-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, URjSb6lgsxR6To0peW9g8P15AYZosCtoDTopY9vcn9KrB4LzBrVXSFuLfAynqt/y zIrU6/q1uBWrhmTFu7OMuA== 0000912057-97-017747.txt : 19970520 0000912057-97-017747.hdr.sgml : 19970520 ACCESSION NUMBER: 0000912057-97-017747 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHYSIO CONTROL INTERNATIONAL CORP \DE\ CENTRAL INDEX KEY: 0001003088 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 911673799 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27242 FILM NUMBER: 97606079 BUSINESS ADDRESS: STREET 1: 11811 WILLOWS RD NE CITY: REDMOND STATE: WA ZIP: 98052 BUSINESS PHONE: 2068674331 MAIL ADDRESS: STREET 1: 11811 WILLOWS ROAD NE CITY: REDMOND STATE: WA ZIP: 98052 FORMER COMPANY: FORMER CONFORMED NAME: PHYSIO CONTROL HOLDING CORP \DE\ DATE OF NAME CHANGE: 19951106 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 10-Q ------------------ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 COMMISSION FILE NUMBER: 0-27242 ---------------------------------- PHYSIO-CONTROL INTERNATIONAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 91-1673799 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11811 WILLOWS ROAD N.E. REDMOND, WASHINGTON 98052 (Address of principal executive offices) (206) 867-4000 (Registrant's telephone number, including area code) 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 ----- ----- As of April 18, 1997, there were 17,154,441 shares of the Registrant's Common Stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 - -------------------------------------------------------------------------------- FORM 10-Q MARCH 31, 1997
Index Page ----- ---- PART I. FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements - Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996............................................................3 - Consolidated Statements of Operations for the three months ended March 31, 1997 and 1996....................................................4 - Consolidated Statement of Changes in Stockholders' Equity for the three months ended March 31, 1997........................................5 - Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996....................................................6 - Notes to Consolidated Financial Statements.......................................7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................9 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings................................................................11 ITEM 6. Exhibits and Reports on Form 8-K.................................................11
2 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ...............................................................................
MARCH 31, 1997 DECEMBER 31, 1996 -------------- ----------------- ASSETS (UNAUDITED) CURRENT ASSETS Cash and cash equivalents $4,324 $3,336 Accounts receivable, net 38,187 38,869 Inventories, net 34,843 31,811 Prepaid income taxes 3,111 3,967 Prepaid expenses 1,878 1,401 ------- ------- Total current assets 82,343 79,384 NONCURRENT ASSETS Other assets 1,086 1,180 Deferred income taxes 2,175 2,175 Property, plant and equipment, net 14,494 13,123 ------- ------- TOTAL ASSETS $100,098 $95,862 ------- ------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $11,366 $9,260 Accrued liabilities 16,261 19,146 Deferred income taxes 494 494 ------- ------- Total current liabilities 28,121 28,900 ------- ------- NONCURRENT LIABILITIES Long-term debt 22,136 21,031 Unfunded pension obligations 1,540 1,711 ------- ------- Total noncurrent liabilities 23,676 22,742 ------- ------- Commitments and contingencies (Note 4) STOCKHOLDERS' EQUITY Preferred stock, par value $0.01 per share, 5,000,000 shares authorized, no shares issued or outstanding Common stock, voting, par value $0.01 per share, 40,000,000 shares authorized; 17,154,441 and 17,020,245 shares issued and outstanding, respectively 172 170 Additional paid-in capital 27,457 25,707 Retained earnings 20,751 18,098 Equity adjustment from foreign currency translation (79) 245 ------- ------- Total stockholders' equity 48,301 44,220 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $100,098 $95,862 - -------------------------------------------------------------------------- -------
.......................................................................... THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 3 - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) ............................................................................... QUARTER ENDED QUARTER ENDED MARCH 31, 1997 MARCH 31, 1996 -------------- -------------- Net sales $40,727 $42,755 Cost of sales 19,846 21,432 -------------- -------------- Gross profit 20,881 21,323 -------------- -------------- Research and development 5,237 4,638 Sales and marketing 8,854 7,795 General and administrative 2,014 3,042 -------------- -------------- Operating expense 16,105 15,475 -------------- -------------- Interest expense (459) (426) Other expense, net (236) (276) -------------- -------------- Other expense (695) (702) -------------- -------------- Income before income taxes 4,081 5,146 Income tax expense (1,428) (1,750) -------------- -------------- Net income $2,653 $3,396 -------------- -------------- Net earnings per common and common equivalent shares $0.15 $0.19 Weighted average number of common and common equivalent shares outstanding 18,080,919 17,930,882 - -------------------------------------------------------------- ------------- .......................................................................... THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 4 - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) ...............................................................................
EQUITY COMMON STOCK ADJUSTMENT (VOTING) ADDITIONAL FROM FOREIGN ------------------------- PAID-IN RETAINED CURRENCY SHARES DOLLARS CAPITAL EARNINGS TRANSLATION TOTAL ---------- ------- ---------- -------- ------------ -------- BALANCE AT DECEMBER 31, 1996 17,020,245 $170 $25,707 $18,098 $245 $44,220 Issuance of common shares 46,791 1 915 916 Stock issued upon exercise of options 87,405 1 407 408 Income tax benefit from exercise of stock options 428 428 Equity adjustment from foreign currency translation (324) (324) Net income 2,653 2,653 ---------- ------- ---------- -------- ------------ -------- BALANCE AT MARCH 31, 1997 17,154,441 $172 $27,457 $20,751 ($79) $48,301 - --------------------------------------------- ------- ---------- -------- ------------ --------
.......................................................................... THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 5 - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED) ...............................................................................
QUARTER ENDED QUARTER ENDED MARCH 31, 1997 MARCH 31, 1996 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $2,653 $3,396 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Depreciation and amortization 421 288 Decrease (increase) in receivables 682 (4,238) (Increase) decrease in inventories (3,032) 1,268 Decrease in prepaid income taxes 856 1,712 Increase in prepaid expense and other assets (443) (1,510) Increase (decrease) in accounts payable 2,106 (2,401) Decrease in accrued and other liabilities (3,056) (4,095) -------------- -------------- Net cash provided by (used in) operating activities 187 (5,580) -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment (1,732) (1,133) -------------- -------------- Net cash used in investing activities (1,732) (1,133) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under revolving debt 14,862 18,973 Repayments on revolving debt (13,757) (10,474) Net proceeds from issuance of common stock 1,324 33 Income tax benefit from issuance of common stock 428 -------------- -------------- Net cash provided by financing activities 2,857 8,532 -------------- -------------- Effect of foreign currency translation (324) (95) -------------- -------------- Net increase in cash and cash equivalents 988 1,724 Cash and cash equivalents at beginning of period 3,336 4,575 -------------- -------------- Cash and cash equivalents at end of period $4,324 $6,299 - ------------------------------------------------------------------------------------- --------------
.......................................................................... THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 6 - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) ............................................................................... NOTE 1. GENERAL The consolidated financial statements as of March 31, 1997 and for the three month period then ended are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. The consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1996. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of the results for the entire fiscal year ending December 31, 1997. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES EARNINGS PER SHARE Net earnings per common and common equivalent share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributed to outstanding options to purchase common stock. Fully diluted net earnings per common and common equivalent share is not materially different from primary net earnings per common and common equivalent share and is therefore not presented. NOTE 3. INVENTORIES Inventories consist of the following: MARCH 31, 1997 DECEMBER 31, 1996 -------------- ----------------- Finished products $21,656 $18,734 Purchased parts and assemblies in process 7,275 6,534 Service parts 7,976 9,037 -------------- ----------------- 36,907 34,305 Less inventory allowances (2,064) (2,494) -------------- ----------------- TOTAL INVENTORIES $34,843 $31,811 -------------- ----------------- 7 - ------------------------------------------------------------------------------- NOTE 4. COMMITMENTS AND CONTINGENCIES LITIGATION The Company is party to certain legal actions arising in the ordinary course of its business. The Company's estimates of these exposures are based primarily on historical claims experience. The Company expects settlements related to these claims to be paid over the next several years. The majority of the costs associated with defending and disposing of these suits are covered by insurance. On November 13, 1995, the Company initiated litigation in Washington State Court against Heartstream, Inc. ("Heartstream"), a company formed to develop, manufacture and market defibrillators, as well as certain individuals who were formerly employed by the Company and who are founders of and employees of Heartstream. The Company's claims are based on its belief that Heartstream and such individuals have, among other things, misappropriated certain of the Company's intellectual property and that such individuals have breached contractual obligations to the Company. The Company received an answer to its complaint from Heartstream and in its answer, Heartstream denies the Company's claims and alleges certain counterclaims against the Company for, among other things, monopolization of the industry and tortuous interference with business opportunities. While the Company believes it has meritorious defenses against the suit, the ultimate resolution of the matter could result in a loss of up to $10 million. The parties are currently conducting discovery in this litigation and a tentative trial date has been set for September, 1997. Additionally, during January, 1997 Heartstream initiated litigation against the Company in U.S. District Court for the Western District of Washington alleging that the Company is infringing a Heartstream patent related to product self-test features. The Company has filed an answer denying Heartstream's claims and alleging certain counterclaims against Heartstream for infringement of a Company self-test patent. Discovery is in the initial stages in this litigation. If the Company does not prevail in these litigations or otherwise successfully resolve its claims, its ability to design and market certain future products may be adversely affected. In addition, if a court were to find in favor of Heartstream on its claims, the Company could be liable for significant damages. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position of the Company. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operation contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements due to many factors, including, but not limited to, the effect of general economic conditions, the impact of competitive products and pricing, customer demand, product development, commercialization and technological difficulties, U.S. and foreign regulatory requirements, the effects of accounting policies and financing requirements, and other such risks and factors. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 The Company reported worldwide sales of $40.7 million for the first quarter of 1997, reflecting a decrease of $2.0 million or 5% from the comparable 1996 quarter. Domestic sales for the current quarter aggregated $29.6 million, down 6% from the comparable 1996 quarter, and international sales of $11.2 million were down 2% from the 1996 period. Worldwide equipment sales of $26.1 million decreased 10% from the comparable 1996 quarter due primarily to softness in the U.S. domestic hospital market. Worldwide service revenue of $6.9 million increased slightly (1%) over the comparable prior year period, and supplies (disposable and accessory) revenue of $7.7 million increased 11% due to a strong demand for the Company's disposable products, primarily QUIK-COMBO electrodes. The decrease in domestic sales between the comparable quarters was driven primarily by the U.S. domestic hospital market. Out-of-hospital sales, however, were essentially unchanged from the prior year quarter as sales from the Company's new LIFEPAK 500 offset shortfalls in other products. Shipments of the new LIFEPAK 500 defibrillator commenced during February 1997 and the product has been well received within the market due to its light weight, low maintenance, and simple operation. Internationally, sales decreased 2% from the prior year quarter due to weaker sales in both Latin America and Europe. During the first quarter of 1997, the Company reported worldwide product orders of $37.1 million, up $1.6 million or 4% from the comparable 1996 quarter. The increase in product orders was due to the introduction of the LIFEPAK 500 defibrillator as well as solid international performance. Domestic product orders remained essentially unchanged from the comparable prior year period, however, international orders increased 13% due to increased activity in the Eastern European marketplace. Gross profit of $20.9 million decreased $0.4 million during the current quarter from $21.3 million during the comparable 1996 period. However, as a percentage of sales, gross profit increased from 49.9% during the comparable 1996 quarter to 51.3% in the 1997 quarter. The increase in gross profit was primarily attributed to a favorable product mix, including the impact of LIFEPAK 500 sales, and a reduction in aggressive trade-in programs that had been offered during the comparable 1996 period. Research and development ("R&D") expenditures of $5.2 million increased 13% during the current quarter from $4.6 million in the comparable 1996 quarter. As a percentage of sales, R&D expenses increased from 11% in the 1996 quarter to 13% during the 1997 quarter. R&D expenditures increased due to the Company's accelerated and continuing commitment to develop new products as well as conduct ongoing research for future products and technology. Sales and marketing expenditures of $8.9 million increased 14% from the comparable 1996 quarter. The increase resulted from enhanced sales and marketing efforts aimed at introducing the Company's new LIFEPAK 500 during January and February 1997. In addition to product introduction costs, international selling expense increased from the comparable 1996 quarter. The Company has continued to commit resources to develop international marketing strategy and marketshare. 9 - ------------------------------------------------------------------------------- General and administrative expenditures of $2.0 million decreased 34% from the comparable 1996 quarter mainly due to no counterpart to 1996 bonus accrual. As a percentage of sales, general and administrative expenses decreased from 7% during the comparable 1996 quarter to 5% during the current quarter. On a combined basis, selling, general and administrative ("SG&A") expenses during the first quarter of 1997 remained consistent with the comparable prior quarter. As a percentage of sales, however, SG&A expenses increased slightly from 25% during the comparable 1996 period to 27% during 1997, mainly attributable to lower sales volume. Other expenses, consisting primarily of interest expense, totaled $0.7 million which remained consistent with the comparable 1996 quarter. Income tax expense of $1.4 million reflected an increase in the Company's effective tax rate from 34% in the comparable 1996 period to 35% during the current period. The increase is primarily due to a lower percentage of international income. As a result of the above factors, net income for the first quarter of 1997 was $2.7 million, a decrease of $0.7 million from the comparable 1996 quarter. LIQUIDITY AND CAPITAL RESOURCES For the three months ended March 31, 1997, the Company generated $0.2 million in cash to finance operations compared with $5.6 million of cash used by operations in the comparable 1996 quarter. During the current quarter, cash generated from net income was primarily offset by an increase in inventory. The significant use of cash reported in the 1996 quarter was due primarily to an increase in trade accounts receivable as well as an decrease in trade accounts payable and other liabilities. Cash used for investing activities during the three months ended March 31, 1997 totaled $1.7 million. Consistent with the year ended 1996, the majority of the Company's capital expenditures during the current quarter related to the final stages of implementation of the Company's new computer business system. Additional capital expenditures during the quarter related to research and engineering equipment. The Company does not have any capital commitments outside the ordinary course of business. The Company's principal working capital requirements are financing accounts receivable and inventories. At March 31, 1997, the Company had net working capital of $54.2 million, including accounts receivable of $38.2 million, inventories of $34.8 million, accounts payable of $11.4 million, and other accruals totaling $16.3 million. The Company obtains its financing for operations through the use of a revolving credit facility ("the Revolver") which is not to exceed $30.0 million. The Revolver bears interest at the Company's option, at either (i) the lender's base rate (the higher of such lender's prime rate or the federal funds rate plus 0.5%) or (ii) LIBOR plus 1.0%. Such rates are subject to increase in the event that the Company does not meet certain leverage and interest coverage ratios. At March 31, 1997, the average interest rate on amounts outstanding under the Revolver was 6.5%. The Company's indebtedness under the Revolver is secured by a first priority interest in and lien on all of the assets of Physio-Control Corporation ("PCC"), a pledge by the Company on all of the outstanding common stock of PCC and 65% of the outstanding stock of PCC's subsidiaries and other guaranties and pledges as defined in the 10 - ------------------------------------------------------------------------------- credit agreement. The credit agreement includes various affirmative and negative covenants which require, among other things, that the Company maintain certain debt to equity and net worth ratios, limitations on capital expenditures, restrictions on the declaration and payment of dividends and minimum earnings before interest, income taxes, depreciation and amortization. At March 31, 1997, the Company had borrowing availability under the Revolver of approximately $9.8 million after consideration of outstanding letters of credit of $0.6 million, and was in compliance with all related loan covenants. In addition, the Company has subordinated promissory notes payable to Eli Lilly and Company totaling $2.5 million which originated in the acquisition of PCC and certain foreign assets. Notes with a principal balance totaling $1.5 million mature on January 31, 2001 and bear interest at LIBOR plus 3.25% . An additional promissory note payable has a principal balance of $1.0 million, matures on November 15, 1998 and bears interest at LIBOR plus 3.0%. The Company believes that, based upon current levels of operations and anticipated growth, funds generated from operations, together with other available sources of liquidity, including borrowings under the credit facility, will be sufficient over the next twelve months for the Company to make anticipated capital expenditures and fund working capital requirements. Approximately 27% of the Company's sales in the first quarter of 1997 were to international customers and the Company expects that sales to international customers will continue to represent a material portion of its sales. Certain of the Company's international receivables are denominated in foreign currencies and exchange rate fluctuations impact the carrying value of these receivables. The Company has elected to hedge certain assets denominated in foreign currencies with the purchase of forward contracts. Historically, fluctuations in foreign currency exchange rates have not had a material effect on the Company's results of operations and, with certain hedging activities, the Company does not expect such fluctuations to be material in the foreseeable future. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There have been no material changes in the status of litigation reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. (See Note 4 of the Notes to Consolidated Financial Statements in Part I, Item 1, above). ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. Exhibit No. Description of Exhibit - ----------- ---------------------- 27.1 Financial Data Schedule No reports on Form 8-K were filed during the quarter ended March 31, 1997. 11 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 to sign on behalf of the registrant and as the principal financial officer thereof. Dated: May 9, 1997 PHYSIO-CONTROL INTERNATIONAL CORPORATION By /s/ Joseph J. Caffarelli ------------------------------ Joseph J. Caffarelli Executive Vice President and Chief Financial Officer 12 EX-27.1 2 EXHIBIT 27.1 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 4,324 0 38,934 (747) 34,843 82,343 16,555 (2,061) 100,098 28,121 0 0 0 172 48,129 100,098 40,727 40,727 19,846 19,846 16,105 0 459 4,081 1,428 2,653 0 0 0 2,653 0.15 0.15
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