<PAGE>
UNITED STATES
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, 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 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)
1501 Ardmore Boulevard
Pittsburgh, Pennsylvania 15221
(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, 1998, there were 31,593,323 shares of Common Stock of the
registrant outstanding.
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INDEX
RESPIRONICS, INC.
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited).
Consolidated balance sheets -- September 30, 1998 and June 30, 1998.
Consolidated statements of operations -- Three months ended
September 30, 1998 and 1997.
Consolidated statements of cash flows-- Three months ended
September 30, 1998 and 1997.
Notes to consolidated financial statements -- September 30, 1998.
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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CONSOLIDATED BALANCE SHEETS
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
September 30 June 30
1998 1998
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 18,021,446 $ 14,874,753
Trade accounts receivable, less allowance for
doubtful accounts of $9,002,000 and $8,246,000 100,460,194 90,985,120
Inventories 58,696,355 58,897,764
Prepaid expenses and other 14,203,417 14,977,842
Deferred income tax benefits 14,948,226 14,948,226
---------------- ----------------
TOTAL CURRENT ASSETS 206,329,638 194,683,705
PROPERTY, PLANT AND EQUIPMENT
Land 3,346,378 3,360,885
Building 12,350,905 13,564,623
Machinery and equipment 51,846,745 54,087,893
Furniture, office and computer equipment 31,907,028 27,170,001
Leasehold improvements 1,158,701 1,148,251
---------------- ----------------
100,609,757 99,331,653
Less allowances for depreciation
and amortization 49,501,561 50,408,095
---------------- ----------------
51,108,196 48,923,558
Funds held in trust for construction
of new facility 827,357 817,820
OTHER ASSETS 14,820,434 14,774,380
COST IN EXCESS OF NET ASSETS OF
BUSINESS ACQUIRED 68,149,854 68,902,667
---------------- ----------------
$ 341,235,479 $ 328,102,130
================ ================
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
September 30 June 30
1998 1998
---------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 18,339,345 $ 20,966,011
Accrued expenses and other 36,024,762 33,048,316
Current portion of long-term obligations 671,972 3,119,617
---------------- ----------------
TOTAL CURRENT LIABILITIES 55,036,079 57,133,944
LONG-TERM OBLIGATIONS 85,186,815 69,316,177
MINORITY INTEREST 792,997 812,116
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized
100,000,000 shares; issued and outstanding
32,708,059 shares at September 30, 1998 and
32,678,632 shares at June 30, 1998 327,081 326,786
Additional capital 105,589,711 105,376,608
Cumulative effect of foreign currency translations (167,845) (1,416,465)
Retained earnings 103,957,681 97,648,469
Treasury stock (9,487,040) (1,095,505)
---------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 200,219,588 200,839,893
---------------- ----------------
$ 341,235,479 $ 328,102,130
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</TABLE>
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended
September 30
1998 1997
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<S> <C> <C>
Net sales $ 86,411,576 $ 90,750,509
Cost of goods sold 44,765,995 45,728,001
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41,645,581 45,022,508
General and administrative expenses 10,651,109 9,328,880
Sales, marketing and commission expenses 14,994,078 15,930,269
Research and development expenses 4,553,781 5,416,648
Costs associated with an unsolicited offer to acquire
Healthdyne Technologies, Inc. 0 650,000
Interest expense 1,118,182 1,038,724
Other income (186,924) (431,323)
------------- --------------
31,130,226 31,933,198
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INCOME BEFORE INCOME TAXES 10,515,355 13,089,310
Income taxes 4,206,142 5,236,443
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NET INCOME 6,309,213 7,852,867
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Basic earnings per share $ 0.19 $ 0.25
============= ==============
Basic shares outstanding 32,412,848 31,643,637
Diluted earnings per share $ 0.19 $ 0.24
============= ==============
Diluted shares outstanding 32,845,029 33,116,672
</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
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,309,213 $ 7,855,164
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,519,804 4,046,786
Changes in operating assets and liabilities:
Increase in accounts receivable (9,475,074) (4,756,319)
Decrease (increase) in inventories 201,409 (360,309)
Change in other operating assets and liabilities 875,199 (1,392,484)
--------------- ----------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,430,551 5,392,838
INVESTING ACTIVITIES
Purchase of property, plant and equipment (4,509,595) (6,254,812)
Acquisition of businesses, net of cash acquired -0- (121,000)
--------------- ----------------
NET CASH USED BY
INVESTING ACTIVITIES (4,509,595) (6,375,812)
FINANCING ACTIVITIES
Net increase in borrowings 13,422,993 3,844,486
Issuance of common stock 213,398 501,143
(Acquisition) use of treasury stock (8,391,535) 210,900
Decrease in minority interest (19,119) 0
--------------- ----------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 5,225,737 4,556,529
--------------- ----------------
INCREASE IN CASH AND
SHORT-TERM INVESTMENTS 3,146,693 3,573,555
Cash and short-term investments at beginning of period 14,874,753 18,630,657
--------------- ----------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 18,021,446 $ 22,204,212
=============== ================
</TABLE>
See notes to consolidated financial statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
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, 1998
are not necessarily indicative of the results that may be expected for the year
ended June 30, 1999. 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, 1998.
NOTE B -- INVENTORIES
The composition of inventory is as follows:
<TABLE>
<CAPTION>
September 30 June 30
1998 1998
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<S> <C> <C>
Raw materials $ 21,857,810 $ 18,540,521
Work-in-process 5,765,626 7,570,524
Finished goods 31,072,919 32,786,719
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$ 58,696,355 $ 58,897,764
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</TABLE>
NOTE C -- CONTINGENCIES
As previously disclosed, the Company is 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 judgment that
the claims under
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the patents are invalid or unenforceable and that the Company does not infringe
upon the patents. The January 1995 and June 1996 actions have been consolidated,
and discovery is currently underway. The Court has granted the Company's motions
for summary judgment that the Company does not infringe two of the competitor's
patents. 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.
NOTE D MERGER; POOLING OF INTERESTS ACCOUNTING
In February 1998, the Company merged a wholly owned subsidiary with Healthdyne
Technologies, Inc. ("Healthdyne") in a stock for stock merger by issuing
approximately 12,000,000 shares of the Company's common stock in exchange for
the outstanding shares of Healthdyne. The merger was accounted for as a pooling
of interests. Accordingly, the consolidated financial statements include, for
all periods presented, the combined financial results and financial position of
the Company and Healthdyne. Healthdyne has since been renamed Respironics
Georgia, Inc.
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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES REFORM ACT OF 1995
The statements contained in this Quarterly Report on Form 10-Q, specifically
those contained in Item 2 "Management's Discussion and Analysis of Results of
Operations and Financial Condition", along with statements in other reports
filed with the Securities and Exchange Commission, external documents and oral
presentations which are not historical are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21B of the Securities and Exchange Act of 1934, as amended. These
forward looking statements represent the Company's present expectations of
beliefs concerning future events. The Company cautions that such statements are
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements. Results actually
achieved may differ materially from expected results included in these
statements. Those factors include the following: third party reimbursement;
increasing price competition and other competitive factors in the sale of
products; the United States Food and Drug Administration (the "FDA"), the
Health Care Financing Administration ("HCFA), the Durable Medical Equipment
Regional Carriers ("DMERC's") and other government regulation; intellectual
property and related litigation; foreign currency fluctuations, regulations and
other factors affecting operations and sales outside the United States including
potential future effects of the change in sovereignty of Hong Kong, and customer
consolidation and concentration.
Item 2. Management's Discussion and Analysis of Result of Operations
and Financial Condition
RESULTS OF OPERATIONS
Net sales for the quarter ended September 30, 1998 were $86,412,000 representing
a 5% decrease from the $90,750,000 recorded for the quarter ended September 30,
1997. Sales for the quarter were adversely impacted by a decrease in sales of
the Company's non-invasive ventilatory support products compared to prior year
levels. This sales decrease was due primarily to uncertainty in the market
concerning insurance coverage guidelines for the home use of these products in
the United States and the corresponding reduction in purchases of these units by
the Company's dealer customers pending resolution of the coverage guidelines.
Government policy makers issued a draft coverage policy in July 1998 that was
more restrictive than had been expected. The Company, along with trade and
medical associations, other device manufacturers, and home care dealers, have
filed formal comments as permitted
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with the policy makers indicating disagreement with the draft coverage policy.
The Company estimates that a final coverage policy will be issued in early
calendar year 1999 and believes that until these final guidelines are issued,
sales of its noninvasive ventilatory support units for home use in the United
States will continue to be negatively impacted as compared with periods prior to
the uncertainty regarding insurance coverage guidelines. If the final guidelines
issued are either as restrictive as, or more restrictive than, the draft
guidelines, the Company's sales of its noninvasive ventilatory support units for
home use in the United States will continue to be negatively impacted. Sales in
the current quarter of the Company's other major product line, obstructive sleep
apnea products, increased on a unit and dollar basis as compared to prior year
totals.
The Company's gross profit was 48% of net sales for the quarter ended September
30, 1998 as compared to 50% for the quarter ended September 30, 1997. This
decrease in gross margin percentage was caused by lower total sales levels,
sales mix, and decreases in average selling prices for certain of the Company's
products (which had been expected).
General and administrative expenses were $10,651,000 (12% of net sales) for the
quarter ended September 30, 1998 as compared to $9,329,000 (10% of net sales)
for the quarter ended September 30, 1997. The increase in the expenses for the
quarter was due primarily to increased information systems costs, legal fees,
allowances for doubtful accounts, and other administrative expenses. These
increased expenses were partially offset by cost reductions that the Company
obtained since the February 1998 merger with Healthdyne.
Sales, marketing and commission expenses were $14,994,000 (17% of net sales)
for the quarter ended September 30, 1998 as compared to $15,930,000 (18% of net
sales) for the quarter ended September 30, 1997. The decrease in these
expenses was due primarily to the cost reductions that the Company obtained
since the closing of the merger with Healthdyne in February 1998.
Research and development expenses were $4,554,000 (5% of net sales) for the
quarter ended September 30, 1998 as compared to $5,416,000 (6% of net sales) for
the quarter ended September 30, 1997. The decrease in these expenses was due
primarily to the elimination of duplicate development efforts since the closing
of the merger with Healthdyne in February 1998. Significant product development
efforts are ongoing, and new product launches in all of the Company's major
product areas are planned for fiscal year 1999.
During the quarter ended September 30, 1997, the Company incurred $650,000 in
costs associated with an unsolicited offer to acquire Healthdyne.
The Company's effective income tax rate was 40% for the quarter ended September
30, 1998 and for the quarter ended September 30, 1997.
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As a result of the factors described above, the Company's net income was
$6,309,000 (7% of net sales) or $0.19 per diluted share for the quarter ended
September 30, 1998 as compared to $7,853,000 (9% of net sales) or $0.24 per
diluted share for the quarter ended September 30, 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $151,294,000 at September 30, 1998 and
$137,550,000 at June 30, 1998. Net cash provided by operating activities was
$2,431,000 for the quarter ended September 30, 1998 as compared to $5,393,000
for the quarter ended September 30, 1997. The decrease in net cash provided
by operating activities for the current quarter was due primarily to lower
earnings, an increase in accounts receivable greater than the increase in
that account last year and the payment of certain obligations related to the
Healthdyne merger that had been accrued in prior periods.
Net cash used by investing activities was $4,510,000 for quarter ended September
30, 1998 as compared to $6,376,000 for the quarter ended September 30, 1997.
The majority 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 the investment activities in the current and prior quarter was
provided by positive cash flows from operating activities and accumulated cash
and short term investments.
Net cash provided by financing activities includes borrowings and repayments
under the Company's various long-term obligations. In August 1998, the
Company's Board of Directors authorized a stock buy-back of up to 1,000,000
shares of the Company's outstanding common stock. During the quarter ended
September 30, 1998, the Company repurchased 652,000 shares under the buyback
program, resulting in a use of cash of $8,400,000. In October 1998, the
Company's Board of Directors authorized an additional 1,000,000 shares under the
buyback program. As of November 13, 1998, the Company has repurchased a total
of 1,166,000 shares in open market transactions. Shares that are repurchased
are added to treasury shares pending future use and will reduce the number of
shares outstanding.
The Company believes that positive cash flow from operating activities projected
for the remainder of the fiscal year, the availability of additional funds under
its revolving credit facility 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 1999 for operating activities,
investing activities, and financing activities.
<PAGE>
PART 2 OTHER INFORMATION
Item 1: Legal Proceedings
- ------- -----------------
Not applicable
Item 2: Change in Securities
- ------- --------------------
(a) Not applicable
(b) Not applicable
(c) 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
- ------- ---------------------------------------------------
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) Not applicable
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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
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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, 1998 /s/ Daniel J. Bevevino
------------------ ----------------------------------
Daniel J. Bevevino
Vice President, and Chief
Financial and Principal Accounting Officer
Signing on behalf of the registrant
and as Chief Financial and
Accounting Officer
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 18,021,446 22,204,212
<SECURITIES> 0 0
<RECEIVABLES> 109,462,194 87,910,602
<ALLOWANCES> 9,002,000 5,557,000
<INVENTORY> 58,696,355 55,816,539
<CURRENT-ASSETS> 206,329,638 172,848,226
<PP&E> 100,609,757 85,020,781
<DEPRECIATION> 49,501,561 39,829,049
<TOTAL-ASSETS> 341,235,479 305,739,904
<CURRENT-LIABILITIES> 55,036,079 52,953,772
<BONDS> 85,186,815 52,869,474
0 0
0 0
<COMMON> 327,081 326,821
<OTHER-SE> 199,892,507 198,985,765
<TOTAL-LIABILITY-AND-EQUITY> 341,235,479 305,739,904
<SALES> 86,411,576 90,750,509
<TOTAL-REVENUES> 86,411,576 90,750,509
<CGS> 44,765,995 45,728,001
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 30,012,044 30,894,474
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,118,182 1,038,724
<INCOME-PRETAX> 10,515,355 13,089,310
<INCOME-TAX> 4,206,142 5,236,443
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,309,213 7,852,867
<EPS-PRIMARY> 0.19 0.25
<EPS-DILUTED> 0.19 0.24
</TABLE>
