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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the fiscal year ended September 30, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from to
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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 Identification
incorporation or organization) Number)
20 Campus Road, Totowa, New Jersey 07512; (973) 790-1330
(Address and telephone number, including area code, of
registrant's principal executive office)
Securities registered pursuant to Section 12(b) of the Act: none.
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, no par value
Indicate by checkmark 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 by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of voting stock held by non-affiliates as of
December 1, 1997 was approximately $113,700,000.
Number of shares of Common Stock outstanding as of December 1, 1997:
12,715,415
Documents incorporated by reference: Definitive Proxy Statement for 1998
Annual Meeting of Shareholders (Part III).
VITAL SIGNS, INC.
TABLE OF CONTENTS
Page
Part I
Item 1. Business 2
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 4A. Executive Officers of the Registrant 17
Part II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 19
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 21
Item 8. Financial Statements and Supplementary
Data* 26
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 26
Part III
Item 10. Directors of the Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial
Owners and Management 27
Item 13. Certain Relationships and Related
Transactions 27
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 28
Signatures 30
__________________
*Financial Statements follow page 25.
PART I
Item 1. Business
Introduction
Vital Signs, Inc. was initially incorporated in New York in 1972. On
December 19, 1988, Vital Signs, Inc. reincorporated in New Jersey through a
merger with a then newly formed New Jersey corporation. Unless otherwise
indicated, all references in this Annual Report to the "Company" refer to Vital
Signs, Inc., its predecessor New York corporation and their consolidated
subsidiaries. References to "Vital Signs" refer solely to the parent company.
Vital Signs' principal executive offices are located at 20 Campus Road, Totowa,
New Jersey 07512; its telephone number at that location is (973) 790-1330.
Vital Signs and its subsidiaries design, manufacture and market
single-patient use medical products for the anesthesia, respiratory, critical
care and emergency markets. Single-patient use products have captured an
increasing share of the medical products market from reusable products,
primarily because of their cost advantages and improved patient care features,
including reducing the potential of transmitting infections from one patient to
another.
The Company has pioneered the development and introduction of a variety of
single-patient use products. In 1975, the Company commenced the marketing of
clear, non-conductive anesthesia breathing circuits. The first clear plastic,
single-use air-filled cushion face mask for anesthesia delivery and
resuscitation was launched by the Company in 1981. The Company was the first
organization to introduce a single-patient use manual resuscitator in 1984. The
first single patient use laryngoscope system for use in anesthesia and the
critical care arenas was developed and launched by the Company in 1988. The
Company developed a general anesthesia kit, which can combine over 20 disposable
items in one convenient, cost-effective package and the first single patient use
infant resuscitation circuit with an adjustable pressure limiting valve, used to
protect the infant's lung against over pressurization. In 1997, the Company
began distributing products manufactured by Marquest Medical Products, Inc.
("Marquest"), such as arterial blood gas syringes and kits, small volume
nebulizers and heated humidification circuits (see Acquisitions - Current Fiscal
Year).
For additional information regarding these products, see
"Business-Products."
The Company's strategy is to sell its anesthesia, respiratory and critical
care products to hospitals through its own sales force. The Company sells its
emergency and alternate site/homecarecare products through third party
distributors. The worldwide sales force consisted of 213 sales employees at
October 1, 1997 compared with 102 sales employees at October 1, 1996. In the
third quarter of fiscal 1997, the Company embarked on a new strategy with regard
to its domestic sales force. The Company announced its intention to increase its
sales force by as much as 100% and to divide its sales force into two groups,
one to concentrate on the sale of anesthesia products, and the other to
concentrate on respiratory and critical care products.
This Annual Report on Form 10-K 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 wishes to ensure 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) market acceptance of competitors', existing or new products, (v)
adverse determinations arising in the context of regulatory matters (see
"Regulation") or legal proceedings (see Item 3 of this Annual Report on Form
10K) and (vi) legislative changes impacting the healthcare market.
Acquisitions - Current Fiscal Year
The Company acquired the outstanding stock of Marquest Medical Products,
Inc., a manufacturer of disposable medical devices and supplies for use in the
respiratory care, critical care and anesthesia markets. As part of the
acquisition transaction, the Company acquired certain equipment, patent and
lease rights from Scherer Healthcare, Inc. ("Scherer"). Scherer held the
ownership rights to Marquest's blood gas collection product line as a result of
a previous sale leaseback transaction with Marquest. The effective date of this
transaction for financial reporting purposes is April 1, 1997. See Note 2 of the
Company's Consolidated Financial Statements.
Historically, the Company has made both product and business acquisitions.
Although no assurances can be given with respect to future acquisitions, the
Company's acquisition strategy is focused upon the following objectives: (i)
identification and acquisition of companies and/or products in the anesthesia,
respiratory and critical care and emergency fields with the goal of expanding
the products that can be sold by the Company's direct sales force, (ii)
expansion of sales to international markets, and (iii) acquiring unique research
and development capabilities.
Products
Principal Products
The Company markets a wide variety of single-patient use anesthesia,
respiratory, critical care and emergency products. Its principal products are
described below:
Anesthesia Products:
Face Masks. In 1981, the Company introduced the first clear plastic
air-filled cushion face mask for single-patient anesthesia and respiratory use.
The soft air-filled cushion face mask has been clinically documented to provide
a better seal on most patients than other face masks, thus improving the
delivery of anesthetic gases and oxygen to the patient. A clear face mask also
permits the clinician to better observe certain patient problems, such as
life-threatening aspiration. The Company offers various sizes and types of face
masks. The Company anticipates that the usage of single patient use face masks
in surgical procedures internationally will continue to expand as single-patient
use products become increasingly accepted in international hospitals.
Anesthesia Breathing Circuits. The Company offers a wide variety of
single-patient use anesthesia breathing circuits, which are used to connect the
patient to the anesthesia machine and to various patient monitors. Each
breathing circuit consists of flexible hoses, a breathing bag, and a "Y" and
elbow attachment. Since the breathing circuit needs of hospitals vary
significantly, the Company offers a large variety of circuits designed to be
compatible with anesthesia equipment manufactured by numerous other companies.
The Company recently began offering circuits that deliver heated humidification
to patients (see Acquisitions Current Year). Technological advances in the areas
of gas sampling, temperature monitoring and humidification have provided the
Company with opportunities to expand its breathing circuit offerings.
INFUSABLE(R) Disposable Pressure Infusor. Invasive pressure monitoring has
been used since the early 1970's as a means of monitoring blood and other fluid
pressures of patients in certain critical care situations. The monitoring
process involves inserting a catheter, usually into the artery or vein of the
patient, connecting the catheter to a transducer (a device which converts the
pressure impulse from the patient's blood into an electrical signal), and
transmitting the electrical signal to a monitoring screen. The monitoring
process uses a fluid-filled conduit to connect the catheter to the transducer.
The fluid generally is a saline solution forced into the system by a pressure
infusor. The Company introduced its patented INFUSABLE(R) disposable pressure
infusor to the market in late 1986 and early 1987. The Company's infusor
consists of an inflatable bladder, a bulb to pump air into the bladder and a
pressure gauge. The infusor also has a mesh netting into which a package of
sterile fluid or "solution bag" is placed. The fluid is connected to the
monitoring system and the pressure on the solution bag is set at a pressure
level designed to maintain the pressure required by the monitoring system.
General Anesthesia Systems. The Company assembles and markets General
Anesthesia System customized anesthesia kits, which can include more than 20
products, such as air-filled cushion face masks, breathing circuits, blood
pressure cuffs and temperature monitoring probes. In marketing the General
Anesthesia System kits, the Company's sales representatives use detailed
questionnaires to assist in determining the particular products the hospital
desires in its anesthesia kits. The Company then assembles a General Anesthesia
System kit to meet the hospital's specific needs.
Thermadrape(R) Heat Retentive and Insulating Drape is a patented heat
retentive surgical covering designed to be a safe, effective and affordable
alternative to the active warming blanket. Thermadrape(R) products minimize
preoperative heat loss and allow patients to avoid (i) the increased metabolic
rate and oxygen uptake associated with post-operative shivering, (ii)
vasoconstriction, (iii) delayed drug clearance and other side effects of "cold
stress" and (iv) needless discomfort. Configurations include blankets, head
covers, leggings and wraps. Sizes range from pediatric to adult.
Temp Probe(TM) Temperature Probes. The Company offers a variety of
temperature probes (esophageal, tympanic, skin and general purpose) to monitor
patients undergoing anesthetic procedures. The Company has expanded its
temperature line to accommodate the various physiological patient monitors found
in hospitals. The Company's esophageal stethoscope monitors temperature, while
also providing the clinician with the patient's heart and lung sounds. In 1995,
the ESG(TM) esophageal stethoscope with gastric suction was introduced. This
stethoscope adds a gastric suction function to the measurement of temperature
and amplification of heart and lung sounds.
Vital View(TM) Single-Patient Use Fiberoptic Laryngoscope System is
designed to assist the anesthesiologist in correctly placing an endotracheal
tube within the trachea of the patient. This system has several advantages over
traditional metal blade laryngoscope systems, including lowering the risk to
both the patient and physician of infection associated with reusable metal
blades and handles. In addition, hospital capital outlays for stocking emergency
crash carts can be reduced by purchasing the Vital View(TM) system rather than a
reusable fiberoptic system.
Respiratory and Critical Care Products:
Manual Resuscitator Products. Manual resuscitators are ventilation devices
which are squeezed by hand to force oxygen into a patient's lungs. They are used
throughout the hospital in a variety of settings. For example, patients on a
ventilator require the use of a resuscitator prior to tracheal suctioning
procedures. Another use is in providing oxygen while transporting the patient
between the operating room and other critical care units. In addition,
resuscitators are typically placed strategically throughout the hospital to
provide assistance to patients who have stopped breathing and require
resuscitation.
The Company was the first to offer single-patient use manual resuscitators.
The Company's CODE BLUE(TM) and VITAL BLUE(TM) resuscitators are used in
emergency situations and in a variety of medical procedures. CODE BLUE(TM)
resuscitators are sold in different sizes for infants, children and adults. Both
resuscitators alleviate certain problems involved in mouth-to-mouth emergency
resuscitation, including the risk to both the rescuer and the individual of
transmitting infections. Most reusable manual resuscitators are costly to
sterilize and difficult to fully reassemble. In contrast, CODE BLUE(TM) and
VITAL BLUE(TM) resuscitators are relatively inexpensive, and already fully
assembled. The Company also offers a specialized line of infant resuscitation
products (BabySafe(TM), PediBlue(TM) and BabyBlue(TM) resuscitators) used in
labor and delivery rooms and in neonatal intensive care units, where controlling
the spread of infection is particularly critical. BabySafe(TM) resuscitators
offer the ability to adjust and limit the level of pressure that can be
delivered during resuscitation. Oxygen can be delivered without the risk of
barotrauma. Baby Safe(TM), PediBlue(TM) and BabyBlue(TM) resuscitators are
available in a variety of configurations and sizes to meet the needs of infants
and children.
CleenCuff(TM), Flufficuff(TM), and CUFF-ABLE(R) Blood Pressure Cuffs. The
Company manufactures and sells single-patient use blood pressure cuffs which
provide hospitals with an alternative to traditional reusable blood pressure
cuffs that can become contaminated with blood and other body fluids. While all
patients admitted to hospitals are candidates for their own dedicated blood
pressure cuff, the Company believes that to date the primary market for
disposable cuffs has been for cases where infection control is a high priority.
The Company's cuffs are sold in a variety of sizes (including neonatal) and are
adaptable to all manual and electronic blood pressure monitors that utilize
blood pressure cuffs.
Gas-Lyte(R)and Quick-ABG(R). The Company offers a broad line of disposable
arterial blood gas ("ABG") syringes and collection systems. Blood gas syringes
are used to collect blood for blood gas analysis routinely performed in
hospitals on patients suspected of having metabolic, respiratory or other
cardiopulmonary difficulties. The blood gas sample is processed through a blood
gas analyzer. Blood gas analyzers are manufactured by a wide range of
manufacturers. The Company offers its ABG products in both standard
configurations and in "kits" that are customized to meet a specific hospital's
needs.
RespirGard II (R) Nebulizer System, Acorn II (R) and Wisperjet (TM). The
Company manufactures a product line of aerosolized medication delivery systems,
consisting primarily of disposable small volume nebulizers. Nebulizers atomize
medications for inhalation into the lungs. A range of nebulizers are offered to
accommodate user preferences as well as the requirements for different types of
respiratory treatment.
Heated Humidification Systems. The Company manufactures a set of products
to provide a flow of warm moist air to patients who are at risk from loss of
body temperature and drying of the lung linings. These products consist of
electronic humidifiers that utilize single use heated and non-heated wire
breathing circuits as well as single use humidification chambers. In addition to
their use in respiratory care, these products also have applications for use in
anesthesia applications.
Continuous Positive Airway Pressure ("CPAP") Systems. The Company's face
mask CPAP systems provide a less invasive and more comfortable way of providing
oxygen to certain patients than conventional ventilator-based systems. The
Company's face mask CPAP systems eliminate the need to insert an endotracheal
tube into the patient's trachea and attach the patient to a ventilator. The
Company believes that its CPAP systems generally represent a significant advance
in the treatment of Adult Respiratory Distress Syndrome (ARDS) and have been
found to be clinically effective in the treatment of certain traumatic chest
injuries and postoperative atelectasis (collapse of the air sacs in the lungs
and other disease states). The system consists of a compact flow generator
connected to a dual-valved, air-filled cushion face mask. The face mask is
attached to a single-patient use PEEP (positive end expiratory pressure) valve
designed to maintain positive airway pressure in the lung, thus allowing for
more oxygen to diffuse into the patient's blood system.
HCH(TM) Heat and Moisture Exchangers are designed to ensure proper
humidification and reduce heat loss for patients either during anesthesia or
while attached to mechanical ventilators. Single-patient use heat and moisture
exchangers also reduce the risk of infection associated with reusable heated
humidifiers.
Kurtis MSD(TM) Meconium Suction Device. The Kurtis MSD(TM) meconium suction
device was developed by a practicing neonatalogist, Peter Kurtis, M.D. When an
infant shows signs of having aspirated meconium, the device provides rapid,
controlled intubation and meconium suctioning of newborns in the delivery room.
The Kurtis MSD(TM) meconium suction device combines three devices which are
normally used in the procedure and, therefore, makes the procedure less
cumbersome.
Misty Ox(R) Respiratory Products. The MistyOx (R) line consists of three
respiratory product lines that deliver hydration to a patient. The first is a
pre-filled bubble humidifier to deliver low flow and low concentration of oxygen
to patients, the second is a nebulizer to deliver medium to high flow and high
concentrations of oxygen to patients, and the third is the addition of a
regulated heater to the nebulizer. These products may be used on infants,
children and adults in many areas of the hospital, including emergency, recovery
and critical care.
Isocath(TM) is a closed suction system designed for hospital patients on a
ventilator. Isocath(TM) is used when an endotracheal tube is inserted in a
patient located in the intensive care setting of a hospital. Suctioning, one of
the most common procedures in intensive care, is performed to keep the patient's
lungs free of secretions. Isocath(TM) allows the suction catheter to be advanced
into the endotracheal tube without disconnecting the patient from the
ventilator. Isocath(TM) was designed with a patented "isolation" chamber to
isolate the catheter from the patient's airway while permitting cleaning of the
catheter without inadvertently lavaging the patient. As a result of clinical
feedback this product is undergoing certain design changes. The Company expects
to re-launch this product to its customer base in the second quarter of fiscal
1998.
Vasceze(TM) is a needleless, disposable, pre-filled vascular catheter flush
device used with IV sets in the homecare and hospital market. Vasceze(TM) is a
one-piece design manufactured using the "blow-fill-seal" process. Vasceze(TM) is
filled with either sodium chloride or heparin solutions. The product is uniquely
designed to deliver a flush solution at pressures less than those of 10.cc
syringe and other flush devices. The Company is in the process of expanding its
size offerings of the Vasceze(TM) product line to accommodate a wider range of
hospital protocols.
Emergency Products
ACTAR(R) and INFANTRY(R) CPR Training Manikins. The Company manufactures a
product line of patented cardiopulmonary resuscitation ("CPR") training
manikins. ACTAR(R) manikins are made from four basic components--a head, chest
plate, compression piston and disposable lung. The Company also sells the
INFANTRY(R) infant-size CPR training manikins. While maintaining the necessary
features and anatomical landmarks for CPR practices, ACTAR(R) and INFANTRY(R)
manikins are far smaller and less expensive than the full size manikins
typically used for CPR training. The smaller size and affordable pricing enable
each person in a CPR training class to practice with his or her own manikin
rather than sharing a single demonstration model.
Broselow/Hinkle(TM) Pediatric Emergency System. The Broselow/Hinkle(TM)
pediatric emergency system is the product of extensive clinical efforts by Dr.
James Broselow and Dr. Alan Hinkle which takes advantage of the direct
correlation between a pediatric patient's body length and the proper size of
emergency supplies and correct drug dosages. This patented system, licensed to
the Company, consists of: a tape measure having seven color zones, a
corresponding series of color-coded single-patient use emergency kits or modules
and a nylon organizer bag custom-designed to hold all the supplies needed in
either a trauma, cardiac or respiratory pediatric emergency. With this system,
emergency room and EMS personnel can be confident that all the supplies
necessary to manage a pediatric emergency are readily identified, available and
organized in a manner that minimizes reaction time. The Broselow/Hinkle(TM)
pediatric emergency system may also be sold by the Company in the pediatrician
office market.
Thomas Medical Products.
Thomas Medical Products, Inc. ("TMP") is an OEM manufacturer and contract
development organization which is driven by significant scientific, technical,
engineering, manufacturing and QA/Regulatory expertise in the disposable medical
device area. TMP manufactures devices which provide access primarily to the
vascular system by medical professionals and include products such as
introducers, sheaths, dilators, hemostasis valves and catheters. TMP's products
are sold primarily to other healthcare product providers to be used in their
product or as part of surgical kits. TMP sells to many of the major device
manufacturers.
Services
Vital Pharma, Inc. (formerly known as HealthStar Pharmaceutical Services,
Inc.) ("Vital Pharma"), was acquired in January 1996. Vital Pharma's principal
focus is utilization of the Company's expertise in blow-fill-seal technology for
manufacturing the Vasceze(TM) product line and for third party contract
packaging customers that require sterile packaging (primarily pharmaceutical and
medical device manufacturers). Vital Pharma has the capabilities to design and
assemble blow-fill-seal machines for sale to customers that desire to
manufacture in their own facilities.
Another division of Vital Pharma, The Validation Group, provides consulting
services to companies engaged in the manufacture of medical devices and
pharmaceuticals, mainly in the area of compliance with regulations promulgated
by the Food and Drug Administration ("FDA").
Market Data
The following table sets forth, for each of the past three fiscal years, the
dollar amount and approximate percentage of net sales--continuing product lines
represented by the Company's anesthesia products, respiratory and critical care
products, and other products/services:
Year Ended September 30,
-------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ---------------
Amount % Amount % Amount %
(Dollars in Millions)
Anesthesia $58.0 56.0 $56.4 62.7 $ 54.1 61.7
Respiratory and Critical Care 41.0 39.6 31.7 35.3 33.6 38.3
Services / Other 4.6 4.4 1.8 2.0 .0 .0
----- ------ ------ ------ ------ -------
Total $103.6 100.0% $89.9 100.0% $ 87.7 100.0%
====== ====== ====== ====== ====== ========
Sales, Marketing and Customers
Historically, the Company's strategy has been to sell its anesthesia and
respiratory products to hospitals in the United States through its own sales
force. The Company's sales to hospitals through national distributors, such as
Allegiance, Owens & Minor and McKesson/General Medical, approximate 37% of sales
for Fiscal 1997. The Company's sales force participates with these national
distributors in making sales to the hospital.
In fiscal 1997 and 1996, one of the large international distributors
represented approximately 13% and 14% of net sales--continuing product lines.
The same customer represented approximately 10% and 11% of outstanding accounts
receivable at September 30, 1997 and 1996 respectively.
In the fourth quarter of 1997, the Company announced that with the addition
of the Marquest product lines, it was expanding its sales force and dividing it
into two separate sales groups. One sales group is focused on the sales of
anesthesia products. The second sales group is focused on the sales of
respiratory/critical care products. The Company has implemented that program by
hiring and training the expanded sales force. On October 1, 1997, the Company
had a total of 179 direct sales employees. Of that number, 88 are involved in
the sale of anesthesia products, 88 are involved in the sale of respiratory and
critical care products and 3 supporting alternate site and national accounts
sales. In addition, the Company has 14 sales professionals engaged in
international sales.
The Company will continue to develop its sales capacity in the alternate
site (non-hospital) market place. It is expected that this segment of the market
will grow faster than the overall market in the next few years. The Company's
effort in this are broken down into two markets, respiratory and IV products.
The alternate site respiratory product sales are handled by two sales managers,
who oversee an independent representative network. This network currently
numbers twenty representatives and is expected to grow to forty-five by the end
of the second quarter of fiscal 1998. The Company's IV products are handled by
one sales manager who works with a group of six specialty dealers. This
structure allows the Company to have broad coverage in the alternate site market
while at the same time avoiding the fixed costs of an internal sales force.
The Company utilizes an independent distributor for its Actar(R) CPR
training manikins and other pre-hospital and emergency care products.
As new products are developed which can be sold by the Company's sales
force, management educates and trains the sales force in the need, use,
application and advantages of the Company's products. The Company also holds
quarterly training sessions for all salespersons and conducts additional
training as it deems appropriate.
The Company's marketing staff, which works closely with its sales force,
collects and analyzes customer responses to new and existing products,
participates in the Company's product development program and assists in product
training. In addition, the Company's marketing staff develops and helps
implement various internal and external promotional activities.
As have other providers within the medical and healthcare industries, the
Company has been confronted with the rising purchasing power of buying groups
such as Premier Purchasing Partners, Tenet, Columbia Healthcare and others.
While the Company has been successful in
signing an agreement with Premier for a broad range of anesthesia products and
certain respiratory/critical care products (as described below), Tenet for both
anesthesia and respiratory/critical care products, Columbia for its ABG products
and other buying groups, no assurances can be given as to the Company's ability
to secure other contracts or as to the impact of such contracts on the Company.
The buying power exerted by these entities is expected to continue to have a
negative impact on the Company's margins. Industry wide estimates are that such
buying groups will continue to exert their power to decrease prices.
On November 18, 1996, the Company announced it won a dual source supply
agreement with Premier Purchasing Partners LP ("Premier") covering a broad range
of anesthesia products, including breathing circuits, face masks and ABG kits.
Premier is the largest healthcare buying group in the United States. As part of
Premier's group purchasing commitment program, the agreement features savings
for Premier hospitals and systems which agree to buy 90 percent of the products
covered by the agreement from the Company or one other supplier. Pricing for the
five-year agreement is effective from February 1, 1997. The Company continues to
work with member hospitals to secure both commitment and contract compliance.
The additional market share as a result of this agreement with Premier cannot be
measured at this time.
International Sales
For the year ended September 30, 1997, international sales accounted for
approximately 10% of net sales as compared with approximately 8% during 1996 and
approximately 5% during fiscal 1995.
Historically, the Company has sold its products in European and other
international markets through distributors. However, approximately three years
ago the Company sought expansion in Europe by establishing a direct sales
organization in the United Kingdom. The Company has built a network of over 85
independent distributors to sell the Company's anesthesia, respiratory, critical
care and emergency products in major international markets. In January 1996, the
Company opened a sales office in Beijing to support sales development in the
Peoples Republic of China and Hong Kong through distributors.
It is the Company's intention to augment the international sales effort
through strategic alliances wherever possible, although no assurance can be made
that any such alliances can be completed.
Research and Development
The Company regards the element of innovation in its product line to be an
essential part of its overall success. The principal focus of the Company's
research and development effort is to develop product solutions to problems
experienced by healthcare professionals. The Company's principal development
activities are directed toward expanding clinical applications of the Company's
existing products, resulting in improvements to the products (such as the face
mask, breathing circuits and anesthesia kits) where the Company maintains a
substantial market position. Moreover, the internal research and development
("R&D") staff maintains collaborative relationships with external professionals.
During Fiscal 1997 the Company continued to focus its R&D efforts on two
new products. The first product, a flush device for vascular access catheters
(Vasceze(TM)), can be utilized in both the hospital setting and in the rapidly
expanding alternate site field. Versions of
the device are offered for both saline and heparin applications. The Company is
working towards the development of additional sizes of Vasceze which will
accommodate the protocols at a wider variety of hospitals and alternate site
providers.
17 The Company continues to enhance the features of the Isocath(TM) closed
suction system designed for use on ventilated patients. The single-use system
reduces the risk of infection for both patient and care giver. While originally
introduced in October, 1996, an improved version will be reintroduced in the
second quarter of fiscal 1998. See "Principal Products - Respiratory and
Critical Care Products - Isocath(TM)".
The Company has also undertaken research and development efforts in the
following areas: (i) developing new versions of its resuscitator products; (ii)
new versions of its heated humidifiers; (iii) new versions of blood gas syringes
to enhance the ABG product line and (iv) various other projects in both the
anesthesia and critical care areas.
The Company expects to continue to rely in part on its internal staff and
on outside professionals to perform research and development on anesthesia and
respiratory products. The Company's research and development expenses aggregated
$3,865,000, $3,595,000 and $3,869,000, respectively, for Fiscal 1995, 1996 and
1997.
Medical Advisor
The Company has retained the services of Bernard Wetchler, M.D., as the
Company's Medical Director, in order to provide the Company with medical
expertise in all facets of the delivery of anesthesia services. Dr. Wetchler is
Clinical Professor of Anesthesiology at the University of Illinois College of
Medicine, as well as Vice President, World Federation of Societies of
Anaesthesiologists; past President of; the American Society of
Anesthesiologists, the Society for Ambulatory Anesthesia; and the Illinois
Society of Anesthesiologists.
Product Liability Exposure
As with other healthcare product suppliers, the Company is exposed to
potential product liability resulting from the use of the Company's products.
The Company presently carries product liability insurance coverage which
generally protects the Company against claims of bodily injury or property
damage arising out of any products manufactured, sold or distributed by the
Company. If a product liability suit were filed and a judgment entered against
the Company or the Company entered into a settlement agreement, the business,
results of operations and financial condition of the Company could be materially
adversely affected if such judgment or settlement exceeded the limits of the
Company's coverage.
There can be no assurance that the Company's insurance will be sufficient
to cover product liability claims that could arise or that such coverage will
remain available to the Company on satisfactory terms, if at all.
Manufacturing and Quality Control
General
The Company's facilities in Totowa, New Jersey; Englewood, Colorado;
Burnsville, Minnesota; Malvern, Pennsylvania; Orange, California; Riviera Beach,
Florida; and Barkan, Israel, are the principal manufacturing locations for the
Company's products, including anesthesia breathing circuits, filters, blood
pressure cuffs, infusables, ABG syringes, heated humidification circuits,
nebulizers, manual resuscitators and catheters. The Company performs assembly,
testing and packaging in these locations. In many instances, plastic components
incorporated in certain products are molded to the Company's specifications by
outside custom injection molders who utilize molds that are designed and, in
most instances, owned by the Company. The Company's suppliers typically are
presented with written specifications to assure that components are manufactured
in conformity with the Company's design.
Given the ultimate use of many of the Company's products within the
operating room and critical care units of hospitals, the Company conducts
quality control testing in its various facilities. Substantially all such
testing is subject to governmental regulation. Pursuant to United States Food
and Drug Administration ("FDA") regulations, the Company is required to maintain
records of all raw materials received and used in the manufacturing process
along with complete histories of all devices manufactured. See "Regulation."
Significant Suppliers
In 1980, the Company acquired the rights to its air-filled cushion face
mask through a collaboration arrangement with Respironics, Inc. ("Respironics").
Face masks are used in a variety of the Company's circuits and are sold
individually to customers. The Company purchases its face masks from
Respironics, a single source which manufactures the face mask in the People's
Republic of China. The Company's supply agreement with Respironics requires
Respironics to supply air-filled cushion face masks of various specifications to
the Company on an exclusive basis for anesthesia purposes, and obligates the
Company to purchase all of its anesthesia face masks from Respironics as long as
Respironics is the low cost supplier. The Company has had a series of supply
agreements with Respironics since June 1980; the current supply agreement will
govern the supply of anesthesia face masks by Respironics to the Company through
June 2001.
If the supply of face masks from Respironics should be interrupted or cease
for any reason, the Company would seek to find alternative developers and
suppliers of face masks. In such event, the Company would experience disruption
in its business. No assurance can be given that, in the event of such an
interruption or cessation, the Company could, in fact, maintain its required
supply of face masks in a quantity and at a cost that would not have a material
adverse effect on the business and operating results of the Company. The
Company's policy is to maintain a sufficient stock of face masks to lessen the
impact of any temporary production or supply disruption. The Company's agreement
with Respironics provides certain protections to the Company with respect to
molds utilized by Respironics.
Sales Backlog
The Company does not believe that backlog is a meaningful measure of its
business, since its objective is to ship all orders within relatively short time
frames.
Competition
The principal competitive factors in the Company's markets include
innovative product design, product quality, established customer relationships,
name recognition, distribution and price. The Company believes that its products
compete favorably with respect to these factors, although certain of the
Company's competitors may have greater financial and marketing resources or
broader product lines.
The Company's competitive environment can be characterized as fragmented,
often with as many as twelve different companies competing with regard to a
specific product. As a result, the Company's competition varies from product to
product. The Company's primary competitors include Intertech Resources Inc., a
subsidiary of Smith Industries (face masks, breathing circuits, resuscitators,
nebulizers, ABG kits, anesthesia kits and closed suction products), Baxter
International Inc., (breathing circuits and anesthesia kits), King Systems (face
masks and anesthesia circuits), Hudson Respiratory Care, Inc. (heated
humidification systems and other respiratory products), Allegiance, Inc.
(nebulizers and heated humidification systems), Ballard Medical, Inc. (closed
suction products) and Critikon (blood pressure cuffs). The Company's new
Vasceze(TM) product faces competition from Wyeth/Ayerst, and Abbott, who provide
pre-filled syringe catheter devices.
Competition for Vital Pharma's contract manufacturing business comes from
Automated Liquid Processing and Holopak both of whom are larger in scope than
VPI. The Validation Group competes with a large number of privately held
organizations.
Regulation
As a manufacturer of medical devices, the Company is subject to regulation
by, among other governmental entities, the FDA and the corresponding agencies of
the states and foreign countries in which the Company sells its products. The
Company must comply with a variety of regulations, including the Current Good
Manufacturing Practice ("CGMP") regulations of the FDA, and is subject to
periodic inspections by the FDA and applicable state and foreign agencies.
Enforcement of CGMP requirements has increased significantly in recent years,
and the FDA has publicly stated that compliance would be more strictly
scrutinized. If the FDA believes that its regulations have not been fulfilled,
it may invoke extensive enforcement powers. Noncompliance with applicable
requirements can result in, among other things, warning letters, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, failure to receive premarket clearances or approvals,
withdrawal of approvals and criminal prosecution. The FDA also has the authority
to request repair, replacement or refund of the cost of any device manufactured
or distributed by the Company.
Medical devices are classified by the FDA into three classes that
determine the degree of regulatory control to which the manufacturer of the
device is subject. In general, Class I devices
involve compliance with CGMP requirements and are subject to other general
controls including pre-market notification (510k). Class II devices are subject
to the same controls as Class I and also may be subject to specific controls
(for example; design controls, performance standards, postmarket surveillance,
patient registries and FDA guidelines) and are subject to pre-market
notification (510k). Class III devices are those devices for which pre-market
approval ("PMA") (as distinct from pre-market notification) is required before
commercial marketing to assure the products' safety and effectiveness.
To date, all of the Company's products are classified as either Class I or
Class II. Many new medical devices and some modifications to existing medical
devices, including most of the Company's products, are subject to a pre-market
notification process pursuant to Section 510(k) of the Federal Food, Drug and
Cosmetic Act. Further, current FDA enforcement policy prohibits the marketing of
approved or cleared medical devices for unapproved or uncleared uses. Products
which do not receive clearance through the FDA's 510(k) notification process are
subject to much lengthier and more complex PMA procedures.
No assurance can be given that the FDA or foreign regulatory agencies will
give on a timely basis, if at all, the requisite clearances or approvals for any
of the Company's medical devices which are under development. Moreover, after
clearance or approval is given, these agencies may have the power to withdraw
clearances or approvals or require the Company to change the device or its
manufacturing process or labeling, to supply additional proof of its safety and
effectiveness or to recall, repair, replace or refund the cost of the medical
device, if it is shown to be hazardous or defective. The process of obtaining
clearances or approvals to market products can be costly and time consuming and
can delay the marketing and sale of the Company's products.
Federal, state and foreign regulations regarding the manufacture and sale
of medical devices are subject to additional change. In the future, the Company
cannot predict what impact, if any, such changes might have on its business.
Over the past several years, the public and the federal government have
focused considerable attention on reforming the healthcare system in the United
States. The Clinton Administration pledged to bring about a reform of the
nation's healthcare system and, in September 1993, President Clinton outlined
the Clinton Administration's plan for healthcare reform. Included in the
proposal were calls to control or reduce public and private spending on health
care, to reform the payment methodology for healthcare goods and services by
both the public (Medicare and Medicaid) and private sectors, which could include
overall limitations on federal spending for healthcare benefits, and to provide
universal access to healthcare. While the political climate appears to have
changed with respect to sweeping healthcare reform, healthcare reforms on an
issue by issue basis have been reported to be a focus in the new Clinton
Presidential term, and such reforms may ultimately be enacted. No assurance can
be given that any such reforms will not have a material adverse effect on the
Company. Any such effect may be magnified by the advent of "managed care," which
may render sales to hospitals more cost sensitive and which has already had an
impact within the medical industry and related fields.
The Company is also subject to numerous federal, state and local laws
relating to such matters as safe working conditions, environmental protection
and fire hazard control. There can be no assurance that the Company will not be
required to incur significant expenses to comply
with such laws and regulations in the future.
Patents
While the Company possesses over 80 patents and licensed patents, has filed
certain patent applications and has increased its efforts to acquire and develop
patented products, the Company believes that the ownership of patents is not
critical to its ability to compete with respect to most of the products in its
product line. The Company has, however, pursued patent protection when in the
reasonable judgement of management such efforts may tend to provide the Company
with competitive advantages.
Employees
At September 30, 1997, the Company had 1,027 full-time employees and 10
part-time employees. The Company believes that its relations with its employees
are satisfactory.
Item 2. Properties
The Company's executive offices, principal manufacturing plant and
principal warehouse facilities are located in Totowa, New Jersey. These
facilities, consisting of approximately 154,000 square feet, are owned by the
Company. The Company also owns manufacturing, warehouse and office space in
Englewood, Colorado consisting of 88,000 square feet. In March 1997 the Company
purchased the previously leased facility utilized by Vital Pharma consisting of
13,600 square feet in Riviera Beach, Florida. The Company's other substantial
facilities -- approximately 35,000 square feet in Burnsville, Minnesota; 45,000
square feet in Aurora, Colorado; 20,000 square feet in Malvern, Pennsylvania;
18,000 square feet in Orange, California and 18,000 square feet in Barkan,
Israel -- are leased by the Company. The Company also leases office, assembly
and warehouse space in Riviera Beach, Florida and England.
Item 3. Legal Proceedings
On October 31, 1997, the U.S. District Court for the Northern District of
Illinois entered a judgment in favor of Vital Signs in a patent infringement
action brought by Smith Industries regarding manual resuscitators. The Court
found the Smith Industries patent to be invalid and that Vital Signs' products
did not infringe. Smith Industries has filed a Notice Of Appeal.
In May 1995, Vital Signs filed an action in the U.S. District Court in New
Jersey, subsequently amended, 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
patent at issue in the case relates to the Company's vascular flush device,
Vasceze(TM). The defendants counter-claimed for, inter alia, breach of contract
and patent infringement. Subsequently, the ex-employee defendant added the
Company's outside patent counsel as a defendant in the counter-claim.
Separately, an arbitration was held in connection with an employment agreement
between the ex-employee and Vital Signs. Pursuant to an arbitration award Vital
Signs paid the ex-employee approximately $100,000. In June 1997 the defendants
filed a motion for summary judgement seeking dismissal of Vital Signs' case and
judgement for the defendants on each of their causes of action including a
declaration of their ownership rights to the subject patents. All parties have
submitted their legal briefs and are awaiting the Court's decision. In order to
protect its interests, the Company filed a corresponding action in Germany in
December 1996 in order to oppose defendants' actions with regard to a possible
European patent. The Company intends to continue to vigorously protect its
rights in this matter and to prosecute its legal actions to the full extent of
the law.
On March 24, 1997 and on April 9, 1997, separate actions were commenced
against the Company in New Jersey and California, respectively, by Marquest
dealers who had received notification that their dealer relationships with
Marquest were to be terminated. While the lawsuits are not identical, they
assert similar claims against the Company with regard to misappropriation of
confidential information and violation of certain statutory provisions relating
to the protection of dealership rights. In addition, the action in California
asserts claims for violation of the Robinson-Patman Act. Each of the actions
also names Marquest as a defendant and similar claims are asserted against it.
The Company and Marquest responded to the California action by asserting that
the exclusive venue for such a proceeding was in an arbitration proceeding in
Denver, Colorado. The court granted the defendants' motion and the California
action has been dismissed. To date the plaintiff has not initiated arbitration
proceedings. The New Jersey action (filed in the U.S. District Court in New
Jersey) is in the discovery phase.
On November 12, 1997, a declaratory judgment action was commenced against
the Company in the U.S. District Court in the Central District of California by
a competitor seeking to invalidate a patent held by the Company in connection
with its Isocath(TM) product. This action is related to an infringement notice
filed against the plaintiff by the Company. The Company believes that the action
is meritless and intends to both vigorously defend its patent rights and to
enforce them against the competitor.
In September 1996, a patent infringement action was filed in Japan against
a Marquest dealer in connection with the sale in Japan of certain of Marquest's
ABG syringes. Pursuant to a written agreement with that dealer, a demand was
made on Marquest for indemnity for the patent infringement action. Marquest has
been honoring the terms of that indemnification and has reimbursed the legal
fees associated with defending the dealer in the litigation. Japanese litigation
procedures differ from that found in the United States. However, the matter is
still in the early stages of litigation. The Company has continued to honor the
indemnification since acquiring Marquest.
The Company is also involved in other legal proceedings arising in the
ordinary course of business.
The Company cannot predict the outcome of its legal proceedings with
certainty. However, based upon its review of pending legal proceedings, the
Company does not believe its pending legal proceedings are material to its
financial condition, its results of operations or its liquidity. Predictions
regarding the impact of pending legal proceedings constitute forward-looking
statements under the Reform Act. The actual impact of such proceedings could
differ materially from the impact anticipated, primarily as a result of
uncertainties involved in the proof of facts in legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 4A. Executive Officers of the Registrant
The Company's executive officers are as follows:
Positions with
Name Age* the Company
Terence D. Wall 56 President, Chief Executive
Officer and Director
Anthony J. Dimun 54 Executive Vice President,
Chief Financial Officer,
Treasurer, Secretary and
Director
Dennis Fenstermaker 51 Vice President - Manufacturing
and General Manager
Christian Malmqvist 46 Executive Vice President - International Operations
Daniel L. Reuvers 34 Vice President - National Accounts
Barry Wicker 57 Executive Vice President -
Sales and Marketing, and Director
______________________________
* As of September 30, 1997.
Terence D. Wall founded the Company in 1972 and has been President, Chief
Executive Officer and a director of the Company since that time. He has also
invested in and serves on the Board of Directors of certain health care
businesses, including Bionx Inc., a manufacturer of biosorbable medical devices
for orthopedic and other applications ("Bionx"), and Exogen, a manufacturer of
an ultrasonic bone healing device. Until September 18, 1997, Mr. Wall also
served as a Director of EchoCath, a developer and manufacturer of catheter
products that use ultrasound video technology. Prior to founding the Company, he
held various sales and marketing positions with The Foregger Co. (a manufacturer
of anesthesia products and a division of Air Products and Chemicals, Inc.), the
medical division of Westinghouse Corporation and the medical division of
American Optical Corporation. He received a Bachelor of Science degree in 1963
from the University of Maryland and a Master of Business Administration degree
from Pace University in 1975. For the foreseeable future, the Company will
remain dependent upon the efforts of Mr. Wall. The Company does not maintain key
man life insurance on Mr. Wall's life.
Anthony J. Dimun, a certified public accountant, has been a director of the
Company since
August 1987. On March 1, 1991, Mr. Dimun became an Executive Vice President and
the Chief Financial Officer of the Company and on December 1, 1991 he became the
Secretary and Treasurer of the Company. Mr. Dimun is also a shareholder and
Board member of EchoCath and Bionx. From July 1989 through February 1991, he
served as Senior Vice President of First Atlantic Capital Ltd., a United States
affiliate of an international merchant banking group. From August 1987 until
December 1987, he served as Executive Vice President, Chief Financial Officer
and Treasurer of the Company. From 1978 until August 1987, he was a partner in
the accounting firm of Goldstein Golub Kessler & Company, P.C., which has
examined the Company's financial statements for more than the past five years.
He served as a senior audit manager with Ernst & Whinney (a predecessor of Ernst
& Young) prior to joining Goldstein Golub Kessler & Company, P.C. in 1976. He
received a Bachelor of Science degree from Rider University in 1965.
Dennis Fenstermaker joined the Company in June 1992 as Director of
Manufacturing and became Vice President - Manufacturing and General Manager in
October 1993. Prior to joining the Company, he held various manufacturing and
engineering management positions with Sterling Drug Inc. (a pharmaceutical
manufacturer and distributor) for more than ten years, including Director of
Engineering Services and Plant Manager, and with Johnson & Johnson (a
manufacturer and distributor of healthcare products) for more than ten years.
Mr. Fenstermaker earned a Bachelor of Science degree in Commerce and Engineering
Sciences from Drexel University in 1969 and a Master of Business Administration
degree from Rider University in 1973.
Christian Malmqvist joined the Company in July, 1995 as Vice President -
International Operations. Prior to joining the Company he held various sales and
marketing positions with Ohmeda, Inc., a healthcare supplier serving the
anesthesia and critical care fields, during a 17 year tenure. Mr. Malmqvist has
a masters degree in Business Administration from Stockholm University and a
Bachelor's degree in Business Administration from Lund University (Sweden).
Dan Reuvers joined the Company in 1987. He has served virtually all sales
related functions over the last 10 years, including Vice President of Sales and
his current position of Vice President of National Accounts. In addition to his
experience at Vital Signs, Mr. Reuvers previously served as Director of Sales
for a start-up respiratory equipment company.
Barry Wicker has served as a director and an Executive Vice President of
the Company since 1985 (with primary responsibility for sales and marketing).
Mr. Wicker joined the Company in 1978 as National Sales Manager and became Vice
President - Sales in 1981. Prior to joining the Company, he held various
marketing and sales positions with The Foregger Co. over a 20 year period.
Each of the Company's executive officers serves as such at the pleasure of
the Board.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock (the "Common Stock") is traded in the
over-the-counter market and quoted on the National Market System of the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"). The
following table sets forth the high and low closing sales prices of the Common
Stock on the NASDAQ National Market System, and the cash dividends declared per
share of Common Stock for the periods indicated:
Dividend
High Low Per Share
Fiscal Year Ended September 30, 1996:
Quarter ended December 31, 1995 $ 26-3/8 $ 17-3/8 $ .03
Quarter ended March 31, 1996 31-5/8 23-5/8 .03
Quarter ended June 30, 1996 25-1/2 18-1/2 .03
Quarter ended September 30, 1996 23-1/2 18-3/4 .03
Fiscal Year Ended September 30, 1997:
Quarter ended December 31, 1996 $ 27-3/8 $ 19-1/2 $ .04
Quarter ended March 31, 1997 25-7/8 21-3/4 .04
Quarter ended June 30, 1997 24-3/4 16-3/4 .04
Quarter ended September 30, 1997 19-1/4 15-3/8 .04
As of September 30, 1997, there were approximately 450 holders of record of
the Common Stock.
During Fiscal 1997, the Company declared and paid cash dividends of $0.16
per share. Payment of cash dividends in the future will depend upon the
financial condition, capital requirements, loan agreement restrictions and
earnings of the Company, as well as such other factors as the Board of Directors
may deem relevant.
Item 6. Selected Financial Data
The following selected consolidated financial data have been derived from
the Company's audited consolidated financial statements. The information below
should be read in conjunction with the consolidated financial statements and
related notes included elsewhere in this Annual Report on Form 10-K.
Certain acquisitions occurring on or before September 30, 1997, including
Marquest Medical Products, Inc. (effective for financial reporting purposes on
April 1, 1997), Vital Pharma, Inc. (formerly known as HealthStar Pharmaceutical
Services, Inc.) (acquired in January 1996), Misty Ox (acquired in December
1995), Coast Medical, Inc. (acquired in October, 1995), Mediziv Medical
Products, Ltd. (acquired in July 1995), have been accounted for as purchases
and, accordingly, are only reflected herein for dates and periods on and after
the respective dates noted above. See Note 2 of the Company's Consolidated
Financial Statements.
Year Ended
September 30,
1997 1996 1995 1994 1993
(In thousands, except per share data)
Income Statement Data:
Net sales--continuing product lines(1) $103,562 $ 89,922 $ 87,651 $ 82,937 $ 77,182
Net sales--product line disposed --- 808 1,902 2,187 2,696
Cost of goods sold 48,840 38,418 38,279 37,594 34,247
------- ------ ------- ------- ------
Gross profit 54,722 52,312 51,274 47,530 45,631
Operating expenses:
Selling, general and administrative 27,247 23,491 23,629 27,317 23,685
Research and development 3,869 3,595 3,865 4,493 3,856
Interest income (2,242) (2,508) (2,406) (781) (773)
Interest expense 537 346 382 555 640
Special charges 6,700 10,643
Other (income) expense 844 (1,635) 162 (969) (731)
Goodwill amortization 862 643 354 462 381
Income before provision for
income taxes 16,905 28,380 25,288 5,810 18,573
Provision for income taxes 5,619 9,591 9,154 4,132 5,899
Net income 11,286 18,789 16,134 1,678 12,674
Net income per share .88 1.44 1.24 .13 .98
Dividends per share $ .16 $ .12 $ .09 $ .02 $ ---
Weighted average number of
shares outstanding 12,881 13,045 12,991 12,994 12,990
September 30,
1997 1996 1995 1994 1993
(In thousands)
Balance Sheet Data:
Working capital $ 38,102(3) 44,820 32,885(2) 50,409 46,869
Total assets 136,948 123,756 110,421 91,773 92,200
Long-term debt, excluding
current installments 5,529(3) 2,700 3,200 3,700 5,829
Total stockholders' equity 112,229 110,239 96,645 77,658 76,138
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
-------- 1 The Company disposed of its endoscopic product line during
Fiscal 1996, has reflected net sales of that product line as a separate line
item in the table set forth above and has included in other (income) expense for
Fiscal 1996 a $174,000 gain on the sale of that product line. Expenses of that
product line were not material to the Company's results of operations (other
than expenses included in a special charge for Fiscal 1994). Accordingly, such
expenses are included within cost of goods sold and operating expenses in the
table set forth above.
2 The reduction in working capital in Fiscal 1995 is primarily attributable
to the acquisition of certain marketable securities which are not classified as
current assets and the acquisition of Mediziv.
3 The decrease in working capital and increase in long-term debt in Fiscal
1997 is due primarily to the acquisition of Marquest Medical Products, Inc. and
the acquisition of shares pursuant to a previously announced stock buyback. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Introduction
The Company disposed of its endoscopic product line during Fiscal 1996. See
Item 6 of this Annual Report on Form 10-K. In its analysis of the Company's
results of operations, management views net sales from continuing product lines
(i.e., excluding the revenues derived from its endoscopic product line) as the
relevant revenue base from which to make analytic comparisons. Since the
expenses of the endoscopic product line were not material to the Company's
results of operations and did not vary substantially prior to the
discontinuation of that product line, management's analysis below includes
within all line items other than sales the results of operations of both the
Company's continuing product lines and the Company's discontinued endoscopic
product line.
Recent Acquisition
On March 14, 1997, Vital Signs, Inc. announced that it had entered into a
definitive agreement to acquire Marquest Medical Products, Inc. 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.
The Company paid approximately $20 million including acquisition costs and
incurred the $2,500,000 writeoff of in process research and development, charged
to 1997 operations, described below. 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 for additional information.
Premier Contract
On November 18, 1996, the Company announced it won a dual source supply
agreement with Premier Purchasing Partners LP ("Premier"), an affiliate of the
largest healthcare purchasing group in the United States. This agreement covers
a variety of anesthesia products and ABG kits and provides for favorable pricing
for the group in exchange for committed purchasing volume (90%) of usage from
the member hospitals. The agreement covers a five year term and is effective
from February 1, 1997. The Company continues to work with member hospitals to
secure both commitment and contract compliance. Any additional market share
gained as a result of this agreement cannot be measured at this time.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
increase or decrease of certain items included in the Company's consolidated
statements of income.
Increase (Decrease) from Previous Year(1)
Fiscal 1997 Fiscal 1996
Compared with Compared with
Fiscal 1996 Fiscal 1995
------------------- --------------
Net sales-continuing product lines 15.2% 2.6
Cost of goods sold 27.1 .4
Gross profit 4.6 2.0
Selling, general and
administrative expenses 16.0 (.6)
Research and development
expenses 7.6 (7.0)
Income before provision
for income taxes (40.4) 12.2
Provision for income taxes (41.4) 4.8
Net income (39.9) 16.5
Fiscal 1997 Compared to Fiscal 1996
Net sales--continuing product lines for the year ended September 30, 1997
increased by 15.2% compared with the same period last year. The increase was due
primarily to the acquisition of Marquest Medical Products, Inc. ("Marquest") and
increased activity at Vital Pharma, Inc. ("VPI"). Prices on existing products
declined on average approximately 1.7% in the year ended September 30, 1997 when
compared to the same period in 1996.
Sales of anesthesia products (representing 56% of net sales--continuing
product lines) grew 2.8% from the prior year as unit increases offset selling
price declines. Sales of critical care and respiratory products (representing
39.6% of net sales--continuing product lines) increased by 29.3% largely due to
the acquisition of Marquest. Other products, accounting for 4.4% of net sales --
continuing product lines, increased by 156% from the comparable period in Fiscal
1996, reflecting the increased activity at VPI.
While net sales increased by 15.2%, gross profit increased by 4.6% in
absolute dollar amount. 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), as well as the sales
price pressure that is evident within the cost conscious healthcare industry
today. On a consolidated basis the Company's gross profit percentage for the
year ended September 30, 1997 was 52.8% compared to 57.6% in the same time
period of the last fiscal year.
Selling, general and administrative expenses increased by 16.0% in dollar
amount, as the result of the acquisition of Marquest, increases in costs to
support international sales growth and the increased activity at VPI.
_________________
1 Percentage changes with respect to certain line items in the Company's
consolidated statements of income have been omitted since they are not
meaningful. The substantial changes from Fiscal 1996 to Fiscal 1997 in the last
three line items above relate primarily to a special charge taken during the
third quarter of Fiscal 1997.
Research and development expenses ("R&D") increased 7.6%, due to the
acquisition of Marquest. The Company continues to make an active commitment to
new product development.
In the third quarter of fiscal 1997, the Company recorded a special charge
related to the acquisition of Marquest in the amount of $6,700,000. $2,500,000
($.20 per share net of tax) of this charge represents the cost of in process
research and development acquired in the Marquest transaction (which must be
expensed in accordance with purchase accounting rules) and $4,200,000 of this
charge represents costs to consolidate certain duplicate manufacturing
facilities as a result of the Marquest transaction ($.22 per share net of tax).
Other income/expense, which includes dividend income, realized capital
gains and losses, legal and other expenses related to non-operational items and
currency gains and losses, decreased by $2,479,000 from the year ended September
30, 1996 to the year ended September 30, 1997. In the 1996 period the Company
realized significant capital gain and other income, particularly a gain of
$1,000,000 realized as the sale of a joint venture in 1996, while in the 1997
period the level of capital gain and other income declined. In addition, higher
legal costs (approximately $1,800,000) incurred in conjunction with the defense
of the Smith Industries lawsuit impacted other income/expense adversely. For a
further discussion of this action see Part I, Item 3.
The Company's effective tax rates were 33.2% and 33.8% for the year ended
September 30, 1997 and 1996 respectively. The rate for the year ended September
30, 1997 is less than the federal and state combined statutory rate due to
certain non-recurring deductions and the utilization of capital loss
carryforwards. The rate for the year ended September 30, 1996 is less than the
combined Federal and State statutory rates primarily as a result of the
utilization of capital loss carryforwards. The Company's effective tax rate is
expected to be somewhat higher in fiscal 1998 than the fiscal 1997 rate.
Fiscal 1996 Compared to Fiscal 1995
Net sales--continuing product lines for the year ended September 30, 1996
increased by 2.6% compared with the same period last year. The increase was due
primarily to an increase in unit sales and the acquisitions of the Misty Ox(R)
product line and HealthStar Pharmaceutical Services (now known as Vital Pharma,
Inc.). Prices did not have a material effect on net sales during these periods.
Sales of anesthesia products (representing 62.7% of net sales--continuing
product lines) grew 4.3% from the year ended September 30, 1995 to the year
ended September 30, 1996. Sales of critical care and respiratory products
(representing 35.3% of net sales--continuing product lines) decreased by 5.7%.
Other products, accounting for 2.0% of net sales, increased by 100% from the
comparable period in Fiscal 1995, reflecting the Company's acquisition of
HealthStar Pharmaceutical Services.
Gross profit increased by 2% in absolute dollar amount, primarily due to
the Company's re-engineering and cost reduction efforts offset by sales of
certain products with gross margins below the Company's average gross margin, as
well as the sales price pressure that is evident within the cost conscious
health care industry. The re-engineering efforts consisted of a review of
material business processes with the goal of assuring that business objectives
were being met on a cost-efficient basis.
Selling, general and administrative expenses decreased as a percentage of
sales--continuing product lines from 27.0% of sales to 26.1% of sales. Total
selling, general and administrative expenses decreased by .6%, as the result of
the Company's re-engineering efforts, offset by increases in freight and sales
costs to support international sales growth and the acquisitions of Coast
Medical, Inc. and HealthStar Pharmaceutical Services.
Research and development (R&D) expenses decreased by approximately 7.0% in
dollar volume, as the result of re-engineering. The Company continues to make a
commitment to new product development.
Other income/expense primarily includes dividend income earned on
investments and gain on the sales of cash investments and the gain on sale of
the Company's O.R. Concepts' endoscopic product line, offset by charitable
contributions of inventory. In addition, during the fourth quarter the Company
recognized other income of $1,000,000 relating to the sale of its interest in
Cardiologics, L.L.C., a joint venture engaged in the early stage development of
cardiovascular products. The sale, made to a related party, was completed in
order to enable the Company to focus its efforts upon its core product lines.
The Company's effective tax rates were 33.8% and 36.2% for Fiscal 1996 and
1995, respectively. The 1996 rate was less than the combined Federal and State
statutory rates primarily as a result of the utilization of capital loss carry
forwards.
Liquidity and Capital Resources
The Company continues to rely upon cash flow from its operations as well as
the funds generated from its initial and second public offerings. During the
year ended September 30, 1997, cash and cash equivalents and short-term
marketable securities decreased by $14,239,000 and long-term marketable
securities decreased by $9,981,000. The Company acquired Marquest for
approximately $20 million in cash. Capital expenditures of $9,988,000 were made
to improve efficiencies and support new business opportunities. In addition
$7,782,000 of treasury stock was acquired pursuant to a previously announced
buy-back plan, and the Company paid $2,082,000 of dividends during Fiscal 1997.
The combined total of cash and cash equivalents, short-term marketable
securities and long-term investments was approximately $22.3 million at
September 30, 1997 as compared to $46.5 million at September 30, 1996.
At September 30, 1997, the Company had $3.7 million in cash and cash
equivalents. On that date, the Company's working capital was $38.1 million and
the current ratio was 3.9 to 1, as compared to $44.8 million and 6.1 to 1 at
September 30, 1996. The decline in the current ratio and in working capital is
due primarily to the acquisition of Marquest and the Company's buyback of its
Common Stock.
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.
Recent Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share ("SFAS 128"), which modifies existing guidance for
computing earnings per share and requires the disclosure of basic and diluted
earnings per share. The effective date of SFAS 128 is December 15, 1997 and
early adoption is not permitted. The Company intends to adopt SFAS 128 during
the quarter ended December 31, 1997. There will be no significant effect to the
Company's reported earnings per share as a result of the adoption of this
pronouncement.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income, and Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information. The Company is required to
adopt these Statements in fiscal 1999. Adoption of these Statements is expected
to have no impact on the Company's consolidated financial position, results of
operations or cash flows.
Item 8. Financial Statements and Supplementary Data
The following audited consolidated financial statements and related report
are set forth in this Annual Report on the following pages:
Page
Independent Auditor's Report F-1
Consolidated Balance Sheet as of
September 30, 1996 and 1997 F-2
Consolidated Statement of Income
for the years ended
September 30, 1995, 1996 and 1997 F-3
Consolidated Statement of Stockholders'
Equity for the years ended
September 30, 1995, 1996 and 1997 F-4
Consolidated Statement of Cash
Flows for the years ended
September 30, 1995, 1996 and 1997 F-5
Notes to Consolidated Financial Statements F-6
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Vital Signs, Inc.
We have audited the accompanying consolidated balance sheets of Vital Signs,
Inc. and Subsidiaries as of September 30, 1997 and 1996 and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vital Signs, Inc. and
Subsidiaries as of September 30, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997 in conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
November 13, 1997
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
September 30,
1997 1996
(in thousands)
Current Assets:
Cash and cash equivalents (Note 1) $ 3,685 $ 17,747
Marketable securities (Notes 1 and 5) 425 602
Accounts receivable, less allowance for doubtful accounts
of $101 and $169, respectively (Notes 16 and 17) 16,405 13,887
Inventory (Notes 1 and 3) 19,559 13,013
Prepaid expenses and other current assets (Note 4) 11,187 8,279
-------- ---------
Total current assets 51,261 53,528
Property, Plant and Equipment - net (Notes 1 and 6) 33,825 21,131
Marketable Securities (Notes 1 and 5) 18,206 28,187
Goodwill and other intangible assets (Notes 1 and 2) 28,907 16,619
Other Assets 4,749 4,291
-------- ---------
Total Assets $ 136,948 $ 123,756
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,204 $ 4,066
Current portion of long-term debt (Note 7) 611 500
Accrued expenses (Note 8) 6,114 2,406
Amounts payable relating to acquisitions 230 236
Deferred income taxes payable (Notes 1 and 14) ---- 1,500
--------- ---------
Total current liabilities 13,159 8,708
Deferred Income Taxes Payable (Notes 1 and 14) 1,366 1,334
Long-term Debt (Note 7) 5,529 2,700
Other liabilities (Note 9) 4,665 775
--------- ---------
Total Liabilities 24,719 13,517
--------- ---------
Commitments and Contingencies (Notes 2, 11 and 12)
Stockholders' Equity (Note 13)
Common stock - no par value; authorized 40,000,000 shares,
outstanding 12,674,673 and 13,062,701 shares, respectively 22,149 29,666
Allowance for aggregate unrealized loss on
marketable securities (Notes 1 and 5) (129) (426)
Retained earnings 90,209 80,999
--------- ---------
Stockholders' equity 112,229 110,239
--------- -----------
Total Liabilities and Stockholders' Equity $ 136,948 $ 123,756
========= ===========
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the Year Ended
September 30,
------------------------------------------
1997 1996 1995
---- ---- ----
(in thousands except per share amounts)
Net sales-continuing product lines $ 103,562 $ 89,922 $ 87,651
(Notes 1 and 17)
Net sales-product line disposed (Note 2) --- 808 1,902
Cost of goods sold 48,840 38,418 38,279
----------- ------ --------
Gross profit 54,722 52,312 51,274
----------- ------ --------
Operating expenses:
Selling, general and administrative 27,247 23,491 23,629
Research and development 3,869 3,595 3,865
Interest income (2,242) (2,508) (2,406)
Interest expense (Note 7) 537 346 382
Special charge (Note 2) 6,700 --- ---
Other (income) expense (Notes 1, 10 and 15) 844 (1,635) 162
Goodwill amortization 862 643 354
-------- -------- -------
37,817 23,932 25,986
Income before provision for income taxes 16,905 28,380 25,288
Provision for income taxes (Notes 1 and 14) 5,619 9,591 9,154
-------- ---------- ---------
Net income $ 11,286 $ 18,789 $ 16,134
======== ========= ========
Net income per share (Note 1) $ .88 $ 1.44 $ 1.24
======== ========= ========
Weighted average number of shares 12,881 13,045 12,991
======== ========== ========
See notes to consolidated financial statements
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Allowance for
Aggregate Unrealized
Loss on
Common Stock Marketable Retained Stockholders'
Shares Amount Securities Earnings Equity
(dollars in thousands)
Balance at September 30, 1994 12,990,562 $ 28,966 $ (75) $ 48,767 $ 77,658
Purchase of common
stock net of reissuance (459) (6) (1) (7)
Exercise of stock options 8,975 55 55
Adjustment to the allowance for aggregate
unrealized loss on marketable securities (25) (25)
Dividends paid ($.09 per share) (1,170) (1,170)
Net income 16,134 16,134
---------- ---------- -------- --------- --------
Balance at September 30, 1995 12,999,078 29,015 (100) 63,730 92,645
Reissuance of common
stock net of purchase 4,129 (8) 45 37
Exercise of stock options 59,494 659 659
Adjustment to the allowance for aggregate
unrealized loss on marketable securities (326) (326)
Dividends paid ($.12 per share) (1,565) (1,565)
Net income 18,789 18,789
----------- --------- -------- -------- --------
Balance at September 30, 1996 13,062,701 29,666 (426) 80,999 110,239
Purchase of common
stock net of reissuance (410,689) (7,788) 6 (7,782)
Exercise of stock options 22,661 271 271
Adjustment to the allowance for aggregate
unrealized loss on marketable securities 297 297
Dividends paid ($.16 per share) (2,082) (2,082)
Net income 11,286 11,286
------------ ----------- -------- ---------- ----------
Balance at September 30, 1997 12,674,673 $ 22,149 $ (129) $ 90,209 $ 112,229
============ =========== ========= ========== ==========
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended
September 30,
1997 1996 1995
---- ---- ----
Cash flows from operating activities: (in thousands)
Net income $ 11,286 $18,789 $ 16,134
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,891 2,322 1,535
Deferred income taxes (1,628) 438 674
Amortization of goodwill 862 643 354
Amortization of deferred credit (100) (100) (100)
Net gain on sales of available-for-sale securities (698) (608) (429)
Net gain on sale of product line --- (174) ---
Net gain on sale of fixed assets (27) --- ---
Write off of purchased research and development 2,500 --- ---
Plant consolidation special charge 4,200 --- ---
Changes in operating assets and liabilities:
Decrease in marketable securities --- --- 2,768
(Increase) decrease in accounts receivable 82 2,319 (3,323)
(Increase) in inventory (3,738) (1,963) (967)
(Increase) decrease in prepaid expenses and other current assets (2,069) (1,481) 1,509
(Increase) decrease in other assets (841) (431) 639
Increase (decrease) in accounts payable
and accrued expenses (495) (4,068) 367
----------- -------------- ----------
Net cash provided by operating activities 12,225 15,686 19,161
----------- -------------- ---------
Cash flows from investing activities:
Acquisition of property, plant and equipment (9,988) (8,611) (2,026)
Sale of property, plant and equipment 543 --- ---
Cash received for the sale of product line --- 2,786 ---
Purchases of available-for-sale securities (57,165) (44,882) (68,864)
Proceeds from sales of available-for-sale securities 68,318 53,057 41,221
Acquisition of subsidiaries, net of $3,200 of cash acquired (1997) (16,791) (7,254) (2,237)
----------- -------------- ----------
Net cash used in investing activities (15,083) (4,904) (31,906)
----------- -------------- ----------
Cash flows from financing activities:
Dividends paid (2,082) (1,565) (1,170)
(Purchase) reissuance of common stock (7,782) 37 (7)
Proceeds from exercise of stock options 271 659 55
Increase in long term debt and notes payable 8,282 --- ---
Principal payments of long-term debt and notes payable (9,893) (500) (1,211)
----------- -------------- -----------
Net cash used in financing activities (11,204) (1,369) (2,333)
----------- -------------- -----------
Net increase (decrease) in cash and cash equivalents (14,062) 9,413 (15,078)
Cash and cash equivalents at beginning of year 17,747 8,334 23,412
---------- ------------- ----------
Cash and cash equivalents at end of year $ 3,685 $ 17,747 $ 8,334
========== ============= ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 379 $ 394 $ 389
Income taxes $ 9,660 $ 9,306 $ 6,058
Supplemental schedule of noncash investing activities:
Accrued amounts relating to purchase of subsidiaries $ 100 $ 125 $ 3,336
Forgiveness of note receivable as payment for purchase of subsidiary $ 67 $ 333 ---
Note 1 - Summary of Significant Accounting Policies and Principal Business
Activities:
Business Activities:
Vital Signs, Inc. ("VSI") and its subsidiaries (collectively the
"Company") design, manufacture and market single-patient use products for the
anesthesia, respiratory, critical care and emergency markets.
Principles of Consolidation:
The consolidated financial statements include the accounts of VSI and
its majority-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
. Inventory:
Inventory is stated at the lower of cost (first-in, first-out method)
or market.
Depreciation:
Depreciation and amortization of property, plant and equipment is
provided for by the straight-line method over the estimated useful lives of the
related assets.
Income Taxes:
Income taxes are based upon amounts included in the consolidated
statement of income. Deferred income taxes result from differences between the
time certain expenses are recognized for financial reporting purposes and the
time when the items are actually reported for income tax purposes.
Revenue Recognition:
Revenue from sales of products is recognized at the date of shipment to
customers.
Goodwill and Other Intangible Assets:
Goodwill and other intangible assets arising from business acquisitions
accounted for under the purchase method are amortized over periods up to 40
years using the straight-line method.
Cash and Cash Equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company believes
it is not exposed to any significant credit risk with respect to its highly
liquid investments in money market securities and its commercial banking
facilities.
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies and Principal Business
Activities (continued):
Net Income Per Share of Common Stock:
Net income per share of common stock has been computed using the
weighted average number of shares of common stock outstanding during each
period. The dilutive effect of common stock equivalents is not material.
Marketable Securities:
Management determines the appropriate classification of securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and discounts to maturity. Such amortization is
included in investment income. Interest on securities classified as
held-to-maturity is included in investment income.
Certain marketable equity securities and debt securities not classified
as held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with the unrealized gains and losses, net
of tax, reported in a separate component of stockholders' equity. The amortized
cost of debt securities in this category is adjusted for amortization of
premiums and discounts to maturity. Such amortization is included in investment
income.
Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in investment
income. The cost of securities sold is based on the specific identification
method. Dividends on securities classified as available-for-sale are included in
other (income) expenses.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts in the financial statements. Actual
results could differ from those estimates.
Accounting for Stock-Based Compensation:
The Company measures stock based compensation cost using APB Opinion
No. 25 as is permitted by the Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation."
In March, 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share ("SFAS 128"), which modifies existing
guidance for computing earnings per share and requires the disclosure of basic
and diluted earnings per share. The effective date of SFAS 128 is December 15,
1997 and early adoption is not permitted. The Company intends to adopt SFAS 128
during the quarter ended December 31, 1997. There will be no significant effect
to the Company's reported earnings per share as a result of the adoption of this
pronouncement.
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies and Principal Business
Activities (continued):
Recent Accounting Pronouncements:
In June, 1997, the Financial Accounting Standards Board issued Statement
No. 130, Reporting Comprehensive Income and Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information. The Company is required to
adopt these Statements in fiscal 1999. Adoption of these Statements is expected
to have no impact on the Company's consolidated financial position, results of
operations or cash flows.
Note 2 - Acquisitions/Dispositions:
1997 Acquisition
The Company acquired all of the outstanding stock of Marquest Medical
Products, Inc. ("Marquest"), a company engaged in the manufacture of respiratory
products. The Company paid approximately $20.0 million in cash including
acquisition costs and incurred the $2.5 million writeoff of in process research
and development, charged to 1997 operations, discussed below. The assets
acquired amounted to approximately $15 million and liabilities assumed
approximately $13 million. This transaction has been accounted for as a
purchase, and resulted in an excess of purchase price over net assets acquired
of approximately $15 million.
The effective date of the acquisition for financial reporting purposes is
April 1,1997. The balance sheet and results of operations for Marquest have been
included in these consolidated financial statements as of April 1, 1997.
In connection with the acquisition of Marquest, the Company recorded a
special charge of $6.7 million in the quarter ended June 30, 1997. This charge
represents $2,500,000 of in process research and development costs acquired in
the Marquest transaction (which must be expensed in accordance with purchase
accounting rules) along with $4,200,000 in costs for the consolidation of
duplicative manufacturing operations as a result of this transaction.
The following summary, pro forma, unaudited data of the Company reflects
the acquisition of Marquest as if it had occurred on October 1, 1995 and 1996
respectively:
Pro forma/Unaudited
(Dollars in Thousands)
Fiscal 1997 Fiscal 1996
Net sales-continuing operations $ 114,801 $ 112,693
============ =============
Net income $ 10,904 $ 17,955
============ =============
Net income per common share $ .85 $ 1.38
============ =============
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Acquisitions/Depositions (continued):
1996 Acquisitions/Disposition
In January 1996, the Company acquired, in a purchase transaction, all of
the outstanding stock of HealthStar Pharmaceutical Services, Inc.
("HealthStar"), a company engaged in both the manufacture of equipment and
contract manufacturing services utilizing specialized blow-fill-seal
manufacturing technology for the pharmaceutical and medical industry.
HealthStar's name was changed to Vital Pharma in 1997 ("VPI"). The Company paid
$1,595,000 at closing. The sellers are also eligible to receive contingent
payments based on earnings before taxes, as defined, in each year ending
December 31, 1996, 1997 and 1998. The December 31, 1996 target was not achieved
and the December 31, 1997 target will not be achieved. The estimated fair value
of the assets acquired approximated $2,850,000 and liabilities assumed
approximated $1,550,000 with goodwill of approximately $1,300,000 reflected at
the date of acquisition.
In December 1995 the Company entered into a purchase agreement for all of
the net assets related to the Misty Ox product line. The purchase price paid at
closing by the Company was $2,025,000. The estimated fair value of the assets
acquired amounted to $2,014,000 and liabilities assumed amounted to $113,000
with goodwill of $250,000 reflected at the date of acquisition.
During fiscal 1996, the Company sold its O.R. Concepts endoscopic product
line and recognized a gain of $174,000 (Note 10).
The effect of the operations of VPI and the Misty Ox product line from
October 1, 1995 to the dates of acquisition on the Company's results of
operations for the year ended September 30, 1996 was immaterial. In addition,
the effect of the operations of Mediziv from October 1, 1994 and to the date of
acquisition and the effect of the operations of VPI and the Misty Ox product
line on the Company's results of operations for the year ended September 30,
1995 was immaterial. Accordingly, proforma financial information regarding these
transactions has not been presented.
1995 Acquisition:
In July 1995, the Company acquired, in a purchase transaction, an 85%
ownership interest in Mediziv Medical Products, Ltd., ("Mediziv") a closely held
Israeli company primarily engaged in the business of developing, assembling and
selling single use products for use in anesthesia and critical care. VSI paid
$2,200,000, consisting of a cash payment to the sellers and refinancing of
Mediziv's funded indebtedness. The sellers are also eligible to receive
contingent payments based on sales of Mediziv's products through the fiscal year
ending in 2000, including minimum payments of $790,000 (present value $500,000).
The estimated fair value of the assets acquired amounted to $1,175,000 and
liabilities assumed amounted to $2,550,000 with goodwill of $1,686,000 reflected
at the date of acquisition.
Note 3 - Inventory:
Inventory consists of the following:
September 30,
-----------------
1997 1996
---- ----
(in thousands)
Raw materials $ 14,474 $ 9,617
Finished goods 5,085 3,396
$ 19,559 $ 13,013
========= ==========
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Prepaid Expenses and Other Current Assets:
Prepaid expenses and other current assets consist of the following:
September 30,
1997 1996
(in thousands)
Prepaid employee fringe benefits $ 3,744 $ 3,964
Notes and interest receivable (see Note 15) 1,468 1,919
Prepaid income taxes 4,083 1,330
Prepaid insurance 340 270
Other 1,552 796
----------- ---------
$ 11,187 $ 8,279
=========== =========
Note 5 - Marketable Securities:
The following is a summary of available-for-sale securities:
Available-for-Sale-Securities
September 30, 1997 September 30, 1996
(in thousands)
Gross Gross
Unrealized Unrealized
Fair Holding Fair Holding
Value Cost Losses Value Cost Losses
U.S. Government
obligations $ 11,039 $ 11,127 $ (88) $ 19,412 $ 19,835 $ (423)
Corporate obligations 2,970 3,000 (30) 3,314 3,404 (90)
Federal mortgage
obligations 4,197 4,297 (100) 6,063 6,272 (209)
$ 18,206 $ 18,424 $ (218) $ 28,789 $ 29,511 $ (722)
========== ========= ========== ========= ========= =========
At September 30, 1997 investments in debt securities classified as
available-for-sale securities mature as follows:
Maturity
(in thousands)
1 - 5 Years 5 - 10 Years 10 - 30 Years
----------- ------------ -------------
U.S. Government obligations $ 11,039
Corporate obligations 2,970
Federal mortgage obligations 49 $ 745 $ 3,403
----------- ---------- ----------
$ 14,058 $ 745 $ 3,403
=========== =========== ===========
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Marketable Securities (continued):
Realized gains and losses are determined on the basis of specific
identification. During the year ended September 30, 1997 sales proceeds and
gross realized gains and losses on securities classified as available for sale
securities were $68,318,052, $784,014 and $(86,576), respectively. During the
year ended September 30, 1996, sales proceeds and gross realized gains and
losses on securities classified as available-for-sale securities were
$53,056,643, $652,000 and ($44,000) respectively. During the year ended
September 30, 1995 sales proceeds and gross realized gains and losses on
securities classified as available-for-sale securities were $41,221,076,
$448,000 and ($19,000), respectively.
Results of operations for the years ended September 30, 1995 include a
charge of $4,000 for unrealized losses on trading securities. There were no
unrealized gains or losses during the year ended September 30, 1996, on trading
securities. Trading securities at September 30, 1997 amounted to $425,000 and
results of operations for the year ended September 30, 1997 includes an
unrealized gain of $46,000. Stockholders equity at September 30, 1997, 1996 and
1995 includes an unrealized holding loss, net of related tax benefit, on
available-for-sale securities of $129,000, $426,000 and $100,000, respectively.
Note 6 - Property, Plant and Equipment:
Property, plant and equipment, at cost, consists of the following:
September 30, Estimated
1997 1996 Useful Life
(in thousands)
Land $ 3,015 $ 1,631
Building and building improvements 15,430 10,784 30 to 40 years
Equipment and molds 23,778 14,790 5 to 10 years
Fixtures and office equipment 1,009 3,183 5 to 15 years
Transportation equipment 309 278 5 years
----------- ----------
43,541 30,666
Less accumulated depreciation
and amortization 9,716 9,535
----------- ----------
$ 33,825 $ 21,131
=========== ==========
Substantially all of the Company's property, plant and equipment is pledged
as collateral for the Company's long-term debt (see Note 7).
Note 7 - Long-term Debt:
Long-term debt consists of the following:
September 30
-----------------
1997 1996
---- ----
(in thousands)
Industrial Revenue Bonds ("IRB") payable $ 2,700 $ 3,200
Swiss Notes Payable 3,007 ---
Other 433 ---
----- ------
Total long-term debt 6,140 3,200
Less current portion 611 500
------ ------
$ 5,529 $ 2,700
======== ========
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Long-term Debt (continued):
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of the long-term debt
approximates the carrying amount.
The Company entered into the IRB payable in varying installments with
interest at rates ranging from 6.75% to 8.625% per annum through December 2009.
The IRB, among other matters, contains certain financial covenants, limits the
payment of dividends to any class of stock and restricts the incurrence of
additional debt, as defined in the agreement. For the year ended September 30,
1997, the Company was in compliance with all of the required financial covenants
with the exception of an interest coverage ratio for which the Company has
received a waiver.
The Swiss notes bear interest at a rate of 8% per annum, payable on a
semi-annual basis. The notes are due on March 31, 1999.
Maturities of long-term debt are as follows:
Year ending September 30, (in thousands)
------------
1998 $ 611
1999 3,102
2000 254
2001 254
2002 219
Thereafter 1,700
$ 6,140
At September 30, 1997, the Company has a $10,000,000 line of credit with a
bank which expires September 30, 1998. No balance was outstanding under this
line of credit at September 30, 1997.
Note 8 - Accrued Expenses:
Accrued expenses consist of the following:
September 30,
1997 1996
(in thousands)
Manufacturing plant consolidation $ 1,879 $ ---
Commissions 501 265
Interest 437 89
Payroll, bonuses and vacations 1,485 968
Professional fees 322 366
Salespeople's expenses 90 85
Income and other taxes payable 696 213
Other 704 420
-------- ---------
$ 6,114 $ 2,406
========= =========
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Other Liabilities:
Other liabilities consist of:
September 30
1997 1996
(in thousands)
Amount related to acquisitions $ 4,474 $ 464
Deferred tax credits 191 291
----------- ---------
$ 4,665 $ 755
=========== =========
Note 10 - Other (Income) Expense:
Other (income) expense consists of the following:
For the Year Ended
September 30,
1997 1996 1995
(in thousands)
Dividend income $ (46) $ (75) $ (90)
Amortization of deferred credit (100) (100) (100)
Charitable contributions of inventory 156 563 161
Net capital gain on sale of marketable securities (698) (609) (166)
Gain on sale of building (20) --- ---
Gain on sale of endoscopic product line --- (174) ---
Gain on sale of Cardiologics (Note 15) --- (1,000) ---
Litigation costs 1,878 263 ---
Other (326) (503) 357
------- --------- --------
$ 844 $ (1,635) $ 162
======= ========== ========
Note 11 - Commitments:
Leases:
The Company has entered into noncancelable operating leases providing for
the lease of office and warehouse facilities, equipment and certain other
assets. Rent expense, aggregating $1,185,000, $724,000, and $992,000, has been
charged to operations for the years ended September 30, 1997, 1996 and 1995,
respectively. The Company's commitment under such leases is as follows:
Year ending September 30, (in thousands)
1998 $ 1,889
1999 1,384
2000 1,231
2001 1,233
Thereafter 971
---------
$ 6,708
==========
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Commitments (continued):
Employment Agreements:
The Company has entered into employment agreements, approximating
$1,300,000 annually which expire at various dates through September, 2001.
Note 12 - Contingent Liabilities:
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against the Company, including those pertaining to patent and trademark
issues, product liability, and safety and health matters. While the amounts
claimed or expected to be claimed may be substantial, the ultimate liability
cannot now be determined because of the considerable uncertainties that exist.
Therefore, it is possible that results of operations or liquidity in a
particular period could be materially affected by certain contingencies.
However, based on facts currently available, management believes that the
disposition of matters that are pending or asserted will not have a materially
adverse effect on the financial position of the Company.
For a detailed discussion of current legal actions, see Item 3 of this
annual report on Form 10-K.
Note 13 - Stockholders' Equity:
Preferred Stock:
The Company has authorized 10,000,000 shares of no par value preferred
stock. No shares were issued or outstanding at September 30, 1997 or 1996.
Stock Options:
Transactions relating to stock options are as follows:
Weighted Average
Number Price
of Shares Per Share
Balance September 30, 1994 672,997 $ 16.51
Granted 20,142 $ 13.91
Exercised (8,975) $ 6.09
Expired (143,029) $ 21.94
----------
Balance September 30, 1995 541,135 $ 15.16
Granted 409,044 $ 22.03
Exercised (59,494) $ 11.09
Expired/canceled (274,225) $ 17.21
----------
Balance September 30, 1996 616,460 $ 19.20
Granted 67,607 $ 19.44
Exercised (22,661) $ 12.04
Expired/canceled (27,091) $ 20.16
-----------
Balance September 30, 1997 634,315 $ 19.44
=========== ===============
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average fair value per share of options granted during the
years ended September 30, 1997, 1996, and 1995 amounted to $7.60, $9.38 and
$6.06 respectively.
Note 13 - Stockholders' Equity (continued):
The Company's Board of Directors and stockholders have approved the adoption
of a stock option plan for employees, a stock option plan for directors and a
stock option plan for two executive officers which provide for the grant of
options to purchase a maximum of 775,000 shares, 100,000 shares and 200,000
shares, respectively, of the Company's common stock. Options may be granted at
prices not less than fair value at the date of grant. The Company has also
granted options pursuant to contractual arrangements.
During 1994, a new stock option and investment plan (covering a maximum of
900,000 shares) was adopted. Under this plan, participants were granted two
stock options for each share of the Company's common stock that they acquired.
The options are granted at fair value at date of grant. Such stock options are
subject to a defined vesting schedule.
Shares purchased by employees may be financed by payroll deductions.
Options covering 612,170 shares (excluding lapsed shares) have been granted
in connection with these plans through September 30, 1997.
The Company has elected, in accordance with the provisions of SFAS No. 123,
to apply the current accounting rules under APB Option No. 25 and related
interpretations in accounting for its stock options and, accordingly, has
presented the disclosure-only information as required by SFAS No. 123. If the
Company had elected to recognize compensation cost based on the fair value of
the options granted at the grant date as prescribed by SFAS No. 123, the
Company's net income and net income per common share for the years ended
September 30, 1997, 1996 and 1995 would approximate the pro forma amounts
indicated in the table below:
Year Ended September 30, 1997 1996 1995
---------------------------------------------------------------------------------------
Net income - as reported $ 11,286 $ 18,789 $ 16,134
Net income - pro forma $ 10,867 $ 18,380 $ 16,118
Net income per common share-
as reported $ .88 $ 1.44 $ 1.24
Net income per common share-
pro forma $ .84 $ 1.41 $ 1.24
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for the years ended September 30, 1997, 1996 and 1995
respectively: expected volatility of 35%, 39% and 40% respectively, risk-free
interest rate of 6.3%, 6.4%, and 6.9% respectively, dividend yield rate of .8%,
.6%, and .7% respectively, and all options have expected lives of 5 years.
Note 13 - Stockholders' Equity (continued):
The following table summarizes information about fixed stock options outstanding
at September 30, 1997:
Options Outstanding Options Exercisable
Number Weighted- Number
Outstanding Average Weighted Exercisable Weighted
at Remaining Average at Average
Range of September 30, Contractual Exercise September 30, Exercise
Exercise Prices 1997 Life Price 1997 Price
--------------- ------------ -------------- ------------ -------------------- ----------
1 $ 5.55- $ 6.84 59,500 2.7 $ 6.73 59,500 $ 6.73
2 $ 9.25- $10.50 14,135 6.8 $ 9.67 8,149 $ 9.62
3 $14.00- $15.25 45,288 5.5 $ 14.72 43,194 $ 14.73
4 $16.75 -$19.50 69,731 8.3 $ 17.95 23,830 $ 18.72
5 $20.63- $22.50 431,555 8.2 $ 22.08 81,962 $ 21.96
6 $24.50 -$24.50 14,106 9.3 $ 24.50 --- ---
-------- --- ----- -------- ---------
Total 634,315 7.5 $ 19.44 216,635 $ 15.51
========= ============== ========= =========== ==========
Note 14 - Income Taxes:
The provision for income taxes consists of the following components:
For the Year Ended
September 30,
1997 1996 1995
(in thousands)
Current:
Federal $ 6,293 $ 8,130 $ 7,371
State 764 1,004 1,064
Foreign 190 19 38
Deferred:
Federal (1,295) 383 615
State (333) 55 66
---------- --------- ----------
$ 5,619 $ 9,591 $ 9,154
========== ========= ==========
The tax effect of temporary differences that give rise to the net
short-term deferred tax (assets) liabilities are presented below:
September 30,
1997 1996
Prepaid expenses $ 1,226 $ 1,567
Undistributed DISC earnings 96 96
Manufacturing plant consolidation cost (1,482) ---
Other --- (163)
--------- --------
$ (160) $ 1,500
========== =======
Note 14 - Income Taxes (continued):
The tax effects of temporary differences that give rise to the net
long-term deferred tax liabilities are presented below:
September 30,
1997 1996
(in thousands)
Accelerated depreciation $ 823 $ 762
Undistributed DISC earnings 599 712
Other (56) (140)
Capital losses 211 500
Valuation allowance attributable to
capital loss carry forward (211) (500)
--------- ----------
$ 1,366 $ 1,334
========= ==========
The total provision for income taxes differs from that amount which would
be computed by applying the U.S. federal income tax rate to income before
provision for income taxes. The reasons for these differences are as follows:
For the Year Ended
September 30,
1997 1996 1995
(in thousands)
Statutory federal income tax rate 35.0% 35.0% 35.0%
Write off of purchased Research and Development 5.2 --- ---
Net capital gains on investments (1.5) (2.0) (.2)
State income taxes net of federal tax benefit 1.6 2.4 2.9
Benefit of tax loss in subsidiary (6.9) --- ---
Dividend exclusion/tax exempt interest (0.3) (.3) (.2)
Other .1 (1.3) (1.3)
------ ----- -----
Effective income tax rate 33.2% 33.8% 36.2%
====== ===== =====
Note 15 - Related Party Transactions:
During fiscal 1996, the Company entered into a joint venture arrangement
(Cardiologics, L.L.C.) with the objective to develop specialized cardio-vascular
products, ("Cardiologics"). Approximately $100,000 of research and development
expense was incurred by the Company in fiscal 1996. During fiscal 1996, the
Company's management made a decision to sell its equity interest in the joint
venture for several business reasons, including the time frame to commercially
introduce the product, the research, development and clinical costs that are
likely to be incurred, as well as that the primary market focus of the product
is outside of the core anesthesia and critical care product focus of the
Company.
Note 15 - Related Party Transactions (continued):
During September 1996, the Company sold its interest for a note receivable
of $1,000,000 plus repayment of expenses paid on Cardiologics behalf which
resulted in a gain of $1,000,000. The investment was sold to a private venture
capital fund whose primary investor is the President and principal stockholder
of the Company. The note was completely satisfied during the year ended
September 30, 1997.
Note 16 - Allowance for Doubtful Accounts:
Information relating to the allowance for doubtful accounts is as follows:
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
(in thousands)
Allowance for doubtful accounts:
Year ended September 30,
1995 $ 150 $ 302 $ 167 (A) $ 285
======= ======= ======== ======
1996 $ 285 $ 45 $ 161 (A) $ 169
======= ======= ======== ======
1997 $ 169 $ 101 $ 169 (A) $ 101
======= ======= ======== ======
(A) Write-off of uncollectible accounts receivable.
Note 17 - Significant Customers:
A portion of the Company's hospital customers are serviced via national
and regional medical supply distributors. During fiscal years 1997 and 1996,
respectively, 37% and 36% of the Company's sales were made in this distribution
channel. In fiscal 1997 and 1996, one of the large national distributors
represented approximately 13% and 14% of net sales--continuing product lines.
The same customer represented approximately 10% and 11% of outstanding accounts
receivable at September 30, 1997 and 1996 respectively.
PART III
Item 10. Directors of the Registrant.
The registrant incorporates by reference herein information to be set forth in
its definitive proxy statement for its 1998 annual meeting of stockholders that
is responsive to the information required with respect to this Item. If such
proxy statement is not mailed to stockholders and filed with the Securities and
Exchange Commission within 120 days after the end of the registrant's most
recently completed fiscal year, the registrant will provide such information by
means of an amendment to this Annual Report on Form 10-K.
Item 11. Executive Compensation.
The registrant incorporates by reference herein information to be set forth in
its definitive proxy statement for its 1998 annual meeting of stockholders that
is responsive to the information required with respect to this Item. If such
proxy statement is not mailed to stockholders and filed with the Securities and
Exchange Commission within 120 days after the end of the registrant's most
recently completed fiscal year, the registrant will provide such information by
means of an amendment to this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The registrant incorporates by reference herein information to be set forth in
its definitive proxy statement for its 1998 annual meeting of stockholders that
is responsive to the information required with respect to this Item. If such
proxy statement is not mailed to stockholders and filed with the Securities and
Exchange Commission within 120 days after the end of the registrant's most
recently completed fiscal year, the registrant will provide such information by
means of an amendment to this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions.
The registrant incorporates by reference herein information to be set forth in
its definitive proxy statement for its 1998 annual meeting of stockholders that
is responsive to the information required with respect to this Item. If such
proxy statement is not mailed to stockholders and filed with the Securities and
Exchange Commission within 120 days after the end of the registrant's most
recently completed fiscal year, the registrant will provide such information by
means of an amendment to this Annual Report on Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) The financial statements listed in the index set forth in Item
8 of this Annual Report on Form 10-K are filed as part of this
Annual Report.
(b) All schedules have been omitted because they are not
applicable or the required information is included in the
financial statements or notes thereto.
(c) The following exhibits are incorporated by reference herein or
annexed to this Annual Report:
Exhibit Description
2.1 Agreement and Plan of Merger, dated March 14, 1997, among the
Company, an acquisition subsidiary, and Marquest Medical
Products, Inc. ("MMPI") is incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K dated
March 20, 1997.
2.2 Inducement Agreement, dated March 14, 1997, between the Company
and Scherer Healthcare, Inc., relating to the Registrant's MMPI
merger, is incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K dated March 20, 1997.
3.1 Restated Certificate of Incorporation is incorporated by
reference to Exhibit 3.1 to the Company's annual report on Form
10-K for the year ended September 30, 1995.
3.2 By-laws, as amended, are incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1
(No. 33-35864) initially filed with the Commission on July 13,
1990.
4.1 1984 Economic Development Authority Loan Agreement is incorpor-
ated by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-1 (No. 33-35864) initially filed with the
Commission on July 13, 1990.
4.2 Amended and Restated Loan Agreement between the Company and the
New Jersey Economic Development Authority, dated as of November
1, 1990, is incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-1 (No. 33-34107)
initially filed with the Commission on February 21, 1991.
4.3 Letter of Credit and Reimbursement Agreement, dated August 27,
1993, between the Company and Chemical Bank New Jersey N.A. is
incorporated by reference to Exhibit 4.3 to the Company's
Annual Report on Form 10-K for the year ended September 30,
1993.
10.1 1990 Employee Stock Option Plan, as amended.
10.2 1991 Director Stock Option Plan, as amended, is incorporated by
reference to Exhibit 10.2 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1993.
10.3 Agreement between the Company and Respironics, Inc., dated
effective as of July 1, 1993, is incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for
the year ended September 30, 1993.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued).
Exhibit Description
10.4 Forms of Option Agreements with various employees of the
Company is incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-1 (No. 33-39107)
initially filed with the Commission on February 21, 1991.
10.5 Vital Signs Investment Plan, as amended, is incorporated by
reference to Exhibit 99.1 to the Company's registration
statement on Form S-8 (No. 333-37927).
10.6 Stock Option Grants to Terence D. Wall and Barry Wicker,
replacing stock options granted to Messrs. Wall and Wicker
pursuant to the 1993 Executive Stock Option Plan, is
incorporated by reference to Exhibit 10.8 to the Company's
annual report on Form 10-K for the year ended September 30,
1996.
10.7 Agreement to sell the Registrant's 51% interest in Cardiologics
L.L.C., including the related promissory note and guarantee, is
incorporated by reference to Exhibit 10.9 to the Company's
annual report on Form 10-K for the year ended September 30,
1996.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Goldstein Golub Kessler & Company, P.C.
24.1 Power of Attorney
27.1 Financial Data Schedule
(d) On August 1, 1997, the Company filed a Current Report on Form
8-K concerning the completion of the acquisition of Marquest
Medical Products, Inc.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, this 15th day of
December, 1997.
VITAL SIGNS, INC.
By: /s/Anthony J. Dimun,
Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
/s/ Terence D. Wall* President, Chief December 15, 1997
_______________________ Executive Officer
Terence D. Wall and Director
/s/ David J. Bershad* Director December 15, 1997
_______________________
David J. Bershad
/s/Anthony J. Dimun Executive Vice President, December 15, 1997
_______________________ Chief Financial Officer,
Anthony J. Dimun Treasurer (Chief Financial
and Accounting Officer)
and Director
/s/ Joseph J. Thomas* Director December 15, 1997
______________________
Joseph J. Thomas
/s/ John Toedtman* Director December 15, 1997
______________________
John Toedtman
/s/ Barry Wicker* Executive Vice President December 15, 1997
- ----------------- and Director
Barry Wicker
* By:/s/Anthony J. Dimun
___________________
Anthony J. Dimun
Attorney-in-Fact