EXHIBIT 99.2
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
SIX MONTHS ENDED JUNE 30, 2004
TABLE OF CONTENTS
PAGE
----
FINANCIAL INFORMATION
Unaudited Condensed Consolidated Financial Statements:
Unaudited Condensed Consolidated Balance Sheets as of
June 30, 2004 and December 31, 2003....................................... 1
Unaudited Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 2004 and June 30, 2003........ 3
Unaudited Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 2004 and June 30, 2003 ..................... 4
Notes to Unaudited Condensed Consolidated Financial Statements............ 6
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF RIVER HOLDING CORP.)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(amounts in thousands)
JUNE 30, DECEMBER 31,
2004 2003
---------- --------------
CURRENT ASSETS:
Cash.............................................................................. $ 5,835 $ 6,682
Accounts receivable, less allowance for doubtful accounts of $1,117 and $1,156
at June 30, 2004 and December 31, 2003, respectively......................... 26,706 25,107
Inventories, net.................................................................. 27,695 23,829
Other current assets.............................................................. 2,205 2,505
---------- -------------
Total current assets........................................................ 62,441 58,123
PROPERTY, PLANT AND EQUIPMENT, net................................................... 38,725 37,477
GOODWILL 39,912 41,410
DEFERRED FINANCING AND OTHER COSTS, net of accumulated amortization of $5,724
and $5,188 at June 30, 2004 and December 31, 2003, respectively ..................... 5,903 6,457
OTHER ASSETS 1,118 1,243
---------- -------------
Total other assets.......................................................... 46,933 49,110
---------- -------------
Total assets............................................................ $ 148,099 $ 144,710
========== =============
See notes to condensed consolidated statements
1
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF RIVER HOLDING CORP.)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' DEFICIT
(amounts in thousands, except per share amounts)
JUNE 30, DECEMBER 31,
2004 2003
------------ --------------
CURRENT LIABILITIES:
Current portion of bank notes payable............................................ $ 8,979 $ 9,178
Accounts payable................................................................. 8,707 9,175
Accrued liabilities.............................................................. 18,435 16,973
------------ -------------
Total current liabilities........................................................ 36,121 35,326
INTEREST PAYABLE TO AFFILIATES..................................................... 12,572 9,760
NOTES PAYABLE TO AFFILIATES........................................................ 39,317 39,317
BANK NOTES PAYABLE, net of current portion......................................... 56,849 54,377
SENIOR SUBORDINATED NOTES PAYABLE.................................................. 115,000 115,000
MANDATORILY REDEEMABLE PREFERRED STOCK, $0.01 par value; 2,990 shares
authorized; 588 and 556 shares issued and outstanding at June 30, 2004
and December 31, 2003; liquidation preference, $60,224....................... 58,382 55,147
Accrued preferred stock dividend, payable in kind................................ 1,409 1,333
------------ -------------
59,791 56,480
OTHER NON-CURRENT LIABILITIES...................................................... 2,199 2,365
------------ -------------
Total liabilities.............................................................. 321,849 312,625
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' DEFICIT:
Junior preferred stock, $0.01 par value; 10 shares authorized; 3 shares
outstanding at June 30, 2004 and December 31, 2003........................... 4,197 3,960
Common stock, $0.01 par value; 42,000 shares authorized; 10,654 issued and
outstanding at June 30, 2004 and December 31, 2003........................... 98,258 98,258
Additional paid in capital....................................................... 881 881
Cumulative translation adjustment................................................ 5,845 6,848
Accumulated deficit.............................................................. (282,931) (277,862)
------------ -------------
Total stockholders' deficit.................................................... (173,750) (167,915)
------------ -------------
Total liabilities and stockholders' deficit........................... $ 148,099 $ 144,710
============ =============
See notes to condensed consolidated statements
2
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF RIVER HOLDING CORP.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2004 2003 2004 2003
---------- --------- ----------- ----------
NET SALES...................................................... $ 47,418 $ 45,268 $ 97,601 $ 91,147
COST OF SALES.................................................. 26,221 25,223 52,451 51,253
---------- --------- ----------- ----------
Gross Profit............................................... 21,197 20,045 45,150 39,894
OPERATING EXPENSES:
Distribution, selling, general & administrative............ 18,208 12,248 32,314 25,005
Research and development................................... 1,120 720 1,979 1,360
---------- --------- ----------- ----------
19,328 12,968 34,293 26,365
---------- --------- ----------- ----------
Income from operations.................................. 1,869 7,077 10,857 13,529
INTEREST EXPENSE AND OTHER, net................................ 7,279 5,292 14,359 10,553
---------- --------- ----------- ----------
Net (loss) income before provision for income taxes..... (5,410) 1,785 (3,502) 2,976
PROVISION FOR INCOME TAXES..................................... 658 647 1,332 1,328
---------- --------- ----------- ----------
Net (loss) income....................................... $ (6,068) $ 1,138 $ (4,834) $ 1,648
========== ========= =========== ==========
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation (loss) gain................... 336 1,235 (1,003) 1,956
---------- --------- ----------- ----------
Comprehensive (loss) income................................ $ (5,732) $ 2,373 $ (5,837) $ 3,604
========== ========= =========== ==========
See notes to condensed consolidated statements
3
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF RIVER HOLDING CORP.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
SIX MONTHS ENDED
------------------------
JUNE 30, JUNE 30,
2004 2003
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income................................................................ $ (4,834) $ 1,648
Adjustments to reconcile net (loss) income to net cash provided by operating
activities-
Depreciation and amortization.............................................. 5,020 4,902
Amortization of deferred financing costs................................... 536 931
Accrued mandatorily redeemable preferred stock dividends, payable in-kind.. 3,311 --
Interest payable to affiliates............................................. 2,813 2,651
Provision for bad debts.................................................... (19) 239
Loss (gain) on disposal of property, plant and equipment................... (11) 2
Changes in operating assets and liabilities:
Accounts receivable........................................................ (1,857) 1,295
Inventories................................................................ (4,038) (1,051)
Other current assets....................................................... 267 (226)
Other assets............................................................... 34 (29)
Accounts payable........................................................... (400) (947)
Accrued liabilities........................................................ 1,601 (1,506)
Other non-current liabilities.............................................. 30 29
---------- ------------
Net cash provided by operating activities............................... 2,453 7,938
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment....................................... (6,333) (3,533)
Proceeds from sales of property, plant and equipment............................. 2 18
---------- ------------
Net cash used in investing activities................................... (6,331) (3,515)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank notes payable.................................................. -- (14,771)
Proceeds from bank borrowings.................................................... 2,743 7,486
Payment of capital lease obligations............................................. (28) (26)
---------- ------------
Net cash provided by (used in) financing activities..................... 2,715 (7,311)
Effect of exchange rate changes on cash.............................................. 316 (933)
---------- ------------
NET DECREASE IN CASH................................................................. (847) (3,821)
CASH, beginning of period............................................................ 6,682 6,425
---------- ------------
CASH, end of period.................................................................. $ 5,835 $ 2,604
========== ============
See notes to condensed consolidated statements
4
SIX MONTHS ENDED
-----------------------
JUNE 30, JUNE 30,
2004 2003
---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest...................................................................... $ 7,611 $ 7,387
========== =========
Income taxes (primarily foreign).............................................. $ 1,090 $ 1,354
========== =========
NON-CASH FINANCING ACTIVITIES:
Preferred dividends accrued or paid-in-kind...................................... $ 237 $ 3,141
========== =========
See notes to condensed consolidated statements
5
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF RIVER HOLDING CORP.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Statements. The condensed consolidated financial statements
included herein have been prepared by the Company, without audit, and include
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position at June 30, 2004, the results of
operations for the three and six month periods ended June 30, 2004 and June 30,
2003 and statements of cash flows for the six month periods ended June 30, 2004
and June 30, 2003 pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). All such adjustments are of a normal recurring
nature. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. Although the Company believes that the disclosures in such
financial statements are adequate to make the information presented not
misleading, the accompanying unaudited condensed, consolidated financial
statements should be read in conjunction with the Company's 2003 audited
financial statements and the notes thereto included in its Form 10-K filed with
the SEC. The results of operations for the three and six month period ended June
30, 2004 are not necessarily indicative of the results to be achieved for a full
year.
Significant Accounting Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
The significant estimates made in the preparation of the Company's
consolidated financial statements relate to allowance for bad debts, rebate
reserve, and inventory reserve.
Stock Based Compensation
The Company accounts for its stock-based compensation plans under the
recognition and measurement principles of Accounting Principles Board Opinion
("APB") 25, "Accounting for Stock Issued to Employees," and related
interpretations. The Company has adopted the disclosure provisions of Statement
Financial Accounting Standards ("SFAS") 123, "Accounting for Stock-Based
Compensation," as amended by SFAS 148, "Accounting for Stock-Based Compensation
- - Transition and Disclosure - an amendment of FASB Statement No. 123." No
stock-based employee compensation expense is recognized in net income for any of
the periods presented. Had compensation expense for the Company's stock-based
compensation awards been recognized based on the fair value recognition
provisions of SFAS 123, the Company's net income would have been adjusted to the
pro forma amounts indicated below (amounts in thousands):
SIX MONTHS ENDED JUNE 30,
--------------------------
2004 2003
---------- ----------
Net (loss) income, as reported..................... $ (4,834) $ 1,648
Deduct: Total stock-based employee compensation
expense determined under the fair value based
method for all awards.......................... 67 10
---------- ----------
Pro forma net (loss) income........................ $ (4,901) $ 1,638
========== ==========
6
Under the fair-value method, compensation expense is measured at the grant
date based on the fair value of the award using an option-pricing model.
Compensation expense is recognized on a straight-line basis over the vesting
period. The fair value of employee stock options was estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2003 and 2002: risk-free interest rates of 2.00%
and 2.83%, respectively; dividend yield of 0% for all years; expected lives of
three years and four years, respectively, and volatility of 50% for both years.
Reclassifications
Certain amounts from prior periods have been reclassified to conform to
the current period presentation.
2. Inventories. Inventories consisted of the following (amounts in
thousands):
JUNE 30, DECEMBER 31,
2004 2003
------------- ------------
Raw materials................................................................... $ 5,062 $ 4,558
Work-in-process................................................................. 5,404 4,955
Finished goods.................................................................. 17,229 14,316
------------- -----------
$ 27,695 $ 23,829
------------- -----------
3. Geographic and Segment Information. The Company presents segment
information externally based on how management uses financial data internally to
make operating decisions and assess performance. The Company has two operating
segments: guarantor, primarily the United States and non-guarantor, primarily
international. The non-guarantor subsidiaries consist principally of Hudson AB
and subsidiaries (whose operations are principally international). Under SFAS
131, "Disclosures about Segments of an Enterprise and Related Information," the
Company's operating segments are the same as its reporting segments.
The Company sells respiratory care and anesthesia products to distributors
and medical facilities throughout the United States and internationally.
Operating results of the Company's various product groups have been aggregated
because of their common characteristics and their reliance on shared operating
functions. The Company operates primarily in the United States and in Europe.
The Company's sales and percentage of sales by geographic region for the
three and six months ending June 30, 2004 and 2003 are as follows (amounts in
thousands):
THREE MONTHS ENDED
------------------------------------------
JUNE 30, 2004 JUNE 30, 2003
------------------- -------------------
United States............................................ $ 31,140 65.8% $ 32,293 71.3%
Europe................................................... 9,544 20.1 8,024 17.7
Pacific Rim (Japan, Southeast Asia, Australia/New
Zealand).............................................. 3,864 8.1 3,096 6.8
Canada................................................... 678 738 1.6
1.4
Other international...................................... 2,192 4.6 1,117 2.5
--------- ----- --------- -----
$ 47,418 100.0% $ 45,268 100.0%
========= ===== ========= =====
SIX MONTHS ENDED
--------------------------------------------
JUNE 30, 2004 JUNE 30, 2003
-------------------- ----------------------
United States............................................ $ 65,594 67.2% $ 65,867 72.3%
Europe................................................... 19,368 19.8 15,067 16.5
Pacific Rim (Japan, Southeast Asia, Australia/New
Zealand).............................................. 7,004 7.2 6,436 7.1
Canada................................................... 1,472 1.5 1,302 1.4
Other international...................................... 4,163 4.3 2,475 2.7
--------- ----- --------- -----
$ 97,601 100.0% $ 91,147 100.0%
========= ===== ========= =====
7
The Company's sales and percentage of sales by product group for the three
and six months ending June 30, 2004, and 2003 are as follows (amounts in
thousands):
THREE MONTHS ENDED
------------------------------------------
JUNE 30, 2004 JUNE 30, 2003
------------------- -------------------
Oxygen Therapy.......................................... $ 13,571 28.7% $ 13,332 29.5%
Airway Management....................................... 9,154 19.3 9,268 20.5
Humidification.......................................... 11,732 24.7 10,928 24.1
Aerosol Therapy......................................... 12,961 27.3 11,740 25.9
--------- ----- --------- ------
$ 47,418 100.0% $ 45,268 100.0%
========= ===== ========= =====
SIX MONTHS ENDED
------------------------------------------
JUNE 30, 2004 JUNE 30, 2003
------------------- -------------------
Oxygen Therapy.......................................... $ 28,466 29.1% $ 26,595 29.2%
Airway Management....................................... 21,140 21.7 19,405 21.3
Humidification.......................................... 23,197 23.8 21,605 23.7
Aerosol Therapy......................................... 24,798 25.4 23,542 25.8
--------- ----- --------- -----
$ 97,601 100.0% $ 91,147 100.0%
========= ===== ========= ======
The Company is the 100% owner of certain subsidiaries that do not guarantee the
Company's senior subordinated notes and certain bank debt. The following tables
disclose required consolidating financial information for guarantor and
non-guarantor subsidiaries (amounts in thousands):
8
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2004
-------------------------------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATIONS TOTAL
------------- ---------- ------------ -------------
ASSETS
CURRENT ASSETS:
Cash.................................................. $ 3,798 $ 2,037 $ -- $ 5,835
Accounts receivable................................... 18,028 8,678 -- 26,706
Intercompany receivables, net......................... -- 425 (425) --
Inventories........................................... 23,808 4,939 (1,052) 27,695
Other current assets.................................. 1,322 883 -- 2,205
------------- ---------- ----------- -------------
Total current assets............................... 46,956 16,962 (1,477) 62,441
PROPERTY, PLANT
AND EQUIPMENT, NET.................................... 36,649 2,076 -- 38,725
GOODWILL.................................................. -- 39,912 -- 39,912
DEFERRED FINANCING COSTS, net............................. 5,903 -- -- 5,903
INVESTMENT IN NON-GUARANTOR SUBSIDIARIES, at cost......... 28,636 4,000 (32,636) --
OTHER ASSETS.............................................. 1,094 24 -- 1,118
------------- ---------- ----------- -------------
Total other assets................................. 35,633 43,936 (32,636) 46,933
------------- ---------- ----------- -------------
$ 119,238 $ 62,974 $ (34,113) $ 148,099
============= ========== =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of bank notes payable................. $ 3,680 $ 5,299 $ -- $ 8,979
Accounts payable...................................... 7,188 1,519 -- 8,707
Intercompany payables, net............................ 425 -- (425) --
Accrued liabilities................................... 14,704 3,731 -- 18,435
------------- ---------- ----------- -------------
Total current liabilities.......................... 25,997 10,549 (425) 36,121
INTEREST PAYABLE TO AFFILIATES............................ 8,547 4,025 -- 12,572
NOTES PAYABLE TO AFFILIATES............................... 26,951 12,366 -- 39,317
BANK NOTES PAYABLE, net of current portion................ 52,257 4,592 -- 56,849
SENIOR SUBORDINATED NOTES PAYABLE......................... 115,000 -- -- 115,000
MANDATORILY REDEEMABLE PREFERRED STOCK 59,791 -- -- 59,791
OTHER NON-CURRENT LIABILITIES............................. 111 2,088 -- 2,199
------------- ---------- ----------- -------------
Total liabilities.................................. 288,654 33,620 (425) 321,849
STOCKHOLDERS' EQUITY (DEFICIT)............................ (169,416) 29,354 (33,688) (173,750)
------------- ---------- ----------- -------------
$ 119,238 $ 62,974 $ (34,113) $ 148,099
============= ========== =========== =============
9
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2003
-------------------------------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATIONS TOTAL
------------- ---------- ------------ -------------
ASSETS
CURRENT ASSETS:
Cash..................................................... $ 3,690 $ 2,992 $ -- $ 6,682
Accounts receivable...................................... 17,938 7,169 -- 25,107
Intercompany receivables, net............................ -- 1,694 (1,694) --
Inventories.............................................. 20,419 4,605 (1,195) 23,829
Other current assets..................................... 1,587 918 -- 2,505
------------- ---------- ----------- -------------
Total current assets.................................. 43,634 17,378 (2,889) 58,123
PROPERTY, PLANT
AND EQUIPMENT, NET....................................... 35,480 1,997 -- 37,477
GOODWILL..................................................... -- 41,410 -- 41,410
DEFERRED FINANCING COSTS, net................................ 6,457 -- -- 6,457
INVESTMENT IN NON-GUARANTOR SUBSIDIARIES, at cost............ 28,636 4,000 (32,636) --
OTHER ASSETS................................................. 1,216 27 -- 1,243
------------- ---------- ----------- -------------
Total other assets.................................... 36,309 45,437 (32,636) 49,110
------------- ---------- ----------- -------------
$ 115,423 $ 64,812 $ (35,525) $ 144,710
============= ========== =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of bank notes payable.................... $ 3,680 $ 5,498 $ -- $ 9,178
Accounts payable......................................... 7,170 2,005 -- 9,175
Intercompany payables, net............................... 1,694 -- (1,694) --
Accrued liabilities...................................... 13,459 3,514 -- 16,973
------------- ---------- ----------- -------------
Total current liabilities............................. 26,003 11,017 (1,694) 35,326
INTEREST PAYABLE TO AFFILIATES............................... 6,720 3,040 -- 9,760
NOTES PAYABLE TO AFFILIATES.................................. 26,951 12,366 -- 39,317
BANK NOTES PAYABLE, net of current portion................... 46,552 7,825 -- 54,377
SENIOR SUBORDINATED NOTES PAYABLE............................ 115,000 -- -- 115,000
MANDATORILY REDEEMABLE PREFERRED STOCK....................... 56,480 -- -- 56,480
OTHER NON-CURRENT LIABILITIES................................ 229 2,136 -- 2,365
------------- ---------- ----------- -------------
Total liabilities..................................... 277,935 36,384 (1,694) 312,625
STOCKHOLDERS' EQUITY (DEFICIT)............................... (162,512) 28,428 (33,831) (167,915)
------------- ---------- ----------- -------------
$ 115,423 $ 64,812 $ (35,525) $ 144,710
============= ========== =========== =============
10
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2004
-------------------------------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATIONS TOTAL
------------- ---------- ------------ -------------
NET SALES.................................................... $ 39,754 $ 12,420 $ (4,756) $ 47,418
COST OF SALES................................................ 25,453 5,776 (5,008) 26,221
------------- ---------- ----------- -------------
Gross Profit............................................. 14,301 6,644 252 21,197
OPERATING EXPENSES:
Distribution, selling, general and administrative........ 14,225 3,983 -- 18,208
Research and development................................. 756 364 -- 1,120
------------- ---------- ----------- -------------
14,981 4,347 -- 19,328
------------- ---------- ----------- -------------
(Loss) income from operations............................ (680) 2,297 252 1,869
INTEREST EXPENSE AND OTHER, net: 6,411 868 7,279
------------- ---------- ----------- -------------
(Loss) income before provision for income taxes.......... (7,091) 1,429 252 (5,410)
PROVISION FOR INCOME TAXES................................... 21 637 -- 658
------------- ---------- ----------- -------------
Net (loss) income............................................ $ (7,112) $ 792 $ 252 $ (6,068)
============= ========== =========== =============
THREE MONTHS ENDED JUNE 30, 2003
-------------------------------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATIONS TOTAL
------------- ---------- ------------ -------------
NET SALES.................................................... $ 39,751 $ 11,411 $ (5,894) $ 45,268
COST OF SALES................................................ 25,191 5,484 (5,452) 25,223
------------- ---------- ----------- -------------
Gross Profit............................................. 14,560 5,927 (442) 20,045
OPERATING EXPENSES:
Distribution, selling, general and administrative........ 8,743 3,505 -- 12,248
Research and development................................. 389 331 -- 720
------------- ---------- ----------- -------------
9,132 3,836 -- 12,968
------------- ---------- ----------- -------------
Income from operations................................... 5,428 2,091 (442) 7,077
INTEREST EXPENSE AND OTHER, net: 4,685 607 5,292
------------- ---------- ----------- -------------
Income (loss) before provision for income taxes.......... 743 1,484 (442) 1,785
PROVISION FOR INCOME TAXES................................... 62 585 -- 647
------------- ---------- ----------- -------------
Net income (loss)............................................ $ 681 $ 899 $ (442) $ 1,138
============= ========== =========== =============
11
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2004
-------------------------------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATIONS TOTAL
------------- ---------- ------------ -------------
NET SALES.................................................... $ 82,268 $ 24,819 $ (9,486) $ 97,601
COST OF SALES................................................ 50,742 11,338 (9,629) 52,451
------------- ---------- ----------- -------------
Gross Profit............................................. 31,526 13,481 143 45,150
OPERATING EXPENSES:
Distribution, selling, general and administrative........ 24,384 7,930 -- 32,314
Research and development................................. 1,292 687 -- 1,979
------------- ---------- ----------- -------------
25,676 8,617 -- 34,293
------------- ---------- ----------- -------------
Income from operations................................... 5,850 4,864 143 10,857
INTEREST EXPENSE AND OTHER, net: 12,706 1,653 14,359
------------- ---------- ----------- -------------
Income before provision for income taxes................. (6,856) 3,211 143 (3,502)
PROVISION FOR INCOME TAXES................................... (11) 1,343 -- 1,332
------------- ---------- ----------- -------------
Net (loss) income............................................ $ (6,845) $ 1,868 $ 143 $ (4,834)
============= ========== =========== =============
SIX MONTHS ENDED JUNE 30, 2003
-------------------------------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATIONS TOTAL
------------- ---------- ------------ -------------
NET SALES.................................................... $ 80,071 $ 21,420 $ (10,344) $ 91,147
COST OF SALES................................................ 50,731 10,376 (9,854) 51,253
------------- ---------- ----------- -------------
Gross Profit............................................. 29,340 11,044 (490) 39,894
OPERATING EXPENSES:
Distribution, selling, general and administrative........ 18,487 6,518 -- 25,005
Research and development................................. 747 613 -- 1,360
------------- ---------- ----------- -------------
19,234 7,131 -- 26,365
------------- ---------- ----------- -------------
Income from operations................................... 10,106 3,913 (490) 13,529
INTEREST EXPENSE AND OTHER, net: 9,290 1,263 10,553
------------- ---------- ----------- -------------
Income (loss) before provision for income taxes.......... 816 2,650 (490) 2,976
PROVISION FOR INCOME TAXES................................... 227 1,101 -- 1,328
------------- ---------- ----------- -------------
Net income(loss)............................................. $ 589 $ 1,549 $ (490) $ 1,648
============= ========== =========== =============
12
HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004
------------------------------------------
NON-
GUARANTOR GUARANTOR TOTAL
------------- ---------- ------------
Net cash provided by operating activities................... $ 221 $ 2,232 $ 2,453
Net cash used in investing activities....................... (5,749) (582) (6,331)
Net cash used provided by (used in) financing activities.... 5,695 (2,980) 2,715
Effect of exchange rate changes on cash..................... (59) 375 316
------------- ---------- ------------
NET INCREASE (DECREASE) IN CASH............................. 108 (955) (847)
CASH, beginning of period................................... 3,690 2,992 6,682
------------- ---------- ------------
CASH, end of period......................................... $ 3,798 $ 2,037 $ 5,835
============= ========== ============
SIX MONTHS ENDED JUNE 30, 2003
------------------------------------------
NON-
GUARANTOR GUARANTOR TOTAL
------------- ---------- ------------
Net cash provided by operating activities................... $ 5,448 $ 2,490 $ 7,938
Net cash used in investing activities....................... (2,602) (913) (3,515)
Net cash used in financing activities....................... (5,576) (1,735) (7,311)
Effect of exchange rate changes on cash..................... (51) (882) (933)
------------- ---------- ------------
NET DECREASE IN CASH........................................ (2,781) (1,040) (3,821)
CASH, beginning of period................................... 3,568 2,857 6,425
------------- ---------- ------------
CASH, end of period......................................... $ 787 $ 1,817 $ 2,604
============= ========== ============
4. Commitments and Contingencies. The Company is not a party to any material
lawsuits or other proceedings. While the result of the Company's other existing
lawsuits and proceedings cannot be predicted with certainty, management does not
expect that the ultimate resolution of these matters will have a material
adverse effect on the financial position or results of operations of the
Company.
Self Insurance. The Company self-insures the majority of its medical
benefit programs and workers' compensation whereby the Company directly assumes
the liability for employee medical and dental claims presented, subject to
per-claim and aggregate maximums. Reserves for medical claim losses (including
retiree benefits) totaling approximately $0.8 million and $1.1 million at June
30, 2004 and December 31, 2003, respectively, were established based upon
estimated obligations and are included in accrued liabilities in the
accompanying unaudited condensed consolidated balance sheets. The Company
maintains excess coverage on an aggregate claim basis. Additionally, the Company
is self-insured for workers' compensation. Reserves for workers' compensation
claim losses totaling approximately $2.3 million and $0.8 million at June 30,
2004 and December 31, 2003, respectively, were established based upon estimated
obligations and are included in accrued liabilities in the accompanying
unaudited condensed consolidated balance sheets. The Company maintains excess
coverage on an individual and aggregate claim basis. A third-party administrator
processes all employee medical claims and requires the Company to collateralize
a portion of its potential payment liability through the use of standby letters
of credit. The standby letters of credit are issued for one-year periods with
automatic annual extensions until such time the third-party administrator
determines all outstanding claims for the policy period have been paid. As of
June 30, 2004, the Company had issued three such standby letters of credit
totaling approximately $1.6 million.
5. Bank Notes Payable. Total borrowings as of June 30, 2004 were $65.8
million, which consisted of $25.9 million under the Revolving A Facility, $30.0
million under the Term B Facility and $9.9 million under the HRCI AB Facility.
As of June 30, 2004, $3.5 million was available for borrowing. As of June 30,
2004, the fair value of the bank notes payable approximated the face value.
At June 30, 2004, the Company was in compliance with all provisions of its
debt securities.
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6. Mandatorily Redeemable Preferred Stock. At June 30, 2004, the redemption
amount was $60.2 million, of which $58.4 million relates to issued shares and
$1.8 million to accrued but not issued shares. The maximum amount the Company
will pay on April 15, 2010, the mandatory redemption date, will be $115.0
million and will be accreted at a rate per annum of 11-1/2% with dividends being
paid in kind and not in cash.
7. Subsequent event. On July 6, 2004 Teleflex Incorporated completed the
acquisition of all of the issued and outstanding capital stock of Hudson
Respiratory Care Inc. As a result of this transaction, the Company incurred
$23.8 million of costs for bonus and option obligations, broker fees and
insurance costs at closing.
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