<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934 for the quarterly period ended June 30, 1997
-----------------
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 0-21776
HEALTHDYNE TECHNOLOGIES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 52-1756497
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1255 KENNESTONE CIRCLE, MARIETTA GEORGIA 30066
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 499-1212
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 X NO
---- ----
As of August 1, 1997, 12,869,615 shares of the Company's Common Stock, $.01 par
value, were outstanding.
Page 1 of 18
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PART I - FINANCIAL INFORMATION
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1997 1996
--------- -----------
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2,924 3,041
Trade accounts and notes receivable, less
allowances of $1,442 at June 30, 1997 and $1,193
at December 31, 1996 40,958 36,164
Inventories:
Finished goods 9,478 7,862
Work in process 2,946 3,086
Raw materials 9,885 7,645
--------- -------
Total inventories 22,309 18,593
--------- -------
Deferred income taxes 1,787 1,523
Prepaid expenses and other current assets 1,658 2,296
--------- -------
Total current assets 69,636 61,617
--------- -------
Property and equipment 23,969 20,294
Less accumulated depreciation and
amortization (12,582) (11,000)
--------- -------
Net property and equipment 11,387 9,294
--------- -------
Excess of cost over net assets of businesses acquired,
less accumulated amortization of $2,199 at
June 30, 1997 and $1,815 at December 31, 1996 20,527 20,911
Intangible assets, less accumulated
amortization of $3,117 at June 30, 1997
and $2,992 at December 31, 1996 7,420 5,410
Other assets 1,614 846
--------- -------
$ 110,584 98,078
========= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 3
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY June 30, December 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 1,098 2,610
Accounts payable, principally trade 17,723 12,375
Accrued liabilities 11,287 9,745
-------- ------
Total current liabilities 30,108 24,730
Long-term debt, excluding current installments 31,000 29,078
-------- ------
Total liabilities 61,108 53,808
-------- ------
Shareholders' equity:
Preferred stock, without par value. Authorized 10,000
shares; issued none -- --
Common stock, $.01 par value. Authorized 50,000 shares;
issued and outstanding 12,863 shares and 12,628 shares
at June 30, 1997 and December 31, 1996, respectively 129 126
Additional paid-in capital 24,477 22,755
Retained earnings 24,870 21,389
-------- ------
Total shareholders' equity 49,476 44,270
-------- ------
$110,584 98,078
======== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- --------------------
1997 1996 1997 1996
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 38,063 28,587 73,734 56,069
Cost of revenues 22,051 17,145 43,911 33,162
-------- ------- ------- -------
Gross profit 16,012 11,442 29,823 22,907
Selling and administrative expenses 8,674 7,318 16,643 13,993
Research and development expenses 2,214 1,422 4,087 2,772
-------- ------- ------- -------
Operating profit 5,124 2,702 9,093 6,142
Costs associated with an unsolicited
offer to acquire the Company (850) -- (2,150) --
Interest expense (651) (572) (1,243) (1,149)
Interest income 56 78 137 166
Other expense, net (9) (9) (35) (24)
-------- ------- ------- -------
Earnings before income taxes 3,670 2,199 5,802 5,135
Income tax expense 1,468 879 2,321 2,038
-------- ------- ------- -------
Net earnings $ 2,202 1,320 3,481 3,097
======== ======= ======= =======
Net earnings per common share and
common share equivalent $ .16 .10 .26 .24
======== ======= ======= =======
Weighted average number of common shares
and common share equivalents outstanding 13,525 13,110 13,398 13,030
======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1997 1996
------- ------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,481 3,097
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 2,091 1,682
Deferred income taxes (264) 399
(Increase) decrease in:
Trade accounts and notes receivable (4,794) 3,019
Inventories (3,716) 650
Other assets (130) (1,548)
Increase (decrease) in:
Accounts payable 5,348 (835)
Accrued liabilities 1,542 (1,261)
------- ------
Net cash provided by
operating activities 3,558 5,203
------- ------
Cash flows from investing activities:
Purchase of product rights (2,135) (1,931)
Purchases of property and
equipment (3,675) (1,947)
Acquisition of business, net
of cash acquired -- (1,158)
------- ------
Net cash used in
investing activities $(5,810) (5,036)
------- ------
</TABLE>
(continued)
5
<PAGE> 6
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1997 1996
------- ------
<S> <C> <C>
Cash flows from financing activities:
Net borrowings under revolving
credit agreement $ 2,500 2,000
Principal repayments of long-term debt (2,090) (1,936)
Proceeds from issuance of long-term debt -- 672
Proceeds from issuance of common stock 1,725 1,101
------- ------
Net cash provided by
financing activities 2,135 1,837
------- ------
Net increase (decrease) in cash
and cash equivalents (117) 2,004
Cash and cash equivalents at beginning
of period 3,041 287
------- ------
Cash and cash equivalents at end
of period $ 2,924 2,291
======= ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE> 7
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
1. General
The consolidated condensed financial statements as of June 30, 1997
and for the three and six months ended June 30, 1997 and 1996 are
unaudited. In the opinion of management, all adjustments, consisting
of normal recurring accruals, necessary for the fair presentation of
the consolidated financial position and results of operations and cash
flows for the periods presented have been included. Results for
interim periods are not necessarily indicative of results that may be
expected for the full fiscal year.
These consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and related
notes included in the Annual Report on Form 10-K of Healthdyne
Technologies, Inc. (the "Company") for the year ended December 31,
1996.
2. Earnings Per Share of Common Stock
Primary earnings per common share and common share equivalent are
based on the weighted average number of shares outstanding and common
share equivalents derived from dilutive stock options. Fully diluted
earnings per share are not significantly different from primary
earnings per share.
3. Credit Agreement
In March 1997, the Company entered into an amendment to its revolving
credit and term loan agreement (the "Credit Agreement") which extended
the expiration date of the term loan portion to June 1999. Balances
under the Credit Agreement will all be due at that time.
4. Costs Associated With an Unsolicited Offer to Acquire the Company
Reference is made to the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 1997 (the "First Quarter 1997 Form 10-Q")
with respect to the unsolicited tender offer by Invacare Corporation
("Invacare") for all outstanding common stock of the Company.
Capitalized terms not otherwise defined have the meanings ascribed to
such terms in the First Quarter 1997 Form 10-Q.
On March 31, 1997, Invacare revised the Invacare Initial Offer by
announcing that it would increase the price in its tender offer from
$13.00 per share to $13.50 per share (together, with the Invacare
Initial Offer, the "Invacare Revised Offer"). On such date, Invacare
also announced another extension of the Invacare Revised Offer, this
time until April 28, 1997.
7
<PAGE> 8
On April 2, 1997, the Company announced that the Board of Directors
voted unanimously to reject the Invacare Revised Offer as grossly
inadequate and to recommend that shareholders of the Company not
tender any of their shares pursuant to the Invacare Revised Offer. On
April 29, 1997, Invacare again extended the Invacare Revised Offer
until May 27, 1997.
On May 28, 1997, Invacare announced another extension of the Invacare
Revised Offer, this time until June 20, 1997.
On June 4, 1997, Invacare announced that it had increased the price in
its tender offer for all outstanding shares of the Common Stock of the
Company from $13.50 per share to $15.00 per share (together with the
Invacare Revised Offer, the "Invacare Offer").
On June 11, 1997, the Company announced that its Board of Directors
had voted unanimously to recommend that its shareholders reject the
Invacare Offer by not tendering their shares to Invacare.
On June 23, 1997, Invacare announced another extension of the Invacare
Offer, this time until August 1, 1997.
See Note 5 to the Notes to Consolidated Condensed Financial Statements
regarding the expiration of the Invacare Offer.
The Company and certain of its Directors are also defendants in a
lawsuit brought by Invacare, as well as in certain class action
lawsuits purportedly brought on behalf of Company shareholders. The
Company incurred $2,150 in expense in the first half of 1997,
primarily related to costs associated with the Invacare Offer and
defending the litigation (see Part II, Item 1 "Legal Proceedings"
herein).
5. Subsequent Events.
See Part II, Item 1 for certain information concerning the litigation
between the Company and Invacare.
On July 11, 1997, Invacare reduced its slate of nominees for election
at the Company's annual meeting of shareholders to be held on July 30,
1997 (the "1997 Annual Meeting") to four nominees.
At the 1997 Annual Meeting, all seven of the Company's nominees were
re-elected as directors. The shareholders also approved Invacare's
proposals to fix the size of the Board of Directors at seven members,
to repeal certain by-law provisions, and to allow special shareholders
meetings to be called by the holders of 10% or more of the Company's
common shares.
The Invacare Offer expired by its terms at 6:00 p.m., New York City
time, on August 1, 1997, without any shares of the Company's common
stock being purchased.
8
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
Except for the historical information contained herein, this report contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in this section, and in the Company's Annual Report on Form
10-K for the year ended December 31, 1996, as well as factors discussed or
identified from time to time in the Company's other filings with the Securities
and Exchange Commission.
GENERAL
Healthdyne Technologies' revenues are derived from sales of technologically
advanced medical devices primarily for use in the home and alternate care
sites. These products include diagnostic and therapeutic devices for the
evaluation and treatment of sleep disorders, oxygen delivery systems,
noninvasive ventilators, medication nebulizers, peak flow meters and drug
delivery systems for the treatment of respiratory disorders, and monitors for
infants at risk for SIDS, as well as a limited line of obstetrical care
products. The Company markets its products, both domestically and
internationally, through a dedicated sales force and a network of independent
manufacturers' representatives and distributors.
The Company was the subject of an unsolicited hostile tender offer from
Invacare Corporation, which expired on August 1, 1997 with no shares of the
Company's common stock being purchased. The Company has incurred non-operating
charges during the first and second quarters of 1997 related to the Invacare
hostile tender offer, as discussed herein. Please see Note 4 and Note 5 of
Notes to Consolidated Condensed Financial Statements herein.
The Company has announced the planned introduction of numerous new products in
1997 and 1998. These actions are scheduled to be completed on an accelerated
timetable. Timely introduction of products is dependent on several factors,
including but not limited to, timely completion of design and engineering work,
successfully tested prototypes, clinical device testing, clearance or approval
where necessary by the FDA, intellectual property matters and availability of
materials and components from suppliers. There can be no assurance that each of
these products will be introduced, the products will be introduced in
accordance with planned schedules, or that, once introduced, products will be
commercially successful. The anticipated rapid development cycle also may
result in higher than anticipated warranty claims, which also could adversely
affect future financial performance.
The Company competes in a highly competitive environment with numerous
competitors which are financially strong and capable of competing effectively
with the Company in the marketplace. Such competitors may take actions to meet
the Company's new product introductions and other initiatives. Some competitors
may be willing to accept lower margins and to reduce prices to compete with the
Company. As a result, the Company could fail to achieve anticipated sales
increases, to realize anticipated price increases, or otherwise fail to meet
its anticipated results. Any of such circumstances would likely have an adverse
effect on future financial performance, which effect could be material.
The Company's present operations and future prospects may be influenced by
several factors, including developments in the healthcare industry, third-party
reimbursement policies and practices, and changes in regulatory requirements
with respect to approval and sale of medical devices. As a result of the
increasing cost of healthcare in the United States, government and third party
payors are becoming increasingly focused on
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promoting cost-effective health care services, and payors, in particular, have
become more involved in decisions regarding diagnosis and treatment to ensure
that care is delivered in a cost-effective manner. As a result of this focus on
cost-effective healthcare delivery, the Company believes that home-based
healthcare services and medical products will continue to provide a viable and
cost-effective alternative to treatment in traditional institutional care
settings in many instances.
The Company's success is dependent to a large extent upon the ability of its
customers to obtain adequate reimbursement from third-party payors, such as
government and private insurance programs, for procedures using the Company's
products. The Balanced Budget Act of 1997 ("Act"), recently signed by the
President into law, imposes a federal plan for balancing the budget by 2002.
The Act would reduce Medicare payments by $115 billion over a five year period
including reducing the national payment limit for oxygen and oxygen equipment
by 25 percent in 1998 and an additional five percent in 1999. The 30 percent
reduction would apply in each subsequent year. The Act also authorizes the
Secretary of Health and Human Services ("Secretary") to establish service
standards for home oxygen providers and the General Accounting Office to study
and report to the Ways and Means and Finance Committees on access to oxygen
equipment, including recommendations for legislation, within six months of
enactment. In addition, the Act requires the Secretary to conduct demonstration
projects for furnishing Part B services (except for physician services) as
specified by the Secretary. The Secretary would be authorized to implement not
more than five such projects, at three sites each. Oxygen is singled out
specifically for inclusion in a demonstration project. Congress has indicated
that the Act's reductions in payments to oxygen and home oxygen equipment are
in lieu of the Administration's proposed reductions through the regulatory
process. Thus, the Act supersedes the proposed rule issued by the Health Care
Financing Administration (HCFA) on July 16, 1997 which would reduce the
national limited monthly payment rate for stationary home oxygen services,
beginning in 1998, by 40.11 percent. The Company does not believe that these
reductions in the reimbursement rates that the Company's customers receive for
services rendered will have a material adverse impact on the Company.
The Company's business also may be affected by changes in government regulation
to which the Company's products are subject or changes in the manner in which
such regulations are enforced or medical devices are approved. Performance
standards in proposed form for monitors for infants at risk for SIDS recently
have been published for comment by the FDA. The Company is unable to predict
whether, or in what form, these performance standards ultimately will be
adopted, but anticipates that it should be able to design and manufacture
products that will comply with any such standards.
A number of businesses within the healthcare industry, including in some
instances customers of the Company, recently have begun to consolidate in order,
among other things, to increase the size, efficiency and purchasing power of the
entities in question, to broaden the number and nature of products and services
offered to consumers or simply to better serve the changing healthcare industry
with its focus upon cost-effective medical care. Many large national healthcare
dealers have the capability of exerting significant price pressure on
manufacturers. Changing buying patterns may also have a negative effect on the
Company's business. The Company expects that consolidation among home care
dealers is likely to continue; however, the Company cannot predict the effect of
such mergers and consolidations on its business.
The Company has depended, and will continue to depend, substantially on its
technological expertise in the development and manufacture of its current and
future products. In addition, the Company depends, and will likely continue to
depend, on trade secret protection and licensing arrangements and, to a lesser
extent, on various patents, to strengthen its proprietary position. Trademark
registrations have been issued for a variety of the Company's products and
registration applications are pending with respect to the names of various
other products. The Company typically requires its
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employees to execute appropriate confidentiality agreements in connection with
their employment with the Company. There can be no assurance that these
arrangements will not be breached or that the Company will have adequate
remedies for such breach. Furthermore, no assurance can be given that
competitors will not independently develop substantially equivalent proprietary
information, that the Company can meaningfully protect its rights in unpatented
proprietary technology, or that licensing arrangements will be continued.
Litigation may be necessary to protect trade secrets or know-how owned by the
Company or to enforce patents or trademarks used by the Company. From time to
time, the Company and its subsidiaries receive letters from patent holders
alleging that one or more products manufactured or under development by the
Company infringe one or more patents of such patent holders. At present, one
such patent infringement claim is pending in court (see Part II, Item 1
herein), and there can be no assurance that other allegations will not lead to
litigation involving the Company or its subsidiaries. Any such litigation could
result in substantial cost to, and might have a material adverse effect on, the
Company.
The Company acquired HealthScan Products during 1994 and acquired Fiberoptic
Medical Products, Inc. and certain assets of Trent Products Limited during 1996
in an effort to broaden its product offerings and will continue to examine
possible candidates for acquisition in the future should the opportunity arise.
No assurance, however, can be given that any such acquisitions will be
consummated by the Company or, if consummated, that they will be financially or
operationally successful.
On May 22, 1995, Healthdyne consummated a transaction pursuant to which the
10,000 shares of the Company's Common Stock owned at that time by Healthdyne
were distributed to Healthdyne's shareholders as a tax-free dividend (the
"Spin-off"). In an effort to facilitate the Spin-off, the Board of Directors of
the Company adopted a special stock option plan pursuant to which options to
purchase 1,344 shares of the Company's common stock were granted to holders,
including employees of the Company, of outstanding Healthdyne stock options.
The Company believes the Spin-off has been and will continue to be beneficial
to the Company in that, among other things, it has increased the number of
shares of common stock of the Company available for trading and is expected to
permit the Company to raise capital more economically and with less
restrictions than if it were a subsidiary of Healthdyne.
Although the Company derives a portion of its revenues from foreign customers,
substantially all of these sales have historically been invoiced in U.S.
Dollars and, therefore, the Company has not been exposed to any significant
foreign exchange rate risk. The Company does not expect that a significant
portion of its foreign sales in the future will be invoiced in currencies other
than U.S. Dollars and, therefore, does not anticipate that it will be exposed
to a material amount of exchange rate risk. However, no assurance can be given
that this will be the case.
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with financial information herein and
the Company's consolidated financial statements and related notes presented in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996
as filed with the Securities and Exchange Commission.
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Operating Results
The following table sets forth the percentage of revenues represented by line
items in the Consolidated Condensed Statements of Earnings for the three and
six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30,
-------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Cost of revenues 58 60 60 59
---- ---- ---- ----
Gross profit 42 40 40 41
Selling and administrative expenses 23 26 22 25
Research and development expenses 6 5 6 5
---- ---- ---- ----
Operating profit 13 9 12 11
Costs associated with an unsolicited
offer to acquire the Company (2) -- (3) --
Interest expense (1) (1) (1) (2)
---- ---- ---- ----
Earnings before income taxes 10 8 8 9
Income tax expense 4 3 3 3
---- ---- ---- ----
Net earnings 6% 5% 5% 6%
==== ==== ==== ====
</TABLE>
Revenues for the three and six months ended June 30, 1997 increased 33% and
32%, respectively, to $38,063 and $73,734 from $28,587 and $56,069 in the
equivalent periods in 1996. These strong increases in revenue are primarily
attributable to sales growth in most of the Company's principal product lines.
Revenues from the Company's ventilation product line grew from approximately
$2,500 and $4,300, respectively, in the three and six months ended June 30,
1996 to approximately $8,800 and $15,000, respectively, in the equivalent
periods of 1997, due to the continued outstanding market acceptance received by
Quantum(TM), the Company's noninvasive ventilator. Even though revenues from
the respiratory therapy product line decreased slightly in the second quarter
of 1997 and grew only 5% in the first six months of 1997 as compared to the
comparable periods of 1996, revenues from the Company's asthma management
product line grew 30% and 42% in the three and six month periods ended June 30,
1997, respectively. The sleep disorders product line grew 21% and 14% from the
second quarter and first half of 1996, respectively, due principally to the
continued growth of the Tranquility(R) sleep therapy system and the
introduction of the Company's new Tranquility(R) Bilevel product. The
Tranquility(R) Bilevel was introduced internationally late in the first quarter
of 1997 and was approved by the FDA for U.S. distribution in April 1997.
Excluding the effect of the acquisition of Fiberoptic Medical Products, Inc. in
June, 1996, revenues from the infant management product line increased 32% and
27%, respectively, in the three and six months ended June 30, 1997 over the
year-earlier periods, primarily due to the achievement of greater market share.
In the first quarter of 1997 the Company entered into an agreement with
Allegiance Healthcare for distribution of certain of the Company's asthma
management products. This agreement is part of the Company's ongoing efforts to
increase its distribution strength in large national accounts; however, there
can be no assurance that the agreement will be successful in improving the
Company's position with such accounts.
The Company's gross profit margin decreased approximately one percentage point
to 40% for the six months ended June 30, 1997 as compared to the six months
ended June 30, 1996 primarily due to lower average selling prices on many of
the Company's principal products; however, gross profit margin improved
approximately two percentage points in
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the second quarter of 1997 over the second quarter of 1996. This increase was
primarily due to improved product mix and product cost reductions in 1997.
Selling and administrative expenses decreased as a percentage of revenues from
26% and 25% to 23% and 22%, respectively, in the second quarter and first half
of 1997 as compared to the similar periods of 1996 due primarily to operating
efficiencies generated as a result of accelerated revenue growth.
Research and development expenses increased to $2,214 and $4,087 in the three
and six months ended June 30, 1997 from $1,422 and $2,772 in the year-earlier
periods, primarily due to the addition of engineering staff and engineering
costs relating principally to the development and introduction of new products.
As a percentage of revenues, these expenses increased from 5% to 6%. In the
first half of 1997, the Company successfully introduced its new spacer device,
the OptiChamber(TM), and successfully introduced its new Tranquility(R) Bilevel
product. There are several existing competing products for both the Company's
new asthma spacer device and the new bilevel device. While the Company is
hopeful that the features and pricing of these devices will allow rapid market
acceptance, there can be no assurances that these products will gain market
acceptance or, if attained, over what period of time. See also Part II, Item 1
herein for information concerning a lawsuit involving certain of the Company's
products.
Non-operating charges of $850 and $2,150 for expenses associated with the
Invacare hostile tender offer and related litigation were recorded in the three
and six months ended June 30, 1997, respectively.
Interest expense increased in the three and six months ended June 30, 1997 as
compared to the same periods in 1996 primarily due to higher average balances
outstanding under the Company's credit facility.
The effective income tax rate remained relatively constant at 40% in the three
and six months ended June 30, 1997 and 1996.
The Company had deferred tax assets of $1,787 at June 30, 1997, which resulted
from allowances for uncollectible accounts and accruals and reserves recorded
for financial statement purposes but not yet deducted for income tax purposes.
Management believes such deferred tax assets will be recoverable through
reduced income taxes payable in future periods.
Liquidity and Capital Resources
The Company had working capital of approximately $39,500 as of June 30, 1997
and the current ratio was 2.3 to 1.0.
Cash flow provided by operations decreased to $3,558 in the six months ended
June 30, 1997 from $5,203 in the six months ended June 30, 1996. Cash used in
investing activities increased to $5,810 in the six months ended June 30, 1997
from $5,036 in the same period in 1996, due primarily to increased capital
expenditures related to manufacturing tooling for new product introductions and
cost reductions on existing products.
The Company entered into a Secured Revolving Credit Agreement in June 1993 (the
"Credit Agreement") with two commercial banks and in December 1994 entered into
an amendment to the Credit Agreement which increased the total commitment from
$15,000 to $25,000. During the last half of 1995, the Credit Agreement was
amended to increase the total commitment to $35,000 and was further amended in
June 1996 to add a term loan commitment of $15,000. In March 1997, the Credit
Agreement was amended again to extend the expiration date of the term loan to
June 1999. Both the revolving credit facility and the term loan now expire and
are payable in full in June 1999. This facility may be used for general
corporate purposes and is secured by all accounts receivable, inventory,
deposit accounts and all intangible assets of the Company and contains
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various covenants, including but not limited to net worth and financial ratio
requirements. As of June 30, 1997, the Company had outstanding borrowings of
$31,000 under its Credit Agreement at interest rates ranging from 7.2% to 9.0%.
The Company believes that its existing cash balances, together with internally
generated funds and remaining amounts available under its Credit Agreement,
will be sufficient to meet the Company's operating capital requirements for at
least the next twelve months. Additional indebtedness and/or equity, in all
likelihood, would be needed to finance possible acquisitions should the Company
decide to pursue such transactions in the future.
As of June 30, 1997, the Company had outstanding commitments for capital
expenditures of approximately $1,042 relating primarily to manufacturing
tooling.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 26, 1997, Respironics, Inc. commenced a lawsuit against the
Company in the United States District Court for the Western District
of Pennsylvania, Case No. 97-1156. The Complaint alleges that two of
the Company's products - the Quantum(TM) noninvasive ventilator and
the Tranquility(R) Bilevel - infringe Respironics' Patent No.
5,433,193. The lawsuit was not served on the Company until July 11,
1997. On July 11, 1997, Respironics also filed a Motion for
Preliminary Injunction, Motion for Expedited Discovery, and related
discovery documents.
The Company has answered the Complaint and has filed a Counterclaim
seeking a declaratory judgment of patent invalidity, non-infringement,
and unenforceability. The Company has or will oppose the Motions filed
by Respironics. The matter is currently pending and no date has been
set for the preliminary injunction hearing or for the trial.
As last updated in the Company's Form 10-Q for the quarter ended March
31, 1997, the Company and certain of its Directors are defendants in a
lawsuit brought by Invacare, as well as in certain class action
lawsuits brought on behalf of Company shareholders.
On July 3, 1997, the United States District Court for the Northern
District of Georgia, Atlanta Division (the "District Court"), entered
an order upholding the Continuing Director provision of the Company's
Shareholder Rights Plan and invalidating a by-law amendment proposed
by Invacare designed to circumvent such Continuing Director provision.
On July 10, 1997, the Eleventh Circuit Court of Appeals denied a
motion filed by Invacare seeking expedited review of the District
Court's July 3 order. On July 25, 1997, the District Court entered an
order upholding the Company's position that Invacare's proposed by-law
amendment relating to the Shareholder Rights Plan be presented on a
contingent basis only at the Company's Annual Meeting of Shareholders.
The July 3 order of the District Court is currently on appeal to the
Eleventh Circuit Court of Appeals.
ITEM 2. CHANGES IN SECURITIES
The Company has outstanding certain Rights issued pursuant to a
Shareholder Rights Agreement dated May 22, 1995 between the Company
and SunTrust Bank, Atlanta, as rights agent (the "Rights Agreement").
On January 30, 1997, the Board of Directors of the Company amended the
Rights Agreement to allow the Board of Directors to designate when the
Rights will be evidenced by separate rights certificates after a
tender or exchange offer is first published or sent. The amendment to
the Rights Agreement was filed as Exhibit 99.1 to the Company's
current report on Form 8-K dated February 3, 1997 and is hereby
incorporated herein by reference.
On July 22, 1997, the Board of Directors of the Company amended the
Rights Agreement to authorize the Board of Directors to establish or
set aside one or more funds for the purpose of assuring that adequate
resources are available to the Continuing Directors (as defined in the
Rights Agreement) in order to enable them to carry out their
prescribed functions under the Rights Agreement and to fulfill their
fiduciary obligations to the shareholders of the Company. Pursuant to
the Amendment to the Rights Agreement, the Board of Directors has
authorized the establishment of a $1.0 million fund to pay, among
other things, the expenses of the Continuing Directors. The Amendment
to the Rights Agreement was filed as Exhibit 99.1 to the Company's
15
<PAGE> 16
current report on Form 8-K dated July 29, 1997 and is hereby
incorporated herein by reference.
On July 22, 1997, the Board of Directors of the Company approved a
form of Amendment to the Rights Agreement which will become effective
on October 31, 1997. The proposed amendment will permit a bidder, if
it satisfies certain conditions, to call a special meeting of
shareholders to vote on a binding resolution to redeem the Rights. The
form of Amendment, as revised to correct a scrivener's error, was
filed as Exhibit 77 to Amendment No. 25 to the Company's Schedule
14D-9 filed with the Commission on January 31, 1997, as subsequently
amended, and is hereby incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this Report:
(11) Computation of Earnings Per Common Share
(27) Financial Data Schedule (for SEC use only)
(b) The Company did not file any current reports on Form 8-K
during the quarter ended June 30, 1997.
16
<PAGE> 17
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.
HEALTHDYNE TECHNOLOGIES, INC.
August 14, 1997 By: /s/ M. Wayne Boylston
----------------------------------
M. Wayne Boylston
Vice President - Finance,
Chief Financial Officer and Treasurer
(duly authorized and
principal financial officer)
17
<PAGE> 1
EXHIBIT 11
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
------- ------ ------ ------
<S> <C> <C> <C> <C>
Primary
Net earnings $ 2,202 1,320 3,481 3,097
======= ====== ====== ======
Shares:
Weighted average number of
common shares outstanding 12,777 12,575 12,721 12,528
Shares issuable from assumed
exercise of options and warrants 748 535 677 502
------- ------ ------ ------
Weighted average number of
common shares and common
share equivalents 13,525 13,110 13,398 13,030
======= ====== ====== ======
Net earnings per common share
and common share equivalent $ .16 .10 .26 .24
======= ====== ====== ======
Fully Diluted
Net earnings $ 2,202 1,320 3,481 3,097
======= ====== ====== ======
Shares:
Weighted average number of
common shares outstanding as
adjusted per primary
computation above 13,525 13,110 13,398 13,030
Additional shares issuable from
assumed exercise of options and
warrants computed on a fully
diluted basis 130 46 95 53
------- ------ ------ ------
13,655 13,156 13,493 13,083
======= ====== ====== ======
Net earnings per common share
and common share equivalent $ .16 .10 .26 .24
======= ====== ====== ======
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF HEALTHDYNE TECHNOLOGIES, INC. AND
SUBSIDIARIES FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,924
<SECURITIES> 0
<RECEIVABLES> 42,400
<ALLOWANCES> 1,442
<INVENTORY> 22,309
<CURRENT-ASSETS> 69,636
<PP&E> 23,969
<DEPRECIATION> 12,582
<TOTAL-ASSETS> 110,584
<CURRENT-LIABILITIES> 30,108
<BONDS> 31,000
0
0
<COMMON> 129
<OTHER-SE> 49,347
<TOTAL-LIABILITY-AND-EQUITY> 110,584
<SALES> 73,734
<TOTAL-REVENUES> 73,734
<CGS> 43,911
<TOTAL-COSTS> 43,911
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,243
<INCOME-PRETAX> 5,802
<INCOME-TAX> 2,321
<INCOME-CONTINUING> 3,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,481
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
