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 December 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 February 1, 1997, there were 12,975,523 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
December 31, 1996 (Unaudited) and
September 30, 1996 2
Consolidated Statement of Income
for the Three Months Ended
December 31, 1996 and 1995 (Unaudited) 3
Consolidated Statement of Cash
Flows for the Three Months Ended
December 31, 1996 and 1995 (Unaudited) 4
Notes to Consolidated Financial
Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 6-8
Part II.
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
<PAGE>
PART I. 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. 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, 1996.
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.
1
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1996 September 30, 1996
(In Thousands)
ASSETS
(Unaudited)
Current Assets:
Cash and cash equivalents $ 17,627 $ 17,747
Marketable securities 602
Accounts receivable, less allowance for
doubtful accounts of $136 and $169, respectively 14,209 13,887
Inventory 14,698 13,013
Prepaid expenses and other current assets 5,604 8,279
---------- ----------
Total Current Assets 52,138 53,528
Property, Plant and Equipment - net 22,714 21,131
Marketable Securities 29,337 28,187
Goodwill 16,525 16,619
Other Assets 3,797 4,291
---------- --------
Total Assets $ 124,511 $ 123,756
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,244 $ 4,066
Current portion of long-term debt 200 500
Accrued expenses 2,163 2,406
Amounts payable relating to acquisitions 265 236
Deferred income taxes payable 1,475 1,500
------------ --------
Total Current Liabilities 7,347 8,708
Deferred Income Taxes Payable 1,280 1,334
Long-term debt 2,500 2,700
Other 706 775
------------ --------
Total Liabilities 11,833 13,517
------------ --------
Commitments and Contingencies
Stockholders' Equity
Common stock - no par value:
authorized 40,000,000 shares, issued
12,975,523 and 13,062,701 shares, respectively 27,615 29,666
Allowance for aggregate unrealized loss
on marketable securities (304) (426)
Retained earnings 85,367 80,999
----------- --------
Stockholders' Equity 112,678 110,239
----------- --------
Total Liabilities and Stockholders' Equity $ 124,511 $ 123,756
=========== =========
See Notes to Consolidated Financial Statements
2
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VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
For the Three Months Ended December 31,
1996 1995
(In Thousands Except Per Share Amounts)
Net sales - continuing product lines $ 22,830 $ 21,715
Net sales - product line disposed --- 402
Cost of goods sold 9,853 9,465
----------- -----------
Gross profit 12,977 12,652
----------- -----------
Operating expenses:
Selling, general and administrative 5,766 5,586
Research and development 916 946
Interest income (626) (694)
Interest expense 63 85
Other income, net (665) (395)
Goodwill amortization 136 129
---------- -----------
Income before provision for income taxes 7,387 6,995
Provision for income taxes 2,485 2,449
---------- -----------
Net income $ 4,902 $ 4,546
========== ===========
Net income per share $ .38 $ .35
========== ===========
Weighted average number of shares 13,035 13,008
========== ===========
See Notes to Consolidated Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Three Months Ended December 31,
1996 1995
(In Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 4,902 $ 4,546
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and amortization 566 382
Deferred income taxes (79) 32
Amortization of goodwill 136 129
Amortization of deferred credit (25) (25)
Net gain on sales of available for
sale securities (776) (26)
Changes in operating assets
and liabilities:
(Increase) decrease in
accounts receivable (322) 594
(Increase) in inventory (1,685) (227)
Decrease in prepaid expenses
and other current assets 2,675 118
(Decrease) in accounts payable
and accrued expenses (1,065) (1,403)
Decrease (Increase) in other assets 477 (70)
--------- -----------
Net cash provided by
operating activities 4,804 4,050
---------- ----------
Cash Flows from Investing Activities:
Proceeds from sales of available-for-sale
securities. 5,891 18,764
Purchases of available-for-sale securities (5,541) (21,477)
Acquisition of property, plant and equipment (2,149) (320)
Payment for purchase of subsidiaries net of
cash acquired (40) (2,719)
---------- -----------
Net cash used in investing activities (1,839) (5,752)
---------- -----------
Cash Flows from Financing Activities:
Net reissuance (purchase) of treasury stock (2,231) 160
Dividends paid (524) (391)
Proceeds from exercise of stock
options and warrants 170 130
Principal payments of long-term debt and
notes payable (500) (672)
---------- ----------
Net cash used in financing activities (3,085) (773)
---------- ----------
Net decrease in cash and cash equivalents (120) (2,475)
Cash and cash equivalents at
beginning of period 17,747 8,335
---------- ----------
Cash and cash equivalents at end of period $ 17,627 $ 5,860
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the three months for:
Interest $ 133 $ 152
Income taxes 619 2,575
Supplemental schedule of noncash investing activities:
Accrued amounts relating to purchase
of subsidiaries $ --- $ 125
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet as of December 31, 1996, the consolidated
statements of income for the three months ended December 31, 1996 and
1995 and the consolidated statement of cash flows for the three months
ended December 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 December 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, 1996 (the "Form 10-K") for additional disclosures relating to the
Company's financial statements.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Introduction
The Company disposed of its endoscopic product line during Fiscal 1996. See
Item 6 of the Company's Annual Report on Form 10-K for the year ended September
30, 1996. In its analysis of the Company's results of operations, management
views net sales from continuing product lines (i.e., excluding the revenues
derived from its endoscopic product line) as the relevant revenue base from
which to make analytic comparisons. Since the expenses of the endoscopic product
line were not material to the Company's results of operations and did not vary
substantially prior to the discontinuation of that product line, management's
analysis below includes within all line items, other than sales, the results of
operations of both the Company's continuing product lines and the Company's
discontinued endoscopic product line.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
increase (decrease) of certain items included in the Company's consolidated
statement of income.
Increase/(Decrease) From
Prior Period
Three Months Ended December 31, 1996
Compared With Three Months Ended December 31, 1995
Net sales -continuing product lines 5.1 %
Cost of goods sold 4.1
Gross profit 2.6
Selling, general and administrative
expense 3.2
Research and development expenses (3.2)
Income before provision for
income taxes 5.6
Provision for income taxes 1.5
Net income 7.8
6
<PAGE>
COMPARISON: QUARTER ENDED AND FISCAL YEAR TO DATE AT DECEMBER 31, 1996
AND QUARTER ENDED AND FISCAL YEAR TO DATE AT DECEMBER 31, 1995
Results of Operations (continued)
Net sales--continuing product lines for the quarter ended December 31, 1996
increased by 5.1% compared with the same period last year. The increase was due
primarily to an increase in unit sales and the acquisition of HealthStar
Pharmaceutical Services ("HPS"). Prices did not have a material effect on net
sales during these periods.
Sales of anesthesia products (representing 63.8% of net sales--continuing
product lines) grew 5.3% from the quarter ended December 31, 1995 to the quarter
ended December 31, 1996. Sales of critical care and respiratory products
(representing 32.6% of net sales--continuing product lines) decreased by 5.7%
due to lower unit sales. The Company has not had success in obtaining group
purchasing contracts with respect to critical care and respiratory products.
This has contributed to the lower unit volumes. Other products, accounting for
3.6% of net sales, increased by 100% from the comparable period in Fiscal 1995,
reflecting the Company's acquisition of HPS.
Gross profit increased by 2.6% in absolute dollar amount. This increase is
the result of the Company's re-engineering and cost reduction efforts offset by
sales of certain products with gross margins below the Company's average gross
margin, as well as the sales price pressure that is evident within the cost
conscious health care industry today. On a consolidated basis the Company's
gross profit percentage for the quarter ended December 31, 1996 was 56.8%
compared to 57.2% in the same time period of last fiscal year.
Selling, general and administrative expenses increased by 3.2% in dollar
volume, as the result of increases in costs to support international sales
growth and the acquisition of HPS.
Research and development (R&D) expenses decreased slightly, as the result
of the completion of development on two major projects. Notwithstanding this
reduction, the Company continues to make an active commitment to new product
development.
Other income/expense, which increased by $270,000 from the quarter ended
December 31, 1995 to the quarter ended December 31, 1996, includes dividend
income, realized capital gains and losses, legal and other expenses related to
non-operational items and currency gains and losses.
The Company's effective tax rates were 33.6% and 35.0% for the three months
ended December 31, 1996 and 1995 respectively. The rates are less than the
combined Federal and State statutory rates primarily as a result of the
utilization of capital loss carry forwards.
On November 18, 1996, the Company announced it won a dual source supply
agreement with Premier Purchasing Partners LP ("Premier"), an affiliate of the
largest healthcare purchasing group in the United States (see page 9 of the
Company's Annual Report on Form 10-K for the year ended September 30, 1996).
This agreement covers a variety of anesthesia products and provides for
favorable pricing for the group in exchange for committed purchasing volume
(90%) of usage from the member hospitals. The agreement covers a five year term
and is effective starting February 1, 1997. Based on current membership data,
management anticipates that the effect on operating income and gross margin
contribution (dollars) will not be dilutive in spite of lower pricing and gross
margin percentages. This statement regarding dilutive impact constitutes a
forward-looking statement under the Private Securities Litigation Reform Act of
1995. The effects of the contract could differ materially from these estimates
as the contract is implemented, if the volume of purchases is less than
anticipated, if the Company is required to incur unanticipated selling expenses
or if the product mix purchased does not result in anticipated manufacturing
efficiencies.
7
<PAGE>
COMPARISON: QUARTER ENDED DECEMBER 31, 1996
AND QUARTER ENDED DECEMBER 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
three months ended December 31, 1996, cash and cash equivalents and short-term
investments decreased by $722,000 while long-term marketable securities
increased by $1,150,000. In addition, long-term debt was reduced by $500,000 and
$2,231,000 of treasury stock was acquired pursuant to a previously announced
buy-back plan. Capital expenditures of $2,149,000 were made to improve
efficiencies and support new business opportunities. The combined total of cash
and cash equivalents, short-term investment and long-term investments was
approximately $47.0 million at December 31, 1996 as compared to $46.5 million at
September 30, 1996.
At December 31, 1996, the Company had $17.6 million in cash and cash
equivalents. On that date, the Company's working capital was $44.8 million and
the current ratio was 7.1 to 1, as compared to $44.8 million and 6.1 to 1 at
September 30, 1996. The Company's 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 Chase Manhattan Bank
("Chase"). Chase has also expressed its intention to provide additional funds
for the Company's future acquisitions, provided that each such acquisition meets
certain criteria. The terms for any borrowing would be negotiated at the date of
origination.
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. This statement constitutes a forward-looking statement under the Private
Securities Litigation Reform Act of 1995. The Company's liquidity could be
adversely impacted and its need for capital change if costs are higher than
anticipated, operating results differ significantly from recent experience or
adverse events affect the Company's operations.
8
<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,
1996.
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 December 31, 1996: None.
9
<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: February 14, 1997
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's balance sheet at December 31, 1996 and three month income statement
ended December 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> Dec-31-1996
<PERIOD-TYPE> 3-MOS
<EXCHANGE-RATE> 1
<CASH> 17,627
<SECURITIES> 0
<RECEIVABLES> 14,345
<ALLOWANCES> 136
<INVENTORY> 14,698
<CURRENT-ASSETS> 52,138
<PP&E> 30,105
<DEPRECIATION> 7,391
<TOTAL-ASSETS> 124,511
<CURRENT-LIABILITIES> 7,347
<BONDS> 2,500
0
0
<COMMON> 27,615
<OTHER-SE> (304)
<TOTAL-LIABILITY-AND-EQUITY> 124,511
<SALES> 22,830
<TOTAL-REVENUES> 22,830
<CGS> 9,853
<TOTAL-COSTS> 9,853
<OTHER-EXPENSES> 1,052
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> 7,387
<INCOME-TAX> 2,485
<INCOME-CONTINUING> 4,902
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,902
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
