UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file Number 0-5958
SURVIVAL TECHNOLOGY, INC.
-------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-0898764
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2275 RESEARCH BLVD., ROCKVILLE, MD 20850
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(301) 926-1800
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Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF MAY 31, 1996
- ---------------------------- ------------------------------
Common Stock, $.10 par value 3,088,300 Shares
2
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1996
Page No.
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets as of
April 30, 1996 and July 31, 1995 ............... 3
Consolidated Condensed Statements of Income for
the Three-Month and Nine-Month Periods Ended
April 30, 1996 and 1995......................... 4
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended April 30, 1996
and 1995........................................ 5
Notes to Consolidated Condensed Financial
Statements ..................................... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K .................. 10
SIGNATURES ................................................. 11
3
SURVIVAL TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
April 30, July 31,
1996 1995
(unaudited) (audited)
----------- -----------
ASSETS
Current assets
Cash $ 82,400 $ 503,600
Receivables 6,110,300 5,852,700
Inventories 4,182,000 3,829,800
Prepaid expenses and other assets 436,600 336,100
Deferred income taxes 1,030,900 1,030,900
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Total current assets 11,842,200 11,553,100
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Fixed assets 25,620,200 24,581,300
Less accumulated depreciation 11,240,200 10,372,400
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14,380,000 14,208,900
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Patents and licenses at cost less
amortization of $635,700 and $517,200 1,864,800 1,916,800
Other noncurrent assets 13,500 36,300
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$28,100,500 $27,715,100
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----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $ 1,633,900 $ 3,917,000
Note payable to Syntex 788,400 800,000
Current portion of long-term debt 400,500 492,600
Accounts payable 2,757,800 1,016,800
Restructuring reserve 477,000 450,000
Other liabilities and accrued expenses 1,528,400 1,208,400
----------- -----------
Total current liabilities 7,586,000 7,884,800
Note payable to Syntex 588,400
Other long-term debt 1,031,700 897,200
Deferred revenue 375,000 250,000
Other noncurrent liabilities 606,700 489,200
Deferred income taxes 1,455,000 1,455,000
----------- -----------
Total liabilities 11,054,400 11,564,600
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Shareholders' equity
Common stock, $.10 par value;
10,000,000 shares authorized;
3,087,000 and 3,085,400 shares
issued and outstanding 308,700 308,500
Paid-in capital in excess of par value 5,083,500 5,072,700
Retained earnings 11,653,900 10,769,300
----------- -----------
Total shareholders' equity 17,046,100 16,150,500
----------- -----------
$28,100,500 $27,715,100
----------- -----------
----------- -----------
See accompanying notes to consolidated condensed financial statements.
4
SURVIVAL TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
April 30, April 30,
------------------------ --------------------------
1996 1995 1996 1995
---------- ---------- ----------- -----------
Net sales $8,897,300 $5,592,000 $22,761,600 $17,004,100
Cost of sales 6,731,700 3,693,000 16,433,400 11,580,000
---------- ---------- ----------- -----------
Gross profit 2,165,600 1,899,000 6,328,200 5,424,100
---------- ---------- ----------- -----------
Selling, general &
administrative expense 943,900 900,300 2,719,800 2,985,200
Research & development
expense 126,700 287,300 487,600 848,100
Restructuring charge 94,000
Depreciation and
amortization expense 445,400 428,200 1,335,400 1,155,600
---------- ---------- ----------- -----------
1,516,000 1,615,800 4,636,800 4,988,900
---------- ---------- ----------- -----------
Operating income 649,600 283,200 1,691,400 435,200
---------- ---------- ----------- -----------
Other expense:
Interest expense (72,700) (111,000) (320,200) (264,000)
Other income 1,800 67,300 55,600 146,000
---------- ---------- ----------- -----------
(70,900) (43,700) (264,600) (118,000)
---------- ---------- ----------- -----------
Income before income
taxes 578,700 239,500 1,426,800 317,200
Provision for income
taxes 219,900 85,400 542,200 114,200
---------- ---------- ----------- -----------
Net income $ 358,800 $ 154,100 $ 884,600 $ 203,000
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Per common share:
Net income $ .12 $ .05 $ .28 $ .07
----- ----- ----- -----
----- ----- ----- -----
Average number of
common shares
outstanding 3,114,300 3,106,700 3,111,500 3,102,300
--------- --------- --------- ---------
See accompanying notes to consolidated condensed financial statements.
5
SURVIVAL TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
April 30,
--------------------------
1996 1995
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Cash flows from operating activities:
Net income $ 884,600 $ 203,000
Adjustments to reconcile net income to net cash
provided by (used for) operating activities
Depreciation and amortization 1,335,400 1,155,600
Loss on fixed asset disposals 900
Deferred lease incentives (22,700) (22,700)
(Increase) decrease in receivables (257,600) 858,500
Increase in inventories (352,200) (2,094,900)
Increase in prepaid expenses and other assets (100,500) (104,500)
Increase in accounts payable 1,741,000 544,100
Increase in restructuring reserve 27,000
Increase (decrease) in other liabilities and
accrued expenses 320,000 (262,600)
----------- -----------
Net cash used for
operating activities (3,575,900) (276,500)
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Cash flows from investing activities:
Purchases of fixed assets (1,410,400) (2,828,200)
Purchases of patents and licenses (66,400) (173,600)
Decrease in other noncurrent assets 5,500 41,500
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Net cash used for
investing activities (1,471,300) (2,941,500)
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CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) proceeds on note payable to bank (2,283,100) 3,533,900
Payments on note payable to Syntex (600,000) (600,000)
Proceeds (payments) on long-term debt 42,400 (62,600)
Increase in deferred revenue 125,000
Increase in other noncurrent liabilities 140,200
Proceeds from fixed asset dispositions 38,700
Proceeds from issuance of common stock 11,000
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Net cash (used for) provided by
financing activities (2,525,800) 2,871,300
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Net (decrease) increase in cash $ (421,200) $ 206,300
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----------- -----------
Cash at beginning of period $ 503,600 $ 65,000
Cash at end of period 82,400 271,300
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Net (decrease) increase in cash $ (421,200) $ 206,300
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See accompanying notes to consolidated condensed financial statements.
6
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1996
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's
financial position as of April 30, 1996 and July 31, 1995, the results of
its operations for the three-month and nine-month periods ended April 30,
1996 and 1995, and its cash flows for the nine-month periods ended April
30, 1996 and 1995. The results of operations for the three-month and
nine-month periods ended April 30, 1996 are not necessarily indicative of
the results that may be expected for the fiscal year ending July 31, 1996.
B. The significant accounting principles and practices followed by the Company
are set forth in Note 1 of the Notes to Consolidated Financial Statements
in the Survival Technology, Inc. Annual Report on Form 10-K for the year
ended July 31, 1995.
C. Inventories consisted of the following:
April 30, July 31,
1996 1995
----------- -----------
Components and subassemblies $ 3,280,000 $ 2,780,200
Material, labor and overhead
costs in process 1,085,900 605,100
Finished goods 32,300 674,800
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4,398,200 4,060,100
Inventory reserve (216,200) (230,300)
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Total $ 4,182,000 $ 3,829,800
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D. During the fourth quarter of fiscal 1995, the Company's Board of Director's
approved a restructuring plan to explore various alternatives relating to
occupancy cost reductions at the corporate headquarters in Rockville, MD
which resulted in a $450,000 charge against earnings. The Company is
currently exploring options related to reducing occupancy costs at its
corporate office facility in Rockville, Maryland.
As part of this plan, the Company initiated certain organizational changes
during the first quarter of fiscal 1996 resulting in additional charges of
$94,000 related to employee severance payments in fiscal 1996. The
following table sets forth the Company's restructuring reserve as of April
30, 1996:
RESTRUCTURING RESERVE
Relocation of facilities $ 450,000
Employee severance accrual 94,000
Cash payments for severance (67,000)
---------
$ 477,000
---------
---------
E. STI entered into a loan agreement with the CIT Group/Equipment Financing,
Inc. ("CIT") in May 1995. This arrangement consists of a series of loans
for the acquisition of production molds, high speed component preparation
and filling equipment and facility renovations not to exceed a maximum
aggregate of $3 million. During the second quarter, STI received proceeds
($445,300) from CIT for a second loan within the series of loans. Loan
proceeds to date totalled $1.5 million of which $1.3 million was
outstanding at April 30, 1996, at a weighted average interest rate of 8.8%.
7
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1996
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
THE QUARTER AND NINE MONTHS IN REVIEW
The Company reported net income of $358,800 ($.12 per share) on sales of $8.9
million for the third quarter of fiscal 1996 compared with net income of
$154,100 ($.05 per share) on sales of $5.6 million in the same period of
fiscal 1995. Net income totalled $884,600 ($.28 per share) on sales of $22.8
million compared with net income of $203,000 ($.07 per share) on sales of $17
million for the nine months ended April 30, 1996 and 1995, respectively.
Revenues increased $3.3 million (59%) during the current quarter and $5.8
million (34%) during the first nine months of fiscal 1996 on the strength of
higher EpiPen-Registered Trademark- auto-injector and U.S. military product
sales.
Commercial products and services generated revenues of $5.1 million and $11.1
million for the quarter and nine months ended April 30, 1996. This
represents increases of $1.8 million (56%) in the current quarter and $1.5
million (15%) in the first nine months of fiscal 1996 when compared with the
same periods in fiscal 1995. The current quarter increase was primarily
attributable to the timing of CytoGuard-Registered Trademark- sales
($808,600) and the introduction of the company's second new product launched
in fiscal 1996, the Epi E-Z Pen-TM-, which generated revenue of $735,000.
Increased sales ($577,300 or 10%) of STI's EpiPen-Registered Trademark-
auto-injector coupled with the Epi E-Z Pen product introduction were the
principal contributors to the sales increase during the first nine months of
the current fiscal year. Other contract manufacturing and R&D revenues for
the first nine months of fiscal 1996 continued at a comparable level to the
same period in fiscal 1995.
The EpiPen and Epi E-Z Pen are automatic injectors that contain epinephrine
which are indicated for immediate use by persons in the emergency treatment
for severe allergic reactions to bee stings, insect bites and ingestion of
certain foods. The Epi E-Z Pen is a smaller, more streamlined auto-injector
that is easier to use than previous injectors and resembles an ordinary
fountain pen with a pocket clip for easy carrying. Revenues from these
products totalled $3.1 million in the third quarter and $7.6 million for the
first nine months of fiscal 1996. This represents revenue increases of
$762,500 (33%) and $1.3 million (21%) over the corresponding prior year
periods. These increases can be attributed to the expanded promotional
efforts over the last several years by Center Laboratories, Inc. ("Center"),
STI's exclusive distributor of the EpiPen. The Company anticipates EpiPen
sales to continue improving over prior year levels with Center's continuing
expansion of marketing efforts in the U.S. and international markets coupled
with the recent introduction of the new Epi E-Z Pen.
Military sales increased $1.5 million (63%) to $3.8 million in the current
quarter and $4.3 million (59%) to $11.6 million in the first nine months of
fiscal 1996 when compared with the concurrent prior year periods. These
increases were due to shipments of military auto-injectors during the current
quarter coupled with additional services provided as part of the Industrial
Base Maintenance Contract with the U.S. Department of Defense ("DoD").
Revenues under this DoD contract more than doubled to $3.3 million for the
quarter and $10.9 million for the nine months ended April 30, 1996 when
compared with the same periods last year. Product deliveries included the
Diazepam auto-injector which was approved by the U.S. Food and Drug
Administration ("FDA") in December 1995. Revenues for this new injector were
approximately $1 million through the first nine months of fiscal 1996 with
fourth quarter deliveries expected to generate an additional $1.5 million in
sales. Additional services provided to the DoD included the pre-stocking of
critical components at STI's St. Louis manufacturing facility to enhance
readiness and mobilization capability. STI's intensified efforts to expand
sales of its military products into international markets has resulted in
orders from new customers that are expected to generate $725,000 in revenue
during the fourth quarter of fiscal 1996.
8
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1996
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Gross margins decreased to 24% in the current quarter and 28% for the nine
months ended April 30, 1996 compared to 34% for the quarter and 32% for the
nine months ended April 30, 1995. These decreases are due to various factors
including component supply issues which disrupted production in the first
half of the current quarter coupled with higher military product sales which
have inherently lower margins. The Company is working to improve gross
margins through new commercial development and supply agreements along with
the completion of several manufacturing cost reduction programs currently in
progress.
Selling, general and administrative expenses increased $43,600 (5%) in the
current quarter but decreased $265,400 (9%) in the first nine months of
fiscal 1996 when compared with the same prior year periods. The current
quarter increase resulted from a higher concentration of marketing activity
within the Company's commercial business unit. This increase only partially
offset the current year decrease which related to the absence of certain
administrative costs related to organizational changes and lower bad debt
expense.
Research and development expenditures decreased $160,600 (56%) and $360,500
(43%) in the third quarter and first nine months of fiscal 1996 when compared
with the same periods in fiscal 1995. This was due to the timing of
expenditures related to certain projects which have been deferred to later in
the current year and into fiscal 1997. This will result in lower R&D
expenses in fiscal 1996 when compared to fiscal 1995 with the outlook to
fiscal 1997 to be comparable to historical levels.
Depreciation and amortization increased $17,200 (4%) and $179,800 (16%) for
the quarter and nine months ended April 30, 1996 when compared with the same
periods in fiscal 1995. As previously reported, these increases were
anticipated due to increased levels of capital expenditures made over the
last two fiscal years.
As part of the restructuring plan adopted in the fourth quarter of fiscal
1995, the Company initiated certain organizational changes during the first
quarter of fiscal 1996 resulting in additional charges of $94,000 related to
employee severance payments in fiscal 1996. See Note D in Notes to
Consolidated Condensed Financial Statements. The Company is continuing to
explore options related to reducing occupancy costs at its corporate office
facility in Rockville, Maryland.
Other expense increased $27,200 in the third quarter and $146,600 for the
first nine months of fiscal 1996 when compared with the same periods in
fiscal 1995. Interest expense declined $38,300 (35%) during the third quarter
due to lower levels of bank borrowings. This was more than offset by the
absence of an income tax refund recorded during the third quarter of fiscal
1995 as well as lower royalty income for the quarter and nine months ended
April 30, 1996. STI receives royalty income from the sale of its Medical
Device Division to Brunswick Biomedical Corporation in fiscal 1994. Interest
expense for the first nine months of fiscal 1996 increased $56,200 (21%) over
the same prior year period due to higher levels of bank borrowings necessary
to fund inventory purchases in support of higher sales levels and to fund
continuing capital investment programs.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $5 million line of credit agreement ("Agreement") with
Merrill Lynch Business Financial Services Inc. ("MLBFS") through September
1996. Outstanding borrowings under the Agreement totalled $1.6 million at
April 30, 1996. The Agreement places a $5 million limit on capital
expenditures in any one fiscal year which have aggregated $1.4 million for
the nine months ended April 30, 1996. The Company relies on its line of
credit facility to satisfy its working capital and capital expenditure
requirements.
The Company has a Loan Agreement pursuant to which Syntex Laboratories, Inc.
agreed to lend STI $5.4 million to finance working capital requirements and
9
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1996
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
capital expenditures designed to increase the production capacity of the
Company's Cartrix syringe system. The outstanding loan balance bears
interest at the same rate of interest the Company pays on its current
commercial line of credit facility. Principal payments continued for the
calendar quarter ended March 31, 1996 at the minimum of $200,000 per quarter
and $600,000 through the first nine months of fiscal 1996 reducing the
outstanding loan balance to $788,400 at April 30, 1996.
To assist the Company's previously reported capital investment program, STI
entered into a loan agreement with the CIT Group/Equipment Financing, Inc.
("CIT") in May 1995. This arrangement consists of a series of loans for the
acquisition of production molds, high speed component preparation and filling
equipment and facility renovations not to exceed a maximum aggregate of $3
million. During the current year, STI received proceeds ($445,300) from CIT
for a second loan under this credit facility. Loan proceeds to date totalled
$1.5 million of which $1.3 million was outstanding at April 30, 1996, at a
weighted average interest rate of 8.8%.
BALANCE SHEET REVIEW
Working capital increased $587,900 (16%) to $4,256,200 at April 30, 1996 from
$3,668,300 at July 31, 1995. Receivables remained relatively constant
increasing $257,600 (4%) while inventory levels increased $352,200 (9%) in
support of higher sales levels anticipated for the fourth quarter. These
sales will include the new products introduced earlier in fiscal 1996, the
Epi E-Z Pen and the Diazepam auto-injectors. Prepaid expenses and other
current assets increased $100,500 (30%) primarily resulting from the
prepayment to the FDA for annual user fees. The deferred income tax asset
remained constant at $1,030,900.
Note payable to bank decreased $2.3 million (58%) during the first nine
months primarily from the liquidation of a DoD receivable late in the current
quarter for the DoD component prestocking program. These monies were
subsequently disbursed early in the fourth quarter to reduce the accounts
payable balance which had increased $1.7 million (171%) resulting mainly from
the acquisition of these military auto-injector specific components.
Proceeds from operations during the first nine months of fiscal 1996
contributed to the remaining decrease in note payable to bank as well as
providing the necessary funding to reduce the note payable to Syntex by
$600,000 (43%). Scheduled quarterly payments were made to Syntex. See
"Liquidity and Capital Resources" above.
Other long-term debt, including the current portion, remained relatively
constant increasing $42,400 (3%). Additional borrowings under the CIT loan
agreement were partially offset by payments made on the initial CIT loan (see
"Liquidity and Capital Resources") and capital lease obligations. Other
liabilities and accrued expenses increased $320,000 (26%) due in part to an
accrual for income taxes payable while the restructuring reserve increased
$27,000 (6%), net of employee severance payments associated with the
previously discussed organizational changes. Deferred revenue increased
$125,000 (50%) due to proceeds ($375,000) from Center partially offset by
recognition of the remaining revenue ($250,000) of a development contract
closed-out during the first quarter. The Company received an advance from
Center in the amount of $375,000 to assist in the capital investment program
associated with the Epi E-Z Pen. This will be paid back to Center through
credits on future product deliveries commencing in September 1996.
Capital expenditures totalled $1.4 million through the first nine months of
fiscal 1996 which consisted primarily of improvements designed to automate
and validate current production processes at the Company's St. Louis
manufacturing facility. The timing of capital expenditures to keep pace with
prior year levels is contingent on the Company's ability to identify outside
sources of capital. Shareholder's equity increased $895,600 (6%) on the
strength of net income for the nine months ended April 30, 1996.
10
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1996
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(3.1) Amended By-Laws through May 10, 1996. Filed herewith.
(27) Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K:
On March 20, 1996, the Company reported that the Estate of Stanley
J. Sarnoff ("Estate"), which owns approximately 61% of the Company's
outstanding stock, had entered into an agreement to sell such shares to
Brunswick Biomedical Corporation ("Brunswick").
On April 30, 1996, the Company reported a change in control in the
Registrant with the closing on April 15, 1996 of the above stock purchase
agreement to sell the Estate shares to Brunswick.
11
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1996
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SURVIVAL TECHNOLOGY, INC.
Registrant
June 14, 1996 By: /S/James H. Miller
- ------------- --------------------------
Date James H. Miller
President and
Chief Executive Officer
(Principal Executive
Officer)
June 14, 1996 By: /S/Jeffrey W. Church
- ------------- --------------------------
Date Jeffrey W. Church
Sr. Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
SURVIVAL TECHNOLOGY, INC.
EXHIBIT INDEX
FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1996
Exhibit No. Description of Exhibit
- ----------- ----------------------
(3.1) Amended By-Laws through May 10, 1996.
(27) Financial Data Schedule.