-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EGLYJplkLmFDkCxqpT0lxERFZIYu6M0bEmqL0kMWa6rJa7qScgunPxxmh8hfP6uR kcdJYNJYRM8vrLgwEZwD3g== 0000883322-97-000002.txt : 19970513 0000883322-97-000002.hdr.sgml : 19970513 ACCESSION NUMBER: 0000883322-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970512 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROTOCOL SYSTEMS INC/NEW CENTRAL INDEX KEY: 0000883322 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 930913130 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19943 FILM NUMBER: 97600042 BUSINESS ADDRESS: STREET 1: 8500 S W CREEKSIDE PLACE CITY: BEAVERTON STATE: OR ZIP: 97008 BUSINESS PHONE: 6126862500 MAIL ADDRESS: STREET 1: 8500 SW CREEKSIDE PLACE CITY: BEAVERTON STATE: OR ZIP: 97008 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter ended March 31, 1997 Commission File Number 0-19943 PROTOCOL SYSTEMS, INC. - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Oregon 93-0913130 - ------------------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8500 SW Creekside Place, Beaverton, OR 97008 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (503) 526-8500 - ------------------------------------------------------------------------------ (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. [X] Yes [ ] No Number of shares of common stock outstanding as of May 8, 1997: 8,849,143 shares, $.01 par value per share ------------------------------------------ 2 PROTOCOL SYSTEMS, INC. Index to Form 10-Q PART I FINANCIAL INFORMATION Page No. - ----------------------------- -------- Item 1. Financial Statements Condensed Consolidated Statements of Operations for the three months ended March 31, 1997 and 1996 3 Condensed Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996 4 Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-9 PART II OTHER INFORMATION - -------------------------- Item 2. Changes in Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11 - ---------- 3 PROTOCOL SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share amounts) (unaudited) Three months ended March 31, 1997 1996 ------ ------ Sales $13,193 $16,239 Cost of sales 6,697 7,356 ------- ------- Gross profit 6,496 8,883 Operating expenses: Research and development expenses 2,021 2,255 Selling, general and administrative expenses 4,628 4,748 ------- ------- Total operating expenses 6,649 7,003 ------- ------- Income from operations (153) 1,880 Other income 233 268 ------- ------- Income before income taxes 80 2,148 Provision for income taxes 25 595 ------- ------- Net Income $ 55 $ 1,553 ======= ======= Net income per common and common equivalent share $ 0.01 $ 0.17 ======= ======= Weighted average number of common and common equivalent shares outstanding 9,202 9,369 See accompanying notes to condensed consolidated financial statements
4 PROTOCOL SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) March 31, December 31, 1997 1996 ------ ------ ASSETS Current assets: Cash and cash equivalents $ 7,648 $ 6,903 Short-term investments 15,838 14,787 Accounts receivable - net 11,232 15,456 Inventories 13,993 12,416 Deferred taxes 1,341 1,320 Prepaid expenses and other 240 166 ------- ------- Total current assets 50,292 51,048 Long-term investments 1,008 1,013 Property and equipment - net 4,729 4,478 Other assets 2,383 2,506 ------- ------- $58,412 $59,045 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,574 $ 2,480 Accrued salaries, wages and related liabilities 2,047 2,514 Other accrued liabilities 271 739 Income taxes payable 252 405 Reserve for warranties 1,040 985 Deferred revenue and customer deposits 124 142 ------- ------- Total current liabilities 6,308 7,265 Deferred taxes 427 471 Shareholders' equity: Common Stock, $.01 par value. Authorized 30,000 shares; issued and outstanding 8,801 at 1997 and 8,744 at 1996 88 87 Additional paid-in capital 34,760 34,363 Unrealized holding gain on investments 4 32 Retained earnings 16,776 16,721 Foreign currency translation adjustment 49 106 ------- ------- Total shareholders' equity 51,677 51,309 ------- ------- $58,412 $59,045 ======= ======= See accompanying notes to condensed consolidated financial statements
5 PROTOCOL SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three months ended March 31, 1997 1996 ------ ------ Cash flows from operating activities: Net income $ 55 $ 1,553 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 606 516 Loss on disposal of property and equipment 9 - Amortization of bond premium 103 81 Provision for deferred taxes (50) (80) Increase (decrease) in cash resulting from changes in: Accounts receivable 4,218 1,268 Inventories (1,585) (377) Prepaid expenses and other assets (78) (179) Accounts payable and accrued liabilities (215) 139 Income taxes payable (765) (273) Reserve for warranties 55 17 Deferred revenue and customer deposits (18) (1) ------- ------- Net cash provided by operating activities 2,335 2,664 Cash flows from investing activities: Purchase of investments (1,177) (2,624) Proceeds from maturity of investments - 8,464 Acquisition of property and equipment (801) (642) Expenditures for software development - (46) ------- ------- Net cash provided by (used in) investing activities (1,978) 5,152 Cash flows from financing activities: Proceeds from exercise of stock options and stock purchase plan 398 141 Net proceeds of long-term debt - 165 ------- ------- Net cash provided by financing activities 398 306 ------- ------- Effect of exchange rates on cash and cash equivalents (10) (4) ------- ------- Net increase in cash and cash equivalents 745 8,118 Cash and cash equivalents at beginning of period 6,903 3,974 ------- ------- Cash and cash equivalents at end of period $ 7,648 $12,092 ======= ======= Supplemental disclosure of cash flow information: Cash paid for interest $ - $ 52 Cash paid for income taxes $ 216 $ 916 See accompanying notes to condensed consolidated financial statements
6 PROTOCOL SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The accompanying condensed consolidated financial statements have been prepared by the Company without audit and in conformity with generally accepted accounting principles for interim financial information. Accordingly, certain financial information and footnotes have been omitted or condensed. In the opinion of management, the condensed consolidated financial statements include all necessary adjustments (which are of a normal and recurring nature) for the fair presentation of the results of the interim periods presented. These financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 1996. The results of operations for the interim period shown in this report are not necessarily indicative of results for any future interim period or the entire fiscal year. INVENTORIES Inventories are valued at the lower of cost or market with cost determined on the first-in, first-out basis (FIFO). The components of inventories are as follows: March 31, December 31, (in thousands) 1997 1996 - ------------------------------------------------------------------------- Raw materials $ 6,162 $ 4,921 Work in process 2,646 2,307 Finished goods 3,475 3,396 Demonstration instruments 1,710 1,792 ------- ------ Total inventories $13,993 $12,416 ======= ====== PROPERTY AND EQUIPMENT Property and equipment is stated at cost and includes the following: March 31, December 31, (in thousands) 1997 1996 - ------------------------------------------------------------------------- Equipment $10,486 $10,180 Furniture and fixtures 1,679 1,419 Leasehold improvements 654 654 ------ ------ 12,819 12,253 Less accumulated depreciation and amortization 8,090 7,775 ------ ------ Property and equipment - net $ 4,729 $ 4,478 ====== ====== 7 INCOME TAXES The provision for income taxes has been recorded based on the current estimate of the Company's annual effective tax rate. This rate differs from the Federal statutory rate primarily because of the provision for state income taxes, the benefit of the Company's foreign sales corporation, the utilization of research and experimentation tax credits and tax-exempt interest income earned on investments. See Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion of income taxes. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE Net income per common and common equivalent share is computed using the weighted average number of common and dilutive common equivalent shares assumed to be outstanding during the period. Common equivalent shares consist of options to purchase common stock. NEW ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS 128 establishes a different method of computing net income per share than is currently required under the provisions of Accounting Principles Board Opinion No. 15. Under SFAS No. 128, the Company will be required to present both basic net income per share and diluted net income per share. Basic net income per share is expected to be comparable or slightly higher than the currently presented net income per share as the effect of dilutive stock options will not be considered in computing basic net income per share. Diluted net income per share is expected to be comparable or slightly lower than the currently presented net income per share. The Company plans to adopt SFAS 128 in its quarter ending December 31, 1997 and at that time all historical net income per share data presented will be restated to conform to the provisions of SFAS No. 128. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES The Company maintained its strong financial position as of March 31, 1997 with working capital balances of $44.0 million and a current ratio of 8.0:1 as compared to working capital of $43.8 million and a current ratio of 7.0:1 at December 31, 1996. Cash flow from operating activities for the first three months of 1997 was $2.3 million as compared to cash flow from operating activities of $2.7 million for the first three months of 1996. Management believes that current cash and investment balances and future cash flows from operations will be sufficient to meet the Company's liquidity and capital needs for the foreseeable future. FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis and other sections of this Quarterly Report contain forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995 that are based on current expectations, estimates and projections about the Company's business, management's beliefs and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including, but not limited to those discussed in this Quarterly Report and from time to time in the Company's other Securities and Exchange Commission filings and reports. In addition, such statements could be affected by general industry and market conditions and growth rates, and general domestic and international economic conditions. RESULTS OF OPERATIONS Sales. Sales for the first quarter of 1997 decreased 18.8% to $13.2 million from $16.2 million for the first quarter of 1996. Instrument sales (including the Propaq and Propaq Encore monitors and monitor options) decreased by $2.6 million or 23.1% from the prior year's first quarter. The decline in instrument sales resulted from decreased unit sales of Propaq monitors and monitor options, partially offset by an increase in the unit sales of Propaq Encore monitors. In addition, sales of Pryon's original equipment manufacturer ("OEM") CO2 monitoring products and related accessories decreased $767,000 or 31.3% from the prior year's first quarter. Domestic sales decreased 32.5% to $6.5 million (49.5% of total sales) in the first quarter of 1997 from $9.7 million (59.7% of total sales) in the first quarter of 1996. The Company attributes this decrease primarily to a significant reduction in military shipments, which declined to $227,000 in the first quarter of 1997 from $4.4 million in the first quarter of 1996. International sales increased 27.9% to $4.9 million (37.2% of total sales) in the first quarter of 1997 from $3.8 million (23.6% of total sales) in the first quarter of 1996. This increase is primarily a result of the impact of the large military shipments in the first quarter of 1996 which caused the postponement of a portion of international sales to the second quarter of 1996, resulting in lower than usual international sales in the first quarter of 1996. 9 OEM sales decreased to $1.7 million (13.3% of total sales) in the first quarter of 1997 from $2.7 million (16.7% of total sales) in the prior year's first quarter. The decrease in OEM sales was primarily the result of decreased sales of Pryon's CO2 monitoring products due to reductions in orders from certain of its OEM customers. The Company believes that Pryon's sales will improve as Pryon introduces new products and as new OEM customers come on-line later in the year. Gross profit. As a percentage of sales, gross profit decreased to 49.2% in the first quarter of 1997 from 54.7% in the first quarter of 1996. A decrease of 2.1% in gross profit as a percentage of sales resulted from additional warranty expense incurred as a result of the Company's voluntary decision to replace a defective component in certain Propaq Encore monitors. Also contributing to the decline in gross margin in the first quarter of 1997 from the same quarter last year was the significant reduction in Pryon's gross margin as a result of its lower manufacturing volumes. Research and development. Research and development expenses decreased 10.4% to $2.0 million in the first quarter of 1997 from $2.3 million in the first quarter of 1996. The decrease in research and development expenses resulted primarily from lower development and testing costs in the first quarter of 1997. In the first quarter of 1996 there were significant development and testing costs for a new release of software introduced in March 1996 for the Acuity system. As a percentage of sales, research and development expenses increased to 15.3% in the first quarter of 1997 from 13.9% in the first quarter of 1996. Selling, general and administrative. Selling, general and administrative expenses remained steady at $4.6 million in the first quarter of 1997 compared to $4.7 million in the first quarter of 1996. As a percentage of sales, selling, general and administrative expenses increased to 35.1% in the first quarter of 1997 from 29.2% in the first quarter of 1996. Other income. Other income decreased 12.7% to $233,000 in the first quarter of 1997 from $268,000 in the first quarter of 1996 primarily as a result of a decrease in interest income due to the use of available cash to reduce Pryon's borrowings in the third quarter of 1996. Provision for income taxes. The provision for income taxes decreased to $25,000 in the first quarter of 1997 from $595,000 in the first quarter of 1996 representing effective tax rates of 31.3% and 27.7%, respectively. The effective tax rate for the first quarter of 1996 was reduced by the tax benefit of Pryon's utilization of net operating loss carryforwards. 10 PART II. OTHER INFORMATION Item 2. Changes in Securities During the quarter ended March 31, 1997, the Company sold securities without registration under the Securities Act of 1933, as amended (the "Securities Act") upon the exercise of certain stock options granted under the Company's stock option plans. An aggregate of 6,667 shares of Common Stock were issued at an exercise price of $1.32. These transactions were effected in reliance upon the exemption from registration under the Securities Act provided by Rule 701 promulgated by the Securities and Exchange Commission pursuant to authority granted under Section 3 (b) of the Securities Act. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of security holders during the quarter ended March 31, 1997. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 27.1 Financial Data Schedule (b) No reports were filed on Form 8-K during the quarter for which this report is filed. 11 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. PROTOCOL SYSTEMS, INC. (Registrant) Date: May 9, 1997 By /s/ James B. Moon --------------------- James B. Moon President and Chief Executive Officer By /s/ Craig M. Swanson --------------------- Craig M. Swanson Vice-President and Chief Financial Officer EX-27.1 2
5 This schedule contains summary financial information extracted from Protocol Systems, Inc.'s Condensed Consolidated Balance Sheet as of March 31, 1997 and Condensed Consolidated Statement of Operations for the three months ended March 31, 1997 and is qualified in its entirety by reference to such financial statements. 0000883322 PROTOCOL SYSTEMS, INC. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 7,648 16,846 11,232 255 13,993 50,292 12,819 8,090 58,412 6,308 0 0 0 88 51,589 58,412 13,193 13,193 6,697 6,697 6,649 0 0 80 25 55 0 0 0 55 0.01 0.01 Net of allowance.
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