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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q/A
Amendment no. 1
(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 26, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission file number - 333-56097
HUDSON RESPIRATORY CARE INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
CALIFORNIA 95-1867330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27711 DIAZ ROAD, P.O. BOX 9020 92589
TEMECULA, CALIFORNIA (Zip Code)
(Address of Principal Executive Offices)
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(909) 676-5611
(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 [_] (Not applicable at this time)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [_] No [_]
The number of shares of Common Stock, $.01 par value, outstanding (the only
class of common stock of the Company outstanding) was 7,812,500 on July 31,
1998.
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The undersigned Registrant hereby amends the following item of its
Quarterly Report on Form 10-Q for the quarter ended June 26, 1998, as set forth
below:
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
1. The Registrant hereby amends Item 2, "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations," to read in its entirety as follows:
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.
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<CAPTION>
Quarter Ended Six Month Period Ended
(unaudited) (unaudited)
--------------------------------------------------------
June 27, June 26, June 27, June 26,
1997 1998 1997 1998
----------- ----------- ----------- ------------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Net sales............................................. $25,106 $ 22,432 $49,093 $ 46,697
Cost of sales......................................... 13,148 12,116 25,388 25,142
------- -------- -------- --------
Gross profit.......................................... 11,958 10,316 23,705 21,555
Selling expenses...................................... 2,457 2,373 4,789 4,691
Distribution expenses................................. 1,286 1,249 2,547 2,698
General and administrative expenses................... 2,552 2,603 5,498 5,676
Research and development expenses..................... 477 466 895 940
Provision for equity participation plan............... 1,687 61,965 3,654 63,939
Provision for retention payments...................... -- -- -- 4,754
------- -------- -------- --------
Total operating expenses.............................. 8,459 68,656 17,383 82,698
------- -------- -------- --------
Operating income (loss)............................... 3,499 (58,340) 6,322 (61,143)
Add back: Provision for equity participation plan..... 1,687 61,965 3,654 63,939
Add back: Provision for retention payments............ -- 4,754 -- 4,754
------- -------- -------- --------
Operating income before provisions for equity
participation plan and retention payments............ $ 1,812 $ 8,379 $ 2,668 $ 7,550
======= ======== ======== ========
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<CAPTION>
QUARTER ENDED SIX MONTH PERIOD ENDED
------------------------------ ------------------------------
JUNE 27, JUNE 26, JUNE 27, JUNE 26,
1997 1998 1997 1998
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales..................................... 52.4 54.0 51.7 53.8
---------- ---------- --------- ---------
Gross profit.................................... 47.6 46.0 48.3 46.2
Selling expenses.................................. 9.8 10.6 9.8 10.0
Distribution expenses............................. 5.1 5.6 5.2 5.8
General and administrative expenses............... 10.2 11.6 11.2 12.2
Research and development expenses................. 1.9 2.1 1.8 2.0
Provision for equity participation plan........... 6.7 276.2 7.4 136.9
Provision for retention payments.................. -- -- -- 10.2
---------- ---------- --------- ---------
Total operating expenses.......................... 33.7 306.1 35.4 177.1
---------- ---------- --------- ---------
Operating income (loss)........................... 13.9 (260.1) 12.9 (130.9)
Add back: Provision for equity participation plan. 6.7 276.2 7.4 136.9
Add back: Provision for retention payments........ -- 21.2 -- 10.2
---------- ---------- --------- ---------
Operating income before provisions for equity
participation plan and retention payments........ 7.2% 37.4% 5.4% 16.2%
========== ========== ========= =========
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Three Months Ended June 26, 1998 Compared to Three Months Ended June 27, 1997
Net sales, reported net of accrued rebates, were $22.4 million in the
second quarter of 1998, a decrease of $2.7 million or 10.7% from the same
quarter in 1997. Domestic hospital sales declined by $1.5 million or 10.0%, due
primarily to the decrease in demand in hospitals affiliated with the Premier GPO
as the Premier contract for respiratory supplies was awarded to a competitor in
February 1997. Export sales declined by $1.6 million or 30.7%, primarily due to
loss of sales in southeast Asia as a result of the Asian economic crisis and a
slowdown in shipments to the European market due to delays in the availability
of product with new common European ("CE") labeling and inventory reduction
programs by a large European distributor. Substantially all of the Company's
high volume products are now in compliance with CE labeling requirements and the
shortfall represents a shift of sales from the second quarter to the third
quarter of 1998. These shortfalls were partially offset by an increase in
alternate site sales of $0.3 million or 9.8% as the Company continues to focus
its sales efforts in this growing market.
The Company's gross profit for the second quarter of 1998 was $10.3
million, a decline of $1.6 million or 13.7% from the second quarter of 1997. As
a percentage of sales, the Company's gross profit margin was 46.0% in the second
quarter of 1998, as compared to 47.6% in the second quarter of 1997. This
decline was primarily due to lower sales volumes in the second quarter of 1998
as compared to 1997.
Selling expenses, consisting primarily of sales force salaries, were $2.4
million for the second quarter of 1998, a decrease of $0.1 million from the
second quarter of 1997. As a percentage of net sales, selling expenses
increased to 10.6% in the second quarter of 1998 as compared to 9.8% in the
second quarter of 1997 due to the decrease in sales volumes.
Distribution expenses, consisting primarily of freight charges from the
Company's warehouses to its domestic customers, were $1.2 million in the second
quarter of 1998, a decrease of $37,000 or 2.8% from
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the second quarter of 1997. The decrease was primarily due to the lower sales
volumes in the second quarter of 1998 as compared to 1997, partially offset by
increased freight rates.
General and administrative expenses consist primarily of salaries and other
expenses for corporate management, finance, accounting, regulatory and human
resources. General and administrative expenses for the second quarter of 1998
were $2.6 million and were flat as compared to the same quarter in 1997.
Research and development expenses for the second quarter of 1998 were $0.5
million, a decrease of $11,000 over the second quarter of 1997.
The provision for Equity Participation Plan consists of accrued expenses
and payments made to executives under the Equity Participation Plan. In the
second quarter of 1998, as a result of the Recapitalization, the expense was
$62.0 million, which included approximately $1.3 million in employer payroll
taxes relating to the final distribution under the Equity Participation Plan
made on April 7, 1998. The Equity Participation Plan was terminated upon
consummation of the Recapitalization and replaced with an executive stock
purchase plan and stock option plan.
The provision for retention payments, including related employer payroll
taxes, was $4.8 million in the second quarter of 1998. These payments were made
to substantially every employee in the Company and were intended to ensure the
continued employment of all employees after the Recapitalization. No future
payments are anticipated.
Interest expense was $3.2 million for the second quarter of 1998, an
increase of $2.8 million over the second quarter of 1997. This increase was due
to higher debt levels during the second quarter of 1998 as a result of the
Recapitalization.
Income tax expense reflects the effects of the termination of the Company's
S corporation status upon the Recapitalization. The Company now provides for
federal and state income taxes as a C corporation, although actual payments are
expected to be substantially less than provided amounts due to the tax bases in
assets provided by the Section 338(h)(10) election.
Six Months Ended June 26, 1998 Compared to Six Months Ended June 27, 1997
Net sales, reported net of accrued rebates, were $46.7 million in the first
six months of 1998, a decrease of $2.4 million or 4.9% from the same period in
1997. Domestic hospital sales declined by $2.9 million or 9.3%, due primarily
to the decrease in demand in hospitals affiliated with the Premier GPO as the
Premier contract for respiratory supplies was awarded to a competitor in
February, 1997. Export sales declined by $0.2 million or 2.2%, primarily due to
loss of sales in southeast Asia as a result of the Asian economic crisis and a
slowdown in shipments to the European market due to delays in availability of CE
labeled product and inventory reduction programs by a large European
distributor. Substantially all of the Company's high volume products are now in
compliance with CE labeling requirements and the shortfall represents a shift of
sales from the second quarter to the third quarter of 1998. These shortfalls
were partially offset by an increase in alternate site sales of $0.7 million or
9.5% as the Company continues focus its sales efforts in this growing market.
The Company's gross profit for the first half of 1998 was $21.6 million, a
decline of $2.2 million or 9.1% from the first half of 1997. As a percentage of
sales, the Company's gross profit margin was 46.2% in the first half of 1998, as
compared to 48.3% in the first half of 1997. This decline was primarily due to
lower sales volumes in the first half of 1998 as compared to 1997 and due to the
under absorption of
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overhead resulting from the Company's efforts to reduce inventory levels in
combination with a relatively consistent level of sales volumes. On an interim
basis, the Company allocates actual manufacturing costs between cost of sales
and inventory based on actual production levels. The Company decreased
production and reduced inventories by $1.5 million in the first half of 1998 as
compared to an increase in inventories of $1.6 million in the first half of
1997. The decline in inventories caused approximately $0.9 million of additional
overhead to be charged to cost of sales in the first half of 1998.
Selling expenses were $4.7 million for the first half of 1998, a decrease
of $0.1 million from the first half of 1997. As a percentage of net sales,
selling expenses increased to 10.0% in the first half of 1998 as compared to
9.8% in the first half of 1997 due to the lower sales volumes.
Distribution expenses were $2.7 million in the first half of 1998, an
increase of $0.2 million or 5.6% from the first half of 1997. The increase was
primarily due to increased freight rates.
General and administrative expenses for the first half of 1998 were $5.7
million, a $0.2 million increase over the second quarter of 1997. This increase
is due to payment of $300,000 in legal fees relating to the successful defense
of a patent infringement lawsuit.
Research and development expenses for the first half of 1998 were $0.9
million, an increase of $45,000 over the first half of 1997.
In the first half of 1998, the provision for Equity Participation Plan was
$63.9 million, which included approximately $1.3 million in employer payroll
taxes relating to the distribution made under the Equity Participation Plan.
The provision for retention payments, including related employer payroll
taxes, was $4.8 million in the first half of 1998. These payments were made to
substantially every employee in the Company and were intended to ensure the
continued employment of all employees after the Recapitalization. No future
payments are anticipated.
Interest expense was $3.6 million for the first half of 1998, an increase
of $2.7 million over the first half of 1997. This increase was due to higher
debt levels during the first half of 1998 as a result of the Recapitalization.
Income tax expense reflects the effects of the termination of the Company's
S corporation status upon the Recapitalization. The Company now provides for
federal and state income taxes as a C corporation, although actual payments are
expected to be substantially less than provided amounts due to the tax bases in
assets provided by the Section 338(h)(10) election.
4
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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.
HUDSON RESPIRATORY CARE INC.,
a California corporation
August 31, 1998 By: /s/ Jay R. Ogram
--------------------------------------
Jay R. Ogram
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
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