SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report pursuant to section 13 or 15(d) of the Securities
---
Exchange Act of 1934 for the quarterly period ended December 31, 2001
-----------------
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, 2002, there were 34,180,788 shares of Common Stock of the
registrant outstanding, of which 3,593,139 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, 2001 and June 30, 2001.
Consolidated statements of operations -- Three months and six months
ended December 31, 2001 and 2000.
Consolidated statements of cash flows -- Six months ended December 31,
2001 and 2000.
Notes to consolidated financial statements - December 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 December 31, 2001, and the related
condensed consolidated statements of operations for the three-month and six-
month periods ended December 31, 2001 and 2000, and the condensed consolidated
statements of cash flows for the six-month periods ended December 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, 2001, 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 24, 2001, 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, 2001, 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 22, 2002
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
December 31 June 30
2001 2001
---------------------------------------
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 43,547,224 $ 27,320,910
Trade accounts receivable, less allowance for
doubtful accounts of $17,280,000 and $16,457,000 103,097,025 98,078,344
Inventories 68,308,233 73,417,896
Prepaid expenses and other 12,475,124 10,937,110
Deferred income tax benefits 14,855,307 14,855,307
------------- -------------
TOTAL CURRENT ASSETS 242,282,913 224,609,567
PROPERTY, PLANT AND EQUIPMENT
Land 2,506,052 2,506,052
Building 8,569,297 8,509,596
Machinery and equipment 92,542,439 84,559,172
Furniture, office and computer equipment 60,388,517 56,011,341
Leasehold improvements 5,511,093 5,286,891
------------- -------------
169,517,398 156,873,052
Less allowances for depreciation
and amortization 100,152,874 87,725,808
------------- -------------
69,364,524 69,147,244
OTHER ASSETS 13,522,671 14,334,938
GOODWILL 58,626,805 59,856,714
------------- -------------
$ 383,796,913 $ 367,948,463
============= =============
See notes to consolidated financial statements.
December 31 June 30
2001 2001
------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 28,098,440 $ 28,964,129
Accrued expenses and other 19,810,901 19,662,491
Current portion of long-term obligations 797,087 3,998,317
------------- -------------
TOTAL CURRENT LIABILITIES 48,706,428 52,624,937
LONG-TERM OBLIGATIONS 79,648,070 80,055,378
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized
100,000,000 shares; issued and outstanding
34,152,935 shares at December 31, 2001 and
34,013,785 shares at June 30, 2001 341,529 340,138
Additional capital 123,514,502 121,720,289
Accumulated other comprehensive loss (3,961,160) (4,237,433)
Retained earnings 178,092,894 160,033,521
Treasury stock (42,545,350) (42,588,367)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 255,442,415 235,268,148
------------- -------------
$ 383,796,913 $ 367,948,463
============= =============
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
2001 2000 2001 2000
-------------------------------- ----------------------------------
Net sales $ 117,383,688 $ 104,547,903 $ 224,792,310 $ 196,612,107
Cost of goods sold 62,685,019 55,112,186 119,193,548 103,774,138
------------- ------------- ------------- -------------
GROSS MARGIN 54,698,669 49,435,717 105,598,762 92,837,969
General and administrative expenses 14,145,347 12,960,050 27,054,360 23,829,713
Sales, marketing and commission expenses 19,557,427 17,595,740 39,056,228 34,419,133
Research and development expenses 3,988,102 3,726,994 8,301,704 7,098,143
Interest expense 792,412 2,013,838 1,867,000 4,162,962
Other income (286,453) (210,830) (609,885) (506,328)
------------- ------------- ------------- -------------
38,196,835 36,085,792 75,669,407 69,003,623
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 16,501,834 13,349,925 29,929,355 23,834,346
Income taxes 6,544,627 5,339,970 11,869,982 9,533,739
------------- ------------- ------------- -------------
NET INCOME $ 9,957,207 $ 8,009,955 $ 18,059,373 $ 14,300,607
============= ============= ============= =============
Basic earnings per share $ 0.33 $ 0.27 $ 0.59 $ 0.48
============= ============= ============= =============
Basic shares outstanding 30,493,789 29,813,027 30,451,000 29,645,035
Diluted earnings per share $ 0.32 $ 0.26 $ 0.58 $ 0.47
============= ============= ============= =============
Diluted shares outstanding 31,444,073 30,772,494 31,402,589 30,530,929
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
Six Months Ended December 31
2001 2000
-----------------------------------
OPERATING ACTIVITIES
Net income $ 18,059,373 $ 14,300,607
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 16,371,125 14,254,392
Changes in operating assets and liabilities:
Increase in accounts receivable (5,018,681) (3,358,156)
Decrease (increase) in inventories 5,109,663 (6,173,675)
Change in other operating assets and liabilities (2,845,205) (1,975,083)
------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 31,676,275 17,048,085
INVESTING ACTIVITIES
Purchase of property, plant and equipment (13,073,533) (16,358,924)
Additional purchase price for acquired business (606,511) (787,580)
------------ ------------
NET CASH USED BY
INVESTING ACTIVITIES (13,680,044) (17,146,504)
FINANCING ACTIVITIES
Net decrease in borrowings (3,608,538) (840,275)
Issuance of common stock 1,795,604 5,578,639
Use (acquisition) of treasury stock, net 43,017 (166,115)
------------ ------------
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES (1,769,917) 4,572,249
------------ ------------
INCREASE IN CASH AND
SHORT-TERM INVESTMENTS 16,226,314 4,473,830
Cash and short-term investments at beginning of period 27,320,910 19,594,484
------------ ------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 43,547,224 $ 24,068,314
============ ============
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
December 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 six months ended
December 31, 2001 are not necessarily indicative of the results that may be
expected for the year ended June 30, 2002. 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, 2001.
NOTE B -- INVENTORIES
The composition of inventory is as follows:
December 31 June 30
2001 2001
----------- -----------
Raw materials $16,231,000 $20,738,000
Work-in-process 4,233,000 5,961,000
Finished goods 47,844,000 46,719,000
----------- -----------
$68,308,000 $73,418,000
=========== ===========
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. 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
that included facility closings and downsizings, a divisional and management
realignment, and an approximate ten percent workforce reduction associated with
those changes. The workforce reduction involved approximately 200 employees in
areas of executive management, manufacturing, engineering, sales and marketing,
administration, and service. The following table summarizes these restructuring
charges and corresponding expenditures.
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) (200,000) 1,000,000 - 800,000
Cash expenditures (1,500,000) - (900,000) (2,400,000)
Noncash expenditures - (2,500,000) - (2,500,000)
------------ ------------ ------------ ------------
Balance at June 30, 2001 1,500,000 5,700,000 200,000 7,400,000
------------ ------------ ------------ ------------
Restructuring charges (net) - - - -
Cash expenditures (400,000) - - (400,000)
Noncash expenditures - (400,000) - (400,000)
------------ ------------ ------------ ------------
Balance at September 30, 2001 1,100,000 5,300,000 200,000 6,600,000
------------ ------------ ------------ ------------
Restructuring charges (net) - - - -
Cash expenditures (400,000) - - (400,000)
Noncash expenditures - - - -
------------ ------------ ------------ ------------
Balance at December 31, 2001 $ 700,000 $ 5,300,000 $ 200,000 $ 6,200,000
============ ============ ============ ============
The non-cash expenditures presented as reductions of the asset write-down
restructuring charge represent disposals of fully written-down assets, including
rationalized inventories and impairments to long-lived assets held for disposal
consisting of machinery, equipment and computer software.
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, 2001 are expected to be paid out during fiscal year 2002.
NOTE E - COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, were as follows:
Three Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
2001 2000 2001 2000
----------------- ---------------- ---------------- ----------------
Net income $ 9,957,000 $ 8,010,000 $ 18,059,000 $ 14,301,000
Foreign currency translation (losses) gains (459,000) 286,000 276,000 (690,000)
---------------- --------------- --------------- ----------------
Comprehensive income $ 9,498,000 $ 8,296,000 $ 18,335,000 $ 13,611,000
================ =============== =============== ================
NOTE F - ACQUISITION
On December 18, 2001, the Company announced that it had entered into a
definitive merger agreement with Novametrix Medical Systems Inc. ("Novametrix")
pursuant to which the Company will acquire Novametrix. Under the terms of the
agreement, the Company will issue a number of shares of its common stock
determined by an exchange ratio that is based upon the weighted average selling
prices of the Company's stock during a 20 day trading period prior to the
closing, subject to a collar.
The exchange ratio determines the number of shares of the Company's stock that
will be provided for each share of Novametrix common stock. If the Company's
weighted average selling price is from $30.00 to $31.99 per share over the
relevant trading period, the exchange ratio will be equal to $8.00 divided by
the weighted average selling price. If the Company's weighted average selling
price is from $32.00 to $35.00 over the relevant trading period, the exchange
ratio will be equal to 0.25. If the Company's weighted average selling price
exceeds $35.00, the exchange ratio will be equal to $8.75 divided by the
weighted average selling price. If the Company's weighted average selling price
is below $30.00 during the relevant trading period, the exchange ratio will be
equal to 0.2667. However, if the Company's weighted average selling price is
below $30.00 during the relevant trading period, Novametrix has the right to
terminate the merger agreement. For additional information about the exchange
ratio and the collar, see the Company's Registration Statement on Form S-4 filed
with the Securities and Exchange Commission.
Based on the Company's share price immediately prior to the announcement of the
acquisition, the transaction would be valued at approximately $90 million,
including the assumption of approximately $6 million in debt. The transaction is
subject to approval by the stockholders of Novametrix and to customary closing
conditions. Novametrix, which is publicly held and headquartered in Wallingford,
Connecticut, is a leading cardiorespiratory monitoring company that develops,
manufactures and markets proprietary state-of-the-art noninvasive monitors,
sensors and disposable accessories. Novametrix's sales for its fiscal year ended
April 29, 2001 were $54.7 million. The transaction is expected to close late in
the third quarter or early in the fourth quarter of the Company's 2002
fiscal year.
NOTE G - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," ("FAS 141") and
No. 142, "Goodwill and Other Intangible Assets," ("FAS 142") effective for
fiscal years beginning after December 15, 2001. Under the new rules, goodwill
and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives. The Company will apply the provisions of FAS 141 to account for
any business combination that is consummated after July 1, 2001, including the
pending acquisition of Novametrix described in Note F.
The Company will apply the new rules under FAS 142 on accounting for goodwill
and other intangible assets beginning in the first quarter of fiscal year 2003.
Application of the nonamortization provisions of the Statement is expected to
result in an increase in annual net income, the impact of which is not yet fully
determined. During fiscal year 2003, the Company will perform the first of the
required impairment tests of goodwill and indefinite lived intangible assets as
of July 1, 2002.
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
sections of this document and 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, successful
integration of acquisitions, FDA and other government regulation, and third
party reimbursement.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Net sales for the three months ended December 31, 2001 were $117,384,000
representing a 12% increase over the sales of $104,548,000 recorded for the
three months ended December 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. Sales of the
Company's non-invasive ventilation devices (units used to assist patients
suffering from breathing disorders via airflow delivered through a mask) also
increased during the quarter, particularly sales of the Company's BiPAP(R)
Synchrony(TM) Ventilatory Support System, which was introduced during fiscal
year 2001. These product lines comprise the major part of the Company's homecare
product offerings. Sales of the Company's hospital products also increased
during the current quarter, particularly sales of the Company's BiPAP(R)
Vision(TM) ventilator.
Net sales for the six months ended December 31, 2001 were $224,792,000
representing a 14% increase over the sales of $196,612,000 recorded for the six
months ended December 31, 2000. Increases in the Company's sleep apnea therapy
devices, oxygen concentrators, and masks and accessories as discussed above
accounted for the majority of the increase in sales, along with increased sales
of the Company's BiPAP(R) Synchrony(TM) non-invasive ventilation device and the
Company's hospital BiPAP(R) Vision(TM) ventilator.
The Company's gross profit was 47% of net sales for the quarters and six
months ended December 31, 2001 and 2000. This static gross profit percentage
reflects the impact of higher revenue levels, offset by sales mix and selling
price decreases consistent with those decreases seen in prior years.
General and administrative expenses were $14,145,000 (12% of net sales) for
the quarter ended December 31, 2001 as compared to $12,960,000 (12% of net
sales) for the quarter ended December 31, 2000. For the six-month period ended
December 31, 2001, general and administrative expenses were $27,054,000 (12% of
net sales) as compared to $23,830,000 (12% of net sales) for the prior year six-
month period. The increases in absolute dollars of general and administrative
expenses for the current quarter and six-month periods were due primarily to
increases in spending consistent with the growth of the Company's business.
Sales, marketing and commission expenses were $19,557,000 (17% of net
sales) for the quarter ended December 31, 2001 as compared to $17,596,000 (17%
of net sales) for the quarter ended December 31, 2000. For the six-month period
ended December 31, 2001, sales, marketing and commission expenses were
$39,056,000 (17% of net sales) as compared to $34,419,000 (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,
marketing, product support, and service activity levels across the Company's
product lines during the current year.
Research and development expenses were $3,988,000 (3% of net sales) for the
quarter ended December 31, 2001 as compared to $3,727,000 (4% of net sales) for
the quarter ended December 31, 2000. For the six-month period ended December
31, 2001, research and development expenses were $8,302,000 (4% of net sales) as
compared to $7,098,000 (4% 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 the timing of research and development
projects. During the current quarter the Company introduced several new
products including a bi-level obstructive sleep apnea therapy unit called the
BiPAP(R) Pro and the ComfortClassic(TM) Nasal Mask. 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
2002. Additional development work and clinical trials are being conducted in
certain product areas outside the Company's current core products, including
congestive heart failure.
The Company's effective income tax rate was approximately 40% for all
periods presented.
As a result of the factors described above, the Company's net income was
$9,957,000 (8% of net sales) or $0.32 per diluted share for the quarter ended
December 31, 2001 as compared to net income of $8,010,000 (8% of net sales) or
$0.26 per diluted share for the quarter ended December 31, 2000. For the six-
month period ended December 31, 2001, the Company's net income was $18,059,000
(8% of net sales) or $0.58 per diluted share as compared to net income of
$14,301,000 (7% of net sales) or $0.47 per diluted share for the prior year six-
month period.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $193,576,000 at December 31, 2001 and
$171,985,000 at June 30, 2001. Net cash provided by operating activities was
$31,676,000 for the six months ended December 31, 2001 as compared to
$17,048,000 for the six months ended December 31, 2000. The increase in cash
provided by operating activities for the current six-month period was primarily
due to higher earnings and reductions in inventory in the current period as
compared to an inventory increase in the prior year.
Net cash used by investing activities was $13,680,000 for the six months
ended December 31, 2001 as compared to $17,147,000 for the six months ended
December 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.
Net cash used or provided by financing activities consists primarily of
repayments under the Company's various long-term obligations and proceeds from
the issuance of common stock under the Company's stock option plans. Net cash
used by financing activities was $1,770,000 for the six months ended December
31, 2001 as compared to net cash provided by financing activities of $4,572,000
for the six months ended December 31, 2000. The reduction in cash flow from
financing activities was due primarily to a repayment of $3,000,000 on the
Company's revolving credit facility during the current year and a reduction in
proceeds from the issuance of stock under the Company's stock option plans
compared to prior year amounts.
The Company has contractual financial obligations and commercial financial
commitments consisting primarily of long-term debt, capital lease obligations,
and non-cancelable operating leases. The composition, nature, and amount of
these obligations and commitments have not changed materially since June 30,
2001. See the Notes to the Company's Consolidated Financial Statements in its
Annual Report on Form 10-K for the year ended June 30, 2001 for information
about these obligations and commitments.
In connection with customer leasing programs with independent leasing
companies, the Company is contingently liable, in the event of a customer
default, to the leasing companies for certain unpaid installment receivables
transferred to the leasing companies. The total exposure for unpaid installment
receivables was approximately $19,005,000 at December 31, 2001 as compared to
$22,670,000 at June 30, 2001. The transfer of these installment receivables
meets the criteria of Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," (and Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," which was effective for such transfers that occurred after
March 31, 2001) and therefore, these receivables are not recorded on the
Company's financial statements.
The Company's revolving credit agreement expires April 30, 2003. The
Company has begun discussions with the agent for its current bank group
regarding renewing or replacing the Company's existing revolving credit
agreement. The Company expects to have a new credit agreement in place prior to
the expiration of the existing credit agreement. The amount that would be
borrowed under the new credit agreement has not yet been determined, but is
currently expected to be at least $125,000,000, the amount available for
borrowing under the current revolver.
The Company believes that its sources of funding (consisting of projected
positive cash flow from operating activities, the availability of additional
funds under its revolving credit facility (totaling approximately $44,950,000 at
December 31, 2001), and its accumulated cash and short-term investments) will be
sufficient to meet its current and presently anticipated short-term and long-
term future needs for operating activities (including
payments against restructuring accruals), investing activities, and financing
activities (primarily consisting of scheduled 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, 2001, the Company had total long-
term debt obligations, including the current portion of those obligations, of
$80,445,000. Of that amount, $1,745,000 was in fixed rate obligations and
$78,700,000 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, 2001 weighted average interest rate of 3.64% to a weighted
average interest rate of 4.00%), annual interest expense would be approximately
$286,000 higher based on the December 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, 2001.
Inflation
Inflation has not had a significant effect on the Company's business during
the periods discussed.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," ("FAS 141") and
No. 142, "Goodwill and Other Intangible Assets," ("FAS 142") effective for
fiscal years beginning after December 15, 2001. Under the new rules, goodwill
and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives. The Company will apply the provisions of FAS 141 to account for
any business combination that is consummated after July 1, 2001, including the
pending acquisition of Novametrix described in Note F.
The Company will apply the new rules under FAS 142 on accounting for
goodwill and other intangible assets beginning in the first quarter of fiscal
year 2003. Application of the nonamortization provisions
of the Statement is expected to result in an increase in annual net income, the
impact of which is not yet fully determined. During fiscal year 2003, the
Company will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of July 1, 2002.
In August 2001, Statement of Financial Accounting Standards No. 143 ("FAS
143"), "Accounting for Asset Retirement Obligations," was issued. This
Statement requires recording the fair value of a liability for an asset
retirement obligation in the period in which it is incurred, and a corresponding
increase in the carrying value of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the capitalized cost
is depreciated over the useful life of the related asset. Upon settlement of
the liability, it is either settled for its recorded amount or a gain or loss
upon settlement is recorded. FAS 143 is effective for the Company's fiscal year
ended June 30, 2003. The Company is currently assessing, but has not yet
determined, the impact of FAS 143 on its financial position and results of
operations.
In August 2001, Statement of Financial Accounting Standards No. 144 ("FAS
144"), "Accounting for the Impairment or Disposal of Long-Lived Assets," was
issued. This Statement addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This Statement supercedes FAS
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and the accounting and reporting
provisions of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business (as previously
defined in that Opinion). FAS 144 is effective for the Company's fiscal year
ended June 30, 2003. The Company is currently assessing, but has not yet
determined, the impact of FAS 144 on its financial position and results of
operations.
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 12, 2001. The
holders of 28,687,815 shares of the Company's stock (approximately 84% 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 four persons to serve as directors for a three year term
expiring at the Annual Meeting of Shareholders in 2004,
(ii) the adoption of the Company's 2002 Employee Stock Purchase Plan, and
(iii) 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, 2002.
The results of voting were as follows:
(i) Douglas A. Cotter, Gerald E. McGinnis, Craig B. Reynolds, and Candace L.
Littell, the nominees of the Company's Board of Directors, were elected to
serve until the Annual Meeting of Shareholders in 2004. There were no
other nominees.
Shares were voted as follows:
Name For Withhold Vote For
----------------- ---------- -----------------
Douglas A. Cotter 28,267,733 420,082
Gerald E. McGinnis 27,158,271 1,529,544
Craig B. Reynolds 19,405,472 9,282,343
Candace L. Littell 28,265,129 422,686
(ii) The adoption of the Company's 2002 Employee Stock Purchase Plan;
affirmative votes, 28,436,710; negative votes, 194,391.
(iii) the selection of Ernst & Young LLP as independent public accountants for
the 2002 fiscal year was ratified: affirmative votes, 28,560,557; negative
votes, 113,866.
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 15 Acknowledgement of Ernst & Young LLP.
(b) Reports on Form 8-K
Current Report on Form 8-K of Respironics, Inc. with a Report Date of
December 18, 2001, announcing a definitive merger agreement for the
acquisition of Novametrix Medical Systems Inc. by the Company.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESPIRONICS, INC.
Date: 2/14/02 /s/ Daniel J. Bevevino
------------------------- ---------------------------
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