30, 1998).
F-9
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
EQUIPMENT LINE OF CREDIT AGREEMENT
In July of 1998, the Company's Board of Directors approved an equipment
line of credit up to $5.0 million. Borrowings under this facility bear interest
at LIBOR plus 1.4%. This agreement expires October 1, 2001.
WORKING CAPITAL LINE OF CREDIT AGREEMENT
In July of 1998, the Company's Board of Directors approved an increase to
its existing working capital line of credit. Under this agreement the Company
can borrow up to 85% of eligible accounts receivable and 50% of eligible
inventory up to a maximum of $20.0 million. Borrowings under this agreement and
the equipment line of credit agreement are payable on demand if certain
covenants are not met. These covenants include a maximum debt-to-equity ratio of
1.25-to-1, minimum ratio of earnings before income taxes and interest of
2.0-to-1 and dividend restrictions. Borrowings under this agreement bear
interest at the bank's prime rate minus .25% or LIBOR plus 1.2%. This agreement
expires October 1, 2001. There were no borrowings outstanding under this line of
credit at June 30, 1998.
LONG-TERM DEBT
Long-term debt at June 30, 1998 consists of the following:
<TABLE>
<S> <C>
Unsecured subordinated note payable, with monthly payments
of $18,055, including interest, through December 2000..... $ 493,165
Variable rate note payable, secured by equipment, with
monthly payments beginning November 1, 1998, including
interest, through September 30, 2003...................... 2,500,000
2,993,165
Less current portion........................................ 558,144
----------
$2,435,021
==========
</TABLE>
INTEREST RATE CONTRACT
At June 30, 1998, the Company had an interest rate contract with a notional
principal amount of $2.5 million that effectively converts the $2.5 million
variable rate note to a fixed rate of 7.5%.
NOTE 7. CONVERTIBLE REDEEMABLE PREFERRED STOCK
On January 3, 1995, the Company sold 1,465,000 shares of Class D
convertible redeemable preferred stock at $1.00 per share. These shares were
converted into common stock at the ratio of 3.75 shares of preferred stock for
each share of common stock upon completion of the Company's initial public
offering. In connection with the Class D preferred stock offering, the Company
also issued a warrant to purchase 39,066 shares of common stock, with an
exercise price of $4.70 per share. The warrant was exercised in March 1998 in a
cashless transaction based upon 27,895 shares.
NOTE 8. SHAREHOLDERS' EQUITY
REVERSE STOCK SPLIT
In July 1996, the Company's shareholders approved a 1-for-5 stock split of
the common stock, which resulted in an adjustment to the preferred stock
conversion ratio. All share and per share data in the accompanying financial
statements have been restated to retroactively reflect the reverse stock split.
F-10
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
STOCK OPTION AND INCENTIVE PLANS
The Company has two stock option and incentive plans (collectively, the
"Plans"), the SeaMED Corporation 1988 Stock Option Plan and the SeaMED
Corporation 1995 Employee Stock Option and Incentive Plan. Under the terms of
the Plans, with respect to incentive stock options and options awarded to
nonemployee directors, the option price may not be less than fair market value
of the common stock at the date of grant. Generally, options granted under the
Plans become exercisable at the rate of 50% after two years, 75% after three
years, and 100% after four years from the date of grant. Certain options granted
under the 1988 plan, however, become exercisable ratably over seven years from
the date of grant. Unexercised options expire on the date set forth in the
optionee's option agreement (generally 10 years), subject to earlier termination
upon certain events. Stock options exercised, granted, and canceled during
fiscal years 1998, 1997, and 1996 are as follows:
OUTSTANDING OPTIONS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRICE PER WEIGHTED AVERAGE
SHARES PRICE SHARE EXERCISE PRICE
--------- --------- --------- ----------------
<S> <C> <C> <C> <C>
Balance, July 1, 1995.............. 450,381 $ 713,931 $ 0.16 - $10.00 $ --
Options granted.................. 132,824 454,060 2.50 - 5.00 3.42
Options canceled................. (8,031) (12,300) 0.50 - 2.50 1.54
Options exercised................ (89,735) (28,268) 0.16 - 1.25 0.31
-------- ---------- --------------- ------
Balance June 30, 1996.............. 485,439 1,127,423 0.16 - 10.00 2.32
Options granted.................. 105,241 1,622,428 5.00 - 17.25 15.42
Options canceled................. (4,205) (11,392) 0.80 - 16.25 2.71
Options exercised................ (89,856) (50,672) 0.16 - 2.50 0.56
-------- ---------- --------------- ------
Balance June 30, 1997.............. 496,619 2,687,787 0.16 - 17.25 5.41
Options granted.................. 105,734 1,850,686 16.13 - 18.75 17.50
Options canceled................. (11,635) (135,928) 1.80 - 18.00 11.68
Options exercised................ (126,974) (114,521) 0.16 - 3.75 0.90
-------- ---------- --------------- ------
Balance June 30, 1998.............. 463,744 $4,288,024 $ 0.16 - $18.75 $ 9.25
======== ========== =============== ======
</TABLE>
The following table summarizes information about options outstanding and
exercisable at June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-----------------------------------------
----------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE AVERAGE
RANGE OF OPTIONS REMAINING EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.16 - $ 0.80 26,688 3.61 years $ 0.61 26,688 $ 0.61
1.00 - 2.20 38,654 5.38 years 1.44 38,654 1.44
2.50 - 2.50 92,580 7.13 years 2.50 41,464 2.50
3.75 - 7.50 94,650 7.41 years 5.33 38,730 5.36
10.00 - 10.00 17,500 6.57 years 10.00 7,500 10.00
16.13 - 18.75 193,672 9.07 years 17.06 -- --
------- ---------- ------ ------- ------
0.16 - 18.75 463,744 7.63 years $ 9.25 153,036 $ 2.99
======= ========== ====== ======= ======
</TABLE>
The Company follows the intrinsic value method in accounting for its stock
options. Had compensation cost been recognized based on the fair value at the
date of grant for options granted in
F-11
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1998, 1997, and 1996 the pro forma amounts of the Company's net income and net
income per share for the years ended June 30, 1998, 1997 and 1996 would have
been as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income per share -- as reported.................... $4,139,219 $2,726,147 $1,240,454
Net income per share -- pro forma...................... $3,742,622 $2,581,412 $1,219,006
Diluted net income per share -- as reported............ $ 0.73 $ 0.55 $ 0.33
Diluted net income per share -- pro forma.............. $ 0.66 $ 0.52 $ 0.32
</TABLE>
The fair value of each option grant was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions: risk-free
interest rates of 5.51% to 5.92%; expected option life of four to six years;
volatility of 0.3865; and no expected dividends. The weighted average fair value
of options granted during the years 1998 and 1997 was $7.96 and $15.42,
respectively, for options granted at fair market value.
SHARES RESERVED FOR FUTURE ISSUANCE
The following shares of common stock have been reserved for future issuance
as of June 30, 1998, including the stock purchase plan referred to below, and
pursuant to the various other agreements and plans discussed above:
<TABLE>
<CAPTION>
SHARES
------
<S> <C> <C>
Stock purchase plan......................................... 83,881
Incentive Stock Option Plan:
Options outstanding....................................... 463,744 --
Options available for grant............................... 234,283 698,027
------- -------
Total common shares reserved for future issuance
at June 30, 1998................................. 781,908
=======
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In July of 1996, the Company's shareholders approved a stock purchase plan
which became effective on November 11, 1997 with the Company's completion of its
initial public offering of its common stock. The shareholders authorized the
sale of up to 170,000 shares of common stock over five years pursuant to the
plan.
F-12
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income per share.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator:
Numerator for diluted net income per share
Net income as reported............................ $4,139,219 $2,726,147 $1,240,454
Accretion of cumulative preferred stock dividend..... -- (101,077) (263,050)
---------- ---------- ----------
Numerator for computing basic net income per share... $4,139,219 $2,625,070 $ 977,404
========== ========== ==========
Denominator:
Denominator for basic net income per
share -- weighted average common shares........... 5,330,188 3,445,748 606,353
---------- ---------- ----------
Effect of dilutive securities:
Weighted average of all convertible redeemable
preferred stock outstanding....................... -- 1,130,200 2,934,029
Net effect of dilutive stock options based on the
treasury stock method using average market
price............................................. 288,289 347,119 253,996
Net effect of dilutive stock warrants based on the
treasury stock method using average market
price............................................. 23,713 21,088 586
---------- ---------- ----------
Dilutive potential common shares..................... 312,002 1,498,407 3,188,611
---------- ---------- ----------
Denominator for diluted net income per share......... 5,642,190 4,944,155 3,794,964
========== ========== ==========
Basic net income per share............................. $ 0.78 $ 0.76 $ 1.61
========== ========== ==========
Diluted net income per share........................... $ 0.73 $ 0.55 $ 0.33
========== ========== ==========
</TABLE>
NOTE 10. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current income tax provision............................ $2,672,362 $2,036,015 $763,476
Deferred income tax benefit............................. (540,037) (568,090) (95,539)
---------- ---------- --------
Income tax provision.................................... $2,132,325 $1,467,925 $667,937
========== ========== ========
</TABLE>
Significant components of the Company's deferred tax benefits are as
follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets (liabilities):
Fixed assets.............................................. $ 56,701 $ (43,886)
Inventories............................................... 825,643 703,213
Accrued expenses.......................................... 578,680 266,952
Bad debt reserves......................................... 171,994 128,483
Other..................................................... 100,330 138,549
---------- ----------
Net deferred tax benefit.................................... $1,733,348 $1,193,311
========== ==========
</TABLE>
F-13
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A reconciliation from the U.S. statutory rate to the effective tax rate is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tax at U.S. statutory rate.................................. 34.0% 34.0% 34.0%
Other....................................................... -- 1.0 1.0
---- ---- ----
34.0% 35.0% 35.0%
==== ==== ====
</TABLE>
NOTE 11. REVENUE AND OPERATIONS
During fiscal 1998, 1997, and 1996, 58%, 54%, and 41%, respectively, of
total net sales were to five customers. Receivables from these five customers
represent 60% and 36% of total accounts receivable at June 30, 1998 and 1997,
respectively.
Revenues from customers that represent more than 10% of total revenues are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
customer
A.................................................. $ -- $ -- $2,665,000
B.................................................. -- -- 3,129,000
C.................................................. 15,897,400 12,836,000 --
D.................................................. 11,546,258 5,686,000 --
</TABLE>
NOTE 12. LEASE COMMITMENTS
The Company currently leases office and production space, and equipment
under noncancelable operating leases. Rental expense under operating lease
agreements for the fiscal years ended June 30, 1998, 1997, and 1996 amounted to
$1,940,798, $1,322,204, and $655,079, respectively.
Future minimum lease commitments under noncancelable leases and service
agreements as of June 30, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 2,349,842
2000........................................................ 2,779,483
2001........................................................ 2,841,393
2002........................................................ 2,717,589
2003........................................................ 2,720,869
Thereafter.................................................. 12,077,707
-----------
$25,486,883
===========
</TABLE>
NOTE 13. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) savings plan covering substantially all of its
employees. Eligible employees may contribute amounts through payroll deductions.
The Company matches annually 50% of the employees' contributions up to 4% of the
employees' salary. The 401(k) savings plan expense was $304,000, $159,000, and
$72,000 in fiscal 1998, 1997, and 1996, respectively. The Company does not
provide other post-retirement benefits.
NOTE 14. RELATED-PARTY TRANSACTIONS
In October 1995, the Company's Chief Executive Officer and President
received a $75,000 loan from the Company, the proceeds of which he used to
purchase 30,000 shares of common stock. The
F-14
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
loan is evidenced by an unsecured promissory note that bears interest at the
floating minimum statutory rate set by the Internal Revenue Service from time to
time. This officer may prepay principal and interest at any time without
penalty; unpaid principal and interest are due on October 11, 2000.
A director of the Company serves as President and Chief Executive Officer
and a director of one of the Company's customers. The Company has provided
engineering and manufacturing services for this customer. The Company recognized
revenues with respect to such services of approximately $489,000, $92,000, and
$335,000 in fiscal years 1998, 1997, and 1996, respectively.
A director of the Company was also a partner in the Company's law firm.
NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR 1998
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue............................................. $16,030 $16,259 $18,265 $19,427
Gross Margin........................................ 2,732 2,771 3,057 3,136
Operating Income.................................... 1,355 1,397 1,602 1,818
Net Income.......................................... 907 947 1,076 1,209
Basic EPS........................................... $ 0.17 $ 0.18 $ 0.20 $ 0.22
Diluted EPS......................................... $ 0.16 $ 0.17 $ 0.19 $ 0.21
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1997
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue............................................. $10,076 $12,010 $14,295 $15,753
Gross Margin........................................ 1,685 2,027 2,449 2,841
Operating Income.................................... 838 952 1,110 1,253
Net Income.......................................... 487 600 778 861
Basic EPS........................................... $ 0.63 $ 0.21 $ 0.15 $ 0.17
Diluted EPS......................................... $ 0.12 $ 0.13 $ 0.14 $ 0.15
</TABLE>
- ---------------
(1) All outstanding preferred stock was converted to common stock in connection
with the Company's initial public offering. In accordance with FAS 128,
Basic EPS for periods prior to the IPO exclude effects of preferred stock
dividends.
F-15
<PAGE> 22
SeaMED CORPORATION
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $10,709,472 $ 6,428,718
Accounts receivable, net.................................. 12,745,808 13,189,092
Inventories............................................... 10,354,389 15,185,517
Deferred income taxes..................................... 1,733,348 1,733,348
Prepaid expenses.......................................... 530,519 223,370
----------- -----------
Total current assets........................................ 36,073,536 36,760,045
Property and equipment, net................................. 5,648,963 5,162,172
Deposits and other assets................................... 249,652 934,337
----------- -----------
Total assets................................................ $41,972,151 $42,856,554
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,755,102 $ 4,323,740
Accrued expenses and reserves............................. 3,277,417 5,029,410
Customer deposits on inventory............................ 2,398,306 2,576,916
Current portion of long-term debt......................... 994,483 558,144
----------- -----------
Total current liabilities................................... 8,425,308 12,488,210
Long-term debt, less current portion........................ 3,025,288 2,435,021
Shareholders' equity:
Common stock.............................................. 21,288,595 20,723,960
Note receivable from officer.............................. (75,000) (75,000)
Retained earnings......................................... 9,307,960 7,284,363
----------- -----------
Total shareholders' equity.................................. 30,521,555 27,933,323
----------- -----------
Total liabilities and shareholders' equity.................. $41,972,151 $42,856,554
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE> 23
SeaMED CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
-------------------------- --------------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Manufacturing........................... $10,423,115 $11,527,258 $35,870,539 $31,541,468
Engineering............................. 5,407,828 6,737,356 18,222,344 19,012,365
----------- ----------- ----------- -----------
15,830,943 18,264,614 54,092,883 50,553,833
Costs of revenues:
Manufacturing........................... 9,372,356 9,421,206 30,744,882 25,596,463
Engineering............................. 5,291,517 5,786,790 16,721,631 16,398,678
----------- ----------- ----------- -----------
14,663,873 15,207,996 47,466,513 41,995,141
----------- ----------- ----------- -----------
Gross margin.............................. 1,167,070 3,056,618 6,626,370 8,558,692
Marketing, general and administrative
expenses................................ 1,202,211 1,454,708 3,612,805 4,205,030
----------- ----------- ----------- -----------
Operating income.......................... (35,141) 1,601,910 3,013,565 4,353,662
Other income (expense):
Interest expense........................ (64,435) (16,945) (211,291) (64,342)
Interest and other income, net.......... 106,642 44,824 263,783 148,794
----------- ----------- ----------- -----------
42,207 27,879 52,492 84,452
----------- ----------- ----------- -----------
Income before income taxes................ 7,066 1,629,789 3,066,057 4,438,114
Income tax provision...................... 2,402 554,128 1,042,459 1,508,959
----------- ----------- ----------- -----------
Net income................................ $ 4,664 $ 1,075,661 $ 2,023,598 $ 2,929,155
=========== =========== =========== ===========
Net income per share data:
Basic................................... $ 0.00 $ 0.20 $ 0.37 $ 0.55
=========== =========== =========== ===========
Diluted................................. $ 0.00 $ 0.19 $ 0.36 $ 0.52
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE> 24
SeaMED CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 2,023,597 $ 2,929,156
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation.............................................. 1,744,979 1,281,395
Provision for bad debts................................... 28,542 111,430
Deferred tax benefit...................................... -- (513,480)
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable............. 414,742 (3,701,532)
Decrease (Increase) in inventories..................... 4,831,128 (3,842,291)
Increase (Decrease) in accounts payable, accrued
expenses, and deferred revenue........................ (4,502,742) 2,763,264
Decrease (Increase) in other assets and prepaid
expenses.............................................. 381,036 (279,705)
----------- -----------
Net cash provided by (used in) operating activities......... 4,921,282 (1,251,763)
INVESTING ACTIVITIES
Purchases of equipment and leasehold improvements........... (2,231,769) (2,265,627)
Maturity of short-term investments.......................... -- 3,766,100
----------- -----------
Net cash provided by (used in) investing activities......... (2,231,769) 1,500,473
FINANCING ACTIVITIES
Proceeds from stock options exercised....................... 166,735 85,643
Proceeds from sale of common stock under employee stock
purchase plan............................................. 397,900 374,226
Net (payments of) borrowings under credit line.............. -- (1,068,240)
Proceeds from notes payable................................. 1,500,000 625,000
Principal payments on notes payable......................... (473,394) (265,077)
----------- -----------
Net cash provided by financing activities................... 1,591,241 (248,448)
----------- -----------
Net increase in cash........................................ 4,280,754 262
Cash and cash equivalents at beginning of period............ 6,428,718 9,092
----------- -----------
Cash and cash equivalents at end of period.................. $10,709,472 $ 9,354
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE> 25
ITEM 1. NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements have been prepared by
SeaMED Corporation (the Company) in accordance with generally accepted
accounting principles for interim financial information and in accordance with
the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) considered necessary for a fair presentation have been
included. The balance sheet at June 30, 1998 has been derived from 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 results of operations for the nine-month period ended
March 31, 1999, are not necessarily indicative of results to be expected for the
entire year ending June 30, 1999 or for any other fiscal period. For further
information, refer to the financial statements and footnotes included in the
Company's Form 10-K for the year ended June 30, 1998.
2. REVENUE RECOGNITION
The Company recognizes revenues from contracts to perform engineering
design and product development as the related engineering service is performed.
When estimates indicate a probable loss on a contract, the full amount of such
loss is accrued at that time. The Company generally recognizes revenue from
manufacturing services when the related products are shipped.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 130, "Reporting Comprehensive Income." The adoption of SFAS
No. 130 had no impact on the Company's operating results or shareholders'
equity. For the nine months ended March 31, 1999, net income and comprehensive
income were the same.
In 1997, the Financial Standards Accounting Standards Board (FASB) issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which is required to be adopted for periods beginning after
December 15, 1997. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise." Companies will be required to report each
operating segment and related information, as defined in SFAS No. 131, in the
notes to financial statements. The Company plans to adopt SFAS No. 131 in 1999.
SFAS No. 131 is not required to be applied to interim financial statements in
the initial year of adoption.
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted for periods
beginning after June 15, 1999. Due to the minimal use of derivative instruments
and hedging activities, the Company does not expect the impact of SFAS No. 133
to be material.
F-19
<PAGE> 26
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
--------- --------
<S> <C> <C>
Work in process..................................... $ 2,451,218 $ 3,685,594
Purchased and manufactured parts.................... 9,153,659 12,366,257
----------- -----------
11,604,877 16,051,851
Less inventory reserve.............................. 1,250,488 866,334
----------- -----------
$10,354,389 $15,185,517
=========== ===========
</TABLE>
5. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income per share.
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ ------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted net income
per share
Net income as reported................... 4,664 1,075,661 2,023,597 2,929,155
========== ========== ========== ==========
Denominator:
Denominator for basic net income per
share -- weighted average common
shares................................... 5,545,184 5,330,939 5,501,013 5,294,509
---------- ---------- ---------- ----------
Effect of dilutive securities:
Net effect of dilutive stock options
based on the treasury stock method
using average market price............. 112,157 301,507 159,202 314,748
Net effect of dilutive stock warrants
based on the treasury stock method
using average market price............. 0 28,889 0 28,626
---------- ---------- ---------- ----------
Dilutive potential common shares............ 112,157 330,396 159,202 343,374
---------- ---------- ---------- ----------
Denominator for diluted net income per
share.................................... 5,657,341 5,661,335 5,660,215 5,637,883
========== ========== ========== ==========
Basic net income per share.................... $ .00 $ .20 $ .37 $ .55
========== ========== ========== ==========
Diluted net income per share.................. $ .00 $ .19 $ .36 $ .52
========== ========== ========== ==========
</TABLE>
6. NOTES PAYABLE
Variable Rate Note
The Company borrowed $2.5 million during fiscal year 1998 and an additional
$1.5 million in September 1998 against an existing equipment credit facility.
Borrowings under this agreement bear interest at LIBOR plus 1.4% (6.65% at March
31, 1999).
Equipment Line of Credit Agreement
In July of 1998, the Company's Board of Directors approved an equipment
line of credit up to $5.0 million. Borrowings under this facility bear interest
at LIBOR plus 1.4%. This agreement expires October 1, 2001.
F-20
<PAGE> 27
Working-Capital Line of Credit Agreement
In July of 1998, the Company's Board of Directors approved an increase to
its existing working capital line of credit. Under this agreement the Company
can borrow up to 85% of eligible accounts receivable and 50% of eligible
inventory up to a maximum of $20.0 million. Borrowings under this agreement and
the equipment line of credit agreement are payable on demand if certain
covenants are not met. These covenants include a maximum debt-to-equity ratio of
1.25-to-1, minimum ratio of earnings before income taxes and interest of
2.0-to-1 and dividend restrictions. Borrowings under this agreement bear
interest at the bank's prime rate minus .25% or LIBOR plus 1.2%. This agreement
expires October 1, 2001. There were no borrowings outstanding under this line of
credit at March 31, 1999.
Interest Rate Contract
At March 31, 1999, the Company had an interest rate contract with a
notional principal amount of $4.0 million that effectively converts the $4.0
million variable rate note to a fixed rate of 7.5%.
F-21
