FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For quarterly period ended July 31, 1996
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 0-11571
AEQUITRON MEDICAL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1359703
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14800 28th Avenue North
Plymouth, Minnesota 55447
(Address of principal executive offices)
(Zip Code)
612/557-9200
(Issuer'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 and 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter periods 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.
Common Stock, $.01 Par Value--4,950,097 Shares as of September 12,
1996
INDEX
AEQUITRON MEDICAL, INC.
Part I. Financial Information Page No.
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets--
July 31, 1996 and April 30, 1996. 3-4
Condensed Consolidated Statements of
Income for the Three Months ended
July 31, 1996 and 1995. 5
Condensed Consolidated Statements of
Cash Flows for the Three Months ended
July 31, 1996 and 1995. 6
Notes to Condensed Consolidated Financial
Statements - July 31, 1996. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-9
Part II. Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit 11. Computation of Per Share Earnings 12
PART I. FINANCIAL INFORMATION
AEQUITRON MEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, April 30,
1996 1996
(Unaudited)
ASSETS
Current Assets:
Cash $ 3,236,500 $ 3,143,300
Accounts receivable 6,969,800 6,641,600
Inventories 4,649,400 4,313,800
Prepaid expenses 908,000 717,300
Deferred income taxes 717,300 558,900
Total Current Assets $ 16,481,000 $ 15,374,900
Property and equipment
Buildings 711,100 711,100
Equipment 4,879,100 4,815,600
Leasehold improvements 42,500 42,500
5,632,700 5,569,200
Less allowances for depreciation (3,667,300) (3,504,600)
------------ ------------
1,965,400 2,064,600
Other Assets
Goodwill, net of accumulated
amortization of $3,146,300 at
July 31, 1996 and $3,017,200
April 30, 1996 3,445,400 3,574,400
Demonstration, evaluation and
rental equipment 1,302,600 1,199,800
Other Assets 942,500 964,500
------------ ------------
5,690,500 5,738,700
Total Assets $ 24,136,900 $ 23,178,200
AEQUITRON MEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CON'T)
July 31, April 30,
1996 1996
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,212,700 $ 1,070,500
Employee compensation 1,060,900 1,311,900
Commissions payable 720,300 842,400
Other liabilities and accrued
expenses 1,354,600 1,246,400
Current maturities of long-term
debt 382,800 386,500
Income taxes payable 236,100 --
----------- -----------
Total Current Liabilities 4,967,400 4,857,700
Long-term debt 1,806,800 1,901,200
Shareholders' Equity:
Preferred stock, no par value per
share; authorized 4,000,000;
issued and outstanding - none
Common stock, par value $.01 per share;
authorized 15,000,000 shares; issued
July 31, 1996-- 4,945,800 shares;
April 30, 1996 -- 4,894,700 shares 49,500 48,900
Additional paid-in capital 6,096,000 5,984,600
Retained earnings 11,217,200 10,385,800
----------- -----------
Total shareholders' equity 17,362,700 16,419,300
Total Liabilities & Shareholders'
Equity $24,136,900 $23,178,200
AEQUITRON MEDICAL INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended July 31,
1996 1995
% of % of
Amount Sales Amount Sales
Net sales $ 10,489,700 100.0% $ 9,562,100 100.0%
Cost of sales 4,768,200 45.5% 4,266,300 44.6%
------------ ------- ------------ -------
Gross profit 5,721,500 54.5% 5,295,800 55.4%
Operating Expenses:
Selling & marketing 2,262,700 21.6% 1,841,500 19.3%
General &
administrative 1,436,300 13.7% 1,572,300 16.5%
Research & development 748,500 7.1% 739,100 7.7%
Other income (45,600) (0.5)% (45,200) 0.5%
------------ ------- ------------ -------
Total 4,401,900 41.9% 4,107,700 43.0%
Income before income
taxes 1,319,600 12.6% 1,188,100 10.7%
Income taxes 488,200 4.6% 463,400 4.8%
Net income $ 831,400 8.0% $ 724,700 7.6%
Earnings per share:
Net income per share $ .15 $ .14
Weighted average
number of share
outstanding 5,418,100 5,267,900
AEQUITRON MEDICAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED JULY 31,
1996 1995
OPERATING ACTIVITIES:
Net income $ 831,400 $ 724,700
Adjustments to reconcile to net
cash provided by (used in)
operating activities:
Depreciation 167,400 137,600
Amortization of goodwill and
other intangible assets 155,700 125,600
Provision for losses on
accounts receivable 4,500 45,600
Loss on sale of assets 300 0
Changes in operating assets and liabilities:
Accounts receivable (332,700) (1,986,700)
Inventories (335,600) 130,500
Rental equipment (102,800) 390,100
Accounts payable 142,200 (178,300)
Other assets & liabilities (382,500) 34,000
--------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 147,900 (576,900)
INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (68,600) (117,300)
Proceeds from disposal of equipment -- 400
Purchase of sleep diagnostic
product line -- (4,822,900)
--------- ---------
NET CASH USED IN
INVESTING ACTIVITIES (68,600) (4,939,800)
FINANCING ACTIVITIES:
Proceeds from long term borrowings -- 2,500,000
Repayments of long term debt (98,100) (8,400)
Proceeds from exercise of stock options 112,000 89,300
Purchases & retirement of common stock -- (178,900)
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 13,900 2,402,000
NET INCREASE (DECREASE) IN CASH 93,200 (3,114,700)
CASH AT BEGINNING OF PERIOD 3,143,300 4,986,800
---------- ---------
CASH AT END OF PERIOD $ 3,236,500 $ 1,872,100
---------- ---------
AEQUITRON MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 1996
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended July 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ended April 30, 1996. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended April 30, 1996.
NOTE B--INVENTORIES
The major classes of inventories consist of the following:
July 31, April 30,
1996 1996
Raw Materials $2,753,700 $2,600,300
Work In Progress 1,325,100 959,100
Finished Goods 570,600 754,400
--------- ---------
$4,649,400 $4,313,800
AEQUITRON MEDICAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of operations for the first quarter ended July 31, 1996, versus the
first quarter ended July 31, 1995, and analysis of financial condition as of
April 30, 1996.
RESULTS OF OPERATIONS
Net Sales
Net sales for the quarter ended July 31, l996, totaled $10,489,700, which
represents a 9.7% increase from the $9,562,100 in net sales reported for the
comparable period of the prior year. The increased sales are due in part to
increased domestic sales in the ventilator product line, and to the acquisition
of the sleep diagnostic product line in June 1995. Monitor sales were down from
prior year levels, but are expected to increase in the remaining three quarters
of fiscal 1997. The Company's subsidiary, Crow River Industries, also
experienced record sales for the first quarter. The Company expects
international sales to approximate last year's levels for the comparable
quarters. The Company believes sales in general will remain strong for the
balance of the fiscal year.
Cost of Sales
Gross margins as a percentage of net sales for the quarter ended July 31, 1996,
decreased to 54.5% from 55.4% for same period in fiscal 1995. The slight
decrease in gross margin is the result of a change in product mix from the prior
year. Margin levels are expected to remain at current levels for the balance of
the fiscal year.
Operating Expenses
Selling and marketing expenses for the quarter ended July 31, l996 increased
$421,200, or 22.9%, over the first quarter of last year, representing 21.6% of
net sales for the quarter ended July 31, 1996. The increase in expenses reflects
three months of expenses for the sleep diagnostic product line compared to only
two months in the prior year. Also, additional commission expense for increased
domestic sales and marketing expense related to the new sleep diagnostics
product line added to the increase. Sales and marketing expenses as a percentage
of sales are expected to remain at current levels for the remainder of the
fiscal year as additional emphasis is placed upon the marketing of the sleep
diagnostic product line.
General and administrative expenses for the quarter ended July 31, l996,
decreased $136,000, or 8.6%, compared to the first quarter last year. The
decrease in expenses reflects a reduction in general expenses, which last year
included relocation expense for a vice president and a write-off of a note
receivable. General and administrative expenses are expected to remain at
current levels for the remainder of the fiscal year.
Research and development expenses for the quarter ended July 31, l996, increased
9$9,400, or 1.3%, compared to the same period last year. The increase in
research and development expenditures in fiscal 1996 reflects the Company's
continued commitment for growth through expanded new product development
efforts. Research and development expenditures may increase marginally for the
balance of the fiscal year as new product development projects continue.
Interest expense for the quarter ended July 31, l996, increased $7,300 from the
first quarter of fiscal 1995 as a direct result of long-term borrowings used to
finance the acquisition of the sleep diagnostic product line. Other income
increased $7,700 from the same period last year due to additional earnings on
investments and accounts payable discounts.
Net Income
Net income for the quarter ended July 31, l996 was $831,400 which represents a
$106,700 increase compared with the same period a year ago. Net income per share
for the three months ended July 31, 1996 was $.15 per share, compared to $.14
per share for the comparable period last year. The effective tax rate for the
quarter ended July 31, 1996, was 37% compared to 39% for the same period last
year. The decreased tax rate is due to the increased effect of the Foreign Sales
Corporation.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased to $3,236,500 at July 31, 1996, from $3,143,300 at April 30,
1996. Operating activities provided cash of $147,900 during the first quarter
ended July 31, 1996, compared to using cash of $576,900 for the comparable prior
year period. The increase in operating cash flow resulted primarily from an
increase in earnings while accounts receivable, inventory and other assets
increased only by amounts which were offset by increased accounts payable
increase in net cash expense.
The maturity date of the Company's line of credit is October 31, 1996. The
Company believes that its internally generated funds and existing borrowing
potential will provide sufficient working capital to meet all present and
currently anticipated commitments.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material legal developments since the last report by
the Company.
Item 2. Changes in Securities
No changes have been made in any registered securities.
Item 3. Defaults Upon Senior Securities
No event constituting a default has occurred with respect to any senior
security of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of securities holders during the
first quarter of fiscal year 1997.
Item 5. Other Information
On September 10, 1996, the Company announced that it had entered into a
definitive merger agreement with Nellcor Puritan Bennett Incorporated
("Nellcor"), under which agreement the shareholders of the Company will
receive 0.4320 a share of Nellcor common stock for each share of
Aequitron common stock held by them. This is the equivalent of $10.75 a
share based on the closing price on September 9, 1996. The exchange
ratio is subject to adjustment based on the trading value of Nellcor
common stock for the 10-day period ending on the 5th trading day prior
to the special meeting of shareholders. The exchange ratio is fixed
within a range between $23.14 and $26.61 per share for Nellcor common
stock and is subject to a maximum ratio of 0.440. The definitive merger
agreement is subject to the approval of the Company's shareholders and
is subject to numerous conditions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 is filed with this Form 10-Q.
Exhibit 27 is filed with the electronic version of this Form 10-Q.
(b) No reports on Form 8-K were filed during the quarter ended July 31,
1996, however, a Form 8-K dated September 12, 1996, was filed to report
the proposed merger with Nellcor Puritan Bennett Incorporated.
This Form 10-Q includes certain forward looking statements that involve risks
and uncertainties that could cause actual results to differ materially from
those in the forward looking statements. Those risks have been specified in
previous filings with the SEC. In addition, the acquisition discussed in Item 5
is subject to several conditions, including approval by shareholders of the
Company, including approval by shareholders and requisite regulatory approvals.
Pursuant to the requirements of the Securities and Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AEQUITRON MEDICAL, INC.
(Registrant)
Dated: September 16, 1996 By /s/ James B. Hickey, Jr.
James B. Hickey, Jr.
President and Chief
Executive Officer
Dated: September 16, l996 By /s/ William M. Milne
William M. Milne
Chief Financial Officer