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 June 30, 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 August 1, 1996, there were 13,067,005 shares of Common Stock, no par
value, outstanding.
<PAGE>
VITAL SIGNS, INC.
INDEX
Page
Number
Part I. Financial Information 1
Item 1. Financial Statements
Consolidated Balance Sheet as of
June 30, 1996 (Unaudited) and
September 30, 1995 2
Consolidated Statement of Income
for the Nine Months Ended
June 30, 1996 and 1995 (Unaudited) 3
Consolidated Statement of Income
for the Three Months Ended
June 30, 1996 and 1995 (Unaudited) 4
Consolidated Statement of Cash
Flows for the Nine Months Ended
June 30, 1996 and 1995 (Unaudited) 5
Notes to Consolidated Financial
Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7-10
Part II.
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
PART Financial Information
Item 1. Financial Statements
Pursuant to the rules and regulations of the Securities and Exchange
Commission, certain information and footnote disclosures required under
generally accepted accounting principles have been condensed or omitted from the
following consolidated financial statements. 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
June 30, 1996 September 30, 1995
------------- ------------------
(In Thousands)
ASSETS
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 16,801 $ 8,334
Marketable securities 633 3,757
Accounts receivable, less allowance for
doubtful accounts of $122 and $285 respectively 14,428 15,300
Inventory 13,089 11,325
Prepaid expenses and other current assets 5,896 6,936
---------- ----------
Total Current Assets 50,847 45,652
Property, Plant and Equipment - net 18,590 12,674
Marketable Securities 28,959 32,925
Goodwill 15,524 15,419
Other Assets 5,750 3,751
--------- ----------
Total Assets $ 119,670 $ 110,421
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,679 $ 3,017
Current portion of long-term debt 500 500
Accrued expenses 2,640 4,936
Amounts payable relating to acquisitions 2,911
Deferred income taxes payable 1,443 1,403
-------- ----------
Total Current Liabilities 9,262 12,767
Deferred Income Taxes Payable 1,041 993
Long-term debt 2,700 3,200
Other 741 816
---------- ----------
Total Liabilities 13,744 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
13,067,005 and 12,999,078 shares, respectively 29,774 29,015
Allowance for aggregate unrealized gain or (loss)
on marketable securities (452) (100)
Retained earnings 76,604 63,730
------- ----------
Stockholders' Equity 105,926 92,645
-------- ----------
Total Liabilities and Stockholders' Equity $ 119,670 $ 110,421
========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
For the Nine Months Ended June 30,
1996 1995
(In Thousands Except per
Share Amounts)
<S> <C> <C>
Net sales $ 67,329 $ 65,172
Cost of goods sold 28,819 28,184
-------- --------
Gross profit 38,510 36,988
-------- ---------
Operating expenses:
Selling, general and administrative 16,565 16,754
Research and development 2,695 2,864
Interest (income) (1,826) (1,574)
Interest expense 240 250
Other (income) expense (1,101) 102
Goodwill amortization 509 243
--------- ---------
Income before provision for income taxes 21,428 18,349
Provision for income taxes 7,420 6,780
-------- -----------
Net income $ 14,008 $ 11,569
=========== ===========
Net income per share $ 1.07 $ .89
=========== ===========
Weighted average number of shares 13,040 12,990
=========== ===========
See Notes to Consolidated Financial Statements
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
For the Three Months Ended June 30,
1996 1995
(In Thousands Except Per Share Amounts)
<S> <C> <C>
Net sales $ 23,018 22,249
Cost of goods sold 9,711 9,444
----------- -----------
Gross profit 13,307 12,805
--------- -----------
Operating expenses:
Selling, general and administrative 5,494 5,374
Research and development 920 1,018
Interest (income) (560) (638)
Interest expense 72 59
Other (income) (159) (117)
Goodwill amortization 239 84
--------- -----------
Income before provision for income taxes 7,301 7,025
Provision for income taxes 2,488 2,580
----------- -----------
Net income $ 4,813 $ 4,445
=========== ===========
Net income per share $ .37 $ .34
=========== ===========
Weighted average number of shares 13,067 12,990
=========== ===========
See Notes to Consolidated Financial Statements
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Nine Months Ended June 30,
1996 1995
(In Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 14,008 $ 11,569
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and amortization 1,308 968
Deferred income taxes (7) 452
Amortization of goodwill 509 243
Amortization of deferred credit (75) (75)
Net gain on sale of available for sale securities 279 ---
Gain on sale of subsidiary (229) ---
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 1,831 (1,426)
(Increase) in inventory (1,535) (934)
Decrease in prepaid expenses and
other current assets 1,235 4,842
(Increase) decrease in other assets (1,865) 810
(Decrease) in accounts payable
and accrued expenses (2,045) (812)
--------- -----------
Net cash provided by operating activities 13,414 15,637
--------- -----------
Cash Flows from Investing Activities:
Proceeds from sales of available-for-sale
securities. 50,816 31,174
Purchases of available-for-sale securities (44,357) (52,607)
Payment for subsidiaries net of cash acquired (8,431) ---
Cash received for the sale of subsidiary 2,786 ---
Acquisition of property, plant and equipment (4,375) (1,487)
--------- -----------
Net cash used in investing activities (3,561) (22,920)
--------- -----------
Cash Flows from Financing Activities:
Purchase of treasury stock net of reissuance 160 (20)
Dividends Paid (1,171) (780)
Proceeds from exercise of stock options 636 ---
Principal payments of long-term debt and
notes payable (1,011) (752)
--------- -----------
Net cash used in financing activities (1,386) (1,552)
--------- -----------
Net increase (decrease) in cash and cash equivalents 8,467 (8,835)
Cash and cash equivalents at beginning of period 8,334 23,412
----------- -----------
Cash and cash equivalents at end of period $ 16,801 $ 14,577
========= ===========
See Notes to Consolidated Financial Statements
5
</TABLE>
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet as of June 30, 1996, the consolidated
statements of income for the three months and nine months ended June 30,
1996 and 1995 and the consolidated statement of cash flows for the nine
months ended June 30, 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 June 30, 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 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 June, 1996 the Company completed the sale of its endoscopic product line
to a third party for $2,786,000. 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 Company realized an
immaterial gain from the sale of its endoscopic product line.
6
<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>
Nine Months Ended Three Months Ended
June 30, June 30,
---------------------- ---------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 42.8 43.2 42.2 42.4
----- ----- ----- ------
Gross profit 57.2 56.8 57.8 57.6
----- ----- ----- ------
Selling, general and administrative
expenses 24.6 25.7 23.9 24.1
Research and development expenses 4.0 4.4 4.0 4.6
Interest (income) (2.7) (2.4) (2.5) (2.9)
Interest expense .3 .4 .3 .3
Goodwill amortization .8 .4 1.1 .4
Other (income) expense (1.6) .1 (.7) (.5)
----- ----- ---- ------
Income before provision for
income taxes 31.8 28.2 31.7 31.6
Provision for income taxes 11.0 10.4 10.8 11.6
----- ------ ----- ------
Net income 20.8% 17.8% 20.9% 20.0%
===== ====== ===== =====
</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.
<TABLE>
<CAPTION>
Increase (Decrease)
From Prior Period
Nine Months Ended Three Months Ended
June 30, 1996 Compared June 30, 1996 Compared
With Nine Months Ended With Three Months Ended
June 30, 1995 June, 1995
<S> <C> <C>
Net Sales 3.3% 3.5%
Cost of goods sold 2.2 2.8
Gross profit 4.1 3.9
Selling, general and administrative
expenses (1.1) 2.2
Research and development expenses (5.9) (9.6)
Income before provision for
income taxes 16.8 3.9
Provision for income taxes 9.4 (3.6)
Net income 21.1 8.3
7
</TABLE>
<PAGE>
COMPARISON: NINE MONTHS ENDED JUNE 30, 1996
AND NINE MONTHS JUNE 30, 1995
Net Sales for the nine months ended June 30, 1996 increased by 3.3%
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 60.3% of net sales) increased by 0.9%, sales
of respiratory products (representing 37.7% of net sales) grew by 2.0%, and
other product revenue (representing 2.0% of net sales) grew by 100%.
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. An increasing percentage of the Company's sales are subject to bid
proposal requests solicited by group purchasing organizations ("GPO's"). Many of
the GPO's represent a significant number of hospitals for whom the GPO exerts
influence over medical device purchasing. Given the leverage held by GPO's and
the competitive pressures resulting from the bidding processes utilized by
GPO's, no assurances can be given that the Company will be successful in
securing the business represented by the GPO's or, if successful, that the
pricing reflected in such bids will enable the Company to maintain its historic
margins.
Selling, general and administrative expenses decreased as a percentage
of sales from 25.7% of sales to 24.6% of sales. Total selling, general and
administrative expenses decreased by $189,000 (1.1%), largely attributable to
the Company's cost containment efforts.
Research and development (R&D) expenses decreased in dollar volume by
$169,000 (5.9%) principally due to a temporary reduction in staffing.
The increase in other income in the first nine months of the current
fiscal year was primarily due to capital gains recognized (approximately
$279,000) and income from the operations of the Company's endoscopic product
line.
The Company's effective tax rates were 34.6% and 37% for the nine
months ended June 30, 1996 and 1995, respectively. These rates were less than
the combined Federal and State statutory rates as a result of lower state income
taxes resulting from an allocation to various states.
8
<PAGE>
COMPARISON: QUARTER ENDED JUNE 30, 1996
AND QUARTER ENDED JUNE 30, 1995
Net Sales for the three months ended June 30, 1996 increased by 3.5%
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 51.9% of net sales) declined by (4.6)%, sales
of respiratory products (representing 45.4% of net sales) grew by 7.4%, and
other product sales (representing 2.7% of net sales) grew by 100%.
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. An increasing percentage of the Company's sales are subject to bid
proposal requests solicited by group purchasing organizations ("GPO's"). Many of
the GPO's represent a significant number of hospitals for whom the GPO exerts
influence over medical device purchasing. Given the leverage held by GPO's and
the competitive pressures resulting from the bidding processes utilized by
GPO's, no assurances can be given that the Company will be successful in
securing the business represented by the GPO's or, if successful, that the
pricing reflected in such bids will enable the Company to maintain its historic
margins.
Selling, general and administrative expenses decreased as a percentage
of sales from 24.1% of sales to 23.9% of sales. Total selling, general and
administrative expenses increased by ($120,000) 2.3%, reflecting increased
sales.
Research and development (R&D) expenses decreased in dollar volume by
$98,000 (9.6%) principally due to a temporary reduction in staff.
Other income/expense includes primarily dividend income, realized
capital gains and losses and currency gains and losses. The increase in other
income in the June 1996 quarter was primarily due to income from the operations
of the Company's endoscopic line.
The Company's effective tax rates were 34.1% and 36.7% for the three
months ended June 30, 1996 and 1995, respectively. These rates were less than
the combined Federal and State statutory rates as a result of lower state income
taxes resulting from an allocation to various states.
9
<PAGE>
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 secondary public offerings.
During the nine months ended June 30, 1996, cash and cash equivalents and
short-term investments increased by $5,343,000 while long-term marketable
securities decreased by $3,966,000. 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 HealthStar Pharmaceutical Services, Inc. for $1.65 million in
cash. The combined total of cash and cash equivalents, short-term investment and
long-term investments was approximately $46.4 million at June 30, 1996 as
compared to $45.0 million at September 30, 1995.
At June 30, 1996, the Company had $16.8 million in cash and cash
equivalents, an increase of $8.5 million over September 30, 1995. Operating
activities provided $13.4 million of cash flow, principally as a result of the
Company's net income ($14.0 million) for the period. The Company used a portion
of that cash and cash generated from the sale of securities to fund business
acquisition payments of $8.4 million (see Note 4 of the Notes to the Company's
Consolidated Financial Statements), acquisitions of property, plant and
equipment ($4.4 million), divided payments ($1.2 million) and the
above-mentioned reduction in long-term debt. On June 30, 1996, the Company's
working capital was $41.6 million and its current ratio was 5.5 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.
10
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
Reference is made to Item 3 of the Company's Annual Report
on Form 10-K for the year ended September 30, 1995.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of shareholders on June 13,
1996. At that meeting, each of the Board's nominees were re-elected
to the Board and the shareholders approved the adoption of an
employee stock purchase plan. Shares were voted for the election of
directors as follows:
For Authority Withheld
David J. Bershad 11,548,078 22,042
Anthony J. Dimun 11,548.095 22,025
Joseph Thomas 11,548,078 22,042
John Toedtman 10,859,128 710,992
Terence D. Wall 11,548,095 22,025
C. Barry Wicker 11,548,095 22,025
Shares were voted for the adoption of the employee stock
purchase plan as follows:
For 11,531,049
Against 4,995
Abstentions 2,257
Broker Non-Votes 31,819
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
June 30, 1996: None.
11
<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 and
Chief Financial Officer
Date: August 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from the Company's Balance Sheet at June 30,
1996 and Nine Months income statements ending June 30,
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-30-1995
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1996
<PERIOD-TYPE> 9-MOS
<EXCHANGE-RATE> 1
<CASH> 16,801
<SECURITIES> 633
<RECEIVABLES> 14,550
<ALLOWANCES> 122
<INVENTORY> 13,089
<CURRENT-ASSETS> 50,847
<PP&E> 27,111
<DEPRECIATION> 8,521
<TOTAL-ASSETS> 119,670
<CURRENT-LIABILITIES> 9,262
<BONDS> 2,700
0
0
<COMMON> 29,774
<OTHER-SE> 76,152
<TOTAL-LIABILITY-AND-EQUITY> 119,670
<SALES> 67,329
<TOTAL-REVENUES> 67,329
<CGS> 28,819
<TOTAL-COSTS> 28,819
<OTHER-EXPENSES> 16,842
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 240
<INCOME-PRETAX> 21,428
<INCOME-TAX> 7,420
<INCOME-CONTINUING> 14,008
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,008
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>
