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 March 31, 2001
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 May 10, 2001 there were 8,916,968 shares of common stock outstanding.
OSI SYSTEMS, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets at March 3
31, 2001 and June 30, 2000
Consolidated Statements of Operations 4
for the three and nine months ended
March 31, 2001 and March 31, 2000
Consolidated Statements of Cash Flows 5
for the nine months ended March 31,
2001 and March 31, 2000
Notes to Consolidated Financial 6
Statements
Item 2 - Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 15
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
March 31, June 30,
2001 2000
------------ -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 7,604 $ 10,892
Accounts receivable, net of allowance for doubtful accounts of $1,043 and $855
at March 31, 2001 and June 30, 2000, respectively 30,017 29,890
Current portion of note receivable 1,130
Other receivables 1,809 2,184
Inventory 31,756 30,920
Prepaids 1,720 821
Deferred income taxes 1,921 1,807
Income taxes receivable 253 193
-------------- --------------
Total current assets 76,210 76,707
Property and Equipment, Net 13,491 14,248
Intangible and Other Assets, Net 8,800 9,052
Deferred Income Taxes 3,016 3,016
-------------- --------------
Total $101,517 $103,023
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank lines of credit $ 3,532 $ 6,079
Current portion of long-term debt 2,663 2,641
Accounts payable 10,138 12,728
Accrued payroll and related expenses 2,879 2,270
Income taxes payable 3,687 1,586
Advances from customers 2,209 558
Accrued warranties 1,716 1,805
Other accrued expenses and current liabilities 3,208 3,141
-------------- --------------
Total current liabilites 30,032 30,808
Long-Term Debt 7,662 7,698
Deferred Income Taxes 162 164
Minority interest 146
-------------- --------------
Total liabilities 37,856 38,816
Shareholders' Equity
Preferred stock, no par value; authorized, 10,000,000 shares; none issued and
outstanding at March 31, 2001 and June 30, 2000, respectively
Common stock, no par value; authorized, 40,000,000 shares; issued and
outstanding 8,916,968 and 9,349,750 shares at March 31, 2001 and June 30,
2000, respectively 45,373 47,357
Retained earnings 21,173 18,787
Accumulated other comprehensive loss (2,885) (1,937)
-------------- --------------
Total shareholders' equity 63,661 64,207
-------------- --------------
Total $101,517 $103,023
============== ==============
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 March 31, Nine months ended March 31,
---------------------------- ---------------------------
2001 2000 2001 2000
---------- ----------- ---------- -----------
Revenues $ 29,379 $ 31,776 $ 82,259 $ 83,238
Cost of goods sold 21,506 23,427 59,493 60,627
---------- ---------- ---------- ----------
Gross profit 7,873 8,349 22,766 22,611
Operating expenses:
Selling, general and administrative 5,258 4,928 16,458 15,166
Research and development 1,765 2,091 4,982 5,600
Goodwill amortization 132 134 389 398
Restrcuturing costs 1,898
---------- ---------- ---------- ----------
Total operating expenses 7,155 7,153 21,829 23,062
---------- ---------- ---------- ----------
Income (loss) from operations 718 1,196 937 (451)
Interest expense, net 276 201 865 500
Gain on sale of subsidiary (2,967) (2,967)
Gain on sale of marketable securities (309)
---------- ---------- ---------- ----------
Income (loss) before provision for income taxes and
minority interest 3,409 995 3,039 (642)
Provision (benefit) for income taxes 869 284 799 (29)
---------- ---------- ---------- ----------
Income (loss) before minority interest in net loss
of subsidiary 2,540 711 2,240 (613)
Minority interest in net loss of subsidiary 130 146 228
---------- ---------- ---------- -----------
Net income (loss) $ 2,540 $ 841 $ 2,386 ($385)
========== ========== ========== ===========
Earnings (loss) per common share $ 0.28 $ 0.09 $ 0.26 ($0.04)
========== ========== ========== ===========
Earnings (loss) per common share,assuming dilution $ 0.28 $ 0.09 $ 0.26 ($0.04)
========== ========== ========== ===========
Weighted average shares outstanding 9,007,468 9,310,074 9,209,289 9,384,155
========== ========== ========== ===========
Weighted average shares outstanding -assuming dilution 9,032,638 9,614,631 9,225,122 9,384,155
========== ========== ========== ===========
See accompanying notes to consolidated financial statements
-4-
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months ended March 31,
---------------------------
2001 2000
---------- ---------
Cash flows from operating activities:
Net Income (loss) $ 2,386 ($385)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 3,359 3,110
Loss on sale of property and equipment 140 15
Deferred income taxes (244) (17)
Gain on sale of subsidiary (2,967)
Gain on sale of marketable securities available for sale (309)
Minority interest in net loss of subsidiary (146) (228)
Changes in operating assets and liabilities:
Accounts receivable (2,161) (6,862)
Other receivables 350 174
Inventory (4,254) (4,688)
Prepaids (972) (467)
Accounts payable (1,862) 4,152
Accrued payroll and related expenses 818 327
Income taxes payable 2,142 926
Income taxes receivable (36) 125
Advances from customers 1,670 (166)
Accrued warranties (78) (108)
Other accrued expenses and current liabilities 109 1,019
----------- --------
Net cash used in operating activities (1,746) (3,382)
----------- --------
Cash flows from investing activities:
Purchases of property and equipment (3,017) (2,350)
Proceeds from sale of property and equipment 496 6
Proceeds from sale of marketable securities available for sale 2,505
(Increase) decrease in equity investments (121) 93
Cash received for business disposition, net of disposition costs 5,961
Cash paid for business acquisitions, net of cash acquired (442) (1,325)
Cash received on note receivable 250
Other assets (201) (28)
----------- --------
Net cash provided by (used in) investing activities 2,926 (1,099)
----------- --------
Cash flows from financing activities:
Net payment to bank lines of credits (2,506) (4,567)
Net (payments) proceeds on long-term debt (7) 10,015
Proceeds from exercise of stock options and warrants 58 342
Purchase of treasury stock (2,042) (1,820)
----------- --------
Net cash (used in) provided by financing activities (4,497) 3,970
----------- --------
Effect of exchange rate changes on cash 29 11
----------- --------
Net decrease in cash and cash equivalents (3,288) (500)
Cash and cash equivalents, beginning of period 10,892 7,241
----------- --------
Cash and cash equivalents, end of period $ 7,604 $ 6,741
=========== ========
Supplemental disclosures of cash flow information - Cash paid/(received) during the period for:
Interest $ 745 $ 467
Income taxes ($1,316) ($943)
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 technology. The Company designs and
manufactures optoelectronic and devices and value-added subsystems for original
equipment manufacturers in a broad range of applications, including security,
medical diagnostics, telecommunications, gigabit ethernet and fiber optics,
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 densitometers, which are used to provide bone loss
measurements in the 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 March 31, 2001, the consolidated statements of
operations for the three-month and nine-month periods ended March 31, 2001 and
2000 and the consolidated statements of cash flows for the nine month periods
ended March 31, 2001 and 2000 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, 2000
included in the Company's Annual Report on Form 10K as filed with the Commission
on September 27, 2000. The results of operations for the nine months ended March
31, 2001 are not necessarily indicative of the results to be expected for the
fiscal year ending June 30, 2001. Certain amounts related to the prior periods
have been reclassified to confirm to the current year presentation.
-6-
Recent Developments - In August 2000, the Company acquired substantially all the
assets of Square One Technology for total consideration consisting of: $228,000
in cash, a $30,000 advance for future royalties, the return of the Square One
stock held by the Company with a carrying value of $259,000, and an agreement to
pay royalties equal to ten percent of net sales of the Square One products in
the next five years, up to a maximum of $1.0 million. The cash consideration of
$228,000 approximates the fair value of the tangible assets acquired.
In September 2000, the Company acquired an additional equity interest,
representing approximately 10% of the ownership of OSI Medical Inc., for
$183,000. This amount was recorded as goodwill based on the estimated fair value
of the underlying net assets and is being amortized over a period of twenty
years. With this additional equity investment, the Company increased its common
stock ownership in OSI Medical Inc. to approximately 64%.
The Company sold all of the outstanding stock of its wholly owned subsidiary,
Silicon Microstructures, Inc. ("SMI") to Elmos Semiconductor AG of Germany for
$6.0 million in cash. In connection with the transaction, the Company's UDT
Sensors, Inc. ("UDT") subsidiary sold certain capital equipment to SMI for
$462,000 in cash. The transaction was completed on March 31, 2001. The sale
agreement also includes a three year commitment from UDT to supply four inch
silicon foundry wafers to SMI and to dedicate limited manufacturing facilities
to be used by SMI, for its etching operations. The total pre-tax gain on the
transaction was $3.0 million.
In April 2001, as a result of the acquisition of a company in which the Company
had an equity investment of $300,000, the Company received a total consideration
of $1.4 million. This resulted a pre-tax gain of $1.1 million and will be
recorded in the quarter ending June 30, 2001. This consideration does not
include a hold back of approximately $167,000.
New Accounting Pronouncements - In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin 101, Revenue Recognition In
Financial Statements ("SAB 101"). SAB 101 provides guidance on applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company will adopt SAB 101 as required in the fourth quarter of
fiscal 2001. The Company is currently evaluating the impact of adopting SAB 101,
and does not expect it to have a material impact on the Company's financial
position or result of operations.
Effective July 1, 2000, the Company adopted FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities ("FAS 133"). FAS 133 requires
that all derivative financial instruments, such as foreign exchange contracts,
be recognized in the financial statements and measured at fair value regardless
of the purpose or intent for holding them. Changes in the fair value of
derivative financial instruments are either recognized periodically in income or
shareholders' equity (as a component of comprehensive income), depending on
whether the derivative is being used to hedge changes in fair value or cash
flows. The adoption of FAS 133 did not have a material effect on the Company's
financial position or result of operations for the quarter and nine months ended
March 31, 2001.
Financial Instruments - The Company enters into forward foreign exchange
contracts
-7-
principally to hedge currency fluctuation in transactions denominated in foreign
currencies, thereby limiting the Company's risk that would otherwise result from
changes in exchange rates. The periods of the forward foreign exchange contracts
correspond to the periods of the hedged transactions. The Company does not use
the contracts for trading purposes. As of March 31, 2001, the total notional
amount of all outstanding foreign currency contracts was $1.4 million. The
estimated fair value of foreign currency contracts was not material.
Inventory. Inventory is stated at the lower of cost or market; cost is
determined on the first-in, first-out method. Inventory at March 31, 2001 and
June 30, 2000 consisted of the following (in thousands):
March 31, June 30,
2001 2000
Raw Materials.................... $15,403 $16,877
Work-in-process.................. 6,835 6,619
Finished goods................... 9,518 7,424
------- -------
Total......................... $31,756 $30,920
======= =======
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.
-8-
For the Quarter ended March 31,
---------------------------------------------------------
2001 2000
------------- -------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Earnings per common share
Income available to
common stockholders $2,540,000 9,007,468 $0.28 $ 841,000 9,310,074 $0.09
======== ==========
Effect of Dilutive Securities
Options, treasury stock method 25,170 304,557
------------------------- -----------------------------------------
Earnings per common share assuming dilution
Income available to common
stockholder, assuming dilution $2,540,000 9,032,638 $0.28 $841,000 9,614,631 $0.09
====================================== =========================================
For the Quarter ended March 31,
---------------------------------------------------------
2001 2000
------------- -------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Earnings per common share
Income (loss) available to
common stockholders $2,386,000 9,209,289 $0.26 ($385,000) 9,384,155 ($0.04)
======== ==========
Effect of Dilutive Securities
Options, treasury stock method 15,833
------------------------- -----------------------------------------
Earnings per common share assuming dilution
Income (loss) available to common
stockholder, assuming dilution $2,386,000 9,225,122 $0.26 ($385,000) 9,384,155 ($0.04)
====================================== =========================================
Comprehensive Income - Comprehensive income is computed as follows (in
thousands):
For the quarter For the nine months
ended March 31, ended March 31,
2001 2000 2001 2000
------------------------- -------------------------
Net income (loss) $2,540 $ 841 $2,386 ($385)
------------------------- -------------------------
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments (850) (827) (948) (764)
Unrealized gains on marketable securities available for sale 486
------------------------- -------------------------
Other comprehensive income (loss) (850) (827) (948) (278)
------------------------- -------------------------
Comprehensive income (loss) $1,690 $ 14 $1,438 ($663)
========================= =========================
-9-
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 March 31, 2001
-----------------------------------------------------------------
North
America Europe Asia Eliminations Consolidated
-----------------------------------------------------------------
Revenues $21,037 $ 6,786 $ 1,556 $ 29,379
Transfer between geographical areas $ 2,417 $ 1,001 $ 7,822 $(11,240)
-----------------------------------------------------------------
Net revenues $23,454 $ 7,787 $ 9,378 $(11,240) $ 29,379
=================================================================
Income (loss) from operations $ (368) $ (79) $ 1,315 $ (150) $ 718
=================================================================
Nine months ended March 31, 2001
-----------------------------------------------------------------
North
America Europe Asia Eliminations Consolidated
-----------------------------------------------------------------
Revenues $57,643 $19,924 $ 4,692 $ 82,259
Transfer between geographical areas $ 6,952 $ 3,592 $21,366 $(31,910)
-----------------------------------------------------------------
Net revenues $64,595 $23,516 $26,058 $(31,910) $ 82,259
=================================================================
Income (loss) from operations $(2,701) $ 803 $ 2,840 $ (5) $ 937
=================================================================
Three months ended March 31, 2000
-----------------------------------------------------------------
North
America Europe Asia Eliminations Consolidated
-----------------------------------------------------------------
Revenues $16,224 $12,934 $ 2,618 $ 31,776
Transfer between geographical areas $ 1,600 $ 1,511 $ 5,972 $ (9,083)
-----------------------------------------------------------------
Net revenues $17,824 $14,445 $ 8,590 $ (9,083) $ 31,776
=================================================================
Income (loss) from operations $ (381) $ (513) $ 2,158 $ (68) $ 1,196
=================================================================
Nine months ended March 31, 2000
-----------------------------------------------------------------
North
America Europe Asia Eliminations Consolidated
-----------------------------------------------------------------
Revenues $46,506 $30,167 $ 6,565 $ 83,238
Transfer between geographical areas $ 5,803 $ 3,680 $16,618 $(26,101)
-----------------------------------------------------------------
Net revenues $52,309 $33,847 $23,183 $(26,101) $ 83,238
=================================================================
Income (loss) from operations $(2,523) $(1,944) $ 4,866 $ (850) $ (451)
=================================================================
-10-
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 decreased by 7.5%
to $29.4 million for the three months ended March 31, 2001, compared to $31.8
million for the comparable prior year period. For the nine months ended March
31, 2001, revenues decreased by 1.2% to $82.3 million from $83.2 million for the
comparable prior year period. Revenues for the three months ended March 31, 2001
from optoelectronic devices, value added subsystems and medical imaging systems,
were $16.7 million, compared to $17.9 million for the comparable prior year
period and revenues from security and inspection products were $12.7 million
compared to $13.9 million for the comparable prior year period. Revenues for the
nine months ended March 31, 2001 from optoelectronic devices, value added
subsystems and medical imaging systems were $44.2 million, compared to $46.7
million for the comparable prior year period and revenues from security and
inspection products were $38.1 million, compared to $36.5 million for the
comparable prior year period. The decrease in revenues from sales of
optoelectronic devices, value added subsystems and medical imaging systems for
the quarter and nine months ended March 31, 2001 was primarily due to decreased
sales of the discontinued product line of data/video projector systems and was
offset in part by increased sales of fiber optics and sales to the weapon
simulation market. Revenues from the sales of data/video projector systems for
the three and nine months ended March 31, 2001 were $0 and $1.0 million,
compared to $5.5 million and $7.6 million respectively, for the comparable prior
year periods. The decrease in revenues from sale of security and inspection
products for the quarter was primarily due to the timing of the shipment of
large orders.
Gross Profit. Cost of goods sold consists of material, labor and manufacturing
overhead. Gross profit decreased by 5.7% to $7.9 million for the three months
ended March 31, 2001, compared to $8.3 million for the comparable prior year
period. For the nine months ended March 31, 2001, gross profit increased by 0.7%
to $22.8 million, compared to $22.6 million for the comparable prior year
period. As a percentage of revenues, gross
-11-
profit increased in the quarter and nine months to 26.8% and 27.7% this year,
from 26.3% and 27.2% last year, respectively. The decrease in gross margin in
the quarter was due to lower sales and an increase in gross margin as a
percentage of revenues was due to discontinuation of the data/video projector
systems product line, which had a lower gross margin.
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 March 31, 2001, such expenses increased 6.7% to $5.3
million, compared to $4.9 million for the comparable prior year period. For the
nine months ended March 31, 2001, such expenses increased by 8.5% to $16.5
million, compared to $15.2 million for the comparable prior year period. As a
percentage of revenues, selling, general and administrative expenses increased
in the quarter and nine months to 17.9% and 20.0% this year, from 15.5% and
18.2% last year, respectively. The increase in expenses for the quarter and nine
months was primarily due to increased administrative expenses, legal and
professional fees and an increase in provision for doubtful receivables, offset
in part by proceeds of $409,000 from the settlement of certain litigation.
Research and Development. Research and development expenses include research
related to new product development and product enhancement expenditures. For the
three months ended March 31, 2001, such expenses decreased 15.6% to $1.8
million, compared to $2.1 million for the comparable prior year period. For the
nine months ended March 31, 2001, such expenses decreased 11.0% to $5.0 million,
compared to $5.6 million for the comparable prior year period. As a percentage
of revenues, research and development expenses decreased in the quarter and nine
month periods to 6.0% and 6.1% this year from 6.6% and 6.7% last year,
respectively. The decrease in expenses for the quarter and nine months ended
March 31, 2001 was primarily due to deploying certain research and development
personnel to the manufacturing of products, offset in part by increased research
spending for medical and fiber optic products.
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. For the nine months ended March 31, 2000, the Company
recorded 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.
The Company has completed the closure of the Osteometer facility in Denmark and
does not anticipate any future expenses.
Income (Loss) from Operations. For the three months ended March 31, 2001, the
Company had income from operations of $718,000 compared to $1.2 million for the
three months ended March 31, 2000. For the nine months ended March 31, 2001, the
Company had income from operations of $937,000 compared to a loss from
operations of $451,000 for the comparable prior year period. Excluding the non-
recurring restructuring costs of
-12-
$1.9 million in the nine months ended March 31, 2000, income from operations for
the nine months ended March 31, 2000 was $1.4 million. Income from operations
for the three months ended March 31, 2001 decreased due to a lower gross margin,
increased selling, general and administration expenses and was offset in part by
reduced research and development expenses. Excluding the restructuring charge of
$1.9 million in the period ended March 31, 2000, income from operations for the
nine months ended March 31, 2001 decreased due to increased selling, general and
administrative expenses and was offset in part by reduced research and
development expenses.
Interest Expense. For the three months ended March 31, 2001, the Company
incurred net interest expense of $276,000, compared to net interest expense of
$201,000 for the three months ended March 31, 2000. For the nine months ended
March 31, 2001, the Company incurred net interest expense of $865,000, compared
to net interest expense of $500,000 for the nine months ended March 31, 2000.
The increase in net interest expense for the three and nine months ended March
31, 2001 was due to higher average amount outstanding on the Company's lines of
credit and a reduction in short term investments which were used for working
capital and acquisitions.
Gain on Sale of Subsidiary. On March 31, 2001, the Company sold all of the
outstanding stock of its wholly owned subsidiary SMI to Elmos Semiconductor AG
of Germany for $6.0 million in cash resulting in a gain of $3.0 million. In
addition, as a part of the agreement, $2.2 million of the accounts payable by
SMI to the Company as a result of intercompany transactions was converted to a
note receivable payable by the buyer over a period of four and a half years.
Provision (Benefit) for Income Taxes. Provision for income taxes increased to
$869,000 for the three months ended March 31, 2001, compared to $284,000 for the
three months ended March 31, 2000. For the nine months ended March 31, 2001, the
Company had an income tax provision of $799,000 compared to a income tax benefit
of $29,000 for the nine months ended March 31, 2000. The change in provision
(benefit) for income taxes was due to a mix in income from U.S. and foreign
operations.
Net Income (Loss). For the reasons outlined above, the Company had net income of
$2.5 million and $2.4 million for the three and nine months ended March 31,
2001, compared to net income of $841,000 and a net loss of $385,000 for the
three and nine months ended March 31, 2000, respectively.
Liquidity and Capital Resources
The Company's operations used net cash of $1.7 million during the nine months
ended March 31, 2001. The amount of net cash used by operations reflects
increases in accounts receivable, inventory, prepaids, and reduction in accounts
payables. Net cash used in operations was offset in part by an increase in
accrued payroll and related expenses, income taxes payable, advances from
customers, and reduction in other receivables. The increase in accounts
receivable is mainly due to the timing of shipments of certain large
-13-
contracts. The increase in inventory is due to a change in product mix and a
longer intercompany in transit time due to certain manufacturing being moved to
Malaysia from the United States and the United Kingdom.
Net cash provided by investing activities was $2.9 million for the nine months
ended March 31, 2001, compared to net cash used in investing activities of $1.1
million for the nine months ended March 31, 2000. In the nine months period
ended March 31, 2001, net cash provided by investing activities reflects cash
received from the sale of SMI and the sale of property and equipment and was
offset in part by cash used in business acquisitions and the purchase of
property and equipment. In the nine months ended March 31, 2000, the 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 proceeds received from the sale of marketable securities.
Net cash used in financing activities was $4.5 million for the nine months ended
March 31, 2001, compared to net cash provided by financing activities of $4.0
million in the nine months ended March 31, 2000. During the nine months ended
March 31, 2001, net cash used in financing activities resulted primarily due to
the purchase of the Company's common shares pursuant to its stock repurchase
program and repayment of borrowings under the Company's lines of credit.
In March 1999, the Company announced a stock repurchase program of up to
2,000,000 shares of its common stock. Through May 10, 2001, the Company
repurchased 935,500 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 retired the repurchased shares. The shares are included as a
deduction from issued and outstanding common shares in the accompanying
financial statements.
In February 2001, the Company entered into a credit agreement with Sanwa Bank
California. The agreement provides for a $12.0 million line of credit, which
includes revolving line, letter of credit, acceptance and foreign exchange
facilities. In addition, the Company has a $10.5 million term loan. 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
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accumulated as a component of accumulated other comprehensive income. Net
foreign currency transaction losses of approximately $258,000 and $131,000 were
included in the Company's results for the nine months ended March 31, 2001 and
2000, respectively.
Inflation. The Company does not believe that inflation has had a material impact
on its results of operations for the nine months ended March 31, 2001.
Item 6. Exhibits and Reports of Form 8-K
a. Exhibits
10.1 Credit agreement, dated February 27, 2001 between the Company and
Sanwa Bank California.
b. Reports on Form 8-K
None
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 10th day of May 2001.
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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