<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 June 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)
</TABLE>
(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).
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[ ] No [x]
The number of shares of Common Stock, $.01 par value, outstanding (the only
class of common stock of the Company outstanding) was 8,544,291 on August 14,
2000.
================================================================================
<PAGE>
RIVER HOLDING CORP. AND SUBSIDIARIES
QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements of River Holding Corp.:
Condensed Consolidated Balance Sheets as of December 31, 1999 and
June 30, 2000 (unaudited).............................................. 1
Unaudited Condensed Consolidated Statements of Operations for the
Three Months Ended June 25, 1999 and June 30, 2000, and the
Six Months Ended June 25, 1999 and June 30, 2000....................... 3
Unaudited Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 25, 1999 and June 30, 2000....................... 4
Notes to Unaudited Condensed Consolidated Financial Statements......... 5
Condensed Consolidated Financial Statements of Hudson Respiratory
Care Inc.:
Condensed Consolidated Balance Sheets as of December 31, 1999
and June 30, 2000 (unaudited).......................................... 6
Unaudited Condensed Consolidated Statements of Operations for the
Three Months Ended June 25, 1999 and June 30, 2000, and the
Six Months Ended June 25, 1999 and June 30, 2000....................... 8
Unaudited Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 25, 1999 and June 30, 2000....................... 9
Notes to Unaudited Condensed Consolidated Financial Statements......... 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................... 15
Item 3. Quantitative and Qualitative Disclosures About Market Risks................... 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................. 22
Item 2. Changes in Securities......................................................... 22
Item 3. Defaults Upon Senior Securities............................................... 22
Item 4. Submission of Matters to a Vote of Security Holders........................... 22
Item 5. Other Information............................................................. 22
Item 6. Exhibits and Reports on Form 8-K.............................................. 22
SIGNATURE......................................................................................... 23
</TABLE>
<PAGE>
RIVER HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ --------
<S> <C> <C>
(unaudited)
CURRENT ASSETS:
Cash............................................................................. $ 2,917 $ 2,771
Accounts receivable, less allowance for doubtful accounts of $973 and $1,071 at
December 31, 1999 and June 30, 2000, respectively............................... 30,425 35,909
Inventories...................................................................... 24,043 30,892
Other current assets............................................................. 4,945 2,553
-------- --------
Total current assets........................................................... 62,330 72,125
PROPERTY, PLANT AND EQUIPMENT, NET............................................... 54,341 56,338
OTHER ASSETS:
Deferred tax asset, net.......................................................... 11,342 10,693
Deferred financing costs, net.................................................... 11,134 10,078
Other assets..................................................................... 222 87
Goodwill, net.................................................................... 205,592 202,964
-------- --------
Total other assets............................................................ 228,290 223,822
-------- --------
Total assets................................................................ $344,961 $352,285
======== ========
</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, June 30,
1999 2000
------------ --------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable to banks.......................................................... $ 6,673 $ 7,630
Accounts payable................................................................ 6,268 8,572
Accrued liabilities............................................................. 11,700 15,151
Other current liabilities....................................................... 1,485 1,398
-------- --------
Total current liabilities..................................................... 26,126 32,751
NOTE PAYABLE TO STOCKHOLDER, net of current portion.............................. 7,508 7,508
NOTES PAYABLE TO BANKS, net of current portion................................... 82,513 83,820
SENIOR SUBORDINATED NOTES PAYABLE................................................ 115,000 115,000
-------- --------
Total liabilities............................................................. 231,147 239,079
-------- --------
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 June 30, 2000, respectively;
liquidation preference: $35,558 and $37,603, respectively....................... 34,558 36,603
Accrued preferred stock dividend, payable in kind............................... 863 936
-------- --------
35,421 37,539
-------- --------
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) (91)
Accumulated deficit............................................................. (12,957) (15,990)
-------- --------
Total stockholders' equity.................................................... 78,393 75,667
-------- --------
Total liabilities, mandatorily-redeemable preferred stock and
stockholders' equity....................................................... $344,961 $352,285
======== ========
</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 Six Months Ended
-------------------- ----------------------
June 25, June 30, June 25, June 30,
1999 2000 1999 2000
---------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES................................................ $27,274 $31,811 $54,443 $ 72,618
COST OF SALES............................................ 16,650 14,825 32,772 37,328
------- ------- ------- --------
Gross profit........................................... 10,624 16,986 21,671 35,290
------- ------- ------- --------
OPERATING EXPENSES:
Selling, distribution and general and administrative... 6,367 11,361 13,407 20,654
Amortization of goodwill............................... 1,270 2,087 2,540 4,160
Research and development............................... 380 629 642 1,249
------- ------- ------- --------
8,017 14,077 16,589 26,063
------- ------- ------- --------
Income from operations............................... 2,607 2,909 5,082 9,227
INTEREST AND OTHER EXPENSE............................... (3,956) (5,130) (7,799) (10,466)
------- ------- ------- --------
Loss before benefit for income taxes................. (1,349) (2,221) (2,717) (1,239)
BENEFIT FOR INCOME TAXES................................. (575) (735) (1,122) (253)
------- ------- ------- --------
Net Loss............................................. (774) (1,486) (1,595) (986)
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation (loss) gain............... (205) 77 (606) 307
------- ------- ------- --------
Comprehensive loss................................... $ (979) $(1,409) $(2,201) $ (679)
======= ======= ======= ========
</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>
Six Months Ended
---------------------
June 25, June 30,
1999 2000
---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................................... $(1,595) $ (986)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization.................................................. 6,952 9,470
Decrease (increase) in accounts receivable..................................... 5,275 (5,483)
Increase in inventories........................................................ (1,553) (6,851)
Decrease in other current assets............................................... 1 2,392
(Increase) decrease in other assets............................................ (122) 135
Increase in deferred tax asset............................................... (1,009) (1,380)
(Decrease) increase in accounts payable........................................ (3,931) 2,376
Increase in accrued liabilities................................................ 500 3,365
------- -------
Net cash provided by operating activities.................................. 4,518 3,038
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment....................................... (3,641) (5,755)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable to banks.............................................. (5,000) (1,500)
Proceeds from bank borrowings.................................................... 5,000 3,764
------- -------
Net cash provided by financing activities........................................ -- 2,264
Effect of exchange rate changes on cash........................................... (606) 307
------- -------
NET INCREASE (DECREASE) IN CASH................................................... 271 (146)
CASH, beginning of period......................................................... 507 2,917
------- -------
CASH, end of period............................................................... $ 778 $ 2,771
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest........................................................................ $ 6,187 $ 6,700
======= =======
NON-CASH FINANCING ACTIVITIES:
Preferred dividends accrued or paid-in-kind...................................... $ 1,891 $ 2,118
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated statements.
4
<PAGE>
RIVER HOLDING CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 30, 2000 and the results of
operations and cash flows for the three and six month periods ended June 25,
1999 and June 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 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 six month periods ended June 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
------------
acquisition, the most significant of which was Louis Gibeck AB ("LGAB"). The
Company is evaluating certain estimates made in connection with the purchase
price allocations, which may change in the near term.
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>
Six Months Ended
June 25, 1999
----------------
(unaudited)
<S> <C>
Net sales............................................ $63,877
=======
Net loss............................................. $(2,231)
=======
</TABLE>
3. Inventories. Inventories consisted of the following (amounts in thousands):
-----------
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ -----------
(unaudited)
<S> <C> <C>
Raw materials..................................... $ 5,901 $ 7,941
Work-in-process................................... 5,682 8,161
Finished goods.................................... 12,460 14,790
------- -------
$24,043 $30,892
======= =======
</TABLE>
4. Bank Notes Payable. Subsequent to the end of the second quarter of 2000,
-------------------
certain provisions of the existing bank loan agreement were amended.
5
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
-------------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash................................................................. $ 2,917 $ 2,771
Accounts receivable, less allowance for doubtful accounts of $973
and $1,071 at December 31, 1999 and June 30, 2000, respectively..... 30,425 35,909
Inventories.......................................................... 24,043 30,892
Other current assets................................................. 4,612 2,220
-------- --------
Total current assets............................................... 61,997 71,792
PROPERTY, PLANT AND EQUIPMENT, net...................................... 42,476 45,604
OTHER ASSETS:
Intangible assets, net............................................... 66,970 64,853
Deferred financing costs, net........................................ 11,134 10,078
Deferred tax asset, net.............................................. 68,943 68,855
Other assets......................................................... 299 164
-------- --------
Total other assets................................................. 147,346 143,950
-------- --------
Total assets..................................................... $251,819 $261,346
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
6
<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, June 30,
1999 2000
------------ --------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable to banks..................................................... $ 6,673 $ 7,630
Accounts payable........................................................... 6,168 8,472
Accrued liabilities........................................................ 11,700 15,151
Other current liabilities.................................................. 1,485 1,398
--------- ---------
Total current liabilities................................................ 26,026 32,651
NOTE PAYABLE TO AFFILIATE................................................... 7,508 7,508
NOTES PAYABLE TO BANKS, net of current portion.............................. 82,513 83,820
SENIOR SUBORDINATED NOTES PAYABLE........................................... 115,000 115,000
--------- ---------
Total liabilities........................................................ 231,047 238,979
--------- ---------
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 June 30, 2000, respectively;
liquidation preference: $35,558 and $37,603, respectively................. 34,558 36,603
Accrued preferred stock dividend, payable in kind.......................... 863 936
--------- ---------
35,421 37,539
--------- ---------
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) (555)
Accumulated deficit......................................................... (105,945) (106,775)
--------- ---------
Total stockholders' equity (deficit)...................................... (14,649) (15,172)
--------- ---------
Total liabilities, mandatorily-redeemable preferred stock and
stockholders' equity (deficit).......................................... $ 251,819 $ 261,346
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
7
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
June 25, June 30, June 25, June 30,
1999 2000 1999 2000
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
NET SALES.................................................. $27,274 $31,811 $54,443 $ 72,618
COST OF SALES.............................................. 16,085 14,825 31,866 37,328
------- ------- ------- --------
Gross profit............................................ 11,189 16,986 22,577 35,290
------- ------- ------- --------
OPERATING EXPENSES:
Selling, distribution, general and administrative......... 6,306 10,796 13,133 19,525
Amortization of goodwill.................................. 61 817 122 1,620
Research and development.................................. 380 629 670 1,249
------- ------- ------- --------
6,747 12,242 13,925 22,394
------- ------- ------- --------
Income from operations.................................. 4,442 4,744 8,652 12,896
INTEREST AND OTHER EXPENSE................................. (3,956) (5,130) (7,698) (10,467)
------- ------- ------- --------
Net income (loss) before provision for income taxes..... 486 (386) 954 2,429
PROVISION (BENEFIT) FOR INCOME TAXES....................... 159 (1) 346 1,215
------- ------- ------- --------
Net income (loss)....................................... 327 (385) 608 1,214
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation gain (loss).................. (205) 100 (606) 307
------- ------- ------- --------
Comprehensive income (loss).............................. $ 122 $ (285) $ 2 $ 1,521
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated statements.
8
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amount in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
June 25, June 30,
1999 2000
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................ $ 608 $ 1,214
Adjustments to reconcile net income to net cash provided by operating
activities--
Depreciation and amortization.......................................... 3,166 5,310
Amortization of deferred financing costs............................... 201 490
Deferred taxes......................................................... 460 88
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable............................. 5,276 (5,483)
Increase in inventories................................................ (1,554) (6,849)
Decrease in other current assets....................................... 1 2,392
Increase (decrease) in other assets.................................... (122) 135
(Decrease) increase in accounts payable................................ (3,932) 2,376
Increase in accrued liabilities........................................ 499 3,452
Decrease in other current liabilities.................................. -- (87)
------- -------
Net cash provided by operating activities............................ 4,603 3,038
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................................ (3,640) (5,755)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable to banks...................................... (5,000) (1,500)
Proceeds from bank borrowings............................................. 5,000 3,764
Additions to deferred financing costs..................................... (86) --
------- -------
Net cash provided by (used in) financing activities.................. (86) 2,264
------- -------
Effect of exchange rate changes on cash.................................... (606) 307
------- -------
NET INCREASE (DECREASE) IN CASH............................................ 271 (146)
CASH, beginning of period.................................................. 507 2,917
------- -------
CASH, end of period........................................................ $ 778 $ 2,771
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................................ $ 6,187 $ 6,700
======= =======
NON-CASH FINANCING ACTIVITIES:
Preferred dividends accrued or paid-in-kind............................... $ 1,891 $ 2,118
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated statements.
9
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDAIRIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 30, 2000, and the results of
operations and cash flows for the three and six month periods ended June 25,
1999 and June 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 six month periods ended
June 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"). The Company is evaluating certain estimates made in connection
with the purchase price allocations, which may change in the near term.
Had the acquisition of LGAB occurred at the beginning of the prior fiscal
year, the unaudited pro forma net sales and net income would be as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 25, 1999
----------------
(unaudited)
<S> <C> <C>
Net sales................................................... $ 63,877
=========
Net income.................................................. $ (28)
=========
</TABLE>
3. Inventories. Inventories consisted of the following (amounts in thousands):
-----------
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
----------- ---------
(unaudited)
<S> <C> <C>
Raw materials........................................................ $ 5,901 $ 7,941
Work-in-process...................................................... 5,682 8,161
Finished goods....................................................... 12,460 14,790
------- -------
$24,043 $30,892
======= =======
</TABLE>
4. Bank Notes Payable. Subsequent to the end of the second quarter of 2000,
------------------
certain 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):
10
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
As of June 30, 2000
---------------------------------------------------------------------------
Guarantor Non-Guarantor Adjustments Total
--------------- ----------------------- -------------- ----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash............................................ $ 107 $ 2,664 $ -- $ 2,771
Accounts receivable, net........................ 32,096 3,300 513 35,909
Inventories..................................... 28,765 3,789 (1,662) 30,892
Other current assets............................ 4,442 18,360 (20,582) 2,220
-------- ------- ------- -------
Total current assets.......................... 65,410 28,113 (21,731) 71,792
PROPERTY, PLANT AND EQUIPMENT, NET............... 44,527 1,077 -- 45,604
OTHER ASSETS:
Intangible assets, net.......................... 21,814 43,039 -- 64,853
Deferred financing costs, net................... 10,078 -- -- 10,078
Deferred tax asset, net......................... 68,295 560 -- 68,855
Investment in non-guarantor subsidiaries........ 29,245 -- (29,245) --
Other........................................... 732 156 (724) 164
-------- ------- ------- -------
Total other assets............................ 130,164 43,755 (29,969) 143,950
-------- ------- ------- -------
Total assets............................... $240,101 $72,945 $(51,700) $261,346
======== ======= ======= =======
</TABLE>
11
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
As of June 30, 2000
----------------------------------------------------------------------------
Guarantor Non-Guarantor Adjustments Total
------------- ------------------- -------------- ------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable to banks ........................... $ 6,500 $ 1,130 $ -- $ 7,630
Accounts payable ................................. 9,753 2,893 (4,174) 8,472
Accrued liabilities .............................. 11,157 3,994 -- 15,151
Other current liabilities ........................ 1,318 17,212 (17,132) 1,398
-------- ------ ------- -------
Total current liabilities ..................... 28,728 25,229 (21,306) 32,651
OTHER LIABILITIES:
Note payable to affiliate ........................ -- 7,508 -- 7,508
Notes payable to banks, net of current portion ... 69,000 14,821 -- 83,820
Senior subordinated notes ........................ 115,000 -- -- 115,000
-------- ------ ------- --------
Total liabilities ............................. 212,728 47,558 (21,306) 238,980
-------- ------ ------- --------
Mandatorily-redeemable preferred stock .............. 37,539 -- -- 37,539
-------- ------ ------- --------
STOCKHOLDERS' EQUITY (DEFICIT) ...................... (10,166) 25,387 (30,394) (15,172)
-------- ------ ------- --------
$240,101 $72,945 $(51,700) $261,346
======== ======= ======== ========
</TABLE>
12
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS(a)
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000
---------------------------------------------------------------------
Guarantor Non- Adjustments Total
Guarantor
---------- ----------------- -------------- -----
<S> <C>
NET SALES................................................ $29,746 $4,823 $(2,758) $31,811
COST OF SALES............................................ 15,634 1,949 (2,758) 14,825
------- ------ ------- -------
Gross profit............................................ 14,112 2,874 -- 16,986
OPERATING EXPENSES:
Selling, distribution, general and administrative....... 9,540 2,073 -- 11,613
Research and development................................ 290 339 -- 629
------- ------ ------- -------
9,830 2,412 -- 12,242
------- ------ ------- -------
Income from operations................................... 4,282 462 -- 4,744
INTEREST AND OTHER EXPENSE............................... 4,598 532 -- 5,130
------- ------ ------- -------
Loss before provision (benefit) for income taxes........ (316) (70) -- (386)
PROVISION (BENEFIT) FOR INCOME TAXES.................... (125) 124 -- (1)
------- ------ ------- -------
Net income (loss)....................................... $ (191) $ (194) $ -- $ (385)
======= ====== ======= =======
Depreciation and amortization............................ $ 2,143 $ 569 $ -- $ 2,712
======= ====== ======= =======
Adjusted EBITDA(b)....................................... $ 6,425 $1,031 $ -- $ 7,456
======= ====== ======= =======
</TABLE>
-----------------------------
(a) All entities included in the June 25, 1999 financial statements were
guarantors of the Company's Senior Subordinated Notes.
(b) 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.
13
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS(a)
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
--------------------------------------------------------------------
Non-
Guarantor Guarantor Adjustments Total
--------- --------- ----------- -----
<S> <C> <C> <C> <C>
NET SALES............................................... $64,018 $13,672 $(5,072) $ 72,618
COST OF SALES........................................... 35,963 6,237 (4,872) 37,328
------- ------- ------- --------
Gross profit........................................... 28,055 7,435 (200) 35,290
OPERATING EXPENSES:
Selling, distribution, general and administrative...... 16,680 4,465 -- 21,145
Research and development............................... 572 677 -- 1,249
------- ------- ------- --------
17,252 5,142 -- 22,394
------- ------- ------- --------
Income from operations.................................. 10,803 2,293 (200) 12,896
INTEREST AND OTHER EXPENSE.............................. (9,150) (1,317) -- (10,467)
------- ------- ------- --------
Income before provision for income taxes............. 1,653 976 (200) 2,429
PROVISION FOR INCOME TAXES........................... 699 516 -- 1,215
------- ------- ------- --------
Net income........................................... $ 954 $ 460 $ (200) $ 1,214
======= ======= ======= ========
Depreciation and amortization........................... $ 4,100 $ 1,210 $ -- $ 5,310
======= ======= ======= ========
Adjusted EBITDA(b)...................................... $14,903 $ 3,503 $ (200) $ 18,206
======= ======= ======= ========
</TABLE>
_____________________
(a) All entities included in the June 25, 1999 financial statements were
guarantors of the Company's Senior Subordinated Notes.
(b) 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.
14
<PAGE>
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
--------------------------------------------
Non
Guarantor Guarantor Total
--------- --------- -------
<S> <C> <C> <C>
Net cash provided by operating activities.................. $ (350) $ 3,388 $ 3,038
Net cash provided by (used in) investing activities........ (3,708) (2,047) (5,755)
Net cash used in financing activities...................... 3,900 (1,636) 2,264
Effect of exchange rate changes on cash.................... 81 226 307
-------- -------- ------
NET (DECREASE) INCREASE IN CASH............................ (77) (69) (146)
CASH, beginning of period.................................. 184 2,733 2,917
-------- -------- ------
CASH, end of period........................................ $ 107 $ 2,664 $ 2,771
======== ======== =======
</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.
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.
15
<PAGE>
Recent Developments
On November 8, 1999, the Company acquired certain assets of Tyco Healthcare
Group LP ("Tyco"), including Tyco's incentive breathing exerciser and pulmonary
function monitor product lines, for a cash purchase price of approximately $23.8
million. The Tyco acquisition was funded principally with proceeds from the
Company's $60.0 million revolving line of credit.
On October 8, 1999, the Company acquired certain assets of Medimex, a
German distribution company that had previously distributed products for both
the Company and Louis Gibeck AB ("LGAB"), for a cash purchase price of $2.2
million. The assets were acquired through the Company's wholly-owned, non-
guarantor subsidiary, HRCDAC Inc., and was funded with cash on hand.
On July 22, 1999, the Company, through its indirect, wholly-owned
subsidiary Steamer Holding AB, a company organized under the laws of Sweden
("Steamer"), acquired a majority of the outstanding capital stock of LGAB, a
company organized under the laws of Sweden. Pursuant to a series of private
purchases and a tender offer consummated pursuant to Swedish law, Steamer
acquired 604,000 shares of Class A stock and 2,452,838 shares of Class B stock
representing approximately 82.0% of the capital and 62.8% of the voting power of
LGAB at a price of 115 Swedish krona (approximately $13.60 at the July 22
exchange rate) per share of Class A stock and Class B stock for an aggregate
cash purchase price of approximately $45.5 million. In addition, on August 4,
1999, Steamer acquired an additional 483,750 shares of Class A stock of LGAB
from River Holding Corp., a Delaware corporation and the parent of Steamer and
the Company ("Holding"), which shares Holding acquired in a private transaction
in exchange for 525,042 shares of common stock of Holding ("Holding Common
Stock"). The exchange ratio for the Class A stock was the same as the effective
price per share of the shares acquired in the tender offer. After giving effect
to this exchange and the conversion of the Series A stock acquired by Steamer in
the tender offer into Series B stock, Steamer holds approximately 99.0% of the
capital and 100.0% of the voting power of LGAB. The Company intends that
Steamer, through continuing purchases and a statutory freezeout and appraisal
procedure under Swedish law, will acquire the remaining outstanding shares of
LGAB as soon as practicable.
The cash for the purchase price and certain related transaction costs was
funded with (i) $22.0 million in gross proceeds from the sale of Holding Common
Stock to the majority stockholder of Holding, (ii) a $22.0 million loan from the
majority stockholder of Holding to Steamer's parent, HRC Holding Inc., a
Delaware corporation and a wholly-owned subsidiary of the Company, and (iii) the
funding of 50 million Swedish krona (approximately $5.9 million) pursuant to the
terms of a loan facility agreement between Steamer and Svenska Handelsbanken AB.
Founded in 1954, LGAB develops, manufactures and markets medical device
products which humidify, heat and filter a patient's breathing gases during
anesthesia and intensive care. LGAB is a market leader in the area of "heat
moisture exchange" ("HME") products, with approximately 25% share of the world
market. Following completion of the acquisition, the Company intends to
continue LGAB's operations in substantially the same manner as conducted prior
to the acquisition.
In September 1998, the Company acquired certain assets of Gibeck, Inc., a
subsidiary of LGAB, for approximately $3.35 million. Prior to the transaction,
Gibeck, Inc. was engaged primarily in the business of manufacturing, marketing
and selling disposable anesthesia supplies. In conjunction with that
transaction, the Company became the exclusive North American distributor of
LGAB's HME product line. In fiscal year 1997, Gibeck, Inc. reported net sales
of approximately $12.3 million.
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 six 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.
16
<PAGE>
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 Six Month Period Ended
(unaudited) (unaudited)
------------------------ -----------------------
June 25, June 30, June 25, June 30,
1999 2000 1999 2000
------------------------ ------------------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net sales..................................... $ 27,274 $ 31,811 $ 54,443 $ 72,618
Cost of sales................................. 16,085 14,825 31,866 37,328
------------ ---------- ---------- ----------
Gross profit............................. 11,189 16,986 22,577 35,290
Selling expenses.............................. 2,677 3,896 5,112 7,715
Distribution expenses......................... 685 1,990 1,960 3,463
General and administrative expenses........... 2,944 4,910 6,061 8,347
Amortization of goodwill...................... 61 817 122 1,620
Research and development expenses............. 380 629 670 1,249
------------ ---------- ---------- ----------
Total operating expenses................. 6,747 12,242 13,925 22,394
------------ ---------- ---------- ----------
Operating income......................... $ 4,442 $ 4,744 $ 8,652 $ 12,896
============ ========= ========= ==========
Three Month Period Ended Six Month Period Ended
(unaudited) (unaudited)
------------------------ -----------------------
June 25, June 30, June 25, June 30,
1999 2000 1999 2000
------------------------ ------------------------
Net sales..................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales................................. 59.0 46.6 58.5 51.4
----- ----- ----- -----
Gross profit............................. 41.0 53.4 41.9 48.6
Selling expenses.............................. 9.8 12.2 9.4 10.6
Distribution expenses......................... 2.5 6.3 3.6 4.8
General and administrative expenses........... 10.8 15.4 11.1 11.5
Amortization of goodwill...................... 0.2 2.6 0.2 2.2
Research and development expenses............. 1.4 2.0 1.2 1.7
----- ----- ----- -----
Total operating expenses................. 24.7 38.5 25.6 30.8
----- ----- ----- -----
Operating income......................... 16.3% 14.9% 15.9% 17.8%
===== ===== ===== =====
</TABLE>
Three Months Ended June 30, 2000 Compared to Three Months Ended June 25, 1999
Net sales, reported net of accrued rebates, were $31.8 million in the
second quarter of 2000 as compared to $27.2 million in the second quarter of
1999, an increase of $4.5 million or 16.6%. Sales by the acquired Louis Gibeck
AB (renamed Hudson RCI AB) were approximately $2.8 million, $2.4 million related
to the acquired Tyco product line and $0.4 million related to the acquired
Medimex product line. For the base Hudson product line, domestic hospital sales
decreased by $0.6 million, alternate site sales increased by $0.3 million,
Canadian sales declined by $0.2 million, international sales increased by $0.4
million and OEM sales increased by $0.1 million. Although demand was strong in
all sectors of the business, sales were negatively impacted due to shipping
difficulties associated with the implementation of a new computer system. As a
result, backlog was $4.0 million at June 30, 2000 as compared to $1.1 million at
June 30, 1999.
17
<PAGE>
The Company's gross profit for the second quarter of 2000 was $17.0
million, an increase of $5.8 million or 51.8% over the second quarter of 1999.
As a percentage of sales, the gross profit was 53.4% and 41.0% for the second
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.
In addition, higher production levels have resulted in lower per unit costs.
However, due to the shipping difficulties associated with the computer system
implementation, production levels significantly exceeded sales levels and
inventory levels have increased.
Selling expenses were $3.9 million for the second quarter of 2000, a $1.2
million increase over the second quarter of 1999. This increase was due
primarily to $0.6 million of costs related to the acquired Hudson RCI AB and
$0.3 million of costs associated with the start-up of the German sales office.
Additionally, sales representatives were added in the alternate site market to
service the growing demand.
Distribution expenses were $2.0 million for the second quarter of 2000, a
$1.3 million increase over the second quarter of 1999. This increase was
primarily driven by the establishment of an Atlanta distribution facility in the
third quarter of 1999, the addition of a second shift and overtime at all
warehouses required to meet customer demand.
General and administrative expenses were $4.9 million in the second quarter
of 2000, an increase of $2.0 million or 66.8% over the second quarter 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 $0.8 million for the second quarter of 2000,
as compared to $0.1 million in the second quarter of 1999. This increase was
primarily due to the Tyco and Hudson RCI AB acquisitions in the second half of
1999.
Research & development costs were $0.6 million in the second quarter of
2000, as compared to $0.4 million in the second quarter of 1999. This increase
was primarily due to expenses of the acquired Hudson RCI AB.
Interest expense and other was $5.1 million in the second quarter of 2000,
as compared to $4.0 million in the second quarter of 1999. This increase
reflects increased borrowings as a result of the Hudson RCI and Tyco
acquisitions as well as increased borrowings in the working capital revolving
facility and 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.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 25, 1999
Net sales, reported net of accrued rebates, were $72.6 million in the first
half of 2000 as compared to $54.4 million in the first half of 1999, an increase
of $18.2 million or 33.4%. Sales by the acquired Louis Gibeck AB (renamed
Hudson RCI AB) were approximately $7.8 million, $6.2 million related to the
acquired Tyco product line and $0.9 million related to the acquired Medimex
product line. For the base Hudson product line, domestic hospital sales
increased by $1.4 million, alternate site sales increased by $1.3 million,
Canadian sales declined by $0.3 million and international sales increased by
$0.9 million. 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. As a result, backlog was $4.0 million
at June 30, 2000 as compared to $1.1 million at June 30, 1999.
The Company's gross profit for the first half of 2000 was $35.2 million, an
increase of $12.7 million or 56.3% over the first half of 1999. As a percentage
of sales, the gross profit was 48.6% and 41.9% for the first half 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, higher production levels have resulted in lower per unit costs.
18
<PAGE>
However, due to the shipping difficulties associated with the computer system
implementation, production levels significantly exceeded sales levels and
inventory levels have increased.
Selling expenses were $7.7 million for the first half of 2000, a $2.6
million increase over the first half of 1999. This increase was due primarily to
$1.3 million of costs related to the acquired Hudson RCI AB and $0.8 million of
costs associated to the start-up German operation. Additionally, sales
representatives were added in the Alternate Site market to service the growing
demand.
Distribution expenses were $3.5 million for the first half of 2000, a $1.5
million increase over the first half of 1999. This increase was primarily
driven by the establishment of an Atlanta distribution facility in the third
quarter of 1999, the addition of a second shift and overtime at all warehouses
required to meet customer demand.
General and administrative expenses were $8.3 million in the first half of
2000, an increase of $2.3 million or 37.7% over the first half 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 $1.6 million for the first half of 2000, as
compared to $0.1 million in the first half of 1999. This increase was primarily
due to the Tyco and Hudson RCI AB acquisitions in the second half of 1999.
Research & development costs were $1.2 million in the first half of 2000,
as compared to $0.6 million in the first half of 1999. This increase was
primarily due to expenses of the acquired Hudson RCI AB.
Interest expenses and other was $10.5 million in the first half of 2000, as
compared to $7.8 million in the first half of 1999. This increase reflects
increased borrowings as a result of the Hudson RCI and Tyco acquisitions as well
as increased borrowings in the working capital revolving facility and 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 $4.6 million and $1.1 million in the first six months of 1999
and 2000, respectively. The decrease from the first six months of 1999 to the
first six months of 2000 is primarily attributable to higher working capital
levels. The Company had operating working capital, excluding cash and short-
term debt, of $38.4 million and $44.0 million as of December 31, 1999 and June
30, 2000, respectively. Inventories were $24.0 million and $30.9 million as of
December 31, 1999 and June 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 $35.9 million at December
31, 1999 and June 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.
19
<PAGE>
During the six months ended June 25, 1999, net cash used in investing
activities was $3.6 million, reflecting purchases of computer software and
manufacturing equipment. During the six months ended June 30, 2000, net cash
used in investing activities was $5.8 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 six months ended June 25, 1999 and June 30, 2000, net cash (used
in) provided by financing activities was $(0.1) million and $2.3 million,
respectively, reflecting principally repayment and borrowing of the Company's
facility.
The Company has outstanding $214.0 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 $7.5 million in
notes payable to affiliates. In addition, LGAB has $16 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 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 June 30, 2000, $7.5
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 $16 million as of June 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 June 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 11 1/2% 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.
20
<PAGE>
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 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.
The Company believes that after giving effect to the 1999 acquisitions and
the incurrence of indebtedness related thereto, 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.
21
<PAGE>
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.
22
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C>
RIVER HOLDING CORP.,
a Delaware corporation
August 14, 2000 By: /s/ Jay R. Ogram
----------------
Jay R. Ogram
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
</TABLE>
23
