HUDSON RESPIRATORY CARE INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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 September 30, 2002

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________.

Commission file number - 333-56097



HUDSON RESPIRATORY CARE INC. (Exact name of registrant as specified in its charter)



California (State or other jurisdiction of incorporation or organization)		95-1867330 (I.R.S. Employer Identification No.)


27711 Diaz Road, P.O. Box 9020 Temecula, California (Address of Principal Executive Offices)		92589 (Zip Code)

(909) 676-5611 (Registrant’s telephone number, including area code)

Not Applicable (Former name, former address and former fiscal year, if changed since last report).

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

Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).

Yes

The number of shares of Common Stock, $0.01 par value, outstanding (the only class of common stock of the Company outstanding) was 10,654,293 on November 14, 2002.

HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES

QUARTER ENDED SEPTEMBER 30, 2002

TABLE OF CONTENTS

			Page

PART I	FINANCIAL INFORMATION

	Item 1.	Unaudited Condensed Consolidated Financial Statements:

		Unaudited Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001	1

		Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and September 30, 2001	3

		Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and September 30, 2001	4

		Notes to Unaudited Condensed Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

	Item 3.	Quantitative and Qualitative Disclosures About Market Risks	22

	Item 4.	Controls and Procedures	23

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	24

	Item 2.	Changes in Securities	24

	Item 3.	Defaults Upon Senior Securities	24

	Item 4.	Submission of Matters to a Vote of Security Holders	24

	Item 5.	Other Information	24

	Item 6.	Exhibits and Reports on Form 8-K	24

SIGNATURE			25

CERTIFICATIONS			26

HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
(A majority-owned subsidiary of River Holding Corp.)

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

(amounts in thousands)

				September 30, 2002		December 31, 2001

CURRENT ASSETS:
	Cash			$	5,023	$	7,085
	Accounts receivable, less allowance for doubtful accounts of $1,567 and $1,801 at September 30, 2002 and December 31, 2001, respectively				21,575		19,287
	Inventories, net				23,862		25,218
	Other current assets				2,070		1,483

		Total current assets			52,530		53,073
PROPERTY, PLANT AND EQUIPMENT, net					44,617		46,268
OTHER ASSETS:
	Goodwill				32,453		28,498
	Deferred financing and other costs, net				8,207		8,316
	Other assets				1,102		900

		Total other assets			41,762		37,714

			Total assets	$	138,909	$	137,055

See notes to condensed consolidated statements

HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
(A majority-owned subsidiary of River Holding Corp.)

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES, MANDATORILY-REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS’ DEFICIT

(amounts in thousands, except per share amounts)

				September 30, 2002			December 31, 2001

CURRENT LIABILITIES:
	Notes payable to bank			$	12,809		$	20,680
	Accounts payable				10,297			15,251
	Accrued liabilities				23,325			17,302

	Total current liabilities				46,431			53,233
NOTE PAYABLE TO AFFILIATE					37,217			17,217
NOTES PAYABLE TO BANK, net of current portion					61,603			73,250
SENIOR SUBORDINATED NOTES PAYABLE					115,000			115,000
OTHER NON-CURRENT LIABILITIES					1,559			1,187

		Total liabilities			261,810			259,887
COMMITMENTS AND CONTINGENCIES (Note 4)
MANDATORILY-REDEEMABLE PREFERRED STOCK, $0.01 par value; 1,800 shares authorized; 470 and 445 shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively; liquidation preference --$47,031 and $44,474 respectively					46,595			43,847
	Accrued preferred stock dividend, payable in kind				2,479			1,142

					49,074			44,989
STOCKHOLDERS’ EQUITY (DEFICIT):
	Junior preferred stock, $0.01 par value; 6 shares authorized; 3 shares outstanding at September 30, 2002 and December 31, 2001				3,422			3,137
	Common stock, $0.01 par value; 15,000 shares authorized; 10,654 issued and outstanding at September 30, 2002 and December 31, 2001				98,258			98,258
	Additional paid in capital				750			—
	Cumulative translation adjustment				1,316			(698	)
	Accumulated deficit				(275,721	)		(268,518	)

		Total stockholders’ deficit			(171,975	)		(167,821	)

			Total liabilities, mandatorily-redeemable preferred stock and stockholders’ deficit	$	138,909		$	137,055

See notes to condensed consolidated statements

HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
(A majority-owned subsidiary of River Holding Corp.)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands)

					Three Months Ended						Nine Months Ended

					September 30, 2002			September 30, 2001			September 30, 2002			September 30, 2001

NET SALES					$	41,923		$	45,095		$	126,385		$	123,701
COST OF SALES						25,827			24,306			74,316			77,297

		Gross Profit				16,096			20,789			52,069			46,404
OPERATING EXPENSES:
		Selling, distribution, general & administrative				11,579			12,118			35,002			39,374
		Amortization of goodwill				—			777			—			2,547
		Research and development				587			363			1,999			1,264

						12,166			13,258			37,001			43,185

				Income from operations		3,930			7,531			15,068			3,219
INTEREST EXPENSE AND OTHER, net						5,736			5,180			15,782			19,022

				(Loss) income before provision for income taxes		(1,806	)		2,351			(714	)		(15,803	)
PROVISION FOR INCOME TAXES						740			398			2,066			926

				Net (loss) income	$	(2,546	)	$	1,953		$	(2,780	)	$	(16,729	)

OTHER COMPREHENSIVE INCOME:
	Foreign currency translation (loss) gain					(177	)		(1,958	)		2,014			2,602

			Comprehensive loss		$	(2,723	)	$	(5	)	$	(766	)	$	(14,127	)

See notes to condensed consolidated statements

HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
(A majority-owned subsidiary of River Holding Corp.)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amount in thousands)

			Nine Months Ended

			September 30, 2002			September 30, 2001

CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss		$	(2,780	)	$	(16,729	)
	Adjustments to reconcile net loss to net cash provided by (used in) operating activities-
		Depreciation and amortization		6,968			9,243
		Amortization of deferred financing costs		1,336			888
		Provision for bad debts		351			—
		Loss on disposal of equipment		(37	)		—
	Change in operating assets and liabilities:
		Accounts receivable		(2,078	)		(2,990	)
		Inventories		2,101			11,300
		Other current assets		(654	)		365
		Other assets		(12	)		(1,674	)
		Accounts payable		(5,139	)		(9,239	)
		Accrued liabilities		5,527

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