<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period from __________ to __________
Commission file number - 333-56135
-------------------
RIVER HOLDING CORP.
(Exact name of registrant as specified in its charter)
-------------------
<TABLE>
<S> <C>
Delaware 95-4674065
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
599 Lexington Avenue, 18th Floor 10022
New York, New York (Zip Code)
(Address of Principal Executive Offices)
(212) 958-2555
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report).
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
The number of shares of Common Stock, $.01 par value, outstanding (the only
class of common stock of the Company outstanding) was 8,887,148 on November 14,
2000.
================================================================================
<PAGE>
RIVER HOLDING CORP. AND SUBSIDIARIES
QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Condensed Consolidated Financial Statements of River Holding Corp.:
Condensed Consolidated Balance Sheets as of December 31, 1999 and
September 30, 2000 (unaudited)............................................................. 1
Unaudited Condensed Consolidated Statements of Operations for the
Three Months Ended September 24, 1999 and September 30, 2000, and
the Nine Months Ended September 24, 1999 and September 30, 2000............................ 3
Unaudited Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 24, 1999 and September 30, 2000................................ 4
Notes to Unaudited Condensed Consolidated Financial Statements............................. 6
Condensed Consolidated Financial Statements of Hudson Respiratory Care Inc.:
Condensed Consolidated Balance Sheets as of December 31, 1999 and
September 30, 2000 (unaudited)............................................................. 7
Unaudited Condensed Consolidated Statements of Operations for the
Three Months Ended September 24, 1999 and September 30, 2000, and the
Nine Months Ended September 24, 1999 and September 30, 2000................................ 9
Unaudited Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 24, 1999 and September 30, 2000................................ 10
Notes to Unaudited Condensed Consolidated Financial Statements............................. 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 21
Item 3. Quantitative and Qualitative Disclosures About Market Risks..................................... 27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................... 28
Item 2. Changes in Securities........................................................................... 28
Item 3. Defaults Upon Senior Securities................................................................. 28
Item 4. Submission of Matters to a Vote of Security Holders............................................. 28
Item 5. Other Information............................................................................... 28
Item 6. Exhibits and Reports on Form 8-K................................................................ 28
SIGNATURE.......................................................................................................... 29
</TABLE>
i
<PAGE>
RIVER HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash.............................................................. $ 2,917 $ 1,804
Accounts receivable, less allowance for doubtful accounts of $973
and $1,281 at December 31, 1999 and September 30, 2000,
respectively..................................................... 30,425 37,221
Inventories....................................................... 24,043 35,139
Other current assets.............................................. 4,945 2,416
------------ -------------
Total current assets............................................ 62,330 76,580
PROPERTY, PLANT AND EQUIPMENT, NET................................. 54,341 56,412
OTHER ASSETS:
Deferred tax asset, net........................................... 11,342 7,492
Deferred financing costs, net..................................... 11,134 9,729
Other assets...................................................... 222 77
Goodwill, net..................................................... 205,592 201,399
------------ -------------
Total other assets.............................................. 228,290 218,697
------------ -------------
Total assets................................................... $ 344,961 $ 351,689
============ =============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated balance sheets.
1
<PAGE>
RIVER HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES, MANDATORILY-REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable to banks............................................ $ 6,673 $ 8,030
Accounts payable.................................................. 6,268 12,379
Accrued liabilities............................................... 11,700 16,666
Other current liabilities......................................... 1,485 1,385
---------- ----------
Total current liabilities....................................... 26,126 38,460
NOTE PAYABLE TO STOCKHOLDER, net of current portion................ 7,508 8,009
NOTES PAYABLE TO BANKS, net of current portion..................... 82,513 78,825
SENIOR SUBORDINATED NOTES PAYABLE.................................. 115,000 115,000
---------- ----------
Total liabilities................................................. 231,147 240,294
---------- ----------
MANDATORILY-REDEEMABLE PREFERRED STOCK, $0.01 par value:
authorized--1,800 shares; issued and outstanding--356 shares and
376 shares at December 31, 1999 and September 30, 2000,
respectively; liquidation preference: $35,558 and $37,603,
respectively...................................................... 34,558 36,603
Accrued preferred stock dividend, payable in kind................. 863 2,041
---------- ----------
35,421 38,644
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, no par value: authorized--15,000 shares; issued and
outstanding--8,544 shares........................................ 91,748 91,748
Cumulative translation adjustment................................. (398) (2,390)
Accumulated deficit............................................... (12,957) (16,607)
---------- ----------
Total stockholders' equity...................................... 78,393 72,751
---------- ----------
Total liabilities, mandatorily-redeemable preferred stock and
stockholders' equity.......................................... $ 344,961 $ 351,689
========== ==========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated balance sheets.
2
<PAGE>
RIVER HOLDING CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- ---------------------------------
September 24, September 30, September 24, September 30,
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES.............................................. $ 30,827 $ 41,111 $ 85,270 $ 113,729
COST OF SALES.......................................... 19,207 19,587 51,978 56,915
------------- ------------- ------------- -------------
Gross profit........................................ 11,620 21,524 33,292 56,814
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Selling, distribution and general and administrative.. 8,808 12,310 22,214 34,584
Amortization of goodwill.............................. 1,270 2,036 3,810 4,576
Research and development.............................. 650 533 1,293 1,782
------------- ------------- ------------- -------------
10,728 14,879 27,317 40,942
------------- ------------- ------------- -------------
Income from operations.............................. 892 6,645 5,975 15,872
INTEREST AND OTHER EXPENSE............................. (4,342) (5,812) (12,141) (16,278)
------------- ------------- ------------- -------------
Income (Loss) before provision (benefit) for income
taxes............................................... (3,450) 833 (6,166) (406)
PROVISION (BENEFIT) FOR INCOME TAXES................... (796) 271 (1,918) 18
------------- ------------- ------------- -------------
Net Income (Loss)................................... (2,654) 562 (4,248) (424)
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation loss..................... (220) (2,299) (364) (1,992)
------------- ------------- ------------- -------------
Comprehensive loss.................................. $ (2,874) $ (1,737) $ (4,612) $ (2,416)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of
these unaudited condensed consolidated statements.
3
<PAGE>
RIVER HOLDING CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------
September 24, September 30,
1999 2000
------------------ ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................... $ (4,248) $ (424)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................... 12,346 14,905
Decrease (increase) in accounts receivable...................................... 1,964 (6,796)
Increase in inventories......................................................... (3,936) (11,096)
Increase (decrease) in other current assets..................................... (213) 2,529
Increase (decrease) in other assets............................................. (508) 145
Deferred tax benefit............................................................ (1,452) (1,819)
(Decrease) increase in accounts payable......................................... (3,918) 6,111
Decrease in other current liabilities........................................... (1,189) (99)
Increase in other non-current liabilities....................................... 250 --
Increase in accrued liabilities................................................. 5,664 4,962
------------------ ------------------
Net cash provided by operating activities..................................... 4,760 8,418
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment......................................... (6,876) (8,356)
Acquisition of Louis Gibeck AB stock, net of cash acquired of $8,208............... (38,750) --
Increase in intangible assets...................................................... -- 2,648
------------------ ------------------
Net cash used in investing activities............................................ $ (45,626) $ (5,708)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable to banks................................................ (9,000) 5,069
Proceeds from (repayments of) bank borrowings...................................... 14,171 (7,400)
Borrowings on notes from affiliates................................................ 22,000 500
Sale of common stock, net of transaction costs..................................... 22,000 --
------------------ ------------------
Net cash provided by financing activities........................................ 49,171 (1,831)
Effect of exchange rate changes on cash............................................. (364) (1,992)
------------------ ------------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS........................................................................ 7,941 (1,113)
CASH AND SHORT-TERM INVESTMENTS, beginning of period................................ 507 2,917
------------------ ------------------
CASH AND SHORT-TERM INVESTMENTS, end of period...................................... $ 8,448 $ 1,804
================== ==================
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------
September 24, September 30,
1999 2000
----------------- ----------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................. $ 7,971 $ 8,275
================= ================
DETAILS OF ACQUISITIONS:
Acquisition price.......................................... $ 53,581 $ --
Less: cash acquired....................................... (8,208) --
Less: common stock issued for acquisition................. (6,623) --
----------------- ---------------
Net cash paid for acquisitions............................. $ 38,750 $ --
================= ===============
NON-CASH FINANCING ACTIVITIES:
Preferred dividends accrued or paid-in-kind............... $ 2,868 $ 3,223
================= ================
Common stock issued for acquisition....................... $ 6,623 $ --
================= ================
</TABLE>
The accompanying notes are an integral part of
these unaudited condensed consolidated statements.
5
<PAGE>
RIVER HOLDING CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
1. Financial Statements. The condensed consolidated financial statements
--------------------
included herein have been prepared by River Holding Corp. ("Holding") and Hudson
Respiratory Care, Inc. ("Hudson" or the "Company"), without audit, and include
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position at September 30, 2000 and the results of
operations and cash flows for the three and nine month periods ended
September 24, 1999 and September 30, 2000 pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). All such adjustments are of a
normal recurring nature. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. Although Holding believes that
the disclosures in such financial statements are adequate to make the
information presented not misleading, these consolidated financial statements
should be read in conjunction with the audited consolidated balance sheet of
Holding as of December 31, 1999 and with the Company's 1999 audited financial
statements and the notes thereto included in Holding's Form 10-K filed with the
SEC. The results of operations for the three and nine month periods ended
September 30, 2000 are not necessarily indicative of the results to be achieved
for a full year. Holding has no operations apart from those conducted by its
majority-owned subsidiary, Hudson RCI and its subsidiaries.
2. Acquisitions. During 1999, the Company completed certain business
acquisitions, the most significant of which was Louis Gibeck AB ("LGAB").
Had the acquisition of LGAB occurred at the beginning of the prior
fiscal year, the unaudited pro forma net sales and net loss for Holding would be
as follows (amounts in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 24,
1999
------------------
(unaudited)
<S> <C>
Net sales................................................................................ $ 40,261
===========
Net loss................................................................................. $ (3,290)
===========
</TABLE>
3. Inventories. Inventories consisted of the following (amounts in
-----------
thousands):
<TABLE>
December 31, September 30,
1999 2000
--------------- ----------------
(unaudited)
----------------
<S> <C> <C>
Raw materials................................................................ $ 5,901 $
Work-in-process.............................................................. 5,682
Finished goods............................................................... 12,460
--------- ----------
$ 24,043 $ 35,139
========= ==========
</TABLE>
4. Bank Notes Payable. During the third quarter 2000, certain covenant
------------------
provisions of the existing bank loan agreement were amended.
6
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in thousands)
<TABLE>
<CAPTION> December 31, September 30,
1999 2000
------------- --------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash..................................................... $ 2,917 $ 1,804
Accounts receivable, less allowance for doubtful
accounts of $973 and $1,281 at December 31, 1999 and
September 30, 2000, respectively........................ 30,425 37,221
Inventories.............................................. 24,043 35,139
Other current assets..................................... 4,612 2,083
---------- ---------
Total current assets..................................... 61,997 76,247
PROPERTY, PLANT AND EQUIPMENT, net........................... 42,476 46,241
OTHER ASSETS:
Intangible assets, net................................... 66,970 60,918
Deferred financing costs, net............................ 11,134 9,729
Deferred tax asset, net.................................. 68,943 68,560
Other assets............................................. 299 154
---------- ---------
Total other assets.................................... 147,346 139,361
---------- ---------
Total assets....................................... $ 251,819 $ 261,849
========== =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
7
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES, MANDATORILY-REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable to banks.................................... $ 6,673 $ 8,030
Accounts payable.......................................... 6,168 12,279
Accrued liabilities....................................... 11,700 16,665
Other current liabilities................................. 1,485 1,385
--------- ---------
Total current liabilities............................... 26,026 38,359
NOTE PAYABLE TO AFFILIATE.................................. 7,508 8,009
NOTES PAYABLE TO BANKS, net of current portion............. 82,513 78,825
SENIOR SUBORDINATED NOTES PAYABLE.......................... 115,000 115,000
--------- ---------
Total liabilities....................................... 231,047 240,193
--------- ---------
MANDATORILY-REDEEMABLE PREFERRED STOCK, $0.01 par value:
authorized 1,800 shares; issued and outstanding 356
shares and 376 shares at December 31, 1999 and September
30, 2000, respectively; liquidation preference: $35,558
and $37,603, respectively................................. 34,558 36,603
Accrued preferred stock dividend, payable in kind......... 863 2,041
--------- ---------
35,421 38,644
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $0.01 par value: authorized 15,000 shares;
issued and outstanding--10,044........................... 92,158 92,158
Cumulative translation adjustment........................ (862) (2,854)
Accumulated deficit...................................... (105,945) (106,292)
--------- ---------
Total stockholders' equity (deficit).................... (14,649) (16,988)
--------- ---------
Total liabilities, mandatorily-redeemable preferred
stock and stockholders' equity (deficit)............... $ 251,819 $ 261,849
========= =========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated balance sheets.
8
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
---------------------------- -----------------------------
September 24, September 30, September 24, September 30,
1999 2000 1999 2000
------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
NET SALES................................................. $30,827 $41,111 $ 85,270 $113,729
COST OF SALES............................................. 18,642 19,587 50,283 56,915
------- ------- -------- --------
Gross profit........................................... 12,185 21,524 34,987 56,814
------- ------- -------- --------
OPERATING EXPENSES:
Selling, distribution, general and administrative........ 8,207 11,745 21,490 31,270
Amortization of goodwill................................. 601 767 724 2,387
Research and development................................. 651 533 1,295 1,782
------- ------- -------- --------
9,459 13,045 23,509 35,439
------- ------- -------- --------
Income from operations................................. 2,726 8,479 11,478 21,375
INTEREST AND OTHER EXPENSE................................ (4,342) (5,812) (12,140) (16,279)
------- ------- -------- --------
Net income (loss) before (benefit) provision for
income taxes.......................................... (1,616) 2,667 (662) 5,096
PROVISION (BENEFIT) FOR INCOME TAXES...................... (62) 1,005 284 2,220
------- ------- -------- --------
Net income (loss)...................................... (1,554) 1,662 (946) 2,876
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation loss........................ (220) (2,299) (364) (1,992)
------- ------- -------- --------
Comprehensive income (loss)............................ $(1,774) $ (637) $ (1,310) $ 884
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of
these unaudited condensed consolidated statements.
9
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amount in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
September 24, September 30,
1999 2000
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income.................................................................. $ (946) $ 2,876
Adjustments to reconcile net (loss) income to net cash provided by operating
activities--
Depreciation and amortization................................................... 5,817 8,780
Amortization of deferred financing costs........................................ 1,024 620
Deferred taxes.................................................................. 720 383
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable...................................... 1,964 (6,796)
Increase in inventories......................................................... (3,936) (11,096)
Decrease (increase) in other current assets..................................... (213) 2,529
(Increase) decrease in other assets............................................. (508) 145
Increase in accounts payable.................................................... 3,918 6,111
Increase in accrued liabilities................................................. 5,695 4,965
Decrease in other current liabilities........................................... (1,189) (99)
Increase in other non-current liabilities....................................... 250 0
-------- --------
Net cash provided by operating activities..................................... 4,760 8,418
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment......................................... (6,876) (8,356)
Acquisition of Louis Gibeck AB Stock, net of cash acquired of $8,208............... (38,750) --
Increase in intangible assets...................................................... 2,648
-------- --------
Net cash used in investing activities.............................................. (45,626) (5,708)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable to banks............................................... (9,000) (7,400)
Proceeds from bank borrowings...................................................... 14,171 5,569
Proceeds from note payable to affiliate............................................ 22,000 --
Sale of common and preferred stock, net of transaction costs....................... 22,000 --
-------- --------
Net cash provided by (used in) financing activities............................. 49,171 (1,831)
-------- --------
Effect of exchange rate changes on cash............................................. (364) (1,992)
-------- --------
NET INCREASE (DECREASE) IN CASH..................................................... 7,941 (1,113)
CASH beginning of period............................................................ 507 2,917
-------- --------
CASH end of period.................................................................. $ 8,448 $ 1,804
======== ========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
September 24, September 30,
1999 2000
------------- -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................................... $ 7,971 $8,275
======= =======
DETAILS OF ACQUISITIONS:
Acquisition price............................................... $53,581 $ --
Less: cash acquired............................................ (8,208) --
Less: common stock issued for acquisition....................... (6,623) --
------- -------
Net cash paid for acquisition................................... $38,750 $ --
======= =======
NON-CASH FINANCING ACTIVITIES:
Preferred dividends accrued or paid-in-kind..................... $ 2,868 $3,223
======= =======
Common stock issued for acquisition............................. $ 6,623 $ --
======= =======
</TABLE>
The accompanying notes are an integral part of
these unaudited condensed consolidated statements.
11
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
1. Financial Statements. The condensed consolidated financial statements
--------------------
included herein have been prepared by the Company, without audit, and include
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position at September 30, 2000, and the results of
operations and cash flows for the three and nine month periods ended September
24, 1999 and September 30, 2000 pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). All such adjustments are of a normal
recurring nature. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted pursuant
to such rules and regulations. Although the Company believes that the
disclosures in such financial statements are adequate to make the information
presented not misleading, the accompanying unaudited condensed, consolidated
financial statements should be read in conjunction with the Company's 1999
audited financial statements and the notes thereto included in its Form 10-K
filed with the SEC. The results of operations for the three and nine month
periods ended September 24, 1999 and September 30, 2000 are not necessarily
indicative of the results to be achieved for a full year.
2. Acquisitions. During 1999, the Company completed certain business
------------
acquisitions, the most significant of which was the acquisition of Louis Gibeck
AB ("LGAB").
Had the acquisition of LGAB occurred at the beginning of the prior fiscal
year, the unaudited pro forma net sales and net loss would be as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 24,
1999
------------------
(unaudited)
<S> <C>
Net sales............................... $94,704
=======
Net loss................................ $(1,582)
=======
</TABLE>
3. Inventories. Inventories consisted of the following (amounts in
-----------
thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------- -------------
(unaudited)
<S> <C> <C>
Raw materials............................. $ 5,901 $
Work-in-process........................... 5,682
Finished goods............................ 12,460
------- ----------
$24,043 $35,139
======= ==========
</TABLE>
4. Bank Notes Payable. During the third quarter 2000, certain covenant
------------------
provisions of the existing bank loan agreement were amended.
5. Subsidiaries Guaranteeing Debt and Segment Data. The Company is the 100%
-----------------------------------------------
owner of certain subsidiaries which do not guarantee the Company's senior
subordinated notes. The following tables disclose required consolidating
financial information for guarantor, including the Company, and non-guarantor
subsidiaries (amounts in thousands):
12
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
As of September 30, 2000
---------------------------------------------------
Guarantor Non-Guarantor Adjustments Total
--------- ------------- ----------- -----
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash......................................... $ 51 $ 1,753 $ -- $ 1,804
Accounts receivable, net..................... 33,352 5,480 (1,611) 37,221
Inventories.................................. 32,292 3,973 (1,126) 35,139
Other current assets......................... 3,990 20,461 (22,368) 2,083
-------- ------- -------- --------
Total current assets....................... 69,685 31,667 (25,105) 76,247
PROPERTY, PLANT AND EQUIPMENT, NET 45,250 991 -- 46,241
OTHER ASSETS:
Intangible assets, net....................... 21,517 39,401 -- 60,918
Deferred financing costs, net................ 9,729 -- -- 9,729
Deferred tax asset, net...................... 67,925 635 -- 68,560
Investment in non-guarantor subsidiaries..... 29,245 -- (29,245) --
Other........................................ 728 151 (725) 154
-------- ------- -------- --------
Total other assets......................... 129,144 40,187 (29,970) 139,361
-------- ------- -------- --------
Total assets.............................. $244,079 $72,845 $(55,075) $261,849
======== ======= ======== ========
</TABLE>
13
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
As of September 30, 2000
----------------------------------------------------
Guarantor Non-Guarantor Adjustments Total
---------- ------------- ----------- -----
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable to banks......................... $ 7,000 $ 1,030 $ - $ 8,030
Accounts payable............................... 14,727 3,926 (6,374) 12,279
Accrued liabilities............................ 12,034 4,631 - 16,665
Other current liabilities...................... 1,440 17,827 (17,882) 1,385
-------- -------- --------- --------
Total current liabilities.................... 35,201 27,414 (24,256) 38,359
OTHER LIABILITIES:
Note payable to affiliate...................... - 8,009 - 8,009
Notes payable to banks, net of current portion. 66,000 12,825 - 78,825
Senior subordinated notes...................... 115,000 - - 115,000
-------- -------- --------- --------
Total liabilities............................ 216,201 48,248 (24,256) 240,193
-------- -------- --------- --------
Mandatorily-redeemable preferred stock.......... 38,644 - - 38,644
-------- -------- --------- --------
STOCKHOLDERS' EQUITY (DEFICIT).................. (10,765) 24,597 (30,820) (16,988)
-------- -------- --------- --------
244,080 72,845 (55,076) 261,849
======== ======== ========= ========
</TABLE>
14
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000
----------------------------------------------
Non-
Guarantor Guarantor Adjustments Total
-------- -------- ----------- -----
<S> <C> <C> <C> <C>
NET SALES................................................... $37,533 $ 7,584 $ (4,006) $ 41,111
COST OF SALES............................................... 21,203 2,390 (4,006) 19,587
------- ------- -------- --------
Gross profit............................................... 16,330 5,194 - 21,524
OPERATING EXPENSES:
Selling, distribution, general and administrative.......... 9,867 1,878 - 11,745
Goodwill amortization...................................... 279 488 - 767
Research and development................................... 217 316 - 533
------- ------- ------- --------
Income from operations..................................... 5,967 2,512 - 8,479
------- ------- ------- --------
INTEREST AND OTHER EXPENSE.................................. (4,804) (1,008) - (5,812)
------- ------- ------- --------
Income before provision for income taxes................... 1,163 1,504 - 2,667
PROVISION (BENEFIT) FOR INCOME TAXES....................... 453 552 - 1,005
------- ------- ------- --------
Net income ................................................ $ 710 $ 952 $ - $ 1,662
======= ======= ======= ========
Depreciation and amortization............................... $ 2,752 $ 718 $ - $ 3,470
======= ======= ======= ========
Adjusted EBITDA (a)......................................... $ 8,998 $ 3,718 $ - $ 12,716
======= ======= ======= ========
</TABLE>
-----------------------
(a) Adjusted EBITDA represents income before depreciation and amortization,
interest expense and income tax expense. Adjusted EBITDA is not a measure
of performance under accounting principles generally accepted in the United
States, and should not be considered as a substitute for net income, cash
flows from operating activities and other income or cash flow statement data
prepared in accordance with accounting principles generally accepted in the
United States, or as a measure of profitability or liquidity.
15
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
--------------------------------------------------
Non-
Guarantor Guarantor Adjustments Total
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
NET SALES................................................. $101,551 $21,256 $(9,078) $113,729
COST OF SALES............................................. 57,166 8,627 (8,878) 56,915
-------- ------- ------- --------
Gross profit............................................. 44,385 12,629 (200) 56,814
OPERATING EXPENSES:
Selling, distribution, general and administrative........ 25,949 5,321 -- 31,270
Goodwill amortization.................................... 877 1,510 -- 2,387
Research and development................................. 789 993 -- 1,782
-------- ------- ------- --------
Income from operations................................... 16,770 4,805 (200) 21,374
-------- ------- ------- --------
INTEREST AND OTHER EXPENSE................................ (13,954) (2,325) -- (16,279)
-------- ------- ------- --------
Income before provision for income taxes................. 2,816 2,480 (200) 5,096
PROVISION FOR INCOME TAXES............................... 1,152 1,068 -- 2,220
-------- ------- ------- --------
Net income............................................... $ 1,664 $ 1,412 $ (200) $ 2,876
======== ======= ======= ========
Depreciation and amortization............................. $ 6,852 $ 1,928 $ -- $ 8,780
======== ======= ======= ========
Adjusted EBITDA(b)........................................ $ 24,429 $ 8,243 $ (200) $ 32,542
======== ======= ======= ========
</TABLE>
_____________________
(a) Adjusted EBITDA represents income before depreciation and amortization,
interest expense and income tax expense. Adjusted EBITDA is not a measure
of performance under accounting principles generally accepted in the United
States, and should not be considered as a substitute for net income, cash
flows from operating activities and other income or cash flow statement data
prepared in accordance with accounting principles generally accepted in the
United States, or as a measure of profitability or liquidity.
16
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
-------------------------------------------
Non-
Guarantor Guarantor Total
------------ ------------ -----------
<S> <C> <C> <C>
Net cash provided by operating activities..................... $ 1,413 $ 7,005 $ 8,418
Net cash used in investing activities......................... (2,843) (2,865) (5,708)
Net cash provided by (used in) financing activities........... 1,400 (3,231) (1,831)
Effect of exchange rate changes on cash....................... (117) (1,875) (1,992)
------------ ------------- -----------
NET DECREASE IN CASH.......................................... (147) (966) (1,113)
CASH, beginning of period..................................... 184 2,733 2,917
------------ ------------- -----------
CASH, end of period........................................... $ 37 $ 1,767 $ 1,804
============ ============== ===========
</TABLE>
The Company operates in two segments: North American operations (guarantor) and
international operations (non-guarantor). The financial data of these two
segments closely approximates the guarantor/non-guarantor information set forth
above and, accordingly, segment data is not provided separately.
17
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
September 24, 1999
------------------
(unaudited)
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
As of December 31, 1999
--------------------------------------------------
Non-
Guarantor Guarantor Adjustments Total
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash............................................. $ 104 $ 2,733 - $ 2,917
Accounts receivable.............................. 28,329 2,096 - 30,425
Inventories...................................... 21,124 4,065 (1,146) 24,043
Other current assets............................. 4,578 16,673 (16,639) 4,612
-------- -------- -------- ---------
Total current assets........................... 54,215 25,567 (17,785) 61,997
PROPERTY, PLANT AND EQUIPMENT, net................ 41,336 1,141 - 42,476
OTHER ASSETS:
Intangible assets, net........................... 22,770 44,220 - 66,970
Deferred financing costs, net.................... 10,749 105 - 11,134
Deferred tax asset............................... 68,600 223 120 60,943
Investment in non-guarantor subsidiaries......... 29,245 - (20,245) -
Other assets..................................... 833 162 (600) 299
-------- -------- -------- ---------
Total other assets............................. 132,197 44,970 (29,821) 147,346
-------- -------- -------- ---------
$227,747 $ 71,678 $(47,600) (251,819)
======== ======== ======== =========
LIABILITIES, MANDATORILY-REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY DEFICIT
<CAPTION>
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable to bank............................ $ 5,500 $ 1,173 $ - $ 6,673
Accounts payable................................. 6,625 1,550 (2,016) 6,168
Accrued liabilities.............................. 8,344 3,356 - 11,700
Other current liabilities........................ 450 10,876 (9,849) 1,485
-------- -------- -------- ---------
Total current liabilities...................... 20,927 16,964 (11,065) 26,026
NOTE PAYABLE TO AFFILIATE.......................... - 13,906 (6,398) 7,508
NOTES PAYABLE TO BANK, net of current portion...... 66,100 16,413 - 82,513
SENIOR SUBORDINATED NOTES.......................... 115,000 - - 115,000
-------- -------- -------- ---------
Total liabilities.............................. 202,027 47,283 (19,263) 231,047
-------- -------- -------- ---------
Mandatorily-redeemable preferred stock............. 35,421 - - 35,421
STOCKHOLDERS' EQUITY (DEFICIT)..................... (9,701) 24,395 (29,343) (14,649)
-------- -------- -------- ---------
$227,747 $ 71,678 $(47,600) $ 251,819
======== ======== ======== =========
</TABLE>
18
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
September 24, 1999
------------------
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 24, 1999
--------------------------------------------------------
Non-
Guarantor Guarantor Adjustments(a) Total
--------- --------- -------------- -------
<S> <C> <C> <C> <C>
NET SALES............................................................ $28,145 $ 3,469 $(787) $30,827
COST OF SALES........................................................ 16,448 2,355 (161) 18,642
------- -------- ----- -------
Gross Profit...................................................... 11,697 1,114 (626) 12,185
OPERATING EXPENSES:
Selling, distribution, general and administrative................. 6,758 2,050 -- 8,808
Research and development.......................................... 326 325 -- 651
------- -------- ----- -------
7,084 2,375 -- 9,459
------- -------- ----- -------
Income (loss) from operations.................................. 4,613 (1,261) (626) 2,726
------- -------- ----- -------
OTHER INCOME AND (EXPENSES):
Interest expense.................................................. (3,884) (466) -- (4,350)
Other, net........................................................ 8 -- -- 8
------- -------- ----- -------
(3,876) (466) -- (4,342)
------- -------- ----- -------
Income (loss) before provision (benefit) for income taxes......... 737 (1,727) (626) (1,616)
PROVISION (BENEFIT) FOR INCOME TAXES................................. 188 (250) -- (62)
------- -------- ----- -------
NET INCOME (LOSS).................................................... $ 549 $(1,577) $(626) $(1,554)
======= ======= ===== =======
<CAPTION>
Nine Months Ended September 24, 1999
---------------------------------------------------------
Non-
Guarantor Guarantor Adjustments(a) Total
--------- --------- -------------- -------
<S>.................................................................. <C> <C> <C> <C>
NET SALES............................................................ $ 82,588 $ 3,469 $(787) $85,270
COST OF SALES........................................................ 48,089 2,355 (161) 50,283
-------- -------- ----- -------
Gross Profit...................................................... 34,499 1,114 (626) 34,987
OPERATING EXPENSES:
Selling, distribution, general and administrative................. 20,164 2,050 -- 22,214
Research and development.......................................... 970 325 -- 1,295
-------- -------- ----- -------
21,134 2,375 -- 23,509
-------- -------- ----- -------
Income (loss) from operations.................................. 13,365 1,261 (626) 11,478
-------- -------- ----- -------
OTHER INCOME AND (EXPENSES):
Interest expense.................................................. (11,727) (303) -- (12,110)
Other, net........................................................ 53 (83) -- (30)
-------- -------- ----- -------
(11,674) (466) -- (12,140)
-------- -------- ----- -------
Income (loss) before provision (benefit) for income taxes......... 1,691 (1,727) (626) (662)
PROVISION (BENEFIT) FOR INCOME TAXES................................. 534 (250) -- 284
-------- -------- ----- -------
NET INCOME (LOSS).................................................... $ 1,157 $(1,477) $(626) $ (946)
======== ======= ===== =======
</TABLE>
19
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
September 24, 1999
------------------
(unaudited)
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 24, 1999
-------------------------------------------------
Non-
Guarantor Guarantor Total
--------- --------- --------
<S> <C> <C> <C>
Net cash provided by (used in) operating activities......................... $ 8,733 $ (3,973) $ 4,760
Net cash used in investing activities....................................... (28,876) (16,750) (45,626)
Net cash provided by financing activities................................... 20,000 29,171 49,171
Effect of exchange rate changes on cash..................................... (364) -- (364)
-------- -------- ---------
NET (DECREASE) INCREASE IN CASH AND SHORT-TERM
INVESTMENTS................................................................ (507) 8,448 7,941
CASH AND SHORT-TERM INVESTMENTS,
beginning of period........................................................ 507 -- 507
-------- -------- --------
CASH AND SHORT-TERM INVESTMENTS,
end of period.............................................................. $ -- $ 8,448 $ 8,448
-------- -------- --------
</TABLE>
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As River Holding Corp. ("Holding") is a holding company with no operations,
the following discussion relates to Hudson Respiratory Care Inc. (the "Company"
or "Hudson RCI"). The following discussion of the Company's consolidated
historical results of operations and financial condition should be read in
conjunction with the consolidated financial statements of the Company and the
notes thereto included elsewhere in this Form 10-Q.
Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995. Such statements
relating to future events and financial performance are forward-looking
statements involving risks and uncertainties that are detailed from time to time
in the Company's Securities and Exchange Commission filings.
General
The Company is a leading manufacturer and marketer of disposable medical
products utilized in the respiratory care and anesthesia segments of the
domestic and international health care markets. The Company's principal
products include oxygen masks, humidification systems, nebulizers, cannulae and
tubing. In the United States, the Company markets its products to a variety of
health care providers, including hospitals and alternate site service providers
such as outpatient surgery centers, long-term care facilities, physician offices
and home health care agencies. Internationally, the Company sells its products
to distributors who market to hospitals and other health care providers.
The Company's results of operations may fluctuate significantly from
quarter to quarter as a result of a number of factors, including, among others,
the buying patterns of the Company's distributors, group purchasing
organizations ("GPOs") and other purchasers of the Company's products, forecasts
regarding the severity of the annual cold and flu season, announcements of new
product introductions by the Company or its competitors, changes in the
Company's pricing of its products and the prices offered by the Company's
competitors, rate of overhead absorption due to variability in production levels
and variability in the number of shipping days in a given quarter.
21
<PAGE>
Recent Developments
On October 28, 2000, the Company acquired certain assets of Tyco Healthcare
LP ("Tyco"), including Tyco's Sheridan line of endotreacheal tubes for a cash
purchase price of approximately $18.0 million. The Tyco acquisition was funded
with $12.0 million of borrowings under the Company's $60.0 million revolving
line of credit and $6.0 million additional equity provided by existing
shareholders.
22
<PAGE>
The Company established a sales office located in Germany in the second
quarter of 1999. It is anticipated that this operation will better equip the
Company to more aggressively pursue sales in the German market. The German
operation had a negative impact on the Company's results of approximately $0.8
million in the first nine months of 2000. It is anticipated that the Company's
earnings will be positively impacted by the German operation for the remainder
of fiscal 2000 and beyond.
Results of Operations
The following tables set forth, for the periods indicated, certain income
and expense items expressed in dollars and as a percentage of the Company's net
sales.
<TABLE>
<CAPTION>
Three Month Period Ended Nine Month Period Ended
(unaudited) (unaudited)
--------------------------- ----------------------------
September 24, September 30, September 24, September 30,
1999 2000 1999 2000
------------- ------------- ------------- -------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net sales............................................... $ 30,827 $ 41,111 $ 85,270 $ 113,729
Cost of sales........................................... 18,642 19,587 50,283 56,915
------------- ------------- ------------- -------------
Gross profit................................... 12,185 21,524 34,987 56,814
Selling expenses........................................ 3,296 4,098 8,408 11,813
Distribution expenses................................... 1,488 3,102 3,448 6,565
General and administrative expenses..................... 3,423 4,545 9,634 12,892
Amortization of goodwill................................ 601 767 724 2,387
Research and development expenses....................... 651 533 1,295 1,782
------------- ------------- ------------- -------------
Total operating expenses....................... 9,459 13,045 23,509 35,439
------------- ------------- ------------- -------------
Operating income............................... $ 2,726 $ 8,479 $ 11,478 $ 21,375
============= ============= ============= =============
<CAPTION>
Three Month Period Ended Nine Month Period Ended
(unaudited) (unaudited)
--------------------------- ----------------------------
September 24, September 30 , September 24,September 30,
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales............................................... 100.0 % 100.0 % 100.0 % 100.0%
Cost of sales........................................... 60.5 47.6 59.0 50.0
------------- ------------- ------------- -------------
Gross profit................................... 39.5 52.4 41.0 50.0
Selling expenses........................................ 10.7 10.0 9.9 10.4
Distribution expenses................................... 4.8 7.5 4.0 5.8
General and administrative expenses..................... 11.1 11.1 11.3 11.3
Amortization of goodwill................................ 1.9 1.8 0.8 2.1
Research and development expenses....................... 2.2 1.3 1.5 1.6
------------- ------------- ------------- -------------
Total operating expenses....................... 30.6 31.1 27.5 31.2
------------- ------------- ------------- -------------
Operating income............................... 8.9 % 21.3 % 13.5 % 18.8%
============= ============= ============= =============
</TABLE>
Three Months Ended September 30, 2000 Compared to Three Months Ended September
24, 1999
Net sales, reported net of accrued rebates, were $41.1 million in the third
quarter of 2000 as compared to $30.8 million in the third quarter of 1999, an
increase of $10.3 million or 33.4%. Sales by the acquired Hudson RCI AB
increased approximately $0.6 million, $3.5 million related to the acquired Tyco
IBE product line and $0.4 million related to the acquired Medimex product line.
For the base Hudson product line, Domestic Hospital sales increased by $2.0
million, primarily due to increased demand by GPO customers. Alternate Site
sales increased by $0.7 million, as market share continues to grow in this
market. Canadian sales increased by $0.3 million.
International sales increased
23
<PAGE>
by $1.8 million, due to growth in the Germany and the Far East. OEM sales
increased by $1.0 million, due to sales of the Tyco IBE product.
The Company's gross profit for the third quarter of 2000 was $21.5 million,
an increase of $9.3 million or 76.7% over the third quarter of 1999. As a
percentage of sales, the gross profit was 52.3% and 39.5% for the third quarter
of 2000 and 1999, respectively. The higher margin was primarily due to higher-
margin sales of the Hudson RCI AB product as well as the Tyco products and the
amortization of the write-up of inventory at the acquired Hudson RCI AB.
Selling expenses were $4.1 million for the third quarter of 2000, a $0.8
million increase over the third quarter of 1999. This increase was due
primarily to the start-up of a U.K.-based sales office.
Distribution expenses were $3.1 million for the third quarter of 2000, a
$1.6 million increase over the third quarter of 1999. This increase was
primarily driven by the establishment of an Atlanta distribution facility late
in the third quarter of 1999, the addition of a third shift and overtime at all
warehouses required to meet customer demand.
General and administrative expenses were $4.5 million in the third quarter
of 2000, an increase of $1.1 million or 32.8% over the third quarter of 1999.
This increase was primarily the result of additional expenses associated with
the acquired Hudson RCI AB business, costs associated with the computer system
implementation and increased staffing levels.
Amortization of goodwill was $0.8 million for the third quarter of 2000, as
compared to $0.6 million in the third quarter of 1999. This increase was
primarily due to the Tyco IBE acquisition, completed in the fourth quarter of
2000.
Research & development costs were $0.8 million in the third quarter of
2000, as compared to $4.3 million in the third quarter of 1999. This increase
was primarily due to expenses of the acquired Hudson RCI AB.
Interest expense and other was $5.8 million in the third quarter of 2000,
as compared to $4.0 million in the third quarter of 1999. This increase
reflects increased borrowings as a result of the Hudson RCI AB and Tyco
acquisitions as well as increased borrowings on the working capital revolving
facility at higher interest rates.
The Company provides for state and federal income taxes as a C corporation,
although actual tax payments are expected to be substantially less than provided
amounts due to the increase in tax basis of assets provided by the Section
338(h)(10) election made in conjunction with the April 1998 recapitalization.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 24,
1999
Net sales, reported net of accrued rebates, were $113.7 million in the
first nine months of 2000 as compared to $85.3 million in the first nine months
of 1999, an increase of $28.5 million or 33.4%. Additional sales by the
acquired Hudson RCI AB were approximately $8.0 million, $9.7 million related to
the acquired Tyco product line and $1.0 million related to the acquired Medimex
product line. For the base Hudson product line, Domestic Hospital sales
increased by $1.8 million, primarily due to increased demand from GPO customers.
Alternate Site sales increased by $2.3 million as focus in this key market
resulted in market share growth. International sales increased by $4.3
million, primarily due to increased sales in the German market and increased
demand in Asia. OEM sales increased by $1.4 million, primarily due to sales of
IBE products. Although demand was strong in all sectors of the business, sales
were negatively impacted by shipping difficulties associated with the
implementation of a new computer system during the second quarter.
The Company's gross profit for the first nine months of 2000 was $56.9
million, an increase of $21.8 million or 62.3% over the first nine months of
1999. As a percentage of sales, the gross profit was 50.0% and 41.0% for the
third nine months of 2000 and 1999, respectively. The improved margin was
primarily due to higher-margin sales of the Hudson RCI AB product as well as the
acquired Tyco products. In addition, due to the shipping difficulties
associated
24
<PAGE>
with the computer system implementation, production levels significantly
exceeded sales levels, causing a disproportionately high level of fixed overhead
to be absorbed into inventory.
Selling expenses were $11.8 million for the first nine months of 2000, a
$3.4 million increase over the first nine months of 1999. This increase was due
primarily to costs related to the acquired Hudson RCI AB and to the start-up
German and U.K. operations. Additionally, sales representatives were added in
the Alternate Site market to service the growing demand.
Distribution expenses were $6.5 million for the nine months of 2000, a $3.1
million increase over the first nine months of 1999. This increase was
primarily driven by the establishment of an Atlanta distribution facility late
in the third quarter of 1999, the addition of a third shift and overtime at all
warehouses required to meet customer demand.
General and administrative expenses were $12.8 million in the first nine
months of 2000, an increase of $3.3 million or 33.8% over the first nine months
of 1999. This increase was primarily the result of additional expenses
associated with the acquired Hudson RCI AB business, the German start-up
operation, training costs associated with the computer system implementation and
increased staffing levels.
Amortization of goodwill was $2.4 million for the first nine months of
2000, as compared to $0.7 million in the first nine months of 1999. This
increase was primarily due to the Tyco and Hudson RCI AB acquisitions.
Research & development costs were $1.8 million in the first nine months of
2000, as compared to $1.3 million in the first nine months of 1999. This
increase was primarily due to expenses of the acquired Hudson RCI AB.
Interest expense and other was $16.2 million in the first nine months of
2000, as compared to $12.1 million in the first nine months of 1999. This
increase reflects increased borrowings as a result of the Hudson RCI and Tyco
acquisitions as well as increased borrowings under on the working capital
revolving facility at higher interest rates.
The Company provides for state and federal income taxes as a C corporation,
although actual tax payments are expected to be substantially less than provided
amounts due to the increase in tax basis of assets provided by the Section
338(h)(10) election made in conjunction with the April 1998 recapitalization.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash flow from operations
and borrowings under its working capital bank facility. Cash provided by
operations totaled $4.8 million and $8.4 million in the first nine months of
1999 and 2000, respectively. The increase from the first nine months of 1999 to
the first nine months of 2000 is primarily attributable to increased income
and higher working capital levels. The Company had operating working capital,
excluding cash and short-term debt, of $39.7 million and $43.9 million as of
December 31, 1999 and September 30, 2000, respectively. Inventories were $24.0
million and $35.1 million as of December 31, 1999 and September 30, 2000,
respectively. In order to meet the needs of its customers, the Company must
maintain inventories sufficient to permit same-day or next-day filling of most
orders. Such inventories are higher than those that would be required for
delayed filling of orders, thus adversely impacting liquidity. Over time, the
Company expects its level of inventories to increase as the Company's sales in
the international market increase. Accounts receivable, net of allowances, were
$30.4 million and $37.2 million at December 31, 1999 and September 30, 2000,
respectively. The Company offers 30-day credit terms to its U.S. hospital
distributors. Alternate site and international customers typically receive 60 to
90-day terms and, as a result, as the Company's alternate site and international
sales have increased, the amount and aging of its accounts receivable have
increased. The Company anticipates that the amount and aging of its accounts
receivable will continue to increase. The Company established a sales office in
Germany in the second quarter of 1999. While this will have the effect of
increasing the Company's investment in inventories, management believes that it
will also result in improved service to international customers as well as in
lower international accounts receivable than would otherwise be the case because
customers will receive products, and consequently pay for them, more quickly.
25
<PAGE>
During the nine months ended September 24, 1999, net cash used in investing
activities was $45.6 million, reflecting purchases of computer software and
manufacturing equipment and the acquisition of Louis Gibeck, AB. During the nine
months ended September 30, 2000, net cash used in investing activities was $5.7
million, primarily reflecting purchases of manufacturing equipment and
implementation of a new enterprise resource planning software program. The
Company currently estimates that capital expenditures will be approximately $8.0
million in each of 2000 and 2001, consisting primarily of additional and
replacement manufacturing equipment and new heater placements.
During the nine months ended September 24, 1999 and September 30, 2000, net
cash (used in) provided by financing activities was $49.1 million and $(1.8)
million, respectively, reflecting the acquisition of Louis Gibeck, AB in 1999 as
well as repayment and borrowing of the Company's facility in 1999 and 2000.
In addition, in October, 2000 the Company borrowed $12.0 million under its
revolving credit facility in connection with the acquisition of the Sheridan
product line discussed in Recent Developments.
The Company has outstanding $209.9 million of indebtedness, consisting of
$115.0 million of 9-1/8% Senior Subordinated Notes due 2008 (the "Subordinated
Notes") issued in April 1998, borrowings of $75.5 million under the credit
facility (the "Credit Facility") entered into in April 1998 and $8.0 million in
notes payable to affiliates. In addition, LGAB has $14.4 million in
outstanding borrowings under its bank facility. The Credit Facility consists of
a $40.0 million term loan facility (the "Term Loan Facility") (all of which
was funded in connection with the Company's April 1998 Recapitalization) and a
$60.0 million revolving loan facility (the "Revolving Loan Facility"). The
Subordinated Notes bear interest at the rate of 9-1/8%, payable semiannually,
and will require no principal repayments until maturity. The Term Loan Facility
matures on April 7, 2004 and requires principal repayments of between $3.0
million and $11.5 million each year until maturity, commencing on June 30, 1999.
The Revolving Loan Facility matures on April 7, 2004 and bears interest based on
a spread over either a Eurodollar or base rate. In connection with the Tyco/
Sherwood acquisition, the Company borrowed $2.0 million pursuant to an unsecured
promissory note payable to Freeman Spogli. The note bears interest at 14%, and
is payable upon demand.
In connection with the Louis Gibeck, AB (LGAB) acquisition, the Company
borrowed $22.0 million pursuant to an unsecured promissory note payable to
Holding's majority stockholder. The note bears interest at 12.0% per annum,
matures in August 2006, and requires semiannual interest payments. As of
September 30, 2000, $8.0 million remained outstanding on the note.
In connection with the LGAB acquisition, the Company assumed debt owed by
LGAB under its bank facility (the "LGAB Facility"), which was refinanced during
1999 and totaled $14.4 million as of September 30, 2000. The LGAB Facility,
which is denominated in Swedish krona, bears interest at three-month STIBOR (the
interest rate at or about 11:00 a.m. Stockholm time, two banking days before a
draw-down date or the relevant interest period, quoted for deposits in krona)
plus 0.75% to 1.75% (4.365% to 5.365% at September 30, 2000), matures in
December 2003, and is secured by the common stock of LGAB.
In connection with the Company's 1998 recapitalization, Holding issued
300,000 shares of its 112% Senior Exchangeable PIK Preferred Stock with an
aggregate liquidation preference of $30,000,000 and subject to mandatory
redemption at such liquidation preference (plus accrued and unpaid dividends) in
2010. Dividends are payable semiannually in arrears on April 15 and October 15
of each year. Dividends are payable in cash, except on dividend payment dates
occurring on or prior to April 15, 2003, for which Holding has the option to
issue additional shares of preferred stock (including fractional shares) having
an aggregate liquidation preference equal to the amount of such dividend.
In connection with the Company's April 1998 recapitalization, the Company
issued to Holding 300,000 shares of its 11-1/2% Senior PIK Preferred Stock due
2010 (the "Mirror Preferred Stock") with an aggregate liquidation preference of
$30.0 million. Dividends are payable semi-annually in arrears on April 15 and
October 15 each year. Dividends are payable in cash, except on dividend payment
dates occurring on or prior to April 15, 2003, for which the Company has the
option to issue additional shares of preferred stock (including fractional
shares) having an aggregate liquidation preference equal to the amount of such
dividends. The preferred stock ranks junior in right of payment to all
obligations of the Company and its subsidiaries.
Holding is a holding company and will rely on dividends from Hudson RCI as
its primary source of liquidity. Holding does not have and in the future will
not have any assets other than the capital stock of Hudson RCI. The ability
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of Hudson RCI to pay cash dividends to Holding when required is restricted by
law and restricted or prohibited under the terms of Hudson RCI's debt
instruments, including the Credit Facility. No assurance can be made that Hudson
RCI will be able to pay cash dividends to Holding when required on the Mirror
Preferred Stock.
In connection with the installation and implementation of a new enterprise
resource planning software system, the Company has experienced delays in
shipments, resulting in a build-up of inventories and delays in collection of
accounts receivable from certain customers. The Company has taken and
continues to pursue, corrective measures addressing the problems experienced in
both of these areas and believes that significant progress has been made in
resolving them. Nevertheless, the impact of both of these issues has resulted
in a tightening of liquidity resources available to the Company which has been
addressed in part through a $2,000,000 temporary loan provided to the Company by
Holding's majority shareholder.
The Company believes that after giving effect to the acquisitions in 1999
and 2000 and the incurrence of indebtedness related thereto and steps taken in
respect to the issues discussed in the preceding paragraph, based on current
levels of operations and anticipated growth, its cash from operations, together
with other available sources of liquidity, including borrowings available under
the Revolving Loan Facility, will be sufficient over the next twelve months to
fund anticipated capital expenditures and acquisitions and to make required
payments of principal and interest on its debt, including payments due on the
Subordinated Notes and obligations under the Credit Facility. The Company
intends to selectively pursue strategic acquisitions, both domestically and
internationally, to expand its product line, improve its market share positions
and increase cash flows. Financing for such acquisitions is available, subject
to limitations, under the Credit Facility. Any significant acquisition activity
by the Company in excess of such amounts would require additional capital, which
could be provided through capital contributions or debt financing. The Company
has no commitments for such acquisition financing and to the extent financing is
unavailable, acquisitions may be delayed or not completed.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 137, which is effective for fiscal years beginning after June 15, 2000.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments. The statement requires that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value, and that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Management has not yet determined the impact that adoption of this standard will
have on the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
There have been no material changes in the Company's market risk exposure
from that reported in the Company's 10-K for the fiscal year ended December 31,
1999.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
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SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
RIVER HOLDING CORP.,
a Delaware corporation
November 14, 2000 By: /s/ Jay R. Ogram
----------------
Jay R. Ogram
Chief Financial Officer
(Duly Authorized Officer and Principal Financial
Officer)
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