SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1996 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: 0-18793
VITAL SIGNS, INC.
(Exact name of registrant as specified in its charter)
New Jersey 11-2279807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 Campus Road
Totowa, New Jersey 07512
(Address of principal executive office, including zip code)
201-790-1330
(Registrant's telephone number, including area code)
________________________________________________________________________________
Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
At May 1, 1996 there were 13,065,807 shares of Common Stock, no par value,
outstanding.
<PAGE>
VITAL SIGNS, INC.
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet as of
March 31, 1996 (Unaudited) and
September 30, 1995
Consolidated Statement of Income
for the Six Months Ended
March 31, 1996 and 1995 (Unaudited)
Consolidated Statement of Income
for the Three Months Ended
March 31, 1996 and 1995 (Unaudited)
Consolidated Statement of Cash
Flows for the Six Months Ended
March 31, 1996 and 1995 (Unaudited)
Notes to Consolidated Financial
Statements (Unaudited)
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations
Part II.
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART Financial Information
Item 1. Financial Statements
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission, although Vital Signs, Inc. (the "registrant"
or the "Company" or "Vital Signs") believes that the disclosures are adequate to
assure that the information presented is not misleading in any material respect.
It is suggested that the following consolidated financial statements be read in
conjunction with the year-end consolidated financial statements and notes
thereto included in the registrant's Annual Report on Form 10-K for the year
ended September 30, 1995.
The results of operations for the interim periods presented herein are not
necessarily indicative of the results to be expected for the entire fiscal year.
<PAGE>
<TABLE>
<CAPTION>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1996 September 30, 1995
-------------- ------------------
(In Thousands)
ASSETS
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 15,416 $ 8,334
Marketable securities 252 3,757
Accounts receivable, less allowance for
doubtful accounts of $287 and $285 respectively 14,592 15,300
Inventory 12,038 11,325
Prepaid expenses and other current assets 5,649 6,936
-------- ---------
Total Current Assets 47,947 45,652
Property, Plant and Equipment - net 16,745 12,674
Marketable Securities 28,826 32,925
Goodwill 14,519 15,419
Assets held for sale 2,750 ---
Other Assets 4,329 3,751
-------- ---------
Total Assets $115,116 $ 110,421
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,726 $ 3,017
Current portion of long-term debt 500 500
Accrued expenses 3,368 4,936
Amounts payable relating to acquisitions 2,911
Deferred income taxes payable 1,443 1,403
-------- ---------
Total Current Liabilities 9,037 12,767
Deferred Income Taxes Payable 1,041 993
Long-term debt 2,700 3,200
Other 766 816
-------- ---------
Total Liabilities 13,544 17,776
-------- ---------
Commitments and Contingencies
Stockholders' Equity
Preferred stock - no par value;
authorized 10,000,000 shares, none issued
Common stock - no par value:
authorized 40,000,000 shares, issued
13,065,807 and 12,999,078 shares, respectively 29,757 29,015
Allowance for aggregate unrealized gain or (loss)
on marketable securities (368) (100)
Retained earnings 72,183 63,730
------- ----------
Stockholders' Equity 101,572 92,645
------- ----------
Total Liabilities and Stockholders' Equity $ 115,116 $ 110,421
========= ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
For the Six Months Ended March 31,
1996 1995
---- ----
(In Thousands Except Per Share Amounts)
Net sales $ 44,311 $ 42,923
Cost of goods sold 19,108 18,740
--------- -----------
Gross profit 25,203 24,183
--------- -----------
Operating expenses:
Selling, general and administrative 11,071 11,380
Research and development 1,775 1,846
Interest (income) (1,266) (936)
Interest expense 168 191
Other (income) expense (942) 219
Goodwill amortization 270 159
-------- ---------
Income before provision for income taxes 14,127 11,324
Provision for income taxes 4,932 4,200
---------- -----------
Net income $ 9,195 $ 7,124
=========== ===========
Net income p $ .71 $ .55
=========== ===========
Weighted average number of shares 13,026 12,990
=========== ===========
See Notes to Consolidated Financial Statements
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
For the Three Months Ended March 31,
1996 1995
(In Thousands Except Per Share Amounts)
Net sales $ 22,596 $ 22,167
Cost of goods sold 9,776 9,654
-------- -----------
Gross profit 12,820 12,513
--------- -----------
Operating expenses:
Selling, general and administrative 5,632 5,788
Research and development 829 928
Interest (income) (572) (500)
Interest expense 83 89
Other (income) expense (469) (32)
Goodwill amortization 141 82
----------- --------
Income before provision for income taxes 7,176 6,158
Provision for income taxes 2,527 2,289
--------- -----------
Net income $ 4,649 $ 3,869
========= ===========
Net income per share $ .36 $ .30
========== ===========
Weighted average number of shares 13,043 12,990
========== ==========
See Notes to Consolidated Financial Statements
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
For the Six Months Ended March 31,
1996 1995
(In Thousands)
<CAPTION>
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 9,195 $ 7,124
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and amortization 794 617
Deferred income taxes (7) 65
Amortization of goodwill 270 159
Amortization of deferred credit (50) (50)
Net gain on sales of available for sale securities 277
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 1,981 (1,265)
(Increase) in inventory (71) (236)
Decrease in prepaid expenses and
other current assets 1,482 3,812
(Increase) decrease in other assets (445) 872
(Decrease) in accounts payable
and accrued expenses (2,270) (570)
------------ ------------
Net cash provided by operating activities 11,156 10,528
------------ ------------
Cash Flows from Investing Activities:
Proceeds from sales of available-for-sale
securities. 49,938 12,850
Purchases of available-for-sale securities (42,878) (33,149)
Acquisition of property, plant and equipment (1,938) (1,292)
Payment for purchase of subsidiaries net of
cash acquired (5,435) ---
Assets held for sale (2,750) ---
--------- -----------
Net cash used in investing activities (3,063) (21,591)
--------- ----------
Cash Flows from Financing Activities:
Net reissuance (purchase) of treasury stock 160 (21)
Dividends paid (781) (519)
Proceeds from exercise of stock options and warrants 621
Principal payments of long-term debt and
notes payable (1,011) (753)
--------- ----------
Net cash used in financing activities (1,011) (1,293)
--------- -----------
Net increase (decrease) in cash and cash equivalents 7,082 (12,356)
Cash and cash equivalents at beginning of period 8,334 23,412
--------- -----------
Cash and cash equivalents at end of period $ 15,416 $ 11,056
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet as of March 31, 1996, the consolidated
statements of income for the three months and six months ended March 31,
1996 and 1995 and the consolidated statement of cash flows for the six
months ended March 31, 1996 and 1995 have been prepared by Vital Signs,
Inc. (the "Company" or "VSI") and are unaudited. In the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at March 31, 1996 and 1995 and for all periods
presented have been made.
2. Earnings per share are computed using the weighted average number of common
shares outstanding during the period. The dilutive effective of common
stock equivalents is not material.
3. See the Company's Annual Report on Form 10-K for the year ended September
30, 1995 (the "Form 10-K") for additional disclosures relating to the
Company's financial statements.
4. In July, 1995, the Company invested $2.2 million to acquire an 85%
ownership interest in Mediziv Medical Products, Ltd. ("Mediziv"), a
closely held Israeli company primarily engaged in the business of
developing, assembling and selling single use products for use in
anesthesia and critical care (see Form 10-K for additional disclosures
relating to Mediziv).
In December, 1995, the Company acquired the MistyOx respiratory business
("MistyOx") for $2.1 million. Such business represented approximately
$3.3 million in annual sales by the corporate entity that sold this
business.
During the quarter ended March 31, 1996 the Company acquired HealthStar
Pharmaceutical Services, Inc. ("HPS") for $1,650,000. The Company's
principal purpose of acquiring HPS is to establish a U.S. manufacturing
facility for the Company's flush device. The purchase agreement includes
future contingent payments based on the pre tax earnings of HPS over the
next three years.
All three acquisitions are accounted for as purchases and are included in
operations from their respective dates of acquisition.
5. In March, 1996, the Company entered into an agreement in principle to
sell its endoscopic product line to a third party. This transaction is
expected to close in May, 1996. Accordingly the statements of income for
all periods presented have been restated to reflect the net operations of
the endoscopic product line as other income. The consolidated Balance
Sheet at March 31, 1996 sets forth the assets to be sold as a separate
item. The Company expects to realize an immaterial gain from the sale of
its endoscopic product line.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
A. Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items included in the Company's
consolidated statement of income.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
March 31, March 31,
----------------------- -----------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 43.1 43.7 43.3 43.6
------ ----- ------ -----
Gross profit 56.9 56.3 56.7 56.4
------ ----- ------ -----
Selling, general and administrative
expenses 25.0 26.5 24.9 26.1
Research and development expenses 4.0 4.3 3.7 4.2
Interest (income) (2.9) (2.2) (2.6) (2.3)
Interest expense .4 .4 .4 .4
Goodwill amortization .6 .4 .6 .4
Other (income) expense ( 2.1) .5 ( 2.1) (.1)
------- ------ ------- ------
Income before provision for
income taxes 31.9 26.4 31.8 27.8
Provision for income taxes 11.1 9.8 11.2 10.3
------ ----- ------ ------
Net income 20.8% 16.6% 20.6% 17.5%
====== ===== ===== ======
</TABLE>
The following table sets forth, for the periods indicated, the percentage
increase or decrease of certain items included in the Company's consolidated
statement of income.
Increase (Decrease)
From Prior Period
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
March 31, 1996 Compared March 31, 1996 Compared
With Six Months Ended With Three Months Ended
March 31, 1995 March 31, 1995
<S> <C> <C>
Net Sales 3.2% 1.9%
Cost of goods sold 1.9 1.3
Gross profit 4.2 2.5
Selling, general and administrative
expenses (2.7) (2.7)
Research and development expenses (3.8) (10.7)
Income before provision for
income taxes 24.8 16.5
Provision for income taxes 17.4 10.4
Net income 29.1 20.2
</TABLE>
PAGE>
COMPARISON: QUARTER ENDED MARCH 31, 1996
AND QUARTER ENDED MARCH 31, 1995
Net Sales for the three months ended March 31, 1996 increased by 1.9%
compared with the same period last year. The increase was primarily due to an
increase in unit sales and sales attributable to acquired businesses. Sales of
anesthesia products (representing 71.8% of net sales) declined by (3.5)% and
sales of respiratory products (representing 22.8% of net sales) grew by 4.6%.
Gross profit increased slightly from period to period primarily due to
(i) cost reductions realized through the Company's cost efficiency programs
offset in part by pressures resulting from competitive factors and the cost
containment efforts in the hospital market, and (ii) product mix impacted by
increased sales of certain products with margins below the Company's average
gross profit.
Selling, general and administrative expenses decreased as a percentage
of sales from 26.1% of sales to 24.9% of sales. Total selling, general and
administrative expenses decreased by ($156,000) 2.7%, largely attributable to
the Company's reduction in sales and marketing in streamlining its European
Operations primarily through a dealer distribution network.
Research and development (R&D) expenses decreased in dollar volume by
$99,000 (10.7%) principally due to reduced expenditures in the Company's O.R.
Concepts subsidiary as a result of Vital Signs' decision to reduce O.R.
Concepts' operations.
Other income/expense includes primarily dividend income, realized
capital gains and losses and currency gains and losses. The increase in other
income in the March 1996 quarter was primarily due to capital gains recognized
in the March 1996 quarter and other income from the operations of the Company's
endoscopic line while the March 1995 quarter reported a capital loss.
The Company's effective tax rates were 35.2% and 37.1% for the three
months ended March 31, 1996 and 1995, respectively. These rates were less than
the combined Federal and State statutory rates as a result of net operating
losses capital loss carry forwards and lower state income taxes resulting from
an allocation to various states.
<PAGE>
COMPARISON: SIX MONTHS ENDED MARCH 31, 1996
AND SIX MONTHS MARCH 31, 1995
Net Sales for the six months ended March 31, 1996 increased by 3.2%
compared with the same period last year. The increase was primarily due to an
increase in unit sales and sales attributable to acquired businesses. Sales of
anesthesia products (representing 75.7% of net sales) increased by 1.9% and
sales of respiratory products (representing 22.7% of net sales) grew by 1.2%.
Gross profit increased slightly from period to period primarily due to
(i) cost reductions realized through the Company's cost efficiency programs
offset in part by pressures resulting from competitive factors and the cost
containment efforts in the hospital market, and (ii) product mix impacted by
increased sales of certain products with margins below the Company's average
gross profit.
Selling, general and administrative expenses decreased as a percentage
of sales from 26.5% of sales to 24.9 of sales. Total selling, general and
administrative expenses decreased by ($309,000) 2.7%, largely attributable to
the Company's reduction in sales and marketing in in streamlining European
Operations primarily through a dealer distribution network.
Research and development (R&D) expenses decreased in dollar volume by
$71,000 (3.8%) principally due to a temporary reduction in staffing.
The increase in other income in the first half of the current fiscal
year was primarily due to capital gains recognized and income from the
operations of the company's endoscopic product line in the first two quarters of
fiscal 1996.
The Company's effective tax rates were 35.4% and 37% for the three
months ended March 31, 1996 and 1995, respectively. These rates were less than
the combined Federal and State statutory rates as a result of net operating
losses capital loss carry forwards and lower state income taxes resulting from
an allocation to various states.
<PAGE>
COMPARISON: QUARTER ENDED MARCH 31, 1996
AND QUARTER ENDED MARCH 31, 1995
Liquidity and Capital Resources
The Company continues to rely upon cash flow from its operations as
well as the funds generated from its initial and second public offerings. During
the six months ended March 31, 1996, cash and cash equivalents and short-term
investments increased by $3,577,000 while long-term marketable securities
decreased by $4,099,000. In addition, long-term debt was reduced by $500,000 and
the Company purchased the Misty Ox Product Line for approximately $2.3 million
and HPS for $1,650,000 in cash. The combined total of cash and cash equivalents,
short-term investment and long-term investments was approximately $44.5 million
at March 31, 1996 as compared to $45.0 million at September 30, 1995.
At March 31, 1996, the Company had $15.4 million in cash and cash
equivalents. On that date, the Company's working capital was $38.9 million and
the current ratio was 5.3 to 1, as compared to $32.9 million and 3.6 to 1 at
September 30, 1995.
The Company has a substantial working capital position. Its current
policy is to retain such working capital and earnings for use in its business,
subject to the payment of certain cash dividends. Such funds may be used for
product development, product acquisitions and business acquisitions, among other
things. The Company regularly evaluates and negotiates with domestic and foreign
medical device companies regarding potential business or product line
acquisitions or licensing arrangements by the Company.
The Company has a $10 million line of credit with Chemical Bank New
Jersey, N.A. ("Chemical"). Chemical has also expressed its intention to provide
additional funds for the Company's future acquisitions, provided that each such
acquisition meets certain criteria.
Management believes that the funds generated from operations, along
with the Company's current working capital position and bank credit, will be
sufficient to satisfy the Company's capital requirements for the foreseeable
future.
<PAGE>
PART II. Other Information
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits: 27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended March 31, 1996: None.
<PAGE>
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.
VITAL SIGNS, INC.
By: /S/Anthony J. Dimun
___________________
Anthony J. Dimun
Executive Vice President of
Finance and Chief Financial Officer
Date: May 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary Financial Information
extracted from the Company's Balance Sheet at March 31,
1996 and Six Months income statement ending March 31, 1996
and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> 6-MOS
<EXCHANGE-RATE> 1
<CASH> 15,416
<SECURITIES> 252
<RECEIVABLES> 14,879
<ALLOWANCES> 287
<INVENTORY> 12,038
<CURRENT-ASSETS> 47,947
<PP&E> 24,759
<DEPRECIATION> 8,014
<TOTAL-ASSETS> 115,116
<CURRENT-LIABILITIES> 9,037
<BONDS> 2,700
0
0
<COMMON> 29,757
<OTHER-SE> 71,815
<TOTAL-LIABILITY-AND-EQUITY> 115,116
<SALES> 44,311
<TOTAL-REVENUES> 44,311
<CGS> 19,108
<TOTAL-COSTS> 19,108
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 168
<INCOME-PRETAX> 14,127
<INCOME-TAX> 4,932
<INCOME-CONTINUING> 9,195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,195
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
</TABLE>
