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, 2004
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 incorporation or organization) |
(I.R.S. Employer Identification Number) |
| 1010 Murry Ridge Lane Murrysville, Pennsylvania |
15668-8525 | |
| (Address of principal executive offices) | (Zip Code) |
724-387-5200
(Registrant’s Telephone Number, including area code)
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 ¨.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes x No ¨
As of January 31, 2005, there were 39,018,514 shares of Common Stock of the registrant outstanding, of which 3,495,242 were held in treasury.
INDEX
RESPIRONICS, INC.
| PART I - FINANCIAL INFORMATION |
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| Item 1. |
Financial Statements (Unaudited). |
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| Review Report of Independent Registered Public Accounting Firm. |
3 | |||
| Consolidated balance sheets — December 31, 2004 and June 30, 2004. |
4 | |||
| 5 | ||||
| Consolidated statements of cash flows — Six-month periods ended December 31, 2004 and 2003. |
6 | |||
| Notes to consolidated financial statements — December 31, 2004. |
7 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
15 | ||
| Item 3. |
21 | |||
| Item 4. |
22 | |||
| Item 1. |
22 | |||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
22 | ||
| Item 3. |
22 | |||
| Item 4. |
22 | |||
| Item 5. |
23 | |||
| Item 6. |
23 | |||
| 23 | ||||
Review Report of Independent Registered Public Accounting Firm
Board of Directors
Respironics, Inc. and Subsidiaries
We have reviewed the accompanying consolidated balance sheet of Respironics, Inc. and Subsidiaries as of December 31, 2004, and the related consolidated statements of operations for the three-month and six-month periods ended December 31, 2004 and 2003, and the condensed consolidated statements of cash flows for the six-month periods ended December 31, 2004 and 2003. These interim financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). 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 the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of 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 consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Respironics, Inc. and Subsidiaries as of June 30, 2004, 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 20, 2004 we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph for the Company adopting Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” effective July 1, 2002. In our opinion, the information set forth in the accompanying consolidated balance sheet as of June 30, 2004 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 18, 2005
3
RESPIRONICS, INC. AND SUBSIDIARIES
| (Unaudited) December 31 2004 |
June 30 2004 |
|||||||
| ASSETS |
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| CURRENT ASSETS |
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| Cash and cash equivalents |
$ | 178,218,811 | $ | 192,445,866 | ||||
| Trade accounts receivable |
151,469,888 | 140,633,793 | ||||||
| Inventories |
91,097,333 | 85,539,100 | ||||||
| Prepaid expenses and other current assets |
13,178,441 | 8,621,042 | ||||||
| Deferred income tax benefits |
26,951,338 | 25,373,010 | ||||||
| TOTAL CURRENT ASSETS |
460,915,811 | 452,612,811 | ||||||
| PROPERTY, PLANT AND EQUIPMENT |
||||||||
| Land |
3,285,152 | 3,214,679 | ||||||
| Buildings |
17,646,027 | 17,258,260 | ||||||
| Production and office equipment |
262,067,895 | 245,978,933 | ||||||
| Leasehold improvements |
9,140,503 | 7,989,040 | ||||||
| 292,139,577 | 274,440,912 | |||||||
| Less allowances for depreciation and amortization |
173,156,466 | 163,383,655 | ||||||
| 118,983,111 | 111,057,257 | |||||||
| OTHER ASSETS |
47,466,436 | 37,466,117 | ||||||
| GOODWILL |
158,797,992 | 110,003,068 | ||||||
| TOTAL ASSETS |
$ | 786,163,350 | $ | 711,139,253 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
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| CURRENT LIABILITIES |
||||||||
| Accounts payable |
$ | 51,083,261 | $ | 52,789,363 | ||||
| Accrued expenses and other current liabilities |
103,460,462 | 88,255,213 | ||||||
| Current portion of long-term obligations |
14,616,779 | 10,536,473 | ||||||
| TOTAL CURRENT LIABILITIES |
169,160,502 | 151,581,049 | ||||||
| LONG-TERM OBLIGATIONS |
29,605,947 | 26,896,842 | ||||||
| OTHER NON-CURRENT LIABILITIES |
19,700,320 | 13,608,331 | ||||||
| SHAREHOLDERS’ EQUITY |
||||||||
| Common Stock, $.01 par value; authorized 100,000,000 shares; issued 38,923,335 shares at December 31, 2004 and 38,478,511 shares at June 30, 2004; outstanding 35,428,093 shares at December 31, 2004 and 34,983,269 shares at June 30, 2004 |
389,233 | 384,785 | ||||||
| Additional capital |
261,895,391 | 249,594,545 | ||||||
| Accumulated other comprehensive income |
1,536,553 | 458,621 | ||||||
| Retained earnings |
345,312,047 | 310,051,723 | ||||||
| Treasury stock |
(41,436,643 | ) | (41,436,643 | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY |
567,696,581 | 519,053,031 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
$ | 786,163,350 | $ | 711,139,253 | ||||
See notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
| Three-month periods ended December 31 |
Six-month periods ended December 31 |
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| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net sales |
$ | 225,929,127 | $ | 192,317,966 | $ | 425,365,731 | $ | 356,376,030 | ||||||||
| Cost of goods sold |
103,151,583 | 90,838,854 | 195,213,405 | 170,840,439 | ||||||||||||
| 122,777,544 | 101,479,112 | 230,152,326 | 185,535,591 | |||||||||||||
| General and administrative expenses (excluding acquisition earn-out expenses) |
34,808,895 | 29,046,513 | 65,097,270 | 52,000,240 | ||||||||||||
| Acquisition earn-out expenses |
876,686 | 1,061,000 | 1,551,686 | 1,779,250 | ||||||||||||
| Sales, marketing and commission expenses |
41,966,518 | 37,289,659 | 82,874,550 | 70,320,446 | ||||||||||||
| Research and development expenses |
10,991,169 | 6,493,751 | 20,389,999 | 12,932,207 | ||||||||||||
| Contribution to foundation |
1,500,000 | 1,500,000 | 1,500,000 | 1,500,000 | ||||||||||||
| Restructuring and acquisition-related expenses |
2,290,312 | 2,545,162 | 4,425,477 | 5,890,626 | ||||||||||||
| Other (income) expense, net |
(1,690,677 | ) | (1,641,965 | ) | (1,833,670 | ) | (1,714,596 | ) | ||||||||
| 90,742,903 | 76,294,120 | 174,005,312 | 142,708,173 | |||||||||||||
| INCOME BEFORE INCOME TAXES |
32,034,641 | 25,184,992 | 56,147,014 | 42,827,418 | ||||||||||||
| Income taxes |
11,965,112 | 9,283,488 | 20,886,690 | 15,775,901 | ||||||||||||
| NET INCOME |
$ | 20,069,529 | $ | 15,901,504 | $ | 35,260,324 | $ | 27,051,517 | ||||||||
| Basic earnings per share |
$ | 0.57 | $ | 0.47 | $ | 1.00 | $ | 0.79 | ||||||||
| Basic shares outstanding |
35,291,372 | 34,112,252 | 35,183,045 | 34,067,958 | ||||||||||||
| Diluted earnings per share |
$ | 0.56 | $ | 0.45 | $ | 0.98 | $ | 0.77 | ||||||||
| Diluted shares outstanding |
35,992,470 | 35,044,972 | 35,950,984 | 34,975,573 | ||||||||||||
See notes to consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
| Six-month periods ended December 31 |
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| 2004 |
2003 |
|||||||
| OPERATING ACTIVITIES |
||||||||
| Net income |
$ | 35,260,324 | $ | 27,051,517 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
22,352,129 | 19,642,507 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(6,349,345 | ) | (7,427,953 | ) | ||||
| Inventories |
(3,435,249 | ) | 1,339,396 | |||||
| Other operating assets and liabilities |
3,353,947 | 10,054,992 | ||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES |
51,181,806 | 50,660,459 | ||||||
| INVESTING ACTIVITIES |
||||||||
| Purchase of property, plant and equipment |
(30,926,024 | ) | (25,663,910 | ) | ||||
| Acquisition of business, net of cash acquired |
(47,414,750 | ) | — | |||||
| Additional purchase price and transaction costs for previously acquired businesses |
(1,956,769 | ) | (764,873 | ) | ||||
| NET CASH USED BY INVESTING ACTIVITIES |
(80,297,543 | ) | (26,428,783 | ) | ||||
| FINANCING ACTIVITIES |
||||||||
| Net increase (decrease) in borrowings |
4,324,822 | (2,427,342 | ) | |||||
| Issuance of common stock |
10,563,860 | 4,145,178 | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES |
14,888,682 | 1,717,836 | ||||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(14,227,055 | ) | 25,949,512 | |||||
| Cash and cash equivalents at beginning of period |
192,445,866 | 95,900,114 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 178,218,811 | $ | 121,849,626 | ||||
See notes to consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
December 31, 2004
NOTE A – BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. 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 U.S. 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-month and six-month periods ended December 31, 2004 are not necessarily indicative of the results that may be expected for the year ended June 30, 2005. The amounts and information as of June 30, 2004 set forth in the consolidated balance sheet and notes to the consolidated financial statements that follow were derived from the Company’s Annual Report on Form 10-K for the year ended June 30, 2004. 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, 2004.
NOTE B – STOCK OPTION AND PURCHASE PLANS
At December 31, 2004, the Company has one active employee stock option plan and an employee stock purchase plan, which are described more fully in Note M in the Company’s June 30, 2004 consolidated financial statements. The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant (or within permitted discounted prices as it pertains to the employee stock purchase plan). The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.
| Three-Month Periods Ended December 31 |
Six-Month Periods Ended December 31 |
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| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net income, as reported |
$ | 20,070,000 | $ | 15,902,000 | $ | 35,260,000 | $ | 27,052,000 | ||||||||
| Add: Stock-based employee compensation expense included in reported net income, net of related tax effects |
— | — | — | — | ||||||||||||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |
(2,032,000 | ) | (1,815,000 | ) | (3,937,000 | ) | (3,386,000 | ) | ||||||||