SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report pursuant to section 13 or 15(d) of the Securities
-
Exchange Act of 1934 for the quarterly period ended March 31, 1995 or
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Transition Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
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Commission File No. 000-16723
RESPIRONICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1304989
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1001 Murry Ridge Dr.
Murrysville, Pennsylvania 15668
(Address of principal executive offices) (Zip Code)
(Registrant's Telephone Number, including area code) 412-733-0200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
at least the past 90 days. Yes X No .
--- ---
As of April 30, 1995, there were 16,724,969 shares of Common Stock of the
registrant outstanding.
INDEX
RESPIRONICS, INC.
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited).
Consolidated balance sheets -- March 31, 1995 and June 30,
1994.
Consolidated statements of operations -- Three months ended
March 31, 1995 and 1994 and nine months ended March 31, 1995
and 1994.
Consolidated statements of cash flows-- Nine months ended
March 31, 1995 and 1994.
Notes to consolidated financial statements -- March 31, 1995.
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
PART II - OTHER INFORMATION
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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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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
March 31 June 30
1995 1994
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ASSETS
CURRENT ASSETS
Cash and short-term investments $16,638,370 $12,384,054
Trade accounts receivable, less allowance for
doubtful accounts of $700,000 and $525,000 18,532,611 15,011,285
Refundable income taxes -0- 1,787,265
Inventories 11,691,787 7,833,755
Prepaid expenses and other 1,188,874 1,168,167
Deferred income tax benefits 2,021,776 2,021,776
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TOTAL CURRENT ASSETS 50,073,418 40,206,302
PROPERTY, PLANT AND EQUIPMENT
Land 2,459,323 2,417,334
Building 8,512,638 7,713,405
Machinery and equipment 13,131,192 10,849,230
Furniture and office equipment 10,265,746 7,915,022
Leasehold improvements 519,744 519,744
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34,888,643 29,414,735
Less allowances for depreciation
and amortization 14,797,793 11,929,911
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20,090,850 17,484,824
Funds held in trust for construction
of new facility 701,554 680,372
OTHER ASSETS 640,074 545,722
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$71,505,896 $58,917,220
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See notes to consolidated financial statements.
March 31 June 30
1995 1994
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $3,367,677 $3,086,776
Accrued compensation and related expenses 3,991,568 3,055,420
Accrued expenses 2,986,940 1,968,977
Income taxes 1,044,706 658,364
Current portion of long-term obligations 475,303 404,866
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TOTAL CURRENT LIABILITIES 11,866,194 9,174,403
LONG-TERM OBLIGATIONS 5,605,936 4,854,440
MINORITY INTEREST 668,853 664,268
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized
40,000,000 shares; issued and outstanding
16,557,054 shares at March 31, 1995 and
16,344,690 shares at June 30, 1994 165,570 163,446
Additional capital 17,741,463 16,790,919
Retained earnings 35,457,880 27,269,744
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TOTAL SHAREHOLDERS' EQUITY 53,364,913 44,224,109
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$71,505,896 $58,917,220
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
Three months ended March 31 Nine months ended March 31
1995 1994 1995 1994
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Net sales $ 25,599,736 $ 19,307,611 $ 71,137,348 $ 56,132,166
Cost of goods sold 11,113,853 8,603,122 30,773,215 25,338,721
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14,485,883 10,704,489 40,364,133 30,793,445
General & administrative expenses 3,829,945 2,288,156 10,641,765 7,259,800
Sales, marketing & commission
expense 4,353,971 3,767,358 12,652,646 10,697,944
Research & development expense 1,735,308 1,227,629 4,795,636 3,199,223
Non-recurring charges -0- -0- -0- 1,966,085
Interest expense 49,183 39,567 145,126 130,786
Other income (358,299) (139,453) (868,082) (432,179)
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9,610,108 7,183,257 27,367,091 22,821,659
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INCOME BEFORE INCOME TAXES 4,875,775 3,521,232 12,997,042 7,971,786
Income taxes 1,804,034 1,276,937 4,808,906 2,790,125
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NET INCOME $3,071,741 $2,244,295 $ 8,188,136 $5,181,661
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Earnings per share $ 0.17 $ 0.13 $ 0.47 $ 0.30
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Weighted Average Number of Shares
Used in Computing Earnings Per
Share 17,687,053 17,330,390 17,459,702 17,285,838
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See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
Nine months ended
March 31
1995 1994
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OPERATING ACTIVITIES
Net income $ 8,188,136 $ 5,181,661
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,867,882 2,544,256
Provision for losses on accounts receivable 175,000 75,000
Provision for losses on write-off of equipment -0- 224,504
Changes in operating assets and liabilities:
Increase in accounts receivable (3,696,326) (2,056,074)
Decrease in refundable income taxes 1,787,265 -0-
Increase in inventories and prepaid
expenses (3,878,739) (231,662)
Increase in other assets (94,352) (20,609)
Increase (decrease) in accounts payable 280,901 (1,703,236)
Increase (decrease) in accrued compensation
and related expenses 936,148 (1,473,485)
Increase in accrued expenses 1,017,963 309,413
Increase (decrease) in accrued income taxes 386,342 (256,764)
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 7,970,220 2,593,004
INVESTING ACTIVITIES
Purchase of property, plant and equipment (5,473,908) (7,101,673)
Increase in funds held in trust for construction
of new facility (21,182) -0-
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NET CASH USED BY
INVESTING ACTIVITIES (5,495,090) (7,101,673)
FINANCING ACTIVITIES
Proceeds from long-term obligations 1,132,761 41,974
Reduction in long-term obligations (310,828) (322,765)
Issuance of common stock 952,668 162,638
Increase in minority interest 4,585 647,138
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,779,186 528,985
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INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 4,254,316 (3,979,684)
Cash and short-term investments at beginning of period 12,384,054 14,635,546
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CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $16,638,370 $10,655,862
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See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
MARCH 31, 1995
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 and nine months ended March 31,
1995 are not necessarily indicative of the results that may be expected for the
year ended June 30, 1995. 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, 1994.
NOTE B -- INVENTORIES
The composition of inventory is as follows:
March 31 June 30
1995 1994
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Raw materials $6,631,683 $5,268,039
Work-in-process 1,106,724 818,400
Finished goods 3,953,379 1,747,316
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$11,691,786 $7,833,755
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NOTE C -- NON-RECURRING CHARGES
In November 1993, the Company discontinued the production and sale of its
BagEasy line of disposable manual resuscitators and recalled all remaining
BagEasy products in distribution channels and customer inventories.
Accordingly, during the nine months ended March 31, 1994 the Company recorded
non-recurring charges of $1,966,000 which included provisions for write-offs of
inventory and fixed assets, the satisfaction of purchase order and compensation
commitments, and costs associated with the recall.
NOTE D -- STOCK SPLIT
On February 16, 1995, the Company's Board of Directors declared a 100% stock
distribution in the form of a two-for-one stock split of the Company's common
stock. On March 17, 1995, one additional share of common stock was distributed
for each share held of record on March 3, 1995. All outstanding stock options
were amended to provide for issuance of two shares of common stock for every one
share issuable prior to the split. An amount equal to the par value of the
shares issued was transferred from the additional capital account to the common
stock account. All references to number of shares, except shares authorized, and
to per share information in the consolidated financial statements have been
adjusted to reflect the stock split on a retroactive basis.
NOTE E -- SUBSEQUENT EVENT
On April 6, 1995, the Company acquired Vitalog Monitoring, Inc., a California
company that designs, manufactures and markets sleep monitoring and diagnostic
equipment. This combination will be treated for financial reporting purposes as
a purchase. Consideration was $681,000 in cash and $1,276,000 in shares of the
Company's common stock in exchange for the outstanding stock of Vitalog, related
patents, and non-competition agreements.
Item 2. Management's Discussion and Analysis of Result of Operations
and Financial Condition
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1995 were $25,600,000 representing a
33% increase over the $19,308,000 recorded for the quarter ended March 31,
1994. Sales for the nine months ended March 31, 1995 were $71,137,000, an
increase of 27% over the $56,132,000 recorded in the year earlier period. The
increases in net sales were primarily attributable to increases in total unit
sales for the Company's obstructive sleep apnea and ventilatory support products
and reflect sales growth across all of the Company's market bases for these
product groups. The nine month sales increase was accomplished in spite of a
decrease in sales of the Company's resuscitation products resulting from the
Company's November 1993 decision to discontinue production and shipment of its
BagEasy manual resuscitator, which accounted for 3% of net sales for the nine
month period ended March 31, 1994. In March of 1995 the Company introduced a
redesigned version of the BagEasy product. In addition, sales of the Company's
face masks used as accessories for its obstructive sleep apnea and ventilatory
support units increased significantly in both unit and dollar terms in both the
quarter to quarter and nine month comparisons.
The Company's gross profit was 57% of net sales for the quarter and nine months
ended March 31, 1995 as compared to 55% for the quarter and nine months ended
March 31, 1994. This improvement was due to the Company's ability to limit
the growth of manufacturing and manufacturing support costs to rates less than
the rate of sales increases achieved, a shift in sales mix toward the Company's
higher margin products, and, for the nine month comparison, the fact that during
the nine months ended March 31, 1994, gross profit was reduced because of a
temporary diversion of engineering resources away from research and development
activities and to manufacturing support in response to recommendations resulting
from an FDA inspection.
General and administrative expenses were $3,830,000 (15% of net sales) for the
quarter ended March 31, 1995 as compared to $2,288,000 (12% of net sales) for
the quarter ended March 31, 1994. General and administrative expenses were
$10,642,000 (15% of net sales) for the nine months ended March 31, 1995 as
compared to $7,260,000 (13% of net sales) for the year earlier period. These
increases were due primarily to provisions for profit sharing bonus being made
in the quarter and nine months ended March 31, 1995 based on results achieved.
There were no profit sharing bonuses for fiscal year 1994. Higher expenses were
also incurred due to staffing increases, increased legal fees, and increased
provisions for uncollectible accounts receivable.
Sales, marketing and commission expenses were $4,354,000 (17% of net sales) for
the quarter ended March 31, 1995 as compared to $3,767,000 (20% of net sales)
for the quarter ended March 31, 1994. Sales, marketing and commission expenses
were $12,653,000 (18% of net sales) for the nine months ended March 31, 1995 as
compared to $10,698,000 (19% of net sales) for the year earlier period. These
increases in absolute dollars were primarily due to higher commission expenses
paid to independent sales representatives resulting from a shift in sales mix
towards the products handled by these representatives and, to a lesser extent,
product literature expenses incurred in anticipation of product launches, higher
trade show and training expenses, and increased salary expenses principally for
new employees in sales and marketing management.
Research and development expenses were $1,735,000 (7% of net sales) for the
quarter ended March 31, 1995 as compared to $1,227,000 (6% of net sales) for the
quarter ended March 31, 1994. Research and development expenses were $4,796,000
(7% of net sales) for the nine months ended March 31, 1995 as compared to
$3,199,000 (6% of net sales) for the year earlier period. The increases in
spending reflect the Company's commitment to investment in future product
development and product enhancements in all of the Company's major product
groups and also reflect extensive new product development efforts currently
underway in anticipation of new product introductions in each of these groups
during calendar year 1995 and in some cases with initial distribution in
international markets until regulatory approval in the United States is
obtained. In addition, research and development expenditures were lower than
normal during the nine months ended March 31, 1994 as engineering resources were
temporarily diverted away from research and development activities and devoted
to improving manufacturing and engineering systems.
Non-recurring charges were $1,966,000 (5% of net sales) for the nine months
ended March 31, 1994. These charges represent costs incurred by the Company in
connection with its November 1993 decision to discontinue the production and
sale of its BagEasy line of disposable manual resuscitators and recall all
remaining BagEasy products in distribution channels and customer inventory and
include provisions for write-offs of inventory and fixed assets, the
satisfaction of purchase order and compensation commitments, and costs
associated with the recall.
The Company's effective income tax rate was 37% for the quarter ended March 31,
1995 as compared to 36% for the quarter ended March 31, 1994 and 37% for the
nine months ended March 31, 1995 as compared to 35% for the nine months ended
March 31, 1994. The increases for the quarter to quarter and nine month
comparisons were due to increases in the proportion of the Company's taxable
income attributable to its United States operation. The United States
operation pays income taxes at a higher rate (approximately 40% before available
income tax credits) than do the Hong Kong and Peoples Republic of China
operations. The increase in the proportion of taxable income
attributable to the United States operation was caused in part by the
non-recurring charges recorded in the nine months ended March 31, 1994 and
described above, the majority of which were incurred by the United States
operation.
As a result of the factors described above, the Company's net income was
$3,072,000 (12% of net sales) for the quarter ended March 31, 1995 as compared
to $2,244,000 (12% of net sales) for the quarter ended March 31, 1994 and
$8,118,000 (12% of net sales) for the nine months ended March 31, 1995 as
compared to $5,182,000 (9% of net sales) for the nine months ended March 31,
1994.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $38,207,000 at March 31, 1995 and $31,032,000
at June 30, 1994. Net cash provided by operating activities was $7,970,000 for
the nine months ended March 31, 1995 as compared to $2,593,000 for the nine
months ended March 31, 1994. The increase in cash provided by operations was
due primarily to an increase in net income, a decrease in refundable income
taxes, and increases in accounts payable, accrued compensation and related
expenses, accrued expenses and accrued income taxes during the current nine
month period as compared to decreases or smaller increases in those accounts
during the prior year's nine month period.
Net cash used by investing activities was $5,495,000 for the nine months ended
March 31, 1995 as compared to $7,102,000 for the nine months ended March 31,
1994. All of the cash used by investing activities for both periods
represented capital expenditures. These capital expenditures included the
purchase of production equipment, office equipment, and computers, and, for the
nine months ended March 31, 1994, also included costs related to the 46,000
square foot expansion of the Company's headquarters facility which was completed
in November 1993. Funding for a portion of the capital expenditures in the
current nine month period came from the proceeds of a $1,133,000 loan received
in February 1995 from the Pennsylvania Industrial Development Authority relating
to the Company's previously completed building expansion project. The remainder
of the funding for capital expenditures in the current nine month period and all
of the funding for the prior year's nine month period were provided by positive
cash flows from operating activities and from accumulated cash and short-term
investment balances.
The Company believes that positive cash flow from operating activities, the
availability of the full amount of funds under its $1.25 million line of credit,
and its accumulated cash and short-term investments will be sufficient to meet
its current and presently anticipated future needs for the next 12 months for
operating activities, investing activities, and financing activities (primarily
consisting of payments on long-term debt ).
PART 2 OTHER INFORMATION
Item 1: Legal Proceedings
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On May 8, 1995 the United States District Court for the Southern
District of California approved the Company's motion to transfer the
previously disclosed patent infringement suit filed by ResCare
Limited against the Company from that court to the United States
District Court for the Western District of Pennsylvania. ResCare
Limited had opposed the Company's motion.
Pursuant to a previous stipulation of the parties, they have agreed
jointly to move for the consolidation of the transferred suit with
the declaratory judgement action previously filed by the Company
in the United States District Court for the Western District of
Pennsylvania.
For additional information regarding this litigation, see the
Company's Report on Form 10-Q for the quarter ended December
31, 1994.
Item 2: Change in Securities
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(a) None
(b) None
Item 3: Defaults Upon Senior Securities
- - ------- -------------------------------
(a) None
(b) None
Item 4: Submission of Matters to a Vote of Security Holders
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None
Item 5: Other Information
- - ------- -----------------
None
Item 6: Exhibits and Reports on Form 8-K
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(a) Exhibits
None
(b) Reports on Form 8-K
None
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: May 12, 1995 /s/ Daniel J. Bevevino
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Daniel J. Bevevino
Controller, and Chief
Financial and Accounting Officer
Signing on behalf of the registrant
and as Chief Financial and
Accounting Officer