SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
DRAFT 05/13/98 9:58 AM
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, 1998 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)
973-790-1330
(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, 1998, there were 12,818,862 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
March 31, 1998 (Unaudited) and
September 30, 1997 2
Consolidated Statement of Income
for the Six Months Ended
March 31, 1998 and 1997 (Unaudited) 3
Consolidated Statement of Income
for the Three Months Ended
March 31, 1998 and 1997 (Unaudited) 4
Consolidated Statement of Cash
Flows for the Six Months Ended
March 31, 1998 and 1997 (Unaudited) 5
Notes to Consolidated Financial
Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7-11
PART II.
Item 1. Legal Proceedings 12
Item 4 Submission of Matters to a Vote
of Securityholders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
<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, 1997.
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, September 30,
1998 1997
(In Thousands)
ASSETS
(Unaudited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 3,214 $ 4,110
Accounts receivable, less allowance for
doubtful accounts of $200 and $101, respectively 17,837 16,405
Inventory 19,741 19,559
Prepaid expenses and other current assets 8,589 11,187
---------- ----------
Total Current Assets 49,381 51,261
Property, plant and equipment - net 37,522 33,825
Marketable securities 11,983 18,206
Goodwill 28,539 28,907
Other assets 10,423 4,749
------------ ------------
Total Assets $ 137,848 $ 136,948
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,255 $ 6,204
Current portion of long-term debt 558 611
Accrued expenses 4,967 6,114
Amounts payable relating to acquisitions --- 230
------------ ------------
Total Current Liabilities 9,780 13,159
Deferred Income Taxes Payable 1,433 1,366
Long-term debt 3,283 5,529
Other 4,201 4,665
------------ ------------
Total Liabilities 18,697 24,719
------------ ------------
Commitments and Contingencies
Stockholders' Equity
Common stock - no par value:
authorized 40,000,000 shares, issued
12,818,862 and 12,674,673 shares, respectively 24,720 22,149
Allowance for aggregate unrealized loss
on marketable securities (55) (129)
Retained earnings 94,486 90,209
------------ ------------
Stockholders' Equity 119,151 112,229
------------ ------------
Total Liabilities and Stockholders' Equity $ 137,848 $ 136,948
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
For the Six Months Ended March 31,
1998 1997
---- ----
(In Thousands Except Per Share Amounts)
<S> <C> <C>
Net sales $ 63,228 $ 46,675
Cost of goods sold 31,098 20,266
----------- -----------
Gross profit 32,130 26,409
Operating expenses:
Selling, general and administrative 19,035 11,607
Research and development 2,429 1,807
Interest income (563) (1,234)
Interest expense 238 139
Other (income)/expense, net 122 (510)
Goodwill amortization 413 287
----------- -----------
Income before provision for income taxes 10,456 14,313
Provision for income taxes 3,607 4,664
----------- -----------
Net income before cumulative effect of change in accounting principle $ 6,849 $ 9,649
Cumulative effect of change in accounting principle
(net of income tax effect of $803) $ 1,524 $ ---
----------- -----------
Net Income $ 5,325 $ 9,649
=========== ===========
Basic net income per share before cumulative effect of change
in accounting principle $ .54 $ .74
=========== ===========
Diluted net income per share before cumulative effect of change
in accounting principle $ .54 $ .74
=========== ===========
Cumulative effect of change in accounting principle per share $ .12 $ ---
=========== ===========
Basic net income per share $ .42 $ .74
=========== ===========
Diluted net income per share $ .42 $ .74
=========== ===========
Basic weighted average number of shares 12,693 13,010
=========== ===========
Diluted weighted average number of shares 12,770 13,098
=========== ===========
Proforma Information (assuming the change in accounting principle was
applied retroactively
Net income $ 6,562 $ 9,673
=========== ===========
Basic net income per share $ .52 $ .74
=========== ===========
Diluted net income per share $ .51 $ .74
=========== ===========
Basic weighed average number of shares 12,693 13,010
=========== ===========
Diluted weighted average number of shares 12,770 13,098
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
For the Three Months Ended March 31,
1998 1997
(In Thousands Except Per Share Amounts)
<S> <C> <C>
Net sales $ 32,304 $ 23,845
Cost of goods sold 16,100 10,413
------------- -------------
Gross profit 16,204 13,432
Operating expenses:
Selling, general and administrative 9,258 5,841
Research and development 1,467 891
Interest income (301) (608)
Interest expense 117 76
Other (expense), net 220 155
Goodwill amortization 195 151
------------- -------------
Income before provision for income taxes 5,248 6,926
Provision for income taxes 1,810 2,179
------------- -------------
Net income before cumulative effect of change
in accounting principle $ 3,438 $ 4,747
Cumulative effect of change in accounting principle
(net of income tax effect of $803) $ 1,524 ---
------------- -------------
Net income $ 1,914 $ 4,747
============= =============
Basic net income per share before cumulative effect of change
in accounting principle $ .27 $ .37
============= =============
Diluted net income per share before cumulative effect of change
in accounting principle $ .27 $ .36
============= =============
Cumulative effect of change in Accounting Principle per share .12
============= =============
Basic net income per share $ .15 $ .37
============= =============
Diluted net income per share $ .15 $ .36
============= =============
Basic weighted average number of shares 12,684 12,984
============= =============
Diluted weighted average number of shares 12,770 13,072
============= =============
Proforma Information (assuming the change in accounting principle
was applied retroactively
Net income change $ 3,438 $ 4,841
============= =============
Basic net income per share $ .27 $ .37
============= =============
Diluted net income per share $ .27 $ .37
============= =============
Basic weighted average number of shares 12,684 12,984
============= =============
Diluted weighted average number of shares 12,770 13,072
============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Six Months Ended March 31,
1998 1997
(In Thousands)
Cash Flows from Operating Activities:
<S> <C> <C>
Net Income $ 5,325 $ 9,649
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Cumulative effect of change in accounting principle 1,524 ---
Depreciation and amortization 1,776 1,101
Deferred income taxes 67 (324)
Amortization of goodwill 413 287
Amortization of deferred credit (50) (50)
Net gain on sales of available for sale securities (2) (759)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (3,759) (1,201)
(Increase) in inventory (182) (2,141)
(Increase)decrease in prepaid expenses and
other current assets 4,896 (119)
(Decrease) in accounts payable
and accrued expenses (3,302) (681)
Decrease (Increase) in other assets (1,001) 230
Decrease in other liabilities (344) ---
------------ -----------
Net cash provided by operating activities 5,361 5,992
----------- -----------
Cash Flows from Investing Activities:
Proceeds from sales of available-for-sale securities 8,319 7,409
Purchases of available-for-sale securities (1,646) (7,759)
Acquisition of property, plant and equipment (5,473) (4,599)
Other (4,812) (80)
------------ ------------
Net cash used in investing activities (3,612) (5,029)
------------ ------------
Cash Flows from Financing Activities:
Net reissuance (purchase) of treasury stock 1,064 (2,077)
Dividends paid (1,048) (1,045)
Proceeds from exercise of stock options and warrants 12 238
Principal payments of long-term debt and notes payable (2,299) (500)
------------ ------------
Net cash used in financing activities ( 2,271) (3,384)
------------ ------------
Net decrease in cash and cash equivalents (522) (2,421)
Cash and cash equivalents at beginning of period 3,685 17,747
----------- -----------
Cash and cash equivalents at end of period $ 3,163 $ 15,326
=========== ===========
Supplemental disclosures of cash flow information: Cash paid during the six
months for:
Interest $ 230 $ 133
Income taxes 1,697 6,359
</TABLE>
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet as of March 31, 1998, the consolidated
statements of income for the six months and three months ended March 31,
1998 and 1997 and the consolidated statement of cash flows for the six
months ended March 31, 1998 and 1997 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, 1998 and 1997 and for all periods
presented have been made.
2. The Company has adopted the Financial Accounting Standards Board Statement
No. 128, Earnings Per Share ("SFAS 128") as required effective December 15,
1997. SFAS 128 requires the disclosure of basic and diluted earnings per
share.
3. See the Company's Annual Report on Form 10-K for the year ended September
30, 1997 (the "Form 10-K") for additional disclosures relating to the
Company's consolidated financial statements.
4. Effective as of the beginning of the second quarter of fiscal 1998 the
Company adopted a new accounting principle related to the accrual of
distributor rebates. This change in principle was adopted to more precisely
record the amounts due distributors who service the Company's hospital
customers. The Company's prior method resulted in fluctuations for
financial reporting purposes that were the result of activities outside the
Company's control. Net income for the three month and six month periods
ended March 31, 1998 was impacted by the charge for the cumulative effect
of a change in accounting principle related to distributor rebates. This
charge reduced net income by $1,524,000 or $.12 per share. Proforma
information is included in the income statement indicating the results of
operations if the newly adopted accounting principle had been in effect
October 1, 1996. Below is a table containing proforma information for the
three month periods ending December 31, 1997 and 1996 respectively.
PROFORMA INFORMATION FOR THE PERIODS ENDING
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
(Dollars in Thousands Except Per Share Amounts)
As Reported: 1997 1996
- ------------ ---- ----
<S> <C> <C>
Net income, as reported $ 3,411 $ 4,902
========== ===========
Basic net income per share $ .27 $ .38
========== ===========
Diluted net income per share $ .27 $ .37
========== ===========
Assuming change in accounting principle is applied retroactively:
Net income $ 3,124 $ 4,832
========== ===========
Basic net income per share $ .25 $ .37
========== ===========
Diluted net income per share $ .24 $ .37
========== ===========
Basic weighted average number of shares 12,702 13,035
========== ===========
Diluted weighted average number of shares 12,770 13,123
========== ===========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Forward Looking Statements
This Quarterly Report on Form 10-Q contains, and from time to time the
Company expects to make, certain forward-looking statements regarding its
business, financial condition and results of operations. In connection with the
"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995
(the "Reform Act"), the Company intends to caution investors that there are
important factors that could cause the Company's actual results to differ
materially from those projected in its forward-looking statements, whether
written or oral, made herein or that may be made from time to time by or on
behalf of the Company. Investors are cautioned that such forward-looking
statements are only predictions and that actual events or results may differ
materially from such statements. The Company undertakes no obligation to
publicly release the results of any revisions to its forward-looking statements
to reflect subsequent events or circumstances or to reflect the occurrence of
unanticipated events.
The Company intends that any forward-looking statements are accompanied by
meaningful cautionary statements in order to comply with the terms of the safe
harbor provided by the Reform Act. Accordingly, the Company has set forth a list
of important factors that could cause the Company's actual results to differ
materially from those expressed in forward-looking statements or predictions
made herein and from time to time by the Company. Specifically, the Company's
business, financial condition, liquidity and results of operations could be
materially different from such forward-looking statements and predictions as a
result of (i) competitive factors that could affect the Company's primary
markets, including the results of competitive bidding procedures implemented by
Group Purchasing Organizations and/or the success of the Company's expanded
sales force, (ii) interruptions or delays in manufacturing and/or sources of
supply, (iii) the Company's ability to control costs, (iv) timing of the
introduction of new products, (v) market acceptance of competitors' existing or
new products, (vi) adverse determinations arising in the context of regulatory
matters or legal proceedings (see Part II, Item 1 of this Quarterly Report on
Form 10Q) and (vi) legislative changes impacting the healthcare market.
Recent Acquisition
On March 14, 1997, Vital Signs, Inc. announced that it had entered into a
definitive agreement to acquire Marquest Medical Products, Inc. ("Marquest").
Concurrent with that transaction, the Company entered into an agreement with
Scherer Healthcare, Inc. ("Scherer"), which was the majority shareholder of
Marquest, to acquire, for cash, certain product rights previously sold by
Marquest to Scherer. The Company entered into inducement agreements with Scherer
and Robert Scherer, Scherer's principal shareholder, in connection with the
commitment of Scherer and Robert Scherer to vote their shares in favor of the
transaction. The transaction was approved by the shareholders of Marquest and
Scherer on July 28, 1997. The effective date of this acquisition for financial
reporting purposes is April 1, 1997.
<PAGE>
In connection with these transactions, the Company paid approximately $20
million including acquisition costs and incurred a $2,500,000 writeoff of in
process research and development, which was charged to 1997 operations. The
assets acquired amounted to approximately $15,000,000 and liabilities assumed
approximated $13,000,000. This transaction has been accounted for as a purchase.
Goodwill as a result of this acquisition approximated $15,000,000. See the
Current Reports on Form 8-K filed on March 20, 1997 and August 1, 1997 and the
notes to the Company's financial statements included in the Annual Report on
Form 10-K for the year ended September 30, 1997 for additional information.
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.
<TABLE>
<CAPTION>
Increase/(Decrease) From
Prior Period
Three Months Ended Six Months Ended
March 31, 1998 compared March 31, 1998 compared
with Three Months Ended with Six Months Ended
March 31, 1997 March 31, 1997
<S> <C> <C>
Net sales 35.5% 35.5
Cost of goods sold 54.6 53.4
Gross profit 20.6 21.7
Selling, general and administrative
expense 58.5 64.0
Research and development expenses 64.7 34.4
Income before provision for
income taxes (24.2) (26.9)
Provision for income taxes (16.9) (22.7)
Net income before cumulative effect of
change in accounting principle (27.6) (29.0)
Net income (59.7) (44.0)
</TABLE>
<PAGE>
COMPARISON: QUARTER ENDED MARCH 31, 1998
AND QUARTER ENDED MARCH 31, 1997
Net sales for the quarter ended March 31, 1998 increased by 35.5% compared
with the same period last year. The increase was due to the acquisition of
Marquest (20.8%), and growth in existing product lines (14.7%). The effect of
sales mix changes and price reductions resulted in lower sales of approximately
1.2% in the three months ended March 31, 1998 when compared to the same period
in 1997.
Sales of anesthesia products representing 37.7% of net sales grew 3.1% from
the quarter ended March 31, 1997. Sales of critical care and respiratory
products representing 43.0% of net sales increased by 84.5% due to internal
growth and the acquisition of Marquest. Excluding the sales base acquired in the
Marquest transaction, critical care/respiratory sales increased by 18%. Sales of
the Company's emergency products declined by 46% due to a shortfall in orders
from the Company exclusive emergency distributor. Other business segments,
accounting for 17.5% of net sales, increased by 64% from the comparable period
in Fiscal 1997, reflecting the increased activity at Vital Pharma, Inc. ("VPI")
and Thomas Medical Products, Inc. ("TMP") subsidiaries.
While net sales increased in dollars by 35.5%, gross profit increased by
20.6%. The discrepancy between the increase in sales and the increase in gross
profit is the result of higher sales of certain products with gross margins
below the Company's average gross margin (primarily sales of Marquest products
and the increase in activity at VPI and TMP) and the lower sales of emergency
products (which carry higher than average margins). On a consolidated basis the
Company's gross profit percentage for the quarter ended March 31, 1998 was 50.2%
compared to 56.3% in the same time period of the last fiscal year.
Selling, general and administrative expenses increased by 58.5% in dollar
amount, as the result of the acquisition of Marquest, increased activity at VPI,
and the full implementation of the Company's previously announced plan to expand
its sales force by adding a ninety person respiratory/critical care sales force.
Earnings per share before the change in accounting principle for the quarter
ended March 31, 1998 of $.27 were impacted by approximately $.08 per share by
the expansion of the Company's sales force from 90 to 180 personnel.
Research and development expenses ("R&D") increased 64.7%, primarily due to
the acquisition of Marquest and increased in-house activity on new products
(including VASCEZE)TM), ISOCATH(TM) and other new products).
Other expense, net, which includes dividend income, realized capital gains
and losses, legal and other expenses related to non-operational items, increased
by $65,000 from the quarter ended March 31, 1997 to the quarter ended March 31,
1998.
The Company's effective tax rates were 34.5% and 31.5% for the three months
ended March 31, 1998 and 1997, respectively. The rate for the three months ended
March 31, 1998 is less than the federal and state combined statutory rate due to
the utilization of deductions for tax return purposes which do not effect book
earnings. The rate for the three months ended March 31, 1997 is less than the
combined Federal and State statutory rates primarily as a result of the
utilization of capital loss carryforwards.
The Company implemented a change in accounting principle concerning
distributor rebates, effective at the beginning of the three month period ending
March 31, 1998. This change resulted in a charge that reduced net income for the
period by $1,524,000 or $.12 per share. The change in principle was implemented
to reduce financial reporting fluctuations that were caused by activities that
were outside the Company's control, such as distributor inventory levels (see
Note 4 of the Notes to the Consolidated Financial Statements).
<PAGE>
COMPARISON: SIX MONTHS ENDED MARCH 31, 1998
AND SIX MONTHS ENDED MARCH 31, 1997
Net sales for the six months ended March 31, 1998 increased by 35.5%
compared with the same period last year. The increase was due to the acquisition
of Marquest (21.4), and growth in existing product lines (14%). The effect of
sales mix changes and price reductions resulted in lower sales of approximately
1.3% in the six months ended March 31, 1998 when compared to the same period in
1997.
Sales of anesthesia products, representing 39.3% of net sales, grew 6.9%
from the six months ended March 31, 1997 despite selling price declines. Sales
of critical care and respiratory products representing 43.0% of net sales,
increased by 85.4% due to internal growth and the acquisition of Marquest.
Excluding the sales base acquired in the Marquest transaction, critical
care/respiratory sales increased by 17%. Sales of the Company's emergency
products, representing 2.2% of net sales, declined by 23.8% due to a shortfall
in orders from the Company's exclusive emergency distributor. Other business
segments, accounting for 15.5% of net sales, increased by 27.8% from the
comparable period in Fiscal 1997, reflecting the increased activity at VPI and
TMP.
While net sales increased in dollars by 35.5%, gross profit increased by
21.7%. The discrepancy between the increase in sales and the increase in gross
profit is the result of higher sales of certain products with gross margins
below the Company's average gross margin (primarily sales of Marquest products
and the increase in activity at VPI and TMP). On a consolidated basis the
Company's gross profit percentage for the six months ended March 31, 1998 was
50.8% compared to 56.6% in the same time period of the last fiscal year.
Selling, general and administrative expenses increased by 64.0% in dollar
amount, as the result of the acquisition of Marquest, increased activity at VPI,
and the full implementation of the Company's previously announced plan to expand
its sales force by adding a ninety person respiratory/critical care sales force.
Earnings per share for the six months ended March 31, 1998 were impacted by
approximately $.18 per share by the expansion of the Company's sales force.
Research and development expenses ("R&D") increased 34.4%, primarily due to
the acquisition of Marquest and increased in-house activity on new products
(including VASCEZE, ISOCATH and other new products).
Other (income)/expense, net, decreased by $632,000 from the six ended March
31, 1997 to the six months ended March 31, 1998. In the 1997 period the Company
realized significant capital gains of approximately $750,000, which did not
recur in the current six months.
The Company implemented a change in accounting principle concerning
distributor rebates, effective at the beginning of the three month period ending
March 31, 1998. This change resulted in a charge that reduced net income for the
period by $1,524,000 or $.12 per share. The change in principle was implemented
to reduce financial reporting fluctuations that were caused by activities that
were outside the Company's control, such as distributor inventory levels (see
Note 4 of the Notes to the Consolidated Financial Statements).
<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
six months ended March 31, 1998, cash and cash equivalents and short-term
marketable securities decreased by $896,000 and long-term marketable securities
decreased by $6,223,000. During that period, the Company had capital
expenditures of approximately $5.5 million among other uses of cash. The
combined total of cash and cash equivalents, short-term marketable securities
and long-term investments was approximately $15.2 million at March 31, 1998 as
compared to $22.3 million at September 30, 1997.
At March 31, 1998, the Company had $3.2 million in cash and cash
equivalents. On that date, the Company's working capital was $39.6 million and
the current ratio was 5.0 to 1, as compared to $38.1 million and 3.9 to 1 at
September 30, 1997.
The Company's current policy is to retain working capital and earnings for
use in its business, subject to the payment of certain cash dividends and
treasury stock repurchases. 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 Reform
Act. The Company's liquidity could be adversely impacted and its need for
capital could materially change if costs are higher than anticipated, the
Company were to undertake acquisitions demanding significant capital, operating
results differ significantly from recent experience or adverse events affect the
Company's operations.
The Effect of the Year 2000 on MIS Systems.
The Company has evaluated its MIS systems in regard to compliance with any
new requirements of the Year 2000 and has implemented a plan of corrective
measures. The Company anticipates completing this program in early 1999. The
Company does not believe any additional costs, whether the repair of existing
systems or the purchase of new software will have a material effect on the
Company's consolidated financial condition or results of operations. This
statement constitutes a forward-looking statement under the Reform Act. The
financial impact of Year 2000 could vary materially from that projected if
unanticipated technological problems arise or if vendors are unable to provide
Year 2000 compliant services and materials.
<PAGE>
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings.
(a) Reference is made to Item 3 of the Company's Annual Report on Form
10-K for the year ended September 30, 1997.
(b) With respect to the declaratory judgment action which was pending
against the Company in the U.S. District Court in the Central District
of California seeking to invalidate a patent held by the Company
relating to its Isocath(TM) product, on January 12, 1998, the parties
entered into an agreement to dismiss the litigation. On January 14,
1998, the District Court entered an order dismissing the action.
(c) With respect to the action which was pending in the U.S. District
Court in New Jersey, against a former employee and his patent attorney
alleging, inter alia, causes of action for breach of contract,
misappropriation of trade secrets and tortious interference with
contractual relations, the defendants counter-claim for, inter alia,
breach of contract and patent infringement, and the related action in
Germany on April 20, 1998 the parties entered into a settlement
agreement and a revised exclusive license agreement. On April 22,
1998, the District Court entered an order dismissing the action. Under
the terms of the agreement, the Company retains its exclusive
worldwide license from one of the defendants to two patents relating
to Vasceze(TM), the Company's vascular flush device, obtains an
exclusive worldwide license from both defendants to an additional
patent relating to Vasceze(TM), and is obligated to continue
commercialization and pay royalties with respect to products covered
by such patents.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of shareholders on February 23,
1998. At that meeting, each of the Board's nominees were re-elected
to the Board and the shareholders ratified the Amended and Restated
Investment Plan. Shares were voted for the election of directors as
follows:
For Authority Withheld
David J. Bershad 11,718,062 34,004
Anthony J. Dimun 11,721,617 30,449
Joseph Thomas 11,720,974 31,192
John Toedtman 11,532,767 219,299
Terence D. Wall 11,721,621 30,445
C. Barry Wicker 11,721,667 30,399
Shares were voted for the ratification of the Amended and Restated
Investment Plan as follows:
For: 7,385,976
Against: 55,701
Abstentions: 8,509
Broker Non-votes 4,301,980
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,
1998: 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 15, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Company's balance sheet at March 31, 1998 and six month income
statement ended March 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,163
<SECURITIES> 51
<RECEIVABLES> 18,037
<ALLOWANCES> 200
<INVENTORY> 19,741
<CURRENT-ASSETS> 49,381
<PP&E> 47,821
<DEPRECIATION> 10,299
<TOTAL-ASSETS> 137,848
<CURRENT-LIABILITIES> 9,780
<BONDS> 3,283
0
0
<COMMON> 24,720
<OTHER-SE> 94,431
<TOTAL-LIABILITY-AND-EQUITY> 137,848
<SALES> 63,228
<TOTAL-REVENUES> 63,228
<CGS> 31,098
<TOTAL-COSTS> 31,098
<OTHER-EXPENSES> 2,842
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 238
<INCOME-PRETAX> 10,456
<INCOME-TAX> 3,607
<INCOME-CONTINUING> 6,849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,524
<NET-INCOME> 5,325
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
