UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report pursuant to section 13 or 15(d) of the Securities
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Exchange Act of 1934 for the quarterly period ended March 31,1997 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 .
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As of April 30, 1997, there were 19,757,967 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, 1997 and June 30, 1996.
Consolidated statements of operations -- Three months ended March
31, 1997 and 1996 and nine months ended March 31, 1997 and 1996.
Consolidated statements of cash flows -- Nine months ended March 31,
1997 and 1996.
Notes to consolidated financial statements -- March 31, 1997.
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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Item 1. Financial Statements (Unaudited)
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
March 31 June 30
1997 1996
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ASSETS
CURRENT ASSETS
Cash and short-term investments $ 14,098,561 $ 65,255,699
Trade accounts receivable, less allowance for
doubtful accounts of $2,300,000 and $1,200,000 38,853,609 27,883,365
Inventories 34,403,427 17,863,887
Prepaid expenses and other 2,680,569 2,522,327
Deferred income tax benefits 3,018,631 2,457,453
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TOTAL CURRENT ASSETS 93,054,797 115,982,731
PROPERTY, PLANT AND EQUIPMENT
Land 3,322,941 2,771,934
Building 12,550,662 8,907,692
Machinery and equipment 33,981,821 17,219,371
Furniture and office equipment 19,045,614 11,642,943
Leasehold improvements 1,103,658 1,068,851
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70,004,696 41,610,791
Less allowances for depreciation
and amortization 39,439,974 19,294,440
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30,564,722 22,316,351
Funds held in trust for construction
of new facility 1,733,739 746,114
OTHER ASSETS 3,150,203 3,210,802
COST IN EXCESS OF NET ASSETS OF
BUSINESS ACQUIRED 56,098,815 1,690,636
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$184,602,276 $143,946,634
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See notes to consolidated financial statements.
March 31 June 30
1997 1996
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 8,387,577 $ 4,178,301
Accrued compensation and related expenses 5,469,836 5,088,077
Accrued expenses 7,981,263 3,801,780
Income taxes 6,646,775 2,907,545
Current portion of long-term obligations 661,109 572,905
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TOTAL CURRENT LIABILITIES 29,146,560 16,548,608
LONG-TERM OBLIGATIONS 18,100,583 4,965,871
MINORITY INTEREST 619,124 887,320
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized
100,000,000 shares; issued and outstanding
19,754,827 shares at March 31, 1997 and
19,305,406 shares at June 30, 1996 197,548 193,054
Additional capital 68,215,495 67,105,290
Retained earnings 68,591,239 54,285,379
Treasury stock (268,273) (38,888)
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TOTAL SHAREHOLDERS' EQUITY 136,736,009 121,544,835
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$184,602,276 $143,946,634
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See notes to consolidated financial statements.
4.2
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
Three months ended Nine months ended
March 31 March 31
1997 1996 1997 1996
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Net sales $47,814,403 $32,651,155 $124,928,123 $89,566,949
Cost of goods sold 21,285,839 14,476,518 55,870,909 39,371,837
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26,528,564 18,174,637 69,057,214 50,195,112
General and administrative expenses 6,310,332 4,342,305 15,487,513 12,190,132
Sales, marketing and commission expense 9,241,348 5,221,038 23,199,377 14,734,092
Research and development expense 2,659,630 2,569,463 7,803,496 6,630,796
Interest expense 154,803 45,689 352,418 146,284
Other income (328,032) (231,913) (1,813,128) (764,147)
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18,038,081 11,946,582 45,029,676 32,937,157
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INCOME BEFORE INCOME TAXES 8,490,483 6,228,055 24,027,538 17,257,955
Income taxes 3,396,193 2,428,941 9,611,015 6,730,602
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NET INCOME $ 5,094,290 $ 3,799,114 $ 14,416,523 $10,527,353
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Earnings per share $ 0.25 $ 0.21 $ 0.71 $ 0.59
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Weighted Average Number of Shares
Used in Computing Earnings Per Share 20,341,490 17,748,962 20,244,928 17,746,493
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
Nine months ended
March 31
1997 1996
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OPERATING ACTIVITIES
Net income $ 14,416,524 $10,527,353
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,377,510 2,695,376
Provision for losses on accounts receivable 200,000 200,000
Changes in operating assets and liabilities:
Increase in accounts receivable (945,206) (7,669,316)
Increase in inventories and prepaid
expenses (5,403,057) (3,564,400)
Decrease (increase) in other assets 411,508 (439,080)
Increase (decrease) in accounts payable 1,308,797 (1,182,193)
(Decrease) increase in accrued compensation
and related expenses (1,777,756) 569,925
(Decrease) increase in accrued expenses (2,023,816) 1,046,489
(Decrease) increase in accrued income taxes (2,095,873) 354,642
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 9,468,631 2,538,796
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired (58,864,997) -0-
Purchase of property, plant and equipment (3,588,271) (4,643,850)
Increase in funds held in trust for construction
of new facility (45,335) (26,811)
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NET CASH USED BY
INVESTING ACTIVITIES (62,498,603) (4,670,661)
FINANCING ACTIVITIES
Increase in long-term obligations 9,000,000 -0-
Reduction in long-term obligations (7,744,286) (396,171)
Issuance of common stock 1,114,699 40,330,112
Acquisition of treasury stock (229,385) -0-
Decrease in minority interest (268,194) (35,103)
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,872,834 39,898,838
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(DECREASE) INCREASE IN CASH AND
SHORT-TERM INVESTMENTS (51,157,138) 37,766,973
Cash and short-term investments at beginning of period 65,255,699 16,126,904
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CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 14,098,561 $53,893,877
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See notes to consolidated financial statements.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
MARCH 31, 1997
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,
1997 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:
March 31 June 30
1997 1996
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Raw materials $ 16,733,252 $ 11,047,978
Work-in-process 2,572,825 2,075,329
Finished goods 15,097,350 4,470,580
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$ 34,403,427 $ 17,863,887
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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 and depositions in
the case are 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 -- ACQUISITIONS
The Company acquired the capital stock of LIFECARE International, Inc. on
October 21, 1996 for $50,000,000 in cash (LIFECARE International, Inc. has since
been renamed Respironics Colorado, Inc.). Financing for the acquisition came
primarily from the proceeds of a public offering completed by the Company in
April 1996. Respironics Colorado, Inc. is a developer, manufacturer and
marketer of respiratory therapy products, with its primary focus on portable
home ventilation therapy, and is based in Westminster, Colorado. 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
following unaudited proforma summary presents the Company's results of
operations as if the acquisition had occurred at the beginning of the periods
presented and does not purport to be indicative of what would have occurred had
the acquisition been made as of those dates or of results which may occur in the
future.
Nine months ended March 31
1997 1996
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Sales $135,973,123 $114,925,949
Net Income $ 13,842,454 $ 8,407,778
Net Income per Share $ 0.68 $ 0.47
The Company (through a German subsidiary) acquired the capital stock of
Stimotron Medizinische Gerate GmbH ("Stimotron") on February 26, 1997. The
initial consideration paid was $9,000,000 in cash, with the terms of the
transaction providing for additional consideration of up to $5,000,000 in cash
over the next four years based upon the achievement of certain financial results
in Germany. Financing for the initial consideration was obtained from a
commercial bank and a commitment for financing for the the additional
consideration has been obtained from the same commercial bank. Stimotron is
based in Wendelstein, Germany and is the exclusive distributor for the Company's
products in that country. The acquisition was treated as a purchase for
financial reporting purposes, and accordingly the Company's results of
operations include the results of operations of Stimotron since the acquisition
date. Stimotron's operations were not material in relation to the Company's
consolidated financial statements and proforma information has therefore not
been presented.
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 circumstance is 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 March 31, 1997 were $47,814,000 representing a
46% increase over the $32,651,000 recorded for the quarter ended March 31, 1996.
Sales for the nine months ended March 31, 1997 were $124,928,000, an increase of
39% over the $89,567,000 recorded in the year earlier period. Sales for the
current quarter and nine month periods included approximately $8,400,000 and
$14,700,000 respectively, 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.). Sales for the current quarter
also include $1,700,000, generated by Stimotron Medizinische Gerate GmbH
("Stimotron") which was acquired on February 26, 1997. Both acquisitions were
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. and Stimotron since the acquisition dates. The remaining
increases in net sales (15% for the quarter and 21% for the nine months) were
primarily attributable to increases in total unit and dollar sales for the
Company's 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. Unit and dollar sales for the Company's resuscitation and
obstructive sleep apnea therapy products increased as well.
The Company's gross profit was 55% of net sales for the quarter and nine months
ended March 31, 1997 as compared to 56% for the quarter and nine months ended
Mach 31, 1996 . 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 purchase commitments.
General and administrative expenses were $6,310,000 (13% of net sales) for the
quarter ended March 31, 1996 as compared to $4,432,000 (13% of net sales) for
the quarter ended March 31, 1996. General and administrative expenses were
$15,488,000 (12% of net sales) for the nine months ended March 31, 1997 as
compared to $12,190,000 (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 subsidiaries, Respironics
Colorado, Inc. and Stimotron, since their acquisitions on October 21, 1996 and
February 26, 1997, respectively. In addition, amortization of the goodwill
generated by those acquisitions began on those dates, with the expense being
included in general and administrative expenses.
Sales, marketing and commission expenses were $9,241,000 (19% of net sales) for
the quarter ended March 31, 1997 as compared to $5,221,000 (16% of net sales)
for the quarter ended March 31, 1996. Sales, marketing and commission expenses
were $23,199,000 (19% of net sales) for the nine months ended March 31, 1997 as
compared to $14,734,000 (16% 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 subsidiaries, Respironics Colorado, Inc., and
Stimotron, since their acquisitions on October 21, 1996 and February 26, 1997,
respectively. 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. In addition, because Stimotron
serves as the Company's exclusive distributor in Germany, most of its operating
expenses are included in sales, marketing and commissions. The increases were
also due, to a lesser extent, to increased costs incurred for the Company's
sales and marketing efforts elsewhere in Europe.
Research and development expenses were $2,660,000 (6% of net sales) for the
quarter ended March 31, 1997 as compared to $2,569,000 (8% of net sales) for the
quarter ended March 31, 1996. Research and development expenses were $7,803,000
(6% of net sales) for the nine months ended March 31, 1997 as compared to
$6,631,000 (7% of net sales) for the year earlier period. This increase in
absolute dollars, particularly in the nine month comparison, reflects
significant new product development efforts to support product introductions in
the Company's major product groups, including the Solo CPAP unit which received
United States Food and Drug Administration ("FDA") clearance to market in
October 1996, the BiPap S/T-D 30 System which received clearance in January
1997, and the BiPap DUET system which received FDA clearance to market in
February 1997. Several new product introductions are scheduled for the remainder
of both fiscal year 1997 and calendar 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 40% for the quarter ended March 31,
1997 as compared to 39% for the quarter ended March 31, 1996 and 40% for the
nine months ended March 31, 1997 as compared to 39% for the nine months ended
March 31, 1996. 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 and European operations versus taxable income
attributable to its Hong Kong and Peoples Republic of China operations because
the United States and European operations pay income taxes at higher rates
(approximately 41% before available income tax credits) than do 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
and European operations increased, due in part to taxable income generated by
the Company's new subsidiaries, Respironics Colorado, Inc. and Stimotron, since
their acquisitions. In addition, the amortization expense of the goodwill
generated by the Respironics, Colorado, Inc. 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
$5,094,000 (11% of net sales) for the quarter ended March 31, 1997 as compared
to $3,799,000 (12% of net sales) for the quarter ended March 31, 1996 and
$14,417,000 (12% of net sales) for the nine months ended March 31, 1997 as
compared to $10,527,000 (12% of net sales) for the nine months ended March 31,
1996.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $63,908,000 at March 31, 1997 and $99,434,000
at June 30, 1996. Net cash provided by operating activities was $9,469,000 for
the nine months ended March 31, 1997 as compared to $2,539,000 for the nine
months ended March 31, 1996. The increase in net cash provided by operating
activities for the current nine month period was due primarily to higher
earnings, an increase in accounts receivable in an amount smaller than the
increase in that account in the prior year period, and an increase in accounts
payable.
Net cash used by investing activities was $62,499,000 for the nine months ended
March 31, 1997 as compared to $4,671,000 for the nine months ended March 31,
1996. Included in the current year total is $49,865,000 relating to the October
21, 1996 acquisition of Respironics Colorado, and $9,000,000 relating to the
February 26, 1997 acquisition of Stimotron. 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 nine month period was provided by positive
cash flows from operating activities, accumulated cash and short-term investment
balances and borrowing (to
finance the Stimotron acquisition), and in last year's nine month period was
provided by positive cash flows from operating activities, and accumulated cash
and short-term investment balances.
On October 15, 1996, the Company announced that its status with Apria Healthcare
("Apria") had changed from "primary supplier" to sole "secondary supplier"
effective in November 1996. This change impacted sales levels for the three and
nine month periods ended March 31, 1997, 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.
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 for
additional amounts that may be payable relating to 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 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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Not applicable
Item 2: Change in Securities
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(a) Not applicable
(b) Not applicable
(c) Not applicable
Item 3: Defaults Upon Senior Securities
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(a) Not applicable
(b) Not applicable
Item 4: Submission of Matters to a Vote of Security Holders
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(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) Not applicable
Item 5: Other Information
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Not applicable
Item 6: Exhibits and Reports on Form 8-K
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(a) Exhibits
Exhibit 10.26: Credit Agreement between Respironics, Inc. and PNC Bank,
National Association dated February 19, 1997
(b) Reports on Form 8-K
An 8-K was filed on November 5, 1996 to report that Respironics, Inc. had
acquired LIFECARE International, Inc. (LCI) on October 21, 1996. The financial
statements of LCI for the periods specified in Rule 3-05(b) of Regulation S-X
were included as Attachment 1 to the 8-K. Additionally, an 8-K/A was filed on
January 3, 1997 to provide pro forma financial information required pursuant to
Article 11 of Regulation S-X for the acquisition by Respironics, Inc. of
LCI on October 21, 1996 and such financial statements were included as
Attachment 1 to the 8-K/A.
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 15, 1997 /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