RNS Number:6360D
Spacelabs Healthcare Inc.
11 September 2007
Spacelabs Healthcare, Inc. -- Results for Fiscal Year Ended June 30, 2007
HAWTHORNE, CA--(Marketwire - September 11, 2007) - Spacelabs Healthcare, Inc.
(LSE: SLAB) (the 'Company') an international developer, manufacturer and
distributor of medical equipment and services, today announces its financial
results for the fiscal year ended June 30, 2007.
Financial Highlights for FY 2007
-- Revenue up 6% to $233.2 million (FY 2006: $220.6 million). Excluding
revenues attributable to Del Mar Reynolds ("DMR"), acquired in July 2006,
underlying revenues decreased by approximately 6% compared to fiscal 2006.
-- Gross profit margin decreased 1.4% to 46.6% (FY 2006: 48.0%).
-- Net income decreased 55% to $3.8 million (FY 2006: $8.4 million);
includes impairment, restructuring and other charges of approximately $3.0
million and favorable settlement of lawsuit with GE Finland Oy resulting in
one-time gain of approximately $14.4 million.
-- The Company experienced a rebound in the critical North American
patient monitoring business in the fourth quarter of this fiscal year.
During the fourth quarter the Company experienced record bookings while
also recording underlying organic revenue growth of approximately 8%.
-- Cash and cash equivalents $4.4 million as of June 30, 2007 compared to
$8.8 million as of June 30, 2006.
Business Highlights
-- Completed integration and global review of cost structure resulting in
approximately $10 million of annualized savings. Cost saving measures
included:
-- Consolidation of 5 facilities;
-- Global headcount reduction of approximately 8%;
-- Divested non-core product lines.
-- In July 2006 the Company acquired Del Mar Reynolds, expanding its
product portfolio to include diagnostic cardiology solutions while
expanding operational presence in the European market and doubling the
size of its Clinical Trials Business.
-- The Company remained committed to R&D and expanding its product
portfolio; FY 2007 expenditure was $25.1 million (FY 2006: $19.1
million). In fiscal 2007 the Company launched a number of new products,
including the following highlighted introductions:
-- In July 2006, the Company announced the launch of seven new
state-of-the-art Precision Pressure Control VentilationTM
ventilators to its existing anesthesia product line;
-- In October 2006, the Company launched its advanced anesthesia
system, BleaseSiriusTM and UltraviewSL Perioperative
Monitoring Suite in the North American market;
-- In November 2006, the Company announced the launch of its first
vital signs monitor targeted specifically at the day surgery
center and emerging markets, the MCare 3000;
-- In March 2007, the Company introduced two diagnostic cardiology
products, the evo Digital Holter Recorder and Voyager 12-Lead
Electrocardiogram ("ECG") system; and
-- In March 2007, the Company received FDA 510k clearance to
distribute its new Cardiology Data Management system, Sentinel in
the U.S.
-- In July 2006, Mr. Dave Tilley was appointed as a Director and
Mr. Nikhil Mehta was appointed as Chief Financial Officer replacing
Mr. Ralph Hunter who had resigned to pursue other professional
opportunities.
-- The Company expanded its presence in the emerging markets with the
leasing of a new manufacturing facility in China. The facility is
expected to begin operations in the second half of fiscal 2008.
-- During the fiscal year, the Company received two awards from Frost &
Sullivan. In October 2006, the Company was named the North American
Patient Monitoring Company of the Year for 2006 and then in June 2007
the Company received the 2007 Excellence in Technology Award.
Deepak Chopra, Chief Executive Officer of Spacelabs Healthcare, Inc., said:
"The Company experienced a significant rebound in sales in the final quarter of
the year. With a substantial proportion of our restructuring and integration
activities behind us, we are optimistic that the resulting lower cost base
coupled with the renewed sales momentum will result in a return to consistent
profitability in fiscal 2008. We will continue to identify and take advantage of
opportunities to reduce costs, expand our product portfolio and increase our
market coverage."
Earnings Conference Call Information
Spacelabs Healthcare, Inc. will hold an analyst meeting at 4:00pm GMT on Tuesday
September 11, 2007. The meeting will be held at the offices of Piper Jaffray
Ltd., One South Place, London, EC2M 2RB. The meeting will be simultaneously
webcasted, to listen, please log on www.earnings.com or
www.spacelabshealthcare.com and follow the link that will be posted on the front
page. A replay of the meeting will be available from 8:00pm GMT on September 11,
2007 until September 25, 2007. The replay may be accessed by visiting either
www.earnings.com or www.spacelabshealthcare.com.
This press release and its attachments contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
include information regarding the Company's expectations, goals or intentions
about the future, including, but not limited to, statements regarding revenues
and earnings. The actual results may differ materially from those described in
or implied by any forward-looking statement. Other important factors are set
forth in the Securities and Exchange Commission filings of OSI Systems, Inc.
(NASDAQ: OSIS). All forward-looking statements speak only as of the date made,
and we undertake no obligation to update these forward-looking statements.
Spacelabs Healthcare, Inc.
Fiscal 2007
CEO'S STATEMENT
Introduction
Spacelabs Healthcare is an international developer, manufacturer and distributor
of medical equipment including patient monitoring solutions, anesthesia delivery
and ventilation systems, diagnostic cardiology solutions and supplies and
accessories sold to hospitals, clinics and physicians offices. Additionally, our
Clinical Trials Business collects, interprets, and distributes Electrocardiogram
(ECG) and Ambulatory Blood Pressure (ABP) cardiac safety data from clinical
trials performed by Clinical Research Organization and pharmaceutical companies.
The Company employs approximately 1,100 people worldwide and has offices in the
U.K., Canada, France, Germany, Finland, Singapore, India, China and the U.S. The
Company has a portfolio of established international brand names in both medical
devices and medical services such as "Spacelabs," "Blease," "Del Mar Reynolds,"
and "Hertford Cardiology."
In July 2006, the Company acquired Del Mar Reynolds ("DMR"), the cardiology
division of Ferraris Group PLC. The acquisition expanded Spacelabs Healthcare's
product offering in the hospital market and increased its presence in the UK and
European markets. Included within the acquisition was Hertford Cardiology, a
UK-based collector and interpreter of cardiac safety data from clinical trials.
The Hertford Cardiology business complements the Company's own clinical trials
business -- Spacelabs Medical Data -- and when combining the two businesses
provides the Company with a strong geographic presence in the two largest
markets for clinical trials.
OPERATIONAL HIGHLIGHTS
The Company reported revenues of $233.2 million for fiscal 2007, an increase of
$12.6 million, or 6% from $220.6 million reported for fiscal 2006. Excluding
revenues attributable to DMR, acquired in July 2006, underlying revenues
decreased by approximately 6% when compared to fiscal 2006.
Gross profit margin decreased by approximately 1.4% to 46.6% for fiscal 2007
compared to 48.0% in fiscal 2006, while net income decreased by $4.6 million, or
55%, to $3.8 million for fiscal 2007 from $8.4 million reported in fiscal 2006.
The decrease in underlying revenue, gross margin and net income was primarily
attributable to weaker than expected patient monitoring sales in the North
American market in the first half of the fiscal year. Net income also benefited
from the recognition of a gain arising from the settlement of an outstanding
dispute with GE which resulted in a one-time gain of approximately $14.4
million.
The financial results for the fiscal 2007 were adversely impacted by impairment,
restructuring and other charges of approximately $3.0 million as the Company
took steps in order to integrate the recent acquisition of DMR and to eliminate
redundancies in manufacturing and administrative areas. Approximately $10
million of annualized cost savings were implemented by the conclusion of the
fiscal year. This included a reduction of approximately 8% of its global
workforce and the closing and consolidation of five facilities in multiple
locations.
The Company is committed to generating further cost savings throughout the
business and will continue to pursue measures in fiscal 2008 to improve our
operating performance and overall profitability.
The Company experienced a rebound in the critical North American patient
monitoring business in the fourth quarter of fiscal 2007. During the fourth
quarter the Company experienced record bookings while also recording underlying
organic revenue growth of approximately 8%.
In order to enhance accountability and to facilitate our global product strategy
the Company has restructured into three key areas: North America managed by Joe
Davin; Europe, Middle East and Africa ("EMEA") managed by Gary Grenter and
Emerging Markets managed by Nicholas Ong. In July 2006, Dave Tilley was
appointed as a Director in addition to his duties as Chief Operating Officer
while Nikhil Mehta was appointed as Chief Financial Officer replacing Mr. Ralph
Hunter who had resigned to pursue other professional opportunities.
The Company received two awards from Frost & Sullivan in fiscal 2007. In October
2006 the Company was named the North American Patient Monitoring Company of the
Year for 2006 and in June 2007 the Company received the 2007 Excellence in
Technology Award.
The Company operates in two business segments: (a) Equipment, Service & Supplies
and (b) Clinical Trials.
Equipment, Service & Supplies Segment
The Equipment, Service & Supplies Segment develops, manufacturers, and
distributes medical equipment including patient monitoring and connectivity
solutions, anesthesia delivery and ventilation systems, diagnostic cardiology
solutions and supplies and accessories. The products are sold to hospitals,
clinics and physicians offices. This business includes such brand names as,
"Spacelabs Medical," "Blease" and "Del Mar Reynolds."
In fiscal 2007, the Equipment, Service & Supplies business recorded revenues of
$222.9 million, (FY 2006: $215.4 million), representing approximately 96% of the
Company's total revenue. The increase in revenue in fiscal 2007 was mainly due
to the acquisition of Del Mar Reynolds in July 2006. Excluding revenue
attributable to Del Mar Reynolds, underlying revenue in fiscal 2007 decreased by
7.5% compared to fiscal 2006.
The Company remains committed to R&D and expanding its product portfolio,
increasing its expenditure in fiscal 2007 by approximately $6.0 million to $25.1
million. In fiscal 2007 the Company launched a number of new products, including
the following highlighted introductions:
-- In July 2006, the Company announced the launch of seven new state-of-
the-art Precision Pressure Control VentilationTM ventilators to its
existing anesthesia product line;
-- In October 2006, the Company launched its advanced anesthesia system,
BleaseSiriusTM and UltraviewSL Perioperative Monitoring Suite in the
North American market;
-- In November 2006, the Company announced the launch of its first vital
signs monitor targeted specifically at the day surgery center and emerging
markets, the MCare 3000;
-- In March 2007, the Company introduced two diagnostic cardiology
products, the evo Digital Holter Recorder and Voyager 12-Lead
Electrocardiogram ("ECG") system; and
-- In March 2007, the Company received FDA 510k clearance to distribute
its new Cardiology Data Management system, Sentinel in the U.S.
In the third quarter the Company announced that it had completed the divestiture
of certain loss-generating non-core operations. These were transferred to OSI
Systems, Inc. and accounted for total revenues of approximately $8 million in
fiscal year 2006.
The Company is committed to the emerging markets, as evident by the
establishment of a new R&D and manufacturing facility in China. The facility,
located in Suzhou, China, is expected to begin operations in the second half of
fiscal 2008.
Clinical Trials Services Segment
The Clinical Trials Services business provides centralized cardiac safety and
diagnostic services, collecting, analyzing, and interpreting ECG and Ambulatory
Blood Pressure data for pharmaceutical and biotechnology companies. The
businesses, operating as the Spacelabs Healthcare Clinical Trials Division,
formerly operated under the trade names "Spacelabs Medical Data" and "Hertford
Cardiology."
In fiscal 2007, the Clinical Trials Services business recorded revenues of $10.3
million (FY 2006: $5.3 million) representing approximately 4% of the Company's
total revenue. The increase in revenue was partly attributable to the inclusion
of Hertford Cardiology, which was acquired as part of the DMR acquisition in
July 2006, in addition to strong underlying growth in the US business.
The acquisition of Hertford Cardiology enabled the Clinical Trials Services
business to offer its customers a full service global core lab solution and
increase its geographic presence in the European, Middle Eastern and Asian
clinical trials market. This has provided the business with the opportunity to
leverage its existing infrastructure while creating back office efficiencies.
Additional highlights for fiscal 2007 include the incorporation of new and
innovative technologies to enhance and further differentiate our service
offerings. The Company was also appointed as an authorized Mortara E-Scribe ECG
Warehouse Value Added Reseller, allowing our clients access to the FDA ECG
Warehouse which is used by the agency to assess the cardiac safety of new drugs.
The Business also added an Event Monitoring service offering with the use of a
proprietary PDA controller. This advanced service technology allows our
customers to receive and evaluate ECGs from virtually any equipment
manufacturer.
While this business currently accounts for only a small proportion of the
Company's overall revenues, the Company believes that the business has the
potential to experience rapid growth in revenues and an improvement in margins.
FINANCIAL REVIEW
Profit and Loss Account
The Company reported revenues of $233.2 million for fiscal 2007, an increase of
$12.6 million, or 6% from $220.6 million reported for fiscal 2006. Excluding
revenues attributable to Del Mar Reynolds, acquired in July 2006, underlying
revenues decreased by approximately 6%. The Company reported a gross profit
margin of 46.6% for fiscal 2007, compared to 48.0% in fiscal 2006. The decrease
in revenue and gross profit margin in fiscal 2007 was primarily attributable to
weak patient monitoring sales in the North American market.
Selling and General Administrative ("SG&A") expenses, were $85.3 million for
fiscal 2007, an increase of $12.7 million from $72.6 million in fiscal 2006. The
increase in SG&A expenses was attributable to the inclusion of Del Mar Reynolds,
acquired July 2006.
Research and development expenses were $25.1 million for fiscal 2007, an
increase of $6.0 million from $19.1 million reported in fiscal 2006.
The financial results for the fiscal year were adversely impacted by impairment,
restructuring and other charges of approximately $3.0 million. These charges
were primarily related to the Company's completed program to generate
approximately $10 million of pre-tax annualized cost savings through the
integration of recent acquisitions and the rationalization of the Company's cost
structure, the full benefit of which is expected to be realized in fiscal 2008.
Operating loss was $4.7 million for fiscal 2007, a decrease of $18.3 million
from $13.6 million of operating income reported in fiscal 2006.
Interest expense in fiscal 2007 was $4.2 million compared to $1.4 million in
fiscal 2006.
The tax rate for fiscal 2007 decreased to 33.1%, compared to 36.4% for fiscal
2006 due to a shift in taxable income to lower tax rate countries and to higher
R&D tax credits.
Net income for fiscal 2007 was $3.8 million, a decrease of $4.6 million, or 55%,
from $8.4 million reported in fiscal 2006.
Balance Sheet
At June 30, 2007, the Company reported total assets of $184.3 million, including
cash and cash equivalents of $4.4 million and equity of $58.2 million. The
Company has long-term debt of $32.3 million. The increase in total assets from
June 30, 2006 is attributable primarily to the increase in goodwill and
intangible assets from the acquisition of Del Mar Reynolds in July 2006.
Cash Flow Statement
For the period, the Company used $4.4 million in cash. Cash provided by
operating activities was $11.1 million. Capital expenditures for the period was
$5.8 million, an increase from $5.1 million in fiscal 2006. In addition, the
Company paid $22.1 million in cash to acquire Del Mar Reynolds, net of cash
acquired. The acquisition was funded by long-term debt. The net proceeds of the
GE litigation settlement were used to reduce outstanding loans to OSI.
SUMMARY AND OUTLOOK
The Company experienced a significant rebound in sales in the final quarter of
the year. With a substantial proportion of our restructuring and integration
activities behind us, we are optimistic that the resulting lower cost base
coupled with the renewed sales momentum will result in a return to consistent
profitability in fiscal 2008. We will continue to identify and take advantage of
opportunities to reduce costs, expand our product portfolio and increase our
market coverage.
Deepak Chopra
Chief Executive Officer
The CEO's Statement above contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements relate to
expectations concerning matters that are not historical facts. Words such as
"projects," "believes," "anticipates," "plans," "expects," "intends," "may," and
similar words and expressions are intended to identify forward-looking
statements. The Company believes that the expectations reflected in the
forward-looking statements are reasonable, but those expectations may not prove
to be correct. Important factors that could cause our actual results to differ
materially from those expectations are disclosed in the Annual Report on Form
10-K of OSI Systems, Inc. (NASDAQ: OSIS) and other documents previously filed or
hereafter filed by OSI Systems, Inc. from time to time with the U.S. Securities
and Exchange Commission. All forward-looking statements contained above are
qualified in their entirety by this paragraph. Neither the Company nor OSI
Systems, Inc. undertakes any obligation other than as may be required under
securities laws to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise.
SPACELABS HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
June 30,
---------------------
ASSETS 2007 2006
---------- ---------
Current assets:
Cash and cash equivalents $ 4,392 $ 8,809
Accounts receivable, net of allowance for doubtful
accounts of $1,552 and $1,412 at June 30, 2007 and
2006, respectively 69,199 64,505
Other receivables 2,085 2,140
Inventories 30,654 33,043
Prepaid expenses and other current assets 2,748 2,338
Deferred income taxes 11,477 4,925
---------- ---------
Total current assets 120,555 115,760
---------- ---------
Property, plant and equipment, net 13,057 10,280
Goodwill 26,442 5,990
Intangible assets, net 23,510 17,556
Other assets 722 1,518
---------- ---------
Total assets $ 184,286 $ 151,104
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 9,275 $ -
Current portion of long-term debt and capital
leases 4,361 -
Accounts payable 20,419 17,875
Accrued payroll and related expenses 6,269 6,363
Deferred revenue 5,252 3,482
Accrued warranties 3,349 3,397
Income taxes payable 11,946 9,706
Payables to related parties 6,150 13,360
Other accrued expenses and current liabilities 13,126 9,118
---------- ---------
Total current liabilities 80,147 63,301
Loan from OSI 13,951 31,810
Long-term debt and capital leases, less current
portion 18,410 -
Deferred rent 5,174 5,379
Deferred income taxes 6,507 296
Other long-term liabilities 1,881 1,339
---------- ---------
Total liabilities 126,070 102,125
---------- ---------
Commitments and contingencies (Note 6 and 9) - -
Shareholders' equity:
Preferred stock, $0.001 par value - 10,000 shares
authorized, none issued - -
Common stock, $0.001 par value - 250,000,000 shares
authorized, 68,099,442 and 67,855,234 shares
issued and outstanding at June 30, 2007 and
2006, respectively 68 68
Additional paid-in capital 45,452 41,306
Retained earnings 11,410 7,609
Accumulated other comprehensive income (loss) 1,286 (4)
---------- ---------
Total shareholders' equity 58,216 48,979
---------- ---------
Total liabilities and shareholders' equity $ 184,286 $ 151,104
========== =========
See accompanying notes to consolidated financial statements.
SPACELABS HEALTHCARE, INC.
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
Year ended June 30,
--------------------
2007 2006
--------- ---------
Revenues $ 233,181 $ 220,627
Cost of goods sold 124,596 114,739
--------- ---------
Gross profit 108,585 105,888
--------- ---------
Operating expenses:
Selling, general and administrative 85,260 72,587
Research and development 25,055 19,098
Impairment, restructuring and other charges 2,991 624
--------- ---------
Total operating expenses 113,306 92,309
--------- ---------
Income (loss) from operations (4,721) 13,579
Interest expense - loan from OSI 1,815 1,384
Interest expense - other 2,375 1
Interest income (138) (177)
Other income, net (14,451) (805)
--------- ---------
Income before provision for income taxes 5,678 13,176
Provision for income taxes 1,877 4,799
--------- ---------
Net income $ 3,801 $ 8,377
========= =========
Earnings per share:
Basic $ 0.06 $ 0.13
========= =========
Diluted $ 0.06 $ 0.13
========= =========
Shares used in per share calculation:
Basic 67,981 63,574
========= =========
Diluted 69,053 64,732
========= =========
See accompanying notes to consolidated financial statements.
SPACELABS HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2007 AND 2006
(in thousands)
Additional Combined
Number of Common Paid-in Parent's
shares Stock Capital Investment
------------ ------------ ------------ -----------
Balance, July 1,
2005 - - - $ 13,544
Comprehensive
income:
Net income
Reclassification
of realized
gain on
available-for-
sale securities,
net of tax
Foreign currency
translation
Unrealized gain
on available-
for-sale
securities, net
of tax
Total
comprehensive
income
Stock transfers 54,390 55 13,489 (13,544)
Stock compensation
expense 1,551
Public offering of
common
stock, net of
expenses
of $3,451 13,465 13 26,266
------------ ------------ ------------ -----------
Balance, June 30,
2006 67,855 68 41,306 -
------------ ------------ ------------ -----------
Comprehensive
income:
Net income
Foreign currency
translation
Reclassification
of realized
gain on
available-for-
sale securities,
net of tax
Other
Total
comprehensive
income
Stock compensation
expense 1,570
Exercise of stock
options 244 208
Push-down of
goodwill from
OSI 2,368
------------ ------------ ------------ -----------
Balance, June 30,
2007 68,099 68 45,452 -
============ ============ ============ ===========
Accumulated
Other
Retained Comprehensive Total
Earnings Income Shareholders'
(Deficit) (Loss) Equity
------------- ------------- -------------
Balance, July 1,
2005 $ (768) $ (706) $ 12,070
Comprehensive
income:
Net income 8,377 8,377
Reclassification
of realized
gain on
available-for-
sale
securities, net
of tax (108) (108)
Foreign currency
translation 793 793
Unrealized gain
on available-
for-sale
securities, net
of tax 17 17
-------------
Total
comprehensive
income 9,079
Stock transfers -
Stock compensation
expense 1,551
Public offering of
common stock, net of
expenses of $3,451 26,279
------------- ------------- -------------
Balance, June 30,
2006 7,609 (4) 48,979
------------- ------------- -------------
Comprehensive
income:
Net income 3,801 3,801
Foreign currency
translation 1,404 1,404
Reclassification
of realized
gain on
available-for-sale
securities, net
of tax (17) (17)
Other (97) (97)
-------------
Total
comprehensive
income 5,091
Stock compensation
expense 1,570
Exercise of stock
options 208
Push-down of
goodwill from
OSI 2,368
------------- ------------- -------------
Balance, June 30,
2007 11,410 1,286 58,216
============= ============= =============
See accompanying notes to consolidated financial statements.
SPACELABS HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Year ended June
30,
----------------
2007 2006
------- -------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 3,801 $ 8,377
Adjustments to reconcile net income to net cash
provided by operating
activities:
Depreciation and amortization 7,591 4,489
Deferred income taxes (2,174) (2,075)
Loss (gain) on sale of assets 144 (280)
Unrealized loss (gain) on foreign exchange
contract 24 (475)
Stock compensation expense 1,570 1,551
Write off of in-process research and
development 556 -
Other (357) (87)
Changes in operating assets and liabilities,
net of business acquisition:
Accounts receivable 638 (19,630)
Other receivables 1,232 (1,142)
Inventories, net 5,032 5,862
Prepaid expenses and other current assets 160 12
Accounts payable (774) (1,407)
Accrued payroll and related expenses (505) (858)
Deferred revenue (647) (152)
Accrued warranties (925) (361)
Income taxes payable 3,529 5,637
Payables to related parties, net (6,354) 4,177
Other accrued expenses and current
liabilities (1,437) 2,198
------- -------
Net cash provided by operating activities 11,104 5,836
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (5,839) (5,132)
Proceeds from sale of marketable securities 147 922
Cash paid for Del Mar Reynolds acquisition, net of
cash acquired (22,139) -
Other (303) (380)
------- -------
Net cash used in investing activities (28,134) (4,590)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Loan repayments to OSI (16,900) (25,500)
Net proceeds from public offering of common stock - 26,279
Proceeds from term loan 25,412 -
Repayments of term loan (3,630) -
Net borrowings under revolving line of credit 9,275 -
Repayments of other long-term debt and capital
leases (976) -
Stock options exercised 208 -
Other 80 -
------- -------
Net cash provided by financing activities 13,469 779
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (856) (1,091)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (4,417) 934
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,809 7,875
------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,392 $ 8,809
======= =======
See accompanying notes to consolidated financial statements.
SPACELABS HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2007 AND 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- On August 2, 2005, OSI Systems, Inc. ("OSI") formed Spacelabs
Healthcare, Inc. ("Spacelabs Healthcare" or the "Company"), which was the
combination of the following OSI Healthcare division subsidiaries: (a) Spacelabs
Medical, Inc. (U.S.A.) and its affiliates in Canada, China, Finland, France,
Germany, Italy, Greece, Singapore and the U.K (collectively, "Spacelabs
Medical"); (b) Blease Medical Holdings Limited (U.K.) and its wholly-owned
subsidiaries Blease Medical Equipment Limited and Blease Medical Service Limited
(collectively, "Blease"); (c) Dolphin Medical, Inc. (U.S.A.) and its subsidiary,
Dolphin Medical Products Limited (Singapore), (collectively, "Dolphin Medical");
and (d) Osteometer MediTech, Inc. ("Osteometer"). OSI is a publicly-traded,
vertically integrated, worldwide provider of security and inspection systems,
medical monitoring and anesthesia systems and optoelectronic devices and
value-added subsystems.
On October 24, 2005, OSI transferred 100% of the shares of Spacelabs Medical,
Blease, and Osteometer and the 89% of the shares it owned in Dolphin Medical to
Spacelabs Healthcare in exchange for approximately 54.4 million shares of
Spacelabs Healthcare common stock (the "Stock Transfer"). Also on October 24,
2005, Spacelabs Healthcare completed an initial public offering ("IPO") of its
common stock on the Alternative Investment Market ("AIM") in London. This IPO
resulted in the sale to the public of approximately 13.5 million newly-issued
shares of common stock, or 19.8% of the Company, and raised approximately $26.3
million, net of expenses.
Spacelabs Medical is a global manufacturer and distributor of patient monitoring
and clinical information systems for use primarily in hospitals. It designs,
manufactures and markets patient monitoring solutions for critical care,
emergency and perioperative areas of the hospital, wired and wireless networks
and connectivity solutions, ambulatory blood pressure monitors and clinical
trials services, all aimed at providing caregivers with instant patient
information. Spacelabs Medical is included in the Patient Monitoring/Anesthesia/
Cardiology operating segment, except for its Clinical Trials Services business
which is included in its own operating segment. Blease is a global manufacturer
and distributor of anesthesia delivery systems, ventilators and vaporizers.
Blease sells its products primarily to hospitals for use in operating rooms and
anesthesia induction areas as well as in magnetic resonance imaging facilities.
Blease also sells its systems and components, such as anesthesia vaporizers and
ventilators, directly to pharmaceutical companies and other manufacturers of
anesthesia delivery systems. Blease is included in the Patient Monitoring/
Anesthesia/Cardiology operating segment. Dolphin Medical designs, manufactures
and markets pulse oximetry instruments and compatible pulse oximetry sensors,
which are used to non-invasively monitor oxygenation levels in a patient's
blood. Osteometer designs, manufactures and markets x-ray and ultrasound
densitometers, which are used to diagnose osteoporosis as well as to provide
follow-up bone density measurements. Osteometer is included in the Patient
Monitoring/ Anesthesia/Cardiology operating segment. In January 2007, the
Company sold its Osteometer subsidiary and a portion of the Dolphin Medical
business to a subsidiary of OSI -- see Note 11. The Company acquired Del Mar
Reynolds in July 2006 -- see Note 2. Del Mar Reynolds manufactures and markets
cardiac monitoring and diagnostic systems primarily to the hospital market. In
addition, Del Mar Reynolds also offers a core laboratory business that provides
clinical trial services to pharmaceutical companies and to clinical research
organizations. Del Mar Reynolds is included in the Patient Monitoring/Anesthesia
/Cardiology operating segment, except for its core laboratory business which is
included in the Clinical Trial Services operating segment.
Consolidation -- The Consolidated Financial Statements include the accounts of
Spacelabs Healthcare, Inc. and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassifications -- Certain reclassifications were made to the prior year
financial statements to conform to the current year presentation.
Cash Equivalents -- The Company considers all highly liquid investments
purchased with maturity of three months or less as of the acquisition date, to
be cash equivalents.
Concentrations of Risk -- The Company's financial instruments that are exposed
to concentrations of credit risk consist primarily of its cash, cash equivalents
and accounts receivable. The Company restricts investments in cash equivalents
to financial institutions with high credit standing. At June 30, 2007
approximately 60% of the Company's cash and cash equivalents were held at three
financial institutions. At June 30, 2006 approximately 75% of the Company's cash
and cash equivalents were held at three financial institutions. At times, cash
balances may exceed federally insured limits. Credit risk on accounts receivable
is minimized as a result of the large and diverse nature of the Company's
worldwide customer base. No one customer accounted for more than 10% of accounts
receivable as of June 30, 2007 or 2006 or 10% of revenue for the years then
ended. The Company performs ongoing credit evaluations of its customers'
financial condition and maintains allowances for potential credit losses.
The Company's trade receivables, prior to any allowance for doubtful accounts,
were distributed geographically by location of the customer as follows:
June 30,
------------------------
2007 2006
----------- -----------
North America 64% 75%
Europe 24 15
Asia - Pacific 3 3
Other 9 7
----------- -----------
100% 100%
=========== ===========
As the Company continues to trade internationally, a portion of its receivables
are expected to be with customers located in foreign countries. While the
Company attempts to secure payments with banking instruments such as letters of
credit, some export sales are transacted with credit terms, and therefore
collection of receivables is affected by local economic conditions. Also, in the
event of default with respect to foreign export sales, collection may be more
difficult in foreign countries than in the United States.
The Company depends on single-source vendors for certain integral component
parts. The Company's largest vendor is a related party that supplies printed
circuit board assemblies. For the years ended June 30, 2007 and 2006,
respectively, 19% and 20% of total manufacturing purchases were for printed
circuit board assemblies from this related party -- see Note 11. While
single-source vendors could be replaced over time, abrupt disruption in the
supply of printed circuit board assemblies or other single-source parts could
have an adverse effect on the Company's manufacture of the products of which
such items are a component.
Accounts Receivable -- The Company extends credit to certain customers based
upon an evaluation of their credit worthiness. The Company's receivables are
recorded at the gross sales price and payment discounts are recorded when taken.
The Company does not generally charge interest on past-due balances. The
allowance for doubtful accounts involves estimates based on management's
judgment, review of individual receivables and analysis of historical bad debts.
The Company adjusts customer credit limits based upon each customer's payment
history and current credit worthiness, as determined by credit information
available at that time. The Company continuously monitors collections and
payments from its customers and maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers to make required
payments. If the financial condition of the Company's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
Inventories -- Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method using standard costs. The Company
writes down inventory for slow-moving and obsolete inventory based on
assessments of future demands and market conditions. If these factors are less
favorable than those projected, additional inventory write-downs may be
required. Demonstration inventories represent the Company's products being
utilized in the sales and marketing process. While such inventories are
available for sale to customers, some may not be sold within the next twelve
months. Customer service inventories represent spare parts maintained by the
Company to fulfill its warranty and service contract obligations. Customer
service inventories are generally maintained for seven years following the last
commercial shipment of a product.
Property, Plant and Equipment -- Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets. Leasehold improvements are amortized
on the straight-line basis over the shorter of the useful life of the asset or
the lease term.
Goodwill and Other Intangible Assets and Valuation of Long-Lived Assets --
Goodwill represents the excess purchase price of net tangible and intangible
assets acquired in business combinations over their estimated fair value.
Goodwill is allocated to the Company's segments based on the nature of the
product line of the acquired entity. In accordance with Statement of Financial
Accounting Standards No. 141, "Business Combinations" (SFAS 141) and Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142), goodwill is tested for impairment on an annual basis and
earlier if there is an indicator of impairment. Furthermore, SFAS 142 requires
purchased intangible assets other than goodwill to be amortized over their
useful lives unless these lives are determined to be indefinite. SFAS 142
requires annual evaluations for impairment of goodwill balances. The Company
performs its goodwill impairment tests annually during the second quarter of its
fiscal year and earlier if an event or circumstance indicates that impairment
has occurred. There was no goodwill impairment for the fiscal years 2007 and
2006.
In accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets," the (SFAS 144) Company evaluates long-lived assets,
including intangible assets other than goodwill and indefinite-lived intangible
assets, for impairment whenever events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. An impairment is
considered to exist if the total estimated future cash flows on an undiscounted
basis are less than the carrying amount of the assets. If impairment does exist,
the Company measures the impairment loss and records it based on the discounted
estimate of future cash flows. In estimating future cash flows, the Company
groups assets at the lowest level for which there are identifiable cash flows
that are largely independent of cash flows from other asset groups. The
Company's estimate of future cash flows is based upon, among other things,
certain assumptions about expected future operating performance, growth rates
and other factors.
During fiscal 2007, the Company recognized non-cash impairment charges totaling
$0.4 million relating to unamortized loan costs -- see Note 7. This amount is
included in impairment, restructuring and other charges in the consolidated
statement of income. There were no such impairments in fiscal year ended June
30, 2006.
Income Taxes -- The Company follows the asset and liability approach whereby
deferred income taxes are provided for temporary differences between the
financial statement and income tax basis of the Company's assets and
liabilities, based on enacted tax rates. A valuation allowance is provided when
it is more likely than not that some portion or all of the deferred income tax
assets will not be realized.
The Company is part of the consolidated U.S. federal and California state income
tax filings of OSI Systems. The Company files separate state income tax returns
for other states. The Company's tax expense and deferred taxes as of June 30,
2007 and 2006 and for the years then ended have been computed as if the Company
were filing separate, stand-alone, federal and state income tax returns.
Accordingly, any settlement of U.S. federal income taxes payable will be to OSI
rather than to the Internal Revenue Service.
Derivative Instruments -- The Company may, from time to time, purchase foreign
exchange contracts, in order to attempt to reduce foreign exchange transaction
gains and losses, or enter into interest rate swaps. As of June 30, 2006, the
Company had a $25.4 million foreign currency forward contract outstanding to buy
British pounds in anticipation of the acquisition of Del Mar Reynolds, a global
manufacture and distributor of cardiac monitoring systems. Transaction gains
during fiscal 2006 included a $0.5 million gain related to this contract. In
July 2006, The Company completed the Del Mar Reynolds acquisition and the
foreign currency forward contract settled, resulting in a fiscal 2007 loss of
$24,000 related to this contract. As of June 30, 2007, no such foreign exchange
contracts existed.
Fair Value of Financial Instruments -- The Company's financial instruments
consist primarily of cash, accounts receivable, accounts payable and debt
instruments. The carrying values of financial instruments, other than debt
instruments, are representative of their fair values due to their short-term
maturities. The carrying values of the Company's long-term debt instruments are
considered to approximate their fair values because the interest rates of these
instruments are variable or comparable to current rates offered to the Company.
Revenue Recognition -- The Company recognizes revenue upon shipment of products
when title and risk of loss passes, and when terms are fixed and collection is
probable. In accordance with the terms of Staff Accounting Bulletin No. 104,
"Revenue Recognition," and Emerging Issues Task Force ("EITF") Issue No. 00-21,
"Revenue Arrangements with Multiple Deliverables," where installation services,
if provided, are essential to the functionality of the equipment, the portion of
revenue attributable to installation is deferred and recognized when the
installation service is provided. In an instance where terms of sale include
subjective customer acceptance criteria, revenue is deferred until the
acceptance criteria are met. Concurrent with the shipment of the product, the
Company accrues reserves for estimated product returns and warranty expenses.
Critical judgments made by management related to revenue recognition include the
determination of whether or not customer acceptance criteria are perfunctory or
inconsequential. The determination of whether or not the customer acceptance
terms are perfunctory or inconsequential impacts the amount and timing of
revenue recognized.
Revenues from separate service maintenance contracts are recognized ratably over
the term of the agreements. For other services, service revenues are recognized
as the services are performed. Deferred revenue for services arises from advance
payments received from customers for services not yet performed.
The Company's software products are subject to revenue recognition in accordance
with AICPA Statement of Position 97-2 "Software Revenue Recognition" ("SOP
97-2"), whereby revenue from multi-element arrangements is allocated to
different elements based upon vendor-specific objective evidence. Revenue from
the sale of software licenses is recognized upon shipment as the Company's
software products are deemed to be off-the-shelf and do not require complex
implementation. Revenue from software implementation services is recognized as
the services are provided. Software maintenance revenue is deferred and
recognized on a straight-line basis over the life of the maintenance agreement.
Shipping and Handling -- Amounts billed to customers for shipping and handling
costs are included as a component of revenue and the corresponding costs are
included in cost of sales in accordance with EITF Issue No. 00-10, "Accounting
for Shipping and Handling Fees and Costs."
Research and Development Costs -- Research and development costs are charged to
operations as incurred. Software development costs are capitalized when a
product's technological feasibility has been established through the date the
product is available for general release to customers. The Company amortizes
these costs on a straight-line basis over a five-year period, once it is put
into use. No costs were capitalized during the years ended June 30, 2007 and
2006.
In-process Research and Development Costs -- In-process research and development
costs in the amount of $0.6 million acquired as part of the Del Mar Reynolds
acquisition were expensed during the year ended June 30, 2007, and are included
in impairment, restructuring and other charges in the consolidated statement of
income. Projects that qualify as in-process research and development represent
those that had not yet reached technological feasibility and had no alternative
future use.
Advertising Costs -- The Company expenses advertising costs as incurred.
Advertising expense totaled $0.8 million and $0.8 million for the years ended
June 30, 2007 and 2006, respectively. Advertising costs are included in selling,
general and administrative expenses in the accompanying income statements.
Foreign Currency Translation -- The accounts of the Company's operations in
Canada, China and the United Kingdom are maintained in Canadian dollars, Chinese
Yuan and British pounds, respectively. The accounts of the Company's operations
in Finland, France, Germany, Greece and Italy are maintained in Euros. Assets
and liabilities are translated into U.S. dollars at rates in effect at the
balance sheet date. Revenues and expenses are translated at weighted 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 (loss). Transaction gains
(losses) of approximately $0.8 million and ($0.3) million were included in
operating expenses on the consolidated income statement for the years ended June
30, 2007 and 2006, respectively.
Accrued Warranties -- The Company offers its customers warranties on products
sold to them. These warranties provide for repairs and maintenance of its
products for a specified time period, typically one year. Warranties covering
software and software products do not include updates or upgrades to software
functionality. Concurrent with the sale of products, a provision for estimated
warranty expenses is recorded with a corresponding increase in cost of goods
sold. This provision is adjusted periodically based on historical and
anticipated experience. Actual expenses of repairs under warranty, including
parts and labor are charged to this provision when incurred.
Accrued Product Returns -- The Company's reserve for estimated product returns
is based on management's historical experience and is reviewed and adjusted
periodically, as necessary.
Stock-Based Compensation -- Effective July 1, 2005, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004),
"Share-Based Payment," ("SFAS 123(R)") using the modified-prospective-transition
method. Under this method, share-based compensation cost is measured at the
grant date based on the estimated fair value of the award and is recognized as
expense over the employee's requisite service period for all share-based awards
granted, modified or cancelled as of July 1, 2005.
Restructuring charges -- The Company periodically consolidates processes and
facilities of its subsidiaries. The Company records the associated charges as
restructuring charges and calculates them in accordance with SFAS No. 144, and
SFAS No. 146, "Accounting for Exit or Disposal Activities." In fiscal year 2007,
the Company consolidated facilities of certain businesses and reduced its
workforce in the Monitoring/Anesthesia/Cardiology operating segment. These
consolidations resulted in pre-tax restructuring charges of $1.3 million which
are included in impairment, restructuring and other charges in the consolidated
statement of income. See Note 6 for additional information about these
restructuring charges.
Earnings per share -- Basic earnings per share is computed by dividing net
income by the weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed by dividing net income by the sum
of the weighted average number of common and dilutive potential common shares
outstanding. Potential common shares consist of shares issuable upon the
exercise of stock options using the treasury stock method.
The following table sets forth the computation of basic and diluted earnings per
shares for the years ended June 30, 2007 and 2006 (in thousands, except per
share amounts):
Year ended June 30,
---------------------------
2007 2006
------------- -------------
Net income $ 3,801 $ 8,377
============= =============
Weighted average shares outstanding -- basic 67,981 63,574
Dilutive effect of stock options 1,072 1,158
------------- -------------
Weighted average shares outstanding -- diluted 69,053 64,732
============= =============
Basic earnings per share $ 0.06 $ 0.13
============= =============
Diluted earnings per share $ 0.06 $ 0.13
============= =============
New Accounting Pronouncements -- In July 2006, the FASB issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in the financial statements in accordance with FASB Statement No.
109, "Accounting for Income Taxes." This Interpretation is effective for fiscal
years beginning after December 15, 2006 and will be adopted by the Company in
the first quarter of fiscal 2008. The Company has not yet determined the impact
that this interpretation will have on its Consolidated Financial Statements.
In September 2006, FASB issued SFAS No. 157, "Fair Value Measurements." This
statement defines fair value, establishes a framework for measuring fair value
and expands disclosures about fair value measurements. It is effective for
fiscal years beginning after November 15, 2007. The Company has not yet
determined the impact that this statement will have on its Consolidated
Financial Statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities -- including an amendment of SFAS No.
115," (SFAS 159). SFAS No. 159 allows companies to elect to measure many
financial assets and financial liabilities at fair value. Unrealized gains and
losses on items for which the fair value option has been chosen are reported in
earnings. SFAS No. 159 is effective for fiscal years beginning after November
15, 2007. The Company has not yet determined the impact, if any, that this
statement will have on its Consolidated Financial Statements.
2. BUSINESS COMBINATIONS
Del Mar Reynolds Acquisition -- On July 31, 2006, the Company completed the
acquisition of the Del Mar Reynolds Cardiac division of Ferraris Group PLC. This
acquisition expands the portfolio of products offered to the hospital market
with the addition of cardiac monitoring systems. Del Mar Reynolds also
maintained a core laboratory business that provides clinical trial services to
pharmaceutical companies and to clinical research organizations.
Pursuant to the terms of the acquisition agreement, the Company made an initial
cash payment of $25.9 million, subject to a working capital adjustment and to an
adjustment of plus or minus $1.9 million based upon revenue and earnings results
for Del Mar Reynolds for the 13-month period ending September 30, 2006. The
agreement also provides for a potential earn-out payment of up to GBP 5 million
(approximately $10 million) based on revenues of the acquired division for the
twelve month period ending on September 30, 2007. The earn-out amount, if any,
is payable in either cash or in the common stock of the Company at the Company's
option. As of June 30, 2007, no contingent consideration has been earned. In
September 2006, Ferraris Group PLC paid back $1.7 million in connection with a
purchase price adjustment related to the working capital adjustment and in
November 2006 it paid an additional $1.9 million as a result of the failure of
Del Mar Reynolds to meet its revenue and earnings results for the 13-month
period ending September 30, 2006.
The results of operations for Del Mar Reynolds have been included in the
consolidated financial statements from the date of acquisition. The total cost
of the acquisition, excluding the potential earn-out, was as follows (in
thousands):
Cash paid for common stock, net of cash acquired $ 24,911
Less refund pursuant to working capital adjustment (1,694)
Less refund pursuant to 13-month revenue and earnings
adjustment (1,872)
Direct costs 794
-------------
Total purchase price $ 22,139
=============
As of June 30, 2007, the final purchase price allocation was as follows (in
thousands of dollars):
Net liabilities acquired $ (3,197)
In-process research and development costs acquired 561
Identifiable intangible assets acquired 7,567
Goodwill 17,208
-------------
$ 22,139
=============
A history of operating margins and profitability, a strong scientific employee
base and operations in an attractive market niche were among the factors that
contributed to a purchase price resulting in the recognition of goodwill.
In-process research and development costs acquired were expensed during the year
ended June 30, 2007, and are included in impairment, restructuring and other
charges in the consolidated income statement. Projects that qualify as
in-process research and development represent those that had not yet reached
technological feasibility and had no alternative future use.
During fiscal 2007, the Company paid $1.2 million in connection with severance
charges, relocation costs and rent obligations as part of the integration of
these business operations and at June 30, 2007, had $2.4 million accrued for
additional payments of such amounts. Approximately $1.5 million of this amount
is included in accrued expenses and other current liabilities and $0.9 million
is included in other long-term liabilities in the consolidated balance sheet.
Pursuant to the terms of the acquisition agreement, the Company assumed
management retention bonus agreements for key personnel of Del Mar Reynolds.
These bonuses were fully paid during the year ended June 30, 2007 and $0.6
million is included in impairment, restructuring and other charges on the
consolidated income statement relating to these agreements.
Supplemental pro-forma disclosures of the results of operations for the fiscal
year ended June 30, 2006, as though the Del Mar Reynolds acquisition had been
completed on July 1, 2005 are as follows (unaudited, in thousands of dollars,
except per share amounts):
Revenue $ 253,761
Income before income taxes $ 10,264
Net income $ 6,525
Earnings per share (basic and diluted) $ 0.10
Spacelabs Medical Acquisition -- In March 2004, OSI completed the acquisition of
Spacelabs Medical from Instrumentarium Corporation, now a subsidiary of General
Electric Company. In March 2007, the Company, OSI and General Electric Company
settled a dispute over the amount of a working capital adjustment relating to
this acquisition, resulting in a payment to the Company of $14.4 million, net of
legal costs. The proceeds were used to reduce outstanding loans to OSI and this
amount is included in other income in the Company's consolidated income
statement for the year ended June 30, 2007. Additionally, pursuant to the terms
of the purchase agreement, the Company assumed management retention bonus
agreements for key personnel of Spacelabs Medical, which were fully paid by
fiscal year end June 30, 2006. Approximately $0.6 million is included in
impairment, restructuring and other charges on the consolidated income statement
for the year ended June 30, 2006 relating to these retention agreements.
Dolphin Medical Transaction -- In December 2003, Dolphin Medical entered into a
stock purchase and option agreement and a distribution agreement with CONMED
Corporation ("CONMED"). Under these agreements, in exchange for $2.0 million in
cash, CONMED received a 9% interest in Dolphin Medical, exclusive distribution
rights for certain products of Dolphin Medical in the United States and an
option to purchase substantially all of the operating assets and liabilities of
the Dolphin Medical business related to certain specified products. In May 2007,
Dolphin Medical and CONMED agreed to alter this relationship and replaced the
2003 agreement with a new agreement. Under the new agreement CONMED acquired
ownership of the "Dolphin" trade name and worldwide distribution rights for
certain products of Dolphin Medical. In return, Company received back the 9%
ownership interest in Dolphin Medical held by CONMED, the purchase option was
terminated and CONMED agreed to pay Dolphin Medical a 10% royalty on all sales
of Dolphin branded products it sells for a three-year period. As a result of the
2007 transaction, the Company recorded a pre-tax gain of $0.4 million and a
corresponding increase in goodwill.
3. INVENTORIES
Inventories consisted of the following (in thousands of dollars):
June 30,
-----------------------------
2007 2006
-------------- --------------
Raw materials and components $ 13,470 $ 15,627
Work in process 455 971
Finished goods 6,569 6,555
Demonstration inventories 3,775 3,746
Customer service inventories 6,385 6,144
-------------- --------------
Total $ 30,654 $ 33,043
============== ==============
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands of dollars):
June 30,
Estimated ------------------------
Useful Lives 2007 2006
------------ ----------- -----------
Equipment 4-8 years $ 8,922 $ 6,101
Leasehold improvements 3-10 years 1,450 1,336
Tooling 3-5 years 1,259 1,719
Furniture and fixtures 4-10 years 2,177 1,554
Computer equipment and software 3-5 years 8,956 5,951
Vehicles 3-5 years 286 57
----------- -----------
23,050 16,718
Less accumulated depreciation and
amortization (9,993) (6,438)
----------- -----------
Total $ 13,057 $ 10,280
=========== ===========
Depreciation expense was $4.9 million and $2.9 million for the fiscal years
ended June 30, 2007 and 2006, respectively. Included in equipment and vehicles
are approximately $1.0 million of assets under capital leases as of the year
ended June 30, 2007.
5. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the fiscal years ended June
30, 2007 and 2006 are as follows (in thousands of dollars):
Balance as of July 1, 2005 $ 5,853
Foreign currency translation adjustment 137
--------------
Balance as of June 30, 2006 5,990
Goodwill recorded during the period 20,099
Foreign currency translation adjustment 353
--------------
Balance as of June 30, 2007 $ 26,442
==============
During the year ended June 30, 2007, OSI repurchased shares in the Company
through various open-market transactions. As a result of these purchases,
approximately $2.4 million in goodwill was recognized by the Company with a
corresponding increase in additional paid-in capital.
Intangible assets consisted of the following (in thousands of dollars):
June 30, 2007 June 30, 2006
------------------------------ ------------------------------
Accumulated Accumulated
Carrying Amorti- Intangibles, Carrying Amorti- Intangibles,
Value zation Net Value zation Net
-------- ---------- ---------- -------- ---------- ----------
Core
technology $ 8,364 $ 2,496 $ 5,868 $ 8,153 $ 1,629 $ 6,524
Customer
relationships
/backlog 7,267 1,834 5,433 4,027 892 3,135
Software
development
costs 1,208 1,134 74 1,998 1,441 557
Patents 388 211 177 417 199 218
Developed
technology 5,461 725 4,736 150 148 2
-------- ---------- ---------- -------- ---------- ----------
Intangibles,
subject to
amortization 22,688 6,400 16,288 14,745 4,309 10,436
Tradenames,
not
amortized 7,222 - 7,222 7,120 - 7,120
-------- ---------- ---------- -------- ---------- ----------
Total
intangibles $ 29,910 $ 6,400 $ 23,510 $ 21,865 $ 4,309 $ 17,556
======== ========== ========== ======== ========== ==========
Definite-lived intangible assets are amortized using the straight-line method
over their estimated useful lives. The range of estimated useful lives of the
major classes of intangible assets is:
Weighted
Average Lives
Core technology 10 years
Customer relationships/backlog 9.5 years
Software development costs 5 years
Patents 11 years
Developed technology 5 years
Tradenames Indefinite
Amortization expense for the fiscal years ended June 30, 2007 and June 30, 2006
was $2.7 million and $1.6 million, respectively.
At June 30, 2007, estimated future amortization expense is as follows (in
thousands of dollars):
2008 $ 2,635
2009 2,561
2010 2,561
2011 2,561
2012 2,561
2013 and thereafter 3,409
--------------
$ 16,288
==============
6. OTHER ACCRUED EXPENSES AND CURRENT LIABILITIES
Other accrued expenses and current liabilities consisted of the following (in
thousands of dollars):
June 30,
-----------------------------
2007 2006
-------------- --------------
Sales returns reserve $ 4,038 $ 3,501
Accrued commissions 1,899 2,387
Customer advances 1,405 852
State and local taxes 1,482 494
Restructuring accrual 201 -
Other 4,101 1,884
-------------- --------------
Total $ 13,126 $ 9,118
============== ==============
During fiscal year 2007, the Company initiated a series of restructuring
activities which were intended to realign its global capacity and infrastructure
with demand by its customers and thereby improve operational efficiencies. These
activities included reducing excess workforce and consolidating and relocating
certain facilities and are included in impairment, restructuring and other
charges in the consolidated income statements. Details of the restructuring
activities are as follows (in thousands of dollars):
Balance as of July 1, 2006 $ -
Employee termination costs expensed during the year 1,304
Facility closure costs expensed during the year 82
--------------
Total expensed 1,386
Paid during the year (1,185)
--------------
Restructuring accrual balance as of June 30, 2007 $ 201
==============
7. REVOLVING LINE OF CREDIT, LONG-TERM DEBT AND CAPITAL LEASES
Long-term debt and capital leases consisted of the following at June 30, 2007
(in thousands of dollars):
Five-year term loan due in 2011 $ 21,782
Capital leases and other 989
-------------
22,771
Less current portion of long-term debt (4,361)
-------------
Total long-term debt $ 18,410
=============
On July 18, 2006, the Company entered into a syndicated revolving credit and
term loan agreement with Bank of the West as lead bank and syndication agent.
The agreement provided a $10 million senior revolving line-of-credit, including
a letter-of-credit and foreign exchange facility, and a term loan of up to $27.4
million to fund the purchase of Del Mar Reynolds. The agreement was secured by
all the U.S. assets of the Company and by shares of its subsidiaries. Interest
on the loans was based, at the Company's option, on either the bank's prime
rate, plus up to 0.5%, or LIBOR plus up to 2.5%, with the margin varying based
on the Company's Leverage Ratio (as defined in the agreement). At June 30, 2007,
the weighted average effective interest rate was 8.75% on both the revolving
line of credit and the term loan. The agreement contained various
representations, warranties, restrictions on payments of dividends, affirmative,
negative and financial covenants, and conditions of default customary for
financing of this type. As of June 30, 2007, $9.3 million was outstanding under
the revolving line of credit and $21.8 million was outstanding under the term
loan. There was $0.7 million available to borrow on the revolving line of credit
at June 30,2007.
On July 27, 2007, the Company terminated the credit agreements with Bank of West
and replaced it with a new intercompany loan agreement with OSI -- see Note 11.
As a result of terminating the Bank of the West credit agreements, $0.4 million
of unamortized loan costs were written off as of June 30, 2007. This amount is
included in impairment, restructuring and other charges in the consolidated
income statements.
At June 30, 2007, scheduled future principal payments are as follows (in
thousands of dollars):
2008 $ 4,361
2009 3,869
2010 3,650
2011 10,891
---------------
$ 22,771
===============
8. INCOME TAXES
For financial reporting purposes, income before provision for income taxes
includes the following components (in thousands of dollars):
June 30,
-----------------------------
2007 2006
------------- --------------
United States $ 6,847 $ 12,994
Foreign (1,169) 182
------------- --------------
Total pre-tax income $ 5,678 $ 13,176
============= ==============
The Company's provision (benefit) for income taxes is composed of the following
(in thousands of dollars):
June 30,
-----------------------------
2007 2006
------------- --------------
Current:
Federal $ 1,157 $ 6,217
State 264 321
Foreign 464 473
------------- --------------
1,885 7,011
Change in valuation allowance - (137)
Deferred (8) (2,075)
------------- --------------
Total provision for income taxes $ 1,877 $ 4,799
============= ==============
The Company does not provide for U.S. income taxes on the undistributed earnings
of the foreign subsidiaries, as it is the Company's intention to utilize those
earnings in the foreign operations for an indefinite period of time. At June 30,
2007 and 2006, undistributed earnings of the foreign subsidiaries amounted to
approximately $3.6 million and $1.5 million, respectively. It is not practical
to determine the amount of income or withholding tax that would be payable upon
the remittance of these earnings.
Deferred income tax assets (liabilities) consisted of the following (in
thousands of dollars):
June 30,
2007 2006
--------- ---------
Deferred income tax assets:
Net operating loss carryforwards $ 4,263 $ 2,688
Inventory capitalization 2,127 1,463
Accrued bonuses 267 332
Inventory reserves 1,755 1,067
Accrued warranty 1,176 765
Bad debt reserves 508 405
Inter-company profits 1,201 850
Sales returns allowance 142 158
Accrued vacation 601 460
Deferred rent 1,923 852
Other 1,997 1,134
--------- ---------
Total deferred income tax assets 15,960 10,174
Valuation allowance (2,448) (1,434)
--------- ---------
Net deferred income tax assets 13,512 8,740
--------- ---------
Deferred income tax liabilities:
Depreciation (1,372) (1,518)
Intangible assets (6,899) (1,833)
Other (271) (760)
--------- ---------
Total deferred income tax liabilities (8,542) (4,111)
--------- ---------
Net deferred income tax assets $ 4,970 $ 4,629
========= =========
Net deferred income tax assets - current $ 11,477 4,925
Net deferred income tax liability - non-current (6,507) (296)
--------- ---------
$ 4,970 $ 4,629
========= =========
The Company has established a valuation allowance in accordance with the
provisions of SFAS No. 109. The valuation allowance relates to the net operating
loss of a subsidiary, subject to Separate Return Limitation Year ("SRLY") rules,
and net operating losses of certain foreign operations. The SRLY net operating
loss totals $4.1 million and expires beginning in 2013 through 2017. The
increase in the valuation allowance for the year ended June 30, 2007 was due to
valuation allowances established on net operating loss carryforwards acquired as
part of the Del Mar Reynolds acquisition. Future utilization of these operating
loss carryforwards will reduce goodwill. The acquired net operating losses do
not expire. The decrease in the valuation allowance for the year ended June 30,
2006 was $0.1 million and was due to current year utilization of prior year net
operating losses in foreign jurisdictions. The Company continually reviews the
adequacy of valuation allowances and releases the allowances when it is
determined that is more likely than not that the benefits will be realized.
The combined effective income tax rate differs from the federal statutory income
tax rate due primarily to the following (in thousands of dollars):
June 30, 2007 June 30, 2006
---------------- ----------------
US US
dollars % dollars %
------- ------- ------- -------
Provision for income taxes at US
federal statutory rate $ 1,987 35.0 $ 4,610 35.0
State income taxes, net of federal
benefit 264 4.6 318 2.4
Research and development tax credits (546) (9.6) (88) (0.7)
Foreign income subject to tax at other
than U.S. federal Statutory rate (182) (3.2) 27 0.2
Non-deductible expenses 354 6.3 243 1.8
Domestic Production tax benefit - - (174) (1.3)
Changes in valuation allowance - - (137) (1.0)
------- ------- ------- -------
$ 1,877 33.1 $ 4,799 36.4
======= ======= ======= =======
9. COMMITMENTS AND CONTINGENCIES
The change in accrued warranties for the years ended June 30, 2007 and 2006 is
as follows (in thousands of dollars):
Balance as of July 1, 2005 $ 3,706
Additions - charged to cost of sales 2,531
Reductions for warranty repair costs (2,840)
-------
Balance as of June 30, 2006 3,397
Additions - charged to cost of sales 2,624
Increases as a result of Del Mar Reynolds
acquisition 439
Reductions for warranty repair costs (3,111)
-------
Balance as of June 30, 2007 $ 3,349
=======
Operating leases -- The Company leases certain property and equipment under
long-term operating leases expiring on various dates through 2014, some of which
contain renewal options. Certain of these leases contain clauses for escalations
and payment of real estate taxes, maintenance, insurance and certain other
operating expenses of the properties. Net rental expense under these leases was
$6.5 million and $6.5 million for the years ended June 30, 2007 and 2006,
respectively.
Minimum aggregate future rentals are as follows (in thousands of dollars):
2008 $ 7,521
2009 6,636
2010 5,786
2011 5,153
2012 4,838
2013 and thereafter 11,696
--------
$ 41,630
========
Contingent Acquisition Obligation -- In February 2005, the Company acquired
Blease Medical Holdings Limited and certain affiliated companies for
approximately $9.3 million in cash (net of cash acquired), including acquisition
costs. For the three years following the close, contingent consideration is
payable based on Blease's net revenues, provided certain requirements are met.
The contingent consideration is capped at #6.25 million (approximately $12.1
million as of December 31, 2006). As of June 30, 2007, no contingent
consideration has been earned.
Letters of credit -- The Company has an arrangement with a bank in the United
States that provides for up to $0.1 million in letters of credit and $0.4
million in overdrafts borrowings. The overdraft borrowings portion bears
interest at the bank's prime rate (8.25% at June 30, 2007) plus 3%. There were
no outstanding letters of credit or outstanding amounts under the overdraft
borrowing portion of the facility as of June 30, 2007 or 2006. The facility is
collateralized by a guarantee from OSI.
Litigation -- In March 2004, certain individuals named Spacelabs Medical, OSI
and a hospital in a petition claiming that the individuals suffered injuries in
March 2003 caused, in part, by a defective monitoring system manufactured by
Spacelabs Medical. OSI has been dismissed from the action. The amount of the
claim has not yet been specified.
In April 2004, certain individuals named Spacelabs Medical, as well as several
other defendants, in a petition that alleges, among other things, that a product
possibly manufactured by Spacelabs Medical failed to properly monitor a hospital
patient thereby contributing to the patient's death in November 2001. The amount
of the claim has not yet been specified.
In accordance with SFAS No. 5, "Accounting for Contingencies," the Company has
not accrued for loss contingencies relating to the above matters because it
believes that, although unfavorable outcomes in the proceedings or unasserted
claims may be possible, they are not considered by management to be probable or
reasonably estimable. If one or more of these matters are resolved in a manner
adverse to the Company, the impact on the Company's results of operations,
financial position and/or liquidity could be material.
Various lawsuits and claims are pending against the Company, including product
liability claims which are generally covered by insurance policies. Although the
outcome of such lawsuits and claims cannot be predicted with certainty, the
expected disposition thereof will not, in the opinion of management both
individually and in the aggregate, result in a material adverse effect on the
Company's results of operations and financial position.
10. STOCK-BASED COMPENSATION
Stock-based-compensation expense has been recorded in the consolidated
statements of income for the years ended June 30, 2007 and 2006 as follows (in
thousands):
Year ended June 30,
--------------------
2007 2006
--------- ---------
Cost of goods sold $ 176 $ 233
Selling, general and administrative 1,291 1,192
Research and development 103 126
--------- ---------
Stock based compensation expense before taxes 1,570 1,551
Related income tax benefit (518) (565)
--------- ---------
Stock based compensation, net of estimated taxes $ 1,052 $ 986
========= =========
As of June 30, 2007, total unrecognized compensation cost related to non-vested
share-based compensation arrangements amounted to $1.1 million. The Company
expects to recognize this cost over a weighted-average period of 1.7 years.
Employee Stock Purchase Plan
Certain of the Company's U.S. employees are eligible to participate in OSI's
employee stock purchase plan. Under this plan, as discussed further in Note 12,
eligible employees may purchase a limited number of shares of OSI common stock
at a discount of up to 15% of the market value of such stock at pre-determined,
plan-defined dates. The Company recognized $0.3 million and $0.2 million in
compensation expense associated with this plan for the years ended June 30, 2007
and 2006, respectively.
Stock Option Plans
2005 Spacelabs Healthcare Plan -- The Company established the 2005 Spacelabs
Healthcare Plan in October 2005 under which it authorized the grant of up to
10,000,000 shares of Spacelabs Healthcare common stock. Under the 2005 Spacelabs
Healthcare Plan, the Company may grant to employees, including those of its
subsidiaries, consultants and to the non-employee directors of Spacelabs
Healthcare, incentive or nonqualified options to purchase shares of Spacelabs
Healthcare common stock. Stock options granted under this plan may not be
exercised more than ten years after the date of grant.
The Company estimates the fair value of each option award as of the date of
grant using a Black-Scholes option pricing model that uses assumptions detailed
in the table below. The Company based expected volatilities on the historical
volatilities of the publicly traded common stock of a select peer group of
companies that are similar to Spacelabs Healthcare. The Company has determined
the expected term assumption under the "Simplified Method" as defined in SAB
107, as it lacks historical data and is unable to make reasonable expectations
regarding future exercise patterns. The risk-free rate is based on the U.S.
Treasury yield curve in effect at the time of grant for periods corresponding
with the expected life of the option.
The Company determined the fair value of the options issued during the years
ended June 30, 2007 and 2006, respectively, on the date of the grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
June 30,
--------------------
2007 2006
--------- ---------
Expected dividend 0% 0%
Risk-free interest rate 4.5% 4.6%
Expected volatility 37.8% 44.2%
Expected life (in years) 3.6 3.6
The following table summarizes the 2005 Spacelabs Healthcare Plan's stock option
activities for the years ended June 30, 2007 and 2006:
Weighted-
Average
Weighted- Remaining Aggregate
Average Contractual Intrinsic
Number of Exercise Term (in Value
Options Price years) ($000)
--------- ---------- ------------ ----------
Outstanding - July 1, 2005 -
Granted 390,000 $ 2.46
Converted into Plan 5,215,452 1.29
Exercised (2,543) 1.05
Canceled (128,790) 1.14
---------
Outstanding - June 30, 2006 5,474,119 $ 1.37 3.3 $ 5,290
Granted 997,200 2.11
Exercised (282,682) 1.10
Canceled (327,087) 1.43
---------
Outstanding - June 30, 2007 5,861,550 $ 1.50 2.7 $ 1,096
========= ========== ============ ==========
Exercisable - June 30, 2007 3,294,545 $ 1.23 2.1 $ 955
========= ========== ============ ==========
The per-share weighted-average grant-date fair value of stock options granted
under the 2005 Spacelabs Healthcare Plan was $0.72 and $1.00 for the years ended
June 30, 2007 and 2006, respectively. The intrinsic value of option exercises
under the 2005 Spacelabs Healthcare Plan during the fiscal years ending June 30,
2007 and 2006 was $290,000 and $4,000, respectively. As of June 30, 2007, there
were 3,583,225 shares available for grant.
2004 Spacelabs Medical Stock Option Plan -- Through March 6, 2006, the Company
maintained a stock option plan for its Spacelabs Medical subsidiary. The 2004
Spacelabs Medical Stock Option Plan was established in April 2004 and authorized
the grant of up to 12,500,000 shares of Spacelabs Medical common stock in the
form of nonqualified options. On March 6, 2006, all 9,485,621 outstanding
options under the 2004 Spacelabs Medical Stock Option Plan were converted into
options under the 2005 Spacelabs Healthcare Plan. As a result of this
conversion, no additional compensation expense was required to be recognized for
the year ended June 30, 2006. The Company does not expect to make any future
grants under the 2004 Spacelabs Medical Stock Option Plan.
The Company estimated the fair value of each stock option award as of the date
of grant, using a Black-Scholes option pricing model that uses assumptions
detailed in the table below. The Company based expected volatilities on the
historical volatilities of the publicly traded common stock of a select peer
group of companies that are similar to Spacelabs Medical. The Company has
determined the 2006 expected term assumption under the "Simplified Method" as
defined in SAB 107, as it lacks historical data and is unable to make reasonable
expectations regarding future exercise patterns. The risk-free rate is based on
the U.S. Treasury yield curve in effect at the time of grant for periods
corresponding with the expected life of the option.
The Company determined the fair value of options issued during the fiscal year
2006 on the date of the grant using the Black-Scholes option pricing model with
the following weighted average assumptions:
Expected dividend 0%
Risk-free interest rate 3.3%
Expected volatility 51.0%
Expected life (in years) 3.6
The following summarizes stock option activity for the fiscal year ended 2006:
Weighted-
Average
Weighted- Remaining Aggregate
Average Contractual Intrinsic
Number of Exercise Term (in Value
Options Price years) ($000)
---------- ---------- ------------ ---------
Outstanding - July 1, 2005 7,923,500 $ 0.70
Granted 739,000 1.10
Converted into Plan 1,065,680 0.58
Exercised - -
Canceled (242,559) 0.70
Converted out of Plan (9,485,621) 0.72
----------
Outstanding - June 30, 2006 - $ - $ -
========== ========== ============ =========
Exercisable - June 30, 2006 - $ - $ -
========== ========== ============ =========
The per-share weighted-average grant-date fair value of stock options issued
under the 2004 Spacelabs Medical Stock Option Plan was $0.45 for the year ended
June 30, 2006. No option-holders under the 2004 Spacelabs Medical Stock Option
Plan exercised their options during the year ended June 30, 2006.
In fiscal year 2006, 30,529 OSI options granted to Company employees were
converted into 1,065,680 options under the 2004 Spacelab Medical Stock Option
Plan. As a result of the conversion, the Company recognized additional
compensation expense of $0.2 million for the year ended June 30, 2006.
11. RELATED-PARTY TRANSACTIONS
Loan from OSI -- OSI provides loans to the Company for working capital needs and
to fund acquisitions under a loan agreement dated October 24, 2005. Interest
accrues on the outstanding balance of the loan at LIBOR plus 1.65% (7.02% at
June 30, 2007). OSI may call for full or partial repayment of the loans with a
notice period of 367 days. As notice from OSI has not been provided as of June
30, 2007, the loans are recorded as long term on the accompanying consolidated
balance sheet. Interest expense on the loan totaled $1.8 million and $1.4
million for the years ended June 30, 2007 and 2006, respectively.
On July 27, 2007, the Company replaced its Bank of the West credit facility and
its October 24, 2005 OSI loan with an expanded and revised intercompany credit
agreement with OSI. The new credit agreement provides a $27 million term loan, a
$14 million term loan and a $10 million revolving loan. The $27 million term
loan bears interest at a rate of LIBOR plus 2.25% and is repayable in increasing
quarterly installments over five years with the remaining balance due in July
2012. The $14 million term loan bears interest at LIBOR plus 1.65% and may be
called by OSI for repayment with 367 days notice. Borrowings up to $5 million on
the revolving line bear interest at LIBOR plus 2.25% and borrowings in excess of
$5 million bear interest at LIBOR plus 4%. The revolving loan expires the
earlier of July 2012 or the expiration of OSI's credit agreement with its lender
Wachovia Bank. The Company paid a $0.4 million loan fee to OSI in July 2007 in
connection with the setup of the new credit agreement.
Sale of business -- In January 2007, the Company sold its Osteometer subsidiary
and a portion of the Dolphin Medical business to a subsidiary of OSI for
approximately $1.0 million, which equaled the net book value of the assets sold.
These businesses accounted for approximately $8.2 million of revenue in fiscal
year 2006. Management estimates that the fair values of the sold businesses
approximated their net book values. No gain or loss was recorded on this
transaction.
Allocations -- All operating expenses associated with the Company are included
in the accompanying consolidated financial statements, including expenses
incurred by OSI on behalf of the Company. Certain corporate expenses incurred by
OSI that are not practicable to be specifically identified as costs of the
Company, which include human resources, treasury, accounting, information
technology and executive officer costs, have been allocated by OSI. Management
has allocated these costs based on percentage estimates of time or departmental
effort devoted to working on Company related matters in relation to overall OSI
matters. Allocated costs of $1.7 million and $1.6 million for the years ended
June 30, 2007 and 2006, respectively, are included in selling, general and
administrative expenses in the accompanying consolidated income statements.
Management of the Company believes these methods of allocation are reasonable,
and approximate what these expenses would have been on a stand-alone basis.
Supply arrangements -- Spacelabs Medical purchases printed circuit board
assemblies and accessories from other subsidiaries of OSI. Dolphin Medical
purchases sub-assemblies and finished goods from various OSI subsidiaries. For
the years ended June 30, 2007 and 2006, inventory purchases from OSI affiliates
were $21.8 million and $17.0 million, respectively. Management of the Company
believes the costs of these purchases are equivalent to what the Company could
purchase from third party suppliers. As of June 30, 2007 and 2006, the Company's
related party payable under the supply arrangements was $3.2 million and $4.3
million, respectively.
Manufacturing and office facilities -- Certain of the Company's businesses share
manufacturing and office space with OSI and its subsidiaries. The cost of these
facilities is charged to the Company based on square-footage of the shared
facility. The amounts charged to the Company for the years ended June 30, 2007
and 2006 were $0.5 million and $0.6 million, respectively.
Insurance -- The Company is covered under OSI's various liability and property
insurance coverages. The actual costs of these coverages are charged to the
Company on a specific identification basis. The amounts charged to the Company
for the years ended June 30, 2007 and 2006 were $2.0 million and $1.8 million,
respectively.
Other -- OSI and certain of its subsidiaries perform other activities on behalf
of the Company including accounting, legal, information technology, and
engineering. For the years ended June 30, 2007 and 2006, OSI charged the Company
$0.1 million and $0.4 million, respectively, related to these services based on
the actual costs of the services provided. In addition, Spacelabs Medical also
performs certain activities on behalf of OSI and certain of its subsidiaries.
Spacelabs Medical charged OSI $0.2 million and $0.2 million for these services
during the years ended June 30, 2007 and 2006, respectively.
Tax sharing agreement -- On October 24, 2005, the Company entered into a tax
sharing agreement with OSI. The agreement becomes effective once OSI's ownership
interest in the Company falls below 80% whereby the Company will no longer be
able to be included in OSI's consolidated U.S. federal income tax return. The
terms of this agreement assign responsibility to the Company for all taxes
arising in the pre-separation period attributable to the Company. OSI will
retain, and indemnify the Company for, among other things, the tax liabilities
incurred as a result of transferring assets to the Company. Any other
separation-related tax liabilities generally will be paid by the party legally
responsible and OSI and the Company agreed to cooperate in the resolution of
such taxes. The tax sharing agreement also deals with the allocation of
obligations and responsibilities in connection with certain administrative
matters relating to taxes.
12. EMPLOYEE BENEFIT PLANS
Defined contribution plan -- The U.S. employees of the Company are eligible to
participate in OSI's qualified employee retirement savings plan. The plan
provides for a contribution by the Company, which is determined annually by the
Board of Directors. In addition, the plan permits voluntary salary reduction
contributions by employees. The Company contributed $0.5 million and $0.7
million to the plan for the fiscal years ended June 30, 2007 and 2006,
respectively.
OSI employee stock purchase plan -- The U.S. Employees of the Company who have
been regular employees for at least six months and who meet certain other
criteria, are eligible to purchase shares of OSI Common Stock through regular
payroll deductions. The plan is administered by the Board of Directors of OSI or
a committee of the board and qualifies as an "employee stock purchase plan" as
defined in Section 423 of the Internal Revenue Code. The Company's liability to
the plan was $0.3 million and $0.3 million at June 30, 2007 and 2006,
respectively, representing payroll deductions from the Company's employees that
have not yet been used to purchase OSI Common Stock.
Defined beneft plan -- As a result of the Del Mar Reynolds acquisition, the
Company sponsors a defined benefit pension plan for certain employees in
Germany. As of June 30, 2007, the Company adopted the provisions of FAS 158,
which requires the Company to recognize the overfunded or underfunded status of
its defined benefit pension plan. The adoption of FAS 158 was not material to
the Company's consolidated financial statements. Further, as the obligation
under the defined benefit plan is not material, the associated disclosures have
been omitted from the consolidated financial statements.
13. SEGMENT INFORMATION
The Company operates in two reportable segments as defined by SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"). The Equipment, Services and Supplies reportable segment includes two
operating segments Patient Monitoring/Cardiology/Anesthesia and Dolphin Medical.
The Clinical Trial Services reportable segment includes the Company's medical
data services business. The Patient Monitoring/Cardiology/Anesthesia and Dolphin
Medical operating segments have been aggregated pursuant to the rules of FAS
131. The aggregated businesses provide products and services within the medical
products market and have similar economic characteristics, including similar
operating margins. The businesses have similar production processes, similar
types and classes of customers, and sell through similar distribution channels.
In addition, the different businesses operate within the same overall regulatory
environment. The accounting policies of the two reportable segments are
identical to the policies in Note 1. There were no inter-segment revenues during
the fiscal years ended June 30, 2007 and 2006.
The following tables present the operations and identifiable assets by segment
(in thousands):
Equipment, Clinical
Services & Trial
Supplies Services Total
---------- -------- ---------
Year ended June 30, 2006:
External customers revenue $ 215,377 $ 5,250 $ 220,627
Income (loss) from operations $ 14,157 $ (578) $ 13,579
Goodwill $ 5,990 $ - $ 5,990
Total assets $ 147,104 $ 4,000 $ 151,104
Capital expenditures $ 3,408 $ 1,724 $ 5,132
Depreciation and amortization expense $ 4,276 $ 213 $ 4,489
Year ended June 30, 2007:
External customers revenue $ 222,892 $ 10,289 $ 233,181
Loss from operations $ (4,226) $ (495) $ (4,721)
Goodwill $ 26,442 $ - $ 26,442
Total assets $ 178,483 $ 5,803 $ 184,286
Capital expenditures $ 4,269 $ 1,570 $ 5,839
Depreciation and amortization expense $ 6,576 $ 1,015 $ 7,591
Revenues from external customers by geographic region, based on location of the
end-customer, and by product group are as follows for the years ended June 30,
2007 and 2006 (in thousands):
United
States Foreign Total
---------- ---------- ----------
Year ended June 30, 2006:
Capital equipment $ 113,501 $ 52,705 $ 166,206
Service, spare parts, supplies and
accessories 35,556 18,865 54,421
---------- ---------- ----------
Total revenue $ 149,057 $ 71,570 $ 220,627
========== ========== ==========
Year ended June 30, 2007:
Capital equipment $ 99,364 $ 67,805 $ 167,169
Service, spare parts, supplies and
accessories 36,551 29,461 66,012
---------- ---------- ----------
Total revenue $ 135,915 $ 97,266 $ 233,181
========== ========== ==========
For both the years ended June 30, 2007 and 2006, no single country outside of
the United States represented more than 10% of total revenue.
The Company's long-lived assets are distributed as follows (in thousands):
June 30,
-----------------
2007 2006
-------- --------
United States $ 34,948 $ 24,583
United Kingdom 28,149 8,899
Foreign - Other 634 1,862
-------- --------
Total long-lived assets $ 63,731 $ 35,344
======== ========
14. SUPPLEMENTAL CASH FLOW INFORMATION
The following provides additional information concerning cash flow activities
for the years ended June 30 (in thousands):
2007 2006
------- -------
Interest paid $ 2,295 $ 1,306
Taxes paid $ 552 $ 1,183
Unrealized gain on marketable securities $ - $ 26
Non-cash Investing and Financing Activities:
Goodwill contributed by OSI from share
repurchases $ 2,368 $ -
Sale of Osteometer to OSI in exchange for
reduction of OSI Loan $ 961 $ -
Capital expenditures in payables $ 970 $ -
15. SUBSEQUENT EVENT
In August 2007, the Company announced that in order to reduce costs and improve
profitability, it will close its anesthesia delivery manufacturing facility in
the UK during fiscal year 2008 and will transfer the production of those
products to its other manufacturing facilities. No amounts have been accrued in
the accompanying consolidated financial statements with respect to this plant
closure.
For further information, please contact:
Spacelabs Healthcare, Inc.
Nikhil Mehta
Chief Financial Officer
Tel: +1 310 349 2237
Jeremy Norton
Director, Investor Relations
Tel: +1 310 717 9182
Piper Jaffray
David Rasouly
Tel: +44 203 142 8700
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SFESWFSWSEDU
Spacelabs Healthcare (LSE:SLAB)
過去 株価チャート
から 5 2024 まで 6 2024
Spacelabs Healthcare (LSE:SLAB)
過去 株価チャート
から 6 2023 まで 6 2024
