-----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, NnibXt5v+iRuGdAk3sj2R08ocj39BoRs0yVrxScxF9EyfMDoXns+fuRdJOSulRUB 4lDQCximk4nWzkkLUnAPsA== /in/edgar/work/0000898430-00-003523/0000898430-00-003523.txt : 20001116 0000898430-00-003523.hdr.sgml : 20001116 ACCESSION NUMBER: 0000898430-00-003523 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 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: 769398 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 September 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 [X] No [_] The number of shares of Common Stock, $.01 par value, outstanding (the only class of common stock of the Company outstanding) was 8,887,148 on November 14, 2000. ================================================================================ RIVER HOLDING CORP. AND SUBSIDIARIES QUARTER ENDED SEPTEMBER 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 September 30, 2000 (unaudited)............................................................. 1 Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended September 24, 1999 and September 30, 2000, and the Nine Months Ended September 24, 1999 and September 30, 2000............................ 3 Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 24, 1999 and September 30, 2000................................ 4 Notes to Unaudited Condensed Consolidated Financial Statements............................. 6 Condensed Consolidated Financial Statements of Hudson Respiratory Care Inc.: Condensed Consolidated Balance Sheets as of December 31, 1999 and September 30, 2000 (unaudited)............................................................. 7 Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended September 24, 1999 and September 30, 2000, and the Nine Months Ended September 24, 1999 and September 30, 2000................................ 9 Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 24, 1999 and September 30, 2000................................ 10 Notes to Unaudited Condensed Consolidated Financial Statements............................. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 21 Item 3. Quantitative and Qualitative Disclosures About Market Risks..................................... 27 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................................................... 28 Item 2. Changes in Securities........................................................................... 28 Item 3. Defaults Upon Senior Securities................................................................. 28 Item 4. Submission of Matters to a Vote of Security Holders............................................. 28 Item 5. Other Information............................................................................... 28 Item 6. Exhibits and Reports on Form 8-K................................................................ 28 SIGNATURE.......................................................................................................... 29
i RIVER HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (Amounts in thousands)
December 31, September 30, 1999 2000 ------------ ------------- (unaudited) CURRENT ASSETS: Cash.............................................................. $ 2,917 $ 1,804 Accounts receivable, less allowance for doubtful accounts of $973 and $1,281 at December 31, 1999 and September 30, 2000, respectively..................................................... 30,425 37,221 Inventories....................................................... 24,043 35,139 Other current assets.............................................. 4,945 2,416 ------------ ------------- Total current assets............................................ 62,330 76,580 PROPERTY, PLANT AND EQUIPMENT, NET................................. 54,341 56,412 OTHER ASSETS: Deferred tax asset, net........................................... 11,342 7,492 Deferred financing costs, net..................................... 11,134 9,729 Other assets...................................................... 222 77 Goodwill, net..................................................... 205,592 201,399 ------------ ------------- Total other assets.............................................. 228,290 218,697 ------------ ------------- Total assets................................................... $ 344,961 $ 351,689 ============ =============
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, September 30, 1999 2000 ------------ ------------- (unaudited) CURRENT LIABILITIES: Notes payable to banks............................................ $ 6,673 $ 8,030 Accounts payable.................................................. 6,268 12,379 Accrued liabilities............................................... 11,700 16,666 Other current liabilities......................................... 1,485 1,385 ---------- ---------- Total current liabilities....................................... 26,126 38,460 NOTE PAYABLE TO STOCKHOLDER, net of current portion................ 7,508 8,009 NOTES PAYABLE TO BANKS, net of current portion..................... 82,513 78,825 SENIOR SUBORDINATED NOTES PAYABLE.................................. 115,000 115,000 ---------- ---------- Total liabilities................................................. 231,147 240,294 ---------- ---------- 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 September 30, 2000, respectively; liquidation preference: $35,558 and $37,603, respectively...................................................... 34,558 36,603 Accrued preferred stock dividend, payable in kind................. 863 2,041 ---------- ---------- 35,421 38,644 ---------- ---------- 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) (2,390) Accumulated deficit............................................... (12,957) (16,607) ---------- ---------- Total stockholders' equity...................................... 78,393 72,751 ---------- ---------- Total liabilities, mandatorily-redeemable preferred stock and stockholders' equity.......................................... $ 344,961 $ 351,689 ========== ==========
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 Nine Months Ended ---------------------------------- --------------------------------- September 24, September 30, September 24, September 30, 1999 2000 1999 2000 ------------- ------------- ------------- ------------- NET SALES.............................................. $ 30,827 $ 41,111 $ 85,270 $ 113,729 COST OF SALES.......................................... 19,207 19,587 51,978 56,915 ------------- ------------- ------------- ------------- Gross profit........................................ 11,620 21,524 33,292 56,814 ------------- ------------- ------------- ------------- OPERATING EXPENSES: Selling, distribution and general and administrative.. 8,808 12,310 22,214 34,584 Amortization of goodwill.............................. 1,270 2,036 3,810 4,576 Research and development.............................. 650 533 1,293 1,782 ------------- ------------- ------------- ------------- 10,728 14,879 27,317 40,942 ------------- ------------- ------------- ------------- Income from operations.............................. 892 6,645 5,975 15,872 INTEREST AND OTHER EXPENSE............................. (4,342) (5,812) (12,141) (16,278) ------------- ------------- ------------- ------------- Income (Loss) before provision (benefit) for income taxes............................................... (3,450) 833 (6,166) (406) PROVISION (BENEFIT) FOR INCOME TAXES................... (796) 271 (1,918) 18 ------------- ------------- ------------- ------------- Net Income (Loss)................................... (2,654) 562 (4,248) (424) OTHER COMPREHENSIVE INCOME (LOSS): Foreign currency translation loss..................... (220) (2,299) (364) (1,992) ------------- ------------- ------------- ------------- Comprehensive loss.................................. $ (2,874) $ (1,737) $ (4,612) $ (2,416) ============= ============= ============= =============
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)
Nine Months Ended ---------------------------------------- September 24, September 30, 1999 2000 ------------------ ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss........................................................................... $ (4,248) $ (424) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization................................................... 12,346 14,905 Decrease (increase) in accounts receivable...................................... 1,964 (6,796) Increase in inventories......................................................... (3,936) (11,096) Increase (decrease) in other current assets..................................... (213) 2,529 Increase (decrease) in other assets............................................. (508) 145 Deferred tax benefit............................................................ (1,452) (1,819) (Decrease) increase in accounts payable......................................... (3,918) 6,111 Decrease in other current liabilities........................................... (1,189) (99) Increase in other non-current liabilities....................................... 250 -- Increase in accrued liabilities................................................. 5,664 4,962 ------------------ ------------------ Net cash provided by operating activities..................................... 4,760 8,418 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment......................................... (6,876) (8,356) Acquisition of Louis Gibeck AB stock, net of cash acquired of $8,208............... (38,750) -- Increase in intangible assets...................................................... -- 2,648 ------------------ ------------------ Net cash used in investing activities............................................ $ (45,626) $ (5,708) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of notes payable to banks................................................ (9,000) 5,069 Proceeds from (repayments of) bank borrowings...................................... 14,171 (7,400) Borrowings on notes from affiliates................................................ 22,000 500 Sale of common stock, net of transaction costs..................................... 22,000 -- ------------------ ------------------ Net cash provided by financing activities........................................ 49,171 (1,831) Effect of exchange rate changes on cash............................................. (364) (1,992) ------------------ ------------------ NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS........................................................................ 7,941 (1,113) CASH AND SHORT-TERM INVESTMENTS, beginning of period................................ 507 2,917 ------------------ ------------------ CASH AND SHORT-TERM INVESTMENTS, end of period...................................... $ 8,448 $ 1,804 ================== ==================
4
Nine Months Ended ---------------------------------------- September 24, September 30, 1999 2000 ----------------- ---------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest................................................. $ 7,971 $ 8,275 ================= ================ DETAILS OF ACQUISITIONS: Acquisition price.......................................... $ 53,581 $ -- Less: cash acquired....................................... (8,208) -- Less: common stock issued for acquisition................. (6,623) -- ----------------- --------------- Net cash paid for acquisitions............................. $ 38,750 $ -- ================= =============== NON-CASH FINANCING ACTIVITIES: Preferred dividends accrued or paid-in-kind............... $ 2,868 $ 3,223 ================= ================ Common stock issued for acquisition....................... $ 6,623 $ -- ================= ================
The accompanying notes are an integral part of these unaudited condensed consolidated statements. 5 RIVER HOLDING CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 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 September 30, 2000 and the results of operations and cash flows for the three and nine month periods ended September 24, 1999 and September 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 audited 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 nine month periods ended September 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 acquisitions, the most significant of which was Louis Gibeck AB ("LGAB"). 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):
Nine Months Ended September 24, 1999 ------------------ (unaudited) Net sales................................................................................ $ 40,261 =========== Net loss................................................................................. $ (3,290) ===========
3. Inventories. Inventories consisted of the following (amounts in ----------- thousands): December 31, September 30, 1999 2000 --------------- ---------------- (unaudited) ---------------- Raw materials................................................................ $ 5,901 $ Work-in-process.............................................................. 5,682 Finished goods............................................................... 12,460 --------- ---------- $ 24,043 $ 35,139 ========= ==========
4. Bank Notes Payable. During the third quarter 2000, certain covenant ------------------ provisions of the existing bank loan agreement were amended. 6 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (Amounts in thousands)
December 31, September 30, 1999 2000 ------------- -------------- (unaudited) CURRENT ASSETS: Cash..................................................... $ 2,917 $ 1,804 Accounts receivable, less allowance for doubtful accounts of $973 and $1,281 at December 31, 1999 and September 30, 2000, respectively........................ 30,425 37,221 Inventories.............................................. 24,043 35,139 Other current assets..................................... 4,612 2,083 ---------- --------- Total current assets..................................... 61,997 76,247 PROPERTY, PLANT AND EQUIPMENT, net........................... 42,476 46,241 OTHER ASSETS: Intangible assets, net................................... 66,970 60,918 Deferred financing costs, net............................ 11,134 9,729 Deferred tax asset, net.................................. 68,943 68,560 Other assets............................................. 299 154 ---------- --------- Total other assets.................................... 147,346 139,361 ---------- --------- Total assets....................................... $ 251,819 $ 261,849 ========== =========
The accompanying notes are an integral part of these condensed consolidated balance sheets. 7 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, September 30, 1999 2000 ------------ ------------- (unaudited) CURRENT LIABILITIES: Notes payable to banks.................................... $ 6,673 $ 8,030 Accounts payable.......................................... 6,168 12,279 Accrued liabilities....................................... 11,700 16,665 Other current liabilities................................. 1,485 1,385 --------- --------- Total current liabilities............................... 26,026 38,359 NOTE PAYABLE TO AFFILIATE.................................. 7,508 8,009 NOTES PAYABLE TO BANKS, net of current portion............. 82,513 78,825 SENIOR SUBORDINATED NOTES PAYABLE.......................... 115,000 115,000 --------- --------- Total liabilities....................................... 231,047 240,193 --------- --------- 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 September 30, 2000, respectively; liquidation preference: $35,558 and $37,603, respectively................................. 34,558 36,603 Accrued preferred stock dividend, payable in kind......... 863 2,041 --------- --------- 35,421 38,644 --------- --------- 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) (2,854) Accumulated deficit...................................... (105,945) (106,292) --------- --------- Total stockholders' equity (deficit).................... (14,649) (16,988) --------- --------- Total liabilities, mandatorily-redeemable preferred stock and stockholders' equity (deficit)............... $ 251,819 $ 261,849 ========= =========
The accompanying notes are an integral part of these condensed consolidated balance sheets. 8 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands)
Three Months Nine Months Ended Ended ---------------------------- ----------------------------- September 24, September 30, September 24, September 30, 1999 2000 1999 2000 ------------ ------------- -------------- ------------- NET SALES................................................. $30,827 $41,111 $ 85,270 $113,729 COST OF SALES............................................. 18,642 19,587 50,283 56,915 ------- ------- -------- -------- Gross profit........................................... 12,185 21,524 34,987 56,814 ------- ------- -------- -------- OPERATING EXPENSES: Selling, distribution, general and administrative........ 8,207 11,745 21,490 31,270 Amortization of goodwill................................. 601 767 724 2,387 Research and development................................. 651 533 1,295 1,782 ------- ------- -------- -------- 9,459 13,045 23,509 35,439 ------- ------- -------- -------- Income from operations................................. 2,726 8,479 11,478 21,375 INTEREST AND OTHER EXPENSE................................ (4,342) (5,812) (12,140) (16,279) ------- ------- -------- -------- Net income (loss) before (benefit) provision for income taxes.......................................... (1,616) 2,667 (662) 5,096 PROVISION (BENEFIT) FOR INCOME TAXES...................... (62) 1,005 284 2,220 ------- ------- -------- -------- Net income (loss)...................................... (1,554) 1,662 (946) 2,876 OTHER COMPREHENSIVE INCOME (LOSS): Foreign currency translation loss........................ (220) (2,299) (364) (1,992) ------- ------- -------- -------- Comprehensive income (loss)............................ $(1,774) $ (637) $ (1,310) $ 884 ======= ======= ======== ========
The accompanying notes are an integral part of these unaudited condensed consolidated statements. 9 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amount in thousands)
Nine Months Ended ---------------------------- September 24, September 30, 1999 2000 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income.................................................................. $ (946) $ 2,876 Adjustments to reconcile net (loss) income to net cash provided by operating activities-- Depreciation and amortization................................................... 5,817 8,780 Amortization of deferred financing costs........................................ 1,024 620 Deferred taxes.................................................................. 720 383 Change in operating assets and liabilities: Decrease (increase) in accounts receivable...................................... 1,964 (6,796) Increase in inventories......................................................... (3,936) (11,096) Decrease (increase) in other current assets..................................... (213) 2,529 (Increase) decrease in other assets............................................. (508) 145 Increase in accounts payable.................................................... 3,918 6,111 Increase in accrued liabilities................................................. 5,695 4,965 Decrease in other current liabilities........................................... (1,189) (99) Increase in other non-current liabilities....................................... 250 0 -------- -------- Net cash provided by operating activities..................................... 4,760 8,418 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment......................................... (6,876) (8,356) Acquisition of Louis Gibeck AB Stock, net of cash acquired of $8,208............... (38,750) -- Increase in intangible assets...................................................... 2,648 -------- -------- Net cash used in investing activities.............................................. (45,626) (5,708) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of notes payable to banks............................................... (9,000) (7,400) Proceeds from bank borrowings...................................................... 14,171 5,569 Proceeds from note payable to affiliate............................................ 22,000 -- Sale of common and preferred stock, net of transaction costs....................... 22,000 -- -------- -------- Net cash provided by (used in) financing activities............................. 49,171 (1,831) -------- -------- Effect of exchange rate changes on cash............................................. (364) (1,992) -------- -------- NET INCREASE (DECREASE) IN CASH..................................................... 7,941 (1,113) CASH beginning of period............................................................ 507 2,917 -------- -------- CASH end of period.................................................................. $ 8,448 $ 1,804 ======== ========
10
Nine Months Ended ---------------------------- September 24, September 30, 1999 2000 ------------- ------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest..................................................... $ 7,971 $8,275 ======= ======= DETAILS OF ACQUISITIONS: Acquisition price............................................... $53,581 $ -- Less: cash acquired............................................ (8,208) -- Less: common stock issued for acquisition....................... (6,623) -- ------- ------- Net cash paid for acquisition................................... $38,750 $ -- ======= ======= NON-CASH FINANCING ACTIVITIES: Preferred dividends accrued or paid-in-kind..................... $ 2,868 $3,223 ======= ======= Common stock issued for acquisition............................. $ 6,623 $ -- ======= =======
The accompanying notes are an integral part of these unaudited condensed consolidated statements. 11 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 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 September 30, 2000, and the results of operations and cash flows for the three and nine month periods ended September 24, 1999 and September 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 nine month periods ended September 24, 1999 and September 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"). Had the acquisition of LGAB occurred at the beginning of the prior fiscal year, the unaudited pro forma net sales and net loss would be as follows (amounts in thousands):
Nine Months Ended September 24, 1999 ------------------ (unaudited) Net sales............................... $94,704 ======= Net loss................................ $(1,582) =======
3. Inventories. Inventories consisted of the following (amounts in ----------- thousands):
December 31, September 30, 1999 2000 ------------- ------------- (unaudited) Raw materials............................. $ 5,901 $ Work-in-process........................... 5,682 Finished goods............................ 12,460 ------- ---------- $24,043 $35,139 ======= ==========
4. Bank Notes Payable. During the third quarter 2000, certain covenant ------------------ 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): 12 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES GUARANTOR AND NON-GUARANTOR SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2000 --------------------------------------------------- Guarantor Non-Guarantor Adjustments Total --------- ------------- ----------- ----- CURRENT ASSETS: Cash......................................... $ 51 $ 1,753 $ -- $ 1,804 Accounts receivable, net..................... 33,352 5,480 (1,611) 37,221 Inventories.................................. 32,292 3,973 (1,126) 35,139 Other current assets......................... 3,990 20,461 (22,368) 2,083 -------- ------- -------- -------- Total current assets....................... 69,685 31,667 (25,105) 76,247 PROPERTY, PLANT AND EQUIPMENT, NET 45,250 991 -- 46,241 OTHER ASSETS: Intangible assets, net....................... 21,517 39,401 -- 60,918 Deferred financing costs, net................ 9,729 -- -- 9,729 Deferred tax asset, net...................... 67,925 635 -- 68,560 Investment in non-guarantor subsidiaries..... 29,245 -- (29,245) -- Other........................................ 728 151 (725) 154 -------- ------- -------- -------- Total other assets......................... 129,144 40,187 (29,970) 139,361 -------- ------- -------- -------- Total assets.............................. $244,079 $72,845 $(55,075) $261,849 ======== ======= ======== ========
13 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES GUARANTOR AND NON-GUARANTOR SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2000 ---------------------------------------------------- Guarantor Non-Guarantor Adjustments Total ---------- ------------- ----------- ----- CURRENT LIABILITIES: Notes payable to banks......................... $ 7,000 $ 1,030 $ - $ 8,030 Accounts payable............................... 14,727 3,926 (6,374) 12,279 Accrued liabilities............................ 12,034 4,631 - 16,665 Other current liabilities...................... 1,440 17,827 (17,882) 1,385 -------- -------- --------- -------- Total current liabilities.................... 35,201 27,414 (24,256) 38,359 OTHER LIABILITIES: Note payable to affiliate...................... - 8,009 - 8,009 Notes payable to banks, net of current portion. 66,000 12,825 - 78,825 Senior subordinated notes...................... 115,000 - - 115,000 -------- -------- --------- -------- Total liabilities............................ 216,201 48,248 (24,256) 240,193 -------- -------- --------- -------- Mandatorily-redeemable preferred stock.......... 38,644 - - 38,644 -------- -------- --------- -------- STOCKHOLDERS' EQUITY (DEFICIT).................. (10,765) 24,597 (30,820) (16,988) -------- -------- --------- -------- 244,080 72,845 (55,076) 261,849 ======== ======== ========= ========
14 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES GUARANTOR AND NON-GUARANTOR SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2000 ---------------------------------------------- Non- Guarantor Guarantor Adjustments Total -------- -------- ----------- ----- NET SALES................................................... $37,533 $ 7,584 $ (4,006) $ 41,111 COST OF SALES............................................... 21,203 2,390 (4,006) 19,587 ------- ------- -------- -------- Gross profit............................................... 16,330 5,194 - 21,524 OPERATING EXPENSES: Selling, distribution, general and administrative.......... 9,867 1,878 - 11,745 Goodwill amortization...................................... 279 488 - 767 Research and development................................... 217 316 - 533 ------- ------- ------- -------- Income from operations..................................... 5,967 2,512 - 8,479 ------- ------- ------- -------- INTEREST AND OTHER EXPENSE.................................. (4,804) (1,008) - (5,812) ------- ------- ------- -------- Income before provision for income taxes................... 1,163 1,504 - 2,667 PROVISION (BENEFIT) FOR INCOME TAXES....................... 453 552 - 1,005 ------- ------- ------- -------- Net income ................................................ $ 710 $ 952 $ - $ 1,662 ======= ======= ======= ======== Depreciation and amortization............................... $ 2,752 $ 718 $ - $ 3,470 ======= ======= ======= ======== Adjusted EBITDA (a)......................................... $ 8,998 $ 3,718 $ - $ 12,716 ======= ======= ======= ========
- ----------------------- (a) 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. 15 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES GUARANTOR AND NON-GUARANTOR SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2000 -------------------------------------------------- Non- Guarantor Guarantor Adjustments Total ---------- --------- ----------- -------- NET SALES................................................. $101,551 $21,256 $(9,078) $113,729 COST OF SALES............................................. 57,166 8,627 (8,878) 56,915 -------- ------- ------- -------- Gross profit............................................. 44,385 12,629 (200) 56,814 OPERATING EXPENSES: Selling, distribution, general and administrative........ 25,949 5,321 -- 31,270 Goodwill amortization.................................... 877 1,510 -- 2,387 Research and development................................. 789 993 -- 1,782 -------- ------- ------- -------- Income from operations................................... 16,770 4,805 (200) 21,374 -------- ------- ------- -------- INTEREST AND OTHER EXPENSE................................ (13,954) (2,325) -- (16,279) -------- ------- ------- -------- Income before provision for income taxes................. 2,816 2,480 (200) 5,096 PROVISION FOR INCOME TAXES............................... 1,152 1,068 -- 2,220 -------- ------- ------- -------- Net income............................................... $ 1,664 $ 1,412 $ (200) $ 2,876 ======== ======= ======= ======== Depreciation and amortization............................. $ 6,852 $ 1,928 $ -- $ 8,780 ======== ======= ======= ======== Adjusted EBITDA(b)........................................ $ 24,429 $ 8,243 $ (200) $ 32,542 ======== ======= ======= ========
_____________________ (a) 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. 16 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES GUARANTOR AND NON-GUARANTOR SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2000 ------------------------------------------- Non- Guarantor Guarantor Total ------------ ------------ ----------- Net cash provided by operating activities..................... $ 1,413 $ 7,005 $ 8,418 Net cash used in investing activities......................... (2,843) (2,865) (5,708) Net cash provided by (used in) financing activities........... 1,400 (3,231) (1,831) Effect of exchange rate changes on cash....................... (117) (1,875) (1,992) ------------ ------------- ----------- NET DECREASE IN CASH.......................................... (147) (966) (1,113) CASH, beginning of period..................................... 184 2,733 2,917 ------------ ------------- ----------- CASH, end of period........................................... $ 37 $ 1,767 $ 1,804 ============ ============== ===========
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. 17 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES --------------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- September 24, 1999 ------------------ (unaudited) HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES GUARANTOR AND NON-GUARANTOR SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS As of December 31, 1999 -------------------------------------------------- Non- Guarantor Guarantor Adjustments Total CURRENT ASSETS: Cash............................................. $ 104 $ 2,733 - $ 2,917 Accounts receivable.............................. 28,329 2,096 - 30,425 Inventories...................................... 21,124 4,065 (1,146) 24,043 Other current assets............................. 4,578 16,673 (16,639) 4,612 -------- -------- -------- --------- Total current assets........................... 54,215 25,567 (17,785) 61,997 PROPERTY, PLANT AND EQUIPMENT, net................ 41,336 1,141 - 42,476 OTHER ASSETS: Intangible assets, net........................... 22,770 44,220 - 66,970 Deferred financing costs, net.................... 10,749 105 - 11,134 Deferred tax asset............................... 68,600 223 120 60,943 Investment in non-guarantor subsidiaries......... 29,245 - (20,245) - Other assets..................................... 833 162 (600) 299 -------- -------- -------- --------- Total other assets............................. 132,197 44,970 (29,821) 147,346 -------- -------- -------- --------- $227,747 $ 71,678 $(47,600) (251,819) ======== ======== ======== ========= LIABILITIES, MANDATORILY-REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY DEFICIT CURRENT LIABILITIES: Notes payable to bank............................ $ 5,500 $ 1,173 $ - $ 6,673 Accounts payable................................. 6,625 1,550 (2,016) 6,168 Accrued liabilities.............................. 8,344 3,356 - 11,700 Other current liabilities........................ 450 10,876 (9,849) 1,485 -------- -------- -------- --------- Total current liabilities...................... 20,927 16,964 (11,065) 26,026 NOTE PAYABLE TO AFFILIATE.......................... - 13,906 (6,398) 7,508 NOTES PAYABLE TO BANK, net of current portion...... 66,100 16,413 - 82,513 SENIOR SUBORDINATED NOTES.......................... 115,000 - - 115,000 -------- -------- -------- --------- Total liabilities.............................. 202,027 47,283 (19,263) 231,047 -------- -------- -------- --------- Mandatorily-redeemable preferred stock............. 35,421 - - 35,421 STOCKHOLDERS' EQUITY (DEFICIT)..................... (9,701) 24,395 (29,343) (14,649) -------- -------- -------- --------- $227,747 $ 71,678 $(47,600) $ 251,819 ======== ======== ======== =========
18 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES --------------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- September 24, 1999 ------------------ (unaudited)
Three Months Ended September 24, 1999 -------------------------------------------------------- Non- Guarantor Guarantor Adjustments(a) Total --------- --------- -------------- ------- NET SALES............................................................ $28,145 $ 3,469 $(787) $30,827 COST OF SALES........................................................ 16,448 2,355 (161) 18,642 ------- -------- ----- ------- Gross Profit...................................................... 11,697 1,114 (626) 12,185 OPERATING EXPENSES: Selling, distribution, general and administrative................. 6,758 2,050 -- 8,808 Research and development.......................................... 326 325 -- 651 ------- -------- ----- ------- 7,084 2,375 -- 9,459 ------- -------- ----- ------- Income (loss) from operations.................................. 4,613 (1,261) (626) 2,726 ------- -------- ----- ------- OTHER INCOME AND (EXPENSES): Interest expense.................................................. (3,884) (466) -- (4,350) Other, net........................................................ 8 -- -- 8 ------- -------- ----- ------- (3,876) (466) -- (4,342) ------- -------- ----- ------- Income (loss) before provision (benefit) for income taxes......... 737 (1,727) (626) (1,616) PROVISION (BENEFIT) FOR INCOME TAXES................................. 188 (250) -- (62) ------- -------- ----- ------- NET INCOME (LOSS).................................................... $ 549 $(1,577) $(626) $(1,554) ======= ======= ===== ======= Nine Months Ended September 24, 1999 --------------------------------------------------------- Non- Guarantor Guarantor Adjustments(a) Total --------- --------- -------------- ------- .................................................................. NET SALES............................................................ $ 82,588 $ 3,469 $(787) $85,270 COST OF SALES........................................................ 48,089 2,355 (161) 50,283 -------- -------- ----- ------- Gross Profit...................................................... 34,499 1,114 (626) 34,987 OPERATING EXPENSES: Selling, distribution, general and administrative................. 20,164 2,050 -- 22,214 Research and development.......................................... 970 325 -- 1,295 -------- -------- ----- ------- 21,134 2,375 -- 23,509 -------- -------- ----- ------- Income (loss) from operations.................................. 13,365 1,261 (626) 11,478 -------- -------- ----- ------- OTHER INCOME AND (EXPENSES): Interest expense.................................................. (11,727) (303) -- (12,110) Other, net........................................................ 53 (83) -- (30) -------- -------- ----- ------- (11,674) (466) -- (12,140) -------- -------- ----- ------- Income (loss) before provision (benefit) for income taxes......... 1,691 (1,727) (626) (662) PROVISION (BENEFIT) FOR INCOME TAXES................................. 534 (250) -- 284 -------- -------- ----- ------- NET INCOME (LOSS).................................................... $ 1,157 $(1,477) $(626) $ (946) ======== ======= ===== =======
19 HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES --------------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- September 24, 1999 ------------------ (unaudited) HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES GUARANTOR AND NON-GUARANTOR SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 24, 1999 ------------------------------------------------- Non- Guarantor Guarantor Total --------- --------- -------- Net cash provided by (used in) operating activities......................... $ 8,733 $ (3,973) $ 4,760 Net cash used in investing activities....................................... (28,876) (16,750) (45,626) Net cash provided by financing activities................................... 20,000 29,171 49,171 Effect of exchange rate changes on cash..................................... (364) -- (364) -------- -------- --------- NET (DECREASE) INCREASE IN CASH AND SHORT-TERM INVESTMENTS................................................................ (507) 8,448 7,941 CASH AND SHORT-TERM INVESTMENTS, beginning of period........................................................ 507 -- 507 -------- -------- -------- CASH AND SHORT-TERM INVESTMENTS, end of period.............................................................. $ -- $ 8,448 $ 8,448 -------- -------- --------
20 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. 21 Recent Developments On October 28, 2000, the Company acquired certain assets of Tyco Healthcare LP ("Tyco"), including Tyco's Sheridan line of endotreacheal tubes for a cash purchase price of approximately $18.0 million. The Tyco acquisition was funded with $12.0 million of borrowings under the Company's $60.0 million revolving line of credit and $6.0 million additional equity provided by existing shareholders. 22 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 nine 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. 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 Nine Month Period Ended (unaudited) (unaudited) --------------------------- ---------------------------- September 24, September 30, September 24, September 30, 1999 2000 1999 2000 ------------- ------------- ------------- ------------- (in thousands) (in thousands) Net sales............................................... $ 30,827 $ 41,111 $ 85,270 $ 113,729 Cost of sales........................................... 18,642 19,587 50,283 56,915 ------------- ------------- ------------- ------------- Gross profit................................... 12,185 21,524 34,987 56,814 Selling expenses........................................ 3,296 4,098 8,408 11,813 Distribution expenses................................... 1,488 3,102 3,448 6,565 General and administrative expenses..................... 3,423 4,545 9,634 12,892 Amortization of goodwill................................ 601 767 724 2,387 Research and development expenses....................... 651 533 1,295 1,782 ------------- ------------- ------------- ------------- Total operating expenses....................... 9,459 13,045 23,509 35,439 ------------- ------------- ------------- ------------- Operating income............................... $ 2,726 $ 8,479 $ 11,478 $ 21,375 ============= ============= ============= ============= Three Month Period Ended Nine Month Period Ended (unaudited) (unaudited) --------------------------- ---------------------------- September 24, September 30 , September 24,September 30, 1999 2000 1999 2000 ------------- ------------- ------------- ------------- Net sales............................................... 100.0 % 100.0 % 100.0 % 100.0% Cost of sales........................................... 60.5 47.6 59.0 50.0 ------------- ------------- ------------- ------------- Gross profit................................... 39.5 52.4 41.0 50.0 Selling expenses........................................ 10.7 10.0 9.9 10.4 Distribution expenses................................... 4.8 7.5 4.0 5.8 General and administrative expenses..................... 11.1 11.1 11.3 11.3 Amortization of goodwill................................ 1.9 1.8 0.8 2.1 Research and development expenses....................... 2.2 1.3 1.5 1.6 ------------- ------------- ------------- ------------- Total operating expenses....................... 30.6 31.1 27.5 31.2 ------------- ------------- ------------- ------------- Operating income............................... 8.9 % 21.3 % 13.5 % 18.8% ============= ============= ============= =============
Three Months Ended September 30, 2000 Compared to Three Months Ended September 24, 1999 Net sales, reported net of accrued rebates, were $41.1 million in the third quarter of 2000 as compared to $30.8 million in the third quarter of 1999, an increase of $10.3 million or 33.4%. Sales by the acquired Hudson RCI AB increased approximately $0.6 million, $3.5 million related to the acquired Tyco IBE product line and $0.4 million related to the acquired Medimex product line. For the base Hudson product line, Domestic Hospital sales increased by $2.0 million, primarily due to increased demand by GPO customers. Alternate Site sales increased by $0.7 million, as market share continues to grow in this market. Canadian sales increased by $0.3 million. International sales increased 23 by $1.8 million, due to growth in the Germany and the Far East. OEM sales increased by $1.0 million, due to sales of the Tyco IBE product. The Company's gross profit for the third quarter of 2000 was $21.5 million, an increase of $9.3 million or 76.7% over the third quarter of 1999. As a percentage of sales, the gross profit was 52.3% and 39.5% for the third 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 and the amortization of the write-up of inventory at the acquired Hudson RCI AB. Selling expenses were $4.1 million for the third quarter of 2000, a $0.8 million increase over the third quarter of 1999. This increase was due primarily to the start-up of a U.K.-based sales office. Distribution expenses were $3.1 million for the third quarter of 2000, a $1.6 million increase over the third quarter of 1999. This increase was primarily driven by the establishment of an Atlanta distribution facility late in the third quarter of 1999, the addition of a third shift and overtime at all warehouses required to meet customer demand. General and administrative expenses were $4.5 million in the third quarter of 2000, an increase of $1.1 million or 32.8% over the third quarter of 1999. This increase was primarily the result of additional expenses associated with the acquired Hudson RCI AB business, costs associated with the computer system implementation and increased staffing levels. Amortization of goodwill was $0.8 million for the third quarter of 2000, as compared to $0.6 million in the third quarter of 1999. This increase was primarily due to the Tyco IBE acquisition, completed in the fourth quarter of 2000. Research & development costs were $0.8 million in the third quarter of 2000, as compared to $4.3 million in the third quarter of 1999. This increase was primarily due to expenses of the acquired Hudson RCI AB. Interest expense and other was $5.8 million in the third quarter of 2000, as compared to $4.0 million in the third quarter of 1999. This increase reflects increased borrowings as a result of the Hudson RCI AB and Tyco acquisitions as well as increased borrowings on the working capital revolving facility at 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. Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 24, 1999 Net sales, reported net of accrued rebates, were $113.7 million in the first nine months of 2000 as compared to $85.3 million in the first nine months of 1999, an increase of $28.5 million or 33.4%. Additional sales by the acquired Hudson RCI AB were approximately $8.0 million, $9.7 million related to the acquired Tyco product line and $1.0 million related to the acquired Medimex product line. For the base Hudson product line, Domestic Hospital sales increased by $1.8 million, primarily due to increased demand from GPO customers. Alternate Site sales increased by $2.3 million as focus in this key market resulted in market share growth. International sales increased by $4.3 million, primarily due to increased sales in the German market and increased demand in Asia. OEM sales increased by $1.4 million, primarily due to sales of IBE products. 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 during the second quarter. The Company's gross profit for the first nine months of 2000 was $56.9 million, an increase of $21.8 million or 62.3% over the first nine months of 1999. As a percentage of sales, the gross profit was 50.0% and 41.0% for the third nine months 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, due to the shipping difficulties associated 24 with the computer system implementation, production levels significantly exceeded sales levels, causing a disproportionately high level of fixed overhead to be absorbed into inventory. Selling expenses were $11.8 million for the first nine months of 2000, a $3.4 million increase over the first nine months of 1999. This increase was due primarily to costs related to the acquired Hudson RCI AB and to the start-up German and U.K. operations. Additionally, sales representatives were added in the Alternate Site market to service the growing demand. Distribution expenses were $6.5 million for the nine months of 2000, a $3.1 million increase over the first nine months of 1999. This increase was primarily driven by the establishment of an Atlanta distribution facility late in the third quarter of 1999, the addition of a third shift and overtime at all warehouses required to meet customer demand. General and administrative expenses were $12.8 million in the first nine months of 2000, an increase of $3.3 million or 33.8% over the first nine months 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 $2.4 million for the first nine months of 2000, as compared to $0.7 million in the first nine months of 1999. This increase was primarily due to the Tyco and Hudson RCI AB acquisitions. Research & development costs were $1.8 million in the first nine months of 2000, as compared to $1.3 million in the first nine months of 1999. This increase was primarily due to expenses of the acquired Hudson RCI AB. Interest expense and other was $16.2 million in the first nine months of 2000, as compared to $12.1 million in the first nine months of 1999. This increase reflects increased borrowings as a result of the Hudson RCI and Tyco acquisitions as well as increased borrowings under on the working capital revolving facility at 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 $4.8 million and $8.4 million in the first nine months of 1999 and 2000, respectively. The increase from the first nine months of 1999 to the first nine months of 2000 is primarily attributable to increased income and higher working capital levels. The Company had operating working capital, excluding cash and short-term debt, of $39.7 million and $43.9 million as of December 31, 1999 and September 30, 2000, respectively. Inventories were $24.0 million and $35.1 million as of December 31, 1999 and September 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 $37.2 million at December 31, 1999 and September 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. 25 During the nine months ended September 24, 1999, net cash used in investing activities was $45.6 million, reflecting purchases of computer software and manufacturing equipment and the acquisition of Louis Gibeck, AB. During the nine months ended September 30, 2000, net cash used in investing activities was $5.7 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 nine months ended September 24, 1999 and September 30, 2000, net cash (used in) provided by financing activities was $49.1 million and $(1.8) million, respectively, reflecting the acquisition of Louis Gibeck, AB in 1999 as well as repayment and borrowing of the Company's facility in 1999 and 2000. In addition, in October, 2000 the Company borrowed $12.0 million under its revolving credit facility in connection with the acquisition of the Sheridan product line discussed in Recent Developments. The Company has outstanding $209.9 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 $8.0 million in notes payable to affiliates. In addition, LGAB has $14.4 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 Tyco/ Sherwood acquisition, the Company borrowed $2.0 million pursuant to an unsecured promissory note payable to Freeman Spogli. The note bears interest at 14%, and is payable upon demand. In connection with the Louis Gibeck, AB (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 September 30, 2000, $8.0 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 $14.4 million as of September 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 September 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 112% 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. 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 26 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. In connection with the installation and implementation of a new enterprise resource planning software system, the Company has experienced delays in shipments, resulting in a build-up of inventories and delays in collection of accounts receivable from certain customers. The Company has taken and continues to pursue, corrective measures addressing the problems experienced in both of these areas and believes that significant progress has been made in resolving them. Nevertheless, the impact of both of these issues has resulted in a tightening of liquidity resources available to the Company which has been addressed in part through a $2,000,000 temporary loan provided to the Company by Holding's majority shareholder. The Company believes that after giving effect to the acquisitions in 1999 and 2000 and the incurrence of indebtedness related thereto and steps taken in respect to the issues discussed in the preceding paragraph, 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. 27 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. 28 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 November 14, 2000 By: /s/ Jay R. Ogram ---------------- Jay R. Ogram Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 29 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. 1,000 3-MOS 9-MOS DEC-31-2000 DEC-31-2000 JUL-01-2000 JAN-01-2000 SEP-30-2000 SEP-30-2000 0 1,804 0 0 0 37,221 0 (1,281) 0 35,139 0 76,580 0 56,412 0 (19,694) 0 351,689 0 (38,460) 0 (115,000) 0 (38,644) 0 0 0 (91,748) 0 18,997 0 (72,751) (41,111) (113,279) (41,111) (113,279) 19,587 56,915 14,879 40,942 0 191 0 0 5,812 16,087 (833) 406 271 18 (562) (424) 0 0 0 0 0 0 (562) (424) 0 0 0 0
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