-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AvMqdCyZaEIaPBtdRZhLJdBqu4l8XnWPmsoCO+RZUra91+miH76EXccvCitsKKL2 QXTkZuMqRyG2KS+m+nrn5A== /in/edgar/work/20000815/0000898430-00-002398/0000898430-00-002398.txt : 20000922 0000898430-00-002398.hdr.sgml : 20000921 ACCESSION NUMBER: 0000898430-00-002398 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVER HOLDING CORP CENTRAL INDEX KEY: 0001061892 STANDARD INDUSTRIAL CLASSIFICATION: [3841 ] IRS NUMBER: 954674065 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-56135 FILM NUMBER: 701251 BUSINESS ADDRESS: STREET 1: 599 LEXINGTON AVE STREET 2: 18TH FL CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129582555 MAIL ADDRESS: STREET 1: 599 LEXINGTON AVE STREET 2: 18TH FL CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 0001.txt FORM 10-Q ================================================================================ 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 June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period from __________ to __________ Commission file number - 333-56135 ------------------- RIVER HOLDING CORP. (Exact name of registrant as specified in its charter) ------------------- Delaware 95-4674065 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 599 Lexington Avenue, 18th Floor 10022 New York, New York (Zip Code) (Address of Principal Executive Offices)
(212) 958-2555 (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[ ] No [x] The number of shares of Common Stock, $.01 par value, outstanding (the only class of common stock of the Company outstanding) was 8,544,291 on August 14, 2000. ================================================================================ RIVER HOLDING CORP. AND SUBSIDIARIES QUARTER ENDED JUNE 30, 2000 TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements of River Holding Corp.: Condensed Consolidated Balance Sheets as of December 31, 1999 and June 30, 2000 (unaudited).............................................. 1 Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended June 25, 1999 and June 30, 2000, and the Six Months Ended June 25, 1999 and June 30, 2000....................... 3 Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 25, 1999 and June 30, 2000....................... 4 Notes to Unaudited Condensed Consolidated Financial Statements......... 5 Condensed Consolidated Financial Statements of Hudson Respiratory Care Inc.: Condensed Consolidated Balance Sheets as of December 31, 1999 and June 30, 2000 (unaudited).......................................... 6 Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended June 25, 1999 and June 30, 2000, and the Six Months Ended June 25, 1999 and June 30, 2000....................... 8 Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 25, 1999 and June 30, 2000....................... 9 Notes to Unaudited Condensed Consolidated Financial Statements......... 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................... 15 Item 3. Quantitative and Qualitative Disclosures About Market Risks................... 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................................. 22 Item 2. Changes in Securities......................................................... 22 Item 3. Defaults Upon Senior Securities............................................... 22 Item 4. Submission of Matters to a Vote of Security Holders........................... 22 Item 5. Other Information............................................................. 22 Item 6. Exhibits and Reports on Form 8-K.............................................. 22 SIGNATURE......................................................................................... 23
RIVER HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (Amounts in thousands)
December 31, June 30, 1999 2000 ------------ -------- (unaudited) CURRENT ASSETS: Cash............................................................................. $ 2,917 $ 2,771 Accounts receivable, less allowance for doubtful accounts of $973 and $1,071 at December 31, 1999 and June 30, 2000, respectively............................... 30,425 35,909 Inventories...................................................................... 24,043 30,892 Other current assets............................................................. 4,945 2,553 -------- -------- Total current assets........................................................... 62,330 72,125 PROPERTY, PLANT AND EQUIPMENT, NET............................................... 54,341 56,338 OTHER ASSETS: Deferred tax asset, net.......................................................... 11,342 10,693 Deferred financing costs, net.................................................... 11,134 10,078 Other assets..................................................................... 222 87 Goodwill, net.................................................................... 205,592 202,964 -------- -------- Total other assets............................................................ 228,290 223,822 -------- -------- Total assets................................................................ $344,961 $352,285 ======== ========
The accompanying notes are an integral part of these condensed consolidated balance sheets. 1 RIVER HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES, MANDATORILY-REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (Amounts in thousands, except per share data)
December 31, June 30, 1999 2000 ------------ -------- (unaudited) CURRENT LIABILITIES: Notes payable to banks.......................................................... $ 6,673 $ 7,630 Accounts payable................................................................ 6,268 8,572 Accrued liabilities............................................................. 11,700 15,151 Other current liabilities....................................................... 1,485 1,398 -------- -------- Total current liabilities..................................................... 26,126 32,751 NOTE PAYABLE TO STOCKHOLDER, net of current portion.............................. 7,508 7,508 NOTES PAYABLE TO BANKS, net of current portion................................... 82,513 83,820 SENIOR SUBORDINATED NOTES PAYABLE................................................ 115,000 115,000 -------- -------- Total liabilities............................................................. 231,147 239,079 -------- -------- MANDATORILY-REDEEMABLE PREFERRED STOCK, $0.01 par value: authorized--1,800 shares; issued and outstanding--356 shares and 376 shares at December 31, 1999 and June 30, 2000, respectively; liquidation preference: $35,558 and $37,603, respectively....................... 34,558 36,603 Accrued preferred stock dividend, payable in kind............................... 863 936 -------- -------- 35,421 37,539 -------- -------- STOCKHOLDERS' EQUITY: Common stock, no par value: authorized--15,000 shares; issued and outstanding--8,544 shares...................................................... 91,748 91,748 Cumulative translation adjustment............................................... (398) (91) Accumulated deficit............................................................. (12,957) (15,990) -------- -------- Total stockholders' equity.................................................... 78,393 75,667 -------- -------- Total liabilities, mandatorily-redeemable preferred stock and stockholders' equity....................................................... $344,961 $352,285 ======== ========
The accompanying notes are an integral part of these condensed consolidated balance sheets. 2 RIVER HOLDING CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands)
Three Months Ended Six Months Ended -------------------- ---------------------- June 25, June 30, June 25, June 30, 1999 2000 1999 2000 ---------- -------- -------- -------- NET SALES................................................ $27,274 $31,811 $54,443 $ 72,618 COST OF SALES............................................ 16,650 14,825 32,772 37,328 ------- ------- ------- -------- Gross profit........................................... 10,624 16,986 21,671 35,290 ------- ------- ------- -------- OPERATING EXPENSES: Selling, distribution and general and administrative... 6,367 11,361 13,407 20,654 Amortization of goodwill............................... 1,270 2,087 2,540 4,160 Research and development............................... 380 629 642 1,249 ------- ------- ------- -------- 8,017 14,077 16,589 26,063 ------- ------- ------- -------- Income from operations............................... 2,607 2,909 5,082 9,227 INTEREST AND OTHER EXPENSE............................... (3,956) (5,130) (7,799) (10,466) ------- ------- ------- -------- Loss before benefit for income taxes................. (1,349) (2,221) (2,717) (1,239) BENEFIT FOR INCOME TAXES................................. (575) (735) (1,122) (253) ------- ------- ------- -------- Net Loss............................................. (774) (1,486) (1,595) (986) OTHER COMPREHENSIVE INCOME (LOSS): Foreign currency translation (loss) gain............... (205) 77 (606) 307 ------- ------- ------- -------- Comprehensive loss................................... $ (979) $(1,409) $(2,201) $ (679) ======= ======= ======= ========
The accompanying notes are an integral part of these unaudited condensed consolidated statements. 3 RIVER HOLDING CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)
Six Months Ended --------------------- June 25, June 30, 1999 2000 --------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss......................................................................... $(1,595) $ (986) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization.................................................. 6,952 9,470 Decrease (increase) in accounts receivable..................................... 5,275 (5,483) Increase in inventories........................................................ (1,553) (6,851) Decrease in other current assets............................................... 1 2,392 (Increase) decrease in other assets............................................ (122) 135 Increase in deferred tax asset............................................... (1,009) (1,380) (Decrease) increase in accounts payable........................................ (3,931) 2,376 Increase in accrued liabilities................................................ 500 3,365 ------- ------- Net cash provided by operating activities.................................. 4,518 3,038 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment....................................... (3,641) (5,755) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of notes payable to banks.............................................. (5,000) (1,500) Proceeds from bank borrowings.................................................... 5,000 3,764 ------- ------- Net cash provided by financing activities........................................ -- 2,264 Effect of exchange rate changes on cash........................................... (606) 307 ------- ------- NET INCREASE (DECREASE) IN CASH................................................... 271 (146) CASH, beginning of period......................................................... 507 2,917 ------- ------- CASH, end of period............................................................... $ 778 $ 2,771 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest........................................................................ $ 6,187 $ 6,700 ======= ======= NON-CASH FINANCING ACTIVITIES: Preferred dividends accrued or paid-in-kind...................................... $ 1,891 $ 2,118 ======= =======
The accompanying notes are an integral part of these unaudited condensed consolidated statements. 4 RIVER HOLDING CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 1. Financial Statements. The condensed consolidated financial statements -------------------- included herein have been prepared by River Holding Corp. ("Holding") and Hudson Respiratory Care, Inc. ("Hudson" or the "Company"), without audit, and include all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position at June 30, 2000 and the results of operations and cash flows for the three and six month periods ended June 25, 1999 and June 30, 2000 pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. Although Holding believes that the disclosures in such financial statements are adequate to make the information presented not misleading, these consolidated financial statements should be read in conjunction with the consolidated balance sheet of Holding as of December 31, 1999 and with the Company's 1999 audited financial statements and the notes thereto included in Holding's Form 10-K filed with the SEC. The results of operations for the three and six month periods ended June 30, 2000 are not necessarily indicative of the results to be achieved for a full year. Holding has no operations apart from those conducted by its majority-owned subsidiary, Hudson RCI and its subsidiaries. 2. Acquisitions. During 1999, the Company completed certain business ------------ acquisition, the most significant of which was Louis Gibeck AB ("LGAB"). The Company is evaluating certain estimates made in connection with the purchase price allocations, which may change in the near term. Had the acquisition of LGAB occurred at the beginning of the prior fiscal year, the unaudited pro forma net sales and net loss for Holding would be as follows (amounts in thousands):
Six Months Ended June 25, 1999 ---------------- (unaudited) Net sales............................................ $63,877 ======= Net loss............................................. $(2,231) =======
3. Inventories. Inventories consisted of the following (amounts in thousands): -----------
December 31, June 30, 1999 2000 ------------ ----------- (unaudited) Raw materials..................................... $ 5,901 $ 7,941 Work-in-process................................... 5,682 8,161 Finished goods.................................... 12,460 14,790 ------- ------- $24,043 $30,892 ======= =======
4. Bank Notes Payable. Subsequent to the end of the second quarter of 2000, ------------------- certain provisions of the existing bank loan agreement were amended. 5 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (Amounts in thousands)
December 31, June 30, 1999 2000 -------------- ----------- (unaudited) CURRENT ASSETS: Cash................................................................. $ 2,917 $ 2,771 Accounts receivable, less allowance for doubtful accounts of $973 and $1,071 at December 31, 1999 and June 30, 2000, respectively..... 30,425 35,909 Inventories.......................................................... 24,043 30,892 Other current assets................................................. 4,612 2,220 -------- -------- Total current assets............................................... 61,997 71,792 PROPERTY, PLANT AND EQUIPMENT, net...................................... 42,476 45,604 OTHER ASSETS: Intangible assets, net............................................... 66,970 64,853 Deferred financing costs, net........................................ 11,134 10,078 Deferred tax asset, net.............................................. 68,943 68,855 Other assets......................................................... 299 164 -------- -------- Total other assets................................................. 147,346 143,950 -------- -------- Total assets..................................................... $251,819 $261,346 ======== ========
The accompanying notes are an integral part of these condensed consolidated balance sheets. 6 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES, MANDATORILY-REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (Amounts in thousands, except per share data)
December 31, June 30, 1999 2000 ------------ -------- (unaudited) CURRENT LIABILITIES: Notes payable to banks..................................................... $ 6,673 $ 7,630 Accounts payable........................................................... 6,168 8,472 Accrued liabilities........................................................ 11,700 15,151 Other current liabilities.................................................. 1,485 1,398 --------- --------- Total current liabilities................................................ 26,026 32,651 NOTE PAYABLE TO AFFILIATE................................................... 7,508 7,508 NOTES PAYABLE TO BANKS, net of current portion.............................. 82,513 83,820 SENIOR SUBORDINATED NOTES PAYABLE........................................... 115,000 115,000 --------- --------- Total liabilities........................................................ 231,047 238,979 --------- --------- MANDATORILY-REDEEMABLE PREFERRED STOCK, $0.01 par value: authorized--1,800 shares; issued and outstanding--356 shares and 376 shares at December 31, 1999 and June 30, 2000, respectively; liquidation preference: $35,558 and $37,603, respectively................. 34,558 36,603 Accrued preferred stock dividend, payable in kind.......................... 863 936 --------- --------- 35,421 37,539 --------- --------- STOCKHOLDERS' EQUITY (DEFICIT): Common stock, $0.01 par value: authorized--15,000 shares; issued and outstanding--10,044....................................................... 92,158 92,158 Cumulative translation adjustment........................................... (862) (555) Accumulated deficit......................................................... (105,945) (106,775) --------- --------- Total stockholders' equity (deficit)...................................... (14,649) (15,172) --------- --------- Total liabilities, mandatorily-redeemable preferred stock and stockholders' equity (deficit).......................................... $ 251,819 $ 261,346 ========= =========
The accompanying notes are an integral part of these condensed consolidated balance sheets. 7 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands)
Three Months Ended Six Months Ended -------------------- -------------------- June 25, June 30, June 25, June 30, 1999 2000 1999 2000 -------- -------- -------- --------- NET SALES.................................................. $27,274 $31,811 $54,443 $ 72,618 COST OF SALES.............................................. 16,085 14,825 31,866 37,328 ------- ------- ------- -------- Gross profit............................................ 11,189 16,986 22,577 35,290 ------- ------- ------- -------- OPERATING EXPENSES: Selling, distribution, general and administrative......... 6,306 10,796 13,133 19,525 Amortization of goodwill.................................. 61 817 122 1,620 Research and development.................................. 380 629 670 1,249 ------- ------- ------- -------- 6,747 12,242 13,925 22,394 ------- ------- ------- -------- Income from operations.................................. 4,442 4,744 8,652 12,896 INTEREST AND OTHER EXPENSE................................. (3,956) (5,130) (7,698) (10,467) ------- ------- ------- -------- Net income (loss) before provision for income taxes..... 486 (386) 954 2,429 PROVISION (BENEFIT) FOR INCOME TAXES....................... 159 (1) 346 1,215 ------- ------- ------- -------- Net income (loss)....................................... 327 (385) 608 1,214 OTHER COMPREHENSIVE INCOME (LOSS): Foreign currency translation gain (loss).................. (205) 100 (606) 307 ------- ------- ------- -------- Comprehensive income (loss).............................. $ 122 $ (285) $ 2 $ 1,521 ======= ======= ======= ========
The accompanying notes are an integral part of these unaudited condensed consolidated statements. 8 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amount in thousands)
Six Months Ended ------------------------- June 25, June 30, 1999 2000 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................................ $ 608 $ 1,214 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization.......................................... 3,166 5,310 Amortization of deferred financing costs............................... 201 490 Deferred taxes......................................................... 460 88 Change in operating assets and liabilities: Decrease (increase) in accounts receivable............................. 5,276 (5,483) Increase in inventories................................................ (1,554) (6,849) Decrease in other current assets....................................... 1 2,392 Increase (decrease) in other assets.................................... (122) 135 (Decrease) increase in accounts payable................................ (3,932) 2,376 Increase in accrued liabilities........................................ 499 3,452 Decrease in other current liabilities.................................. -- (87) ------- ------- Net cash provided by operating activities............................ 4,603 3,038 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment................................ (3,640) (5,755) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of notes payable to banks...................................... (5,000) (1,500) Proceeds from bank borrowings............................................. 5,000 3,764 Additions to deferred financing costs..................................... (86) -- ------- ------- Net cash provided by (used in) financing activities.................. (86) 2,264 ------- ------- Effect of exchange rate changes on cash.................................... (606) 307 ------- ------- NET INCREASE (DECREASE) IN CASH............................................ 271 (146) CASH, beginning of period.................................................. 507 2,917 ------- ------- CASH, end of period........................................................ $ 778 $ 2,771 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest................................................................ $ 6,187 $ 6,700 ======= ======= NON-CASH FINANCING ACTIVITIES: Preferred dividends accrued or paid-in-kind............................... $ 1,891 $ 2,118 ======= =======
The accompanying notes are an integral part of these unaudited condensed consolidated statements. 9 HUDSON RESPIRATORY CARE INC. AND SUBSIDAIRIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 1. Financial Statements. The condensed consolidated financial statements -------------------- included herein have been prepared by the Company, without audit, and include all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position at June 30, 2000, and the results of operations and cash flows for the three and six month periods ended June 25, 1999 and June 30, 2000 pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. Although the Company believes that the disclosures in such financial statements are adequate to make the information presented not misleading, the accompanying unaudited condensed, consolidated financial statements should be read in conjunction with the Company's 1999 audited financial statements and the notes thereto included in its Form 10-K filed with the SEC. The results of operations for the three and six month periods ended June 30, 2000 are not necessarily indicative of the results to be achieved for a full year. 2. Acquisitions. During 1999, the Company completed certain business ------------ acquisitions, the most significant of which was the acquisition of Louis Gibeck AB ("LGAB"). The Company is evaluating certain estimates made in connection with the purchase price allocations, which may change in the near term. Had the acquisition of LGAB occurred at the beginning of the prior fiscal year, the unaudited pro forma net sales and net income would be as follows (amounts in thousands):
Six Months Ended June 25, 1999 ---------------- (unaudited) Net sales................................................... $ 63,877 ========= Net income.................................................. $ (28) =========
3. Inventories. Inventories consisted of the following (amounts in thousands): -----------
December 31, June 30, 1999 2000 ----------- --------- (unaudited) Raw materials........................................................ $ 5,901 $ 7,941 Work-in-process...................................................... 5,682 8,161 Finished goods....................................................... 12,460 14,790 ------- ------- $24,043 $30,892 ======= =======
4. Bank Notes Payable. Subsequent to the end of the second quarter of 2000, ------------------ certain provisions of the existing bank loan agreement were amended. 5. Subsidiaries Guaranteeing Debt and Segment Data. The Company is the 100% owner of certain subsidiaries which do not guarantee the Company's senior subordinated notes. The following tables disclose required consolidating financial information for guarantor, including the Company, and non-guarantor subsidiaries (amounts in thousands): 10 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES GUARANTOR AND NON-GUARANTOR SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 2000 --------------------------------------------------------------------------- Guarantor Non-Guarantor Adjustments Total --------------- ----------------------- -------------- ---------- CURRENT ASSETS: Cash............................................ $ 107 $ 2,664 $ -- $ 2,771 Accounts receivable, net........................ 32,096 3,300 513 35,909 Inventories..................................... 28,765 3,789 (1,662) 30,892 Other current assets............................ 4,442 18,360 (20,582) 2,220 -------- ------- ------- ------- Total current assets.......................... 65,410 28,113 (21,731) 71,792 PROPERTY, PLANT AND EQUIPMENT, NET............... 44,527 1,077 -- 45,604 OTHER ASSETS: Intangible assets, net.......................... 21,814 43,039 -- 64,853 Deferred financing costs, net................... 10,078 -- -- 10,078 Deferred tax asset, net......................... 68,295 560 -- 68,855 Investment in non-guarantor subsidiaries........ 29,245 -- (29,245) -- Other........................................... 732 156 (724) 164 -------- ------- ------- ------- Total other assets............................ 130,164 43,755 (29,969) 143,950 -------- ------- ------- ------- Total assets............................... $240,101 $72,945 $(51,700) $261,346 ======== ======= ======= =======
11 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES GUARANTOR AND NON-GUARANTOR SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 2000 ---------------------------------------------------------------------------- Guarantor Non-Guarantor Adjustments Total ------------- ------------------- -------------- ------------ CURRENT LIABILITIES: Notes payable to banks ........................... $ 6,500 $ 1,130 $ -- $ 7,630 Accounts payable ................................. 9,753 2,893 (4,174) 8,472 Accrued liabilities .............................. 11,157 3,994 -- 15,151 Other current liabilities ........................ 1,318 17,212 (17,132) 1,398 -------- ------ ------- ------- Total current liabilities ..................... 28,728 25,229 (21,306) 32,651 OTHER LIABILITIES: Note payable to affiliate ........................ -- 7,508 -- 7,508 Notes payable to banks, net of current portion ... 69,000 14,821 -- 83,820 Senior subordinated notes ........................ 115,000 -- -- 115,000 -------- ------ ------- -------- Total liabilities ............................. 212,728 47,558 (21,306) 238,980 -------- ------ ------- -------- Mandatorily-redeemable preferred stock .............. 37,539 -- -- 37,539 -------- ------ ------- -------- STOCKHOLDERS' EQUITY (DEFICIT) ...................... (10,166) 25,387 (30,394) (15,172) -------- ------ ------- -------- $240,101 $72,945 $(51,700) $261,346 ======== ======= ======== ========
12 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES GUARANTOR AND NON-GUARANTOR SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS(a)
Three Months Ended June 30, 2000 --------------------------------------------------------------------- Guarantor Non- Adjustments Total Guarantor ---------- ----------------- -------------- ----- NET SALES................................................ $29,746 $4,823 $(2,758) $31,811 COST OF SALES............................................ 15,634 1,949 (2,758) 14,825 ------- ------ ------- ------- Gross profit............................................ 14,112 2,874 -- 16,986 OPERATING EXPENSES: Selling, distribution, general and administrative....... 9,540 2,073 -- 11,613 Research and development................................ 290 339 -- 629 ------- ------ ------- ------- 9,830 2,412 -- 12,242 ------- ------ ------- ------- Income from operations................................... 4,282 462 -- 4,744 INTEREST AND OTHER EXPENSE............................... 4,598 532 -- 5,130 ------- ------ ------- ------- Loss before provision (benefit) for income taxes........ (316) (70) -- (386) PROVISION (BENEFIT) FOR INCOME TAXES.................... (125) 124 -- (1) ------- ------ ------- ------- Net income (loss)....................................... $ (191) $ (194) $ -- $ (385) ======= ====== ======= ======= Depreciation and amortization............................ $ 2,143 $ 569 $ -- $ 2,712 ======= ====== ======= ======= Adjusted EBITDA(b)....................................... $ 6,425 $1,031 $ -- $ 7,456 ======= ====== ======= =======
- ----------------------------- (a) All entities included in the June 25, 1999 financial statements were guarantors of the Company's Senior Subordinated Notes. (b) Adjusted EBITDA represents income before depreciation and amortization, interest expense and income tax expense. Adjusted EBITDA is not a measure of performance under accounting principles generally accepted in the United States, and should not be considered as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with accounting principles generally accepted in the United States, or as a measure of profitability or liquidity. 13 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES GUARANTOR AND NON-GUARANTOR SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS(a)
Six Months Ended June 30, 2000 -------------------------------------------------------------------- Non- Guarantor Guarantor Adjustments Total --------- --------- ----------- ----- NET SALES............................................... $64,018 $13,672 $(5,072) $ 72,618 COST OF SALES........................................... 35,963 6,237 (4,872) 37,328 ------- ------- ------- -------- Gross profit........................................... 28,055 7,435 (200) 35,290 OPERATING EXPENSES: Selling, distribution, general and administrative...... 16,680 4,465 -- 21,145 Research and development............................... 572 677 -- 1,249 ------- ------- ------- -------- 17,252 5,142 -- 22,394 ------- ------- ------- -------- Income from operations.................................. 10,803 2,293 (200) 12,896 INTEREST AND OTHER EXPENSE.............................. (9,150) (1,317) -- (10,467) ------- ------- ------- -------- Income before provision for income taxes............. 1,653 976 (200) 2,429 PROVISION FOR INCOME TAXES........................... 699 516 -- 1,215 ------- ------- ------- -------- Net income........................................... $ 954 $ 460 $ (200) $ 1,214 ======= ======= ======= ======== Depreciation and amortization........................... $ 4,100 $ 1,210 $ -- $ 5,310 ======= ======= ======= ======== Adjusted EBITDA(b)...................................... $14,903 $ 3,503 $ (200) $ 18,206 ======= ======= ======= ========
_____________________ (a) All entities included in the June 25, 1999 financial statements were guarantors of the Company's Senior Subordinated Notes. (b) Adjusted EBITDA represents income before depreciation and amortization, interest expense and income tax expense. Adjusted EBITDA is not a measure of performance under accounting principles generally accepted in the United States, and should not be considered as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with accounting principles generally accepted in the United States, or as a measure of profitability or liquidity. 14 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES GUARANTOR AND NON-GUARANTOR SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2000 -------------------------------------------- Non Guarantor Guarantor Total --------- --------- ------- Net cash provided by operating activities.................. $ (350) $ 3,388 $ 3,038 Net cash provided by (used in) investing activities........ (3,708) (2,047) (5,755) Net cash used in financing activities...................... 3,900 (1,636) 2,264 Effect of exchange rate changes on cash.................... 81 226 307 -------- -------- ------ NET (DECREASE) INCREASE IN CASH............................ (77) (69) (146) CASH, beginning of period.................................. 184 2,733 2,917 -------- -------- ------ CASH, end of period........................................ $ 107 $ 2,664 $ 2,771 ======== ======== =======
The Company operates in two segments: North American operations (guarantor) and international operations (non-guarantor). The financial data of these two segments closely approximates the guarantor/non-guarantor information set forth above and, accordingly, segment data is not provided separately. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As River Holding Corp. ("Holding") is a holding company with no operations, the following discussion relates to Hudson Respiratory Care Inc. (the "Company" or "Hudson RCI"). The following discussion of the Company's consolidated historical results of operations and financial condition should be read in conjunction with the consolidated financial statements of the Company and the notes thereto included elsewhere in this Form 10-Q. Forward-Looking Statements This Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Such statements relating to future events and financial performance are forward-looking statements involving risks and uncertainties that are detailed from time to time in the Company's Securities and Exchange Commission filings. General The Company is a leading manufacturer and marketer of disposable medical products utilized in the respiratory care and anesthesia segments of the domestic and international health care markets. The Company's principal products include oxygen masks, humidification systems, nebulizers, cannulae and tubing. In the United States, the Company markets its products to a variety of health care providers, including hospitals and alternate site service providers such as outpatient surgery centers, long-term care facilities, physician offices and home health care agencies. Internationally, the Company sells its products to distributors who market to hospitals and other health care providers. The Company's results of operations may fluctuate significantly from quarter to quarter as a result of a number of factors, including, among others, the buying patterns of the Company's distributors, group purchasing organizations ("GPOs") and other purchasers of the Company's products, forecasts regarding the severity of the annual cold and flu season, announcements of new product introductions by the Company or its competitors, changes in the Company's pricing of its products and the prices offered by the Company's competitors, rate of overhead absorption due to variability in production levels and variability in the number of shipping days in a given quarter. 15 Recent Developments On November 8, 1999, the Company acquired certain assets of Tyco Healthcare Group LP ("Tyco"), including Tyco's incentive breathing exerciser and pulmonary function monitor product lines, for a cash purchase price of approximately $23.8 million. The Tyco acquisition was funded principally with proceeds from the Company's $60.0 million revolving line of credit. On October 8, 1999, the Company acquired certain assets of Medimex, a German distribution company that had previously distributed products for both the Company and Louis Gibeck AB ("LGAB"), for a cash purchase price of $2.2 million. The assets were acquired through the Company's wholly-owned, non- guarantor subsidiary, HRCDAC Inc., and was funded with cash on hand. On July 22, 1999, the Company, through its indirect, wholly-owned subsidiary Steamer Holding AB, a company organized under the laws of Sweden ("Steamer"), acquired a majority of the outstanding capital stock of LGAB, a company organized under the laws of Sweden. Pursuant to a series of private purchases and a tender offer consummated pursuant to Swedish law, Steamer acquired 604,000 shares of Class A stock and 2,452,838 shares of Class B stock representing approximately 82.0% of the capital and 62.8% of the voting power of LGAB at a price of 115 Swedish krona (approximately $13.60 at the July 22 exchange rate) per share of Class A stock and Class B stock for an aggregate cash purchase price of approximately $45.5 million. In addition, on August 4, 1999, Steamer acquired an additional 483,750 shares of Class A stock of LGAB from River Holding Corp., a Delaware corporation and the parent of Steamer and the Company ("Holding"), which shares Holding acquired in a private transaction in exchange for 525,042 shares of common stock of Holding ("Holding Common Stock"). The exchange ratio for the Class A stock was the same as the effective price per share of the shares acquired in the tender offer. After giving effect to this exchange and the conversion of the Series A stock acquired by Steamer in the tender offer into Series B stock, Steamer holds approximately 99.0% of the capital and 100.0% of the voting power of LGAB. The Company intends that Steamer, through continuing purchases and a statutory freezeout and appraisal procedure under Swedish law, will acquire the remaining outstanding shares of LGAB as soon as practicable. The cash for the purchase price and certain related transaction costs was funded with (i) $22.0 million in gross proceeds from the sale of Holding Common Stock to the majority stockholder of Holding, (ii) a $22.0 million loan from the majority stockholder of Holding to Steamer's parent, HRC Holding Inc., a Delaware corporation and a wholly-owned subsidiary of the Company, and (iii) the funding of 50 million Swedish krona (approximately $5.9 million) pursuant to the terms of a loan facility agreement between Steamer and Svenska Handelsbanken AB. Founded in 1954, LGAB develops, manufactures and markets medical device products which humidify, heat and filter a patient's breathing gases during anesthesia and intensive care. LGAB is a market leader in the area of "heat moisture exchange" ("HME") products, with approximately 25% share of the world market. Following completion of the acquisition, the Company intends to continue LGAB's operations in substantially the same manner as conducted prior to the acquisition. In September 1998, the Company acquired certain assets of Gibeck, Inc., a subsidiary of LGAB, for approximately $3.35 million. Prior to the transaction, Gibeck, Inc. was engaged primarily in the business of manufacturing, marketing and selling disposable anesthesia supplies. In conjunction with that transaction, the Company became the exclusive North American distributor of LGAB's HME product line. In fiscal year 1997, Gibeck, Inc. reported net sales of approximately $12.3 million. The Company established a sales office located in Germany in the second quarter of 1999. It is anticipated that this operation will better equip the Company to more aggressively pursue sales in the German market. The German operation had a negative impact on the Company's results of approximately $0.8 million in the first six months of 2000. It is anticipated that the Company's earnings will be positively impacted by the German operation for the remainder of fiscal 2000 and beyond. 16 Results of Operations The following tables set forth, for the periods indicated, certain income and expense items expressed in dollars and as a percentage of the Company's net sales.
Three Month Period Ended Six Month Period Ended (unaudited) (unaudited) ------------------------ ----------------------- June 25, June 30, June 25, June 30, 1999 2000 1999 2000 ------------------------ ------------------------ (in thousands) (in thousands) Net sales..................................... $ 27,274 $ 31,811 $ 54,443 $ 72,618 Cost of sales................................. 16,085 14,825 31,866 37,328 ------------ ---------- ---------- ---------- Gross profit............................. 11,189 16,986 22,577 35,290 Selling expenses.............................. 2,677 3,896 5,112 7,715 Distribution expenses......................... 685 1,990 1,960 3,463 General and administrative expenses........... 2,944 4,910 6,061 8,347 Amortization of goodwill...................... 61 817 122 1,620 Research and development expenses............. 380 629 670 1,249 ------------ ---------- ---------- ---------- Total operating expenses................. 6,747 12,242 13,925 22,394 ------------ ---------- ---------- ---------- Operating income......................... $ 4,442 $ 4,744 $ 8,652 $ 12,896 ============ ========= ========= ========== Three Month Period Ended Six Month Period Ended (unaudited) (unaudited) ------------------------ ----------------------- June 25, June 30, June 25, June 30, 1999 2000 1999 2000 ------------------------ ------------------------ Net sales..................................... 100.0% 100.0% 100.0% 100.0% Cost of sales................................. 59.0 46.6 58.5 51.4 ----- ----- ----- ----- Gross profit............................. 41.0 53.4 41.9 48.6 Selling expenses.............................. 9.8 12.2 9.4 10.6 Distribution expenses......................... 2.5 6.3 3.6 4.8 General and administrative expenses........... 10.8 15.4 11.1 11.5 Amortization of goodwill...................... 0.2 2.6 0.2 2.2 Research and development expenses............. 1.4 2.0 1.2 1.7 ----- ----- ----- ----- Total operating expenses................. 24.7 38.5 25.6 30.8 ----- ----- ----- ----- Operating income......................... 16.3% 14.9% 15.9% 17.8% ===== ===== ===== =====
Three Months Ended June 30, 2000 Compared to Three Months Ended June 25, 1999 Net sales, reported net of accrued rebates, were $31.8 million in the second quarter of 2000 as compared to $27.2 million in the second quarter of 1999, an increase of $4.5 million or 16.6%. Sales by the acquired Louis Gibeck AB (renamed Hudson RCI AB) were approximately $2.8 million, $2.4 million related to the acquired Tyco product line and $0.4 million related to the acquired Medimex product line. For the base Hudson product line, domestic hospital sales decreased by $0.6 million, alternate site sales increased by $0.3 million, Canadian sales declined by $0.2 million, international sales increased by $0.4 million and OEM sales increased by $0.1 million. Although demand was strong in all sectors of the business, sales were negatively impacted due to shipping difficulties associated with the implementation of a new computer system. As a result, backlog was $4.0 million at June 30, 2000 as compared to $1.1 million at June 30, 1999. 17 The Company's gross profit for the second quarter of 2000 was $17.0 million, an increase of $5.8 million or 51.8% over the second quarter of 1999. As a percentage of sales, the gross profit was 53.4% and 41.0% for the second quarter of 2000 and 1999, respectively. The higher margin was primarily due to higher-margin sales of the Hudson RCI AB product as well as the Tyco products. In addition, higher production levels have resulted in lower per unit costs. However, due to the shipping difficulties associated with the computer system implementation, production levels significantly exceeded sales levels and inventory levels have increased. Selling expenses were $3.9 million for the second quarter of 2000, a $1.2 million increase over the second quarter of 1999. This increase was due primarily to $0.6 million of costs related to the acquired Hudson RCI AB and $0.3 million of costs associated with the start-up of the German sales office. Additionally, sales representatives were added in the alternate site market to service the growing demand. Distribution expenses were $2.0 million for the second quarter of 2000, a $1.3 million increase over the second quarter of 1999. This increase was primarily driven by the establishment of an Atlanta distribution facility in the third quarter of 1999, the addition of a second shift and overtime at all warehouses required to meet customer demand. General and administrative expenses were $4.9 million in the second quarter of 2000, an increase of $2.0 million or 66.8% over the second quarter of 1999. This increase was primarily the result of additional expenses associated with the acquired Hudson RCI AB business, the German start-up operation, training costs associated with the computer system implementation and increased staffing levels. Amortization of goodwill was $0.8 million for the second quarter of 2000, as compared to $0.1 million in the second quarter of 1999. This increase was primarily due to the Tyco and Hudson RCI AB acquisitions in the second half of 1999. Research & development costs were $0.6 million in the second quarter of 2000, as compared to $0.4 million in the second quarter of 1999. This increase was primarily due to expenses of the acquired Hudson RCI AB. Interest expense and other was $5.1 million in the second quarter of 2000, as compared to $4.0 million in the second quarter of 1999. This increase reflects increased borrowings as a result of the Hudson RCI and Tyco acquisitions as well as increased borrowings in the working capital revolving facility and higher interest rates. The Company provides for state and federal income taxes as a C corporation, although actual tax payments are expected to be substantially less than provided amounts due to the increase in tax basis of assets provided by the Section 338(h)(10) election made in conjunction with the April 1998 recapitalization. Six Months Ended June 30, 2000 Compared to Six Months Ended June 25, 1999 Net sales, reported net of accrued rebates, were $72.6 million in the first half of 2000 as compared to $54.4 million in the first half of 1999, an increase of $18.2 million or 33.4%. Sales by the acquired Louis Gibeck AB (renamed Hudson RCI AB) were approximately $7.8 million, $6.2 million related to the acquired Tyco product line and $0.9 million related to the acquired Medimex product line. For the base Hudson product line, domestic hospital sales increased by $1.4 million, alternate site sales increased by $1.3 million, Canadian sales declined by $0.3 million and international sales increased by $0.9 million. Although demand was strong in all sectors of the business, sales were negatively impacted by shipping difficulties associated with the implementation of a new computer system. As a result, backlog was $4.0 million at June 30, 2000 as compared to $1.1 million at June 30, 1999. The Company's gross profit for the first half of 2000 was $35.2 million, an increase of $12.7 million or 56.3% over the first half of 1999. As a percentage of sales, the gross profit was 48.6% and 41.9% for the first half of 2000 and 1999, respectively. The improved margin was primarily due to higher-margin sales of the Hudson RCI AB product as well as the acquired Tyco products. In addition, higher production levels have resulted in lower per unit costs. 18 However, due to the shipping difficulties associated with the computer system implementation, production levels significantly exceeded sales levels and inventory levels have increased. Selling expenses were $7.7 million for the first half of 2000, a $2.6 million increase over the first half of 1999. This increase was due primarily to $1.3 million of costs related to the acquired Hudson RCI AB and $0.8 million of costs associated to the start-up German operation. Additionally, sales representatives were added in the Alternate Site market to service the growing demand. Distribution expenses were $3.5 million for the first half of 2000, a $1.5 million increase over the first half of 1999. This increase was primarily driven by the establishment of an Atlanta distribution facility in the third quarter of 1999, the addition of a second shift and overtime at all warehouses required to meet customer demand. General and administrative expenses were $8.3 million in the first half of 2000, an increase of $2.3 million or 37.7% over the first half of 1999. This increase was primarily the result of additional expenses associated with the acquired Hudson RCI AB business, the German start-up operation, training costs associated with the computer system implementation and increased staffing levels. Amortization of goodwill was $1.6 million for the first half of 2000, as compared to $0.1 million in the first half of 1999. This increase was primarily due to the Tyco and Hudson RCI AB acquisitions in the second half of 1999. Research & development costs were $1.2 million in the first half of 2000, as compared to $0.6 million in the first half of 1999. This increase was primarily due to expenses of the acquired Hudson RCI AB. Interest expenses and other was $10.5 million in the first half of 2000, as compared to $7.8 million in the first half of 1999. This increase reflects increased borrowings as a result of the Hudson RCI and Tyco acquisitions as well as increased borrowings in the working capital revolving facility and higher interest rates. The Company provides for state and federal income taxes as a C corporation, although actual tax payments are expected to be substantially less than provided amounts due to the increase in tax basis of assets provided by the Section 338(h)(10) election made in conjunction with the April 1998 recapitalization. Liquidity and Capital Resources The Company's primary sources of liquidity are cash flow from operations and borrowings under its working capital bank facility. Cash provided by operations totaled $4.6 million and $1.1 million in the first six months of 1999 and 2000, respectively. The decrease from the first six months of 1999 to the first six months of 2000 is primarily attributable to higher working capital levels. The Company had operating working capital, excluding cash and short- term debt, of $38.4 million and $44.0 million as of December 31, 1999 and June 30, 2000, respectively. Inventories were $24.0 million and $30.9 million as of December 31, 1999 and June 30, 2000, respectively. In order to meet the needs of its customers, the Company must maintain inventories sufficient to permit same-day or next-day filling of most orders. Such inventories are higher than those that would be required for delayed filling of orders, thus adversely impacting liquidity. Over time, the Company expects its level of inventories to increase as the Company's sales in the international market increase. Accounts receivable, net of allowances, were $30.4 million and $35.9 million at December 31, 1999 and June 30, 2000, respectively. The Company offers 30 day credit terms to its U.S. hospital distributors. Alternate site and international customers typically receive 60 to 90 day terms and, as a result, as the Company's alternate site and international sales have increased, the amount and aging of its accounts receivable have increased. The Company anticipates that the amount and aging of its accounts receivable will continue to increase. The Company established a sales office in Germany in the second quarter of 1999. While this will have the effect of increasing the Company's investment in inventories, management believes that it will also result in improved service to international customers as well as in lower international accounts receivable than would otherwise be the case because customers will receive products, and consequently pay for them, more quickly. 19 During the six months ended June 25, 1999, net cash used in investing activities was $3.6 million, reflecting purchases of computer software and manufacturing equipment. During the six months ended June 30, 2000, net cash used in investing activities was $5.8 million, primarily reflecting purchases of manufacturing equipment and implementation of a new enterprise resource planning software program. The Company currently estimates that capital expenditures will be approximately $8.0 million in each of 2000 and 2001, consisting primarily of additional and replacement manufacturing equipment and new heater placements. During the six months ended June 25, 1999 and June 30, 2000, net cash (used in) provided by financing activities was $(0.1) million and $2.3 million, respectively, reflecting principally repayment and borrowing of the Company's facility. The Company has outstanding $214.0 million of indebtedness, consisting of $115.0 million of 9-1/8% Senior Subordinated Notes due 2008 (the "Subordinated Notes") issued in April 1998, borrowings of $75.5 million under the credit facility (the "Credit Facility") entered into in April 1998 and $7.5 million in notes payable to affiliates. In addition, LGAB has $16 million in outstanding borrowings under its bank facility. The Credit Facility consists of a $40.0 million term loan facility (the "Term Loan Facility") (all of which was funded in connection with the Company's April 1998 Recapitalization) and a $60.0 million revolving loan facility (the "Revolving Loan Facility"). The Subordinated Notes bear interest at the rate of 9-1/8%, payable semiannually, and will require no principal repayments until maturity. The Term Loan Facility matures on April 7, 2004 and requires principal repayments of between $3.0 million and $11.5 million each year until maturity, commencing on June 30, 1999. The Revolving Loan Facility matures on April 7, 2004 and bears interest based on a spread over either a Eurodollar or base rate. In connection with the LGAB acquisition, the Company borrowed $22.0 million pursuant to an unsecured promissory note payable to Holding's majority stockholder. The note bears interest at 12.0% per annum, matures in August 2006, and requires semiannual interest payments. As of June 30, 2000, $7.5 million remained outstanding on the note. In connection with the LGAB acquisition, the Company assumed debt owed by LGAB under its bank facility (the "LGAB Facility"), which was refinanced during 1999 and totaled $16 million as of June 30, 2000. The LGAB Facility, which is denominated in Swedish krona, bears interest at three-month STIBOR (the interest rate at or about 11:00 a.m. Stockholm time, two banking days before a draw-down date or the relevant interest period, quoted for deposits in krona) plus 0.75% to 1.75% (4.365% to 5.365% at June 30, 2000), matures in December 2003, and is secured by the common stock of LGAB. In connection with the Company's 1998 recapitalization, Holding issued 300,000 shares of its 11 1/2% Senior Exchangeable PIK Preferred Stock with an aggregate liquidation preference of $30,000,000 and subject to mandatory redemption at such liquidation preference (plus accrued and unpaid dividends) in 2010. Dividends are payable semiannually in arrears on April 15 and October 15 of each year. Dividends are payable in cash, except on dividend payment dates occurring on or prior to April 15, 2003, for which Holding has the option to issue additional shares of preferred stock (including fractional shares) having an aggregate liquidation preference equal to the amount of such dividend. In connection with the Company's April 1998 recapitalization, the Company issued to Holding 300,000 shares of its 11-1/2% Senior PIK Preferred Stock due 2010 (the "Mirror Preferred Stock") with an aggregate liquidation preference of $30.0 million. Dividends are payable semi-annually in arrears on April 15 and October 15 each year. Dividends are payable in cash, except on dividend payment dates occurring on or prior to April 15, 2003, for which the Company has the option to issue additional shares of preferred stock (including fractional shares) having an aggregate liquidation preference equal to the amount of such dividends. The preferred stock ranks junior in right of payment to all obligations of the Company and its subsidiaries. 20 Holding is a holding company and will rely on dividends from Hudson RCI as its primary source of liquidity. Holding does not have and in the future will not have any assets other than the capital stock of Hudson RCI. The ability of Hudson RCI to pay cash dividends to Holding when required is restricted by law and restricted or prohibited under the terms of Hudson RCI's debt instruments, including the Credit Facility. No assurance can be made that Hudson RCI will be able to pay cash dividends to Holding when required on the Mirror Preferred Stock. The Company believes that after giving effect to the 1999 acquisitions and the incurrence of indebtedness related thereto, based on current levels of operations and anticipated growth, its cash from operations, together with other available sources of liquidity, including borrowings available under the Revolving Loan Facility, will be sufficient over the next twelve months to fund anticipated capital expenditures and acquisitions and to make required payments of principal and interest on its debt, including payments due on the Subordinated Notes and obligations under the Credit Facility. The Company intends to selectively pursue strategic acquisitions, both domestically and internationally, to expand its product line, improve its market share positions and increase cash flows. Financing for such acquisitions is available, subject to limitations, under the Credit Facility. Any significant acquisition activity by the Company in excess of such amounts would require additional capital, which could be provided through capital contributions or debt financing. The Company has no commitments for such acquisition financing and to the extent financing is unavailable, acquisitions may be delayed or not completed. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, which is effective for fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments. The statement requires that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value, and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Management has not yet determined the impact that adoption of this standard will have on the Company. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS There have been no material changes in the Company's market risk exposure from that reported in the Company's 10-K for the fiscal year ended December 31, 1999. 21 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K None. 22 SIGNATURE Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
RIVER HOLDING CORP., a Delaware corporation August 14, 2000 By: /s/ Jay R. Ogram ---------------- Jay R. Ogram Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)
23 EX-27.1 2 0002.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RIVER HOLDING CORP. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS 6-MOS DEC-31-2000 DEC-31-2000 APR-01-2000 JAN-01-2000 JUN-30-2000 JUN-30-2000 0 2,771 0 0 0 35,909 0 (1,071) 0 30,892 0 72,125 0 56,338 0 (17,166) 0 352,285 0 (32,751) 0 (115,000) 0 (37,539) 0 0 0 (91,748) 0 91 0 (352,285) (31,811) (72,618) (31,811) (72,618) 14,825 37,328 14,077 26,063 546 604 0 0 4,584 9,862 2,221 1,239 (735) (253) 1,486 986 0 0 0 0 0 0 1,486 986 0 0 0 0
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