<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 March 31,1996 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 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
incorporation or organization) Identification Number)
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 April 30, 1996, there were 19,346,690 shares of Common Stock of the
registrant outstanding.
<PAGE>
INDEX
RESPIRONICS, INC.
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited).
Consolidated balance sheets -- March 31, 1996 and June 30, 1995.
Consolidated statements of operations -- Three months ended
March 31, 1996 and 1995 and nine months ended March 31, 1996
and 1995.
Consolidated statements of cash flows -- Nine months ended
March 31, 1996 and 1995.
Notes to consolidated financial statements -- March 31, 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
- ----------
<PAGE>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
March 31 June 30
1996 1995
--------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and short-term investments $ 53,893,877 $16,126,904
Trade accounts receivable, less allowance for
doubtful accounts of $900,000 and $700,000 26,917,503 19,448,187
Inventories 16,460,443 13,136,664
Prepaid expenses and other 2,191,979 1,951,358
Deferred income tax benefits 2,200,595 2,200,595
------------ -----------
TOTAL CURRENT ASSETS 101,664,397 52,863,708
PROPERTY, PLANT AND EQUIPMENT
Land 2,773,140 2,589,117
Building 8,850,795 8,674,675
Machinery and equipment 15,958,922 14,155,510
Furniture and office equipment 11,465,771 9,394,000
Leasehold improvements 985,699 577,175
------------ -----------
40,034,327 35,390,477
Less allowances for depreciation
and amortization 18,020,466 15,443,041
------------ -----------
22,013,861 19,947,436
Funds held in trust for construction
of new facility 737,740 710,929
OTHER ASSETS 3,107,672 2,668,592
COST IN EXCESS OF NET ASSETS OF
BUSINESS ACQUIRED 1,729,954 1,847,905
------------ -----------
$129,253,624 $78,038,570
============ ===========
</TABLE>
See notes to consolidated financial statements.
4.2
<PAGE>
<TABLE>
<CAPTION>
March 31 June 30
1996 1995
-------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 3,676,361 $ 4,858,554
Accrued compensation and related expenses 4,397,112 3,827,187
Accrued expenses 3,740,787 2,694,298
Income taxes 1,926,763 1,572,121
Current portion of long-term obligations 494,004 498,150
------------ -----------
TOTAL CURRENT LIABILITIES 14,235,027 13,450,310
LONG-TERM OBLIGATIONS 5,145,971 5,537,996
MINORITY INTEREST 645,965 681,068
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized
40,000,000 shares; issued and outstanding
18,869,384 shares at March 31, 1996 and
16,744,785 shares at June 30, 1995 188,694 167,448
Additional capital 59,563,843 19,254,977
Retained earnings 49,474,124 38,946,771
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 109,226,661 58,369,196
------------ -----------
$129,253,624 $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 March 31 Nine months ended March 31
1996 1995 1996 1995
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net sales $32,651,155 $25,599,736 $89,566,949 $71,137,348
Cost of goods sold 14,476,518 11,113,853 39,371,837 30,773,215
----------- ----------- ----------- -----------
18,174,637 14,485,883 50,195,112 40,364,133
General & administrative expenses 4,342,305 3,829,945 12,190,132 10,641,765
Sales, marketing & commission expense 5,221,038 4,353,971 14,734,092 12,652,646
Research & development expense 2,569,463 1,735,308 6,630,796 4,795,636
Interest expense 45,689 49,183 146,284 145,126
Other income (231,912) (358,299) (764,147) (868,082)
----------- ----------- ----------- -----------
11,946,583 9,610,108 32,937,157 27,367,091
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 6,228,054 4,875,775 17,257,955 12,997,042
Income taxes 2,428,941 1,804,034 6,730,602 4,808,906
----------- ----------- ----------- -----------
NET INCOME $ 3,799,113 $ 3,071,741 $10,527,353 $ 8,188,136
=========== =========== =========== ===========
Earnings per share $ 0.21 $ 0.17 $ 0.59 $ 0.47
=========== =========== =========== ===========
Weighted Average Number of Shares
Used in Computing Earnings Per Share 17,748,962 17,687,053 17,746,493 17,459,702
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Nine months ended
March 31
1996 1995
--------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $10,527,353 $ 8,188,136
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,695,376 2,867,882
Provision for losses on accounts receivable 200,000 175,000
Changes in operating assets and liabilities:
Increase in accounts receivable (7,669,316) (3,696,326)
Decrease in refundable income taxes -0- 1,787,265
Increase in inventories and prepaid
expenses (3,564,400) (3,878,739)
Increase in other assets (439,080) (94,352)
(Decrease) increase in accounts payable (1,182,193) 280,901
Increase in accrued compensation
and related expenses 569,925 936,148
Increase in accrued expenses 1,046,489 1,017,963
Increase in accrued income taxes 354,642 386,342
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,538,796 7,970,220
INVESTING ACTIVITIES
Purchase of property, plant and equipment (4,643,850) (5,473,908)
Increase in funds held in trust for construction
of new facility (26,811) (21,182)
----------- -----------
NET CASH USED BY
INVESTING ACTIVITIES (4,670,661) (5,495,090)
FINANCING ACTIVITIES
Proceeds from long-term obligations -0- 1,131,761
Reduction in long-term obligations (396,171) (310,828)
Issuance of common stock 40,330,112 952,668
(Decrease) increase in minority interest (35,103) 4,585
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 39,898,838 1,778,186
----------- -----------
INCREASE IN CASH AND
SHORT-TERM INVESTMENTS 37,766,973 4,253,316
Cash and short-term investments at beginning of period 16,126,904 12,384,054
----------- -----------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $53,893,877 $16,637,370
=========== ===========
</TABLE>
See notes to consolidated financial statements
4.3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
MARCH 31, 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 nine months ended March 31, 1996 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>
March 31 June 30
1996 1995
---------- -----------
<S> <C> <C>
Raw materials $11,489,517 $ 7,960,573
Work-in-process 2,054,358 1,105,010
Finished goods 2,916,568 4,071,081
----------- -----------
$16,460,443 $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. 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 is vigorously
defending 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 March 31, 1996 were $32,651,000 representing a
28% increase over the $25,600,000 recorded for the quarter ended March 31, 1995.
Sales for the nine months ended March 31, 1996 were $89,567,000, an increase of
26% over the $71,137,000 recorded in the year earlier period. The increases in
net sales were primarily attributable to increases in total unit sales for the
Company's obstructive sleep apnea and ventilatory support products and reflect
sales growth across all of the Company's market bases for these product groups.
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 and nine months
ended March 31, 1996 as compared to 57% for the quarter and nine months ended
March 31, 1995. The decreases in gross margin percentage were caused by reduced
average selling prices, primarily for the Company's REMstar Nasal CPAP systems,
during the current quarter and nine 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 received lower prices in exchange for volume purchase commitments.
General and administrative expenses were $4,342,000 (13% of net sales) for the
quarter ended March 31, 1996 as compared to $3,830,000 (15% of net sales) for
the quarter ended March 31, 1995. General and administrative expenses were
$12,190,000 (14% of net sales) for the nine months ended March 31, 1996 as
compared to $10,642,000 (15% of net sales) for the year earlier period. The
increase in absolute dollars for the current quarter was due primarily to an
increased provision for profit sharing bonus being made in the current quarter
based on financial results achieved. The increase in absolute dollars for the
nine month period was due primarily to increased legal fees, including those
incurred relating to the previously disclosed patent litigation action brought
against the Company by a competitor. The decrease in general and administrative
expenses as a percentage of sales for the current quarter and nine month period
was a result of these expenses increasing at a rate less than the rate of
increase in sales for the same periods.
<PAGE>
Sales, marketing and commission expenses were $5,221,000 (16% of net sales) for
the quarter ended March 31, 1996 as compared to $4,354,000 (17% of net sales)
for the quarter ended March 31, 1995. Sales, marketing and commission expenses
were $14,734,000 (16% of net sales) for the nine months ended March 31, 1996 as
compared to $12,653,000 (18% of net sales) for the year earlier period. These
increases in absolute dollars for the current quarter and nine month period were
primarily due to higher commission expenses based on higher sales levels
achieved, higher trade show and related travel expenses, and increased salary
expenses principally for new employees in sales and marketing management. The
decrease in sales, marketing and commission expenses as a percentage of sales
for the current quarter and nine month period was a result of these expenses
increasing at a rate less than the rate of increase in sales for the same
period.
Research and development expenses were $2,569,000 (8% of net sales) for the
quarter ended March 31, 1996 as compared to $1,735,000 (7% of net sales) for the
quarter ended March 31, 1995. Research and development expenses were $6,631,000
(7% of net sales) for the nine months ended March 31, 1996 as compared to
$4,796,000 (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 currently
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 currently scheduled in the remainder of this
fiscal year and early quarters of the next fiscal year, in some cases with
initial distribution in international markets until regulatory clearance to
market in the United States is obtained. In 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 39% for the quarter and nine months
ended March 31, 1996 as compared to 37% for the quarter and nine months ended
March 31, 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 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 Company had a research and development tax credit which expired
effective July 1, 1995. This income tax credit had been available during the
prior fiscal year to reduce income taxes paid by the United States operation and
therefore reduce the effective income tax rate.
<PAGE>
As a result of the factors described above, the Company's net income was
$3,799,000 (12% of net sales) for the quarter ended March 31, 1996 as compared
to $3,072,000 (12% of net sales) for the quarter ended March 31, 1995 and
$10,527,000 (12% of net sales) for the nine months ended March 31, 1996 as
compared to $8,188,000 (12% of net sales) for the nine months ended March 31,
1995.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $87,429,000 at March 31, 1996 and $39,413,000
at June 30, 1995. Net cash provided by operating activities was $2,539,000 for
the nine months ended March 31, 1996 as compared to $7,970,000 for the nine
months ended March 31, 1995. The decrease in cash provided by operations for the
current nine month period was due primarily to an increase in accounts
receivable in an amount greater than the increase in that account during the
first nine months of last fiscal year and to a tax refund received during the
first nine months of last fiscal year.
The increase in account 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), an increase in the portion of the Company's domestic
sales that are being made on extended payment terms, and an increase in the
proportion of sales made late in the current nine month period and therefore not
collectible before the end of the period.
Net cash used by investing activities was $4,671,000 for the nine months ended
March 31, 1996 as compared to $5,495,000 for the nine months ended March 31,
1995. Substantially 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 both periods was provided by accumulated
cash and short-term investment balances, and in the first nine months of last
fiscal year was provided by positive cash flows from operating activities and by
accumulated cash and short-term investment balances.
Net cash provided by financing activities was $39,899,000 for the nine months
ended March 31, 1996 as compared to $1,778,000 for the nine months ended March
31, 1995. Net cash provided by financing activities for the current nine month
period includes $39,795,000 raised by the Company's March 1996 public offering
of 2,000,000 shares of its common stock. In April 1996, the Company raised an
additional $7,433,000 pursuant to the sale of 373,589 shares of common stock
pursuant to the exercise of the underwriters' over allotment option.
The Company believes that positive cash flow from operating activities, the
availability of the full amount of funds under its $1,250,000 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
next twelve months 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) None
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: May 13, 1996 /s/ Daniel J. Bevevino
------------------------ ------------------------------------
Daniel J. Bevevino
Vice President - Finance 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 MARCH 31,
1996 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1995
<PERIOD-START> JUL-01-1995 JUL-01-1994
<PERIOD-END> MAR-31-1996 JUN-30-1995
<CASH> 53,893,877 16,126,904
<SECURITIES> 0 0
<RECEIVABLES> 26,917,503 19,448,187
<ALLOWANCES> 900,000 700,000
<INVENTORY> 16,460,443 13,136,664
<CURRENT-ASSETS> 101,664,397 52,863,708
<PP&E> 40,034,327 35,390,477
<DEPRECIATION> 18,020,466 15,443,041
<TOTAL-ASSETS> 129,253,624 78,038,570
<CURRENT-LIABILITIES> 14,235,027 13,450,310
<BONDS> 0 0
0 0
0 0
<COMMON> 188,694 167,448
<OTHER-SE> 109,037,967 58,201,748
<TOTAL-LIABILITY-AND-EQUITY> 129,253,624 78,038,570
<SALES> 89,566,949 71,137,348
<TOTAL-REVENUES> 89,566,949 71,137,348
<CGS> 39,371,837 30,773,215
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 146,284 145,126
<LOSS-PROVISION> 17,257,955 12,997,042
<INTEREST-EXPENSE> 6,730,602 4,808,906
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,527,353 8,188,136
<EPS-PRIMARY> .59 .47
<EPS-DILUTED> .59 .47
</TABLE>
