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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 0-18793
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VITAL SIGNS, INC.
(Exact name of registrant as specified in its charter)
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New Jersey 11-2279807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 Campus Road
Totowa, New Jersey 07512
(Address of principal executive office, including zip code)
973-790-1330
(Registrant's telephone number, including area code)
_____________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
----------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
At May 4, 2005 there were 12,640,229 shares of Common Stock, no par value,
outstanding.
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VITAL SIGNS, INC.
INDEX
Page
Number
------
PART I.
Item 1. Financial Statements
Report of Independent Registered Public Accounting Firm...... 2
Consolidated Balance Sheets as of March 31, 2005 (Unaudited)
and September 30, 2004.................................... 3
Consolidated Statements of Income for the Three Months Ended
March 31, 2005 and 2004 (Unaudited)....................... 4
Consolidated Statements of Income for the Six Months Ended
March 31, 2005 and 2004 (Unaudited)....................... 5
Consolidated Statements of Cash Flows for the Six Months
Ended March 31, 2005 and 2004 (Unaudited)................. 6
Notes to Consolidated Financial Statements ( Unaudited)...... 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 11-17
Item 3. Quantitative and Qualitative Disclosure About Market Risks... 18
Item 4. Controls and Procedures...................................... 18
PART II.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.. 19
Item 6. Exhibits..................................................... 20
Signatures................................................... 21
Exhibit 18...................................................
Exhibit 31.1.................................................
Exhibit 31.2.................................................
Exhibit 32.1.................................................
Exhibit 32.2.................................................
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. Vital Signs, Inc. (the "registrant", the
"Company", "Vital Signs", "we", "us", or "our") believes that the disclosures
are adequate to assure that the information presented is not misleading in any
material respect. It is suggested that the following consolidated financial
statements be read in conjunction with the year-end consolidated financial
statements and notes thereto included in the registrant's Annual Report on Form
10-K for the year ended September 30, 2004.
The results of operations for the interim periods presented herein are not
necessarily indicative of the results to be expected for the entire fiscal year,
or any other period.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
VITAL SIGNS, INC.
We have reviewed the accompanying consolidated balance sheet of Vital
Signs, Inc. and Subsidiaries as of March 31, 2005 and the related consolidated
statements of income for the three months and six months ended March 31, 2005
and 2004, and the consolidated statements of cash flows for the six months ended
March 31, 2005 and 2004. These interim financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with the standards of the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the consolidated interim
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with United States generally accepted accounting
principles.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board, the consolidated balance sheet of Vital
Signs, Inc. and Subsidiaries as of September 30, 2004 and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended (not presented herein); and in our report dated November 12,
2004 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of September 30, 2004 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
May 4, 2005
2
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
2005 2004
--------- -------------
(In thousands of dollars)
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ................................. $ 74,084 $ 76,468
Accounts receivable, less allowances for rebates and
doubtful accounts of $8,857 and $8,725, respectively ... 30,699 31,876
Inventory ................................................. 18,216 16,766
Prepaid expenses. ......................................... 4,067 2,816
Other current assets. ..................................... 1,304 1,596
-------- --------
Total Current Assets. ............................... 128,370 129,522
Property, plant and equipment--net. ....................... 30,664 29,900
Goodwill. ................................................. 77,388 69,506
Deferred income taxes ..................................... 80 796
Other assets. ............................................. 6,582 5,952
-------- --------
Total Assets. ....................................... $243,084 $235,676
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................... $ 5,148 $ 5,114
Accrued expenses........................................... 7,333 7,780
Accrued income taxes....................................... 3,265 3,387
-------- --------
Total Current Liabilities............................ 15,746 16,281
-------- --------
Minority interest in subsidiary............................... 3,400 3,172
-------- --------
Commitments and contingencies
Stockholders' Equity
Common stock--no par value; authorized 40,000,000 shares,
issued and outstanding 12,640,229 and 12,715,243 shares,
respectively............................................ 21,344 24,279
Accumulated other comprehensive income..................... 3,682 3,059
Retained earnings.......................................... 198,912 188,885
-------- --------
Stockholders' equity....................................... 223,938 216,223
-------- --------
Total Liabilities and Stockholders' Equity........... $243,084 $235,676
======== ========
(See Notes to Consolidated Financial Statements)
3
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three
Months Ended
March 31,
-------------------------
2005 2004
------- -------
(In thousands, except per
share amounts)
Net Revenues:
Net sales.................................................. $39,161 $38,583
Service revenue............................................ 7,868 8,054
------- -------
47,029 46,637
------- -------
Cost of goods sold and services performed:
Cost of goods sold......................................... 19,026 18,933
Cost of services performed................................. 4,588 4,466
------- -------
23,614 23,399
------- -------
Gross profit.................................................. 23,415 23,238
------- -------
Operating expenses:
Selling, general and administrative........................ 12,596 12,724
Research and development................................... 1,882 2,033
Restructuring expense...................................... 305 --
Other expense (income) -- net.............................. (144) 151
------- -------
Total operating expenses................................ 14,639 14,908
------- -------
Operating Income.............................................. 8,776 8,330
------- -------
Other income (expense)
Interest income............................................ 375 202
Interest (expense)......................................... (19) (1)
------- -------
Total other income............................................ 356 201
------- -------
Income from continuing operations before provision
for income tax and minority interest in income
of consolidated subsidiary................................. 9,132 8,531
Provision for income taxes.................................... 3,245 3,001
------- -------
Income from continuing operations before minority interest in
income of consolidated subsidiary.......................... 5,887 5,530
Minority interest in income of consolidated subsidiary........ 119 116
------- -------
Income from continuing operations ............................ 5,768 5,414
Discontinued Operations:
Income (loss) from operations of Vital Pharma, net of income
tax provision (benefit) of $30 and ($9).................... 58 (17)
------- -------
Net income.................................................... $ 5,826 $ 5,397
======= =======
Earnings per Common Share:
Basic
Income per share from continuing operations................ $ 0.46 $ 0.42
Income per share from discontinued operations.............. $ 0.01 $ 0.00
------- -------
Net earnings per share..................................... $ 0.47 $ 0.42
======= =======
Diluted
Income per share from continuing operations................ $ 0.46 $ 0.42
------- -------
Net earnings per share..................................... $ 0.46 $ 0.42
======= =======
Basic weighted average number of shares outstanding........... 12,456 12,837
Diluted weighted average number of shares outstanding......... 12,618 12,982
Dividends paid per share...................................... $ 0.07 $ 0.06
(See Notes to Consolidated Financial Statements)
4
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Six
Months Ended
March 31,
-------------------------
2005 2004
------- -------
(In thousands, except per
share amounts)
Net Revenues:
Net sales.................................................. $76,418 $74,478
Service revenue............................................ 16,309 16,007
------- -------
92,727 90,485
------- -------
Cost of goods sold and services performed:
Cost of goods sold......................................... 37,541 36,438
Cost of services performed................................. 9,062 8,795
------- -------
46,603 45,233
------- -------
Gross profit.................................................. 46,124 45,252
------- -------
Operating expenses:
Selling, general and administrative........................ 24,604 25,070
Research and development................................... 3,666 3,539
Restructuring expense...................................... 360 --
Other expense (income) -- net.............................. (106) 221
------- -------
Total operating expenses................................ 28,524 28,830
------- -------
Operating Income.............................................. 17,600 16,422
------- -------
Other income (expense)
Interest income............................................ 634 385
Interest (expense)......................................... (19) (25)
------- -------
Total other income............................................ 615 360
------- -------
Income from continuing operations before provision for income
tax and minority interest in income of consolidated
subsidiary................................................. 18,215 16,782
Provision for income taxes.................................... 6,396 5,890
------- -------
Income from continuing operations before minority interest in
income of consolidated subsidiary.......................... 11,819 10,892
Minority interest in income of consolidated subsidiary........ 228 254
------- -------
Income from continuing operations ............................ 11,591 10,638
Discontinued Operations:
Loss from operations of Vital Pharma, net of income tax
benefit of ($30) and ($9).................................. (32) (171)
------- -------
Net income.................................................... $11,559 $10,467
======= =======
Earnings (loss) per Common Share:
Basic
Income per share from continuing operations................ $ 0.93 $ 0.83
Loss per share from discontinued operations................ $ (0.01) $ (0.02)
------- -------
Net earnings per share..................................... $ 0.92 $ 0.81
======= =======
Diluted
Income per share from continuing operations................ $ 0.92 $ 0.82
Loss per share from discontinued operations................ $ (0.01) $ (0.02)
------- -------
Net earnings per share..................................... $ 0.91 $ 0.80
======= =======
Basic weighted average number of shares outstanding........... 12,498 12,873
Diluted weighted average number of shares outstanding......... 12,655 13,013
Dividends paid per share...................................... $ 0.14 $ 0.12
(See Notes to Consolidated Financial Statements)
5
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended March 31,
-------------------------
2005 2004
-------- --------
(In thousands of dollars)
Cash Flows from Operating Activities:
Net income .................................................. $ 11,559 $ 10,467
Add loss from discontinued operations ....................... 32 171
-------- --------
Income from continuing operations ........................... 11,591 10,638
Adjustments to reconcile income from continuing operations to
net cash provided by continuing operations
Depreciation and amortization ............................... 3,288 2,104
Deferred income taxes ....................................... 716 356
Minority interest in income of consolidated subsidiary ...... 228 254
Changes in operating assets and liabilities:
Decrease in accounts receivable ............................. 1,429 1,765
(Increase) decrease in inventory ............................ (193) 3,274
(Increase) decrease in prepaid expenses and other current
assets .................................................... (73) 2,075
Decrease in other assets .................................... 382 614
Decrease in accounts payable ................................ (518) (336)
Decrease in accrued expenses ................................ (738) (324)
Decrease in accrued income taxes ............................ (122) (2,372)
Increase in other liabilities ............................... 194 197
-------- --------
Net cash provided by continuing operations ..................... 16,184 18,245
Net cash used in discontinued operations ....................... (32) (209)
-------- --------
Net cash provided by operating activities ...................... 16,152 18,036
-------- --------
Cash flows from investing activities:
Net proceeds from sales of assets of Vital Pharma ........... -- 417
Net proceeds from sale of Vital Pharma real estate .......... -- 1,222
Acquisition of Baxter disposable airways product line ....... (10,030)
Acquisition of property, plant and equipment ................ (1,562) (1,156)
Capitalized software costs .................................. (1,801) (386)
Capitalized patent costs .................................... (105) (75)
-------- --------
Net cash (used in) provided by investing activities ............ (13,498) 22
-------- --------
Cash flows from financing activities:
Dividends paid .............................................. (1,536) (1,556)
Proceeds from exercise of stock options ..................... 2,766 349
Purchase of common stock .................................... (6,542) (3,778)
Principal payments on long-term debt and notes payable ...... -- (1,535)
-------- --------
Net cash used in financing activities .......................... (5,312) (6,520)
Effect of foreign currency translation ......................... 274 (208)
-------- --------
Net (decrease) increase in cash and cash equivalents ........... (2,384) 11,330
Cash and cash equivalents at beginning of period ............... 76,468 55,660
-------- --------
Cash and cash equivalents at end of period ..................... $ 74,084 $ 66,990
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the nine months for:
Interest .................................................... $ 19 $ 65
Income taxes ................................................ $ 4,196 $ 5,414
(See Notes to Consolidated Financial Statements)
6
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet as of March 31, 2005, the consolidated
statements of income for the three months and six months ended March 31, 2005
and 2004, and the consolidated statements of cash flows for the six months ended
March 31, 2005 and 2004, have been prepared by Vital Signs, Inc. (the
"registrant", the "Company", "Vital Signs", "we", "us", or "our") and are
unaudited. In the opinion of management, all adjustments necessary to present
fairly the financial position at March 31, 2005 and the results of operations
for the three months and six ended March 31, 2005 and 2004, and the cash flows
for the six months ended March 31, 2005 and 2004, have been made.
2. See the Company's Annual Report on Form 10-K for the year ended
September 30, 2004 (the "Form 10-K") for additional disclosures relating to the
Company's consolidated financial statements.
3. At March 31, 2005, the Company's inventory was comprised of raw
materials of $10,625,000 and finished goods of $7,591,000. At September 30,
2004, the Company's inventory was comprised of raw materials of $10,563,000 and
finished goods of $6,203,000.
4. Net revenues consist of product sales and service revenues. For all
product sales, revenue is recognized when title to the product passes to the
customer. For substantially all product sales, title passes upon shipment of the
product by the Company, although for certain sales, title passes when the
product is received by the customer. For service revenue, revenue is recorded
when the service is performed. A component of product sales is a deduction for
rebates due on sales to distributors. A reconciliation of gross to net sales is
provided below:
Three Months Ended Six Months Ended
March 31, March 31,
------------------- -------------------
2005 2004 2005 2004
-------- -------- -------- --------
Gross sales ............. $ 53,294 $ 51,165 $104,682 $ 99,249
Rebates ................. (13,235) (11,669) (26,476) (22,754)
Other deductions ........ (898) (913) (1,788) (2,017)
-------- -------- -------- --------
Net sales ............... 39,161 38,583 76,418 74,478
Service revenues ........ 7,868 8,054 16,309 16,007
-------- -------- -------- --------
Total net revenues ... $ 47,029 $ 46,637 $ 92,727 $ 90,485
======== ======== ======== ========
Other deductions consist of discounts, returns and allowances for credits.
5. The Company has aggregated its business units into four reportable
segments, Anesthesia, Respiratory/Critical Care, Sleep and Pharmaceutical
Technology Services. There are no material intersegment sales. Anesthesia and
Respiratory/Critical Care share certain manufacturing, sales and administration
costs; therefore the operating profit, total assets, and capital expenditures
are not specifically identifiable. However the Company has allocated these
shared costs on a net sales basis to arrive at operating profit for the
anesthesia and respiratory/critical care segments. Total assets and capital
expenditures for anesthesia and respiratory/critical care have also been
allocated on a net sales basis. Management evaluates performance on the basis of
the gross profits and operating results of the four business segments.
Summarized financial information concerning the Company's reportable segments is
shown in the following table:
7
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Respiratory Pharmaceutical
Critical Technology
Anesthesia Care Sleep Services Consolidated
---------- ----------- ------- -------------- ------------
For the Three Months Ended March 31, 2005
Net revenues ............................... $ 21,567 $10,806 $10,779 $ 3,877 $ 47,029
Gross profit ............................... 11,464 5,814 4,893 1,244 23,415
Gross profit percentage .................... 53.2% 53.8% 45.4% 32.1% 49.8%
Operating income (loss) .................... 5,898 2,955 108 (185) 8,776
2004
Net revenues ............................... $ 19,654 $10,969 $12,221 $ 3,793 $ 46,637
Gross profit ............................... 10,799 5,667 5,343 1,429 23,238
Gross profit percentage .................... 54.9% 51.7% 43.7% 37.7% 49.8%
Operating income ........................... 4,913 2,746 428 243 8,330
For the Six Months Ended March 31, 2005
Net revenues ............................... $ 41,696 $20,954 $21,531 $ 8,546 $ 92,727
Gross profit ............................... 22,111 11,168 9,600 3,245 46,124
Gross profit percentage .................... 53.0% 53.3% 44.6% 38.0% 49.7%
Operating income (loss) .................... 11,245 5,651 (4) 708 17,600
Total assets ............................... 124,774 62,704 36,434 19,172 243,084
Capital expenditures ....................... 2,299 523 587 59 3,468
2004
Net revenues ............................... $ 38,152 $21,634 $23,177 $ 7,522 $ 90,485
Gross profit ............................... 20,131 11,747 10,369 3,005 45,252
Gross profit percentage .................... 52.8% 54.3% 44.7% 39.9% 50.0%
Operating income ........................... 9,192 5,213 1,390 627 16,422
Total assets ............................... 108,942 61,775 35,836 18,449 225,002
Capital expenditures ....................... 704 399 219 295 1,617
6. Other comprehensive income for the three months ended March 31, 2005 and
2004 consisted of:
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
2005 2004 2005 2004
------- ------- ------- -------
Net income ..................... $ 5,826 $ 5,397 $11,559 $10,467
Foreign currency translation ... (1,498) (1,164) 626 448
------- ------- ------- -------
Comprehensive income ........... $ 4,328 $ 4,233 $12,185 $10,915
======= ======= ======= =======
7. In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting
for Stock-Based Compensation--Transition and Disclosure, an amendment of SFAS
No. 123". SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 "Accounting for Stock-Based Compensation", to
require prominent disclosures in annual and interim financial statements about
the method of accounting for stock-based
8
employee compensation and the effect in measuring compensation expense. The
disclosure requirements of SFAS No. 148 are effective for periods beginning
after December 15, 2002.
The Company has elected, in accordance with the provisions of SFAS No. 123,
as amended by SFAS No. 148, to apply the current accounting rules under APB
Opinion 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
three-month period ended March 31, 2005 and 2004 would approximate the pro forma
amounts indicated in the table below (dollars in thousands):
Three Month Period Six Month Period
Ended March 31, Ended March 31,
------------------ -----------------
2005 2004 2005 2004
------ ------ ------- -------
Net income--as reported............................ $5,826 $5,397 $11,559 $10,467
Net income--Pro forma.............................. 5,580 5,097 11,075 9,869
Basic net income per common share--as reported..... $ .47 $ .42 $ .92 $ .81
Diluted net income per common share--as reported... $ .46 $ .42 $ .91 $ .80
Basic net income per common share--Pro forma....... $ .45 $ .40 $ .89 $ .77
Diluted net income per common share--Pro forma..... $ .44 $ .39 $ .88 $ .76
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 three and six months ended March 31, 2005 and 2004,
respectively: expected volatility of 33% and 50%, respectively, risk-free
interest rate of 5.0% and 3.7%, respectively, dividend yield rate of .7% and
.7%, respectively, and all options have expected lives of between five and ten
years.
8. In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share
Based Payment" ("SFAS 123(R)"). SFAS 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
financial statements based on their fair values. The new standard allows for two
transition alternatives, either the modified-prospective method or the
modified-retrospective method. The Company has not completed its evaluation of
SFAS 123(R) and therefore has not selected a transition method or determined the
impact that adopting SFAS 123(R) will have on its results of operations. On
April 14, 2005, the Securities and Exchange Commission announced that the
effective date of SFAS 123R will be suspended until January 1, 2006, for
calendar year companies. The Company anticipates adopting the prospective method
of SFAS 123R in the first quarter of fiscal 2006 but it has not yet determined
the financial statement impact of adopting SFAS 123R.
The Company does not believe that any other recently issued but not yet
effective accounting standards will have a material effect on the Company's
financial position or results of operations.
9. Included in the Company's revenues in the Anesthesia and Respiratory/
Critical Care segments, are sales made to distributors. These sales account for
approximately 25.1% of the net sales of the Company. Price rebates are available
to the distributor based upon the difference between the established price
(distributor list) and the lower price that the distributor is entitled to after
selling the goods end-user hospital (distributor final). The Company estimates
and records the applicable rebates that have been or are expected to be granted
or made for products sold during the period. These amounts are deducted from
sales for that period. The Company concluded that the current calculation was
based upon utilizing documentation provided by the distributor for shipments and
inventory not yet shipped. During the second quarter of Fiscal 2005, the rebates
due could be better measured by utilizing current period rebate data to create
an allocated rebate percentage (by distributor and product) and applying that
percentage to the current period sales by distributor and product. Management
believes there was no material difference between the two calculations.
10. On March 2, 2005 the Company acquired the Disposable Airway Management
Device business from a subsidiary of Baxter International, Inc. to improve the
Company's market share in the anesthesia segment. The purchase price for the
acquisition including related costs was approximately $10.2 million. The
transaction includes certain manufacturing assets related to the business valued
at approximately $1,259,000, as well as inventory including anesthesia circuits,
face masks, heat and moisture exchanger filters and other associated anesthesia
components valued at approximately $1,048,000. The excess of the purchase price
over
9
the fair value of the net assets acquired, which has been allocated to goodwill,
was approximately $7,882,000, and is included in the anesthesia segment.
Goodwill was recognized in accordance with Statement of Financial Standards No.
142 ("Goodwill and Other Intangible Assets"). The results of operations of the
acquisition including revenues of approximately $900,000 are included in the
Company's results of oeprations from March 2, 2005. No Proforma information has
been provided, as the information is not readily available. The Company is
attempting to compile this information.
11. In accordance with SFAS No. 142, Goodwill and intangible assets that
have indefinite useful lives are no longer amortized but rather are to be tested
for impairment annually or more frequently if impairment indicators arise. Upon
the adoption of SFAS No. 142 on October 1, 2001, the Company ceased amortizing
goodwill and now performs an annual impairment analysis based upon discounted
cash flows to assess the recoverability of the goodwill, in accordance with the
provisions of SFAS No. 142. The Company completed this impairment test during
the three-month period ended March 31, 2005 and found no impairment. If the
Company is required to record impairment charges in the future, it could have an
adverse impact on our results of operations and financial condition. The balance
of goodwill is as follows:
For the periods ended March 31,
-------------------------------
2005 2004
------- -------
Beginning balance ................................. $69,506 $69,506
Goodwill acquired during the year (Footnote 10).... 7,882 --
------- -------
Ending balance..................................... $77,388 $69,506
======= =======
10
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Forward Looking Statements
This Quarterly Report on Form 10-Q contains, and from time to time we
expect to make, certain forward-looking statements regarding our business,
financial condition and results of operations. The forward-looking statements
are typically identified by the words "anticipates", "believes", "expects",
"intends", "forecasts", "plans", "future", "strategy", or words of similar
import. In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"), we intend to
caution investors that there are important factors that could cause our actual
results to differ materially from those projected in our forward-looking
statements, whether written or oral, made herein or that may be made from time
to time by or on behalf of us. Investors are cautioned that such forward-looking
statements are only predictions and that actual events or results could differ
materially from such statements. We undertake no obligation to publicly release
the results of any revisions to our forward-looking statements to reflect
subsequent events or circumstances or to reflect the occurrence of unanticipated
events.
We wish 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, we have set forth in Exhibit
99.1 to our Annual Report on Form 10-K for the year ended September 30, 2004 a
list of important factors, certain of which are outside of management's control,
that could cause our actual results to differ materially from those expressed in
forward-looking statements or predictions made herein and from time to time by
us. Reference is made to such Exhibit 99.1 for a list of such risk factors
Overview
We are a leading designer, manufacturer and marketer of single-patient use
airway management products. Our products address the anesthesia and
respiratory/critical care markets, as well as the sleep/personal ventilation
markets. In addition, we provide services that complement our core competency in
airway management and regulatory compliance. These services include sleep
disorder diagnosis through sleep centers that we operate and regulatory
consulting, principally to pharmaceutical and medical device companies.
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
statement of income.
Increase from
Increase from Prior Period
Prior Period Six Months Ended
Three Months Ended March 31, March 31, 2005
2005 Compared with Compared with
Three Months Ended Six Months Ended
March 31, 2004 March 31, 2004
---------------------------- ----------------
Consolidated Statement of Operations Data:
Net revenues................................. 0.8% 2.5%
Gross profit................................. 0.8% 1.9%
Research and Development..................... (7.4)% 3.6%
Total operating expenses..................... (0.2)% (0.1)%
Income from continuing operations............ 6.5% 9.0%
Net income................................... 8.0% 10.4%
11
Comparison of Results for the Three-Month Period Ended March 31, 2005 to the
Three-Month Period Ended March 31, 2004.
Net Revenue. Net revenues for the three months ended March 31, 2005
increased by 0.8% (a decrease of 0.2% excluding the favorable effect of foreign
exchange) to $47.0 million as compared to $46.6 million in the comparable period
last year. Of our total revenues, $34.9 million, or 74.3%, were derived from
domestic sales and $12.1 million, or 25.7%, were derived from international
sales. The following are the net revenues by business segment for the three
months ended March 31, 2005 compared to the three months ended March 31, 2004:
REVENUE BY BUSINESS SEGMENT
For the Quarter
Ended March 31,
---------------------- Percent
2005 2004 Change
------- ------- -------
(Dollars in thousands)
Anesthesia........................... $21,567 $19,654 9.7%
Respiratory/Critical Care............ 10,806 10,969 (1.5%)
Sleep................................ 10,779 12,221 (11.8%)
Pharmaceutical Technology Services... 3,877 3,793 2.2%
------- ------- -----
$47,029 $46,637 0.8%
======= ======= =====
Sales of anesthesia products increased 9.7% from $19.7 million for the
three months ended March 31, 2004 to $21.6 million for the three months ended
March 31, 2005. The increase results from a 45.1% increase in sales of Limb-OTM,
our patented anesthesia circuit, to $2,788,000 and $900,000 of additional sales
resulting from the acquisition of the Baxter disposable airway management
product line on March 2, 2005. Domestic sales of anesthesia products increased
9.6%, from $17,886,000 for the three months ended March 31, 2004 to $19,608,000
for the three months ended March 31, 2005. International sales of anesthesia
products increased 10.8%, from $1,768,000 for the three months ended March 31,
2004 to $1,958,000 for the three months ended March 31, 2005.
Sales of respiratory/critical care products decreased 1.5%, from $11.0
million for the three months ended March 31, 2004 to $10.8 million for the three
months ended March 31, 2005 resulting from declines in the sales of our ABG
(5.4%) and blood pressure cuff (10.6%) products. These declines were offset in
part by an increase of 3.2% in the remaining products in the
Respiratory/Critical Care segments.
Net revenues in the Sleep segment decreased 11.8% (a decrease of 15.2%
excluding foreign exchange) from $12.2 million for the three months ended March
31, 2004 to $10.8 million for the three months ended March 31, 2005. The net
revenues at Sleep Services of America (SSA), the Company's domestic sleep
disorder diagnostic business, decreased 6.3% resulting from the effect of our
closing certain less profitable sleep labs between the second and fourth
quarters of fiscal 2004. Operating profit at SSA increased 6.6% over the same
three-month period as last year. During the three months ended March 31, 2005,
SSA has experienced a 17.8% sales increase in the continuing sleep centers over
the same period as last year. Also in this segment, revenues for Breas, our
European manufacturer of personal ventilators and CPAP devices, decreased 14.7%
resulting from decreased demand as Breas distributors are awaiting the launch of
our new family of sleep and ventilation products.
Service revenues in the Pharmaceutical Technology Services segment
increased 2.2%, from $3.8 million for the three months ended March 31, 2004 to
$3.9 million for the three months ended March 31, 2005.
Cost of Goods Sold and Services Performed. Cost of goods sold and services
performed increased 0.9% from $23.4 million for the three months ended March 31,
2004 to $23.6 million for the three months ended March 31, 2005.
Cost of goods sold was $19.0 million for both of the three months ended
March 31, 2004 and 2005. Volume related increases parallel to the Anesthesia
revenue increase, of approximately $800,000 and foreign exchange increases of
approximately $362,000 were offset by volume related declines at our Breas
subsidiary. Cost of services performed remained at approximately $4.5 million
for both of the three months ended March 31, 2004 and 2005.
12
Gross Profit. Our gross profit increased 0.8% reflecting the revenue
increase; from $23.2 million for the three months ended March 31, 2004 to $23.4
million for the three months ended March 31, 2005. Our overall gross profit
margin was 49.8% for the three months ended March 31, 2005 and 2004. For gross
profit information related to our four segments, refer to Footnote 5 of the
Notes to Consolidated Financial Statements.
Operating Expenses
Selling, and Administrative Expenses. Selling, general and administrative
expenses decreased 1.0%; from $12.7 million for the three months ended March 31,
2004 to $12.6 million for the three months ended March 31, 2005. The decrease
consists primarily of reductions in workers compensation expense of $245,000,
and reduced legal expenses (primarily related to the audit committee
investigation during the first quarter of fiscal 2004) of $100,000. These
reductions were offset by cost increases of $128,000 for increased marketing at
our Breas subsidiary in conjunction with new product introductions and $157,000
for the impact of foreign exchange
Research and Development Expenses. Research and development expenses
decreased by approximately $151,000, or 7.4%, from $2.0 million for the three
months ended March 31, 2004 to $1.9 million for the three months ended March 31,
2005 as the development efforts for the new Breas family of CPAP, ventilation
equipment and patient interfaces nears their completion.
Restructuring Expense. Restructuring expense for the three months ended
March 31, 2005, included costs of $305,000 related to the final shutdown of our
California manufacturing plant.
Other (Income) Expense--Net. Other income, net, included in operating
expenses for the three months ended March 31, 2005, was $144,000 consisting
primarily of realized foreign exchange gains at our Breas subsidiary. Other
expense, net, included in operating expense for the three months ended March 31,
2004, was $151,000 primarily consisting of severance and donations expense.
Interest Income and Expense. Interest income increased $173,000, or 85.6%,
from $202,000 for the three months ended March 31, 2004 to $375,000 during the
three months ended March 31, 2005, resulting from the increase in available cash
and cash equivalents and increased interest rates.
Provision for Income Taxes. The provision for income tax expense for the
three months ended March 31, 2005 and 2004 was $3.2 million and $3.0 million,
respectively, reflecting effective tax rates of 35.5% and 35.2% for these
periods, respectively.
Discontinued Operations. The net gain (after applying the tax benefit) from
discontinued operation was approximately $58,000 for the three months ended
March 31, 2005 and approximately a $17,000 loss for the three months ended March
31, 2004.
13
Comparison of Results for the Six-Month Period Ended March 31, 2005 to the
Six-Month Period Ended March 31, 2004.
Net Revenue. Net revenues for the six months ended March 31, 2005 increased
by 2.5% (an increase of 1.2% excluding the favorable effect of foreign exchange)
to $92.7 million as compared to $90.5 million in the comparable period last
year. Of our total revenues, $68.4 million, or 73.8%, were derived from domestic
sales and $24.3 million, or 26.2%, were derived from international sales. The
following are the net revenues by business segment for the six months ended
March 31, 2005 compared to the six months ended March 31, 2004:
REVENUE BY BUSINESS SEGMENT
For the Six Months
Ended March 31,
---------------------- Percent
2005 2004 Change
------- ------- -------
(Dollars in thousands)
Anesthesia........................... $41,696 $38,152 9.3%
Respiratory/Critical Care............ 20,954 21,634 (3.1%)
Sleep................................ 21,531 23,177 (7.1%)
Pharmaceutical Technology Services... 8,546 7,522 13.6%
------- ------- ----
$92,727 $90,485 2.5%
======= ======= ====
Sales of anesthesia products increased 9.3% from $38.2 million for the six
months ended March 31, 2004 to $41.7 million for the six months ended March 31,
2005. The increase results from a 52.5% increase in sales of Limb-OTM, our
patented anesthesia circuit, to $5,390,000 and $900,000 of additional sales
resulting from the acquisition of the Baxter disposable airway management
product line on March 2, 2005. Domestic sales of anesthesia products increased
8.0%, from $34,983,000 for the six months ended March 31, 2004 to $37,766,000
for the six months ended March 31, 2005. International sales of anesthesia
products increased 24.1%, from $3,169,000 for the six months ended March 31,
2004 to $3,930,000 for the six months ended March 31, 2005.
Sales of respiratory/critical care products decreased 3.1%, from $21.6
million for the six months ended March 31, 2004 to $21.0 million for the six
months ended March 31, 2005 resulting from declines in the sales of our ABG
(13.0%) and blood pressure cuffs products (19.5%) Partially offsetting these
declines was an increase of 7.9% in the remaining products in the
Respiratory/Critical Care segments.
Net revenues in the Sleep segment decreased 7.1% (a decrease of 11.4%
excluding foreign exchange) from $23.2 million for the six months ended March
31, 2004 to $21.5 million for the six months ended March 31, 2005. The Net
revenues at Sleep Services of America (SSA), the Company's domestic sleep
disorder diagnostic business, decreased 8.5% resulting from the effect of
closing certain less profitable sleep labs between the second and fourth
quarters of fiscal 2004. During the six months ended March 31, 2005, SSA has
experienced a 17.8% sales increase in the continuing sleep centers over the same
period as last year. Operating profit at SSA has increased 4.2% over the same
six-month period as last year. Also in this segment, revenues for Breas, our
European manufacturer of personal ventilators and CPAP devices, decreased 6.3%
resulting from decreased demand as Breas distributors are awaiting the launch of
our new family of sleep and ventilation products.
Service revenues in the Pharmaceutical Technology Services segment
increased 13.6%, from $7.5 million for the six months ended March 31, 2004 to
$8.5 million for the six months ended March 31, 2005, resulting from a high
level of our ComplianceBuilder software in the first quarter of fiscal 2005.
Cost of Goods Sold and Services Performed. Cost of goods sold and services
performed increased 3.0% from $45.2 million for the six months ended March 31,
2004 to $46.6 million for the six months ended March 31, 2005.
Cost of goods sold increased $1.1 million, or 3.0%, from $36.4 million for
the six months ended March 31, 2004 to $37.5 million for the six months ended
March 31, 2005 resulting from sales volume related increases of approximately
$1.3 million in our Anesthesia segment and foreign exchange increases of
approximately $646,000, offset by sales volume related declines at our Breas
subsidiary. Cost of services performed increased 3.0%, from $8.8 million for the
six months ended March 31, 2004 to $9.1 million for the six months ended March
31, 2005 resulting primarily from sales volume related increases at our Stelex
subsidiary.
14
Gross Profit. Our gross profit increased 1.9%; from $45.30 million for the
six months ended March 31, 2004 to $46.1 million for the six months ended
March 31, 2005. Our overall gross profit margin was 49.7% for the six months
ended March 31, 2005; a decrease from the 50.0% achieved in the six months ended
March 31, 2004. For gross profit information related to our four segments,
refer to Footnote 5 of the Notes to Consolidated Financial Statements.
Operating Expenses
Selling, and Administrative Expenses. Selling, general and administrative
expenses decreased 1.9%; from $25.1 million for the six months ended March 31,
2004 to $24.6 million for the six months ended March 31, 2005. The $500,000
decrease consists primarily of reduced legal expenses of $364,000 (primarily
related to the audit committee investigation during the first quarter of fiscal
2004), $281,000 for reductions in workers compensation expense and $345,000 in
reduced compensation expense. These savings were offset in part by an increase
from foreign exchange at Breas of approximately $328,000 and increased marketing
and selling expense of $140,000 at our Breas subsidiary in preparation for new
product launches.
Research and Development Expenses. Research and development expenses
increased by approximately $127,000, or 3.6%, from $3.5 million for the six
months ended March 31, 2004 to $3.7 million for the six months ended March 31,
2005 as the Company invests in the development of the new Breas family of Sleep
CPAP and ventilation equipment, patient interfaces, and single use products for
anesthesia, respiratory and critical care.
Restructuring Expense. Restructuring expense for the six months ended
March 31, 2005, included costs of $360,000 related to the closing of our
California manufacturing plant.
Other (Income) Expense--Net. Other income-net for the six months ended
March 31, 2005 was $106,000, consisted primarily of legal settlement ($80,000),
gain on sale of fixed assets ($31,000), realized foreign exchange gain at our
Breas subsidiary ($55,000), offset by donation ($41,000) and severance expense
($33,000). Other expense-net for the six months ended March 31, 2004 was
$221,000, consisted primarily realized foreign exchange losses at our Breas
subsidiary ($55,000) , donation ($105,000) and severance ($67,000) expense.
Other Items
Interest Income and Expense. Interest income increased $249,000, or 64.7%,
from $385,000 for the six months ended March 31, 2004 to $634,000 during the six
months ended March 31, 2005, resulting from the increase in available cash and
cash equivalents and increased interest rates.
Provision for Income Taxes. The provision for income tax expense for the
six months ended March 31, 2005 and 2004 was $6.4 million and $5.9 million,
respectively, reflecting effective tax rates of 35.1%.
Discontinued Operations. The net loss (after applying the taxes) from
discontinued operation was approximately $32,000 for the six months ended
March 31, 2005 and approximately $171,000 for the six months ended March 31,
2004.
Liquidity and Capital Resources
Historically, our primary liquidity requirements have been to finance
business acquisitions and to support operations. We have funded these
requirements principally through internally generated cash flow. At March 31,
2005, we had cash and cash equivalents of approximately $74.1 million and we had
no long-term debt. We have a $20 million line of credit with JP Morgan Chase
Bank. There were no amounts outstanding on the JP Morgan Chase Bank line of
credit at March 31, 2005.
Vital Signs continues to generate cash flows from its operations. During
the six-months ended March 31, 2005 operating activities provided $16.2 million
net cash. Investing activities used $13.5 million, including the $10 million
acquisition of the Baxter disposable airway management product line and capital
additions of $3.5 million. Financing activities used $5.3 million, consisting
of $6.5 million for the repurchase of common stock, and $1.5 million paid for
dividends, which were offset by $2.8 million of cash received from the exercise
of stock options.
15
Cash and cash equivalents were $74.1 million at March 31, 2005 as compared
to $76.5 million at September 30, 2004. At March 31, 2005 our working capital
was $113.1 million compared to $113.3 million at September 30, 2004. At March
31, 2005 the current ratio was 8.4 to 1, as compared to 8.0 to 1 at September
30, 2004.
Capital additions for the six month period ended March 31, 2005 were
approximately $3.5 million, and included expenditures for equipment and building
improvements at our New Jersey facility ($265,000), molds and equipment at our
Colorado manufacturing plant ($188,000), Thomas Medical Products facility
($267,000), new laboratory equipment ($60,000) for the sleep labs at SSA,
computer hardware and software to upgrade MIS systems ($186,000),tools and
molding at our Breas facility ($515,000) and the capitalized costs of software
development ($1.8 million) and patents ($105,000). We expect that our total
capital expenditures for fiscal 2005 should not exceed our total capital
spending of $5.3 million in fiscal 2004. This statement represents a
forward-looking statement under the Reform Act. Actual results could differ
materially from this statement for a number of reasons, including the
possibility that the Company may determine that its business requires new
equipment in order to meet competitive and/or technological challenges.
Our current policy is to retain working capital and earnings for use in our
business, subject to the payment of certain cash dividends. Such funds may be
used for the buyback of our common stock, business acquisitions, product
acquisitions, and product development, among other things. We regularly evaluate
and negotiate with domestic and foreign medical device companies regarding
potential business or product line acquisitions, licensing arrangements and
strategic alliances.
Our Board of Directors has authorized the expenditure of up to $35 million
for the repurchase of Vital Signs' stock, including the expenditure of an
additional $15 million authorized by our Board of Directors on February 8, 2005.
From fiscal 2004 through March 31, 2005, we had repurchased 553,800 shares for
$17.3 million, at an average price of $31.18 per share. During the three-month
period ended March 31, 2005 we repurchased 65,700 shares for $2.6 million at an
average price of $39.08 per share. Any purchases under Vital Signs' stock
repurchase program may be made from time-to-time in the open market, through
block trades or otherwise. Depending on market conditions and other factors,
these purchases may be commenced or suspended at any time or from time-to-time
without prior notice.
Our Board of Directors has approved and paid $1,536,000 in dividends
(amounting to $.14 per share) in the current fiscal period.
Critical Accounting Principles and Estimates
The preparation of our consolidated financial statements in conformity with
generally accepted accounting principles requires us to make estimates and
judgments that affect our reported amounts of assets and liabilities, revenues
and expenses, and related disclosures of contingent assets and liabilities. On
an ongoing basis, we evaluate our estimates, including those related to asset
impairment, revenue recognition, allowance for doubtful accounts, and
contingencies and litigation. These estimates are based on the information that
is currently available to us and on various other assumptions that we believe to
be reasonable under the circumstances. We state these accounting policies in the
notes to our consolidated financial statements and at relevant places in this
discussion and analysis. Actual results could vary from these estimates under
different assumptions or conditions.
We believe that the following critical accounting principles affect the
more significant judgments and estimates used in the preparation of our
consolidated financial statements:
o Through September 30, 2001, we amortized goodwill and intangibles on a
straight-line basis over their estimated lives. Upon our adoption of
SFAS No. 142 on October 1, 2001, we ceased amortizing goodwill and we
perform an annual impairment analysis based upon discounted cash flows
to assess the recoverability of the goodwill, in accordance with the
provisions of SFAS No. 142. On an annual basis we conduct an
impairment test of our goodwill and intangible assets. We completed
this impairment test during the three-month period ended March 31,
2005 and found no impairment. If we are required to record impairment
charges in the future, it would have an adverse impact on our results
of operations and financial condition.
16
o We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required
payments, which results in bad debt expense. Our allowance for
doubtful accounts was $489,000 at March 31, 2005 and $563,000 at
September 30, 2004. We determine the adequacy of this allowance by
evaluating individual customer receivables, considering the customer's
financial condition and credit history and analyzing current economic
conditions. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
o The Company's sales to distributors in the domestic anesthesia and
respiratory/critical care business segments, which represented 25.1%
of the Company's net sales during the six-month period ended March 31,
2005, are made at the Company's established distributor price. Since
the end-user (i.e., a hospital) is typically entitled, on a case by
case basis, to a price lower than our established price, the
distributor is due a rebate (the difference between the established
price (distributor list) and the lower price to which the end-user is
entitled (distributor final)) when shipment is made to the end user.
In order to properly reflect our sales to distributors, the Company
records the gross sale (at our established price), less the amount of
expected rebate to arrive at net sales. The allowance for rebates was
$8,368,000 and $8,162,000 at March 31, 2005 and September 30, 2004,
respectively. Rebate expense for the three-month period ended
March 31, 2005 and 2004 was $13,235,000 and $11,669,000, respectively.
Rebate expense for the six-month period ended March 31, 2005 and 2004
was $26,476,000 and $22,754,000, respectively.
During the second quarter of Fiscal 2005, the Company concluded that
the current calculation based upon utilizing documentation provided by
the distributor for shipments and inventory not yet shipped, could be
better measured by utilizing current period rebate data to create an
allocated rebate percentage (by distributor and product) and applying
that percentage to the current period sales by distributor and
product. Management believes there was no material difference
between the two calculations.
o We have established an allowance for inventory obsolescence. The
allowance was determined by performing an aging analysis of the
inventory; based upon this review, inventory is stated at the lower of
cost (first in, first out method) or its net realizable value. Our
inventory allowance for obsolescence was $860,000 at March 31, 2005
and $1,150,000 at September 30, 2004.
o We are subject to various claims and legal actions in the ordinary
course of our business. These matters frequently arise in disputes
regarding the rights to intellectual property, where it is difficult
to assess the likelihood of success and even more difficult to assess
the probable ranges of recovery. Although we currently are not aware
of any legal proceeding that is reasonably likely to have a material
adverse effect on our financial position and results of operations, if
we become aware of any such claims against us, we will evaluate the
probability of an adverse outcome and provide accruals for such
contingencies as necessary.
17
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks, including the impact of material price
changes and changes in the market value of our investments and, to a lesser
extent, interest rate changes and foreign currency fluctuations. In the normal
course of business as described below, we employ policies and procedures with
the objective of limiting the impact of market risks on earnings and cash flows
and to lower our overall borrowing costs.
The impact of interest rate changes is not material to our financial
condition. We do not enter into interest rate transactions for speculative
purposes.
Our international net revenue represents approximately 26.2% of our total
net revenues. Our Breas subsidiary, located in Sweden, represents 56.6% of our
total international net revenues. We do not enter into any derivative
transactions, including foreign currency transactions, for speculative purposes.
The Company has not entered into any derivative instrument transactions (i.e.
foreign exchange forward or option contracts) as of March 31, 2005.
Our risk involving price changes relates to raw materials used in our
operations. We are exposed to changes in the prices of resins and latex for the
manufacture of our products. We do not enter into commodity futures or
derivative instrument transactions. Except with respect to our single source of
supply for facemasks, it is our policy to maintain commercial relations with
multiple suppliers and when prices for raw materials rise to attempt to source
alternative supplies.
Item 4. Controls and Procedures
(a) Disclosure controls and procedures. As of the end of the Company's most
recently completed fiscal quarter covered by this report, the Company carried
out an evaluation, with the participation of the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the Company's disclosure controls and procedures pursuant to
Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company's
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
(b) Changes in internal controls over financial reporting. There have been
no changes in the Company's internal controls over financial reporting that
occurred during the Company's last fiscal quarter to which this report relates
that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about purchases made by the
Company of its common stock during the quarter ended March 31, 2005:
(c)(1) (d)(1)
Total Number of Maximum Dollar
(a) Shares Purchased Amount That
Total (b) as Part of May Yet be
Number of Average Publicly Purchased
Shares Price Paid Announced Under the
Period Purchased Per Share Plans or Programs Plans or Programs
------ --------- ---------- ----------------- -----------------
1/1/2005 - 1/31/2005 ..................... 26,000 $38.69 26,000 $ 4,276,359
2/1/2005 - 2/28/2005 see note (1) below... 39,700 $39.34 39,700 $17,712,979
3/1/2005 - 3/31/2005 ..................... -- -- -- $17,712,979
------ ------ ------ -----------
Total ................................. 65,700 $39.08 65,700 $17,712,979
====== ====== ====== ===========
----------
(1) In May 2004, our Board of Directors authorized the expenditure of up to $20
million for the repurchase of Vital Signs' stock. Any purchases under Vital
Signs' stock repurchase program may be made from time-to-time in the open
market, through block trades or otherwise. Depending on market conditions
and other factors, these purchases may be commenced or suspended at any
time or from time-to-time without prior notice. On February 8, 2005 our
Board of Directors authorized the expenditure of an additional $15 million
for the repurchase of Vital Signs stock.
19
Item 6. Exhibits
Exhibits
--------
18 -- Accountants Preferability Letter dated May 9, 2005
31.1 -- Certification of the Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 -- Certification of the Interim Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 -- Certification of the Chief Executive Officer Pursuant to [p] 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 -- Certification of the Interim Chief Financial Officer Pursuant to
[p] 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VITAL SIGNS, INC.
By: /s/ WILLIAM CRAIG
------------------------------------
William Craig
Chief Financial Officer
Date: May 10, 2005
21
EXHIBIT INDEX
Exhibits
--------
18 Accountant's Preferability Letter, dated May 9, 2005
31.1 Certification of the Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer Pursuant to [p] 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer Pursuant to [p] 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
22
STATEMENT OF DIFFERENCES
The paragraph symbol shall be expressed as............................... [p]