-----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, Nb7bKnboPOR/Py33wOezSLtEvR6CBzGCu5wsxELo4JHCzXtFkS6PMi7qU38dMwve 18Y4P/kVOKJPVUz+imEABQ== 0000891618-97-002351.txt : 19970520 0000891618-97-002351.hdr.sgml : 19970520 ACCESSION NUMBER: 0000891618-97-002351 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESOUND CORP CENTRAL INDEX KEY: 0000846463 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 770019588 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20046 FILM NUMBER: 97608143 BUSINESS ADDRESS: STREET 1: 220 SAGINAW DR STREET 2: SEAPORT CENTRE CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 4157807800 MAIL ADDRESS: STREET 1: 220 SAGINAW DRIVE STREET 2: SEAPORT CENTRE CITY: REDWOOD CITY STATE: CA ZIP: 94063 10-Q 1 FORM 10-Q FOR PERIOD ENDED 3/31/97 1 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 March 31, 1997 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 0-20046 RESOUND CORPORATION (Exact name of Registrant as specified in its charter) California 77-0019588 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 220 Saginaw Drive, Seaport Centre, Redwood City, California 94063 (Address of principal executive offices) (415) 780-7800 (Registrant's telephone number) 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 ----- ----- The number of shares of Registrant's common stock issued and outstanding as of May 6, 1997 was 19,431,260 shares. This document consists of 12 pages of which this is page 1. 1 2
PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets..................................................3 Condensed Consolidated Statements of Operations........................................4 Condensed Consolidated Statements of Cash Flows........................................5 Notes to Condensed Consolidated Financial Statements...............................6 - 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview...........................................................................7 - 8 Results of Operations..............................................................8 - 9 Liquidity and Capital Resources....................................................... 9 Item 3. Quantitative and Qualitative Disclosures about Market Risks............................9 PART II. OTHER INFORMATION Item 1. Legal Proceedings.....................................................................10 Item 2. Changes in the Rights of Company Security Holders.....................................10 Item 3. Defaults upon Senior Securities.......................................................10 Item 4. Submission of Matters to a Vote of Security Holders...................................10 Item 5. Other Items...........................................................................10 Item 6. Exhibits and Reports on Form 8-K......................................................10 SIGNATURES..................................................................................................11
2 3 PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements: RESOUND CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
ASSETS March 31, December 31, 1997 1996 --------- ------------ (Unaudited) (Note) Current assets: Cash and cash equivalents ......................... $ 7,051 $ 7,980 Accounts receivable, net .......................... 21,587 20,497 Inventories ....................................... 22,871 23,853 Prepaid expenses and other ........................ 3,957 4,218 --------- --------- Total current assets ..................... 55,466 56,548 Property and equipment, net ............................ 12,337 13,494 Other assets ........................................... 3,764 4,899 Goodwill ............................................... 36,207 39,811 --------- --------- $ 107,774 $ 114,752 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Loans and current debt ............................ $ 4,243 $ 4,717 Accounts payable .................................. 6,689 8,478 Accrued liabilities ............................... 19,345 17,976 --------- --------- Total current liabilities ................ 30,277 31,171 Long-term debt ......................................... 18,121 19,515 Accrued pension ........................................ 4,265 5,110 Minority interest ...................................... 1,360 1,360 Commitments and contingencies .......................... -- -- Shareholders' equity: Preferred stock ................................... 5,300 5,225 Common stock ...................................... 90,929 90,680 Accumulated deficit ............................... (40,172) (39,202) Cumulative translation adjustment ................. (2,306) 893 --------- --------- Total shareholders' equity ............... 53,751 57,596 --------- --------- $ 107,774 $ 114,752 ========= =========
Note: The balance sheet at December 31, 1996 has been derived from audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 3 4 RESOUND CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share data) (Unaudited)
Three months ended ------------------ March 31, March 31, 1997 1996 -------- -------- Net sales ...................................... $ 32,211 $ 27,264 Cost of sales .................................. 15,111 12,556 -------- -------- Gross profit .......................... 17,100 14,708 Operating expenses Research and development .................. 4,327 3,068 Selling, general and administrative ....... 12,548 10,874 -------- -------- Total operating expenses ......... 16,875 13,942 -------- -------- Income from operations ......................... 225 766 Interest expense -- net ................... (397) (595) -------- -------- Other expense / minority interest ......... (417) (2) -------- -------- Income (loss) before income taxes (589) 169 Provision for income taxes (1) ............ 305 51 -------- -------- Net income (loss) .............................. $ (894) $ 118 ======== ======== Net income (loss) applicable to common shareholders ................................. $ (969) $ 118 ======== ======== Net income (loss) per share .................... $ (0.05) $ 0.01 ======== ======== Shares used in per share calculation ........... 19,389 16,119 ======== ========
(1) Consists principally of state and foreign income taxes. See Exhibit 11.1 "Statement of Computation of Net Income (Loss) per Share" See notes to condensed consolidated financial statements. 4 5 RESOUND CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (decrease) in cash and cash equivalents (in thousands) (Unaudited)
Three months ended ------------------ March 31, March 31, 1997 1996 -------- -------- Cash flows from operating activities: Net income (loss) ...................................................... $ (894) $ 118 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ...................................... 1,356 746 Changes in assets and liabilities: Accounts receivable ................................................ (1,090) (1,065) Inventories ........................................................ 982 105 Deposits and other current assets .................................. 1,396 (97) Accounts payable ................................................... (1,789) (1,104) Accrued liabilities ................................................ 523 378 ------- ------- Net cash provided by (used in) operating activities ........... 484 (919) Cash flows from investing activities: Additions of property and equipment .................................... (695) (1,487) ------- ------- Net cash used in investing activities ......................... (695) (1,487) Cash flows from financing activities: Payments on long-term debt ............................................. (675) (575) Loans payable ..................,,...................................... (292) (869) Issuance of preferred stock ......,,.................................... -- 5,000 Issuance of common stock ............................................... 249 406 ------- ------- Net cash provided by (used in) financing activities ........... (718) 3,962 ------- ------- Net increase (decrease) in cash and cash equivalents ........................ (929) 1,556 Cash and cash equivalents at the beginning of the period .................... 7,980 5,091 ------- ------- Cash and cash equivalents at the end of the period .......................... $ 7,051 $ 6,647 ======= ======= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest ........................................................... $ 434 $ 731 Income taxes ....................................................... $ 227 $ 309 Supplemental schedule of non-cash investing and financing activities: Accrual of preferred stock dividend .................................... $ 75 $ --
See notes to condensed consolidated financial statements. 5 6 ReSound Corporation Notes to Condensed Consolidated Financial Statements NOTES A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the audited consolidated financial statements for the year ended December 31, 1996 and footnotes thereto included in the Company's 1996 Annual Report on Form 10-K. Earnings Per Share Net income (loss) per share is computed using the net income (loss) applicable to common shareholders and the weighted average number of shares outstanding. For the three month period ended March 31, 1996, outstanding options to purchase common shares are included in the calculation. The net loss for the three month period ended March 31, 1997 is increased by the dividend accrued on Series B Preferred Stock to arrive at net loss applicable to common shareholders. In February 1997, Statement of Financial Accounting Standard No. 128 was issued and is required to be adopted for both interim and annual periods ending after December 15, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements, the currently presented primary net earnings per share will be replaced by basic earnings per share. The fundamental difference is that basic earnings per share excludes the dilutive effect of stock options. The computed basic earnings per share is not materially different from earnings per share for the quarter ended March 31, 1997 and March 31, 1996. Additionally, fully diluted earnings per share will be replaced by diluted earnings per share, which will be calculated on a similar basis and will always be required to be presented on the consolidated statement of operations. The computed diluted earnings per share is not materially different from the earnings per share as reported for these quarters. 6 7 NOTE B - INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market. The components of inventory consist of the following (in thousands):
March 31, December 31, 1997 1996 -------- ------------ Raw materials $10,917 $ 9,934 Work in process 6,241 6,838 Finished products 5,713 7,081 ------- ------- $22,871 $23,853 ======= =======
NOTE C - ACCOUNTING FOR INCOME TAXES Income taxes have been provided for on a year-to-date basis and represent taxes on profits earned at the Company's European subsidiaries in Ireland, Austria and Holland, plus California taxes. NOTE D - USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Information contained in this Form 10-Q that is not historical fact, including any statements about expectations for the fiscal year and beyond, involve certain risks and uncertainties. This Form 10-Q contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995, many of which can be identified by the use of forward-looking terminology such as "may", "will", "believe", "expect", "anticipate", "estimate", "plan", "intend", or "continue" or the negative thereof or other variations thereon or comparable terminology. There are a number of important factors with respect to such forward-looking statements that could cause actual results to differ materially from those contemplated in such forward-looking statements. Numerous factors, such as economic and competitive conditions, incoming order levels, timing of product shipments, product margins, new product development, and reliance on key customers and international sales could cause actual results to differ from those described in these statements and prospective investors and stockholders should carefully consider these factors in evaluating these forward-looking statements. 7 8 The following discussion should be read in conjunction with the unaudited consolidated condensed financial statements and notes thereto included in Part I - -- Item 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto, the Introductory Statement and Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 1996 contained in the Company's Annual Report on Form 10-K. Founded in 1984, ReSound Corporation (the "Company" or "ReSound") is a hearing health care company that designs, develops, manufactures and sells technologically advanced hearing devices for the hearing impaired. The Company's hearing device products utilize proprietary sound processing technology originally developed by AT&T Bell Laboratories and subsequently enhanced and refined by ReSound. ReSound's Multiband Full Dynamic Range Compression sound processing technology enables ReSound(R) hearing devices to be individually programmed to adjust the amplification of sound continuously in response to the acoustic environment and each patient's residual range of hearing. ReSound's current products are offered in In-the-Ear ("ITE"), Behind-the-Ear ("BTE") and In-the-Canal ("ITC") versions. RESULTS OF OPERATIONS Three months ended March 31, 1997 and March 31, 1996 Net sales increased by 18% to $32.2 million in the quarter ended March 31, 1997, from $27.3 million in the quarter ended March 31, 1996. International sales accounted for 51 percent of ReSound's net sales during the first quarter of 1997, compared to 64 percent during the same quarter in 1996. International sales for the first quarter were $16.5 million, a decrease of 6 percent from the same period last year. The decrease in international sales was the result of weaker European currencies compared to the U.S. dollar, unfavorable changes in governmental reimbursement policies in Europe and an economic slowdown in Germany. First quarter U.S. sales of $15.7 million increased 62 percent from the same period last year due, primarily, to the inclusion of sales relating to products obtained through the acquisition of certain assets of the Hearing Health business activity of 3M in the second quarter of 1996 and continued strong sales of the Company's ITC and Encore(TM) hearing device products. The Company established a subsidiary, Sonar Hearing Health Corporation, to manage the former 3M Hearing Health business activity on an ongoing basis. Gross profit was 53.1 percent of net sales in the first quarter of 1997, compared to 53.9 percent of net sales for the same quarter of 1996. The quarter-to-quarter decrease in gross profit was largely attributable to increased warranty and product return costs in the U.S. and the impact of the stronger U.S. dollar compared to European currencies. Research and Development ("R&D") spending during the first quarter of 1997 was $4.3 million (13.4 percent of net sales) compared to $3.1 million (11.3 percent of net sales) in the same quarter of 1996. The first quarter of 1997 included approximately $1.9 million of R&D spending for ReSound's software-based Digital Signal Processing technology, Sonar Hearing Health R&D, and advanced development programs not included in the first quarter of 1996. In the first quarter of 1997, the Company incurred development expenses related to the introduction of an ITE configuration of its Advanced Program Selection (APS) product line. 8 9 Selling General and Administrative expenses ("SG&A") were $12.5 million, or 38.8 percent of net sales for the first quarter of 1997, compared to $10.9 million, or 39.9 percent of net sales in the first quarter of 1996. This increase includes approximately $1.2 million of SG&A at the Company's Sonar Hearing Health subsidiary which was acquired in June 1996. Net interest expense was $397,000 for the first quarter of 1997 compared to $595,000 for the first quarter of 1996. This quarter-to-quarter decrease is attributable to reduction of debt and the effect of the stronger U.S. dollar compared to European currencies. Income taxes have been provided for on a year-to-date basis and represent taxes on profits earned at ReSound's European subsidiaries in Ireland, Austria and Holland, plus California taxes. The Company had a net loss of $894,000 in the quarter ended March 31, 1997, compared to net income of $118,000 in the quarter ended March 31, 1996. The decrease was primarily the result of foreign currency losses resulting from the stronger U.S. dollar compared to European currencies, increased R&D spending associated with the development of new products and increased SG&A costs related to the Company's Sonar Hearing Health subsidiary which was acquired in June 1996. LIQUIDITY AND CAPITAL RESOURCES For the three months ended March 31, 1997 the Company generated $484,000 in cash from operations, compared to the use of $919,000 in cash in operations in the three months ended March 31, 1996. Cash generated from operations in the first quarter of 1997 included non-cash charges of $1.4 million relating to depreciation and amortization. In addition, positive cash flows from operations were generally due to decreases in deposits and other current assets and inventories of $1.4 million and $1.0 million, respectively. These positive cash flows from operations were partially offset by a net loss of $894,000, an increase in accounts receivable of $1.1 million and a decrease in current liabilities of $1.3 million. Net cash used in investing activities for the three months ended March 31, 1997 of $695,000 resulted from additions of property and equipment. The primary financing activity in the three months ended March 31, 1997 was the payment of long-term debt of $675,000. At March 31, 1997, the Company had available cash and cash equivalents of $7.1 million. The Company believes this will be sufficient to meet the Company's operating expenses and capital requirements for at least the next twelve months. From time to time, the Company may also consider the acquisition of, or evaluate investments in, certain products and businesses complementary to the Company's business. Any such acquisition or investment may require additional capital resources. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Not applicable. 9 10 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The shareholder class action suit, filed against the Company, its directors and certain of its officers, and against the underwriters of its initial public offering on behalf of purchasers of ReSound's common stock between March 4, 1993 and March 13, 1995, was settled on October 19, 1995 and resulted in a settlement fund of $8.0 million from which plaintiff's attorneys' fees and expenses will be deducted. Fifty percent of the fund was paid by the Company on October 30, 1995, and the balance was paid by the Company's insurance carriers. The Court approved the settlement on June 12, 1996, however an objection was raised to the provision of the settlement agreement relating to attorney's fees and certain other matters. The Court rejected the claim and approved the proposed terms of the distribution. The objector appealed this decision to the U.S. Court of Appeals for the Ninth Circuit, which dismissed the appeal on procedural grounds on April 21, 1997. ITEM 2. CHANGES IN THE RIGHTS OF COMPANY SECURITY HOLDERS Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER ITEMS Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K... (a) Exhibit 11.1: Statement of computation of net income (loss) per share (b) Exhibit 27: Financial data schedule (c) Report on Form 8-K None 10 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. RESOUND CORPORATION /s/ Christopher H. Pascoe ------------------------------------ Christopher H. Pascoe Vice President, Corporate Controller (Acting Principal Financial Officer) Date: May 12, 1997 11 12 EXHIBIT INDEX Exhibit No. Description - ------ ----------- 11.1 Statement of computation of net income (loss) per share 27 Financial Data Schedule
EX-11.1 2 COMPUTATION OF NET INCOME (LOSS) PER SHARE 1 Exhibit 11.1 RESOUND CORPORATION STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER SHARE (in thousands except per share data)
March 31, March 31, --------- --------- 1997 1996 ---- ---- Net income (loss) applicable to common shareholders ............... $ (969) $ 118 ======== ======== Average common shares outstanding (1) ............................. 19,389 15,690 Net effect of dilutive stock options (based on treasury stock method .......................................................... -- 429 -------- -------- Total shares for primary and fully diluted net income per share (2) 19,389 16,119 ======== ======== Net income (loss) per share ....................................... $ (0.05) $ 0.01 ======== ========
Notes: (1) Actual shares issued and outstanding as of March 31, 1997 were 19,428,760. (2) Fully diluted amounts do not differ materially. EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1 7,051 0 28,321 6,734 22,871 55,466 37,957 25,620 107,774 30,277 23,746 0 5,300 90,929 42,478 107,774 0 32,211 15,111 15,111 17,292 0 397 (589) 305 (894) 0 0 0 (969) (.05) (.05)
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