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, 2001
--------------
or
[_] 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)
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 April 30, 2001, there were 33,938,160 shares of Common Stock of the
registrant outstanding, of which 3,639,330 were held in treasury.
INDEX
RESPIRONICS, INC.
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements (Unaudited).
Independent Accountants' Review Report
Consolidated balance sheets -- March 31, 2001 and June 30, 2000.
Consolidated statements of operations -- Three months and nine months
ended March 31, 2001 and 2000.
Consolidated statements of cash flows -- Nine months ended March 31,
2001 and 2000.
Notes to consolidated financial statements - March 31, 2001.
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 March 31, 2001, and the related
condensed consolidated statements of operations for the three-month and nine-
month periods ended March 31, 2001 and 2000, and the condensed consolidated
statements of cash flows for the nine-month periods ended March 31, 2001 and
2000. 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
April 24, 2001
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
March 31 June 30
2001 2000
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ASSETS
CURRENT ASSETS
Cash and short-term investments $ 14,414,806 $ 19,594,484
Trade accounts receivable, less allowance for
doubtful accounts of $18,013,000 and $17,975,000 102,253,213 96,733,695
Inventories 76,218,660 67,769,192
Prepaid expenses and other 11,770,648 6,568,646
Deferred income tax benefits 18,530,162 18,229,780
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TOTAL CURRENT ASSETS 223,187,489 208,895,797
PROPERTY, PLANT AND EQUIPMENT
Land 2,506,052 3,061,203
Building 8,490,672 12,292,111
Machinery and equipment 81,073,791 67,293,530
Furniture, office and computer equipment 54,903,899 49,142,950
Leasehold improvements 4,972,300 2,613,240
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151,946,714 134,403,034
Less allowances for depreciation
and amortization 82,729,158 67,618,053
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69,217,556 66,784,981
OTHER ASSETS 14,360,439 14,558,526
GOODWILL 60,781,489 62,762,589
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$ 367,546,973 $ 353,001,893
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 28,021,568 $ 27,302,609
Accrued expenses and other 24,476,186 25,091,742
Current portion of long-term obligations 1,045,721 1,406,556
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TOTAL CURRENT LIABILITIES 53,543,475 53,800,907
LONG-TERM OBLIGATIONS 93,238,204 108,095,093
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized
100,000,000 shares; issued and outstanding
33,925,480 shares at March 31, 2001 and
33,182,565 shares at June 30, 2000 339,255 331,826
Additional capital 117,361,718 110,795,650
Accumulated other comprehensive loss (4,421,175) (3,131,703)
Retained earnings 150,076,057 126,462,237
Treasury stock (42,590,561) (43,352,117)
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TOTAL SHAREHOLDERS' EQUITY 220,765,294 191,105,893
-------------- --------------
$ 367,546,973 $ 353,001,893
============== ==============
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
Three months ended Nine months ended
March 31 March 31 March 31 March 31
2001 2000 2001 2000
------------------------------- ------------------------------
Net sales $ 110,207,939 $ 97,837,028 $ 306,820,046 $ 270,138,922
Cost of goods sold 58,695,623 51,484,648 162,469,761 144,302,692
Cost of goods sold - restructuring charges 724,990 513,986 724,990 5,090,338
-------------- ------------- ------------- --------------
GROSS MARGIN 50,787,326 45,838,394 143,625,295 120,745,892
General and administrative expenses 12,021,926 12,038,211 35,851,639 33,989,298
General and administrative expenses - special items 1,200,000 4,500,000 1,200,000 4,500,000
Sales, marketing and commission expenses 18,639,614 15,983,880 53,058,747 46,327,587
Research and development expenses 3,744,747 4,436,693 10,842,890 12,763,769
Restructuring (credit) charges (1,908,581) 3,718,115 (1,908,581) 17,146,156
Interest expense 1,839,631 1,845,572 6,002,593 4,985,775
Other income (272,030) (261,723) (778,358) (1,060,663)
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35,265,307 42,260,748 104,268,930 118,651,922
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INCOME BEFORE INCOME TAXES 15,522,019 3,577,646 39,356,365 2,093,970
Income taxes (benefit) 6,208,807 (211,895) 15,742,546 (805,365)
-------------- ------------- ------------- --------------
NET INCOME $ 9,313,212 $ 3,789,541 $ 23,613,819 $ 2,899,335
============== ============= ============= ==============
Basic earnings per share $ 0.31 $ 0.13 $ 0.79 $ 0.10
============== ============= ============= ==============
Basic shares outstanding 30,228,829 29,400,975 29,839,633 29,738,305
Diluted earnings per share $ 0.30 $ 0.13 $ 0.77 $ 0.10
============== ============= ============= ==============
Diluted shares outstanding 31,169,860 29,827,850 30,743,906 29,976,198
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
Nine Months Ended March 31
2001 2000
---------------------------------------------
OPERATING ACTIVITIES
Net income $ 23,613,819 $ 2,899,335
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 20,474,441 19,475,470
Asset sales and write-offs (877,000) 7,677,816
Changes in operating assets and liabilities:
Increase in accounts receivable (5,519,518) (4,583,116)
Increase in inventories (8,449,468) (11,094,210)
Change in other operating assets and liabilities: (3,101,327) (8,776,653)
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 26,140,947 5,598,642
INVESTING ACTIVITIES
Purchase of property, plant and equipment (22,650,374) (20,307,991)
Additional purchase price for acquired business (787,580) (1,085,407)
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NET CASH USED BY
INVESTING ACTIVITIES (23,437,954) (21,393,398)
FINANCING ACTIVITIES
Net (decrease) increase in borrowings (15,217,724) 9,441,314
Issuance of common stock 6,573,497 722,219
Use (acquisition) of treasury stock, net 761,556 (9,210,351)
Decrease in minority interest 0 (766,035)
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NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES (7,882,671) 187,147
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DECREASE IN CASH AND
SHORT-TERM INVESTMENTS (5,179,678) (15,607,609)
Cash and short-term investments at beginning of period 19,594,484 23,651,401
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CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 14,414,806 $ 8,043,792
============= ============
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
March 31, 2001
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 nine months ended
March 31, 2001 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:
March 31 June 30
2001 2000
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Raw materials $23,623,000 $21,561,000
Work-in-process 6,244,000 5,825,000
Finished goods 46,352,000 40,383,000
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$76,219,000 $67,769,000
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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 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. Except as discussed below, 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
----------- ----------- ------------ ------------
Restructuring charges (net) (200,000) 1,000,000 -- 800,000
Cash expenditures (400,000) -- -- (400,000)
Noncash expenditures -- (800,000) -- (800,000)
----------- ----------- ------------ ------------
Balance at March 31, 2001(1) $ 1,800,000 $ 5,800,000 $ 300,000 $ 7,900,000
=========== =========== ============ ============
(1) The Company also recorded a gain of approximately $2,000,000 on the sale of
a facility related to the restructuring.
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).
During the three months ended March 31, 2001, the Westminster, Colorado facility
was sold. A gain of approximately $2,000,000 was recorded on the sale. Also
during the three months ended March 31, 2001, final restructuring expenses of
$800,000 were incurred, primarily for inventory write-offs of discontinued
products. 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 March 31, 2001 will be paid out during the next fifteen to
eighteen months.
NOTE E - COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss), net of tax, were as follows:
Three Months Ended Nine Months Ended
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
--------------- --------------- -------------- --------------
Net income $9,313,000 $3,789,000 $23,614,000 $ 2,899,000
Foreign currency translation gains (losses) (599,000) 551,000 (1,289,000) (1,270,000)
---------- ---------- ----------- -----------
Comprehensive income $8,714,000 $4,340,000 $22,325,000 $ 1,629,000
========== ========== =========== ===========
NOTE F - SPECIAL ITEMS
In March 2001, one of the Company's significant hospital distribution customers
ceased operations. The Company recorded a special increase to the allowance for
doubtful accounts of $1,200,000 to address the potential uncollectability of the
balance due from this customer.
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 - INCOME TAXES
During February 2000, the Company reached an agreement with the Internal Revenue
Service regarding examinations of federal income tax returns for certain of the
Company's U.S. entities for fiscal years 1996 through 1998. Based on this
agreement, the Company
recorded a one-time reduction in income tax liability and income tax expense of
$1,643,000 during the quarter ended March 31, 2000.
NOTE H - 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 did not have a material 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 March 31, 2001 were $110,208,000
representing a 13% increase over the sales of $97,837,000 recorded for the
quarter ended March 31, 2000. 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 and
accessories, 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 domestic 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 nine months ended March 31, 2001 were $306,820,000
representing a 14% increase over the sales of $270,139,000 recorded for the nine
months ended March 31, 2000. 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
Esprit(R) hospital ventilator.
Partially offsetting this increase in sales in the current nine-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 nine months
ended March 31, 2001, 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 nine-
month periods ended March 31, 2001 and 2000, excluding the impact of
restructuring charges. This gross profit percentage reflects the impact of
higher revenue levels and the positive impact of the Company's restructuring
activities in the manufacturing area, offset by sales mix.
General and administrative expenses were $12,022,000 (11% of net sales) for
the quarter ended March 31, 2001 as compared to $12,038,000 (12% of net sales)
for the quarter ended March 31, 2000. For the nine-month period ended March 31,
2001, general and administrative expenses were $35,852,000 (12% of net sales) as
compared to $33,989,000 (13% of net sales) for the prior year nine-month period.
The increase in absolute dollars of general and administrative expenses for the
nine-month periods was due primarily to increases in information technology
department expenses, credit and collection department expenses, and other
spending consistent with the growth of the Company's business. Partially
offsetting any increases in expenses were lower operating expenses due to the
Company's restructuring. General and administrative expenses decreased as a
percent of sales in both the quarter and year-to-date comparisons.
In March 2001, one of the Company's significant hospital distribution
customers ceased operations. During the three months ended March 31, 2001, the
Company recorded a special increase to the allowance for doubtful accounts of
$1,200,000 to address the potential uncollectability of the balance due from
this customer. During the three months ended March 31, 2000, a special increase
to the allowance for doubtful accounts was recorded related to a previously
disclosed filing by one of the Company's major customers under Chapter 11 of the
U.S. Bankruptcy Code. The Company's total balance due from the customer at the
date of the filing was approximately $4,500,000 and accordingly, the Company
recorded a $4,500,000 special increase to the allowance for doubtful accounts
during the three months ended March 31, 2000.
Sales, marketing and commission expenses were $18,640,000 (17% of net
sales) for the quarter ended March 31, 2001 as compared to $15,984,000 (16% of
net sales) for the quarter ended March 31, 2000. For the nine-month period ended
March 31, 2001, sales, marketing and commission expenses were $53,059,000 (17%
of net sales) as compared to $46,328,000 (17% of net sales) for the prior year
nine-month period. The increases in absolute dollars of expense for the current
quarter and nine-month periods were due primarily to increased sales (resulting
in higher commission and bonus expenses) and increased sales, marketing, and
product support and service 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 $3,745,000 (3% of net sales) for the
quarter ended March 31, 2001 as compared to $4,437,000 (5% of net sales) for the
quarter ended March 31, 2000. For the nine-month period ended March 31, 2001,
research and development expenses were $10,843,000 (4% of net sales) as compared
to $12,764,000 (5% of net sales) for the prior year nine-month period. The
decreases in absolute dollars of expense for the current quarter and nine-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. During the current quarter, the Company introduced the new
REMstar(R) Plus CPAP (Continuous Positive Airway Pressure) device. Significant
product development efforts are ongoing and 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 ended March 31, 2001, the Company incurred
additional restructuring charges of $800,000, related to a
previously disclosed restructuring. These additional restructuring costs were
primarily for asset write-downs to reflect decisions made regarding product,
facility, and systems rationalization and other direct expenses of the
restructuring. Approximately $700,000 of these charges related to inventory
write-offs of discontinued products and have been reported as a separate
component of cost of goods sold. Also during the three months ended March 31,
2001, the Westminster, Colorado facility was sold and a gain of approximately
$2,000,000 was recorded on the sale.
During the three months and nine months ended March 31, 2000, the Company
incurred charges of $4,200,000 and $22,200,000, respectively, related to this
same restructuring action. 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 $5,100,000 of these charges related to inventory
write-offs in connection with product rationalizations and have also 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.
During the three months ended March 31, 2000, the Company reached an
agreement with the Internal Revenue Service regarding examinations of federal
income tax returns for certain of the Company's U.S. entities for fiscal years
1996 through 1998. Based on this agreement, the Company recorded a one-time
reduction in income tax liability and income tax expense of $1,643,000 during
the quarter ended March 31, 2000. Excluding this adjustment for the three
months and nine months ended March 31, 2000, 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
$9,313,000 (8% of net sales) or $0.30 per diluted share for the quarter ended
March 31, 2001 as compared to net income of $3,789,000 (4% of net sales) or
$0.13 per diluted share for the quarter ended March 31, 2000. For the nine-
month period ended March 31, 2001, the Company's net income was $23,614,000 (8%
of net sales) or $0.77 per diluted share as compared to net income of $2,899,000
(1% of net sales) or $0.10 per diluted share for the prior year nine-month
period. Excluding the impact of the restructuring credits and charges and the
special increase to the allowance for doubtful accounts described above, the
Company's net income for the quarter and nine months ended March 31, 2001 was
$9,323,000 (8% of net sales) or $0.30 per diluted share and $23,624,000 (8% of
net sales) or $0.77 per diluted share, respectively. Excluding the impact of
the restructuring charges, the special increase to the allowance for doubtful
accounts, and the one-time income tax liability adjustment described above, the
Company's net income for the three months and nine months ended March 31, 2000
was $7,386,000 (8% of net sales) or $0.25 per
diluted share and $17,298,000 (6% of net sales) or $0.58 per diluted share,
respectively.
Earnings per share amounts for the quarters and nine-month periods ended
March 31, 2001 and 2000 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 $169,644,000 at March 31, 2001 and
$155,095,000 at June 30, 2000. Net cash provided by operating activities was
$26,141,000 for the nine months ended March 31, 2001 as compared to $5,599,000
for the nine months ended March 31, 2000. The increase in cash provided by
operating activities for the current nine-month period was primarily due to
higher earnings as compared to the prior year.
Net cash used by investing activities was $23,438,000 for the nine months
ended March 31, 2001 as compared to $21,393,000 for the nine months ended March
31, 2000. 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
fiscal year 2000, 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 used by financing activities was
$7,883,000 for the nine months ended March 31, 2001 as compared to net cash
provided by financing activities of $187,000 for the nine months ended March 31,
2000. The increase in cash used by financing activities was due primarily to a
repayment of $10,000,000 of borrowings under the Company's revolving credit
facility and the repayment of the remaining $4,120,000 balance of the Industrial
Development Revenue Bond which had been secured by a mortgage on the Company's
Westminster, Colorado facility.
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. No shares were repurchased
under this buyback program during the nine months ended March 31, 2001. During
the nine months ended March 31, 2000, the Company's buyback activity resulted in
net use of cash of $9,210,000. The Company has
repurchased a total of 3,800,000 shares under this buyback program. At March 31,
2001, approximately 3,639,000 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. In the three months ended March 31, 2001, final
restructuring charges of $800,000 were incurred, primarily for inventory write-
offs related to discontinued products. Also during the quarter ended March 31,
2001, the Westminster, Colorado facility was sold and a gain of approximately
$2,000,000 was recorded on the sale. 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 March 31, 2001. 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
$32,000,000 at March 31, 2001) 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 next twelve months 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 March 31, 2001, the Company had total long-term
debt obligations, including the current
portion of those obligations, of $94,284,000. Of that amount, $2,384,000 was in
fixed rate obligations and $91,900,000 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 March 31, 2001 weighted average interest
rate of 6.28% to a weighted average interest rate of 6.91%), annual interest
expense would be approximately $577,000 higher based on the March 31, 2001
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 did not have a
material 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 became effective during the fourth fiscal
quarter of fiscal year 2001, beginning on April 1, 2001. The Company does not
believe that SAB No. 101 will have a material effect on the financial statements
during 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. The Company does not believe that FASB No. 140 will have a
material effect on the financial statements during fiscal year 2001.
PART 2 OTHER INFORMATION
Item 1: Legal Proceedings
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Private citizens may make claims against companies for violations of
healthcare laws in actions known as qui tam suits. The Company was a defendant
is a qui tam proceeding, previously disclosed in the Company's Form 10-K for
fiscal year ended June 30, 2000, that was dismissed in April 2001.
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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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 10.47 2000 Stock Incentive Plan, filed as Exhibit A to 2000 Proxy
Statement incorporated by reference into Annual Report on Form 10-K for the
fiscal year ended June 30, 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.
Date: May 15, 2001 /s/ Daniel J. Bevevino
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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