UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
__________________
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
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 0-23125
___________________________________
OSI SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
California 33-0238801
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
12525 Chadron Avenue
Hawthorne, California 90250
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 978-0516
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 as the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
YES X N0__
-
As of February 10, 2000 there were 9,287,838 shares of common stock outstanding.
OSI SYSTEMS, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 1999
and June 30, 1999 (Unaudited) 3
Consolidated Statements of Operations for the three and six months 4
ended December 31, 1999 and December 31, 1998 (Unaudited)
Consolidated Statements of Cash Flows for the six months
ended December 31, 1999 and December 31, 1998 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31, June 30,
1999 1999
------------ --------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,121 $ 7,241
Marketable securities available for sale - 1,708
Accounts receivable, net of allowance for doubtful accounts of $1,095 and $860
at December 31, 1999 and June 30, 1999, respectively 31,966 29,330
Other receivables 2,716 1,862
Inventory 27,239 24,481
Prepaid expenses 1,086 1,018
Deferred income taxes 1,212 1,108
Income taxes receivable 1,684 1,853
--------- ---------
Total current assets 74,024 68,601
Property and Equipment, Net 14,844 14,486
Intangible and Other Assets, Net 10,249 8,581
Deferred income taxes 1,703 1,703
--------- ---------
Total $100,820 $93,371
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank lines of credit $ 4,105 $ 8,678
Current portion of long-term debt 2,812 292
Accounts payable 10,576 9,145
Accrued payroll and related expenses 1,929 2,399
Income taxes payable 1,280 717
Advances from customers 766 996
Accrued warranties 1,906 1,984
Other accrued expenses and current liabilities 3,668 2,922
--------- ---------
Total current liabilities 27,042 27,133
Long-Term Debt 9,706 117
Deferred Income Taxes 322 339
Minority interest 439 0
--------- ---------
Total liabilities 37,509 27,589
Shareholders' Equity
Preferred stock, no par value; authorized, 10,000,000 shares; none issued
and outstanding at December 31, 1999 and June 30, 1999, respectively
Common stock, no par value; authorized, 40,000,000 shares; issued and outstanding
9,739,195 and 9,732,415 shares at December 31, 1999 and June 30, 1999, respectively 49,256 49,230
Treasury stock, at cost (2,258) (438)
Retained earnings 16,934 18,160
Accumulated other comprehensive income (621) (1,170)
--------- ---------
Total shareholders' equity 63,311 65,782
--------- ---------
Total $100,820 $93,371
========= =========
See accompanying notes to consolidated financial statements
-3-
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
Three months ended December 31, Six months ended December 31,
------------------------------------ ----------------------------
1999 1998 1999 1998
-------------- ------------- ----------- ------------
Revenues $ 26,507 $ 24,847 $ 51,462 $ 46,251
Cost of goods sold 19,441 17,424 37,200 32,412
-------------- ------------- ----------- ------------
Gross profit 7,066 7,423 14,262 13,839
Operating expenses:
Selling, general and administrative 5,055 3,387 10,238 6,749
Research and development 1,872 1,559 3,509 2,583
Goodwill amortization 137 161 264 188
Restructuring costs - - 1,898 -
In process research and development - 2,579 - 2,579
-------------- ------------- ----------- ------------
Total operating expenses 7,064 7,686 15,909 12,099
-------------- ------------- ----------- ------------
Income (loss) from operations 2 (263) (1,647) 1,740
Interest expense (income), net 176 (83) 299 (250)
Gain on sale of marketable securities (309) - (309) -
-------------- ------------- ----------- ------------
Income (loss) before provision for income taxes
and minority interest 135 (180) (1,637) 1,990
Provision (benefit) for income taxes 78 423 (313) 933
-------------- ------------- ----------- ------------
Income (loss) before minority interest in net loss of
subsidiary 57 (603) (1,324) 1,057
Minority interest in net loss of subsidiary 98 - 98 -
-------------- ------------- ----------- ------------
Net income (loss) $ 155 $ (603) $ (1,226) $ 1,057
============== ============= =========== ============
Earnings (loss) per common share $ 0.02 $ (0.06) $ (0.13) $ 0.11
============== ============= =========== ============
Earnings (loss) per common share,assuming dilution $ 0.02 $ (0.06) $ (0.13) $ 0.11
============== ============= =========== ============
See accompanying notes to consolidated financial statements
-4-
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six months ended December 31,
------------------------------------
1999 1998
----------------- ----------------
Cash flows from operating activities:
Net (loss) income ($1,226) $1,057
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Provision for losses on accounts receivable 13
Depreciation and amortization 2,057 1,568
Charge for in-process research and development - 2,579
Deferred income taxes (17) -
Gain on sale of marketable securities available for sale (309) -
Changes in operating assets and liabilities:
Accounts receivable (2,745) (2,511)
Other receivables (571) (993)
Inventory (2,928) (740)
Prepaid expenses (83) (323)
Accounts payable 1,298 (1,604)
Accrued payroll and related expenses (388) (761)
Income taxes payable 567 (461)
Increase in prepaid income taxes receivable 238 -
Advances from customers (239) (386)
Accrued warranty (82) (46)
Other accrued expenses and current liabilities 617 111
----------------- ----------------
Net cash used in operating activities (3,811) (2,497)
----------------- ----------------
Cash flows from investing activities:
Additions to property and equipment (1,628) (2,291)
Proceeds from sale of marketable securities 2,505 -
Decrease in equity investments 95 -
Cash paid for business acquisitions, net of cash acquired (1,342) (16,619)
Other assets 12 (475)
----------------- ----------------
Net cash used in investing activities (358) (19,385)
----------------- ----------------
Cash flows from financing activities:
Increase in minority interest (98) -
Net (payment to) proceeds from bank lines of credits (4,575) 11,783
Net proceeds (payments) on long-term debt 11,410 (399)
Proceeds from exercise of stock options and warrants 26 51
Treasury stock (1,820) -
----------------- ----------------
Net cash provided by financing activities 4,943 11,435
----------------- ----------------
Effect of exchange rate changes on cash 106 (98)
----------------- ----------------
Net increase (decrease) in cash and cash equivalents 880 (10,545)
Cash and cash equivalents, beginning of period 7,241 22,447
----------------- ----------------
Cash and cash equivalents, end of period $8,121 $11,902
================= ================
Supplemental disclosures of cash flow information - Cash paid/(received) during
the period for:
Interest $255 ($193)
Income taxes ($989) $1,315
See accompanying notes to consolidated financial statements
-5-
OSI SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General. OSI Systems, Inc. and its subsidiaries (collectively, the "Company") is
a vertically integrated worldwide provider of devices, subsystems and end-
products based on optoelectronic and silicon pressure-sensor micro-structure
technology. The Company designs and manufactures optoelectronic and silicon
pressure-sensor devices and value-added subsystems for original equipment
manufacturers in a broad range of applications, including security, medical
diagnostics, telecommunications gigabit ethernet and fibre channel systems,
gaming, office automation, aerospace, computer peripherals and industrial
automation. In addition, the Company utilizes its optoelectronic technology and
design capabilities to manufacture security and inspection products that it
markets worldwide to end users under the "Rapiscan", "Secure" and "Metor" brand
names. These products are used to inspect people, baggage, cargo and other
objects for weapons, explosives, drugs and other contraband. The Company also
manufactures and sells bone densitomers, which are used to provide bone loss
measurements in the treatment and diagnosis of osteoporosis.
Consolidation. The consolidated financial statements include the accounts of OSI
Systems, Inc. and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
consolidated balance sheet as of December 31, 1999, the consolidated statements
of operations for the three-month and six-month periods ended December 31, 1999
and 1998 and the consolidated statements of cash flows for the six month periods
ended December 31, 1999 and 1998 have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. However, in the opinion of management all adjustments,
consisting of only normal and recurring adjustments, necessary for a fair
presentation of the financial position and the results of operations for the
periods presented have been included. These consolidated financial statements
and the accompanying notes should be read in conjunction with the audited
consolidated financial statements and accompanying notes for the fiscal year
ended June 30, 1999 included in the Company's Annual Report on Form 10K as filed
with the Commission on September 28, 1999. The results of operations for the six
months ended December 31, 1999 are not necessarily indicative of the results to
be expected for the fiscal year ending June 30, 2000.
-6-
Recent Developments. On October 4, 1999, the Company acquired an additional
equity interest, representing 15.3% of the stock ownership of TFT Medical, Inc.
("TFT") for $1.2 million, including professional fees associated with the
acquisition. With this additional equity investment, the Company has increased
its equity share in TFT to 55.6% and changed the accounting from the equity
method to the purchase method of accounting. The excess of the purchase price
over the fair value of the net assets acquired is being amortized over a period
of twenty years.
In July 1999, the Company paid $4.4 million Finnish markka (approximately
$767,000 on July 31, 1999), in lieu of a contingent payment, based on future
sales of up to $1.5 million for the acquisition of Metorex Security. The payment
was recorded as goodwill.
Foreign Exchange Investments. The Company's use of derivatives is limited to the
purchase of foreign exchange contracts in order to minimize foreign exchange
transaction gains and losses. The Company purchases forward contracts to hedge
commitments to acquire inventory for sale and does not use the contracts for
trading purposes. Realized gains and losses on these contracts are recognized in
the same period as the hedged transactions. The forward exchange contracts
related to inventory purchases are recognized as adjustments to the basis of the
underlying assets. As of December 31, 1999 and June 30, 1999, there was
approximately $1.7 million and $200,000, respectively, in outstanding foreign
exchange contracts. At December 31, 1999 and June 30, 1999, there were no
carrying amounts related to foreign currency contracts on the consolidated
balance sheets. The fair values of foreign exchange contracts are estimated by
obtaining quotes from brokers. At December 31, 1999 and June 30, 1999, the
carrying amount and fair value of these contracts were not material to the
consolidated financial statements.
Inventory. Inventory is stated at the lower of cost or market; cost is
determined on the first-in, first-out method. Inventory at December 31, 1999 and
June 30, 1999 consisted of the following (in thousands):
December 31, June 30,
1999 1999
Raw Materials.................................. $14,820 $11,963
Work-in-process................................ 6,736 8,000
Finished goods................................. 5,683 4,518
------- -------
Total................................... $27,239 $24,481
======= =======
Earnings Per Share. Earnings per common share is computed using the weighted
average number of shares outstanding during the period. Earnings per common
share-assuming dilution, is computed using the weighted average number of shares
outstanding during the period and dilutive common stock equivalents from the
Company's stock option plans.
The following table reconciles the numerator and denominator used in calculating
earnings per common share and earnings per common share-assuming dilution.
-7-
For the Quarter ended December 31,
-------------------------------------------------
1999 1998
---------- -----------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Earnings per common share
Income available to
common stockholders $155,000 9,320,695 $0.02 $(603,000) 9,712,540 ($0.06)
=========== ========
Effect of Dilutive Securities
Options, treasury stock method 72,853 0
-------------------------- ---------------------------
Earnings per common share assuming dilution
Income available to common
stockholder, assuming dilution $155,000 9,393,548 $0.02 $(603,000) $9,712,540 ($0.06)
====================================== ======================================
For the six months ended December 31,
---------------------------------------------
1999 1998
------------ ------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator (Denominator) Amount
Earnings per common share
Income available to
common stockholders ($1,226,000) 9,421,195 ($0.13) $1,057,000 9,702,853 $0.11
=========== ========
Effect of Dilutive Securities
Options, treasury stock method 0 150,178
============================ ========================
Earnings per common share assuming dilution
Income available to common
stockholder, assuming dilution $(1,226,000) 9,421,195 $(0.13) $1,057,000 9,853,031 $0.11
=============================================================================
Comprehensive Income - In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No.
130 "Reporting for Comprehensive Income" (SFAS No. 130), which the Company adopted in the first quarter of fiscal 1999. SFAS No.130
establishes standards for reporting and displaying comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is computed as follows (in thousands):
For the quarter For the six months
ended December 31, ended December 31,
1999 1998 1999 1998
------------------- ----------------------
Net income $155 ($603) ($1,226) $1,057
------------------- ----------------------
Other comprehensive income, net of taxes:
Foreign currency translation adjustments (431) (119) 63 (222)
Unrealized gains on marketable securities available for sale 427 - 486 -
------------------- ----------------------
Other comprehensive income (4) (119) 549 (222)
------------------- ----------------------
Comprehensive income $151 ($722) ($677) $835
=================== ======================
-8-
Segment Information. The company's operating locations include the North America
(United States and Canada), Europe (United Kingdom, Denmark, Finland and Norway)
and Asia (Singapore and Malaysia). The company's operations by geographical
areas are as follows (in thousands):
Three months ended December, 1999
----------------------------------------------------------------
North
America Europe Asia Eliminations Consolidated
----------------------------------------------------------------
Revenues $ 14,798 $ 9,166 $ 2,543 $ - $ 26,507
Transfer between geographical areas $ 15,004 $ 1,199 $ 5,264 $ (21,467) $ -
----------------------------------------------------------------
Net revenues $ 29,802 $10,365 $ 7,807 $ (21,467) $ 26,507
================================================================
Operating income (loss) $ (1,041) $ 298 $ 1,382 $ (637) $ 2
================================================================
Six months ended December, 1999
----------------------------------------------------------------
North
America Europe Asia Eliminations Consolidated
----------------------------------------------------------------
Revenues $ 30,282 $ 17,233 $ 3,947 $ - $ 51,462
Transfer between geographical areas $ 17,018 $ 2,169 $ 10,646 $ (29,833) $ -
----------------------------------------------------------------
Net revenues $ 47,300 $ 19,402 $ 14,593 $ (29,833) $ 51,462
================================================================
Operating income (loss) $ (2,142) $ (1,431) $ 2,708 $ (782) $ (1,647)
================================================================
Three months ended December, 1998
----------------------------------------------------------------
North
America Europe Asia Eliminations Consolidated
----------------------------------------------------------------
Revenues $ 16,034 $ 7,727 $ 1,086 $ - $ 24,847
Transfer between geographical areas $ 1,301 $ 1,422 $ 2,670 $ (5,393) $ -
----------------------------------------------------------------
Net revenues $ 17,335 $ 9,149 $ 3,756 $ (5,393) $ 24,847
================================================================
Operating income (loss) $ 1,537 $ (3,502) $ 1,705 $ (3) $ (263)
================================================================
Six months ended December, 1998
----------------------------------------------------------------
North
America Europe Asia Eliminations Consolidated
----------------------------------------------------------------
Revenues $ 29,396 $ 14,366 $ 2,489 - $ 46,251
Transfer between geographical areas $ 2,391 $ 1,542 $ 5,611 $ (9,544) $ -
----------------------------------------------------------------
Net revenues $ 31,787 $ 15,908 $ 8,100 $ (9,544) $ 46,251
================================================================
Operating income (loss) $ 2,483 $( 2,432) $ 1,800 $ (111) $ 1,740
================================================================
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Statements in this report that are forward-looking are based on current
expectations, and actual results may differ materially. Forward-looking
statements involve numerous risks and uncertainties that could cause actual
results to differ materially, including, but not limited to, the possibilities
that the demand for the Company's products may decline as a result of possible
changes in general and industry specific economic conditions and the effects of
competitive pricing and such other risks and uncertainties as are described in
this report on Form 10-Q and other documents previously filed or hereafter filed
by the Company from time to time with the Securities and Exchange Commission.
Results of Operations
Revenues. Revenues consist of sales of optoelectronic and pressure sensor
devices, medical imaging systems and security and inspection products. Revenues
are recorded net of all inter-company transactions. Revenues increased by 6.7%
to $26.5 million for the three months ended December 31, 1999, compared to $24.8
million for the comparable prior year period. For the six months ended December
31, 1999, revenues increased by 11.3% to $51.5 million from $46.3 million in the
comparable prior year period. Revenues for the three months ended December 31,
1999 from optoelectronic devices, subsystems and medical imaging systems were
$15.0 million, or approximately 56.7% of the Company's revenues, and revenues
from security and inspection products were $11.5 million, or approximately 43.3%
of the Company's revenues. Revenues for the six months ended December 31, 1999
from optoelectronic devices, subsystems and medical imaging systems were $28.8
million, or approximately 55.9% of the Company's revenues, and revenues from
security and inspection products were $22.7 million, or approximately 44.1% of
the Company's revenues. The increase in revenues from sales of optoelectronic
devices, subsystems and medical imaging systems for the quarter and six months
ended December 31, 1999 was primarily due to increased sales of silicon pressure
sensors through the recent acquisition of Silicon Microstructures, Inc ("SMI")
and sales through the introduction of new product for the data/video projection
market and was partially offset by a decrease in sales to the oil exploration
industry. The increase in revenues from the sale of security and inspection
products for the quarter and six months ended December 31, 1999 was primarily
due to sales of walk-through metal detection systems through the recent
acquisition of the security product business of Metorex International Oy
("Metorex Security").
Gross Profit. Cost of goods sold consists of material, labor and manufacturing
overhead. Gross profit decreased by 4.8% to $7.1 million for the three months
ended December 31, 1999, compared to $7.4 million for the comparable prior year
period. For the six months ended December 31, 1999, gross profit increased by
3.1% to $14.3 million, compared to $13.8 million for the comparable prior year
period. As a percentage of revenues, gross profit decreased in the quarter and
six months to 26.7% and 27.7% this year, from 29.9%
-10-
and 29.9% last year, respectively. The decrease in gross profit was due to
product mix and manufacturing inefficiencies due to acquisitions. The Company
has entered into a new product line for the sale of data/video projectors, which
has a lower gross margin and insignificant selling, general and administrative
expenses and research and development expenses associated with it.
Selling, General and Administrative. Selling, general and administrative
expenses consisted primarily of compensation paid to sales, marketing and
administrative personnel, and professional service fees and marketing expenses.
For the three months ended December 31, 1999, such expenses increased 49.2% to
$5.1 million, compared to $3.4 million for the comparable prior year period. For
the six months ended December 31, 1999, such expenses increased by 51.7% to
$10.2 million, compared to $6.7 million for the comparable prior year period. As
a percentage of revenues, selling, general and administrative expenses and
increased in the quarter and six months to 19.1% and 19.9% this year, from 13.6%
and 14.6% last year, respectively. The increase in expenses for the quarter and
six months was due primarily to the increased legal and professional fees,
increased administrative expenses, and increased marketing expenses for the
sales of medical products. Selling, general and administrative expenses for the
three and six months ended December 31, 1998 were offset in part by a reduction
in legal expenses due to the settlement of certain material litigation and pay
cuts by senior management. In addition, the increase in expenses for the six
months ended December 31, 1999, was due to the increase in provision for
doubtful receivables and inclusion of entire six month's, selling, general and
administrative expenses of recent acquisitions. For the three and six month's
ended December 31, 1999, $1.1 million and $2.2 million, compared to $1.1 million
and $1.2 million, last year, respectively, of selling, general and
administrative expenses of recent acquisitions were included in the Company's
consolidated financials.
Research and Development. Research and development expenses include research
related to new product development and product enhancement expenditures. For the
three months ended December 31, 1999, such expenses increased 20.1% to $1.9
million, compared to $1.6 million for the comparable prior year period. For the
six months ended December 31, 1999, such expenses increased 35.8% to $3.5
million, compared to $2.6 million for the comparable prior year period. As a
percentage of revenues, research and development expenses increased in the three
month and six month periods to 7.1% and 6.8% this year from 6.3% and 5.6% last
year, respectively. The increase in expenses for the quarter and six months was
due primarily to the increase in personnel costs resulting from the Company's
recently acquired subsidiaries, and continued enhancement of Rapiscan x-ray
systems. For the three and six months ended December 31, 1999, the Company's
majority owned subsidiary, TFT, incurred $172,000 for the development of medical
products with no revenues. In addition, entire six month's research and
development costs of acquired companies were included in the six months ended
December 31, 1999. For the three and six months ended December 31, 1999,
$703,000 and $1.2 million, compared to $521,000 and $585,000, last year,
respectively, of research and development expenses incurred by the acquired
companies were included in the Company's consolidated financial statements.
-11-
Goodwill Amortization. Amortization of goodwill decreased to $137,000 for the
three months ended December 31, 1999 from $161,000 for the three months ended
December 31, 1998. Amortization of goodwill increased to $264,000 in the six
months ended December 31, 1999 from $188,000 in the six months ended December
31, 1998. The decrease in amortization of goodwill in the three months ended
December 31, 1999 was the net result of a one time write-off of goodwill due to
the closure of the Company's Denmark facility and partially offset by the
inclusion of goodwill associated with the acquisition of TFT and an additional
payment associated with the acquisition of Metorex Security. The increase in
amortization of goodwill for the six month's ended December 31, 1999 was due to
amortization of goodwill associated with the Company's recently acquired
subsidiaries. In the prior periods, goodwill amortization was included as a
component of selling, general and administrative expenses.
Restructuring Costs. In August 1999, the Company decided to close the operations
of Osteometer in Denmark, and relocate certain of these operations to the
Company's U.S. facilities. In the quarter ended September 30, 1999, the Company
recorded estimated restructuring costs of $1.9 million related to the closure of
the Osteometer facility in Denmark. These costs were associated primarily with
the termination of certain employees, commitments and other facility closure
costs. Of that amount, $1.5 million was paid during the six months ended
December 31, 1999 and $442,000 was included in other accrued expenses and
current liabilities at December 31, 1999. The restructuring costs include
$698,000, attributable to employee termination benefits for approximately 32
employees, of which $655,000 was paid during the six months ended December 31,
1999 and $43,000 is included in other accrued expenses and current liabilities.
Based on current estimates, the Company anticipates that the current
restructuring accruals are sufficient.
Gain on Marketable Securities. Gain on the sale of marketable securities for the
quarter and six months ended December 31, 1999, consisted of realized gain on
the sale of marketable securities available for sale.
Income (Loss) from Operations. For the three months ended December 31, 1999, the
Company had income from operations of $2,000 compared to loss from operations of
$263,000 for the three months ended December 31, 1998. Loss from operations for
the six months ended December 31, 1999 was $1.6 million, compared to income from
operations of $1.7 million for the comparable prior year period. Excluding the
non-recurring restructuring costs of $1.9 million in the quarter ended September
30, 1999 and a non-recurring in-process research and development charge of $2.6
million in the quarter ended December 31, 1998, income from operations for three
and six months decreased to $2,000 and $251,000 this year, from $2.3 million and
$4.3 million, last year, respectively. As a percentage of revenues, income from
operations decreased in the three months and six month periods to 0% and 0.5%
this year, from 9.3% and 9.3% last year, respectively. Income from operations
decreased due to product mix, increased selling, general and administrative
expenses and increased research and development expenses.
-12-
Interest Expense (Income). For the three months ended December 31, 1999, the
Company incurred net interest expense of $176,000, compared to net interest
income of $83,000 for the three months ended December 31, 1998. For the six
months ended December 31, 1999, the Company incurred net interest expense of
$299,000, compared to net interest income of $250,000 for the six months ended
December 31, 1998. The net interest expense for the three and six months ended
December 31, 1999 was due to increased borrowing on the Company's lines of
credit and a reduction in short term investments used for working capital and
acquisitions.
Provision (Benefit) for Income Taxes. Provision for income taxes decreased to
$78,000 for the three months ended December 31, 1999, compared to $423,000 for
the three months ended December 31, 1998. For the six months ended December 31,
1999, the Company had an income tax benefit of $313,000 compared to a provision
for income taxes of $933,000 for the six months ended December 31, 1998.
Excluding a majority owned subsidiary loss of $220,000 in the three months ended
December 31, 1999, as a percentage of income before provision for income taxes,
provision for income taxes was 22.0% for the three months ended December 31,
1999 compared to 17.6% for the three months ended December 31, 1998. Excluding
the non-recurring, in-process research and development charge of $2.6 million in
the six months ended December 31, 1998, as a percentage of loss before benefit
for income taxes, the benefit for income taxes was 22.1% for the six months
ended December 31, 1999 compared to a provision for income taxes of 20.4% as a
percentage of income before provision of income taxes for the six months ended
December 31, 1998. The change in the Company's effective tax rate was due to a
mix in income from U.S. and foreign operations.
Net Income (Loss). For the reasons outlined above, the Company had a net income
of $155,000 and net loss of $1.2 million for the three and six months ended
December 31, 1999, compared to a net loss of $603,000 and net income of $1.1
million for the three and six months ended December 31, 1998, respectively. Six
months ended December 31, 1999 included non-recurring restructuring costs of
$1.9 million ($1.5 million net of income taxes) and three and six months ended
December 31, 1998 included a non-recurring in process research and development
charges of $2.6 million.
Liquidity and Capital Resources
The Company's operations used net cash of $3.8 million during the six months
ended December 31, 1999. The amount of net cash used by operations reflects
increases in accounts receivable, other receivables, inventory, prepaid
expenses, and reductions in accrued payroll and related expenses, and advances
from customers. Net cash used in operations was offset in part by an increase in
accounts payable, income taxes payable, and other accrued expenses and current
liabilities. The increase in accounts receivable is mainly due to the increased
sales, timing of shipments of certain large contracts and increase in inventory
is due to increase in shipments and product mix.
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Net cash used in investing activities was $358,000 and $19.4 million for the six
months ended December 31, 1999 and 1998, respectively. In the six month period
ended December 31, 1999, net cash used in investing activities reflects
primarily cash used in business acquisitions and the purchase of property and
equipment and was offset in part by the sale of marketable securities. In the
six months ended December 31, 1998, the net cash used in investing activities
reflects primarily cash used in business acquisitions and the purchase of
property and equipment.
Net cash provided by financing activities was $4.9 million and $11.4 million for
the six months ended December 31, 1999 and 1998, repectively. During the six
months ended December 31, 1999, net cash provided by financing activities
resulted primarily from borrowings under the Company's term loan and working
capital lines of credit and was offset in part by the purchase of treasury
stock.
In October 1999, the Company borrowed $3.0 million from its term loan facility
with Sanwa Bank. The term loan amortizes over seven years and is payable monthly
over five years. The balance is due in one balloon payment after five years. In
November 1999, the Company converted $8.5 million of borrowings from its
acquisition line of credit to a term loan, for a period of 48 months. For the
six months ended December 31, 1998, net cash provided by financing activities
resulted primarily from the Company's acquisition and working capital lines of
credit.
The March 1999, the Company announced a stock repurchase program of up to
2,000,000 shares of its common stock. Through February 10, 2000, the Company
repurchased 490,500 shares at an average price $4.60 per share. The stock
repurchase program did not have a material effect on the Company's liquidity and
is not expected to have a material effect on liquidity in subsequent quarters.
The Company anticipates that current cash balances, anticipated cash flows from
operations and current borrowing arrangements will be sufficient to meet its
working capital and capital expenditure needs for the foreseeable future.
Foreign Currency Translation. The accounts of the Company's operations in
Singapore, Malaysia, England, Norway, Denmark, Finland and Canada are maintained
in Singapore dollars, Malaysian ringgits, U.K. pounds sterling, Norwegian
kroner, Danish kroner, Finnish markka and Canadian dollars, respectively.
Foreign currency financial statements are translated into U.S. dollars at
current rates, with the exception of revenues, costs and expenses, which are
translated at average rates during the reporting period. Gains and losses
resulting from foreign currency transactions are included in income, while those
resulting from translation of financial statements are excluded from income and
accumulated as a component of accumulated other comprehensive income. Net
transaction loss of approximately $67,000 and $284,000 were included in income
for the six months ended December 31, 1999 and 1998, respectively.
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Inflation. The Company does not believe that inflation has had a material impact
on its results of operations for the six months ended December 31, 1999.
Year 2000 Compliance
The Company experienced no business operation interruptions due to computer or
related system failures during the roll-over period from the year 1999 to the
year 2000. The Company has to date experienced no delay in payments, receipt of
materials or interruption of services due to year 2000 difficulties experienced
by its customers, trading partners and vendors.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders on November 17, 1999, the following
actions were taken:
1. Election of Directors
Name For Withheld
---- --- --------
Deepak Chopra 8,596,987 28,885
Ajay Mehra 8,596,987 28,885
Steven C. Good 8,596,897 28,885
Meyer Luskin 8,596,897 28,885
Madan G. Syal 8,596,897 28,885
2. Ratification of Deloitte & Touche L.L.P. as independent auditors for
the year ending June 30, 2000.
For 8,611,632
Against 7,550
Abstain 6,690
Item 6. Exhibits and Reports of Form 8-K
a. Exhibits
27. Financial Data Schedule
b. Reports on Form 8-K
None
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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, in the City of Hawthorne, State of
California on the 14th day of February 2000.
OSI Systems, Inc.
-----------------
By: /s/ Deepak Chopra
--------------------------
Deepak Chopra
President and
Chief Executive Officer
By: /s/ Ajay Mehra
--------------------------
Ajay Mehra
Vice President and
Chief Financial Officer
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