<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 September 30, 1996
------------------
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 October 31, 1996, there were 19,701,972 shares of Common Stock of the
registrant outstanding.
<PAGE>
INDEX
RESPIRONICS, INC.
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited).
Consolidated balance sheets -- September 30, 1996 and June 30,
1996.
Consolidated statements of operations -- Three months ended
September 30, 1996 and 1995.
Consolidated statements of cash flows-- Three months ended
September 30, 1996 and 1995.
Notes to consolidated financial statements -- September 30, 1996.
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
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
September 30 June 30
1996 1996
--------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 71,007,592 $ 65,255,699
Trade accounts receivable, less allowance for
doubtful accounts of $1,250,000 and $1,200,000 25,604,223 27,883,365
Inventories 20,320,188 17,863,887
Prepaid expenses and other 2,308,675 2,522,327
Deferred income tax benefits 2,457,453 2,457,453
----------- -----------
TOTAL CURRENT ASSETS 121,698,131 115,982,731
PROPERTY, PLANT AND EQUIPMENT
Land 2,771,934 2,771,934
Building 8,952,740 8,907,692
Machinery and equipment 17,904,210 17,219,371
Furniture and office equipment 12,034,487 11,642,943
Leasehold improvements 1,065,314 1,068,851
----------- -----------
42,728,685 41,610,791
Less allowances for depreciation
and amortization 20,219,901 19,294,440
----------- -----------
22,508,784 22,316,351
Funds held in trust for construction
of new facility 754,571 746,114
OTHER ASSETS 3,096,615 3,210,802
COST IN EXCESS OF NET ASSETS OF
BUSINESS ACQUIRED 1,651,319 1,690,636
----------- -----------
$149,709,420 $143,946,634
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
September 30 June 30
1996 1996
---------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,920,243 $ 4,178,301
Accrued compensation and related expenses 4,543,551 5,088,077
Accrued expenses 3,655,608 3,801,780
Income taxes 4,463,701 2,907,545
Current portion of long-term obligations 549,294 572,905
----------- -----------
TOTAL CURRENT LIABILITIES 18,132,397 16,548,608
LONG-TERM OBLIGATIONS 4,891,803 4,965,871
MINORITY INTEREST 641,333 887,320
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized
40,000,000 shares; issued and outstanding
19,312,535 shares at September 30, 1996 and
19,305,406 shares at June 30, 1996 193,125 193,054
Additional capital 67,150,795 67,105,290
Retained earnings 58,738,855 54,285,379
Treasury stock (38,888) (38,888)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 126,043,887 121,544,835
----------- -----------
$149,709,420 $143,946,634
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended
September 30
1996 1995
-------------------------
<S> <C> <C>
Net sales $34,112,412 $26,674,675
Cost of goods sold 15,043,248 11,514,510
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19,069,164 15,160,165
General and administrative expenses 4,622,102 4,016,803
Sales, marketing and commission expense 5,573,688 4,523,786
Research and development expense 2,492,293 1,692,907
Interest expense 47,480 50,054
Other income (967,180) (315,760)
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11,768,383 9,967,790
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INCOME BEFORE INCOME TAXES 7,300,781 5,192,375
Income taxes 2,847,305 1,973,103
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NET INCOME $ 4,453,476 $ 3,219,272
========== ==========
Earnings per share $ 0.22 $ 0.18
========== ==========
Weighted Average Number of Shares
Used in Computing Earnings Per Share 20,162,622 17,858,788
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended
September 30
1996 1995
--------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,453,476 $ 3,219,272
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 964,778 905,933
Provision for losses on accounts receivable 50,000 50,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 2,229,142 (1,015,213)
Increase in inventories and prepaid
expenses (2,242,649) (3,681,716)
Decrease (increase) in other assets 114,187 (123,716)
Increase (decrease) in accounts payable 741,942 (1,036,373)
Decrease in accrued compensation
and related expenses (544,526) (813,708)
(Decrease) increase in accrued expenses (146,172) 526,318
Increase in accrued income taxes 1,556,156 1,792,915
----------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 7,176,334 (176,288)
INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,117,894) (2,182,476)
Increase in funds held in trust for construction
of new facility (8,457) (9,177)
----------- -----------
NET CASH USED BY
INVESTING ACTIVITIES (1,126,351) (2,191,653)
FINANCING ACTIVITIES
Reduction in long-term obligations (97,679) (100,295)
Issuance of common stock 45,576 295,097
Decrease in minority interest (245,987) (34,869)
----------- -----------
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES (298,090) 159,933
----------- -----------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 5,751,893 (2,208,008)
Cash and short-term investments at beginning of period 65,255,699 16,126,904
----------- -----------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 71,007,592 $ 13,918,896
=========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
SELECTED NOTE TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1996
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 three months ended September 30, 1996
are not necessarily indicative of the results that may be expected for the year
ended June 30, 1997. 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, 1996.
NOTE B -- INVENTORIES
The composition of inventory is as follows:
<TABLE>
<CAPTION>
September 30 June 30
1996 1996
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<S> <C> <C>
Raw materials $ 11,875,643 $ 11,047,978
Work-in-process 2,341,440 2,075,329
Finished goods 6,103,105 4,470,580
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$ 20,320,188 $ 17,863,887
============= =============
</TABLE>
NOTE C -- CONTINGENCIES
As previously disclosed, the Company is a party to actions filed in a federal
District Court in January 1995 and June 1996 in which a competitor alleges that
the Company's manufacture and sale in the United States of certain products
infringes four of the competitor's patents. In its response to these actions,
the Company has denied the allegations and has separately sought a declaratory
judgment that the claims under the patents are invalid or unenforceable and that
the Company does not infringe upon the patents. Discovery in the case is
currently underway. 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 enforceable and it intends to vigorously defend
this position.
<PAGE>
Item 2. Management's Discussion and Analysis of Result of Operations
and Financial Condition
Certain statements in this quarterly report on Form 10-Q, including statements
about the Company's belief or expectations or about whether any particular event
or circumstances is likely to occur or continue, are forward-looking statements
concerning the future operations of the Company. Such forward-looking statements
are subject to risks and uncertainties. Such statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
There are many important factors that could cause actual results to differ
materially from those in the forward-looking staements contained herein.
Additional information on potential factors that could effect the Company's
financial results are included in the Company's annual report on Form 10-K for
the fiscal year ended June 30, 1996.
RESULTS OF OPERATIONS
Net sales for the quarter ended September 30, 1996 were $34,112,000 representing
a 28% increase over the $26,674,000 recorded for the quarter ended September
30, 1995. The increase in net sales was 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 also increased significantly in both unit and
dollar terms.
The Company's gross profit was 56% of net sales for the quarter ended September
30, 1996 as compared to 57% for the quarter ended September 30, 1995. This
decrease in gross margin percentage was primarily caused by reduced average
selling prices for certain of the Company's products. These reductions in
average selling price, which had been expected, resulted from increasing
competition in the company's primary product lines, particularly relative to
large, national customers who received lower prices in exchange for volume
purchase commitments.
General and administrative expenses were $4,622,000 (14% of net sales) for the
quarter ended September 30, 1996 as compared to $4,017,000 (15% of net sales)
for the quarter ended September 30, 1995. The increase in absolute dollars was
due primarily to an increased provision made during the quarter for bonuses
based on financial results achieved during the quarter and to increased bad debt
expenses.
Sales, marketing and commission expenses were $5,574,000 (16% of net sales) for
the quarter ended September 30, 1996 as compared to $4,524,000 (17% of net
sales) for the quarter ended September 30, 1995. This increase in absolute
dollars was due primarily to commission expenses based on higher sales levels
achieved, salary expenses for new employees, and travel expenses related to
product launch meetings.
Research and development expenses were $2,492,000 (7% of net sales) for the
quarter ended September 30, 1996 as compared to $1,693,000 (6% of net sales) for
the quarter ended September 30, 1995. This increase in absolute dollars
reflects the extensive new product development efforts currently underway to
support new product introductions in the Company's major product groups.
Several new product introductions are scheduled for the remainder of fiscal
year 1997, in some cases with initial distribution in international markets
until regulatory approval in the United States is obtained.
<PAGE>
The Company's effective income tax rate was 39% for the quarter ended September
30, 1996 as compared to 38% for the quarter ended September 30, 1995. 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 because the United States operation pays income
taxes at a higher rate (approximately 40% before available income tax credits)
than do the Hong Kong and Peoples Republic of China operations. For the
quarter to quarter comparison, the proportion of taxable income attributable to
the United States operation increased.
As a result of the factors described above, the Company's net income was
$4,453,000 (13% of net sales) for the quarter ended September 30, 1996 as
compared to $3,219,000 (12% of net sales) for the quarter ended September 30,
1995.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $103,566,000 at September 30, 1996 and
$99,434,000 at June 30, 1996. Net cash provided by operating activities was
$7,176,000 for the three months ended September 30, 1996 as compared to net
cash used by operating activities of $176,000 for the three months ended
September 30, 1995. The increase in net cash provided by operating activities
for the current quarter was due to a decrease in accounts receivable, an
increase in accounts payable, an increase in inventory smaller than the increase
in last year's first quarter, and higher earnings.
Net cash used by investing activities was $1,126,000 for the three months ended
September 30, 1996 as compared to $2,192,000 for the three months ended
September 30, 1995. 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 quarter was
provided by positive cash flows from operating activities, and in last year's
first quarter was provided by accumulated cash and short-term investment
balances.
On October 15, 1996, the Company announced that its status with Apria Healthcare
had changed from "primary supplier" to sole "secondary supplier" effective
in November 1996. This change is likely to impact sales levels for the fiscal
year ending June 30, 1997. However, the Company will manage expense levels more
aggressively and take other steps for the remainder of the fiscal year. These
measures will be implemented with the goal of offsetting the impact of possible
changes in sales to Apria and achieving the Company's earnings objectives.
Because the extent to which this change in status will impact revenues is not
known, no assurance can be given that these measures will compensate for a
decrease in revenues from Apria. Sales to Apria during the fiscal year ended
June 30, 1996 were $20,500,000, or 16 percent of total sales.
On October 21, 1996, the Company completed its previously announced acquisition
of the capital stock of LIFECARE International, Inc. for $50 million in cash.
The cash for the acquisition came from the Company's accumulated cash and short
term investments.
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 1997 for
operating
<PAGE>
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
- -------------------------------------------------------------
Not Applicable
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: November 13, 1996 /s/ Daniel J. Bevevino
_________________ _____________________________
Daniel J. Bevevino
Vice President, 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
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 71,007,592 13,918,896
<SECURITIES> 0 0
<RECEIVABLES> 25,604,223 20,413,400
<ALLOWANCES> 1,250,000 750,000
<INVENTORY> 20,320,188 16,675,789
<CURRENT-ASSETS> 121,698,131 55,302,629
<PP&E> 42,728,685 37,572,953
<DEPRECIATION> 20,219,901 16,309,657
<TOTAL-ASSETS> 149,709,420 81,886,927
<CURRENT-LIABILITIES> 18,132,397 13,916,767
<BONDS> 0 0
0 0
0 0
<COMMON> 193,125 168,112
<OTHER-SE> 125,850,762 61,715,453
<TOTAL-LIABILITY-AND-EQUITY> 149,709,420 81,886,927
<SALES> 34,112,412 26,674,675
<TOTAL-REVENUES> 34,112,412 26,674,675
<CGS> 15,043,248 11,514,510
<TOTAL-COSTS> 15,043,248 11,514,510
<OTHER-EXPENSES> 11,720,903 9,917,736
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 47,480 50,054
<INCOME-PRETAX> 7,300,781 5,192,375
<INCOME-TAX> 2,847,305 1,973,103
<INCOME-CONTINUING> 4,453,476 3,219,272
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,453,476 3,219,272
<EPS-PRIMARY> 0.22 0.18
<EPS-DILUTED> 0.22 0.18
</TABLE>
