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 December 31, 1996
-----------------
or
_ Transition Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to ________
Commission File No. 000-16723
RESPIRONICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1304989
(State or other jurisdiction of (I.R.S. Employer 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 January 31, 1997, there were 19,741,880 shares of Common Stock of the
registrant outstanding.
INDEX
RESPIRONICS, INC.
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited).
Consolidated balance sheets -- December 31, 1996 and June 30,
1996.
Consolidated statements of operations -- Three months ended
December 31, 1996 and 1995 and six months ended December
31, 1996 and 1995.
Consolidated statements of cash flows -- Six months ended
December 31, 1996 and 1995.
Notes to consolidated financial statements -- December 31, 1996.
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
- ----------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
December 31 June 30
1996 1996
-------------------------
ASSETS
CURRENT ASSETS
Cash and short-term investments $12,680,350 $ 65,255,699
Trade accounts receivable, less allowance for
doubtful accounts of $2,250,000 and $1,200,000 35,226,031 27,883,365
Inventories 28,249,464 17,863,887
Prepaid expenses and other 2,451,080 2,522,327
Deferred income tax benefits 3,038,143 2,457,453
------------ ------------
TOTAL CURRENT ASSETS 81,645,068 115,982,731
PROPERTY, PLANT AND EQUIPMENT
Land 3,324,401 2,771,934
Building 12,555,478 8,907,692
Machinery and equipment 32,367,543 17,219,371
Furniture and office equipment 16,707,571 11,642,943
Leasehold improvements 1,100,007 1,068,851
------------ ------------
66,055,000 41,610,791
Less allowances for depreciation
and amortization 34,956,803 19,294,440
------------ ------------
31,098,197 22,316,351
Funds held in trust for construction
of new facility 1,714,035 746,114
OTHER ASSETS 3,385,455 3,210,802
COST IN EXCESS OF NET ASSETS OF
BUSINESS ACQUIRED 44,463,529 1,690,636
------------ ------------
$162,306,284 $143,946,634
============ ============
See notes to consolidated financial statements.
December 31 June 30
1996 1996
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,152,460 $ 4,178,301
Accrued compensation and related expenses 4,658,768 5,088,077
Accrued expenses 5,051,745 3,801,780
Income taxes 3,232,583 2,907,545
Current portion of long-term obligations 685,363 572,905
------------ ------------
TOTAL CURRENT LIABILITIES 20,780,919 16,548,608
LONG-TERM OBLIGATIONS 9,257,212 4,965,871
MINORITY INTEREST 631,895 887,320
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized
100,000,000 shares; issued and outstanding
19,718,680 shares at December 31, 1996 and
19,305,406 shares at June 30, 1996 197,187 193,054
Additional capital 68,026,598 67,105,290
Retained earnings 63,607,611 54,285,379
Treasury stock (195,138) (38,888)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 131,636,258 121,544,835
------------ ------------
$162,306,284 $143,946,634
============ ============
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
Three months ended Six months ended
December 31 December 31
1996 1995 1996 1995
------------------------- -------------------------
Net sales $43,001,308 $30,241,119 $77,113,720 $56,915,794
Cost of goods sold 19,541,822 13,380,809 34,585,070 24,895,319
----------- ----------- ----------- -----------
23,459,486 16,860,310 42,528,650 32,020,475
General and administrative expenses 4,555,079 3,831,024 9,177,181 7,847,827
Sales, marketing and commission expense 8,384,341 4,989,268 13,958,029 9,513,054
Research and development expense 2,651,573 2,368,426 5,143,866 4,061,333
Interest expense 150,135 50,541 197,615 100,595
Other income (517,916) (216,475) (1,485,095) (532,235)
----------- ----------- ----------- -----------
15,223,212 11,022,784 26,991,596 20,990,574
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 8,236,274 5,837,526 15,537,054 11,029,901
Income taxes 3,367,517 2,328,558 6,214,822 4,301,661
----------- ----------- ----------- -----------
NET INCOME $ 4,868,757 $ 3,508,968 $ 9,322,232 $ 6,728,240
=========== =========== =========== ===========
Earnings per share $ 0.24 $ 0.20 $ 0.46 $ 0.38
=========== =========== =========== ===========
Weighted Average Number of Shares
Used in Computing Earnings Per Share 20,230,672 17,601,685 20,196,647 17,730,325
=========== =========== =========== ===========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
Six months ended
December 31
1996 1995
--------------------------
OPERATING ACTIVITIES
Net income $ 9,322,232 $ 6,728,240
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,128,880 1,842,997
Provision for losses on accounts receivable 150,000 150,000
Changes in operating assets and liabilities:
Increase in accounts receivable (137,628) (5,727,886)
Increase in inventories and prepaid
expenses (4,090,193) (4,551,669)
Decrease (increase) in other assets 156,741 (356,202)
Increase (decrease) in accounts payable 951,915 (884,369)
Decrease in accrued compensation
and related expenses (1,530,883) (894,375)
Increase in accrued expenses 79,976 785,615
(Decrease) increase in accrued income taxes (1,370,767) 61,529
------------ -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 6,660,273 (2,846,120)
INVESTING ACTIVITIES
Acquisition of a business, net of cash acquired (49,864,997) -0-
Purchase of property, plant and equipment (2,295,357) (3,586,017)
Increase in funds held in trust for construction
of new facility (25,631) (18,158)
------------ -----------
NET CASH USED BY
INVESTING ACTIVITIES (52,185,985) (3,604,175)
FINANCING ACTIVITIES
Reduction in long-term obligations (7,563,403) (301,464)
Issuance of common stock 925,441 452,632
Acquisition of treasury stock (156,250) -0-
Decrease in minority interest (255,425) (34,869)
------------ -----------
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES (7,049,637) 116,299
------------ -----------
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS (52,575,349) (6,333,996)
Cash and short-term investments at beginning of period 65,255,699 16,126,904
------------ -----------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 12,680,350 $ 9,792,908
============ ===========
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
DECEMBER 31, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended December
31, 1996 are not necessarily indicative of the results that may be expected for
the year ended June 30, 1997. 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, 1996.
NOTE B -- INVENTORIES
The composition of inventory is as follows:
December 31 June 30
1996 1996
------------- ------------
Raw materials $ 16,759,464 $ 11,047,978
Work-in-process 2,960,334 2,075,329
Finished goods 8,529,666 4,740,580
------------- ------------
$ 28,249,464 $ 17,863,887
============= ============
NOTE C -- CONTINGENCIES
As previously disclosed, the Company is party to actions filed in a federal
District Court in January 1995 and June 1996 in which a competitor alleges that
the Company's manufacture and sale in the United States of certain products
infringes four of the competitor's patents. In its response to these actions,
the Company has denied the allegations and has separately sought a declaratory
judgment that the claims under the patents are invalid or unenforceable and that
the Company does not infringe upon the patents. Discovery in the case is
currently underway. The Company believes that none of its products infringe any
of the patents in question (assuming that any one or more of
such patents should be held to be valid and enforceable) and it intends to
vigorously defend this position.
NOTE D -- SUBSEQUENT EVENT
On January 27, 1997, the Company announced that it had entered a binding letter
of intent to acquire Stimotron Medizinische Gerate GmbH ("Stimotron"). Stimotron
is based in Wendelstein, Germany; its principal business is the distribution (on
an exclusive basis) of the Company's REMstar, Great Performers, and BiPAP
products in that country. The execution of a definitive agreement (including the
final terms and purchase price) and the closing of the transaction are expected
to be completed in February 1997. The acquisition will be treated as a purchase
for financial reporting purposes, and a commitment for financing for the
transaction has been obtained from a commercial bank.
Item 2. Management's Discussion and Analysis of Result of Operations
and Financial Condition
Certain statements in this quarterly report on Form 10-Q, including statements
about the Company's belief or expectations or about whether any particular event
or circumstances are likely to occur or continue, are forward-looking statements
concerning the future operations of the Company. Such forward-looking statements
are subject to risks and uncertainties. Such statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
There are many important factors that could cause actual results to differ
materially from those in the forward-looking statements contained herein.
Additional information on potential factors that could effect the Company's
financial results are included in the Company's annual report on Form 10-K for
the fiscal year ended June 30, 1996.
RESULTS OF OPERATIONS
Net sales for the quarter ended December 31, 1996 were $43,001,000 representing
a 42% increase over the $30,241,000 recorded for the quarter ended December 31,
1995. Sales for the six months ended December 31, 1996 were $77,114,000, an
increase of 35% over the $56,916,000 recorded in the year earlier period. Sales
for the current quarter and six month periods included approximately $6,200,000
generated by LIFECARE International, Inc. since its acquisition by the Company
on October 21, 1996 (LIFECARE International, Inc. has since been renamed
Respironics Colorado, Inc.). The acquisition was treated as a purchase for
financial accounting purposes, and accordingly the Company's results of
operations include the results of operations of Respironics Colorado, Inc. since
the acquisition date. The remaining increases in net sales (22% for the quarter
and 25% for the six months) were attributable to increases in total unit and
dollar sales for the Company's obstructive sleep apnea and ventilatory support
products. Sales of the Company's face masks and other patient interface devices
used as accessories for its obstructive sleep apnea and ventilatory support
units increased significantly in both unit and dollar terms, as did unit and
dollar sales for its resuscitation products.
The Company's gross profit was 55% of net sales for the quarter and six months
ended December 31, 1996 as compared to 56% for the quarter and six months ended
December 31, 1995. This decrease in gross margin percentage was primarily
caused by reduced average selling prices for certain of the Company's products.
These reductions in average selling price, which had been expected, resulted
from increasing competition in the Company's primary product lines, particularly
relative to large, national customers who received lower prices in exchange for
volume purchases. In addition, the gross margin percentage was impacted by a
shift in sales mix away from higher margin sales into Germany. (See "Financial
Condition, Liquidity and Capital Resources" for additional information about
sales into Germany).
General and administrative expenses were $4,555,000 (11% of net sales) for the
quarter ended December 31, 1996 as compared to $3,831,000 (13% of net sales) for
the quarter ended December 31, 1995. General and administrative expenses were
$9,177,000 (12% of net sales) for the six months ended December 31, 1996 as
compared to $7,848,000 (14% of net sales) for the year earlier period. The
increases in absolute dollars for both periods were due primarily to the
addition of expenses incurred by the Company's new subsidiary, Respironics
Colorado, Inc., since its acquisition on October 21, 1996. In addition,
amortization of the goodwill generated by the acquisition began on that date,
with the expense being included in general and administrative expenses.
Sales, marketing and commission expenses were $8,384,000 (19% of net sales) for
the quarter ended December 31, 1996 as compared to $4,989,000 (16% of net sales)
for the quarter ended December 31, 1995. Sales, marketing and commission
expenses were $13,958,000 (18% of net sales) for the six months ended December
31, 1996 as compared to $9,513,000 (17% of net sales) for the year earlier
period. The increases for both periods were due primarily to the addition of
expenses incurred by the Company's new subsidiary, Respironics Colorado, Inc.,
since its acquisition on October 21, 1996. Respironics Colorado, Inc. has a
network of 18 fully staffed customer satisfaction centers throughout the United
States, the costs of which are included in sales, marketing and commissions. The
increases were also due, to a lesser extent, to commission expenses based on
higher sales levels achieved, salary expenses for new employees, and travel and
other expenses related to major national home care and respiratory care
meetings that took place during the quarter and to product launch meetings.
Research and development expenses were $2,652,000 (6% of net sales) for the
quarter ended December 31, 1996 as compared to $2,368,000 (8% of net sales) for
the quarter ended December 31, 1995. Research and development expenses were
$5,144,000 (7% of net sales) for the six months ended December 31, 1996 as
compared to $4,061,000 (7% of net sales) for the year earlier period. This
increase in absolute dollars reflects the significant new product development
efforts currently underway to support product introductions in the Company's
major product groups, including the Solo CPAP unit, which received United States
Food and Drug Administration clearance to market in October 1996 and was
introduced shortly thereafter. Several other new product introductions are
scheduled for the remainder of fiscal year 1997, in some cases with initial
distribution in international markets until regulatory clearance in the United
States is obtained.
The Company's effective income tax rate was 41% for the quarter ended December
31, 1996 as compared to 40% for the quarter ended December 31, 1995 and 40% for
the six months ended December 31, 1996 as compared to 39% for the six months
ended December 31, 1995. Changes in the Company's effective income tax rate are
due primarily to changes in the relative proportion
of the Company's taxable income attributable to its United States operation
versus taxable income attributable to its Hong Kong and Peoples Republic of
China operations, because the United States operation pays income taxes at a
higher rate (approximately 41% before available income tax credits) than the
Hong Kong and Peoples Republic of China operations. For the quarterly and year-
to-date comparisons, the proportion of taxable income attributable to the United
States operation increased, due in part to taxable income generated by the
Company's new subsidiary, Respironics Colorado, Inc., since its acquisition on
October 21, 1996. In addition, the amortization expense of the goodwill
generated by the acquisition is not a tax deductible expense, and therefore also
contributed to the increased effective income tax rate.
As a result of the factors described above, the Company's net income was
$4,869,000 (11% of net sales) for the quarter ended December 31, 1996 as
compared to $3,509,000 (12% of net sales) for the quarter ended December 31,
1995 and $9,322,000 (12% of net sales) for the six months ended December 31,
1996 as compared to $6,728,000 (12% of net sales) for the six months ended
December 31, 1995.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $60,864,000 at December 31, 1996 and
$99,434,000 at June 30, 1996. Net cash provided by operating activities was
$6,660,000 for the six months ended December 31, 1996 as compared to net cash
used by operating activities of $2,846,000 for the six months ended December 31,
1995. The increase in net cash provided by operating activities for the current
six month period was due to increases in accounts receivable and inventory in
amounts smaller than the increases in those accounts in the prior year period,
an increase in accounts payable, and higher earnings.
Net cash used by investing activities was $52,186,000 for the six months ended
December 31, 1996 as compared to $3,604,000 for the six months ended December
31, 1995. Included in the current year total is $49,865,000 relating to the
October 21, 1996 acquisition of LIFECARE International, Inc. Essentially all of
the remaining cash used by investing activities for both periods represented
capital expenditures, including the purchase of production equipment, computer
and telecommunications equipment, and office equipment. The funding for the
investment activities in the current six month period was provided by
accumulated cash and short-term investment balances and positive cash flows from
operating activities, and in last year's six month period was provided by
accumulated cash and short-term investment balances.
On October 15, 1996, the Company announced that its status with Apria Healthcare
Group ("Apria") had changed from "primary supplier" to sole "secondary
supplier" effective in November 1996. This change impacted sales levels for the
three and six month periods ended December 31, 1996, and is likely to impact
sales levels for the remainder of the fiscal year ending June 30, 1997. However,
the
Company will continue to manage expense levels more aggressively and take other
steps for the remainder of the fiscal year with the goal of offsetting the
impact of changes in sales to Apria and achieving the Company's earnings
objectives. Because the extent to which this change in status will ultimately
impact revenues for the fiscal year is not known, no assurance can be given that
these measures will compensate for a decrease in revenues from Apria. Sales to
Apria during the fiscal year ended June 30, 1996 were $20,500,000, or 16 percent
of total sales.
On January 27, 1997, the Company announced that it had entered a binding letter
of intent to acquire Stimotron Medizinische Gerate GmbH ("Stimotron"). Stimotron
is based in Wendelstein, Germany; its principal business is the distribution (on
an exclusive basis) of the Company's REMstar, Great Performers, and BiPAP
products in that country. The execution of a definitive agreement (including the
final terms and purchase price) and the closing of the transaction are expected
to be completed in February 1997. The acquisition, which the Company expects to
be accretive to earnings per share, will be treated as a purchase for financial
reporting purposes, and a commitment for financing for the transaction has been
obtained from a commercial bank. The Company's sales into Germany during the
quarter ended December 31, 1996 were not at historical levels because of
Stimotron's efforts to reduce inventory levels during the acquisition
negotiations. The Company expects unit volume in Germany to be more in line with
historical trends in future quarters.
The Company believes that positive cash flow from operating activities projected
for the remainder of the fiscal year, the availability of the full amount of
funds under its commercial bank line of credit, commercial bank financing
committed for the Stimotron acquisition, and its accumulated cash and short-term
investments will be sufficient to meet its current and presently anticipated
future needs for the remainder of fiscal year 1997 for operating activities,
investing activities, and financing activities (primarily consisting of payments
on long-term debt).
PART 2 OTHER INFORMATION,
Item 1: Legal Proceedings
- ------- -----------------
Not applicable
Item 2: Change in Securities
- ------- --------------------
(a) Not applicable
(b) Not applicable
Item 3: Defaults Upon Senior Securities
- ------- -------------------------------
(a) Not applicable
(b) Not applicable
Item 4: Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
The Company's Annual Meeting of Shareholders was held on November 20, 1996.
The holders of 16,051,162 shares of the Company's stock (approximately 83% of
the outstanding shares) were present at the meeting in person or by proxy. The
matters voted upon at the meeting were:
(i) the election of three persons to serve as directors for a three year term
expiring at the annual meeting of the shareholders in 1999,
(ii) the amendment of the Company's certificate of incorporation to increase
the number of authorized shares to 100,000,000,
(iii) the amendment of the Company's certificate of incorporation and by-laws
regarding elimination of shareholder action by written consent,
(iv) the amendment of the Company's 1991 Non-Employee Directors' Stock Option
Plan, and
(v) the ratification of the selection of Ernst & Young as independent public
accountants to audit the financial statements of the Company for the fiscal year
ending June 30, 1997.
The results of voting were as follows:
(i) Daniel P. Barry, Donald H. Jones, and Candace Littell, the nominees of the
Company's Board Of Directors, were elected to serve until 1999. There were
no other nominees.
Shares were voted as follows:
Withhold
Vote For,
Abstentions,
and Broker
Name For Non-Votes
- ------------------------------- --- -----------
Daniel P. Barry 15,726,813 324,349
Donald H. Jones 15,723,953 327,209
Candace Littell 15,729,398 321,764
(ii) The amendment of the Company's certificate of incorporation to increase the
number of authorized shares to 100,000,000 was approved: affirmative votes,
12,539,618 shares; negative votes (including abstentions and broker non-votes),
3,511,544 shares.
(iii) The amendment of the Company's certificate of incorporation and by-laws
regarding elimination of shareholder action by written consent was not approved:
affirmative votes, 8,279,128 shares; negative votes (including abstentions and
broker non-votes), 7,772,034 shares.
(iv) The amendment of the Company's 1991 Non-Employee Directors' Stock Option
Plan was approved: affirmative votes, 15,056,591 shares; negative votes
(including abstentions and broker non-votes), 944,571 shares.
(v) The selection of Ernst & Young as independent public accountants for the
1997 fiscal year was ratified: affirmative votes, 15,903,331 shares; negative
votes (including abstentions and broker non-votes), 147,831 shares.
Item 5: Other Information
- ------- -----------------
Not applicable
Item 6: Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
3.1 Amendment to Company's Restated Articles of Incorporation
(b) Reports on Form 8-K
Not applicable
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESPIRONICS, INC.
Date: February 13, 1997 /s/ Daniel J. Bevevino
______________________ ______________________
Daniel J. Bevevino
Vice President, and Chief
Financial and Accounting Officer
Signing on behalf of the registrant
and as Chief Financial and
Accounting Officer