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
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Act of 1934 for the quarterly period ended December 31, 2000 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)
1501 Ardmore Blvd.
Pittsburgh, Pennsylvania 15221
(Address of principal executive offices) (Zip Code)
(Registrant's Telephone Number, including area code) 412-731-2100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___ .
---
As of January 31, 2001, there were 33,813,445 shares of Common Stock of the
registrant outstanding, of which 3,640,289 were held in treasury.
INDEX
RESPIRONICS, INC.
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements (Unaudited).
Independent Accountants' Review Report
Consolidated balance sheets -- December 31, 2000 and June 30, 2000.
Consolidated statements of operations -- Three months and six months
ended December 31, 2000 and 1999.
Consolidated statements of cash flows -- Six months ended December 31,
2000 and 1999.
Notes to consolidated financial statements - December 31, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
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
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Independent Accountants' Review Report
Board of Directors
Respironics, Inc. and Subsidiaries
We have reviewed the accompanying condensed consolidated balance sheet of
Respironics, Inc. and Subsidiaries as of December 31, 2000, and the related
condensed consolidated statements of operations for the three-month and six-
month periods ended December 31, 2000 and 1999, and the condensed consolidated
statements of cash flows for the six-month periods ended December 31, 2000 and
1999. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States,
which will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Respironics,
Inc. and Subsidiaries as of June 30, 2000, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year then
ended not presented herein and in our report dated July 25, 2000, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of June 30, 2000, is fairly stated, in all material respects,
in relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
January 23, 2001
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
December 31 June 30
2000 2000
------------------------------------
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 24,068,314 $ 19,594,484
Trade accounts receivable, less allowance for
doubtful accounts of $17,076,000 and $17,975,000 100,091,851 96,733,695
Inventories 73,942,867 67,769,192
Prepaid expenses and other 8,214,777 6,568,646
Deferred income tax benefits 18,229,782 18,229,780
--------------- ---------------
TOTAL CURRENT ASSETS 224,547,591 208,895,797
PROPERTY, PLANT AND EQUIPMENT
Land 3,061,203 3,061,203
Building 12,224,667 12,292,111
Machinery and equipment 77,188,310 67,293,530
Furniture, office and computer equipment 53,432,432 49,142,950
Leasehold improvements 4,457,979 2,613,240
--------------- ---------------
150,364,591 134,403,034
Less allowances for depreciation
and amortization 78,210,754 67,618,053
--------------- ---------------
72,153,837 66,784,981
OTHER ASSETS 14,285,878 14,558,526
GOODWILL 61,713,710 62,762,589
--------------- ---------------
$ 372,701,016 $ 353,001,893
=============== ===============
See notes to consolidated financial statements.
December 31 June 30
2000 2000
------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 29,666,892 $ 27,302,609
Accrued expenses and other 24,243,891 25,091,742
Current portion of long-term obligations 1,256,449 1,406,556
--------------- ---------------
TOTAL CURRENT LIABILITIES 55,167,232 53,800,907
LONG-TERM OBLIGATIONS 107,404,925 108,095,093
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized
100,000,000 shares; issued and outstanding
33,811,620 shares at December 31, 2000 and
33,182,565 shares at June 30, 2000 338,116 331,826
Additional capital 116,367,999 110,795,650
Accumulated other comprehensive loss (3,821,869) (3,131,703)
Retained earnings 140,762,845 126,462,237
Treasury stock (43,518,232) (43,352,117)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 210,128,859 191,105,893
--------------- ---------------
$ 372,701,016 $ 353,001,893
=============== ===============
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 December 31 December 31
2000 1999 2000 1999
------------------------------------ -----------------------------------
Net sales $ 104,547,903 $ 91,702,567 $ 196,612,107 $ 172,301,894
Cost of goods sold 55,112,186 49,381,846 103,774,138 92,818,044
Cost of goods sold - restructuring charges 0 0 0 4,576,352
------------ --------------- ------------- ---------------
GROSS MARGIN 49,435,717 42,320,721 92,837,969 74,907,498
General and administrative expenses 12,960,050 11,794,695 23,829,713 21,951,087
Sales, marketing and commission expenses 17,595,740 15,662,311 34,419,133 30,343,707
Research and development expenses 3,726,994 4,001,304 7,098,143 8,327,076
Restructuring charges 0 3,325,615 0 13,428,041
Interest expense 2,013,838 1,714,588 4,162,962 3,140,203
Other income (210,830) (284,681) (506,328) (798,940)
------------ --------------- ------------- ---------------
36,085,792 36,213,832 69,003,623 76,391,174
------------ --------------- ------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES 13,349,925 6,106,889 23,834,346 (1,483,676)
Income taxes 5,339,970 2,442,756 9,533,739 (593,470)
------------ --------------- ------------- ---------------
NET INCOME (LOSS) $ 8,009,955 $ 3,664,133 $ 14,300,607 $ (890,206)
============ =============== ============= ===============
Basic earnings (loss) per share $ 0.27 $ 0.12 $ 0.48 $ (0.03)
============ =============== ============= ===============
Basic shares outstanding 29,813,027 29,552,425 29,645,035 29,906,970
Diluted earnings (loss) per share $ 0.26 $ 0.12 $ 0.47 $ (0.03)
============ =============== ============= ===============
Diluted shares outstanding 30,772,494 29,683,238 30,530,929 29,906,970
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
Six Months Ended December 31
2000 1999
-------------- -------------
OPERATING ACTIVITIES
Net income (loss) $ 14,300,607 $ (890,206)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 13,647,228 12,862,784
Asset write-offs 0 6,482,156
Changes in operating assets and liabilities:
Increase in accounts receivable (3,358,156) (1,108,276)
Increase in inventories (6,173,675) (6,158,621)
Change in other operating assets and liabilities (1,367,919) (4,516,732)
------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 17,048,085 6,671,105
INVESTING ACTIVITIES
Purchase of property, plant and equipment (16,358,924) (15,089,439)
Additional purchase price for acquired business (787,580) (1,085,407)
------------- -------------
NET CASH USED BY
INVESTING ACTIVITIES (17,146,504) (16,174,846)
FINANCING ACTIVITIES
Net (decrease) increase in borrowings (840,275) 10,448,166
Issuance of common stock 5,578,639 127,834
Acquisition of treasury stock, net (166,115) (9,675,451)
Decrease in minority interest 0 (766,035)
------------- -------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 4,572,249 134,514
------------- -------------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 4,473,830 (9,369,227)
Cash and short-term investments at beginning of period 19,594,484 23,651,401
------------- -------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 24,068,314 $ 14,282,174
============= =============
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
December 31, 2000
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 months and six months ended
December 31, 2000 are not necessarily indicative of the results that may be
expected for the year ended June 30, 2001. 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, 2000.
NOTE B -- INVENTORIES
The composition of inventory is as follows:
December 31 June 30
2000 2000
----------- -----------
Raw materials $23,838,000 $21,561,000
Work-in-process 5,900,000 5,825,000
Finished goods 44,205,000 40,383,000
----------- -----------
$73,943,000 $67,769,000
=========== ===========
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 judgment that
the claims under the patents are invalid or unenforceable and that the Company
does not infringe upon the
patents. The January 1995 and June 1996 actions have been consolidated, and
discovery is ongoing. The Court has granted the Company's various motions for
summary judgment and held that the Company does not infringe any of the
competitor's four patents at issue. The competitor may seek an appeal of those
decisions. In any event, the Company intends to continue to pursue its claims
that the competitor's patents are invalid or unenforceable.
The Company is, as a normal part of its business operations, a party to other
legal proceedings in addition to those previously described by filings of the
Company. Legal counsel has been retained for each proceeding and none of these
proceedings is expected to have a material adverse impact on the Company's
results of operations or financial condition.
NOTE D -- RESTRUCTURING CHARGES
In July 1999, the Company announced a major restructuring of its U.S.
operations. The major components of the restructuring included the closing of
the Westminster, Colorado manufacturing facility, the closing of 19 customer
satisfaction centers throughout the United States, the downsizing of the
Marietta, Georgia manufacturing facilities, the opening of a centralized
distribution and repair center in Youngwood, Pennsylvania, the realignment of
the Company into four divisions with a corresponding management realignment, and
a workforce reduction of approximately 10% associated with the facility changes
and the realignment. All major elements of the restructuring were completed
during fiscal year 2000.
RECONCILIATION OF RESTRUCTURING RESERVES
Employee Lease Buyouts
Severance Asset & Other Direct Total
Costs Write-Downs Expenses Restructuring
------------- ------------- --------------- --------------
Balance at July 1, 1999 $ - $ - $ - $ -
Restructuring charges (net) 6,300,000 8,900,000 14,000,000 29,200,000
Cash expenditures (3,100,000) - (12,900,000) (16,000,000)
Noncash expenditures - (1,700,000) - (1,700,000)
------------- ------------ -------------- --------------
Balance at June 30, 2000 3,200,000 7,200,000 1,100,000 11,500,000
------------- ------------ -------------- --------------
Restructuring charges (net) - - - -
Cash expenditures (400,000) - (400,000) (800,000)
Noncash expenditures - (700,000) - (700,000)
------------- ------------ -------------- --------------
Balance at September 30, 2000 2,800,000 6,500,000 700,000 10,000,000
------------- ------------ -------------- --------------
Restructuring charges (net) - - - -
Cash expenditures (400,000) - (400,000) (800,000)
Noncash expenditures - (900,000) - (900,000)
------------- ------------ -------------- --------------
Balance at December 31, 2000 $ 2,400,000 $ 5,600,000 $ 300,000 $ 8,300,000
============= ============ ============== ==============
During fiscal year 2000, the Company incurred a total of $29,200,000 in charges
related to this restructuring. The primary components of these charges were
severance and employment related costs ($6,300,000), asset write-downs to
reflect decisions made regarding product, facility, and systems rationalization
($8,900,000), and lease buyouts related to facility rationalizations and other
direct expenses of the restructuring ($14,000,000). Restructuring costs incurred
but not yet paid have been credited to accrued expense and asset write-downs
have been credited against the applicable asset accounts. Substantially all of
the remaining restructuring accruals as of December 31, 2000 will be paid out
during the next eighteen to twenty months.
NOTE E - COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss), net of tax, were as follows:
Three Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
2000 1999 2000 1999
------------- ------------- ------------- -------------
Net income (loss) $ 8,010,000 $ 3,664,000 $ 14,301,000 $ (890,000)
Foreign currency translation gains (losses) 286,000 (1,656,000) (690,000) (1,821,000)
------------- ------------- ------------- -------------
Comprehensive income (loss) $ 8,296,000 $ 2,008,000 $ 13,611,000 $ (2,711,000)
============= ============= ============= =============
NOTE F - SPECIAL ITEMS
As previously disclosed, in February 2000, the parent company of one of the
Company's major customers filed a voluntary petition to reorganize under Chapter
11 of the U.S. Bankruptcy Code. The Company's customer was one of the entities
included in the filing. According to press releases issued in connection with
the filing and discussions with the customer, the election to seek court
protection was made in order to facilitate the restructuring of the parent
company's capital and lease obligations and normal business operations of the
Company's customer are continuing. The Company's total balance due from the
customer at the date of the filing was approximately $4,500,000, and
accordingly, the Company has recorded a $4,500,000 special increase to the
allowance for doubtful accounts during fiscal year 2000. In November 2000, the
Company reached a settlement with the customer under which the customer will pay
a portion of the petition-date balance in monthly installments over six months.
The remaining petition-date balance will constitute a claim in the continuing
bankruptcy case.
NOTE G - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities." As
amended by FASB Statements No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133"
and No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," FASB No. 133 was required to be adopted as of the first quarter of
fiscal year 2001. The Company adopted FASB No. 133 on July 1, 2000. The
statement required, among other things, derivative instruments to be recorded at
market value, with changes in fair value reflected in earnings to the extent the
derivative instruments do not qualify as hedges in accordance with the
statement. Because of the Company's minimal use of derivative instruments, the
adoption of FASB No. 133 on July 1, 2000 had no financial impact on the Company,
and management believes that FASB No. 133 will not have a material impact on
earnings during fiscal year 2001.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES REFORM ACT OF 1995.
The statements contained in this Quarterly Report on Form 10-Q,
specifically those contained in Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations", along with statements in other
reports filed with the Securities and Exchange Commission, external documents
and oral presentations which are not historical are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21B of the Securities and Exchange Act of 1934, as amended. These
forward-looking statements represent the Company's present expectations or
beliefs concerning future events. The Company cautions that such statements are
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements. Results actually
achieved may differ materially from expected results included in these
statements. Those factors include, but are not limited to, the following:
foreign currency fluctuations, regulations and other factors affecting
operations and sales outside the United States including potential future
effects of the change in sovereignty of Hong Kong, customer consolidation and
concentration, increasing price competition and other competitive factors in the
sale of products, the success of programs, interest rate fluctuations,
intellectual property and related litigation, other litigation, FDA and other
government regulation, third party reimbursement, restructuring activities, and
anticipated cost savings.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Net sales for the quarter ended December 31, 2000 were $104,548,000
representing a 14% increase over the sales of $91,703,000 recorded for the
quarter ended December 31, 1999. Increases in unit and dollar sales for the
Company's sleep apnea therapy devices (the Company's largest product line) and
oxygen concentrator devices, as well as increases in the sales of masks, helped
to drive the increase in sales for the quarter. These product lines, along with
ventilation devices, comprise the major part of the Company's homecare product
offerings. Sales of the Company's hospital products also increased during the
current quarter, led by unit and dollar increases for the Company's Esprit(R)
ventilators.
Net sales for the six months ended December 31, 2000 were $196,612,000
representing a 14% increase over the sales of $172,302,000 recorded for the six
months ended December 31, 1999. Increases in the Company's sleep apnea therapy
devices, oxygen concentrators, and masks as discussed above accounted for the
majority of the increase in sales, along with increased sales of the Company's
hospital Esprit(R) and BiPAP(R) Vision(TM) ventilators.
Partially offsetting this increase in sales in the current six-month period
was a decrease in domestic sales of the Company's non-invasive ventilatory
support devices for use in the home compared to prior year levels. This sales
decrease was caused by the previously disclosed October 1, 1999 implementation
of revised government insurance coverage guidelines for the home use of these
products in the United States and the corresponding reduction in purchases of
these units by the Company's dealer customers. For the six months ended December
31, 2000, sales of non-invasive ventilatory support units for home use in the
United States accounted for approximately two percent of total sales.
The Company's gross profit was 47% of net sales for the quarter and six
months ended December 31, 2000 compared to 46% of net sales, excluding the
impact of restructuring charges, for the quarter and six months ended December
31, 1999. This gross profit percentage increase was due primarily to higher
revenue levels, sales mix and the positive impact of the Company's restructuring
activities in the manufacturing area.
General and administrative expenses were $12,960,000 (12% of net sales) for
the quarter ended December 31, 2000 as compared to $11,795,000 (13% of net
sales) for the quarter ended December 31, 1999. For the six-month period ended
December 31, 2000, general and administrative expenses were $23,830,000 (12% of
net sales) as compared to $21,951,000 (13% of net sales) for the prior year six-
month period. The increase in absolute dollars of general and administrative
expenses was due primarily to an increase in information technology department
expenses, credit and collection
department expenses, and other spending consistent with the growth of the
Company's business. Partially offsetting these increases in expenses were lower
operating expenses due to the Company's restructuring. General and
administrative expenses decreased as a percent of sales in the current year
periods.
Sales, marketing and commission expenses were $17,596,000 (17% of net
sales) for the quarter ended December 31, 2000 as compared to $15,662,000 (17%
of net sales) for the quarter ended December 31, 1999. For the six-month period
ended December 31, 2000, sales, marketing and commission expenses were
$34,419,000 (18% of net sales) as compared to $30,344,000 (18% of net sales) for
the prior year six-month period. The increases in absolute dollars of expense
for the current quarter and six-month periods were due primarily to increased
sales (resulting in higher commission and bonus expenses) and increased sales
and marketing activity levels in the Company's homecare and hospital product
lines during the current year, partially offset by lower operating expenses due
to the Company's restructuring.
Research and development expenses were $3,727,000 (4% of net sales) for
the quarter ended December 31, 2000 as compared to $4,001,000 (4% of net sales)
for the quarter ended December 31, 1999. For the six-month period ended December
31, 2000, research and development expenses were $7,098,000 (4% of net sales) as
compared to $8,327,000 (5% of net sales) for the prior year six-month period.
The decreases in absolute dollars of expense for the current quarter and six-
month periods were due primarily to the timing of certain research and
development projects and the impact of certain new products transitioning from
development into production. Significant product development efforts are ongoing
and a variety of new products were introduced during the current quarter,
including the new BiPAP(R) Synchrony(TM) Ventilatory Support System and the new
REMstar(R) Nova(TM) CPAP (Continuous Positive Airway Pressure) device. New
product launches in many of the Company's major product lines are scheduled for
the remainder of fiscal year 2001. Additional development work and clinical
trials are being conducted in certain product areas outside the Company's
current core products.
During the three months and six months ended December 31, 1999, the
Company incurred charges of $3,300,000 and $18,000,000, respectively, related to
a previously disclosed restructuring. The primary components of these costs were
severance and employment related costs, asset write-downs to reflect decisions
made regarding product, facility, and systems rationalization, and lease buyouts
related to facility rationalizations and other direct expenses of the
restructuring. Approximately $4,600,000 of these charges related to inventory
write-offs in connection with product rationalizations and have been reported as
a separate component of cost of goods sold. See Note D to the Consolidated
Financial Statements for additional information about the restructuring charges.
The Company's effective income tax rate was 40% for all periods
presented.
As a result of the factors described above, the Company's net income
was $8,010,000 (8% of net sales) or $0.26 per diluted share for the quarter
ended December 31, 2000 as compared to net income of $3,664,000 (4% of net
sales) or $0.12 per diluted share for the quarter ended December 31, 1999. For
the six-month period ended December 31, 2000, the Company's net income was
$14,301,000 (7% of net sales) or $0.47 per diluted share as compared to a net
loss of ($890,000) (1% of net sales) or ($0.03) per diluted share for the prior
year six-month period. Excluding the impact of the restructuring charges, the
Company's net income for the quarter and six months ended December 31, 1999 was
$5,660,000 (6% of net sales) or $0.19 per diluted share and $9,912,000 (6% of
net sales) or $0.33 per diluted share, respectively.
Earnings per share amounts for the quarters and six-month periods ended
December 31, 2000 and 1999 reflect the impact of shares repurchased under the
Company's stock buyback program which is described below.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $169,380,000 at December 31, 2000
and $155,095,000 at June 30, 2000. Net cash provided by operating activities was
$17,048,000 for the six months ended December 31, 2000 as compared to $6,671,000
for the six months ended December 31, 1999. The increase in cash provided by
operating activities for the current six-month period was primarily due to
higher earnings as compared to the prior year.
Net cash used by investing activities was $17,147,000 for the six
months ended December 31, 2000 as compared to $16,175,000 for the six months
ended December 31, 1999. Cash used by investing activities for both periods
include capital expenditures, including the purchase of leasehold improvements,
production equipment, computer hardware and software, and telecommunications and
office equipment. In addition, cash used by investing activities in the periods
described includes additional purchase price paid for a previously acquired
business pursuant to the terms of that acquisition agreement. The funding for
investment activities in both periods was provided by positive cash flow from
operating activities, and accumulated cash and short-term investments, and in
1999, borrowings under long-term obligations.
Net cash provided by financing activities includes borrowings and
repayments under the Company's various long-term obligations, proceeds from the
issuance of common stock under the Company's stock option plans, and the
acquisition of treasury stock. Net cash provided by financing activities was
$4,572,000 for the six months ended December 31, 2000 as compared to $135,000
for the six months ended December 31, 1999. Increased proceeds from the issuance
of common stock under the Company's stock option plans was the primary reason
for the increase in cash provided during the current six-month period. The
Company has been repurchasing shares
of its outstanding common stock since August 1998 pursuant to a series of Board
of Directors' actions that have authorized stock buybacks totaling 4,000,000
shares. During the six months ended December 31, 1999, the Company's buyback
activity resulted in net use of cash of $9,675,000. No shares were repurchased
under this buyback program during the six months ended December 31, 2000. The
Company has repurchased a total of 3,800,000 shares under this buyback program.
At December 31, 2000, approximately 3,757,000 shares remained in treasury.
Shares that are repurchased are added to treasury shares pending future use and
reduce the number of shares outstanding used in calculating earnings per share.
In July 1999, the Company announced a major restructuring of its U.S.
operations that included facility closings and downsizings, a divisional and
management realignment, and an approximate ten percent workforce reduction
associated with those changes. The restructuring activities have been completed
and restructuring charges totaling $29,200,000 were recorded during the fiscal
year ended June 30, 2000. See Note D to the Consolidated Financial Statements
for an analysis of these charges, including the reserve balances relating to
these charges that remain at December 31, 2000. The reserves shown for employee
severance, lease buyouts, and other direct expenses will require corresponding
cash expenditures in future periods. The Company does not expect to incur
additional charges in respect to this restructuring. As previously disclosed,
annualized savings associated with the restructuring are expected to be
approximately $10,000,000. These savings began to be realized primarily during
the third quarter of fiscal year 2000. These cost savings are expected to
positively impact cost of sales, general and administrative expenses, and sales
and marketing expenses, and will be offset to some extent by planned increases
in those expenses consistent with expected increases in sales in future periods
and the Company's continuing investment in the business.
The Company believes that projected positive cash flow from operating
activities, the availability of additional funds (totaling approximately
$20,000,000 at December 31, 2000) under its revolving credit facility, 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
2001 for operating activities (including payments against restructuring
accruals), investing activities, and financing activities (primarily consisting
of payments on long-term debt).
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company is exposed to market risk from changes in interest rates
and foreign exchange rates.
Interest Rates: The Company's primary interest rate risk relates to its
long-term debt obligations. At December 31, 2000, the Company had total long-
term debt obligations, including the current portion of those obligations, of
$108,661,000. Of that amount, $2,641,000 was in fixed rate obligations and
$106,020,000 was in variable rate obligations. Assuming a 10% increase in
interest rates on the Company's variable rate obligations (i.e. an increase from
the December 31, 2000 weighted average interest rate of 7.33% to a weighted
average interest rate of 8.06%), annual interest expense would be approximately
$777,000 higher based on the December 31, 2000 outstanding balance of variable
rate obligations. The Company has no interest rate swap or exchange agreements.
Foreign Exchange Rates: Information relating to the sensitivity to
foreign currency exchange rate changes is omitted because foreign exchange
exposure risk has not materially changed from that disclosed in the Company's
Annual Report on Form 10-K for the year ended June 30, 2000.
Inflation
Inflation has not had a significant effect on the Company's business
during the periods discussed.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." As amended by FASB Statements No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" and No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities," FASB No. 133 was required to be adopted as of
the first quarter of fiscal year 2001. The Company adopted FASB No. 133 on July
1, 2000. The statement required, among other things, derivative instruments to
be recorded at market value, with changes in fair value reflected in earnings to
the extent the derivative instruments do not qualify as hedges in accordance
with the statement. Because of the Company's minimal use of derivative
instruments, the adoption of FASB No. 133 on July 1, 2000 had no financial
impact on the Company, and management believes that FASB No. 133 will not have a
material impact on earnings during fiscal year 2001.
In December 1999, the Staff of the Securities and Exchange Commission
released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," to
provide guidance on the recognition, presentation, and disclosure of revenues in
financial statements. This statement will become effective during the fourth
fiscal quarter of fiscal year 2001.
In September 2000, the FASB issued Statement No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities."
FASB No. 140 revises the standards for accounting for securitizations and other
transfers of financial assets and collateral, and is effective for transfers and
servicing of financial assets and extinguishment of liabilities occurring after
March 31, 2001.
PART 2 OTHER INFORMATION
Item 1: Legal Proceedings
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The Company is, as a normal part of its business operations, a party to
other legal proceedings in addition to those previously described by filings of
the Company. Legal counsel has been retained for each proceeding and none of
these proceedings is expected to have a material adverse impact on the Company's
results of operations or financial condition.
Item 2: Changes 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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The Company's Annual Meeting of Shareholders was held on November 16, 2000. The
holders of 26,567,150 shares of the Company's stock (approximately 90% of the
outstanding shares) were present at the meeting in person or by proxy. The only
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 Shareholders in 2003,
(ii) the ratification of the selection of Ernst & Young, LLP as independent
public accountants to audit the financial statements of the Company for
the fiscal year ending June 30, 2001, and
(iii) the adoption of the Company's 2000 Incentive Stock Option Plan.
The results of voting were as follows:
(i) James H. Hardie, Joseph C. Lawyer, and Sean McDonald, the nominees of the
Company's Board of Directors, were elected to serve until the Annual
Meeting of Shareholders in 2003. There were no other nominees.
Shares were voted as follows:
Name For Withhold Vote For
------------------ ---------- -----------------
James H. Hardie 25,973,940 593,210
Joseph C. Lawyer 25,983,350 583,800
Sean McDonald 25,961,867 605,283
(ii) the selection of Ernst & Young, LLP as independent public accountants for
the 2001 fiscal year was ratified: affirmative votes, 26,464,084; negative
votes, 51,774.
(iii) the adoption of the Company's 2000 Incentive Stock Option Plan;
affirmative votes, 24,489,655; negative votes, 1,958,208.
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 10.46 Separation Agreement between the Company and Robert D.
Crouch dated October 12, 2000, filed as Exhibit 10.46 to this Form 10-Q
for the quarter ended December 31, 2000.
Exhibit 15 Acknowledgement of Ernst & Young, LLP.
(b) Reports on Form 8-K
Not applicable
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.
February 14, 2001 /s/ Daniel J. Bevevino
Date: ________________________ __________________________
Daniel J. Bevevino
Vice President, and Chief
Financial and Principal
Accounting Officer
Signing on behalf of the
registrant and as Chief
Financial and Principal
Accounting Officer