Managements Discussion and Analysis of Financial Condition and Results of OperationsContinued
(Unaudited)
acquisition. Enginivity developed the enFlow® blood and fluid warmer, which was introduced in December 2007. Some other development costs were incurred for SteeLite
TM
and RediTube
TM
also introduced in December 2007.
Other (Income)
ExpenseNet.
Other expense included in operating expenses was $184,000 for the three months ended December 31, 2006 and income of ($18,000) for the three months ended December 31, 2007 primarily relates to
foreign currency transaction revaluation of accounts receivable and accounts payable at Breas.
Other Items
Interest Income, net.
Interest income increased by $0.4 million from $1.1 million for the three months ended December 31, 2006 to $1.5 million during the three months ended December
31, 2007 due to higher cash and short-term investments balances as well as increased interest rates.
Provision for Income Taxes.
The provision for income tax expense for the three months ended December 31, 2006 and 2007 was $3.3 million and $4.1 million, respectively, reflecting an
effective tax rate of 30.4% for the three month ended December 31, 2006 and 33.4% for three months ended December 31, 2007. The prior year included a benefit of $0.4 million.
Discontinued Operations.
The net income from discontinued operations was $2,000 and $28,000 for the three months ended December 31, 2006 and 2007, respectively, reflecting an
insurance settlement at the former Vital Pharma subsidiary sold in October, 2003.
Liquidity and Capital Resources
The Company believes that the funds generated from operating activities, cash and cash equivalents and short term investments, will be sufficient to satisfy its operating and capital
requirements during the next twelve months.
Cash flows
Historically, the Companys primary liquidity requirements have been to finance business acquisitions and to support operations. The Company has funded these requirements primarily through
internally generated cash flow.
During
the three months ended December 31, 2007, cash flow from operating activities
provided cash of $16.3 million. During the same period, investing activities
used cash of $3.0 million, primarily for capital expenditures and also due to
capitalized software development costs. Financing activities used $1.4 million,
consisting primarily of dividends paid of $1.3 million, offset in part by $0.1
million received from exercises of stock options, a $0.1 million recognized
tax benefit for stock options and $0.2 million of notes payable payments acquired
with the Do You Snore acquisition. On February 5, 2008, the Board approved a
quarterly dividend in the amount of $ 0.10 per common share payable on February
29, 2008 to shareholders of record on February 19, 2008.
During the three months ended December 31, 2006, cash flow from operating activities provided cash of $14.6 million. During the same period, investing activities used cash of $0.9 million,
consisting primarily of expenditures for capital additions. Financing activities during the prior year period used $0.9 million due to $1.2 million paid for dividends, offset in part by cash received from the exercise of stock options and $0.3
million of notes payable.
Cash, Short Term Investments and Working Capital
Cash, cash equivalents, and short term investments were $146.2 million at December 31, 2007 compared with $135.6 million at September 30, 2007.
At December 31, 2007, the Companys working capital was $191.7 million compared with $183.4 million at September 30, 2007. At December 31, 2007, the current ratio was 10.3 to 1.0 and at
September 30, 2007, the current ratio was 11.3 to 1.0.
Debt
The Company has no committed lines of financing. Long term debt of $1.1 million consists of inventory financing assumed in connection with the Companys acquisitions in our sleep disorder segment.
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Managements Discussion and Analysis of Financial Condition and Results of OperationsContinued
(Unaudited)
Working capital policy and capital expenditures
The Companys current policy is to retain cash and earnings for use in its business, pay dividends, business acquisitions, product acquisitions, and product development, among other
things. The Company regularly evaluates and negotiates with domestic and foreign medical device companies regarding potential business or product line acquisitions, licensing arrangements and strategic alliances.
Other
At December 31, 2007 and 2006, the Company does not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or
special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, the Company does not engage in trading activities involving
non-exchange traded contracts. As such, the Company is not materially exposed to any financing, liquidity, market, or credit risk that could arise if the Company had engaged in such relationships. The Company does not have material relationships or
transactions with persons or entities that derive benefits from their non-independent relationship with the Company or its related parties.
On February 5, 2008, the Companys Board of Directors approved a quarterly dividend of $0.10 per share payable on February 29, 2008 to shareholders of record at the close of business on
February 19, 2008. Shareholders with settlement dates after the February 19, 2008 record date will not receive this dividend, even if they entered into agreements to purchase their shares before February 19, 2008. For example, an investor who agrees
to purchase shares before February 19, 2008 with a settlement date after February 19, 2008 will not receive the dividend.
Critical accounting estimates
The preparation of the Companys condensed consolidated financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and judgments that affect its reported
amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and
Estimates" in the Companys Annual Report on Form 10-K for the year ended September 30, 2007 for a discussion of the estimates and judgments necessary in the Companys accounting for revenue recognition, allowances for rebates and doubtful
accounts, allowances for inventory, valuation of long-lived and intangible assets, and legal contingencies.
As of October 1, 2007 the Company adopted FIN 48 which resulted in a $2,194,000 liability for uncertain tax benefit. (See Note 8)
Recent accounting pronouncements
The recent accounting pronouncements are discussed in Note 9 of the Notes to Condensed Consolidated Financial Statements.
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