<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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 December 31, 1995
-----------------
or
[_] Transition Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
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Commission File No. 000-16723
RESPIRONICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1304989
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1001 Murry Ridge Dr.
Murrysville, Pennsylvania 15668
(Address of principal executive offices) (Zip Code)
(Registrant's Telephone Number, including area code) 412-733-0200
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 and (2) has been subject to such filing requirements for
at least the past 90 days. Yes X No [_].
-
As of January 31, 1996, there were 16,859,314 shares of Common Stock of the
registrant outstanding.
<PAGE>
INDEX
RESPIRONICS, INC.
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited).
Consolidated balance sheets -- December 31, 1995 and
June 30, 1995.
Consolidated statements of operations -- Three months ended
December 31, 1995 and 1994 and six months ended December
31, 1995 and 1994.
Consolidated statements of cash flows-- Six months ended
December 31, 1995 and 1994.
Notes to consolidated financial statements --
December 31, 1995.
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
- ----------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31 June 30
1995 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 9,792,908 $16,126,904
Trade accounts receivable, less allowance for
doubtful accounts of $850,000 and $700,000 25,026,073 19,448,187
Inventories 17,300,722 13,136,664
Prepaid expenses and other 2,338,969 1,951,358
Deferred income tax benefits 2,200,595 2,200,595
----------- -----------
TOTAL CURRENT ASSETS 56,659,267 52,863,708
PROPERTY, PLANT AND EQUIPMENT
Land 2,773,246 2,589,117
Building 8,779,610 8,674,675
Machinery and equipment 15,762,719 14,155,510
Furniture and office equipment 10,681,202 9,394,000
Leasehold improvements 979,717 577,175
----------- -----------
38,976,494 35,390,477
Less allowances for depreciation
and amortization 17,207,404 15,443,041
----------- -----------
21,769,090 19,947,436
Funds held in trust for construction
of new facility 729,087 710,929
OTHER ASSETS 3,024,794 2,668,592
COST IN EXCESS OF NET ASSETS OF
BUSINESS ACQUIRED 1,769,271 1,847,905
------------ ------------
$ 83,951,509 $ 78,038,570
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
December 31 June 30
1995 1995
---------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,974,185 $ 4,858,554
Accrued compensation and related expenses 2,932,812 3,827,187
Accrued expenses 3,479,913 2,694,298
Income taxes 1,633,650 1,572,121
Current portion of long-term obligations 492,729 498,150
----------- -----------
TOTAL CURRENT LIABILITIES 12,513,289 13,450,310
LONG-TERM OBLIGATIONS 5,241,953 5,537,996
MINORITY INTEREST 646,199 681,068
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized
40,000,000 shares; issued and outstanding
16,851,860 shares at December 31, 1995 and
16,744,785 shares at June 30, 1995 168,519 167,448
Additional capital 19,706,538 19,254,977
Retained earnings 45,675,011 38,946,771
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 65,550,068 58,369,196
----------- -----------
$83,951,509 $78,038,570
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31 December 31
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $30,241,119 $23,867,803 $56,915,794 $45,537,612
Cost of goods sold 13,380,809 10,188,631 24,895,319 19,659,362
----------- ----------- ----------- -----------
16,860,310 13,679,172 32,020,475 25,878,250
General and administrative expenses 3,831,024 3,643,180 7,847,827 6,811,820
Sales, marketing and commission expense 4,989,268 4,414,508 9,513,054 8,298,675
Research and development expense 2,368,426 1,589,549 4,061,333 3,060,328
Interest expense 50,541 48,883 100,595 95,943
Other income (216,475) (296,917) (532,235) (509,783)
----------- ----------- ----------- -----------
11,022,784 9,399,203 20,990,574 17,756,983
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 5,837,526 4,279,969 11,029,901 8,121,267
Income taxes 2,328,558 1,583,589 4,301,661 3,004,871
----------- ----------- ----------- -----------
NET INCOME $ 3,508,968 $ 2,696,380 $ 6,728,240 $ 5,116,396
=========== =========== =========== ===========
Earnings per share $ 0.20 $ 0.15 $ 0.38 $ 0.29
=========== =========== =========== ===========
Weighted Average Number of Shares
Used in Computing Earnings Per Share 17,601,685 17,417,532 17,730,325 17,346,028
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six months ended
December 31
1995 1994
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,728,240 $5,116,396
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,842,997 1,956,623
Provision for losses on accounts receivable 150,000 75,000
Changes in operating assets and liabilities:
Increase in accounts receivable (5,727,886) (2,793,514)
Decrease in refundable income taxes -0- 1,787,265
Increase in inventories and prepaid
expenses (4,551,669) (2,387,016)
Increase in other assets (356,202) (73,948)
Decrease in accounts payable (884,369) (765,318)
Decrease in accrued compensation
and related expenses (894,375) (36,256)
Increase in accrued expenses 785,615 447,217
Increase (decrease) in accrued income taxes 61,529 (31,624)
----------- -----------
NET CASH (USED) PROVIDED BY
OPERATING ACTIVITIES (2,846,120) 3,294,825
INVESTING ACTIVITIES
Purchase of property, plant and equipment (3,586,017) (2,961,843)
Increase in funds held in trust for construction
of new facility (18,158) (12,595)
----------- ------------
NET CASH USED BY
INVESTING ACTIVITIES (3,604,175) (2,974,438)
FINANCING ACTIVITIES
Reduction in long-term obligations (301,464) (233,028)
Issuance of common stock 452,632 400,305
(Decrease) increase in minority interest (34,869) 4,601
----------- ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 116,299 171,878
----------- ------------
(DECREASE) INCREASE IN CASH AND
SHORT-TERM INVESTMENTS (6,333,996) 492,265
Cash and short-term investments at beginning of period 16,126,904 12,384,054
----------- ------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 9,792,908 $ 12,876,319
=========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
DECEMBER 31, 1995
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended December 31, 1995 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1995.
NOTE B -- INVENTORIES
The composition of inventory is as follows:
<TABLE>
<CAPTION>
December 31 June 30
1995 1995
------------- ------------
<S> <C> <C>
Raw materials $ 12,821,590 $ 7,960,573
Work-in-process 1,496,414 1,105,010
Finished goods 2,982,718 4,071,081
------------- ------------
$ 17,300,722 $ 13,136,664
============= ============
</TABLE>
NOTE C -- CONTINGENCY
As previously disclosed, the Company is a party to an action filed in a federal
District Court in January 1995 in which a competitor alleges that the Company's
sale in the United States of certain products infringes three of the
competitor's patents. In its response to the action, the Company has denied the
allegations and has separately sought a declaratory judgment that the claims
under the patents are invalid and that the Company does not infringe upon the
patents. Discovery in the case is continuing.
<PAGE>
The Company believes that none of its products infringe any of the patents in
question in the event that any one or more of such patents should be held to
be valid, and it intends to vigorously defend this position.
<PAGE>
Item 2. Management's Discussion and Analysis of Result of Operations
- ------- ------------------------------------------------------------
and Financial Condition
-----------------------
RESULTS OF OPERATIONS
Net sales for the quarter ended December 31, 1995 were $30,241,000 representing
a 27% increase over the $23,868,000 recorded for the quarter ended December 31,
1994. Sales for the six months ended December 31, 1995 were $56,916,000, an
increase of 25% over the $45,538,000 recorded in the year earlier period. The
increases in net sales were primarily attributable to increases in total unit
and dollar sales for the Company's obstructive sleep apnea and ventilatory
support products. Sales of the Company's face masks and other patient interface
devices used as accessories for its obstructive sleep apnea and ventilatory
support units increased significantly in both unit and dollar terms as well.
The Company's gross profit was 56% of net sales for the quarter ended December
31, 1995 as compared to 57% for the quarter ended December 31, 1994. Gross
profit for the six months ended December 31, 1995 was also 56% of net sales as
compared to 57% of net sales for the year earlier period. The decreases in the
gross margin percentage were caused by reduced average selling prices, primarily
for the Company's REMstar Nasal CPAP systems, during the current quarter and six
month period. These reductions in average selling price resulted from increasing
competition in the obstructive sleep apnea market, particularly relative to the
Company's large, national customers who receive lower prices in exchange for
volume purchase commitments.
General and administrative expenses were $3,831,000 (13% of net sales) for the
quarter ended December 31, 1995 as compared to $3,643,000 (15% of net sales) for
the quarter ended December 31, 1994. General and administrative expenses were
$7,848,000 (14% of net sales) for the six months ended December 31, 1995 as
compared to $6,812,000 (15% of net sales) for the year earlier period. The
decreases in these expenses as a percentage of net sales reflect the Company's
ability, for the periods indicated, to limit spending increases in these areas
to rates less than the rate of sales increase. The increases in absolute
dollars were due primarily to increased legal fees incurred relating to the
previously disclosed action brought against the Company by Rescare Limited,
a competitor.
Sales, marketing and commission expenses were $4,989,000 (16% of net sales) for
the quarter ended December 31, 1995 as compared to $4,415,000 (18% of net sales)
for the quarter ended December 31, 1994. Sales, marketing and commission
expenses were $9,513,000 (17% of net sales) for the six months ended December
31, 1995 as compared to $8,299,000 (18% of net sales) for the year earlier
period. The decreases in these expenses as a percentage of net sales reflect
the Company's ability, for the periods indicated, to limit spending increases
in these areas to rates less than the rate of sales increase. The increases in
absolute dollars were due primarily to costs associated with trade shows and
related travel expenses, salary expenses for new employees,
and commission expenses based on higher sales levels achieved.
<PAGE>
Research and development expenses were $2,368,000 (8% of net sales) for the
quarter ended December 31, 1995 as compared to $1,590,000 (7% of net sales) for
the quarter ended December 31, 1994. Research and development expenses were
$4,061,000 (7% of net sales) for the six months ended December 31, 1995 as
compared to $3,060,000 (7% of net sales) for the year earlier period. These
increases in absolute dollars (and as a percentage of net sales for the quarter
to quarter comparison) reflect the extensive new product development efforts
during the periods and concurrently underway to support new product
introductions in the Company's major product groups and also to explore
opportunities in other respiratory product areas. Several new products have
been introduced during the current fiscal year, and other new product
introductions are scheduled for the remainder of the fiscal year, in some cases
with initial distribution in international markets until regulatory clearance
to market in the United States is obtained. Subsequent to the end of the
current quarter, the Company received clearance from the United States Food
and Drug Administration to market its new Aria CPAP System and two new face
mask products in the United States.
The Company's effective income tax rate was 40% for the quarter ended December
31, 1995 as compared to 37% for the quarter ended December 31, 1994 and 39% for
the six months ended December 31, 1995 as compared to 37% for the six months
ended December 31, 1994. Changes in the Company's effective income tax rate
are due primarily to changes in the relative proportion of the Company's taxable
income attributable to its United States operation versus taxable income
attributable to its Hong Kong and Peoples Republic of China operations.
The United States operation pays income taxes at a higher rate (approximately
41% before available income tax credits) than do the Hong Kong and Peoples
Republic of China operations. For the quarterly and year-to-date comparisons,
the proportion of taxable income attributable to the United States operation
increased. In addition, the research and development tax credit expired
effective July 1, 1995. This income tax credit had been available during prior
fiscal years to reduce income taxes paid by the United States operation and
therefore reduce the effective income tax rate.
As a result of the factors described above, the Company's net income was
$3,509,000 (12% of net sales) for the quarter ended December 31, 1995 as
compared to $2,696,000 (11% of net sales) for the quarter ended December 31,
1994 and $6,728,000 (12% of net sales) for the six months ended December 31,
1995 as compared to $5,116,000 (11% of net sales) for the six months ended
December 31, 1994.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $44,146,000 at December 31, 1995 and
$39,413,000 at June 30, 1995. Net cash used by operating activities was
$2,846,000 for the six months ended December 31, 1995 as compared to net cash
provided by operating activities of $3,295,000 for the six months ended
<PAGE>
December 31, 1994. The net use of cash for the current six month period was due
primarily to increases in accounts receivable and inventory in amounts greater
than the changes in those accounts during the first six months of last fiscal
year.
The increase in accounts receivable was due to growth in international sales at
a rate greater than overall sales growth (all international sales are made on
extended payment terms) and to a continued increase in the portion of the
Company's domestic sales that are being made on extended payment terms. The
increase in inventory was due to the Company's purchase of raw materials for,
and the initial production of, many of its new products, including those
introduced during the current six month period and those scheduled for
introduction during the remainder of the fiscal year.
Net cash used by investing activities was $3,604,000 for the six months ended
December 31, 1995 as compared to $2,974,000 for the three months ended December
31, 1994. Essentially all of the cash used by investing activities for both
periods represented capital expenditures, including the purchase of production
equipment, computer and telecommunications equipment, and office equipment. The
funding for capital expenditures in the current six month period was provided by
accumulated cash and short-term investment balances, and in the first six months
of last fiscal year was provided by positive cash flows from operating
activities and by accumulated cash and short-term investment balances.
The Company believes that positive cash flow from operating activities projected
for the remainder of the fiscal year, the availability of the full amount of
funds under its commercial bank line of credit, and its accumulated cash and
short-term investments will be sufficient to meet its current and presently
anticipated future needs for the remainder of fiscal year 1996 for operating
activities, investing activities, and financing activities (primarily consisting
of payments on long-term debt).
<PAGE>
PART 2 OTHER INFORMATION,
Item 1: Legal Proceedings
- ------- -----------------
Not applicable
Item 2: Change in Securities
- ------- --------------------
(a) Not applicable
(b) Not applicable
Item 3: Defaults Upon Senior Securities
- ------- -------------------------------
(a) Not applicable
(b) Not applicable
Item 4: Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
The Company's Annual Meeting of Shareholders was held on
November 8, 1995. The holders of 13,503,570 shares of the Company's
--------
stock (approximately 80% of the outstanding shares) were present at
--
the meeting in person or by proxy. The only matters voted upon at the
meeting were (i) the election of three persons to serve as directors
for a three year term expiring at the annual meeting of the
shareholders in 1998, and (ii) the ratification of the selection of
Ernst & Young as independent public accountants to audit the financial
statements of the Company for the fiscal year ending June 30, 1996.
Douglas A. Cotter, Ph.D., George J. Magovern, M.D., and Gerald E.
McGinnis, the nominees of the Company's Board of Directors, were
elected to serve until 1998. There were no other nominees.
Shares were voted as follows:
<TABLE>
<CAPTION>
Withhold
Name For Vote For
- -----------------------------------------------------------
<S> <C> <C>
Douglas A. Cotter, Ph.D. 13,403,115 37,827
George J. Magovern, M.D. 13,375,524 65,418
Gerald E. McGinnis 13,372,315 68,627
</TABLE>
The selection of Ernst & Young as independent public accountants for the 1996
fiscal year was ratified: affirmative votes, 13,483,723 shares; negative votes,
19,847 shares.
<PAGE>
Item 5: Other Information
- ------- -----------------
Not applicable
Item 6: Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
Not applicable
(b) Reports on Form 8-K
Not applicable
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESPIRONICS, INC.
Date: February 9, 1996 /s/ Daniel J. Bevevino
------------------------------ ------------------------------
Daniel J. Bevevino
Controller, and Chief
Financial and Accounting Officer
Signing on behalf of the registrant
and as Chief Financial and
Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1995
<PERIOD-START> JUL-01-1995 JUL-01-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<CASH> 9,792,908 12,876,319
<SECURITIES> 0 0
<RECEIVABLES> 25,876,073 18,329,799
<ALLOWANCES> 850,000 600,000
<INVENTORY> 17,300,722 10,169,177
<CURRENT-ASSETS> 56,659,267 44,016,832
<PP&E> 38,976,494 32,376,578
<DEPRECIATION> 17,207,404 13,886,534
<TOTAL-ASSETS> 83,951,509 63,819,513
<CURRENT-LIABILITIES> 12,513,289 8,792,569
<BONDS> 0 0
0 0
0 0
<COMMON> 168,519 164,376
<OTHER-SE> 65,381,549 49,576,434
<TOTAL-LIABILITY-AND-EQUITY> 83,951,509 63,819,513
<SALES> 56,915,794 45,537,612
<TOTAL-REVENUES> 56,915,794 45,537,612
<CGS> 24,895,319 19,659,362
<TOTAL-COSTS> 24,895,319 19,659,362
<OTHER-EXPENSES> 21,422,214 18,170,823
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 100,595 95,943
<INCOME-PRETAX> 11,029,901 8,121,267
<INCOME-TAX> 4,301,661 3,004,871
<INCOME-CONTINUING> 6,728,240 5,116,396
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,728,240 5,116,396
<EPS-PRIMARY> 0.38 0.29
<EPS-DILUTED> 0.38 0.29
</TABLE>
