<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 31, 1995
----------------
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 0-5958
------
SURVIVAL TECHNOLOGY, INC.
- - - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 52-0898764
- - - ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2275 RESEARCH BLVD, ROCKVILLE, MARYLAND 20850
- - - --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 301-926-1800
------------
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, 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.
CLASS OUTSTANDING AT NOVEMBER 30, 1995
- - - ---------------------------- --------------------------------
COMMON STOCK, $.10 PAR VALUE 3,087,713 SHARES
<PAGE>
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 1995
PART I. FINANCIAL INFORMATION PAGE NO.
- - - ----------------------------- --------
ITEM 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets as of
October 31, 1995 and July 31, 1995 ................. 3
Consolidated Condensed Statements of Income
for the Three Months Ended October 31,
1995 and 1994 ...................................... 4
Consolidated Condensed Statements of Cash Flows
for the Three Months Ended October 31, 1995
and 1994 ........................................... 5
Notes to Consolidated Condensed Financial
Statements ......................................... 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........ 7
PART II. OTHER INFORMATION
- - - --------------------------
ITEM 6. Exhibits and Reports on Form 8-K ................. 10
SIGNATURES ................................................ 11
<PAGE>
3
PART I. FINANCIAL INFORMATION
- - - -----------------------------
ITEM 1. Financial Statements
SURVIVAL TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, July 31,
1995 1995
(unaudited) (audited)
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 13,300 $ 503,600
Receivables 4,863,800 5,852,700
Inventories 5,182,800 3,829,800
Prepaid expenses and other assets 381,600 336,100
Deferred income taxes 1,030,900 1,030,900
----------- -----------
Total current assets 11,472,400 11,553,100
----------- -----------
FIXED ASSETS 24,835,400 24,581,300
Less accumulated depreciation 10,561,400 10,372,400
----------- -----------
14,274,000 14,208,900
----------- -----------
PATENTS AND LICENSES, AT COST LESS
AMORTIZATION OF $556,700 AND $517,200 1,887,700 1,916,800
OTHER NONCURRENT ASSETS 30,700 36,300
----------- -----------
$27,664,800 $27,715,100
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 3,921,600 $ 3,917,000
Note payable to Syntex 800,000 800,000
Current portion of long-term debt 388,700 492,600
Accounts payable 1,448,700 1,016,800
Restructuring reserve 523,200 450,000
Other liabilities and accrued expenses 1,040,400 1,208,400
----------- -----------
Total current liabilities 8,122,600 7,884,800
LONG-TERM DEBT:
Note payable to Syntex 388,400 588,400
Other long-term debt 870,600 897,200
DEFERRED REVENUE 250,000
OTHER NONCURRENT LIABILITIES 525,400 489,200
DEFERRED INCOME TAXES 1,455,000 1,455,000
----------- -----------
Total liabilities 11,362,000 11,564,600
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value;
10,000,000 shares authorized;
3,086,600 and 3,085,400 issued
and outstanding 308,700 308,500
Paid-in capital in excess of par value 5,080,400 5,072,700
Retained earnings 10,913,700 10,769,300
----------- -----------
Total shareholders' equity 16,302,800 16,150,500
----------- -----------
$27,664,800 $27,715,100
----------- -----------
----------- -----------
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
4
SURVIVAL TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Net sales $5,294,900 $4,967,300
Cost of sales 3,514,600 3,216,200
---------- ----------
GROSS PROFIT 1,780,300 1,751,100
---------- ----------
Selling, general, and administrative
expenses 804,200 1,031,000
Research and development expenses 171,700 263,600
Depreciation and amortization expenses 421,200 382,600
Restructuring charge 94,000
---------- ----------
1,491,100 1,677,200
---------- ----------
OPERATING INCOME 289,200 73,900
---------- ----------
Other (expense) income:
Interest expense (120,600) (65,300)
Other income 66,200 31,700
---------- ----------
(54,400) (33,600)
---------- ----------
Income before income taxes 234,800 40,300
Provision for income taxes 90,400 15,300
---------- ----------
NET INCOME $ 144,400 $ 25,000
---------- ----------
---------- ----------
NET INCOME PER COMMON SHARE $.05 $.01
---- ----
---- ----
AVERAGE NUMBER OF SHARES OUTSTANDING 3,109,000 3,099,400
---------- ----------
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
5
SURVIVAL TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
---------------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 144,400 $ 25,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 421,200 382,600
Gain on fixed asset disposal (13,600)
Deferred lease incentives (7,600) (7,600)
Decrease in receivables 988,900 738,700
Increase in inventories (1,353,000) (1,246,900)
(Increase) decrease in prepaid
expenses and other assets (45,500) 46,800
Increase in accounts payable 431,900 402,500
Increase in restructuring reserve 73,200
Decrease in other liabilities
and accrued expenses (168,000) (40,900)
---------- -----------
Net cash provided by
operating activities 471,900 300,200
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (464,300) (846,500)
Proceeds from sale of fixed assets 36,700
Purchases of patents and licenses (10,400) (98,800)
Decrease in other noncurrent assets 45,100
Increase in other noncurrent
liabilities 43,800 15,700
---------- -----------
Net cash used for investing
activities (394,200) (884,500)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on note payable to bank 4,600 1,210,000
Payments on note payable to Syntex (200,000) (200,000)
Payments on other long-term debt (130,500) (93,100)
Decrease in deferred revenue (250,000)
Sale of common stock 7,900
---------- -----------
Net cash (used for) provided by
financing activities (568,000) 916,900
---------- -----------
NET (DECREASE) INCREASE IN CASH (490,300) 332,600
CASH AT BEGINNING OF PERIOD 503,600 65,000
---------- -----------
CASH AT END OF PERIOD $ 13,300 $ 397,600
---------- -----------
---------- -----------
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
6
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 1995
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's
financial position as of October 31, 1995, the results of its operations
and cash flows for the three-month periods ended October 31, 1995 and 1994.
The results of operations for the three-month period ended October 31, 1995
are not necessarily indicative of the results that may be expected for the
fiscal year ending July 31, 1996.
B. The significant accounting principles and practices followed by the
Company are set forth in Note 1 of the Notes to Consolidated Financial
Statements in the Survival Technology, Inc. Annual Report on Form 10-K
for the year ended July 31, 1995.
C. Inventories consisted of the following:
<TABLE>
<CAPTION>
October 31, July 31,
1995 1995
----------- ----------
<S> <C> <C>
Components and subassemblies $3,207,000 $2,777,400
Material, labor and overhead
costs in process 1,609,400 605,100
Finished goods 605,700 677,600
----------- ----------
5,422,100 4,060,100
Inventory reserve (239,300) (230,300)
----------- ----------
Total $5,182,800 $3,829,800
----------- ----------
----------- ----------
</TABLE>
D. During the fourth quarter of fiscal 1995, the Company's Board of
Director's approved a restructuring plan to explore various
alternatives relating to occupancy cost reductions at the corporate
headquarters in Rockville, MD. which resulted in a $450,000 charge
against earnings. As part of this plan, the Company initiated
certain organizational changes during the current quarter resulting in
additional charges of $94,000 related to employee severance payments in
fiscal 1996.
The following table sets forth the Company's restructuring reserve as
of October 31, 1995:
RESTRUCTURING RESERVE
---------------------
<TABLE>
<CAPTION>
<S> <C>
Relocation of facilities $ 450,000
Employee severance accrual 94,000
Cash payments for severance (20,800)
---------
$ 523,200
---------
---------
<PAGE>
7
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 1995
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THE QUARTER IN REVIEW
The Company reported net income of $144,400 ($.05 per share) on sales of $5.3
million for the first quarter of its fiscal year 1996 compared with net income
of $25,000 ($.01 per share) on sales of $5 million in the same prior year
period. Current quarter earnings include an additional restructuring charge of
$58,300, net of tax, ($.02 per share) for the previously reported restructuring
plan approved by the Company's Board of Directors during the fourth quarter of
fiscal 1995.
A decrease in selling, general and administrative expenses of $226,800 (22%) was
the primary factor contributing to the increase in operating income for the
first quarter of fiscal 1996 when compared to the same prior year period. The
absence of certain administrative costs coupled with an adjustment for annual
user fees payable to the U.S. Food and Drug Administration ("FDA") contributed
to this reduction in operating expenses.
Revenues increased $327,500 (7%) during the current quarter from higher sales of
military products when compared with the same quarter last year. Military
product revenues increased $635,100 (43%) to $2,105,100 in the first quarter of
fiscal 1996 from $1,470,000 in the first quarter of fiscal 1995. This increase
was partially offset by a decrease in commercial revenues of $307,600 (9%) from
$3.5 million last year to $3.2 million this year.
The increase in military product sales resulted primarily from deliveries of
incremental product to the U.S. Department of Defense ("DoD") under the recently
renewed Industrial Base Maintenance contract which runs through September 1996.
This new contract has been expanded to include the pre-stocking of critical
components at STI's St. Louis manufacturing facility to enhance readiness and
mobilization capability. Revenues from the base maintenance contract were $1.9
million in the first quarter of fiscal 1996 which represents a $540,000 (40%)
increase from the $1.36 million in the corresponding prior year period. The
Company expects revenues under the base maintenance contract to improve in
fiscal 1996 as a result of the new pre-stocking program as well as deliveries
of more incremental product.
As previously reported, the Company completed its development of the Diazepam
auto-injector in the fourth quarter of fiscal 1995 with the submission of a
supplemental New Drug Application ("NDA") by the DoD to the FDA. The FDA is in
its final stage of reviewing the supplemental NDA as they recently concluded a
favorable pre-approval inspection of STI's St. Louis manufacturing facility.
Final approval is expected during the second quarter of fiscal 1996 with initial
deliveries of Diazepam auto-injectors to begin immediately following FDA
approval.
<PAGE>
8
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 1995
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The decline in commercial revenues resulted primarily from the absence of $1.1
million of revenues, primarily the Company's patented CytoGuard-Registered
Trademark- Aerosol Protective Device as well as the filling of clinical supply
materials for Cephalon, Inc.. Revenues from CytoGuard and the filling for
Cephalon totalled $763,700 and $253,500, respectively, for the quarter ended
October 31, 1994. As previously reported, a decline in CytoGuard revenues was
expected as STI's exclusive distributor of the CytoGuard, Bristol-Myers Squibb
("BMS") Oncology Division, changed the packaging of this product from a single
unit to a multi-unit package. Increased levels of inventory at BMS resulted
from this packaging change coupled with lower sales of BMS' products.
Increased revenues from STI's EpiPen auto-injector partially offset the
decline in other commercial products revenue. EpiPen sales increased
$921,300 (50%) during the current quarter to $2.8 million when compared with
the same prior year period. The EpiPen contains epinephrine and is indicated
for self-injection by persons who are at risk for severe allergic reactions
to bee stings, insect bites and ingestion of certain foods. This sales
increase is primarily attributable to expanded promotional efforts over the
last two years by Center Laboratories, Inc. ("Center"), STI's exclusive
distributor of the EpiPen. The Company anticipates EpiPen sales to continue
improving over prior year levels with Center's continuing expansion of
marketing efforts in the U.S. and international markets coupled with the new
EpiE-Zpen-TM-launch planned for early calendar year 1996. This new injector
which received FDA approval in August 1995, has additional safety features
and user convenience enhancements to better serve the consumer market and
will be positioned to expand epinephrine auto-injector use in the U.S. and
abroad.
The Company continues to work with a number of pharmaceutical and biotechnology
companies to formulate their drugs for use in STI's proprietary drug delivery
systems. Revenues from these product development contracts were $424,500 for
the first quarter of fiscal 1996 of which $250,000 related to revenue previously
deferred. This represents a $76,900 (15%) decrease from the first quarter of
fiscal 1995. Timing differences in successive quarters are expected to make up
this difference as development revenues in fiscal 1996 should be comparable to
fiscal 1995.
Gross margins remained relatively constant at 34% in the first quarter of fiscal
1996 compared to 35% in the first quarter of fiscal 1995.
Research and development ("R&D") expenditures decreased $91,900 (35%) in the
current quarter when compared to the same prior year period due to the timing of
expenditures related to certain projects. The Company expects R&D expenses in
fiscal 1996 to be comparable to fiscal 1995.
Depreciation and amortization increased $38,600 (10%), as anticipated, from the
corresponding prior year period due to significant levels of capital
expenditures made over the past two years.
<PAGE>
9
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 1995
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Charges from the restructuring plan, adopted in the fourth quarter of fiscal
1995, totalled $94,000 during the first quarter of fiscal 1996. This additional
charge for employee severance payments recorded in accordance with the
organizational changes initiated during the current quarter. See Note D in
Notes to Consolidated Condensed Financial Statements.
Other expenses, net of other income, increased $20,800 in the current quarter
versus the same period last year. This resulted from an increase in interest
expense of $55,300 due to higher levels of bank borrowings throughout the entire
first quarter of fiscal 1996 coupled with additional long-term debt financing
secured for capital expansion projects (see "Liquidity and Capital Resources"
below). This increase was partially offset by a gain on sale of fixed assets
($13,600) coupled with increased royalty income ($14,600) from sales of the
Company's former products within its Medical Device Division which was sold to
Brunswick Biomedical Corporation in July 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $5 million line of credit agreement ("Agreement") with Merrill
Lynch Business Financial Services Inc. ("MLBFS") through September 1996.
Outstanding borrowings under the Agreement totalled $3.9 million at October 31,
1995. The interest rate charged by MLBFS is the 30-day commercial paper rate as
published in the Wall Street Journal plus 265 basis points. The Agreement
places a $5 million limit on capital expenditures in any one fiscal year. The
Company relies on its line of credit facility to satisfy its working capital and
capital expenditure requirements.
The Company has a Loan Agreement pursuant to which Syntex Laboratories, Inc.
agreed to lend $5.4 million to the Company to finance working capital
requirements and capital expenditures designed to increase the production
capacity of the Company's Cartrix-TM- syringe system. The outstanding loan
balance bears interest at the same rate of interest the Company pays on its
current commercial line of credit facility. Principal payments continued for
the calendar quarter ended September 30, 1995 at the minimum of $200,000 per
quarter reducing the outstanding loan balance to $1.2 million at October 31,
1995. The loan is subject to acceleration upon the occurrence of certain
events.
To assist in the Company's previously reported capital investment program, the
Company entered into a loan agreement with The CIT Group/Equipment Financing,
Inc. ("CIT") in May 1995. This arrangement will consist of a series of loans
for the acquisition of production molds, high speed component preparation and
filling equipment and facility renovations not to exceed a maximum aggregate of
$3 million. Loan proceeds to date totalled $1,046,100 of which $953,900 was
outstanding at October 31, 1995 at an interest rate of 9.2%.
<PAGE>
10
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 1995
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
BALANCE SHEET REVIEW
Working capital was $3,349,800 at October 31, 1995 compared with $3,668,300 at
July 31, 1995 representing a decrease of $318,500 (9%). This decrease resulted
primarily from a lower receivable balance. Receivables decreased $988,900 (17%)
due to lower CytoGuard sales during the current quarter. Inventories
increased $1.35 million (35%) in support of orders for the DoD coupled with
the preparation of new product launches for the EpiE-Zpen and the Diazepam
auto-injectors, all scheduled for delivery in the second and third quarters
of fiscal 1996. Prepaid expenses and other assets increased $45,500 (14%)
while deferred income taxes remained constant at $1,030,900.
During the current quarter, note payable to bank remained constant at $3.9
million while note payable to Syntex decreased $200,000 (14%) in line with
scheduled quarterly payments discussed above under "Liquidity and Capital
Resources". Other long-term debt, including the current portion, decreased
$130,500 (9%) as the Company continued to pay down on the CIT loan (see
"Liquidity and Capital Resources") and its capital lease obligations. The
capital lease obligation was used to finance the Company's fully integrated
management information system. Accounts payable increased $431,900 (42%) in
conjunction with increased levels of inventory discussed above. Other
liabilities and accrued expenses decreased $168,000 (14%) while the
restructuring reserve increased $73,200 (16%) for employee severance payments
associated with the previously discussed organizational changes. Deferred
revenue decreased $250,000 (100%) as the Company recognized the remaining
revenue from a development contract discussed previously.
Capital expenditures aggregated $464,300 during the first quarter of fiscal
1996 which consisted primarily of improvements designed to automate and
validate current production processes at the Company's St. Louis
manufacturing facility.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed by the Registrant
during the three months ended October 31, 1995.
<PAGE>
11
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 1995
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.
SURVIVAL TECHNOLOGY, INC.
-------------------------
Registrant
December 15, 1995 By: /S/ JAMES H. MILLER
- - - ------------------- --------------------------
Date James H. Miller
President and
Chief Executive Officer
(Principal Executive Officer)
December 15, 1995 By: /S/ JEFFREY W. CHURCH
- - - ------------------- -------------------------
Date Jeffrey W. Church
Senior Vice President - Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE
CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT FOR THE QUARTER
ENDED
OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 13,300
<SECURITIES> 0
<RECEIVABLES> 4,887,300
<ALLOWANCES> 23,500
<INVENTORY> 5,182,800
<CURRENT-ASSETS> 1,412,500
<PP&E> 24,835,400
<DEPRECIATION> 10,561,400
<TOTAL-ASSETS> 27,664,800
<CURRENT-LIABILITIES> 8,122,600
<BONDS> 0
<COMMON> 308,700
0
0
<OTHER-SE> 15,994,100
<TOTAL-LIABILITY-AND-EQUITY> 27,664,800
<SALES> 5,294,900
<TOTAL-REVENUES> 5,294,900
<CGS> 3,514,600
<TOTAL-COSTS> 5,005,700<F1>
<OTHER-EXPENSES> (66,200)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120,600
<INCOME-PRETAX> 234,800
<INCOME-TAX> 90,400
<INCOME-CONTINUING> 144,400<F2>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144,400<F2>
<EPS-PRIMARY> .05<F3>
<EPS-DILUTED> .05
<FN>
<F1>Includes a restructuring charge of $94,000
<F2>Includes a restructuring charge of $58,300, net of tax
<F3>Includes a restructuring charge of $.02 per share
</FN>
</TABLE>
